International and Foreign E-discovery & E-blackmail

Non-US E-mail and IM Record Retention Policy

Executive & Banker (Financial Institution) Text and Instant Messages

Investigations into corporate scandals in France (Europe - EU) and Japan (Asia) illuminate why employers need to retain employee electronic message archives. In the Kerviel-Société Générale scandal and in the Livedoor scandal, employee and executive e-mail and instant message (IM) records were critical to the companies as the scandals unfolded.

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Both scandals remind that electronic messages are a way of life for modern professionals and executives. If an enterprise wishes to know what its staff have been doing – and what commitments they have and have not been making on behalf of the enterprise – it must keep records of their messages. As blockbuster new technologies like the iPhone take messaging outside the confines of traditional corporate IT infrastructure, an enterprise must strive to capture records of employees' business-related messages. An enterprise is wise to require employees to use or copy an enterprise-controlled account on all business messages so they can be archived centrally, outside the control of individual employees.

Société Générale
A forged e-mail purporting to come from Deutsche Bank tipped big French bank Société Générale (SoGen) that something was amiss with the transactions of junior trader Jérôme Kerviel. As the bank came to realize he had exposed it to 50 billion euros of potential liability, it rushed to study all of his electronic messages in its possession.

[Side note: Some say the bank hesitated before reading Kerviel's e-mail, out of deference to French privacy laws that limit an employer's ability to read employee e-mail. This hesitation may have transpired before the bank realized how exposed it was.]

According to the New York Times: "One top Société Générale executive has told investigators that Mr. Kerviel rarely used his office e-mail account, sending no more than 60 messages over the last 12 months. But . . . he actively used instant messaging." Drawing on all the available records, the bank swiftly acted to neutralize Kerviel's outstanding trading positions.

In the exhaustive investigation that ensued, a key question was whether Kerviel acted alone. The bank examined thousands of messages stored from the bank's internal instant message system, including some between Kerviel and a suspected accomplice, Moussa Bakir, an employee at Fimat (Newedge). In one message that attracted particular scrutiny, Bakir stated to Kerviel, "You have done nothing illegal in terms of the law." And at least one e-mail hinted that an assistant inside the bank had helped Kerviel.

The outcome of the investigation is critical to the bank (and its investors) as responsibility for the scandal is allocated. Had the bank not been storing message records, its investigation and remedial steps would have been hampered.

Livedoor
In the Livedoor scandal in Japan, rather than IM, the message records were e-mail. Livedoor, a popular web portal in Japan, suffered an accounting scandal that led to criminal prosecution for several executives, including the CEO. Executive e-mail records figured prominently in the investigation. For instance, e-mail records showed that Livedoor executives deceived others by offering to purchase stock the company already owned.

Although the scandal heaped infamy on the company, it did not bring an end to Livedoor. As an entity separate from the individuals who serve as executives, the company regrouped and pressed ahead as a viable competitor in the Japanese Internet market. It installed a new CEO, who said, "When you're a company with 2,000 staff and 200,000 shareholders, people expect some corporate responsibility."

False Allegations
In the wake of Livedoor's highly-publicized scandal, a printout of an e-mail circulated in Japanese politics purported to evidence an earlier attempt by the firm's former CEO to use company funds to bribe top Japanese politicians. The company conducted an internal investigation of its records, and based on that investigation the new CEO was able publicly and authoritatively to express skepticism that such a bribe took place. In other words, the company's records enabled the new CEO to deflect suspicion away from the company.

The bribe e-mail was later proven to be fake. The story shows another incentive companies have to preserve their e-mail. Just as electronic archives can inform an enterprise about its commitments, they can protect it from false accusations and even e-blackmail.

Consider the U.S. e-blackmail case of Munshani v. Signal Lake. Consultant Munshani claimed a Signal Lake executive promised him valuable stock options. The stock options were not forthcoming, so Munshani sued for breach of contract. To evidence his alleged contract rights, Munshani introduced into court a printout of an e-mail from the executive to Munshani. The words of the printout promised stock options.

However, Signal Lake said the printout was bogus! And fortunately for Signal Lake, it retained all its incoming and outgoing e-mail records. Drawing upon the services of a computer forensics expert, Signal Lake was able to prove that Munshani was a fraud. By comparing Signal Lake's extensive records with Munshani's record, the expert established that Munshani had tampered with a genuine e-mail record, which said nothing about stock options, and falsely changed it to promise stock options. Signal Lake won the lawsuit, and the judge referred Munshani to the local prosecutor for criminal investigation.

As voicemail comes to look more like text and e-mail (on account of technology like unified communications), enterprises will want to save more of it too.

–Benjamin Wright

Updates: read the e-record lesson from the Tyco International scandal, plus analysis of proposals for recordkeeping on financial derivatives.