FCPA Compliance and Ethics Blog

September 8, 2014

Board of Directors and FCPA Oversight – An Internal Control Under SOX, Part II

Circle DiagramIn Part I of this two-part post regarding a Board of Director’s Role in Foreign Corrupt Practices Act (FCPA) oversight from the internal controls perspective, I reviewed how a Board might have independent liability for its failure to act as an appropriate internal control as required by Sarbanes-Oxley (SOX). Today I will review what internal controls are and what a Board’s role is within the context of internal controls.

Beginning on Tuesday, in conjunction with this two-part blog, my colleague Henry Mixon, Principal of Mixon Consulting, and myself are recording a podcast series on internal controls, which can be found on FCPA Compliance and Ethics Report. We are discussing the following areas: what are internal controls; how a company might use them and how they can be implemented? In the first of the podcast series I asked Mixon what are internal controls? He began with the textbook definition, which he said was “Internal controls are systematic measures (such as reviews, checks and balances, methods and procedures) instituted by an organization to:

  • conduct its business in an orderly and efficient manner,
  • safeguard its assets and resources,
  • deter and detect errors, fraud, and theft,
  • ensure accuracy and completeness of its accounting data,
  • produce reliable and timely financial and management information, and
  • Ensure adherence to its policies and plans.

Mixon noted that internal controls should be instituted entity wide, not simply limited to those functions used or reviewed by accountants and auditors. For an anti-corruption compliance regime such as the FCPA or UK Bribery Act, internal controls are measures to provide reasonable assurances that any assets or resources of a company (not limited to cash) cannot be used to pay a bribe. This definition includes diversion of company assets (such as by unauthorized sales discounts or receivables write-offs) as well as the distribution of assets.

Mixon noted that the basic framework for internal controls is derived from the COSO Model developed by the Committee of Sponsoring Organizations of the Treadway Commission in 1992 (COSO). This model has become the standard for an internal control framework and provides a structure to ensure companies address the key elements that should result in an effective system of internal controls. Using the COSO Model, as modified in 2013, provides a very supportable approach when adversarial third parties challenge whether a company has effective internal controls. The COSO Model defines internal controls in a pyramid, from bottom to top, as follows: (a) Control environment, (b) Risk assessment, (c) Control activities, (d) Information and communication, and (e) Monitoring.

In the 2013 update the basic framework was retained with substantial support from user companies, and 3 specific objectives were added: (I) Operations Objectives – effectiveness and efficiency of operations, including safeguarding assets against loss; (II) Reporting objectives – internal and external financial reporting; and (III) Compliance objectives – adherence to laws and regulations to which the entity is subject. According to the guidance in the 2013 update, the system of internal controls can be considered effective only if it provides reasonable assurance the organization, among other things, complies with applicable laws, rules, regulations and external standards. With the addition of those specific objectives, the COSO framework now specifically includes the need for controls to address compliance with laws and regulations.

We then turned to the question of which internal controls does a company need to institute? Mixon said that each company defines its internal controls to fit its business by determining what the Company wishes to protect and what type of control environment does it want to have in place. This means that they can be less formal in smaller companies but still effective if the focus is on the right risks. Based upon FCPA guidance, the most common control needs have been identified as follows: (i) Dealings with third parties; (ii) Gifts and entertainment, and (iii) Charitable donations. Yet even within those categories, a wide range of risks exists, depending on a company’s business practices. Mixon emphasized that a Top Down ‘Check-the-box’ generic set of policies will not likely result in effective controls.

The process to determine which internal controls are needed will be of some familiarity to the compliance professional. It all starts with a risk assessment to establish the corporate policies which are applicable, tailored to the company, and sufficiently specific. The risk assessment will also help to identify the types of transactions across the company which should be addressed (gifts and entertainment, maintenance of bank accounts and movement of cash, dealings with third parties, etc.). The next step is to prepare a set of documents which define the control objectives to be in place for each type of transaction – example: “Controls will be in place to ensure no vendor has been added to the vendor master file until complete due diligence has been completed and the vendor has been approved in accordance with Corporate policies. Thereafter, you will need to document how the controls will be performed and how they will be evidenced and then incorporate the control procedures into applicable work instructions and job descriptions.” Mixon cautioned that for each business location, determine the specific controls needed to accomplish each control objective. In many companies, a disparity of operating practices and accounting systems will result in different controls being needed. He ended by emphasizing that while this assignment may seem overwhelming it can be done in reasonable stages, pursuant to a specific implementation plan – it does not have to be done all at once for the entire company.

As you will recall from Part I, I believe, as gleaned from Jim Doty’s remarks, that a Board must not only have a corporate compliance program in place it must also actively oversee that function. This led me to conclude that failure to perform these functions may lead to independent liability of a Board for its failure to perform its allotted tasks in an effective compliance program. Doty’s remarks drove home one of the roles that a Board performs, which fulfills those tasks. Internal controls work together with compliance policies and procedures as stated by Aaron Murphy, a partner at Akin Gump, in his book “Foreign Corrupt Practices Act”, as “an interrelated set of compliance mechanisms.” Murphy went on to say that, “Internal controls are policies, procedures, monitoring and training that are designed to ensure that company assets are used properly, with proper approval and that transactions are properly recorded in the books and records. While it is theoretically possible to have good controls but bad books and records (and vice versa), the two generally go hand in hand – where there are record-keeping violations, an internal controls failure is almost presumed because the records would have been accurate had the controls been adequate.”

Murphy breaks down internal controls into five concepts, which I have adapted for a Board or Board subcommittee role for compliance:

  1. Corporate Compliance Policy and Code of Conduct – A Board should have an overall governance document which will inform the company, its employees, stakeholders and third parties of the conduct the company expects from an employee. If the company is global/multi-national, this document should be translated into the relevant languages as appropriate.
  2. Risk Assessment – A Board should assess the compliance risks associated with its business.
  3. Implementing Procedures – A Board should determine if the company has a written set of procedures in place that instructs employees on the details of how to comply with the company’s compliance policy.
  4. Training – There are two levels of Board training. The first should be that the Board has a general understanding of what the FCPA is and it should also understand its role in an effective compliance program.
  5. Monitor Compliance – A Board should independently test, assess and audit to determine if its compliance policies and procedures are a ‘living and breathing program’ and not just a paper tiger.

There have been several FCPA enforcement actions where the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) discuss the failure of internal controls as a basis for FCPA liability. The Smith & Wesson enforcement action is but the latest. With the questions about the Walmart Board of Directors and their failure to act in the face of allegations of bribery and corruption in the company’s Mexico subsidiary, or contrasting failing to even be aware of the allegations; there may soon be an independent basis for an FCPA violation for a Board’s failure to perform its internal controls function in a best practices compliance program.

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, 2014

August 8, 2014

Nixon Announces Resignation; GSK Just Resigns

Nixon Resignation SpeechOn this day, 40 years ago, President Richard Nixon announced that he would resign the Office of the President, effective the next day on August 9 at noon. I can still remember my father instructing us to watch the resignation speech on television because, as he put it, it was history in the making. Before a nationally televised address to the country, Nixon said, “By taking this action,” he said in a solemn address from the Oval Office, “I hope that I will have hastened the start of the process of healing which is so desperately needed in America.” His action was hastened along by the Articles of Impeachment voted by the House of Representatives relating to his involvement with the Watergate Affair. With his resignation, Nixon was finally bowing to pressure from the public and Congress to leave the White House.

Yet, even before this truly historic speech and spectacle the next day of Nixon helicoptering off the South Lawn of the White House, Nixon had transformed the America we all lived in. One area that resonates up to this day is his opening with China. If it had not been for Nixon and his Secretary of State Henry Kissinger’s efforts, we might have waited a long time for an opening with China. But Nixon went there and opened China up to do business with the US and indeed the rest of the western world.

Unfortunately one of the much later fallouts from this visit and opening of China has been the corruption investigation by Chinese authorizes against western companies but most publicly the British pharmaceutical giant, GlaxoSmithKline PLC (GSK). And, more unfortunately, the bad news for GSK continues to trickle out into the press.

Next week, Shanghai’s No. 1 Intermediate People’s Court is scheduled to open a trial against Peter William Humphrey, a 58-year-old British national, and his wife, Yu Yingzeng, a 61-year-old American, on charges of illegally purchasing personal information about Chinese nationals. While the trial had originally been planned to be closed to the public, last month Chinese officials announced that the trial would be ‘open’ although the degree of openness is not completely clear.

