Comprehensive Guide to White-Collar Criminal Defense: Internal Investigations

Internal Investigations: A Guide for Businesses

When faced with allegations of misconduct, compliance concerns, or potential legal violations, conducting an internal investigation is essential. A well-executed internal investigation helps organizations address issues proactively, engage with law enforcement where appropriate, and reduce legal risks. The below guide outlines key considerations for conducting internal investigations and how to navigate the process effectively.

What is an Internal Investigation?

An internal investigation is a fact-finding process initiated by a company to uncover and address allegations of wrongdoing, non-compliance, or other issues. Common triggers for internal investigations include:

• Allegations of fraud or embezzlement

• Discrimination or harassment complaints

• Regulatory violations or suspected violations

• Whistleblower claims

• Data breaches or cybersecurity incidents

Why Are Internal Investigations Important?

Conducting an internal investigation can:

• Uncover the Facts: Most importantly, an internal investigation can determine whether misconduct or violations occurred.

• Mitigate Risk: Address problems early to minimize legal, financial, and reputational damage.

• Ensure Compliance: Demonstrate a commitment to compliance with laws and regulations.

• Protect Against Litigation: Build a strong evidentiary foundation for a defense if legal action arises.

Key Steps in an Internal Investigation

1. Assemble the Right Team

The first step is forming an investigation team. Depending on the nature of the issue, this team may include:

• In-house counsel or compliance officers

• External legal counsel with expertise in white-collar criminal defense and other matters critical to the investigation

• Human Resources professionals

• Forensic accountants or IT specialists

Obviously, the proper “team” is determined by the facts at issue. However, it is critical that this team, whoever it is, be seen as impartial and fact-seeking. Conducting an internal investigation that merely serves to cover-up any misconduct or sweep allegations under the rug is worse than no investigation at all.

2. Define the Scope

Clearly outline the purpose and scope of the investigation. This includes identifying:

• The allegations or issues that need to be reviewed;

• Relevant laws and regulations that are alleged to have been broken or potentially been broken

• All individuals and documents involved, including emails, text messages, Slack, Teams chats and any other forms of electronic communications.

3. Preserve Evidence

Preserving evidence is critical to the integrity of the investigation. Take steps to:

• Secure relevant electronic data, emails, and documents.

• Ensure compliance with federal laws on evidence preservation.

• Prevent the destruction or alteration of materials.

4. Conduct Interviews

Interview key witnesses and employees to gather firsthand accounts. The quicker that these are performed the better. Best practices for interviews include:

• Preparing for the interview in advance - this means gathering key documents, preparing an outline, and figuring out what questions to ask;

• Recording or documenting the interviews accurately (this usually means more than one person in the interview);

• Providing Upjohn warnings - it is critical for employees to know that counsel represents the company (and not them).

5. Analyze the Findings

Review all evidence and testimony to determine whether misconduct occurred. This is (obviously) a critical step and will generally involve:

• Consulting with legal counsel to assess liability

• Identifying potential violations of internal policies or laws

• Preparing a comprehensive report summarizing the findings

• Identifying next steps (i.e. removal of employees, provision of warnings, or reporting to authorities)

6. Take Appropriate Action

Based on the findings, take corrective actions, such as:

• Disciplinary measures for individuals involved

• Policy revisions to prevent future issues

• Self-reporting to regulatory authorities if required

Legal Considerations During Internal Investigations

Attorney-Client Privilege

Maintain attorney-client privilege to protect communications and documents created during the investigation. Consulting with legal counsel is essential to ensure the privilege is preserved. Likewise, providing employees with so-called Upjohn warnings is also important to protecting the privilege.

Whistleblower Protections

Federal and state laws protect whistleblowers from retaliation. Familiarize yourself with whistleblower protections under federal law.

Privacy and Confidentiality

Ensure the investigation respects employee privacy and complies with applicable data protection laws, such as the General Data Protection Regulation (GDPR). Moreover, if employees have their own phones, the company will generally run into problems in accessing the data on those device. It is important to be proactive.

Common Mistakes to Avoid

• Delaying the Investigation: Prompt action is critical to preserving evidence (and memories of witnesses) and addressing issues.

• Failing to Define the Scope: A vague or overly broad investigation can waste resources and dilute focus.

• Ignoring Employee Protections: Retaliation against whistleblowers or mishandling employee rights can lead to additional legal liabilities.

• Neglecting Documentation: Comprehensive documentation is essential for demonstrating due diligence.

When to Involve External Counsel

Engaging experienced legal counsel skilled in fact-finding and internal investigations (such as Dynamis LLP) is critical for any investigations involving:

• Potential criminal or regulatory misconduct

• Potential misconduct which could trigger civil fines and penalties

• Complex regulatory issues involving the SEC, CFTC or other government bodies

• Conflicts of interest within the organization

• Allegations that could lead to significant legal exposure

Outside counsel is expensive. However, the failure to hire outside counsel may be more expensive in the long-run (pennywise and pound foolish). This is because regulators often view internal investigations conducted entirely by internal employees with skepticism.

Conclusion

Internal investigations are an important step for addressing potential misconduct and maintaining a culture of compliance. But to be effective companies must act swiftly and strategically. Companies must interview the right people, collect the right evidence, and develop a detailed and factually correct chronology of events. Finally, companies must take action - the termination of employees or the reporting of issues to regulators may be necessary.

If your organization is facing a situation requiring an internal investigation, contact attorneys at Dynamis LLP or email whitecollar@dynamisllp.com today. Our experienced attorneys provide comprehensive guidance to ensure investigations are thorough, compliant, and effective.