Using History to Create or Rebuild a Compliance Culture

I have wondered how organizations such as Siemens, Alcatel-Lucent or any others that have faced a wide-ranging, global charge of systemic bribery and corruption might change their culture. Many others have written about the structural changes that such companies have made. For instance, the compliance monitor for Alcatel-Lucent, Laurent Cohen-Tanugi, was quoted in a recent Corporate Crime Reporter article, entitled “Alcatel-Lucent Monitor Questions Morgan Stanley FCPA Declination”, as saying “I’ve noted a very significant change in the tone at the top since the time of those events that led to this deferred prosecution agreement. These changes are due to a number of factors – such as the merger between Alcatel and Lucent. Most of the facts predated the merger. But also the new leadership that came to the company – in the persons of Ben Verwaayen and Philippe Camus. I have noted that the company has in place the policies and processes that are generally expected to fight corruption. And that is very good news.”

Another method was used by the first Chief Executive Officer (CEO) who came into Siemens after its bribery and corruption scandal. One of the things that Peter Löscher did in his first 100 days with the company was to go on a round the world tour of the company’s facilities, including meetings with employees, customers and local governmental officials. 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.” They wanted him to help clean up the company and they communicated that to him in these town hall meetings.

I have worked for and with a number of companies that may seem to have lost their compliance path and have become embroiled in a lengthy Foreign Corrupt Practices Act (FCPA) or UK Bribery Act investigation. They may need to try and change a culture that has slipped down a path that needs redirecting. I was, therefore, interested to read a recent article in the December issue of the Harvard Business Review (HBR) by John Seaman Jr and George David Smith, entitled “Your Company’s History As A Leadership Tool”, where the authors write about a different manner in which to change or modify culture, or what I call the “historical path.”

The authors begin by stating they believe that “For a leader who hopes to take an organization into the future, one of the most powerful tools may be a sophisticated understanding of its past.” To accomplish this, the authors advocate thinking like a historian because they believe that if you do not know where you have been, it is difficult to know where you are going. By this they mean that you should base any serious decision on facts. Next, you must be willing to treat facts “with intellectual integrity – viewing them with an open mind and a willingness to be surprised.” The authors recognize that many CEO’s are faced with great pressure regarding “quarterly earnings reports and the need to react to one crisis (real or perceived) after another,” yet they believe that the best leaders have “a long range perspective on the companies they manage.”

I believe that most employees want to engage in business ethically and that they do not want their company to be known as one which engages in illegal conduct, such as FCPA or UK Bribery Act violations. Employees want their companies to be successful because of better products, better services and better delivery of both to their customers. They want to understand, be a part of and have a sense of legacy for the company that they work for and the people that they work with as employees. To help facilitate this, the authors suggest that a company can engage in seven steps to help understand where a company has been to in order to help guide it where it may be going in the future. The authors call this the “Seven Tips for Getting History on Your Side” and they are:

1. Company Archives. Your company should begin with the archives. You should visit or begin compiling your company’s archives. The authors believe that your company’s history is “only as good as the raw material – documents, images and artifacts – that you have at your disposal.”
2. Enrich. You should expand and enlarge your company’s archives through interviews with departing executives and long-term employees and here the authors advise “especially the outlaws and the iconoclasts.” These interviews will help to ‘flesh out the written record, which often omits the rationale for decisions or fails to note what might turn out to be important ideas or events.”
3. Survey. Your company should find out what is known about your company’s values and history through surveys. The authors believe that this can assist in separating “fact from fiction, identify missing pieces which you will need to address and begin to understand how history has shaped perceptions about your company today.”
4. Dialogue.  Encourage your employees to engage in a dialogue about your company. Use social media to “capture stories about the company’s past” and about what the meaning of the past has for your company’s work and values today.
5. Post-mortems. Conduct post-mortems on major projects and initiatives – both the successful and unsuccessful. You must recognize that you can learn as much from failure as you can from success.
6. Perspective. Your company should seek to entertain a historical perspective “before every new decision, whether it involves a new strategy, a major acquisition or investment, or a new marketing campaign or communications initiative.”
7. Talk-Up. Your company should talk about its rich history. Its leaders, breakthrough innovations and decisive impacts and “what it says about the company you are today or want to become.”

The authors conclude by stating that “A company’s store of experience—its evolving culture and capabilities, its development within the broader contexts in which it has competed, and its interactions with government and other forces—shapes the choices executives have to make and influences how people think about the future. Great leaders respect and honor that basic truth.”

If your company needs to refocus its commitment to compliance, in addition to the compliance processes and procedures that you will need to install or enhance, you may be able to call upon a rich corporate history to assist you. It is there if you look for it and what you find may be similar to what Siemens CEO Peter Löscher found at Siemens, that employees were both proud of their company and ashamed that it had engaged in such bribery and corruption. But you do have to look.

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, 2012

Beacon Events Compliance Conference in Beijing – I Wish I Could Be There

In the Sherlock Holmes story “The Final Problem” Conan Doyle tried to kill off his fictional detective by having him go over Reichenbach Falls in Switzerland locked in mortal combat with his arch nemesis Dr. Moriarty. However, readers of the Holmes’ short stories protested so much that Doyle had to resurrect him a short story entitled “The Adventure of the Empty House”. What do these stories have to do with compliance? I had been scheduled to chair and participate in the Advanced Anti-Corruption Compliance Strategies Summit being held in Beijing from 4^th to 6^th December, however as I have not been cleared yet to travel after my recent surgery I cannot do so. So unlike Holmes, I will not disappear, just be land-locked here in Houston.

To say I am disappointed that I cannot attend would be putting it mildly as it will be one of the top compliance-related conferences in the Far East for 2012. If you have not had the opportunity to attend a compliance-related conference tailored to the challenges of working in the Far East this would be the conference for you. Even if you have attended such an event, this conference focuses on China and will give you more insight into how to do business under a plethora of anti-corruption and anti-bribery laws, from the US Foreign Corrupt Practices Act (FCPA) to the UK Bribery Act and the recently enacted PRC China anti-bribery legislation.

The person who will take my slot as conference Chairperson is certainly not unfamiliar to coming off the bench. Indeed he is one of the top compliance counsels in the region, Eric Carlson, of the law firm of Covington and Burling LLP. In addition to practicing law, Eric is also a Contributing Editor to the FCPA Blog. In other words, this guy knows his compliance stuff. In addition to presenting my review of 2012 FCPA enforcement and lessons learned, Eric is also on tap to speak about the specific lessons which impact foreign companies operations in China. As a partner in the firm’s Beijing office, he is uniquely placed to do so.

