Any Special Effects Left for ENRC?

Ray Harryhausen died yesterday. For my money, he was the greatest special effects artist of the 20^th century. I absolutely loved his stop motion animation. He began his career working under Willis O’Brien on the original King Kong. However he went on to surpass O’Brien by developing what the New York Times said was the process Harryhausen called “Dynamation. It involved photographing a miniature — of a dinosaur, say — against a rear-projection screen through a partly masked pane of glass. The masked portion would then be re-exposed to insert foreground elements from the live footage. The effect was to make the creature appear to move in the midst of live action. It could now be seen walking behind a live tree, or be viewed in the middle distance over the shoulder of a live actor — effects difficult to achieve before.” If you want to see real special effects, check out the Jason and his crew sword fighting against the raised-from-the-dead skeletons in Jason and the Argonauts.

We saw some very different ‘special effects’ for the UK listed company Eurasian Natural Resources Corp (ENRC) in the month of April. As reported in the UK Telegraph, the title of the April 30 piece says it all – “ENRC’s annual report is full of laughs – for all the wrong reasons”, reporter Alistair Osborne says that the worldwide mining conglomerate’s value “has been disappearing down the mineshaft.” While all of the company’s economic metrics were headed downward, the company’s chairman, Mehmet Dalman declared “The primary focus for 2013 will be to maximise shareholder value through the implementation of our strategic priorities.” Unfortunately, Chairman Dalman wrote this statement before he resigned as company chairman.

What was it that led to this resignation? It may be something related to an announcement by the UK Serious Fraud Office (SFO) that it “has launched a criminal investigation into Eurasian Natural Resources Corporation (ENRC) amid allegations of fraud, bribery and corruption”. In an article, entitled “SFO launches criminal investigation into ENRC”, it states the “SFO has confirmed that it has taken over an internal investigation by the mining giant into allegations made by a whistleblower relating to its operations in Africa and Kazakhstan.”

According to an article in the Financial Times (FT), entitled “ENRC looks to dig itself out of a hole”, some of these allegations in Africa related to claims that the company became involved in deals in the Congo and with transactions involving its President, Joseph Kabila. One of these transactions involved the purchase of mining rights in a project “outside the town of Kolwezi, which had been confiscated by the Congo government from the Toronto-listed miner First Quantum.” After legal action by the Canadian company, ENRC “settled with its rival for $1.25 bn.” The allegations of bribery and corruption in Kazakhstan relate to allegations of fraudulent payments at ENRC’s Kazakhstan unit Sokolovsko-Sarbai, known as SSGPO.

Unfortunately, ENRC seems to be stumbling over itself as it has investigated these whistleblower allegations. The first stumble was when ENRC dismissed its lead internal investigator, Alex Gaft. This individual dismissal came after ENRC dismissed the US law firm Dechert, which had headed up the external investigations of these allegations. This dismissal came after Dechert presented a preliminary report to the SFO, which the FT said “raised concerns over payments totalling at least $100m over four years.”

According to the FT,  Dechert received a Section 2a notice, immediately after being terminated, “and just weeks before a second report into ENRC’s business practices in Africa was due to be handed to the SFO, say people familiar with the investigation. The SFO uses Section 2a notices specifically to demand information at a pre-investigation stage when it suspects overseas bribery and corruption, its website says. Sending out such a notice to the law firm signalled that the SFO felt it could no longer depend on the information provided by the company alone. The SFO now has the job of investigating the African operations of ENRC, which recently hired ex-attorney general Lord Goldsmith as a legal adviser.”

To top off all of the above dismissals of investigators and investigating law firms, the ENRC representative who was overseeing the internal investigation was none other than Chairman Dalman, the same person who resigned his position last week. Now the SFO has taken over the investigation, which according to the FT means that it can “use its full criminal powers such as arrests, dawn raids and demands for documents.”

Thebriberyact.com guys have been telling us that the SFO is still out there and SFO enforcement cases are moving forward. When you have a lead internal investigator dismissed, external counsel let go and your own chairman heading an investigation all leave a public company within 30 days, it is bound to get the attention of regulators. I wonder if the Department of Justice may have noticed?

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013

My FCPA and Bribery Act Musings Continue

This past week, my second book, “Best Practices Under the FCPA and Bribery Act” was released. Over the past few years I have tried to provide the compliance practitioner with solid information that can be used to implement, review and enhance a US Foreign Corrupt Practices Act (FCPA) or UK Bribery Act based compliance program. I am often asked to collect my blog posting regarding what are the current best practices for an anti-corruption/anti-bribery compliance program. In other words, what are the specifics of a compliance program. This volume will provide the compliance practitioner with information that can be used for the ‘nuts and bolts’ of compliance.

Using the format of the most recent US Department of Justice (DOJ) and Securities and Exchange Commission (SEC) “A Resource Guide to the U.S. Foreign Corrupt Practices Act. The Foreign Corrupt Practices Act (FCPA)” [the “FCPA Guidance”]; I have included some of my thoughts on what you can do to create and maintain a best practices compliance program. I have also included some thoughts on how to create and maintain such a compliance program using the Six Principles of an Adequate Procedures compliance regime under the UK Bribery Act.

I was honored to have the FCPA Professor, Mike Koehler, pen the forward and he said, in part, “In the current global marketplace, Foreign Corrupt Practices Act (“FCPA”) risk needs to be on the radar screen of most companies – large and small, public and private, and across industry sectors. Given the current enforcement theories of the Department of Justice and Securities and Exchange Commission, FCPA risk is not always apparent from reading the statute. There is no way for business organizations to truly eliminate FCPA risk, but such risk can be effectively managed and minimized through pro-active policies and procedures and other means of risk assessment.”

I hope that you can use this volume, in conjunction with the FCPA Guidance and the Ministry of Justice’s Six Principles of an Adequate Procedures compliance program, to implement or enhance your compliance regime. Both the FCPA Guidance and Six Principles make clear that there is no ‘one size fits all’ compliance program. The key is to assess your company’s risks and to manage those risks appropriately. This volume will help you to determine the type and scope of program that is appropriate for your company and will assist your compliance efforts going forward.

Best Practices Under the FCPA and Bribery Act is available exclusively on amazon.com. For a copy, click here.

