Transcript: Best Practices for Conducting Internal Investigations

· Transcripts - CBLP

Welcome to the China business law podcast a show about the practice of law in China from real and house and Law Firm professionals on the ground. Today. We're having a it. The topic is investigations in particular internal investigations, but also more broadly compliance. I'm joined by two fabulous guests in Tim Klatte head of Shanghai forensic advisory services at Grant Thornton China and Alice Qiao Peng here at RU China lawyers. Welcome both of you.


Thank you very much. It's really a thrill to have you both on here. It's going to be an episode a little bit about how at a basic level accountants and lawyers can work together on investigations that will get into first. I wanted to start by giving each of you a chance to give an introduction of yourselves to the audience Tim. Can we start with you? Thank you very much hard for hosting this podcast. I've been in China back and forth for about 26 years starting as a young ambitious.


College sophomore coming to study abroad in China and then returning back to the US. I completed my education both undergraduate and graduate and then started working in the US government assigned to the China desk for the state Department's and was working in the United Nations in New York for a bit of time from that point. I joined the accounting industry and went to a big 4 firm in New York and eventually found my way back to China in 2006 and have been consecutively living in Shanghai since


it's then currently working on quite a bit of internal investigation work compliance issues and overall forensic advisory Services. Thank you.


Great. Thanks. Tim. Ciao. Yeah. Hi everyone. So, my name is Xiao Peng. So people sometimes call me thales as well. So I was the past public prosecutor for five years in Guangdong Province. And after them after the my master degree from u.s. I came to Shanghai started my lawyer career, and then I joined AstraZeneca as a senior group global senior director of the compliance for


More than five years focus on the significant cases investigation and the Delta is the origin is easy. So actually for lawyer experienced. I study to focus on that in a compliance issue regarding the like down rate and dealing with the criminal related matters with police and internal investigation and other compliance related business design and systematic review etcetera.


From 2002 to 2008. So I'm quite good about compliance risk assessment and special for Science Life Science companies. Thank you. Okay. Thanks John Tim. Let's start with the first question. Now, you've had over 25 years of experience working on China related matters is you just were mentioned been in China very long time like myself. What are some of the changes you've witnessed?


In multinational companies compliance strategies over that period of time not that long ago. I also saw a trend of companies place in global compliance covering China, but they were based in Europe or in the US. I often ask myself how effective could such a role be running compliance remotely like this, but thankfully, you know over the years. I've been able to witness a shift to place Regional or even Global compliance roles in China and I always call this, you know being at the


In the end of the spear business ethics and compliance is taking the center stage and many multinationals in China and this is reflected. Not only by the place it has in the boardroom. But also by the proactive strategies such as training and whistleblower management and tone from all levels of the organization not just tone from the top as we always hear. I've seen a lot of changes in compliance, especially in China and fortunately many if not all can be categorized as positive and trending upwards in the right direction.


So Chow as 10 kind of just referred to a lot of multinational companies are placing their Global head of compliance actually in China and Europe. Actually perfect example of that in your time at AstraZeneca. Can you talk about a little bit about why that shift has happened and and how companies have traditionally put Global functions in headquarters, but for compliance some are actually moving that role.


Here into China. Yeah, that's because since the China becomes more and more important and the big market for many complaints and many companies tend to set up compliance officers, especially responsible for China or Asia era Asia era, but however Global of course always want to have a more visibility in China and want to balance China markets at China CEO as well.


Which is normal, of course, so I see a lot of changes people started to put set up a new compliance Row in China. However, in my experience the global comprised had a still look at this position and have a very close supervision about China here and for people in internal Council internal compliance officer working for China Market, but reports


Directed to Global. It's very tricky predation. Basically the people really with experience much experience about International working environment a cultural difference and the understand the conflict of from western China Western a China, you know is the world and also understand the different value from China and the girl ball. So I think it's very hard job. Sure I can imagine.


So it's compliance in many ways is a very much a can sometimes be a thankless job. I know you're just always trying to prevent problems. I know when I was in house counsel compliance was under my was part of my role and and I always felt that it was an uphill battle to kind of win the hearts and minds of both people on the ground that you're working with and also to earn the trust of the headquarters as well. So not an easy.


Job, I'm sure especially in how setting how I wanted to stick with you and you know, particularly we can talk about the pharmaceutical industry. So as you were at AstraZeneca, and and of course one of the biggest compliance cases ever globally, but it's especially in China was the GSK case and that really highlighted how pharmaceutical pharmaceutical industry has always been.


