Do Not Remove—Under Penalty of Law!

When I was a boy, I was always puzzled but fearful of labels that I saw on pillows that read in bold print “Do Not Remove—Under Penalty of Law.” I was pretty sure that the cops wouldn’t know if I removed a label, but what if my parents ratted me out? And, as a Catholic School lad, I had to worry about the sin implications. If it was against the law, was it also a sin? A venial sin? (six to twelve months in purgatory). Or, a mortal sin? (eternal damnation—which seemed a little harsh just for removing a label). In any event, being fairly cautious, I never did remove a pillow label, though I may have committed a few more serious offenses in my youth.

These thoughts crossed my mind the other day I when I read about an ongoing case in the Second Circuit, In the Matter of a Warrant to Search a Certain Email Account Controlled and Maintained by Microsoft Corp., Case number 14-2985. Microsoft is challenging a district court order that it produce documents located overseas that were sought by a validly executed search warrant. Microsoft claims the documents are out of the reach of the government while settled law seems to be that, at least as it relates to subpoenas, the documents are producible. The magistrate and district court judge ordered that the documents be produced and Microsoft is currently pressing its appeal in the Second Circuit.

I’ll follow up when a decision is reached, but I thought I would comment on why you should never destroy foreign located documents in an Antitrust Division investigation. An Antitrust Division issued grand jury subpoena duces tecum will typically call for documents “wherever located.” While a company needs a presence in the United States to be validly served with a grand jury subpoena, once it is served, the company is on notice that responsive documents must be preserved. It may seem that a company with an office in the United States but headquarters overseas, might have little to lose by destroying overseas documents. But, this is clearly not the case.

Overseas Conduct: US Consequences

Let’s assume an international company headquartered in Taiwan is served with a subpoena issued by an antitrust grand jury for documents. The subpoena will likely call for relevant documents (pricing memos; communications with competitors and many more demands). The subpoena may call for the production of documents “wherever located.” In my experience, the Antitrust Division will defer production of documents located overseas. Is this a good time to get rid of the incriminating evidence. No! Here’s couple of reasons why:

Antitrust Division’s Position on Destruction Of Foreign-Based Documents

Policy: The Division considers the destruction of foreign-based documents, like the destruction of domestic documents, for the purpose of impeding an investigation to be a criminal offense. It will use every available means to prosecute and punish individuals and corporations who engage in such activity.

Rationale: An executive who destroys foreign-based documents for the purpose of covering up his company’s participation in a conspiracy may subject himself and his employer to serious sentencing consequences. The executive and the company may be charged with a violation of the “omnibus clause” of 18 U.S.C. § 1503, which carries a potential 10-year sentence against the individual and a $500,000 fine against the company. Moreover, if the company is convicted of the antitrust offense, it may face substantially greater fines, even if it is not formally charged with obstruction as a separate offense in an indictment or information.”

This excerpt is from a Division publication: “Negotiating the Waters of International Cartel Prosecution.”

Here are some of the practical implications of the Division’s policy:

Amnesty—A company that destroys overseas evidence is not going to have the “goods” to quality for leniency. It is hard to offer “full and complete cooperation” if key evidence has been destroyed. In one situation I know of, the document destruction was limited to one individual. The company was still able to obtain leniency but that individual was charged with obstruction.

Plea Agreements—Even a company that doesn’t qualify for leniency is likely to seek to negotiate a plea agreement if the Division obtains indictable evidence through another source (i.e. the company that won the race for leniency). If a company has destroyed documents after learning of the investigation, it is going to pay a heavier price in terms of a fine for the cartel conduct. It’s cooperation will be less valuable without the destroyed evidence, and the Antitrust Division takes obstruction very seriously. The quickest way to get on the bad side of the Division is to tamper with the integrity of its investigations. The Division is going to “send a message” when it encounters obstruction—and the message is communicated in $$.

Separate Charges—In some cases, to make sure the message is loud and clear, the Division may even insist on that a company that pleads to the cartel charge also a plead to a separate charge of obstruction.

Corporations Don’t Destroy Documents—People Do

A corporation is responsible for the actions of an employee who destroys documents in many cases. And as indicated above, an employee’s actions can have serious negative consequences for the company. But, the consequences can be even worse for the individual, if the Division has substantial evidence that a person destroyed evidence—or ordered that evidence be destroyed. Some of the consequences are:

Carve Outs—In most corporate plea agreements, the Division offers non-prosecution protection for cooperating individuals, but preserves for prosecution those it deems to be most culpable. These individuals are referred to as “carve-outs”—individuals not protected by the plea agreement. Like Santa Claus, the Division has a “naughty” list. The number of carve-outs can vary, but an individual whom the Division believes destroyed evidence (or otherwise obstructed an investigation) is almost certainly going to be on the naughty list and carved out.

Indictment—Not all carve outs are eventually indicted but an executive who has been carved out of a corporate plea agreement because the Division believes he has engaged in obstruction is likely to be indicted for the cartel offense. And, if the evidence of obstruction is sufficiently strong, the Division will include counts in the indictment setting forth the obstruction.

Extradition—A foreign executive who is indicted by the Division constantly has to be concerned about international travel. The Division will seek an Interpol “Red Notice” so that such individuals may be detained anywhere in the world. But, an individual will only be extradited if the conduct is also a crime in the country where the individual is being detained. There is a material difference in international norms regarding the condemnation of price-fixing compared to obstruction. While this is a very general statement, relatively few countries consider price-fixing a criminal offense (and even fewer actually incarcerate individuals convicted of price-fixing). But, obstruction of justice is universally considered a crime. An individual who the Division has placed on a Red Notice is in a much more precarious position if the indictment contains charges of obstruction of justice.

Your Ace in the Hole

It may seem obvious that electronic evidence should not be destroyed because multiple copies probably exist and you’ll get caught. (Although in the “fog of war” at the beginning an investigation, “obvious” mistakes are made in a panic). Suppose, however, that Mr. Cartel has handwritten notes of every cartel meeting listing every member that attended, what was agreed to, etc. If these documents met an untimely demise at the shredder, surely that would be a good thing? No! These documents may be your “get out of jail free” card. The “hotter” the document (and uniqueness can make a document very hot), the more valuable it is to the Division. A plea negotiation is based in part on: how culpable is the defendant?; how strong is the government’s case? and how badly does the government want your cooperation? A hot document can be very valuable, particularly in a price-fixing case.

Conclusion

Individuals should not destroy documents, even if they are “certain” they can get away with it. But, and this is a subject for another post, this has to be emphasized to employees as part of a robust compliance program. (Phew–I almost got to the end without using “robust”). A “preservation letter” at the beginning of an investigation is likely to be too little too late. And, it is not too helpful to simply say “Do Not Remove Under Penalty of Law” without explaining why.

Thanks for reading.