They are back, although they never really left, thebriberyact.com guys

Unlike that fabulous song-writing team of Lennon and McCartney, these two guys promised that they would be back and from what we have seen over the past few weeks, they have kept to their collective word. Yes, those two light-shiners on all things UK Bribery Act, thebriberyact.com guys have re-entered the blogging fray. While I will it to you to figure out which briberyact.com guy most closely corresponds to which song-writer, all I can say is it is hard to say where one’s contribution ends and the others begins. To celebrate their roaring return, I want to highlight some of the great posts that they collectively put up last month.

March 2 – Opinion: Don’t buy snake oil. Why a lack of Bribery Act prosecutions should not signal complacency. The guys begin their comeback last month with this post, which was their take on the status of some investigations and why there has yet to be a substantive prosecution. It is a good explanation of where things have been and where they might be headed. The guys end by noting, “In the meantime the chances of violations of the Bribery Act emerging are increasing with the passage of time. This is borne out in fact. We are aware that the SFO has a number of pre-investigation (or projects as the new Director of the SFO has dubbed them) in connection with the Bribery Act already. Whether these develop into Bribery Act enforcement cases remains to be seen. One thing is for sure. Bribery Act enforcement for corporate violations is inevitable. Those who would suggest otherwise are selling snake oil. Don’t buy it.”

March 3 – The Bribery Act, its material impact since 2011 & the Aston Martin analogy… In this post the guys take on Howard Sklar and everyone else who says it is time to bring an enforcement action under the Bribery Act. They put it as such, “For those seeking instant gratification then the Bribery Act, it turns out, is not Coca Cola. But we’ll stick with the Aston Martin analogy. Aston Martin took off with the arrival of a certain David Brown. The SFO now has David…Green… But on a serious note, the impact of the Bribery Act should not just be measured in enforcement (though that will happen). It’s ultimate purpose was to foster behaviourial change. The genie is out of the bottle, the Aston is out of the garage and 18 months in change is already happening.”

March 5 – Don’t mention the ‘war’? Scotching the myth that saying the ‘b’ word will freak out employees in high risk markets. This post speaks to that most classic of English traits, to apologize for everything English. The guys point out that it is actually OK to tell employees not be pay bribes or otherwise engage in corrupt behavior, you will not insult them by doing so. They properly note, “The sight of people from Head Office taking the trouble to visit the local office with strangers in tow asking lots of questions underscores the importance the business attaches to anti-bribery.  It sends a very clear message to those in the organisation who might seek to apply unfair pressure on others to engage in questionable practices. A clear directive that bribes will not be paid is likewise well received. Employees like to know that they will not be sacked for losing a sale as a result of not bending to improper requests and demands,” they then conclude with this universal truism, “And for the very tiny minority (in our experience) who don’t like it – you don’t want to employ them anyway.” As we might say here in the  south, the American south that is, “Amen, brother.”

March 14 – Parliament report calls for Bribery Act review: Our opinion – Junk in. Junk Out. With typical British tact, the guys skewer a claim presented in the House of Lords committee that the Bribery Act has met with “confusion and uncertainty.” The guys end by offering to help these forlorn Lords with a bit of education by saying, “There is plenty of free guidance out there on the application of the Bribery Act. We cannot think of a piece of legislation which has sparked much more commentary, advisory, much of it on line and completely free, including our own eponymous website. Complaints about a lack of information and desire for more guidance ring hollow – especially when a centerpiece propping up the claim is the concern that taking someone to dinner is a criminal offence. The calls for a review need to be seen in context. Junk in. Junk out. And, Tony from Alderly PLC, if you’re reading feel free to give us a call. We can help you.”

March 22 – (Contrarian) Opinion: Corporate crime in the UK. A shift in public perception? In this piece, the guys noted that “Notwithstanding the barrage of criticism which has been meted out to the SFO in recent months it appears the perception of the public in general may be changing about it, and the UK’s approach to dealing with corporate crime.” They ended this post with the following witty observation, “And, while it may not be politik to say it, (but then we like to be visionary contrarians like others we can think of…), perhaps criticism of the SFO today for historic conduct is just a bit harsh and opportunistic? Perish the thought….”

March 24 – The Met, City of London Police & SOCA spearheading additional £8 million crackdown on overseas corruption. In their final March post  the guys report on some very clear indications that the UK government is putting its money where its collective mouth is regarding its seriousness to combat bribery and corruption. The guys noted that “The UK government has reportedly earmarked a further £8 million in the fight against corruption to go to specialist anti-corruption teams in the Metropolitan and City of London Police, the Serious Organised Crime Agency (SOCA) as well as additional support for the Crown Prosecution Service (CPS).”

So while it is true they never really left, because you know they do practice law for a living; it is good to see them back up on the site and providing their collective opinions and insights.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013

Q: Do You Tell The Central Bank What To Do? A: ‘In Which Country’?

Last weekend in the Financial Times (FT) was a report by Tim Burgis of an interview he held over a lunch meeting with the Angolan Isabel dos Santos, who Forbes magazine recently declared “the continent’s first female billionaire.” Ms. dos Santos is the daughter of José Eduardo dos Santos, who has been Angola’s president for the past 33 years. The interview was a fascinating insight into how doing business in some countries under US or UK anti-corruption and anti-bribery laws can be so challenging.

Burgis quoted an un-named expert who described Angola as a place of “corny capitalism” where those with connections to “the Futungo, as the presidential coterie is known (after Futungo de Belas, the old presidential palace) have made fortunes.” Ms. dos Santos denied that she is involved in politics, claiming that she is only interested in business. Interestingly, Burgis quoted her as stating “I’m not involved in politics and I’ve never had any political role. I’ve never been in office. I’ve never taken any public administrative jobs. So, like I said, I don’t work with the government.”

Some of her business interests “include stakes in two Portuguese banks, BIC and BPI, and a communications group called ZON Multimédia and an indirect holding in Galp, a Portuguese energy group with assets from Mozambique to Venezuela.” While admitting that the “oil industry is politically driven” she insisted that in the business sectors in which she is involved “politics don’t come into it”, she says, even if her own big moment came when she was part of a consortium that won a public tender for Angola’s second mobile telephony licence in the late 1990s.”

