Published on January 16, 2014
CLE Seminar for In-House Counsel January 7, 2014 San Francisco, California Ethical Obligations of In-House Counsel in Litigation and Regulatory Investigations Stephen D. Libowsky Partner +1 312 876 2529 firstname.lastname@example.org
ISSUES • Attorney-Client Privilege • Work Product Doctrine • Document Retention • Document Production In Litigation • Who Is The Client • Foreign Corrupt Practices Act • Compliance Programs
Lawyers’ Ethical Duty of Confidentiality • Model Rule 1.6(a): ―A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation, or the disclosure is permitted by‖ these Rules or law. • Rule 1.6 only prevents disclosure of privileged information or work product. ―Confidential‖ is not the same as ―privileged‖ or ―immune.‖ • Lawyers are always bound by their duty of confidentiality. • Who can you talk to about certain subject matters?
The Attorney-Client Privilege • One of the oldest common law privileges; to protect confidential communications. • Privilege belongs to the client [who is that?] and exists for the client’s benefit. • Need: • Communication; • Between Attorney and Client [who is that?]; • For the purpose of rendering or receiving legal advice; • Communication is meant to be confidential; and • Communication is maintained as confidential.
The Attorney-Client Privilege • Communication must satisfy each element necessary to establish the privilege—not how the communication is identified or labeled. • A corporation is entitled to assert the attorney-client privilege. But who speaks or acts on its behalf? • The control group test: Employees in positions to control or determine corporate action in response to legal advice; i.e., a member of senior management. • The subject matter test: Employees who can communicate to secure legal advice; at a superior’s direction; responsibilities include the subject matter of the communication; only goes to those persons who need to know.
The Attorney-Client Privilege • The ―modified Harper & Row test,‖ or the ―Diversified Industries test.‖ Harper & Row Publishers, Inc. v. Decker, 423 F.2d 487 (7th Cir. 1970); Diversified Industries, Inc. v. Meredith 572 F.2d 596 (8th Cir. 1977). Employee’s communication privileged if (1) made to secure legal advice; (2) at the direction of his corporate superior; (3) so the corporation could secure legal advice; (4) the subject matter is within the scope of the employee’s duties; AND (5) not disseminated beyond those persons who need to know its contents. Why was the attorney consulted? Cannot route routine information through counsel to prevent later disclosure. • General partnerships: all partners are considered to be the client in all attorney-client communications involving partnership affairs. Whether employees of a general partnership or a limited partner’s communications with partnership counsel are privileged is determined by the tests applied to corporations.
The Attorney-Client Privilege • Courts narrowly construe the attorneyclient privilege; promote policy of full disclosure of information. • The privilege ordinarily does not (a) protect client’s identity or the facts communicated, (b) shield communications generated or received by an attorney acting in some other capacity, or (c) shield communications in which an attorney is giving business advice rather than legal advice. • The attorney-client privilege is not absolute and may be waived either voluntarily or by implication.
The Work Product Doctrine • Unlike the attorney-client privilege, which is solely the client’s to assert, work product immunity is also held by the lawyer. Either the lawyer or the client may assert it to avoid discovery. • The work product doctrine protects lawyers’ effective TRIAL PREPARATION by immunizing certain information and materials from discovery. • Two categories or types: ―fact‖ or ―ordinary‖ work product, described as ―tangible‖ work product; and ―opinion‖ or ―core‖ work product, termed ―intangible‖ work product. Tangible work product includes memoranda, notes, witness statements, and the like created in anticipation of litigation by or for a party, or by or for the party’s representative. Fed. R. Civ. P. 26(b)(3). ―Opinion‖ work product refers to an attorney’s conclusions, legal theories, mental impressions, or opinions. • The work product doctrine is codified in Federal Rule of Civil Procedure 26(b)(3) and its state counterparts.
