Cross Border Investigations and Ethical Culture

February 11, 2021

In organizations with a strong ethical culture, cross border investigations tend to go easier than in dysfunctional organizations. Whether your organization is amongst the World’s most ethical or riddled with dysfunction, cross-border investigations are challenging either way.  Global organizations are a microcosm of the countries and cultures in which they operate, and understanding customs, language, business practices and cultural norms is an essential part of conducting effective investigations.  Further amplifying the challenge is that in many parts of the world, the business practices and cultural norms tacitly endorse bribery and corruption and other financial and property crimes. In some countries, conducting investigations is discouraged or even unlawful and when you overlay the travel restrictions of the global health crisis, challenging does not begin to describe it.

Companies are still expected to operate within the law in each country they operate and to follow the spirit and letter of their corporate compliance programs. To be considered effective compliance programs need to have certain program elements that include mechanisms for confidential reporting of suspected wrongdoing and an efficient and properly funded process for investigating allegations and documenting the company’s response which may include any disciplinary or remediation measures taken.

In an episode of the Fraud Eats Strategy podcast, I was joined by two experts in cross border investigations, Cummins Inc.’s Senior Director of Ethics and Compliance Fernanda Beraldi and FTI Consulting Managing Director Yulia Maksimenko.

Investigations are necessary and important. They do not necessarily have to be at cross-purposes with an organization’s culture and morale. It is imperative to plan and conduct investigations that strike a balance between the need to bottom out the allegations at hand without hurting morale and organizational culture.

It takes time to instill a strong ethical culture.  One way to measure if your efforts have been successful is if people feel comfortable cooperating in an internal investigation.  If you invest time and develop solid policies and procedures, provide training, frequent, varied communication in support of them, it builds trust. Processes that are built on a strong ethical foundation, merit-based, and result in institutional justice that is carried out in an even-handed manner will reinforce a strong ethical culture in which people not only trust the process but they trust in the people who are administering it. 

At the outset, investigations are limited to a small circle of trusted persons. That tight circle will maximize the likelihood for success and limit the investigative subjects’ ability to undermine the process.  Once the investigation is concluded, is an ideal time to be transparent. The overwhelming majority of employees are honest and want to work for a company that operates with ethics and integrity.  By being transparent with employees about investigations, the results and the disciplinary actionsare an opportunity to reinforce that strong ethical foundation that has been built over time. 

Not all organizations can claim to have a strong ethical culture. They need internal investigations too.   Improper conduct tends to be far more prevalent in organizations that do not have a strong foundation of ethics. Conducting internal investigations in these organizations can be more challenging since employees are far less likely to trust that the investigation will be conducted fairly, that the persons responsible for the improper conduct will be held accountable and most importantly, that cooperation on the part of individual employees will not result in them being retaliated against.  Strangely enough, when the ethical culture in an organization is not strong, employees are inherently more trusting of outside investigators than they are of their colleagues.  Outside investigators are often viewed as independent, disinterested parties who are far less likely to be swayed by political or hierarchical pressures trying to influence the outcome of the investigation. Investigations can be disruptive, anxiety-producing and provide ample fuel for the rumor mill fire.  Individuals who are construed to be cooperating are unlikely to be described internally in heroic terms – quite the opposite.  They may be shunned, retaliated against, threatened, or even assaulted.  Investigators must be mindful of these cultural dynamics and plan their investigations accordingly.

There are several tactics that investigators use to try to lessen the negative impact on the organization and its personnel without undermining the effectiveness of the investigation. For example, if 4 critical witnesses need to be interviewed, consider interviewing a larger cross-section of employees and officers to protect the identity of the witnesses who are needed to cooperate.  The setting of where the interview takes place can likewise be important. 

A conference room inside the company’s headquarters may be convenient and expedient but conducting interviews in that setting may not be ideal for several reasons. For one, it will be readily apparent to even casual observers the identity of the witness, who they are meeting with and for how long.  This needlessly makes the witness the center of attention, can trigger counterproductive activities like witness tampering or threats and make the witness even more anxious than they are already are. 

Consider holding interviews offsite at an attorney’s offices, hotel meeting room, or some other private location far enough away from the workplace so as not to be seen. Stagger the witness interviews far enough apart so that the witnesses don’t see one another, and their comings and goings are not obvious and don’t give rise to speculation as to where they are headed. If the existence of the internal investigation is not yet known, consider doing the interviews under some type of benign-sounding pretenses such as a focus group, training, or offsite meeting.   

