By Thomas P. O’Brien, Daniel Prince & Brian S. Kaewert

Recent guidance by the United States Department of Justice (“DOJ”) reveals that the government may leverage “cooperation credit” under the “Principles of Federal Prosecution of Business Organizations” (authored by former Deputy Attorney General Mark Filip, i.e., the “Filip Memorandum”) to obtain foreign-based information that is outside the scope of a federal grand jury subpoena. And, while this issue was recently previewed in the anti-corruption and anti-bribery context, there is no reason to believe that it may be so limited going forward.

In September, the DOJ released new policy guidance regarding its intent to incentivize changes in corporate culture by investigating and/or prosecuting culpable individuals. The linchpin of that guidance, announced by Deputy Attorney General Sally Q. Yates in a memorandum entitled “Individual Accountability for Corporate Wrongdoing” (the “Yates Memorandum”), is the DOJ’s express linkage of any “cooperation credit” for an organizational defendant to the disclosure—by the company to the government—of “all relevant facts about individual misconduct” and “all individuals involved in or responsible for the misconduct at issue” (emphasis added).

The Yates Memorandum amended the Filip Memorandum with respect to cooperation credits. That is, to emphasize the significance of holding individual wrongdoers accountable for corporate misconduct, prosecutors may not consider a reduction or elimination of penalties for cooperating organizational defendants unless the company conducts a thorough investigation into the scope of the wrongdoing, identifies potentially culpable wrongdoers (including executives), and timely provides the DOJ with all relevant facts concerning the same.

Prosecutors, corporate business and legal professionals, and members of the defense bar continue to consider the import of the Yates Memorandum, both as a general matter and, according to recent public statements, in connection with the production of foreign-based documents and information that might be outside the scope of a federal grand jury subpoena. Put another way, because a federal grand jury subpoena may only be served in the United States (or on a United States national or resident in a foreign country), there is a question regarding whether the government may obtain overseas evidence that it otherwise may not be able to access as a feature of a company’s cooperation under the Yates Memorandum.

The risk is unique given the inherent tension between the government’s recent demand for all information and facts related to wrongdoing and a corporation’s eligibility for cooperation credit, particularly where critical emails or documents may be located in foreign jurisdictions that are outside the scope of compulsory process. The DOJ acknowledged this issue on November 17, 2015, when Assistant Attorney General Leslie R. Caldwell delivered remarks during the American Conference Institute’s 32nd Annual International Conference on the Foreign Corrupt Practices Act. In addressing the Yates Memorandum, Assistant Attorney General Caldwell explained that “[i]n addition to identifying the individuals involved, full cooperation includes providing timely updates on the status of the internal investigation, making officers and employees available for interviews—to the extent this is within the company’s control—and proactive document production, especially for evidence located in foreign countries” (emphasis added).

Read more

By William Sullivan, John Durant and Jenifer Doan

On September 9, 2015, the Department of Justice (“DOJ”) issued new policies in the form of “six specific steps” intended to strengthen the DOJ’s efforts in holding individual corporate wrongdoers accountable (the “Yates Memorandum”). Though most of the announced policies in the Yates Memorandum are not entirely new, many represent institutional policy shifts that change the way the DOJ will investigate, develop, charge, and resolve cases, according to Deputy Attorney Sally Yates. These policies may have wide-reaching implications for companies and corporate executives dealing with parallel proceedings, as outlined below. The following overview focuses on the potential impact to civil litigation rather than criminal issues.

Overview of the Yates Memorandum

Briefly, the six guidelines are as follows:

1. Cooperation credit only available if companies provide “all relevant facts.” To be eligible for any cooperation credit, corporations must provide to the DOJ all relevant facts about the individuals involved in corporate misconduct. Specifically, if known, the company must identify all individuals involved in or responsible for the misconduct at issue, regardless of their position, status, or seniority, and provide to the Department all facts relating to that misconduct.
2. Criminal and civil corporate investigations should focus on individuals from inception.Criminal and civil corporate investigations should focus on individuals from inception.
3. Criminal and civil DOJ attorneys should communicate and refer. Criminal and civil attorneys handling corporate investigations should be in routine communication with one another. As early as permissible, the DOJ’s criminal and civil attorneys should notify each other of conduct that might give rise to potential liability under each department’s purview.
4. No more protection for individuals from criminal and civil liability. Because of the importance of holding responsible individuals to account, absent extraordinary circumstances or a contrary approved departmental policy, DOJ lawyers should not agree to a corporate resolution that includes an agreement to dismiss charges against, or provide immunity for, individual officers or employees.
5. Individual cases must be efficiently prosecuted. Corporate cases should not be resolved without a clear plan to resolve related individual cases before the statute of limitations expires, and declinations as to individuals in such cases must be memorialized. Delays in the corporate investigation should not affect the Department’s ability to pursue potentially culpable individuals and tolling agreements should be the rare exception.
6. Reduce focus on an individual’s ability to pay. 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. Rather, in deciding whether to file a civil action against an individual, Department attorneys should consider factors such as whether the person’s misconduct was serious, whether it is actionable, whether the admissible evidence will probably be sufficient to obtain and sustain a judgment, and whether pursuing the action reflects an important federal interest.

