PRACTICE PERSPECTIVES: CORPORATE CRIMINAL INVESTIGATIONS

2

Virtually every major company in the U.S. has had its “turn

in the barrel” of criminal investigation; many have had more

than one. No longer can even the most respectable of com-

panies expect to avoid its turn. Indeed, rarely is any major

new federal program enacted that does not include specific

criminal provisions layered on top of the broadly applicable

laws already on the books. The trend toward criminaliza-

tion of corporate activity has been well observed and com-

mented upon for more than a decade. Even before Enron

and WorldCom, the interest of prosecutors in investigating

and prosecuting major corporations and their executives was

already extremely high; now, it is at a near fever pitch.

At the same time, prosecutors are taking advantage of the

enormous leverage provided to them in many cases of auto-

matic or discretionary “exclusion” or “debarment” to dramati-

cally increase the downside risks to any corporation that

should actually think of defending itself against criminal

accusations at a trial. Thus, health care companies and pre-

scription drug manufacturers, much like defense contractors

at an earlier point in time, must consider that losing even

one count of a massive case will likely result in the automatic

exclusion of their products or services from all federal health

care programs, including both Medicare and Medicaid. So,

criminal cases often carry not only the threat of the humili-

ation of conviction, fine, and a possible supervised proba-

tion, but also of economic devastation through debarment,

exclusion, follow-on class actions, or the like. Increasingly,

corporations have come under intense pressure to waive the

attorney-client privilege, to self-report questionable activity,

and to conduct internal investigations of themselves and their

personnel, knowing that the government may demand the

results of such inquiries and then use the information against

the corporation in criminal and administrative proceedings. In

general, the risk of potentially devastating government action

against corporations has increased year after year, and con-

tinues to do so.

Often hand in hand with criminal investigations, and some-

times independently or following on after them, come admin-

istrative and civil proceedings with their own potential for

serious consequences to the corporation. SEC, FTC, EPA, var-

ious Inspectors General, state Attorneys General, and others

now look toward corporate citizens as targets of their efforts.

In some cases, federal and, increasingly, False Claims Act

suits, whether taken over by the government or not, precede

criminal or regulatory actions. Many ex-corporate employees

around the country have literally become rich from so-called

whistleblowing activity involving their former employers.

The decisions that a company makes at the very outset of

one of these problems will often control the outcome. Of

course, no one can predict which of potential myriad issues

will be presented in the crucial days when allegations first

surface. In this issue of Practice Perspectives, we have set

out some observations and advice as to a number of such

issues that may come up when corporations face criminal,

quasi-criminal, or administrative inquiries. While we under-

stand that each of you will continue to hope that you never

have a situation arise in which this information might be actu-

ally useful, we do hope that you will find it interesting.

Daniel E. Reidy

practice chairl e t t e r f r o m t h e

3

contents 4 l Jones Day’s Corporate Criminal Investigations Practice Lawyers in the Firm’s CCI Practice regularly represent businesses and individu-

als in a wide range of criminal and related civil and administrative matters in the United States and abroad.

6 l The Fifth Amendment Privilege and the Production of Documents by Corporations and Their Officers Under what circumstances can a corporate recipient of a subpoena demanding

documents assert the Fifth Amendment privilege against self-incrimination?

10 l The Trend Toward Criminal Prosecution for Workplace Injuries and Deaths Local prosecutors are now leveling criminal charges against corporations and

senior management in connection with workplace injuries and deaths.

14 l Department of Justice Makes an Offer Some Corporations Cannot Refuse The DOJ’s new strategy under its Guidelines on Corporate Prosecution can force

companies to “turn in” suspect executives in return for avoiding prosecution.

18 l Guidelines for Corporate Search and Seizure Recently the search warrant, long a tool for investigation of criminal con-

duct, has been turned to the pursuit of allegedly unlawful business conduct. Businesses should understand their rights.

22 l Unlawful Search, or a Mole’s Consent: Minimizing Uninvited Consequences of an Employee’s Covert Cooperation with Law Enforcement

One especially sensitive issue confronting a company faced with a criminal investigation is the employee or former employee who secretly provides infor-mation to government investigators.

28 l When Crime Goes Global, Whose Laws Govern? How far do American criminal laws, increasingly used against criminal conduct

outside the U.S., reach into foreign countries, and what role does foreign law play in criminal and civil actions in the U.S.?

34 l Bribery of Foreign Public Officials in International Business Transactions The battle against corruption has become a major priority for international com-

panies, which must be aware of anti-corruption laws and how to deal with such issues that may arise.

44

14

l S P R I N G 2 0 0 5

6

28

© 2005 Jones Day. All rights reserved.

4

The Corporate Criminal Investigations (“CCI”)

Practice team regularly represents businesses and

individuals in a broad range of criminal and related

civil and administrative matters in the United

States and abroad.

CCI lawyers in the United States recently have handled anti-

trust, securities, health care fraud, money laundering, govern-

ment contracting, import/export, tax, RICO, and other matters

before federal and state courts and administrative agencies

nationwide. In addition, our lawyers in Europe have exten-

sive knowledge of criminal matters in the European Union.

European CCI Practice lawyers routinely provide advice to

clients in a variety of criminal law matters, including fraud,

breach of trust, bankruptcy, insider trading, and other sub-

stantive areas. Moreover, members of the CCI team in our

Frankfurt Office have extensive experience representing

JONES DAY’S CORPORATE CRIMINAL INVESTIGATIONS PRACTICE

5

corporate clients in matters involving allegations of corrup-

tion as well as advising clients how to avoid problems in this

area. The breadth of our practice worldwide has made Jones

Day lawyers intimately familiar with the processes, practices,

procedures, and policies of a variety of federal and state law

enforcement agencies, including the Department of Justice,

the SEC, the FTC, and other agencies.

Jones Day’s CCI lawyers have broad experience in all stages

of the criminal process. Our lawyers can assist businesses in

establishing effective corporate compliance programs that

prevent and detect wrongdoing at the outset. Such a pro-

gram helps establish a corporate culture of strict compliance

with all applicable laws and regulations. If employees act

improperly, a compliance program may help convince federal

prosecutors not to proceed criminally or may reduce the cor-

poration’s culpability under the federal sentencing guidelines.

Our lawyers can conduct prompt, thorough, and effective

internal investigations when a corporation is confronted with

issues raised by whistleblowers, compliance “hotline” call-

ers, outside auditors, government regulators, competitors, or

adverse parties in litigation. Our approach is to investigate

thoroughly the relevant facts under the protection of the cor-

poration’s attorney-client privilege, and to provide advice and

counsel to boards and management on appropriate courses

of action. In rendering advice and counsel, we consider not

only the issues of immediate concern, but also collateral

issues, such as confidential preparation for defense of the

company or company employees, possible voluntary disclo-

sure to the government to limit the company’s liability, and

regulatory and civil consequences of corporate decisions.

Our CCI lawyers—many of whom are former federal prosecu-

tors who investigated and prosecuted white-collar crime—

bring the skill, insight, and discretion gained from their many

years of practice to enable our clients to efficiently and dis-

creetly resolve problems.

With their extensive experience in federal criminal prosecu-

tion and defense, our CCI lawyers are highly qualified to

negotiate with prosecutors and regulators to resolve poten-

tially criminal disputes. Such resolutions may limit the dam-

aging publicity that criminal charges can produce and avoid

collateral consequences such as debarment.

Our CCI lawyers also have considerable experience repre-

senting businesses and individuals in grand jury proceedings.

Such representation may include coordinating the production

of documents to the grand jury, preparing witnesses to tes-

tify, accompanying witnesses to grand jury appearances, and

asserting the attorney-client and other privileges as appro-

priate. Effective grand jury representation can be critical to

reducing or avoiding criminal charges.

If an investigation leads to criminal charges, our CCI lawyers

have the talent and experience to represent businesses and

individuals in state and federal courts nationwide. Our CCI

lawyers have knowledge of all phases of the criminal trial

process, from aggressive pretrial motion practice, to trial pre-

sentations, to post-trial motions, sentencing, and appeal. In

recent years, CCI lawyers have handled federal criminal trials

throughout the United States.

Jones Day’s international practice also makes the CCI law-

yers qualified to handle the international criminal issues

that arise more frequently with the globalization of business.

Criminal cases in one country, if not handled properly, can

become criminal cases elsewhere, and our lawyers can assist

businesses to ensure that small, domestic problems do not

become large, international problems. ■

For further information on Jones Day’s

Corporate Criminal Investigations Practice,

please contact Daniel E. Reidy, Practice

Chair, in our Chicago Office at 312.269.4140

or by e-mail at dereidy@jonesday.com.

6

THE FIFTH AMENDMENT PRIVILEGE AND THE PRODUCTION OF DOCUMENTS BY CORPORATIONS AND THEIR OFFICERS

B y J o h n D . C l i n e a n d K . C . M a x w e l l , S a n F r a n c i s c o O f f i c e

You are the general counsel of a corporation. One day an FBI

agent appears in your office and serves you with a grand jury

subpoena. The subpoena is directed to the president of the

corporation, “as custodian of records.” It demands produc-

tion of a broad range of documents, from financial records

to executives’ pocket diaries and calendars. When you hand

the president the subpoena, she asks you whether she and

the corporation have a valid basis to resist the grand jury’s

demand for documents, and whether she or the corporation

can assert the Fifth Amendment privilege against self-incrimi-

nation. How do you respond?

This article addresses the circumstances under which the

recipient of a subpoena duces tecum can assert the Fifth

Amendment privilege to resist production of responsive doc-

uments. Several principles are clear:

• Corporations cannot assert the Fifth Amendment privi-

lege under any circumstances. See, e.g., Braswell v. United

States, 487 U.S. 99, 102 (1988); Bellis v. United States, 417 U.S.

85, 88 (1974); and

• Individuals cannot assert the privilege for the contents of

voluntarily prepared documents. See, e.g., United States v.

Hubbell, 530 U.S. 27, 35-36 (2000); United States v. Doe, 465

U.S. 605, 612 n.10 (1984); Fisher v. United States, 425 U.S. 391,

409 (1976).

But two other principles conceal important subtleties:

• Individuals generally can assert the privilege for the act of

producing personal documents.

• Individuals generally cannot assert the privilege for the act

of producing corporate documents.

7

The application of these general principles can have a dra-

matic effect on the course of any subsequent criminal pros-

ecution. We discuss the principles in turn.

THE ACT OF PRODUCTION DOCTRINE

The Fifth Amendment act of production doctrine potentially

applies when three threshold requirements are satisfied:

1) the production of documents is compelled;

2) the act of production will be testimonial; and

3) the testimonial act of production may be incriminating.

As discussed below, however, the act of production doctrine

generally does not apply to corporate documents even when

these requirements are satisfied. Nor does the doctrine apply

to records that generally applicable civil statutes or regula-

tions require the recipient of the subpoena to maintain.

The Requirements of the Act of Production Doctrine. The act

of production doctrine has three principal requirements.

First, to invoke the protections of the Fifth Amendment, the

act of production must be compelled. A voluntary production,

no matter how incriminating, does not trigger the privilege.

Production of documents in response to a subpoena consti-

tutes “compelled” production for these purposes.

Second, the act of production must be “testimonial” for the

Fifth Amendment privilege to apply; compelled nontestimo-

nial acts, such as the giving of a blood sample or a hand-

writing or voice exemplar, no matter how incriminating, do not

enjoy Fifth Amendment protection. The Supreme Court has

recognized that an individual’s act of producing documents

may have testimonial aspects. “By producing documents in

compliance with a subpoena, the witness would admit that

the papers existed, were in his possession or control, and

were authentic. Moreover . . . when the custodian of docu-

ments responds to a subpoena, he may be compelled to

take the witness stand and answer questions designed to

determine whether he has produced everything demanded

by the subpoena.” Hubbell, 530 U.S. at 36-37. The D.C. Circuit

concluded that “the act of production communicates at least

four different statements. It testifies to the fact that: i) docu-

ments responsive to a given subpoena exist; ii) they are in the

possession or control of the subpoenaed party; iii) the docu-

ments provided in response to the subpoena are authentic;

and iv) the responding party believes that the documents

produced are those described in the subpoena.” Hubbell,

167 F.3d at 567-68.

Courts have suggested that the act of production lacks tes-

timonial content when the government demonstrates that

information that the act communicates—that the documents

exist, that the witness possesses or controls them, that the

documents are authentic, and that the witness believes them

responsive to the subpoena—amounts to a “foregone con-

clusion.” The government bears the burdens of production

and proof on the “foregone conclusion” issue. The Supreme

Court found the facts communicated by the act of produc-

tion a foregone conclusion when the papers in question—an

individual’s tax records in the possession of his accountant—

“belong to the accountant, were prepared by him, and are the

kind usually prepared by an accountant working on the tax

returns of his client.” Fisher, 425 U.S. at 411. On the other hand,

the Court rejected the government’s “foregone conclusion”

argument when the government subpoenaed broad catego-

ries of business records and could not show that it “had any

prior knowledge of either the existence or the whereabouts”

of the documents that the witness ultimately produced.

