Government Investigations of Corporate Misconduct...

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Presenting a live 90-minute webinar with interactive Q&A

Government Investigations of Corporate

Misconduct: Privilege, Self-Reporting,

Yates Memo and Other Key Issues Strategies to Shield the Business and its Counsel from Liability,

Prosecution and Reputational Damage

Today’s faculty features:

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

TUESDAY, FEBRUARY 9, 2016

Shireen M. Becker, Partner, Jones Day, San Diego

Steven A. Fredley, Partner, Harris Wiltshire & Grannis, Washington, D.C.

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GOVERNMENT INVESTIGATIONS OF CORPORATE MISCONDUCT: PRIVILEGE, SELF-REPORTING, YATES MEMO AND OTHER KEY ISSUES

Presented By:

Shireen M. Becker, Partner, Jones Day

Steven A. Fredley, Partner, Harris, Wiltshire & Grannis

5

Preparing for Investigation 6

Four Key Questions to Consider Before Beginning Any Internal Investigation

1. Who is best suited to conduct the internal investigation?

2. What is the appropriate scope of the internal investigation?

3. Who should be advised (and kept apprised) of the internal investigation?

4. How should the internal investigation be structured to maintain the attorney-client privilege and work-product protections?

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Who Should Conduct The Investigation?

• Advantages of In-House Counsel

• Know how the company operates

• Access key information more quickly

• Know employees and more likely to have their trust

• Advantages of Outside Counsel

• Viewed as more independent

• More resources on which to draw

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• Factors to Consider in Deciding Between In-House or Outside Counsel

• Need to protect privilege

• United States v. Singhal, 800 F. Supp. 2d 1 (D.D.C. 2011) (“Where business and legal advice are intertwined, the legal advice must predominate for the communication to be protected.”)

• Akzo Nobel Chemical Ltd. v. Commission, Case-550/07 (European Ct. Justice) (holding that internal company communications with in-house lawyers are not privileged; privilege applied only to “independent” lawyers who are not bound to the client by a relationship of employment”)

• Experience and resources of in-house counsel & legal department

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• Factors to Consider in Deciding Between In-House or

Outside Counsel

• Nature of the problem

• Outside Counsel better suited to investigate:

• Conduct involving issues related to the company’s accounting or

financial reporting

• Conduct of senior management

• Conduct raising issues concerning the company’s internal controls

• In-House Counsel better suited to investigate:

• Violations of employment laws

• Internal employment policies

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• Factors to Consider in Using Regular or New Outside Counsel

• Extent to which regular outside counsel’s advice may be at issue

• See, e.g., In re Enron Corp. Sec., Derivative & ERISA Litig., 235 F. Supp. 2d 549 (S.D. Tex. 2002) (noting “issue of a serious conflict of interest” arises when the firm alleged to have participated in the wrongdoing investigates the same wrongdoing).

• Perception by government regulators and prosecutors of independence

• Whether regular outside counsel has a prior or current attorney-client relationship with employees who may be targets of investigation

• See, e.g., United States v. Nicholas, 606 F. Supp. 2d 1109 (C.D. Cal. 2009)

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• Role of In-House Counsel

• Facilitate work of outside counsel

• Employee Interviews

• Document retention and collection

• Avoid appearance of influence over the investigation or results

• Role of lawyers in internal investigations is a “particular focus” because in some instances lawyers “may have conducted investigations in such a manner as to help hide ongoing fraud, or may have taken actions to actively obstruct such investigations.” (Stephen Cutler, SEC Director Division of Enforcement)

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What is the Appropriate Scope of the Internal Investigation?

• Create a written work plan that contains the following:

• Key issues to be investigated

• Relevant time period

• Categories of documents to be gathered

• Method by which such documents will be collected, translated (if necessary), and reviewed

• Identity and order of witness interviews

• External consultants

• Timeline

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• Benefits of Written Work Plan – Front End

• Investigation reasonably tailored to the issues presented

• Set expectations for time and cost

• Identify potentially sensitive areas in the investigation

• Benefits of Written Work Plan – Back End

• Can help prevent the dreaded “runaway” investigation

• Can serve as the measuring stick for a variety of future audiences who may have an interest in assessing the adequacy of the investigation conducted

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• Does the allegation have broader implications than the immediate matter?

