Must an investigator warn an employee that concealing information from company lawyers conducting an internal FCPA investigation could be a federal crime? Even if the company attorneys handling the investigation provided the now standard corporate attorney Upjohn warnings, does a company attorney asking questions morph into a de facto federal agent during an internal company investigation regarding alleged FCPA violations and is the attorney thereby required to provide a Miranda warning to employees during a FCPA investigation?
In a recently released paper entitled “Navigating Potential Pitfalls in Conducting Internal Investigations: Upjohn Warnings, “Corporate Miranda,” and Beyond” Craig Margolis and Lindsey Vaala, of the law firm Vinson & Elkins, explored the pitfalls faced by counsel, both in-house and outside investigative, and corporations when an employee admits to wrong doing during an internal investigation, where such conduct is reported to the US Government and the employee is thereafter prosecuted criminally under a law such as the FCPA. Margolis and Vaala also reviewed the case law regarding the Upjohn warnings which should be given to employees during an internal FCPA investigation.
Employees who are subject to being interviewed or otherwise required to cooperate in an internal investigation may find themselves on the sharp horns of a dilemma requiring either (1) cooperating with the internal investigation or (2) losing their jobs for failure to cooperate by providing documents, testimony or other evidence. Many US businesses mandate full employee cooperation with internal investigations or those handled by outside counsel on behalf of a corporation. These requirements can exert a coercive force, “often inducing employees to act contrary to their personal legal interests in favor of candidly disclosing wrongdoing to corporate counsel.” Moreover, such a corporate policy may permit a company to claim to the US government a spirit of cooperation in the hopes of avoiding prosecution in “addition to increasing the chances of earning meaningful credit under the US Sentencing Guidelines or the FCPA Pilot Program.
Where the US Government compels such testimony, through the mechanism of inducing a corporation to coerce its employees into cooperating with an internal investigation, by threatening job loss or other economic penalty, the in-house counsel’s actions may raise Fifth Amendment due process and voluntariness concerns because the underlying compulsion was brought on by a state actor, namely the US Government. Margolis and Vaala note that by utilizing corporate counsel and pressuring corporations to cooperate, the US Government is sometimes able to achieve indirectly what it would not be able to achieve on its own – inducing employees to waive their Fifth Amendment right against self-incrimination and minimizing the effectiveness of defense counsel’s assistance.
So what are the pitfalls if private counsel compels such testimony and it is used against an employee in a criminal proceeding under the FCPA? Margolis and Vaala point out that the investigative counsel, whether corporate or outside counsel, could face state bar disciplinary proceedings. A corporation could face disqualification of its counsel and the disqualified counsel’s investigative results. For all of these reasons, we feel that the FCPA Blog summed it up best when it noted, “the moment a company launches an internal investigation, its key employees — whether they’re scheduled for an interview or not — should be warned about the “federal” consequences of destroying or hiding evidence. With up to 20 years in jail at stake, that seems like a small thing to do for the people in the company.”
Let’s keep on skipping down the lane and see where we go. What if the company gets its investigation wrong and wrongfully identifies an employee? At least in a few states, a wronged employee can sue for defamation. Yet not in Texas and a recent Texas civil case demonstrates why companies and internal investigators need to be aware of local laws, regulations and requirements.
The Texas Supreme Court in Shell Oil Co. v. Writt, held that an internal investigation report Shell provided to the U.S. Department of Justice about potential FCPA violations is “absolutely privileged” in a defamation proceeding and cannot be used to form the basis of a defamation claim.
Writt had alleged that Shell defamed his character when the company “voluntarily” reported to the DOJ on the findings of an internal investigation the company conducted into its relationship with Panalpina — an investigation that culminated in the company’s 2010 FCPA settlement with U.S. enforcement authorities. Writt claimed that Shell’s internal investigation report falsely implicated him in the payment of bribes and accused him of providing inconsistent statements during multiple interviews conducted in the course of the investigation.
The trial court initially granted summary judgment in favor of Shell, dismissing Writt’s suit on the basis that Shell enjoyed an “absolute privilege” to make statements to the DOJ regarding its internal investigation. The Texas Court of Appeals overturned this decision, refusing to characterize a “voluntary” pre-prosecution internal FCPA investigation as a judicial proceeding. Instead, the Court of Appeals held that Shell was only entitled to qualified privilege, under which a speaker can still be liable for defamation if the speaker “knows the matter to be false or does not act for the purpose of protecting the interest for which the privilege exists.”
The Texas Supreme Court held “at all relevant times” Shell had been the target of a DOJ FCPA investigation and asserted that this investigation, which eventually resulted in a criminal settlement with Shell, satisfied the standard that “the possibility of a proceeding must have been a serious consideration at the time the communication was made.”
The Supreme Court also highlighted “the DOJ’s leverage over Shell vis-à-vis the FCPA and its somewhat draconian penalties…,” which “compelled [Shell] to undertake its internal investigation and report its findings to the DOJ.” The court specifically pointed to the dramatic increase of FCPA enforcement actions before mid-2007 when the DOJ notified Shell of its investigation, noting that “businesses that chose not to cooperate were subject to substantially greater punishments….”
At a time when the DOJ and SEC have become increasingly vocal in calling for companies under investigation to secure and provide evidence of individual culpability, a decision that did not provide Shell with absolute privilege could have had a far-reaching impact on how companies conduct internal investigations and cooperate with enforcement authorities.
As it stands, the Texas Supreme Court’s decision in Shell Oil Co. v. Writt may incentivize cooperation by companies in the early stages of the enforcement process by providing certainty to potential corporate defendants, particularly those located in Texas, that good faith efforts to disclose the results of internal investigations and expose individual culpability will not leave them open to defamation claims.
Three Key Takeaways
- Make sure you provide an Upjohn warning.
- If an employee demands counsel to represent them during an internal investigation, who bears the cost?
- Always check state law requirements around internal investigations.