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Strategies for Managing Government Investigations OFII General Counsel Conference - October 23, 2008

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Title: Strategies for Managing Government Investigations OFII General Counsel Conference - October 23, 2008


1
Strategies for Managing Government
Investigations OFII General Counsel Conference -
October 23, 2008
  • By Mark D. Hopson Bruce Baird
  • Danielle J. Carter Covington Burling LLP
  • Sidley Austin LLP 1201 Pennsylvania Avenue NW
  • 1501 K Street NW Washington, DC 20005
  • Washington, DC 20005 bbaird_at_cov.com /
    202-662-5122
  • mhopson_at_sidley.com / 202-736-8188

2
GOVERNMENT INVESTIGATIONS
  • The Triggering Event
  • Common investigation triggers
  • - Internal complaints (whistleblowers)
  • - Corporate financial developments
  • - Government civil enforcement actions
  • - Qui tam claims
  • - Consumer complaints
  • - Complaints from competitors
  • - Media reports

3
THE PROSECUTION DECISION
  • DOJ Criteria Governing Charging Decision
  • The nature and seriousness of the offense,
    including the risk of harm to the public, and
    applicable policies and priorities, if any,
    governing the prosecution of corporations for
    particular categories of crime
  • The pervasiveness of wrongdoing within the
    corporation, including the complicity in, or
    condoning of, the wrongdoing by corporate
    management
  • The corporations history of similar misconduct,
    including prior criminal, civil, and regulatory
    enforcement actions against it
  • The corporations timely and voluntary
    disclosure of wrongdoing and its willingness to
    cooperate in the investigation of its agents

4
THE PROSECUTION DECISION
  • DOJ Criteria Governing Charging Decision
  • The existence and effectiveness of the
    corporations pre-existing compliance program
  • The corporations remedial actions, including
    any efforts to implement an effective corporate
    compliance program or to improve an existing one,
    to replace responsible management, to discipline
    or terminate wrongdoers, to pay restitution, and
    to cooperate with the relevant government
    agencies
  • Collateral consequences, including whether there
    is disproportionate harm to shareholders, pension
    holders, employees, and others not proven
    personally culpable, as well as impact on the
    public arising from the prosecution
  • The adequacy of the prosecution of individuals
    responsible for the corporations malfeasance
  • The adequacy of remedies such as civil or
    regulatory enforcement actions

5
CONFRONTING A GOVERNMENT INVESTIGATION
  • Conduct internal investigation and make a
    preliminary determination regarding corporate
    response
  • Anticipate prosecutorial interest in particular
    issues and facts
  • Manage the information flow
  • Engage investigators and prosecutors at an early
    stage
  • Be aware of indicia of criminal investigation and
    respond accordingly

6
INVESTIGATIVE TECHNIQUES USED BY PROSECUTION
  • Review of reports supplied to regulators
    voluntarily, including periodic reporting and
    response to information requests
  • Interviews particularly home interviews of
    company employees, former employees and
    contractors
  • Grand jury subpoenas for documents and testimony
  • Search warrants to seize records and physical
    evidence
  • Surveillance by government investigators
  • Administrative discovery

7
THE INTERNAL INVESTIGATION
  • Try to Articulate the Purpose
  • of the Investigation At the Outset
  • What is the company trying to accomplish?
  • Report to general counsel or management?
  • Report to the Board of Directors? Parent
    Company?
  • Impact on disclosure obligations?
  • Is the purpose to cooperate with the government?
  • Is the purpose to develop information to make an
    informed decision to develop a defense?
  • Purpose/nature of investigation will inform
    timing, scope, techniques and how the
    investigation is recorded and reported

8
THE INTERNAL INVESTIGATION
  • Company counsel often have an opportunity to
    anticipate an investigation due to contacts with
    employees, contractors, or regulatory agencies
  • Ascertain which transactions (i.e., specific
    filings, communications or conversations) are
    likely to be at the center of the investigation
    and learn as much about them as possible

9
THE INTERNAL INVESTIGATION
  • Objectives of formal internal investigation
  • Focus on relevant facts and documents
  • Identify key issues and vulnerabilities
  • Identify corporate risk (criminal, civil,
    reputational)
  • Identify individuals at risk
  • Be prepared to engage at the earliest stages of
    investigation
  • Protect confidentiality of fact-gathering,
    evaluation, and advice

10
THE INTERNAL INVESTIGATION
  • Identity and Role of Investigator
  • In-house counsel
  • Regular outside counsel
  • Outside counsel and consultants
  • Compliance personnel
  • Internal audit or quality control personnel
  • Using outside counsel to conduct investigation
  • Minimize direct government access
  • Minimize privilege problems
  • Avoid injecting employees and officers into
    investigation (obstruction)

