Yates Memo and Other Key Issues Strategies to Shield the Business - - PowerPoint PPT Presentation

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Presenting a live 90-minute webinar with interactive Q&A

Government Investigations of Corporate Misconduct: Privilege, Self-Reporting, Yates Memo and Other Key Issues

Strategies to Shield the Business and its Counsel from Liability, Prosecution and Reputational Damage

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific TUESDAY, FEBRUARY 9, 2016

Shireen M. Becker , Partner, Jones Day, San Diego Steven A. Fredley, Partner, Harris Wiltshire & Grannis, Washington, D.C.

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GOVERNMENT INVESTIGATIONS OF CORPORATE MISCONDUCT: PRIVILEGE, SELF-REPORTING, YATES MEMO

AND OTHER KEY ISSUES

Presented By: Shireen M. Becker, Partner, Jones Day Steven A. Fredley, Partner, Harris, Wiltshire & Grannis

5

Preparing for Investigation 6

Four Key Questions to Consider Before Beginning Any Internal Investigation

• 1. Who is best suited to conduct the internal

investigation?

• 2. What is the appropriate scope of the internal

investigation?

• 3. Who should be advised (and kept apprised) of the

internal investigation?

• 4. How should the internal investigation be

structured to maintain the attorney-client privilege and work-product protections?

7

Who Should Conduct The Investigation?

• Advantages of In-House Counsel
• Know how the company operates
• Access key information more quickly
• Know employees and more likely to have their trust
• Advantages of Outside Counsel
• Viewed as more independent
• More resources on which to draw

8

Who Should Conduct The Investigation?

• Factors to Consider in Deciding Between In-House or

Outside Counsel

• Need to protect privilege
• United States v. Singhal, 800 F

. Supp. 2d 1 (D.D.C. 2011) (“Where business and legal advice are intertwined, the legal advice must predominate for the communication to be protected.”)

• Akzo Nobel Chemical Ltd. v. Commission, Case-550/07

(European Ct. Justice) (holding that internal company communications with in-house lawyers are not privileged; privilege applied only to “independent” lawyers who are not bound to the client by a relationship of employment”)

• Experience and resources of in-house counsel & legal

department

9

Who Should Conduct The Investigation?

• Factors to Consider in Deciding Between In-House or

Outside Counsel

• Nature of the problem
• Outside Counsel better suited to investigate:
• Conduct involving issues related to the company’s accounting or

financial reporting

• Conduct of senior management
• Conduct raising issues concerning the company’s internal controls
• In-House Counsel better suited to investigate:
• Violations of employment laws
• Internal employment policies

10

Who Should Conduct The Investigation?

• Factors to Consider in Using Regular or New Outside Counsel
• Extent to which regular outside counsel’s advice may be at issue
• See, e.g., In re Enron Corp. Sec., Derivative & ERISA Litig., 235 F

. Supp. 2d 549 (S.D. Tex. 2002) (noting “issue of a serious conflict of interest” arises when the firm alleged to have participated in the wrongdoing investigates the same wrongdoing).

• Perception by government regulators and prosecutors of

independence

• Whether regular outside counsel has a prior or current attorney-

client relationship with employees who may be targets of investigation

• See, e.g., United States v. Nicholas, 606 F

. Supp. 2d 1109 (C.D. Cal. 2009)

11

Who Should Conduct The Investigation?

• Role of In-House Counsel
• Facilitate work of outside counsel
• Employee Interviews
• Document retention and collection
• Avoid appearance of influence over the investigation or

results

• Role of lawyers in internal investigations is a “particular

focus” because in some instances lawyers “may have conducted investigations in such a manner as to help hide ongoing fraud,

• r may have taken actions to actively obstruct such

investigations.” (Stephen Cutler, SEC Director Division of Enforcement)

12

What is the Appropriate Scope of the Internal Investigation?

• Create a written work plan that contains the

following:

• Key issues to be investigated
• Relevant time period
• Categories of documents to be gathered
• Method by which such documents will be collected,

translated (if necessary), and reviewed

• Identity and order of witness interviews
• External consultants
• Timeline

13

What is the Appropriate Scope of the Internal Investigation?

