Learn steps you can take to avoid a government investigation, or to qualify for leniency with deferred-prosecution agreements and non-prosecution agreements.
Understand Deferred Prosecution Agreements
If you’re a business owner or business leader, you will benefit by learning about Deferred Prosecution Agreements. By learning how to qualify, you may save your company, your assets, and your liberty.
My name is Michael Santos and I’m the founder of Compliance Mitigation. I’m also a person who served multiple decades in federal prison. You may wonder why you should be listening to a person with my background teaching about compliance, or deferred prosecution agreements.
In an effort to prove worthy of your time and attention, and to earn your trust, I’ll reveal more about my background. First, let me offer some insight with regard to what you can expect to learn from this lesson.
You can expect the following timelines to guide us through this two-hour course. I’ve broken our conversation into five parts. The videos make it easy for those who would rather listen than read the lengthy article.
Quick Links to Deferred Prosecution Info
- Part 1: Deferred Prosecution Agreements: Introduction to Compliance
- Part 2: Deferred Prosecution Agreements: Vicarious Liability and Willful Blindness
- Part 3: Deferred Prosecution Agreements: White Collar Crime
- Part 4: Deferred Prosecution Agreements: Government Investigations
- Part 5: Deferred Prosecution Agreements: Part 5 Qualify for leniency
To get an understanding of this rule, we can learn from a case against the Hilton Hotel Corporation. We’ll include a link to the actual case in the accompanying PDF, but those who do not want to go through dense reading of legal jargon, this summary may suffice.
In our nation, we have many laws to protect fair trade. One of those laws is known as the Sherman Anti-Trust law, codified at Title 15 of the United States Code, Section 1.
Basically, the Sherman Anti-Trust law requires all businesses to operate fairly, and not to collude with others. The law prohibits people that operate powerful business from using their power in ways to crush competition.
We’ve seen many examples of the government bringing criminal charges against big corporations for violating anti-trust laws. Over the past several decades, the government has brought antitrust cases against Standard Oil, IBM, and Microsoft, for example.
When government agencies launch an investigation, the potential for criminal charges escalates. For these reasons, business leaders should broaden their understanding of white-collar crime, and we’ll provide that overview in the next section of our course.
In the 1970s, the government brought an antitrust case against the Hilton Corporation. As a business that operates large hotels in many of the world’s biggest cities, Hilton has enormous buying power. If Hilton blacklisted a specific vendor, the vendor could argue that Hilton would be interfering with competition—or breaking fair-trade laws, which is a crime under the Sherman Anti-Trust Law. Those complaints could lead to a government investigation. The investigation could lead to criminal charges against the corporation.
In the 1970s, leaders from several hotel and restaurant companies in Portland, Oregon wanted to attract more business conventions to their market. Those leaders would need financial resources to show why Portland would be a great venue for conventions. They formed an “association” and charged membership dues to generate resources for marketing. The association would include leaders that worked in hotels, restaurants, and the vendors that sold to hotels and restaurants. All members agreed to contribute to the Association. Vendors that sold to hotels and restaurants would pay 1 percent of annual revenues. In exchange, the hotels and restaurants would give preferential treatment to vendors in good standing of the association. Hotels and restaurants agreed to boycott vendors that did not contribute to the association.
Such an arrangement violated fair-trade laws. Hilton, the corporation had a strict policy that prohibited employees from participating in any type of agreements that violated anti-trust laws. In other words, corporate policy would not allow a Hilton manager to base purchasing decisions on whether a vendor participated in an association.
Yet a purchasing agent at Hilton disregarded the policy. He specifically told a supplier that if he did not contribute to the association, the supplier wouldn’t be able to sell to Hilton.
The United States brought a criminal charge against Hilton. Knowing that it had done everything within its power to comply with the fair-trade rules, Hilton argued that it did not violate any fair-trade laws.
During the trial, several people testified on Hilton’s behalf. Under oath, corporate executives, including the president, the hotel manager, and the manager’s assistant testified that Hilton had a policy of purchasing supplies on the basis of price, quality, and service. They also testified that on two occasions, they told the hotel’s purchasing agent that he could not refuse to purchase from a supplier simply because a supplier did not contribute the 1 percent membership fee to the Association.
The purchasing agent also testified during the trial. He confirmed that he received the admonishment. He knew of Hilton’s corporate policies to comply with all laws and regulations. Despite explicit instructions from his supervisors, the purchasing agent, of his own accord, threatened a supplier with loss of Hilton’s business unless the supplier paid the association assessment. The purchasing agent testified that he violated his instructions because of his anger toward the person representing the supplier.
Under the doctrine of vicarious liability, the Hilton Corporation faced criminal liability for violating the Sherman Anti-Trust laws. According to judicial precedence:
“A corporation is responsible for acts and statements of its agents, done or made within the scope of their employment, even though their conduct may be contrary to their actual instructions or contrary to the corporation’s stated policies.”
In other words, the government could bring criminal charges against Hilton even though the corporation:
- Had a policy in place to abide by fair-trade laws,
- Had a policy in place to instruct purchasing agents to buy based on price, quality, and service,
- Instructed the purchasing agent that he should not participate in any boycott by the association
In later section, we will discuss the difference between criminal and civil liability. All business leaders should understand the implications of a criminal charge. Although the government may not be able to put businesses in jail, prosecutors routinely bring charges that result in people that run businesses in prison.
