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Responding to Government Investigations: p g gLegal and Ethical ConsiderationsStrategies for In‐House Counsel to Meet Corporate Obligations and Avoid Individual Liability

T d ’ f l f

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

TUESDAY, JANUARY 24, 2012

Today’s faculty features:

William T. Hassler, Partner, Steptoe & Johnson, Washington, D.C.

Brian K. French, Partner and Deputy Practice Group Leader, Government Investigations& White Collar Defense Nixon Peabody Boston& White Collar Defense, Nixon Peabody, Boston

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Presented by:Brian K. French, PartnerBoston, MA 02110-2131P (617) 345-1258bfrench@nixonpeabody.com@ p y

Preparing for Government Investigations: Legal and Ethical Considerationsg

January 24, 2012

How do government investigations begin?How do government investigations begin?

• Grand jury subpoena

• Search warrant

• Administrative subpoena / civil investigative demand (CID)

• Letter request

• On-site visit or other informal means

5

Who should conduct the investigation?Who should conduct the investigation?

• Potential choices

› Internal audit or regulatory personnel

› Senior management

› Legal Department / Compliance Department

› Outside regular counsel

› Outside independent counsel

6

Who should conduct the investigation?Who should conduct the investigation?

• Important considerations

› Nature of alleged misconduct

› Pervasiveness of alleged misconduct

› Duration of alleged misconduct

› Employees, officers, or directors involved

› Potential financial exposure

› Civil vs. criminal

P t ti l h t th bli lti f ll d i d t› Potential harm to the public resulting from alleged misconduct

7

In house vs outside counselIn-house vs. outside counsel

• Pros of in-house counsel

› Familiar with company’s senior management and personnel, organizational structure, systems, operations, and policies

K l d bl b t ’ i k d t ti l› Knowledgeable about company’s risk areas and potential compliance issues

› Employees may speak more freely with a colleague than with p y y p y goutside counsel

› Less expensive

8

In house vs outside counselIn-house vs. outside counsel

• Pros of outside counsel

› More likely to be perceived by government as objective and independent

F ili ith i i l d l t t t t d l ti› Familiar with criminal and regulatory statutes and regulations

› Significant experience conducting investigations

› Familiar with government prosecutors› Familiar with government prosecutors

› More time and resources to devote to investigation

9

In house vs outside counselIn-house vs. outside counsel

• Additional considerations

› Privilege issues

– In-house counsel must be acting in his/her attorney role and the communication must be made primarily for the purpose of seekingcommunication must be made primarily for the purpose of seeking legal advice

– In-house counsel often have non-legal responsibilities involving th t f th i ti h ti lthe management of the organization, such as operational, technical, scientific, or business-related matters

– The line between legal and business-related advice is easily blurred; thus, investigations conducted by in-house counsel may be more vulnerable to privilege challenges

10

In house vs outside counselIn-house vs. outside counsel

› Obstruction of justice and false statement exposure

– 18 U.S.C. §§ 1501-1520 (obstruction of justice)

– 18 U.S.C. § 1001 (false statements)

I di t t i i i ti ti l– In responding to a government inquiry or investigation, counsel must make difficult decisions about the responsiveness of documents and the treatment of unfavorable facts and information

– By minimizing interactions between in-house counsel and the government, there may be fewer opportunities for the government to misconstrue in-house counsel’s decision making or statements

– Lauren Stevens prosecution

11

Who should direct the investigation?Who should direct the investigation?

• Potential choices

› Senior management

› Legal Department / Compliance Department

B d f Di t› Board of Directors

› Audit Committee / Compliance Committee

› Special committee of independent directors and/or new directorsp p

› Other independent persons

12

Who should direct the investigation?Who should direct the investigation?

• Key consideration: Who do the allegations implicate?

› Employees below the senior management level?

› Senior management?

A i di id l di t ?› An individual director?

› The entire Board of Directors?

