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When laundering charges surface, battles commence on several fronts

By John M. Dowd and Jeffrey M. King
Akin, Gump, Strauss, Hauer & Feld LLP
Washington, DC

From the May 2001 issue of Money Laundering Alert

(Editor’s Note: This is the first of a two-part series on the important
decisions a bank or other financial institution, entity or individual faces
when allegations of money laundering surface. Guidance on what can be done
and how those decisions should be approached is provided by two seasoned
attorneys, John M. Dowd and Jeffrey M. King, of the Washington office of
Akin Gump.)

Banks and corporations around the world invest millions of dollars in
compliance programs to prevent others from using their institutions to
launder criminal proceeds. These efforts, however, do not ensure that those
entities, and sometimes their officers, will not become the subject of a
government criminal investigation premised on the allegation that the entity
or officer committed a crime or that they possess evidence government agents
believe will help prosecute someone else.

Corporate criminal liability

Under U.S. criminal law, corporations can face the same or more severe
criminal penalties than individuals. Typically, corporations also are liable
for the unlawful acts of their directors, officers, and employees.

Many sensitive decisions await a financial institution or any organization
when it must respond to allegations of money laundering in an investigation
or prosecution. Because the U.S. money laundering laws have an
extraterritorial reach, entities outside the U.S. also face these decisions.

U.S. laundering law reaches far

The U.S. can bring money laundering charges against a U.S. citizen for
laundering committed abroad even if the transaction occurs outside the U.S.
A non-U.S. citizen may be charged with money laundering if the illegal
transaction takes place in part in the U.S. – even if the participants never
enter the country and the transaction is valued at more than $10,000 (Title
18, USC Sec. 1956(f)). That long reach distinguishes the money laundering
law from most other U.S. criminal laws. Because many countries now combat
money laundering, there has been an extraordinary dissemination of raw,
unreliable information about many innocent persons and entities.

Therefore, a money laundering investigation by a grand jury or agency, a
public allegation or a criminal trial can affect virtually any entity or
officer around the world and can have serious legal and financial
consequences, including fines, imprisonment and forfeiture of assets. Damage
to their reputation and the possibility that the world’s enforcement
community may apply the label of money launderer are equally weighty.

Conduct during investigation is key

Every entity and officer must know what steps to take to continue conducting
business, allay the concerns of customers and the public, defend against the
allegations, and restore damage to reputation. One cardinal rule permeates
everything: one’s conduct during an investigation is often more important
than the subject matter of the probe.

Here are some of the most important issues and helpful steps to consider
when an organization or officer becomes the subject of a money laundering
investigation or indictment.

Competent legal counsel

Whether a criminal investigation has commenced or the press has reported an
unfavorable allegation or possible employee wrongdoing is suspected, the
first step any entity or officer should take is to retain experienced and
knowledgeable legal counsel, preferably one who has tried and defended
laundering charges before a jury. It is the “test by fire” that develops a
lawyer’s best judgment and skills. Counsel should be contacted as soon as
possible so that he or she can develop, early on, an effective strategy and
resolution.

In obtaining the best representation in a money laundering matter, consider
these minimum qualifications:

substantial experience trying and defending complex corporate cases
involving money laundering
comprehensive understanding of U.S. and international legal and banking
requirements and business practices
credibility and experience with prosecutors and with officials of the
Justice and Treasury Departments.
Initial legal steps set tone and more

Experienced counsel knows there are important strategic decisions that
affect a successful defense. Often, pre-trial motions can lead to the
dismissal of ill-pled counts. In one Michigan case, a client in was charged
under the money laundering statute with four counts of commercial bribery
associated with securing an insurance contract. The counts had been added to
the indictment to intimidate and coerce a plea, a common tactic. During the
trial, we moved successfully to dismiss the laundering charges as being
without merit. Counsel may sometimes convince the prosecutor, prior to an
indictment, that laundering charges are not appropriate or that the evidence
will not support them. It should be remembered that one is not dealing with
one’s view of the facts but rather with the government’s version.

