Fraud investigations

The officers of joint-stock companies are required to apply the diligence of a prudent and conscientious manager in their actions to meet all requirements under company law. This due diligence is made tangible by the Neubürger judgment (Munich Regional Court I, 10 December 2013) with respect to compliance violations, which clearly states that companies must be organised and monitored so as to prevent legal violations through functional compliance systems. In addition to preventing fraud cases, such a compliance system also includes an appropriate response – for example, in the form of a fraud investigation. The investigation results often form the basis for asset recovery, where the legal representatives can meet their duty of care in a special way, especially in case of significant damage. For a variety of reasons, a fraud investigation is not necessarily carried out by state investigators but also by investigations of audit firms and/or law firms (private investigations). In some cases, government and private investigations take place in parallel since they can complement each other; however, this requires close coordination. Private investigations can often take place more quickly, and focus more on the company’s interest in elucidation than government investigations, thus effectively contributing toward preventing liability on the part of the company officers involved. However, state investigators can use intervention management methods (e.g. house searches) to secure results in various areas that private investigators cannot obtain for privacy reasons. Whether private investigations are to replace or supplement state investigations is something that must be carefully considered in each individual case. Private investigations, which are covered below, serve to shed light on various offences at home and abroad. They include embezzlement, corruption in procurement and sales, cartels, embargo violations and balance sheet manipulations.

In terms of methods, various fraud investigations rely on a variety of research methods – for example, forensic interviews, mass data analysis, scrutiny of documents, identifying ties between natural and legal persons, and IT forensic investigations. In IT forensic investigations, the data residing on computers and hard discs are processed and evaluated using forensic methods.

The results of these fraud investigations can be forensically documented and thus used as evidence in court.

In conclusion, it can be said that fraud investigations are carried out to clarify an initial suspicion regarding illegal business dealings to the benefit of the enterprise concerned, and to put the legal representatives in a position to make claims for damages. The damage need not be reclaimed directly from the perpetrators; instead the claims can be offset by fidelity loss insurance. For the purposes of compliance duties, the legal representatives of the joint-stock company are also required to eliminate such vulnerabilities in the context of remedial measures that promoted the occurrence of the infringement.