Not only will the trial be open but the couple’s son, Harvey Humphrey, was allowed visited his parents in their detention center in Pudong, Shanghai, for the first time since their arrest. The visit came after some fierce lobbying by the US and UK consulates. As reported in the online publication FiercePharma, in an article entitled “GSK private eyes’ son allowed first visit to parents in China jail as trial nears”, their son said, “They didn’t quite believe I was coming. They were quite overwhelmed. My mum was shocked. My dad held himself together,” the younger Humphrey told the paper. “It’s a bit unusual for the Chinese to do this. I feel something has changed in the Chinese approach to my parents.” Son Harvey had written to the GSK’s Chief Executive Officer (CEO) Sir Andrew Witte last December to “take a few minutes to raise my father’s case” during a visit to the country, he told the Financial Times (FT), “I understand everything is complicated in China but it seems my parents are paying a big price”. But at this point there is no word on what if any involvement GSK might have in his parent’s defense.

It may be that GSK is way too busy right now worrying about all the other issues surrounding bribery and corruption. In an article in the Wall Street Journal (WSJ), entitled “FBI, SEC Start Glaxo Inquiries Over China”, Christopher M. Matthews and Hester Plumridge reported that in late July “Glaxo received an anonymous email claiming its employees in Syria bribed doctors and pharmacists over the past five years to promote products including painkiller Panadol and toothpaste Sensodyne. The bribes took the form of cash payments, speaking fees, trips, free dinners and free samples, said the email, which was reviewed by The Wall Street Journal. The email cited names and dates. Syrian health officials allegedly received bribes from Glaxo employees to fast-track registration of its Sensodyne dental products, including cash payments and a trip to a 2011 conference in Rome, the email maintains. Glaxo employees also were involved in smuggling a narcotic product from Syria into Iran, the email alleges. The product in question, pseudoephedrine, is a raw ingredient of Glaxo’s congestion medicine Actifed.”

GSK once again reiterated its previously announced position that it was firmly against the payments of bribes by its employees. In response to the allegations of bribes paid in Syria the WSJ article said, “Glaxo said it would thoroughly investigate all claims made in the Syria email, and said it has asked the sender for more information. The company said it has zero tolerance for unethical behavior, adding, “We welcome people speaking up if they have concerns about alleged misconduct.”” Too bad GSK didn’t seek more information about its Chinese operations when the company’s internal investigation came up with no evidence of bribery and corruption.

Much more problematic for GSK is the fact that both the SEC and DOJ have opened formal investigations into allegations of bribery and corruption by the company. The WSJ piece notes, “Federal Bureau of Investigation agents have been interviewing current and former GlaxoSmithKline employees in connection with bribery allegations in China, according to a person familiar with the matter, as fresh claims of corruption surfaced against Glaxo’s operations in Syria. The interviews have taken place in Washington, D.C., in the past few months and are part of a Justice Department investigation into Glaxo’s activities in China, the person added. The U.S. Securities and Exchange Commission also is investigating the company’s business in China, according to people familiar with the matter.”

As readers of this blog will recall from previous posts, in 2012 GSK pled guilty and paid $3 billion to resolve fraud allegations and failure to report safety. The press release noted that the resolution was the largest health care fraud settlement in US history and the largest payment ever by a drug company for legal violations. The criminal plea agreement also included certain non-monetary compliance commitments and certifications by GSK’s US president and Board of Directors, which specifically included an executed five-year Corporate Integrity Agreement (CIA) with the Department of Health and Human Services, Office of Inspector General. The plea agreement and CIA included provisions which required that GSK implement and/or maintain major changes to the way it does business, including changing the way its sales force is compensated to remove compensation based on sales goals for territories, one of the driving forces behind much of the conduct at issue in the prior enforcement action. Under the CIA, GSK is required to change its executive compensation program to permit the company to recoup annual bonuses and long-term incentives from covered executives if they or their subordinates, engaged in significant misconduct. GSK may recoup monies from executives who are current employees and those who have left the company. Additionally, the CIA also required GSK to implement and maintain transparency in its research practices and publication policies and to follow specified policies in its contracts with various health care payors.

The importance of the CIA for this anti-corruption investigation is that it not only applied to the specific pharmaceutical regulations that GSK violated but all of the GSK compliance obligations, including the Foreign Corrupt Practices Act (FCPA). In addition to requiring a full and complete compliance program, the CIA specified that the company would have a Compliance Committee, to include the Compliance Officer and other members of senior management necessary to meet the requirements of the CIA; the Compliance Committee’s job was to oversee full implementation of the CIA and all compliance functions at the company. These additional functions required a Deputy Compliance Officer for each commercial business unit, Integrity Champions within each business unit and management accountability and certifications from each business unit. Training of GSK employees was specified as a key component. Further, the CIA specifically state that all compliance obligations applied to “contractors, subcontractors, agents and other persons (including, but not limited to, third party vendors)”.

GSK is now under investigation, either internally or by anti-corruption regulators across the globe in at least four countries. Unlike other companies that have found systemic issues of bribery and corruption or systemic failures in internal controls, the allegations of bribery and corruption are not 10-15 years old. So today we commemorate Nixon’s resignation; and for GSK it may simply mean just resignation.

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, 2014

July 9, 2014

Mid-Year FCPA Report, Part I

Mid Year ReportAs we are now past the halfway mark of 2014, I thought it might be a good time to look at the year in review, so over the next couple of days, I will be reviewing what I believe to be some issues and developments to the Foreign Corrupt Practices (FCPA) world. In this Part I, I will look at an enforcement action which brought a company to No. 5 on the list of highest FCPA settlements, to a company which seemingly came back from the edge of very bad FCPA conduct and finally some individual prosecutions and one interesting settlement in a SEC action against individuals. 

Alcoa

In one of the more long-running international bribery and corruption sagas, Alcoa Inc. settled a FCPA action by having one of its subsidiary’s plead guilty to bribing officials in Bahrain to win contracts to supply the raw materials for aluminum to Aluminum Bahrain BCS or Alba. As reported by the FCPA Professor, “Alcoa entities agreed to pay approximately $384 million to resolve alleged FCPA scrutiny (a criminal fine of $209 million and an administrative forfeiture of $14 million to resolve the DOJ enforcement action and $175 million in disgorgement to resolve the SEC enforcement action – of which $14 million will be satisfied by the payment of the forfeiture in the criminal action).” Alcoa now sits as No 5 on the list of all-time FCPA settlements and has the distinction of paying the largest disgorgement.

Payments were made through shell corporations, agents and distributors. As reported in the Wall Street Journal (WSJ), in an article entitled “Alcoa Snared in Bahrain Bribery Case”, although one of its subsidiaries, Alcoa World Aluminum, pled guilty to violating the FCPA, its parent Alcoa issues a statement that “neither the Department of Justice nor the SEC alleged or found that anyone at Alcoa “knowingly engaged in the conduct at issue.”” According to the WSJ article, the bribery scheme had been in place since at least 1989. Further, at least one in-house counsel had raised concerns in 1997 that the contracts around the bribery scheme when she wrote in an email to Alcoa’s corporate headquarters stating “The contract looks odd. Are these factors OK from an anti-trust and FCPA perspective?” I guess sometimes actual knowledge is really not actual knowledge.

Hewlett-Packard (HP)

In what can only be described as one of the most stunning failures of internal controls to be seen in the annuls of FCPA enforcement actions, HP resolved a matter through a guilty plea, a Deferred Prosecution Agreement (DPA) and a Non-Prosecution Agreement (NPA), for three separate bribery schemes in three countries. For a deal in Russia, HP paid a one-man agent approximately $10MM, which was simply a conduit to pay bribes. In Poland, HP’s Country Manager literally carried bags of cash in the amount of $600K to a Polish government representative for contracts. Finally, in HP’s Mexico subsidiary, according the to the Securities and Exchange Commission (SEC) Press Release, HP “paid a consultant to help the company win a public IT contract worth approximately $6 million. At least $125,000 was funneled to a government official at the state-owned petroleum company with whom the consultant had connections. Although the consultant was not an approved deal partner and had not been subjected to the due diligence required under company policy, HP Mexico sales managers used a pass-through entity to pay inflated commissions to the consultant.”

As noted by Mike Volkov, “In total the three HP entities paid $76 million in criminal penalties and forfeitures. In a related filing, the SEC and HP entered into a civil settlement under which HP agreed to pay $31 million in disgorgement, prejudgment interest, and civil penalties.”

The enforcement action is also notable for two other factors. The first is that HP did not self-disclose the conduct even after German authorities raided the company’s Germany subsidiary’s offices in connection with the Russia transaction. HP seemingly made a dramatic comeback in the eyes of the Department of Justice (DOJ), which leads to the second point of note. That involved the overall penalty assessed against HP. What are we to make of the criminal fines levied against the Russian and Polish subsidiaries of HP? The US Sentencing Guidelines for the Polish subsidiary suggested a fine range of $19MM to $38MM, yet the final fine was $15MM. The US Sentencing Guidelines for HP’s Russian subsidiary suggested a fine range of $87MM to $174MM, yet the final fine was $58MM.

