How Far Will the DOJ Go? Individual Accountability in Corporate Criminal Cases

If you use Whatsapp or similar platforms for work-related communications, then you’ve probably heard that regulators are putting an end to that practice. Ephemeral and encrypted messaging, they have noted, evades monitoring and prevents retention. And if companies can’t turn over incriminating communications to law enforcement, then prosecutions against individuals will suffer—an unacceptable outcome to prosecutors bent on making cases against individuals for white-collar offenses.

This isn’t true only of felony prosecutions: A seldom-used doctrine allows prosecutors to charge executives with misdemeanor offenses just for being in the position of power when others commit the misconduct. Rather than take a wait-and-see approach, companies and their leaders would do well to prepare for prosecutors to reach deep into their toolbox.

All Your Communications Belong to Us       

Few people doubt that the Department of Justice (DOJ) is serious about going after white-collar employees. Kenneth Polite, the chief of the Criminal Division of the DOJ, for example, ominously has observed that “the deterrence we get from a potential conviction of an individual, particularly a senior executive—there’s nothing like it.” And there has been nothing like it.

Any prosecutor who has built successful cases against white-collar professionals knows that the best evidence lies in communications—emails, text messages, and chats that people often (mistakenly) think will remain private.

Knowledge and intent are almost always the most difficult elements to establish beyond a reasonable doubt, especially when fraud is alleged. Sure, victims lost money, but did the defendant really mean to defraud them? This is when prosecutors like to wave around conversations that defendants had around the time of the crime.

It’s not surprising, then, that regulators and enforcers have begun to crack down on businesses that allow the use of encrypted messenger platforms, especially as the pandemic has caused more employees to use their personal devices for business. By requiring companies to bring their business communications back on the monitored grid, the government guarantees ready access to critical evidence against individuals.

Given the power dynamic between a business and the DOJ and Securities and Exchange Commission (SEC)—in addition to the reductions in fines and penalties that can be gained from cooperating—a legitimate company under investigation almost always feels incentivized to cooperate. In our experience, one of the government’s first requests is for relevant communications from employees.

Why should this concern white-collar professionals? In September 2022, the Deputy Attorney General, Lisa Monaco, reminded prosecutors that individual accountability remains the DOJ’s “first priority.” And there is time pressure imposed on prosecutors: They must bring these charges before, or at the time of, resolving the investigation with the company. If a prosecutor wants to resolve her corporate case without charging individuals, she will have to explain herself to either of two officials she will likely not want to bother: a United States Attorney or Assistant Attorney General.

This memorandum came a year after an earlier one that expanded the requirement imposed on companies to disclose all the information relevant to all the individuals involved in misconduct, not just those whom a company believes have been substantially involved.   Companies should expect the DOJ to require prioritization of evidence that will enable it to make cases against individuals, and that includes “communications associated with relevant individuals during the period of misconduct.” If they delay the disclosure of “all relevant, non-privileged facts about individual misconduct,” they risk losing credit for cooperation.

To ensure they are well positioned to comply with these burdens and take advantage of the incentives for cooperating, companies should require their employees to have all business-related communications on platforms that would allow the company to monitor those communications.

As another DOJ official emphasized in December 2022, where a company continues to permit communications on ephemeral messaging platforms, strong retention policies are critical. If the DOJ becomes interested in certain transactions, it will require the disclosure of related messages and emails, likely casting a wide net. At that point, the company will be obliged to quickly comply if it hopes to receive any cooperation credit.

A Crime Without a Criminal Mind

Executives and corporate officers may come away from these developments believing that if they don’t engage in fraud and they keep their business communication on company-sanctioned platforms, then nothing has changed for them. But the DOJ’s unprecedented appetite for individual prosecutions can capture even those who do not participate in or know about the crime. A little-known doctrine, the “Responsible Corporate Officer Doctrine” (RCOD), was approved by the Supreme Court almost a century ago. Though used sparingly, it has enabled prosecutors to charge executives and in-house attorneys with misdemeanor offenses simply because they bear a “responsible share” in the violations by virtue of their position.

The RCOD asks whether:

1. The executive had influence over corporate policies or activities,
2. There is a connection between the executive’s position and the violation, and
3. The executive’s action or inaction facilitated or allowed the violation.

The doctrine allows prosecutors to bypass their most difficult element—knowledge and intent—and charge executives with misdemeanor offenses based on something akin to strict liability. Although the application of this harsh doctrine is limited to offenses that endanger public welfare, this “limit” has been stretched to cover a wide array of misconduct: environmental crime, healthcare fraud, consumer fraud, securities fraud, and antitrust violations.

In the seminal decision most often associated with the doctrine, United States v. Park, the Supreme Court concluded that a jury was properly instructed that liability is appropriate simply because the executive’s position was one of authority and responsibility, even if he had not participated in the misconduct, and his conviction was affirmed. Individuals “who execute the corporate mission,” the Supreme Court explained, are fair game—and that’s not just the president of the company; this liability does not have to be “confined to a single corporate agent or employee.”

Despite the court’s increasing recent check on prosecutorial overreach, the doctrine has survived. In 1994, the Supreme Court observed that the penalties on executives convicted of public-welfare offenses (months of imprisonment) are “relatively small,” and doing away with the intent requirement (as the RCOD does) is therefore constitutionally tolerable. More recently, the Supreme Court declined to revisit the doctrine when, in 2017, it denied a petition for a writ of certiorari from a jailed company owner and his COO. They were in a position of authority over a business that shipped adulterated eggs, although, as the government conceded, they did not know about any misconduct.

Looking Ahead

Will the DOJ’s appetite for more individual convictions mean it will reach to the RCOD?

Thus far, the DOJ has not threatened the use of the RCOD, but it may be the next logical development in its emphasis on individual accountability. In the meantime, as companies fork over their employees’ communications, expect to see more prosecutions, more convictions, and more prison sentences against individuals who might have previously gotten a pass.

How to Avoid Becoming the Next Headline

Business leaders would do well to remind employees that their communications could one day be reviewed by prosecutors eager to indict them and the company. One way to get employees to think of the consequences is to have them ask themselves whether they want whatever they are about to email or message to be splashed on the front page of the New York Times.

Executives, for their part, should remember that willful blindness and lax compliance are never a defense and sometimes can even lead to their own criminal exposure. “See something, say something” may not be enough if you are in a position of power; you must also do something.

Andrey Spektor and Laura S. Perlov are partners in Bryan Cave Leighton Paisner’s litigation group, focusing on white-collar defense. Andrey is an award-winning former federal prosecutor, and Laura has, for over a decade, successfully defended individuals and companies in state and federal investigations.

From: Corporate Counsel