SFO & the Bribery Act: Sector sweeps, facilitation payments & London listed companies

Ed. Note-today we post an article which was up on the site, thebriberyact.com. It discusses some recent remarks by SFO Director David Green. We are thankful to our colleagues Barry Vitou and Richard Kovalevsky QC for allowing us to post it. As always, the guys continue to ‘Shine a Light’.

News reaches us of a private small round table session put together by Transparency International and attended by some from the US FCPA white collar community (we understand Mark Mendelsohn attended) and our very own David Green CB QC, Director of the Serious Fraud Office.

Here’s the skinny based on our source.

The headline message promulgated by David Green will be not be news to those who have been following Mr. Green’s hard hitting public pronouncements in the UK (or reading this website) though as ever, it’s always important to be able to read between the lines.

The clue’s in the name

Mr. Green emphasized that the SFO is reverting to type and will focus on prosecution of Serious Fraud.

The advisory and guidance role of the SFO, something Mr. Green’s predecessor branched out into, was shuttered on the (not so) new Director’s arrival at the SFO over a year ago.  We understand that this was something that some hapless souls learnt the hard way when they stumbled into the SFO looking for some help!

Nevertheless, while we understand the rationale we think it’s a shame the SFO is no longer extending the olive branch of advice and guidance.

It seemed to us that there was something to be gained from a channel of communication between corporations and the SFO outside of the usual dynamic of prosecutor and prosecuted.  The DoJ engage in something along these lines with their Opinion Release procedure (which to be fair the SFO has never offered).  However, we digress…

Facilitation payment Guidance tossed in the garbage

Mr. Green also publicized his junking of the facilitation payment guidance and the presumption against prosecution for Self Reporting companies.

It’s fair to say that many have, in our view, misconstrued this to mean that Civil Recovery Orders are off the table and that we are now back to ‘cat and mouse’ and the binary decision of whether to prosecute or not.  This is silly, in particular when one of the first things Mr. Green did on arrival at the SFO was to approve a civil recovery order in respect of Oxford University Press.

Listen carefully.  Mr Green says that a true Self Report (namely a corporate telling the SFO something that it does not already know or would not find out about, but for the Self Report) will weigh very heavily in the balance when weighing the public interest about whether or not to prosecute.

In our view Civil Recovery Orders (which Oxford University Press should demonstrate anyway) are not dead and buried – though that does not fit the narrative of those whose marketing relies on scaring potential customers.

As we recently reported the publication of the guidance around Civil Recovery Orders was not for nothing.  Cue, Civil Recovery Orders still very firmly on the menu – but only in the right circumstances.

In a hurry but not going to rush

At the US meeting Mr. Green signaled a desire to bring headline cases and as soon as possible.  The truth is that this is not just a desire but a political reality.  Mr. Green is on a 4 year contract at the SFO and is already a quarter of the way through his tenure.

An extra credit line from Whitehall of nearly £4 million last year to deal with LIBOR (and no doubt the same again this year) means that, like it or not (and regardless of what might be said publicly), the political paymasters will be looking for some crowd pleasing banker bashing headline prosecutions in short order.

This will be easier said than done in a legal system where, unlike the US, there is (thank goodness at least for the forseeable future) NO concept of Respondent Superior.

Sweeps

In other news we understand Mr. Green conveyed that he is attracted to sector sweeps with customs duties (in other words what many would understand to be facilitation payments) a possible area of attention.

Frankly sector sweeps MUST be the way to go in any sensible SFO strategy.  Otherwise known as ‘pulling the thread’ the chances are that a corruption investigation will open new lines of enquiry.  As to the issue of facilitation payments, they are a thorny topic but under UK law they are illegal.

London listed? Mind your backs…

Finally we understand David Green explained, broadly speaking, that companies listed in London in his view fall under the regulatory purview of the Serious Fraud Office.  Given the importance of the London markets to the UK economy this is hardly a surprise.

