The Journal of The DuPage County Bar Association

Back Issues > Vol. 9 (1997)

A Company’s Introduction to the Criminal Process: The Grand Jury Investigation
By Steven M. Kowal

Imagine that you are in-house counsel for a medium-sized company. One morning, as you prepare for the day’s meetings, you receive a call from reception. Two FBI Agents are at the front desk, and want to see the senior corporate official immediately.

You and the CEO meet the agents in a conference room. One of the agents hands the CEO a multi-page document, says it is a grand jury subpoena for the company, and begins to ask questions about the company’s business practices. Before your boss can respond, you interject that the visit is a surprise, and it would be inappropriate to answer any questions at this time. The agents reluctantly leave.

The subpoena requires the custodian of records to gather documents described in more than fifty numbered paragraphs relating to a period of almost ten years — and this enormous volume of documents must be produced to the grand jury within thirty days. The CEO is shocked. There has not been any indication that the company is the subject of a criminal investigation.

In most cases, the receipt of a grand jury subpoena is the company’s introduction to the criminal process. It will not be a pleasant encounter. The grand jury is invested with extraordinary investigative power, and it operates virtually free of any meaningful judicial supervision or review. Its investigation is likely to be lengthy, disruptive and burdensome, and will cause anxiety for many. In theory, the grand jury investigates as an independent body; in fact, it is directed and controlled by the prosecutor.

This process is difficult under the best of circumstances. Misguided judgment and inappropriate decisions at the beginning, however, can produce very unfortunate results. The government may issue multiple document subpoenas, require repeated testimony before the grand jury by the document custodian, or employ more intrusive and disruptive investigative methods such as the execution of a search warrant. Worst of all, such decisions could produce criminal charges which may be more serious than the conduct originally under investigation.

In this context, it is important for those who advise companies to understand the grand jury process. This article will review that proceeding, and offer some practical suggestions for dealing with the early phases of the investigation, when unfortunate decisions can have long-term and possibly tragic consequences.

I. The Grand Jury Process

We are all somewhat familiar with the work of the grand jury. Hardly a day passes without a report in the news media that a grand jury has returned criminal charges. Despite this constant reference, however, few of us fully understand its actual operation. This article will focus on the operation of a federal grand jury. There are minor differences in the operation of a state or county grand jury proceeding.

The Fifth Amendment to the United States Constitution requires that a felony criminal case must be initiated by an indictment returned by a grand jury. This requirement is also contained in Rule 7 of the Federal Rules of Criminal Procedure.

It is a proceeding that was developed in England to protect the rights of the citizen against oppressive and arbitrary governmental action. It was conceived as an independent body to stand as a buffer between the potential defendant and the charging decision of the government. According to the Supreme Court, its mission is "to clear the innocent, no less than to bring to trial those who may be guilty." United States v. Dionisio, 410 U.S. 1, 16-17 (1973).

There are few who believe, however, that the modern grand jury performs that function as an independent body. Instead, it operates under the direction and control of the government. A former Chief Judge of the District Court in Chicago described the grand jury as a "captive" of the prosecutor. Judge William J. Campbell, Eliminate the Grand Jury, 64 Journal of Criminal Law and Criminology, 174 (1973).

In reality, the decision to charge a defendant is made by the government, and that decision is merely ratified by the vote of the grand jury.

Realistically, the grand jury is an indispensable component of the government’s investigation. Acting by itself, the government does not possess the power to issue subpoenas prior to the time the case is filed. The most it can do without the grand jury or a court order is seek the voluntary disclosure of documents and information. The grand jury, however, can subpoena documents and testimony, and therefore can compel information that otherwise might not be forthcoming. The exercise of the grand jury subpoena power is crucial to the government’s successful investigation of complex business practices.

The operation of the grand jury is controlled by Rule 6 of the Federal Rules of Criminal Procedure. It consists of twenty-three individuals who are selected each month from those summoned for jury duty. The initial term of the grand jury is thirty days, but it can be extended to twenty-four months for complex investigations — such as most relating to business activity — and as much as thirty-six months under certain circumstances. Rule 6(g); 18 U.S.C. §3331.

