In response to criticism that the U.S. Department of Justice is lenient when it comes to prosecuting individuals post-financial crisis, the Department recently issued new guidelines that will now hold individuals involved in civil and corporate wrongdoing cases more accountable for their actions.

On September 9, 2015, the Department issued new rules to strengthen efforts to obtain penalties— including criminal penalties—against individuals responsible for misconduct. The new guidelines are intended to supplement those from the 2007 memorandum that was sent out by Deputy Attorney General Paul McNulty on “Principles of Federal Prosecution of Business Organizations.” Due to the significance of this matter, an understanding of these new guidelines are imperative for companies and individuals engaged in ongoing Department investigations as well as those companies and individuals in heavily-regulated industries.

Six Steps to Strengthen the Pursuit of Individual Corporate Wrongdoing

Deputy Attorney General Sally Quillian Yates outlines six steps the U.S. Department of Justice Department is taking to “strengthen its pursuit of individual corporate wrongdoing” in a memorandum titled, “Yates Memorandum.” The following steps must be taken in any investigation involving corporate misconduct:

1. To qualify for cooperation credit, corporations must provide the Department all relevant facts relating to individuals responsible for misconduct.

2. Individuals should be the focus of criminal and civil corporate investigations from inception.

3. There should be routine communication between criminal and civil attorneys handling corporate investigations.

4. Absent extraordinary circumstances or approved department policy, culpable individuals will not be released from civil or criminal liability when resolving a matter with a corporation.

5. Matters with a corporation should not be resolved without a clear plan to resolve related individual cases and should memorialize any declinations as to individuals in such cases.

6. In addition to the company, civil attorneys should also focus on individuals and evaluate whether to bring suit against an individual based on considerations beyond that individual’s ability to pay.

Corporate Resolutions

One of the biggest policy shifts announced in the guidelines is the new process of resolving claims. In order to resolve claims against corporations, the guidelines now require that formal consideration of potential charges be filed against individuals. Approval from either a United States Attorney or an Assistant Attorney General is required to resolve any civil or criminal case against a corporation without asserting civil claims or criminal charges against the individual(s) who committed the misconduct.

Furthermore, prior to the end of any statutory limitation period, Department attorneys are now required to detail in writing the status of their investigation against the relevant individuals and their plan for bringing such matters to conclusion.

Going forward, it will now be extremely difficult to resolve potential investigation or prosecution of individuals through a corporate settlement.

Practical Considerations of the Yates Memorandum

Companies and their employees who are engaged in Department investigations or matters that may lead to such investigations should take the following into consideration:

• In the context of Department investigations, early consideration should be given to potential conflicts of interest between companies and their employees.

• Absolute transparency regarding the roles of corporate employees involved or potentially involved in corporate wrongdoing should be exercised when companies seek credit for cooperating with the Department.

• Senior corporate employees should take steps to ensure that both their own conduct and that of the employees they supervise is lawful and in accordance with company policies and expectations. When the conduct of senior corporate employees is called into question, they should consider requesting individual counsel.

For questions on the new guidelines in the Yates Memorandum, contact Craig Podradchik, CPA, Audit Partner, at craig@dbllp.com.