Corporations sometimes have to deal with internal and external situations that border on the criminal – or clearly go beyond the rules and laws that we all are expected to follow. The list includes embezzlement, internal theft, kickbacks, industrial espionage and IPR violations. Sometimes the corporation prefers to have the matter investigated by the police. On other occasions, the police may not be in a position to assist, or the corporation might prefer not to involve the police for other reasons.
This is where external corporate investigators come into the picture: to perform investigations that lead to the solution of these unfortunate situations and to perform incident analyses, background checks and security consultancy.
Due process and the advantages of external investigators
The starting point for any inquiry involving a suspect is the concept of due process, the basic requirement that all legal rights owed to a person are respected. This is essential both to protect the individual’s rights, and to protect the corporation legally – and even save costs.
The corporation’s own security department is not always the optimum solution when an internal investigation is necessary. Investigating cases that involve embezzlement, fraud, theft, industrial espionage, IPR or workplace violations such as sexual harassment require a variety of skills and resources that are beyond the scope of many security departments, and no single investigator should be expected to be able to handle such a wide range of case types
External corporate investigators usually enter the scene in close cooperation with the client company’s legal department and Chief Security Officer. More often than not, this happens when the corporation’s security department is explicitly excluded from being directly involved in the investigation. In addition to contributing to the integrity of the investigative process, this third-party involvement also serves to indemnify the corporation from allegations of misconduct in the investigative process.
Early involvement in the process allows external investigators to ensure that the chain of evidence and the evidence and intelligence gathering processes are documented from the get go. This early involvement can also prevent wrongful gathering of evidence and information, which can lead to legal exposure as well as additional costs if the process must then be started all over.
In fact, early involvement of external investigators can often “make the case”, as they are able to work with an open mind and are not tainted by internal issues and policies.
When does it make sense to use external investigators? You need to ask at least 4 questions
When a case involving investigation of a suspect of misconduct arises, one of the first things the corporation needs to decide is whether to handle the investigation internally or externally. How to make this decision? We think there are four questions the corporation needs to ask itself before initiating either an internal or external investigation.
1. Do we know how to conduct the investigation?
Most companies do not have skilled investigators on their pay roll. If they do, it may very well be that the individual does not have the background required to handle a specific investigation.
Any case that involves investigating financial irregularities that are potentially illegal requires highly specialized investigational skillsets. Similarly, harassment cases, sexual or otherwise, require experience in handling appropriately and with discretion the many emotions that people typically go through. Let’s look at two examples from our own experience.
Example 1: Sexual harassment investigation misses the facts
In a case of sexual harassment, witnesses were interviewed in an attempt to clarify the chain of events prior to the allegations being made.
Any witness, to whichever incident, must observe, interpret, remember, recall and then communicate information to the investigator. The investigator, in turn, must understand and record it. The potential for error is present at every stage. People are influenced by their experiences and expectations, and different people view the world through different lenses. What witnesses think they saw is a function of what they expected to see, what they wanted to see, and what they actually saw; the more ambiguous the last of these three factors is, the greater the influence of the first two.
In this example, the internal investigator made the mistake of not being aware of these important elements of an interview. Consequently, the witnesses all gave their interpretation of what had happened, but the investigator failed to reveal the salient facts and the case had to be closed. The upshot? Allegations remained unsubstantiated, the working environment suffered and productivity fell.
Example 2: Embezzlement investigation fails to respect due process
An international corporation decided not to include an external professional investigator in a case of serious embezzlement in which an employee had allegedly siphoned off a significant amount of money. Upon discovery, the security department collected information and eventually called the employee in for an interview.
Once the security department completed its investigation it reported the case to the police, who in turn called the suspect in for questioning. The now-former employee then claimed to have been intimidated and coerced into giving not only his statement, but also into admitting to the accusations.
As law enforcement officials dug into the substance of the case, it turned out that due process had not been followed: the suspect had not been made aware of his rights during questioning. As a consequence the police dropped the case, and the former employee received significant compensation.
2. Even if we know how to conduct the investigation, do we have the time?
Even if a company does possess the skills to conduct a sensitive investigation, it may not have the resources to do this in a timely manner.
Ideally an investigation is launched swiftly to ensure due process. Lack of resources may result in delay and will undoubtedly have a negative impact on the process.
3. Arm’s length principle: Can you be objective enough when investigating yourself?
Most companies find it inappropriate that an inquiry into the actions of executive management is headed by or even includes in-house investigators.
Some cases are extremely sensitive, and the investigator will become intimately aware of a person’s personal and professional life. Working relationships cannot remain unaffected, however. As colleagues in the same company, there is often no way around the fact that a relationship may need to continue after an investigation.
Assigning internal resources to investigate staff with whom the investigator has a relationship – be that workwise or personal – cannot be recommended. Impartiality is practically impossible. Most of us know only too well how difficult it can be to step back and see things objectively instead of missing important facts of the case and creating subjective realities. This doe not become simpler when money, careers and friendships are at stake.
Example: Colleague investigates colleague
An IT security manager was tasked with investigating an internal matter of financial irregularities. Allegations had been put forth that an identified person with access to the corporation’s funds had channelled small amounts to outside accounts.
To do so, the suspect needed access to other employees’ usernames and passwords, as internal policies required money transfers to be approved by key employees. The suspicion was that the suspect had stolen the information from other authorized signatories.
Sounds simple to investigate, right? Here’s what went wrong: The IT security manager heading the internal investigation was cooperating with the suspect to funnel off funds. Needless to say, after “thorough internal investigations” all allegations were found to be unsubstantiated. The case remained closed for another two years, after which time the allegations were brought forward again. This time, someone other than the IT security manager was assigned to the investigation, and it was found that he and the original suspect had embezzled a substantial amount of money from the corporation over a period of five years.
4. Are you ready for your failed attempts at internal investigation to hit the front page?
Getting an internal investigation right will potentially save the corporation from aggressive outside scrutiny; getting it wrong can be extremely damaging in both the short and long terms.
A fairly recent example of a corporation getting things wrong is Rupert Murdoch’s News of the World, which touted its 2007 internal investigation to eliminate suspicion of prevalent phone hacking. When the explosive phone hacking scandal broke, however, it emerged that the internal investigation had been an utter fiasco at best.
Mr. Murdoch was soon in the news for all the wrong reasons. News of the World no longer exists. Key protagonists got jail time. Was it really worth it?
Corporations need to re-examine their tactics in investigating internal misconduct, especially as legislation increasingly mandates effective whistle-blower setups. Consequently, corporations should have a defined investigative policy that is known and adhered to by all staff.
Corporate officials who profit from wrongful conduct have a conflict of interest when it comes to self-investigation. There are real dangers – and not just economic risks – in requiring whistle-blowers to utilize internal compliance reporting mechanisms before voicing concerns to independent government regulators.