Becoming an Arm of the State: Recent Challenge to Statements Made in Internal Investigations Shines a Spotlight on the Role of the Government in Internal Investigations
By Jessica Heim
Two former traders of Deutsche Bank AG, Gavin Black and Matthew Connolly, were recently convicted of wire fraud and conspiracy for submitting fraudulent rates to the London Interbank Offer Rate (“LIBOR”) during their employment. Prior to their convictions, the district court in the Southern District of New York heard arguments from Black to preclude statements he had made during an internal investigation by his then-employer, Deutsche Bank, alleging that those statement were, in effect, compelled by the government. Although not resolved by the court, Black’s arguments raise the issue of how the role of the government during an internal investigation could potentially turn companies into state actors—and possibly saddle those companies with similar discovery obligations as the government, putting at risk the privileged nature of the internal investigation. His motion also highlights that companies’ roles in investigations by the government do not end with the resolution of the case between the company and the government and underscores the importance of maintaining accurate, contemporaneous records of every aspect of a company’s internal investigation.
Specifically, Black moved to preclude testimony from Deutsche Bank’s outside counsel about statements that he had made during an interview that was part of Deutsche Bank’s internal investigation into allegations that its traders submitted false rates to affect the LIBOR.1 To succeed on his argument that use of his statements violated the Fifth Amendment’s bar against compelled self-incrimination under U.S. law, Black had to show both: 1) that his statements to outside counsel were “compelled” and 2) that Deutsche Bank was effectively working as an arm of the United States government.
To establish the first prong, Black relied on United States v. Garrity, 385 U.S. 493 (1977), in which the Supreme Court held that statements made under threat of employment termination are “compelled” under the Fifth Amendment. At the time of Black’s interview, Deutsche Bank had in place a policy requiring its employees to participate in any internal or external investigations involving the bank, with termination a penalty for failure to cooperate. Black was not represented by counsel when he was interviewed and stated that he did “not believe that [he] had any choice” about whether to participate in the investigation, believing that any refusal would result in termination.2 He argued that, as a result, Deutsche Bank had effectively compelled his participation in the interviews.
To establish the second prong, Black argued that the government had requested the initiation of Deutsche Bank’s internal investigation and had been heavily involved in the direction of the investigation.3 Black pointed to testimony from Deutsche Bank’s outside counsel, Walter Ricciardi, a litigation partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP, that a Request for Information that the Commodity Futures Trading Commission (“CFTC”) had issued, asked, in part, for Deutsche Bank to initiate the internal investigation.4 Black also pointed to notes of conversations between Deutsche Bank’s outside counsel and U.S. Department of Justice (“DOJ”) prosecutors and between DOJ prosecutors and the UK’s Financial Conduct Authority (“FCA”) that revealed outside counsel had informed the DOJ about interviews being taken and had received comments from the government. One comment from a DOJ prosecutor to the FCA included a statement that outside counsel gave his “word that he will approach [an] interview as if he were a prosecutor.”5
In addition to pointing to the alleged participation of the government in Deutsche Bank’s internal investigation, Black argued that the DOJ had effectively deputized corporations and their outside counsel by issuing policies that require companies to conduct internal investigations that provide evidence for government prosecutions of individual employees in exchange for cooperation credit and more lenient sentences.
For its part, the government disputed that Black’s statements were compelled and that the interviews were done at its behest. Specifically, the DOJ argued that it played no role in Deutsche Bank’s implementation of its policy regarding employee participation in investigations and termination for failure to cooperate.6 As to its alleged involvement in the internal investigation, the DOJ pointed to testimony from Ricciardi that Deutsche Bank would have initiated the investigation even if the CFTC had not requested it to do so.7 The DOJ also pointed to testimony from Ricciardi that the direction of the internal investigation had largely been left to outside counsel and that the government had not specifically directed the interview of Black.
