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Navigating the Complexities: Protecting Your Interests in the Face of a Corporate Investigation

Corporate Investigation

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In today’s corporate landscape, the threat of a corporate investigation looms overhead, leaving businesses vulnerable and unsure of how to navigate the complexities that arise. Whether it is due to accusations of misconduct, regulatory compliance issues, or internal disputes, the need for protecting your interests has never been greater.

At Heath Hyde, we understand the importance of safeguarding your reputation and ensuring that your best interests are defended throughout the investigation process. Our team of expert attorneys, with years of experience in corporate law and investigations, are dedicated to guiding you through this challenging terrain.

In this article, we will delve into the intricacies of corporate investigations and provide you with valuable insights and strategies to protect your interests. We will explore the crucial steps you need to take, from conducting internal audits to responding to the investigation itself. By leveraging our deep understanding of the legal landscape and proven expertise in corporate investigations, you can proactively safeguard your business from potential risks and mitigate the impact on your operations.

Don’t let the complexities of a corporate investigation hinder your progress. Join us as we navigate this challenging terrain together and take control of your interests.

Heath Hyde is your trusted partner in safeguarding your reputation and protecting your interests in the face of a corporate investigation. Together, we can overcome any challenge that comes your way.

Why are corporate investigations necessary?

Corporate investigations are necessary to uncover any potential wrongdoing within a company and maintain the integrity of its operations. These investigations can be triggered by various factors, including allegations of misconduct, regulatory compliance issues, or internal disputes. Conducting a thorough investigation allows businesses to identify any legal or ethical violations and take appropriate action to rectify the situation. By addressing these issues promptly and transparently, companies can protect their reputation and maintain the trust of stakeholders, including clients, employees, and investors.

It is essential to understand that corporate investigations serve as a proactive measure to prevent future risks and maintain compliance with laws and regulations. By conducting investigations internally or with the help of external experts, businesses can identify areas of weakness, implement necessary changes, and minimize the chances of similar issues arising in the future.

Federal law contains countless provisions that can impose liability on corporations for the failure to comply with relevant laws and regulations.  Federal prosecutors and federal agencies have been especially eager and aggressive in prosecuting corporations that have weak or inferior compliance programs in place, as this is typically a strong indicator of internal corporate misconduct such as bribery, corruption, or fraud.  One of the best ways for a corporation to avoid becoming the subject of a protracted federal investigation is to demonstrate their continued compliance with the law.  Further, the best way to demonstrate compliance with the law is to maintain an effective, robust, and vigorous corporate compliance program.

Corporate Investigation

1. An Effective and Continuous Compliance Program Can Lead to Leniency by the Prosecutors

Prosecutors are responsible for examining a corporation’s compliance program and for determining whether the corporation contained an adequate compliance program at the time of the offense; whether the corporation utilized remedial efforts to improve a prior program; whether the corporation made certain investments and improvements to the program; and whether the program has been tested to demonstrate that it will detect misconduct in the future, as some examples.

Whether the corporation’s compliance program can lead to leniency by the prosecutors depends on the presence, nature, and effectiveness of the compliance program.  For instance, if an employee within the corporation is under investigation for allegedly bribing foreign officials, the question for the prosecutor is whether the corporation was also involved and, if not, whether the corporation had a compliance program in place that was working effectively such that it should have prevented this crime.  If the corporation did not have a compliance program in place, it would be hard for the corporation to argue that it should be exempt from liability for the individual’s crime because it is incumbent on corporations to develop a robust compliance program throughout its busines that promotes full compliance and transparency with the law.

However, if the corporation had a compliance program implemented, the prosecutor’s job would then be to determine whether it was working effectively at the time of the offense.  If it was not working effectively, then the corporation would generally not receive any leniency by the prosecutor.  On the other hand, if the corporation had an active and fully operational compliance program in place and the individual still perpetrated the crime, it is possible for the prosecutor to focus solely on the individual’s misconduct.  In these latter cases, there is not much the corporation can do to prevent a bad actor from taking advantage of their position or the corporation’s resources.

2. An Effective Compliance Program Can Help Reduce the Penalty under the Sentencing Guidelines

A compliance program can reduce the potential liability and penalties of the corporation.  Having said that, the mere fact of having a compliance program is generally not sufficient in and of itself to avoid liability or even to reduce the penalty.  Instead, in order for a corporation’s compliance program to give meaningful credit—or reduction in penalties—it needs to meet certain elements.  As mentioned in the Department of Justice’s June 2020 memo on “Evaluation of Corporate Compliance Programs,” these elements center on whether the compliance program is well designed to prevent and detect wrongdoing; whether the compliance program is adequately resourced and contains the appropriate resources needed for it to function; and whether the compliance program works in practice as well as how the corporation remedies identified instances of misconduct.

