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DOJ Ramps Up Efforts to Prosecute Individuals for Corporate Wrongdoing

Thursday, September 24, 2015
Sandler, Travis & Rosenberg Trade Report

The Department of Justice announced this month tough new rules signaling an intensified effort to prosecute individuals for corporate misconduct. In a Sept. 10 speech, Deputy Attorney General Sally Quillian Yates said that “the only way to truly deter corporate wrongdoing” is to “seek accountability from those who break our laws and victimize our citizens” because doing so “deters future illegal activity, … incentivizes changes in corporate behavior and … ensures that the people who engage in wrongdoing are held responsible for their actions.”

Yates recently issued a memo to all DOJ prosecutors and civil litigators setting out specific steps the department will take to “make the strongest possible cases against individuals in corporate cases.” She noted that some of these policies are new and some are already being practiced at various places within the DOJ but that all will apply to “everyone across the department.” At the same time, some of these policies “will affect cases that are only beginning now and may take years to become public.” She acknowledged that the “all or nothing” approach reflected in these changes could result in less corporate cooperation, fewer settlements and guilty pleas, more litigation, and smaller overall recoveries by the government but said “if that’s what happens, so be it.”

Cooperation. Effective immediately, if a company wants any credit at all for its cooperation it must identify all individuals involved in the wrongdoing, regardless of their position, status or seniority in the company, and provide all relevant facts about their misconduct. If companies “don’t know who is responsible,” Yates said, “they will need to find out” if they want cooperation credit. This is “a substantial shift from our prior practice,” she added, because there will be “no more partial credit for cooperation that doesn’t include information about individuals.”

Yates added that companies will be “expected to provide the same type of information about individuals if they want any consideration on the civil side, including how a case is charged or resolved and whether we bring action against a parent or its subsidiary.” Similarly, to qualify for the reduced damages provision under the False Claims Act a company must identify any culpable individuals and provide all material facts about those individuals.

Further, corporate plea agreements and settlement agreements will include a provision that requires the companies to continue providing relevant information to the government about any individuals implicated in the wrongdoing. Failure to comply will be considered a material breach of the agreement and grounds for revocation or stipulated penalties.

Initiating Investigations. Having learned that “it is extremely difficult to build a case against individuals, civil or criminal, unless we focus on individuals from the very beginning,” Yates said, DOJ attorneys have been instructed that “they are to focus on individuals from the start of an investigation, regardless of whether the investigation begins civilly or criminally,” and that “once a case is underway, the inquiry into individual misconduct can and should proceed in tandem with the broader corporate investigation.”

Conducting Investigations. The DOJ is directing its civil and criminal attorneys to collaborate to the full extent permitted by law at all stages of the investigation. Regardless of whether a corporate case begins as a civil or criminal inquiry, the DOJ attorneys initially handling the matter will be responsible for notifying the “other side of the house” about the investigation. “If prosecutors decide not to bring criminal charges against individuals, they will need to notify their civil counterparts, who can make an independent assessment of civil liability,” Yates said. “And if civil attorneys identify individuals during their investigation who should be subject to a criminal inquiry, they will be expected to promptly refer the matter to criminal prosecutors, regardless of the current status of the civil corporate investigation.”

Resolving Investigations. If DOJ attorneys decide it is necessary to resolve a corporate case first, Yates said, they will only be permitted to do so once they have demonstrated to their supervisors a clear plan for resolving the related individual cases promptly and before the statute of limitations expires. Further, if at the conclusion of an investigation the attorneys decide not to bring charges against individuals, they will be expected to memorialize their justification and then obtain approval from the U.S. attorney or the assistant attorney general overseeing the investigation. Likewise, Yates said, attorneys should not release individuals from civil or criminal liability when resolving a matter with corporation “except under the rarest of circumstances.”

Civil Enforcement. Finally, Yates said, the DOJ “will be pursuing civil actions against corporate wrongdoers even if those wrongdoers don’t have the financial resources to satisfy a significant money judgment.” In addition, DOJ civil lawyers “will be looking at factors similar to those considered by our criminal prosecutors, such as the individual’s misconduct, past history and the circumstances relating to the commission of the misconduct, in deciding whether to bring suit,” with financial resources “one consideration in that assessment, rather than a determinative factor.”

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