So what are some of the subjects that will be covered? Consider these: 2012 – The FCPA year in review – what we have learned about best practices from the year’s enforcement actions; Official View: Current PRC focus and trends – commercial bribery enforcement; UK Bribery Act – Update on the UK Bribery Act and enforcement a year after implementation; Expert View on the Implications of Recent FCPA-Related Developments – Analyses of Recent Cases and Insights into Future US Government Enforcement Priorities That May Impact China Operations; Managing the multi-jurisdictional aspects of compliance in Asia when multiple parties are interested, plus an update on the new provincial / local laws in China, which could increase risks of debarment; Live examples of strong internal controls and compliance programs – Case studies of changes implemented in the past year to meet or exceed changing global and local regulatory expectations; Sustainable Compliance: Making the Case for Less is More; How to personalize a policy for your company, taking into consideration the specific challenges your employees really face on a day to day basis; Creating robust agreements with Third parties – how to ensure integrity and compliance without losing important partners; Robust due diligence and monitoring of suppliers to ensure a culture of integrity in your supply chain; Supply chain issues and non-governmental bribery – how much oversight is required over downstream parties like agents, intermediaries, distributors, retailers to avoid prosecution and reputation risk?; and a Dodd-Frank Whistleblower Update.

In addition to the above the first day of the conference is Workshop Day with two great workshops, one will focus on ‘Step by Step Guidance on Best Practice for Investigations’ and the second on how to ‘Update Your Compliance Plan and Effectively Assess and Manage Risk’ The second workshop is further broken down into two subparts: Part I: Quickly get up to speed with the latest anti-corruption developments to make sure your programs are defendable and Part II: Effective risk assessment, risk management and risk mitigation for bribery and fraud risk in China. The conference will also have special in-depth tracks for a more detailed exploration of subjects such as internal investigations and managing compliance in the mergers and acquisitions (M&A) context and in joint ventures (JV’s).

The topics will be among the most relevant and informative that you could ask for. They include FCPA prosecutions and enforcement actions, risk assessments and risk intelligence, dealing with facilitation payments, FPCA compliance training, and FCPA risk assessment in M&A work and in dealing with JV’s, auditing and compliance convergence. Simply put, the scope of the Beacon Events conference is as broad and far-ranging as you might ask for; nevertheless the focus is on the compliance practitioner and the business of doing compliance inside a corporation.

Bottom Line: This is one of the very best FCPA conferences that has ever been staged in Beijing. It will offer some of the most cutting edge best practices on a wide variety of issues that bedevil compliance practitioners on a day-to-day basis. This list of speaker is the most ‘A-List’ that has ever been seen at such an event in Beijing. You owe it to yourself to attend. I am just sorry that I cannot do so.

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For information on the Conference, click here. For readers of this blog, a discount is offered by Beacon Events. You can receive the discount by entering the online discount code: AC678TFL15. You can also use this discount code if you register directly with Beacon Events.

 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, 2012

New Charges for News Corp: Are FCPA Charges Just Around the Corner?

When you have eliminated the impossible, whatever remains, however improbable, must be the truth.

~ Sherlock Holmes in The Sign of the Four by Arthur Conan Doyle

Last Wednesday was the 125^th anniversary of the first appearance of the world’s greatest consulting detective – Sherlock Holmes when the first Holmes novel, A Study in Scarlet, appeared in Beeton’s Christmas Annual in 1887. This week we will celebrate one of my favorite works of fiction, while trying to draw some compliance parallels, under both the US Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act. We begin with The Sign of the Four because it is the one novel by Arthur Conan Doyle which has everything: swirling fog, a lost treasure, a chase, Holmes’ cocaine use and a damsel in distress. It is also the novel in which Holmes’ companion Dr. John Watson meets his bride Miss Mary Morstan. olhh

Much like The Sign of Four, the News Corp matter would seem to have everything. Last week charges were brought against Rebekah Brooks, who ran Murdoch’s newspaper holdings in Britain, Andy Coulson, former editor of the now defunct News of the World, and two other former News International employees. According to a Press Release from the Crown Prosecution Services (CPS), “We have concluded, following a careful review of the evidence, that Bettina Jordan-Barber, John Kay and Rebekah Brooks should be charged with a conspiracy to commit misconduct in public office between 1 January 2004 and 31 January 2012. This conspiracy relates to information allegedly provided by Bettina Jordan-Barber for payment, which formed the basis of a series of news stories published by The Sun. It is alleged that approximately £100,000 was paid to Bettina Jordan-Barber (a Ministry of Defence [MOD] employee) between 2004 and 2011.”

Dan Sabbagh, in a Guardian article entitled “Rebekah Brooks and Andy Coulson charges set new context for Leveson”, noted that “Significantly, the CPS said that the charges against the two for alleged misconduct in a public office cover the period between 2004 and as recently as 2011 – when payments to MoD official Bettina Jordan-Barber totalling about £100,000 are alleged to have been made.” This means that the payments lasted beyond the date that was alleged to have been for the phone-hacking scandal, “Hacking charges laid by the CPS against Brooks, Coulson and others range from October 2000 to August 2006, before the younger (James) Murdoch arrived at Wapping.” These payments to Jordan-Barbara were alleged to be in excess of ₤100,000.

These charges may mean significantly more international legal problems for News Corp, specifically regarding liability under the FCPA. Ed Pilkington and Dominic Rushe, also writing in the Guardian in an article entitled “News Corp exposed to growing legal threat following charges for tabloid duo”, quoted Professor Mike Koehler (the “FCPA Professor”) who said “the charges would be hard for the Department of Justice and the Securities and Exchange Commission to ignore [regarding a violation of the US FCPA]. We have been hearing allegations for a year and a half now, now we clearly have charges against high ranking officials at a foreign subsidiary.”

So how might Brooks and Coulson be liable under the FCPA? The recently released US Department of Justice (DOJ) and Securities and Exchange Commission (SEC) “A Resource Guide to the U.S. Foreign Corrupt Practices Act” explains that an individual may be liable for conspiracy to violate the FCPA without having committed a substantive FCPA violation.

Under US law, individuals or companies that aid or abet a crime, including a FCPA violation, are as guilty as if they had directly committed the offense themselves. The aiding and abetting statute provides that whoever “commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission,” or “will­fully causes an act to be done which if directly performed by him or another would be an offense against the United States,” is punishable as a principal. Aiding and abetting is not an independent crime, and the government must prove that an underlying FCPA violation was committed.

Both individuals, who are foreign nations and companies, may also be liable for conspiring to violate the FCPA, i.e., for agreeing to commit an FCPA violation, even if they are not, or could not be, indepen­dently charged with a substantive FCPA violation. So both a foreign national such as Brooks and Coulson could be convicted of conspiring with a domestic concern to violate the FCPA. Under certain circumstances, they could also be held liable for the domestic concern’s substantive FCPA violations under Pinkerton v. United States, which imposes liability on a defendant for reasonably foreseeable crimes committed by a co-conspirator in furtherance of a conspiracy that the defendant joined.

