Can You Survive A Fraud Investigation? Part 2: A Practical Guide To Responding To Government Investigations

Friday, February 24, 2012 - 18:13

Part I of this article appeared in the March, 2012 issue of The Metropolitan Corporate Counsel and can be found here.

Learning that your company is the subject – or worse, the target – of a government investigation can be an alarming and momentous event.  Government investigations can disrupt operations, discourage morale, and, in some cases, trigger reporting obligations.  If an investigation becomes public, it can undermine consumer trust, scare investors and unnerve lenders. For government contractors and others in highly regulated industries, the exposure can multiply quickly as government agencies can suspend or debar a subject based solely on the allegations in a complaint.

These days, government investigations are affecting businesses large and small.  The Department of Justice (DOJ) has been announcing record-breaking settlements with public companies over alleged violations of the Foreign Corrupt Practices Act (FCPA) and False Claims Act (FCA) – two of its preferred tools for investigating fraud.  Small companies are being targeted, too, with an increased focus on businesses that have received preferential treatment.

And yet, government investigations often begin without any warning.  Federal agents may swoop in with a search warrant, approach unsuspecting employees at their homes, or even tap phone lines.  Rarely does a company anticipate a fraud investigation or even believe that its employees could be accused of such conduct. In fact, investigators often use surprises to get what they believe are more candid assessments of a company’s operations and culture.  As a result, how you respond to that initial contact is critical to setting the right tone for interactions with the government and minimizing any further exposure. 

This two-part article explains how to prepare for and respond to government investigations.  In part one, we discussed the growing exposure to government investigations and recommended steps to identify and address high-risk areas before an investigation begins.  In this part, we explain common techniques investigators use for collecting evidence and offer tips for responding.  These ideas are designed to be a practical guide for corporate counsel and compliance officers who want to minimize the risk that their companies get ensnared in investigations and know what initial steps to take if a government investigation unfortunately does occur. 

This article, of course, does not cover every scenario.  The playbook for subject companies is not one-size-fits-all.  The issues at each company and in each investigation are unique.  The size and resources of the organization may necessitate alternative approaches.  In light of these variables and the consequences of mishandling an investigation, the most prudent first step is to solicit guidance from counsel experienced in these areas.

I. Global Principles

Regardless of how the government pursues its investigation, companies should abide by some global principles:

  • Consult legal counsel before responding to any government investigation.  In criminal cases, the company and its employees have a constitutional right to do so. Counsel can often work with government attorneys or agents to narrow the scope of requests, negotiate with agents executing a warrant to ensure an orderly process, glean additional insights from early discussions with investigators, and get a head start on assessing the company’s exposure to liability.
  • Be truthful and accurate in any statements to the government. Failure to do so could expose the company and its employees to separate criminal liability.  See 18 U.S.C. § 1001.
  • Never do anything to impede or obstruct a government investigation, such as deleting, concealing or altering relevant documents.  Again, such actions could expose the company to separate criminal liability.  See 18 U.S.C. § 1505.

Beyond these principles, the company’s response should be tailored to the circumstances of the investigation and the way in which the government pursues its investigation.  Since each investigation is unique, it may be necessary to deviate from these suggestions or take additional measures, depending on the circumstances.

II. Subpoenas For Documents

Most government investigations of fraud, kickbacks, gratuities and other improprieties by corporations begin with a subpoena for documents from a grand jury or the inspector general’s office of an agency. If a company receives a subpoena, it can take several steps to respond effectively. First, with assistance from counsel, immediately

  • Assess the scope of the subpoena, identify potential sources of documents, and preliminarily determine the difficulty in collecting, reviewing and producing these materials by the stated deadline.
  • Instruct employees to preserve all potentially responsive materials, including both electronic and paper documents.  The best way to do this is to issue a written document preservation notice to any relevant employees that supersedes the company’s regular document retention policy. The company should make sure its information technology department is aware of the need to preserve documents and suspend routine deletion of old files or emails and recycling of old backup tapes.

Once these immediate steps have occurred, begin formally responding.