What does it all mean? It would seem that a company could come back from the brink of very bad facts and no self-disclosure. How did HP do it? The resolution documents only reference HP’s ‘extraordinary cooperation’ and installation of a best practices compliance program. My hope is that HP will publicize the steps it took so that the rest of us might learn how they accomplished the results they received.

Individual Indictments, Arrests and Settlements

As reported in the FCPA Blog, there were a number of individuals who fell under FCPA criminal scrutiny in the first half of 2014.

PetroTiger

Joseph Sigelman, the former co-CEO of PetroTiger Ltd., was charged with conspiracy to violate the FCPA and to commit wire fraud, conspiracy to launder money, and substantive FCPA and money laundering offenses. He is accused of bribing an official at Ecopetrol SA, Colombia’s state-controlled oil company, and defrauding PetroTiger by taking kickbacks. As reported by Joel Schectman in the WSJ, two other PetroTiger executives, Sigelman’s co-CEO, Knut Hammarskjold and the company’s former General Counsel (GC), Gregory Weisman, have already pled guilty to the charges.

It is alleged that Sigelman bribed an official in Colombia to help win an oil contract worth $39 million and of seeking kickback payments during the acquisition of another company, in exchange for a better price. Most interestingly, even after the company conducted an internal investigation, which uncovered the conduct and self-disclosed its findings to the DOJ, Sigelman has said he will go to trial and contest the charges.

Firtash and His Associates

In what may be an early preview of the corrupt doings of the old guard in Ukraine, there were a number of individuals arrested or indicted in connection with an alleged scheme to pay $18.5 million in bribes to officials in India to gain titanium mining rights. They include team leader, Dmitry Firtash, a Ukrainian national, who was arrested in Vienna, Austria, March 12, 2014, and the following were indicated with Firtash and charged with conspiracy to violate the FCPA, and who are still at large: Andras Knopp, a Hungarian businessman,; Suren Gevorgyan a Ukrainian national,; Gajendra Lal, an Indian national and permanent resident of the US; Periyasamy Sunderalingam, a Sri Lankan. K.V.P. Ramachandra Rao, a member of parliament in India and former official of the state of Andhra Pradesh, has been charged along with the other five defendants with one count each of a racketeering conspiracy and a money laundering conspiracy, and two counts of interstate travel in aid of racketeering. Although he was not charged under the FCPA, the DOJ has asked India to arrest him.

Direct Access Partners

Continuing the investigation into the first investment bank, Direct Access Partners LLC (DAP), to be charged with FCPA violations, there were two more individuals charged, in addition to the four from 2013 who all pled guilty. Benito Chinea, former CEO of DAP, was charged in federal court in New York for bribery involving Venezuela’s state bank and Joseph Demeneses, a former managing director, was also charged in the 15-count indictment of paying kickbacks to a vice President of the Venezuelan Nation Bank BANDES, in exchange for the bank’s bond-trading business.

Noble Energy Executives

While it is not entirely clear if these cases belong in the first half or second half of the their, the Securities and Exchange Commission (SEC) rather unceremoniously dropped its enforcement action against one former and one current Noble Energy executives. The SEC had claimed that former Noble Corporation CEO Mark A. Jackson along with James J. Ruehlen, had bribed customs officials to process false paperwork purporting to show the export and re-import of oil rigs, when in fact the rigs never moved. These actions led to allegations that Jackson and Ruehlen directly violated the anti-bribery provisions, internal controls and false records provisions relating to the FCPA. For all of these claims the SEC sought injunctive relief and monetary damages.

But as reported in the FCPA Blog, “A docket entry from July 1 for the U.S. federal district court in Houston said all deadlines in the SEC’s civil FCPA enforcement action against two former Noble executives have been vacated “pending final settlement documents.”” Both defendants agreed not to violate or aid and abet any violation of the FCPA going forward. Pretty stout stuff when you consider that all US citizens have that obligation going forward, whether they agree to it in a court filed documents or not.

Tomorrow we continue with Part II.

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, 2014

 

 

May 28, 2014

What Does an Effective Compliance Program Look Like? – The Regulators Perspective

Compliance ProgramWhat does an effective compliance program look like? Is it one that follows the Ten Hallmarks of an Effective Compliance Program as set out in the 2012 FCPA Guidance? How about one that uses the Six Principals of Adequate Procedures relating to the UK Bribery Act as its guideposts? Or should a company follow the OECD Good Practice Guidance on Internal Controls, Ethics, and Compliance? More importantly, for anti-corruption enforcement under the Foreign Corrupt Practices Act (FCPA), what does the Department of Justice (DOJ) or Securities and Exchange Commission (SEC) look for when assessing a compliance program?

Over the years, we have heard various formulations of inquiries that regulators might use when reviewing a compliance program. While not exactly a review of a compliance protocol, one of my favorites is what I call McNulty’s Maxims or the three questions that former United States Deputy Attorney General, and  Baker & McKenzie LLP partner, Paul McNulty said were three general areas of inquiry the he would assess regarding an enforcement action when he was at the DOJ. They are: first: “What did you do to stay out of trouble?” second: “What did you do when you found out?” and third: “What remedial action did you take?”

Paul’s former partner at Baker & McKenzie, Stephen Martin, who still runs Baker & McKenzie Compliance Consulting LLC, said that an inquiry he might make was along the lines of the following. First he would ask someone who came in before the DOJ what the company’s annual compliance budget was for the past year. If the answer started with something like, “We did all we could with what we had ($100K, $200K, name the figure), he would then ask, “How much was the corporate budget for Post-It Notes last year?” The answer was always in the 7-figure range. His next question would then be, “Which is more business critical for your company; complying with the FCPA or Post-It Notes?” Unfortunately, it has been Martin’s experience that most companies spent far more on the Post-It Notes than they were willing to invest into their compliance program.

Last week at Compliance Week 2014, Andrew Ceresney, Director of the Division of Enforcement of the SEC, gave one of the Keynote Addresses. In his remarks he talked about the importance that the SEC is putting into compliance. He said “I start from the premise that the companies that have done well in avoiding significant regulatory issues typically have prioritized legal and compliance issues, and developed a strong culture of compliance across their business lines and throughout the management chain. This is something I observed firsthand while in private practice and have come to fully appreciate from my perch at the SEC.”

But, more importantly, he said that he has “found that you can predict a lot about the likelihood of an enforcement action by asking a few simple questions about the role of the company’s legal and compliance departments in the firm.” He then went on to detail some rather straightforward questions that he believes can show just how much a company is committed to having a robust compliance regime.

  • Are legal and compliance personnel included in critical meetings?
  • Are their views typically sought and followed?
  • Do legal and compliance officers report to the CEO and have significant visibility with the board?
  • Are the legal and compliance departments viewed as an important partner in the business and not simply as support functions or a cost center?

Beyond simply going into the DOJ or SEC and claiming that your company is very ethical and does business in compliance with the FCPA, how can a company demonstrate the above? This is where the Tom Fox Mantra of Document, Document and Document comes into play. No matter how much input the compliance function has into the above suggested inquiries if the inputs are not documented, it is if they did not exist. So for meetings, you should keep attendance sheets or notations. A compliance representative can put a short, three to four sentence memo into the file about the recommendations and the response thereto. If the compliance department advise was not followed, there should be a business reason documented for the decision. Moreover, if there is a rejection of the compliance function advise and the course of action leads to some type of FCPA issue, it may well be assumed the company knew or should have known that the course of action taken could reasonably lead to a FCPA issue if not full blown violation. As to the issues of compliance visibility at the Board level, once again the documentation of any presentation and their substance can provide evidence to answer the query in the affirmative. But the key to all of these questions is if there is documentation to prove the assertions that they actually occurred.

Near the end of his presentation, Cerensey said that “Far too often, the answer to these questions is no, and the absence of real legal and compliance involvement in company deliberations can lead to compliance lapses, which, in turn, result in enforcement issues. When I was in private practice, I always could detect a significant difference between companies that prioritized legal and compliance and those that did not. When legal and compliance were not equal partners in the business, and were not consulted as a matter of course, problems were inevitable.”

McNulty’s Maxims, Martin’s question on budget and now Cerensey’s questions all provide significant guideposts to how regulators think about FCPA compliance programs. For me, I think the point is that companies which actually Do Compliance are easy to spot. For all the gnashing of teeth about how hard it is to comply with what the DOJ and SEC want to see in FCPA compliance, when the true focus can be distilled into whether a company actually does compliance as opposed to saying how ethical they are, I think it simplifies the inquiry and the issues senior management and a Board of Directors really needs to pay attention to.

For a copy of the full text of Director Cerensey’s remarks, click here.

