Now that the Justice Department wants companies to provide full intelligence on individuals involved in corporate misconduct if the business wants to win cooperation credit, the big challenge for compliance officers will be how in the world—literally and figuratively—they can navigate this new policy.
The crux of the Justice Department’s new policy memo (the “Yates Memo”) issued on Sept. 9 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.
In the United States alone, that approach will win compliance officers no fans among executives uncomfortable with exposing themselves to criminal and civil liability. In Europe, however—well, all bets are off over there.
“It seems to be sending the message to prosecutors that they should demand that companies at almost any cost provide any information that may relate to any improper conduct within the scope of the investigation,” says Adam Safwat, a former deputy chief of the Justice Department’s Fraud Section and now counsel at Weil. “You cannot pick and choose.”
That’s going to be a difficult hurdle to overcome when conducting internal investigations in Europe and other parts of the world, where companies have to comply with stringent data privacy laws and labor laws. “Those laws place restrictions on the types of searches that companies can do,” Safwat says. “In Europe, the emphasis is on protecting the employee’s privacy and employee’s rights.”
In countries such as Germany and France, for example, works councils are powerful advocates for European employees of a company. Through them, workers are informed and consulted by management on the progress of the business and any significant decision at that could affect their employment or working conditions—like, say, a tough new investigations policy adopted in the United States.
And Europe is not the only region where U.S. companies could encounter problems in the course of a global internal investigation. “Most developed nations give their employees much more protections than here in the United States,” says Mark Srere, a partner with law firm Bryan Cave.
In the United States, corporate lawyers typically invoke Upjohn warnings to remind employees that corporate counsel works in the best interest of the company, rather than the worker. Other countries, however, employ the opposite tactic, informing employees that they have a right not to answer questions that can incriminate themselves. “In fact, in some instances they have a right not to participate in an internal investigation interview,” Safwat says.
What’s more, in many countries a company cannot interview an employee without informed consent; some even have the right to have an attorney or a works council representative present during the interview, Srere says. That is generally not the case at U.S. companies, unless collective bargaining agreements say otherwise.
“The U.S. government takes a very aggressive stand in the sense that they don’t believe that the EU protections can’t be skirted.”
Mark Srere, Partner, Bryan Cave
Embedded in the Justice Department’s new policy is “a measure of reasonableness,” says James Cole, a former deputy attorney general until January and now a partner with Sidley Austin. If the company does, in fact, encounter unavoidable obstacles in getting evidence, the Justice Department will take that into account, he says.
“They’re not going to expect people to do the impossible, but they will scrutinize what efforts every company has taken in order to satisfy this requirement,” Cole adds. “If they don’t think the company has taken every effort they reasonably can take, they will ask them to go back and do some more or not get cooperation credit.”
For the company to prove that it has taken all reasonable efforts, the government basically wants to see a court order showing why you can’t produce the information, Srere says. “The U.S. government takes a very aggressive stand in the sense that they don’t believe that the EU protections can’t be skirted,” he says.
Companies will need to be able to demonstrate to the government “in some way, shape, or form” what labor laws or collective bargaining agreement prevents them from providing certain evidence, Cole says. As long as the company documents the reason it could not provide the information, the government “will, and should, take its explanation into account,” he says.
“This doesn’t negate any number of other issues that are going to arise in this context,” Cole adds. With the Justice Department’s new policy, both European Union and U.S. employees are going to be “far more cautious,” he says, about what they say to company lawyers when responding to questions about wrongdoing in the course of an internal investigation.
Companies will have to consider whether or not to cooperate and voluntary disclose misconduct more carefully, Srere says, because they now know that the consequence of disclosure is that the Justice Department “is going to be looking for heads to roll.” That might not be a huge issue for a large corporations, but it could change the calculus of cooperation for smaller companies with fewer people in senior management positions, he says.
Another area that might pose challenges for compliance and legal officers under the Justice Department’s new policy: e-mail searches. Some European countries—France and Germany again, for example—restrict what companies can search internally under certain data privacy and labor laws.
The following is an excerpt from an internal memo issued this month by Deputy Attorney General Sally Quillian Yates. It details a six-pronged approach to increasing individual prosecutions following corporate investigations.
The guidance in this memo reflects six key steps to strengthen our pursuit of individual corporate wrongdoing, some of which reflect policy shifts and each of which is described in greater detail below:
(l) In order to qualify for any cooperation credit, corporations must provide to the Department all relevant facts relating to the individuals responsible for the misconduct;
(2) 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 communication with one another;
(4) Absent extraordinary circumstances or approved departmental policy, the Department will not release culpable individuals from civil or criminal liability when resolving a matter with a corporation;
(5) Department attorneys should not resolve matters with a corporation without a clear plan to resolve related individual cases, and should memorialize any declinations as to individuals in such cases; and
(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 that individual's ability to pay.
Source: Department of Justice.
“This is very different than what we’re used to in the United States,” Safwat says. “A lot of prosecutors don’t appreciate that, because they’ve never encountered it. They assume a company of course has access to e-mails on its server, and of course should be able to look at them, and of course should be able to flag anything that is of relevance and hand it over to the government. The reality is it actually doesn’t work that way in Europe.”
Companies have solved that problem before by working with U.S. authorities to obtain the information prosecutors want legally. “I’ve experienced this as a prosecutor on more than one occasion, where corporate counsel would come in and explain to the government the sort of evidence that might be available in certain countries in the companies’ offices, and provide helpful suggestions as to the type of information to request through a formal legal process,” Safwat says.
That gives the company the legal compulsion it needs to conduct e-mail searches, Safwat says. From that point, the company must ensure that it demonstrates a good-faith effort to gather the relevant evidence in response to that formal legal request, he says.
U.S. prosecutors do have an appreciation of these issues, because they routinely use foreign legal requests in their own investigations to obtain evidence from other countries. “What prosecutors don’t have patience for is if they perceive that the company is trying to hide behind local privacy or labor laws as an excuse not to provide the evidence,” Safwat says.
Compliance and legal executives will have to see how this all unfolds practically. The Justice Department articulated numerous points in its Yates Memo, Cole says, and “we have to be very watchful as to how they evolve and how this actually gets put into practice in individual cases.”
Right now, the Justice Department is taking a broad stroke approach, Cole says. “The devil is going to be in the details of how it’s applied.”