Justice Department announces new policies for prosecuting individuals who are responsible for corporate wrongdoing.
This past November, Deputy Attorney General Rod J. Rosenstein announced that the Department of Justice has enacted changes to its policies and procedures regarding the prosecution of corporate financial fraud and other misconduct.
Corporate fraud: the human factor
The purpose of these policy and procedural changes is to ensure that individuals from within a company, particularly high-level corporate officers, are punished for their wrongdoing regardless of the charges against (and plea deals made by) their company. The reasoning is that individuals and not institutions are the ones conducting the fraud, and it is only right for these individuals to be held responsible for their behavior. These measures are also intended to serve as a strong deterrent to corporate fraud and other misconduct, to promote public confidence in the justice system, and to protect the U.S. economy from further illegal corporate activities.
These changes are reflected in various sections of the Justice Manual (JM):
Coordination of parallel proceedings
In JM Section 1-12.000, attorneys handling civil and criminal corporate investigations are encouraged to be in regular communication and to coordinate their activities. The Justice Department reminds each division to be mindful of situations in which one of their corporate fraud cases might be more appropriately pursued by the other division, or if the circumstances warrant concurrent civil and criminal investigation. Attorneys are also advised to handle parallel proceedings carefully, to avoid claims of improper disclosure of grand jury materials or abuse of process in a civil matter, and to complement each other’s work whenever possible for the benefit of law enforcement and the general public.
Pursuing claims against individuals
The Justice Department believes that pursuing claims against responsible individuals is the main deterrent for fraud in the corporate environment. Two of its new guidelines address combatting corporate misconduct by holding culpable individuals within the organization accountable for their wrongdoing:
- JM Section 4-3.100 reminds prosecutors that in order to maximize the efficacy of a corporate fraud investigation (1) the focus should be on individuals from the start, (2) criminal and civil attorneys should communicate early and routinely, and carry their investigations out concurrently, (3) corporations must voluntarily disclose wrongdoing and provide meaningful assistance by identifying all individuals substantially involved in the misconduct (and by not making the government compel disclosures through subpoenas and other actions), and (4) corporate cases should not be concluded by the government without first considering the liability of culpable individuals – the government should preserve its ability to pursue civil remedies against wrongdoers before the statute of limitations expires.
- JM Section 9-28.210 advises prosecutors to heed the time restrictions on the cases they pursue, and not permit delays in a corporate investigation to undermine actions against culpable individuals. If a prosecutor is running out of time, they are advised to toll the statute of limitations period by agreement or court order and/or include a discussion of potentially liable individuals in the prosecution authorization memorandum of their corporate case. In no event should a corporate resolution shield any individuals from criminal liability without written approval by the relevant Assistant Attorney General or United States Attorney.
This Section also reminds prosecutors to target both individuals and corporations, and not to limit their efforts to one or the other. It also notes that motivation alone is sufficient for liability – a corporation need not profit for it to be held liable for an agent’s illegal actions.
Other factors to take into consideration
In addition to factors particular to their prosecution of and plea negotiation with corporate “persons,” prosecutors are advised to weigh the usual factors (e.g., sufficiency of the evidence, likelihood of success at trial, deterrents and other consequences of conviction) to their corporate case.
Other factors to take into consideration include but are not limited to:
- The nature and seriousness of the offense, and applicable policies and priorities governing the prosecution of corporations,
- The pervasiveness of wrongdoing within the corporation, including complicity on the part of its management,
- The corporation’s history of similar misconduct,
- The corporation’s willingness to cooperate with the investigation,
- The corporation’s timely and voluntary disclosure of its wrongdoing, and remedial actions,
- Potential harm to shareholders, employees, and others who are not responsible for the wrongdoing,
- Impact of prosecution on the general public,
- Adequacy of civil remedies, and
- Adequacy of prosecution of the individual responsible.
JM Section 9-28.300 specifies that no single one of these or other factors are dispositive. Prosecutors are advised to balance these factors, consider the nature and seriousness of an offense, and to use their best judgement to reach of fair and just outcome.
California criminal and business tax attorneys
The U.S. government aggressively prosecutes individuals involved in illegal activities, and this new focus on those who commit financial crimes from within a corporation is not surprising. For top-notch corporate fraud attorneys, contact the San Francisco law firm of Moskowitz, LLP.