Criminal Enforcement Issues and Considerations Timothy W. Hoover, Esq. thoover@hodgsonruss.com (716) 848-1271

CRIMINAL ENFORCEMENT ISSUES AND CONSIDERATIONS INTRODUCTION AND TOPICS Additional comment on Kovel engagements Review of applicable state criminal provisions Review of applicable federal criminal provisions How criminal investigations commence, and criminal environmental enforcement in Western New York. Preparing for contact with law enforcement personnel. The Yates Memorandum and the U.S. Department of Justice’s focus on individual accountability. When can a corporation be held criminally responsible for the conduct of its employees? The importance of a robust compliance function. The appropriate handling of whistleblowers. Suggestions for avoiding problems. Impact of a new administration.

CRIMINAL ENFORCEMENT ISSUES AND CONSIDERATIONS ADDITIONAL COMMENT ON KOVEL ENGAGEMENTS

CRIMINAL ENFORCEMENT ISSUES AND CONSIDERATIONS SELECT STATE CRIMINAL PROVISIONS Article 71 (Enforcement) of the Environmental Conservation Law (ECL) provides for both civil and criminal penalties for violating the provisions of the ECL, or the regulations promulgated by the Department.  The seriousness of the criminal penalties range from offenses to felonies.  Examples of criminal provisions include the following.    ECL §§ 71-2710-2714 (criminal liability for releases/mismanagement of hazardous substances). ECL § 71-1933 (criminal liability for water violations). ECL § 71-2105 (criminal liability for air violations).

CRIMINAL ENFORCEMENT ISSUES AND CONSIDERATIONS SELECT STATE CRIMINAL PROVISIONS (CONTINUED) There are a variety of Penal Law provisions that can be implicated in the environmental context, including the following. Penal Law §§ 175.05-175.15 (falsifying business records in the second degree and first degree).   Penal Law §§ 175.30-35 (offering a false instrument for filing in the second degree and first degree).

CRIMINAL ENFORCEMENT ISSUES AND CONSIDERATIONS SELECT FEDERAL CRIMINAL STATUTES/REGULATIONS A helpful compilation -- https://www.epa.gov/enforcement/criminal- enforcement-overview -- and here are some of the key citations. Clean Water Act – 33 U.S.C. §§ 1319, 1321. Clean Air Act – 42 U.S.C. § 7413, 49 C.F.R. § 61. RCRA – 42 U.S.C. § 6928(d). CERCLA – 42 U.S.C. § 9603(b). Numerous others (e.g. EPCRA, etc.)

CRIMINAL ENFORCEMENT ISSUES AND CONSIDERATIONS SELECT FEDERAL CRIMINAL STATUTES/REGULATIONS (CONTINUED) Numerous Title 18 United States Code (USC) criminal offenses can be implicated in federal criminal investigations. 18 U.S.C. § 371 – conspiracy. 18 U.S.C. § 1001 – false statements. 18 U.S.C. §§ 1341 et seq. – mail and wire fraud.

CRIMINAL ENFORCEMENT ISSUES AND CONSIDERATIONS SELECT FEDERAL CRIMINAL STATUTES/REGULATIONS (CONTINUED) 29 U.S.C. § 666(e) - criminalizes the actions of an employer who willfully violates a safety standard prescribed pursuant to the Occupational Safety and Health Act, where the violation causes the death of any employee.

CRIMINAL ENFORCEMENT ISSUES AND CONSIDERATIONS HOW CRIMINAL INVESTIGATIONS COMMENCE, AND CRIMINAL ENVIRONMENTAL ENFORCEMENT IN WESTERN NEW YORK Case Examples Clean Water Act. Clean Air Act. Whistleblower/anonymous report leads to a search warrant. Asbestos case/s and referrals from OSHA and other agencies. Some common factors see in these examples. Aggravating factors are usually, but not always, present. These are just examples. There are many more. And there any instances of arguably criminal activity never being detected or not “going criminal” for a variety of reasons. The U.S. EPA and the Department of Environmental Conservation criminal investigative focus in Western New York. Limited resources versus you our your client’s unlucky day.

CRIMINAL ENFORCEMENT ISSUES AND CONSIDERATIONS PREPARING FOR CONTACT WITH LAW ENFORCEMENT PERSONNEL A major goal of a company and its counsel: keep administrative matters and investigations administrative. Engage counsel to deal with technical and administrative matters. Robust auditing regimes and compliance function (we will discuss this further). Dealing with approaches by criminal enforcement agents. Dealing with subpoenas. Dealing with search warrants.

