Originally published in the January 2015 Journal of Commerce on-line
Last week, Women in International Trade in Orange County presented a half day program that featured speakers from Customs and Border Protection, the Food & Drug Administration, Consumer Products Safety Commission and U.S. Dept. of Agriculture. The luncheon speakers were two Assistant United States Attorneys. To anyone who has been paying attention to the actions of various government agencies, the message each speaker gave was not surprising. The two prongs of that message were know the rules and play by them. In other words, being compliant gets you a large measure of where you need to end up in order for your costs to be consistent and predictable.
Perhaps this point was driven home most of all by the two Justice attorneys. Both spoke about evaluating a potential target in part by the sense of whether or not that party is cooperating. Now, any lawyer worth his or her salt will tell you there are many shades of cooperation. The key is when and how you go about doing so.
Many times over the years, I have provided tips about how to deal with government agents when they visit your premises. The typical response is to ask for a written request and make sure you are only providing exactly what is requested – unless it is to your benefit to provide limited clarifying information. The two Justice attorneys were from the environmental crimes and national security sections. They were quite forthright in explaining they typically are only interested in going after bad guys. As such, many of the requests they make are designed to provide them with information to go after others than the party to whom the request is made. While that sounds somewhat comforting, it remains a fact, that companies are wise to be careful and precise about what they say and what they provide.
If you sell sensitive, military or dual use items, and your equipment ends up in the hands of terrorists, you can bet the company wants to figure out to whom it sold which items and would prefer to do so before rather than after information is given to Justice. At the same time, Justice needs that information quickly in order to stop the bad guys. How best to balance such strong and competing interests?
Admittedly protecting endangered species is typically not as time-sensitive for purposes of deciding about a prosecution, companies are faced with the same dilemma. What do share with Justice and when? As an illustration of how not to handle the situation, take a look at what Gibson Guitar did when confronted by claims the wood it was using on some of its guitars was endangered. There is an old adage about don’t flunk the attitude test. Gibson’s CEO got on talk radio and other media and complained his company was being singled out. It must have been more than embarrassing when internal emails were disclosed making clear there were red flags present which appear to have been ignored. If you have any doubt, take a look at the settlement to which Gibson agreed and the extensive/intrusive nature of the mandated compliance program.
Given Gibson’s experience with endangered wood, it does not take a genius to figure out the pressures on a company will be exponentially greater if the issue is national security. This is especially true in the context where the question facing Justice is whether to charge a party, and if the answer is yes, should it be “just” the company or individuals as well? Over the years, many cases for a variety of crimes have been brought against only companies, a number of others against individuals, too, and some only against individuals. While each decision to prosecute turns on the facts and circumstances the case presents, the more knowing the conduct, the more likely an individual will be charged. At the same time, Justice attorneys have acknowledged hearing the complaints of the American public that no individuals were charged as a result of the financial meltdown of 2007/2008/2009. That having been said, a prosecutor often has the option of deciding whether the charge will be a misdemeanor or a felony and perhaps, in the end, that is the most critical for a person.
If a company has cooperated in a manner that does not compromise its rights, and has done so through professional and competent counsel, Justice will typically be far more reasonable to deal with than in circumstances where the company and its attorneys have thwarted Justice’s efforts at every turn. Now, let’s be honest and acknowledge that sometimes vigorous antagonism is the best option, especially in situations where Justice and/or the investigating agents are being too aggressive (and we should all remain mindful there are cases of prosecutorial overreaching), and, in the end, the level of cooperation a company gives is tied, at least in part, to how much Justice and the investigators explain about the nature of their inquiry. Companies also should keep in mind Chapter 8 of the U.S. Sentencing Guidelines which addresses the sentencing of organizations. It states, among other points, “the fine range for any [ ] organization should be based on the seriousness of the offense and the culpability of the organization”. The Introductory Comments go on to say: “[t]he two factors that mitigate the ultimate punishment of an organization are: (i) the existence of an effective compliance and ethics program; and (ii) self-reporting, cooperation, or acceptance of responsibility”. Note, there is no distinction drawn here between publicly traded and privately held companies.
In short, the more knowing the conduct, the more likely individual liability will result. The comments from all the speakers boiled down to know the rules and abide by them, and if you make a mistake, voluntarily disclose it. This is sound advice for all companies, but now is the time to also get real – financial pressures make people do dumb things! So, while cooperation with a government investigation may, in fact, be the best route to follow, management at any company, regardless of its size, cannot simply ignore red flags. Monday morning quarterbacking is simply too easy these days what with all the emails everyone writes!