Burgis noted that there are believed to be many ways for the well connected to make lots of money in Angola. He wrote, “There are, however, easy ways to make money if you’re connected in Angola, particularly in the resources industries, where top officials and generals have been known to take hidden stakes in ventures led by oil majors and to enjoy titles to diamond-bearing land.” He also went on to note that these systems may be perpetuating the overall poverty in African countries such as Angola when he said that “There are those who would say that corrupt models lie at the heart of the power structures that keep most Africans poor and unable to call their rulers to account.”

He noted that Ms. dos Santos has recently become involved in the energy sector through her partnership with the Portuguese businessman, Américo Amorim and his company Amorim Enereria. Burgis wrote “I ask her to clarify how those energy interests tie in with Sonangol, the Angolan state-owned oil company with assets from Iraq to Brazil that some critics perceive as a Futungo fiefdom. She fends off my questions before fixing me with the look one might give a particularly vexing eight-year-old. “The business is relatively complex because, when you structure a business, you have to look at different aspects from legislation to taxation, to governance, issues like that.”

Near the end of their lunch Burgis asks the following question do you “call up the governor of the central bank and tell him what to do? “In which country?” she quips. We laugh merrily.” She went on to explain how she did have the reputation for extraordinary power. Burgis quoted her as saying, “Well, it’s very difficult, I would imagine, to distinguish father and daughter. And maybe some of it comes as I’m doing my thing and my father being a very strong political African figure for so many years. Whatever he does is almost like some kind of cloud on top,” she says, reaching for the right metaphor and waving a hand over her head, as though her father were some celestial phenomenon. “So maybe some of these ideas come from this cloud-over effect from his position. But, no, I don’t call the central bank and I most certainly don’t give them instructions.”

Even from the head feigns, non-responsive and jocular tone of many of these answers, one can see just how challenging doing business in Angola can be for any company subject to the Foreign Corrupt Practices Act (FCPA) or UK Bribery Act. The first issue that would seem to pop up is just who are you doing business with and are they a Politically Exposed Person (PEP). Burgis specifically states “top officials and generals have been known to take hidden stakes in ventures led by oil majors”. Whether such interests are hidden or not, it is the responsibility of any US or UK company to perform the appropriate level of due diligence to ascertain whether they are doing business with such governmental officials. I have heard more than one Chief Compliance Officer (CCO) say that they had to pull the plug on a business proposition because they could not determine the beneficial owners of an entity with which they were considering doing business.

What about a country such as Angola, where people move freely between government and business. Once again if it is later determined that your company is in a joint venture or other business relationship, and your local partner obtains a government appointment during the pendency of the business relationship, it is up to your company to find out that information. This requires ongoing monitoring through company or software which alerts you when someone moves to becoming a PEP.

This is where it is critical that compliance terms and conditions be put into a contract for any such business relationship. Initially, you should have contract protections in place which require any business partner who obtains a government appointment to notify you. This should also be included with a clause that allows the contract to be terminated if the appropriate anti-corruption/anti-bribery protections cannot be put in place if such an eventuality occurs.

Clearly there are no easy answers to the quandary of doing business in a country such as Angola. With many of the top government officials, energy company higher-ups and extractive mineral elite not only closely related to each other but moving seamlessly between all three groups; a company under the FCPA or Bribery Act must tread very carefully. Or to quote the signature line from Hill Street Blues, “Let’s be careful out there.”

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013

How to Introduce Innovation in Your Compliance Program

News Flash: Houston Astros Lead AL in Wins!

 In case you were too worn out from this weekend’s college basketball tournament bonanza, both the men’s and women’s, to stay up on Sunday night and watch ESPN; the Houston Astros won their 4000^th game and had their first American League (AL) win so that they now lead the AL in overall wins. I guess Astros owner Jim Crane, he of “I-made-a-$100-million-dollars-so-I-must-know-what-I-am-doing”, thinks he knows a thing or two about innovation. Or perhaps not?

While Brother Crane is no doubt reveling in his first win as the Astros owner, I thought about the question of how a compliance professional can use innovation to improve a company’s overall compliance program? This topic of innovation was recently explored in an article in the MIT Sloan Management Review,  Spring 2013 issue, entitled “How Innovative is Your Company’s Culture?” by Jay Rao and Joseph Weintraub. In this article, the authors tried to determine how companies could develop a more innovative culture. While the article did not focus on compliance, I found the ideas that they put forward as a useful manner for compliance practitioners to think through and implement innovation into their Foreign Corrupt Practices Act (FCPA) or UK Bribery Act compliance programs.

The authors believe that when it comes to innovation, most companies focus on resources, processes and measurement because they are tool-oriented and more easily measured. Conversely companies tend to focus less on people-oriented components of innovation success, for example values, behaviors and climates, because they are harder to measure. The authors quote one Chief Executive Officer (CEO) who had said, “The soft stuff is the hard stuff.” Yes the authors believe that it is the soft-stuff, people issues where the greatest opportunity for innovation can occur. I believe that this holds true for innovation in a company’s compliance program as well.

The authors posit that there are six building blocks to an innovative culture. These six building blocks are not static conditions but are inter-related and to an extent, interdependent on each other. The six building blocks are:

1. Values. The authors believe that it is a company’s values which drive both its priorities and its decisions. It is also reflected in where a company spends its money. If a company is innovative, it tends to emphasize creativity and encourage continuous learning. Values are more than what leaders say or what they write but drive by what they do and what they invest in.
2. Behaviors. This describes how company employees act in the cause of innovation. This is demonstrated when leaders work to energize employees and to make sure that things happen within the company. For employees it means working to overcome obstacles around innovation and making things happen when “resources and budgets are thin.”
3. Climate. The authors believe that climate is “the tenor of workplace life.” This means that innovation is encouraged and employees take it on “with enthusiasm.” People are allowed to take risks within a safe environment and the company encourages “independent thinking.”
4. Resources. Within the framework of their six building blocks, the authors believe that resources have “three main factors” people, systems and projects.” Of these three factors, people are the most important because they have the most “powerful impact on the organization’s values and climate.”
5. Processes. The authors state that processes are the route by which innovations follow as they are developed within an organization. These processes include not only the track they follow but also the criteria for capturing and sifting through new ideas for “reviewing and prioritizing projects and prototyping.
6. Successes. The authors believe that successes in a company are “captured at three levels: external, enterprise and personal.” These can help to demonstrate if an innovation is paying off. But more than simply financial success, this building block “reinforces the enterprise’s values, behaviors and processes, which in turn drive many subsequent actions and decisions”.