On an elevated risk for compliance issues. I'm wondering if you could walk us through some of the risks compliance risks that are especially important for pharmaceutical companies in China as well as globally yes, fortunately I walk to for GSK for the compliance and legal counsel before they have the biggest before for many years. I know this company quite well, I have to tell I have to say from that event unto now though China developed.


It a lot from low development and the government's enforcement perspective as well. But the compliance risk, I think Stu still exist everywhere. Especially For Life Science company. I think the most risk areas are still with the corruption in cells and the conflict of interest data. Now, of course a data privacy and of Labor issues coming up lots and also risking our


And any Chinese farmer industry to get medicines into the list of the hospitals and to get the doctors prescribe your medicines in practice people tend to believe that they have to provide improper benefits to provide a Kickbacks for example to the Raptors and like we all well-known that like to Financial finance the doctor to attend academic International Conference to provide speak phrase to professionals Etc to donate donate funds Etc.


Ah, this is a quite normal approaches for most of Pharma companies to promote ourselves. In fact, so I think the corruption cells is to the big error and recently along with the boom of the E e-commerce a business like I hospitals or to cooperate with Jindo Ali Etc Rosie platforms how to comply with the global data privacy requirements to comply with Chinese laws regarding promotion activities.


Of drugs online that's a really new and big issue to order famicom planes and also regarding the data privacy and data protection in China. There are new concept as everybody knows not only for the Pharma company to other Industries. So I think in China before people don't have the idea about the data privacy data protection some quite remote to that now the cells people from the Pharma companies cannot connect to patients directly or two.


Connect the patient's information to doctors or other e-commerce platforms or any other third parties. So I think two other complains how to use how to stall or process the sensitive personal information is really a new Big Challenge to Pharma companies or to other or other complaints and it seems like pharmaceutical companies are just going from one compliance issue to another


Before like you said might have been more on the sales side. Although I'm sure that's still an issue and now suddenly data data privacy issues are coming up more and more no rest for the weary at pharmaceutical companies, especially on compliance issues turning a bit over to how accountants and lawyers work together because he was working on internal investigations. So I wonder if we could talk a little bit about how both accountants and lawyers can work together before we really get into that. I would first wanted to give Tim Tim a chance.


To walk us through a case study and maybe that that cooperation issue will come up along the way Tim. There's a great case that I've heard you discussed before and I thought for the bedding benefit of the audience, they'd love to hear a real case of kind of a transaction fraud and and a following a long trail of money, which is a lot of these cases often involved. So if you could walk the audience through that case, I'm sure they'd love to hear it the the industries.


Real estate and the organization is an overseas company that invested in China and has been here since the mid-90s at that time. They received a recommendation for a local local Chinese National to run the operations for them and the deal or the contract was signed on a handshake in this is quite the common approach back in the in the early 90s as a result. There was no paper based contract. It was more.


Relationship driven and there was no again. No contract was signed at the time of hire this gave the individual the general manager here in China a lot of freedom to move around the business build his relationships and make it more of his his own personal company rather than the company of the overseas headquarters now during this his tenure we found and discovered through the the review of the books and records and also the interviews that the company suffered an enormous amount of financial losses.


And the overseas shareholders were very suspected very suspect of the individual given the fact that it's real estate in the 90s and early 2000s. And usually that's kind of a cash cow if we've been as many of us have been around China at that time. We know that that's really one of the more profitable Industries at that time. And so there was a lot of red flags there was a little warning signs and this continued on for many years and we're talking suspected.


Transactions in the multi billions of RMB personal expenses being claimed for reimbursement and the multi-millions businesses were built again like this one on a handshake and what we discovered was that the individual and his family they basically own 31 companies and they had 13 related parties that provided services to him. Now many of those related parties were led by family members becauseand they were providing services to the very inflated rate back to the organization and then he was going back and using the company's profits to pay them now in terms of banking relationships the company borrowed over a billion in bank loans, and then they were using the funds. They were paying to the suspected Affiliates and they would pay back the principal at a very low number.


And have a high outstanding balance for many years. They would carry that and we rental prices in the in real estate that they were signed very low and there was really no corresponding rental income that was recorded in the accounting books and this continued for years and this continued for many years actually and then there was a ownership change in the company back at headquarters and the new owner came in and said, you know, I'd like to look at all the operations overseas and he didn't have any historical.


Background to his father's business was a family business and he said he wanted to kind of look at the different jurisdictions around the world where they have Investments and China was on the list. So all of these red flags started to get more parent and as a result, we were brought in to kind of do an accounting review for about five years time over the last five years.