A foreign individual may be held liable for aiding and abetting a FCPA violation or for conspiring to violate the FCPA, even if the foreign company or indi­vidual did not take any act in furtherance of the corrupt payment while in the territory of the US. In con­spiracy cases, the US generally has jurisdiction over all the conspirators where at least one conspirator is an issuer, such as the US Corporation News Corp, who commits a reasonably fore­seeable overt act within the US. For example, if a foreign company or individual conspires to violate the FCPA with someone who commits an overt act within the US, the US can prosecute the foreign company or individual for the conspiracy. The same prin­ciple applies to aiding and abetting violations. For instance, even though they took no action in the US, Japanese and European companies were charged with con­spiring with and aiding and abetting a domestic concern’s FCPA violations.

Pilkington and Rushe predicted that “the new charges will increase pressure on the company. They cited a further quote from the FCPA Professor “This latest news is an escalation of the FCPA case.” Further, he told them that “US authorities would be looking to see how high up the chain of command the bribery scandal reached. The question will be what did James know and when did he know it.”

Even more ominously for News Corp, Pilkington and Rushe reported that “This week the Daily Beast alleged that the Murdoch tabloids the Sun and the New York Post may have made payments to a US official on American soil in order to obtain a photo of a captive Saddam Hussein, the deposed Iraqi leader, in his underwear. News Corporation has denied the claims.”

Where does this leave News Corp? It may be in quite a precarious position now. First there are the two high ranking former News Corp employees charged with conspiracy to commit bribery of a UK government official. Brooks was the former Sun editor and later ran the Murdoch’s holdings in the UK. Coulson was the former editor of the now defunct News of the World and later Director of Communications for UK Prime Minister David Cameron. As stated by the FCPA Professor in the article, what about the knowledge of James Murdoch? While the phone hacking charges may have occurred before he was involved in News Corp’s UK operations, the dates of the alleged payments may certainly impact him as well. All we can say with certainty is…watch this space.

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I will be discussing the recently released FCPA Guidance next Tuesday afternoon in a webinar, hosted by World Compliance. The event will be held at 2 PM CST. Details and registration can be found here. I hope that you can attend.

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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, 2012

Rachael Carson, Silent Spring and Compliance Leadership

One of the constant tensions in any corporate compliance department or legal department is when to exercise leadership. While many corporate executives fall into the “lawyers are better seen than heard from” camp there are times when we must say ‘No’. While Mike Volkov continually sounds the horn against compliance practitioners becoming ‘Dr. No’ to which I would add inhabiting ‘the Land of No’ it’s a component of the job. The question is twofold; when to say no and how to say no.

This year is the 50^th anniversary of the publication of Rachael Carson’s seminal and transformative work “Silent Spring” which in many ways directly led to the modern environmental movement. Rachael Carson’s “life shows that individual agency, fueled by resolution and hard work, has the power to change the world.” The first Earth Day, on April 22, 1970; the creation of the Environmental Protection Agency (EPA), which began operations in 1972; the banning of the use of the pesticide DDT in the United States and the enactment of both the Clean Water Act in 1972 and the Endangered Species Act in 1973; all of which began with Carson’s book.

I thought about this question of when and how to say no when reading a recent article in the New York Times (NYT) by Nancy Cohen, entitled “From Calm Leadership, Last Change. In this piece Cohen looked at the life of Rachael Carson, her seminal work “Silent Spring” and leadership. Silent Spring was on the seminal works that I read during college. I was absolutely overwhelmed by the wealth of information and data that Carson packed into her book. While I had some sense of the importance of the book as one of the first on what we now call environmentalism, at that time I was not aware that the book and Carson played a central role in starting the environmental movement, by forcing government and businesses to confront the dangers of pesticides.

What are the compliance leadership lessons that Carson’s experience demonstrate? Cohen initially noted that “As a professor at Harvard Business School, I encountered the great depth of her work when I was creating a course on the history of leadership.”
Cohen learned that Carson wrote “Silent Spring” as she battled breast cancer and after her niece died cared for her young child. Additionally, while “Unmarried and living in Silver Spring, Md., she also cared for and financially supported her ailing mother.” More importantly, after the book was published, Carson “faced an outburst of public reaction and a backlash from chemical companies. Yet throughout her personal and public struggles, she was an informed spokeswoman for environmental responsibility.”

Cohen gave three topical examples of Carson’s leadership which I believe are important for the compliance practitioner which speak to the question of ‘how’ to say ‘No’ when required to do so. The first is the importance of persistence in pursuing an objective. Business executives are usually struck by the ability to stay focused on goals in the face of obstacles.

Second, Cohen wrote about “the importance of doing thorough research and taking the long view. This means more than simply knowing the facts but also an understanding of history and culture are essential to understanding what is at stake in difficult and uncertain situations.” Cohen believes that this has the advantage of conferring “a sense of authority on the person who has acquired this knowledge.” In the compliance arena, this means more than simply understanding the obligations under the relevant anti-corruption and anti-bribery laws which apply to your company, such as the Foreign Corrupt Practices Act (FCPA) or UK Bribery Act, but applying them in jurisdictions across the globe.

The third lesson that Cohen writes about is that “the juggling of personal demands and professional ambitions in dealing with obligations to others while following professional drive. Carson’s story shows that times of great productivity can be followed by fallow periods when ambitions must be put aside for personal reasons.”

In addition to these three, others lessons can be drawn from Carson’s work. As noted by Cohen, Carson’s “life shows that individual agency, fueled by resolution and hard work, has the power to change the world.” For the compliance practitioner it is that leadership can come in all forms, in all shapes and sizes, even in an introvert. While most people assert leadership with traits such as charisma and aggressive, Cohen quoted Susan Cain, author of “Quiet: The Power of Introverts in a World That Can’t Stop Talking”, for the proposition that leadership can come in less obvious forms.

Leadership does not always come from the alphas of the world but sometimes from the introverts. The world might have been very different today if this most soft-spoken woman had not been so determined. As compliance practitioners we can not only draw inspiration from Rachael Carson’s work but leadership lessons as well.

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, 2012

Share more. Spend less. Reduce Risk.

Ed. Note-today we have a guest post from Alexandra Wrage, President of  Trace International.

Well over a thousand people with an interest in enhancing transparency worldwide met in Brasilia for the International Anti-Corruption Conference last week to share best practices, brainstorm, promote new ideas and, often, just to complain about the slow pace of change.

At this conference, as elsewhere, three themes have emerged.

1.The burden on companies will continue to grow.

Governments hoping to have an impact on transnational crime recognize that exerting pressure on multinational companies is the most expedient way to proceed. Governments are hampered by legal obstacles and political sensitivities and cannot easily reach across borders to solve significant social, economic and security challenges. They can, however, require their companies or companies listed on their exchanges to work to reduce bribery (the FCPA and similar laws in other jurisdictions), curb the use of forced or trafficked labor (California Transparency in Supply Chains Act of 2012), reduce violence associated with conflict minerals (Dodd-Frank Wall Street Reform and Consumer Protection Act), and prevent money laundering, (various new initiatives impacting the financial services industry).

2.The current pace of expenditure on compliance is unsustainable.

