Corporate Pre-Emptive Measures: Internal Investigations
Conduct an Internal Investigation:
Despite best efforts, and a strong compliance program, businesses sometimes learn of wrongdoing within the organization. If that happens, the business should take immediate, pre-emptive action. One proven technique that has saved many businesses and business leaders from prosecution stems from internal investigations.
If a business leader conducts regular compliance training and auditing, those efforts could potentially lead to the discovery of wrongdoing. At that stage, the business executive must make a decision on how to proceed. As an example, we can cite the case of Robert Smith, Chairman and CEO of a private equity group.
Smith formed the Excelsior Trust in Belize and Flash Holdings in Nevis. He relied upon third parties to conceal his beneficial ownership and control of those companies, but he controlled both offshore structures; Smith used those entities to avoid paying U.S. taxes. To facilitate the venture, he relied upon foreign bank accounts in the British Virgin Islands and Switzerland to hide assets from the IRS and from the U.S. Treasury Department. As a result of his financial structuring, Smith did not report more than $200 million in partnership income.
Authorities did not know about Smith’s criminal behavior. Yet, Smith understood that he broke laws. When pressured by a Swiss Bank to self-report, he was slow to come to the table. He continued to file false documents.
At some point, he began listening to a lawyer that persuaded him to cooperate and work toward a non-prosecution agreement with the Department of Justice. Smith had to forfeit claims of more than $300 million. Had he waited for the government to bring an indictment, he would have also had to litigate his way out of criminal charges that could have led to multiple decades in federal prison.
For more details, take a look at the following press release and accompanying documents:
- Press Release: Private Equity CEO Enters into Non-prosecution Agreement on International Tax Fraud Scheme and Agrees to Pay $139 Million, to Abandon $182 Million in Charitable Contribution Deductions, and to Cooperate with Government Investigations
- Statement of Facts: Exhibit to Robert E. Smith Non-Prosecution Agreement
- Non-Prosecution Agreement
How did Smith persuade the government to issue a non-prosecution agreement? Well, from the documents above, it becomes clear that he served up a bigger fish. As a result of Smith’s cooperation, the government brought criminal charges against the CEO of a computer company.
Government investigators will always look for a bigger fish. That strategy feeds the ecosystem of mass incarceration. When our government creates incentives to bring more people into the system, everyone becomes vulnerable. For that reason, it’s best to develop a best-practice compliance system, with total awareness that “Big Brother” is always watching, as George Orwell advised.