And the findings were astonishing really in summary. What we discovered were were three areas the company really lacked compliance awareness the employees followed and executed all instructions from the GM. They ignored the interests of the company. They just agreed and they knew that their job was on the line if they disagreed with the general manager, so they really didn't have a sense or their ethical Compass or their moral standing in terms of compliance was just


It was don't seconds. There was a complete lack of financial management in the internal controls were broken. We had a lot of related rules and regulations that were not clearly defined. The ethics policy was never updated and a lot of business was done on a personal relationship without any type of accountability for the individuals.


Also related reporting some the related reporting system was not established. So everything rolled up to the general manager who was the ultimate decision maker and no one questioned it and then finally there was a tremendous risk management issue in terms of conflicts of interests. There was poor management of third parties distribution and the due diligence did not exist. It was all personal relations and there was a failure to regularly check other Financial interests of the employees, so


Lifestyle Changes took place. It was just regarded as part of doing business and that was an issue. So this case indeed was very complicated. It took several months to do and the lawyers got involved because there are some areas or Avenues such as speaking to the banks or speaking to other Regulators that certainly the forensic accountants don't have that channel to do so, we were working hand in hand with the external legal counsel, and we were also working closely with the clients back at headquarters.


To get direction and also share our insights based on the findings. I've always been you know fond of quotes from from folks in the past and there's a quote believe it or not that Albert Einstein said that said, you know, whoever is careless with the truth and small matters cannot be trusted with important matters and I think this really Rings True to this case are too because you're seeing individuals who were given a small job to do in the organization and they were desensitized to where the f


Old boundary was and then as a result of that they just continue to cross the line and they felt that they got away with it once and they could do it again and they have the support of the GM and as a result it snowballed into a tremendous case. The criminal case actually and has been now resolved with with it with a very high level of seriousness and attention given the headquarters and unfortunately, it's given the headquarter company a call.


Cause to really rethink business in China, fortunately we've seen over the last seven eight years the focus on cleaning up China in terms of integral option and making sure that the campaign is enforced. And so that's a positive step in the right direction. However, there's still a lot of Legacy issues that are lingering on such as this case and glad to be a part of it. Certainly we're not was not a nine-to-five job for several months, but it did end in a very positive way.


Thanks for that time. That is really a great story. I mean not a happy story, of course, but a story that shows a lot of the risks that that we we see in compliance in China and I actually wanted to have a follow-up question for both of you Tim and ciao this case that the 10 just walked us through we're sort of the some one of the issues that comes up is sort of the employees just kind of you know, whatever.


Whatever La Bonne says whatever the boss says is what is what we go with and and the employees don't necessarily question if there's related party transactions or if there's or the pricing or or that there might not be, you know, internal controls over transactions and looking at transactions and conflicts of interest. As you mentioned Tim is this I'm trying to give the audience who is less familiar.


Has China give the audience a sense of is this a uniquely China problem? Is it more pronounced in China? Is this kind of a common is this kind of a problem more common in China where sort of you have a top-down leadership structure even at a regional level within a bigger company in China and and Zack create more risk in for companies. Let's say subsidiaries of companies.


In there in there China subsidiaries here. Do you see these risks is uniquely pronounced in China?


Go ahead show. I'll follow thank you. Yeah, I are I think that's not a typical China issue. I think for any organization if the headquarter or the matter complain and then provided insufficient to visibility or come true to their subsidiaries or you know, like the top management only show trust but don't have the very effective.


Hello choose to provide a review their their subordinates has come true are management. I think Whenever there is a there is a resume for people to met Lou plate and for their own business or own or interest. I think this case is just quite typical everywhere. So I personally I don't see this is only a China or in an era. I think it is quite typical cases in everywhere. I have seen yet in please.


I would agree. I think in my experience and I believe you agree as well that it's truly a fine line between balancing and matching headquarters expectations 7,000 miles away in the reality of actually doing business in China. The market here is extremely competitive to get ahead and also there is a I would say a lack of accountability at the staff level in many cases.


In terms of tying kpis and performance measures to ethics and compliance. Yeah, so I want to end a little bit here. So from from for me, I think I see the more value from our our efforts and what we can help with our client is to help them to build up or set up on more robust data internal control system helps them to try to avoid those kind of issues or act incidents as much.


