The stakes are high in every FCPA internal investigation.  The reporting relationship between the investigator and the corporate board is a minefield which has to be navigated carefully to protect the company and the individual directors. 

It is important for investigators to carry out their assignment with an appreciation of the board’s responsibilities to gather, review and assess the facts, and make critical decisions on what steps, if any, the company needs to take to deal with potential FCPA liability.

1.  Investigation Scope – The Audit/Special Committee needs to define the scope of the internal investigation.  It needs to be narrowly tailored to the scope of the alleged FCPA misconduct.  If the investigator discovers evidence of a broader bribery scheme, the investigator should seek authority to investigate.  The mission needs to be defined and the focus should stay within the limits prescribed by the Committee.  The Committee needs to understand how the investigation will be conducted, what actions will be carried out, and the timing of such tasks.  It is important for the Committee to establish deadlines and require regular reporting from the investigator so that the Committee can show it has responded to the allegations in a responsible manner.

2.  Reporting – The Audit/Special Committee should avoid written interim reports.  There is no reason to require the investigator to submit written interim reports.  Such reports will only undermine the eventual resolution of the matter and provide fodder to government officials who may second guess the steps taken by the company.  The Committee should only note a general entry to confirm the interim oral report and discussion by the Committee.  The same rules apply when the Committee and the investigator report to the Board.

3.  Conflicts of Interest – The appearance of potential or existing conflicts of interest can undermine the integrity of an internal investigation.  For that reason, the appointment of a Special Committee, or reliance on the Audit Committee, needs to ensure that there are no potential conflicts of interest in the selection of outside professionals – law firm and accounting firm – to conduct the internal inquiry, and in the composition of the board members on the Audit or Special Committee.  If members of the Committee have a unique inetrest in the matter – financial or other interest – they should be replaced with more disinterested board members.  The Committee can even consider appointing Committee members who are not part of the Board of Directors but who have unique talents to support and carry out the board’s mission.

4.  Macro and Micro-Managers – The Committee needs to take an active role in managing the investigation.  That does not mean micro-managing.  It does mean a careful review and questioning of each step.  The investigator should be an “arm” of the Committee and follow the evidence where it may lead.  Reasonable diligence should be taken to investigate all leads.  That does not mean every part of the company has to be investigated; it means there must be a reasonable probability to believe that misconduct may have occurred.  The Committee can direct an investigator on the scope and the nature of the inquiries that are made.  However, the Committee needs to listen and be informed by the investigator on all significant aspects of the investigation.  The Committee needs to be active but it also needs to defer on some issues to the investigator.

5.  The Audience – It is important to remember the audiences who will be reviewing the actions of the board, the special committee and the investigator. 

                A.  The Government — The Justice Department and the SEC will review the investigation in great detail.  They will inevitably question the conclusions reached, the evidence gathered, and the steps taken during the investigation.  Of course, there will be situations where a company conducts an inquiry and decides not to report the matter to the government.  That decision can never be made until all of the evidence is reviewed and it is important to conduct an investigation assuming that the matter will be disclosed to the government. 

                B.  The Public – If the matter is a high profile matter which is reported in the press, the stakes are even higher for managing the investigation and the communication of the results.  The government’s focus and resolution of a matter will change since the public will be watching over how it ultimately handles the matter.  For the board, the stakes are even higher.  The company’s reputation will be at risk and the consequences of a shoddy or biased investigation can be devastating to the company. 

                C. The Shareholders – The plaintiff’s bar monitors all FCPA internal investigations and public disclosures.  They are effective in organizing shareholder groups to file civil actions which trail the internal and government investigations.  As an example, a single disclosure by a public company lead to the filing of 23 separate shareholder actions within 30 days after a public disclosure of potential FCPA violations.