The Real-World Impact of the Yates Memo

The Yates Memo

Last September, Deputy Attorney General Sally Quillian Yates announced the release of the DOJ's Individual Accountability Policy. (Sally Q. Yates, Deputy Attorney General, U.S. Department of Justice, Remarks at New York University School of Law Announcing New Policy on Individual Liability in Matters of Corporate Wrongdoing (Sept. 10, 2015).) The policy's aim is to establish investigative standards for line prosecutors in all divisions of the department, and to be transparent with corporations about the DOJ's expectations relating to cooperation.

More fundamentally, the policy seeks to increase the number of cases the DOJ brings against individuals who are responsible for corporate misconduct. To that end, the Yates Memo gives DOJ prosecutors a playbook for obtaining sufficient evidence to bring cases against culpable individuals.

The most transformative feature of the policy ' and the feature that has received the most attention ' is the requirement that corporations provide all relevant facts relating to potentially culpable individuals in order to qualify for any cooperation credit from the DOJ.

Classing the provision of inculpatory evidence relating to individuals as a threshold requirement for cooperation credit marks a potentially significant policy shift for the department. The amount of credit given to cooperating corporations has long been within the discretion of line prosecutors. Traditionally, prosecutors have used something of a sliding scale to weigh the amount of cooperation credit a corporation should receive. Simply put, before the Yates Memo, less cooperation meant less credit.

The Yates Memo would appear to change this paradigm by installing an “all-or-nothing” model. Now, DOJ policy appears to be that anything less than complete cooperation (including the identification of individuals responsible for misconduct) equals no credit.

In some respects, this shift should come as no surprise. For at least two years, DOJ officials have repeatedly made pointed statements about cooperation that substantially mirror the policy pronouncements in the Yates Memo. For example, in a September 2014 speech, Deputy Assistant Attorney General David A. O'Neil observed that “a corporation's assistance in timely uncovering evidence against culpable individuals is the key aspect of the department's evaluation of that corporation's cooperation ' . [I]t is a factor upon which the corporation should always keep its focus. It will certainly have the focus of the department.” (David A. O'Neil, Deputy Assistant Attorney General, U.S. Department of Justice, Remarks at the Southeastern White Collar Crime Institute (Sept. 12, 2014).)

Similarly, in November 2014, Assistant Attorney General Leslie R. Caldwell explained that the availability of cooperation credit hinges on the provision of “facts about the individuals responsible for the misconduct, no matter how high their rank.” (Leslie R. Caldwell, Assistant Attorney General, U.S. Department of Justice, Speech at American Conference Institute's 31st International Conference on the Foreign Corrupt Practices Act (Nov. 19, 2014).)

Caldwell stated again in April 2015 that, “if a company wants cooperation credit, ' we expect [it] to identify culpable individuals ' including senior executives if they were involved ' and provide the facts about their wrongdoing.” (Leslie R. Caldwell, Assistant Attorney General, U.S. Department of Justice, Remarks at New York University Law School's Program on Corporate Compliance and Enforcement (April 17, 2015).)

In this light, the Yates Memo appears to be a codification of recent statements and guidance, rather than a new policy. Nevertheless, the memo gave rise to considerable concern among corporations and their counsel. And in discussing the Yates Memo with clients and colleagues, there appear to be lingering concerns about: 1) how the DOJ will implement the Yates Memo; 2) whether and how corporations should engage prosecutors in DOJ investigations; and 3) what “adequate cooperation” looks like under the Yates Memo.

In short, corporations are trying to figure out what exactly is expected of them in a post-Yates Memo world.

Preliminary Observations on the Yates Memo's Impact

As corporations and their counsel continue to grapple with the implications of the Yates Memo, several noteworthy developments are beginning to take shape. First, the DOJ provided a clearer picture of how it will implement the Yates Memo through the introduction of “component-level policies” that incorporate the memo's core principles. Second, trends are emerging with respect to how corporations are approaching investigations and cooperating with prosecutors. And finally, real-world examples of cooperation credit in the Yates Memo era are beginning to play out publicly.

