1 The Decision to Conduct an Internal Investigation
1.1 What statutory or regulatory obligations should an entity consider when deciding whether to conduct an internal investigation in your jurisdiction? Are there any consequences for failing to comply with these statutory or regulatory regulations? Are there any regulatory or legal benefits for conducting an investigation?
Swiss law does not impose direct obligations on companies to conduct internal investigations. However, duties to cooperate with and provide regulatory authorities with accurate information can indirectly compel them to do so. The Swiss Financial Market Supervisory Authority ("FINMA"), for example, frequently orders regulated entities to explain incidents and produce documents relating to matters under its supervision, and the entities are also under an ongoing obligation to immediately and proactively notify material events. The stock exchange, SIX Swiss Exchange, imposes a similar ad hoc notification requirement, and financial intermediaries have duties to investigate and report suspicious activity to the Swiss Money Laundering Reporting Offices. Conducting an internal investigation is often the only way to gather information and comply with such duties, and sanctions for non-compliance can be serious. Providing FINMA incorrect information, even if only negligently, is a criminal offence attracting a fine of up to CHF 250,000, while intentional non-compliance bears a maximum sentence of three years' imprisonment. Sanctions against the entity can go as far as the regulatory authority revoking an entity's licence to engage in business, particularly if it fails to remediate the conduct in issue.
Regulators such as FINMA usually have the power, under their overarching authority to remediate unlawful conduct and restore compliance, to order internal investigations. If necessary, FINMA can appoint an independent investigator (usually a law firm or an audit firm) to investigate and implement remedial measures within a regulated entity. By taking a proactive and early decision to investigate, entities have the advantage of preserving a degree of control over their investigations, and give themselves time to prepare responses to any government or media enquiries before they arise.
Another incentive to investigate is that the Swiss Criminal Code ("CC") imposes corporate criminal liability for failure to take adequate measures to detect or prevent the commission of offences within an organisation. A legal entity may thus be convicted for failing to implement reasonable measures to prevent an exhaustive
list of catalogue offences (known as primary corporate criminal liability); or, if the organisation does not have adequate corporate and compliance structures to identify the natural person responsible, it can be made (secondarily) liable for any felony or misdemeanour committed during the ordinary course of its business. The criminal prosecution authorities recently rewarded a company's proactive initiation of an internal investigation, cooperation with the authorities and its implementation of compliance measures by treating these as mitigating factors at sentencing (cf. question 2.1 below).
An entity's board of directors and its executive organs also have duties of care under company law, which can require them to set up compliance and control systems to detect, investigate and remediate misconduct. In addition, key employees, such as senior management or compliance officers, may be held criminally liable for failing to take action to prevent criminal conduct within the organisation.
A specific benefit to conducting an internal investigation in competition law is that a statutory leniency programme can grant companies complete or partial immunity from sanction if they report unlawful restraint of competition before others do.
1.2 How should an entity assess the credibility of a whistleblower's complaint and determine whether an internal investigation is necessary? Are there any legal implications for dealing with whistleblowers?
A whistleblower's complaint should be investigated with the same care and diligence as any other report of impropriety. An entity's exact response – and whether it is necessary to appoint external consultants to investigate – will depend on the circumstances. Normally, an entity should take immediate measures to preserve relevant evidence, investigate the facts and document the steps in its investigation. If the complaint is substantiated, steps should be taken to sanction and remediate the wrongdoing.
Although legislative reforms in employment and criminal law are under parliamentary discussion, currently, Swiss law does not offer any statutory protection to whistleblowers. Whistleblowers who breach confidentiality and secrecy obligations (for example, by leaking protected information to the public) are subject to criminal sanction. From a compliance perspective, it is considered best practice for entities to establish reliable avenues for their employees to report suspected misconduct free from risk of reprisal. Terminating a whistleblower's employment solely because he has made a complaint can constitute unfair dismissal with potential consequences under civil law.
1.3 How does outside counsel determine who "the client" is for the purposes of conducting an internal investigation and reporting findings (e.g. the Legal Department, the Chief Compliance Officer, the Board of Directors, the Audit Committee, a special committee, etc.)? What steps must outside counsel take to ensure that the reporting relationship is free of any internal conflicts? When is it appropriate to exclude an in-house attorney, senior executive, or major shareholder who might have an interest in influencing the direction of the investigation?
