Individual accountability for corporate wrongdoing – how tough can it get?
Following a steady drumbeat of criticism of U.S. regulators and criminal authorities in the years following the financial crisis that they did not hold enough individuals to account, in September 2015 the U.S. Department of Justice (DoJ) issued a legal memorandum regarding "Individual Accountability for Corporate Wrongdoing", which sets out a number of principles designed to increase the number of individuals prosecuted for corporate misconduct.
The Yates Memorandum,1 as it is called (after its author Deputy Attorney General Sally Yates), identifies six key changes in approach the DoJ intends to implement in order to boost the number of individual prosecutions that it brings:
- Corporations will not be eligible to earn cooperation credit unless they provide to the DoJ "all relevant facts" relating to the individuals responsible for the misconduct.
- Individuals should be a focus of investigations from inception.
- DoJ civil attorneys should consider whether suits against individuals for damages are appropriate (the DoJ can prosecute cases civilly as well as criminally).
- Criminal and civil attorneys at the DoJ should be in close contact with each other.
- The DoJ will not release individuals from liability when settling a matter with their employer.
- Investigations of the corporation should not be resolved without a plan to resolve related individual cases.
The first of the DoJ's key steps is perhaps the most striking – corporations should not expect to receive any cooperation credit unless they provide all relevant facts about the individuals concerned, meaning that the corporation must identify all individuals involved and provide the DoJ with full details of their conduct "regardless of their position, status or seniority". This may set a very high bar indeed on firms to investigate, and assign culpability for, misconduct.
However, this is no mean feat: as the DoJ itself states in the memorandum, responsibility for complex corporate misconduct may be diffuse among multiple individuals and "it can be difficult to determine if someone possessed the knowledge and criminal intent necessary to establish their guilt". Requiring corporations to identify and provide facts regarding individuals who appear to be involved with the misconduct may therefore create a host of difficulties for the corporation and leave them exposed to arguments that they have served up their employees to the DoJ in order to earn cooperation credit. Likewise, putting pressure on the DoJ line prosecutors running these cases to choose one or more individuals to face the burden of an individual prosecution (with all of its professional and personal consequences) creates a risk that the underlying complexity of the factual conduct may be put to one side when charging decisions are made. Such factual difficulties may of course be resolved at trial (since individuals are much more likely to contest the charges than corporations), but at that point the defendants will have been judged in the court of public opinion and will face an uphill battle to clear their names even if they are proven not guilty at trial.
For firms, their fortunes in an investigation will now appear to be tied more explicitly to those of individuals who are charged, as corporate cases will not be resolved without decisions being made about culpable individuals (or at least the DoJ having a plan on how to proceed against individuals if a corporate resolution is imminent). Further, a corporate resolution will not sweep up individuals the DoJ otherwise intends to charge; although this principle may reflect current practice to a large degree, it does make it more likely that a firm that settles a DoJ investigation will not be able to put the matter fully behind it as some of its individual employees continue to be investigated and/or tried in court.
Impact outside the U.S.
Many non-U.S. firms have felt the effects of DoJ investigations over the past few years, and this has not been limited solely to U.S.-headquartered firms. The DoJ of course takes a broad view of its own jurisdictional reach, a position generally supported by U.S. statutes and case law (for example, the U.S. antitrust statute gives the DoJ a mandate to prosecute conduct that "affects U.S. domestic or foreign commerce", regardless of where it occurs or the nationalities of the parties involved). It could well be that these new guidelines will mean that cross-border DoJ investigations will become even more complicated than they already are, with more individuals becoming targets than has been the case to date (and all that brings with it in terms of separate representation, questions regarding employment status, etc.) and resolution of investigations being coordinated with, and potentially delayed or complicated by, prosecutions of individuals.