In her first major white-collar policy announcement since assuming office in May, U.S. Deputy Attorney General Sally Yates unveiled a new enforcement memorandum that has lawyers, judges and commentators alike debating its implications for corporate prosecutions. The Yates Memo, as it’s been termed, is the Justice Department’s full-throated endorsement for prosecuting individuals in corporate crime cases and using cooperation credit as the carrot/stick for companies to assist in identifying culpable individuals.
The Yates Memo lays out “six key steps” that prosecutors must follow in initiating and carrying out corporate misconduct matters:
1. Provide all facts about individuals. The memo says that any cooperation credit consideration hinges on the provision of “all relevant facts about the individuals involved in corporate misconduct.”
2. Focus on individuals from the start. The memo requires civil and criminal prosecutors to focus on individuals “from the very beginning” in order to truly identify full corporate misconduct, increase the likelihood of cultivating cooperators, and enhance the chances of civil and/or criminal charges against individuals (not just the company).
3. Open communication lines between civil and criminal prosecutors. Noting the DOJ preference for parallel investigations, the memo asks civil and criminal prosecutors to communicate early in order to fully consider the range of potential remedies.
4. Exclude individuals from corporate resolutions. Absent “extraordinary circumstances” or other DOJ-approved policy, corporate resolutions that occur before individual resolutions may not include “an agreement to dismiss charges against, or provide immunity for, individual officers or employees.”
5. Have an investigative plan of action regarding individuals. This step implements a new internal requirement that, in those cases where a corporate resolution is ready before a resolution of individuals, the prosecutor must have an “investigative plan” to wrap up the matter as to the individuals or otherwise receive formal approval not to bring charges.
6. Evaluate a civil suit against individuals regardless of ability to pay. Equating the importance of monetary recovery with accountability and deterrence, the Yates Memo states that civil suits against culpable individuals “should not be governed solely by those individuals’ ability to pay.”
Since its unveiling in mid-September, the Yates Memo has faced criticism that it is merely a response—perhaps a slow-to-boil one—to a perceived failure to prosecute high-level executives responsible for the financial crisis. For some, this criticism finds more validity given that DOJ and other state and federal agencies have already finished the complex work of settling multibillion-dollar matters against several financial institutions for misconduct related to the financial crisis. A different body of soft criticism has emerged that the Yates Memo is not particularly ground-breaking in that individuals are routinely the target of corporate misconduct cases, and the relative paucity of individual prosecutions is actually a reflection of the quality of evidence pinning intent to any particular person (whether high or low on the food chain).
So what are companies to make of the Yates Memo if they become the subject of a criminal investigation? As Yates noted in a recent speech, “[o]nly time will tell” what happens in terms of prosecutions, pleas, and trials. But at least one thing is clear: DOJ’s process for investigating and resolving cases has certainly changed, and this in turn raises practical issues for companies that find themselves in DOJ’s crosshairs. Here are three of the biggest ones:
Who’s running the internal investigation?
In defining that a company’s cooperation credit eligibility rides on it providing all relevant facts about individual misconduct, the Yates Memo provides a clear directive to companies about what they should achieve in their internal investigations. Does this kind of directive serve to tip the balance in favor of finding that cooperating companies are functionally acting as agents for the government—transforming companies and their counsel into “junior G-men” as Georgetown Law professor Julie Rose O’Sullivan labeled them a few years ago—and thus implicating employees’ constitutional rights? If so, or at least if courts begin to adopt such arguments, longtime questions about the scope of internal investigations will take on new life: Should a company supplement its standard Upjohn warning with a Garrity-style warning—perhaps, more appropriately, a “Yates Memo Warning”—to employees that relevant facts obtained from interviews will be disclosed? And should a company by default instruct its employees subject to interviews to obtain independent legal counsel in light of such a warning?
The Yates Memo may also have the unintended consequence of complicating a company’s ability to obtain accurate (and relevant) facts for its internal investigation. Indeed, a company’s objective to hand over facts to the government could have a chilling effect on employees’ incentives to cooperate. For the low-hanging fruit employees who carry out corporate actions and are often easily tagged with responsibility, it’s unclear whether the Yates Memo will motivate prosecutors to bring charges against them (where discretion may have previously counseled otherwise), or whether they will target high-ranking employees. The Yates Memo does not explicitly discuss the scenario, but Yates’ recent comments to The New York Times provides a window into DOJ’s perspective: “We’re not going to be accepting a company’s cooperation when they just offer up the vice president in charge of going to jail.” And, if an employee does cooperate, the nature of the company’s investigation under a Yates Memo regime could also enhance the employee’s risk of obstruction of justice liability (which triggers if there is the possibility or likelihood that false or misleading information is provided to the government).
