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Companies Refocusing Internal Investigations Amid Pandemic

April 17, 2020, 4:32 PM

The coronavirus pandemic is likely to push companies to prioritize related whistleblower complaints and launch investigations despite office closures and other constraints, attorneys say.

The increased threat of government investigators knocking at the door has attorneys and consultants advising companies to give virus-linked whistleblower complaints special attention. That means moving those tips to the top of the pile and working around obstacles such as travel restrictions and remote workforces.

“Companies should be particularly diligent with following up on complaints deemed to be credible, certainly with anything that has to do with coronavirus funds,” said Clark Ervin, a partner at Squire Patton Boggs and a former inspector general of three federal agencies. “It’s a priority for DOJ to prosecute cases,” using tools including the False Claims Act, which brought in more than $3 billion in civil settlements and judgments in fiscal 2019.

The Justice Department formed a coronavirus fraud task force on March 23, four days before Congress passed an unprecedented $2 trillion stimulus that provides direct payments to individuals and loans and grants to major industries--including pharmaceutical companies, hospital and airlines--and thousands of small businesses.

The injection of government funds combined with widespread financial hardship only heightens risk, attorneys say, opening the door for embezzlement, data breaches, misreporting of company financials, and insider trading.

Regina LaMonica, a partner in Perkins Coie LLP’s white collar and investigations group, said banks and other companies that took aid under the $700 billion Troubled Troubled Asset Relief Program (TARP) after the 2008 financial crisis were “highly scrutinized.” She sees much of the same for firms taking coronavirus aid.

A 2014 report from the Office of the Special Inspector General for the TARP, or SIGTARP, said that more than 33,000 complaints were made through its whistleblower hotline between 2009 and 2013. SIGTARP investigated “a range of criminal activities” arising from those tips, and 174 individuals were criminally charged as a result of the office’s probes.

The government will similarly watch over firms taking coronavirus bailout money, making it an area of potential liability that should be a “priority topic” for companies undertaking risks assessment during the pandemic, LaMonica said.

A New Normal

The pandemic has presented new challenges for companies hoping to head off wrongdoing and potential government investigations.

It has spurred lawsuits and complaints about employee safety, pushed some companies near bankruptcy, and forced entire workforces to conduct business remotely. A strain in resources has led some companies to scale back existing internal investigations or limit their responses to new tips.

“I have some clients that have stopped investigating internal complaints completely in order to put out other fires,” said Juliette Gust, founder and president of investigations consultancy Ethics Suite. “It’s really not a good time to take your eye off the ball here.”

A lack of oversight due to remote work situations has make it harder for employees to spot wrongdoing by their peers or superiors. It’s also placed increased reliance on whistleblower hotlines and other methods of fielding complaints that can be operated and monitored electronically.

“How do you best triage whistleblower tips when the entire workforce is removed?” said Anthony Campanelli, partner in the forensic practice of Deloitte Financial Advisory Services LLP. “Companies are going to have to manage multiple different items appearing on their hotlines,” and have a process to determine what pieces of an investigation can be done now, and what can be done when the pandemic blows over.

Companies “shouldn’t use the crisis and remote work as a reason not to investigate,” he added.

‘Get Ahead’

Companies and their law firms are grappling with the difficulties of conducting internal investigations during the crisis, including barriers to evidence collection and potentially combative video interviews with employees at the heart of the probe.

“It’s a lot more effective to interview someone in person,” Gust said. “If you’re trying to get an admission of wrongdoing, it becomes a lot harder” when interviews are done remotely.

As a result, those investigating internal complaints have been reassessing their strategies. Companies should likewise use the situation to take stock of their oversight and preventative capabilities, consultants and attorneys say.

“That’s the opportunity for companies during this crisis —get ahead of the game by taking the time to review compliance programs and procedures,” said Ervin, of Squire Patton Boggs.

Steps can also be taken to ensure companies are prepared for when employees come back to the office and pre-pandemic investigative procedures return.

“Anything that’s high priority or had to be put on hold because of travel restrictions or other limitations, have that teed up in a place where it’s ready to go when things get back to normal,” LaMonica said.

To contact the reporter on this story: Jacob Rund in Washington at jrund@bloomberglaw.com

To contact the editors responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com; Seth Stern at sstern@bloomberglaw.com