Source: https://www.ropesgray.com/en/newsroom/alerts/2016/March/The-Yates-Memo-Have-the-Rules-Really-Changed
Timestamp: 2019-04-25 10:24:01+00:00

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The Yates Memo: Have the Rules Really Changed?
On March 12, 2019, the United States Department of Justice (the “DOJ”) revised key provisions of the FCPA Corporate Enforcement Policy (the “Policy”). The revisions formalize several of the DOJ’s remarks and announcements since the Policy was adopted, and relaxed and clarified several criteria for self-disclosure, cooperation, and remediation.
On September 9, 2015, Deputy Attorney General Sally Quillian Yates issued a memorandum to all federal prosecutors regarding “Individual Accountability for Corporate Wrongdoing” (the “Yates Memo”).1 The Yates Memo built upon many years of guidance from the Department of Justice (“DOJ”) and announced certain policy shifts and best practices for prosecutors in their pursuit of civil and criminal actions against individuals in the context of investigations of corporate misconduct. While many of the guiding principles and policy pronouncements sounded strikingly similar to prior DOJ guidance, the Yates Memo contains at least two significant changes that companies should bear in mind when conducting internal investigations: (1) companies are now required to “identify all individuals involved in the wrongdoing”2 in order to qualify for consideration of any cooperation credit in the resolution of a matter (previously companies were able to obtain partial cooperation credit for significant cooperation), and (2) the DOJ is directing prosecutors to consider, build, and bring criminal or civil cases against individual defendants to hold them liable for misconduct.
The Yates Memo is not a sea change in DOJ policy but perhaps represents a bridge farther in a long line of efforts to deter corporate crime by prosecuting culpable individuals. The following article reviews the historical guidance on which the Yates Memo builds, analyzes the Yates Memo directives as they have been incorporated in the United States Attorney’s Manual (“USAM”), and offers some practical guidance for corporations going forward.
B. For Over 15 Years, the DOJ Has Directed Prosecutors to Pursue Cases Against Culpable Individuals.
The Yates Memo is the latest in a series of pronouncements from the DOJ, stretching back to 1999, that direct prosecutors to seek to hold culpable individuals responsible for corporate misconduct.
Similarly, Assistant Attorney General Leslie Caldwell reiterated on October 1, 2014 that companies must identify responsible individuals to receive cooperation credit, adding that “a company that interviews its employees in an effort to whitewash the facts or spread the company’s narrative spin risks receiving any cooperation credit.”15 Caldwell’s comments previewed the possibility that deficient cooperation with respect to individuals could result in the wholesale forfeiture of any cooperation consideration.
C. The Six Key Steps in the September 2015 Yates Memo Largely Stay the Course, With A Few Notable Exceptions.
Although it is too early to appreciate fully the implications of the Yates Memo in the DOJ’s resolutions, it is clearly an attempt to address individual accountability straightforwardly in order to strengthen federal prosecutors’ ability to investigate and resolve corporate misconduct. The Yates Memo outlines the “six key steps” prosecutors should take in all future investigations of corporate wrongdoing. Some of these steps represent significant—though not drastic—policy changes, whereas others are simply a memorialization of best practices that have already been in place in various United States Attorney’s Offices across the country.
The following subsections are captioned according to the Yates Memo’s “six key steps,” and are accompanied by a brief explanation and analysis. The DOJ revised the section of the USAM titled “Principles of Federal Prosecution of Business Organizations” in November 2015 to reflect these steps; some observations on the implementing edits are also included below.
By making full cooperation with regard to individuals a prerequisite for any cooperation credit for the company, the DOJ has raised the stakes. Already faced with difficult decisions about when to disclose matters voluntarily and to cooperate fully in investigations, boardrooms and executives now must grapple with the additional risk that the company’s cooperation is an all-or-nothing proposition.
DAG Yates emphasized that a failure to conduct a robust internal investigation is not an excuse, stating that “[c]ompanies may not pick and choose what facts to disclose.”18 At face value, the Yates Memo and DAG Yates’ accompanying remarks suggest that a company could conduct a diligent and thorough investigation that still fails to identify culpable individuals, despite the best efforts of the company to do so. Denying a company any consideration for cooperation credit under such circumstances would seem a draconian application of the Yates Memo, as well as counterproductive to the DOJ’s stated objectives and interests in encouraging corporate cooperation. Subsequent public statements by DAG Yates have emphasized the DOJ’s willingness to use appropriate discretion but have also reflected DAG Yates’ view that in only the rarest case will a proper investigation fail to identify all responsible individuals.
