Legal Ethics Issues for Compliance Officers · 26/04/2018 · vicarious liability, anti-corruption laws, corporate compliance, business ethics, corporate social responsibility, and

Legal Ethics Issues for Compliance

Officers

April 26, 2018

Hruska Law Center

Lincoln, NE

This page intentionally left blank.

Faculty Bios

Paul McGreal, J.D., joined Creighton University School of Law on July 1, 2015 as dean, and served in the position through July 31, 2017. He came to Creighton after serving as dean of the University of Dayton School of Law for four years. Prior to the University of Dayton, Professor McGreal was director of faculty development and professor of law at Southern Illinois University’s School of Law from 2006 to 2011. He served as interim associate dean for a year at SIU. Professor McGreal’s areas of expertise include corporate compliance, business ethics, law and economics, constitutional law, religion and the law, and First Amendment rights. He is the author of more than 50 articles, book chapters, and essays for publications at such institutions as the University of Notre Dame, Northwestern University, and the University of Pennsylvania. Professor McGreal was a founding faculty member of the Texas A&M University executive MBA program. He has been an instructor in that program since 1999 where he teaches modules on corporate vicarious liability, anti-corruption laws, corporate compliance, business ethics, corporate social responsibility, and corporate governance. Professor McGreal established the Corporate Compliance Center at the South Texas College of Law, where he taught for 10 years and helped create the college’s joint law-MBA program with Texas A&M University. He has also held positions at George Mason University School of Law and Southern Methodist University’s Dedman School of Law. Prior to his academic career, Professor McGreal was in private practice with the Dallas office of Baker Botts LLP. He was a law clerk for Justice Warren Matthews of the Alaska Supreme Court and earned a Master of Laws degree from Yale Law School, a J.D. from the Dedman School of Law and a B.A. in economics from Williams College.

This page intentionally left blank.

1

Legal Ethics Issues for Compliance Officers

April 26, 2018

Paul McGreal

Omaha Business Ethics Alliance – Compliance Advisor

Creighton University – Professor of Law

[email protected]

Topics

1. Scope of the Rules2. Practice of Law3. Multi‐Jurisdictional Practice4. Competence in All Professional Roles5. The Lawyer as Professional Advisor6. Conflicts of Interest7. Discovery and Reporting of Wrongdoing8. Attorney‐Client Privilege

Context of Compliance and Ethics Programs

•1950’s: Electrical Equipment Scandals

2

•1963: Graham v. Allis‐Chalmers Decided

“[A]bsent cause for suspicion there is no duty upon the directors to install and operate a corporate system of espionage to ferret out wrongdoing which they have no reason to suspect exists.”


•1970’s: Foreign Bribery Scandals


•1980’s: Government Contracting and InsiderTrading Scandals


3

Sentencing Reform Act of 1984

•1991: Organizational Sentencing Guidelines

“An effective program to prevent and detect violations of law.”

• 1991: Original Sentencing Guidelines

1. Standards and Procedures

2. Role of High‐Level Personnel

3. Care in Delegating Substantial Discretionary Authority

4. Communicate Standards

5. Audit and Monitor Standards

6. Enforce Standards through Discipline

7. Respond to Wrongdoing

• 1991: Original Sentencing Guidelines

“Specific individual(s) within high‐level personnel of the organization must have been assigned overall responsibility to oversee compliance with such standards and procedures.”

“‘High‐level personnel of the organization’ . . . includes: a director; an executive officer; an individual in charge of a major business or functional unit of the organization . . . .”

4

• 1992: Deferred Prosecution Agreement

• “In addition to the monetary penalties, the settlements will require Salomon to continue its cooperation in various government investigations and to institute procedures to prevent reoccurrence of the violations.”

• “Salomon had cooperated extensively in the investigation and had taken decisive and extraordinary actions to restructure its management to avoid future misconduct. The cooperation included providing detailed information concerning the firm's own internal investigation, turning over documents and making employees available for interviews and testimony.”

• 1996: Caremark Decided

• “The theory here advanced is possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment.”

• 1998: Federal Employment Discrimination

Burlington Industries v. Ellerth

Faragher v. City of Boca Raton

5

• 2001: Enron Collapse, et al.

• 2002: Sarbanes‐Oxley Act

6

• 2010: Dodd‐Frank Wall Street Reform and Consumer Protection Act

• 2010: Sentencing Guidelines Amendments

“Individual(s) with operational responsibility shall report periodically . . . to the governing authority, or an appropriate subgroup of the governing authority, on the effectiveness of the compliance and ethics program.”

Report should be made “no less than annually.”

