FCPA Compliance and Ethics Blog

November 24, 2014

The FCPA Guidance: Still Going Strong at Two

Brithday TwoOne of the great things about Sunday afternoon is that Mike Volkov posts his Monday blog, when I usually have time to read it when I get the email notification that it is up. Yesterday he wished the Department of Justice’s (DOJ) and Securities and Exchange Commission’s (SEC) jointly released 2012 A Resource Guide to the U.S. Foreign Corrupt Practices Act (Guidance) a belated Happy 2nd Birthday and bemoaned the fact no one else had done so. Inspired, and somewhat chagrined by Volkov, I decided to blog today about a couple of the highlights from the FCPA Guidance.

I. The Ten Hallmarks of Effective Compliance Programs

As a ‘Nuts and Bolts’ guy I found the DOJ/SEC formulation of their thoughts on what might constitute a best practices compliance program, the most useful part. The Guidance cautions that there is no “one-size-fits-all” compliance program. It recognizes a variety of factors such as size, type of business, industry and risk profile a company should determine for its own needs regarding a Foreign Corrupt Practices Act (FCPA) compliance program. But the Guidance made clear that these ten points are “meant to provide insight into the aspects of compliance programs that DOJ and SEC assess”. In other words you should pay attention to these and use this information to assess your own compliance regime.

  1. Commitment from Senior Management and a Clearly Articulated Policy Against Corruption. It all starts with tone at the top. But more than simply ‘talk-the-talk’ company leadership must ‘walk-the-walk’ and lead by example. Both the DOJ and SEC look to see if a company has a “culture of compliance”. More than a paper program is required, it must have real teeth and it must be put into action, all of which is led by senior management. The Guidance states, “A strong ethical culture directly supports a strong compliance program. By adhering to ethical standards, senior managers will inspire middle managers to reinforce those standards.” This prong ends by stating that the DOJ and SEC will “evaluate whether senior management has clearly articulated company standards, communicated them in unambiguous terms, adhered to them scrupulously, and disseminated them throughout the organization.”
  2. Code of Conduct and Compliance Policies and Procedures. The Code of Conduct has long been seen as the foundation of a company’s overall compliance program and the Guidance acknowledges this fact. But a Code of Conduct and a company’s compliance policies need to be clear and concise. Importantly, the Guidance made clear that if a company has a large employee base that is not fluent in English such documents need to be translated into the native language of those employees. A company also needs to have appropriate internal controls based upon the risks that a company has assessed for its business model.
  3. Oversight, Autonomy, and Resources. This section began with a discussion on the assignment of a senior level executive to oversee and implement a company’s compliance program. Equally importantly, the compliance function must have “sufficient resources to ensure that the company’s compliance program is implemented effectively.” Finally, the compliance function should report to the company’s Board of Directors or an appropriate committee of the Board such as the Audit Committee. Overall, the DOJ and SEC will “consider whether the company devoted adequate staffing and resources to the compliance program given the size, structure, and risk profile of the business.”
  4. Risk Assessment. The Guidance states, “assessment of risk is fundamental to developing a strong compliance program”. Indeed, if there is one over-riding theme in the Guidance it is that a company should assess its risks in all areas of its business. The Guidance is also quite clear that when the DOJ and SEC look at a company’s overall compliance program, they “take into account whether and to what degree a company analyzes and addresses the particular risks it faces.” The Guidance lists factors that a company should consider in any risk assessment. They are “the country and industry sector, the business opportunity, potential business partners, level of involvement with governments, amount of government regulation and oversight, and exposure to customs and immigration in conducting business affairs.”
  5. Training and Continuing Advice. Communication of a compliance program is a cornerstone of any anti-corruption compliance program. The Guidance specifies that both the “DOJ and SEC will evaluate whether a company has taken steps to ensure that relevant policies and procedures have been communicated throughout the organization, including through periodic training and certification for all directors, officers, relevant employees, and, where appropriate, agents and business partners.” The training should be risk based so that those high-risk employees and third party business partners receive an appropriate level of training. A company should also devote appropriate resources to providing its employees with guidance and advice on how to comply with their own compliance program on an ongoing basis.
  6. Incentives and Disciplinary Measures. Initially the Guidance notes that a company’s compliance program should apply from “the board room to the supply room – no one should be beyond its reach.” There should be appropriate discipline in place and administered for any violation of the FCPA or a company’s compliance program. Additionally, the “DOJ and SEC recognize that positive incentives can also drive compliant behavior. These incentives can take many forms such as personnel evaluations and promotions, rewards for improving and developing a company’s compliance program, and rewards for ethics and compliance leadership.”
  7. Third-Party Due Diligence and Payments. The Guidance says that companies must engage in risk based due diligence to understand the “qualifications and associations of its third-party partners, including its business reputation, and relationship, if any, with foreign officials.” Next a company should articulate a business rationale for the use of the third party. This would include an evaluation of the payment arrangement to ascertain that the compensation is reasonable and will not be used as a basis for corrupt payments. Lastly, there should be ongoing monitoring of third parties.
  8. Confidential Reporting and Internal Investigation. This means more than simply a hotline. The Guidance suggests that anonymous reporting, and perhaps even a company ombudsman, might be appropriate to have in place for employees to report allegations of corruption or violations of the FCPA. Furthermore, it is just as important what a company does after an allegation is made. The Guidance states, “once an allegation is made, companies should have in place an efficient, reliable, and properly funded process for investigating the allegation and documenting the company’s response, including any disciplinary or remediation measures taken.” The final message is what did you learn from the allegation and investigation and did you apply it in your company?
  9. Continuous Improvement: Periodic Testing and Review. As noted in the Guidance, “compliance programs that do not just exist on paper but are followed in practice will inevitably uncover compliance weaknesses and require enhancements. Consequently, DOJ and SEC evaluate whether companies regularly review and improve their compliance programs and not allow them to become stale.” The DOJ/SEC expects that a company will review and test its compliance controls and “think critically” about its own weaknesses and risk areas. Internal controls should also be periodically tested through targeted audits.
  1. Mergers and Acquisitions.Pre-Acquisition Due Diligence and Post-Acquisition Integration.Here the DOJ and SEC spell out their expectations in not only the post-acquisition integration phase but also in the pre-acquisition phase. This pre-acquisition information was not something on which most companies had previously focused. A company should attempt to perform as much substantive compliance due diligence that it can do before it purchases a company. After the deal is closed, an acquiring entity needs to perform a FCPA audit, train all senior management and risk employees in the purchased company and integrate the acquired entity into its compliance regime.

II. Declinations

Many commentators such The FCPA Professor, Mike Volkov, myself and others have advocated that the DOJ release information about Declinations because they are an excellent source of information for the compliance practitioner about the DOJ’s thinking on FCPA enforcement issues. Indeed I had written, “In an area like Foreign Corrupt Practice Act (FCPA) enforcement, where guiding case law is largely non-existent, compliance practitioners must rely on the actions and decisions of federal enforcement agencies for information. Such information is available in the form of enforcement actions, the release of Deferred Prosecution Agreements (DPAs) and Non-Prosecution Agreements (NPAs), and hypothetical fact patterns presented to the Department of Justice (DOJ) through its Opinion Release procedure. But one highly valuable source of guidance has been kept from regulated entities and their counsels: DOJ and Securities and Exchange Commission (SEC) “declination” decisions, opinions which are drafted when the agencies decline to prosecute an individual or organization. A change is needed in this counterproductive policy. The release of substantive information on declinations would help foster greater compliance with the FCPA by providing practitioners with specific facts of circumstances where investigations did not result in an enforcement action.”

Whether the DOJ was answering any of the commentary, it hardly matters. But a significant section of the Guidance is dedicated specifically to six Declinations provided to companies which self-disclosed possible FCPA violations. The types of issues reported to the DOJ were as varied as mergers and acquisitions (M&A); actions by third parties on a company’s behalf which violated the FCPA; payments improperly made by company employees which were incorrectly characterized as facilitation payments; and illegal bribes paid out by a small group of company employees. From these Declinations, I derived the following points (1) The Company was alerted to possible corrupt conduct via its compliance program or internal controls. (2) Possible FCPA violations were self-reported or otherwise voluntarily disclosed to the DOJ/SEC. (3) The entities in question conducted a thorough internal investigation and shared the results with the DOJ/SEC. (4) The conduct violative of the FCPA was not pervasive and consisted of relatively small bribes or other corrupt payments. (5) The company took immediate corrective action against the person(s) engaging in the conduct. (6) Each company’s compliance program was expanded or enhanced and these enhancements were reflected in compliance training, internal process improvements and additional enhanced internal controls.

