Will Heads Roll? DOJ Urges Individual Accountability for Corporate Wrongdoing

In the first major policy announcement in the new tenure of Attorney General Loretta Lynch, the Department of Justice (DOJ) recently issued a set of guidelines which shifts focus in white collar misdeeds from nameless corporate entities, aiming instead to seek out specific individuals and hold them accountable.

Since the late 1990’s, a culture of leniency toward executive misdeeds prevailed that tended, at best, to penalize corporate entities if and when any wrongdoings were unveiled. Legal lines were be blurred, excessive risks taken, and financial improprieties overlooked, at least as far as any individual actors were concerned. Investigations of many corporate crimes were squelched based on a 1999 DOJ memo written by none other than then Assistant Attorney General Eric Holder. Wrongdoing was met with fines, penalties absorbed by shareholders and not the culpable parties, and criminal or civil liability avoided. Even Supreme Court decisions, such as the reversal of a conviction in the Enron scandal, among others, had the effect of reducing corporate prosecutions in favor of settlements or deferred-prosecution agreements. The political and financial climate combined with these legal factors emboldened Wall Street elites and others expecting to escape serious personal consequences.

The new administration’s policy is known as the “Yates Memo,” so named for its author Assistant Attorney General Sally Yates. The memo outlines steps for investigation of corporate misconduct that emphasizes investigation and prosecution of individual employees in both criminal and civil contexts. It requires staffers to turn over evidence against those higher up on the organizational chart. With its focus is on accountability, the intent of the guidance is to “deter future illegal activity, incentivize changes in corporate behavior, ensure that the proper parties are held responsible for their actions, and promote the public’s confidence in our justice system.”

The six recommended measures are:

  1. In order to qualify for any cooperation credit, corporations must provide DOJ with all relevant facts relating to the individuals responsible for the misconduct. While the emphasis here is on proactive disclosure of all relevant facts about individual misconduct as it relates to settlements under the Principles of Federal Prosecution of Business Organizations, the clear implication is that such candor extends to any investigation. Respondents are expected to identify all individuals involved in or responsible for the misconduct at issue, regardless of their position, status or seniority.
  2. Criminal and civil corporate investigations should focus on individuals from the inception of the investigation. This measure attempts to increase the likelihood of cooperation, particularly in naming executives who would otherwise be shielded.
  3. Criminal and civil attorneys handling corporate investigations should be in routine communication with one another, seemingly to mitigate delays that might prevent prosecution.
  4. Absent extraordinary circumstances or approved departmental policy, DOJ will not release culpable individuals from civil or criminal liability when resolving a matter with a corporation. Any such release of criminal or civil liability due to extraordinary circumstances must be personally approved in writing by the relevant Assistant Attorney General or United States Attorney.
  5. Department attorneys should not resolve matters with a corporation without a clear plan to resolve related individual cases, and should memorialize any declinations as to individuals in such cases; and
  6. 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.

Despite the pointed shift in policy, there are clear obstacles to significant implementation. Prosecutors still must rely to some extent on access to information from the very company it is investigating. Demands to provide comprehensive data may still not produce proof that could establish guilt beyond a reasonable doubt or criminal intent. This is particularly true when determining the culpability of high-level executives, who may be insulated from the day-to-day activity in which the misconduct occurs. It is unclear what happens when companies withhold information, or engage in delay tactics. The Yates Memo is merely guidance, not a regulation, and thus has only limited enforcement capability. Regardless, the intent is clearly to shift enforcement towards individual accountability.

Former Federal Reserve Chairman Ben Bernanke said in an interview published recently that individual Wall Street executives should have been prosecuted for their actions leading up to the 2008 financial crisis. However, he noted, DOJ and other law-enforcement agencies focused instead on investigating or indicting entire firms. “A financial firm is of course a legal fiction; it’s not a person. You can’t put a financial firm in jail,” he said. “It would have been my preference to have more investigation of individual action, since obviously everything that went wrong or was illegal was done by some individual, not by an abstract firm.”

Feel free to call our office for further clarification on this DOJ memo, or its implications for your company.