One need look no further than today’s headlines to know that more than ever before, federal and state law enforcement officials target corporations and their principals for investigation and prosecution.
Today’s increasingly sophisticated, resourceful law enforcement officials are more willing to tackle the complex business case. The trend is further driven by factors as diverse as health care reform, consumer protectionism, renewed interest in antitrust enforcement, and environmentalism. Additionally, a criminal conviction of a business always generates substantial publicity, and invariably advances the political fortunes of the prosecuting public officials. For the unfortunate who come under scrutiny, however, the stakes are high — individuals’ liberty and reputation are at risk, and for the corporation, the fallout to management, the company’s goodwill and ongoing business could be substantial.
The headlines bear out the practical reality that businesses seem less inclined or unable to challenge criminal charges. The strong desire to defend is outweighed by the disruption, negative publicity, cost and uncertainty attendant to a lengthy investigation and trial. Even in those situations where businesses have reached settlements with the government, the fines have been staggering, reaching in some instances well above $100 million.
In October of last year, Archer Daniels Midland Co. pled guilty to an antitrust charge and agreed to pay a $100 million fine. The year before, Caremark International Inc. agreed to a fine of nearly $161 million to settle health care fraud charges.
Some legal problems do not cease even with payment of a substantial fine — publicly-traded companies that become the targets of criminal investigation can expect lengthy litigation from class actions alleging securities violations or other irregularities. More importantly, certain convictions may lead to debarment from government-funded programs (federal and state) — an economic death penalty for those dependent on government business.
Despite the most strident corporate compliance programs and the best intentions, a business can find itself the subject of an investigation. The business under investigation faces a well-equipped adversary: law enforcement has many arrows in its investigative quiver all with a singular design — acquire sufficient evidence to obtain a conviction.
This article will discuss some of the more common investigative techniques employed by law enforcement officials in investigating business crime.
Numerous events can trigger the criminal investigation of a business and its principals. Law enforcement may target an industry or company when information suggests wrongdoing. Disgruntled current and former employees provide fertile soil for informants and cooperators. Civil litigation, media attention, or even routine audits or inspections may prompt scrutiny. The corporation itself may uncover wrongdoing and conduct an internal investigation that prompts disclosures to regulators, law enforcement and the public. The triggers are widely varied, often unpredictable, and usually unpreventable. Once triggered, the goal of the investigator is to identify those criminally responsible and utilize every lawful means to bring them to justice.
The Covert Phase
In every situation, the investigative team (normally consisting of a prosecutor and one or more investigative agents) will first explore the use of covert investigative techniques, before launching the traditional-type investigation utilizing interviews, grand jury subpoenas and search warrants.
As the name suggests, a covert investigation is secret and known only to law enforcement and, on occasion, cooperators. It attempts to snare wrongdoers in the act or to capture in their own words acknowledgment and participation in the criminal episode.
The most common covert investigative techniques include electronic surveillance or wiretaps, consensual recordings made by a cooperator, and even undercover or sting operations created by law enforcement. The covert phase can be most damning, if not fatal, to the defense of later-brought charges.
Historically, law enforcement had employed electronic surveillance to combat organized crime and narcotics trafficking, and it had seen little use in corporate investigations.
While current statistics reveal that approximately 800 federal wiretaps are conducted nationwide each year, a recent FBI proposal calling for a national capacity of 60,000 wiretaps suggests a coming explosion in the use of this weapon. Jerry DeMarco, FBI Predicts Great Increase In Need For Wiretaps, The Record, January 15, 1997, at A03. Federal law authorizes the use of a wiretap to investigate a myriad of criminal offenses commonly associated with businesses. 18 U.S.C. § 2516 lists the offenses for which interception is authorized. Section 2516 covers over eighty offenses, ranging from mail fraud to money laundering.
Federal law prohibits the interception of wire, oral and electronic communications except where judicially authorized, or permitted by consent of a party. See 18 U.S.C. §§ 2510 - 2520. In order to obtain judicial authorization for a wiretap, Title III requires law enforcement officers to obtain the blessing of the Attorney General and pass the scrutiny of a federal judge. This is the only instance in which the law provides for court supervision of a covert investigation. The "Title III" application details to the judge facts justifying the interception and why other investigative techniques have been tried and failed or would be too dangerous or unlikely to succeed. See 18 U.S.C. § 2518(1)(a) - (f). For a more detailed analysis of the findings required for an interception order, see 18 U.S.C. § 2518(4)(a) - (e). Illinois law similarly provides a means by which law enforcement personnel can obtain orders of interception. See 720 ILCS 5/14-2(c); 725 ILCS 5/108A-1; 725 ILCS 5/108B-5.
