The Yates Memo – a renewed US focus on individual misconduct in corporate investigations

“One of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing.” With these words, the United States Department of Justice (DOJ) last September announced a renewed focus on individual misconduct in corporate investigations. The “Yates Memo”–so named for its author, Deputy Attorney General Sally Q. Yates–provides guidance to attorneys across the Department’s many regions and divisions including the United States Attorneys in 94 judicial districts.

The Yates Memo sets about this task by outlining six policies:

  1. Companies must divulge the identities of every wrongdoer, along with every reasonably ascertainable fact about the misconduct, to qualify for any cooperation credit.
  2. Government investigations (both criminal and civil) should focus on individuals from the outset.
  3. Criminal prosecutors and civil attorneys should communicate regularly to ensure the full force of US law is brought to bear on any illegal behavior.
  4. Resolution of a corporate matter will not “provide protection . . . for any individuals . . . absent extraordinary circumstances or approved departmental policy such as the DOJ Antitrust Division’s Corporate Leniency Policy.”
  5. The Government will not ordinarily resolve cases against corporations “without a clear plan to resolve related individual cases.” A Government attorney must receive permission from the US Attorney or Assistant Attorney General to decline further pursuit of implicated individuals.
  6. Government civil attorneys should evaluate whether to pursue an individual “based on considerations beyond that individual’s ability to pay.”

The extent to which these items represent policy changes, rather than mere clarifications of existing policy, is the subject of some debate. But whatever else might be said about the Yates Memo, the Memo’s aggressive language and ambitious rhetoric combine to send a clear signal: individuals are in the crosshairs.

What is the likely outcome for criminal antitrust enforcement?

Although the Memo’s attitude could hardly be clearer, its effects are difficult to predict. This is especially true for antitrust enforcement. The Memo explicitly leaves undisturbed the Antitrust Division’s Corporate Leniency Policy (sometimes called its amnesty program), under which the United States grants immunity to all employees of the first company to fully disclose its participation in an illegal cartel. It is likely that little will change for participants in this program.

But not every company applies for leniency, for reasons malicious and benign. Before the Yates Memo, disclosure about individuals was one factor among many in the DOJ’s sentencing decisions. Now, taking the Memo at face value, corporations will earn no goodwill even for turning over a trove of incriminating information about their co-conspirators if they do not also turn out every individual within their own company. It remains to be seen how this radical shift in incentives will affect the behavior of would-be collaborators. Deputy Attorney General Yates herself acknowledged this possibility in a speech shortly after she distributed her Memo, but she minimized the hazard. Former Deputy Attorney General James Cole, however, predicts that the Government will retreat from the Yates Memo for this very reason.

One specific way the Memo might affect enforcement behavior concerns the Antitrust Division’s practice of entering plea agreements with non-amnesty companies. These deals typically confer immunity on most corporate employees but “carve out” certain employees that the Department retains the right to prosecute. Although sections 4 and 5 of the Memo would appear to spell the end of this practice, the leniency program expressly contemplates those carve-outs, so it is unlikely the practice will altogether cease. The Memo may incentivize DOJ supervisors to push to carve more people out of corporate plea agreements to increase overall individual exposure. But those carved out individuals are now more likely to face prosecution, where previously the Department often decided not to pursue carved-out employees. Government lawyers thus may be more discriminating in selecting the carve-outs because the value of the employee’s (even marginal) cooperation may be worth more than the risk of failing to convict – or worse, even to indict.

The DOJ has telegraphed precious little about its implementation of the Yates Memo. Deputy Assistant Attorney General Brent Snyder, responding to criticism that the Department is “drunk on fines,” defended the Department’s policy as a continuation rather than a revolution. Speaking at Yale University, Snyder revealed that the Antitrust Division has indeed begun “systematically” identifying individual candidates for prosecution.1 Government lawyers “are also undertaking a more comprehensive review of the organizational structure of culpable companies” to better identify “all senior executives who potentially condoned, directed, or participated in the criminal conduct.”2  These remarks conform to expectations about the implementation of the Yates Memo.

How will the Memo impact civil enforcement?

Potentially more watershed is the Memo’s effect on civil enforcement. Although the Government’s burden of proof is reduced in a civil case, many civil violations are not per se illegal; a company is liable only if its behavior is, on balance, more harmful than beneficial to competition. It is possible that the nature of civil antitrust violations means that the Government will pursue only intentional and knowing anticompetitive individual behavior. But it is certain that Government lawyers will be looking for creative ways to impose liability on individuals. Assistant Attorney General Bill Baer said as much in remarks last fall, commenting that even in civil matters the Yates Memo promotes looking for ways of “holding responsible the individuals who adopt a policy that is in violation of the antitrust laws.”3

How to Respond

Companies should not wait for federal prosecutors to come knocking. Proactive compliance can prevent annoyance and expense–or jail time–later.

Perhaps most importantly, companies should revise corporate antitrust compliance policies to reflect these changes. Officers and managers, in consultation with counsel, should develop policies that minimize opportunities for antitrust violations. Management must also ensure that employees are aware both of the law's requirements and the Government’s commitment to pursuing individuals. The Yates Memo provides an opportunity to review corporate compliance programs.

Further, the Yates Memo may create an unnecessary adversarial climate between the business and its employees. To be sure, even now employees and companies sometimes have reason to be wary of one another. But natural loyalties and common experiences often align them. Under the Yates Memo’s regime, with Government lawyers aggressively pursuing individual misconduct, employees are more likely to retain their own counsel before responding even to requests for basic information. The total outlay for legal services will be much higher.

In light of this, companies should review risk mitigation measures, including liability insurance policies, to ensure they accurately reflect the likely proliferation of separate legal counsel. All employees, but especially directors and officers, should understand the scope of the company’s obligation to provide independent legal services to subjects of antitrust investigations. These concerns may loom large for many individuals in light of the Yates Memo’s final point that investigators should proceed regardless of “ability to pay.”

If, despite diligent attempts to ensure compliance, the company finds itself the subject of an investigation, it should undertake its own investigation and root out any behavior that the government could characterize as anti-competitive. If the investigation turns up a rogue employee or officer who has likely violated the antitrust laws, the company should consider steps to renounce the behavior (if nothing else to avoid ratification). Corporate officers should take care to maintain the attorney-client privilege that normally attends in-house investigations: the Government or private plaintiffs may argue that an investigation conducted with an eye toward furnishing information to the Government is not privileged. Every company has a strong interest in stamping out misconduct within its ranks, and the subject of an investigation should always vigorously pursue its defenses. Company records should reflect these primary goals.



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