The Work Product Doctrine • Work product protection is not absolute and may be abrogated in any particular case depending on other available sources for the information sought, the parties’ relative resources, and the need to protect the expectation of confidentiality. • Opinion work product receives almost absolute protection against discovery. Discovery of opinion work product may be permitted only where the attorney’s conclusions, mental impressions or opinions are at issue in the case, and there is a compelling need for their discovery.
Losing the Privilege • Express Waiver by Client Voluntarily • Crime/Fraud Finding: client participated in, or planned fraud/crime at the time of communication with lawyer. United States v. Richard Roe, Inc., 168 F.3d 69 (2d Cir. 1999); State v. Philip Morris, Inc., No. C1-948565 (Minn. Dist. Ct. 519197). • Waiver by Trustee/Receiver/Examiner on Behalf of the Debtor • Plea Bargain Condition • Submitting Privileged Documents to Government – ―Selective Privilege?‖ • Company gives up privileged documents to cooperate with the government. Absent a specific confidentiality agreement, all circuits but one hold that the privilege is waived for all purposes. In Re Pacific Corp., No. 11-71844 (9th Cir. 4/17, 2012)(total waiver); In re Columbia/HCA Healthcare Corp. Billing Practices Litig., 293 F.3d 289, 302-04 (6th Cir. 2002)(total waiver); Diversified Indus. Inc. v. Meredith, 572 F.2d 596 (8th Cir. 1978) (en banc)(not all strategic disclosures constitute total waiver).
Losing the Privilege • Tax Shelters and Aggressive Tax Planning • United States v. Frederick, 182 F.3d 496 (7th Cir. 1999): attorney-client privilege and work product doctrine limited to situations where the law firm represents client in an audit or in litigation. As to other situations, ―the taxpayer should not be permitted, by using a lawyer in lieu of another form of tax preparer, to obtain greater confidentiality than other taxpayers.‖ Tax accrual work papers prepared to justify a reporting position: not privileged. U.S. v. Arthur Young, 465 U.S. 805 (1984). • Reliance on “Advice of Counsel‖ • Section 80 of the RESTATEMENT provides as follows: 80. Putting Assistance or a Communication in Issue (1) The attorney-client privilege is waived for any relevant communication if the client asserts as to material issue in a proceeding that: (a) the client acted upon the advice of a lawyer . . . .
Losing the Privilege • Communications with Testifying Experts • Communications with testifying experts generally are not covered by the privilege or work product doctrine. Work-product protection now extends to drafts of Rule 26(a)(2)(B) expert reports, Rule 26(a)(2)(C) party disclosures and to attorney-expert communications. Three exceptions would allow discovery of attorney-expert communications relating to: • Compensation; • Facts or data the attorney provided to the expert and that the expert considered in forming the opinions to be expresses; and • Assumptions that the attorney provided to the expert and that the expert relied upon in forming the opinions to be expressed.
Losing the Privilege • Audit Letter Responses • The ABA Statement is structured so that, except in rare cases, the lawyer is not required to state anything other than is what is public record. No cases have found that the privilege or work product protection is waived by such a letter. Courts have not concluded whether Section 303 of the Sarbanes-Oxley Act of 2002 and SEC Rule 13b2-2(b)(making it unlawful to ―mislead‖ an auditor) cause a waiver. • The Financial Accounting Standards Board keeps proposing to expand the quantitative and qualitative financial statement disclosures required for loss contingencies related to pending and threatened litigation. • The heightened disclosures required in the proposed amendments to Statement of Financial Accounting Standard 5, ―Accounting for Contingencies‖ (FAS 5), could have a dramatic impact on litigation assessments, preservation of the attorney-client privilege and work product protection, conflicts issues, lawyer-client relations, and ultimately on audit letter responses.
