From PLI’s Course Handbook
Internal Investigations 2008: Legal, Ethical & Strategic Issues
#14541
6
INTERNAL CORPORATE
INVESTIGATIONS—ANTICIPATING
POSSIBLE VOLUNTARY DISCLOSURE
Steven M. Kowal
Bell Boyd & Lloyd, LLP
STEVEN M. KOWAL is a partner in the Chicago office of Bell, Boyd & Lloyd, LLP. He
chairs the White Collar Criminal Defense and Corporate Investigations Group, and is a member
of the Antitrust and Trade Regulation Department. His practice is concentrated in complex
criminal and civil litigation, particularly antitrust and trade regulation, investigations and
enforcement proceedings by FDA, healthcare, securities, and business matters. He has
successfully defended numerous companies and individuals in many grand jury investigations
and criminal prosecutions, as well as civil regulatory proceedings. He also has conducted
internal investigations for major corporations. Mr. Kowal is a Fellow of the American College of
Trial Lawyers. He has extensive federal trial experience and has prepared criminal and civil
appeals in five federal circuit courts of appeals and several state appellate courts. Mr. Kowal has
been listed as one of The Best Lawyers in America, recognized as one of the nation’s leading
lawyers in white collar criminal defense by Chambers USA, America’s Leading Lawyers for
Business, included in the Guide to the World’s Leading Competition and Antitrust Lawyers and
the Cross-Border Competition Handbook and listed in Illinois Super Lawyers in white collar
criminal defense and antitrust law. Prior to entering private practice, Mr. Kowal was a senior
trial attorney in the Antitrust Division of the U.S. Department of Justice where he prosecuted
numerous criminal and civil antitrust cases. He received several awards for outstanding
performance including the Attorney General’s Special Commendation. He was the chair of the
Criminal Practice and Procedure Committee of the American Bar Association’s Section of
Antitrust Law from 2001 through 2005. He received two awards from the ABA for Exceptional
Leadership in Preparing Policy Comments on behalf of the Section of Antitrust Law relating to
proposed amendments to the Federal Sentencing Guidelines for Organizations. He has authored
numerous articles and is a frequent speaker around the country on criminal defense and
regulatory enforcement issues. Mr. Kowal graduated magna cum laude from St. Procopius
College where he was the valedictorian of his class, and cum laude from the Northwestern
University School of Law.
2
INTERNAL CORPORATE INVESTIGATIONS – ANTICIPATING POSSIBLE
VOLUNTARY DISCLOSURE
Steven M. Kowal*
Bell Boyd & Lloyd, LLP
Chicago, Illinois
I.
INTRODUCTION
Companies conduct internal investigations for many reasons. In the run of the mill case,
the investigation may be intended to get to the bottom of some form of employee misconduct in
the work place. In more serious situations, the lawful management of the company may be
called into question. Often, allegations of misconduct by officers and executives must be
investigated to meet evolving standards of effective corporate governance.1 The investigation
will generate the factual information necessary to evaluate potential liability, gain control of
problematic conduct and minimize injury. The investigation will allow the company to craft a
strategy that will address civil liability, limit or avoid criminal and regulatory sanctions and
implement remedial measures. In certain situations, a report that the company has conducted an
investigation may buttress investor confidence and enhance market position.
Increasingly, internal reviews are conducted either in anticipation of a formal government
investigation or immediately after a government investigation has commenced. In these
situations, the government’s prosecutorial policies and practices will have a substantial effect on
the design and implementation of the internal review. Unfortunately, the government’s policies
strongly encourage disclosure of at least some aspects of the internal review for the company to
receive favorable consideration in the government’s exercise of its prosecutorial discretion.
The prospect of such a “voluntary” disclosure places special emphasis on the manner in
which the investigation is initiated, designed and conducted. This paper will consider those
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issues which require particular attention when disclosure to the government should be
anticipated.
II.
GOVERNMENT POLICIES REQUIRING DISCLOSURE
The United States Department of Justice has issued a series of guidelines delineating the
factors to be considered by prosecutors in determining whether criminal charges should be
brought against companies. Although the current version of these guidelines does not explicitly
require disclosure of information gained through the company’s internal investigation to receive
favorable credit, previous versions were very direct. The government stated it would place
significant emphasis on whether the company waived its applicable privileges and disclosed
information derived from the internal investigation. Many believe the government’s previous
guidelines generated a “culture of waiver” which will result in disclosure of privileged
information even under the current guidelines.