Corporations should make it their priority to ensure that their compliance program satisfies these elements.  In other words, there is no standard one-size-fits-all compliance program.  A compliance program must be designed appropriately, implemented correctly, and monitored continuously.  Only then can it be considered when trying to reduce the corporation’s liability and penalty.

3. An Effective Compliance Program Can Avoid Negative Collateral Consequences

A corporation that is actively involved in monitoring, updating, and improving its compliance program will receive less harsh treatment by federal agencies and federal prosecutors compared to corporations that have lax compliance programs or that are indifferent to revising them.  An effective compliance program can lessen the collateral consequences associated with a federal investigation such as the increased media attention and negative public opinion that follows—both of which can have long-lasting and devastating impacts on the corporation’s future.

Federal agencies such as the SEC and DOJ understand that a corporation’s compliance program is not going to detect every single instance of misconduct.  What is important is the effectiveness of the corporation’s compliance program—which can lead the prosecutor to either (1) decline to pursue charges against the corporation or (2) proceed against the corporation with leniency or offer some credit or reward for their assistance.  Both scenarios are possible regardless of whether the compliance program detected the misconduct.

It is important to consider that an effective corporate compliance program should be paired with independent legal and compliance officers including complete collaboration with external investigations.  Engaging a team of independent legal and compliance officers offers an extra barrier of protection against various acts of misconduct and serves as additional evidence of the corporation’s intent to be in full compliance with the law.  Voluntarily reporting violations to federal agencies and willingly cooperating with external investigations typically results in less punitive consequences for a corporation.

Maintaining and enforcing an effective compliance program is not am absolute guarantee against federal agencies or federal prosecutors investigating and ultimately indicting a corporation. However, a thorough internal corporate compliance program often meaningfully changes the attitude of the agency or prosecutor in three key respects: 

  • Leniency by prosecutors
  • Reduced penalties
  • Reduced negative collateral consequences

The federal government understands that an effective and thorough compliance program may not catch all instances of misconduct. The true purpose of a corporate compliance program is to monitor and implement a corporation-wide system that emphasizes due diligence and compliance with the law, promotes whistleblowing, and embraces continuous improvement and updates to the compliance program.

Examples of everyday compliance issues corporations deal with are:

  • An employee threatens to report you for some misdoings
  • Corporation property is suddenly missing
  • Something is wrong with the accounting
  • An employee downloaded corporate trade secrets or infringed your intellectual property
  • You need a discreet solution to a sexual misconduct situation
  • Law enforcement investigates the Corporation for fraud
  • A data breach or billing error may force the corporation to self-report
  • A shareholder tries to blackmail the corporation
  • Litigation is getting out of control
  • There is a possible whistleblower claim

In all of the above situations, it is important to avoid the number one mistake of crisis management: Do Not panic! 

Corporate Investigation

Types of corporate investigations

Corporate investigations can take various forms depending on the nature of the allegations or concerns. Here are some common types of investigations that businesses may encounter:

1. Financial investigations: These investigations focus on financial irregularities, such as accounting fraud, embezzlement, or money laundering. They involve a thorough examination of financial records, transactions, and related documents to identify any discrepancies or illegal activities.

2. Compliance investigations: Compliance investigations ensure that a company adheres to relevant laws, regulations, and industry standards. They aim to identify and address any non-compliance issues, such as violations of anti-corruption laws, data privacy breaches, or workplace safety regulations.

3. Employee misconduct investigations: These investigations are conducted when there are allegations of employee misconduct, such as harassment, discrimination, or theft. They aim to gather evidence, interview relevant parties, and determine the appropriate actions to be taken, including disciplinary measures or termination.

4. Intellectual property investigations: Intellectual property investigations focus on protecting a company’s intellectual property rights, such as trademarks, copyrights, or patents. They aim to identify any infringements and take legal action to safeguard the company’s intellectual assets.

Legal considerations in corporate investigations

When faced with a corporate investigation, it is crucial to navigate the legal landscape effectively to protect your interests. Here are some key legal considerations to keep in mind:

1. Attorney-client privilege: Engaging with legal counsel early in the investigation process ensures that communications between the attorney and the client are protected by attorney-client privilege. This privilege allows for open and confidential discussions, enabling the client to share sensitive information without fear of it being disclosed to third parties.

2. Data privacy and protection: During an investigation, personal and sensitive data may be collected and analyzed. It is essential to comply with data privacy laws and regulations, such as the General Data Protection Regulation (GDPR) in the European Union or the California Consumer Privacy Act (CCPA) in the United States. Implementing proper data protection measures and obtaining consent where necessary ensures compliance and safeguards the privacy of individuals involved in the investigation.

3. Cooperation with regulatory authorities: In certain cases, regulatory authorities may be involved in the investigation process. It is essential to understand the legal obligations and cooperate fully with these authorities, providing them with the necessary information and documentation to facilitate the investigation. Failing to comply with regulatory requirements can result in severe legal consequences.