Losing the Privilege • “Cooperation Clause” in Insurance Policies: Many insurance policies contain ―cooperation clauses,‖ which may require insureds to turn over information to insurers. Courts have construed cooperation clauses differently regarding whether an insured must turn over privileged information. • Communications Between Public Relations And Lawyers: Are communications between lawyers and the public relations consultants privileged? Cases are not been uniform, usually turning on whether the consultant is ―part of the trial team.‖
Losing the Privilege • In-House Lawyers Wearing Several Hats • Comment i to 73 of the RESTATEMENT provides: Communications predominantly for a purpose other than obtaining or providing legal services for the organization are not within the privilege. • Lawyer Serving on Board or as Officer • Rendering legal services or giving legal advice or acting as a board member/officer? • Death of a client • Majority rule is that the privilege does not terminate at the death of the client. A lawyer for a deceased client has a continuing obligation to assert the privilege.
Losing the Privilege: Technology Issues • Whatever the technology, various issues arise: • Does an intercepted communication cause a waiver of the attorney-client privilege or the work product exception to discovery? • Does use of a given technology violates the confidentiality provisions of Rule 1.6? • Most concerns center on whether ―hackers‖ can intercept a telephone calls or email messages. To date, actual risks of disclosure of confidential client information arise from the carelessness of lawyers or their staffs rather than the efforts of hackers. • Digital cordless or cell telephones may be used to transmit confidential client information without violating the ethical duty of confidentiality, and such conversations should be protected by the attorney-client privilege.
Losing the Privilege • Communications with Close Relatives (and Certain Other Third Parties) • Martha Stewart sent an email to her lawyers setting forth circumstances surrounding her sale of ImClone stock and forwarded email to her adult daughter. Court: attorney-client privilege waived; work product immunity not waived since sharing work product with persons allied with client does not pose risk of opposition obtaining the information. See also Witte v. Witte, Fla. Dist. Ct. App. 4th Dist., No. 4D113520(4/4/12)(infirm woman who had adult daughter at attorney meetings may have waived privilege).
Losing the Privilege: Technology Issues • Careless use of telephones and computers in public places. Lawyers and clients must be careful not to have confidential communications on telephones while in public places within earshot of others or use computers that can be seen by others on trains and planes. • Social Media • Facebook, My Space, Twitter • Rules on use? • Discovery obligations to search for relevant and called for documents? • ―Text messaging‖ is probably the most casual (and truncated) form of electronic communication. The same care should go into the preparation of text messages as that used in hard-copy letters, memoranda and email security.
Losing the Privilege: Email and the Internet • Information technology creates many issues for lawyers. Under ABA Model Rules 1.1 (Competency) and 1.6 (Confidentiality of Information— see Comments  and ), lawyers may have a duty to use technology competently and to exercise reasonable care in transmitting messages over the Internet. • Using the Internet without encryption or some other protection may or may not be a violation of confidentiality and may or may not trigger a waiver of the attorney-client privilege. Most state ethics opinions, and at least one court, agree that, absent unusual circumstances, such as where highly confidential information is involved, it is ethical for lawyers to use email without encrypting the text. • Web sites often store files called ―cookies‖ on a computer’s hard drive. The cookie informs the site of certain things about your system, such as how often you have accessed that site. Cookies have the potential to capture personal, and perhaps confidential information.
Losing the Privilege: Email and the Internet • ―Instant messaging‖ (IM) allows users to exchange messages in real time as long as both users are online, and, for client-related communications, is fraught with risks. More informal than email. • IM technology can document off-the-cuff comments. IM software may expose a system to hackers or permit easy interception of messages. • What to do when someone visits and asks to connect to the Internet by using an ethernet or wireless connection at your offices. Never allow third parties to access the Internet by connecting to your local area network (LAN). • Deleting Does Not Destroy a File. Many people believe that when they place a document in the ―recycle‖ or ―trash‖ icon, it is permanently deleted and cannot be recovered. WRONG. KNOW AND UNDERSTAND YOUR BACK-UP SYSTEMS. • Erasing Files on Discarded or Rented Hardware. Companies sometimes rent hardware, particularly laptops, from third parties. Everyone needs to be reminded that before a laptop is returned to the vendor, all confidential information should be effectively removed.
