Signs of a Federal Investigation

by Spilman Thomas & Battle, PLLC

[author: Sharon L Potter]

Federal statutes and regulations impacting the banking industry run the gamut from a basic forgery to fraud and insider trading. Financial institutions need to be informed and know where to turn if illegal activity is discovered by bank management or if the bank is the focus of a federal investigation.

When the management of a financial institution uncovers wrongdoing by one of its employees, officers or customers, the approach for handling the conveyance of the information to law enforcement or regulatory agencies often dictates how the institution fares down the road in the investigation. In light of mandatory disclosure requirements, corporate compliance issues and the risks inherent in sharing information without assurances regarding prosecution and privilege, it is certainly advantageous to consult experienced counsel before taking any overt action. The specific facts of uncovered wrongdoing will dictate how counsel will advise the institution to proceed, and this article provides an overview of the possible steps a bank confronts in the face of a federal criminal inquiry.

Situations often arise in which a bank only becomes aware of a crime having occurred due to signs of a federal investigation. The following scenarios place your company on notice that a federal inquiry into possible criminal activity is directed at you. First, colleagues or acquaintances might relate that law enforcement agents had approached them with questions about the company, specific employees or a particular incident. More likely, the bank might receive a grand jury subpoena served by mail or in person requiring the production of specific documents to a federal agency or to the United States Attorney’s Office. A bank employee might also receive a grand jury subpoena demanding his or her presence at a grand jury session to provide testimony and/or to produce documents. A subpoena sets forth specific time requirements, and it is important to heed to those deadlines. Involvement of counsel as soon as the subpoena is received can provide important guidance for compliance and ensure that appropriate mechanisms, like a legal hold on electronic and hard-copy documents, can be placed in effect for specific individuals within the company. Destruction or alteration of documents can lead to an obstruction of justice charge even where the remainder of the investigation proves fruitless. Therefore, once a company is on notice of an investigation, it will be important for management to provide specific directions to employees regarding the safekeeping of documents and the issuance of statements or comments that could impact the investigation.

Agents may also appear unannounced at your home or office with a search warrant to enter the premises to look for and seize specific items. At that point, law enforcement agents may be deep into their investigation. By obtaining the warrant from a federal magistrate, a law enforcement agent will have already appeared before a magistrate and sworn by affidavit to certain facts that point to the likelihood of a criminal violation. The magistrate must have found “probable cause”, i.e., that it is more probable than not that a crime has been committed, before issuing the warrant.

A search warrant is much more time-sensitive because a company usually has no notice whatsoever. Agents appear with the search warrant and company personnel generally must allow entry to the premises. Immediate contact with counsel will ensure appropriate level of coordination with law enforcement and the hiring of independent counsel where warranted. It is important for your employees to know where to turn for guidance during the execution of a search warrant, especially when they are subject to possible interviews by law enforcement. It is also important to work with your counsel to determine if some type of deferred prosecution or civil resolution is an available option.

In the worst scenario, you may find yourself or your company arrested and/or indicted. It is rare that an indictment will occur without any prior notice, but if an arrest occurs or your bank’s name appears on an indictment, you may wish to seek immediate advice from counsel. Although an indictment is merely a charging instrument and a defendant company is presumed innocent until proven guilty beyond a reasonable doubt, indictments generally occur at the end of an investigation. The charges contained in the indictment or arrest warrant will dictate the approach you and your attorney take as you begin for either trial or negotiations with federal prosecutors.

How can company management be prepared for such an inquiry? Be proactive within your organization. Implement compliance programs that include employee training, maintenance of training and safety logs and posted whistleblower rights. Communicate with your employees so that destruction of documents and false statements to investigators do not become issues. Ensure your company personnel are aware of your designated press contact person and coordinate any message through that individual or office.

Your reaction and first steps can sometimes dictate how the investigation proceeds. The many facets of a federal investigation suggest many facets to the approaches a company should take to prevent rash decisions with damaging repercussions. Establishing company protocol, especially with regard to document retention polices, will ensure a smoother reaction for the company if federal agents ever begin an investigation. Preparation, coordination and consultation within your company and with counsel are crucial to charting the best course of action when the signs of a federal investigation appear at your doorstep.

For more information, please contact:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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