When Your Lawyer Dimes You In A Wireless World: Undercover Techniques and White-Collar Investigations

AM, FM or SiriusXM?

AM, FM or SiriusXM?

It has become commonplace to note the ascendancy in white-collar investigations of techniques previously reserved for investigations of organized crime and violent, life-and-death offenses.

Three recent articles bring the issue around again.

The New York Times notes that More Federal Agencies Are Using Undercover Operations:

The federal government has significantly expanded undercover operations in recent years, with officers from at least 40 agencies posing as business people, welfare recipients, political protesters and even doctors or ministers to ferret out wrongdoing, records and interviews show. . . .

Undercover work, inherently invasive and sometimes dangerous, was once largely the domain of the F.B.I. and a few other law enforcement agencies at the federal level. But outside public view, changes in policies and tactics over the last decade have resulted in undercover teams run by agencies in virtually every corner of the federal government, according to officials, former agents and documents. . . .

Some agency officials say such operations give them a powerful new tool to gather evidence in ways that standard law enforcement methods do not offer, leading to more prosecutions. But the broadened scope of undercover work, which can target specific individuals or categories of possible suspects, also raises concerns about civil liberties abuses and entrapment of unwitting targets. It has also resulted in hidden problems, with money gone missing, investigations compromised and agents sometimes left largely on their own for months.

The Wall Street Journal recently explained how a cooperating witness who was also general counsel of a company wore a video camera while talking with the CEO: DOJ Returns to Bare-Knuckle Tactics in Bribery Case.  In particular,

U.S. Justice Department officials have said that despite the setbacks, the use of aggressive law enforcement tactics would continue. Last September, Marshall L. Miller, the deputy chief of the Justice Department’s criminal division, said wiretaps, body wires and physical surveillance “have become a staple in our white collar investigations.  I can promise you we will continue to use them.”

Finally, Compliance Week points out that co-employees can be wired up: ‘Extraordinary’ Cooperation Allows SAC Capital Defendant to Avoid Prison  .

Among other things, Freeman assisted prosecutors by recording conversations with Longueuil. This led to some extraordinary evidence for prosecutors such as a now-famous recorded statement by Longueuil about how he disposed of an incriminating “log” of insider information that was on a USB flash drive. Longueuil said he took

two pairs of pliers, and then you rip it open. Pulled the external drives apart. … Put ’em into four separate little baggies, and then at 2 a.m. … 2 a.m. on a Friday night, I put this stuff inside my black North Face … jacket, … and leave the apartment and I go on like a 20 block walk around the city … and try to find a, a garbage truck … and threw the sh*t in the back of like random garbage trucks, different garbage trucks … four different garbage trucks.

 

The good old days.

The good old days.

As a point of personal privilege, I may be excused for cheering the vigor with which federal law-enforcement treats a Joseph A. Bank-wearing white-collar employee as though she or he were an ISIS-trained Bonnie or Clyde.  Such an approach generates more work for me and my fellow white-collar defense lawyers.  There is much to be said for that prospect.

As a policy matter, however, what is the significance of the use of traditional organize crime techniques against business people?  And what is the significance of this phenomenon for those people and the businesses they try to advance?

There are doubtless multiple significant – and, as yet, unknowable – aspects to this practice. The most obvious aspect, however, is the continued erosion of the distinction between violent and nonviolent crime for purposes of investigation, indictment and sentencing.  When a prosecutor – or any lawyer – uses the same tool in Case A and Case B, by definition he or she sees those two cases to be substantively and procedurally analogous. (Otherwise, it would be a waste of time to use the same two in both cases).

In light of the power that a federal prosecutor wields, the erosion of that distinction can lead to an overbroad reading of the criminal statutes and related regulations.  Many of those statutes are already broad, indecipherable and protean by virtue of the fact that Congress drafted them.

What crime shall we define this evening?

What crime shall we define this evening?

In that regard, political bloodlust that can arise on certain topics. Child pornography is one.  Crime-in-the-suites is another.  Political bloodlust is an important aspect of our consideration of the application of organized crime investigatory techniques to business offenses.  Being “tough on crime” is rarely a political loser; being tough on sound-bites and abstractions such as “Wall Street,” “bankers” or “polluters” is equally attractive to federal legislators.

In addition, the erosion of the distinction is cheered on by the most sophisticated members of the plaintiffs’ bar as well as by single-issue activists who otherwise would have little or nothing to do with the criminal law.

So what? If a tool can investigate and prevent one type of crime, why not apply it to another type of crime? Why should a white-collar defendant get a pass from the rough-and-tumble techniques used on Banjo the Meth Dealer?  In any event, one might argue, there are safeguards already in place with regard to these techniques, without regard to the subjects of the investigation.

In other words, why is Sharman so wrapped around the axle on this question?

