The Yates Memo: The DAG and the AAG of It

15-0884by Michael D. Celock, Featured Contributor

[su_dropcap style=”flat”]A[/su_dropcap]MID MUCH PUBLIC FANFARE and media coverage, the Department of Justice announced the first major policy initiative under the direction of Attorney General Loretta Lynch. On September 9th, the Justice Department issued a policy memo entitled “Individual Accountability for Corporate Wrongdoing” authored by Deputy Attorney General Sally Quinlan Yates. (DAG) As is the practice, the memo is commonly referred to as the Yates Memo.

The issuance of the Yates Memo was immediately followed on September 10th with a speech by the DAG entitled “Individual Accountability for Corporate Wrongdoing.” The policy speech at NYU Law School billed weeks in advance as a major Justice Department policy announcement was heavily covered by the media and invited guests included a number of the areas U.S. Attorneys, Federal Judges and other dignitaries.

This was soon followed on September 22, 2015 with a speech by Assistant Attorney General Leslie Caldwell (AAG) at the Global Investigations Review Conference. This speech had no formal title, however an appropriate tile would have been “Casting Oil Upon the Waters”.   Clearly, the AAG’s speech was meant to not only reinforce the policy announced in the Yates Memo, but to address and mitigate the dire warnings that the AAG said were being conveyed through the myriad of law firm advisory memos. Judging by the comments made after her speech, the AAG failed at her goal.

The DAG in her speech on September 10th acknowledged that the Justice Department was experiencing a perception problem when it came to how the Justice Department was viewed when it came to holding individual corporate officers and executives accountable for the criminal conduct of the corporation.   The DAG reinforced the Justice Department’s resolve to hold individuals responsible for the acts of the corporate entity when she stated the corporate misconduct and criminal activity could only occur through the direct actions on the part of “flesh-and-blood people.”

In her speech the AAG reconfirmed that position stating “Our focus on individuals stems from the reality that corporations act through human beings and that justice usually requires identifying those responsible for criminal conduct and holding them personally accountable.   Prosecuting the corporate entity and imposing a fine and other impersonal conditions simply is not enough in most instances to fully punish and more importantly deter corporate misconduct.”

As a number of white collar criminal law experts have recently stated, the current Justice Department initiative cannot actually be characterized as being new and original.   In effect, the Yates Memo is merely the most recent in a long line of such “name memos” that have been issued on the subject by the Justice Department.

Scales-of-Justice-court-lawFor example in 1999, there was the “Holder Memo,” which begat the “Thompson Memo” in 2003, which begat the short-lived “McCallum Memo” in 2005, which begat the “McNulty Memo” in 2006, and finally the “Filip Memo” in 2008.   The Yates Memo actually flows from the direction that was provided in Flip, in that to the extent a corporation chooses to cooperate, it must provide the Government with all relevant facts.

The AAG acknowledged the common theme expressed in the various law firm advisories that the Yates Memo was far from novel.   The AAG chose to frame the Yates Memo as more an approach to insure uniformity within the Justice Department when she stated that the new guidance will “ensure that all department attorneys, from Main Justice to the 93 U.S. Attorney’s Offices across the country, are consistent in using our best efforts to hold individual wrongdoers accountable.”

Throughout her public remarks, the AAG continued to state that the DAG’s announcement strongly reinforced what the Justice Department has been doing for a long time.   The AAG stated that overall the new policy guidance was built upon the core considerations of the existing Principles of Federal Prosecution and represented a strong forward move that would better serve to reiterate the importance the Government was placing on individual accountability when prosecuting corporate misconduct.

The AAG also noted that attorney’s accustomed to working with the Justice Department should not view the policy guidance expressed in the Yates Memo as anything radical and “those looking from the outside at the practice of corporate criminal law should, as the DAG said, see only the exercise of common sense.”

The Yates Memo actually owes its origin to the Justice Department’s perceived failure and lack of inclination to proactively enforce individual responsibility and accountability when it came to the criminal conduct on the part of a corporation.   The Justice Department started to endure mounting criticism for its lack of enthusiasm in this shortcoming not only internally from prosecutors and criminal investigators, but from external sources which included the media, members of Congress and a number of Federal Judges.

As initially quoted by the law firm Cadwalder, Wickersham & Taft, “Judge Jed S. Rakoff, of the Southern District of New York argued that “the failure to prosecute any individuals responsible for the Financial Crisis represents one of the more egregious failures of the criminal justice system in many years.”

Consequently, the Yates Memo is best interpreted as an energized recommitment on the part of the Justice Department when it comes to enforcing individual accountability for the criminal actions of the corporation.