CRIMINAL ENFORCEMENT ISSUES AND CONSIDERATIONS THE YATES MEMORANDUM AND THE U.S. DEPARTMENT OF JUSTICE’S FOCUS ON INDIVIDUAL ACCOUNTABILITY Authored and released on September 9, 2015 by the Deputy Attorney General, U.S. Department of Justice. Reaffirming DOJ’s commitment “to fighting corporate fraud and other misconduct.” By making clear that “one of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who have perpetrated the wrongdoing.” The memorandum identifies “six key steps to strengthen our pursuit of individual corporate wrongdoing, some of which reflect policy shifts and each of which is described” in detail. The guidance applies to civil corporate matters, including civil False Claims Act matter. Why was it issued? What it does not deal with? No new investigative resources or law enforcement techniques. It is focused on enforcement of all statutes, including environmental ones. What it means for companies, their owners, their executives and employees. Why it is worth discussing even though it is federally-focused?

CRIMINAL ENFORCEMENT ISSUES AND CONSIDERATIONS WHEN CAN A CORPORATION BE HELD CRIMINALLY RESPONSIBLE FOR THE CONDUCT OF ITS EMPLOYEES? The circumstances are extremely broad, according to the DOJ as quoted below. Under the doctrine of respondeat superior, a corporation may be held criminally liable for the illegal acts of its directors, officers, employees, and agents. To hold a corporation liable for these actions, the government must establish that the corporate agent's actions (i) were within the scope of his duties and (ii) were intended, at least in part, to benefit the corporation. In all cases involving wrongdoing by corporate agents, prosecutors should not limit their focus solely to individuals or the corporation, but should consider both as potential targets.” Agents may act for mixed reasons—both for self-aggrandizement (direct and indirect) and for the benefit of the corporation, and a corporation may be held liable as long as one motivation of its agent is to benefit the corporation. See United States v. Potter, 463 F.3d 9, 25 (1st Cir. 2006) (stating that the test to determine whether an agent is acting within the scope of employment is "whether the agent is performing acts of the kind which he is authorized to perform, and those acts are motivated, at least in part, by an intent to benefit the corporation."). In United States v. Automated Medical Laboratories, Inc., 770 F.2d 399 (4th Cir. 1985), the Fourth Circuit affirmed a corporation's conviction for the actions of a subsidiary's employee despite the corporation's claim that the employee was acting for his own benefit, namely his "ambitious nature and his desire to ascend the corporate ladder." Id. at 407. The court stated, "Partucci was clearly acting in part to benefit AML since his advancement within the corporation depended on AML's well-being and its lack of difficulties with the FDA." Id.; see also United States v. Cincotta, 689 F.2d 238, 241-42 (1st Cir. 1982) (upholding a corporation's conviction, notwithstanding the substantial personal benefit reaped by its miscreant agents, because the fraudulent scheme required money to pass through the corporation's treasury and the fraudulently obtained goods were resold to the corporation's customers in the corporation's name). The corporation need not even necessarily profit from its agent's actions for it to be held liable.

CRIMINAL ENFORCEMENT ISSUES AND CONSIDERATIONS THE IMPORTANCE OF A ROBUST COMPLIANCE FUNCTION – BOTH GENERALLY AND ENVIRONMENTAL COMPLIANCE Why such a program (including a strong code of conduct/code of ethics) is important in avoiding problems? The government expects that companies have them. What is considered (by the federal government) to be an effective program is clear – it is spelled out in the United States Sentencing Guidelines – USSG § 8B2.1. If there is a law enforcement investigation, the government will weigh whether there was a compliance program and its strength (and the post-incident changes) in determining whether to charge the company or how to resolve the investigation, and the level of any sanction. Do not overestimate the vigor or effectiveness of your program.

CRIMINAL ENFORCEMENT ISSUES AND CONSIDERATIONS APPROPRIATE HANDLING OF WHISTLEBLOWERS What is a whistleblower, in different contexts? What is the federal False Claims Act? And the New York State equivalent? How to treat whistleblowers. Take claims seriously. Investigate. Communicate. With the advice of counsel, consider self-disclosure. Why appropriate treatment makes good business sense.

CRIMINAL ENFORCEMENT ISSUES AND CONSIDERATIONS ADDITIONAL SUGGESTIONS FOR AVOIDING PROBLEMS Corporate culture – “law-driven compliance” versus “business-driven integrity” A comment on email use. What is the level of legal review and advice you are getting with regard to administrative, labor/safety and environmental compliance? Do a check-up – auditing, compliance, environmental/waste handling, training, education and community involvement. Do you have it/these? If so, when were they last updated. Do you have a file or confirmation of all of the efforts. Are executives involved in and invested in compliance protocols? Have employees been trained on the governing policies and applicable law/regulations? Consider pursuit of safety and educational certifications. How does the company identify and investigate issues that arise? Review the company’s procedures to onboard/background check new employees. Legally and appropriately and legally deal with chronic problem employees – malcontents, violators of rules, safety-compromisers, time-wasters, etc. Evaluate coverage for investigations/subpoena responses.

CRIMINAL ENFORCEMENT ISSUES AND CONSIDERATIONS IMPACT OF A NEW FEDERAL ADMINISTRATION

Thank You! Timothy W. Hoover (716) 848-1271 thoover@hodgsonruss.com