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Strategies for Managing Government Investigations OFII General Counsel Conference - October 23, 2008 By:Mark D. Hopson Bruce Baird Danielle J. CarterCovington.

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Presentation on theme: "Strategies for Managing Government Investigations OFII General Counsel Conference - October 23, 2008 By:Mark D. Hopson Bruce Baird Danielle J. CarterCovington."— Presentation transcript:

1 Strategies for Managing Government Investigations OFII General Counsel Conference - October 23, 2008 By:Mark D. Hopson Bruce Baird Danielle J. CarterCovington & Burling LLP Sidley Austin LLP1201 Pennsylvania Avenue NW 1501 K Street NWWashington, DC Washington, DC / /

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 corporation’s history of similar misconduct, including prior criminal, civil, and regulatory enforcement actions against it” “The corporation’s 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 corporation’s pre- existing compliance program” “The corporation’s 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 corporation’s 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 –Don’t forget voic , 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. § 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 defendant’s 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 client’s 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 prosecutor’s preliminary assessment of witness’s 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 ) 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. Attorney’s Office Accompanied by witness’s counsel and not by company counsel Any documents or information used to “refresh” witnesses during preparation may affect testimony Best opportunity to put forth company’s 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 ) –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 )

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 Prosecutor’s 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 one’s 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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