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Judge “Deeply Troubled” By DOJ’s Outsourcing Of Investigations

Resolution documents in corporate Foreign Corrupt Practices Act enforcement action frequently highlight the company’s cooperation, making witnesses available for interviews, identification and translation of relevant documents, etc. (see here [1] for an example).

Given this typical dynamic in corporate FCPA enforcement actions, this recent decision [2] by U.S. District Court Judge Colleen McMahon (pictured – Chief Judge of the S.D.N.Y), while outside the FCPA context, is FCPA relevant in that Judge McMahon stated that she was “deeply troubled” by the DOJ’s outsourcing of investigations.

In U.S. v Matthew Connolly and Gavin Black, Black moved for relief under the Supreme Court’s 1972 decision in U.S. v. Kastigar “on the basis that statements obtained by his employer, Deutsche Bank AG, in the course of what purported to be an internal investigation into the possible manipulation of the London Inter-Bank Offered Rate (LIBOR) are fairly attributable to the Government within the meaning” of the Supreme Court’s 1967 decision in Garrity v. New Jersey.

Judge McMahon stated that “Black has made a rather convincing showing that Deutsche Bank and its outside counsel, Paul Weiss, Rifkind, Wharton & Garrison LLP (“Paul Weiss”), were de facto the Government for Garrity purposes; more important, the Government has made an utterly unpersuasive case in rebuttal.”

Even though Judge McMahon was “deeply troubled” by this issue, she nevertheless denied Black’s request to dismiss the indictment against him because other factors relevant to the legal analysis (namely that none of Black’s statement to Paul Weiss was introduced into evidence at his trial) were not satisfied.

After summarizing the detailed factual background of the case, Judge McMahon stated:

“On the record presently before the Court, it is clear enough that, for five years, Deutsche Bank and its outside counsel coordinated extensively with the three Government agencies – the SEC, the CFTC, and eventually the United States Department of Justice – that were looking into possible LIBOR manipulation. Indeed, it is apparent that the Government was kept abreast of developments on a regular basis, and that the federal agencies gave considerable direction to the investigating Paul Weiss attorneys, both about what to do and about how to do it.”

In pertinent part, Judge McMahon found (internal citations omitted):

“On January 21, 2015, Paul Weiss submitted a report, known colloquially as the Paul Weiss “White Paper” summarizing the findings of its LIBOR investigation and laying out a roadmap of the case against Deutsche Bank and various individuals who work for the Bank.

Among other things, the White Paper provides an exhaustive overview of the Bank’s substantial cooperation with the Government during its LIBOR investigation. During the course of Deutsche Bank’s nearly five-year internal investigation, Paul Weiss lawyers conducted nearly 200 interviews of more than fifty Bank employees – including, of course, of Black – and shared the results of these interviews with the Government. In addition to conducting interviews, Paul Weiss extracted and reviewed 158 million electronic documents, as well as listened to 850,000 audio files, or over hundreds of hours of audio tapes.

Despite complicated data privacy and other restrictions in Germany and elsewhere, Deutsche Bank provided the Government with all “the facts necessary to allow the DOJ to complete its investigation and reach its own conclusions about the misconduct at issue.”

[…]

As the investigation proceeded, counsel ‘interacted with the Government on hundreds if not thousands of occasions. This included some 230 phone calls and 30 in-person meetings with Government officials. For the final 14 months of the Bank’s internal investigation, counsel held joint ‘weekly update calls’ to provide the Government with the latest development and afford it an opportunity to ‘make new requests’.

[…]

The Bank’s ‘efforts to cooperate were not limited to the raw transmission of documents and data. In other words, Deutsche Bank did not simply respond to Government document requests by producing responsive documents for the Government’s review. Instead, Deutsche Bank flagged ‘notable’ evidence or information that it believed would be of particular interest to the Government. It also complemented document productions with facts learned from [its] own interviews of relevant employees. To that end, Paul Weiss provided the Government with real time updates about facts gleaned from employee interviews. […] And it did ‘everything in its power to facilitate the Government’s own interviews of relevant current and former Deutsche Bank employees which included actively encouraging its employees (current and former) to participate in interviews with regulators.”

