Corporate investigations Miami Beach South Beach
An increasingly complex global business environment, combined with changing expectations and enhanced scrutiny both in Asia and overseas, meaning that more companies are finding themselves subject to corporate regulatory investigations Miami Beach South Beach and proceedings. In 2014, 64 percent of large companies in the US with revenues of US$1 billion or more, and 44 percent of companies with revenues of US$100 million to US$1 billion, retained outside counsel to assist with corporate investigations Miami Beach South Beach. In recent years, in the US, approximately two-thirds of companies in the insurance, energy, financial services, and healthcare industries faced some type of regulatory or government corporate investigations Miami Beach South Beach. In Hong Kong, in 2014 alone, the Securities and Futures Commission (Hong Kong SFC) conducted over 2,000 corporate investigations Miami Beach South Beach and the Independent Commission Against Corruption (Hong Kong ICAC) instigated 222 prosecutions.
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 lawyers are increasingly called upon to conduct or supervise internal corporate investigations Miami Beach South Beach into suspected wrongdoing.
Effective corporate investigations Miami Beach South Beach 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 corporate investigations Miami Beach South Beach 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 corporate investigations Miami Beach South Beach may cover various topics such as suspected accounting fraud, violations of the antitrust and environmental laws, violations of the US Foreign Corrupt Practices Act, the Hong Kong Prevention of Bribery Ordinance and the Hong Kong Securities and Futures Ordinance, violations of government contracting regulations, violations of trade sanctions and export controls, insider trading, employee theft, suspected kickbacks, violations of a company’s specific policies and procedures, and so on. There are usually no mandatory procedural rules or court-imposed deadlines; there are no local rules or forms to follow. More importantly, how corporate investigations Miami Beach South Beach is conducted, and the scope of that corporate investigations Miami Beach South Beach, are necessarily informed by the context and the potential impact on a particular company.
Whether to initiate internal corporate investigations Miami Beach South Beach
Internal corporate investigations Miami Beach South Beach often start with an allegation of wrongdoing, which may come from an employee, shareholder, director, the media, the company’s outside auditors, the regulators or someone else. At the outset, the company must decide whether the allegation warrants corporate investigations Miami Beach South Beach and, if so, who should conduct the corporate investigations Miami Beach South Beach.
In some cases in the US, the decision to commence internal corporate investigations Miami Beach South Beach 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) 1. In these circumstances auditors generally require the company to investigate the potentially illegal activity and then the auditors assess, pursuant to Section 10A, whether the company has taken ‘timely and appropriate remedial actions.’2 In Hong Kong, however, there is no statutory requirement for a company to conduct an internal corporate investigation Miami Beach South Beach even when there is suspicion of wrongdoing.
This means that the decision to commence internal corporate investigations Miami Beach South Beach is entirely at the discretion of the company. In reality, however, many companies choose to conduct internal corporate investigations Miami Beach South Beach when they discover potential breaches so that they can assess their exposure ahead of formal corporate investigations Miami Beach South Beach by the regulatory bodies, and ensure that directors and senior management discharge their fiduciary and professional duties to the companies.
Corporate investigations Miami Beach South Beach 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 corporate investigations Miami Beach South Beach, and how that corporate investigation Miami Beach South Beach 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 company policy whether the alleged misconduct involves senior management or board members the company’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 company’s auditors to the alleged misconduct whether there are a parallel government corporate investigations Miami Beach South Beach or whether such an corporate investigations Miami Beach South Beach is likely to occur whether the company’s audit committee charter, code of conduct, or other policies mandate or encourage a corporate investigations Miami Beach South Beach whether the issue must be reported to regulatory officials the extent to which the company may receive credit from enforcement officials for conducting its own corporate investigations Miami Beach South Beach the possible impact on any pending or potential civil litigation.
