New Department of Justice Enforcement Policy Focuses on Corporations Providing Evidence Against Individuals

Wilson Sonsini Goodrich & Rosati
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On September 9, 2015, the U.S. Department of Justice (DOJ) issued a memorandum to federal prosecutors instructing them to increase their focus on the prosecution of individuals involved in corporate fraud and financial misconduct matters rather than solely directing their enforcement efforts towards the prosecution of corporations. This policy directive will likely have a significant effect on corporations involved in or subject to government investigations. As discussed more fully below, corporations now face increased risks while cooperating with the government because the DOJ, pursuant to this new policy, conditions the receipt of cooperation credit on a corporation's ability to provide evidence against the individuals involved in the corporate misconduct.

Summary of the DOJ Memorandum

The memorandum states that "[o]ne of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing." To effectuate this policy, the memorandum sets forth six steps aimed at "strengthening [the] pursuit" of individuals involved in corporate wrongdoing. The six steps are:

  1. To qualify for any cooperation credit, corporations must provide to the DOJ all relevant facts relating to the individuals responsible for the misconduct.
  2. Criminal and civil corporate investigations should focus on individuals from the inception of the investigation.
  3. Criminal and civil attorneys handling corporate investigations should be in routine communication with one another.
  4. Absent extraordinary circumstances or approved departmental policy, the DOJ will not release culpable individuals from civil or criminal liability when resolving a matter with a corporation.
  5. DOJ attorneys should not resolve matters with a corporation without a clear plan to resolve related individual cases, and should memorialize any declinations as to individuals in such cases.
  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.

Effect of DOJ's New Policy on Corporations Involved in Government Investigations

Although most of the steps listed in the memorandum relate to the DOJ's internal handling of investigations, Step One instructs federal prosecutors to condition the receipt of cooperation credit for corporations on the willingness and ability of the corporation to provide evidence against individuals involved in the corporate misconduct. Assuming that the DOJ adheres to the strict letter of its new policy, corporations will not be considered for any cooperation credit if they do not provide evidence against their executives and/or employees. This shift in stated policy may affect the way companies deal with federal prosecutors in the context of government investigations in several ways.

First, companies that are involved in or become subject to government investigations will likely face substantial pressure from law enforcement officials to provide evidence against their employees. As the government sets its sights on the individual employees, the burden may be placed on the corporation to arm the government with the evidence it needs to successfully bring cases against individuals. If the government believes a corporation's investigation did not gather sufficient evidence regarding individual culpability, the corporation may fail to qualify for cooperation credit. This provides DOJ with a big stick in dealing with corporations involved in government investigations and the ability to squeeze information out of cooperating companies.

Second, companies may be forced to use more resources and incur greater costs in connection with their internal investigations prior to voluntarily disclosing improper conduct to the government or cooperating with law enforcement out of fear that they are not providing "all relevant facts relating" to individuals. Companies may be compelled to investigate their employees' conduct more thoroughly and provide independent outside counsel to employees in greater numbers or at much earlier points in an investigation, thereby increasing overall investigation costs.

Last, the new policy applies to both civil and criminal matters and provides guidance to federal prosecutors in order to fully leverage the DOJ's resources "to identify culpable individuals at all levels." Prosecutors will no longer be able to compartmentalize their investigations, focusing on corporations first, then on individuals. Rather, prosecutors are directed to consider individual prosecutions at the beginning of a case and this policy should shape the cooperation strategy of companies.

Conclusion

The DOJ's new policy targeting the prosecution of individuals for corporate misconduct may result in additional burdens and risks to companies that cooperate with government investigations. Conditioning cooperation credit on a corporation's willingness and ability to provide evidence against its employees to the government for prosecution provides the DOJ with substantial leverage over companies involved in investigations. Companies should ensure that they keep abreast of the policy changes occurring within the DOJ and receive counsel regarding the real-word practical and strategic decisions that are informed by such policies. The attorneys in the white collar crime and government investigations practice at Wilson Sonsini Goodrich & Rosati, many of whom are former prosecutors, are well-positioned to provide such guidance. As the DOJ implements this new policy, new considerations and variables unquestionably will arise. WSGR will continue to monitor developments and provide updates.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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