An indictment, charging an offense, can be returned if the grand jury determines there is probable cause to believe the defendant committed a crime. It requires the vote of only twelve of the twenty-three grand jurors. Contrast this with the standard that applies during a criminal trial, where there must be a unanimous verdict of guilt beyond a reasonable doubt. The injury to reputation that is caused by a criminal charge and the significant burden of a trial can be imposed based on a relatively low demonstration of culpability. It should be noted that the U.S. Attorney’s Manual states that, "as a matter of fundamental fairness and in the interest of the efficient administration of justice, no prosecution should be initiated against any person unless the government believes that the person probably will be found guilty by an unbiased trier of fact." U.S.A.M. §9-27.220 (1990).

The grand jury is invested with broad investigative power, and its subpoena will be enforced nation-wide. It may act on "tips, rumors, evidence offered by the prosecutor, or its own personal knowledge." United States v. Morton Salt Co., 338 U.S. 632, 642-43 (1950). United States v. Dionisio, supra at 16.

An investigation can be initiated based on a reasonable suspicion of criminal conduct, or merely to confirm that no such conduct occurred. United States v. Morton Salt Co., 338 U.S. 632, 642-43 (1950). Moreover, there is virtually no restriction on the type of information the grand jury can consider. It is authorized to review hearsay, and an indictment can be returned based solely on hearsay testimony. Costello v. United States, 350 U.S. 359, 364 (1956). Also, there is no prohibition against the review of information that was obtained in violation of constitutional rights. United States v. Calandra, 414 U.S. 338, 349-50 (1974). Thus, for example, an indictment will not be dismissed because the grand jury was exposed to evidence that was seized illegally. A mini-trial will not be conducted to determine whether the indictment was supported by adequate evidence and information.

The grand jury has been granted expansive power to investigate, at least in part, because the inquiry is conducted in secret. Rule 6(e) generally prohibits disclosure of the matters that occur before the grand jury. Only the grand jurors, the court reporter and the government representatives have access to that information. Thus, the full scope of information will be known by only a few individuals.

Grand jury secrecy promotes several important interests. United States v. Proctor & Gamble Co., 356 U.S. 671, 681-82 (1958). It permits the investigation to be conducted without interference and reduces the possibility that perjury will be suborned or that the course of the investigation will be obstructed. It also reduces the risk that the targets will escape prior to a charge. An inquiry conducted away from the glare of public reporting also protects the reputation of those who are eventually exonerated. In most instances, the public will not learn of an investigation that does not result in an indictment.

The secrecy requirements, however, pose a substantial challenge to the defense of those who are the focus of the investigation. It is very difficult for the defense to obtain the same information that is conveyed to the grand jury. Thus, there is a substantial impediment to an attempt to demonstrate to the government that the proposed charge is unfounded or based on an erroneous interpretation of facts. This problem emphasizes the importance of gathering information during the course of the investigation, and sharing that information, where possible, with others who have a similar interest.

The grand jury is subject to the supervision of the court. That responsibility is exercised in Chicago by the Chief Judge of the District Court. In other judicial districts, the various grand juries are assigned to different judges. The level of actual supervision, however, is quite low, and is limited to relatively ministerial functions. United States v. Williams, 504 U.S. 36 (1992). The court, for example, does not monitor the investigation, identify the witnesses to be subpoenaed, or determine whether criminal charges should be considered.

In view of the grand jury’s power, its lack of judicial control, and the potentially destructive effect of its decisions, it would seem reasonable to conclude that its investigation would be subjected to a searching review once an indictment has been returned. After all, this is the only method available to ensure that the rights of the defendant have been protected and that the government did not abuse the power of the body it directs.

Almost exactly the opposite is true. In reality, there is virtually no meaningful judicial review of the grand jury proceeding. Before a defendant can even hope to obtain relief, it must be established that there was a violation of a right protected by the Constitution or a statute, and that the violation caused substantial prejudice. These principles were established in a series of cases decided since 1986. In United States v. Mechanik, 475 U.S. 66 (1986), the Court held that a blatant violation of the secrecy requirement did not require the reversal of a conviction. The defendant could not have been prejudiced in the indictment process if a trial jury later found guilt beyond a reasonable doubt. This was followed by The Bank of Nova Scotia v. United States, 487 U.S. 250 (1988), in which the Court held that in order to obtain relief, a defendant must demonstrate that a violation by the government "substantially influenced the grand jury’s decision to indict" or that there is "grave doubt" that the charging decision was free from the substantial influence of such a violation. Most recently, in United States v. Williams, supra, the Court held that a district court can not use its general supervisory power to remedy perceived unfairness in the proceeding. Rather, there must be a violation of a right provided by the Constitution or a statute.

