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Responding to employee fraud: Managing the employment investigation and asset recovery options
 

Responding to employee fraud: Managing the employment investigation and asset recovery options

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Presented by Dentons' Toronto Partners Blair McCreadie and Mark Evans on May 1, 2014 at the Dentons' Spring Employment and Labour law update seminar.

Presented by Dentons' Toronto Partners Blair McCreadie and Mark Evans on May 1, 2014 at the Dentons' Spring Employment and Labour law update seminar.

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    Responding to employee fraud: Managing the employment investigation and asset recovery options Responding to employee fraud: Managing the employment investigation and asset recovery options Presentation Transcript

    • Responding to employee fraud: managing the employment investigation and asset recovery options 1 May 2014 Dentons Canada LLP Blair McCreadie Mark Evans Partner Partner
    • Fact scenario 1 May 2014 2 1. YYZ Co. is a commercial property manager. Lisa Smith has been employed by YYZ Co. for 15 years – the last five years in the role of Regional Property Manager earning $100,000/yr. Smith resides in Toronto 2. Among her many roles and responsibilities, Smith is responsible for overseeing capital improvement projects, tenant build outs and renovations and contracting out work to be done on YYZ Co.’s various premises. The expenditures for such work (by both YYZ Co. and tenants) are approximately $3 million annually 3. Unbeknownst to YYZ Co., over the last five years and through a kickback scheme entered into with various contractors (including her husband), Smith has misappropriated approximately $2.0 million for her own use and benefit 4. Smith and her husband live a lavish lifestyle. The family home, a Muskoka cottage, expensive cars and several Canadian bank accounts are held in their names. There is the suggestion of accounts, property and other assets in different jurisdictions. This has led YYZ Co. to become suspicious Dentons Canada LLP
    • Planning and coordination 1 May 2014 3 Addressing the Employment Issues --- How to Complete a Fair and Effective Workplace Investigation Asset Recovery --- Speed, Stealth, Layering and Canadian Investigative and Freezing Orders Dentons Canada LLP
    • Responding to employee fraud: 41 May 2014 The HR perspective Dentons Canada LLP
    • The workplace investigation: first principles 1 May 2014 5 • Employers have an obligation to conduct a fair and effective workplace investigation, particularly where the alleged misconduct may result in termination of employment • Courts, arbitrators and tribunals will also impose a duty of procedural fairness on the employer in the conduct of the investigation, including the right of the employee to hear and respond to allegations against them before making any decision • Recognize that an objective investigation will take some time, so in the interim, do not reach any conclusions before getting the facts Dentons Canada LLP
    • Initial steps in the workplace investigation 1 May 2014 6 • With allegations of fraud, a formal workplace investigation is required • Carefully consider who will lead your investigation – i.e. internal resource, external counsel, external consultant • Choose an investigation lead who will be seen as impartial and objective, with the right expertise • Before commencing the investigation, review any applicable workplace policies or codes of conduct and, if unionized, the collective agreement • Determine whether they impose any additional requirements or set any timelines for the investigation and, if so, comply with them Dentons Canada LLP
    • Starting the workplace investigation 1 May 2014 7 • When responding to allegation of employee fraud, key decision is timing of notice to the suspected employee • Co-ordinate timing around asset recovery proceedings • Take pro-active steps to preserve what evidence may be available to you • Issue written notice to suspected employee to put them on immediate paid leave pending outcome of investigation • Confirm any temporary changes to employment (i.e. do not report for work, no remote access, return office keys/passes) • Caution against any interference with investigation by contacting potential witnesses and warn against reprisal • Remind employee of any available EAP services • Identify the individuals who will need to be interviewed as part of the investigation and set the order of the interviews Dentons Canada LLP
    • Confronting the suspected employee 1 May 2014 8 • Before meeting with employee, you should first gather facts and key documents from the other witnesses • Advance preparation is key – make sure that you ask about each material allegation that you may rely upon, with particulars • Review all interview scripts to confirm that questions are neutrally framed, and do not use “loaded” language that suggests that a conclusion is already made • Remember that the purpose of the meeting is to gather information and to confirm the employee’s version of events, so control your emotions • Two company representatives present; one should take “verbatim” notes • Right to representation – unionized vs. non-unionized • What if employee refuses to participate? Dentons Canada LLP