In 2003, Deputy Attorney General Larry D. Thompson issued a revised set of guidelines
for corporate prosecutions.2 These guidelines identified several factors that prosecutors were to
consider in evaluating “the proper treatment of a corporate target” including the nature of the
offense, the corporation’s history of similar conduct, the existence or adequacy of a corporation’s
compliance program and a corporation’s timely and voluntary disclosure of wrongdoing.
In particular, the Thompson version stressed that a corporation’s “timely and voluntary
disclosure of wrongdoing” and its willingness to cooperate in the investigation of its agents
including, if necessary, the waiver of corporate attorney-client and work product protections,
were factors that influenced the prosecutorial decision. In determining whether the corporation
was in fact cooperative, prosecutors were authorized to consider whether the company had
waived the attorney-client privilege and work product protections “both with respect to its
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internal investigation and with respect to communications between specific officers, directors
and employees and counsel.”
The issuance and implementation of the Thompson Memorandum caused great
consternation. In effect, the government had explicitly stated that the quality of a company’s
cooperation was an important factor in determining whether criminal charges would be brought,
and the assessment of that cooperation would be influenced by, if not depend on, the decision to
waive attorney-client and work product protections and disclose information that had been
gained through the company’s internal investigation. This policy raised concerns not only
among the defense bar and eventually the United States Sentencing Commission, but also
attracted heightened congressional scrutiny.
In response to these concerns, Deputy Attorney General Paul J. McNulty issued revised
guidelines in December 2006.3 The McNulty Memorandum stressed the value of corporate
cooperation and advised that, in determining whether to charge an organization, prosecutors
should favorably consider the organization’s willingness to disclose information requested by the
government including that protected by attorney-client or work product protections. The
McNulty Memorandum, however, backed away from the virtual requirement of disclosure that
was imposed by the Thompson version. Rather, the McNulty Memorandum states that the
government can seek an explicit waiver only in certain limited situations, and even then only
with the approval of superiors within the Department of Justice. Nevertheless, the McNulty
Memorandum does recognize that companies that “voluntarily” waive the applicable privileges
should receive favorable consideration for that decision. Many believe the “culture of waiver”
that was generated by the implementation of the Thompson Memorandum will affect decisions
under the McNulty policy, and that companies will understand that to receive full credit for
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cooperation with the government, they will be expected to waive applicable privileges and
disclose the internal investigation information.
Policies favoring the waiver of privileges and the disclosure of information are not
confined to the Department of Justice. In 2001, the Securities & Exchange Commission used the
report of an investigation of wrongdoing at the Seaboard Corporation to set out 13 nonexclusive
factors that it would review in determining whether a company deserved reduced penalties for
violations.4 The significance of cooperation was made explicit. One of the factors in the policy
focused on whether “the company promptly, completely and effectively disclose[d] the existence
of the misconduct to the public, to regulators and to self-regulators. Did the company cooperate
completely with appropriate regulatory and law enforcement bodies?”
The SEC Seaboard policy also focuses on whether the company identified the “possible
violative conduct with sufficient precision to facilitate prompt enforcement actions against those
who violated the law,” and “did the company voluntarily disclose information [the SEC staff] did
not directly request and otherwise might not have uncovered?” In effect, the SEC has stated that
the company’s decision to uncover evidence of misconduct and present it to the Commission
would be a substantial factor in determining whether an enforcement action would be initiated
against the company and the amount of the penalty that would be sought.
In this context, a company’s internal review of misconduct that may generate a
government investigation, or which already is the focus of such an investigation, must be
conducted with the expectation of disclosure to a government agency. This realization will
substantially affect the manner in which the investigation is designed and implemented. Without
consideration for the potential for disclosure, the company and its counsel may find that they
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have generated substantial additional problems for the company, its officers and employees and
the investigating legal counsel.
III.
THE INVESTIGATION SHOULD BE CONDUCTED BY OUTSIDE COUNSEL
An important issue is who should conduct the investigation. A review by in-house
counsel would appear to afford certain advantages. The in-house counsel will be familiar with
the structure and operation of the company, and may have personal relationships with important
executives that will facilitate the flow of information. Unquestionably, such an investigation will
control cost.
