Litigation

Risks and Rewards of Independent Internal Investigations (ACC Docket)

By Tracy Coenen

The Association of Corporate Counsel publishes ACC Docket, a monthly magazine for members. The October 2010 issue features an article by James McGrath, Esq. on the benefits of independent internal investigations.

Click here to see a pdf of the article, Risks and Rewards of Independent Internal Investigations. The most valuable portion of the article discuss how we have arrived at the point in which companies must have outside, independent counsel doing investigations:

At the onset of compliance and ethics, internal investigationswere tasked primarily to in-house personnel. Those investigators might have been drawn from a business function, corporate security staff, audit department, general counsel?s office or an amalgam of them. With self-policing the stated goal of the USSG, this composition presented a major concern for the government. It smacked of the fox guarding the henhouse. Further, the exercise of prosecutorial discretion in favor of declining or deferring enforcement actions, and in recognizing mitigating sentencing factors, depended on the independence and impartiality of these investigations, and the reliability of results that were deemed less than trustworthy.

The concern over this staffing problem was not onesided, either. Government investigators used any and all means at their disposal to ferret out information, including the issuance of subpoenae, search warrants, and, once litigation commenced, discovery requests. Particularly with respect to internal investigation materials compiled or generated by non-lawyers, there was little protection from the reach of these tools, in essence giving the government access to materials that either confirmed facts uncovered by its own parallel investigations or hanged companies with nooses of their own tying.

Organizations understandably sought protection behind the shield of attorney-client privilege and the work product doctrine by tasking internal investigations to in-house counsel. This allowed companies to protect the yields of their internal inquiries, but did not ameliorate the government?s concern that these investigations were biased. As a result, the justification and motivation for declining or deferring prosecutions, and computing reduced punishments, was once again tempered.

Buttered bread leads to a slippery slope
The corporate world reacted by going ?independent? with its internal investigations. Organizations retained outside lawyers and firms to conduct inquiries into sensitive or particularized matters that simultaneously required impartiality and confidentiality. Due to valid concerns of business familiarity and economy, many companies went with their outside transactional or litigation counsel to perform this task, and for a time, this satisfied the dual needs of the organizations and the government.

Over time, however, the government?s confidence in the impartiality of investigations conducted by regular outside counsel waned. Those law firms knew who buttered their bread, and it was assumed that they would not want to lose top clients, corporate friendships or status because of the issuance of accurate, albeit damning, findings. Organizations were back to the now-familiar conundrum in which the results of their internal investigations were adequately protected, but accorded reduced value by the government

In an INFOPAK published in January 2007, the Association of Corporate Counsel sought to bridge this gap by recommending to its membership as a leading practice the employment of specialized outside counsel to conduct independent corporate internal investigations of critical and sensitive matters. The American College of Trial Lawyers followed suit in February 2008. Both publications agree that not all inquiries must be assigned to such counsel, as whether to conduct an internal investigation with in-house or outside personnel is largely dependent upon the size of the organization and/or the nature and scope of the inquiry.

But employing specialized counsel, when appropriate definitively comports with the expectations of the USSG, affords a client the protections of the attorney-client privilege and work product doctrine, and assures the government of the integrity of the internal investigation.

Full post as published by The FRAUDfiles Blog on October 03, 2010 (boomark / email).