Today, perhaps more than ever, institutions and corporations operate in an environment where they are required and expected to critically assess their own operations and conduct. Those same organisations are working against a backdrop of an increased, and increasing, weight of regulatory standards. Those regulations apply across the spectrum of industry and throughout the breadth of an organisation’s global operations.
This is especially true in Asia, particularly in the past decade. As foreign investment into the region has increased, so have enforcement efforts from both within and outside of Asia. In particular, U.S. regulators are increasingly reviewing conduct under the microscope of the Foreign Corrupt Practices Act (FCPA), with greater attention paid to China in recent years; Chinese authorities have also greatly intensified their cracking down on bribery in China (notably President Xi’s “Tigers and Flies” initiative). The U.K.’s use of its new Bribery Act remains uncertain. On the antitrust front, the 2015 deadline for members of the Association of Southeast Asian Nations (ASEAN) to introduce nationwide competition laws and policy (and more broadly, to establish the ASEAN Economic Community) is likely to mean even greater regional cooperation and more proactive enforcement of competition laws in the coming years. Almost all the key jurisdictions across Asia have now adopted and/or implemented their competition laws (including most recently, Hong Kong and Malaysia).
Increased regulation brings with it increased penalties of both civil and criminal nature. In relation to FCPA investigations, 2013 marks the slowest year since 2007 in terms of the number of corporate enforcement actions. The number of new FCPA-related cases against individuals also increased from five in 2012 to 16 in 2013. The globalisation of cartel enforcement and prosecution continues, along with higher cumulative penalties, increased individual sanctions, and the implementation of new antitrust regimes. In 2013, over €2 billion in penalties were imposed by European Union antitrust regulators, while the Antitrust Division of the U.S. Department of Justice handed out over US$1 billion in fines. China also noticeably ramped up its enforcement of its five-year-old cross-sector competition law, resulting in record penalties being issued by antitrust regulators in 2013 (including fines almost 60 times greater than those imposed in 2012). In Korea, there has been a trend of increased and proactive criminal cartel enforcement by the antitrust regulator which has now resulted in successful prosecution and for the first time, prison sentences for individuals. Punitive sanctions, such as debarment from public contracts, can also raise the spectre of economic ruin for corporations found to have failed to meet regulatory standards. Further, the globalisation of business and increasing business ties between Asia and the West is being matched by the global reach and enforcement powers of regulatory authorities. All of these factors are contributing to the need for organisations to make concerted efforts to identify and manage risks within their business, including through the use of internal investigations.
The decision to initiate an internal investigation can be triggered from a number of sources external to an organisation, from a client complaint through to a government-initiated request for information or allegation of wrongdoing by a regulatory authority. In many instances, the need to carry out an internal investigation is not one an accused organisation has a real choice in. Where there is a need to address allegations promptly, the ability to implement and execute a thorough internal investigation efficiently is essential.
Internal investigation is a recognised tool which allows firms to evaluate their processes and procedures and, in turn, address areas of risk which threaten the integrity, public image and, ultimately, the viability, of a business. Having the ability to properly investigate allegations that are made can allow an organisation to establish whether there is merit in the suspicions that have been raised or allegations made against it. However, beyond establishing whether a wrong has or has not been committed, internal investigations fulfil an important risk management function.
Based on our experience in conducting investigations across a number of sectors, we set out within this guide our views on the key elements of internal investigations and identify some of the pitfalls an organisation may encounter when arranging and carrying out an internal investigation.