The breadth of criminal statutes, particularly federal criminal statutes is extraordinary. In the wake of every publicized scandal, Congress reacts regularly with broader and stronger legislation designed to “fix” the problem that it perceives lead to the scandal and prove to the voters that they are making it tougher on those alleged to be responsible. The federal government has an enormous array of law enforcement agencies, all of which are charged with investigating alleged violations of these extremely broad federal laws. Every federal agency from the Department of Energy to the Social Security Administration and back again has an Office of Inspector General. The offices operate independently as well with more commonly known federal law enforcement agencies like the FBI, IRS, ATF and DEA.
The bigger the case, increasingly measured in terms of the money that can be collected in terms of forfeitures or fines, the more these agents are rewarded and recognized. Anytime federal or state funds are used to pay for services rendered by a business, the likelihood of law enforcement scrutiny increases exponentially – health care and government contracting are obvious examples. However, because of the breadth of regulation and resources to conduct investigations, no business is immune from scrutiny. In recent years, as an example, in addition to those fields mentioned above, our firm has represented either companies or individuals in criminal investigations relating to manufacturing, lending, convenience store operation, waste disposal, chemical sales, and even a ministry. In any business’s life, confronting a serious government investigation is increasingly becoming an inevitability.
As a general matter, a business is criminally liable for the acts of its employees that are done within the scope of their employment and some way benefit the business. This is a broad standard that will make a corporation criminally liable for the conduct of its employees in many situations, including where the benefit to the corporation was not the principal reason the act was done.
Against this backdrop, the adage “an ounce of prevention is worth a pound of cure” has relevance to preventing an investigation in the first instance or positioning your business to respond more effectively and persuasively if it comes. Basic business ethics matter and should be instilled in your employees. No misrepresentation to any vendor, customer, and particularly any regulator should be tolerated. A survey of applicable laws and regulations should be done with specific focus on those areas where mistakes are likely to occur. We find that even very profitable and sophisticated businesses have often not devoted sufficient time and effort to the preparation of written policies on employee ethics and regulatory compliance. The ability to point to a company policy on compliance issues, with a readily available and preferably anonymous vehicle for employees to report compliance concerns (such as a hotline), is very helpful when a company is confronted with allegations that its employees violated the law thus making it potentially criminally liable for their deeds. Although written policies are helpful, if they are only put on a dusty shelf, and no effort is made to acquaint employees with them on a regular basis, they add little to the company’s efforts to defend itself. To truly be of assistance, these policies need to be a part of a regular and ongoing company ethics and compliance program.
The genesis of a criminal investigation can come from many different sources. In the health care field, a whistleblower seeking a bounty from what the government recovers is a common starting point but in other fields, a disgruntled employee can contact law enforcement or a regulatory agency can make a referral. Whatever its source, it is one the most significant crises a business will ever face and should be treated seriously from the beginning.
A company’s first notice of a criminal investigation can be very obvious, such as the execution of a search warrant or receipt of a subpoena. Law enforcement often takes a more subtle approach initially by attempting to gather as much information as possible before taking a step that insures the target company becomes aware of the investigation, such as interviewing employees at their home.
No contact with a law enforcement agency should be taken lightly. Management and employees alike want to be seen as cooperative with law enforcement and often don’t know that they do not have to answer their questions, or can consult with counsel before they decide whether to agree to be interviewed. A business should never assume that all they need to do is just “explain everything” and the government will decide they have done no wrong. This is a huge mistake that often leads to managers and employees incriminating the company and themselves before they have consulted with experienced counsel to insure that a truthful answer to law enforcement’s questions will not have that affect.
A company’s response to a criminal investigation should have the goal of avoiding panic by management and employees. Communication with the company’s employees about their rights and responsibilities as well as offering them the option of consulting with counsel of their own at company expense usually goes a long way towards calming key personnel in a manner helpful to the business. This communication cannot include instructions not to speak with law enforcement agents or to hide something from them as that is obstruction of justice, is a separate crime and sure to make a bad situation far worse.
Another goal is to establish trust and lines of communication with agents and attorneys conducting the investigation. Carte blanche cooperation is not a prerequisite to establishing trust. However, simply put, the company should do exactly what it says it will such as, for example, insuring that documents required to be produced are timely turned over and that steps are taken to insure that pertinent materials are not inadvertently destroyed.
The company should make every effort to learn what the prosecution knows through its own internal investigation as quickly as possible. Key documents need to be collected and examined and employees interviewed by counsel. The use of counsel will provide needed expertise as well as protect as privileged the results of the investigation.
To survive a criminal investigation, a business must take steps to minimize damage to its relationships with key customers, vendors, lenders and the public. Depending upon the nature of the business, experienced public relations personnel can be very helpful. Sometimes the media learns of the investigation and media reports may be the first notice key business partners have of the issue. Accordingly, the company must respond in an effective way. A terse “no comment” does nothing to assure the public or business associates. Once the investigation becomes public and perhaps before that time if possible, management will want to meet with the decision makers in key business partners to reassure them that the company is responding professionally and will continue its operation as usual.
A governmental investigation often begins with a flurry of activity followed by months of quiet that can drive impatient business managers insane. The government will work at its own pace and those conducting the investigation will make their decisions at their own pace. A business and its counsel can and should be proactive in responding to such an investigation but that does insure a speedy resolution of the matter.
Good business managers will recognize that the storm of a governmental investigation can best be weathered by responding to the crisis at hand and then moving forward with the business of doing business.