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Risk in Context

Expected Fallout From DOJ’s Policy of Holding Individuals Accountable for Corporate Wrongdoing

Posted by Ann Longmore August 26, 2016

Recent enforcement actions by federal regulators — including a US Department of Justice (DOJ) memo calling for individual accountability for corporate wrongdoing — have raised the stakes for individual executives and the companies they serve. Civil and criminal investigations seem to be increasing — and individuals are increasingly being held accountable for corporate mishaps, falling stock prices, data breaches, and regulatory compliance.

In late 2015, the DOJ issued what's become known as the Yates Memo. Named for its author, Deputy Attorney General Sally Q. Yates, the memo instructs federal prosecutors to name and prosecute individuals in cases of corporate fraud and misconduct.

Key Considerations

Litigation resulting from the Yates Memo may be more prolonged and therefore expensive — though the memo’s full implications remain to be seen. The directive may also be more divisive for organizations, pitting the interests of the company against those of the individual.

The impact of the Yates Memo will also likely be felt during the investigation stage. If an in-house investigation becomes related to a US Securities and Exchange Commission (SEC) action, the SEC will seek information that became known to the company, which may have been during an in-house investigation. This can affect how much and what kind of directors and officers (D&O) liability insurance is needed, and how it addresses exposures during the investigation stage.

Consider the following regarding the Yates Memo:

1. Cooperation and self-reporting: Companies that cooperate with authorities may receive a credit. These credits — which are financial and other incentives to motivate or reward companies that disclose and fully cooperate with the DOJ, SEC, and other federal enforcement — can limit firms' potential liability. Knowing that they are the focus of enforcement actions, individuals may be less likely to cooperate with their firms during formal and informal investigations. However, the directive makes it clear that credit will only be available for full cooperation.

2. Individual accountability: Under the Yates Memo, individual defendants are the focal point of all federal investigations and possible prosecutions. It also provides that no cases — civil or criminal — involving corporate misconduct should be resolved without the prosecutors creating a plan to address and resolve related individual cases, regardless of the individual’s ability to pay and the complexity of the litigation.

3. Increased visibility: Due to heightened media attention, executives are aware of companies’ financial incentive to turn over information about them. Firms may refuse to indemnify individuals who refuse to cooperate with company investigations.

To address the Yates Memo, work with your insurance advisors to ensure your organization has the appropriate levels of insurance for the company and its directors, officers, and employees.

Ann Longmore

Managing Director and Multinational Practice Leader in the Financial and Professional Liability (FINPRO) division