Internal Investigations: The Three C’s – Confidence. Credibility. Cost.
In this issue:
– THE THREE C’S — CONFIDENCE, CREDIBILITY AND COST
– WHO CONDUCTS THE INVESTIGATION?
– SCOPE OF THE INVESTIGATION
– MINDSET AT THE OUTSET OF AN INVESTIGATION
– THE NEED FOR SPEED
– WHEN IN ROME — LANGUAGE BARRIERS AND DATA PROTECTION CONCERNS
– THE FINAL PRODUCT – WRITTEN REPORTS AND PRIVILEGE WAIVERS
– SELF-REPORTING TO THE GOVERNMENT AND THE EFFECTS OF DODD-FRANK
– CAPABILITIES OF LOCKE LORD
– INTERNAL INVESTIGATIONS PRACTICE GROUP
– An excerpt from THE THREE C’S — CONFIDENCE, CREDIBILITY AND COST.
Think of an investigator as being charged with describing a field completely covered with 100 stones. How many stones do you need to look under to describe the field accurately? Certainly more than one stone needs to be removed in almost every case, but almost never will you need to “look under every last rock.” How many figurative stones are to be turned over may be the subject of some tension, as the business managers think enough has been done and the investigators want to be certain of their findings. This balancing will be dynamic as the process moves forward and will depend on a multitude of factors such as the seriousness of the issues, the company’s history of such issues, whether the issues may implicate potential senior management activity, and the risk of public reaction.
Please see full Newsletter below for more information.
Practical Wisdom, Trusted Advice.
The Three C’s – Confidence. Credibility. Cost.
INTERNAL INVESTIGATIONS | 2
TABLE OF CONTENTS
THE THREE C’S — CONFIDENCE, CREDIBILITY AND COST …………………………. 3
WHO CONDUCTS THE INVESTIGATION? …………………………………………………….. 4
SCOPE OF THE INVESTIGATION ………………………………………………………………….. 4
MINDSET AT THE OUTSET OF AN INVESTIGATION …………………………………….. 5
THE NEED FOR SPEED ………………………………………………………………………………… 5
WHEN IN ROME — LANGUAGE BARRIERS AND
DATA PROTECTION CONCERNS …………………………………………………………………. 6
THE FINAL PRODUCT – WRITTEN REPORTS AND
PRIVILEGE WAIVERS …………………………………………………………………………………….. 7
SELF-REPORTING TO THE GOVERNMENT AND THE EFFECTS OF DODD-
FRANK …………………………………………………………………………………………………………. 8
PUBLICITY ……………………………………………………………………………………………………. 9
CAPABILITIES OF LOCKE LORD ……………………………………………………………………. 9
INTERNAL INVESTIGATIONS PRACTICE GROUP ………………………………………… 10
INTERNAL INVESTIGATIONS | 3
Boards of Directors and management at companies of all sizes face a common problem: they need to make
decisions that are best for the company and in order to do so they need to know the facts — the pleasant
and the unpleasant — that confront them. Most times those facts are readily available from the ordinary
flow of information. At other times, however, either the company or the Board must investigate in order to
understand the facts needed to move forward.
These investigations can be for relatively small issues, such as a minor localized employee theft or an inter-
personal dispute, or for much more significant issues, such as suspected criminal activity by management;
or a demand for information by a government agency that tells the company it is investigating potential
wrongdoing or of some indications which may require disclosure. No matter where on the spectrum the
issue lies, however, effective internal investigations share certain traits.
THE THREE C’S — CONFIDENCE, CREDIBILITY AND COST
Think of an investigator as being charged with describing a field completely covered with 100 stones. How
many stones do you need to look under to describe the field accurately? Certainly more than one stone
needs to be removed in almost every case, but almost never will you need to “look under every last rock.”
How many figurative stones are to be turned over may be the subject of some tension, as the business
managers think enough has been done and the investigators want to be certain of their findings. This
balancing will be dynamic as the process moves forward and will depend on a multitude of factors such
as the seriousness of the issues, the company’s history of such issues, whether the issues may implicate
potential senior management activity, and the risk of public reaction.
With this analogy as a backdrop, all good internal investigations must succeed at the “Three C’s.”
• Confidence. The decision makers — management or the Board — must be confident at the conclusion
of the investigation that they have learned the facts well enough to make an appropriate decision.
• Credibility. Increasingly, the results of internal investigations must be shared with others – the
government, outside auditors, or perhaps a Board committee. The investigation must be constructed
in such a way that the results are credible to a stranger to the matter. The company may well want its
auditors or the government to accept the results of the company’s investigation without conducting a
second investigation, and these third parties’ first question will often be: Was this company just going
through the motions, or did these corporate executives or board members vigorously investigate in
good faith so that they could really get to the point where they knew what needed to be done? For
the third-party to accept the company’s results the answer to the second part of this question must
be “yes.” To that end, the metrics of the investigation should be closely tracked from beginning to
end: what resources were devoted to the investigation; how many interviews were conducted; how
many documents were reviewed; the difficulties, if any, posed by the investigation, etc. In any large
investigation, the investigators should be able to report that they were given unfettered access to the
company personnel and documents in order to pursue any leads that arose.
• Cost. Every investigation is more expensive in terms of money, time and distractions than a company
would like it to be, most often because it is an unanticipated and unbudgeted cost. Just about every
person involved — from management to the employees who need to be interviewed — wants an
investigation to end as soon as possible. Balancing the costs with the needs for confidence and credibility
can be one of the more delicate tasks for the investigative team.
INTERNAL INVESTIGATIONS | 4
WHO CONDUCTS THE INVESTIGATION?
Many investigations can be performed effectively in house. Others require the engagement of outside
counsel and forensic accountants or other specialists. Who is to conduct the investigation and to whom
they report is one of the first items on the agenda.
The Importance of Independence. Generally speaking, the investigator should be “independent.” That
means different things in different contexts, but always means that the investigative team should not be
in a position where their prior relationships with the person(s) under investigation can be said to have
had an effect on the outcome. Otherwise, the investigation will lack credibility and management will
lack confidence in the results. Independence standards apply to the company personnel supervising or
managing the investigation as well as the hands on investigators.
Attorney-Client Privilege Considerations. If attorneys conduct the investigation, much of their work can
be protected by the attorney-client privilege and work-product doctrine, depending upon the context
of the investigation. They can hire consultants, often forensic accountants, to assist them with their work,
and the consultants’ work will also be protected as attorney work product.
Employee Interviews. One key aspect of attorney-conducted interviews is that attorneys are required to
give so-call “Upjohn Warnings” (named after a 1981 U.S. Supreme Court case called Upjohn Co. v. United
States) to employees at the beginning of each interview, which some people can find intimidating. Those
warnings require the attorney to advise the employee about to be interviewed that the attorney represents
the company and not the witness and that the attorney is not allowed to give the employee legal advice.
Lawyers also advise interviewees that the company alone holds the attorney-client privilege and that the
company may disclose what is said in the interview, including to the government — if it deems that to be in
the company’s best interests. Many practitioners also ask witnesses to keep confidential what is discussed
in the interview, but the National Labor Relations Board has recently ruled that employers must have a
very good reason for making that request — a reason that goes beyond protecting the integrity of the
investigation generally — or run the risk of liability for stifling organizing rights protected by federal labor
law. Care must be taken to ensure that the company retains the uncompromised ability to take adverse
personnel action consistent with the laws of any relevant jurisdiction.
