Episode 3, Investigations Unpacked: Something to see here

Rani John

I begin by acknowledging the Gadigal people, traditional custodians of the land on which we are recording today, and pay my respects to their elders, past and present. I extend that respect to Aboriginal and Torres Strait Islander people listening today.

Hi to our fellow listeners out there and welcome to the third episode of our Ashurst podcast series, Investigations Unpacked. I'm Rani John. I'm a partner in Ashurst's Dispute Resolution group, based in Sydney.

For those of you who are new to this podcast series, we're focusing on the topic of internal investigations and our aim has been to share some insights on key issues to bear in mind when conducting them.

In our past episodes, we've covered some of the critical questions that companies need to ask themselves when commencing an internal investigation and maintaining privilege in the course of an investigation.

Today, we're considering the topic of how to manage a scenario where a corporate internal investigation might uncover potentially criminal conduct. There's a whole range of circumstances in which that might arise, but there are some guiding principles that will help steer you through that sort of scenario, and some issues that you need to be aware of that are quite different to the situation where you are only considering potential civil consequences.

We've got a very experienced guest today to help talk about these topics with us. Kate Morgan SC is a senior barrister based in Sydney, and she has very significant experience acting for corporations and individuals who found themselves involved in criminal investigations and prosecutions. Some of her recent cases have included the Country Care prosecution, where she successfully defended Country Care in the first Australian prosecution of alleged criminal cartel conduct that went to a jury trial. She also defended one of the individuals accused in the recent criminal cartel prosecution of a number of banks and individual bankers, which was abandoned earlier this year. Before coming to the Bar, she also spent some time working at the Commonwealth Director of Public Prosecutions.

Kate, welcome.

Kate Morgan SC

Thanks, Rani. Lovely to be here.

Rani John

So, Kate, I wanted to set the scene a little bit. There's so many really interesting issues that we could talk about relating to white-collar crime, but what I'd like to focus on today is a scenario where a company is about to, or is conducting an internal investigation, let's say it's in reaction to an employee or a customer complaint, or that some sort of internal circumstances triggered a desire to investigate an allegation that there's been misconduct. But let's assume at this stage there's no real clarity about what, if any, laws have been breached, but it is possible that criminal conduct is in the mix. So what are some of the immediate issues that come to mind in that sort of circumstance, and what is it that a company might need to do differently to the more usual civil set of consequences?

Kate Morgan SC

Well, I think there's a variety of matters that companies would want to keep in mind. The most important is that every individual has the right of the privilege against self-incrimination, and that will colour everything that one does as a corporation. And so, first of all, you need someone in to give you advice about what the risks are to the corporation, before you even start an investigation. That advice will give you the scope of who you can talk to safely (and under privilege, preferably) but ensuring that each individual understands their rights and participates in the investigation to the extent they're comfortable, and you are comfortable as the corporation, knowing that they understand those rights.

So sometimes you actually need an employment law expert involved as well, which is an interesting idea for many people who are suddenly trying to investigate what could amount to criminal conduct. And the advice will also tell you whether you should be reporting it, and whether there's an obligation to do so. And we know there is an obligation under the New South Wales Crimes Act, for an indictable offence, to report that to the local police, but also in terms of taking advantage of engaging with the regulator early.
So we know, in the criminal cartel space, we have the inverted immunity process where the first in gets complete immunity at the ACCC level and then gets preferred treatment at the Commonwealth DPP level.

But even in a non-criminal cartel space, so in your standard – it's a weird word to use – but your standard [foreign] bribery, your standard money laundering; if you self-report to the AFP, you then get the benefit under the 1914 Crimes Act of having assisted the authorities. So even if, down the track, you plead guilty, the company pleads guilty, or you're found guilty by a jury, then the company gets the advantage of what is regarded, roughly, as a third, a 33% discount on the sentence. Now that's a very rough, old fashioned guide but certainly there's still, in the criminal context, the acceptance of that kind of minimum discount for engagement with the regulator early.

Rani John

Thanks, Kate. So I just want to pick up on something that you said at the beginning, about even before you commence your investigation, at least in the sense of speaking to potential witnesses, that you get advice. I understood that to mean advice about how to engage and what you can and can't do with witnesses …

Kate Morgan SC

That's right.

