When the Government Comes Calling: Responding to Subpenas and Search Warrants in White Collar Crime Cases

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	When the Government Comes Calling: Responding to Subpenas and Search Warrants in White Collar Crime Cases November 10, 2003


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As federal and state prosecutors become more aggressive in prosecuting as crimes alleged wrongdoing involving environmental, safety, consumer, antitrust and financial laws, companies that never expected to be involved with the criminal law system are finding themselves being investigated and even prosecuted. Following is an overview of the process and advice on how to cope with it from a former federal prosecutor who now is in private law practice.

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OVERVIEW

In a complex white collar criminal case, the government typically begins its investigation in one of three simple, effective and intimidating ways:

Grand jury subpena: A grand jury may issue dozens, if not hundreds, of subpenas. There are two basic types of subpenas:

Subpena ad testificandum (testimony).

Subpena duces tecum ("SDT") issued for documents and physical evidence.

Subpenas may require both testimony and document production. They can be directed to individuals or businesses.

Search Warrants: When government is ready to strike, it usually strikes big. This maximally coercive tool has two key elements:

Search warrant targeted at corporate facility.

"Sweep" interviews of key employees (usually executives) before witnesses get "lawyered up."

Covert Operations

Consensually monitored telephone calls (with government listening in).

Undercover visits are not limited to drug dealers but now occur at legitimate business locations.

Wiretaps / surveillance / secret stuff (rare).

Interviews with whistleblowers (disgruntled employees) frequently result in initiation of a criminal case.

Grand jury subpenas and search warrants are the primary tools of federal prosecutors. Many state authorities, either lacking regular access to grand juries or sophistication in their use, routinely employ search warrants in pursuit of documentary evidence.

II.

GRAND JURY SUBPENAS

The ability to gather evidence through issuance of subpenas is a central function of the grand jury. However, the grand jury itself rarely decides to issue subpenas. That process is directed by the prosecutor. Indeed, grand juries rarely see the documents.

AUSAs (assistant U.S. attorneys) have signed and pre-sealed subpenas; they simply fill in witness information and have case agents serve them.

The return date must be a date the grand jury actually is meeting, but grand jurors almost never are involved in the process.

Subpenas can be returned through "voluntary disclosure" directly to case agent. That is, the witness satisfies his obligation if the requested documents are produced to the case agent by Federal Express.

A grand jury subpena is a powerful tool because:

Nationwide service of process in grand jury matters. Federal Rules of Criminal Procedure (FRCrP) Rule 17 (e) (1).

Foreign witnesses can be subpenaed under 28 USC §1783 (a) provided the witness is a U.S. citizen and "the court finds that particular testimony or the production of the document or other thing by him is necessary in the interest of justice."

Responding to a grand jury subpena is an important part of any investigation. Clients / lawyers face criminal sanctions for non-compliance or obstruction. E.g., Martha Stewart and Frank Quantrone.

The tool is entirely unilateral -- it is available only for the government. But, it is available only pre-indictment. The defense has no access to grand jury materials under FRCrP Rule 6 (e).

Generally, total secrecy prevails. The government holds all the cards, and it generally plays "No Peekee."

III.

SCOPE AND IMPACT OF GRAND JURY PROCESS

Grand Jury's Power Is Broad

Because grand jury investigative authority is broad, subpena authority is equally broad. Trial standards of relevance and materiality do not apply. There are very few effective limits on the scope of inquiry, and, thus, there are few checks on the government's power.

Yo' Arms Too Short to Box with God: Resisting the Grand Jury

Subpenaed witness may move to quash under FRCrP Rule 17 (c). The court may quash a subpena "if compliance would be unreasonable or oppressive." Some limited protection also is available under the Fourth Amendment although a grand jury subpena is not a search or seizure within the meaning of the Fourth Amendment. U. S. v. Calandra, 414 U. S. 338 (1974).

As a practical matter, courts rarely quash grand jury subpenas. For example, in U.S. v. R. Enterprises, 498 U.S. 292 (1991), the Supreme Court strictly limited challenges based on the relevance of documents sought.