As possible and and it for also like we can help our clients to provide more ethic ethical training to Chinese stuff because everybody knows that China now is very economic is very active and people really working hard and you know chasing for financial benefits. So that also means in China compared with the Western countries like Europe Etc here. We have more salt.


All places for people to do more in compliance behavior that people have maybe have more motivation to take some chances, right? So that is also means the the the headquarters or top leadership or outside China. They need a better channel to understand and to communicate with local management or Chinese stuff how to influence them from from value from their culture from you know from the go. So that's very interesting. Actually this kind of things and I see they're changing. I see many many Chinese companies now that are the local headquarters take more efforts in compliance training ethical training and the feedback from employees also like third-party risk third-party management as well the study to have more sense more that's along with the order economic development of channel. Of course, that's very interesting.


Yeah, and it's become very critical, especially in the in the covid-19 or post covid-19 environment here in China, simply because a lot of the headquarters Executives and those that are looking at compliance with an eye on China don't have the don't have the luxury to fly into China these months. So they're trusting the local office with a lot of regulations and enforcement and implementations of their compliance policies. Whereas they could fly in such as the audit committee.


Or the CEO or the general manager from the front of the global compliance director could fly in once or twice a year to China and hold training and do an in-person evaluations that's missing this year. And so it's become even more of a greater challenge for those compliance professionals on the ground in China because they're doing not only the work of their day job, but they're also filling that Gap that couldn't be done by those who are flying in once or twice a year as well.


Exactly. Yeah, it just add one more and one more challenge to the to the plate of a regional compliance person on the ground here the on top of that of course not being able to also go to the local sites as easily even within China, right or if you're especially with it. Asia Regional role not being able to travel to the sites even if that's helpful from an investigation of I often found when I was in a in-house counsel.


And covering compliance for the for for our region. The FaceTime was really important also to develop some of those relationships with people that you need to build the kind of a rapport and trust and positive working relationship. So that when these issues do come up they can you you are very you're seen as approachable and someone that they can easily talk to so just no shortage of challenges for for compliance Professionals in general, but especially during these times of Covid.


So so Qiao you previously were a public prosecutor in China and I'm wondering if you can tell us a little bit about how that training and experience translated into being an effective compliance Council today. Thank you. I think the experience of being a public prosecutor for many years dealing with the significant of fellow Lee Hays has definitely helped me with how to establish a criminal case understand well about how the law enforcement and authorities in China, like police, of course do their jobs in their daily work and how they practice law in China and the way they dealing with matters and their way of thinking I think that's very important in practice and very helpful and valuable and also for my letter development as a lawyer career as you know,


No in China like a AIC so that law Authority governing other complete corporates and the like currently the new new New Market to supervise a supervisory Authority excetera. They are practicing their practicing administrative laws in China and can impose other Ministry. T''v palette. He's quite a significant amount and participants to the market. So but they are not they are not and courts write down our judges. We can help our clients communicate with law enforcement authorities based on our experience understanding their way of thinking and working which in China very very important and they are the in the first stage of legal proceedings are very useful.


If I also wanted to give child, so I want to give you a chance to talk a little bit about the view actually a chance to talk about little bit about how lawyers and accountants might work together. I think we have complementary skills and there's certainly some overlap obviously accountants are are very good at numbers and and and figuring out where numbers don't add up and and doing all kinds of tracing of transactions and so forth.


But that's obviously not the only thing they're good at and lawyers of course are good at kind of interrogations and and and finding a job when people are being let's say truthful or not and maybe have something to hide we have sort of that instinct that comes with our training from law school. So I'm curious when it comes to an internal investigation. How do you see the a very kind of complementary working style between forensic accountants and compliance attorneys


After you okay sure. Typically when a fraud is a discovered in an organization, the external counsel is contacted first. So we're right behind them and it's imperative that we work very hand-in-hand work very closely in hand in hand with the law firm. There are certain skill sets that overlap. There are certain skill sets and that complement as well in terms of interviews as


Darts, you know when we go in to conduct an investigation one of the early steps that we take the information gathering interviews will typically take lead in those to understand the situation on the ground get a picture of where the focus clients Focus needs to be and then also helps to determine, you know, where to drive the next steps for the next level of work. However, as we get closer to the end and the evidence is collected and we're ready to make a decision or advise the client to make a decision.


On what they would like to do the interview may turn contentious and could be a confrontational interview. And then this is where the law firm steps in and in many cases takes the lead in other cases supports the forensic accounting team with the evidence on the table presented to the individual or individuals. And then this way we're working very closely connections. As I mentioned in explaining the case study. There are certain connections that the law firms have.


