The November midterm elections proved once again that democracy is more than a lofty and inspiring theory. The election process turned out to be a driving force for change in government power. January 2007 will bring a new Congress with a new and vastly different agenda. One clear priority will be a return to aggressive, wide-ranging Congressional investigations, with the new Democratic majorities in the House and Senate exercising what is perhaps the most formidable and far-reaching investigative power in government. This increased Congressional scrutiny will undoubtedly impact not only government agencies but also a broad swath of activities in the private sector. Reportedly, Congressional investigations already are being planned that will impact pharmaceuticals, defense, energy, oil and gas and government contracting. Unfortunately, a company's past experience in the legislative policy and lobbying arenas does little to prepare it to be queried, or even targeted, by a serious Congressional investigation. The latter is, in short, a totally different and far more treacherous game. Companies that find themselves in the midst of a Congressional investigation need to understand several key points:
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There is nearly no limit, even within the private sector, as to what Congress can investigate. The Congressional power of inquiry is "as penetrating and far-reaching as the potential power to enact and appropriate under the Constitution." Eastland v. United States Servicemen's Fund , 421 U.S. at 594, n. 15 (quoting Barenblatt v. United States , 360 U.S. 109, 111). It can encompass not only government action, but also private sector activities. For years following its 1792 review of the Army's defeat by confederated Indian tribes, Congress did not hesitate to expand its range of inquiry into areas as diverse as:
- Scandals (Teapot Dome, Watergate, Iran Contra, Whitewater, Campaign Financing)
- Criminal activity (illegal drugs; money laundering; arson; organized crime; Medicare, insurance, securities and defense procurement fraud)
- National security and intelligence (terrorist activity, intelligence programs, defense and weapon systems contracts, export controls, corporate security programs)
- Private sector compliance and safety efforts (Medicare and Medicaid contractors, financial institutions, aviation, professional sports leagues, teams, and players, hospitals and nursing homes, pharmaceutical companies, medical device manufacturers, oil and gas companies)
Private companies, trade associations and even charitable organizations representing nearly all aspects of the private sector have at times found themselves under Congressional scrutiny.
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Congress is well equipped with a full and extremely powerful arsenal of investigative tools. Congressional committees, along with a growing number of investigative subcommittees, are the driving force for most Congressional investigations. While individual members may raise questions or request outside reviews by GAO or an agency Inspector General, committees exercise the real investigative power. Once a committee chair finds the political will to investigate, he or she can usually rely on an impressive array of investigative tools including subpoena power for both testimony and documents; subpoena power for sworn, private depositions conducted by members and/or staff; broad access to agency information; use of GAO and Inspector General resources; congressional grants of immunity for witnesses; civil and criminal contempt powers; highly publicized hearings and reports to showcase investigative findings; and referrals of alleged criminal activity to the Justice Department and other law enforcement and regulatory authorities. How and to what extent these tools are used lies within the discretion of the chair, often bolstered by the advice of former prosecutors, seasoned investigators and other senior staff. To the extent procedural rules apply, they can differ considerably among committees: for example, subpoenas can require only the signature of the chairman but in another committee may require a vote of the members.
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Congress is not the courtroom: Congressional investigations and hearings play by different rules and pose unique and difficult risks for those facing investigative scrutiny. Counsel accustomed to the structure and protections afforded by the rules of the courtroom will find themselves on unfamiliar (and dangerous) ground when dealing with a Congressional investigation. Congress does not consider itself bound by the rules or the privileges (including the attorney-client privilege) that govern traditional litigation. Only a few written standards apply, and those must be discerned from a patchwork of provisions in the committee's authorizing resolution, the House or Senate Rules and the relevant committee and/or subcommittee rules. As a practical matter, the chair wields broad discretion regarding the conduct of investigations and hearings: there is no judge on hand to guard against abuse of that discretion. Short of risking contempt, a witness cannot obtain judicial review of a Congressional subpoena. Relevance is broadly interpreted, with amazingly few limits on the scope or tenor of interview, deposition or hearing questions. Witness counsel's role is limited and often frustrating, as suggested by the famous "I am not a potted plant" retort during the Iran-Contra hearings. Objections by counsel are discouraged, if not flatly prohibited, and requests to close hearings to the media are almost always denied. Pre-release access to investigative findings and reports is also usually denied. Witnesses can be required to invoke their Fifth Amendment privilege repeatedly under the glare of the cameras.
