U.S. Deputy Attorney General Rod J. Rosenstein announced recently that the Department of Justice (DOJ) has revised the heightened requirements for corporate cooperation credit set forth under the Obama administration by then-Deputy Attorney General Sally Q. Yates. See Memorandum from Sally Q. Yates, U.S. Dept. of Justice, Individual Accountability for Corporate Wrongdoing (Sept. 9, 2015) (Yates Memo).
In his remarks on Nov. 29, 2018 at the American Conference Institute’s 35th International Conference on the Foreign Corrupt Practices Act, Rosenstein reiterated the DOJ’s focus on prosecuting individuals involved in corporate misconduct. He stated, however, that the Yates Memo’s requirement that corporations provide “all relevant facts” about “all individuals involved in or responsible for” corporate wrongdoing to be eligible for “any cooperation credit” was misguided, unworkable, and deprived DOJ attorneys of much-needed flexibility and discretion. In this article, we analyze the significance of DOJ’s new guidance as it pertains to corporate investigations and defense.
The Yates Memo
By way of background, the Yates Memo followed a series of high-profile settlements between the DOJ and financial institutions accused of predatory lending in the wake of the 2008 financial crisis. In all but one instance, these settlements did not impose criminal or civil liability on individuals, including high-ranking officers and managers.
In light of the widespread criticism that the DOJ failed to hold individuals accountable for corporate misconduct that precipitated the Great Recession, the Yates Memo set forth guidelines that required federal prosecutors to focus on individual accountability from the beginning of an investigation. It also conditioned a corporation’s eligibility for cooperation credit—ranging from immunity to lesser charges to sentencing considerations—on the company’s disclosure of “all relevant facts” for “all individuals involved” in the corporate misconduct, regardless of an individual’s culpability and scope of involvement in the corporate wrongdoing. The Yates Memo also required that prosecutors seeking to settle with a corporation obtain authorization from the DOJ before releasing any corporate employees from individual criminal and civil liability.
An official policy of holding individuals liable for corporate misdeeds was nothing new. But the Yates Memo’s “all or nothing” approach towards cooperation constituted a considerable shift in emphasis and tactics. The policy did not leave much room for prosecutorial discretion and operated as a binary, on-off mechanism that precluded partial credit for cooperation and made the complete disclosure of all facts pertaining to every “culpable” individual a “threshold requirement” for cooperation-credit eligibility.
In his remarks, which have now been incorporated into the justice manual (formerly called the U.S. attorney’s manual), Rosenstein announced that the “all or nothing” approach proved to be ineffective and “inefficient.” Although the DOJ continues to express a preference, as a matter of policy, for individual prosecutions to accompany corporate prosecutions, Rosenstein stated that the requirement to identify every individual regardless of the level of culpability “is not practical” and “was not strictly enforced in some cases because it would have impeded resolutions and wasted resources.”
Stressing the need for “realistic” and “commonsense” policies that reflect “the real world of limited investigative resources,” Rosenstein announced that companies will now be able to obtain cooperation credit when they seek in “good faith” to identify individuals who were “substantially involved in or responsible for wrongdoing.” U.S. Dep’t of Justice, Justice Manual §9-28.700 (2018). Those include “individuals who play significant roles in setting a company on a course of criminal conduct” and those who “authorized the misconduct.”
The revised policy brings even starker changes on the civil side where a company will now be eligible for partial cooperation credit as long as it “meaningfully assist[s]” the government in investigating civil liability. And the DOJ attorneys are “once again permitted to consider an individual’s ability to pay in deciding whether to pursue a civil judgment.”
Although companies no longer have to identify all persons involved in corporate misconduct to qualify for cooperation credit, they should be mindful, as Rosenstein explained, that disclosure of “all wrongdoing by senior officials, including members of senior management or the board of directors,” is a threshold requirement for any cooperation credit. And although low-level employees may no longer be held accountable, companies should continue to emphasize that compliance is critical and is the responsibility of all employees, not just high-level officers and directors. The apparent decreased emphasis on individual accountability may cause more low-level employees to cooperate with investigations without the fear of criminal or civil liability.
The new policy may also open the door to disputes about what it means to be “substantially involved” in corporate wrongdoing. Thus, the renewed prosecutorial flexibility may, at least initially, produce some uncertainty. In light of this, companies should be hesitant to immediately revise their investigation practices.
On the other hand, companies will now have to be equipped to identify and assess degrees of culpability, which differs from merely identifying all relevant facts about every culpable individual. But Rosenstein urged corporations “to have full and frank discussions with prosecutors about how to gather the relevant facts” in order to secure cooperation credit. This may necessitate greater defense counsel involvement from the outset of enforcement actions.
Indeed, as §9-28.700 of the revised justice manual explains, “[t]here may be circumstances where, despite its best efforts to conduct a thorough investigation, a company genuinely cannot get access to certain evidence or is legally prohibited from disclosing it to the government. Under such circumstances, the company seeking cooperation will bear the burden of explaining the restrictions it is facing to the prosecutor.”
The new policy might also expedite the resolution of criminal charges by reducing the costs of internal investigations and, as Rosenstein explained, by allowing prosecutors to resolve matters even when “they disagree [with a company] about the scope of the misconduct.” But the new policy may also result in a greater number of corporate prosecutions. Under Rosenstein’s approach, even if fewer culpable individuals are ultimately prosecuted, the newfound flexibility frees up resources that will allow the DOJ to bring more cases against companies and, as Rosenstein remarked, pursue “other worthy cases…competing for [the DOJ’s] attention.”
We anticipate that the DOJ will also soon revise other policies to bring them in line with Rosenstein’s guidance. For instance, the justice manual’s Foreign Corrupt Practices Act Corporate Enforcement Policy §9-47.120 still requires the disclosure of “all relevant facts about all individuals involved” to receive cooperation credit.
Whether the revised policy will bring the intended results remains to be seen. As Rosenstein remarked, the DOJ will monitor the results and revisit the policies if needed. Stay tuned.
Margaret A. Dale and Mark D. Harris are partners at Proskauer Rose. Lucas Kowalczyk, an associate at the firm, assisted in the preparation of this article.