That can facilitate or expediate the case. And as a result of that we lean on the law firms to help provide those connections and also access such as I said to the banks to freeze the accounts if there's an investigation taking place, the law firms usually can can do this in a very efficient manner for the forensic accountants. As you said certainly there is an element of accounting and


numbers crunching that takes place but beyond that we have technology that we insert into the investigation such as ediscovery or email reviews or Communications reviews that goes into the investigation work that typically will take the lead and be supported by the law firm because they'll be certain keywords that they'll be looking forward to help drive and push the direction of the investigation. So throughout all stages of the investigation from the very beginning of the phone call to the very end of the decisions such as confrontational interview we're working hand in hand with the law firms and it's very rare to see a case without one or the other. It's usually a case where both professionals are involved.


Yeah team. I kind of agree with that from my personal experience. I think you are right in big cases where there are accounting accountants and lawyers are always worked together for be cases especially for when there are some data involved or data analyze you need accountants or counting for a definitely more skillful and efficient.


And you know expertise expertise add to the like a just like you mentioned that you know review data analyzed the forensic research has very good about that. Personally. I cannot do that. So I always I always working with comments that you be cases where we need those analyze and and I think also accountants are very good about present present the analyze of come and use all of the tools to do.


Ooh that so that's that's very very helpful. I think on the other side the lawyers are very good at like making investigation plans and strategy according to the legal issues because their expertise right and the to focus on the evidence and fact-finding in most effective way. So just like Curtin mention that how sometimes work aside and help Drive the right direction for the investigation and


So lawyers basic and more focus on the evidence and the issue misconducts whether they are substantiate or not and how to organize them make the right decision in the very end. Honestly, I would suggest for significant cases at least lawyers should be the leader and the team work with accountants. I think that should be the best practice sounds like there's cases where where one were an accountant the a the the forensic accountant might take the lead as cases where the legal side may take the lead and there's cases where either could take the lead but sounds like overall the key is that you can't you cannot only use one without the other especially anything. I'm sure remotely complicated any kind of remotely complicated case will most surely involve both both Gathering the evidence and from a forensic standpoint as well as figuring out what to do with it what the patterns are and then making recommendations. And of course at the end, you also need you need a remedy. You need it. You need some you need something to happen to that individual now. I know sometimes it's companies May tend to just sort of dismiss a bad employee and and sign sort of some agreement a consent agreement that this everyone kind of forgets.


This case ever happened, but I know for a lot of very egregious cases, of course, you do need to make an example and it can be criminal of course and so in that case, obviously I think lawyers need to be involved in that in that part of the case. So when art ma'am step in and mention something as well related to what you just said sending a message throughout the organization is probably one of the most effective ways to enforce compliance without directly addressing compliance and inside out.


Side of the case, of course. The reason I say this is because I've seen so many times a company handle an internal investigation by just simply sweeping it under the rug and not taking proactive measures to ensure that it doesn't reoccur and as a result of that the employees who are in the organization can watch how management handles it and the same can be applied to a whistleblower allegation. If this takes place in the company does nothing or does very little to remedy the situation it's quite often. The employee will think this is how my management treats compliance. This is how my leaders view compliance. The result of that is disastrous. They are going to imagine that they can get away with anything. They're going to imagine that no matter what they do enforcement will not take place. And then the message is delivered to everyone that it's okay to live in a gray Zone and do what you need to do to get ahead and I've seen this time and time again and this is why it's so critical for internal compliance directors and those dealing in the business and ethics areas to really focus on continuous monitoring. This is an area that often gets under looked and and basically continuous training continuous monitoring always take a an approach of both being proactive and reactive at the same time. So I just wanted to say that because I know that you mentioned how you know, sometimes it does get overlooked and as a result of that it can have disastrous consequences for it organization.


Yeah, yeah. Yeah, I totally agree. I think this was yes. I totally agree. I think this is also the the big value for our investigation. I think from the good experienced investigator because during that investigation and to identify the systemic gaps, if any during the very end of the process and provide the root cause otherwise as to the management to the client and sometimes always I see like a continuous monitoring or continue with training or even and and some enhanced and Bad Manners. I think that most valuable inputs really fine experienced investigator and far work actually not only like finish a case investigation and to make a conclusion whether it's substantiate or not, but more from the systematic review to say whether the client Company Shooting have something or in something there systematical come true. But of course such investigator must have a sufficient knowledge and experience with the like fcpa requirement or UK at the property requirement that China's rather than the law's requirement at revenue interpretation knows what's the what's the threshold or what's the benchmark and from law interpretation and the understand the very well understand about the updated and updated a notice or requirement of found fcpa specially so they know when to stop the investigation and know what could be sufficient defenses for the clients when they in reality face of real changes by the law authorities sometimes so I think that's very very very important but also very difficult and job also investigators.