Rani John

… but also in terms of exposure to liability. It’s a bit chicken and egg, isn’t it? Because there's an element of not knowing the full gamut of the facts because you haven’t taken those steps that you would otherwise launch into in an investigation. You're trying to assess the position without having spoken to many of the potentially important people.

Kate Morgan SC

No. And that's the dilemma. But it is extraordinary what you can work out from documents. A collection of documents may give you enough to at least say, okay, these five people seem to have known what was going on, and what was going on was not great. So let's not talk to them just yet. Let's really get as much information from the people who worked for them, or the people underneath them, or from the accountants, or even speak to an external expert about accounting, for example, so we can really get a sense of what the building blocks were before we think about what we would have to do, which is get them a lawyer. If you really feel that they are the people involved in what might well be a criminal offence, the single most important thing is that they have their own lawyers.

Rani John

You also talked about reporting and making decisions about self-reporting; whether that be to regulators, or law enforcement, or what have you. Have you seen circumstances where that's done very early in the piece and the regulator, or whoever the relevant body is, wants to have a say about whether or not you conduct an internal investigation? Or if you are going to conduct one, that they want to be all over how you do that?

Kate Morgan SC

Yes. That is a very difficult question. I think the law is on a corporation's side, to say, "Thanks for your input but we're going to go ahead and do our investigation". Strategically, you might not want to do that because you are hoping, down the track, not to be charged, or to be charged, or to have a contravention made a civil penalty, for example. Unfortunately, boards have to grapple with that kind of decision, whether they go ahead and do their own investigation, despite self-reporting, and then saying, "And by the way, we're self-reporting but we are ourselves going to do our own investigation". There's a recent case where the multinational corporation self-reported, the law firm handed over all the documents, thought they were not going to be charged. They were charged, as were all of their employees. They pleaded guilty because of course, a corporation, from a governance perspective, needs finality, wants to be doing the right thing, and so is much more likely to plead guilty. They plead guilty. Guess what happened? All the employees were acquitted. So the company is going to be sentenced to conduct that the individuals who they relied on for the plea of guilty, have now been acquitted. That recently happened in our Supreme Court in New South Wales. So it's shocking, but that's one of the risks that boards have to take in terms of assessing what their governance obligations are to their shareholders, and to the stock exchange, and to ASIC and all of that, is to assess those risks, take advice, act on the advice. It's very difficult. I'm glad I'm not on a board. I much prefer advising boards than making such decisions.

Rani John

Yes. Something that's perhaps a little bit of a tangent is, let's say that a company is conducting an internal investigation; the question of whether or not to stand down employees who you think might have done the wrong thing or you're just not sure where things are going to head. What are some of the issues that companies should take into account in making that choice?
Kate Morgan SC So many! So the first one is the question of inside the tent/outside the tent. So if, down the track, you want to have a joint privilege, there's not much of a joint privilege if you've told them to go home and you keep paying them. But the competing issue is, down the track, you plead guilty but you haven’t sacked them, and so both the Court and the regulator, or Commonwealth DPP is saying, "Hang on, where's your contrition? Where's your facing up to what you've done?",

Rani John

Yep.

Kate Morgan SC

But when they're still on the books. You haven’t sacked them. You haven’t … done the wrong thing. The flip side is when you make a knee-jerk decision and you sack everyone close to a transaction – you've got all the documents, you've conducted your investigation – every regulator says, "Well, now you have to plead guilty". And you're like, "Actually, no". 'Cause now we've looked at it and we've taken advice. The advice says it's not an offence, what we did, and the board says, "Well, we can't now plead guilty". And the regulator says, "But hang on, you sacked all these people because of that. One of those people comes back and gets their payout". So, look, it's difficult. There, all of those issues come into play and you just require a lot of finesse. And also, coming back to the question again and again and again. Every few months, when something changes, you rethink: should we be keeping this person on? Is there an advantage to the corporation, properly? This idea of proper consideration of - is there sufficient evidence to say they've actually done enough wrong, that we would ask them to leave?

