Your company is the subject of a federal criminal investigation, civil agency enforcement proceedings and private civil litigation, all arising out of the same alleged conduct. Assuming that the company does not intend to contest the government actions at least, how do you resolve these matters as effectively and efficiently as possible with minimal damage to the organization? There are numerous considerations that must be made when looking toward resolution; some of the more significant and frequently-encountered considerations vis-à-vis other proceedings are discussed herein.

Considerations for resolving a criminal investigation

A coordinated resolution will often benefit a company in terms of the fines and penalties that it is required to pay for conduct in violation of criminal or civil laws or regulations. Individual criminal and civil government agencies are not formally required to take the penalties and fines of other agencies into account. In fact, under the U.S. Federal Sentencing Guidelines, criminal fines and penalties are prescribed by formula and are dependent on the determination of the loss amount or other prescribed measurements of the enormity of the crime.

However, the Sentencing Guidelines permit the reduction of a penalty based on the organization’s inability to pay and the U.S. Department of Justice’s Principles of Federal Prosecution of Business Organizations identifies the following as considerations relevant to the determination of whether and how to prosecute an organization:

  • The adequacy of alternative remedies, including enforcement by other government agencies,
  • Collateral consequences to the organization that will follow from the imposition of a sentence, such as the ability of the organization to continue as a going concern.

Likewise, regulatory agencies have flexibility in the fines and penalties that they seek and generally will take a company’s other enforcement obligations into account when determining its own position on remedies.

Conversely, resolving a criminal case without consideration for other agency proceedings may ultimately result in higher penalties and fines than if the proceedings are resolved in coordination with each other and a multiple-hit to the company as each agency exacts its full enforcement authority without regard to the enforcement efforts of the other agencies. Also, resolving a criminal case before civil proceedings may result in agreed factual findings that can be used against the company in both regulatory proceedings and private litigation. The criminal findings will be considered conclusively resolved due to the higher burden of proof in a criminal case, and are difficult to collaterally challenge in civil proceedings. The company may not have a choice as to which matter is resolved first, but it is generally preferable to resolve a criminal case before regulatory or civil proceedings.

An additional consideration relating to a criminal investigation is to be conscientious of with whom the company shares information and documents. Often, agencies share gathered information and documents between themselves and with foreign criminal enforcement authorities—either formally or informally—within the limits of the grand jury secrecy requirements of Federal Rule of Criminal Procedure 6(e). Further, voluntarily sharing information or documents with a government agency can waive otherwise applicable privileges in parallel proceedings, as most federal courts have held that even non-waiver letters are ineffective to prevent waiver, and it is Department of Justice policy not to sign onto or otherwise agree to such letters.

Company counsel also should be aware in this time of increasingly globalized operations and emphasis on international enforcement that pursuant to some countries’ data privacy laws, a company may not be able to voluntarily provide information or documents located in those countries in the absence of a court order without subjecting itself to civil or criminal sanctions therein. If a company can and does provide materials located in one of these countries to U.S. authorities, those materials may be subject to an argument that they are discoverable in civil litigation.

Considerations for resolving civil agency enforcement proceedings

In addition to reducing the chance of a multiple-hit to the company on penalties, the coordinated resolution of criminal and civil proceedings can, in some cases, result in a formal offset of monies forfeited in the criminal case against any ordered or agreed forfeiture in a civil enforcement proceeding. This is pursuant to the theory that forfeiture is the defendant’s surrender of illicit proceeds: Once the proceeds are surrendered, then forfeiture is complete. The Securities and Exchange Commission will generally consider such a request, and other agencies may do so as well. However, any such request must be made in advance of settlement because an offset is not automatic and agency approval is required.

Companies also should be aware that in resolving a civil agency enforcement proceeding, any admissions or agreed factual findings made in the case can be used in private civil litigation against the company. Although the same is not true with respect to criminal proceedings, given the higher proof standard in a criminal case, practically speaking, it will be difficult to challenge civilly-agreed facts in a criminal case.

Considerations for resolving private civil litigation

There are issues surrounding the resolution of private civil litigation for both the company and investigating criminal and regulatory authorities. From the perspective of the company, any factual matter or materials discovered in the civil litigation could be brought within the purview of the criminal investigation via statements the company makes or materials it produces can be obtained by government authorities and used against the company. Thus, ensuring that government proceedings are resolved in advance of the conduct of private civil litigation is important to protect the company from suffering increased government scrutiny from often wide-ranging discovery in the private litigation resulting from a more liberal discovery standard in that context than in a criminal investigation.

Moreover, adverse inferences can be drawn in civil proceedings from the invocation of an individual’s Fifth Amendment rights against self-incrimination in criminal proceedings, and permitting civil litigation to proceed during the pendency of criminal proceedings may undermine the individual’s constitutional rights. Although an organizational entity does not have its own Fifth Amendment right, since companies operate through the actions of its managers and employees, the invocation of such right by an individual affiliated with the company can affect a prosecutor’s perception of the company and its conduct.

From the perspective of the government, and particularly in criminal cases, private civil litigation interests can interfere in government investigations, settlement discussions and proceedings. Therefore, government enforcement authorities will often seek a stay of private civil litigation pending the conclusion of the government-initiated proceedings asserting that the government’s criminal enforcement interests outweigh other interests. Government investigators, and particularly criminal investigators, want the first opportunity to question a witness without the influence of outside factors that may inform or alter the witness’s statements and without the risk that physical or documentary evidence has been tampered with or destroyed as a result of the notice that public civil proceedings may give.

That being said, a criminal enforcement agency will not always seek a stay, particularly of civil agency proceedings. It is common for the government to proceed with parallel criminal and civil investigations and utilize the information-sharing advantages discussed above.

Guiding principle for company counsel

Where a company finds itself in the cross-hairs of government criminal and regulatory investigations or proceedings and private civil litigation, it is critical to be mindful of all of the varied goals of those proceedings and the procedures that can be used to identify and collect evidence in determining how to best protect the company’s interests. In the vast majority of cases, it will benefit the company to reach a coordinated resolution with the involved government parties and in advance of resolution with any private litigants. Moreover, because the interests of the government are often best served by staying private civil litigation (and sometimes regulatory agency proceedings), where a criminal enforcement authority is involved, the criminal agency may be persuaded to exercise its substantial interests to seek a continuance of civil proceedings, thereby assisting company counsel to adjust the timing of proceedings that otherwise may move on incongruent schedules.