white collar world is abuzz about DOJ’s new policy requiring companies to identify the individuals involved in wrongdoing to get cooperation credit.
Joint defense agreements between companies and their executives allow the targets of a criminal investigation to work together to uncover what happened, and, perhaps, to formulate a joint defense to any charges. Does this new policy mean the end of joint defense agreements as we know them?
The Old Policy and the New Policy
First things first, here’s the policy.
The key section reads:
In order for a company to receive any consideration for cooperation under the Principles of Federal Prosecution of Business Organizations, the company must completely disclose to the Department all relevant facts about individual misconduct. Companies cannot pick and choose what facts to disclose. That is, to be eligible for any credit for cooperation, the company must identify all individuals involved in or responsible for the misconduct at issue, regardless of their position, status or seniority, and provide to the Department all facts relating to that misconduct.
DOJ’s existing policy, titled Principles of Federal Prosecution of Business Organizations, already included some language about identifying executives who had done something wrong, but not in the absolute terms of the new policy. Here’s what the Principles say:
In determining whether to charge a corporation and how to resolve corporate criminal cases, the corporation’s timely and voluntary disclosure of wrongdoing and its cooperation with the government’s investigation may be relevant factors. In gauging the extent of the corporation’s cooperation, the prosecutor may consider, among other things, whether the corporation made a voluntary and timely disclosure, and the corporation’s willingness to provide relevant information and evidence and identify relevant actors within and outside the corporation, including senior executives.
In the old days, DOJ would consider the “willingness” of the company to “identify relevant actors” when it determined whether to charge a corporation with a crime and how to resolve criminal charges. If a company showed this willingness, it could get a deal.
Now, DOJ says it won’t even consider offering credit for cooperation unless the company discloses “all relevant facts about individual misconduct.” No longer can a company get credit for cooperating with an investigation if it simply told DOJ, “here are a few senior folks who may have done something wrong; have at ‘em.”
Now, a company must tell DOJ everything it knows about those executives (or employees). Presumably, if DOJ finds out during its own investigation that the company was not wholly forthcoming about those facts, then DOJ can treat the company as though it did not cooperate at all.
How Does a Joint Defense Agreement Work?
A joint defense agreement (sometimes called a common interest agreement) is the backbone of most criminal investigations on the defense side, particularly from the individual executive’s perspective.
In a typical criminal investigation, the company has its lawyers and then each executive has her own counsel as well. But, to let everyone work together to figure out what happened and to defend against any possible criminal charges, counsel for the company and executives will enter into a JDA. This lets everyone talk while maintaining the privilege over those conversations. It can be written, but it is more often oral.
The key provision of a JDA, however, is that as soon as there is a conflict between one of the members and the rest of the group, then that member has to withdraw from the agreement.
Here’s a hypothetical example: I represent Jack Smythe, vice president of procurement in a case involving allegations that Alpha Company bribed federal government officials for contracts. The government is also investigating the CEO and the COO for their roles in the supposed bribes. Let’s also suppose that the company did pay the bribes thanks to a lax compliance culture.
Alpha, Smythe, the CEO and the COO enter into a JDA at the beginning of the investigation. Counsel for all of these parties are able to talk freely about what our clients have said happened (though we are not required to share anything that our client doesn’t want us to share). We may also talk about strategy for dealing with the government and possible defenses to the charges of bribery.
The government would dearly love to find out about those conversations but it can’t, since JDAs make those conversations privileged.
If the government tells me that it is offering Smythe complete immunity in return for his testimony against the CEO, COO and Alpha, I’m probably advising my client to take that offer and run.
But when DOJ makes that offer and my client’s likely to accept it, then I can’t be part of the JDA anymore. My client now has an interest different than everyone else. He’s going to spill the beans and everyone else plans to deny the bribes.
As a practical matter, I inform the other members of the joint defense group that my client is no longer part of the JDA. I don’t have to give a reason but other smart defense counsel will know exactly what happened. (It’s a sinking feeling if you watch everyone else slip out of a joint defense group, and your guy is the only one left.)
