DOJ Memo Emphasizes Focus on Individual Liability for Corporate Misconduct

Given the number of individuals charged in the Biodiagnostic Laboratory Services case it should be no surprise that the government is interested in holding individuals and not just entities accountable for wrongdoing. A recent government memo to prosecutors and others involved in enforcing federal laws reinforces that commitment. What is being referred to as the Yates memorandum addresses "Individual Accountability for Corporate Wrongdoing" and emphasizes that "[o]ne of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing."

The memo discusses "challenges unique to pursuing individuals for corporate misdeeds" and seeks to promote consistency in enforcement efforts. Those challenges include difficulty proving "beyond a reasonable doubt" that individuals had the required criminal intent when corporate decision-making is often "made at various levels" and high-level executives in particular may be distanced from "day-to-day activity in which the misconduct occurs."

Addressed to US Attorneys, the FBI director and assistant attorneys general for the civil, criminal, antitrust, tax and other divisions of the Department of Justice, the memo describes six "steps to be taken in any investigation of corporate misconduct"—some new and others already in use. The memo's guidance is intended to apply not just to criminal but to civil cases as well. Here's an explanation of the six measures the memo says those involved in enforcement should be taking to ensure culpable individuals are held accountable for corporate misdeeds.

Hinge cooperation credit on identification of culpable individuals. Corporations must provide "all relevant facts relating to individuals responsible for the misconduct" to receive any credit for cooperating with an investigation. The memo emphasizes that companies "cannot pick and choose what facts to disclose" but must provide all facts regarding the misconduct and identify all individuals involved or responsible "regardless of their position, status or seniority." This applies to civil cases as well as criminal cases. But, the memo warns, attorneys should not wait for or rely on the company's disclosure but should be "proactively investigating individuals at every step of the process."

Plea agreements and settlements that occur before cases against individuals have been fully resolved must also include requirements that the company provide information about all culpable individuals and impose penalties for failure to comply with that obligation. The memo's focus on cooperation reiterates statements made earlier this year by Assistant Attorney General Leslie R. Caldwell who explained entities seeking benefits of cooperation must conduct their own internal investigation and share with prosecutors "all available evidence of wrongdoing" including identification of all culpable individuals, even high level executives. (See NIR, May 28, 2015, p. 1).

Begin with a focus on individual liability. Civil and criminal investigators should start looking for culpable individuals from the very beginning of their investigations. The memo asserts that "a corporation only acts through individuals" so starting investigations with a focus on individuals "is the most efficient and effective way to determine the facts" and increases the chances of identifying the individuals involved at the higher levels of corporate organizations.

Coordinate civil and criminal investigations. Criminal and civil investigators should be communicating with each other about corporate investigations, allowing the government to consider "the full range of … potential remedies." The memo advises civil and criminal attorneys to alert each other to potential claims the other branch may have with regard to individuals and engage in early coordination of efforts on potential concurrent civil and criminal investigations.

Don't let individuals off the hook when resolving corporate liability. Culpable individuals can't be released from liability when either a civil or criminal matter is resolved as to the corporation except in extraordinary circumstances or due to an approved policy. That means any resolution or civil settlement of the corporation's liability can't include immunity deals, dismissed charges or civil releases that compromise the government's ability to pursue individuals.

Memorialize plans to pursue individuals. If the government resolves matters with a corporation before it has completed investigations of individuals, DOJ attorneys should do so only with a documented "clear plan to resolve related individual cases." Therefore, details of the status of individual investigations and what remains to be done as well as a plan for completing those investigations should be stated in the resolution of corporate investigations. Any decision not to pursue individuals must be explained and approved by the U.S. Attorney or Assistant Attorney General involved in the investigation.

Don't focus on individual financial solvency. In civil cases, attorneys shouldn't consider an individual's ability to pay when deciding whether to pursue individual liability. The memo emphasizes two "equally important" objectives of enforcement efforts are to return funds to the government and deterrence of future misconduct. Therefore, decisions should be based on the seriousness of the conduct, the sufficiency of evidence and whether pursuing a case is consistent with federal interests and resources.

Takeaway: Promoting accountability and deterrence, the Department of Justice emphasizes the importance of coordinated and consistent efforts to pursue individuals involved in corporate misconduct rather than simply the corporate entities.