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The hazards of environmental crime.

IN RECENT YEAR, THE FEDERAL GOVERNMENT HAS STEPPED UP ITS efforts to prosecute corporate crimes against the environment. In light of these efforts, prudent corporations should enacct policies and procedures to ensure a coordinated and prompt response to an investigation. * Criminal prosecution of environmental crimes will be to the '90s what savings and loan prosecutions were to the '80s. Cases that once might have been pursued civilly are now being prosecuted criminally. Congress and administrative agencies have regularly amended environmental laws and regulations to increase punishments for environmental criminal offenses. * For instance, the Comprehensive Environmental Response, Compensation, and Liability Act; the Resource Conservation Recovery Act; the Federal Water Pollution Control Act; and the Clean Air Act were all amended to convert existing misdemeanors to felonies. * Beginning in the mid-1980s, federal and state agencies shifted their focus to prosecuting environmental crimes. The environmental crimes section of the US Department of Justice has undergone vigorous growth under both the Reagan and Bush administrations. * In 1983, 40 indictments resulted in 40 pleas or convictions and $341,000 in fines. Four federal prosecutors were assigned to the environmental crimes section. In 1990s, 134 indictments resulted in 85 pleas or convictions and more than $29 million in fines. By the end of 1990, 25 prosecutors were assigned to the environmental crimes section. * The trend should be very clear to corporate management: Violate environmental laws and you may save your company money, but you may also go to jail and your company most certainly will pay a huge fine.

The test the courts have employed for corporate liability is a simple one: If the employee or agent did something on behalf of and to the benefit of the corporation and it was directly related to the performance of his or her duties, the employee need not have been operating in a policy position for the corporation to face potential criminal liability. (1)

A corporation should poise itself to effective and efficiently address the issues that may arise if it becomes the target of a criminal investigation. This process consists of awareness and education programs in which corporate security managers are generally best situated to take the lead.

The key is first and foremost to ensure that corporate management recognizes the reality of the threat. The security manager must concentrate on dispelling any notions about who is vulnerable and how to deal with the government.

Statistics demonstrate that the bulk of the government's cases involve otherwise upstanding businesspeople who generally--and in their minds genuinely--deny the criminal nature of their acts. When it comes to environmental crimes, a malicious heart and premeditation are not required. The government must prove only that an act that violated the law was done knowingly or absent mistake or inadvertence.

In fact, an emerging prosecutorial tool for environmental crimes is the concept of "conscious avoidance." The government often employs this principle to present evidence that the defendant deliberately closed his or her eyes to what would have been obvious. (2)

The first step to avoiding criminal liability is to realize that, in today's enforcement climate, no one even remotely responsible for environmental compliance is immune from criminal prosecution. All commonly held misconceptions must be dispelled.

ONE SUCH MISCONCEPTION IS THAT THE government seeks criminal indictments only where a violation of thelaw results in some direct or identifiable harm to the environment. This misconception suggests that if no harm resulted from the violation, then no crime occurred.

The government, however, does not subscribe to that rule and periodically punishes "bad attitudes." For example, wetlands cases have been criminally prosecuted when the government perceived that the defendants showed disrespect for the environment. Those cases typically involve the placement of nontoxic, nonhazardous topsoil on private property to enhance the owner's use of the property without the owner first obtaining the proper permit.

Assuming field sites will automatically follow corporate policy is another common misconception. Personnel in the field often face many competing pressures, particularly when they are expected to maintain profitability at all costs. The greater the disparity between profits and environmental pressures, the more likely it becomes that profits will win out over environmental protections.

Moreover, government prosecutors often demonstrate that, in addition to violating the law, an indicated corporate official did not even follow the company's own written practices and procedures. Policies and procedures must be established and followed so that they remain a shield and do not become a sword that impales the corporation.

Misconception number three is that small violations can probably be concealed. Minor or technical violations blossom into fuel for the prosecutor's fire when a corporation sents the government reports that purport to contain full disclosure but sklirt or overtly conceal relevant or material facts.

Finally, believing that employees have more interest in remaining employed than in protecting the environment is a misconception that can have catastrophic consequences. The government's number one source for leads in its investigations is the employees of a targeted corporation.

Often termed whistle-blowers, typical informants are usually not disgruntled employees. Many employees who go to the government care deeply about their jobs and employers. These circumstances provide a gold mine for government investigators, especially if an insider can identify people who have knowledge of potential wrongdoing.

PROCEDURES SHOULD ALREADY BE IN place to deal with problems arising from these misconceptions, any of which may cause the government to initiate a criminal investigation.

