A New Jersey federal court has ruled that a company’s self-disclosure of potential Foreign Corrupt Practices Act (FCPA) violations did not render the company a state actor, allowing evidence obtained by its internal investigation to be used against two former employees alleged to have engaged in misconduct.

Quick Hits

• New Jersey district court denied motions to suppress and compel evidence in a criminal FCPA case stemming from the company’s internal investigation.
• The ruling holds that the company’s self-disclosure and cooperation with the government to avoid prosecution did not make the company’s internal investigation “fairly attributable” to the government.

In United States of America v. Coburn, the U.S. District Court for the District of New Jersey denied evidentiary motions by two former executives at Cognizant Technology Solutions Corporation who have been indicted on charges related to an alleged bribe to an official in India. The executives, former Cognizant president Gordon Coburn and former general counsel Steven Schwartz, are set to stand trial in October 2023.

The executives had sought to suppress statements they made during the company’s internal investigation into alleged FCPA violations. They further sought to have the government hand over potentially exculpatory evidence from the company’s records related to the investigation, alleging the government has constructive possession because of the company’s cooperation.

The New Jersey district court denied the motions, holding that “while avoiding an indictment was presumably an important objective of Cognizant’s internal investigation, that fact does not transform Cognizant’s investigation into the Government’s investigation.”

Background

Cognizant conducted an internal investigation into allegations related to the company obtaining license renewals to operate in India. The internal investigation, which was led by an outside law firm, ultimately uncovered potential evidence against Coburn and Schwartz. The company then removed them from handling the internal investigation and subjected them to interviews with the lawyers running the investigation.

Following those interviews, the company contacted the U.S. Department of Justice (DOJ), self-disclosed potential FCPA violations, and communicated its intention to cooperate with the government. The company considered discharging the two executives but instead sought to interview them a second time. Coburn resigned before the second interview. Schwartz participated in a second interview before resigning rather than sitting for a third.

Corporate Cooperation Incentives

To root out corporate fraud and misconduct, the DOJ provides credit or benefits to avoid or limit liability to corporations that voluntarily self-disclose misconduct and cooperate with the government. In 2015, then U.S. Deputy Attorney General Sally Yates issued a memorandum stating that in order for companies to qualify for credit as a cooperator, companies must provide “all relevant facts relating to the individuals responsible for the misconduct.” Subsequently, the DOJ launched its FCPA Pilot Program to encourage companies to “voluntarily sell-disclose FCPA-related misconduct” by making such companies eligible for a declination of prosecution. Together, the policies require companies to self-disclose, investigate, and turn in bad actors in order for the company itself to avoid prosecution.

Admissibility of Interview Statements

The two former executives argued to the district court that statements they made during their interviews—which were required by company policy—are inadmissible at trial under the Supreme Court of the United States decision in Garrity v. State of New Jersey because the company had forced them to cooperate and because the company had cooperated with prosecutors. Under Garrity, statements to an employer are not admissible in a criminal trial if they are elicited from a defendant by the threat of termination by their employer, which would make the investigation to be “fairly attributable to the government.”

In denying the former executives’ motion to suppress in the instant case, the New Jersey district court stated that the company’s decisions to self-disclose potential FCPA violations, investigate its own employees, and hand over the results to the government were driven by the DOJ’s cooperation incentives. However, the court stated that pursuing those incentives, while potential “fodder for cross-examination” at trial, do not render the company a government actor.

The court noted that at least the first interview with Schwartz was done before the DOJ’s involvement. Additionally, the court stated that “there is literally no document or testimony establishing that the Government provided any direction to Cognizant with respect to Schwartz’s second interview.” According to the court, the evidence actually showed the opposite, as the government did not instruct the company on what questions to ask nor on which witnesses to interview. The court further noted that the company had “ample reasons of its own to investigate this misconduct,” including the potential for securities litigation, employment litigation, and shareholder derivative lawsuits.

Constructive Possession of Company Records

The executives further argued that the government has constructive possession of the company’s investigative records and has a duty to produce those records as potential exculpatory evidence. Under the Supreme Court’s Brady v. Maryland rule, prosecutors have a duty to disclose exculpatory evidence to defendants. That duty has been held to extend to evidence beyond prosecutors’ actual possession and requires that prosecutors seek out potential exculpatory evidence from “others working on the government’s behalf.”

But in denying the Brady motions, the court in United States v. Coburn stated that despite asking for updates, the government did not control the Cognizant investigation, did not work jointly with the company, and “did not have ready access to Cognizant’s evidence.” The court further denied the claim that the government has constructive possession, stating that the company acted independently in order to obtain leniency under the Yates Memo and the FCPA Pilot Program. However, the court did allow the defendants to subpoena Cognizant to obtain evidence for their defense.

Key Takeaways

While the government offers cooperation incentives for companies to avoid criminal prosecution or receive favor in sentencing, including under the Yates Memo and the FCPA Pilot Program, cooperation with the government raises questions about whether the company is acting jointly with the government or directly for it, which otherwise could prevent certain evidence from being used in a subsequent criminal prosecution against bad actors. The evidentiary rulings in the Coburn case demonstrate that corporations may cooperate with federal prosecutors without becoming state actors.