But Im a business lawyer. I dont deal with criminals.
That doesnt mean criminal matters wont crop up in your practice. Maybe your client will be the target of the investigation, or only a witness, but odds are that you will encounter a criminal investigation.
Even upstanding and law abiding companies can become targets of criminal investigations because of the expansive doctrine of respondeat superior. Corporations can be criminally liable for the acts of their agents and even their most junior employees so long as the acts were committed in the course and scope of employment, and were intended to benefit the corporation. Since the corporation is the deep pocket, the corporation may be targeted, along with culpable employees.
There has been a steady trend toward criminalizing conduct that used to be addressed primarily through administrative or civil remedies. Prosecutors now target certain health care and environmental cases for criminal prosecution when, in the past, these same cases would have been addressed through recoupments of overpayments or administrative fines and penalties. The broad reach of federal criminal statutes renders almost any wrongful conduct a potential crime.
There has also been a trend toward coordinating the full range of government enforcement tools criminal prosecution, civil suits and administrative sanctions through parallel or sequential investigations
How Is a Criminal Matter Likely to Come Up?
White collar matters may come up in a number of way. A client may seek advice about misconduct of an employee. A civil suit may allege criminal conduct through RICO, False Claims Act, or other fraud allegations. Evidence of white collar offenses may also come up during discovery.
Your client might also become a target, subject or witness in government investigation. In federal investigations a target is the focus of the governments investigation, a subject is one that might become a target, and a witness is one the government believes may have information relevant to the investigation, but is not a target or subject. It is important to determine which category the client fits into as quickly as possible, and also to recognize that the status can change from one category to another.
Most white collar crime investigations begin in secret. The investigation may be triggered by a Qui Tam complaint alleging a violation of the state or federal False Claims Act. These complaints are filed under seal. Or the investigation may be triggered by an agency referral or a report from a complaining victim. During the covert stage of the investigation, the government may attempt to use undercover techniques such as consensual monitoring of conversations to elicit incriminating admissions. The government will use this period to develop probable cause to obtain a search warrant.
There are many telltale signs an investigation may be going on, from non routine focused audits, to agent interviews of current or former employees. It is common for agents to drop in on employees at home in the evening to avoid alerting the company. Confirmation that an investigation is in progress comes when the government issues subpoenas or executes a search warrant.
In a white collar case, a subpoena will likely be issued by the Office of Inspector General (OIG) of a particular department, or by the grand jury. Production of documents may also be compelled through an Authorized Investigative Demand (AID) which may be issued by the U.S. Attorneys office.
A grand jury subpoena may compel the production of documents and testimony. As indicated above, since grand jury proceedings are subject to strict secrecy rules, criminal prosecutors sometimes use OIG subpoenas or AIDs so the information may be shared with those investigating civil allegations.
Issuance of a subpoena does not necessarily indicate the government has solid evidence of criminal conduct. A search warrant, on the other hand, can only issue if the government convinces a magistrate that it has probable cause that evidence or instrumentalities of a crime will be found. A subpoena is often issued to non target third parties while a search warrant is generally used to obtain evidence from targets of the criminal investigation.
How Should I Respond?
Carefully. Responding inappropriately not only could prejudice your client, but could land you in jail. Federal obstruction of justice statutes are broad and lying to a federal agent is a crime whether or not the statement was given under oath (just ask Martha Stewart!).
Corporations face severe sanctions if found guilty of criminal offenses. In additional to the criminal fines and penalties faced by a company, civil and administrative consequences are onerous. For example; an entity that committed Medicare fraud could be liable for treble damages under the False Claims Act plus civil monetary penalties of up to $11,000 for each claim submitted. Companies are probably most fearful of the death penalty, that is, exclusion or debarment from government programs, which is a possible and sometimes mandatory consequence of a criminal conviction or adverse civil or administrative determination.
Individuals face lengthy incarceration as well as dire financial consequences. Under the federal sentencing guidelines, white collar criminals rarely escape some period of incarceration. Also, prosecutors routinely use money laundering charges to enable them to forfeit property belonging to the defendant.
Search Warrants
Suppose a client calls frantically and tells you federal agents (with guns!) are at the door with a search warrant. What do you advise?
If the agents have a search warrant, they have a right to enter the property and search the locations described in the warrant. This first step, then, is to obtain a copy of the warrant to determine its scope and to identify the assistant U.S. attorney who approved it. An attempt should also he made to get a business card from the agents executing the search. At this stage the affidavit which sets forth the evidence establishing probable cause will generally not be available.
