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Top Ten Mistakes in Internal Investigation Reports

Sunil R. Harjani

For many litigators, conducting internal investigations is now a regular part of their practice. Here is a compilation of the top ten faux pas made in written internal investigation reports from the perspective of one of the potential recipients of the report—a government lawyer.

Another whitewashed report? The “whitewashed” internal investigation report is by far the most common deficiency in the preparation and production of reports. It is sometimes done because it can make the client happy by supposedly narrowing and limiting the conduct to a “small fish.” The reality is that the attorney investigator must assume that the government will conduct its own detailed investigation once the report is disclosed.

Experienced practitioners know that when the decision is made to cooperate with a government investigation, there is a spectrum of options ranging from minimum to partial to full cooperation. In the context of an internal investigation, a report that follows the facts wherever they lead and provides an unvarnished account of what happened is paramount to obtaining full cooperation credit.

Senior management is safe—really? A corollary to the above situation is when the internal investigation report affirmatively concludes that senior management or the board had no knowledge of or role in the misconduct. However, there are often multiple red flags where there is corporate misconduct. At times, these red flags are not detected by the company because of incompetence by senior managers. Sometimes, through willful blindness, these red flags are ignored because of the stature of the executive or because of the profitability of the business unit in which the misconduct occurred. Often, through sheer recklessness, fraudulent transactions are permitted to continue because of a problem with the corporate culture. It is far better to report the unvarnished facts, including key witness statements and highlighting significant documents in the report about all players involved in the potential misconduct.

Can the witness statements be introduced at trial? From a regulator’s or prosecutor’s perspective, there are three key factors that must be known to make these witness statements usable.

First, state whether the witness was given an Upjohn warning. An Upjohn warning informs the witness that the attorney investigator represents the company, that the attorney-client privilege belongs to the company, and that the company can and may decide to disclose information obtained during the interview to third parties. Second, often not mentioned in the report is who was present during the interview. Unrecorded statements to an attorney are useful only if there is someone who can testify to the conversation if called at trial. Among other reasons, this is important because that witness could be a defendant one day, and the statement could be used in a case-in-chief at trial, or the witness may remain a witness but may need to be impeached with his or her prior statement. Third, if you are reporting about interviews involving a public-sector matter and its employees, it is important to state whether the subject of the interview was advised of his or her Garrity rights. A Garrity warning advises, at a minimum, that any statement is voluntary and that no disciplinary action will be taken if the employee refuses to answer questions.

What else did you find? Investigations can be like peeling back the layers of an onion. Once people start talking, the investigator often finds that the misconduct goes deeper and into different areas. Reports often leave the other stuff out. Leaving out these facts affects the credibility of the report and the company’s purported claims about being up-front and fully cooperative with the government. To the extent it is a serious matter—namely, one that would reasonably trigger government curiosity—it is far better to put the facts in the report than to leave them out, only to have them discovered later.

Where are the documents? Reports that do not identify documents are not particularly helpful. Nor are reports that are produced without the underlying documents. Producing a report without identifying these documents, whether it be by Bates numbers or control numbers or by designated exhibit numbers, is a disaster. It will likely lead to a request from the government to produce and identify documents discussed in the report, in addition to a full-scale production of all documents relevant to the subject matter of the investigation. It is far better to identify the documents in the internal investigation report in a manner that allows them to be easily retrieved and reviewed from the outset.

Who are the key witnesses? You might as well identify the key witnesses in the reports. The government will ask for their names. Describing them as the vice president of finance or the chief operating officer is of limited value. Reports also sometimes identify a few individuals but not everybody with knowledge of the misconduct. While the company would prefer that only a few of its employees be interviewed, unfortunately that’s not the way government investigations work. Anyone with knowledge of the misconduct will likely be questioned. A thorough government investigation requires interviewing everyone connected to the misconduct.

Two hundred pages of industry jargon? Reports that don’t explain the basics of the business and the terminology used makes the report unintelligible, which results in the report being not particularly helpful to the government attorney. As in any good presentation on complex issues, a certain degree of background and context is needed to understand the operative facts. Similar to this, but a problem on its own, is excessive detail in internal investigation reports. The length of the report is not reflective of the thoroughness of the investigation.

A half-hearted investigation. It is well known that there are competing interests in deciding to prepare the report and producing it to the government. There is a risk that it could leak to the press and the public. There is the additional risk that the report could become a road map for plaintiff’s counsel and other third-party civil litigants. There is also the risk that the agency that originally receives the report will share the report with federal or state prosecutors. All these concerns sometimes lead to a report that is half-hearted in its investigative efforts.

A better approach would be to weigh the risks of a half-hearted investigation before deciding to produce that report. It may be that the company, in consultation with counsel, concludes that disclosure of the matter is not in its best interests. Or it is possible that an oral presentation of the results of the investigation, coupled with a package of key documents, is a safer approach under the circumstances.

Your personal background and views are not relevant in the report. Only the facts matter, and they are primarily obtained from documents and witness interviews. Indeed, displaying your impeccable background can backfire. If, through the government’s own investigation, the truth differs materially from the information in the report, it will only hurt your credibility within the government office.

Independent counsel. Is completely independent counsel necessary? Or can a company’s usual go-to firm conduct the internal investigation and then represent the company in the government’s investigation? Trusted independent counsel certainly can help establish the credibility of the investigation. It’s hard to imagine a report having the perception of credibility if the investigation counsel has represented the company for the past 15 years in multiple matters. Certainly, not every complaint of misconduct warrants a full-scale independent, internal investigation. But we are talking here about conduct that could trigger regulatory or prosecutorial scrutiny of the company, which constitutes a serious enterprise risk.

ABA SECTION OF LITIGATION

This article is an abridged and edited version of one that originally appeared on page 37 of Litigation, Spring 2018 (44:3).

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Sunil R. Harjani

U.S. magistrate judge, Northern District of Illinois

Sunil R. Harjani is a U.S. magistrate judge for the Northern District of Illinois and a former federal prosecutor focusing on white-collar crime.