How Does the New Policy Affect JDAs?
If the company reaches the conclusion early in the case that it wants to cooperate with the government, then I don’t see how a JDA can exist at all. The company must disclose every fact about every individual who may have done something wrong. That sets up an automatic conflict between a cooperating company and everyone else. The policy says “[c]ompanies cannot pick and choose what facts to disclose.” That means it cannot selectively point out that the COO was in charge of approving these payments without also disclosing that the CEO approved the plan.
Now, my prediction is not that JDAs will completely go by the wayside. They are much too valuable to a company that is trying to get its hands around what happened, and much too valuable to an executive who needs to understand what others are saying about her role in the supposed wrongdoing.
But I do think there are four possible implications here. Counsel for companies and individuals must be alert to them.
First, a company that decides early to cooperate ties its own hands. Companies love to announce that they are “cooperating fully” with the government. Crisis management advisors often tell companies to “get ahead” of a bad story and let stakeholders know about the problem and how it is being fixed. That kind of public announcement, however, means that the company cannot, in good faith, enter into a JDA with anyone who did something wrong. This means that the company could lose its easy access to ask an executive what he meant by a troubling email or find out who else knew about the bribes.
Second, defense counsel for individual executives have to be mindful that this new policy changes the dynamic with company counsel. There’s really no way to enforce a JDA; no one sues for damages because another party to a JDA didn’t withdraw quickly enough from the agreement. We have to be alert for company counsel’s evolving views on cooperating with the government. If we start getting signals that the company plans to cooperate, then we need to withdraw from the JDA immediately to make sure that our client’s rights are protected as much as possible.
Third, the policy may encourage JDAs among individual executives that exclude companies. There’s no obligation in the new policy that individual targets must share everything they know to get cooperation credit, only companies. This situation presents its own challenges to counsel for individuals, because the company has access to the documents and to other employees who may know relevant facts. Plus, I can imagine that a company may be less willing to provide voluntary indemnification to executives who are not part of a JDA.
Fourth, DOJ may leverage this policy to discourage JDAs—either expressly or impliedly. I can’t tell you how many times I’ve heard from former (or current) prosecutors how frustrating they find JDAs. They seem offended that the company and its executives would dare to try to defend against their investigation at all. Prosecutors don’t like the fact that anything a prosecutor tells one member of the JDA will likely be shared with everyone else in the group. To DOJ, a JDA is simply more evidence of the conspiracy. In short, JDAs make DOJ’s life harder, and DOJ doesn’t like that.
Does DOJ Need to Change Current Policy Regarding JDAs?
It is worth noting that the current USAM states explicitly that JDAs cannot be considered obstruction of justice or make a company “ineligible to receive cooperation credit.” However, even the current policy makes clear that DOJ doesn’t particularly like JDAs and would prefer that companies maintain the appropriate “flexibility” to implicate executives:
Similarly, the mere participation by a corporation in a joint defense agreement does not render the corporation ineligible to receive cooperation credit, and prosecutors may not request that a corporation refrain from entering into such agreements. Of course, the corporation may wish to avoid putting itself in the position of being disabled, by virtue of a particular joint defense or similar agreement, from providing some relevant facts to the government and thereby limiting its ability to seek such cooperation credit. Such might be the case if the corporation gathers facts from employees who have entered into a joint defense agreement with the corporation, and who may later seek to prevent the corporation from disclosing the facts it has acquired. Corporations may wish to address this situation by crafting or participating in joint defense agreements, to the extent they choose to enter them, that provide such flexibility as they deem appropriate.
I hope DOJ will leave this policy in place, both formally and in practice.
I depend on JDAs to help me defend my individual clients in the best way possible. I learn helpful information from company counsel to craft a defense to possible charges. I get access to my client’s emails to search for exculpatory documents. If DOJ uses this policy to discourage companies to enter into JDAs, then it will weaken my ability to defend clients, and it will weaken company counsel’s ability to defend theirs.
I suppose it’s not surprising that that DOJ would do that. But it sure is disheartening.