This is the third in a three-part series about the challenges facing lawyers engaged in internal investigations. Part I focused on the special considerations attendant to an attorney’s representation of a corporate entity in these matters, and Part II discussed best practices with respect to fact-finding efforts. This installment focuses on a key concern of counsel as an internal investigation nears completion – namely, how to advise a client with respect to the possibility of making a disclosure to the government about the results of the internal investigation.
Challenge #3: Determining whether to make a disclosure
The question of whether and to what extent a company should disclose the results of an internal investigation is a fact-specific inquiry that depends on the circumstances of each particular case, as well as the company’s appetite for risk, among other considerations. Nevertheless, investigation attorneys are often confronted with the same basic issues in evaluating the risks and benefits associated with making a disclosure to the government. For instance, a corporation’s timely and comprehensive disclosure of information – especially when voluntarily and proactively made, but even when a government investigation is already underway – may militate in favor of the government’s exercise of its prosecutorial discretion.
Indeed, the Department of Justice’s Federal Principles of Prosecution of Business Organizations prescribe that one factor in a prosecutor’s assessment of the proper disposition of a case involving a corporate target is “the corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents.” Furthermore, although the Principles of Prosecution do not explicitly address factors bearing upon the government’s discretion in the resolution of civil investigations, the timing and extent of a corporation’s disclosure of information is still frequently invoked by the corporation or by the government (or both) in support of their respective desired outcomes in a civil matter. This is especially so where the government’s investigation includes, or might expand into, a parallel criminal investigation.
Even if a disclosure to the government does not avert a criminal prosecution, it can substantially reduce a corporation’s sentence upon conviction. The Federal Sentencing Guidelines equate cooperation with, among other things, the disclosure to the government of “pertinent information;” that cooperation can affect a company’s “culpability score” and therefore the amount of the applicable fines to which it may be sentenced under the Guidelines (§ 8C2.5).
On the other side of the scale, an investigation lawyer must advise his client with respect to the dangers inherent in making certain kinds of disclosures, such as those that may lead to a partial or complete waiver of the attorney-client privilege and work product protections. Although the Department of Justice issued a memorandum in 2006 eschewing a previous policy pursuant to which a company’s willingness to waive the attorney-client privilege was a consideration in a prosecutor’s determination of whether to pursue a criminal prosecution – and prosecutors are therefore unlikely to request such waivers – there may be situations in which a company, of its own initiative, is interested in disclosing privileged information. For more, see also the memorandum issued by Deputy Attorney General Mark R. Filip in 2008.
In some of those cases, the risks of a privilege waiver may pale in comparison to the risks of leaving the government “in the dark” about the information at issue. At the same time, however, a waiver of the attorney-client privilege and work product protections may result in a host of collateral consequences with respect to ongoing or future legal proceedings, such as class actions and shareholder derivative suits in which the information (and any admissions it contains) may be used against the company. As a general matter, a waiver of the privilege is considered a waiver as to all materials relating to the same subject matter, so an investigation lawyer should strive to narrowly limit the divulgence of privileged information to no more than that which is absolutely necessary to achieve the goals of the disclosure. Still, counsel should carefully advise his client about the risks attendant to the potential receipt of that information by parties and attorneys in other proceedings, as well as the risk that a court may interpret the scope of the privilege waiver more broadly than the company had anticipated.
Finally, completely apart from the risks of a privilege waiver, an investigation lawyer must prepare his client for the possibility that a disclosure may have other negative repercussions. First, as some lawyers and commentators have argued, a voluntary disclosure offered before the government has expressed an interest in the conduct at issue may, in effect, “wake a sleeping dog” – and may nevertheless fail to produce a favorable exercise of prosecutorial discretion. Second, the government may cite a disclosure that is determined to be (or, for whatever reason, merely believed to be) inaccurate or incomplete as evidence of a lack of cooperation by the company, or even as grounds for attacking the credibility of the attorneys handling the internal investigation. Third, a disclosure that describes the wrongdoing of an individual employee may trigger a defamation action by that individual against the company or against counsel who handled the investigation; accordingly, an investigation attorney should use the utmost care to ensure that the assertions made pursuant to the process of disclosure are supported by a reliable and thorough fact-finding process.