Nov 25, 2020
Business leaders and team members should understand how government agencies begin investigations. Typically, neither business leaders nor front-line staff even know that agencies may have taken an interest. Despite their lack of knowledge, investigators may be looking into operations at the company, or they may gather evidence against individuals that work in the company.
For more insight, we can turn to an article that Mark Eichorn published. In his article, If the FTC Comes to Call, Mr. Eichorn, an FTC administrator, wrote:
“All of our investigations are nonpublic. That means we can’t disclose whether anyone is the subject of an investigation... FTC staff typically begins with an informal investigation, usually by reviewing publicly available information or even reaching out to the company directly... What we learn may lead us to conduct a full investigation….
Mr. Eichorn’s statements, taken directly from the FTC website, confirm that government agencies begin their investigations in secret.
Other readily accessible information lets us know that all government agencies operate in the same, clandestine way. The agencies gather information until they choose to file a case. By the time an agency files a case, the investigators have an abundance of evidence that they believe will allow them to prevail in a lawsuit. They may sue the company, or they may bring charges against people that work in the company.
Leaders of the Securities and Exchange Commission reveal that they begin investigations in the same way as the FTC. Their investigations begin in any number of ways. Typically, they may notice unusual trading activity on public exchanges. Or, investigators may read something in the media that perks their interest. Another pathway to an investigation may start with a whistleblower-type complaint from a customer, or from an employee that wants to cash in on a reward that comes from a settlement.
Any of those scenarios could lead to a government investigation. The target of the investigation typically will not know about the investigation until the day of a subpoena, raid, or arrest. By that time, the agency will have gathered mountains of evidence.
Once an investigation begins, investigators within the agency, together with government attorneys, will make a decision on whether to proceed. If they choose to proceed, they may identify witnesses, subjects, or targets of the investigation. None of those people will typically be aware that government officials have begun making inquiries.
If an investigative agent or officer of a government agency gets a hint of potential illegal activity, either by a whistle-blower, via another active case, or through various data mining techniques, the agent will begin to investigate further. Business owners would be wise to remember that government investigators advance their careers by bringing people or businesses down. An investigator’s motivation may influence the way he or she perceives business operations. Investigators tend to view evidence from a light that is unfavorable to the business or target.
Once government investigators identify a potential witness, subject, or target, they accumulate evidence that will sustain a finding of guilt. They do not look for evidence that will exonerate a person. Our team at Compliance Mitigation has come to expect that when investigators find evidence that would weaken an investigator’s case, the agents will hide it.
Like sales leaders train their teams to overcome objections, investigative teams train their staff to look at all evidence with a suspicious eye. Unethical government investigators may even try to hide exculpatory evidence. Perhaps it will be helpful to think of it this way:
For these reasons, every team member grows stronger with a better understanding of how to comply with regulations. That compliance training will help a business save the enormous expenditure of defending against a government investigation.
Further, the investment of time and energy into compliance training will help all team members become more profitable. When they communicate with coherent messaging, every person becomes “unconsciously conscious” about how to define excellence within every role in the company; they inherently know how to do the right thing, every time.
Good compliance brings numerous benefits to business owners. On the surface, comprehensive compliance leads to more effective internal fraud-prevention systems. Compliance systems can, however, also greatly improve document retention, thereby protecting the business in the event of a government investigation. Effective mitigation strategies should also help to shield business owners and team members from legal scrutiny.
The Investigative Phase:
To help business leaders appreciate the need for a compliance strategy and ongoing training, our team at Compliance Mitigation created this lesson to teach how investigations evolve. Generally speaking, many investigations begin with some type of complaint. As stated earlier, the complaint may come from disgruntled customers, competitors, suppliers, or the business community. Employees, too, may alert government officials to what they perceive as wrongdoing by acting as internal whistleblowers. They may even file civil whistleblower lawsuits, also known as qui tem cases, going after the massive rewards that result from successful whistleblower lawsuits.
