The Stick that Never Was: Parsing the Yates Memo and the Revised Principles of Federal Prosecution of Business Organizations

by Miriam Baer

Addressing a full house of practitioners, scholars and government officials on September 10, 2015, Deputy Attorney General Sally Quillian Yates announced the Department of Justice’s latest efforts to pursue corporate executives who had violated the law.  “Crime is crime,” Yates told her audience, and the Department was committed to “holding lawbreakers accountable regardless of whether they commit their crimes on the street corner or in the boardroom.”

To demonstrate this renewed vigor, Yates summarized her September 9, 2015 Memorandum, entitled “Individual Accountability for Corporate Wrongdoing,” which instantaneously became known as the Yates Memo (PDF: 449 KB).  Several of its provisions were uncontroversial and were accepted without comment.  The measure attracting most attention was the Department’s stance on corporate offenders seeking prosecutorial leniency.

In this blog post, I contend that the rhetoric contained in Yates’s speech was far more aggressive than the Memo’s language.   Moreover, several months after the Yates Memo’s release, the Department of Justice’s revisions to the United States Attorneys Manual all but dismantled the Yates Memo’s harshest implications.

The Yates Speech: A Scary Analogy

As DAG Yates explained in her speech, previously a corporation could voluntarily disclose misconduct “but then stop short of identifying who engaged in the wrongdoing and what exactly they did.”  Although such behavior had not been awarded “full” cooperation credit, it had been eligible for partial credit.  The Yates Memo augured an end of that practice:

Effective immediately, we have revised our policy guidance to require that if a company wants any credit for cooperation, any credit at all, it must identify all individuals involved in the wrongdoing, regardless of their position, status or seniority in the company and provide all relevant facts about their misconduct. It’s all or nothing.  No more picking and choosing what gets disclosed. No more partial credit for cooperation that doesn’t include information about individuals.

To Yates’ audience, the announcement sounded like a marked change in Department policy, one that went beyond the termination of partial credit for partial cooperation and in fact erected cooperation as a threshold requirement for receiving relief from criminal indictment.  In a subsequent essay, for example, Joseph Yockey concluded that under the Memo, “[e]ither companies identify culpable individuals, or they can say goodbye to any chance of leniency.”[1]

Historically, federal prosecutors had decided corporate charging decisions by considering a range of factors laid out in a series of memos, the most recent one (PDF: 4,708 KB) penned by Deputy Attorney General Mark Filip and codified in the United States Attorneys Manual as the Principles of Federal Prosecution of Business Organizations.   The Filip Factors, as they came to be known, were notoriously broad and contextual.  They lent prosecutors tremendous discretion to reach the outcome they considered most appropriate in a given case. As USAM  9-28.300 made clear, no particular factor was “dispositive” of a particular case.  Accordingly, although cooperation had always played as an important role in deciding a corporation’s fate, it had never served as the dispositve factor.

Those who read the Yates Memo had to wonder if the Department’s intention was to upend this multi-factor approach.  Certainly, Yates’ accompanying remarks suggested as much.  “The rules have just changed,” she advised her audience. “Effective today, if a company wants any consideration, it must give up the individuals, no matter where they sit within the company.” The obligation extended not just to disclosure, but also to the organization’s investigative efforts:  “If they don’t know who is responsible they will need to find out.  If they want any cooperation credit, they will need to investigate and identify the responsible parties, then provide all non-privileged evidence implicating these individuals.”

Concededly, Yates spoke only of “cooperation credit,” which might imply that a corporation could still receive a deferred prosecution agreement despite a lack of cooperation.  In the next breath, however, she analogized the corporation’s situation to that of an individual offender:

A drug trafficker can decide to flip against his co-conspirators.  He can proffer to the government the full scope of the criminal scheme.  He can take the stand for the government and testify against a dozen street-level dealers.  But if he has information about the cartel boss and declines to share it, we rip up his cooperation agreement and he serves his full sentence.  The same is true here.

(emphasis added).

This now-infamous[2] analogy to drug dealers, combined with Yate’s reference to “complete cooperation” as a “threshold requirement” sounded as if the Department were abandoning its multi-factor rubric for a threshold full-cooperation-or-nothing regime.  That is, the consequences of partial cooperation weren’t simply that the company would lose “credit” for cooperating, but that it would also lose its opportunity for leniency.  What else could Yates mean in highlighting the failed drug cooperator who had been forced to serve his “full sentence”?