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, 2014

May 2, 2014

Gehrig’s Streak Ends and Compliance Week 2014 Is Near

lou GehrigToday we celebrate greatness in two areas. The first is in baseball as on this day in 1939, “New York Yankees first baseman Lou Gehrig benches himself for poor play ending his streak of consecutive games played at 2,130. “The Iron Horse” was suffering at the time from amyotrophic lateral sclerosis (ALS), now known as “Lou Gehrig’s Disease.” Gehrig joined the Yankees in 1923, but he didn’t see any action until 1925, when he backed up star first baseman Wally Pipp. According to legend, Gehrig stepped in at first base when Pipp benched himself with a headache, and Pipp never made it back on to the field. Gehrig didn’t miss a game for the next 13 years.” Gehrig’s record of playing in 2,130 straight games was intact until broken by Cal Ripken, Jr.

In the area of conference excellence around all things compliance, there is the upcoming Compliance Week 2014. While the conference has not had as many appearances as Gehrig’s long streak, this is the 9th annual event. As usual, Matt Kelly and his team over at Compliance Week have put together a star-studded and first-rate program for a wide variety of compliance practitioners. From the US government there is Kara M. Stein, Commissioner of the Securities and Exchange Commission (SEC). Interested in the future of the audit committee, there will be Jay Hanson, Board member from the Public Company Accounting Oversight Board (PCAOB), together with others to talk on that subject. For export control there will be representatives from the Department of Commerce and Department of Justice (DOJ) to bring you the latest on export control enforcement issues. Finally, both Patrick Stokes from the DOJ and Kara Brockmeyer from the SEC will be there to discuss Foreign Corrupt Practices Act (FCPA) enforcement from the perspectives of their agencies.

As usual there will be many sessions aimed at the compliance practitioner. Are you interested in developing a strong corporate culture? If so there will be a panel to discuss how to do so from working with your board to determine what your culture should be to building ethics and compliance programs (and control systems) that amplify those values rather than undermine them. An often-discussed topic is the management of compliance in joint ventures (JVs) and in a panel you will hear from three compliance officers telling their approaches to JVs: from risk assessments before the deal to monitoring and cooperation during the partnership to practical tips on investigations should misconduct in a JV partner come to light.

If there are specific geographic areas that you are concerned about there will be conversations about India, the Middle East, Africa, China and Latin America. In these sessions, held in smaller groups to facilitate conversations and questions, there will be discussions that focus on ethics and compliance risks in geographic hotspots around the world. Wondering which regulators matter most in a specific area? What training tactics work best for local workforces? Which cultural differences can cause the biggest risks or mis-steps? All those questions and more are prime fodder for these sessions.

There are a couple of very interesting sessions aimed at providing data on compliance trends. In one, there will be a joint Deloitte and Compliance Week review of their findings of this year’s Compliance Trends report – a survey conducted this spring to benchmark compliance operations at the modern enterprise. Hear about current budget and staffing levels, as well as emerging trends in reporting structures, use of GRC (Governance, Risk management and Compliance) technology, risks confronting the enterprise, and strategies to address them. In a second, there will be a review of the joint Kroll and Compliance Week 2014 Anti-Bribery and Corruption Report – one of the most comprehensive reviews of corporate anti-corruption practices you’re ever likely to find. In this session Kroll executives present the findings and lead a discussion on what those findings say about current (and not necessarily best) practice in FCPA compliance.

There will be several sessions, which deal with training. An interesting one is entitled, “Employee Training – Four Statistics That Will Surprise You” and will provide you with information on best practices on how to align roles, risks, and priorities strategically, to make the most efficient use of limited training time while protecting the organization. The discussion will be framed around four key statistics that you can use to drive training decisions and true program effectiveness. Another interesting angle will be through the prism of social media in a session which will consider the new risks social media brings, and the best ways to square its advances in communications and IT with your existing compliance program, whether that’s through new policies, new technology, or a mix of both.

There will be a couple of sessions dealing with investigations. In one, I will lead a panel, entitled “Investigations Gone Global, Not Haywire”, where we will focus on how can you run an effective investigation in some of the most difficult spots in the world, where local law may conflict with what you need to do. We will explore local stumbling blocks to your investigation, and offer ideas on how to complete the job nonetheless. Another session will help you scope out your internal investigation by considering some of the most difficult parts of scoping (parameters for e-Discovery, for example), and techniques to help determine scope more effectively (say, using the audit team to help map out the issue).

Finally, one session looks timely and intriguing. It will focus on supply chain compliance issues and will look at misconduct in the supply chain – conflict minerals, human trafficking, bribery, and more – is one of the most dangerous risks a company faces: It can erupt anywhere, cause enormous reputational harm, and leave boards scrambling for answers. You will hear about the clues you have, in the vast databases of modern businesses, and how to draw out the answers you need – about which risks are looming, which require policy response, and which require the board’s attention. Lastly, I will be leading a conversation on the FCPA enforcement trends we have seen in 2014.

I have been authorized to offer readers of this blog, who register for Compliance Week, a discount off of the standard rate..  To register, please use this link and discount code CW14FOX (case sensitive) to receive the special pricing of $1,495 (rate applies to new registrations only; please read Compliance Week Terms of Sale about refunds or substitutions). Event website: http://conference.complianceweek.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, 2014

April 23, 2014

Gifts, Travel and Entertainment Under the FCPA – Part II

Travel and GiftsEd. Note – I know yesterday I said this would be a two-part series but as usual I got carried away so it has become a three part series. Today I review the Opinion Releases and Enforcement Actions dealing with gifts, travel and entertainment.

A. Opinion Releases

  1. Gifts

In the early 1980s the Department of Justice (DOJ) issued three Opinion Releases related to gifts under the Foreign Corrupt Practices Act (FCPA). While these Opinion Releases are clearly dated, they do remain instructive. In Opinion Release 82-01, the DOJ approved the gift of cheese samples made to Mexican governmental officials, made by the Department of Agriculture of the State of Missouri to promote the state of Missouri’s agricultural products. However the value of the cheese to be presented was not included. In Opinion Release 81-02, the DOJ approved a gift from the Iowa Beef Packers, Inc. to officials of the Soviet Ministry of Foreign Trade of its packaged beef products. The total value of all the samples presented was estimated to be less than $2,000 and the Iowa Beef Packers, Inc. averred that the individual sample packages would not exceed $250 in value. In Opinion Release 81-01, Bechtel sought approval to use the SGV Group to solicit business on behalf of Bechtel and Bechtel had proposed to reimburse the SGV Group for gift expenses incurred in this business solicitation. The DOJ approved gifts to be given by SGV in the amount of $500.00.

  1. Travel and Lodging for Governmental Officials

 Prior to the FCPA Guidance, the DOJ issued three Opinion Releases which offered guidance to companies considering whether, and if so how, to incur travel and lodging expenses for government officials. These facts provided strong guidance for any company that seeks to bring such governmental officials to the US for a legitimate business purpose. In Opinion Release 07-01, the Company was desired to cover the domestic expenses for a trip to the US for a six-person delegation of the government of an Asian country for an educational and promotional tour of one of the requestor’s US operations sites. In the Release the representations made to the DOJ were as follows:

  • A legal opinion from an established US law firm, with offices in the foreign country, stating that the payment of expenses by the US Company for the travel of the foreign governmental representatives did not violate the laws of the country involved;
  • The US Company did not select the foreign governmental officials who would come to the US for the training program;
  • The delegates who came to the US did not have direct authority over the decisions relating to the US Company’s products or services;
  • The US Company would not pay the expenses of anyone other than the selected officials;
  • The officials would not receive any entertainment, other than room and board from the US Company;
  • All expenses incurred by the US Company would be accurately reflected in this Company’s books and records.

In Opinion Release 07-02 the Company desired to pay certain domestic expenses for a trip within the US by approximately six junior to mid-level officials of a foreign government for an educational program at the Requestor’s US headquarters prior to the delegates attendance at an annual six-week long internship program for foreign insurance regulators sponsored by the National Association of Insurance Commissioners (NAIC). In the Release the representations made to the DOJ were as follows:

  • The US Company would not pay the travel expenses or fees for participation in the NAIC program.
  • The US Company had no “non-routine” business in front of the foreign governmental agency.
  • The routine business it did have before the foreign governmental agency was guided by administrative rules with identified standards.
  • The US Company would not select the delegates for the training program.
  • The US Company would only host the delegates and not their families.
  • The US Company would pay all costs incurred directly to the US service providers and only a modest daily minimum to the foreign governmental officials based upon a properly presented receipt.
  • Any souvenirs presented would be of modest value, with the US Company’s logo.
  • There would be one four-hour sightseeing trip in the city where the US Company is located.
  • The total expenses of the trip are reasonable for such a trip and the training which would be provided at the home offices of the US Company.

