Federal Defense

Fundamentals of Government Investigations and Enforcements: Companies

How Federal Investigations of Corporations Begin

Most federal corporations are prosecuted by a United States Attorney’s office or a component of the Department of Justice out of Washington, D.C. 

These prosecutors work cases alongside federal investigative agencies, such as the FBI. 

An indication that an investigation is underway can show up in a lot of ways.

• It can be as informal as an investigator or prosecutor calling a company or company employee or making a visit to the office.

• Or it could come in the form of a more formal process, such as a grand jury subpoena demanding documentation or testimony before the grand jury.

• A company employee could be arrested, a search warrant could be executed, or the company itself may detect misconduct and report that information to federal authorities.

Seeking Counsel Once an Investigation is Detected

Once a company has become aware of a federal investigation, it should consider hiring outside counsel (discussed further here). 

A good option is for the company to contact investigators or prosecutors through counsel once they are aware of the investigation. 

Counsel can try to clarify what the investigators are seeking and importantly, understand what the status is of the company relative to the investigation and what investigators see the company’s role as in the investigation. 

Investigators and prosecutors tend to categorize individuals and companies involved in an investigation as either

Determining What the Company’s Role is in the Investigation

Generally speaking, individual roles in an investigation fall into one of three categories.

• Witness - a “witness” is not under suspicion but instead may have information about a crime or case.

• Subject - a “subject” of an investigation has conduct that is within the scope of the investigation - so not a target, but someone who is being investigated and could become a target.

• Target - a “target” is generally linked to the commission of a crime by substantial evidence and a putative defendant.

A role in a case can change quickly, so there is little comfort in being a subject, as this role can quickly develop into being a target and eventually result in charges.

Being Proactive in Response to a Corporate Investigation

Once a company realizes they are being federally investigated, counsel needs to do all they can to understand the conduct and events at issue. 

This can include:

• reviewing documents

• electronic records such as email and electronic documents

• and interviewing employees

Ideally, this happens before federal investigators seek the same materials and information. This will allow the company to shut down any wrongdoing, understand the risks it is facing, and consider how to best move forward with federal investigators. 

The government will likely be seeking similar information, so being in a position to provide this information to investigators before they ask for it, or locate it themselves, can go a long way to earning important cooperation credit for a company. 

This type of cooperation should also include regular updates and follow-up with investigators as counsel seeks to continue any internal investigation of wrongdoing. 

Periodic presentations to prosecutors or investigators of what the company’s internal investigation has revealed is also a good way to show good faith and earn cooperation credit. 

Apart from cooperating with investigators, a company should fix any problems it identifies as leading to any type of misconduct. 

This can also be a factor in earning cooperation credit or avoiding criminal charges for the company.

Working With the Government

Once the government has gathered all of the information it needs, it will resolve its investigation. 

Counsel should be a part of this decision-making process and seek to make a presentation, or several, to the prosecutors in an effort to demonstrate that there is no need to proceed against a target company or if there is significant wrongdoing, to propose a resolution that does not involve criminal charges. 

Counsel’s credibility at this stage is critical. 

There are several options available to prosecutors at this stage. They can:

• Decline prosecution

• Enter into a non-prosecution agreement or deferred prosecution agreement

• Pursue criminal charges through a federal indictment

Factors that Go into a Decision to Prosecute or not Prosecute a Corporation

It is well settled that corporations are responsible for the acts of their employees who are acting within the scope of their employment. 

As a result, companies can readily be charged with and held responsible for the misconduct of their employees. This gives prosecutors wide latitude in deciding who to charge. 

However, the Department of Justice gives prosecutors guidance by way of the Principles of Federal Prosecution of Business Organizations that sets forth factors for prosecutors to take into account when making decisions about criminally charging companies. 

These are updated from time to time and are certainly non-exhaustive and only guidance for prosecutors. 

Just the same, they give companies a roadmap to what they can and should be doing when faced with a federal investigation or federal charge. 

Generally, when it comes to deciding whether to charge a corporation criminally, prosecutors use the same approach they would if they were considering charges against an individual. 

This always starts with an evaluation of the strength of the evidence in the case, the likelihood of conviction, the consequence of conviction, and a consideration of any adequate noncriminal approaches. 

Unlike individuals, however, corporations have a list of ten factors that they are to consider under the Principles when determining whether to bring charges or when negotiating an agreement:

1. The nature and seriousness of the offense, including the risk of harm to the public, and applicable policies and priorities, if any, governing the prosecution of corporations for particular categories of crime

2. The pervasiveness of wrongdoing within the corporation, including the complicity in, or the condemning of, the wrongdoing by corporate management

3. The corporation’s history of similar misconduct, including prior criminal, civil and regulatory enforcement actions against it

4. The corporation’s willingness to cooperate, including as to potential wrongdoing by its agents

5. The adequacy and effectiveness of the corporation’s compliance program at the time of the offense, as well as at the time of a charging decision

6. The corporation’s timely and voluntary disclosure of wrongdoing

7. The corporation’s remedial actions, including, but not limited to, any efforts to implement an adequate and effective corporate compliance program or to improve an existing one, to replace responsible management, to discipline or terminate wrongdoers, or to pay restitution

8. Collateral consequences, including whether there is disproportionate harm to shareholders, pension holders, employees, and others not proven personally culpable, as well as the impact on the public arising from the prosecution

9. The adequacy of remedies such as civil or regulatory enforcement actions, including remedies resulting from the corporation’s cooperation with relevant government agencies; and

10. The adequacy of the prosecution of individuals responsible for the corporation’s malfeasance.

JM 9-28.300 (2018). 

