DOJ’s Pursuit of Individual Liability for Corporate Misconduct: The Yates Memo

Cooperation credit is a critical issue for corporations that become embroiled in investigations or enforcement activity.

In both the criminal and civil contexts, it is the only way to mitigate the financial impact of corporate wrongdoing. It can mean the difference between surviving a government investigation and staying in business at all. Now, the corporation’s very existence

could hinge on its ability—and willingness—to turn in its leaders and other personnel.

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Sheeder
by Frank Sheeder, Esq., CCEP
Cooperation credit is a critical issue for corporations that become embroiled in investigations or enforcement activity.
In both the criminal and civil contexts, it
is the only way to mitigate the financial
impact of corporate wrongdoing. It
can mean the difference between
surviving a government investigation
and staying in business at all. Now,
the corporation’s very existence
could hinge on its ability—and
willingness—to turn in its leaders
and other personnel.
Background
The Department of Justice (DOJ) has
made many headlines recently with the
promulgation of a September 9, 2015
Memorandum from Deputy Attorney
General Sally Quillian Yates to all DOJ
attorneys (the Yates Memo).1 The Yates Memo
announced a DOJ initiative to hold individuals
responsible for corporate misdeeds, both
criminal and civil. Although the Yates
Memo does not change any laws or tools
available to government attorneys, this policy
emphasis poses significant challenges for
organizations and those who work for them.
It is the first major policy pronouncement
in this realm under the recently appointed
Attorney General.
The Yates Memo is the most recent in
a series of DOJ memoranda that began
in 1999 with the Holder Memo,2 which
related to bringing criminal charges against
corporations. The DOJ’s approach evolved
with the Thompson Memo3 (2003), the
McNulty Memo4 (2006), and the Filip Memo5
(2008). The principles that emerged were
placed in the United States Attorney’s Manual
in the Principles of Federal Prosecution
DOJ’s pursuit of individual
liability for corporate
misconduct: The Yates Memo
» The DOJ has made it a priority to hold individuals accountable for organizational misdeeds – both civil and criminal.
» The DOJ has sent a message of deterrence to corporate leaders and their governing bodies.
» This policy shift will present a number of challenges for organizations that are trying to do the right thing.
» This development should be communicated to the board and senior leaders.
» Prudent organizations will respond by enhancing their compliance programs.
Cooperation credit is a
critical issue for corporations
that become embroiled
in investigations or
enforcement activity.
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of Business Organizations.6 Government
attorneys are required to adhere to the policies
set forth in those Memos, the United States
Attorney’s Manual, and now the Yates Memo.
These pronouncements also provide insight
and guidance for corporations addressing
potential organizational wrongdoing, internal
investigations, privileges and protections from
discovery, dealings with the government, and
compliance activities.
Although the
DOJ announced the
principles in the Yates
Memo as if they were
new, they do not
involve any new laws
or tools. Rather, those
principles support
a broad-based DOJ
policy initiative aimed
at deterring corporate
misconduct by putting
individuals at risk of
criminal prosecution
or civil action. In fact, the Assistant Attorney
General for the Criminal Division, Leslie
Caldwell, publicly foreshadowed this
policy earlier this year: “If you choose to
cooperate with us, we expect that you will
provide us with those facts, be they good or
bad. Importantly, that includes facts about
individuals responsible for the misconduct,
no matter how high their rank may be.”7 That
statement is now official DOJ policy, and
the United States Attorney’s Manual will be
updated to reflect this emphasis.
The Yates Memo was apparently developed
in response to issues in the financial services
industry, but it is not limited to that sector.
The Yates Memo makes no distinctions about
particular kinds of entities or activities.
Rather, it applies to all of the DOJ’s civil
and criminal investigation and enforcement
efforts. It is also notable that while a DOJ
workgroup developed the Yates Memo, the
DOJ apparently did not consult the corporate
defense bar before promulgating it. This is of
concern because, as the DOJ acknowledged
in the Yates Memo, “The Department makes
these changes recognizing the challenges they
may present.” In reality, the aggressive policies
in the Yates Memo pose many difficulties
for organizations that are trying to do the
right thing.
Key steps
The Yates Memo
contains six “key
steps” that encourage
government lawyers
“to most effectively
pursue the individuals
responsible for
corporate wrongs.” The
titles of the key steps
are set forth verbatim
below, along with a brief
discussion of each.
1. “To be eligible for any cooperation credit,
corporations must provide to the [DOJ] all
relevant facts about the individuals involved
in the corporate misconduct.”
This is perhaps the most impactful aspect
of the Yates Memo. It is an all-or-nothing
prerequisite for a corporation to receive any
benefit from cooperating with the DOJ; there is
no intermediate position. “Companies cannot
pick and choose what facts to disclose.” This
high threshold, ironically, may discourage
corporate cooperation with the DOJ in the
first place. If they do cooperate, they will
have to seek out facts and theories aimed at
establishing individual exposure. The extent of
cooperation credit a corporation receives will
depend on the timeliness of the cooperation;
the diligence, thoroughness, and speed of the
internal investigation; the proactive nature of
Although the DOJ
announced the
principles in the
Yates Memo as if they
were new, they do
not involve any new
laws or tools
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If the DOJ resolves
