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Navigating
the Perils of Internal Investigations in Light of the DOJ’s
Expansive
Theory of Obstruction of Justice
By Douglas E.
Whitney
In two unrelated cases
in 2004, the Department of Justice brought obstruction of justice charges
against company employees who, according to the government, intentionally
misled the law firms conducting internal investigations on their
employer’s behalf. The
government’s theory in those cases -- that the federal obstruction of
justice statutes criminalize knowingly false statements made during the
course of internal investigations -- dramatically increased the risks for
employees participating in such investigations. Although the government’s expansive
obstruction of justice theory has received mixed receptions from the
courts, it is nonetheless clear that, three years later, this theory
continues to have important implications for counsel and companies that
conduct internal investigations.
In the first and most
widely-publicized case involving the government’s internal
investigation theory of obstruction, United States v. Kumar, the
government charged three top executives of Computer Associates with
obstructing justice under 18 U.S.C. § 1512(c)(2)(2006) by concealing
information from the law firm hired to conduct the internal investigation
of Computer Associates’ accounting practices. The government alleged
that the defendants “did not disclose, falsely denied and otherwise
concealed” certain facts from the law firm while knowing that the law
firm would later present the false information to the United States
Attorney’s Office, the SEC and the FBI. Each of these defendants pleaded guilty
to the novel obstruction charges, and Judge I. Leo Glasser of U.S. District
Court for the Eastern District of New York accepted the factual basis for
their pleas.
In a less publicized
and ultimately less successful prosecution that same year, United States
v. Singleton, the government pursued similar obstruction of justice
charges under § 1512(c) against Greg Singleton, a trader with the El
Paso Corporation. The government
charged that when the law firm hired by El Paso to conduct the internal
investigation into the company’s activities in the gas trading
markets initially sought to interview Singleton, the lawyers warned him
that “El Paso may choose to disclose any information he gave them to
‘other third parties, including government
agencies.’” Singleton
first delayed the interview, stating that he had hired private counsel and
would like his counsel to be present.
At the subsequent meeting with his individual counsel present,
Singleton allegedly concealed information regarding his participation in
the company’s trading activities from the law firm conducting the
internal investigation.
The government alleged
that Singleton expected that his false statements would reach federal
investigators and charged him with obstruction of justice under §
1512(c). The government did not
allege that the defendant directly provided the government with any false
information. Singleton moved to dismiss
the obstruction charge arguing, inter alia, that the indictment
failed to allege an adequate nexus with an official governmental
proceeding. Judge Nancy F. Atlas of
the U.S. District Court for the Southern District of Texas denied the
motion to dismiss, finding a sufficient nexus with an official proceeding
because El Paso’s lawyers in fact
relied on Singleton’s allegedly false statements in a memo that was
provided to the government authorities investigating El Paso’s trading activities.
However, as the case
proceeded to trial, the defense focused on whether the government could in
fact prove that Singleton expected at the time of his interview that his
statements to the law firm would be conveyed to federal investigators. The critical inquiry on this point became
what Singleton had been told by El
Paso’s lawyers regarding the purpose of the
internal investigation and the likely use of the materials gathered by the
law firm conducting the investigation.
The key testimony at trial from the lawyer who interviewed Singleton
was as follows:
Q:
So, these 20 or 30 employees were all told by you—or by whoever was
present in the interview, of course, if you weren’t there—that
what they said would be told to their upper management and it may or may
not, down the road, be told to other people?
A: That’s correct.
Q: And, of course, in November of 2002, you and your team had not made any
decision or El Paso
had not made a decision where the information was going to go. Right?
A: Not that I knew of.
*
* *
Q:
You didn’t tell Mr. Singleton you were going to prepare a memo.
Right?
A: We did not.
Q: And, of course, you didn’t have Mr. Singleton or his lawyer
participate in the drafting of this memo?
A: No.
Based
on this testimony, Singleton argued that the government had not established
that Singleton knew or believed that his statements to the lawyers
conducting the internal investigation would be provided to the
government. Judge Atlas agreed and
granted his motion for judgment of acquittal on the obstruction count. Judge Atlas’s decision (made orally
and without a subsequent written opinion) seems undoubtedly correct, as the
federal obstruction of justice statutes have both a nexus element and an
intent element; to be guilty, the defendant must believe that his
wrongdoing will likely affect a governmental proceeding. As the Supreme
Court concluded in United States v. Aguilar under a similar statute
(18 U.S.C. § 1503), “if the defendant lacks knowledge that his
actions are likely to affect the . . . proceeding, he lacks the requisite
intent to obstruct.”
The clear takeaway from
Singleton is that the ability of the government to use its internal
investigation theory of obstruction will depend, perhaps in large part, on
what the lawyers conducting the internal investigators tell the interviewed
employees. The specific focus on the
lawyers’ admonitions in Singleton emphasizes how careful
counsel needs to be in considering what to convey to employees during
internal investigations, and it leaves the lawyers in a difficult
position.
