Strategies for Conducting Internal Investigations

Transcription

1 Strategies for Conducting Internal Investigations Jay G. Martin Vice President, Chief Compliance Officer and Senior Deputy General Counsel Baker Hughes Incorporated Presented at the 2006 Compliance and Ethics Institute sponsored by the Society of Corporate Compliance and Ethics September 11-13, 2006

2 Overview of Strategies for Conducting Internal Investigations Preliminary Considerations Preliminary Procedures Conducting the Investigation Reporting on the Investigation Dealing with Third Parties

3 Whether to Investigate? Factors to Consider Directors and Officers have a fiduciary duty to manage the business and affairs of corporations competently, loyally, and with due care Investigation may benefit the corporation, particularly when regulators are involved DOJ and SEC give credit for voluntary disclosure and remediation Sentencing guidelines consider cooperation Decision to disclose may be made at any time However, independent investigators may uncover more information than regulators or plaintiffs Any report of investigation could be made public Cost of internal investigation can be substantial

4 Who Will Control the Investigation? Control group has significant influence over Scope of inquiry Investigative techniques Specificity of report and scope of disclosure Balance must be struck considering Significance of matter Independence and authority of control group Several options Management Board of Directors Audit Committee

5 Who Will Conduct the Investigation? Many options Internal auditors working with in-house counsel In-house counsel Outside counsel Special auditors working with counsel Independence is now a critical factor Outside directors should oversee more serious investigations Outside counsel may be criticized if longstanding relationship with the company

6 Who Will Receive any Investigative Reports? Before commencing the investigation, consider who might receive and review all or portions of any investigative report Board of Directors Management Individual employees accused of wrongdoing Auditors Regulators Plaintiff s counsel in litigation Public/Press Given emphasis on voluntary disclosure, best to assume for all investigative reports that they potentially become public

7 Preliminary Procedures: Create an Investigative Charter Document the authority to investigate Resolution from Board of Directors Resolution from Audit or Special Committee Letter from in-house counsel to those involved in investigation What factors should be addressed in the charter Independence of oversight group Scope of investigation and who has power to select investigators Whether oversight group has power only to recommend postinvestigation actions or power to implement them Privileged nature of the investigation

8 Preliminary Procedure for Internal Investigations Preserving Data Preserve documents and data Identify and collect hard copy documents Preserve and copy key player electronic data Issue litigation hold unless concerned that documents may be destroyed Consider alternative means of collecting data

9 Preliminary Procedures: Other Initial Actions Determine whether and when to disclose the investigation Make a preliminary inquiry and informal report Discuss with management Review prior investigative records Assess and report Revise scope if needed

10 Conducting the Investigation Document collection and review Pre-existing document collections Employee files Other corporate data Third party documents Keep documents in secure area available only to reviewing team

11 Conducting the Investigation Private investigators or Internal Security Group Depending on subject of investigation, they can provide useful information Suggestion of kickbacks Lifestyle indications of money obtained Risk of discovery should be kept in mind Involving Experts Forensic accountants can discern patterns to financial fraud Revenue recognition issues Overstatement of assets Understatement of expenses Data recovery specialists can recover deleted files

12 Reporting on the Preliminary Issues Whether to create a written report Who should receive the report Timing Concerns

13 Reporting on the Investigation Contents Executive summary Background and authority Scope and Techniques Facts Recommendations Exhibits Legal standards

14 Reporting on the Investigation Soliciting Comments Drafted by Counsel Approved by Supervising Body Whether to Circulate Drafts to Others Auditors Individuals criticized in report Annotated Versions and Drafts