Whistleblowing and Internal Monitoring/Investigations

Many thanks again to the Faculty of Law at the University of Hong Kong for hosting my presentation on “Whistleblowing & Internal Monitoring/Investigations” yesterday. It was a really interactive and responsive class. The scheduled three hours was barely enough to cover what I estimated to be an hour plus presentation thanks to all the interesting questions and my sincere apologies to the class for rushing through the latter parts of the slides.

One question at the end of the session, what’s the take-away on the topic.

With and without a poison-pen letter from a whistleblower, a pre-transaction reputation/investigative due diligence should always be conducted ahead of all other types of due diligence. This is not a biased opinion but one proven by real life experience from many past cases whereby some serious and damaging red flags on reputation issues/risks could potentially kill a transaction no matter how good the counterparties emerged in the legal, financial and other due diligence – although in some situations clients took advantage of the negative findings to re-negotiate terms for the pending transaction. Information is power!

In a post-transaction external/internal investigation especially one potentially heading to the courts, with and without a poison-pen letter, it is critical to conduct public records research first as the findings could be documented evidence legally admissible in courts that can help the lawyers and clients win the case. If the public records search turns out futile (a likely scenario in non-transparent and opaque jurisdictions), the findings from intelligence becomes pivotal.

I shared with the class an example of a typical court case whereby the client wins if we can prove two people A & B collaborated on a fraud scheme. No surprise they denied even knowing each other. A barrister once told me how he often receives surveillance photos of A & B say having coffee together as evidence – and how he can easily lose the case with such weak evidence. The best evidence is to prove the two have a long history of relationship – they attended the same school (public records), they were past business partners (public records), their companies were sued (public records), they commented on each other’s FaceBook (could be public records), etc. In the absence of any/sufficient public records evidence, findings from intelligence gathering can potentially turn into public records and important evidence. Consider:

– They not only attended the same school but same class, same computer club and even went on a school camping trip to Nepal when they were 10. The latter are findings from intelligence gathering
as they may be difficult to find in public records but the sources could provide photos as proof.

– They were in the same WhatsApp & WeChat groups? A source from the group could provide a screenshot of group members as proof.

– They were neighbors when they were young? This could be difficult to prove in public records because they don’t own the properties then but if there’s a lead they were neighbors, a search on their parents names could lead to documented proof.

Hence the importance of intelligence gathering. And thinking out of the box.

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