By Monica C. MeinertIt’s a place no one ever wants to be: sitting in the hot seat across from senior management and legal counsel when something goes wrong. But for bankers—particularly compliance and BSA officers—the looming possibility of personal liability is something that comes with the job.
Personal liability has been a hot topic recently in the wake of the high-profile “Yates memorandum” issued in late 2015. The memo was a directive issued by Deputy Attorney General Sally Quillian Yates to prosecutors and civil litigators to hold individuals accountable in cases of corporate wrongdoing.
That in and of itself is not a novel concept, explains Jonathan Lopez, partner for white collar and corporate investigations at Orrick Herrington & Sutcliffe LLP and a speaker at the ABA/ABA Money Laundering Enforcement Conference last fall. “Everyone was always looking for individuals,” he says. What the Yates memo changed, however, was the extent to which an organization can earn cooperation credit with the Department of Justice for the information it provides during an investigation.
Previously, organizations could receive partial credit even if they did not turn over all privileged information in their possession, but “the Yates memorandum basically tells institutions that you can’t get cooperation credit unless you provide all the appropriate information about a given scenario that the DOJ is looking at,” Lopez says. “It means that companies now are drilling down very deep and asking who did what.”
When a compliance foul-up comes to light, a corporation may take steps to disentangle itself from the employee or employees in question and try to pin wrongdoing on an individual.
“Corporate liability is based on concepts of agency—the employer is the principal under agency law, the employee is the agent. The acts of the agent in furtherance of the employer’s mandate or purpose constitutes the principal being liable for the individuals,” explains Wilmer Parker, a partner with Maloy Jenkins Parker.
“One of the defenses that begins for a corporation when it finds itself in a difficult circumstance is to see if it [can] establish that the individuals involved were acting outside the scope of their employment.”
Parker notes that with criminal prosecutions, the burden of proof is different than in civil proceedings. “‘Beyond a reasonable doubt’ is the criminal burden of proof. At the heart of it is that the law requires criminal intent. By and large, all financial crimes require specific intent.” In the context of BSA or money laundering transactions, Parker says that specific intent “is to do that which the law forbids, or to fail to do specifically that which the law requires. And it requires a level of knowledge.” That knowledge can be either direct (things the employee sees, hears or does) or indirect (based on willful blindness).
While cases of individual criminal prosecution for compliance violations are few and far between, it’s important to keep a few things in mind in the event the company’s legal counsel comes to call. First and foremost, bankers should make sure they have a clear understanding of just whom the attorney is there to represent, Lopez says.
In these situations, the conversation usually begins with the “Upjohn warning.” Named for the case of Upjohn Company v. United States, this warning serves as notice from the company that anything an individual discloses to corporate counsel is considered privileged information, and that the company has the right to waive that privilege and disclose the information to the government or a third party. It’s something that employees are often quick to gloss over, but Lopez and Parker warn that doing so is a mistake.
“When that attorney for the financial institution shows up and provides you the Upjohn warning, you need to understand that the attorney is trying to see whether he or she can develop facts to separate you from your institution, to separate you as a person who has done something outside the policy area, outside the rules, outside the regulation,” Parker continues.
“Anything you tell the company is a direct pipe to the government,” Lopez adds. Given that, he says that the employee can and should request his or her own legal counsel. “Once you have your own counsel, they are there to represent you,” he says. “They may be paid for by the company, but they are there to represent you.”
James Richards, EVP and BSA officer with Wells Fargo, adds that once the employee obtains individual counsel, the next step is to understand the terms and conditions of the attorney-client relationship.
“When you do get your own counsel, they will hand you a retainer letter. Read it, and don’t sign it unless you’re comfortable with it,” he advises, adding that “you can change the language.” For example, the letter will often include language stating that the counsel represents the employee in the investigation. Richards recommends adding in a proviso to include “any civil or criminal matters that result from the investigation.”
At the end of the day, Lopez says it’s ultimately difficult for investigators to pursue individual criminal prosecutions under the BSA. “The BSA is largely an organizational statute,” he explains. “When you’re talking about a systemic problem, an intent to purposefully evade the BSA, individual liability gets pretty hard. And it’s harder the bigger the organization is.”
Still, as Richards notes, “BSA officers … are at the intersection of any bad thing that could possibly happen” within the bank. Knowing that, the best way to avoid being held personally liable according to Parker is to make careful, documented and informed decisions. “As an individual, make yourself as knowledgeable as you can. Make your decision in good faith. Be willing to articulate it and stand by it. That will absolve you from civil and criminal liability.”
While cases of individual criminal prosecution for compliance violations are few and far between, it’s important to keep a few things in mind in the event the company’s legal counsel comes to call.