Question: With economic downturns often revealing increased instances of corporate malfeasance, what are best practices or useful guidelines when conducting corporate investigations?

Percy Bysshe Shelley

An excerpt from The Mask of Anarchy

II

I met Murder on the way –
He had a mask like Castlereagh –
Very smooth he looked, yet grim;
Seven blood-hounds followed him:

III

All were fat; and well they might
Be in admirable plight,
For one by one, and two by two,
He tossed the human hearts to chew
Which from his wide cloak he drew.

IV

Next came Fraud, and he had on,
Like Eldon, an ermined gown;
His big tears, for he wept well,
Turned to mill-stones as they fell.

V

And the little children, who
Round his feet played to and fro,
Thinking every tear a gem,
Had their brains knocked out by them.

VI

Clothed with the Bible, as with light,
And the shadows of the night,
Like Sidmouth, next, Hypocrisy
On a crocodile rode by.

VII

And many more Destructions played
In this ghastly masquerade,
All disguised, even to the eyes,
Like Bishops, lawyers, peers, or spies.

VIII

Last came Anarchy: he rode
On a white horse, splashed with blood;
He was pale even to the lips,
Like Death in the Apocalypse.

IX

And he wore a kingly crown;
And in his grasp a sceptre shone;
On his brow this mark I saw –
‘I AM GOD, AND KING, AND LAW!’

Shelley died 200 years ago this month on July 8, 1822

Chris Pockette

There is an old saying in business that “nothing succeeds like success.” But when economies falter, fortunes can quickly reverse. This is especially true for international businesses with foreign operations, partnerships and/or heavy exposure to key supplier or customer relationships. Unfortunately, under the strains of slowing or disrupted business, sometimes the bonds of trust and common cause, which are the glue of such international operations, do not survive the stresses. This is why presently, there is a noticeable increase in international business disputes, as each player in the chain is forced to consider their own declining business fortunes, often at the expense of the other participants. Therefore, a proactive strategy that includes a sensible plan for revaluating key relationships and assumptions should be considered. An important component of any such strategy should be an investigative plan, the foundation of which is a reinvestigation of key stakeholders, be they local employees or foreign partners. Most likely when the enterprise was established, due diligence was carried out on key people and entities. No matter how positive those initial results, it is advisable to carry out further due diligence during times of economic stress, as crisis and misfortune often change people and organizations. As such, an ounce of prevention in such situations can often forestall a pound of future dispute resolution.

Another area of focus should be on anomalies. Experience has shown that often anomalies, such as accounting discrepancies, market rumours, unexplained losses and local credit disruption, which may be excused if business is good, are often red flags of trouble close ahead during an economic downturn. Such risks, however, can often be ameliorated through a discrete professional investigation designed to directly address and answer the questions raised by such anomalies. Examples of such investigations include running down the facts behind identified accounting aberrations, discreet source inquiries into market rumours, key supplier and vendor checks, local investigations into potential credit issues, as well as looking into other indications that something(s) may have changed. From a management perspective, the most important thing to keep in mind is that in trying times it is best to look ahead and take steps to address possible signs of trouble, before such issues become enterprise threatening. Where relevant, professional investigative support is an important component of this approach.

Kim Frisinger

A multinational was conducting a periodic internal audit of a large and profitable sales office in an APAC country when they noticed unusual activity in the T&E accounting records. As questions began to arise, a whistleblower came forward and eventually made accusations of a widespread and massive internal fraud involving outside vendor kickbacks and fraudulent billings. The fraud had been ongoing for more than a decade and the accusations involved the entire local team. This required the investigation to be carried out with a high level of discretion. The fraud scheme had been orchestrated by local senior management so none of the local team could be involved in the investigation. The audit team began reviewing detailed records and documenting various discrepancies. In conjunction with the audit, our team was engaged to conduct the outside investigation. Working with the audit team, investigators began collecting external documentation and human intelligence. These included records of outside vendors, their ownership, directorships, personal relationships with employees of the MNC, and mapping of the relationships. In coordination with the audit team, we prepared dossiers on each of the employees subsequently selected for further investigation and potential interviews.

