When Congress Comes Knocking . . .

Editor: Why is it incumbent on corporate counsel and corporate executives to be alert to the possibility of a congressional investigation?

Allard: As a matter of good corporate governance and risk management, companies need to be aware that they should assess their exposure to Washington investigations and oversight. It may come as a surprise to companies that they do not need to be doing anything wrong or illegal to face exposure. If companies are leaders in a particular industry or if they are engaged in pursuing new businesses or technologies, or pushing the envelope, they can become attractive targets for an investigation. The irony is that companies that are not doing anything illegal or wrong and are good corporate citizens have the most to lose if they are not prepared.

There are many reasons contributing to why this is a timely and important subject for your readers. It is more important that corporate counsel be prepared to address and respond to congressional investigations than ever before. Several factors have come together to produce a perfect storm that will produce more and more far-reaching investigations. First, we have new control in Congress with new committee chairs. There has been a fourteen year period where there has been little oversight and little use of the investigative power. There are a lot of pent-up issues to be addressed. Another significant fact is the people who have gavels now have been chairs before. Unlike inexperienced Republican chairs who took over congressional committees in 1994, chairs like Congressmen John Dingle, Ed Markey, Henry Waxman and John Conyers are serious, experienced chairs who are undaunted if a Wall Street defense counsel stands up to them. Most of these chairs have legal staff on hand who have been with them for decades and are extremely skilled and highly trained public servants. They know their business. Moreover, the committee chairs are hiring additional staff in large numbers. The capacity to look into what they believe is a ripening backlog of issues is very high.

Editor: What changes have you seen thus far?

Allard: For example, the House Reform Committee, which is chaired by Mr. Waxman of California, has insisted that "Oversight" be put back into the name of the committee, a clear signal of things to come. House Resolution 6 was one of the first actions of the new Congress. With the passage of Resolution 6, the press focused more on the new House ethics gift and travel rules. Most people overlooked the fact that the House gave the renamed Oversight & Reform Committee power to subpoena witnesses for depositions that for the first time in fifty years could be conducted by staff - an enormous expansion and widening of the net for Congress and that committee. Historically the power to subpoena witnesses for depositions was taken away after the abuses of the McCarthy witch hunts in the 1950s. It remains to be seen how that power will now be used - if it is used to produce results and reveal scandalous activity, the public will say that this is appropriate; if it amounts to overreaching or partisan badgering of the administration or big business, there will be adverse results.

There are other factors at play which point toward expanded investigation and oversight. Even though it may have an unblemished record, a company could be swept into the investigation of a controversial practice in an industry or of a government agency practice which needs addressing. Chairman Markey said that if framed photos of the commissioners of the eight independent agencies over which his committee has oversight were put in the back of the hearing room, most of the members of the committee would not recognize the faces, but that will change.

There is also a budget imperative compelling Congress to move towards oversight and investigations. The House has already enacted all six of the Democrats' "First 100 hours agenda" in 47.5 "legislative hours." There remains some relatively low hanging fruit such as immigration reform, minimum wage legislation, perhaps, fast-track authority for the President, FDA regulation of tobacco and one or two other initiatives. Most of these major pieces of legislation are expected to be enacted within the first months of this session.

Because Democrats have imposed fiscal restraint on themselves, there is little else on the legislative agenda that they can move quickly on under the pay-as-you-go rule. For example, with the large deficit and the high cost levied by other proposals, it is going to take time to get consensus and to figure out how to enact measures with a zero-sum budget effect. They are now working five days a week instead of two days a week. This is a big change. They have time on their hands so what are they going to do? If they cannot legislate, they are going to investigate. Investigations and oversight are something that Congress will do to restore its image and appear productive with the public.

Editor: Why is it in the interest of a Democratic-controlled Congress to burnish its image?

Allard: I can assure you that the Democrats will not just spend their time sniping at the administration without doing anything else. To hold onto power they feel that they must show some productive activity, whether it is legislation or investigation. If you subtract out the scandals that occurred leading up to the election, the net pickup of congressional seats was less than you would normally see in a mid-term election in the sixth year of a presidency. This in the face of an unpopular war as well. That is another reason why Democrats will not just sit back.

Editor: What do you suggest are the best measures for a company to undertake in the face of this investigative zeal?

