“Americans should never believe, even incorrectly, that one’s criminal activity will go unpunished simply because it was committed on behalf of a corporation.” 1 This was the pronouncement made by Deputy Attorney General Sally Yates (DAG Yates) a day after she issued new guidance to Department of Justice (DOJ) attorneys outlining the importance of individual accountability in DOJ prosecutions. The new guidelines, issued September 9, 2015 and referred to informally as the “Yates Memo,” articulated several changes to DOJ policy, particularly regarding the definition of cooperation credit for corporations. 2 These changes are applicable to criminal as well as civil enforcement matters and will be applied to both future investigations and pending matters, to the extent practicable. While this shift in policy appears to be a response to repeated criticism that too many individuals evaded punishment for wrongdoing related to the financial crisis and a related push to improve integrity within the banking sector, it will have significant implications for healthcare providers and their employees. 3
Although the DOJ has long understood and emphasized the importance of identifying culpable individuals, companies were often allowed to disclose improper corporate practices but stop short of identifying the specific individuals involved. 6 While companies engaged in such limited disclosures would not receive full cooperation credit, they would receive some credit, and in certain instances, this was enough to avoid indictment. This practice has now been disallowed. If a company wishes to receive cooperation credit, it must “give up the individuals, no matter where they sit within the company.” 7
2. Both criminal and civil corporate investigations should focus on individuals from the inception of the investigation.
Recognizing the challenges required to go back and pursue individuals after the conclusion of a case originally aimed at corporate liability, DOJ attorneys have now been instructed to focus on individuals from the start of an investigation. Once a case is underway, the inquiry into individual misconduct will proceed in tandem with the broader corporate investigation.
3. Criminal and civil attorneys handling corporate investigations should be in routine communication with one another.
To ensure greater cooperation between divisions within the DOJ, DAG Yates has directed civil and criminal attorneys to collaborate from the beginning of every case to the full extent allowed by law. 8 Per DAG Yates, this early collaboration will allow the DOJ to leverage its full authority and permit consideration of the full range of potential remedies available to the government.
4. Absent extraordinary circumstances, no corporate resolution will provide protection from criminal or civil liability for any individuals.
Barring an approved policy (i.e., the Antitrust Division’s Corporate Leniency Policy) 9 or extraordinary circumstances, which must be personally approved in writing by specified DOJ personnel, DOJ attorneys will no longer agree to any settlement or corporate resolution that dismisses charges or provides immunity for individual officers or employees.
5. Corporate cases should not be resolved without a clear plan to resolve related individual cases before the statute of limitations expires and declinations as to individuals in such cases must be memorialized.
Only in the rarest of circumstances will the DOJ now release individuals from civil or criminal liability when resolving a matter with a corporation. Any decision to conclude a corporate case, without simultaneously settling individual liability, will require the DOJ attorney to demonstrate, to his/her supervisor, a clear plan for resolving any related individual cases promptly and before the statute of limitations expires. Further, if the decision is made not to proceed against individuals, the justification for such a decision must be memorialized and approved by the relevant U.S. Attorney or Assistant Attorney General overseeing the investigation.
6. Civil attorneys should consistently focus on individuals as well as the company and evaluate whether to bring suit against an individual based on considerations beyond that individual’s ability to pay.
In its enforcement activities, the DOJ has two goals: 1) recover as much money as possible and 2) the accountability for and deterrence of individual misconduct. Both are considered equally important. However, as monetary sanctions are the most common form of relief in civil cases, some DOJ attorneys focused primarily on the likelihood of financial recovery from investigative targets. This often led to large-scale corporate investigations being prioritized over enforcement actions against the individuals who perpetuated the wrongdoing. 10 Going forward, the pursuit of individuals by the DOJ will not be governed solely by an individual’s ability to pay. Other factors, such as the seriousness of the misconduct, sufficiency of the available evidence, and whether pursuing an action reflects an important federal interest will also be factors taken into consideration.
Six Key Takeaways From the Yates Memo
One of the most significant changes to DOJ policy is the elevation of a company’s cooperation against individuals from one factor for consideration into the threshold factor. This shift in priorities will almost certainly increase the difficulty of any company obtaining cooperation credit. As described by DAG Yates, “It’s all or nothing. No more picking and choosing what gets disclosed. No more partial credit for cooperation that doesn’t include information about individuals.” 11 Thus, going forward, if an entity is seeking cooperation credit, it must investigate and identify the responsible individuals and provide all non-privileged evidence implicating these parties. If it fails to do so, any other assistance or cooperation provided will be ignored and not considered a mitigating factor.
