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DOJ Eases Requirements for Cooperation Credit in Corporate Prosecutions12월 6, 2018
Last week the Department of Justice announced significant changes to its policy on individual accountability and corporate cooperation credit after concluding a year-long review of the impact of policies implemented by the prior administration. In a speech delivered at the American Conference Institute's 35th International Conference on the Foreign Corrupt Practices Act, Deputy Attorney General Rod Rosenstein articulated a new standard and level of discretion that will be used by DOJ in resolving both criminal and civil investigations of corporations. Most notably, the Department is leaving behind the “all or nothing” approach to corporate cooperation credit that had been laid out by Rosenstein’s predecessor, Deputy Attorney General Sally Yates, and removing a number of strict requirements on its criminal and civil lawyers related to the handling of individual liability in the context of corporate resolutions.
The 2015 Yates Memorandum Upped the Bar for Cooperation Credit
[T]o be eligible for any credit for cooperation, the company must identify all individuals involved in or responsible for the misconduct at issue, regardless of their position, status or seniority, and provide to the Department all facts relating to that misconduct.
In her 2015 memorandum “Individual Accountability for Corporate Wrongdoing” (the “Yates Memo”), which was widely seen as a stern warning to companies seeking cooperation credit, Yates mandated that to be eligible for any cooperation credit, prosecutors would expect companies to provide “all relevant facts” about all individuals involved in corporate misconduct. The Yates Memo made clear that DOJ considered cooperation to be a so-called “all or nothing” proposition when it came to identifying individual wrongdoers: a corporation would not receive any cooperation credit if the Department determined that all relevant facts had not been disclosed. At the time the Yates Memo was released, much of the legal community viewed it as the Department’s reaction to widespread criticism that it had failed to prosecute individuals in the wake of the financial crisis and had instead resolved investigations through corporate settlements.
Key provisions of the Yates Memo placed an affirmative obligation on companies to investigate and identify individuals involved in the misconduct at all levels within the company, and prohibited a corporation from “pleading ignorance” about who was involved.1 Additionally, the Yates Memo elevated the role of the Department’s civil lawyers in corporate investigations and prosecutions by emphasizing that they would participate concurrently with criminal investigations, limiting the availability of releases of liability for individuals, and requiring civil lawyers to pursue viable civil cases against individuals even where those individuals lacked any ability to pay a civil judgment.
The Trump Justice Department’s Trend Toward Flexibility
Over the last year, the Justice Department has softened a number of policies addressing corporate criminal liability, including those related to corporate monitors and the standard for criminal declinations. In March 2018, Rosenstein formally adopted the Fraud Section’s self-described Foreign Corrupt Practices Act (FCPA) pilot program encouraging companies to voluntarily disclose wrongdoing, and extended its application beyond cases involving the FCPA. The final policy, however, deviated from the original pilot program in a significant respect; it included a specific presumption that the Department would resolve a case through declination when the company satisfied the standards of voluntary self-disclosure, full cooperation and timely and appropriate remediation, absent any aggravating circumstances. According to the policy, aggravating circumstances include involvement by executive management of the company in the misconduct, a significant profit to the company from the misconduct, pervasiveness of the misconduct within the company and criminal recidivism. Despite this limitation, there are recent examples since implementation of this policy in which the Department has declined a criminal resolution even in the presence of some of these aggravating circumstances. For example, in August, the Department noted that “[d]espite the high-level involvement of corporate officers in the misconduct,” it was declining prosecution and closing its investigation of Insurance Corporation of Barbados Limited, relying on the company’s voluntary self-disclosure, thorough and complete investigation, and cooperation, among other factors.2
Just recently, in October 2018, Criminal Division Chief Brian Benczkowski announced substantial changes to the existing policy on monitors, explicitly providing that, “the imposition of a monitor will not be necessary in many corporate criminal resolutions, and the scope of any monitorship should be appropriately tailored to address the specific issues and concerns that created the need for the monitor.”3 Under the new policy, prosecutors are directed to consider, among other factors, the cost of the monitorship, the burden on the company and the possibility of limiting the scope of the monitor. Benczkowski simultaneously announced that the Department was eliminating its corporate compliance expert role, a position that had been newly created in 2015 and was meant to assist line prosecutors in evaluating corporate compliance programs.