SCOPE OF THE INVESTIGATION
Once the investigative team is assembled, the first item that must be discussed is the scope of the
investigation. Our years of experience conducting investigations suggest that the outlined scope of the
investigation should be slightly broader than the limits of the issue as it is understood at the outset. If
an employee is suspected of misusing a corporate credit card during the past six months, for instance,
perhaps the initial scope of investigation should include reviewing the past year’s charges. The investigator
should not go on a fishing expedition but should be mindful that only part of the problem may have
Where Are the Facts Going to Come From? The initial scope decisions should include the preparation
of a list of the people who need to be interviewed, and a description of the documents that need to be
obtained. If the investigation is going to require the review of emails or electronic documents — which is
very often the case — then keywords need to be determined so that computers, servers and databases can
be searched efficiently. To this end, the investigator will need to work closely with the company’s Information
INTERNAL INVESTIGATIONS | 5
Technology department, which will often be an invaluable resource. Often one of the biggest challenges
is finding relevant emails and electronic files on computer systems that contains hundreds of thousands or
millions of emails in a cost-effective manner. Care must also be taken to operate within the relevant laws of
The “Document Hold Notice.” Additionally, if the investigation is likely to be associated with future litigation
or a government enforcement action, or if misconduct by multiple people is suspected, a “Document
Hold Notice” should be issued to those persons likely to possess relevant documents. This notice tells the
recipients not to discard any relevant documents and to suspend normal document destruction practices
until further notice.
MINDSET AT THE OUTSET OF AN INVESTIGATION
Every investigator should begin his or her task with an open mind: There might be a big problem or there
might be no problem — and either result is acceptable.
The investigators should not go in with pre-conceived notions of the people under investigation. “There
is no way she would ever do that” and “We have always thought there was something squirrelly about
him” are the types of sentiments often voiced at the beginning of an investigation. The investigators need
to keep such statements in context and be careful not to get ahead of themselves. Many surprising facts
can emerge from a well-done investigation. The investigation is not being conducted to confirm what
“everyone knows” but to ascertain the truth as much as possible.
In addition to keeping an open mind, the investigator should be willing to follow facts to their logical
conclusion. Positions which seem plausible at first can disintegrate with only a little follow-up. One good
basic question to ask is “What is the legitimate business reason for this arrangement?” Another way of
looking at this focus is the classic reporter’s formulation: Who is doing it, What is being done, When did
it start, Where is it having an effect, Why is this the way it must be done, and How do you know that the
conduct is both legal and consistent with company policy?
THE NEED FOR SPEED
Investigations cannot be allowed to drag on forever. At the same time, interviews will be necessary and
they are best conducted in person and are most effective when the interviewer has reviewed the pertinent
documents — such as the interviewee’s relevant emails — in advance of the interview. Both of these
factors can slow an investigation, especially at the outset. Documents need to be collected, searched and
compiled into a useful format. This can take days or weeks depending upon the locations to be searched,
any technical issues that arise, and the volume of documents collected.
The company may want at least preliminary answers immediately. Consequently, initial interviews are often
conducted before all of the documents have been reviewed, with the understanding that some people may
be interviewed again once the documents have been digested and the investigators get the lay of the land.
This can be a benefit. Many investigations uncover important facts on a second pass through witnesses who
either have their memories refreshed by documents or who now understand that the company is taking the
issue seriously and provide more accurate information than in their initial interview.
INTERNAL INVESTIGATIONS | 6
Another component of any inquiry is whether the investigation is to be followed to a solution or to its ultimate
conclusion. Often, the investigators can come to an early determination about the conduct involved, the
controls which failed, the corrections that are needed and the sanctions which should be imposed. But
in other circumstances there are good reasons to take an investigation to its ultimate conclusion to give
assurance of the thoroughness of the undertaking and to reinforce the resulting actions being taken. That
decision is one that must be reviewed regularly and often with the client.
WHEN IN ROME — LANGUAGE BARRIERS AND
DATA PROTECTION CONCERNS
Many companies do business internationally, and international internal investigations can present some
“Translation” Issues. A company’s documents may not be in English and the witnesses may not speak
English. Both of these issues can be overcome through good translation services, but they must be taken
into account in order for the investigation to be efficient and effective. Along the same lines, employees
outside of the US may not know quite what to make of the investigators and may find them more intimidating
than employees in the US. Obviously care must be taken not to offend employees while conducting the
interviews, and investigators travelling overseas need to be aware of the social and cultural norms of the
country to which they are traveling. At the same time, it is not unusual for employees to claim that they were
not understood due to “cultural differences” when the claimed differences are little more than a smoke
screen to hide the bad facts.
