Among the many questions surrounding the new incoming Presidential administration is the question of what direction the Trump administration will go with criminal and regulatory enforcement. And among the many specific questions under that topic heading is the question of whether or not the Department of Justice will continue the current agency policy of giving priority to holding individuals accountable for corporate wrongdoing. Based on early signs, all indications are that the current policy, embodied in the so-called Yates Memo, will continue under the new administration.
As readers will recall, in September 2015, Deputy Attorney General Sally Yates released a memo in which she laid out the U.S. Department of Justice’s priorities for holding individuals accountable as a means to try to deter corporate misconduct. The agency also now has a page on its website entitled “Individual Accountability,” which presents links to its policy papers and other agency materials and presentations explaining its approach. As I have discussed in prior posts (most recently here), the consequences of the agency’s renewed priority on individual accountability have recently been evidenced in the agency’s enforcement actions.
On November 30, 2016, in her first speech following the recent Presidential election, Yates reviewed the principles embodied in the Yates memo and assessed the agency’s progress to date in implementing the program of individual accountability. In her view, while “the sky hasn’t fallen,” the agency’s new emphasis has meant that “people are reviewing evidence up and down the corporate ladder, looking for those who may have violated the law.”
In her speech, Yates also specifically addressed the question of what comes next under the new administration. While she noted that it will be up to the new team that will be running the agency under the new administration, and while “it will be up to them to decide whether they want to continue the policies we’ve implemented in recent years,” she is “optimistic” that the agency will continue to pursue the agency’s individual accountability policies, because “holding individuals accountable for corporate wrongdoing isn’t ideological; it’s good law enforcement.”
She added that “individual accountability isn’t a democratic principle or a republican principal, but is instead a core value of our criminal justice system that perseveres regardless of which party is in power.”
Yates also added that there are a significant number of ongoing prosecutions that began after the agency issued the Memo and that won’t result in public filings until well into the next administration. In those cases, the agents and prosecutors are currently actively seeking to determine whether individuals should be subject to civil or criminal penalties. As a result, Yates predicts that as the agency enters high dollar case resolutions in the months ahead, you will see “a higher percentage of those cases accompanied by criminal or civil actions against the responsible individuals.”
As noted in a December 8, 2016 post on the Epstein Becker & Green law firm’s Health Law Advisor blog (here), based on Yates’s comments in her recent speech, “it can be anticipated that there will be a continued effort by the DOJ to combat corporate misconduct by focusing on individual accountability for alleged wrongdoers.”
The likelihood that the new administration will continue the focus on individual accountability is reinforced by the background and track record of the Attorney General candidate that President-Elect Trump has identified. As noted in a November 30, 2016 Inside Counsel article (here), the AG nominee, Senator Jeff Sessions, a former prosecutor, has an extensive track record on white collar crime issues and shown an “overall aggressive approach to law enforcement.” As a result, the article suggests, “corporate America should not expect a weakening of corporate criminal prosecutions.”
In particular, with respect to the agency’s current individual accountability priorities, the Inside Counsel article’s author suggests with respect to Sessions that “his Justice Department is likely to seek harsh sentences for white collar criminals and to maintain, at least in some form, the Department’s ‘Yates Memorandum.’”
The author added in conclusion that Sessions “will likely usher in an aggressive approach to criminal law enforcement if he is confirmed.” Companies and corporate executives, therefore, should not expect any reduction in DOJ scrutiny and they “should continue to maintain or enhance corporate compliance efforts to avoid finding themselves in the Department’s crosshairs.”
There is at least one other practical implication of the likelihood that the new administration will likely continue the current individual accountability priorities. That is that when companies find themselves facing DOJ scrutiny, individual executives, concerned about the possible exposure to agency action, will seek separate counsel and do so earlier in the process. In other words, the looming threat of individual action means that defense fees will grow and mount more quickly. These mounting defense expenses mean that D&O policy limits will be depleted more quickly as well.
All of these concerns have important implications for companies when they are deciding limits adequacy questions when they are putting their D&O insurance in place. Some companies may well conclude that it may be advisable to increase the amount of insurance they purchase, in order to provide an extra measure of protection if the company were to find itself the target of unwanted DOJ attention.