4. Document preservation and retention: As soon as an investigation is initiated, it is crucial to implement a document preservation and retention policy. This ensures that relevant documents, including emails, contracts, financial records, and other evidence, are preserved and not destroyed or tampered with. Failure to preserve relevant documents can result in legal penalties and negatively impact the outcome of the investigation.

Protecting your interests during a corporate investigation

When faced with a corporate investigation, it is essential to take proactive measures to protect your interests. Here are some strategies to consider:

1. Conduct internal audits: Conducting internal audits enables you to identify any potential issues before they escalate into full-blown investigations. Regularly reviewing your company’s operations, financial records, and compliance practices allows you to address any weaknesses or non-compliance issues promptly. This proactive approach can minimize the likelihood of external investigations and demonstrate your commitment to maintaining a compliant and ethical business environment.

2. Engage legal counsel: Engaging experienced legal counsel specializing in corporate investigations is crucial to ensure that your interests are protected throughout the process. These attorneys can guide you through the legal complexities, advise you on the best course of action, and represent your interests during interviews, negotiations, or legal proceedings. Their expertise and knowledge of the legal landscape can significantly impact the outcome of the investigation.

3. Maintain open communication: Establishing open and transparent communication channels within your company is essential during a corporate investigation. Encourage employees to report any concerns or potential violations through anonymous reporting mechanisms or whistleblower hotlines. This fosters a culture of trust and ensures that issues are addressed promptly, mitigating the potential impact of investigations.

4. Cooperate with investigators: Cooperating fully with the investigators demonstrates your commitment to resolving the issue and maintaining compliance. Provide the necessary documentation, facilitate interviews, and respond to requests promptly and accurately. By demonstrating your cooperation, you can build a positive rapport with the investigators and potentially influence the outcome of the investigation.

5. Manage public relations: Corporate investigations can attract media attention and potentially damage your company’s reputation. It is essential to have a well-defined crisis communication plan in place to manage public relations effectively. Transparency, honesty, and timely communication with stakeholders can help mitigate reputational damage and maintain trust in your brand.

Our Projects & Clients

Heath Hyde Lawyers provide past prosecutors, attorneys, federal law enforcement expertise to initiate, coordinate, and conduct corporate investigations. A team of top-level professionals is ready to assist you and your corporation or business to avoid escalation, public exposure, or a government probe. Our list of consulting services includes the defense and prevention strategies of fraud, corruption, theft, employee misconduct, and safeguarding corporate online reputation.

  • Crisis Management
  • Self-Disclosures, Self-Reporting
  • Shareholder Litigation
  • Data and HIPAA Breaches
  • Fraud and Bribery Investigations
  • Theft of Intellectual Property
  • Cybersecurity Threats
  • Federal Crime Prevention & Defense
  • Hostile Employee Situations
  • Sexual Misconduct and Diversity Challenges
  • Online Reputation Management

No Business Is Too Small to Deserve Protection

We tailor our proven solutions to the size of your corporation and the requirements of your case. We have served billion-dollar international conglomerates, multi-million-dollar well-established corporations, as well as (with the same professionalism and enthusiasm) start-ups who are looking to achieve their security goals. We are here to defend your business against anyone posing a threat or a regulatory compliance issue.

  • Board of Directors
  • Corporations of All Sizes (from Start-Up to over $ 1b+)
  • Financial Sector (Banks, Investment Firms)
  • Biotech, Healthcare, Pharmaceutical
  • Oil & Gas, Petroleum
  • Schools, Universities, Non-Profit Institutions
  • Accounting Firms and Law Firms
  • Corporate Integrity and Compliance Officers

HEATH HYDE LAWYERS helps corporations with internal investigations, external defense strategies, corporate compliance, and a host of other services. Heath Hyde is right choice for the corporation to keep the corporation, board members, management and employees out of the newspapers and the courtroom.

Heath Hyde Lawyers is a team of former Prosecutors, Attorneys, Federal Investigators, Agents and DOJ officials who maintain a common goal to protect the corporation and it’s business, reputation, and financial stability. Heath Hyde offers countless experiences and federal law enforcement and investigative tactics to respond to or prevent a crisis situation—involving allegations of corporate misconduct, fraud, and workplace issues.

Due diligence is essential in the corporate environment. Whether required as a matter of compliance or simply necessary for effective risk management, due diligence has a place in almost all aspects of a corporation’s operations. When Corporations fail to conduct adequate due diligence, they are necessarily acting on incomplete information, and this means they don’t know whether their decisions reflect their shareholders’ best interests.

At Heath Hyde Lawyers, we conduct corporate due diligence audits for Corporations of all sizes. With experience in industries ranging from healthcare to technology and farming, we are well versed in the issues that place Corporations’ finances and reputations at risk. We conduct routine due diligence audits as well as audits triggered by specific allegations and events. We work efficiently to ensure that our clients’ leadership teams have access to the information they need as quickly as possible.

