Best Practice in Choosing and Managing Investigators

Sam Pope

According to a recent New York Times article (“FBI Struggles to Handle Financial Fraud Cases”, 19 October 2008), the U.S. Federal Bureau of Investigation (FBI) is suffering from a shortage of agents and resources devoted to white-collar crime. The FBI’s difficulty is said to stem from a switch of focus to counter-terrorism post-2001. An increase in fraud-related cases arising from the economic crisis has wrong-footed the Feds.  The effect is that, in the U.S., private investigators and forensic accountants say companies are increasingly turning to them to investigate criminal wrongdoing because the authorities cannot or will not.

In Europe, the situation is not dissimilar.  In the United Kingdom in recent years, we haveseen an increase in government attention to combating fraud, particularly in the public sector. This has been driven by a need primarily to safeguard taxpayers’ funds.  The anecdotal evidence is that the private sector is still forced to rely heavily on its own resources in order to fight fraud. 

In an article in The Times (“Serious Fraud Office Looks for Clues in America as it sheds its Clouseau Image”, 10 November 2008), the new head of the UK’s Serious Fraud Office (SFO), Richard Alderman, has signalled he plans to copy the U.S. regulatory system, where companies investigate and self-report internal abuses. Cases such as that of Balfour Beatty, as reported in last month’s Anti-Fraud Network Newsletter, which was fined £2.25 million by the SFO for “unlawful conduct” and “payment irregularities” surrounding a contract in Egypt after conducting its own internal investigation, are likely to become more common.

Companies tend to use in-house counsel and security for employee-related issues.  For more serious matters, they frequently call upon the services of independent specialist external lawyers and investigators.  There are good reasons why firms should  give proper consideration to who conducts their internal investigations.  A primary factor is the investigation’s intended audience, e.g., regulators, judges, the media and other stakeholders.  A probe is more credible if undertaken by an independent third party.

Choosing Investigators
As an investigator of nearly 20 years standing, I do recognise that companies and some lawyers have concerns about the proper use and conduct of investigators.  My experience is that such concerns usually originate from a lack of understanding about the role and methodologies of investigators. 
In the United Kingdom and some other jurisdictions, there is as yet no regulation of private investigators. The UK Security Industry Authority intends to start introducing a licensing scheme for investigators in 2009/10. How then should one set about finding and choosing experienced and reliable investigators who can provide the information needed to prevail in court and who can reliably conduct internal reviews and probes?

Firstly,ask colleagues and peers to recommend investigators they have used successfully.  Do not be afraid to ask for and take up references.  Question referees as to whether the investigator respects and understands the law, behaves transparently and always acts in the client’s best interests.
Make sure the investigator has the specialist expertise required.  In general, investigators fall into two broad categories: corporate investigators and business intelligence practitioners.  The latter are more adept at retrieving hard-to-find information, which may be useful in support of litigation, than finding and interviewing prospective witnesses in a fraud case.

Consider whether the investigator is a member of the Association of Certified Fraud Examiners (ACFE), whose certification programme is increasingly the benchmark for fraud investigators globally.  This near 50,000-strong organisation is the leading anti-fraud organisation in the world.  A Certified Fraud Examiner is knowledgeable in the four major areas critical to the combating fraud: fraudulent financial transactions, criminology and ethics, the legal aspects of fraud and fraud investigation.

In order to determine whether an investigator has the requisite experience, ask him or her to outline the methodology and tools they would use in a hypothetical enquiry. A good investigator should be able to provide examples of successful cases that are similar in nature.

Avoid investigators who are not prepared to be completely transparent about their methodology.  Remember, if instructed, they act as your agents and you may be held responsible for their actions.  A wise monkey (see no evil, hear no evil, speak no evil) approach is not recommended.  Make sure you are comfortable with what the investigator proposes and that the source of any information retrieved is clear for all to see.

In choosing an investigator, expertise and experience is often more important than geographical location.  As an increasing amount of information is available online, there is less need to instruct local investigators to retrieve information from far-flung jurisdictions.  My firm is currently managing from the United Kingdom enquiries in Australia, Germany, Panama, Russia, Saudi Arabia, Spain and Switzerland.
But a good investigator ideally needs to travel well too. By this I mean being able to get on a plane to some inhospitable jurisdiction half-way round the world and metaphorically hit the ground running while, at the same time, understanding the impact of the local culture and mores on the conduct of the investigation.

Structuring the Relationship
Investigators should be engaged by counsel pursuant to a formal written agreement.  Some lawyer-clients also use these agreements to explicitly define the parameters of the investigative team’s conduct.

In general terms, by having investigators work at the direction of counsel, a degree of privilege can be obtained. Care should be taken to ensure that all communications, both written and oral, relating to the investigation are structured to preserve privilege.  Notwithstanding that, companies should not assume automatically that a report of an investigation by counsel will always be protected by privilege.  It may be that privilege is deliberately waived by, for instance, the results of the investigation being shared with the authorities. 

This means that consideration should be given at the outset as whether a written or oral report is needed.  If there is no immediate requirement to divulge the existence or outcome of an investigation to a third party, an oral report may suffice.  If the purpose of the investigation is to demonstrate to the authorities the company’s co-operation, then a written report will almost certainly be required.

From an investigative standpoint, the issues surrounding privilege are becoming increasingly complex and it is recommended that legal advice on the issue be taken at the very outset of the investigation.  The laws on legal privilege vary greatly from jurisdiction to jurisdiction so that, where doubt exists, local legal advice should always be sought.  

The successful investigation of fraud is very often a team effort, with the investigator working closely to and at the direction of legal counsel.  This is not just a question of privilege but because the multinational nature and complexity of fraud schemes often dictates that counsel is best suited to addressing the multi-jurisdictional issues involved and coordinating proceedings accordingly.  Counsel may also be called upon to coordinate other elements too, such as the securing of electronic evidence or the use of specialist forensic accounting skills to assist in proving the fraud.

The crucial role of the investigator remains provision of accurate information that proves the who, what, when, where and why of a fraud.  Finally, to maintain their impartiality, instructions to investigators should stress that they are being retained as fact-gatherers—not advocates for the client’s position.