While, some may express consternation by this given the Ministry of Justice guidance (which said that broadly speaking a London listing on its own would not be enough to trigger the jurisdiction of the Bribery Act) we know that privately it has ALWAYS been the SFO view that there WILL almost ALWAYS be additional connections with the UK which give it jurisdiction.  Ultimately this will be a question for the courts if and when it is tested.

The proof of the pudding

Of course the proof of the pudding will be in the eating.  Something David Green QC is only too well aware of.  Expect Mr. Green to act.

The SFO story has now moved on.  Today the real question in the wake of the numerous recently kicked off investigations is:

Has the SFO bitten off more than it can chew?

The answer remains the same, the proof of the pudding will be in the eating.

What Are The Essential Elements of a Corporate Compliance Program?

Can you synthesize and reconcile the world’s leading laws, regulations and commentaries on the best practices an anti-bribery and anti-corruption compliance program. I recently saw one such approach by Paul McNulty and Stephen Martin of the law firm, Baker and McKenzie. They have developed what they term the five essential elements of a corporate compliance program. These five elements are based upon the best practices as set out in the seven elements of a corporate compliance program under the US Sentencing Guidelines; the 13 Good Practices by the OECD on Internal Controls, Ethics, and Compliance; the FCPA Guidance’s Ten Hallmarks of Effective Compliance Program and the UK Bribery Act’s Six Principles of an Adequate Procedures compliance program. The five elements are:

• Leadership
• Risk Assessment
• Standards and Controls
• Training and Communication
• Oversight

I.                   Leadership

The point means more than simply “Tone-at-the-top”; a successful compliance program must be built on a solid foundation of ethics that are fully and openly endorsed by senior management. There should be an unambiguous, visible and active commitment to compliance. But even more than support or the right tone, compliance standards require that companies must have high-ranking compliance officers with the authority and resources to manage the program on a day-to-day basis. And compliance officers must have the ear of those ultimately responsible for corporate conduct, including the board of directors.

Some of the questions you might think about in connection with the leadership of your compliance program are the following: How is board oversight implemented? Is there an ethics or audit committee reporting to the full board? What is the role of the Chief Compliance Officer? What is the role of the General Counsel? How do the legal and compliance departments interact? Does the CCO have “real power”? Is she or he treated as a second-class citizen?

Equally the Board of Directors has a key role to fulfill. The Board must ensure compliance policies, systems and procedures are in place and it should monitor implementation and effectiveness of the compliance program:

• Be actively involved
• Attend Board meetings
• Review, consider and evaluate information provided
• Inquire further when presented with questionable circumstances or potential issues
• Once Board knows of a potential compliance issue it must act.
• Regularly receive compliance briefings and training.

II.                Risk Assessment

The implementation of an effective compliance program is more than simply following a set of accounting rules or providing effective training. Compliance issues can touch many areas of your business and you need to know not only what your highest risks are but where to marshal your efforts in moving forward. A risk assessment is designed to provide a big picture of your overall compliance obligations and then identify areas of high risk so that you can prioritize your resources to tackle these high risk areas first.

What are some of the areas where you need to assess your risks?

1. Country Risk - What is the correlation between growth markets and corruption risk and what is the perceived level of corruption? In other words, the Transparency International Corruption Perceptions Index or similar list.
2. Sector Risk - Has government publicly stated industry is under scrutiny or already conducted investigations in sector? Are there corruption risks particular to the industry?
3. Business Opportunity Risk - Is the business opportunity a high value project for your company? Are there multiple contractors or intermediaries involved in the bidding or contract execution phase?
4. Business Partnership Risk - Does this business opportunity require a foreign government relationship? Does a foreign government require you to rely upon any third parties?
5. Transaction Risk - Will your company be required to make any “compelled giving” through any requirements for political or charitable contributions? Are you required to use any intermediaries to obtain licenses and permits?

