United States: Key Considerations In US Government Investigations

In summary

Guiding a client through a US government investigation requires advising on a myriad of complex strategic decisions. This article outlines certain critical considerations for companies and their counsel as they navigate criminal, civil and regulatory investigations, whether being led by the Department of Justice or an agency such as the Securities and Exchange Commission, the Commodity Futures Trading Commission or the Office of Foreign Assets Control.

Discussion points

• At the outset of a US government investigation, counsel should evaluate how the investigation began and how far it has progressed to assess how best to respond.
• Careful consideration must be given to undertaking an internal investigation if the company has not already done so.
• Cooperation (including self-reporting any new violations) carries significant benefits and risks, and must be tailored to the specific agency's expectations.
• Care must be taken to engage with the government and respond to requests without waiving the attorney-client privilege or other applicable privileges.
• Parallel investigations by multiple federal, state or foreign agencies carry unique challenges and require careful coordination.

Referenced in this article

• US Department of Justice, Justice Manual, Principles of Federal Prosecution of Business Organizations
• US Securities and Exchange Commission, Enforcement Manual
• US Commodity Futures Trading Commission, Enforcement Manual
• US Department of Treasury, Office of Foreign Assets Control, Enforcement Guidelines
• Memorandum from DOJ Deputy Attorney General Lisa O Monaco, 'Corporate Crime Advisory Group and Initial Revisions to Corporate Criminal Enforcement Policies'

In the early stages of a US government investigation, a company will often face daunting decisions that can have an outsize impact on the course of the investigation for months or years to come. As discussed below, some of the important considerations are: (1) evaluating how the investigation began and how far it has progressed; (2) preserving potential evidence and other data; (3) deciding whether to launch an internal investigation; and (4) engaging with the investigating agency while protecting the attorney-client privilege.

How did the investigation begin?

US government investigations may be initiated in many different ways. Understanding how the investigation began can provide insight into how far it has progressed, which is a key factor to consider in deciding how best to respond.

Whistleblowers

The US legal system contains a variety of state and federal mechanisms that incentivise and shield individuals who come forward to report potential misconduct. In recent decades, the DOJ increasingly has used the False Claims Act (FCA)¹ to prosecute a broad range of false monetary claims submitted to the government, often relying on whistleblowers who are incentivised to bring lawsuits on behalf of the US government.²

The Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC) and Treasury Department also have effective whistleblower programmes. Under the Sarbanes-Oxley Act of 2002³ and Dodd-Frank Act of 2010,⁴ individuals may report voluntarily to the SEC 'original information' about potential violations of US securities laws. In fiscal year 2021, the SEC received a record-breaking number of whistleblower tips – more than 12,200 – from individuals in 99 foreign countries.⁵ The CFTC operates a virtually identical whistleblower programme under section 23 of the Commodity Exchange Act,⁶ which allows individuals to report potential violations of US commodities laws to the CFTC. The Treasury Department's whistleblower programme has been significantly bolstered by the recent passage of laws. On 1 January 2021, the Anti-Money Laundering Act of 2020 took effect, enhancing the Treasury

Department's whistleblower award programme to encourage reporting on financial institutions' violations of the Bank Secrecy Act. And in March 2022, the Treasury Department established a new whistleblower programme pursuant to the Kleptocracy Asset Recovery Rewards Act. The Kleptocracy Asset Recovery Rewards Program offers up to US$5 million to whistleblowers who provide information that leads to the seizure, restraint, forfeiture or repatriation of assets linked to foreign government corruption.⁷

Government officials report that whistleblowers continue to provide immense value to investigators. As insiders or individuals with knowledge of the workings of the target company, whistleblowers often have the ability to influence investigators' view of otherwise ambiguous conduct, particularly early on in a government investigation.

The most effective way for companies to mitigate whistleblower risks is to create and foster a compliance culture that encourages internal reporting and addresses complaints with as much transparency as possible. A robust compliance programme, coupled with easily accessible whistleblower and anti-retaliation policies, will provide comfort to employees by making it clear that improper conduct will not be tolerated and reassuring employees that their complaints will be handled sensitively and seriously. Companies should also establish an ethics policy that requires personnel to comply with all applicable legal duties and sets forth specific requirements in areas more prone to violations. Companies should ensure these programmes are implemented through robust and regular training, and provide routine surveys and checks to ensure the programme is meeting its desired goals.

