Federal guidelines may make it easier to hold high level executives accountable for corporate misconduct

The Yates Memo, named after Deputy Attorney General Sally Yates, pictured here arriving on Capitol Hill in Washington in October to testify before a Senate Judiciary Committee hearing, requires corporations being investigated for wrongdoing to hand over all information about the misconduct and the individuals responsible. Photography by The Associated Press

Corporations are people, according to Mitt Romney. But when a corporation breaks the law, it can be hard to identify the people responsible.

In a memo issued last September and circulated to every U.S. Attorney, Deputy Attorney General Sally Yates acknowledged this problem, yet stressed the importance of going after those people nonetheless.

“Crime is crime,” Yates said in a subsequent speech. “And it is our obligation at the Justice Department to ensure that we are holding lawbreakers accountable regardless of whether they commit their crimes on the street corner or in the boardroom.”

The so-called Yates Memo lays out six best practices—some new, some established—for Department of Justice investigations of corporate wrongdoing.

“I think this memo is more about punishing than about deterring,” —Ken Levy, LSU Law Center associate professor

The first, and perhaps most alarming for corporate lawyers, has been described as the “all or nothing” cooperation standard: For company officials to get any credit for cooperating with an investigation, they must turn over all available information about the misconduct and the people responsible, no matter their position, status or seniority. In the past, the government used more of a sliding scale, and companies could receive at least some credit for cooperation—possibly leading to a lighter sentence—even if they failed to disclose facts about individuals.

Walt Green, the current U.S. Attorney for the Baton Rouge-based Middle District of Louisiana, says his office already was following the principles laid out in the memo.

“Historically, we have never really had many corporate pleas where individuals were not held accountable,” he says. “We certainly charge individuals and corporations at the same time, and we may charge individuals and not the corporation.”

As such, the Yates Memo doesn’t represent a radical policy shift, Green says. The nation’s 93 U.S. Attorneys operate with a fair amount of independence. The memo served as a reminder of DOJ policy and put corporations, shareholders and potential defendants “on notice” about the current thinking, he says.

But the U.S. Chamber of Commerce says the Yates Memo indicates “a dramatic sea change” for DOJ’s expectations.

“Department lawyers are now required to build cases against individuals from the outset [of an investigation],” reads a report by the U.S. Chamber Institute for
Legal Reform. “The goal of this strategy is to lead individuals to provide information against higher-level corporate employees, echoing federal counter narcotics strategies of ‘flipping’ lower-level informants.”

The policy could discourage employees from cooperating with an internal investigation out of fear of their own prosecution, the chamber argues, while companies could be discouraged from self-reporting violations or cooperating with the government. And it might not be worth the time and expense to conduct a thorough internal investigation—possibly turning employees against each other—if there’s no guarantee of some sort of favorable credit from prosecutors.

So how will DOJ define “full cooperation”?

“It’s a good-faith test,” says Don Cazayoux, a former U.S. Attorney and congressman whose private law practice includes white-collar criminal defense. “You have to make a substantial effort.”

As a defendant, you don’t want federal investigators to find “gaping holes” in the information you’ve provided, he says. In some cases, DOJ might want the company to back off its internal investigation but make employees available for interviews or have their calls recorded.

“It will be delicate dance,” Cazayoux says. “It’s been done all along. It’s just now, the requirement is that it’s done in every case.”

There’s a natural conflict between a corporation that wants to get to the bottom of things and employees who may be culpable, he adds. Individuals might now be more likely to lawyer up.

Yates says companies will not be asked to waive attorney-client privilege. But while the notes from an employee interview may be privileged, Yates says, the facts gleaned from those interviews are not.

“Privilege is not a cut-and-dry, black-and-white issue,” says Ken Levy, an associate professor at the LSU Law Center. At his former job with a law firm that handled internal corporate investigations, attorneys often debated whether certain documents were privileged, and “it was never clear.”

Given the corporate shenanigans that broke the economy during the last decade, DOJ is under political pressure to reassure the public that they’re going after individual wrongdoers. Levy sees the Yates Memo as more of a rhetorical device than a substantive policy change.

Levy doesn’t see how the memo will make corporations more or less motivated to deter employee wrongdoing or cooperate with investigations. He thinks it probably discourages employees from cooperating, although perhaps they will be less likely to break the law in the first place.

“I think this memo is more about punishing than about deterring,” Levy says.

Cazayoux says the goal is deterrence. But he says putting more people in prison might well be the effect.

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