The Justice Department has been continually criticized, from blog commentators to U.S. senators, for not having more prosecutions against individuals for violations of the Foreign Corrupt Practices Act.
Perhaps forgetting the Mitt Romney-ism that corporations are people too, one school of thought says that by only fining companies, the message is sent that getting caught for violations of the FCPA will simply be seen as a cost of doing business. Of course the more cynical might simply say corporations are tired of paying increasing FCPA fines.
In the category of, “be careful what you wish for,” however, that might be changing in a very dramatic way.
This change was previewed last fall, in a speech to the Ethics and Compliance Officers Association conference b y Assistant Attorney General for the Criminal Division Leslie Caldwell. She made clear in speeches to various compliance groups that the Justice Department would seek to prosecute more individuals. While discussing corporate cooperation she said:
“When criminal misconduct is discovered, a critical factor in the department’s prosecutorial decision making is the extent and nature of the company’s cooperation. The department’s Principles of Federal Prosecution of Business Organizations provides that prosecutors should consider the corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents.
“Now let me flesh out the often discussed, but sometimes poorly understood, concept of cooperation … [C]ompanies all too often tout what they view as strong cooperation, while ignoring that prosecutors specifically consider ‘the company’s willingness to cooperate in the investigation of its agents.’
“Corporations do not act, but for the actions of individuals. In all but a few cases, an individual or group of individuals is responsible for the corporation’s criminal conduct. The prosecution of culpable individuals—including corporate executives—for their criminal wrongdoing continues to be a high priority for the department
“For a company to receive full cooperation credit following a self-report, it must root out the misconduct and identify the individuals responsible, even if they are senior executives.”
So there it is for all to see. The Justice Department wants companies now to tee up their employees for prosecution. What are some of the implications of this new policy going forward?
We saw a preview of this in the PetroTiger prosecution against its former co-chief executive officer, Joe Sigelman, when the company’s former general counsel, Gregory Weisman, wore a video tape furnished by the FBI when he met with Sigelman. Sigelman filed a motion to quash this evidence claiming all these conversations were protected by the attorney-client privilege, but the federal district court denied the motion. The reason was that no legal issues were discussed during the meeting in Sigelman’s home, only the alleged payment(s) that served as the basis for the prosecution.
I do know when you set up systems designed to pit companies against their employees and vice versa, it does not make for a positive work place. So for all those who have complained about the lack of individual prosecutions, be careful what you ask for. You’re starting to get it.
Most corporate executives think of a GC as their personal counsel as well as the counsel for the company. Indeed, Weisman was reported to have done personal legal work for Sigelman. This leads to a rather poor understanding of the nuances of the attorney-client privilege but the basics are that the client must seek legal advice from the lawyer, who then provides it. It all becomes more and more murky.
What about the employees that the corporation is supposed to tee up for the Justice Department? Will the company provide them with counsel? Many companies routinely provide counsel to individuals who may have FCPA exposure, and pay for it too. Many of the creative legal arguments made in the few cases that have even made it to federal districts courts for pre-trial proceedings have come from high-priced defense lawyers hired by companies to represent their senior executives. Will this key and basic benefit that a company can provide to its employees come to be seen as something as less than full cooperation with the Justice Department?
What about the company’s internal investigation? In her remarks, Caldwell pointed directly at the French bank BNP Paribas, as a case where the company not only failed to engage in adequate cooperation; it dragged its feet so that certain senior executives who had engaged in illegal conduct could not be prosecuted either because of lack of evidence or the statute of limitations had run. Where will a company now take its investigation in light of Caldwell’s remarks?
What about the rights of employees? Employees who are subject to being interviewed or otherwise required to cooperate in an internal investigation may find themselves on the sharp horns of a dilemma. They might be required either to cooperate with the internal investigation, or risk losing their jobs for failure to cooperate by providing documents, testimony or other evidence. Many U.S. businesses mandate full employee cooperation with internal investigations or those handled by outside counsel on behalf of a corporation.
In a paper titled “Navigating Potential Pitfalls in Conducting Internal Investigations: Upjohn Warnings, ‘Corporate Miranda,’ and Beyond” Craig Margolis and Lindsey Vaala of the law firm Vinson & Elkins wrote that these requirements can exert a coercive force, “often inducing employees to act contrary to their personal legal interests in favor of candidly disclosing wrongdoing to corporate counsel.” Moreover, such a corporate policy may permit a company to claim to the U.S. government a spirit of cooperation in the hopes of avoiding prosecution in “addition to increasing the chances of learning meaningful information.”
Where the U.S. Government compels such testimony through the mechanism of pressuring a business to coerce its employees into cooperating with an internal investigation by threatening job loss or other economic penalty, the in-house counsel’s actions may raise Fifth Amendment due process and voluntariness concerns because the underlying compulsion was brought on by a state actor (the U.S. government). What happens when it becomes the norm for companies to investigate employees without the protection of Miranda rights, and the U.S. government is sometimes able to achieve indirectly what it would not be able to achieve on its own: inducing employees to waive their Fifth Amendment right against self-incrimination and minimizing the effectiveness of defense counsel’s assistance.
Let’s keep on skipping down the lane and see where we go. What if the company gets its investigation wrong and wrongfully identifies an employee? At least in a few states, such as Texas, a wronged employee can sue for defamation. That may not last longer, since a case is in front of the Texas Supreme Court where a wronged employee sued his former employer Shell Oil Co., who identified him in its internal FCPA investigation.
The issue before the Court is whether Shell’s internal FCPA investigation is absolutely privileged from a defamation claim by persons named in the report as having violated the FCPA. The former employee claimed defamation from Shell’s report of its internal investigation provided to the Justice Department. He lost at the trial court when it found that Shell had an absolute privilege because the report was turned over to a government agency investigating the matter.
The court of appeals reversed that decision, holding that because the internal investigation was voluntary rather than mandatory, only a conditional privilege existed. The case went back to the trial court for further proceedings. Shell appealed this court of appeals decision to the Texas Supreme Court. The smart money is on Shell to prevail in this case.
I do not pretend to know how some or all of these issues will play out. I do know when you set up systems designed to pit companies against their employees and vice versa, it does not make for a positive work place. So for all those who have complained about the lack of individual prosecutions, be careful what you ask for. You’re starting to get it.