United States: How To Conduct An International Internal Investigation

Last Updated: June 25 2019
Article by Donald C. Dowling

Imagine an anonymous worker at a multinational's Egypt factory contacts the global whistleblower hotline and accuses the Cairo plant manager of dumping chemicals into the Nile. Or imagine the manager of a bank's Mexico City branch reports that her secretary's family seems to be trading on inside information. Or imagine an employee of a multinational's Marseilles office complains that one of her co-workers keeps groping her. Or imagine the U.S. Justice Department contacts a multinational's Milwaukee headquarters to ask about some lavish dinners the Middle East sales team hosted for officials in Saudi Arabia.

Any of these incidents, if it actually occurred, would be serious and could be criminal. Obviously a multinational receiving unproven allegations like these needs to find out what really happened. This means launching an internal investigation. Multinationals—particularly those headquartered in the United States—fully appreciate this. They know not to ignore or suppress information about possible wrongdoing. They recognize the value of conducting a thorough inquiry to find out whether what someone claims happened did or did not happen.

Additionally, outside of the United States employment-at-will regime, a thorough internal investigation can be vital because labor judges hold local employers to high burdens of proof. Overseas, an employer that disciplines or fires someone for committing a bad act will need to be able to prove it. An internal investigation can get the employer the proof.

In the last couple of decades, the state of the art for how companies conduct their internal investigations has evolved considerably, particularly in the United States. At multinational organizations, internal investigations often cross national borders, and so investigatory practices become a cross-border matter. A U.S.-headquartered multinational looking into suspected wrongdoing in overseas operations tends to want to export its sophisticated made-in-America toolkit of internal investigatory best practices. U.S. management and the U.S. board of directors may insist that a cross-border investigation be thorough enough to satisfy their tough American standards. They will resist backing off, rolling back, watering down or loosening up their good investigatory practices even in the face of an overseas local who protests "...but you don't  understand—that's not how we do things around here."

But conducting an overseas investigation in the U.S. style can trigger possible legal challenges. And of course, an international investigation has to stay strictly legal—investigators inquiring into possible criminal misconduct cannot afford to be caught breaking the law themselves. In addition to legal compliance, internal investigations should not disrupt an organization's own internal operations, and should avoid causing ancillary cultural (and human resources) problems.

Our discussion here addresses a multinational seeking a way to resolve this conflict, a way to project-manage a cross-border internal investigation to meet headquarters' high standards while also complying with applicable laws and accounting for overseas expectations hostile to American-style investigatory practices. We first set context by analyzing four threshold strategic considerations when conducting an international internal investigation. Then we address process, detailing four  stages and thirty steps for how to conduct an effective and compliant cross-border investigation.

Context: Threshold strategic considerations in an international  internal investigation

Before embarking on the specific steps and stages of a given cross-border internal investigation, account for threshold strategic considerations in play. Specifically, think about: (A) the cross-border character of the investigation; (B) the size and scope of the investigation; (C) exporting headquarters' investigatory practices; and (D) the disparate categories of law affecting international investigations.

  1. Cross-border character of the investigation. Most internal investigations are local domestic, with the accuser, the target, the witnesses, the investigators and the alleged incidents all in the same country, and the investigation triggering issues only under that country's domestic law. Our focus here, however, is on international investigations— those that cross national borders. International or cross-border internal investigations may be less routine than local domestic ones, but they are increasingly common in today's interconnected world. And of course they tend to be much more complex, with more serious ramifications.

    There are three kinds of international internal investigation. The first, conceptually the simplest, is one we might refer to as a "foreign local investigation": an internal investigation where headquarters in one country investigates an otherwise-local incident of possible wrongdoing in a single foreign country. For example, imagine a multinational's Kansas City headquarters looks into conflict-of-interests charges against the company's country manager in Brazil, or looks into suspected possible embezzlement by a company bookkeeper at a call center in Mumbai, or looks into a bullying charge against the manager of the Lisbon office.

    The second kind of cross-border internal investigation is one we might refer to as the "international problem investigation": an internal investigation into possible wrongdoing that spans a number of countries, but that is not yet threatened to be litigated in any one jurisdiction's courts. For example, imagine a company suspects improper discussions about price-fixing might have happened between its sales teams and competitors in Buenos Aires, Santiago and São Paulo. Or imagine an investigation into a data breach that occurred in Russia and leaked personal data of customers across Europe. Or imagine a sex-harassment charge where the victim is based in Toronto, the alleged harasser works in Miami and the allegedly-inappropriate behavior happened at a sales meeting in Cancun.

    The third kind of international investigation—the kind that gets the most attention and that tends to be the most complex—is what we might call a "court/agency charge international investigation": an internal investigation into incidents that are the subject of threatened or pending civil or criminal proceedings in a court or agency of at least one country, but involve evidence or incidents overseas. Examples include internal investigations responding to "extraterritorial" charges under U.S. federal "white collar" criminal laws like prosecutions under the U.S. Foreign Corrupt Practices Act (FCPA) alleging bribery of foreign government officials, or like investigations responding to charges under U.S. securities laws that allege insider trading infractions at overseas offices. Another example is an investigation involving a proceeding by European "competition" (antitrust) authorities with tentacles reaching back into a U.S. company headquarters. Another example is any investigation relating to EU-level court or agency proceedings involving more than one EU member state. Another example is an investigation relating to a civil lawsuit in an American court seeking discovery in, and making allegations implicating, company operations overseas.

