The strategy is especially common in cases of foreign corruption but also extends to domestic investigations involving issues as varied as health-care fraud and shady accounting.
The corporations, sometimes at the request of the government, hire teams of lawyers and accountants to interview employees, gather electronic records and sift through documents. The government reviews the results and decides whether further legwork is warranted — and, ultimately, whether to pursue charges.
The private investigators help determine what evidence the government sees. They typically turn over only a small subset of the many documents they collect. Sometimes the lawyers who conduct the investigation are the same ones who represent the company in negotiations with the government over charges and penalties.
According to lawyers and accountants involved in internal investigations, current and former government officials, and records of cases in which internal probes have played a role, the practice is widespread.
For the government, the approach is a way to save money and claim relatively easy victories, corporate lawyers say.
For the companies under investigation, it is a way to win credit for cooperating, which can translate into lesser charges or lighter penalties.
For the people who conduct the internal investigations — many of them former Justice and SEC employees — it is a big business. An ongoing investigation for Diebold, which makes ATMs, has cost the firm about $16 million, a company spokesman said. Avon has confirmed spending more than $130 million.
And a global bribery probe performed for Siemens cost about $950 million, according to a company accounting. That was almost triple the $324 million annual budget of the SEC’s enforcement division when the case was resolved in December 2008.
Some companies launch internal probes after the government has begun an official investigation. That was the case with Daimler, the big automaker and former parent of Chrysler, which came under SEC scrutiny when a former employee told the government that Daimler was keeping secret accounts to bribe foreign officials. Daimler agreed to pay the government $185 million last year in a settlement that allowed it to avoid criminal prosecution.
Other companies open internal investigations on their own initiative and essentially blow the whistle on themselves. That was the case with Johnson & Johnson, which settled bribery and other charges in April by agreeing to pay $70 million. As the Justice Department noted, the company was given credit for conducting a “thorough and wide-reaching self-investigation.”