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Federal Crackdown Gives High-Level Execs a New Reason to Worry

Attorney General Loretta E. Lynch’s office has mostly been silent since she took office in April, but a big change has now come down the pipeline. Deputy Attorney General Sally Q. Yates recently released a memo titled “Individual Accountability for Corporate Wrongdoing,” and it could mean that more high-level execs will be doing time if convicted of white-collar crimes. “Corporations can only commit crimes through flesh-and-blood people,” Ms. Yates said in a subsequent interview. “It’s only fair that the people who are responsible for committing those crimes be held accountable.”

​A Crime is a Crime, Whether it Occurs on a Street Corner or in a Boardroom

While this is obviously nothing new, the Attorney General’s office aims to give the public more confidence in the justice system. Considering the low number of execs prosecuted during the housing crisis, the feds believe faith in the government is floundering, and hope to remedy it by placing more white-collar offenders on the chopping block. However, the memo curtly explains that the new crackdown is designed to put an end to corporate wrongdoing.

High-Level Execs are the Target

One of the greatest challenges the DA’s office faces is that it’s often difficult to pinpoint who is truly responsible within a corporation when something goes wrong. Oftentimes, high-level execs are able to let the blame trickle down, because they aren’t always involved in day-to-day operations. The memo also notes that it’s impossible to prosecute individuals sometimes because no evidence of criminal-intent is available. There’s often no way to tell if an individual held specific knowledge prior to making a corporate decision. The feds intend to remedy the situation by persuading companies to give up the information necessary to prosecute.

Companies will be Encouraged to Turn Against Employees

Historically, prosecutors have targeted corporations as a whole, from the start of an investigation. The company will usually then pay a fine or will be penalized in some way, and the individuals responsible will continue without issue. With the policy change, Yates tells companies, “You have got to cough up the individuals.” Investigators have been instructed not to let up until specific people who are involved are named, “regardless of their position, status or seniority.” Corporations can save billions of dollars in penalty fees by cooperating, and working with authorities can mean the difference between a criminal charge or a civil settlement. However, businesses will not get credit for cooperating unless they provide investigators with names and evidence.

The Feds Plan to Throw Everything they have into Investigation and Prosecution

Ms. Yates says officials won’t settle until they find what they’re looking for. “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 explained. It will be an all-hands-on-deck affair, with utilization of every resource and communication at every level. Matt Apuzzo and Ben Protess of the New York Times reassure readers that they should not expect massive company raids by government agents. Because large corporations usually hire third-party companies to perform audits and investigations when something goes wrong, they anticipate these reports will play an integral role in getting companies to hand over info. However, with billions of dollars at stake, it certainly sounds like the investigations could quickly become modern-day witch hunts.

The New Agenda is Already in Effect

Some of what the Assistant District Attorney’s memo covered was already policy, and it only served as a reminder to officials. However, the targeting of individual executives, versus allowing a corporation to accept the blame and pay fines, is going to be quite a change. As Apuzzo and Protess note, it’s unlikely that these changes will affect any investigations that are already underway, such as the one involving General Motors. Any new cases that arise will likely become the center of attention, as officials seek to make an example of anyone perceived to be involved in wrongdoings.

It’s too soon to tell if this will also change corporate culture, as investigators still have to rely on insider information to identify particular individuals. It’s possible that companies will continue to refuse to give up their own, in which case investigations will be fruitless. Even still, there’s likely to be a surge of executives prosecuted for white-collar crimes, as the District Attorney’s office reduces corporate crime and improves public perception in one fell swoop.

About the author: Josh Schmerling, Injury lawyer based out of Baltimore. Active Partner, since 2011 at Zirkin and Schmerling Law.

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