Third, a compelled, testimonial act of production must be

incriminating to fall within the scope of the Fifth Amendment.

The “incrimination” requirement is easily satisfied in most

cases where the government has an active investigation. The

Fifth Amendment privilege “encompasses compelled state-

ments that lead to the discovery of incriminating evidence

even though the statements themselves are not incriminating

and are not introduced into evidence.” Hubbell, 530 U.S. at 37-

38 (quoting Doe v. United States, 487 U.S. 201, 208 n.6 (1988)).

As the Supreme Court declared more than 50 years ago, “The

privilege afforded not only extends to answers that would

in themselves support a conviction under a federal criminal

statute but likewise embraces those which would furnish a

link in the chain of evidence needed to prosecute the claim-

ant for a federal crime.” Hoffman v. United States, 341 U.S. 479,

486 (1951), quoted in Hubbell, 530 U.S. at 38.

Immunity for the Act of Production. When the requirements

of the act of production privilege are satisfied—and when

8

the documents at issue are neither corporate documents nor

documents that generally applicable civil statutes or regula-

tions require the witness to maintain—the witness may assert

the Fifth Amendment privilege to resist compliance with the

subpoena. The government may overcome the privilege only

by granting immunity for the act of production. To prosecute

a witness after obtaining documents from him or her under a

grant of use immunity, the government must prove “that the

evidence it used in obtaining the indictment and propose[s]

to use at trial [is] derived from legitimate sources ‘wholly

independent’ of the testimonial aspect of [the witness’] immu-

nized conduct in assembling and producing the documents

described in the subpoena.” Hubbell, 530 U.S. at 45 (quot-

ing Kastigar v. United States, 406 U.S. 441, 460 (1972)). As the

Supreme Court’s decision in Hubbell demonstrates, the gov-

ernment’s burden of establishing independent sources for its

evidence can be difficult to meet.

PRODUCTION OF CORPORATE DOCUMENTS

The Fifth Amendment act of production doctrine generally

does not apply to the production of corporate documents.

But this limitation on the act of production doctrine has sev-

eral important nuances.

The Braswell Rule. In Braswell v. United States, 487 U.S. 99

(1988), the Supreme Court held that a corporate officer or

employee who receives a subpoena for corporate docu-

ments cannot assert his or her Fifth Amendment privilege

to resist the subpoena, even if the act of production is per-

sonally incriminating. The Court reasoned that corporations

and other collective entities, such as partnerships, trusts,

and government entities, lack a Fifth Amendment privilege;

that corporate custodians produce corporate records as

representatives of the corporation, and not in their individual

capacity; and that corporate custodians, like the corporations

they represent, cannot assert the Fifth Amendment.

Braswell suggests, and other courts have confirmed, that a

sole proprietor, unlike a corporate custodian, may assert his

or her Fifth Amendment act of production privilege to resist

production of proprietorship documents. Braswell, 487 U.S. at

104 states that “had petitioner conducted his business as a

sole proprietorship, Doe would require that he be provided

the opportunity to show that his act of production would

entail testimonial self-incrimination.” Thus, the principles

applicable to individuals who receive subpoenas for docu-

ments apply to the production of business documents by the

custodian of records for a sole proprietorship.

Although the custodian cannot assert a personal Fifth

Amendment privilege for the act of producing corporate

documents, Braswell affords some protection. The Court

described this protection as follows:

Because the custodian acts as a representative, the act

is deemed one of the corporation and not the individual.

Therefore, the Government concedes, as it must, that

it may make no evidentiary use of the “individual act”

against the individual. For example, in a criminal pros-

ecution against the custodian, the Government may not

introduce into evidence before the jury the fact that the

subpoena was served upon and the corporation’s docu-

ments were delivered by one particular individual, the

custodian. The Government has the right, however, to

use the corporation’s act of production against the cus-

todian. . . . Because the jury is not told that the defendant

produced the records, any nexus between the defendant

and the documents results solely from the corporation’s

act of production and other evidence in the case.

Braswell, 487 U.S. at 118. According to the Court, this “Braswell

immunity” for the production of corporate documents is not

the equivalent of statutory use immunity. Instead, the restric-

tion on use of the act of production against the custodian

“is a necessary concomitant of the notion that a corporate

custodian acts as an agent and not an individual when he

produces corporate records in response to a subpoena

addressed to him in his representative capacity.” Braswell,

487 U.S. at 118 n.11. The Court has not explained precisely

how “Braswell immunity” differs from statutory use immunity.

The Second Circuit has suggested that “Braswell immunity,”

unlike statutory use immunity, does not protect the custodian

against derivative use of his or her act of production.

Open Issues Following Braswell. Braswell leaves several

significant questions unanswered. First, the decision does

not offer a test for distinguishing corporate records, which a

corporate custodian holds in a representative capacity, from

9

]personal records, which are held in an individual capacity.

The lower courts have struggled with this distinction, partic-

ularly with respect to such multiple-use items as daytimers

and diaries. For example, In re: Grand Jury Proceedings, 55

F.3d 1012, 1014 (5th Cir. 1995) uses a multifactor approach to

determine that daytimers are corporate documents; Stone,

976 F.2d at 911 states that diaries with predominantly business

entries are corporate records and that the witness did not

prove that calendars were personal, and thus they were also

deemed to be corporate records. United States v. MacKey,

647 F.2d 898, 900-01 (9th Cir. 1981) found that desk calen-

dars and pocket diaries are corporate, while In re Grand Jury

Subpoena Duces Tecum, 522 F. Supp. 977, 982-85 (S.D.N.Y.

1981) held that desk calendars are corporate and pocket cal-

endars are personal.

Second, the Braswell Court expressly leaves open “whether

the agency rationale supports compelling a custodian to pro-

duce corporate records when the custodian is able to estab-

lish, by showing for example that he is the sole employee and

officer of the corporation, that the jury would inevitably con-

clude that he produced the records.” Braswell, 487 U.S. at 118

n.11. Following Braswell, the lower federal courts have gener-

ally rejected efforts by sole corporate officers and employees

to assert a personal Fifth Amendment privilege for the act of

producing corporate documents.

Third, courts have generally held that the Braswell rule

applies to any request that a corporate employee produce

corporate documents, regardless of whether “the subpoena

is directed to the collective entity, to a person as that enti-

ty’s document custodian, or to the person individually.” In re:

Grand Jury Witnesses, 92 F.3d 710, 713 (8th Cir. 1996). Some

courts have held, however, that a former corporate employee

who holds corporate records may assert his or her indi-

vidual Fifth Amendment act of production privilege to resist

production of the records. Other courts have held that for-

mer employees continue to hold corporate records in a rep-

resentative capacity and thus cannot assert an individual

Fifth Amendment privilege to resist production. The Supreme

Court will likely resolve this circuit split in the future.

Fourth, Braswell and other courts make clear that a corporate

custodian cannot assert the Fifth Amendment privilege to

avoid providing testimony merely authenticating the corpo-

rate records that he or she produces. But courts are divided

on whether the custodian must also provide testimony estab-

lishing that the documents fall within the business records

exception to the hearsay rule. Compare, for example, In re:

Trial Subpoena Duces Tecum, 927 F.2d at 248-51 (a custo-

dian may be compelled to provide authentication testimony,

including business records foundation), with In re Grand Jury,

869 F. Supp. at 307-08 (a custodian may not be compelled to

provide business records foundation without immunity).

So what do you tell the president of your corporation

about the Fifth Amendment privilege? You tell her that the

continued on page 38

The Supreme Court held that a corporate officer or employee who

receives a subpoena for corporate documents cannot assert his

or her Fifth Amendment privilege to resist the subpoena, even if

the act of production is personally incriminating.[

10

A new and disturbing trend is emerging in the field of white-collar

crime, one that is unrelated to recent, well-publicized financial scan-

dals. Local prosecutors nationwide are taking the dramatic step of

leveling criminal charges against corporations and senior manage-

ment in connection with workplace injuries and deaths. The trend is

not confined to just one state:

• In Illinois, a company president, plant manager, and plant foreman

were convicted of murder for the death of a worker at a silver recla-

mation factory.

• In Texas, a corporation and its president were convicted of negligent

homicide after the walls of a trench collapsed, killing two workers.

• In New York, a general contractor, its president, and a subcontractor

were charged with manslaughter and reckless endangerment when

two workers drowned while they were digging a ditch for a water

and sewer line.

• In Michigan, a corporation and its president were convicted of

attempted involuntary manslaughter in connection with the death of

an employee who was killed when an explosion occurred during a

cutting operation on a storage tank.

b y S t e p h e n G . S o z i o a n d E a r n e s t B . G r e g o r y , C l e v e l a n d O f f i c e

T H E T R E N D T O W A R D

F O R W O R K P L A C E I N J U R I E S A N D D E A T H S

11

12

The potential exposure is significant: In 2003, there were

approximately 5,560 workplace fatalities and 1,436,200

nonfatal workplace injuries. Reducing these numbers and

enhancing worker safety remains the primary concern of

responsible corporate managers. To the extent accidents

still occur, however, the current environment forces corporate

managers to consider the potential for criminal as well as tort

liability in the aftermath.

Historically, liability for workplace injuries and death has been

determined through no-fault workers’ compensation pro-

grams and/or civil tort cases. In addition, the Occupational

Safety and Health Administration and its state counterparts

have responsibility for the establishment and enforcement of

workplace health and safety standards. Criminal liability, on

the other hand, traditionally has been reserved for conduct

showing flagrant disregard for worker safety. Nonetheless,

despite extensive regulation and civil tort remedies, the invo-

cation of more severe state criminal penalties has been on

the upswing in recent years.

STATE PROSECUTION

Although local prosecutors have charged a variety of state

criminal violations for workplace injuries and deaths (includ-

ing manslaughter, negligent homicide, reckless endanger-

ment, and assault), the most commonly used statutes are

reckless assault and reckless homicide. Several states have

amended their reckless homicide and assault statutes to

capture conduct typically involved in a worker injury or death.

Representative statutes provide that no person (defined to

include corporations) shall recklessly cause the death or

injury of another. “Recklessly” has been defined in these stat-

utes as “with heedless indifference to the consequences, dis-

regarding a known risk that is likely to cause the death or

injury of another.”

In addition, a growing number of states are expanding their

oversight in the area and strengthening their criminal stat-

utes. For instance, four states now require safety inspectors

to notify prosecutors of deaths deemed to be caused by

safety violations. At least three states have changed statutory

language to criminalize not only a safety violation that causes

an employee’s death, but also that causes severe injury in the

workplace. Similarly, at least 11 states have increased prison

terms for criminal violations of the applicable statutes.

PROPOSED TOUGHER FEDERAL PENALTIES

The current criminal penalty under federal law for violation

of OSHA’s workplace safety rules is six months’ incarceration.

In April 2004, Senators Jon Corzine and Edward Kennedy

introduced the Wrongful Death Accountability Act that would

increase the maximum penalty for workplace safety regula-

tions to 10 years’ imprisonment.

WHAT IS AT STAKE

Aside from worker safety itself, the greatest concern for those

members of management potentially responsible for a work-

place injury or death is the real risk of incarceration. Penalties

range from several months to several years of incarceration

for reckless homicide convictions.

