Concerned about possible bribery?, Internal investigations - Written by on Monday, May 9, 2011 21:26 - 0 Comments

3) You’re investigating a possible bribe: the nuts and bolts of the investigation

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The third in our series.

For all those expecting the ins and outs of interviewing witnesses and document review.   We haven’t got there yet.

Now, in real time, this would all be happening VERY fast so our serialized approach should not be mistaken to suggest that there is plenty of time to consider these points.  There won’t be.

Before we kick off, remember that the decisions being taken are not in isolation.  They will be against the backdrop of our two prior posts on conducting internal investigations here and here.

So, in the maelstrom of setting up an internal investigation, what else do you need to think about?

Who will oversee the investigation (or be the client)?

There are a number of choices.

The subsidiary or joint venture where the problem emerged? the parent? the management? the Board (of the parent or the subsidiary) the Audit Committee of the Board, or a special committee of the Audit Committee? Confused?

The answer: it depends.

Know and understand the rules the organisation lives by

Is the organisation bound by (a) set(s) of rules which set out what needs to happen, either by way of  corporate governance or through some regulatory requirement.  For example, is US issuer then the rules imposed by Sarbanes Oxley, NYSE and NASDAQ may in certain circumstances require Audit Committee participation in the investigation.  A large UK company’s Audit Committee rules (or anti-corruption or other policies) may set out what to do.  Do any of these (or others) apply?

Independence and avoiding conflicts of interest

Serious about the investigation?  Then you will want it to be effective and minimise the risk that it will  be influenced, or as importantly be perceived as having been influenced, by those conducting it.

Any regulators and prosecutors who get involved will also want to see an independent investigation.

So, why waste time conducting an investigation which has little or no credibility?

If there is any question that the judgment of management or Board members is on the line or may be then those individuals should not investigate.

This raises interesting questions when it comes to line management. Ideally they would not be investigating.  In an imperfect world that may not be possible.  If it isn’t, ensure that there is someone independent who is supporting the investigation (in house or external counsel are good examples).

Experience has taught us that for anything but immaterial (in the grand scheme of things) investigations it’s better to shy away from the investigation being conducted by the subsidiary or its management and to deal with it higher up the corporate tree. We would be extremely cautious about a JV investigating itself…

We often find it helpful to report the progress of an investigation to the Board or Audit Committee.  If there is any suggestion that their independence could be called into question then consider creating a special committee to oversee the investigation.

In summary the investigation should be independent.  This will significantly influence the decision of who should be involved and who they report to.

Finally, while we’re on the topic, it’s worth highlighting (we’re not going into detail here) that a Board and/or committee overseeing an investigation should have its own counsel who report directly to, and communicate regularly with, it.

Logistical challenges

Do not underestimate the conflicts in multi-jurisdictional investigations.  In our experience these tend to break out into three buckets.

Time – there is not much you can do about this.  Numerous matters and deadlines all going off in parallel are par for the course, you’ll need to be an orchestra conductor…

Internal conflicts between business units in different jurisdictions – be aware of these and ensure that everyone internally understands the overriding objective and that failure to cooperate with the investigation is a serious disciplinary offence.

Different approaches of the regulators in different jurisdictions – In our experience they can often be less “joined up” than they at first appear.  While it’s true to say that enforcement agencies are working together more than ever before the globalisation of law enforcement is still in its infancy.  There are some stand out cases but even between the most collaborative regulators there will be competing interests. Be alive to them.

To deal with these ensure that there is a central command and control team internally.  This should be made up of senior people. Also ensure that external counsel, if involved, adopts a similar approach and agree and/or have clearly understood lines of communication.

It’s very important to have a co-ordinated approach when dealing with both the investigation and in dealing with regulators, investigators and prosecutors.

Be prepared

Finally, when putting together the investigation team keep an eye on the future.  As Howard Sklar, who used to run anti-corruption compliance for Hewlett Packard, said in reply to our piece last week:

“The other thing I would add is that investigations often snowball. You get a call about something pretty minor, an employee worried about something. When you start picking at it, the threads start to unravel and pile up, until you’re in over your head. In my opinion, it’s important—vitally important—to begin every investigation with an eye toward what you would do if it’s much bigger than at first appears.”

In other words, like every boy scout, Be Prepared.

Next week: scoping the investigation…

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