What Are the Best and Worst Outcomes When Your Company Is Under Criminal Investigation?
Many of my clients are small companies who are involved in a criminal investigation. The first question in-house counsel or company leadership asks: What’s the worst-case scenario here?
I like to give my clients a range of possible outcomes. Since the government can’t throw a company in prison, the outcomes are different for a company than for an individual. We aren’t talking about prison time but rather the effect on the business. My clients have employees and clients and owners and investors. A criminal investigation could affect all of those stakeholders, not to mention the bottom line.
It’s important to keep in mind that a particular outcome may be fatal for some companies but have little effect on others. For example, a $1 million fine as part of a deferred prosecution agreement might spell the end of a start-up company but it might be a mere blip on the financials for a more established one. An administrative proceeding that results in debarment (or exclusion) from federal contracts may put a small defense contractor out of business but barely affect a company that does mostly non-public work.
A different—and important—issue is how a company can be held criminally accountable for the acts of its employees, officers, or directors. As a general matter, your company can be held criminally liable for the acts of an employee, officer or director if the conduct was within the scope of that person’s official duties, and was intended—even in part—to benefit the company.
Here’s a list of the possible outcomes, roughly in order from best to worst.
The government decides that your company is not a target of the investigation. In this situation, the government decides (hopefully early) that your company did nothing wrong. There’s never a question of charging the company with a crime or working out a pre-indictment resolution. It’s just . . . a non-event. (Except of course for all the legal fees you had to pay to get to this point.) Your company may be a victim or may be a witness to an executive’s wrongdoing, but it isn’t considered a wrongdoer itself.
The government declines to charge your company criminally. Some investigations end with the government declining to bring any criminal charges at all. This result may happen informally, where the government “ghosts” and drops the investigation without telling you that it’s been dropped. The government may also formally tell you that the company will not be charged through a “declination letter,” which states explicitly that there will be no criminal charges.
The government decides to handle the case as a civil or administrative matter rather than a criminal one. Sometimes, my goal when representing a company is to convince the government that although something wrong happened, the better result is to negotiate a civil solution rather than a criminal one. In an accounting fraud case, this may mean that the Department of Justice is no longer involved but the Securities and Exchange Commission may negotiation the resolution. In a contracting fraud case, it could mean that the result is a negotiated resolution of a civil False Claims Act case with DOJ, rather than a criminal charge. There could also be an administrative proceeding, such as a debarment or suspension proceeding if you are a federal government contracting, or get federal grants or cooperative agreements..
The government enters into a non-prosecution agreement with your company. A non-prosecution agreement (NPA) is a document that states that your company will not be prosecuted by the government but your company agrees to take defined steps to remediate the issues. An NPA is an excellent outcome when your company arguably did something wrong but is willing to take extensive steps to fix the problem. No criminal charges are ever filed, assuming you comply with NPA’s terms. To be blunt, it’s a hammer that will be held over your company’s head for a period of time.
The government enters into a deferred prosecution agreement with your company. A deferred prosecution agreement (DPA) is a different animal than an NPA, despite the similarity of names. In a DPA, the government files criminal charges against a company but agrees to delay prosecution to evaluate the company’s efforts to fix the problem. If the company complies with the DPA, the government will later dismiss the charges.
The government charges the company with a misdemeanor. Sometimes, a company just has to “eat” a criminal charge, as we refer to it. If there’s no way to avoid a criminal charge, then a misdemeanor is a better outcome than a felony. It lessens the direct and collateral consequences (somewhat) of the conviction.
The government charges the company with a felony—or multiple felonies. This, of course, is the worst outcome. Even if the company is able to resolve the matter through a plea agreement, there will substantial consequences for a felony conviction. Sometimes, the consequences can be mitigated through negotiating what entity is charged—a subsidiary found guilty may have fewer effects than the parent company—but there’s no downplaying the negative outcome. This is as bad as it gets.
Your outside counsel should talk through with you all of these possible outcomes before deciding on a final strategy with the government. It’s critical to understand a client’s goals, rather than seek a cookie-cutter result that may have a worse impact on operations down the road.
None of this is good news. Realizing your company is the target of a criminal investigation likely means that you will find yourself advising company leadership to choose either the proverbial rock or hard place.