Reflections on the Yates Memo

Appleton_Robert_Profile_900x1200_HI-RESBy Robert Appleton
From the Nov/Dec 2015 issue of ethikos

The Department of Justice (DOJ) recently released a potential game changing enforcement policy on September 9, 2015 called “Individual Accountability for Corporate Wrongdoing” (The Yates Memo). The Memo, publicized broadly, is receiving unprecedented attention and significant concern, and with good reason. While not entirely new in many aspects, the Yates Memo clarifies and re-emphasizes the DOJ’s enhanced focus on holding corporate executives accountable for corporate wrongdoing in both criminal and civil cases. Under the Yates Memo, two newethikos dec aspects of the policy have potentially profound implications. First, prosecutors can no longer recommend that the company receive any “credit” in the form of reduced penalties for cooperation unless the corporation turns over all information on everybody in the company that may have participated in wrongdoing. Second, prosecutors are required to prosecute all individual employees where there is sufficient evidence to do so.
In the past, the DOJ has routinely agreed to settle cases of corporate wrongdoing by requiring the organizations to pay fines, change their business practices, and sometimes agree to a corporate monitor and/or terminate the wrongdoer. At the same time, the DOJ had generally not pursued actual prosecutions against individuals except in egregious instances of fraudulent or corrupt conduct. In some cases, DOJ has historically used the carrot of foregoing individual prosecutions as an incentive for the company to pay big fines. In short: The corporations paid and the individuals skated. No more.

The Yates Memo changes that standard and emphasizes that prosecutors should “seek accountability from the individuals who perpetrated the wrongdoing.” No longer will a company resolve its civil or criminal problems by terminating the wrongdoer. This means that investigations will take longer and involve more individual subjects and targets as prosecutors look at the role of everyone involved and try to find possible individuals to prosecute.

Clearly, the directive is for investigators to work these cases up the chain of command within an organization now, and evaluate what directors and officers, as well as senior management and involved employees knew, or reasonably should have known about a regulatory or criminal problem. Such individuals could be prosecuted under a “conscious avoidance” theory, popular among prosecutors to employ in cases where there is evidence of misconduct all around an official, but little immediately implicating her directly. The theory, recognized in the federal law, allows the government to “impute” knowledge to the senior official.

These requirements will no doubt cause the process, both internally, and externally with the DOJ, to become more adversarial, with savvy employees, officers and directors that find themselves being asked questions internally about alleged wrongdoing, thinking twice before they voluntarily submit to interviews within the company and turn over materials. Such concerns are valid because any information they disclose will now be turned over to the government. In this climate, these statements and evidence could be used against the official in an individual prosecution, and the officer or director will be faced with the unenviable choice of whether to put his or her job, or liberty, first. As such, prudent employees finding themselves the subject of inquiries will also quickly retain counsel.

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