The Rosenstein Memo’s New Realism
In response to concerns raised about the inefficiency of requiring companies to identify every employee involved regardless of relative culpability, however, we now make clear 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.
Noting that “[o]ur policies need to work in the real world of limited investigative resources,” Rosenstein’s most central policy change is to turn away from a policy requiring identification of “all individuals” involved in misconduct to one that focuses on those who were “substantially involved in or responsible.” Rosenstein specifically identified “senior officials, including members of senior management or the board of directors” as deserving of attention. As Rosenstein put it: “We want 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.”
With regard to criminal cases, the Department will be watching to ensure a corporation has engaged in a good faith effort to identify substantially involved individuals. Those corporations that do not meet that bar, will still receive no cooperation credit.
In his remarks announcing the revised cooperation policy, Rosenstein noted that the policy is aimed at reducing investigative inefficiencies and addressing the inconsistencies in enforcement that arose from the Department’s lawyers’ attempting to resolve cases under an impractical system. As with the recent change to the monitor policy, Rosenstein referenced the costs to both the prosecution and the company inherent in lengthy criminal investigations. Additionally, prosecutors are now instructed not to delay the conclusion of corporate investigations to collect information on individuals who are not likely to be prosecuted.
In narrowing the scope of individuals on whom the Department is focusing, Rosenstein’s change of policy also lays out several other concrete changes to the corporate investigation policy, particularly with respect to increasing discretion in handling civil matters. The new policy provides a complete turnaround from the Yates memo with respect to the pursuit of civil liability against even those individuals who lack an ability to pay a civil judgment. Rosenstein expressly directs civil lawyers not to let pursuit of such individual cases or resolutions hamper or delay resolution of the broader corporate case. Further, civil lawyers may negotiate releases of liability with those corporate employees who do not warrant treatment as a “substantially involved” person. And finally, civil lawyers again have discretion to award some cooperation credit to a corporation that provided meaningful assistance to the government’s investigation, even if the company’s efforts would not qualify it for full credit.
How to Address the New Guidance
- First, companies should embrace the Department’s invitation to discuss the scope of the internal investigation being conducted with the prosecutor handling the case. (“Companies that want to cooperate in exchange for credit are encouraged to have full and frank discussions with prosecutors about how to gather the relevant facts.”4) Getting government buy-in and approval of the scope of the investigation at the outset is a good way to develop a working relationship with the prosecutors who will determine the ultimate resolution of the case.
- Given the resolution of recent cases, cooperating early and getting in the door first is the best pathway to a declination, particularly in egregious cases with involvement that may qualify as aggravating circumstances.
- Focus on the most culpable actors. As the recent guidance makes clear, you should determine early if there are liable individuals within the organization and take affirmative steps to identify the most culpable individuals as quickly as possible.
- Make a plan to remediate before the government does it for you. Address any perceived weaknesses in policy and operation as quickly as you can, in order to strengthen your arguments for a declination.
This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Nicole Argentieri, an O’Melveny partner licensed to practice law in New York, Sharon M. Bunzel, an O’Melveny partner licensed to practice law in California, Steven J. Olson, an O’Melveny partner licensed to practice law in California, Mark A. Racanelli, an O’Melveny partner licensed to practice law in Maryland and New York, Laurel Loomis Rimon, an O’Melveny senior counsel licensed to practice law in California, Ben Singer, an O’Melveny partner licensed to practice law in New York, and Michael Tubach, an O’Melveny partner licensed to practice law in California and the District of Columbia, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.
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