• Those implicated in the alleged wrongdoing should not beThose implicated in the alleged wrongdoing should not be involved in, or have any influence over, the internal investigation

13

The privileged nature of the investigationThe privileged nature of the investigation

• Where counsel will conduct the investigation, his/her role should be d t d i d t l tt th t id tifi thdocumented in a memorandum or engagement letter that identifies the purpose and scope of the investigation and states that the investigation is being conducted to provide legal advice to the organization

• Where applicable, the memorandum or engagement letter should state that the investigation is being conducted in anticipation of litigation

• The memorandum or engagement letter should state that counsel is authorized to engage outside consultants or experts to assist counsel in providing legal advice; the engagement letter with the consultants or experts should state that they are working at the direction of counsel

14

Defining the scope of the investigationDefining the scope of the investigation

• The subpoena or request for information may provide information and l i th f fclues in the form of› Relevant statutes and regulations

› Description of subject matter

› Nature of documents requested

› Type of subpoena or request (grand jury subpoena vs. informal letter request)

› Specific office and attorney issuing subpoena or request

• Business managers, legal/compliance personnel, or other members of the organization may offer early insightthe organization may offer early insight

• Speak with the prosecutors / government counsel

15

Initial communications with prosecutors or government counselgovernment counsel

• Non-adversarial approach

• Assume government knows more than you

• Elicit factual and legal allegations

• Determine status of client(s) (e.g., target, subject, witness)

• Narrow scope of document requests; obtain buy-in on search termsterms

• Let company take the lead in conducting the investigation

• Manage pace and flow of informationManage pace and flow of information

16

Multiple representationMultiple representation

• Absent a conflict of interest, there is no per se prohibition against l ti b th d it l fficounsel representing both a company and its employees, officers, or

directors

• Multiple representation should only be undertaken after close consideration of any actual or potential conflicts of interests, the risk of subsequent disqualification, and potential harm to the clients

• Multiple representation raises constitutional and ethical considerations› Sixth Amendment

› Rule 44(c) of the Federal Rules of Criminal Procedure

› Model Rules of Professional Conduct

17

Multiple representationMultiple representation

• Model Rule 1.13

(a) A lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents

(f) In dealing with an organization's directors, officers, employees, or other constituents, a lawyer shall explain the identity of the client when the lawyer knows or reasonably should know that the organization's interests are adverse to those of the constituents with whom the lawyer is dealingis dealing

(g) A lawyer representing an organization may also represent any of its directors, officers, employees, or other constituents, subject to the provisions of Rule 1.7

18

Multiple representationMultiple representation

• Model Rule 1.7(a)

In general, a lawyer shall not represent a client if the representation involves a concurrent conflict of interest; a concurrent conflict of interest exists if:

(1) the representation of one client will be directly adverse to another client; ( ) p y ;or

(2) there is a significant risk that representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client, or a third person, or by a personal interest of the lawyer

19

Multiple representationMultiple representation

• Model Rule 1.7 Comments› Loyalty and independent judgment are essential elements in the lawyer's

relationship to a client

› With regard to the attorney-client privilege, the prevailing rule is that, as b t l t d li t th i il d t tt h it tbetween commonly represented clients, the privilege does not attach; it must be assumed that if litigation occurs between the clients, the privilege will not protect any such communications, and the clients should be so advised

› As to the duty of confidentiality common representation will almost certainly› As to the duty of confidentiality, common representation will almost certainly be inadequate if one client asks the lawyer not to disclose to the other client information relevant to the common representation; this is so because the lawyer has an equal duty of loyalty to each client, and each client has the right to be informed of anything bearing on the representation that might affect that client's interests and the right to expect that the lawyer will use that information to that client's benefit

20

Multiple representationMultiple representation

• Model Rule 1.7(b)Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:

(1) the lawyer reasonably believes that the lawyer will be able to id t t d dili t t ti t h ff t dprovide competent and diligent representation to each affected

client;

(2) the representation is not prohibited by law;

(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and

(4) each affected client gives informed consent confirmed in writing(4) each affected client gives informed consent, confirmed in writing

• A conflict waiver will not necessarily be accepted by a court or prevent disqualification of counsel

21

Separate counsel for individualsSeparate counsel for individuals

• At some point in an investigation, it may become apparent that employees, officers, or directors of the organization require separate counsel

• The need for separate counsel raises a number of additionalThe need for separate counsel raises a number of additional issues

› Is the company required or willing to pay for the individual’s counsel?

› How should counsel for the organization coordinate with counsel for the individuals?

› Is an oral or written joint defense agreement advisable?

