How eDiscovery Teams can Help You with Cross-Border Investigations

Conducting investigations can be tricky for multinational corporations. If any of your operations are international, your plan needs to be compliant with local laws and regulations. This can quickly become complicated with discreet investigations – for example alleged conflict of interest amongst senior level executives. If the executives are in an office outside of your home country, the data and investigation by law may need to be handled locally. Data needs to be properly collected by a forensic professional to avoid data spoliation. An accounting forensic expert could look into the accounting records to find potential evidence of wrongdoing. Involving a data expert to forensically collect and analyze imaged computers can help you find missed details that paint a bigger picture. Once all of the information has been collected and analyzed, you will have all the evidence you need, and using experts in the area will give you peace of mind that it was done defensibly.

Our experience shows a “team approach” is the most effective way to provide a comprehensive investigation solution.  We’ve seen multiple successful teaming arrangements. Teams can include a computer forensic expert, a data expert, an accounting forensics expert, a local “on the ground” field expert, someone from the organization familiar with the matter, and an attorney to provide legal guidance.

Below are hypothetical examples of the types of investigations we’ve seen in China. Any similarity to an actual project would purely be coincidental. (my attorney recommended I add that to this post)

Federal Corrupt Practices Act (FCPA) Investigations

The Foreign Corrupt Practices Act of 1977, as amended, 15 U.S.C. §§ 78dd-1, et seq. (“FCPA”), was enacted to make it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business. Here are three hypothetical FCPA examples:

1. Conflict of Interest

Multinational corporation (MNC) suspects their senior executives in China are stealing from the business.  They desire to conduct a discreet investigation. Forensic accounting looks into the client’s vendors and identifies several with high-risk profiles. Document analysis of the data collected on forensically imaged computers determines that several senior executives are actually the controllers of these vendors. Field inquiries discover that some vendors have no operations at all, while others have operations significantly smaller than what was indicated by the transactions with our client. A team assists the client to collate all information collected during the investigation and advises on how to effectively get rid of the executives who are compromising the business. Done.

2. Anti-corruption Risk Assessment and Gap Analysis

A pharmaceutical company desires to implement an anti-corruption risk assessment and gap analysis across several of its international locations. Site visits can be carried out by local country teams, interviewing client personnel regarding areas of compliance risk, reviewing historical compliance issues, and testing compliance controls. An assessment of the adequacy of the design, implementation, and overall effectiveness of each element of its current anti-corruption compliance program is conducted. The team assists the company in revising its anti-corruption policies and procedures.

3. Anti-corruption Due Diligence Analysis

A US-public company wants to buy a business in China.  They need to perform an anti-corruption FCPA analysis related to a planned acquisition of a Chinese company having substantial operations and sales. A diagnostic analysis is conducted to identify issues of concern and highlight vulnerabilities related to potential FCPA fraud and corruption practices. “Red Flag” transactions are identified with consultants, agents, and related parties. Key accounting records, vendor files, and expense reports are examined to identify specific areas and transactions for further review. The team then provides a report including pre- and post-acquisition action plans.

Mergers & Acquisition Due Diligence Investigations

Due Diligence (DD) Investigations identify business risks that are not visible or obvious from financial or legal reviews. DD normally focuses on key people and the entities involved in a given transaction or joint venture, their background, reputation, track record and litigation history. DD investigations often occur when a company is being considered to merge or be acquired by another.

Here are some DD examples:

1. A US-listed company requests help with their Chinese subsidiaries in improving the screening of their third-party distributors and sales agents. Discreet investigations are conducted into the existing third parties to determine the actual state of their business activities, verify their compliance with the client’s code of conduct and identify high-risk relationships.

2. A multinational company is concerned the company’s controller is embezzling corporate assets. The accounting forensics expert analyzes selected company-maintained financial and accounting information, bank account information and conducts informational meetings with select company personnel.

3. A European-listed company desires to conduct a discreet due diligence investigation into the operations and reputation of a Chinese company, as well as the background of its key principals, as a potential acquisition candidate. An investigation uncovers red flags such as shareholders being current local government officials with reputations for corruption. The investigation also exposes another shareholder with alleged links to organized crime.  Ouch.

Fraud Risk Assessment Investigations

A major MNC bottling and distribution company desires to implement a fraud risk assessment and anti-fraud program review. Roundtable workshops and interviews with functional management and senior executives to identify fraud risk factors, fraud risks, and fraud schemes are conducted. These factors, risks, and schemes are then prioritized and mapped to existing controls, identifying existing gaps needing remediation. The unique elements of the company’s existing anti-fraud program are evaluated and recommendations for improvement are provided.

Takeaways

The sample case studies above show the breadth, depth, and creativity in a team approach to solve investigation workflows.  Using a team approach—that leverages the appropriate and essential expertise—is the most effective way to complete successful investigation projects.