The identity of the "client" will vary depending on the specific investigation and the terms of counsel's engagement. As the person who often leads the investigation internally, the client can influence whether an investigation is viewed as being independent and, as a result, whether its findings are reliable.
To ensure the reporting relationship is free of internal conflicts, employees or third parties who were involved in the matters under investigation or who are otherwise personally interested in its outcome should not lead or be part of the investigation team. This should apply regardless of whether the person is an in-house attorney, senior executive or major shareholder. Outside counsel should be granted full and free access to the entity's internal records and to its employees, so that it can make recommendations as to the composition of the investigative team.
Outside counsel should then report its findings to specific individuals or a steering committee who have been designated responsibility for the supervision, strategic direction and overall coordination of the investigation. Limiting and defining the number of persons involved in the investigation can help to focus the direction it takes, maximise confidentiality and legal privilege, and ultimately make it more cost-efficient.
2 Self-Disclosure to Enforcement Authorities
2.1 When considering whether to impose civil or criminal penalties, do law enforcement authorities in your jurisdiction consider an entity's willingness to voluntarily disclose the results of a properly conducted internal investigation? What factors do they consider?
Yes, they do. As mentioned above, competition law authorities can grant immunity to companies that (first) report unlawful infringements voluntarily. At sentencing in criminal proceedings, law enforcement authorities generally take into account mitigating factors, such as an offender's remorse and whether reasonable efforts have been made to remediate wrongdoing. The voluntary disclosure of the results of an internal investigation can qualify as a mitigating factor. In 2017, we saw the first reported instance in Switzerland of a company being rewarded for self-disclosing criminal conduct to the authorities. The company reported its liability for failing to take adequate measures to prevent the bribery of foreign public officials, and shared the investigative reports of its external lawyers. The company's admission of guilt, its full cooperation with the authorities and its investment in improving its compliance systems were rewarded by the authorities reportedly reducing the penalty imposed from CHF 3.5 million to the symbolic sum of CHF 1. As is usually always the case, the company was nonetheless separately ordered to disgorge its profits from the illegal activity.
2.2 When, during an internal investigation, should a disclosure be made to enforcement authorities? What are the steps that should be followed for making a disclosure?
In competition law, companies may need to disclose any impropriety early on in order to benefit from the statutory leniency programme. Otherwise – and save for any ad hoc obligations to notify the authorities of material events – a company is generally free to disclose whenever it feels appropriate. From a strategic point of view, it should only do so once satisfied that it has a clear understanding of the main aspects of the misconduct in issue, its implications and the actors involved, even if it has not yet uncovered all the details. Once the authorities are involved, the company will no longer have autonomy over the investigation and will be forced to react to external pressures and unknowns. The following considerations can influence the timing of a self-disclosure: any disruption that disclosure could cause to the fact-finding process; the desirability of state support in securing evidence, freezing assets or interrogating and apprehending suspects; and the likelihood of resulting court proceedings, requests for assistance from domestic or foreign authorities, media coverage or whistleblowers.
2.3 How, and in what format, should the findings of an internal investigation be reported? Must the findings of an internal investigation be reported in writing? What risks, if any, arise from providing reports in writing?
In cases where an investigation has been ordered by the authorities, the findings are usually required to be in writing. If a company's intention is to fully cooperate with the authorities, it should also report the findings of a voluntary internal investigation in writing. While there is no formal requirement to do so, as a matter of common sense, a written compilation of the most relevant facts would demonstrate the greatest degree of transparency, cooperation and contrition on the part of the company.
Even though reports prepared by external lawyers may be fully or partially privileged from disclosure, the risks associated with written reports are that the findings may nonetheless be used against the company in domestic or foreign legal or regulatory proceedings or that the report is leaked to the press. As is set out in response to question 5.5, the authorities may be subject to duties to cooperate with one another such that the report, or its findings, may be distributed further than its intended audience. This risk is less pronounced with oral reporting. A report may also contain information belonging to or affecting the rights of employees and third parties. Any unauthorised disclosure of the report and resulting breach of employee and third-party rights could have legal consequences for the company. Companies are advised to engage with the authorities on the format, scope and use of their reports prior to disclosure.
3 Cooperation with Law Enforcement Authorities
3.1 If an entity is aware that it is the subject or target of a government investigation, is it required to liaise with local authorities before starting an internal investigation? Should it liaise with local authorities even if it is not required to do so?