Under the Occupational Safety and Health Act, a corporation

that caused the death of an employee through a “willful” vio-

lation of the act or applicable agency regulations faces fines

of up to $10,000 and civil penalties ranging from $1,000 to

$70,000 depending on the nature of the violation.

A criminal conviction under federal or local laws can also

result in significant collateral consequences. These con-

sequences may include the cancellation of or a dramatic

increase in the cost of insurance, increased likelihood of suc-

cess of related civil cases, increased governmental moni-

toring and/or regulation, and the potential debarment from

government procurement programs.

WHAT CAN I DO?

13

STEPHEN G. SOZIO Telephone: 216.586.7201e-mail: sgsozio@jonesday.com

Steve is a Partner in the Firm’s Cleveland Office. His practice involves

the representation of businesses and their employees during investi-

gations and prosecutions by federal and local governmental authori-

ties for potential criminal charges; representation of clients in civil

actions involving fraud, false claims, and other business-related

wrongdoing; and conducting internal investigations and advising cor-

porate clients regarding compliance issues to avoid governmental

sanctions. Prior to joining Jones Day, Steve was an investigating pros-

ecutor for the Organized Crime Strike Force Unit of the U.S. Attorney’s

Office for the Northern District of Ohio for 10 years.

Most companies doing

business in the United States are already enforcing workplace safety rules and

encouraging practices that minimize the risk of occupational injury. There are,

however, some additional steps that a corporation can take to discourage prosecu-

tion when an injury or death occurs.

Establish Compliance Standards. A fundamental consideration for satisfying regulatory review

is whether an effective program to detect and prevent violations of the law has been established.

This requires the company to develop and document a code of conduct that fosters compliance with

applicable regulations designed to minimize the risk of workplace injury.

Communicate the Safety Message Effectively. Management must make certain that the right safety mes-

sage is being communicated throughout the company.

Take Action in Advance. Investigate thoroughly any alleged violations of the company’s compliance standards.

Consider: 1) establishing an anonymous reporting system concerning suspected violations of the standards,

2) conducting risk assessments to prevent failures within the compliance program, and/or 3) performing due

diligence on applicants and personnel in positions with substantial discretionary authority.

Take Appropriate Actions When an Incident Occurs. There is a greater likelihood of prosecution if the inci-

dent causing the injury or death occurs more than once, as it may be viewed as a “known risk.” Thus, the

corporation must be able to establish that it took appropriate action to prevent a reoccurrence. Many viola-

tions require the corporation to self-report the offense to the appropriate authority. Additional actions, such

as installing further reasonable preventative measures to avoid similar future occurrences, disciplining the

responsible actor(s) for the offense, and taking organizational responsibility for the offense committed, may

also help avoid prosecution.

Stay Updated on Industry Standards. Industry standards should be monitored for advances and changes in

compliance management, and management must effectively communicate these advances to the staff. ■

EARNEST B. GREGORYTelephone: 216.586.7292e-mail: ebgregory@jonesday.com

Earnest is an Associate in the Cleveland Office.

14

DEPARTMENT OF JUSTICE MAKES AN OFFER

he rules of engagement are changing for corporations and many

senior executives and other employees of corporations subject to

government investigation. An expansion of the U.S. Department of

Justice (“DOJ”) Guidelines on Corporate Prosecution, announcing

among other things that corporate joint defense agreements with an

indemnification of employees are out of favor, and two recent cases

in New York illustrate how the DOJ’s strategy virtually can force com-

panies to “turn in” suspect executives and other employees and waive

any confidentiality for statements employees make in return for avoid-

ing prosecution. Amendments to the Sentencing Guidelines effective

on November 1, 2004, reflect this change.

SOME CORPORATIONS CANNOT REFUSE

b y J a m e s J . G r a h a m , W a s h i n g t o n , D . C . O f f i c e

15

DEPARTMENT OF JUSTICE MAKES AN OFFER SOME CORPORATIONS CANNOT REFUSE

BEFORE THE SCANDALSBefore the Enron scandal, the approach taken by most cor-

porations facing a federal investigation reflected the benefits

of loyalty to employees, and took the form of:

• defending the good intentions of the employees, if not the

conduct itself;

• correcting but not disclosing to the government the inter-

nal problems unless there was a legal duty to do so (and

there are actually very few); and

• if the government sought to interview employees it sus-

pected of wrongdoing, advancing fees for the employees’

own lawyers.

Company attorneys routinely elected to enter into joint

defense agreements with counsel for the employees they

often had a role in selecting, many of whom were able either

to slow down an investigation reluctant to offer immunity or

negotiate immunity from prosecution for the employee.

The exception to this approach by companies was investi-

gations that arose in the midst of an acquisition or a bank-

ruptcy where the acquiring company had no loyalty to the

employees of the old company and not as much to lose from

a criminal investigation. Often, it was in the acquirer’s finan-

cial interest to blame the acquired company—in some cases

all the costs were borne by the old company anyway, and

it was much better to get the cloud lifted than risk tainting

the new company and its management. Corporations gener-

ally believed that under the rules of corporate liability, their

welfare was inextricably tied to that of their employees. Most

thought that a good defense for the employees was the only

defense for the company.

That perspective led to open-ended indemnification arrange-

ments for all employees, even those whose actions were

questionable. Joint defense agreements were common as

everyone sought to satisfy the government’s investigative

needs without admitting wrongdoing. These joint defense

agreements were initiated even in settings where the corpo-

ration otherwise was “cooperating” with the government, as

that term was understood in the 1980s and 1990s. For years,

the government did not understand joint defense agreements

because few were in writing and their operations were not a

subject of frequent discussion between defense counsel

and prosecutors. When the government eventually realized

how they worked, it did not like it. Initial attacks on the joint

defense agreements through motions to disqualify counsel

were rejected by the courts. Out of their failure emerged the

current strategy to put extra pressure on the corporate entity

by suggesting that one way for a corporation to avoid pros-

ecution is to turn in the employees, rather than defend.

A CHANGE IN DOJ APPROACH

The DOJ’s new strategy has been pretty clear: If a company

wants to avoid prosecution, it must be willing to open its inter-

nal investigation files even if that means essentially turning

on its own executives. This DOJ tactic became manifest in

January 2003 when then Deputy Attorney General Thompson

revised the Department’s Memorandum on Principles of

Federal Prosecution of Business Organizations. Thompson

explained that one of his

purposes was to redefine

“cooperation” by a cor-

poration: If a corporation

wants to get the benefit

of cooperation and “maybe” escape prosecution altogether,

it must be willing to “identify the culprits,” conduct its own

internal investigation and make complete disclosure, and “if

necessary,” waive its “attorney-client and work product pro-

tections” that otherwise would protect statements by employ-

ees during an internal investigation.

In addition, now the government may consider a new factor in

weighing the company’s cooperation: whether the company

supports culpable employees “through the (1) advancement

of legal fees, (2) retaining employees without sanction for

their misconduct, or (3) providing information to the employ-

ees about the Government’s investigation pursuant to a joint

defense agreement.” On May 13, 2004, the current Deputy

16

Attorney General, James Comey, said in a speech to health

care lawyers: “It’s hard for me to understand why a corpora-

tion would ever enter into a joint defense agreement.”

There is no mention of whether consideration was given to

legal obligations arising under state law to indemnify employ-

ees, which recognizes that while there is a legal obligation to

pay for counsel, the advancement of fees by the corporation

as opposed to indemnification is almost always discretionary.

Following on that same theme, the amended Guidelines

for Organizational Defendants, which went into effect on

November 1, 2004, tell convicted corporations they will not

get sentencing credit for their otherwise qualified compliance

programs if they “delayed reporting the offense to appropri-

ate governmental authorities,” and that companies will be

expected to waive the attorney-client privilege and work

product protections if “such waiver is necessary to provide

timely and thorough disclosure of all pertinent information

known to the corporation.”

HOW THE DOJ STRATEGY CHANGES CORPORATE INTERNAL INVESTIGATIONSCounsel for corporations and their executives can be

expected to still begin every representation as if the company

has a defense and its executives deserve a defense. This

interest of the DOJ on what was previously viewed as a con-

fidential internal investigation arises from the recognition that

just like any other target of the investigation, the government

can make the corporation an offer it cannot refuse. An offer of

nonprosecution or even the possibility of avoiding prosecution

requires that company counsel, even inside counsel, consider

only the interests of the institutional client. It also suggests

that from the beginning of their internal investigation, com-

pany counsel should recognize that some day their client may

expect them to open their files to the government.

That life is on the record is really not that new or hard a prin-

ciple for counsel to live with, but how counsel deal with corpo-

rate executives and employees caught up in the process may

need to change. Long ago, company counsel learned how to

tell employees that they only represent the corporation and

that the attorney-client privilege belongs to the corporation—

and not the employee—without saying it in a way that made

the employee run out of the room. The reality in most com-

panies is even after this Miranda-type advice, most executives

continue to view the company counsel as loyal to them.

It is not an exaggeration to say that with an offer of pos-

sible immunity from prosecution, a company may have a

greater commonality of interest with the prosecutors making

the offer than with its own employees. Until now, companies

never even thought about warning employees that they may

be subject to criminal prosecution for lying during an inter-

nal interview, as occurred in the Computer Associates case.

Often they were told the company would treat the interviews

confidentially under the company’s attorney-client privilege,

and any decision on disclosure would be made much later

by the corporation. Now, disclosure to prosecutors is foresee-

able and sometimes even likely—a fact that presents ethical

issues for attorneys conducting the company’s investigation.

The ABA Model Rules of Professional Conduct, Rule 4.1,

Truthfulness in Statements to Others, and Rule 4.3, Dealing

with Unrepresented Persons, require that an attorney be fair

and candid with corporate employees. But can a corpora-

tion’s lawyers be truly candid and reasonably expect any-

one will talk to them without his or her own counsel being

present? While corporate counsel can boldly refer to “talk or

walk” policies, how many companies will be comfortable with

that approach, and how long will it work before the fabric of

corporate culture, the so-called “family,” unravels?

That, of course, appears to be just what the government is

seeking in any investigation.

THE APPROACH USED BY THE EASTERN DISTRICT OF NEW YORK In two well-publicized cases in New York, the government

built cases against company executives by using the com-

pany’s internal investigation to exploit a common interest in

rooting out fraud—and in blaming the now-former executives.

Both Computer Associates (“CA”), a software company in New

York, and Symbol Technologies stood accused of manipu-

lating their revenues to meet Wall Street quarterly earning

17

estimates. CA’s former CEO has been indicted under the

Sarbanes-Oxley obstruction of justice provision, essentially

for not being truthful in the course of the company’s internal

investigation. Other executives have pleaded guilty, includ-

ing the former CFO, General Counsel, and Chief of Sales. The

employees were not charged with lying directly to the gov-

ernment. Instead, the government allegedly bootstrapped

their false statements to the company into a federal felony

by alleging that they “well knew and believed that [their] false

statements would be conveyed to the Government.”

Predictably, the Department of Justice announced CA had

“accepted responsibility” for its actions and would not be

prosecuted as part of a deferred prosecution, an SEC settle-

ment, a payment of $225 million, and 18 months’ probation

with an independent monitor.

In June 2004, the same U.S. Attorney’s Office indicted the for-

mer CEO and six other executives of Symbol Technologies,

an early manufacturer of wireless and mobile computing,

and agreed to not prosecute the company, which “accepted

responsibility” by cooperating. Symbol agreed to an inde-

pendent monitor, a permanent injunction, and a $139 million

payment to the SEC and stockholders. As part of “accepting

responsibility,” the U.S. Attorney said: “Symbol has shared the

substance of hundreds of interviews conducted with current

and former Symbol employees . . . and also waived attorney-

client privilege to assist the investigation . . . .”

WHAT CAN CORPORATIONS DO DIFFERENTLY?

For corporate counsel:

• Anticipate at the start of the investigation what cooperation

is likely to mean for your client. Any interview memoranda

need to be prepared expecting disclosure to the DOJ. At

a minimum, this means eliminating lawyer opinion, conjec-

ture, and suspicions and fully recounting the employee’s

inculpatory and exculpatory statements.