Mmm, absolutely. Yeah, and I imagine, you know in an in-house role there is and I'm sure you've experienced this as well child when you were in house, you know, there are a lot of cases which may not rise to the level of being sort of Blockbuster clear fcpa kind of cases where the you know, the Department of Justice if they found out about this is definitely going to let you know look look into it. There's there's I would call more kind of day-to-day kind of cases of let's say there's suspicion of side dealing or suspicion of Kickbacks or obviously those could potentially be fcpa cases as well. But I but one of the challenges I always thought there was for in-house counsel who see these issues at the at the very beginning at they're the first person did that this comes up to before it goes to external is that they have to make a judgment on how to handle these cases. Both to Tim's point. Do we do we kind of quietly exit this person knowing that especially under PRC labor law. It's very hard to terminate an employee without mutual consent. It's very hard to get a kind of Smoking Gun evidence of wrongdoing that be used under Chinese labor law to exit someone involuntarily. And so there's a constant tension in a within a company of well do we can we get evidence on this person? Do we even want to get the evidence on this person? Especially if it's behavior that involves a salesperson and a customer because that's obviously awkward with the customer as well. And so there was this constant corner corner cases or gray it cases, which don't have a clear answer on how the company should approach them. And I always found that it would be the kind of the knee-jerk reaction of many people was to say let's just sweep this under the rug pay the statutory Severance to the person under the law get them to sign a consent and that they will not raise anything about this issue and blah blah blah and I always felt that that was like you said Tim that that can send quite a bad message to the rest of the employees who are also watching what's how the company is handling this case and and and seeing that that in some ways it kind of tacitly not approves it but it's a little bit. It doesn't come down hard enough on these kinds of cases and only then encourages potential other Bad actors down the road. So I don't know if either of you had that kind of experience as well. Yeah. Yeah. Yeah. Yeah. I think what you have mentioned in the case scenario is really quite common in China yeah, and I have to say this is our value and this is really what we really can help the client because after doing all those many many cases like this I have to say though, even though the China label or it's very rich very difficult to apply in those cases to really give the company a solid evidence perspective to terminate immediately of such bad such.


And people with compliance issue. However, I think a good and experience the investigator knows how to handle and solve this problems. And for example, normally what we're doing is we're well after investigation and review of all the evidence from evidence point of view and even though maybe we don't have we don't have a good case.


Case in court, however, we have sufficient evidence to make a confident conclusion and help the clients make the decision. Anyway, we don't want this bad apple anyway, right and you can ask the HR to prepare in advance some documents related to the employment and during the investigation and experienced investigator know how to communicate with this Bank guy and and how


To convince this Bank guides for the makes what he has done wrongfully and to accept immediately the complaints come decision to finish in closing employment relationship immediately without any pay. So we actually we have done those kinds in quite successful in many many cases. So that's how to talk with those person. That's very it's very very key and we're of course. It's very scary experience.


I need a lot of experience and also for some cases if if we really want to turn turn this person into cards. I see in China many much can a multinational complaints rated value compliance and would like to pay somebody coffee or legal costs by any legal cause to just to get this bed up airport out and just into the good and strong message to all the other stuff that this is 0.


Tolerance yeah comprised issues zero tolerance and this is the gesture and attitude from the top management. We definitely want people out and we do well not welding to compromise or negotiate with these people even maybe the cultural role for the employed in some to some extent but that's a different matter. So that's that's very very important. And I totally agree with that. I think set up a good example of good case.


- and this is a good message to to the student employee, even though to the third parties to the business college Partners. That's very very important. Yeah.


I'd like to add something if I may I've worked in Professional Services with to accounting firms for almost 15 years. Now, most of that say 90% of that has been in here in China and in generally speaking generally speaking you want repeat clients you want customers to come back to you want to be that trusted advisor to them? However in forensic when a client comes back to you, it's could be indicative that they didn't really


Execute or follow up on the recommendations that were made from the first investigation and so in some cases when a client calls me and says we've got a problem that is a sign that perhaps the issues internally from a controls perspective is definitely a red flag that needs to be tightened and is automatically written into the recommendations. So while it's important to have recurring quark and repeat clients, I can tell you in the forensic space.