Courts are reluctant to interfere with a grand jury's ability to gather evidence during an investigation. Therefore, claims of unreasonableness or undue burden rarely succeed unless the government is truly overreaching or abusive.

The best practice is to negotiate scope and response time with the AUSA. Many subpenas are overbroad but can be narrowed through discussion with prosecutors.

Procedure

What to do when the grand jury material hits the fan? Grand jury subpenas issue at the beginning, middle or end of an investigation. Usually, proceedings involve documents first and then proceed to the "active grand jury phase" involving witnesses.

Determining your "status" is key. The subpenaed party may be a "witness" (expected to provide needed testimony and/or documents), a "subject" (activities within scope of grand jury investigation; could face charges) or a "target" (putative defendant; indictment likely).

Early contact with the AUSA may determine your status.

Department of Justice policy discourages subpenas to targets for testimony, but it is not uncommon for a target company to receive a subpena for documents, even after a search warrant has been executed.

There are few effective checks on deputy district attorneys and local authorities, and abuses do occur. Typically, they are not reigned in by the local judiciary.

Reading the tea leaves: Scope of subpena, time frame and the nature of documents sought often provide important clues about the nature of the government investigation and confirmation of status.

Generally, some factual investigation by counsel is needed to determine the client's exposure and appropriate responses. Today's "witness" can be tomorrow's target. It is important to assess risk as early as possible.

A grand jury's powers have some Limits:

A grand jury subpena cannot compel a witness to meet with the prosecutor in advance. Durbin v. U.S., 221 F.2d 520 (D.C. Cir. 1954). It may or may not be in client's best interests to do so.

A grand jury cannot be used to gather evidence against a defendant who has already been indicted (i.e., it is impermissible to use a grand jury for pretrial discovery). U.S. v. Star, 470 F.2d 1214 (9th Cir. 1972).

Privileges

Generally, all constitutional, common law and statutory privileges apply in grand jury proceedings (as in federal and state courts).

Must assert privileges. Counsel must assert applicable privileges or risk waiver. Courts have all but eliminated "selective waivers," i.e., witnesses generally cannot disclose to the government and then refuse to provide the same information to other litigants.

Corporations that waive privileges in a government production risk subject matter waiver elsewhere. The current trend at the Department of Justice is to require corporations seeking to avoid indictment for the sins of employees to waive all privileges and produce any internal investigation to the Justice Department confidentially.

Rule 6 (e)'s secrecy provisions are limited. FRCrP Rule 6(e) secrecy provisions generally will not protect witness from providing the same evidence in another proceeding. Secrecy requirements are imposed on prosecutors, grand jurors and court reporters. Absent a court order (hard to get), the secrecy rule generally does not apply to witnesses. California state court practice is different -- secrecy orders are issued.

The government can request "non-disclosure," but it generally lacks the teeth to back up the request. One exception involves financial institutions when certain financial crimes are being investigated under 18 USC §1510.

This firm has litigated the government's attempt to obtain a gag order for an accounting firm that received a subpena for client records. The court ruled that it had authority to issue such an order but refused to do so.

Frequently asserted privileges and issues

Attorney-client and work product: They are clearly applicable but can be a real battleground. The government is less likely to take assertions of privilege at face value. The attorney-client relationship, crime-fraud exception, scope of privilege and waiver are frequently litigated. Resolution may involve in-camera inspection of documents by the supervising judge.

Fifth Amendment: It is applicable, but collective entities, such as corporations, partnerships and not-for-profits, have no such privilege. Hale v. Henkel, 201 U.S. 43 (1906).

i.	The Fifth Amendment privilege generally is a testimonial privilege. It does not protect non-verbal, non-communicative acts, no matter how incriminating they may be (e.g., fingerprints, voice and handwriting exemplars). Gilbert v. California, 388 U.S. 263 (1967).

ii.	Compelled production of documents is a murkier issue. Fisher v. United States, 425 U.S. 391 (1976) established the "act of production" doctrine (i.e., in certain circumstances, by producing incriminating records, the witness implicitly acknowledges their existence and authenticity and admits his / her custody or control). The issue often arises with sole proprietorships or closely held corporations.

