White Collar Crime:
Where corporate entities face allegations of criminal, civil, or administrative violations, some form of internal investigation is required.
When facing allegations, a company must determine whether the allegations being made are true or false – and if true, who or what is to blame, what remedial steps may be required, and what can be done to prevent a recurrence. The contexts in which an internal inquiry is necessary, span from routine human resources issues to serious allegations of environmental or regulatory non-compliance. Every scenario is different, and in many instances, a full-scale internal investigation is impractical and unwarranted. Still, if the occasion arises, seasoned corporate managers understand that the best course of action is to conduct a formal internal investigation with outside counsel.
The purpose of an internal investigation is simple: to unearth the truth. The company’s reaction to whatever issue confronts it must be determined from a position of knowledge. Without knowledge of the underlying facts, the company cannot make intelligent decisions and plan a course of action.
The advantages of engaging outside counsel to conduct a formal internal investigation – as opposed to attempting to handle the matter internally – are two-fold. First, an investigation conducted by a credible outside counsel is more dependable than a thorough investigation conducted by company officers and employees, some of whom may themselves be involved in the alleged wrongdoing. This credibility only sticks, however, if outside counsel is known and has credibility with law enforcement; otherwise, it can be perceived that the outside counsel is being paid to sanction the conduct under investigation. Second, having outside counsel perform the investigation ensures that – if performed correctly – any and all investigative findings enjoy attorney-client privilege and work-product protection, and are thus not subject to third-party disclosure. This is critical. Whether the facts are good or bad, the company must know them. But if the facts turn out to be bad, and investigative findings are subject to disclosure, the company, through its internal investigation, has essentially tied a noose around its neck. Private litigants and governmental investigators alike can prove their case simply by subpoenaing the substance of the target company’s internal investigation.
The importance of the attorney-client and work-product protection afforded by the investigative findings of outside counsel cannot be overstated. While in some instances the findings of inside counsel may be deemed protected, the bottom line is that the findings and work product of internal investigations conducted by inside counsel are not protected like those of outside counsel. For this reason, while resource limitations require that in-house counsel investigate routine matters themselves, it is absolutely essential that large-scale and more significant investigations be spearheaded by outside counsel. Given that investigations conducted by in-house counsel are often perceived as less-than-impartial, the need for outside counsel to investigate serious matters is more important.
Just as important as protecting against involuntary disclosure of information obtained through an internal investigation, is the decision of what to do with that information if it uncovers violations. The answer is situation-specific, but in every case, it involves a fundamental understanding of not only the legal, regulatory, and administrative landscape, but also of the “players” operating within.
Investigating serious allegations of corporate wrongdoing is a necessary exercise, but it doesn’t need to be fraught with peril. In virtually every circumstance, delicate questions are sure to arise. In these cases, make sure you have Faruki on your side to help you answer these questions and save you from struggles in the future.