Internal investigations can catch Foreign Corrupt Practices Act (FCPA) violations before they spiral out of control, but they also have certain risks, according to Patrick O’Toole, Jr., attorney with Weil, Gotshal & Manges, LLP, speaking at the Food and Drug Law Institute annual conference Wednesday, April 24.
While the benefits give company time to formulate a response and minimize civil and legal penalties,the investigations also may prolong regulator investigations, subject employees to civil or criminal liability, delay submission of financial releases, raise privilege and confidentiality concerns, lower stock prices, affect recruitment and lower employee morale. He recommends weighing those risks against the risk of detection.
If an internal investigation is warranted, “The corporation must identify a credible, untainted decision-maker,” as the investigator and “balance the investigator’s need for independent against the corporation’s need for control,” O’Toole says. Then, investigation should focus on the allegations that triggered the investigation – typically an inquiry from the Securities and Exchange Commission, a U.S. attorney or a shareholder suit. “The scope can enhance the credibility of the investigation,” he says.
“Immediately preserve all potentially relevant documents, in hard and electronic format.” He recommends involving IT specialists and outside vendors to ensure that all relevant documents and, potentially, their various iterations are not destroyed.
Attorneys also may be involved, but be careful to determine whether they are bound by attorney-client privilege. That decision is based upon whether the intent of the investigation is to provide legal advice. To minimize later confusion, he advises stamping each page of written, privileged communications and documents “Privileged and Confidential, Attorney-Client Privilege and Work Product Privilege.”
Before interviewing employees, ensure they are informed that the company’s counsel represents the best interests of company, not the employee, and that the interview contents may be shared with company management, governing board, regulators and prosecutors. Two people, in addition to the employee and counsel, should be present.
O’Toole says employee interviews should focus on what happened, for how long, the motive for the wrong-doing, whether it was caused by a lack of training or carelessness, whether the action was intentional, whether anyone profited, and who (if anyone) was harmed.
The results of the investigation may best be presented as a high level summary or oral report to avoid the risk that a written report “may waive privilege or constitute evidentiary admissions,” he explains. A written report, however, does provide a guide for remedial actions.
Self-reporting is optional, but the Department of Justice and the Security and Exchange Commission each place a high premium on self-reports, and may result in reduced penalties. There are no consistent standards, however, so the outcome is difficult to predict. Internal investigations, O’Toole points out, may cost more than the civil or criminal penalty, particularly if the scope of the investigation expands.
There can be too much cooperation, O’Toole warned. Citing the U.S. v Carson (CD.Cal) case, in which the company cooperated extremely closely with the DOJ, employees who were charged with FCPA violations argued that the company was a de facto agent of the state when it threatened to terminate their employment unless they cooperated. Ultimately, O’Toole says, a company may be a state agent if the government knows of and acquiesces to its intrusive conduct and whether the company is investigation to help law enforcement efforts rather than for private reasons.
Therefore, O’Toole concludes, “Companies must make their own decisions regarding the conduct of an investigation and ensure the actions are justified by the company’s interests.”