The Manhattan District Attorney Issues Written Guidelines Prosecutors Must Consult Before Charging Business Entities and Other Organizations SUMMARY On May 27, 2010, the New York County District Attorney s Office ( DANY ) issued written guidelines for determining whether to bring criminal charges against business organizations. The District Attorney s guidelines identify a number of factors prosecutors must consider before deciding to charge or not to charge an organization for violating New York State criminal laws. Most of the factors to be considered closely follow the principles used by the U.S. Department of Justice for prosecuting business organizations. There are, however, important distinctions between the two sets of principles. As summarized below, the DANY corporate charging guidelines incorporate additional factors to be considered, including (i) whether a corporation complied with the District Attorney s request to waive attorney-client privilege and work product protections; (ii) the potential impact of a charging decision on the public s confidence in the fairness of prosecutors decisions; (iii) the views of victims of misconduct; and (iv) the feasibility of prosecuting responsible individuals. Because the DANY Guidelines establish a uniform framework for criminal charges against organizations, and incorporate considerations not found in the analogous federal guidelines, companies doing business in New York County should familiarize themselves with these new provisions and consider whether to modify their business practices or compliance programs in light of the new guidelines. New York Washington, D.C. Los Angeles Palo Alto London Paris Frankfurt Tokyo Hong Kong Beijing Melbourne Sydney www.sullcrom.com
DISCUSSION Scope of the DANY Guidelines The DANY Guidelines reaffirm long-standing principles of New York State penal law that hold corporations criminally liable in certain circumstances for the conduct of their employees. The Guidelines apply where there is reasonable cause to believe that an organization could be criminally liable and subject to prosecution. 1 They indicate that companies should, however, consider the factors [described in the Guidelines] as early as practicable, rather than waiting for the reasonable cause determination to be made by the prosecutor, which according to the Guidelines, is often made in the later stages of an investigation, at a time when it will usually be too late for a company to address the Guidelines factors in any meaningful way. Where there is reasonable cause to support criminal prosecution of an organization, the prosecutor must consider whether prosecution is warranted under the factors outlined in the Guidelines, and the prosecutor s decision either to charge or not to charge an organization must receive the approval of his or her supervisor. 2 Moreover, the personal approval of the District Attorney or the Chief Assistant District Attorney is necessary with respect to charging decisions relating to: (i) financial institutions, including banks, insurance companies, hedge funds, and private equity funds; (ii) publicly traded corporations; (iii) [p]ersonal service organizations, including law firms and accounting firms; (iv) labor unions; (v) political parties; and (vi) state or local governments. 3 Federal Principles Relating to Prosecuting Business Organizations The Guidelines reference the U.S. Department of Justice s memorandum concerning the Principles of Federal Prosecution of Business Organizations, and note that this memorandum has been informally consulted by DANY prosecutors for some time. And, as summarized below, the Guidelines in effect incorporate nearly all the factors identified in the DOJ s corporate charging principles, along with several important additional considerations. DANY Considerations in Deciding to Charge Organizations The Guidelines recognize that charging an organization criminally may bring... substantial collateral consequences that could have a serious detrimental impact on innocent employees and shareholders. It 1 2 3 The Guidelines were outlined in a memorandum, dated May 27, 2010, from the Chief Assistant District Attorney to all Assistant District Attorneys. Under the Guidelines, supervisory approval is not required where an organization is considered the alter ego of an individual, such as a professional corporation or small family-owned business. Charging decisions relating to organizations not included within one of these categories need only be approved by the relevant Bureau and Division Chiefs. -2-
therefore requires prosecutors to weigh the considerations outlined below before bringing such charges. 4 The Guidelines indicate that these considerations were drawn from the expectations of New York law, the unique experiences of this Office, and the efforts of DOJ. The Guidelines identify the following factors: a) The organization's timely and voluntary disclosure of wrongdoing and the extent of cooperation by the organization in the investigation. b) The seriousness and circumstances of the offense, including the extent of the harm caused or intended by the offense, both privately and to the public. c) The pervasiveness of wrongdoing within the organization, including the complicity in, or the condoning of, the wrongdoing by management. d) The history of misconduct by or within the organization, including prior criminal, civil, and regulatory enforcement actions against it or its principals. e) The impact of prosecuting or not prosecuting on the public s confidence in the fairness and evenhandedness of the criminal justice system. f) The organization s previous efforts to address corruptive influences by means of compliance programs and the organization s remedial actions to address the present misconduct through (i) the implementation or improvements in its compliance programs; (ii) the discipline, termination, and replacement of wrongdoers; (iii) the payment of restitution; and (iv) cooperation with relevant regulatory agencies. g) The impact, harm, and collateral consequences of prosecuting the organization to innocent persons who are or were part of the organization, such as shareholders, pension holders, employees, and others not personally culpable, as well as the impact on the public arising from prosecuting the organization. h) The attitude and views of the victims of the misconduct. i) The adequacy and feasibility of the prosecution of individuals responsible for the organization s malfeasance. j) The sufficiency of remedies such as civil or regulatory enforcement actions in addressing the organizational malfeasance. 4 The Guidelines state that charging decisions may be based on any one factor, or a number of factors taken in combination. -3-
