Eduardo Vidal | Sunny South Florida | December 2019

Lawyers are not sleuths, but in order to do our jobs for our clients, we often need access to reliable confidential information, not only about our own clients and its employees and agents, but also about other parties in transactions where they are involved. Lawyers practicing in London during the 1890’s could rely on hiring Sherlock Holmes, consulting detective, but today we may rely on a slew of corporate due diligence investigators, ranging from the big-four accounting and auditing firms, to management and other professional consulting firms, as well as agile boutiques.

Corporate due diligence investigators can provide accurate intelligence collected with discretion. They can uncover fraud, corruption, money laundering and other criminal behavior, both inside clients and inside other parties with whom they are engaged in transactions. They can also conduct asset recovery, due diligence, litigation discovery and gathering of market intelligence. Their scope must include international transactions as well as domestic operations, and must be conducted in an ethical, independent and objective manner.

One area of compliance practice that calls for such assistance by corporate investigators is the U.S. Foreign Corrupt Practices Act, which has seen an increase in enforcement since 2000. This is a Watergate-era statute that had languished without much enforcement, but agencies of the federal government, especially the Department of Justice and the Securities and Exchange Commission, in recent years have stepped up enforcement and ensnared such prominent multinationals as Walmart in Mexico and Petrobras from Brazil.

Due diligence in corporate transactions, whether securities offerings, mergers & acquisitions and others, benefits from a review by investigators not only of the public record, but also of undisclosed information not available in the public record or in the disclosures by other parties to the transactions. Such investigations can disclose potential hidden problems and undisclosed or misrepresented issues. These techniques can be applied to designing strategies in order to enter new markets, joint ventures and other strategic alliances, plus vetting key suppliers and distributors, as well as franchisees and licensees, and of course competitors.

Corporate investigations should be able to root out fraud and corruption, in order to permit their prevention, detection, monitoring and, if necessary, prosecution. Teams of investigators should work together with audit, compliance and legal professionals in this pursuit. These investigations should allow you to identify conflicts of interests, cases of bribery, whistleblower allegations, vendor and procurement fraud, and outright theft, as well as allowing compliance with know-your-customer regulations.

Asset tracing and recovery, when necessary working with law enforcement and intelligence agencies, should also be available from corporate investigators, who can identify and expose hidden assets around the world. These experts can trace complicated money trails, expose international financial reporting schemes, and penetrate global banking networks, thereby allowing clients to deal with potential government corruption, corporate fraud, undisclosed judgments, bankruptcies and insolvencies, and assessment of adverse parties and witnesses in litigation, arbitration and other dispute resolution processes.

In addition, they can assist in intellectual property investigations, in order to prevent theft of trade secrets and infringements on intellectual property, and to protect rights of authorship, expression and innovation. They can also protect proprietary and confidential information, and avoid loss or leak of trade secrets, vulnerability to counterfeit goods and diverted products, and generally avoid transactions in the grey market.

A key principle of corporate compliance investigations is the “tone at the top,” meaning the example set and compliance culture created by the chief executive officer of an organization. Usually misdeeds by lower and mid-level operators can be traced back to instructions, whether explicit or otherwise understood, from the top officers, and the compliance culture they fostered.

James Bond may be a fictional character with a hyper-active social life, but the work of corporate investigators is often essential in order to penetrate the fog of corporate bureaucracies and their transactions, especially in international settings, and even more so in emerging and frontier markets.

This concludes my columns for this calendar year, and during the period from Thanksgiving to Christmas, I will be leaving Sunny South Florida to enjoy one of the two cities where the traditions integral to our contemporary celebration of Christmas were mostly created, New York (the other being London) – – Merry Christmas!