11
THE INTERNAL INVESTIGATION
  • Document (if appropriate) that confidential
    investigation and advice is being sought
  • Issue document hold instructions and
    instructions to employees on contacts with
    government investigators
  • Implement protocol for interviewing employees
  • Employees should understand the following
  • Interview with company counsel is confidential
    but company reserves right to disclose to
    government
  • Employee may choose to talk or not to talk with
    government
  • Obligation to tell truth

12
THE INTERNAL INVESTIGATION
  • Implement procedure to search for and collect
    pertinent documentation
  • Anticipate scope and cut off for subpoena
  • Issue do not destroy memorandum
  • Documents should be collected under legal team
    oversight by specially designated individual
    (custodian) not implicated in investigation who
    will document due diligence of search and index,
    copy, and manage flow to legal team
  • Keep records of search procedure, records
    provided to government, and records withheld for
    privilege
  • Lawyers will need to make privilege reviews -
    protection against inadvertent waiver of
    privilege
  • Dont forget voicemail, instant messaging, and
    other non-official electronic media
  • Deleted/edited documents may be retrieved by IT
    experts (need to determine if required or
    appropriate)

13
THE INTERNAL INVESTIGATION
  • Negotiate or otherwise resolve issues involving
    multi-jurisdictional document collection up front
  • Jurisdictional Issues
  • Employee privacy rights (e.g., EU)
  • Protective Orders
  • Negotiated Confidentiality Order

14
THE INTERNAL INVESTIGATION
  • Interviewing Witnesses
  • Schedule interviews -- often conducted from the
    bottom up
  • Interviews must be thorough, but focused on key
    issues and areas of potential criminal liability
  • Early contacts with prosecutor can help ascertain
    status of individuals (witnesses, subjects, or
    targets)
  • Determine whether prosecutor will agree to
    interview in lieu of grand jury appearance

15
THE INTERNAL INVESTIGATION
  • Interviewing Witnesses
  • Issue employees who refuse interviews or refuse
    counsel
  • Issue employees who are potential targets or
    subjects and who might be immunized
  • Issue internal investigation counsel as a
    prosecution witness (Computer Associates)
  • Priority try to secure the best information in
    some admissible format

16
THE INTERNAL INVESTIGATION
  • Reports and Results
  • Result of the Investigation
  • Formal written report
  • Oral report (to counsel, management, audit
    committee of board, special committee)
  • Decide on format for memorializing witness
    interview notes
  • Consider possible uses of the results of the
    internal investigation
  • Internal uses
  • External uses
  • Waiver consequences

17
PRIVILEGE ISSUES
  • Changing Landscape on Privilege Waiver
  • Federal prosecutors will no longer consider
    waiver in evaluating cooperation
  • Still need to consider privilege waiver to the
    extent necessary or appropriate to document
    conduct (formal and informal advice of counsel or
    where legal advice is intertwined with
    transactions or conduct at issue that
    investigation is not privileged)
  • Risks involved
  • Subject matter waiver
  • Implications for civil litigation and other
    collateral problems

18
LEGAL AND LOGISTICAL ISSUES
  • Separate counsel for employees determine whether
    fees indemnity required/allowed for current,
    former employees and contractors
  • DOJ will not consider fee advancement in charging
    decision (U.S. v. Stein)
  • Consider pool counsel
  • Joint defense relationships formal or informal,
    written or oral informal
  • Enhance scrutiny of all filings to state and
    federal agencies and ensure accuracy of all
    disclosures
  • Consider correcting previous disclosures
  • If disclosures of violations must be made,
    presumptively they should be made through counsel
    to avoid admissions
  • Problem Multi-jurisdictional securities
    disclosure obligations
  • Exercise caution in personnel decisions,
    especially disciplining or terminating employees

19
IMMUNITY
  • Companies counsel must recognize early that
    your witnesses may end up with immunity
  • Limited opportunity to memorialize statement or
    testimony
  • Independent advice and decision-making process
    for individual witnesses and their counsel
  • Federal system provides use immunity rather than
    transactional immunity
  • Procedures for obtaining immunity
  • Use immunity pursuant to 18 U.S.C.  6002-03
  • Extends to both federal and state prosecutions
  • Fifth, Eighth, and Tenth Circuits have held that
    courts have no authority to confer judicial use
    immunity, even for a defense witness
  • Second, Third and Fourth Circuits have concluded
    courts can force government to grant immunity
    when defendants case would be severely
    prejudiced without it

