Finance Elevated virtual conference

Learn from tech experts at J&J, Microsoft, AT&T, Pitney Bowes and more, June 8, 10, 15 & 17.


Executive Considerations: Government Collusion with Corporate Counsel in Internal Investigations

by Stephanie Yonekura, Ann C. Kim, and Emily Lyons

While executives and employees should in most situations cooperate with their employer’s internal investigation, there are some things to be mindful of as they cooperate.

© NiseriN/iStock/Getty Images Plus

Corporate cooperation with the government in its investigations is a routine and expected corporate and government practice. The government encourages and incentivizes cooperation through both formal and informal policies that can lead to real reductions in penalties and decisions not to pursue corporate criminal and civil liability based on the extent of the cooperation. Although it is commonplace for a corporation in conducting a simultaneous internal investigation to share information with the government, there is a line that—in only the most extreme cases—may be crossed. This occurs when a corporation takes so much direction from the government in conducting its investigations and where the government is not conducting its own investigation that a court can deem the corporation’s investigation as an investigation on behalf of the government. In this context, corporate outside counsel have, in effect, become agents of the government. Although this raises concern, this type of conduct or situation rarely occurs, and will likely not occur in the future.

When Does an Internal Investigation Become a De Facto Government Investigation?

There is one recent example of a corporation’s internal investigation being viewed by the court as an investigation on behalf of the government. In U.S. v. Connolly, et al., 16 C.R. 370 (S.D.N.Y. May 2, 2019), the district court examined an aberrant set of facts concerning Deutsche Bank’s outside counsel’s relationship with the government during an investigation that led the court to conclude that the government “outsourced” its investigation to Deutsche Bank’s outside counsel. In Connolly, the Commodity Future Trading Commission (CFTC) began a LIBOR investigation into Deutsche Bank in 2008 that led the SEC to open an investigation, and also led the Department of Justice to indict one of Deutsche Bank’s employees. Post-conviction, the employee asked the Court to overturn his conviction on the basis that his Fifth Amendment right against self-incrimination had been violated as a result of compelled interviews conducted by Paul Weiss, Rifkind, Wharton & Garrison LLP (Paul Weiss), counsel for Deutsche Bank, who because of the close relationship with the government was de facto the Government for Fifth Amendment purposes. The court explained that it was “deeply troubled” by the relationship between the government and Paul Weiss. For example, the CFTC sent Deutsche Bank’s general counsel a letter stating that it “expect[ed]” Deutsche Bank to “cooperate fully” with its investigation and that it should “voluntarily conduct” an internal investigation using outside counsel. Despite the CFTC calling it a “voluntary” investigation, the court found that the investigation was demanded, not requested, by the CFTC, and the CFTC directed the investigation in a series of early-investigation phone calls with Paul Weiss, including requiring regular updates at regular intervals to the CFTC and SEC, directing Paul Weiss on whom and when to interview, and telling Paul Weiss what questions to ask.

Further supporting the court’s view that the government and Deutsche Bank’s outside counsel were colluding, “a Government official directed Roberto Finzi, a Paul Weiss partner, to ‘approach [an employee] interview as if he were a prosecutor’—a request with which Finzi complied by giving his ‘word.’” And the government expected regular “downloads” about the substance of the interviews and in some cases received Paul Weiss’s interview memoranda. By the end of the investigation, Paul Weiss interacted with the Government on “hundreds if not thousands of occasions”; there is evidence of at least 230 phone calls and 30 in-person meetings. Paul Weiss was also sharing its analysis of key documents and would flag “’notable’ evidence or information that [it] believed would be of particular interest” to the Government, supplemented document productions with information Paul Weiss learned from its witness interviews, and “provided the Government with real time updates about facts gleaned from employee interviews.” Paul Weiss then provided a final report, known as a “White Paper,” to the government agencies that summarized its findings and “a roadmap” of the case against Deutsche Bank and the individual employees. At the same time, however, the government was not using its available tools: it did not interview witnesses for three years during the investigation, and the Court concluded it likely did not “conduct a single interview of its own without first using a road map that Paul Weiss provided.” Although the court found that the government outsourced its investigation to Paul Weiss and therefore the employee’s interview statements that Paul Weiss obtained during its investigation were compelled statements “fairly attributable to the government,” the court did not find a violation of the employee’s Fifth Amendment rights because the government did not use that employee’s interview statements with Paul Weiss at trial.