The numbers of employees companies are expected to train on compliance topics, using both on-line and in-person training, is increasing. Many companies have determined that it’s simpler to just train everyone rather than invest the resources to sort and track different categories of employees. Companies are searching denied parties lists with increasing frequency. Ten years ago, many companies searched only the entity name and only upon contract renewal. Many now prudently search the entity name and the names of all owners, — and they search weekly or daily. The world of due diligence has probably changed the most dramatically as companies are encouraged to seek certainty in all of their relationships. Certainty isn’t available at any price, and near-certainty is very expensive indeed. Companies spend breathtaking sums to try to prove that a media report is not true, that a rumor is unfounded or that a government official’s golf buddy is not likely to trade on the relationship.

And that’s just for compliance with the FCPA. Now companies are looking at setting up parallel due diligence systems to vet their suppliers with respect to their use of conflict minerals or for egregious labor practices. The former may be the purview of the procurement department and the latter the responsibility of the labor and employment group. Multiple processes, occasionally duplicative and often without visibility across departments, result in mounting expense, compliance fatigue and employee cynicism.

3.Companies will have to choose between a more collective, shared-cost approach to compliance, doing too little or paying too much.

Companies have, on the whole, not been able to overcome their queasiness about ill-defined anti-trust concerns or their natural instincts to avoiding sharing information with competitors. That needs to change for the business community to begin stemming the financial hemorrhage and increasing levels of risk.

Here are just three examples of how this could work. Spoiler alert: one is a TRACE project of which we’re very proud.

On-line training: Currently, companies choose either to create their online training in-house with some combination of video vignettes and PowerPoints or pay for generic or moderately tailorable off-the-shelf training that isn’t always relevant to their industry or the regions in which they operate. Instead, industry groups could get organized.  They could pool the resources of their members to create an on-line training module tailored to the specific needs of that industry, with carefully selected case studies relevant to their respective employees, pay a third party LMS to host the module and then share the product amongst the contributors. The benchmarking and exchange of expertise around the roll-out ensures a high-quality product. Everyone gets trained to the same high standard and the cost is shared.

Model policies: Most compliance experts agree that a purely off-the-shelf compliance program is inadequate and companies simply cut and paste their program at their peril. On the other hand, there are component parts of any compliance program that are largely duplicative and vary little. Companies can benefit from perusing the policies of other multinationals and highlighting the aspects relevant to their business. Once this benchmarking step is complete, in-house counsel or compliance experts are in an informed position and can speak to their outside counsel knowledgeably, making the process more meaningful and less expensive. Similarly, access to databases of policies can support on-going benchmarking efforts for companies keen to maintain their state-of-the-art policies. The United Nations Office on Drugs and Crime maintains such a database with the policies of the Global Fortune 500. Industry groups could also work to pool redacted policies for the benefit of all members.

Due diligence: Currently, companies – in-house or through vendors – collect baseline due diligence information about their third party representatives including ownership, ties to the government, past misconduct, denied party hits and compliance certifications. And then the next company does the same thing all over again. The collection of this first round of information is labor-intensive and requires attention to detail, but – apart from the fact of the relationships themselves – none of the information gives rise to either competitive or anti-trust concerns.  Intermediaries themselves will tell you that they are being bludgeoned with repetitive, near-identical requests for information from multiple companies. Instead, third parties could be invited to answer all questions and upload documentation once to a secure global platform, subject to rigorous verification and continuous watch list screening, and all companies could have access to this baseline due diligence with the third party’s approval. (As foreshadowed, TRACE has built this public tool – TRACnumber.com)  Companies pay nothing. Third party intermediaries pay a modest fee to fund the platform and the translation and verification process. The information is shared, saving both parties the cost and delay of duplicative efforts. (Click here to see a 90-second animated video on TRAC.

There are a lot of smart and creative people working in the field of compliance, including the intrepid but briefly incapacitated host of this blog. Accomplishing the more basic tasks through these and other collective approaches will free up time and budget, enabling companies to direct their more complex problems to these experts for carefully tailored solutions.

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 High Costs of Non-Compliance!

Ed Note-we continue our series of guest posts by Mary Jones. Today, Mary explores the high cost of non-compliance.

On November 13, 1923 a special committee was formed to determine whether Germany would be required to pay for the substantial war debt incurred by Great Britain and its allies in the wake of the first Great War. The substantial monetary penalties imposed would only take Germany a mere 77 years to pay off, as the last 94 million dollar reparation payment was made on October 4, 2010.  Today, the substantial debt incurred by Germany, as a result of their transgressions during WWI, appears to be but a distant memory for most people.  However, for at least one German company, the imposition of substantial penalties as a result of past misconduct, albeit misconduct of a different nature from Germany in 1923, may be too severe to fade from their memory anytime soon.

On November 29, 2006 Siemens AG, a German conglomerate with over 475,000 employees, operations in 190 countries, and yearly revenue exceeding €87 billion euros, was raided by the Munich prosecutor following allegations that the Company had made various corrupt payments.  In response to this raid, the Siemens board of directors began an unprecedented internal investigation aimed at determining whether anti-corruption regulations had been violated. According to settlement documents, Siemens hired more than 300 lawyers, forensic accountants and support staff from law firm Debevoise & Plimpton LLP and accounting firm Deloitte LLP for a two-year internal probe.  The company estimated that the firms racked up 1.5 million billable hours. The investigation spanned 34 countries and included 1,750 interviews. Of the roughly 100 million documents collected in the investigation, Siemens produced about 24,000 documents for the Justice Department.

Together these two independent firms conducted the investigation, which included:

• 1,750 Interviews with Siemens employees and other individuals;
• 800 informational briefings with employees to obtain background information;
• 82 million documents electronically searched to identify potentially relevant material
• 14 million documents reviewed
• 38 million financial transactions analyzed; and
• 10 million bank accounts reviewed.

It has been reported that the internal investigation cost Siemens around €550 million euros, with €204 million going to Debevoise and €349 million going to Deloitte. What is even more shocking is that the €550 million euro investigation fee was in addition to the €1 billion euro fine and penalty subsequently imposed by the DOJ and German authorities, as a result of Siemens past corrupt practices.

Siemens is not alone in the high cost of internal investigations and/or fines and penalties.  We have recently read filings from other companies in the midst of internal investigations who have disclosed some of the internal investigation costs:

•  Avon: The internal investigation is in its fifth year.  The reported internal investigation costs are approximately $280 million dollars!
• Weatherford: The internal investigation is in its sixth year.  The reported internal investigation costs are approximately $125 million dollars!
• Wal-Mart:  The internal investigation for Wal-Mart has not yet reached the one year mark- but the reported internal investigation costs are already $51 million dollars!

These are only the internal investigation costs.  We don’t know if there will be any fines or penalties imposed upon these organizations.  But can you imagine if your company had to pay millions and millions of dollars for the investigation and then get hit with fines and penalties in the range that we have seen in the last few years?