The most critical advice to a client whose premises are being searched is not to interfere with the agents conducting the search. If agents perceive that someone is interfering with them, they will not hesitate to arrest the person for obstruction of justice. At the same time, it is helpful if the client can monitor what the agents are doing and keep a record of what they are seizing. The client should make efforts to advise agents of privileged or other sensitive material that may require special handling or documents or equipment that is essential for maintaining the operation of the business.
While searching, agents will attempt to interview employees. Whether an employee wishes to submit to an interview is a personal decision. Under no circumstances should the client advise an employee not to talk to law enforcement agents since that could be considered obstruction of justice. On the other hand, it is permissible to explain to employees their right to refuse to speak to the agents if they decide not to and that they can request that counsel be present. Since this is a sensitive area, the best practice is to have knowledgeable counsel provide advice to employees regarding these matters.
Subpoenas
A grand jury subpoena may call for the production of documents or the testimony of the witness, or both. Subpoenas for documents can be very broad. A document subpoena will be upheld so long as it seeks documents which may be relevant to the investigation and production does not result in an undue burden on the recipient. Consequently, motions to challenge a grand jury subpoena rarely succeed. However, the prosecutor is often willing to negotiate limitations on the scope of the subpoena, or will agree to a rolling production.
When your client gets a subpoena, it is important to quickly identify the clients status in the investigation. Is the person or entity a witness, subject or target of the investigation? If an individual has potential exposure to criminal prosecution, he or she may refuse to testify without a grant of immunity. Federal law provides for use immunity. If a person is granted use immunity, the prosecutor may not use the testimony of the witness, or any evidence derived from the testimony, in a prosecution of that individual. Immunity can be formal or informal. With formal immunity, the prosecutor seeks an order from the district court to compel an individual to testify. For informal grants of immunity, the prosecutor agrees not to use statements or testimony of a witness under certain conditions.
Before granting immunity, the prosecutor will want to know what the witness has to say. This can be accomplished through a proffer or what is known as Queen for a Day immunity. Under this procedure, the government reserves its decision to grant full immunity until it has had an opportunity to interview the witness, but agrees that it will not use the statements made during that debriefing session if it decides not to grant immunity.
A corporation has no 5th amendment right to refuse to incriminate itself. Consequently, a corporation must generally turn over documents in response to a subpoena. A corporation, however, may assert an attorney client privilege as to documents to which the privilege attaches.
Agents will usually attempt to interview witnesses when they serve the subpoena. Some agents have been known to tell the witness that he or she wont have to attend the grand jury session if they agree to be interviewed. Your client should be aware that they do not need to speak to the agent, and if they choose to, they should tell the truth. Making false statements to federal agents, even if not under oath, is a felony offense.
Representation Issues
When the white collar investigation involves a business entity, a variety of representation issues arise. Separate counsel may be necessary to represent the interests of the entity and its employees, officers and agents. The employer may be required to indemnify its employees, officers and agents for legal fees incurred during the investigation.
When a company gets wind that the government is conducting an investigation, it will often conduct its own internal investigation. To the extent that investigation is done under the auspices of counsel, it may be protected by the attorney client privilege. Counsel for the company and counsel for individuals involved in the investigations may enter into joint defense agreements to facilitate sharing information without having to disclose it to the government. While the results of an internal investigation may be privileged, the government may require the company to waive the privilege and turn over its report of investigation as a condition of any settlement.
Difficult Tactical Choices
Because most white collar investigations now involve parallel proceedings, clients are often faced with a Hobsons Choice in deciding how to proceed. For example, if the client attempts to assert his or her 5th Amendment privilege in a related civil case, an adverse inference may be drawn. On the other hand, testifying in the civil proceeding may waive the 5th Amendment protection and the testimony will be admissible in the criminal case. Sometimes these dilemmas can be minimized by obtaining a stay of the civil matter pending resolution of the criminal investigation.
Another difficult tactical decision is whether to voluntarily disclose evidence of criminal conduct to the government. In some circumstances disclosure is mandatory. Most often, though, there is no legal duty to report but the pros and cons of voluntary disclosure must be carefully weighed.
What to Do?
Since the stakes are high, government investigations should always be taken seriously. Business lawyers should be alert to the first signs of a criminal investigation and be prepared to advise their clients, or refer them for advice, about the many risks involved and the difficult decisions that need to be made.
Geoffrey Goodman is a former federal and state prosecutor who specializes in defending companies and individuals against the government in criminal and regulatory investigations and prosecutions. He also conducts internal investigations and handles matters in both federal and state court.
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