Internal Corporate Investigations and Forum for In-House ... · Internal Corporate Investigations and Forum for In ... Internal Corporate Investigations and Forum for In-House

Seventh National Institute on Internal Corporate Investigations and Forum for In-House Counsel

Presented by theAmerican Bar AssociationCriminal Justice Section,Business Law Section,

Health Law Sectionand Center for Professional Development

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Table of Contents Faculty and Author Biographies Sponsors

The materials contained herein represent the opinions of the authors and editors and should not be construed to be the action of the American Bar Association Criminal Justice Section, Business Law Section, Health Law Section or Center for Professional Development unless adopted pursuant to the bylaws of the Association. Nothing contained in this book is to be considered as the rendering of legal advice for specific cases, and readers are responsible for obtaining such advice from their own legal counsel. This book and any forms and agreements herein are intended for educational and informational purposes only. © 2016 American Bar Association. All rights reserved. No part of the publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. ISBN-13: 978-1-63425-536-3

Product Code: CE1604ICICOR

American Bar AssociationCenter for Professional Development321 North Clark Street, Suite 1900Chicago, IL 60654-7598www.abacle.org800.285.2221

Faculty and Author Biographies

Sponsors

Section A: Fundamentals in Corporate Investigations

Fundamentals in Corporate InvestigationsMeredith S. Auten

Section B: Establishing and Managing In-House Investigations and Compliance Functions

Internal Investigations: Protecting Attorney-Client Privilege in Internal Investigations (Presentation Slides)Lillian S. Hardy

Section C: Regulators’ Roundtable: The Latest in Government Enforcement

Internal Investigations: Out of the Lion’s Den?Nicholas C. Harbist

Section D: Congressional Investigations

Welcome to Congress: Congressional Investigations 101 (Presentation Slides)Reginald J. Brown

Section E: Hot Issues in Compliance—What You Need to Know To Stay Out of the Government’s Crosshairs

Presentation Slides

Gatekeepers as Targets

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Section F: International Panel: Best Practices on Conducting International Investigations

Effectively Managing the Impact of Internal Corporate Investigations (Presentation Slides)Jay G. Martin, Anderson Lee, Brian T. Moffat and John E. Davis

Internal Corporate Corruption Investigations (Presentation Slides)Matteson Ellis

Section G: Financial Crimes Overview: AML, FCPA, and More

Overview of Current Financial Crimes Compliance IssuesA.J. Bosco

Memorandum to the Compliance Counsel, United States Department of JusticeJonathan J. Rusch

Section H: Crisis Management

Crisis Management/Ethical Issues in Government Investigations (Presentation Slides)Michael E. Clark, Joel M. Androphy, Alice S. Fisher and George A. Stamboulidis

7 Steps to a PR Blunder: The BP Oil Spill (Presentation Slides)George Stamboulidis

Crisis Management: Moderating the Press and Media in Internal Investigations (Panel Outline)

In re Grand Jury Subpoena as Dated March 24, 2003

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Faculty and Author Biographies

Joel M. Androphy is a partner at Berg & Androphy in Houston. He has a diverse trial practice representing individuals and corporations in white collar criminal proceedings and qui tam civil actions. He is the author of several legal books, including White Collar Crime, a 6 volume treatise by Thompson/West, and the Federal False Claims Act and Qui Tam Litigation by Law Journal Press.

Meredith S. Auten is a partner at Morgan Lewis in Philadelphia. As part of her comprehensive white collar litigation practice, she concentrates on Civil False Claims Act (CFCA) and qui tam actions involving a range of corporate clients, including those in the pharmaceutical, healthcare, and defense contracting industries. Ms. Auten regularly defends corporations and their employees against government charges involving alleged trade secret, intellectual property, and antitrust violations, as well as healthcare, procurement, tax, bank, and securities fraud. She also defends clients in complex government investigations.

Stephanie Avakian is the deputy director of the U.S. Securities and Exchange Commission’s division of enforcement in Washington, D.C. Before joining the SEC in 2014, she was a partner at Wilmer Cutler Pickering Hale and Dorr LLP, where she served as a vice chair of the firm’s securities practice. Ms. Avakian represented financial institutions, public companies, boards, and individuals in a broad range of investigations and other matters before the SEC and other agencies. She previously worked in the SEC Division of Enforcement as a branch chief in the New York regional office, and later served as counsel to former SEC Commissioner Paul Carey.

Theodore L. Banks is a partner at Scharf Banks Marmor LLC in Chicago. His practice concentrates on general corporate and antitrust matters. He is also president of Compliance & Competition Consultants, LLC. Formerly, he served as chief counsel and senior director, global compliance policy, at Kraft Foods in Northfield, Illinois. He is an adjunct professor of law at Loyola University (Chicago) School of Law, where he teaches corporate compliance. He co-edited the Corporate Legal Compliance Handbook, published by Aspen/Wolters-Kluwer, and his multi-volume treatise, Distribution Law: Antitrust Principles and Practice, also published by Aspen/Wolters-Kluwer, is now in its second edition.

Elise J. Bean is interim co-director in the Levin Center at Wayne Law in Detroit. She became counsel to U.S. Sen. Carl Levin, D-Mich., on the U.S. Senate Homeland Security and Governmental Affairs Committee in 1985. She worked for him on three subcommittees, under the leadership of Linda Gustitus. In 2003, Sen. Levin appointed Ms. Bean as staff director and chief counsel of the committee's Permanent Subcommittee on Investigations, which he chaired. She retired from the Senate with Sen. Levin at the end of 2014.

Kirby D. Behre is a member of Miller & Chevalier's litigation department in Washington, D.C. and a former federal prosecutor. His practice focuses on the representation of corporations and senior executives in government investigations and criminal litigation, and in complex civil litigation. Mr. Behre's experience includes cases involving antitrust and cartel activity, bribery, fraud, public corruption, the Foreign Corrupt Practices Act (FCPA) and government contracts. He is a nationally recognized authority on business crimes and co-authors Federal Sentencing for Business Crimes (Lexis-Nexis) and Responding to Corporate Criminal Investigations (BNA).

A.J. Bosco served in the Manhattan district attorney’s office from 1986 through 1997. Since leaving the office, he had been a SEC Enforcement attorney and worked at diverse financial institutions, developing expertise in internal investigations, whistle blowing, regulatory exams and inquires, representing financial institutions and their employees before government agencies and SROs, and compliance policies and procedures. Mr. Bosco currently serves as vice president and assistant general counsel for JPMorgan Chase, where he works on internal investigations and government inquiries. He is the chair of the White Collar Crime Committee of the Business Law Section of the American Bar Association.

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Reginald J. Brown is chair of the financial institutions group at Wilmer Hale LLP in Washington, D.C. He also leads the firm's congressional investigations practice. Mr. Brown regularly counsels financial institutions and other clients facing complex and high stakes regulatory, enforcement and reputational matters. He joined the firm in 1997, and served as special assistant to the president and associate White House counsel from 2003 to 2005. Mr. Brown provides investigations-related guidance, strategic counsel and crisis management assistance to a broad range of companies and senior executives confronting challenges and opportunities at the intersection of government, law, media and public policy.

Ralph J. Caccia is a partner at Wiley Rein LLP in Washington, D.C. He is a former federal prosecutor whose practice focuses on the defense of criminal and civil government enforcement actions, corporate internal investigations, and political and congressional investigations. He regularly defends companies and their executives in complex cases involving alleged health care fraud, the False Claims Act (FCA), the Foreign Corrupt Practices Act (FCPA), antitrust, contract, grant and procurement fraud, whistleblower allegations, and securities fraud. Mr. Caccia is a member of the firm's management committee.

Leslie R. Caldwell is the assistant attorney general for the criminal division at the U.S. Department of Justice in Washington, D.C. She oversees nearly 600 attorneys who prosecute federal criminal cases across the country, help develop criminal law and formulate criminal enforcement policy. She also works closely with the nation’s 93 U.S. attorneys in the investigation and prosecution of criminal matters in their districts. Prior to joining the criminal division, Ms. Caldwell was a partner at Morgan Lewis & Bockius LLP, a position she held since 2004.

Steven A. Cash is counsel at Day Pitney LLP in Washington, D.C. He represents individual and corporate clients in criminal, commercial litigation and national security matters. He has broad experience at the federal and state level in the executive, legislative and judicial branches. He was chief counsel and staff director (minority) to the U.S. Senate's judiciary committee, subcommittee on terrorism, technology, and homeland security, and chief counsel to Senator Dianne Feinstein. Before joining federal service, Mr. Cash served as an assistant district attorney in the rackets bureau and trial division of the New York county district attorney's office in Manhattan.

David B. Chenkin is the managing partner at Zeichner Ellman & Krause LLP in New York. As a litigator, he represents major financial institutions and individuals in civil, criminal, regulatory and compliance-related matters. He heads the firm’s anti-money laundering and Bank Secrecy Act compliance practice area, and represents clients in complex government investigations initiated by Congress and by federal, state and local prosecutors and regulators. Mr. Chenkin has devoted substantial attention to representing clients in many of the major financial investigations conducted by the U.S. Senate permanent subcommittee on investigations and other congressional committees.

Michael E. Clark is special counsel with Duane Morris LLP in Houston. He is a litigator with extensive trial and appellate experience. He is the immediate past chair of the ABA Health Law Section. Mr. Clark is an adjunct professor at the University of Houston Law Center, where he has taught civil and criminal trial advocacy, food and drug law, and health care and antitrust law. Mr. Clark is a past chair of the white collar crime committee in the ABA Business Law Section, where he also served on the editorial board for the Business Lawyer; a former member of the ABA Standing Committee on Publishing Oversight; and is one of the founders and serves on the planning committees for the ABA’s Internal Corporate Investigations national institute and the National Institute on the Civil False Claims Act and Qui Tam Enforcement.

Andrew J. Curtin is the senior managing director and global head of investigations at American International Group (“AIG”) in New York. Prior to this position, he was the managing director at KPMG LLP. As a member of the firm’s forensic advisory services practice, he conducted internal corporate investigations, and specialized in providing investigative advisory services, conducting cross-border corruption and fraud investigations and developing and reviewing compliance, training and business ethics programs.

Alice S. Fisher is a partner at Latham & Watkins in Washington, D.C. She is a member of the firm's executive committee. She focuses her practice on white collar criminal investigations, internal investigations and advises clients on a range of criminal matters. From 2005-2008, Ms. Fisher served as assistant attorney

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general in charge of the criminal division of the U.S. Department of Justice. Ms. Fisher also chaired the National Procurement Fraud Task Force, supervised the Medicare Fraud Strike Force, and served as a member of the President's Corporate Fraud Task Force.

Nicholas C. Harbist is a partner at Blank Rome with offices in Princeton, New Jersey and Philadelphia. He concentrates his practice in the area of white collar crime, government compliance, corporate investigations, qui tam litigation and complex litigation. He served 12 years as an assistant U.S. attorney in the Eastern District of Pennsylvania. During this time, he was responsible for numerous high profile defense contract fraud, money laundering, tax fraud and public corruption prosecutions. In addition, Attorney General Reno designated Mr. Harbist as a special assistant U.S. attorney representing the Department of Justice in an arms export/securities fraud prosecution involving litigation of the use of classified information under the Classified Information Procedures Act.

Lillian S. Hardy is counsel at Hogan Lovells in Washington, D.C. Her practice focuses on internal and government investigations and regulatory compliance counseling for clients in industries including technology, life sciences, aerospace and defense, financial services, consumer products, retail, and education. She has managed wide-ranging investigations for clients involving business conduct on five continents. She works with legal, compliance, and risk management departments to evaluate the strength of existing company policies, internal controls, and employee training programs.

Todd R. Harrison is a partner at McDermott Will & Emery LLP in New York. He focuses his practice on white collar and corporate defense, internal investigations, regulatory and compliance matters, and complex civil litigation in state and federal courts. He has handled many complex and high-profile matters involving a wide range of federal and state crimes, including insider trading, securities violations, racketeering, conspiracy, money laundering, bank fraud, mortgage fraud, export control violations, tax fraud, bankruptcy fraud, bribery, environmental crimes, terrorist financing, mail and wire fraud, health care fraud, obstruction of justice, false statements, murder and public corruption.

William B. Jacobson is a partner at Orrick, Herrington & Sutcliffe LLP in Washington, D.C. He has served as general counsel, chief compliance officer and federal prosecutor. His experience serving in different capacities for the Department of Justice (DOJ), particularly the fraud section’s Foreign Corrupt Practices Act (FCPA) enforcement unit, allows him to provide clients significant insight into the processes and decision making of the DOJ.

Kathleen M. Jennings is the state prosecutor for the Delaware Department of Justice in Wilmington.

Joel Kirsch is vice president and associate general counsel at Siemens Corporation in New York, where he heads the compliance regulatory team for the Americas. He previously served as Siemens U.S. Chief Compliance Officer and, prior to that, head of litigation. Before joining Siemens, Mr. Kirsch was an associate at Patterson Belknap Webb and Tyler and a trial attorney in the U.S. Department of Justice, criminal division.

Kwame J. Manley is a partner in the investigations and white collar defense practice at Paul Hastings LLP in Washington, D.C. He focuses his practice on white collar criminal defense, internal corporate investigations, and complex civil litigation. His experience includes defending matters involving alleged U.S. sanctions violations, bank fraud, money laundering, procurement fraud, financial irregularities, and investigations under the Foreign Corrupt Practices Act (FCPA) and the False Claims Act (FCA). Before rejoining private practice, Mr. Manley served as an assistant U.S. attorney and deputy chief at the U.S. Attorney’s Office for the District of Maryland.

Annemarie McAvoy is a senior manager at Ernst & Young in New York. She works in the advisory services practice, specializing in the financial crime area. She also teaches anti-money laundering and terrorist financing as an adjunct professor at both Fordham Law School and Columbia’s Graduate School of International and Public Affairs. Ms. McAvoy is a former federal prosecutor, having worked in both the civil and criminal divisions of the U.S. attorney’s office in the Eastern District of New York. She also served in the Kings County district attorney’s office in the rackets/investigations unit, specializing in large financial investigations.

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Kelley McKinnon is a partner and head of the securities litigation practice in Gowling WLG in Toronto, Ontario. She has held senior roles at the federal Competition Bureau and the Ontario Securities Commission. With 25 years of trial and appeal experience, Ms. McKinnon has particular expertise in securities litigation and complex commercial litigation, regulatory compliance and dealing with multiple regulators in Canada and abroad. At the Competition Bureau, she was the senior deputy commissioner of competition, heading the mergers branch and participating in other competition enforcement and policy matters across the bureau as a member of the senior management committee and, periodically, as the acting commissioner of competition.

Arthur D. Middlemiss is a partner at Lewis Baach PLLC in New York. He practices in the areas of financial crimes compliance. Mr. Middlemiss focuses on providing strategic counsel to foreign and domestic entities seeking to mitigate regulatory, criminal and reputational risk in the areas of anti-money laundering (AML) and anti-bribery and corruption (ABC). He has represented individuals and corporations in criminal investigations, investigated alleged violations of the Foreign Corrupt Practices Act, and advised financial and other companies with respect to best practices in the fields of AML and ABC compliance. Prior to joining the firm, Mr. Middlemiss was the director of the global anti-corruption program at JPMorgan Chase & Co.

Michael C. Miller is a managing partner at Steptoe & Johnson LLP in New York. He represents a diverse array of domestic and international clients in commercial disputes, securities arbitrations, and white collar criminal investigations. He concentrates his practice in commercial litigation; securities litigation; white collar criminal defense/internal investigations; and professional liability. Mr. Miller started his career in the Manhattan district attorney’s office, where he prosecuted securities fraud, tax fraud, and political corruption.

Marjorie J. Peerce is a partner at Ballard Spahr in New York. She is a litigator, with a practice focus on white collar criminal defense, regulatory matters, and complex civil litigation. Ms. Peerce represents both individuals and institutions in New York state and federal courts, as well as in federal districts around the country. She also regularly represents individuals in myriad matters in the Criminal and Supreme Courts in New York City.

Elizabeth Prewitt is an antitrust partner and trial litigator in Hughes Hubbard’s New York office. Her practice focuses on international cartel and criminal matters, government and internal investigations, and complex litigation. For 16 years Ms. Prewitt was an investigator and trial lawyer for the antitrust division of the U.S. Department of Justice (DOJ). She served as assistant chief of the antitrust division’s New York office from 2012-2014. She serves as the vice chair of the ABA Antitrust Law Section’s Insurance and Financial Services Committee, secretary of the New York City Bar Association’s Antitrust and Trade Regulation Committee, and on the advisory boards of the ABA Antitrust Law Section’s Compliance & Ethics and Cartel & Criminal Practice Committees.

Jonathan Rusch is senior vice president and head of anti-bribery and corruption risk management at Wells Fargo in McLean, Virginia. Before joining Wells Fargo, he was a federal prosecutor for 26 years in the fraud section of the U.S. Department of Justice’s criminal division, most recently as deputy chief for strategy and policy. Previously, he was director of the U.S. Treasury Department’s office of financial enforcement, counsel to the President’s commission on organized crime, and a Washington, D.C. law firm associate. He also is adjunct professor at Georgetown University Law Center, and lecturer in law at the University of Virginia Law School.

Ronald A. Sarachan is a partner in the litigation group at Drinker Biddle in Philadelphia. He also is a co-chair of the white collar/internal investigations team. He focuses his practice on white collar litigation, regulatory enforcement and complex civil litigation. He advises corporate clients on compliance and ethics programs, internal investigations, risk assessment and management, disclosure and governance issues, and response to grand jury subpoenas and other government investigative and enforcement actions. He was previously a partner in the litigation department at Ballard Spahr and chair of the corporate and government investigations and white collar defense group.

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George A. Stamboulidis is a partner at BakerHostetler in New York. He co-leads the firm’s national white collar defense and corporate investigations practice. He has tried dozens of complex federal jury trials as prosecutor and as defense attorney. Mr. Stamboulidis is regularly engaged by corporations, directors, and officers to advise and defend in complex federal grand jury and regulatory investigations. He also lectures on corporate criminal liability and the use of proactive defense tactics and regularly presents to members of the financial services, insurance, pharmaceutical, energy, construction, and real estate industries, among others.

Patricia Sullivan is head of FCC for the Americas at Standard Chartered Bank in New York. She was most recently deputy global head of anti-money laundering compliance for UBS and head of AML and central compliance for the Asia Pacific region. Prior to her lengthy career with UBS, Ms. Sullivan was an assistant district attorney with the New York County district attorney’s office. She is based in Newark and reports to the global head of FCC.

Morgan Sullivan-Walsh is an attorney consultant at Axiom in New York.

Edward J. Westerman is a senior managing director at FTI Consulting in San Francisco. He has more than 20 years of experience providing consulting services regarding forensic accounting, auditing, internal controls & compliance, and financial damages. Mr. Westerman is engaged by counsel representing companies and board of director committees to conduct internal investigations in connection with subpoenas, government inquiries, and whistleblower allegations concerning accounting and financial reporting fraud and misappropriation of assets.

Michael L. Whitlock is a partner at Morgan Lewis in Washington, D.C. A former federal prosecutor, he represents clients in antitrust and white collar litigation, government and internal investigations, and related complex civil litigation. Mr. Whitlock serves clients in a variety of white collar criminal matters, including criminal antitrust, False Claims Act (FCA) and qui tam litigation, Foreign Corrupt Practices Act (FCPA) investigations, as well as Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) investigations and litigation. He has counseled clients regarding potential worldwide cartel violations, as well as defended against civil antitrust “pay-for-delay” actions.

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Internal Corporate Investigations and Forum for In-House Counsel

2016 Sponsors

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SECTION A

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Fundamentals in Corporate investigations

Fundamentals in Corporate Investigations Meredith S. Auten Morgan Lewis & Bockius LLP Philadelphia, Pennsylvania

I. Initiating an Internal Investigation

A. An internal investigation may be necessary for any number of reasons:

1. To identify and control problems uncovered through compliance programs;

2. To respond to allegations of wrongdoing reported through a whistleblower;

3. To comply with federal regulations and statutes;

4. To comply with consent decrees or statutes imposing investigative responsibility on the corporation;

5. To gather information in order to support a defense in actual or threatened civil litigation;

6. To prepare for, or respond to, a government investigation;

7. To respond to allegations raised by customers or vendors.

B. An effective internal investigation should have the following goals:

1. To quickly obtain accurate information, resulting in appropriate legal advice and informed corporate decision making.

2. To maintain the confidentiality of the investigation and protect the information acquired from undesired disclosure.

C. Even in a fast-paced investigation, it is essential to prepare for the investigation:

1. At the outset, identify the goals/purpose of the investigation.

2. Decide how the investigation will be conducted and who will pay for it.

3. Identify who is best positioned to investigate – including whether outside counsel should have a role in the investigation. When making this decision, consider the following:

a) Typical concerns about engaging outside counsel:

(i) Costs

(ii) Balancing the needs of business and the need to be able to adequately conduct the investigation

(iii) The likelihood that facts and the results of an investigation will become public

b) Advantages to involving outside counsel

(i) Independence and objectivity

(ii) Substantive knowledge of issues

A-2 Internal Corporate Investigations 2016

(iii) Expertise in the investigative process and perspectives on the potential reaction of governmental agencies

c) A key question in deciding who conducts the investigation is whether you will be able to satisfactorily defend the company’s response to an allegation or problem if it came to the attention of criminal prosecutors, regulatory agencies, shareholders, or the public.

4. Identify the factual and legal issues you are trying to resolve in the investigation.

5. Identify and set a timeframe for conducting the investigation.

6. Identify potential employees to interview and order in which they should be interviewed.

D. The attorney-client privilege and the work-product doctrine are crucial in an internal investigation:

1. The attorney-client privilege protects communications between an attorney and client made in confidence for the purpose of providing or obtaining legal advice. In re Teleglobe Comm. Corp., 493 F.3d 345, 359 (3d Cir. 2007).

2. The work-product doctrine applies to shield from disclosure certain materials created or collected by counsel in preparation for litigation. See Upjohn Co. v. United States, 449 U.S. 383, 397-98 (1981) (discussing recognition of the work-product doctrine in Hickman v. Taylor, 329 U.S. 495 (1947) and Federal Rule of Civil Procedure 26(b)(3)). Materials containing an attorney’s thoughts, beliefs, and mental impressions receive the most protection. Id. at 400.

