Executive indictments suggest new era of individual accountability

December 7, 2015

One former and two current Japanese automotive executives were recently indicted by a federal grand jury in the United States for their alleged roles in a conspiracy to rig bids and fix prices for the sale of automotive body-sealing products. Keiji Kyomoto, Mikio Katsumaru and Yuji Kuroda were charged with conspiring for years with their competitors to fix the prices of body-sealing products sold to Honda Motor Company, Toyota Motor Corporation and subsidiaries and affiliates in the United States and elsewhere. If convicted, each of the defendants faces a maximum penalty of ten years’ imprisonment as well as a US$1 million criminal fine.

The indictments were particularly interesting in light of the recent so-called ‘Yates Memo’ on individual accountability for corporate misconduct.

On 9 September, the United States Department of Justice (DOJ) announced a new policy regarding individual accountability for corporate misconduct. In a leaked memo authored by Deputy Attorney General Sally Yates, the DOJ said it will seek to prosecute individuals for wrongdoing at corporations and that companies will have to divulge all relevant information on such individuals in order to receive cooperation credit.

In her speech, Yates said, ‘Effective immediately, we have revised our policy guidance to require that if a company wants any credit for cooperation, any credit at all, it must identify all individuals involved in the wrongdoing, regardless of their position, status or seniority in the company and provide all relevant facts about their misconduct.’

She added, ‘It’s all or nothing. No more picking and choosing what gets disclosed. No more partial credit for cooperation that doesn’t include information about individuals.’

This shift in policy by the DOJ has been a long time coming and is considered a necessary step for a host of reasons. For example, in addition to wanting to encourage public confidence in the United States justice system, the DOJ wants to incentivise companies to work with it to secure individual prosecutions.

The preoccupation with the prosecution of individuals has been building momentum ever since the 2008 global financial crisis, following which not a single prominent corporate executive has been held to account.

Judge Jed S Rakoff, of the Southern District of New York, has been one of the fiercest critics of this state of affairs. In a 2013 essay entitled The Financial Crisis: Why Have No High-Level Executives Been Prosecuted?, Rakoff wrote, ‘the failure to prosecute those responsible must be judged one of the more egregious failures of the criminal justice system in many years’.

This has been particularly galling in the wake of the recent escalation in DOJ and Securities and Exchange Commission (SEC) corporate settlements, in terms of both number and monetary value.

The DOJ’s shift in policy is designed to address its main defence against such an appalling recent record on individual accountability: that it is incredibly difficult to successfully prosecute prominent corporate executives when you have to prove individual intent.

So while the change in policy is not a surprise, the extent to which the DOJ has shifted the onus of highlighting executive misconduct on to companies certainly is.

No longer will companies be able to gain full cooperation credit simply by firing those that commit misconduct. Those that desire such an outcome will now have to identify and testify against rogue employees, irrespective of rank.

Policy shift consequences, intended and otherwise

While organisations could previously discipline corporate wrongdoers privately and away from scrutiny, the Yates Memo should ensure that companies seeking cooperation credit will now hand over all relevant information relating to incidents of individual misconduct. This, in theory, should help prosecutors hold individuals accountable for their behaviour – a consequence intended by the DOJ.

However, the need for prosecutors to submit all relevant information relating to incidents of individual misconduct could also have unforeseen repercussions. One of these relates to the requirement for prosecutors to provide a written explanation to their supervisors on each occasion they decide not to prosecute an individual.

Speaking at the International Bar Association’s recent annual conference in Vienna, Washington DC-based Miller Chevalier Partner James Tillen said, ‘[It] may have a perverse result of making a prosecutor more likely to indict … It’s actually easier to indict an individual than write that declination memo because when you indict you may get lucky; that guy may not want to fight and plead [guilty]. But should that person have been prosecuted in the first place?’

Another unintended consequence of the Yates Memo is the impact it may have on the outcome of certain cases. This is because it will inevitably dissuade some employees from playing ball, raise the cost of cooperation for companies, and impose tougher timetables in which to complete internal probes.

The new focus on individual accountability is also likely to impact the DOJ’s ability to obtain sizeable monetary settlements from companies in cases where the veracity of the evidence may be questionable.

Finally, in the event that the SEC chooses not to follow the DOJ’s example in defining ‘adequate cooperation’, United States regulators could find themselves in situations where companies under investigation that are considering reporting effectively ‘forum shop’.


While the indictments of the Japanese automotive executives caught the headlines by coming so soon after the announcement of the Yates Memo, all eyes are on the Volkswagen emissions scandal and the extent to which the principle of individual accountability will be applied.

While the German car manufacturer lost its CEO in the immediate aftermath of the scandal, commentators are questioning whether other individuals will face charges and be brought to justice. Given that the case, in which there was an alleged scheme to cheat United States exhaust-emissions tests, wasn’t the work of a single engineer or even a group of engineers, it seems tailor-made for a Yates-like approach to individual accountability.

While only time will tell, in the meantime companies are advised to redouble their efforts when it comes to training staff on and enforcing polices designed to prevent misconduct. And when misconduct is suspected, companies need to conduct comprehensive and independent internal investigations, as it seems highly unlikely that the DOJ will grant cooperation credit if it suspects that the focus of a probe was immediately on individuals.

What to do when negotiating a settlement

The DOJ’s stated desire to prosecute more individuals in conjunction with the corporations they represent is primarily a public policy response to the need to be seen to provide justice. Although the number of individual prosecutions in 2014 was no greater than in other years, it seems likely that this will change moving forward.

When negotiating a settlement with the greatest certainty and least impact, it is important that corporations are able to show that:

  • the pre-existing compliance programme made a reasonable attempt to manage risks
  • improvements were made to the programme during the investigation and negotiation process
  • a high level of cooperation was provided
  • the unique facts of the case (such as the length of time that the conduct went on for, the value of the gain, and whether internal processes were being followed or subverted) indicate that it is an isolated incident rather than a systemic failure.

In addition, showing that the compliance department is functioning properly will help avoid the imposition of compliance monitors.


Collaborating agencies provide aggression and vigour

Keiji Kyomoto, Mikio Katsumaru and Yuji Kuroda allegedly participated in their misconduct from September 2003 to at least October 2011, according to the indictment. They purportedly instructed their employees to coordinate with co-conspirators at other companies in order to allocate sales of, rig bids for, and fix prices of automotive body-sealing products.

The FBI and the criminal enforcement sections of the DOJ’s Antitrust Division are conducting an ongoing federal antitrust investigation into price fixing, bid rigging and other anti-competitive conduct in the automotive parts industry. To date, a total of 58 individuals and 37 companies have been charged and have agreed to pay more than US$2.6 billion in criminal fines.

Brent Snyder, Deputy Assistant Attorney General of the DOJ’s Antitrust Division, said, ‘[The indictment of Kyomoto, Katsumaru and Kuroda] is another reminder that antitrust violations are not just corporate offences but also crimes by individuals. The antitrust division will continue to vigorously prosecute executives who orchestrate their companies’ efforts to break the law.’

Howard S Marshall, special agent in charge of the FBI’s Louisville Division, added, ‘The FBI is committed to aggressively investigating individuals who engage in criminal conduct that corrupts the global marketplace.’

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