Editor: Your biography reads as a truly classic Who's Who in Law Enforcement, having been a federal prosecutor, Attorney General of the State of New Jersey as well as Senior Counsel and Team Leader of the National Commission on Terrorist Attacks (the "9/11 Commission"). Please tell our readers about your investigative responsibilities in the latter role.
Farmer: I was placed in charge of about fifteen people whose mission was to reconstruct the facts of what happened on 9/11. We looked at what the President and Vice President did, inquired into the responses of the Defense Department, NORAD and FAA and their interactions with each other and examined the facts surrounding the quality of the emergency responses to the attacks on the World Trade Center and the Pentagon. It was a broad-ranging assignment that will always be a unique highlight in my career.
Editor: How has your prior experience prepared you for your present role as a partner in K&LNG's practice group relating to white collar crime and corporate internal investigations as well as government regulatory affairs?
Farmer: I have been involved with investigations for most of my career. As a law clerk for Justice Handler on the New Jersey Supreme Court, I specialized in capital cases. The court's review of death penalty cases was plenary so it involved reviewing the entire record and reconstructing it for the court's benefit. After my clerkship and a couple of years of practice, I became a federal prosecutor. As an AUSA I assisted federal agents in investigations of federal crimes, including immigration fraud, bank robberies, extortion, kidnapping, and even some that had uncanny similarities to the present-day terrorism cases. I had a pipe bomb case that involved people in South Jersey manufacturing bombs for sale to organized crime groups and an immigration fraud case that involved Palestinian grocers in Patterson making false immigration documents for people from other parts of the Middle East.
As Attorney General, a considerable part of my time was spent supervising and conducting investigations. Our work with the 9/11 Commission amounted to one of the most massive internal investigations of the operations of government in United States' history. So, most of my career has been spent learning how to conduct and actually conducting investigations.
Although the white collar criminal defense part of my current assignment is relatively new, most of my career has been spent with criminal law. I had previously handled some criminal defense in private practice, but my extensive experience as a prosecutor is even more valuable in my current role since it is important in mounting an effective defense to know the mind-set of the prosecution. The process is not new to me; it is simply a matter of changing one's perspective.
Editor: What subject matter is the most common basis for the internal investigations that you have conducted?
Farmer: There are two common sources. One is employee misconduct where a company suspects employees of misconduct of one form or another such as embezzlement or improper contacts with government.
The other source of work in the investigations area is alleged misconduct by management. When a company receives a subpoena from the government, it has become customary to engage private counsel to investigate the possible basis for the subpoena with a view to determining the company's strategy.
Editor: What decisions face a company when it receives a subpoena relating to a compliance issue?
Farmer: Initially, companies have to decide if they are going to be cooperative with the government or not. Once the decision has been made to cooperate, corporations should be fully cooperative. Half-hearted cooperation is the surest way to get in trouble. If the company decides that it will be adversarial to the government, then it should take that posture early, but only after a thorough investigation of the facts confirms the correctness of that approach.
Companies should decide early which route they will take and then stick with that approach. They should recognize that if they are going to cooperate with the government they may have to turn over the results of any internal inquiry. For that reason, if you commission an investigation, it should be impartial and thorough.
Editor: How do your corporate clients feel about Sarbanes-Oxley and where do you come out?
Farmer: A frequent complaint from clients is that Sarbanes-Oxley has imposed unnecessary costs on business. Companies that are good citizens probably did not need the degree of regulation imposed by Sarbanes-Oxley. I hear frequent complaints about the difficulties in ensuring that all records are adequately retained and that all the e-discovery issues are addressed. There is a lot of anxiety at the upper levels of management about the representations that they now have to make about the soundness of their company's finances. They don't feel particularly confident about making them without a whole lot of extra effort on their part. That is understandable. It has added costs to the system, but at the same time it has made the system more responsible. The ultimate question is whether the good that has been done has justified the costs and other burdens it has imposed. My own bias is that Sarbanes-Oxley was needed. It may have gone a little too far, but its requirements can, and undoubtedly will, be fine-tuned by the legislative and regulatory process on the basis of experience.
Editor: What tools and collateral services are used in your internal investigations? What internal controls do you find to be absolutely necessary?
Farmer: The predominant resource we have used is forensic accounting.
