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Sep 21, 2015

Yates Memo may put damper on corporate co-operation in DoJ probes

Justice Department's latest effort to increase convictions of individuals for corporate misconduct could backfire if firms see no benefit from sharing incomplete information 

A strict missive from the US Department of Justice (DoJ) regarding tougher targeting of individual executives for criminal misconduct has brought an abrupt end to that leisurely summer feeling that often extends past Labor Day. And some governance experts warn that the memorandum issued by Deputy Attorney General Sally Quillian Yates on September 9 could have a ‘chilling effect’ on companies’ co-operation with federal investigations.

‘The Yates Memorandum has been heralded as a sign of a new resolve at the DoJ, and follows a series of public statements made by DoJ officials indicating that they intend to adopt a more severe posture toward flesh-and-blood corporate criminals, not just corporate entities,’ Gibson Dunn & Crutcher notes in a client alert on September 11. The alert goes on to speculate about the intentions and likely impacts of six guidelines formalized by the memo that are meant to strengthen the DoJ’s pursuit of corporate misconduct. These could have both intended and unintended consequences for companies’ co-operation with DoJ investigations.

The first of the six guidelines reads: To qualify for any co-operation credit whatsoever, in both criminal and civil cases, corporations under investigation must provide the DoJ with all relevant facts about the individuals involved in corporate misconduct. Gibson Dunn sees this as ‘designed to incentivize corporations not only to co-operate with the DoJ, but also from the outset to focus their investigation on individuals and share findings and conclusions regarding those individuals.’

In a commentary posted on the JDSupra Business Advisor website on Monday, two attorneys at McGuireWoods cite the memo as proof that the aim of the DoJ’s current policy is to ‘reach the highest-level business leaders through co-operation deals with lower-ranking executives.’ The risks of that objective, they write, are that junior staff members may feel pressured to give prosecutors ‘something of evidentiary and/or investigative value against higher-ups’ rather than the truth, and that counsel overseeing internal investigations ‘may see less co-operation from executives who fear implicating themselves in suspected wrongdoing or who will hold what they know as a chip with which to bargain with prosecutors.’

Since 2010 companies have been able to secure more favorable settlements – and, in many cases, smaller penalties – in criminal cases by co-operating with DoJ prosecutors. The Yates Memo declares an end to the days of companies being eligible for partial co-operation credits when information they provide about individual misconduct is incomplete and doesn’t help lead to a conviction.

When it comes to FCPA enforcement, the DoJ has in recent years increasingly relied on non-prosecution and deferred prosecution agreements, which result in fewer prosecutions of individuals responsible for corporate misconduct, precisely because such negotiated settlements ‘are much easier to achieve than criminal convictions and are considered sufficient law enforcement on their own,’ as noted in an article in Corporate Secretary’s summer issue. It seems certain the work of staff attorneys at the DoJ will get tougher as they feel greater pressure to develop strong cases or investigation plans against individuals or defend their decision not to do so to senior leaders. But if the chilling effect on corporate co-operation with DoJ investigations does come to pass, it’s equally true that chief compliance officers will find it harder to do their jobs.

NAVEX Global reported in July that 48 percent of respondents to its annual ethics and compliance training benchmark survey say E&C training has been used to defend their company in a lawsuit or enforcement agency action or to help secure a better outcome when negotiating a settlement. If the DoJ is no longer willing to grant partial co-operation credits, companies may no longer be motivated to self-report potential misconduct or carry out vigorous investigations into it ‒ a possibility Gibson Dunn raises in its alert.

There are other benefits of corporate co-operation in investigations, as Wells Fargo’s chief compliance officer, Yvette Hollingsworth, noted at a forum hosted by the Wall Street Journal’s risk & compliance section in spring this year. It’s critical that companies ‘maintain good relationships with law enforcement officials [because] it keeps the dialogue going about what things we should be looking for’ in the course of due diligence to vet prospective business partners, she said.

David Bogoslaw

Associate Editor and Online features producer for Corporate Secretary