• Find a way to fully and fairly advise employees of the con-

sequences of nontruthful responses to the company’s

questions. This means telling them whether the company

plans to cooperate with the government by disclosing its

investigation results, and also warning them that inaccurate

information provided to the company may further damage

an employee’s position in the eyes of the government. If

the employee is a likely target, a full and candid explana-

tion of the risks will probably lead the employee to consult

counsel before submitting to the interview. Under some cir-

cumstances, it is better for some employees to say nothing

to the company.

• When the company decides to advance fees for individual

counsel, a key factor is an estimate about the likelihood at

the end of the investigation that the evidence will show that

the employee was acting in the interest of the company

during the disputed events. When asked, whether or not

the company is paying for counsel, the company should

consider agreeing to and even welcoming employee coun-

sel’s presence at internal interviews.

For corporate employees:

• Listen carefully to the advice of corporate counsel and

negotiate the commitment to indemnify and advance fees

consistent with state law before submitting to an interview.

Request copies of any interview memoranda.

• Before trouble arises, review your employment contract and

consider requesting contractual indemnification in addition

to any obligation of the company under state law or cor-

porate bylaws. For executives in sensitive positions such

as CFO and compliance officers, contracts that spell out

continued on page 38

IT IS NOT AN EXAGGERATION TO SAY THAT WITH AN OFFER

OF POSSIBLE IMMUNITY FROM PROSECUTION, A COMPANY

MAY HAVE A GREATER COMMONALITY OF INTEREST WITH

THE PROSECUTORS MAKING THE OFFER THAN WITH ITS

OWN EMPLOYEES.

18

19

GUIDELINES FOR CORPORATE SEARCH AND SEIZUREHistorically, the search warrant has served as a basic tool of law enforcement inves-

tigating criminal conduct. In recent years, the search warrant has been turned to the

pursuit of allegedly unlawful business conduct. The Enron, Qualcomm, and Health

South investigations, as well as many lesser known cases, have been driven by evi-

dence seized with the use of search warrants.

Search warrants are powerful tools because they are executed without any notice

by officers trained to seize any and all records that might assist in proving a crime

against the corporation, its officers, and employees. Typically, warrants in a business

or environmental case authorize the seizure of business records, personal correspon-

dence, computer disks, and hard drives, as well as water, air, or soil samples.

It is impossible to anticipate the search of a business premises because a search

warrant is obtained by law enforcement officers in secret. However, it is possible for a

business to prepare against the most harmful consequences of a search. Experience

teaches that companies and employees not prepared for a search often assist the

investigation in ways that the search warrant itself could not. The employees do

this by waiving privacy rights as to evidence not covered by the warrant, by pro-

viding specific information about the location of harmful evidence, and by agreeing

to interviews. Businesses and business people do these self-harming acts because

they want to avoid being seen as defensive or conscious of their own culpability and

because they do not understand their legal rights. The purpose of this article is to

explain those rights in general terms.

b y B r i a n O ’ N e i l l , L o s A n g e l e s O f f i c e

20

WHAT IS A SEARCH WARRANT?A search warrant is a judicially issued authorization to search

a particular place for a particularly described evidence. It

can only be issued by a court, based upon factual repre-

sentations made by law enforcement officers under oath.

In general, police agencies have no lawful right to search a

business premises or home. A search warrant is obtained

without any notice to the person or persons whose prem-

ises are the subject of the warrant. Thus, when a warrant is

executed, it generally comes as a complete surprise to the

people inhabiting the premises being searched.

Because the warrant is a court order, it may not lawfully be

refused or ignored. However, the search warrant itself can be

challenged in court at a later date on the grounds that it was

unlawfully issued. If the challenge to the search warrant is

successful, the fruits of the search are suppressed and may

not be used by the government nor may any leads gained

from that evidence be pursued by the government.

WITNESS INTERVIEWS

It is always part of the government’s strategy in executing a

warrant to obtain evidence from any available source. The

most obvious other source for evidence is the knowledge of

the company officers or employees who are present at the

time of the search. As often as not, the evidence gained by

interviews of the people at the premises is more significant

than the physical evidence seized. Remember that a search

warrant does not authorize anything other than seizing physi-

cal evidence. Specifically, the warrant does not authorize the

police to interview any witnesses. Law enforcement officers

may, however, interview any witnesses who are willing to

speak to them. It is in the area of witness interviews where

the harm done to a client’s case can be avoided.

If a search occurs at a client’s premises, it is lawful and

proper for the company’s management to advise the

employees they have a right to decline a government inter-

view, although management should make clear that it is the

employee’s decision whether to submit to an interview. No

one has an obligation to speak to the police. Most people

do not know this, and they will submit to an interview by the

police without for a moment thinking that they could hurt

themselves by doing so. Law enforcement officers conduct-

ing interviews during the execution of the search will not pro-

vide employees with Miranda warnings to tip them off as to

their legal rights, because police are not required to do so in

noncustodial interviews. Thus, unless someone else advises

the employee of his right to decline an interview and his right

to have a lawyer present during the interview, the employee

may not know of it.

Often a criminal investigation hinges on the results of the

search. When law enforcement agents search a business,

the evidence they find and the witness statements they take

often make the case. This is why it is important to know the

parameters of what the police are allowed to do and are not

allowed to do in these situations. If there is no lawyer present,

it is especially important that the person in charge of dealing

with the police know how to conduct himself or herself. The

following is a brief synopsis of how to deal with the authori-

ties during the search of a business.

RESPONSE TO THE SEARCH

Establish a Point Person. When a search commences, one

person (“the point person”) must be in charge of dealing with

the authorities. Ideally, a lawyer would act as the point person.

If a lawyer is unavailable, one of the corporation’s employees

must assume this position. The point person must be respon-

sible for making sure that the procedures explained in this

article are followed.

If there is no lawyer present, the point person should try to

call a lawyer on the phone (see the list on page 39 of Jones

Day lawyers with experience in criminal law). Try to have a

lawyer speak with the authorities who are present at the

search, as police tend to show more deference to lawyers.

A lawyer will also be able to advise the point person and

remind him or her of how to act during the search.

Examine the Warrant. The person whose premises are being

searched has the right to inspect the warrant before the

search commences. The point person must take this neces-

sary step because the warrant has to be specific. The war-

rant will detail the area where law enforcement is allowed to

21

search (i.e., a description of the building or particular rooms

in the building) and the specific items they seek. The warrant

gives the authorities the power to search in these specific

places only and for these specific items only. The warrant’s

limits must be obeyed. The officers are not allowed to search

for a specific item in a place other than the place this item

would normally reside. For example, if the warrant authorized

the seizure of a pickup truck, the officer could not look in a

file cabinet to find the truck.

Follow and Object. The point person should try to limit the

officers to searching only what the warrant allows. If the offi-

cers take items that the warrant does not authorize them to

take, these items may be suppressed as evidence because

they were improperly seized and thus would be inadmissi-

ble in court. Rendering items inadmissible can strengthen a

defense tremendously. The point person should make objec-

tions to the authorities when they exceed the scope of the

warrant. Although the point person should object when law

enforcement officers exceed the scope of the warrant, he/

she should take care not to interfere with the search. Such

phrases as “You can’t search that” will suffice. Although the

authorities will probably disregard these objections and take

what they choose, making the objection can be significantly

helpful to successfully challenging the search later.

Do Not Consent. It is equally crucial that the point person or

any other employee not consent to any searches or other

requests not listed in the search warrant. Anytime the authori-

ties receive consent to search an area or item, they no longer

need the power of the warrant with respect to that item. The

authorities may ask politely or may attempt to pressure an

employee into consent. Do not give it!

Make a Record. The point person must make a detailed

record of the events that take place during the search. This

information should include the names of the officers present,

the exact time of events, exactly what was said, and who said

it. Any other representations made by the officers as to their

authority to search or seize evidence should be noted. It is

very important to note the objections made to the authori-

ties because the authorities will make their own record of the

events and it will heavily favor their side. Their record will be

used in court, and if there is nothing to contradict their ver-

sion of events, the court will assume that it is an accurate

account. The point person’s record of events will be a way to

counterbalance the authorities’ record.

Make Sure that the Authorit ies Respect Privi leged

Documents. In business settings, there are often documents

that fall under the protection of the attorney-client privilege

or other privileges. The authorities cannot see or take these

documents, regardless of the scope of the warrant. The point

person must make sure that the authorities know which doc-

uments, if any, are privileged by pointing out that attorney-

client communications appear in particular files. Similarly, if

the company employs an in-house lawyer, the company rep-

resentative should identify the lawyer’s office. California law

requires that a special master be appointed to review docu-

ments seized from an attorney’s office, including an in-house

lawyer’s office. If the authorities persist, the point person

should remain adamant about denying permission to see

these documents. A good compromise would be to suggest

that the privileged documents be placed in a sealed enve-

lope, only to be opened after the authorities have spoken

with the judge.

PROTECTING THE EMPLOYEES

Employees have the right not to talk to police without a law-

yer present. Federal law enforcement officers have a policy

of not talking to a witness if the witness demands a lawyer be

present for the interview. It is in everybody’s best interest to

make the employees aware that they do not have to talk with-

out a lawyer. If the employees refuse to talk without a lawyer

present, this will limit the likelihood of damaging admissions

or consents to search.

The lawyer for the corporation generally will not also represent

corporate employees because of the potential for conflicts of

interest. To the extent permitted by the corporate bylaws and

applicable corporate law, however, the corporation can pay

the fees of a lawyer for the employees. Thus, as soon as the

corporation becomes aware of an investigation—and ideally

before the execution of a search warrant—the corporation

should consider notifying employees likely to be contacted

by law enforcement of what their rights and obligations may

be if there is a search of the premises. Generally, employees

continued on page 39

22

UNLAWFUL SEARCH, OR A MOLE’S CONSENT?

23

1

UNLAWFUL SEARCH, OR A MOLE’S CONSENT?

High-profile investigations and prosecutions of corporations and

their officers continue to grab headlines. At the same time, a grow-

ing arsenal of criminal statutes and enforcement tools provides more

options to law enforcement investigators in ferreting out crime in the

boardroom and corner office suites. In an atmosphere of increasingly

aggressive investigative tactics and government charging decisions, a

company’s vital interests in protecting itself from the damaging conse-

quences of investigations, prosecutions, and embarrassing media cov-

erage assume an even more prominent role in the day-to-day affairs of

corporations and other business entities.

Among the many issues confronting a company faced with the pros-

pects of a criminal investigation, one especially sensitive area is the

cooperating employee, or former employee, who secretly provides

information to government investigators. Cooperating individuals,

whether informants, whistleblowers, or mere witnesses, pose unique

concerns for a business organization. This is particularly true in light

of recent legislative enactments, like the whistleblower protection pro-

visions of Sarbanes-Oxley, which provides stiff criminal penalties and

exposure to federal civil action if a corporation takes adverse action

against an employee who is cooperating with the government.

A corporation that ordinarily considers its business records to be confi-

dential and proprietary, and cloaked with privacy protections, can be in

for a surprise when it discovers that an employee, or former employee,

has already turned over a wealth of potentially damaging materials to

government investigators. Materials produced to the government by an

informer go over without any of the usual internal corporate document

review processes, including privilege screening, and without any mech-

anism for corporate management and legal counsel to provide the

Minimizing Uninvited Consequences

of an Employee’s Covert Cooperation

with Law Enforcement

b y T h o m a s P. M c N u l t y a n d A l i c i a M . H a w l e y , C h i c a g o O f f i c e

24

4the company’s server. While systematically searching com-

pany e-mails and other confidential information, the hacker

downloads and steals sensitive data and provides it anony-

mously to the government over an extended period of time.

THE PROBLEM: HAS THE GOVERNMENT CONDUCTED A SEARCH?Numerous questions arise from both of these scenarios.

Does the company have any recourse with respect to its

employee’s actions and can it quash the government’s use

of its covertly produced records? Has the government essen-

tially deputized company employees to search and remove

company records, and if so, can an employee’s conduct con-

stitute an unlawful search and seizure? Can a company pre-

vent the government from using the retrieved documents in a

criminal prosecution against it?

