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Compliance Risks During an Internal Investigation and How to Avoid Them

Compliance Risks During an Internal Investigation and How to Avoid Them


There are a number of not-so-obvious issues related to running an internal investigation that are often missed or simply disregarded as not important. Some of them pose risks to the success of the investigation, while others may not only jeopardize the results but also lead to potentially severe liability of the company and/or the individuals running the investigation).

Internal vs. External Investigations

One of the most important issues that arise in the context of internal investigations is how to deal with potential conflict between internal and external investigations. Why is this important? 

First of all, we need to remember that the aims of internal and external investigations are different. Although theoretically both look at potential breaches of the law, the aim of external investigations is quite often directed only at finding and punishing a potential perpetrator or even an entire company for a breach of the law, while the interest of the company (or its shareholders, when the investigation is led by the owner) is much broader. This is not just a question of punishment but also of understanding the underlying grounds of the problem, as well as breaches of internal rules, the potential (non-public) liability of the officers of the company (e.g., for lack of proper supervision), and finding arguments (if any) to defend the company and its employees against claims – either of the authority or third parties. 

Second, the other side of the story relates to the interest of the individuals involved in the interviews. One needs to remember that (contrary to the general rules for public proceedings) witnesses in internal proceedings are not obliged to tell the truth, with potential criminal liability attaching for false statements (which is usually quite a significant argument). Of course, employment sanctions (e.g., termination of the contract) for lying to one’s employer can be used, but they are obviously less severe. This makes the position of the people conducting the interview especially tricky; they need to take into account that the witness may not necessarily tell the same story in an internal interview as they would in an external one. What is particularly important is that the people being interviewed are usually interested in presenting their own actions in the best possible light, usually minimizing their role and importance to the case. This reaction, though quite natural, may lead to a false or incomplete picture. The consequences of such situations are very serious, and not just because of the potentially lost case. A company answering any questions or presenting its position towards the authorities upon such an incomplete picture may generate not just doubt as to the fairness of its cooperation with the authorities, but even suspicion that it is willfully obstructing the investigation. 

What can investigators do? Are they completely powerless compared to officials from law enforcement authorities? Certainly not. First of all, they usually know the company much better than external authorities do. Second, because they are not necessarily seen as adversarial or posing a consequential threat, they may be able to obtain more information than law enforcement officials can. Of course, there are cases where openly stating the consequences of incomplete cooperation is both useful and necessary

Third, what may happen with the outcome of the internal investigation? Is it going to be a potential burden when disclosed? In principle – though there are differences in antimonopoly proceedings – the outcome of internal investigations will be covered by client-attorney privilege. On the other hand, the law may impose a duty to disclose any materials/evidence relating to the case when prompted by the authorities. There are also cases where one is legally obliged by law to inform the authorities that a crime has been committed (in Poland, Art. 240 of the Criminal Code imposes this duty in relation to the most severe crimes). Even when this duty is not direct, the company needs to consider how reluctance in disclosing the details will be perceived by the authorities. Since in certain circumstances it might be treated even as an obstruction of the existing investigation, decisions in this respect must be made very carefully. One needs to remember that an internal investigation is not aimed at the protection of particular individuals and their wrongdoing but at protecting the company.

All in all, it is necessary to build a complicated picture of the mixed interests in the investigations, requiring extra caution from the investigators and a very carefully planned approach.

By Radoslaw Nozykowski, Head of Compliance, Baker McKenzie Poland
This Article was originally published in Issue 4.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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