Corporate investigations can serve a variety of different purposes. From uncovering accounting fraud to responding to cybersecurity breaches and preparing for litigation, there are various circumstances in which corporate leaders need to be prepared to make informed decisions based on complete and reliable data gathered quickly, confidentially, and without compromise.

When a corporate investigation is necessary, there is usually little time to waste. There is also little, if any, room for error. This applies not only with respect to the comprehensiveness of the investigation, but with respect to its confidentiality as well. If the investigation fails to uncover relevant information, or if the investigation is made public before the company is prepared to respond, these are both scenarios that can have significant adverse consequences.

“The need to conduct a corporate investigation can arise under a wide range of circumstances. When an investigation is necessary, the company must react quickly and with a targeted and strategic effort to uncover the true facts at hand.” – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C.

When is an Internal Corporate Investigation Necessary?

But, this begs the question: When is a corporate investigation necessary? If there is little time to waste, how can corporate leaders ensure that they do what is necessary when it is necessary to protect their company’s assets and shareholders? Here are 10 scenarios in which companies will typically need to hire corporate private investigators to collect evidence and gather the intelligence they need to make the right decisions at the right times:

1. Concerns Regarding Possible Bribery or Public Corruption

Multiple federal statutes prohibit corporate representatives from making bribes or offering “anything of value” to a government official in an effort to secure favorable treatment. While the Foreign Corrupt Practices Act (FCPA) is perhaps the most well-known of these statutes, bribery, and attempts to corrupt public officials are also criminalized under various provisions of Title 18 of the U.S. Code.

If accused of engaging in (or attempting to engage in) corrupt activities, corporate entities and representatives can face substantial penalties. At the corporate level, these penalties include fines, loss of any government benefits unlawfully obtained, and loss of eligibility for other government benefits, programs, and contracts.

2. Concerns Regarding National Security

Various types of corporate activities can give rise to national security concerns. While government contractors face the most obvious threats, any company involved in the business that has the potential to be of interest to foreign governments or organizations is at risk for being targeted and unwillfully disclosing information that can be used against the interests of the United States.

National security risks – and thus the need to conduct exhaustive internal corporate investigations – can arise in different circumstances involving virtually all aspects of companies’ operations. From import and export control failures to cybersecurity breaches and physical intrusions, if there is any risk that sensitive information may have been compromised, companies must investigate immediately in order to determine what responsive action is required.

3. Possible Breach of Fiduciary Duty By Corporate Executives or Board Members

Breaches of corporate executives’ and board members’ fiduciary duties must be addressed swiftly and with a focus on protecting the best interests of the company and its shareholders. A corporate private investigator can conduct an independent, unbiased, and covert inquiry focused on gathering the specific information needed in order to (i) determine whether a breach has been (or is being) committed, and (ii) inform an appropriate corporate response.

In addition to direct financial impacts, breaches of fiduciary duty can also cause reputational harm if made public, and the resultant loss in share value can subsequently lead to shareholder litigation. While reprimand and possible removal of the offending executive or board member might be sufficient, an internal corporate investigation is necessary in order to uncover the scope of the issue and determine what level of response is necessary.

4. Cybersecurity Breach

Cybersecurity breaches are among the most prevalent threats in today’s corporate environment. They are also among the most-significant threats many companies face in terms of potential liability exposure. When faced with a cybersecurity breach, companies must respond immediately, and this starts with conducting an internal investigation in order to determine:

  • How did the breach occur?
  • What component of the company’s data security was compromised?
  • What information were the intruders able to access?
  • Is the intrusion ongoing?
  • What patch or other fix is necessary to restore the company’s cybersecurity?
  • What notifications (if any) are required?

These are all questions that corporate private investigators with specific cybersecurity expertise can help companies answer. Skilled investigators will also be able to preserve key evidence and provide a clear timeline of the pertinent events so that corporate leaders can determine where failures occurred and respond appropriately.