Save for in relation to certain regulated financial markets, entities subject to ongoing or pending government investigations are not required to liaise with the authorities. It is, nonetheless, advisable to do so. Being in contact and maintaining good relations with the authorities can generate goodwill and potential credit at sentencing. The authorities can also be a valuable source of information regarding developments such as planned coercive measures, involvement and collaboration with foreign authorities, etc. In a best-case scenario, an entity may, for example, be able to minimise the disruption caused by a dawn raid by agreeing mutually beneficial terms for producing evidence in advance. If entities investigate in parallel to the authorities, they risk frustrating the government's fact-finding and, at worst, expose themselves to allegations of tampering with or destroying evidence.
3.2 If regulatory or law enforcement authorities are investigating an entity's conduct, does the entity have the ability to help define or limit the scope of a government investigation? If so, how is it best achieved?
In criminal proceedings, the prosecuting authorities will define the scope of their investigations independently and without input from the concerned parties. There may be more flexibility and opportunity to informally influence an investigation if it is ordered or conducted by regulators such as FINMA that usually have the power to order internal investigations. Regulators will usually define the scope of an investigation but it may be possible to discuss with them and agree on a reasonable scope, the most efficient methodology in reviews and realistic reporting deadlines. While law enforcement entities will usually not involve themselves much or at all in an entity's own internal investigations, we have noticed a trend following the US model for investigations, such that Swiss authorities may also expect to be more involved in purely internal investigations in the future.
3.3 Do law enforcement authorities in your jurisdiction tend to coordinate with authorities in other jurisdictions? What strategies can entities adopt if they face investigations in multiple jurisdictions?
There are a multitude of treaties and legal provisions covering the Swiss enforcement authorities' capacity to cooperate with their international counterparts. Particularly in recent times, we have observed an increase in cases involving international cooperation and coordination (e.g. numerous tax evasion matters involving Swiss banks, the FIFA scandal in which officials were arrested in Zurich, or the multi-jurisdiction investigations in the Petrobas/ Odebrecht affair, etc.).
Where an entity is investigated by several authorities in multiple jurisdictions, it is almost always in its best interests for the various proceedings to be coordinated and, if possible, resolved comprehensively. Parallel investigations bring with them: the risk of delays; repeated and increased business disruption; overlapping sanctions; and sustained reputational damage. Although an entity cannot control the authorities' willingness to coordinate, it can attempt to influence them by making appropriate disclosures. The best course of action will vary depending on the circumstances of the case and will almost inevitably require an entity to seek legal advice in all the jurisdictions concerned.
4 The Investigation Process
4.1 What steps should typically be included in an investigation plan?
An investigation plan should clearly set out the scope of the investigation (e.g. jurisdiction, subject matter, business area, time- frame, etc.), its purpose and the legal issues that should be addressed by outside counsel during the investigation.
It should typically address the following: (i) identification of an investigative team; (ii) reporting milestones (including the structure and format for reporting); (iii) interim or immediate measures (e.g. to secure evidence); (iv) identification, preservation and collection of relevant evidence; (v) scoping interviews; (vi) (physical and electronic) document reviews and analysis; (vii) engagement of external counsel and experts; (viii) substantive interviews; (ix) preparation of investigation reports; and (x) communications with the authorities and the media.
4.2 When should companies elicit the assistance of outside counsel or outside resources such as forensic consultants? If outside counsel is used, what criteria or credentials should one seek in retaining outside counsel?
If companies decide to engage outside counsel, they should do so early on in an investigation to maximise the procedural protection over the communications and work product generated during the investigation. The nature, scope and budget of an investigation will determine whether additional external consultants should be engaged. The main reasons for using outside counsel are: to maximise the chances of the investigation results being privileged; to ensure the investigation is independent and free from conflicts of interests; to obtain an independent perspective on the issues; to lend the factual findings and legal conclusions neutrality and credibility; and to engage with the authorities. For cross-border investigations, it is also worth noting that Swiss in-house counsel do not enjoy legal professional privilege (cf. question 5.3 below). The criteria for selection should reflect those reasons. Outside counsel should be selected based on: their know-how and experience in conducting investigations; their reputation for being independent; their history of engaging with the authorities; the resources they have to deal with investigations; and, in cross-border investigations, their track record for collaborating with foreign counsel and dealing with cross-border issues.
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Originally published in ICLG
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.