As observers have been monitoring the evolving policies and priorities of the Department of Justice in the Trump administration, one of the questions has been what the agency’s approach will be to the guidelines laid out in the so-called Yates Memo. The Yates Memo, named for its author, the former Deputy Attorney General and former Acting Attorney General Sally Yates, reflected a commitment to holding individuals accountable for corporate wrongdoing. In a recent speech, the current Deputy Attorney General Rod J. Rosenstein addressed the question of the current administration’s approach to individual accountability. His October 6, 2017 speech, a copy of which can be found here, appears to suggest that the current administration likely will continue to pursue the policies reflected in the Yates Memo. However, as discussed below, what that may mean in practice remains to be seen.
Rosenstein opened his speech with a series of comments suggesting that past practices periodically should be reviewed and prior assumptions reconsidered. On the topic of corporate crime, he expressly noted that the Yates Memo is one of the agency’s prior policy statements under review. But having acknowledged the review, he went on to say that “I generally agree with the critique that motivated Deputy Attorney General Yates to issue a new policy,” adding that “Federal prosecutors should be cautious about closing investigations in return for corporate payments, without pursuing individuals who broke the law.”
Having noted that the Yates memo is under review, he observed that “any adjustments or changes will reflect several common themes.” First, any changes “will reflect our resolve to hold individuals accountable for corporate wrongdoing.” Second, they will “affirm that the government should not use criminal authority unfairly to extract civil payments.” Third, any changes “will make the policy more clear and more concise.”
Commenting later in the speech about the agency’s approach to White Collar Crime prosecution, Rosenstein added that in trying to set the right tone within the agency, “We are fostering a culture that supports and promotes the investigation and prosecution of individual perpetrators of corporate fraud.” He added that the agency is “establishing a working group to evaluate and monitor the Department’s long term effectiveness in promoting individual accountability and deterring fraud.”
The purposed of enforcement, Rosenstein noted, is to try to deter misconduct. Focusing on deterrence, he observed, requires us to “think carefully about what we can achieve in our enforcement actions.” Corporate settlements “do not necessarily directly deter individual wrongdoers.” Rather, “by effectively combating corporate misconduct and prosecuting individuals when appropriate, we can protect Americans from fraud.” He concluded by saying “We need to make clear our intent to enforce the rules, with sufficient rigor that people fear the consequences of violating them.”
Rosenstein’s speech included some statistics that provide a little bit of specificity on the question of what the emphasis on individual accountability really means for corporate directors and officers. Citing statistics from the United States Sentencing Commission, he reported that 132 organizations were convicted of federal offenses during 2016, nine-tenths of which employed fewer than 1,000 people. More than half of the organizational convictions involved the separate conviction of at least one related individual. Forty percent of the convicted individuals were board members or owners of businesses. Others included supervisory or management-level employees. Many of the cases, Rosenstein noted, did not involve well-known companies or American’s wealthiest executives.
The bottom line is that the focus on individual accountability for corporate is going to continue in the new administration, even if the DoJ reassesses or adjusts the specifics in the Yates Memo. The sentencing statistics that Rosenstein cites shows what this approach means for executives at companies that the DoJ targets. Individuals face the possibility of direct personal liability.
While Rosenstein’s speech strongly communicates the message that individual accountability will remain an agency priority, the specifics of what that will mean are not as clear. For example, it isn’t clear to what extent the cooperation requirement reflected in the Yates memo remains a part of this policy. The cooperation requirement specified that in order for a company to receive credit for cooperating with the DoJ, the companies “must provide the Department all relevant facts about individuals involved in corporate misconduct.”
This cooperation prerequisite arguably represented the most contentious aspects of the policies described in the Yates memo. It arguably requires company seeking credit to conduct their own investigations and then to come forward and point the finger at culpable employees or executives. Some observers contended that the memo’s requirement of the disclosure of “all facts” put companies at risk of later charges that the company was not sufficiently forthcoming or held back information. The “all facts” prerequisite also was said to create potential attorney-client privilege issues.
Unless or until it is clear that this cooperation requirement is no longer operative, executives at companies that are the target of DoJ investigations may well conclude that they would be well-advised to have their own counsel as early as possible in the process. The statistics Rosenstein cited suggest that individuals do indeed have reason to be concerned, particularly given the corporate organization’s incentive to offer up individuals in order to try to obtain cooperation credit.
With multiple sets of lawyers separately incurring legal fees, all of which may operate to erode the D&O insurance programs limits of liability, the policy proceeds could quickly be eroded. This concern has important implications for companies when they are deciding limits adequacy questions when they are putting their insurance in place.
While we wait to see what the new administration’s policies and priorities mean for these specific aspects of the Yates memo, one thing we know for sure is that there is unlikely to be a “Rosenstein memo.”
On the issue of memos, in his speech Rosenstein said “I regret that it has become a hallmark of expertise in the white-collar arena to know the name of every former Deputy Attorney General who issued a memo about the prosecution of corporate fraud.” Rosenstein professed a professional preference for agency policies to be compiled and reflected in the United States Attorneys’ Manual rather than in a myriad of other documents and materials, like, for example, a memo. He said that “management by memo is inefficient,” adding that the Deputy Attorney General “should not be known for writing memos.”