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Preparing for a Government Investigation or Enforcement Action

Government investigations are on the rise. In recent years, the construction industry, in particular, has been the focus of increased legislation and related regulatory enforcement.

For example, the Department of Justice continues to pursue contractors and suppliers for violations of the federal False Claims Act. The construction industry, which is considered “high hazard” by the Department of Labor, is also a specific target for OSHA. But the investigation and enforcement game is not confined to federal agencies. State and city authorities are closely scrutinizing the industry as well, focusing on issues related to health and safety, compliance with minority and women-owned business enterprise (M/WBE) and disadvantaged business enterprise (DBE) requirements, and allegations of criminal misconduct.

Government investigations can disrupt operations, exhaust resources and expose companies to negative publicity. For government contractors, the unwanted exposure can be disastrous, even in the absence of a criminal conviction or a civil judgment. Of course, the best way to avoid an investigation is to avoid government scrutiny altogether. While an admirable goal, between the myriad of rules and regulations governing the construction industry and regulators stepping up enforcement, more companies are finding themselves the subject of government-initiated investigations.

Unfortunately, there is no one-size-fits-all plan. Investigations are not generic; how they proceed largely depends on the facts. And rarely is a company given advance notice that it is the subject of a government inquiry. However, once an investigation or enforcement action has been initiated, the following steps may help defend against protracted oversight, costly penalties and fines, and possible litigation.

1. Prevent Document Destruction

Upon notification of an investigation, steps should be taken immediately to ensure that all documents and information relating to the investigation are retained and preserved. Indeed, every company should already have policies and procedures in place to preserve documentation in such an event, as the failure to preserve information could subject the company to independent liability.

Policies or automatic functions governing the retention or deletion of documents (e.g., deleting electronically stored information after a certain period of tim) should be suspended. Counsel should issue a litigation hold directing all relevant employees not to destroy or remove documents related to the subject of the investigation. The hold notice should identify specific employees for distribution and accurately define the issues for preservation. Written acknowledgment of the notice’s receipt should be obtained from all subject employees, and periodic reminders of the hold should be circulated going forward.

2. Protect Applicable Privileges

From the outset of the investigation, all privileged, confidential and trade secret materials should be identified and protected. Before responding to demands from regulators for documents or employee interviews, consider what legal privileges may apply. Be mindful of sharing privileged information with third parties, including government regulators and the media. Any sharing of information with individuals outside of the company’s “control group” for non-privileged purposes may result in a waiver of the privilege.

3. Consider Risks of Voluntary Disclosure

Voluntarily disclosing privileged materials to regulators is one way to demonstrate cooperation. While cooperation with the government may yield favorable results (e.g., demonstrating the company’s innocence or diminishing its civil liability), there are key downsides to disclosure. Aside from the possibility of handing over damaging material to the government, there is a very real risk that disclosure may be deemed a waiver of the attorney-client and work-product privileges in subsequent litigation. Most courts have rejected the “selective waiver” doctrine, which permits a company to selectively share documents, which are ordinarily protected by the attorney-client privilege or the work-product doctrine, with government agencies, but then assert the privilege for those same documents in parallel or subsequent proceedings. Thus, once the privilege is waived, it is waived for all future purposes.

4. Prepare a Unified Response to Outside Inquiries

Carefully plan what information will be disclosed to third parties during the pending investigation. High-profile government investigations are likely to trigger media inquiries. Even without press coverage, customers and shareholders will likely want to know how the company is handling the matter. To ensure the message is consistent, all external communications should be funneled through a single point of contact, such as a member of senior management or a company spokesperson. Counsel familiar with the investigation or enforcement action should be consulted to confirm the information is accurate and no privileged information or work product is inadvertently disclosed. Companies should be mindful that statements made to the media are potentially admissible in litigation.

5. Conduct an Internal Investigation

When under government scrutiny, a best practice is to perform an internal investigation of any potential wrongdoing. An internal investigation allows a company to prepare a defense to civil, criminal or regulatory charges, halt improper conduct, identify appropriate corrective action, strengthen business and compliance practices, reduce any reputational damage, and demonstrate “cooperation.” While using outside counsel to conduct the investigation is not an absolute requirement, it does strengthen the presumption that the investigation is legal and privileged.

At the beginning of the investigation, the company should document the purpose of the investigation—to assist the company in preparing for any potential litigation. The written investigation plan should establish that the company is seeking or providing legal advice rather than conducting the investigation for ordinary business purposes. Appropriate procedural safeguards should be complied with when interviewing witnesses. For example, if the interview is being conducted by in-house counsel, the employee should be given an “Upjohn” warning by explaining that the attorney-client privilege belongs to the corporation—not the individual—and only the corporation may waive the privilege.

A key consideration during an internal investigation is whether a written report should be prepared. A report may be an important tool to guide settlement negotiations with government agencies or persuade government lawyers that criminal or civil proceedings should not be brought. But a serious risk is that the report may ultimately be disclosed to the government as part of the criminal investigation and consequently to opposing counsel in any subsequent civil proceedings. A written report should be prepared by legal counsel and then clearly marked as subject to the attorney-client privilege and work-product protection. Counsel should avoid premature conclusions or recommendations, inflammatory language and too much information.

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