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29 February 2016
Emphasis on individual accountability
DOJ policy on corporate privilege waivers
How companies may be pressured to disclose legal advice
The Yates Memorandum announced a new US Department of Justice (DOJ) policy that focuses DOJ attorneys on pursuing the individuals responsible for corporate wrongdoing. In considering the practical effects of the new policy, a question arises about the potential for it to increase the pressure on companies to provide legally privileged information to DOJ in hopes of receiving cooperation credit.
The Yates Memorandum, which was signed on September 9 2015 by Deputy Attorney General Sally Quillian Yates, amends the DOJ's corporate prosecution policies to most effectively pursue the individuals responsible for corporate wrongs.(1) The DOJ now requires that companies provide to the DOJ "all relevant facts about the individuals involved in corporate misconduct" to be eligible for "any cooperation credit".(2) This 'cooperation credit' is often a critical factor in corporate charging decisions and the mitigation of any fine or penalty. Going forward, it is a threshold requirement for companies seeking cooperation credit to provide "all relevant facts" to the DOJ. The DOJ has also announced that it will require cooperating corporations to enter a written statement of cooperation in which the corporation will certify that it has provided all relevant facts on any culpable individuals in compliance with the Yates Memorandum.
To effect this renewed emphasis on individual accountability, the Yates Memorandum mandates that investigations focus on individuals from the inception of the investigation. Absent extraordinary circumstances, prosecutors are not to agree to any corporate resolution that provides protection from criminal or civil liability for any individual. Rather, under the new policy, corporate cases should be resolved only when there is a "clear plan to resolve related individual cases".(3) If the decision is not to bring civil claims or criminal charges against any individuals, the reasons for that determination must be memorialised and approved by a more senior prosecutor.
The DOJ's new approach was motivated by the challenges in proving criminal intent in corporate cases, where responsibility is often diffuse and decisions are made by multiple persons. This is particularly true for high-level executives, who may be shielded from the day-to-day activity in which the misconduct occurs. As a result, the DOJ will "fully leverage" its resources in these cases to overcome the problems in proving that a specific person had the requisite state of mind.(4) The memorandum provides no guidance on how to address corporate privilege issues in light of the new policy.
The Yates Memorandum amends the DOJ's Principles of Federal Prosecution of Business Organisations, which were published in 2008 and are sometimes referred to as the Filip Memorandum after then-Deputy Attorney General Mark Filip. Pursuant to this policy, "[e]ligibilty for cooperation credit is not predicated upon the waiver of attorney-client privilege or work product protection".(5) Instead, prosecutors are to seek "disclosure of the relevant facts concerning such misconduct".(6) While a company's willingness to waive privilege should not factor into its degree of cooperation, its willingness to provide the relevant facts should.
The Filip Memorandum prohibits prosecutors from requesting communications that involve the seeking or providing of legal advice, or "core" attorney-client communications or work product, as a pre-condition for cooperation credit.(7) The policy provides two exceptions that allow prosecutors to request non-factual privilege materials if a corporation or one of its employees asserts an advice-of-counsel defence or if the privileged communications were made in furtherance of a crime or fraud.(8)
It is unclear how DOJ attorneys will treat facts that are necessary to prove intent but are also privileged, and whether a company can satisfy the Yates Memorandum's expectations on cooperation without waiving privilege. In many situations, an inquiry into the state of mind of a high-level executive would be an inquiry into how the executive considered the advice of others, including attorneys, before making a decision or taking an action. Indeed, it is not uncommon for the board of directors and management to seek opinions from several different outside counsel as part of their diligence in complex regulatory matters.
An apparent tension between the Yates Memorandum and the Filip Memorandum may, in practice, put pressure on companies that feel the need to provide more information to be eligible for cooperation credit. Under the Filip Memorandum, DOJ prosecutors are still prohibited from requesting non-factual or core attorney-client communications or work product as a pre-condition for cooperation credit.(9) However, the Yates Memorandum instructs prosecutors not to offer any cooperation credit unless a company provides all relevant facts about culpable individuals. In other words, even though prosecutors cannot ask for core privileged materials, they can request all relevant facts, which may be interpreted differently in different situations.
In some situations, "all relevant facts" about individual culpability may be inextricably linked with the legal advice sought and considered by the individual. For this reason, general counsel may feel particular pressure under this framework. Companies that operate globally or even across multiple states make numerous business decisions that could have potential legal implications and could involve legal advice from the general counsel's office. When the general counsel is closely involved in the conduct under investigation, there is greater potential for "all relevant facts" about culpable individuals to be entwined with legal advice.
In any criminal or civil case against a high-level corporate executive, state of mind will be a key issue for DOJ attorneys to prove. Litigation that involves of the most commonly charged white collar crimes (eg, bribery in violation of the Foreign Corrupt Practice Act, wire fraud or false statements) would centre on whether a DOJ attorney could prove that the defendant acted with the sufficient level of intent. Whether and to what extent the executive relied on legal advice would be critical in painting a complete picture of the executive's role, conduct and state of mind. This knowledge could be especially important to the DOJ attorneys who have to decide whether to pursue the individual criminally or civilly and how to justify the decision under the Yates Memorandum.
Although the DOJ cannot explicitly ask the company to waive privilege, in a post-Yates Memorandum world it will aggressively pursue full and complete disclosure of all relevant facts needed to determine whether to bring a criminal or civil charge against an executive. If companies are left with the impression that the DOJ will not be satisfied with a disclosure that excludes legal advice, they may feel compelled to provide more privileged information than before to prosecutors in order to fully describe the role of the individuals and thereby preserve the best possible chance of receiving cooperation credit. This problem could also lead companies and prosecutors to confront issues relating to potential assertions of an advice-of-counsel defence earlier in an investigation, which would provide a way for prosecutors to request the legal advice in accordance with DOJ policy.
For further information on this topic please contact Brooks M Hanner at Hogan Lovells US LLP by telephone (+1 202 637 5600) or email (firstname.lastname@example.org). The Hogan Lovells US LLP website can be accessed at www.hoganlovells.com.
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