• Inadequate process controls?

• Inadequate policy guidance?

• Is there a larger problem that needs to be investigated?

• E.g., allegation of improper booking of gross revenue on a services translation involving third party contracts – do you investigate similar contracts?

• E.g., allegation of corruption in China with same sales force handling Vietnam – do you investigate Vietnam?

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• Don’t “Boil the Ocean”

• Leslie R. Caldwell, Assistant Attorney General

• But don’t ignore signposts and signals that a

discrete allegation may suggest risk in broader

business practices

• Document the decision for future reference

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Who should be advised (and kept apprised) of the internal investigation?

17

Private Civil Litigants

Media Foreign Governmen

ts

Government

Enforcement Agencies

Public

Executive Team

Board

Employees Shareholders

Insurers

Lenders

Customers

Vendors

COMPANY

Auditors

Who should be advised (and kept apprised) of the internal investigation?

• Information about the investigation—even the fact of the investigation itself—should be strictly controlled and generally considered to be highly confidential

• Potential Stakeholders

• The Board and Company Management

• Outside Auditors

• Local Country Management

• D&O Insurers

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How to Best Protect the Attorney-Client Privilege and Work-Product?

1. Document that the investigation is undertaken for

purpose of providing legal advice.

2. Emphasize importance of confidentiality.

3. Outside consultants should be retained by counsel.

4. Give Upjohn warnings at the outset of all witness

interviews.

5. Mark all investigation-related documents as “Attorney-

Client Privileged” or “Attorney Work Product” (or both)

as appropriate.

6. Be aware that attorney-client privilege can vary from

country to country.

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Conducting Investigation 20

Document Retention Strategies

“The scope of a party’s preservation obligation can be described as follows: Once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a ‘litigation hold’ to ensure the preservation of relevant documents.”

- Zubulake v. UBS Warburg LLC, 220 F.R.D. 212 (S.D.N.Y. 2003)

• Key Questions Regarding Duty to Preserve:

• When does the duty attach?

• What information is subject to that duty?

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• The Litigation Hold

• Issue immediately to prevent destruction of documents

• Identify custodians likely to have relevant documents

• Key elements

• Summary description of the issue

• Description of the document & data to be preserved

• Explanation of the duty to preserve information

• Risks of noncompliance (e.g., obstruction of justice)

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• Other Practical Steps:

• Require custodians to acknowledge receipt and compliance with litigation hold

• Suspend automated, data-deletion protocol

• Inventory sources of information (e.g., company servers, employee hard drives, handheld devices).

• Don’t forget the paper

• Start with broad litigation hold and update the scope as the investigation develops

• “[I]t is not sufficient to notify all employees of a litigation hold and expect that the party will then retain and produce all relevant information. Counsel must take affirmative steps to monitor compliance so that all sources of discoverable information are identified and searched.” Zubulake v. Warburg LLC, 229 F.R.D. 422 (S.D.N.Y. 2004

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• Document Collection

• Automate the collection process as much as possible

• Utilize IT specialists and outside forensic experts

• Develop thoughtful and focused list of search terms for

electronic data

• Carefully consider risks/benefits before restoring

backup data

• Carefully catalog the source/custodian from which

document collected

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• Document Review

• Code documents according to key issues

• Make sure reviewing attorneys understand

nature of alleged conduct and role of key

individuals

• Utilize advanced review platforms

• E.g., predictive coding

25

Interviewing Employees

• Witness Warnings

• Upjohn Warning

• Counsel represents the company and not the individual witness

• Interviewing being conducted for purpose of providing legal advice to the company

• Attorney-client privilege belongs to the company and not the witness

• The company may decide to waive the privilege by disclosing content of interview to third party (i.e., government)

• Decision to waive entirely within discretion of the company

• The company considers the interview as confidential and subject to the attorney-client privilege and the employee should keep the substance of interview confidential

26



• Zar Warning

• Counsel should warn witness that if they make a false statement during the internal interviews, he could be charged with obstruction of justice.