3. Both the attorney-client privilege and the work-product doctrine are available to protect communications and documents in corporate internal investigations. Upjohn, 449 U.S. at 397, 401-402.

4. Although the attorney-client privilege protects specific communications and opinions, it does not immunize the underlying factual information from disclosure. Upjohn, 449 U.S. at 395-96.

II. Structuring the Investigation and Developing a Plan

A. Execute a memorandum initiating the investigation: A memorandum should be prepared for signature by the responsible senior executive directing the general counsel or designated outside counsel to conduct a confidential investigation on behalf of the corporation. The memorandum will serve to remove any doubt that the company intended to invoke the attorney-client privilege. The memorandum should:

1. refer to known litigation or investigations in order to invoke the attorney-client privilege and the work-product doctrine;

2. be clear that the purpose of the investigation is to provide legal advice to the corporation;

3. stress the need for confidentiality and direct the lawyers to use any other departments or personnel, internal or external, that they feel are necessary;

4. direct personnel to report to lawyers directly rather than through the usual chain of command.

B. Have outside counsel confirm initiation of the investigation: Outside counsel should confirm in writing the corporation’s directive to conduct the internal investigation.

American Bar Association

Fundamentals in Corporate Investigations A-3

C. Draft Explicit Engagement Letter: Lessons from News Corporation:

1. In 2007, British firm Harbottle & Lewis was engaged to do an investigation for News Corporation after News of the World journalist Clive Goodman was jailed for charges relating to telephone hacking. In interviews and testimony in the UK, Rupert Murdock stated that the firm was engaged to “find out what the hell was going on.”1

2. The firm has responded that its engagement was limited to providing advice on the internal employment appeal of Clive Goodman and that its investigation, which included no employee interviews and limited access to News Corporation’s server, lasted only two weeks and was primarily a “desktop exercise.” .

3. Notwithstanding the small scope of the investigation, News Corporation characterized the results of the investigation as providing a clean bill of health as to whether telephone hacking concerns extended beyond the one journalist.

4. This is a reminder of the importance of engagement letters. Good engagement letters:

a) describe in clear terms the nature and scope of the investigation

b) clearly identify the client (board, management, an individual, etc.);

c) document the firm’s independence;

d) address access to evidence, including employees and documents; and

e) document the potential need to expand the scope of the investigation, if evidence suggests the possibility of broader wrongdoing.

D. Provide instructions to employees involved in the investigation: The instructions should:

1. Provide a general outline of the investigation/litigation (including details as to the divisions or products of the Company that are at issue);

2. Advise employees that they have been asked to help lawyers conduct an investigation,

3. Advise employees that they are to treat all information as privileged and confidential,

4. Advise employees that they should not discuss their work or findings with others,

5. Advise employees they should not make copies of their notes or reports and should deliver all originals and work papers to the lawyers,

6. Advise employees that they should mark all investigative notes, reports or other documents or communications, including e-mail correspondence, “privileged and confidential.”

III. Develop an investigation plan: Conducting the Investigation

A. Develop an investigation plan

1. Developing an investigation plan will set and guide expectations as well as keep participants focused on the investigative tasks and objectives.

2. The plan will also memorialize the investigative process, maximizing the company’s ability to defend the investigative process to prosecutors, regulators, courts,

Meredith S. Auten


insurers, board members, shareholders, and prospective civil litigants. Among other things, the plan can address who (and in what order) witnesses will be interviewed, and what documents and electronic data will be collected.

B. Review the corporation’s Directors’ & Officers’ insurance policies:

1. Counsel should review and evaluate all relevant insurance policies to ensure that the company, if it intends to seek coverage for costs and potential liabilities associated with any misconduct, complies with the relevant notice provisions.

C. Identify and Preserve Relevant Documents

1. Immediately Issue Document Hold Memorandum

a) Identify those employees who may be in the possession, custody or control of documents related to the investigation

b) Identify potential sources and locations of data and documents related to the investigation

2. Collect and preserve crucial data to have a defensible methodology and collection protocol

a) Preserve and collect both paper and electronic formats including: Word processing documents, spreadsheets, presentations, ledgers, databases, emails, and instant messages

b) Develop applicable and useful search terms to facilitate investigation and quickly identify relevant documents

3. Manage e-mail and Electronically Stored Information (ESI)

a) Courts and Regulators are unsympathetic to companies that fail to locate ESI documents. As the United States Attorneys’ Bulletin stated in May 2008: “It is crucial to understand that deliberately ignoring preservation requirements could result in prosecution for obstruction of justice”

b) The failure to properly manage ESI may also put the Company at a disadvantage in dealing with regulators and with any follow on civil litigation.

D. Record Creation and Recordkeeping: Preserving Privileges throughout the Investigation

1. Treat privileged and confidential information in a manner that shows that you are serious about protecting the information: The more precaution you take, the more likely that a court will uphold the privilege.

2. Properly designate documents: Mark all documents generated as part of the investigation “Privileged and Confidential. Attorney-Client Communication and/or Attorney Work Product Material. Do No Duplicate. Do Not Disseminate.” Any analysis or other work production authored by non-attorneys should clearly indicate it was created “at the direction of counsel.”

3. Control disclosure of written materials. Number each copy of any written investigative reports generated and limit disclosure of these to only those who absolutely must know. Ideally, counsel should keep all copies, merely permitting those with a need to know to read the report and return it.

4. Firmly discourage non-privileged fact-gathering and reporting. Senior management must be firmly discouraged from initiating fact-gathering as any reports will not be privileged and may be inconsistent with the internal investigation.



IV. Conducting Employee Interviews

A. Properly plan for employee interviews

1. If possible, identify and review relevant documents before conducting interviews. Reviewing documents before conducting the interviews can help provide a framework for interviews as well as hone in on critical issues. Employees can also explain or provided needed context for particular documents or statements.

2. Identify the employees to interview and determine in which order the interviews will be most beneficial. Junior employees may uncover key areas of focus for senior-level employees as well as context for the issues in the investigation.

B. Determine whether certain employees require separate counsel and enter a joint defense agreement.

1. If an employee is only a witness and is regarded as such by the government, and neither the employee nor the company is suspected of any wrongdoing, joint representation by outside counsel may be appropriate.

2. Consider Common Defense agreement with separate counsel.

C. Clearly advise employees of outside counsel’s role in the investigation at the outset of each interview (“Upjohn Warnings”).

1. Counsel must clearly advise the employee that he or she represents the company, not the individual employees. Counsel should tell the employee about the purpose of the interview, making sure to include the following information:

a) Counsel is conducting a confidential internal investigation;

b) That counsel has been retained to provide advice to the company;

c) That the interview is necessary for counsel to obtain the information needed to provide appropriate advice to the company;

d) That the information discussed in the interview is privileged and that the company, not the employee, controls the privilege and whether it is ultimately waived;

e) That the information from the interview could be provided at some point to a third party including federal or state agencies;

f) That it is important for the employee to be truthful during the interview.

2. Counsel should give the opportunity to ask questions about the Upjohn warnings and counsel’s role.

3. Counsel may consider supplementing oral warnings by giving the employee written Upjohn warnings.

D. Simultaneous representation of the corporation and its employees may result in the corporation’s interests becoming adverse to the employee: This can have adverse consequences for the employee, the corporation, and outside counsel.

1. A conflict of interest may arise if outside counsel represents the employee in civil litigation and has been retained by the corporation to conduct an internal investigation or outside counsel intends to represent both corporate employees and the corporation.

Meredith S. Auten


2. Irell & Manella and Broadcom: a federal district court Judge in California issued an opinion that, in part, referred Irell & Manella to California Bar officials for its attorneys’ conduct during an internal investigation.

a) Failure to obtain informed consent: Irell was retained to represent Broadcom in an internal investigation into potential back-dating of stock options for certain employees. Irell also represented Broadcom’s CFO in two shareholder lawsuits filed against him based on the same allegations of back-dating. Irell did not receive the informed, written consent of the CFO prior to or during its representation of the CFO and Broadcom.

b) Disclosure of CFO’s Statements to Auditors and the Government: Irell, at the direction of Broadcom and without the CFO’s consent, disclosed the substance of the CFO’s statements from the interviews to company auditors, the SEC, and the U.S. Attorney’s Office.

c) Use of CFO’s Statements in Criminal Prosecution: The CFO’s statements were memorialized in FBI reports, which the government produced during the criminal prosecution of the CFO.

d) Upjohn Warnings May Not Be Sufficient For an Interviewee Who Is Also a Client: The district court noted that Upjohn warnings provide non-clients notice that they are not communicating with a personal lawyer; however, an oral warning “is simply not sufficient to suspend or dissolve an existing attorney-client relationship and to waive the privilege.” Instead, the court concluded Irell’s attorneys should have sought a written waiver of the conflict of interest.

e) CFO’s Statements were not privileged but Irell still referred to disciplinary board: The 9th Circuit reversed the district court and found that consistent with the CFO’s admitted understanding that Broadcom would fully disclose what Irell learned as part of the Equity Review to Ernst & Young, the CFO lacked an expectation of confidentiality to support a blanket invocation of his individual attorney-client privilege over all factual information he provided. Even so, the 9th Circuit did not address the district court’s referral to the California State bar.

3. Lessons From Irell & Broadcom:

a) Carefully consider whether to retain outside counsel to represent the corporation as well as individual officers in similar matters. It is generally better to retain separate counsel for employees whose interests will likely be adverse to those of the corporation.

b) If you decide to retain the same firm to represent individual officers and the corporation, obtain conflict of interest waivers from each officer. Note, however, corporate officers may not agree to these waivers, stalling the investigation and creating an atmosphere of mistrust.

c) Develop a clear and comprehensive set of Upjohn warnings to give at the outset of all employee interviews. Confirm that the employee understands the warnings and answer any questions the employee may have about the warnings.

d) Memorialize—through attorney notes, an interview memorandum, or both—that warnings were given and that the employee understood and agreed to the interview.



E. Some employees also may be contacted directly by the government:

1. Employees contacted by a government agent outside of their normal job responsibilities are free to talk to government agents; however, they are not obligated to do so.

2. Employees contacted by the government may want to contact an attorney before speaking with government agents

3. The corporation should advise its employees of their legal rights, obligations, and any company policies regarding contact with the government in the event that company employees may be contacted by the government.

4. When state rules prevent or limit ex parte contacts with past or present employees of the represented entity, federal prosecutors can no longer directly contact such people to gather information.

V. Properly Documenting the Investigation

A. Preserve applicable privileges for employee interviews

1. Outside counsel should use two attorneys to conduct employee interviews, with one attorney tasked with taking notes and preparing witness memoranda.

2. Witness memoranda and notes from interviews should not purport to be a verbatim transcript of the interview.

3. Witness memoranda should contain the following:

a) A statement explaining that the witness received and understood the Upjohn warnings.

b) A statement that the witness was informed that outside counsel was retained on behalf of the corporation to conduct an internal investigation and that the interview was necessary to provide legal advice to the corporation.

c) Outside counsel may weave mental impressions, strategies, and other legal analysis into witness memoranda in order to bolster privilege protections.

d) Include legends such as “Privileged and Confidential,” “Attorney-client communication,” and “Attorney work product.”

B. Decide whether outside counsel should make an oral or written report of the investigation

1. Factors to consider: Preparation of a written report may help memorialize counsel’s investigation, including the compilation of documents, analysis of witness interviews, and formulation of legal advice. On the other hand, a written report increases the possibility that prosecutors and private litigants gain access to a written blueprint of potential misconduct. An oral report to certain corporate officers may be the preferred approach.

2. Components in a written investigative report:

a) A description of the investigative process, including why and by whom, how the investigation was conducted, including all documents reviewed and employees interviewed, and what issues were explored;

b) A detailed summary of the facts;

Meredith S. Auten


c) An analysis of applicable legal principles;

d) An identification of perceived weaknesses in the company’s practices and procedures;

3. A review of potential administrative and criminal sanctions;

a) An outline of the arguments against those sanctions and criminal prosecution; and

b) Recommendations of corrective action to cure the deficiencies and enhance the company’s administrative and criminal defenses.

4. If a report is prepared for outside disclosure, it must be absolutely consistent with any internal report on all material points.

VI. Determining what to do with the Results of the Investigation

A. Investigation results should be assessed to determine:

1. Potential criminal, regulatory or civil liability;

2. Reporting requirements to either the government, the board of directors or the company’s outside auditors;

3. Notification requirements to insurance carriers;

4. Need for employee disciplinary actions; and/or

5. Extent and content of any communication with employees or the public.

Endnote 1 See Robert W. Tarun, “News Corporation’s Travails Across the Pond: Internal Investigation Engagement Lessons,” at http://www2.americanbar.org/sections/criminaljustice/CR121212/Pages/tarun.aspx (Nov. 28, 2011).


SECTION B


c) An analysis of applicable legal principles;

d) An identification of perceived weaknesses in the company’s practices and procedures;

3. A review of potential administrative and criminal sanctions;

a) An outline of the arguments against those sanctions and criminal prosecution; and

b) Recommendations of corrective action to cure the deficiencies and enhance the company’s administrative and criminal defenses.

4. If a report is prepared for outside disclosure, it must be absolutely consistent with any internal report on all material points.

VI. Determining what to do with the Results of the Investigation

A. Investigation results should be assessed to determine:

1. Potential criminal, regulatory or civil liability;

2. Reporting requirements to either the government, the board of directors or the company’s outside auditors;

3. Notification requirements to insurance carriers;

4. Need for employee disciplinary actions; and/or

5. Extent and content of any communication with employees or the public.

Endnote 1 See Robert W. Tarun, “News Corporation’s Travails Across the Pond: Internal Investigation Engagement Lessons,” at http://www2.americanbar.org/sections/criminaljustice/CR121212/Pages/tarun.aspx (Nov. 28, 2011).


establishing and managing in-house investigations and ComplianCe FunCtions

Lillian S. Hardy

Protecting Attorney Client Privilege in Internal InvestigationsInternal Investigations

Hogan Lovells | 2

• In re Kellogg Brown & Root, Inc., 756 F.3d 754– The D.C. Circuit held that because providing legal advice was “one of the significant purposes”

of the internal investigation, the attorney-client privilege applies, even if there were also other purposes for the investigation and even if the investigation was mandated by regulation rather than simply an exercise of company discretion.

• In re General Motors LLC Ignition Switch Litigation, 80 F. Supp. 3d 521– The Southern District of New York found that delivering Upjohn warnings at the start of each

interview expressing a need for confidentiality and informing the witnesses that the purpose of the interview was to assist in providing legal advice was sufficient to prove that it did not intend to disclose those communications.

• In re Target Corporation Customer Data Security Breach Litigation, 2015 WL 6777384 – A two-track approach led the District of Minnesota court to find that work carried out by

Verizon and the Task Force was protected by attorney-client privilege and work-product claims even though the company was at the same time using Verizon personnel to help remediate the intrusion.

Clarifying boundaries of Attorney Client Privilege in CC

• U.S. Privileges– Attorney-client privilege

– Work product immunity

– Self-evaluation privilege

– Joint defense privilege

– Common interest privilege

• Protect privilege at every stage– U.S. courts have recently upheld work product and attorney-client privileges

(see Sandra T.E., 2010 WL 1191170, 7th Cir)

– Even letter of engagement letter is important

– Scope of matter

– Purpose is legal advice

– Anticipation of potential litigation

Protecting the Investigation

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• Do not share information with interviewee (for example, statements of other witnesses)

• Format: in person preferred

• Do not say anything you do not want repeated to third parties or government investigators

• Funneling: Seek witness’s understanding of issues first, then cover issues raised in the documents.

• “Upjohn Warnings” at all interviews– Counsel represents the Company, not the

employee

– Interview should be kept confidential

– Privilege held by Company

– Company alone may decide to waive the privilege

– Employee willing to proceed?

• Memorialize warnings in notes or interview memorandum

• Always have two witnesses present

Witness Interview Protocol

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• Control the scope and direction of work

• Statements of work, engagement letters and other agreements:

– working at the direction of outside counsel to inform the provision of legal advice

– forbid the disclosure of confidential information

Manage non lawyerconsultants

• Investigation is clearly undertaken to provide legal advice

• Counsel must be in charge and dictate the process

• Appropriate Upjohn warnings should be given at the beginning of each interview

Make your intentions forthe investigation clear

• Courts often note that in-house lawyers not only provide legal advice, but are also asked for business advice

• Any presumption that an investigation is privileged is strengthened by the use of outside counsel

Make use of outsidecounsel in a central role

Lessons learned

Answering Witness Questions

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need a lawyer?have to talk to you?

Do I…

• Potential repercussions of refusing to talk– Most companies have cooperation

policies, some have “talk or walk” policies

• What if employee is willing to talk, but wants to delay– Fairness/practical concern– Employee says reviewing documents will

refresh recollection– Risks of agreeing to delay– Destruction or removal of evidence

• Make clear that investigator cannot provide employee with legal advice

• Document that investigator did not provide advice on the matter

• Whether represented or not, employee has obligation to provide accurate, complete, and truthful information

• Consider setting appropriate deadline for procuring counsel

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lose my job?be prosecuted?

Will I…

• No promises can be made to employee in exchange for cooperation– Client will make decision whether to

provide information to law enforcement

– Law enforcement will independently decide whether to prosecute

– Law enforcement will independently decide what benefit, if any, of cooperation

• What can you say to encourage employee to speak?– Appeal to employee’s sense of loyalty

and “better self”

– Duty to cooperate

– Understand the difference between a nervous whistleblower and an uncooperative wrongdoer

T

Hogan Lovells | 9

J.D., University of California, Berkeley School ofLaw (Boalt Hall)B.A., magna cum laude, Phi Beta Kappa,Spelman College

Education

Internal InvestigationsIncident Response and RemediationElectronic DiscoveryFCPAEthics and Compliance

Areas of Focus

[email protected]

+1 202 637 5884

Lillian Hardy's practice focuses on internal and government investigations and regulatory compliance counseling for clients in industries including technology, life sciences, aerospace and defense, financial services, consumer products, retail, and education. She represents companies under investigation for alleged violations of federal laws governing international business activities such as the Foreign Corrupt Practices Act and economic sanctions laws. Lillian has managed wide-ranging investigations for clients involving business conduct on five continents. She works with Legal, Compliance, and Risk Management departments to evaluate the strength of existing company policies, internal controls, and employee training programs. Lillian also evaluates compliance risks in connection with due diligence for mergers and acquisitions and other transactions.

Lillian's investigations work also focuses on data privacy and cybersecurity. She has managed incident response, remediation, fact investigation, and notification and reporting obligations in data privacy breach incidents for Fortune 500 companies. In 2013, Lillian served on secondment in-house in the Global Compliance group of a Fortune 100 multinational conglomerate. While in that role, Lillian oversaw implementation of a new compliance initiative and counseled the company's businesses on various compliance and legal matters.

Counsel, Washington D.C.

Lillian S. Hardy

SECTION C

regulators’ roundtable:the latest in government enForCement

Internal Investigations: Out of the Lion’s Den? Nicholas C. Harbist Blank Rome LLP Princeton, New Jersey

I. CONDUCTING AN INTERNAL INVESTIGATION OF AN ORGANIZATION

A. INTRODUCTION

1. Federal government initiated investigations have led organizations to consider a response and strategy for managing an investigation.

2. Key components for response strategy to government scrutiny and liability for violations of Federal statutes include:

(a) Conducting a self-evaluative internal investigation of those matters under scrutiny by the government, but also those matters which could cause exposure to the organization.

(b) The initiation of an internal investigation as part of such a strategy requires:

1) Careful consideration;

2) Equally well though-out methods and procedures; and

3) An appreciation of the issues and pitfalls involved in this type of matter

3. Information obtained through such an investigation may be transformed into documents suitable for criminal and civil pre-trial discovery and trial.

4. This discussion seeks to enumerate factors which should be taken into consideration when conducting an internal investigation of an organization related to potential violations of Federal statutes.

B. SCOPE AND ACCOUNTABILITY OF INTERNAL INVESTIGATION

1. The most important initial consideration to be taken into account when directing and conducting an internal investigation of an organization involves a clear understanding regarding the scope, method, accountability and reporting between:

(a) The law firm directing the investigation;

(b) The consultants conducting the investigation; and

(c) The client organization which is authorizing the internal investigation.

2. This is important considering:

(a) Those conducting internal investigation will not be the most popular visitors with members of the organization; and

C-2 Internal Corporate Investigations 2016

(b) The investigation may not necessarily result in positive findings and recommendations for the organization and/or key individuals in the organization.

3. The issues which should be raised in discussing the scope of the internal investigation with your client should include:

(a) The subject matter to be addressed;

(b) Who the law firm will be account to within the client organization; and

(c) Who the investigative team will be accountable to within the client organization.

4. The reporting responsibility for the investigative team could be to:

(a) A special committee of the Board of Directors;

(b) The in-house counsel for the organization; and/or

(c) Selective members of the management team.

5. This assessment will necessarily require a determination of the degree of independence/control which will be exerted by management over the internal investigation.

(a) This obviously has implications for the credibility and effectiveness of the internal investigation.

(b) The degree of credibility of the internal investigation also could have an extremely important impact on the level of cooperation and credibility which the organization may have with the government entities investigating the potential violations of Federal statutes.

6. An investigation, at a minimum, must collect the relevant facts associated with the issues within the scope of the investigation.

7. Additional issues which should be discussed at the outset with the organization:

(a) The extent to which the internal investigative team will develop the facts and proffer conclusions based on those facts; and

(b) Whether conclusions of law should be drawn from those facts or whether they should be left to other parties and, perhaps, even other outside or inside counsel and/or management of the organization.

1) Any determination is not without risks, especially as it relates to strategy with the Federal or state government law enforcement authorities.

2) This requires careful consideration at the outset and continued reassessment during the course of the internal investigation.

3) Whether an office report should be submitted to management outlining the factual and legal conclusions should be considered and discussed with the client.


Internal Investigations: Out of the Lion’s Den? C-3

C. MATTERS OF PRIVILEGE

1. Any internal investigation should preferably be conducted through outside counsel in order to maximize the privileged nature of the investigation and protect confidentiality and the integrity of the internal investigation.