There are several lessons that the compliance practitioner can derive from these six building blocks to help put innovation into your company’s compliance program. I think the first is that you must create an environment where innovation is not only accepted but encouraged in your company. A simple top-down structure will not accomplish this goal. Not only do you have to go out into the field but you must listen to what people in the field are telling you. Simply because you get push-back from the business folks does not mean that their suggestions are always wrong. There might be some nugget in such push-back which allows you to do something faster, quicker or with more compliance efficiency. Even if the suggestion or push-back does not warrant inclusion into your compliance program, you should at least acknowledge employees for their suggestion.

Another technique that you might use based on these building blocks is the compliance champion. Such a person can be used not only as an initial point-of-contact for your compliance program but you can use non-compliance department compliance champions as innovation leaders in your compliance program. You could have them meet (in person or virtually) on quarterly intervals to discuss compliance program innovations that they might come up with based upon their more focused training and work as a compliance champion in your company. As the authors might say, you can develop your own internal community of compliance innovation experts that you could call upon as an internal resource. Further, in their role as your initial point-of-contact for your compliance program, these compliance champions could also act as a filter to bring you other innovative ideas from your company’s workforce.

This article by Rao and Weintraub had some very interesting ideas about how a company can ingrain innovation into its compliance program. Many companies have worked very diligently on resources, processes and measurement of their compliance program. However, as compliance programs mature and become a part of every well-run company, compliance practitioners can move towards other themes of innovation; that of values, behaviors and climates. So while I am not yet convinced that the Astros $20MM payroll really was a positive innovation, I do believe that the authors have set out some very thoughtful ideas that you can incorporate into your compliance efforts going forward.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013

The Bribery Act in 2012: a Year for Transition

The past year has been one of transition for the UK Bribery Act and the Serious Fraud Office (SFO). The transitions began with the appointment of David Green QC, as Director of the SFO. Green’s appointment brought a different focus to the SFO regarding the enforcement of the Bribery Act. At the start of his four-year term David Green released a statement to the press in which he said, in part, “The SFO is here to stay. It is and will remain a key crime fighting agency targeting top-end fraud, bribery and corruption. We will play our part in maintaining in the national interest a level playing field for investors and the business community. We will work cooperatively with others in the emerging counter-fraud landscape. We will press for all the tools necessary to maximise our impact. The SFO will be tough but approachable. I am delighted to take on the leadership of the agency at this exciting and challenging time. There is much to be done.”

This change in tone was perhaps responding to a critical report by Transparency International (TI) in its 8th annual progress report on OECD Convention enforcement, entitled “Exporting Corruption”. While the TI report focused on anti-corruption efforts across the globe, it did state that “The UK Government must strengthen its anti-bribery effort by ensuring that the Serious Fraud Office (SFO) has adequate resources to investigate and prosecute bribery”. Although TI noted that under the Bribery Act, prosecutions had increased over the past year, “cutbacks to the SFO could see a decline in future UK enforcement. The Government has cut more than a third of the SFO’s budget in the last four years, hampering the prosecutor’s ability to tackle complex and damaging bribery cases.” Chandu Krishnan, Executive Director of Transparency International UK, was quoted in a Press Release as stating, “If the Government is serious about fighting corruption, it should not be cutting resources for enforcing the legislation designed to do just that. We must ensure that the SFO is not outgunned by those it should be prosecuting, who incidentally can usually afford the best legal advice available. The SFO should never be in a position where it is unable to investigate and prosecute cases due to a lack of resources.”

I.                   Change in Tone at the Top

This new tone was a departure from the prior Director Richard Alderman. This noticeable change began in earnest in September with the statement by Director Green, that his agency has no real interest in pursuing cases concerning corporate hospitality under the Bribery Act. He was quoted as saying “We are not interested in that sort of case. We are interested in hearing that a large company has mysteriously come second in bidding for a big contract. The sort of bribery we would be investigating would not be tickets to Wimbledon or bottles of champagne. We are not the “serious champagne office.”” This was followed by the removal from the SFO’s website of pages for its guidance on facilitation payments and corporate hospitality. Then in October, the SFO published their position in relation to facilitation payments, corporate hospitality and self-reporting. As noted by Barry Vitou and Richard Kovalevsky, QC, writing in thebriberyact.com, “The honeymoon is over.” They went on to say that “The revised guidance is a model of clarity.  The new Director has previously made his position clear namely that the SFO is not there to provide guidance and those seeking it should liaise with their advisers.”

II.                The New Guidance

In a Press Release announcing this new guidance the SFO stated that “the Serious Fraud Office has reviewed its policies on facilitation payments, business expenditure (hospitality) and corporate self-reporting. The purpose is to: (1) restate the SFO’s primary role as an investigator and prosecutor of serious or complex fraud, including corruption; (2) ensure there is consistency with other prosecuting bodies; and (3) meet certain OECD recommendations.” The new guidance discussed three areas that companies need to address in their compliance programs. These were self-reporting, business expenditures and facilitation payments. Writing in the Bribery Library, Adams Greaves said “the guidance reinforces a widely held belief by the legal profession that Mr. Green is likely to prove to be a much tougher prosecutor than his predecessor Richard Alderman, who had (perhaps a little unfairly) acquired a reputation for seeking civil settlements with corporate defendants rather than prosecuting them through to trial.”

Self-Reporting

The SFO stated that it will prosecute a company if it is in the public interest to do so. The fact that a corporate body has reported itself will be a relevant consideration to the extent set out in the Guidance on Corporate Prosecutions. The Guidance explains that, for a self-report to be taken into consideration as a public interest factor tending against prosecution, it must form part of a “genuinely proactive approach adopted by the corporate management team when the offending is brought to their notice”. However, the SFO cautioned that self-reporting is no guarantee that it would not prosecute and emphasized that each case would ‘turn on its own facts.”

Business Expenditures

The SFO recognized in the new Guidance that bona fide hospitality, promotional or other legitimate business expenditure is recognized as an established and important part of doing business. It is also the case, however, that bribes are sometimes disguised as legitimate business expenditure. However, the SFO would prosecute if there was a realistic prospect of conviction, the SFO will prosecute if it is in the public interest to do so. The SFO could also use its powers under proceeds of crime legislation as an alternative (or in addition) to prosecution.

