When Your Internal Investigator Fails to “Investigate”
A number of recent FCPA enforcement actions have cited common compliance program failures relating to internal investigations. For example, PTC settled FCPA charges with the DOJ and SEC for $28 million. According to the factual statements, PTC conducted three internal investigations focusing on alleged illegal payments to Chinese government officials and failed to uncover the illegal scheme. I would be curious to hear why these investigations failed to uncover the illegal payments.
To be honest, I am surprised how many internal investigations are conducted without substantiating FCPA allegations that later turn out to be deficient and contradicted by a subsequent investigation. It is easy to imagine how an internal investigation can get derailed when the stakes are so high.
These failures can be caused by inherent bias and pressure not to confirm serious wrongdoing and/or a lack of investigation resources or talent. Both of these explanations are cause for serious concern.
Companies have to support a robust internal investigation function. When senior officials fail to confirm the authority and the independence of the internal investigation function they are crippling a company’s compliance program and any chance for trust in its culture. A company has to promote and ensure that its investigation function operates independently and with a clear mission to uncover the facts without any bias or reluctance to confirm serious violations.
Some companies have failed to promote an independent investigation function. In these situations, investigators toil on run-of-the-mill investigations involving theft, fraud, and other less than serious cases. When a more serious matter comes up, investigators may operate in a culture where upper management makes it clear that the company is not “interested” in uncovering a bribery scheme. The message may not be overt but upper management can send signals on how the case should be resolved.
A company can also suffer from a weak internal investigation program. It is easy to spot an investigation unit that suffers from resource and talent limitations. Given the lack of resources and capabilities, the quality of internal investigations can suffer from obvious failures like poor planning, inadequate investigation plans, selective interviews and failure to follow certain leads.
When a company’s internal investigation program suffers from bias or inadequate resources, a company’s culture is sure to suffer. In these circumstances, managers and employees are reluctant to report misconduct for fear that the matter will not be fairly investigated or that the result will be brushed under the rug.
Many companies, even those with robust internal investigation systems, suffer from perception problems. Managers and employees can easily detect a bias, defective investigations and failures to mete out even-handed justice for similar offenses. Companies have to be vigilant to protect the trust in their internal investigation program.
Companies have to promote transparency as to its internal investigation procedures, adhere to its standard operating procedures for investigations, and ensure that managers and employees are treated fairly under the system. When companies strangle their internal investigation program, they are undermining any chance that the company can detect and prevent misconduct.
I often refer to the importance of companies establishing organizational justice as an important foundation to an ethical culture. In the absence of a system in which employees feel comfortable reporting violations, knowing that the company will be fairly and thoroughly investigated, employees will fail to report misconduct they may observe or may feel emboldened to engage in misconduct without fear of being caught. It is easy to see how a company’s culture will crumble when an internal investigation system is inadequate.
Companies that run an internal investigation program that is weak and handcuffed will only foster a culture of lawlessness. In the end, FCPA violations may only be a tip of the iceberg of misconduct undermining a company’s operations.