This standard, for example, has been held to relieve the government of any obligation to present to the grand jury evidence that is favorable to the potential defendant. United States v. Williams, supra.

Unfortunately, this demonstration of prejudice must be made in relation to a proceeding that was conducted in secret, and where most of what occurred before the grand jury will not be disclosed to the defendant unless a particularized need can be established. This "Catch 22" approach insulates the grand jury proceeding from an effective challenge in most cases.

In essence, the grand jury is not an independent body protecting the rights of the citizen. It is an investigatory arm of the government.

II. The Investigation

The grand jurors do not actually conduct the investigation. Instead, the government prepares the subpoenas for documents, reviews the documents that are received, and presents only selected documents to the grand jury. The government also identifies the witnesses to be subpoenaed, and conducts the interrogation — the grand jurors, at most, might ask a few questions at the conclusion of that testimony. The government drafts a proposed indictment and summarizes the information that supports the return of those charges. The grand jury merely votes on whether to accept the government proposal. The role of the grand jury is almost entirely passive.

Basically, this formal investigation is conducted through the issuance of subpoenas for documents and testimony.

A. Documents

Many investigations of business activity begin with the issuance of a subpoena to the company for documents. The initial review of that subpoena can be a sobering experience. It usually requires the production of documents identified in numerous paragraphs that are very broad — and it may include the parent company as well as subsidiaries and affiliates. Investigations relating to areas such as antitrust law, environmental law, healthcare and financial fraud often generate subpoenas seeking documents that relate to a period of five years or more. When read literally, the subpoena could require the retrieval and submission of millions of documents.

Frequently, management’s first response to such a demand is outrage. It is difficult to believe that the government is empowered to impose such a burdensome and costly procedure — particularly when it has not provided any factual justification for the investigation. In this context, an immediate motion to quash the subpoena might seem warranted.

This approach, however, is not likely to be successful. The standard of relevancy does not apply to a grand jury subpoena. United States v. Williams, supra.

A court is permitted to grant relief if undue burden is demonstrated, but most courts are reluctant to exercise this power, particularly at an early stage of the investigation. Restriction of the subpoena could result in a serious impediment to an eventual prosecution.

Rather, it is more productive to prepare to negotiate with the government about the scope of the subpoena and the time period for the response. The company should gather information about the number of offices that will have to be searched and the number of employees who will have to review files, and it should determine whether the documents are well organized or scattered. From this, a realistic estimate should be prepared of the amount of time and the cost that will be expended to comply with the subpoena, and the number of documents that eventually will be produced.

This information can then be conveyed to the government to seek reasonable limitations. The government might conclude that certain categories of documents could be excluded from the production, or at least deferred until the initial submission is reviewed. The time period covered by the subpoena could be reduced. Samples of voluminous but repetitive documents could be produced rather than all of those that are technically responsive. A phased production schedule could be established based on reasonable priorities. The government might accept copies instead of originals — so long as the originals are maintained.

Each of these proposals would reduce the burden of compliance. If the government is recalcitrant and refuses to budge, than any resort to the court can be accurately portrayed as an effort to reduce an unreasonable burden rather than as an attempt to withhold information from review.

When the subpoena is received, the company must take all steps necessary to ensure there will be full compliance. The government takes this very seriously. An inadvertent failure to produce all of the documents that are required could generate additional and burdensome demands. The government could issue multiple document subpoenas that will require repetitive file searches, and it could subpoena the custodian of records to testify repeatedly about the methodology and thoroughness of the file search and document production. In some instances, the government could obtain a search warrant from a court which would authorize agents to enter the facility and immediately seize the information and material described in the warrant — and this does not have to be limited to documents. The Grand Jury Manual for the Antitrust Division of the United States Department of Justice, for example, specifically authorizes the use of a search warrant when there is evidence that documents responsive to the subpoena have been intentionally withheld Agents have been known to seize entire computer systems. Under these circumstances, an investigation that was burdensome can evolve into one that threatens that existence of the company.

A failure of compliance which is perceived as intentional can result in a separate criminal investigation and prosecution. Such conduct could be punished as contempt of court or as obstruction of justice. 18 U.S.C. §1505 In some instances, the penalty for the obstruction can be more severe than the one that applies to the offense that spawned the investigation. Obstruction of justice can be punished by a maximum period of incarceration of as much as five years. Antitrust offenses and violations of the Federal Food, Drug, and Cosmetic Act, for example, are punishable by a maximum of three years imprisonment

The company must insure that there has been full compliance with the subpoena — hopefully after it has been narrowed through successful negotiation with the government.

