What do you think we will see in 2016?
2016 promises to be a very volatile year. This is true in our political lives; it’s an election year. It’s true in our financial lives; the market has already demonstrated that. And, it will be true in at least the federal criminal enforcement initiatives we are likely to see.
Are there any specific law enforcement initiatives that you think are likely in 2016?
The DOJ and local U.S. Attorney’s Office have been saying they are committing additional resources to Foreign Corrupt Practices Act investigations and prosecutions. There also seems to be increased government interest in Bitcoins and other digital currencies and cyber-security in general. Insider trading remains a top concern – especially with respect to the SEC. Healthcare fraud, in response to whistleblower or qui tam actions, will also likely increase. Meanwhile, the Antitrust Division continues to focus on price fixing cartels and other illegal bid rigging activities.
Are there new tactics that you expect the government to use in its fight against corporate crime?
The United States government is now re-energizing its criminal prosecutors and civil attorneys to focus more fully on holding individuals accountable for corporate misconduct. This mandate means ensuring that all DOJ prosecutors hold individuals accountable both criminally and civilly.
The so-called Yates Memo issued by the Deputy Attorney General on September 2015 and the updated Principles of Federal Prosecution of Business Organizations found in the United States Attorney’s Manual at §9.28, et seq., require corporations to provide substantial assistance to the government if they want to receive any credit for cooperation. That means that an entity under investigation has to discover and fully divulge everything it knows about who did what, when, where, and why to cause the corporate malfeasance under investigation. Prosecutors and their civil counterparts have to then ensure that they focus their investigations on individuals, to include bringing civil claims whenever they are appropriate, regardless of an individual’s ability to pay or satisfy a judgment.
But the government has always focused on individuals; what’s different?
The Yates memo mandates supervisorial oversight of all decisions not to charge individuals. Now, similar to the plea agreement approval process, if you ask a line prosecutor if your client is a witness, rather than a subject or target, you may not be able to rely on the representation made to you without supervisorial approval.
Similarly, the new focus on civil actions could also mean many more parallel criminal and civil actions against entities and individuals. Cooperation may be helpful in certain cases criminally, but still lead to personal liability civilly.
This new policy also raises the anticipated level of communication and cooperation between criminal prosecutors and their civil counterparts. Ethical rules that limit certain kinds of pro-active use of one forum to obtain an advantage in the other may be adjusted or otherwise stretched in certain cases.
Won’t this mean that the government is going to be better able to make cases against higher ups?
That remains to be seen. The immediate impact will likely lead to corporations having to be more focused on and ready to turn over evidence against individuals whenever they are conducting an internal investigation and seeking cooperation credit. These new requirements could mean that Upjohn warnings to employees will need to be more thorough before interviews by company counsel. If employees are forced to talk on pain of losing their jobs, that could also create problems for the government if a court determines that the Company is acting as a surrogate for the government in conducting its investigation. This is similar to the situation where police officers and other public officials are required to give statements but those statements cannot be used against them in a criminal prosecution (Garrity).
Attorneys may be needed to advise individuals earlier in the process. An increase in insurance coverage for these kinds of inquiries may need to be considered. That could mean less cooperation—not more—and more costly investigations, despite the government’s desire to have companies not “boil the ocean.” This means that a corporate investigation must be focused, nimble, and complete in order to ensure credit for cooperation.
What should corporate clients do?
This is a good time to look at your internal controls, overall compliance program and staff training. The biggest risk is to those entities that fail to ensure that these non-revenue generating safety mechanisms are in place and refreshed. I cannot emphasize enough that the best defense against a government investigation and possible prosecution is not “after-the-fact cooperation” but the ability to have the right people and systems in place to prevent the wrong doing from happening in the first stance. It is much easier to make a report to government regulators and prosecutors if your compliance systems are working rather than playing catch-up when they don’t.
Further, it is important to make sure your insurance coverage is up-to-date and available to provide coverage for the attorneys fees and costs associated with internal investigations. These can be both in advance of or in response to government criminal and civil inquiries and actions.
– Contributed by Jeffrey Bornstein