Internal investigations are a crucial component of a robust compliance program; failure to investigate properly and resolve allegations of wrongdoing could damage your company's credibility with regulators down the road. At Compliance Week 2012, compliance and legal executives shared their approaches.

At Verizon, for example, investigations are prioritized depending on the type of complaint to determine where to invest resources first, said Bob Ernst, chief compliance counsel at $111 billion Verizon Communications. Some of the factors Verizon considers include:

Who is the source of the claim? Does it include government involvement?

Does the misconduct appear to involve senior-level executives?

Does the complaint involve a potential violation of law, or just internal policy?

Is the incident isolated or part of a broader systemic practice?

All matters, however, do get investigated, Ernst said. “We look at every matter, no matter its source or the nature of the matter,” he said.

Ernst urged the audience to err on the side of caution by practicing “good compliance hygiene”: foremost, taking care to preserve any evidence of wrongdoing as quickly as possible. “Obviously, you only have one shot to get it right in those areas,” he said. “If you don't preserve documents, you're not going to get them back.”

Steven Witzel, co-head of the anti-corruption practice for law firm Fried Frank, spoke in a different session about the importance of preserving electronic evidence. Check with IT very early in an investigation to confirm that backup servers hold data essential to the investigation that may be about to expire, he said.

Corporate legal counsel should also issue Upjohn Warnings early in the investigation, Ernst added. Also known as “corporate Miranda warnings,” corporate lawyers invoke the warning to remind employees that corporate counsel works in the best interest of the company, not them. “If you don't provide Upjohn Warnings, you might have witness problems down the road,” he said.

“The rule we try to follow is to think about these issues from the very start, even if the matter may ultimately be routine,” Ernst said. “If you don't get control of it from the start, then it can be very difficult to catch up later on.”

Panel members agreed that the severity of the allegations determines who needs to be part of the investigation. At financial services group BB&T, human resources owns the internal investigations process, said Kathleen Kordek, associate general counsel for BB&T. But certain significant matters must be reported up the chain, she said. For example, if the complaint potentially involves the Securities and Exchange Commission, that goes to legal, Kordek said. If the matter potentially involves a violation of the Sarbanes-Oxley Act, it goes to audit.

At Verizon, Ernst explained, the compliance group will lead an investigation if the matter involves the government, senior management, an underlying third-party legal dispute or legal issue, or some other sensitive matter, such as publicity. 

Part of ensuring a robust investigative process involves collaboration with various departments, Ernst said. At Verizon, the compliance department regularly meets with the head of security, internal audit, legal, HR, and other business units.

If a senior-level executive or the general counsel is involved in the alleged wrongdoing, that's when you'll need to consider alternative methods such as tapping outside counsel, said William Johnson, co-head of the white-collar criminal defense, securities enforcement, and internal investigations practice for Fried Frank.

“The rule we try to follow is to think about these issues from the very start, even if the matter may ultimately be routine. If you don't get control of it from the start, then it can be very difficult to catch up later on.”

—Bob Ernst,

Chief Compliance Counsel,

Verizon Communications

Others warned against having too many people involved in an investigation. That may be compromised if you find out that someone has started an investigation without your knowledge. Such a situation is like holding feathers in your hand and having them blown away by the wind; the best you can do is “try to get those feathers back one at a time,” said Kordek.

Interview Tactics

During the panel discussion, Kordek further shared some interview tactics. First, she said, think carefully about who should do the interview. Whether the target is nervous and afraid to speak, or discloses everything, the interviewer should be someone who is able to “intuitively go with the flow of what they are facing,” she said.

The interviewer should clearly communicate why he or she is there, whom the interviewer represents, and the types of information wanted. “Don't beat around the bush,” Kordek said. “Don't ask about what people think; only ask them what they know,” she said.

Self-Reporting Considerations

Another important question to weigh is whether to disclose the inquiry to the government voluntarily. The decision to self-report is a “very delicate one, a very complicated one, and very fact-specific,” Johnson said.

Verizon Chief Compliance Counsel Bob Ernst talks about his company's internal investigation process, as Kathleen Kordek, BB&T's associate general counsel, looks on.

Once a matter is disclosed, “it opens up all sorts of problems down the road,” Witzel said. Among the many: drops in stock price, shareholder litigation, potential subsequent fines and penalties, and more. Whether the Justice Department will provide cooperation credit is “very vague,” Witzel added. “There are no real metrics to what disclosure really gets you.”

Johnson said the government may also hesitate to give cooperation credit where the company tried to get ahead of a problem because it suspects that a whistleblower is going to make a disclosure. In that situation, reporting the matter is still wise. 

“You do get a measure of credibility if your disclosure matches that of the whistleblower,” Johnson said. You'll also gain credibility by disclosing to the government the steps you've taken to investigate the matter and why they were the right steps to take. “They will get comfort that you're not just dismissing the complaint.”

Fried Frank's William Johnson, former chief of the Securities and Commodities Fraud Task Force in the USAO for the SDNY (left), and Mario Mancuso, chair of international trade and investment practice at Fried Frank, sat in on the Bribery Investigations panel.

“They're going to want to know what steps you took to stop it from happening,” Johnson added. You'll want to separate the bad apples from the rest and show that you've put procedures in place to prevent repeat offenses in the future, he said.

In other instances when deciding whether to self-report, Witzel recommended looking at the scope and extent of the issue. Is it isolated to one area, or does it appear to be systemic? The more systemic the problem and the more senior the offenders involved, the greater the need to self-report, he said.

In the event that the complaint came from a whistleblower, “you want to make sure the whistleblower isn't retaliated against, and that may be complicated if the whistleblower works for someone who is under suspicion,” said Johnson. Handle that by having a candid discussion with the whistleblower to demonstrate that you're taking the matter seriously and taking appropriate measures.

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