Managing internal investigations

Managing internal investigations

Introduction Contents Introduction...01 At a glance...02 Managing internal investigations...03 Recent examples of work...06 Our team...08 Combating financial crime is a growing concern for both regulated and unregulated companies. In this complex field, firms need specialist advice to stay one step ahead and avoid the potential risks and pitfalls that can arise. Daren Allen,, Introduction Regulatory authorities, including the SFO and FSA are increasingly focusing on how Companies are conducting business. In the event of a regulatory breach Companies and (increasingly) their directors face criminal sanctions, financial penalties and reputational damage. In the circumstances, it is imperative that investigations into potential regulatory breaches are properly structured and managed by specialist investigators. This guide breaks down the stages involved in managing internal investigations effectively, from the first steps you need to take, through to conducting the investigation and post-findings. I hope you find it useful and would be very happy to discuss any aspects of the process with you. Daren Allen, daren.allen@blplaw.com Front cover image Ilicia dolores seque latio intibus ut quis eostrumet, occatem oditate autem quam, nisi occupidempor sint etus dolupie niendem quaernatiae enet es ipsunt et quideli berchicia dolum. Escidit atempero exped ut ulparibus aspercius est volorpo ritibus doluptata volor remporum a discit as iur? Quiae dolorep eritatem ent veliqua sitatur. Sandis re commolu ptatur. Ugitat la porum est, ut quo et venihil in et explatusa dolendae volorit facernatur atio. Nequam, sandi simodia sinctus aut aceprat ecullan ditaquas adi. Managing internal investigations /01

At a glance Managing internal investigations At a glance Some key statistics that set the scene Managing internal investigations Problem 70 16 Senior management number of jurisdictions around the world in which we have a preferred firm new team members that have joined the litigation practice since 2009 Notify the FSA/other regulators? Investigate? Managing individuals > 450m funds earmarked by the SEC to pay bounties to corporate whistleblowers pursuant to section 922 of the Dodd-Frank Act The team Internal investigation Scope Timeframe Evidence Source: SEC Annual Report on Whistleblower Program, October 2010 Audit trail Why investigate? Trigger Event escalated 17 Is the matter complex, serious and/or sensitive? number of High Court, Supreme Court or Court of Appeal cases acted on in the last year percentage of defendants convicted by the SFO in 2009-10 growth of BLP s dispute resolution practice in the last 5 years Is it preferable to have an independent investigator? Consideration to be given to appointing External Counsel to conduct the investigation Does the jurisdiction in which the investigation is taking place afford privilege to the findings of in-house counsel? 95% Key Client Loyalty 26% of the cases accepted for investigation for the Serious Fraud Office during 2009-10 were bribery and corruption related Source: SFO Annual Report 2009-10 Consideration to be given to appointing an in-house team to conduct the investigation *Continued on pg. 04 02/ Managing internal investigations Managing internal investigations /03

