In September 2015, then-Deputy Attorney General Sally Yates announced revised Department of Justice (DOJ) standards relating to individual accountability for corporate wrongdoing.
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Under the “Yates Memo,” in “order for a company to receive any consideration for cooperation under the Principles of Federal Prosecution of Business Organizations, the company must completely disclose to the Department all relevant facts about individual misconduct.” Consistent with this requirement, DOJ policy required that a company “must identify all individuals involved in or responsible for the misconduct” as a prerequisite to receiving any cooperation credit.1

This policy caused widespread consternation and speculation, including claims that prosecution of individuals had become unconscionable.2 Further, the incoming administration had indicated a seemingly more favorable attitude towards business.3 It was not surprising that the Department of Justice revised the standard of the Yates Memo.

In November 2018, the DOJ, in a speech by Rod. J. Rosenstein, United States Deputy Attorney General, announced significant changes to its policies for granting corporations credit for cooperating with criminal investigations. While agreeing that seeking identification of all wrongdoers “seemed like a good idea,” the practice did not always work out. The policy changes now allow corporations to receive cooperation credit where corporations identify “all individuals substantially involved in or responsible for the misconduct at issue.”4

The changes were implemented through revisions to the Department’s Principles of Federal Prosecution of Business Organizations (Justice Manual) and other agency guidelines. The most significant change is that corporations may not have to exhaustively seek and identify all individuals who may have been involved in misconduct, but simply those “substantially involved.”5

According to Deputy Attorney General Rosenstein, the changes were made to assure that “investigations should not be delayed merely to collect information about individuals whose involvement was not substantial, and who are not likely to be prosecuted.”6 Still, Mr. Rosenstein stressed that “a company must identify all wrongdoing by senior officials, including members of senior management or the board of directors, if it wants to earn any credit for cooperation.” Further: “If a corporation wants to earn maximum credit, it must identify every individual person who was substantially involved in or responsible for the misconduct.”

Yet, in 2018, the SEC had initiated a record number of investigations, indicating that the agency has not eased up on enforcement activities.7

The new guidelines may offer something of a respite for SEC targets. For example, a corporation may be eligible for cooperation credit if it is unable to identify all individuals or provide complete factual information despite good faith efforts to do so.8 Further, the new policy recognizes that “there may be circumstances where, despite its best efforts to conduct a thorough investigation, a company genuinely cannot get access to certain evidence or is legally prohibited from disclosing it to the government.” Yet, targets are not off the hook: “the company seeking cooperation will bear the burden of explaining the restrictions it is facing to the prosecutor.”

Nor should Justice Department lawyers rubber stamp corporate disclosure, but need to be alert to attempts to cast corporate wrongdoing in unduly favorable light. When reviewing information provided by companies, DOJ lawyers are to ensure that the information is “complete and does not seek to minimize” wrongdoing or “exaggerate, or otherwise misrepresent the behavior or role of any individual or group of individuals.”9 The Department of Justice is not providing a “get out of jail free” card in return for pro forma disclosure.

What Does This Mean for Our Clients?

The impact of these amendments to the Principles of Federal Prosecution of Business Organizations will not be apparent for some time. While the revisions are already incorporated into the DOJ guidelines, the process of assessing how much cooperation earns how much credit is subjective. While the revisions have been seen as favorable to potential targets, the changes may not be entirely beneficial. A more sensible evaluation is that the revisions allow the DOJ more flexibility in prosecuting wrongdoers. This should streamline prosecutions, but it will not eliminate them.

While it is no longer necessary for targets to identify every single wrongdoer before being given credit for cooperation, the revisions may also allow prosecutors to bring charges sooner than under the Yates standard. By requiring the identification of only those “substantially involved,” the new standards will allow the DOJ to file charges earlier than if it had to wait for every actual or potential wrongdoer. The DOJ can amend pleadings as further wrongdoers are discovered. Moreover, the DOJ can still offer plea deals to cooperative witnesses who might have played minor roles in corporate misdeeds.

Our clients must remain vigilant in fighting corporate misdeeds, seeking the advice of counsel where prudent. While Directors & Officers’ Liability Insurance (D&O), especially Side A Difference in Conditions coverage, is a valuable tool for risk management, there is no substitute for vigorous compliance efforts.

As always, Gallagher professionals are ready to assist.

Important Note: This publication of Advisor is not intended to offer legal advice. Any descriptions of coverage provided herein are not intended as an interpretation of coverage. Policy descriptions do not include all the policy terms and conditions contained in an actual policy, and should not be relied on for coverage interpretations. An actual insurance policy must always be consulted for full coverage details.

  1. Memorandum from Sally Quillian Yates, U.S. Deputy Att’y Gen., to Heads of Dep’t Components & All U.S. Attorneys, Individual Accountability for Corporate Wrongdoing (Sept. 9, 2015) (emphasis in original). https://www.justice.gov/archives/dag/file/769036/download
  2. Forbes, Bork, Robert H., Time to Revisit the Yates Memo?, https://www.forbes.com/sites/realspin/2017/04/21/time-torevisit-the-yates-memo/#4771a0ce1441
  3. See, e.g. Trump Wants a Pro-Business SEC; That Has Some Investors Worried, https://www.bloomberg.com/news/articles/2017-02-23/trump-wants-a-pro-business-sec-that-has-some-investors-worried; Trump may roll back SarbanesOxley audit rules and make SEC pro-business, http://sites.psu.edu/patrickmarino/2017/04/05/trump-may-roll-backsarbanes-oxley-audit-rules-and-make-sec-pro-business-2/
  4. Deputy Attorney General Rod J. Rosenstein Delivers Remarks at the American Conference Institute’s 35th International Conference on the Foreign Corrupt Practices Act (hereinafter “Rosenstein Remarks”) (Nov. 29, 2018). https://www.justice.gov/opa/speech/deputy-attorney-general-rod-j-rosenstein-delivers-remarks-american-conference-institute-0
  5. Justice Manual (formerly United States Attorneys’ Manual), § 9-28.700 et seq. (as revised Nov. 2018) (emphasis added)
  6. Rosenstein Remarks.
  7. See, e.g. Cornerstone Research, SEC Enforcement Activity, Public Companies and Subsidiaries, December 2018, https://www.cornerstone.com/Publications/Reports/SEC-Enforcement-ActivityPublic-Companies-and-Subsidiaries%E2%80%94Fiscal-Year-2018-Update
  8. See, e.g. Cornerstone Research, SEC Enforcement Activity, Public Companies and Subsidiaries, December 2018, https://www.cornerstone.com/Publications/Reports/SEC-Enforcement-ActivityPublic-Companies-and-Subsidiaries%E2%80%94Fiscal-Year-2018-Update
  9. Id.