Common Sense in Internal Investigations


Last week Mike Volkov had a great post on his blog about using common sense in your internal investigations. Mike is an FCPA expert, and the guy you want to go to if your company is the target of a government investigation or inquiry.

What makes Mike the better choice than the other attorneys who sell their services for internal investigations and compliance issues (and there are a lot of them!) is his level of experience. He was a federal prosecutor for a long time, and has deep experience with government prosecutions. You don’t want someone who just knows how to push paper. You need someone who knows the government process and how parts of the investigation are going to happen, what chance there may be for settlement, and how the government investigators are going to react to certain pieces of information (beyond the laws, and into the reality).

All that being said, here’s a summary of Mike’s take on the art of internal investigations. He emphasizes that companies need to be careful in how they handle their internal investigations. Again, someone with deep experience with bribery and corruption (and specifically FCPA) is your best friend. (Not a newbie who just thinks all fraud investigations are alike!)

  • Do you need an internal investigation? – Only in certain cases. There are lots of situations that don’t require the “internal investigation” and can be handled normally through internal channels. Mike says:

 An internal investigation should be used when a combination of factors may be present: (1) the allegations raise significant potential liability and reflect serious misconduct; (2) high level management and/or board members may be involved or have been aware of the conduct and failed to act; (3) an independent investigation will be needed to deal with the government prosecutors or regulators, and/or shareholders interested in the matter; (4) an external auditor has raised suspicions of misconduct; (5) a parallel inquiry is being conducted by regulators or prosecutors; and (6) media and/or public attention on an issue may have a serious negative impact on the company.

  • Develop an overall strategy – You need a practical approach to each investigation that considers the risk, the worst case scenario, and the best case scenario. Mike favors a proactive approach in which the company considers the likely outcomes, the remediation alternatives, and strategies for dealing with the government and the public.
  • Investigative independence: Be practical – Retain counsel that has a reputation for being fair and impartial in internal investigations. Then keep the investigation team separate from other lawyers who work on behalf of the company so that they don’t improperly influence the independent investigation. In my fraud investigations, I have seen this work as well. Sometimes companies retain financial investigators who already have some sort of relationship with the company (they’re from the company’s external auditing firm, they do other consulting work for the company, or recently did other work for the company). I come into these situations fully independent, and companies know it. That’s why I’m the logical choice in many of my cases. Mike also suggests keeping the investigations as narrow as possible, not expanding needlessly to areas that do not need investigation. You can always expand the scope later.
  • Reporting to the board and/or special committee – Mike recommends oral reports to the board, and not doing written memos during investigations. He calls interim reports “an invitation to disaster.” A written report can be done at the end of the investigation, but it must be done carefully and with the thought that the government and other interested parties will see it someday.
  • Develop a working relationship with government – If the government and regulators are involved, Mike says investigators should be in contact with them about the pace and scope of the investigation.
  • Document review and witness interviews – Assemble as much information as quickly as possibly by gathering all necessary documents, preserving them, and reviewing them. Do early interviews to figure out who has relevant information. Leave all other interviews of witnesses until after all relevant documents have been gathered and reviewed.
  • Attorney client privilege, work product, and waivers – Adopt an overall procedure for protecting privilege, and make no decisions on waiver of privilege until after the investigation is completed. Make sure privilege is protected when working with retained experts. Mike discourages using a broad brush to paint everything as privileged in an investigation. There may be strategic advantages to disclosing certain information, so the internal investigators have to consider how to present such information.
  • Document preservation, collection, and review – Mike cautions investigators to be wary of privacy laws outside the United States which may hinder document collection, and to understand that documents brought into the United States might become subject to subpoena by law enforcement.

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