Credible reports of criminal violations within a company may cause management's stomach to sink. Once the initial shock wears off, however, the company must seize the opportunity to go on the offensive by conducting a comprehensive, internal investigation of the alleged violations to avail itself of a variety of courses of corrective and remedial actions, many of which would be undermined or lost should the alleged violations remain largely unaddressed.
The immediate priority is to stop the ongoing violations to limit any further criminal exposure of the company and its representatives. Such action requires not only a full understanding of what happened, but also an understanding of who participated in the violations and how they did it. Until all participants and the extent and nature of their respective involvement are identified, a company cannot feel confident that it has stopped the bleeding.
In an internal investigation, company representatives should work closely with outside counsel who bring specialized investigative expertise and an independent, unfettered perspective to assess the situation. Although each investigation is unique, investigations all share a number of common elements and steps:
- Understanding the Underlying Business – No effective and meaningful investigation can or should be conducted "cold turkey." Investigative counsel need to understand the context in which certain alleged actions or comments were made so as to identify all potential avenues of liability.
- Reviewing Internal Documentary Evidence – This can include a review of internal emails, text messages, documents saved on the company's computer servers, credit card statements, phone records, timesheets, etc. In some cases, it may also include a review of GPS data from an employee's car or mobile phone.
- Reviewing External Documents – In addition to the review of the internal documentation, some investigations may require a thorough analysis of publicly available documents pertaining to the company, its business and/or alleged misconduct. As an example, in an insider-trading investigation, counsel would need to review records of the date/time/amounts of key transactions.
- Conducting Interviews – This is often the final and most crucial aspect of an internal investigation. Company personnel can be confronted with important evidence discovered in the investigation, and their credibility can be evaluated by counsel with experience in assessing body language and other indicators of dishonesty. Keep in mind that individual employees may need separate counsel.
- Completing the Final Report – Most internal investigations conclude with a report setting forth the facts, an assessment of criminal and/or civil exposure and a recommendation of the corrective actions and remedies to be implemented. Remedies might include disciplining employees, terminating relationships with independent contractors or foreign partners, improving the company's compliance program/internal controls, filing a claim under the company's employee-misconduct insurance policy, etc.
Once a company has effectively utilized an internal investigation to terminate its continuing liability, the company can avail itself of opportunities to mitigate its past liability. Some of those opportunities include filing an insurance claim or commencing civil litigation. Self-reporting the violations to law enforcement officials is another opportunity. More specifically, this includes an opportunity for a company to demonstrate to prosecutors its commitment to compliance. This is an invaluable asset that often means the difference between onerous criminal punishment and more lenient charging decisions by prosecutors (including a decision not to prosecute at all). Prosecutors can often be convinced that a company with effective internal policies does not warrant or require criminal punishment to enforce corporate compliance.
The decision to self-report violations is understandably complicated. On the one hand, a company can use self-reporting effectively to demonstrate its commitment to compliance and to mitigate any criminal sanctions to which it or its representatives may otherwise be exposed. The truth is that many companies believe strongly in the notion of good corporate citizenship, and self-reporting violations is an effective way to evidence such commitment. There is also an internal deterrence value to self-reporting misconduct to law enforcement officials such that it will put employees on notice that wrong-doing will not be tolerated.
Alternatively, internal investigations can be truly internal, if a company so chooses, provided certain steps are taken. If handled properly, internal investigations can be protected by the attorney-client privilege as legal advice to the company. Internal investigations also give companies the opportunity to clean up their own messes quietly without the negative "public relations" impact and without an admission of criminal liability that would necessitate a waiver of the attorney-client privilege. Some corporate executives may not feel comfortable waiving privilege and forfeiting all of the company's negotiating leverage with prosecutors, while simultaneously inviting a slew of civil lawsuits against the company, in return for only the hope of mercy from prosecutors. Internal investigations are essential to preserving this option. Absent quick containment of the problem and remedial action, violations are much more likely to become known by the outside world through disgruntled employees, competitors, opportunistic whistleblowers, divorcing spouses, civil litigation, or countless other ways outside of the company's control.
There is no "one size fits all" approach to handling reports of criminal violations within a company. Each situation demands its own careful consultation with outside counsel and the company's management, and difficult choices will need to be made. There can be no doubt, however, that without commencing an internal investigation, companies forever give up several useful options to address the potential problem.
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.