B. Testimony

After the documents have been submitted, there may be a period of apparent inactivity. It might seem that the government has lost interest in the investigation. In fact, government agents are reviewing and organizing the documents, and using this information to identify individuals who could be subpoenaed to testify.

Testimony before the grand jury can be intimidating, and much different than anything an executive has experienced — even if that person has been involved in civil litigation. During a civil deposition, for example, the witness is accompanied and advised by an attorney who can object to improperly framed questions and provide some protection against badgering. The grand jury rules, however, do not allow the attorney for the witness to be present in the room. At most, an attorney can wait outside of the grand jury, and the witness can interrupt the testimony to engage in reasonable consultation — but the interrogation must be handled alone.

In addition, the witness will not be able to obtain a transcript of the testimony. This restricts the ability of the defense team to gather the same information that is being conveyed to the grand jury, and places the witness at risk of internal contradiction and inconsistency if a subsequent grand jury appearance is required. Thus, it is important that the witness be fully debriefed immediately after the grand jury appearance.

Although the secrecy requirement prohibits the government from disclosing matters that occur before the grand jury, in most instances this does not affect the ability of a witness to disclose his or her testimony. Restrictions have been placed on the disclosures that can be made by financial institutions to their customers. Financial Institution Reform and Recovery Act (FIRREA), 12 U.S.C. §3420(b); 18 U.S.C. §1510(b)(1) and (2).

Occasionally, the government has instructed a witness not to discuss the substance of the testimony, but there is no legal basis for such a prohibition. When tactics such as this have seriously impaired the ability to prepare a defense, some courts have granted relief — including an order that the defense be allowed to take depositions of the necessary witnesses. Restrictions have been placed on the disclosures that can be made by financial institutions to their customers. Financial Institution Reform and Recovery Act (FIRREA), 12 U.S.C. §3420(b); 18 U.S.C. §1510(b)(1) and (2).

It is imperative that a subpoena recipient’s status in the investigation be settled prior to any appearance before the grand jury. This is usually accomplished through a discussion with the government.

An individual’s position in the investigation will fall into one of three categories: witness, subject or target. U.S.A.M., §9-11.260 (1990). A "witness" is a person who the government believes has no possible culpability, and is being asked to testify simply because she or he happens to possess information that might advance the investigation. If the government attorney states unequivocally that the recipient of the subpoena is only a "witness," then the testimony can proceed with the assurance that criminal liability will not follow.

The situation is considerably different if the recipient of the subpoena is described as either a "subject" or a "target". A "subject" is a person whose conduct is within the scope of the investigation but the government has not yet determined whether there is criminal liability. A "target" is a person against whom there is substantial evidence concerning the commission of a crime, and who is regarded as a putative defendant. Under either designation, there is substantial criminal exposure.

Realistically, it is not necessary that the prosecutor describe an individual as a "subject" or a "target" before consideration should be given to protecting the witnesses’ interest. There should be concern unless the government is willing to state unequivocally, and preferably in writing, that the individual is a "witness". Any words of equivocation, such as "its too early to tell," should be treated as the precursor of a possible charge.

Although the eventual resolution of the investigation is not in the control of any particular person, an individual who is in some jeopardy should never provide the evidence necessary to support a criminal charge. An individual should not be done in by his or her own testimony.

This unfortunate situation should be avoided by a proper invocation of the privilege against self incrimination. The privilege may be exercised if there is any possibility that the witness may convey self incriminating information, Hoffman v. United States, 341 U.S. 479 (1951). and a witness should not hesitate to invoke it. Often, this advice is difficult for an executive to accept. It is, however, the only shield to the power of the grand jury, and it is necessary to any possible discussion of a grant of immunity. Immunity is really something of a misnomer for an order compelling a witness to testify after the Fifth Amendment privilege has been asserted. The protection of the privilege against self incrimination is preserved because the immunity order prevents any of the information or leads from being used against the witness. Thus, without the invocation of the privilege, there is no reason for the grant of immunity. 18 U.S.C. §6001, et seq. Thus, this constitutional privilege should not be waived under the mistaken belief that its invocation will demonstrate that there is something to hide.