In the macro sense, we know that high-pressure prosecutorial tactics lead to many government investigations. With our nation’s commitment to mass incarceration, investigators feed the ecosystem that lead to more prosecutions and build population levels in prison.
Every year, our nation spends more than $100 billion to fill our nation’s jails and prisons. To keep them full, investigators work to bring charges against more people and businesses for white-collar crimes. Although some people have a criminal mindset and begin businesses with an intent to deceive, or defraud victims, many people commit “crimes” without any intention or knowledge that they are violating laws. For example, the crime of cash structuring has led many people to prison, despite those people not having had any intent to break the law.
Cash structuring makes it a federal crime for any person to make a series of cash deposits in denominations in amounts of less than $10,000. If prosecutors can prove that a person made a series of deposits that were under $10,000 for the specific purpose of evading the requirement to file a currency transaction report, the prosecutors may bring criminal charges for cash structuring.
As an example, let’s say a car dealer sells cars for $9,000. Let’s say that the car dealer sold five cars each day. Each time he sold the car, he brought the money to the bank and made a deposit. If the person filled out a currency transaction report, the person would be in compliance with the law—even though he did not deposit $10,000. If the person did not complete the cash transaction report, that individual could be liable for a felony conviction, because authorities may accuse him of making a pattern of deposits that amount to less than $10,000 in order to avoid completing a cash-transaction report.
The person in the example above did not intend to violate the law. He completed an invoice system and he paid appropriate tax. The money lawfully belonged to him. Yet as a result of his not completing the necessary cash transaction report, prosecutors could bring charges; a judge could sentence him to prison. Members of our team have served time in prison alongside several people because they violated cash structuring laws. Those people did not intend on violating the law; they did not know laws restricted the way they could access or deposit their money.
In the law-and-order system of the United States, investigators have massive power. They may question individuals, and government attorneys may depose them under oath. The answers those witnesses give during government investigations can lead to further problems. Government investigators may incentivize people to talk by offering immunity in exchange for testimony, thereby putting more people under scrutiny and bringing more people into the system.
A hypothetical example may help to illustrate how a government investigation can begin. Let’s say a policeman pulls a car over for erratic driving. The person driving the car may be a professional of some sort, a physician, for example. The physician may be driving under the influence.
Understanding that driving while intoxicated could threaten his license to practice medicine, the doctor may request to speak with a detective. The doctor may offer evidence of a fraudulent billing system to overcharge insurers. The detective may have authority to drop the driving offense in order to secure the physician’s cooperation in a case that the physician would help to build. The threat of punishment, or loss of earnings, leads many people to become government informants that launch new investigations.
Investigators with various government agencies, including the FBI, the SEC, the FTC, the DHS, the ICE, or any other agency will make an initial determination on whether to advance the investigation. They may choose to proceed with a civil investigation, or they may work with law enforcement to launch a criminal investigation. Agencies have the authority to conduct civil investigations on their own. Criminal investigations, however, require prosecutors; those prosecutors may work with either with the US Attorney’s Office, or with the state Attorney General’s office.
Both civil and criminal investigations bring enormous pressure on a person. Every person on our team at Compliance Mitigation has personal experience with those investigations, and the consequences that follow. A case may begin with a civil investigation, but as evidence surfaces, the investigation may turn criminal at any time.
Once investigators choose to advance, they begin to subpoena documents related to the suspected activity. They may want to review bank and brokerage accounts, phone records, emails, social media etc. They can also request warrants to listen in on phone calls and review electronic activity in real time. Targets may or may not know that they’re being investigated.
Investigators typically do not want a potential target to know anything about the investigation at the outset and will ask people they interview to be discreet and not mention anything. In some cases, investigators make their investigations obvious. They may want to push the target to act inappropriately, while the investigators gain or create additional evidence or charges.
At some point, a target becomes aware or suspicious that an investigation is underway. Whether investigators identify a person as a potential witness, subject, or target, the person would be well advised to understand options. People can take specific actions to minimize potential exposure.
