What to Expect When You’re Not Expecting: A Preparation & Action Plan for Government Investigations

The following is based on the Jan. 22, 2014, LexisNexis^® Webinar titled “Government Investigations: Best Practices for Responding to Federal Probes.”  The speakers were:  Michael Volkov, CEO of The Volkov Group Law Firm; Louis W. Pietroluongo, an insurance and government relations consultant with Mound Cotton Wollan & Greengrass; Bernard F. Woolfley, CPA, CFF and CFE, managing director with Navigant Consulting.  Thanks to the presenters for all of the guidance and insights they shared on the live CLE program.  

Introduction: Preparing for the Imperfect Storm

Large, complex organizations—private or public—will at times find themselves in the middle of an “imperfect storm” -- a confluence of circumstances that can brew into a full-blown government investigation.  The center of these storms vary from industry to industry or agency to agency. They can involve operational disasters, like oil spills, chemical fires, train derailments or factory explosions.  They can involve bribery allegations, accounting fraud, violations of environmental regulations, antitrust activity, worker or consumer safety violations or broken labor laws.  Media reports or social media chatter gone viral often spark government investigations.  Government inquiries and requests for information, notices of investigation, subpoenas, search warrants, industry sweeps, whistleblowers, disgruntled customers and litigation, are all signs of an impending storm.

While each investigation is unique, the risks that have to be managed are similar.  In addition to the regulatory fines and the distraction of a wide-scale probe, risks include litigation, loss of revenue, damage to reputation and, for executives and officials, even personal liability resulting in everything from termination to fines to imprisonment.

Laying the Groundwork for Change

As part of the investigative process, the Compliance Response Team (CRT) or the investigation team should develop a remediation strategy keyed to the findings of the investigation.  By adopting and implementing changes while an investigation continues, a company or agency may score valuable points with government, with politicians and with the public.  Organizations must build and develop a positive story of responsible response to scandals, and make remediation a priority to help improve the general perception of your organization.

Remediation: An Essential Early Step

When assessing an existing compliance program you must examine what controls failed, when, why and what needs to be changed as a result.  All best practices should be on the table for review, which should be conducted by a credible compliance expert.  Also, your Compliance Response Team should work closely with outside counsel.  Moreover, compliance must be a high-profile priority in your organization.

Plan for an Investigation

By their nature, Government probes are generally unexpected, and at first companies rarely know their scope and nature.  In the same way that organizations have disaster protocols for their operations, you should have procedures to respond to government inquiries, whistleblower letters, hotline tips and negative media reports. Prepared organizations are likely to respond faster and more comprehensively to outside inquiries.  In many situations, this may help limit the scope, nature and duration of an investigation.  Of course, if an organization wants to affect sweeping changes or new compliance initiatives, such adjustments come at a price that must be weighed against the benefits.  The level of preparedness should be based on an organization’s unique position and its risk factors, and there are a number of cost-effective procedures that a company can adopt that are also just good business practice.

Any internal investigation information must be shared to the extent relevant under the umbrella of privilege.  But can an organization produce sufficient information to provide “extraordinary cooperation” or “substantial assistance” without a waiver?  The government cannot demand waiver of attorney-client privilege or work-product doctrine except in extraordinary circumstances.  Unless absolutely necessary, it is best to assume no waiver exists.  Also, there is no such thing as a limited waiver.

Know What You Are Up Against

Government prosecutors are veterans of complex cases and cross-border investigations. Their ability to use and analyze large volumes of information and their level of focused resources, such as industry-specific or subject matter experts, have improved dramatically over the last 10 years.  Organizations should always assume that the government has the wherewithal and motivation to test the validity and consistency of the information you provide.  Further, the government has an extensive global reach thanks to international assistance treaties.

Conclusion:  Planning for Potential Outcomes after a Perfect Storm

Following an investigation your organization may face damage to its reputation, civil penalties or criminal fines, an overhaul of its compliance program, a corporate monitor, collateral litigation or changes in management.  To end a long-running nightmare, define your objectives and negotiate firmly.  You will want to avoid monitors, work to minimize penalties, minimize the duration and scope of any court orders (i.e., limit contempt of court supervision risk).  You will want to challenge disgorgement calculations and present alternatives. In doing this you will want to develop options with the government’s sensitivities and strategies in mind.  You will want to try and accommodate them on the small points.  You will want to prepare your organization, agency, company, shareholders and the public for any resolution.  Do not attempt to play games or speak without authority.  Finally, you will want to accept responsibility and embrace the subsequent change.