This list is flexible and certainly will be considered along with the particular facts of a case, and any one factor, particularly the seriousness of the offense, may have far more weight than others for any given case or for any given prosecutor. 

However, applying these factors appropriately to a case can go a long way in determining a resolution.

The Value of Self-Reporting

Above and beyond the factors set forth in the principles above, DOJ policy encourages self-reporting and cooperation. 

For instance, there is a presumption that DOJ will decline to prosecute a company that voluntarily discloses wrongdoing, fully cooperates in the government’s investigation, and engages in swift and comprehensive remediation. 

There are other benefits to companies who may not fully qualify for this presumption as well, such as a reduction of penalties. 

This concrete statement of value for cooperation makes it imperative that corporations being federally investigated get involved early and proactively in deciding whether to cooperate with an investigation.

Dealing With Prosecutors

Whether it is part of an effort to cooperate early in a case or an attempt to present an optimal outcome to an investigation, it is important for counsel representing a company (or individual, for that matter) to have a consistent dialogue with prosecutors. 

This can clarify the company’s role in a case, guide disclosures the company wants to make, and give the company valuable time to react to investigation developments. 

In most cases, prosecutors welcome presentations from counsel to assist them in making investigative and prosecutive decisions. It is critical to shaping the course of the investigation and ultimate resolution that these communications and presentations be handled effectively. 

A few points need to be considered in this regard. 

• Your attorney needs to be familiar with the prosecutor

• Federal prosecutors want to ensure that justice is done in each case. However, each prosecutor is different, and each United States Attorney’s office is different. 

Knowing how federal prosecutors in South Carolina handle cases, as well as prosecutors in each of the offices (Columbia, Charleston, Greenville and Florence) is important. 

Each office has its own culture, and each prosecutor and the investigative agent has its own individual approach to cases. 

It is critical that counsel be familiar not only with the culture of each office in the District of South Carolina, but the specific federal prosecutor, and their supervisors, on a specific case, and what process they use in discussing cases with counsel.

What outcomes are available to a corporation.

A main purpose of engaging in a dialogue with investigative agents and prosecutors, as well as making presentations to them, is to reach a fair resolution in a case that fully takes into account information about a company, and alleged wrongdoing, and the company’s efforts to independently cooperate and address this potential wrongdoing without investigators or prosecutors’ intervention. 

The type of resolution to an investigation should be the result of these discussions and efforts. 

Ultimately, prosecutors have a wide range of options in deciding how to conclude an investigation - from declining to prosecute to federally indicting a company criminally, with several options between those extremes.

1. Declining to Charge

   In some instances (and the ideal instance for a company) the ongoing dialogue between counsel, investigators and prosecutors can lead to the determination that there is no evidence of wrongdoing by the company or that any prosecution would not be appropriate. It is critical to this decision that counsel communicate early with investigators and prosecutors and that counsel be thorough in uncovering information to share. It is truly unfortunate when a company provides information to prosecutors after the company is criminally charged that would have prevented the charges from ever being filed had it been provided early on and before the charging decision was made.

2. Non-Prosecution Agreements (NPA) and Deferred Prosecution Agreements (DPA)

   Although less preferable for a company than a declination, non-prosecution agreements and deferred prosecution agreements are common where wrongdoing is discovered and they occupy an important middle ground between declining prosecution and a criminal conviction.

   Under both NPA and DPAs a company agrees to do certain things - such as prevent and report and future violations of law, implement certain compliance measures, and cooperate with the investigation of others at the company or elsewhere. In exchange, the government agrees not to seek a conviction.

   Under a DPA, prosecutors file a criminal information, which is a criminal charge but one that has not been indicted by a grand jury, and a federal judge approves of the agreement. The agreement will contain an expiration date, and the charge will be dismissed if the corporation complies with the requirements contained in the agreement.

   An NPA will have a similar expiration date, however no charges are filed in an NPA. Instead, the agreement is maintained by the parties with the understanding that the parties will be released from the terms of the agreement on the understanding that the government will file charges if the company does not comply with the terms of the agreement.

   NPAs and DPAs often contain agreed upon statements of fact describing unlawful conduct and admissions to wrongdoing. It is important for counsel to be aware of the collateral impact these admissions could have on shareholder derivative suits, civil suits or public perception.

3. Criminal Charges

   In some instances, a prosecutor will decide to criminally charge a company for wrongdoing uncovered in an investigation. It is rare for a company to take a case to trial. Though it happens in the District of South Carolina - see the case studies here and here. For companies, guilty pleas often offer significant benefits, and as a result are a common form of resolution. Federal guilty pleas are almost always entered by written agreement, and the plea agreement can have a host of conditions included. Fine amounts, restitution amounts and compliance measures to include judicial oversight or the use of a corporate monitor can be included. There can also be collateral consequences to a corporate guilty plea and conviction. Debarment from contracting with federal agencies, limitations on the type of work or transactions a company can conduct, harm to innocent third parties such as employees or contractors, and significant harm to the companies brand and reputation are all at stake. Although none of these consequences are ideal for a company, counsel can negotiate the terms of any plea agreement to minimize, and in some instances remove, some of them, ideally tailoring the plea agreement to have minimal impact on the company and others collaterally affected by the conviction.

   Skillful and experienced counsel is necessary to getting the right result and avoiding the impact a federal investigation can have on a company. However, when the necessary effort is appropriately applied, there can be significant benefit to a company under investigation.