22

Parallel proceedingsParallel proceedings

• Typically involve a common set of facts and simultaneous or sequential i il d i i l i ti ti b diff t t icivil and criminal investigations by different government agencies

• Prosecutors generally may use evidence acquired in a civil investigation in a subsequent criminal proceeding, unless doing so would violate the defendant’s constitutional rights or depart from the “proper administration of criminal justice”

• Such a departure may occur where the government brings a civil action solely to obtain evidence for its criminal prosecution, or where the government affirmatively misleads the subject of a parallel investigation into believing that the investigation is exclusively civil in nature

23

Parallel proceedingsParallel proceedings

• An individual with potential criminal exposure may invoke his/her Fifth Amendment right against self-incrimination in the civil proceeding

• Doing so may give rise to an adverse inference in the civilDoing so may give rise to an adverse inference in the civil proceeding that the answer would have been unfavorable to the individual

Wh th tt i l ti d i f• Where the matter involves a corporation, an adverse inference against the company may result from an employee, or even a former employee, invoking his/her privilege against self-incrimination

24

Parallel proceedingsParallel proceedings

• Steps companies can take to reduce the risk of an adverse inference

› Request a stay of the civil proceedings

› Seek a protective order restricting the dissemination of civil› Seek a protective order restricting the dissemination of civil discovery

› Ensure individuals are represented by competent, independent counselcounsel

25

Thi t ti t i i d d li f J it iThis presentation contains images used under license from Jupiterimages.com.These images may not be re-distributed or re-used for other purposes.

This presentation may be considered advertising under certain rules of professional conduct. The content should not be construed as legal advice, and readers should not act upon information in this

publication without professional counsel Copyright © 2012 Nixon Peabody LLP All rights reservedpublication without professional counsel. Copyright © 2012 Nixon Peabody LLP. All rights reserved.

Responding to and Conducting Government Investigations: Legal and Ethical ConsiderationsConsiderations

January 24, 2012January 24, 2012

William T. Hassler202.429.6469whassler@steptoe.com

Overview of the PresentationOverview of the Presentation

Conducting the Investigation Post-Investigation Decisions Post-Investigation Decisions

28

Conducting the investigationConducting the investigation

Collection and retention of documents Identification of employees to contact and

procedures for interviews Protection of applicable privileges

29

Document, Collection and Review

Planning document review should be one of the first priorities when conducting an i t l i ti ti A ll t t dinternal investigation. A well structured review can timely uncover important facts that will dictate what steps need to be takenthat will dictate what steps need to be taken later in the investigation, such as who should be interviewed

30

When Performing Document Review, the Following Goals Should be Keptthe Following Goals Should be Kept in Mind

Comprehensiveness Cost-efficiency Minimal disruption of business Preservation of original documents/chain of

custody Maintenance of confidential information Avoidance of unnecessary duplication of

effort if subsequent investigations arise

31

Document Review Can Be Broken i hInto Five Phases

Organization and planning Gathering Processing and review Preparation of internal summaries,

chronologies, binders Production of documents to government or

civil litigants

32

Document Gathering

Enlist the help of the custodian or archivist. Network and hard-drive documents should

t b l k d C id b knot be overlooked. Consider back-up systems A checklist and index of the documents A checklist and index of the documents

should be maintained throughout the process Employee certifications (emerging trend) Employee certifications (emerging trend)

33

Document Gathering (cont’d)

Relevant factors: Cost Extent of legal analysis required Amount of disruption of client’s business Likelihood and difficulty of privilege issues

34

ProcessProcess

Be respectful of the client Remind all employees that any information relating to

the investigation is confidential and should not bethe investigation is confidential and should not be discussed with other persons

Be persistent with employees who are not cooperative Ask who else may have information

35

Document ProcessingDocument Processing

There is a presumption against the destruction of documents, even in the absence of any ongoing litigationlitigation

Beware of inadvertent destruction of electronic records (e.g., “automatic” deletion protocols)

36

Document ProductionDocument Production

When the issue of document productionarises, some advocacy considerations should , ybe taken into account Documents can either be produced “as they

are kept in the usual course of business” or “organized and labeled to correspond with th t i f th t” ( d FRCPthe categories of the request” (as under FRCP 34(b))

37

Document Production (cont’d)Document Production (cont d)

Overwhelm the adversary with all documents that feasibly fit within the request? Negotiate the scope? Negotiation may lower costs and offer insight

h linto the government or regulatory investigation

38

Document ReviewDocument Review

Special issues re electronic documents, including back-up drives, automatic document

lli tculling, etc.