There are, however, important countervailing considerations. If the government is
investigating potential misconduct by senior management, then the credibility of the company’s
internal review may be questioned if conducted by in-house counsel. Moreover, the participation
of in-house counsel may raise a question of whether the investigation was conducted for business
purposes in addition to the legal issues, and create another potential vehicle for compelled
disclosure in either criminal or civil proceedings.
If the internal investigation is being conducted to try to persuade the government not to
pursue enforcement proceedings, then almost certainly it should be done by outside counsel. The
government will be more willing to accept that the investigation was conducted thoroughly and
that disclosures are complete.
If the investigation focuses on conduct by senior management, the company may also
consider whether special outside counsel should be retained. Such an arrangement will enhance
the government’s perception of a credible investigation, and perhaps increase the likelihood that
enforcement proceedings can be avoided. The use of special outside counsel will help to
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eliminate the concern that the company’s regular law firm did not want to ask difficult questions
or criticize the management officials who are otherwise responsible for its retention. The use of
special outside counsel will raise the cost of the investigation, and may create an unfortunate
perception among management and employees that these new lawyers were engaged to find a
problem, not merely to investigate whether a problem exists. Nevertheless, if the goal is to place
the company in the best position possible to deal with prosecutors and regulators, then the use of
such special counsel must be seriously considered.
IV.
THE CLIENT MUST BE CAREFULLY DEFINED
At first blush, this would seem to be a relatively straightforward determination. The
client is the corporation, and the attorneys conducting the internal investigation owe a duty of
loyalty only to the corporation. The American Bar Association’s Model Rules of Professional
Conduct Rule 1.13(a) states “A lawyer employed or retained by an organization represents the
organization acting through its duly authorized constituents.”
In practice, however, this becomes a more nuanced question. Counsel conducting the
investigation must report to some individual or committee of the company, and the designation
of that group is important. If the investigation is focused on possible misconduct by officers or
senior executives, the lawyers conducting the internal review cannot be responsive to those
officers or executives.
If the investigation is focused on middle or lower level employees, then the investigating
counsel can report to the Board of Directors. In those situations where the accounting and
financial practices of the company have been called into question, then it would be most
appropriate to report to the audit committee of the board. This committee has special expertise
8
to review and assess the accounting and financial practices of the company. Of course, a report
to the audit committee assumes that members of that committee are not involved in the subject
area of the investigation. If, however, the investigation is focused on senior officers or
executives, then it is particularly important for the investigation to be conducted with complete
independence and objectivity and to be able to convey that perception to the government. In
most instances, this will suggest that a special committee of the board should be formed
consisting of independent directors. This structure will enhance the prospect that the
investigation will be viewed as credible, and that any recommendations will be implemented
effectively.
A recent case has demonstrated the importance of defining exactly who represents the
client, and to whom investigating counsel should report. In Ryan v. Gifford,5 the court reviewed
whether the report of investigating counsel resulted in a waiver of privileges. In Gifford, counsel
was retained by a “special committee” of outside directors to investigate the possible backdating
of stock options. Some of the members of the Board of Directors were a focus of the
investigation. Nevertheless, investigating counsel delivered its report to the full Board of
Directors, rather than just to the special committee. In addition, the individual lawyers for the
suspect directors were present for the investigating law firm’s presentation.
The court focused on this disclosure as one basis to conclude that the attorney-client and
work product protections related to the investigation had been waived, and that all of the
information obtained during the investigation must be disclosed in related civil litigation.
Basically, the court held that the disclosure to members of the Board of Directors, rather than just
to the special committee, included individuals who did not have a common interest with the
special committee. Accordingly, the requisite confidentiality had been waived.
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If a special committee is appointed, then its authority should be established by a
resolution from the board. In addition, the special committee should be authorized by the board
to retain counsel and any additional professionals that may be necessary to conduct the
investigation efficiently and effectively. This could include, for example, forensic accountants
and electronic discovery consultants.
The group representing the company must carefully and specifically define the scope of
the investigation that will be pursued by outside counsel. The letter of retention with outside
counsel should describe the allegations that have prompted the investigation and limit the scope
to examine those allegations. If it is necessary to expand the scope as the investigation
progresses, that decision should be made specifically by the group or committee representing the
company. Investigating counsel should not be allowed to conduct a broad inquiry into any area
of potential misconduct. This may have the unfortunate effect of opening new areas and
resulting in disclosure to the government and potential civil claimants of other areas of
problematic conduct. The retention letter also should specify that investigating counsel is to
provide interim reports during the course of the investigation. In most instances, it is advisable
for these interim reports to be provided orally. Such a reporting relationship will keep the
committee informed without creating the problem of preparing tentative written conclusions that
may change during the course of the investigation. Even if later investigation undermines those
tentative conclusions, they may raise substantial questions if disclosed to either the government
or civil plaintiffs.
