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In light of the three-year anniversary of the Sarbanes-Oxley Act becoming law, and in the wake of several of the high-profile white-collar criminal prosecutions that followed, a little “dog days” reflection offers the opportunity to consider the current and future state of business crime prosecutions and regulatory enforcement. Three points are worth consideration by business counsel and management leaders. First, as U.S. Department of Justice officials have noted, enforcement authorities are increasingly focused on responding quickly to allegations of wrongdoing. The federal government’s Corporate Fraud Task Force, for example, aims to engage in what Department of Justice officials have termed “real-time enforcement.” Remarks of Christopher A. Wray, former assistant attorney general, Criminal Division, U.S. Department of Justice, to the American Bar Association White Collar Crime Luncheon (Washington, Feb. 25, 2005). Accelerated and relatively abbreviated investigations are sought. This puts additional pressure on companies that are subjects and targets in those cases to respond quickly, rapidly gathering the facts necessary to an assessment of liability and the formation of an effective strategy to get the company through what will always be a challenging process. Second, enforcement authorities examine in every case both affirmative steps taken immediately to cooperate and, conversely, any efforts to obstruct their investigations. Failure to cooperate can harden prosecutors’ attitudes significantly and render a bad situation even worse. Any defense strategy ought to account for this fact and recognize that prosecutors will respect a vigorous defense, but only when it is made in the context of, or after, cooperation in the fact-gathering stage. It is now very obvious that dilatory and delaying tactics, if coupled with a corrupt motive, in responding to an investigation may well lead to an obstruction investigation and a prosecution, previously relatively rare occurrences. Several factors determine degree of cooperation In light of the focus on corporations’ responses to government investigations, business managers and counsel should be aware of the various aspects of their conduct that prosecutors are likely to consider in examining the degree of their cooperation. Voluntary disclosure of wrongdoing is, of course, a significant factor in this regard, and, as discussed previously in this space, so may a corporation’s willingness to waive the attorney-client privilege. Other factors are likely to be considered as well, however, including whether the corporation is perceived to be protecting potentially culpable employees, and whether it has instructed employees to cooperate with an investigation. See Memorandum from Larry D. Thompson to Heads of Department Components and United States Attorneys re: Principles of Federal Prosecutions of Business Organizations, Jan. 20, 2003, at 8-9. Similarly, advancing attorney fees to an employee who is a subject of an investigation, retaining culpable employees without sanction or entering a joint defense agreement with an employee may be looked upon unfavorably by the government in its assessment of the corporation’s cooperation. Id. Thus, these steps, which often are both legitimate and undertaken reflexively, ought to be carefully considered. Naturally, what the government will consider to be true cooperation will vary with the circumstances. The government may even request that a corporation retain a potentially culpable individual during its investigation, for instance, out of concern that it will be more difficult to obtain information from that person if he or she is fired. It bears note that the two trends discussed thus far may be related. Speeding up the timetable for commencing enforcement action may contribute to the focus on obstruction and similar charges by encouraging authorities to consider the simplest charges they can readily prove. Of course, authorities may also be inclined to resort to simpler charges at the indictment and prosecution stage in light of the complex fact patterns that often underlie the kind of large-scale fraud or other corporate wrongdoing that draws prosecutorial attention in the first place. Lessons learned from the ‘Andersen’ decision The U.S. Supreme Court’s decision in the Arthur Andersen case also deserves scrutiny in this context, as it suggests that relying on obstruction of justice and similar charges may not in fact provide a simple path to securing business crime convictions. Arthur Andersen was tried and convicted of obstruction of justice on the ground that several of its managers had instructed employees to destroy documents relevant to the government’s investigation of Enron. Arthur Andersen LLP v. U.S., 125 S. Ct. 2129 (2005). The Supreme Court, however, reversed the obstruction conviction. The court’s decision in Andersen hinged on the district court’s jury instructions. During the discussion of how the word “corruptly” would be defined for the jury, the government convinced the district court to alter a model jury instruction, which defined the term as “knowingly and dishonestly, with the specific intent to undermine the integrity” of a proceeding. Id. at 2136. At the government’s request, the court eliminated the modifier “dishonestly” and added the word “impede” to the model instruction’s formulation “subvert or undermine.” Id. In acceding to the government’s requests, the Supreme Court held, the district court eliminated much of the meaning from the word “corruptly,” which, as the Supreme Court noted, is “normally associated with wrongful, immoral, depraved, or evil.” Id. Although Andersen’s managers simply advised employees to follow the company’s document-retention policy, which in some cases called for destruction of documents, the district court’s instructions to the jury advised it that it could find Andersen guilty “even if [Andersen] honestly and sincerely believed that its conduct was lawful.” Id. GCs and business managers will now play a crucial role The result in Andersen suggests consideration of a third point of analysis regarding the present and future of business-crime prosecution. The future is really as much in the hands of general counsel and business managers as it is in the hands of prosecutors. The new paradigm of prosecution is now writ plain. Notice of the “new rules” has clearly been given, especially as to the government’s expectations in responding to an investigation or self-discovery of apparent violations. Consider the prosecution roughly two years ago of several executives of the software firm Computer Associates International Inc. The government has trumpeted the Computer Associates convictions as an example of its determination to pursue obstructive activity. See Remarks of Christopher A. Wray, supra. In that case, the company retained counsel to perform an internal investigation after it was notified that the government had opened an investigation into the company’s accounting practices. In meetings with attorneys from the company’s retained law firm, the executives denied using improper accounting techniques. The government’s investigation, however, suggested that the executives had knowingly engaged in such practices, and had provided false justifications and explanations of incriminating evidence to the investigating law firm. The executives were indicted for, inter alia, obstruction of justice based in part on the theory that they provided their false and misleading responses knowing that the investigating firm would in turn convey them to enforcement authorities, including the U.S. Attorney’s Office and the Securities and Exchange Commission. Several of the executives pleaded guilty to the obstruction charges, among others. There are now strong incentives for self-reporting While self-reporting of violations and cooperation with any subsequent investigation will not be the preferable course of action for a corporation in all circumstances, the government’s current enforcement posture plainly attempts to provide strong incentives in that direction. Although Computer Associates itself was eventually able to obtain a deferred prosecution agreement (in addition to payment of a large fine), the case, among others, highlights the possibility that authorities will discover wrongdoing on their own, even absent substantial cooperation from a corporate defendant. The case likewise demonstrates that the keys to effective cooperation and the opportunity for negotiation with enforcement authorities that it may bring, will often lie ultimately with business managers and general counsel, who can help counsel craft a credible response to allegations of wrongdoing. Several years ago, well before Enron, it was predicted in this space that financial-reporting fraud was a coming wave of corporate crime prosecutions. It seems equally clear today that a maladroit, ineffective and insincere response to either a corporation’s obligations to comply with the law or its opportunity to mitigate liability exposure through internal investigation, disclosure or cooperation will provide prosecutors with fodder for enforcement actions and the basis for harsh outcomes that might otherwise be avoided. Where a company ends up has as much to do with how it manages the response to a business-crime challenge as it does with the attitude and policies of prosecutors. George J. Terwilliger III is a partner in the Washington office of White & Case. He was the deputy attorney general of the United States from 1991 to 1992 and served for 15 years as a federal prosecutor. John C. Wells, an associate at the firm, assisted in the preparation of this article.

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