United States: Cooperation Resulting In Waiver

Last Updated: January 7 2019
Article by Jodi L. Avergun and Todd Blanche

Most Read Contributor in United States, February 2019

Just days before a potentially landscape-altering hearing in a Miami federal courtroom at which lawyers were going to be forced to testify about the legal advice they had given their clients during the course of an internal investigation, the parties quietly backed into their own corners and the hearing was cancelled.

But the close call should send shivers down the back of company counsel conducting internal investigations of potential Foreign Corrupt Practices Act (FCPA) violations, especially as they and their outside advisers consider whether and how to participate in the Department of Justice's (DOJ) formalised FCPA enforcement policy.

The policy requires voluntary disclosure to and fulsome cooperation with DOJ prosecutors in exchange for a much sought after declination of prosecution. The costs of this new policy, however, are likely to be steep as illustrated by the court's decision in Sec. & Exch. Comm'n v. Herrera (2017), in which a federal magistrate judge in Miami, Florida held that a company that had given oral downloads of material from its internal investigation to the DOJ had waived work-product protection.

In 2012, General Cable, a global wire and cable manufacturer headquartered in Kentucky, discovered what it believed to be accounting irregularities in certain of its financial statements. General Cable retained Morgan Lewis & Bockius LLP to investigate, disclosed the potential misconduct to the Securities and Exchange Commission (SEC) and informed the regulator that it was conducting an internal investigation. The SEC opened its own investigation and General Cable announced it would cooperate with the SEC.

During the course of the internal investigation, Morgan Lewis attorneys conducted more than 40 witness interviews, and with its forensic accounting partners, reviewed reams of documents. Morgan Lewis attorneys met with the SEC on several occasions to provide briefings on the findings of its internal investigation. During one of these meetings in April 2013, Morgan Lewis showed the SEC a PowerPoint that outlined the investigative steps General Cable and its counsel had taken, and provided the names and dates of people interviewed, as well as a compilation of factual findings. Morgan Lewis also provided oral downloads of key witness interviews.

The agency ultimately filed charges against General Cable, which the company resolved in 2016 by agreeing to a cease-and-desist order and the payment of a $6.5m fine. Shortly thereafter, the SEC sued two individual officers of General Cable, Mathias Francisco Sandoval Herrera and Maria Cidre, respectively the former chief executive and chief financial officer of General Cable's Latin American Operations, alleging that the two concealed accounting errors at the Brazilian subsidiary from the company's executive management. During discovery, Herrera and Sandoval's lawyers filed a motion to compel disclosure of the Morgan Lewis witness interview memoranda and notes.

The oral downloads gave the SEC an unfair litigation advantage over the defendants because the SEC was provided at least indirect access to more contemporaneous statements of witnesses, most of whom were beyond the reach of the defendants' subpoena power. Significantly, they further claimed Morgan Lewis had waived work product protection by giving oral downloads of the witness interviews to the government during the course of its cooperation. Morgan Lewis argued that, because it had not provided the government with the actual notes or interview memoranda, but rather a factual, oral download, work product protection had not been waived.

US Magistrate Judge Jonathan Goodman, who under local court practice for civil cases was effectively acting as a district court judge, agreed with the defendants. According to Judge Goodman: "Because there is little or no substantive distinction for waiver purposes between the actual physical delivery of the work product notes and memoranda and reading or orally summarizing the same written material's meaningful substance to one's legal adversary", work product protection is waived. The court ordered that counsel provide to the defendants the interview notes and memoranda that were orally downloaded.

The court went on to hold that work-product protection is waived when protected materials are disclosed in a way that substantially increases the opportunity for potential adversaries to obtain the information (Niagara Mohawk Power Corp. v. Stone & Webster Eng. Corp., (1989)). It rejected the argument that because Morgan Lewis had not provided the actual witness notes and memoranda to the SEC, the privilege remained intact, calling the downloads the "functional equivalent" of possession of the actual notes and memoranda. The court also scheduled an evidentiary hearing at which Morgan Lewis attorneys would have to testify about its investigation and findings.

