Outside lawyers and firms representing companies play a central role in current white-collar government investigations. Typically, they are called on to demonstrate the client’s full and unfailing commitment to helping prosecute wrongdoers, including, often, its own employees. This frequently involves, among other things, gathering, analyzing, and producing voluminous documentary material, conducting dozens (perhaps hundreds) of interviews of relevant current and former employee witnesses, and ultimately providing their factual and legal conclusions to the government. For its part, the government regularly seeks to take full advantage of these privately funded inquiries. This article highlights some of the lurking pitfalls when the relationship between the government and the private law firms on which the government relies becomes a little too close.
The size and scope of resources, and the access to information that private companies can provide often outpace those available to the government. And government prosecutors are trained to “leverage” those private resources to bring cases that might not otherwise be possible. Companies “voluntarily” participate in this symbiotic system because the benefits have become enshrined in written policy and routine government practice: The Department of Justice’s “Justice Manual” requires corporations to “identify all individuals substantially involved in or responsible for” and “all relevant facts relating to” misconduct in order to receive any cooperation credit in relation to that conduct. U.S. Dep’t of Justice, Justice Manual 9-28.700 (2018). Similarly, corporations that self-report violations of the Foreign Corrupt Practices Act (FCPA) and “fully cooperate” can obtain up to a 50 percent fine reduction and avoid imposition of a monitor. Id. at 9-47.120. The DOJ recently announced, moreover, that it would extend the same policy beyond the FCPA. See Jody Godoy, “DOJ Expands Leniency Beyond FCPA, Lets Barclays Off,” Law360 (March 1, 2018).
But in the government’s eagerness to obtain these benefits, and company counsel’s desire to please the government, their coordination can flirt with the line demarcating independence and constructive deputization and, once exposed, may create significant problems for resulting prosecutions.
One such example arose recently in United States v. Connolly, No. 16-cr-00370 (S.D.N.Y.), where a former Deutsche Bank trader, charged with criminally collusive manipulation of the bank’s LIBOR submissions, argued that statements he made to the bank’s outside counsel during the course of a private internal investigation should be excluded as improperly “compelled,” in violation of Garrity v. New Jersey, 385 U.S. 493 (1967). (Garrity held that forcing government employees to testify or suffer the penalty of losing their job violates the Fifth Amendment.) The defendant in Connolly argued that Garrity’s exclusionary rule was available to him (despite his private sector job) because Deutsche Bank, which threatened him with firing, was essentially acting on the government’s behalf when it questioned him.
The Connolly defendant argued that the government had “federalized corporate internal investigations” by directing the bank’s outside counsel to hand over compelled testimony of employees, while threatening to indict the bank. Defendant Gavin Campbell Black’s Individual Motions In Limine at 1, United States v. Connolly, No. 16-cr-00370 (S.D.N.Y. April 23, 2018). The government thus bore “constitutional responsibility” for the compulsion of the defendant’s statement. Id. at 8. He pointed to Deutsche Bank’s counsel’s “frequent contact with the Government concerning the status of the internal investigation and … regular direction from the Government,” and asserted that the bank’s outside counsel effectively became an arm of the government. Id. at 2.
While the government pointed to, among other things, the absence of proof that it pressured Deutsche into firing uncooperative employees (see United States’ Response to Defendant Gavin Campbell Black’s Individual Motions In Limine at 4-7, United States v. Connolly, No. 16-cr-00370 (S.D.N.Y. May 7, 2018)), Southern District Chief Judge Colleen McMahon nevertheless paused the trial to hold an evidentiary hearing on the Garrity issue, taking testimony from the outside counsel, a partner at Paul, Weiss, Rifkind, Wharton & Garrison who had led the bank’s investigation. In the court’s view, the factual inquiry turned on whether the bank “interviewed the defendant in pursuit of its own duties or interests,” and whether any penalty the bank might impose “for refusing to sit for the interview [would be] meted out, whether by policy or discretionary act, without government pressure.” Decision on Defendants’ Motions In Limine, Black’s Motions In Limine, and Connolly’s Motions In Limine at 21-22, United States v. Connolly, No. 16-cr-00370 (S.D.N.Y. May 15, 2018).