    • Completing the investigation 1 May 2014 9 • After confronting the employee, consider whether additional interviews are required to assess credibility of explanation or to deal with other allegations that came to light • Prepare written report at the conclusion of investigation, even if only a short summary memorandum • Set out complete, accurate and objective summary of allegations and evidence • Set out conclusions of fact reached, and any findings of credibility • Discussion of recommended course of action should be kept separately • Then prepare letter to advise the employee of outcome of investigation and decided course of action (e.g. termination of employment) Dentons Canada LLP
    • Some related points 1 May 2014 10 • Any decision to seek civil or criminal remedies should be kept independent of decision to terminate employment • Employer has no positive legal obligation to report to police, but consider possible public relations issues or requirements of insurers • If you decide to go to police before you have completed your internal investigation, then seek direction from police so as to avoid interfering in any way with criminal investigation • Review insurance policies for “employee fraud” coverage – be aware of any limitations on the policy and any reporting deadlines to preserve insurance coverage Dentons Canada LLP
    • Responding to employee fraud: 111 May 2014 Recovery of assets Dentons Canada LLP
    • Asset recovery - victim 1 May 2014 12 • Knows the money is gone • Circumstances are suspicious • Has very little evidence about how it disappeared or where it went • Typically that information is in the hands of the fraudster or third parties • Cannot move as quickly as the money can • Believes it will be prohibitively expensive to recover the money • Believes the fraudster will have their money to fight a defence Dentons Canada LLP
    • Planning and coordination 1 May 2014 13 • Move quickly • Find the basic information • Follow the money • Identify the players and the assets • Separate the fraudsters from the money/assets • Repatriate the assets to the victims Dentons Canada LLP
    • Co-ordinating your team of advisors 1 May 2014 14 • Legal counsel (internal and/or external) • Private investigators • Forensic accountants • Electronic/computer forensics • Law enforcement in some jurisdictions • Privilege issues Dentons Canada LLP
    • Build the case 1 May 2014 15 • Open source intelligence • Private investigators • Profile targets • Build the case to show judicial assistance required Dentons Canada LLP
    • Follow the money 1 May 2014 16 • Stolen property belongs to the victim – a proprietary interest • Norwich Pharmacal/Banker’s Trust Orders • Often called Disclosure Orders: • Direct third parties to provide information • Without disclosing existence of or compliance with order • All done covertly • Leads to bank accounts, assets, potential targets • Story starts to emerge • Demonstrates origin of assets and beneficial ownership Dentons Canada LLP
    • Layering orders 1 May 2014 17 • Disclosure orders can be obtained and enforced in series, as assets and accounts are discovered • May lead to discovery of assets in other jurisdictions • Requests for Judicial Assistance/Letters Rogatory • Common law/civil law jurisdictions have different approaches and need to be employed differently Dentons Canada LLP
    • Separate the fraudster from the money 1 May 2014 18 • Freezing and Preservation Orders (vs. Mareva injunctions) • Co-ordinated in all jurisdictions • “Freeze” the assets and prevent fraudsters from access or use • Again co-ordinated through Requests for Judicial Assistance/Letters Rogatory – and ancillary proceedings if required • Related relief: Anton Pillar orders (civil search warrants) • Stand and deliver orders • Review of electronic and hard records • Preservation of evidence Dentons Canada LLP
    • Thank you! Blair McCreadie Partner, Dentons Canada LLP D +1 416 863 4532 blair.mccreadie@dentons.com © 2014 Dentons. Dentons is a global legal practice providing client services worldwide through its member firms and affiliates. This document is not designed to provide legal or other advice and you should not take, or refrain from taking, action based on its content. We are providing information to you on the basis you agree to keep it confidential. If you give us confidential information but do not instruct or retain us, we may act for another client on any matter to which that confidential information may be relevant. Please see dentons.com for Legal Notices Mark Evans Partner, Dentons Canada LLP D +1 416 863 4453 mark.evans@dentons.com