Investigation Week: Part 3, Preparing for the Investigaion

Thomas Fox

Compliance Evangelist

Under Part 1 of the 2020 Update to the Evaluation of Corporate Compliance Programs, Section D. Confidential Reporting Structure and Investigation Process, it stated in part, Properly Scoped Investigation by Qualified Personnel What steps does the company take to ensure investigations are independent, objective, appropriately conducted, and properly documented? How does the company determine who should conduct an investigation, and who makes that determination? These questions were presaged by the DOJ’s 2015 Yates Memo and the 2016 FCPA Pilot Program. The pressure on every CCO, and indeed company, to get an investigation done quickly, efficiently and, most importantly, right is even greater now.

Jonathan Marks has cautioned that when considering any well run internal investigation, a CCO must be cognizant of the strictures laid out in the 2020 Update. It all begins with who in-house is looking at the complaint and does the CCO, compliance practitioner or legal team have the skills and capabilities to handle the matter which has arisen? Obviously if there are esoteric accounting issues or significant internal control work-arounds and overrides, a CCO may not have those skills to really understand all the issues. Similarly, if the matter is a global FCPA or equivalent bribery and corruption matter, Marks related, these “come in different flavors, and because they come in different flavors you may not have the skills or capabilities to do an investigation that would take place in say Brazil or Russia or China or India.”

He went on to state “All of this ties into how the government will view an investigation, particularly if the company does not have the skills and capabilities necessary to analyze the allegation, or if the allegation is serious enough where they believe that an independent investigation rather than an internal investigation really needs to be done.” Moreover, if allegations or the investigation are going to be subject to regulatory scrutiny, one of the benefits of having outside counsel is that there is independence, skepticism, the ability to work through things unlike you would with an internal investigation where an internal audit might be involved. Marks concluded by noting, “from an outsider’s perspective looking in, there is more credibility of having somebody come to conduct your investigation.”

Marks believes the first thing that any investigator must do is understand the business environment and the extended business enterprise. He further stated, “what I mean is really understand the business you’re dealing with, the industry that it’s in, the potential risks, the pressures and motivations that might be at play here. Understanding that generally with most frauds there is some pressure to do something because of something else and there are some motivations.” Such an initial understanding can help you formulate a comprehension of the internal controls that might be in place or that were lacking that could either have not been designed properly or overridden.

The next step is to quickly and thoroughly analyze the initial underlying facts and circumstances related to the issue(s) at hand. For Marks, the number one issue is the credibility of the complaint, he noted it was important to understand how the allegations of wrongdoing came to light and the seriousness of the issues involved. He went on to add that his initial inquiry would include such questions as, “What are people saying happened or what is an individual saying that happened? You know the background of the complaint, if known. How long have they been with the organization? Are they credible? Have they complained before? If in fact this was either a whistle blower or a tip.”

At this early assessment, Marks believes you should also consider the possible legal and financial impact of the allegations. If you determine it is serious at this early juncture, you should always consider your internal crisis management team and if your organization does not have one, you should consider retaining such an expert. Marks explained, “Crisis management doesn’t necessarily mean that a crisis happened, it means that if in fact we are in crisis mode, how does that impact the company? So, thinking about those issues and then knowing what to do, if in fact you are in a crisis mode, I think is ultra-critical.” He went on to add, “I think crisis management is totally underplayed. I think that many organizations don’t have an appropriate crisis management plan. If something bad does happen, a lot of times I see organizations that are struggling to kind of put the pieces together.”

Marks also noted that both communication and collaboration are critical. He advocated that the company ask a series of questions such as what issues are “on the table” and who is impacted by these issues within the company; is it the company auditors or some other corporate function? He also advocated considering third parties and contracted entities in this calculus by inquiring if there were key suppliers impacted by the investigation. On the one hand, “a key supplier that might get wind of this and might not want to do business with us anymore?” Yet, conversely, such a key supplier could be a sole source supplier so you may need think about alternative arrangements. You should begin to consider these issues early on and continue to think about them as you are going through and doing and investigation.

Document preservation is always a critical issue and this is one which government regulators will pay particular attention to both at this initial phase and throughout the investigation. You need to take steps to ensure all data is locked down. This means getting into the weeds on such issues as where are your company’s servers located; what is your back-up situation; do you have hand-held devices secured and are the organization’s instant, ephemeral and text messaging tied down? If you do not take such steps you could well find yourself in a situation where either information is lost or there’s a possibility or suspicion that information is lost. Unfortunately, that is the situation that leads to a prosecutor’s imagination going wild. Basically, you need to have the information locked down so that if the government wants to come in and perform an independent review or test your hypothesis, you can provide them with the required information.

For more information check out The Compliance Handbook, 2nd edition, published by LexisNexis and available here.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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