In addition to an initial risk assessment to either (1) inform your compliance program or (2) help you to identify high risks and prioritize their remediation, risk assessments should be a regular, systemic part of compliance efforts rather than an occasional, ad hoc exercise cobbled together when convenient or after a crisis. They should be conducted at the same time every year and performed by a consistent group, such as your internal audit department or enterprise risk management team. Such annual risk assessments act as a strong preventive measure if they are performed before something goes wrong as it avoids a “wait and see” approach.

III.             Standards and Controls

Generally, every company has three levels of standards and controls. (1) Code of Conduct. Every company should have a Code of Conduct which should express its ethical principles. However, a Code of Conduct is not enough. (2) Standards and Policies. Every company should have standards and policies in place that build upon the foundation of the Code of Conduct and articulate Code-based policies, which should cover such issues as bribery, corruption and accounting practices. (3) Procedures. Every Company should then ensure that enabling procedures are implemented to confirm those policies are implemented, followed and enforced.

FCPA compliance best practices now require companies to have additional standards and controls, including, for example, detailed due diligence protocols for screening third-party business partners for criminal backgrounds, financial stability and improper associations with government agencies. Ultimately, the purpose of establishing effective standards and controls is to demonstrate that your compliance program is more than just words on a piece of paper.

IV.              Training

Another pillar of a strong compliance program is properly training company officers, employees and third parties on relevant laws, regulations, corporate policies and prohibited conduct. Simply conducting training usually is not enough. Enforcement officials want to be certain the messages in the training actually get through to employees. The Department of Justice’s (DOJ) expectations of effectiveness are measured by who a company trains, how the training is conducted and how often training occurs.

There are several key elements to training. First is that you need to train the right people. You must prioritize which audience to educate by starting your training program in higher risk markets and focus on directors, officers and sales employees who may have direct contact with government officials or deal with state-owned entities. Again, focus initially on training country managers in your company’s high-risk markets, then expand geographically and through the ranks of employees.

Second, in high risk markets and for high risk employees or third parties you should conduct live, annual training. Enforcement officials have made it clear that live, in-person training is the preferred method in high-risk markets and also that it should be regular and frequent. Another benefit of live training is the immediate feedback from employees that would be much less likely to occur during a webinar or other remote training. Lastly, during live training, employees are more likely to make casual mention of a potentially risky practice, giving you the opportunity to address it before it becomes a larger problem.

It is important that you pay attention to what employees say during training. This is because training can alert you to potential problems based on the type of questions employees ask and their level of receptiveness to certain concepts. For example, during training employees might ask specific questions about important compliance considerations such as their interactions with government officials or gift-giving practices. Such questions can raise red flags and uncover issues that should be reviewed and addressed quickly.

V.                 Oversight – including monitoring, auditing and responses

The issue your company should focus on here is whether employees are staying with the compliance program. Even after all the important ethical messages from management have been communicated to the appropriate audiences and key standards and controls are in place, there should still be a question of whether the company’s employees are adhering to the compliance program. These ongoing efforts demonstrate your company is serious about compliance.

Monitoring is a commitment to reviewing and detecting compliance programs in real time and then reacting quickly to remediate them. A primary goal of monitoring is to identify and address gaps in your program on a regular and consistent basis. Auditing is a more limited review that targets a specific business component, region or market sector during a particular timeframe in order to uncover and/or evaluate certain risks, particularly as seen in financial records. However, you should not assume that because your company conducts audits that it is effectively monitoring. A robust program should include separate functions for auditing and monitoring. While unique in protocol, however, the two functions are related and can operate in tandem.

Finally, what are your remediation efforts? Your company should remediate problems quickly. A key concept behind the oversight element of compliance is that if a company is policing itself on compliance-related issues, the government will not have to do it for them. Remediation, then, is an important component of oversight. It is not enough to just gather information and identify compliance problems through monitoring and auditing. To fulfill this essential element of compliance, you also have to respond and fix the problems.

