With developments in the investigations field, including the ongoing expansion of this field internationally, companies face an unprecedented level of scrutiny from outside parties, including government agencies, and are increasingly seeing the benefits of getting to the bottom of allegations of corporate misconduct. Indeed, the stakes in both internal and government investigations are often enormously high, particularly when high-level corporate personnel or significant business operations are involved. As such, it is essential for companies and their counsel to understand how to conduct effective investigations in accordance with sound practices and governing legal principles. This White Paper is the first in a series of Jones Day articles that will provide "soup to nuts" coverage of corporate internal investigations. In this initial White Paper, we provide an overview of key investigations topics that we will discuss in more detail throughout the series
Now more than ever, it is important for companies and their counsel, regardless of prior investigations experience, to have at least a baseline understanding of sound investigations practices and relevant legal principles. With both internal and government investigations, the stakes are often enormously high. Companies can be sent reeling by serious allegations of misconduct from within, particularly when high-level corporate personnel or significant business operations are involved. And the external threats to a company arising out of major misconduct allegations—such as the prospect of government enforcement actions—are typically no less daunting and sometimes even threaten the company's viability. In either circumstance, companies are well-served by promptly getting to the bottom of the allegations, assessing the legal and business significance of the facts discovered, and ultimately making informed judgments on the best course of action among the available options. An internal investigation, done properly, is the means to achieve these critical objectives.
In the United States, government agencies that monitor corporate conduct and demand or exact hefty fines and other penalties in connection with enforcement actions include the U.S. Department of Justice ("DOJ"), the U.S. Securities & Exchange Commission ("SEC"), the Commodity Futures Trading Commission ("CFTC"), and state attorneys general. As recently as September 2022, DOJ announced new changes to corporate criminal enforcement policies, reflecting the Biden administration's stated goal of prioritizing white-collar criminal enforcement against companies and individuals.1 Regulators and enforcement officials in other countries are increasingly getting into the corporate enforcement game, bolstered by strengthened legal authority, local political dynamics, victories and resulting financial bounties in particular cases, and the exchange of investigative information with counterparts in other jurisdictions. Indeed, government investigations into cross-border conduct increasingly involve cooperation and even joint investigative efforts among the interested jurisdictions, or simply parallel investigations and enforcement proceedings in domestic jurisdictions. Adding yet another layer of complexity and potential risk to corporate entities is the emerging industry of whistleblower law firms that actively recruit clients and alert various authorities to alleged corporate wrongdoing in the hope of securing monetary awards under whistleblower reward programs.
The upshot is that throughout the world, corporations as well as their directors, officers, employees, and agents are being watched more closely than they have ever been by government agencies and the full range of corporate stakeholders and other interested parties (e.g., shareholders and other prospective civil litigants, the media, customers, and consumer groups, etc.). Corporations must pay increasingly close attention to conduct on the part of their employees and agents that can expose the entities to legal, financial, and reputational harm. Indeed, the rise in corporate enforcement activity is being met by a heightened awareness on the part of companies of the benefits of effective self-policing, not just as an important end in itself, but also as a means of mitigating a company's exposure in the event of a government investigation or enforcement action. While companies can be challenged in ensuring that employees and agents at all times act in accordance with the requirements of law and internal policies, what they can control is the design, implementation, and operation of their corporate ethics and compliance programs.
Central to any well-functioning corporate ethics and compliance program are well-considered and followed policies, procedures, and practices for initiating, conducting, concluding, and addressing the findings of internal investigations, and for appropriately responding to government investigations. Again, in this regard, the internal investigation is an essential tool that importantly identifies facts that may present past and current compliance risks, enables informed judgments as to any appropriate remedial action (e.g., personnel action, enhancements to relevant internal controls, and employee training), and places the company in a better position to address any government investigation or private litigation that might arise from the underlying conduct.
For any particular internal investigation to serve its purposes, it must be planned and executed with the utmost thoughtfulness and skill, and pitfalls must be avoided. There is no room for "winging it" when it comes to investigating alleged corporate misconduct; to the contrary, the field of internal investigations has undeniably matured to the point where there are certain established practices and conventions that should not be avoided without proper justification. If these conventions are not followed, this could cast doubt on the investigation's credibility and the corporate entity's good faith. And yet, internal investigations remain both science and art, and all investigations involve measures of both formal technical practice and the exercise of substantial professional judgment and discretion.
