Column: U.S. Justice Dept corporate crime policies face big test in Cognizant execs' hearing

By Alison Frankel

April 17 (Reuters) - (The opinions expressed here are those of the author, a columnist for Reuters.) At an extraordinary hearing scheduled to take place this week in federal court in New Jersey, defense lawyers for two former executives of Cognizant Technology Solutions Corp will have a chance to question U.S. Justice Department lawyers and the company’s outside counsel from DLA Piper about whether the government improperly "outsourced" the criminal investigation that led to the executives’ indictments.

For the defendants, former Cognizant general counsel Steven Schwartz and former president Gordon Coburn, the hearing that begins on Tuesday is a long-shot bid to dispose of the Justice Department’s entire Foreign Corrupt Practices Act case by claiming violations of their 5th Amendment rights. At the very least, Schwartz and Coburn are hoping to suppress some of the government’s evidence as this intensely litigated case heads for a scheduled trial in October.

For the Justice Department, which has recently reiterated its commitment to rewarding companies that self-report corporate crimes and to prosecuting individual executives for misconduct, the hearing could have consequences well beyond this case. In a brief opposing any hearing, DOJ lawyers argued that the defendants’ “flawed and unprecedented” theories “would seriously hamper the government’s ability to investigate and prosecute corporate crime.”

The stakes, in other words, are potentially dramatic for both sides.

A caveat: To prevail to any extent in the two-day hearing, Schwartz and Coburn will have to overcome considerable skepticism from U.S. District Judge Kevin McNulty of Newark, New Jersey, When the judge agreed in January to hold a hearing on Cognizant’s role in the Justice Department investigation, he said he was “not seeing enough smoke tokening fire” and was “not overwhelmed” by the defendants’ arguments. McNulty said he was “bending over backward” in permitting Schwartz and Coburn to call four witnesses – not the 10 they had requested — because they were having trouble obtaining evidence from overseas witnesses.

Cognizant, meanwhile, is battling fiercely to maintain confidentiality over certain attorney-client communications, despite McNulty’s 2022 ruling that the company waived privilege over matters it disclosed to the government when it informed the Justice Department of its internal investigation of payments made to Indian officials in order to speed up permits for a Cognizant office building.

The Justice Department declined to comment through a spokesperson. DOJ lawyer David Last, who will be one of the witnesses at the hearing this week before McNulty, did not respond to my email.

The other scheduled witnesses are former Justice Department lawyer Kevin Gingras, now a lawyer at Lockheed Martin Corp; DLA partner Karl Buch; and former Cognizant CEO Francisco D’Souza. Gingras counsel Chuck Rosenberg of Crowell & Moring declined to comment. Buch's counsel Michael Buchanan declined to comment in response to my query to him and Buch. D’Souza did not respond to a query sent via LinkedIn. His lawyer, Lee Richards of Perkins Coie, did not respond to my email. Cognizant counsel from Alston & Bird and Friedman Kaplan Seiler Adelman & Robbins also did not respond.

Schwartz's counsel Lawrence Lustberg of Gibbons and Coburn's counsel James Loonam of Jones Day declined to comment.

The two former executives were indicted in 2019 after Cognizant reported the results of its two-year investigation to Justice Department prosecutors. The company itself paid a $6 million fine but avoided criminal charges, in part because its lawyers told prosecutors about the alleged bribes and agreed to cooperate with the Justice Department’s investigation of the former executives whom Cognizant accused of wrongdoing.

Schwartz and Coburn assert that the company did more than just cooperate with the DOJ. According to their briefs, the government essentially delegated the criminal investigation to Cognizant’s lawyers. Schwartz described Cognizant’s counsel as “prosecutors by proxy.” He alleged that the Justice Department hardly bothered to conduct an independent investigation, instead merely retracing Cognizant's footsteps to reach the same conclusion as the company did in its self-serving report.

The Justice Department has refuted that theory. Prosecutors contend that although they talked to Cognizant’s lawyers and were apprised of the company's analysis, the government conducted its own, independent investigation without relying on Cognizant's internal probe.

Prosecutors have assured McNulty that there was nothing unusual about the Justice Department's coordination with Cognizant. In fact, they argued, the only novel aspect of the case against Coburn and Schwartz is the defendants’ attempt to turn a routine corporate criminal investigation into a constitutional showdown.

The defense theory starts with a 1967 U.S. Supreme Court ruling that the Constitution protects employees from being coerced, under the threat of losing their jobs, into incriminating themselves in investigations conducted by their employers. The 1967 case involved public employees, but the doctrine has been extended to employees of private companies when the investigation implicates the government’s interest. Schwartz and Coburn argue that any statements they made to Cognizant investigators after Cognizant reported the probe to Justice must be suppressed.

Their broader argument for dismissing the criminal case altogether builds on concerns U.S. District Judge Colleen McMahon expressed in 2019’s U.S. v. Connolly. McMahon harshly criticized the Justice Department for outsourcing its criminal investigation of alleged rate-rigging by a Deutsche Bank AG trader to the bank’s outside counsel from Paul, Weiss, Rifkind, Wharton & Garrison, which “did everything that the could, should and would have done had the government been doing its own work.” The judge said that the DOJ had thus obtained statements from the trader without regard to the constitutional strictures that prosecutors must abide by.

But McMahon went on to conclude that, ultimately, the improperly obtained statements did not help prosecutors secure the trader’s indictment.

Her analysis shows how tough it will be for Schwartz and Coburn to knock out their indictments. More proof comes from the prosecution of Anthony Blumberg, the former CEO of a securities firm. Blumberg’s defense counsel managed to persuade U.S. District Judge Jose Linares of Newark to hold a hearing on the securities firm’s internal investigation and coordination with government prosecutors to determine whether the government was required to search company files for exculpatory material. Nevertheless, Blumberg ended up pleading guilty just weeks after the hearing.

Like I said, Schwartz and Coburn face long odds. But if they score even a limited win, you can be sure that other white-collar defendants will pounce.

Read more:

U.S. Justice Dept toughens on corporate crime, will pursue more individuals

U.S. Justice Dept announces 'carrots and sticks' approach to corporate crime

U.S. fines Cognizant, charges two ex-officials in India bribery case (Reporting By Alison Frankel; editing by Leigh Jones)