Heath Hyde Lawyers

Heath Hyde Lawyers is a team of former prosecutors, seasoned corporate investigation lawyers and federal investigators, who provide over 50 years of combined experience to assist corporations in making informed business decisions. Heath Hyde Lawyers serve Corporations in all 50 states, and we prioritize responsiveness, thoroughness, and investigative efficiency. Due diligence is an essential component of effective risk management. Experience on both sides of high-stakes federal civil and criminal investigations, Heath Hyde Lawyers know exactly what is required for Corporations to mitigate their risk exposure effectively.

What to expect when you choose Heath Hyde? 

You will work directly with former high-ranking prosecutors, attorneys and federal agents. The Heath Hyde team includes former prosecutors, attorneys and Special Agents with DOD, DOJ, FBI, HHS OIG, IRS CI, and other federal agency experience.

  • You will have access to our team nights and weekends by phone, text, and email. We know you do not have time to waste, and we will not make you wait to hear back when you need information.
  • We will develop and execute a tailored audit strategy. No two Corporations are alike. This means that no two corporate due diligence audit strategies should be alike, either. We will fully customize our services to your corporation’s specific needs.
  • We will leave no questions unanswered. To serve its intended purpose, a corporate due diligence audit must be comprehensive. Our former agents will use their experience to ensure that no stones are left unturned.
  • You will have the information you need to make the right decisions. We will keep you updated in real time throughout the audit process. When we complete your corporation’s audit, we will provide you with a report that contains actionable intelligence that you can use to make the right decisions for your corporation or firm.
Corporate Investigation

Corporate Private Investigator

Corporate investigations require tact, skill, strategy, and expertise. If you need to undertake a corporate investigation in order to uncover the source of a data breach or in anticipation of a federal inquiry, or if you need to identify your corporation’s present risks so that you can manage them effectively, you need to be able to rely on the advice of expert investigators who can quickly gather, digest, and explain everything you need to know. When it is time to conduct an internal investigation, you cannot rely on just any corporate investigation firm. You need to know that the firm you have chosen has the capabilities to do the job effectively, and you need its investigators to be able to hit the ground running. You need to feel confident placing your trust, and you need to know that you can rely on the findings of the investigation without reservation.

Corporate Investigations Matter

No corporate investigation is insignificant. Whether conducted as a matter of course or in response to a corporate crisis, every corporate investigation matters. This is true not only with regard to the outcome of the investigation, but with regard to the investigative process as well. In an ideal case, an internal corporate investigation will reveal that the corporation’s policies and procedures are sufficiently comprehensive and have been well-implemented throughout all levels of the organization. The investigation will demonstrate full compliance with applicable law, and it will confirm that the corporation is managing its risk effectively. Often times, the need to conduct a corporate investigation arises under less-than-ideal circumstances. In many cases, the need arises in response to a threat to the corporation’s finances—if not its viability as a going concern. In these scenarios, a corporate investigation serves several critical purposes, and ensures that the investigation is sufficiently comprehensive, that it is thoroughly documented, and that it produces the necessary information are all of utmost concern.

Heath Hyde Lawyers Assist Corporations and Businesses and Professional  Practices of All Sizes in All Forms of Compliance

In today’s world, compliance is a necessity. Establishing and maintaining an effective compliance program is just part of doing business, and Corporations and practices in all industries need to take adequate steps to ensure that they are meeting their legal and regulatory obligations.

For most, this is easier said than done.

Corporations’ and practices’ compliance obligations are becoming increasingly complex. They are also changing constantly. What is sufficient today won’t necessarily be sufficient tomorrow. New laws, new external and internal risks, and new business operations can all impact businesses’ compliance duties; as a result, businesses must view compliance as an ongoing process rather than a one-time event.

Heath Hyde Lawyers are Experts in Compliance

Heath Hyde Lawyers attorneys and investigators are experts in compliance. They understand compliance from the private-sector risk management perspective, and also from the government enforcement perspective. These unique insights afford our clients the ability to make informed, strategic, and nimble decisions, and they give our clients’ executives and leaders the confidence they need to focus their time and energy on profit maximization.

An increasingly complex global business environment, combined with changing expectations and enhanced scrutiny both in Asia and overseas, mean that more Corporations are finding themselves subject to regulatory investigations and proceedings. In 2014, 64 per cent of large Corporations in the US with revenues of US$1 billion or more, and 44 per cent of Corporations with revenues of US$100 million to US$1 billion, retained outside counsel to assist with investigations. In recent years, in the US, approximately two-thirds of Corporations in the insurance, energy, financial services, and healthcare industries faced some type of regulatory or government investigation. 

This increasing regulatory scrutiny, along with a renewed focus on ethical behavior and protecting (and in some cases incentivizing) whistleblowing activity, has created an environment where regulatory attorneys are increasingly called upon to conduct or supervise internal investigations into suspected wrongdoing.