The retention letter also should require investigating counsel to provide a detailed final
report to the group representing the company, but the letter should not specify whether that
report should be in writing or made orally. Investigating counsel should agree that all work
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product, data and documents collected during the investigation, and all analyses prepare belong
to the corporation. Finally, investigating counsel should be instructed explicitly that the decision
to waive confidentiality protections is retained by the corporation’s representative, and that no
waiver should be made unless and until appropriate authorization is conveyed.
Compliance with these procedures will help to avoid uncomfortable situations.
Investigating counsel will be aware of exactly what group represents the corporation, and
therefore to whom all reports should be made. The possibility of inadvertent waiver through
premature disclosure will be reduced. In addition, adherence to the defined scope of the
investigation will buttress the argument that the information and material generated during the
investigation is subject to work product protection. Because of the spectre of a government
investigation, there is a legitimate argument that the investigation was conducted in anticipation
of litigation. Exceeding the defined scope of the investigation, without appropriate
authorization, could undermine this argument.
V.
THE INVESTIGATION MUST BE CONDUCTED THOROUGHLY AND IN
COMPLIANCE WITH LEGAL AND ETHICAL OBLIGATIONS
If the internal investigation is to generate information that will be used to persuade the
government to forego enforcement activity, or to mitigate the effect of an enforcement decision,
then the investigation must be conducted thoroughly to uncover all of the potentially relevant
facts. An investigation that appears to have been conducted in an haphazard manner will not
have a beneficial effect on the government’s decisions.
The first stage of the investigation is to gather the relevant documents. Often, this
process begins with the identification of the employees who are likely to possess those
documents. This process may benefit from the knowledge and guidance of in-house counsel.
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Employees who may have relevant documents or electronic information should be advised that
an investigation has been commenced, and that documents or electronic data should not be
destroyed without the explicit approval of counsel. In effect, a litigation hold should be imposed
just as if a government investigation had been commenced or a civil suit had been filed. As the
investigation progresses, it is likely that the universe of the employees involved will expand, and
therefore the litigation hold should be revised as appropriate.
To demonstrate the thoroughness of the investigation, effective document gathering
techniques should be employed. Investigating counsel should be able to recreate the source of
the documents and demonstrate that all responsive documents were gathered and reviewed. In
most instances, this will require that documents be properly numbered and logged, and that
employees be required to certify that all relevant documents and information have been
produced.
Inevitably, it will be necessary to interview employees. This process presents special
challenges which have been increased by some of the government’s recent prosecutorial
decisions.
Prior to the commencement of interviews, the group representing the corporation should
communicate with the employees who are subject to interviews. The employees should be told
that an investigation is being conducted by counsel for the corporation. The employees should
be instructed to cooperate in the investigation. They should be informed that they must produce
all documents and materials requested, comply with all instructions to retain documents and
electronic data, and submit to interviews when requested. In certain instances, consideration
should be given to discussing the scope of the corporation’s policy on indemnity for retention of
individual legal counsel.
12
In Upjohn v. United States6, the Supreme Court suggested the standards for instructions
to employees prior to interviews. The Court defined those situations where the company can
protect the information obtained from its employees in the course of an internal investigation
from compelled disclosure.
The Upjohn decision effectively established a set of instructions and warnings that should
be conveyed to employees during the course of interviews to protect the company’s attorneyclient privilege and in fairness to the individual employees. The investigating counsel should
state that (1) the counsel represents the company (or an independent committee); (2) counsel is
not the employee’s lawyer and does not represent the employee’s interests separate from those of
its own client; (3) the conversation is protected by the attorney-client privilege, but the privilege
belongs to the company; and therefore (4) the company can choose to waive its privilege and
disclose all or part of what the employee has told investigating counsel to external auditors, the
government, regulators or others. The employee should also be instructed that the
communications with investigating counsel should be held in confidence.
