Corporate Investigations 2018 2nd Edition

Author:Dr. Andreas D. Länzlinger and Sarah Mahmud
Profession:Bar & Karrer
 
FREE EXCERPT

1 The Decision to Conduct an Internal Investigation

1.1 What statutory or regulatory obligations should an entity consider when deciding whether to conduct an internal investigation in your jurisdiction? Are there any consequences for failing to comply with these statutory or regulatory regulations? Are there any regulatory or legal benefits for conducting an investigation?

There are no provisions in Swiss law that would explicitly direct a company to conduct an internal investigation. However, a number of statutory provisions can make it a practical necessity to do so.

First, duties to cooperate with regulatory authorities and provide them with accurate information can indirectly compel entities to investigate potential misconduct because this may be the only way for the entity to find out what happened and rectify issues. One of the most important Swiss regulators, the Financial Market Supervisory Authority ("FINMA"), for example, frequently orders entities to explain incidents and produce information and documents relating to matters under its supervision. Regulated entities are also under an ongoing obligation to immediately notify FINMA of any material event that is significant to its supervision. The Swiss stock exchange, SIX Swiss Exchange, imposes a similar ad hoc notification requirement on listed companies, and financial intermediaries also have duties to investigate and report suspicious activity to the Swiss Money Laundering Reporting Offices. Providing FINMA incorrect information, even if only negligently, is a criminal offence, which can attract a fine of up to CHF 250,000, while intentionally doing so bears a maximum sentence of three years' imprisonment. Sanctions against the entity can go as far as a regulatory authority revoking an entity's licence to engage in business, particularly if it fails to remediate the unlawful conduct in issue.

Secondly, companies and those in charge of them can be held liable for failing to take adequate measures to detect or prevent the commission of offences within their organisation. Under the Swiss Criminal Code ("CC"), a legal entity may be convicted for failing to implement reasonable measures to prevent the commission of an exhaustive list of catalogue offences (known as primary corporate liability); or for an offence committed during the ordinary course of its business, if the organisation does not have the necessary corporate structures in place to allow it to attribute responsibility for the offence to a single natural person (known as secondary corporate liability). An entity's board of directors and its executive organs also have general duties of care under company law, which are recognised as requiring them to set up compliance and control systems to detect, investigate and remediate misconduct.

Employees with enhanced compliance obligations, such as senior management or compliance officers, may also be held criminally liable for failing to take action to prevent the criminal conduct of others in the organisation.

The benefits of conducting an internal investigation in competition law are well-known. Under a statutory leniency programme, companies may be granted complete or partial immunity from sanction if they report unlawful restraint of competition before the other participants to the infringement do so.

In the case mentioned below in question 2.1, the criminal prosecution authorities have shown that they are also willing to reward a company's proactive approach to uncovering misconduct, and consider the initiation of an internal investigation, cooperation with the authorities and implementation of compliance measures to be mitigating factors at sentencing.

1.2 What factors, in addition to statutory or regulatory requirements, should an entity consider before deciding to initiate an internal investigation in your jurisdiction?

An entity should bear in mind that regulators such as FINMA usually have the power, under their overarching authority to remediate unlawful conduct and restore compliance, to order internal investigations. If necessary, FINMA can appoint an independent investigator (usually a law firm or an audit firm) to investigate and implement remedial measures within a regulated entity. By taking the proactive and early decision to investigate, entities have the advantage of preserving a degree of control over the structure and pace of their investigations, and give themselves time to prepare responses to any government or media enquiries before they arise.

Before deciding on an investigation, entities should consider the following: whether the wrongdoing is still ongoing; worst-case scenarios in terms of impact on share price and data security; potential employment law consequences; the likelihood that the matter will come to the attention of domestic and/or foreign authorities; whether it should notify insurers; the costs of engaging external lawyers and consultants; and any reputational risks that might arise.

1.3 How should an entity assess the credibility of a whistleblower's complaint and determine whether an internal investigation is necessary? Are there any legal implications for dealing with whistleblowers?

A whistleblower's complaint should be investigated with the same care and diligence as any other report of impropriety. An entity's exact response - and whether it is necessary to appoint external consultants to assist - will depend on the specific allegation and the whistleblower in question. An entity should normally take immediate measures to preserve relevant evidence, investigate the facts and document the steps in its investigation. If substantiated, steps should be taken to sanction and remediate the wrongdoing.

Although legislative reforms in employment and criminal law are under parliamentary discussion, currently Swiss law does not offer any statutory protection to whistleblowers. Whistleblowers who breach confidentiality and secrecy obligations (for example, by leaking protected information to the public) are subject to criminal sanction. Nonetheless, terminating an employee's engagement solely on the grounds that he has made a whistle blowing complaint can constitute unfair dismissal in civil law. From a compliance perspective, it is considered to be best practice for entities to establish reliable avenues for their employees to report suspected misconduct free from reprisal.

1.4 How does outside counsel determine who "the client" is for the purposes of conducting an internal investigation and reporting findings (e.g. the Legal Department, the Chief Compliance Officer, the Board of Directors, the Audit Committee, a special committee, etc.)? What steps must outside counsel take to ensure that the reporting relationship is free of any internal conflicts? When is it appropriate to exclude an in-house attorney, senior executive, or major shareholder who might have an interest in influencing the direction of the investigation?

The identity of the "client" will vary depending on the specific investigation and the terms of counsel's engagement. As the person who often leads the investigation internally, the client can influence whether an investigation is viewed as being independent and, hence, whether its findings are reliable.

To ensure the reporting relationship is free of internal conflicts, no employees or third parties who were involved in the matters under investigation or who are otherwise personally interested in its outcome, should lead or otherwise be part of the investigation team. This should apply regardless of whether the person is an in-house attorney, senior executive or major shareholder. To facilitate a conflict-free investigation, outside counsel should be granted full and free access to the entity's internal records and to its employees, so it can make recommendations as to the composition of the investigative team.

As a matter of good practice, entities should designate specific individuals or a steering committee with responsibility for the supervision, strategic direction and overall coordination of the investigation, and to whom outside counsel should report its findings. Limiting and defining the number of persons involved in the investigation can help to focus the direction it takes, maximise confidentiality and legal privilege and ultimately make it more cost efficient.

2 Self-Disclosure to Enforcement Authorities

2.1 When considering whether to impose civil or criminal penalties, do law enforcement authorities in your jurisdiction consider an entity's willingness to voluntarily disclose the results of a properly conducted internal investigation? What factors do they consider?

Yes, they do. As mentioned above, competition law authorities can grant immunity to companies that (first) report unlawful infringements voluntarily. At sentencing in criminal proceedings, law enforcement authorities generally take into account mitigating factors, such as an offender's remorse and whether reasonable efforts have been made to...

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