Cross border internal investigations
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Cross Border Internal Investigations. Roger Best. 06 July 2011. Outline. Why companies commission internal investigations The basics of conducting internal investigations Legal constraints on the conduct of internal investigations Cross-border implications.

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Cross Border Internal Investigations

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Cross border internal investigations

Cross Border Internal Investigations

Roger Best

06 July 2011


Outline

Outline

  • Why companies commission internal investigations

  • The basics of conducting internal investigations

  • Legal constraints on the conduct of internal investigations

  • Cross-border implications

Cross Border Internal Investigations


Why companies commission internal investigations

Why companies commission internal investigations

  • Firms authorised by the Financial Services Authority (“FSA)

    • Principle 11

      “A firm must deal with its regulators in an open and cooperative way, and must disclose to the FSA appropriately anything relating to the firm of which the FSA would reasonably expect notice”

    • SUP 15 Notification required if

      • Significant reputational impact

      • Significant fraud and accounting irregularities or employee misconduct

    • “The FSA recognises that there are good reason for firms wishing to carry out their own investigations. This might be for, for example, disciplinary purposes, general good management, or operational and risk control. The firm needs to know the extent of any problem, and it may want advice as to what immediate or short-term measures it needs to take to mitigate or correct any problems identified. The FSA encourages this proactive approach and does not wish to interfere with a firm’s legitimate procedures and controls.” [FSA Enforcement Guide paragraph 3.17]

  • The Serious Fraud Office (“SFO”): Guidance of self-reporting on Overseas Corruption encourages companies to self-report and commission an investigation:

    “We will discuss the scope of any further investigation needed. Wherever possible, this investigation will be carried out by the corporate’s professional advisers.”

  • Good corporate governance

  • Reputational risk management

Cross Border Internal Investigations


Fsa approach to firms conducting their own investigations in anticipation of fsa enforcement action

FSA approach to firms conducting their own investigations in anticipation of FSA enforcement action

  • The FSA recognises that sharing the outcome of an investigation can potentially save time and resources

  • A firm's willingness to volunteer a report is something the FSA may take into account when deciding whether to take enforcement action

  • The FSA encourages prior consultation before an investigation is commenced because it is concerned about the potential prejudice to any investigation it may wish to conduct (particularly where there is possible criminal conduct or market abuse)

  • In addition to seeing the report the FSA may want access to the underlying documents and interview notes supporting the report

  • The FSA will accept material on the basis of a limited waiver of privilege but expects to be able to use any report for enforcement action

Cross Border Internal Investigations


The preparation and gathering of material

The preparation and gathering of material

  • Document preservation notices

  • What is the scope of the investigation?

  • Where is the relevant data stored?

  • How do the IT systems work?

  • Who is required to assist in the collection task?

  • What confidentiality obligations need to be imposed on third party vendors?

  • Clean up – don’t forget the obligations on third parties to destruct documents and clean their systems

Cross Border Internal Investigations


Co operation with the investigation

Co-operation with the investigation

  • Employees are under a contractual duty to co-operate with an investigation to establish relevant facts

  • Limited obligations of former employees unless imposed by termination arrangements

Cross Border Internal Investigations


Constraints on internal investigations

Constraints on internal investigations

  • Data protection restrictions on personal information

    • Is there justification for processing?

    • Does notice need to be given?

    • Is there a pre-existing policy on telephone tapes and email monitoring?

    • Can personal data be exported?

  • Regulation of Investigatory Powers Act restricts interception and live monitoring of communications

Cross Border Internal Investigations


Constraints on internal investigations 2

Constraints on internal investigations (2)

  • Maintenance of privilege

  • Employment law considerations

    • Do not predetermine internal disciplinary findings

    • Watch out for the need to switch from investigation to formal disciplinary process

  • Independent representation of employee

  • Privilege against self-incrimination

Cross Border Internal Investigations


Reducing civil litigation risk

Reducing civil litigation risk

  • Record purpose at the outset of the investigation and consider whether it is for a privileged purpose

  • Use in-house legal function and external lawyers where there could be a claim for privilege and advantages therefrom

  • Form of report (oral or written/factual or evaluative)

  • Maintenance of privilege

    • Limited disclosure of the report

    • Restrict interviewees access to interview notes

Cross Border Internal Investigations


Warning

Warning

  • Throughout the process remain alert to

    • The requirement to file suspicious transaction reports (STRs and SARs)

    • FSA’s general notification requirements relating to firms and approved persons

    • The advantages of self-reporting to the SFO

    • The possibility that there will be a leak requiring a reactive statement

Cross Border Internal Investigations


Cross border complications

Cross-border complications

  • Some countries have blocking laws that make it illegal to investigate on their territory where there are foreign or national implications (e.g. Switzerland and France)

  • In some European countries breach of data privacy and/or bank secrecy laws carries criminal law penalties

  • Some other European countries’ employment laws provide greater levels of protection for employees in relation to internal investigations and subsequent disciplinary action

  • Local bar rules may prohibit local lawyers conducting factual investigations

  • Differing concepts of confidentiality and legal privilege in civil law countries reduce the advantages of using lawyers for internal investigations

Cross Border Internal Investigations


Cross border internal investigations1

Cross Border Internal Investigations


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