Corporation, Securities
& Business Law Forum
May 2001 Vol. 46, No. 4
Statements or expressions of opinion or comments appearing herein are those of the editors or contributors, and not necessarily those of the association or section.
Contents
* Dealing with the government's "ambush" interviews of executives
| * | The formal board vs. the advisory board |
| * | BusinessLaw Flash PointsSM |
This edition of the newsletter has several interesting articles, including an article by Steven Kowal that outlines some of the issues to review with clients before they are surprised by an unannounced interview by a government official. In addition, we present an article by Andrew Stoltmann that discusses the NASD's Single Arbitrator Pilot Program that is available for certain arbitration matters. We also present an article by Professor Charles Murdock that discusses the use of a formal board of directors vs. an advisory board for a corporation
This edition also contains our regular column--BusinessLaw Flash Points (also available at IICLE's Web site www.IICLE.com), which is provided to us by Donna Cunningham, secretary of our section council. Several recent developments of note are discussed in this column.
Finally, we look forward to your comments and suggestions. We also welcome your submissions to the newsletter.
David E. Doyle
10 S. La Salle Street
Suite 3500
Chicago, Illinois 60603
312/606-0529
Dealing with the government's "ambush" interviews of
executives
By Steven M. Kowal, Bell, Boyd & Lloyd, Chicago
Executive summary for government interviews
I. Executive's rights and obligations
* Interview is entirely voluntary.
* Each person can decide to consent, decline or postpone the interview.
* If commenced, the interview can be terminated at any time.
* The interview cannot be compelled.
* There is no legal obligation to sign any statement or affirm the accuracy of any recitation.
* Any information provided must be accurate and truthful.
* The witness should not guess or speculate.
* No matter what is said by the government, the interview will not be "off the record."
II. Government's power and authority
* Interviews can be sought anywhere and at any time.
* A subpoena cannot be used to compel interviews.
* A search warrant cannot be used to compel interviews.
* The government can and will use any information provided against the individual, and perhaps against the corporation, in a criminal proceeding.
* Agents do not have authority to bind the government with promises of immunity or leniency.
I. Introduction
Most lawyers have no desire to practice criminal law. Certainly, they would not expect to provide instant advice at a critical point in a complex criminal investigation. Yet, they could be confronted by precisely that situation. The government's pursuit of unannounced "ambush" interviews of potential targets could thrust any practitioner into this uncomfortable and unfamiliar area. The decisions that are made and the advice conveyed under these difficult circumstances could affect the entire investigation against the client, and perhaps ensnare the attorney in potentially questionable conduct.
Imagine that your practice is concentrated in counseling clients on commercial real estate issues. One afternoon, while you are working on a lease agreement, you receive a call from the president of a good corporate client. He is very agitated, and says he is calling from his secretary's phone.
The CEO says he might have a big problem. About an hour ago, two FBI agents showed up at his office without any prior notice. The agents were very polite, said they needed some information, and would really appreciate his help. The CEO did not want to appear uncooperative, so he agreed. At first, the meeting was cordial. One agent asked a series of questions about the structure and operation of the industry. He also asked, somewhat off handedly, about the CEO's membership in social organizations and attendance at trade association meetings. The other agent said nothing, but took detailed notes.
The agent than became much more aggressive. He asked whether the CEO had discussed prices with the presidents of competing companies at these social events and meetings. When the CEO denied any such conversations, the agent mentioned specific dates and particular contracts. He said the government has substantial evidence there was a conspiracy to fix prices and rig certain bids. The agent warned that providing false information could itself be a serious criminal offense.
The CEO was then asked to sign a statement denying such communications with competitors. After all, if this were true, there should not be any reluctance to put it in writing. While the statement was being drafted, the CEO excused himself. He decided it was time to call his lawyer.
Now, the CEO is getting frantic. What should he do? If he abruptly terminates the interview, the agents will think he has something to hide, and will become very suspicious. If he refuses to sign the statement, they will doubt his denials. The one thing he knows for sure is that he does not want to continue to answer these questions. He feels trapped.
While you take a moment to consider what to do, the CEO raises another issue. He says that certain contracts involved bids from two other competitors. He suggests that you call the presidents of those companies, tell them of the government's inquiry, and determine whether they also recall there was no prior discussion of these bids.
Suddenly, you are confronted by a series of issues that you had never before considered. Is there any legal obligation to meet with these agents? Can the interview be terminated? Are the CEO's legal and constitutional rights being protected or waived? What effect will this meeting and these decisions have on the course of the investigation?
On the prospect of a prosecution? And what about the suggestion that you contact other possible witnesses?
These are challenging issues and decisions for experienced criminal counsel. Unfortunately, circumstances often dictate that they be made by lawyers who have represented a client in business or transactional matters. Ironically, the first line of defense to a potential criminal charge is often the responsibility of corporate counsel.
II. The government's aggressive investigation of business often includes "ambush" interviews
Two decades ago, the situation reflected in the hypothetical probably would not have occurred. The government recognized a difference between potentially illegal business conduct and more traditional forms of criminal activity. The most aggressive forms of investigation usually were reserved for the conduct that posed the greatest threat to society, and these techniques seldom were employed against a legitimate business. There was more of a distinction between a corporate president and a Mafia kingpin.