• KBR/Halliburton- $579 million
• BAE- $400 million
• Snamprogetti/ENI- $365 million
• Technip-$137 million

A review of these cases brings us to the Practical Pointer for today:  We understand that you may be placed in a position to justify the cost of implementing and enforcing a compliance program.  “How much is it going to cost us”?  That question has to be addressed, and should be.  The implementation of a compliance program does not have to break the bank.  However, it is important to put the company’s money “where their mouth is”.  The message to your company is this- the cost of implementing and maintaining a compliance program is far less that the investigation costs, time, embarrassment, and potential fines and penalties (not to mention jail time) that the company will incur if it does not put in a solid compliance program.

Being proactive in terms implementing and enforcing a compliance program does have a cost. Each company should, without question, implement a compliance program tailored to their specific needs and means.  However, as reflected in the reported investigation costs and reported fines and penalties, and jail time, the disparity between the costs of implementing and enforcing a compliance program, in relation to the monetary magnitude of potential costs, fines, and/or jail time makes the implementation of a proper compliance program something of a no-brainer.  So if you or your company are thinking of starting to do business internationally make sure to do the smart thing and implement a compliance program, because explaining the paltry sum of a compliance program to your executive management, owners and/or Board of Directors will be a much easier task than trying to explain away your failure to do so in the face of a multi-million dollar investigation costs, fines, penalties or jail time.

At this point you might ask yourself:  “Well now that I know what happens if we don’t comply with the law- what exactly am I required to do in order to implement a solid compliance program?”  The answer to this question is simple.  You just have to look at the law, the guidance provided by the various governments, (DOJ, SEC, and UK Fraud office), read what other people failed to do AND you can read tomorrow’s blog!

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Mary Shaddock Jones has practiced law for 25 years in Texas and Louisiana primarily in the international marine and oil service industries.  She was of the first individuals in the United States to earn TRACE Anti-bribery Specialist Accreditation (TASA).  She can be reached at msjones@msjllc.com or 337-513-0335. Her associate, Miller M. Flynt, assisted in the preparation of this series.  He can be reached at mmflynt@msjllc.com.

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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.

Panalpina’ s “World Wide Web”

Ed. Note-we continue our guests posts from Mary Jones who today looks at the world wide web in the context of one of the most significant companies which have been involved in FCPA enforcement actions-Panalpina

On November 12, 1990, Sir. Tim Berners-Lee with help from Robert Cailiau published a formal proposal for the World Wide Web in Switzerland.   Today, twenty-two years later- we look at a different world wide web, one which ensnarled a Switzerland based company named “Panalpina”.

According to the Department of Justice, Basel, Switzerland based Panalpina World Transport “is one of the world’s leading suppliers of forwarding and logistics services, specializing in global supply chain management solutions and intercontinental air freight and ocean freight shipments and associated supply chain management solutions.” It operates “a close-knit network with some 500 branches in over 80 countries,” does business in a further 80 countries with partner companies, and employs approximately 15,000 individuals.  The criminal information focuses on a “network of local subsidiaries … each of which was responsible for providing the freight forwarding and logistics services to customers and for coordinating with other Panalpina-affiliated companies with respect to the transportation and shipment of cargo from abroad.” In addition, PWT and its subsidiaries “provided customers with importation, customs clearance and ground shipment services once the shipped goods reached their destination jurisdiction.”  The subsidiaries under investigation were from the U.S., Nigeria, Angola, Brazil, Azerbaijan, Kazakhstan, Russia and Turkmenistan (hence my reference to the “world wide web”!)

There have been many blogs, papers and articles written about the facts and settlement the DOJ and SEC entered into with Panalpina and many of the oil service companies utilizing its services.  There is no reason for me to recite the facts of that case again.   More importantly, I have seen first-hand the improvements made by Panalpina in its own compliance program since the investigation began in 2005. This is a company that should be lifted up as a model for others to follow.  I have always been taught that it isn’t the fact that you get knocked down that shows your strength and courage, but the fact that you get back up and learn from your mistakes.    All of us can learn improvements from each and every one of the FCPA reported settlement agreements, including that of Panalpina.

Practical Pointer for today’s blog- once a third party has passed the due diligence process, it is important to include contractual language specifically targeted to the FCPA (and in my opinion the UK Bribery Act). There are several well recognized concepts that should be included in the contractual language, including an overarching statement that the Agent or Partner will not authorize, offer, or pay anything of value to a foreign government official (or private entity if UK Bribery Act is encompassed) for the purpose of obtaining or retaining business or gaining any improper business advantage.  This concept is followed by the promise to submit itemized invoices, with accurate supporting documentation to allow for transparency in the processing of payments.  Along with these two requirements are the rights to audit, to terminate or suspend the contract, and perhaps, the right to recoup any losses and investigation costs for violation of the above.  The final agreements would include the obligation to undertake training, periodic due diligence requalification and annual certifications.

On Friday, we discussed the Due Diligence process and provided some language to assist in the identification of “Red Flags” when considering the use of a third party Agents or Partners.  Today, we provide you with additional language to consider utilizing once an Agent or Partner has been retained:

In addition, unless approved by the Company Compliance Officer or his or her designee, all contracts with Agents or Partners shall contain provisions addressing the following matters:

• payment mechanisms that comply with this Manual, the FCPA, the UKBA and other applicable anti-corruption and/or anti-bribery laws during the term of such contract;
• the counterparty’s obligation to maintain accurate books and records in compliance with the Company’s Policy and Compliance Manual;
• the counterparty’s obligation to certify on an annual basis that: (i) counterparty has not made, offered, or promised any payment or gift of money or anything of value, directly or indirectly, to any Government Official (or any other person or entity if UK Bribery Act applies) for the purpose of obtaining or retaining business or getting any improper business advantage; and (ii) counterparty has not engaged in any conduct or behavior prohibited by the Code of Conduct, Anti-Corruption Policy and Compliance Manual and other applicable anti-corruption and/or anti-bribery law;
• the Company’s right to audit the counterparty’s books and records, including, without limitation, any documentation relating to the counterparty’s interaction with any governmental entity  (or any entity if UK Bribery Act applies) on behalf of the Company, and the counterparty’s obligation to cooperate fully with any such audit; and
• remedies (including termination rights) for the failure of the counterparty to comply with the terms of the contract, the Code of Conduct, the Anti-Corruption Policy and Compliance Manual and other applicable anti-corruption and/or anti-bribery law during the term of such contract.

All contracts that provide for the disbursement of funds by the Company to a third party shall be in writing and shall require the other party to submit a written invoice for payment in compliance with the terms of its contract with the Company. All invoices shall be accompanied by accurate and sufficient supporting documentation for all outlays to third parties.  Contracts requiring the disbursement of funds by the Company for such services shall also require that, unless the Company Compliance Officer or his or her designee determines that payment in another jurisdiction does not violate local law and that a valid business reason for payment in another jurisdiction exists, funds shall be transferred only to a bank account owned by the designated recipient and that such account shall be located in the jurisdiction where the relevant business services are to be performed/occurs.

