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By Sam Skolnik
A pair of Obama-era policy shifts aimed at making government contractor officials and other executives more accountable for corporate wrongdoing may be reversed by President Donald Trump’s Justice Department, some attorneys are saying.
Yet others say the principles included in DOJ’s “Yates memo,” which renewed a focus on individual alleged corporate criminals, and a previous policy change mandating that whistle-blower lawsuits automatically be referred to the department’s criminal division, are here to stay.
More than 130 days into the new administration, no one yet knows for sure — and Justice Department officials aren’t talking.
The issue is being monitored closely by government contracts and white-collar defense attorneys, who say the changes are affecting the way they’re advising contractor clients that may be targeted by whistle-blowers with qui tam fraud allegations under the False Claims Act. Qui tam whistle-blowers, who allege fraud has been committed against the government, bring lawsuits on its behalf.
None of the attorneys contacted for this story could cite a specific example of a contractor executive or other corporate official who has been charged with a crime as a result of either the September 2015 memo — named for former acting Attorney General Sally Yates — or the policy announced the year before by former Assistant Attorney General Leslie Caldwell.
However, that may soon change, Steve Byers, a partner with Crowell & Moring’s white-collar and regulatory enforcement practice group in Washington, told Bloomberg BNA. Before long, we are likely to see civil False Claims Act procurement fraud cases in which culpable senior contractor executives are named as defendants, he said.
“That, coupled with mandatory qui tam review and referrals, means the odds of individuals being pursued in a criminal case are going up,” Byers said. “It’s pretty clear that the stakes are rising for corporate executives.”
The effects of the Yates and Caldwell policy changes will be increasingly felt in the months and years ahead if the policies remain in place, several big-firm Washington attorneys said. Some are trying to decipher how likely they might soon be rescinded.
The task has been made trickier by the fact that Trump has yet to replace any of 93 U.S. attorney positions around the country, nor has he filled many top DOJ posts.
“It’s difficult to predict this early, but the tea leaves seem to be that these policies will survive,” Byers said.
Attorney General Jeff Sessions added weight to that notion in an April 24 speech to the Ethics and Compliance Initiative.
“The Department of Justice will continue to emphasize the importance of holding individuals accountable for corporate misconduct,” Sessions said in prepared remarks. “It is not merely companies, but specific individuals, who break the law. We will work closely with our law enforcement partners, both here and abroad, to bring these persons to justice.”
However, Sessions didn’t mention the Yates memo directly, one observer noted — and seemed to leave the door open for the department to pivot away from the memo’s principles.
The most interesting parts of Sessions’s speech weren’t in the prepared remarks, Justin Dillon, a partner with KaiserDillon in Washington, said in a column for the legal news blog Above the Law, titled “Did A Jeff Sessions Riff Signal The Beginning Of The End For The Yates Memo?”
Just after Sessions talked about the importance of individual accountability, the AG said off-script that it wasn’t always possible to do so — and that his DOJ lawyers “would take into account companies’ cooperation and self-disclosure when making charging decisions,” Dillon noted, according to a Washington Post story on the speech.
DOJ’s public affairs office declined to respond to a list of questions, including whether Sessions is considering revoking or revising the Caldwell and Yates policy changes. Ian Prior, DOJ’s principal deputy director of public affairs instead referred Bloomberg BNA to Sessions’s April 24 remarks.
Rachel Paulose, a former U.S. attorney in Minnesota in the George W. Bush administration, told Bloomberg BNA in a written statement that the Yates and Caldwell policy shifts likely will be things of the past before long.
Typically, top department officials place “his or her own imprimatur on the DOJ principles of corporate prosecution,” Paulose said — and that hasn’t happened yet with the current administration.
“Neither the Yates Memo nor the Caldwell speech are likely to remain the policy of this administration,” said Paulose, a Minneapolis-based partner with DLA Piper. “Once the Department of Justice is fully staffed, we should expect different priorities (with an emphasis on violent crime) to be announced and modifications to past policies to be initiated.”
A top contractor trade group official points to another reason why the Yates memo — at least its name, if not its content — might be in jeopardy: Trump fired Yates after she defied him by refusing to enforce his executive order restricting immigration from certain predominantly Muslim countries.