Additional procedures should also be in place to meet the separate challenge of an investigation once one has begun. Initially, the company should identify to all employees an individual to whom inquires by government inspectors are to be referred. This individual should be a senior official in the corporation.

Second, the company should have written security procedures requiring all visitors to be received at a central reception area and to present proper credentials and establish the purpose of their visit. This security procedure should include a daily visitor log.

Preparations must also be made in case the investigation proceeds by way of a search warrant. While the search warrant is most often employed by investigators and prosecutors to advance criminal investigations, administrative agencies often use them to advance investigations of potential civil violations.

The Environmental Protection Agency (EPA) has issued a memorandum on inspection procedures that addresses procedural rules for performing environmental administrative searches. As a general policy, EPA inspectors first seek the consent of the corporation to a search; if consent is refused, the inspectors try to secure a warrant.

If government officials show up with a search warrant, the designated company official should contact corporate headquarters or in-house counsel. Counsel should copy and review the warrant carefully to ensure that it is specific in its description of the location to be searched and the inspection functions to be performed.

Careful review is critical because a corporation may lawfully deny government agents access to areas not specifically set forth in the warrant. The designated official should also determine the procedures the agents intend to follow in conducting their search.

The agents should never be left unescorted. The designated official should remain with then at all times and make sure they confine their search to the areas described in the warrant. At the end of the search, the designated official and in-house counsel should request a debriefing from the agents. The designated official should carefully record the conduct, statements, and questions posed by the agents and ensure that they provide him or her with a receipt for any property taken.

Several concerns are peculiar to environmental search warrant cases. Occasionally, agents may seek to take water, soil, or waste samples by obtaining the company's consent or including this provision in the search warrant. If samples are taken, counsel for the corporation must

* get a receipt describing the sample obtained,

* retain a portion of each sample equal in volume or weight to the portion retained by the government agents,

* get a description of the test that the government agents intend to perform on the samples, and

* get copies of any photographs taken by the government agents.

Another special concern is whether the EPA has employed a private contractor to assist in the search. In some parts of the country, private contractors may be authorized representatives of the EPA for such purposes.

If the corporation is located in a jurisdiction where the law is unclear as to whether such private contractors may be excluded from the premises, a company official should request that the private contractor sign a nondisclosure agreement that will protect the company againts the unauthorized disclosure of information obtained during the search.

A CORPORATION THAT SUSPECTS IT MAY be the subject of a criminal investigation should initiate a simultaneous internal investigation. Such an investigation will enable counsel to advise the corporation of the existence of criminal liability.

To optimize the internal investigation, management should decide whether to retain outside counsel. The following factors should be considered:

* In-house counsel may lack the detachment and objectivity necessary to conduct the investigation.

* In-house counsel may not have the resources or time to conduct a thorough investigation, especially if the subject matter of the investigation is highly specialized.

* The additional expertise of outside counsel may be required.

The benefits of retaining outside counsel will be greatest if it is brought in early.

To maximize efficiency and minimize concern among employees, the corporation should distribute a letter or memorandum authorizing the internal investigation and informing all employees that the investigation and any resulting reports are for the purpose of providing legal services to the corporation. Further, the corporation should solicit employees' cooperation with outside counsel to conduct the investigation and respond to the government.

A search warrant will most likely be followed by a grand jury investigation including a subpoena for documents. In this context, issues of attorney-client privilege and work-product protection arise repeatedly and retention of outside counsel becomes more critical.

A grand jury document subpoena may seek a broad array of records including internal reports containing confidential information about the corporation and its operation. Thys, before the corporation responds to a document subpoena, it is necessary to understand the attorney-client privilege and work-product protection as they apply to such records.

The attorney-client privilege protects the confidentiality of communications between a client and his or her attorney made for the purpose of securing or rendering legal advice. The person to whom the information is conveyed must have been acting in the capacity of a lawyer when the communication was made. The role of outside counsel becomes more critical in that light, since in-house counsel sometimes conveys business as well as legal advice, so its communications might not be protected.

The work-product doctrine protects from disclosure any materials prepared by an attorney in anticipation of litigation. The work-product doctrine protects the confidentiality of information such as witness interviews containing counsel's thoughts and impressions and any documentation that displays counsel's planning or legal strategy.

To preserve the protection afforded by the attorney-client privilege and work-product doctrine, certain precautions should be taken.

First, the corporation should retain all documentation showing that outside counsel was consulted to provide legal advice and that the internal investigation was conducted to acquire information for the purposes of obtaining legal advice.