As we discussed last week, companies can be held liable for the acts of third parties acting on their behalf.  The use of the contracting strategies suggested above will clearly communicate to the Agent and/ or Partner the seriousness of your company’s commitment to abiding by the law and spirit of the FCPA and similar anti-corruption laws and regulations.

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Mary Shaddock Jones has practiced law for 25 years in Texas and Louisiana primarily in the international marine and oil service industries.  She was of the first individuals in the United States to earn TRACE Anti-bribery Specialist Accreditation (TASA).  She can be reached at msjones@msjllc.com or 337-513-0335. Her associate, Miller M. Flynt, assisted in the preparation of this series.  He can be reached at mmflynt@msjllc.com.

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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.

Armistice Day: The Risks and Rewards of Foreign Joint Ventures

Ed. Note-we continue our series of guest posts from our colleague Mary Shaddock Jones, who today looks at Joint Ventures and has some pointers for avoiding pitfalls under the FCPA.

In December 2010, RAE Systems Inc., a publicly-traded U.S. corporation headquartered in San Jose, Calif., has entered into an agreement with the Department of Justice to pay a $1.7 million penalty for violations of the Foreign Corrupt Practices Act. According to information contained in the non-prosecution agreement (NPA), RAE Systems developed and manufactured rapidly deployable, multi-sensor chemical and radiation detection monitors and networks.   From 2005 to 2008, the company had significant operations in the People’s Republic of China (PRC), and sold its products and services primarily through two subsidiaries organized as joint ventures with local Chinese entities: RAE-KLH (Beijing) Co. Limited (RAE-KLH) and RAE Coal Mine Safety Instruments (Fushun) Co. Ltd. (RAE Fushun).

As to RAE-Fushun, the NPA states that “RAE Systems did not conduct pre-acquisition corruption due diligence of RAE Fushun” but that “given RAE’s System’s experience with KLH described above, the high-risk nature of the location, and the existence of numerous government customers, pre-acquisition corruption-focused due diligence was merited. The NPA further states “as was later confirmed, improper business practices had occurred at RAE Fushun before the acquisition and continued post-acquisition, as RAE Systems failed to implement an effective system of internal controls at RAE Fushun.”

The practical pointer for today’s blog is this – FCPA issues can arise in joint venture transactions.  In certain circumstances, it may be necessary to have a “local partner” in order to access local labor, equipment, financing or other resources.  In other instances, you may not be able to work in a particular location without contracting with an arm of the local government.  What types of joint ventures is your company engaged in?  Joint Ventures can take a wide array of forms, from the simple contractual agreement relating to a single project wherein each partner undertakes to perform certain activities and receive certain benefits and compensation in return, to the formation of a new legal entity with joint management shared between the partners.  A joint venture can be modified even further by differentiating partners as either active or passive. Although there is a wide variance in how joint ventures can be structured, the key to remember is that by entering into a joint venture each partner becomes potentially exposed to the FCPA liabilities created by the acts of the other partner.

Joint Venture arrangements are particularly common in the oil and gas industry.  In January of this year, Marubeni Corporation agreed to pay a $54.6 million criminal penalty to resolve FCPA related charges for its participation in a decade-long scheme to bribe Nigerian government officials to obtain engineering, procurement and construction contracts. According to court documents, Marubeni was hired as an agent by the four-company joint venture TSKJ, to help TSKJ obtain and retain EPC contracts to build liquefied natural gas (LNG) facilities on Bonny Island, Nigeria, by offering to pay and paying bribes to Nigerian government officials, among other means. TSKJ was comprised of Technip S.A., Snamprogetti Netherlands B.V., Kellogg Brown & Root Inc. and JGC Corporation.  Between 1995 and 2004, TSKJ was awarded four EPC contracts, valued at more than $6 billion, by Nigeria LNG Ltd. (NLNG) to build the LNG facilities on Bonny Island.  The government-owned Nigerian National Petroleum Corporation (NNPC) was the largest shareholder of NLNG, owning 49 percent of the company. Ultimately, the total fines and penalties arising out of the TSKJ joint venture amounted to $1.7 Billion Dollars.

Generally in Nigeria, all petroleum production and exploration is taken under the auspices of joint ventures between foreign multi-national corporations and the Nigerian National Petroleum Company (Government Owned entity).  Examples include: Chevron Nigeria Limited (CNL): A joint venture between NNPC (60%) and Chevron (40%); Total Petroleum Nigeria Limited (TPNL): A joint venture between NNPC (60%) and Total; and, Mobil Producing Nigeria Unlimited (MPNU): A joint venture between the NNPC (60%) and Exxon-Mobil (40%).

In all of the examples provided above, the Nigerian National Oil Company held the majority ownership in the joint venture, but this fact alone does not release the minority owners from the risk of FCPA liability.  The Anti-Bribery provisions of the FCPA prohibit improper payments on behalf of the joint  venture entity even if the U.S. partner is not the majority holder of the venture.  Under the FCPA’s accounting provisions, which only apply to issuers, an issuer that owns a minority interest in a joint venture may also be liable under accounting provisions. The issuer may, however, avoid liability by demonstrating that it undertook “good faith efforts” to “use its influence, to the extent reasonable under the issuer’s circumstances,” to cause the joint venture to implement controls designed to ensure compliance with the accounting provisions.  15 U.S.C. § 78(m)(b)(6).

Joint Venture Agreements involving National Oil Companies are complex and must be carefully written. Special attention should be paid to the inclusion of compliance clauses into the Joint Venture Agreement.  Here are just a few items to consider including:

1.  Specific clauses prohibiting all forms of bribery and corruption including hospitality/gifts/entertainment/travel/facilitating payments.
2. Clauses requiring proper recordkeeping to comply with the FCPA books and records provision, as well as provisions addressing the implementation of internal accounting controls.
3. Representations and warranties regarding compliance with the anti-bribery and corruption clauses;
4. Right to Audit books and records for compliance with the anti-bribery and corruption clauses
5. Rights of withdrawal from the JV in the event of unethical or illegal conduct by the other partner (or its agents)

On November 8, 2006, Wal-Mart expanded its operations internationally into Canada.  As most of you know, six years later, in 2012, Wal-Mart found itself embroiled in an FCPA investigation due to its expansion into Mexico.  Tomorrow, November 8^th, we will examine some lessons learned from Wal-Mart’s investigation.  Stay Tuned.

 Mary Shaddock Jones has practiced law for 25 years in Texas and Louisiana primarily in the international marine and oil service industries.  She was of the first individuals in the United States to earn TRACE Anti-bribery Specialist Accreditation (TASA).  She can be reached at msjones@msjllc.com or 337-513-0335. Her associate, Miller M. Flynt, assisted in the preparation of this series.  He can be reached at mmflynt@msjllc.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.

Election Day – Just Who is a Foreign Government Official?

Ed. Note-we continue our series of guest posts from our colleague Mary Shaddock Jones, who today looks at the issue of foreign government officials under the FCPA. Both she and I urge you to exercise that most important right of all Americans–to vote for the candidate of your choice.