Understand though that one or more of your “witnesses” may be involved in the activities at the center of the investigation.  Even if they are not involved, as soon as the scope of an investigation includes human interaction, it is unlikely to remain a secret for very long.       

Many U.S. companies require the use of Upjohn Warnings when an attorney for the company is present during a witness interview. Upjohn Warnings are sometimes referred to as “corporate Miranda Warnings”.  They are statements at the outset of interviews of company employees in which the attorney present introduces themselves and explains they represent the company’s legal interests and they are not there to represent the interviewee.  While it is certainly very important for the witness to understand the attorney’s role and that the attorney is not there to represent the witness, the warning itself can bring the interview to an abrupt halt or create so much worry that the witness interview is unproductive. Upjohn is based on United States case law, to issue an Upjohn Warning in an interview outside of the United States is likely to cause confusion because there is not an Upjohn equivalent in many countries. Investigators and legal counsel should think about how best to approach witness interviews outside of the U.S., who should perform them and whether to administer Upjohn warnings. 

Sometimes, an internal investigation yields evidence of criminal conduct.  Unlike the U.S. where the culmination of an investigation might be a criminal referral to the FBI or another law enforcement agency, law enforcement agencies in certain parts of the world may not be an attractive option.  When planning an internal investigation in a foreign country, it is important to understand the laws of that country, and whether a criminal referral is possible.  Even if the decision is that the company does not plan on disclosing the investigation to the host country’s law enforcement agency, it may be taken out of your hands.  Sometimes, those law enforcement agencies find out about your investigation and insert themselves into the equation.  Effective cross-border investigations must consider this possibility and ensure that local counsel is on stand-by and able to step in on a moment’s notice. 

Data privacy in a lot of parts of the world is something that must be taken into consideration.  Investigators and attorneys conducting cross-border investigations must understand the data privacy laws in the country where the investigation is being performed and plan accordingly.  Data that contains personal identifying information can be subject to very strict privacy laws about the use and movement of that data.   Some countries such as China have defined “state secrets” very broadly and what we may consider  commercial information such as information about financial performance or accounting records the Chinese state could assert that the company is strategically important and their financial records are state secrets as a result. Not only is it important to understand and plan around the risks of collecting data in foreign jurisdictions, it is also important to understand that some countries direct their intelligence assets against foreign business travelers. You and your investigative team could be targeted by espionage agents seeking to harvest data stored on your devices or accessible via your VPN connection.  Investigators who travel with laptops should think about bringing a device that does not have any documents or other files stored on it.  Similarly, email correspondence should be cryptic and phone calls or video conference meetings should be avoided while in-country if possible.     

Cultural biases and preconceptions can impact the effectiveness of investigations. Years ago, I was involved in an internal investigation in Turkey.  It entailed a large-scale embezzlement in the medical equipment industry with losses of around $50 million.  When we were getting ready to put investigators on the ground, the Turkish employees of the client and their local counsel were all in agreement that Turkey’s culture was such that it was highly unlikely that any witnesses would be willing to provide meaningful information to the investigators but that the team should attempt to interview them. This would enable the client to explain to insurance carriers and other interested parties that the interviews had been attempted.  Despite that preconception, the team was able to get signed statements from all 22 of the witnesses interviewed. This showed that while Turkish culture is insular and people aren’t necessarily trusting, the client organization was one of the most respected brands in the world, was important to the Turkish economy and nobody was willing to risk alienating them.  This served as a great reminder that human beings are complex and unpredictable.

An effective cross border investigation starts with a plan. The plan should consider the ethical culture with the company, privacy and state secret strictures, the laws and cultural nuances in the country and the local subsidiary and an overall tactical plan of the investigative steps to be taken, the timing and logistics of each step and should be planned in such as a way as to cause minimal disruption to the company and an eye toward to protecting the identity of witnesses. They can either benefit from the trust the organization has built with its workforce as a result of its efforts at fostering an ethical culture or can serve as the tip of the spear seeking to root out bad actors and usher in a new organizational ethos. 

To hear the full Fraud Eats Strategy podcast episode with Fernanda Beraldi and Yulia Maksimenko,  click here.  

Note: The postings on this site are my own and do not necessarily represent White Collar Forensic’s positions, strategies or opinions

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