Our nation confines many people serve time in prison for business-related crimes. When I served my sentence, for example, I served time alongside an executive from the Samsung corporation, who accepted a plea agreement for violating antitrust laws. In 2019, we worked with Chris Lieschewski, the former CEO of Bumble Bee Tuna; the government brought criminal charges against Chris and Bumble for violating antitrust laws. Sadly, a judge sentenced Chris to serve several years in federal prison.
Many people with whom I served time told me that they did not have any intent on breaking the law. Some people did not know of laws that would prohibit their behavior.
Everyone on our team senses a responsibility to share lessons we learned from people that serve time in prison. By sharing those lessons, we hope to lessen the troubling trend of mass incarceration. We may not be able to change laws that criminalize business decisions, but we can certainly do our part to help business leaders learn how to minimize vulnerability to government investigations, or to qualify for leniency and non-prosecution agreements.
James, a friend I met while serving my sentence, offers an example of how vicarious liability can lead to a criminal charge.
James built a successful website design company. In other times, we’d consider James a great entrepreneurial success story. He grew up playing video games. Although he didn’t attend college, through self-study James developed web-design skills. He began earning an income by building websites for local businesses. James didn’t know anything about esoteric concepts that govern business law. He wanted to create jobs, pay his taxes, and contribute to his community.
Over time, because of his exceptional design skills, James grew his business by word of mouth. He hired more people. His company employed graphic designers, marketing teams, and programmers. Business leaders that lacked technical expertise would hire James’ company to build websites and to coordinate marketing campaigns. People that James’ company employed had discretion to work directly with clients to build websites and e-commerce functions as the clients’ directed.
One client hired James’ company to launch a website and engineer marketing campaigns for a nutritional supplement company. The designers at James’ company collaborated with the client to build websites that carried out functions for the client. Effective advertising campaigns brought consumers to the website. The consumers would leave contact information or place orders. The website would follow up with marketing materials.
Both the website and marketing materials published copy provided by the client. An investigation by the Food and Drug Administration led to charges that the nutrition company had been making false and misleading claims.
Although James told me that his company designed the website and the marketing materials in accordance with the client’s wishes, the government brought charges against the web design company, alleging willful blindness. The investigation advanced to a criminal proceeding. Prosecutors alleged that James knew or should have known that the nutrition company violated the law. James knew or should have known that in creating materials that misled consumers, his team had been complicitous in fraudulently deceiving consumers.
James lost his company, and he lost his liberty. He did not understand the concept of vicarious liability, respondeat superior, wire fraud, conspiracy, or obstruction of justice.
We’ve worked with many people that, like James, didn’t understand how their business decisions could lead to legal problems. For this reason, before we get into a prolonged discussion on Non-prosecution Agreements, Deferred-Prosecution Agreements, or Leniency, we should have a preliminary conversation on White-Collar Crime, which we’ll cover in the next section.
During my 26-year journey as a person in federal prison, I served time in prisons of every security level. From 1987 to 1994, I spent time in high-security prisons. I spent 1995 and 1996 in medium-security prisons. I spent 1997 through 2003 in low-security prisons. From 2004 until my release in 2013, authorities confined me in minimum-security, federal-prison camps.
While in graduate school, I studied many courses that taught theoretical concepts of criminology and the criminal justice system. Theorists from the middle ages held that there were two types of crimes:
- 1) Male in se, and
- 2) Male prohibita
Basically, those theorists described Male in Se crimes as the type of actions that we would consider criminal in any era, regardless of political climate. For example, we would always consider acts like murder, robbery, burglary, and arson to constitute criminal behavior. Those crimes victimize people, or damage property values.
The theorists refer to Male prohibita crimes, on the other hand, as behavior that may be against the law in one era, but not in a different era. For example, in Ancient Greece, lawmakers imposed the death penalty on people for anyone from the higher class to teach people from the slave class—as Socrates learned.
When I began my term in 1987, I met many people that were serving life sentences for selling marijuana. Today, many states have legalized marijuana for recreational use.
Times change in many jurisdictions. Consider the following:
- When Hitler reigned over Germany, the law made it a crime to provide safe harbor to Jewish people; yet Hitler’s law made it legal to kill Jewish people.
- American law once made it illegal to provide safe harbor to a person that had escaped from slavery; but our laws made it legal to enslave other human beings.
History shows us that political leaders may deem certain behavior criminal. But their decisions are not always right, or just. They have discretion to choose.
Similarly, as representatives of the Executive Branch of government, prosecutors have enormous discretion. They may choose to bring charges against some people but decline to bring charges against other people. For example, prior to becoming president, Donald Trump participated in a venture known as Trump University. Through Trump University, the venture collected millions of dollars from gullible consumers. Those consumers believed the marketing materials that Trump distributed, which pledged to help them become millionaires. The consumers went into debt, and they felt deceived.
Thousands of people that did not have political power serve time in federal prison as a result of convictions for deceiving consumers. Despite having ample evidence against him, prosecutors chose not to prosecute Donald Trump. When the voters elected Trump, he paid a $20 million settlement, and the case involving Trump University went away. Other people without political power were not so fortunate.
Our system isn’t always fair. Prosecutorial discretion results in some people facing charges that powerful people do not face. Consider the real estate housing bubble that led to the great recession. Many relatively small-time people served time in federal prison for mortgage fraud, yet few powerful bankers or lenders faced criminal prosecution for white-collar crimes.
Regardless of where authorities held me, I spent time alongside people convicted of every type of crime. We should understand that there is a difference between white-collar crime, and what I would call more typical crimes.
What are White-Collar Crimes?