Lastly, is Opinion Release 12-02, in which the Requestors, 19 non-profit adoption agencies located in the US, asked the DOJ about bringing certain foreign governmental officials involved in the foreign country’s adoption process to the US. All the foreign governmental officials were involved in the process of allowing children from their country go through the adoption process with the US non-profits involved. The trips to the US would be for two days of meetings. The purpose of the visit would be to demonstrate the Requestors’ work to the government officials so that the officials can see how adopted children from the foreign country had adjusted to life in the US and to help the Requestors learn how they can provide that information to the foreign country’s government with appropriate information during the adoption process. The Requestors would allow the government officials to meet with the Requestors’ employees and to inspect the Requestors’ offices and case files from previous adoptions. The foreign country’s government officials would also meet with families who had adopted children from their country and learn more about the Requestors’ work.

The Requestors stated that they would pay for the following:

  • Business class airfare on international portions of flights for ministers, members of the legislature, and the director of the Orphanage Agency; coach airfare for international portions of flights for all other government officials; and coach airfare for domestic portions of flights for all government officials;
  • Two or three nights hotel stay at a business-class hotel;
  • Meals during the officials’ stays; and
  • Transportation between agencies and local transportation.

What can one glean from these three Opinion Releases? Based upon them, it would seem that a US company could bring foreign officials into the US for legitimate business purposes. A key component is that the guidelines are clearly articulated in a compliance policy. Based upon these Releases the following should be incorporated into a compliance policy regarding travel and lodging:

  • Any reimbursement for air fare will be for economy class, unless it is a long haul international flight, high ranking foreign officials or those entitled to travel business class by contract.
  • Do not select the particular officials who will travel. That decision will be made solely by the foreign government.
  • Only host the designated officials and not their spouses or family members.
  • Pay all costs directly to the service providers; in the event that an expense requires reimbursement, you may do so, up to a modest daily minimum (e.g., $35), upon presentation of a written receipt.
  • Any souvenirs you provide the visiting officials should reflect the business and/or logo and would be of nominal value, e.g., shirts or tote bags.
  • Apart from the expenses identified above, do not compensate the foreign government or the officials for their visit, do not fund, organize, or host any other entertainment, side trips, or leisure activities for the officials, or provide the officials with any stipend or spending money.
  • The training costs and expenses will be only those necessary and reasonable to educate the visiting officials about the operation of your company.

Incorporation of these concepts into a compliance program is a good first step towards preventing any FCPA violations from arising, but it must be emphasized that they are only a first step. These guidelines must be coupled with active training of all personnel, not only on the compliance policy, but also on the corporate and individual consequences that may arise if the FCPA is violated regarding gifts and entertainment. Lastly, it is imperative that all such gifts and entertainment are properly recorded, as required by the books and records component of the FCPA.

B. Enforcement Actions

Mike Volkov refers to the FCPA Paparazzi when he talks about those FCPA practitioners who confuse FCPA information with FCPA scare tactics and manipulate legal reasoning and practical advice with “marketing” using fear as opposed to reliable and accurate information. In a recent blog post, entitled “The So-Called Re-Emergence of Gifts, Meals and Entertainment as a Compliance Problem” Volkov bemoaned recent FCPA Paparazzi client alerts which said that the DOJ was now gunning after companies for FCPA transgressions in this area.

But one point Volkov raised for consideration by the compliance practitioner was the overall management of these risks. He asked the following questions: “Who is responsible for approving expenditures? What controls are in place for ensuring that money is used for proper purposes? How are these expenditures monitored? Who watches the person responsible for controlling the money and what controls are in place to monitor their behavior?” All good questions, and all questions that the compliance function should be able to answer going forward.

While there were three of enforcement actions in 2013 and one in 2014 where gifts, travel and entertainment were discussed. In only one of the four such enforcement actions were gifts, travel and entertainment discussed, where over a period of 15 months these actions were the primary cause of the violation. That matter was the Diebold enforcement action. In all others, HP, Weatherford and Stryker, the gifts, travel and entertainment matters were all ancillary to the primary illegal conduct at issue. This is consistent with DOJ enforcement of the FCPA so Volkov rights notes, the FCPA Paparazzi are howling at the moon once again.

Travel and Entertainment Enforcement Expense Box Score

Company Trip Locations Trip Costs & Perks Company Facilities Present
Lucent Technologies DisneyWorld, Hawaii, Las Vegas, Grand Canyon, Niagara Falls, Universal Studios, NYC $10 million in trips for 1000 Chinese governmental officials, including $34,000 for five days of sightseeing None of the travel destinations
Ingersoll-Rand Trip to Florence after trip to company facility in Vignate, Italy $1000 ‘pocket money’ per attendee Facilities in Vignate but not in Florence
Metcaf & Eddy First trip – Boston, Washington, D.C., Chicago and Orlando. Second trip – Paris, Boston and San Diego. First Class Travel and trip expenses for Egyptian governmental official and his family. Cash payments prior to trips of 150% of estimated daily expenses. Wakefield Mass., not in Washington DC, Chicago, Paris or DisneyWorld
Titan Corporation Reference in company books and records of $20,000 for promotional travel expenses. Not clear if ever funded (Remember a promise to pay equals making a payment under the FCPA)
UTStarcom Hawaii, Las Vegas and NYC Up to $7 million on gifts and all expense paid trips to US No company offices present in any of the travel destinations
Diebold Europe, with stays in:

  • Paris,
  • Amsterdam,
  • Florence,
  • Rome

In the US with visits to:

  • Disneyland,
  • Grand Canyon,
  • Napa Valley,
  • Las Vegas
$1.6MM to employees of Chinese state-owned banks; $175K to employees of Indonesian state-owned banks No company offices present in any of the travel destinations
Weatherford
  • Trip to Germany for the World Cup
  • Honeymoon for Sonatrach official’s daughter
  • Trip to Saudi Arabia for religious holiday
Payment of $24,000 in cash advance for Algerian government officials visiting Houston No legitimate business purpose for any of the business travel
Stryker NYC and Aruba $7000 for Polish gov official and wife No company offices present in any of the travel destinations
HP Las Vegas $35,000 in travel expenses paid for Polish gov official No company offices present in any of the travel destinations

Tomorrow we will tie it all together for you.

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, 2014

April 15, 2014

Implementing Compliance Incentives In Your Company

IncentiveSeveral readers have asked why I have not written anything about the Houston Astros this year. The answer is two-fold. The first is that I really do not care. However, the more I thought about it, the real reason is that they are not relevant. Just how not relevant are the bumbling hometown (former) loveables? Last week they achieved the noteworthy accomplishment of obtaining a Nielson rating of 0.00 for a second consecutive season. I am not aware of any other major league team, which has been on television for a game where no one was recorded as watching for the entire game, for two straight seasons. Pretty amazing when you think about it.

However, one thing that is relevant in the context of any best practices anti-bribery compliance program is incentives. The Department Of Justice (DOJ) and Securities Exchange Commission (SEC) could not have been clearer in the FCPA Guidance about their views on the need for incentives to help drive behavior that is ethical and in compliance with the Foreign Corrupt Practices Act (FCPA) when they stated “DOJ and SEC recognize that positive incentives can also drive compliant behavior.” In the Guidance, the SEC cited to the following:

[M]ake integrity, ethics and compliance part of the promotion, compensation and evaluation processes as well. For at the end of the day, the most effective way to communicate that “doing the right thing” is a priority, is to reward it. Conversely, if employees are led to believe that, when it comes to compensation and career advancement, all that counts is short-term profitability, and that cutting ethical corners is an acceptable way of getting there, they’ll perform to that measure. To cite an example from a different walk of life: a college football coach can be told that the graduation rates of his players are what matters, but he’ll know differently if the sole focus of his contract extension talks or the decision to fire him is his winloss record.

A recent article in the Spring 2014 issue of the MIT Sloan Management Review, entitled “Combing Purpose with Profits”, by authors Julian Birkinshaw, Nicolai J. Foss and Siegwart Lindenberg, presents some interesting steps on how a company might work towards achieving the goals articulated by the DOJ and SEC. The key thesis of the authors is if you want to motivate employees you have to have purpose. In their article they presented case studies from three entities: the Tata Group, Handelsbanken and HCL Technologies. From these three cases studies they came up with six core principles, which I will adapt for the compliance function in an anti-corruption compliance program.

