Internal investigations in the COVID-19 era

December 2020  |  FEATURE  |  FRAUD & CORRUPTION

Financier Worldwide Magazine

December 2020 Issue

Even in ‘normal’ times, conducting internal investigations can be difficult. Companies seek to carry out a fast, careful and structured internal investigation in order to mitigate risk. They must consider a number of issues during the process, including how and when to start an internal investigation, how to manage the budget, determining who will be in charge of the investigation, preparing a plan, defining scope and execution, and addressing key data privacy challenges, among others.

However, businesses operating today are, of course, unable to rely on normality. The COVID-19 pandemic has made internal investigations far more complex. Working practices have shifted, corporate priorities have changed and resources have been reduced and reallocated. But when an investigation is deemed necessary, companies still need to conduct them in a sensitive, appropriate, defensible and timely manner.

Companies continue to face potential allegations which may trigger an internal investigation. Indeed, amid the COVID-19 crisis, the risk of a compliance breach has arguably increased.

Changed working habits

There has been very little ‘business as usual’ in 2020 and many unique challenges face companies in the age of COVID-19. The pandemic has forced governments to impose social distancing, travel restrictions and other safety measures. With more people working from home, there is greater capacity for compliance failures, employee misconduct and lapses in oversight.

In ‘ordinary’ times, companies often attempt to understand the conditions which lead employees to act unethically and devise strategies to mitigate misconduct. However, the COVID-19 crisis has disrupted standard operating procedures. The practicalities of remote working has impinged on many companies’ ability to undertake effective compliance monitoring, supervision and oversight, which, in turn, has created opportunities for unethical and criminal behaviour.

Further, once the economy returns to something approaching normal, organisations may be held accountable for their regulatory and compliance failures during the crisis. Therefore, complying with regulations and ensuring employees act ethically has never been more important. Regulators will take a dim view of companies or individuals who attempt to capitalise on the disruption, and the reputational damage could be substantial.

High standards

Regulators, including the US Securities and Exchange Commission (SEC), have made it clear that they expect companies to continue to meet their compliance obligations while employees work remotely. Several new authorities have been set up specifically to investigate pandemic-related compliance issues. In the US, for example, Section 15010 of the CARES Act created the interagency Pandemic Response Accountability Committee (PRAC). The PRAC operates within the Council of the Inspectors General on Integrity and Efficiency and is charged with conducting oversight of any COVID-19-related funds to “prevent and detect fraud, waste, abuse and mismanagement” and “mitigate major risks that cut across programme and agency boundaries”.

Though companies may have hoped for a relaxation of compliance requirements, it is clear that high standards need to be maintained. As a result, the prospect of having to conduct an internal investigation remains. That said, the seismic shift in working practices means investigations carried out today look very different to just a year ago. Remote working has made the process more difficult. Documents and data collection, witness interviews and interactions with enforcement agencies have all been affected by pandemic response measures.

“The COVID-19 pandemic has been a challenging time for legal and compliance personnel,” says Brian Fitzpatrick, an associate at Allen & Overy LLP. “Travel restrictions and shuttered offices have restricted the ability to conduct interviews and collect documents and data in-person, and conduct on-site audits, reviews and training. These aspects of investigative work have been staples of internal investigations for years.”

To investigate or not to investigate

Perhaps the first consideration a company needs to make is whether a reported incident or issue warrants an internal investigation. This will almost certainly require some level of legal consultation.

Given the uncertainty in the current environment, many companies may be tempted to postpone an investigation. But doing so needs to be weighed against the possibility of unplanned disclosure reaching the public, or increasing the risk of negative financial or reputational consequences down the line.

One primary reason to proceed with an investigation despite the obvious challenges created by the outbreak, is that by delaying it, companies may miss an opportunity to resolve the situation before it worsens. A delay may also make the process more costly and time-consuming in the future.

There are also compliance considerations. In certain circumstances, a company may have no choice but to act. Quite simply, companies need to be ready to conduct investigations when required.

Processes and practicalities

Should an investigation be launched, companies must select an appropriate investigating officer who can remain impartial, knows how to conduct a fair investigation and can dedicate sufficient time to the process. Companies may also turn to specialist external investigators and consultants to assist.

There are advantages to appointing an external party as investigator. For example, if a senior manager is named in a complaint or is a potential witness to an event, they will not be impartial, and may be tipped off by a purely in-house investigation. Using an external investigator can avoid potentially compromising the fairness of the process. The same applies when allegations relate to company policies, procedures or culture.

