What should in-house General Counsels (or compliance personnel) do when they become aware that their organization – or senior people within it – are, or may be, behaving unlawfully?

It is not a new question. In 1991 the head of Salomon Brothers’ Government Trading Desk, Paul Mozer, deliberately breached the rules at five separate auctions of US Treasury bonds between December 1990 and May 1991, falsified trading records, then lied to supervisors as US regulators started to ask questions.

What made the firm’s behaviour worse was that, despite the GC, Donald Feuerstein; the Chair, John Gutfreund; and two other senior executives (John Meriwether and Thomas Strauss) being told of Mozer’s behavior during the February auction in April 1991, and despite them agreeing that his conduct should be reported to the US Treasury, they did nothing.

It was only in August that the Treasury was informed and, even then, the firm failed to say that top executives had known for months but failed to act, a delay described as “inexplicable and inexcusable” by Salomon Brothers’ new Chair, Warren Buffet. Three of those four executives had resigned by then. But not the GC who had repeatedly told senior management that they must act but had failed to make any reports himself. Eventually, he too resigned.

It was made crystal clear that … lawyers could not, should not satisfy themselves with telling others that something had to be done but had an obligation to ensure that it was done.

The report into this matter – and the conduct of the GC – was one of the first things I read when joining Salomon’s Legal and Compliance Department a few years later. It was made crystal clear that, when it came to legal issues, especially reporting to authorities, lawyers could not, should not satisfy themselves with telling others that something had to be done but had an obligation to ensure that it was done and, if necessary, by them. Lawyers were not just there to advise others. Sometimes they had to act too.

Some 30 years later that lesson still needs learning, judging by what we are learning from the never-ending revelations of the UK Post Office Inquiry and, lately, the release of numerous recordings, involving conversations between the independent external investigators, Second Sight, and the Post Office’s General Counsels, Susan Crichton and, later Chris Aujard. Much of the focus has been on what they show about former Post Office CEO Paula Vennells’ knowledge of the Horizon software system’s failings and its consequences for subpostmasters, contrary to what she later claimed to a Parliamentary Select Committee.

Worse is what they show about the response of the Post Office’s General Counsel, their most senior lawyer and the person who should, if they understand their responsibilities properly, be ensuring the company complies with the law even if this adversely affects its commercial interests or is deeply embarrassing.

Court misled

The latest recording, released by the company ITV, is worth dissecting. The new GC, Chris Aujard, was told that his organization may have pressured subpostmasters improperly into pleading guilty to serious criminal offences on the basis of false or non-existent evidence, failed to carry out investigations and misled the court.

“It’s that serious,” he is told.

He responds: “My focus now is on dealing with each case as it comes through. So yeah, the macro, macro issues are another pot. They’re not in my pot. They belong to other parts of the organization. I can feed through some of the thoughts on this call into that pot.” And, “I will absolutely relay on to the right people.”

What is this management-speak? He was the chief lawyer. He was one of the “right people”. He had an overriding duty to ensure that the organisation of which he was the GC did not behave unlawfully. He had an overriding duty to the court to ensure that it is not misled, whether expressly or by omission, a duty overriding any other duty to his client.

A GC is not a passer-by at the scene of an accident.

If there was – as he was clearly told – the slightest chance of his organization misleading a court during litigation and/or in criminal prosecutions, he should have been all over this. Not wittering about “pots”, “macro issues” and dumping his responsibilities on others like some latter-day Pontius Pilate. “Not my job” is not what a GC should be saying when told of unlawful, potentially criminal behaviour. A GC is not a passer-by at the scene of an accident.

He should have informed the full Board, including the non-executive directors, of what he’d been told and what needed to be done. Did he? If he was either not listened to or told to do nothing or that it was none of his business, he should have resigned and told the legal regulatory authorities, the courts and the government why. Of course, this would have required a sense of professionalism, some ethical sense and courage. Were these qualities more widespread in public and commercial life, our organizations would be in a much better state than they are.

What this vignette (and the other recently released recordings) suggest is a Board lacking the necessary curiosity alerting them to what was happening at the executive level. Or, just as likely, a Board not wanting to know, making that clear and thereby stifling any chance of independent ethical action by managers from the executive level down.

Investigations

And a legal department unwilling or unable to take full and proper responsibility for the company’s investigations team and the consequent prosecutions. What sort of an investigations team the Post Office actually had and whether it really did any investigations in the proper sense of that word will be for another time. (Spoiler: no.)

It suggests an organization splitting up its management of and responsibility for (“They’re not in my pot”) its response to what was being alleged in a way which weakened the GC’s authority, made it harder for any one senior person or department to see the extent of what was happening (or easier to turn a blind eye and disclaim responsibility, depending on how cynical you’re feeling) and easier to treat the constituent parts of the scandal as problems to be managed away rather than fully understood and properly handled.

Employees will often break the rules, whether deliberately or by mistake. Sometimes they will try and cover up what they have done. Or say nothing, hoping the problem will go away. Or lie when asked. There is nothing unusual about this. But that is why we have gatekeepers – in-house lawyers and compliance teams – to act when others don’t, when others are foolish or malicious or afraid to act.

The Williams Inquiry resumes its hearings on April 9 with the interviews of a number of senior Post Office lawyers. It will be interesting to hear from those lawyers how they understood the scope of their role, whether they understood that they might sometimes be in a position where their duty to the court was in conflict with what their client wanted and what they should do in such a situation.

This is something all lawyers, especially in-house ones, have to have an answer to, even if you hope never to be put in such a position. An “I can’t remember” or an “I see no ships” answer will not be good enough.