Rani John

Yeah. And I suppose it also links back to something that you talked about earlier, which is, you know, the desirability to having people have recourse to independent representation. So there's at least not that element of, well, they were removed in a way where they didn’t have, or engaged with by the corporation in connection with this kind of scenario, where they didn’t have access to appropriate representation, where there's company policies that might fund that or whether it's some, you know, expectation or entitlement that it be facilitated by the company.

Kate Morgan SC

I think that's right. And I just think the corporation, the board, can have a lot more comfort with any decision it makes if it is engaging with someone who is properly legally represented, and who appreciates that that legal representation, although probably possibly paid for by the corporation or the insurer, is independent. I think that's an important issue. I think in some of the recent fallouts from the Banking Royal Commission, there was a lot of tension in that space in relation to individuals who were all sent off to the same law firm, for example.

Rani John

Yes.

Kate Morgan SC

So different partners of the law firm acting for them, but all under the same umbrella. Several individuals were uncomfortable with that and went outside of that. But the companies, to their credit, continued to ensure that was paid for and they were properly represented.

Rani John

Yes.

Kate Morgan SC

As it should be.

Rani John

Yes. Let's move to. let's say that you've gotten your relevant advice and you are indeed interviewing a witness for an internal investigation. Let's say that they're independently represented. What are some of the things that you might need to bear in mind in the conduct of that kind of interview?

Kate Morgan SC

Look, it's so hard. It really depends on who the person is and what their level is in the organisation. So you can be interviewing anyone, from the CEO, to the person in charge of the car park,. with really different levels of education, different levels of understanding of how the legal system works, and to be conscious of the idea that the investigation is a marathon, not a sprint. There's no point alienating people, being unfair because you have an end point in mind and that is a skill. It is a skill to remain open-minded, to make sure you're asking the person open-ended questions, all of that, is a skill. It's also important that they know what is happening from an employment law perspective. So that's a separate issue that has to be resolved.

And then the other issue is that they appreciate what they're entitled to do and not do, which is very, very hard. Because even if you say to an employee, "We're actually investigating a criminal offence. We're concerned you were involved, we're recording this, this is protected by our legal professional privilege as the company, but you are not protected by that if we decide to hand it over to someone". Now if you say that out loud to someone, rationally, they should say, "Thanks very much, I'm leaving now". But, of course, they don’t because they work for you. So the way to protect that is to give them a lawyer right from the start.

Rani John

Yeah.

Kate Morgan SC

The lawyer can try and suggest a common interest privilege. Most corporations should reject that early on because you want to stay in control of the information, but the person might be important enough that you would agree to that, so you can get to the bottom of it. And then later, if you want to share that, you then ask them if you can share it because it's in everyone's interest to share it. But it is very difficult to make sure everyone is comfortable, that the person appreciates what they're doing and that you're treating them properly, but also ensuring that you're complying with your own governance requirements, and to ensure that the board is properly informed about where the investigation has got to.

Rani John

Yes. Connected with that topic, we've seen, particularly recently, various parties, whether they be prosecutors or indeed counsel for the accused, put a lot of emphasis on what are referred to as first account statements. Can you talk a little bit about what first account statements are and why they are regarded as particularly important? Or do you agree that they're particularly important in this white-collar crime field that you're involved in?

Kate Morgan SC

Yes, so that … that became very relevant in the bank cartel. And the reason that became an issue is because the criminal lawyers involved in that case are used to the local cops turning up at a traffic accident, writing down in their notebook, "Well, they didn’t have their blinker on and so I thought they were going straight ahead, they suddenly turned and I ran into the back of them". And so that person is giving their account, their contemporaneous account of what happened. And that is regarded in the world as the most likely, correct story. It may not be, but the most likely. And so that's what criminal barristers are used to. They get the notebooks, they cross examine people on their statement, compared … so what they say in Court. So the guy comes, the guy or the woman, whatever, comes to Court and he's cross examined about the car accident and they say, "Oh, well, they put their left blinker on and so I thought they were turning left, so I ran into the back of them". It's like, "Well, hang on. When you saw the cops, you said they were going straight ahead".

