by Sharon Oded
A year and a half ago, the DOJ changed the rules of the game with the introduction of a memorandum entitled “Individual Accountability for Corporate Wrongdoing” (known as the “Yates Memo”). In a memorable announcement in September 2015 at the NYU School of Law, Sally Quillian Yates, then-Deputy Attorney General, decisively announced: “Effective today, if a company wants any consideration for its cooperation, it must give up the individuals, no matter where they sit within the company.”
The Yates Memo continued a steady trend of strengthening enforcement against individual perpetrators involved in corporate fraud. Realizing the significant challenges faced by the DOJ in establishing individual liability for corporate wrongdoing, Yates Memo sought to enlist culpable corporations to assist the DOJ in pursuing individual offenders. Accordingly, the memo aims to encourage companies to take all necessary investigative actions, discover who is responsible for the misconduct, and report those findings to the DOJ, which would then pursue those individuals to the fullest extent of the law.
While other U.S. authorities have recognized individual accountability as an important enforcement goal, the DOJ’s policy as promulgated by the Yates Memo demonstrates a more rigorous approach. In contrast to the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), which consider a company’s disclosure of individuals’ involvement in the misconduct as an important factor in their analysis, the Yates Memo has adopted an “all-or-nothing” approach: it requires corporations to disclose to the DOJ all relevant facts about individuals’ involvement in the misconduct in order to qualify for any cooperation credit. Accordingly, regardless of whether the company has voluntarily reported the misconduct and fully cooperated with the investigation—e.g., by sharing relevant information, facts, analyses and internal investigation reports, making employees available for interviews and facilitating their representation, or taking state-of-the art remediation action to prevent reoccurrence—it cannot benefit from any credit unless it has ‘sacrificed’ the involved employees.
In the time since its celebrated arrival, the Yates Memo seems to have had a faltering take-off. The general expectation was that the memo would bring about a substantial increase in DOJ enforcement against individual perpetrators; however, several analyses of the 2016 FCPA enforcement docket reveal a significant drop in enforcement against individuals. At first glance, this suggests that the challenges of establishing criminal liability against individuals in relation to corporate wrongdoing remain a serious hurdle even in the post-Yates Memo era. While the new DOJ leadership is re-evaluating its enforcement policy with respect to white collar crime, the time may have arrived to reconsider the policy enacted by the Yates Memo altogether.
In a recent study in the Yale Law and Policy Review, Coughing Up Executives or Rolling the Dice?, I analyzed the social desirability of the policy promulgated by the Yates Memo. Using a law and economics analysis, the study opens the corporate black box and explores the impact that the Yates Memo is expected to have on corporate and individual incentives. The analysis reveals two potentially serious shortcomings of the Yates Memo.
First, the Memo can be seen as generating a fundamental conflict of interest between corporations and their employees, by effectively enlisting corporations as members of DOJ enforcement teams and placing them in a confrontational position with regard to their own employees and executives. As such, employees’ potential reluctance to cooperate—and increasingly challenge—corporate internal investigations is unsurprising. As a result, the implementation of the Yates Memo may in fact hamper corporations’ ability to effectively monitor and investigate wrongdoing within the organization.
Second, the Memo may generate a chilling effect on corporate cooperation with the DOJ’s enforcement. For instance, one strong motivation for corporate cooperation in the pre-memo environment was corporations’ ability to minimize the reputational damage that might follow from long-running criminal proceedings by reaching a conclusive settlement, which could resolve the matter and allow the corporations to lay it to rest. Under the Yates Memo regime, U.S. Attorneys are instructed not to provide any protection against individual liability in corporate resolutions, and to resolve individual cases following resolution of the corporate matter. Accordingly, enforcement cases against individuals may take place long after the corporation has settled, amplifying and extending the period of adverse publicity for corporations. In setting such a demanding threshold in exchange for cooperation credit, the Memo may diminish the appeal of cooperation altogether. These dangers may ultimately lead the Yates Memo to unnecessarily complicate U.S. enforcement against corporate wrongdoing while simultaneously weakening its deterrent effect.
Doubtless, holding individual actors accountable for wrongdoing within the scope of their employment can play a vital role in combatting unlawful corporate behavior. At the same time, the conflict of interest and the chilling effect generated by the Yates Memo call into question the legitimacy of the current policy which demands that corporations throw their employees “under the bus” to demonstrate their commitment to cooperating with the DOJ. It is time to consider the introduction of less damaging policy constructions in promoting corporate compliance. The DOJ may consider, for instance, respecting leniency agreements made between corporations and their whistleblower employees who report concerns internally and subsequently lead to the discovery of a corrupt scheme. In this way, the DOJ may streamline both individual and corporate motivation in addressing misconduct, while avoiding the unnecessary conflict of interest between corporations and their employees. It may also consider rewarding corporations with credit based on disciplinary actions taken by those corporations against culpable employees — as seen in the settlements of Odebrecht, JPMorgan, and Olympus — rather than making these rewards conditional on the sharing of information relating to those employees with the DOJ. This may reduce the chilling effect on cooperation by removing the demanding standard for cooperation credit and minimizing the high reputational risks to corporations resulting from long-lasting follow-on criminal proceedings against those corporate employees.
 For the SEC policy, see: US Securities and Exchange Commission, Enforcement Cooperation Program (updated Sept. 20, 2016). For the CFTC policy, see: CFTC Release No. 7518-17, CFTC’s Enforcement Division Issues New Advisories on Cooperation (Jan. 19, 2017).
 See, for instance, Shearman & Sterling, “FCPA Digest” (January 2017), at xxiv: “If anything, the DOJ’s efforts to pursue charges against individuals, particularly those at the top of the corporate food chain, have actually slackened following the announcement of the Yates Memo.” See also, Jones Day, FCPA 2016 Year in Review, at 6.
Sharon Oded is a professor of Corporate Compliance and Enforcement at the Erasmus University Rotterdam and was formerly a research fellow at the University of California, Berkeley. Sharon is also a Senior Associate at the Regulatory Enforcement practice at De Brauw Blackstone Westbroek. His practice focuses on helping multinational corporations and financial institutions mitigate their regulatory compliance risks and respond to corporate incidents and crises, including handling multi-jurisdictional internal investigations in various areas of regulatory and financial crime.
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