The Yates Memo in Practice: Not So Scary

Some of corporate criminal law’s critics would likely applaud a regime that denies leniency to any corporation that provides less than full cooperation.  Others (like myself) might have worried about tying the Department’s hands in such a spectacular fashion.  But in the end, none of this mattered because the Yates Memo—and the language it enshrined within the newly revised Federal Principles of Prosecution—was hardly as earth shattering as the analogy Yates advanced in her speech.

First, the Yates Memo itself very precisely warned that a company’s partial cooperation with authorities would “not be considered a mitigating factor” under the Federal Principles of Prosecution. The Memo said nothing about the other factors, much less the automaticity of ripping up agreements.

More importantly, on November 16, 2015, approximately two months after announcing the Department’s new policy, Deputy Attorney General Yates introduced the revised Principles as codified in the United States Attorneys Manual.  As expected, USAM 9-28.210 emphasized the importance of prosecuting individuals, and USAM 9-28.700 reflected the Yates Memo’s requirement for “complete cooperation” in the investigation.   The company that only partially cooperated in an investigation would receive no credit at all under USAM 9-28.700.

Other parts of the revised USAM eased any concern that the DOJ might be moving towards a “cooperation or else” regime.  First, the USAM retained its language that in many cases, no single factor should be dispositive of a given case.  Thus, a corporation could elect not to “cooperate” and—theoretically, at least—still be eligible for leniency under the USAM’s remaining factors.

Second, whereas prosecutors had once considered 9 factors, now there were 10.  What was this extra factor?  It was, as set forth in USAM 9-28.900, the corporation’s “timely and voluntary disclosure” of wrongdoing.   In the past, “voluntary disclosure” and “cooperation” had been considered as one factor.  Now, however, the Department had elected to separate the two concepts.  Why the sudden change?  In a November speech introducing the revised Principles, Yates explained, “We made this change to emphasize that while the concepts of voluntary disclosure and cooperation are related, they are distinct factors to be given separate consideration in charging decisions.”[3]

Consider the implications of this “new” prong:  Prior to the implementation of the Yates Memo, a corporation that voluntarily disclosed wrongdoing but then failed to fully cooperate in a subsequent investigation would be eligible for partial credit.  Today, that same corporation would receive no “cooperation” credit whatsoever, but still be eligible for “voluntary disclosure” credit under USAM 9-28.900. How is this anything more than an exercise in semantics?

As skeptics have already pointed out, it remains an open question how much the Yates Memo has altered practice among prosecutors and corporate investigators.  We have yet to witness a tsunami of individual prosecutions. One would hardly expect there to be, given the well-established difficulty in proving mens rea and establishing responsibility for complex transactions after the fact.  At the same time, the DOJ’s rhetoric has hit a nerve.  White-collar defense attorneys have dutifully warned their corporate clients to proceed more carefully in investigating misconduct, and the DOJ’s Fraud Division is informally requiring corporate targets to certify that they have undertaken their best efforts to uncover and identify culpable individuals.

There is yet hope for corporate prosecutions.  The DOJ’s Fraud section has implemented a pilot program for FCPA cases that may prove more productive, and alternative tools may further aid in identifying individual offenders.  Nevertheless, when we look back ten years from now, it seems doubtful that we will see the Yates Memo as the stick it purported to be.

Footnotes

[1] Joseph W. Yockey, Beyond Yates: From Engagement to Accountability in Corporate Crime, 12 NYU J.L. & Bus. 407, 408 (2016).

[2] For a critique of Yates’s analogy to the narcotics trafficking context, see Elizabeth E. Joh & Thomas W. Joo, The Corporation as Snitch: The New DOJ Guidelines on Prosecuting White Collar Crime, 101Va. L. Rev. Online 51 (2015).

[3] Deputy Attorney Sally Quillian Yates Delivers Remarks at American Banking Association and American Bar Association Money Laundering Enforcement Conference, November 16, 2015, available at https://www.justice.gov/opa/speech/deputy-attorney-general-sally-quillian-yates-delivers-remarks-american-banking-0

Miriam Baer is a Professor at Brooklyn Law School.  Professor Baer teaches in the areas of corporate law, white collar crime, criminal law and criminal procedure.  Professor Baer’s scholarship, which focuses on organizational wrongdoing in public and private settings, has twice been selected for the prestigious Stanford-Yale-Harvard Junior Faculty Forum.

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