Best Practices in Corporate Investigations

  • Former Federal Agents
  • 100 Years of Combined Experience
  • Investigations, Compliance & Defense
Chris Quick

Former Special
Agent (FBI & IRS)

Roger Bach

Former Special
Agent (DOJ-OIG & DEA)

Timothy Allen

Former Special Agent
(U.S. Secret Service & DOJ-OIG)

Ray Yuen

Former Special
Agent (FBI)

Michael S. Koslow

Former Special
Agent (DOD & OIG)

Corporate Investigation

Best Practices in Corporate Investigations

Should Our Company’s Attorney Handle The Investigation?

Commonly, companies initially decide to allow corporate insiders, e.g.., the general counsel, to conduct an internal investigation. In most cases, this is not the ideal solution. Corporate investigations can consume significant resources, diverting those insiders from their normal professional responsibilities within the company. Further, most investigations have regulatory and law enforcement implications, with exposure to administrative, civil and even criminal penalties. Although your corporate insiders may have some familiarity with regulatory and law enforcement investigations, outside experts with extensive experience in these matters is more appropriate. Generally, insiders that conduct internal investigations will not meet the expectations of government investigators. A former federal prosecutor with former federal agents and regulators on staff in addition to forensic accountants would be in a much better position to satisfy government expectations, convince the government of the company’s commitment to cooperation but, at the same time, best prepare to defend the company should the government decide to take action.

What Precautions Do We Need To Take In Interviewing Employees?

Generally, employees have no choice but to agree to be interviewed because, in most cases, they can be terminated for refusing to cooperate. Recent court decisions indicate a shifting legal landscape with respect to employee interviews. Attorneys conducting employee interviews are now on notice that they should carefully inform the employee that the attorney does not represent the employee and in fact represents the company. The employee should be further advised that the company may voluntarily provide information learned during the interview to government authorities, or that it may be required to. These warnings are best provided in writing and signed by the employee being interviewed. Lastly, attorneys conducting the investigation must be careful to protect the independence of the interview from any government investigations. That is, the attorney conducting the interviews should be careful to ensure that he/she is not conducting the employee interview at the request of the government only to immediately provide the government with the results of the interview.

What Is A Common Mistake In Conducting An Internal Investigation?

A significant yet all too common mistake is failing to adequately formulate the scope of the investigation. The internal investigation must be designed to accomplish two primary goals. First, thoroughly investigate the conduct at issue and formulate a remedial plan. Second, identify and mitigate the corporation’s exposure to liability, primarily through a comprehensive look at the environment that allowed the conduct at issue to occur and/or remain undetected. Questions to bring within the scope of the investigation include:

  • Was the act in question an isolated incident or is it part of a pattern of other similar acts?
    • Was the pattern of unlawful conduct commonly known of by employees?
    • Were senior managers and officers aware of the conduct but ignored or even encouraged it?
    • Does the company have a compliance program that should have identified and prevented the conduct?
    • Has the company been the subject of examinations or audits (internal or external) that previously identified or warned about lack of controls that could lead to the unlawful conduct?
    • Has the company received prior complaints about the conduct but failed to diligently address them?
    • If there is no direct knowledge of the conduct, were there red flags identified but ignored by the company?
    • Does the company have an adequate training program that addresses the conduct at issue?
    • Did the company make a significant amount of money or advantage through the unlawful conduct?
    • Did any managers of officers of the company receive increased compensation as a result of the unlawful conduct?
How Can I Contain Costs?

Internal investigations can consume significant resources, particularly when paired with discovery obligations in private or government litigation or investigation environments. Further exposure to significant financial penalties or judgments only add to that burden. The prudent course of action is to estimate the costs of the investigation as well as any potential financial penalties and immediately prepare a budget to absorb those expected expenditures. The sooner funds can be set aside for possible future costs and financial penalties the better because the company can benefit from making quarterly allocations while typically long-term investigations play out. At the same time, the use of outside experts who are very familiar and experienced in the particular issue you are confronting can save significant time and money. No one wants to pay money for yet more consultants but, in the long run, an experienced group of experts can more effectively conduct the investigation and, in the long-term , reduce if not avoid significant financial penalties.

Should We Cooperate With The Government?

Cooperation with a government investigation should not be interpreted as waiving all rights and throwing open the doors to the company, even if the company believes it has nothing to hide. As an initial matter, the company must fully and timely comply with all lawfully-issued government orders, including subpoenas.

Any other efforts by the company to work cooperatively with the government are purely voluntary, so what can be achieved by cooperating? Generally, whether or not a company cooperated with a government investigation will be a very significant factor for the prosecutor to consider in deciding how to resolve the investigation. That is, assuming wrongful and harmful conduct was discovered by the government, in addition to holding individuals responsible for their conduct, should the government file criminal charges against the company and, if so, what charges? or should the government consider entering into a settlement agreement with the company or perhaps not prosecuting the company at all? Whether or not the company cooperated with the government and the extent of that cooperation can be a very significant factor in answering that question.

Should We Self-Disclose To The Government?

It is exceedingly difficult for any company to decide whether or not to disclose to the government illegal activity uncovered through an internal corporate investigation. After all, corporations can be held criminally liable for the acts of employees and the resulting financial penalties can be severe. However, recent policy changes by the Department of Justice indicate that self-disclosure may in fact completely alleviate the company from liability. What started as a policy the Department enacted with respect to Foreign Corrupt Practices Act (FCPA) violations, has now been informally adopted throughout the Department. The policy, entitled “FCPA Corporate Enforcement Policy,” is designed to encourage voluntary self-disclosure by offering a “presumption of declination” for companies that voluntarily self-disclose and fully cooperate and remediate (all three are required). The bottom line is that the Department wants to reward companies when self-disclosure and full cooperation allow prosecutors to gather evidence in a more timely and efficient manner and to take investigative steps they might not otherwise have been able to take against the individual wrongdoers.

What Can We Do To Proactively Offset Future Investigations?

No company can always have complete control over its officers and employees – individuals can engage in corporate wrongdoings without the knowledge of the company itself. However, to mitigate future risk of investigations, companies can take certain steps to protect themselves. A company should always have corporate compliance policies and procedures in place regarding applicable state and federal laws. All company officers and employees should undergo mandatory training on these policies and procedures. To be most effective, companies should use outside counsel experienced in the company’s industry to develop these polices and procedures. Outside counsel will have the best knowledge base surrounding applicable laws and regulations that the company needs to adhere to. The company should require mandatory compliance training every calendar year for its officers and employees. Yearly training ensures that the company is up to date on any relevant laws and regulations that may have changed.

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