I have found that the Baker ‘Five Essentials’ approach is an excellent way to think through your obligations under a wide variety of anti-corruption and anti-bribery requirements. It allows you to put in place a program which should meet virtually any legal requirements you may come up against by doing business anywhere in the world. Lastly, the five-step approach is an excellent way for you to benchmark your current 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, 2013

Any Special Effects Left for ENRC?

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

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

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

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

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

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

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

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

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

© Thomas R. Fox, 2013

My FCPA and Bribery Act Musings Continue

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

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

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

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

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

In the Limelight-the Theater, Lady Gaga and Compliance

What is your favorite Canadian group? For my money it is the band Rush. My favorite Rush song is probably “Limelight”. How many times have you heard about ‘being in the limelight’? The phrase comes from the British theater where lights in the theater used quicklime. Although long since replaced, lighting in the British theater is still called ‘limes’.

I thought about Rush and their hit song when I recently read a couple of articles on leadership in the theater. I found that some of the insights in these articles could be applied in a compliance program for a multi-national company. In an article in the New York Times (NYT) Corner Office Section, entitled “First, Make Sure Your Idea Works On a Small Stage”, reporter Adam Bryant interviewed Francesca Zambello who is both the general and artistic director of the Glimmerglass Festival and the artistic director of the Washington National Opera.

Think Small

Zambello had a very interesting point that I do not consider often. She said that one of the most memorable lessons that she ever learned from a mentor was to make sure that your creative idea will work on the small stage. By this she did not mean that you cannot have a big idea or large concept. Instead “The most important thing he ever taught me was that if you don’t make sure the show is right in a small room, it will never be right in a big space, on a big stage.”

I found this comment particularly insightful in the context of the Department of Justice (DOJ)/Securities and Exchange Commission (SEC) FCPA Guidance. The FCPA Guidance makes clear that a company should design a compliance program which is appropriate for its size, markets and risks. There is no one standard and the FCPA Guidance states: “DOJ and SEC have no formulaic requirements regarding compliance programs. Rather, they employ a common-sense and pragmatic approach to evaluating compliance programs, making inquiries related to three basic questions: • Is the company’s compliance program well designed? • Is it being applied in good faith? • Does it work?”

I have seen many instances where a company will try and implement a compliance regime which is appropriate for a company many times its size. It becomes a top down exercise but as noted in the Zambello interview, it does not work well in the smaller setting because it is not assessing and managing the risks appropriate to a small company. Here a bottom up approach can be much more effective. Certainly this could be accomplished through a formal risk assessment but it may also come through talking and meeting with your internal business units or partners. Such informal assessments can provide valuable information which may work on a ‘smaller stage’ than a compliance program designed for a multi-billion, multi-national company.

Learn How to Fail

Another insight I garnered from the Zambello interview for the compliance practitioner was what she termed “You have to learn how to fail.” She believes that in any position you are in, that you are going to fail. But the real key is that “if you don’t fail, you are probably not that good.” Lastly, if you fail you have to learn to pick yourself up, “The more you get knocked down, the more you learn to pick yourself up.”

In the context of the FCPA Guidance, “DOJ and SEC understand that “no compliance program can ever prevent all criminal activity by a corporation’s employees,” and they do not hold companies to a standard of perfection. An assessment of a company’s compliance program, including its design and good faith implementation and enforcement, is an important part of the government’s assessment of whether a violation occurred, and if so, what action should be taken.” Clearly how a company handles any Foreign Corrupt Practices Act (FCPA) violation is an important key to any DOJ or SEC analysis regarding enforcement.

However, the other point for the compliance practitioner is that not everything should always go right under your compliance regime. Not every third party business representative you look at should pass muster under your process for approval. If everyone does, your process may not be robust enough. Not all of your employees do everything right all the time. If you have never disciplined an employee for a violation of your company’s Code of Conduct or compliance program, you should look to determine if this area needs to be explored as not every expense report is always correct. Lastly, if there has never been a substantial tip to your anonymous reporting line, this is an area which should also be explored. You may need to conduct more, or better, training so that employees understand that they can report incidents in confidence, without fear of retribution.