a matter with a
corporation, it must
still leave its options
open with respect to
individual liability.
the cooperation; and all of the other various
factors that the DOJ has traditionally applied.
In explaining this element, the DOJ has
indicated that its attorneys should not simply
wait for a company to deliver information
about individual wrongdoers and then merely
accept it. Rather, they should proactively
investigate individuals at every step of
the process—before, during and after any
corporate cooperation.
They should ensure that
the corporation has not
downplayed individual
responsibility for
wrongdoing. Moreover,
any corporate
settlement agreement
should require the
corporation to provide
information about
individuals, with
penalties for failing to do so.
2. “Both criminal and civil corporate
investigations should focus on individuals
from the inception of the investigation.”
The DOJ reasons that this maximizes its
ability to ferret out the full extent of corporate
misconduct. Because corporations act only
through people, investigating their conduct
is the most efficient and effective way to
determine the facts and extent of corporate
misconduct. Additionally, by focusing on
individuals, it can increase the likelihood that
lower-level personnel will cooperate against
those who are higher in the corporate hierarchy.
This also ensures that both corporations and
individuals will be charged for wrongdoing.
3. “Criminal and civil attorneys handling
corporate investigations should be in routine
communication with one another.”
This also enhances the DOJ’s ability to
pursue individuals because it allows DOJ
attorneys to consider the full array of
civil and criminal options available to the
government, along with the corresponding
remedies. The DOJ’s criminal attorneys
should notify civil attorneys as early as
possible if they see potential criminal
liability, and vice versa. Moreover, even if
the DOJ could not make a criminal case, it
might be able to pursue a civil action.
4. “Absent
extraordinary
circumstances, no
corporate resolution
will provide
protection from
criminal or civil
liability for any
individuals.”
If the DOJ resolves
a matter with a
corporation, it must still leave its options
open with respect to individual liability.
DOJ attorneys will not be able to decline
pursuit of individuals just because a
corporation has settled. Any deviations
from this policy must be approved at
high levels.
5. “Corporate cases should not be resolved
without a clear plan to resolve related
individual cases before the statute of
limitations expires and declinations
as to individuals in such cases must be
memorialized.”
If a DOJ attorney seeks to resolve corporate
liability, he/she must include in the written
memorandum supporting that resolution
a discussion of potential individual
liability and the plan for addressing it.
Any decisions not to pursue civil claims or
criminal charges against individuals who
committed corporate misconduct must be
approved at high levels.
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6. “Civil attorneys should consistently focus
on individuals as well as the company and
evaluate whether to bring suit against an
individual based on considerations beyond
that individual’s ability to pay.”
The DOJ’s civil enforcement efforts are
designed to return money to the public fisc,
but they are also aimed at holding wrongdoers
accountable and at deterring future
misconduct. The DOJ says that these twin
aims are equally important, even though they
may be in tension with each other. The DOJ
has now made it clear
that an individual’s
inability to pay,
standing alone, is not
a justification for not
bringing a civil suit.
Implications for
corporations
The Yates Memo
has many challenging implications for
corporations and their people. A few of
the more salient implications include
the following.
Increased risks to corporations
The DOJ will now require corporations
to provide “all relevant facts about the
individuals involved in corporate misconduct”
in order to “be eligible for any cooperation
credit.” This has two separate implications for
corporations. First, they might choose not to
cooperate at all under these circumstances,
which could lead to enhanced penalties in
the event of adverse findings. Second, the
government might determine not to give
corporations credit for cooperating, on the
basis that the cooperation did not go far
enough. It seems that if a corporation is to
cooperate, it will need to be “all in” and
prepared to help the government target the
individuals involved in the circumstances
in question. The DOJ (or a corporation
seeking credit, for that matter) could end up
taking too expansive a view of individual
involvement in the context of cooperation
credit, thereby needlessly putting individuals
at risk of criminal or civil liability. Finally,
DOJ lawyers could take advantage of the
leverage that potential individual liability
creates to convince corporate decision-makers
to agree to unduly large settlements on behalf
of corporations.
Incentives to lower-
level personnel
The DOJ is clearly
endeavoring to go after
the highest-ranking
business leaders when
it investigates and
resolves instances of
corporate wrongdoing.
In order to do so,
the DOJ has historically given lower-level
personnel incentives for providing information
about those who are above them on the
corporate ladder. Of course, such incentives
can have the perverse effect of encouraging
cooperating witnesses to stretch the truth or
to go to extremes in characterizing high-level
involvement or knowledge.
Reluctance to be forthcoming
When organizations learn of potential
wrongdoing, they routinely conduct internal
investigations to identify, prevent and mitigate
risks. Often, they decide to cooperate with the
government in resolving non-compliance with
applicable standards. In doing so, corporations
must be able to rely on receiving complete
and accurate information from company
personnel. The DOJ’s emphasis on identifying
and pursuing individual responsibility for
corporate acts will have a chilling effect on