When it comes to collecting and reviewing documents, interviewing witnesses and analysing forensic data, the additional hurdles imposed by remote working demand flexible and creative solutions. Experienced investigators can help to determine which steps can wait and which are immediate priorities, such as preserving evidence, putting a stop to ongoing misconduct and not tipping off perpetrators.

“The ever-changing circumstances have required companies to both prioritise critical work that could not be put on pause and ensure that they are well positioned to restart certain aspects of investigative work that was put on pause,” says Mr Fitzpatrick. “For that latter category, ensuring preservation of electronically stored information as well as hard copy files has been key to proactively positioning the company to pursue further investigative steps as the pandemic evolves. Companies have also faced challenges with access to witnesses, particularly where there has been employee layoffs or other departures, but companies that have been well placed have proactively considered and put a plan in place to address those issues.”

Document gathering

One of the most important aspects of any internal investigation is gathering relevant documents. Hard copies may be more difficult to access if they are stored in locations closed due to the pandemic, for example. In such cases, companies need to arrange for them to be scanned and uploaded onto a document review platform as soon as it is safe to do so.

Electronic data may also be difficult to source if it is kept locally on laptops or other devices held by employees. While remote access can solve these issues in the short term, ultimately companies may need to update their data handling and security policies to account for the inevitable increase in long-term remote working and to maintain control over data.

For example, legal departments may have to increase their reliance on employees to preserve key data. This can, of course, be a problem as technological competency can vary greatly across the workforce. Accordingly, companies should consider proactive steps to educate employees on data management and preservation.

Another aspect of internal investigations affected by the spike in remote working is witness interviews. It is always preferable for interviews to be conducted in face-to-face meetings, particularly if the interviewee is alleged to have been involved in any malfeasance or misconduct, as it is always easier to establish rapport and assess their credibility. However, by necessity, interviews are more frequently taking place virtually, rather than the preferred in-person meetings that preceded the pandemic.

For remote interviews to work, participants must be adept at using the technology, which may require a practice run in advance. Preparedness may help participants avoid unexpected issues, allow troubleshooting ahead of time, and ensure all participants have a working microphone, camera and internet connection. A senior member of the team should also be available to resolve technical issues on the day.

Individuals responsible for conducting the investigation should carefully plan the process. In simpler times, the investigative team would identify key documents, draft an interview outline and schedule an in-person interview for critical witnesses. Ongoing restrictions mean that investigative teams must take their preparations further.

“Nailing the logistics is the first step to a streamlined remote interview, and it is all the basics that you would think: ensure the technology works, consider the best way to share documents whether that is in advance or presenting on screen, have a back-up plan if the remote platform runs into issues, and so on,” says Mr Fitzpatrick. “Beyond the logistics, it has been important to set ground rules for the interview, including that it not be recorded, that the witness ensures they are alone unless accompanied by counsel, and that all documents and information be kept confidential and secured.”

Remote interviews, whether conducted over the phone or digitally, may allow someone to record the interview surreptitiously. This should be avoided, as the recording may become discoverable in future litigation. Also, if the fact of recording is not disclosed, it may constitute a crime in states which require two-party consent in such cases.

Evidence gathered secretly by an employee covertly recording a meeting may also be admitted by an employment tribunal in certain circumstances, if it is deemed relevant. Therefore, employers should always assume that they are being recorded and what they say will be admissible in future proceedings.

As a result, investigators need to put in place measures to limit the risk of a party recording an interview. This includes reminding an interviewee that they have no legal right to record the interview and that any attempt to do so may put them in breach of data protection law.

For fact witnesses who are not alleged to have participated in any wrongdoing, interviews can more easily be conducted using a videoconferencing platform where the interviewer can share screens and present sensitive documents in a controlled manner.

Remote interviews can also pose data privacy issues. The secure storage and privacy of videoconferencing sessions should be paramount, particularly as regulators are increasingly focused on upholding data privacy. Companies should leverage their IT teams and external experts when collecting, storing, securing and reviewing documents.

The new normal?

As we have seen throughout this crisis, companies have been agile and flexible when necessity has demanded it, and some of the changes instituted are here to stay. “We expect internal investigations going forward to adopt these and other efficiencies brought on by the crisis and move forward by modifying their pre-pandemic investigative procedures where appropriate to maintain these new-found efficiencies,” says Mr Fitzpatrick.

Technology has played an important role in investigations since the onset of the COVID-19 crisis. The pandemic has changed working practices, accelerated greater use of technology and increased reliance on digital data. In the post-COVID-19 era, it seems almost certain that technological innovation will be a cornerstone of internal investigations going forward.

© Financier Worldwide

BY

Richard Summerfield