So it's an obvious inconsistency and that's the most simple way to look at it. So in the bank matter, the ACCC has a lot of experience in civil litigation and the way they ran their civil litigation was they had one version of the final statement, they would create that on the [Doris] system, sitting there, so there weren't drafts around that people could be cross examined on. And so they were quite upfront that that's what they'd done. They didn’t try and hide it, in part, I think, because nobody had ever told them that that wasn’t a good idea. So what happened in the torture that was the local Court experience in the bank cartel case, was that that was revealed, and then all the underlying documents came out. And the idea was, before the jury, that would be a very effective strategy. Especially for a couple of the witnesses who had put in versions of their statement, comments that would assist the accused. Especially about competition and complicated matters that I assume the jury would never have understood in any event. But it doesn’t matter.

And so, if you were conducting the investigation before you tell the regulator, in theory that is the first account. In theory. A true first account is the first account that's given to the enforcement agency. And that's why the enforcement agency might ask you for those accounts. And if they're not protected by privilege, or if it's in a corporation's best interests, they might hand those over. And so that … it's very important. So that's why I've talked before about having all the documents, really having a narrative. At least a chronology, not a theory. But certainly a chronology of everything that's happened so that you give the witness, or give the person, the employee, an opportunity to actually talk to the documents and talk to events. I mean, what we're talking about now, I think … I'm just trying to picture an employee faced with five volumes that they've never seen before, leafing through them, trying to reconstruct what they were thinking and it's … it's very complex but it's a necessary process that has to be undergone. But there are risks involved in that.

Rani John

I mean, I suppose … I was just going to make the comment that, you know, a first account in the hypothetical that you described at the beginning, you know, the car accident and what you remember immediately or what you said immediately upon witnessing the car accident, is a very different scenario to a complex commercial transaction, for example, that occurs over a long period of time. And then there's the additional period of time where people have gathered together this documentary material. But you may well be assisted by it. So your unvarnished recollection is actually sometimes less reliable …

Kate Morgan SC

No, pointless.

Rani John

… than looking at, you know, being aided by the documents …

Kate Morgan SC

Completely agree.

Rani John

… acquired during the transaction. It seems to me, the notion of a first account, in those circumstances, is somewhat artificial at best.

Kate Morgan SC

I completely agree. Hence the label "torturous" for the local court. That was a bit different because there were these weird comments that were removed from the final version of statements. So there were some odd events in that. And it was used as the first account was the … was the catch-all phrase so that everyone knew what we were talking about. But it wasn’t even that, it was like a prior inconsistent statement. That's how I approached it, in the very traditional sense of "Hang on, we've got a hold of your draft witness statement, in just a normal commercial matter, where you said, X, Y and Z. But in your final version you've said A, B and C. Why is that?". "Oh, well, the lawyers changed it". I mean, that's what you want, right? So that's just as effective in front of a jury, whether it’s a first account or the fifth account.

Rani John

Yeah.

Kate Morgan SC

But it's just another version.

Rani John

Yeah.

Kate Morgan SC

And that's what's out there. If you conduct an investigation, you don’t think about how you're doing it, you don’t give the person time to prepare, you don’t give them a lawyer to prepare. You want them to have had all those opportunities. So that's … and that's hard, especially if there's a case theory in the corporation or people want to say it's a bad apple, then people aren’t so keen to spend the time and the money on making sure the investigation steps are properly done.

Rani John

Well, Kate, I think we could speak for another hour about all of the really interesting issues that arise when you're faced with potentially criminal conduct in the course of an internal investigation. But thank you so much for your time today. It's been great to get your insights and I'm sure that our listeners will find what you had to say extremely valuable when they're thinking about investigations in these sorts of circumstances.

Kate Morgan SC

Not at all. Delighted that I could join.

Rani John

Thanks again.

So we hope you've enjoyed todays chat. If you'd like to catch up on previous episodes, you can find these at ashurst.com/podcasts. We look forward to bringing you another instalment of our Investigations Unpacked series soon. That website is also where you can learn more about all of our podcast channels. You can subscribe on Apple Podcasts, Spotify, or your favourite podcast platform. We'd love to get your feedback on our podcast, so please feel free to leave us a rating or a review. And thanks again for listening.