All Things Investigations Podcast

Mike Huneke (00:00):

I think for anyone interested in this area of law and the practice of this area of law, individual defendants are the Wildcats, and they're going to continue to be. We talked about their incentives to do whatever it takes to avoid the deprivation of liberty and being imprisoned. And here there's some very aggressive arguments and frankly, creative arguments have been made to try to get access to more information.

Tom Fox (00:30):

Welcome to the Hughes Hubbard Anti-Corruption and Internal Investigation Practice Group's podcast, All Things Investigations. Hughes Hubbard Anti-Corruption & Internal Investigation practices group represents many of the premier companies around the world, providing advice on issues, spanning the full anti-corruption and compliance spectrum. In this podcast, host Tom Fox and members of the Hughes Hubbard Anti-Corruption and Internal Practice Group will highlight some of the key legal issues involved in white collar and other investigations, both domestically and internationally. We will tackle topical issues involved in investigations, as well as explore how companies can prevent and detect issues that arise in conducting investigations on a worldwide basis. Today's episode features Mike Huneke. Mike is a Hughes Hubbard and Reed partner who has spent his career in both Washington, DC and Paris, France. For his entire 17 year career, Mike has been practicing in anti-corruption space on everything from investigations and government resolutions, acting as buffer counsel to companies subject to compliance monitors, third party and M&A due diligence and proactive risk assessments, and second level compliance reviews. Most recently, Mike and his Hughes Hubbard colleagues were recognized for their role on the Airbus case by global investigations review.

Tom Fox (02:05):

Hello everyone. This is Tom Fox back for another episode. And today I have with me, Mike Huneke. Mike and I are going to talk about a very significant discovery opinion that came out of the US District Court Judge McNulty in the US versus Coburn case that we both think will have significant implications for companies who are under FCPA investigations, and for the law firms that assist them in those investigations. So, Mike, first of all, welcome, and thank you so much for taking the time to visit with me today.

Mike Huneke (02:35):

Thanks very much, Tom. Very happy to be here.

Tom Fox (02:37):

So the Coburn case comes out of the cognizant technology case. One of the most fascinating FCPA matters, probably starting with the fact that Cognizant got a full declination because of the actions they took both in responding to allegations, investigating the matter, cooperating with the government, and remediating the deficiencies which allowed the alleged conduct to occur. But two of the individuals, former employees at Cognizant Technologies, the COO and I believe the general counsel have been criminally indicted by the government. So Mike, could you maybe pick it up from there?

Mike Huneke (03:17):

Sure, Tom. For those of you who track how long the tale of an FCPA allegation can be, this is a long one. The conduct occurred in two separate conference calls in April 2014, at least as is alleged by the indictment. And as you noted, the settlement that the Cognizant was able to obtain of the both DOJ and then SEC investigations happened in February 2019. And on February 14th, 2019 Gordon Coburn, who is at the time of his employment, the president and the CFO and Steven Schwartz, who was at the time his chief legal officer were indicted for their role in this scheme, basically it relates to an alleged bribe of $2 million to a local government authority in India for permits, for construction of an office campus that they were building there. In about January of 2016, again, as is alleged, the defendants were participants in the reimbursement of the bribe.

Mike Huneke (04:16):

And then there was a report to the compliance hotline that then prompted eventually them to leave the company and the company to begin the path of investigation and then cooperation with the government. What's particularly dramatic and interesting in this case, is that not only are the defendants fighting right now, the indictment, they both have pled not guilty, but they've made some pretty unusual claims about out how the government handled the investigation and how Cognizant itself handled the internal investigation and its cooperation with the government. And we've seen allegations before of government outsourcing. We've seen cases for example, of an improper absence of an Upjohn warning, where the individual employees may have thought that they were part of the representation external counsel was giving, but this takes it up a notch and alleges that the government through Cognizant actually infiltrated the law firm of the CLO, that the government gave unquestioning deference to the internal investigation, for example, by not re-interviewing the witnesses and not challenging the redactions or claims of privilege by Cognizant and its lawyers.