The notable additional considerations included in the DANY Guidelines but not found in the DOJ s corporate charging principles include the following: Waiver of Privilege Following a period of judicial and public criticism, the current version of the DOJ s corporate charging principles expressly prohibit prosecutors from requesting waivers of privilege or work product protections by organizations under investigation. By contrast, in assessing the extent of an organization s cooperation under the Guidelines, DANY prosecutors are authorized to request a waiver of attorneyclient privilege or work product protection from an organization as a condition of cooperation. Pursuant to the Guidelines, however, such requests may be made only if they (1) are based on certain undefined compelling circumstances, and (2) receive the written approval of the District Attorney or Chief Assistant District Attorney. 5 Prior Misconduct When making a charging decision, the DOJ s corporate charging principles consider whether an organization has previously engaged in misconduct similar to the misconduct under review. The DANY Guidelines, however, look more broadly at the entire prior history of the organization, including prior misconduct of any type. Impact on Public s Confidence in Prosecutors The Guidelines require DANY prosecutors to consider whether the decision to charge or not charge an organization will impact... the public s confidence in the evenhanded application of prosecutorial discretion. The Guidelines note that this consideration has no direct analogue in the DOJ s corporate charging principles, but is a product of the importance in New York that the criminal justice system be perceived as fair. Attitude and Views of Victims The Guidelines require consideration of the views of any victims of the organization s criminal conduct. This consideration is not included in the DOJ s corporate charging principles. The Guidelines note that victims views may be helpful in reaching a charging decision, and that New York state law already recognizes that a victim s viewpoint may have significance at the sentencing phase of a case. 5 The Guidelines identify two circumstances where DANY prosecutors may request privileged information even absent compelling circumstances or supervisory approval: (i) where the organization asserts that it relied on the advice of counsel in taking the actions under investigation, thus placing privileged communications with its attorney at issue; or (ii) where the organization s counsel discloses part of the results of an internal investigation, thereby waiving any privileges applicable to the disclosed information. -4-
Adequacy and Feasibility of Prosecuting Responsible Individuals Both the DOJ and the Guidelines require consideration of whether prosecuting responsible individuals alone would be adequate to address the misconduct at issue. The DANY Guidelines, however, also require consideration of whether such individual prosecution is feasible and observe that, under certain circumstances, the prosecution of individuals alone might be adequate to address the organizational malfeasance, but may not be feasible for evidentiary, legal, physical, practical, or other reasons. In such circumstances, the Guidelines require a prosecutor to consider whether the misconduct should go unpunished if the organization itself is the sole feasible defendant. Potential Impact of the DANY Guidelines The Guidelines have established a formal written policy that DANY prosecutors must consult when considering criminal charges against a business organization. The Guidelines are, at least in part, a welcome development in that they are likely to increase the consistency and uniformity of charging decisions relating to business organizations. The Guidelines incorporation of most of the DOJ s corporate charging principles will also ease the burdens facing organizations subject to joint DOJ and DANY investigations. At the same time, the additional considerations identified in the Guidelines but not found in the DOJ s corporate charging principles reflect that DANY will take a broader view as to the considerations involved in a case against a business organization. As noted above, the Guidelines now require DANY prosecutors to take into account several factors not previously incorporated in a formal written policy for prosecuting business organizations in New York County, including an organization s prior misconduct, whether similar or not to the misconduct at issue; the impact prosecutors charging decisions will have on the public s confidence in the evenhandedness of prosecutors; the views of victims; and the feasibility of prosecuting individuals responsible for the misconduct at issue. Such considerations will in many cases be subjective. Most notably, the Guidelines now formalize DANY prosecutors policy with respect to asking for access to privileged information held by business organizations, at least where compelling circumstances justify such a request. The significance of this feature of the Guidelines should not be underestimated. Prior to 2008, the DOJ s corporate charging principles permitted prosecutors to request privilege waivers based on a legitimate need for the privileged information, a practice that was among the most heavily criticized aspects of the DOJ s principles. Following objections by the criminal defense bar and certain courts and legislators, the DOJ reversed its position and now precludes prosecutors from seeking such waivers. As with the DOJ s corporate charging principles prior to 2008, the DANY s Guidelines offer only a vague restriction the existence of compelling circumstances on prosecutorial requests for information protected by the attorney-client or work product privileges. It remains to be seen whether the formal -5-
incorporation of this practice into the DANY Guidelines will increase or decrease the frequency of such requests in investigations of business organizations. It also remains to be seen what impact this may have on any investigations jointly conducted by DANY and federal prosecutors. * * * Copyright Sullivan & Cromwell LLP 2010-6-
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