When a federal court in New York recently declared that the government in effect outsourced its investigation of interest rate manipulation to Deutsche Bank, general counsel were left wondering how the case could impact their companies.

Attorney James Cavoli talked about the case, United States v. Connolly, and its important implications for general counsel in a recent interview with Corporate Counsel. Cavoli is a partner in the New York office of Milbank and a member of the firm's litigation and arbitration group. He focuses on white-collar crime and internal investigations.

Here are excerpts from that conversation, edited for brevity and clarity:

Corporate Counsel: First, would you briefly summarize the case?

James Cavoli: The government alleged fraudulent conduct by individuals at Deutsche Bank for reporting false Libor borrowing rates. A motion by the defendant raised the question: To what extent was the government overly involved in Deutsche Bank's internal investigation of the employee?

That matters because if an internal investigation becomes fairly attributable to the government, and folks are forced by their employer to make statements in interviews, then that has constitutional ramifications under the Fifth Amendment.

CC: Is it significant for general counsel? If so, why?

JC: First I would say that the case is more significant for the government. If this happens again, the government may face a situation where the case is dismissed [which didn't happen this time because the defendant's statements were ruled not meaningful].

That's not to say it doesn't have important implications for general counsel, it does. General counsel need to be attuned to any case where there is an internal investigation and parallel government investigation.

CC: Can you elaborate on the issues a general counsel should be aware of?

JC: First, the government is going to be more careful now. Judgments about who to interview should be left to the company and its counsel. This case gives general counsel and their law firms grounds to push back attempts by the government to micromanage their investigations. It gives the company lawyers more freedom to conduct the internal investigation as they see fit.

The decision also underscores the importance of the companies and their general counsel to hire seasoned and skilled outside counsel who can investigate without any need of input from the government; and do it in a robust way to gain cooperation credit for the company.

Companies also will likely see an increase of deconfliction requests, which is a request from prosecutors for a company to wait to interview an employee until the government has a chance to do so. Honoring those requests has become an act of cooperation for companies.

CC: Is a deconfliction request a problem for general counsel?

JC: The problem arises because boards and corporate executives have to figure out if there's been misconduct and fix it in a timely manner. That is much more difficult if the government is placing restrictions on the company's ability to interview its own employees. We'll likely see more tension between a company's interests in cooperating with the government versus learning the facts and taking prompt remedial action if needed.

CC: What tips would you offer to general counsel based on this case?

JC: In-house counsel should give more consideration to carefully documenting a company's decision to investigate an issue, as well as that the decision was independent from any request from the government. A careful internal documentation would include that the investigation started for XYZ reason, and how it was remediated.

Also, in-house counsel may want to do more documenting of internal decisions that are made by the company and not the government, such as which employees to interview.

Finally, general counsel may want to consider providing independent counsel to employees before they are questioned. The independent lawyer could help to decide if the employee should do the interview, assist them in preparing, and be with them during the questioning. That would weigh against any complaint of coercion and favor a finding that the interview was voluntary.

CC: Is there anything else you'd like to add?

I would just point out that it's important for general counsel to appreciate that the ruling in this case was based on the combined effect of somewhat unique circumstances. It was a bit of a perfect storm that led the judge to conclude that actions of the bank and its counsel were attributable to the government. The level of prosecutor involvement in the bank's investigation was somewhat unique and a high watermark of government meddling in internal probes.