In addition to providing those warnings that are required to comply with Upjohn,
investigating counsel should consider whether additional information should be provided prior to
or in the course of the interview. Investigating counsel should consider, for example, whether
the topics to be covered during the interview should be described to the employee in advance,
and whether the employee should be afforded an opportunity to review documents before the
interview is conducted. In appropriate circumstances, investigating counsel might also inform
the employee of the company’s policy on indemnification if the employee should elect to retain
independent counsel. Finally, if the company has already made a decision to waive privileges
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and disclose the information to the government, then perhaps that decision should be
communicated to the employee.
Inevitably, employees will raise difficult questions in relation to these warnings and
admonitions. An employee, for example, might ask whether he or she needs independent
counsel. Investigating counsel should be very careful in responding to this type of inquiry. In
most instances, it is advisable for investigating counsel to state that a direct response cannot be
provided, but that if the employee wants to speak to individual counsel then consideration will be
given to adjourning the interview for a reasonable time.
Substantial problems can be generated if counsel provides a confusing response to the
employee. This situation was reviewed in In Re Grand Jury Subpoena.7 In that decision, the
court criticized the responses given by investigating counsel to questions from employees. The
case stemmed from an internal investigation at AOL. During employee interviews, the
investigating counsel stated “We represent the company. These conversations are privileged, but
the privilege belongs to the company and the company decides whether to waive it. If there is a
conflict, the attorney-client privilege belongs to the company.” To this extent, the admonitions
of investigating counsel were correct. Unfortunately, counsel also explained to the witness “that
they represented AOL but that they could represent him as well as long as no conflict appeared.”
Subsequently, the company received a grand jury subpoena which, among other things,
sought “written memoranda and other written records reflecting the interviews conducted by
attorneys for [AOL].” The company agreed to waive the attorney-client privilege and produce
the subpoenaed records, but counsel for the employees moved to quash the subpoena on the
grounds that each employee had an individual attorney-client relationship with the investigating
attorneys. The district court denied the motions to quash and held that the employees failed to
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prove they were clients of the investigating attorneys. Although this decision was affirmed on
appeal, the conduct of the investigating attorneys was harshly criticized. The court stated:
We note that our opinion should not be read as an implicit
acceptance of the watered down “Upjohn warnings” the
investigating attorneys gave the appellants. It is a potential legal
and ethical mine field. Had the investigating attorneys, in fact,
entered into an attorney-client relationship with appellants, as their
statements to the appellants professed they could, they would not
have been free to waive the appellants’ privilege when a conflict
arose. It should have seemed obvious that they could not have
jettisoned one client in favor of another. Rather, they would have
had to withdraw from all representation and to maintain all
confidences. Indeed, the court would be hard pressed to identify
how investigating counsel could robustly investigate and report to
management or the board of directors of a publicly traded
corporation with the necessary candor if counsel were constrained
by ethical obligations to individual employees. However, because
we agree with the district court that the appellants never entered
into an attorney-client relationship with the investigating attorneys,
they averted these troubling issues.
Thus, it should be clear that investigating counsel must adhere to the warnings suggested by the
Upjohn decision, and any attempt to reassure the employees that their interest may in fact be
protected will raise substantial ethical issues.
The interview should be memorialized in memoranda prepared by investigating counsel.
Preferably, these memoranda will include mental impressions by investigating counsel to
enhance work product protectability. In most instances, the interview should not be transcribed.
This will undermine protectability in the event of subsequent civil litigation. Also, the interview
memoranda should record the documents that were reviewed with the employee. This will help
to prepare the most complete record of what occurred, and avoid questions concerning whether
the employee was somehow mislead during the course of the interview.
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VI.
SPECIAL CONSIDERATIONS IN CONDUCTING EMPLOYEE INTERVIEWS
In the last few years, the government has returned criminal charges in three cases based
on alleged misrepresentations by employees to the company’s lawyers in the course of an
internal investigation. Basically, the government has alleged that individuals understood that the
company’s lawyers would disclose information to the government, and therefore a
misrepresentation to those lawyers was intended to mislead the government and obstruct its
investigation. This form of criminal liability raises substantial questions concerning the ethical
obligations of attorneys conducting internal investigations and the warnings that should be given
to employees.