So here’s to the Guidance at the ripe of age of 2. Thanks for coming into all of our (compliance) lives. I have also held back the best for last; the Guidance is available for free on the DOJ website and you can download it by clicking 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

November 19, 2014

Chamber of Commerce: Corporations Form the Cornerstone of FCPA Compliance

CornerstoneRecently one of the most unlikely sources for praise of the Foreign Corrupt Practices Act (FCPA) came out to inform us all that corporations are the cornerstone of FCPA compliance and enforcement. You may be surprised to find out that it came from the US Chamber of Commerce. It did not come in the form of Congressional testimony in praise of the FCPA but in the Chamber’s Amicus Curie filing in a case currently being considered by the Texas Supreme Court. Regardless of the forum, the praise was just as strong and hopefully just as lasting.

The Texas Supreme Court recently held oral arguments in the appeal of Shell v. Writt. Unusually for a state supreme court case, it touches on the FCPA. The issue before the Court is whether Shell’s internal FCPA investigation is absolutely privileged from a defamation claim by persons named in the report as having violated the FCPA. Being as this is Texas, with a state supreme court just to the right of Attila the Hun, it is easy to determine what the outcome of the case will be, the company will win.

Procedurally, Writt, the plaintiff claiming defamation from Shell’s report of its internal investigation that it provided to the Department of Justice (DOJ), lost at the trial court on summary judgment. The trial court found that Shell had an absolute privilege because the report was turned over to a government agency investigating the matter. The court of appeals reversed this decision holding that because the internal investigation was voluntary, not mandatory, that only a conditional privilege existed and sent the matter back to the trial court for further proceedings. Shell appealed this court of appeals decision to the Texas Supreme Court.

Interestingly, the US Chamber of Commerce filed an amicus brief in the appeal to the Texas Supreme Court, supporting Shell. In its brief, the Chamber came out with full guns blazing in support of the FCPA and for full internal investigations and self-disclosure by companies. At the start of its brief, the Chamber comes out four square in support of the FCPA stating, “Since 1977, and especially over the last decade, the Foreign Corrupt Practices Act (“FCPA”) has played a very significant role in the federal regulation of multinational corporations. By punishing bribery and other illicit influence of foreign officials by U.S. companies, the statute seeks to improve the integrity of American businesses, promote market efficiency, and maintain the reputation of American democracy abroad.”

The Chamber noted the importance of the FCPA to both the US government and to US businesses. It stated, “Over the past decade, the FCPA has taken on renewed importance for both the U.S. government and American businesses.” As to the importance that the US government places on FCPA enforcement, the Chamber cited to the following, “DOJ officials have publicly stated that “enforcement of the FCPA is second only to fighting terrorism in terms of priority.”” Lastly, because of this focus, “FCPA compliance is now a main focus of concern for U.S. businesses.” Moreover, US companies are now ““light years ahead of where [they were] circa the mid-to-late 1990s,” with companies “implementing more rigorous and sophisticated compliance protocols,” including thorough internal investigations and candid self reporting.”

The Chamber did not stop there with its high praise of the FCPA and the importance of the FCPA and its enforcement for US businesses. The Chamber next turned to US businesses role in FCPA enforcement and compliance when it said, “the government has always relied upon businesses to cooperate with investigations and self-report any potential violations by corporate employees. “Federal enforcement authorities have consistently encouraged, if not as a practical matter demanded, that as to the FCPA companies voluntarily conduct internal investigations, disclose potential violations and cooperate with government investigations.” With their vast resources, individualized focus, and access to documents and witnesses, “companies are actually much better positioned to gather more information more quickly overseas than the Justice Department or the SEC.”” Perhaps channeling some of the criticisms of the recent General Motors (GM) and FIFA investigations, the Chamber recognizes that more than simply results must be shared with the DOJ when it stated, “The government requires that corporations provide not just information on violations that they are certain of, but rather any “relevant information and evidence,” as well as identification of “relevant actors inside and outside the company.””

The money line from the Chamber’s brief is the following, “Corporate cooperation, internal investigation, and self-reporting thus form the cornerstone of FCPA compliance and enforcement.” It could not be clearer from this statement the importance that a robust internal investigation protocol, coupled with self-disclosure bring to FCPA compliance. The FCPA Guidance states, “once an allegation is made, companies should have in place an efficient, reliable, and properly funded process for investigating the allegation and documenting the company’s response, including any disciplinary or remediation measures taken. Companies will want to consider taking “lessons learned” from any reported violations and the outcome of any resulting investigation to update their internal controls and compliance program and focus future training on such issues, as appropriate.”

Thus internal investigations coupled with self-reporting provide both companies and the US government towards the same goal; greater compliance with the FCPA because the Chamber recognizes that the FPCA plays a vital role in international business and corruption prevention and prosecution. The Chamber even cites, favorably, the Congressional logic for the enactment of the FCPA by stating, “Congress determined that such practices tarnish the image of American democracy abroad, impair confidence in American businesses, hamper the efficiency of the market, anger the citizens of otherwise friendly foreign nations, and, put simply, are “morally repugnant” and “bad business.”” Finally, the Chamber acknowledges the importance of the FCPA for both US and international investors; both in the US and for companies abroad by concluding, “The FCPA is a valuable statute that helps to reduce corruption and to reinforce public and investor confidence in the markets here and abroad.”

This brief lays out one of the strongest articulations of the power of the FCPA. I did not expect the Chamber to come out so forcefully in favor of what that many business types continually bemoan. The Chamber’s recognition that FCPA compliance and enforcement are cornerstones of the protection of US businesses; US business interests and investor confidence across the globe is a welcome addition to the FCPA dialogue.

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

November 17, 2014

Opinion Release 14-02: Dis-Linking The Illegal Conduct Going Forward

Dis-linkOne of my favorite words in the context of Foreign Corrupt Practices Act (FCPA) enforcement is dis-link. I find it a useful adjective in explaining how certain conduct by a company must be separated from the winning of business. But it works on so many different levels when discussing the FCPA. Last week I thought about this concept of dis-linking when I read the second Opinion Release of 2014, that being 14-02. One of the clearest ways that the Department of Justice (DOJ) communicates is through the Opinion Release procedure. This procedure provides to the compliance practitioner solid and specific information about what steps a company needs to take in the pre-acquisition phase of due diligence. However, 14-02 directly answers many FCPA naysayers long incorrect claim about how companies step into FCPA liability through mergers and acquisitions (M&A) activity.

From the Opinion Release it was noted that the Requestor is a multinational company headquartered in the United States. Requestor desired to acquire a foreign consumer products company and it’s wholly owned subsidiary (collectively, the “Target”), both of which are incorporated and operate in a foreign country, never issuing securities in the United States. The Target had negligible business contacts in the US, including no direct sale or distribution of their products. In the course of its pre-acquisition due diligence of the Target, Requestor identified a number of likely improper payments by the Target to government officials of Foreign Country, as well as substantial weaknesses in accounting and recordkeeping. In light of the bribery and other concerns identified in the due diligence process, Requestor also detailed a plan for remedial pre-acquisition measures and post-acquisition integration steps. Requestor sought from the DOJ an Opinion as to whether the Department would then bring an FCPA enforcement action against Requestor for the Target’s pre-acquisition conduct. It was specifically noted that the Requestor did not seek an Opinion from the Department as to Requestor’s criminal liability for any post-acquisition conduct by the Target.

Improper Payments and Compliance Program Weaknesses

In preparing for the acquisition, Requestor undertook due diligence aimed at identifying, among other things, potential legal and compliance concerns at the Target. Requestor retained an experienced forensic accounting firm (“the Accounting Firm”) to carry out the due diligence review. This review brought to light evidence of apparent improper payments, as well as substantial accounting weaknesses and poor recordkeeping. The Accounting Firm reviewed approximately 1,300 transactions with a total value of approximately $12.9 million with over $100,000 in transactions that raised compliance issues. The vast majority of these transactions involved payments to government officials related to obtaining permits and licenses. Other transactions involved gifts and cash donations to government officials, charitable contributions and sponsorships, and payments to members of the state-controlled media to minimize negative publicity. None of the payments, gifts, donations, contributions, or sponsorships occurred in the US, none were made by or through a US person or issuer and apparently none went through a US bank.

The due diligence showed that the Target had significant recordkeeping deficiencies. Nonetheless, documentary records did not support the vast majority of the cash payments and gifts to government officials and the charitable contributions. There were expenses that were improperly and inaccurately classified. It was specifically noted that the accounting records were so disorganized that the Accounting Firm was unable to physically locate or identify many of the underlying records for the tested transactions. Finally, the Target had not developed or implemented a written code of conduct or other compliance policies and procedures, nor did the Target’s employees show an adequate understanding or awareness of anti-bribery laws and regulations.

Post-Acquisition Remediation

The Requestor presented several pre-closing steps to begin to remediate the Target’s weaknesses prior to the planned closing in 2015. Requestor aimed to complete the full integration of the Target into Requestor’s compliance and reporting structure within one year of the closing. Requestor has set forth an integration schedule of the Target that included various risk mitigation steps, dissemination and training with regard to compliance procedures and policies, standardization of business relationships with third parties, and formalization of the Target’s accounting and record-keeping in accordance with Requestor’s policies and applicable law.

