"Global companies are increasingly facing an overload of data. Experts forecast that there will soon be one trillion internet-connected devices in the world. The large volumes of information being created and stored are also putting pressure on companies' IT infrastructure. Poor handling and storage of this data can potentially damage a company's reputation and ultimately its balance sheet."
Investigations Raise the Stakes
"Anti-bribery and anti-corruption investigations in China, Hong Kong and abroad are raising the stakes even further. Regulators expect robust investigative processes, and the discovery and production of documents in response to documentation requests and subpoenas in ever-shortening time frames. Multinational companies with operations in the United States that run afoul of the US Foreign Corrupt Practices Act (FCPA),for example, frequently find themselves having to demonstrate that they have conducted a rigorous and meaningful investigation of the issues at hand to US regulators such as the Department of Justice and the Securities and Exchange Commission. Chinese companies seeking overseas listings or with outbound investments in highly regulated markets also need to prepare themselves for compliance with relevant antitrust, anti-bribery, data privacy and similar laws."
"This raises the question of the best way to navigate and analyse the sheer volume of corporate information maintained by businesses at home and abroad. The process of collecting and analyzing the information can be a logistical nightmare with high human and financial costs. More information leads to greater potential liability, and each case forces companies to collect and analyze their potentially relevant information for documents specific to the issues being investigated. Collecting, culling, analyzing, and producing the required information electronically is generically known as electronic discovery (e-discovery)."
"The challenge, in its simplest form, is for companies to apply a methodology to reduce perhaps several million pages of paper documents and hundreds or thousands of terabytes of data to a form that can be stored or submitted to an investigating authority. E-discovery allows companies to apply standard approaches, tailored to the specifics of the issues being investigated, to index the information efficiently and search the information for key words and phrases to produce the required information. The methodology has to conform to industry standards and satisfy any investigating regulatory body that may be involved, a court, or potentially third parties, depending on the circumstances."
"The key words and phrases need to be broad enough to return the information being sought, but narrow enough to produce an information set that won't take years to review. Once the information set has been identified, a manual review process is normally performed by experts on the subject matter and/or the companies’ lawyers before information is produced to ensure only relevant and unprivileged information is provided."
"Global companies are increasingly recognizing that e-discovery can be used in more circumstances than simply responding to litigation. Without a sound process in place, e-discovery can become exceedingly complicated, even more so for companies those operate across different jurisdictions."
Concerns in China
"We see a rapid evolution of e-discovery in China, particularly due to growing concern about the risk of inadvertently exporting state secrets across borders."
"Data privacy is a concern, as is the potential leakage of state secrets to foreign parties. Large-scale investigations are often triggered by suspected violations by companies in China of foreign anti-bribery and anti-corruption laws such as the FCPA and the UK Bribery Act."
"When Chinese companies list on international stock exchanges, they are required to comply with rules of the international exchanges and associated laws and regulations such as the US Sarbanes Oxley Act and International Financial Reporting Standards. Chinese banks with international business are required to comply with additional laws and regulations such as monitoring for money laundering, corruption and cash leakage. Banks are therefore among the first adopters of forensic technology."
Proactive and Reactive
"Companies can adopt both a proactive and reactive approach to internal investigations. If a company suspects an employee of suspicious behavior, there is potential for a negative impact on its corporate reputation. Looking at email correspondence and reviewing expenditure items around marketing, cash payments and consultants’ fees can sometimes identify irregularities. Technology can facilitate that process by taking a large mass of data and condensing it to a manageable amount."
"At times, companies may need advice after identifying a risk of cash leakage in procurement, for example. Perhaps their procurement personnel may be taking kickbacks for personal gain or inflating inventory in order to manipulate the balance sheet and affect company profits. There may be no specific allegation, but the company may have identified an internal risk and may want help to develop monitoring procedures which flag any unusual activity. In this situation, the company may need certain types of software or routine analysis of data to see if any transactions are red flagged for potential fraud activities. On the reactive side, there is usually a crisis in the company, for example if somebody has filed a complaint with the regulatory body or evidence has been uncovered of misconduct. In either case, the facts need to be determined to flesh out the allegations or dispel them, i.e. the data needs to be analyzed."
"There are substantial reputation risks for companies that are not able to respond swiftly to any potential regulatory enquiries. This issue can also impact a company's balance sheet. There is therefore, an opportunity for companies to implement an e-discovery application that aligns with their business strategies, instead of just taking a reactive approach. It is important to have processes in place that can condense a large amount of data into a manageable quantity and be able to identify unusual information."