The attorney work-product doctrine protects materials prepared in "anticipation of litigation" by the company or its representatives, which includes attorneys and experts such as forensic accountants. Most documents created during an internal investigation by a company's counsel, or at counsel's direction, are considered to constitute protected work-product. Examples of protected work-product are witness interview memoranda and compilations of facts gathered by attorneys in the course of the investigation.

Ultimately, after a few weeks of motions, cross motions and meetings, the SEC informed the court that the Morgan Lewis briefings in 2013 concerned both the accounting matter and another matter, and that requiring the attorneys to be cross-examined would implicate information about an unrelated case. According to court documents, Morgan Lewis turned over the witness interview notes whose protection was found waived, but was not required to testify about them or the underlying investigation, and the defence team withdrew their objections. Herrera is thus a cautionary tale for those weighing cooperating with the DOJ or with any other regulator, with the hope of benefitting under the new FCPA policy.

The DOJ formalised the policy in the US Attorneys' Manual (USAM) in November 2017, and widely publicised the policy's presumption of declination with disgorgement for companies that voluntarily disclose corporate wrongdoing and cooperate with the ensuing government investigation. Announced by deputy attorney general Rod Rosenstein on 29 November 2017, the policy is "aimed at providing additional benefits" – i.e., benefits beyond those already specified in the USAM and US Sentencing Guidelines (USSG) – "to companies based on their corporate behaviour once they learn of misconduct".

Companies may earn a declination from prosecution, provided that they voluntarily self-disclose misconduct, fully cooperate with DOJ, and undertake timely and appropriate remediation. In fact, declination is presumed, provided there are no aggravating factors, such as a repeat offence or involvement by the company's executive management in the misconduct. Importantly, the policy outlines strict and exacting cooperation requirements. It demands, among other things, the "timely" and "proactive" disclosure of "all relevant facts".

This includes the facilitation of third-party document productions, the deconfliction of witness interviews where requested, the provision of translations of relevant documents where requested and appropriate and making overseas third-party agents, as well as current and former officers and employees, available for interview by DOJ where requested, appropriate and possible. Also, continuing DOJ's focus on the prosecution of individuals, the policy requires the disclosure of "all facts related to involvement in the criminal activity by the company's officers, employees or agents, and all facts...regarding potential criminal conduct by all third-party companies, including their officers, employees or agents".

SEC policies similarly encourage voluntary disclosures of potential wrongdoing by companies. Such cooperation almost always includes the expectation that the company will provide factual information learned from its internal investigation, which will necessarily include information provided by company employees in witness interviews. Although the DOJ and SEC generally refrain from requesting privilege waivers, willingly providing factual information from an otherwise privileged internal investigation implicates waiver of the attorney-client and attorney-work product privileges, even if the material is provided on the condition that its protections not be considered waived by the regulator receiving the information.

On the one hand, the policy is a welcome development because it formalises what has been an ad hoc and relatively opaque process of reaching a settlement with the DOJ for potential FCPA violations. Companies can now more effectively weigh the risks and benefits of coming forward to disclose misconduct, and the increased likelihood of a declination in exchange for coming forward may incentivise corporate cooperation. However, while certainty of a declination should encourage cooperation, the Herrera case illustrates the potential costs of cooperation. Willingly waiving a privilege, even if it is for a very good reason and benefits the company in the eyes of the DOJ or SEC, it is still a waiver of privilege.

When considering how and when to update the SEC or the DOJ about the status of an investigation, company and outside counsel should weigh whether the risk of a later finding that the update constituted a privilege waiver outweighs the benefit of cooperation. Plaintiff's attorneys or counsel representing individuals charged with violating the law will no doubt vigorously try to learn everything that the company uncovered during its internal investigation, as it provides, at the very least, a roadmap of the conduct at issue. And now, at least one court has found that full-blown cooperation with the government may carry with it a waiver of most privileges attached to the underlying internal investigation.

Previously published in financierworldwide.com.

The content of this article is intended to provide a general guide to the sbject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
Email Address
Company Name
Confirm Password
Mondaq Newsalert
Select Topics
Select Regions
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions