Diamond DogsWe interrupt this week’s Travel Edition blog posts to honor David Bowie, who died yesterday. To say his album Diamond Dogs was a revelation is simply because it is the only word which comes close. During my final semester in high school this album reached me. I had missed glam and the Space Oddity and Ziggy Stardust phases but when I heard:

Rebel Rebel, Your face is a mess;

Rebel Rebel, you’ve torn your dress;

Rebel Rebel, how could they know;

Hot tramp I love you so.

It really did not matter to me then about the ambiguities of the song or the types of lifestyles it portended or even glorified. It rocked. Indeed the whole album rocked. So here’s to Class of 1975 Diamond Dogs; Scott Carr, Phillip Green, Roy Bragg and a much younger Compliance Evangelist. I hope you are all playing Bowie tonight at level 11, rocking out and remembering those days.

The convergence of a glam English rocker on four boys from Bryan Texas informs just how unusual such things can be. Yet, last September was the convergence of events, which may well change the face of compliance going forward. They were the Yates Memo, the Volkswagen (VW) emission-testing scandal and the Schrems decision by the European Court of Justice. They continue to play out in ways seen and unforeseen today.

The criticism of the lack of prosecution of individuals during the last financial crisis and thereafter led the Department of Justice (DOJ) to issue the Yates Memo to indicate its goal to bring individuals who work for companies that have violated laws to justice. There was significant criticism around the General Motors (GM) ignition-testing scandal settlement because no individuals were prosecuted. Coming so quickly after the release of the Yates Memo, the VW scandal left many wondering how the DOJ would consider the actions of individual VW employees. Yet, while the Yates Memo reaffirmed the DOJ’s goal to prosecute individuals when appropriate, it also made clear that it expected companies to cooperate in this endeavor by turning over culpable individuals as early as possible to the DOJ.

But that requirement requires that a company wants some cooperation credit. What if, in the face of admission of illegal conduct, such as the VW admissions that it did install the defeat device to deceive regulators on its diesel emissions so that it would appear they met applicable regulations, a company would rather protect culpable individuals, who made the decision to install the defeat device or knew about the decisions the many years it was incorporated into VW autos? Further, what if, to protect individuals, the company claims that domestic laws, such as those in Germany, prevent the company from sharing documents and information with US regulators.

This appears to be the situation shaping up as the Wall Street Journal (WSJ) reported on the actions by VW in the lawsuits by various states attorney generals against the company. In an article entitled “In Investigating Volkswagen, States Run Into a Privacy Wall” Danny Hakim and Jack Ewing reported, “Volkswagen has refused to provide emails or other communications among its executives.” This was after “claims by the Justice Department, in its own inquiry this week, that the company had “impeded and obstructed” regulators and provided “misleading information” to the DOJ. Both organizations investigating the company said VW’s “actions limit their ability to identify which employees know about or sanctioned the deceptions.””

VW of course claims that to do so would violate German domestic law. The WSJ cited the country’s strict data privacy laws, “like its Federal Data Protection Act, which limits access to data, particularly outside the European Union” as one of the basis for VW’s refusal to turn over documents. The WSJ cited Phillip Urofsky, a partner at Shearman & Sterling LLP, for the proposition that companies under US government investigation may misuse such laws. He said, “They frankly tie U.S. investigators hands, or even law firms doing internal investigations in ways that, in my personal opinion, were not anticipated or expected.”

In addition to outright refusal to cooperate with regulators, the Financial Times (FT) reported in an article, entitled “US criticises VW over ‘spotty’ progress with emissions probe”, the company “had been slow to produce documents from its US files, had sought to delay responses until it completed its own investigation.” Claiming your domestic laws prevent you from cooperating in another country’s investigation is one thing but when you refuse to produce documents from your US subsidiary for an investigation in the US it is quite another.

VW does still not seem to understand that its culture is responsible for how the company responds to the scandal and how it will be viewed and treated going forward. It was the ‘sales at all cost’ culture that got it into trouble in the first place and now it seems to be a culture of non-cooperation with regulators. Andrew Hill, writing in the FT On Management column, put it with typical English understatement when he posed the following question, “how many psychologists does it take to change a lightbulb?” His answer: “It only takes one psychologist but the bulb has to want to change.” Hill concluded his piece with the following “it is hard to say whether VW will succeed in making the shift. The group needs to change. It says it will. What remains unclear is whether it really wants to.”

If you compare the conduct and language of VW senior executives of those from Wal-Mart or even GM you will see no greater contrast. These words and actions may also speak to whether VW will or even wants to change its corporate culture.

Now recall the Yates Memo. Sally Yates said, in her speech announcing the Memo which bears her name, “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. 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 statement ties directly into the first point of the Yates Memo, which has the title “To be eligible for any cooperation credit, corporations must provide to the Department all relevant facts about the individuals involved in corporate misconduct.” [Emphasis in original]

If VW continues to lay behind the log and not produce the information required under the Yates Memo, the company runs the risk of no reduction or credit in any settlement negotiations. There need be no worry about the effectiveness of any compliance program for a company that does not meet this initial threshold and does not get to the next issue. This point was made clear in a recent episode of the Masters of Disaster podcast, hosted by Leona Lewis, where she interviewed Peter Anderson, a principal at the law firm of Beveridge & Diamond PC. Anderson referred to this requirement that a company must identify all individuals involved in corporate wrongdoing and provide the relevant facts about their conduct. If a company does not get through this gate, it cannot move any further along the lines of penalty reduction.

So here’s to the Diamond Dogs and rocking out to Rebel Rebel. I do not know if VW will continue its current path of non-cooperation with US regulators but it certainly bears watching.

For a YouTube Video of David Bowie singing Rebel Rebel, click here.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2016