FCPAméricas Blog

Cost Effective Internal Investigations – a “How To”

Author: Matteson Ellis

Internal corruption investigations are expensive. Case in point: a Deutsche Telekom subsidiary in Hungary has paid more than $3 million so far this year on a U.S. Foreign Corrupt Practices Act (FCPA) internal probe. This is before the company has even reached a settlement with the U.S. Department of Justice (DOJ) (a settlement with the U.S. Securities and Exchange Commission has reportedly been reached already). How much more might expenses climb after the German authorities get involved, or the Hungarian authorities (Hungary is a signatory to the OECD Anti-Bribery Convention)? What if the company gets a monitor?

Maybe Avon Products can offer lessons learned on managing internal investigations. Avon has reportedly spent over $150 million on its own internal probes and compliance efforts over the last three years. Some predict this amount will eventually climb to $250 million. Avon has not yet settled its issues with the government.

Given the high stakes of internal investigations, companies have built-in motivations to pay whatever is needed to get it right. Not only can a faulty investigation leave a company exposed, it can also lead to additional penalties. See Alcatel-Lucent, where the DOJ noted that the investigation was “slow” and “plagued with problems.” For background information about FCPA internal investigations, go here.

In an age of escalating costs associated with FCPA compliance, how can companies be smarter about the money they spend on investigations? Having conducted numerous internal investigations throughout the Americas, Europe, Asia, and Africa over the last several years, my colleagues and I have learned the following ways to keep costs under control.

Up-Front Preparation – One of the most expensive elements of an internal investigation is compensating practitioners for the time spent “in country.” Costs for transportation, accommodations, and meals, and the billable hours accumulated when investigators are on-the-clock, add up.  To minimize these costs, up-front preparation is essential. Investigators should gain access beforehand to as many relevant documents as possible, understand the landscape, key players, and organizational structures of the units being investigated, and consider interviewing by phone relevant witnesses or employees when such “long-distance” interviews would not be prejudicial to the investigation. Preliminary preparation also helps rule out some issues and increases focus on others, which can streamline “in-country” work.

Doubling-Up – It is not uncommon for highly specialized FCPA legal and investigative firms to have several matters going on at once in a particular country or region. This creates the potential for economies of scale that can reduce costs to each client. Transportation to the region and other costs can be spread among various clients, leading to substantial savings.

Language Abilities – Language translations of documents during an investigation can be expensive. Such costs are minimized with the use of multilingual lawyers and investigators who can review all documents, relevant and irrelevant, without incurring translation fees. Then, companies will only need to purchase official translations of the most relevant and sensitive documents.

Use of Technology – Technology can drive down costs. Database services help accelerate large scale document reviews. Skype helps facilitate communication. Brazilian anti-corruption lawyer and World Bank investigator Alan Pereira explains how sometimes using technology to perform virtual interviews can be preferable to in-person interviews because the interviewee has fewer excuses not to show up or cut the interview short and there are fewer environmental distractions. It is also cheaper.

Visas and Shots – Incidental costs associated with travel, like fees for visas and costs of doctor visits, vaccine shots, and malaria medication, can add up. Satisfying such requirements can also be time consuming, delaying an investigation when a client needs a quick resolution. The more often a practitioner does international work, the more likely it is that he or she will have the multi-year entry visa for the target country or the relevant vaccines already.

Cooperating But Not Rolling Over – When enforcement officials are advising a company to conduct a specific type of investigation, the most experienced FCPA firms know how to negotiate a reasonable plan. James Tillen, Coordinator of Miller & Chevalier’s FCPA and Anti-Corruption Practice Group, notes that, “When the DOJ and/or SEC is involved in directing the course of an internal investigation, the instinct may be to do everything requested by the government. This can lead to costly and unnecessary investigative steps. The DOJ and SEC can be reasonable and will consider proposed alternatives that are less-costly and intrusive but that still fulfill the objective of uncovering and remediating improper activity.”

Knowing When to Stop – Tracking down every e-mail and interviewing every person tangentially involved with a matter under investigation might not be necessary. Experienced investigators will know when an issue has been adequately run to ground and findings substantially supported.

Allocating Responsibilities – Large-scale and complex investigations have the potential to get crowded. There is nothing more frustrating to an internal compliance officer than an army of in-house counsel, outside lawyers, local foreign counsel, forensic accountants, investigators, and database technology experts with no clear allocation of roles and responsibilities. With no set plan, actors are likely to repeat the same work. Lack of communication thwarts effectiveness. This can result in unnecessary billable hours.

Conclusion: The need for companies to conduct internal investigations will likely increase. The FCPA’s Frank-Dodd whistleblower provisions and the UK Bribery Act only heighten the importance of robust compliance programs. The economic downturn increases pressures on companies to make sales, which can lead to more pressure to entertain improper payments. Many companies consider compliance to be a cost-center and have fewer resources to spend on it. These trends make cost-effective internal investigations that much more important.

The FCPAméricas blog is not intended to provide legal advice to its readers. The blog entries and posts include only the thoughts, ideas, and impressions of its authors and contributors, and should be considered general information only about the Americas, anti-corruption laws including the U.S. Foreign Corrupt Practices Act, issues related to anti-corruption compliance, and any other matters addressed. Nothing in this publication should be interpreted to constitute legal advice or services of any kind. Furthermore, information found on this blog should not be used as the basis for decisions or actions that may affect your business; instead, companies and businesspeople should seek legal counsel from qualified lawyers regarding anti-corruption laws or any other legal issue. The Editor and the contributors to this blog shall not be responsible for any losses incurred by a reader or a company as a result of information provided in this publication. The Editor, authors, and contributors give their permission to use and share any information posted on the FCPAméricas blog. For more information, please contact Info@MattesonEllisLaw.com.

The author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author.

© 2011 Matteson Ellis Law, PLLC

 

Matt Ellis

Post authored by Matt Ellis, FCPAméricas Founder & Editor

Categories: FCPA, Internal Investigations, World Bank

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3 Comments

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3 Responses to “Cost Effective Internal Investigations – a “How To””

  1. Rob Says:

    Matt,

    Good, practical how to guide. Thanks.

    In the many investigations we have helped with, the two killers are in-country costs and over-collection, often driven by the authorities.

    At Catelas, we are able to provide upfront intelligence on day 1 – BEFORE people start flying and before data starts to be collected. We can identify ‘who are the key players involved’ and provide critical intelligence which will drive the interview and collection process.

    The other key tangible is that we provide a defensible, comprehensive process to present to the authorities that can dramatically limit the scope of the investigation. This is huge for bringing the cost of the investigation down.

    Hope this helps.

    Rob.

  2. Michael Wallace Says:

    Yo , I am making a wiki site and some of your original articles would fit the context good. Am I allowed to copy and paste think article for my readers?

  3. Matt Ellis Says:

    Hi Michael, yes you can repost but please attribute the posts to the original author. thanks

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