The Cover-up is Always Worse Than The Crime: How to Deal with Federal Investigations
Little known to the public or to the average business (unless you are Martha Stewart, Scooter Libby, or Bernie Madoff) is the text of 18 U.S.C. § 1001(a), which provides for criminal penalties of substantial fines and imprisonment of up to five years for making any false statement to any federal authority. But, the legal regime of false statements is not so clear cut. Section 1001 makes it a crime if one “falsifies, conceals, or covers up by any trick, scheme or device a material fact” or if one “makes any materially false, fictitious, or fraudulent statement or representation” or “makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry.”
While this statute clearly covers any intentional or knowing false statements, it also includes less intentional acts. For example, many federal contracts require progress reports, budget updates, and the like. Usually buried within the fine print is a reference to 18 U.S.C. § 1001(a), meaning that if a contractor or employee glosses over a material fact during its reporting, the company and/or individual may have violated section 1001.
While there are a plethora of examples where a company could violate section 1001 despite good intentions, it is important to understand the risk and to know what to do when an issue arises. So, what can you do?
First, seek legal counsel immediately. It is always more cost effective to seek early legal advice. The old saying “the cover up is always worse than the crime” cannot be more true. A large majority of federal criminal cases stem from similar factual scenarios: a company recognizes a potential issue, but seeks to work through it and focus on what they do best (e.g., construction, not legal analysis), and ultimately ends up spending large amounts of money and critical managerial time on responding to a federal investigation.
Second, take a deep breath. Once you have skilled and experienced legal counsel, you can focus on your business. Having good representation means that you can be assured that a line of communication is open with federal authorities and that any misunderstandings or potential criminal conduct is being addressed informally, and (hopefully) without recourse to any formal court proceedings.
Finally, take proactive measures to budget for potential legal exposure. Many small businesses budget for everyday expenses such as insurance, but do not have the foresight to prepare for potentially large legal expenses. Federal investigators pursue leads and investigate potential crime, even where the investigation reveals nothing. These investigations cost companies time and money, and can be managed in a cost effective manner if competent and experienced legal counsel is obtained early in the process.
Let’s recap: what do you do when you receive a call or visit from any federal authority? Call legal counsel, take a deep breath, and thank yourself for budgeting for such times.