The structure of an internal investigation

Internal investigations can be challenging – they are fast paced, highly sensitive, completely confidential and necessitate strategic choices at every turn. They require a steady hand at the helm, guided by the most accurate and precise information available at the time. Internal investigations combine a number of skills such as crisis management, damage control and remedial procedure implementation. A strong infrastructure, experience and expertise are also beneficial in extracting, processing and reviewing data. In this sense, perfecting internal investigations is perfecting the collection of information and its flow to the company’s decision-maker.

Internal investigations often start with an email containing a simple inquiry or an enigmatic text to the hotline. The brief email yields several compliance risks, revealing the tip of an iceberg. This is the first and most difficult phase of the internal investigation, since strategic decisions must be made with scarce reliable information and unknown risk exposure. At this stage, it is worth engaging outside counsel to account for cultural or operational differences in conducting an internal investigation in Turkey. Furthermore, while some legal paradigms in Turkey are similar to that of the European Union, it is imperative to onboard local counsel as soon as possible to address potential employment, data privacy, competition, tax, criminal and corporate governance law issues. The inclusion of local counsel is particularly important when the investigation is time sensitive.

Once the planning phase is complete, the data collection and processing phase begins along with affecting any necessary triage. There are a number of issues to consider in this phase, such as identifying reliable sources of information, successfully extracting and securing information and managing the custodians’ reaction. At this juncture, the counsel must often decide whether to contain a custodian’s influence over the company by suspending the employee at the expense of causing ripples in the water or adopting a gentler approach by carrying out an electronic review of the custodian’s business data after completing the relevant data privacy procedures. Preliminary or successive interviews can be conducted with employees to understand the business, the source and the gravity of the situation. The relevant experts or forensic service providers can be engaged to address technical issues pertaining to the investigation. It is important for counsel to be familiar with the inner working of these technologies and methods in order to advise the in-house team on the most cost effective approach to achieve the objectives of the investigation.

Privilege and confidentiality considerations often peak at this data collection process. It is rare in Turkey, save for competition law investigations, for the public authority to challenge the legal privilege attached to a document. However, the internal investigation can have international dimensions or the findings might require submission to a government agency in another jurisdiction. In these cases, it is important to preserve the privileged and confidential nature of the data generated and collected, which would require outside counsel and in-house teams to co-ordinate and collaborate on how to address the issue of legal privilege.

The initial findings usually lead to a number of red flags, which do not necessary fall within the scope or the depth of the investigation. They could be just outside of the initial mandate or possess low compliance risks but require significant resources to investigate. This is perhaps the breaking point of the investigation: the decision whether to expand the scope of investigation or retain the initial focus objectives. It is a strategic call between having to boil the ocean and failing to address a potential compliance risk with long-term implications for the company. However, the outside counsel’s careful analysis of the case can often reveal tailored solutions to mitigate potential risks, all while staying within the initial mandate.

Data collection and processing usually results in significant findings allowing the decision-making body to discuss the next steps and take action based on the available data. Further interviews can be conducted and remedial action can be taken to remove or contain compliance risks. The scope of the investigation can shift and require the specific knowledge of different law branches. For example, this would be necessary to address potential tax liabilities easily resolved by submitting a voluntary disclosure to the tax office. The outside counsel can advise on local solutions that may not be visible to the in-house team situated abroad.

Internal investigations are significant tools for companies to eliminate compliance risks and ensure the creation of a healthy compliance culture. As such, it is not enough to limit remedial actions to only reactively mitigating the risks. It is important to ensure the original habitat that triggered the investigation is addressed, which requires continuous training, a working code of business conduct and senior-level commitment to zero tolerance for compliance violations. Only then is it possible to sustain and foster a continuing compliance and ethics culture.

Last but not least, the process of interpreting and extrapolating conclusions out of the findings of the investigation is as important as the investigation itself. Internal investigation can be costly in both funds and human resources. A thorough study of its findings would be important in balancing this cost with potential gains. The findings of the internal investigation can yield a number of courses of action through a careful study of these findings with outside counsel. These findings can be particularly useful in launching, for example, an M&A-based claim regarding the conditions of sale when a dispute arises post-closing. It would be helpful to run the findings with an M&A disputes team or, as the case may demand, incorporate an M&A disputes expert to the investigation team in the first place. As such, it would be advantageous for a full-service law firm to explore these options and find the best means of execution.