It is absolutely necessary that a company have its accounting affairs in order. It should be comfortable with the people doing the work, and that there are no gimmicks being employed. If you have a sound business accounting function in place, the rest of it falls into place because your books will be transparent and you will withstand any type of scrutiny. That is the fundamental requirement.
Editor: My understanding of the new amendments to the Sentencing Guidelines to take effect on December 1, 2006 is that they will require even tighter controls than the existing rules. Do you consider such amendments to confer some benefits?
Farmer: I think it is difficult to say. In theory, yes, but it is hard to imagine that the level of attentiveness to those details would be any higher than it is already under the existing regime. I applaud the effort to delete the language encouraging corporations to waive the attorney-client privilege. The erosion of that privilege has been an unfortunate effect of the government's crackdown on corporate America.
Editor: Do you find that you and your team are called upon to make internal investigations to obtain a non-biased objective result which might not be available from using a long-time outside counsel having a very close relationship to the client?
Farmer: One mistake that a lot of companies make is that they tend to hire their existing counsel to do an internal investigation. In my opinion, that puts the existing firm in a very difficult position. The prudent practice on the part of companies and their lawyers when an internal investigation issue arises is to go outside. This provides an objective view that is less likely to be questioned by the government.
One of the dangerous trends that is emerging is that the government is undermining the attorney/client privilege by getting companies to waive it or by invoking the crime-fraud exception. This is counterproductive from an enforcement standpoint because it deters the client from consulting counsel before embarking on legally questionable behavior. It also erodes the quality of advice that is given by counsel to their clients. One of the reasons that this trend has emerged is that so many companies have gone with their existing counsel to do internal investigations when that counsel has a potential for the appearance of a conflict. I believe the erosion of the attorney/client privilege can be arrested if companies use truly independent counsel to perform those reviews.
Editor: Do you recommend that companies do an annual audit of their internal controls?
Farmer: Corporations subject to Sarbanes-Oxley are required to do this. Many companies that are not subject to Sarbanes-Oxley are doing such audits on a voluntary basis. Larger companies should certainly follow this practice.
Editor: Tell us about the national preparedness standard recommended by the 9/11 Commission. How does it affect corporate America and your practice?
Farmer: A national preparedness standard was recommended by the 9/11 Commission as a result of my team's work. We looked at the current state of preparedness largely because so many people we interviewed told us that they did not feel any more prepared for a catastrophic incident than they had prior to 9/11. The 9/11 Commission held a day of hearings on the specific issue of current preparedness. As a result of that we worked with the American National Standards Institute in developing a standard that would be broad enough to cover a wide number of industries but specific enough to mean something.
The 9/11 Commission developed NFPA-1600. That standard requires companies to have contingency plans for a disaster. The 9/11 Commission recommended that it be advisory but that NFPA-1600 establish the standard of care for companies to meet. If they do not meet the standard, they expose themselves to suits for negligence. The Department of Homeland Security then adopted the standard in regulations. A transformation in mindset now has to occur. Instead of viewing preparedness as a superfluous business expense that impacts the bottom line, businesses are eventually going to see that it is an essential part of doing business.
Advising with respect to compliance with the national preparedness standard is still a sideline of our practice. Awareness of a national preparedness standard is developing very slowly. As companies realize that they do have a national standard they have to meet and that failure to meet it can carry significant consequences, you will see more companies seeking advice.
Editor: It is surprising that companies can still get terrorism insurance even if they do not meet these standards.
Farmer: I was an advocate in the 9/11 Commission of proposing that when Congress renewed the Terrorism Insurance Law, it should provide that no company that did not comply with NFPA-1600 could be eligible for terrorism insurance. I still think that would have been a good idea.
Editor: Please tell our readers about your commitment to pro bono work - why is it so important to your legal practice?
Farmer: There has been an evolution in its importance. Early in my career it was a great place to learn how to be a lawyer. It got you into court sooner than you would have in other cases. It was a terrific training ground. At this point in my career it has become a way of maintaining the public interest emphasis of my practice and giving back to the community. Providing pro bono assistance has been transformed during the course of my career from something that was essential to my development as a skilled lawyer into something that allows me to maintain the tradition of lawyers serving the public.
Published September 1, 2006.