How best to open the door when the government comes knocking

Missteps in the days immediately following the launch of a governmental investigation can have costly and far-reaching consequences. Organizations need to plan ahead and be prepared.

Cooperate, be honest and forthcoming, have a complete and total understanding of your company and be sure to communicate with your employees. Firms need to have a set of proper procedures and processes in place early in order to avoid any scrambling.

Smart Business spoke with Theresa Mack, senior manager at Cendrowski Corporate Advisors, to discuss what your firm should do if it becomes subject to a government investigation.

If a company is facing a government investigation, what are the first steps?

A firm often learns it is going to be the subject of an investigation when an agent either serves a search warrant or requests an employee interview. There is no time to prepare for these, which is why your firm needs to have standard processes in place to handle these situations.

One of the most important steps after being informed of a governmental investigation is the preservation of documents. Once a firm has been notified of the investigation, its counsel should issue a written directive, a preservation memo, to everyone in the company telling them not to destroy any documents.

This written directive applies to all offices and branches of the company worldwide, not just the physical location where the investigation started. Do not destroy or delete anything that could be perceived as important to the investigation. If the investigation leads to a trial and the destruction of documents comes to light, there can be dire ramifications.

In these types of investigations, everything eventually comes to light. Firms must be especially careful about the inadvertent destruction of documents. Many servers automatically delete stale emails or documents housed in electronic storage areas. If any employees are leaving the company, their records should be maintained rather than deleted.

This will likely require informing a firm’s IT staff about the investigation to ensure none of the former employee files are deleted. Firms can go one step further and have IT staff back up everyone’s data, so even if people delete documents on their machines, a copy will be preserved elsewhere.

How do you know where your company stands during an investigation?

First and foremost, cooperate with the investigation. Your counsel should be in contact with the prosecutors. Be responsive and timely, and ask any questions you may have. Make sure you ask what your status is in the investigation, as all companies and individuals fall into one of three categories: witness, subject or target.

A witness is not yet under suspicion but may have information of interest. A subject is someone whose conduct is within the scope of the investigation, but it is uncertain that any crime has been committed. A target is someone whom the prosecutor has substantial evidence linking him or her to the commission of a crime and who, in the judgment of the prosecutor, is a likely defendant.

Listen to the terms that the prosecutor or investigator is using and have your counsel inquire as to the status of the investigation where appropriate. Some prosecutors are more willing to discuss the investigation than others.

Some will provide ‘non-target’ or ‘non- subject’ letters to the individual upon request. This request is often made before someone will submit to an interview, assuming that he or she is not a target of the investigation. This letter, when obtained, provides a level of comfort to the interviewee and allows for a more cooperative and informative interview.

Should a company make a public statement if it is under investigation?

Some companies will want to send out a press release right away to show that they are on top of things, but firm executives and board members should first weigh their options. Will coming out to the public impact the company’s value and or stock? Are you sure that the investigation will not lead to charges?

Often an investigation ends with minimal evidence and the case is closed before it can go to court, so consider not speaking too soon. However, if you do decide to disclose the investigation, ensure everyone in the company is on the same page.

Insights Accounting is brought to you by Cendrowski Corporate Advisors LLC