Mike Huneke (05:27):

In addition to the standard kind of outsourcing arguments, there's also a focus on the potential applicability of the Supreme Court's decision in Garrity, which held that a government employee in that case, an employee of the government agency, who was given the choice between self-incrimination or forfeiting his job by refusing to cooperate in an interview, had his Constitutional rights violated. And the government can't do indirectly what it can't do directly. So defendants are alleging that also may have happened here. Oh, that particular part of their defense is something they're anticipated to brief later in the hearing. There was a very significant holding, then, by Judge Kevin McNulty on February 1st on a raft of discovery motions, motions to compel by the defendants. And these have pretty significant implications for those of us in the internal investigation space, really of any kind FCPA or otherwise.

Mike Huneke (06:29):

And really this Judge McNulty's opinion brings back a lot of the first principles. Why are we here? What are we doing? And primarily to me, one of the most interesting aspects of this is the fact that if you're sharing with the United States government privileged information, you've waived privilege by doing so. And that's not controversial or new, but Judge McNulty then further granted a very broad waiver, a subject matter waiver of the privilege. So not only were interview memorandum from which external counsel read summaries to the government considered to have lost the protection of attorney-client privilege, but all documents supporting those memorandum, cited in those memorandum, drafts, notes or anything else based on which those memorandum were prepared were all ordered by Judge McNulty to be produced.

Tom Fox (07:22):

There was another point that I wanted to raise, at least initially Mike, which was using an oral or making an oral presentation of the government. And the judge did not criticize making an oral presentation, but he did say, "I think that if you make an oral presentation, the underlying basis of that presentation is also not privileged and subject to discovery." What did you see, if anything, around his comments on the oral presentation?

Mike Huneke (07:50):

Well, it underscored, Tom, that there's no kind of magic secret or magic protection that you get by doing something orally rather than in writing. And I think there is a natural preference to maybe have an initial conversation orally with the government. But for me, this underscores the importance I've actually been reducing that to a writing very soon afterwards. I assume that some of the thought behind giving an oral presentation and maybe not reducing it to a writing later is an idea that maybe you have some flexibility afterwards or there's room to argue. I think in mine, and I think probably most of your listeners' experiences, no one ever wins the, "I said, you said" argument with the United States government. And so if you're going to waive privilege anyway, it's probably a good practice to document what you think you said. Not only so that you and your client can anticipate what the potential waiver might be, but also to help you later, if you do have to make arguments against individuals who are pleading not guilty and fighting the prosecution about where the waiver line might have been drawn. And maybe with the hopes that it wouldn't be quite so broad as Judge McNulty has drawn it here.

Tom Fox (09:04):

Mike, I won't speak for you, but I'll speak for myself that perhaps when I was practicing, my default position was an assertion of the attorney-client privilege. And I think we may have seen perhaps an over assertion of that privilege. So I was wondering if you could talk about one of the dangers of over asserting the privilege and the nuances that an attorney actually has to go through to successfully assert the privilege.

Mike Huneke (09:31):

Yeah. I think we all have a healthy knee jerk reaction just saying privileged. And a habit of putting on the top of any document we touch, attorney-client privilege, attorney work product, whatever other privilege we can think of, "Please don't look at this" type of privilege. But what this shows is that by doing that, if what you then disclose has privilege marked all over it and you're claiming it's privileged, you're pulling in potentially more than you would otherwise into a waiver, into a subject matter waiver. And so it's very important to be very thoughtful about what you're disclosing and whether you're asserting that it's privileged or not. Whether it's some summary of facts that are otherwise available to the company, for example, up that maybe the company prepares, or is it something that the lawyer is actually prepared as part of giving legal advice to the company? And you just have to be very careful about that.

