Stephen T. Smith

Representing Companies and Individuals
in Business Related Criminal Investigations

Copyright – All Rights Reserved

In the Beginning:  The Client’s Urge to Talk: When to Bring
in the Criminal Lawyer

Typically, the company coming under scrutiny in a business-related criminal investigation has either an existing relationship with corporate or other counsel or has previous dealings with a lawyer.  Thereafter, the decision about whether or when to call in the criminal lawyer is difficult and all too often only reluctantly made.  Most business people consider themselves to be honest and law-abiding and, at worst, struggling to avoid regulatory strangulation while providing a quality product or service and turning a profit.  The need for a criminal lawyer typically is foreign to them.

There is the nearly universal initial belief among most business clients that if they can just sit down and talk to the appropriate regulator, investigator, or decision maker, then all can be resolved.  Most uninitiated business people believe that bringing in a criminal lawyer is an indication to the authorities of guilt or wrongdoing.  Experienced investigators recognize these tendencies and capitalize on them.  For example, at a 1995 seminar on fraud and abuse, one speaker, an FBI agent with expertise in investigating white collar crime cases, laughingly described these tendencies among business people and the ease with which they are manipulated into allowing themselves to be interviewed without criminal counsel present.  He described these techniques as often his most valuable in evidence gathering.

Joanne Harris, past head of the Criminal Section of the Department of Justice, at a 1992 seminar (when she was in private practice), wrote of business clients under investigation:

“They want to talk; need to justify their actions; they believe they can explain things away.  Intellectually, they understand that the precious right against self-incrimination is the cornerstone of our justice system, but they think it was meant for criminals, not for them.  They believe that refusing to talk, even politely, burns a scarlet ‘G’ for ‘guilty’ in the middle of their foreheads.  The fact is that in a court of law their silence cannot be mentioned, let alone used against them.  On the other hand, every word they utter to anyone, but you, will come back to haunt them.

You may later conclude that talking to the authorities, under controlled circumstances, is tactically a savvy move.  But, if your client talks first, you will loose control — permanently.”

And so, the first goal is to control your impulse to meet with the investigators and attempt to explain everything.  Although this meeting may occur, for now it needs to be postponed to enable you and your lawyer to gain full knowledge of the facts and assess the options and risks.  Remember that the investigator is not your “friend;” he or she may not yet be your “enemy,” but certainly is not your “friend.”

Often, by the time the existence of a criminal investigation is apparent, it is substantially advanced with the investigators having formed tentative conclusions about their recommendations to the prosecutor.  It would not be unusual at that time for an investigator to request the opportunity to meet with one or more members of company management.  Typically, a business person believes that such an interview would show that the company has nothing to hide and might well clear up the entire matter and result in a comfortable and relatively inexpensive resolution.  From the investigator's side, the purpose of this interview is often to “ice the cake.”  It is often at this point, if not before, that the company and its counsel are faced with the question of whether to bring in a criminal lawyer.

As a criminal lawyer, I recognize that this advice is self-serving, but, from experience I know it to be solid: err on the side of bringing the criminal lawyer in too soon.  Follow Barney Fife’s advice to Andy on problems arising with child rearing:  “Andy, I say nip it, nip it in the bud!”  It is better to no longer be under scrutiny with a small question about whether the criminal lawyer was necessary after all, than to be undergoing the trauma of a full-blown criminal investigation and prosecution and questioning whether things should have been handled differently.

Is It Fish Or Fowl?

It is undeniably often difficult to determine when an investigation has moved from a typical regulatory inquiry and into a criminal investigation.  Some obvious signs are the appearance of grand jury document subpoenas, the execution of search warrants, or reports that individuals are being interviewed by anyone identified as a “special agent.”  In all government agencies “special agent” means that the person is a criminal investigator.  Criminal investigators see their jobs as not just discovering the facts, but accumulating evidence sufficient to punish companies with fines and restitution (at least) and to put the guilty individuals in prison.

More often, the first indication of the existence of a criminal investigation comes by word-of-mouth reports that employees or past employees are being questioned by some government agent, particularly disgruntled past-employees.  These reports may be garbled and unclear, including about the agency represented by the questioner.  This is a critical time in the investigation when much good lawyering is possible.  It is during this time that the government is accumulating the bulk of its information and it is also during this time that a knowledgeable lawyer can be most effective in developing an early dialogue with the prosecutor supervising the investigation.  This is similar to the conversation the client wants to have directly, but is conducted by the lawyer, thus insulating and protecting the client in all the obvious ways.  This exchange seeks to avoid fact misunderstandings, which often result in erroneous and damaging conclusions.  For example, the information provided to the investigators by “confidential informants” is sometimes correct as far as the limited knowledge of the informant is concerned but more often is based on the informant’s assumptions and conclusions, which are faulty due to a lack of understanding of the entire process being investigated.  In such situations, once the lawyer becomes educated about the company and its actions, then the lawyer is in a position to attempt to demonstrate to the prosecutor that the allegations by the “confidential informants” are misleading and ill informed.  This process is much more difficult and the likelihood of success much less if the lawyer does not become involved until the investigators and prosecutors have reached conclusions or have committed themselves.

