Lift-Off: Step-By-Step Procedures To Start An Internal Investigation (Part I Of IV)

by Michael Volkov

AML DD3Life is filled with consequences.  As our parents told us (and we repeated to our own children), “Your decisions have consequences.”

I am a bit reluctant to start a blog series on internal investigations with a childhood motto, but when the shoe fits, you wear it (as the saying goes).

When conducting an internal investigation, there are so many pitfalls and potential miscues that can occur, it is enough to drive any practitioner a little bonkers.  Most of the best practices, however, are built on common sense and good judgment.  When investigators try to cut corners, they inevitably do so in a manner that dooms the entire investigation.

Most internal investigations are successful so long as there is a true intent to find the facts and deal with the facts.  Some of the legendary disasters in the practice area have occurred when the board or management authorize an internal investigation but are not really committed to learning what happened or dealing with the consequences.

In the beginning of an internal investigation, there are important principles that have to be established or else the investigation itself could collapse.

First, the reason for, and the context of, the internal investigation has to be established.  If the investigation is being initiated in response to a whistleblower complaint, a government investigation, or to gather information in response to threatened civil litigation, the circumstances are far different than a proactive investigation in response to general concerns raised in a compliance review.  Given the clear difference in risks and the need for an investigation, the context will likely dictate a different set of concerns and procedures for the investigation.boardinfo2

Second, in most circumstances, the goal of an internal investigation is to obtain information as quickly as possible to inform corporate decision makers and provide accurate legal advice.

Third, the internal investigation must be kept confidential and the information cannot be disclosed contrary to company wishes.

Fourth, the company has to decide who is going to conduct the investigation.  Usually, in a moderate to high stakes investigation, the company will retain outside counsel.  But as we all know, not all outside counsel are the same, and outside counsel with established relationships with the company may be barred out of concern for “independence,” especially if outside counsel had any involvement in the incidents under investigation.

Given the sky-rocketing costs for outside counsel conducted internal investigations, companies are paying more attention to the cost issue.  In some cases, companies are backing down on the cost issue out of fear of repercussions with the government.  That is a real mistake.

Companies need to communicate with government prosecutors overseeing an internal investigation when this type of issue develops.  Prosecutors will work with companies on cost issues because they recognize the impact that astronomical investigations (e.g. Avon) can have on the company’s long-run viability.

costThere is no question that an independent investigation conducted by outside counsel can make a significant difference in defending a company against federal prosecutors, regulators or even shareholder lawsuits. It is fairly easy to identify those situations when you will need such independence and credibility.

Fifth, the company has to focus the internal investigation on the factual and legal issues that need to be examined, and establish a timeframe for completing the internal investigation.


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.

© Michael Volkov, The Volkov Law Group | Attorney Advertising

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Michael Volkov

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