On September 9, the Department of Justice (DOJ) released an “Individual Accountability for Corporate Wrongdoing” memorandum, also known as the “Yates Memo.” It outlined several strategies to seek accountability from the individuals who perpetrated corporate wrongdoing:
- Corporations may only receive credit or benefits for cooperation in criminal or civil matters if they disclose all relevant facts about the individuals involved.
- Investigations should focus on individuals from the beginning.
- There should be routine communication between civil and criminal attorneys handling corporate investigations.
- Ordinarily, the DOJ should not release individuals from civil or criminal liability as part of a settlement with a corporation.
- Attorneys should not resolve corporate matters without a plan to resolve individual cases.
- Civil attorneys should bring suit against individuals involved regardless of their ability to pay.
Criticism of Previous DOJ Policies
After the 2008 financial crisis, the DOJ and other government agencies took steps to increase oversight and to prosecute financial wrongdoers. In 2009, the Financial Fraud Enforcement Task Force was formed to address mortgage scams, predatory lending, and other types of fraud. The DOJ prosecuted many white collar crime and mortgage fraud cases, but few individuals were charged and even fewer served time. Only one executive — Kareem Serageldin of Credit Suisse — went to jail for manipulating bond prices leading up to the 2008 crash. Many people who were allegedly involved in financial transactions that led to market failure have gone unpunished.
Corporations and executives have been protected to some extent by deferred prosecution (DPC) and non-prosecution agreements (NPC), which are still common. These agreements allow corporations to avoid prosecution by promising to pay penalties and to reform their internal policies. Many major financial institutions paid out multi-billion dollar settlements after DOJ investigations began and have so far avoided further prosecution. In some cases, these settlements actually led to bonuses for the corporate executives involved.
The DOJ has also been criticized for reacting too slowly to the crisis. In 2013, the DOJ lost the ability to file many types of civil suits related to the financial crisis because the statute of limitations required action within 5 years. Before leaving office, Attorney General Eric Holder encouraged federal attorneys to build potential criminal cases against individuals and corporations before it was too late to proceed.
Prosecuting Individuals for Financial Market Crimes
The Yates Memorandum encourages a renewed focus on individual wrongdoing. The new policy incentivizes full cooperation from corporations in investigations that “name names” and do not shield individuals from further scrutiny. It disallows further agreements between corporations and the DOJ that contain conditions which shield individuals from prosecution or lawsuits for their involvement in wrongdoing. Attorneys must also make a greater effort to resolve individual cases as well as the corresponding corporate cases in a timely manner through proper planning. This may be a response to the harsh criticism that the DOJ received after they could no longer bring many civil suits based on the financial crisis.
The memo’s emphasis on civil suits against guilty individuals who cannot afford to pay settlements seems misplaced, though it may bring accountability. Critics say that the real problem is “untouchable” corporate executives who can more than afford to pay up in the wake of a civil suit. Bringing suit against more low-level employees will not solve this problem.
Communication between Civil and Criminal Attorneys
Parallel civil and criminal investigations have already been employed in many environmental and health care cases. This strategy was also a goal of the Interagency Financial Fraud Task Force. This type of investigation has many benefits. Civil cases can be won using a preponderance of the evidence; thus they do not have to be proven beyond a reasonable doubt like their criminal counterparts. Some materials may be discovered in civil cases but not in criminal ones, leading to more information. Previous federal cases have brought concerns about the propriety of parallel investigations, but courts have allowed them to continue. Parallel corporate investigations may be beneficial, but must also be fair and efficient.
Future DOJ prosecutions and behavior change within corporate offices will determine if the strategies within the memo effectively deter corporate crime.