United States: Internal Investigations: You May Be Working for the Government

When you undertake an internal corporate investigation, whether as in-house counsel or as outside counsel, you may, as a practical matter, have been deputized by the U.S. Department of Justice ("DOJ").

U.S. Attorneys’ Offices are increasingly requiring corporations to waive the attorney-client and work product privileges and to disclose, at a minimum, the factual findings of any internal investigation — on pain of corporate prosecution or of harsher charges and penalties against the company. Indeed, a company’s decision to waive the attorney-client and work product privileges and to turn over its internal investigation is recognized in DOJ Guidelines as one of eight factors guiding the decision to prosecute a corporation. June 16, 1999, Memorandum from Deputy Attorney General Eric Holder titled "Bringing Criminal Charges Against Corporations" ("June 1999 DOJ Memorandum"). (Available on ACCA OnlineSM www.acca.com/gcadvocate/advocacy/ holder.html).

ACCA has criticized the government’s demand for privileged materials from internal investigations, complaining in a May 12, 2000 letter to the Department of Justice that its guidelines are "bad public policy." (see www.acca.com/ gcadvocate/advocacy/holder.html) However true that thought may be, DOJ has continued its demands for privileged materials from internal investigations.

The problems such demands pose are enormous:

• Production to the government of materials from an internal investigation may waive all objections to producing the same materials to civil litigants. This waiver is the practical equivalent of handing over a loaded gun to the plaintiffs’ bar.
• If a client agrees, at your recommendation, to waive privileges and to produce its internal report, but the co-operation deal thereafter goes south, you may have effectively drafted the indictment against your own client. Don’t be surprised if that indictment alleges facts discovered in the internal investigation, facts the government might have otherwise been unable to discover.
• The possibility of waiver and production can compromise the reliability of the internal investigation. Not surprisingly, employees who get wind that the corporation may be handing over interview notes to prosecutors may become unavailable for interviews or go scurrying to find their own counsel.

These problems notwithstanding, the issue generally is not whether to conduct an internal investigation or whether to disclose it to prosecutors. Recall that, in 1995, Daiwa senior management learned of substantial unauthorized trades, but delayed for several weeks notifying U.S. regulators. As a consequence, the Federal Reserve shut down Daiwa’s U.S. banking operations, and the bank was indicted on 24 conspiracy and fraud counts in the Southern District of New York. It pleaded guilty to some of those charges in February 1996, and ultimately paid a $340 million fine. And no lawyer worth his or her salt, having committed a client to a course of cooperation and cognizant of potentially substantial penalties under the U.S. Sentencing Guidelines, is going to defy a government demand for waiver of privileges, thereby potentially jeopardizing the client’s 5K letter, which the government can write in order to permit a lighter sentence.

So, as a practical matter, if it is impossible to avoid an internal investigation and if the company may have to turn the results of such an investigation over to the government, how should you proceed? Carefully, taking into account at least the following considerations:

• Use care in taking notes and in summarizing interviews in memos. Don’t be casual or sloppy because the notes and memos are not just for your own use. They will be picked apart for meaning by adversaries, civil and criminal, who may argue that they mean something very different from what you had had in mind.
• If adversaries are going to use your notes and memos and perhaps your testimony, about an investigation, you may want to be sure that your documents lock in certain information from witnesses. For example, witnesses who are favorable could change their story later under pressure, and unfavorable witnesses may later embellish what they have to say. You may also want to record impeaching material. Further, if damaging witnesses change their stories during one or more interviews or seem evasive or to be lying, you may want to record that situation vividly.
• Fairness (and ABA Model Rules 1.13(d) and 4.3) may compel you to tell employees and officers, before you interview them, that you do not represent them and that you are conducting an investigation for the company that may be turned over to prosecutors. Although witnesses may become reticent or hire their own counsel and clam up, you will not be misleading anyone.
• Any report concerning the internal investigation should carefully distinguish recitations of documents found and statements made by witnesses from counsel’s own opinions, analysis, and advice concerning the potential or existing criminal investigation. The possibility remains that the government will not insist on the revelation of counsel’s own mental impressions and of the advice it has given to the client concerning the government, its adversary, although there is no guarantee. DOJ’s 1999 Memorandum provides that waiver "should ordinarily be limited to the factual internal investigation and any contemporaneous advice given to the corporation concerning the conduct at issue. Except in unusual circumstances, prosecutors should not seek a waiver with respect to communications and work product related to advice concerning the government’s criminal investigation."

Ultimately, internal investigations usually are not just for internal use anymore. This shift makes them more important than ever. Corporate counsel need them to understand the facts themselves and to defend the company and address any underlying problems. But in serving those traditional ends the record you are creating will affect potential civil and criminal litigation, and you need to keep that fact in mind as you are creating the record.

Lisa A. Cahill is a partner in the New York office of Zuckerman Spaeder. A version of this article originally appeared in the New York Law Journal on September 21, 2000, and is published here with permission. © 2000 NLP IP Company.

Reprinted with permission of the American Corporate Counsel Association as it originally appeared: Lisa A. Cahill, "Internal Investigations: You May Be Working for the Government," Zuckerman Spaeder’s Outside Counsel, Winter 2001: 1–2. Copyright © 2001 by Zuckerman Spaeder and the American Corporate Counsel Association. All rights reserved. For more information or to join ACCA, call 202/293-4103, ext. 360, or visit www.acca.com.