1. Home
  2. Fraud Prevention
  3. Minimizing Fraud Procedures

Personal accountability and tighter fraud controls in wake of ‘Yates memo’

The 'Yates memo', issued by the US department of justice and signed by deputy attorney general Sally Quillian Yates on 9 September, calls for individual accountability and cooperation from corporates being investigated for corporate fraud. It has been called an 'earthquake' in terms of corruption enforcement and will have a critical impact on companies across the US.

The memo – titled 'Individual Accountability for Corporate Wrongdoing' – goes on to say that fighting corporate fraud and other misconduct is a top priority for the DOJ, in order to deter future illegal activity, promote change in corporate behaviour and ensure that the proper parties are held responsible for their actions.

This is a huge challenge, states the memo, particularly in big corporations, where responsibility can be diffuse and decisions are made at various levels, making it “difficult to determine if someone possessed the knowledge and criminal intent necessary to establish their guilt beyond a reasonable doubt. This is particularly true when determining the culpability of high-level executives, who may be insulated from the day-to-day activity in which the misconduct occurs.”

The memorandum reiterates the DOJ's resolve to “fully leverage its resources to identify culpable individuals at all levels in corporate cases”. The memo puts forward six measures, compiled by a working group of senior US attorneys, that should be observed by investigators into corporate misconduct:

  1. cooperation credit will only be offered to corporations that provide all relevant facts relating to the individuals responsible for the misconduct;
  2. criminal and civil corporate investigations should focus on individuals from the inception;
  3. DOJ criminal and civil attorneys handling corporate investigations should communicate regularly;
  4. culpable individuals should not be protected from civil or criminal liability when resolving a matter with a corporation;
  5. there should be no corporate resolutions without a clear plan to resolve related individual cases; and
  6. civil attorneys should focus on individuals as well as the company and evaluate whether to take legal action against an individual.

A post on the National Law Review website states that: “It is quite common that a corporation accused of an improper act will address a threat of prosecution by agreeing to pay substantial fines, and by offering to undertake expensive remedial actions. This result has been defended on the grounds that the beneficiaries of the wrong-doing are the shareholders of the company that benefited from those improper acts.” However, this is not always the case and investors often gain little benefit. The Yates memo address cases in which individuals who commit wrongdoing within companies often benefit and/or escape personal punishment.

The measures laid out in the Yates memo could in some cases hinder investigations, however. With more focus on accountability – and the prosecution – of individuals, company employees could feel less inclined to speak to investigators and there could be increased mistrust between staff. Individuals will need their own costly legal representation and, as Kathryn Hellings, a partner with Hogan Lovells and former prosecutor in the DOJ’s Antitrust Division, told FEI Daily: “Individuals might be concerned about trusting the company and also trusting colleagues who they might fear are trying to rat them out in order to get some sort of credit for that cooperation.”

Hellings said that there is now more pressure on companies to rigorously ensure their internal controls can effectively reduce the risk of fraud and to act quickly if wrongdoing is suspected.


CTMFile Take: These six measures will see more corporate investigations (whether conducted internally or by the SEC or DOJ) asking who gave authorisation, who knew, who condoned the matter in question. As corporate litigation for fraud so often focuses directly on financial departments, these are questions that corporate treasurers and CFOs must be prepared to answer.

Like this item? Get our Weekly Update newsletter. Subscribe today


This item appears in the following sections:
Fraud Prevention
Minimizing Fraud Procedures
Minimizing Payment Fraud

Comments

No comment yet, why not be the first?

Add a comment

New comment submissions are moderated.