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From Securities Regulation Daily, November 17, 2015

DOJ updates Filip factors to emphasize individual accountability

By Anne Sherry, J.D.

The Justice Department announced revisions to the United States Attorney’s Manual to implement its policy of holding individuals accountable for wrongdoing. The updates to the USAM’s Filip factors now require companies to turn over all information about individuals’ conduct to earn any cooperation credit. In remarks at a conference in Washington, D.C., Deputy Attorney General Sally Quillian Yates said the agency’s job is to hold wrongdoers accountable, even at the cost of a reduction in corporate settlements.

Cooperation threshold. The concept that corporate cooperation includes providing all non-privileged information about individuals’ conduct is nothing new, Yates stressed. But the revisions to the Principles of Federal Prosecution of Business Organizations, or the Filip factors, eliminated a sliding scale for cooperation credit. Instead, providing complete information is a threshold hurdle that must be met before the DOJ will consider any cooperation credit at all.Section 9-28.700 of the manual now reads: “If a company seeking cooperation credit declines to learn of such facts or to provide the Department with complete factual information about the individuals involved, its cooperation will not be considered a mitigating factor under this section. Nor, if a company is prosecuted, will the Department support a cooperation-related reduction at sentencing.”

Early disclosure. The new language also makes clear that a company will not be disqualified from receiving cooperation credit if it comes forward with incomplete information. Companies should come forward as soon as possible and continue to turn information over to the prosecutor as they receive it. A corporation’s voluntary disclosure and its willingness to cooperate used to be a single factor, but the USAM revisions split the element into two factors to be given separate consideration in charging decisions. Yates commented that the split recognizes the significant value of early reporting.

Privilege. Cooperation credit hinges on the provision of non-privileged information, and the sections on attorney-client privilege have not changed. Yates cautioned the group, however, to consider what the privilege means. Legal advice is privileged, but facts are not—while a corporation may withhold notes and memos that a law firm created in connection with an employee interview, for example, the underlying facts learned through those interviews must be provided. “We will respect the privilege, but we will also expect companies to respect its boundaries and not to wrongly exploit its legitimate purpose,” Yates said.

Civil cases. The revisions added to the USAM an entirely new Section 4-3.100, dealing with enforcing claims against individuals in corporate matters. The DOJ’s civil attorneys, like its prosecutors, are expected to focus on individuals from the beginning of the investigation. Absent extraordinary circumstances, corporate resolutions should not release claims against individuals. And as in criminal cases, no cooperation credit will be available unless companies have provided all relevant, non-privileged information about the individuals responsible. Finally, in deciding whether to bring a civil action against an individual, attorneys should follow the same principles guiding criminal prosecutors. The decision cannot be based solely on the individual’s ability to pay a judgment. Yates said this new provision “acknowledges that our mission in civil corporate cases is not just to recover money.”

Parallel proceedings. Finally, the USAM’s section on parallel proceedings now lays out specific steps criminal and civil attorneys should take to ensure coordination.

Chilling effect? Yates acknowledged concerns that the new policy may result in less cooperation. Although she doubts that directors with a fiduciary duty to shareholders will risk forgoing cooperation credit by withholding information, Yates said that this concern is an acceptable trade-off for the Justice Department. “Our mission is not to recover the largest amount of money from the greatest number of corporations; our job is to seek accountability from those who break our laws and victimize our citizens.”

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