An effective corporate investigation may provide management or the board with the information it needs to make an informed decision on how to proceed in the face of alleged misconduct. In many cases the investigation will provide the information needed to take steps to ensure that no future violations occur. Unlike many forms of traditional litigation, however, there is often no roadmap to follow. Internal investigations may cover various topics such as suspected accounting fraud, misconduct, fraud, violations of the antitrust and environmental laws, violations of the US Foreign Corrupt Practices Act, violations of government contracting regulations, violations of trade sanctions and export controls, insider trading, employee theft, suspected kickbacks, violations of a corporation’s specific policies and procedures, and so forth. There are usually no mandatory procedural rules or court-imposed deadlines; there are no local rules or forms to follow. More importantly, how an investigation is conducted, and the scope of that investigation, are necessarily informed by the context and the potential impact on a particular corporation. As a result, there is a seemingly limitless variety of procedures and protocols to consider. Expert outside counsel can be very helpful to establish proper internal investigations policies and procedures.

How to decide whether to initiate an internal investigation

Internal investigations often start with an allegation of wrongdoing, which may come from an employee, shareholder, director, the media, the corporation’s outside auditors, the regulators or someone else. At the outset, the corporation must decide whether the allegation warrants investigation and, if so, who should conduct the investigation.

In some cases in the US, the decision to commence an internal investigation is prescribed by statute. Section 10A of the US Securities Exchange Act of 1934, for example, requires a registered public accounting firm to take certain actions when, during the course of an audit, the auditor becomes aware of information that indicates that an ‘illegal act’ may have occurred (regardless of whether that illegal act is perceived to have a material effect on the issuer’s financial statements). In these circumstances auditors generally require the corporation to investigate the potential illegal act and then the auditors assess, pursuant to Section 10A, whether the corporation has taken ‘timely and appropriate remedial actions.’ . In reality, many Corporations choose to conduct internal investigations when they discover potential breaches so that they can assess their exposure ahead of formal investigations by the regulatory bodies, and ensure that directors and senior management discharge their fiduciary and professional duties to the Corporations.

Investigations can be disruptive and expensive and resources are limited. While the need to investigate in some situations is obvious, in some situations determining whether to conduct an investigation, and how that investigation should be conducted, are judgment calls. Some factors to consider in making these determinations include:

  • the seriousness of the allegations, including whether the alleged misconduct violates criminal law or corporation policy
  • whether the alleged misconduct involves senior management or board members
  • the corporation’s potential exposure if the allegations are true
  • the possibility for additional, future violations, or the possibility that the violations are continuing
  • whether the alleged misconduct implicates a potential health and safety risk to employees or others
  • whether the alleged misconduct calls into question any prior internal control or financial certifications provided by executive officers and whether the alleged misconduct prevents such officers from truthfully executing future certifications
  • the likely response of the corporation’s auditors to the alleged misconduct
  • whether there is a parallel government investigation or whether such an investigation is likely to occur
  • whether the corporation’s audit committee charter, code of conduct, or other policies mandate or encourage an investigation whether the issue must be reported to regulatory officials
  • the extent to which the corporation may receive credit from enforcement officials for conducting its own investigation
  • the possible impact on any pending or potential civil litigation.

Consideration should also be given to whether the corporation has a history of similar incidents, since such history raises the likelihood of regulator intervention.3 If a complaint cannot be objectively dismissed as frivolous, the following scenarios often warrant some type of formal internal investigation:

  • a subpoena from a government agency or regulatory authority, such as the US Department of Justice (US DOJ) or the US Securities and Exchange Commission (US SEC), which suggests that the corporation and/or its employees are the focus or subject of an inquiry
  • a shareholder demand letter
  • issues raised by an external auditor
  • an internal report, such as through an ethics hotline, raising serious allegations involving senior management.

The likelihood of litigation or a separate regulatory investigation usually weighs in favor of initiating an internal investigation. A prompt and thorough investigation gives the corporation the opportunity to get ahead of a separate investigation by the regulators and gather the facts it needs to appropriately respond. In some Asian countries, such as Hong Kong, if the findings arising from the internal investigation suggest that there has been misconduct on the part of the corporation and/or its employees, the corporation will need to consider whether to self-report to the relevant regulator since failure to do so may result in severe penalties.

Determining who supervises the investigation

The decision of who should supervise the investigation, like the decision of whether to conduct an investigation, is highly contextual. Many investigations can be properly handled by a corporation’s own employees. Many larger Corporations, for example, have highly skilled legal and other staff dedicated solely to conducting such investigations.

In some situations, however, management should not be in charge of the internal investigation. If the alleged misconduct involves senior management, for example, or if the corporate entity itself is the focal point of a government investigation, the board should consider delegating the task of overseeing the investigation to an independent committee of board members who are not implicated in the alleged wrongdoing (such as the audit committee or a board committee consisting of non-executive directors formed specifically for the investigation, which very often will engage separate independent counsel for advice). If management is perceived as influencing the investigation, the investigation may not be afforded credibility by regulators. Further, if the investigation involves public corporation accounting or other disclosure issues, the corporations outside auditors may insist that the investigation be conducted by independent board members and independent outside counsel.