Once the tap is authorized, law enforcement can enlist the assistance of telephone companies, landlords, and others — in essence allowing a legal "burglary" — to install a listening device. See 18 U.S.C. § 2511(2)(a)(ii). Once surveillance ceases, the persons whose communications were intercepted are entitled to receive notice, but this is routinely postponed on the government’s motion to protect continued secrecy. See 18 U.S.C. § 2518(8)(d). Thus, the first time a person learns that electronic surveillance has occurred is when they are confronted by law enforcement agents.
The second major and most frequently used exception applies to interceptions obtained with the consent of one party. See 18 U.S.C. § 2510(2). Under federal law, this exception is directed at the fact that there is no reasonable expectation of privacy in a conversation with another person. Thus, one party to a telephone or personal conversation may give the requisite consent to intercept and/or record the conversation. This is the most common form of covert technique utilized by the government. Thus a cooperator, under the total control and direction of the prosecution and armed with a recording device, may freely record conversations without having an independent judicial review of the predication for the recording.
It must be noted that Illinois’ eavesdropping statute, recently amended, appears to prohibit one party interceptions. See 720 ILCS 5/14-1(d), 14-2(a)(1). The Illinois statute has been the subject of varying judicial interpretation, however, with the Illinois Supreme Court permitting one party interceptions in the past. See People v. Herrington, 163 Ill. 2d 507, 645 N.E.2d 957 (1994).
The harsh reality is that no "private" conversation is ever guaranteed truly to remain private. Thus, the very first admonitions an experienced counsel conveys to his client is to refrain from speaking with anyone about the subject matter under investigation unless the conversation is protected by the attorney/client privilege.
The Cooperating Insider
The story of the cooperating insider is as varied as the case in which he or she plays a role. For the business under investigation, the cooperator is sometimes a person who has himself approached law enforcement about alleged wrongdoings. This person’s motivations may range from honesty to vindication or revenge. In appropriate cases, the cooperator may seek monetary rewards under various "whistle blower" statutes or similar provisions. More often, the cooperator has been identified by law enforcement as an appropriate candidate, approached and perhaps threatened with prosecution, and in return for leniency or immunity has agreed to cooperate. In many ways, the cooperating insider is the most valuable tool to the investigator. When successful, the evidence the cooperator gathers is devastating.
Cooperating insiders offer law enforcement unique opportunities. They usually have access to the business and the people under investigation. Under federal law, they may freely record conversations and with the direction of law enforcement create scenarios and events to capture evidence usually in the form of admissions from alleged wrongdoers. The cooperator is invaluable in giving insight into the operation of the business and/or the criminal enterprise and identifying the key individuals and their relative roles. In some investigations, the cooperator is used to introduce an experienced undercover agent who then infiltrates and attempts to participate in the criminal activity. Finally, the cooperating insider provides a compelling trial witness telling the story from an insider’s perspective. Such testimony, coupled with corroborating evidence, is persuasive to juries. The headlines bear out that many high profile investigations of business have their genesis with the cooperating insider.
Cooperating witnesses, of course, can create distinct problems for law enforcement. For the most part, the self-serving motivations of these individuals will become obvious and the leniency they usually obtain undercuts their credibility.
A cooperating witness gone awry can, in turn, become an albatross to the prosecution. For example, the former vice-president of Archer Daniels Midland, allegedly the covert centerpiece of the government’s antitrust investigation, has now turned against his government handlers and filed suit against the FBI, alleging that he was directed to destroy evidence favorable to the targets of his covert activities. Features / The ADM Scandal, Fortune, February 3, 1997, at 87.
Notwithstanding the problems that may arise with cooperators, with each investigation it is imperative that the government find someone to assist them in gathering evidence. Thus, the risks notwithstanding, the government warmly embraces cooperators in every investigation.
The government’s use of cooperators to record conversations does not cease when the investigation becomes known. To the contrary, some of the most incriminating statements are obtained after law enforcement has made its presence known. In fact, a favorite scenario is to have a cooperator seek guidance from others involved in wrongdoing about how he or she should respond to a government interview or subpoena. Even those represented by counsel are not immune from government directed cooperators seeking to record an incriminating conversation. See "Communications with Represented Persons," 28 CFR § 77 (1995). Two United States District Courts recently have held that the use of wired informants for the purpose of recording conversations with represented persons neither violates disciplinary rules, nor justifies suppression of the evidence obtained. United States v. Marcus, 849 F. Supp. 417, 420-421 (D. Md. 1994); United States v. Scozzafava, 833 F. Supp. 203, 209-09 (W.D.N.Y. 1993).