There is a greater chance that the answers to these questions

may be “yes” if the government has requested the employ-

ee’s assistance in obtaining records or induced it by offer-

ing a reward. The likelihood of an affirmative answer is also

increased if a company has instituted and implemented writ-

ten internal policies regarding individual employees’ access

to company records and has expressly limited employees’

authority to disclose the company’s records to others.

The Fourth Amendment prohibits unlawful searches by the

government, but it does not protect individuals or companies

from searches by private parties. The general rule is that a

private search and seizure by an employee is not converted

into a governmental search unless there is some exercise

of government power over a private individual, such that

the employee is acting on behalf of the government rather

than for his own, private purposes. If an employee is person-

ally motivated to assist the government, arising from his or

her own private business-related reasons or even a desire

to help control and prevent criminal activity, courts are more

likely to find that an employee is not acting as an agent of

the government.

Company policies that restrict access to materials, and

authority over materials, to an appropriately limited group

of employees, and that expressly limit the authority of

government with context and “the rest of the story” that may

be required to put a corporation’s business practices and

conduct in perspective. A corporation can find itself fighting

an uphill battle, because the government’s perception of the

facts is frequently shaped by its cooperating witnesses’ infor-

mation and selectively disclosed materials and records. The

government’s perception of the facts can be difficult for the

company to reshape by the time the investigation becomes

overt and the company learns that it is under investigation, or

worse, facing indictment.

Jones Day’s Corporate Criminal Investigations litigators regu-

larly counsel corporations involved in criminal investigations

and prosecutions, and frequently assist in internal investiga-

tions that may parallel government criminal investigations. In

this article, we briefly examine considerations raised when

materials have been turned over covertly to the government

by a company employee. We also describe steps a business

organization can take to minimize the possibility of damage

from corporate records being produced to the government

without its knowledge by an employee or former employee,

and some considerations in analyzing whether and when an

informant’s actions in turning over records may constitute

an unlawful search in violation of the Fourth Amendment. To

illustrate the issues, consider the following hypothetical facts,

based in part on facts in actual cases and investigations:

Scenario One: Company Employee Who is “Flipped” in Place

Provides Records to Government Investigators. Unbeknownst

to the company, the government is investigating it for possi-

ble fraudulent behavior. Investigators have conducted “cold”

interviews of company employees after business hours and

away from the offices and have convinced some to “flip” and

become cooperating witnesses, or informants. These infor-

mants, while still on the company’s payroll, begin taking com-

pany documents and records at the urging of government

investigators, and each night turn the documents over to

the government for use in its investigation. The government

copies the records and returns them to its informants, to be

replaced clandestinely in the company’s files.

Scenario Two: Former Employee Hacks into Company’s

Network and Provides Fruits to Government Investigators. A

disgruntled former employee, who is intimately familiar with

the company’s technology and network systems, hacks into

25

4Company policies that restrict access to materials, and authority over materials, to an appropriately limited

group of employees, and that expressly limit the authority of employ-

ees to disclose company materials and records to third parties, can

be critical in establishing a corporation’s legitimate and reasonable

expectation of privacy in its own records.

employees to disclose company materials and records to

third parties, can be critical in establishing a corporation’s

legitimate and reasonable expectation of privacy in its

own records. The general rule here is that what employees

observe in their daily functions is beyond the employer’s

reasonable expectation of privacy, and thus beyond the pro-

tections of the Fourth Amendment. Court decisions regard-

ing these issues frequently turn on whether an employee

had legitimate access to the records seized and authority to

disclose records to third parties; whether a company made

efforts to safeguard its records from disclosure to others; and

fact-intensive analysis of the conduct and motivation of both

law enforcement officers and private individuals who obtain

documents for use by the government.

THE LAW ON PRIVATE SEARCHES

Private Par t ies as “ Instruments or Agents” of the

Government. The Fourth Amendment to the United States

Constitution guarantees protection from unreasonable search

and seizure. Courts in numerous jurisdictions have interpreted

the Fourth Amendment’s protections to forbid warrantless

searches not only by government law enforcement agencies,

but also by a private party acting as “an instrument or agent”

of the government. Courts determine whether a private per-

son acts as an agent of the government on a fact-intensive,

case-by-case basis using a variety of factors, including

“whether the government knew of and acquiesced in the pri-

vate search; and [ ] whether the private individual intended

to assist law enforcement or had some other independent

motivation.” United States v. Young, 153 F.3d 1079, 1080 (9th

Cir. 1998). Courts will also frequently consider whether the

government requested the employee’s action or offered the

employee a reward.

In United States v. Souza, 223 F.3d 1197 (10th Cir. 2000), for

example, a DEA agent was at a private UPS facility engag-

ing in routine training. The agent noticed a suspicious box on

a conveyor belt and had the box sent to a parking lot away

from UPS’s property to be tested by narcotics dogs. After a

dog alerted that the package contained narcotics, the DEA

agent took the package back to the UPS facility. The DEA

agent explained the background of the situation to a UPS

employee, and then told the UPS employee that while he

wasn’t authorized to have her open the package, he had

no right to stop her from doing so. The UPS worker tried to

open the package, and when she had difficulty, another DEA

agent assisted her. In Souza, the court found that the DEA

agents had significant involvement in the search due to their

attempts to encourage the UPS employee to open the box

and their assistance in actually opening the box. Additionally,

26

the court found that the UPS employee did not have any legit-

imate, independent motivation to open the package, other

than to assist the DEA agents. Therefore, the court held that

the employee’s actions constituted a warrantless governmen-

tal search in violation of the Fourth Amendment, because the

employee’s actions were orchestrated by the government.

While the Fourth Amendment is not triggered if a private

party initiates a search and later contacts the government,

it is not necessary for the government to make an explicit

request of a private party to conduct a search in order to

violate the Fourth Amendment. In United States v. Stein, 322

F.Supp. 346 (N.D. Ill. 1971), despite no “clear” evidence that the

private party acted as the government’s agent, and no find-

ing that the government acted improperly, the court granted

defendants’ motion to suppress documents allegedly sto-

len by a private party who shared the defendants’ office.

Defendants’ officemate stole their records and produced

them to the government. While the government never knew

that its cooperating witness was taking the documents, gov-

ernment investigators had engaged the informant in discus-

sions about the defendants’ wrongdoing. The court stated

that because the government displayed a clear pattern to

procure the cooperation of the private party, id. at 348, the

court had “ample reason to believe that [the private party]

thought the government would reward him for turning over

[the] records.” Id. at 346. Therefore, the government was not

“totally divorced” from the gathering of the stolen information,

and its informants’ actions constituted a warrantless search

that violated the Fourth Amendment.

Expectation of Privacy in Corporate Documents. A govern-

ment agent only violates the Fourth Amendment when he

invades a person’s subjective expectation of privacy that

society is prepared to recognize as legitimate and objectively

reasonable. Where a corporation can establish an expecta-

tion of privacy in certain documents or other information that

a private party has searched and removed from the company

for use by government agents, the company has met one

required threshold for showing that an unreasonable search

and seizure occurred.

However, the government frequently argues, and courts

have often held, that a cooperating employee who provides

records covertly has “consented” to a search of a company’s

records. Court decisions in this area look to the law of

agency, and generally analyze the validity of third-party con-

sent in the employer-employee setting based on whether the

employee has the right to permit the inspection of records in

his own right. This frequently turns on whether an employee

has access to records, and actual or apparent authority to

disclose those records to persons outside the company.

Here, courts have distinguished between “legitimate access”

and “mere access” to records. At least one court, in United

States v. Miller, 800 F. 2d 129 (7th Cir. 1986), has found that

“mere access” alone is not enough to establish valid con-

sent by an employee to a search of his employer’s records.

That court explained that the difference between legitimate

access and mere access is a product of the purpose for

which an individual is given access. Illustrating its point with

an example of a janitor who possesses a key to a room, the

court explained that access (possession of the key) for one

purpose “does not amount to automatic authority to consent

to a search. . .and an employee’s authority to consent to such

a search is limited by the purposes for which he was given a

key.” Id. at 134.

Some courts and commentators have analyzed the valid-

ity of a private search of company records by a cooperat-

ing employee under the doctrine of assumption of the risk.

Drawing from so-called “common area” cases, courts have

analyzed whether an employer assumed the risk that an

employee might permit a search of the company’s records.

An employer can theoretically minimize this risk by limiting

an employee’s actual authority, but an employer cannot com-

pletely insulate itself from the risk that an employee will dis-

close information to the government during an investigation.

An unauthorized hacker’s private search of a company’s com-

puter and e-mail systems is generally governed by the same

analytical framework: A hacker’s search is not prohibited by

the Fourth Amendment unless the hacker is an agent of the

government and is acting at the government’s direction or

with the acquiescence of government investigators. In United

States v. Jarrett, 338 F. 3rd 339, (4th Cir. 2003), the court found

no Fourth Amendment violation where a hacker had hacked

into the defendant’s computer and provided evidence to the

government without participation by law enforcement agents.

The court excluded from its analysis a post-search “wink and

27

nod” exchange between the hacker and investigator, where

the investigator told the hacker that if he wanted to supply

more information, the agent would be happy to receive it. By

comparison, in United States v. Barth, 26 F. Supp 2d 929, 936

(W.D. Tex. 1998), a private computer technician’s search and

copying of additional files from the defendant’s computer,

after initial discovery of child pornography and disclosure to

the law enforcement agent, constituted an unlawful search in

violation of the Fourth Amendment.

STRATEGIES TO MINIMIZE CONSEQUENCES OF COOPERATING EMPLOYEE’S COVERT PRODUCTION OF COMPANY RECORDSA company should have two goals in mind to make itself less

susceptible to an employee’s private search and turning over

documents covertly to the government: (1) establishing and

maintaining a legitimate expectation of privacy in its corpo-

rate documents and records, and (2) consistent with business

realities, limiting access to company records to specified

employees (or categories of employees), and limiting the

authority of employees to disclose those records to third par-

ties without adherence to established corporate procedures.

One step toward achieving these goals is to adopt writ-

ten policies establishing that company documents belong

to the company alone, and that individual employees have

limited access and authority with respect to those records.

Drafting and implementing such policies must be done with

an understanding of an individual company’s record-keeping

processes and its information-sharing requirements. Policies

must also strike a balance between appropriate safeguards

and commercial realities, so that internal and external com-

munication by corporate employees, and the corporation’s

business itself, is not crippled by policies that create unwork-

able hurdles for the commercial endeavors of the company.

In the fact scenarios described earlier in this article, a com-

pany’s internal policies regarding access to and authority

over records would be important among the factors con-

sidered by a court in analyzing whether an ostensibly pri-

vate search conducted by a company employee is an illegal

search and seizure. In fact situations similar to those in Souza

and Stein, courts may well decide that the role government

investigators played in orchestrating, or acquiescing in, a

private search by a corporate employee is tantamount to an

unlawful search by the government, and therefore prohibited

under the Fourth Amendment. When the government is mini-

mally involved, or not involved at all, however, a corporation

can still point to its internal policies in arguing that an indi-

vidual employee lacked the authority to consent to a search

of his or her employer’s records, and thus meet the govern-

ment’s argument that a cooperating employee’s search was

voluntary and consensual.

A company’s interest in protecting itself in the face of criminal

investigation is as paramount today as it ever has been, and

perhaps more so in view of the marketplace consequences

when the media spotlight fires up with news of a fresh corpo-

rate scandal. A well-constructed and appropriately designed

written company policy can increase the likelihood that a

company’s internal records remain private and more read-

ily protected by the principles established under the Fourth

Amendment to the Constitution. ■

THOMAS P. MCNULTY Telephone: 312.269.4142e-mail: tpmcnulty@jonesday.com

A Partner in Jones Day’s Chicago Office, Tom practices in commercial

litigation and white-collar criminal defense. His civil practice includes

matters involving trademark infringement, securities and commodi-

ties fraud, civil RICO, the federal False Claims Act (including qui tam

actions), and other areas. His criminal practice has involved allega-

tions of antitrust violations, insider trading, other securities fraud,

defense contractor fraud, and Foreign Corrupt Practices Act viola-

tions, among others.