  1. Compliance incentives don’t have to be elaborate or novel. The first point is that there are only a limited number of compliance incentives that a company can meaningfully target. Evidence suggests the successful companies are the ones that were able to translate pedestrian-sounding compliance incentive goals into consistent and committed action.
  2. Compliance incentives need supporting systems if they are to stick. People take cues from those around them, but people are fickle and easily confused, and gain and hedonic goals can quickly drive out compliance incentives. This means that you will need to construct a compliance function that provides a support system to help them operationalize their pro-incentives at different levels, and thereby make them stick. The specific systems which support incentives can be created specifically to your company but the key point is that they are delivered consistently because it signals that management is sincere.
  3. Support systems are needed to reinforce compliance incentives. One important form of a supporting system for compliance incentives “Is to incorporate tangible manifestations of the company’s pro-social goals into the day-to-day work of employees.” Make the rewards visible. As stated in the FCPA Guidance, “Beyond financial incentives, some companies have highlighted compliance within their organizations by recognizing compliance professionals and internal audit staff. Others have made working in the company’s compliance organization a way to advance an employee’s career.”
  4. Compliance incentives need a “counterweight” to endure. Goal-framing theory shows how easy it is for compliance incentives to be driven out by gain or hedonic goals, so even with the types of supporting systems it is quite common to see executives bowing to short-term financial pressures. Thus, a key factor in creating enduring compliance incentives is a “counterweight,” by which we mean any institutional mechanism that exists to enforce a continued focus on a nonfinancial goal. This means that in any financial downturn compliance incentives are not the first thing that gets thrown out the window and if my oft-cited hypothetical foreign Regional Manager misses his number for two quarters, he does not get fired. So the key is that the counterweight has real influence; it must hold the leader to account.
  5. Compliance incentive alignment works in an oblique, not linear, way. The authors believe that “In most companies, there is an implicit belief that all activities should be aligned in a linear and logical way, from a clear end point back to the starting point. The language used — from cascading goals to key performance indicators — is designed to reinforce this notion of alignment. But goal-framing theory suggests that the most successful companies are balancing multiple objectives (pro-social goals, gain goals, hedonic goals) that are not entirely compatible with one another, which makes a simple linear approach very hard to sustain.” What does this mean in practical terms for your compliance program? If you want your employees to align around compliance incentives, your company will have to “eschew narrow, linear thinking, and instead provide more scope for them to choose their own oblique pathway.” This means emphasizing compliance as part of your company’s DNA on a consistent basis — “the intention being that by encouraging individuals to do “good,” their collective effort leads, seemingly as a side-effect, to better financial results. The logic of “[compliance first], profitability second” needs to find its way deeply into the collective psyche of the company.”
  1. Compliance incentive initiatives can be implemented at all levels. Who at your company is responsible for pursuing compliance incentives? If you head up a division or business unit, it is clearly your job to define what your pro-social goals are and to put in place the supporting structures and systems described here. But what if you are lower in the corporate hierarchy? It is tempting to think this is “someone else’s problem,” but actually there is no reason why you cannot follow your own version of the same process. We have seen quite a few mid-level managers make a real difference, and often quite quickly, using the principles outlined here.

The author’s have set out several steps that you can implement into your compliance program to enhance incentives to facilitate anti-corruption. There have been many who have criticized the FCPA Guidance. While I am certainly not one of them, I do not think there can be any argument that it does not present the DOJ and SEC views on a minimum best practices compliance program. So if the DOJ and SEC think incentives in your compliance program are important, I suggest to you, they are important. The article, which is the basis of this blog post, provides an excellent start for the exploration of some ways to inculcate anti-bribery and anti-corruption incentives into not only your compliance regime but also, more importantly, the DNA of your company.

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, 2014

April 14, 2014

The HP FCPA Settlement

FCPA SettlementLast week the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) jointly announced the conclusion of a Foreign Corrupt Practices Act (FCPA) enforcement action against Hewlett-Packard Company (HP). In the settlement, HP agreed to pay $108MM in fines, penalties and disgorgements for criminal and civil acts. To say that it was one of the more perplexing FCPA settlements would seem to be an understatement. While some will read the settlement documents and see conduct which did not merit such a high total amount of fines and penalties, I am not from that camp.

The tale of this sordid affair of bribery and corruption occurred over 3 continents with multiple countries involved, evidencing an entire breakdown in company internal controls and a complete lack of a culture of compliance. Yet the settlement documents make great pains to emphasize that few employees were actually involved in the nefarious conduct. How bad was the conduct? Think right up there with BizJet because we had bags of cash delivered to a Polish government official. (But unlike BizJet, the Board of Directors did not approve the bribery scheme and it was not taken across the border.) For the Russian deal, it was shopped through several countries with multiple levels of company review, which did not seem to work or care much about anything except getting the deal done. For Mexico, they just seemed to get a free pass where the contract description for the agent who paid the bribe was “influencer fee”.

Finally, as most readers might remember, HP did not self-report this misconduct to the DOJ or SEC. Apparently, the story of HP’s bribery by its German subsidiary to gain a contract in Russia was broken by the Wall Street Journal (WSJ) article in April 15, 2010. The next day, the DOJ and SEC announced they were investigating the allegations of bribery. However, HP was made aware of the allegations by its German subsidiary in December 2009, when German authorities raided HP’s offices in Munich and arrested one HP Germany executive and two former employees. Yet HP never self-reported. Not exactly the poster child for self-disclosure for any company going forward.

Of course HP’s public response at the time indicated its attitude, when a HP spokesperson was quoted in the WSJ article as saying “This is an investigation of alleged conduct that occurred almost seven years ago, largely by employees no longer with HP. We are cooperating fully with the German and Russian authorities and will continue to conduct our own internal investigation.”

More befuddlement comes from the reported facts around HP Germany. As noted by the WSJ report, one, then current, HP executive was arrested and two former employees were arrested in connection with the investigation by German authorities. There is no mention of them in any of the settlement documents. The WSJ article also reported that investigation-related documents submitted to a German court showed that German prosecutors were “looking into whether H-P executives funneled the suspected bribes through a network of shell companies and accounts in places including Britain, Austria, Switzerland, the British Virgin Islands, Belize, New Zealand, the Baltic nations of Latvia and Lithuania, and the states of Delaware and Wyoming”. While some of these countries were mentioned in the settlement documents there was no mentions of DOJ or SEC investigations into Wyoming, Belize, the British Virgin Islands or New Zealand.

What are we to make of the criminal fines levied against the Russian and Polish subsidiaries of HP? The Polish subsidiary pled guilty to a two count Criminal Information consisting of (1) violating the FCPA’s internal control provisions; (2) violating the FCPA’s books and records provisions. The US Sentencing Guidelines suggested a fine range of $19MM to $38MM, the final fine was $15,450,244.

For the Russia deal, the Russian subsidiary pled guilty to a four count Criminal Information consisting of (1) conspiracy to violate the books and records provisions of the FCPA; (2) violating the FCPA’s anti-bribery provisions; (3) violating the FCPA’s internal control provisions; (4) violating the FCPA’s books and records provisions. The US Sentencing Guidelines suggested a fine range of $87MM to $174MM, yet the final fine was $58,772,250.

Finally, in Mexico HP’s subsidiary, according the to the SEC Press Release, “paid a consultant to help the company win a public IT contract worth approximately $6 million. At least $125,000 was funneled to a government official at the state-owned petroleum company with whom the consultant had connections. Although the consultant was not an approved deal partner and had not been subjected to the due diligence required under company policy, HP Mexico sales managers used a pass-through entity to pay inflated commissions to the consultant.” This was internally referred to by HP as an “influencer fee.” Pretty clear evidence of what it was to be used for, wouldn’t you say? Yet the DOJ did not to criminally prosecute the company’s Mexican subsidiary and entered into a Non-Prosecution Agreement (NPA), HP agreed to pay forfeiture in the amount of $2,527,750.

How did HP accomplish all of this? In a Press Release HP Executive Vice President and General Counsel John Schultz said, “The misconduct described in the settlement was limited to a small number of people who are no longer employed by the company. HP fully cooperated with both the Department of Justice and the Securities and Exchange Commission in the investigation of these matters and will continue to provide customers around the world with top quality products and services without interruption.”

As reported by the FCPA Professor, in his blog post entitled “HP And Related Entities Resolve $108 Million FCPA Enforcement Action”, the HP Russian subsidiary Plea Agreement gave the following factors for the reduction in the fine from the Sentencing Guideline range:

“(a) monetary assessments that HP has agreed to pay to the SEC and is expected to pay to law enforcement authorities in Germany relating to the same conduct at issue …; (b) HP Russia’s and HP’s cooperation has been, on the whole, extraordinary, including conducting an extensive internal investigation, voluntarily making U.S. and foreign employees available for interviews, and collecting, analyzing, and organizing voluminous evidence and information for the Department; (c) HP Russia and HP have engaged in extensive remediation, including by taking appropriate disciplinary action against culpable employees of HP and enhancing their internal accounting, reporting, and compliance functions; (d) HP has committed to continue enhancing its compliance program and internal accounting controls … (e) the misconduct identified … was largely undertaken by employees associated with HP Russia, which employed a small fraction of HP global workforce during the relevant period; (f) neither HP nor HP Russia has previously been subject of any criminal enforcement action by the Department or law enforcement authority in Russia or elsewhere; (g) HP Russia and HP have agreed to continue to cooperate with the Department and other U.S. and foreign law enforcement authorities, if requested by the Department …”

In the same blog post, the Professor reported the following reasons were stated for reduction in the final fine by HP’s Polish subsidiary’s:

“(a) HP Poland’s cooperation with the Department’s investigation; (b) HP Poland’s ultimate parent corporation, HP, has committed to maintain and continue enhancing its compliance program and internal accounting controls …; and (c) HP Poland and HP have agreed to continue with the Department and other U.S. and foreign law enforcement authorities in any ongoing investigation …”

We have witnessed companies, which have engaged in ‘extraordinary cooperation’ with the DOJ during the pendency of their FCPA investigations. BizJet is certainly one that comes to mind. Further, there are clear examples of companies, which extensively remediated during the pendancies of their FCPA investigations, from which they clearly benefited. Two prime examples are Parker Drilling, which not only received a financial penalty below the suggested range but also was not required to have a corporate monitor, while they had C-Suite involvement in its bribery scheme. Weatherford seeming came back from the brink during mid-investigation when they hired Billy Jacobson and turned around not only their attitude towards cooperation with the DOJ but also their efforts toward remediation.