Be Courteous

Another interesting topic that Zambello discussed was the following, “I think that good manners matter a lot…Some of those are old fashioned things, but manners don’t cost anything.” Think about it – when was the last time you had a discussion of manners or even courtesy? This point is not something which is discussed much in the compliance arena but I think that courtesy is something that compliance practitioners need to be aware of when involved in a multi-national compliance program. Be sensitive to cultural norms in other countries and be respectful of them. As my very southern grandmother used to say, you are never wrong being courteous. Lastly, do not forget the cost for being courteous, nothing. But the benefits can be quite great.

From Lady Gaga to Compliance

For a different type of theater and how it relates to your compliance program, I recently came across an article in the Financial Times (FT), entitled “In need management tips? Try Lady Gagahttp://www.ft.com/intl/cms/s/2/da6559ce-a289-11e2-9b70-00144feabdc0.html#axzz2Qcpc6zzT”, by reporter Miles Johnson. (While some might suggest that Lady Gaga is a musician, I certainly think she is all about theater so it ties in with the above, really.) Johnson’s article reviews the work of Salvador Lopéz, a marketing and research professor at Spain’s ESADE business school. Lopéz believes that the world of business can learn quite a bit from the Lady Gaga’s of the world and I found that a couple of them apply to the compliance arena.

The first is that Lady Gaga generates emotions in her fans. Lopéz likened this to Steve Jobs who created “an entire style at Apple and made people feel things through his products.” Here I think that this applies to compliance because most employees want to do the right thing and will feel better about themselves if they conduct business in an ethical manner. The key for the compliance professional is not only to provide the processes and procedures for them to do so but to also acknowledge those employees who follow a company’s ethical business values. This can occur through financial incentives such as part of an employee’s discretionary bonus awards; promotion of employees who conduct business in accord with a company’s ethical practices or even something as simple as a companywide acknowledgement. The point is to make people feel that something positive for doing compliance the right way.

The second point that Lopéz gleans from performance artists like Lady Gaga is that they are much better in the use of technology than most companies. There are now a plethora of technological tools available to assist the compliance practitioner. I firmly believe that the DOJ and SEC have communicated that transaction monitoring will become a standard best practice quite soon, but certainly within the next 18 months. There are companies, such as Oversight Systems to name but one, which have technological tools to help move to this standard. But that is only one of many tools available to assist in your compliance program. So take a clue from Lady Gaga and ‘keep it fresh’.

These two articles demonstrate that the compliance practitioner can draw from a wide variety of sources and disciplines for inspiration to incorporate into a FCPA or UK Bribery Act compliance program. Further, the tools are out there to help you. I hope that this article has given you some ideas while drumming your fingers along to Rush or Lady Gaga for that matter.

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

© Thomas R. Fox, 2013

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

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

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

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

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

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

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

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

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

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

© Thomas R. Fox, 2013

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

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

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

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

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

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

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

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

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

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

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

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

© Thomas R. Fox, 2013

Manti Te’o and a Second Set of Eyes

One of the strangest news stories over the past couple of months has been the Manti Te’o story. For those few people who have not heard the story, Te’o was fooled (or not) into believing that he was in an online relationship with a non-existent woman named Lennay Kekua, who was falsely reported as dying of leukemia. Te’o, who says he was the victim of a “sick joke” repeatedly played along with the story in the weeks between when he says he learned Kekua was not real and when the story broke. Later, on Dr. Phil, Ronaiah Tuiasosopo, an alleged friend of Teo, claimed that he was the mastermind behind the entire scam so as to profess his love for Te’o.

