What boards need to know about white-collar crime

U.S. Attorney John Walsh talks about holding corporate lawbreakers accountable

The big news: When it comes to finding and prosecuting the perpetrators of white collar crime, individuals—and not just their corporations—may now increasingly be targets. What can companies and individuals do if faced with threats of prosecution, and how can they avoid such situations in the first place?

At the last National Association of Corporate Directors (NACD)-Colorado chapter meeting, John Walsh, U.S. Attorney for Colorado, sat with me “fireside chat”-style and had a conversation that provided a rather daunting overview of what directors need to know about white-collar crime.

A native of Denver, Walsh has served as the U.S. Attorney for Colorado since 2010 after being nominated by President Obama and confirmed by the U.S. Senate. His stellar legal career includes Assistant U.S. Attorney in Los Angeles and chief of the Major Frauds section. After returning to Denver, he became a partner specializing in complex civil litigation, internal investigations and white-collar criminal cases at Holland & Hart and then at Hill & Robbins until he became U.S. Attorney. He currently serves as chair of the national Attorney General's Advisory Committee.

Our discussion surrounded a very recent memo from Sally Quillian Yates, Deputy Attorney General at the U.S. Department of Justice, with the title, “Individual Accountability for Corporate Wrongdoing.” This new initiative and direction to her department’s attorneys brings up a host of new concerns for directors and corporate executives.

The goal of Yates’ initiative is to look at the role of individuals in corporate decisions. Some of these concerns arose during the days of residential mortgage-backed securities and the civil investigations leading to the 2008 financial crisis. The mindset came from Congress and the media questioning why companies, and not individuals, were being successfully prosecuted. The Yates memo is intended to refocus DOJ attorneys on taking steps to determine whether individuals should be criminally prosecuted.

Walsh emphasized that, to be eligible for any credit for cooperating with Justice, corporations must provide all relevant facts about the individuals involved in corporate misconduct. DOJ attorneys are now being directed to consistently focus on individuals as well as the company and evaluate whether to bring civil actions against an individual based on considerations beyond that individual’s ability to pay.

These points represent a change from existing policy. Previously, cooperation credit was not viewed as an “all or nothing” proposition and companies could choose to provide some, but not necessarily all, information from an investigation. In addition, DOJ attorneys might not seek to hold individuals accountable for civil liability due to their inability to pay potentially large judgments.

Walsh offered a few suggestions to directors in light of the Yates memo:

  • If you as a director suspect any misconduct, make sure the company investigates it. The DOJ will now expect full disclosure of all relevant information gleaned from the investigation. Internal investigations must address the question, “Do we have bad actors, and if so, who are all of them?”
  • Compliance programs matter, as they help companies identify problems and identify them sooner rather than later, which can assist the company in demonstrating its attempts to prevent wrongdoing.
  • If a company suspects criminal misconduct, coming forward to the DOJ matters, and doing this as soon as possible sets a good faith precedent.
  • Transparency matters. The manner in which a company responds to the Justice Department is critically important. Work with investigators to develop a game plan for how information will be provided.
  • If a material issue such as a potential criminal matter arises, the board must become and stay involved. This is not intended to change or create a wedge in the director/management relationship, but more about the need to ensure thorough investigations.

A discussion ensued, addressing issues and questions regarding the impact of the Yates memo, how directors should think about it and deal with it:

  • Will companies be less inclined to turn themselves in or cooperate if the individuals who run them find themselves in the cross hairs?
  • Will companies be less likely to seek cooperation because of the DOJ’s more aggressive “all or none” approach to cooperation credit?
  • How far must an internal investigation go – does a company have to turn over every rock, and if not, will they lose cooperation credit?
  • Will this chill individuals’ willingness to serve on boards?
  • Will this new emphasis cause more tension and obstacles between companies, their executives and employees?
  • Will everyone need to immediately “lawyer up” whenever misconduct is discovered or with the opening of an investigation?
  • Will this adversely affect the market for directors’ and officers’ liability insurance?

The Yates memo is barely a month old. It will take some time to see how the DOJ implements its instructions. But its implications serve to emphasize an increasingly important area for corporate boards: risk management. As the sergeant in Hill Street Blues used to say, “Let’s be careful out there.” The Justice Department is moving to ensure that they are holding lawbreakers accountable, whether they commit their crimes on the street corner or in the boardroom.

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