DOJ Guidance on Individual Accountability for

Corporate Misconduct: Implications for

CompaniesUnderstanding Current Government Positions, Ensuring Compliance, and Mitigating Legal Risks

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TUESDAY, APRIL 7, 2020

Presenting a live 90-minute webinar with interactive Q&A

Thaddeus R. McBride, Partner, Bass Berry & Sims, Washington, D.C.

Abby Yi, Attorney, Bass Berry & Sims, Washington, D.C.

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DOJ Guidance on Individual Accountability for Corporate Misconduct: Implications for

Companies

Strafford Webinar

April 2020

Introduction

Sentencing Commission

Yates Memorandum and Revisions

Corporate Enforcement Policy

Best Practices

Questions

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Agenda

Independent agency of the Judicial Branch

Promulgates guidelines for appropriate sentences for federal crimes

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U.S. Sentencing Commission

Aimed at ensuring consistency of sentences in criminal cases

Guidelines are advisory but must be considered

Court must select a sentence from within the Guidelines range or specify reason for departure (e.g., atypical features of crime)

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The Guidelines

Penalty imposed is based on “Culpability Score”

Start with “base” offense level for type of crime

Consider specific offense characteristics (e.g., amount of money involved)

Apply adjustments

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Culpability Score

Adjustments

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Culpability Score (cont’d)

Aggravating Factors Mitigating Factors

Involvement in / tolerance of criminal activity

Effective compliance and ethics program

Prior history

Violation of an order Self-reporting, cooperation, and acceptance of responsibility

Obstruction of justice

Designed to prevent and detect criminal conduct; and

Promote culture of ethical conduct and compliance with the law.

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Effective Compliance and Ethics Program

Issued on September 9, 2015 by Deputy US Attorney General Sally Yates

Memo to all US Attorneys

Focus on individual accountability for corporate wrongdoing

www.justice.gov/dag/file/769036/download.

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The Yates Memorandum

DOJ will continue to pursue companies for corporate wrongdoing

and

simultaneously pursue charges against individual employees

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Yates: Key Message

“Because a corporation only acts through individuals, investigating the conduct of individuals is the most efficient and effective way to determine the facts and extent of any corporate misconduct.”

Six Key Principles to strengthen the pursuit of individual corporate wrongdoing

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Yates: Why and How

To be eligible for any cooperation credit in a criminal or civil matter, a corporation must identify all individuals involved in or responsible for the misconduct at issue, regardless of their position, status, or seniority, and provide the DOJ all facts relating to that misconduct.

Note: This requirement was superseded (Nov. 2019). The focus is now on “the individuals who play significant roles in setting a company on a course of criminal conduct.”

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Yates Principle No. 1

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

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Yates Principle No. 2

The DOJ’s criminal and civil attorneys handling corporate investigations should be in routine communication with one another.

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Yates Principle No. 3

Absent extraordinary circumstances or approved DOJ policy, the DOJ will not release culpable individuals from civil or criminal liability when resolving a matter with a corporation.

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Yates Principle No. 4

DOJ attorneys should not resolve matters with a corporation without a clear plan to resolve related individual cases, and should memorialize any declinations as to individuals in such cases.

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Yates Principle No. 5

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 (e.g., the seriousness of the conduct, past misconduct, whether it is actionable, the burden of proof, and federal resources and priorities).

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Yates Principle No. 6

DOJ understands that lower-level employees facing individual civil or criminal liability may cooperate against their superiors

Facilitates DOJ’s ability to obtain information necessary to prosecute individuals further up the corporate ladder

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Yates: General Analysis

In November 2018, then Deputy Attorney General Rod Rosenstein softened the all-or-nothing approach to information on individuals

The focus is now on “the individuals who play significant roles in setting a company on a course of criminal conduct.”

During the same speech, Rosenstein emphasized that “[t]he most effective deterrent to corporate criminal misconduct is identifying and punishing the people who committed the crimes.”

Yates Policy Revisions

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FCPA Corporate Enforcement Policy

First announced by DOJ in November 2017, updated in March 2019

Encourages voluntary self-disclosure of potential FCPA violations

Significant mitigation available

Applicable to all white collar matters handled by the Criminal Division, not just the FCPA

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Corporate Enforcement Policy (cont’d)

Policy provides “presumption” that DOJ will decline to prosecute companies that meet the requirements of:

Voluntary Self Disclosure

Full Cooperation

Timely and appropriate remediation - AND

Absent aggravating circumstances (e.g., high-level executive involvement)

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Corporate Enforcement Policy : Declination

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In 2019, DOJ’s FCPA unit announced 35 charges against individuals, the highest on record

We expect this to continue into 2020.

AAG Benczkowski stated in December 2019, the high “number of individual prosecutions in 2019 is not an outlier or a statistical anomaly. Rather, it is part of the Department’s continued dedication to holding individual wrongdoers accountable across the board.”

Individual Enforcement – FCPA

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Individual Enforcement - Export

Posobilov – February 2017

Exported $50m in unauthorized electronics to Russia

Conduct between 2008 and 2012

Convicted in October 2015

Sentenced to 135 months in prison

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Posobilov (cont’d)

Acting AG: Posobilov was “held accountable”

US Atty: “Those who compromise the national security … for their personal financial gain will face serious punishment.”

Posobilov’s company is defunct; Russian-based partner company failed to appear

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Sentencing Commission Guidelines:

An effective compliance program is designed to

prevent and detectviolations

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Best Practices

Policies and procedures

Communicate to management, high-level personnel, employees, and agents as appropriate (e.g., training)

Ensure management is knowledgeable about program and exercises “reasonable oversight”

Update as needed to reflect legal changes / best practice

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Effective Program Characteristics

Personnel need adequate resources, authority, and access to management

Effective mechanisms to respond to violations

Consistent enforcement (e.g., incentives and disciplinary measures)

Monitoring, auditing, and reportingmechanisms

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Characteristics (cont’d)

Morgan Stanley executive (Peterson) improperly transferred a financial interest to a Chinese official

Morgan Stanley Maintained robust anti-bribery policies and accounting controls

Frequently trained employees – including Peterson seven (!) times

Monitored and audited transactions

Voluntarily disclosed and cooperated

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U.S. v. Peterson (2012)

Peterson pled guilty to violating the FCPA

Nine months in prison

$250,000 in disgorgement

Relinquishment of $3.4 million in real estate

Morgan Stanley was not charged

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Peterson (cont’d)

Effective compliance program can significantly reduce penalties in case of rogue employee

Yates may encourage companies to identify individuals to government

Government may choose to pursue individuals instead ofcompany

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Key Takeaways

Questions?

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THANK YOU!

Thad McBride

Partner

Bass Berry & Sims

tmcbride@bassberry.com

Abby Yi

Attorney

Bass Berry & Sims

abby.yi@bassberry.com

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