Internal Investigations Blog

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Takes One to Know One: Lawyers Catching Crooked Lawyers

Attorneys are, by their nature, are a cagey.  Much of what they do is cloaked in confidentiality and that which is not so hidden, is rarely fully understood by the clients that they serve.  It is no different with respect to outside counsel serving organizational clients and when this takes a wrong FCPA turn, it presents a particularly vexing problem for another set of attorneys – the investigators – trying to catch them.

The nuts and bolts of what corporate in-house and outside counsel do is often overlooked, ignored, or misunderstood by business units.  They are result-driven entities that are more inclined to look to lawyers to smooth rough edges on the front end of projects and extricate them from trouble on the back end of them, than to worry about how these things get done.  As a result, company attorneys often operate with little supervision and virtually no checks and balances on what they do.  Therefore, if and when lawyers go off the rails, it is tough to catch them.

In a guest post at FCPA Professor entitled “The Problem – And Solution – Regarding Foreign Outside Counsel Fees”, attorney and author Zachary Cregar writes of the problem with counsel as instruments of corporate bribery and corruption overseas.  He does not do so from an internal investigations perspective, but from the internal audit and/or compliance point of view, although his points are relevant to the former.

Cregar identifies two scenarios in which FCPA and other anti-corruption violations may occur relative to the always-murky world of attorney billing.  As he aptly writes, bills for legal services are often cryptic to those without (1) specific legal training, (2) experience with specific practice specialties, or (3) familiarity with local jurisdictional nuances.  Where managers and auditors do not understand or are not concerned with the nuts and bolts of certain legal work in the first place – as opined above – they are even less likely to parse and fully comprehend invoices for the same.  Therefore, these billing statements are optimum places to hide bribes and payoffs.

Two scenarios are fraught with FCPA and related anti-corruption risk in this regard:

One is where a foreign official is a principal, employee, or stakeholder of outside law firm in a foreign country.  There, bribes are paid directly to him or her under the guise of legal services provided.  This is a bit less of a problem for the pre-engagement due diligence work than for a post-incident internal investigation.  Data-mining and boots on the ground interviews ought to turn up these links and their existence ought to preclude use of such counsel in the first place.

The other scenario is the Wal-Mart fact pattern whereby foreign outside counsel is used as a third-party intermediary and obtains payments on invoices with bogus fees or expenses that are passed along foreign officials as bribes.  From Cregar’s audit/compliance perspective, the solution – or at least a viable weapon combating this means of bribery – includes the following as part of an overall “foreign outside counsel management program”:

  • Universal billing and case-handling guidelines and protocols
  • Use of standardized and anti-corruption sensitive billing software
  • Legal bill auditing by legal professionals
  • Legal billing metrics analysis by legal professionals

These are excellent ideas that all – at their core – combat the major hurdle that is presented by individual and institutional corporate ignorance of what lawyers do, how they do it, and the billable time and cost components associated with their work.  As a result, a fully-integrated legal management program would go far to avert the engagement of risky local counsel and to detect billing irregularities that might be indicative of on-going problems.

With respect to internal investigations, no one is going to be able to pin down bogus legal fees and expenses like other attorneys.  For all of the indicators generated by a program like Cregar’s, the investigative proof will remain in the pudding.  In the end it will take clean lawyers wearing out shoe leather while talking to cooperative, not-so-clean lawyers to catch dirty lawyers overseas.

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