In 2004, three senior executives of Computer Associates Inc. were indicted for a series of
criminal acts including obstruction of justice. The indictment alleged that during interviews by
the company’s investigating counsel, the defendants “did not disclose, but instead falsely denied
and otherwise concealed” the existence of backdating practices at the company. After these
interviews were conducted, the company waived its privileges and provided the results to federal
investigators. The indictment alleged that the defendants must have known the company’s
outside counsel would forward their statements to the government, and therefore they had
knowingly provided false information that was material to the government’s investigation. All
three of the defendants pled guilty to obstruction of justice.8
The second case was brought in 2006. The government’s investigation focused on
pricing practices at El Paso Merchant Energy, a natural gas trader. The indictment alleged that
during interviews conducted by the company’s internal investigating counsel, the defendant “did
not disclose, falsely denied, and otherwise concealed that he had provided false information to
trade publications.” The indictment charged that the defendant “believed that El Paso’s outside
lawyers would inform government agencies of his statement during the interview.”9
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The case was tried and the defendant was acquitted of the obstruction of justice charges
at the close of the government’s case. The judgment of acquittal was granted in large part
because the testimony provided by the company’s outside investigating attorneys was equivocal
about whether they had informed the defendant that the information he provided would be
transmitted to the government.
The most recent case was brought in 2007. An executive vice-president of an auto parts
maker was charged with obstruction of justice for providing false information in the course of an
investigation being conducted by the company’s audit committee. The indictment charged that
the defendant understood that this information would be communicated to Securities &
Exchange Commission.10
There has been substantial attention focused on the government’s use of statements made
to a company’s investigating counsel to support an obstruction of justice charge. Some believe
that individuals do not really understand these statements can affect a government investigation,
and therefore that it is unfair and improper to use such statements to charge obstruction of
justice. Irrespective of the correct application of the obstruction of justice statute, it is clear that
the government’s prosecutorial practice has created a form of liability based on representations
made by the company’s legal counsel to the government based on an employee’s interview. This
raises significant questions related to the investigating attorneys ethical obligations.
Many of these concerns stem from the fact that employees are discouraged from asserting
their Fifth Amendment privilege against self-incrimination in the course of an internal
investigation. Often, companies state that employees will be terminated if they do not cooperate
with the internal investigation. Such failure to cooperate will be found if the employee asserts
the Fifth Amendment privilege against self-incrimination to refuse to submit to an interview. In
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effect, the company can prevent the employee from relying upon this constitutional privilege,
and the government is the beneficiary of that decision. The government can use the company’s
employment leverage to circumvent this important constitutional protection.
The participation of investigating counsel in securing information from employees under
these circumstances raises concerns under Model Rule 4.4. The rule states that “in representing
a client, a lawyer shall not….use methods of obtaining evidence that violate the legal rights of a
third person.” Moreover, the comment to the rule provides:
Responsibility to a client requires a lawyer to subordinate the
interests of others to those of the client, but that responsibility does
not imply that a lawyer may disregard the rights of third persons.
It is impractical to catalog all such rights, but they include legal
restrictions on methods of obtaining evidence from third
persons… .
It is difficult to reconcile the policy of requesting privilege waivers with either the
mandate of Model Rule 4.4 or the commentary. It is even more challenging to do so when the
practice results in obstruction of justice charges based upon statements to investigating counsel.
This is a situation in which the government has “essentially enlisted private companies and their
counsel in doing the work of law enforcement agencies without making this connection clear to
those interviewed in the course of internal investigations,”11 There is a serious question of
whether investigating counsel and prosecutors are respecting the rights of third persons.
Additionally, enlisting private attorneys in law enforcement appears to conflict with the
directives of Model Rule 3.8 that prosecutors “….shall make reasonable efforts to assure that the
accused has been advised of the right to, and the procedure for obtaining, counsel and has been
given reasonable opportunity to obtain counsel.” If the government demands a privilege waiver,
then the government may also be obligated under Rule 3.8 to make reasonable efforts to ensure
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that the employee was informed of the right to counsel prior to the commencement of
questioning by the company’s investigating attorney.
Moreover, Model Rule 1.13(f) requires that the attorney for the company explain the
identity of the client when the organization’s interest is adverse to the person being addressed.
In the situation where investigating counsel is an informal agent for the government, there is a
question of whether the attorney has adequately identified the client to the person being
interviewed. This must be considered in the light Model Rule 4.3 which imposes an affirmative
duty on the attorney to correct any misunderstandings when the attorney knows, or reasonably
should know, that an unrepresented person misunderstands the attorney’s role.