Today is a monumental day for the United States – Election 2012.  I am writing this blog on Monday, October 22, and as such, have no idea who will actually be elected as the next president of the United States.  However, regardless of whom you voted for or whether they won or lost – it is always important to keep in mind that we as a nation are blessed to be a democracy.  Let us never lose sight of the importance of freedom of speech, and the concomitant duty that freedom imposes upon us all, to speak up for what we believe is right or wrong.  Speaking of which, this leads me to today’s topic – the Haiti Telecom case.

In 2009 the Department of Justice charged Juan Diaz with conspiracy to make corrupt payments to Haitian officials for the purpose of securing business advantages from Haiti’s state-owned telecommunications company.  In October 2011, Joel Esquenazi and Carlos Rodriquez, the former president and vice president of Terra Telecommunications, were sentenced for their roles in a scheme to bribe officials in Haiti’s state-owned telecom company.  Esquenazi received 15 years, the longest sentence imposed in the history of the FCPA and Rodriquez received 7 years behind bars.

Both men have appealed their convictions, and one of the key  issues on appeal is “Whether Esquenazi (Rodriquez) is entitled to an acquittal because employees of Haiti Teleco were not “foreign officials” within the  meaning of FCPA simply because the National Bank of Haiti owned shares of Haiti Teleco and the Haitian government appoints board members and directors”.

The Brief filed by Appellant, United States v. Joel Esquenazi, No 11-15331 (7th Cir, May 9, 2010) poses the following argument “ Esquenazi is also entitled to an acquittal on all FCPA-based counts because the term “instrumentality” in the FCPA should be construed to encompass only foreign entities performing governmental functions similar to departments or agencies.  Here, the Government failed to establish that Haiti Teleco performed a governmental function.  Despite the Government’s continued reliance on the premise that state-ownership or state-control of a business entity makes that entity and “instrumentality” of the government under the FCPA, that theory was explicitly considered by the drafters of the FCPA, but not included in the statute, and is inconsistent with the language of the statute as drafted.  Because so many individuals and companies prosecuted by the Government prefer to resolve their cases prior to trial, the validity of the Government’s theory has seldom been tested in court, and never before by a United States Court of Appeals.  This case presents an opportunity to review the Government’s aggressive enforcement of a less-than-clear federal statute and properly limit its scope to corrupt payments made to “foreign officials,” including employees of “instrumentalities” that perform governmental functions similar to governmental departments and agencies”.   I have no reason to doubt that all of the above is absolutely true – but do you want to spend millions of dollars defending your actions and trying to keep your CEO out of jail based upon the meaning of the term “instrumentality”?

The practical pointer for today’s blog is this – doesn’t it make more sense for companies to prohibit all forms of bribery both commercial bribery (improper payment made with the corrupt intent to a private, rather than a governmental, person, company, or other entity in order to receive a business advantage) and governmental bribery?  The U.K. Bribery Act takes this stance by prohibiting bribery in the private sector.  Furthermore, the U.K. Act doesn’t just limit the criminal offense to bribing foreign officials, but also prohibits both the offer and the acceptance of a bribe.  I am not advocating that the United States expand the reach of the Foreign Corrupt Practices Act to include international bribery of private entities or individuals.  However, from a practical perspective – doesn’t it make sense, and send a more unified message to your employees when you say “We do not permit bribes in any way, shape or form. Period, Full Stop”?

Consider the following Policy Statement:

It is Company policy to comply with all applicable anti-bribery laws, including but not limited to the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and all applicable local laws where Company operates, and to accurately reflect all transactions on Company’s books and records.  It is also Company’s policy to require those agents, consultants and business partners who work on Company’s behalf to comply with these same laws and practices.  Bribery is a criminal offense in most countries in which we operate and corrupt acts expose the Company and our employees to the risk of prosecution, fines and imprisonment as well as endangering the Company’s reputation. Fines assessed against individuals may and will not be reimbursed by the Company.

This policy prohibits all forms of bribery.  As such, all Company employees, and all those acting for or on the Company’s behalf, are strictly prohibited from offering, paying, soliciting or accepting bribes or kick-backs, including facilitation payments to any person or entity for the purpose of obtaining or retaining business or gaining any improper business advantage, regardless of whether or not the person or entity is governmental or private. Third parties, contractors, agents, representatives and intermediaries who act on behalf of the foundation must comply with these anti-bribery provisions. This policy also requires due diligence of Business Partners, internal approvals, books and records entries, and it imposes records retention requirements in key risk areas related to Government Officials and Business Partners.  It requires audits to help ensure compliance, as well as appropriate scrutiny of acquisition and joint venture target companies for compliance with this policy, particularly where the target companies have had government sales and other significant governmental interaction.

Like other facets of a Company’s operations, its  anti-corruption policy and/or Code of Conduct  should  be tailored to meet its particular business needs, policies, and procedures.  However, when drafting your code of conduct you should ask yourself:  What do you want your company to stand for?

In 1919, King George the V dedicated November 7^th as a day of remembrance for members of the armed forces who were killed during World War I.  The joint venture by the U.S. and Great Britain to defeat the enemy in both World Wars is an excellent segue to discuss the risks and rewards of Foreign Joint Ventures.  Stay tuned.

  Mary Shaddock Jones has practiced law for 25 years in Texas and Louisiana primarily in the international marine and oil service industries.  She was of the first individuals in the United States to earn TRACE Anti-bribery Specialist Accreditation (TASA).  She can be reached at msjones@msjllc.com or 337-513-0335. Her associate, Miller M. Flynt, assisted in the preparation of this series.  He can be reached at mmflynt@msjllc.com.

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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.

How to Handle a Global Multi-Lingual Investigation

Ed. Note-I recently visited with my colleague (and recovering screen writer) Jay Rosen about some of the complexities involved in a global FCPA/Bribery Act investigation where one or more foreign languages is involved. Jay was kind enough to walk me through his thoughts on best practices for such a task. I was so impressed that I asked him if he could spell some of these out in a Guest Post, which he graciously agreed to do. This is his Guest Post.

Global investigation

Let’s take a look at a hypothetical multilingual investigation. Our client FIBLA, a pharmaceutical company, sells its products globally and has potential FCPA issues in France, Italy, Brazil (Portuguese) and Latin America (Spanish). They have engaged a global forensics firm to identify custodians and image hard drives as part of the initial collection effort. The audit committee has hired outside counsel to run the investigation and each organization hits the ground running. There’s only one problem: No one has contemplated how to handle the foreign language componentof this investigation.

As the first forensics team steps off the tarmac in Sao Paolo and speeds to FIBLA’s headquarters to begin collecting documents, they should be considering a key question regarding the foreign language data they will uncover:

1. What do they need to know before they walk through that door?

The answers to this question could vary depending on one’s role in the investigation–forensics company or outside counsel. I would like to focus on the best practices for managing the foreign language portion of this type of case. Though each foreign language matter possesses its own unique set of challenges, the common denominator is: “What is the most cost effective way to match the proper translation solution with the needs of the case?”