It's always a sign of caution when I get clients that come back and say, you know, it's happened again, and I've had that happen. I've had companies call me and say yes, you completed the investigation. Yes, we're satisfied with your results. No, we didn't follow up on the recommendations that you made and now I'm calling you once again for more support. And so it's kind of a gray area in terms of you know, serving clients because you want to make sure that they follow up in and conduct the recommendations that you provide them but there is all these the reality that they can and often call you back and say no. So a lot of factors could be cost could be management priorities could be internal politics that could be a lot of reasons why recommendations are implemented inside the company once an investigation has been concluded but we do have the responsibility as professional service providers to give them recommendations and share our insights from a legal perspective.


Accounting perspective from a forensic perspective to share with them, you know what needs to be implemented from now on not to eliminate risk because the term risk elimination is almost it's almost an impossible goal. I think the really we should focus on mitigating the risk making sure that we are within our boundaries to legally do the best we can to reduce or mitigate the risk that comes to the clients. So again, the I guess the key takeaway is it's great to see repeat clients, but in the forensic space, you know, it's not always a good sign I guess.


So absolutely down there. That's a good that's a good point in and been a bit ironic. I suppose that if you if you do your job as well as you can which you should in theory. You shouldn't have too much too much repeat business. Of course, obviously, you said risks can never be totally eliminated and staff changes and budget constraints and so forth.


So Qiao, can you walk us also through at an even deeper level some of the things that you go through when you're doing internal investigations? Yeah. Yeah. Thank you. Yeah, so actually first of all, I think the good and experienced investigator and should know when to stop and investigation and internally because you know, we cannot have endless resources and we don't have time and the budget issue excetera and most important is you know, if we dig into further and further, we always can find out more and more problems. Right? So when to stop and internal investigations always a question to the investigators and for the client, I can give an example here and a whistle blower report about a sales team provided Kickbacks to some doctors of four cells. We investigate in substantiated this case but more difficult part.


What is the stakeholders want to understand this whether we need to worry about more sales team or more such people are involved in the same kind of me this misbehavior. And or sometimes they don't feel comfortable and think maybe we need to investigate it more or sample to more simple review for more such people and so to help client determine this whistleblower case in ad is


The independent case or client actually have a broader issue. That's that's very question. And so, you know something like this is so you need to get your new to make an assessment about whether you can stop just to substantiate the the in the incident or you need to expect help client to determine his explained the investigation scope and when you to continue, this is some use very normal case.


Okay, great. Thanks. Ciao. And can you actually share even some specific cases with us? Oh sure. Yeah, maybe this case is very interesting is that this case happened in sure Lanka? We help client to do the annual review their about their distributors in this market and as there is a whistle-blower report indicating that one distributor provider Kickbacks to the local hospitals. And of course the distributor didn't Delight the fact that in.


They didn't do like the fact that because they think it's normal practice locally, but also the defendant that their own internal policy company policy actually allowed ourselves people to do so in local. Yeah, so there came up a question about whether we can review the distributor's policy, right, you know, because we can definitely whether we can ask them to provide their policies for us to review or whether we construct them to change their


Policy that's arguable issue there interesting thing is we consulted the local legal counsel that the liquid local legal counsels view is that we cannot review third-party internal business at that moment. I disagree and thought this local legal opinion might have some leak there as long as they are engaged as our clients distributor. As long as there is a course in the two parties the distributor relationship agreement. Let's as audio, right and as a distributor has to comply with our clients compliance requirement and follow our clients internal policy regarding complies the distributor cannot just have set up their own policy and allow yourself people to do the contrary. You understand right? Because from the fcpa is and requirement and the Distributors any third party that will be regarded as the agents. Yes, it is.


Our agency agent Theory they're so so this case inner streets that first we have to try our best to efforts to understand. The client is internal policy very well, but secondly how to handle the third-party risk management is very important to actually is now user is top priority in the compliance review for work. So also Chow when you're doing investigations how much of some of the cultural differences do you see coming?


When you're doing those investigations, oh, yeah, actually, we do see a lot of cultural difference, right which is understandable. I can share some examples about the tricks of doing when we're dealing with cultural difference matters in our investigation here. For example, like harassment and bullying. Yeah. I think that's very remote concept for most of Chinese people's and Chinese companies, but the point here is 1/2 harassment and bullying is very normal for foreign companies. Right? So when you doing some investigation dealing with such issues relating to harassment and bullying you really need to understand the true difference between the west and China so you can understand the predicted response and expectations from the stakeholders from the company. I have done one cases the company provided the one Australia lady.