While studying crime and criminology, I read a sociological theory by Edward Sutherland, proposed decades ago. At the time, conventional theorists held that poverty and despondency caused crime. Professor Sutherland disagreed. He argued that it wasn’t only poverty or desperation that caused crime. Sometimes greed caused crime. He referred to business leaders and people of high social status that manipulated transactions to their benefit. Professor Sutherland identified those types of behaviors as “white-collar” crimes.
The law does not provide an official definition for “white-collar crime.” Broadly speaking, the system categorizes white-collar crimes as nonviolent, illegal activities that, for the most part, use deceit, deception, fraud, or misrepresentation to obtain money, property, or some other advantage, or to conceal other wrongdoing.
Crimes and Investigations:
Both white-collar crimes and investigations share certain characteristics, including intent. Theoretically, all criminal cases require prosecutors to prove beyond a reasonable doubt that the defendant had bad intent. Yet, again, thousands of people serve time in federal and state prisons, despite their insistence that they did not intend to break the law, and that they did not even know they were breaking a law.
In other types of crime, like street crime, or violent crime, the investigations take place at the scene of the crime. Law enforcement officials get a report and then they collect evidence on the scene.
With white-collar crimes, the evidence usually flows from a paper trail, including:
- Bank statements
- Marketing Materials
Investigators have a solid body of evidence they can assess. It can lead them to call upon people as witnesses to an investigation, subjects of an investigation, or targets of an investigation. A witness may be able to shed some light on the evidence. A subject may or may not be a part of the crime. If investigators identify a person as a target, it’s more likely than not that the person will face criminal charges.
Once investigators conclude that a person or a company has engaged in criminal behavior, they will begin to work with a prosecutor. The prosecutor will likely convene a grand jury. The grand jury consists of a panel of several ordinary citizens. They listen and observe while prosecutors present the evidence.
The grand jurors may also ask questions of the witnesses. Defense attorneys will not be present to argue on behalf of the corporation, or the targets. The grand jury serves the purpose of determining whether probable cause exists to charge individuals or corporations with crimes. Prosecutors will ask the members of the grand jury to return an indictment that officially charges specific crimes.
If the grand jury indicts a corporation or an individual, in most cases, the defendant will accept a plea agreement in exchange for a lighter sentence. Those who choose to plead not guilty may face a bench trial in front of a judge, or they may face a regular jury, also known as a “petit” jury.
Sanctions and collateral consequences can be enormously severe after a finding of guilt, including:
- Loss of professional licenses
- Reputational damage
- Personal devastation
For these reasons, it behooves business leaders to learn more about options they can use to avoid criminal charges, or to qualify for leniency if the government begins to investigate wrongdoing.
First, business leaders should develop a basic understanding of white-collar crime. Members of our team have conversed with countless business leaders who said they did not know they were violating the law.
Many people that worked in a business setting could not conceive of themselves as criminals. They said that they did not have any intent of breaking the law. For these reasons, we want to help more business people understand white-collar crime. The more a business professional understands, the more vigilant a person can be.
To protect the business, leaders may want to implement clear policies to show team members what they should do if they witness behavior that investigators may construe as white-collar crimes.
Such policies can go a long way toward qualifying the business, and leaders, for leniency, mercy, or perhaps even immunity from prosecution with non-prosecution agreements.
Some examples of white-collar crime include:
- Mail and Wire Fraud:
Two of the most popular types of white-collar crimes include mail fraud and wire fraud. They’re rather easy to understand, although many business leaders I met in prison said that they did not understand their behavior could lead them to prison. If prosecutors can prove that a person engaged in a scheme to defraud a victim, and at some point, the defendant used the telephone, the Internet, sent or received something through the mail, the prosecutor may prove charges of mail fraud or wire fraud.
- Other Kinds of Fraud:
Mail and wire fraud have enormous reach, applicable to any type of business. Most all businesses use the Internet, the telephone, or the mail. If a bank sends a statement, for example, and the statement includes information about bank transactions involving proceeds from a fraudulent transaction, prosecutors may choose the broad category of mail fraud or wire fraud. But prosecutors could choose to bring more specific charges of fraud. For example, if a person used inaccurate information to complete a mortgage application, prosecutors may charge mortgage fraud. If a person filled an application for a loan at a bank, but used deceitful information, prosecutors may charge bank fraud. If a person completed a petition for bankruptcy, but chose to deceive the court about assets, prosecutors may bring charges of bankruptcy fraud. If a physician billed a government agency for services that he did not perform, prosecutors may bring charges for health fraud. Prosecutors have many statutes they can draw upon to charge people with fraud.
- Honest Services:
Both business leaders and elected officials may face charges for honest-services fraud. Under this statute, prosecutors must show that a person has a duty to provide honest services to constituents. Those constituents may include voters, or shareholders. If the person makes deals to benefit himself, or misuses the position, or misallocates assets, or self-deals in any way, prosecutors may allege that the person deprived people of honest services.
- Conspiracy Cases
Prosecutors may charge conspiracy when two people agree to engage in a crime. They don’t necessarily have to complete the crime, they simply have to agree to commit a crime—and then take some kind of step in furtherance of completing the crime. Prosecutors could charge a person with conspiracy if they believe one person helped another person carry out a crime. For example, consider a corporate executive that tries to raise money. If the executive hires a graphic designer to create a pamphlet that provides some type of inaccuracy that could, theoretically, mislead investors, the graphic designer may face conspiracy charges for wire fraud, mail fraud, securities fraud, or anything else. The inaccuracies may include stock photos, or fake biographies.
- Bribery and Corruption and FCPA
If a person gives something of value to a politician, or a business leader, with the specific intention of influencing favor, or skirting rules, that person may face charges for bribery, corruption, or for violating the Foreign Corrupt Practices Act. If a person conspires with someone else to violate rules, laws, or to self-deal in some kind of way, prosecutors may bring criminal charges.