DOJ Analysis

The DOJ noted black-letter letter when it stated, ““It is a basic principle of corporate law that a company assumes certain liabilities when merging with or acquiring another company. In a situation such as this, where a purchaser acquires the stock of a seller and integrates the target into its operations, successor liability may be conferred upon the purchaser for the acquired entity’s pre-existing criminal and civil liabilities, including, for example, for FCPA violations of the target. However this is tempered by the following from the 2012 FCPA Guidance, “Successor liability does not, however, create liability where none existed before. For example, if an issuer were to acquire a foreign company that was not previously subject to the FCPA’s jurisdiction, the mere acquisition of that foreign company would not retroactively create FCPA liability for the acquiring issuer.””

This means that because none of the payments were made in the US, none went through the US banking system and none involved a US person or entity that this would not lead to a creation of liability for the acquiring company. Moreover, there would be no continuing or ongoing illegal conduct going forward because “no contracts or other assets were determined to have been acquired through bribery that would remain in operation and from which Requestor would derive financial benefit following the acquisition.” Therefore there would be no jurisdiction under the FCPA to prosecute any person or entity involved after the acquisition.

The DOJ also provided this additional information, “To be sure, the Department encourages companies engaging in mergers and acquisitions to (1) conduct thorough risk-based FCPA and anti-corruption due diligence; (2) implement the acquiring company’s code of conduct and anti-corruption policies as quickly as practicable; (3) conduct FCPA and other relevant training for the acquired entity’s directors and employees, as well as third-party agents and partners; (4) conduct an FCPA-specific audit of the acquired entity as quickly as practicable; and (5) disclose to the Department any corrupt payments discovered during the due diligence process. See FCPA Guide at 29. Adherence to these elements by Requestor may, among several other factors, determine whether and how the Department would seek to impose post-acquisition successor liability in case of a putative violation.”

Discussion

Mike Volkov calls it ‘reading the tea leaves’ when it comes to what information the DOJ is communicating. However, sometimes I think it is far simpler. First, and foremost, 14-02 communicates that there is no such thing as ‘springing liability’ to an acquiring company in the FCPA context nor such a thing as simply buying a FCPA violation, simply through an acquisition only, there must be continuing conduct for FCPA liability to arise. Most clearly beginning with the FCPA Guidance, the DOJ and Securities and Exchange Commission (SEC) have communicated what companies need to do in any M&A environment. While many compliance practitioners had only focused on the post-acquisition integration and remediation; the clear import of 14-02 is to re-emphasize importance of the pre-acquisition phase.

Your due diligence must being in the pre-acquisition phase. The steps taken by the Requestor in this Opinion Release demonstrate some of the concrete steps that you can take. Some of the techniques you can use in the pre-acquisition phase include (1) having your internal or external legal, accounting, and compliance departments review a target’s sales and financial data, its customer contracts, and its third-party and distributor agreements; (2) performing a risk-based analysis of a target’s customer base; (3) performing an audit of selected transactions engaged in by the target; and (4) engaging in discussions with the target’s general counsel, vice president of sales, and head of internal audit regarding all corruption risks, compliance efforts, and any other major corruption-related issues that have surfaced at the target over the past ten years.

Whether you can make these inquiries or not, you will also need to engage in post-acquisition integration and remediation. 14-02 provides you with some of the steps you need to perform after the transaction is closed. If you cannot perform any or even an adequate pre-acquisition due diligence, the time frames you put in place after the acquisition closes may need to be compressed to make sure that you are not continuing any nefarious FCPA conduct going forward. But it all goes back to dis-linking. If a target is engaging in conduct that violates the FCPA but the target itself is not subject to the jurisdiction of the FCPA, you simply cannot afford to allow that conduct to continue. If you do allow such conduct to continue you will have bought a FCPA violation and your company will be actively engaging and participating in an ongoing FCPA violation. That is the final takeaway I derive from this Opinion Release; it is allowing corruption and bribery to continue which brings companies into FCPA grief. Opinion Release 14-02 provides you a roadmap of the steps you and your company can take to prevent such FCPA exposure.

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

November 13, 2014

Atlanta Burns – the Bio-Rad FCPA Enforcement Action – Part III

Atlanta BurningOn this date in 1864, the Union Army phase of the destruction of Atlanta began. While most Southerners credit Union General William T. Sherman with the burning of Atlanta, it was, in reality, Confederate General John Bell Hood who ordered the burning of the armament works that started the destruction. Sherman merely finished it. But whoever started or finished it, the result was horrific for the city. By one estimate, nearly 40 percent of the city was ruined, leaving, as one commentator noted, “little but a smoking shell.” Unfortunately for the Confederacy, this is not the last we will hear about either General Sherman or General Hood.

The Bio-Rad Laboratories Inc. (Bio-Rad) Foreign Corrupt Practices Act (FCPA) enforcement action has provided a wealth of information and lessons to be learned by the compliance practitioner. In Parts I and II I reviewed the facts of the Bio-Rad enforcement action and the specified remedial steps that the company has agreed to take. Today, I want to mine the Deferred Prosecution Agreement (DPA), the company received from the Department of Justice (DOJ) and the Securities and Exchange Commission’s (SEC) Order Instituting Cease-and-Desist Proceedings (Order) and detail the specific internal controls that I think might have helped the company. (I will really try not to get carried away and have a Bio-Rad, Part IV but there is tons of great stuff in this one so there is no telling as I begin to write this post where I might end up.)

For many managers the default mode is to stay within silos and, as noted by Andrew Hill in his article in the Financial Times (FT) entitled “The default mode for managers needs a reset”, that such persons are “suspicious of ideas that are “not invented here.” This may lead them to becoming “detached from the purpose, and even values, of the company.” This can be particularly true of changes required by an anti-corruption compliance program which many business development types fear will change the status quo in a manner, which “puts at risk predictable, comfortable routines.”

Even with the three different bribery schemes used by Bio-Rad in three different countries, some general statements can be made. Obviously the use of a third party representative in Russia was fraudulent. However a robust system of internal controls might not have only detected such conduct but also prevented it if the Emerging Markets Regional Manager and/or any of the team under him knew that they would be checked by a second set of eyes on what they were doing.

I will focus on four areas of internal controls that were sorely missing from the company during its bribery scheme heyday:

  • Delegation of Authority (DOA)
  • Maintenance of the vendor master file
  • Contracts with agents
  • Movement of cash / currency.

Delegation of Authority 

Your DOA should reflect the impact of FCPA risk (transactions and geographic locations) to result in higher levels of approval for matters involving agents and for funds transfers and invoice payments to countries outside the US. If properly prepared and enforced, the DOA can be a powerful preventive tool for FCPA compliance, unfortunately this is not often the case as very often the DOA is prepared without much thought given to FCPA risks.

Properly utilized in a FCPA risk based process, the DOA takes into account the increased risk posed by certain types of transactions and by certain geographic locations. The DOA then provides for a higher level of scrutiny for higher risk transactions. This means that the DOA should specify who must give the final approval for engaging agents. Yet the DOA might distinguish between approval of vendor invoices for “routine” third party representatives and those from high-risk third party representatives, such as agents. Finally, the DOA should be integrated into the accounts payable processing system in a manner that ensures all high-risk vendor invoices receive the proper visibility. Identifying high-risk third party representatives can often be done within the vendor master file so payments to them are identified for appropriate approval BEFORE they are paid.

Vendor Master File

The vendor master file can be one of the most powerful PREVENTIVE control tools. This file should be structured so that each vendor can be identified not only by risk level but also by the date on which the vetting was completed and the vendor received final approval. Electronic controls should be in place to block payments to any vendor for which vetting has not been approved. Manual controls are needed over the submission, approval, and input of changes to the vendor master file. These controls include verification that all third party representatives have been approved before their information (and the vendor approval date) are input into the vendor master. Manual controls are also needed when “one time” third party representatives are submitted, when vendor name and/or vendor payment information changes are submitted.

Contracts with Third Party Representatives 

As demonstrated with the Bio-Rad enforcement action, contracts with agents are typically not integrated into an internal control system. They are left to operate on their own. Indeed in the case of Bio-Rad it is not clear if the compliance function had visibility into this process at all. However, to provide effective control, relevant terms of those contracts should be extracted and be made available to those who process and approve vendor invoices. This would also include a review of the commission rate for sales agents and the discount rate for distributors. To accomplish this, once the third party representatives are flagged as high-risk, and before any payments are made, the invoices are pulled for review and approval in accordance with the DOA. Such review would require that nonconforming service descriptions, commission rates, etc., must be approved not only by the original approver but also by the person so delegated in the DOA. This provides the necessary PREVENTIVE control to intercept questionable amounts before they are paid.

Disbursements of funds

All situations in which funds can be sent outside the US (accounts payable computer checks, manual checks, wire transfers, replenishment of petty cash, loans, advances, etc.,) should be reviewed from a FCPA risk standpoint. The goal is to identify the ways in which a country manager could cause funds to be transferred to their control and to conceal the true nature of the use of the funds within the accounting system. Controls need to be in place to prevent such activities. This would require that wire transfers outside the US have defined approvals in the DOA, and the persons who execute the wire transfers should be required to evidence agreement of the approvals to the DOA. Moreover, wire transfer requests going out of the US should always require dual approvals. Finally, wire transfer requests going outside the US should be required to include a description of proper business purpose and over certain level, there should be an additional review (yet another ‘second set of eyes’).