Second, all materials should be clearly marked as privileged and conflidential. For instance, any memos from interviews should include a notation that they contain the impressions, ideas, and analysis of counsel, and any memos to the corporation or corporate employees should state that they are for the3 purpose of providing legal advice to the corporation.

The lesson gleaned from the key case on the waiver of the attorney-client privilege and work-product production. In Re Martin Marietta, is that a corporation and its counsel must not quote directly from materials compiled during an internal investigation or attribute statements to specific witness when communicating with the government. (3)

Any third parties assisting in the internal investigation, such as private investigators, accountants, consultants, contractors, or other professionals, should report directly to retained outside counsel to ensure that the confidentiality of their findings and communications are also protected. Outside counsel, not the corporation, should retain the third-party assistance to bring it under the umbrella of the attorney-client privilege.

ASSUMING THE GRAND JURY SUB-poena does arrive, the corporation should identify for all employees the individual to whom prosecutors should be directed or to whom requests for documentation or information should be forwarded. As in the case of search warrants, the designated person should be a senior corporate officer.

Upon receipt of the document, the corporation should forward it to the designated corporate officer, who should note the date and time of the service of the subpoena and the name of the agent who presented it. The designated officer should contact in-house counsel immediately and forward the subpoena directly to him or her for processing.

Upon receipt of the subpoena, in-house counsel should contact outside counsel. Neither the corporate officer charged with the responsibility of receiving this subpoena nor in-house counsel should respond to the subpoena prior to review by outside counsel.

The request for documents may be presented in the form of a subpoena duces tecum or by way of an informal request for documents. Counsel should carefully review the request to determine the focus of the investigation. The government is not obligated to reveal the focus or scope of its investigation, but a close analysis of the request may reveal the direction of the investigation and enable the corporation to determine how the investigation started.

At this juncture, outside counsel should schedule a meeting with the prosecutor assigned to the investigation and attempt to determine the subject matter of the investigation. This meeting will provide an opportunity for counsel to establish a rapport with the prosecutor and the investigators working the case and to demonstrate the corporation's willingness to be forthcoming witn information.

Setting the right tone early will encourage the prosecutor to reciprocate and possibly to reveal more information about the investigation. Once the scope and subject of the investigation have been determined, outside counsel will be able to discuss with the prosecutor the intent and reason for issuing the subpoena, narrowing the scope of the subpoena, obtaining additional time to comply with the subpoena, and providing copies of documents instead of originals.

After this meeting, outside counsel should meet with in-house counsel and senior management to identify the sources and locations of documents responsive to the subpoena.

After careful review of the subpoena, the corporation should distribute a memo designating a corporate officer to be responsible for the collection of documents. This memo should assign certain employees the task of searching for documents and delivering them to the designated corporate officer.

The memo should clearly state that no requested documents are to be destroyed or sent to records retention and that failure to produce responsive documents may be perceived by the government as obstruction.

After all documents have been compiled, in-house and retained counsel, with the aid of the officer designated to coordinate the response and the individuals most familiar with the documents, should review each file and identify each document. The corporation should consider creating a document data base identifying each document by author and recipient date and including a summary of its contents.

Numbering the documents will prevent confusion as to which documents have been produced if the corporation receives more than one subpoena for documents. It will also facilitate quick reference, particularly in communications with the government. No documents should be given to the government before they have been copied. Both in-house counsel and outside counsel should retain a complete set of all documents given to the government.

A corporation may object to a subpoena on a number of grounds. First, the scope of the subpoena may be unreasonably broad or may cover an unreasonably long period. (4) Second, the subpoena may not convey enough information for the corporation to respond to it. (5) Third, if the subpoena is issued after the corporation has been indicted, the grand jury subpoena process to gather material for testimony cannot be used to prepare for trial. (6) Fourth, the subpoena may request documents that are privileged or protected from disclosure. (7)

However, inconvenience and the cost of producing the documents rarely qualify as sufficient grounds for objection.

THUS FAR WE HAVE FOCUED ON THE INcreased emphasis being given to envionmental crime prosecution, the events leading up to a criminal investigation, and the strategy a corporation should employ in responding to a search warrant and a grand jury subpoena.

Now let's carry the corporate criminal investigation to the next plateau. The grand jury has concluded its review of documents and has begun to subpoena individuals to testify. Grand jury subpoena have been directed at employees of the corporation. (The term "employees" encompasses officers, directors, and managers as well as hourly workers.)

By the time a criminal investigation reaches the grand jury stage, outside counsel should have been retained and become familiar with the investigation. If outside counsel has not been retained to this point, it is imperative that it be engaged now, because issuance of grand jury subpoenas for testimony is generally closely followed byindictment.