(a) Information that counsel obtains may be protected by the attorney-client privilege, which protects communications of information between a client and the client’s attorney. Upjohn v. United States, 449 U.S. 383, 389-90 (1991).

(b) Information that counsel obtains may also be protected under the attorney work-product doctrine, which protects from discovery documents or tangible things prepared in anticipation of litigation or for trial. Hickman v. Taylor, 329 U.S. 495 (1947).

(c) Information obtained by counsel also may be protected under the critical self-evaluative privilege. See Bredice v. Doctor’s Hosp., Inc., 50 F.R.d. 249 (D.D.C. 1970), aff’d, 479 F.2d 920, (D.C. Cir. 1973). But the scope of this privilege is extremely limited and many jurisdictions do not recognize the privilege. See e.g., Payton v. N.J. Turnpike Authority, 148 N.J. 524, 691 A.2d 321 (1997).

(d) Counsel may also retain experts and/or investigators to assist in gathering information. The expert or investigator must truly function as counsel’s agent, and disclosures to the agent will be protected only if they are necessary to obtain informed legal advice. See In Re: Grand Jury Matter, 147 F.R.D. 82 (E.D. Pa. 1992) (where the client’s ultimate goal is not the receipt of legal advice, but is rather accounting, medical or environmental advice, the privilege is inapplicable).

(e) This does not mean that the conduct of the internal investigation is utilized to otherwise attempt to cloak documents which were previously not privileged, but it does mean carefully tracking what new information is gathered by the investigative team and ensuring that it will be privileged and confidential.

2. Issues of future disclosure must be considered:

(a) Findings and conclusions may be disclosed to the government t a later date in the context of resolution of issues concerning potential violations of Federal statutes.

(b) The very fact that such a disclosure may be contemplated requires realization that information gathered during the internal investigation may, ultimately, be shared with a third-party which could result in waiver of the attorney-client and work-product privilege in other parallel civil or criminal proceedings. This can be a particular problem when parallel civil litigation arises, which is often the case when publicly traded companies are involved.

Nicholas C. Harbist


3. Joint defense as a possibility:

(a) Issues of privilege are also implicated when other organizations or individuals related to the organization may also have individual exposure for culpability for their own actions involving allegations of violations of Federal statutes.

(b) A decision may have to be made at an early stage of the investigation regarding whether or not to enter into joint defense arrangements between the organization and such other entities and/or individuals.

(c) This decision should consider how a joint defense agreement may limit discretion on the part of the organization regarding potential disclosure of information gathered during the internal investigation to the government authorities.

(d) This decision should also consider how a joint defense agreement may be viewed by those government authorities conducting the investigation.

D. MANAGING THE INVESTIGATION

1. Another critical aspect of any internal investigation is defining the organization’s expectations and managing those expectations as the investigation continues.

2. In between the investigative team and the organization should be developed regarding:

(a) The time frame for completion of the investigation;

(b) The resources necessary to do so within that time frame;

(c) What types of experts may be needed to be brought in during the course of the investigation both for gathering the facts and/or analysis of facts relevant to any potential violations of Federal statutes; and

(d) The potential scope of the problems to be addressed and whether it may include criminal, as well as civil and administrative liability under such laws as the health care fraud and abuse laws.

3. Continued updates on the progress of the investigation and some assurance that the client understands what will unfold as the investigation continues should be given.

4. If the internal investigation is being undertaken parallel to the government investigation consideration should be given to:

(a) Communicating with the government as to what the intentions of the organization are in this self-evaluative internal investigation;

(b) Seeking cooperating from the government in either delaying or completing their own investigation in as orderly a manner as possible and with as little disruption to the day-to-day business affairs of the organization;

(c) This is not only an important reason for conducting an internal investigation to begin with, but depending on the credibility and



persuasiveness of your investigative team it is possible to obtain a level of cooperating from the government authorities who are presumably interested in the same issues which the investigative team may be reviewing within the organization.

(d) The level of law enforcement interest in the issues which will be addressed during the internal investigation will play a large part in the strategy of the internal investigation and potentially the ultimate issue of self-reporting and voluntary disclosure of the information obtained by the organization in the context of achieving a resolution of the issues with law enforcement authorities.

E. INVESTIGATIVE METHODOLOGY

1. The investigative techniques and methodology should also be discussed thoroughly with the client organization so a clear understanding can be achieved concerning how the investigation will impact the organization and what level of cooperation can be expected from the organization.

2. The following issues should be addressed before the investigation begins:

(a) How many current or former employee interviews are likely?

1) Who will be interviewed and where will they be conducted?

2) Who will conduct the interviews?

3) Do the employees to be interviewed have any legal exposure for their own actions and is the client willing to provide them with an attorney at a cost to the organization?

4) What will happen if an employee refuses to cooperate?

(b) What documents have to be reviewed?

1) Where are the documents and have they been secured?

2) How will they be categorized and organized?

3) Who will review these documents?

(c) Do any computers have to be downloaded and searched?

1) Is there a local area network?

2) A wide area network?

3) Electronic mail?

4) Where are the servers?

5) Can the hardware and software be secured?

(d) Will offices have to secured and searched?

Nicholas C. Harbist


1) How many are where and will the client be cooperative in such a search?

(e) Does your clients company currently have a compliance program?

1) A compliance officer?

2) Has any investigation been conducted prior to the initiation of the internal investigation?

(i) If so, what wee the findings and was my corrective action taken?

3. This should not be the last time that you visit the question concerning your client’s compliance program, because if there is an eventual settlement of issues with the government it will likely mandate the imposition of an “effective” compliance program.

(a) The organization will be far better off in many respects by ensuring that its compliance program is “effective” before the government defines its effectiveness through the onerous requirements which have appeared in recent health care fraud and abuse settlement agreements.

(b) Regardless of our client’s line of business, an effective compliance program should mirror the recommended guidelines set forth by the United States Sentencing Commission in the Federal Sentencing Guidelines for organizations, or those model programs endorsed by the OIG.

(c) An effective compliance program can mitigate the fines, penalties and sanctions that your client organization may be subject to in any settlement negotiations with the government.

F. DIRECTING, CONDUCTING AND DOCUMENTING THE RESULTS OF THE INVESTIGATION

1. An important pat5 of an internal investigation is providing the legal team with period (daily is recommended for large investigative matters) updates so that the client organization can be kept abreast of the status of the investigation.

(a) A formal presentation of facts to the client can be made while the investigation is in the progress or an information approach can be utilized depending on the preference of the parties.

(b) If updates on progress are in writing or whether they win merely by orally presented may depend on the extent to which such documents are potentially discoverable by third-party litigants.

2. The legal team must also make certain decisions for the investigative team such as:

(a) Whether to have one or two people present during interviews;

(b) Who should take notes and whether those notes should be memorialized in written interview memoranda;



(c) If the results of the interviews are to be put into written form, a decision must be made whether the investigative team should retain their original notes or dispose of them after the write-ups are finalized;

(d) A standard preamble should be used prior to the interviews which states that the information gathered is to assist the law firm in providing legal advice to the client (the organization) and that the memoranda are not verbatim transcripts of the interview;

(e) The legal tem should brief the investigators who will be conducting the interviews as to how the interviewees should be approached and what procedures should be followed to ensure that the interviewee understands that the investigation is being conducted by the organization and use of information provided during the course of the interview will be determined solely by the company (i.e., waiver of privilege and disclosure to third party); and

(f) Care should be taken when utilizing in-side counsel because a party seeking disclosure may claim that inside counsel functioned as a non-lawyer when he or she obtained certain information or that inside counsel obtained the information in the ordinary course of business. See Teltron, Inc. v. Alexander, 132 F.R.D. 394 (E.D. Pa. 1990). Thus, serious consideration should be given to retaining outside counsel to conduct the internal investigation.

3. Generally, a corporation can use, as it deems appropriate, any information that it obtains through an internal investigation, including information obtained through employee interviews. Under ordinary circumstances, it is not necessary to provide explicit warnings to an employee as to the uses to which his or her statement may be put. Absence special circumstances, an employee does not have a reasonable expectation of confidentiality as to his or her communications with company counsel. See United States v. Furst, 886 F.2d 558 (3rd Cir. 1989). But where counsel has credible evidence indicating that the employee is engaged in wrongdoing, counsel should recommend that the employee be advised of:

(a) Their right to consult with counsel prior to cooperating with the organization’s internal investigation; and

(b) The consequences of failing to cooperate with the internal investigation.

4. If the client has made a decision to cooperate with the government, or if the results of the investigation may be turned over to the government at some point in time, a decision must be made as to whether there will be a written or oral presentation of findings and what impact this may have upon waiver of the attorney/client and work product privileges.

G. CONCLUSION

1. The completion of the internal investigation will then move the engagement into a phase of determining the extent of culpability for the organization and any current or former employees and what type of negotiations (if any) should be conducted

Nicholas C. Harbist


with government representatives regarding resolution of culpability for the organization or these individuals.

2. The organization, along with the attorneys directing the investigation and the investigative team, should consider whether to make a presentation of the facts to the government.

(a) It may be more useful for other counsel to negotiate any resolution of issues with the government based on the facts disclosed from the internal investigation which:

1) Preserves the objectivity of the investigative findings; and

2) Bolsters the credibility of those findings as a basis to negotiate a settlement with the government.

3. There is nothing completely identical from one internal investigation to the other and the scope, methodology and strategy behind internal investigations win differ from client to client and case to case.

4. However, an internal investigation is an increasingly useful and necessary tool to deal with the onslaught of government scrutiny and investigations and potential liability associated with violations of the health care fraud and abuse laws.

5. If used in an appropriate manner, it can be utilized successfully in resolving issues which otherwise could cause considerable disruption and/or destruction of a health care organization.\

6. The company must avoid any action that could be construed as obstruction of justice. See 18 U.S.C. §§ 1503, 1505, 1510, 1512, 1514, 1516, 1517 and 1518. Section 1512(c)(2) makes it a crime to “harass” another person, thereby dissuading such person from testifying or providing information to law enforcement officials. Section 1512(b)(2) makes it a crime to corruptly persuade a person with intent to delay or prevent communication to law enforcement officials of information relating to a federal offense. Section 1518(a) makes it a crime to willfully prevent the communication of information relating to a federal health care offense to a criminal investigator. Thus, counsel or company officials generally should be wary of instructing corporate employees not to speak to government agents during and investigation. But see United States v. Farrell, 1997 U.S. App. Lexis 26281 (3rd Cir. Sept. 24, 1997) (Section 1512(b)(2) does not encompass a request for a co-conspirator not to cooperate and provide information to authorities absent evidence of corrupt intent).

II. ISSUES TO CONSIDER IN ASSISTING THE CLIENT DURING THE GOVERNMENT INVESTIGATION

A. IDENTIFY THE INVESTIGATORS/GOVERNMENT AGENCIES INVOLVED

1. Verify the credentials of the investigator. A third party/competitor/potential litigant may be attempting to obtain information about the provider by representing himself/herself as an authorized investigator.

2. The identity of the investigator may:



(a) Provide an initial assessment of the potential exposure of the organization; and

(b) Determine, to some extent, the material to which the investigator is unquestionably entitled, and the material to which the investigator is not entitled.

3. The scope of seriousness of the investigation can be measured to some extent by determining the office conducting the investigation.

B. ASCERTAIN THE EXTENT OF THE CLIENT’S EXPOSURE

1. An organization can be subject to criminal, civil and/or administrative penalties and/or sanctions, or all of the above simultaneously.

2. It is crucial to ascertain the true purpose of the investigation in order to determine a client’s immediate exposure.

(a) The agent or auditor may be willing to disclose the reason for the investigation or inquiry as well as the objective.

(b) No matter what the response never assume that the investigation or audit is routine.

(c) If the investigator is unwilling to disclose the purpose of the inquiry, assume the worst and prepare for a criminal defense until you determine otherwise.

3. If the investigation is being conducted by an attorney, counsel for the organization should contact and meet with the attorney as soon as possible to determine how seriously the matter may be viewed by the investigating agency. This information can:

(a) Help determine the organization’s strategy in the investigation; and

(b) Help in planning an efficient internal investigation into the matters under investigation.

C. TAKE ALL STEPS NECESSARY TO MINIMIZE THE CLIENT’S EXPOSURE

1. From the moment the government investigator arrives, all communications between employees and investigators should be severely restricted.

2. The organization should be in control of all information given and obtained by the investigator. An organization should never turn over a document to an investigator unless it has been reviewed by counsel and both counsel and the organization understand the document and the consequences it may bring and any privileges that may apply to it.

3. If present employees are to be interviewed, provision should be made for a representative of the organization to be present.

4. The organization should maintain a log of the name, address and employing agency of each investigator, the dates and times of his visits, and a brief summary of each discussion.

Nicholas C. Harbist


5. After assessing the objecting of the investigation, counsel for the organization must become familiar with all pertinent laws and regulations – each element of all potential offense or violation – to be aware of the reasoning behind an investigator’s request for information.

6. Counsel for the organization should gather information and make its own assessment of the facts by conducting interviews with all employees involved in the matter.

(a) Counsel should make every effort to gain the employees’ trust.

(b) The provider’s employees are essential to helping counsel understand the provider’s operations and any documents at issue.

7. The employees should be informed of the nature of the investigation and their respective rights.

8. Once the nature of the inquiry is ascertained, it is critical to understand the organization’s business priorities in order to make strategy decisions with the client.

D. MAINTAIN CLIENT’S CREDIBILITY WITH LAW ENFORCEMENT OFFICIALS

1. Maintaining credibility with law enforcement officials involved, i.e., the United States Attorneys’ Office, the OIG and/or the Federal Bureau of Investigation (“FBI”) is crucial because the client’s economic survival may depend upon quickly and credibly preparing and presenting a defense. A credible explanation of the conduct under investigation, which is consistent with innocence, may preclude the return of any formal criminal charges, which in turn could prevent other consequences such as de facto suspension from the Medicare and Medicaid programs.

2. Internal review of records and interview of individuals should be conducted in a manner that would parallel the approach of an investigator to enhance his/her confidence in counsel’s findings, i.e., consider use of sampling guidelines where there is a high volume of items, such as Medicare or Medicaid claims, to be reviewed.

E. MAXIMIZE THE USE OF ATTORNEY/CLIENT PRIVILEGE IN ALL COMMUNICATIONS RELATING TO THE INVESTIGATION

1. If attorney/client and work product privileges are to be maintained, counsel for the client needs to direct, coordinate and supervise any internal review activities regarding the investigation. Counsel’s assistance or investigation must be authorized by the Board of Directors or Senior Management.

(a) Such authorization should include a specific direction to counsel to conduct a confidential investigation for the purpose of providing legal advice in anticipation of litigation.

(b) Senior management should direct employees to cooperate and communicate with counsel in strict confidence.

(c) Counsel should direct and control the investigation.



1) Any company personnel involved in the investigation should act only at the direction of counsel and directly report to counsel; and

2) Other company officials should be discouraged from non-privileged fact gathering.

(d) All interviews should be conducted in private and employees should be told that the interviews are for the purpose of providing legal advice to the company.

2. All documentation should be strictly controlled to protect the privilege.

(a) All documents should be marked attorney-client privilege/attorney work-product.

(b) Any employee writings should be directed to counsel and/or documented as done at the direction of counsel.

(c) Strict controls for dissemination and storage of documents should be implemented (i.e., B documents should be stored in a secure location and distributed only to those individuals acting at the direction of counsel or to senior management).

(d) Any report should be drafted carefully in case the resulting attorney work product is disclosed.

3. Assume that, despite your best efforts, the results of an investigation may become public and act accordingly.

4. Only counsel should directly retain any outside consultants i.e., auditors, to maintain confidentiality.

5. Auditors should submit any work-product directly to counsel for the client.

6. Establish specific file(s) for confidential and privileged communications, memorandum, etc., subject to the attorney/client privilege.

Nicholas C. Harbist

SECTION D

Congressional investigations

Welcome to CongressCongressional Investigations 101

Reginald J. [email protected]

American Bar AssociationSeventh National Institute on Internal Corporate Investigations and Forum for In-House Counsel

Overview

WilmerHale

Welcome to CongressCongressional investigations are often a unique

hybrid of litigation and crisis PRNot a neutral fact-finding forumThe investigation may be aimed at a larger goal than the guilt or innocence of the clientYour client may have been selected to play a role in the Member’s narrative on an issueYou typically cannot “win” a Congressional hearing in the traditional senseThe first goal often is to minimize damage

The stakes may be very highStock price and public perceptionThe job of the witness is often on the lineThe media is often deeply involvedParallel inquiries (prosecutors, regulators)

3

WilmerHale

Welcome to CongressCongressional investigations vary dramaticallySome are purely partisan Some use companies as case studies to push for policy changesSome are rapid reactions to world events

No recourse against the investigatorYou often can’t readily appeal a request in courtIf you don’t cooperate, you may be attacked in the press

4

WilmerHale

Welcome to CongressBeing right on the law does not equal victoryBeing “wrong” is as punishable as being illegalYou can rarely win on a technicality

Every Committee has different rules, practices and customsAnd every Chair enforces them differentlyThe Chair is often the judge and the prosecutorThere are no rules of evidence

5

WilmerHale

Issues Congress Investigates• Major news stories (Ebola, Enron, BP, London

Whale)• Democrats tend to investigate the private sector • Republicans tend to investigate the government and

companies doing business with the government• Partisan Issues (Solyndra, US Attorney firings,

Benghazi)• Pet issues of Committee Chairs • Oversight (Affordable Care Act Implementation,

OPM data breach)

6

WilmerHale

Who is Investigating?Someone with subpoena power or just a voluntary request?Powerful Committee Chair with subpoena power (PSI, HOGR)Minority of a Committee that conducts detailed inquiriesA Committee with little history of oversightMembers in their individual capacityIs it staff or Member driven?

7

WilmerHale

Key Takeaways for In-House Counsel• Take Congressional inquiries seriously• Not litigation or an executive branch investigation• Resource appropriately• Make a fact-based decision regarding the role of

government affairs and communications• Report up the chain early and often

8

The Investigation

WilmerHale

Broad Authority to Investigate

“The power of the Congress to conduct investigations is inherent in the legislative process. That power is broad.” Watkins v. United States, 354 U.S. 178, 187 (1957).

“It encompasses inquiries concerning the administration of existing laws as well as proposed or possibly needed statutes. It includes surveys of defects in our social, economic or political system for the purpose of enabling the Congress to remedy them. It comprehends probes into departments of the Federal Government to expose corruption, inefficiency or waste.” Id.

“The scope of the power of inquiry, in short, is as penetrating and far-reaching as the potential power to enact and appropriate under the Constitution.” Barenblatt v. United States, 360 U.S. 109, 111 (1959).

10

WilmerHale

Authority Is Not Without LimitsPower is not unlimited. Must have a valid legislative purpose. Watkins, 354 U.S. at 187; Eastland v. United States Servicemen’s Fund, 421 U.S. 491, 504 n.15 (1975).

Investigation of business interests generally presumed related to legitimate legislative purpose.See, e.g., James Hamilton et al., CongressionalInvestigations: Politics and Process, 44 Am. Crim. L. Rev. 1115, 1123 (2007).

11

WilmerHale

SubpoenasCommittee rules govern the issuance of subpoenas.

Some delegate power to committee chairman. See, e.g., Rules of the H. Comm. on Oversight and Government Reform, 114th Congress, Rule 15(a). Some require agreement of ranking member or a majority vote of committee members. See, e.g., Rules of the S. Comm. on Banking, Housing, and Urban Affairs, 114th

Congress, Rule 4(d).

To formally challenge legal sufficiency, witnesses generally must first refuse to comply and then raise arguments as a defense in a contempt proceeding.

12

WilmerHale

Attorney-Client PrivilegeLong-standing position of most members of Congress is that common-law privileges, including Attorney-Client privilege, do not apply as of right.Recognition of privilege falls within the discretion of investigating committee.Still may be possible to work with committee to craft productions that do not implicate privilege.

13

WilmerHale

The Calm Before the StormThe investigation often starts before the first subpoenaThere is often an informal inquiry before a formal investigationIs intervention possible to prevent the inquiry from escalating?

Look around cornersAnticipate subjects and targets of investigationsCan you address Committee concerns before a subpoena or request is written?Prepare for subpoena or request before it arrives

14

WilmerHale

Reactive HearingsThe Typical Congressional InvestigationIn response to a recent event (Solyndra, Affordable Care Act, Benghazi)Narrow subpoena or Chairman’s letter and a very quick timelineHearing occurs within a couple of weeksSmall document production and limited interaction with Committee staffLimited internal review due to lack of timeHigh-level themes matter and less room for detail or nuance

15

WilmerHale

Survey Hearings• Typically a critique of an industry

• Hearing panel will typically consist of multiple companies in an industry

• Longer lead-up to hearing with a broader subpoena or information request and more interaction with Committee staff

• Many companies will receive a request, but only a few testify (role of counsel is very important here)

• Can generate regulatory scrutiny after the hearing

16

WilmerHale

In-Depth Investigations• Multi-month to multi-year inquiries

• Multiple, broad subpoenas• Extensive interaction and negotiation with Committee staff• Closer to what other agencies would do

• Involves the entire leadership of the organization being investigated

• High-profile hearing accompanied by a report• Enormous collateral consequences

17

WilmerHale

The Major HearingHearings are traumatic eventsSenior executives are often forced to testifyHearing prep is essentialMultiple days, intense, well-organizedFull-scale mock hearingsDetails matter

Make witness as comfortable as possible for the hearing

Be completely prepared, but adapt to changes on the ground

18

WilmerHale

ReportsSome committees will release reports on their investigationDecide how vigorously to contest the reportWork with press team to determine the tone for statements to the pressUnderstand the Committee’s process for finalizing a report

Ask to see an embargoed versionAsk for opportunities to address errors in report prior to publicationBe aware that the version released to the press is often not the final version

19

WilmerHale

Hearing Fallout Win the hearing, lose the hearing coverage?Congressional hearings often generate inquiries from regulatorsIf the hearing goes poorly, you will be calledIf it goes well, you still may be called

20

WilmerHale

Continuing Vigilance Congressional inquiries rarely end with the report or hearingPress reports can restart an inquiryAnother Member could become interestedAnswers for the recordOpportunity to correct report prior to final printing

Continue to monitor the issue

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SECTION E

hot issues in ComplianCe – What You need to KnoW to staY out oF the

government’s Crosshairs

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HOT ISSUES IN COMPLIANCE –WHAT YOU NEED TO KNOW TO STAY OUT OF THE GOVERNMENT’S CROSSHAIRSSeventh National Institute on Internal Corporate Investigations and Forum for In-House Counsel

April 28, 2016

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PANELISTSSECTION 01

Biographies

3

A.J. Bosco currently serves as Vice President and Assistant General Counsel for JPMorgan Chase, where he works on internal investigations and government inquiries. He is also the Chair of the White Collar Crime Committee of the Business Law Section of the American Bar Association. Prior to private practice, he served in the Manhattan District Attorney’s Office from 1986 through 1997. At the time that he left the DA’s office he was a deputy bureau chief in TB50. AJ has also served as an SEC enforcement attorney and has worked at diverse financial institutions. A.J. earned his Juris Doctor from Fordham University School of Law

Elizabeth Prewitt is an antitrust partner and trial litigator in Hughes Hubbard’s New York office. Her practice focuses on international cartel and criminal matters, government and internal investigations, and complex litigation. For 16 years, Elizabeth was an investigator and trial lawyer for the Antitrust Division of the United States Department of Justice. She served as assistant chief of the Antitrust Division’s New York office from 2012-2014. Elizabeth earned her Juris Doctor from Loyola Law School.

