LEGAL
Corporate executives and their compliance advisors have always been interested in the policy statements issued from time to time by the Department of Justice (DOJ) regarding the factors that federal prosecutors should consider in deciding whether to pursue criminal charges against a corporation. These policy statements, prepared in the form of a memorandum, are generally given names based on the names of their authors, with the most recent being the Holder Memo issued in 1999, the Thompson Memo issued in 2003, the McNulty Memo issued in 2006 and the Filip Memo issued in 2008.
Each new memo supersedes the previous policy statement and includes elements of prior statements and new guidance intended to address particular issues. For example, the Thompson Memo’s advice to prosecutors to consider waiver of privilege, and whether or not the corporation advanced counsel fees to its employees, generated a substantial amount of controversy, and the changes in both the McNulty Memo and Filip Memo were intended to address concerns regarding those issues and update policy in other areas.
The Filip Memo, which was announced on August 28, 2008, and was officially entitled “Principles for Federal Prosecution of Business Organizations” (the “Principles”), was similar in many ways to previous policy statements and listed nine factors that prosecutors are expected to take into account in reaching a decision as to the proper treatment of a corporate target:
The Filip Memo noted that compliance programs are established by corporate management to prevent and detect misconduct and to ensure that corporate activities are conducted in accordance with applicable criminal and civil laws, regulations, and rules. While the Department of Justice encourages such corporate self-policing, including voluntary disclosures to the government of any problems that a corporation discovers on its own, the Filip Memo noted that the existence of a compliance program would not be sufficient, in and of itself, to justify not charging a corporation for criminal misconduct undertaken by its officers, directors, employees, or agents. A compliance program must be “effective” and while this does not mean that the program must prevent all criminal activity by a corporation’s employees, it must be adequately designed for maximum effectiveness in preventing and detecting wrongdoing by employees, and corporate management must be enforcing the program rather than tacitly encouraging or pressuring employees to engage in misconduct to achieve business objectives.
The Filip Memo noted that while the DOJ has no formulaic requirements regarding corporate compliance programs, it should be expected that prosecutors will ask the following fundamental questions: Is the corporation’s compliance program well designed? Is the program being applied earnestly and in good faith? Does the corporation’s compliance program work? In answering these questions, the prosecutors must consider the comprehensiveness of the compliance program; the extent and pervasiveness of the criminal misconduct; the number and level of the corporate employees involved; the seriousness, duration, and frequency of the misconduct; and any remedial actions taken by the corporation, including, for example, disciplinary action against past violators uncovered by the prior compliance program, and revisions to corporate compliance programs in light of lessons learned.
Prosecutors are also urged to consider the promptness of any disclosure of wrongdoing to the government and whether the corporation has established corporate governance mechanisms that can effectively detect and prevent misconduct. For example, indicators of an effective program include evidence that the corporation’s directors exercise independent review over proposed corporate actions rather than unquestioningly ratifying officers’ recommendations; that internal audit functions are conducted at a level sufficient to ensure their independence and accuracy; and that directors have established an information and reporting system in the organization reasonably designed to provide management and directors with timely and accurate information sufficient to allow them to reach an informed decision regarding the corporation’s compliance with the law.
The Filip Memo made it clear that a compliance program that is merely a “paper program” will not mitigate the culpability of a corporation and credit will only be given to programs that are designed, implemented, reviewed, and revised, as appropriate, in an effective manner. In determining whether this standard has been achieved, prosecutors should take into account whether the corporation has provided for a staff sufficient to audit, document, analyze, and utilize the results of the corporation’s compliance efforts and whether the corporation’s employees are adequately informed about the compliance program and are convinced of the corporation’s commitment to it.
In September 2015, Deputy Attorney General Sally Quillian Yates announced a policy that appeared to signal that the Department of Justice would proceed more aggressively in targeting individuals involved in corporate wrongdoing. The announcement, referred to as the “Yates Memo,” is seen as an extension of the previous memos and, in fact, the Principles and other sections of the U.S. Attorney’s Manual were to be revised and updated to include the following “six key steps” from the Yates Memo:
While the increased focus on individual culpability has been long awaited, it remains unclear what the actual impact of the Yates Memo will be on internal investigations. There are concerns that lower-level personnel may feel pressured to provide government investigators with what they want as opposed to facts that might be less helpful to investigators, and that higher-level officials will be less cooperative due to fears of potential individual liability. There are also worries about how the DOJ may go about its stated goal to “fully leverage its resources.” However, the Yates Memo does make it more important than ever for corporations and their agents (i.e., executives and all other personnel involved with compliance activities) to implement procedures that ensure that the corporation responds proactively to inquiries from the DOJ and is able to develop a thorough presentation of the relevant facts.
Among other things, corporations are advised to
For further discussion of the Filip Memo, see Compliance Programs (§§ 223:1 et seq.) in Business Transactions Solution on Westlaw.
Alan S. Gutterman is the founder and principal of Gutterman Law & Business, a leading provider of timely and practical legal and business information for attorneys, other professionals, and executives in the form of books, online content, newsletters, programs, and training and consulting services. Mr. Gutterman has three decades of experience as a partner and senior counsel with internationally recognized law firms counseling small and large business enterprises in the areas of general corporate and securities matters, venture capital, mergers and acquisitions, international law and transactions, strategic business alliances, technology transfers and intellectual property, and has also held senior management positions with several technology-based businesses, including service as the chief legal officer of a leading international distributor of IT products headquartered in Silicon Valley and as the chief operating officer of an emerging broadband media company. His publications are available on the Legal Solutions website. Mr. Gutterman can be reached atagutterman@alangutterman.com.
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