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Department of Justice Modifies Yates Memo Standard

on Friday, 4 January 2019 in Health Law Alert: Erin E. Busch, Editor

The U.S. Department of Justice (“DOJ”) recently issued revisions to its Justice Manual that soften the impact of the September 2015 “Yates Memo,” named after its author, then-Deputy Attorney General Sally Yates. The Yates Memo instructed federal prosecutors not to give a corporate defendant any credit for cooperation unless the corporation turned over to the government “all relevant facts about the individuals involved in the alleged misconduct.”

DOJ’s goal was, and continues to be, the identification and prosecution of individuals whose decisions caused a corporation to violate the law, and the recoupment of funds lost to fraud. In the wake of the 2008 financial crisis, a common criticism of white-collar prosecution was that guilty individuals were allowed to hide behind the corporate form and avoid individual responsibility for the decisions that had enriched them in an illicit fashion. The Yates Memo was a reaction to this complaint.

As a practical matter, however, the all-or-nothing standard was practically impossible to satisfy. DOJ prosecutors found themselves delaying proceedings to permit defendants time to complete complex investigations that added little to the goals of the prosecution. Corporations expended substantial funds to interview low-level employees who knew “relevant facts,” but were peripheral to any criminal or fraudulent activity.

In response, DOJ has revised its manual to provide prosecutors and regulators with some discretion, and lessen the burden imposed by the Yates Memo standard. The textual revision to the policy is relatively modest. It now provides that “to receive any consideration for cooperation . . . [a] company must identify all individuals substantially involved in or responsible for the misconduct at issue.” This moves the focus from developing an indefinite number of facts to identifying a finite number of individuals responsible for corporate misconduct.

Deputy Attorney General Rod J. Rosenstein explained in a speech to the American Conference Institute on November 29, 2018, that DOJ could not “afford to delay corporate resolutions because a bureaucratic rule suggests that companies need to continue investigating until they identify all involved employees and reach an agreement with the government about their roles” in misconduct.

In the criminal context, the revised policy improves corporate incentives to identify the key employees who planned and orchestrated illegal activity. The clearer requirements for credit for cooperation, and lighter criminal penalties, improve both the speed and predictability of the process. Prosecutors are back in the familiar position of having discretion to reward cooperators and focus their efforts on individuals central to their case.

As to civil actions, the change in policy is intended to facilitate DOJ’s primary goal of rapid and efficient recovery of government funds. The stricter Yates Memo standard caused extended delays as regulators were required to wait for a complete investigation report before they could settle, for example, a False Claims Act case.

The new policy is effectively a return to the DOJ standard that was in place for evaluating corporate cooperation prior to the Yates Memo, from 2006 to 2015. By reducing expense and speeding resolutions, DOJ hopes to incentivize more companies to cooperate with the government in investigations.

Thomas S. Dean

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