Navigating the Minefield: Practical Considerations for Conducting Internal Investigations

Navigating the Minefield
INTRODUCTION

The reality of today’s business landscape is that no industry is entirely isolated from incidents of bribery or corruption. Accordingly, corporations should ensure they have appropriate procedures in place to conduct properly scoped and designed internal investigations when such issues surface.

A recent New York Times exposé regarding a corruption-related internal investigation undertaken by a Fortune 500 company is a prime example of the types of pitfalls that can and should be avoided. That case involved allegations of bribery, corruption and a cover-up at the top levels of the company. The bribery allegations were bad enough, but it was the mishandling of the investigation that led to the exposé and the cover-up allegations. It was alleged that the company:

  • Failed to act on credible evidence following a preliminary review
  • Allowed carriage of the matter to be given to an implicated party, rather than an independent investigation team
  • Closed the matter too quickly, without a strong investigation report to fall back on
  • Waited until the media was reporting on the issue to take it seriously

While there is no one-size-fits-all model for internal investigations, there are several important considerations that commonly arise and can be managed to avoid pitfalls like those noted above. The purpose of this paper is to discuss some practical considerations for dealing with six such considerations.

CONSIDERATIONS

Making the call: When is an investigation warranted?

There are many different triggering events that can bring a company’s attention to potential bribery or corruption. Here are a few:

  • Allegations of wrongdoing by the company or its representatives
  • Adverse media reporting
  • Investigative activities by authorities (including search warrants)
  • Issues stemming from audits or compliance reviews
  • Whistleblower complaints

Not every triggering event requires an internal investigation. A threshold question to be determined in every case is whether a full internal investigation is warranted. It is often appropriate for in-house counsel to conduct an initial screening and assess the issue. The purpose of this initial assessment is to gather the information that is readily available, identify the credibility of the triggering event and determine whether there is a real legal or reputational risk that warrants further investigation.

Who should oversee the investigation?

A key early decision is whether the investigation should be overseen by a board committee or another person, such as in-house counsel or compliance personnel. Board committee supervision is typically required where the bribery or corruption allegation is serious and widespread or where allegations involve the company’s senior officers. On the other hand, where the matter is not serious enough to warrant board supervision, it is often appropriate for other company personnel to direct the investigation. Regardless of who oversees the investigation, involving counsel at the outset is key to maintaining privilege, which is discussed below.

It is important to recognize that it is never proper for a person who is potentially implicated in the bribery or corruption scheme to play a role in conducting the investigation. It is critical that any investigation maintain its integrity and independence in respect of the subject(s) under investigation.

When should outside legal counsel be brought in?

Specialized external counsel is appropriate for more serious issues that require experienced investigators or where allegations of bribery or corruption involve the company’s senior officers. Outside counsel create a measure of independence and impartiality, which can lend credibility to the investigation’s findings. The early involvement of outside counsel can also be integral to maintaining privilege, as certain jurisdictions
do not recognize in-house legal privilege. Accordingly, a company must be aware of which jurisdictions their investigation pertains to and be familiar with the relevant privilege laws to determine if outside counsel should be brought in immediately.

How do you protect privilege over the investigation?

Maintaining privilege is a key consideration as it shields the results of an investigation from the authorities or adverse parties. Typically, privilege is maintained over counsel work product (such as investigation reports and witness statements) so long as an investigation is being conducted by legal counsel (potentially only outside legal counsel, as noted above), and for the dominant purpose of contemplated litigation or the provision of solicitor-client advice.

A significant risk that often arises in the context of internal investigations is an inadvertent waiver of privilege. This can happen through disclosure of the investigation findings or legal advice to third parties. For this reason, companies should be very careful with what investigation findings are committed to paper or other saveable medium and how that information is distributed.

In addition, pre-existing documents identified through an investigation do not become privileged by virtue of the investigation, but rather it is the work product generated under the direction of legal counsel that is subject to privilege.

What are some best practices for evidence preservation and collection?

A company should be proactive with policies and procedures for evidence preservation in the event of a triggering event that warrants an internal investigation. Often times, IT professionals can be consulted to set up a company’s system so that records can be centrally accessed and preserved for a certain amount of time even though they might be manually deleted by a user. A company must also consider the data privacy laws that it may be subject to.

Upon a triggering event that warrants an internal investigation, a company should consider issuing a document hold notice to inform potential record keepers that they are not to dispose of any records that might be relevant to the investigation. IT professionals can also often preserve records, particularly in sensitive matters where widespread communication of the investigation could be problematic.

Often times, internal investigations can produce thousands of records for investigators to digest. Search analytics using keywords tailored to the particular situation are an important tool to ensure that a company’s time and resources are spent on records that are likely to impact the investigation.

In investigations where large amounts of financial records are required to be reviewed or where complicated financial procedures are at issue, a company should consider the use of specialized professionals who can add considerable value to more technical investigations.

What are some best practices for witness interviews?

Witness interviews are integrally significant to internal investigations and can provide context to documentary and other evidence. In addition, in bribery and corruption schemes, involved parties are often careful not to document their wrongdoing. Accordingly, key information is sometimes only available through first-hand statements of witnesses.

Face to face interviews are generally preferable to telephone interviews because they allow the interviewer a better level of interaction with the interviewee, though in some cases, face-to-face interviews are simply not practical and telephone or video conference will have to suffice.

“Upjohn” warnings are another important consideration. An Upjohn warning makes interviewees aware that:

  • The investigators represent the company and not the witness personally
  • The interview is privileged and that privilege belongs to the company
  • The company, at its sole discretion, may elect to waive that privilege

Furthermore, an interview is only as good as the record that memorializes it. The most accurate way is to record the interview, though in most cases a written witness interview summary highlighting the important points is appropriate. Judgement must be exercised when deciding whether to record an interview. The chilling effect that it can have on witness testimony must be balanced against the increased accuracy of memorialization.

CONCLUSION

Internal investigations can be challenging and require careful preparation, planning and coordination often within a constrained timeline. By knowing and understanding the potential pitfalls that can be encountered when conducting internal investigations, companies can save themselves significant legal risk, reputational harm, unnecessary expense and business interruption, and ensure that they adequately manage historical risk and potential liabilities as new facts come to light.

 

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