What about Hill and his default mode for managers to stay in their silos and never come out or allow change in their regions, such as was the case with the Bio-Rad Emerging Markets leadership team? This can occur in the compliance arena when the compliance function receives push back and is told the controls are too burdensome and also make operations less efficient. One of the areas available to a compliance professional is benchmarking from other company’s compliance experiences. However this can be expanded into solid presentations about why it is important to assess and mitigate FCPA risks using your corporate peers that have been the subject of a FCPA enforcement action. This is some of the best sources of information a compliance practitioner can avail his or herself of to provide good insight into why it was never expected that the company would be subject to FCPA enforcement and insight into the extreme disruption, cost, and anxiety which accompanied the enforcement actions.

Another key factor, as with all FCPA compliance initiatives, is ‘Tone at the Top’. This means that you should meet with and present the case for FCPA-focused internal controls to your company’s Executive Leadership Team (ELT), Audit Committee of the Board or other appropriate group of senior executives. The presentation should include, with examples, the importance of identifying and mitigating the FCPA and fraud risks. Some of these might include the following:

  • Illustrating the examples of how the controls can prevent bribery as well as many other types of occupational fraud;
  • Illustrating that the controls needed are all sound business controls, nothing exotic or out of the ordinary;
  • With proper control design, it may be possible to eliminate some existing detect controls in favor of more useful preventive controls or even prescriptive controls;
  • As a result of your business changes and resulting changes in assessed risks, it may be that some procedures now being performed are no longer needed and the resources can be shifted to more necessary controls; and
  • It may be possible to build in more electronic controls, which can replace existing manual controls.

As we end today’s post with Atlanta burning, Andrew Hill tearing down silos so that a company like Bio-Rad can put appropriate FPCA internal controls in place and arm the compliance practitioner with a wealth of information and lessons which can be applied to your own compliance program, all courtesy of Bio-Rad, I find that there is one more significant lesson to be taking away from this enforcement action, however I will save that for another day.

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

November 12, 2014

John Doar and the Bio-Rad FCPA Enforcement Action – Part II

John DoarJohn Doar died yesterday. He was perhaps most famously known for his role as the House Judiciary Committee Chief Counsel during the investigation of and impeachment proceedings against then President Nixon. However, it was his role in the civil rights movement in the South that in large part inspired me to become a lawyer. He rode with the Freedom Riders in Alabama; walked with James Meredith so that he could register to attend the University of Mississippi, then stayed in the same dorm room with Meredith while the campus rioted; prosecuted the KKK in Mississippi after the murder of three civil rights workers in 1964; and marched for voting rights with Dr. King in Selma. My favorite John Doar story was retold in his obituary in the New York Times (NYT), where he stopped a riot in its tracks with the following ““My name is John Doar — D-O-A-R,” he shouted to the crowd. “I’m from the Justice Department, and anybody here knows what I stand for is right.” That qualified as a full-length speech from the laconic Mr. Doar. At his continued urging, the crowd slowly melted away.”” In my book, he is right up there with Atticus Finch.

In an earlier post, I reviewed the Bio-Rad Laboratories, Inc. (Bio-Rad) Foreign Corrupt Practices Act (FCPA) enforcement action from the perspective of the Non-Prosecution Agreement (NPA) the company was able to secure with the Department of Justice (DOJ). Today I want to review the bribery schemes that the company used to either internally fund the bribes or attempt to evade internal detection. Both the NPA and the Securities and Exchange Commission’s (SEC) Order Instituting Cease-and-Desist Proceedings (Order). The compliance practitioner can use these bribery schemes not only for FCPA training but also to see if any such schemes or their indicia may be present in your company.

Initially I need to discuss the corporate structure. It was apparently quite decentralized. According to the Order, “Bio-Rad’s international sales organization (“ISO”) oversees the company’s international sales operations; this includes all locations outside the United States and Canada. In 2009, the ISO consisted of four sub-divisions: (1) Western Europe; (2) Asia Pacific; (3) Japan; and (4) Emerging Markets. Each sub-division had a general manager, reporting to the vice-president of ISO. The Asia Pacific sub-division included Vietnam and Thailand. The Emerging Markets sub-division included Russia and other eastern European countries. Some countries within the sub-divisions had a country manager who reported to the ISO sub-division general manager.” Emerging markets is clearly a high-risk area for pharmaceutical companies. If your business development or sales organization has such a designation, I would suggest that you check and see if there are sufficient protections in place to at least raise any red flags, which might need further investigation.

However, it was more than the management structure of the business operations that was decentralized, the compliance function was similarly structured. The NPA stated, “BIO-RAD also decentralized its compliance program such that its international offices were responsible for ensuring adequate compliance with its business ethics policy and code of conduct.” This decentralization so defanged the company’s compliance program that it could not perform even the most basic functions of a compliance organization; no due diligence on third parties, indeed no management of third parties at all from the compliance perspective; no risk assessments were performed and, finally, the most damning was that the compliance function could not even ensure compliance with the company’s own business ethics policy.

The Russia Scheme

However the company used third party representatives to facilitate the bribery scheme. In addition to the lack of due diligence or usual steps that a compliance practitioner might put in place to manage third parties under the FCPA there were several other items of note which constitute lessons learned by the compliance practitioner. First and foremost was the commission rate paid to these third parties, that being between 15%-30%. This alone may well have been enough to demonstrate “a conscious disregard for the high probability that the Russian Agents were passing along at least a portion of their commissions to Russian government officials to obtain profitable public contracts for the sale of medical diagnostic equipment.” Further, the payments made to these agents were sent to countries outside Russia, where neither the alleged services were delivered nor where the agents were legally domiciled. Moreover, not only did these agents have no offices in Russia, they had no employees in Russia either.

Apparently there were contracts in place with these agents. The services these agents were specified to deliver included, “acquiring new business, creating and disseminating promotional materials to prospective customers, distributing and installing products and related equipment, and training customers.” But it really is hard to deliver services if you have no employees. Apparently there were times these agents did deliver something identified as “distribution services” for the commission rates between 15%-30%. However the estimated value of these services for the company was between 2%-2.5% of the total sales.

Another area of obvious concern should have been the pre-payment of commissions to these agents. Any time you pre-pay before a service is delivered (other than a retainer into a lawyer’s trust account) you can potentially run into trouble. But Bio-Rad took it a step further by making pre-payments before contracts with the ultimate buyer were negotiated. Any ideas where those pre-paid commissions might have gone? Another area was the amount of the commissions. They were just less than $200,000, which happened to be the authority level of the head of Bio-Rad’s Emerging Markets business unit. So there was no oversight or second set of eyes on these pre-payments because it was within the manager’s authority level. Finally, these pre-payments were actually forbidden under the contracts but they were made anyway.

The Vietnam Scheme 

The Vietnam Country Manager had contracting authority up to $100,000 and sales commissions up to $20,000. From 2005-2009 Bio-Rad apparently paid bribes directly to health care workers so they would purchase the company’s products. When it was pointed out to the Country Manager this was illegal, he simply moved to a distributor “at a deep discount, which the distributor would then resell to government customers at full price, and pass through a portion of it as bribes…Between 2005 and the end of 2009, the Vietnam office made improper payments of $2.2 million to agents or distributors, which was funneled to Vietnamese government officials. These bribes, recorded as “commissions,” “advertising fees,” and “training fees,” generated gross sales revenues of $23.7 million to Bio-Rad Singapore.” 

The Thailand Scheme

In Thailand, it was an almost mundane bribery scheme involved compared to Russia and Vietnam. Bio-Rad acquired an interest in a Thai Joint Venture (JV) through an acquisition where it performed “very little due diligence” on the JV. Bio-Rad acquired a minority interest in the JV and it did not communicate directly with the JV’s distributors but only through the majority owners of the JV. The bribery scheme was funded through “an inflated 13% commission, of which it retained 4%, and paid 9% to Thai government officials in exchange for profitable business contracts.” The due diligence was so poor that Bio-Rad did not know that the prime third party sales representative for the JV were the same majority owners of the JV.

Tomorrow, I will discuss some of the internal controls that a company might employ to help prevent such a compliance failure as occurred at Bio-Rad.

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

November 7, 2014

Don’t Collapse in the Wind – Knowledge is Power

Tacoma Narrows BridgeOn November 7, 1940, high winds buffeted the Tacoma Narrows Bridge leading to its collapse. The first failure came at about 11 a.m., when concrete dropped from the road surface. Just minutes later, a 600-foot section of the bridge broke free. Subsequent investigations and testing revealed that when the bridge experienced strong winds from a certain direction, the frequency oscillations built up to such an extent that collapse was inevitable. For posterity, the collapse of the Bridge was captured on film.

