What Federal Contractors Should Know About the “Yates Memo”

On September 9, 2015, United States Deputy Attorney General Sally Q. Yates issued a memorandum directing increased focus on individual culpability in matters of corporate wrongdoing. In addition to fines and sanctions against the corporation, the memo highlights six policy directives targeting individuals involved in corporate wrongdoing. If you are a federal contractor, watch out!

According to Yates, “[o]ne of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing.” The Yates Memo sets out six policy directives:

1. Identifying Individuals Threshold for Cooperation Credit. In the past, DOJ has given partial cooperation credit to corporations based on disclosure of wrongdoing, even without complete details about the individuals involved. That’s over. The new policy requires complete disclosure of individuals as a “threshold requirement” for any cooperation credit. And it applies to “all individuals involved in or responsible for the misconduct at issue, regardless of their position, status or seniority.” As corollaries to that directive, DOJ is instructing its attorneys to investigate and build cases against individuals from the start and to include a “company’s continued cooperation with respect to individuals” as a term of any plea or settlement agreement.
2. Investigations Focus on Individuals from Inception. DOJ will focus on individual culpability from the start of any investigation. The Yates Memo cites advantages, among them: getting at the “full extent” of the misconduct and increasing the likelihood of individual prosecutions. Mostly importantly, it increases the likelihood of involved individuals giving up targets “higher up the corporate hierarchy.”   “Flipping” witnesses to walk-up a conspiracy is an established prosecutorial tactic.
3. Criminal / Civil Staff Collusion. DOJ will increase communication and cooperation between staff in the criminal and civil divisions. The move is expected to lead to better coordination, allocation of consequences to the most appropriate “venue”, and more parallel proceedings.
4. No Protection by Settlement. “Absent extraordinary circumstances,” corporate resolutions cannot provide protection to individuals ‒ whether dismissal, immunity, or release – without 4. high-level written approval.
5. No Corporate Resolution without Prosecutorial Plan for Individuals. If individual prosecutions have not been brought or otherwise resolved by the time of entity resolution, any corporate settlement (or similar) memo must include a detailed prosecution plan for the individuals involved in the wrongdoing. While tolling agreements remain an exception, they now must account for individuals as well.
6. Civil Enforcement Beyond Individual’s Ability to Pay. An individual defendant’s ability to pay fines or restitution no longer will be a principal determinant in civil enforcement charging decisions, having been demoted in the relative hierarchy of considerations.

If you are a government contractor, you should review the Yates Memo and understand its implications on your company, directors, executive and employees. Understand that individuals now have “skin in the game” and could be held criminally and civilly accountable for misconduct.