The Yates Memo's Unintended Consequences

By Casey C. Sullivan, Esq. on March 15, 2016 | Last updated on March 21, 2019

Last September, just as the Volkswagen emissions fraud was being revealed, U.S. Deputy Attorney General Sally Q. Yates declared that there would be significant changes to the way the Department of Justice handled corporate misdeeds. That memorandum, now known as the Yates Memo, made it clear that when corporations break the law, individuals will be held accountable.

Now, six months later, we're starting to see just how that might play out, and it could end up reducing corporate cooperation in enforcement actions.

How the Yates Memo Changes the Game

The Yates Memo came after years of criticism over how the DOJ and SEC handled corporate crime. Following the 2008 financial crisis, only a single Wall Street executive saw jail time and enforcement actions ended in light settlements that were rejected by the courts. The Yates Memo sought to turn that tide.

The memo sets out six major changes meant to strengthen the DOJ's approach to individual culpability: First, in order to obtain credit for cooperation, companies must provide crucial information to the Justice Department. Second, both civil and criminal investigations are to focus on individuals. Cooperation between civil and criminal actions should increase, and individual liability should not normally be released when settling with companies. Nor should the DOJ settle with companies without a clear plan to resolve individual cases. Finally, civil attorneys are encouraged to focus on individuals as well as the company, without regard to an individual's ability to pay.

What It May Mean in Practice

A recent white paper by Thomson Reuters Risk Management Solutions sheds some light on the Yates Memo's potential impacts. (Disclosure: Thomson Reuters is FindLaw's parent company.) The white paper is authored by H. David Kotz, managing director at Berkeley Research Group. And Kotz has some insider insights, having served as Inspector General of the SEC during the Bernie Madoff, Bank of America, and Goldman Sachs investigations.

As Kotz sees it, the Yates Memo could lead to some major headaches for corporate legal departments. Since corporate cooperation credit is tied to evidence of individual responsibility, "companies' decision to cooperate may now involve their willingness to give potentially damaging information about individuals," Kotz writes.

Thus, the Yates Memo could have unintended consequences, leading companies to become "very reluctant to divulge information about executives' roles" in questionable activity. That's especially true when paired with recent SEC decisions to follow every confession of guilt with individual prosecution.

The end result could be to disincentivize corporate cooperation. "Much to the government's chagrin," Kotz writes, "this increased pressure may not always lead to the increased cooperation that the government is seeking."

Want more? Download the entire white paper, The Yates Memo: The Background and Its Impact, for free.

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