First steps Conducting the investigation First Steps: Protecting the firm s position Conducting the investigation Post-findings Is there a need to make a preliminary notification? 1. A regulator, 2. The Police, 3. The Market, 4. External auditors, 5. Insurers, 6. Other transacting parties, 7. Lenders Did the Trigger Event result from a report made by a Whistleblower? 1. Adhere to local whistleblowing laws, 2. Who else knows? 3. Implications for notifications Investigation to be structured such that legal privilege is secured over communications and work product. Identify internal client. Advise against client document creation. Scope of the investigation to be determined. Consider whether this needs to be done in conjunction with regulator. Investigation Plan to be drawn up. First Steps: Building the investigation team and securing evidence Does the matter involve: 1. Complex financial or accounting issues, 2. Matters requiring investigation outside the company, 3. An area of specialist expertise, and/or 4. Stock exchange implications? Is the identity of the individual(s) included in any alleged wrongdoing known? Electronic/hard copy evidence to be secured. Consider: 1. The scope of evidence required, 2. The retrieval of electronic material, including instant messaging/e-mail/hard-drives etc, 3. Data protection and privacy issues, 4. Security system logs, 5. Telephone/blackberry calls and logs, 6. Deactivate devices and cease routine destruction, 7. Document retention memo. Address possible media interest Appropriate expertise to be engaged Consideration to be given to whether the individual should be denied access to company systems, IT controls, funds, authority to execute contracts on the company s behalf. Security access should be reviewed. Consideration to be given to suspending/terminating the employee/ removing from duties. Review employment contract and seek local employment law advice. Who? What? When? How? Why? Knowledge? Awareness? Recklessness? Negligence? Systemic Problems? Consider preliminary interviews to assist with early fact finding and scoping Review electronic/hard copy material retrieved. Maintain accurate record of source of all data so identifiable when reconfigured. Prepare chronologies/interview bundles. Identify any gaps. Interviews with key individuals as appropriate. Consider: 1. Whether legal representation should be made available to the interviewee, 2. Whether ongoing monitoring of employee activities is appropriate, 3. How the content of the interview is memorialised. Relevant employment laws to be adhered to at all times. Findings to be reported. Consider: 1. Whether the report is to be written or delivered orally, 2. The risk of actions for defamation and/or other employment claims; and 3. The dissemination of the report. Official investigation file to be maintained Disclosure of the findings/report: 1. Updating any preliminary notifications/ making any new notifications (see left); 2. The form of any disclosure; 3. Is the report itself to be disclosed; 4. How can privilege be maintained if disclosed; and 5. Has there been any collusion with a third party, and if so, should a disclosure be made to that party? Disciplinary action? Privilege unlikely to apply? Can material gathered during the investigation be relied upon? Redress and remedial action Formal closure of file and close out of investigation Documents created and/or collected during investigation to be retained for appropriate period Secure assets which may have been misappropriated/at risk - consider injunctive relief. 04/ Managing internal investigations Managing internal investigations /05

Recent examples of work Recent examples of work RECENT EXAMPLES OF WORK... Track record in helping our clients manage investigations International regulatory and criminal investigation A senior employee of a global financial institution appointed us to represent him in the context of a significant investigation being conducted by various US regulatory and criminal agencies, and the Financial Services Authority. The case involves allegations of widespread market manipulation during the financial crisis. Working in conjunction with US Counsel, we are advising on broad strategic aspects of the investigation, while leading on the UK regulatory aspects. Aaron Stephens, Dual US/UK qualified and specialist in complex litigation, regulatory investigations and white collar crime Bribery I recently led a case in which we represented a listed company in connection with allegations that senior officers had been paying bribes to a major customer. Daren Allen, Advises financial institutions and large corporations on matters relating to fraud, corruption and money laundering Lawyers focus on what really are key issues, not scoring legal points, and are valued for their professionalism and willingness to get genuinely involved. BLP client FSA investigation Our client, the CEO of the investment management arm of a large global business, was recently subject to a personal investigation by the Financial Services Authority. The FSA claimed there were circumstances suggesting that our client had failed to exercise due skill, care and diligence in managing the business and that he had also failed to take reasonable steps to ensure that the firm complied with the relevant regulatory standards concerning client assets and client money. However, our representations persuaded the FSA to discontinue its investigation in October 2010. This successful outcome was achieved at a relatively early stage of the FSA s investigation into the firm, before any formal interviews were conducted. They ve got a creative and entrepreneurial approach. Nothing is too daunting, and they are always very flexible they come up with solutions that make sense. Chambers 2011 FSA investigation Working as part of the BLP team, I acted for a senior officer of Aon during an FSA investigation regarding the company s systems and controls for combating bribery and potential enforcement action by the US SEC and/or DoJ. Aaron Stephens, Dual US/UK qualified and specialist in complex litigation, regulatory investigations and white collar crime Manipulation of accounts and corruption On behalf of a leading UK bank we conducted an investigation into alleged manipulation of accounts and corruption in one of the bank s overseas subsidiaries. The investigation is unusual in that it was prompted by a Whistleblower report to the FSA. Nathan Willmott, Head of the firm s Commercial Dispute Resolution Group and specialist in representing financial institutions in FSA investigations and financial services litigation Sidney Myers, Head of the firm s financial services practice, with a focus on representing banks and other financial institutions who are the subject of regulatory investigations or disciplinary proceedings Conflicts of interest I recently led a team acting for a financial institution to conduct a detailed review of its management of conflicts of interest and whether the activities of the business were in compliance with its internal procedures and regulatory duties. The specific focus of our review was the effectiveness of information barriers in place between its corporate finance and research departments. Following our internal investigation we prepared a report to the Board, which it then passed to the FSA. We also produced detailed recommendations as to how the systems could be strengthened, which our client has now implemented. FSA investigation I represented non-executive Directors of a major PLC in relation to an investigation by the FSA into accounting irregularities and listing rule breaches. Daren Allen, Advises financial institutions and large corporations on matters relating to fraud, corruption and money laundering Nathan Willmott, Head of the firm s Commercial Dispute Resolution Group and specialist in representing financial institutions in FSA investigations and financial services litigation 06/ Managing internal investigations Managing internal investigations /07

