Bottom-Up: An Alternative Approach for Investigating Corporate Malfeasance

Abstract

At least since the Enron scandal, the government has focused intensive efforts on developing a strategy to investigate and prosecute corporate malfeasance. The prevailing method has been a “top-down” approach: government agents provide companies with incentives to conduct internal investigations, coerce employee cooperation, and disclose privileged information. Although many have expressed concern about violations of constitutional rights and erosions of privilege, the current system faces another critical problem: the top-down strategy will become less effective at unraveling corporate fraud as employees learn that it is not in their interest to cooperate. Further, the approach aims deterrence at the wrong people – it does not focus on high corporate officials who often orchestrate and tolerate the wrongdoing, but instead focuses on employees who participate in the unlawful acts. A “bottom-up” approach, long used by government agencies in rooting out criminal behavior in other areas, particularly drug enforcement, would encourage employee cooperation and focus enforcement on the appropriate actors. There is every reason to believe that a bottom-up strategy would be an effective supplement to the top-down approach that currently predominates in the corporate world. Indeed, the first and to date only internal investigation completed using an amnesty program which protected cooperating employees from adverse employment actions has proven successful in encouraging employee cooperation and unraveling the web of corporate fraud.

Keywords: corporate fraud, corporate malfeasance, internal investigation, government investigation, Filip Memo, Thompson Memo, McNulty Memo, enforcement manual, seaboard report, attorney-client privilege protection act, Siemens investigation