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The 2004 indictment of two high-ranking Computer Associates employees sent shockwaves through the criminal defense bar.

The full import of that indictment in terms of decisions a company must make at the outset of an internal investigation has not yet been explored. This article fills that void.

According to the Computer Associates indictment, the company retained two law firms to conduct an internal investigation in connection with a federal investigation for accounting fraud. In interviews with company counsel as part of that internal investigation, the employees (who were thereafter indicted) failed to disclose the company’s fraudulent practices, knowing— the government alleged—that their state-ments were false, that the concealed information would be material to the government’s investigation, and that the statements would obstruct and impede the government’s investigation. Accordingly, the government charged the two senior managers with obstruction of justice of a criminal investigation, a charge that sur-vived the defendants’ motion to dismiss.

The fact that the Department of Justice was able to charge employees with

obstruction of justice, based on statements those employees made to private company counsel, immediately and perhaps perma-nently changed the dynamic of internal investigations. After Computer Associates, employees are no longer solely subject to private, work-related consequences for failure to cooperate with an internal investigation; they now potentially face criminal penalties, as well. Such exposure, of course, affects employee decision-making regarding, among many other issues, whether and to what extent to cooperate with an investigation, and whether to seek personal representation.

Equally important, a company now has the ability to fundamentally alter the nature of the internal investigation and transmogrify a private investigation into essentially a governmental investigation. A company must carefully consider how it designs and conducts its internal investigations—including importantly what to advise employees before inter-viewing them in an internal investigation as to whether the interview will in fact be

disclosed to the government. Those deci-sions by the company at the outset of an investigation can have enormous ramifica-tions for its employees and the company itself as to whether criminal liability may attach to statements made during the internal investigation.

In working through this new calculus, it is important first to understand the circumstances in which potential criminal obstruction liability could attach. The starting place is United States v. Aguilar, in which the Supreme Court held that in order to face criminal sanctions for obstruction of justice of a criminal inves-tigation there must be a strong nexus—a relationship in time, causation, or logic— between the charged conduct and the obstructed proceeding (in Aguilar, a grand jury investigation).

To establish such a nexus, a defendant must know that his or her statements will have the potential to obstruct; it is not sufficient that an individual believe that the statements might be brought before the official proceeding. The facts in Aguilar are telling: The defendant was instructed in interviews with FBI agents that a grand jury was convening and that evidence would be heard on the topic of the FBI’s investigation. According to the Supreme

InTERnal InvESTIgaTIonS:ImPoRTanT lESSonS fRom aguIlaR and ComPuTER aSSoCIaTES

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Court, however, because the defendant did not know for sure that his statements would in fact be presented to the grand jury, he could not be convicted for obstructing the grand jury proceeding.

Because this knowledge requirement plays such a crucial role in triggering potential obstruction criminal liability, it is one that deserves close scrutiny by those involved in internal investigations—both by the employers conducting the investi-gation, as well as the employees partici-pating in the investigation. In particular, it is important to consider carefully the standard Upjohn warning given by company counsel at the commencement of an em-ployee interview. The warning—based on the Supreme Court case Upjohn v. United States—informs the employee that (a) counsel represents the company, not the employee; (b) the interview is covered by the attorney-client privilege; (c) the privilege belongs to the company; and (d) the privilege is therefore the company’s, and not the employee’s to waive. With respect to Computer Associates-based obstruction of justice liability, Aguilar relates to the last component of the warning.

Per Aguilar, it is insufficient for criminal liability to attach where an employee is instructed merely that the company might waive the privilege or that such waiver might be made to allow disclosure of the employee’s statements to the government. Rather, in order for criminal liability to

employeeS Are no longer Solely SuBjeCT To privATe, worK-relATeD ConSequenCeS for fAilure To CooperATe wiTh An inTernAl inveSTigATion; They now poTenTiAlly fACe CriminAl penAlTieS, AS well.

Moreover, the company, in seeking to ensure that its own investigation is not obstructed, may in rare cases wish to trigger potential obstruction criminal liability (by advising the employee that the interview will be provided to the government) in order to create additional incentives for the employee to be forthright.

On the other hand, a company may genuinely believe that an investigation would be more effective without giving employees warnings that could trigger a criminal prosecution based on the internal interview—employees may be more forth- coming, individual counsel may not need to be retained and the interview may seem less adversarial. Or a company simply and justifiably may not want to expose its employees to additional criminal liability. Finally, a company may not in fact have decided whether it will disclose the inter-view to the government and thus want to advise the employee truthfully as to that fact. These considerations support a more equivocal waiver instruction to the em-ployee at the start of an interview.

Ultimately, how a company and its counsel approach an internal investigation and how it chooses to phrase the standard Upjohn warning is dependent on the particular facts of a given investigation. For example, a company investigating a pre-existing fraud allegation at a recently purchased subsidiary is likely to be more interested in full cooperation with the government and disassociation from the fraud and less concerned with protecting its new employees. Other situations may be more complex. What is important, however, is that companies and their counsel realize the legal significance of the phrasing of warnings, and carefully consider the interests at stake in deciding how to approach this delicate issue. .......................................................................... Kenyanna M. Scott is a partner in Jenner & Block’s New York office and is a former Assis-tant U.S. Attorney for the Northern District of Illi-nois. Daniel B. Tehrani is an associate in Jenner & Block’s New York office. Andrew Weissmann is a partner in Jenner & Block’s New York Office and is the former Enron Task Force Director as well as a former Chief of the Criminal Division in the U.S. Attorney’s Office for the Eastern District of New York. In 2007, Mr. Weissmann was named one of the 100 Most Influential People in Business Ethics by Ethisphere magazine. All of the authors are members of Jenner & Block’s White Collar Criminal Defense and Counseling Practice. ..........................................................................

attach, the employer must advise that the company will disclose the results of the investigation to the government.

The fact that criminal liability could hinge on the wording of these warnings affects the players in an internal investiga-tion in different ways. For employees, the issue is relatively clear. Employees want, and their counsel should actively seek, ambiguity regarding the company’s inten-tions. Should company counsel indicate that the company “may or may not” waive the privilege (or anything other than an un-qualified intention to waive), the employee is effectively immunized from a subsequent obstruction prosecution with respect to statements made at the interview. From the employee’s perspective, this is the best possible result.

For companies conducting internal investigations, however, the issue is much more complicated and involves consider-ation of sometimes competing concerns. On the one hand, a company seeking to avoid criminal prosecution (or just interested in aiding the government’s investigation) may want to demonstrate to the government and the company’s employees that it is cooper-ating fully. As such, the company may want to inform the government and the company’s employees at the outset of the investigation that the company will waive its privilege and turn over the interview to the government, thus subjecting the employee to possible criminal liability.