Justice Department Urges Employers to Snitch on Bad Actors

Companies worried about whistleblowers have a new worry: having to blow the whistle on employees.

A top official at the Department of Justice has provided new insight on how companies that face a government investigation can receive cooperation credit. And while it’s an unusual move for the normally tight-lipped agency, companies might not like the message.

In a speech this month at the Global Investigation Review Program, Principal Deputy Assistant Attorney General for the Criminal Division, Marshall Miller, gave companies a no-nonsense ultimatum: rat out culpable employees or prepare to face the consequences.

“I’m going to be blunt,” said Miller. “If you want full cooperation credit, make your extensive efforts to secure evidence of individual culpability the first thing you talk about when you walk in the door to make your presentation,” he said. “Make those efforts the last thing you talk about before you walk out.”

Miller explained what the Justice Department expects when discussing the results of an internal investigation with the Criminal Division. “Expect that a primary focus will be on what evidence you uncovered as to culpable individuals, what steps you took to see if individual culpability crept up the corporate ladder, and how tireless your efforts were to find the people responsible,” he said.

Companies that shield culpable individuals will pay the price, Miller implored. “This is one of the lessons that should be drawn from the BNP Paribas and Credit Suisse cases,” Miller said. “Through parent-level guilty pleas and multibillion dollar penalties, BNP Paribas and Credit Suisse paid a historic price not only for their criminal conduct, but also for their insulation of culpable corporate employees.”

In contrast, Miller added, a “prime motivating factor” for why the government declined to prosecute Morgan Stanley in 2012 was because the company exposed and provided evidence against the employee who committed the crime. “Morgan Stanley assisted the government in identifying the individual executive responsible for the criminal conduct, Garth Peterson, and in securing evidence to hold Peterson criminally responsible,” he said. 

“I’m going to be blunt: If you want full cooperation credit, make your extensive efforts to secure evidence of individual culpability the first thing you talk about when you walk in the door to make your presentation.”
Marshall Miller, Principal Deputy Assistant Attorney General, Criminal Division

Miller’s remarks appear to represent the first time a Justice Department official has publically emphasized what weight the government places on individual prosecutions in resolving a case. While they don’t reveal a different stance than what the Justice Department has already stated in the Filip Memo, the principles under which the Department has based its corporate charging and resolution decisions since 2008, they do provide clarification on what the government considers valuable, says Greg Brower, former U.S. Attorney for the District of Nevada and now a partner with law firm Snell & Wilmer.

“What facts are being provided to the government in a way that’s helpful to its investigation?” says Brower. “If it’s just cooperation without any positive result or impact on the investigation, it won’t be considered to be as valuable as cooperation that provides specific facts.”

Under the Filip Memo, when evaluating a company’s willingness to cooperate, prosecutors are directed to consider the targeted company’s “willingness to provide relevant information and evidence and identify relevant actors within and outside the corporation, including senior executives,” the memo states.

“Voluntary disclosure of corporate misconduct does not constitute true cooperation, if the company avoids identifying the individuals who are criminally responsible,” Miller stressed. “Even the identification of culpable individuals is not true cooperation, if the company fails to locate and provide facts and evidence at their disposal that implicate those individuals.”    

Shamoil Shipchandler, former deputy criminal chief with the U.S. Attorney’s Office for the Eastern District of Texas and now a partner with law firm Bracewell & Guiliani, says that companies would be remiss to interpret Miller’s message independently from the one the government has been sending lately about whistleblowers. The government’s message is clear: “‘We want corporations that do their investigations to turn over the names of individuals. If you don’t, we’re going to pay whistleblowers whatever it takes to get that information to bring prosecutions,’” he says. “It’s a full-fledged approach.”

Now and Then

This is not the first time the Justice Department has called on companies to help pursue employees who commit fraud or other crimes, but it hasn’t always been successful with its tactics. In fact, the last time the Department of Justice attempted to strong arm companies into throwing employees under the bus, it ended up becoming ensnared in a web of due-process trouble. In 2006, in the case United States v. Stein, New York federal court Judge Lewis Kaplan condemned prosecutors for pressuring KPMG to stop paying legal support for sixteen employees who were indicted for selling illegal tax shelters.

