By James J. McGrath The U.S. Chamber of Commerce’s Institute for Legal Reform has suggested five changes to the Foreign Corrupt Practices Act. All of them are excellent proposals.
However, given recommendations made by the DOJ’s Lanny Breuer at Compliance Week on May 27, 2010, two more amendments should be considered.
In his presentation, Mr. Breuer advised that when a possible violation has been discovered, the corporation should (1) seek the government’s input on the front end of its internal investigation, (2) describe its work plan for conducting the inquiry, and (3) be responsive to DOJ questions, suggestions, and requests to expand the scope of the investigation. From an internal investigations perspective, this “call first” demand constitutes a seismic shift in the government’s perception of its role in the process and should present tremendous business and legal concerns for a company in its crosshairs. What the DOJ is asking for is access to the inner workings of private-sector companies and how they conduct themselves in a way that has heretofore not been seen.
At present, when an FCPA violation occurs, there is generally the following investigatory timeline: (1) occurrence of the perceived corporate wrong, (2) performance of the company’s internal investigation, and (3) determination by the company of whether to self-report and cooperate with the government’s parallel investigation and potential litigation. In this sequence, the company conducts its own inquiry before making the critical decision to implicate itself or not. Because these internal investigations are usually conducted by outside counsel, if no wrong is found by that independent investigation, its results are protected from disclosure to third parties by operation of the attorney-client privilege. See Upjohn Co. v. United States, 449 U.S. 383 (1981). This safeguard to the company is vital.
In an era of global markets and instant information, the protection of an exonerated company’s reputation may very well save it from complete ruin, as the mere specter of dirty laundry can be damning on Wall Street. Alternatively, if a company contacts and co-ordinates its internal investigation from the outset with the DOJ, its ability to protect the direction, yield, and publicity of any such inquiry will be nil. Dirty or not, it will have waived attorney-client privilege and laid open it entire operation to government investigators, potentially creating a sort of “corporate plain view” for other, unrelated violations. That should be unnerving to even the most ethical company.
This is not to advocate that companies should be able to hide their illegalities and avoid prosecution. Quite the contrary. The USSG laudably balances the sometimes-competing and sometimes-cooperating interests of ensuring self-policing, respecting corporate privacy, and doing justice by prosecuting wrongdoers. To establish a precedent where the government is called into, and becomes a partner in, every FCPA internal investigation flies in the face of Chapter Eight of the U.S. Sentencing Guidelines (USSG) by eradicating the self-policing that is its purpose.
As a result, any prospective legislation amending the FCPA should protect the balance of interests in corporate criminal and civil prosecutions already struck by the USSG. Involving the DOJ at the outset of the internal investigation process as mandatory for receiving cooperation credit under the Guidelines should be expressly prohibited. And for those companies that do invite the government in as investigatory partners from the beginning, there should be some transactional or use immunity -– or at least some limitation on penalties and sanctions — for other wrongs uncovered during the course of the FCPA investigation in recognition of their good-faith efforts to cooperate with the government.
Our guest writer, James J. McGrath, is a former prosecutor and the managing partner of McGrath & Grace, Ltd., a law firm that specializes in conducting independent corporate internal investigations. We regularly consult with Jim; he has proven to be both a valuable friend and asset to those of us at Mahany & Ertl. He can be contacted .
[Ed. note – Mahany & Ertl is a full service law firm concentrating in white collar criminal defense, tax litigation and resolution and fraud recovery. Prevention of problems, however, is always our goal. For that we rely on James McGrath at McGrath Grace and Tracy Coenen CPA at Sequence, Inc. Brian Mahany 9 Dec 2010]