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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,
Partner, Litigation and Dispute Resolution
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
Partner, Litigation and Dispute Resolution [email protected]
Introduction
Contents
Introduction ...01
At a glance ...02
Managing internal investigations ...03
Recent examples of work ...06
funds earmarked by the SEC to pay ‘bounties’ to corporate whistleblowers pursuant to section 922 of the Dodd-Frank Act
Source: SEC Annual Report on Whistleblower Program, October 2010
>
£450
m
95
%
16
new team members that have joined the litigation practice since 2009 number of jurisdictions
around the world in which we have a preferred firm
70
02/ Managing internal investigations At a glance
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
26%
26%
percentage of defendants convicted by the SFO in 2009-10
Timeframe
The team Scope
Managing internal investigations /03 Managing internal investigations
At a glance
Some key statistics that
set the scene
ProblemSenior management
Notify the FSA/other regulators?
Internal investigation
Audit trail
Investigate? Managing individuals
Managing internal investigations
NO YES YES
Why investigate?
Trigger Event escalated
Is the matter complex, serious and/or sensitive?
Is it preferable to have an independent investigator?
Does the jurisdiction in which the investigation is taking place afford privilege to the findings of
in-house counsel?
Consideration to be given to appointing an in-house team to conduct the investigation
NO
NO
YES
Consideration to be given to appointing External Counsel to conduct the investigation
*Continued on pg. 04
Evidence
number of High Court, Supreme Court or Court of Appeal cases acted on in the last year
Key Client Loyalty
17
growth of BLP’s dispute resolution practice in the last 5 years
YES
YES
NO
First steps
First Steps: Building the investigation team and securing evidence
First Steps: Protecting the firm’s position
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 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
Is the identity of the individual(s) included in
any alleged wrongdoing known? individual should be denied access to company Consideration to be given to whether the 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.
Secure assets which may have been misappropriated/at risk - consider injunctive relief.
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.
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.
NO
Address possible media interest
Appropriate expertise to be engaged
Conducting the investigation
Conducting the investigation
Post-findings
Who? What? When? How? Why? Knowledge? Awareness? Recklessness? Negligence?
Systemic Problems?
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?
Consider preliminary interviews to assist with early fact finding and scoping
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 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.
Official investigation file to be maintained
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.
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
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 clientRecent examples of work Recent examples of work
06/ Managing internal investigations Managing internal investigations /07
RECENT
EXAMPLES
OF WORK...
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.
Nathan Willmott, Partner
Head of the firm’s Commercial Dispute Resolution Group and specialist in representing financial institutions in FSA investigations and financial services litigation
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
Track record in helping our
clients manage investigations
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, Partner
Advises financial institutions and large corporations on matters relating to fraud, corruption and money laundering
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, Partner Head of the firm’s Commercial
Dispute Resolution Group and specialist in representing financial institutions in FSA investigations and financial services litigation
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, Partner
Dual US/UK qualified and specialist in complex litigation, regulatory investigations and white collar crime
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, Partner
Advises financial institutions and large corporations on matters relating to fraud, corruption and money laundering
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.
Sidney Myers, Partner
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
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, Partner
Dual US/UK qualified and specialist in complex litigation, regulatory investigations and white collar crime
SIDNEY MYERS
Partner
Litigation and Dispute Resolution T: +44 (0)20 3400 4847
RACHEL AIKENS
Senior Associate
Litigation and Dispute Resolution T: +44 (0)20 3400 4337
ORAN GELB
Senior Associate
Litigation and Dispute Resolution T: +44 (0)20 3400 4168
SEGUN OSUNTOKUN
Partner
Litigation and Dispute Resolution T: +44 (0)20 3400 4619
NATHAN WILLMOTT
Partner
Litigation and Dispute Resolution T: +44 (0)20 3400 4367
ELINOR LLOYD
Senior Associate
Litigation and Dispute Resolution T: +44 (0)20 3400 4224
RACHEL ZIEGLER
Associate
Litigation and Dispute Resolution T: +44 (0)20 3400 3262
ADAM JAMIESON
Associate
Litigation and Dispute Resolution T: +44 (0)20 3400 3251
DAREN ALLEN
Partner
Litigation and Dispute Resolution T: +44 (0)20 3400 4170
AARON STEPHENS
Partner
Litigation and Dispute Resolution T: +44 (0)20 3400 4163
DAVID HUGHES
Partner
Litigation and Dispute Resolution T: +44 (0)20 3400 4450 [email protected]
Our team
HELEN ARMSTRONG
Associate
Litigation and Dispute Resolution T: +44 (0)20 3400 2101
ANDREW TUSON
Senior Associate
Litigation and Dispute Resolution T: +44 (0)20 3400 4948
AMY RUSSELL
Associate
Litigation and Dispute Resolution T: +44 (0)20 3400 3370
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
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
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 [email protected]