In his testimony, the Paul, Weiss attorney conceded that the defendant had faced the choice “to cooperate or find new employment, basically.” Trial Transcript at 1527, United States v. Connolly, No. 16-cr-00370 (S.D.N.Y. Oct. 2, 2018) (Ricciardi Tr.). In addition, the attorney admitted that the bank initiated its investigation into alleged collusion in response to a letter from the Commodities Futures Trading Commission (CFTC) “request[ing]” that the bank “voluntarily conduct by outside counsel a full review … and report on an ongoing basis the results of that review” to the CFTC. Id. at 1532. Further, documents demonstrated that the CFTC and the bank subsequently agreed on specific interviews and investigative steps that the outside counsel would take, subject to further direction from the CFTC. Trial Transcript at 2288-96, United States v. Connolly, No. 16-cr-00370 (S.D.N.Y. Oct. 5, 2018) (Garrity Hearing Tr.).
Judge McMahon observed that the hearing evidence “creates a problem for the government on the state actor question.” Garrity Hearing Tr. at 2360. “The government,” she said, “can’t get around Kastigar by outsourcing its investigative responsibilities to the target, especially when … government compulsion can be … [de jure] coercion or de facto coercion.” Id. at 2283. In Kastigar v. United States, 406 U.S. 411, 460 (1972), the Supreme Court held that the government may not use evidence derived from compelled testimony and that the government has the burden of proof in a Kastigar hearing to show it obtained the evidence through independent means. In the court’s view, the letter from the CFTC “would fall within the second of those two, because I don’t believe that the word ‘voluntary’ means voluntary; I don’t believe the word ‘requests’ means requests.” Id. at 2284. She noted that the outside counsel agreed in his testimony that, while “there are choices in terms of your level of cooperation … , if a company wasn’t cooperating or a bank wasn’t cooperating, [the government] can bring massive resources to bear.” Garrity Hearing Tr. at 2284; Ricciardi Tr. at 1499, 1507. That the government gave Deutsche Bank’s outside counsel “marching orders” throughout its investigation and then conducted little investigation on its own were also key factors for the court: “[I]f what the government is telling me is that nobody from the government ever talked to anybody, you just took Paul Weiss’s handiwork and built a case … , I know how this is going to come out.” Garrity Hearing Tr. at 2360, 2301.
Ultimately, Judge McMahon gave the government a choice of swiftly presenting further evidence to rebut the claim that it had simply deputized a law firm or of running the serious risk that the court would not allow the defendant’s statements to be presented to the jury. Id. at 2367-68. The government ultimately dropped its plan to offer into evidence the defendant’s statements made during Paul, Weiss’ investigation.
The repercussions of such a close relationship between the government and a law firm can bleed into other areas as well. During the arguments in Connolly, one of the defense attorneys told the court: “It goes beyond Garrity, Your Honor. This is a Brady issue … .” Id. at 2332. Picking up on this theme, Judge McMahon noted, “The issue for me, frankly … is for the first two years of this investigation, was the FBI function being performed by Paul, Weiss, Rifkind, Wharton & Garrison?” Id. at 2334. Thus, although the court never had to rule on the precise issue, the question was at least raised in Connolly as to whether the government’s Brady obligations could possibly extend to the files of the outside counsel who led the corporate investigation.
Beyond Connolly, other cases also illustrate that problems can ensue when government investigators become too closely involved in outside counsel’s investigative tactics, or provide too many marching orders. In United States v. Stein, 440 F. Supp. 2d 315 (S.D.N.Y. 2006), the court found a Garrity violation where the government persuaded the defendant’s employer, KPMG, to decline to pay his legal expenses and to terminate employees who were uncooperative with the government.
Government prosecutors will undoubtedly continue to seek robust cooperation from outside corporate counsel in investigations. And in their understandable desire to obtain the full benefits of cooperation, company counsel will continue to be sharply attuned to the requests and preferences of the government. While it remains unclear whether these cases suggest that courts are beginning to pay closer attention to establishing boundary markers at the border between acceptable coordination and improper deputization, counsel for companies and the government should take note that overly directive communications on private firm investigation tactics and strategy, or other indicia of overreliance by the government on private law firm resources, could undermine or derail otherwise viable investigations.
Jason P.W. Halperin and David Siegal are members of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo in the white-collar defense and government investigations group. Both are former federal prosecutors from the U.S. Attorney’s Office for the Southern District of New York. Associate Peter C. Mulcahy assisted in the preparation of this article.