Losing the Privilege: Email and the Internet • USB Flash Drives. USB flash drives, pen drives, key drives, or thumb drives are small devices which plug into USB ports and can transport large amounts of information anywhere. The devices can be easily misplaced and can allow confidential information to be viewed by outsiders. Caution employees against transporting documents on these portable storage device. Password protected? • Backup and Archival Issues. Most companies back up everything in their networks to address disasters; backups allow firms to recreate their systems if main computer system is destroyed or inaccessible.
Losing the Privilege: Email and the Internet • Use reasonable care to prevent confidential information in metadata from being revealed to third parties. Use software programs that purport to ―scrub‖ metadata. Attachments to emails sent from public and portable computing devices usually do not go through a scrubber. Send it to someone at a company connected computer for scrubbing. • Email messages are backed up or stored somewhere, so assume that they will exist indefinitely. Use appropriate care in drafting email. In addition, many companies receive and store voice mail messages on their email systems. As a result, leaving a voice mail, may be effectively just as if you sent an email.
Losing the Privilege: Email and the Internet • Using wrong addresses or sending the wrong attachments with an email will raise the same privilege issues as paper documents erroneously sent to an adversary or any third party. • Some email programs contribute to the problem by placing the “Reply” and the “Reply to All” function choices in close proximity on the program’s task bar. Consider removing the ―Reply to All‖ function and force use of a ―drop-down‖ menu activate the ―Reply to All‖ function. This may make it less likely that someone will accidentally choose the wrong reply function. • Many use browsers on computers accessible to third parties, such as those in hotels or the offices of others. Without proper precautions, anyone who uses the computer after you may be able to gain access to the company’s network.
Losing the Privilege: Email and the Internet • Portable computing devices (laptops, BlackBerries, Androids, and iPhones are the only computers many now use. Password protected? On a backup schedule? Plan to protect data on lost or stolen portable computing devices? A laptop or PDA left in ―sleep‖ or ―hibernate‖ mode can be reactivated by the finder or thief with all the access privileges that the owner has while logged in, including remote access to the company’s network. From a security perspective, it is best to log off when finished with a session with a laptop or to set up the ―hibernate‖ feature to require log in upon awakening. Can you wipe devices ―clean‖ remotely if lost or stolen?
Losing the Privilege: Email and the Internet • Because the increasing amount of unsolicited email (spam), many companies use message-filtering services or programs to block spam. Spam wastes time, slows down systems and contains viruses, so blocking spam is a necessity. However, in filtering out undesirable spam, a system also blocks legitimate email. The more aggressive the spam filtering, the more likely legitimate email will be blocked. In some cases, neither sender nor recipient knows that emails were blocked. What is your system to indicate blocks? Do employees know to regularly check the spam filter? Email notices of court dates, regulatory filings, etc., may be missed.
Losing the Privilege: Email and the Internet • Temporary Employees • Use of computer, servers, LAN • Workspace (access to which files and documents) • PDAs • Place of work (Home/Offsite) • Work of other attorneys, firms • Discovery • Obligation to produce or object • How to check discoverable materials in files, computers, servers, PDAs, all computer storage places • Broadcom v. QualComm – Sanctionable Conduct vs. Excusable Conduct vs. Negligent Conduct vs. Miscommunicated Conduct
Common Interest Arrangements • General • There are times that those who share common interests want to coordinate their efforts without destroying the privileged status of their communications with their respective lawyers. Thus, there is within the law of attorney-client privilege the ―common interest doctrine,‖ which is an exception to the law of waiver. The common interest doctrine effectively widens the circle of people to whom clients may disclose confidential communications. • Joint Defense Agreements in Litigation • The easiest way to present a unified defense would be for all of the defendants to hire a single lawyer. Because representation by a single attorney is often impossible, however, multiple defendants represented by separate lawyers often agree to coordinate their defense by way of a ―joint defense agreement.‖ • The joint defense privilege also protects defense group members’ work product from discovery.