The Yates Memo’s directives were later incorporated into the USAM, which echoed this sentiment: “There may be circumstances where, despite its best efforts to conduct a thorough investigation, a company genuinely cannot get access to certain evidence or is actually prohibited from disclosing it to the government.”20 However, the USAM is clear that in such cases “the company seeking cooperation will bear the burden of explaining the restrictions it is facing to the prosecutor.”21 Consequently, the importance of thorough and properly scoped internal investigations has never been greater.
The second directive of the Yates Memo does not represent a major change in DOJ policy. The focus on individuals in both civil and criminal investigations is already the standard practice in many areas. Rather, the directive establishes the best practice that such focus should be present from the outset of every investigation.22 With this announcement, companies might see employees less forthcoming in interviews and requesting individual counsel, even in the early stages of an investigation.
Cooperation between criminal and civil teams at USAOs is already a common practice and does not represent a major policy change. A new section in the USAM now explicitly requires civil attorneys to follow the same guidelines as criminal prosecutors when pursuing individuals23 and emphasizes the need for communications between civil and criminal attorneys.24 The benefit to the government of increased cooperation between civil and criminal attorneys is twofold. Increased cooperation may result in an increase of civil actions where evidence does not satisfy the higher criminal burden of proof, and the increased cooperation in civil matters could also increase the likelihood of criminal charges resulting from civil investigations.
The final directive of the Yates Memo represents a slight shift in attitude towards the pursuit of civil charges against culpable individuals. Formerly, an individual’s inability to pay a monetary penalty generally served to deter civil attorneys from bringing suit against the individual. The prevailing rationale had been that it would be a poor use of resources to pursue a case with little to no prospect of a payout. However, civil authorities are now being encouraged to consider the non-monetary value of general deterrence and individual punishment. In making decisions about civil cases, government attorneys will now weigh numerous factors, including the individual’s misconduct, history, and the circumstances of the misconduct, alongside the individual’s ability to pay.
D. The Yates Memo Will Have Practical Implications on Companies’ Internal Investigation Practices and Personnel Relationships.
The Yates Memo contemplates that corporations will closely monitor their compliance programs and encourage senior leaders to embrace the company’s compliance culture. Prudent companies will review and enhance their compliance programs, including consideration of an independent compliance assessment. All instances of noncompliance should be promptly addressed, investigated, escalated, and remediated, with clear documentation of each step of the process. When faced with allegations of misconduct, a robust compliance program is often a company’s best defense.
The Yates Memo will likely impact corporate investigations in several ways. First, the renewed focus on individual liability and the DOJ’s reluctance to resolve matters with a corporation before a plan is established for individuals may result in longer and more costly investigations. Second, the Yates Memo raises the stakes for all corporate investigations. Under the new policy, a company may wholly disqualify itself from any cooperation credit if its internal investigation is later found to be anything less than thorough, or the company to be anything short of fully cooperative.
The Yates Memo does not change the hallmarks of a good investigation, but it does highlight the importance of several steps. In light of the potentially severe consequences for missing key facts, investigators should take particular care in defining the appropriate scope of the investigation to ensure the discovery of all relevant information and should follow all leads reasonably calculated to inform the material issues. To facilitate a timely and thorough investigation, investigators should create work plans, set deadlines for each step, establish reporting lines with relevant internal and external audiences, and document the process, including key investigatory decisions. Depending on the severity of the allegations and the seniority of those involved, companies should consider retaining experienced outside counsel to define the scope at the outset of the investigation.
The Yates Memo has already increased the tension between employers and their employees, and unsurprisingly, the result may be a decrease in the candor and cooperativeness of employee witnesses. The renewed zeal with which the government and companies will work to identify culpable individuals is likely to be in direct conflict with the interests of certain employees involved in or knowledgeable about the alleged misconduct. At earlier stages and with increased frequency, employees may request individual counsel and decline to be interviewed without their counsel present. Accordingly, the need for clear and documented Upjohn warnings is especially salient given the increased possibility that the interests of employer and employee may diverge. Finally, there may also be a rise in director and officer litigation costs as individuals require separate counsel for both the investigation and any ensuing litigation, such as shareholder suits. Companies may wish to review their D&O insurance policies to ensure that they have sufficient coverage to manage these potentially increasing costs.