“I think anything entitled ‘Yates’ is going to be somewhat toxic,” Alan Chvotkin, executive vice president and counsel of the Professional Services Council, told Bloomberg BNA. That name, he said, “is dead to this DOJ.”
The Caldwell and Yates shifts came in the wake of sustained criticism of former Attorney General Eric Holder for declining to prosecute bank executives in the wake of the 2007-08 financial crisis. Some banks were held liable, but virtually no individuals were.
In Sept. 14, 2014, remarks to a Taxpayers Against Fraud Education Fund conference, Caldwell said DOJ’s criminal division recently had implemented a procedure so that the department’s civil division share all new qui tam complaints with the criminal division “as soon as the cases are filed.”
Prosecutors in the fraud section were “immediately reviewing” the cases to determine whether to open parallel criminal investigations, Caldwell said. Prosecutors previously only chose certain cases to review to see whether criminal charges might apply.
“We in the Criminal Division have unparalleled experience prosecuting health care fraud, procurement fraud, and financial fraud,” Caldwell said. “We can and we will bring that expertise to bear by increasing our commitment to criminal investigations and prosecutions that stem from allegations in False Claims Act lawsuits.”
A year later, Yates issued her memo, formally titled “Individual Accountability for Corporate Wrongdoing.” It listed six principles prosecutors should follow, including the notion that “both criminal and civil corporate investigations should focus on individuals from the inception of the investigation.”
Accountability from individuals who commit corporate fraud, Yates wrote, “deters future illegal activity, it incentivizes changes in corporate behavior, it ensures that the proper parties are held responsible for their actions, and it promotes the public’s confidence in our justice system.”
Government contracts and white-collar lawyers said they typically look at the potential culpability of individual corporate executives and workers — both as a way to cooperate with prosecutors and, potentially, to steer cases away from the company as a whole. So, in that sense, the Yates memo was redundant, they said.
But now, they said, prosecutors in fraud and other corporate malfeasance cases are pushing harder to amass evidence against potential individual defendants.
“Before, you could tell DOJ, ‘This is what our investigation found, and this is what we did’ — and that would be the end of the story,” Shawn Wright, a partner with Blank Rome and chair of the firm’s white-collar defense and investigations practice group in Washington, told Bloomberg BNA.
“Now, they’re saying, ‘Well, we know that, but we want you now to give the evidence you found against these employees,’ ” Wright said. “‘It’s not just enough that you terminated them, or engaged in some employee disciplinary action. We want to make our own decision about whether or not we should bring an individual prosecution.’”
In the same interview at Blank Rome’s Washington office, Justin Chiarodo, a partner and vice chair of the firm’s government contracts practice, told Bloomberg BNA that a larger issue is weighing on the debate over the Yates and Caldwell policies — the uncertain state of DOJ’s budget.
Funding to the DOJ would be cut overall by $1.1 billion in Trump’s proposed fiscal 2018 budget, potentially imperiling the ability of the department to take on the number and range of corporate fraud cases they might otherwise wish to.
“Something that hangs over this is that there’s obviously still a lot of uncertainty in the Trump administration as far as personnel, as far as the budget, as far as how many resources will be allotted to the various [DOJ] divisions that will be responsible for these investigations,” Chiarodo said. “Even if something is referred to the criminal division, I think there’s going to be some selectivity in terms of what they pursue and how aggressively they pursue it.”
Under the Yates and Caldwell policy changes, employees may now need to be advised that the company is cooperating with the government and that the company may disclose what an employee says in the interview to the government, government contracts attorneys said.
At the same time, attorneys are being extra diligent about telling corporate officials, when necessary, that it’s time to find their own attorney to prevent a conflict of interest.
Another impact of the policy shifts has been the reports of Yates “binders” or “lists” that both sides have presented to the other, which include the names of individual corporate officials.
As part of their willingness to cooperate, companies “are making real and tangible efforts to adhere to our requirement that they identify facts about individual conduct,” Yates told the New York City Bar Association in May 2016, “right down to providing what I’m told are called ‘Yates binders’ — an unnecessary term if you ask me — that contain relevant emails of individuals being interviewed by the government.”
In some civil fraud prosecutions, Byers said, government lawyers are now drawing up Yates “lists,” which include the names of executives and other employees who may have played a role in the alleged fraud at issue, and may be named as defendants even if they aren’t senior executives with deep pockets.
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