FILIP MEMO BASICS

Below is an excerpt from the Filip Memo explaining policy concerns.
Special Policy Concerns
General Principle: the nature and seriousness of the crime, including the risk of harm to the public from the criminal misconduct, are obviously primary factors in determining whether to charge a corporation. In addition, corporate conduct, particularly that of national and multinational corporations, necessarily intersects with federal economic, tax, and criminal law enforcement policies. In applying these principles, prosecutors must consider the practices and policies of the appropriate Division of the Department, and must comply with those policies to the extent required by the facts presented.
Comment: In determining whether to charge a corporation, prosecutors should take into account federal law enforcement priorities as discussed above. In addition, however, prosecutors must be aware of the specific policy goals and incentive programs established by the respective divisions and regulatory agencies. Thus, whereas natural persons may be given incremental degrees of credit (ranging from immunity to lesser charges to sentencing considerations) for turning themselves in, making statements against their penal interest, and cooperating in the government’s investigation of their own and others’ wrongdoing, the same approach may not be appropriate in all circumstances with respect to corporations. As an example, it is entirely proper in many investigations for a prosecutor to consider the corporation’s pre-indictment conduct, e.g., voluntary disclosure, cooperation, remediation or restitution, in determining whether to seek an indictment. However, this would not necessarily be appropriate in an antitrust investigation, in which antitrust violations, by definition, go to the heart of the corporation’s business. With this in mind, the Antitrust Division has established a firm policy, understood in the business community, that credit should not be given at the charging stage for a compliance program and that amnesty is available only to the first corporation to make full disclosure to the government. As another example, the tax division has a strong preference for prosecuting responsible individuals, rather than entities, for corporate tax offenses. Thus, in determining whether or not to charge a corporation, prosecutors must consult with the criminal, antitrust, tax, environmental and natural resources, and national security divisions, as appropriate.
Source: Filip Memo.

The Justice Department argued that paying for the employees’ lawyers constituted non-cooperation under the U.S. Sentencing Guidelines and the so-called Thompson Memo, the principles under which the Department had based its corporate charging and resolution decisions on since 2003, when they were issued by Deputy Attorney General Larry Thompson.

In the first-of-its-kind decision, however, Kaplan ruled that the government’s actions and policies violated the employees’ Fifth Amendment right to due process, and the Sixth Amendment right to counsel.

According to Kaplan, the right to due process affords criminal defendants the right to a complete defense, including having counsel of their own choosing. “In short, fairness in criminal proceedings requires that the defendant be firmly in the driver’s seat, and that the prosecution not be a backseat driver,” Kaplan said.

Fast-forward more than a decade later, and it would appear Miller’s remarks echo a similar warning. Does this, then, signal a retreat to the dark days of the Thompson Memo, when the Department of Justice leaned on companies to help pursue individuals before it deemed them cooperative?

Defense lawyers say not so much.

“The tactic that the government is taking now is a little bit different,” Shipchandler says.  “They’re not compelling organizations to do anything to gut the constitutional rights of these people.”

Rather, he says, the Justice Department is only sounding a warning bell that a company simply will not be deemed as cooperating if it chooses not to help bring to justice the employees responsible for the misconduct.

Neither is the government saying that companies must waive attorney-client privilege in order to cooperate, Brower says. Whether defense lawyers can effectively provide valuable facts to government without waiving privilege is another story.

“That dilemma remains for target corporations,” Brower says. Nonetheless, that’s still a choice, not a violation of an employee’s constitutional rights, he says.

Furthermore, under the U.S. Attorneys’ manual, the Department of Justice is completely within its right to decide what it deems to be cooperation credit, Shipchandler says. “The U.S. Attorneys’ Manual, while setting out different evaluation points for what a company would do, is not an inclusive list, and it’s not a mandatory list.”

Another big difference between today and the days of the Thompson Memo is the economic climate, which is still recovering from the financial crisis. The constant drumbeat of criticism against the government for not holding more individuals accountable, Shipchandler says, makes it an opportune time to press companies to bring forth culpable employees.  

In a different economic climate—if the market was improving systemically, unemployment was down, and businesses were thriving—the outcome might be different, Shipchandler says. Until that happens, targeted companies can anticipate that providing evidence of individual culpability will be the new normal if they want to receive cooperation credit.