Mike Huneke (10:26):

There's a lot of nuance there. And if you are going to assert privilege over something and you want to, it's also important and a big lesson from this opinion that, again and nothing new, but it's good to be reminded of first principles again. The attorneys actually have to do something with the document in order for it to be privileged. I think there's a habit sometimes to just stamp on an internal investigation report, otherwise prepared by company employees, for example, prepared at the direction of counsel. You've waved them magic wand, but haven't really done anything except expose yourself to the risk of a subject matter waiver of whatever advice your attorneys did give you on those topics. And including potentially advise other attorneys maybe gave you on those topics as well. If the court thinks that you may be too aggressively using privilege as a sword and a shield and hiding maybe unfavorable views of attorneys.

Mike Huneke (11:18):

But more practically speaking, and to your question, Tom, the attorneys for something to be privileged need to be involved. It doesn't mean the attorney has to be the primary drafter. It doesn't mean the attorney has to make all of the decisions, but that the attorney needs to be directing what is happening and giving legal advice about that. So for example, it's helpful sometimes if the attorney's giving instruction to the review team. Even if the reviewers themselves are not the lawyers, but as they need to be doing work, that's preparing facts for the lawyer to give legal advice. And if there's a big report being prepared, it's important that the lawyer is very actively involved in drafting it, in the decisions about what are the conclusions, what are the legal implications of what's being concluded? If the attorney just shows up later and looks at something and says, "Eh, it looks okay," you're not really helping yourself. The court could very well find, if challenged in a camera review, that it's not privileged at all. Or if they do find it's privileged, you've probably overly asserted it. And you may risk a broader subject matter waiver if it's waived.

Tom Fox (12:24):

So Mike, this decision came in a case against individuals. And so we're not talking about a client that you might represent asserting privilege against the government. It's really third parties. And why are individual defendants such a wild card in this situation

Mike Huneke (12:42):

In a way, they've got nothing to lose at this point. Companies are ongoing concerns, ongoing businesses with shareholders that they serve and for them, the important thing is to resolve the matter and move on and get out. From the scrutiny, from the risk of debarment, and the potential impact on their stock price for example. Individuals, particularly by the time that they are indicted are often no longer employed. They may, if they were executives as were the two gentlemen here, have under Delaware law, the right to advancement of their legal fees, although they could be asked to pay that back, if they're ultimately found guilty. And they're facing jail time, they're facing the deprivation of personal liberty. And so I think that they are much, much more hungry for risk and have a much higher risk appetite than your typical corporation, particularly your typical publicly traded company. So it's not surprising to see them really throwing the kitchen sink at it in furtherance of their defense. And I imagine, as you said, we're not talking about the company that we might represent. And obviously, Hughes Hubbard, my firm doesn't represent anybody in this case. But I would imagine that they are none too pleased with the perceived infiltration of their legal team by the government or the way, probably in their view, the company turned on them.

Tom Fox (14:06):

Let me pick up on something you raised a little bit earlier. And when we were talking about oral presentations and how that can potentially lead to, I think you use the word flexibility, but I might use the word confusion or at least differing interpretations. Why is it so important that a company have a clear record when it sits across the table with a government?

Mike Huneke (14:29):

If there's a dispute, it's not going to come up in the next week or two it'll come up years from now. The government may think it asked you for something, but you may have heard something else. Or the government may think you are looking for particular information in particular sources in particular databases, but actually has a misunderstanding of what it thinks you're doing. If it comes out years later, that there's an issue that wasn't disclosed to the government or that wasn't properly reported to the government, the government's going to feel like you should have told us this. And it may very well be new prosecutors. Certainly very likely would be new political appointees, supervising those pro executors. And if all you have is kind of a handwritten notes in your notepad about phone calls you may have had with the government, and can't really remember whose initials were whose and who was on the call or not, the government is certainly going to consider the burden to be on you.

Mike Huneke (15:27):

If you're telling the government, "No, no, you understood exactly what I was talking about." I think there is a fear, for good reason, of getting a subpoena or having very formal letters from the government. But in a way, particularly if those are the product of fruitful discussions you have in the context of cooperation, those can actually be very helpful to you. Because it creates and requires a documented record of exactly what's happening. What's being done, whether things are complete or not, whether productions are complete or ongoing, all of which can help you defend later of you that you may have, at the time that, no, no, we did tell you about this, or that we did talk about that topic and that you and the government then have the same paper record in front of you.