The primary focus during the preliminary phase of a white-collar crime investigation is “what was done” and not “who did it.” The earlier a person can persuade investigators or prosecutors that a crime did not take place, the more likely a person would be to get a better outcome.
As investigators and prosecutors spend more time on a case, they become more vested in getting the “win,” which doesn’t always equate with justice. They want a finding of guilt.
The Prosecution Phase:
If an investigative team feels it has sufficient evidence, then the government agency will bring public charges. In civil investigations, the agency may bring either an administrative proceeding, or it may file a lawsuit in federal court. With criminal charges, the prosecutor may file a criminal information. Prosecutors may also convene a grand jury. In a grand jury, the prosecutors present evidence to members of the grand jury, then request those members to indict the person or the company.
In either civil or criminal investigations, investigators may request a judge to issue a search warrant to raid a person’s home or place of business. Citizens should expect that investigators will seize everything possible to help them build a case. They will take computers, cell phones, and all paper records that the warrant authorizes. The investigation will result in significant disruption to a person’s life; it could also obliterate prospects to continue business operations.
Later, government lawyers will schedule interviews and depositions. They will subpoena bank records and question third parties. They do not spare any expense in gathering evidence that will help them build a case. In order to lessen exposure to risk, many people within the organization will offer evidence to assist the investigation—sometimes crawling deeper into an investigative trap.
Investigators typically coordinate a strategy to undermine the business and personal life at every level. Remember the nature of a government investigator. Perhaps an analogy is in order. I’ll paraphrase an analogy from Aesop’s Fables:
The scorpion wants to cross to the other side of the river, but it does not know how to make it across. When the scorpion sees an otter in the water, it requests to ride across the river on the otter’s back.
The otter responds, “but if I let you get on my back, you’ll sting me and I will die.”
The scorpion responds, “why would I do that? I am asking you to help me.”
The otter agrees and transports the scorpion across the river. Just before the scorpion climbs off the otter’s back, the scorpion stings the otter.
The otter whimpers, “But why did you sting me? I helped you by bringing you to the other side of the river. Now I’m going to die.”
The scorpion responds, “It’s in my nature.”
Remember that it’s in the nature of everyone on the investigative team to convict people and businesses. People that build careers as government investigators want high profile convictions.
For this reason, business leaders and team members should adhere to best practices at all times.
Some of the fallout from a government investigation includes reputational damage. Local and potentially national media will offer salacious details, fed by investigators. Internet searches may place a government’s press release at the top of a search result. Such reputational damage can lead to enormous complications for a business, and for the individuals identified in the media report. Blogs and posting boards may follow, leading to further stress.
A government investigation will likely lead to the loss of clients, business associates, and abandonment from friends. To avoid being tainted by the investigation, people will scatter and sever ties.
Our team has numerous examples that show how government investigators will taint unrelated parties. We know of a medical office that terminated a woman’s employment because authorities brought an indictment against her husband; investigators did not allege that she had anything to do with the crime. Investigators will use every tool in their arsenal to pressure people to cooperate with an investigation. As a result of their Grand Inquisitor tactics, collateral damage will follow.
Much like business owners crave favorable press for the services they provide, investigators welcome the shock and awe of a well-publicized investigation. For this reason, they frequently favor:
Investigators do not reserve such tactics for big-time drug dealers, Wall Street titans, or political stars. They use such aggressive tactics routinely, for strategic reasons. Investigators want targets to act irrationally. They want people to protest innocence, or to lie.
Although the target may be new to the proceeding, the investigator knows and understands that with a show of force, some people will lie to the investigators. When those people lie to a law-enforcement officer, they commit a federal criminal offense, under Title 18 of the United States Code, Section 1001. Investigators will use those lies as leverage, threatening imprisonment and other problems, to induce further cooperation.
The more people know, the better people can prepare. Our team at Compliance Mitigation will help you.