responding to government investigations: what to … to government investigations: what to do when...

Responding to GovernmentInvestigations:

What to do when the Government Knocks

Gabriel ColwellPartnerSquire Patton Boggs (US) LLP

2squirepattonboggs.com 2squirepattonboggs.com

Today’s Agenda

Corporate Criminal Liability

Enforcement Environment

General Types Of Government Inquiries

Internal Investigations

Upjohn Warnings

Recent Enforcement Trends – “Yates Memo”

• Individual Officers, Employees and AgentsProsecuted for Individual Conduct

• Corporations, under respondeat superior doctrine, maybe held criminally responsible for the illegal acts of :

• (1) Employees or Agents

• (2) committed while acting within the scope ofemployment, and

• (3) the conduct was undertaken, at least in part, for thebenefit of the corporation.

• Test:

• “Whether agent is performing acts of the kind which he isauthorized to perform, and those acts are motivated, atleast in part, by an intent to benefit the corporation.”

• United States v. Automated Med. Lab., Inc., 770 F. 2d 399, 406 (4thCir. 1985) (false documents to a federal agency)

• Policy Factors Considered by DOJ: Nature and Seriousness of the Offense

Pervasiveness of Wrongdoing

History of Similar Misconduct

Voluntary Disclosure and Cooperation

Existence and Effectiveness of Pre-existing Compliance Program

Remedial Actions

Collateral Consequences

Adequacy of Prosecution of Individuals

Adequacy of Civil or Regulatory Remedies

• Principles of Federal Prosecution of Business Organizations

Enforcement Environment- ACFE Statistics on Detection

Enforcement Environment- False Claim Act

Dept. of Justice - Fiscal Year 2015

Recoveries Exceed $3.5 Billion

Fourth consecutive year to exceed $3.5 billion

$26.4 billion - total recoveries 2009 thru FY 2015

(25th anniversary party at DOJ)

Enforcement Environment- False Claim Act (continued)

Dept. of Justice - Fiscal Year 2015

Most false claims actions come from “Qui Tam”

Whistleblower (relator) sues on behalf of government

Whistleblower receives up to 30% of recovery.

$2.8 billion from qui tam (out of $3.5 billion recovered)

$597 million awarded to whistleblowers.

638 qui tam suits filed 2015.

Enforcement Environment- False Claim Act (continued)

Sources of Qui Tams

Health Care Fraud DaVita Healthcare Partners, Inc.

Housing and Mortgage Fraud First Tennessee Bank N.A.

Government Contracts

Lockheed Martin Integrated Systems

Other Fraud Recoveries and Actions Fireman’s Fund Insurance Company

Government claims are allegations only; except whereindicated, there has been no determination of liability.

Enforcement Environment- SEC

Enforcement Environment– SEC (continued)

Source: http://sec-whistleblowers.com/rewards-tracker/

General Types Of GovernmentInquiries

• Informal/Letter Requests

• SubpoenasRecords and/or Testimony

• Search Warrants

Informal/Letter Requests

• Informal Visits/Contact from Law EnforcementCooperation may yield benefits, but should proceed with caution

Attempt to determine subject of inquiry then contact counsel to

interface with law enforcement

• Letter RequestsA serious, but informal way for agency to gather information

Not obligated to respond; but risk the agency will escalate its

demands

Third-party interests: may necessitate a subpoena before

disclosing information

Informal/Letter Requests

Contact counsel

Initiate document hold

Consider interests of 3rd

parties, may need tonotify

Ignore or delay aresponse

Destroy/deletedocuments

“certify” completeness ofresponse

Do’s Don’ts

Interviews

• Voluntary

• Individual can agree to talk, not talk, terminate theinterview at anytime

• Statements are legal admissions; can and will be usedagainst you, organization or both

• Must tell truth; false statements may be a crime

• May also be asked to sign a written statement

• Right to counsel throughout the process

• Do not prohibit employees from speaking withgovernment but do educate them on their rights

Interviews

Know your rights

Consult with counsel

Educate employees ontheir rights

Consult with witnesses

Consider Pool Counsel

Misrepresent or givefalse statements

Forget to ask agent forID, purpose of interview

Waive privilege or breachprivacy rights

Provide documentswithout a subpoena

Forget to debrief withcounsel

Do’s Don'ts

Subpoenas

• Civil/Administrative or Grand Jury

• Records — request for documents; must respond, thoughcounsel may negotiate scope/time Limited Bases to Challenge

