By: James W. Kraus
After years of criticism that it failed to prosecute the individuals responsible for the financial crisis, the Department of Justice (“DOJ”) has announced changes to their internal guidelines to focus on the prosecution of individuals in corporate malfeasance cases.
At an event at New York University School of Law on Thursday, Deputy Attorney General Sally Quillian Yates discussed an internal memo addressing the handling of corporate cases she had just issued to all of the department’s prosecutors and civil litigators. The memo outlines six steps that Deputy Attorney General Yates stated were designed to “ensure that all department attorneys . . . are consistent in using our best efforts to hold individual wrongdoers accountable.”
The first step addresses the conditions precedent for crediting a corporation for cooperating. To receive credit, a corporation must now identify all individuals involved in the alleged misconduct – there will no longer be partial credit given for partial cooperation. To emphasize this point, corporate plea agreements will include provisions requiring ongoing cooperation, with failure to do so being considered a material breach triggering revocation of the agreement or stipulated penalties.
The second step is an exhortation to both criminal and civil attorneys of the department to focus on individuals from the outset, rather than trying to build a case against individuals only after a civil inquiry against the corporation has concluded – the latter being an often daunting task given the passage of time and the much higher burden of proof in criminal cases. To lend support to this second step, the third policy formalizes the lines of communication between civil and criminal attorneys to ensure both sides of the DOJ are discussing a given case from its inception.
The fourth and fifth steps appear to place additional restrictions on the resolution of corporate malfeasance cases in the face of parallel proceedings against individuals within the corporation. If a case against an individual is still pending when the case against the corporation concludes, DOJ attorneys will have to provide a clear plan for resolving the related individual cases. Additionally, if the DOJ attorneys decide to release the individuals in the related cases, they will need to obtain written approval to do so.
Finally, the sixth step advises attorneys to broaden their focus in civil enforcement to not only target corporations that can pay substantial monetary sanctions, but individuals as well – regardless of whether those individuals have the resources to pay significant judgments.
The past decade has seen important changes made to DOJ’s Principles of Federal Prosecution of Business Organizations (USAM 9-28.000 et seq.). Most of the changes were designed to allow corporations to obtain credit for cooperation without being complicit in the denial of important rights of individual officers and employees, including the right to counsel and the right against self-incrimination. The calls for those changes, which recognized the precarious position of corporations under investigation and the collateral consequences of law enforcement sanctions on a corporate body, came not only from attorneys representing corporations but from courts as well. It will be important to monitor how DOJ incorporates these new steps into its Principles for Prosecution of Business Organizations, and to be ready to point out circumstances where implementation imperils the protection of individual rights.
In-house counsel will no doubt be concerned about the significant costs trying to achieve “total” cooperation with a federal investigation will entail. And the ever decreasing amount of daylight between the civil and criminal divisions will certainly trouble defense counsel, given the increased leverage such arrangements could provide the government in negotiating settlements.
The relationship between corporations under investigation on one hand, and their officers and employees on the other, has always been an uneasy one, requiring heightened awareness of the delineation of roles, loyalties and obligations of all involved. This new policy shift may alter those relationships further, as the potential for pitting the two sides against each other appears to have been increased.
The most immediate and recognizable impact of this new policy statement will likely be delay in finalizing resolutions that are currently being negotiated, as department attorneys conduct the additional coordination required or encouraged by these six steps. Counsel will need to be prepared to advocate so that hard-fought negotiations are not short-circuited, and investigations are not unnecessarily expanded.