Kwame J. Manley is a partner in the Investigations and White Collar Defense practice at Paul Hastings. He focuses his practice on white-collar criminal defense, internal corporate investigations, and complex civil litigation. Kwame served as an Assistant United States Attorney and deputy chief at the U.S. Attorney’s Office for the District of Maryland. Kwame earned his Juris Doctor from Harvard Law School.

Biographies

4

Ted Banks is a partner at Scharf Banks Marmor LLC, where he concentrates his practice on antitrust, compliance, food law, and other corporate matters as a partner at Scharf Banks Marmor LLC. Ted has been appointed as a corporate compliance monitor by the Federal Trade Commission and Competition Bureau of Canada to oversee compliance programs of respondent companies. Ted earned his Juris Doctor from the University of Denver Sturm College of Law.

Michael L. Whitlock is a partner at Morgan, Lewis & Bockius LLP.As a former federal prosecutor, Michael represents clients in antitrust and white-collar litigation, government and internal investigations, and related complex civil litigation. He serves clients in a variety of white-collar criminal matters, including criminal antitrust, False Claims Act (FCA) and qui tam litigation, Foreign Corrupt Practices Act (FCPA) investigations, as well as Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) investigations and litigation. Michael earned his Juris Doctor from the University of Virginia Law School.

DOJ AND SEC REMAIN AGGRESSIVE IN CARTEL AND FCPA ENFORCEMENT

SECTION 02

Total DOJ Cartel Fines – 2005 to 2014

6

Source: U.S. Department of Justice: http://www.justice.gov/atr/criminal-enforcement-fine-and-jail-charts

Total Cartel Defendants Charged - DOJ

7


Total Criminal Cases Filed - DOJ

8


Average Sentencing for Cartel Offenses

9


Statistics - FCPA

• Five corporate resolutions by the SEC and DOJ in the first half of 2015, totaling more than $61 million in penalties, disgorgement, etc.– 1 DOJ ($7.1 million) and 4 SEC ($53.9 million)– Compare:

– First half of 2014: 3 companies ($575.2 million); 3 DOJ ($385.2 million) and 2 SEC ($190 million)

– 2014 total: 10 companies ($1.56 billion); 7 DOJ ($1.25 billion) and 7 SEC ($327 million)

10

0100200300400500

First Half2014

First Half2015

Dollars(millions) SEC

DOJ012345

First Half2014

First Half2015

Number of Resolutions SEC

DOJ

Industries and Countries – FCPA Enforcement

• Actions from the first half of 2015 continue to be in industries and countries with high-risk for corruption activity, including countries different from prior years

Industries include:– Natural Resources/Energy (BHP Billiton)

– Defense (FLIR Systems; IAP Worldwide)

– Automobiles/Industrial (Goodyear)

– Engineering/Construction (PBSJ Corp.)

11

Countries include:– Angola – TI Rank 161– Burundi – TI Rank 159– DR Congo – TI Rank 154– Guinea – TI Rank 145– Kenya – TI Rank 145

– Kuwait – TI Rank 67– Morocco – TI Rank 80– Philippines – TI Rank 85– Qatar – TI Rank 26– Saudia Arabia – TI Rank 55

This image cannot currently be displayed.

TI = Transparency International

Gatekeepers as Targets

After listening to the members of the Securities Exchange Commission, it is clear that few professionals are as vital to well-functioning markets as compliance lawyers and officers. Their work, Chair Mary Jo White recently explained, “is invaluable to the critical mission of protecting investors and ensuring the integrity of our markets.”1 Commissioner Stein has said, compliance officers and other “[g]atekeepers fulfill a critical role in allowing participants to access the capital markets.”2 And from Commissioner Gallagher, their duties are “key to enhancing the Commission’s ability to protect investors and ensure that the markets in which they put their capital to work remain fair and efficient . . .”3 The Division of Enforcement has expressed similar views.4 But as the importance of attorneys and compliance officers is increasingly recognized by regulators, these professionals are increasingly finding themselves as the targets of investigations.5

In the fall, the Commission announced Project Broken Gate, an initiative designed “to hold gatekeepers accountable for the important role they play in the securities industry.”6 Commissioner Stein elaborated on the Commission’s new focus at SEC Speaks, where she explained her view that “greater individual accountability for gatekeepers, including executives, compliance officers, accountants, and attorneys” will provide incentives “to actively look for red flags, ask the tough questions, and demand answers.”7 And, Commissioner Stein warned, the Commission will not be shy about bringing actions when “professionals fail to fulfill their responsibilities.”

In policing the conduct of gatekeepers, regulators have relied on three general theories. First, in line with historical practice, they have brought charges against compliance professionals who violate the general anti-fraud provisions of the securities law.8 Enforcement of the securities law in these situations is rather straightforward and uncontroversial. Second, regulators have continued to file suit against compliance officers and attorneys who aid and abet or cause primary violations.9 Unlike suits for alleged primary violations, these types of cases may present

special dangers for compliance professionals, as regulators may conclude that poorly crafted or managed compliance programs aided and abetted the primary violations committed by others.10 These concerns are exacerbated by the relatively low level of mens rea that must be proven to establish liability. With the enactment of Dodd-Frank, aiding and abetting can now be based on behavior that is merely reckless.11 To prove that an individual caused another’s violation, the Commission need only prove that a compliance officer acted negligently. The third, and by far most controversial theory of liability, concerns a compliance officer’s failure to supervise employees of the firm who violate the securities law.

Under S.E.C. precedent, an individual will be considered a “supervisor” if the “person has a requisite degree of responsibility, ability or authority to affect the conduct of the employee at issue.”12 This theory, which in the past was not thought to extend to cover in-house counsel or compliance officers, took on increased importance in 2009. That year, the S.E.C. sent a powerful message to compliance professionals by filing suit against Theodore Urban, the general counsel of a registered broker-dealer and investment adviser, for failing to supervise a broker who had committed fraud.13 Even though the administrative law judge noted that “Urban did not have any of the traditional powers associated with a person supervising brokers and the facts and circumstances of his situation are very different than” earlier failure-to-supervise cases, she nonetheless held that Urban was a supervisor. He was a supervisor, according to the ALJ, because his “opinions on legal and compliance issues were viewed as authoritative and his recommendations were generally followed by people in [the firm’s] business units” and he was a member of a committee that dealt with the broker’s misconduct.14 These facts were sufficient to establish that Urban had the “requisite degree of responsibility, ability or authority to affect” the broker’s conduct.

The Urban decision, and its rationale, represented a seismic shift in compliance-officer liability and led to

E-8 Internal Corporate Investigations 2016

rampant concern that CCOs could be subject to failure-to-supervise charges in a host of situations that had not been considered previously. Adding to the uncertainty, on appeal the Commission was unable to agree whether a violation even occurred. In accordance with the Commission’s rules of practice, the case was dismissed and, going forward, the ALJ’s opinion “shall have no effect.”15 While this outcome makes clear that Urban has formally been cast aside, there remains concern that a firm’s legal and compliance officers may still be exposed to the same kind of serious personal risk.

Last fall, as the Commission announced its crackdown on gatekeepers, it also sought to provide some clarity on its understanding of the scope of failure-to-supervise liability. At the end of September, the SEC’s Division of Trading and Markets released answers to eight Frequently Asked Questions regarding potential liability of compliance and legal personnel at registered broker-dealers.16 The Compliance FAQs explained that “[c]ompliance and legal personnel do not become ‘supervisors’ solely because they have provided advice or counsel concerning compliance or legal issues to business line personnel, or assisted in the remediation of an issue.” Something more was needed. The Division explained that compliance officers could be considered supervisors “[i]f their responsibilities or authorities extend beyond compliance and legal functions such that they have the requisite degree of responsibility, ability or authority to affect the conduct of business line.” At least six factors would guide that inquiry. While the mere fact that the Division of Trading and Markets addressed the issue should provide some comfort, the Division was clear that the FAQs represented only the views of the Division of Trading and Markets and that “[t]he Commission has neither approved nor disapproved these interpretive answers.”

Although the Division’s interpretations were unofficial, Chair White echoed (and cited) them when she spoke at the National Membership Meeting of the National Society of Compliance Professionals. There, Chair White repeatedly expressed her view that the Commission relied upon compliance officers to protect investors from harm.17 Because of the important role compliance officers play, Chair White explained “we want to encourage you to engage and become involved when

you see an issue that raises a concern. We do not want you to hesitate to become involved and provide advice when issues arise, and to engage in the remediation of issues.” Noting the concerns caused by Urban, she explained that the Division of Trading and Market’s “guidance makes clear” that “compliance officers do not become supervisors solely because they provide advice concerning compliance issues to business line personnel.”

A few weeks later, at a FINRA Enforcement Conference, SEC Commissioner Gallagher expressed similar misgivings about an expansive reading of supervisory liability. He explained, “I’d like to be very clear that the Commission and FINRA should be very cautious about bringing failure-to-supervise cases against chief compliance officers, general counsels, or their subordinates.”18 Noting the day-to-day responsibilities of compliance personnel, Commissioner Gallagher stressed that the SEC “should be encouraging these personnel to run towards problems, not away from them, and we should not threaten them with liability for trying to be part of the solution.” Due to these concerns, he stated his belief that “[n]either the Commission nor FINRA should lightly seek to charge CCOs, GCs, or their subordinates with failure-to-supervise violations.”

While these statements serve as a helpful reminder that the Commission understands the pressures faced by gatekeepers, they do little to provide concrete guidance on ways for compliance professionals to avoid liability. The Commission’s continuing struggle to clearly explain the scope of liability for failing to supervise, while at the same time increasingly targeting gatekeepers in enforcement actions, put compliance professionals at substantial risk. The Commission’s approach places compliance professionals in a difficult position, as even sound compliance programs will not be perfect, and with the benefit of hindsight a regulator can easily point to mistakes that were made. To minimize personal risks, it is vital that in-house counsel and compliance officers take steps to actively identify and minimize risks to their firms.


Gatekeepers as Targets E-9

Endnotes 1 Mary Jo White, Chair, U.S. Securities and Exchange Commission, “Remarks at National Society of Compliance Professionals National Membership Meeting” (Oct. 22, 2013) available at http://www.sec.gov/News/Speech/Detail/Speech/1370539960588.

2 Kara M. Stein, Commissioner, U.S. Securities and Exchange Commission, “Remarks at ‘SEC Speaks’ Conference” (Feb. 21, 2014) available at http://www.sec.gov/News/Speech/Detail/Speech/1370540830487#.UzXdcvldXTo.

3 Daniel M. Gallagher, Commissioner, U.S. Securities and Exchange Commission, “Remarks at The 2013 National Compliance Outreach Program for Broker-Dealers” (Apr. 9, 2013) available at http://www.sec.gov/News/Speech/Detail/Speech/1365171515226.

4 See, e.g., Stephen L. Cohen, Associate Director of Enforcement, U.S. Securities and Exchange Commission, “Remarks at SCCE's Annual Compliance & Ethics Institute” (Oct. 7, 2013) available at http://www.sec.gov/News/Speech/Detail/Speech/1370539872783.

5 See Press Release, SEC, “SEC Charges Three Auditors in Continuing Crackdown on Violations or Failures By Gatekeepers (Sept. 30, 2013), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539850572 (announcing Project Broken Gate).

6 Id.

7 Kara M. Stein, Commissioner, U.S. Securities and Exchange Commission, “Remarks at ‘SEC Speaks’ Conference” (Feb. 21, 2014) available at http://www.sec.gov/News/Speech/Detail/Speech/1370540830487#.UzXdcvldXTo

8 See, e.g., SEC v. Farha, et al., 12-CV-00047 (M.D Fla.) (alleging in-house counsel violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act, among other provisions); SEC v. Peter B. Maddoff, 12-cv-5100 (S.D.N.Y.) (charging CCO of Madoff Securities with involvement in Ponzi scheme).

9 See, e.g., SEC v. MayfieldGentry Realty Advisors, LLC, et al., No. 13-cv-12520 (E.D. Mich. June 10, 2013) (aiding and abetting); In the Matter of Pinnacle Capital Markets LLC and Michael A. Paciorek, Exchange Act Release No. 62811 (September 1, 2010) (causing).

10 See, e.g., In the Matter of Ronald Rollins, Admin. Proceeding File. No. 3-15392 (Jul. 29, 2013).

11 15 U.S.C. §§ 78t(e), 80b-9(f). See Dodd-Frank Wall Street Reform and Consumer Protection Act, H.R. 4173, Pub. L. 111-203, §§ 929M- 929O (July 21, 2010).

12 John H. Gutfreund, Exchange Act Release No. 31554 (Dec. 3, 1992).

13 In the Matter of Theodore Urban, Exchange Act Release No. 63456 (Dec. 7, 2010).

14 In the Matter of Theodore Urban, Exchange Act Release No. 63456 (Dec. 7, 2010).

15 Commission Rule of Practice 411(f), 17 C.F.R. § 201.411(f).

16 Division of Markets and Trading, U.S. Securities and Exchange Commission, “Frequently Asked Questions About Liability of Compliance and Legal Personnel at Broker-Dealers under Sections 15(b)(4) and 15(b)(6) of the Exchange Act,” (Sept. 30, 3013) available at http://www.sec.gov/divisions/marketreg/faq-cco-supervision-093013.htm.

17 Mary Jo White, Chair, U.S. Securities and Exchange Commission, “Remarks at National Society of Compliance Professionals National Membership Meeting” (Oct. 22, 103) available at http://www.sec.gov/News/Speech/Detail/Speech/1370539960588#.UzXqj_ldXTo (“And at the SEC, we rely on you. We rely on you because as much as we strive to be everywhere we can be, our resources are limited and always stretched.”)

18 Daniel M. Gallagher, Commissioner, U.S. Securities and Exchange Commission, “Remarks at FINRA Enforcement Conference” (Nov. 7, 2013) available at http://www.sec.gov/News/Speech/Detail/Speech/1370540310199#.UzXvFPldXTo.

Sidley Austin (DC) LLP is a Delaware limited liability partnership doing business as Sidley Austin LLP and practicing in affiliation with other Sidley Austin partnerships.

SECTION F

international panel: best praCtiCes on ConduCting international investigations

Effectively Managing the Impact of Internal Corporate Investigations

Hanson Wade’s 3rd Annual Oil & Gas Supply Chain Compliance ConferenceHouston, Texas – April 29 – May 2, 2013Jay G. Martin, Baker Hughes IncorporatedAnderson Lee, Archer LimitedBrian T. MoffattJohn E. Davis, Miller & Chevalier

2

Benefits of Properly-Conducted Investigations

• Opportunity to remove or sanction wrongdoers• Demonstrate commitment to compliance and code of conduct• Management review of existing corporate policies for

effectiveness • Government leniency for corporations with good compliance

programs and that disclose issues• Future credibility from active program of internal investigations• Early and accurate assessment of exposure and potential

avoidance of formal legal proceedings and expenses• Protection for Board of Directors and/or senior management• Fulfills duty to investigate report of possible material securities

law violation (Sarbanes-Oxley)

3

Risks of Properly-Conducted Investigations*

• Commitment to conclusion (and expense) which may take longer and be more involved than anticipated

• Alarm auditors, making it difficult to get them to sign off on financials

• Expose evidence to discovery that outside party may seek through subpoena

• Possibly reveal need for remedial measures company does not want or that may entail substantial expense

• Reveal evidence that exposes corporation to criminal or civil liability

* Of course, there are risks and pitfalls if not done properly

4

A Whistleblower Complaint at ACME OFS

• ACME Oilfield Services Company is a large service provider with wholly-owned subsidiaries around the world.

• The Ethics and Compliance Officer has recently joined the company, and has experience in internal investigations

• From the anonymous ethics hotline:Employee claims that the President of ACME South Africa and her “minions” are engaging in illegal and unethical conduct to maximize profits and line their own pockets at company expense.The President’s husband is the sole beneficial owner of FastShip, the company’s customs clearance/freight forwarder provider, which is also responsible for certain licensing issues.The tip raises concerns about overvalued contracts, FastShip’s lack of other clients, and the contents of some invoices from the vendor.

5

To Investigate or Not?

• Determining the credibility of an allegation• Determining whether an investigation is needed

Code of Conduct violation? (SEC rules on waivers)SOx Section 307 (must investigate evidence of material violations)

• Dealing with possible whistleblowers (especially under Dodd-Frank rules)

• Documenting the handling of an initial allegation (especially if you do not launch full investigation)

Standard investigation protocol as part of compliance programUse of staged inquiries

• Bottom line: Don’t ignore any allegation

6

Stopping Questionable Conduct

• Based on initial assessment, protocol for stopping questionable conduct if needed

Communications with relevant business units and exercise of accounting controlsTransaction-specific prophylacticsConsidering “fast-track” review if more information needed to determine nature of conduct or if transaction timing matters

• Risk of later charges of management/company participation or acquiescence

7

Scoping and Planning an Investigation

• Key questions:Who is (and isn’t) the client?Reporting lines for investigatorsScope of potential issue – country, business line, third party, etc.Scale of investigation team – resources neededSecuring and preserving relevant informationIdentifying relevant witnessesInitial identification of key legal and factual issues (“known knowns” and “known unknowns”)End goal and documentation of resultsMight results be disclosed to government agencies?

• Choosing the investigation teamIn-house vs. outside counsel – privilege and independence considerationsUsing other resources (auditors, tech support, etc.)

8

Securing Evidence

• Preserving documents/evidenceConsider scope of preservation – conservative approachIssue strong “freeze” orders to all potentially-relevant custodiansIdentifying, securing, and “locking down” physical and electronic evidence (paper and electronic) – scope?Halting document destruction/retention processesRisks of sending document hold notices without taking immediate physical preservation steps

• Assess and address data privacy issues under relevant laws• Document preservation efforts

Preservation steps often a focus of enforcement agency attentionPossible obstruction of justice issues if evidence destroyed or tampered with by employees

9

Evaluating Documents and Data

• Identify key materials by source, type, location, and custodian• Preserve and access large set of recovered materials before

running search terms, sorting, and reviewing• Mirror hard drives and servers; search hard copy files; back up

hand-held devices and cell phones when appropriate; consider need for telephone records, calendars and other documents

• Back to ACME: What the document search uncovers:Email from Regional VP to President of ACME South Africa:

“Speed is of the essence for [customer X]; parts are needed ASAP to keep those wells running. The customer told me that [competitor Y] never seems to have a hold-up at Customs, and he is considering switching us out. FastShip should know how to take care of this – tell them to take care of these hold-ups, whatever it takes.”

10

Conducting Effective Interviews

• PreparationResearch and know applicable laws (and related issues such as accounting guidance, as well as Code requirements) Prepare outline and documents to be presentedFace-to face vs. telephone vs. videoconferenceMinimizing disruption to the businessNative-language resources and keeping local cultural context in mind

• Interview tipsAsk open-ended questions and keep an open mindFocus on facts and follow up on contradictionsUse as tool for finding additional evidence and witnesses

• The importance of documenting interviews• Avoiding any conduct or messaging suggesting retaliation

11

Instructing Interviewees on Rights and Obligations

• Admonitions to interviewees:Represent company, not the intervieweeRetained to investigate facts and give legal advice Interview is protected by attorney-client privilege, but that privilege belongs to company, not employee, and interview contents can be disclosed to third parties, including government agencies (Upjohn)Employee should keep interview confidential It is vital that employee tell the truth

• Employee duty to cooperate and produce relevant company records

• Possible employee rights, depending on local laws• Departed/departing employees and follow-up

12

The Key ACME Interview

• When the investigation team interviewed the President of ACME South Africa, including presenting her with relevant documents obtained from her email account and hard drive, the following is established:

She received clearance to hire FastShip from Regional HR under the company’s conflicts of interest policy, after disclosing her husband’s ownership.At her team’s request, FastShip has made some “facilitation payments” to customs officials; they have also regularly funded some dinners and holiday baskets for key officials; but she thought the company’s Code stated that “facilitation payments” were legal.Despite her characterization of such payments as “legal,” she instructed her finance personnel to record them as part of FastShip’s service fees and did not keep some of the invoices.

13

Concluding the Investigation

• How much is enough?Focusing on regions/key employees/similar business modelsConsidering jurisdictional and statute of limitations issuesBalancing what is necessary vs. what is achievableWhat does DOJ/SEC expect?

FCPA Guide: “efficient, reliable, and properly funded process” + “documenting” company responseStandard question: “How can you assure us that the conduct/issue is limited to Country X or transaction Y?”