No probable cause requirement

No Fifth Amendment Rights

Overly Broad/Unduly Burdensome subpoenas may be tailored and

re-issued

• Grand Jury — signals criminal investigation underwayMay request Documents and/or Testimony

• May be served at home or work

Subpoenas

Contact counsel

Initiate document hold

Assess time, effort torespond

Locate responsivedocuments (including ESI)

Absent conflict, offer/obtaincounsel for witness

Ascertain “status” ofwitness

Ignore or delay a response

Lie, cover-up, misrepresent

Produce privilegeddocuments

Obstruct investigation

Delete/destroy documents

Forget about ESI

Forget interests of 3rd

parties

Do’s Don'ts

Subpoenas - Target/Subject/Witness

• Witness someone who the government believes has helpful information for

the investigation

• Subject gray area between a witness and a target

“a person whose conduct is within the scope of the grand jury’s

investigation.” (US Atty’s Manual)

• TargetA target “is a person as to whom the prosecutor or the grand jury

has substantial evidence linking him or her to the commission of a

crime and who, in the judgment of the prosecutor, is a putative

defendant.” (US Atty’s Manual)

Search Warrant

• Court authorized trespass - subject to later challenge

• Warrant will have been approved by a Judge/Magistrateupon showing of “probable cause,” based upon detailedAffidavit

• Precisely describes where to search and what agentsexpect to find

• Does not mandate interview

• No ability to stop agents from executing warrant

• Goal – limit/control flow of Additional information duringsearch and document execution

Search Warrant

Be calm, polite, cooperative

Contact counsel

Identify lead agent

Ask to read the Warrantand Affidavit prior to search

Send unnecessarypersonnel home

Monitor, take notes,inventory seized property

Advise employees of theirrights

Obstruct/interfere

Destroy, alter or removeevidence

Prevent employees from talking

Consent to expand search

Volunteer substantiveinformation w/o counsel

Sign inventory or consentdocuments without counsel’sreview

Overlook privileged or business-critical information that is seized

Do’s Don'ts

Internal Investigations: Benefits

• Benefits of Effective Internal Corporate Investigation

Facts Revealed

Stops on-going wrong doing

Demonstrates Good Faith Response

Potentially Defends/Mitigates Against Corporate Liability

Promotes Ethical Behavior

Internal Investigations:Action Plan

• Establish framework for the investigation

• Choose the right investigator

• Preserve relevant documents and ESI

• Interview employees

• Determine whether employees need separate counsel

• Obtain counsel/provide legal advice to corporation

• Preserve the PrivilegeMaximize umbrella of privilege so that can make informed decision

in resolving inquiry.

Upjohn v. United States

• Upjohn v. United States, 449 U.S. 383 (1981)

Corporate counsel represents the corporation

Communications with employees are privileged

Privilege is held by corporation, not the employee

Supreme Court ruled employee communications with

counsel are privileged

Expanded privilege beyond the corporation’s “Control

Group”

Upjohn Warning

• ABA suggested Upjohn Warning

I am a lawyer for Corporation A. I represent only Corporation A, and I

do not represent you personally.

I am conducting this interview to gather facts in order to provide legal

advice for Corporation A. This interview is part of an investigation to

determine the facts and circumstances of X in order to advise

Corporation A on how best to proceed.

Your communications with me are protected by the attorney-client

privilege. But the attorney-client privilege belongs solely to

Corporation A, not you. That means that Corporation A alone may

elect to waive the attorney-client privilege and reveal our discussion to

third parties. Corporation A alone may decide to waive the privilege

and disclose this discussion to such third parties as federal or state

agencies, at its sole discretion, and without notifying you.

Upjohn Warning

• ABA suggested Upjohn Warning (Cont’d)

In order for this discussion to be subject to the privilege, it must be

kept in confidence. In other words, with the exception of your own

attorney, you may not disclose the substance of this interview to any

third party, including other employees or anyone outside of the

company. You may discuss the facts of what happened but you may

not discuss this discussion.

Do you have any questions?

Are you willing to proceed?

Example of Problematic UpjohnIn re Grand Jury Subpoena, No. 04-4410(4th Cir. July 18, 2005)

• Counsel interview certain employees, and providedan Upjohn warning, adding:

“Could” represent the employee “as long as no conflict appear[ed].”

“We can represent [you] until such time as there appears to be a

conflict of interest, [but] . . . The attorney-client privilege belongs to”

the company and the company “can decide whether to keep it or

waive it.”

Counsel tells employee when asked that he does not recommend

retention of personal counsel

Why is Upjohn Important?