Unwrapping myself from the axle, I identify at least four separate problems here.

First, erosion of the distinction between street crime and “suite crime” skews the selection of cases to prosecute. In particular, questions of intent with regard to street crime, while certainly present, rarely pose the same kinds of nuances and knotty problems that the question of intent presents in white-collar cases.

Second, as illustrated by the Wall Street Journal article, erosion of the distinction implicates the attorney-client privilege:

Within the Treasury Department, undercover agents at the I.R.S., for example, appear to have far more latitude than do those at many other agencies. I.R.S. rules say that, with prior approval, “an undercover employee or cooperating private individual may pose as an attorney, physician, clergyman or member of the news media.”

An I.R.S. spokesman acknowledged that undercover investigators are allowed to pose in such roles with approval from senior officials. But the agency said in a statement that senior officials “are not aware of any investigations where special agents have ever posed as attorneys, physicians, members of the clergy or members of the press specifically to gain information from a privileged relationship.”

The agency declined to say whether I.R.S. undercover agents have posed in these roles in an effort to get information that was not considered “privileged,” meaning the type of confidential information someone shares with a lawyer or doctor.

Giving advice.

Giving advice.

Banjo the Meth Dealer may have “counselors,” but they are likely to be chosen because they are armed, inked and loyal, rather than for their legal advice.  (Of those three qualities, I claim one but decline to identify it).  When a company’s general counsel videos his CEO; when IRS agents can permissibly pose as attorneys; or when HHS OIG agents as physicians, we have entered a world that is deeply threatening to perhaps the oldest privilege in Anglo-American law.

Third, the proliferation of undercover agents and secret monitoring can result in a bitter comedy of errors. The Journal, again:

Across the federal government, undercover work has become common enough that undercover agents sometimes find themselves investigating a supposed criminal who turns out to be someone from a different agency, law enforcement officials said. In a few situations, agents have even drawn their weapons on each other before realizing that both worked for the federal government.

One is put in mind of the fine mob movie The Departed with Jack Nicholson and Leonard DiCaprio, in which Nicholson’s character (somewhat reminiscent of Whitey Bulger) has a gang in which almost everyone is working for a state or federal agency:

Fourth, sound discretion and public perceptions of justice are skewed when federal investigatory entities get at least a portion of their funding from successful undercover activity and other secret operations.  This system, even with some checks and balances, is not an incentive but, rather, an outright bounty.

Not your lawyer, hopefully.

Not your lawyer, hopefully.

You can always follow our advice about preserving the attorney-client privilege.   Barring a political and technological sea-change, however, there is no reason American companies should expect that the government’s hunger to use mob-oriented techniques in the business context will abate any time soon.


It’s Okay To Smell A Rat: Internal Investigations, Attorney-Client Privilege and the KBR Decision

Skeptical of the role of lawyers.

Skeptical of the role of lawyers.

Post-recession, we are living through an era of regulators’ grimaces and prosecutors’ giddiness. Editorialists and bloggers want business scalps, especially scalps of individuals (as opposed to simple monetary fines for corporations), and most especially scalps of those in banking and finance.  In the wake of the GM report and other stories about lawyers, the role of business lawyers is as suspect in the public mind as it has been for decades.  It’s as though everybody smells a rat.

On the other hand, faced with ever-increasing and increasingly complex regulation, companies’ need to conduct self-reviews and internal investigations is unavoidable. Indeed, in many industries, the governing set of rules require companies to self-investigate and, under certain conditions, reveal those investigatory results to the Government.  This is especially the case if the company wishes to be seen as a good citizen and a cooperator. (We have discussed the ups and downs of cooperation here and here).

In this environment, it was refreshing to see the decision of the United States Court of Appeals for the District of Columbia Circuit in In re Kellogg Brown & Root, Inc.  In KBR, the D.C. Circuit considered a district court’s denial of the protection of the attorney-client privilege to a company that conducted an internal investigation.
The district court based its decision in part on the ground that the internal investigation had been “undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice,” attempting to distinguish the ur-case in this area, Upjohn Co. v. United States, 449 U.S. 383 (1981)

 

Business people (and internal business-lawyers) wear many hats.  Some of the hats don’t fit neatly (or comfortably).  Many activities undertaken by corporations have multiple purposes: business, political, legal and otherwise.  If this view of internal-investigations law had been allowed to stand, it would be virtually impossible for a company subject to even the most rudimentary level of regulatory oversight to maintain its attorney-client privilege.