Tom Fox (16:14):

The current administration and the current department of justice made clear in Lisa Monaco's speech in October of 2021 of a renewed focus on individuals, a renewed focus on companies turning over all information, not just the relevant information or information which might tend to point one way or the other. And so I wanted to maybe ask you Mike, if the government is going to really depend on this information coming from companies, what's the harm to companies for turning this information over to the government? Recognizing that they may waive the privilege, does that negatively impact your ability to represent your client in an investigation, or is it really only going to come out in ancillary litigation, other civil litigation or this type of criminal litigation?

Mike Huneke (17:10):

As far as the defense bar is concerned, if I could presume to speak for all of us, and maybe that's a bit too much of a presumption, we would rather defend and argue. And if we settle, reach a settlement based on full information and everyone having the same information. And certainly this is in the context here in this scenario where the company has decided to cooperate. And at that point, there's going to be a public settlement down the road. And frankly, we would rather the government have more, rather than less information. And just in particular to make sure we're not accused later, either we or the company, of having not provided something that we should have. It does mean it will create additional burdens on the government to track what information it receives. If the government wishes to take a strict view of its disclosure obligations to then individual defendants, and there'll be more documents it needs to carefully track and monitor and make sure it's complying with of those obligations.

Mike Huneke (18:10):

And I think for companies, what it does is it potentially increases the legal expenses for lawyers, for individual defendants, who are entitled to the advancement of fees through Delaware state law and through company bylaws. Now, typically that's covered by insurance, although insurance has its limits. And so you may see the legal representation of individual defendants becoming more expensive. To the extent that the defendants feel wronged by the company or that they feel the determination was wrong, the more data that's out there, the more documents, the more of a risk that there's claims or other allegations by the defendants against the companies and civil litigation. An interesting aspect of Judge McNulty's opinion is he makes a few references to the fact that, "Hey, here, we're dealing with criminal rules of evidence. They are specifically for a variety of reasons, more narrow than civil discovery rules." It seems like an open invitation to defendants to find ways to get their former employers, and potentially the government, into civil litigation. In this very case here, there is already parallel civil litigation over the attorney fees dispute, but to get them into parallel civil litigation in order to potentially profit from broader discovery rights.

Tom Fox (19:28):

And then the other thing that struck me is the importance of the rigor of your investigation. So that really for you, your colleagues in the defense bar, that if information is going to be turned over, you have to have a rigorous process that recognizing that process really scrutinized, could be scrutinized by those who maybe somewhat antithetical to the outcome of your investigation. I was wondering if you might have some thoughts on the importance of documentation of your internal investigation, but even more than the documentation, the rigor of your investigation.

Mike Huneke (20:03):

Great question Tom, and absolutely. Doing an investigation that would satisfy particularly main justice officials, maybe political appointees, that a settlement is appropriate is much different than doing an investigation that's geared toward identifying, preserving, tracking evidence that may be necessary in either criminal or civil prosecutions or trials. And so the specter of more and more former employees who have been terminated as the result of investigation being more and more assertive in their rights, places a much higher burden on the investigation. And you're right to point out two aspects of it, the process aspect, and then the rigor of it. Certainly from a process aspect, and going back to my prior comments about sometimes more formal investigative requests actually help you because they trigger a formal process of what's happening, absolutely there needs to be a lot of attention on documenting and tracking what's happening, why is it happening.

Mike Huneke (21:07):

I think it's a good practice to make sure that you have work plans that you're tracking, that those work plans do and should evolve as the investigation tracks, but they can be great contemporaneous records of what decisions were made and why. And in particular, if there's allegations later that, well, the government was just telling you what to do, there may be other reasons why you did what you did, and it's important to document that in a work plan. As far as the rigor of investigations, I don't think it necessarily means that everyone now has to boil the ocean or anything like that. But it does mean, I think that part of your decision on certainly what maybe you preserve, identify and preserve initially, and then maybe eventually review should have as a factor that you're considering, those decisions should be considering, what if these employees come after us later?

