New DOJ Policy Regarding Individual Accountability for Corporate Wrong Doing
On September 9th the Department of Justice (DOJ) issued new guidance to its prosecutors aimed at encouraging more white collar criminal and civil cases against corporate executives. The new rules take effect immediately, but they are not likely to apply to investigations that are far along.
The new policy comes on the heels of recent statements by DOJ officials stating that they will be focusing on individuals. For example, former Attorney General Eric Holder recently discussed the importance of the prosecution of individuals. He stated that it enhances accountability and promotes fairness. He also emphasized its deterrent effect. Similarly, at the American Conference Institute’s 31st International Conference on the FCPA, Assistant Attorney General Leslie Caldwell emphasized the importance of the deterrent effect on prosecutions when the focus is on individuals.
Below is a summary of the six key steps in the Department of Justice Memorandum. Attached is a full copy of the memorandum.
Key Provisions
1. To be eligible for any cooperation credit, corporations must provide to the Department all relevant facts about the individuals involved in corporate misconduct.
This section is really the teeth of the policy and emphasizes that if a company wants any cooperation credit it must identify all individuals involved in or responsible for the misconduct at issue, regardless of their position, status or seniority, and provide the DOJ all facts relating to that misconduct. If the company does not have this information, it must find out and provide all non-privileged, inculpatory evidence. Notably, the policy specifically states that this condition of cooperation applies equally to corporations seeking to cooperate in civil matters, such as false claims act cases, to receive any consideration in the negotiation.
2. Both criminal and civil corporate investigations should focus on individuals from the inception of the investigation.
Because it may be difficult to shift the focus of the investigation from a corporation to individuals late in the game, both criminal and civil corporate investigations should focus on individuals from the inception of the investigation. According to DOJ, this will maximize its ability to find the full extent of corporate misconduct. Second, by focusing on individuals, DOJ states it will increase the likelihood that individuals with knowledge of the corporate misconduct will cooperate with the government and provide information against those up the corporate hierarchy. Finally, DOJ hopes this will maximize the chances of the final resolution including civil or criminal charges against individuals in addition to the corporation.
3. Criminal and civil attorneys handling corporate investigations should be in routine communication with one another.
Civil and criminal attorneys will collaborate from the beginning of an investigation. This section emphasizes the DOJ’s focus on parallel development of criminal and civil proceedings.
4. Absent extraordinary circumstances, no corporate resolution will provide protection from criminal or civil liability for any individuals.
If the DOJ reaches a resolution with the company before resolving matters with responsible individuals, DOJ attorneys should take care to preserve the ability to pursue the individuals. Absent extraordinary circumstances or approved Department policy, DOJ lawyers should not agree to a corporate resolution that includes an agreement to dismiss charges or provide immunity for individual officers or employees. The same applies to corporate civil investigations.
5. Corporate cases should not be resolved without a clear plan to resolve related individual cases before the statute of limitations expires and declinations as to individuals in such cases must be memorialized.
If the investigation of individual misconduct has not concluded by the time authorization is sought to resolve the case against a corporation, the prosecution or corporate authorization memorandum should include a discussion of the following: (1) potentially liable individuals, (2) status, (3) investigative work that remains to be done, and (4) a plan to bring the matter to resolution prior to the running of the statute of limitations. If a decision is made not to bring civil or criminal charges against the individuals, the reasons for that determination must be memorialized and approved by the United States Attorney or Assistant Attorney General whose office handled the investigation or their designees.
6. Civil attorneys should consistently focus on individuals as well as the company and evaluate whether to bring suit against an individual based on considerations beyond that individual’s ability to pay.
DOJ is broadening the focus of their civil enforcement strategy. The policy makes clear that they will focus on individuals as well as the company in civil investigations. An individual’s ability to pay will not control the decision whether to bring suit against an individual. DOJ will also focus on factors such as the seriousness of the misconduct, the ability of success in the litigation, and if the action reflects an important federal interest.
Potential Impact on Investigations for Companies and Counsel
Because of the potential conflict between corporations and its employees resulting from this policy, there may be unintended results for DOJ. For example, individual employees may retain their own counsel early in an investigation. Until defense counsel for the individual learns the relevant facts or even after learning the facts, defense counsel will be more likely to advise the employee to decline the interview request by corporate counsel. Even without their own counsel, employees may be less likely to cooperate with corporate counsel in an internal investigation. This may hamper corporate counsel’s ability to identify the potential misconduct and wrongdoers and the company’s ability to obtain cooperation credit, under the DOJ guidance. There may be employment law considerations for the corporation as well.
Significantly, Fifth Amendment issues may also be implicated. If the company’s internal investigations focus on building a case against an individual, employees knowing that inculpatory statements will be turned over to the government, may be more likely to assert their Fifth Amendment right in interviews by corporate counsel in an internal investigation.
If the company pressures employees to be interviewed by corporate counsel or risk losing their job, there may be a scenario similar to that in United States v. Stein, 440 F. Supp. 2d 315 (S.D.N.Y. 2006). In Stein, KPMG conditioned payments of its employees’ legal fees on their meeting with the government and cooperating. Two employees who did not agree to cooperate were fired by KPMG. The court found that KPMG actions rose to the level of state action because (1) the DOJ policy in the Thompson Memorandum stated that a company’s failure to ensure that its employees tell prosecutors what they know may contribute to a decision to indict; and (2) the government’s close involvement in KPMG’s decision making process. While the situation contemplated by DOJ’s new guidance is arguably different because it deals with statements made to corporate counsel during the course of an internal investigation, that distinction may not be sufficient to get around Fifth Amendment concerns.
In United States v. Singleton, Crim. No. 4:06-080, (S.D.TX. 2006), Singleton was indicted for obstruction of justice for allegedly lying in interviews to corporate counsel during an internal investigation. The indictment alleged that during the interview Singleton “did not disclose, falsely denied and otherwise concealed that he had provided false information to trade publications” regarding natural gas prices. The indictment further alleged that Singleton believed that the company’s “outside lawyers would inform government agencies other statements during the interview.” Therefore, he was charged with obstruction under 18 USC §1519 (c)(2).
Under the reasoning in Stein and Singleton, an individual could certainly assert that pressure by a corporation to waive their Fifth Amendment right in an internal investigation with the understanding that inculpatory statements will be provided to the government makes the internal investigation interviews state action. While it is difficult to establish that a private party’s compelling interviews rise to the level of state action, see D.L Cromwell Investments, Inc. NASD Regulation, Inc. 279 F.3d 155 (2d Cir. 2002), and United States v. Solomon, 509 F.2d 863 (2d Cir. 1975)(courts held there was no state action by private regulatory entities where there were parallel, cooperative investigations by the private entities and government investigators), it may be easier with the new DOJ policy.
Conclusion
Only time will tell how DOJ’s new guidance will effect employee cooperation in an internal investigations. While DOJ may accomplish some of the goals outlined in the memorandum, there may be a chilling effect on fact gathering as well.