Who Are Compliance Officers?

Walker, Compliance and Ethics Officer Positioning: A Benchmarking Survey (Dec. 2009)

7

Who Are Compliance Officers?

Walker, Compliance and Ethics Officer Positioning: A Benchmarking Survey (Dec. 2009)

“A compliance officer checks the work of others for ethical and regulatory compliance. It is very similar to the role of an auditor. Auditors check the accuracy of financial statements. Auditors do not complete financial statements. If an auditor completed financial statements, the audit profession would say that person was not an auditor. Auditors are expected to be independent. You cannot be independent if you are checking the work you perform. An individual that performs work that must be occasionally checked for compliance with the rule of law… cannot be called a compliance officer.”

Roy Snell, CEO, Society for Corporate Compliance and Ethics

Topics


8

Scope of the Rules

. . . . In addition, there are Rules that apply to lawyers who are not active in the practice of law or to practicing lawyers even when they are acting in a nonprofessional capacity. For example, a lawyer who commits fraud in the conduct of a business is subject to discipline for engaging in conduct involving dishonesty, fraud, deceit or misrepresentation. See Rule 8.4.

NRPC Preamble [3]

Professional Misconduct

It is professional misconduct for a lawyer to:

(a) violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or do so through the acts of another;

(b) commit a criminal act that reflects adversely on the lawyer's honesty, trustworthiness or fitness as a lawyer in other respects;

(c) engage in conduct involving dishonesty, fraud, deceit or misrepresentation . . . .

NRPC 3‐508.4

Professional Misconduct

It is professional misconduct for a lawyer to:

(d) engage in conduct that is prejudicial to the administration of justice;

(e) state or imply an ability to influence improperly a government agency or official or to achieve results by means that violate the Rules of Professional Conduct or other law; or

(f) knowingly assist a judge or judicial officer in conduct that is a violation of applicable rules of judicial conduct or other law.

MRPC 8.4; NRPC 3‐508.4

9

Topics


Practice of Law

§ 3‐1001. General definition. The “practice of law,” or “to practice law,” is the application of legal principles and judgment with regard to the circumstances or objectives of another entity or person which require the knowledge, judgment, and skill of a person trained as a lawyer. This includes, but is not limited to, the following:(A) Giving advice or counsel to another entity or person as to

the legal rights of that entity or person or the legal rights of others for compensation, direct or indirect, where a relationship of trust or reliance exists between the party giving such advice or counsel and the party to whom it is given. . . . .

Nebraska Supreme Court Rule

Practice of Law

(B) Selection, drafting, or completion, for another entity or person, of legal documents which affect the legal rights of the entity or person.

(C) Representation of another entity or person in a court, in a formal administrative adjudicative proceeding or other formal dispute resolution process, or in an administrative adjudicative proceeding in which legal pleadings are filed or a record is established as the basis for judicial review.

(D) Negotiation of legal rights or responsibilities on behalf of another entity or person.

(E) Holding oneself out to another as being entitled to practice law as defined herein.

10

Supervision of Non‐Lawyers

With respect to a nonlawyer employed or retained by or associated with a lawyer: . . .

(b) a lawyer having direct supervisory authority over the nonlawyer shall make reasonable efforts to ensure that the person's conduct is compatible with the professional obligations of the lawyer . . . .

NRPC 3‐505.3

Supervision of Non‐Lawyers

(c) a lawyer shall be responsible for conduct of such a person that would be a violation of the Rules of Professional Conduct if engaged in by a lawyer if:

(1) the lawyer orders or, with the knowledge of the specific conduct, ratifies the conduct involved; or

(2) the lawyer is a partner or has comparable managerial authority in the law firm in which the person is employed, or has direct supervisory authority over the person, and knows of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action.

NRPC 3‐505.3

Topics


11

Multi‐Jurisdictional Practice

(d) A lawyer admitted in another United States jurisdiction, and not disbarred or suspended from practice in any jurisdiction, may provide legal services in this jurisdiction that:

(1) are provided to the lawyer’s employer or its organizational affiliates and are not services for which the forum requires pro hac vice admission and the lawyer is registered under Neb. Ct. R. §§ 3‐1201 to 3‐1204, Registration of In‐House Counsel.

NRPC 3‐505.5


[16] Paragraph (d)(1) applies to a lawyer who is employed by a client to provide legal services to the client or its organizational affiliates, i.e., entities that control, are controlled by or are under common control with the employer. This paragraph does not authorize the provision of personal legal services to the employer’s officers or employees. The paragraph applies to in‐house corporate lawyers, government lawyers and others who are employed to render legal services to the employer. . . . .