The Potential Impact on Parallel Proceedings

As an initial matter, the Yates Memorandum leaves many questions unanswered regarding what exactly the DOJ will require in order to receive “cooperation credit.” Will it be that corporations must “point the finger” at some individual in order to receive cooperation credit, even if their thorough investigation demonstrates that there is no culpable individual? What about individuals—will those who cooperate and identify others culpable be entitled to any similar cooperation credit? These questions, among others, are likely to remain unanswered until we see how the guidance in the Yates Memorandum is applied in future criminal and civil cases.

Importantly, the Yates Memorandum expressly recognizes and reaffirms the “importance of parallel development of civil and criminal proceedings,” citing to Chapter 1-12.000 of the U.S. Attorneys’ Manual titled “Coordination of Parallel Criminal, Civil, Regulatory and Administrative Proceedings.” While the DOJ has had a longstanding policy that DOJ prosecutors and civil attorneys handling white-collar matters “should timely communicate, coordinate, and cooperate with one another and with agency attorneys to the fullest extent appropriate to the case and permissible by law,” the Yates Memorandum not only reinforces this policy but broadens it, advising that criminal attorneys should notify civil attorneys “as early as permissible” of potential individual civil liability, and vice versa. Further, the Yates Memorandum notes that “if there is a decision not to pursue a criminal action against an individual—due to questions of intent or burden of proof, for example—criminal attorneys should confer with their civil counterparts so that they may make an assessment under applicable civil statutes and consistent with this guidance.” Considering that the burden of proof is generally easier to meet in civil cases, this guidance is likely to result in more civil cases being filed as a result of referrals from DOJ attorneys handling ongoing criminal actions.

Read more

By Nathaniel Edmonds and Corinne Lammers

On July 30, 2015, the Chief of the Fraud Section of the U.S. Department of Justice (“DOJ”) confirmed that DOJ is hiring an attorney to serve as a Foreign Corrupt Practices Act (“FCPA”) compliance expert. DOJ has long emphasized the importance of compliance and remediation, and with this new position, it is putting its money where its mouth is. There has never been a more explicit signal by DOJ that companies need to enhance their anti-corruption compliance programs. DOJ has made clear that it will reward companies that go beyond mere paper programs and instead design anti-corruption compliance programs that efficiently prevent misconduct and quickly detect improper payments when employees evade a company’s strong financial controls.

DOJ’s new compliance counsel—who has been selected and currently is undergoing vetting—will help DOJ determine whether to prosecute a company for FCPA violations. This new compliance counsel position constitutes a significant change for DOJ, which in the past has relied on its cadre of white collar criminal prosecutors to evaluate compliance programs. The compliance counsel will help DOJ answer the recurring issue of whether an FCPA violation occurred because the company lacked an effective anti-corruption compliance program or because a rogue employee circumvented an otherwise strong program. Should DOJ decide to prosecute the company, the compliance counsel’s evaluation of the company’s compliance program will inform the final resolution with the company, including whether the company will be required to retain an independent compliance monitor.

In several FCPA resolutions with companies, public speeches by DOJ staff, official guidance provided in the FCPA Resource Guide, and the U.S. Sentencing Guidelines, DOJ has repeatedly emphasized that compliance must be a priority for companies facing anti-corruption challenges and that companies who have invested in effective compliance programs to prevent and detect potential FCPA violations will receive significant consideration and meaningful benefits from DOJ. Cases providing vivid examples of this point include:

• Morgan Stanley: DOJ declined to prosecute Morgan Stanley for FCPA violations based on its strong compliance program, expressly observing that “Morgan Stanley maintained a system of internal controls meant to ensure accountability for its assets and to prevent employees from offering, promising or paying anything of value to foreign government officials.” In their press release, DOJ also cited to the significant training that Morgan Stanley provided to its employees, the rigorous monitoring and testing protocols, and third party controls.
• Ralph Lauren: Ralph Lauren secured a Non-Prosecution Agreement with DOJ and the U.S. Securities and Exchange Commission (“SEC”) for its FCPA violations because of that company’s “early and extensive remediation, including conducting extensive FCPA training for employees worldwide, enhancing the company’s existing FCPA policy, implementing an enhanced gift policy and other enhanced compliance, control, and anti-corruption policies and procedures, enhancing its due diligence protocol for third-party agents, terminating culpable employees and a third-party agent, instituting a whistleblower hotline, and hiring a designated corporate compliance attorney.”