company personnel. They might decide not to
The Yates Memo has
many challenging
implications for
corporations and
their people.
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come forward or to fully share information for
fear that their employer would turn them into
the DOJ. Likewise, corporations may decide
not to serve up their personnel (especially
senior leaders) to the DOJ, and decide not to
cooperate, choosing instead to compel the
DOJ to prove its case. Or they may serve up
individuals in an effort to buy peace with
the DOJ for the corporation. In any event,
individuals may
(a) have to make
decisions about
whether to be loyal
to the corporation,
(b) need to
consider quitting
their jobs, (c) face
termination of their
employment, and
(d) need to worry
about criminal and
civil exposure.
Potential conflicts
of interest
Corporations usually endeavor to conduct
internal investigations of potential misconduct
efficiently and expediently. At the onset of an
investigation, they do not usually secure, pay
for, or recommend counsel for individuals,
because they do not have enough information
pointing toward that need. They use one
law firm (or in-house counsel) to conduct the
investigation, and if an actual or potential
conflict of interest between the corporation
and an individual arises, they address the
person’s need for separate counsel. In light of
the Yates Memo, however, corporations will
need to assess the potential for conflicts of
interest earlier, and err on the side of separate
representation for one or more individuals.
Of course, this approach also increases costs,
decreases efficiencies, and may make it harder
for the corporation to get to the facts.
Moreover, corporate decision-makers
may now be influenced by the heightened
risk of individual liability. Might they sell
the company or their colleagues short to
protect themselves? To avoid this conundrum,
corporations will need to determine at
the onset of an investigation whether and
how to exclude key stakeholders from the
investigative team to ensure that any strategic,
defensive, or settlement
decisions are made
independently and
in the corporation’s
best interests. One can
also see how there
could be differences
in opinion on
strategy and defenses
between corporate
stakeholders and the
lawyers, compliance
professionals, and
others with whom
they work on sensitive
matters. Such matters
should be anticipated, acknowledged, and
planned for in advance, to the extent possible.
Threats to attorney-client privilege and the
attorney work product doctrine
Corporations’ activities and investigations
regarding potential misconduct are
usually done under the confidential cloak
of the attorney-client privilege and the
attorney work product doctrine. When
corporations decide to turn over the results
of their investigative efforts, along with
findings and analysis, they can waive these
venerable protections. This can expose their
confidential efforts to do the right thing
and to seek informed legal advice to hostile
third parties—even beyond the DOJ. The
decision to cooperate and to make such
disclosures always requires the balancing
Corporations’ activities
and investigations
regarding potential
misconduct are
usually done under the
confidential cloak of the
attorney-client privilege
and the attorney work
product doctrine.
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of competing interests. But the Yates Memo
accelerates the decision-making process
and raises the stakes, because a corporation
that is not fully prepared to turn over its
investigative work product may not get any
cooperation credit at all. This policy seems to
be a marked departure from the Filip Memo
from August 2008, because it conflicts with its
provision that the DOJ should not request the
results of an internal investigation.
What corporations should do
A number of steps should be taken now, in
order to hedge against the individual risks
and corporate conundrums arising from this
focused DOJ policy initiative.
Communicate and educate
First, the contents and implications of the Yates
Memo should be communicated appropriately
to corporations’ senior leaders and governing
boards. Second, they need to know that the
DOJ is pursuing individual liability and
creating new conditions for cooperation credit.
Third, they need to know what they should do
to protect the corporation in light of the Yates
Memo, especially regarding a renewed focus
on the organization’s compliance program.
Focus on the compliance program
Of course, the best way to prevent and to
mitigate corporate and individual risks is to
have a robust compliance program. Prudent
corporations will respond to the Yates
Memo by:
· Commissioning an independent
assessment of their compliance program
to validate whether it has the resources,
priorities, and activities necessary to
prevent risks in the current environment.
The results of such an assessment, which
should be done under the attorney-client
privilege and the attorney work product
protection, can serve as a template for
enhancing the compliance program
appropriately.
· Educating the board, senior leadership,
and other key stakeholders on the personal
liability implications of the policies in the
Yates Memo.
· Garnering further management and
governing board support for, and
awareness of, compliance program
activities. They must be highly engaged in
processes designed to prevent, identify, and
mitigate risks to the organization and its
personnel.
· Ensuring that potential non-compliance is
addressed promptly and appropriately. This
includes establishing work plans, deadlines,
and assigned accountability for compliance
investigations and other key processes.
· Developing and maintaining evidence that
leaders and key stakeholders are engaged in
processes aimed at doing the right thing.
Conclusion
The message should not be that the sky is
falling. Rather, the Yates Memo presents an
opportunity for corporations—through their
board, leaders, compliance professionals,
and counsel—to renew their focus on the
compliance program and the many risks it can
help to eliminate. ✵