- Securities Fraud and Insider Trading
A person that works in a publicly traded company has specific duties and responsibilities. Sometimes, violating those duties and responsibilities may lead to criminal charges for violating securities laws. If investigators believe an official misleads investors, prosecutors may bring charges for securities fraud. If someone receives information about a publicly traded company, and that information has not been made known to the general public, and the person purchases or sells stock based on that information, the person may face criminal charges.
- Tax Evasion
Tax evasion refers to various activities that may result in the willful, deceptive avoidance of paying taxes on income. As with all types of crimes, prosecutors may bring conspiracy charges if they believe that one participant, such as an accountant, willfully participated in helping a person or a corporation to use deceitful means to underpay taxes or avoid paying taxes.
- Perjury, Obstruction of Justice, Lying
The Fifth Amendment of the Constitution protects a person from having to respond to questions from a law-enforcement officer. If a person feels that responding could potentially lead to self-incrimination, the person may choose not to respond, simply by invoking the Fifth Amendment. But if a person does respond to a law-enforcement officer the person must communicate honestly. If the government investigators or lawyers think the person is lying, criminal charges can follow; the person does not have to be under oath to face charges for lying to an officer. A person may face charges for obstructing justice, or for violating a specific statute that criminalizes lies to government officers. Perjury, of course, is lying while under oath.
- Money Laundering
Statutes involving money laundering broadly apply to financial transactions involving criminal proceeds. If the transaction promotes criminal activity, evades income taxes, or avoid current reporting requirements, prosecutors may bring criminal charges for money laundering. A simple act of opening a bank account, for example, may be sufficient to support charges for money laundering if prosecutors allege that the money came from an illicit source.
In America, we have many different jurisdictions that can result in criminal charges against people or corporations. The United States Code includes more than 4,000 statutes that can lead to criminal charges. Besides the federal system, every state in the union has its own criminal code. The District of Columbia has a criminal code. The military has a criminal code. Besides all of those statutes, representatives of our government have published more than 1 million pages of regulations that can lead to criminal charges against people or corporations.
For these reasons, business leaders should invest the time and energy to understand how the government begins investigations that can lead to sanctions, or charges for white-collar crimes. That information would prove helpful for honest business leaders that want to minimize exposure to such investigations.
Business leaders and members of the business team should understand how government agencies begin investigations. At the start of most investigations, neither business leaders nor front-line staff will know that agencies have taken an interest. Despite a lack of knowledge on the company’s part, investigators may be gathering evidence to build a case against the company.
For more insight, we can turn to an article that Mark Eichorn published. In his article, If the FTC Comes to Call, Mr. Eichorn, an FTC administrator, wrote:
“All of our investigations are nonpublic. That means we can’t disclose whether anyone is the subject of an investigation… FTC staff typically begins with an informal investigation, usually by reviewing publicly available information or even reaching out to the company directly… What we learn may lead us to conduct a full investigation….”
Mr. Eichorn’s statements, taken directly from the FTC website, confirm that government agencies begin their investigations in secret.
Other readily accessible information suggests that all government agencies operate in the same, clandestine way. The agencies gather information until they choose to file a case. By the time an agency files a case, the investigators have an abundance of evidence that they believe will allow them to prevail in a lawsuit. They may sue the company or an individual in a leadership position. They may also bring charges against people working in the company.
Leaders of the Securities and Exchange Commission reveal that they begin investigations in the same way as the FTC. SEC investigators may notice unusual trading activity on public exchanges, or something in the media may perk their interest. Another pathway to an investigation may start with a whistleblower-type complaint from a customer or from an employee who wants to cash in on a reward that follows a settlement.
Any of those scenarios could lead to a government investigation. The target of the investigation may not know about the investigation until the day of a subpoena, raid, or arrest. By that time, the agency will have gathered mountains of evidence.
If an investigative agent or officer of a government agency gets a hint of potential illegal activity, either by a whistle-blower, via another active case, or through various data mining techniques, the agent will begin to investigate further. Once an investigation begins, investigators within the agency, together with government attorneys, will decide whether or not to proceed. If they choose to proceed, they may identify witnesses, subjects, or targets. None of those people will typically be aware that government officials have begun making inquiries.
Business owners would be wise to remember that government investigators advance their careers by bringing people or businesses down. They tend to view evidence from a light that is unfavorable to the business or target.
Once government investigators identify a potential witness, subject, or target, they accumulate evidence that will sustain a finding of guilt. It’s less likely that investigators would value evidence that tends to exonerate a person.
I’ve spoken with thousands of businesspeople that have gone through government investigations; in fact, every member of our team has gone through an investigation. When investigators found evidence that would weaken the government’s case, many people said the agents would purposely ignore it. For these reasons, we encourage people to keep accurate records that may help them defend against charges of wrongdoing.
Like sales leaders train their teams to overcome objections, investigative teams train their staff to look at all evidence with a suspicious eye. Unethical government investigators may even try to hide exculpatory evidence. All business leaders should remember the perspective, or framework that investigators bring to their work:
- A government investigator prepares for promotions by identifying deception, or noncompliance with regulations. With the growth of our government, legislators and administrative agencies have many laws and regulations that lead to fines, injunctions, disgorgement, and potentially criminal prosecutions. Investigators advance their careers when they find wrongdoing.
For these reasons, every team member grows stronger with a better understanding of how to comply with regulations. Training team members may serve as a great preemptive measure to help a business save the enormous expenditure of defending against a government investigation.
