Once upon a time there was a boy who went to
the town square and cried "The Wolf is coming to steal our secrets!" The
townspeople all gathered 'round and asked him how he knew this. "A person named
NoMan told me," he declared. But there was more, as the boy told the now rapt
townsfolk "And he said if you give me some money to help pay his 'expenses', I
can find out when and how the Wolf will steal our secrets." As this town
was in France, they immediately gave the boy €450,000 (or €700,000 depending on
the version of the fairy tale) and he and the money were never seen again.
I. The Tale
Most people in the compliance world have by now heard
about L'Affaire Renault. As reported extensively in the Wall Street
Journal (WSJ), the affair became public in January of this year, when Renault
fired three top officials for allegedly selling secret information regarding
the company's electric car program. These allegations were based upon
information which came from an unknown informant who claimed that the three
terminated officials had large Swiss bank accounts funded by monies which came
from the sale of this information. This unknown informant was paid for his
information, by two Renault security department employees, and then allegedly
onto another party, who eventually passed along some or all of the Renault
payment to the informant.
If all of this sounds confusing, well it is. The inquiry
began last August with an anonymous letter to company officials stating that
one of the now terminated employees was overheard "negotiating a bribe". By
December, the company's security department had "assembled elements pointing to
the existence of bank accounts in Switzerland and Liechtenstein." The accused
employees were terminated in January, 2011. On March 14, the WSJ reported that
"state prosecutor Jean-Claude Marin on Monday said his investigation showed
that the three didn't have bank accounts in those countries." On March 15, the
WSJ reported that the Chief Executive Officer (CEO) of the French car maker
Renault apologized on national television for the wrongful termination of three
company officials for improper allegations of industrial espionage. In addition
to this apology, he offered to meet the men and propose that they rejoin the
company. They also would be offered compensation, "taking into account the
serious hurt that they and their families have suffered..." This case (and the
introductory fairy tale) presents several very large 'Lessons Learned'
for any company which engages in an anti-corruption, anti-bribery or fraud
investigation and then disciplines or terminates employees based upon the
II. The Moral
Look Before You Leap
Our colleague, Lindsey Khan wrote about Fraud
Investigation Preparation in a two part series posted on her blog isight.com. Over this two part series,
she reviewed author Stephen Pednealut's book, "Anatomy of a Fraud
Investigation", in which he outlined the steps a company should take
when preparing for a fraud investigation. Imagine where Renault might be if
they had read Lindsey's blog. I digress to say you should bookmark and read
Lindsey's blog as she regularly writes on investigations and even provides an
investigation template on a complimentary basis.
The first thing to emphasize is that a company cannot
over-prepare for such an investigation. With this in mind, here are seven steps
he suggested a company should take before they begin a fraud investigation:
1. Timing. If the target(s) know you are on to them, they
will have absconded so make this initial determination.
2. Strategize. Figure out who needs to be involved in the
investigation and meet as soon as possible to explore options and discuss how
they will move forward with the investigation, as each one differs based on the
goals, circumstances and people involved.
3. Review laws, policies and other documents. Obtain
everything of significance before you start the investigation and then secure
4. Available information. If your company uses outside
investigators, make certain that they understand company structure,
infrastructure and relationships.
5. Whistleblower protection and confidentiality. Although
this information or source may need protection, the identity must be known and
6. Lock down evidence. Physical and electronic evidence
need to be gathered and secured as soon as possible.
7. Resource allocation. Make sure your company has the
tools you need to gather evidence and label it properly for storage.
You Leapt, Now What?
Your actions after you have followed Pedneault's seven
preparation steps will be equally, if not more important. First and foremost
your investigation must be thorough. In other words, if the key part of the
allegation is that bribes were being funneled into a Swiss bank account, your
company had better make certain this information is correct before you go and
make that public pronouncement. You should endeavor to make certain that your
company CEO does not, as reported in the WSJ, proclaim the statement made by
the CEO of Renault when he said publicly "that the company had evidence against
them" regarding the existence of foreign bank accounts. Over two months after
this public statement, neither Renault nor the French Prosecutor's Office had
discovered such evidence to back up this allegation.
