Corporate Wrongdoing Falls on the Individual

Corporate Wrongdoing Falls on the Individual

The Yates Memo provides a renewed focus on individual accountability in corporate misconduct.

By Robert Pelaia, Esq., CPC, CPCO, and Jamie Ewing

Note from Editor: There is a follow-up article to this article.

On September 9, 2015, Sally Q. Yates, the current deputy attorney general for the United States Department of Justice (DOJ), issued a guidance memorandum for prosecuting individuals involved in corporate misconduct, known as the “Individual Accountability for Corporate Wrongdoing” memorandum (Yates Memo). The Yates Memo notes that seeking individual accountability is a critical component in fighting corporate misconduct. The Yates Memo also emphasized that individual accountability is important because it:

  1. Deters future illegal activity;
  2. Incentivizes changes in corporate behavior;
  3. Ensures the proper parties are held responsible for their actions; and
  4. Promotes the public’s confidence in the U.S. justice system. A corporation can only act through its individuals.

Scaling Misconduct Down to an Individual Level

Bringing charges against a corporation is different than bringing charges against the individuals in the corporation; a significant area of concern in large corporations is identifying the individuals involved in the misconduct. Staff hierarchy in corporations often leads to decisions being made at various levels in the company. It can create a hardship to pinpoint responsibility because it’s difficult to determine which individuals had knowledge of which activities. The Yates Memo notes that high-level executives are often “insulated from the day-to-day activities in which the misconduct occurs.” This insulation requires investigators to cull through an exorbitant number of documents to determine culpability at individual levels.

To assist prosecutors with their investigations, the DOJ developed the concept of “cooperation credit.” When a corporation helps cooperate with the investigation by providing misconduct information to internal investigators and the DOJ, it’s eligible for cooperation credit. This credit essentially shows good faith and can become a mitigating factor in the prosecution of the corporation, as a whole.

Six Key Steps in Enforcement
of Corporate Misconduct

The Yates Memo highlights six key steps to reinforce pursuing individuals for corporate wrongdoing.

  1. To be eligible for any cooperation credit, corporations must provide “all relevant facts” to the DOJ about the individuals involved in corporate misconduct.
  2. Both criminal and civil corporate investigations should focus on individuals from the start of the investigation.
  3. Criminal and civil attorneys handling corporate investigations should be in routine communication with one another throughout the investigation.
  4. Absent extraordinary circumstances, no corporate resolution of the claim will provide individuals with protection from criminal or civil liability.
  5. Before a corporate case is resolved, there should be a clear plan in place to resolve any related individual cases before the statute of limitations expires, and any cases where prosecution decided not to bring charges must be memorialized.
  6. Civil attorneys should consider more than the individual’s ability to pay when deciding whether or not to bring suit.

Let’s examine each step in more detail.

Step 1: Corporations must provide all relevant facts to receive cooperation credit.

The Yates Memo states that corporations will not be considered for cooperation credit under the U.S. Attorneys’ Manual if all relevant facts about individual misconduct are not completely disclosed to the DOJ. All individuals involved must be reported to the DOJ regardless of their position, status, or seniority in the company. If a corporation does not meet the threshold requirement for reporting all relevant facts to the DOJ, the corporation is not eligible for cooperation credit.

The Yates Memo outlines factors that should be analyzed to determine the extent of the cooperation. These factors include the timeliness, diligence, and thoroughness of the cooperation. DOJ should also consider the speed of the internal investigation and the proactive nature of the cooperation. Note that prosecutors should not blindly accept the information provided by the company. Prosecutors should vigorously analyze and review the information provided by the company and compare the company’s information to their own investigation to ensure all information is correct.

Step 2: Focus on individuals from the start of the investigation.

The Yates Memo stresses the importance of focusing on individuals from the start of a corporate misconduct investigation. Early emphasis on individuals allows prosecutors to “maximize their ability to ferret out the full extent of corporate misconduct.” The Yates Memo also explains that focusing on individuals can increase the likelihood that individuals with knowledge of the misconduct will provide information about the higher-level individuals’ involvement. It also improves the probability of bringing charges against culpable individuals, as well as against the corporation.

Step 3: Maintain routine communication between criminal and civil prosecutors.

There should be regular communication between civil and criminal prosecutors in corporate investigations. The Yates Memo highlights that timely communication between civil and criminal prosecutors “permits consideration of the full range of government’s potential remedies.” Remedies include incarceration, fines, penalties, damages, restitution, asset seizure, forfeiture, suspension, and disbarment. When criminal prosecutors are investigating misconduct and become aware of possible civil liability, they should promptly notify civil prosecutors and vice versa.

Step 4: No corporate resolution should provide protection from liability for individuals.

The Yates Memo notes it’s important for the DOJ to “preserve the ability to pursue individuals” in instances where resolution is reached with a corporation prior to resolution with the responsible individuals. Absent extraordinary circumstances or prior approved policy such as the Antitrust Division’s Corporate Leniency Policy, DOJ should not accept any corporate resolutions that provide individuals with protection from criminal or civil liability.

The Yates Memo states that any extraordinary circumstances must be approved in writing by the U.S. attorney or assistant attorney general involved in the investigation.