d h f Paper documents in the age of computers: don’t forget to ask

39

Potential PitfallsPotential Pitfalls

Important: be careful in describing what is produced and what is not Search Methodology: advantages and

disadvantages of revealing search terms to requesting agency (electronic discovery)requesting agency (electronic discovery)

40

Witness InterviewsWitness Interviews

Privilege issues Upjohn warnings:

prevent the employee from disclosing communications with corporate counsel

allow the company to provide the government information gained from

lemployee BUT: consider practical and fairness issues

with unrepresented employeeswith unrepresented employees41

Witness Interviews (cont’d)Witness Interviews (cont d)

See ABA Model Rules 1.13(f) and 4.1. Rule 4.1 provides:

In dealing on behalf of a client with a person who is not represented by counsel, a lawyer shall not state or imply ep ese ted by cou se , a a ye s a ot state o p ythat the lawyer is disinterested. When the lawyer knows or reasonably should know that an unrepresented person misunderstands the lawyer’s role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding. The lawyer shall not give legal advice to an unrepresented person, other than the advice to

l if th l k bl h ldsecure counsel, if the lawyer knows or reasonably should know that the interests of such a person are or have a reasonable possibility of being in conflict with the interests of the clientof the client

42

Witness Interviews (cont’d)Witness Interviews (cont d)

Rule 1.13(f) provides: “In dealing with an organization’s directors,

ff l b h h ldofficers, employees, members, shareholders or other constituents, a lawyer shall explain the identity of the client when the lawyerthe identity of the client when the lawyer knows or reasonably should know that the organization’s interests are adverse to those of the constituents with whom the lawyer is dealing.”

43

Witness Interviews (cont’d)Witness Interviews (cont d)

“Joint defense” or “common interest” privilege Need not be written Advantages and disadvantages

“Joint defense” information cannot be shared with others (including regulators) –d f t l t tdangerous for corporate counsel to agree to receive joint defense information

44

Employees’ rights and dutiesEmployees rights and duties

Issues relating to cooperation by employees When to retain separate counsel for employees

“Bucket” counsel “Bucket” counsel

Fifth Amendment issues

45

Post-investigation DecisionsPost investigation Decisions

46

Voluntary Disclosure:i i l lA Critical Early Issue

Whether to self-disclose to law enforcement is a critical initial issue in most cases The decision shapes the course of an

investigationd f l l b f d Needs careful analysis, but often under

considerable time pressureM d t b l d lti l ti May need to be analyzed multiple times during the course of an investigation if decision made not to disclose earlydecision made not to disclose early

47

Voluntary Disclosure (Pros)Voluntary Disclosure (Pros)

DOJ organizational prosecution guidelines indicate g p gthat voluntary disclosure is encouraged and a factor justifying leniency

U.S. Sentencing Guidelines for organizations giveU.S. Sentencing Guidelines for organizations give substantial “cooperation credit” for a voluntary disclosure that greatly reduces sentence exposure

Greater possibility of a non prosecution or deferred Greater possibility of a non-prosecution or deferred prosecution agreement

SEC’s Seaboard Factors similarly give credit to i th t d t f ll i d d tcompanies that conduct full, independent

investigations and share the results voluntarily with the SEC

BUT48

Voluntary Disclosure (Cons)Voluntary Disclosure (Cons)

There is always a possibility that the violation will not beThere is always a possibility that the violation will not be detected by law enforcement and internal remediation will resolve the issue

Any DOJ resolution virtually guaranteed by disclosure Any DOJ resolution, virtually guaranteed by disclosure, could have significant adverse consequences Possible criminal fines, compliance monitor and compliance

policiespolicies Publicity could lead to loss of business clients and key

employees, threatening the viability of the organization Company would be required to cooperate with DOJ at Company would be required to cooperate with DOJ at

significant expense and with consequences for individual employees

Ci il l i Civil claims49

Factors Shaping Whether To DiscloseFactors Shaping Whether To Disclose

Egregiousness of wrongdoing Involvement of senior management Presence of a whistleblower / likelihood of

involuntary disclosure Adequacy of any pre-existing compliance

program Public company vs. private

50

DisclosureDisclosure

Some disclosures may be required legally E.g., it is a crime to fail to report the release of a

hazardous substance under CERCLA SEC reporting requirements may dictate disclosure as a

practical matter Some disclosures may be required ethicallyy q y

E.g., “on-going” or “future” violations of law are not protected by privileges

“Crime fraud” exception: may be applied where on-going violations are concealed as privileged

