More than eight months after the Department of Justice announced its new policy that companies must provide the agency with all information it has on individuals involved in corporate misconduct if they want to win cooperation credit, the compliance and legal community is still buzzing about its real-world implications.

At Compliance Week 2016 in Washington, D.C., both current and former enforcement officials, as well as compliance officers, gathered to discuss and share how the “Yates Memo” is affecting them.

As Compliance Week previously reported, the crux of the FCPA Unit’s “Yates Memo,” announced in September 2015, is this: “If a company wants any consideration for its cooperation, it must give up the individuals, no matter where they sit within the company.” Furthermore, to qualify for any cooperation credit, corporations must provide “all relevant facts” relating to the individuals responsible for the misconduct.

That the Justice Department is focusing its investigations on individuals is not a new policy. “Why everyone is talking about the Yates Memo is that it sets some important markers about how the government is going to go after individuals,” said Jonathan Haray, former assistant chief litigation counsel for the SEC and now a partner at law firm DLA Piper. “It’s leveraging companies to try to do more of the work.”

Similar to the Justice Department, the SEC has always focused its investigations on individuals. “The majority of our cases are against individuals,” said Stephen Cohen, associate director of the SEC’s Division of Enforcement.

Employee investigations

In the United States, corporate lawyers typically invoke an “Upjohn” warning, reminding employees during an investigation that corporate counsel works in the best interest of the company, rather than the employee personally. In light of the Yates Memo, however, “you have to be a little more diligent and give a more enhanced Upjohn warning,” said Pedro de la Torre, global compliance officer and corporate counsel for Chemours, a $6 billion global chemical company.

It may be necessary, for example, to warn individuals that the company has an obligation to cooperate with the government and that any information the employee gives could, thus, be turned over to the government. The implications of this may drive employees to get their own separate counsel.

“Why everyone is talking about the Yates Memo is that it sets some important markers about how the government is going to go after individuals.”
Jonathan Haray, Partner, DLA Piper

Many employees tend to be cooperative during internal investigations, “and this does stand to run the risk of getting in the way of that,” Haray said. ”You are going to have people resist cooperating with investigations.”

In civil investigations that run parallel to the Department of Justice, a lack of employee cooperation could pose an issue for the SEC. From a “high-level, big picture perspective,” however, Cohen said he doesn’t see that scenario happening very often. 

Furthermore, it’s not always in the best interest of individuals to be represented by company counsel, Cohen added. In some cases, people have information they want to share with the government, but feel that they can’t because of a conflict of interest between the employee and the company. “Sometimes the lawyers don’t know that and, often times, we don’t know that,” he said, “and we want them to be able to come to us.”

FCPA Pilot Program

The panelists also discussed best practices for coordinating civil and criminal investigations in light of the new FCPA Pilot Program launched within the FCPA Unit of the Justice Department’s Fraud Section. Under the Pilot Program, companies that voluntarily self-disclose, fully cooperate—including satisfying the requirements of the Yates Memo—and timely remediate can receive up to 50 percent off the bottom end of the U.S. Sentencing Guidelines fine range.

During remarks at the New York City Bar Association White Collar Crime Conference on May 18, Deputy Attorney General Sally Yates said that the Pilot Program helps put into practice not only the Yates Memo, but also the revisions to the U.S. Attorney’s Manual announced in November 2015 that separates the concept of self-disclosure from that of cooperation. 

“Those revisions account for the difference between a company raising its hand and voluntarily disclosing misconduct and a company simply agreeing to cooperate once it gets caught,” Yates said. “We made this change to emphasize that while the concepts of voluntary disclosure and cooperation are related, they are distinct factors to be given separate consideration in charging decisions.”

Even with the opportunity to receive a reduction in any final penalty amount, the Department of Justice is always going to weigh the facts and circumstances of each case. As a result, the difficult question faced by a company of whether and when to self-report is still a difficult question doesn’t just disappear with the FCPA Pilot Program in place. “[I]t doesn’t really change the clarity that companies have,” said Haray.


Below is a description on six key steps to strengthen the pursuit of individuals during internal investigations.
1. To be eligible for any cooperation credit, corporations must provide all relevant facts about the individuals involved in corporate misconduct.
2. Both criminal and civil corporate investigations should focus on individuals from the inception of the investigation.
3. Criminal and civil attorneys handling corporate investigations should be in routine communications with one another.
4. Absent extraordinary circumstances, no corporate resolution will provide protection from criminal or civil liability for any individuals.
5. Corporate cases should not be resolved without a clear plan to resolve related individual cases before statute of limitations expires.
6. Civil attorneys should consistently focus on individuals as well as the company and evaluate whether to bring suit against an individual based on considerations beyond ability to pay.
Source: SEC Enforcement and the Yates Memo presentation, Compliance Week 2016

In a similar vein, the SEC formally began granting cooperation credit to companies since 2001 under its so-called Seaboard report. In that report, the SEC identified four broad factors to be considered in evaluating a company’s cooperation when determining appropriate charges and remedies: self-policing (compliance, effectively); self-reporting; remediation; and cooperation.

Unlike the Department of Justice, however, all of the SEC’s statutes allow the Commission to bring charges for recklessness, at the very least. “We don’t require actual knowledge, so the charging calculus is different for the SEC than the Department of Justice.” Cohen said.

Nonetheless, the SEC and Department of Justice often investigate a matter together, particularly concerning violations of the Foreign Corrupt Practices Act. Thus, no matter whether the company is dealing with the SEC or Justice Department, Cohen said it’s a smart idea to talk about the company’s compliance program—that is, if it has one worth talking about—at the outset of an investigation.

What problem did the company find? What have they done since they found it? “That’s a really important meeting,” Cohen said. “That sets the stage for everything.”

A lot of subtext comes out of that meeting, Cohen added. The SEC can gauge a lot about a company based not just on the facts it presents, but also by who comes in and shares that information—the audit committee, the board, management? “All of those things, to me, set a really critical tone for what’s coming,” he said.

At the end of the day, both the SEC and the Justice Department view compliance as a shared responsibility. Equally important, enforcement authorities always stress that tone-at-the top means walking the talk: “We are looking for a tone built on actions, not words,” Cohen said. “I want to see tangible benefits.”