20
IMMUNITY
  • Procedures for obtaining immunity
  • Letter or informal immunity obtained from
    prosecutor in lieu of court order
  • Testimony may not be used in any fashion,
    directly or indirectly, against the immunized
    witness (Kastigar)
  • Disadvantages to witness
  • Possible question whether an individual
    prosecutor has authority to confer informal
    immunity
  • Possibility that may not be binding on federal
    prosecutors outside the jurisdiction or on state
    prosecutors
  • Advantages to witness
  • Easier to provide willingness to proceed
    without court order may be viewed as
    cooperative
  • Opportunity to negotiate other restrictions on
    use of clients testimony

21
IMMUNITY
  • Practical Considerations
  • Prosecutors usually want a proffer of expected
    testimony before agreeing to confer immunity
  • Will consider culpability of the witness,
    credibility, likelihood of successfully
    prosecuting witness and value of the information
  • Should have prosecutors preliminary assessment
    of witnesss culpability before the proffer
  • Proffer letter (queen for a day immunity) no
    direct use but reserves right to make derivative
    use or to use in cross examination
  • Have to get it right the first time

22
WHEN SUBPOENA ARRIVES
  • Subpoena for Records
  • Determine scope, burden, identify resources
    needed
  • Confer with prosecutor
  • Try to narrow scope of overbroad requests and
    negotiate reasonable schedule for response
    (rolling production)
  • Arrange for delivery of records in lieu of
    appearance of document custodian
  • May arrange for production of copies with
    promised retention of originals
  • General rule witness or recipient of subpoena
    duces tecum bears costs of compliance

23
WHEN SUBPOENA ARRIVES
  • Subpoena for Documents Outside U.S.
  • Federal prosecutors must obtain written approval
    through OIA before issuing subpoenas to persons
    or entities in the U.S. for records located
    abroad (U.S. Attys. Man. 9-13.525)
  • OIA considers the following when determining
    whether such a subpoena should be authorized
  • The availability of alternative methods for
    obtaining records in a timely manner, such as use
    of mutual assistance treaties, tax treaties, or
    letters rogatory
  • The indispensability of the records to the
    success of the investigation or prosecution
  • The need to protect against the destruction of
    records located abroad and to protect the ability
    of the U.S. to prosecute for contempt or
    obstruction of justice for such destruction

24
WHEN SUBPOENA ARRIVES
  • Subpoena for Documents Outside U.S.
  • Jurisdictional issues arise when subpoena seeks
    documents in foreign country
  • Grand jury subpoena directed to a domestic entity
    requesting documents from a foreign entity may
    demand production of relevant documents in the
    possession, custody, or control of a witness
    regardless of location
  • Prerequisite jurisdiction over U.S. entity
  • Jurisdiction depends on the extent of control the
    American corporation has over documents in the
    offices of a foreign corporation
  • Case law is sparse with regard to whether a
    recipient of a subpoena in a criminal case can
    assert lack of control argument with respect to
    documents sought

25
WHEN SUBPOENA ARRIVES
  • Subpoena for Documents Outside U.S.
  • Potential basis for objection U.S. entity does
    not have custody or control over documents sought
  • Relevant factors in assessing custody or
    control
  • Degree of ownership or control exercised by
    foreign corporation over U.S. subsidiary
  • Showing that two entities operated as one
  • Demonstrated access to documents in ordinary
    course
  • Agency relationship
  • Whether companies have identical boards of
    directors
  • Whether business operations are intertwined

26
WHEN SUBPOENA ARRIVES
  • Rule 17(c)(2) - Motion to quash or modify the
    subpoena (for records)
  • On motion made promptly, the court may quash or
    modify the subpoena if compliance would be
    unreasonable or oppressive
  • Three criteria for reasonableness
  • Documents must be relevant
  • Specification must be made with reasonable
    particularity
  • Request may only cover a reasonable period of
    time
  • Remedy for overbroad subpoena order directing
    partial compliance

27
WITNESS INTERVIEWS BY GOVERNMENT
  • Conducted by prosecutor and agents
  • Usually at local U.S. Attorneys Office
  • Accompanied by witnesss counsel and not by
    company counsel
  • Any documents or information used to refresh
    witnesses during preparation may affect testimony
  • Best opportunity to put forth companys factual
    defenses or mitigation
  • Counsel will emphasize that witnesses must tell
    the truth
  • Consider who should be involved in witness
    preparation. Relationship with counsel for
    individuals is crucial.
  • Need to debrief