This policy produced important practical results. The formal investigation of business conduct almost always began with the issuance of a grand jury subpoena to the company which compelled the production of documents. Although this process could be burdensome, it allowed an orderly review of the company's files, and significant time to copy at least those documents that were relevant to current operations.
A grand jury subpoena also served as notification that the government was pursuing a criminal investigation. Individuals who were potential targets were afforded an opportunity to secure legal counsel, and to protect their legal rights.
Government agents almost never sought direct contact with the potential targets of the investigation. If communication of this type were to occur, it would be arranged through the individual's lawyer. The government believed that direct contact with individuals who were represented by a lawyer in the investigation was prohibited by the "Assistance of Counsel" clause of the Sixth Amendment1 and the American Bar Association Model Code of Professional Conduct.2
The execution of a search warrant against a legitimate business was highly unusual. The Antitrust Division of the Department of Justice, for example, stated that such a warrant would be used only if substantial evidence indicated that documents responsive to a grand jury subpoena were being withheld unlawfully or destroyed.3 Similarly, the government seldom used cooperating insiders to gather evidence surreptitiously. Rather than allow disgruntled employees to manipulate executives and managers during a covert investigation, the government would commence a formal grand jury proceeding.
A. Aggressive investigation
A lot has changed in 20 years. The government no longer treats illegal activity by business as a less threatening form of criminal conduct. Instead, the investigation and prosecution of white collar crime has become a national obsession. In 1995, for example, the Attorney General stated that health care fraud was the second highest priority in the Department of Justice, trailing only violent crime.4 Now it appears as though antitrust enforcement has replaced health care fraud in importance.
This policy change has been reflected by more aggressive investigative tactics. The use of search warrants against legitimate business, for example, is now relatively common.5 This allows the government to seize documents immediately, even those relating to current business operations. The information lost by the company at the commencement of the investigation can threaten its continued viability.
The government also pursues covert investigations much more aggressively. It will use cooperating insiders to gather evidence while executives are unaware of any governmental interest. Certainly, this allows at least some disgruntled employees to lead managers into recorded statements that can be made to appear very damaging at a subsequent trial. In some instances, these corporate moles volunteer assistance to the government. Apparently, this was the way the government secured insider assistance to investigate antitrust allegations against ADM.6 Others are pressured into this role to attempt to mitigate personal criminal problems that are unrelated to the operation of the company.7 In either event, the government is afforded an opportunity to gather, evidence before the targets learn of the investigation.
Interviews of potential targets are now actively pursued by government representatives. Executives are often confronted by prosecutors and agents who arrive without prior arrangement, earnestly solicit cooperation, and request answers to "a few questions." These encounters usually are timed to reduce the possibility that legal counsel will be available, and to frustrate consultation with business colleagues. In some instances, the executive will be contacted in the office during normal business hours. More often, however, the agents will arrive at the executive's home during the evening or on a weekend. A meeting in the home, often with family present, generates enormous pressure for the executive to cooperate and conclude the interview quickly. Unfortunately, this can result in answers that are ill-considered, and which later can be construed as incriminating or misleading.
This is the pattern that was followed, for example, when the government began the non-covert stage of the investigation of suspected fraudulent commodity trading practices in Chicago. For months, the government secretly gathered information through an FBI agent who worked on the trading floor. When that phase of the investigation was complete, the government unleashed teams of prosecutors and agents who visited numerous traders at home during the evening in coordinated and simultaneous interviews.8 Few sought to consult with a lawyer, and many provided information that supported subsequent prosecutions.
The interview of a potential target could signal the beginning of the criminal investigation. The government could be seeking information and attempting to pin down a story from the witness. It is possible, however, that the interview has been preceded by an extensive investigation, which could have been conducted secretly. The government could already have a great deal of information. Contact with a potential target at this stage of the investigation could be designed to induce a confession or damaging admissions, or to record denials that could be used to support additional charges for false or misleading statements.9
B. Government advantages
Stated simply, this type of interview provides the government with enormous psychological advantages. The executive will be caught by surprise, but will usually feel some pressure to cooperate and be responsive. There will not be an opportunity for preparation or reflection. This is most important if the questions focus on activity which has faded in the past, or was not deemed very significant when it occurred. The executive undoubtedly will be anxious and alarmed, particularly if the agents become aggressive or accusatory.
These governmental advantages are multiplied if the interview occurs in the executive's home--with the family present. Questions about the business life of the executive, particularly if criminal violations are asserted or implied, will cause embarrassment and humiliation. This anxiety will be increased by the appearance and body language of family members which frequently will reflect concern and fear. There is overwhelming pressure to conclude the interview quickly so that the family can be reassured there is no cause for alarm. Often, this results in answers that are not fully considered, and which are designed principally to end the encounter. The executive could tell the agents "what they want to hear" under the mistaken notion this will terminate the inquiry.