Consideration should also be given to whether the company has a history of similar incidents, since such history raises the likelihood of regulatory intervention.3 If a complaint cannot be objectively dismissed as frivolous, the following scenarios often warrant some type of formal internal corporate investigations Miami Beach South Beach:
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), or a notice from the Hong Kong ICAC or the Hong Kong SFC, which suggests that the company 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 separate regulatory corporate investigations Miami Beach South Beach usually weighs in favor of initiating internal corporate investigations Miami Beach South Beach. Prompt and thorough corporate investigations Miami Beach South Beach gives the company the opportunity to get ahead of separate corporate investigations Miami Beach South Beach by the regulators and gather the facts it needs to respond appropriately. In some Asian countries, such as Hong Kong, if the findings arising from the internal corporate investigations Miami Beach South Beach suggest that there has been misconduct on the part of the company and/or its employees, the company 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 corporate investigations Miami Beach South Beach
The decision of who should supervise the corporate investigations Miami Beach South Beach, as the decision of whether to conduct an corporate investigation Miami Beach South Beach, is highly contextual. Many corporate investigations Miami Beach South Beach can be properly handled by a company’s own employees. Many larger companies, for example, have highly skilled legal and other staff dedicated solely to conducting such corporate investigations Miami Beach South Beach.
In some situations, however, management should not be in charge of the internal corporate investigations Miami Beach South Beach. If the alleged misconduct involves senior management, for example, or if the corporate entity itself is the focal point of a government corporate investigations Miami Beach South Beach, the board should consider delegating the task of overseeing the corporate investigations Miami Beach South Beach 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 corporate investigations Miami Beach South Beach, which very often will engage separate independent counsel for advice). If management is perceived as influencing the corporate investigations Miami Beach South Beach, the corporate investigations Miami Beach South Beach may not be afforded credibility by regulators. Further, if the corporate investigations Miami Beach South Beach involves public company accounting or other disclosure issues, the company’s outside auditors may insist that the corporate investigations Miami Beach South Beach be conducted by independent board members and independent outside counsel.
Assembling the right team
Internal corporate investigations Miami Beach South Beach are often handled with the assistance of outside counsel, who may have expertise concerning the laws at issue and experience with the interested government agency or regulator.
There are, however, significant costs that come with hiring a separate outside law firm to conduct corporate investigations Miami Beach South Beach. 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 corporate investigations Miami Beach South Beach
Once the company determines who will supervise and conduct the corporate investigations Miami Beach South Beach, the investigative team should prepare an investigative plan that defines the scope of the corporate investigations Miami Beach South Beach. Preparing an investigative plan helps keep the corporate investigations Miami Beach South Beach 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 company in showing that the company 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 corporate investigations Miami Beach South Beach 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 corporate investigations Miami Beach South Beach conducted by the relevant regulators. The relevant regulators may probe the basis for previous representations made by the company’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 company operations and employees are potentially involved and what jurisdictions will be the focus of the corporate investigations Miami Beach South Beach. 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 corporate investigations Miami Beach South Beach. A 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 used 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, and if litigation is in contemplation, 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.
Although these so-called ‘Upjohn warnings’ are well understood by most lawyers, there is always the risk that officers and employees will assume that company counsel is acting on their behalf. To counter this assumption, and to ensure that employees are properly protected, many companies 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 corporate investigations Miami Beach South Beach. If the company is already cooperating with government authorities and there is an agreement in place that the company 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.
Following the English Court of Appeal’s decision in Three Rivers District Council v Governor and Company of the Bank of England (No 5)  QB 1556 (Three Rivers (No 5)), some common law jurisdictions, in which English cases are binding or persuasive, have adopted the position that legal advice privilege only applies to communications between a limited group of employees within a company entrusted with the handling of a particular corporate investigations Miami Beach South Beach (for example the legal department) and the company’s external legal advisers. In Three Rivers (No 5), it was held that any communications between employees outside that limited group (and hence, a non-client according to the English Court of Appeal) and the external legal advisers were not privileged notwithstanding that they were created for the sole or dominant purpose of obtaining legal advice.