• Should be given if the company knows that it will or is likely to cooperate with government.

• Not required by law, but given out of sense of fairness

• Risks to giving Zar Warning

• Employee may not cooperate

• Government may view as inviting employee not to cooperate

27



• Separate Counsel Warning

• Remind witness that attorney does not represent

him

• If witness wants to consult counsel before

proceeding, interview can be postponed

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• At least two attorneys present for

interviews

• All witness warnings should be documented

in attorney interview notes/memo

• Memo should state not a verbatim

transcript and contains attorney’s mental

impressions

29

Yates Memo – Impact on Internal Investigations

• Individual Employees May be Less Likely to Cooperate

• Upjohn Warnings May Need to Be Expanded

• Investigations May Require More Time and Resources

• The Decision of Whether to Cooperate: More Complex

Than Ever

30

Selecting Experts- Consulting vs. Testifying

• Consulting Expert

• Retained in confidence

• Work, advice, opinions not discoverable

• Testifying Expert

• Methodology, opinions, credentials must be disclosed

• Subject to pre-trial deposition

• Keep in mind state disclosure laws

• Engage Early

31

Selecting Experts – Types

• Forensic Accountants

• Economists

• Computer Forensics

• Subject Matter Expertise (e.g., health care,

industry standards)

• Investigative Experts in Foreign Jurisdictions

32

Post Investigation: Best Practices 33

Reporting Results of Investigation

• Written Report v. Oral Presentation

• Factors to Consider:

• Preparation of report is expensive and time consuming.

• Potential for privilege to be waived.

• Findings and conclusions are set; if additional information

later discovered, potentially undermine credibility of

investigation.

• Oral presentation can be provided to Board or committee

and can be documented in meeting minutes.

Reporting Results of Investigation

• To Disclose or Not to Disclose?

• Government policies encouraging cooperation

• Department of Justice – Filip Memo.

• Antitrust Division Corporate Leniency Policy

• SEC – Seaboard Guidelines

35

Self-Reporting Investigation to Government- DOJ Guidance

• USAM Section 9-28.900, “Voluntary Disclosures,” now states:

“[T]he Department encourages corporations, as part of their

compliance programs, to conduct internal investigations and to

disclose the relevant facts to the appropriate authorities.”

Although “a prosecution may be appropriate notwithstanding a

corporation’s voluntary disclosure,” there are nevertheless

concrete, tangible benefits available to entities who do elect to

self-disclose corporate misconduct.

• “When a company voluntarily self-discloses, fully cooperates and

remediates, it is eligible for a full range of consideration with

respect to both charging and penalty determinations.”

36

Self-Reporting Investigation to Government- SEC Guidance

• “Going forward, a company must self-report

misconduct in order to be eligible for the

Division to recommend a DPA or NPA to the

Commission in an FCPA case.”

• Companies that elect not to self-disclose

violations of the FCPA but later come under SEC

scrutiny will be prohibited from entering into a

DPA or NPA and will have to reach a more

onerous form of corporate resolution.

37

Self-Reporting Investigation to Government- SFO Guidance

“ A self-report at the very least significantly mitigates the chances of a corporate being prosecuted. It opens up the possibility of a DPA or civil recovery. There is a moral and reputational imperative to self-report: it is the right thing to do and demonstrates that the corporate is serious about behaving ethically. If the corporate chooses to bury the misconduct rather than self-report, the risks attendant on discovery are truly unquantifiable. And of course, there will be the long, anxious watches of the night when complicit senior managers lie awake and fret about being found out.”

David Green QC, Director of the SFO

38

Self-Reporting Investigation to Government- Whistleblowers

• SEC’s whistleblower program authorizes the SEC to award whistleblowers between 10% and 30% of monetary sanctions collected on enforcement actions in excess of $1 million and related actions.

• In FY 2015 alone, the SEC received nearly 4,000 whistleblower tips. The SEC has awarded more than $54 million to whistleblowers since the program’s current rules came into effect in August 2011.