Facilitation Payments

In the area of facilitation payments, the SFO was very clear that it considers facilitation payments as a type of bribe. It provided the example where a government official is given money or goods to perform, or speed up the performance of, an existing duty. The SFO emphasized that facilitation payments were illegal before the Bribery Act came into force and they are illegal under the Bribery Act, regardless of their size or frequency. This SFO position basically restates the UK legal position and the various tests the SFO will use when weighing prosecution.

III.             The Rolls-Royce Investigation

One of the areas of criticism of the SFO has been the lack of prosecutions. This may have an effect on the SFO in the recent announcements by Rolls-Royce that it is investigating allegations of bribery. In December, the BBC online service reported that Rolls-Royce was in talks with the SFO regarding potential allegations of bribery and corruption in Indonesia and China. It was reported that this investigation began when the SFO requested information from Rolls-Royce about possible bribe-paying in those two countries. This prompted Rolls-Royce “to bring in a legal firm to conduct an internal investigation earlier this year, which uncovered potential misbehaviour in other countries as well as the two named by the SFO.” The FT has also reported that Rolls-Royce has now retained Lord Gold for a review of its compliance on a world-wide basis.

Such a high profile UK company and investigation will certainly test the mettle of the SFO regarding prosecutions of UK entities. While the FT noted that Lord Gold was brought in by Rolls-Royce “precisely to avoid the costs” that the British company BAE incurred in its massive scandal and to perhaps make a “radical change” in not only Rolls-Royce but the entire British aerospace industry, if there are allegations of bribery and corruption substantiated by the internal investigation and Rolls-Royce is not prosecuted, it may make companies less inclined to follow the strictures of the Bribery Act.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013

The Tube and Updating Your Compliance Policies

2013 is the 150^th anniversary of the London Underground, affectionately known as “The Tube.” It truly is one of the great urban architectural marvels of all-time. The oldest sections of the London Underground completed 150 years of operations on 10 January 2013. The Underground serves 270 separate stations and has 250 miles of track, 45% of which is underground. In 2011, it served over 1.2 billion riders but, like any transportation system, it has to be evaluated and upgraded. For my money, the most useful upgrade would be to air condition the cars as they can become unbearably hot in the summer but that may not be on the top of Prime Minister’s Cameron’s list about now.

I thought about this auspicious anniversary and maintenance of the London Underground when I read a recent article in the Compliance Week magazine by Michael Rasmussen, entitled “Improving Policies Through Metrics”. Rasmussen believes that effective policy management requires that a company must periodically review their policies to ensure that they are relevant and aligned with both current laws and corporate objectives. This is because today’s business environment is dynamic and involves both internal and external factors, so, consequently, as a company evolves and changes its policies need to be updated to reflect these changes.

One of the key components of any best practices compliance regime under any anti-bribery and anti-corruption program is policies. Policies tie together a company, its business environment, the risks it faces and the compliance requirements. Policies are a specific requirement for any anti-corruption/anti-bribery compliance regime. In the recently released Department of Justice (DOJ) Guidance on the Foreign Corrupt Practices Act (FCPA), it stated, “Whether a company has policies and procedures that outline responsibilities for compliance within the company, detail proper internal controls, auditing practices, and documentation policies, and set forth disciplinary procedures will also be considered by DOJ and SEC.” Under the UK Bribery Act, policies are discussed in the Six Principles of an Adequate Procedures compliance program under Principle V – Communication, where it states “The business seeks to ensure that its bribery prevention policies and procedures are embedded and understood throughout the company through internal and external communication, including training, that is proportionate to the risks it faces.”

While I think that most compliance practitioners understand this need for policies one of the things that is not usually emphasized at a company is effective policy management. One technique which can be used is to elevate the policy function to the senior management level. One of my former employers, Halliburton, did this when it created a Vice President for Policies back in 2006. So kudos to Halliburton for leading the industry by creating the position of Vice President for Policies.

Rasmussen believes that at a minimum, policies must be reviewed annually. He recommends that each policy should go through a yearly review process to determine if it is still appropriate. There should be a “system of accountability and workflow that facilitates” any policy review process. The end product should be a decision to “retire the process, keep the policy as it is, or revise the policy.” Rasmussen lists five items that a policy owner should evaluate as a part of the policy review process.

• Violations. Here Rasmussen believes that information from reporting systems such as hotlines or other anonymous lines as well as internal or external investigations must be reviewed. Not only would such information indicate if a company policy was violated but the follow-up investigation would help to determine how the policy might have failed, whether it was through “lack of awareness, unauthorized exceptions [or] outright violations.”
• Understanding. Here Rasmussen writes that there should be an analysis of “training and awareness programs, policy attestations” and attendant metrics to determine an appropriate level of policy understanding. He believes that questions to a helpdesk or compliance department could help to discover any ambiguities in a policy that might need to be corrected.
• Exceptions. If you have a policy it should be followed. If an exception to a policy was granted the reason for the exception should have been documented. If there are too many exceptions granted for a policy, it might indicate that “the policy is inappropriate and unenforceable” and therefore should be revised.
• Compliance. A policy should govern and authorize internal controls. These internal controls should be reviewed in conjunction with the policy review to determine overall policy effectiveness. This is because “At the end of the day the policy needs to be complied with.”
• Environment. All the factors around a policy are in flux. This includes a company’s risk profile, its business strategy, laws and regulations. Since a business’ climate is dynamic, a policy should be reviewed in the context of a company’s overall situation and revised accordingly.

If there is a change in a policy it is important that not only the correct change be made but that any change is documented. An audit trail is a key component for a company to internally understand when a change is made and the reason for that change but also to demonstrate to a regulator effective policy management and to present “a defensible history of policy interactions on communications, training, acknowledgements, assessments and related details needed to show the was enforced and operational.” This audit trail should include “key data points such as the owner, who read it, who was trained, acceptance acknowledgements and dates for specific policy versions”. In addition to an audit trail, policy revisions should be archived for referral back at a later time. So, once again, the key message is document, document and document.