Common Interest Arrangements • Joint defense privilege (1) protects communications made in the course of a joint litigation effort (such as within the confines of a joint defense group) if (2) communications were designed to further that effort. • The communications must have been made in confidence and must further the parties’ joint defense. If communications instead relate to claims that the parties may have against one another, for example, they are discoverable. • A waiver of the joint defense privilege requires the consent of all members of the joint defense group.
Document Retention • Where are the documents? • Custodians • Computers • Servers • Clouds • PDAs • Thumbdrives/discs • Third Parties • Storage Facilities
Document Retention • Schedules and Procedures • Laws, Regulations, Industry Practice • Destruction Dates for Storage Boxes On Or Offsite • Electronic Materials • Rules • Back-up Systems • Important Documents: Bonds, Notes, Contracts, Deeds, Titles, I nsurance Policies • Personal Records • Tax Records • Employee Departures • Technology Changes
Document Production in Litigation •Hold Procedures and Obligations •Where Are The Documents? •Issues • Cost to review and analyze • Who will review and analyze: in-house lawyers, outside lawyers, temporary lawyers • Search Terms: Balancing costs versus finding good/bad documents
Document Production in Litigation • Protective Orders • Who can view • Vendors • Obligations To Supplement • Who Is Managing The Production
Who Is The Client? • Company • Board of Directors • Special Committee of the Board • Officers • Employees • Joint Venturers and Partners • Spouses/Family members of Officers and Directors
Foreign Corrupt Practice Acts The Playing Field Has Changed – More anti-corruption treaties and laws – Expanded definition of bribes – More investigations and prosecutions – Rising benchmark for compliance programs – More anti-corruption initiatives
Anti-Bribery Laws In The World • Most countries have anti-bribery laws • Directed against bribery of domestic officials • Previously, only United States prohibited bribery of foreign officials • Global legal framework has changed dramatically in last decade • 60+ countries have foreign bribery laws as a result of OECD Convention • 140+ countries have similar laws as a result of UN Convention Against Corruption
Host Country Laws • Host Country laws historically are: • Confusing and even contradictory • Don’t reflect local customs and are often ignored • Applied arbitrarily and inconsistently • Cover public officials but not relatives • Punishment usually is severe • Applicable only to individuals • Company’s employees and representatives who work or reside in host country at risk • These laws will gradually change as UN Convention Against Corruption takes effect
FCPA’s Two Prongs • Anti-bribery Provisions: • Prohibit bribery of foreign government or political officials for the purpose of obtaining or retaining business or securing any improper business advantage. • Books and Records Provisions: • Require SEC-registered or reporting issuers to make and maintain accurate books and records and to implement adequate internal accounting controls.
Anti-Bribery Prohibited Acts • It is unlawful for: • An issuer, domestic concern, or anyone acting within the jurisdiction of the United States • with ―corrupt intent‖ • directly or indirectly • to offer, pay, promise to pay, or authorize payment • of ―anything of value‖ • to a ―foreign official‖ • for the purpose of obtaining or retaining business or securing any improper business advantage.
To Whom Do The Anti-Bribery Provisions Apply • Any ―issuer‖ that files reports to the SEC or trades equity or debt on a U.S. exchange. • Includes any foreign company that trades, for example, American Depository Receipts (ADRs), on a U.S. exchange. • Any ―domestic concern.‖ • Includes U.S. citizens, nationals, and residents as well as any entity (corporation, partnership, etc.) that is organized under the laws of the United States or a U.S. territory or that has its principal place of business in the United States. • Any ―person,‖ including an organization, wherever located, that, while in the territory of the United States, does any act in furtherance of the prohibited conduct. • Government argues minimum contacts include emails, telephone calls, transfers through correspondent bank accounts in U.S. intermediary banks.