ALICIA M. HAWLEY Telephone: 312.269.1591e-mail: ahawley@jonesday.com

Alicia is an Associate in the Chicago Office. Her practice includes a

variety of criminal and civil litigation. Her criminal caseload includes

clients who have been charged with criminal violations, including

RICO, public corruption, and insurance fraud, as well as clients under

investigation by a grand jury. Alicia also has been involved in several

internal corporation investigations. Her civil caseload includes con-

tract and Section 1983 civil rights litigation.

28

The globalization of business has led ineluctably to the glo-

balization of crime. As crime and criminals spread across

the globe and into the United States, federal criminal laws

can combat criminal conduct that transcends national

boundaries, often originates in foreign countries, and may

violate foreign laws. When federal criminal laws reach

into foreign countries, foreign laws reach into American

criminal and civil cases. In United States v. Pasquantino,

the United States Supreme Court will consider an archaic

principle known as the revenue rule, and its decision may

determine how far American criminal laws and foreign

laws extend and may curtail the government’s and private

plaintiffs’ ability to use American laws and American courts

in cases involving foreign conduct.

WHEN CRIME GOES GLOBAL, WHOSE LAWS GOVERN?

KJ

29

THE GLOBAL REACH OF AMERICAN FEDERAL CRIMINAL LAWS

The federal criminal laws of the United States are increas-

ingly used in both criminal and civil actions to reach criminal

conduct outside the United States. The laws against mail and

wire fraud, interstate transportation of stolen property (“ITSP”),

and money laundering, and the Racketeer Influenced Corrupt

Organizations Act (“RICO”) in particular, reach conduct origi-

nating in foreign countries. The use of these laws against for-

eign defendants or foreign conduct often raises issues under

foreign law, and this interplay between American criminal

law and foreign law is becoming a significant issue in both

criminal and civil cases. How far do American criminal laws

reach into foreign countries? What role does foreign law play

in criminal and civil actions in the United States? How will the

Supreme Court define or limit that role in Pasquantino?

Foreign Conduct Subject to Mail and Wire Fraud and ITSP

Statutes. The federal wire and mail fraud statutes (18 U.S.C.

§§ 1341 and 1343) criminalize any use of the mails or interstate

wires in furtherance of a scheme to defraud. The actus reus,

or criminal aspect, of these offenses is the mailing or the use

of the wires, not the scheme to defraud itself. Thus, each use

of the mail or each wire transaction is a separate offense,

even though there may be only one scheme to defraud.

Because the material part of the crime is the use of the mails

or the wiring, it does not matter who or where the victim is

located or where the scheme was concocted. The meaning

of “scheme to defraud” is determined by federal law, and so,

in theory, it does not matter whether the scheme to defraud

is illegal under laws of the state or foreign country in which it

was devised.

If there is a mailing or wiring in the United States in further-

ance of a scheme to defraud, these laws can be used to pun-

ish people who commit fraud in another country. For instance,

a Norwegian citizen who committed “massive fraud on the

international shipping industry [leaving] victims on the conti-

nents of Asia, North America, and Europe” was charged and

convicted of wire fraud based upon wire communications

WHEN CRIME GOES GLOBAL, WHOSE LAWS GOVERN?

b y M a r t h a B o e r s c h , S a n F r a n c i s c o O f f i c e

30

The federal statute prohibiting the interstate transporta-

tion of stolen property (“ITSP”) (18 U.S.C. § 2314) also is used

to prosecute crimes that involve foreign criminal conduct,

because, like wire fraud and mail fraud, the actus reus of the

offense is the transportation of stolen property, rather than

the original theft of property. In Van Cauwenberghe, supra;

United States v. Goldberg, 830 F.2d 459, 462-65 (3d Cir. 1987),

the court had jurisdiction under wire fraud and ITSP statutes

over the defendant who transferred money from Canada to

the Bahamas, where the transfer was caused by a phone call

from Pennsylvania. In United States v. McClain, 545 F.2d 988,

994 (5th Cir. 1977), ITSP applied to thefts in a foreign country

and subsequent transportations to the United States.

Foreign law also may apply in ITSP cases. It may determine

who owned the allegedly stolen property or whether it was

stolen. In McClain, for instance, the court analyzed Mexican

law to determine whether the pre-Columbian artifacts at issue

were owned by the Mexican government and stolen from

Mexico. The court considered this issue over the defendant’s

objection that the prosecution “condone[d] an unwarranted

federal enforcement of foreign law.” 545 F.2d at 996.

Courts have not shied from addressing these foreign law

issues when they arise, and indeed, Federal Rule of Criminal

Procedure 26.1 provides a specific mechanism for courts

to decide foreign law issues in criminal cases. As the Ninth

Circuit stated in Marcos:

“Bribetaking, theft, embezzlement, extortion, fraud, and con-

spiracy to do these things are all acts susceptible of con-

crete proof . . . . The court, it is true, may have to determine

questions of Philippine law in determining whether a given

act was legal or illegal. But questions of foreign law are not

beyond the capacity of our courts.”

862 F.2d at 1360. Thus, as courts have expanded federal crim-

inal laws to reach foreign conduct, they have, when neces-

sary, decided issues arising under foreign laws.

Money Laundering and its Extraterritorial Reach. The money

laundering laws (18 U.S.C. § § 1956 and 1957) also apply extra-

territorially, and so issues under foreign law may also arise

under the money laundering statutes. These laws prohibit any

financial transaction that involves the proceeds of specified

between New York and Hong Kong. An employee of the

United Nations peace-keeping mission in Bosnia-Herzegovina,

stationed in Croatia, was charged and convicted of wire fraud

when he devised a scheme to defraud the UN by approv-

ing payment of inflated travel invoices, where payment was

made by wire transfer through New York. A Belgian citizen

was convicted of wire fraud and for participating in a scheme

to defraud a Belgian investment broker and sending a telex

between Geneva, Switzerland and Los Angeles. These stat-

utes thus may extend to foreign defendants and significant

criminal conduct that occurs overseas.

The mail and wire fraud statutes prohibit not only schemes

to deprive another of property, but also schemes to deprive

others of their “intangible right to honest services” (18 U.S.C.

§ 1346). This theory of mail and wire fraud is used extensively

against both corrupt public officials and private corporate

employees who breach their fiduciary duties by taking bribes

or kickbacks, even when, or especially when, bribery cannot

be charged for jurisdictional or other reasons. This theory

has also been used against corrupt foreign officials who use

the mails or wires of the United States in furtherance of their

corrupt activities. For example, in Republic of the Philippines

v. Marcos, 862 F.2d 1355, 1358 (9th Cir. 1988) (en banc), RICO

claims were premised in part on mail and wire fraud alleged

against the former president of the Philippines; in United

States v. Pavel Ivanovich Lazarenko, No. CR. 00-0284 (MJJ)

(N.D. Cal.), the former Prime Minister of Ukraine was convicted

on wire fraud charges alleging in part a scheme to defraud

citizens of Ukraine of honest services.

Even though “scheme to defraud” is defined by federal law,

foreign law may apply in wire and mail fraud cases, and

courts have required prosecutors to prove up relevant for-

eign law. In United States v. Giffen, 326 F.Supp.2d 497 (S.D.N.Y.

2004), for instance, the district court dismissed wire fraud

charges against an American businessman who allegedly

funneled bribes to the President of Kazakhstan because the

government indicated that it would not prove that the con-

duct violated Kazakh law. In Lazarenko, the district court

required the government to prove that the defendant’s

scheme to defraud violated various provisions of Ukrainian

law. Lazarenko (Order on the Applicability of Foreign Law,

dated September 10, 2003).

31

unlawful activity (“SUA”) and that is knowingly conducted with

the intent to conceal the proceeds of or to promote unlaw-

ful activity. The statute defines “specified unlawful activities”

to include numerous federal crimes, including mail and wire

fraud, transportation of stolen property, and a number of

other white-collar offenses. Indeed, although money launder-

ing commonly is misperceived to occur only when the pro-

ceeds of drug or violent offenses are laundered, most federal

money laundering charges are predicated on property-

related offenses and not on drug offenses or violent crimes.

According to Money Laundering Offenders 1994-2001, Bureau

of Justice Statistics, Special Report, July 2003, between

1994 and 2001, 63 percent of money laundering cases were

premised upon property-related crimes, only 16 percent on

drug-related crimes, and only 4 percent on violent offenses.

Foreign citizens may be charged with money laundering in

the United States if they conduct a financial transaction that

occurs “in whole or in part” in the United States, i.e., a wire

transfer of funds into or out of the United States, even if they

never enter the United States, as several district courts have

held. Indeed, these laws may apply to foreign citizens even

when they cannot be prosecuted for the “specified unlaw-

ful activity.” In United States v. Bodmer, 342 F.Supp.2d 176

(2004 WL 1555151, July 9, 2004), the district court refused to

dismiss money laundering charges against a Swiss citizen

who funneled bribes through New York to Azerbaijani offi-

cials, even though underlying charges under the Foreign

Corrupt Practices Act were dismissed for lack of jurisdiction.

United States citizens, on the other hand, may be charged

with money laundering in the United States even when the

financial transaction is conducted entirely outside the United

States. United States v. Tarkoff, 242 F.2d 991 (11th Cir. 2001)

affirmed defendants’ money laundering conviction for a finan-

cial transaction between Curacao and Israel.

Corporations may also be held criminally liable for money

laundering if a corporate officer or employee is acting within

the scope of his authority and for the benefit of the corpo-

ration when he commits a money laundering offense. Riggs

Bank, for instance, has been the subject of congressional

inquiry, and one official is purportedly the subject of a grand

jury investigation due to its handling of accounts belonging

to Augusto Pinochet, Saudi officials, and government officials

of Equatorial Guinea. In May 2004, the Bank was fined $25

million for failing to adequately monitor suspicious activities.

The money laundering laws expanded further with the pas-

sage of the USA PATRIOT Act, which added certain foreign

crimes as “specified unlawful activity” and redefined finan-

cial institutions to include foreign banks as well as a variety

of other businesses. Until the PATRIOT Act amendments, the

only foreign crimes included in the definition of “specified

unlawful activity” were drug trafficking, foreign bank fraud,

foreign extortion, and certain crimes of violence such as mur-

der, kidnapping, robbery, and the use of explosives. Although

the money laundering statute could still reach a significant

amount of foreign conduct, including financial fraud, the gov-

ernment could not charge money laundering unless it could

prove a financial transaction that involved the proceeds of

As courts have expanded federal

criminal laws to reach foreign

conduct, they have, when nec-

essary, decided issues arising

under foreign laws.

32

some United States offense, such as wire fraud or ITSP; one

of the limited foreign offenses such as foreign extortion; or a

United States offense that incorporates foreign law.

However, after the passage of the PATRIOT Act, prosecutors

will be able to charge money laundering in some cases even

when there is no underlying crime in the United States. The

foreign offenses that are now defined as “specified unlawful

activity” include offenses “against a foreign nation” involv-

ing bribery of a public official; the misappropriation, theft,

or embezzlement of public funds by or for the benefit of a

public official; certain smuggling or export control violations;

or any other offense with respect to which the United States

would be obligated by treaty to extradite if the perpetrator

were found in the United States. Thus, foreign law may now

play a direct role in money laundering offenses.

The Racketeer Influenced Corrupt Organizations Act. Wire

and mail fraud, ITSP, and money laundering are predicate

offenses under RICO (18 U.S.C. § 1961), and so federal pros-

ecutors, private plaintiffs, and foreign governments have

invoked RICO against conduct that occurred in whole or in

part overseas. RICO also applies, in conjunction with the

honest services theory of the mail and wire fraud statutes,

to corrupt state and local officials, and presumably to cor-

rupt foreign officials as well. Perhaps the first use of RICO by

a foreign government was the Republic of the Philippines’

RICO action against its former president, Ferdinand Marcos.

More recently, the government of Canada, the European

Community, and the government of Colombia have brought

RICO actions against American companies based on con-

duct occurring overseas and claiming as damages lost tax

revenues as well as law enforcement costs.