I thought about this spectacular engineering failure when I read, yet again, commentary about representatives from the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) appearing at for-profit conferences to give presentations to attendees. Personally, I was shocked, simply shocked to find out that one has to pay to attend these events. Further, it appears that one or more of the companies running these events, ACI, Momentum, IQPC, HansonWade, among others, might actually be for-profit companies. It was intimated that one of the ways the conference providers enticed registrants to pay their fees was to provide a forum of lawyers practicing in the Foreign Corrupt Practices Act (FCPA) space, to whom representatives from the DOJ and SEC could speak. Now I am really, really really shocked to find that people actually pay to obtain knowledge.

Armed with the new piece of information that there is a marketplace where people actually pay to obtain information, I have decided to practice what I preach and perform a self-assessment to determine if I am part of this commerce in ideas. Unfortunately I have come to the understanding that not only do I participate in that marketplace but also I actually use information provided by representatives of the US government in my very own marketing and commerce. So with a nod to Adam Smith’s Invisible Hand of the Marketplace; I now fully self-disclose that I digest to what US government regulators say about the FCPA, repackage it and then (try) and make money from it. (I know you are probably as shocked, shocked as I was to discover this.)

Where can one go to find out information about the FCPA, its enforcement and how the DOJ and SEC view compliance programs? First and foremost is the FCPA Guidance, jointly issued by the DOJ and SEC back in 2012. It is still the best one volume resource on the government’s thinking on a wide range of issues relating to the FCPA. For a ‘Nuts and Bolts’ guy like me, it even has some suggested building blocks of FCPA compliance called the Ten Hallmarks of an Effective Compliance Program. Of course, such a treatise must cost thousands of dollars so that it is only available to a very select few. Oops, it is available for FREE on the DOJ website. Darn, as I planned to buy up all of the copies and then put on for pay seminars across the world as the only source of such knowledge.

Since the FCPA Guidance is available for free, perhaps I can corner the market on all known enforcement actions and Opinion Releases. I am sure that they will provide lots of good information such as what might constitute an effective compliance program, what are some of the actions that got companies into FCPA hot water and suggestions by the DOJ and SEC as to what might have constituted compliance failures. I have even heard that in Opinion Releases, the DOJ will pass upon fact patterns and indicate if they believe such facts might be prosecuted for FCPA violations. Double oops, as all of those are publicly available as well and for FREE. Double Darn.

OK, well if the FCPA Guidance is free and all the enforcement actions and Opinion Releases are available for free; maybe I can corner the market on court opinions, which discuss the FCPA. I am a lawyer and I bet all the other lawyers would pay me if I were the only person in the world who had access to them (or even better yet we were in China where the trials are held in secret-imagine that market!). I know there are only a handful of such cases but imagine the power I would have if only I knew about them. Why I could I put on seminars and pay people to attend. Triple oops, as I just found out that the court decisions are public record and available for FREE. Drat.

Well if all this information about the FCPA is available for free what can I do to make money? Hmm, maybe, just maybe, if I put information together from all of the above sources in a book people might be interested in buying it. What if I wrote multiple books? Do you think there might be a market for such written texts? I certainly hope so and to further entice you to join in this nefarious act of for-profit commerce, I invite you to check out my latest book, Doing Compliance: Design, Create, and Implement an Effective Anti-Corruption Compliance Program, available at Compliance Week. Or perhaps you might want to purchase either of the other three printed or five eBooks I have written on FCPA compliance. But wait a minute, wouldn’t that mean I am making money off free government information? I guess I better self-disclose those facts and let the chips fall where they may. Hopefully Adam Smith will give me a declination of the Invisible Hand.

If no one will buy any of the books I have written, maybe they would attend training that I might put on. I could talk about all this free government information, put it in power points slides and other written materials and then charge people to get trained. I could even call it ‘FCPA Training’. Maybe I could go to other parts of the country and put on training, maybe in places where they might not have heard about all the free DOJ and SEC information. Of course, I would have to find such a place. But wait a minute, wouldn’t that mean I am making money off of free government information. I guess I better self-disclose that as well.

If no one will buy any books I write or go to training seminars that I might put on, I could always write a blog. Do you think anyone would pay to read a blog? Nah 

How about the following as a business strategy? I will tell people I am lawyer and I will give them legal advice on the FCPA. Of course to do so, I will have to use all of these free resources listed above and then charge clients for my legal services. Think there might be a market for that legal advice? I am not really sure so perhaps I should make a provisional self-disclosure that if any clients came to me for legal advice, I would charge them and hence engage in commerce. It would also allow me to apply to join that hallowed group, FCPA INC. whose members (1) practice law around the FCPA, (2) put on FCPA training, (3) write books on the FCPA and (4) generally pontificate on all things FCPA. Sounds like a great group to belong to, you think they will take me? If so I can’t wait to learn the secret handshake so I can proudly commune, in secret, with its members. Hopefully they will not haze pledges too badly, as I am way too old to survive another Pledge Week.

If you have not quite ascertained the point of today’s post, please consider the following – knowledge is power. If you want knowledge about the FCPA there are plenty of places you can look for free to obtain that knowledge. If you want to hear the DOJ or SEC’s most current thinking on FCPA related issues, you can also attend a (for-pay) FCPA conference. If so, I am sure I will see you there because I certainly value what they have to communicate to us. I also plan to continue to communicate it to you; sometimes even for profit. Long Live Adam Smith and his Invisible Hand! 

Always remember, a little knowledge can go a long way, even if you have to pay to garner it.

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To further emphasize some of these articulations, I am pleased to announce that I will present some of my thoughts on the issue of internal controls in an effective compliance program, in a webinar hosted by The Network, next Tuesday, November 11 at 1 PM EST. For details and registration, click here.

On December 4, I will be making a live presentation on the recent trend for the DOJ and SEC to target internal controls in FCPA enforcement actions and the interplay with the COSO 2013 Update at a live event, hosted by The Network, in Houston. Baker and McKenzie partner Stephen Martin will be joining me and will discuss risk assessments in a best practices compliance program. For details and registration, click here.

And best of all both events are FREE, just like this video of the Tacoma Narrow Bridge collapsing.

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

November 5, 2014

A Royal Fan Responds: Russ Berland on the SEC Financial Report for FY 2014

Russ Berland

Ed. Note-today we have a guest post from KC Royals fan and Stinson Leonard Street partner Russ Berland. 

As a Kansas City Royals fan, I would like to use this opportunity to congratulate the Royals on a great season and say to them, “Ya done good.”  Despite losing an extremely close seventh World Series game to a very able and talented San Francisco Giants team, which included a pitcher whose name and face will one day be memorialized in Cooperstown, this year has been a banner, or should I say, a pennant year for the boys in blue.

The SEC likewise would like to take a moment to be congratulated on their banner year in their annual enforcement preview of their Agency Financial Report.  So here goes … The SEC wants us to know that they are using creative means to find misconduct on their own and go after it, to hold people and corporations accountable,  and to pay and protect whistleblowers.  On October 16, the SEC put out its official preview of its upcoming Agency Financial Report for FY 2014.  The SEC’s fiscal year ends September 30, so this spans every enforcement action the SEC has taken since October 1, 2013.  The report has four major themes:

  1. The SEC is enforcing the law against people, not just companies. It takes people to commit misconduct on behalf of companies so those same people should be held accountable.  And if the SEC is counting on you to watch over companies and transactions you better take it seriously.  The SEC does and they will hold you accountable.  The preview made this point in showcasing its major enforcement actions against Fifth Third Bancorp and its former CFO, Diamond Foods Inc. and its former CEO and CFO, World Capital Market and its founder, and many, many others.  The most poignant example was the enforcement action against the Chairman of the Audit Committee of AgFeed Industries, Inc.  The SEC alleges that Ivan Gothner, the chairman of AgFeed’s audit committee received information that AgFeed’s Chinese operations were conducting accounting fraud and instead of taking a fellow director’s advice to “hire professional investigators guided by outside legal counsel,” he directed internal resources to assess the situation.  When that resulted in late and inadequate information, the SEC charged him “with violating or aiding and abetting violations of the anti-fraud, reporting, books and records, and internal controls provisions of the federal securities laws” and ” with making false statements to AgFeed’s outside auditors.”  Andrew Ceresney, Director of the SEC’s Division of Enforcement, called this “a cautionary tale of what happens when an audit committee chair fails to perform his gatekeeper function in the face of massive red flags.”
  2. Corporations must admit their actions. Last year, the SEC Chairman, Mary Jo White, announced that more companies must admit their wrongdoing in settlements.  The SEC’s Admissions Policy states that the companies may be required to admit their wrongdoing when there is “(1) misconduct that harmed large numbers of investors, or placed investors or the market at risk of potentially serious harm, (2) egregious intentional misconduct, or (3) when the defendant engaged in unlawful obstruction of the commission’s investigative processes.”  Now, the Preview adds two more categories to those required to make admissions: “[4] where an admission can send a particularly important message to the markets, or [5] where the wrongdoer poses a particular future threat to investors or the markets.”  For example, in the settlement with ConvergEx for misrepresenting its commissions to brokerage customers, ConvergEx was required to admit the facts stated by the SEC and admit that it had violated Securities Laws.  In one interesting twist, Wells Fargo Advisors LLC was forced to admit its wrongdoing when one of its brokers traded on non-public information about the sale of Burger King to a private equity firm. The “wrongdoing” that Wells Fargo Advisors admitted encompassed inadequate policies, inadequate coordination among internal groups tasked with policing insider trading and the compliance officer who should have spotted the insider trading missing it. This is an interesting view of what constitutes “egregious intentional misconduct.” The message seems to be that in order to settle a matter with the SEC without admitting or denying facts or legal conclusions, the defendant will need to prove they do not fit in one of the five listed categories.  It’s possible that the SEC forced Wells Fargo Advisors to admit it’s wrongdoing because it delayed production of relevant documents or because one of the documents that they turned over had been altered by the compliance officer herself.  Or perhaps they are sending “a particularly important message” to compliance officers that they need to be vigilant in doing their jobs.
  3. Whistleblowing Pays.  In FY2014, the SEC paid $35 million to 9 whistleblowers.  One of them received $30 million by him or herself.   Because the SEC rules protect the identity of whistleblowers, we don’t know who got paid.  But the SEC whistleblowing process has multiple stages, which include bringing original information or an original analysis of existing information to the SEC, having the SEC pursue that information leading to a prosecution, and successfully prosecuting or settling that matter with a recovery of over $1 million.  This takes  a long time from beginning to end.  Dodd Frank was passed in 2010.  The first REAL money ($14 million) was paid last year.  And now someone is getting $30 million.  The pipeline took a while to fill, but it is reaching a full state and we can probably expect to see a lot more whistleblower payments in the next few years.
  4. If you don’t come to us, we’ll find you. The SEC is using more and more data analytics on financial and trading activity to find wrongdoers.   According to the SEC, ” innovative use of data and analytical tools contributed to a very strong year for enforcement marked by cases that spanned the securities industry.”   Right now, they are telling us that they are using those techniques to look at filing deficiencies, hedge fund returns, and insider trading.  But we can anticipate they are looking at more than just those categories and we should expect to see more and more use of these techniques over broader areas in the coming years.  And, the SEC is telling us that they are also currently implementing and developing “next generation tools” to review market and other data for suspicious activity.

So, this Preview of the FY2014 Agency Financial Report suggests that the SEC should not be seen as sitting back and waiting for cases to come to them.  And when companies and people violate Securities Laws, the SEC will work hard to make sure that they each take accountability, either personally through fines and penalties or corporately, through admissions.   Like the Royals, the SEC would like us to know that they have had a banner year.

Berland can be reached at russ.berland@stinsonleonard.com. He was lead investigative counsel for Layne Christensen in its recently concluded FCPA enforcement action by the SEC. In my podcast, the FCPA Compliance and Ethics Report, Episode 104, I interview Berland on how the company was able to receive a declination from the DOJ. The Episode will post Thursday, Nov. 7.

October 29, 2014

Doing Compliance-The Book

Doing ComplianceI have consistently tried to bring a ‘Nuts and Bolts’ approach to my writing about compliance. Last year when describing some of my writing on the building blocks of a Foreign Corrupt Practices Act (FCPA) compliance program to my friend Mary Flood, she said “That’s great but what about actually doing compliance?” Fortunately for me, she did not ask how as there is no telling just how much hot water answering that question would have gotten me into! Her idea about writing a book which a compliance practitioner could use as a one-volume reference for the everyday work of anti-corruption compliance was the genesis of my most recent hardbound book, Doing Compliance: Design, Create, and Implement an Effective Anti-Corruption Compliance Program. I am pleased to announce that the book is hot off the presses and now available for purchase through Compliance Week in the US and Ark Publishing in the UK.

Just as the world becomes more flat for business and commercial operations, it is also becoming so for anti-corruption and anti-bribery enforcement. Any company that does business internationally must be ready to deal with a business environment with these new realities. My book is designed to be a one-volume work which will give to you some of the basics of creating and maintaining an anti-corruption and anti-bribery compliance program which will meet any business climate you face across the globe. I have based my discussion of a best practices compliance program on what the Criminal Division of the US Department of Justice (DOJ) and Enforcement Division of the Securities and Exchange Commission (SEC) set out in their jointly produced “FCPA - A Resource Guide to the U.S. Foreign Corrupt Practices Act”, the FCPA Guidance, the ‘Ten Hallmarks of an Effective Compliance Program.” The FCPA Guidance wisely made clear that there is no ‘one-size-fits-all’ approach when it stated, “Individual companies may have different compliance needs depending on their size and the particular risks associated with their businesses, among other factors.” Thus, the book is written to provide insight into the aspects of compliance programs that DOJ and SEC assesses, recognizing that companies may consider a variety of factors when making their own determination of what is appropriate for their specific business needs.

This book does not discuss the underlying basis of the FCPA, the UK Bribery Act or any other anti-corruption or anti-bribery legislation. I have assumed the reader will have a modicum of knowledge of these laws. If not, there are several excellent works, which can provide that framework. The book is about doing business in compliance with these laws. As with all Americans, I appreciate any list that is deca-based, so the format of 10 hallmarks resonates with me. I have used this basic ten-part organization in laying out what I think you should consider in your anti-corruption and anti-bribery compliance program. In addition to presenting my own views in these areas, I also set out the views of both FCPA practitioners and commentators from other areas of business study and review. The book includes the following:

Chapter 1 - Where It All Begins: Commitment from Senior Management and a Clearly Articulated Policy against Corruption  It all begins at the Top, what should management say and do? ‘Tone at the Top’ is a great buzz word but how does a company truly get the message of compliance down through the ranks? This chapter discusses the techniques management can use to move the message of compliance down through middle management and into the lower ranks of the company.

Chapter 2 - Some Written Controls: Code of Conduct and Compliance Policies and Procedures  The Cornerstone of your anti-bribery/anti-corruption compliance program is set out in your written standards and internal controls which consist of a Code of Conduct, Compliance Policy and implementing Procedures. This chapter discusses what should be in the written basics of your compliance program and how best to implement these controls.

Chapter 3 - For the CCO: Oversight, Autonomy, and Resources The role and function of a Chief Compliance Officer (CCO) in any compliant organization cannot be overstated. Simply naming a CCO is no longer enough to meet even the minimum requirements of best practices. One of the key areas that the DOJ will review is how is a CCO allowed to fulfill his role. Does the position have adequate resources? Does it have autonomy and support in the corporate environment? Does the Board of Directors exercise appropriate oversight? This chapter reviews the Compliance Function, Oversight, Autonomy and Resources and relates structuring the compliance function in an organization.

Chapter 4 - The Cornerstone of Your Compliance Program: Risk Assessment It all begins here, as a risk assessment is the road map to managing your compliance risk. 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. This chapter discusses what risks you should assess, the process for doing so and using that information going forward.

Chapter 5 - Getting Out on the Road: Training and Continuing Advice Once you have designed and implemented your compliance program, the real work begins and you must provide training on the compliance program and continuing advice to your company thereafter. This means that 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. However merely conducting training usually is not enough. Enforcement officials want to be certain the messages in the training actually get through to employees. The expectations for effectiveness are measured by who a company trains, how the training is conducted, and how often training occurs. This chapter discusses getting the message of compliance out to your employees.

Chapter 6 - Do As I Do & As I Say: Incentives and Disciplinary Measures Any effective compliance program will use a variety of tools to help ensure that it is followed. This means that you must employ both the carrot of incentives and the stick of disciplinary measures to further compliance. How can you burn compliance into the DNA of your company? Discipline has long been recognized as an important aspect of a compliance regime but more is now required. This chapter relates structuring compliance into the fabric of your company through hiring, promotion of personnel committed to compliance and how to reward them for doing business ethically and in compliance with the FCPA.

Chapter 7 – Your Greatest Source of FCPA Exposure: Third Parties and How to Manage the Risk Third Parties are universally recognized as the highest risk in any compliance program. Indeed it is estimated that well over 90% of all FCPA enforcement actions involve third parties. Therefore it is important how to manage this highest risk for an anti-corruption program. This chapter provides a five-step process for the investigation and management of any third party relationship; from agents in the sales chain to vendors in the supply chain.

Chapter 8 – How Do I Love Thee: Confidential Reporting and Internal Investigations In any company, your best source about not only the effectiveness of your compliance program but any violations are your own employees. This means that you must design and implement a system of confidential reporting to get your employees to identify issues and then have an effective internal investigation of any issues brought to your attention. Your own employees can be your best source of information to prevent a compliance issue from becoming a FCPA violation. This chapter provides the best practices for setting up internal reporting and investigating claims of compliance violations.