Both of these companies are headquartered in Houston and both have been quite active on the conference circuit talking about their compliance programs so most compliance practitioners are aware that these companies are on the forefront of best practices. Perhaps HP is on some circuit doing that, somewhere. If so, kudos to them. If their remediation work led to a best practices compliance program for the company and their extraordinary cooperation led to the astonishing reduction in penalties to their entities, I certainly tip my cap to them. If their lawyers were great negotiators and made great presentations to the DOJ and SEC, all of which led to or contributed to the final results, a tip of the cap to them as well.

So what is the lesson to be learned for the compliance practitioner? Other than befuddlement, I am not sure. Congratulating HP and its counsel is not a lesson it is an action. If HP now has a best practices compliance program, I hope they will provide the compliance community with the lessons that they learned and incorporated into their compliance program, which allowed them to obtain the fines below the minimum suggested range. If they have incorporated some enhanced compliance components into their program I hope they will share those enhancements too.

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, 2014

April 8, 2014

Mickey Rooney and The 90 Cent Solution

Mickey Rooney as PuckWe begin today with a word on the death of Mickey Rooney. Rooney’s career, spanning nearly 90 years was certainly was from a different era. He was short of stature and long in his number of marriages but as Bob Lefsetz noted in his blog post tribute to Rooney, “But they stood in front of us twenty feet tall. At the drive-in. Even when the pictures truly got small on the tiny old screens of yore they emerged triumphant, because they were so good-looking, so charismatic. And if you were big enough, a bright enough star, your legacy lived on, even if your present day circumstances bore no resemblance to fame.” But here’s why there is always a place in my heart for Mickey Rooney. When I was very young I lived with my grandparents and one night I watched the 1935 movie version of Shakespeare’s A Mid Summer Night’s Dream on television with my grandmother. Rooney’s so over the top performance of Puck began for me a life long love affair with the Bard. So here’s to the grandmother that started me off on a lifelong love affair of Shakespeare’s works and here’s to the Mickster—you did it your way.

I have often considered the role of senior management is to set a proper ‘Tone-At-The-Top” to do business ethically and in compliance with anti-corruption laws like the Foreign Corrupt Practices Act (FCPA) or the UK Bribery Act. Incentives to do business ethically and in compliance are also recognized as an important part of any best practices compliance program. The flip side of incentives is disincentives, such as discipline or financial penalties for affirmatively engaging in misconduct. But how far should such disincentives go and how strong should they be? Should there be penalties for not only affirmatively engaging in misconduct but also failing to monitor risk-taking that allows misconduct to occur? If the latter becomes prevalent, how close do we come to criminalizing conduct, which is arguably negligent and not simply intentional?

I have thought about several of these questions and many others over the past few days when reading about the ongoing struggles of General Motors (GM) over its Cobalt recall issues and Citigroup in regards to its Mexican banking operations. In an article by Gretchen Morgenson in the New York Times (NYT), entitled “The Wallet as Ethics Enforcer”, where she asked “Who decided—and who agreed—that 90 cents was too much to pay for each switch that would have fixed the problem that apparently led to 13 deaths? How much did that decision add to the bottom line and add to executives’ compensation over the years? What will the company have to pay in possible regulatory penalties and legal settlements?” One of her own answers to these questions reads, “While the shareholders of G.M. will shoulder the cost of the fines, the settlements and loss of trust arising from the mess, the executives responsible for monitoring internal risks like these are unlikely to be held accountable by returning past pay.”

Citigroup, which had previously indicated that it had been the victim of a huge fraud perpetrated by one of its customers in Mexico, Oceanografía. However, now Citigroup now faces both federal criminal and civil investigations over the affair. As reported in a Wall Street Journal (WSJ) article, entitled “Crime Inquiry Said to Open On Citigroup”, Ben Protess and Michael Corkery reported that both the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) have opened investigations “focusing in part on whether holes in the bank’s internal controls contributed to the fraud in Mexico. The question for the investigators is whether Citigroup—as other banks have been accused of doing in the context of money laundering—ignored warning signs.” For a bank to be criminally liable, “prosecutors would typically need to show that the bank willfully ignored warning signs of the fraud.” However, to show a civil violation, the threshold is lower and there may only need to be a showing that the bank lacked the proper internal controls or internal oversight.

In her article, Morgenson spoke with Scott M. Stringer, the New York City Comptroller, who is a strong advocate of corporate requirements which “make sure that insiders who engage in questionable conduct are required to pay the piper” in the form of clawback provisions. Stringer has worked with companies to expand clawback provisions beyond those mandated by Sarbanes-Oxley (SOX), which required “boards to recover some incentive pay from a chief executive and chief financial officer if a company did not comply with financial reporting requirements.” Now, clawbacks have expanded to require executives to return compensation “even if they did not commit the misconduct themselves; they run afoul of the rules by failing to monitor conduct or risk-taking by subordinates.” Stringer believes that such clawback provisions not only “speak to the issue of financial accountability but also to setting a tone at the top.”

Morgenson ends her article by noting that unless GM makes public its internal investigation, “we may never know how many G.M. executives knew about the Cobalt problems and looked the other way.” In the meantime though, this debacle shows the importance of policies that hold high-level employees accountable for conduct that, even if not illegal, can do serious damage to their companies. Directors creating such policies would be sending a clear signal that they take their duties to the company’s owners seriously.”

At this point, we do not know high up the decision went in GM not to install the 90 cent solution. But I would argue it really does not matter. Somewhere in the company, some engineer figured out a solution and indeed one was implemented without changing the part number. I am sure the GM Board would have been sufficiently shocked, just shocked, to find out that such decisions as monetary over safety were going on inside the company. What does all of the information released so far tell us about the culture inside GM when these decisions were made? While I am certainly willing to give current GM Chief Mary Barra the benefit of the doubt about her intentions for the company going forward, particularly after a grueling couple of days before Congress, what do you think the financial incentives were in the company when the 90 cent solution was rejected?

It initially appeared that Citigroup was the victim of a massive fraud perpetrated by one of its customers. However, even initially it was reported that Citigroup let its Mexican operation, Banamex run its own show with very little oversight from the corporate office in New York. Now Citigroup is not only under a civil investigation for lack of proper internal controls but also a criminal investigation for willful ignorance of Banamex’s operations. Does any of this sound far-fetched or perhaps familiar? Think about Frederick Bourke and ‘conscious indifference’. Even the judge in Burke’s criminal trial mused that she did not know if he was a perpetrator or a victim. Perhaps Citigroup is both, but if he was both it certainly did not help Bourke. While I am certainly sure that the Citigroup Board of Directors would also say that it would also simply be shocked, just shocked, to find that there were even insufficient internal controls over Banamex, let alone willful ignorance of criminal actions of its Mexico subsidiary, it does pose the question as to what is the culture at the bank?

As important as clawbacks are, until the message of compliance gets down from the top of an organization, into the middle and then to the bottom, a culture of compliance will not exist. I have worked in an industry where safety is goal number one. But in the same industry I have heard the apocryphal tale of the foreign Regional Manager who is alleged to have said, “If I violate the Code of Conduct, I may or may not get caught. If I violate the Code of Conduct and get caught, I may or may not be punished. If I miss my numbers for two quarters, I will be fired.” Clawbacks for Board members would not have influenced this apocryphal foreign Regional Manager, any more than they would have worked on the psyche of the GM engineers who proposed and then later dropped the 90 cent solution. It was clear to them what their bosses thought was important for them to keep their jobs. As long as management has that message, doing business ethically and in compliance will always take a second seat.