  • Let counsel contact the government attorney or agent listed on the subpoena.  Counsel can affirm the company’s intent to cooperate with the investigation and identify himself or herself as a point of contact for future requests or inquiries, including employee interviews.  Additionally, counsel can learn as much as possible about the investigation, including whether the company is a target, subject, or witness at that time.  While government officials are sometimes reluctant to share much about an investigation or identify a company as a target, they may shed light on what they expect the company to provide.  If any requests are unreasonably broad or demand more than can be produced by the deadline, counsel can work with the government to narrow or prioritize the requests and/or set a reasonable schedule for production.
  • Appoint a custodian of records who will be responsible for compliance with the subpoena.  This employee should manage and track preservation, collection, and production efforts.  At the end of the process, the custodian of records should be prepared to describe these efforts, either in a certification or in testimony, if the government requires it.
  • Start collecting potentially relevant documents.  In collecting electronic materials, consider whether to make forensic copies, use in-house capabilities to copy or search, and/or instruct employees to collect their own materials.  The best plan will depend on the demands of the government, the reliability of each option, the technological capabilities of in-house staff and systems, and, of course, cost.  Key players may require special treatment.

III. Civil Investigative Demands

Another form of inquiry the government may use is a civil investigative demand (CID).  Long a staple of antitrust investigations, CIDs are becoming common in the False Claims Act cases due to recent changes in the law. Like a subpoena, a CID can require production of documents with a certification that a response is complete. Additionally, CIDs can demand written answers or oral testimony, under oath, to questions about the documents or information at issue.  CIDs give prosecutors nearly all of the tools of civil litigation discovery – access to relevant documents, knowledgeable employees, and sworn statements – at the earliest stages of an investigation. 

Given the resemblance of CIDs to litigation discovery, recipients should consult with counsel before responding. In addition to the steps recommended above for responding to subpoenas, CID recipients should consider engaging counsel to conduct a quick internal investigation.  CIDs often demand factual statements and explanations for documents that a whistleblower or investigator may have selected.  An internal investigation can provide the context for these documents and allow the recipient to make informed statements about the meaning of any facially problematic documents.  CIDs give prosecutors the power to develop evidence and bind the recipient quickly – a respondent must move just as quickly to marshal the facts and assess exposure.

IV. Investigative Interviews

Sometimes law enforcement agents will contact employees directly to learn more about the company.  These interviews may occur at the office, at employees’ homes, or at nearby public sites, such as a local coffee shop. Often interviews are unannounced.  A company may request advance notice of any interviews, but the government may choose not to inform the company before interviewing lower-level and former employees. 

The presence of law enforcement agents can be unnerving and intimidating.  Accordingly, a company should prepare its employees for this possibility and advise them of their rights and obligations.  Specifically, the company should consider advising employees that

  • It is the employee’s choice whether to speak with the government agents.  An employee has a right not to submit to an interview with the agents.  If the employee decides not to do so, he or she should politely, but firmly, decline to be interviewed. 
  • If an employee does choose to answer questions, he or she must always tell the truth, no matter how casual or innocuous the conversation.  Failure to do so could result in separate criminal liability for the employee and the company. 
  • The employee has a right to understand the agent’s questions, and to fully and carefully explain any answers.  The employee should not guess or speculate about matters of which he or she is not certain. 
  • Each employee is entitled to consult legal counsel before consenting to an interview and to have legal counsel present for any interview.  The company’s legal counsel can advise the employee of his or her options for personal counsel and be available to attend the interview.
  • The employee should obtain a copy of any statement he or she signs. 
  • If the employee receives a subpoena for testimony, he or she should be able to, in most instances, have the date or time of the appearance changed if necessary.

