Responding to GovernmentInvestigations:
What to do when the Government Knocks
Gabriel ColwellPartnerSquire Patton Boggs (US) LLP
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Today’s Agenda
Corporate Criminal Liability
Enforcement Environment
General Types Of Government Inquiries
Internal Investigations
Upjohn Warnings
Recent Enforcement Trends – “Yates Memo”
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Corporate Criminal Liability
• 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.
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Corporate Criminal Liability
• 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)
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Corporate Criminal Liability
• 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
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Enforcement Environment- ACFE Statistics on Detection
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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)
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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.
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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.
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Enforcement Environment- SEC
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Enforcement Environment– SEC (continued)
Source: http://sec-whistleblowers.com/rewards-tracker/
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General Types Of GovernmentInquiries
• Informal/Letter Requests
• SubpoenasRecords and/or Testimony
• Search Warrants
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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
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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
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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
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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
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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
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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
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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)
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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
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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
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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
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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.
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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”
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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.
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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?
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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
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Why is Upjohn Important?
• Preserve Privilege
• Maintain ability to waive attorney-client privilege
• Do not create individual representation
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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
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Benefits of Upjohn Warning and ProperInternal Investigation
Non-Prosecution
Reduce Penalty through Cooperation
Deferred Prosecution Agreement
Non-Prosecution Agreement
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Corporate Criminal Liability
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
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Corporate Criminal Liability
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
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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
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Parallel ProceedingsFifth Amendment Concerns
Risks
• 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
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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
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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
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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.”
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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
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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.
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Thank you
Gabriel ColwellPartner
Squire Patton Boggs (US) [email protected]
213-689-5126