Private plaintiffs have also invoked RICO to redress alleged

human rights violations committed in foreign countries. Thus,

in John Doe I v. Unocal Corp., 248 F.3d 915 (9th Cir. 2002),

residents of Myanmar brought an action against Unocal

Corporation, which had a gas pipeline project in Myanmar for

which the Myanmar military provided security. The plaintiffs

sued under the Alien Tort Claims Act and RICO, alleging that

the Myanmar military forced them, under threat of violence,

to work on the project, in violation of the federal extortion

statute. Although the RICO claims were ultimately dismissed

for lack of jurisdiction because the alleged extortion did not

occur in or cause sufficient “effects” in the United States,

such a defense would be unavailing where the predicate

offense is mail or wire fraud, since the actus reus of those

offenses is the wiring or mailing in the United States (assum-

ing a mailing or wiring occurred in the United States).

Thus, the criminal laws of the United States increasingly apply

to foreign defendants and foreign conduct, and issues of for-

eign law inevitably arise. How far can American criminal laws

extend, and what role does foreign law play? The Supreme

Court may shed some light on the questions and may rein

in the international scope of federal criminal laws when it

decides Pasquantino.

Although the question presented

in Pasquantino is narrow, the case

provides the Supreme Court with an

opportunity to curtail federal crimi-

nal and civil RICO jurisdiction.

33

PASQUANTINO AND THE REVENUE RULEIn United States v. Pasquantino, No. 03-725, which was argued

on November 2, 2004, the Supreme Court will determine

whether an archaic legal doctrine known as the revenue rule

limits the ability of the United States to prosecute, under the

wire fraud statute, individuals who scheme to defraud for-

eign governments of tax revenue. Although the question pre-

sented is narrow, the case provides the Supreme Court with

an opportunity to significantly curtail federal criminal and, as

a consequence, civil RICO jurisdiction.

The Liquor Smuggling Scheme to Defraud Canada of Sin

Taxes. Carl and David Pasquantino, who lived in New York,

decided to smuggle liquor into Canada, which taxed alcohol

at 83 percent, as opposed to the 44 percent tax in the United

States. The Pasquantinos bought discount liquor in Maryland

and then smuggled the liquor into Canada in the trunks of

cars. When confronted by Canadian border officials, the

Pasquantinos and their drivers lied about whether they were

bringing any prohibited or taxable goods into the country.

The Pasquantinos were indicted for wire fraud. The govern-

ment alleged that the defendants devised a scheme and

artifice to defraud the Canadian government of excise duties

and tax revenues due on the importation of liquor. Each wire

fraud count was based upon a phone call between New York

and Maryland. The Pasquantinos could not be charged with

smuggling because, although the smuggling statute prohibits

the smuggling of goods into another country in violation of

that country’s laws, it does so only if the other country has a

reciprocal provision, and Canada does not. Thus, the pros-

ecutors alleged a wire fraud scheme.

Defendants moved to dismiss the indictment, arguing that a

scheme to defraud a foreign government of tax revenue is

not cognizable under the wire fraud statute in light of the

revenue rule. The district court denied the motion, and the

defendants were convicted. On appeal, a divided panel of the

Fourth Circuit reversed, holding that the revenue rule indeed

barred a wire fraud prosecution premised upon a scheme to

defraud a foreign government of tax revenue. However, on

the government’s petition for rehearing, the Fourth Circuit en

banc reversed the panel and affirmed the defendants’ convic-

tions, holding that the wire fraud statute on its face reaches

any scheme to defraud, and that the revenue rule does not

extend to criminal prosecutions under the wire fraud statute.

The Supreme Court granted certiorari, based on a conflict in

the circuits.

The Revenue Rule and its Application in Pasquantino and

Other Cases. The revenue rule is an old common law doc-

trine that prevents a foreign sovereign from filing a direct

action in the courts of the United States to enforce its tax

and revenue laws. The revenue rule also precludes indirect

actions by foreign governments to enforce their tax laws in

the United States, but these indirect actions have been lim-

ited to, for instance, contract actions brought by foreign

governments or private parties where the objective is the

collection of tax revenues. Narrowly construed, the revenue

rule has no application in federal criminal cases, because

criminal cases are brought by the United States government

to enforce American criminal laws. However, courts have con-

strued the revenue rule to apply whenever questions of for-

eign tax law may arise.

Courts have relied upon the revenue rule to preclude wire

and mail fraud and RICO charges in several cases where res-

olution of the charges would require a construction of foreign

tax law. See United States v. Boots, 80 F.3d 580 (1st Cir. 1996)

(revenue rule precluded wire fraud charges against defen-

dant, who was indicted for engaging in a scheme to defraud

Canada of cigarette tax revenue); RJR Reynolds, supra (reve-

nue rule barred plaintiff’s RICO claims predicated on scheme

to defraud Canada of cigarette tax revenue). These courts

concluded that because the requisite elements of wire fraud

could not be determined without “first assessing the valid-

ity of foreign revenue law,” the revenue rule barred the wire

fraud charges.

In United States v. Trapilo, 130 F.3d 457 (2d Cir. 1997), however,

the Second Circuit disagreed and upheld the convictions of

the defendants, who were charged with a money laundering

conspiracy predicated upon an alleged scheme to defraud

Canada of tax revenue by smuggling liquor into Canada. The

Court in Trapilo declined to follow Boots, noting that the wire

fraud statute prohibits any scheme to defraud, and that the

“identity and location of the victim, and the success of the

scheme, are irrelevant.” Id. at 552. Because the success of

continued on page 40

34

The laws against corruption in the developed industrial states share a num-

ber of common features. Virtually all states have enacted criminal provisions

penalizing bribery of their own public officials, in the belief that corruption of

public officials causes serious social and economic damage to the public.

Bribery of Foreign Public Officials in International Business Transactions

35

Corruption threatens a fundamental governmental interest, i.e., the citizenry’s

trust in the integrity and neutrality of public institutions, and thus the citi-

zens’ trust in the state itself. Corruption still undermines the free economic

competition, a crucial element of each free market economy. Moreover,

corruption causes serious losses to the national economies, in that the

payment of bribes is often treated by businesses as operating expenses and is

deducted from tax liabilities, and the receipt of bribes is generally not disclosed to

the treasury and therefore not taxed.

As international trade has become more and more globalized, the battle against cor-

ruption has become one of the biggest priorities of numerous states and interna-

tional institutions over the past years. International companies now have to deal with

the issue of corruption in virtually every country in which they do business. To lawfully

conduct business transactions in different countries, companies must not only be

aware of the respective anticorruption laws, but must also be advised on how to deal

properly with specific corruption issues that may arise in their business.

OVERVIEW OF THE OECD CONVENTION

The role model for international anti-corruption laws was implemented in the United

States in 1977 as the Foreign Corrupt Practices Act (“FCPA”). Building upon the frame-

work of the FCPA, the OECD Convention on Combating Bribery of Foreign Public

Officials in International Business Transactions was signed in Paris on December 17,

1997, and it entered into force on February 15, 1999. In addition, Germany enacted

an EU Anti-Bribery Law (“EuBestG”) and an

International Anti-Bribery Law (“IntBestG”),

which tighten even further the standards

set by the OECD Convention, because they

criminalize not only the briber but also the

person who receives the bribe.

The preparation of the OECD Convention began in 1989, on the impetus of the United

States, because U.S. companies feared serious disadvantages since they were the

only companies potentially facing criminal sanctions for bribery of foreign public offi-

cials due to the FCPA. At the time, in virtually all other states, anticorruption laws only

criminalized the corruption of the states’ own officials and did not penalize the brib-

ery of foreign public officials.

b y P a t r i c k M . J o c h u m a n d D r . M a r i j o n K a y s s e r , F r a n k f u r t O f f i c e

Bribery of Foreign Public Officials in International Business Transactions

36

The OECD Convention was implemented into the laws of all

EU countries as well as all other OECD member states.

One of the Convention’s distinctive characteristics is that the

states in which multinational companies are domiciled have

undertaken—in an innovative manner—to prevent and com-

bat corrupt acts by these companies by making extraterrito-

rial acts of corruption punishable offenses. These provisions

apply regardless of whether the states in which the corrupt

acts occur have criminal laws on the passive corruption of

their own public officials.

Another characteristic of the Convention is that most of its

provisions are not self-executing. Essential provisions of the

Convention, e.g., provisions defining foreign public officials,

as well as provisions on measures, sanctions, or limitation of

actions, have to be executed by the enactment of national

laws. The drafters of the OECD Convention had to take into

account that the criminal law systems of the diverse states

are very different in critical areas such as the criminal liability

of legal entities or the existence or nonexistence of princi-

ples according to which prosecution of offenses is manda-

tory for the public prosecutor. The OECD member states thus

must fulfill their obligations under the Convention through

different measures corresponding with their respective nor-

mative structures.

The OECD Convention also contains noncriminal provisions,

such as regulatory provisions requiring the inspection of the

companies’ books and records for prevention and transpar-

ency purposes.

Finally, the Convention provides for multilateral supervision,

by establishing a task force on transnational bribery, which

periodically examines the measures taken and their imple-

mentation on the part of the member states.

SPECIFIC PROVISIONS OF THE OECD CONVENTIONArticle 1 of the Convention establishes the duty of signatory

states to treat bribery of foreign public officials as a criminal

offense, in the same manner that bribery of national public

officials is treated. According to Art. 1.1, bribery of a foreign

public official means that it is prohibited for “any person

intentionally to offer, promise or give any undue pecuniary or

other advantage, whether directly or through intermediaries,

to a foreign public official, for that official or for a third party,

in order that the official act or refrain from acting in relation

to the performance of official duties, in order to obtain or

retain business or other improper advantage in the conduct

of international business.”

In Article 1, item 4, a foreign public official is defined as a per-

son who was appointed or elected in another state to hold

an office in legislation, administration, or the judiciary, or who

exercises a public function in a business or a state-run enter-

prise or holds an office in an international organization.

This definition is very broad, since the scope of duties allo-

cated to the government varies in the different states.

Moreover, duties that historically were considered public are

increasingly assigned to the private sector due to progres-

sion of privatization. The provisions criminalizing bribery

offenses of employees of companies that are private from a

legal point of view, but are actually controlled by the state,

provoked heated discussions. Therefore, the wording in the

Convention has been kept rather vague. But the commentary

to the Convention makes it clear that state-owned compa-

nies may include companies that are influenced by the state

in some way. The definition is clarified so that the person

responsible in a company generally does not perform pub-

lic functions if the company operates on a normal, private-

enterprise basis without being supported by the state.

Articles 2 and 3 of the Convention indicate that only a few

jurisdictions provide for the criminal responsibility of legal

entities. The Convention requires states that do not recognize

corporate criminal responsibility, such as Germany or Italy, to

introduce fines that are effective, appropriate, and deterrent.

IMPLEMENTATION OF INTERNATIONAL BRIBERY LAWSBecause there are substantial differences in the national

criminal law systems throughout Europe, we will use Germany

as an example of the incorporation of international laws to

combat corruption.

37

German criminal law already includes numerous business-

related offenses imposing criminal liability on individuals.

Bribery offenses constitute a small part of them. So far, there

has been no real criminal punishment for legal entities under

German law.

However, German law does allow for the imposition of fines

on companies. Not only due to the OECD Convention, the

introduction of a criminal liability for legal entities has been

discussed in Germany for some years. Several draft bills, pro-

viding, for example, for severe fines of up to ¤18 million, have

been prepared in this context. One draft bill even proposed

the dissolution of a business association that would be tanta-

mount to a sentence.

Despite these discussions, it is unlikely that German legisla-

tion will provide for corporate criminal liability within the next

few years. The traditional German concept of culpability in

criminal law is too strong to allow such a change. Therefore,

in the near future, the status quo will remain, and thus individ-

uals may face criminal investigation and possibly the impo-

sition of a fine or even imprisonment of up to 10 years as a

result of corrupt activities.

Due to the necessity of implementing the OECD Convention

in Europe and in Germany, the pertinent rules of law have in

parts undergone essential amendments. Such amendments

(in Germany) include in particular:

• The terms “public official” and “the person who has spe-

cial obligations in the public service” have been defined

by the regulations implementing the EU Anti-Bribery Law

(EUBestG) and the International Anti-Bribery Law (IntBestG)

and are now even broader than in the OECD Convention.

• Pursuant to the EU Anti-Bribery Law, the rules of German

criminal law also apply to public officials of another EU

member state, on Community officers, and on members of

the EU Commission and of the EU Court of Auditors.

