The Department of Justice (DOJ) is setting its sights on individual accountability for corporate wrongdoing. That is the message that DOJ has been promoting following the recent internal memorandum issued by Deputy Attorney General Sally Quillian Yates titled “Individual Accountability for Corporate Wrongdoing” (the Yates Memo), which relates to DOJ’s practices in conducting corporate investigations. Although the idea of holding individuals accountable for corporate wrongdoing is not new, the Yates Memo’s relative focus on individuals as part of corporate investigations suggests more scrutiny of individuals in civil and criminal investigations. This focus complements a well-documented increase in the suspension and debarment of individuals in recent years, and reinforces the heightened risks that business owners, executives, managers, and employees face throughout the government contracting community.
The Yates Memo presents a good opportunity for government contractors to review their compliance programs in the new year—and in particular their practices for conducting internal investigations—to ensure that they are actively managing the risks presented by this professed focus on individuals. This alert summarizes the Yates Memo and offers three tips to government contractors to consider in response.
The Yates Memorandum: An Overview
The Yates Memo emphasizes individual accountability for corporate wrongdoing, even where that does not result in more money recovered for the government. In the past, DOJ has often released individual liability after a large corporate settlement. This practice is unlikely to continue. To promote individual accountability in DOJ investigations, the Yates Memo sets out six guidelines: (1) to get any cooperation credit, companies must provide “all relevant facts” about the individuals involved in the alleged misconduct; (2) both criminal and civil investigations should focus—from the beginning—on individuals; (3) criminal and civil attorneys should coordinate their investigations; (4) corporate resolutions will not release individuals; (5) corporate investigations should not be resolved without considering the impact on individual investigations, especially with regard to the statute of limitations; and (6) the ability to pay a money judgment should not impact the decision on whether to bring suit against an individual.
These six guidelines were incorporated in November 2015 into a revised version of the United States Attorneys’ Manual and DOJ’s Principles of Federal Prosecution of Business Organizations. Both documents now reflect that DOJ should be holding individuals accountable for corporate wrongdoing, and that the focus on individuals should start at the beginning of an investigation.
Government contractors should pay special attention to the Yates Memo and related guidance as it raises a host of concerns, including how this “new” focus on individual accountability will impact internal investigations, mandatory disclosures, and the risks attendant to civil, criminal, and administrative proceedings.
Three Tips to Manage the Risks Presented by the Yates Memo
Though the ultimate practical impact of the Yates Memo remains to be seen, we suggest below several common-sense steps government contractors should consider taking now to help ensure they are adequately prepared for government investigations post-Yates Memo.
First, ensure your internal investigation practices adequately protect your corporate attorney-client privilege.
The Yates Memo sets higher expectations for the level of information the government requires regarding individuals. In this regard, the Yates Memo states that cooperation credit will no longer be offered unless companies “identify all individuals involved or responsible for the misconduct at issue, regardless of their position, status or seniority, and provide to the Department all facts relating to that misconduct.” This puts tremendous pressure on companies to quickly get to the bottom of who was involved in alleged misconduct, and may create greater tension in internal corporate investigations.
DOJ’s early focus on individuals will undoubtedly increase the prospect that companies and their employees have divergent interests much earlier in the investigation or disclosure process. This increases the importance of taking steps to protect corporate attorney-client privilege, paying close attention to information indicating individuals may have a need for separate counsel. As made apparent by the recent Barko cases (challenging privilege assertions in internal investigations), companies need to be proactive to protect their corporate attorney-client privilege. To this end, companies should consider several best practices for preserving privilege in internal investigations, including: (1) ensuring that counsel is actively participating in the investigation; (2) ensuring that investigation procedures make it clear that the purpose of the investigation is to seek or obtain legal advice for the company; (3) ensuring that all participants in the investigation are aware that the investigation is being directed by counsel and having counsel prepare or review the investigation findings; and, perhaps most importantly, (4) having counsel participate in all witness interviews and ensuring that all interviews contain appropriate Upjohn instructions.
Second, review your insurance coverage for government investigations.
The costs of government investigations can be staggering, particularly considering the costs of reviewing and producing documents and electronically stored information in response to often sweeping requests. These costs can be particularly damaging to smaller and mid-sized companies. The Yates Memo may compound these costs by increasing the prospect of parallel proceedings involving multiple individuals and corporate defendants. Contractors should review their insurance assets—including D&O insurance policies—to make sure that policy limits and policy language are adequate to cover their risk profile in this heightened enforcement environment. Among other considerations, severability provisions limiting knowledge to individual insureds for coverage purposes will be important to have in place. Contractors should also pay special attention to whether individual investigations may trigger reporting obligations under the definition of a “claim” within applicable policies.
Third, take the opportunity to assess the effectiveness of your compliance program.
DOJ’s increased focus on individuals means that companies could potentially have to deal with several parallel tracks in an investigation, particularly as the Yates Memo encourages parallel proceedings for individuals and companies both civilly and criminally. Additionally, the Yates Memo requires investigations to identify “all” individuals involved in misconduct. Such breadth of scope may increase the expense and burden of cooperating with an investigation.
These trends reinforce the benefit of an effective compliance program which can help prevent or promote early detection of issues that might trigger a disruptive and expensive government investigation. Companies should consider assessing the current adequacy of their programs, for example by measuring the frequency of hotline calls and how they are resolved, or by conducting a focus group through an independent third party to interview a cross-section of the workforce on how they perceive the culture of compliance at the firm. Periodically performing a risk assessment of your compliance program—and tailoring it accordingly—will help ensure your compliance program is positioned to get in front of the most significant risks your business is facing.