Key Takeaways for Internal Investigators from the Recent Deutsche Bank Libor-Rigging Ruling and DOJ and SEC Reactions

5 min


When a company hires outside counsel to conduct an internal investigation, there are limits to how much influence the government can have on the investigation before its outside counsel's questioning can become something akin to a police interrogation. Recently, a federal judge in the Southern District of New York came down hard on the government for crossing that line. The judge determined that the government had "outsourced" its investigative responsibilities in a Libor-rigging investigation involving Deutsche Bank and one of its traders. The court ultimately upheld the conviction by deeming the evidence would have been uncovered anyway. But the opinion still raises key issues for the white collar bar, to say nothing of government investigators with whom it must cooperate. This article will unpack these issues by providing a background on the case, the opinion, and how, if at all, internal investigators must alter their course.


Internal investigators may not become so intertwined with their government counterparts that the investigation can be considered "state action." In such cases, evidence, particularly statements obtained by outside counsel during witness interviews, risks being viewed as coerced, and thus violative of the Fifth Amendment's protection against self-incrimination.

The north star for the issue has long been the 1967 Supreme Court ruling in Garrity v. State. In Garrity, police officers under investigation by the state of New Jersey were given the choice of incriminating themselves in interviews with investigators or forfeiting their jobs (and pension rights) by refusing to talk. The officers were convicted, only to have the Supreme Court overturn their convictions on the grounds that they were coerced by virtue of the threat of termination, thereby violating their Fifth Amendment rights.

The Deutsche Bank Investigation

In 2010 the Commodity Futures Trading Commission (CFTC) began investigating whether employees of Deutsche Bank were unlawfully rigging the London Interbank Offered Rate (Libor). After receiving a subpoena from the CFTC, one that specifically advised Deutsche Bank to retain outside counsel to conduct a review of the matter, Deutsche Bank turned to the law firm Paul Weiss to conduct an internal investigation. As is typical in such cases, CFTC dangled the promise of cooperation credit if the bank made employees available for interviews.

Over the next five years, Paul Weiss conducted an extensive internal investigation, all while coordinating its efforts with the government. The government not only was kept informed of the investigation, but gave direction to the Paul Weiss attorneys "about what to do and how to do it." Attorneys from the firm would brief the government prior to conducting interviews to determine who to interview and what to ask them. And when Paul Weiss investigators came to interview employees, the employees had to cooperate or face losing their jobs.

Conviction and Appeal

Last October, Gavin Black and Matthew Connolly were convicted after trial on several counts, including fraud and conspiracy for their role in the Libor-rigging scheme. One of the various challenges that the defendants made on appeal was that they had been compelled to speak with the company's attorneys under threat of termination. If Black and Connolly could demonstrate that the Paul Weiss investigation was "fairly attributable" to the government, they stood a chance of having their convictions overturned.

Judge Colleen McMahon appeared to agree, writing that "everything I have read suggests that the United States outsourced its investigation to Deutsche Bank and its lawyers." She provided several important examples. First, the government identified Black as a target and directed Paul Weiss to investigate him long before the government attempted to contact him. In the latter stages of its investigation, Paul Weiss actually reached out to ask the government permission to interview Black. At that point, the government directed the partner "on the precise manner in which he should ask his questions."

Taking all of this into account, Judge McMahon wrote that "the only conclusion one can draw from this evidence is that, rather than conduct its own investigation, the Government outsourced the important developmental stage of its investigation to Deutsche Bank … and then built its own investigation into specific employees, such as Gavin Black, on a very firm foundation constructed for it by the Bank and its lawyers."

Ultimately, the convictions were upheld because Judge McMahon concluded there was "not a single item of trial evidence that would not have come in but for Black's interview statements to Paul Weiss." Furthermore, the interview notes did not affect the government's dealings with other witnesses and cooperators. But Judge McMahon was clear in saying that the government's investigation was improper.

Conclusion and Takeaways

There has long been tension between internal investigators and their government counterparts. Law firms are often retained by companies for the express purpose of investigating and ferreting out potential wrongdoing within a company through an internal investigation process. For that reason, an internal investigation will often simulate one that the government might conduct. But what Garrity and Judge McMahon make crystal clear is that the government cannot cross the line of anointing the company's counsel as its agents. Doing so, relying too heavily on company counsel, and indeed directing company counsel runs the risk of jeopardizing the government's future criminal prosecutions.

Paul Weiss and Deutsche Bank face no sanction for their actions. It is important to note that Judge McMahon directed little to no ire at Paul Weiss, finding that the firm was acting "in full (and understandable) aid of its client's [i.e., Deutsche Bank's] interests." Instead, the opinion was a rebuke of the government investigators. That said, outside counsel would still be wise to appreciate the dynamics at play, as their government counterparts will most assuredly react to this opinion.

Indeed, Christopher Cestaro, a supervisor in DOJ's Foreign Corrupt Practices Unit, recently spoke about DOJ's views on companies' internal investigations. While Cestaro noted that the government often seeks to obtain the benefits of a company's investigation, what it does not do is direct what the company should do. Likewise, Marc Berger, the director of the SEC's New York office, relayed that the SEC does not direct companies to take specific steps.