• Preserve Privilege

• Maintain ability to waive attorney-client privilege

• Do not create individual representation

Upjohn WarningAbility to Waive Attorney-Client Privilege

Benefit of Retaining Ability to Waive PrivilegeCriminal Investigation

– Reduce likelihood of indictment

Federal Sentencing Guidelines

– Reduce penalties

Other Statutes

– Reduce monetary penalties

Defense of Civil Matter

– Case decided on facts, not on adverse inference

Benefits of Upjohn Warning and ProperInternal Investigation

Non-Prosecution

Reduce Penalty through Cooperation

Deferred Prosecution Agreement

Non-Prosecution Agreement

Deferred Prosecution Agreements

Criminal Information Filed With Court

Admission of Wrongdoing

Agreement to Cooperate

Payment of Fine and Restitution

Corporate Reforms

Independent Monitor

Waive Charges Upon Completing Terms of DPA

Non-Prosecution Agreements

Agreement to Cooperate with Government

Agreement for Corporate Reform

No Criminal Information Filed

No Admission of Wrongdoing

No Independent Monitor

Charges Filed if Corporation Breaches the Agreement

Fifth Amendment Concerns

Parallel Proceedings

• A civil and criminal, administrative or judicial proceedingsarising out of the same set of facts.

Civil Lawsuit v. Criminal Investigation/Indictment

Regulatory Agencies v. Criminal Investigation

Parallel ProceedingsFifth Amendment Concerns

• Potential Waiver of Fifth Amendment Privilege in CivilLitigationAnswering Complaint

Civil Discovery

• Use of Evidence from Civil/Regulatory Investigation inCriminal Prosecution

• Expose Defense Strategy against Criminal Prosecution

• Adverse Inference in Civil Case

Parallel ProceedingsFifth Amendment Concerns

Individual v. Corporate Defendant

• Individual has a Fifth Amendment right against self-incrimination.

• Corporation does not have a Fifth Amendment right

Corporate Representative Depositions

What if no one can testify?

–Appoint Representative

–Stay of Civil Proceedings/Protective Order

Recent Enforcement Trends –The “Yates Memo”

• “Individual Accountability for Corporate Wrongdoing” -“Yates Memo”DAG, Sally Quillian Yates announced a revised DOJ policy on

September 9, 2015, Re: Individual Accountability for Corporate

Wrongdoing (revised US Atty’s Manual 9:28.010 et seq.)

• (1) To be eligible to receive “any consideration for cooperation”credit, a company must fully disclose “all individuals involved in orresponsible for the misconduct at issue”, and “all facts relating to thatmisconduct”; this is a threshold test requirement the company mustmeet before receiving consideration under the traditional cooperationcredit principles.

• (2) The DOJ will focus on individual wrongdoers from the inceptionof any criminal or civil investigation

Recent Enforcement Trends –The “Yates Memo”

• (3) Prosecutors and civil attorneys (and other agency attorneys) willincrease coordination to pursue individual defendants.

• (4) “Absent extraordinary circumstances, no corporate resolution willprovide protection from criminal or civil liability for any individuals.”

• (5) “Corporate cases should not be resolved without a clear plan toresolve related individual cases before the statute of limitationsexpires and declinations as to such individuals must bememorialized.”

• (6) “Civil attorneys should consistently focus on individuals as well asthe company and evaluate whether to bring suit against an individualbased on considerations beyond that individual’s ability to pay.”

New Features of the “Yates Memo”

Three new features of the memo

• (1) Before a prosecutor can “resolve” a case against a company (i.e.,decline or prosecute), he or she must explain to a designatedsupervisor (US Atty, Criminal Chief, etc.) why they did not bringcharges against any individuals

• (2) In order to get “any” cooperation credit under the US SentencingGuidelines, a company must provide “all” information about individualbad actors to the government

• (3) Prosecutors are now instructed to evaluate whether to bring civilactions against individuals without regard to their ability to pay anydamages or fines

Impact of “Yates Memo”

• Cases take longer to resolve because prosecutors are now requiredto report on their efforts to prosecute individuals before the case canbe resolved;

• The decision on whether a corporation should self-report and/orcooperate with the government is now much more complicated;

• “all-or-nothing” policy requires careful analysis before beginningcooperation to determine whether company can meet the thresholdnow purportedly required to earn any credit;

• Individual prosecution conflicts between a company and itsemployees have been exacerbated.

Thank you

Gabriel ColwellPartner

Squire Patton Boggs (US) LLPgabriel.colwell@squirepb.com

213-689-5126

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