DOJ Gets Practical on Corporate Resolutions: Highlights From Rod Rosenstein's November 29th Comments on Individual Accountability

In remarks at the American Conference Institute's FCPA conference on November 29, 2018, Deputy Attorney General Rod Rosenstein announced changes to the Department of Justice's (DOJ) policy concerning individual accountability for corporate wrongdoing. Although reflecting more of a restoration of prior policy than a series of revolutionary pronouncements, Rosenstein's remarks signal a retreat from the more challenging DOJ positions articulated in the September 2015 memorandum issued by then-Deputy Attorney General Sally Yates (Yates Memo). (We note our timing, as Rosenstein's remarks came the same day as our most recent blog post assessing the implications of a recent Tenth Circuit FCA decision in light of the Yates Memo.)

The following are noteworthy DOJ policy changes outlined in Rosenstein's remarks:

First, DOJ's "revised policy . . . makes clear that any company seeking cooperation credit in criminal cases must identify every individual who was substantially involved in or responsible for the criminal conduct" (emphasis added). Rosenstein expressed that concerns had been raised about DOJ requiring companies to identify each and every employee involved in corporate misconduct, regardless of the nature of that individual's involvement. Rosenstein acknowledged that such an approach was impractical and inefficient; it delayed resolutions and wasted investigatory resources. Rosenstein noted that DOJ's focus, instead, is on those individual corporate actors "who play significant roles in setting a company on a course of criminal conduct," not on those employees "whose involvement was not substantial, and who are not likely to be prosecuted." Companies are encouraged to have "full and frank" discussions with prosecutors about the facts to help the government identify those employees with substantial involvement in the misconduct.

With this change, DOJ is backing away from the position expressed in the Yates Memo that to be eligible for cooperation credit under the Principles of Federal Prosecution of Business Organizations, a corporation "must identify all individuals involved in or responsible for the misconduct at issue," regardless of where those actors sit in the corporate hierarchy, and must "provide to the Department all facts relating to that misconduct" (emphases added).

Second (and especially relevant to those facing FCA investigations or litigation), Rosenstein observed that the "primary goal of affirmative civil cases is to recover money," and that time spent by DOJ attorneys requiring a company "to admit the civil liability of every individual employee" is "inefficient and pointless in practice." He noted that corporate resolutions in such cases should not be delayed as companies continue investigating to identify "all involved employees and reach an agreement with the government about their roles." And paralleling his statements about criminal cooperation, Rosenstein also stated that to get maximum "cooperation credit" in an FCA case, which presumably would mean reduced damages (i.e., double damages) under Section 3729(a)(2), a company should "identify every individual person who was substantially involved in or responsible for the misconduct," but need not identify "every employee with potential individual liability."

Rosenstein's comments could affect the parameters of FCA settlements by potentially limiting the extent of admissions of wrongdoing that companies may have to make as part of a resolution. (Some United States Attorney's offices, such as Manhattan, have been requiring such admissions as part of settlements for some time, and DOJ and other offices have adopted the approach.) Companies seeking credit for self-reporting under Section 3729(a)(2) will also not have to boil the ocean to identify every potentially involved employee as part of that process.

Finally, Rosenstein noted that DOJ attorneys are allowed (with supervisory approval) "to negotiate civil releases for individuals who do not warrant additional investigation in corporate civil settlement agreements." And DOJ attorneys are "once again permitted to consider an individual's ability to pay in deciding whether to pursue a civil judgment." These "commonsense reforms" reflect a retreat from the Yates Memo's directives, which stated that, "absent extraordinary circumstances," the government even in civil matters "should not release claims related to the liability of individuals based on corporate settlements" and also discouraged prosecutors from focusing on an individual's ability to pay when deciding whether to pursue civil liability.

It remains to be seen whether and how Rosenstein's pronouncements will change the course of investigations, settlement discussions and resolutions of FCA cases going forward. In the meantime, we remain hopeful that his charge that civil prosecutors avoid getting mired in unreasonable excursions to identify and hold liable every potentially involved employee will inject reasonableness into civil investigations of corporate misconduct.

© Arnold & Porter Kaye Scholer LLP 2018 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.