I wanted to devote this week to a series of posts on FCPA internal investigations.  Given the importance of this issue, I expect to return to this topic in the future. 

There are a number of former prosecutors who are now in private practice and are well equipped to conduct internal investigations.  Many federal prosecutors are talented investigators who are able to interview witnesses, review documents, and piece together events which have occurred in the past.

These are all required talents when conducting an FCPA internal investigation.  There are some issues which are common between general internal investigations and those focusing on FCPA violations.  The fact that much of the internal investigation will involve foreign evidence and witnesses means that foreign laws may create significant challenges or obstacles to the investigation.  They are not usually insurmountable but they require attention and careful steps to make sure that the restrictions are not violated.  Local counsel in some countries may assist in the investigation and can be particularly helpful in navigating these issues.

Initially, a company needs to preserve documents, assign responsibility for supervision of the internal investigation (special committee or existing audit/compliance committee), employ outside counsel and consultants needed to identify and then examine relevant issues, define the scope of the initial internal investigation, and then outline the strategic issues which need to be examined and continuously reviewed while the investigation is ongoing.  The company committee responsible for supervising the investigation, along with outside counsel, need to develop a “vision” of where the investigation is likely to lead, who is likely to be involved, what issues are likely to arise, what remedial measures, if any, may be required, and how the company may resolve the matter, e.g. voluntary disclosure.

The first question to be examined in an FCPA internal investigation is to confirm how the issue was discovered by the company.  If the company’s outside auditors identified the issue, the company will have to make sure it complies with all reporting and monitoring requirements so that the auditor can satisfy its independent auditing requirements.  If the company’s internal auditors discovered the matter, then sensitive disclosure issues will need to be resolved in dealing with the company’s outside auditors and general disclosure requirements under federal securities laws.

As a strategic matter, companies have some leverage over their officers and employees who have relevant information for the internal investigation.  The threat of termination is a real one and most officers and employees want to avoid being discharged.  There is a fine balancing act here because if an officer or employee has engaged in misconduct, the company will have to terminate the officer or employee in order to demonstrate its commitment to compliance and discipline.  Such an action, however, may raise the risk that the officer or employee will report the matter to the Justice Department or the SEC, especially given the new whistleblower bounty program.  Companies have to balance these considerations carefully because they can result in early disasters for an internal investigation.

It is critical to determine if a whistleblower is involved in the case.  If so, Dodd-Frank whistleblower protections against retaliation may apply.  Any improper retaliation against the whistleblower could result in reinstatement, double back pay, and payment of attorneys fees and other costs.  The Dodd-Frank whistleblower rules apply to foreign subsidiaries of US corporations.  It is also important to determine if any foreign laws may apply to protect any whistleblower in a foreign subsidiary.  For example, in the UK, there are whistleblower protections for reporting illegal activities.  The financial incentives for whistleblowers who report violations are limited to violations of the cartel laws by companies and individuals.  It is likely that the UK will expand its whistleblower protections to resemble the US whistleblower laws.

The status of each officer and employee who may be involved needs to be reviewed as the investigation progresses.  Cooperation is important for these individuals to maintain their existing positions in the company.  Working with the Human Resources department, it is  important to document how each employee is treated, the reasons for their status, and the commitment to review and reassess such actions as new information is learned.

Document control for the investigation is critical beyond just preserving relevant documents.  One of the most difficult issues is determining whether the documents fall outside the reach of United States process.   Any documents which “reside” within the United States are then subject to grand jury subpoena.  In this electronic age, the definition of documents within the US borders can be met when a document exists on a server or a computer located in the United States.  It becomes very trick when reviewing documents in an internal investigation. 

For example, if viewed on a webex technology, government prosecutors could later argue that the document was under control within the US borders.  However, if the webex prohibits any person in the US from controlling the document when displayed on a webex does that lack of control mean that the document is not subject to US jurisdiction?  In order to avoid these issues, counsel is well advised to protect against such arguments by reviewing documents in a foreign location.  Of course, if the company decides to disclose and cooperate with the Justice Department investigation, the company will be required to submit these documents to US authorities to demonstrate its cooperation.