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December 07, 2018
Health Law Weekly

DOJ Revises “Yates Memorandum” on Individual Accountability

  • December 07, 2018

By Michael W. Peregrine, McDermott, Will & Emery LLP, and Katherine A. Lauer, Latham & Watkins LLP

 

Health care lawyers will likely want to advise their board and senior leadership team on the latest policy revisions to the Justice Manual (formerly the U.S. Attorneys Manual) that revise several provisions of the so-called "Yates Memorandum," while still retaining its core focus on individual accountability for corporate wrongdoing.

As announced on November 29 by Deputy Attorney General Rod J. Rosenstein, the revised policy is focused on providing a more lenient pathway for corporations to receive credit for cooperation with the government in the context of investigations of corporate misconduct. As before, the extension of credit is premised on a company's efforts to identify those of its employees who may be responsible for the misconduct. Only this time, companies are not being asked to identify all of the culprits, just those who are "substantially involved." And for civil cases, that often will mean culpable members of senior management and the board of directors.

The revised policy has important implications for the compliance programs, governance oversight, and board/management relationship of health systems, and portends forthcoming additional guidance on how cooperation credit is addressed by the Department of Justice (DOJ) in False Claims Act and other civil proceedings.

Background of Yates

As most health care lawyers are well aware, "Yates" refers to the September 9, 2015 DOJ guidelines on corporate prosecution, with the somewhat ominous title "Individual Accountability for Corporate Wrongdoing." The guidance, presented in the form of a memo to federal prosecutors from Deputy Attorney General Sally Quillan Yates, is premised on DOJ's belief that one of the most effective ways to deter corporate wrongdoing is to hold individuals accountable—both civilly and criminally—for their individual misconduct.

The guidance incorporated six key steps to be pursued in any DOJ investigation of corporate conduct: (1) condition eligibility for corporation credit on disclosure of what the corporation knows about individual misconduct; (2) focus on individual conduct from the inception of any investigation; (3) enhance communication between civil and criminal prosecutors handling investigations; (4) resolution of allegations against the corporation will not, except in extraordinary circumstances, provide liability relief for any individuals; (5) corporate cases should not be resolved before deciding how to resolve related individual cases; and (6) an individual's ability to pay should not be a factor in determining whether to pursue civil actions against individuals.

The Yates Memorandum has achieved almost "mythical status" across industries in terms of achieving awareness of the reality of individual accountability within the context of corporate wrongdoing. Most significantly, the Yates Memorandum provided that in order for a corporation to get any cooperation credit, the corporation had to identify all individuals who had any involvement in the conduct at issue.

The "Rosenstein Review" of Yates

In public speeches in September and October 2017, Mr. Rosenstein announced the Department's intention to identify, review, and revise certain outstanding "white collar" memoranda previously issued by former Deputy Attorneys General, and incorporate them in an updated version of the United States Attorneys Manual. In an October 6, 2017 speech, he specifically stated that the Yates Memorandum was one of those policies under review. However, the updated version of the Manual, released on September 25, 2018 contained no changes at all to existing policies and procedures on individual accountability; no "soft repeal" of Yates.

Nevertheless, Deputy Attorney General Matthew Miner of the DOJ Criminal Division spoke about the implications of the new Manual on September 27, 2018. While emphasizing new programs designed to provide concrete rewards to companies that disclosure the misconduct of "bad actors," he repeatedly referenced DOJ's continued interest in individual accountability.

The Revised Policy

In his November 29 announcement, Mr. Rosenstein noted that the revised policy was based upon not only the DOJ's prior review, but also on what Mr. Rosenstein referred to as "suggestions from outside stakeholders." As such, the revised policy is intended to reflect the following principles:

  • Pursuing individuals responsible for wrongdoing will be a top priority in every corporate investigation.
  • Absent extraordinary circumstances, a corporate resolution [of a corporate fraud case] should not protect individuals from criminal liability.
  • Any company seeking cooperation credit in criminal cases must identify every individual who was substantially involved in [emphasis added] or responsible for the criminal conduct.
  • Investigations should not be delayed merely to collect information about individuals whose involvement was not substantial and who are not likely to be prosecuted.
  • The "all or nothing" approach to cooporation credit has proven counterproductive in civil cases.

Specific Revisions

The Justice Manual has thus been amended to accommodate these principles, as follows:

Corporations seeking to receive maximum credit for cooperation in criminal cases must identify every individual person who was substantially involved in, or responsible for, the misconduct.

However, in civil matters, DOJ attorneys have the discretion to reward cooperation that meaningfully supported the government's investigation, "without the need to agree about every employee with potential individual liability." Thus, in civil matters (e.g., FCA cases), the company need "only" identify individuals (e.g., senior management and the board of directors) who were "substantially involved" in the alleged conduct. Credit will not be available to companies that conceal misconduct by senior management or the board of directors, or that otherwise fail to act in good faith with their representations.

The revised guidance focuses on the need to disclose the involvement of senior officials in the company, including senior management and members of the board. Even in the civil context, companies are expected to disclose all information related to wrongdoing by these individuals in order to receive any cooperation credit.

The Yates Memo instructed that the government would not consider an individual's ability to pay when deciding whether to pursue individuals. The revised guidance softens that position, and allows DOJ attorneys to consider the individual's ability to pay when making decisions about whether to pursue an individual civilly.

The Implications for the Compliance Program

The overall message for all corporate constituents is that most of the core themes of Yates remain intact. The focus on individual accountability for corporate wrongdoing has not been altered by the revised policy as strong as it was when Yates was released, particularly given the number of significant health care fraud matters in which DOJ has pursued civil and criminal remedies against individual corporate executives, including, for example, three separate health system CEOs in the last several years.

From a governance perspective, there are several key takeaways:

First, there is nothing contained in the revised policy that would justify any relaxation of the scope, emphasis, and funding of the Compliance Program. Second, it remains imperative for a Board to continue to demonstrate throughout the health system its support for the Compliance Program, and those who administer it (e.g., the General Counsel and the Chief Compliance Officer). Third, the Board should recognize and confront the awkward internal board/executive dynamic created by the continued corporate cooperation credit emphasis on senior management. What is new under the revised policy is a more explicit recognition of the potential for culpable behavior by board members as well.

For the workforce, including executives and employed physicians, it means that focused legal exposure remains for those who are risk-insensitive and who are inclined to "push the edge of the (legal and regulatory) envelope" with their work style. Continued education not only on the substance of regulatory requirements, but also on the consequences for individuals who disregard applicable law and regulation, should be a component of every Compliance Program, as should a visible and consistent policy of discipline for those individuals who flaunt the rules.

 

Mr. Peregrine and Ms. Lauer are partners in the law firms of McDermott Will & Emery and Latham & Watkins, respectfully. They wish to acknowledge the assistance of Rebecca Martin of McDermott Will & Emery in the preparation of this article.

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