• Benefits of Written Work Plan – Front End
• Investigation reasonably tailored to the issues presented
• Set expectations for time and cost
• Identify potentially sensitive areas in the investigation
• Benefits of Written Work Plan – Back End
• Can help prevent the dreaded “runaway” investigation
• Can serve as the measuring stick for a variety of future

audiences who may have an interest in assessing the adequacy of the investigation conducted

14

What is the Appropriate Scope of the Internal Investigation?

• Does the allegation have broader implications than the

immediate matter?

• Inadequate process controls?
• Inadequate policy guidance?
• Is there a larger problem that needs to be investigated?
• E.g., allegation of improper booking of gross revenue on a

services translation involving third party contracts – do you investigate similar contracts?

• E.g., allegation of corruption in China with same sales force

handling Vietnam – do you investigate Vietnam?

15

What is the Appropriate Scope of the Internal Investigation?

• Don’t “Boil the Ocean”
• Leslie R. Caldwell, Assistant Attorney General
• But don’t ignore signposts and signals that a

discrete allegation may suggest risk in broader business practices

• Document the decision for future reference

16

Who should be advised (and kept apprised) of the internal investigation?

17

Private Civil Litigants Media Foreign Governmen ts Governmen t Enforceme nt Agencies Public Executive Team Board Employees Shareholde rs Insurers Lenders Customers Vendors COMPANY Auditors

Who should be advised (and kept apprised) of the internal investigation?

• Information about the investigation—even the fact of

the investigation itself—should be strictly controlled and generally considered to be highly confidential

• Potential Stakeholders
• The Board and Company Management
• Outside Auditors
• Local Country Management
• D&O Insurers

18

How to Best Protect the Attorney- Client Privilege and Work-Product?

1. Document that the investigation is undertaken for purpose of providing legal advice. 2. Emphasize importance of confidentiality. 3. Outside consultants should be retained by counsel. 4. Give Upjohn warnings at the outset of all witness interviews. 5. Mark all investigation-related documents as “Attorney- Client Privileged” or “Attorney Work Product” (or both) as appropriate. 6. Be aware that attorney-client privilege can vary from country to country.

19

Conducting Investigation 20

Document Retention Strategies

“The scope of a party’s preservation obligation can be described as follows: Once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a ‘litigation hold’ to ensure the preservation

• f relevant documents.”
• Zubulake v. UBS Warburg LLC, 220 F

.R.D. 212 (S.D.N.Y. 2003)

• Key Questions Regarding Duty to Preserve:
• When does the duty attach?
• What information is subject to that duty?

21

Document Retention Strategies

• The Litigation Hold
• Issue immediately to prevent destruction of documents
• Identify custodians likely to have relevant documents
• Key elements
• Summary description of the issue
• Description of the document & data to be

preserved

• Explanation of the duty to preserve information
• Risks of noncompliance (e.g., obstruction of

justice)

22

Document Retention Strategies

• Other Practical Steps:
• Require custodians to acknowledge receipt and compliance with

litigation hold

• Suspend automated, data-deletion protocol
• Inventory sources of information (e.g., company servers, employee hard

drives, handheld devices).

• Don’t forget the paper
• Start with broad litigation hold and update the scope as the

investigation develops

• “[I]t is not sufficient to notify all employees of a litigation hold and

expect that the party will then retain and produce all relevant

• information. Counsel must take affirmative steps to monitor

compliance so that all sources of discoverable information are identified and searched.” Zubulake v. Warburg LLC, 229 F .R.D. 422 (S.D.N.Y . 2004

23

Document Retention Strategies

• Document Collection
• Automate the collection process as much as possible
• Utilize IT specialists and outside forensic experts
• Develop thoughtful and focused list of search terms for

electronic data

• Carefully consider risks/benefits before restoring

backup data

• Carefully catalog the source/custodian from which

document collected

24

Document Retention Strategies

• Document Review
• Code documents according to key issues
• Make sure reviewing attorneys understand

nature of alleged conduct and role of key individuals

• Utilize advanced review platforms
• E.g., predictive coding

25

Interviewing Employees

• Witness Warnings
• Upjohn Warning
• Counsel represents the company and not the individual witness
• Interviewing being conducted for purpose of providing legal advice

to the company

• Attorney-client privilege belongs to the company and not the witness
• The company may decide to waive the privilege by disclosing

content of interview to third party (i.e., government)

• Decision to waive entirely within discretion of the company
• The company considers the interview as confidential and subject to

the attorney-client privilege and the employee should keep the substance of interview confidential

26

Interviewing Employees

• Witness Warnings
• Zar Warning
• Counsel should warn witness that if they make a false

statement during the internal interviews, he could be charged with obstruction of justice.

