INTRODUCTION
With fraud and corruption accounting for more than 2% of the U.S. gross domestic product, and with it being even more prevalent in many foreign countries, U.S. corporations which have overseas operations are finding it increasingly necessary to conduct internal fraud investigations in foreign countries.
Numerous issues arise in U.S. based fraud investigations, which require the lawyer conducting them to be knowledgeable in areas of commercial law, white collar criminal law, parallel proceedings and other areas. When a U.S. corporation, particularly a major one, begins an investigation in a foreign country, whether of its own operations or of third parties, the lawyer conducting the investigation must be cognizant of many factors that would not arise in the United States and must plan the investigation to deal with these factors. This is particularly true where the corporation is a major employer, or revenue from it is important to the local or national economy, or if there are local joint venture partners, third party companies or prominent persons who may be implicated in wrongdoing.
Overseas investigations can arise in a number of different ways. The host foreign government may commence an investigation. In some instances, the United States government will commence an investigation of a U.S. corporation for work done overseas. In many instances, the corporation will itself want to conduct an overseas investigation because of concerns that it has been defrauded or because of concerns regarding its operations or relationships with third parties.
Those with the requisite education and business experience to perpetrate large scale frauds are often schoolmates, business associates or family to those in government positions of power. The close personal and business relationships which exist between government, on the one hand, and wealthy families and powerful business executives on the other, such as joint-ownership of target companies, family intermarriages resulting in joint business interests and even joint legal/professional representation, can cause great difficulty for the investigation.
Often, as a result of the fact that the "upper echelons" move in the same social arenas, third parties may be hesitant to provide information against the subjects of the investigation for fear of retribution specifically associated with their continued social positions. Or they may funnel information to the persons being investigated while appearing to fully cooperate. These people frequent the same churches, country clubs and vacation spots and are firm in their belief that, once the furor passes, they will again be interacting with the subject(s) of your investigation. Yet an investigator may have no clue of the relationship and thus not know that real assistance will not be forthcoming.
One clear impediment to an overseas internal investigation can be the press. In the United States, most internal investigations raise little public interest. In the cases where they do, the press seeks to report information not to influence the investigation. In many countries, the press is owned or controlled by wealthy individuals who are not shy about using it for their own benefit or the benefit of their friends. Articles which make the investigation look like a witch hunt, or which report inflammatory or completely false information, can lead to public outcry against the investigation, which will make cooperation at any level less likely.
The Congress or other legislative body may take action to interfere with the investigation. It may do so independently, as a consequence of press instigation, or simply if someone with influence asks for a favor. The executive branch can also cause problems, particularly if there is a very political and nationalistic attorney general, with even higher political aspirations, something that is not at all uncommon.
Witnesses may be less willing to cooperate if the government appears critical of the investigation in any fashion. There have been instances of government officials threatening to prosecute persons who are cooperating with the investigation. In certain countries in the Middle East, entire investigative practices are considered to be violative of certain religious tenets and attempting to use them may be detrimental to the entire investigation.
Lawyers conducting investigations in the United States operate under rules and procedures that are generally similar in each state. There are certain ways to obtain documents, to conduct interviews or obtain testimony. Investigatory tactics that are common in the U.S. are often difficult or impossible in foreign countries. For example, most information in the U.S., such as bank and corporate information, can be obtained, although some only by subpoena. In numerous foreign countries it is illegal to obtain bank information under any circumstances. In some countries, actual corporate identities and corporate owners are protected even from that country's law enforcement. Therefore, typical methods of obtaining information are often not fruitful and, even if the information can be obtained, the investigator must be concerned whether the information can be used in a U.S. court or any foreign court. It is common, even for entities that were created for honest reasons and that conduct their business honestly, to be under hidden ownership. In many cases, even the attorneys or firms that engage in business solely to incorporate entities or open bank accounts may not know who the true owner and beneficiaries are. Thus, investigators often must peel through layer upon layer of corporation, often without documentation, in an effort to find true ownership and hopefully relevant records and information. It is rare for records of almost any kind to be centralized in many foreign businesses. Therefore, you may have to locate and search the files geographical location by geographical location.
In addition to procedural problems, substantive differences in law and accounting standards may make what appears to be illegal or unethical activity under U.S. law acceptable in the country where it is being investigated. This presents real problems when the activity in question is being done by employees of a U.S. corporation, even if they are not American. In such situations, a U.S. corporation may be doing things which, for example, violate U.S. accounting standards or U.S. laws, but which do not violate either in the foreign country. In many overseas investigations, as in the U.S., it is necessary to have forensic accountants review records to determine whether there were violations of particular accounting standards. Their conclusions are critical to counsel in determining whether there have been violations of law. I have had situations where U.S. accountants in a Big Six firm found the activity under investigation to be grossly improper while their brethren in the same firm in a foreign country found it to be not only appropriate but standard operating procedure.
How does the investigator deal with these difficulties? This may well depend on whether the investigation was undertaken by the corporation at its own behest or whether the U.S. government was behind it. Obviously, if the corporation is reacting to a U.S.. government investigation, assistance from U.S. government officials is unlikely at best. In a corporate generated investigation, it is useful to be in touch with the U.S. embassy to ascertain whether it can be of any assistance. This depends on many factors including how the ambassador is held in regard by the host country, whether he is willing to help, and whether there is an effective FBI Legat willing to help. While there are limits to what either can do, both can play a role if willing to do so. The Ambassador can jawbone the government to try to reduce direct interference in the investigation or mere passive disregard of the interference of others. The Legat can play an effective role with the country's law enforcement officials to try to insure they play no role in harming the investigation and even to obtain their assistance in obtaining information or cooperation. At a minimum, the lawyer should consider the following:
- Set up a control group that includes counsel and persons who need to know.
- To obtain in-country, non-company information, retain local investigators with impeccable reputations. Insure, to the extent possible, that they have no personal, business or family connections to the persons or companies under investigation.
- Preserve evidence immediately. It is not uncommon for documents and computer files to be compromised, regardless of normal security procedures. Moreover, simply finding where all relevant documents may be located can be difficult and time-consuming, but it should be a process that moves forward quickly.
- Make an assessment of whether there has been a violation of U.S. or foreign law and what the corporate exposure would be.
- Decide whether disclosure/cooperation with the foreign Government is necessary and, if not, whether it would be helpful. Have someone with good contact with the host government on the team.
- Determine who critical witnesses are and take whatever action is necessary to protect them and assure them of their safety and job security. It is quite common in internal investigations to promise immunity from firing to employees who cooperate and to even promise not to take what they have done to prosecutors in exchange for cooperation. Such informal "immunity" promises are in violation of the law in many countries and may present the Corporation from ever successfully taking a grievance to a court in the foreign country.
- To the extent needed, retain a highly regarded media professional, with the requisite press and governmental contacts, to handle all matters relating to the press.
In sum, the difficulties inherent in any fraud investigation are substantially greater and different when that investigation has to take place overseas. Prior to commencing the investigation, and while going through it, the lawyer in charge can enhance the likelihood of success by paying close attention to these factors.
Eugene M. Propper is a Partner in the Washington, D.C., office of Holland & Knight LLP where he practices with the firm's litigation practice. He has represented American and foreign corporations in domestic and overseas fraud investigations. He has been in private practice for 19 years and was an Assistant United States Attorney in Washington, D.C., for 8 years prior to that.
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.
