Walking the Voluntary Disclosure Tightrope

Author:Mr Roger Spaeder
Profession:Zuckerman Spaeder LLP

It is every in-house lawyer's night-mare. Following disclosure to federal authorities of your company's non-compliance with laws or regulations, you receive word that, while your company has been admitted to a, government-sponsored voluntary disclosure program, one of your senior managers has been designated a target of the criminal investigation triggered by your disclosure. You now confront the dilemma of completing settlement negotiations with the Department of Justice ("DOJ") while dealing with an anxious executive who does not want to be thrown to the wolves.

How should the targeted executive be treated by the company during its efforts to obtain favorable treatment from the government? What options are open to the company that will allow it to assist its employee without appearing to tolerate or reward alleged criminality? This tension is particularly acute in high-risk industries, such as healthcare, pharmaceuticals, government contracting, securities, and banking, where the risk of administrative exclusion is catastrophic.

An essential theme in every voluntary disclosure program is that the company will settle its dispute by "cooperating" in the broadest sense, which often means disengaging from the accused executive. Because that individual may be a tenured and loyal officer of the company and because the required showing of cooperation may occur long before he or she has been convicted of any crime, in-house counsel must find a solution that is at once satisfactory to the government and fair to the employee.

Although the company must take some action with respect to the accused employee to demonstrate cooperation, a variety of options are available that are, to varying degrees, fair to the employee while addressing concerns of the government.

Transfer to a nonregulated function or subsidiary. The government has a legitimate interest in seeing that the targeted employee stops performing the function that gave rise to the alleged violation. For example, removal of such an employee from direct sales contacts with government customers (in a gratuity investigation) or a transfer from the military to civilian manufacturing component (in a defective testing investigation) usually suffices to eliminate the government's concern about future violations.

Administrative leave pending conclusion of trial. It may be necessary to remove the employee completely from the line of fire pending trial by affording him administrative leave with pay...

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