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Justice has execs looking over their shoulders

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in Employment Law,Human Resources

Attorney General Loretta Lynch appears to be placing her imprint on Justice Department prosecution strategy—by making it a matter of policy to go after not just companies that break the law, but the individual executives and CEOs who tolerate or encourage misdeeds.

Recently, she directed Department of Justice (DOJ) white-collar prosecutors to first investigate individuals suspected of crimes. Litigation against their companies will come later.

The move appears to be a re-sponse to criticism that the Obama administration has obtained record fines from companies involved in the 2008 economic crisis, but hasn’t charged, let alone prosecuted, any company executives. In some cases, companies have withheld materials implicating individuals until it was too late to prosecute them.

As Deputy Attorney General Sally Yates commented, “Corporations can only commit crimes through flesh-and-blood people.”

Under the Lynch plan, investigations will target individual activities and offer companies incentives to provide evidence against individuals.

Similar approaches have been tried before. In 1999, the DOJ announced a similar initiative, but it collapsed after significant failures during the Bush administration. After courts reversed a conviction against accounting firm Arthur Andersen in connection with the Enron scandal and threw out charges that KPMG employees engineered illegal tax shelters, prosecutors took the safer route of pressuring companies to pay fines.

The DOJ’s new individuals-first prosecutorial strategy could create real HR headaches.

Companies that find themselves the target of a Justice Department investigation should consult their attorneys to understand their obligations to their employees and government investigators. Executive contracts could contain confidentiality agreements that may or may not leave the company open to liability should they disclose certain information to investigators. On the other hand, employers may tread dangerously close to the line should they refuse to provide information to a government inquiry.

Each situation is different. Both companies and individuals should consult with their attorneys before responding to any inquiries from government investigators.

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