51

Disclosure (cont’d)Disclosure (cont d)

Do not forget the basics It is a crime to make a false statement in connection with

a government investigation under 18 U.S.C. § 1001• Statement does not have to be under oath

It is a crime (obstruction) to mislead a government investigation by corruptly withholding documents, altering g y p y g , gdocuments, discouraging truthful testimony by witnesses, etc.• Investigation does not have to be pending –g p g

contemplation of future investigation may be sufficient for violation of obstruction statutes

52

Disclosure (cont’d)Disclosure (cont d)

Ethics rules may also apply Rule 1.2(d) (a lawyer may not assist in criminal

conduct)conduct) Rule 3.4 (a lawyer may not obstruct) Rule 4.1 (a lawyer may not make false Rule 4.1 (a lawyer may not make false

statements) Rule 8.4 (knowing violations of the Code or

P f i l d t i i l l t fProfessional conduct or criminal laws or acts of “dishonesty” constitute professional misconduct)

53

Form of CooperationForm of Cooperation

Fully independent investigation vs dual role ofFully independent investigation vs. dual role of investigate and advocate Should be independent if senior management

involvedinvolved Can play dual role if issue is confined to

“rogue” elements or a subsidiary, etc. Independent investigation lets the “chips fall

where they may” and another firm does the advocacy Firm in a dual role can “spin” the facts as long as

the investigation remains credible Dual role approach is more efficient if possibleDual role approach is more efficient if possible

54

Termination of Employees: FactorsTermination of Employees: Factors

Has there been a voluntary disclosure?Has there been a voluntary disclosure? If not, there is a risk that a terminated employee

could contact law enforcement If so, company may demonstrate its commitment

to remediation by terminations Level of involvement in wrongdoingLevel of involvement in wrongdoing

High-level manager directing improper activity vs. low-level employee following orders

f Degree of cooperation by employee during investigation Value of employee to organization Value of employee to organization

55

Top Ten Enforcement TrendsTop Ten Enforcement Trends

Increased number of cases Companies and individuals US and foreign persons Industry sweeps Industry sweeps

Increased penalties Highest for “grand” corruption, systemic corruption,

and repeat offendersand repeat offenders Increased likelihood improper conduct will be

discovered Increase in multiple parallel proceedingsIncrease in multiple parallel proceedings Broad enforcement focus

Includes operational (non-procurement) activities

56

Top Ten Enforcement Trends ( ’d)(cont’d)

C ll f d h ll l Cancellation of contracts and other collateral consequences Prosecution of commercial bribery as well as y

official bribery; use of money laundering and other statutes Fewer formal demands for attorney-clientFewer formal demands for attorney client

privilege waivers Companies settle rather than litigate; individuals,

targeted for enforcement increasingly litigatetargeted for enforcement, increasingly litigate Evolving and heightened corporate compliance

expectations

57

Dodd-Frank Whistleblower i i li i fProvisions—Implications for FCPA

Section 922 (21F of the Securities Exchange Act of 1934) Mandatory awards to whistleblowers Mandatory awards to whistleblowers 10 to 30% of collected sanctions For original information For original information Regarding a violation of the securities laws Leading to a successful enforcement actiong In which sanctions exceeding $1 million are

collected

58

Dodd-Frank Whistleblower i i ( ’d)Provisions (cont’d)

SOX non-retaliation protections extended to full consolidated group personnel, including employees of foreign operationsforeign operations

59

Settlement ProcessSettlement Process

Collateral consequences must be considered Consider whether to address in advance typical collateral

consequences:b d Debarment and suspension

Private civil suits by plaintiffs’ bar Claims by affected states (in addition to federal claims being

negotiated)negotiated) Administrative sanctions on individual officers or employees Special impacts: e.g.,

I t li bli li h li bl• Impact on liquor or gambling licenses where applicable• Ability to contract with Medicare/Med/VA (for pharmaceutical

or medical device companies)

60

Compliance Program ElementsCompliance Program Elements

Sources OECD Good Practice Guidance (2010) DOJ Deferred Prosecution Agreements

(DPAs)US S t i G id li US Sentencing Guidelines

International Standards: TI Business Principles PACI etcPrinciples, PACI, etc.

61