• Should be given if the company knows that it will or is likely

to cooperate with government.

• Not required by law, but given out of sense of fairness
• Risks to giving Zar Warning
• Employee may not cooperate
• Government may view as inviting employee not to

cooperate

27

Interviewing Employees

• Witness Warnings
• Separate Counsel Warning
• Remind witness that attorney does not represent

him

• If witness wants to consult counsel before

proceeding, interview can be postponed

28

Interviewing Employees

• At least two attorneys present for

interviews

• All witness warnings should be documented

in attorney interview notes/memo

• Memo should state not a verbatim

transcript and contains attorney’s mental impressions

29

Yates Memo – Impact on Internal Investigations

• Individual Employees May be Less Likely to Cooperate
• Upjohn Warnings May Need to Be Expanded
• Investigations May Require More Time and Resources
• The Decision of Whether to Cooperate: More Complex

Than Ever

30

Selecting Experts- Consulting vs. Testifying

• Consulting Expert
• Retained in confidence
• Work, advice, opinions not discoverable
• Testifying Expert
• Methodology, opinions, credentials must be disclosed
• Subject to pre-trial deposition
• Keep in mind state disclosure laws
• Engage Early

31

Selecting Experts – Types

• Forensic Accountants
• Economists
• Computer Forensics
• Subject Matter Expertise (e.g., health care,

industry standards)

• Investigative Experts in Foreign Jurisdictions

32

Post Investigation: Best Practices 33

Reporting Results of Investigation

• Written Report v. Oral Presentation
• Factors to Consider:
• Preparation of report is expensive and time consuming.
• Potential for privilege to be waived.
• Findings and conclusions are set; if additional information

later discovered, potentially undermine credibility of investigation.

• Oral presentation can be provided to Board or committee

and can be documented in meeting minutes.

Reporting Results of Investigation

• To Disclose or Not to Disclose?
• Government policies encouraging cooperation
• Department of Justice – Filip Memo.
• Antitrust Division Corporate Leniency Policy
• SEC – Seaboard Guidelines

35

Self-Reporting Investigation to Government- DOJ Guidance

• USAM Section 9-28.900, “Voluntary Disclosures,” now states:

“[T]he Department encourages corporations, as part of their compliance programs, to conduct internal investigations and to disclose the relevant facts to the appropriate authorities.” Although “a prosecution may be appropriate notwithstanding a corporation’s voluntary disclosure,” there are nevertheless concrete, tangible benefits available to entities who do elect to self-disclose corporate misconduct.

• “When a company voluntarily self-discloses, fully cooperates and

remediates, it is eligible for a full range of consideration with respect to both charging and penalty determinations.”

36

Self-Reporting Investigation to Government- SEC Guidance

• “Going forward, a company must self-report

misconduct in order to be eligible for the Division to recommend a DPA or NPA to the Commission in an FCPA case.”

• Companies that elect not to self-disclose

violations of the FCPA but later come under SEC scrutiny will be prohibited from entering into a DPA or NPA and will have to reach a more

• nerous form of corporate resolution.

37

Self-Reporting Investigation to Government- SFO Guidance

“ A self-report at the very least significantly mitigates the chances of a corporate being prosecuted. It opens up the possibility of a DPA or civil recovery. There is a moral and reputational imperative to self-report: it is the right thing to do and demonstrates that the corporate is serious about behaving ethically. If the corporate chooses to bury the misconduct rather than self-report, the risks attendant on discovery are truly

• unquantifiable. And of course, there will be the long,

anxious watches of the night when complicit senior managers lie awake and fret about being found out.” David Green QC, Director of the SFO

38

Self-Reporting Investigation to Government- Whistleblowers

• SEC’s whistleblower program authorizes the SEC

to award whistleblowers between 10% and 30% of monetary sanctions collected on enforcement actions in excess of $1 million and related actions.

• In FY 2015 alone, the SEC received nearly 4,000

whistleblower tips. The SEC has awarded more than $54 million to whistleblowers since the program’s current rules came into effect in August 2011.

