Any company that has faced allegations of corporate misconduct knows how quickly the scope and cost of an internal investigation can grow—a concern that has only amplified following the Justice Department’s renewed policy that companies must identify individuals responsible for misconduct if the business wants to win cooperation credit.
That policy—the “Yates Memo” issued by Deputy Attorney General Sally Yates in September—says companies must disclose all relevant facts relating to the individuals responsible for misconduct, if the company hopes to receive cooperation credit during that investigation.
The policy has frayed the nerves of many a compliance officer or general counsel; Ellen Zimiles, global head of investigations and compliance at Navigant Consulting, says the fear is that “companies [will] undertake unnecessarily broad, costly, and time-consuming internal investigations” to gain cooperation credit. In several recent speeches, Justice Department officials have attempted to alleviate these concerns.
“As I have said before, we are not asking companies to boil the ocean,” Assistant Attorney General Leslie Caldwell said during remarks this month at a conference on the Foreign Corrupt Practices Act. “We continue to expect investigations to be thorough and tailored to scope of the wrongdoing and to identify the wrongdoing and the wrongdoers.”
The reality, however, is that determining the appropriate scope of an investigation is easier said than done. “It is often said that if you follow the money trail, you will unravel the fraud scheme,” says Richard Sibery, a leader of EY’s fraud investigation and dispute services practice. “To do this typically involves multiple sources of evidence, and even then, determining the credibility of an allegation can be difficult.”
Zimiles recommends that companies take a multi-pronged approach to determining the validity of allegations, with the following components:
Employee interviews. In addition to conducting interviews with those who are the subject of the allegations, interview the people who made the allegations if you can, as well as people in the company who might be affected by the allegations.
“It is often said that if you follow the money trail, you will unravel the fraud scheme. To do this typically involves multiple sources of evidence, and even then, determining the credibility of an allegation can be difficult.”
Richard Sibery, Leader, Fraud Investigation & Dispute Services Practice, EY
Legal experts have long urged that corporate lawyers give interview targets the “Upjohn warning” at the start, to remind the person that corporate counsel represents the company rather than him or her personally. In light of the Yates Memo, that step is now even more urgent.
“Some believe that the Upjohn warning may in some cases have the potential to create a chilling effect on an employees’ willingness to cooperate in the investigation, Zimiles says, “which could conceivably slow down or otherwise impede the company’s ability to conduct what the Department of Justice would consider a complete and thorough investigation such that corporate cooperation credit is warranted.”
This effectively means that investigative teams often must tread carefully between being sensitive to colleagues targeted by the investigation, while still doing a thorough job probing the allegations. To achieve this, it’s helpful to be straightforward with the people that you’re interviewing or investigating, explaining to them what you hope to achieve.
Being clear about an interview can be even more important when dealing with former employees. “Approaching former employees in the course of an investigation is always a delicate matter,” Sibery says. “Gaining the former employees trust as to the reasons why their cooperation is needed is often the best and only approach.”
William Monks, a retired FBI agent and now director at advisory firm CohnReznick Advisory, suggests framing the conversation with the former employee by stressing the interviewer is only searching for facts, not looking to assign blame. “I’d frame it in such a way as to say, ‘Every matter, every investigation has two different perspectives, and so it’s important to make sure we get your perspective, because we want to take a balanced approach toward what we report about this issue. Your side is critical to us,’ ” he says.
Sometimes you can impress people with your attitude and the impartial manner in which you approach the investigation or interview, Monks adds. “Often times they’ll come around and open up to questions.”
CALDWELL ON THE YATES MEMO
Below are remarks from Assistant Attorney General Leslie Caldwell at the Global Investigations Review Conference in New York, speaking about the Yates Memo.
As set forth in the guidance, to qualify for cooperation credit, corporations must identify all individuals involved in the wrongdoing and must provide to the government all available relevant evidence implicating those individuals. This requirement builds on the Principles of Federal Prosecution of Business Organizations—or the Filip Factors—which direct prosecutors to evaluate a corporation’s “willingness to cooperate in the investigation of [its] agents.” The Principles further direct prosecutors to consider the corporation’s “willingness to provide relevant information and evidence and identify relevant actors within and outside the corporation, including senior executives.”
The new guidance flows directly from the familiar direction provided in the Filip Factors. It emphasizes that, to the extent that a company elects to cooperate, it must provide all relevant facts—to which it has access—relating to the misconduct at issue, including all facts about the individuals responsible for the misconduct.