How will the DOJ Implement the Memo?

In a recent speech, Yates explained that “different corners of the Justice Department [have announced] new component-level policies focused on individuals.” Among those “component-level policies,” Yates identified revisions to the U.S. Attorney's Manual, new procedures in the Antitrust Division, and the Fraud Section's new FCPA pilot program. (Sally Q. Yates, Deputy Attorney General, U.S. Department of Justice, Remarks at the New York City Bar Association White Collar Crime Conference (May 10, 2016) (hereinafter “Remarks on Implementation”).)

U.S. Attorney's Manual

In November 2015, the DOJ amended the U.S. Attorney's Manual (USAM) to implement key provisions of the Yates Memo. In particular, the DOJ revised the Principles of Federal Prosecution of Business Organizations, better known as the “Filip Factors,” to “emphasize the primacy in any corporate case of holding individual wrongdoers accountable.” (Sally Q. Yates, Deputy Attorney General, U.S. Department of Justice, Remarks at the American Bankers Association and American Bar Association Monday Laundering Conference (Nov. 16, 2015) (hereinafter “Remarks at the ABA”).)

The Filip Factors list several factors prosecutors should consider in making charging decisions relating to corporations. A key component of the Filip Factors analysis relates to the amount of mitigation credit corporations should receive for cooperating in a DOJ investigation. To wit, Filip Factor Four previously directed prosecutors to consider “the corporation's timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation.”

Post-Yates Memo revisions to the Filip Factors split that component into two factors: one relating to the company's timely and voluntary disclosure of potential wrongdoing, and another relating to the corporation's willingness to cooperate. To receive credit under the new stand-alone cooperation factor, corporations must make available to prosecutors all non-privileged information about “individuals involved in or responsible for the misconduct at issue.” (USAM ' 9-28.700.)

Corporations are often invited to make presentations to prosecutors regarding the application of the Filip Factors. With respect to cooperation, Principal Deputy Assistant Attorney General Marshall Miller has helpfully observed that “when you come in [to the Criminal Division] to discuss the results of an internal investigation ' and make a Filip Factor presentation ' expect that a primary focus will be on what evidence you uncovered as to culpable individuals, what steps you took to see if individual culpability crept up the corporate ladder, how tireless your efforts were to find the people responsible ' . If you want full cooperation credit, make your extensive efforts to secure evidence of individual culpability the first thing you talk about when you walk in the door to make your presentation.” (Marshall L. Miller, Principal Deputy Assistant Attorney General, U.S. Department of Justice, Remarks at the Global Investigation Review Program (Sept. 17, 2014) (hereinafter “Remarks at GIR Program”).)

New Antitrust Policies

In February 2016, Deputy Assistant Attorney General Brent Snyder announced the Antitrust Division's adoption of “new internal procedures to ensure that each of [their] criminal offices systematically identifies all potentially culpable individuals.” According to Snyder, the procedures were designed to “embrace” principles in the Yates Memo. (Brent Snyder, Deputy Assistant Attorney General, U.S. Department of Justice, Remarks at the Yale Global Antitrust Enforcement Conference (Feb. 19, 2016) (hereinafter “Remarks at Yale Conference”).)

Snyder explained that corporations that do not qualify for leniency under the Antitrust Division's Corporate Leniency Policy typically cooperate toward a negotiated settlement and guilty plea. (Remarks at Yale Conference.) In connection with a guilty plea, the Antitrust Division will consider downward departures from the organizational sentencing guidelines range when a cooperating corporation provides “substantial assistance” to prosecutors.

Under the Antitrust Division's new internal procedures, and for purposes of the Yates Memo, “substantial assistance” now requires corporations to provide facts relating to culpable employees. Snyder made clear that a corporation must fully cooperate with the division in gathering evidence to identify individuals who may be liable for the corporation's wrongdoing if it wishes to obtain sentencing credit for substantial assistance. (Remarks at Yale Conference.)

