Dealing with issues of regulatory investigation can be daunting for any business. Managing this situation while ensuring the smooth day-to-day running of the business will take sheer will and the die-hard spirit of any business owner.
The possibility of imposition of fines or sanctions by regulatory agencies and any damage to the hard-earned reputation of the business if it is indicted for non-compliance, makes it crucial to approach such investigations with a carefully planned remedial course of action.
In a bid to avoid the potential fallout from non-compliance with laid down policies and salvage their public image or stave off regulatory punishment, many business owners inadvertently take steps that further complicate the case at hand. This sometimes results in stiffer sanctions. The crux of this article is to highlight the essential steps businesses should take when facing regulatory investigations.
Immediate Response to Inquest by Investigation Agency
The first step in the right direction when facing an investigation is the immediate acknowledgment of any official communication by the regulatory body. It would be a costly mistake to leave room for suspicion of being uncooperative. Investigators will naturally act civil with no form of bias toward business owners who cooperate with them.
Understand the Regulatory Framework
Businesses must have a thorough understanding of the general and industry-specific regulatory framework guiding the business world. Equally important is staying abreast of policy adjustments and recent changes by the state or local regulatory agency. This guides your response and approach to the compliance investigation of regulatory agencies.
Preservation of Documents
A clear legal hold notice should be served on all employees of the departments concerned to prevent the destruction of evidence. Routine document destruction process should be suspended and all vital records and backup data of interest should be taken into custody by the business owner. The inability to present necessary documents during agency investigation will further make the case more complex.
Conduct Internal Investigation
It is important to carry out an in-depth and independent internal investigation on the matters raised before the arrival of agency investigators. This helps to discover facts, understand the nature and scope of the case at hand, and prepare the business for the eventual external investigation. Such internal scrutiny will help in managing risks and enable proactive actions that will ease the investigation process. It will also arm the business owner with facts and figures needed to defend the organization.
Seek Professional Legal Advice
The professional guidance of a qualified business lawyer or specialist regulatory firm is important in wading through business investigation. Also, your attorney can represent your business in communicating with regulators, ensuring that the responses given are appropriate and not incriminating in any way.
Develop a Communication Strategy
It is vital to develop an effective and clear communication strategy with stakeholders, investors, employees, the media and clients during a regulatory investigation. It is best to maintain limited authorized communication personnel or channels to ensure the consistency of released statements. All communication must be factual, accurate and unambiguous, as this helps to maintain trust and credibility as well as defuse tension. It is also important to give regular relevant updates as events unfold, thereby controlling the narrative.
Analyze the Legal Risk and Develop a Defense Strategy
Work with your legal team to analyze the risk factors, possible penalties and the impact of the investigation on the finances and public image of the business. The discoveries from the internal investigation and legal analysis will help you and your business attorney to develop a defense strategy, which may be to negotiate a settlement or contest the allegation.
Review and Enhance Compliance Programs
Regulatory investigations often highlight areas where compliance measures have failed. It is important to use the opportunity of the probe to rework your compliance program. Necessary changes to policies, business activities and training programs might need to be implemented based on regulatory requirements or findings. A robust adjustment program will show to regulators that your company is committed to abiding by all legal, regulatory, ethical and other relevant standards.
Prepare Early for Possible Litigation
After the regulatory agency has concluded its investigation, it is necessary to analyze its findings and prepare for any possible lawsuit that can arise. Your business attorney should be present during the investigation for a professional evaluation of the investigation process if it complies with standard procedure. The attorney will also assess the legal implications of discoveries made during the probe. Early preparation for litigation can make a favorable outcome more likely.
Review and Learn
Irrespective of whether the investigation leads to litigation or not, it is important to carry out a post-investigation or post-litigation analysis. Salient lessons learned during and after the investigation should be documented and infused into the policy adjustment program of the organization to prevent future recurrence.
It might be necessary to create an LLC for better legal protection of personal assets when the business is sued for legal infractions.
Conclusion
It is hoped and assumed that the business owner has created an LLC or similar business structure under which the business is run. Such legal structures often provide some measure of protection for the business owner especially as it relates to the regulatory authority being able to go after their personal assets in the settlement of an investigation that goes against them.
Business owners dread regulatory investigations. However, when it comes, certain steps must be taken to wade through it. Cooperating with investigators, seeking professional legal guidance, conducting an internal investigation and effectively managing communication, documents and employees are important actions to be taken. Also, it is essential to rework the policy thrust of the organization based on lessons learned. Doing these will enable the organization to scale through regulatory investigations with minimal loss both to finance and reputation.
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