This means that companies seeking cooperation credit must affirmatively work to identify and discover relevant information about culpable individuals through independent, thorough investigations. Companies cannot just disclose facts relating to general corporate misconduct and withhold facts about the responsible individuals. And internal investigations cannot end with a conclusion of corporate liability, while stopping short of identifying those who committed the criminal conduct.
We recognize, however, that a company cannot provide what it does not have. And we understand that some investigations—despite their thoroughness—will not bear fruit. Where a company truly is unable to identify the culpable individuals following an appropriately tailored and thorough investigation, but provides the government with the relevant facts and otherwise assists us in obtaining evidence, the company will be eligible for cooperation credit. We will make efforts to credit, not penalize, diligent investigations. On the flip side, we will carefully scrutinize and test a company’s claims that it could not identify or uncover evidence regarding the culpable individuals, particularly if we are able to do so ourselves.
As I have said before, it is not our intent to outsource our investigation of corporate wrongdoing to companies and their outside advisors. As in the past, we will not sit idle, waiting for a company to conduct or complete its investigation. Regardless of a company’s cooperation, federal agents and prosecutors will conduct thorough investigations. If, through this process, we are able to identify the culpable individuals when the company itself did not do so, as well as evidence that would support the charging and prosecution of those individuals, we will assess whether that evidence truly was unavailable to the company.
We, of course, recognize that we sometimes can obtain evidence that a company cannot. We often can obtain from third parties evidence that is not available to the company. Also, we know that a company may not be able to interview former employees who refuse to cooperate in a company investigation. Those same employees may provide information to us, whether voluntarily or through compulsory process. Likewise, there are times when, for strategic reasons, we may ask that the company stand down from pursing a particular line of inquiry. If so, the company will not be penalized for failing to identify facts subsequently discovered by government investigators.
Source: Justice Department.
Investigative due diligence. Beyond conducting interviews, the investigative team should also conduct due diligence surrounding the allegations, Zimiles says. That may include review of social media or financial and reputational background of the individuals involved in the allegations—such as legal proceedings, bankruptcy, liens and foreclosures, adverse media, and other business relationships, she says.
Monks urges compliance officers and other investigative team members to think about the scope of the wrongdoing: Who else could be involved beyond the individuals that are the target of the allegations? What similar misconduct could be occurring elsewhere in the company?
Document retention. Traditionally, one early investigation step has been to identify, collect, and preserve all relevant evidence that an employee targeted by the investigation “may be either in possession of, may have generated, received, edited, or reviewed and approved,” Sibery says.
The Yates Memo could force companies to rethink the question of “how broad their document retention notice should be, whose documents are reviewed, and how they are collected,” Sibery continues. “If an employee is later determined to be part of the misconduct, or if significant questions are raised about their conduct, a company must be able to answer the question of how the employees’ documents were preserved, gathered, and reviewed.”
In light of the Yates Memo, documenting employee responses—or non-responses, for that matter—is “going to become more important now than ever before,” Monks says. “It’s not going to be sufficient to say to prosecutors, ‘We asked about that and got no response back.’ ” Instead, it will be in the best interests of investigative teams to document the critical issues discussed in an interview, and the information or lack of knowledge, expressed by interviewees."
“The scope and method of the data preservation and review is very judgmental at the beginning of an investigation and often a big driver in the cost as well,” Sibery says. “The Yates Memo has raised the stakes on this determination.”
Maintaining Independence
If a senior-level executive, general counsel, or director is involved in the alleged wrongdoing, you’ll need to consider alternative methods such as tapping outside counsel. “When the allegations include senior management or board members, the independence and veracity of the investigation is usually under even more scrutiny by outsiders,” Sibery says. “Setting up a structure that insulates the investigative team from the influence of senior people who may be involved is key.”
The idea is to isolate that executive from the investigation to ensure independence, “because if a decision is made at some point to cooperate with the government—and again we’re referring to the Yates Memo here—then the company is going to need to demonstrate that it’s investigation has not been adversely impacted by a senior executive’s self-interest,” Monks says.
One way to establish independence early on, for example, is to have the investigative team engage with the board or audit committee as opposed to senior counsel, Sibery says.
As Justice Department officials have said numerous times, conducting a thorough investigation of employees amid allegations of corporate misconduct and preserving all relevant evidence in the course of an investigation has always been part of winning cooperation credit. The Yates Memo, however, significantly raises the stakes, and compliance and legal teams would be wise to respond accordingly.
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