The Morning from Hell

Transcription

1 The Morning from Hell

2 Background You are the new General Counsel of Megacorp. Megacorp has various subsidiaries in heavy engineering and construction. In addition to significant operations in the US its main overseas markets are in South America. The company has been looking at strategic investments in Europe in order to position it to bid for major contracts in Eastern Europe. About 12 months ago Megacorp acquired Encom Limited, a company registered in England which has a number of subsidiaries throughout Europe. The Head of Legal of Encom Limited at the time of the acquisition is now the European General Counsel of Megacorp. He is based in Paris. Encom Limited has a wholly-owned subsidiary in Italy, Encom S.p.A, where it also has a manufacturing facility.

3 Background (cont d) At the time of the acquisition of Encom Limited, Encom S.p.A, was in negotiations with the regional authority in Romulgraine (a newly independent country in Eastern European and now an EU Member State) in connection with a major EU funded infrastructure project. Encom Limited was in financial difficulties at the time and the deal was completed quickly and with limited due diligence. The contract with the regional authority in Romulgraine was completed a few weeks later. The contract was obtained with the assistance of an overseas agent based in Spain, Mr Avaris.

4 Background (cont d) Following the acquisition of Encom Limited, the longstanding auditors of the company were replaced with the Group auditors. The Group auditors have recently been conducting their audit of Encom Limited and its subsidiaries. You are in the UK for a week as you are considering a restructuring of the legal function. There are also a number of matters that have been identified by the auditors following the acquisition which potentially give rise to warranty claims which need to be notified under the terms of the agreement by the end of the month.

5 8:05 am You are having an early morning meeting with the Finance Director of Encom Limited, who also joined the company relatively recently to overhaul the finance function. The auditors have been reviewing contracts entered into by Encom Limited and its subsidiaries in the last 12 months. They had reviewed the contract between Encom S.p.A with the regional authority. During the meeting they comment that the level of commission paid to the agent on the Romulgraine contract was very high and did not correspond with the provisions of the agency agreement. Inquiries of the finance and commercial team have produced little further information as many of the staff are new. The auditors had been told that this contract had been dealt with almost exclusively by the former Finance Director, the Commercial Director of Encom S.p.A in Italy (who unfortunately died six months ago) and the Managing Director.

6 8:05 am The FD has also spoken to the MD and he has explained that because of the strategic value of the contract and the assistance provided by Mr Avaris it had been agreed that he would be paid a higher level of commission. The total commission was several million dollars. The Managing Director has admitted that Encom S.p.A s paper work wasn t very good but as part of the audit it was proposed that a representation letter be issued to the effect that the all the contracts entered into by Encom under the period were lawful, valid and effective and there were no issues affecting their enforceability. The auditors say they just wanted to make you aware of this issue as in their audit report they will need to make the point that they the commission paid was not in accordance with the strict requirements of the agency agreement. The Finance Director seems relaxed about the situation. What if anything do you decide to do?

7 9:10 am You are speaking to the European General Counsel and mention the matter to him. You suggest that this is a matter that should be looked at further. He says he has looked this before and was satisfied that the decision to pay a higher level of to Mr Avaris was legitimate. The European General Counsel says that as you are US qualified and not admitted in an EU jurisdiction he should coordinate any further work in this regard so that the exercise benefits from legal privilege. He says he will speak to the auditors again and get on to this straightaway.

8 10:15 am You are in your office and one of the audit team comes in. He looks worried. He says that he has just been approached by the financial controller of Encom who says he knows the Romulgraine contract is being looked at. The financial controller has now claimed that he raised issues with the former Finance Director in relation to the contract and the level of commission payments. He was apparently aware of reports that corruption was a problem in Romulgraine which is why he asked about this. He was told by the Finance Director that everything was in order and that the European General Counsel was aware of the position and had cleared things from the legal perspective. The financial controller says he still had reservations about this but there was no one else he could have raised the issue with.

9 11:00 am You speak to the European General Counsel again and without going into too much detail explain that you have decided that given issues identified by the auditors you think it would be better to have an independent external review of various matters, including the Romulgraine contract. You want to make sure that all relevant information is obtained that exists and will be sending a memo out. As part of that exercise it will be necessary to gather all available electronic data. It may be necessary for the European General Counsel to make his company laptop available for imaging and review. You emphasise this is standard practice. He reacts angrily and says that this undermines his position as this is a European issue. He says that under French employment law your actions could amount to unfair dismissal. He says that under French data protection laws you are not allowed to require him to produce his laptop because, although this was issued by the Company, he also uses this for personal business.

10 11:55 am Reception call and say that there is someone who wants to speak to you about the Romulgraine contract. You take the call. The caller explains that she is a freelance investigative journalist in Vienna, Austria. She says she is going to be releasing a story to newspapers in both Europe and the US that the contract awarded to Megacorp was deliberately over-priced and the public officials in Romulgraine who approved the contract were paid bribes by Megacorp to do so. She says this is part of an investigation into widespread corruption in connection with the wider project and says that there have been several arrests that morning in the capital, Romulgraine City. The office of Mr Avaris in Spain has apparently been raided and he was arrested trying to get on a flight to Brazil. She says she is giving you an opportunity to comment on the allegations against Megacorp before the story is released. She will call you back in a hour, then she will go ahead and release the story.

11 Some suggested practical considerations ENSURE COMPANY HAS A CLEAR CODE OF CONDUCT/ETHICS Needs to meet the minimum requirements of each jurisdiction in which you operate and needs to be embedded through training Do the business people in each jurisdiction understand the extent to which a local issue can have wider implications? DOES LOCAL MANAGEMENT UNDERSTAND THE RATIONALE FOR PROPERLY INVESTIGATING ISSUES THAT MAY HAVE AN ADVERSE IMPACT ON THE COMPANY? IS THE INDEPENDENCE OF THE LEGAL FUNCTION UNDERSTOOD AND ACCEPTED IN ALL JURISDICTIONS IN WHICH YOU OPERATE Needs to be seen as the conscience of the organisation

12 Some suggested practical considerations AS FAR AS POSSIBLE HAVE A SINGLE DOCUMENT RETENTION POLICY EVEN IF THIS GOES BEYOND THE REQUIREMENTS OF INDIVIDUAL JURISDICTIONS INTRODUCE WHISTLEBLOWING POLICIES IN EACH JURISDICTION SO EMPLOYEES KNOW WHO THEY CAN APPROACH TO REPORT CONCERNS OBTAIN GUIDANCE EVEN IF HIGH LEVEL AS TO ANY RELEVANT LEGAL CONSTRAINTS ON CONDUCTING INVESTIGATIONS IN KEY JURISDICTIONS Where you are using an external agency ensure that they confirm the legality of each investigative process (data recovery, interviews, intrusive techniques etc) with local law CHECK THAT YOUR EMPLOYMENT CONTRACTS ARE DRAFTED SO THAT THEY CAN FACILITATE RATHER THAN OBSTRUCT PROMPT AND EFFECTIVE INVESTIGATION OF EMPLOYEES BE AWARE OF THE DIFFERENCES IN APPROACH ACROSS EUROPE WITH REGARD TO ISSUES OF PRIVILEGE

13 Some suggested practical considerations BE PROACTIVE IN DEALING WITH REGULATORY AND LAW ENFORCEMENT AGENCIES bear in mind that early notification of an issue by you may influence where action (if any) is taken NEVER FORGET THAT EUROPE IS NOT A SINGLE ENTITY (YET!) in addition to differences in the law there remain significant and entrenched differences in terms of attitudes and values which affect how issues are perceived and addressed