Ed. Note-today we are pleased to host a guest posting by our colleague James McGrath
At the Compliance Week 2010 Annual Conference one of the issues discussed by Assistant Attorney General, for the Criminal Division of the US Department of Justice, Lanny Breuer, was what the Department of Justice (DOJ) might consider as an “effective compliance and ethics program” under the Foreign Corrupt Practices Act (FCPA) if an FCPA violation occurs and a company’s compliance program comes under scrutiny from the Criminal Division of the DOJ. Breuer noted that the most effective type of compliance program is one that “prevents fraud and corruption in the first place but when such compliance program has not done so, there are defined policies in place to “quickly detect, fix and report the [FCPA] violations.”
Mr. Breuer’s call for defined compliance and ethics policies to “quickly detect, fix and report the [FCPA] violations” preceded his suggestion that “[a] corporation should seriously consider seeking the government’s input on the front end of its internal investigation.” From an investigations perspective, this “call first” game plan presents immediate business and legal concerns.
While the goal of both the government and corporate citizens under the USSG is self-policing, the pursuit of that objective has heretofore been initiated and controlled at the outset by companies themselves. For example, a hotline call comes in alleging misconduct: Company X evaluates the substance of the claim, and if deemed credible, initiates an internal investigation in line with a robust compliance and ethics program. If the assertion is serious and sensitive enough, Company X entrusts the inquiry to in-house or outside counsel. This is specifically done to protect the existence and yield of the investigation through application of the attorney-client privilege and work-product doctrine.
The foregoing protections are advisable and well within the long-protected rights of the corporation. See: Upjohn Co. v. United States, 449 U.S. 383 (1981). And they serve two vital purposes. After all, a poker player does not show his hand to his opponents until called and a moviegoer does not yell fire in a crowded theater without seeing flames.
The DOJ’s shift to a “call first” policy is seismic and defeats both of the foregoing tenets. If a company involves the government in the investigation process from the outset, its hand is tipped and, there can be no assertion of attorney-client privilege and the work-product doctrine protection in subsequent reviews or in litigation. In addition and once DOJ is involved, its knowledge of Company X’s alleged problem becomes part of the public domain and subject to disclosure to the investing public on a schedule of the government’s own making.
As a result, while following Mr. Breuer’s suggestion may be advisable for a given company in a given situation, the pitfalls of a blanketed adherence to this recommendation should be carefully considered by the business, compliance, and legal functions of every corporation.
© James McGrath
James McGrath is the managing partner of McGrath & Grace, Ltd., a law firm that specializes in conducting independent corporate internal investigations for companies across the United States and around the world.