The more typical situation is that in a world of heavy regulation allowing various audits and inquiries and requiring various reports and certifications, a matter may move into a criminal investigation with no indication to the target or the target’s corporate counsel.  Often the fact that a criminal investigation exists remains unknown to the company and its lawyers until the criminal investigation is nearly complete.  This makes early and decisive action all the more crucial.

The Facts Ma’am, Just The Facts: Conducting An Internal Investigation

One of the criminal lawyer’s first functions is ascertaining the facts, a process that has come to be known by the self-important name of “Conducting An Internal Investigation.”  It is imperative that this process be handled in such a way that the information is protected by at least the attorney-client privilege and the work product doctrine. These protections apply only if the investigation is conducted by the lawyer and under the lawyer’s close scrutiny and guidance.  The company’s attorney-client privilege will attach to employee interviews if:

1. the communication was made by a corporate employee to counsel for the company acting as such;
2. the communication was at the direction of the employee's supervisor in order to secure legal advice from counsel;
3. the employee was aware that he or she was being questioned so that the corporation could obtain legal advice;
4. the communication involved matters within the scope of the employee’s duties for the company;
5. the communication was considered confidential when made; and
6. the communication was kept confidential by the company.

If time permits, I begin the internal investigation by collecting and becoming familiar with the documents.  I do not always have this luxury and may have to conduct some interviews before document review but while individuals still are available or before they become reluctant, frightened or adverse.  All relevant documents should be collected and organized.  It should go without saying that the documents collected in an internal investigation do not thereby become protected by the attorney-client privilege or work product doctrine.  I have recently been involved in a case in which the internal investigation was conducted by counsel in a North Carolina firm.  In assembling the relevant documents, those lawyers stamped every document “PRIVILEGED — ATTORNEY-CLIENT -WORK PRODUCT DOCTRINE.”  This stamp was erroneously put on documents that had been created by the company in the regular course of business over the last several years, including production documents.  Those documents were subsequently requested by and delivered to the investigators, causing unnecessary consternation.

Employee Interviews

All interviews must be conducted by the lawyer or the lawyer’s agents, and only in the presence of counsel and the counsel’s agents.  If the company has a compliance officer or in-house counsel, that person may participate in the investigation but the lawyer should not delegate the investigation to the compliance officer since such weakens if not eliminates the protections of the attorney-client privilege and work product doctrine.

I prepare memos of witness interviews and mark each page:

CONFIDENTIAL – PRIVILEGED ATTORNEY – CLIENT PRIVILEGE ATTORNEY WORK PRODUCT

I recommend that face-to-fact interviews not be tape-recorded.  My experience is that proposing to tape-record an interview greatly increases the chance that the individual will decline to be interviewed, or will be less than candid.  Also, it is not advisable to tape-record employee interviews unless the witness is potentially adverse because the government may be entitled to the tape later under a “reverse Jencks” claim.

Typically I do not submit affidavits to interviewed individuals for their signature. Occasionally I do so when I believe an employee might be about to be fired or reprimanded for reasons not related to the investigation.  If I have concerns that this employee might change his or her recollection of events in order to retaliate for such firing or reprimand, then I try to tie down the employee’s statement in some fashion, typically by an affidavit.

In those cases involving representation of the company and not an individual, in interviewing individuals in an internal investigation it is the lawyer’s duty to inform the individual that the lawyer represents the company and not the individual and that the individual’s statements to the lawyer are protected under the attorney-client privilege, but that the privilege belongs to the company and not to the individual.  Although this has been the subject of much discourse at various seminars, my experience is that it seldom causes a problem.  I typically do not identify myself as a criminal lawyer and generally explain that the government has begun an investigation into these matters and that as the company’s lawyer I am attempting to learn all of the facts before deciding how to respond to the government’s inquiries.  If the witness asks questions about the nature and extent of the investigation or my role, I attempt to answer those questions directly, simply and truthfully.  Rarely does a witness balk.

Separate Counsel for Individuals? — Multiple Representation; Indemnification

Although not always ethically required at this stage, I usually recommend to the company that separate counsel be retained for individuals who are employees, officers, directors or agents of the company and involved in or responsible for the activity under investigation.  Most state statutes, including North Carolina and Delaware, allow the company to indemnify a director, officer, employee or agent against expenses, including attorney’s fees, judgments, fines, settlement payments, etc., if those expenses:

1. were incurred by the individual as a result of an action or suit,
2. but typically only if the individual acted in good faith, and
3. in a manner reasonably believed to be in or not opposed to the best interest of the company, and
4. with respect to any criminal action or proceeding, the individual had no reasonable cause to believe the conduct was unlawful.

Although companies are typically statutorily empowered to indemnify, counsel should check the articles of incorporation and corporate bylaws to verify whether indemnification is thereby limited or mandated.  Also, prior to advancing costs, statutes typically require an undertaking by or on behalf of the officer or employee to repay certain amounts if it is ultimately determined that he or she is not entitled to indemnification.

