The Federal Criminal Investigation - What to Expect

This article tracks an Antitrust Division investigation from its early stages and shows counsel's role in guiding a client through that investigation. Although we have tailored this content to the somewhat unique policies and procedures followed by the Antitrust Division, many of the descriptions and illustrations that follow would be applicable in an investigation, plea negotiation and prosecution by the U.S. Attorney's Offices and the various divisions and sections of the U.S. Department of Justice.

Most often, a federal grand jury investigation into anticompetitive behavior is instituted based on the strength of the statement of a whistleblower. Because of the secrecy requirements surrounding a federal grand jury investigation, the prosecutors are unable to reveal the identity of the whistleblower. Typically, the first stage in a grand jury investigation is either the issuance of subpoenas calling for the production of documents or - as is often the case these days - the execution of a search warrant.

In what has become known as the “dawn raid,” the government executes a search warrant by swooping unannounced into a company's offices and seizing documents and hard drives, often resulting in a literal shutdown of company for a period of time.

Of course a search warrant is most unsettling to a company not accustomed to having a team of FBI agents in its reception area at dawn or shortly thereafter to seize documents and computers and to attempt to interview employees. And because the government usually does not consider its “mere” execution of a search warrant to involve a deprivation of a company's employee's freedom of movement, custodial Miranda warnings are not provided. As a result, the employees often act as a deer in the headlights and do nothing to contact company superiors or company counsel.

An attorney should try to educate a company's personnel before the surprise dawn raid occurs in order to educate them regarding their rights and provide guidance on how to deal with the government without obstructing the investigation. Upon receiving that urgent call from an awe-stricken employee, counsel's initial task is to try to control the damage. It is advisable to immediately attempt to gather as many facts as possible from those believed to be responsible for the conduct that is being investigated. Sometimes the nature of that conduct can be gleaned or deduced from the types of materials sought by the search warrant.

When the search warrant is unenlightening, a call to the responsible agent or prosecutor is essential. In that initial conversation, the prosecutor is obliged to reveal - upon request - whether the company at issue is a fact witness, subject or target of the grand jury's investigation. See U.S. Attorney's Manual Chapter 9-11.151. After getting a feel for the scope and contour of the investigation, it is appropriate for counsel to sit down with management to identify those individuals who are reasonably believed to have information that is within the grand jury's investigation. In this regard, a decision that needs to be made quickly is when and under what circumstances to conduct interviews of affected individuals. This is especially true in antitrust investigations because of the significant benefits that can be realized by a company that qualifies for an award of leniency under the Antitrust Division's leniency program, which is discussed in greater detail below.

It is expedient and most effective to gather facts from the individual representatives of the company by using the company's outside counsel to conduct the interviews. At some point, usually at the conclusion of the witness interviews, the company can, but is not necessarily compelled, to offer to arrange for counsel for the individual. (This requirement may be governed by an employee's employment agreement or, in the case of officers and directors, applicable state law of the state of the company's organization.)

Contemporaneously with undertaking the interview process, the company must institute a document hold (that is, the suspension of the company's document retention/destruction policy) on all of its documents, especially electronic data. Often the agents executing the search warrant will seize computers or hard drives that contain electronic data in the form of documents and electronic mail, among other things, and the government has resources that could reveal the timing of any deletions of such electronic data. A timely instituted document hold allows the company to avoid being accused of document destruction, which could constitute obstruction of justice.

Even though things may look bleak for a company on the receiving end of a search warrant, there is still hope that the company could qualify for the antitrust division's leniency policy (Part B) and, if successful, avoid prosecution of not only itself, but its officers and employees as well. The key to obtaining leniency is to be the first to arrive at the front door of the Antitrust Division's office to apply for it. Of course, before the company can apply for leniency, it must conduct its own internal investigation in order to determine whether wrongdoing has taken place and, if so, the nature and scope of that conduct. If criminal conduct is discovered during that initial investigation, the company must attempt to determine who was involved, when the conduct occurred and what the conduct was. Once that preliminary investigation has been conducted and the company and counsel are satisfied that the company - through its officers and employees - has engaged in criminal conduct, the company must make the decision whether to seek leniency from the Antitrust Division.

Under the Division's leniency policy, if the company otherwise provisionally qualifies for leniency, the Division issues a “marker,” which equates to a kind of placeholder that designates the company as the first in the door, based upon the company's success in winning the leniency race. From that point forward, the company must conduct a thorough investigation in as short a time as possible; at the conclusion of that investigation, the company's lawyers must present a “proffer” to the Antitrust Division in order to obtain conditional leniency.

Counsel must be sensitive to the need for speed, thoroughness and decisiveness in conducting the internal investigation and evaluating whether applying for leniency is in the best interest of the company, its employees and officers (it usually is). Because winning the leniency race sometimes comes down to a matter of hours. A company who arrives 48 hours after its rival in seeking the leniency program's protections could face a sizable fine and prison time for the company and/or its principal while the rival who won the race (and its employees) escape prosecution entirely in exchange for cooperation with the government.

If leniency is unavailable, other options remain available to the client who is a subject or target of the investigation. If the facts developed from the internal investigation reveal unequivocal wrongdoing, it typically is best to discuss with the client the possibility of entering into plea negotiations with the government. On the other hand, if the facts developed instead show an explanation for the conduct or a defense to the anticipated charges, then it is appropriate to put the government to its proof and let the prosecutor know that it does not appear that a crime has been committed.

Under these circumstances, the Antitrust Division offers a review process that typically begins with the defense counsel trying to talk the local prosecutor out of the anticipated criminal case. If the local prosecutor remains unconvinced, there is a further appeal to the Deputy Assistant Attorney General, which is known as the “Last Supper” meeting. There can be both legal and factual reasons to support the pitch that is made at this meeting. In this regard, care must be taken not to reveal too much in the way of defenses; otherwise, the government may be able to use the information provided to plead around the defense. On the other hand, if a strong defense exists that could carry the day, consideration must be given to evaluating the risks and rewards for revealing the defense. The Last Supper meeting should be viewed as the time to reveal the client's health problems or to argue that otherwise-uninvolved company employees' jobs could be put at risk if the company's “key man” in a closely held business could cripple the company. Such facts can be persuasive in convincing the government either not to prosecute or to find some alternative such as a deferred prosecution or non-prosecution agreement. Of course these types of alternatives may not be available if the client can provide little or no evidence or cooperation to assist the government.

If these various alternatives are exhausted and it appears that prosecution will ensue, it is always advisable to attempt to agree with the government to turn the client in to avoid an arrest and the sometimes attendant publicity. There should be no reason for the government to refuse such an offer.

If an indictment is returned by the grand jury, the clock begins to tick regarding the filing of pretrial motions and the commencement of pretrial discovery. Strong motions to dismiss the indictment, to demand certain discovery and, in the proper case, to seek further particulars from the government regarding the charges are all important in setting the stage for trial. Each case is different and pre-trial motions must be tailored to the unique facts and circumstances. In this regard, counsel should send a signal to let both the judge and the prosecutor know that it will not roll over at any stage of the proceedings and will force the government to its proof from day one.

Meticulous trial preparation is a must in order to mount a successful defense of an indictment. The government has largely unlimited investigative resources to obtain documents and review them, to identify witnesses and interview them and to use experts to bolster its case. Also, it must be remembered that the government usually has devoted a number of months, if not years, to developing the facts that it believes supports its prosecution, and the defense has far less time to accomplish similar tasks.