The Investigative Phase:
Generally speaking, many investigations begin with some type of complaint. The complaint may come from disgruntled customers, competitors, suppliers, or the business community.
Employees, too, may alert government officials to what they perceive as wrongdoing by acting as internal whistleblowers.
In the macro sense, we know that high-pressure prosecutorial tactics lead to many government investigations. Every year, our nation spends more than $100 billion to maintain our nation’s jails and prisons.
To keep those jails and prisons full, and keep the ecosystem growing, investigators work to bring charges against more people and businesses for white-collar crimes. Although some people have a criminal mindset and begin businesses with an intent to deceive or defraud victims, many people commit “crimes” without any intention or knowledge that they are violating laws. For example, the crime of cash structuring has led many people to prison, despite those people not having had any intent to break the law.
Cash structuring makes it a federal crime for any person to make cash deposits in certain circumstances. If prosecutors can prove that a person made a series of deposits that were under $10,000 for the specific purpose of evading the requirement to file a currency transaction report (whether that was actually the intent or not), the prosecutors may bring criminal charges.
As an example, let’s say a car dealer sells cars for $9,000. Let’s say that the car dealer sold five cars each day. Each time the dealer sold a car, the dealer brought the money to the bank and made a deposit. If the person filled out a currency transaction report, the person would be in compliance with the law—even though he did not deposit $10,000. If the person did not complete the cash transaction report, that individual could be liable for a felony conviction, because authorities may accuse him of making a pattern of deposits that amount to less than $10,000 in order to avoid completing a cash-transaction report.
The person in the example above did not intend to violate the law. He completed an invoice system and he paid appropriate tax. The money lawfully belonged to him. Yet if prosecutors allege that he “structured” the deposits to avoid filing cash-transaction report, prosecutors could bring felony charges; a judge could sentence him to prison. I served time in prison alongside several people because they violated cash structuring laws. Those people did not intend to violate the law; they did not know laws restricted the way they could access or deposit money they lawfully earned.
In the law-and-order system of the United States, investigators have massive power. They may question individuals and government attorneys may depose them under oath. The answers those witnesses give during government investigations can lead to further problems. Government investigators may incentivize people to cooperate with them. Prosecutors may offer immunity in exchange for testimony, thereby putting more people under scrutiny and bringing more people into the system.
A hypothetical example may help to illustrate how a government investigation can begin. Let’s say a businessman gets into some type of criminal problem. He faces a significant amount of time in prison. The businessman may offer to provide information to prosecutors in exchange for a lighter sentence. The information the businessman provides can spawn an entirely new and unrelated government investigation.
Investigators with various government agencies, including the FBI, the SEC, the FTC, the DHS, the ICE, or any other agency will make an initial determination on whether to advance an investigation. They may choose to proceed with a civil investigation, or they may work with law enforcement to launch a criminal investigation. Agencies have the authority to conduct civil investigations on their own. Criminal investigations, however, require prosecutors; those prosecutors may work with either with the US Attorney’s Office, or with the state Attorney General’s office.
Both civil and criminal investigations bring enormous pressure on a person. A case may begin with a civil investigation, but as evidence surfaces, the investigation may turn criminal, which brings more stress, more expense, and higher levels of risk.
Once investigators choose to advance, they subpoena documents related to the suspected activity. They may want to review bank and brokerage accounts, phone records, email records, social media etc. They can also request warrants to listen in on phone calls and review electronic activity in real time. Again, targets may or may not know that they’re being investigated.
Investigators typically do not want a potential target to know anything about the investigation at the outset and will ask people they interview to be discreet and not mention anything. In some cases, investigators make their investigations obvious. They may want to push the target to act inappropriately, while the investigators gain or create additional evidence or charges.
At some point, a target becomes aware or suspicious that an investigation is underway. Whether investigators identify a person as a potential witness, subject, or target, the person would be well advised to understand his or her options. People can take specific actions to minimize potential exposure.
The earlier a person can persuade investigators or prosecutors that a crime did not take place, the more likely a person would be to get a better outcome. As investigators and prosecutors spend more time on a case, they become more vested in getting the “win,” which doesn’t always equate with justice. They want a finding of guilt.
The Prosecution Phase:
If an investigative team feels it has sufficient evidence, then the government agency will bring public charges. In civil investigations, the agency may bring either an administrative proceeding, or it may file a lawsuit in federal court. With criminal charges, the prosecutor may file a criminal information or complaint.
In either civil or criminal investigations, investigators may request a judge to issue a search warrant to raid a person’s home or place of business. Citizens should expect that investigators will seize everything possible to help them build a case. They will take computers, cell phones, and all paper records that the warrant authorizes. The investigation will result in significant disruption to a person’s life; it could also obliterate prospects to continue business operations.
Later, government lawyers will schedule interviews and depositions. They will subpoena bank records and question third parties. They do not spare any expense in gathering evidence that will help them build a case. In order to lessen exposure to risk, many people within the organization will offer evidence to assist the investigation—sometimes crawling deeper into an investigative trap.
Investigators typically coordinate a strategy to undermine the business and personal life at every level. Remember the nature of a government investigator. Perhaps an analogy is in order. I’ll paraphrase an analogy from Aesop’s Fables:
The scorpion wants to cross to the other side of the river, but it does not know how to make it across. When the scorpion sees an otter in the water, it requests to ride across the river on the otter’s back.
The otter responds, “but if you ride on my back, you’ll sting me and I will die.”
The scorpion responds, “why would I do that? I am asking you to help me.”