Chapter 9 - How to Get Better: Improvement: Periodic Testing and Review Once you have everything up and running you still need to not only periodically oil but also update the machinery of compliance. You do this through the step of continuous improvement, which is the use of monitoring and auditing to review and enhance your compliance regime going forward. A company should focus on 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.

Chapter 10 - Should I or Shouldn’t I? Mergers and Acquisitions The last thing you want to bring in through an acquisition is another company’s FCPA violation for which your company must pay the piper; also known as buying a FCPA violation. Effectively managing your mergers and acquisitions (M&A) process can help you to identify risk areas in a potential acquisition and then remediate any issues in the post-acquisition integration phase. This chapter gives you the most recent pronouncements on how to avoid FCPA exposure in this key area of corporate growth and to use the M&A function to proactively manage compliance.

Chapter 11 – A Few Words about Facilitation Payments One of the key differences between the US FCPA and UK Bribery Act is that the US law allows facilitation payments. However, in today’s interconnected world, to allow one part of your company to make facilitation payments while UK subsidiaries or others covered by the UK Bribery Act are exempted out from your standard on facilitation payments has become an administrative nightmare. This chapter explores what is a facilitation payment, how the policing of your internal policy has become more difficult and some companies which have been investigated regarding their facilitation payments. It also provides guidelines for you to follow should your company decide to allow them going forward.

So with thanks to Mary Flood for the idea, Matt Kelly, the Editor of Compliance Week for the publishing platform and Helen Roche & Laura Slater and the rest of the team at Ark Publishing for getting me through the publishing process in a professional manner, I am published to announce that Doing Compliance: How to Design, Create, and Implement an Effective Anti-Corruption Compliance Program is now available for purchase.

You can purchase a copy of Doing Compliance: How to Design, Create, and Implement an Effective Anti-Corruption Compliance Program in the US by clicking here. You can purchase a copy of Doing Compliance: How to Design, Create, and Implement an Effective Anti-Corruption Compliance Program in the UK by clicking 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

October 27, 2014

Critiquing FCPA Enforcement and the GSK Domestic Corruption Conviction

Lady Scales of JusticeRecently the FCPA Professor posted a blog, entitled “Look in the Mirror Moments, in which he used written commentary by the US Secretary of the Treasury to the Chinese government about the Chinese governments anti-trust investigations as a mechanism to explore critiques of Foreign Corrupt Practices Act (FCPA) enforcement. In this post, he compared certain aspects of FCPA enforcement to the Chinese corruption enforcement action against GlaxoSmithKline PLC (GSK). Leaving aside the differences in anti-trust enforcement (price-fixing, monopolistic behavior and illegal collusion) and anti-corruption enforcement (bribery), I wanted to review his critiques through the prism of the known facts of the GSK enforcement action.

The FCPA Professor had the following comments about FCPA enforcement, in comparison with the Chinese corruption enforcement action against GSK. He said,

Without in any way trying to comprehensively compare the overall U.S. legal system to the overall Chinese legal system, the following attributes of FCPA enforcement must at least be acknowledged. 

The vast majority of corporate FCPA enforcement actions lack transparency and the resolution documents (whether a non-prosecution agreement, deferred prosecution agreement or civil administrative order) are the result of an opaque process ultimately controlled by the same office prosecuting or bringing the action. 

As to the swiftness of FCPA enforcement actions, one can only assume that the majority of general counsels and board of directors of companies under FCPA scrutiny would be jumping for joy if the scrutiny – from start to finish – would resolve itself in 15 months rather than the typical 3-5 years (and in some instances more) of FCPA scrutiny lingering.”

The difficulty I have with both of these points is that one cannot separate the Chinese enforcement action against GSK from the Chinese legal system that produced it. Let’s start with the ‘jumping for joy’ prong. The initial difference to note is that the Chinese enforcement action was a domestic prosecution based upon Chinese domestic law for bribery and corruption of Chinese. It was not a US (or UK) company violating US (or UK) laws. This means that the relevant documents and witness were in the locality where the investigation was performed. Even when a key witness, GSK China Country Manager Mark Reilly was in the UK, he voluntarily returned to China to give evidence but was prevented from leaving the country without being charged with a crime. So as far as is known, there were no government-to-government requests for information, no Letters Rogatory or use of any other international discovery mechanism to obtain evidence.

Moreover, the procedural protections in place under US (and UK) criminal procedure simply do not exist in China. There is no right to counsel, no right against self-incrimination, no right to confront witness and not even a right to know what the charges against you might be. These lack of rights were certainly borne out in the speed in which the Chinese investigative authorities were able to obtain evidence and public confessions from GSK principals involved in the bribery and corruption. The first 30-day timeline of the GSK investigation went as follows:

  • June 28, 2013 – Local Police announced they have place GSK officials under investigation for economic crimes.
  • July 11, 2013 – Public Security Ministry issued statement accusing GSK of bribery.
  • July 15 , 2013 – Four senior company execs ‘detained’. Finance chief barred from leaving country.
  • July 16, 2013 – GSK General Counsel (GC) placed under ‘house arrest’ along with 30 other employees. One of the four GSK China executives who were detained, admited to bribery allegations on Chinese state television.
  • July 22, 2013 – GSK formally apologized for breaking Chinese law regarding domestic bribery and corruption.
  • July 26, 2013 – Peter Humphrey, a UK citizen and his wife, a naturalized US citizen, both hired by GSK in an ancillary matter related to the GSK corruption scandal were arrested but not told of the charges against them.

A little over one year later, in July, 2014 the trial of Humphrey and his wife was announced. Orignially it was to be held in secret with both Humphrey and his wife still not told of the formal charges against them. However after diplomatic protests by both the US and UK governments, Humphrey and his wife were both convicted and sentenced in an open trial, albeit lasting only one day, on August 8, 2014. The charges against them were announced at trial. Thereafter, GSK pled guilty in a secret one-day trial GSK was fined approximately $491MM and China Country Manager Mark Reilly and four other GSK China business unit executives were found gulity. They were all sentenced to jail but given suspended sentences.

How did the Chinese government develop its evidence so quickly? One of the defendant’s, admitted, on state run televison, his involvement in the bribery scheme only 18 days after the investigation was announced by Chinese authorities. Indeed, GSK itself made a public apology only 24 days after the announcement by the Chinese authorities it was under investigation. We now know that GSK was informed by a whistleblower of allegations of bribery and corruption as early as January 2013 yet in June GSK announced it had not found anything to substantiate these allegations.

I believe the answer is found in the differences in the Chinese and US legal systems. It all starts with the following: in China you are presumed guilty while in the US (and the UK), you are presumed innocent until proven guilty. In an article in the New York Times (NYT), entitled “Presumed Guilty in China’s War on Corruption”, Andrew Jacobs and Chris Buckley wrote that the “war on corruption often operates beyond the law in a secret realm of party-run agencies”. The process “Known as Shuanggui, it is a secretive, extralegal process that leaves detainees cutoff from lawyers, associates and relatives.” Moreover, even as a case moves through the Chinese criminal justice system, defendants’ counsel “have limited access to evidence, witnesses, and their clients.” It does not get any better when a defendant actually goes to court because “Lawyers say Chinese courts rarely allow them to call defense witnesses, while prosecutors frequently withhold cruical evidence.” Finally, of the 8,110 officials charged with corruption “in the first half of this year, 99.8 percent were convicted”. To this rather amazing trial court conviction rate, I would add the the prosecution does even better on appeal, never losing to a convicted defendant.

Does that sound like a system in which you would jump for joy if you were caught up in, even knowing that the time from announcment of investigation until 99.8% chance of conviction awaited you? Even if the government investigation only took 14 months? In the US, corporations have the same rights as individuals at trial; to cross-examine witness, to be made aware of the charges against it, those charges must be brought with specficity, right to counsel, right to an open trial and right to appeal. These rights are all enshrined in the US Constitution. Those rights are not present for individuals or corporations under Chinese law or jurisprudence.

But the FCPA Professor also critiqued the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) in FCPA enforcements with the following observation: The vast majority of corporate FCPA enforcement actions lack transparency and the resolution documents (whether a non-prosecution agreement, deferred prosecution agreement or civil administrative order) are the result of an opaque process ultimately controlled by the same office prosecuting or bringing the action.When a company enters into negotiation with the DOJ and SEC it is with legal counsel in tow. Even if we in the general public are not privy to these negotiations over the terms and conditions of enforcement actions I am confident that there is some give and take. Further, while I only have personal knowledge of one negotiation for the specific terms of a Deferred Prosecution Agreement (DPA), the lawyer representing the company made clear it was a negotiation. It was not a Diktat with sentencing simply pronounced by the DOJ. Does the office which handles the investigation also handle the settlement negotiation? Yes but that is what prosecutors do each and every day in every city, county, town, hamlet, state and federal jurisdiction in this country.