Mike Huneke (22:01):

I don't know that it means that the depth of an investigation, the actual, how many people you interview, what documents you prioritize for review, necessarily has to change at the outset. I think that still would need to be focused on, was there an FCPA violation, and if so, what happened and why. But you'll need to anticipate that you'll be receiving requests that are much broader potentially from employees. And potentially also from the government who has a much higher evidentiary burden to prosecute an individual in court than they might to decide to agree to a settlement.

Tom Fox (22:40):

Mike, near the end of the court's opinion is a decision that I think only a true personal jurisdiction aficionado, or geek would enjoy. But I wanted to ask you a few questions about that because I thought it had some significance that we don't see in a lot of FCPA cases. If I could set it up a little bit, there was a sister company of the Indian subsidiary with an office in the United States. It did work unrelated to the Indian company, but the defendants attempted to initiate discovery by serving the sister company, and the court held that was not going to be allowed and quashed that motion. Could you maybe walk us through the personal jurisdiction and why we really don't get to see that issue debated in too many FCPA cases.

Mike Huneke (23:29):

Sure, Tom. And at least for your listeners who didn't fall asleep or have violent flashbacks to law school, happy to respond to that. It is interesting because in the world where we're really dealing with what I, and others before me, will call prosecutorial common law. The settlements setting the law, setting expectations. One of the things that you notice over the last decade or so is that the government completely tramples over any corporate formalities. Or at least maybe put in a different way, companies admit that there's no relevant corporate formalities. When they... The statements of facts that are attached for prosecution agreements or plea agreements. For example, there'll be language such as the defendant is a holding company and it operates worldwide through its subsidiaries and affiliates, or as things like the holding company had direct and indirect subsidiaries in various countries around the world, through which it bid on projects to secure contracts, these subsidiaries worked exclusively on behalf of the holding company for its benefit, et cetera, et cetera.

Mike Huneke (24:36):

So suddenly these Netherlands based BV companies are now personally acting everywhere in the world and bidding on every contract. And certainly for promoting the ease of a settlement that everyone can agree to, it makes sense that you're not going to get bogged down and all of those niceties. But in the context of former employees seeking discovery against overseas sister subsidiaries, it's interesting. And Judge McNulty's opinion gives a very clear summary of where the law is. And the fact that in some aspects, the law in the US is not really settled. I've seen some commentary that people are very excited about this as maybe this means that foreign companies would never be subject to in personam jurisdiction in US courts simply by cooperating with the government. Judge McNulty's opinion makes careful to point out before getting to the particular fact situation here, that there's generally a consensus in US courts that parent companies are held to be availing themselves of a forum in which they have a subsidiary.

Mike Huneke (25:40):

And I still think it's a very case by case fact heavy analysis, but that seems to be a widely held view in US courts, as Judge McNulty describes it. What is interesting is the case here where you have a holding company and on the left side, you have a subsidiary in India that's participating in this bribery scheme as alleged by the indictment. And on the right hand, you have some poor company in New Jersey that happened to be, as a result of this, the recipient of many discovery requests and subpoenas. And in that context, Judge McNulty held that the US subsidiary having no connection to the Indian subsidiary, not being engaged in the same business, not having any shared employees, not having the Indian subsidiary participating in the US market in any way, Judge McNulty held that in that case, the Indian subsidiary did not avail itself of US jurisdiction.