Assembling the best investigative team

Internal investigations are often handled with the assistance of outside counsel such as Heath Hyde Lawyers, who may have expertise concerning the laws at issue and experience and relationships with the interested government agency or regulator.

There are, however, significant costs that come with hiring a separate outside law firm to conduct an investigation. In addition to outside counsel, consideration should be given at the outset to potential experts, such as forensic accountants, needed to assist counsel. These experts should usually be retained in such a way as to ensure legal privilege is protected, and such experts should sign retention agreements that make clear their engagement is intended to facilitate the provision of legal advice.4

Preparing an investigative plan and defining the scope of the investigation

Once the corporation determines who will supervise and conduct the investigation, the investigative team should prepare an investigative plan that defines the scope of the investigation. Preparing an investigative plan helps keep the investigation on schedule and on budget and may help identify potential pitfalls along the way. If a government agency or regulator is involved or is likely to become involved, a thorough plan may assist the corporation in showing that the corporation treated the allegations seriously and responded appropriately.

The scope of the investigative plan will often track the principal allegations of wrongdoing. The investigative team, however, should be mindful of related conduct that is likely to be of interest to the regulators. For example, many regulators will demand specific investigation into whether board members knew of the alleged misconduct or should have known of the alleged misconduct. One example of this often occurs in accounting investigations conducted by the relevant regulators. The relevant regulators may probe the basis for previous representations made by the corporation’s directors in its financial statements as to any irregularities (for example, bribery conduct or inaccurate accounting records) or adequacy of internal controls.

The investigative plan should generally include an assessment of which corporation operations and employees are potentially involved and what jurisdictions will be the focus of the investigation. It may also be useful to provide an overview of what documents and data will be reviewed, who will be interviewed, and which financial records will be targeted in any forensic audit component of the investigation. An investigative plan also helps to identify data privacy law and state secrets issues in countries that prohibit the collection of certain types of data, or impose restrictions on transferring data across borders. Short preliminary interviews are often useful to identify the universe of relevant documents, reporting structures, roles and responsibilities, and IT practices and infrastructure.

If counsel retains experts, rules should be established to ensure that communications to the client will involve counsel to maintain legal advice privilege or attorney-client privilege, if litigation is contemplated to qualify for litigation privilege. In addition, experts should not interview any witnesses separately without counsel. Counsel should be present at witness interviews to explain who counsel represents, whether the legal advice privilege (or attorney-client privilege) applies, whether that privilege may be waived, and who has the authority to waive that privilege. These ‘Upjohn warnings’ are well understood by most seasoned, experienced Corporate Investigation lawyers, there is always the risk that officers and employees will assume that corporation counsel is acting on their behalf. To counter this assumption, and to ensure that employees are properly protected, many Corporations will allow or even encourage employees to retain separate independent counsel and reimburse the employees for the legal costs arising from their engagement in the internal investigation. If the corporation is already cooperating with government authorities and there is an agreement in place that the corporation will share the substance of interviews, which sometimes occurs in the US, counsel should advise interviewees that waiver of the privilege is likely, probable or certain—whatever the case may be.

Attorney-Client Privilege considerations

Potential waivers of the attorney-client privilege may arise from sharing information with the individuals whose conduct is being investigated; sharing information with auditors; or sharing information with the government. Credit for cooperation with the government, however, does not require waiver of the privilege. 

In 2008, the US DOJ changed its Principles of Federal Prosecution of Business Organizations, which now state:

‘Eligibility for cooperation credit is not predicated upon the waiver of attorney-client privilege or work product protection. Instead, the sort of cooperation that is most valuable to resolving allegations of misconduct by a corporation and its officers, directors, employees, or agents is disclosure of the relevant facts concerning such misconduct.’ 

This marks a notable change from the policies in the Thompson Memorandum issued in January 2003 which guide the US DOJ prosecutors when they make a decision on the proper treatment of a corporate target. Pursuant to the Thompson Memorandum, in conducting an investigation, determining whether to bring charges, and negotiating 5 US Attorney’s Manual, Principles of Federal Prosecution of Business Organizations, §9-28.720. plea agreements, prosecutors should consider, amongst other matters, the corporate target’s willingness to cooperate in the investigation of its agents, including, if necessary, the waiver of corporate attorney-client and work product protection. The US SEC has similarly articulated that legitimate privilege assertions should not preclude cooperation credit. 

The corporate internal investigative team may be well served to expressly inform any interviewees that one of the purposes of the interview is to obtain information to provide the corporation with legal advice pursuant a holding in United States ex rel. Barko v Halliburton Co. 

