Lisa Noller, the chair of Foley & Lardner’s white collar defense practice in Chicago and a former Assistant U.S. Attorney, discusses the repercussions of the Yates Memo and the formidable corporate culpability and liability issues that C-Suite executives and board members need to understand.
Lisa, what do corporate executives need to know about how government enforcement is evolving since the Yates Memo was issued? How can they best limit the new liabilities they face?
First, it is important to note that DOJ policy has for many years required companies to provide evidence about culpable individuals to obtain credit for cooperation. The Yates Memo only formalized, and more widely publicized, the government’s approach. It is important to work with knowledgeable outside counsel when responding to a government inquiry, because different U.S. Attorney’s Offices (USAOs) have been implementing the Memo differently, and have been defining “cooperation” as a range of activity. For example, some USAOs are merely requiring company counsel to give a presentation about their view of potential wrongdoers. Others are insisting that anyone responsible for the issues under investigation be thoroughly investigated, and severely disciplined or terminated. But because all prosecutors must address potential charges against individuals, company counsel must also do so from early in their investigation.
Second, in practice, potential culpable actors should recognize early the potential for conflict. Counsel needs to explain plainly to officers and directors that they represent the company, and cannot conflate individual and corporate interests unless they truly are aligned. Savvy officers and directors are likely to hire their own lawyers to assess whether to themselves work directly with DOJ—and against the company who may be paying their legal fees. Boards need to anticipate and plan for this potential adversity, while continuing to comply with their own indemnification provisions and coverage.
Third, the Yates Memo made it more clear that the civil and criminal divisions of DOJ must cooperate with each other, from the beginning of an investigation. The positive news from this development is that the DOJ stakeholders are making themselves known from the early stages of a matter, which makes it theoretically easier to reach a global resolution, or, to argue for a civil resolution as an alternate remedy. Where there are different potential remedies available (criminal, civil, or administrative), companies would do well to gather evidence and respond with an eye toward the least punitive remedy.
What other significant developments are occurring in the area of corporate liability? Are there issues on the horizon that all C-Suite executives and board members need to be aware of?
Earlier this month, DOJ announced that any company seeking cooperation credit will be required to sign a certification attesting it has turned over to the government all information about all culpable individuals. This eliminates a company’s ability to conduct a “light” investigation, where it directs counsel to probe only far enough to learn what happened, but not why conduct occurred or who all the responsible actors are. A false statement on the required certification is itself a crime, so responsible corporate officers must be sure they have indeed been fully forthcoming before signing the form on behalf of a company.
And at the end of 2015, the DOJ Fraud Section announced it had hired a “compliance official,” who will develop and apply benchmarks for evaluating corporate compliance and remediation measures, as well as guide prosecutors and monitors where a Fraud Section case resolution involves on-going program assessments. This hiring underscores DOJ’s previous pronouncements that for a compliance program to be effective, it must be meaningful. For example, the program must be supported by all C-Suite executives and board members, who themselves must conduct business lawfully, and also must lead others to act in the same manner.
I expect DOJ to hire additional compliance officials in other DOJ priority areas where monitoring is a frequent result of case resolution. For example, DOJ and HHS-OIG frequently resolve significant health care fraud cases with a corporate integrity agreement, often also including a monitor who reports to the government whether the company is following the law. Moreover, if the compliance officials are in place partly to encourage communication and judge the effectiveness of corporate activity, then companies are likely to see an increased use of these individuals—or at least of formal efforts by the government to insert itself more directly into compliance efforts.
How have best practices in internal investigations evolved over the last several years? What lessons have been learned? What changes are necessary to leverage those lessons most effectively?
Government agencies and outside counsel are far more sophisticated than they used to be. When I was a federal prosecutor, counsel often met with me and my supervisors, asking for leniency. But their pitches often failed to address issues that always have been important to DOJ, such as acceptance of responsibility, the seriousness of the offence, the efficacy of any corporate compliance program, collateral consequences, disciplined wrongdoers, etc. As more prosecutors have left DOJ for private practice, we have raised the bar, and now endeavor to do the heavy lifting for any prosecutor. When I investigate a matter for a client, I ask all the questions the civil and criminal prosecutors are going to ask me, and I prepare responses that should form the backbone—if not the substance—of any prosecutor’s memo to his supervisors to decline the case or resolve the matter for reduced penalties.