• Written report or not?Level of detail and management/Board preferencesRoadmap for investigators?Legal obligations to report and document

• Pros/cons of communicating with outside parties (auditors, insurance)

14

Remediation and Corrective Actions

• Response and remedial action should be prompt and appropriate• Employee discipline

Local employment law issues and possible whistleblower considerationsCompliance program messaging

• Remedial internal action – programs and proceduresRevised policies, procedures, or internal controlsCorrecting books and recordsRevised compliance oversight, plus added auditingTraining on new procedures or substantive issues

• Remedial external actionRevision/enhanced examination of relationships with third partiesRestatements of financials or disclosure in public filingsCompensating injured parties

15

Disclosure Considerations

• Factors bearing on whether to report Status of any government investigation – can you help to prevent, focus, or expedite it? Likelihood of whistleblower activityContent and findings in investigation report Legal obligations to disclose Voluntary disclosure to gain cooperation credit and minimize adverse consequences Preserving company reputation

Likelihood facts will come out independently

• Impact of disclosure on privilege (third party litigants) • Oral vs. written submission

16

Expect and Plan for Surprises

• Investigation plans rarely survive “the fog of war”• Effective and timely communications among the investigation

team and regular updates to management are critical• Careful planning and using experienced in-house resources can

manage costs, but external events sometimes can create significant, unexpected impacts

• Government inquiries from multiple jurisdictions are becoming the norm, and can greatly increase complexity

• Whistleblowers and the press remain as wild cards – have a plan for responses

• “Document, document, document” – be ready to look at what has been done years after the fact

INTERNAL CORPORATE CORRUPTION INVESTIGATIONS

Matteson EllisMiller & Chevalier

Georgetown Law CenterInternational Efforts to Combat Corruption

Professor Pascale Helene Dubois

2

WHY CONDUCT AN INTERNAL INVESTIGATION INTO ALLEGATIONS OF

CORRUPTION?

3

Why Investigate?

Consequences of failing to investigate:Potential criminal or civil liability under the FCPA, even without actual knowledge (conscious disregard)“Willful ignorance” is an aggravating factor under the U.S. Sentencing Guidelines ( 8C2.5)Individual officers or directors have fiduciary duties to a corporation to investigate red flags, the failure of which could result in personal liability

Basic expectation of FCPA compliance:FCPA Guidance, Hallmark of Effective Compliance Program: “Once an allegation is made, companies should have in place an efficient, reliable, and properly funded process for investigating the allegation and documenting the company’s response, including any disciplinary or remediation measures taken.”

Other reasons:Mandated by enforcement authoritiesThreat of whistleblowerConsider voluntary disclosure / cooperationAvoid financial lossProtect ReputationDeter others from wrongdoing

4

WHY ARE INVESTIGATIONS AN IMPORTANT ISSUE FOR COMPANIES?

5

Relevance?

Costs

AVON (China, Mexico, Japan, Argentina, Brazil): $339,700,000 (2009-current)NEWS CORP (China, UK, unspecified countries): $104,000,000 (2011-current)SIEMENS AG (Argentina, Brazil, China, 15 other countries): $1,000,000,000 (multiple years)WAL-MART (Mexico, China, India, Brazil): $153,000,000 (2012-current)WEATHERFORD (Iraq, unspecified countries): $125,000,000 (multiple years)

Effects:• Costs – Why so high?• Length – Why so long?• Other common disruptions

Example -- Siemens:• 1,750 interviews• Over 1,000 informational briefings• 82 million documents electronically searched• 14 million documents reviewed• 38 million financial transactions analyzed• 10 million bank records reviewed

6

HOW DO COMPANIES CONDUCT INVESTIGATIONS?

7

Methodology*

A fact-gathering process, generally involving document review and interviews.

How investigations begin:Internal tip through hotline and other internal reporting mechanismInternal auditSupervisors and human resourcesReports in the pressEnforcement authorities

Who is involved:Internal and external lawyers and accountantsForensic specialists / technology firmsInvestigation firms

Investigation plan:Determining investigation teamPreserving evidenceMaintaining privilegeNavigating technical and logistical issues

* See OCEG Anti-Corruption Illustration

8

Methodology*

Conducting the investigation:Document review (identifying questionable transactions, understanding flow of funds, identifying participants)Developing fact patternsConducting interviews (techniques and roadblocks)Adjusting investigation plan according to new findings

Conclusions and recommendations:Contents of investigation reportConsidering potential review by enforcement officials

Remediation:Disciplining responsible employeesTerminating third party relationshipsEnhancing controls to address compliance weaknesses

*See OCEG Anti-Corruption Illustration

9

WHAT ARE COMMON CHALLENGES IN INVESTIGATIONS?

10

Common Challenges*

Triage:Reviewing and filtering allegationsAssessing severity, credibility, urgency, and complexity

Defining scope:Resource considerationsEnforcement perspectivesRisk tolerance

Multi-jurisdictional realities:Data privacyLabor

Cultural considerations:Missing key evidenceMaximizing interviewsLanguage obstacles

*See OCEG Anti-Corruption Illustration

11

THANK YOU

Matteson EllisSpecial Counsel

Miller & Chevalier Chartered

[email protected]

11

THANK YOU

Matteson EllisSpecial Counsel

Miller & Chevalier Chartered

[email protected]

SECTION G

FinanCial Crimes overvieW:aml, FCpa, and more

ABA INSTITUTE ON CORPORATE INVESTIGATIONS

Overview of Current Financial Crimes Compliance Issues

April 2016

What is Money Laundering?

The process by which criminals disguise the original ownership and control of theproceeds of criminal conduct by making such proceeds appear to have derivedfrom a legitimate source.

Example: Drug seller uses cash to buy casino chips. He gambles, then cashes thechips and receives a check. He deposits the proceeds in the bank and then usesthe money to purchase consumer goods.

Three basic steps:• Placement• Layering and• Integration

Layering

Integration

Placement

Brown Brothers compliance officer liable

Brown Brothers – fined $8 million for failures to comply with AMLregulations, stemming from an alleged failure to monitor and detect pennystock transactions – many transactions were completed for undisclosedcustomers of foreign banks located in secrecy jurisdictions. Despite fact thatAML Officer escalated issue and recommended exit, FINRA fined the officerin his personal capacity.

Brown Brothers – fined $8 million for failures to comply with AMLregulations, stemming from an alleged failure to monitor and detect pennystock transactions – many transactions were completed for undisclosedcustomers of foreign banks located in secrecy jurisdictions. Despite fact thatAML Officer escalated issue and recommended exit, FINRA fined the officerin his personal capacity.



Tone at the Top – FINRA Exam Letter

• Recently changed the tenor of the regulatory conversation about tone fromthe top in its 2016 FINRA Regulatory and Examination Priorities Letter.

• Instead of providing general guidance about how to deter bad behavior bypromoting a positive tone from the top (as it did in its 2015 Regulatory andExamination Priorities Letter), FINRA instead stated that it will “formalize” its“assessment of firm culture.”

• In other words, FINRA plans to define a methodology by which it will test thequality of a firm’s tone from the top. Presumably, firms found lacking anappropriate tone from the top may be subject to sanctions.

http://www.finra.org/industry/2016 regulatory and examination priorities letter.

AML Typology – hypothetical data

DATE USD AMOUNT ORIGINATOR NAME

ORIGINATOR ADDRESS

BENEFICIARY NAME

BENEFICIARY ADDRESS

4/10/2014 $50,000.00 Harry's Imports8101 Sunset Blvd, Los Angeles, CA

Mexico City Trade Co.

Av. Maine 189, Sinaloa, Mexico

4/10/2014 $58,722.40Quality Automotive

682 Briarwood Ln, Los Angeles CA

Puebla Auto Parts

Av 2 Sur 4911 Puebla, Mexico

4/10/2014 $33,322.30 LA Touring Co212 Beach Dr, Los Angeles CA Cancun Tours

Av Yaxchilán, 22, Cancún

4/10/2014 $50,880.43ReliableConsulting

613 Pine St, San Francisco, CA

ReliableConsulting

Colima 125, Mexico City

4/10/2014 $7,962.70Saul'sWoodworking

11 Highland Dr., Sacramento CA

Mexico City Exports

Roldán 5, Mexico City

4/10/2014 $822.00 John Dornall22 Manhattan Av., New York NY Patty Dornall

Doctor J. Navarro 174, Mexico City

4/10/2014 $50,700.00 Ben's Tires8101 Sunset Blvd, Los Angeles, CA



4/10/2014 $19,335.20 Sam Hinkie121 8th St., Philadelphia, PA

LocalScouting Co.

Merino 319-325, Leon

4/10/2014 $55,000.00Bonnie'sTextiles

8101 Sunset Blvd, Los Angeles, CA



4/16/2014 $29,970.00 Happy Travels405 5th Street, New York, NY

Tijuana Boating Co

Av Revolución1241, Tijuana

AML Typology – hypothetical data

DATE USD AMOUNT ORIGINATOR NAME

ORIGINATOR ADDRESS

BENEFICIARY NAME

BENEFICIARY ADDRESS

4/9/2014 $50,000.00 Harry's Imports8101 Sunset Blvd, Los Angeles, CA


Av. Main 189., Sinaloa, Mexico

4/9/2014 $50,700.00 Ben's Tires8101 Sunset Blvd, Los Angeles, CA


Av. Main 189, Sinaloa, Mexico

4/9/2014 $55,000.00Bonnie'sTextiles

8101 Sunset Blvd, Los Angeles, CA


Av. Main 189, Sinaloa, Mexico

4/9/2014 $58,722.40Quality Automotive

682 Briarwood Ln, Los Angeles CA

Puebla Auto Parts

Av 2 Sur 4911 Puebla, Mexico

4/11/2014 $50,880.43ReliableConsulting

613 Pine St, San Francisco, CA

ReliableConsulting

Colima 125, Mexico City

4/16/2014 $29,970.00 Happy Travels405 5th Street, New York, NY

Tijuana Boating Co

Av Revolución 1241, Tijuana

4/13/2014 $822.00 John Dornall22 Manhattan Av., New York NY Patty Dornall

Doctor J. Navarro 174, Mexico City

4/10/2014 $33,322.30 LA Touring Co212 Beach Dr, Los Angeles CA Cancun Tours

Av Yaxchilán, 22, Cancún

4/14/2014 $19,335.20 Sam Hinkie121 8th St., Philadelphia, PA

LocalScouting Co.

Merino 319-325, Leon

4/11/2014 $7,962.70Saul'sWoodworking

11 Highland Dr., Sacramento CA

Mexico City Exports

Roldán 5, Mexico City

Corporate Headquarters? (8101 Sunset Blvd, Los Angeles CA)

Center of Commerce? (Av. Main 189 Sinaloa, Mexico)

Banca Privada d’Andorra

“De Risking”

Faced with unprecedented domestic anti-money laundering (“AML”) regulatory pressure, U.S. banks are actively “de-risking” their foreign correspondent banking portfolios and other risky relationships. This means that U.S. banks are aggressively terminating relationships (and sometimes exiting whole jurisdictions) perceived by them to present too much AML risk.

“De-risking” is a consequence of recent U.S. regulatory actions against some of the world’s largest banks that alleged systemic AML compliance deficiencies. Forsome U.S. banks, maintaining high AML risk relationships is simply not worth the compliance effort. This is especially true when a regulator can always second-guess a seemingly sound decision, based either on shifting expectations or over-generalizations about country “risk.”

Non FCPA ABC risk Petrobras

Non FCPA ABC Risk – FIFA Scandal

Grupo Continental OFAC



Four months prior…

“The big lesson is that we need the United States to help us,” Jaime Rosenthal said. “We don’t have the capacity. I mean we do what we can but we don’t have an investigative unit to see if a client is involved in this [criminal activity].”“No bank has it. That is why the banks are getting fined,” Patricia Rosenthal added. “What the bankers do is determine if the person has the ability to pay.”

“Our obligation should be if there was a person who was responsible that if we got information, we could give it to that person, and they could review it; they had the capacity to review it and say, ‘It’s not true. It’s an urban myth,’ or, ‘It’s true. Don’t do business with them,’” Jaime Rosenthal responded. “But what we have now is that they are waiting for us to determine who is a criminal and who is not a criminal. That is what the State is for, what the government is for. That is not the bank’s role, not the individual [citizen’s] role. That is why the State was created.”“We have not done anything illegal,” Jaime Rosenthal insisted.

http://www.insightcrime.org/news-analysis/why-elites-do-business-with-criminals-in-honduras

69

†

’s anti

tions, including the existence and effectiveness of a company’s compliance program

Department of Justice’s

†

——

HARVARD BUSINESS LAW REVIEW ONLINE 2016

70

“that foreign bribery is committed by

” ’s

entities’ current compliance programs

Section of the Department’s Criminal Division. In addition to her service as a Department of Justice Trial

Press Release, U.S. Dep’t of Justice, New Compliance

’

, Press Release, U.S. Dep’t of Justice, VimpelCom Limited and Unitel LLC Enter into

million; Press Release, U.S. Dep’t of Justice, Alstom Sentenced to

charges; Press Release, U.S. Dep’t of

, Press Release, U.S. Dep’t of Justice, Louis Berger International Resolves Foreign Bribery

charges; Press Release, U.S. Dep’t of Justice, IAP Worldwide Services Inc. Resolves Foreign

investigation; Press Release, U.S. Dep’t of Justice,

MEMO TO COMPLIANCE COUNSEL VOLUME 6

“benchmarking

.”

—

by “Benchmarking”

U.S. Dep’t of Justice, (explaining that the two primary duties of the Department’s

Compliance Counsel are (1) “provid[ing] expert guidance to Fraud Section prosthe enumerated factors in the United States Attorneys’ Manual concerning the prosecution of business

prevent future wrongdoing” and (2) “help[ing] prosecutors develop appr

setting those benchmarks.”); Leslie R. Caldwell, Assistant Att’y Gen., U.S. Dep’t of Justice,

Sally Quillian Yates, Deputy Att’y Gen., Dep’t of Justice, Remarks at New Y, (1) “if a company wants any credit for

or seniority in the company and provide all relevant facts about their misconduct”; and (2) Department attorneys “are to focus on individuals from the start of an investigation, regardless of whether the investigation begins civilly or criminally” and “oncindividual misconduct can and should proceed in tandem with the broader corporate investigation”),


72

Although the term “benchmarking”

should ask about a corporation's compliance program is whether it is “well designed.”

whether a company’s compliance program is so deficient that criminal prosecution may

there has been “a sharp increase in the proportion of respondents who say they are and Corruption]” compared with a survey

This involves analyzing “best in class outside organising the opportunity to learn from those at the leading edge.”

’ ’ ’


—“Why not learn from the best? ” so to speak.

izations “best in class” for certain corporate compliance functions.ment’s own experiences with

“best in class”

What is “best in class,”

This “involves benchmarking businesses or operations different countries).”

particular company’s compliance program, the Department finds significant variations

program has “best in class” features that could be —

This “looks at performto key products and services in the same sector.”

——

“


74

capabilities for dealing with change.”

’s

ment’s Principles for Prosectors should determine “whether

ment to it.”

“realistic” and “tough fair”

need to tell companies that their statements are not “off the record”——

U.S. Dep’t of Justice,


——

the Department’s

—

’ ’ ’

–


76

a business’s

’s and the SEC’sproperly notes, “each compliance program should be tai

zation’s specific needs, risks, and challenges”

corporations, a fact DOJ and SEC take into account when evaluating companies’ compl

—’s often cited “Hallmarks of Effective Compliance Programs” —

importance of corporate commitment to a “culture of compliance.”

ment to a “culture of co ance”

’ ’ ’

–

; Marshall L. Miller, Principal Deputy Att’y Gen., Remarks at the Advanced

Assistant Att’y Gen., Keynote Address at CBI Pharmaceutical Compliance Congress (January 29, 2014),

Assistant Att’y Gen., Remarks at the Internation


“clearly arti

”

“

”

tion “may be the result of a

forcing a culture of compliance, siding with the sales team.”

of “culture of compliance.”

“culture of compl”

gram, that constitutes a “culture of co”

“culture of compliance.” classic definition of “culture” “that co

’ ’


78

pabilities and habits acquired by man as a member of society.”

because the company’s values

“We don’t need to lie to customers or the public, or bribe people, to do bus”).

—ing with the customer in mind. It’s the habit of doing the right

things, and doing things right. It’s a

It’s behaviors and

defining “culture of compliance.”ance experts often refer to “building a culture of compliance.”zation can “build” an internal and sustainable culture like assembling a set of Lego

—

—

’ ’


—regardless of size, can articulate and implement their own “cultures of compliance.”

states: “As DOJ has repeatedly noted in its charging doc

those conducting business on the company’s behalf.”

, on a company’s size

— —

’s paragraph on compliance policies and procedures is

“[t]hese types of policies and procedures will depend on the size and nature of the busness and the risks associated with the business,”

what constitutes “appropriate autonomy and resources” may vary

—times that it will “depend” on circumstances

–


80

“We found that for companies with annual revenues of less than $50 million,

C and D percent of their annual budgets.”

importance of avoiding “t”; warning that “performing ide

most significant risks”; and noting that “[w]hen assessing a company’s compliance pr

and addresses the particular risks it faces.”

it emphasizes “is fundamental

–


to developing a strong compliance program.”2015 KPMG Survey reported that “executives admit that an

risk assessment is one of their companies’ top challenges.”

’s

’s emphasis on a company’s addressing “the particular risks es.”

importance of training and certification “for all dire

ners.” It notes the approach of “many larger companies” in implementing a “

—practitioners as “Attachment C”—


82

”

companies’ effective enforcement of their coIt notes that “DOJ and SEC will . . . consider whether, when enforcing a

mensurate with the violation.”tifying examples of what the Department considers “appropriate andprocedures,” “reliabl[e]” and “promp[t]” application of such procedures, disciplinary measures that would be “commensurate with the violation,” and fair and consistent appl

conduits, cutouts, or “bagmen” to conceal the transmission of bribes to foreign officials,


and specifically refers to the need for “[r]isk based due diligence” with third parties.

according to its respondents, “management

” “risk third parties.”

’

ble process for investigating such allegations and documenting the company’s respon

states that “a good compliance program should constantly evolve.”

–

–


84

“controls,” “only a

less than half continuously monitor data to spot potential violations.”

ment’s and the SEC’s interest in prompt postquired entity into the remaining entity’s internal controls, including its corporate compl

–


Improving the Department’s knowledge base is always a us—

—

official stated that “[w]henever possible, we try to

cution and other channels such as [public] conferences . . . .”

—

—

Department’s

Leslie R. Caldwell, Assistant Att’y Gen., U.S. Dep’t of Justice, Remarks at New York University

Law School’s Program on Corporate Governance and Enforcement (April 17, 2015),


86

, while exploring the Department’s ranging from the Fraud Section’s FCPA published opinions to the Antitrust Division’s

’

’

SECTION H

Crisis management

Crisis Management / Ethical Issues in Government Investigations

Michael E. ClarkDuane Morris LLP

Houston, TX

Joel M. AndrophyBerg & Androphy

Houston, TX

Alice S. FisherLatham & Watkins LLP

Washington, DC.

George A. StamboulidisBaker HostetlerNew York, NY

Discussion Points

Is it in the Corporation’s Best Interest to Notify the Government?

What to Expect During the

Process if you Self-report?

Can Advocacy Become

Obstruction?

What Other Corrective Actions Can a Company

Take?

What is Meant by “Cooperation”?

Access to Internal

Investigation

DiscipliningEmployees

Yates Memorandum

Seaboard ReportEarly Disclosure

Access to Employees

Document destruction is a crime and makes matters worse

Get control of the evidenceHard copiesElectronic copies and e-mail

Control company spokespersonsAvoid ill conceived denials before the facts are known

Relevant Ethics Rules• Model Rules Preamble: Zealous

representation• 1.1: Competence• 1.2(a): Client decides on objectives• 1.2(d): May not assist in crime or fraud,

but may advise on legal consequences and assist in “good faith effort to determine the validity, scope, meaning or application of the law”

Relevant Ethics Rules• 1.3: Diligence• 1.6: Confidentiality (with exceptions)• 1.13:

– Represent organization, not constituents– Up-the-ladder reporting– Permissive disclosure in limited

circumstances– Exception for investigation/defense

Relevant Ethics Rules• 3.4: Fairness to opposing parties and counsel;

non-obstruction; non-falsification• 4.1: No false statement; no non-disclosure

where disclosure necessary to avoid assisting crime or fraud (but subject to 1.6)

• 8.3: Disclosure of ethical violations by others (but subject to 1.6)

• 8.4: Violating rules is a violation of the rules; no dishonesty, fraud, deceit or misrepresentation

How Do These Rules Affect Discovery Obligations?

• What legal and ethical obligations do defense and government counsel have when providing subpoenaed evidence in healthcare cases?

• What prevents them from “burying” material evidence produced by virtue of the size of the production?

How Do These Rules Affect Discovery Obligations? (cont’d)

Does this violate Model Rule 3.4 (Fairness to Opposing Party and Counsel), which says that “[a] lawyer shall not: (a) unlawfully obstruct another party’s access to evidence or unlawfully alter, destroy or conceal a document or other material having potential evidentiary value”?


How about Model Rule 3.8 (Special Responsibilities of a Prosecutor) and the accompanying comments, which inform that a prosecutor has the responsibility of a minister of justice,and not just an advocate, which means there are specific obligations to see a defendant is accorded procedural justice, among other things?


One viewpoint is that :Lawyers representing a governmental client in [civil] cases are subject to constraints similar to those governing a prosecutor, modified because of the different nature of civil proceedings and . . . such procedures as extensive discovery, which place access to favorable evidence more in the control of opposing litigants. . .


[S]uch a lawyer . . . may take only those steps warranted by good cause and . . . supported by good factual and legal grounds.

Comment to 1996 draft RESTATEMENT(THIRD) OF THE LAW GOVERNING LAWYERS. This language is not in the final version of the RESTATEMENT. Bruce Green, Must Government Lawyers “Seek Justice” In Civil Litigation?, 9 Widener J. Pub. L. 235, 256 (2000).

Production of ESI: Federal Rule of Civil Procedure 34(b)(2)(E)(ii)

Rule 34(b)(2)(E)(ii) requires partiesto produce “electronically stored information” (ESI) in a “reasonably usable form” unless otherwise stipulated or ordered by the court.By comparison, the procedure for producing documents differs, as set out in subsection Rule 34(b)(2)(E)(i).

Production of Documents:Rule 34(b)(2)(E)(i)

Rule 34(b)(2)(E)(i) provides:A party must produce documents as . . . kept in the usual course of business ormust organize and label them to correspond to the categories in the request[.]

(Emphasis supplied)

Questions?