Just as best practices in the FCPA compliance arena evolve, so do business practices, markets and risks. If you throw in the complexities from an inter-connected global business milieu, the task becomes even tougher. Business policies are one of the keystones of a company’s communications to its employees on what it expects and what is required of its employees. To keep policies up-to-date and properly take advantage of this valuable tool, policies need to be evaluated and updated as appropriate. If your company fails to do so this takes away from the value of having policies in the first place. I hope that you will use the techniques which Rasmussen has described to help you effectively manage your policies going forward.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013

How to Reach Your Audience in Compliance Training – The Use of Charisma

One often hears or reads about complaints that compliance training is dull, nay even boring. I mean, how many times can you expect someone to be lectured to on the riveting subject of the Foreign Corrupt Practices Act (FCPA) or even the UK Bribery Act? Coupled with the legally spellbinding subject, the sessions are often led by lawyers who are training non-lawyers. What can I say; the audience does not always have the appreciation of the subject that I do. I thought about this ongoing conundrum when I came across a recent article in the Financial Times (FT), entitled “The subtle secrets of charisma”, by author Alicia Clegg. The focus of her article was that senior managers, by learning techniques of rhetoric, vocal cadence and gesture, can help make senior managers more like leaders. However, I thought that her tips could also help the compliance practitioner in the more mundane area of compliance training.

In her article, Clegg cited to the example of an Infosys executive who was introducing a “controversial HR policy to his company.” During the talk, he felt that his audience was quite restless and “sensed that he was failing to take his listeners with him.” The Infosys executive was quoted as saying “After the talk, people asked me, privately ‘Do you really think this is the right thing to do?’” “I thought: ‘Well, yes, actually, I do. Isn’t that what I said?’” He had failed to convince. Today, however, the executive would deliver a far different talk. Clegg said that “he would acknowledge his colleagues’ concerns, share his own feelings and perhaps tell a personal story. He might modulate his voice; organise his key points into pithy three-part lists; use metaphors; smile or frown occasionally, while gradually building to a statement of personal conviction or a vision of a better future.” In other words, he would work these concepts of ‘charisma’ into his chat.

Clegg discussed the work of John Antonakis, a professor of organizational behavior at Lausanne University. In a June Harvard Business Review article he published, along with colleagues Marika Fenley and Sue Liechti, entitled “Leaning Charisma”, Antonakis argues, however, that having charismatic qualities can turn a competent manager into someone that others notice and want to follow. Antonakis and his team claim to have identified twelve communication habits, rooted in the principles of “classic rhetoric, that make a speaker appear more authoritative, trustworthy and persuasive – in short, more like a leader. Nine of the techniques are verbal: using metaphors and easy-to-remember three-part lists; telling stories; drawing vivid contrasts; asking rhetorical questions; expressing moral conviction; reflecting an audience’s sentiments; and setting high but achievable goals. The rest are non-verbal: raising and lowering your voice, letting your feelings show in face and hand gestures to reinforce what you say.” Their case for their charisma training runs counter to a recent theme in management ideas that plays down corporate stars in favor of teams.

Clegg writes about old ways of making new points. She says that the modern-day science of persuasion is rooted in three “rhetorical appeals” described long ago by Aristotle. The three are: ethos, logos and pathos.

• Ethos – establishing your credentials and building rapport. Here you should use “useful ethos techniques include speaking your audience’s language and reflecting their concerns in what you say.” You should recognize that staff are likely to be more interested in what’s changing for them – how will their job be different?

• Logos – persuading through logic. Under this you should consider “using useful logos techniques include contrasts and rhetorical questions, which can clarify choices by juxtaposing good and bad outcomes and combine reason with emotion; three-point lists are easy to recall and suggest completeness.” As a lawyer, I found comfort that, as stated in the article, using trios of points can add a purposeful edge to your presenting technique.

• Pathos – persuasion with emotion. Under this technique you should endeavor to use “useful pathos techniques include stories, metaphors, lowering or raising your voice; while gestures and facial expressions can heighten emotional force.” But here one must be careful to respect cultural differences, as “What Asians consider over-the-top, southern Europeans may consider emotionally repressed.”

Clegg cites to other examples of effective rhetoric. She quotes Sam Leith, author of “You Talkin’ to Me?” who says “Effective rhetoric need not be fancy rhetoric.” Rather than cultivating a high-flown style, he advises novices to tune into how their audience thinks, and to listen to how they speak. He identifies General George Patton as a master of the art of persuasive plain-speaking. In the final weeks of World War II, the general exhorted his troops to redouble their efforts with the words “The quicker they are whipped, the quicker we can go home”. This got the audience of his troops on his side because getting home was what mattered to them the most.

Clegg also discussed the well-known technique of repetition. She included Martin Luther King’s ‘I Have a Dream’ speech where King used the device of repeated phrases at the start of successive clauses so that there develops ‘an appreciation of what is easy on the ear is important.” Clegg also discussed the technique of chiasmus, “in which the second half of a statement reverses the order of words in the first − as in “ask not what your country can do for you – ask what you can do for your country”. The words were simple and direct – and their impact all the greater.”

Antonakis argues that these techniques can be taught and, more importantly, learned and that “everyone can improve with practice.” But Clegg cautioned that there is more than simply having commanding rhetoric. A good leader must be a good listener as well. She cites to the work of Harvard academician Rosabeth Moss Kanter who argues in her blog that “it is how well you listen, rather than how well you talk, that persuades people to do things.”

Clegg appropriately ends by noting that no matter how good your rhetorical techniques are, “It is not just what you say, or how you say it, that convinces people you are not phony. You can dress things up with all the anaphora and epistrophe in the world, but if you don’t have a deep sense that something is important you’re not going to persuade anyone.”

So for the compliance practitioner who puts on training there is plenty of good advice on rhetorical techniques that you can use. But, most importantly, don’t be phony.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013

Glengarry Glen Ross and the Internal Marketing of a Compliance Program

One of the great plays and movies that I enjoy is ‘Glengarry Glen Ross’. As you might expect with anything that David Mamet pens the dialogue is absolutely spot on, fast paced and non-stop. The action generally revolves around the desperate attempts of a company’s sales man to sell parcels in two real estate developments named Glengarry Highlands and Glen Ross Farms. The movie cast is outstanding with Al Pacino, Jack Lemmon, Kevin Spacey, Alec Baldwin, Ed Harris and Alan Arkin. One of my favorite lines in the movie comes from the corporate motivator, the Baldwin character who says “ABC – Always Be Closing”.