Direct or Indirect Payments Covered by Law • Statute prohibits unlawful payments directly or indirectly through a third party. • Many enforcement cases involve indirect payments. • Examples of third parties through whom illegal payments have been made: • Agents or consultants • Distributors • Joint venture partners • Lawyers/accountants • Service providers
Does a Payment Need to be Made? NO! • Offers, promises, or authorizations to make prohibited payments are just as illegal as actually making a prohibited payment. • The simple offer of a payment is enough for liability.
What Qualifies as “Anything of Value” • Anything of Value = Any Benefit. • Meets other elements of prohibited payment. • Examples include but are not limited to: • Cash, gift card, voucher, coupon • Entertainment or travel • Gifts above token or modest value • Educational opportunities • Contributions to political parties or officials • Charitable contributions • Investments or property • Use of home, automobile, or yacht, etc. • Job to a family member or one with personal relationship with foreign official.
How is “Foreign Official” Defined? • DOJ and SEC read it very broadly. • Definition includes: • Foreign government employees or officials. • Political officials or members of their staffs. • Employees of public international organizations. • Candidates for political office. • Has also been interpreted by DOJ to include: • Employees of government-owned or controlled businesses. • Employees of state-owned or state-controlled hospitals (Syncor). • Employees of state-owned or state-controlled media outlets, e.g. Chinese journalists (DOJ Opinion Letter 08-03). • 33-38% state-owned company (Comverse Technology).
FCPA Record Keeping • Affirmative duty to maintain accurate records. • Requires Issuer to keep books, records and accounts which, in reasonable detail, accurately and fairly reflect transactions and disposition of assets. • Reasonable detail is such level of detail and degree of assurance as would satisfy prudent officials in conduct of own affairs. • Provisions apply to all payments, not merely sums that would be material in traditional financial sense
Penalties for Violation of FCPA Provisions • Significant Monetary and Criminal Penalties. • Antibribery Violations: • Fines up to $2 million per violation. • Culpable individuals may face fines of up to $250,000 per violation and/or imprisonment for up to five years. • Books and Records and Internal Control Violations (Willful): • Corporate fines in excess of $25 million for a company. • Fine up to $5 million and/or imprisonment for up to 20 years for culpable individuals.
Possible Collateral Consequences of FCPA Violation • Termination of government licenses. • Debarment from government contracting programs. • Disgorgement of a company’s profits on contracts secured with improper payments. • Tax implications. • Shareholder litigation. • Foreign enforcement actions. • Appointment of independent compliance monitors.
Dodd-Frank “Whistleblower” Provisions • Final SEC rules approved on May 25, 2011. • One who ―voluntarily provides‖ the SEC with ―original information‖ that leads to fines, disgorgement or other monetary sanctions greater than $1 million may receive an award of between 10% and 30% of those sanctions. • Attorneys, accountants, compliance personnel, and persons retained to conduct an internal investigation cannot become whistleblowers unless company acts in bad faith in following up on a problem. • The company’s previous receipt of a government request for information from does not keep an individual employee’s offer of information from being ―voluntary.‖ • Whistleblower’s culpability may result in a reduced award, but only barred completely in criminally convicted. • A whistleblower can report internally first and wait 120 days before reporting to the SEC, but is not required to do so. • Strong anti-retaliation provisions for whistleblowers.
Overview of the UK Bribery Act 2010 • Entered into force on July 1, 2011. • It is not retrospective, so previous anti-bribery laws are still relevant. • Makes it an offense for both an individual and a commercial organization: • to give or receive a bribe • to offer, promise, request or agree to receive a bribe • to bribe a foreign public official • If a commercial organization has committed one of the bribery offenses referred to above, then ―Senior Officers‖ who have ―consented or connived‖ in the commission of the offence are also liable. • The Act applies to public and private sector bribery, both UK domestic and foreign.