Contrived Situations or Stings
Though less common in the business context, another powerful investigative tool is the contrived situation or sting. Often effected with the assistance of cooperators, the sting creates the opportunity for willing subjects to commit wrongdoing. As with the cooperator, the sting has the advantage of freedom from court supervision. The only legal limit is entrapment and the creativity of law enforcement officers designing the trap.
Entrapment is a difficult defense upon which to prevail, and most defendants fail in the attempt. See e.g., United States v. Higham, 98 F.3d 285, 290-91 (7th Cir. 1996) (court analyzes defendant’s "disposition" to commit offense, considering such factors as character and reputation, whether the government first suggested the activity, whether the crime was for profit, whether government persuasion overcame defendant reluctance, and the nature of the offense; no entrapment in murder for hire scheme).
The Traditional Phase
The covert phase transitions to the traditional form of investigation via a precipitous event, usually the execution of a search warrant or the surprise interview that announces the investigation. Now, the "cat is out of the bag" and those under scrutiny, and at times even the general public, become aware of the investigation. From this point on, the government will employ the more familiar investigative techniques: interviews and the use of the grand jury to gather documents and compel testimony.
The traditional phase will progress until the government believes it has sufficient evidence to sustain a charge, at which time it may invite defense counsel to engage in plea negotiations before the public charge is filed. Usually, agreements entered pre-indictment are more favorable as the government and the court are mindful that early resolutions save all parties time and energy.
It has become commonplace for the government to conduct simultaneous interviews of all key officers and/or personnel at the start of the traditional phase of the investigation. These interviews are done to capitalize on the element of surprise; to gather incriminating evidence in the form of admissions or false exculpatory statements; and to lock potential witnesses into a position before they have the opportunity to obtain counsel and know exactly the nature of the government’s inquiry.
It cannot be overemphasized that government interviews are fraught with perils for the interviewee! Investigators rarely clarify the interviewee’s status as a target or non-target. The investigators always decline to provide information about the nature of the investigation, yet implore individuals to provide information. In many situations at the early stages of the investigation, even the agents are unaware who all the targets are — but the wrong impression or misstatement in an interview can later make a person a target. The only advice to a client faced with an interview is to confirm the investigators’ identity, politely decline the interview, inform the investigators that counsel will contact them, and immediately retain experienced counsel to advise them. Should the client decide with the assistance of counsel to permit a future interview, it can be accomplished after counsel has obtained the necessary assurances and/or protections for the client. Permitting any interview on the government’s terms, without counsel, is fraught with danger.
The Search Warrant
Historically, search warrants were executed by law enforcement when there was a good faith belief that records or evidence would be destroyed and/or disappear once the existence of an investigation became known. Absent those circumstances, a grand jury subpoena was the most common vehicle for obtaining business records.
Today, law enforcement’s use of search warrants to seize business records is on the rise.
Prosecutors, anxious to capture evidence of wrongdoing are reluctant to rely solely on compliance with a subpoena. The search warrant allows immediate seizure, avoiding the return date of a subpoena, targets are not afforded the opportunity to consult with counsel or raise appropriate objections to the scope of the government’s inquiry. Law enforcement officers are also mindful of the psychological value of "storm troopers" charging into a business and gathering up the relevant business records.
Counsel should be called immediately when law enforcement officials arrive at a business for the purpose of executing a warrant.
Although the search cannot be prevented, counsel may convince officials to delay the search until their arrival allowing counsel to supervise the seizure of records to ensure that only those records within the scope of the warrant are seized.
More importantly, counsel’s presence can serve as a calming influence and prevent the random interviewing of employees which customarily accompanies searches.
Counsel can also start to make arrangements for access to documents and a process by which seized originals may be copied and returned to the business to allow the business to continue to function. Prosecutors are totally indifferent and insensitive to the needs of a business to have access to records and are always unwilling to return originals until the investigation (and trial) is concluded.
Law enforcement has available to it a wide variety of investigative techniques that it aggressively employs in the investigation of business wrongdoing. Only with the assistance of experienced counsel can a business sufficiently respond to the challenges and ordeals of a criminal investigation.
Joseph J. Duffy is a Principal of the Schiff Hardin & Waite, Chicago. He is a former First Assistant U. S. Attorney for the Northern District of Illinois. He received his Undergraduate Degree in 1973 from DePaul University and his Law Degree in 1979 from John Marshall.