It is important to understand that subpoenas to a target company and its executives are not the only way that information will be gathered during the investigation. Subpoenas may also be issued to suppliers, customers and other third parties who have had a business relationship with the target company. These efforts by the government often produce an unfortunate commercial injury to the company that is the focus of the grand jury inquiry.

In addition, the government can use less formal means to gather information. During the last few years, for example, the government has grown fond of attempting to interview witnesses at home during the evenings and weekends — when it is unlikely that legal counsel will be available. Some of the government’s informal investigative techniques will be discussed in another article in this series.

III. Practical Suggestions

The commencement of a grand jury investigation will present a substantial challenge to a company. In most instances, the government will conduct a lengthy and thorough investigation. Even if a criminal charge is not returned, the company will be forced to incur significant burdens and expense.

It is vitally important to prevent this situation from deteriorating. Unfortunately, decisions that are made early in the investigation — and sometimes before outside counsel is retained — could result in additional and more difficult problems. Some practical suggestions could help to avoid the exercise of misguided judgment.

First, the situation must be controlled and stabilized. The receipt of a grand jury subpoena will cause confusion and dismay. Ignorance of the system could cause some executives to reach erroneous conclusions. Someone knowledgeable in grand jury practice must take charge of the situation, explain what it means and begin to plan the response.

An appropriate team of management personnel and lawyers must be assembled. A relatively high level manager — not involved in the target area of the company — should be assigned responsibility for dealing with the investigation and any criminal proceedings. If possible, this should not be the CEO. The company will have to continue to function during the course of the investigation, and management of the criminal proceeding could become a very time consuming responsibility. If this function is performed by the CEO, operation of the business may suffer unnecessarily.

The team should include personnel familiar with the structure and record keeping of the company to identify all areas to be searched for documents responsive to the subpoena. Also, someone acquainted with overall management duties and responsibilities will be necessary to identify those individuals who should be interviewed by the company.

If the government has contacted suppliers or customers, someone familiar with those accounts should be included on the team. It may be important to reassure these third parties that the grand jury proceeding is nothing more than an inquiry. In some cases, it may be necessary to involve public relations personnel.

Knowledgeable criminal counsel should be retained to work with in-house attorneys. At some point, it will probably be necessary to retain separate counsel for each individual who is a subject or target of the investigation. Usually, one additional lawyer can advise all of the witnesses. This structure helps to insure that all legal rights are protected and facilitates the acquisition of information about the investigation.

A plan should be prepared for searching all files that may contain documents responsive to the subpoena. This should include files that are kept by individual managers and employees. Such a plan will help to avoid skipping important sources once the actual search begins.

A directive should be issued prohibiting the destruction of any material and suspending all document retention programs. This should include material in any off-site facility, or that is subject to an automatic destruction date. Unfortunately, the Fifth Amendment privilege against self incrimination does not apply to corporate records, and this is liberally construed to include many documents that executives would view as personal. United States v. White, 322 U.S. 694, 698-99 (1944). Management personnel must understand the need to fight the "urge to purge."

The employees should be informed that a government inquiry is being conducted, and that they might be contacted by government agents away from the company. This will help to reduce rumors, and could serve to inform the employees of their legal rights and obligations in the event they are contacted for government interviews.

Select an appropriate document custodian to supervise the review of the company’s files and the production of the documents. This should be someone who could testify before the grand jury about the methodology and thoroughness of the search. While this person should be thorough, articulate and familiar with the operation of the company, it should not be someone who is a potential subject of the investigation. In many instances, a financial officer will be the best choice.

Acquire detailed information about the extent of the search that will be necessary and the expense that will be incurred to comply with the subpoena. This will be important to attempt to reduce the scope of the subpoena through negotiation.

Finally, prepare to conduct an internal investigation to attempt to obtain factual information before it is conveyed to the government. This knowledge will be indispensable to a reasoned and informed approach to the grand jury proceeding. The conduct of an internal investigation will be the focus of one of the other articles in this series.

The receipt of a grand jury subpoena is almost always a shock, and is never pleasant. Knowledge of the proceeding, however, may help to reduce anxiety, and effective preparation may prevent unnecessary additional problems. With a firm foundation, the company may be in a better position to weather the storm.

Steven M. Kowal
is a Principal of Burditt & Radzius, Chartered, Chicago. He is a former Trial Attorney with the Antitrust Division of the U.S. Department of Justice. He received his Undergraduate Degree in 1971 from St. Procopius College and his Law Degree in 1974 from Northwestern University.

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