V. Search Warrants

When evidence may be fleeting, law enforcement agents can obtain a warrant to search a corporation’s facilities and seize any relevant materials. This may include computers, servers, local storage media (e.g., thumb drives or compact discs), and paper documents.  If possible, a company subject to a search warrant should contact counsel when the agents arrive or as soon as possible thereafter.  Additionally, the company should consider the following measures:

  • To avoid confusion, designate one person to deal with the government agents and consider relocating or sending home employees who are not essential to the search.
  • Review and copy the search warrant and supporting affidavit, if the affidavit is available.  The company has a right to do so under Federal Rule of Criminal Procedure 41(f).  Take careful note of the scope of the warrant.  The company may ask the agents to wait until the warrant and supporting affidavit have been completely reviewed before the search begins, although the agents are not required to wait or even to provide a copy of the warrant until the end of the search. 
  • Identify all government agents participating in the search.
  • Monitor the agents to make sure they limit their search to the scope of the warrant.  You are not required to agree or consent to searches of areas beyond the scope of the warrant.  You may do so in the spirit of cooperation, but keep in mind that additional searching may subject the company to further scrutiny and exposure.
  • Note everything the agents examine or take, and, as much as possible, record the agents’ questions and employees’ responses.  If agents are moving on multiple fronts, consider asking select employees to assist counsel by taking detailed notes as well.
  • Do not interfere, however, with the agents’ search of the area described in the warrant.  Similarly, instruct employees not to interfere with the search – either by physically getting in the way or by concealing, moving or altering materials.
  • Direct employees to cooperate with the search, but advise them that they are not required to answer questions unrelated to the search.
  • Ask the agents to allow the company to copy any materials the agents take.  Explain that the company may need these records for its continuing business operations. 
  • Obtain a complete inventory of all property taken before the agents leave the facilities.  The company has a right to this inventory under Federal Rule of Criminal Procedure 41(f).

VI. Wires And Phone Taps

More aggressive techniques for collecting evidence – such as tapping phones, using undercover agents and recording conversations through wires – have been historically rare in white collar cases. These tactics, however, are becoming more common for investigators. In 2010, DOJ charged 22 individuals with violations of the Foreign Corrupt Practices Act for a scheme to bribe a supposed foreign government official.  In addition to executing search warrants, the FBI gathered evidence through undercover agents who posed as sales agents for a fictional African official.  The government touted its indictments as the first large-scale use of undercover law enforcement techniques to uncover FCPA violations, although it has since struggled to convict any of the defendants.

In 2011, the government prosecuted Raj Rajaratnam and other executives at the Galleon Group hedge fund for insider trading and conspiracy based on evidence gathered through wiretaps. The Rajaratnam conviction resulted in the largest penalty ever assessed against an individual for insider trading.

The nature of these investigative tactics leaves little chance to respond.  If you become aware of wiretaps or other aggressive investigative methods, contact counsel immediately to discuss options for proceeding.

VII. Conclusion

This primer only provides some general suggestions for how to prepare for and respond to a few common government investigative techniques.  Since each investigation is unique, and a company’s response can greatly affect its legal strategy, we recommend consulting with legal counsel as soon as possible upon receiving a subpoena, learning that government agents are interviewing current or former employees, being served with a search warrant, or responding to any type of government investigation.

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This article represents the views of the authors and should not be construed as providing legal advice or legal opinion. Readers should consult their attorneys with any specific legal questions about these matters.

Roderick L. Thomas is Chair of Wiley Rein’s White Collar Defense practice in Washington, DC.  He specializes in white collar crime and civil fraud allegations, after serving more than 10 years in the U.S. Attorney’s Office in Washington, DC. As part of his extensive background in federal investigations and prosecutions, he routinely represents clients in internal investigations, subpoena matters, False Claims Act and qui tam matters, criminal investigations, Foreign Corrupt Practices Act matters, congressional investigations, and parallel civil and criminal proceedings.  He can be reached at (202) 719-7035.

Mark B. Sweet is a Partner in Wiley Rein’s White Collar Defense practice.  He counsels clients on complex issues for government investigations, whistleblower complaints, and mandatory disclosures.  Mr. Sweet has conducted a number of internal investigations and is experienced in interacting and negotiating with government agents.  He advises clients on best practices for collection and production of electronically stored information in response to government subpoenas and discovery requests. His practice spans civil and criminal investigations for government contractors, food and drug companies, communications firms, and others.  He can be reached at (202) 719-4649.

 Please email the authors at rthomas@wileyrein.com or m​sweet@wileyrein.com with questions about this article.