NRPC 3‐505.5, comment [16]

Nebraska Court Rule § 3‐1201

(A) A lawyer admitted to the practice of law in another U.S. jurisdiction or the District of Columbia, not admitted in Nebraska, who is in active status in that jurisdiction, who is employed in Nebraska as counsel exclusively for a single corporation, partnership, association, or other legal entity, as well as any affiliate thereof, whose lawful business consists of activities other than the practice of law or provision of legal services, and who has a continuous presence in the State of Nebraska shall register to act as in‐house counsel . . . .

12


(d) A lawyer admitted in another United States jurisdiction, and not disbarred or suspended from practice in any jurisdiction, may provide legal services in this jurisdiction that:

. . . .

(2) are services that the lawyer is authorized to provide by federal law or other law of this jurisdiction.

NRPC 3‐505.5

Topics


Competence

A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness, preparation and judgment reasonably necessary for the representation.

NRPC 3‐501.1

13

Competence

[2] . . . . A lawyer can provide adequate representation in a wholly novel field through necessary study. Competent representation can also be provided through the association of a lawyer of established competence in the field in question.


Competence

[6] To maintain the requisite knowledge and skill, a lawyer should keep abreast of changes in the law and its practice, including the benefits and risks associated with relevant technology, engage in continuing study and education and comply with all continuing legal education requirements to which the lawyer is subject.


Topics


14

Lawyer as Professional Advisor

In representing a client, a lawyer shall exercise independent professional judgment and render candid advice. In rendering advice, a lawyer may refer not only to law but to other considerations such as moral, economic, social and political factors, that may be relevant to the client's situation.

NRPC 3‐502.1

Lawyer as Professional Advisor

[4] Matters that go beyond strictly legal questions may also be in the domain of another profession. Family matters can involve problems within the professional competence of psychiatry, clinical psychology or social work; business matters can involve problems within the competence of the accounting profession or of financial specialists. Where consultation with a professional in another field is itself something a competent lawyer would recommend, the lawyer should make such a recommendation. At the same time, a lawyer's advice at its best often consists of recommending a course of action in the face of conflicting recommendations of experts.


Topics


15

Conflicts of Interest

(a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if:

(1) the representation of one client will be directly adverse to another client; or

(2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.

NRPC 3‐501.7

Who Is the Client?

(f) In dealing with an organization’s directors, officers, employees, members, shareholders or other constituents, a lawyer shall explain the identity of the client when the lawyer knows or reasonably should know that the organization’s interests are adverse to those of the constituents with whom the lawyer is dealing.

NRPC 3‐501.13

Allocation of Authority

(a) Subject to paragraphs (b), (c), (d), (e), and (f), a lawyer shall abide by a client's decisions concerning the objectives of representation and, as required by Rule 1.4, shall consult with the client as to the means by which they are to be pursued. A lawyer may take such action on behalf of the client as is impliedly authorized to carry out the representation. A lawyer shall abide by a client's decision whether to settle a matter. In a criminal case, the lawyer shall abide by the client's decision, after consultation with the lawyer, as to a plea to be entered, whether to waive jury trial and whether the client will testify.

NRPC 3‐501.2

16

Allocation of Authority

[9] When the client's course of action has already begun and is continuing, the lawyer's responsibility is especially delicate. The lawyer is required to avoid assisting the client, for example, by drafting or delivering documents that the lawyer knows are fraudulent or by suggesting how the wrongdoing might be concealed. A lawyer may not continue assisting a client in conduct that the lawyer originally supposed was legally proper but then discovers is criminal or fraudulent. The lawyer must, therefore, withdraw from the representation of the client in the matter. See Rule 1.16(a). In some cases, withdrawal alone might be insufficient. It may be necessary for the lawyer to give notice of the fact of withdrawal and to disaffirm any opinion, document, affirmation or the like. See Rule 4.1.


Topics


Communication Inside the Organization

(b) If a lawyer for an organization knows that an officer, employee or other person associated with the organization is engaged in action, intends to act or refuses to act in a matter related to the representation that is a violation of a legal obligation to the organization, or a violation of law that reasonably might be imputed to the organization, and that is likely to result in substantial injury to the organization, then the lawyer shall proceed as is reasonably necessary in the best interest of the organization. Unless the lawyer reasonably believes that it is not necessary in the best interest of the organization to do so, the lawyer shall refer the matter to higher authority in the organization, including, if warranted by the circumstances to the highest authority that can act on behalf of the organization as determined by applicable law.