The decision to advance legal fees for an officer, employee or agent can be made by management without the necessity of a corporate resolution.  However, a resolution by the board of directors often is advisable.

Occasionally I have taken the position in the initial stages of an investigation that for purposes of an early meeting with an investigator or prosecutor, I represent the company and the relevant individuals until it becomes apparent or is suggested that separate counsel is necessary.  If the prosecutor tells me that an individual needs separate counsel, I generally accept that and make those arrangements.  Occasionally though, a prosecutor will agree that separate counsel for individuals is not necessary.  This, of course, is an important piece of information and worth seeking.  Regardless of the prosecutor’s position, if I believe that an individual needs separate counsel, I will make those arrangements.  Caution should be taken that this joint representation position not be maintained too long.  I want to be sure that I do not stay in the joint representation role to the point that I am conflicted from representing either the individual or the company.  Here too I err on the side of caution.

Representation of several of the corporation’s employees by a single attorney may be permissible where those employees are mere witnesses and not “subjects” or “targets” of a grand jury investigation.  The term “target” is defined in the DOJ Manual as “a person as to whom the prosecutor or the grand jury has substantial evidence linking him/her to the commission of a crime and who, in the judgment of the prosecutor, is a putative defendant.” (§ 9-11.150.)  The DOJ Manual defines “subject” as “a person whose conduct is within the scope of the grand jury's investigation.”  The term “witness” is not defined.  I occasionally use one lawyer as a “utility infielder” to represent several employees, none of whom are targets or subjects.

Joint Defense Agreements

I believe it is money well spent for the company to hire separate counsel for individuals rather than force them to fend for themselves.  Lawyers who have experience in this relationship recognize their duty to the individual client, but, at the same time, understand that so long as it is in their client’s best interest to do so, they may cooperate with the company's counsel by exchanging information about facts and about their understanding of the scope and direction of the investigation.  This is facilitated by a joint defense agreement.  The law is well-developed that such is allowed if the clients have a commonality of interest and if the clients and the lawyers agree to maintain the protections of the attorney-client privilege and work product doctrine.  Thus, the company and its lawyer agree to maintain the individual’s privilege and the individual and his or her lawyer agree to maintain the company’s privilege.  Information can then be exchanged with both parties maintaining the protections of their separate privileges.

A joint defense agreement does not have to be in writing in order to be valid.  I have entered into a number of verbal joint defense agreements by which the parties recognize a commonality of interests and agree to maintain the privileges.  However, I much prefer that joint defense agreements be reduced to writing. 

Reporting the Findings

Although I prepare written memos for each witness interviewed, I recommend that a written report of the internal investigation not be prepared.  The internal investigation report should be made verbally by the lawyer to a minimum number of people within the corporation.  Although I recognize that a written internal investigation report is protected by the attorney-client privilege and the work product doctrine, waiver of those protections is all too easy.  The prejudicial potential of an exposed internal investigation report outweighs for me the typical preference by most business people for a written report.

Document Production

The government may seek documents by way of grand jury document subpoenas, civil investigative demands, or other formal document requests.  All documents collected for production to the government should be copied and organized in such a way that they are easily accessible.  I suggest that each page be “Bates-stamped.”  Most word processing software, including Word and WordPerfect, has this capability.

Before any documents are produced, all potentially privileged documents should be separated and a decision made as to whether to withhold them or waive the privilege.  Caution should be taken since production of what appears to be a limited number of privilege documents probably will result in a wide-scale subject-matter waiver.

Although corporations do not enjoy self-incrimination protection under the United States or North Carolina Constitutions, in some instances it is potentially incriminating to an individual to perform the act of producing the documents of a business entity.  That individual may have Fifth Amendment protection involving the act of production.  Careful consideration may be required here.

Search Warrants

Unfortunately, the trend of the last several years is towards the use of search warrants at the early stages of a business crime investigation to obtain documents from business entities.  It is easy to imagine the shock and trauma to a business when armed law enforcement agents suddenly appear and fan out within a facility taking possession of documents, computer disks and equipment, production samples, etc.  Most business people are not familiar with the legalities of search and seizure law and are not prepared to react appropriately to sudden execution of a search warrant by what is usually a large number of government agents.  Use of search warrants for business records is now regularly used as an acceptable method of obtaining documents or other potential evidence.

I have prepared a set of procedures for responding to the execution of a search warrant at a business entity. [See, Search Warrant Response Procedures] At the earliest hint of a criminal investigation, I strongly recommend that key management and at least one person for each relevant facility be briefed on these matters and given a copy of these procedures.  Obviously, a delicate balance exists here between adequately informing the necessary people but not unnecessarily frightening employees and originating destructive rumors.

The Goal:  Near Anonymity

My goal in these investigations is to avoid indictment with it never becoming public that it was necessary for my client to make use of a criminal defense lawyer.  The opportunities for creative advocacy are great as is the ability of people to maneuver themselves into difficult but only occasionally impossible positions.  Occasionally though I remind myself of the framed cartoon in my office that shows two middle-aged men in a prison cell with one saying, “My battery of lawyers was no match for their battery of eyewitnesses.”