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, 2014

 

April 4, 2014

Life Cycle Management of Third Parties – Step 5 – Management of the Relationship

Five stepsToday ends my review of what I believe to be the five steps in the management of a third party under an anti-bribery regime such as the Foreign Corrupt Practices Act (FCPA) or UK Bribery Act. On Monday, I reviewed Step 1 – the Business Justification, which should kick off your process with any third party relationship. On Tuesday, I looked at Step 2 – the questionnaire that you should send and third party and what information you should elicit. On Wednesday, I discussed Step 3 – the due diligence that you should perform based upon the information that you have received from and ascertained on the third party. On Thursday, I examined Step 4 – how you should use the information you obtain in the due diligence process and the compliance terms and conditions which you should place in any commercial agreement with a third party. Today, I will conclude this series by reviewing how you should manage the relationship after the contract is signed.

I often say that after you complete Steps 1-4 in the life cycle management of a third party, the real work begins and that work is found in Step 5– the Management of the Relationship. While the work done in Steps 1-4 are absolutely critical, if you do not manage the relationship it can all go down hill very quickly and you might find yourself with a potential FCPA or UK Bribery Act violation. There are several different ways that you should manage your post-contract relationship. This post will explore some of the tools which you can use to help make sure that all the work you have done in Steps 1-4 will not be for naught and that you will have a compliant anti-corruption relationship with your third party going forward.

Managing third party relationships is an area that continues to give companies trouble and heartburn. The “2013 Anti-Bribery and Corruption Benchmarking Report – A joint effort between Kroll and Compliance Week” found that many companies are still struggling with ongoing anti-corruption monitoring and training for their third parties. Regarding training, 47% of the respondents said that they conduct no anti-corruption training with their third parties at all. The efforts companies do take to educate and monitor third parties are somewhat pro forma. More than 70% require certification from their third parties that they have completed anti-corruption training; 43% require in-person training and another 40% require online training. Large companies require training considerably more often than smaller ones, although when looking at all the common training methods, 100% of respondents say their company uses at least one method, if not more.

While the FCPA Guidance itself only provides that “companies should undertake some form of ongoing monitoring of third-party relationships”. Diana Lutz, writing in the White Paper by The Steele Foundation entitled “Global anti-corruption and anti-bribery program best practices”, said, “As an additional means of prevention and detection of wrongdoing, an experienced compliance and audit team must be actively engaged in home office and field activities to ensure that financial controls and policy provisions are routinely complied with and that remedial measures for violations or gaps are tracked, implemented and rechecked.”

One noted commentator has discussed techniques to provide this management and oversight any third party relationship. Carol Switzer, President of the Open Compliance and Ethics Group (OCEG), writing in the Compliance Week magazine set out a five-step process for managing corruption risks, which I have adapted for third parties.

  1. Screen - Monitor third party records against trusted data sources for red flags.
  2. Identify – Establish helplines and other open channels for reporting of issues and asking compliance related questions by third parties.
  3. Investigate - Use appropriately qualified investigative teams to obtain and assess information about suspected violations.
  4. Analyze - Evaluate data to determine “concerns and potential problems” by using data analytics, tools and reporting.
  5. Audit - Finally, your company should have regular internal audit reviews and inspections of the third party’s anti-corruption program; including testing and assessment of internal controls to determine if enhancement or modification is necessary.

Based upon the foregoing and other commentators, I believe there are several different roles in a company that play a function in the ongoing monitoring of the third party. While there is overlap, I believe that each role fulfills a critical function in any best practices compliance program.

Relationship Manager

There should be a Relationship Manager for every third party which the company does business with through the sales chain. The Relationship Manager should be a business unit employee who is responsible for monitoring, maintaining and continuously evaluating the relationship between your company and the third party. Some of the duties of the Relationship Manager may include:

  • Point of contact with the Third Party for all compliance issues;
  • Maintaining periodic contact with the Third Party;
  • Meeting annually with the Third Party to review its satisfaction of all company compliance obligations;
  • Submitting annual reports to the company’s Oversight Committee summarizing services provided by the Third Party;
  • Assisting the company’s Oversight Committee with any issues with respect to the Third Party.

Compliance Professional

Just as a company needs a subject matter expert (SME) in anti-bribery compliance to be able to work with the business folks and answer the usual questions that come up in the day-to-day routine of doing business internationally, third parties also need such access. A third party may not be large enough to have its own compliance staff so I advocate a company providing such a dedicated resource to third parties. I do not believe that this will create a conflict of interest or that there are other legal impediments to providing such services. They can also include anti-corruption training for the third party, either through onsite or remote mechanisms. The compliance practitioner should work closely with the relationship manager to provide advice, training and communications to the third party.

Oversight Committee

I advocate that a company should have an Oversight Committee review all documents relating the full panoply of a third party’s relationship with the company. It can be a formal structure or some other type of group but the key is to have the senior management put a ‘second set of eyes’ on any third parties who might represent a company in the sales side. In addition to the basic concept of process validation of your management of third parties, as third parties are recognized as the highest risk in FCPA or Bribery Act compliance, this is a manner to deliver additional management of that risk.

After the commercial relationship has begun the Oversight Committee should monitor the third party relationship on no less than an annual basis. This annual audit should include a review of remedial due diligence investigations and evaluation of any new or supplement risk associated with any negative information discovered from a review of financial audit reports on the third party. The Oversight Committee should review any reports of any material breach of contract including any breach of the requirements of the Company Code of Ethics and Compliance. In addition to the above remedial review, the Oversight Committee should review all payments requested by the third party to assure such payment is within the company guidelines and is warranted by the contractual relationship with the third party. Lastly, the Oversight Committee should review any request to provide the third party any type of non-monetary compensation and, as appropriate, approve such requests.

Audit

A key tool in managing the relationship with a third party post-contract is auditing the relationship. I hope that you will have secured audit rights, as that is an important clause in any compliance terms and conditions. Your audit should be a systematic, independent and documented process for obtaining evidence and evaluating it objectively to determine the extent to which your compliance terms and conditions are followed. Noted fraud examiner expert Tracy Coenen described the process as one to (1) capture the data; (2) analyze the data; and (3) report on the data, which is also appropriate for a compliance audit. As a base line I would suggest that any audit of a third party include, at a minimum, a review of the following:

  1. the effectiveness of existing compliance programs and codes of conduct;
  2. the origin and legitimacy of any funds paid to Company;
  3. books, records and accounts, or those of any of its subsidiaries, joint ventures or affiliates, related to work performed for, or services or equipment provided to, Company;
  4. all disbursements made for or on behalf of Company; and
  5. all funds received from Company in connection with work performed for, or services or equipment provided to, Company.

If you want to engage in a deeper dive you might consider evaluation of some of the following areas:

  • Review of contracts with third parties to confirm that the appropriate FCPA compliance terms and conditions are in place.
  • Determine that actual due diligence took place on the third party.
  • Review FCPA compliance training program; both the substance of the program and attendance records.
  • Does the third party have a hotline or any other reporting mechanism for allegations of compliance violations? If so how are such reports maintained? Review any reports of compliance violations or issues that arose through anonymous reporting, hotline or any other reporting mechanism.
  • Does the third party have written employee discipline procedures? If so have any employees been disciplined for any compliance violations? If yes review all relevant files relating to any such violations to determine the process used and the outcome reached.
  • Review employee expense reports for employees in high-risk positions or high-risk countries.
  • Testing for gifts, travel and entertainment that were provided to, or for, foreign governmental officials.
  • Review the overall structure of the third party’s compliance program. If the company has a designated compliance officer to whom, and how, does that compliance officer report? How is the third party’s compliance program designed to identify risks and what has been the result of any so identified?
  • Review a sample of employee commission payments and determine if they follow the internal policy and procedure of the third party.
  • With regard to any petty cash activity in foreign locations, review a sample of activity and apply analytical procedures and testing. Analyze the general ledger for high-risk transactions and cash advances and apply analytical procedures and testing.

In addition to monitoring and oversight of your third parties, you should periodically review the health of your third party management program. Once again I turn to Diana Lutz and her colleague Marjorie Doyle, and their White Paper entitled “Third Party Essentials: A Reputation/Liability Checkup When Using Third Parties Globally”, where they gave a checklist to test companies on their relationships with their third parties.

  1. Do you have a list or database of all your third parties and their information?
  2. Have you done a risk assessment of your third parties and prioritized them by level of risk?
  3. Do you have a due diligence process for the selection of third parties, based on the risk assessment?
  4. Once the risk categories have been determined, create a written due diligence process.
  5. Once the third party has been selected based on the due diligence process, do you have a contract with the third party stating all the expectations?
  6. Is there someone in your organization who is responsible for the management of each of your third parties?
  7. What are “red flags” regarding a third party?

Perhaps now you will understand why I say that after you prepare the Business Justification; send out, receive back and evaluate the Questionnaire; set the appropriate level of Due Diligence; evaluate the due diligence and execute a contract with appropriate Compliance Terms and Conditions; now the real work begins, as you have to manage the third party relationship.

I hope that you have found this review of the life cycle management of third parties helpful for your compliance program.

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, 2014

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