In this case we began our investigation with the first whistleblower allegation, looking to either confirm or refute. The accusation was confirmed. This led to further queries to the whistleblower who then made more extensive accusations. The investigation began as a small matter and grew as information in open source and social media was collected for each individual and company identified. The investigation required close detailed analysis, site visits, interviews of vendors, and identification of bogus entities used to funnel funds. Our findings led to further audit reviews and identification of more participants in various schemes. Public records and social media opened other previously unidentified links and connections to entities used to siphon the ill-gotten gains. The audit team was able to gather details of money movements. All this information was mapped and placed on a timeline. Dossiers on each of the companies and individual participants of the schemes were prepared for interviews. This was a tedious process which required patience and head office support, and it resulted in a multimillion-dollar recovery for the company. It also led to a number of changes in the company’s processes and policies.

Shannon Argetsinger

We have no control over economic “downturns” therefore corporations need to be prepared to address corporate malfeasance and internal bad actors at any time. Readiness, the state of being ready to address investigative matters, is a complicated concept but should be the goal. Unfortunately, it is easier said than done because “readiness” often means different things to different people. Corporate investigative readiness is more than just a section of policies and procedures in the operations manual. Among the guidelines, processes, and resources, it should also include ethical considerations to preserve employee rights and reputations. Remember, most investigations begin with allegations born from “whistle blowers” or other sources. Until proven, allegations are not facts. A sound, ethical, corporate investigative readiness plan methodically facilitates an internal investigative process while preventing the unfair treatment of personnel and/or contractors. Also, corporate investigative readiness strategies must clearly outline how investigative data/information/materials will be handled and managed; which personnel have the right to access, possess, and review investigative information; and who, and how, investigative materials will be disposed of once a matter has been adjudicated. Finally, critically important is that a corporate investigative readiness plan must be designed to prevent internal investigations from becoming “witch hunts.” Too often, internal investigations are initiated with a specific mandate/scope only to morph into something far different. The cost of an unbridled corporate investigation turned “witch hunt” can be devastating to a corporation.

For decades social scientists have created incident management strategies and causation models to help guide internal incident management. In the occupational health and safety realm, experts talk about Heinrich’s Domino Theory and the Management Oversight Risk Tree (MORT) as a means to identify root causes in the hope of preventing future incidents. While important to understand these theories exist, creating corporate investigative readiness plans is about providing guidance to mitigate the practical complexities, and unintended pitfalls, that come from poorly executed corporate investigations. One final consideration, seasoned investigators, at least the good ones, spend a great deal more time revisiting their investigative missteps, mistakes, and failures rather than their successes. Competency, in part, is born from introspection. Similarly, corporate investigative readiness relies on a past, present, and future approach. In other words, each corporate investigation brings with it an opportunity for growth and greater readiness.

Douglas A. Jaffe

A multinational is conducting a long overdue audit of one of its high growth, emerging market businesses. The process is going relatively smoothly until an anonymous whistle-blower appears, making serious allegations against the local team, including senior management. The allegations call into question a wide range of business practices, and further digging by the audit team uncovers a variety of issues. The challenge is that the country in question is run like its own fiefdom and verifying the whistleblower allegations needs to be done carefully. No one in the country organization can be trusted to support an investigation and the jurisdiction is not without its cultural challenges and risks. While useful information can be uncovered by reviewing internal financial accounts, email or the IT systems, there is much that is unknown, undocumented, or unreliable. Policies and procedures have not been followed closely in recent years and oversight has been limited. The country has performed well so there are revenue and business continuity considerations. However, the allegations are serious enough to warrant an investigation but conducting one will not be easy. What does an MNC do?

Conducting an investigation in this scenario requires patience and attention to detail. An obvious starting point is to examine the whistleblower allegations and look for evidence to either support or refute the allegations. A wide range of open-source research can be conducted to uncover useful information such as directorship/company records, family relationships, social media analysis, etc., that may provide clues. The initial set of suspects will undoubtedly grow, and the investigation will head into unexpected directions. For example, site visits of alleged business partners may reveal entities that do not exist. It could be a simple case of an incorrect address field or an indication of fraud. These findings must be cross-referenced with the client’s own information and may require humint to verify. An external investigation works well when tightly aligned with internal audit and the legal team. Leads generated by audit, for example, can be followed up by researchers or investigators on the ground, and suspicious findings from investigators can be chased internally by audit. This also helps ensure the investigation is aligned with the client’s objectives and will be especially useful when interviews and potential dismissals or legal action needs to be taken.

If your company needs a corporate investigation or other related matter, please contact us at info@kalavinkaadvisors.com or +852 2196 2727