The FCPA Pilot Program

In April, the DOJ's Fraud Section released its Foreign Corrupt Practices Act (FCPA) Enforcement Plan and Guidance. In it, the Fraud Section announced the launch of a one-year “FCPA Pilot Program” designed to “build on” the Yates Memo by “increas[ing] the Fraud Section's ability to prosecute individual wrongdoers whose conduct might otherwise have gone undiscovered or been impossible to prove.” (Criminal Division, U.S. Department of Justice, The Fraud Section's Foreign Corrupt Practices Act Enforcement Plan and Guidance (April 5, 2016) (hereinafter “FCPA Pilot Program”).)

In order to be eligible for the “full range of potential mitigation credit” ( i.e. , downward departures from the low end of the organizational sentencing guidelines range) under the FCPA Pilot Program, corporations are required to “fully cooperate[ ] in a manner consistent with the [Yates] Memo on Individual Accountability and the USAM Principles [of Federal Prosecution of Business Organizations].” In particular, corporations are expected to disclose “all relevant facts about the individuals involved it the wrongdoing.” Corporations should also be prepared to make employees (including employees located overseas) available for interview. (FCPA Pilot Program.)

Taken together, the component-level policies make clear that core principles of the Yates Memo are being adopted and implemented throughout the DOJ. The policies that have been put in place thus far all make clear that corporations must provide facts and evidence relating to individuals involved in or responsible for corporate wrongdoing if the corporations wish to receive mitigation credit for cooperation. There has been no softening of the policy. Rather, DOJ sections are affirmatively undertaking to discharge their remit under the Yates Memo.

And it would not be surprising to see other DOJ units take similar steps to achieve the Yates Memo's focus on individual prosecutions ' the Money Laundering and Bank Integrity Unit, the Cybersecurity Unit, and the Fraud Section's Securities and Financial Fraud Unit are all logical candidates for new component-level policies. Moreover, Yates has pointed out that the DOJ's “agency and regulatory partners are also making changes as they sharpen their focus on individual accountability.” By way of example, Yates pointed to recent efforts by the Financial Crimes Enforcement Network (FinCEN) to impose individual liability for anti-money laundering violations. (Remarks on Implementation.)

How Should Corporations Engage Prosecutors?

In her Remarks on Implementation, Yates noted several trends taking shape among corporations that are the subjects or targets of DOJ investigations. Yates summarily dismissed “predictions that companies will no longer cooperate with the government as a result of the policy.” On the contrary, Yates is unaware of any corporation that has decided not to cooperate because of expectations set out in the Yates Memo. (Remarks on Implementation.)

In fact, Yates noted that cooperation has markedly increased since the memo was released. According to Yates, corporations “are making real and tangible efforts to adhere to our requirement that they identify facts about individual conduct.” This trend is, perhaps, typified by the new practice ' at least among some corporations and their counsel ' of preparing and producing “Yates Binders” that “contain relevant emails of individuals being interviewed by the government.” (Remarks on Implementation.)

While there is certainly no requirement to self-disclose misconduct or to cooperate in a DOJ investigation, post-Yates Memo trends do not suggest an increasing reluctance to self-report or cooperate. Rather, in practice , corporations seem to be approaching investigations and cooperation much like they did before the Yates Memo ' and to good effect. Perhaps the presentation is a bit different now, but corporations are unquestionably making concerted efforts to maximize mitigation credit in the new cooperation credit paradigm.

What Does Adequate Cooperation Look Like?

Beyond anecdotes relating to “Yates Binders” and observations on trends in internal investigations, two recent DOJ declinations provide helpful examples of what “adequate cooperation” looks like under the Yates Memo.

In June, the DOJ announced that it would decline to file criminal charges against Akamai Technologies, Inc. and Nortek, Inc. for unrelated FCPA violations by their respective Chinese subsidiaries. The cases mark the first two declinations under the FCPA Pilot Program, and details relating to these declinations provide a helpful framework for assessing cooperation in the Yates Memo era.