Before the court had an opportunity to rule on Black’s motion, the government opted not to call Deutsche Bank’s outside counsel regarding the interviews, thereby rendering the motion unaddressed.8 Notably, however, during the hearing on the motion, the district court Judge, Hon. Colleen McMahon, commented that Black’s evidence that the CFTC had directed the investigation was “highly persuasive.”9
Black’s motion and Judge McMahon’s comments highlight a potential bind for companies who undertake internal investigations with government involvement. To the extent that the government either directs an internal investigation or requests that certain actions be taken by companies, those companies face similar arguments that they are, for all intents and purposes, state actors. Such a determination raises the specter of having discovery obligations parallel to the government’s in follow-on prosecutions, which could threaten the privileged nature of the materials created during the investigation. In light of the government’s continued commitment to policies encouraging companies to cooperate in government investigations and provide evidence regarding individuals as part of that cooperation, this could become an increasingly common Catch-22.
What this Means for You:
- Accurate recordkeeping during internal investigations is essential to companies that may face this kind of argument in any subsequent prosecutions. Companies and their counsel should maintain accurate and contemporaneous records of all aspects of the internal investigation, including the sources of the strategy for the investigation and the identities of witnesses. Companies and their counsel should create privileged memoranda of information gleaned from interviews and document review that include attorney thoughts and impressions—rather than mere transcription of raw notes of interviews that may not be viewed as privileged. Privileged documents should be clearly labeled as such and circulation of such documents including memos should be limited.
- Companies and their counsel should record and store communications with government attorneys during the investigation, including phone calls and presentations to the government. They should note, in particular, whether they have waived privilege with respect to any part of the investigation and, if not, what steps they took to maintain the privilege.
- To the extent that companies have policies about employee participation in internal investigations, they should maintain records regarding how they have enforced the policy throughout its existence and within a particular investigation.
- When conducting interviews of individuals—including current and former employees or third parties—companies and their counsel should clearly provide Upjohn warnings to the individuals to make clear that there is no personal attorney-client relationship between the interviewer and the witness. The Upjohn warning should also include a statement that whatever privilege protections may exist over the discussion, the privilege belongs to the company, not the witness, and the company may choose to disclose the content of the communication and/or waive the privilege. Witnesses should also be reminded to keep the interview confidential to preserve the privilege.
- Companies and their counsel should consider—depending on the nature of the person’s involvement and potential wrongdoing in the matter—whether the witness should be offered individual counsel for purposes of the interview before substantive questioning begins.
1 Defendant Gavin Campbell Black’s Individual Motions In Limine, Dkt. No. 232, U.S. v. Connolly, No. 1:16-cr-00370-CM.
2 Declaration of Gavin Campbell Black, Dkt. No. 234, U.S. v. Connolly, No. 1:16-cr-00370-CM.
3 See Defendant Gavin Campbell Black’s Individual Motions In Limine, Dkt. No. 232, U.S. v. Connolly, No. 1:16-cr-00370-CM; Letter to Hon. Colleen McMahon from U.S. Dept. of Justice Re: Additional Garrity Law and Analysis, Dkt. No. 333, U.S. v. Connolly, No. 1:16-cr-00370-CM.
4 Letter to Hon. Colleen McMahon from U.S. Dept. of Justice Re: Additional Garrity Law and Analysis, Dkt. No. 333, U.S. v. Connolly, No. 1:16-cr-00370-CM.
5 Defendant Gavin Campbell Black’s Individual Motions In Limine, Dkt. No. 232, U.S. v. Connolly, No. 1:16-cr-00370-CM.
6 United States’ Response to Defendant Gavin Campbell Black’s Individual Motions In Limine, Dkt. No. 251, U.S. v. Connolly, No. 1:16-cr-00370-CM.
7 Letter to Hon. Colleen McMahon from U.S. Dept. of Justice Re: Additional Garrity Law and Analysis, Dkt. No. 333, U.S. v. Connolly, No. 1:16-cr-00370-CM.
8 “Deutsche Traders Knew Libor-Rigging Was Illicit, Jury Told,” Law360.com (Oct. 15, 2018) available at https://www.law360.com/articles/1092407
9 “Gov’t Role in Paul Weiss Probe Puts Deutsche Trial At Risk,” Law360.com (Oct. 5, 2018) available at https://www.law360.com/articles/1089994.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.