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Deal or No Deal? Negotiating Your Company’s Way Out of a Criminal Indictment


July 1, 2008

Read Time

8 minutes


In Part 1 of our series, the government expressed an unwelcome interest in your company's operations, but, armed with our advice, you handled the execution of that search warrant like a professional. In Part 2, you reviewed our handy internal investigation checklist and hired counsel to conduct a thorough examination of your company's conduct so that you could determine your company's possible civil and criminal exposure before the government moved against you.

Now comes the hard part: Convincing the Government that no matter what you found during that investigation, your company does not merit criminal prosecution. Unfortunately, you're fighting this battle in an informational vacuum, because not only will the government not share with you what they have on you," and unless you are proactive in your relations with the prosecutors, you may not learn that critical information until a grand jury hands down a criminal indictment against you.

Do not fret, EDGE readers, because in Part 3 of this series, we will advise you on how your company can manage the trials and tribulations of negotiations with the government. After reading this article, you will be in a better position to decide whether it's going to be "deal" (cooperation and settlement) or "no deal" (fighting the government at trial).

1. Understand Your Status in the Investigation

The first thing that you and your counsel must do when deciding how to deal with the government is to determine your status in the investigation. If you are a "target" of the investigation, it means that the government has developed evidence sufficient to suspect that you have committed a crime. If you are a "subject," it means that your conduct is within the scope of the investigation but you are not (yet?) a target. If you are neither of the above, you are probably a witness who may possess information of value to the government's investigation.

Obviously, your status can have a profound impact on how you interact with prosecutors. If you are a "target" or a "subject," you must always remember that anything you say may be used against you in a criminal prosecution. If, on the other hand, you are a "mere witness," you may be more inclined to cooperate because you want to avoid becoming a target or a subject.

The status issue becomes more complicated when the client is the company itself, as distinct from the officers, directors, and employees who carry on its business. In any government investigation of corporate wrongdoing, the actual culprits are individuals, yet their misconduct may give rise to vicarious corporate criminal liability. This inherent conflict between the interests of the company and those of its employees looms large with respect to status, because a company has no Fifth Amendment right to silence and cannot, therefore, withhold information from the government on that basis. Individual employees, however, do have that right and can refuse to cooperate in any internal investigation. Thus, even if the company is not a target and wants to cooperate, it must still deal with employees who do not and whose refusal to do so may jeopardize the company's independent interests.

This scenario also has significant implications for your legal representation, because when there is a conflict between the interests of the company and those of individuals within it, separate legal counsel is vital in order to avoid waiver of the attorney-client privilege and possible disqualification of your chosen counsel. Questions of multiple versus individual representation, common interests, and joint defense agreements are beyond the scope of this article, but they are, nonetheless, issues that you must address with your attorney in order to protect yourself as you weather the government's inquisition.

2. Decide Whether To Waive Your Attorney- Client Privilege

Most companies feel compelled to waive their privilege and to produce internal investigation information to the government, because (a) the government expects it, and (b) as suggested earlier, the company may have to sacrifice individual wrongdoers in order to avoid indictment of the company itself. Thus, if your company is a target or subject of a government investigation, you will need to decide early in the process – as quickly as your counsel can get a handle on the nature of the problem – whether your desire to cooperate (and, thus, potentially to avoid indictment) outweighs the risk of providing incriminating evidence to the government.

In addition, perhaps, to throwing certain employees under the proverbial bus, cooperation has another downside: Follow-on civil litigation launched by plaintiffs' lawyers who piggyback off of the government's investigation. It would be nice if you could provide confidential information to the government without waiving your privilege, but the law does not favor such "limited" or "selective" waiver.

First, case law across the country has generally rejected any self-imposed limitations on waiver of the attorney client privilege and the work product doctrine. Once you choose to waive the privilege and disclose confidential information to the government, you have usually waived the privilege as to all related subject matter and as to any and all third parties.

Second, the government has twice failed to enact "limited waiver" provisions into law, both in the context of Security Exchange Commission (SEC) civil investigations and in the context of the Federal Rules of Evidence, which apply to both civil and criminal cases. Somewhat ironically, it was the business community and the white collar defense bar that helped defeat the latter provision, because the possible disclosure of privileged information to plaintiffs' lawyers often represents the company's strongest argument for resisting production to the government.

In addition, you may have to disclose privileged information to certain third parties who are assisting your company with respect to the government investigation, including outside auditors and insurance carriers. As a general rule, no privilege attaches to your communications with these entities, so it is critical that you consult with counsel in order to determine what information you can share with such third parties.

3. Assess the Risks of Meeting with the Government

Even if you and your counsel decide to turn over privileged information in written form – whether raw (e.g., interview notes) or refined (e.g., a final report to the Board of Directors) – you may also feel compelled to meet with the government in order to plead your case directly. You can do so either through an attorney proffer or through individual proffers. Neither type of proffer is without risk.

First, where attorneys are conveying information to government prosecutors on behalf of the client, the government may seek to pierce the attorney-client privilege, if the client uses the attorney to provide false information. Martha Stewart learned this lesson the hard way.

Second, while individual proffers usually occur under the terms of a limited use immunity ("Queen for a Day") letter – whereby the government cannot use the witness's statements against him/her during its case-in-chief – the government always retains the right to use such statements to (a)conduct further investigation; (b) impeach the witness at trial; (c) rebut at trial any factual assertion or defense that is inconsistent with the witness's statements; and (d) prosecute the witness for perjury, false statements, and/or obstruction of justice.

Nonetheless, a company seeking to avoid indictment may require certain employees to proffer as a condition of employment, in order to demonstrate its cooperation in the government's investigation. And as I have experienced firsthand, even where the client is an individual, a proffer may be the only way to convince the government of the client's innocence. Clearly, the decision whether to proffer is one that you cannot afford to make without a soul-searching conversation with your counsel.

4. Evaluate Your Options for Amnesty or Leniency

In many government investigations, the timing of your cooperation determines the benefi t that you may derive from it. For example, the U.S. Department of Justice's Antitrust Division offers amnesty for the first company to self-report violations of the antitrust laws. Subsequent cooperators may receive consideration but not amnesty.

Likewise, early and full cooperation in any government investigation may inspire leniency on the part of the government. This leniency can take many forms, from a deferred prosecution agreement (where the company avoids prosecution entirely and is placed on an often onerous form of corporate probation) to plea and sentencing consideration (where the government drops charges or agrees to a lesser sentence, but cannot offer deferred prosecution, because the wrongdoing was prevalent at high levels of the company).

In summary, you and your counsel must consider the possible salutary effects of cooperation and act in a timely fashion in order to ensure that such benefi ts are available to you.


As with prior installments of this series, the foregoing merely skims the surface of a very complex issue: Whether, when, and how you cooperate with the government when your company is implicated in a criminal investigation. While the company may survive a search warrant on its own, and may even decide to run its own internal investigation, there is simply no substitute for seasoned counsel when it comes to making life-or-death cooperation decisions for your company.

To put it bluntly, this is no time to be penny wise and pound foolish. If an experienced, credible, outside attorney cannot prevent an indictment against your company, nobody can.

Kurt Stitcher, a former federal prosecutor, is a partner and head of the firm's White Collar Criminal Defense and Corporate Internal Investigations Services.

Filed under: Litigation

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