Data Protection and Privacy Issues. Data protection and privacy concerns can be even more problematic
than language differences. Simply because a person is employed by a US company may not mean that
the company can look at everything on his or her computer, for example, and certainly does not mean
that whatever is found there can be removed from the person’s country. The data protection and privacy
laws of each involved country need to be considered and obeyed. Some countries, such as France
and China, have laws which are markedly different from those in the US when it comes to interviewing
employees, reviewing documents and data, and removing investigation-related materials from the country.
Consequently, the investigators may need to review all data in-country, which can add to the expense of the
investigation. Foregoing that review due to the expense, however, might well compromise the credibility of
the investigation and the confidence the company can have in its results.
Attorney-Client Privilege and Foreign Investigations. In many cases, an investigator will need to rely on
non-lawyer professionals in foreign countries, such as forensic auditors, computer forensic specialists, and
investigators. Be aware that the attorney-client privilege may not extend to them. In other countries, the
privilege is not accorded confidential status, which means that even things determined under the privilege
in the US may not be respected as privileged or even confidential abroad. Whether the privilege may be
waived will be country-specific and also depends on the work being done by the third-party professional,
which means that a company needs to examine this issue closely at the outset of an investigation.
There are Other Country Specific Issues. In the UK, for instance, auditors and accountants may have an
obligation to report the alleged misconduct to the government without notifying the company that they
are doing so. These concerns apply irrespective of the location of the lawyers and must be considered
whenever foreign consultants or lawyers are engaged to assist.
INTERNAL INVESTIGATIONS | 7
SHOULD THEY STAY OR SHOULD THEY GO? — EMPLOYEE
Assuming the company finds some misconduct, it will be faced with the question of discipline. The
investigators should not be deciding what level of discipline should be imposed — that is a question for
the company. The following are a few factors that a company should consider, however:
• Nature of the Misconduct. Was the nature of the misconduct “Old Testament” bad conduct such that
everyone would know it was wrong? Or was it the kind of misconduct in a regulated industry that requires
a team of lawyers three hours to explain?
• Effect on the Investigation. How would the discipline (including dismissal) affect the rest of the
investigation? For example, if an employee is dismissed during an investigation, the company loses
access to a potentially valuable source of information. On the other hand, certain information may
warrant immediate termination.
• Employee Morale. How would certain discipline affect employee morale? Is it fair and well thought out?
• Consistency with Prior Disciplinary Actions. Many companies today have made their policies “zero
tolerance” when it comes to certain conduct, while others have established a “precedent” by their
handling of similar matters. Whether the conduct is being treated differently from the way that company
policy or precedent would dictate must be taken into consideration.
• Reporting to the Government. Is this case going to be referred to the government (or is the government
already involved)? If so, the company needs to consider that the government will frequently expound
upon the need to fire all wrong doers. The company needs to balance this consideration, however,
with not unnecessarily “throwing employees under the bus,” especially since that approach may not
be in the company’s best interests. Importantly, that approach may not generate the good will from
the government that the company might hope to engender. There is no guarantee that sacrificing an
employee or two will appease the government; it is just as likely to act as blood in the water and convince
the government that there is a serious case worth pursuing.
THE FINAL PRODUCT – WRITTEN REPORTS AND
In the end, the investigators need to report their factual findings to management or the Board. This report
does not have to be in writing, but can be verbal, or made with the benefit of an outline or PowerPoint
presentation. Again, the circumstances surrounding the investigation need to be considered when
deciding the form of the report. For example, there will likely be no need for attorneys to draft a lengthy
and expensive final report if an investigation ended with a relatively simply and straight-forward answer.
Additionally, a crucial consideration surrounding an investigation’s results is that, if the investigation was
conducted by counsel, then care must be taken to preserve the attorney-client privilege until such time as
the company determines it is in the company’s best interest to waive the privilege. All persons privy to the
details of the investigation, its findings, and/or a final report need to know that:
• If the company shares the report with its outside auditors, the privilege may be lost.