Keep A Sense of Balance
Attorney Stephen Pearlman, quoted in the WSJ, noted that
a company must approach any such allegations "with a real sense of balance" and
not "over-react." Mr. Pearlman said he recently had a client who received an
anonymous tip on some alleged wrongdoing and wanted to act before the
investigation was done. "I told them, 'You've got to take a deep breath, don't
overreact" he recalled.
Robert Fatovic, the chief legal officer at Ryder System
Inc., also quoted in the WSJ, said "Renault is the poster child for why you
want to approach these situations with a sense of balance, and not have people
rush to judgment." Fatovic also noted that "By ending an investigation
prematurely, you run the risk of a frivolous issue going public too soon." Or
having your CEO go on national television and personally apologize to those
Get Some Serious Advice
So how does a company tread through this minefield? If
there are serious allegations made concerning employees engaging in criminal
conduct a serious response is required. The first thing to do is hire some seriously
good lawyers to handle the investigation. These lawyers need to have
independence from the company so do not call your regular corporate
counsel. Do not send down Internal Audit or HR to take a look at things
and report back. Attorney Jim McGrath,
writing in Internal
Investigations Blog, drives this point home by stating, "Despite the
fact that using specialized investigation counsel is a best practice that is
worth the money, one of the more difficult things is convincing decision-makers
of the same... The Renault scandal reiterates the need of companies of all sizes
to go outside to specialized counsel for sensitive inquiries."
The hiring of outside counsel is also important because
you will most probably have to deal with a government. If the investigation
does reveal actionable conduct and you are in the US, your company will need
legal counsel who is most probably an ex-Department of Justice prosecutor or
ex-US Attorney to get your company through that process. Even if there is a
finding of no criminal activity, you will need very competent and very credible
counsel to explain the investigation protocol and its results to the
government. If you are in the UK you need to hire someone with credible Serious
Fraud Office- type experience or an ex-Crown Prosecutor. If you are in France,
well you are in France.
There is a very good list of attorneys who specialize in
the FCPA provided by my colleague Howard Sklar in his blog entitled "Getting
Advice". He knows the folks he listed personally and tells you
their strengths. It is a great resource and now would be an excellent time to
Don't Pay Bounties to Unknown Persons for
A very troubling aspect of this case is the payment for
the information. The payment itself has reportedly ranged from a high of €700,000
to €450,000 down to €250,000. It is not clear as to the timing of this payment
but apparently the payment was handled by two security department employees,
who handed it over to a third person, not the informant, who resided in
Algeria. This third party in Algeria now cannot be located and the WSJ reported
that initially "an employee in the security unit refused to disclose to Renault
who ultimately received the money..." Reuters has reported that French criminal
justice officials are now investigating the two security department employees
regarding whom this anonymous source was and where the money went. The WSJ
later reported that this employee, who has been in custody for a couple of
weeks, has finally named this anonymous source.
Many US companies are worried about the impact of the
Dodd-Frank Whistleblower provisions. However, a clear difference is that
Dodd-Frank requires substantiated securities violation, as in an admission by a
company, settlement agreement or judicial finding, for payment of any bounty
rewards. In L'Affaire Renault, the company apparently paid a bounty to
an unknown source, for unsubstantiated information, which did not result in any
criminal finding or even a civil wrong. Whatever your company does DO NOT
PAY BOUNTIES TO PERSONS UNKNOWN.
The moral of the fairy tale that started our piece and L'Affaire
Renault is that your company needs to get it right. The costs for not doing
so are simply too great.
Visit the FCPA Compliance and Ethics Blog, hosted by Thomas Fox, for more commentary on FCPA
compliance, indemnities and other forms of risk management for a worldwide
energy practice, tax issues faced by multi-national US companies, insurance
coverage issues and protection of trade secrets.
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© Thomas R. Fox, 2011
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