Could a New DOJ Policy Actually Put The Bad Guys in Jail?

Posted by Amanda Nieweler

on September 15, 2015

“Entities act through people, and crime is crime!” – Combating Corporate Misconduct

Management and boards need to know that it may not be ‘business as usual’ and it might be time to shake themselves awake. The rules have just changed significantly on how federal prosecutors are going to handle corporate misconduct, and individuals will be a target.

If a company wants to earn brownie points towards its cooperation badge when being investigated by the DOJ, it will now need to hand over the details of the guilty individual(s), no matter where they sit on the hierarchy ladder. And if that company doesn’t know who’s responsible for the misconduct, it will need to find out. Individuals will no longer be able to hide behind the protective arms of the company. Accountability

Deputy Attorney General Sally Yates issued a memo to DOJ executives, the director of the FBI, and all US attorneys that outlined six measures that DOJ attorneys should take to combat corporate misconduct. The memo states that “one of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing. Such accountability is important for several reasons: it deters future illegal activity, it incentivizes changes in corporate behavior, it ensures that the proper parties are held responsible for their actions, and it promotes the public’s confidence in our justice system”.

But of course, challenges will be had. Typically high-level executives are insulated from the day-to-day activity where the misconduct occurs. As a result, investigators must often play ‘crime scene reconstruction’ and figure out what happened by painstakingly reviewing many millions of documents – those they can get their hands on anyway due to legal restrictions.

Challenges like these make it even more important that departments fully leverage their resources to identify guilty individuals at all levels in corporate cases.

A few of the key elements of the new policy include:

Cooperation Credit – in order for a company to receive any consideration for cooperation, the company must completely disclose all relevant facts about individual misconduct. Companies cannot pick and choose what facts to disclose. The company must identify all individuals involved in or responsible for the misconduct, regardless of their position, status or seniority, and provide all facts relating to that misconduct.

Focus on Individuals – criminal and civil attorneys should focus on individual wrongdoing from the start of any investigation of corporate misconduct. By focusing on individuals three goals are accomplished:

  • Maximize the ability to weed out the full extent of corporate misconduct.
  • Increase the likelihood that individuals with knowledge of the corporate misconduct will cooperate with the investigation and provide information against individuals higher up the corporate hierarchy.
  • Maximize the chances that the final resolution of an investigation uncovering the misconduct will include civil or criminal charges against not just the corporation but against guilty individual(s) as well.

Routine Communication – criminal and civil attorneys handling corporate investigations should be in constant communication with one another. Coordination should happen early, even if it is not certain that a civil or criminal disposition will be the end result for the individuals or the company.

Corporate before Individual Resolutions – resolving a corporate case will not protect an individual. If it is necessary to resolve a corporate case before an individual case is finished, DOJ attorneys must demonstrate a clear plan to their supervisors for resolving the individual cases in a timely manner.

Individual Accountability – the department will seek to make individuals pay out of their own pockets in civil actions.

From 2001 to 2014, only 34 percent of corporate deferred and non-prosecution agreements included charges against individuals. Big banks were criticized for their involvement when the mortgage crisis hit – financial institutions paid billions, but there were few successful individual prosecutions.  Some conclude that the crises happened because of a systemic breakdown in accountability and ethical behaviour of various individuals. One reason there may have been few successful individual prosecutions is this:

We recently marked the 14th year since the terror attacks of 9/11. After 9/11, the DOJ and other agencies shifted their focus to anti-terrorism efforts. This article mentions that before the attacks, more than 1000 agents were assigned to financial fraud investigations. However, many of those people were reassigned to anti-terrorism efforts after 9/11. By 2007, there were only 120 people working on financial fraud cases. As a result, many cases followed a familiar pattern: companies pay outside counsel millions of dollars to conduct internal investigations and the government uses the results of these investigations to build corporate cases. Individual prosecutions followed the corporate case, but quickly took a [really far] backseat because of the sheer amount of data and paperwork involved, and possibly also due to witness memories fading into the distant past. And of course, the government’s interests may have seemed vindicated by multi-million dollar fines.

Well, with the new memo released, the DOJ now needs to adjust their focus and efforts back onto individual accountability. For the most part, prosecutors don’t do their jobs to prosecute corporate entities, but rather to put the bad guys in jail.

Yates concludes in her memo that “by holding individuals accountable, we can change corporate culture to appropriately recognize the full costs of wrongdoing, rather than treating liability as a cost of doing business–a change that will protect public resources over the long term.”

The ACFE’s 2014 Report to the Nations findings indicate that anonymous tips accounted for 44% of detecting fraud committed by owners/executives. Now by holding these individuals accountable ensures that they don’t benefit from their wrongdoing. As mentioned above, now, more than ever, it’s important for companies to fully leverage their resources. One of those resources should be an ethics hotline where all employees can anonymously bring forward knowledge of wrongdoing. It’s time to implement a whistleblower hotline.

eBook: 7 Reasons to Implement a Whistleblower Hotline