1. Department of Justice: Sally Quillian Yates, Memorandum Re
Individual Accountability for Corporate Wrongdoing. September 9,
2015. Available at http://bit.ly/justice-dag
2. Department of Justice: Eric H. Holder, Jr., Memorandum Re Bringing
Criminal Charges Against Corporations. June 16, 1999. Available at
http://bit.ly/justice-criminal
3. Department of Justice: Larry D. Thompson, Memorandum Re
Principles of Federal Prosecution of Business Organizations.
January 20, 2003. Available at http://bit.ly/americanbar-larry
4. Department of Justice: Paul J. McNulty, Memorandum Re Principles
of Federal Prosecution of Business Organizations. July 5, 2005.
Available at http://bit.ly/justice-mcnulty
5. Department of Justice: Mark Filip, Principles of Federal Prosecution
of Business Organizations. August 28, 2008. Available at
http://bit.ly/justice-filip
6. Department of Justice: Title 9: Principles of Federal Prosecution
of Business Organizations, Chapter 9-28.000. Available at
http://bit.ly/justice-corp-charging
7. Attorney General Leslie R. Caldwell: Address at the American Bar
Association’s 25th Annual National Institute on Health Care Fraud.
May 14, 2015. Available at http://bit.ly/assist-ag-caldwell

Frank Sheeder ([email protected]) is a Partner in DLA Piper in
Dallas, TX.

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