In early September, after years of outcry that it has placated corporate executives engaged in criminal activity, the U.S. Department of Justice (DOJ) announced that it is formally prioritizing the prosecution of individual employees in its effort to pressure corporations to collaborate with the government. The guidelines come in a memo and are Attorney General Loretta Lynch’s apparent acknowledgment that few executives have been punished since 2008.

 

The memo is not binding authority, but instead is instructive to law enforcement and particularly United States Attorneys on how they are to work around barriers to prosecute corporate employees and obtain the cooperation of the employer company. As we have discussed in previous weeks, the focus of the DOJ has typically been to target the corporation for settlement first in an effort to reach a financial settlement rather than pursue imprisonment of individuals engaged in fraud and other crimes. Specifically, investigators are now instructed to target individual employees from the beginning of an investigation rather than after the broader corporate target has been dealt with. 

 

The memo instructs the government investigators that the corporations are not to receive credit for cooperation through tools like deferred prosecution agreements unless they identify employees and turn over evidence against the employees, “regardless of their position, status or seniority.” The trade-off consideration now, in theory at least, is that corporate boards will face a choice: Turn over individual employees and the evidence against them or face potentially billions in fines and other collateral settlement costs. 

 

As with any similar directive from the attorney general, it remains to be seen how particular United States Attorneys’ offices will apply the guidelines to future investigations and prosecutions in their respective jurisdictions. Nevertheless, the underlying message is clear: Individuals and boards are under scrutiny and pressure as never before. Going forward, for the company this means ever-greater vigilance will be necessary for companies suspected of wrongdoing to seek counsel to assist in creating an early internal investigation roadmap. For the individual executive, increased exposure means he or she too should consult counsel early on upon any suspicion of wrongdoing, given what may quickly prove to be fundamentally competing interests in the boardroom: salvation of the corporation versus the executive’s freedom.