Step 5: Develop a clear plan to resolve cases against individuals before the statute of limitations expires.

The Yates Memo emphasizes that, in instances where authorization to resolve the case against the corporation is sought prior to concluding investigation against the individual, it’s crucial for information about all potentially liable individuals to be memorialized. This information should include the status of the investigation and outline a specific action plan to promptly resolve the investigation before the statute of limitations runs out. If, at the investigation conclusion, the prosecution decides not to bring any civil or criminal charges against the individuals, it’s imperative that the reasons for not bringing charges are memorialized and approved by the U.S. attorney or assistant attorney general involved in the investigation.

Step 6: Civil attorneys should consider more than the individual’s ability to pay when deciding whether or not to bring suit.

The Yates Memo notes the DOJ has two key objectives in civil enforcement. First, the DOJ aims to recover as much money as possible. Second, the DOJ works to hold responsible individuals accountable and deter any misconduct in the future. In most circumstances these two objectives run parallel and do not conflict. There are certain circumstances where they are contrary to each other, however. The Yates Memo states that an example of this situation would be to determine if a civil action should be brought against individuals who do not have financial means to pay a judgment.

The Yates Memo highlights that an individual’s ability to pay should not be the decisive factor in determining whether to bring a civil suit. Certainly financial recovery is preferable, but in circumstances where an individual cannot pay, DOJ must weigh other factors, as outlined in the Yates Memo:

1. If the individual’s misconduct is serious;

2. If the conduct is actionable;

3. If admissible evidence is sufficient to sustain a judgment; and

4. If pursuit of the action, there is an important federal interest.

There is not a set monetary formula to apply when deciding whether or not to pursue a civil suit. Prosecutors much analyze each case on an individual basis. The Yates Memo notes that holding individuals accountable results in long-term deterrence.

Differentiate the New Guidelines from the Old

The Yates Memo has increased the threshold requirement for receiving cooperation credit by requiring corporations to identify all individuals involved in the misconduct regardless of their position, status, or seniority in the company. If information regarding identity of culpable individuals and facts relating to their misconduct is uncovered in the company’s internal investigation, it must be reported to the DOJ for the company to be eligible to receive the cooperation credit. The Yates Memo places significant burdens on corporations in an attempt to encourage disclosure of facts in internal investigations. The increased emphasis on disclosure demonstrates the DOJ’s increased vigor in pursuing each individual responsible for the misconduct in addition to the whole corporation.

The Yates Memo emphasizes that the receipt of cooperation credit for all relevant fact disclosure is applicable in both criminal and civil contexts. The Yates Memo also encourages civil prosecutors to consider that individual accountability and deterrence is as important as financial recovery when deciding whether or not to bring suit. This shift to increased emphasis on civil penalties also highlights the DOJ’s objective of encouraging corporate disclosure of all relevant facts.

What It Means for Healthcare Corporations

Healthcare corporations are under increased scrutiny and should implement new company policies to ensure individuals involved in misconduct are identified in a timely manner. High-level executives will no longer be able to rely on the company’s protection to shield their individual liability. Although the company can work toward corporate resolution, the company cannot insulate high-ranking executive officers; all employees — regardless of their status or seniority in the organization — should demonstrate they were not involved in the misconduct by assisting the corporation’s internal investigation. Employees can assist with the investigation by providing timely responses to inquiries and by acting in good faith with the company’s internal investigation and the DOJ’s investigation.

Be sure your healthcare company is aware that, to receive cooperation credit, you must be willing to expose all individuals responsible in corporate misconduct. There is no blanket protection available for individuals involved in wrongdoing. As such, companies should consistently be on high alert to ensure all of their employees are complying with all state and federal rules and regulations at all times.

Working Group Starts
Corporate Misconduct Initiative

Due to the numerous challenges that exist when working to identify culpable individuals in corporate cases, the DOJ composed a working group to develop a new corporate misconduct initiative. This working group of senior attorneys from the DOJ and U.S. attorney community examined how the DOJ approaches corporate investigations and identified policies that needed amending to increase individual accountability for corporate wrongdoings. The “Individual Accountability for Corporate Wrongdoing” memorandum (Yates Memo) expands upon the DOJ’s previous policy and incorporates new guidelines, particularly concerning cooperation from corporations. The new guidelines provided in the Yates Memo will be incorporated into the U.S. Attorneys’ Manual, and the new guidelines will apply to current, pending investigations and all future investigations. The Yates Memo also applies to civil corporate matters, as well as criminal matters.

For more information: Download CJ Wolf’s, MD, webinar, The Unusual Suspects.


Robert A. Pelaia, Esq., CPC, CPCO, is deputy general counsel at the University of South Florida in Tampa, Fla. He is certified as a Healthcare Law Specialist by the Florida Bar Board of Legal Specialization and Education, serves on AAPC’s Legal Advisory Board, and was a 2009-2011 AAPC National Advisory Board member. Pelaia is a member of the Tampa, Fla., local chapter.

Jamie Ewing attends Florida Coastal School of Law, where she is now a full-time, third-year law student, Juris Doctor Candidate, May 2016.


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