5. Employee Allegations of Discrimination or Harassment

Companies must take all allegations of workplace discrimination and harassment seriously. This begins with conducting an investigation in order to assess the merits of the allegations. The scope of the investigation will depend on the nature of the allegations; but, in all cases, it is imperative that the investigation be independent, unbiased, and comprehensively documented.

As with all corporate investigations, when investigating employee allegations of discrimination or harassment, it is imperative not to approach the investigation with a particular outcome in mind. In addition to relying on corporate private investigators’ experience, this is among the most significant reasons to engage an outside firm. Unlike corporate insiders who may be biased toward one particular set of findings (whether they realize it or not), outside investigators are able to approach the investigative process without bias and with a singular focus on uncovering the facts at hand.

6. Receipt of a Federal Target Letter, Subpoena, or Civil Investigative Demand

When faced with a federal inquiry, it is imperative for corporate leaders to know what (if anything) federal agents are going to find. This means conducting an internal corporate investigation promptly. Again, relying on the expertise of outside professionals is essential.

In virtually all cases, federal investigations targeting corporate entities carry the potential for substantial liability exposure, if not criminal prosecution. In order to develop informed and targeted defense strategies, company leaders and their legal counsel need to have a comprehensive understanding of the issues at hand. Experienced corporate private investigators will be able to assess the nature of the government’s inquiry, quickly develop an investigation strategy, and work efficiently to gather all of the information that corporate leaders need in order to decide how to best approach the government’s investigation.

7. Concerns Regarding Financial Fraud or Accounting Fraud

Similar to concerns regarding breaches of corporate leaders’ and board members’ fiduciary duties, concerns regarding potential financial fraud or accounting fraud require an immediate, forceful, and well-documented response. While publicly companies can face particular risks in the form of shareholder litigation and U.S. Securities and Exchange Commission (SEC) enforcement proceedings, all companies can face losses and liability risks as the result of internal fraud.

Uncovering financial fraud or accounting fraud requires in-depth knowledge of corporate accounting practices. However, as a practical matter, internal personnel who have this knowledge are also those who are most likely to potentially be implicated in fraud-related schemes. As a result, in many cases hiring an outside corporate private investigator is the only option for getting to the bottom of warning signs for internal fraudulent practices.

8. Civil or Commercial Litigation Concerns

When faced with the prospect of civil or commercial litigation, company leaders need to make informed decisions about how and when to move forward. This applies equally with respect to potential litigation against the company and litigation initiated in order to protect the company’s assets or enforce the company’s contractual rights.

While corporate investigations focused on assessing potential defenses and assessing potential claims are two very different matters, they have several similarities. Additionally, when assessing potential litigation from one perspective, it is important to assess the matter from the other perspective as well. If the company is currently in a defensive posture, can it assert counterclaims or interplead third parties? If company leaders are considering legal action, what risks would taking legal action entail? These are crucial questions that can only be answered with a thorough and unbiased internal corporate investigation.

9. Shareholder Derivative Litigation Concerns

The prospect of shareholder derivative litigation is another matter that requires informed decision-making with little room for error. When faced with potential shareholder claims, again, company leaders need to develop litigation strategies and consider potential alternatives with a comprehensive understanding of the facts at hand.

What is the source of the information that led to the alleged issues coming to light? Are the allegations substantiated; and, if so, what is the company’s risk exposure? What remediation efforts are necessary, and what defenses can the company assert in good faith? Until company leaders have the information they need to answer these questions, they cannot make informed decisions about how to move forward.

10. A Whistleblower Complaint Filed Against the Company

Finally, whistleblower complaints present similar considerations and concerns to government investigations and private litigation. Hiring a corporate private investigator is essential for determining whether federal authorities will be able to substantiate the whistleblower’s allegations—and, if so, what defenses the company has available. By quickly gathering this information, companies can take proactive measures to fend off government intervention, and they can often significantly mitigate the risk of facing substantial liability exposure in a federal civil or criminal trial.