[3]

Judge McMahon next stated:

“One critically important issue is just what the Government was doing during the five years between the sending of the CFTC’s April 2010 letter and Deutsche Bank’s eventual entry into a DPA with DOJ on April 23, 2105. Did the Government conduct a substantive parallel investigation to the ‘internal’ investigation at Deutsche Bank, or did it simply give direction to Deutsche Bank/Paul Weiss, take the results of their labor (which appears to have been fully disclosed to Government lawyers), and save itself the trouble of doing its own work?

On the record presently before it, the Court would have to conclude the latter. The Government – which has never treated this matter with the seriousness it deserves – did not provide the Court with much information about any independent investigative activities it may have undertaken during those years. Indeed, it has declared that it has no need to do so.

[…]

In short, while the record before the Court is incomplete (at the Government’s choice), everything I have read suggests that the United States outsourced its investigation to Deutsche Bank and its lawyers. The inference one draws from a lack of evidence from the Government is not an inference that is favorable to the Government.

[…]

The record, which is limited (the responsibility for which falls squarely on the Government), contains compelling evidence that Deutsche Bank’s investigation is fairly attributable to the Government. Among other things, it suggests that the Government directed Deutsche Bank to investigate Gavin Black on its behalf.

[…]

The only conclusion one can draw from this evidence is that, rather than conduct its own investigation, the Government outsourced the important developmental stage of its investigation to Deutsche Bank – the original target of that investigation – and then built its own ‘investigation’ into specific employees, such as Gavin Black, on the very firm foundation constructed for it by the Bank and its lawyers. This was no ordinary ‘outside’ investigation. Deutsche Bank did not respond to the Government’s subpoenas by turning over documents without comment, and its employees were not subjected to government or regulatory depositions on notice, at which they were defended by company counsel. Indeed, Deutsche Bank did the opposite – it effectively deposed their employees by company counsel and then turned over the resulting questions and answers to the investigating agencies.

In other words, Paul Weiss did everything that the Government could, should, and would have done had the Government been doing its own work.”

Judge McMahon next stated: “having declined to offer much by way of evidence, the Government falls back on strained legal and policy arguments that are not just unconvincing, but unworthy.” In pertinent part, Judge McMahon stated:

“[T]he government urges that the Court must not conclude that there was a sufficiently close nexus between it and Deutsche Bank, because doing so will hamper law enforcement by curtailing the Government’s ability to encourage cooperation, which will prove a bad idea as a matter of policy.

The Court does not doubt that it saves the Government considerable time and precious resources to permit counsel for the target of an investigation to do the heavy lifting of ferreting out the truth – especially in a case like this one, which is so large, technical, and complicated. But this is a court of law, not a court of policy. The Court is not concerned with whether the outsourcing of investigations to private parties makes life easier for the Government or for the taxpayers; it is concerned with the protection of the defendant’s constitutional right against self-incrimination, and so with the constitutional implications, if any, of such outsourcing. That concern trumps the Government’s interest in convenience.

In conclusion, given the Government’s deliberate choice not to create a record that would allow for a contrary finding, the record presently before the Court establishes that the Government violated Garrity, because Deutsche Bank’s interviews of Gavin Black, for which he was compelled to sit under threat of termination, are fairly attributable to the Government.

The Court is fully aware that this ruling may have implications that extend well beyond this particular case. Were it of the slightest moment, I might even give the Government one more chance to acquit itself by demonstrating what it needs to demonstrate (assuming, of course, that the evidence that the Government declined to present to me would support its position).”

As highlighted in this 2012 post [4], various individual defendants associated with Control Components moved to suppress statements they made to attorneys from Steptoe & Johnson during the course of Steptoe’s internal investigation on behalf of Control Components, Inc. and its parent IMI plc.  The theory of the motion was that the Steptoe attorneys were part of the Government’s investigation and therefore state actors, however the judge rejected this theory.

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