Preparing for Increase in Government Investigations: A Corporate Legal Checklist

By Randi-Lynn Smallheer

The new Biden-Harris Administration has signaled its intentions to intensify government oversight in a number of industries and most major law firms with government investigations practices are forecasting that a sea change is on the way.

This would mark a discernible shift in government enforcement activity over the past five years. For example, the number of white collar crime prosecutions declined by 25% from 2015 to 2020, according to an Arnall Golden Gregory LLP analysis, which also found that civil enforcement actions by the Securities and Exchange Commission also dropped under the Trump Administration.

Another example is with the decline of the appointment of government monitors for FCPA enforcement. “While misbehaving companies and their general counsel have endured some 50 corporate monitors imposed by federal prosecutors over the past few years, the Trump administration saw their number dwindle each year until none were appointed in 2020,” reports Law360 Pulse.

The prospect of increased government investigations over the next four years has members of corporate legal departments sitting up and taking notice. The specter of the Justice Department rolling up to the front door is one of the top concerns that keeps in-house counsel up at night.

“Government investigations pose many risk management challenges,” notes a Pillsbury Winthrop Shaw Pittman LLP assessment of the risks associated with increased enforcement actions under the Biden Administration. “They are unpredictable, political and often public. If handled incorrectly, they can last for many years, spiral into multiple Congressional, criminal, and/or regulatory investigations at the state and federal levels, and generate serious reputational harm.”

The best preventive strategy for in-house counsel is to have a game plan in place for how your organization will respond to a government investigation. This means getting your internal processes and procedures locked down now so that when the Justice Department comes knocking, you are ready to act.

While there are numerous components of a well-prepared game plan, consider the following five key areas to address in advance of a potential government investigation:

1. Document Retention Policy

A sound document retention policy will carefully describe the records that a company’s employees should keep, set forth the length of time for which documents should be retained, include instructions for where and how to keep different files, and describe the types of files the company should not retain at all. The policy should specifically provide for the systematic review of files to determine whether the company should retain or destroy specific documents, and for the retention of all documents relating to pending or anticipated claims or litigation against the company or subject to a court order.

2. Evidence Preservation Standards

Your company must preserve evidence related to a pending or future litigation when the evidence is under your control and when you know — or should know — that the evidence is relevant to that potential litigation. There are a variety of conditions that trigger the duty to preserve evidence so it is important to have your records management procedures in place in advance of a potential investigation. Proper planning is particularly important given the potentially significant consequences flowing from a company’s loss or destruction of relevant corporate records. According to Jim Wagstaffe, a leading authority on pretrial federal civil procedure and renowned author of The Wagstaffe Group Practice Guide: Federal Civil Procedure Before Trial, a corporation’s failure to adopt appropriate preservation procedures may give rise to spoliation sanctions if the relevant information actually existed and was lost, destroyed, altered, or otherwise despoiled.  These sanctions may include cost shifting, adverse jury instructions, or even default judgment.

3. Litigation Hold Notices

Once your company may reasonably anticipate a government investigation or litigation, it must suspend its routine document retention and destruction policies and issue a litigation hold notice to ensure preservation of relevant corporate documents. As explained in The Wagstaffe Practice Guide: Federal Civil Procedure Before Trial, a litigation hold notice (also called a litigation hold) notifies your key employees of their duties and legal responsibilities. As you prepare your litigation hold, simplicity and consistency are good rules of thumb. Your goal is to draft the litigation hold such that the average employee can easily determine what actions he or she must take and what types of materials he or she must preserve.

4. Data Custodian Interviews

As early as possible, you should identify and interview the key company employees who are likely to possess or know the location of potentially relevant documents and electronically stored information. These individuals include not only actual , but also the company’s IT staff knowledgeable about the company's data management and storage practices. Conducting these interviews early in the preservation process will help facilitate the company’s compliance with its preservation obligations. It also helps the company proactively identify and gather key evidence relevant to any government investigation or litigation.

5. Employee Training Presentations

It is also important for in-house counsel to train corporate employees on their legal responsibilities and important duties in the event the company is subject to a government investigation. This includes an explanation of when you need to suspend routine document retention and destruction policies. Consider conducting a Litigation Holds 101 training session for key custodians emphasizing the purpose of a litigation hold, why litigation holds are important, the parameters of a litigation hold notice, records subject to a litigation hold, and an employee’s duties and responsibilities under the hold.

Creating a game plan for how to deal with a potential government investigation is somewhat akin to buying a life insurance policy; it’s something in which you invest to prepare for and guard against a future risk in the hope that you will never need it. Risk management is a critical function of corporate legal departments and the risk on the horizon is that many more companies will likely become targets of government investigations in the years ahead than in recent history.

LexisNexis provides a wide range of content to help corporate legal departments proactively establish a proper records management framework that will assist the company in the event it is subject to a government investigation — including expert insights in The Wagstaffe Practice Guide: Federal Civil Procedure Before Trial, as well as a Document Retention Policy Checklist, which lays out the steps to take when establishing a document retention policy to manage the handling, storage, maintenance and destruction of corporate records in the ordinary course of a company’s business.

Following this five-item checklist is a crucial step in implementing the policies that will help ensure your company is ready to respond at any given moment. Get ready now, not when the Justice Department is knocking on the front door.