In business, self-examination may be an option when it comes to enhancing performance, reviewing activities or examining opportunities. But when a company suspects it has been involved in illegal activity, it is essential.
Companies face legal pitfalls ranging from bribery and tax evasion through to money laundering and fraud. If there is the slightest suggestion of any involvement in white-collar crime, the company cannot ignore it. It needs to conduct an internal investigation to determine if there is a problem, establish how it has happened and decide the best course of action.
An internal investigation can be the most efficient way of finding out if criminal activity has been carried out. It gives the company the chance to deal with the problem in-house, if this is possible. If it is not possible to manage the problem within the workplace, then the company can report the matter to the relevant authorities after it has conducted its own investigation.
This may lead to more lenient treatment than if the authorities found out about the wrongdoing themselves. It also means the company is better prepared should investigations then be carried out by the likes of, for example, the police, Serious Fraud Office (SFO) or Financial Conduct Authority (FCA).
It is important, however, that any internal investigation is carried out in a way that will maximise the chances of obtaining the truth without alienating staff.
Such an investigation can be time-consuming. A company’s senior figures need to consider whether they, as working individuals, have the time, expertise and impartiality necessary to conduct an in-depth examination of its workings. An investigation can produce situations that require in-depth legal knowledge, forensic examination of accounts and other materials or an impressive awareness of personnel matters. Having led multi-jurisdictional, international investigations for corporations, we believe that it is appropriate, in most cases, for an internal investigation to be conducted by somebody who is brought in with the relevant expertise.
But whoever conducts an investigation, they must ensure that everyone questioned is aware of their duty of confidentiality and the need to retain (and certainly not destroy) all available documentation.
It is important to note that when an investigation begins, there is no obligation to report the matter to the police. While it may prove necessary at some point to open dialogue with the authorities, doing so early on may mean that a company loses control over its investigation and relevant documentation. It may also alarm employees - making them less cooperative - take up more company time and bring unwanted publicity.
The decision on if and when it is necessary to contact the authorities is one that should only be taken after seeking advice from those with legal expertise in business crime. Great thought must also be given to if and when to inform customers, trading partners, third parties, investors, insurers and the banks that an internal investigation has commenced.
Once the decision to hold an investigation has been taken, those conducting it have to be methodical and consistent in their approach. Documents need to be requested and categorised for scrutiny, whether they are hard copies or digital files.
Minutes of meetings, personnel records, business reports, phone recordings, CCTV footage, laptops and any other resources need to be gathered, stored securely and copied or backed up if necessary. The Regulation of Investigatory Powers Act 2000 and the Telecommunications (Lawful Business Practice) (Interception of Communications) Regulations 2000 define when it is possible to intercept communications without consent. While these may seem obscure rules and regulations to the average company director, anyone conducting an investigation has to be aware of them and make sure they follow them.
Passwords to company computers may need to be changed and remote log-in privileges should be restricted – as should security passes, access to offices and use of company phones and other devices. The company’s policy regarding the destruction of documentation will also require immediate examination and, if necessary, amending to reduce the risk of any material of importance being lost or destroyed. Any document created in the company’s time and/or using the company’s equipment is presumed to belong to it and can, therefore, form part of the investigation.
An investigation has to be carried out in a reasonable and proportionate way in order to obtain the maximum amount of information. A heavy-handed approach to staff during investigation interviews will damage morale and reduce the chances of openness and cooperation.
Generally, it is best to begin by interviewing the most junior staff members and then work your way up. That way, you have the most information possible by the time the directors are questioned. All senior staff should be interviewed, as anyone with an oversight of the company’s working will be most capable of answering the questions that require in-depth explanations.
If a company does not seek external assistance for its investigation, it must ensure these interviews are not conducted by anyone who could be involved in the wrongdoing, who should have identified the problem or who is already being disciplined. The same person or team should conduct all interviews. This gives consistency and makes it more likely that nothing of importance goes unnoticed in interviews.
Staff need to be told that these are confidential matters that cannot be discussed inside or outside of the company. They should be put at ease, shown any relevant documentation, told that what they say will not be revealed to other employees and encouraged to report anything later that they forgot to mention in the interview.
Whether recorded or in handwritten note form, records of an interview are the confidential property of the company, not the interviewee; although they should be given the chance to review them.
If a person will not be interviewed, they should be asked why they are refusing. Their work contract should be consulted to see if a refusal may constitute a disciplinary offence. Ex-employees are not obliged to cooperate with an internal investigation. But any past or present employee who is interviewed is entitled to seek legal advice.
The options that arise during an investigation must be considered carefully.
The issue of amnesties may come up; with members of staff saying they will “tell all’’ if they are giving a guarantee they will not be punished. But amnesties can be problematic.
An amnesty in an internal investigation may be a means to an end, with information gained and the staff member not being disciplined. But that amnesty will count for nothing if the authorities become involved and look to prosecute that individual. Granting an amnesty can also be a mistake if the investigation then discovers that that person was responsible for much worse wrongdoing than was originally thought. It can also create an unwanted precedent, with other staff members then seeking one before they will be interviewed.
Suspending a member of staff if the investigation identifies them as involved in the wrongdoing may seem logical. But will that person then destroy or withhold valuable evidence?
An internal investigation can produce tensions and risk damaging relations between directors, management and the less senior staff. If not handled correctly, an investigation’s fact-finding value can be outweighed by the damage it does to workplace morale and productivity. For this reason alone, it is often best to have an investigation conducted by “outsiders’’ who have expertise in all relevant legal and personnel issues.
An internal investigation may reveal a clear need for the authorities to be notified so that a criminal investigation can begin. It may also highlight a desperate need for new procedures, controls and training to be introduced and explained to staff in a way that ensures they see themselves as being a part of the solution rather than the cause of the problem. These are further reasons why senior company figures should think carefully before conducting their own internal investigation.
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Nicola is known for her fraud, civil recovery and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.
Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, civil recovery, cryptocurrency and high-stakes commercial disputes.