It is worth quoting the D.C. Circuit here at some length, given the clarity and forcefulness of the holding:
KBR’s assertion of the privilege in this case is materially indistinguishable from Upjohn’s assertion of the privilege in that case. As in Upjohn, KBR initiated an internal investigation to gather facts and ensure compliance with the law after being informed of potential misconduct. And as in Upjohn, KBR’s investigation was conducted under the auspices of KBR’s in-house legal department, acting in its legal capacity. The same considerations that led the Court in Upjohn to uphold the corporation’s privilege claims apply here.
The District Court in this case initially distinguished Upjohn on a variety of grounds. But none of those purported distinctions takes this case out from under Upjohn’s umbrella.
First, the District Court stated that in Upjohn the internal investigation began after in-house counsel conferred with outside counsel, whereas here the investigation was conducted in-house without consultation with outside lawyers. But Upjohn does not hold or imply that the involvement of outside counsel is a necessary predicate for the privilege to apply. On the contrary, the general rule, which this Court has adopted, is that a lawyer’s status as in-house counsel “does not dilute the privilege.” In re Sealed Case, 737 F.2d at 99. As the Restatement’s commentary points out, “Inside legal counsel to a corporation or similar organization . . . is fully empowered to engage in privileged communications.” 1 RESTATEMENT § 72, cmt. c, at 551.
Second, the District Court noted that in Upjohn the interviews were conducted by attorneys, whereas here many of the interviews in KBR’s investigation were conducted by non-attorneys. But the investigation here was conducted at the direction of the attorneys in KBR’s Law Department. And communications made by and to non-attorneys serving as agents of attorneys in internal investigations are routinely protected by the attorney-client privilege. See FTC v. TRW, Inc., 628 F.2d 207, 212 (D.C. Cir. 1980); see also 1 PAUL R. RICE, ATTORNEY-CLIENT PRIVILEGE IN THE UNITED STATES § 7:18, at 1230-31 (2013) (“If internal investigations are conducted by agents of the client at the behest of the attorney, they are protected by the attorney-client privilege to the same extent as they would be had they been conducted by the attorney who was consulted.”). So that fact, too, is not a basis on which to distinguish Upjohn.
Third, the District Court pointed out that in Upjohn the interviewed employees were expressly informed that the purpose of the interview was to assist the company in obtaining legal advice, whereas here they were not. The District Court further stated that the confidentiality agreements signed by KBR employees did not mention that the purpose of KBR’s investigation was to obtain legal advice. Yet nothing in Upjohn requires a company to use magic words to its employees in order to gain the benefit of the privilege for an internal investigation. And in any event, here as in Upjohn employees knew that the company’s legal department was conducting an investigation of a sensitive nature and that the information they disclosed would be protected. Cf. Upjohn, 449 U.S. at 387 (Upjohn’s managers were “instructed to treat the investigation as ‘highly confidential’”). KBR employees were also told not to discuss their interviews “without the specific advance authorization of KBR General Counsel.” United States ex rel. Barko v. Halliburton Co., No. 05-cv-1276, 2014 WL 1016784, at *3 n.33 (D.D.C. Mar. 6, 2014).
In short, none of those three distinctions of Upjohn holds water as a basis for denying KBR’s privilege claim.
More broadly and more importantly, the District Court also distinguished Upjohn on the ground that KBR’s internal investigation was undertaken to comply with Department of Defense regulations that require defense contractors such as KBR to maintain compliance programs and conduct internal investigations into allegations of potential wrongdoing. The District Court therefore concluded that the purpose of KBR’s internal investigation was to comply with those regulatory requirements rather than to obtain or provide legal advice. In our view, the District Court’s analysis rested on a false dichotomy. So long as obtaining or providing legal advice was one of the significant purposes of the internal investigation, the attorney-client privilege applies, even if there were also other purposes for the investigation and even if the investigation was mandated by regulation rather than simply an exercise of company discretion.
In the context of an organization’s internal investigation, if one of the significant purposes of the internal investigation was to obtain or provide legal advice, the privilege will apply. That is true regardless of whether an internal investigation was conducted pursuant to a company compliance program required by statute or regulation, or was otherwise conducted pursuant to company policy.

 

It is noteworthy that the D.C. Circuit clarifies the rule such that it applies in all contexts: civil, criminal and administrative.  The attorney-client privilege is, to some degree, in derogation of the search for the truth, at least in the first instance.  Yet, lawyers learn things from clients that the lawyers then do not have to reveal because we believe that, on balance, “truth” is ultimately best served in an adversarial system by a tool that encourages clients to tell their lawyers the truth.

This is an often overlooked point.  Frequently, clients do not tell lawyers the whole truth, at least the first time a discussion arises. This is particularly the case in criminal representations, but it is not uncommon in the civil arena.  Sometimes, this reticence arises from a client’s knowledge of his, her or its wrongdoing, and a concomitant desire to hide or destroy evidence.

More often, however, that initial reticence arises from much more innocuous sources: embarrassment, shame, misunderstanding, fear of losing a job or worry about how superiors or colleagues might react.  In those contexts, it is the privilege itself that is most solicitous of the truth, and allows the truth to eventually out.