WASHINGTON
— Stung by years of criticism that it has coddled Wall Street
criminals, the Justice Department issued new policies on Wednesday that
prioritize the prosecution of individual employees — not just their
companies — and put pressure on corporations to turn over evidence
against their executives.
The
new rules, issued in a memo to federal prosecutors nationwide, are the
first major policy announcement by Attorney General Loretta E. Lynch
since she took office in April. The memo is a tacit acknowledgment of
criticism that despite securing record fines from major corporations,
the Justice Department under President Obama has punished few executives
involved in the housing crisis, the financial meltdown and corporate
scandals.
“Corporations can only commit crimes through flesh-and-blood people,” Sally Q. Yates,
the deputy attorney general and the author of the memo, said in an
interview on Wednesday. “It’s only fair that the people who are
responsible for committing those crimes be held accountable. The public
needs to have confidence that there is one system of justice and it
applies equally regardless of whether that crime occurs on a street
corner or in a boardroom.”
Though
limited in reach, the memo could erase some barriers to prosecuting
corporate employees and inject new life into these high-profile
investigations. The Justice Department often targets companies
themselves and turns its eyes toward individuals only after negotiating a
corporate settlement. In many cases, that means the offending employees
go unpunished.
The
memo, a copy of which was provided to The New York Times, tells civil
and criminal investigators to focus on individual employees from the
beginning. In settlement negotiations, companies will not be able to
obtain credit for cooperating with the government unless they identify
employees and turn over evidence against them, “regardless of their
position, status or seniority.” Credit for cooperation can save
companies billions of dollars in fines and mean the difference between a
civil settlement and a criminal charge.
“We
mean it when we say, ‘You have got to cough up the individuals,’ ” Ms.
Yates said, a day before she was to address the policy in a speech at
New York University School of Law.
But
in many ways, the new rules are an exercise in public messaging,
substantive in some respects but symbolic in others. Because the memo
lays out guidelines, not laws, its effect will be determined largely by
how Justice Department officials interpret it. And several of the points
in the memo merely codify policy that is already in place.
“It’s
a good memo, but it states what should have been the policy for years,”
said Brandon L. Garrett, a University of Virginia law professor and the
author of the book “Too Big to Jail: How Prosecutors Compromise With
Corporations.” “And without more resources, how are prosecutors going to
know whether companies are still burying information about their
employees?”
It
is also unknown whether the rules will encourage companies to turn in
their executives, but Ms. Yates said the Justice Department would not
allow companies to foist the blame onto low-level officials.
Document: New Justice Dept. Guidelines
“We’re
not going to be accepting a company’s cooperation when they just offer
up the vice president in charge of going to jail,” she said.
Under
Attorney General Eric H. Holder Jr., the Justice Department faced
repeated criticism from Congress and consumer advocates that it treated
corporate executives leniently. After the 2008 financial crisis, no top
Wall Street executives went to prison, highlighting a disparity in how
prosecutors treat corporate leaders and typical criminals. Although
prosecutors did collect billions of dollars in fines from big banks like
JPMorgan Chase and Citigroup, critics dismissed those cases as hollow
victories.
Justice
Department officials have defended their record fighting corporate
crime, saying that it can be nearly impossible to charge top executives
who insulate themselves from direct involvement in wrongdoing. Ms.
Yates’s memo acknowledges “substantial challenges unique to pursuing
individuals for corporate misdeeds,” but it says that the difficulty in
targeting high-level officials is precisely why the Justice Department
needs a stronger plan for investigating them.
The
new rules take effect immediately, but they are not likely to apply to
investigations that are far along, such as one into General Motors over
defects. Prosecutors in New York are struggling to charge company
employees over problems linked to the deaths of more than 100 people,
partly because the laws governing car companies require that prosecutors
show that the employees intended to break the law, a higher standard
than in other industries like pharmaceuticals and food.
Ms.
Yates, a career prosecutor, has established herself in the first months
of her tenure as the department’s most vocal advocate for tackling
white-collar crime. She foreshadowed plans for the new policy in a
February speech to state attorneys general, in which she declared that
“even imposing unprecedented financial penalties on the institutions
whose conduct led to the financial crisis is not a substitute for
holding individuals within those institutions personally accountable.”
A
criminal case last year against BNP Paribas, France’s biggest bank,
demonstrated the gap between charging a bank and its employees. Even as
officials extracted a record $8.9 billion penalty and made the company
one of the first giant banks to plead guilty to a crime, no BNP
employees faced charges. The Justice Department said the bank insulated
its employees by withholding records until after a deadline had passed
to file individual charges.
While
the idea of white-collar investigations may conjure images of raids of
corporate offices by federal agents, the reality is much different. When
suspected of wrongdoing, large companies typically hire lawyers to
conduct internal investigations and turn their findings over to the
Justice Department. Those conclusions form the basis for settlement
discussions, and they are likely to take on greater significance now
that companies will be expected to name names.
Whatever
its practical implications, the memo is likely to resonate on the
presidential campaign trail. In a speech this summer, Hillary Rodham
Clinton seized on the sentiment that too many executives were escaping
accountability, declaring that, if she were elected, her administration
would “prosecute individuals as well as firms when they commit fraud.”
For
the Justice Department, corporate prosecutions have a long history of
political implications and judicial second-guessing. Ms. Yates’s memo is
the latest in a series of guidelines drafted and tweaked over the
years, often in the period leading to presidential elections. The effort
started in 1999 with Mr. Holder, the deputy attorney general at the
time.
But
two cases that followed chipped away at the guidelines and had a
chilling effect on corporate prosecutions: the Supreme Court’s reversal
of a conviction against the accounting firm Arthur Andersen in the Enron
scandal, and a federal court’s rejection of a case against KPMG
employees linked to tax shelters. Prosecutors began to shift from
indictments and guilty pleas to deferred-prosecution agreements —
essentially a form of corporate probation.
The
memo from Ms. Yates, which took shape in recent months through a
Justice Department working group that started during Mr. Holder’s
tenure, tries to place a new emphasis on individual prosecutions without
running afoul of those court rulings.
Still,
even if the Justice Department’s effort succeeds, it will not
automatically put more executives behind bars. Mr. Garrett, the
University of Virginia law professor, analyzed the cases in which
corporate employees had been charged.
More than half, he said, were spared jail time.
A version of this article appears in print on September 10, 2015, on page A1 of the New York edition with the headline: Justice Dept. Sets Its Sights on Executives
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