JURIST Guest Columnist Katrice Bridges Copeland of Penn State Law at University Park discusses the controversy surrounding the Department of Justices’ failure to prosecute corporations and those associated with corporate fraud following the Financial Crisis of 2008…

The Department of Justice (DOJ) has received a great deal of criticism for its failure to prosecute both corporations and individuals involved in corporate fraud, especially those associated with the financial collapse in 2008. Companies were labeled “too big to fail” and it was difficult to determine the responsible individuals within the corporations. In an effort to quiet some of that criticism, on September 9, 2015, newly-minted Deputy Attorney General Sally Quillian Yates issued the latest installment of the DOJ’s charging guidelines. The policy entitled “Individual Accountability for Corporate Wrongdoing” or the “Yates Memo” as it has been called, does not focus on criminal charges against corporations. Instead, the focus is on prosecuting individuals within the corporate entity: “[o]ne of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing.” The Yates Memo announces six steps to pursue individual corporate wrongdoing, but the main thrust of the Memo is that the DOJ should pursue individuals within the corporation from the outset of the investigation and that a corporation’s cooperation will be judged by whether the corporation provides all relevant information about culpable individuals. From my point of view, this Memo is important because it will have a significant impact on the way that corporations conduct internal investigations and on the corporate attorney-client privilege.

Internal Investigations and Deferred Prosecution Agreements

When a company is suspected of wrongdoing, the company will typically have its corporate counsel conduct an internal investigation. This involves reviewing thousands or even millions of documents, interviewing relevant employees and providing the company with reports about the interviews and results of the investigation. Because corporate counsel conducts the internal investigation, all of the results of the investigation are protected by the corporate attorney-client privilege. Importantly, corporations do not have a Fifth Amendment privilege against self-incrimination. Therefore, any documents in the company’s possession that are not protected by the corporate attorney-client privilege must be produced to the government upon issuance of a subpoena.

In the past, in order to demonstrate cooperation with the government, corporations would waive their corporate-attorney client privilege and share the results of the internal investigation with the DOJ. But many commentators, including myself, did not view the waiver of the corporate attorney-client privilege as a choice. It was more like a gun to the head; cooperate by waiving the privilege or face indictment. A criminal conviction or even an indictment could be devastating for a company because, in addition to the fine and criminal stigma, companies could lose the ability to contract with the government. Corporations were often rewarded for their cooperation with deferred prosecution agreements. When the DOJ enters into a deferred prosecution agreement with a corporation, the corporation pays a large fine and agrees to compliance measures. Over time, the use of deferred prosecution agreements became the DOJ’s preferred method of dealing with corporations because it saved employees, investors and the public from the consequences of a criminal conviction. It also gave the DOJ the opportunity to change the corporate culture of an organization through stringent compliance measures. Further, it saved significant government resources because the corporation performed the internal investigation and there was no criminal trial. The strategy, however, subjected the DOJ to criticism that it was too soft on corporate crime. Critics do not believe that deferred prosecution agreements sufficiently deter corporations from engaging in corporate fraud.

The Yates Memo’s Focus on Individual Accountability

With the dramatic rise in the use of deferred prosecution agreements and its accompanying criticism, the DOJ has received considerable pressure to pursue individual wrongdoers to demonstrate that they are tough on corporate crime. Thus, it is not surprising that the DOJ has publicly shifted to a policy that focuses on individual accountability. The Yates Memo states that both criminal and civil investigations should focus on individuals from the outset of the investigation. By focusing on individuals from the beginning, the DOJ argues that the investigation will be more effective and efficient because the DOJ will have a better chance of getting individuals to cooperate and provide information about upper level employees. It is certainly true that the DOJ has a better chance of employee cooperation if the DOJ conducts the investigation and talks directly with employees because the DOJ can offer immunity in exchange for testimony. If however, the DOJ continues to rely upon the corporation to conduct the internal investigation and then share the results with them, then it is hard to see how this policy changes anything. The Yates Memo also explains that the DOJ should not “agree to a corporate resolution that includes an agreement to dismiss charges against, or provide immunity for, individual officers or employees.” In other words, corporations cannot negotiate for their employees to receive the same lenient treatment that corporations receive through deferred prosecution agreements. Many people will see this as a welcome change because they believe that corporations are protecting culpable employees.