Our team Our team Our team DAREN ALLEN T: +44 (0)20 3400 4170 daren.allen@blplaw.com AARON STEPHENS T: +44 (0)20 3400 4163 aaron.stephens@blplaw.com DAVID HUGHES T: +44 (0)20 3400 4450 david.hughes@blplaw.com ANDREW TUSON T: +44 (0)20 3400 4948 andrew.tuson@blplaw.com ADAM JAMIESON T: +44 (0)20 3400 3251 adam.jamieson@blplaw.com AMY RUSSELL T: +44 (0)20 3400 3370 amy.russell@blplaw.com SIDNEY MYERS T: +44 (0)20 3400 4847 sidney.myers@blplaw.com SEGUN OSUNTOKUN T: +44 (0)20 3400 4619 segun.osuntokun@blplaw.com NATHAN WILLMOTT T: +44 (0)20 3400 4367 nathan.willmott@blplaw.com RACHEL ZIEGLER T: +44 (0)20 3400 3262 rachel.ziegler@blplaw.com HELEN ARMSTRONG T: +44 (0)20 3400 2101 helen.armstrong@blplaw.com RACHEL AIKENS T: +44 (0)20 3400 4337 rachel.aikens@blplaw.com ORAN GELB T: +44 (0)20 3400 4168 oran.gelb@blplaw.com ELIR LLOYD T: +44 (0)20 3400 4224 elinor.lloyd@blplaw.com 08/ Managing internal investigations Managing internal investigations /09

Getting in touch When you need a practical legal solution for your next business opportunity or challenge, please get in touch. London Adelaide House, London Bridge London EC4R 9HA England Daren Allen Tel: +44 (0)20 3400 4170 daren.allen@blplaw.com About BLP Today s world demands clear, pragmatic legal advice that is grounded in commercial objectives. Our clients benefit not just from our excellence in technical quality, but also from our close understanding of the business realities and imperatives that they face. Our achievements for clients are made possible by brilliant people. Prized for their legal talent and commercial focus, BLP lawyers are renowned for being personally committed to clients success. Our approach has seen us win five Law Firm of the Year awards and three FT Innovative Lawyer awards. With experience in over 70 legal disciplines and 130 countries, you will get the expertise, business insight and value-added thinking you need, wherever you need it. Expertise Commercial Competition, EU and Trade Construction Corporate Finance Dispute Resolution Employment, Pensions and Incentives Finance Funds and Financial Services Intellectual Property Private Client Projects Real Estate Regulatory and Compliance Restructuring and Insolvency Tax Clients and work in 130 countries, delivered via offices in: Abu Dhabi, Berlin, Brussels, Dubai, Frankfurt, Hong Kong, London, Moscow, Paris and Singapore www.blplaw.com