• Pursuant to Section 2 EU Anti-Bribery Law, all acts of brib-

ery in a foreign country are also punishable under crimi-

nal law. Accordingly, in principle, a case of an Italian official

taking a bribe from a British citizen can be pursued under

German criminal law.

• Pursuant to the International Anti-Bribery Law, foreign pub-

lic officials have essentially the same legal position as

domestic public officials. However, this only applies to the

person offering a bribe, meaning that any bribery referring

to a future official act of a judge or other public official for

the purpose of receiving or securing an unfair advantage

in international business transactions is a criminal offense.

And pursuant to the EU Anti-Bribery Law, such future act

also exists, if an advantage is granted after an official act,

provided that the act is based on a previous agreement.

This brief summary of the OECD Anti-Corruption provisions

and their implementation into European and German Law

shows that business transactions today in Europe and else-

where must meet the standards set in the United States

under the FCPA. The Jones Day CCI team in Europe has

extensive experience in providing substantive legal advice

for corporate clients facing this challenge. ■

PATRICK M. JOCHUM Telephone: 49.69.9726.3986e-mail: pjochum@jonesday.com

Patrick, an Associate in the Frankfurt Office, practices in the area of international commercial litigation, focusing on fraud and other white-collar crime issues (forensic services). He has experience in asset tracing procedures and asset recov-ery claims, conducting several types of injunctive remedies in various jurisdictions, and he has also advised in compliance and risk management matters.

DR. MARIJON KAYSSER Telephone: 49.69.9726.3933e-mail: mkaysser@jonesday.com

Marijon is an Associate in the Frankfurt Office practicing in the white-collar crime area. Prior to joining Jones Day, Marijon conducted research and taught at the Institute for Criminal Law at the University of Frankfurt. She has dealt with a num-ber of high-profile cases, including investigations by public prosecutors, regulatory bodies, in particular in the financial services field, tax authorities, and investigation committees.

38

corporation itself cannot assert the privilege in response to

the grand jury subpoena. After cautioning the president that

you represent the corporation and not her personally and that

she should seek advice from her personal counsel, you tell

her that she cannot assert the Fifth Amendment privilege for

the contents of voluntarily prepared documents, regardless of

whether they are corporate or personal. Nor can she assert

the privilege for the act of producing corporate documents,

although she will gain the protection outlined in Braswell. The

president might be able to assert the act of production privi-

lege for personal documents that the subpoena requests.

More generally, you tell the president that a government

subpoena duces tecum to a corporate officer or employee

often presents critical Fifth Amendment issues. The witness’

response to the subpoena may have a significant impact on

any subsequent prosecution. Before responding to the sub-

poena, the witness and his counsel must carefully assess

whether the privilege against self-incrimination can and

should be asserted. This analysis must take into account

both the legal principles described above and other relevant

considerations, including the witness’ current and future rela-

tionship with the corporation and with the government. ■

JOHN D. CLINE Telephone: 415.875.5812e-mail: jcline@jonesday.com

John, a Partner in the San Francisco Office, has extensive experience

in white-collar criminal defense, handling complex trials and appeals

in state and federal courts nationwide. His clients have included

National Security Council aide Oliver North, computer scientist Dr.

Wen Ho Lee, and other individuals and entities.

K.C. MAXWELL Telephone: 415.875.5798e-mail: kcmaxwell@jonesday.com

An Associate in the San Francisco Office, K.C. focuses on white-collar

criminal defense and related or parallel civil proceedings in state and

federal court. She was on the defense team representing former FBI

agent James J. Smith, accused of negligence in his handling of a

triple agent for the People’s Republic of China, and was one of the

lawyers representing Dr. Wen Ho Lee.

Fifth Amendment continued from page 9

the company’s obligation to pay for counsel for all matters

arising in the employment could become the standard.

• Treat company interviews with the same seriousness as FBI

interviews or grand jury appearances with regard to truthful-

ness, accuracy, and completeness of your responses. Ask

to review and correct any written record of the interview.

The publicity surrounding the corporate scandals, Sarbanes-

Oxley, and the Organizational Sentencing Guidelines has

given the DOJ a platform to raise the issue about whether

corporations are expected voluntarily to disclose wrongdoing

by redefining what “cooperation” is expected of corporations.

Faced with allegations of criminality, corporations can expect

little sympathy from prosecutors for corporate privileges or

joint defense arrangements with suspected employees.

The current DOJ hierarchy does not seem to be concerned

about whether the new attitude about corporate prosecution

will lead toward assigning criminal responsibility to the most

culpable senior corporate executive. Or, will the company’s

new partnership with prosecutors scapegoat those employ-

ees the company chooses not to defend?

More importantly, companies and the government should

be concerned about whether they can continue to expect

employees to “cooperate” once they are properly advised

of their personal risks. Instead, will properly advised employ-

ees become “lawyered up,” making internal investigations no

more effective than the grand jury? ■

JAMES J. GRAHAMTelephone: 202.879.3673e-mail: jjgraham@jonesday.com

Jim, a Partner in the Firm’s Washington, D.C. Office, has successfully

represented U.S. and foreign-based corporations and individual cli-

ents in a variety of criminal and civil bribery cases involving govern-

ment contracts, health care, FCPA, FDA, and environmental crime.

Department of Justice continued from page 17

39

Guidelines for Corporate Search and Seizure continued from page 21

should be informed that such contacts may occur; that the

employee is free to decide whether or not to speak with law

enforcement; that if the employee decides to speak, he or

she must tell the complete truth; that the employee has the

right to consult counsel before making the decision whether

to speak with law enforcement; that the corporation’s counsel

cannot represent the employee; and that the corporation will

pay for an attorney for the employee. Whether and how to

notify employees about an investigation and what should be

done in the event of a search is a decision that should be

made with the assistance of outside counsel experienced in

criminal law issues.

THE RELATIONSHIP BETWEEN CRIMINAL LIABILITY AND CIVIL LIABILITYIt is important to consider the relationship between criminal

liability and civil liability in the context of any federal busi-

ness crime. It is a fair assumption that in every instance of a

federal business crime, there will be one or more civil cases

brought against the company or its directors and officers for

damages based upon the alleged misconduct. Allegedly vic-

timized shareholders can charge in a derivative context that

the corporation’s interests have been damaged; claims can

also be brought by members of the public alleging they have

been damaged by the conduct in some way.

The issues that can be the basis for such a civil action will usu-

ally be the same issues involved in the criminal case. Under

the U.S. system, the criminal case is almost always tried before

the corresponding civil case. Therefore, it is very important to

preserve the viability of potential civil defenses by defending

as vigorously as possible against the criminal case.

Because the criminal case is resolved first, the issues of the

civil case may be and often will have already been deter-

mined by a court and jury. This means as a practical mat-

ter that the corporation’s civil liability can be decided by a

criminal conviction arising out of the same incident. What

this underscores is the significance of acting vigorously and

vigilantly in defense of the criminal case from the outset. A

corporation well prepared for a search is one with a far better

chance of defeating the criminal case, and any related civil

cases, than is a corporation that is not prepared.

Corporations, at some point, must anticipate that they may

be the subject of a search. That being the case, corporations

should adopt the practices and procedures suggested in this

article to provide them with the best possible response to a

search. If a search occurs, the corporation should contact its

lawyers immediately.

The following is a list of Jones Day lawyers who may be con-

tacted in the event of a search.

If none of the lawyers listed can be reached, please try the

general telephone number for Jones Day at 213.489.3939.

Explain that this is a client calling, that a search is taking

place, and that the help of a lawyer is needed. ■

BRIAN O’NEILLTelephone: 213.243.2856e-mail: boneill@jonesday.com

Brian, a Partner in the Firm’s Los Angeles Office, has successfully

defended corporate and individual clients in a variety of fraud pros-

ecutions. His representative criminal clients include officers and

employees of major defense contractors, oil companies, commercial

importers, financial institutions, labor unions, law firms, accounting

firms, politicians, and professional athletes.

ATLANTA

Rick Deane

404.581.8502

George Manning

404.581.8400

CHICAGO

Dan Reidy

312.269.4140

Jim Dunlop

312.269.4069

CLEVELAND

Steve Sozio

216.586.7201

LOS ANGELES

Fred Friedman

213.243.2922

Mary Fulginiti

213.243.2567

Harriet Leva

213.243.2319

Brian O’Neill

213.243.2856

Jeff Rawitz

213.243.2537

Brian Sun

213.243.2858

NEW YORK

Charles Carberry

212.326.3920

SAN FRANCISCO

Martha Boersch

415.875.5811

John Cline

415.875.5812

K.C. Maxwell

415.875.5798

WASHINGTON

Chris Cook

202.879.3734

Peter Romatowski

202.879.7625

40

When Crime Goes Global, Whose Laws Govern? continued from page 33

the scheme was irrelevant, the Court held that “there is no

obligation to pass on the validity of Canadian revenue law,

and the common law revenue rule is not properly implicated.”

Id. at 553.

The Impact of Pasquantino. To resolve this split in the cir-

cuits, the Supreme Court granted certiorari in Pasquantino.

The question presented is the applicability of the revenue

rule in fraud cases involving a “scheme to avoid payment

of taxes potentially owed to a foreign sovereign.” However,

the Supreme Court may construe the revenue rule to bar any

prosecution where an element of the United States offense

requires the court to pass on the validity of a foreign tax or

penal law, and if so, its decision will have considerable signif-

icance. Ultimately, the revenue rule could be invoked to bar

a variety of federal prosecutions, including those that do not

involve foreign tax laws at all.

The revenue rule, as argued by the Pasquantinos before

the Supreme Court, prevents the courts of one country from

enforcing the revenue or penal laws of another country, either

directly or indirectly, and thus may apply to any foreign crimi-

nal laws, not just tax laws. Although Pasquantino does not

raise an issue under foreign penal laws, unless the Supreme

Court is careful to limit its decision to foreign tax laws, the

decision also may apply to foreign penal laws.

The Pasquantinos also argued that the rule barred prosecu-

tion in the United States if any claim or defense would require

adjudication of foreign law and even indirectly enforce for-

eign law. If the Supreme Court accepts this construction of

the revenue rule, then many federal criminal cases will be

barred, as will their civil counterparts under RICO. Wire and

mail fraud cases alleging schemes to defraud foreign citi-

zens of their property, or ITSP cases in which property is

stolen abroad, would be precluded because, as discussed

above, many of these cases require the court to consider for-

eign law, whether to determine the ownership of property or

to assess a defense. If wire and mail fraud and ITSP cases

are barred, RICO and money laundering cases predicated on

these offenses would also be barred.

The Supreme Court could decide, however, that the revenue

rule prohibits a federal criminal prosecution only if the object

of the crime was evasion of foreign taxes, and such a deci-

sion would have only a minimal impact. The Court’s decision

could be even narrower. The Pasquantinos also argued, sup-

ported by amici, that the uncollected tax revenue of a for-

eign sovereign is not “property” under the wire or mail fraud

statutes, as construed by the Supreme Court in Cleveland

v. United States, 531 U.S. 12 (2000) and therefore could not

be the object of a scheme to defraud under those statutes.

Reversing the Pasquantinos’ convictions on this ground

would not implicate the revenue rule at all and would have

little impact on other cases that did not involve alleged loss

of foreign tax revenue.

Regardless of the outcome of Pasquantino, the interplay

between American criminal laws and foreign laws is becom-

ing an important issue in both criminal and civil cases. While

the Supreme Court’s decision in Pasquantino ultimately may

be limited to the applicability of the revenue rule in a small

number of cases, its decision could have a broader impact

and may at least set the stage for the further development of

the law in this area. ■

MARTHA BOERSCHTelephone: 415.875.5811e-mail: mboersch@jonesday.com

A Partner in the San Francisco Office, Martha practices in gen-eral litigation and corporate criminal investigations and has extensive federal trial and appellate experience. Prior to join-ing Jones Day, she served as an assistant U.S. attorney for 12 years, where she investigated and prosecuted federal criminal law violations. As Chief of the Organized Crime Strike Force, she specialized in Russian organized crime. She also has con-siderable experience with international and national security issues that may occur in federal civil and criminal cases.