28 October 2015 - Post by:Kurt Wolfe
Last month, we reported that the U.S. Department of Justice (DOJ) released its Yates Memorandum, which lays out the DOJ’s game plan for increasing the number of cases it brings against individuals who engage in or facilitate corporate misconduct. (For additional background, please see Brandon O’Neil’s previous post on this topic.)
Notably, the Yates Memorandum instructs that, ‘in order for a company to receive any consideration for cooperation…the company must completely disclose to the [DOJ] all relevant facts about individual misconduct’.
In discussing the Yates Memorandum with clients and colleagues from different jurisdictions over the past several weeks, we’ve noted two lingering questions:
- Does the Yates Memorandum actually signal a change of course for the DOJ?
- What will be the actual consequences to corporates contending with DOJ investigations?
In our view, the Yates Memorandum’s focus on individual accountability does not signal a change in DOJ policy. Rather, the memorandum reinforces principles that have been touted by DOJ officials for some time. (We recommend Professor Koehler’s article on this point.)
The potential limitation on cooperation credit, however, is a policy shift. The amount of credit available to cooperating corporates has long been in the discretion of prosecutors. The DOJ’s policy has traditionally been something like: less cooperation equals less credit. But now, the policy appears to be: anything less than complete cooperation equals no credit.
This policy shift is likely to result in the following for firms:
- an uptick in investigation costs;
- more difficult strategic decisions; and
- increasing litigation with current/former employees.
1. Investigation Costs
In her speech announcing the release of the Yates Memorandum, Deputy Attorney General Sally Quillian Yates explained that the DOJ is ‘not asking companies to ‘boil the ocean,” but to conduct ‘thorough investigations tailored to the scope of the wrongdoing’.
Many view Yates’s comments as cool comfort, and there seems to be a fear that ‘scorched earth’ investigations will be a likely consequence of the Yates Memorandum. Nevertheless, we agree with Ms. Yates that the policy shift will not require firms to ‘boil the ocean’—although a deeper dive may be required with respect to certain aspects of a well-tailored investigation.
A willingness to diligently investigate the conduct or knowledge of certain employees will better position firms to capture and present relevant information to the DOJ. This may lead to increased investigative costs in the near term, but the value of cooperation credit (and, in some cases, goodwill with prosecutors) should outstrip the front-end costs.
We note, too, some all-important advice from Ms. Yates: ‘pick up the phone and discuss it with the prosecutor’. Whenever possible, we recommend an open dialogue with prosecutors. Carefully explain the scope of your investigation, the steps you’ve undertaken, and the proposed next steps; and listen carefully to the prosecutors’ reactions to better scope your ongoing workflow. This approach has worked wonderfully well for us in numerous investigations—leading to cost savings for our clients and favorable results in related actions.
2. Difficult Strategic Questions
The requirement to provide information about the individuals involved in corporate misconduct will lead to increasingly difficult strategic decisions. We anticipate two particularly thorny questions: (1) About whom should we report information? (2) And how do we treat employees about whom we’ve reported information?
Identifying the universe of people about whom reports are advisable will require corporates to carefully parse available information about particular employees. This analysis requires a bit of line-drawing for which the DOJ has offered little guidance.
In our view, the best course is to diligently investigate everyone about whom there are legitimate questions or concerns. (Again, absorbing front-end costs for back-end benefits.) A defensible investigative process will allow firms to credibly say that they have adequately investigated the individuals about whom they have questions or concerns; and they have fairly presented to the DOJ known evidence of potential misconduct.
The second ‘thorny question’ relates to employees that are subjects of reports to the DOJ. The DOJ’s strategy to gather information about a broader universe of employees has the potential to create a gray area: How do you treat employees whose interests aren’t clearly misaligned with the firm, but about whom you’ve made a report to the DOJ (out of an abundance of caution, perhaps)?
We would make two recommendations. First, we would recommend that you truly take decisions on a case-by-case basis, in light of all available information. The employees’ knowledge—and the gravity of the potential wrongdoing—will be key factors in the analysis; but so, too, will a host of business considerations.
Second, consider whether it makes sense to talk to the prosecutors before making employment decisions. They may have a view on the best course of action. (And engaging prosecutors on this topic may be an opportunity to deepen your credibility.)
Transparency is the key to positioning your organization for maximum credit. Difficult strategic questions cannot be eliminated, but with the right approach, corporates can avoid compounding tough calls with bad posturing.
3. Employee Litigation
Finally, there may be an uptick in employee lawsuits against firms (employers). As firms are squeezed by prosecutors to disclose more information about employees, related civil suits by those very employees seem more likely. Such suits could run the gamut from demands for access to employee records and investigative files to suits alleging defamation or wrongful termination.
Firms should develop a strong—and privilege-protected—record relating to the individuals about whom they disclose information to the DOJ. As part of a diligent investigative process, firms should, therefore, create a careful record of the investigative steps undertaken, key records identified, and communications with the DOJ relating to particular employees. The investigative record will be critically important in potential future employee litigation.
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In the end, the Yates Memorandum’s policy shift may be less noteworthy than its unintended consequences for firms across the globe. But firms can meet those challenges with strategic shifts in their approach to internal investigations.