When is “enough” enough?
The Yates Memo purposefully steers clear of quantifying what a company must do in providing “all relevant facts” about individuals. This stands to reason because companies are different, and so too are the facts that make up these investigations. For their part, top DOJ officials like Yates, Assistant Attorney General Leslie Caldwell and Fraud Section Chief Andrew Weissmann have each emphasized over the course of several months that companies are not expected to “boil the ocean” in their investigations.
Despite this qualification, the Yates Memo’s “all relevant facts” rule raises the question of whether companies will be held to a potentially unattainable standard. What if a company, despite a thorough (yet tailored) investigation, fails to uncover “all relevant facts” about individuals due to factors beyond its control, such as the fade of memories or the lack of witness cooperation? In that circumstance, can a company still be eligible for cooperation credit? (After all, even DOJ indictments have relied upon the undiscovered—for instance, co-conspirators who are “unknown to the grand jury.”) The Yates Memo does not explicitly discuss the scenario, but it defines “all relevant facts” as a “threshold” issue to warrant cooperation consideration.
However, a speech that Assistant U.S. Attorney General Caldwell delivered in New York on Sept. 22nd may be DOJ’s first attempt to soften the impact of the memo’s rule. In her prepared remarks, Caldwell acknowledged that “a company cannot provide what it does not have” and that DOJ will “credit, not penalize, diligent investigations.” According to Caldwell, a company that “truly is unable to identify the culpable individuals” after an appropriate investigation, but still provides “the relevant facts” and otherwise assists the government, will remain cooperation credit-eligible. Caldwell’s commentary provides important and sensible context to the Yates Memo’s “all relevant facts” standard, but it remains to be seen whether this sentiment finds a foothold within U.S. attorneys’ offices (and other DOJ divisions) or instead exists solely within the orbit of her Criminal Division’s key litigating components—namely, the Fraud Section’s health care fraud, securities fraud and FCPA units.
A real rising tide of parallel investigations?
The Yates Memo places particular emphasis on civil enforcement as it relates to individuals. In the memo’s third and sixth steps, prosecutors are reminded to keep lines of communication open between the civil and criminal sides of the house and to go after civil charges regardless of an individual’s ability to pay a judgment. This focus on parallel investigations is not new; in January 2012, for example, then-Attorney General Eric Holder issued a memorandum (now incorporated in the U.S. Attorneys’ Manual) to ensure that “prosecutors and civil attorneys coordinate together and with agency attorneys in a manner that adequately takes into account the government’s criminal, civil, regulatory and administrative remedies.” But the Yates Memo expands on Holder’s 2012 policy by requiring communication between civil and criminal prosecutors and mandating new accountability related to declinations of criminal or civil charges against individuals. This suggests that, even if criminal charges are not brought against individuals in a company, the pursuit of related civil charges against individuals (along with which comes a lower burden of proof) will become DOJ’s default tactical position. And for the company, this means continued cooperation to secure cooperation credit.
In the short term, prosecutors will begin to apply the Yates Memo to existing corporate investigations—many of which have been years in development. Some of the unanswered questions will be addressed as investigations are brought to resolution, with or without charges against individuals. And, in the long term, the Yates Memo’s ability to drive companies to bring forward evidence of individual culpability will depend upon answers to thorny questions about a company’s responsibilities and role in an internal investigation in the face of a government prosecution, and how DOJ will use the Yates Memo to keep the pressure on companies to cooperate. As Yates told The Washington Post this past May, her organization is not “the Department of Prosecutions.” Fitting the Yates Memo into that philosophical construct will be the challenge.
Jeff Tsai is a partner in Alston & Bird’s Silicon Valley and Los Angeles offices. He was previously an assistant U.S. attorney and deputy chief in the Southern District of Florida, a senior counsel to a former Assistant U.S. Attorney General for the Justice Department’s Criminal Division and a special assistant attorney general in the Executive Office of California Attorney General Kamala D. Harris.