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1 July 2013
Is there a day that passes without some revelation that a well-respected company is under investigation for this or that alleged misdemeanour? Unexplained wobbles in share price, disclosures from whistle-blowers, industry-wide increases in prices, or the findings from routine visits by regulators commonly lead to suspicions of wrongdoing. In the current climate, the mere announcement that the company is being investigated, even if accompanied by a robust denial of wrongdoing, is headline news. But the news stories, and even the unpublished activities of regulators, are only the tip of the iceberg.
Every day, dozens of companies are conducting internal investigations and attempting to understand what is happening within their own organisation. Companies need to find out whether they have committed any wrongdoing and, if they have, find out what they ought to do about it. The benefits of internal investigations are obvious - they can provide an early warning of problems, identify control failures, demonstrate good corporate governance and help a company avoid the devastating consequences of a regulatory investigation, but there is little understanding of how internal investigations should be conducted. Getting it wrong can actually make matters worse, so here are 10 quick tips.
Above all else, common sense must be adopted. Being the subject of internal investigations is not a part of any company's core business and the investigation team needs to be flexible and attentive to the needs of business people. There can be no better way of taking a compliance snapshot of a company's risk profile and current practices than a fast and skilfully implemented investigation, conducted by those who understand the rules of engagement. The fruits of the investigation can be used to make voluntary disclosures to authorities, defend subsequent civil or criminal proceedings, clear the company's name in the court of public opinion and improve its risk management practices. However, like so many things, investigations require a set of core skills and the non-specialist should take advice or leave well alone.
Steven Francis is a partner and Rakhi Talwar is a professional support lawyer at DLA
|1. Consider resources |
Internal investigations require a range of specialist skills. Do not embark on an investigation until the necessary resources and skills are available.
2. Set the privilege ground rules early
Make an honest assessment of whether the benefits of legal professional privilege are likely to be attainable. Unless you are preparing the ground for litigation, privilege is likely to apply only if the work is being done by a lawyer acting as such. If privilege is not available, all the working papers and any report will not be protected from disclosure. Remember that privilege is, in the main, a legal rule of evidence. Be wary of advice on this point from non-lawyers.
3. Prepare for a widening scope
Those who sponsor the investigation need to understand that its scope might change. An investigation into directtax might highlight failures in VAT systems or Intrastat reporting, for example. Control failings in managing health and safety might materialise as acts of environmental damage. Companies know better than lawyers that they are not made up of independent cells, but comprise highly integrated units where a compliance failure in one part might have a knock-on effect in another. Because of this, it makes little sense to constrain internal investigations along business, product or regulatory lines.
4. Adopt a fast track approach
If something is worth investigating, it is worth investigating quickly. Agree with your lawyers a timetable for document uplifts, interviews and the production of interim and final reports, and see that the timetable is adhered to. A sprawling investigation can cause a sponsor problems.
5. Interview from the bottom up
The team will usually only get one chance to interview the chief executive officer or finance director, so interview them last when the facts and documents have been mastered. Investigations have been known to be aborted summarily by a managing director who is wholly unimpressed by the ignorance of those that attend to interview him. Less senior employees are more flexible and accessible.
6. Do not caution
A practice has developed for those conducting interviews to administer a Police and Criminal Evidence Act-type caution. This will serve to make employees scared, and send them rushing into the arms of their trade unions or own lawyers. There is no need to adopt an aggressive approach with interviewees, whatever the alleged wrongdoings. Patience and courtesy always pay dividends and initial concerns and allegations often prove to be unfounded.
7. Get HR involved early
Relationships with trade unions may need to be fostered, disciplinary action taken against employees and, sometimes, grievance hearings conducted while an investigation is ongoing. An investigation that exonerates the company is, of course, a good outcome, but if care is not taken the company will be left with disgruntled employees, perhaps even having to defend claims for wrongful or unfair dismissal.
8. One point of contact with regulators
Sometimes, the internal investigation will be conducted with the support of the regulator, who will receive interim reports on the findings. Ensure that there is only one point of contact with the regulator. A large investigation might involve computer forensic experts, accountants, lawyers and members of the company's own internal audit team and, if all of these have their own line into the regulator, the result is, at best, a waste of resources and, at worst, a source of risk.
9. Cull the distribution list
If a report is privileged, the copying and distribution of it might destroy that privilege by undermining the claim to confidentiality. Passing the report to a parent company might be fine, but distribution to the company's public relations consultants might be fatal. Everything depends on the facts, so take advice.
10. Preserve the evidence
It might be crucial to prove that X and Y had a particular document, or that it was found in a buff coloured envelope in the filing cabinet by the door in Z's room. Trained investigators have ways and means of uplifting documents while still being able to prove where they get them from.