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Article: January 2016: Trial Practice Update

January 01, 2016
Business Litigation Reports

DOJ’s New Policies Target Executives of Corporate America. The United States Department of Justice has raised the stakes in corporate criminal investigations, and general counsel, corporate executives, and board members should take note. In September 2015, the DOJ issued a policy memorandum regarding corporate executives in criminal investigations, and two months later in November, it revised the Principles of Federal Prosecution of Business Organizations to limit the ability of corporations under investigation to obtain credit for cooperating with the government. These two developments have significantly changed the legal landscape for both corporations and corporate employees who become subjects of criminal investigations.

The Yates Memo.” On September 9, 2015, Deputy Attorney General Sally Yates released a policy memorandum entitled, “Individual Accountability for Corporate Wrongdoing.” (  /.) Immediately dubbed the “Yates Memo” (following a longstanding DOJ tradition of eponymous memos by senior officials), this memo represents the Department’s response to harsh criticism that the government has been too lenient on white collar criminals in cases where their companies pay huge settlements to the government. In the wake of the mortgage-backed securities scandal, and the resulting recession that began in 2008, the DOJ and other federal agencies racked up billions in corporate settlements, but many observers criticized Main Justice for not criminally prosecuting the responsible individuals who participated in, or directed, those companies’ misdeeds.

One such observer, the Hon. Jed Rakoff, U.S. District Judge in the Southern District of New York, described the Department’s decision not to bring criminal charges against Wall Street executives as no less than a complete failure of the criminal justice system itself. (Jed S. Rakoff, J. (S.D.N.Y.), The Financial Crisis: Why Have No High-Level Executives Been Prosecuted?, New York Rev. of Books, Jan. 9, 2014, available at financial-crisis-why-no-executive-prosecutions/.) Similarly, U.S. Senator Elizabeth Warren (D. Mass.) asserted that “if you’re caught with an ounce of cocaine, . . .you’re going to go to jail . . . for the rest of your life. But evidently if you launder nearly a billion dollars for drug cartels . . . your company pays a fine and you go home and sleep in your own bed . . . .” (Too Big to Jail (excerpt from the transcript of the March 7, 2013 Senate Banking Committee hearing), Harper’s, May 2013, at 23-24, available at  Even officials from other regulatory agencies pointed out that the decision to file criminal charges rested with DOJ, not them. Just as big banks were “too big to fail,” it seemed corporate executives were “too big to jail.” (Id.)

As the  first major DOJ policy pronouncement since Attorney General Loretta E. Lynch took office in April 2015, the Yates Memo mandates prosecution of individual executives and requires corporations to turn in culpable employees or face prosecution themselves. The overarching theme of the memo is: “There’s a new Sheriff in town,” and it lays out the following “six key steps” intended to promote the effective pursuit of “the individuals responsible for corporate wrongs.” (See Yates Memo at 2-7.)

(1) A corporation will not receive any “cooperation credit” unless it provides the DOJ with all relevant facts about the individuals involved in misconduct. Previously, corporations could receive substantial credit for cooperating with DOJ, even if they never identified individual employees who had committed criminal misconduct. According to Deputy AG Yates, those “rules have just changed.” (Deputy Att’y Gen. Sally Quillian Yates Delivers Remarks at New York University School of Law Announcing New Policy on Individual Liability in Matters of Corporate Wrongdoing, Sept. 10, 2015, available at speech/deputy-attorney-general-sally-quillian-yates-delivers-remarks-new-york-university-school/.)  Now, “to be eligible for any credit for cooperation, the company must identify all individuals involved in or responsible for the misconduct at issue, regardless of their position, status or seniority.” (Yates Memo at 3 (emphasis added).) The corporation must further provide DOJ with “all facts relating to that misconduct.” (Id. (emphasis added).) In a presentation at the American Bar Association Criminal Justice Section’s Global White Collar Crime Institute in Shanghai last month, Deputy Assistant AG Sung-Hee Suh explained to the white collar bar that, whereas previously DOJ told corporations they “may” provide evidence inculpating their own employees, under the Yates Memo “may has become must.”  (Address of Sung-Hee Suh, November 19, 2015, ABA Global White Collar Crime Institute, Shanghai, People’s Republic of China.)