Many clients consider translation to be something they can handle in-house because:

• “Rebecca down the hall speaks Spanish.”
• “I’ll use Google Translate.”
• “The associates in our Mexico City office can handle this.”
• “The forensic accountants in Paris or the document reviewers in Ecuador can translate this information on the fly.”

In certain circumstances, all of these options have some validity, but for a mission critical investigation where accuracy and deadlines are paramount, these are not the best choices.

Language filtering solutions
Multi-lingual FCPA investigations demand a different level of sophistication and execution. Faced with a large volume of foreign language documents and pending deadlines, the team should leverage language filtering solutions that will bring order to the document chaos while reducing the time and cost involved in discovering the content of documents that are key to the investigation. In other words, separate the wheat from the chaff. These solutions, offered by most language solutions providers (LSPs), include both technology and human based translation tools.

Tool #1: Language identification
A language identification tool analyzes a document and reports the language distribution as either an absolute value (e.g., English, Italian, Mixed, or unknown) or can deliver a percentage break down (e.g., 5% French, 95% English; 10% Portuguese, 10% Italian, 80% Spanish).

On a document level, the resultant breakdown allows for granular workflows. On a case level, this knowledge determines the appropriate allocation of native speaking document reviewers needed and the most efficient and cost effective use of these resources.

Tool #2: Foreign language key words
Key words are identified by the lawyers who then have them translated to allow searching within foreign language text. Such a translation must account for the nuances inherent in another language. For example, 20 English terms can easy become 100 foreign language terms. Filtering native language documents against key foreign language terms will increase the accuracy of the review and improve the results of responsive searches. A couple hundred dollars invested here can save thousands in attorney review costs.

Tool #3: Machine translation
Machine translation provides a “gisted” understanding of large volumes of electronic documents and can allow English speakers to more easily identify those that are relevant. Thousands of pages can be translated in a fraction of the time required by traditional methods which, in turn, yield significant time and cost savings. Machine translation quality typically correlates to the quality of the source document and how well it can be read by optical character recognition (OCR). If viable, this process is 1/100^th the cost of human translations.

Technology-based filtering solutions help the internal team to efficiently identify “hot” documents while eliminating those with no relevance to the investigation. This ensures that only those documents that are absolutely necessary will be submitted for human translation. For example, in a recent Turkish FCPA matter, Merrill Brink’s filtering tools reduced the number of translated documents to 3,000 out of an initial universe of 1,000,000.

By leveraging these language technology solutions once the initial data has been collected, the review team is able to reduce the amount of potentially discoverable information that bilingual reviewers need to consider. Combining an LSP’s language based technology solutions with sophisticated tools offered by most eDiscovery platforms will help to identify duplicate and forwarded emails, streamline the review process, and result in a reduction of crucial time, resources, and costs.

Here Jay slipped back into his prior life as a screen writer to explain the following:

FADE IN:

When we last saw our heroes, a crack forensics team, “Boots on the Ground,” thudded onto the tarmac in Sao Paolo, piled into waiting black SUVs with tinted glass and sped to FIBLA’s headquarters to begin collecting documents.  In a blistering high tech MONTAGE, we breathlessly see them collect, process and load the data into an eDiscovery hosting tool.  As the grunts fall back to secure the beachhead, the calvary, “Outside Counsel,” arrives in SUPER SLO-MO Quentin Tarantino blaze of slip-on loafers, broad cloth shirts and rep ties to begin a document review using contract attorneys…

FADE OUT:

Usually the law firm will perform a first- and second-level review, confirming which documents are “responsive” or “hot” and only then will they consider how to translate the documents. Some of the same ideas from Part 1(Rebecca down the hall, Google Translate, The Mexico City associates, and Forensic accounts in Paris) may be proposed as viable solutions. Again, I would caution that it is far better to engage an LSP that is well versed in the translation intricacies of these internal and external investigations.

Bilingual review and translations involve different skill sets and different costs are associated with each service. For this reason, it is best to separate the two in most cases. Industry pricing for on-site review in the U.S. varies from $70 to $110 per hour, depending on the region. In many cases, these reviewers are bilingual attorneys who are trained to identify or translate information that is pertinent to the case.

Translation is typically charged by the word and completed off-site by linguists who are trained to understand terminology and context, and to ensure the results are accurately rendered from the source to the target language. The price per word will vary by language, subject matter, turnaround time, and volume.

Although in some cases it may be deemed expedient to have the bilingual reviewers perform the translation, this will usually result in a higher cost and slower delivery. The optimal solution would be to have the reviewers identify responsive documents and feed them to the off-site translators. This way, outside counsel will have a continuous workflow that will save precious time, match resources with their respective area of expertise, and manage the company’s costs.

Human translation solutions
Most LSPs will offer at least two or three levels of human translations, each of which plays a role in the filtering process we have discussed here.

Summary translations
If machine translation has not proved feasible (due to the quality of the source documents or the language not being an option for this solution), the next choice for filtering documents would be summary translations. This often takes the form of a few sentences or perhaps some coded fields which allow for a better understanding of the content of the document. Armed with this intelligence, a decision can be made about which documents need a more complete human translation. This is also an effective way to cull large volumes of documents and identify those which require full human translation.

Basic translations
Documents are translated by a native language linguist and reviewed by a project manager. Although not as polished as a full translations, basic translations enable outside counsel to ascertain the complete content of a document. These documents are used by the investigation team for internal use.

Full translations
Full service translation starts with the basic translation process as described above, but adds a formal editing stage by a second linguist and includes a thorough quality check. Documents that have gone through a full translation processes may be certified upon request and a Certificate of Accuracy (COA) will be issued and notarized. This certification is often required for documents being presented to governmental entities such as the courts, Department of Justice, or the Securities and Exchange Commission. Both technology and human translation solutions should be utilized to reduce the amount of data that requires full translation.

By knowing this information in advance, the team speeding to FIBLA’s headquarters can concentrate on the job at hand—securing the location, collecting the data, and interviewing employees. After all the information is collected and an LSP is engaged, outside counsel can begin to leverage the above mentioned tools. Filtering processes are commenced to match appropriate translation solutions to each step of the investigation, contain the costs of human translations, and most importantly, produce the highest quality translations from professional linguists.

Jay Rosen is a Vice President, Language Solutions at Merrill Brink International, based in Los Angeles, where he advises corporations, forensic professionals and outside counsel on translation solutions for Cross-border and FCPA investigations, Compliance, Ethics, Code of Conduct and eLearning projects, M&A Due Diligence and Patent and IP matters. He can be reached via email at jay.rosen@merrillcorp.com and via phone at 310-729-6746.

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Please join Martha Duncan, CCO at Parametric Technology Corporation, Eddie Cogan, CEO of Catelas Software and myself for a webinar on Wednesday, October 31 on “How Much Risk are You On-Boarding with Each New or Acquisition?” For details and registration, click here.

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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. ———————————————————————————————————————————————————————-