Wishart Law Firm LLP

CDN/US Cross-Border Law

Changes to Corporate Investigations in the States: The Yates Memo and the Rosenstein Memorandum

 

 By Steven Shoemaker

On November 29, 2018, Rod Rosenstein, the current US Deputy Attorney General under President Trump, announced a DOJ policy revising the previous “Yates Memorandum” concerning individual accountability in Criminal and Civil cases of corporate wrongdoing.

The revised policy, referred to here as the Rosenstein Memo, maintains much of the Yates Memo but departs from prior policy in certain important manners.

To understand these revisions from the Yates Memo to the Rosenstein Memo, we must first review the Yates Memo.

On September 9, 2015, Sally Yates, who was then the US Deputy Attorney General under President Obama, signed a memorandum directed to all Attorneys General in the US Department of Justice (“DOJ”).

The Yates Memorandum can be found at https://www.justice.gov/archives/dag/file/769036/download.

The Yates Memorandum directed that the DOJ use its vast resources to identify individuals within corporations who are liable for corporate wrongdoing, specifically requiring that the DOJ “seek accountability from the individuals who perpetrated the wrongdoing.”

The Yates Memorandum identified 6 considerations of any investigation into Criminal and/or Civil corporate misconduct, which are summarized as:

1.    For any DOJ “Credit”, Corporations must provide to the DOJ all relevant facts about the individuals involved in the corporate misconduct. 

2.    Criminal and civil DOJ investigations should focus on individuals from the inception of the investigation. 

3.    Criminal and civil DOJ attorneys should be in routine communication with one another. 

4.    Unless it is an extraordinary situation, a resolution of corporate wrongdoing (as opposed to the individual’s wrongdoing) will not provide protection from criminal or civil liability for any individuals. 

5.    Corporate cases should not be resolved without a clear plan to resolve related individual cases before the statute of limitations expires, and declinations [refusal of consent] relating to individuals in such cases must be memorialized.

6.    Civil attorneys should focus on individuals as well as the corporation itself and pursue individuals regardless of the individual’s ability to pay.

The measures were set out in the Yates Memorandum to ensure that DOJ was consistent in its “best efforts to hold to account the individuals responsible for illegal corporate conduct.”

The Rosenstein Memo continues along a similar path as the Yates Memo, providing that the “most effective deterrent to corporate criminal misconduct is identifying and punishing the people who committed the crimes.”

The primary change from the Yates Memo to Rosenstein’s Memo is in respect of consideration #1 above. The Rosenstein Memo has effectively reduced the burden corporations must bear when seeking “Credit” in an investigation, specifically as it relates to Criminal investigation.

The Yates Memorandum – consideration #1 – required corporations to “provide all relevant facts and records about individuals involved in corporate misconduct.”

The Rosenstein Memo no longer requires identification of “all. Corporations can now work more closely with the DOJ to focus resources on those individuals who were “substantially involved in or

responsible for” the potential criminal misconduct, rather than being held to the high burden of identifying every single individual or person in an alleged wrongdoing, which could amount to a waste of resources of the corporation and make matters more difficult for the DOJ.

What this really means is that the DOJ will focus on pursuing the current and potentially former executives, officers and directors, rather than mid-level managers or below, while still permitting the corporation to receive “Credit” for disclosing relevant facts and records about these ‘key’ individuals.

The primary matter for corporations to understand is to ensure the corporation is acting in good faith, even if unable to disclose every individual ever involved.

How do these changes affect Canadian companies falling within the jurisdiction of the DOJ?

Corporations falling within the jurisdictional reach of the DOJ, including Canadian corporations within US operations (or trading on US stock exchanges), will likely benefit from the revisions in the Rosenstein Memo.

Like the DOJ, the Ontario Securities Commission (“OSC”) expects corporations to report wrongdoing to qualify for “Credit.”

Qualifying for Credit permits the Canadian corporation to pursue a “no-contest settlement.”

In Ontario, the authorities are seemingly less likely to pursue individual officers and directors with as much vigor as the US DOJ. For example, many of the no-contest settlements approved by the OSC since the Yates Memorandum for self-reported corporate wrongdoing have not resulted in criminal proceedings against individuals.

Under the Yates Memo, corporations had to be aware of the potential consequences of their findings on individual officers and directors and they must still be ware of these consequences with the Rosenstein Memo.

Where Canadian Corporations within DOJ jurisdiction are conducting internal investigations about possible corporate wrongdoing, “Upjohn warnings” may need to be provided to management level officers and directions at an early stage, but not necessarily as early for lower level employees given the change in the burden for consideration #1. Upjohn warnings are notices from Corporate counsel (either in-house or external counsel representing the Corporation) that the counsel in question represents the Corporation, not the employee (and therefore the employee should proceed to retain his/her own counsel).

All of this is heavily dependent upon the nature of the fact scenario, but separate legal representation of high-level key persons is as important now as ever.

In an internal investigation conducted by the Corporation, privilege of the investigation report belongs only to the Corporation.

Only the Corporation can waive the privilege. However, the Corporation, whether pursued by the OSC or DOJ, will be required to waive this privilege if it wants to receive “Credit.”

This means that employees cooperating with the investigation will be providing information to the Corporation knowing that they could be exposing themselves to criminal or civil liability but also knowing that the Corporation will almost certainly disclose the findings and/or Report to receive Credit. Hence the requirement to “lawyer up” sooner rather than later, particularly if you are:

(a)    a Canadian who is a key person in a business with US operations; and

(b)    Being pursued by Rosenstein’s DOJ.

For further information, please contact the Wishart Law Firm LLP at 705-949-6700, including the author who is called to both the Ontario bar (Law Society of Upper Canada Number 59209J) and New York Bar (Registration Number 4486205)