The Justice Department comes knocking. How do you respond? The answer could be the difference between a favorable outcome and a legal disaster.
Defense lawyers say enforcement actions can achieve a wide range of outcomes, hinging on several factors beyond just the severity and facts of the case. One of those factors is how companies initially answer the investigation.
How a company first responds—or does not respond—plays a pivotal role in how the government proceeds. “Enforcement officials, at this stage of the investigation, will view any actions of the company, employees, and counsel with a lot of scrutiny,” says Jeff Vaden, a partner with law firm Bracewell & Giuliani and a former prosecutor of with United States Attorney's Office for the Southern District of Texas.
The moment a company gets notice of an investigation, the most important element to understand is why enforcement officials are involved. What is the potential area of misconduct or risk the investigation is targeting?
Once the company identifies the questionable conduct and puts a stop to it, “the second thing that has to be done right away is to preserve all the relevant evidence,” says Steve Bunnell, former chief of the Criminal Division of the U.S. Attorney's Office for the District of Columbia and now managing partner for O'Melveny & Myers' D.C. office.
“Those first two steps are critical, and sometimes they're not focused on as much as they should be,” Bunnell says. The single biggest pitfall is the failure to effectively preserve documents that a company should reasonably know are going to be relevant to an investigation—even before a subpoena or search warrant is issued, he adds.
The next move, according to Bunnell, is to contact the prosecutor and let him or her know what is being done. “Getting a dialogue going with the prosecutor early on is key not only to making the process efficient, but to developing a relationship with trust,” he says. “That's not only expected, that's essential.”
What is not advisable: going into a reactive mode and waiting for the Justice Department to provide guidance, says Ryan McConnell, a partner of law firm Haynes and Boone and a former prosecutor of with U.S. Attorney's Office for the Southern District of Texas and Middle District of Louisiana.
As a former prosecutor, McConnell says he was surprised by how often companies failed to have a good answer to what they've done to stop potential violations. “They hadn't taken any steps to address the conduct.”
If enforcement officials are reaching out to your company, “they probably already have a good idea of what the problem is, where the problem is, and who is involved,” Vaden adds. So make sure you're dealing with government in an “upfront, honest, and credible way,” because you don't know what they know, he says.
If you do not concede to the government's suspicions of a potential problem, the prosecutor may go to the next step of issuing a grand jury subpoena, or even a search warrant. “That's something every company wants to avoid,” Bunnell says. “You do not want a bunch of guys with raid jackets showing up and shutting down your operations while they image all your hard drives.”
McConnell reminds companies that complying with a grand jury subpoena does not qualify as cooperation, since you're legally required to comply anyway. “Cooperation is going above and beyond that, really helping the government put together the case,” he says.
“Getting a dialogue going with the prosecutor early on is key not only to making the process efficient, but to developing a relationship with trust. That's not only expected, that's essential.”
—Steve Bunnell,
Managing Partner,
O'Melveny & Myers
For example, if prosecutors tell you they are investigating a certain department or individual, focus your interviews and investigation on that particular area. Don't waste time and resources by going down a trail the prosecutor doesn't care about, McConnell says.
To win favor for cooperation, give enforcement officials information they didn't already have. “Nothing signals full, reliable cooperation to a prosecutor than if you tell them something they didn't already know,” Vaden said.
Never talk to other employees about the facts of the investigation. Senior executives or management should never warn an employee of an investigation, because officials may question that executive's motives.
Another good idea is to discourage employees from discussing the case with one another. While it's human nature to talk about what has happened, Bunnell says, “a prosecutor will often view that kind of behavior as an attempt to have everybody get their stories straight.”
Navigating the complex network of agencies that may be involved in a regulatory probe can be hard. For example, an investigation looking into violations of the Foreign Corrupt Practices Act will likely involve the Securities and Exchange Commission, Department of Justice, and Department of Treasury. “You have to address the equities and the concerns of all those agencies in order to reach a global settlement with your counsel,” Vaden says.