This issue was recently re-visited by the Hong Kong Court of Appeal in its decision in Citic Pacific Ltd v Secretary for Justice and another  HKCA 293. In that case, the Hong Kong Court of Appeal declined the restrictive approach adopted in Three Rivers (No 5) in identifying the ‘client’ and held that for the purpose of considering whether legal advice privilege applies to a particular document, one should apply the dominant purpose test, i.e. whether the document was created with the sole or dominant purpose of obtaining legal advice, rather than focusing too much on whether or not the particular employee of the company creating/sending the document should be considered as a ‘client’.
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 a waiver of the privilege. In 2008, the US DoJ changed its Principles of Federal Prosecution of Business Organizations, which now states:
‘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.’5
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 as to the proper treatment of a corporate target. Pursuant to the Thompson Memorandum, in conducting a corporate investigation Miami Beach South Beach, 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 corporate investigations Miami Beach South Beach 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 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 company with legal advice. In United States ex rel. Barko v Halliburton Co., a company started an internal corporate investigation Miami Beach South Beach based on allegations that it had overbilled the federal government for work by Iraqi subcontractors.7 After the company received allegations of the overbilling, non-lawyers in the compliance department conducted interviews and sent reports to the legal department pursuant to the company’s Code of Business Conduct.8 In subsequent civil litigation, a court held that eighty-nine documents from the corporate investigations Miami Beach South Beach were not privileged because the corporate investigations Miami Beach South Beach was ‘undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice.’9 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 corporate investigations Miami Beach South Beach was for business rather than legal advice.’
The Court of Appeals for the DC Circuit granted mandamus relief, holding that the documents were protected by the attorney-client privilege because a ‘substantial purpose’ of the corporate investigations Miami Beach South Beach was to obtain legal advice.11 The Court found that the company’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 company’s internal corporate investigations Miami Beach South Beach led by company lawyers. Although the company 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 company intends for its corporate investigations Miami Beach South Beach to be covered by the attorney-client privilege, care should be taken to show that the corporate investigations Miami Beach South Beach is being conducted under the supervision of lawyers for the purpose of providing legal advice and is not a routine compliance function.
Pointers to avoid potential missteps
Internal corporate investigations Miami Beach South Beach involve a number of judgment calls, and the reaction to those judgment calls by interested parties such as government agencies, regulators, auditors, and shareholders are not always predictable. Nevertheless, the following are a few pointers to address issues that often arise during the course of internal corporate investigations Miami Beach South Beach:
Identify, preserve, and collect relevant information early and document this process
Relevant information often includes data other than email and hardcopy documents. It can include items such as telephone records, text messages, instant messages, shared network files, backup data, internet search histories, databases, voicemails, and other data that may only be accessible through a forensic examination of a device.
Adhere to the agreed upon 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.
A company is usually well served by gathering the facts and determining an appropriate response quickly. For example, the company may need to take action to stop the potential wrongdoing as quickly as possible, and it may be in the company’s interests to self-report a potential violation if it is mandatory and before the relevant regulator learns about it through other means.
Set a realistic time frame for completion
While companies should move swiftly to investigate allegations of misconduct, they should also set realistic timelines for completion.
Develop a clear plan prior to embarking on a substantial data review project
Even in situations where timing is critical, the investigative team is often better served by spending time upfront 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 plan the interview process
Interviews are stressful for employees and multiple interviews of multiple employees will damage employee morale. Where feasible, 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.
Pay attention to various interested constituencies during the corporate investigations Miami Beach South Beach
It is often important to communicate with various constituencies other than the client through the course of corporate investigations Miami Beach South Beach. Outside auditors, for example, should normally be kept in the loop on procedural steps the company is taking to investigate any accounting issues since the auditors will need to be comfortable with the findings. Similarly, if the corporate investigations Miami Beach South Beach start with an internal complaint, consider communicating with the complainant. If the complainant is aware that the company is conducting thorough and independent corporate investigations Miami Beach South Beach, the complainant may forgo reporting externally.
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