One of the important questions about U.S. Department of Justice’s approach following the change of Presidential Administration two years ago was whether DOJ would continue emphasizing its policy of individual accountability in the agency’s 2015 statement known as the Yates Memo. In a recent speech, Deputy Attorney General Rod J. Rosenstein announced changes to the policy. The changes, which are more in the form of an adjustment rather than a wholesale change, makes it clear that companies seeking cooperation credit no longer need to identify “all” individuals involved in the wrongdoing, so long as the companies identify those who were “substantially involved” in the misconduct. The text of Rosenstein’s November 29, 2018 speech to the American Conference Institute’s International Conference on the Foreign Corrupt Practices Act, at which he announced the changes, can be found here.
The changes Rosenstein announced address the very first bullet point in the Yates Memo, in which the agency announced a prerequisite for companies seeking cooperation credit. The Memo said that “To be eligible for any cooperation credit, corporations must provide to the Department all relevant facts about the individuals involved in corporate misconduct.” The any/all formulation of this policy has been the subject of significant criticism. However, there were substantial grounds to suggest that the policy was having an effect in terms of the agency’s focus on individual accountability.
In announcing the change, Rosenstein was not announcing a step away from focusing on individual accountability; indeed, Rosenstein said the revised policy “makes clear that any company seeking cooperation credit in criminal cases must identify every individual who was substantially involved in or responsible for the criminal conduct.” In formulating this “substantially involved’ standard, the agency, Rosenstein said, wants “to focus on the individuals who play significant roles in setting a company on a course of criminal conduct. We want to know who authorized the misconduct, and what they knew about it.”
However, in order to address concerns about the efficiencies involved in requiring companies to provide information about “all” individuals involved, Rosenstein said “we now make clear that investigation should not be delayed merely to collect information about individuals whose involvement was not substantial, or who are not likely to be prosecuted.” Rosenstein acknowledged that while the policy requiring all individuals to be identified “may sound reasonable,” in practice the policy was not always strictly enforced “because it would have impeded resolutions and wasted resources.”
Rosenstein also acknowledged that the “all or nothing” approach to cooperation was “counterproductive in civil cases.” When criminal liability is not involved, Rosenstein said, “our attorneys need to flexibility to accept settlements that remedy the harm and deter future violations, so that they can move on to other important cases.” The requirement that companies admit the civil liability of every individual employee as well as the company “is attractive in theory,” but it “proved to be inefficient and pointless.”
Accordingly the agency is revising its policy for civil cases as well as for criminal cases. The practical effect of the change is “to restore some discretion that civil attorneys traditionally exercised – with supervisory review.” The most important aspect of the policy is that “a company must identify all wrongdoing by senior officials, including members of senior management or the board of directors, it it wants to earn any credit for cooperating in a civil case.” To earn the maximum credit, the company must “identify every individual person who was substantially involved.”
The agency’s civil attorneys will now have discretion to offer some credit even if the company does not qualify for the maximum credit. However the policy also prohibits the civil attorneys from awarding ‘any credit whatsoever” to any company that conceals misconduct by senior management of the board of directors, or otherwise demonstrates a lack of good faith in its representations.” Companies “caught hiding misconduct by senior leaders or failing to act in good faith will not be eligible for any credit.”
Discussion
According to observers’ comments cited in a November 29, 2018 Law 360 article about the revisions to the DoJ policy (here) , the agency’s “small tweak” makes it easier both for the agency and for corporations “to settle criminal allegations without going down every rabbit hole.” The focus going forward is going to be on those individuals who supervised or directed the misconduct, not on every individual who might have been involved.
The important point here is that the adjustment does not represent a wholesale change; the agency has not, for example, shifted away from the priority given to individual accountability. The agency has merely altered the way in which that priority will be pursued and enforced. The changes likely will be most significant to lower level employees, or others whose involvement in the misconduct is limited to process rather than decision-making or strategy.
For those at the top who are setting strategy, making decisions, or directing conduct, arguably nothing has changed under the new policy. Rosenstein himself went out of his way to emphasize that in order to achieve the agency’s goal of deterring crime it must identify and punish the individuals who committed the crimes. More to the point from a practical perspective, in order to receive cooperation credit, any company alleged to have engaged in misconduct is still going to have to identify “every individual who was substantially involved in or responsible for the criminal misconduct.”
In other words, in order to obtain cooperation credit, companies are still going to have an incentive to throw individuals under the bus, even if it does not have to throw every individual under the bus in order to obtain the credit.
This means that for senior officials arguably nothing has changed, as the agency’s focus on individual accountability has not changed. Senior officials will still have every reason to be concerned about their own exposure as individuals. They will still have every incentive to seek their own legal counsel and not to rely on counsel for the company.
The likelihood that individuals will have every incentive to seek their own counsel at the very outset of an investigation has important implications for the costs involved. Multiple attorneys billing time simultaneously means that costs will escalate quickly. The costs of responding to a DoJ investigation will continue to have significant financial implications for the companies involved and for their D&O insurers.
The overall message for the companies involved, therefore, is basically unchanged. As has been the case, companies continue to be well-advised to make sure that there are sufficient resources committed to the legal compliance activities; implement a top-down evaluation of whether the board and senior management are operating and coordinating in the best interests of the company; and ensure that the company truly maintains a culture of compliance with the law.
SEC May Consider Whether to Change Quarterly Reporting: On November 28, 2018, the SEC announced in a routine item on its website that at its December 5, 2018 meeting, the agency will consider “whether to issue a request for comment on the nature and content of quarterly reports and earnings releases by reporting companies.” The agency’s consideration of this question follows on, and is clearly related to, President Donald Trump’s August 2018 call, issued in one of his early morning Tweets, for the agency to study whether to do away with quarterly reporting (discussed in detail here).
The President’s message about possibly doing away with quarterly reporting fits within a larger, continuing debate about whether quarterly reporting imposes unnecessary costs while causing companies to have an inappropriately short-term focus. In a statement immediately following the President’s Twitter message, SEC Chair Jay Clayton issued a statement saying that the SEC’s Division of Corporation Finance “continues to study public company reporting requirements, including the frequency of reporting,” and that he welcomed “input from companies, investors and other market participants.”
At the December 5 meeting, the agency will not be considering making changes to existing reporting requirements. Rather the agency will only be considering whether to whether to request comments on existing requirements pertaining to the frequency of reporting. Call it a hunch, but I suspect that at the December 5 meeting the agency will decide to issue a request for comment. And to peek ahead a little bit, I predict that when it is all said and done, the agency will not eliminate the quarterly reporting requirement; however, it might make some adjustment for some smaller reporting companies. Stay tuned.
And Finally: It has been a while since I have published any Frisbee photos, but following a recent email exchange with Kelli Massey of the Lockton office in San Diego, Kelli sent along this Frisbee picture taken at The Crack Shack, which reportedly is a fried chicken restaurant in San Diego, where Kelli and her office colleagues recently had lunch — with the Frisbee.
Getting the Frisbee Photo from Kelli made me go back and look at the other Frisbee pictures that readers sent in. There were so many great pictures. Among the pictures I found is the picture below, taken at Checkpoint Charlie in Berlin. With the passage of time, I have somehow lost the information showing who sent me this picture. It is such a great picture, I wanted to republish it here, which I have done below. But I feel bad that I can’t now figure out who sent it in. If anybody can claim it or at least tell me who sent it, please drop me a note. Once again, thanks to all who sent in the many great Frisbee photos!