One of the things that reporters who interviewed Te’o on his relationship with Kekua asked was if Te’o had ever met her in person? Te’o admitted that he had not. After Te’o announced to the world that she had died of leukemia, reporters asked if they could talk to her family, Te’o responded that they wanted to maintain their privacy.

In other words, there was never any validation of the Te’o/Kekua relationship, either by the primary party, Te’o, reporters who worked on the story or anyone else. My wife is a process analyst. She recently said something that struck me as one of the keys to a robust compliance program. She said that you need a ‘second set of eyes’. I asked her what she meant and she responded that if you do not put a second set of eyes on a process, you do not have validation of that process. I thought about that in the context of a Foreign Corrupt Practices Act (FCPA) or UK Bribery Act compliance program and realized having a ‘second set of eyes’ on your process is critical.

I.                   Oversight Committee

This concept of a ‘second set of eyes’ has found favor with the Department of Justice (DOJ), through its use in a Deferred Prosecution Agreement (DPA) with the Monsanto Corporation. In the Monsanto DPA, the DOJ agreed, after the initial due diligence and appropriate review were completed on Foreign Business Partners, for Monsanto to implement certain post contract execution procedures. These requirements can be used as guidelines as to what the DOJ will look for from other US companies who have entered into relationships with Foreign Business Partners; especially in the area of ongoing monitoring of the Foreign Business Partner.

In Appendix B to the DPA, Monsanto agreed to, among other things, “the establishment and maintenance of a committee to supervise the review of (I) the retention of any agent, consultant, or other representative for purposes of business development or lobbying in a foreign jurisdiction”, or an Oversight Committee. It should be noted that Monsanto successfully completed the terms of its DPA and was discharged from further obligations under it in 2008.

The scope of this Oversight Committee is not fleshed out in the DPA. I would suggest that a company should incorporate both a pre-execution function and a post-execution management function in overseeing the full relationship with the Foreign Business Partner. While this oversight would most necessarily focus on FCPA compliance, there should also be a commercial component to this function.

a.      Who Should be on the Oversight Committee?

The Monsanto DPA provides guidance on this point by stating “The majority of the committee shall be comprised of persons who are not subordinate to the most senior officer of the department or unit responsible for the relevant transaction;” this would indicate that senior management should be involved in the Oversight Committee. It would also indicate that more than one department should be represented on the Oversight Committee. This would include senior representatives from the Accounting (or Finance) Department, Compliance & Legal Departments and Business Unit Operations.

b.      What Should the Oversight Committee Review?

The Oversight Committee should review all documents relating to the full panoply of a Foreign Business Partner’s relationship with the company. This would begin with a review of any initial requests to engage a new Foreign Business Partner. The information presented to the Oversight Committee would include the Business Unit’s request to engage the Foreign Business Partner, the costs and benefits. The next step would be to review the due diligence and all background investigative materials on the prospective Foreign Business Partner.

The Oversight Committee should receive copies of, and approve, all due diligence and background investigative materials before a contract is executed with the partner. Particular attention should be paid to the form of the contract. If there are deviations from the company’s standard form of agreement, with regard to the FCPA compliance issues, there should be a full explanation by the Foreign Business Partner or Business Unit. The Oversight Committee should determine if the company is taking on any unwarranted FCPA compliance risk if non-standard FCPA compliance terms and conditions are used.

After the commercial relationship has begun the Oversight Committee should monitor this relationship on no less than an annual basis. This annual audit should include a review of remedial due diligence investigations on the Foreign Business Partner with at least a minimum of a Level One Due Diligence and higher levels of due diligence based upon an appropriate risk rating. There should be an evaluation of any new or supplement risk associated with any negative information discovered from a review of financial audit reports on the Foreign Business Partners. All FCPA compliance training should be reviewed and certifications confirmed. 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. As with all things FCPA the three most important words here are Document, Document, Document. If you cannot produce documentary evidence to the DOJ of your annual review and its findings, it is of no use to your company.