Michael E. ClarkDuane Morris LLP

(713) [email protected]

7 Steps to a PR Blunder:The BP Oil Spill

George StamboulidisBaker Hostetler LLP

Step 1The Spill• April 20, 2010.• Claimed 11 lives.• Estimated total discharge of 4.9 million barrels.• Largest accidental marine oil spill in the history of

the petroleum industry.• Severe environmental and health impacts.• Economic impact to the fishing industry is

estimated at $2.5 billion.• Economic impact of lost tourism is estimated at $23

billion.

2

Step 2Blame Shifting

"This was not our drilling rig and not our equipment. It was not our people, our systems or our processes. Their systems, their people, their equipment."

BP CEO Tony Hayward, May 4, 2010

3

Step 3Downplaying the Severity• "The Gulf of Mexico is a very big ocean. The

amount of volume of oil and dispersant we are putting into it is tiny in relation to the total water volume.” Tony Hayward, May 13, 2010

• "I think the environmental impact of this disaster is likely to have been very, very modest.” Tony Hayward, May 18, 2010

4

Step 4On-Camera CallousnessMay 30, 2010

5

Step 5The “Too Little Too Late” Apology

6

June 3, 2010

Step 6: More On-Camera CallousnessCarl Heinrich-Svanberg, BP ChairmanJune 16, 2010

7

Step 7 Go Yachting, Get Caught

8

Tony HaywardJune 19, 2010

The Backlash

9

The Backlash

10

The Backlash

11

The Backlash

12

The Damage Control

13

The Damage Control

• Strong media presence via television, print and internet to disseminate information of BP’s restoration efforts.

• Working with state and federal agencies to assess and restore destroyed natural resources.

• Developing a multi-billion dollar investment program in the Gulf of Mexico, focusing on deepwater and oil and gas development.

• Continuing to investigate into the accident to understand its causes, prevent future accidents and improve the safety of deepwater drilling.

• Committed $500 million over 10 years to support independent research through the Gulf of Mexico Research Initiative.

• Paid out over $12 billion to claimants who suffered economic harm (as of 2013).

14

Crisis Management: Moderating the Press and Media in Internal Investigations Panel Outline

Moderator Michael E. Clark Duane Morris LLP Houston, Texas

Panelists Joel M. Androphy Berg & Androphy Houston, Texas

Alice S. Fisher Latham & Watkins LLP Washington, D.C.

George A. Stamboulidis BakerHostetler New York, New York

Draft 3/23/2016

I. Background Questions for In-House and Outside Counsel 1. Get to know the Company and its DNA and personality

2. What is the Company’s process for handling internal investigations?

3. What is the Company’s process for handling media inquiries?

a. Is there an employee or team designated to handle?

b. Does the Company have a social media policy?

i. If so, does it need to be revised or re-enforced?

c. Does the Company already have an outside P.R. firm engaged?

d. If not, does outside counsel have a recommended firm?

e. Which employees within the Company may receive inquiries about the matter?

i. Is it already public knowledge?

If so, will customers ask questions?

ii. To the extent a decision is made to make statements to the media, it’s important to make sure that the public-facing employees are in the loop and understand whether they can make further comments to the media and/or customers

4. Has the Company said anything, either internally or externally so far?

a. Q/A or memo to employees

b. Press statements

H-18 Internal Corporate Investigations 2016

c. Talking Points to be used with customers, vendors, etc.

II. What Is The Company’s Position Regarding Making Statements About This Matter

1. Tends to be a decision about managing risk

2. The Company’s position may change over time as the matter evolves or due to other matters

3. Determining the Company’s position will likely require an alignment of legal, investor relations, risk and communications functions

a. To the extent that the legal and communications teams tend to work separately, that may need to change in this type of situation: no silos

III. When to Comment 1. No Comment is Not Generally an Option any Longer

a. Breadth and depth of current social media, and accelerating public use of such media means that “no comment” is ineffective and counterproductive at stopping discussions;

i. Social media allows people to disseminate, with virtually no cost, information to millions of people at the speed of light;

ii. But the new technologies for social media are likely skewed to a younger, upwardly-mobile demographic. See also, allegations by the SEC that Netflix disclosure by Facebook violated Reg. FD.

b. Public Perception greatly undermined by refusal to comment or acknowledge problems;

i. Olympus Case Study: As noted by Paul A. Argenti in his post, “Biggest PR Blunders of 2011,” Olympus hid $1.5b in losses and these losses were subsequently revealed by its former CEO Michael Woodford. The fact that the disclosure did not come from Olympus (i) undermines the firms credibility going forward, (2) adds additional scandal to the already exorbitant losses, and (3) has led to a criminal investigation (Argenti states, “Japanese prosecutors announced they were ‘set to raid the offices of Olympus Corp and homes of former executives’”).

c. “A company’s brand and reputation is not what the company says it is, but what others say it is” (Alexis Cairo and Randy L. Dryer, “Emerging Ethical and Legal Issues in the Brave New World of Social Media and Corporate Transparency,” chpt. 3, July 22-24, 2010).

d. Crisis Management Plans

i. Should be in place before a crisis is on the radar;

ii. Requires expert planning and training across management structure;

iii. Consultants specialize in this area and expert staff and departments can be created;

iv. Should employ a team-based strategy, rather than the traditional, single point of contact approach to crisis management:


Crisis Management: Moderating the Press and Media in Internal Investigations H-19

v. BP Case Study: As noted by MediaShift, this is one lesson BP failed to implement. A single, unlikable and un-relatable point person was initially put ahead of the public response (CEO Hayward) and only worsened PR relations.

2. Regardless of whether the Company issues formal comments, if the Company has a presence on social media, the Company will need to review its strategy for postings during the matter

a. Example: some companies specifically allow certain employees (example: sales employees) to make certain types of posts.

b. May decide to focus only on the Company’s products and services (the value the Company brings)

3. Considerations for When to Comment

a. Required Disclosures: When the Decision is Made for You

i. Examples of Mandatory Reporting:

SEC Reporting Standards

E.g., “Issuers”

Sarbanes-Oxley Disclosures

Other federal, state, local mandated disclosures

E.g., environmental disclosures

Auditors

Industry Specific Guidelines (i.e., Stark)

Disclosure as a mitigation strategy for potential False Claims Act liability

ii. When required to report, it is essential to determine what information will be kept confidential, how long confidentiality will be maintained, and whether any issues of selective disclosure apply.

b. Voluntary Disclosures

i. Benefits of Voluntary Disclosure

Helps market transition and stabilize;

Allows business to be part of the discussion in real-time, instead of being relegated to the sidelines and merely reactionary responses;

May promote confidence in government and public by displaying willingness to be held accountable and to rectify the situation under investigation.

Texaco Case Study: Litigation has been ongoing in Ecuador related to Texaco’s alleged environmental destruction for years. Rather than be passive during the litigation, and in the face of websites such as chevrontoxico.com, Texaco has devoted a whole section of its website to addressing the controversy. It has even gone so far as to have sub-sections titled, “The Big Lies: Plaintiffs’ Lawyers Myths and


Distortions,” “Petroecuador Responsibility,” and “Remediation & Results,” in order to combat the main criticism levied at the company.

May ameliorate potential damages claims in securities lawsuits.

ii. Information should be timely & truthful:

Should correct errors but not pander to comments or other derisive materials which may be posted or appear in comments;

Costa Concordia Case Study: Costa Concordia (Sinking of ship off Italian Coast, Carnival is parent company) – took several days for formal statements and assurances to be made by Carnival personnel.

c. Internal Disclosures to Employees: Employees get up every day and are expected to come to work and do their best work. If the matter is public, the Company may have a need to make an internal statement to address employee concerns (to the extent possible).

IV. What to Say 1. Practical Considerations

a. Be gracious and thankful for the support of the community, government, employees, etc…

b. Be accountable & show appropriate concern, but:

i. Do not apologize without a team wide agreement on the issue (do not admit legal liability);

ii. BP Case Study: BP initially blamed the rig owner for the accident but said that they were responsible for the oil. Although this might be legally true, the time for addressing such legalities was not when thousands of gallons of crude oil were being pumped into the gulf, employees had been killed, and fishermen were afraid for their livelihood.

iii. Costa Concordia Case Study: the company failed to discharge and immediately hold accountable the captain, and thereby failed to convey their sense of urgency and responsibility for the situation

iv. Chipotle Case Study: Chipotle’s CFO responded to the E. Coli outbreak by first blaming the CDC before turning to blame the media. “Of course the press writes ‘Outbreak expands to new states’, which is not true. Because the media likes to write sensational headlines, we can probably see when somebody sneezes that they’re going to say, ‘Ah, it’s E. Coli from Chipotle’ for a little bit of time.”

c. Be sincere & empathetic

i. Carnival Cruise Case Study: After the cruise ship debacle that left over 3000 passengers on a disabled cruise ship adrift in the Caribbean, the cruise line callously tweeted, “Of course the bathrobes for the Carnival Triumph are complimentary.” Although this may have been well-intentioned, it was poorly timed, came across as totally out of touch, and provoked additional ire at the ailing company.

ii. BP Case Study: No one wants to look “arrogant and callous,” as noted by NPR in a 2011 piece, which focused on BP’s 2010 Gulf Oil Spill. BP’s CEO, Tony



Hayward, undermined BP’s public relations efforts with his statement that, “There’s no one who wants this thing over more than I do. You know, I’d like my life back.”

d. Charlie Sheen Case Study: Don’t alienate your audience! You lose credibility and ultimately business.

e. Martin Shkeli a/k/a “PharmaBro” Case Study: Don’t make powerful enemies. After Shkreli's appearance before the congressional committee on drug-pricing practices he tweeted “Hard to accept that these imbeciles represent the people in our government.”

2. Legal Considerations

a. Attorney-Client Privilege & the Work Product Doctrine

b. Confidentiality

i. The internet is forever – so is waiver

Information released by a company, its employees, or even third parties can never fully be reclaimed;

Courts are increasingly holding that there is no expectation of privacy in public posts (see e.g., “Tweet This: Courts Says No Reasonable Expectation of Privacy in Public Postings” by George A. Stamboulidis and Alberto Rodriguez). This means that information disseminated today may have repercussions months or years in the future.

ii. Walmart Case Study: Once documents have become public – even if by dubious means - they can be used in litigation.

c. Parallel Proceedings: Government & Regulatory Investigations

i. Consider government’s reaction to statements.

ii. Input on press releases.

iii. Timing of press release so not to coincide with shareholders’ meeting, earnings release, etc…

iv. Does the Company have a social media policy?

v. If the Company decides to make statements, who within the company will monitor the posts

3. Public Perception Issues

V. Who to Address 1. The Players and Media Constituency Have Changed

a. Traditional Media (Newspapers & Magazines)

b. Employees

c. Vendors

d. Subsidiaries & Parent Companies

e. Customers


f. Business Partners

g. At-Large Public (all of whom are prospective customers)

i. Carnival Case Study: As noted by NBC News in its story, “Cruise damage control: Carnival’s reputation foundering along with stranded Triumph,” the media coverage of cruising disasters was likely to most impact those who had never taken a cruise before – considered an essential target for all cruise lines. Accordingly, businesses need to address both current and prospective customers.

ii. Chipotle Case Study: Depite announcing a comprehensive new food safety programs in their restaurants, commentators noted that “when it comes to the logistics of food safety, the company still has a lot to understand, and a lot to prove.”

h. Politicians & the Government

i. Regulatory Bodies

VI. How to Say it: Communicating Your Message 1. Make sure to follow the process designed for the particular matter

2. Preparation is key

3. If this is a departure from the Company’ standard practices, that must be communicated in advance

4. Need to balance the need to “go public” with the need to inform employees

5. Consider internal Q/A or intranet posting

6. The Mediums of Communication are Diverse, Expanding, and Target Different Audiences

a. Traditional Print Media

b. Twitter

c. Facebook

d. LinkedIn

e. Youtube

f. Yammer (this is really an internal means of communication)

g. Corporate Website

h. Blogs

i. Instagram

j. Wikipedia

k. Internal Communications: can set up a separate email box for employee Qs or for employees to refer customer/vendor Qs for follow-up

7. Media In Development and Trends for the Future

a. The forums for communication are expanding rapidly and companies and their counsel must be aware not only of existing forums, but forums under development and forums which will emerge in the future.



VII. Examples of Positive Responses to Corporate Crises 1. Johnson & Johnson’s Response to Chicago Murders: In 1982, someone put cyanide in extra-

strength Tylenol capsules and as a result seven people died. Tylenol responded by recalling over $100 million worth of product, demonstrating its dedication to consumer safety, collaborated with law enforcement to find the party responsible, and then introduced tamper-resistant packaging. Johnson & Johnson’s response to this crisis is generally considered a textbook case for how executives and corporations should handle large-scale crises.

2. JetBlue’s Crippled Operations: In 2007, after a severe ice storm, JetBlue’s operations were crippled, forcing it to cancel over 1000 flights. People were stuck on runways in planes for hours and faced terrible conditions – passengers and the public were outraged. The company responded by taking responsibility – they did not blame the weather, “[the CEO] went on the Today Show, Letterman, and Anderson Cooper, not pleading his case, but apologizing for his company's faults.” See “9 PR Fiascos That Were Handled Brilliantly By Management” by Kim Bhasin. The company also produced a “customer’s bill of rights” and compensated those impacted by the crisis.

3. Toyota’s 2010 Safety Recalls: Toyota has long been regarded as one of the safest, most consistent, and reliable car manufacturers. This reputation was imperiled, however, when in 2010 a series of stuck accelerators caused accidents and injuries. As indicated in the Bhasin article, Toyota initially “failed miserably” with its crisis response – Toyota was unsure of the cause of the accidents and management was slow to respond. After a slow start, however, Toyota responded by increasing management involvement and public outreach, “offered extended warranties and pumped up marketing, leveraging its long-term track record and reassuring consumers about safety.” Today, Toyota has recovered from the crisis and is going strong.

4. Taco Bell’s Quality Crisis: In 2011, a very public lawsuit was filed against Taco Bell alleging that its meat was in fact only 35% meat. The allegations quickly spread across traditional media sources and was published and re-published across social media. Since the meat involved was at the core of Taco Bell’s business, this scandal had the potential to destroy the company and its reputation. Taco Bell responded by publicly refuting the claims, revealing its product composition, and the recipe it used. It mobilized on social media, including YouTube and Facebook, to combat public perception issues.

5. Walmart & the FCPA: In 2012, Walmart was alleged to have violated the FCPA. In response, the company publicly responded that it was working with regulators, was seeking to internally investigate the allegations, and was moving forward. In addition to its public statements, the company utilized its own website, Facebook, and Twitter to get its message across. And while this situation is ongoing, Walmart’s PR efforts have so far been generally viewed favorably.

6. BP’s Continued Efforts at Controlling the Deepwater Horizon Scandal: As noted above, BP’s initial response to the Deepwater Horizon Crisis was terrible. In the years since the accident, BP’s media response has drastically improved. It has a substantial section of its corporate website dedicated to the disaster, which addresses the accident itself, the company’s response to the disaster, and its continued efforts in the Gulf. The company also continues to sponsor advertisements encouraging people to visit the affected areas along the Southern United States and has pledged substantial sums to research and compensation of those affected.

7. New York City’s Response to Hurricane Sandy: As quoted in a New York Times article, “In Crisis, Public Officials Embrace Social Media,” by Brian Stetler and Jennifer Preston (Nov. 1, 2012): “Twitter makes it possible for a public official to create a round-the-clock press conference, simultaneously informing their staff, the public and the press.” Just as municipalities and schools


can use Twitter during disasters and other emergencies, this type of social networking also provides companies with a tool to respond to internal crises.


User Name: Frear Simons

Date and Time: 24 Mar 2016 10:01 a.m. EDT

Job Number: 30597041

Document(1)

1. In re Grand Jury Subpoenas Dated March 24, 2003, 265 F. Supp. 2d 321

Client/Matter: -None-

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As of: March 24, 2016 10:01 AM EDT

In re Grand Jury Subpoenas Dated March 24, 2003

United States District Court for the Southern District of New York

June 2, 2003, Decided ; June 3, 2003, Filed

M11-189

Reporter

265 F. Supp. 2d 321; 2003 U.S. Dist. LEXIS 9022; 61 Fed. R. Evid. Serv. (Callaghan) 1076

IN RE: GRAND JURY SUBPOENAS DATED MARCH

24, 2003 DIRECTED TO (A) GRAND JURY WITNESS

FIRM and (B) GRAND JURY WITNESS

Subsequent History: Motion granted by In re Grand Jury

Subpoena, 2003 U.S. Dist. LEXIS 9814 (S.D.N.Y., June 10,

2003)

Disposition: Government’s motion to compel granted in

part.

Core Terms

Target, communications, lawyers, attorney-client, public

relations, work product, documents, attorneys, grand jury,

legal advice, consultants, media, public relations firm,

conversations, advice, hired, materials, cases, public opinion,

privileged, questions, portions, secrecy, ex parte, confidential,

regulators, advise, circumstances, Advocacy, e-mail

Case Summary

Procedural Posture

In the government’s grand jury investigation of the target, a

former employee of a company, a public relations firm

witness and her public relations firm declined to testify and

to produce subpoenaed documents claiming attorney-client

and work product privileges. The government moved to

compel compliance with its subpoenas.

Overview

The court initially held that the documents withheld from

production by the public relations firm that were

communications among the target, her lawyers and the

public relations firm, or some combination thereof, for the

purpose of giving or receiving legal advice, were protected

by the attorney-client privilege, but that two conversations

and an e-mail between the target and the witness were not

protected by the attorney-client privilege because neither

the conversations nor the e-mail were at the behest of the

target’s lawyers or directed at helping the lawyers formulate

their strategy. The court then held that, although the

documents claimed by the public relations firm to be

protected work product were prepared in anticipation of

litigation, the government would be allowed to make an ex

parte submission as to both its claimed need for the

non-attorney opinion work product portions pursuant to

Fed. R. Civ. P. 26(b)(3) or Fed. R. Crim. P. 16(b)(2), and the

necessity of preserving the confidentiality of its submission

in order to protect grand jury secrecy.

Outcome

The government’s motion was granted in part allowing the

witness to testify regarding her two conversations and an

e-mail with the target alone, and allowing the government to

make an ex parte submission as to its claimed need for the

non-attorney opinion work product portions of the withheld

public relations firm documents. The motion was denied in

part regarding the remaining documents.

LexisNexis® Headnotes

Civil Procedure > ... > Privileged Communications > Work

Product Doctrine > General Overview

HN1 ″Work product″ refers to material prepared in

anticipation of litigation or for trial, including material that

reflects the mental impressions, conclusions, opinions or

legal theories of an attorney.



Evidence > Privileges > Attorney-Client Privilege > General

Overview

HN2 The protection afforded to work product is not,

technically speaking, an evidentiary privilege.


Overview

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http://advance.lexis.com/api/document?collection=statutes-legislation&id=urn:contentItem:4YF7-GS01-NRF4-4309-00000-00&context=1000516

HN3 The scope of the attorney-client privilege is governed

by Fed. R. Evid. 501.

Civil Procedure > Preliminary Considerations > Federal &

State Interrelationships > General Overview

Civil Procedure > ... > Federal & State Interrelationships >

Federal Common Law > General Overview


Overview

Evidence > Privileges > Attorney-Client Privilege > Elements

HN4 See Fed. R. Evid. 501.


Overview

Evidence > Privileges > Attorney-Client Privilege > Waiver

HN5 The broad outlines of the attorney-client privilege are

clear: (1) where legal advice of any kind is sought, (2) from

a professional legal advisor in his capacity as such, (3) the

communications relating to that purpose, (4) made in

confidence, (5) by the client, (6) are at his instance

permanently protected, (7) from disclosure by himself or by

the legal advisor, (8) except the protection be waived.


Overview

Evidence > Privileges > Attorney-Client Privilege > Scope

Legal Ethics > Client Relations > Attorney Duties to Client >

Duty of Confidentiality

HN6 The attorney-client privilege protects not only

communications by the client to the lawyer. In many

circumstances, it protects also communications by the

lawyer to the client. The attorney-client privilege shields

communications from the lawyer to the client only to the

extent that these are based on, or may disclose, confidential

information provided by the client or contain advice or

opinions of the attorney. Where the client is a corporation,

the attorney-client privilege protects both information

provided to the lawyer by the client and professional advice

given by an attorney that discloses such confidential

information.

Evidence > Privileges > Accountant-Client Privilege > General

Overview

Evidence > Privileges > Accountant-Client Privilege > Elements

Evidence > Privileges > Accountant-Client Privilege > Scope


Overview


HN7 The attorney-client privilege in appropriate

circumstances extends to otherwise privileged

communications that involve persons assisting the lawyer in

the rendition of legal services. This principle is applied

universally to cover office personnel, such as secretaries and

law clerks, who assist lawyers in performing their tasks. But

it is applied more broadly as well. For example, the United

States Court of Appeals for the Second Circuit holds that a

client’s communications with an accountant employed by

his attorney are privileged where made for the purpose of

enabling the attorney to understand the client’s situation in

order to provide legal advice.

Evidence > Privileges > Accountant-Client Privilege > General

Overview

Evidence > Privileges > Accountant-Client Privilege > Elements


Overview


HN8 What is vital to the attorney-client privilege is that the

communication be made in confidence for the purpose of

obtaining legal advice from the lawyer. If what is sought is

not legal advice but only accounting service or if the advice

sought is the accountant’s rather than the lawyer’s, no

privilege exists. This draws what may seem to some a rather

arbitrary line between a case where the client communicates

first to his own accountant (no privilege as to such

communications, even though he later consults his lawyer

on the same matter) and others, where the client in the first

instance consults a lawyer who retains an accountant as a

listening post, or consults the lawyer with his own accountant

present. But that is the inevitable consequence of having to

reconcile the absence of a privilege for accountants and the

effective operation of the privilege of a client and lawyer

under conditions where the lawyer needs outside help.