As the future implications of the Yates Memo continue to play out and despite the best attempts to address the concerns of corporations by the AAG, it is apparent that the Yates Memo will be presenting corporations with new concerns and challenges.   The high profile and much publicized release of the Yates Memo, in combination with the memo being the first major policy initiative by a new Attorney General certainly provides fuel to these concerns.   The speculation among many experts being that investigators and prosecutors may feel compelled to initiate cases based more on their perceived public relations value rather than their actual deterrent value.

These concerns certainly are not without merit.   White collar prosecutors have become increasingly aggressive in their white collar investigations. They are employing novel interpretations of existing criminal laws, as well as employing enhanced investigative techniques that were more closely associated with traditional organized crime and racketeering cases.

The AAG stated that the Justice Department does advocate the use of “innovative” investigative methods in white collar and corporate criminal investigations.   The AAG also acknowledged there is concern within the Justice Department that some prosecutors will use the Yates Memo as a form of investigative checklist.   In order to address these concerns, the AAG stated that Main Justice will be conducting internal training programs for prosecutors with the focus on “building cases, not collecting scalps.”

The AAG also felt the need to add that to an extent no matter the policy announcements that emanate from Main Justice, “the U.S. Attorneys are the Kings and Queens of their realms.”

With that statement in mind, it is apparent that the Justice Department must constantly be reminded that without the exercise of proper supervision that prosecutorial discretion is not abused, will only serve to undermine the legitimacy and credibility of the Yates Memo.

Corporate internal investigations continue to play an important role in corporate governance.   Along with their benefits, internal investigations also present companies with unique challenges.   In addition, they can be incredibly expensive.  When the investigation contains a cross-border dimension, the obstacles and expenses when attempting to comply with the Yates requirement that corporate investigations focus from the onset on individual culpability will significantly increase the challenges and burdens placed upon the company.   Foreign privacy laws, blocking statutes and the strict limitations placed on what in the U.S. are accepted investigative methods, but illegal outside the U.S. all come together in a perfect storm forcing a corporation into potential non-compliance or in a position limiting or eliminating attorney-client privilege protection.

While both the DAG and the AAG took great steps to minimize concerns in this area, serious questions still remain.   In her remarks, the DAG indicated that the Justice Department does not expect corporations to boil the ocean and “embark upon a multi-million dollar investigation every time they learn about misconduct, but rather they should pursue an internal investigation that is specifically tailored to the scope of the “wrongdoing.”

The AAG echoed the DAG’s remarks right down to the boil the ocean metaphor.   The AAG stated that “we expect investigations to be thorough and tailored to the scope of the wrongdoing.”   The AAG repeatedly stressed that a corporation’s internal investigation must not only be thorough, it must be proactive and affirmatively work to identify and uncover relevant information about culpable individuals.

Despite the AAG’s statement that the Justice Department is not looking for scalps, the totality and repetitiveness of the DAG’s and AAG’s statements strongly convey just the opposite to a corporation.

The AAG went on to say that companies cannot just disclose facts relating to general corporate misconduct and withhold facts about the responsible individuals.   And internal investigations cannot end with a conclusion of corporate liability, without stopping short of identifying those who committed the criminal conduct.

The AAG did express the belief that corporations brought the stricter Justice Department guidelines on individual culpability on themselves.   The AAG noted that a “surprisingly number of corporate investigations being submitted to Justice were defective and lacked quality.”

The AAG did make several concessions that the Justice Department recognizes that not all internal investigations will yield ideal results and that circumstances outside the control of the company, will place limitations on the corporation’s ability to obtain necessary evidence.

Specifically, the AAG stated that the Justice Department recognizes “that some investigations despite their thoroughness will not bear fruit.”   In those cases the AAG stated that if the internal investigation was properly structured and most of all thorough and the corporation provides the government with all relevant facts as well as provides all possible assistance in assisting the government in obtaining the evidence it requires, the company will be eligible for cooperation credit.   The AAG stressed that the Justice Department “will make efforts to credit, not penalize diligent investigations.”

Should a corporation inform the government that despite all their best efforts, they were unable to identify individual culpability, they should expect the government to subject that claim to an internal Justice Department review process.

If upon completion of the Justice Department’s review process and parallel investigation the government is able to identify individual culpability and obtains the relevant evidence it requires without resorting to extraordinary investigative measures unavailable to the corporation, the government will then make a determination on whether or not that evidence was actually unavailable to the corporation.

If the government does determine that the corporation’s claim is without merit, the company should expect appropriate sanctions.

The Yates Memo does not address in any specific detail the position of attorney-client privilege.   The memo does instruct prosecutors that the “requirements that companies cooperate completely as to individuals within the bounds of the law and legal privileges” does not absolve prosecutors of their responsibility to independently investigate.