Spousal privilege applies to private marital communications, but the privilege belongs to the witness and does not apply when both spouses are party to a crime. There is no privilege for parents and children.

Ensuring Compliance

The federal government will move quickly to compel compliance by using the vast powers of the U.S. District Court, e.g., contempt of court.

Companies must recognize risks and pitfalls, including the fact that full compliance may not be in a particular employee's interest.

A corporation's interest may be served by full and complete cooperation. The federal Sentencing Guidelines explicitly take such cooperation into account in assessing possible criminal fines.

IV.

SEARCH WARRANTS

Execution of search warrants against legitimate businesses used to be rare. That is no longer the case. Search warrants may be how businesses first learn that they are the subjects or targets of a criminal investigation. In environmental prosecutions, search warrants are particularly useful investigative tools and are common. Major oil companies, defense contractors and even a California municipality have been the subjects of recent federal "raids." The issues involved in a company's "emergency response" to such a warrant include:

Basic Assumption: The government has a substantial advantage in undertaking a search.

The target will not have advance knowledge of the search. The government, on the other hand, will meticulously prepare for the search.

Government agents are more experienced (and usually better armed) than targets and will attempt to use surprise, advance planning and superior force to their tactical advantage in executing the search warrant.

The reason for the search warrant will not be clear immediately, and the government will attempt to keep it that way.

Stealth and surprise are two key weapons in government's arsenal.

Preparation Is Critical (before the search occurs).

Identify security concerns, such as classified information or hazardous materials and areas.

Special equipment/protection may be required (for government personnel as well as for company employees) in some areas.

Essential business records (including computerized records) should be identified and backups maintained (off premises).

Privileged information should be kept in segregated files.

Counsel experienced in criminal law should be on call to respond to the first report of a search.

Government's Search Objectives

Why does the Government search when it can subpoena? The government has five principal objectives in conducting a search:

Prevent the destruction of evidence, particularly in environmental investigations where evidence of violations may be ephemeral.

Secure evidence / records before the company has a chance to frame a defense.

Secure evidence / records in an expeditious fashion (grand jury subpenas are notoriously slow).

Keep the company in the dark about the government's theories and predicate of investigation.

Interview employees without interference of counsel.

Company Counsel's Objectives (During the Search)

Ascertain the purpose of the search and monitor the nature of information being obtained by agents.

Counsel should attempt to compile an inventory of property seized, areas searched and persons investigated.

Counsel may observe where execution exceeds the bounds of the warrant and should make a record.

Police the government agents executing the search warrant.

Prevent (or at least object to) the seizure of privileged records such as attorney-client communications.

Prevent the seizure of items beyond the scope of the search warrant.

Prevent the seizure of essential records that the company needs for day-to-day operations.

Provide legal advice and moral support to the company and its employees.

On-Site Response to Execution of a Search Warrant

Tasks for the company's emergency response team:

Security personnel should:

i.	Verify that the search warrant actually is addressed to the facility that the agents seek to search.

ii.	Call the corporate response team / company counsel to respond to search.

iii.	Ask the agents to wait until company counsel or outside counsel arrives. (The government will refuse.)

Company counsel should:

i.	Contact white collar defense counsel.

ii.	Formally object to the search.

iii.	Establish lines of communication with lead agent and AUSA directing the investigation.

Attorneys' Tasks During Execution of the Search Warrant

Obtain a copy of the search warrant and distribute it to all attorneys. Review the warrant carefully to ensure that the search is properly authorized, both as to premises and with sufficient particularity.

Obtain a copy of the underlying affidavit, if possible.

Generally, the underlying affidavit will be sealed, but counsel may get lucky.

In some instances, the warrant may refer to or incorporate affidavit

Ascertain, if possible, the identities of agents performing the search. Ask them to sign in or produce credentials. The agents may (and probably will) refuse.

Monitor the agents' actions for clues about the purpose of the search and document any possible abuses by the agents, such as forcing employees to speak, holding employees incommunicado, unduly restraining their movement and exceeding the scope of the search warrant.

