International white collar crime and the globalization of internal investigations.

Author:Dervan, Lucian E.
 
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ABSTRACT

Much has been written about the methods by which counsel may efficiently, thoroughly, and credibly conduct internal investigations. (1) Given the globalization of such matters, however, this Article seeks to focus on the challenges present when conducting an internal investigation of potential international white-collar criminal activity. In Part I, this Article will examine the challenges of selecting counsel to perform internal investigations abroad. In particular, consideration will be given to global standards regarding the application of the attorney-client privilege and work product protections. In Part II, this Article will discuss the influence of data privacy and protection laws in various countries and analyze the challenges of attempting to conduct an American-style internal investigation in such jurisdictions. Part III of this Article will examine interactions with employees during international internal investigations and will consider the challenges of complying with varying labor laws and due process requirements around the world. Finally, in Part IV, this Article will discuss the hazards of multi-jurisdictional investigations by government agencies. In particular, consideration will be given to decisions regarding the disclosure of investigatory findings and the difficulties of engaging in settlement negotiations in an international enforcement environment.

TABLE OF CONTENTS Abstract Introduction I. Selecting the Investigators in International Matters II. Collecting, Reviewing and Transferring Investigatory Documents from Abroad III. Dealing with Employees in an International Context IV. Disclosure and Settlement After International Internal Investigations Conclusion INTRODUCTION

On April 14, 2010, Russian authorities raided Hewlett-Packard's (HP's) Moscow company offices in search of information regarding an alleged scheme by employees in Germany to bribe Russian officials. (2) HP's German subsidiary allegedly paid kickbacks in Russia to obtain a 35 million [euro] contract for the delivery and installation of an information technology network to a Russian public prosecutor's office. (3) By September 2010, HP publicly disclosed through its securities filings that the criminal investigations into the scheme had spread well beyond Germany and Russia and now included an investigation by the U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC). (4) Further, HP revealed that the investigation by the United States' government had expanded to include Germany, Russia, Austria, Serbia, and the Netherlands. (5) The proliferation of an alleged bribe in Germany into subsequent government investigations in as many as twelve countries around the globe demonstrates the truly international nature of white collar crime in the twenty-first century. (6) With this internationalization of white collar crime and increase in global enforcement initiatives and cooperatives comes an inevitable byproduct: the globalization of internal corporate investigations. (7)

The historical rise of internal investigations as an important tool in the arsenals of corporate defense counsel can be traced to increasingly aggressive enforcement programs by the SEC in the 1960s. (8) During this period, the SEC staff was tasked with creating innovative enforcement mechanisms by which corporations would be required to engage in activities to restore the corporation to a "pre-violation, law-abiding condition." (9) One example of such ancillary relief was the requirement that a receiver be appointed to ensure corporate improprieties were halted. (10) Over time, however, corporations began to propose an alternative to receivership, which was a costly and intrusive form of government oversight. (11) Instead, corporations began proposing that injunctive relief orders contain a requirement that the corporation undertake an internal investigation on its own using special counsel to achieve the same ends. (12) By the early 1970s, the ordering of internal investigations led by the corporation, rather than the SEC, had become the norm, with one court commenting that the appointment of special counsel to conduct an internal investigation as part of an SEC settlement was "a 'desirable and economical practice' that 'allows the company to keep its own house clean and avoid unnecessary governmental supervision.'" (13)

In 1977, in the wake of the Watergate scandal and revelations that hundreds of American corporations were bribing foreign governmental officials, the Foreign Corrupt Practices Act (FCPA) was passed into law. (14) The statute, which remains a centerpiece of international white collar criminal enforcement today, prohibits

corruptly paying or promising to pay money or anything of value to a foreign official, foreign political party, foreign political party official, or candidate for foreign political office to influence the foreign official in the exercise of his or her official duties to assist the payor in obtaining or retaining business. (15) Given the sensitive nature and significant business and reputational risks associated with criminal charges stemming from this type of conduct, American corporations began to realize the value of conducting internal investigations before the government became involved in the matter, rather than merely utilizing this tool to settle existing enforcement actions. (16) As a result, corporations and their counsel began to ask why it would not be more prudent for a company to investigate itself privately without court supervision, SEC monitoring, or inflexible conditions imposed by a consent decree. By employing a self-investigation procedure, a company could use inside or outside counsel, not necessarily wholly independent, and at least not subject to prior approval of the SEC or the court. (17)

With the realization in the 1970s of the significant advantages of acting in advance of government inquiries, the modern internal corporate investigation was born. (18)

Much has been written about the methods by which counsel may efficiently, thoroughly, and credibly conduct internal investigations. (19) Given the globalization of such matters, however, this Article seeks to focus on the challenges present when conducting an internal investigation of potential international white collar criminal activity. In Part I, this Article will examine the challenges of selecting counsel to perform internal investigations abroad. In particular, consideration will be given to global standards regarding the application of the attorney-client privilege and work product protections. In Part II, this Article will discuss the influence of data privacy and protection laws in various countries and analyze the challenges of attempting to conduct an American-style internal investigation in such jurisdictions. Part III of this Article will examine interactions with employees during international internal investigations and consider the challenges of complying with varying labor laws and due process requirements around the world. Finally, in Section IV, this Article will discuss the hazards of multi-jurisdictional investigations by government agencies. In particular, consideration will be given to decisions regarding the disclosure of investigatory findings and the difficulties of engaging in settlement negotiations in an international enforcement environment.

  1. SELECTING THE INVESTIGATORS IN INTERNATIONAL MATTERS

    One of the most important initial considerations when launching an internal investigation is determining who will conduct the inquiry. (20) Several options exist, including utilizing corporate human resources, internal compliance officers, in-house counsel, or outside counsel. (21) In the context of potential international white collar criminal activity, however, it is clear that independent counsel should be retained as soon as possible to achieve two important goals. (22) First, retention of outside counsel makes investigative findings more credible, because the government often looks with suspicion upon the statements and conclusions of insiders who may either be involved in the underlying misconduct or, at a minimum, who have a significant financial stake in the investigation's outcome. (23) Second, utilization of attorneys to conduct the investigation, rather than corporate employees or officers, shields investigative memoranda, reports, and conclusions from involuntary disclosure to third parties, including the government, because of the application of the attorney-client privilege and work product protections. (24) While it appears at first glance that the issue of who will conduct the investigation is a simple one in the context of international white collar crime, the reality of international multi-jurisdictional inquiries makes this a complex and precarious area in which several potential pitfalls exist. (25)

    On February 10, 2003, the European Union's (EU) Commission, charged with developing antitrust rules for the EU and investigating alleged violations of EU competition provisions, ordered Akzo Nobel Chemicals Ltd. (Akzo) and Akcros Chemicals Ltd. (Akcros) to submit to an inquiry regarding potential anti-competitive practices. (26) On February 12 and 13, 2003, the Commission carried out a dawn raid on the companies' Manchester, Britain, offices in search of documents relevant to the governmental investigation. (27) During the search, Commission officials discovered two emails that appeared to contain relevant information. (28) The emails were an exchange regarding antitrust issues between a general manager and Akzo's in-house counsel, who was in charge of coordinating competition law and who was a licensed practitioner in the Netherlands. (29) Though company officials protested, the Commission's representatives took the emails after concluding that the documents were not protected by the attorney-client privilege. (30)

    The basis for the Commission representatives'...

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