Battling Government Investigations Series – Cooperation and Voluntary Disclosure

July 25, 2018 Articles

It always comes when you least expect it – a government inquiry to investigate your business. While it may instill a sense of panic, there are steps you can take to make sure you’re in the best position possible when the investigation begins.

This blog series developed by Chrysty Esperanza, Litigation Counsel at Square, Inc., will address this main question: When you receive a subpoena, CID, or informal request from the government, how should you respond?

Cooperation and Voluntary Disclosure Issues – Benefits + Risks of Self Reporting

The Foreign Corrupt Policies Act (FCPA) unit at the DOJ recently enacted its Corporate Enforcement Policy. According to the policy, if a company self-reports an FCPA violation and cooperates fully and timely, there is a presumption of declination of prosecution. However, there is an exception – the presumption will not apply if there are aggravating circumstances that warrant a criminal investigation, such as:

  • significant profits from misconduct
  • executive involvement in the misconduct
  • pervasiveness of misconduct within the company

Since its enactment, the program has been successful enough for the DOJ to announce that it would expand these principles to all other criminal components, such as health care, environmental and antitrust. The key takeaway is that the self-reporting program is expanding, but there is a high standard for self-disclosure. It is in your best interest to resolve the investigations as soon as possible, so that you can determine whether you may be in a position to reap the benefits of self-reporting.

In September 2015, DOJ Deputy Attorney General Sally Yates delivered a memo entitled “Individual Accountability for Corporate Wrongdoing.” Dubbed the Yates Memo, it focuses on an entity’s responsibility to provide information about accountable individuals in order to be granted cooperation credit. However, be wary of waiving attorney-client privilege early in the investigation process as the effects of a partial or complete waiver will resonate throughout the life of an investigation and parallel or follow-on proceedings. The formal DOJ policy is that they will not ask companies to waive attorney client privilege. But, companies still must provide the names of all culpable individuals and “relevant facts” to the investigator. This is often a complicated and difficult strategic area that must be assessed on a case-by-case basis, because there is always some level of risk that privilege will be waived. Following the Yates memo, the government has stated publicly that “facts are not privileged.” However it is extremely difficult to impart “facts” resulting from an internal investigation without revealing client confidential communications as most of the facts will have been gathered in a privilege context. It is important for your company and outside counsel to communicate in a way to avoid waiving attorney-client privilege as much as possible in the production of emails, documents, files on employee, and especially statements made in interview.

Navigating Intersection of Witness, Whistleblower and Employment Law Issues

Often, whistleblowers will be people employed within your company. While it may seem obvious to have policies and procedures for employees to report misconduct within the company before making reports to outside parties, many companies are not actually prepared to receive a report from a whistleblower. Encourage your risk management, human resources and legal teams to come together and develop and promote a process that will help employees feel comfortable to report concerns internally. This will vastly assist the company in identifying areas of exposure and addressing any misconduct appropriately, ideally before the government gets involved.

A word of caution: in Digital Realty Trust v. Somers, the SEC withheld whistleblower protection unless the misconduct was reported directly to a government agency, rather than the company first. While the goal was to encourage people to seek protection under Dodd Frank by going to the government first, the end result was an increase of government scrutiny and public exposure of an internal problem before it could be adequately addressed internally. A well-defined, trusted internal reporting process will encourage employees to maximize the use of hotlines or other internal reporting channels to address the misconduct before going directly to the government.