39

Self-Reporting Investigation to Government- Upsides

• Benefits of cooperation
• Reduce potential fines on company
• Protect officers, directors, and employees
• Avoid costs of protracted litigation
• Minimize negative media coverage

40

Self-Reporting Investigation to Government- Downsides

• Government is almost certain to launch its own

investigation

• Local government may launch separate investigation
• Cooperation among various sovereigns
• Cannot control what the form of the resolution will

look like

• Yates Memo – Cooperation is “all or nothing”
• Cooperation vs. Self-Disclosure

41

Cooperating With The Government

• Factors Considered for Leniency
• Thoroughness & independence of internal investigation
• Voluntary disclosure
• Promptness & effectiveness of company’s response
• Existence and effectiveness of company’s pre-existing

compliance program

• Remediation

42

Recent Guidance from DOJ – The Yates Memo

The Six Policy Changes

• 1. “All or Nothing” Cooperation Credit
• 2. Focus on Individuals
• 3. Communication between Criminal and Civil
• 4. No Individual Releases Absent Extraordinary

Circumstances

• 5. Clear Plan to Resolve Individual Cases
• 6. Civil also should Focus on Individuals

43

Remediation Measures and the Importance of Compliance

• While the Department recognizes that no compliance

program can ever prevent all criminal activity by a corporation’s employees, the critical factors in evaluating any program are whether the program is adequately designed for maximum effectiveness in preventing and detecting wrongdoing by employees and whether corporate management is enforcing the program or is tacitly encouraging or pressuring employees to engage in misconduct to achieve business objectives.

United States Attorneys’ Manual (USAM) §9- 28.900(B) (2015).

44

Remediation and the Importance of Compliance- FCPA Resource Guide (List of 10)

• 1. High-level commitment
• 2. Written Policies
• 3. Periodic Risk-Based

Review

• 4. Proper Oversight and

Independence

• 5. Training and Guidance
• 6. Internal Reporting
• 7. Investigation
• 8. Enforcement and

Discipline

• 9. Third Party

Relationships

• 10. Monitoring and Testing

45

Remediation and the Importance of Compliance- U.S. Sentencing Guidelines § 8B2.1

1. Establish standards and procedures to prevent/detect criminal conduct 2. Create a compliance program with appropriate management

• versight, individual operational responsibility, and adequate

resources/authority 3. Exclude from organizational management individuals who engaged in activities that are illegal or inconsistent with compliance program 4. Communicate compliance standards and procedures through training 5. Monitor and audit compliance activity and maintain a system for employees and agents to report criminal conduct 6. Promote and enforce the compliance and ethics program 7. Respond to any detected criminal conduct and prevent further similar conduct

46

Remediation and the Importance

• f Compliance- Case Studies
• Morgan Stanley – Declination
• Commerzbank - forfeit $563 million and pay a $79

million fine

• BNP Paribas – 5 years probation and monetary penalty
• f nearly $9 billion

47

Dealing With Parallel Civil Proceedings

• Shorthand term for simultaneous criminal, civil and

administrative investigations

• Health Care, FCPA, Procurement Cases
• See Memorandum from the Attorney General to U.S.

Attorneys et al.(Jan. 30, 2012), mandating information sharing between the civil and criminal divisions “to the fullest extent appropriate to the case and permissible by law.”

• Yates Memo requires “routine communication”

between civil and criminal attorneys

48

Dealing With Parallel Civil Proceedings

• Tell-Tale Signs of Parallel Proceeding
• Administrative Subpoenas
• Search Warrant
• Unsworn Use of Witness Statements
• CIDs
• Delay of Grand Jury Proceedings

49

Dealing With Parallel Civil Proceedings

• Collateral Consequences
• Exclusion
• Debarment
• Suspension
• Permissive vs. Mandatory
• Part of Global Resolution

50

Questions 51

Faculty

Shireen M. Becker, Partner JONES DAY 12265 El Camino Real Suite 200 San Diego, California 92130 Tel: 858.314.1184 sbecker@jonesday.com Steven A. Fredley, Partner HARRIS, WILTSHIRE & GRANNIS 1919 M. Street, N.W. Eighth Floor Washington, D.C. 20036 Tel: 202.730.1317 sfredley@hwglaw.com

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