Conducting a foreign corrupt practices act investigation

• Author: Robert W. Tarun
• Pages: 157-212

CHAPTER 8

Conducting a Foreign Corrupt

Practices Act Investigation

The basic steps and best practices of conducting an internal investigation are largely

the same whether for the board of directors, the audit committee, a special committee,

or senior management. Today, the emphasis on corporate governance means that the

board or a committee is more likely to engage special counsel to perform a Foreign

Corrupt Practices Act investigation and report the results to the entire board or the

audit committee, especially where the conduct of senior management is at issue.

I. BASIC STEPS OF AN FCPA INTERNAL INVESTIGATION

AND RELATED ACTIONS

A. Five Basic Steps and Logical Lines of Inquiry

The five basic steps of an FCPA internal investigation1 are:

1. Determine the nature of the allegation(s) (e.g., bribery payments through

business advisors to a foreign official in Brazil; substantial payments to a

consultant whose services coincide with an oil concession in Qatar; corporate

sponsorship of U.S. visits of Chinese governmental officials; payment to an

Indonesian tax official to reduce an assessment) and establish the preliminary

scope of the allegation(s).

2. Develop the facts through U.S. and foreign document reviews and thorough

interviews—preparing a Working Chronology and retaining experts as neces-

sary, including forensic accountants for evaluating books-and-records and

internal controls practices, and making control recommendations.

3. Analyze the jurisdictional and legal elements for each bribery, books-and-

records, or internal controls offense, and any permissible payments and affirma-

tive defenses of the Foreign Corrupt Practices Act. Common legal issues include

corrupt intent, knowledge, foreign official status, and relevant local laws.

4. Report to the company, board, or committee consistent with the client’s

objectives, e.g., to defend the company in a grand jury FCPA investigation; to

provide legal advice to a board of directors, audit committee, special commit-

tee, or management as part of an internal investigation, including recommen-

dations on compliance programs, disciplinary actions, and corporate policies;

to voluntarily disclose to and cooperate with the DOJ and SEC in order to

obtain leniency or avoid or minimize criminal penalties; and so on.

5. Prepare and recommend appropriate remedial measures and implement the

same.

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158 CHAPTER 8

In determining what questions to logically pursue in interviews and what

documents to review as a result of an FCPA bribery allegation, counsel will, in

addition to being mindful of the elements of the anti-bribery, books-and-records,

and internal controls offenses outlined in Chapter 1, wish to review the red flag

and due diligence steps and issues discussed in other chapters. For example, if an

agent is alleged to have made an improper payment through a relative employed

by a foreign government, the investigation will focus in part on the due diligence

for that agent, any warranties and representations in an agency agreement, Inter-

net searches of the agent and relative, business references, descriptions of services

on periodic agency invoices, and of course, hard and electronic correspondence

between the agent and the company. Answers to the interview questions or tell-

tale emails may establish the requisite knowledge on the part of the company or

a strong defense.

In some cases the record of payments, gifts, or travel will be beyond dispute,

and criminal liability will turn on corrupt intent—an “evil motive” or purpose or

intent to wrongfully influence the recipient to “misuse his official position” in

order to wrongfully direct, obtain, or retain business.2 In other cases, the issue may

be whether a government official ever received anything of value; such cases can

still be prosecuted on an offer or conspiracy theory but are much less attractive to

a jury. For example, in the numerous UN Oil for Food Program cases, the Iraq gov-

ernment, not Iraqi government officials, received kickbacks and the DOJ elected

to proceed with books-and-records violations—not bribery charges. Still, in other

cases a U.S. company’s conduct can appear to be driven more by the negligence or

incompetence of employees than a corrupt motive, thereby negating the requisite

criminal knowledge standard.

Whatever the improper payment allegation, counsel will want to examine not

only the basic bribery elements and permissible payments and affirmative defenses,

but also the red flags and due diligence factors outlined in earlier chapters as they

can frequently bear on ultimate issues of corrupt intent, knowledge, and authori-

zation and will be factors that U.S. law enforcement agencies will likely examine if

the matter is disclosed to them or they otherwise learn of alleged violations.

B. Scoping

Often, the general counsel, business unit manager, or regional counsel will have

the best overall understanding of the nature of the allegation(s) and will be able to

identify those employees likely to have relevant knowledge. The scope of the inves-

tigation should focus on the time period and geography and remain flexible, depend-

ing on what is uncovered. For example, if a regional manager is responsible for

Countries A, B, and C, and is found to have authorized a series of bribes in Country

A in Years 1, 2, and 3, his conduct in Countries B and C should be examined for

Years 1, 2, and 3. Government agencies including the DOJ or SEC will be skeptical

of a corporate internal investigation that has an unduly narrow engagement scope

or does not pursue logical paths of inquiry. It is prudent for all involved—client

and counsel—to think carefully about the language used in the engagement letter,

a board of directors resolution, or an audit committee resolution, as government

Conducting a Foreign Corrupt Practices Act Investigation 159

lawyers may later review them and insert expansion language if circumstances and

investigations so warrant. At some point, the U.S. government may seek to deter-

mine whether the company, the board, or a committee did commit to discovering

the truth in its investigation.

C. Document Review, Forensic Teams, Witness Interviews, and Working

Chronology Overview

Document review and witness interviews will often be conducted both in the

United States and in foreign countries. Promptly identifying relevant custodians

and securing and preserving electronic data is essential to a thorough internal

investigation—and to establishing credibility with both the Department of Justice

and the Securities and Exchange Commission. Investigation counsel, while being

mindful of applicable data privacy laws, should take steps to secure electronic stor-

age facilities such as hard drives, network backup tapes, and flash drives. The DOJ

and SEC, when evaluating a company’s cooperation, will look to see how promptly

and thoroughly management moved to secure both documentary and electronic

evidence. Of course, the responsibility of preserving such evidence is even greater

when responding to a formal government subpoena.

Forensic accounting firms and investigators often assist investigation coun-

sel in sensitive payment investigations. They can gather and secure electronic evi-

dence, deal with encrypted data, assist in identifying robust search terms, conduct

searches for sensitive terms (e.g., bribe, sunshine money, kickback, gift, tea, oil, grease,

comisión confidencial, caisse noire), identify books-and-records and internal controls

issues, and assist in recommending and formulating remedial measures. These

forensic specialists should normally be independent and not the company’s regular

outside accounting or auditing firm. The retention of qualified forensic accoun-

tants under the direction of investigation counsel will usually give regular outside

auditors an increased level of comfort about the investigation.

Since there is no federal accountant-client privilege, investigation counsel—

not the client—should retain the accounting firm under a clearly defined scope

of work set forth in an engagement letter. Investigation counsel should carefully

monitor the scope of the accountant or investigation engagement, the work plan,

interviews, and progress. Whenever nonlawyers are assigned responsibilities, they

should perform under the direction of and report to counsel in order to maintain

the attorney-client privilege and work product protection.3 Counsel should deter-

mine early on what types of memoranda forensic accountants or investigations will

prepare and if they will remain in draft form.

Emails are the primary form of internal and external communications for

many multinational corporations (MNCs) in almost all industries today and

are frequently the DNA in white-collar criminal investigations. As a result, thor-

ough email searches are standard and a must for virtually any significant inter-

nal investigation to be credible. Sometimes companies resist conducting detailed

electronic searches by internal auditors, inside counsel, or outside investigation

counsel, considering them too expensive, invasive, and time-consuming. Unfortu-

nately, email searches have proven very telltale in anti-corruption investigations,