The otter agrees and transports the scorpion across the river. Just before the scorpion climbs off the otter’s back, the scorpion stings the otter.
The otter whimpers, “But why did you sting me? I helped you by bringing you to the other side of the river. Now I’m going to die.”
The scorpion responds, “It’s in my nature.”
Remember that it’s in the nature of everyone on the investigative team to convict people and businesses. People that build careers as government investigators want high profile convictions.
For this reason, business leaders and team members should adhere to best practices at all times.
Some of the fallout from a government investigation includes reputational damage. Local and potentially national media will offer salacious details, fed by investigators. Internet searches may place a government’s press release at the top of a search result. Such reputational damage can lead to enormous complications for a business, and for the individuals identified in the media report. Blogs and posting boards may follow, leading to further stress.
A government investigation will likely lead to the loss of clients, business associates, and abandonment from friends. To avoid being tainted by the investigation, people will scatter and sever ties.
Our team has numerous examples that show how government investigators will taint unrelated parties. We know of a medical office that terminated a woman’s employment because authorities brought an indictment against her husband; investigators did not allege that she had anything to do with the crime. Investigators will use every tool in their arsenal to pressure people to cooperate with an investigation. As a result of their Grand Inquisitor tactics, collateral damage will follow.
Much like business owners crave favorable press for the services they provide, investigators welcome the shock and awe of a well-publicized investigation. For this reason, they frequently favor:
- the pre-dawn raid at a target’s home, with dozens of agents sporting massive firepower, and
- the blitzkrieg arrest at a corporate headquarters, where scores of agents will come in with windbreakers emblazoned with branding of the government agency.
Investigators use such aggressive tactics routinely, for strategic reasons. Investigators want targets to act irrationally. They want people to protest innocence, or to lie.
Although the target may be new to the proceeding, the investigator knows and understands that with a show of force, some people will lie to the investigators. When those people lie to a law-enforcement officer, they commit a federal criminal offense, under Title 18 of the United States Code, Section 1001. Investigators will use those lies as leverage, threatening imprisonment and other problems, to induce further cooperation.
The more business leaders and advisors know, the more effectively they will be able to lay groundwork to minimize vulnerability to a government investigation, or to qualify for leniency—including deferred-prosecution agreements, or potentially non-prosecution agreements.
Deferred Prosecutions and Leniency
Business leaders would be wise to take precautionary steps that may lessen a company’s vulnerability to criminal charges. They may have built a business with the best of intentions. Yet as companies grow, they bring more people onto the team. Those team members may make decisions that violate regulations or laws. Although a company may not be able to escape civil liability for misdeeds by employees, company leaders can take steps to persuade prosecutors that they built a company with a good-faith effort to avoid problems with the law.
If company leaders persuade prosecutors that they strive to operate as good corporate citizens, they may qualify for leniency through either a deferred-prosecution agreement or a non-prosecution agreement. Although civil penalties can be severe, criminal penalties may obliterate a company’s prospects to continue operations.
On June 1, 2020, the U.S. Department of Justice published a white paper to guide prosecutors on what they should consider when assessing whether to bring criminal charges against a company. Anyone with an interest could learn from the DOJ guidance. It shows that if companies build effective compliance programs, prosecutors may be more inclined to offer leniency through a deferred-prosecution agreement, or a non-prosecution agreement.
Our website at Compliance Mitigation offers a link with commentary to that white paper, but this portion of the lesson will explain our interpretation of what we learned.
The guidance draws from the “Principles of Federal Prosecution of Business Organizations,” which identifies specific factors prosecutors should consider when assessing whether to bring criminal charges against a corporation:
- The adequacy and effectiveness of the corporation’s compliance program at the time of the offense,
- The adequacy and effectiveness of the corporation’s compliance program at the time of a charging decision,
- The corporation’s remedial efforts to implement an adequate and effective corporate compliance program, or
- The corporation’s remedial efforts to improve an existing compliance program.
When deliberating over a plea for leniency, the prosecutors will pay particularly close attention to the corporation’s compliance program. Presumably, if a company has a good compliance program, the company will receive more favorable treatment.
Assistant Attorney General Brian Benczkowski instructs prosecutors to consider:
- whether the corporation has made significant investments in its corporate compliance program,
- whether the corporation has made significant improvements to its internal control systems, and
- whether remedial improvements to the compliance program and internal controls have been tested to demonstrate that they would prevent or detect similar misconduct in the future to determine whether a monitor is appropriate.
To get the full report, visit Compliance Mitigation or Google “Evaluation of Corporate Compliance Programs” and download a copy to learn.
What do Prosecutors Want?:
Prosecutors don’t want to see boilerplate compliance programs. Rather, each company should complete a risk assessment, and create training systems and control systems that are appropriate for the company. A healthcare provider may have a different risk exposure than a telemarketing company. As such, each company should invest to build compliance programs that address risk levels, and each company should implement well-documented internal controls.
Since I’ve met thousands of business professionals that went to prison, and many of those people claimed that they did not know or understand the implications of decisions they made on the job, it would seem that compliance programs should include basic lessons on white-collar crime. Regardless of what industry a business may serve, if the business uses a telephone, a website, email, snail mail, or interacts with consumers, the business stands vulnerable to investigations and potential criminal charges. After all, companies don’t break the law—people that work in companies break the law. Sadly, many of those people do not know the criminal implications of decisions they make.
According to the white paper, prosecutors make a reasonable, individualized determination in each case that considers various factors, including:
- The company’s size,
- Geographic footprint
- Regulatory landscape, and
- Other factors, both internal and external to the company’s operations that might impact its compliance program.