Mike Huneke (26:35):

And what's important about that is it did mean that in that context, the Indian subsidiary could participate in a meaningful way in cooperating with the US Department of Justice without being dragged into, then, this nasty discovery dispute. And I think for foreign companies who struggle, for good reason, with how much they engage or do not engage with the US Department of Justice and what are the downsides or the risks of doing so, I think this is a helpful decision. Particularly here where, my view, Tom, from the indictment is that while the Indian subsidiary did participate in the misconduct that's alleged, they seem to have been pressured significantly by the defendants to do so. And I have no doubt that that's part of the way the indictment is spun, and the defendants may, of course, have something to say about that later. But in that case, it's important. And there may not be really anything that defendants can do. There's the Judge mentions that letters derogatory may be a way then maybe the only way for the defendants to try to convince an Indian court to order discovery of the Indian subsidiary that then could be provided. Those processes are fraught with delay and uncertainty and the judge himself, and the way he writes the opinion, discusses that that may never result in any discovery from the Indian subsidiary for the defendants.

Tom Fox (27:55):

Mike, unfortunately we are near the end of our time, but before we leave, I wanted to maybe get some of your concluding thoughts. And if I could maybe start with, we don't get very many cases on the subject matter. So that makes this decision important, but really in listening to you and preparing for this podcast, I really think there's a lot of lessons learned for both defense bar, corporate council corporations, and maybe even the department of justice. What are your sort of final thoughts on this significance of this discovery dispute and decision by Judge McNulty.

Mike Huneke (28:30):

I think for anyone interested in this area of law and the practice of this area of law, individual defendants are the wildcats. And they're going to continue to be. We talked about their incentives to do whatever it takes to avoid the deprivation of liberty and being imprisoned. And here there's some very aggressive arguments and frankly creative arguments that have been made to try to get access to more information. I think this also is very important for defense counsel in the defense bar, because as we discussed earlier, Tom, you now have this very real specter of subsequent carry on civil litigation. If the government is going to hold to its policy of reinvigorating its prosecution of individuals, that's going to further create additional cost and a longer tail to the consequence of these things. And so requires, I think, going forward, defense counsel to take a very disciplined and well documented approach with the DOJ.

Mike Huneke (29:34):

I don't think it means you can't have the type of informal discussions that are usually very fruitful and very helpful to navigating your way to a settlement. But I do think it means it's very important to document as you go along, what you understood the common understanding to be, to make sure it's actually the common understanding. And also to ensure that any production to the government, even if it's in response to a so-called voluntary request from the SEC, which I think would be a mistake to assume it's really voluntary or not, but is meticulously detailed, documented, cataloged. And the reasons why there's any redactions or things held back for privilege otherwise that that's well documented, because just look at this particular case, the internal investigation presumably started in 2016, defendants weren't indicted until 2019. Admittedly, there's been a horrible pandemic, which I'm sure had some impact on the progress of this case, but here we are in March of 2022, and we're still at the discovery stage of these proceedings. So the records have to stand the test of time and stand the turnover in US administrations and fraud section administrations, and be able to be a platform for asserting your view of what happened and why.

Tom Fox (30:54):

Mike, we are now at the end of our time. But before we leave, I was wondering if our listeners wanted any more information on yourself, your practice and the Hughes Hubbard white collar defense group, what would be the best way for them to find out?

Mike Huneke (31:07):

Well, we have Anti-Corruption and Internal Investigations Practice Group. It's a bit of a mouthful, but it's, we have a practice group webpage at hugheshubbard.com, and you can find links there to our annual or semi-annual alert, depending on how prolific we are as writers and also to the treatise that we had published with BNA and now Bloomberg BNA, and Anti-Corruption both in the US and otherwise.

Tom Fox (31:34):

Mike, I wanted to thank you for taking the time to visit with me. This is, I think, a fascinating and equally important case. And I look forward to continuing this conversation.

Mike Huneke (31:43):

Thanks, Tom.

Tom Fox (31:46):

This is Tom Fox again. Thank you for listening to this episode of All Things Investigation, the Hughes Hubbard Anti-Corruption and Internal Investigations Practice Group podcast series. We're going to link to Mike Huneke's information on the show notes. So I hope you will check those out. I hope you'll join us for our next episode of All Things Investigations, where we visit with Kenyon Brown. This is Tom Fox. All Things Investigations is a production of the Compliance Podcast Network.