There has been a lot of discussion about the prosecution of executives for corporate wrongdoing since the distribution of a memo last week issued by Sally Yates, Deputy AG, to the Department of Justice. The memo calls for the Justice Department to “fully leverage its resources to identify culpable individuals at all levels in corporate cases” and spells out six steps to be taken during civil corporate investigations to strengthen its pursuit of individuals.
The memo puts executives at corporations on notice that they will no longer get a free pass when their company writes a major check to settle the government’s investigation. Most importantly, it will not allow cooperation credits for corporations that do not identify the employees involved in the corporate misconduct.
One area where this could lead to more prosecutions is the Foreign Corrupt Practices Act. Cooperation credits are an important part of reducing FCPA penalties and companies will now have to disclose the individuals at fault in order to settle the SEC and DOJ investigations into bribery of foreign officials.
The U.S. Government has received a substantial amount of criticism for failing to prosecute the executives responsible for the financial crisis. In February, then Attorney General Eric Holder called for a 90 day review of executive conduct in any residential mortgage backed securities case for possible criminal or civil charges against them. Loretta Lynch took over the top spot at the Justice Department in April and this appears to be the opening salvo in an attempt to reverse course on this issue.
For whistleblowers, the Yates memo is unlikely to offer additional incentives since the decision to prosecute an individual will most likely be on top of any fine issued to the corporation. Traditionally, the fines against corporations have greatly exceeded individual penalties.