Just as it takes two to tango, it takes two to negotiate. The DOJ does not negotiate with itself. Another party is sitting across the table and that other party is the company involved in the FCPA investigation. Why is that company there in the room negotiating? Because the company has assessed its interest and determined that it would be better off settling than going to trial. This is in the face of DOJ failures in the trial court in the Gun Sting cases, the O’Shea trial and the trial court overturning the verdict in the Lindsey Manufacturing conviction. Simply because there is a negotiation between the DOJ and a private party does not make it some nefarious process, even if the prosecutors hold the upper hand.

As far as the fines and penalites, there has been nothing to suggest the basis of the $491MM fine assessed against GSK. That amount is a bit less than the amounts initially reported that GSK China paid out as bribes, somewhere over $500MM. At least in the US, there are the Sentence Guidelines which form some basis of the calculation. Of course there is always some prosecutorial discretion to lessen a fine or penalty below the suggested amount. We have seen that occur this year with the HP enforcement action and recently Asst. Attorney General Leslie Caldwell suggested that Alcoa could have been fined over $1bn for its conduct, while the actual fine was $384MM. It is appropriate for prosecutors to have such discretion.

While the DOJ is also critiqued that DPAs (and Non-Prosecution Agreement [NPAs]) are essentially the same as going to trial with a near 100% success rate, I think this belies the number of declinations that the DOJs gives out. Unfortunately (and here the FCPA Professor and I do agree); there is not enough information given out about declinations; either regarding the raw numbers or the specific reasons for a declination. Only if a company agrees or is required to make such information public does it become known. Nevertheless, there is the recent example of Layne Christensen, which received a declination. In an article in Compliance Week, entitled “How Two Companies Got Regulators to Drop FCPA Charges”, Jaclyn Jaeger reported on the reasons the company sustained this result of receiving a declination through interviews with Christensen GC, Steve Crooke, its Chief Compliance Officer (CCO), Jennafer Watson and its outside counsel Russ Berland. Jaeger detailed the specific steps the company took and we can all see the effect it had upon the DOJ, through the declination to prosecute the company.

The debate about the costs of FCPA enforcement actions, the proper role of DPAs/NPAs and length of time of investigations is a healthy one and living in the open society that we have in the US, one that we will continue to have. Since I am not a prosecutor (or ex-prosecutor), I cannot look in the mirror at FCPA enforcement but I can review the facts of the DOJ and SEC’s FCPA enforcement, contrasted with the Chinese domestic bribery and corruption proseuction of GSK and believe that there is no basis for comparing the two systems, as they are so different in too many fundamental aspects.

I can however say one thing with absolute certainly; wherever you do want to be, a Chinese jail is not high on the list.

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

October 13, 2014

Ringo, Sir Paul and an Effective Compliance Program

Paul McCartneySometimes the universe converges in ways that are beyond my simple comprehension. This past weekend was one of them. It began a few months ago when I saw an advertisement from StubHub that showed Ringo Starr playing in Houston on October 10 and Sir Paul McCartney playing in New Orleans on October 11. I figured if the two surviving members of the greatest rock and roll band in the history of the world were going to play on two consecutive nights it was a sure sign from the Oracle of Rock ‘N Roll that I was intended to attend both, lest I tempt a fate worse than going against an entity nearly as powerful as the Oracle of Delphi. Moreover, the Friday concert coincided with the birthday of my little sister who happened to be in town and one of the planets biggest Beatles fans, it made the convergence complete. Ringo Starr

I also learned two completely new and unrelated facts this weekend. The first is that a native of Liverpool, England, is called a ‘Scouser’. That comes from my Liverpudlian friend Pam, who also introduced me to the Liverpool Football Club. The second is that my wife is a closet Mr. Mister uber fan, who rocked out as a teenager to this group in the early days of MTV. On reflection that is perhaps the more odder convergence.

While there is clearly a reason Ringo Starr tours with true musical all-stars and Sir Paul McCartney has been raised to the peerage for his musical prowess, in many ways the Ringo Starr concert was the bigger revelation. I had wondered how Ringo would fill out an entire concert. He did it by surrounding himself with musicians fabulous in their own right. They included: Steve Lukather, former lead singer from Toto on vocals, lead and rhythm guitar; Gregg Rolie, former keyboardist from Santana and Journey on vocals, organ, keyboards; Richard Page, former lead singer from Mr. Mister, on vocals and bass guitar; and finally, best and certainly not least, Todd Rundgren on vocals, lead and rhythm guitar, bass guitar, percussion, harmonica and, occasionally, even keyboards.

So in addition to Ringo singing his standards of Photograph, It Don’t Come Easy, Yellow Submarine and (of course) With a Little Help From My Friends. We also got to hear songs first released by Santana, Toto, Mr. Mister and some great Todd Rundgren hits. The group clearly loved playing and jamming with each other. Further, these other groups’ songs were great fun to hear and as they may never reform, I would not otherwise have the chance to hear them performed lived.

Sir Paul McCartney. You really do not have to say much more. His concert did not exceed my expectations because they were about as high as expectations could have been. He seriously rocked out for over three hours, playing everything from the earliest Beatles songs up to a ballad for his latest wife. I cannot remember ever attending a concert where everyone one in attendance knew the words to every song but we all did and we all sung them all the way through the entire show.

What is the compliance angle to all of this? Just as there is more than one way to put on a great concert, there is more than one way to have an effective compliance program. This continual message from the Department of Justice (DOJ) came again earlier this month through remarks by Assistant Attorney General for the Criminal Division, Leslie R. Caldwell, at the 22nd Annual Ethics and Compliance Conference, where she made clear that while the FCPA Ten Hallmarks of an Effective Compliance Program is one set of guidelines for an effective compliance program, there is no “one-size fits all” compliance program. She laid out another way to think through, review and analyze your compliance program. 

  1. High-level commitment. A company must ensure that its directors and senior management provide strong, explicit, and visible commitment to its corporate compliance policy. Stated differently, and again, “tone from the top.”
  1. Written Policies. A company should have a clearly articulated and visible corporate compliance policy memorialized in a written compliance code. Again, employees need to know what to do–or not do–when faced with a tough judgment call involving business ethics. Companies need to make that as easy as possible for their employees.
  1. Periodic Risk-Based Review. A company should periodically evaluate these compliance codes on the basis of a risk assessment addressing the individual circumstances of the company. Companies change over time through natural growth, mergers, and acquisitions.
  1. Proper Oversight and Independence. A company should assign responsibility to senior executives for the implementation and oversight of the compliance program. Those executives should have the authority to report directly to independent monitoring bodies, including internal audit and the Board of Directors, and should have autonomy from management. Compliance programs needed to be funded; they need to have resources. And they need to have teeth and respect within the company.
  1. Training and Guidance. A company should implement mechanisms designed to ensure that its compliance code is effectively communicated to all directors, officers, employees. This means repeated communication, frequent and effective training, and an ability to provide guidance when issues arise.
  1. Internal Reporting. A company should have an effective system for confidential, internal reporting of compliance violations. I know that many companies have multiple mechanisms, which is good.
  1. Investigation. A company should establish an effective process with sufficient resources for responding to, investigating, and documenting allegations of violations. What this means on the ground will depend on the company. A sophisticated multi-national corporation obviously will be expected to have more resources devoted to compliance than a small regional company.
  1. Enforcement and Discipline. A company should implement mechanisms designed to enforce its compliance code, including appropriately incentivizing compliance and disciplining violations. Further, the response to a violation must be even-handed. People watch what people do much more carefully than what they say. When it comes to compliance, you must both say and do.
  1. Third-Party Relationships. A company should institute compliance requirements pertaining to the oversight of all agents and business partners. This cannot be emphasized strongly enough.
  2. Monitoring and Testing. A company should conduct periodic reviews and testing of its compliance code to improve its effectiveness in preventing and detecting violations. Kick the tires regularly. As I said, compliance programs must evolve with changes in the law, business practices, technology and culture.

Caldwell also emphasized that as important as the compliance program itself; the implementation is also reviewed and evaluated by the DOJ. When the DOJ investigates a case, they look at the messages about compliance that are given to employees; they look at what employees are told in their day-to-day work. This means the DOJ will look at emails, chats, and recorded phone calls. They will interview witnesses about the messages they received from their supervisors and management to determine if they received messages about compliance, or about making money at all costs.

Another consideration for the DOJ is incentives. The DOJ will examine the incentives that a company provides to encourage compliant behavior – or not. This means that if a company is actually encouraging compliance, if its values are to be ethical and within the law, this message must be conveyed to employees in a meaningful way. If not, it is likely that the DOJ will not view the compliance program as credible. Interestingly, Caldwell said that sometimes the effective implementation of a compliance program means standing apart from the other companies in your industry.

Just as Ringo and Sir Paul ably demonstrated, there is more than one way to put on a great concert. They both assessed their strengths and weaknesses and used that information to put great bands around them illustrated their strengths. The same is true in the world of Foreign Corrupt Practices Act (FCPA) compliance. The key is to review and assess your compliance risks and then manage them. And, as always, Document, Document, and Document whatever you do so that if a regulator comes knocking, you can demonstrate evidence of the above.

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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