The real problem with the Memo is that it conditions cooperation on the corporation’s willingness to hand over their culpable employees. This has serious implications for the corporate attorney-client privilege and unnecessarily pits employers against employees during internal investigations. These problems are inextricably linked.

The Yates Memo Impact on the Corporate Attorney-Client Privilege

The Yates Memo provides that, “in order to qualify for any cooperation credit, corporations must provide to the Department all relevant facts relating to the individuals responsible for the misconduct.” Although the DOJ publicly changed its cooperation policy so that it did not focus on waiver of the corporate attorney-client privilege, it also denied that waiver is or ever was a requirement for cooperation. The Yates Memo, however, puts the issue front and center once again. It states that, “[i]f a company seeking cooperation credit declines to … provide the Department with complete factual information about individual wrongdoers, its cooperation will not be considered a mitigating factor.” Without cooperation, the likelihood of a deferred prosecution agreement is low. It is not at all clear how a corporation would turn over interview memoranda and other documents created during the course of the investigation that point to an individual employee’s wrongdoing and, at the same time, preserve the corporate attorney-client privilege. In order to provide that information to the DOJ, a corporation would either have to have non-attorneys conduct their internal investigations or waive the corporate attorney-client privilege. The former option is unrealistic given the fact that corporations do not possess the Fifth Amendment privilege. Therefore, it is hard to see how the Yates Memo is anything other than a return to the old days of the DOJ explicitly forcing corporations to waive the corporate attorney-client privilege in order to be eligible for cooperation credit and a deferred prosecution agreement.

The Yates Memo’s Negative Impact on Internal Investigations

The Yates Memo is particularly problematic for employees during internal investigations. Even under the current rules, there is no protection for employees. Employees participate in interviews under the threat of termination for failure to cooperate and cannot later prevent the corporation from waiving the privilege due to their incriminating testimony. The typical employee would not understand that the corporation might choose to save itself by waiving the corporate attorney-client privilege and corporate counsel has never had an obligation to explain that before conducting the interview. Nor would the typical employee understand that waiver could mean that the employee would face criminal charges. Corporate counsel simply has to explain that she represents the corporation, that the interview is protected by the corporation’s attorney-client privilege, that it is the corporation’s privilege to waive, and that the employee is to keep the conversation confidential. An unsuspecting employee would go along with the interview because she does not believe that she did anything wrong. It is important to remember that not every criminal case involves clear employee wrongdoing, especially in heavily regulated industries. Unless there is already a grand jury subpoena requiring the testimony of the employee or the company has some reason to believe that the employee is involved in misconduct, the employee would not have her own counsel present to explain the potential implications of speaking with the corporation’s counsel.

The Yates Memo makes the internal investigation even more perilous for employees because it conditions cooperation on providing all of the relevant facts about individual misconduct. This makes every employee a potential bargaining chip. In the wake of the Yates Memo, every employee participating in an internal investigation should have her own lawyer to protect her interests. If every employee needs her own lawyer, however, the progress of an internal investigation will come to a screeching halt. At a minimum, corporate counsel needs to warn employees that the corporation may decide to cooperate with the government and provide any information obtained during the interview to the government which could potentially lead to criminal charges against the employee. Again, such a warning would make employees hesitate to speak with corporate counsel. Certainly, an employee who is culpable will not want to submit to an interview due to fear that any incriminating statements may be shared with the government. In such a situation, the employee may choose to lie to corporate counsel rather than lose her job for failing to cooperate with the investigation. Even employees who believe that they lack culpability may be afraid to submit to an interview with corporate counsel because if it turns out that their conduct was unlawful, the corporation has to waive the privilege and provide the relevant information to the government or face indictment. The logical “choice” for any corporation in that situation is to save itself.

Katrice Bridges Copeland is a Professor of Law at Penn State Law in University Park, Pennsylvania. Prior to joining Penn State Law, Professor Copeland was a white collar criminal defense attorney at a large firm in Washington, D.C. where she regularly conducted internal investigations of corporations suspected of criminal wrongdoing.

Suggested Citation: Katrice Bridges Copeland DOJ’s New “Individual Accountability” Policy Pits Employers Against Employees, JURIST – Academic Commentary, October 13, 2015, http://jurist.org/forum/2015/katrice-bridges-copeland-DOJ-Individual-Accountability.php.