Prosecutors have to ask three fundamental questions when assessing whether a deferred-prosecution agreement or non-prosecution is appropriate:
- Is the corporation’s compliance program well designed?
- Is the program being applied earnestly and in good faith? In other words, is the program adequately resources and empowered to function effectively?
- Does the corporation’s compliance program work” in practice?
According to the DOJ, the “critical factors in evaluating any program are whether the program is adequately designed for maximum effectiveness in preventing and detecting wrongdoing by employees.” Also, prosecutors want to know “whether corporate management is enforcing the program or is the corporation tacitly encouraging or pressuring employees to engage in misconduct.”
For example, if the company has a policy statement that says it will not tolerate bribery, but rewards sales professionals that bribe others to do business with the company, the company may face harsher scrutiny from prosecutors. In fact, prosecutors may bring criminal charges against the company, and possibly, against leaders, alleging “willful blindness” to the violations of law. As described earlier, prosecutors will not hesitate to bring conspiracy charges against a business leader that condones violations of law.
The DOJ wants prosecutors to examine “the comprehensiveness of the compliance program,” ensuring that there is not only a clear message that misconduct is not tolerated, but also policies and procedures, including:
- appropriate assignments of responsibility,
- training programs
- systems of incentives and discipline.
Taken together, the compliance programs should be well-integrated into the company’s operations and workforce.
To start, a prosecutor will want to evaluate whether a company has undertaken an effective risk assessment. The company should create messaging to show that it has identified, assessed, and defined its risk profile. The compliance program should devote appropriate scrutiny and resources to the spectrum of risks.
Company leaders should anticipate that prosecutors will ask the following questions:
- What are the reasons behind this company’s compliance program?
- How has the company’s compliance program evolved over time?
When assessing whether a company should qualify for leniency, the DOJ white paper advises prosecutors to consider whether the compliance program is appropriately “designed to detect the particular types of misconduct most likely to occur in a particular corporation’s line of business” and “complex regulatory environment.”
Some factors prosecutors will consider include:
- location of operations (Does the company operate in areas where higher risks of corruption exist?),
- industry sector (What risks typically exist in the company’s sector?),
- competitiveness in the market (How does the company compete fairly in the marketplace?),
- regulatory landscape (What steps does the company take to stay abreast of regulatory changes?),
- potential clients and business partners (What due diligence does the company do on partners?),
- transactions with foreign governments (What rules exist with regard to doing business with foreign governments?),
- payments to foreign officials (What steps has company taken to comply with FCPA laws?),
- use of third parties (Does the company use third parties to deflect risk?),
- gifts (Does the company have a policy in place to address gifts?),
- travel (How does the company justify travel expenses?),
- entertainment expenses (What relationship do entertainment expenses have to legitimate business?),
- charitable and political donations (In what ways do donations relate to legitimate business?).
The DOJ white paper suggests that prosecutors may be more inclined to grant leniency to the business, and possibly offer a deferred-prosecution agreement if:
- The company leaders can how they went through a risk analysis,
- The company can show that it tailored its compliance program based on what it learned from the risk analysis.
- The company can show that it periodically updates its compliance program.
Prosecutors expect company officials to periodically assess the risk of criminal conduct and take appropriate steps to design, implement, or modify each requirement to reduce the risk of criminal conduct.
A salient point in the government’s guidance is that prosecutors may credit the quality and effectiveness of a risk-based compliance program that devotes appropriate attention and resources to high-risk transactions, even if it fails to prevent an infraction. If the company makes “revisions to corporate compliance programs in light of lessons learned,” that company may receive favorable treatment from a prosecutor.
Risk Management Process
To identify, analyze, and address the particular risks a company faces, it should take the time to write out a full story. For example, the company can take proactive measures by writing out:
- The company’s process to identify staff members it hires,
- Create a clearly defined organizational chart, with job descriptions and lines of accountability or authority,
- Write out the company’s customer-acquisition strategy,
- Write policy statements to show how the company processes orders, or protects customer privacy,
- Create scripts for employees to follow when communicating with consumers
- Create a cloud-base documentation retention policy,
- Create tools that show how the company trains team members,
- Create a corporate code of conduct that documents the company’s disciplinary process.
The above risk-management tool should help the company determine how best to design a compliance program that would be specific to its industry and risk profile. A company that interacts with officials in foreign countries, for example, may invest more time and training to guard against the potential for bribery; a company that operates in the telemarketing industry may create compliance programs that offer more training on the FTC Rule and the Telemarketing Sales Rule.
Prosecutors will want to know about the company’s resource allocation for compliance. Expect prosecutors to ask questions such as:
- Does the company devote a disproportionate amount of time policing low-risk areas instead of high-risk areas?
- High risk areas may include:
- Questionable payments to third-party consultants,
- Suspicious trading activity,
- Excessive discounts to resellers and distributors.
- High risk areas may include:
- Does the company give greater scrutiny to high-risk transactions?
- For example, a large-dollar contract with a government agency in a high-risk, country, as compared to a more modest and routine contract.
- Does the company have a policy in place to measure transactional risk?
Prosecutors will want to know how frequently the company updates and revises the compliance program. They will ask questions such as:
- Is the risk assessment current and subject to periodic review?
- Is the periodic review limited to a “snapshot” in time or based upon continuous access to operational data and information across functions?
- Has the periodic review documented updates in policies, procedures, and controls?
- Do these updates account for risk discovered through misconduct or other problems with the compliance program?
- Does the company have a process for tracking and incorporating into its periodic risk assessment lessons learned from the company’s prior issues?