You should select a lawyer whom you trust. You must trust his or her
instincts, knowledge of the law, and confidence the case will be discussed
frankly with you, including the evidence and the potential or likely
consequences of the decisions you make together. The lawyer also should be
your friend during the tortuous and exasperating times that arise from a
criminal investigation.

Decide on an internal investigation

An internal investigation may be appropriate in two situations. The first is
when the entity suspects internal wrongdoing prior to a government
investigation. Sometimes the suspicion arises from an employee complaint
about another employee or from an audit or other discovery. The second
arises when a government investigation has started. Here, an independent
internal investigation can determine if a violation of law or internal
policy has occurred.

After securing an experienced attorney, the organization should decide if an
internal investigation is needed. Without one, the government investigation
could produce unwanted surprises. When allegations of wrongdoing have been
made, the organization quickly must determine what occurred. The facts will
control the formulation of the plan that addresses the government’s
concerns.

Do’s and don’ts of internal investigations

Timing, organization and access to information and witnesses is critical.
From the outset, an internal investigation should have the goal of
preserving relevant records. Independent counsel operating within the
attorney work product and attorney-client privileges should handle it. The
objective should be to conduct the inquiry so as not to disrupt business
operations.

The crux of an internal investigation is the employee interviews. They must
be conducted in a strategic and effective manner. This is a tricky area
because of distinctions between the application of the attorney-client
privilege to entities and individuals. In an internal investigation, all
involved parties should be aware that attorneys for the organization
represent the entity and not necessarily the employees. Counsel should
understand these issues and conduct the internal investigation accordingly.
It is often advisable that an organization’s Board of Directors extend the
attorney-client privilege to cover all employees. This wins their trust and
minimizes the mischief that can occur in an investigation.

Interests of entity and employees could diverge

There may be major consequences if the interests of an entity and its
employees are divergent or in conflict, or if an employee might implicate
the employer or vice versa. In such cases, separate counsel may be required.
Nevertheless, there are many instances where it is beneficial and
appropriate to share information within the umbrella of the attorney-client
privilege or a joint defense agreement.

The investigation should be fast and confidential, and the full cooperation
of management is essential. Former employees, especially disgruntled ones,
must be handled appropriately. The interviews should be conducted by outside
counsel because the internal lawyers may have a stake in the outcome.
Outside counsel, instead of an internal auditor, can serve as an objective
fact-finder.

Voluntary disclosure to the government

Whether to disclose voluntarily the findings of an internal investigation to
prosecutors or regulators is a tough question with irreparable consequences
and is independent of the obligation to report suspicious activity.

By disclosing the results of an internal investigation the organization can
frame the issues to the government from its point of view. Prosecutors often
say “first in, best out,” meaning that the person or entity who comes
forward earliest often receives the most favorable treatment. Depending on
the findings, disclosure may convince the government not to bring charges.
If a laundering conviction is obtained, voluntary disclosure at the start
may result in more lenient sentencing under the U.S. Sentencing Guidelines.

The legal consequences of voluntary disclosure should be kept in mind,
including the impact on the attorney-client and work product privileges. A
recent U.S. Justice Department memorandum guided federal prosecutors on the
prosecution of corporations and the factors they should consider when
deciding whether to charge an entity. They include the “corporation’s timely
and voluntary disclosure of wrongdoing and its willingness to cooperate in
the investigation of its agents, including, if necessary, the waiver of the
corporate attorney-client and work product privileges.” The disclosure the
department demands is very broad.

Most federal appellate courts that faced this issue held that disclosure to
the government of a company’s internal investigative files developed by
counsel constitutes a complete waiver of all privileges concerning those
files. Accordingly, the decision to disclose information voluntarily is
extremely delicate and should be done only after consultation with
experienced counsel.

--- John M. Dowd and Jeffrey M. King are attorneys in the Washington, D.C.,
office of Akin, Gump, Strauss, Hauer & Feld, L.L.P. They represent
institutions and individuals regarding allegations of money laundering and
other aspects of criminal litigation. Mr. Dowd was a speaker at MLA’s 6th
Annual International Money Laundering Conference in March 2001.

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