    Seminars and articles on conducting international investigations tend to focus, sometimes exclusively, on these  high-stakes court/agency charge international investigations. But in the real world, the vast majority of international internal investigations are foreign local investigations and international problem investigations. Our discussion here addresses investigations under all three scenarios; references here to "international" or "cross-border" investigations include foreign local investigations and international problem investigations as well as court/agency charge international investigations.
  2. B. Size and scope of the investigation. Internal investigations get drawn out, complex and expensive when they look into high-profile criminal allegations and "bet-the-company" claims alleging bribery, sabotage, embezzlement, tax fraud, insider trading, antitrust collusion, workplace violence, environmental crimes, audit/accounting fraud and the like. For example, an American personal care products company once disclosed in an SEC filing that it had spent $247.3 million on a single internal investigation. The fact that internal investigations can get so drawn out, complex and expensive has become widely recognized. In one situation, an alleged extortionist is said to have used the high price of internal investigations as cover to launder an illegal demand: According to CNBC, a 2019 federal "criminal complaint" alleges that Michael "Avenatti offered to refrain from" making public accusations against a company if it would "agre[e] to retain" him "to conduct an internal investigation" that the company "did not request," and as his "investigation" fee, "Avenatti...demanded to be paid, at a minimum, between $15 and $25 million."1

    While many high-profile internal investigations are expensive, drawn out, and complex, those are exceptional, and for every one of them, companies conduct many quicker, simpler and less expensive inquiries into allegations that would not necessarily constitute serious crimes or bet-the-company exposure. Shorter internal investigations tend to be straightforward, especially if they do not involve outside experts. Many internal investigations (even many international ones) are relatively streamlined inquires that look into fairly routine matters like workplace injuries or lower-stakes accusations of petty theft, bullying, harassment, vandalism, expense-account fraud, attendance infractions and conflicts of interests.

    Seminars and articles on international investigations often seem to assume these projects are inevitably drawn  out, complex and expensive. Our discussion here addresses all international internal investigations—large, small and  in-between. Even a smaller border-crossing investigation must comply with applicable law and cultural expectations.
  3. C. Exporting headquarters' investigatory practices.  A multinational seeking to conduct cross-border internal investigations that meet headquarters' standards while conforming to overseas laws and cultural expectations should think through how it can strike this balance—how it can adapt its investigatory practices developed at headquarters to very-different environments overseas.

    Internal investigations occur around the world. Certainly, conducting thorough investigations has become routine among companies based in common-law jurisdictions. Under law in Australia and New Zealand, for example, investigations need to be thorough to comply with the principle of offering a target "procedural fairness and natural justice." In England, "[i]t is important to carry out necessary investigations of potential disciplinary matters without unreasonable delay to establish the facts of the case."2 Workplace discrimination investigations are mandatory in Ontario, at least in situations where discrimination is later found to have actually occurred.3 Similarly, the British Columbia Worker's Compensation Act requires employers launch immediate investigations into workplace accidents that require medical treatment.

    In some common law countries, an employer that fails to conduct a thorough investigation faces significant exposure; for example, a court in Australia awarded AUS$1.5 million in a workplace bullying claim, in large part because the employer had failed to follow up on the victim's complaints.4 

    Also, conducing a good internal investigation is important beyond the common-law world, and in many civil-law jurisdictions an internal investigation is actually mandatory. Austria's Supreme Court requires employers investigate sex harassment complaints,5 as does a May 2018 amendment to employment law in Korea, and as do statutes in Chile, Costa Rica, India, Japan, Venezuela and elsewhere (including South Africa, which is common law). A proposed 2019 European Union directive to take effect in May 2021 would require investigating ("diligent follow up to") whistleblower complaints received over "internal reporting channels."6

Footnotes

1  Dan Mangan and Kevin Breuninger, CNBC news report, Mar. 25, 2019.

2  U.K. Advisory, Conciliation & Arbitration Service [ACAS] Code of Practice on Disciplinary and Grievance Procedures, Mar. 2015 at ¶5.

Scaduto v. Ins. Search Bureau, Human Rights Tribunal of Ontario [HRTO] Feb. 24, 2014 at ¶¶ 78, 79, 82; Sears v. Honda of Canada, HRTO Jan. 13, 2014 at ¶161; Morgan v. Herman Miller Canada, HRTO Apr. 18, 2013 at ¶ 95; Ibrahim v. Hilton Toronto, HRTO Apr. 22, 2013 ¶¶ 111,113.

Robinson v. State of Queensland [2017] QSC 165 (Sup. Ct. Q'land Aug 2017).

5  Austria Supreme Court decision 9 ObA 131/11x, Nov. 26, 2012.

6  EU dir. 2018/218 at art. 5(1)(c).

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