The results of an internal investigation usually dictate whether a corporation should have a single attorney representing both it and its employees during the grand jury investigation. If the corporation decides that some of its employees acted in an unauthorized manner, it should consider obtaining separate counsel for those employees.

If the informal investigation dictates that the employees will be mere witnesses, with the corporation being the main target, the corporation may wish to consider joint representation. In evaluating joint representation, the following issues should be considered:

* the risk versus the advantages of joint representation

* the most appropriate time for joint representation and the most appropriate time to consider its termination

* whether the corporation can cooperate with its own employees if separate representation is eventually needed

A major advantage of joint representation is the benefit that derives from a united defense. A united defense makes it much easier to achieve the goal of having the government drop its investigation or refocus its attention away from the corporation and its employees.

If joint representation is feasible, it will allow the corporation to control the flow of information to the government and assess the costs and benefits of providing the government with information and access to various employees.

Joint representation also often eliminates counterproductive debates about defense strategy among counsel for the corporation and counsel for its empoloyees. Also, joint representation most likely will result in lower legal fees. A single attorney can spread the cost of his or her representation among several defendants. Moreover, the corporation and its liability policy carrier may be able to organize a defense fund for the payment of attorney's fees.

The risks associated with joint representation must also be considered. For instance, much of counsel's knowledge about the investigation must come from the government. The government often looks on joint representation as an attempt to stifle its investigation. It may therefore refuse to disclose extremely valuable details, such as the identity of the targets or the evidence it has acquired against individual employees.

Without such information counsel is less able to contrast relative degrees of culpability or judge whether to make an offer to the government. Accordingly, single counsel may lose the ability to shape the government's investigation in a manner that may avoid indictment and negative publicity.

The negative publicity factor should not be overlooked. An indictment is often so devastating to a corporation that the ultimate disposition of the case pales in comparison. For instance, in United States v. Regan, a publicized corporation indictment led to dissolution of the firm before trial. (8)

Additionally, counsel jointly representing the corporation and its employees may be subjected to a motion to disqualify for a variety of reasons. To respond to such a motion the corporation may have to reveal information not otherwise available to the government.

Also, by maintaining joint representation that ultimately results in a conflict of interest, counsel may be disqualified from representing anyone because of the confidences obtained during the joint representation. Disqualification of an attorney who has spent substantial time learning about a case may be hard on the client forced to seek new counsel.

Agreement to joint representation with employees may also increase the chances of provoking shareholder lawsuits against the corporation. A corporation may be able to avoid derivative lawsuits if it takes action against individuals responsible for environmental mishaps. Alternatively, if a corporation cooperates with such a person in a joint defense effort, its posture in a derivative suit may be weakened.

Finally, with multiple representation the corporation should be wary of obstruction-of-justice charges. The government may construe multiple representation or the corporation's payment of legal fees for an employee in a joint defense effort as an unlawful attempt by the corporation to prevent the employee from cooperating with the government. (9)

Before undertaking joint representation of a corporation and its officers and employees, counsel should inform each employee of these risks.

IN ADDITION, EMPLOYEE SHOULD BE INformed that the information provided will be shared with all employees. They should also be advised that the government may be less willing to volunteer information to counsel representing several persons. Counsel may be less able to judge the amount of evidence the] government has against each person and therefore be in a less advantageous position to negotiate with the prosecutor.

Each employee should also be aware that if a single employee receives an offer for cooperation, counsel may be forced to resign from representing all employees. In fact, case law suggests that in such instances counsel should disqualify himself or herself. (10)

If this or any other conflict develops, joint representation can continue only if each employee makes an informed, knowing, and voluntary waiver of his or her constitutional right to be free from representation by counsel with conflicts.

Generally, as long as counsel informs each employee of the dangers inherent in conflicts and of the employee's right to separate counsel, any waivers will be upheld if challenged, and counsel should be able to withstand a motion to disqualify. However, a court may disqualify the retained counsel even with a valid waiver from employees either to prevent an appearance of impropriety or to prevent subsequent attack on its judgment on appeal. (11)

Finally, any reasons that support joint representation are absent after an indictment has been returned.

Up to that point, the corporation has focused on lawful means to hamper the government's investigation to avoid indictment. After indictment, the complexion of the situation changes. The corporation needs to build a defense, and that may mean placing responsibility on codefendant employees.

Because that presents a clear conflict of interest and will create an unfavorable impression before the jury, one attorney should not represent both the corporation and employees once indictments have been returned.