Civil Procedure > Preliminary Considerations > Venue >

General Overview

Civil Procedure > ... > Jury Trials > Jurors > General Overview


Overview


HN9 The attorney-client privilege extends to

communications involving consultants used by lawyers to

assist in performing tasks that go beyond advising a client as

to the law. For example, a client’s confidential

communications to a nontestifying expert retained by the

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265 F. Supp. 2d 321, *321; 2003 U.S. Dist. LEXIS 9022, **9022

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lawyer to assist the lawyer in preparing the client’s case

probably are privileged. Consultants engaged by lawyers to

advise them on matters such as whether the state of public

opinion in a community makes a change of venue desirable,

whether jurors from particular backgrounds are likely to be

disposed favorably to the client, how a client should behave

while testifying in order to impress jurors favorably, and

other matters routinely the stuff of jury and personal

communication consultants come within the attorney-client

privilege, as they have a close nexus to the attorney’s role in

advocating the client’s cause before a court or other

decision-making body.

Civil Procedure > Attorneys > General Overview

Criminal Law & Procedure > ... > Entry of Pleas > Guilty

Pleas > General Overview

Legal Ethics > Client Relations > Attorney Duties to Client >

Effective Representation

HN10 An attorney’s duties do not begin inside the courtroom

door. He or she cannot ignore the practical implications of

a legal proceeding for the client. Just as an attorney may

recommend a plea bargain or civil settlement to avoid the

adverse consequences of a possible loss after trial, so too an

attorney may take reasonable steps to defend a client’s

reputation and reduce the adverse consequences of

indictment, especially in the face of a prosecution deemed

unjust or commenced with improper motives. A defense

attorney may pursue lawful strategies to obtain dismissal of

an indictment or reduction of charges, including an attempt

to demonstrate in the court of public opinion that the client

does not deserve to be tried.


Overview

HN11 (1) confidential communications, (2) between lawyers

and public relations consultants, (3) hired by the lawyers to

assist them in dealing with the media, (4) that are made for

the purpose of giving or receiving advice, (5) directed at

handling the client’s legal problems, are protected by the

attorney-client privilege.


Overview


HN12 For attorney-client privilege purposes, if the lawyer

has directed the client, either in the specific case or

generally, to tell his story in the first instance to an

accountant engaged by the lawyer, who is then to interpret

it so that the lawyer may better give legal advice,

communications by the client reasonably related to that

purpose ought fall within the privilege; there can be no more

virtue in requiring the lawyer to sit by while the client

pursues these possibly tedious preliminary conversations

with the accountant than in insisting on the lawyer’s

physical presence while the client dictates a statement to the

lawyer’s secretary or is interviewed by a clerk not yet

admitted to practice. What is vital to the attorney-client

privilege is that the communication be made in confidence

for the purpose of obtaining legal advice from the lawyer.


Overview

Evidence > Privileges > Attorney-Client Privilege > Waiver

Evidence > Privileges > Government Privileges > Waiver

HN13 Disclosure of communications protected by the

attorney-client privilege within the context of another

privilege does not constitute waiver of the attorney-client

privilege.



Criminal Law & Procedure > ... > Standards of Review > Plain

Error > General Overview

Evidence > Privileges > Attorney-Client Privilege

HN14 The work product doctrine, codified in part in Fed. R.

Civ. P. 26(b)(3) and Fed. R. Crim. P. 16(b)(2), provides

qualified protection for materials prepared by or at the

behest of counsel in anticipation of litigation or for trial.

Both distinct from and broader than the attorney-client

privilege, the work product doctrine is intended to preserve

a zone of privacy in which a lawyer can prepare and develop

legal theories and strategy with an eye toward litigation, free

from unnecessary intrusion by his adversaries.


Civil Procedure > Discovery & Disclosure > General Overview

Civil Procedure > ... > Discovery > Methods of Discovery >

General Overview




Product Doctrine > Opinion Work Product

Civil Procedure > ... > Pretrial Judgments > Default & Default

Judgments > Default Judgments

HN15 Work product falls generally into two categories,

which are afforded different levels of protection. Work

Page 3 of 14


Frear Simons


product consisting merely of materials prepared in

anticipation of litigation or for trial is discoverable only

upon a showing that the party seeking discovery has

substantial need of the materials and that the party is unable

without undue hardship to obtain the substantial equivalent

of the materials by other means. Fed. R. Civ. P. 26(b)(3).

Opinion work product, materials that would reveal the

mental impressions, conclusions, opinions, or legal theories

of an attorney or other representative of a party concerning

the litigation, Fed. R. Civ. P. 26(b)(3), is discoverable, if at

all, only upon a significantly stronger showing.


Criminal Law & Procedure > ... > Discovery by Defendant >

Tangible Objects > Exclusions

Criminal Law & Procedure > ... > Standards of Review > Plain

Error > General Overview

Evidence > Privileges > Attorney-Client Privilege

HN16 In criminal cases, the work product doctrine is even

stricter than in civil cases, precluding discovery of documents

made by a defendant’s attorney or the attorney’s agents

except with respect to scientific or medical reports. Fed. R.

Crim. P. 16(b)(2).




Product Doctrine > Opinion Work Product

Criminal Law & Procedure > ... > Grand Juries > Secrecy >

General Overview

HN17 While ex parte proceedings in most circumstances

are strongly disfavored by our system, the public interest in

grand jury secrecy in some cases may trump that important

principle. Where an in camera submission is the only way to

resolve an issue without compromising a legitimate need to

preserve the secrecy of the grand jury, it is an appropriate

procedure.

Counsel: [**1] Appearances:

JAMES B. COMEY UNITED STATES ATTORNEY

[Redacted]

Attorneys for Grand Jury Witness Firm and Grand Jury

Witness

[Redacted]

Attorneys for Intervenor Target.

Judges: Lewis A. Kaplan, United States District Judge.

Opinion by: Lewis A. Kaplan

Opinion

[*322] MEMORANDUM OPINION

LEWIS A. KAPLAN, District Judge.

This motion poses the troublesome question whether and to

what extent the attorney-client privilege and the protection

afforded to work product 1[**2] extend to communications

between and among a prospective defendant in a criminal

case, her lawyers, and a public relations firm hired by the

lawyers to aid in avoiding an indictment. The Court’s

original opinion in this matter was filed under seal in order

to protect the secrecy of the grand jury. In view of the

importance of this issues, this redacted version of the

opinion, 2 which substitutes pseudonyms for names and

omits other identifying information, is being filed in the

public records of the Court. 3

I. Facts

A. The Procedural Context

The United States Attorney’s office began a grand jury

investigation of Target, a former employee of the Company,

in or before March 2003. On March 24, 2003, it served a

grand jury subpoena ad testificandum on Witness and

another duces tecum on Witness’s firm (″Firm″), a public

relations concern. Counsel for Witness and Firm informed

the United States Attorney’s [*323] office that Witness

would decline to testify and that Firm declined to produce

the subpoenaed documents on the ground that the

information sought by the grand jury had been generated in

the course of Firm’s engagement by Target’s lawyers, as a

part of their defense of Target, and that it therefore was

1 Except where otherwise indicated, HN1 ″work product″ refers to material prepared in anticipation of litigation or for trial, including

material that reflects the mental impressions, conclusions, opinions or legal theories of an attorney.

2 The Court took into account the views of the parties with respect to the redactions that were required.

3 No inferences should be drawn from the gender of pronouns used to refer to Target and Witness in this redacted version of the opinion.

Page 4 of 14


Frear Simons



protected by the attorney-client privilege and constituted

work product.

The government moved by order to show cause to compel

compliance [**3] with the subpoenas, and Target intervened

with the government’s consent. The Court concluded that

the government almost undoubtedly could ask Witness

questions as to which there would be no proper objection,

even assuming that Target’s position were correct, and

therefore required Witness to testify before the grand jury

while allowing her to assert any objections in response to

specific questions and thus to frame the issues more

narrowly.

The Court initially required submission of the documents

withheld by Firm on grounds of privilege for in camera

inspection. On May 1, 2003, in an order that remains under

seal, it held that certain portions of the documents constituted

attorney opinion work product, 4 that the government had

not made a showing sufficient to require production of those

portions, assuming arguendo that such work product ever is

discoverable, and directed Target and Firm to indicate

whether the privilege objections would be pressed with

respect to the remaining portions of those documents. They

subsequently informed the Court that they continue to press

those objections.

[**4] Witness testified before the grand jury. She answered

some questions but asserted Target’s alleged privilege 5 in

response to others.

B. The Hiring of Firm

This is a high profile matter. The investigation of Target has

been a matter of intense press interest and extensive

coverage for months. Witness claims that Target’s attorneys

hired Firm out of a concern that ″unbalanced and often

inaccurate press reports about Target created a clear risk that

the prosecutors and regulators conducting the various

investigations would feel public pressure to bring some kind

of charge against″ her. 6 Firm’s ″primary responsibility was

defensive - to communicate with the media in a way that

would help restore balance and accuracy to the press

coverage. [The] objective . . . was to reduce [**5] the risk

that prosecutors and regulators would feel pressure from the

constant anti-Target drumbeat in the media to bring charges

. . . [and thus] to neutralize the environment in a way that

would enable prosecutors and regulators to make their

decisions and exercise their discretion without undue

influence from the negative press coverage.″ 7 Witness

claims that ″a significant aspect″ of Firm’s ″assignment that

distinguished it from standard public relations work was

that [its] target audience was not the public at large. Rather,

Firm was focused on affecting the media-conveyed message

that reached the prosecutors and regulators responsible

[*324] for charging decisions in the investigations

concerning . . . Target.″ 8

C. Firm’s Activities

In carrying out her responsibilities, Witness had at least two

conversations directly with and sent at least one e-mail

directly to Target. 9 On other occasions, Firm interacted

with Target’s attorneys. [**6]10 On still others,

communications involved Firm, Target and the attorneys

and, in a few cases, Target’s spouse. 11 Some of the

documents produced for in camera inspection included

discussions about defense strategies, and there is no reason

to doubt that this was true of many oral communications. 12

And while Target and Witness perhaps do not so admit in

these precise terms, the conversations and e-mails exchanged

among this group inevitably included discussion of at least

some of the facts pertaining to the matters in controversy.

Firm’s activities were not limited to advising Target and her

lawyers. Firm spoke extensively to members of the media,

4 That is, it reflected the mental impressions, conclusions, opinions or legal theories of counsel.

5 Although HN2 the protection afforded to work product is not, technically speaking, an evidentiary privilege, the Court uses

″privilege″ to refer both to attorney-client privilege and to work product protection for ease of expression.

6 Witness Aff. P 8.

7 Id. P 9.

8 Id. P 12.

9 Grand Jury Tr., May 5, 2003, at 18-19, 29-30; Target Priv. 0011.

10 Grand Jury Tr. at 29.

11 Id. at 18-21, 29.

12 See, e.g., Witness Aff. P 13.

Page 5 of 14


Frear Simons

in some instances to find out what they knew and, where

possible, where the information came from. 13 And it

conveyed to members of the media information that the

Target defense team [**7] wished to have disseminated. 14

II. Discussion

A. Attorney-Client Privilege

As this matter is entirely federal in nature, HN3 the scope of

the attorney-client privilege is governed by FED. R. EVID.

501, which provides in relevant part that HN4 ″the privilege

of a witness . . . shall be governed by the principles of the

common law as they may be interpreted by the courts of the

United States in the light of reason and experience.″ In

consequence, the Court looks principally to decisions

applying the federal common law of attorney-client privilege.

As the government argues, HN5 the broad outlines of the

attorney-client privilege are clear:

″(1) where legal advice of any kind is sought (2) from

a professional legal advisor in his capacity as such, (3)

the communications relating to that purpose, (4) made

in confidence (5) by the client, (6) are at his instance

permanently protected (7) from disclosure by himself

or by the [**8] legal advisor, (8) except the protection

be waived.″ 15

But two qualifications must be made.

First, HN6 the privilege protects not only communications

by the client to the lawyer. In many circumstances, it

protects also communications by the lawyer to the client. 16

[**9] [*325] Second, HN7 the privilege in appropriate

circumstances extends to otherwise privileged

communications that involve persons assisting the lawyer in

the rendition of legal services. 17 This principle has been

applied universally to cover office personnel, such as

secretaries and law clerks, who assist lawyers in performing

their tasks. 18 But it has been applied more broadly as well.

For example, in United States v. Kovel, 19 the Second

Circuit held that a client’s communications with an

accountant employed by his attorney were privileged where

13 See id. P 17.

14 Grand Jury Tr., May 5, 2003, at 21-22, 45-47.

15 In re Grand Jury Subpoena Duces Tecum Dated September 15, 1983, 731 F.2d 1032, 1036 (2d Cir. 1984) (internal citations omitted).

16 E.g., United States v. Neal, 27 F.3d 1035, 1048 (5th Cir. 1994) (privilege ″’shields communications from the lawyer to the client

only to the extent that these are based on, or may disclose, confidential information provided by the client or contain advice or opinions

of the attorney.’″) (citing Wells v. Rushing, 755 F.2d 376, 379 n.2 (5th Cir. 1985); In re Six Grand Jury Witnesses, 979 F.2d 939, 944

(2d Cir. 1992) (where the client is a corporation, the attorney-client privilege protects ″both information provided to the lawyer by the

client and professional advice given by an attorney that discloses such [confidential] information.″); Thurmond v. Compaq Computer

Corp., 198 F.R.D. 475, 480-82 (E.D. Tex. 2000) (cataloging cases applying privilege to communications from lawyer to client and noting

divergence among federal courts concerning scope of such privilege); Fed. Election Comm’n v. Christian Coalition, 178 F.R.D. 61, 66

(E.D. Va. 1998) (″The attorney-client privilege . . . extends ’to protect communications by the lawyer to his client . . . if those

communications reveal confidential client communications.’″) (citing United States v. Under Seal), 748 F.2d 871, 874 (4th Cir. 1984));

Harmony Gold U.S.A., Inc. v. FASA Corp., 169 F.R.D. 113, 115 (N.D. Ill. 1996) (stating that privilege applies to communications from

a lawyer to a client provided ″the legal advice given to the client, or sought by the client, [is] the predominant element in the

communication″); Bank Brussels Lambert v. Credit Lyonnais (Suisse) S.A., 160 F.R.D. 437, 441-42 (S.D.N.Y. 1995) (″It is now well

established that the privilege attaches . . . to advice rendered by the attorney to the client, at least to the extent that such advice may reflect

confidential information conveyed by the client.″);l United States v. Int’Bus. Mach. Corp., 66 F.R.D. 206, 212 (S.D.N.Y. 1974) (privilege

applies to communications by a lawyer to a client provided legal advice is the predominant feature of the communication). Cf. Upjohn

Co. v. United States, 449 U.S. 383, 390, 66 L. Ed. 2d 584, 101 S. Ct. 677 (1981) (attorneyclient privilege protects ″giving of professional

advice to those who can act on it″). See generally 24 CHARLES ALAN WRIGHT & KENNETH W. GRAHAM, JR., FEDERAL

PRACTICE AND PROCEDURE § 5491 at 450-54 (1986 & Supp. 2003) (noting variation among federal courts in breadth of application

of privilege to communications by attorney to client).

17 See SUP. CT. STD .503(a)(3), 503(b), reprinted in 3 JOSEPH M. MCLAUGHLIN, WEINSTEIN’S EVIDENCE § 503.01 (2d ed.

2003) (hereinafter WEINSTEIN) (privilege extends to appropriate communications between and among the client, the lawyer, and a

″representative of the lawyer,″ which is defined as ″one employed to assist the lawyer in the rendition of professional legal services.″)

18 3 WEINSTEIN § 503.12[3][b].

19 296 F.2d 918 (2d Cir. 1961).

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made for the purpose of enabling the attorney to understand

the client’s situation in order to provide legal advice. 20 In

language pertinent here, Judge Friendly wrote:

HN8 ″What is vital to the privilege is that the

communication be made in confidence for the purpose

of obtaining legal advice from the lawyer. If what is

sought is not legal advice but only accounting service .

. . or if the advice sought is the accountant’s rather than

the lawyer’s, no privilege exists. We recognize this

draws what may seem to some a rather arbitrary line

between a case where the client communicates first to

his own accountant (no privilege as to such [**10]

communications, even though he later consults his

lawyer on the same matter . . . ) and others, where the

client in the first instance consults a lawyer who retains

an accountant as a listening post, or consults the lawyer

with his own accountant present. But that is the

inevitable consequence of having to reconcile the

absence of a privilege for accountants and the effective

operation of the privilege of a client and lawyer under

conditions [*326] where the lawyer needs outside

help.″ 21

[**11] Kovel helps frame the analysis here. No one suggests

that communications between Target and Firm would have

been privileged if she simply had gone out and hired Firm

as public relations counsel. On the other hand, there is no

reason to question the stated rationale for her lawyers’

hiring of Firm - that the lawyers viewed altering the mix of

public information as serving Target’s interests by creating

a climate in which prosecutors and regulators might feel

freer to act in ways less antagonistic to Target than otherwise

might have been the case. Finally, the Court accepts that this

was a situation in which the lawyers, in the words of Kovel,

″needed outside help,″ as they presumably were not skilled

at public relations. The question therefore is whether the

problem with which they ″needed outside help″ related to

their provision of what Kovel spoke of as ″legal advice.″

We begin with the obvious. Certainly Firm was not retained

to help Target’s lawyers understand technical matters to

enable the lawyers to advise their client as to the

requirements of the law, as was the case in Kovel. But it is

common ground that HN9 the privilege extends to

communications involving consultants [**12] used by

lawyers to assist in performing tasks that go beyond

advising a client as to the law. For example, a client’s

confidential communications to a nontestifying expert

retained by the lawyer to assist the lawyer in preparing the

client’s case - essentially the situation in Kovel - probably

are privileged. 22 The government in any case concedes that

consultants engaged by lawyers to advise them on matters

such as whether the state of public opinion in a community

makes a change of venue desirable, whether jurors from

particular backgrounds are likely to be disposed favorably

to the client, how a client should behave while testifying in

order to impress jurors favorably and other matters routinely

the stuff of jury and personal communication consultants

come within the attorney-client privilege, as they have a

close nexus to the attorney’s role in advocating the client’s

cause before a court or other decision-making body. 23 The

ultimate issue therefore resolves to whether attorney efforts

to influence public opinion in order to advance the client’s

legal position - in this case by neutralizing what the

attorneys perceived as a climate of opinion pressing

prosecutors and regulators [**13] to act in ways adverse to

Target’s interests - are services, the rendition of which also

should be facilitated by applying the privilege to relevant

communications which have this as their object.

Traditionally, the proper role of lawyers vis-a-vis public

opinion has been viewed rather narrowly, perhaps primarily

out of concern that extra-judicial statements might prejudice

jury pools. Codes of professional conduct, for example,

traditionally have limited the extent to which lawyers

properly may seek to influence public opinion by proscribing

many types of extra-judicial statements concerning pending

litigation. 24 More recently, however, there has been a strong

20 Id. at 922.

21 Id. (footnotes and citations omitted).

22 3 WEINSTEIN § 503.12[5][b].

23 Tr., Apr. 30, 2003, at 4-7, 13-15.

24 See generally Jonathan M. Moses, Legal Spin Control: Ethics and Advocacy in the Court of Public Opinion, 95 COLUM. L. REV.

1811, 1816-25 (1995) (hereinafter Spin Control); Beth A. Wilkinson & Steven H. Schulman, When Talk Is Not Cheap: Communications

With the Media, The Government and Other Parties in High Profile White Collar Criminal Cases, 39 AM. CRIM. L. REV. 203, 205-06

(2001) (hereinafter When Talk Is Not Cheap).

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tendency to view the [*327] lawyer’s role more broadly. 25

[**16] Nowhere is this trend more clearly recognized

than in the plurality opinion by Mr. Justice Kennedy in

Gentile v. State Bar of Nevada, 26 where he wrote for four

justices:

HN10 ″An attorney’s duties do not begin [**14] inside

the courtroom door. He or she cannot ignore the

practical implications of a legal proceeding for the

client. Just as an attorney may recommend a plea

bargain or civil settlement to avoid the adverse

consequences of a possible loss after trial, so too an

attorney may take reasonable steps to defend a client’s

reputation and reduce the adverse consequences of

indictment, especially in the face of a prosecution

deemed unjust or commenced with improper motives.

A defense attorney may pursue lawful strategies to

obtain dismissal of an indictment or reduction of

charges, including an attempt to demonstrate in the

court of public opinion that the client does not deserve

to be tried.″ 27

And this statement does not stand alone. Indeed, many

courts have compensated lawyers, in making fee awards

under civil rights and other statutes, for public relations

efforts in recognition of the importance of such work in the

clients’ interests. 28 But to say that lawyers in fact try

[*328] to influence public opinion in the interests of their

clients - indeed, to say that they properly may do so and, on

occasion, are compensated by courts for such services - does

not alone answer the question [**15] before the Court.

[**17] The Court’s attention has been drawn to two cases

that deal in some respect with the issue of public relations

services in the privilege context, Calvin Klein Trademark

Trust v. Wachner 29 and In re Copper Market Antitrust

Litigation. 30 Both merit study.

In Calvin Klein, the plaintiffs’ attorneys hired a public

relations firm in anticipation of filing what promised to be

a high profile civil suit against a licensee and its well known

chief executive. They contended that the purpose was

defensive, viz. to assist the lawyers in understanding the

possible reaction of the plaintiffs’ various constituencies to

25 E.g., MODEL RULES OF PROF’L CONDUCT R. 3.6(c) (1999) (allowing lawyers to comment publicly to the extent necessary to

neutralize publicity if the lawyer did not initiate the media attention); Spin Control, 95 COLUM. L. REV. at 1828-44; Julie R. O’Sullivan,

The Bakaly Debacle: The Role of the Press in High-Profile Criminal Investigations in Symposium, Bidding Adieu to the Clinton

Administration: Assessing the Ramifications of the Clinton ″Scandals″ on the Office of the President and on Executive Branch

Investigations, 60 MD. L. REV. 149, 169-82 (2001); S. Bennett, Press Advocacy and the High-Profile Client, 30 LOY. L.A. L. REV. 13,

13-20 (1996); see When Talk Is Not Cheap, 39 AM. CRIM. L. REV. at 223.

26 501 U.S. 1030, 115 L. Ed. 2d 888, 111 S. Ct. 2720 (1991).

