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Aziz Rahman

Aziz Rahman of award-winning business crime solicitors Rahman Ravelli explains why those in business have to investigate when they receive reports of wrongdoing.

The fact that former Volkswagen chief executive Martin Winterkorn has been charged with fraud by German authorities over the car manufacturer’s emissions scandal is obviously major news worldwide. But it touches on an issue that needs to be recognised by everyone in business.

Authorities in the US have already brought fraud charges against VW and Winterkorn and the car giant has paid out a staggering $25bn as a result of the scandal. German prosecutors have charged another four individuals and are investigating another 36 in relation to it. The scandal appears to show no sign of slowing down, years after it was uncovered.

Yet what is clearly a saga of major wrongdoing on an international scale has great relevance to those of us in business in the UK. That is because VW’s problems are a high-profile lesson in the need to investigate when wrongdoing is suspected in the workplace.

Prosecutors in Germany are alleging that Winterkorn was informed in May 2014 that VW had cheated on emissions tests but did not inform the authorities or consumers. Although hard to say with certainty, it is a fair assumption that if the first reports of wrongdoing had been properly investigated by VW - rather than ignored - it may well still possess some of the $25bn the emissions scandal has cost it so far.

Whether you are a company that operates on a global scale, like VW, or a far more modest enterprise, the principle is the same: any initial allegations or even suspicions of wrongdoing in the workplace need to be investigated immediately.

Expertise

Ideally, such an investigation should be conducted by an objective third party with business crime expertise who is capable of assessing the situation, following the evidence trail and identifying what (if any) wrongdoing has been committed.

Only by conducting such an internal investigation can the right course of action be determined. While the extent of any internal investigation at VW is, as yet, far from clear there can be little doubt that either the company’s problems were not investigated properly by those in senior positions or the investigation’s findings were not acted on. Either of these courses of action can invite greater legal problems than if the wrongdoing had been identified and reported to the relevant authorities.

Even if the criminal behaviour was the work of an individual acting independently, there are certain circumstances where a company can still be held criminally liable for what happened. Which is why legal advice can be necessary regarding how to deal with the individual, when and exactly how to tell the authorities what has happened and what measures to introduce to prevent any repetition of the problem.

Self-reporting

If an internal investigation does identify criminal behaviour involving the company, the authorities will want to know about it. Self-reporting the wrongdoing swiftly and before the authorities know about it can mean a company is either not prosecuted or receives a lesser penalty in recognition of its openness and honesty; especially if it has taken steps to prevent it happening again.

In the UK, we now have deferred prosecution agreements (DPAs), which can see a company admitting criminal behaviour but avoiding prosecution by agreeing to meet certain conditions. Such conditions can include changing staff or working practices, paying fines or introducing measures to prevent future wrongdoing. But a DPA is unlikely to be granted to a company that has taken little or no effort to investigate its problems.

An internal investigation can also bring other benefits. It can help establish whether a company has the option of bringing civil proceedings against the person believed to have committed the offence - in order to recoup any losses incurred as a result of that individual’s behaviour - or of bringing a private prosecution against them.

But, as VW has found out, any company that does not investigate its own problems is left with little or no option but to eventually pay a heavy price for its wrongdoing. A company that does not investigate as soon as it suspects a problem is not only putting that problem off – it is likely to be making it a far bigger one for the future. 

Azizur Rahman is founder of Rahman Ravelli; a top-ranked business crime law firm in national and international legal guides. www.rahmanravelli.co.uk

Neina Sheldon
Article by Neina Sheldon
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