responding to an investigation when not to panic! · • privileged documents should, if permitted,...

Alexander L. De Zordo, lawyer

Anne Merminod, lawyer

RESPONDING TO AN INVESTIGATION

When NOT to panic!

2013 ACFE

Canadian Fraud Conference

September 10, 2013

Outline

• Who is investigating?

• What happens?

• Principal concerns

• Be prepared

• 10 key points for a dawn raid or search

• The “dos and don’ts” of an investigation

Current context in Quebec : The

Charbonneau Commission

• Public inquiry called in 2011 into corruption in management of

public construction contracts.

• Allegations of bid rigging, collusion, bribery, and influence

peddling involving politicians, construction bosses,

contractors and organized crime.

• Mayors of Montreal, Laval and Mascouche have resigned

and/or been arrested amid corruption allegations.

New Legislation

A. National Assembly adopted the integrity in Public

Contracts Act in December 2012 • Enterprises that want to bid or enter into public contracts must first obtain regulatory

authorization from Autorité des marchés financiers.

B. Corruption of Foreign Public Officials Act (CFPOA) in

February 2013 1. Increasing the maximum sentence of imprisonment applicable to the offence of

bribing a foreign public official from 5 years to 14 years (there is still no maximum fine

amount);

2. Eliminating the facilitation payments exception to that offence;

3. Creating a new offence relating to books and records and the bribing of a foreign

public official or the hiding of that bribery;

4. Establishing nationality jurisdiction that would apply to all of the offences under the

Act;

5. Making the CFPOA to not-for-profit organization.

Outside investigation or raid by:

• Competition Bureau

• Police authorities (RCMP, PPSC, APAC)

• Workplace safety investigators

• Revenue agencies (tax authorities)

• Environmental agencies

• Office of the Superintendent of Financial Institutions –

FINTRAC

• Industry-specific agencies/inspections

• Civil Anton Piller Orders or Injunctions

What happens

• Dawn raid

• Unannounced visit

• Numerous investigators, including law enforcement officers,

bailiffs, forensic accountants, forensic computer technicians,

lawyers, independent supervising solicitors, film crew, movers,

etc.

• Usually the object of the raid is revealed, but not always

• An Order or Warrant authorizing the intrusion will be served or

presented

• Business is interrupted, as is coming and goings of

management, staff and customers

Principal concerns

• Business interruption

• Giving up too much information (don’t forget, this is an

investigation)

• Who is being investigated?

• Damage to reputation

• Civil, penal, and criminal consequences relating to

• The investigation itself (impeding, interfering)

• The alleged breaches being investigated

Be prepared

• Have systems and procedures in place beforehand

• Form a crisis management team

• Appoint a search coordinator

• Educate first point of contact people

• Internal education

• Check lists for members of crisis team

Seek Independent Legal Counsel

• Seeking outside legal advice is essential.

• A corporation is a distinct legal person from its directors: both

can be the target of a civil or criminal investigation.

• Despite the separate personhood principle, the acts of an

officer can make an organization criminally liable.

Board : Liability and Indemnification

• Directors have a fiduciary duty towards the corporation, which

includes the duty of loyalty, and ultimately good faith.

• Seeking outside legal advice can help demonstrate good faith.

• An officer can be indemnified or have money advances from

the corporation, in order to cover legal fees, if he or she acted

in good faith and with lawful conduct.

Checklist

10-point basic checklist

1. First contacts

• Immediately contact the in-house legal counsel, external legal

counsel, the search coordinator and all other relevant persons.

• Arrange for an internal IT specialist if the authorities intend to

search electronic records.

• Allocate appropriate resources and sufficient time.

2. Identities

• Check the identity of the law enforcement authorities involved.

• Ask to see their identification documents and write down their

names, titles, agencies, etc.

• Ask under law and under which specific provisions they are

acting.

3. Documentation

• Obtain a copy of the search warrant or order, and have copies

made for the search coordinator and legal counsel.

• Check to ensure compliance with the terms set out therein,

including that the address of the building or place is the

address set out in the warrant and that, once the search

commences, it is confined to the documents or things specified

in the warrant (although note that there may be power to seize

other documents or things in certain circumstances).

3. Documentation (cont’d)

• If there is a discrepancy with the terms of the warrant or order,

seek the advice of legal counsel.

• In the event that legal counsel is not available, politely tell the

searchers of the discrepancy, make a written record of the

objection you made and the response of the search team, and

permit the search to proceed.

4. Communication

• Ask the authorities executing the warrant to wait to commence

the search until the search coordinator and legal counsel are

present.

• In case of refusal, the authorities should be advised that the

company is asserting privilege over all areas of the site where

privileged materials may reasonably expected to be located,

including the offices of in-house legal counsel, the legal

department, and other areas within the office where privileged

materials could be located.

4. Communication (cont’d)

• A further specific request should be made that all such

materials be “sealed” and not reviewed by the authorities until

legal counsel have been contacted and are present. The fact of

the request and any refusal by the authorities to comply with

this request should be carefully noted.

5. Protocol

• If possible, the search coordinator and legal counsel should

attempt to agree with the authorities on a protocol for the

search such as:

• The order of the search

• The timeframe

• Who will be present

• How documentation will be handled

• How to minimize business interruption

6. Shadowing

• Legal counsel should, if possible, accompany the authorities

and review all search documents to determine whether they are

relevant or privileged prior to the authorities reviewing them.

• Privileged documents should, if permitted, be sealed in a plain

envelope, identified on the envelope as subject to a claim for

privilege and kept separate from other documents. Any claim of

privilege which is denied should be objected to and noted.

7. Notes

• If possible, list and make copies of the search documents that

the authorities want to take with them.

• In any event, make sure that you have or receive a list of and

copies of these documents.

8. Verbal statements

• Be aware that authorities can and may record all statements

made by company employees during the course of the search

and nothing is “off the record”.

• Questions should be directed to the search coordinator or legal

counsel if possible.

• Employees should be instructed to advise authorities that a

designated company official will deal with questions related to

the conduct of the search.

9. Report

• If authorities produce a report of the search, the company

should try to obtain a copy.

• If asked to sign a report, check it beforehand for any factual

errors. In any case it is very important that the company makes

a detailed report of the entire search (which should contain a

detailed list of documents consulted, copied and seized).

10. Confidentiality

• Employees should be advised not to inform third parties that a

search has taken place.

• Media relations have to be managed in accordance to the terms

and conditions of the initial warrant or order.

The “dos and don’ts” of an investigation

DO:

• Remain calm

• Implement policies and procedures

• Limit the people involved and isolate the search; alert crisis

management team

• Call outside legal counsel

• Identify the object of the search and limit to the order or

warrant

• Limit the damages (business interruption, reputation, loss of

documentation, etc.)

• Follow the 10 basic points of an investigation

The “dos and don’ts” of an investigation

DON’T:

• Over react

• Panic, or decide to “handle internally”

• Get everyone involved

• “Look for the culprit”

• “Give up the culprit”

• Over cooperate

• Explain everything to the investigator

• Befriend the investigators on the belief that this will make things better

• Bribe the investigators

• Impede or interfere with the investigation

Question period

Alexander L. De Zordo, Partner adezordo@blg.com

Tel: (514) 954-3191

Anne Merminod, Associate amerminod@blg.com

Tel: (514) 954-2529