Pursuant to the DOJ’s Principles of Federal Prosecution of Business Organizations, corporations are not required to disclose privileged materials to the government as a condition for cooperation credit, and eligibility for cooperation credit is not tied to a company’s decision regarding waiver.29 Instead, companies are more likely to face challenges surrounding waiver in situations where individual employees wish to waive in order to defend themselves, but where the company wishes to maintain its privilege. In her November 2015 remarks, DAG Yates acknowledged that the new policies do not infringe on attorney-client privilege. She did, however, state that “legal advice is privileged” while “[f]acts are not.”30 As an example, she explained that law firm memoranda and notes from employee interviews may be protected by the attorney-client privilege, but to earn full cooperation credit “the corporation does need to produce all relevant facts – including the facts learned through those interviews.”31 Accordingly, investigators should memorialize relevant facts in a way that provides the company with the option of later sharing them with outside parties; for example, an interview memorandum that inextricably weaves attorney comments together with relevant facts may present difficult waiver questions for the company if it later hopes to share the information from that interview.
In a system where both the corporation and numerous individual employees may incur civil and criminal liability, there are more opportunities for conflicts to arise. In the wake of the Yates Memo, board members, executives, and audit committees will need to assess carefully whether it is appropriate to use a single law firm to investigate matters and provide counsel regarding resolutions with the government. With various constituencies facing the possibility of serious consequences, even from the early stages of an investigation, the interests among them are likely to diverge more often than in years past.
1 Memorandum from Sally Quillian Yates, Deputy Attorney General, U.S. Dep’t of Justice, to All United States Attorneys (Sept. 9, 2015) [hereinafter Yates Memo].
3 Sally Quillian Yates, Deputy Attorney General, U.S. Dep’t of Justice, Remarks at the New York University Program on Corporate Compliance and Enforcement (Sept. 10, 2015).
5 Memorandum from Eric H. Holder, Jr., Deputy Attorney General, U.S. Dep’t of Justice, to All Component Heads and United States Attorneys, p. 1 (June 1, 1999) [hereinafter Holder Memo].
10 Memorandum from Larry D. Thompson, Deputy Attorney General, U.S. Dep’t of Justice, to Heads of Department Components and United States Attorneys, p. 2 (Jan. 20, 2003).
11 Id. at 3. The 2006 McNulty Memo restated the same language and did not change any policy with regard to the prosecution of individuals. See Memorandum from Paul J. McNulty, Deputy Attorney General, U.S. Dep’t of Justice, to Heads of Components and United States Attorneys, p. 4 (Dec. 12, 2006).
12 Memorandum from Mark Filip, Deputy Attorney General, U.S. Department of Justice, to Heads of Department Components and United States Attorneys, p.4 (August 28, 2008) [hereinafter Filip Memo].
13 Marshall L. Miller, Principal Deputy Assistant Attorney General, Dep’t of Justice – Criminal Division, Remarks at the Global Investigation Review Program (Sept. 17, 2014).
15 Leslie R. Caldwell, Assistant Attorney General, Dep’t of Justice – Criminal Division, Remarks at the 22nd Annual Ethics and Compliance Conference (Oct. 1, 2014).
16 U.S. Attorneys’ Manual § 9-28.700 (2015).
17 U.S. Attorneys’ Manual § 9-28.700.
18 Yates Memo at 3.
19 Leslie R. Caldwell, Assistant Attorney General, Dep’t of Justice – Criminal Division, Remarks at the Second Annual Global Investigations Review Conference (Sept. 22, 2015).
20 U.S. Attorneys’ Manual § 9-28.700.
22 This portion of the Yates Memo is reflected in the relevant USAM chapter’s introductory section and the section titled “Focus on Individual Wrongdoers.” See U.S. Attorneys’ Manual §§ 9-28.010, 9-28.210.
23 See U.S. Attorneys’ Manual §§ 9-28.210, 9.28-300.
24 See U.S. Attorneys’ Manual § 9-28.1200.
25 Note that the practice was common notwithstanding the directive present since the 1999 Holder Memo that “prosecutors generally should not agree to accept a corporate guilty plea in exchange for non-prosecution or dismissal of charges against individual officers and employees.” Holder Memo at 10.
26 U.S. Attorneys’ Manual § 9-28.210.
27 U.S. Attorneys’ Manual § 9-28.210.
28 See U.S. Attorneys’ Manual § 9-28.700.
29 See U.S. Attorneys’ Manual § 9-28.720.
30 Sally Quillian Yates, Deputy Attorney General, U.S. Dep’t of Justice, Remarks at American Banking Association and American Bar Association Money Laundering Enforcement Conference (Nov. 16, 2015).
32 Sally Quillian Yates, Deputy Attorney General, U.S. Dep’t of Justice, Remarks at the New York University Program on Corporate Compliance and Enforcement (Sept. 10, 2015).

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