Determine who should be informed. The general rule should be to inform people on a “need to know” basis. Note that any internal written communication about why the investigation is being carried out will not be privileged. It should be kept as neutral as possible and not prejudge the issues. The firm should work on the basis that what it says in communications to all or a substantial number of its employees has a high probability of becoming public.
Determine Who Should Be Informed
Thought should be given at the outset to how and when issues will be put forward and reported within the firm; this will help maintain confidentiality about reporting lines. Whenever legal advice is reported, care needs to be taken to maintain privilege.
In-house compliance should be kept up to date, following the firm’s usual reporting principles. Care needs to be taken when reporting legal advice, and separate reporting lines may need to be set up for this depending on how the “client” is defined for a claim to privilege.
All employees are likely to hear of the investigation and/ or be required to produce documents and/or be required for an interview need to be told about the fact of the investigation. What they are told about its scope depends in large part on the underlying issues. Sufficient information should be provided so that incorrect speculation and gossip are limited.
Employees must be informed about not deleting or destroying relevant material. This group should be sent the standard warning about not creating further documents/not commenting on the investigation in emails or (taped) telephone calls, and maintaining confidentiality both internally and externally.
Those required to produce documents should sufficiently understand the investigation’s purpose, scope, and importance to enable them to identify relevant documents and to treat the investigation with the seriousness that it merits.
Employees should understand the purpose of the investigation before their interviews and, in particular, whether there are any consequences for failing to comply with any request to attend an interview.
Consideration needs to be given to whether or not the fact of the investigation will become public and/or widely known within the firm. It is usually better for the firm to communicate with employees before any other source provides them with the information. Any communication should be properly drafted and should remind employees of their duty of confidentiality and include general document control warnings.
The project as a whole should have a password. Access to documents made in the course of the investigation should be controlled by a password. Care should be taken, both within the team and externally, to be clear about who knows what and with whom matters may be discussed.
When externally communicating about an inquiry, it’s important to distinguish between the facts and the firm’s view of the facts or their consequences. Does the person to whom this information is being communicated need to know the firm’s views and opinions on the facts as established in each case? What will they do with that knowledge?
Note also the requirement in many cases to consult with the firm’s insurers on anything that can be perceived as an admission of liability. It’s possible that more than one report may be required; therefore, the need to update an initial report should be kept under review. This is particularly the case if the initial report would be rendered incomplete or misleading by information established later.
In regard to reporting obligations, advice should be taken on the scope of obligations and whether, on the facts, a duty to report has arisen. Usually, the working presumption is if in doubt, report as soon as possible once the conclusion is reached that a reporting obligation has arisen.
An initial report can always be supplemented later to various groups or individuals, including:
- The market – There may be a need to involve the firm’s brokers. Even if a notification is not required immediately, consider whether a reactive statement should be prepared.
- To an overseas regulator.
- To the National Regulatory agencies – It is necessary to make a suspicious activity report in respect of money laundering, terrorist financing, or dealing in the proceeds of crime? Does the firm know or suspect, or have reasonable grounds to know or suspect, that another person is engaged in such activities? Advice should be taken as to whether or not the duty applies to the facts as known or suspected.
- The police – There is no general obligation to notify the police even where criminal conduct is suspected/ established. Even if the conclusion is reached that reporting to the police would be appropriate and advisable, there will still be a question of timing.
Regarding the factors in favor of notifying the police, the firm may well conclude that it is the “right thing to do.” It may be a requirement of a relevant policy of insurance that the police are notified. There is an impact on other employees to consider if the underlying facts show that a crime may have been committed – not involving the police may send the wrong message.
The factors against notifying the police, however, include the loss of control over the investigation, and the potential for administrative difficulties about the seizure/production of documents, although the police should allow the firm to keep copies.
Suppose it is clear that when the police are involved, then all employees, not just those who may be the subject of criminal charges, are likely to be less open and cooperative in the firm’s investigation. The fact that the police are involved does not prevent the firm from continuing its investigation, questioning the employee, etc.
However, if the employee seeks advice, they may well be told not to cooperate with the firm’s investigation since it could prejudice the outcome of the criminal process. If the police are informed, and the relevant employees cease to cooperate with an internal investigation, the firm would have to consider the consequences of its investigation proceeding without the involvement of one or more employees, including whether it could terminate those employees’ employment based on what it has already established.
Note that the fact that an employee has been arrested for or charged with a criminal offense does not necessarily justify terminating their employment (although the employment contract may specify that this could lead to summary dismissal). In general, the employer will consider the facts and whether or not terminating the employee is the appropriate response, and if so, on what conditions?