The Yates Memorandum

 

Written by: Gideon Mark

Perhaps the most trenchant critique of the federal government’s response to the Great Recession of 2007-09 was that the Department of Justice pursued enforcement actions against financial institutions but failed to prosecute any senior officers employed by those organizations.  The DOJ secured only one conviction of an individual—a senior trader at Credit Suisse—in connection with the financial crisis.  As noted by Judge Jed S. Rakoff, “if . . . the Great Recession was in material part the product of intentional fraud, the failure to prosecute those responsible must be judged one of the more egregious failures of the criminal justice system in many years.”[1]  But the government’s dereliction has not been limited to federal criminal practice related to banks or banking.  For example, the DOJ has rarely commenced criminal actions against executives of large corporations for violations of environmental laws or the Foreign Corrupt Practices Act.  A broad spectrum of theories has been offered to explain the DOJ’s historical failure to prosecute individuals in corporate crime cases.  These theories include, but are not limited to, proof problems, the revolving door between the DOJ and white-collar defense law firms, a lack of political will, and the greater propensity of individuals than corporations to refuse to settle. 

 

Likely in response to the drumbeat of criticism, in September 2015 then-DOJ Deputy Attorney General Sally Yates issued a document entitled “Individual Accountability for Corporate Wrongdoing”—commonly referred to as the Yates Memorandum—that was designed to reaffirm the DOJ’s commitment to hold executives and other individuals accountable for corporate misconduct.  The Yates Memorandum observed that one of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing, and identified as its purpose the amendment of DOJ policies and procedures to most effectively pursue such individuals.  It then outlined six key steps to enhance the DOJ’s approach.  The first of these steps is probably the most important—to be eligible for any credit for cooperating with the DOJ, corporations must provide all relevant facts about the individuals involved in corporate misconduct.  Companies cannot selectively choose what facts to disclose.  They 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.  Once a company meets the threshold requirement of providing all relevant facts with respect to individuals, it will be eligible for cooperation credit.

 

The Yates Memorandum was the sixth iteration of policy documents issued by the DOJ beginning in 1999 concerning the federal prosecution of corporations.  The Supreme Court established the basis for corporate criminal liability in 1909, but 90 years elapsed before the DOJ issued specific guidance regarding corporate criminal prosecutions.  In June 1999, the DOJ issued the Principles of Federal Prosecution of Business Organizations to delineate and standardize the factors to be considered by federal prosecutors when making charging decisions against corporations.  Five additional policy memoranda followed this document during the next 16 years, culminating in the Yates Memorandum.

 

Following the election of Donald Trump as President in November 2016, there was considerable speculation concerning his administration’s approach to regulation and enforcement.  This speculation encompassed the fate of the Yates Memorandum.  The DOJ consists mainly of career prosecutors, with a shallow layer of political appointees above them on the organization chart, but the top appointees determine policy.  During his confirmation hearings new Attorney General Jeff Sessions suggested that he expected to retain the Yates Memorandum, and subsequent statements by Sessions and other DOJ officials also supported retention.  As noted by Sally Yates in a post-election speech, “individual accountability isn’t a democratic or republican principal, but instead is a core value of our criminal justice system that perseveres regardless of which party is in power.”[2] 

 

Yates was fired by Trump two months later, in January 2017, in connection with her refusal to enforce his travel ban, and since then conjecture about the fate of her Memorandum has continued.  In October 2017 the DOJ announced that it was reviewing and reevaluating numerous corporate enforcement policies, including the Yates Memorandum.  The results of that review have not yet been announced.

 

As I argue in a pair of forthcoming articles in the UC Davis Law Review, the Yates Memorandum has been a positive development in the federal government’s approach to corporate crime enforcement, and the DOJ would be wise to continue embracing the substance of the Memorandum.  While there has not yet been a substantial increase in the number of executives charged in cases involving corporate crimes, application of the Memorandum in specific subject areas—including foreign corruption, export control and economic sanctions, and antitrust—have enhanced the federal government’s ability to enforce key laws.  The Yates Memorandum should be retained, subject to incidental tweaking.  Individuals who perpetrate corporate misconduct should be held accountable, and the Memorandum is a welcome development in the effort to ensure such accountability. 

[1] Jed S. Rakoff, The Financial Crisis: Why Have No High-Level Executives Been Prosecuted?, The N.Y. Review of Books (Jan. 9, 2014), http://www.nybooks.com/articles/2014/01/09/financial-crisis-why-no-executive-prosecutions/.

[2] U.S. Dep’t of Justice, Justice News, Deputy Attorney General Sally Q. Yates Delivers Remarks at the 33rd Annual International Conference on Foreign Corrupt Practices Act (Nov. 30, 2016), https://www.justice.gov/opa/speech/deputy-attorney-general-sally-q-yates-delivers-remarks-33rd-annual-international. 

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