The laws and regulations governing the shipment of alcohol vary by U.S. state depending on, for example, whether or not the shipper is a licensed dealer, manufacturer or seller and whether the receiver is over a specific age, usually 21 years old.  These were two legal reasons – in addition to several strategic business ones – that a national chain of gourmet food stores expressly forbid their franchisees to sell or ship liquor products of any kind.

A Corporate Investigation Is Triggered

So, when the U.S. Postal Service alerted the company that it had intercepted and confiscated multiple packages sent from three of the company’s franchisee branches, the COO began wondering how extensive the problem might be – and commissioned Hillard Heintze, its long-standing external advisor on security and investigative matters, to undertake an independent corporate investigation.

Research, Surveillance, Assessment and a Sting Operation

Hillard Heintze’s first task was to determine if any additional franchise branches were shipping alcohol and, where possible, to place and receive an online order for a liquor product from each of these locations. Through site assessments at 16 locations in ten states, surveillance and other methods, Hillard Heintze also conducted an investigation to determine whether these branches were using other carriers for shipment.

Court-Admissible Evidence and Expert Witnesses

This corporate investigation helped the management of this national gourmet food chain crack down on illicit shipments of liquor and alcohol-related products.  It also provided the company with information that supported several different avenues of redress and response.  These included court-admissible evidence and expert witnesses to the general counsel’s office to support options ranging from cancellation or renegotiation of franchisee contracts; the possible filing of a lawsuit; and potential referral to federal, state and local law enforcement authorities.

Unplugged: The Project Manager’s Perspective

“Like many of our assignments from clients, this was a phased engagement. It started quickly – and urgently – when the company needed to determine how extensive this illicit practice might be. As information of interest emerged, we provided continuous updates to the general counsel’s office through phone calls, emails and status reports. Once the company gained confidence that it understood the scope of the challenge, it authorized several additional phases of this corporate investigation and due diligence engagement.  And it may still ask us to support their attorneys with expert witnesses.”

The ACTION WEDNESDAY Tool Box: Two Key Take-Aways

  • Review your governance and risk management processes – from self-reporting protocols to data-triggered tripwires and internal audit alerts:  
  • Understand the benefits of an external and independent investigative team: If you support an enterprise with substantial operational complexity – say, more than $500 million in revenue – then it is highly likely that your corporate security and investigative team is undertaking investigations on a constant basis.  Not all of these are best addressed by your in-house team. Understand the factors that can make independent review and support a crucial contributor to superior security risk management outcomes. Like what?  Independence, for one.  Objectivity and freedom from internal issues and agendas.  Credibility across stakeholder groups with competing agendas.  Special areas of expertise not resident on your in-house team. Availability of “surge” support when your team has little capacity.  The benefits depend on your goals and priorities and your particular resource constraints.

 (What’s it like on the front line supporting the firm’s clients?  What are the challenges the firm’s experts help senior business executives, general counsel, board members and other decision-makers address?  Welcome to ACTION WEDNESDAY.  Every Wednesday, the Front Line Blog publishes a new case study.)