RBGG’s Jeff Bornstein published an article in Law360 on September 16, 2015, How DOJ Policy on Prosecuting Individuals Will Affect Companies, summarizing the new Department of Justice directive on “Individual Accoutability for Corporate Wrongdoing.”  Full text of the article is set out below.

How DOJ Policy on Prosecuting Individuals Will Affect Companies

A new directive from Sally Yates, Deputy Attorney General of the U.S. Department of Justice, will make it more difficult and expensive for corporations and their executives to resolve both criminal and civil investigations by the U.S. Attorney’s Office and the Department of Justice. It will likely also make it easier for the DOJ to prosecute individuals.

The DOJ’s 6-point memorandum published on September 9, 2015 entitled “Individual Accountability for Corporate Wrongdoing” expands upon prior DOJ themes that make it clear that corporations act only through individuals. The policy states that the best way to effectively combat corporate crime is to make it a high priority to seek “accountability from the individual who perpetrated the wrongdoing.”

In effect, what the new policy seeks to do is to force corporations to act in concert with the government against corporate insiders who are alleged to have broken the law. Put another way, the government is requiring corporations to provide substantial assistance to the government in the prosecution of individuals in order to obtain any credit for cooperation (emphasis in original). Whether this will result in prosecutions of high-ranking corporate insiders, as seems to be the intent, remains to be seen. There is little doubt that there will be more prosecutions and more civil actions against low- and mid-level employees and managers, however, especially those actually engaged in the alleged misconduct.

The DOJ’s new directive is discussed point by point below.

  1. “To be eligible for any cooperation credit, corporations must provide to the DOJ all relevant facts about the individuals involved in corporate misconduct.”

It is expensive and time-consuming to sort out who is/was responsible for corporate malfeasance. Often, there are a combination of people and factors involved and a key focus of any internal investigation is to stop any on-going problems and ensure that corrective action is put in place for the future. Under the new policy, a corporation must go further. If a corporation wants to help itself, it will now need to dedicate even more resources into assisting the DOJ in prosecuting the individual(s) responsible for any wrongdoing.

What level of cooperation will be enough? The policy suggests that corporations will be required to provide detailed facts and evidence that will lead to the prosecution of individuals in the corporate entity. Earlier concerns about protecting attorney-client privilege when corporations conduct internal investigations are not addressed by the new policy. The policy will now require a corporate focus on individuals before the government will give a corporation cooperation credit. While the rationale may be aimed at making it difficult for corporations who are deliberately trying to protect wrongdoers either by failing to disclose incriminating evidence or facts or by failing to uncover them in an internal investigation, it could also have the side effect of making every internal investigation more costly. Individuals may seek counsel earlier in the process and may refuse to provide incriminating details since what they say during an internal investigation will now almost certainly be disclosed to the government. In this regard, the typical warnings corporate counsel provide before an interview – so called Upjohn warnings – may now to be modified to make it clear that disclosure to prosecutors is now likely (and not just possible) if there is wrongdoing.  

  1. “Both criminal and civil corporate investigations should focus on individuals from the inception of the investigation.”

The new policy mandates that law enforcement focus on individuals from the beginning of an investigation and that this focus should also include the possibility of civil enforcement actions. The government believes that by focusing on individuals, it is more likely to gather evidence of what actually happened and who did what. It also suggests that it wants to ensure that corporations and the individuals who work for them understand that misconduct will be viewed as personal and not just corporate. The cost of doing business in an illegal manner will therefore be much higher.

To the extent that an individual can cooperate and provide evidence or testimony against other more senior or culpable wrongdoers, the government’s ability to prosecute cases will be enhanced. But as discussed above, a side effect could be a refusal by individuals to provide information absent immunity.

  1. “Criminal and civil attorneys handling corporate investigations should be in routine communication with one another.”

The policy also mandates close cooperation and coordination between criminal and civil Assistant U.S. Attorneys and DOJ attorneys. This, of course, is not unusual today, but the mandate could easily blur the lines between the duties and responsibilities of criminal and civil prosecutors and raises potential ethical issues if the criminal side of the government is using the threat of a criminal case to achieve a civil resolution, or vice versa.

  1. “Absent extraordinary circumstances, no corporate resolution will provide protection from criminal or civil liability for any individuals.”

This new provision could make it more difficult for corporations to “put a matter behind them” by settling with the government. Many times corporations are motivated to resolve cases to protect the company from bad publicity, reduce legal fees, and move forward – even if management is not convinced that what happened was necessarily illegal. Sometimes the desire to settle is enhanced by a desire to protect corporate officials from the effects of an ongoing criminal or civil investigation.

While corporations are usually motivated to try to put things behind them if they can, individuals may not be similarly motivated, especially when they can face prison time and/or personal financial liability for alleged misconduct. This, in turn, could mean that corporations will be paying for civil and criminal attorneys to defend corporate executives and other employees who are entitled either by law or corporate policy to indemnification, including attorney’s fees.

  1. “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.”

This new directive requiring increased supervisorial oversight and sign-off seems designed to protect against any sort of side deal between a prosecutor and corporate counsel that implicitly protects individuals. To ensure that the maximum pressure is put on individuals, the new policy mandates high-level DOJ or U.S. Attorney sign off before individuals can be released from criminal or civil cases, assuming there is readily provable evidence of their personal wrongdoing. It is difficult to know how an individual U.S. Attorney or DOJ affiliate is going to interpret this section. One hopes that an individual prosecutor will still be able to do what he or she thinks is right in not bringing cases against individuals even if they could be considered culpable for some of the alleged misconduct. The new focus on individuals suggests that pressure will be put on prosecutors to do the opposite, however, and U.S. Attorney’s Offices and DOJ units will almost certainly be monitored statistically to see how they are doing in this regard. For instance, there will be press releases about the number of individuals held accountable in annual U.S. Attorney and DOJ reports.

  1. “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.”

This provision could lead to including individuals as defendants in costly litigation even if they do not have the resources to pay a judgment. For those corporate officials who are not indemnified, it will be difficult and costly to pay for a defense to either a federal criminal or civil case. While individuals may be able to use homeowner or general liability policies to pay for their defense of civil allegations, most policies have exclusions for criminal conduct and for business endeavors that are not specifically insured.

Corporate officials may need greater protection when working for companies that could be under scrutiny. Corporations may find it necessary to strengthen compliance departments to give concerned employees comfort that close calls are not illegal ones and to increase insurance coverage to cover government investigations.

The bottom line is that the DOJ is trying to change corporate culture by stepping up pressure on individuals. What this means is that corporations need to evolve to ensure that employees who have concerns can seek advice as necessary and that they will be financially protected if they follow internal guidance that turn out to be wrong. To hold officials accountable for misdeeds where they may have been just doing what they were instructed to do could result in an unintended and unfair result, especially in the absence of greater internal corporate safeguards. We can expect to see a much tougher stance by U.S. Attorneys and DOJ prosecutors in how they analyze and approach the potential liability of individuals in any investigation of alleged corporate wrongdoing.