Internal investigations are inevitable. Run a business long enough and someone will stray from company policies and procedures (or the law) or something else will go awry leading to the need to understand what happened. Typically run by a company’s CEO, its general counsel (or their office), or by a law firm that provides general legal services to the company, a successful internal investigation can efficiently resolve an issue without being overly disruptive to day-to-day operations. However, internal investigations are not without risks, and some of those risks are associated with who runs the investigation and to what extent the investigative plan is sufficiently tailored to the issue(s) presented. These risks become more acute whenever the internal investigation relates to the operations of a foreign-based division or subsidiary. Mitigating these risks requires a uniquely tailored investigative plan that considers all facets of the issue presented, including, for example, the specific legal environment in which it arises.
In many respects, an internal investigation of (or at) a foreign-based division or subsidiary is no different than one situated at company headquarters. The issue is recognized and escalated to the appropriate person; an investigative plan is devised and staffed; information is gathered and, ideally, isolated; root causes are identified, including those internal policies and procedures that proved lacking in identifying or preventing the issue; responsible parties are held accountable according to company guidelines; solutions are devised to prevent a reoccurrence; staff are educated to prevent a reoccurrence; recompense is paid (internally or externally) as warranted or required; and the entire matter is documented.
These are fairly classic investigative steps, and, regardless the situs of an internal investigation, one can reasonably expect an investigative plan to include each of them.1 Complications can arise, however, when one of those steps implicates local procedures, practices, or laws at a foreign-based division or subsidiary that differ from those practiced or required at company headquarters. Local laws regarding right to counsel, government oversight, or managing human resources can profoundly impact the direction and results of an internal investigation and may vary significantly from those in place at company headquarters.
The use of recorded conversations presents a stark example of how this issue might arise.2 Cell phones are ubiquitous and capable of recording every moment of every single day. Couple this technology with an increased tendency to record anything even slightly askew of personal expectations and recordings by staff members have increasingly become part of, or exist adjacent to, internal investigations. Many jurisdictions, including New York State,3 only require one-party consent to record conversations.4 Others require strict adherence to the two-party or all-party
consent rule before any recording can be deemed authorized.5 The appropriate use of these recordings in an internal investigation will vary by both local laws at the foreign-based division or subsidiary as well as by headquarters’ willingness to base foreign-based internal investigations on laws or practices that differ from those laws or practices applicable in the jurisdiction where company headquarters is physically situated.6 Investigative plans that do not recognize and address foreign variations from procedures and practices set by company headquarters are bound to encounter difficulties and lead to unsatisfactory conclusions.
Another overlooked facet of an investigative plan involving a foreign-based division or subsidiary is local expectations. Local norms regarding corporate governance and reporting can impact how and to whom issues are reported, which can have a cascading effect on the rest of an internal investigation. Foreign laws, procedures, or culture that influence how these “issues” are handled, including, for example, the practice of handling these issues locally and without input from headquarters, may unnecessarily delay escalating a significant problem in the eyes of headquarters and hamper an internal investigation from the start. Like the concern over foreign laws at odds with those in place at headquarters, an internal investigation that neglects to account for local variations in corporate practices or corporate culture also runs the risk of an unsatisfactory result.
Collectively, local laws, practices, and culture impact expectations on how an issue should be resolved and on how that resolution will be received locally, regardless of headquarters’ strict adherence to corporate policies. An internal investigation that technically resolves an issue but its processes and procedures (or results) are so foreign or at odds with expectations of local staffers or is so disruptive to their day-to-day operations is one based on an investigative plan that failed to account for all of the variables that can impact its chances of success. In short, in any internal investigation of a foreign-based division or subsidiary, there are additional components to be included within the investigative plan and workflow that do not exist with issues that arise solely at company headquarters—particularly local knowledge. This knowledge can be obtained from a trusted and experienced staffer physically situated at the foreign-based division or subsidiary or by employing local outside counsel. Absent local knowledge, an internal investigation of a foreign-based division or subsidiary leaves the starting gate already hampered—maybe significantly so. The success of an internal investigation should not be measured solely by its results (i.e., was the underlying issue solved) but should include an assessment of both its methodology and the realization of those methods; to be successful, that methodology needs to be fine-tuned to include foreign-based legal requirements, practices, and expectations.
1While each of these steps alone might warrant the employment of outside counsel to conduct the internal investigation, this piece focuses on the importance of local knowledge in any investigative plan.
2Other examples include the right to counsel during administrative proceedings. For instance, the New York State Attorney General’s Office takes the view that individuals subpoenaed for an investigative interview further to New York State Executive Law § 63(12) are not entitled to counsel; although, as a matter of practice, the Attorney General’s Office has generally accommodated the nonparticipatory presence of counsel.
3New York Penal Law §§ 250.00[1] and [2] and § 250.05.
4As of October 2022, 38 states had one-party consent rules. See https://www.justia.com/50-state-surveys/recording-phone-calls-and-conversations/.
5The two-party or all-party consent states are, as of October 2022, California, Connecticut, Delaware, Florida, Illinois, Maryland, Massachusetts, Michigan, Montana, Nevada, New Hampshire, Oregon, Pennsylvania, Vermont, and Washington. See https://www.justia.com/50-state-surveys/recording-phone-calls-and-conversations/.
6By virtue of the Personal Information Protection and Electronic Documents Act (PIPEDA), Canada is an all-party consent jurisdiction. See https://www.priv.gc.ca/en/privacy-topics/privacy-laws-in-canada/the-personal-information-protection-and-electronic-documents-act-pipeda/.