The DOJ identified a number of factors it weighed in reaching its decision not to prosecute Akamai and Nortek. The corporations' disclosure of facts relating to individual misconduct appears to have featured prominently in DOJ's analysis. Indeed, in both declination letters, the DOJ highlighted the “fulsome cooperation by the Company (including by identifying all individuals involved in or responsible for the misconduct and by providing all facts relating to that misconduct to the Department) and its agreement to continue to cooperate in any ongoing investigations of individuals.” The DOJ also noted the corporations' prompt voluntary self-disclosure, thorough investigation, improvements to internal controls and compliance programs, and remediation (including the termination of several individuals involved in the misconduct).

In many respects, the Akamai and Nortek declination letters closely track the Filip Factors, which have long shaped prosecutors' analyses around corporate charging decisions. For this reason, just as the Yates Memo may be viewed as an outgrowth of past speeches relating to cooperation, so too should the Akamai and Nortek declinations be viewed in the context of the DOJ's past declinations based on extraordinary cooperation. Indeed, the Akamai and Nortek declinations closely resemble one case that the DOJ officials have repeatedly held up as an example of the level of cooperation prosecutors expects from corporations.

In an FCPA investigation relating to PetroTiger Ltd., the DOJ charged PetroTiger's former co-CEOs and general counsel with FCPA violations for paying bribes to a Colombian official to secure a $39 million oil services contract. According to Caldwell, “This was serious misconduct that went to the very top of the company, and in a typical case, criminal charges for the company may well also have been appropriate.” (Leslie R. Caldwell, Assistant Attorney General, U.S. Department of Justice, Remarks at American Conference Institute's 32nd Annual International Conference on Foreign Corrupt Practices Act (Nov. 17, 2015) (hereinafter “Remarks at 32nd FCPA Conference”).)

However, the DOJ declined to prosecute PetroTriger because of the company's extraordinary cooperation. Caldwell explained that the DOJ “learned about this misconduct through voluntary disclosure by PetroTiger ' . And after that self-disclosure, the company fully cooperated with the department's investigation of the misconduct and of the individuals responsible for it.” (Remarks at 32nd FCPA Conference.) In short, because of PetroTiger's voluntary disclosure, cooperation (including the identification of culpable individuals), and remedial steps, among other factors, the department declined to prosecute PetroTiger or to seek a non-prosecution or deferred prosecution agreement.

Conclusion

The Yates Memo announced a formal shift in DOJ policy with respect to cooperation credit: A corporation must provide all the facts about individual conduct in order to qualify for any cooperation credit.

What does this policy shift mean, in practice, for corporations seeking to obtain cooperation credit in connection with a DOJ investigation? For many, it won't change a thing.

As Yates put it recently, “the notion that a cooperating company must relate facts about the conduct of individuals within the corporation is nothing new.” What is new, she points out, “is the consequence of not doing it.” (Remarks on Implementation.)

The key distinction between the pre- and post-Yates Memo worlds is, perhaps, how corporations position themselves for mitigation credit. Many corporations were already providing information relating to the conduct of individuals through document productions, testimony, or proffers. For many, all that needs to change is the packaging .

Through “Yates Binders” or other media, corporations should showcase their efforts to corral and present evidence relating to the individuals involved in or responsible for corporate wrongdoing. Corporations should make prosecutors aware of their clients' exertions throughout the investigation ' not only during a Filip Factors presentation at the conclusion of the investigation. Corporations should also engage in an open dialogue with prosecutors to determine whether there are individuals about whom they'd like to receive additional information, and discuss with prosecutors difficulties encountered in collecting or producing information relating to certain individuals.

The Yates Memo represents a policy shift, but not a sea change for investigations. The DOJ wants information about individuals. But on a more basic level, prosecutors simply want to avoid “passive voice, 'Mistakes were made,' presentations from defense counsel, without identifying who made what mistakes.” (Remarks on Implementation.) Surely, that request hasn't set the bar too high.

Kurt Wolfe is an associate resident in the Washington, DC, office of Allen & Overy LLP.

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