Lawyers conducting an
internal investigation of course have a professional responsibility to
admonish employees that they represent the corporate client, not the
employee individually. In addition, it is also common practice to provide
the employee witness what is sometimes referred to as “the Corporate
Miranda,” or the “Upjohn” warning. This usually will include an instruction
to the employee that the conversation is covered by the company’s
attorney-client privilege, and a reminder to the employee that he or she
has an obligation as a corporate employee to preserve the confidentiality
of the communications in order to maintain the privilege. Many counsel also go on to advise the
employee witness that the company, rather than the individual employee,
retains the right to decide whether
to waive any privileges protecting statements made during the internal
investigation.
But what more should be
said by counsel during these preliminary warnings remains an open, and
difficult, question. The most
pressing consideration, in the wake of the recent prosecutions, is whether
lawyers conducting the internal investigation should (or must) explicitly
alert the interviewed employees that their answers will likely be turned
over to the government and warn them that providing false information
during the interview could subject an employee to obstruction of justice
charges. While the best approach for
a particular interview necessarily will depend on the specific circumstances
of the lawyer’s client and the likelihood that the results of the
internal investigation will in fact be provided to the government, other
factors and circumstances should also be considered.
Such cautionary
statements, assuming they are accurate, have the virtue of full disclosure;
they ensure that an employee is aware of the potential consequences
relating to his or her statements, and they allow an employee to consider
all such consequences in deciding how to proceed. It is also possible that such
introductory admonitions will cause some employees to refrain from
intentionally providing false information or misleading the lawyers
conducting the internal investigation.
This could save the company time and energy involved in pursuing
false leads and in this sense help make the process of completing the
investigation more efficient. And
because such admonitions will help the government subsequently construct an
obstruction case against an employee who provides false information, they
help provide the government with a potentially valuable weapon and means to
prosecute employees who attempt to mislead and divert internal
investigations, which could help deter more broadly such efforts to mislead
investigations.
On the other hand, such
cautionary statements could have the effect of expanding the criminal
liability of a client’s employees.
Lying to one’s employer no doubt is a workplace offense, and
might well be the basis of workplace discipline, but it does not usually
amount to a federal offense. As the Singleton
case makes clear, it will often be difficult for the government to
establish that the defendant knew or believed that his false statements
were likely to reach the government unless the interviewing lawyers told
him that they were. Increasing the
already intimidating leverage prosecutors have over individuals involved in
corporate wrongdoing seems like an odd role for corporate counsel. Moreover, affirmatively inserting the
potential of criminal consequences into the internal investigation will
undoubtedly prompt more employees to obtain private counsel or refuse to
participate entirely in the investigation, thus increasing the difficulty,
time, and cost of collecting information.
More costly and less fruitful investigations could also harm the
company in its efforts to uncover all facts and, ironically, hinder a
company’s ability to convince the government of its complete and
sincere cooperation.
Finally, and more
philosophically, by admonishing employees regarding the likely use of their
statements and the potential criminal consequences of their statements, the
lawyers run the risk of having, in effect, deputized themselves as
pseudo-prosecutors. The lawyers
arguably make it more likely that they will be prosecution witnesses at
trial, and that their client’s once confidential internal
investigation might become the focus of a public trial. To an even greater degree, they could be
seen as an arm of the federal government rather than a law firm serving the
interests of its corporate client.
While the interests of the law firm undoubtedly do overlap with
those of the government -- i.e., uncovering the complete truth, identifying
wrongdoers, and taking remedial actions -- the investigating law
firm’s ultimate function is not to prosecute but rather to seek
candid and complete information that helps its client assess the extent of
misconduct and design the most appropriate remedial actions, including
cooperating with the government.
Governmental policies or prosecutions that inhibit the ability of
lawyers to fulfill this role will likely have the effect of further eroding
the attorney-client relationship.
It may be that the
government itself has recognized the costs of further invading the
attorney-client relationship in this manner. We are not aware of any prosecutions
under the government’s internal investigation theory of obstruction
since the court’s ruling in Singleton last year. Such a reevaluation would be consistent,
at least on paper, with the issuance of the McNulty Memo in December 2006,
which superseded the widely criticized Thompson Memo. The McNulty Memo generally precludes
prosecutors from penalizing a company for
indemnifying its employees and restricts the circumstances under
which the government will request that a company waive its attorney-client
privilege.
However, the McNulty Memo
still authorizes prosecutors to reward a company that “elects”
to waive its privileges, and it is unlikely the “culture of
waiver” that developed under the Thompson Memo will recede
quickly. Moreover, just because
prosecutors have not charged any individuals with obstruction under an
internal investigation theory since Singleton does not mean that
they can’t or won’t reach back to it in what they view as an
appropriate case, either as a means of obtaining additional leverage or
solely as a means to punish those who have misled an internal
investigation. Thus, the dilemma
facing lawyers conducting internal investigations remains very real, and
counsel must carefully consider the circumstances of their client and the
potential consequences to their client’s employees and their
investigation in deciding how best to proceed.
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