WHY CONDUCT AN INTERNAL INVESTIGATION?
Well-executed internal investigations can benefit a company in a number of respects, including by:
Revealing the Facts. The principal goal of any corporate internal investigation is to identify the facts relating to the matter under investigation—typically, the who, what, where, when, and why as to something that happened (or did not happen).
Identifying and Analyzing Compliance Issues. The collection of relevant facts, viewed in light of applicable laws and corporate policies, in turn, permits an informed assessment of the source(s) and reason(s) for any wrongdoing, the legal implications of the conduct, and the potential options for remediating the conduct.
Improving Compliance. Internal investigations regularly result in the identification of remedial measures to address any specific wrongdoing and to improve the corporate compliance program more broadly. In addition, while much about internal investigations should typically be kept confidential and shared with corporate personnel only on a "need to know" basis, the mere existence of an investigation itself is an indication of the company's commitment to compliance and can serve as a strong deterrent to unethical conduct.
Managing Whistleblower Concerns. Whistleblowers who report suspected misconduct to the companies involved (as opposed to bypassing the companies and making their allegations to government authorities in the first instance) are often genuinely interested in seeing that the companies appropriately address the allegations.2 When warranted, launching an internal investigation is often key to responding to a whistleblower allegation and can help assure the whistleblower that the company takes the matter seriously and is committed to addressing the matter free of any government involvement.3
Mitigating Risk in Connection with Government Investigations. Promptly and thoroughly investigating allegations of corporate misconduct can position the company to effectively respond to any ongoing or later investigative inquiry from government agencies. While regulators that become aware of such allegations may not respond with a full-scale investigation of their own, a company should, at a minimum, be prepared to explain how it responded to the allegations. When making a charging decision or reaching a resolution with companies relating to alleged corporate misconduct, DOJ, SEC, and/or other government authorities may consider whether the company conducted an effective internal investigation into the allegations and any resulting remediation.4
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2. An initial step in the investigation of a whistleblower complaint is ordinarily to seek to engage with, and obtain additional information from, the whistleblower (e.g., any relevant documents in the whistleblower's possession and/or information the whistleblower would share in an interview).
3. It should be noted that, in recent years, as whistleblower rewards have become larger and more prominent (and an industry of private law firms representing anonymous whistleblowers emerged), a flood of corporate misconduct allegations have been sent directly to regulators, at times bypassing internal corporate reporting mechanisms altogether. For example, since 2020, the SEC has reported a significant increase in whistleblower tips compared to prior years. In its 2021 Annual Report to Congress regarding the SEC whistleblower program, the SEC disclosed that it received more than 12,200 whistleblower tips in fiscal year 2021—the largest number of tips received by the agency in any given year. This also represents a 76% increase from the number of tips that the SEC received in 2020. Whistleblower tips specifically related to the Foreign Corrupt Practices Act ("FCPA") also increased in 2021 with 258 FCPA-related tips in fiscal year 2021, a 24% increase compared to 2020 and the highest number of tips that the SEC has received in any given year. 2021 Annual Report to Congress, Whistleblower Program, SEC (2021), https://www.sec.gov/files/owb-2021-annual-report.pdf. The SEC reports on significant rewards, issuing millions to individual whistleblowers from settlements. See, e.g. SEC Press Release, SEC Issues More than $17 Million Award to a Whistleblower (July 19, 2022), https://www.sec.gov/news/press-release/2022-125.
4 In June 2020, for example, DOJ published an update to its guidance addressing the "Evaluation of Corporate Compliance Programs," which includes a number of considerations for prosecutors making charging decisions; such as, what steps the company took to ensure that the investigation was independent, objective, appropriately conducted, and properly documented. This guidance has been under further review since 2021 as the new administration seeks to streamline and clarify the "metrics" for evaluating the effectiveness of corporate compliance programs. See Monaco Memorandum (Sept. 15, 2022, https://www.justice.gov/opa/speech/file/1535301/download.
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