(2) Both criminal and civil investigations should focus on individuals from the start.  Under the Yates Memo, the DOJ’s official position is that using the Department’s resources to investigate individual misconduct both civilly and criminally is “the most efficient and effective way” to root out corporate misconduct. (Yates Memo at 4.)

(3) Government attorneys handling criminal and civil investigations should routinely communicate with one another. The Yates Memo emphasizes the importance of early communication and coordination between criminal and civil attorneys to effectively take action against individual wrongdoers. (Id. at 5.)

(4) Except in “extraordinary circumstances,” the DOJ should not agree to a corporate resolution that also dismisses charges against, or provides immunity for, individual officers or employees. The Yates Memo states that, absent extraordinary circumstances (or  approved departmental policy), the DOJ should not release any claims giving rise to either civil or criminal liability against individuals. (Id. at 5.) However, exactly what those “extraordinary circumstances” might be remains to be seen—the Yates Memo does not provide any examples. Is it the size of a financial settlement the company is willing to make? The importance of the company or industry to the economy or national security? Proof problems in the case? The resources required to charge and try the individual(s)? Only time will tell. Whatever the basis, an Assistant AG or U.S. Attorney must now approve in writing any corporate resolution that immunizes or releases any individuals. (Id.)

(5)  Corporate investigations should not be resolved until a clear plan exists to resolve individuals’ cases. Under the Yates Memo, any decision to decline prosecution of an employee as part of a corporate plea deal or deferred prosecution must now be documented in a declination memorandum. (Id. at 6.)

(6) DOJ’s civil attorneys should consider suits against individual employees, not just their companies. Under the Yates Memo, an individual’s inability to pay a money judgment, standing alone, should no longer prevent the DOJ from bringing a civil suit against individuals. (Id. at 6.) Rather, in making this decision, other factors should be considered, “such as whether the person’s misconduct was serious, whether it is actionable, whether the admissible evidence will probably be sufficient to obtain and sustain a judgment, and whether pursuing the action reflects an important federal interest.” (Id. at 6-7.)

In November, the Principles of Prosecution of Business Organizations were revised, as the Yates Memo indicated they would be, further to codify these policy initiatives in the Memo. (See U.S. Dep’t of Just., United States Attorneys’ Manual 9-28.010 (Nov. 2015), available at

Potential Implications.  Although the Yates Memo seems grounded in laudable policy goals, in practice it may result in unintended consequences that are inimical to the pursuit of justice. Here are just a few:

Whither the Attorney-Client Privilege? Companies under investigation usually learn facts about potential misconduct through a comprehensive internal investigation, the results of which are protected from disclosure by the attorney-client privilege and the attorney work product doctrine.  The Yates Memo and the Revised Principles repeatedly state (almost to the point of “protest[ing] too much,” with apologies to Shakespeare) that companies will not be required to waive privilege under the new regime; instead, the Memo and Revised Principles explain that corporations merely have to disclose all the facts and the names of culpable employees. But aren’t “all the facts” learned in the course of a privileged investigation themselves privileged, as are the thoughts, opinions, and impressions of counsel and investigators conducting the investigation? Of course, source documents and data that are not themselves privileged could be disclosed, but the statements of employees and the inferences and conclusions of the company’s attorneys and investigators are privileged—and that is precisely the information DOJ will want; the government can use investigative tools such as grand jury subpoenas and search warrants to obtain such information.

It seems inevitable that, to effectuate the steps laid out in the Yates Memo, the government will not be content to settle for names whispered in its ear; it will want the underlying evidence and analysis giving rise to the conclusions that specific individuals are to blame. Company lawyers, however, cannot disclose the results of a privileged investigation if their client has not waived attorney-client privilege. (Upjohn Co. v United States, 449 U.S. 383; Commodity Futures Trading Commission v. Weintrab (1981), 471 U.S. 343 (1985).) Likewise, they cannot share their own opinions and impressions without waiving work product.  And what company under investigation will voluntarily authorize such waivers?