28
WITNESS INTERVIEWS BY GOVERNMENT
  • Interviews of Overseas Witnesses
  • Potential complications
  • Foreign Sovereignty Efforts by an American
    investigator or prosecutor may be regarded as a
    violation of sovereignty (U.S. Attys. Man.
    9-13.510)
  • Even if witness agrees to the interview, foreign
    law may prevent FBI or other U.S. investigators
    from conducting the interview in the foreign
    nation
  • Witness may not want to come to the U.S. because
    of fear of arrest or inconvenience
  • Solution Conduct interview in neutral
    territory
  • U.K.
  • U.S. embassy or consulate (U.S. Attys. Man.
    9-13.520)

29
FIFTH AMENDMENT
  • Fifth Amendment Right Against Self-Incrimination
  • Fifth Amendment protects only against compelled,
    self-incriminating testimony
  • Contents of business records not covered because
    produced without compulsion
  • Business vs. personal records
  • Fifth Amendment applies only to persons (and
    sometimes to sole proprietors)
  • Corporations and partnerships have no Fifth
    Amendment rights
  • Custodian of corporate records cannot invoke
    Fifth Amendment to avoid producing records kept
    in representative capacity, even if records may
    incriminate personally
  • Potential Problem adverse inferences drawn from
    employee asserting the Fifth Amendment

30
MONITORING THE GRAND JURY
  • Defense counsel cannot be present inside federal
    grand jury
  • Prepare witnesses carefully before appearance
  • Interview witnesses after they appear
  • Questions asked (and records shown to witness)
    are as important as answers given
  • Prosecutors instruction to grand jury witness
    not to talk to defense counsel is improper

31
MULTIPLE REPRESENTATION AND CONFLICTS OF INTEREST
  • Advise all employees they may contact corporate
    counsel if the government requests an interview
    or serves a subpoena
  • Consider arranging for pool counsel if multiple
    officers, employees, or former employees are
    likely to be contacted or subpoenaed
  • Information gathered during investigation will
    determine advisability of grouping individuals in
    different pools for representation
  • Requires an assessment of the ultimate status of
    recipient of subpoena and potential conflicts
    among company, witnesses, and other parties (e.g.
    contractors)

32
MULTIPLE REPRESENTATION AND CONFLICTS OF INTEREST
  • Prosecutor does not have veto power, but has the
    right to move to disqualify pool counsel, arguing
    that multiple representation interferes with
    truth-seeking function of grand jury and ethical
    responsibilities of counsel
  • Fed. R. Crim. P. 44(c) requires court to
    determine whether there are irreconcilable
    conflicts
  • May defend disqualification motions by invoking
    Due Process Clause, First Amendment freedom of
    association, Sixth Amendment right to effective
    assistance of counsel together these establish
    constitutional right to retain ones own counsel.
    Separate counsel probably mandatory for
    immunized witnesses and important for targets.

33
MULTIPLE REPRESENTATION AND CONFLICTS OF INTEREST
  • Joint Defense Agreements sometimes desirable
    where several attorneys represent different
    employees or groups of employees
  • More easily defended from attack if memorialized
    in writing (particularly in certain
    jurisdictions)
  • But, written joint defense agreements likely to
    be discoverable upon inquiry
  • Privileged information provided by one party to
    joint defense privileged as to all (unless
    express exclusion)
  • Subsequent waiver by one party does not waive
    privilege of other parties (unless express
    exclusion)
  • Must include express waiver of conflicts by
    parties to agreement
  • Need to check local law on application to
    non-U.S. counsel
  • Works best when composed of team of experienced
    lawyers who work well together

34
MULTIPLE REPRESENTATION AND CONFLICTS OF INTEREST
  • Government may exclude corporate counsel from
    interviews of corporate employees
  • Prosecutors believe presence of corporate counsel
    inhibits candor of employees
  • Government cannot compel interview without
    corporate counsel if employee expresses wish for
    corporate counsel to be present
  • Government not required to notify corporate
    counsel before conducting interview
  • Remember that privilege belongs to corporation
    and not to any individual employee or officer

35
DEFENSIVE STRATEGIES
  • Overarching Objectives
  • Convince prosecutor that civil remedies are more
    appropriate than criminal remedies
  • Convince prosecutor that
  • Violation was isolated incident
  • Not committed in bad faith
  • Not committed at direction of higher management
  • Constitutes garden variety regulatory problem
  • Company has remediated expeditiously
  • Containing number and types of violations charged
    and minimizing collateral impacts

36
DEFENSIVE STRATEGIES
  • Pitfalls to Avoid
  • You know less than you think
  • Early information can be incomplete or misleading
  • Allow for changes in strategy
  • Anticipate multi-jurisdictional obstacles
  • Avoid setting yourself in concrete on factual
    record early in the investigation
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