Of particular importance to healthcare providers, DAG Yates cited the False Claims Act (FCA) as an example of the application of her new policy. 12 She stated that to receive credit for cooperating fully under the FCA and trigger its reduced damages provision, an entity will now be required, at a minimum, to reveal all relevant facts about responsible individuals. 13 Given the government’s frequent use of, and success with, the FCA in healthcare-related prosecutions, this may be an ominous sign of things to come. 14
Companies would also be wise to review their policies and procedures and determine any strategic changes that may be required. Compliance plans should be carefully reviewed and improved as necessary. As the best offense is often a good defense, avoiding, or at least minimizing, both corporate and individual liability is the best strategy of all. Additionally, and particularly for smaller companies, bylaws or other corporate documents that promise payment of attorneys’ fees should be reviewed to determine whether these provisions remain affordable given the potential for multiple company executives to require counsel during any given investigation. Likewise, Directors & Officers (D&O) coverage should be re-examined to ensure it is sufficient to cover the potentially increased costs that may be incurred with concurrent investigations.
Companies should be prepared for both investigations and settlement negotiations to become more complex and drawn out. DAG Yates has stated in her Memo that future settlements will include ongoing requirements that companies continue to provide relevant information about any individuals implicated in wrongdoing. Failure to make such disclosures will be considered a material breach and subject any settlement agreement to revocation or penalties. There may also be uncertainty, at least in the short term, as to whether corporate claims will be settled differently from claims against individuals. For example, will the DOJ enter into a non-prosecution agreement with an entity but prosecute the individual executives involved? Companies should also prepare for the complexities of turning in employees for potential prosecution. If the individuals at issue are senior leaders, long-term or popular employees, or someone with a distressed situation, such an action could be difficult and traumatic.
Given the increased emphasis on the identification of culpable individuals, counsel should consider preparing more robust Upjohn warnings. 15 Further, these warnings should clearly memorialize that any employee interviewed has been informed of and understands the scope of the attorney-client privilege among the counsel, the company, and the employee. Importantly, employees should be informed that the company will control government disclosures of any information obtained during an investigation or interview.
Healthcare entities and their counsel should further be prepared to face difficult decisions until DOJ expectations become more clear. While the Yates Memo was long on principles, it was somewhat short on practical guidance. For example, going forward, companies are expected to conduct thorough internal investigations into potential wrongdoing by their employees and determine the relevant facts regarding individual responsibility and culpability. However, it is not certain how determinations will be made of exactly what constitutes the “disclosure of all relevant facts.” Although DAG Yates stated that the DOJ was not asking companies to “boil the ocean” or engage in multimillion dollar investigations, it is not yet known just how far companies are expected to go. 16 Further, DAG Yates stated that defense counsel could pick up the phone and discuss any questions about the scope of an investigation with prosecutors. However, the helpfulness of this offer may be limited, because in some instances, a final decision to disclose may not have been made and additionally, prosecutors may be hesitant to give final approval on the scope of an investigation until very late in the investigative process.
The treatment of privileged information also remains uncertain. Under the DOJ Principles of Federal Prosecution of Business Organizations, 17corporations do not need to disclose, and prosecutors may not request, attorney work product as a condition to receive cooperation credit. 18 However, it is unknown how interviews of potentially culpable employees conducted by counsel will be treated in light of the new policies.
Although its full impact has not yet been realized, the Yates Memo could have a significant effect on healthcare companies and their executives. DOJ attorneys are under clear instruction to prosecute corporate employees, and in light of this new emphasis on individual accountability, there is uncertainty as to how this will ultimately affect the relationships between companies and their workforce. How hard companies will fight for their employees before turning over information and how willing employees will be to cooperate with internal investigations remains to be seen. However, given this new landscape, healthcare providers, their counsel and employees should start planning now and be prepared for this new era of enhanced individual accountability.
Catherine Greaves practices in the Austin office of King & Spalding and has deep knowledge of state and federal fraud and abuse laws, including the False Claims Act, the Stark Law and the Anti-kickback Laws. She also has extensive experience representing clients on matters relating to the Medicare and Medicaid reimbursement systems as well as compliance issues, including coverage and reimbursement matters, internal investigations and governmental audits. She assists clients with complex provider relationships and joint ventures, licensure and certification issues, HIPAA and privacy matters as well as day-to-day healthcare regulatory and operational issues. Ms. Greaves can be reached at email@example.com.