In these and other cases, DOJ repeatedly has emphasized the importance of a strong compliance program and attempted to demonstrate publicly how an effective compliance program can either help a company avoid prosecution altogether or at least mitigate the associated penalties. In contrast, DOJ makes clear that when a company knowingly and willfully fails to invest in anti-corruption compliance programs, that company should pay a significant penalty. In the press release announcing the guilty plea of BAE Systems plc and the corresponding $400 million penalty, DOJ highlighted the fact that the company had “knowingly and willfully failed to create sufficient compliance mechanisms to prevent and detect violations of the anti-bribery provisions of the FCPA.”

Read more

By Gary F. Giampetruzzi, S. Joy Dowdle and Lucy B. Jennings

In a potentially alarming trend for companies, the Securities and Exchange Commission (the “SEC”) recently announced the award of more than one million dollars to a compliance officer who utilized the Dodd-Frank Wall Street Reform and Consumer Protection Act’s Whistleblower Program (the “Dodd-Frank Whistleblower Program” or the “Program”) to voluntarily provide information to assist the SEC in an enforcement action against the whistleblower’s own company. According to Andrew Ceresney, Director of the SEC’s Division of Enforcement, the compliance officer reported misconduct through the Program “after responsible management at the entity became aware of potentially impending harm to investors and failed to take steps to prevent it.” This whistleblower is the 16th to receive an award under the Program since its inception in 2011, and the second in 2015. The SEC’s full April 22, 2022 press release (the “Release”) and award order can be found here. This represents the second time a compliance professional has received an award under the Program, with the first having come just this past August.

The SEC awarded the compliance professional turned whistleblower between $1.4 million and $1.6 million, which represents between 10 and 30 percent of the amount collected in actions, as required under Dodd-Frank Whistleblower Program. To qualify for an award, an eligible whistleblower must voluntarily provide original information about a possible violation of the federal securities laws that results in a recovery by the SEC of $1 million or more.  As with prior awards under the Program, and keeping with the strong and stated goal of the SEC to maintain the confidentiality of whistleblowers, the award order is redacted and provides little detail about the underlying matter or the compliance professional who triggered it.

The Program generally provides that employees whose principal duties involve compliance or internal audit responsibilities are ineligible to receive awards, but there are several exceptions, including instances where the whistleblower has a reasonable basis for believing that the disclosure to the SEC is necessary to prevent the company from engaging in conduct that was likely to cause substantial financial harm to the company or investors. These exceptions were the subject of much debate during the rule-making period as companies, trade associations, and others expressed concern that permitting gatekeepers to participate in the Program would inappropriately incentivize internal audit and compliance professionals to report matters rather than address them through the internal functions they are responsible for executing. Despite these concerns and the initial uncertainty surrounding the breadth of these exemptions, two of the 16 awards provided under the Program have now gone to such whistleblowers, making clear that the SEC is ready, willing, and able to reward compliance and internal audit employees turned whistleblowers.

As detailed in the 2014 Annual Report of the Dodd-Frank Whistleblower Program, the number of whistleblower tips received through the program has increased steadily each year, with 3,620 tips received during the Program’s FY2014—up from 3,238 in FY2013, and 3,001 in FY2012. For FY2014, the most common complaint categories reported by whistleblowers included Corporate Disclosures and Financials (16.9%), Offering Fraud (16%), and Manipulation (15.5%). The specific category covering FCPA-related submissions, which has increased each year, rose in FY2014 to 159 tips. Similarly, the “Other” category, which is generally understood to include some FCPA-related tips, also again rose in FY2014, with 911 reported tips. In FY2014, tips were received from all fifty states, the District of Columbia, and Puerto Rico. Since the Program’s creation, the SEC has received tips from individuals in 83 countries outside of United States and in FY2014, submissions were sent by individuals in 60 foreign countries. In FY2014, the highest number of foreign tips came from whistleblowers in the United Kingdom (70 tips), India (69 tips), Canada (58 tips), the People’s Republic of China (32 tips), and Australia (29 tips). The continued rise in the number of tips received, in addition to the expanding origin of such submissions, makes clear the Dodd-Frank Whistleblower Program is quickly becoming a core mechanism for whistleblowers across the globe to raise concerns. This most recent award further complicates the landscape for corporations considering this trend, underscoring that—in addition to increased reporting from around the globe—a company may well find its issues reported by the very internal personnel entrusted to detect, analyze, and remediate these concerns.

Read more

By Stephen B. Kinnaird, Charles A. Patrizia, Igor V. Timofeyev, Sean D, Unger and Ian A. Herbert

Extending its 2011 decision narrowing the application of general jurisdiction over foreign corporations, the Supreme Court significantly limited the forums in which a foreign (or out-of-state) corporation may be sued for foreign conduct. In Daimler AG v. Bauman, No. 11-965 (January 14, 2022), the Supreme Court held that “all-purpose” or “general” personal jurisdiction — the ability to hear claims unrelated to the forum state — is only proper where the corporation is “at home.”