- Does the company learn from the experiences of other companies operating in the same industry and or geographic region?
- Is the company tracking the efforts it makes to learn about how risks change in the industry?
Policies and Procedures:
Prosecutors will expect a well-designed compliance program to include policies and procedures that give both content and effect to ethical norms. The compliance programs should address and aim to reduce risks identified by the company as part of its risk assessment process.
Business leaders should expect prosecutors to examine:
- Whether the company has a code of conduct that sets forth, among other things, the company’s commitment to full compliance with relevant laws.
- Whether the company’s code of conduct is accessible and applicable to all company employees.
- Whether the company has established policies and procedures that incorporate the culture of compliance into its day-to-day operations.
- What is the company’s process for designing and implementing new policies and procedures?
- What is the company process for updating existing policies and procedures?
- Has that process changed over time?
- Who has been involved in the design of policies and procedures?
- Have business units been consulted prior to rolling out the policies and procedures?
- What efforts has the company made to monitor and implement policies and procedures that reflect and deal with the spectrum of risk the company faces?
- How has the company communicated its policies and procedures to all employees and relevant third parties?
- If the company has foreign subsidiaries, are there linguistic or other barriers to foreign employees’ access?
- Have the policies and procedures been published in a searchable format for easy reference?
- Does the company track access to various policies and procedures to understand what policies are attracting more attention from relevant employees?
Responsibility for Operational Integration:
- Who has been responsible for integrating policies and procedures?
- Have the policies and procedures been rolled out in a way that ensures employees’ understanding?
- In what specific ways are compliance policies and procedures reinforced through the company’s internal control systems?
- What guidance and training has been provided to key gatekeepers in the control process?
- Do they know how to identify misconduct?
- Do they know when and how to escalate concerns?
Training and Communications:
Prosecutors will consider training and communications as a hallmark of a well-designed compliance program. Prosecutors will assess the steps taken by the company to ensure that policies and procedures have been integrated into the organization.
- Do officers, directors, relevant employees, agents, and business partners receive periodic training?
- Has the company relayed information in a manner tailored to the audience’s size, sophistication, or subject matter expertise?
- Does the company give employees practical advice?
- Does the company give employees case studies to address real-life scenarios?
- Does the company give guidance on how to obtain ethics advice on a case-by-case basis?
- Does the company offer training to enable employees to identify and raise issues to appropriate personnel within the company?
- Does the company offer training that adequately covers prior compliance incidents?
- Does the company have a tool to measure the effectiveness of its training curriculum?
- Does the company disseminate the compliance training in a manner that employees understand?
To persuade prosecutors that the company stands behind its compliance program, business leaders must prepare themselves to answer questions that show how they track results, such as:
- Are the reporting and investigating mechanisms sufficiently funded?
- How has the company collected, tracked, analyzed, and used information from its reporting mechanisms?
- Does the company periodically analyze the reports or investigation findings for patterns of misconduct or other red flags for compliance weaknesses?
- Does the company periodically test the effectiveness of the hotline, for example by tracking a report from start to finish?
Even a well-designed compliance program may be unsuccessful in practice if implementation is lax, under-resourced, or otherwise ineffective. Business leaders should expect prosecutors to probe whether a compliance program is a “paper program” or one “implemented, reviewed, and revised, as appropriate, in an effective manner.
- Has the company provided for staff to audit, document, analyze, and utilize the results of the corporation’s compliance efforts?
- In what ways has the company shown its commitment to the compliance program?
- Does the company culture spread awareness that the company will not tolerate any criminal conduct?
Commitment by Senior Leaders:
Business leaders should anticipate that prosecutors will want to know whether the senior leadership team embraces the idea of compliance. Prosecutors will examine the extent to which senior leaders articulate the company’s ethical standards. They will want to know:
- How have senior leaders, through their words and actions, encouraged or discouraged compliance?
- What concrete actions have they taken to demonstrate leadership in the company’s compliance and remediation efforts?
- How have they modeled proper behavior to subordinates?
- Have managers tolerated greater compliance risks in pursuit of new business or greater revenues?
- Have managers encouraged employees to act unethically to achieve business objectives?
- Have managers impeded compliance personnel from effectively implementing their duties?
Structure, Incentives, Discipline:
Prosecutors will want to know about how the company structured its program and whether the company has clear disciplinary procedures in place and whether it enforces them consistently across the organization. Prosecutors will ask:
- Where within the company is the compliance function housed?
- To whom does the compliance function report?
- Is the compliance function run by a designated chief compliance officer?
- Why has the company chosen the compliance structure it has in place?
- What are the reasons for the structural choices the company has made?
- In what ways does the company show that non-compliance will lead to swift consequences, regardless of the position or title?
- How does the company incentivize compliance?
- How does the company strive to detect criminal conduct?
- Does the company publicize disciplinary actions internally?
- What positive incentives does the company provide for demonstrating compliance?
- Does the company tie bonuses or career advancement to compliance?
Does the Company’s Compliance Program Work?
The Principles of Federal Prosecution of Business Organizations requires prosecutors to assess “the adequacy and effectiveness of the corporation’s compliance program at two separate junctures:
- At the time of the offense, and
- At the time of the charging decision.
If the compliance program detected misconduct, and the company took action by self-reporting or conducting an internal investigation, prosecutors may conclude that the compliance program has been working effectively.
- Has the compliance program evolved over time?
- Has the company made significant investments in its compliance program?
- Has the company invested in internal control systems?
- Does the company make continuous improvements?
- In what ways does the company investigate allegations of misconduct?
- In what ways does a company conduct a root-cause analysis for noncompliance?