27 Id. at 1043.

28 See, e.g., Davis v. City and County of San Francisco, 976 F.2d 1536, 1545 (9th Cir. 1992), reh’g denied, vacated in part on other

grounds, and remanded, 984 F.2d 345 (9th Cir. 1993) (affirming district court’s award of compensation to prevailing party in civil rights

action for attorneys’ time spent giving press conferences and performing other public relations work where such work was ″directly and

intimately related to the successful representation of [the] client.″); Gilbrook v. City of Westminster, 177 F.3d 839, 877 (9th Cir. 1999)

(affirming award to prevailing party in civil rights action for media and public relations activities and noting with approval the district

court’s finding that public relations work contributed directly and substantially to plaintiffs’ litigation goals because ″’local politics had

a potentially determinative influence on the outcome of settlement negotiations and the availability of certain remedies such as

reinstatement’″); Child v. Spillane, 866 F.2d 691, 698 (4th Cir. 1989) (Murnaghan, J., dissenting) (stating that public relations work

should be compensated as attorney’s fees in exceptional cases ″involving issues of such vital public concern that lawyers will find it

necessary to spend time responding to reporters’ questions″); United States v. Aisenberg, 247 F. Supp. 2d 1272, 1316 (M.D. Fla. 2003)

(awarding fees for public relations services and noting that it was appropriate for counsel for suspects in missing child investigation,

″consistent with the rules governing professional conduct, not only to procure the assistance of the public in locating the child but to

present a public response, to nurture the clients’ diminished public image, and thereby to reduce public pressure on the prosecution to

indict″) (emphasis added). But see, e.g., Rum Creek Coal Sales, Inc. v. Caperton, 31 F.3d 169, 176 (4th Cir. 1994) (affirming disallowance

of attorneys’ fees under 42 U.S.C. § 1988 for prevailing party for public relations efforts aimed ″not at achieving litigation goals, but

at minimizing the inevitable public relations damage to the company for suing the governor and the state police to alter the pro-labor

police enforcement policies.″); New York State Ass’n of Career Sch. v. State Educ. Dep’t, 762 F. Supp. 1124, 1127 (S.D.N.Y. 1991)

(″Plaintiffs’ direct effect on the legislative process . . . appears to have been the result of lobbying pressure, and thus an award of

attorney’s fees is clearly not warranted on that basis.″)

29 198 F.R.D. 53 (S.D.N.Y. 2000).

30 200 F.R.D. 213 (S.D.N.Y. 2001).

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the litigation, rendering legal advice, and ensuring that

media interest in the action would be dealt with responsibly.31 And they subsequently invoked the attorney-client

privilege and work product in an effort to block document

production by the public relations firm and one of its

employees. [**18]

Judge Rakoff rejected the attorney-client privilege claim on

three grounds. First, after reviewing the documents, he

concluded that few if any of them ″contain or reveal

confidential communications from the underlying client . . .

made for the purpose of obtaining legal advice.″ 32 Second,

the evidence showed that the public relations firm - which

had a preexisting relationship with the plaintiffs - was

″simply providing ordinary public relations advice so far as

the documents . . . in question [were] concerned.″ 33 Finally,

he found no justification for broadening the privilege to

cover functions not ″materially different from those that any

ordinary public relations firm would have performed if they

had been hired directly by [the plaintiffs] (as they also

were), instead of by [their] counsel.″ 34

[**19] In Copper Antitrust, a foreign company, Sumitomo,

that found itself in the midst of a high profile scandal

involving both regulatory and civil litigation aspects hired a

public relations firm because it lacked experience in dealing

with Western media. 35[**20] The public relations firm

acted as Sumitomo’s spokesperson when dealing with the

Western press and conferred frequently with the company’s

U.S. litigation counsel, preparing drafts of press releases

and other materials which incorporated the lawyers’ advice.36 When an adversary served a subpoena calling upon the

public relations firm to produce all documents relating to its

work for Sumitomo, Sumitomo resisted on attorney-client

privilege and work product grounds. 37 Judge Swain upheld

the attorney-client privilege claim, reasoning that the public

relations firm, in the circumstances of this case, was the

functional equivalent of an in-house department of Sumitomo

and thus part of the [*329] ″client.″ 38 The communications

between the firm and the lawyers, she held, therefore were

confidential attorney-client interactions.

Although Calvin Klein and Copper Antitrust both involved

situations somewhat analogous to this case, neither resolves

the attorney-client privilege problem here.Copper Antitrust

disposed of the privilege issue by concluding that the public

relations firm in substance was part of the client whereas

Target makes no similar assertion.Calvin Klein was

somewhat different from this case because the public

relations firm there had a relationship with the client that

antedated the litigation, the client was a corporation

addressing an array of constituencies including customers

and shareholders, and the public relations firm, in Judge

Rakoff’s words, was ″simply providing ordinary public

relations advice.″ 39 Perhaps even more significant, Calvin

Klein, no doubt in consequence of the arguments made in

that case, assumed an answer to the issue now before this

Court - whether a lawyer’s public advocacy on behalf of the

client is a professional legal service that warrants [**21]

extension of the privilege to confidential communications

between and among the client, the lawyer, and any public

relations consultant the lawyer may engage to advise on the

performance of that function. Answering that question

31 198 F.R.D. at 54.

32 Id.

33 Id.

34 Id. at 55.

35 200 F.R.D. at 215.

36 Id. at 215-16.

37 Id. at 216.

38 Id. at 219.

39 198 F.R.D. at 54.

The distinction should not be exaggerated. While Witness describes the nature of Firm’s engagement as attempting to influence opinion

purely for the impact of a more favorable environment on prosecutors and regulators, and the Court does not question her good faith,

it would be ndive to suppose that the effect of Firm’s services or, for that matter, Target’s motive in agreeing to pay for them, is so

unidimensional. Target is a prominent and, according to press reports, relatively young business person. Whatever the outcome of her

present legal exposures, she will have a social and, in all likelihood, business life in the future, both of which stand to be affected by

public perceptions of her and her conduct while at the Company. Hence, while the Court assumes that Target’s chief concern at the time

of these communications was to avoid or limit the scope of any indictment and other legal attacks upon her, Firm’s engagement, to the

extent it succeeds, is likely to have benefits for Target outside the litigation sphere.

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requires consideration of the policies that inform the

attorney-client privilege.

[**22] As the Supreme Court said in Upjohn Co. v. United

States, 40 the purpose of the privilege ″is to encourage full

and frank communication between attorneys and their

clients and thereby promote broader public interests in the

observance of law and administration of justice.″ 41 In this

case, construing the privilege to cover the communications

involving the public relations consultants would not

materially serve the purpose of promoting observance of

law for the simple reason that the current controversy

concerns the consequences of Target’s past conduct, not an

effort to conform her present and future [*330] actions to

the law’s requirements. If justification is to be found for

such a construction, it must lie in the proposition that

encouraging frank communication among client, lawyers,

and public relations consultants enhances the administration

of justice.

[**23] Target, like any investigatory target or criminal

defendant, is confronted with the broad power of the

government. Without suggesting any impropriety, the Court

is well aware that the media, prosecutors, and law

enforcement personnel in cases like this often engage in

activities that color public opinion, certainly to the detriment

of the subject’s general reputation but also, in the most

extreme cases, to the detriment of his or her ability to obtain

a fair trial. Moreover, it would be unreasonable to suppose

that no prosecutor ever is influenced by an assessment of

public opinion in deciding whether to bring criminal charges,

as opposed to declining prosecution or leaving matters to

civil enforcement proceedings, or in deciding what particular

offenses to charge, decisions often of great consequence in

this Sentencing Guidelines era. Thus, in some circumstances,

the advocacy of a client’s case in the public forum will be

important to the client’s ability to achieve a fair and just

result in pending or threatened litigation.

Nor may such advocacy prudently be conducted in disregard

of its potential legal ramifications. Questions such as

whether the client should speak to the media [**24] at all,

whether to do so directly or through representatives, whether

and to what extent to comment on specific allegations, and

a host of others can be decided without careful legal input

only at the client’s extreme peril. 42 Indeed, in at least one

case, the Securities and Exchange Commission (″SEC″)

charged that a company that was the subject of an

investigation violated the securities laws because its public

statements concerning the pending investigation were

misleading. 43

Finally, dealing with the media in a high profile case [**25]

probably is not a matter for amateurs. Target and her

lawyers cannot be faulted for concluding that professional

public relations advice was needed.

This Court is persuaded that the ability of lawyers to

perform some of their most fundamental client functions -

such as (a) advising the client of the legal risks of speaking

publicly and of the likely legal impact of possible alternative

expressions, (b) seeking to avoid or narrow charges brought

against the client, and (c) zealously seeking acquittal or

vindication - would be undermined seriously if lawyers

were not able to engage in frank discussions of facts and

strategies with the lawyers’ public relations consultants. For

example, lawyers may need skilled advice as to whether and

how possible statements to the press - ranging from ″no

comment″ to detailed factual presentations - likely would be

reported in order to advise a client as to whether the making

of particular statements would be in the client’s legal

interest. And there simply is no practical way for such

discussions to occur with the public relations consultants if

the lawyers were not able to inform the consultants of at

least some non-public facts, as well as the lawyers’ [**26]

defense strategies and tactics, free of the fear that the

consultants [*331] could be forced to disclose those

40 449 U.S. 383, 66 L. Ed. 2d 584, 101 S. Ct. 677 (1981).

41 Id. at 389.

This reflects a change in the generally accepted view of the privilege’s purpose. The privilege, at its inception, belonged to the attorney

and was grounded in humanistic considerations, e.g., that it enabled the attorney ″to comply with his code of honor and professional

ethics.″ EDWARD J. IMWINKELRIED, THE NEW WIGMORE: EVIDENTIARY PRIVILEGES § 2.3, at 108 (2002); 8 JOHN HENRY

WIGMORE, EVIDENCE § 2290 (McNaughton rev. 1961); see also In re Colton, 201 F. Supp. 13, 15 (S.D.N.Y. 1961), aff’d, 306 F.2d

633 (2d Cir. 1962), cert. denied, 371 U.S. 951, 9 L. Ed. 2d 499, 83 S. Ct. 505 (1963). Some have advocated a heavier reliance on such

considerations in determining the scope of the privilege today. See, e.g., IMWINKELRIED § 5.3.

42 See, e.g., Spin Control, 95 COLUM. L. REV. at 1828-42; Bennett, Press Advocacy and the High-Profile Client, 30 LOY. L.A. L.

REV. at 18-20; When Talk Is Not Cheap, 39 AM. CRIM. L. REV. at 203-14.

43 In re Incomnet, Inc., Exchange Act of 1934 Release No. 40281, 1998 SEC LEXIS 1614, at *12, *17 (July 30, 1998) (allegedly

misleading press statements ″essentially denied the Commission’s investigation″).

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discussions. In consequence, this Court holds that HN11 (1)

confidential communications (2) between lawyers and public

relations consultants (3) hired by the lawyers to assist them

in dealing with the media in cases such as this (4) that are

made for the purpose of giving or receiving advice (5)

directed at handling the client’s legal problems are protected

by the attorney-client privilege. Two points remain however.

As previously noted, Target would not have enjoyed any

privilege for her own communications with Firm if she had

hired Firm directly, even if her object in doing so had been

purely to affect her legal situation. There is a certain

artificiality, therefore, in saying that the privilege applies

where the lawyers do the hiring and the other requirements

alluded to above are satisfied. The justification, however, is

found in Judge Friendly’s opinion in Kovel: ″That is the

inevitable consequence of having to reconcile the absence

of a privilege for accountants and the effective operation of

the privilege of a client and lawyer under conditions where

the lawyer needs outside [**27] help.″ 44 Precisely the same

rationale applies here.

The second remaining issue is the question of Target’s

communications with the consultants, some of which took

place in the presence of the lawyers while others were

strictly between Target and Firm. The Court is of the view

that both types of communications are covered by the

privilege provided the communications were directed at

giving or obtaining legal advice. Indeed, in Kovel, the

Second Circuit recognized that it would be mere formalism

to extend the privilege in the former scenario but not the

latter, provided the purpose of the confidential

communication was to obtain legal advice:

HN12 ″If the lawyer has directed the client, either in

the specific case or generally, to tell his story in the first

instance to an accountant engaged by the lawyer, who

is then to interpret it so that the lawyer may better give

legal advice, communications by the client reasonably

related to that purpose ought fall within [**28] the

privilege; there can be no more virtue in requiring the

lawyer to sit by while the client pursues these possibly

tedious preliminary conversations with the accountant

than in insisting on the lawyer’s physical presence

while the client dictates a statement to the lawyer’s

secretary or is interviewed by a clerk not yet admitted

to practice. What is vital to the privilege is that the

communication be made in confidence for the purpose

of obtaining legal advice from the lawyer.″ 45

Witness testified before the grand jury that she recalled only

two conversations with Target alone and described their

general subject matter. 46 One conversation took place on a

day on which there had been substantial media coverage,

and Target asked Witness for her view of the coverage. 47

The other concerned a problem with a wire service story. 48

Furthermore, one of the documents the Court reviewed in

camera is an e-mail from Witness to Target alone concerning

a Wall [**29] Street Journal posting. 49

Neither of the conversations satisfies the standard set forth

above - that the communication be made for the purpose of

[*332] obtaining legal services. Target has not shown that

either conversation was at the behest of her lawyers or

directed at helping the lawyers formulate their strategy.

This Court previously held that a portion of the

Target-Witness e-mail is opinion work product. 50 The

balance, however, is not covered by the attorney-client

privilege because there has been no showing that it has a

nexus sufficiently close to the provision or receipt of legal

advice. Thus, neither these two conversations nor the

non-highlighted portion of the e-mail is protected by the

attorney-client privilege. On the other hand, Target’s

communications with Firm personnel alone, or with both

the lawyers and Firm personnel, are privileged to the extent

the conversations were related to [**30] the provision of

legal services. 51

44 Kovel, 296 F.2d at 922.

45 Kovel, 296 F.2d at 922.

46 Grand Jury Tr., May 5, 2003, at 30-31.

47 Id. at 31.

48 Id.

49 Target Priv. 0011.

50 Order, In re Grand Jury Subpoenas Dated March 24, 2003, May 1, 2003.

51 That Target’s spouse was present during some of these conversations does not destroy any applicable privilege. See, e.g., Murray

v. Board of Educ., 199 F.R.D. 154, 155 (S.D.N.Y. 2001) HN13 (″disclosure of communications protected by the attorney-client privilege

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In sum, then, the Court sustains the attorney-client privilege

objections to questions seeking the content of oral

communications among Firm, Target and her lawyers, or

any combination thereof, [**31] which satisfy the standard

enumerated above. It overrules the claim of privilege as to

the two conversations described in the preceding paragraph.

As all of the documents withheld from production by Firm

are communications among Target, her lawyers and Firm, or

some combination thereof, for the purpose of giving or

receiving legal advice, except for the previously mentioned

e-mail from Witness to Target, the Court sustains the

attorney-client privilege objections to production of those

documents.

B. Work Product

The Court recognizes the possibility that a reviewing court

may come to a different conclusion with respect to the

attorney-client privilege issue. Accordingly, it deals with the

work product objections to the extent they have not been

sustained in the May 1, 2003 order.

HN14 ″The work product doctrine, now codified in part in

Rule 26(b)(3) of the Federal Rules of Civil Procedure and

Rule 16(b)(2) of the Federal Rules of Criminal Procedure,

provides qualified protection for materials prepared by or at

the behest of counsel in anticipation of litigation or for

trial.″ 52 Both ″distinct from and broader than the

attorney-client privilege,″ 53 the work product doctrine

[**32] ″is intended to preserve a zone of privacy in

which a lawyer can prepare and develop legal theories and

strategy ’with an eye toward litigation,’ free from

unnecessary intrusion by his adversaries.″ 54

HN15 Work product falls generally into two categories,

which are afforded different [*333] levels of protection.

Work product consisting merely of materials prepared in

anticipation of litigation or for trial is discoverable ″only

upon a showing that the party seeking discovery has

substantial need of the materials . . . and that the party is

unable without undue hardship to obtain the substantial

equivalent [**33] of the materials by other means.″ 55

Opinion work product - materials that would reveal the

″mental impressions, conclusions, opinions, or legal theories

of an attorney or other representative of a party concerning

the litigation″56 - is discoverable, if at all, only upon a

significantly stronger showing. 57

In this case, Firm withheld nineteen documents from

production based in whole or in part on the contention that

they are protected work product. The government’s initial

response was to claim that the documents are [**34] not

work product because the government seeks no ″materials

that reveal Target’s attorneys’ mental impressions″ and,

should the Court conclude otherwise, that it is prepared to

make an ex parte showing of substantial need. 58 At oral

argument, moreover, the government disavowed any effort

to obtain production of documents containing attorney

opinion work product, stating that its interest is limited to

obtaining facts. 59 Accordingly, the Court sustained the

work product objection to such portions of the documents in

its May 1, 2003 order. There remains for consideration the

question whether the remaining portions of the documents

within the context of another privilege does not constitute waiver of the attorney-client privilege″); Solomon v. Scientific American, Inc.,

125 F.R.D. 34, 36 (S.D.N.Y. 1988) (no waiver of the attorney-client privilege when privileged information was disclosed to client’s wife);

see also 3 WEINSTEIN § 511.07 (″There is no waiver when the disclosure is made in another communication that is itself privileged.″)

52 In re Grand Jury Subpoenas Dated March 19, 2002 and August 2, 2002,318 F.3d 379, 383 (2d Cir. 2003).

53 United States v. Nobels, 422 U.S. 225, 238 n.11, 45 L. Ed. 2d 141, 95 S. Ct. 2160 (1975).

54 United States v. Adlman, 134 F.3d 1194, 1196 (2d Cir. 1998) (quoting Hickman v. Taylor, 329 U.S. 495, 511, 91 L. Ed. 451, 67 S.

Ct. 385 (1947)).

55 FED. R. CIV. P. 26(b)(3).

HN16 In criminal cases, the doctrine is even stricter, precluding discovery of documents made by a defendant’s attorney or the attorney’s

agents except with respect to ″scientific or medical reports.″ FED. R. CRIM. P. 16(b)(2).

56 56 FED. R. CIV. P. 26(b)(3).

57 See, e.g., Upjohn Co., 449 U.S. at 400-02; In re Grand Jury Proceedings, 219 F.3d 175, 190-91 (2d Cir. 2000); Adlman, 134 F.3d

at 1204.

58 Letter, Assistant United States Attorneys, Apr. 24, 2003, at 11-12; see also Letter, Assistant United States Attorneys, Apr. 29, 2003,

at 6-7.

59 Tr., Apr. 30, 2003, at 33.

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are protected and, if so, whether the government has made

or should be permitted to seek to make an ex parte showing

of substantial need. 60

[**35] There is no serious question that the remaining

portions of the documents withheld are work product, as the

government does not dispute that they were prepared in

anticipation of litigation. If doubt there were, it would have

been eliminated both by the Court’s in camera review,

which confirms that all of the nineteen documents in fact

were prepared in anticipation of litigation, and by Calvin

Klein and Copper Antitrust, both of which held that work

product protection covers similar materials in circumstances

which, for this purpose, were analogous. 61

The government implicitly concedes that it has not shown

substantial need for the non-opinion work product portions

of the documents, requesting instead that it be permitted to

attempt such a showing ex parte. 62 HN17 While ex parte

proceedings in most circumstances are strongly disfavored

by our system, the public interest in grand [**36] jury

secrecy in some cases may trump that important principle.

″Where an in camera submission is the only way [*334] to

resolve an issue without compromising a legitimate need to

preserve the secrecy of the grand jury, it is an appropriate

procedure.″ 63

This proposition creates something of a chicken-and-egg

problem. When the Court pressed the government to explain

how making a showing of substantial need in the presence

of its adversary would prejudice grand jury secrecy, the

government indicated that it feared that it could not do so

″in [**37] open court without letting the cat out of the bag,

so to speak″ and acknowledged that this is ″somewhat of a

Catch 22.″ 64

In the absence of any non-conclusory showing that an

explanation of the need for an ex parte submission itself

would compromise grand jury secrecy, there are two obvious

alternatives. One is simply to take the government at its

word and unconditionally permit an ex parte showing. The

other is to deny this aspect of the government’s motion. But

the choice before the Court need not be so stark. The middle

ground is to allow the government to make an ex parte

showing both of substantial need and of the necessity of

preserving the confidentiality of its submission in order to

protect grand jury secrecy. If the Court concludes that

disclosure of the submission would not compromise grand

jury secrecy, the government’s submission will be disclosed

to Target’s counsel, who will be permitted to respond before

the Court decides whether the government has [**38] shown

substantial need for the non-opinion work product. If it does

not so conclude, it will proceed directly to rule on the

sufficiency of the government’s showing of need.

III. Conclusion

For the foregoing reasons, the government’s motion is

granted to the following extent:

1. Witness shall testify further pursuant to the subpoena

served upon her and answer all questions relating to the two

conversations she recalls having had with Target alone and

such other questions as may be put to her in respect of

which there is no claim of privilege consistent with this

opinion.

2. The government, on or before May 21, 2003, may make

an ex parte submission as to both its claimed need for the

non-attorney opinion work product portions of the withheld

Firm documents and the necessity of preserving the

confidentiality of its submission in order to protect grand

jury secrecy. Any such submission shall be accompanied by

a memorandum of law, served on Target’s counsel,

addressing the question whether the Court should apply

Civil Rule 26(b)(3), Criminal Rule 16(b)(2), or some other

standard in ruling on the government’s motion. 65

[**39] SO ORDERED.

Dated: June 2, 2003

(unredacted version dated May 16, 2003)

60 The Court for convenience uses ″substantial need″ to refer to the entire requisite showing of substantial need and undue hardship.

61 Calvin Klein, 198 F.R.D. at 55-56; Copper Antitrust, 200 F.R.D. at 220-21.

62 Letter, Assistant United States Attorneys, Apr. 24, 2003, at 12.

63 In re John Doe, Inc., 13 F.3d 633, 636 (2d Cir. 1994); accord In re Marc Rich & Co., 707 F.2d 663, 670 (2d Cir.), cert. denied, 463

U.S. 1215, 77 L. Ed. 2d 1400, 103 S. Ct. 3555 (1983); In re Grand Jury Subpoena Dated August 9, 2000, 218 F. Supp. 2d 544, 551

(S.D.N.Y. 2002), aff’d, 318 F.3d 379 (2d Cir. 2003).

64 Tr., Apr. 30, 2003, at 35.

65 No such submission was made.

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Lewis A. Kaplan

United States District Judge

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