On May 2, a federal district court judge minced no words in castigating the Government for effectively “outsourcing” its investigation into whether a bank manipulated the London Inter-Bank Offered Rate (LIBOR) to the bank itself and its outside counsel. The ruling reiterates the need to carefully consider and balance a company’s desire to cooperate with the Government during an internal investigation with considerations of employees’ Fifth Amendment rights.
In its order denying defendant’s motion for relief under Kastigar1 in United States v. Connolly, Docket No. 1:16-cr-0370, the United States District Court for the Southern District of New York expressed concern that “[t]he Government’s investigatory strategy . . . was to let the Bank carry its water for it” in conducting the investigation.
While Connolly is directed toward prosecutors, the decision also has implications for companies conducting internal investigations. Companies often share the results of their internal investigations with the government in an attempt to earn cooperation credit and avoid sanctions. Irrespective of whether a dialogue with the Government begins when a company self-reports the results of an internal investigation or while the internal investigation is ongoing, companies should structure the internal investigation to anticipate what information the Government will need and carefully navigate additional requests to avoid the Government usurping the internal investigation.
In the Connolly case, the court found that the internal investigation by the bank and its outside counsel was “fairly attributable” to the Government and that interviews conducted during the same were effectively “compulsory.” The bank and its outside counsel interviewed the defendant—a bank employee—four separate times over four years. The defendant was “compelled, upon pain of losing his job,” to sit for four separate interviews over four years with the bank and its outside counsel and was thereby coerced into providing potentially self-incriminating information that could amount to a violation of his Fifth Amendment rights.
The Court differentiated the circumstances in Connolly from those in William W. Gilman, Edward J. McNenney Jr. v. Marsh & McLennan Cos. Inc., Docket No. 15-0603-cv, which also originated in the Southern District of New York.2 In Gilman, the Second Circuit found “no evidence that [the New York Attorney General] ‘forced’ Marsh to demand interviews” or otherwise intervened, steered, or influenced how those interviews were requested or conducted.
The Court in Connolly could not reach the same conclusion. In Connolly, the Government ordered the bank to conduct the investigation in a particular manner, interview particular people, and report its findings to the Government on a regular basis. Specifically, the Court noted evidence that the Government directed the bank to investigate the defendant on its behalf and that the first interview was actually conducted at the Government’s request and before the Government itself attempted to speak with the defendant.
Internal investigations are not unusual, and indeed are necessary when assessing compliance, rooting out failures and wrongful conduct, and helping companies best position themselves upon learning of a governmental inquiry or investigation. Nor is it unusual for a company to cooperate with the Government during its investigation or to share internal investigative findings with the Government, in the hopes of avoiding prosecution or obtaining cooperation credit.
What this recent ruling signals, however, is that courts recognize limits to how far a company should go in its attempt to assist or cooperate with the Government, especially, vis-à-vis requiring employees to submit to interviews conducted at the request of the Government. Companies must engage in a delicate balancing act to avoid unwittingly aiding in violating a defendant’s Constitutional rights by effectively compelling an interview while acting as a de facto arm of the Government. Additionally, the costs a company might incur in defending against a wrongful termination claim for dismissing an uncooperative employee may be exacerbated when the claim also alleges Constitutional violations resulting from an internal investigation conducted at the direction of the Government.
When conducting an internal investigation, companies should try to anticipate what information will be useful to the Government. In addition to garnering cooperation credit, providing information that furthers prosecutors’ goals may eliminate the need for additional requests and reduce the likelihood that the Government will hijack a company’s internal investigation. Compliance and legal officers should carefully assess additional requests and directives from the Government and establish boundaries as necessary. Considerations include whether the government will be conducting its own parallel investigation, something the court in Connolly used to differentiate from the Gilman case.
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1United States v. Kastigar, 406 U.S. 441 (1972).
2 More information on the Gilman case can be accessed here: https://us.eversheds-sutherland.com/NewsCommentary/Legal-Alerts/190483/Legal-Alert-Cooperate-or-Terminate-Second-Circuit-Protects-Companies-that-Terminate-Employees-for-Failure-to-Cooperate-with-Investigations.
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