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Individual Accountability for Corporate Wrongdoing

09/15/2015

The Department of Justice ("DOJ") recently circulated a seven-page memo titled “Individual Accountability for Corporate Wrongdoing” (available at http://www.justice.gov/dag/file/769036/download). The memo emphasizes individual accountability as a key part of the DOJ’s corporate enforcement strategy.

The memo and the accompanying DOJ announcement have received some attention in the press, and have led to some discussion of possible D&O implications. As summarized below, the changes described in the memo don’t appear to directly impact how coverage is structured, but companies purchasing D&O insurance should be aware of potential practical implications.

Overview of the New Policy

The DOJ’s new policy contains six “key steps to strengthen [the DOJ’s] pursuit of individual corporate wrongdoing”:

  1. corporations cannot qualify for any cooperation credit unless they give the DOJ “all relevant facts relating to the individuals responsible for the misconduct”;
  2. investigations of corporations “should focus on individuals from the inception of the investigation”;
  3. criminal and civil DOJ attorneys should work together in any corporate investigations;
  4. as a general rule, the DOJ “will not release culpable individuals from civil or criminal liability when resolving a matter with a corporation”;
  5. the DOJ will not settle a corporate investigation “without a clear plan to resolve related individual cases”; and
  6. the DOJ will not focus on an individual’s ability to pay in evaluating whether to bring suit.

The DOJ’s memo explains these steps in detail.

Potential Implications of the New Policy

Although the DOJ’s new commitment to hold individuals accountable as part of its corporate-enforcement strategy should not change the coverage available under D&O and Side A policies, it could have practical implications.

For example, the costs of defending DOJ matters might increase if those matters take longer to settle because target companies don’t want to hand over individual employees (and all evidence against each individual), or because target individuals can’t settle without agreeing to jail time. Similarly, the lack of attractive settlement options might make targets more willing to fight the DOJ to a final adjudication.

Also, companies might feel more pressure to distance themselves from individuals involved in the activities under investigation—or even to sacrifice the individuals for the good of the company. Individuals will therefore want to review their companies’ bylaws to confirm that they guarantee indemnification to the full extent permitted by law. Side A coverage might become more of a focus, too, if the new guidelines nudge companies toward the potentially wrongful withholding of advancement or indemnification.

As always, please feel free to contact us with any questions.

Michael B. Wakefield serves as Vice President, Financial Services Division, where he oversees complex claims while supporting D&O, E&O, cyber and fiduciary sales efforts. Michael joined McGriff’s Financial Services Division in June of 2015 from King & Spalding LLP, and is a graduate of the University of Mississippi and the University of Texas School of Law. Michael can be reached at (404) 836-4900 and MWakefield@McGriff.com