Attorney: Boards have clearer choices on probe cooperation

Ronald Zdrojeski

A new prosecutorial policy and a court ruling have made clearer to companies and their boards the value of cooperating with government investigations - and how to deal with executives that don’t play ball - according to Sutherland Asbill & Brennan partner Ronald Zdrojeski.

At issue firstly is the so-called Yates memo. In September 2015, Deputy Attorney General Sally Quillian Yates issued a document laying out six steps (see Yates Memo, below) the US Department of Justice would follow in looking to increase individual liability for corporate wrongdoing. These include: ‘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.’

Then this past June, the US Court of Appeals for the Second Circuit affirmed that companies have the right to terminate for cause executives who refuse to cooperate with an internal investigation and remain “silent” even though potential criminal prosecution is on the horizon.

Neither the Yates memo nor the Second Circuit opinion require the termination of employees who choose not to sit for an interview - that remains a business decision of the company – Zdrojeski and fellow attorneys wrote in a notice earlier this year.

But together – and assuming the incoming Trump administration does not back away from the Yates memo approach – these developments mean that ‘the c-suite is much more in the crosshairs,’ Zdrojeski tells Corporate Secretary. If they remain in place, executives will be fired for not cooperating with investigations, and that will have an impact on who wants to take such jobs, he adds.

The Yates memo and the Second Circuit opinion already make it easier to persuade companies to cooperate, but the new state of affairs has not yet been fully digested, according to Zdrojeski. Should they continue to be in effect for the next 18 months, it will be even easier to make the case to boards that their companies should cooperate, he adds.

In the past, if a company fully cooperated with the government and the matter at issue involved a lack of supervisory competence, it was highly unlikely that individual officials would not be held liable, Zdrojeski says. But he now advises companies that individuals will likely become a subject of an investigation, even if there is only an issue of ‘supervisory lapses.’

Firms should encourage the relevant individuals to take part in an internal probe, but if they opt not to then the company needs to fire them, he says.

Given the size of recent regulatory penalties imposed in corporate cases, it is worth seeking a discount by cooperating with the government - boards will be very keen to do so and will fire executives if they don’t participate in internal investigations, Zdrojeski says.

To get credit, companies need to make very clear that they are serious about cooperating – which includes making best efforts with their internal probes and firing any people who committed violations or did not cooperate – he adds. But they should bear in mind, he says, that full cooperation with the government can lead to leniency, not amnesty.


YATES MEMO
The steps laid out in the Yates memo are:

‘(1) 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.’