One thing which tends to bedevil many compliance practitioners is the internal marketing of a compliance program. Most compliance professionals came to this area of practice from the legal profession, internal audit, or some other discipline which did not include a marketing background. But in many ways teaching, training and informing employees on compliance is marketing. I thought about the concept of marketing and the signature line of “Always Be Closing” from Glengarry Glen Ross when I read a recent article in the January-February issue of the Harvard Business Review (HBR), entitled “Rethinking the 4 P’s”, by authors Richard Ettenson, Eduardo Conrado and Jonathan Knowles. In this article, the authors posit that the “4 P’s” of marketing need to be changed for “today’s B2B reality.” I believe that a best practices compliance program can use these concepts to help internally market a compliance program.

The old “4 P’s” of marketing are product, place, price and promotion. The authors conducted a five-year study involving over 500 managers and customers across multiple countries and industries. From this study, the authors found that the old 4 P’s of marketing undercut the B2B markets in three key areas. First, the old paradigm asked marketing and sales teams to “stress product technology and quality even though these are no longer differentiators” but are now simply the cost of entry. Second, the old paradigm “underemphasized the need to build a robust case for the superior value of their solutions.” Third, the prior paradigm distracted the sales and marketing teams from “leveraging their advantage as a trusted source of diagnostics, advice and problem solving.” I believe that these three issues also beset the compliance practitioner as well.

The authors developed four new concepts for marketing in the B2B space. These four used the acronym SAVE and they were: (1) solution, (2) access, (3) value, and (4) education, the author’s defined them as follows:

1. Solution - Define offerings by the need they meet, not their features, functions or technological superiority. There are multiple anti-corruption and anti-bribery laws in place across the world. From the Foreign Corrupt Practices Act (FCPA) to the UK Bribery Act and beyond. A compliance solution meets the needs of a company to comply with these laws. It can be seen as a market-based solution to a legal requirement and can be defined as such.
2. Access - Teams should develop a cross-channel presence that considers customers’ entire purchase journey instead of emphasizing individual purchase locations and channels. Here it is important to bring the business unit folks into the discussion. It not only allows buy-in by the business unit but invests them in the overall compliance solution. There is nothing better than a Regional Vice President (VP) explaining to a business relationship how seriously the company takes compliance and they expect that from the business relation as well.
3. Value - Here the sales and marketing teams should articulate the benefits to price, rather than stressing how price relates to production cost, profit margins or competitors’ pricing. Compliance may be thought of as simply a cost center but I would advocate that it actually brings business to the table. A compliance solution can be a selling point for any company which does business with a US company internationally. Every contract requires (FCPA) compliance and often a new vendor is audited for their compliance program. This is also true in any mergers and acquisition (M&A) transaction.
4. Education - Under this final prong sales and marketing should provide relevant information to customers’ specific needs at each point in the purchase cycle rather than relying on advertising, PR and personal selling that covers the waterfront. I started this piece by talking about internal marketing and that is what education is. I would change Always Be Selling to Always Be Marketing.

These four concepts are coupled with certain requirements to make the switch over, which I believe are also applicable to the compliance practitioner. Initially, management must encourage a solutions mind-set throughout the organization. If your company comes from an engineering or tech background, it may be difficult to shift over from thinking about technological superiority to a customer-centric perspective. But the key is the tone at the top. Is management willing to make this a priority throughout the sales chain? Is management committed? These are questions that not only a compliance practitioner must answer but ones that the Department of Justice (DOJ) will ask.

The next premise which must be in place is that the design of the sales and marketing team must reflect the customer-centric focus. In the sales and market world, this led one company, Motorola, to reorganize the marketing function into complimentary specialties, allowing a clear focus on each element of the SAVE concept. Here this concept would appear to have been presaged in the Pfizer Deferred Prosecution Agreement (DPA) in the Enhanced Compliance Obligations; the DOJ spelled out what it expected in the company’s compliance department. It listed three separate functions, each designed to deliver a different compliance solution to the compliance department’s internal client, the company.

The final premise I found very significant is that management must create collaboration between the sales and marketing teams and the development and delivery teams. This is important because specialist teams in development and delivery need to concentrate their approaches to specific customer needs. By doing so “this ensured that functional boundaries did not determine” a company’s solutions.

Here I think that the key for the compliance practitioner is to engage business unit employees. Leonard Shen, Chief Compliance Officer (CCO) of PayPal used this approach when and his compliance team traveled to multiple company locations, across the globe, to meet with as many employees as possible. A large number these meetings were town hall settings, and key employee leaders, stakeholders and employees identified as high risk, due to interaction with foreign governmental official touch-points, were met with individually or in smaller groups. Shen and his team listened to their compliance concerns and more importantly took their compliance ideas back to the home office. From this engagement, the team received several thousand employee suggestions regarding enhancements to the company’s compliance program. After returning to the US, Shen and his team winnowed down this large number to a more manageable number, somewhere in the range of a couple of hundred. These formed the basis of a large core of the enhancements to the existing company compliance program.

This was also part of the approach used by Peter Löscher who was hired as the Chief Executive Officer (CEO) of Siemens in 2007. Löscher went on a round the world tour of the company’s facilities, including meetings with customers, local governmental officials and Siemens employees. He accomplished this final component through meetings with local leadership teams, town hall-style meetings with all employees and dinners with top leadership teams in specific locations. He basically learned that Siemens employees were “shocked and ashamed, because they were very proud to be a part of Siemens.” He used these forums as a basis to begin to change the culture of the company which was then enmeshed in what became the world’s largest and most costly bribery and corruption scandal to date.

Many compliance practitioners and lawyers do not think about marketing. The HBR article provides some interest parallels to what compliance practitioners need to communicate. However, if you really want to go all out, check out this clip from the movie of Alec Baldwin with “Always Be Closing” on youtube.com.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013

Rolls-Royce Brings in Lord Gold – Is it Thinking Big Enough?

