A U.S. District Court for the Southern District of New York ruling in United States v. Connolly (16-CR-370) recently held that the government improperly “outsourced” its investigation of LIBOR manipulation to Deutsche Bank and its outside law firm and the law firm’s actions were consequently “fairly attributable” to the government. The judge found a Fifth Amendment violation because the government had outsourced, relied on, and directed the bank’s internal investigation, which involved compelling the defendant, a Deutsche Bank trader, to submit to an interview and cooperate with the Bank’s investigation or alternatively be fired.
The court concluded that “rather than conduct its own investigation, the Government outsourced the important developmental stage of its investigation to Deutsche Bank – the original target of that investigation – and built its own ‘investigation’ into specific employees, such as Gavin Black, on a very firm foundation constructed for it by the Bank and its lawyers.” The court further stated, “This was no ordinary ‘outside’ investigation” leading the court to conclude that Deutsche Bank, through its outside counsel, did “everything that the Government could, should, and would have done had the Government been doing its own work.”
While the court ultimately denied the relief the defendant in this case sought because the government did not use the defendant’s compelled statements at trial and the investigation was not otherwise tainted, the Connolly decision raises significant questions about the manner the government, cooperating companies and their counsel should approach internal investigations going forward.
The government and defense counsel should apply the lessons of the Connolly case to avoid the same ruling in the future. It is of utmost importance for companies to retain experienced counsel with the knowledge necessary to conduct internal investigations to both satisfy the government and demonstrate cooperation, which will ensure that the government does not need to instruct or direct companies on the essentials of their internal investigations. Likewise, the government should not wait for the results of the companies’ investigations before conducting its own.
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