Consequently, there continues to remain the concern that in order for a corporation to remain in compliance with provisions contained in Yates, the corporation may at some point sacrifice the protections of attorney-client privilege.   The AAG attempted to address this concern by reiterating that the new guidance contained in Yates will not alter the existing Justice Department policy regarding the attorney-client privilege or work product protections.   The AAG stated, “Prosecutors will not request a corporate waiver of these privileges connections with a corporation’s cooperation.”

The AAG’s attempt at reinforcing the premise that privilege will not be sacrificed has not dampened the existing concerns.   The prevailing consensus is that the challenge facing a corporation is exactly how can they be expected to provide the government with the results of their internal investigation and include a conclusion that despite their investigative efforts, they were unable to identify individual culpability on the part of any one individual without risking the waiving of privilege.

The challenge posed by the all or nothing emphasis imposed by Yates is certainly magnified when the corporation is involved in a FCPA or cross-border internal investigation.   I am not entirely convinced that a corporation can be expected to comply with applicable U.S. law and regulations, while at the same time be expected to comply with local in-country law and expect not to be placed in the position of waiving privilege.

Internal corporate investigations into allegations of corporate misconduct need to be conducted without mandated predetermined goals. The all or nothing mandate that is contained in the Yates Memo, may have the unintentional consequence of limiting a corporation’s benefit of being proactive.   In order for internal investigations to be successful they must remain flexible and have the ability to adapt to changing circumstances.   There may be times that the most thorough of internal investigations cannot establish individual responsibility. The mandates contained in the Yates Memo that a corporation’s main focus is to ascertain individual culpability may have a chilling effect and actually limit corporate cooperation. The corporation may determine that the dangers of this mandate and being subjected to the government’s 20/20 hindsight may not be in their best interest.

Another challenge that comes to mind is that under Yates, a corporation’s internal investigation now takes on a quasi-official status.   What remains unclear is what if any requirement will be placed on the corporation due to the corporation’s unofficial “deputation.”

There is no question it is now in the corporation’s best interest to determine as soon as possible whether an employee’s interests present a conflict with the interests of the corporation.   Currently when conducting internal investigations, corporate counsel is required to provide Upjohn warnings to the employees being interviewed. Under the Yates provisions, in addition to the standard Upjohn warning will corporation counsel now be mandated to inform the employee being interviewed that anything the employee says or provides to the corporation will in turn be provided to the government?

Also if the matter under investigation involves cross-border issues, will the new mandates place the corporation at odds with foreign government and EU laws and regulations?

Finally proving that policy like the Yates Memo is not made in a vacuum, corporations should be aware that similar policy announcements have been made by the SEC and Foreign governments.

The SEC views that aggressively pursuing individuals is the way to process cases more efficiently.   In a policy speech the director of the SEC’s Enforcement Division, Andrew Ceresney, stated that the SEC will now present supporting actions against targeted individuals during the Wells Notice stage.

In the UK, the Financial Conduct Authority and Prudential Regulatory Authority drafter policy regulations will take effect by March 2016.   The Financial Conduct Authority “believes that deterrence will most effectively be achieved by bringing home to such individuals the consequences of their action.”

The Yates Memo is now part of the regulatory landscape.   The provisions contained in Yates along with the parallel government investigations that come with it are now the new normal.   Corporations will have to quickly learn to adapt, or face the consequences.


Michael D. Celock
Michael's public-private sector experience spans both the advisory and operational spectrums of corporate governance and compliance, international affairs, intelligence, national security and law enforcement. Mr. Celock also has substantial experience regarding compliance with the FCPA and multi-jurisdictional government and corporate investigations. Mr. Celock regularly counsels corporate clients on strategic, operational and political risk, cross-border due diligence, corporate internal investigations, crisis mitigation, the FCPA and international crime and corruption issues as well as devising innovative solutions to complex problems arising from non-traditional corporate situations. Mr. Celock’s work is often of a cross-border and international dimension across a variety of industries and is designed to promptly and effectively identify, assess and manage rapidly changing risks facing the client. Mr. Celock’s intervention provides clients with the ability to respond strategically and in a timely manner to existing or emerging situations that threaten the business and reputation of the organization. Mr. Celock was appointed by President Clinton to the position of Special Advisor to the President for National Security Affairs. Mr. Celock has also served as a consultant to CIA’s Office of Transnational Issues. Responsibilities included providing unique functional expertise to assess existing and emerging threats to the national security interests of the United States and to identify, disrupt and prevent illicit financial transactions that threatened U.S. National Security.




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