The government’s aggressive enforcement policy and the ethical concerns under the
Model Rules raise the question of whether the warnings given to employees prior to interviews
should be expanded. There is at least a reasonable basis to ponder whether investigating counsel
should inform an employee that false statements during the course of an interview can, under
certain circumstances, constitute a federal crime. If there is a likelihood of such jeopardy, then
perhaps the investigating attorney should also advise the employee that an opportunity will be
afforded to consult with independent legal counsel.
This is a very murky area. What is clear is that the government has pursued an
enforcement policy that compromises the position of the company’s investigating counsel. That
lawyer is no longer working merely to obtain information to help formulate legal advice for the
company. Investigating counsel may also be working to develop information that will support a
criminal charge by the government.
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VII.
REPORTING THE RESULTS OF THE INVESTIGATION
As mentioned above, investigating counsel must be careful to report the results of the
investigation to the representative of the company that constitutes the client. In addition,
however, there are substantial issues relating to how that report should be conveyed.
If potential government disclosure is contemplated, then a written report is useful.
Generally, such a report will summarize the circumstances that led to the investigation, detail the
investigation that was conducted, and summarize the facts. Perhaps information developed
during the investigation that is favorable to the company should also be included. If the written
report itself is to be conveyed to the government, then probably no further information should be
included.12
If, however, the written report is only for the use of the company, then the report should
also analyze the applicable law, develop arguments for and against liability or prosecution,
identify any internal procedures or practices that led to the misconduct and that could be
improved or prevented, and recommend remedial action.
Irrespective of the use anticipated for the written report, it should not quote or directly
cite interview memoranda or other documents or information that would be subject to attorneyclient and work product protections. Direct quotations or references in the written report could
undermine any argument to withhold this investigative data from plaintiffs in subsequent civil
litigation.
VIII. CONCLUSION
Corporate internal investigations are useful and necessary to effective corporate
governance. They provide the factual information necessary for the company to make important
legal decisions, and to correct and prevent future problems. Unfortunately, the government’s
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aggressive enforcement, including the policy of seeking “voluntary” disclosures and pursuing
obstruction of justice charges, has converted investigating counsel into a form of government
agent.
In this context, there is reason to be concerned that the government’s enforcement
policies will undermine the implementation of programs to prevent and detect misconduct within
a company. Nevertheless, it is incumbent upon investigating counsel to be aware of the effect
these government policies have on the manner in which an investigation should be conducted,
and to design and pursue investigations that recognize these issues.
ENDNOTES
* Steven M. Kowal is head of the White Collar Criminal Defense and Corporate Investigations
practice group at the law firm of Bell, Boyd & Lloyd LLP in Chicago. He has tried numerous
criminal and civil cases and is a Fellow of the American College of Trial Lawyers. He defends
companies and individuals in criminal investigations and prosecutions, particularly relating to
antitrust, FDA, healthcare, securities and other business matters. Also, he has conducted
internal investigations for numerous major corporations.
1
In re Caremark International, Inc. Derivative Litigation, 698 A. 2d 959 (Del. Ch. 1996).
Memorandum from Larry D. Thompson, Deputy Attorney General, Department of Justice, to Heads of
Department Components, U.S. Attorneys, Principles of Federal Prosecution of Business Organizations
(Jan. 20, 2003)
3
Memorandum from Paul J. McNulty, Deputy Attorney General, Department of Justice, to Heads of
Department Components, U.S. Attorneys, Principles of Federal Prosecution of Business Organizations
(Dec. 12, 2006).
4
Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934 and
Commission Statement on the Relationship of Cooperation to Agency Enforcement Decisions,
Exchange Act Release No. 34-44969 (Oct. 23, 2001).
5
2007 WL 4259557 (Del. Ch. 2007), 2008 WL 43699 (Del. Ch. 2008).
6
449 U.S. 383 (1981).
7
415 F.3d 333 (4th Cir. 2005).
8
United States v. Kumar et al, 1:04-CR-00846 (E.D.N.Y. 2006).
9
United States v. Singleton, H-04-514 SS (S.D. Tx. 2006).
10
United States v. Jones, 1:07-CR-00227 (S.D.N.Y. 2007).
11
Legal Ethics, Professionalism and the Employee Interview, 2003, Colum. Bus. L. Rev. at 952-53.
12
Disclosure to the government will almost certainly waive attorney-client and work product
protections. The information will then be subject to compelled production in related civil litigation.
See, e.g., In re Qwest Communications International Sec. Litig. 450 F.3d 1179 (10th Cir. 2006).
2
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