Six months ago the Deputy Attorney General of the United States, Sally Yates, released a memorandum directed to all attorneys in the United States Department of Justice (DOJ) directing them to “fully leverage” the DOJ’s resources “to identify culpable individuals at all levels in corporate cases.” To that end, Yates identified six measures that should be taken in any investigation of corporate misconduct by the DOJ leading to potential criminal and/or civil consequences to ensure that attorneys across the DOJ are consistent in their “best efforts to hold to account the individuals responsible for illegal corporate conduct.”
These measures, which have been well publicized, include requiring corporations to provide to the DOJ all relevant facts about the individuals involved in corporate misconduct in order to qualify for credit for cooperation, directing DOJ attorneys to focus on individuals at the start of any investigation of corporate misconduct, and avoid resolutions with corporations that shield individuals from liability.
At a recent Securities Industry and Financial Markets Association conference, Leslie Caldwell, the Assistant Attorney General, Criminal Division of the DOJ, provided some further context.
According to Caldwell, the DOJ may decline to prosecute a corporation that has self-reported wrongdoing to the DOJ, cooperated with the DOJ, and remediated. However, in most situations involving corporate wrongdoing, “There will be culpable individuals.” To get credit for cooperation, the DOJ expects corporations to identify who those individuals are and what they did. Consistent with that approach, independent investigations of potential corporate wrongdoing should focus on who did what. Although the DOJ does not require the corporation to waive privilege in order to qualify for credit for cooperation, the facts found during the investigation must be disclosed.
What does the Yates memo mean for Canadian corporations?
Corporations with operations in the United States or listed on a US stock exchange are likely within the jurisdictional reach of the US DOJ and will be directly affected by the approach described in the Yates memo.
For those outside the jurisdiction of the US criminal authorities, whether the approach advocated by the DOJ will influence how Canadian criminal authorities approach the investigation and prosecution of corporate wrongdoing is unclear.
The DOJ’s approach may resonate with some Canadian securities regulators. Like the DOJ, the Ontario Securities Commission expects corporations to self-identify, self-report and remediate wrongdoing in order to qualify for credit for cooperation, which may result in eligibility for a no-contest settlement. (See OSC Staff Notice 15-702 Revised Credit for Cooperation Program (2014), 37 OSCB 2583.)
To date, four no-contest settlements have been approved by the OSC. In three of those cases, the corporation self-identified potential improprieties, investigated and self-reported. None of those cases resulted in proceedings against employees or officers. However, rather than reflecting a regulatory policy to avoid naming individuals perceived to be culpable, this appears to reflect the reality that these cases arose out of alleged systemic failures that did not involve dishonesty.
Where does the Yates approach leave corporations and their senior officers? Any expectation by police and regulatory authorities that corporations will thoroughly self-identify, investigate and self-report wrongdoing involving individual officers and employees may make it more difficult for a corporation to obtain the cooperation of individuals whose conduct may come under scrutiny.
Corporations will need to be aware of the potential consequences of their findings on individual officers and directors. Upjohn warnings may need to be tailored depending upon the nature of an individual’s perceived involvement in the matters under investigation. Separate legal representation of particular individuals early in the investigation may be necessary.
As privilege over the information disclosed during an internal investigation belongs solely to the corporation, only it can decide when and whether to waive it. Notwithstanding the employee’s duty to cooperate with an internal investigation, an individual facing potential criminal or regulatory exposure risks incriminating himself in circumstances where he cannot know or control how his information will be used and to whom it may be disclosed. This risk is heightened when more than one jurisdiction may be interested in the conduct in issue. (See Linda Fuerst, “The Privilege Against Self-Incrimination: Issues in Cross-Border Investigations .) The corporation’s ability to access information from these individuals may be compromised as a result.
All of this may make the conduct of internal investigations more of a challenge both for corporations and affected individuals.