As many observers have noted, penalties for Foreign Corrupt Practices Act (FCPA) violations tend to fall on corporations, rather than individual wrongdoers. The individual employees responsible for the unlawful conduct rarely pay fines or go to prison. The FCPA is not unique in this regard; many U.S. Department of Justice (DOJ) settlements with corporate defendants shield executives and employees from personal liability so long as the corporation accepts institutional responsibility. Yet this enforcement posture has been unsatisfying, and critics argue that many corporations simply treat the fines as an accepted cost of doing business. In response to this concern, and after much foreshadowing, the DOJ formally released a new policy on individual liability last week—a policy that applies to all corporate prosecutions and settlements, including those involving the FCPA. Known as the “Yates Memo” (it was announced by Deputy Attorney General Sally Quillian Yates in her remarks at NYU School of Law on September 9th), this new policy statement—the first major policy announcement from the DOJ under Attorney General Loretta Lynch—signals that the “cost of doing business” model of corporate compliance is coming to a definitive end.
The Yates Memo explicitly sets forth several important policies governing individual accountability for corporate wrongdoing:
- First, the Yates Memo makes clear to DOJ line prosecutors that investigations should focus on individuals from the inception of the investigation.
- Second, the Yates Memo emphasizes that, in order for corporations to be eligible to receive any cooperation credit, the corporation must provide the DOJ with relevant facts about all individuals involved in the corporate misconduct. (Previously, disclosing information on some individuals could buy credit for cooperation. Now, corporations will receive no credit unless the DOJ is satisfied that all involved individuals have been identified.) Plea or settlement agreements must now include a provision requiring the company to disclose information about all relevant individuals, at penalty of “specific consequences, such as stipulated penalties and/or a material breach.”
- Third, and perhaps most consequentially, the Yates Memo indicates that corporate resolutions shall not be a substitute for cases brought against individual wrongdoers. It does so, first, by stating that (absent extraordinary circumstances) no corporate resolution shall provide protection for individual wrongdoers from criminal or civil liability. DOJ attorneys are now prohibited from entering into corporate resolutions that “agree to dismiss charges against, or provide immunity for, individual officers or employees.” A corporate resolution may only include such immunity or dismissal of charges against individuals if personally approved, in writing, by an Assistant Attorney General. (It is not yet clear now exceptionally such permission will be granted, but the tone of the Memo suggests an intention that it will be rare.) Furthermore, not only does the Yates Memo preclude DOJ prosecutors from including protections for individuals in corporate settlement agreements, it also affirmatively declares that corporate cases should not be resolved without a clear plan to resolve related individual cases. DOJ attorneys must now have a justification for choosing not to bring civil claims or criminal charges against individuals.
- Fourth, with respect to remedies, the Yates Memo calls on criminal and civil attorneys to coordinate with one another and to consider “the full range” of possible remedies—including incarceration and fines for individuals—and further instructs prosecutors to seek civil penalties as a deterrent measure (rather than focusing exclusively on defendants’ ability to pay).
Although some argue that the Yates Memo is not really news – suggesting the Memo merely announces policies that the DOJ has applied informally for years – to my mind, the Memo serves at least two valuable functions in addition to the more robust enforcement procedures listed above.
- First, the Yates Memo strengthens incentives for corporate due diligence by focusing attention on the individual acts that lead to corporate wrongs. Every member of a company who engages in wrongdoing may now potentially bear responsibility and legal liability. This is an important motivator for individuals at every level, from executive decision-makers to operational staff. And this is more than rhetoric because individual liability is now backed by formal procedures within the DOJ which, if followed, will increase the rate of individual charges and civil penalties. Of course, the increased legal exposure for individuals comes at a potential cost. As the New York Times has noted, corporations may have an incentive to throw employees “under the proverbial bus to secure lenient treatment.” This is a real risk. But the previous practice of limiting liability of individuals created a reverse incentive: companies could provide the smallest amount of information necessary to enable the DOJ to secure criminal charges or civil penalties, while maintaining a stance of maximum innocence for as many individuals as possible.
- Second, enforcing liability for individuals also serves a broader expressive function for the DOJ as an institution. The DOJ’s legitimacy depends on public belief that the office genuinely advocates in the interest of the Untied States and its citizens. While past focus on corporate settlements may have been an important step in the development of the DOJ’s enforcement powers, some public commentators (see here and here) have suggested an “unholy alliance” between government prosecutors and white-collar defense lawyers, in which fines on corporate actors would replace genuine liability for culpable individuals. Enforcing individual liability reinforces public trust in enforcement authorities. With the Yates Memo, the DOJ is reminding the public that their concerns are heard, and makes the simple public statement that corporate liability will not substitute for individual liability where identifiable individuals have done wrong.
Undoubtedly there is no such thing as perfect enforcement, and every case brings its own set of challenges. Individual liability will not be the right solution for every investigation. But the Yates Memo signals that personal responsibility is an undeniable part of remedying and preventing corporate misconduct.