Perhaps most significantly, the executive will almost certainly be required to deal with the government agents without the benefit of legal counsel. Even those who might be able to contact a lawyer quickly probably will not because of the fear that this demonstrates a consciousness of guilt. Few caught in this situation, however, understand their legal rights and obligations, or the power and authority of the government. Ignorance breeds uncertainty - which the government will attempt to exploit to obtain answers which ordinarily might not be forthcoming. Damaging admissions can be made in response to coercion and threats, either direct or implied. Unfortunately, this lack of legal counsel, even if orchestrated by the government, probably will not prevent use of this information against the witness in a prosecution.
Government agents employ a variety of techniques to gain access to the executive--some based on the desire of most people to be helpful and cooperative, while others rely on coercion and intimidation. The government understands that most executives want to at least appear to be cooperative. Often an approach will be designed to exploit this basic human trait. The agents might begin the meeting by describing how hard they have been working, and how much time they have expended on this very inconsequential investigation - time they would rather devote to important matters like narcotics or bank robbery cases. They will then directly ask for the executives help, and at least imply that with a little information this waste of time "can be put to bed." The executive will conclude that "answers to a few questions" now will relieve the burden on these overworked agents, and avoid a future proceeding that could be much more time consuming.
In other instances, the agents will attempt to frighten the executive, and threaten very dire consequences if information and cooperation are not forthcoming immediately. Sometimes this is combined with a classic "good cop--bad cop" interrogation. This meeting might begin with very pointed questions and accusations of participation in extensive and serious criminal activity. If the executive is reluctant to answer or becomes indignant, the "bad cop" will imply that the executive must have "something to hide." The agent also will describe in detail how the executive will probably lose everything - his job, professional and social standing, family respect and even his home - if he does not "come clean." At this point, the "good cop" will step in to sympathize with the beleaguered executive. This agent will say how unfair it is that the executive should "take the rap," particularly for doing the same thing everyone else has done, but will reinforce that the executive might be heading down a very dark road. The only alternative is an immediate description of everything that has happened. The agent will provide assurances that the executive will receive credit for this cooperation, and the agent might even pledge to "go to bat" for the executive with the prosecutor.
Whatever the technique, the purpose is to induce answers and statements from the executive to build a criminal case. At this stage, the government agents rarely believe that exculpatory information is accurate or truthful. Promises of leniency could prove to be very hollow.
One of the government agents will almost always take detailed notes during the interview. The notes, of course, will be prepared from the government's perspective, and might not include exculpatory or explanatory information. This could become very important if the witness later provides information that the government believes differs from that conveyed during this meeting.
Frequently, the notes prepared by the agents will be the only written record of the discussion. It is very difficult for an executive to respond to the agents' questions and simultaneously prepare notes. Few even try. The witness might draft notes after the agents have left, but invariably these will be incomplete. Unfortunately, the agents' notes are not subject to compulsory disclosure during the investigation. Thus, the executive's attorney might not be able to review a record of the interview until an indictment has been returned.
The agents also might try to persuade the witness to sign a statement or affidavit. Once again, this will be prepared to support the government's case. A variety of techniques will be used to attempt to overcome any reluctance by the witness. The agent, for example, will express doubt about the truthfulness of the information conveyed if the executive refuses to sign the affidavit. After all, "if it's the truth, why not put it in writing?" Also, confirmation can be obtained even without the executive's signature on a document. A government investigative manual, for example, suggests that the agents ask a witness to review the statement for accuracy, and to initial any corrections.10 Without fail, misspellings will appear on every page, and the witness's initials will demonstrate acceptance of the information. Similarly, the agents might read the memorandum to the witness, and ask that any inaccuracies be corrected. The witness's assent can be obtained, and recited in the agents' eventual trial testimony, even without an official signature. A formal signed affidavit is not the only way for the government to preserve this information for later use against the executive at trial.
III. Responding to the government's investigation
It should be clear that nearly any business executive is fair game for a visit by government investigators. Consultation with a lawyer before deciding what to do probably will not be possible. Crucial decisions may have to be made alone.
In this environment, every executive must have some understanding of the agents' power and authority, and the legal rights and protections that are retained. Without that basic information, it will be impossible to exercise an informed judgment. Frequently, the result is a decision to acquiesce in the government's requests and accede to its pressure.
A. Preparation for a government contact
Perhaps the best defense response to the possibility of this type of surprise interview is preparation and a corporate educational program. These issues should be addressed specifically, and well before the government has commenced an investigation.
Most companies prepare manuals for management and statements of internal policy and recommended procedure. These documents should include a section which focuses on direct government inquiries. Those companies that operate in highly regulated industries should include this information along with the procedures to be followed when the government begins an investigation. Executives must be informed that such contacts are possible--many will assume mistakenly that the corporation insulates them from such direct communication--and that they can occur almost anywhere. A description of the government's investigative tactics and techniques should also be included. It is imperative that the corporate representatives understand that the information conveyed during an interview can later be used against both the company and the executive at a trial. The executive's statements are not "off the record." Some who are interviewed conclude that the information cannot be used in a legal proceeding because of the informal nature of the meeting.