Even if the need for separate representation arises, coopertion between the corporation and its employees may be both productive and legal. If separate counsel is retained at the postindictment stage, counsel for the corporation should generally play a role in selecting attorneys for individual employees so that appropriate cooperation can continue.

While payment of an employee's legal fees by the corporation is appropriate in most cases, such a decision should be reconsidered if the corporation becomes aware that he employee committed a criminal act.

Information sharing among defendants is beneficial to all at almost any stage of a criminal investigation, so long as privilege is preserved and the communication does not fall into government hands. In most circumstances a written joint defense agreement can increase the flow of information between counsel and defendants by significantly lessening the risk that shared communications will be discovered by the government. According to such an agreement, defendants can inform codefendants of the stances they will take during litigation. (12)

Greater efficiency may also be achieved by having counsel divide responsibilities based on individual strengths and cut down on some of the redundancy of witness preparation. Counsel may also be able to share accountants and investigators, whose communications are covered by the joint defense privilege. (13)

While a joint defense agreement cannot prevent a party from negotiating with the government, it can provide that when a defendant enters into a deal with the government, he or she must notify the remaining codefendants. The agreement can prevent a joint defendant from using shared information in a manner adverse to any codefendant. (14)

The downside to joint defense agreements is that the restrictions may hamper a corporation from negotiating with the government or making voluntary disclosures since it cannot disclose infractions by employees that it learns through a joint defense agreement. Given the premium placed on cooperation at the sentencing stage, such a disadvantage may be critical.

IN THE FINAL ANALYSIS, AVOIDING LIABILITY under the government's tough new approach to environmental enforcement requires a realistic understanding of the problem and a willingness to undertake a full assessment of the risks.

The first step to avoiding harsh results is to recognize that the threat of criminal prosecution is real. The second step is to lessen the threat of prosecution by implementing and ensuring compliance with procedures that go well beyond those used in the traditional environmental audit. The third step is to ensure that as soon as a problem is identified an internal investigation is undertaken and outside counsel is retained.

The key to combating an eventual grand jury investigation is to be prepared in advance. Prevention comes far cheaper than mounting a criminal defense. Handling compliance problems and internal investigations that may later discourage grand jury investigations will allow corporate officers to spend more time in the boardroom and less time in the courtroom.

(1) United States v. Koppers, 652 F.2d 290, 298 (2d Cir. 1981). See also United States v. Hilton Hotels, 407 F.2d 1000, 1004 (9th Cir.), cert. denied, 409 U.S. 1125 (1972).

(2) See United States v. Civelli, 883 F.2d 191 (2d Cir. 1989), and United States v. Wong, 884 F.2d 1537 (2d Cir. 1989).

(3) In Re Martin Marietta, 856 F.2d 619 (4th Cir. 1988), cert. denied, 109 S.Ct. 1655 (1989).

(4) In Re Grand Jury Proceedings, 707 F.Supp. 1207 (D. Haw. 1989).

(5) United States v. Reno, 522 F.2d 572 (10th Cir. 1975).

(6) United States v. Reno, 607 F.2d 1320 (10th Cir. 1979).

(7) In Re Grand Jury Proceedings, 632 F.2d 1033 (3d Cir. 1980).

(8) United States v. Regan, 858 F.2d 115 (2d Cir. 1988).

(9) See In Re Grand Jury Investigation, 600 F.2d 215 (9th Cir. 1979). See also the Federal Witness Tampering Statute, 18 U.S.C. sections 1512, which presents special problems for attorneys monitoring grand jury investigations.

(10) See United States v. RMI Co., 467 F.Supp. 915 (W.D. Pa. 1979).

(11) See Wheat v. United States, 486 U.S. 153 (1988).

(12) A predicate of such an agreement, and hence a joint defense privilege, is that the communication is for the purpose of a joint defense. See Eisenberg v. Gagnon, 766 F.2d 770, 787 (3d Cir.), cert. denied, 474 U.S. 946 (1985).

If cleints have adverse interests or communicate through their attorneys other than for the purpose of a joint defense, the communications may not be privileged. United States v. Lopez, 777 F.2d 543 (10th Cir. 1985).

(13) See United States v. Judson, 322 F.2d 460 (9th Cir. 1963).

(14) See United States v. McPartin, 595 F.2d 1321 (7th Cir.). cert. denied, 444 U.S. 833 (1979).

Kimberly C. Harris practices with the law firm of Meadows, Owens, Collier, Reed & Coggins in Dallas. Her specialty is federal white-collar criminal defense. Prior to becoming an attorney, she spent several years in corporate security management.
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Author:Harris, Kimberley C.
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Date:Feb 1, 1992
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