• If the company shares the report with counsel for individual executives and directors the privilege may
also be lost unless appropriate safeguards are in place.
INTERNAL INVESTIGATIONS | 8
• If the company shares the report with business partners or prospective buyers, the privilege may be
maintained under state law in certain circumstances but disclosure to any third party will probably be
deemed a waiver under federal law.
• If the company shares the report with the government, the privilege is likely lost, since there is no
“selective waiver” that allows companies to share information with the government while protecting
it as privileged from the rest of the world.
Maintaining the privilege is also paramount in most cases (unless there is a good reason to break the
privilege) because if there is concern about lawsuits against the company, plaintiffs’ counsel will be
searching for reasons why the report is not privileged and must be produced to them. This is true even
among corporate constituencies where the sharing of reports prepared for a Board committee might not
be shared with the company’s general counsel without endangering the privilege.
SELF-REPORTING TO THE GOVERNMENT AND THE EFFECTS OF
If the misconduct being investigated involves fraud or some other criminal behavior, or if the senior
management of a public company is involved, or the company may need to restate its prior financial
statements, then the company will need to consider making a voluntary disclosure to the government.
When to Approach the Government. There are competing factors regarding when to self-disclose. The
first consideration is whether the company is bound by some prior obligation to make a disclosure, as may
arise from industry “voluntary disclosure” commitments, prior consent decrees or deferred prosecution
agreements. Even without those obligations, however, companies must consider the risks and benefits of
self-disclosure. On one hand, the government urges companies to make a voluntary disclosure as soon they
become aware of the potential wrongdoing. Most companies feel more comfortable, however, conducting
at least some investigation before contacting the government so that at a minimum they have some idea
what they are talking about when they make the disclosure and are not mistakenly “blowing the whistle”
on themselves based on bad internal information. In the end, if a company is inclined to make a voluntary
disclosure, it should do so as soon as it is comfortable.
Whistleblower Considerations. When deciding when or if to self-disclose to the government, a company
needs to consider that it will likely receive a lesser benefit from a disclosure if the government already knows
about the issue and just has not advised the company of it yet. The recently enacted Dodd-Frank Wall
Street Reform and Consumer Protection Law has made it more likely that the government will know of the
company’s problems earlier. Dodd-Frank provides enormous economic incentives for people to “blow the
whistle” on their own company by reporting bad conduct to the government. Specifically, whistleblowers
(in certain circumstances) are entitled to a percentage of any fine the government ends up collecting as a
result of the “tip.” Previously, whistle-blowers were primarily ex-employees and ex-spouses. As a result of
Dodd-Frank, however, the whistleblowing community has expanded beyond “the two exes” and includes
current employees, competitors, and third parties.
Some Risks to the Government’s Carrot and Stick Approach. The government posits that companies that
self-report will be treated better than companies that have their misconduct found out by the government
independently. That makes logical sense — and with respect to certain government agencies that is the
case. Recent studies of enforcement actions pursuant to the Foreign Corrupt Practices Act, however, have
found no difference in the level of penalty between companies that voluntarily disclosed their issues and
INTERNAL INVESTIGATIONS | 9
those that did not. Therefore, companies need to be aware that the government’s “carrot” may not be as
appetizing as it seems.
From time to time, word of the investigation may become public – well before the company may be prepared
for public discussion. Care must be taken so if publicity occurs, the company is prepared to respond in a
way that reassures its employees and the public without appearing to be in a “panic” mode. Companies
often bring in crisis counselors to assist them in managing disclosure, public relations fallout and internal
ramifications on management and company morale. Unless those consultants are specifically retained and
brought under the attorney work product umbrella, however, their knowledge of the underlying problem
— and their communications with the investigative team — may not be privileged.
