DOJ Changing of the Guard Could Impact Corporate Compliance
Board of Contributors
Commentary by Andrew S. Ittleman
March 29, 2016
Several recent critical changes within the U.S. Justice Department could impact corporate compliance in the U.S. regardless of who assumes the presidency.
First, after Eric Holder resigned as attorney general amid public outcry resulting from DOJ’s failure to prosecute anyone responsible for the 2008 global financial crisis, Loretta Lynch took over and immediately focused on prosecuting FIFA executives for international racketeering activities.
Three months later, Deputy Attorney General Sally Yates published “The Yates Memorandum,” outlining how DOJ will prioritize individual accountability in all future investigations into corporate fraud and other misconduct. Weeks later, DOJ announced the creation of a new compliance counsel position to advise DOJ on corporate compliance programs and whether companies should receive credit for having them.
These changes, coupled with recent enforcement actions against individual executives of food manufacturers, money services businesses, casinos, and other regulated entities, create an immediate impact on corporate compliance programs, corporate governance, white-collar defense in government investigations or prosecutions, and all places in-between.
Although it was not the first DOJ memorandum to address individual liability for corporate misconduct, the Yates Memo is unusual for its direct language and the highly charged environment in which it was published. It directs DOJ to “focus on individual wrongdoing from the very beginning of any investigation of corporate misconduct” and requires prosecutors to obtain special authorizations from Main Justice to avoid charging responsible individuals.
To effectuate this policy shift, it focuses on the relationship between companies and their employees, making clear that “to be eligible for any credit for cooperation, the company must identify all individuals involved in or responsible for the misconduct at issue, regardless of their positions, status or seniority, and provide to the department all facts relating to that misconduct.”
Using the carrot of “cooperation credit,” it pits corporations against executives and employees, and raises complicated privilege issues by requiring corporations to disclose “all relevant facts with respect to individuals” to be eligible for cooperation credit regardless of how the companies obtained the information. In today’s heightened enforcement environment, the Yates Memo makes internal communications more sensitive and redefines the needs of employees in regulated industries.
Having announced its new enforcement priorities and hired compliance counsel, the government is perhaps more motivated than ever to scrutinize companies and focus on their executives and employees, potentially exposing them to attorney fees and monetary penalties not contemplated by their employment agreements. As these stories make headlines, compliance professionals and other executives are recognizing new levels of exposure even when they act innocently but work within the radius of a compliance failure. They are wondering, “How am I protected?”
For companies seeking to attract and retain talent, it is no longer sufficient to wait for the start of government investigations to address how to provide for individual executives and employees. First, talented professionals mindful of the shifting enforcement environment may want answers to those questions as a condition of employment. Second, the company may be too focused on addressing the compliance flaws that led to the government investigation to be able to address which of their employees should have their attorney fees advanced and on what terms. Third, the government and the courts could perceive ad hoc decision making in this context as merely “protective” of culpable employees and hold it against the company.
Companies, and particularly those in regulated industries, should carefully review their governing charters and corporate policies to ensure they articulate how they will provide for individual executives and employees in the event of government intervention.
Companies can make relatively small investments now into compliance programs or face the inevitable expenses associated with government enforcement actions and individual prosecutions.
As DOJ’s recent maneuvers make clear, “paper” compliance programs are no longer enough to withstand government scrutiny. Companies across all industries must ensure they satisfy what the government would describe as a “culture of compliance.” Critical questions to address include:
• Does the company genuinely support and communicate compliance policies?
• Do the people responsible for compliance have stature?
• Are policies and practices current with evolving risks and circumstances?
• Are there mechanisms to adequately enforce compliance policies?
• Are business relationships with third parties terminated based on compliance concerns?
• Is the company candid with regulators and law enforcement?
Coupled with customized compliance programs, these questions can help companies understand whether their compliance programs will withstand government scrutiny and lower the risk of enforcement.
Andrew S. Ittleman is a founder and partner of Fuerst Ittleman David & Joseph in Miami. He concentrates his practice in white collar criminal defense, anti-money laundering compliance and food and drug law. He litigates extensively against the U.S. government in civil and criminal matters. He may be reached at email@example.com.
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