Ethical and Truthful Reporting

Every business should be aware of the requirement to prepare accurate reports and records that reflect the true nature of the company’s revenues, expenses and operating losses.  But what happens with truthful reporting in the middle of a government investigation?  When does the ethical compass quickly turn south?

Many times, these investigations are conducted internally and may be headed by a company liaison who works with outside counsel.   In their role as liaison, the internal representative will likely be responsible for collecting reports, records and testimony for the external law firm.

When things go wrong

As an example, we will use the hypothetical discussed here as a backdrop.

You will recall from our hypothetical that a foreign official was given something of value at a time when the minister’s statements were important to an international arbitration case.  Moreover, the gift was scrutinized, along with several others, as part of a potential foreign bribery investigation by a regulatory authority.

Prior to the investigation being initiated, the project director had prepared a draft postmortem report on the JV, where the foreign official was involved.  The project director’s report did not mention the item of value that was given to the minister.

Shortly after the foreign bribery investigation began the project director did a rewrite on the postmortem report, and included comments from a senior executive and the company liaison (a lawyer) involved in the internal bribery investigation.   Moreover, the project director devoted an entire section to the gift given to the foreign official.

So, that’s great, the gift was mentioned?

Yes, and no.

The section in the postmortem, which focused on the gift, stated that something of value was given to the minister, and the gift was withdrawn after the dispute between the JV partners began.  This was a truthful statement, although not complete.

Unfortunately, for the sake of truthfulness and a clear statement of the facts, the report did not mention that the gift was given After the Dispute Began and the minister made a crucial decision that was favorable to one of the two parties in the international arbitration.  Oops!

Authorities deceived

Obviously, if the foreign regulatory authority had known all the facts, they would have asked numerous questions about the gift and its purpose.  That would have been detrimental to the company.

As far as the foreign regulatory authority was concerned the company’s internal controls worked, the risk was identified and the gift was withdrawn.  Unfortunately, this view was based on a deception.

Did the project director obstruct justice?  Yes, in my view.

Did the internal liaison obstruct justice?  Yes, in my view he did, and as a lawyer he also violated his ethical standards.

Your views are appreciated.