How this issue is resolved will be critical to the implementation of the Yates Memo going forward. Turning over physical evidence or preexisting non-privileged documents is different, of course, but in our experience corporate executives rarely leave behind written confessions; the Yates Memo itself notes how difficult it is to determine which employee(s) had the requisite intent and conduct to be charged criminally. (See Yates Memo at 2.)  One thing, however, is clear: accepting the cavalier but incorrect assertion that no waiver is necessary to offer up names and “facts” to investigators is perilous for corporations and their counsel. If the Department really means what is says—that companies should not be required to waive privilege (and sound legal and public policy arguments can be made that the government should not be in the business of forcing companies waive privilege)—a more refined approach should be promulgated.

All or Nothing.” Separate and apart from the substantial privilege issues described above, the Yates Memo’s all-or-nothing directive may ultimately discourage companies from cooperating at all. Under the Yates Memo, companies cannot receive any cooperation credit unless they “completely disclose” all relevant facts about individual misconduct. (Id. at 3.) Who decides whether disclosure has been complete? DOJ. So companies now must weigh more carefully than ever before the risks and potential rewards of disclosure, considering the possibility (likelihood?) that DOJ may still conclude that the company’s level of cooperation was less than “complete” and thus insufficient to receive cooperation credit. This binary approach may ultimately bedevil both corporations and the government, particularly when compared to the prior policy of giving corporate cooperation the weight it deserved under the totality of circumstances of each case.

Investigations Underway Before September 2015. The Yates Memo states that it applies to all ongoing, preexisting investigations as well as investigations yet to incept, “to the extent it is practicable to do.” (Id.) The Department, however, has yet to offer any guidance as to the contours of this “practicability” standard, leaving open the question of just how far back the Yates Memo’s reach will extend.

Continuing Obligations. Under the Revised Principles, prosecutors may not settle a case against a company if a related investigation of employees of the company is still ongoing, without a clearly stated plan to resolve the individual cases in the future. (See U.S. Dep’t of Just., United States Attorneys’ Manual 9-28.210 (Nov. 2015), available at In her September speech, Deputy AG Yates clarified that “[i]n most instances, this will mean that we resolve cases with individuals before or at the same time that we resolve the matter against the corporation.” The Yates Memo thus favors the resolution of individual cases before the resolution of parallel corporate investigations, which may ultimately impose significant continuing obligations on companies and, as stated above, act as a disincentive to cooperate in a timely fashion.

Under this new approach, companies may be forced to cooperate for unusually long periods while prosecutors attempt to gather enough evidence to resolve individual cases. This is particularly concerning for public companies, which have a duty to disclose ongoing legal issues to shareholders. A greater likelihood of continuing obligations also exists because, “absent extraordinary circumstances,” prosecutors may not “agree to a corporate resolution that includes an agreement to dismiss criminal charges against, or provide immunity for, individual officers or employees,” whether in civil or criminal matters. (Yates Memo at 5.) Indeed, even in instances where the DOJ agrees to settle a corporate case before a related individual case, the Yates Memo makes clear that “there may be instances where the company’s continued cooperation with respect to individuals will be necessary post-resolution.”  (Id. at 4.)

It is too early to tell how willing companies will be to settle investigations without the assurance that the settlement will “stop the bleeding,” so to speak. Companies know that every time a current or former employee is charged, the company’s name will almost certainly make headlines too.

Conclusion.  The Yates Memo represents the official policy of the Department of Justice and each of the 92US Attorneys’ offices, until amended or superseded. It will no doubt be modified by future administrations, and eventually will join its forebears, the Thompson Memo, the Holder Memo, and other superseded policy directives now presumably residing in the basement of DOJ in Washington D.C.  For the foreseeable future, though, companies will continue to need counsel experienced in criminal investigations and in dealing with DOJ at the first hint of potential civil or criminal misconduct to help ensure the best resolution possible in the most timely way when the government comes calling.