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What begins in Congress does not always end there: Congressional investigations can generate a wide range of other, high-risk problems . While the Congressional power of inquiry is focused on educating members and enacting legislation, these investigations often create an array of other problems in other forums. A Congressional committee that discovers fraud, abuse or other illegal activity will not hesitate to refer its record to regulatory or law enforcement authorities for review and action. Outrage by individual members may add to the drumbeat for action by executive branch agencies. Private sector companies can quickly find themselves facing additional investigation and sanction by regulatory authorities and/or criminal investigation, prosecution and conviction on state and/or federal charges. Even aside from the merits of the underlying allegations, the federal criminal offenses for false and misleading statements, perjury and obstruction of justice apply to statements made and information provided during the course of a Congressional investigation. The public relations and customer relations risks for a company that is forced to publicly confront internal problems can also be devastating. Moreover, dealing with the public relations nightmare is often a slow and tortuous process: without any set timetable, the investigation, hearing and report process can insure that negative media stories surface for months or even years to come.
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In short, Congressional investigations pose real risks for private sector companies. While no one can yet say for sure what the new Congress will or won't choose to investigate, it's a very good bet that an aggressive investigative agenda is coming. There are some basic precautionary steps that companies can take to prepare themselves for whatever may be facing them as the new Congress gears up to investigate. Here are eight important preventative measures a company can take:
1. Be proactive in high-risk areas (such as compliance, ethics, fiscal management and information systems) by implementing policies, procedures, internal controls and training programs designed to prevent problems. Even though you can never prevent every possible problem, a strong effort to do so goes a long way in establishing good faith and credibility with Congressional investigating committees.
2. Pay particular attention to early identification and correction of performance, cost and compliance problems in areas like federal contracts or grants that involve government funding. There is nothing more likely to generate a Congressional investigation than allegations of significant waste, fraud or abuse in the expenditure of taxpayer dollars.
3. Address and resolve significant audit findings in a timely manner. A history of management inattention to critical audit findings is sure fodder for Congressional investigators and almost always will guarantee hostile questioning in a Congressional hearing - and as part of the public record is sure to be emphasized again and again in national press coverage of the hearing.
4. Maintain good communication and cooperative relationships with regulators and government contracting officers, while preserving your right to disagree on appropriate issues. Regulators have been known to plant the seed for Congressional investigations, and they can provide devastating information and public testimony about companies they view as uncooperative or obstructionist.
5. Make reasonable efforts to be responsive to whistleblower complaints. Frustrated whistleblowers frequently find their way to Congressional investigators and, in many cases, to the witness table in a Congressional hearing. Companies that have already responded reasonably, via appropriate inquiry and action, are clearly much better equipped to convince a committee that the matter does not merit a full-blown Congressional investigation.
6. Educate and prepare your people. While there is no need for widespread panic, employees need to know how they should handle investigative inquiries from Congressional staff or reporters. It is not unusual for Congressional investigators to call mid-level employees long before company management is even aware of the investigation.
7. Identify resources and processes for handling important aspects of the company's response to an investigation, should one occur. Congressional investigations can arise suddenly and often bring a range of issues into play, including investigative, legal and regulatory issues; communications and media issues; public and customer relations issues; and internal management and employee issues. Management can take some comfort in having a response plan in place long before a stack of Congressional subpoenas arrives.
8. Last but clearly not least, if and when a Congressional request arrives, whether via subpoena, letter, email or an informal call from Congressional staff, treat it seriously and proceed with caution - with the benefit of expert advice and experience. By all accounts, this new Congress has the power, the tools and the political will to lead real investigations that, in all likelihood, will pose significant challenges for private companies.
Published January 1, 2007.