UK Bribery Act 2010 • Prohibits bribes of government officials or private individuals anywhere in the world. • Individual and corporate penalties. • More stringent than some other anticorruption laws, such as the U.S. FCPA
Comparison to FCPA • Extends to private, commercial bribery. • e.g., payments to an employee in procurement department to favor bid. • No carve-out for facilitation payments. • Dependent on prosecutorial discretion. • No formal advisory service (cf. opinions provided by U.S. AG). • Jurisdictional reach, e.g., could catch U.S. company with any business in the U.K. making facilitation payments in Indonesia. • No discretion on imposition of public procurement ban. • Current uncertainties in UK re plea bargaining.
Bribery Law May Also Be Less Stringent Than FCPA In Some Respects • Guidance suggests may be less potential exposure for bribes by a JV of which a company is a member. • Indirect benefit to a JV partner solely because of its equity ownership in a JV company may be insufficient for liability absent evidence that the bribe was paid specifically "with the intention of benefiting that" partner. • Also, seems that in a contractual JV other partners may escape liability for bribes paid by the operating partner. • More lenient treatment of ―hospitality‖ expenditures. • Guidance expressly permits hospitality and expenses designed to "improve the image of a commercial organization" or "establish cordial relations." • Approving references to "fine dining" and entertainment of both an official "and his or her partner.― • The MOJ Guidance states that in the case of "hospitality, promotional expenditure or facilitation payments" prosecutors will "consider very carefully" whether prosecuting would be in the public interest.
Integrated Anti-Corruption Compliance Approach: Key Themes • ―Tone From the Top‖: Business leaders should promote anti-corruption principles and be personally accountable for compliance and ethical behavior in their units. • Compliance Organization: Intelligently structured compliance organizations identify and mitigate risks, scrutinize high-risk activities, and advise business leaders and the Board directly on operational and compliance matters. • Training: Training ensures that employees are able to identify and respond to risks. • Review & Approval Tools: Automated and user-friendly review and approval tools facilitate centralized decision making on global compliance matters. • Reporting: Employees should be able to report corruption concerns easily, anonymously, without fear of retaliation, and with assurance that the issues will be addressed promptly.
Integrated Anti-Corruption Compliance Approach: Key Themes • Incentives & Discipline: To provide incentives for employees to comply with laws and company rules, organizations should consider compliance in determining compensation and take appropriate disciplinary actions. • Investigating Potential Problems: Quickly and objectively investigating potential compliance problems projects a strong ―tone from the top‖ and allows organizations to identify areas of risk. • Financial Controls: Robust financial controls ensure that funds are only released as authorized by company policies—and not for illicit purposes. • Integrity Due Diligence: Due diligence is the best way to guard against potential counterparties acting corruptly or fraudulently. Companies should conduct significant due diligence on potential M&A targets. • Sales & Marketing Controls: Companies should implement controls to govern interactions with government officials, procurement, contracting, lobbying, marketing expenditures, and financial transactions.
Integrated Anti-Corruption Compliance Approach: Key Themes • Supplier Contracting Controls: Because procurement presents risks, vendors should be treated as counterparties and subjected to compliance due diligence, which should include screening for risk factors and ―red flags.‖ • Monitoring And Auditing: Vigilant monitoring and internal audits play key roles in evaluating the effectiveness of companies’ compliance controls and activities.
COMPLIANCE PROGRAMS • Why is Having A Compliance Program Important? • First and foremost, to avoid a violation in the first place. • Second, because failing to try to establish a reasonable program may expose the Board members to shareholder liability. • Third, to possibly obtain more favorable consideration from the authorities at the charging stage. • And lastly, to potentially qualify for a reduction in your culpability score if a violation occurs. • Corporate Code of Conduct.
