A Game Changer in Compliance

turteltaub-adam-200x200by Adam Turteltaub

Starting late Wednesday, September 9th, word began circulating on news sites that the Justice Department had issued a new memo calling for more prosecutions of individuals and not just the corporations for which they work.  According to the New York Times:

The memo… tells civil and criminal investigators to focus on individual employees from the beginning. In settlement negotiations, companies will not be able to obtain credit for cooperating with the government unless they identify employees and turn over evidence against them, “regardless of their position, status or seniority.”

Deputy Attorney General Sally Yates, who is also the author of the memo, went on to tell the Times that simply giving the names of low level employees won’t be enough. “We’re not going to be accepting a company’s cooperation when they just offer up the vice president in charge of going to jail.”

For companies in the midst of an investigation, the impact is likely to be rather immediate.  Settlement conversations may suddenly have a very different tone.

There is ample room to argue whether this is the right thing to do, both as a moral choice and as a practical effort to reduce wrongdoing.  But as compliance professionals, that’s a debate for others to have, at least publicly.  It falls to this community to deal with the implications of this change in policy.  Here are some likely impacts.

  • Leadership will likely become more focused on compliance. The specter of being prosecuted personally for something that they have done, or happened under their watch, is likely to be very chilling to many senior managers.
  • It may become harder to get employees, especially senior ones, to talk during an internal investigation. With the greater likelihood of going to jail, many may not want to risk implicating themselves or someone they work with.
  • Board interest in compliance will be heightened further. There’s a great deal of reputational damage when a company gets convicted.  When its CEO is convicted, or worse imprisoned, the damage is far greater.  That’s likely to attract a good deal of board attention.

There’s one other distinct possibility:  not much will happen.  As many analysts have noted, it can be very hard to point a finger at one individual.

What do you think will happen?  And what should compliance officers be doing in the wake of the change?  Let us know.  And please, no political arguments.


  1. There’s been a pervasive sense since the financial crisis that companies get in trouble–not individuals (whether or not justified). This memo and the attendant changes in investigations and prosecutions may act like any corporate performance program that changes behaviors based on how one gets rewarded or sanctioned. The threat of jail time for even unintentional mistakes surely should raise some eyebrows in C-suites. I know that the threat in recent years of compliance officer prosecutions has raised mine and changed how I think about practicing my profession.

    • I’m curious as to how your thought practices have changed.

      As a compliance officer my approach has been to be frank and direct and avoid being placed in a position where it could be claimed that I failed to advise management or the board about compliance risk. This runs has sometimes created conflict with senior management or legal counsel.

  2. Rather than trying to predict what will happen, I’ll just share a reminiscence of my late tax partner, Bill Kinzer. When faced with a questionable tax strategy, Bill would sometimes say to the client, “I’m not going any farther with this until we decide who is going to be the DJ.” Someone would always ask what he meant by DJ. Bill: “The Designated Jailee.”

    Bill made his point and it was never necessary to select a DJ. Could be the DOJ’s policy will have a similar effect in some cases.

  3. I think it is a matter of degree rather than a complete change. If you choose to cooperate with a criminal investigation, can you cooperate without naming names? Making it more explicit that individuals can be held liable for compliance failures should help the compliance program effectiveness by making sure every employee understands that they can be personally liable (i.e., the DJ).

  4. My belief is that compliance officers will take this more seriously than senior management or boards. Some entities seem to have the perception that “it’s not us it’s someone else who is the problem’.

    The exception will be very high profile companies that have already had negative exposure.

  5. Will every janitor and nurses aide need legal representation during regulatory visits that potentially lead to criminal investigations?

  6. Thanks all for the comments.

    I think there will be some overreacting by a few, but on the whole I do wonder if it will turn out to be a deterrent. Part of me thinks that seeing your peers go to jail will dissuade many from doing the wrong thing.

    However, many will likely end up rationalizing why it won’t happen to them and that they will never be the DJ. Such a great term.

  7. Question to the group: Does this open up the Compliance Officer as “the fall guy”? Could executives point the finger at Compliance if the activity wasn’t caught despite best practices and due diligence?

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