In United States ex rel. Barko v Halliburton Co., the corporation began an internal investigation based on allegations that it had overbilled the federal government for work by Iraqi subcontractors. After the corporation learned of allegations of overbilling, non-lawyer compliance department employees conducted interviews and provided reports to the legal department pursuant to the corporation’s Code of Business Conduct. In subsequent civil litigation, a court held that eighty-nine documents from the investigation were not privileged because the investigation was ‘undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice.’ The court noted that the interviewed employees were not notified that the purpose of the interview was to assist the business in obtaining legal advice, and concluded that this fact further supported the view that the ‘purpose of the investigation was for business rather than legal advice.’ 

The Court of Appeals for the District of Columbia Circuit granted mandamus relief, holding that the documents were protected by the attorney-client privilege because a ‘substantial purpose’ of the investigation was to obtain legal advice. The Court found that the corporation’s claim of privilege was ‘materially indistinguishable’ from the claim sustained in Upjohn v United States, 449 US 383 (1981), the landmark Supreme Court case holding that the attorney-client privilege protects confidential employee communications made during a corporation’s internal investigation led by corporation lawyers. 

Although the corporation obtained relief at the appellate level, it is noteworthy that the District Court had already revealed the substance of some of the privileged documents in its earlier opinion. The decision serves as a reminder that if a corporation intends for its investigation to be covered by the attorney-client privilege, care should be taken to show that the investigation is being conducted under the supervision of lawyers for the purpose of providing legal advice and is not a routine compliance function. A corporation should strongly consider a lawyer or legal team like Heath Hyde Lawyers to conduct internal investigations.

Corporate Investigation

Suggestions to avoid mistakes

Internal investigations involve judgment calls, and the reaction to those judgment calls by interested parties such as government agencies, regulators, auditors, and shareholders may not be predictable. Nevertheless, the following are a few pointers to address issues that often arise during the course of internal investigations:

Identify, preserve, and collect relevant information and data early. Document the process

Relevant information often includes data other than email and hard copy documents. Relevant information may include telephone records, text messages, instant messages, shared network files, backup data, internet search histories, databases, voicemails, and other telephone and electronic data that may be accessible through forensic examination of electronic devices.

Develop and strictly follow the investigative structure unless a formal decision is made to change it.

If, for example, investigative counsel is reporting to the Audit Committee, the General Counsel should not direct the activities of investigative counsel.

Act on allegations of wrongdoing promptly.

When facing wrongdoing allegations, carefully gather the facts and determine an appropriate response promptly. For example, the corporation may need to take action to stop potential wrongdoing quickly. Prompt action may be in the corporation’s best interest to self-report a potential violation if reporting is mandatory and before the relevant regulator learns about it the potential wrongdoing from other sources.

Set a realistic time frame for completion

Corporations should act promptly to investigate allegations of misconduct. However, corporations should set realistic timelines for proper preparation and completion.

Develop a clear strategy before a substantial data review or audit

Even in situations where timing is critical, the investigative team is often better served by spending time up front planning any data review. Launching into a data review without a clear plan may cause the reviewers to miss relevant information, review irrelevant information, and create more issues (and expense) in the long run.

Carefully prepare for interviews

Interviews are stressful for employees and multiple interviews of multiple employees may severely damage employee morale. Carefully review all relevant information prior to conducting interviews to reduce the chance of multiple sessions. Allow or encourage employees to retain separate independent counsel. Avoid conducting interviews alone and carefully document the information provided. It is important to get answers to all relevant questions, but it is also important to be polite. Keep in mind that it is not uncommon for whistleblowers to claim that a confrontational interview itself is retaliatory conduct in violation of a whistleblower statute.

Avoid unintentionally waiving legal privilege (attorney-client privilege). Be sure to obtain board consent for intentional waivers

In some circumstances privilege waivers are appropriate, but such a waiver should usually be approved by the board in advance and efforts should be made to avoid unintentional waivers.

Carefully consider all the interested constituencies during an investigation

It is often important to communicate with various constituencies other than the client through the course of an investigation. Outside auditors, for example, should normally be kept in the loop on procedural steps the corporation is taking to investigate any accounting issues since the auditors will need to be comfortable with the findings. Similarly, if an investigation starts with an internal complaint, consider communicating with the complainant. If the complainant is aware the corporation is conducting a thorough and independent investigation, the complainant may forgo reporting externally.

Be sensitive to data protection and state secrets laws in other jurisdictions

Many countries often have data privacy or trade secret laws intended to protect corporation employees and sensitive information. Consult with a local practitioner prior to collecting or reviewing data to ensure that data privacy and state secrets laws are in full compliance.

Know the Regulator

Different government agencies and regulators have differing views on what constitutes an effective investigation and what constitutes appropriate remedial action. Consider which government agencies or regulators are likely to be involved and consider retaining professionals with direct experience working with regulators, investigators and prosecutors.

