Thinking About Consequences and the Yates Memo

June 24, 2016

By: Sara Kropf

Department of Justice officials have recently made several speeches trying to explain the Yates Memo. For example, On May 10, Deputy Attorney General Sally Yates gave remarks at the New York City Bar Association’s white-collar crime conference. On May 14, Assistant Attorney General Leslie Caldwell spoke to the American Bar Association’s 25th Annual National Institute on Health Care Fraud. And on June 9, Acting Associate Attorney General Bill Baer gave remarks on the civil False Claims Act.

They seemed to want to quell concerns by the defense bar that the Yates Memo, and DOJ’s new pronouncements about corporate cooperation, would lead to much more extensive (and expensive) internal investigations of wrongdoing by companies.

Let me say, first, that I appreciate the efforts of all of these officials to explain what changes the Yates Memo is meant to bring about. But (and there’s always a “but”) I’m still not convinced that there will not be unintended consequences of the new policy.

In her speech, Ms. Yates said that “the policy was certainly designed to change practices, both within the department and outside the department.” She also explained that “just as the policy does not seem to have brought about the end of Western civilization from the companies perspective it’s not business as usual at DOJ either.”

There are two parts of what she said that are worth considering–the scope of investigations following the Yates Memo, and the real consequences of not cooperating with DOJ about the scope of an investigation.

The Scope of Investigations After the Yates Memo

Ms. Yates also said

 [L]et me be clear–this is not mean companies are required to conduct overly broad investigations or embark on a years’ long, multimillion dollar investigation every time a company learns of misconduct, or what I’ve heard described as “boiling the ocean’ On the contrary we expect companies to carry out a thorough investigation tailored to the scope of the wrongdoing.

It’s a little hard sometimes to reconcile “thorough” with “tailored.”

For big companies, a huge internal investigation is an expensive hassle. For smaller companies, a huge internal investigation may be the end of the company. The Yates Memo does not include the concept of proportionality anywhere—it simply demands that companies seek and turn over all evidence of individual wrongdoing. It would have been helpful if the Yates Memo noted that smaller scale efforts are required when the scope or seriousness of wrongdoing are smaller scale, or when the company simply cannot afford a large-scale investigation.

Ms. Yates went on to say:

[W]e expect the cooperating companies will continue to turn over the information to the prosecutor as they receive it. The determination of the appropriate scope and how to proceed is always case specific – it’s not possible to lay out hard and fast rules. Which is why we reiterated that if a company’s counsel has questions regarding scope, they should do as many defense lawyers do now – contact the prosecutor directly and talk about it. Already, based on reports on the ground, firms are doing just that.

The Yates Memo places a new level of pressure on DOJ attorneys: to bring charges against individuals. There’s no question that DOJ attorneys will follow the memo’s demand. And that, of course, means that DOJ will require companies to investigate individuals along the way too. This unquestionably increases the scope of investigations. It’s simple math. 1+1=2.

I don’t actually think the scope of investigations will increase all that much. In any internal investigation, you are always tasked with figuring out if the company needs to remediate in some specific way, such as by terminating an employee who broke the rules. However, developing that evidence in a way that is presentable to DOJ as part of a proffer is a bigger task. So let’s all agree that the Yates Memo will increase the scope of investigations by some incremental amount.

What Consequences Should We Be Worried About?

I thought Ms. Yates made one very telling statement in her speech. She said

while the requirement to prove all facts about individuals isn’t new, what has changed is the consequence of not doing it.

Consequence. That’s an important word, right?

I use it with my kids all time. You know what it means? It usually means punishment. It means if you don’t what I want you to do, then something you don’t like is coming next. (I realized that sounded kind of threatening. In our house, a consequence usually means I’m taking away device time for a day or two.)

What Ms. Yates is referring to directly is the consequence of companies not getting cooperation credit. She makes that clear in her speech.She’s saying that if companies do not try to prove all the facts about individual wrongdoing, then the company may face the consequence of losing cooperation credit.

This is a serious consequence, but I think that misses the point.

Cooperation credit is DOJ’s carrot.Losing it is a consequence. But there’s another possible consequence–criminal charges.

Companies are not only worried about getting cooperation credit. They are also worried that DOJ will bring unwarranted charges if the company doesn’t accede to every request by DOJ about the scope of the investigation or if the company doesn’t find someone to blame from the organization.

Look, it’s pretty much impossible to find a company where every single employee in every single situation does every single thing right. In a big enough investigation, you’re going to find something wrong.

The question is whether DOJ will charge you for it. Can you convince DOJ that it was a rogue employee? Or will DOJ conclude that it’s part of the corporate culture? Can you convince DOJ that it was a one-time problem that has been fixed? Or will DOJ conclude that the “fixing” was a cover-up? Those are all decisions left to DOJ’s prosecutorial discretion.

Cooperating with DOJ by conducting a broad and thorough internal investigation is one way companies hope to encourage DOJ attorneys to exercise their discretion against bringing criminal charges. This means that companies are fearful that pushing back on what DOJ as to the scope of the investigation may lead to the consequence of criminal charges.

I don’t think that’s what the Yates Memo was intended to do, but I do think that those are the consequences that companies are really worried about.

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