Factors Contributing to the Rise of Internal Investigations and Litigations
Today the number of internal investigations and litigations conducted by enterprises and organizations
has definitely increased. The rise of corporate investigations and lawsuits can be attributed to several
factors, the most significant being economic downturn, tighter regulations, whistleblowers and
bankruptcies. Let us see how these factors are contributing to the rise of internal investigations and
The economic downturn of 2008 was like a bolt from the blue for many business owners and
entrepreneurs. The great economic freedom and stability suddenly faded away, and in its place they
were confronted with financial restraints and insecurity. Even as some business entrepreneurs tried to
stand their ground, they found that making it through the tide was even more difficult. Since the survival
of their businesses was threatened, they had no other choice but to make some harsh decisions. This
exacerbated criminal misconduct on the part of management and employees alike. For instance, in the
case of employees, as corporate resorted to downsizing as a means of survival, employees in all
businesses felt the threat of being laid off. The decline in wages, mortgage issues and rising gas and food
prices all increased fraudulent activities like skimming and check tampering, to name a few.
Business owners and entrepreneurs under financial pressure made some unsympathetic decisions that
proved detrimental. One example was cutting costs on risk management issues, which thereby
jeopardized companies' security environments. This unfortunately gave sufficient opportunities for the
management to commit fraud or break laws.
The increase in corporate scandals such as Enron, Tyco International, Adelphia, Peregrine Systems and
WorldCom resulted in the enactment of stricter laws and regulations to prevent fraudulent activities.
The most prominent among these laws is the Sarbanes-Oxley Act of 2002, also known as the 'Public
Company Accounting Reform and Investor Protection Act' and the 'Corporate and Auditing
Accountability and Responsibility Act'. This IT regulatory compliance act clearly explained the corporate
board's responsibilities and the criminal penalties if companies failed to comply with the law.
Whistleblowers are people who report the criminal misconduct of others within an organization. Most
whistleblowers are internal whistleblowers who complain of misconduct by their fellow employees. In
the past they would face retaliation either from the people they complained about or from the
organization. This led to the formulation of Whistleblower Protection, an important aspect of the
Sarbanes-Oxley act, which states that enterprises and organizations cannot "discharge, demote,
suspend, threaten, harass, or in any manner discriminate against" a whistleblower-employee. And if any
such action were taken, the employer would have to pay a large fine and could face ten years in prison.
Entrepreneurs often resort to impractical ways to save their struggling businesses, like hiding their true
financial situation from their partners and shareholders. The reasons for declaring bankruptcy can be
diverse -- avoiding staff reductions, protecting company reputation, obtaining credit, raising debt or
equity and so on. Although bankruptcy is considered a temporary measure, sometimes there may be
fraudulent intentions the decision by companies who fail to regain their financial stability.
The year 2010 had seen an upward trend in internal investigations and subsequent lawsuits, and 2011
will not be different as the factors that fuel investigations and litigations continue to exist. In such a
scenario, business owners and entrepreneurs should invest in effective eDiscovery tools that help
enhance the effectiveness of corporate investigations while reducing the duration and cost.
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