Hiring a corporate investigation firm

In some cases, it may be necessary to hire a corporate investigation firm to assist with the investigation process. These firms specialize in conducting thorough, unbiased investigations and can provide valuable expertise and resources. When selecting a corporate investigation firm, consider the following factors:

1. Reputation and experience: Choose a firm with a proven track record in corporate investigations. Look for testimonials, case studies, and references from previous clients to assess their credibility and expertise.

2. Expertise in your industry: Different industries have unique requirements and regulations. Ensure that the investigation firm has experience working in your industry and understands the specific challenges and nuances involved.

3. Resources and technology: Corporate investigations often require access to extensive resources and advanced technology to gather evidence and analyze data. Evaluate whether the investigation firm has the necessary resources and technological capabilities to handle your case effectively.

4. Confidentiality and professionalism: Corporate investigations involve sensitive information and require the utmost confidentiality. Choose a firm with a reputation for professionalism, discretion, and ethical conduct.

Common challenges in corporate investigations

Corporate investigations can be complex and pose various challenges along the way. Here are some common challenges that businesses may encounter:

1. Data collection and analysis: Gathering and analyzing large volumes of data can be time-consuming and challenging. Implementing efficient data collection and analysis processes, including the use of specialized software or data analytics tools, can streamline this aspect of the investigation.

2. Employee cooperation and morale: Investigations can create a sense of uncertainty and anxiety among employees. Ensuring open communication and addressing employee concerns can help maintain morale and cooperation throughout the investigation process.

3. Legal complexities: Navigating the legal landscape can be daunting, especially for businesses without expertise in corporate law. Engaging legal counsel with experience in corporate investigations can help you understand your rights and obligations and guide you through the legal complexities.

4. Managing reputational risks: Corporate investigations can have a significant impact on a company’s reputation. Developing a crisis communication plan and proactively managing public relations can help minimize reputational damage and maintain stakeholder trust.

The role of technology in corporate investigations

Technology plays a crucial role in modern corporate investigations. It enables investigators to gather, analyze, and present evidence more efficiently and effectively. Here are some ways technology is transforming corporate investigations:

1. Digital forensics: Digital forensics involves the collection and analysis of electronic evidence, such as emails, chat logs, or computer files. Advanced forensic tools enable investigators to recover deleted data, trace digital footprints, and uncover hidden information crucial to the investigation.

2. Data analytics: Data analytics tools help investigators sift through vast amounts of data quickly. By applying algorithms and machine learning techniques, these tools can identify patterns, anomalies, and connections that may not be apparent to human investigators. This accelerates the investigation process and enhances the accuracy of the findings.

3. Surveillance and monitoring: Surveillance technologies, such as video cameras, GPS tracking devices, or network monitoring tools, can provide valuable evidence during a corporate investigation. These technologies enable investigators to monitor activities, track movements, and gather real-time data that can support their findings.

4. Document management: Document management systems facilitate the organization, storage, and retrieval of documents related to the investigation. These systems ensure that information is easily accessible, securely stored, and can be shared with relevant parties as needed.

Case studies of successful corporate investigations

To illustrate the effectiveness of proactive measures and expert guidance in corporate investigations, let’s examine two case studies:

1. Case study 1: Fraud detection and prevention: A multinational corporation suspected fraudulent activities within its procurement department. The company engaged a corporate investigation firm specializing in financial investigations. Through careful analysis of financial records and interviews with key personnel, the investigation firm identified a network of employees involved in embezzlement. The evidence gathered was submitted to law enforcement, resulting in successful prosecutions and recovery of the misappropriated funds. As a result, the company implemented stricter internal controls and whistleblower mechanisms to prevent future fraud.

2. Case study 2: Compliance breach resolution: A healthcare organization faced allegations of data breaches and non-compliance with patient privacy regulations. The organization sought the assistance of legal counsel with expertise in compliance investigations. Through a comprehensive review of policies, procedures, and IT systems, the legal team identified areas of non-compliance and implemented corrective measures. The organization cooperated fully with regulatory authorities and implemented robust data protection measures. As a result, the organization regained public trust and strengthened its compliance framework, ensuring the protection of patient data in the future.

Conclusion: The importance of proactive measures in protecting your interests

Navigating the complexities of a corporate investigation can be challenging, but by taking proactive measures, engaging expert guidance, and leveraging technology, you can protect your interests and mitigate risks. Conducting internal audits, maintaining open communication, and cooperating fully with investigators demonstrate your commitment to resolving any issues and maintaining a compliant and ethical business environment.

At [Brand Name], we have the expertise and resources to guide you through the investigation process, safeguard your reputation, and protect your interests at every step. Don’t let a corporate investigation hinder your progress. Contact us today to ensure the best possible outcome and take control of your interests. Together, we can overcome any challenge that comes your way.

[Brand Name] is your trusted partner in safeguarding your reputation and protecting your interests in the face of a corporate investigation.

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