In addition to the above remedial review, the Oversight Committee should review all payments requested by the Foreign Business Partner to assure such payments are within the company guidelines and is warranted by the contractual relationship with the Foreign Business Partner. Lastly, the Oversight Committee should review any request to provide the Foreign Business Partner any type of non-monetary compensation and, as appropriate, approve such requests.

The oversight of Foreign Business Partners is one of the key tools that a company can use to prevent and detect any violation of its own Code of Ethics and Compliance and the FCPA. The proper structure of the Oversight Committee and its full engagement with all aspects of a company’s relationship with a Foreign Business Partner is one of the areas that the DOJ will look for in a successful FCPA compliance program.

An Oversight Committee is a literally a ‘second set of eyes’ which can be utilized by a company to manage its relationships. An Oversight Committee does not replace any of the other key components of an effective FCPA compliance program but it does provide an additional level of protection, back-up and transparency for all activities with a Foreign Business Partner. It should be employed by companies as an additional protection against any type of FCPA compliance and ethics violation “slipping through the cracks” to become a much larger problem down the road.

II.                Monitoring

Another way to think about a ‘second set of eyes’ is through ongoing monitoring of a compliance program. Two of the seven compliance elements in the US Sentencing Guidelines call for companies to monitor, audit and respond quickly to allegations of misconduct. These highlighted activities are key components enforcement officials look for when determining whether companies maintain adequate oversight of their compliance programs.

Many companies fall short on effective monitoring. This can sometimes be attributed to confusion about the differences between monitoring and auditing. Monitoring is a commitment to reviewing and detecting compliance programs in real time and then reacting quickly to remediate them. A primary goal of monitoring is to identify and address gaps in your program on a regular and consistent basis. Auditing is a more limited review that targets a specific business component, region or market sector during a particular timeframe in order to uncover and/or evaluate certain risks, particularly as seen in financial records. However, you should not assume that because your company conducts audits that it’s effectively monitoring. A robust program should include separate functions for auditing and monitoring. While unique in protocol, however, the two functions are related and can operate in tandem. Monitoring activities can sometimes lead to audits. For instance if you notice a trend of suspicious payments in recent monitoring reports from a particular country, it may be time to conduct an audit of those operations to further investigate the issue.

Your company should establish a regular monitoring system to spot issues and address them. Effective monitoring means applying a consistent set of protocols, checks and controls tailored to your company’s risks to detect and remediate compliance problems on an ongoing basis. To address this, your compliance team should be checking in routinely with local finance departments in your foreign offices to ask if they’ve noticed recent accounting irregularities. Regional directors should be required to keep tabs on potential improper activity in the countries they manage. Additionally, the global compliance committee should meet, or communicate, as often as every month to discuss issues as they arise. These ongoing efforts demonstrate your company is serious about compliance.

III.             Conclusion

The Manti Te’o story provides some significant lessons for the compliance practitioner. Putting a ‘second set of eyes’ on any process, including compliance is the only way to validate the process. If any reporters had been able validate any of the Te’o story before it was revealed to be a hoax it might have led to a very different ending, rather than the one that Te’o maintained all through his senior year at Notre Dame, when he was a candidate for the Heisman Trophy. To sum it all up, I go back to President Ronald Reagan, as he told Mikhail Gorbachev, “Trust, but verify”. A ‘second set of eyes’ will not only help to validate your compliance process but go a long way to keeping your compliance program out of hot FCPA or Bribery Act water.

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

© Thomas R. Fox, 2013

The Bribery Act in 2012: a Year for Transition

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

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

I.                   Change in Tone at the Top

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

II.                The New Guidance

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

Self-Reporting

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

Business Expenditures

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

Facilitation Payments

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

III.             The Rolls-Royce Investigation

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

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

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

© Thomas R. Fox, 2013

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

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

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

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

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

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

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

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

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

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

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

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

© Thomas R. Fox, 2013