What happened in Connolly is a vast departure from what normally happens in government and internal investigations. Generally, there are a number of reasons that a company will initiate an internal investigation, including receipt of a subpoena or an informal request for documents from the government, a whistleblower complaint, or a complaint to the company’s internal audit hotline. Under these circumstances, the corporation will typically hire outside counsel to conduct an internal investigation to determine whether there is any merit to the allegations, and if there is a government subpoena or request, to respond to that request. This internal investigation typically consists of collecting and reviewing documents and interviewing executives and employees, and the corporation expects that its executives and employees will cooperate with the investigation. In most cases, executives and employees should cooperate with the company’s internal investigation so that the company can get a complete picture of what happened and determine whether there is any merit to the allegations. During the course of the investigation, most outside counsel may periodically inform the government about the status of its investigation, and what information it has obtained through the course of its investigation. This may be done so that the corporation can show the government it is taking the investigation seriously and cooperating with the government so that the company can seek cooperation and mitigation credit. 

This is not what happened in the Connolly case. Taken alone, some of the dealings between Paul Weiss and the government are common in internal investigations. For example, a corporation may tell the government that it plans to interview certain witnesses so that the corporation’s investigation and investigative steps do not inadvertently adversely affect the government’s investigation by providing key witnesses with a preview of what the government may ask. Further, sharing information with the government during the course of the investigation in the form of presentations or a White Paper is a usual practice, and provides the company with an opportunity to present the evidence it discovers during the investigation in the light most favorable to the corporation, in an effort to avoid being charged, or if charges are unavoidable, to get the best settlement deal possible. Although the conduct in Connolly is alarming, it is not the norm. The government’s pervasive role in dictating Deutsche Bank’s internal investigation and not conducting its own investigation is what led to the court to find that the government used counsel for Deutsche Bank to conduct the government’s investigation.

Considerations for Executives in Cooperating with a Corporation’s Investigation

While executives and employees should in most situations cooperate with their employer’s internal investigation, there are some things to be mindful of as they cooperate. These considerations are the same whether the corporation’s investigation is independent from the government’s investigation or not. As a practical matter, however, corporate executives may not know the level of cooperation between the corporation and the government because most often the status of investigations is kept to a small, need-to-know circle in order to preserve both the attorney-client privilege and the integrity of the investigation. So it may be difficult for any executive to make an assessment similar to the analysis done by the court in Connolly. In light of this fact, executives should be mindful of their role in the alleged conduct at issue and consider whether they have any potential exposure or liability. Below are some factors to consider as an executive cooperates with the corporation’s investigation.

  • Does the executive’s interests diverge or may diverge with those of the corporation?
  • If there is reason to suspect that the interests of the executive and the employer do not align, the executive should obtain separate counsel to advise him or her on how best to proceed.
  • Make sure the executive has an understanding about the role of outside counsel and who that counsel represents. In almost all witness interviews during an internal investigation, outside counsel will provide the executive or employee with what is known as an Upjohn warning or a Corporate Miranda, which consists of advising employees that
    • counsel represents the corporation and not the interviewee;
    • the interview is privileged and confidential;
    • the attorney-client privilege belongs to the corporation and not to the individual; and
    • as the owner of the privilege, the corporation may waive privilege and disclose the contents of the interview to a third-party, including the government.
  • Do not depend on corporate counsel providing the executive with guidance on whether he or she should obtain separate counsel. Unless there is a concern about a conflict of interest, a corporation’s outside counsel will generally respond that he or she cannot provide any guidance on whether the executive needs to get separate counsel because that would constitute legal advice, and outside counsel does not represent the individual executive. However, depending on the jurisdiction, outside counsel may have an ethical duty to alert employees about potential conflicts and of the possibility of retaining separate counsel.

Connolly was an unusual case and does not comport with how the vast majority of outside counsel undertake internal investigations. Because the court in Connolly took serious issue with the subversive conduct between Paul Weiss and the government and issued such a serious rebuke aimed at the government, this case provides the government and all outside counsel with a cautionary tale on what not to do, and a situation like this is unlikely to occur again. As a result, as good corporate citizens, executives should cooperate with investigations. But executives participating as witnesses in internal and government investigations should also be mindful of whether they have any potential exposure or liability in any investigation. Where the executive does believe such exposure or liability may exist, the executive should consider requesting or finding separate counsel regardless of whether the government and the employer-corporation are colluding, or the government is outsourcing its investigation. If the executive detects any collusion and that he or she may be a target of the government’s investigation, then the government may have a future Fifth Amendment problem in using any evidence obtained while colluding with the corporation. At that point, the executive should already have separate, independent counsel by his or her side.

Stephanie Yonekura and Ann C. Kim are Partners at Hogan Lovells. Emily Lyons is a Senior Associate at Hogan Lovells.