Parallel Proceedings

Considering the position of multiple internal and external stakeholders whose interests may be at odds with one another, and that of the company, is a complicated matter.

How can a company mitigate these tensions, and what should it prioritise?

A company facing parallel proceedings must take into account the multiple internal and external stakeholders who have an interest in them. The priorities and interests of those stakeholders may be at odds with those of the company and/or each other, adding conflict and tension to an already challenging scenario.

Three groups of stakeholders whose interests are likely to be particularly influential are:

  1. enforcement authorities, several of whom may have an interest in investigating the same conduct or event
  2. civil claimants, who may seek to secure an advantage over the company by bringing proceedings at a time when a criminal or regulatory investigation is ongoing, and
  3. individuals (implicated or otherwise) involved in the relevant conduct or event who may be unwilling to assist the company in defending its position, and/or - in the interests of protecting their own position - take steps which cause damage to it.

Learn more about how to manage these stakeholder groups below.

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Enforcement authorities
  • It is not uncommon for more than one enforcement authority to have an interest in the same conduct or event. This may be driven by the locations in which the conduct took place, the nature of the activity under investigation, or the involvement of individuals from regulated professions (e.g. financial services, auditing/accountancy, law) and/or company directors.

    Where interest from multiple investigation or enforcement authorities is a possibility, it is important to consider:

    • who a suspected issue should be reported to (including overseas regulatory and enforcement authorities), and
    • the timing of any reports made.

    A coherent strategy for dealing with all interested parties should be formulated at that very early stage. Mandatory disclosures, such as the filing of a Suspicious Activity Report with the National Crime Agency, should be made first. The need to make such a disclosure is often a trigger for (voluntary) self-reporting to other authorities, including the Serious Fraud Office. The disclosure obligations that apply to public companies whose securities are admitted to trading on a market may also act as a trigger for self-reporting.

    In some circumstances (and in particular where provided for in a Memorandum of Understanding) one authority may stay or defer taking action until another authority has concluded its investigation and/or proceedings. However, this should not be assumed to be the case and often a party will be the subject of concurrent criminal and/or regulatory investigations.

    A party in that situation should be mindful that those authorities may share information with one another and may co-ordinate their investigation and enforcement activities. There are various frameworks that exist to support authorities in taking such an approach, though the extent to which they are adopted in practice can vary. These include:

    • Memorandums of Understanding
    • information gateways
    • informal intelligence sharing, and
    • Mutual Legal Assistance.
Civil claimants
  • Increasingly, a party which is the subject of a criminal or regulatory investigation will, at the same time, face claims from those who have allegedly suffered damage as a result of the issue or event under investigation. This may take the form of claims from one or more of a company’s:

    • commercial partners
    • competitors
    • shareholders
    • employees, and 
    • third parties.

    A company under investigation may itself bring claims against those who in its view bear responsibility for the issue or event that has led to the investigation, including its auditor or (where listed) sponsor, and/or any individual agents or employees implicated in suspected wrongdoing.

    There are benefits for a prospective civil claimant in waiting for any criminal or regulatory investigation to reach its conclusion, including the:

    • release of relevant information into the public domain
    • creation of additional disclosable material, and
    • prospect of a public decision or finding of wrongdoing by a prospective defendant.

    For further information on the impact of such a finding, refer to Addressing related decisions.

    As criminal investigations (and in particular those undertaken by the SFO) can take years to reach a conclusion, limitation periods may compel claimants to issue claims for damages before a criminal charge or conviction. This scenario may arise in a regulatory investigation also, though they do (as a rule) reach a conclusion more quickly.

    This can have a number of consequences for a defendant, including:

    • having to serve its Defence in the civil proceedings (thereby publicly advancing its case in answer to the allegations) before it knows whether it will face criminal charges
    • being required to give disclosure in the civil proceedings of documents most relevant to the specific issues in dispute, which may in turn be sought by a prosecutor for use in the criminal action. Refer to Handling case material
    • needing to rely in the civil proceedings on written and/or oral testimony from witnesses who may also be called to give evidence in any criminal proceedings. This creates a risk of inconsistent testimony, contamination of evidence and/or self-incrimination which may cause a witness to refuse to assist in defending the civil case. Refer to Liaising with witnesses, and
    • the diversion of time and resources from the criminal case.

    In the knowledge of these consequences, a civil claimant may bring proceedings against a party that is the subject of parallel criminal or regulatory investigations or enforcement action as a means of adding pressure and with the intention of securing a favourable early settlement.

    For information on negotiating settlements in this scenario, see Mitigating practical challenges: Negotiating settlements.

Key individuals
  • A criminal or regulatory authority looking into suspected wrongdoing by a company will inevitably examine the actions of the individuals involved and, where it has jurisdiction to do so, consider whether there are grounds to bring enforcement proceedings against them.

    Indeed, some authorities prioritise the prosecution of culpable individuals and may seek to resolve allegations against the company via a Deferred Prosecution Agreement or other negotiated settlement, on the express understanding that evidence of individual wrongdoing will be made available to them. In other situations, charges may be brought against the company and individuals in tandem.

    The investigation and prosecution of individuals by a regulatory or criminal authority can have a number of consequences for a company also under investigation:

    • as outlined in Managing multiple stakeholders: Civil claimants, an individual who is a suspect or even a witness in a criminal investigation may not be willing to assist the company in defending or co-operating with the investigation into its actions or any related civil claims for fear of prejudicing their own position
    • an individual may also, in the interests of protecting their own position, take actions which are potentially damaging to the company including sharing information with the authorities or the public that is subject to the company’s privilege, advancing a defence that is inconsistent with the company’s position, and talking to the press. The position of the company and the individual may diverge even further where they are parties to civil (including employment) proceedings, whether brought by one against the other or by a third party against both
    • a company may also face difficulty in accessing individuals who are under suspicion of wrongdoing as they will often have been suspended or dismissed from their employment following discovery of the relevant issue or event. This is a typical and often necessary step where there is an (internal or external) investigation ongoing to ensure that any risk of evidence being tampered with or destroyed is mitigated. In addition, such remedial action is often expected by the regulatory or criminal authorities and a company which fails to "cleanse" its business in this way may struggle to show it has reformed to the extent necessary to avoid prosecution or (more) severe regulatory penalties, and
    • whether or not they adopt a position that is difficult for the company, individuals who are involved in criminal investigations - as suspects or witnesses - may be entitled to have an independent legal adviser (ILA) appointed to assist them, at the company’s cost (e.g via D&O insurance). 
Alexandra Webster, Supervising Associate

A company in the midst of Parallel Proceedings must navigate the potentially conflicting interests of multiple stakeholders, whether they be internal or external. Maintaining objectivity and impartiality throughout the decision-making process is essential but can be difficult when required to act in the best interests of the company itself. Having an external perspective can provide the rounded perspective required to adopt the most suitable position across stakeholders and parties.

 

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.