Who is the actually come to earn label employed in China? So that means she is employed as a Chinese slave labor contract labor contract. So but the lady just the reserves on complaint about harassment and bullying and the she asked for two weeks of garden leave, you know, because he/she feel not comfortable which sounds very crazy and unacceptable for Chinese yeah management, right because you just raised up or report about the bullying or harassment and nothing has been concluded and the you ask the already asked for two weeks ago leave, especially if you are in the very high position and they pay you a lot of compensation package you just so you know, but for the foreigner stakeholders, that seems very understandable and they have no problem to ground two weeks of gardening leave for Chinese management to that's that's the sounds like edit you know, but in the meantime what we do the investigation and how can we make our findings and conclusions let the client which buying especially the global headquarters by in our views based on Chinese environments and China Asia culture, right? That's very challenge. I think for internal and external counsel about the compliance issue here. Yeah, so that's that's interesting. Yeah and one issue we talked about before recording was the issue of legal privilege. How does that come up particularly in the work that lawyers do when they're doing investigations? Yeah. Yeah. Actually that's I think it's one of the advantages when you hire a lawyer to be investigator rather than I just accountants, you know, because you can call Legal privilege, but that's also very tricky part because we all know that email correspondence between the council and the internal stuff where we have the it.


Male marked as a strictly confidential in entitled with the legal privilege. Normally we were kept this remarking on the top of the image array. So this means you think that privileged but in fact, you know, this is sometimes will be challenged and not be accepted by the US government because they were really look at the real constant of this email to see whether it's should be


To the legal privileges. So that's that's very very note to us that you don't think take for granted that if your Market strictly confidential big privilege, that means your protect all the communications. Well not fall into the hands of law authorities enforcement letter. So as a lawyer, I think when we do investigation, we have more experience how to handle those those situations.


And here I want to also point out that even for internal Council when internal counsel during the communication between the internal counsel with their staff their email communication even marked with the legal privilege or also not be granted as a legal privilege for sure. So we really need need to advance that. I'm Versailles skier to you know to differentiate and be careful about the way you use as such a privilege here.


It's frickin hot. I think any an experienced investigator. It's very important to handle those and sometimes non-lawyers in companies may think that it's something to talking to a lawyer even if it internal Warrior everything they say is privileged because that's what they watch on TV or the movies but that's not always the case. Yeah. Yeah. Okay. That's right. And I won't and here is the you know passing I think the root cause analysis also very important to investigate.


internal investigation because I think fact-finding and to get conclusion about whether whistleblower report is substantial not is just one part, but for client the most interesting part is about root cause and allies and you can help them to think about whether they need to prove improve or enhance some part due to the systematic gaps there which I think that's more valuable for hence, when they facing fcpa or UK at the bribery challenges there. Yeah in the end the clients to need to defend himself and the shows of government Authority that they have robust internal system come true. As long as they can do that. They always can have a good case when they have fcpa challenge there, you know, so from internal investigation, I think the lawyer or very expensive investigator can really based on the requirement and updated requirement from the EPA to have review the systematic control system for clients based on the invest fact-finding found return investigation. I think that part actually for me my view is most valuable Parts when you help clients during investigation to maybe the Department of Justice or the SEC knows that you're no company is perfect and they even the best systems. There's going to be some bad actors and bad apples. Oh definitely, but if the if if you show that you don't even have a robust system, then sometimes the punishment I guess like you said will be harsher because you need to send a message to the company that they need to change. Yes. Exactly. So so actually of course part of the doing investigation is part of your defense, right? So that means your hand over your issues in proper way in timely way and when and how you get lessons from the investigation and immediately take some and Mayors and recommended by the lawyer.


Order by the investigator. There's also some show some good faith to the authority and Lloyd George a lawyer is on the front end can be help designing designing at that system that place in the first place, right? Yeah. Yeah. This is exactly what I want to emphasize here. I think that's the most valuable and helpful point for lawyer here. Well, thank you both. I mean we're coming up on on the hour and it's been a really a fantastic discussion.


And I loved that we had both of you on and could really complement each other both with the stories that you've mentioned. But also how both forensic accountants and lawyers can work together on internal investigations. And I think we probably answered a lot of people's questions and giving people a different perspective on how compliance works here in China and how what kind of professionals are engaged in that process and how we all work together to help our clients. So and you're both on LinkedIn as well.