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:
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
Once these immediate steps have occurred, begin formally responding.
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
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:
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.
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.