NRPC 3‐501.13

17


[3] . . . . As defined in Rule 1.0(f), knowledge can be inferred from circumstances, and a lawyer cannot ignore the obvious.



[4] In determining how to proceed under paragraph (b), the lawyer should give due consideration to the seriousness of the violation and its consequences, the responsibility in the organization and the apparent motivation of the person involved, the policies of the organization concerning such matters, and any other relevant considerations. Often, referral to a higher authority would be necessary. In some circumstances, however, it may be appropriate for the lawyer to ask the constituent to reconsider the matter or get another legal opinion; for example, if the circumstances involve a constituent’s innocent misunderstanding of law and subsequent acceptance of the lawyer’s advice, the lawyer may reasonably conclude that the best interest of the organization does not require that the matter be referred to higher authority. . . . .



[4] . . . . If a constituent persists in conduct contrary to the lawyer’s advice, it will be necessary for the lawyer to take steps to have the matter reviewed by a higher authority in the organization. If the matter is of sufficient seriousness and importance or urgency to the organization, referral to higher authority in the organization may be necessary even if the lawyer has not communicated with the constituent. Any measures taken should, to the extent practicable, minimize the risk of revealing information relating to the representation to persons outside the organization. Even in circumstances where a lawyer is not obligated by this Rule to proceed, a lawyer may bring to the attention of an organizational client, including its highest authority, matters that the lawyer reasonably believes to be of sufficient importance to warrant doing so in the best interest of the organization.


18

Communication Outside the Organization

(c) Except as provided in paragraph (d), if

(1) despite the lawyer’s efforts in accordance with paragraph (b) the highest authority that can act on behalf of the organization insists upon or fails to address in a timely and appropriate manner an action, or a refusal to act, that is clearly a violation of law, and

(2) the lawyer reasonably believes that the violation is reasonably certain to result in substantial injury to the organization, then the lawyer may reveal information relating to the representation whether or not Rule 1.6 permits such disclosure, but only if and to the extent the lawyer reasonably believes necessary to prevent substantial injury to the organization.

NRPC 3‐501.13

Internal Investigations and Representation

(d) Paragraph (c) shall not apply with respect to information relating to a lawyer’s representation of an organization to investigate an alleged violation of law, or to defend the organization or an officer, employee or other constituent associated with the organization against a claim arising out of an alleged violation of law.

NRPC 3‐501.13

Communication After Retaliatory Discharge

(e) A lawyer who reasonably believes that he or she has been discharged because of the lawyer’s actions taken pursuant to paragraphs (b) or (c), or who withdraws under circumstances that require or permit the lawyer to take action under either of those paragraphs, shall proceed as the lawyer reasonably believes necessary to assure that the organization’s highest authority is informed of the lawyer’s discharge or withdrawal.

NRPC 3‐501.13

19

Topics


Federal Attorney‐Client Privilege

Upjohn v. United States, 449 U.S. 383 (1981):

(i) Was the information needed to provide legal advice?

(ii) Did the communication involve the employee’s corporate duties?

(iii) Did the employee know they were being questioned so that the corporation could obtain legal advice?

(iv) Was the communication intended to be confidential?

Privilege for Internal Investigations

Attorney‐Client Privilege

In re Kellogg Brown & Root Inc., 756 F.3d 754 (D.C. Cir. 2014)

“At Issue” Privilege Waiver

In re Kellogg Brown & Root Inc., 796 F.3d 137 (D.C. Cir. 2015)

In re United Shore Financial Services(6th Cir. 2018)

20

Nebraska Attorney‐Client Privilege

(2) A client has a privilege to refuse to disclose and to prevent any other person from disclosing confidential communications made for the purpose of facilitating the rendition of professional legal services to the client (a) between himself or his representative and his lawyer or his lawyer's representative, or (b) between his lawyer and the lawyer's representative, or (c) by him or his lawyer to a lawyer representing another in a matter of common interest, or (d) between representatives of the client or between the client and a representative of the client, or (e) between lawyers representing the client.

Nebraska Rev. Stat. § 27‐503

Nebraska At‐Issue Privilege Waiver

State v. Roeder, 636 N.W.2d 870 (Neb. 2001)

(1) assertion of the privilege was a result of some affirmative act, such as filing suit, by the asserting party;

(2) through this affirmative act, the asserting party put the protected information at issue by making it relevant to the case; and

(3) application of the privilege would have denied the opposing party access to information vital to his defense.

Culture Eats Compliance for Breakfast . . .

Documents

Legal Ethics Issues for Compliance Officers · 26/04/2018 · vicarious liability, anti-corruption laws, corporate compliance, business ethics, corporate social responsibility, and