An increased government interest in rooting out corporate fraud, coupled with new theories of corporate and individual liability, have made state and federal investigations almost a way of life for large and small companies alike. These investigations can be triggered in numerous ways and come in all shapes and sizes. Some investigations are caused by an internal whistleblower complaint, whereas others may be prompted by the media or a government subpoena. No matter what the initiating event may be, the resulting internal investigation requires a thorough examination of the issues to address the significant impact a company may face from financial, regulatory, and even criminal consequences. Below are several simple tips that, when utilized during an internal investigation, can result in an effective and efficient investigation leading to a positive resolution.
Tip #1 – Take Any Whistleblower Complaint Seriously.
Over the past several years, the U.S. Department of Justice (“DOJ”) and other investigative bodies have encouraged and incentivized whistleblowers to report any alleged company misconduct. In fact, just this past year, the DOJ announced an enhanced pilot program for whistleblowers, aimed at gaining information about “significant corporate or financial misconduct.” The program offers financial compensation and whistleblower protection in exchange for such potentially damaging information about a company.
Anonymous whistleblower tips may often seem vague and baseless. However, a company must take each complaint seriously as any complaint could be the proverbial tip of the iceberg. If a company fails to take a complaint seriously, the DOJ, or any investigative agency, could view such inaction as a failure of the company to police itself and cooperate with authorities. This could result in harmful or even debilitating financial and reputational repercussions to the company.
Therefore, it is vital to conduct an effective and objective evaluation of any whistleblower complaint. This starts by employing whistleblower complaint policies such as an “open door policy” for reporting potential misconduct. Not only will policies like this ensure a company takes their employees’ complaints seriously, but it may also allow for the whistleblower to feel heard and taken seriously, lessening the risk that said whistleblower will escalate their complaint to the government.
Tip #2 – Designate an Internal Point Of Contact.
Once a company is aware of a whistleblower complaint or government inquiry, a company must develop an investigation plan to evaluate the inquiry. Doing so will enable the company to make the decision whether to investigate the claims internally or hire outside counsel. In developing an investigation plan and defining the scope of an investigation, a company can determine whether the allegations are the result of a one-time violation, or part of a more systemic or ongoing problem.
In doing so, an important first step for any company is to assign a designated point of contact. When outside counsel is retained to investigate, the designated contact is often the general counsel or chief compliance officer but may be any executive or leader within the organization. Whomever is chosen as the designated point of contact for investigators should be outside of the scope of the investigation and removed from the disputed facts central to the investigation.
In addition to Tip #3 below, designating a point of contact provides numerous benefits to a company when conducting an internal investigation. For one, it ensures that any and all inquiries from the government go through outside counsel and are received by the same person within the company. This will help ensure that no deadlines are missed, and no inconsistencies are presented to the government. Second, this approach greatly aids the investigation team in working with a company contact to determine whether a government inquiry is focused on “one bad actor” or if this is a company-wide issue. For example, if a government agency sends numerous witness requests and subpoenas, outside counsel may be alerted that an investigation encompasses a much larger scope than may have been initially anticipated, and will therefore be in a better position to advise the company throughout the investigation. Finally, having a designated point of contact can help implement “document holds” to all relevant parties, assist with document collection and retention, and coordinate witness interviews.
Tip #3 – Preserve Attorney-Client Privilege.
Properly protecting communications and documents is of paramount importance in any internal investigation. Given the number of “hats” in-house counsel must wear in today’s corporate settings, the inadvertent waiver of a company’s sensitive and privileged communications may significantly increase during an in-house internal investigation. The results of such an inadvertent waiver can be catastrophic, resulting in a lead in-house attorney being called upon to serve as a witness against his or her own company in any ensuing litigation. In becoming a witness, the company loses the confidentiality of certain communications made to counsel by employees of the company.
Therefore, a company in the throes of an internal investigation often retains outside counsel to conduct the investigation. Hiring outside counsel preserves attorney-client privilege and has numerous benefits. Outside counsel often has the resources to conduct the investigation more thoroughly than in-house counsel, avoiding some of the pitfalls faced by legal professionals within the company. Outside counsel may also enjoy relationships with regulators and prosecutors, facilitating communication with government authorities and developing a positive rapport with agents and prosecutors, all of which may elevate the company’s credibility, and use best practices to preserve attorney-client privilege. The process of engaging outside counsel under attorney-client privilege helps a company sift out and evaluate all potential legal and criminal exposures discovered during a review. It encourages a company to be complete and transparent with their counsel, and it prevents government agencies from conducting inappropriate investigations.
