In recent months, we’ve seen several large gaming companies take hits in the form of major investigations, fines and sanctions, for a broad range of compliance issues (including #MeToo, advertising to minors, and failures regarding AML compliance), with potentially significant regulatory consequences.
Although the underlying conduct that led to the sanctions varied, there is a common factor: gaming companies failed to investigate properly with requisite independence and to self-police, especially at the highest levels.
The recent record fines are a reminder to all gaming licensees to gut-check their policies and procedures and make sure their employees— including C-suite executives—all receive the proper training and follow set protocols.
A few key takeaways:
- Have clear policies. Start with a clear set of policies that define acceptable behaviors and practices within your company.
- Compliance policies are not shelf-warmers. Your company has a compliance policy that’s passed regulatory muster. Great. Now make sure you actually utilize that policy manual. Ensure that you are properly training and holding all officers, directors and employees accountable for following such policies.
- Make sure your employees know how and to whom they should report issues. Have a clear system for reporting misconduct, where employees are assured they can safely report without fear of retaliation, and that they can retain their privacy, as appropriate.
- No one is too important. No one at a licensed gaming company is above training or immune to a properly conducted internal investigation. In fact, the more powerful the individual in question, the more critical it is to thoroughly and properly investigate allegations of impropriety.
- Be clear who is responsible for investigations and the chain of command for reporting. Guidelines should be clear about when it’s time for experienced, outside professionals to conduct an investigation.
- Learn from your mistakes. Regulators do not take kindly to repeated mistakes. We have seen cases of gaming licensees receiving steep fines for failing to follow procedure about the same issues on multiple occasions, especially for anti-money laundering and regulatory filings compliance. This includes some instances after the licensees have received lesser fines or warnings for the same mistakes.
- Have experienced outside help on tap. In certain situations, it may be necessary to engage outside experts, such as forensic accountants or outside legal counsel, to avoid conflicts of interest or to provide specialized expertise. It is important to pre-identify and have agreements in place with such experts to avoid unnecessary delay when such outside assistance is needed.
Here are a few key considerations related to internal investigations:
- Recognize that internal and external stakeholders will take a keen interest in the planning, conduct, reporting and remediation as a result of the investigation. A properly conducted investigation provides long-term benefits, well beyond the ever-important perception of a credible, independent and thorough investigation.
- No two internal investigations are the same. Understand fully and upfront the ramifications of the allegations and the full range of issues that they may force to be addressed during the internal investigation.
- Identify early all persons, including supervisory and senior corporate officials, whose actions or inactions could be scrutinized in the investigation. When allegations may implicate senior management, the dynamics change immediately, giving rise to active board (or board committee) participation and oversight, considerations in retaining outside and independent professionals, and a recognition of a different level of intensity and expectations around the investigation.
- Many outside counsels recommend voluntary reporting to regulators, typically suggesting that discovery of the allegations is inevitable. Voluntary disclosure to external stakeholders may present risks, however, so following a precise analysis and decision matrix always is the most prudent course before making a hasty decision to report externally.
- Internal investigations of all sizes, significance and scope can impact business operations, employee morale and the entity’s reputation. Managing these critical issues is central to conducting a thorough investigation with minimal business disruption.
- Understand how to manage the cost of an investigation, particularly if the matter requires retaining outside professionals. Also, staffing of investigations matters. An investigative team of less expensive professionals may appear cost-conscious initially but, in the long run, prove far more costly than a targeted and knowledgeable team of more senior professionals who are capable of identifying and handling issues with considerable efficiency and credibility. You want an investigation conducted by professionals who are capable of identifying issues quickly and are not afraid to make the “hard call,” offer constructive recommendations, and frame interim and longer-term solutions with a sensitivity to the company’s business.
Even with the best compliance policy, training and protocols in place, issues can still arise. But even after the worst has happened, taking the proper steps to perform diligent internal investigations and then act promptly to correct the problem can show regulators that you can be trusted to self-regulate and report without heavy-handed treatment.
So remember to follow best practices in conducting and documenting the investigation, establishing and implementing remediation, and reporting to regulators. The gaming industry is too large and complex for regulators to manage without the assistance of self-regulation and self-reporting. Prove them right to trust you, or your company will face the consequences.