In December 2012 the BBC online service reported that Rolls-Royce Motor Cars Limited (Rolls-Royce) was in talks with the UK Serious Fraud Office (SFO) regarding potential allegations of bribery and corruption in Indonesia and China. It was reported that the investigation began in 2011 when the SFO requested information from Rolls-Royce about possible bribe-paying in those two countries. This prompted Rolls-Royce “to bring in a legal firm to conduct an internal investigation earlier this year, which uncovered potential misbehaviour in other countries as well as the two named by the SFO.” The investigation focused on certain intermediaries involved in the countries in question. The Guardian reported the initial bribery issue was reported by a whistleblower, former Roll-Royce employee Dick Taylor, and involved allegations of bribery and corruption in Indonesia and China. According to the Financial Times (FT), Taylor had made these allegations for at least six years that Rolls-Royce paid bribes to secure business for its civil aircraft engines in Indonesia. At least as long ago as 2006 Taylor took his concerns public by posting statements on local newspaper and industry news internet sites. The Guardian stated that Taylor “claimed that Tommy Suharto – a son of the late President Suharto – received $20 million and a Rolls-Royce car to persuade the national airline, Garuda, to order Rolls-Royce Trent 700 engines in 1990.”

The FCPA Blog reported earlier this month that a pseudonymous blogger, named by the FT as ‘Soaringdragon’, claimed that “Rolls-Royce propelled itself into the Asian market with the help of payments passed to an executive of Air China and China Eastern Airlines. Executive Chen Qin, who worked for both airlines, allegedly acted as Rolls-Royce’s intermediary in two pivotal deals inked in 2005 and 2010, worth $2 billion in all. Chen is thought to have been detained for corruption in April 2011.” All the allegations currently made against Rolls-Royce were for actions prior to the application of the UK Bribery Act, which became effective on July 1, 2011.

Rolls-Royce is reported to be co-operating with the SFO in the investigation. The company announced that it found concern regarding the markets of China, Indonesia and other markets as well. The company reportedly released its findings over to the SFO which has not yet announced whether it would open a separate investigation or if it had made any decisions on whether it would prosecute the company. Chief Executive John Rishton was quoted as stating, “I want to make it crystal clear that neither I nor the board will tolerate improper business conduct of any sort and will take all necessary action to ensure compliance. This is a company with exceptional prospects, and I will not accept any behaviour that undermines its future success.”

Last week Rolls-Royce announced that it had retained Lord Gold to review its overall compliance program. The FT reported “Having to bring in Lord Gold to examine the robustness of the company’s compliance efforts indicates just how much Rolls-Royce wants to avoid an SFO, or worse, a DoJ probe. He has been brought in to Rolls-Royce precisely to avoid the costs associated with BAE’s bribery investigation, and thus his role is much more similar to the one Lord Woolf played at BAE.” For a company known to have an opaque culture, bringing in Lord Gold “has the potential to upset the Derby-based company’s deep-seated culture more than anyone in its recent history.”

I thought about this move by Rolls-Royce when I re-read a posting, entitled, “Wal-Mart, Go Big on FCPA Compliance”, by my colleague Matt Ellis, in his blog, FCPAméricas. In this post he detailed some of the ways that he thought Wal-Mart could use the opportunity afforded by its bribery and corruption scandal in Mexico “as an opportunity. It is an opportunity to go big on compliance.” Matt talked about how Siemens changed its culture after having paid the highest fine for violations of the Foreign Corrupt Practices Act (FCPA) in the history of the world ever. Moreover, Matt listed several things that he thought Wal-Mart was uniquely positioned to accomplish because of its size and strength, which were as follows:

• Wal-Mart could use these same tools to build a state-of-the-art corruption risk-tracking program to which its compliance practices could respond in real time.
• Wal-Mart could use its enormous leverage in international markets to educate foreign audiences on compliance.
• Wal-Mart could train these landlords of the stores they lease internationally on compliance.
• Wal-Mart could require landlords to put a FCPA or other anti-corruption compliance programs in place themselves.
• Wal-Mart could begin to teach communities how to identify and avoid risks of petty corruption.
• Wal-Mart could partner with local municipalities to launch reporting centers in its Supercenters.

I am not certain Lord Gold could accomplish some of the things that Matt has suggested that Wal-Mart put in place as Wal-Mart is the world’s largest retailer and Rolls-Royce is, well the name says it all, Rolls-Royce. But after the black-eye the British defense and aerospace industry took in the BAE corruption and bribery scandal, Rolls-Royce may be able to use this opportunity to lead a culture change in this British market segment. According to the FT, “Lord Gold’s job at Rolls-Royce will be closer to that of Lord Woolf, who made wide recommendations at BAE after it became embroiled in a corruption and bribery scandal. If Lord Gold is similarly radical, he could completely change the way Rolls-Royce does business, forcing it to limit its use of intermediaries, or even prompt the resignation of senior executives, as happened at BAE.”

I think that the lessons for the compliance practitioner from Rolls-Royce are two-fold. First and foremost, get ahead of the curve. If you believe that you have found evidence of systemic bribery and corruption, your company has to self-disclose and work with the appropriate enforcement agency, whether that is the US Department of Justice (DOJ) or the SFO. But more than self-disclosure and extraordinary cooperation, be proactive in attacking the policies, processes and procedures which led to the allegations of corruption.

Bringing in a Lord Gold, who has dealt with “A multibillion-pound spat between oligarchs, investigating cronyism in British politics, and helping one of the world’s best-known brands respond to corruption allegations have been his bread-and-butter since the veteran litigator set up his own advisory boutique in 2011”, can certainly help give you credibility on either side of the Atlantic. On the US side, the first name that pops in my mind is Louis Freeh, former Director of the Federal Bureau of Investigation (FBI), whose work has ranged from the Penn State/Jerry Sandusky investigation to the Trustee in the MF Global bankruptcy to his appointment to the Ethics Committee of FIFA. If you want another name, I can certainly recommend John Hanson, aka “The Fraud Guy”. He is a retired FBI agent, has worked in the fraud investigations and forensic accounting practice of a large publicly traded international financial consulting firm and has been an independent monitor under Deferred Prosecution Agreements (DPAs). Both of these guys know their stuff and are very well respected in the compliance community.

I think the clear import of Matt Ellis’ article is to ‘think big’ and outside the box. If you proactively attack what went wrong that led to bribery and corruption, I think it will pay off dividends with the DOJ or the SFO.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013