COMPLIANCE PROGRAMS • Program(s) Topics • Antitrust • Environmental • FCPA • Gifts, Entertainment and Social Events • Government Contracting • Health Care Information • Money Laundering/Financial Regulations • Securities
COMPLIANCE PROGRAMS • Internet or video training of specific topics • In-person training sessions • Internal processes for monitoring compliance with stated policies and procedures • New employee training
Key Issues Under the Guidelines • Need real, consistent and documented procedures and processes; ad hoc compliance efforts are not a ―program.‖ • The people in charge of the program must be independent of business management and have a clear and independent reporting line to the Board. • But a paper program is not enough; need demonstrable management ―buy-in‖ and their active support and participation to be able to show a true ―culture of compliance.‖ • Communication and training on what is required of employees needs to be ―practical‖ and specifically tailored to their business. • Need to consider how to handle monitoring and auditing and continuous risk assessment and program modification as part of the ongoing compliance process. • Should programs be identical for all employees or differences made for employee levels and responsibilities?
Compliance Problems • When and at what levels do gifts, entertainment and social events cause problems? Vendors, customers, employee morale, rules and regulations • Anticompetitive conduct looks like procompetitive conduct. • Asking your customer for your competitor’s price? • Asking your competitor her price? • Matching your competitor’s price? • No one learns what an antitrust violation is in kindergarten. • Stealing is bad. • But is it bad to back away from a price war?
Keeping a Compliance Program Up To Date and Real • Stay current with legal developments • Websites, RSS feeds • Agency news • Corporate Counseling Committee Monthly Antitrust Update • Stay current with business developments • Talk to people! • Developments to watch: acquisitions, new initiatives, reorganizations
Keeping a Compliance Program Up To Date and Real • Executives and line managers must incorporate compliance into their practices • The law department can’t manage compliance alone • What if you’re a compliance officer in a company that doesn’t put a high priority on compliance? • Compliance manuals: does anyone read them? • Options • Posted on-line • FAQ format • Code of conduct, with referral for specific questions • Part of orientation, with a quiz
Keeping a Compliance Program Up To Date and Real • Different options for different job titles, areas • Audits • Recommended (strongly) by the DOJ • Informal, unannounced • Regular monitoring/sampling of key business practices (such as preparation of bids) • Prompt and thorough investigation of reports of suspicious activities • Hotlines: investigate legality outside the US
Keeping a Compliance Program Up To Date and Real • Key areas for compliance focus: • Senior managers • Sales • Bid preparation and pricing • Purchasing • Acquisitions and integration • Investor/analyst discussions • Joint ventures
Why Do People Do Bad Things? And What Can We Do About It? • They think they can get away with it, don’t think about consequences, theft is pervasive, easier to steal than to work • Make sure they understand system for detection, punishment • Get situation under control • Publicize prosecutions • Economic desperation, personal problems, psychological problems • Livable wage • Employee assistance programs
Why Do People Do Bad Things? And What Can We Do About It? • Angry about the job, revenge against some perceived unfairness, particularly if other employees shown favoritism Be a good manager; keep promises Clear rules, fairly enforced Support employees who try to do the right thing • Rationalization (won’t hurt big company) Educate as to costs • It’s a game; fun to fool those big shots Consequences when you are caught are not fun. • The bosses do it, so it must be OK Tone at the top Set a good example
PRACTICE POINTERS • THINK! • Password protect! • Writings and emails are permanent. Why are you writing or emailing? • Who are you copying? Blind copying? • Know how to use your hardware and software; know what it actually does. Monitor Projects. • Monitor your IT Department • Instructions on how to handle all technology, including social media, emails, documents, computers, cell telephones, websites, blogs, etc.: Evaluate and make conscious choices.
PRACTICE POINTERS • Respond to Issues and Problems. • How Old Is Your Document Retention policy? Schedule for Review and Changes? • Are You Prepared for a Litigation Document Hold and Production? • How Old Are Your Compliance Programs? Schedule For Review and Changes? • You Never Want Any of These Issues To Be First Addressed When the Complaint is Served or When the Government Subpoena is Received.
Questions? Contact Information: Stephen D. Libowsky, Partner Chicago, Illinois T +1 312 876 2529 email@example.com
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Ethical and Practical Issues in Internal Investigations by In-House Counsel at ... class action litigation. ... sel’s ethical obligation to avoid ...