Tip #4 – Effectively Conducting and Memorializing Written Interviews.
An interview is only as good as the report that memorializes it. Failing to accurately summarize the relevant information obtained from the witness can defeat the central purpose of the interview: to incorporate that information into the collective knowledge base of the investigation. Therefore, following these simple steps can ensure best practices with regards to witness interviews.
First, the most accurate report is one that is prepared soon after the interview. A good takeaway is to employ a 48-hour rule, which provides that the witness report should be prepared within 48 hours after the interview concludes. The principal note taker should prepare the first draft and circulate it to the team for editing and comment reflecting a shared recollection of the information gathered. It is not ideal to have an interview report dated multiple days or even weeks after an interview was conducted. Doing so can ultimately be an easy way for an adversary or the government to impeach the credibility of a witness.
Second, outside counsel may preserve privilege during witness interviews by providing clear Upjohn warning to employees. They should always carefully document that the warning was given. An Upjohn warning provides that a corporation’s attorney-client privilege could protect communications between company lawyers and employees, whereas an inadequate Upjohn warning may destroy the privileged nature of the interview, affect how a company reports the interview results to a government entity or third party, and could hinder cooperation credit with the government. The investigative report should identify the witnesses and all other persons who participated in the interview and memorialize that the Upjohn warning was given. Further, the report should indicate that it contains the interviewers’ mental impressions and thought processes related to the interview, which should ensure that the report will be protected from disclosure to third parties by the attorney-client privilege and the work-product doctrine.
Third, while a company may not want a written report, outside counsel should include an assessment of the viability of legal claims in an oral report to the company at the conclusion of an investigation. In the event of a whistleblower complaint, outside counsel should be prepared to report the outcome of the investigation not only to government authorities (should that be necessary), but also to the appropriate parties central to the investigation within the company. This may be done in a variety of ways, even informally, but this is a step that should be discussed with the company. When the results are not reported, employees may be inclined to go outside the organization to seek other solutions, such as finding a new job, talking to a lawyer, or attempting to fix the issue themselves.
Finally, ensure that all relevant internal and external communications, notes, and documents are located and preserved in a central location. In the event a company does not hire outside counsel, they should attempt to separate legal advice from strictly business communications. An example of this is by putting material seeking legal advice in separate stand-alone communications and avoid forwarding such communications.
Tip #5– A Good Defense is the Best Offense.
A company that conducts a proactive and upfront internal investigation tends to achieve a more thorough and successful outcome. As stated by Deputy Attorney General Lisa O. Monaco earlier this year: “our message is equally clear: knock on our door before we knock on yours.” In conducting a proactive approach, a company can present their side of the story, reach resolutions more quickly, and be more cost-effective, while ensuring credibility with the government agency involved.
One way to present a good defense is to employ robust and up-to-date compliance programs. Having such programs helps a company prove credibility with the government on the inevitable day when a company’s outside counsel must present the facts to agents or prosecutors–which may or may not be based on the government’s input. After investigators compile their findings from the internal investigation, the company then may have a comprehensive, confidential roadmap identifying and analyzing all the relevant facts, employees, and documents. By taking this step, a company may be able to remedy proactively any potential misconduct, enhance cooperation with government authorities, and minimize potential exposure.
Tip #6 – Remediation and Cooperation Go a Long Way.
As highlighted at the recent White-Collar Crime Conference hosted by the Boston Bar Association, cooperation remains one of the most useful tools a defense team may use to leverage a company’s position with the government after conducting an investigation. While there is debate about what “full cooperation” entails (and acting U.S. Attorney for the District of Massachusetts Josh Levy defines it as “you know it when you see it”), there is no question cooperation is a priority for government agencies. In fact, the Southern District of New York has recently announced a pilot program to encourage individuals to disclose criminal conduct, corporate fraud, and other control failures.
Overall, the government generally welcomes the results of any internal investigation, and considers any remedial measures taken by a company. Therefore, the record is clear that following best practices in conducting an internal investigation mitigates any “self-disclosure,” and goes a long way in determining cooperation credit resulting in a successful outcome.
Carol A. Starkey is a partner and the Chair of the Criminal/White Collar/Regulatory practice group at Boston-based law firm Conn Kavanaugh Rosenthal Peisch & Ford, LLP. She can be reached at cstarkey@connkavanaugh.com. Scott G. Ofrias is an attorney in the Criminal/White Collar/Regulatory practice group and can be reached at sofrias@connkavanaugh.com.
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