Alan J. Bozer and Erin C. Borek Co-Author White Collar Column in The Daily Record

The Yates Memo: One Year Later

The Yates Memo, issued September 9, 2015 by U.S. Deputy Attorney General (DAG) Sally Yates, directs federal prosecutors to focus on holding individuals accountable for corporate wrongdoing. It has been almost a year since the Yates Memo ruffled the status quo feathers, and its impact is slowly being seen at both the Department of Justice (DOJ) and beyond. In May 2016, DAG Yates addressed the New York City Bar Associate White Collar Crime Conference and discussed the impact of the Memo. This article focuses on her remarks and insights into its effects.

The Yates Memo, formally titled Individual Accountability for Corporate Wrongdoing, applies to both civil and criminal investigations. At the White Collar Crime Conference, DAG Yates explained that the desire to hold individuals accountable and the real world challenges in doing so spawned the Yates Memo, or as she prefers to call it, the Individual Accountability Policy.

The Memo lists six key steps that prosecutors must follow in the pursuit of individual corporate misconduct. Most notably, it directs that in order to qualify for any cooperation credit, corporations must provide the DOJ all relevant facts relating to the individuals responsible for the misconduct.

The credit can help a corporation reduce fees and penalties or avoid prosecution altogether.

DAG Yates explained in her address that under previous practices, companies expected to get cooperation credit without providing real facts, but the new policy makes information a threshold factor and imposes consequences for not providing all facts about individuals.

She assured the group that the new policy does not mean companies are required to conduct overly broad expensive investigations, but rather these companies must carry out a “thorough investigation tailored to the scope of the wrongdoing” and turn over information to the prosecutor as it receives it. Even if the corporation cannot figure out who is culpable, the corporation can still receive cooperation credit as long as it did everything it could reasonably be expected to do in its investigation.

During her presentation, DAG Yates discussed the positive impact the policy change has had on corporate investigations. She said despite the plethora of articles and client alerts warning about the negative consequences of the Yates Memo, companies are making real and tangible efforts to identify facts about individual conduct, even creating “Yates Binders” that contain emails of the individuals being interviewed by the Government. She said compliance officers have informed her team that the focus on individuals has steered officers and employees toward best practices and higher standards.

DAG Yates also described some specific changes stemming from the shift in policy. For example, the Antitrust Division recently announced changes to its procedures to ensure that its criminal offices identify all potentially culpable individuals as early in the investigation as possible, erring on the side of “carving out” individuals from corporate agreements so the individuals remain open to prosecution. In addition, the Foreign Corrupt Practices Act Unit of the DOJ Fraud Section recently launched a pilot program under which companies must provide facts about individuals in order to be eligible for credit, highlighting the difference between a promise to cooperate and actual self-disclosure.

Another example, one not mentioned by DAG Yates, can be found in the revisions to the U.S. Attorney’s Manual § 9-28.000, which now emphasizes the prosecution “of criminally culpable individuals within or without the corporation” to “provide the strongest deterrent against future corporate wrongdoing.”

DAG Yates pointed out that this emphasis on individual liability is having an impact outside of the DOJ as well. For example, on January 8, 2016, the U.S. District Court of the District of Minnesota issued a decision permitting the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) to hold an individual liable for a civil penalty stemming from a violation of the Bank Secrecy Act (BSA). In that case, FinCEN sued to hold Thomas Haider, MoneyGram’s former chief compliance officer, personally liable for a $1 million civil penalty for MoneyGram’s violations of the anti-money laundering provisions of the BSA.

The court denied Haider’s motion to dismiss the Government’s complaint, upholding the Government’s theory that the BSA permits individual liability for willful violations of the Act’s requirement that companies maintain an anti-money laundering program and thereby greatly expanding FinCEN’s authority to impose individual liability. See U.S. Dep’t of Treasury v. Haider, No. CV 15-1518, 2016 WL 107940 (D. Minn. Jan. 8, 2016).

As another example, in December 2015, the House of Representatives introduced a bill called the Holding Individuals Accountable and Deterring Money Laundering Act, which proposes to amend provisions of the BSA related to money laundering to impose, among other things, a penalty on individuals of a financial institution for violations of the anti-money laundering laws and a 20-year maximum prison term for individuals who facilitate evasion of the anti-money laundering program or controls. See H.R.4242, 114th Cong. (2015).

Notwithstanding DAG Yates’s assurances that the new policies are working, the Yates Memo will have some unintended consequences. Given the change in how a corporation can earn cooperation credit, a conflict of interest arises between the company and its employees. By forcing a corporation to provide information about any and all individuals and to be proactive in conducting internal investigations, employees will likely seek independent legal advice during such investigations, which will complicate and increase the cost of the investigations. The individual also will be less inclined to cooperate with the corporation, since any cooperation could be used by the company against him in order to gain credit.

Companies should be aware that the stakes and rules in government investigations and settlement negotiations have changed. However, DAG Yates assured the group at the conclusion of her remarks, although the new policy will result in some “temporary uncertainty,” a new normal will soon exist and “equilibrium will return.”