Attempt to reach understandings with agents regarding procedural issues:

Narrowing the scope of the search.

Copying important documents on site.

Attempting to obtain copies of documents essential to the business before they are taken offsite, such as an operations manual at a large industrial complex.

Asking to have computer discs placed under seal pending a review for privileged material.

Appoint a company representative as point person to deal with government requests during the search. Consider allowing non-essential employees to go home.

In the absence of such cooperation, the government may possibly shut down the facility for days while it conducts the search.

Obtain inventory of property seized before agents leave the premises.

The target is not entitled by law to an inventory before agents leave. Alternatively, an inventory can be obtained when agents file a return with the court within 10 days.

What Not to Do: Do Not Obstruct the Search

Beware of saying or doing anything that may be construed as obstruction of justice.

Do not forcibly interfere with or willfully obstruct the conduct of search. You may be arrested and prosecuted.

Even if agents do something wrong (i.e., in excess of the warrant) do not physically prevent them from doing so. Object, but do not resist.

Stop the Interviews

Formally demand that all interviews on the company's premises cease immediately. Designating an "interview room" may be deemed consent to interviews. The warrant does not permit government agents to make any use of facilities they may choose.

Advise employees of their rights in dealing with government.

Agents have a right to search for and take documents but do not have a right to compel employees to tell them where a particular document is located. Employees should cooperate with agents conducting the search.

Employees have a right to speak or not to speak to the agents; it is their choice.

Emphasize that the decision to speak with agents is solely the employee's decision and that the company takes no position on the issue.

Instructing employees not to speak with agents may be construed as obstruction of justice.

To deter (if possible) uncounseled interviews: Advise employees they may choose to speak first with corporate counsel or with personal counsel in order to protect their individual rights.

Note: The company should consider informing employees that the company is willing to pay for counsel for the employees if they desire counsel.

If employees choose to speak to government agents, they should speak truthfully and accurately, and they should not speculate about facts not within their personal knowledge.

Communicate the foregoing to employees at home for the day in case agents attempt to contact them at home, which the agents have every right to do.

OTHER ISSUES DURING AND AFTER EXECUTION OF SEARCH WARRANT

Agents frequently exclude attorneys from the plant or from certain areas.

If so, report this to the lead agent and/or AUSA immediately, and attempt to resolve the matter. (Convince the government agent and/or AUSA that exclusion of attorneys as observers may create serious evidentiary problems for the government.)

Do not resist decisions of agent to exclude attorneys even though the agents' authority to exclude persons from the search area generally is limited to their power to ensure officer safety.

Persons within the search area may be temporarily detained and their parcels (such as briefcases) searched. Agents have a right to do so within reason.

Agents frequently detain employees and may corral them into conference rooms.

Agents may confine personnel and restrict the use of telephones and computers as part of an initial "security sweep."

If this detention persists beyond a few minutes, object. The agents do not have the right to unduly restrict a person's freedom of movement.

Asking the agents whether persons whose movements are restricted are "under arrest" may deter the agents from persisting in this activity.

Videotaping / photographing what the agents are videotaping / photographing is a judgment call. It may unnecessarily increase tensions.

If agents take split samples, attempt to obtain split samples:

In most environmental cases, agents supply splits without being asked.

If splits are taken, remember that sample life is short. Get splits tested promptly.

Post-Search Checklist

Counsel should immediately debrief any employees who had contact with agents.

The objective is to determine the precise scope of search and employees who were interviewed.

Before debriefing, counsel should advise each employee that he represents the company, not the employee personally, and while the conversation is privileged, that privilege is held by the company and may be waived by the company at its pleasure.

Advise employees not to talk among themselves about the search because such conversations are not privileged.

Beware that under some collective bargaining agreements, employees may have the right to have a union rep present during debriefing.

Have the company immediately notify all affected employees, as well as employees in other locations, about the search, and advise those employees not to discuss the ongoing search or investigation via e-mail.

Implement a non-destruction policy at all sites for all potentially related documents in anticipation of grand jury subpoenas.

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