“Everything you do counts: how you deal with government, interact with other agencies—it will all count either in a positive fashion or a negative fashion down the road.”
Reducing Fines
When levying fines, the Justice Department considers many factors. Voluntary self-disclosure, full cooperation with an investigation, and having a compliance program are all factors that can cut potential fines by as much as 70 percent, according to McConnell.
HANDLING A GOVERNEMENT INVESTIGATION
The following tips from former U.S. Attorneys explore the Dos and Don'ts of handling a government criminal investigation.
Dos:
1. Conduct an objective investigation. “That is so important,” says Jeff Vaden, a partner of law firm Bracewell & Giuliani, and a former prosecutor of with United States Attorney's Office for the Southern District of Texas.
2. Ensure the investigation is done independently and objectively. If you hire an outside firm, it doesn't matter if it's a big-name firm or a small-shop. “What matters is how credible or independent firm is,” says Vaden. “It's really tough for somebody to grace their own appears and come back with a, honest result.”
3. Have management set the tone at the top. “Compliance is driven from the top,” stresses Ryan McConnell, a partner of law firm Haynes and Boone, and a former prosecutor of with United States Attorney's Office for the Southern District of Texas and Middle District of Louisiana. If senior management is sending a message they don't care about cooperating in an investigation, that will spill down to your employees, McConnell says.
4. Save your corporate advocacy for the negotiations table. Trying to convince enforcement officials that things are Okay before an investigation is complete is just not a good idea. “Save your hard-core negotiating and advocating for appropriate time,” says Vader.
Don'ts
1. Never do or say anything that would bring question to your integrity.
2. Don't approach a criminal matter like you would a civil matter. They're not the same. “Cooperation isn't always fair,” says Vaden. From a government perspective, the mindset is, “‘Take my direction. You give me what I need. At the end of the day, maybe I'll give you credit for it.'”
3. Ask, and you shall receive. The Justice Department always has policies it is required to follow, so if your company has a situation that requires a special request, ask, says Vaden. For example, if the DoJ issued a search warrant and took some workbooks that employees need to do their jobs, ask for copies. Prosecutors will likely oblige.
4. Don't compare war stories. Specifically, don't tell stories of, “‘When I was a prosecutor, I used to do it this way,'” says McConnell. Prosecutors want to talk about the case, he says, not hear about your war stories.
—Jaclyn Jaeger
Having an effective compliance program can reduce fines as much as 30 percent alone, he says. Companies that have faced high fines in the past almost never have compliance programs, he adds.
Companies can also reduce fines by studying up on how similar cases were resolved. If there is some specific negotiation you want to reach with the Justice Department and the agency has made similar negotiations with other companies in former investigations, be prepared to cite those case-specific examples. “Don't make prosecutors think they're breaking new ground,” McConnell says.
If you believe negotiations are going poorly, you may sometimes need to go to that prosecutor's supervisor, but it should be done “very judicially,” Vaden warns.
You should tell the prosecutor that you're going to the supervisor, and put it in a way that you're not offending them, McConnell says. Not informing the prosecutor first is a “very high-risk, low-probability” scenario that things will go in your favor, McConnell adds. “Unless the prosecutor is doing something wrong, the supervisor will likely back up his prosecutor,” and you will have to deal with that prosecutor the entire case.
Another imperative: Follow through on promises to prosecutors. McConnell says one thing that got under his skin as a former prosecutor was a company promising it would sign a tolling agreement and then never doing so. “That puts you in a bad situation during settlement negotiations,” he says.
A tolling agreement between prosecutors and an individual under criminal investigation waives the criminal statute of limitations. Deciding whether to agree to one depends on the situation.
If the Justice Department has a strong case, companies would do well to avoid one. On the other hand, some companies may feel the issue is worth extending beyond the five-year statute of limitations before the government finishes a comprehensive investigation. “You don't necessarily want to force the prosecutor to make a decision just to stay within the statute of limitations,” Bunnell says.
Vaden agrees. If the DoJ has a weak case and the statute will run next week, “hold their feet to the fire,” and have them prove their case in court.
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