An important issue for companies and their executives that are the subject of an investigation by the federal government is whether, and how early, to cooperate.
On September 27, 2016, Principal Deputy Associate Attorney General Bill Baer delivered remarks at the Society of Corporate Compliance and Ethics Conference, where he laid out in some detail his views on the value of early cooperation with the federal government in financial cases, and the consequences for waiting. As the number 3 attorney in the Department of Justice who is charged with overseeing civil litigation, antitrust, and other large divisions, Baer’s words are significant, and are a further gloss on the so-called “Yates Memo”, which Deputy Attorney General Sally Yates released last September, detailing DOJ’s guidance on individual accountability for corporate wrongdoing.
Speaking specifically about cases against banks and the fallout from protracted litigation involving residential mortgage-backed securities, Baer said those cases could have been resolved more quickly if only the financial institutions “had decided early to cooperate.” Consequently, “each [institution] paid a lot more than it would have if it had cooperated early on.” Recalling that many of these same institutions had nonetheless sought “significant cooperation credit,” Baer stated that DOJ “dismissed the arguments quickly because they so lacked merit.”
So how early is early enough, and how can your company get credit for cooperating? Baer elaborated on recent “internal” guidance he has provided to his attorneys in civil enforcement matters.
First, Baer says you’ve got to name names. Specifically, you need to follow DOJ’s Individual Accountability policy. If you want credit, you have to disclose everything relating to the specific individuals involved in the wrongdoing, “no matter where those individuals fall in the corporate hierarchy.” Baer warned that you “will not get credit [for] cooperation unless this threshold requirement has been met.”
Second, cooperation should be “proactive.” According to Baer, this means providing documents and access to witnesses and “information that the government did not know about or did not recognize would be significant, and therefore did not subpoena”—“even when not specifically asked to do so.” Baer noted that summaries of evidence and data compilations are helpful in this regard—think slide decks and presentations that counsel for a company might present to the SEC to ward off charges. Bottom line: Baer says don’t wait to be asked.
Third, “value understandably depends on timeliness.” Companies will get “little or no cooperation credit . . . in situations where the supposed cooperation occurs after the department has completed the bulk of its investigation.” Baer also declared that a company “should come in as early as possible, even if it has not completed an internal investigation.” Baer further explained that a company won’t “be disqualified from receiving cooperation credit simply because it doesn’t have all the facts lined up on the first day,” and that DOJ “expect[s] that cooperating companies will simply continue to turn over the information to [DOJ] lawyers as they receive it.” While the benefits of cooperation might be significant, turning over information to government lawyers before a company and its lawyers have the full picture also presents a tremendous risk. In considering how early and how much to cooperate at an early stage, companies and their counsel will need to consider whether there’s more value in getting their arms around the situation inside the company than in going to the government with in incomplete picture in hopes of catching a break.
Finally, Baer spoke about “other actions” which lead to a “more positive result.” For example, did the company take steps to assist victims? While “distinct from cooperation,” actions like helping victims “can be important additional factors in the department’s determination of an appropriate outcome.” Ultimately, Baer said, “[w]e know meaningful cooperation when we see it.” While “we know it when we see it” comments such as these are commonly made and generally speaking, not very helpful as a guideline for companies, Baer’s other comments are more specific and provide additional guidance for companies under investigation that are weighing the value of cooperation.