Where a government investigation has been launched based on a whistleblower report, the target company is already at a significant disadvantage. The government is likely in possession of sensitive and potentially damaging information, including key documents or even recordings of meetings. Government investigators typically will not disclose to the company that the government has received a whistleblower report. In such circumstances, it would be prudent to undertake an internal investigation. However, special care must be taken to avoid even the appearance of retaliatory conduct. An investigation can be critical in developing additional facts and providing context to counterbalance the prevailing government narrative.

Subpoena or other formal request

Companies often learn of a government investigation for the first time when they receive a formal written notice demanding the disclosure of documents and information. In criminal investigations, the DOJ typically issues these demands in the form of a grand jury subpoena. A corporation has no Fifth Amendment privilege against self-incrimination⁸ and therefore cannot refuse to produce records, even if it is the target of the investigation.

Many federal agencies are also statutorily authorised to issue administrative subpoenas compelling document production and testimony.⁹ These subpoenas are similar to grand jury subpoenas, except they are issued in an agency's name. Another investigative tool is the Civil Investigative Demand (CID), a compulsory procedure used to obtain documents, answers to interrogatories and oral testimony. CIDs are often used by the Federal Trade Commission and the DOJ's Antitrust and Civil Divisions.

Upon receipt of a subpoena or CID, a reasonable first step is often to begin a dialogue with the government agency. While it is not always necessary to retain outside counsel to handle this outreach, it may be wise to do so, especially if it is clear from the demands that the government is focused on a sensitive subject area or critical part of the business.

Key questions to try to answer are: What is the focus of the government's investigation? Is the investigation targeting the company or some other entity or person? How far along is the investigation? Answers to these questions will inform counsel's advice about what approach to take. Every situation is unique, but common approaches include negotiating with the government to narrow the subpoena, offering to provide a live presentation on the facts in lieu of a subpoena response in the first instance, or – if the demand seems unduly burdensome or baseless – trying to persuade the government to drop the demand, or pursuing a challenge in court. Depending on the circumstances, counsel may also advise the company to undertake an internal investigation to get to the bottom of what the government is investigating.

Awareness of government investigations in the same industry

Government agencies often focus their enforcement efforts on particular industries where many firms engage in similar practices that prosecutors or regulators believe to be problematic. Thus, when news breaks of a government investigation or corporate resolution in a particular industry, it can be a potent warning sign to other industry participants that they may soon be under investigation too, if they are not already.

Footnotes

1 31 U.S.C. § 3729 et seq.

2 See, eg, U.S. Dep't of Justice, 'Justice Department's False Claims Act Settlements and Judgments Exceed $5.6 Billion in Fiscal Year 2021' (Feb. 1, 2022), available at https://www.justice.gov/opa/pr/ justice-department-s-false-claims-act-settlements-and-judgments-exceed-56-billion-fiscal-year. (discussing FCA recoveries in fiscal year 2021).

3 15 U.S.C. § 7201 et seq.

4 12 U.S.C. § 5301 et seq.

5 U.S. Securities and Exchange Comm'n, '2020 Annual Report to Congress – Whistleblower Program' (Nov. 16, 2021), available at https://www.sec.gov/files/2021_OW_AR_508.pdf.

6 7 U.S.C. § 1 et seq.

7 U.S. Dep't of Treasury, 'Kleptocracy Asset Recovery Rewards Program', https://home.treasury. gov/about/offices/terrorism-and-financial-intelligence/terrorist-financing-and-financial-crimes/ kleptocracy-asset-recovery-rewards-program (last visited 27 June 2022).

8 See Curcio v. United States, 354 U.S. 118, 122 (1957).

9 See, eg, 15 U.S.C. § 78dd-2(d)(2) (DOJ); 15 U.S.C § 77s(c) (SEC); 7 U.S.C. § 9(5)–(6) (CFTC).

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Originally Published by GIR Americas Investigations Review

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.