Allard: Companies consider managing risks a hallmark of good governance. There needs to be a plan in place should the unexpected occur, just as companies monitor their good ethical practices and audit their internal procedures to assure compliance. As a matter of good corporate practice, companies should address their capacity to deal with Washington issues and problems. While companies typically wait until they get the invitation to appear or receive a subpoena from a committee, they are well advised to get ahead of the curve. Often their government relations offices in Washington deal capably with legislative issues but are not adequately skilled in managing investigations. Companies should take an inventory of their inside and outside counsel to get a sense of their resources to address potential problems. They want to make sure that the team is driven by those who have Washington expertise with the ability to advise and represent the company on all the civil and criminal exposures that may ensue. They would be well served to have a team that can anticipate problems, see fast balls coming so they don't get hit between the eyes.

Editor: What help can counsel, sitting at the side of an executive called to testify, provide during the hearing?

Allard: At the actual hearing, there is little that counsel can do. Counsel cannot cross examine or object to questions. There are no rules of civil procedure or evidence. Counsel is of the greatest value before and after the hearing. Before the hearing counsel should come to the company and point out areas that may create risk for the company and the approach to use. If counsel can ascertain the area of the committee's interest, they should begin the dialogue and try to find out the scope of the inquiry. Providing committee members with needed information can be helpful. Counsel should use relationships with other members of Congress not involved in the investigation in order to get fair treatment and good insights as to the motives for inquiry.

Editor: What about the use of the media?

Allard: The press and public opinion are extremely important. It is possible sometimes to educate and even parry your investigators through the press, putting in context your company's position on the subject of inquiry and what is said in the hearing room. There are times when you want your executive to explain to the press what was said rather than have the company's testimony characterized solely by a member of Congress. There are other times when you do not want to do that.

Assume that any information given to Congress, even if given on a confidential basis, will have a high probability of being leaked. Even more than is required by litigation, it is important to have a plan as to how respond to the press. Typically, the law firm handling Washington issues will advise on how to handle public exposure and exposure to parallel legal procedures. Sometimes a public relations firm is called in and needs to be coordinated with the investigative and legal team.

There are parallel exposures. For example, if you are before Congress on a drug pricing inquiry or a financial services hearing, the moment you are there you face related federal and state, civil and criminal exposure. You face shareholder suits and other private actions. While a witness needs to be attuned to the need to reduce exposure to congressional inquiry, this will not serve the company well if the testimony creates civil and criminal exposure in other venues, prompting, for example, states attorneys general to jump in. S ubpoenas from the multiple legislative and prosecutorial jurisdictions will not be identical. Assuming a witness provides different information to different bodies, at a minimum those different oversight bodies could be upset. They may share information or play off one another. So it is important to have a comprehensive defense strategy. Not only do you want to make sure counsel is an expert in Washington investigations and oversight but that they can also reduce your exposure to civil and criminal prosecutions.

Editor: What about immunity from prosecution granted by Congress?

Allard: Immunity is very tricky. The immunities that you get can end up in separate litigation over the scope of the immunity. Prosecutors get frustrated when a witness may foil their ability to make a case because of congressional immunity. On the flip side, the protection congressional immunity can provide can be elusive. It is an important and delicate aspect of a congressional investigation.

A related issue is a witness's refusal to answer by taking the Fifth Amendment. This tactic can make sense from a criminal defense perspective but claiming the Fifth repeatedly can be devastating in terms of the future and viability of both the corporate witness and the business.

By not testifying or by inadequately cooperating a witness can sometimes be found in contempt of Congress. If that occurs, a criminal investigation from the Justice Department will ensue. The ability of congressional committee staff to issue subpoenas and conduct depositions gives them tremendous power. If staff members do not like the degree of responsiveness to the deposition, whether they (in contrast to members of Congress) can ask for and obtain a contempt finding may raise a serious constitutional question since they are not elected representatives. But it definitely demonstrates the serious expansion of Congressional investigations.

Editor: Are there other reasons why corporate responders to inquiries should engage an experienced Washington-savvy counsel?

Allard: The new ethics rules regarding ethics, gifts, travel and disclosure are complex, and in some ways counterintuitive and even absurd. Congress is very serious about new rules and enforcing them. For example, you used to be able to buy a meal for a Congressman. Now you cannot, unless the meal is of such nominal value that, for example, if you can use a toothpick to eat it, then it is okay. I just got a solicitation from a catering company that said that it is fully "toothpick rule compliant." Also, you cannot buy a meal for Congressmen unless you take them to dinner AND give them a bunch of checks, i.e., make the meal a campaign event which are exceptions to the general new rules. There are many other examples. Notwithstanding the new rules you will see many lobbyists attending games and events with members, but paying more than ever before into a campaign fund, which some would say is more problematic than the past practices. You cannot assume that under the new array of ethics and gift requirements that things you used to do are now permitted. Companies cannot assume that someone they have used to help monitor or do legislative work in the past is compliant. They have to make sure this is done properly.

Published March 1, 2007.