CAPABILITIES OF LOCKE LORD
At Locke Lord, we have partners in the US and UK, including former federal and state prosecutors, who have
spent decades assisting companies with their most sensitive investigative needs around the world. We have
conducted internal investigations for clients involving subjects as diverse as Foreign Corrupt Practices Act
violations, U.K. Bribery Act violations, as well as antitrust, executive misconduct, corporate theft, executive
compensation, defense contracting, accounting, process and control deficiencies, employee dishonesty,
health care, and other regulatory matters. Our lawyers know how to work with a company’s in-house counsel
and auditors and have experience overseeing and working with forensic accountants and technologists.
We also advise clients with respect to post-investigation remedial measures, policies and protocols.
Members of the group have extensive experience in conducting internal investigations and in representing
clients in investigations brought by federal, state, and local authorities, including the Department of Justice,
the Securities & Exchange Commission, the Commodities Futures Trading Commission, the Federal Trade
Commission, the Department of Defense, the Department of State, and the U.S. Postal Inspection Service,
as well as the Serious Fraud Office and European regulatory authorities. Our experience includes working
with leading crisis counselors and PR advisors, managing the privilege issues and crafting an overall strategy
for dealing with the legal and well as non-legal implications of the investigation.
Our lawyers have experience with investigations in many jurisdictions throughout the world including most
countries in Europe, North America, South America, Africa, the Caribbean and the Far East. We have also
established close relationships with leading law firms in those jurisdictions as well as the leading accounting
firms in forensic investigations around the world.
We also pride ourselves on our deep group of experienced privacy and data-protection attorneys who can
help decipher and comply with the laws of any country in the world.
INTERNAL INVESTIGATIONS | 10
Please contact the Locke Lord lawyer with whom you work, or any of the following main contacts:
INTERNAL INVESTIGATIONS PRACTICE GROUP
Theodore P. Augustinos, Partner, Hartford 860-541-7710 email@example.com
Roel Campos, Partner, Washington, D.C. 202-220-6931 firstname.lastname@example.org
Gregory W. Carey, Associate, Boston 617-239-0390 email@example.com
Paul E. Coggins, Partner, Dallas 214-740-8104 firstname.lastname@example.org
Roger Cowie, Partner, Dallas 214-740-8614 email@example.com
Daniel T. Fahner, Partner, Chicago 312-201-2543 firstname.lastname@example.org
Andrew L. Fish, Partner, New York 212-415-8541 email@example.com
C. W. Flynn, Of Counsel, Dallas 214-740-8654 firstname.lastname@example.org
John B. Hall, Partner, Houston 713-226-1282 email@example.com
Terence Healy, Partner, Washington, D.C. 202-220-6993 firstname.lastname@example.org
Stephen G. Huggard, Partner, Boston 617-239-0769 email@example.com
Tim Johnson, Partner, Houston 713-226-1114 firstname.lastname@example.org
Laurie A. Kamaiko, Partner, NewYork 212-912-2768 email@example.com
Paul M. Kaplan, Partner, New York 212-415-8578 firstname.lastname@example.org
Michael H. King, Partner, Chicago 312-201-2213 email@example.com
Scott R. Magee, Associate, Boston 617-239-0304 firstname.lastname@example.org
Richard J. McCarthy, Of Counsel, Boston 617-951-2230 email@example.com
Kiprian Mendrygal, Partner, Dallas 214-740-8106 firstname.lastname@example.org
Allison O’Neil, Partner, Boston 617-239-0729 email@example.com
Marlon Q. Paz, Partner, Washington, D.C. 202-220-6909 firstname.lastname@example.org
Mark E. Schreiber, Partner, Boston 617-239-0585 email@example.com
Kathleen Smalley, Partner, Los Angeles 213-687-6788 firstname.lastname@example.org
Priya Sopori, Partner, Los Angeles 213-687-6767 email@example.com
Robert M. Stephenson, Partner, Chicago 312-443-0439 firstname.lastname@example.org
Kelly Vickers, Partner, Dallas 214-740-8451 email@example.com
George R. Talarico, Partner, Madison 973-520-2389 firstname.lastname@example.org
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