Department for Trade and Industry Investigations

Most companies have little cause to fear that they may become the subject of an investigation into the company's affairs. Most directors and compliance professionals believe that such powers are reserved for companies beyond the pale, which are either engaged in fraudulent activities or insolvent, or both. Although they may never be on the receiving end of what is known in the trade as a dawn raid most business people have at some point received a complaint that the product they are selling, or the service they are providing, is really not all that it's cracked up to be. Are the customers or clients really satisfied we may at times wonder? If not, there are a number of specialist agencies that the general public can go to in order to make their complaints known.

In a series of short articles, Sarah Cleary of Irwin Mitchell will advise on the basic legal principles and pitfalls to watch out for should your business become the subject of an investigation by one of the Governments regulatory authorities.

Fraud and regulatory investigations

This week we start with the Department of Trade and Industry whose web site describes an Organisation protecting investors, suppliers or consumers from unscrupulous business practices, thereby preserving public confidence in the market place. Most investigations arise out of a dispute between individuals and the company sometimes even shareholders, management, or disgruntled ex employees. Many respectable companies in fact receive a visit from the DTI.

The Companies Investigations branch is the regulatory and prosecuting arm of the DTI and initial inspections that tend to take place in the background, can escalate and become full scale investigations which in turn can lead to the institution of criminal proceedings either directly from the department or by referring the case to one of the other prosecuting authorities like the Serious Fraud Office. Although they do not claim to carry out criminal investigations, and only rarely prosecute cases in the Crown Court, they commonly liaise with the police if they suspect malpractice and provide evidence that supports a prosecution.

The DTI has wide ranging statutory and compulsory powers to make extensive enquiries and to order relevant company documents to be produced, and force directors and others within the explain such documents or their whereabouts. It is a criminal offence not to co-operate, or to mislead the investigators. Shredding and destroying documents (in an Enron/Arthur Anderson style) is also a criminal offence.

Fraud investigation

In recent years, probably as a result of the nine year £8.5 million pound public investigation into the Mirror Group, new investigatory powers have enabled those investigating not only to force company directors and those in managerial positions to produce documents and answer questions, but to force those working with the company on a third party basis and its customers to part with the information. Basically anyone who the investigator thinks may have relevant information or material can be compelled to provide it.

This means that, whereas in the past the DTI had access to only those documents that the company disclosed to them, we can almost assume now that they have already seen company bank accounts, accountancy documents and even e-mails when they arrive at the company's premises unannounced. The danger is that , if an Officer of the company answers questions which are at odds with the documents already obtained (whether consciously or not), it may give those investigating ammunition to:

• Wind up the company as they did in February this year to a dodgy London web site ticket agency
• Disqualify individuals from acting as directors for up to 15 years as they did in February this year to a West Yorkshire kitchen design company director
• Prosecute themselves as they did successfully last December in the Daily Mirror City Slickers insider dealing case
• Refer matters to those prosecuting authorities with bigger sticks as they did with West Yorkshire finance company Anglo American

It is not only disreputable companies that are in the firing line. At the same be assured that most complaints and investigations come to nothing and disappear as suddenly as they appear. Although you will not be expected to pay for the investigators time, and you will certainly not be allowed access to the internal records created or to the final report submitted to the Secretary of State, it is wise to invest a little time and perhaps company monies instructing those who can at least interpret the jargon, read between the lines and liaise with the specific breed of civil servant carrying the s447 Companies Act Notice in the hope that something bigger and altogether nastier is averted.