39

Self-Reporting Investigation to Government- Upsides

• Benefits of cooperation

• Reduce potential fines on company

• Protect officers, directors, and employees

• Avoid costs of protracted litigation

• Minimize negative media coverage

40

Self-Reporting Investigation to Government- Downsides

• Government is almost certain to launch its own

investigation

• Local government may launch separate investigation

• Cooperation among various sovereigns

• Cannot control what the form of the resolution will

look like

• Yates Memo – Cooperation is “all or nothing”

• Cooperation vs. Self-Disclosure

41

Cooperating With The Government

• Factors Considered for Leniency

• Thoroughness & independence of internal investigation

• Voluntary disclosure

• Promptness & effectiveness of company’s response

• Existence and effectiveness of company’s pre-existing

compliance program

• Remediation

42

Recent Guidance from DOJ – The Yates Memo

The Six Policy Changes

1. “All or Nothing” Cooperation Credit

2. Focus on Individuals

3. Communication between Criminal and Civil

4. No Individual Releases Absent Extraordinary Circumstances

5. Clear Plan to Resolve Individual Cases

6. Civil also should Focus on Individuals

43

Remediation Measures and the Importance of Compliance

• While the Department recognizes that no compliance program can ever prevent all criminal activity by a corporation’s employees, the critical factors in evaluating any program are whether the program is adequately designed for maximum effectiveness in preventing and detecting wrongdoing by employees and whether corporate management is enforcing the program or is tacitly encouraging or pressuring employees to engage in misconduct to achieve business objectives.

United States Attorneys’ Manual (USAM) §9-28.900(B) (2015).

44

Remediation and the Importance of Compliance- FCPA Resource Guide (List of 10)

1. High-level commitment

2. Written Policies

3. Periodic Risk-Based

Review

4. Proper Oversight and

Independence

5. Training and Guidance

6. Internal Reporting

7. Investigation

8. Enforcement and

Discipline

9. Third Party

Relationships

10. Monitoring and Testing

45

Remediation and the Importance of Compliance- U.S. Sentencing Guidelines § 8B2.1 1. Establish standards and procedures to prevent/detect criminal

conduct

2. Create a compliance program with appropriate management oversight, individual operational responsibility, and adequate resources/authority

3. Exclude from organizational management individuals who engaged in activities that are illegal or inconsistent with compliance program

4. Communicate compliance standards and procedures through training

5. Monitor and audit compliance activity and maintain a system for employees and agents to report criminal conduct

6. Promote and enforce the compliance and ethics program

7. Respond to any detected criminal conduct and prevent further similar conduct

46

Remediation and the Importance of Compliance- Case Studies

• Morgan Stanley – Declination

• Commerzbank - forfeit $563 million and pay a $79

million fine

• BNP Paribas – 5 years probation and monetary penalty

of nearly $9 billion

47

Dealing With Parallel Civil Proceedings

• Shorthand term for simultaneous criminal, civil and administrative investigations

• Health Care, FCPA, Procurement Cases

• See Memorandum from the Attorney General to U.S. Attorneys et al.(Jan. 30, 2012), mandating information sharing between the civil and criminal divisions “to the fullest extent appropriate to the case and permissible by law.”

• Yates Memo requires “routine communication” between civil and criminal attorneys

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• Tell-Tale Signs of Parallel Proceeding

• Administrative Subpoenas

• Search Warrant

• Unsworn Use of Witness Statements

• CIDs

• Delay of Grand Jury Proceedings

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• Collateral Consequences

• Exclusion

• Debarment

• Suspension

• Permissive vs. Mandatory

• Part of Global Resolution

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Questions 51

Faculty

Shireen M. Becker, Partner

JONES DAY

12265 El Camino Real

Suite 200

San Diego, California 92130

Tel: 858.314.1184

[email protected]

Steven A. Fredley, Partner

HARRIS, WILTSHIRE & GRANNIS

1919 M. Street, N.W.

Eighth Floor

Washington, D.C. 20036

Tel: 202.730.1317

[email protected]

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