The Yates Memo

16 August 2016

The Yates Memo and D&O insurance

Globally there is an increased focus on individuals being held responsible for what was historically seen as corporate wrongdoing. This bulletin examines the Yates Memo and the trend generally, and the possible impact on director and officer (D&O) insurance.

In September 2015, Deputy US Attorney General Sally Quillian Yates issued a memorandum to all attorneys at the US Department of Justice (DOJ) entitled “individual accountability for corporate wrongdoing”, known as the Yates Memo. The Memo encourages federal prosecutors to hold individuals personally liable for what may have been historically viewed as corporate misconduct. 

The Memo starts with the assumption that “one of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing”. It has no doubt come following criticism that individuals were able to hide behind the corporate veil following the global financial crisis. 

The crux of the Yates Memo is that in the course of an investigation by providing the DOJ with all the relevant facts about individuals involved in the misconduct, the company can earn cooperation credit. Exactly what would satisfy the test of all the relevant facts is not clear. It is anticipated that by cooperating with the DOJ the company could resolve the matter with the DOJ from a company perspective and leave the individuals to be pursued. 

Criticism of the Yates Memo

There has been public criticism of the memo. In May 2016, the US Chamber of Commerce’s Institute for Legal Reform published a report criticising the Memo’s “all or nothing approach” to cooperation credit and for seeking to “leverage a corporate entity’s knowledge and access to information to bring cases against their own employees.”

The report warned that employees may find their own interests to be at odds with their company’s interests, which could result in employees seeking separate legal representation, increasing the cost, complexity and length of investigations. Further concerns raised are the operation of data protection legislation restricting the transfer of employees’ data and uncertainty in relation to legal privilege, and how it will interact with self-reporting regimes. All issues for thought.

Wider global trend of individual accountability

The Yates Memo however is only one part of the developing global trend of individuals being held accountable for corporate wrongdoing. In the UK this year, we have seen the introduction of both the Senior Managers Regime (SMR) in the financial sector, and the Senior Insurance Managers Regime (SIMR) in the insurance sector. The FCA has made no secret of the fact that individuals need to be held accountable and these regimes are tools by which they will do this. We have previously released notes on each of these regimes.

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For further information, please contact Carey Lynn, Financial Lines Group Partner on +44 20 7558 3521 or email carey_lynn@jltgroup.com

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