FCPA Compliance and Ethics Blog

June 28, 2010

Technip Settles-the Nigerian FCPA Bribery Box Score Update

Filed under: FCPA — tfoxlaw @ 12:42 pm
Tags: , , , , ,

Today the Securities and Exchange Commission (SEC) and Department of Justice (DOJ) announced, in separate Press Releases, that they both has reached settlements with Technip S. A. (Technip) for multiple violations of the Foreign Corrupt Practices Act (FCPA) for its part in the Nigerian Bribery Scandal. The SEC also charged Technip with books and records and internal controls violations related to the bribery. Technip agreed to pay a fine to the SEC of $98MM and a separate penalty to the DOJ of $240MM.

Technip admitted that a consortium of which it was a member paid Nigerian officials up to $180MM in bribes for engineering, procurement and construction contracts awarded between 1995 and 2004 to build liquefied natural gas facilities on Bonny Island, Nigeria. The consortium was named TSJK and consisted of subsidiaries of the following entities: Technip; KBR (then owned by Halliburton); ENI, an Italian company; and JGC, a Japanese company.

Technip also agreed to a Deferred Prosecution Agreement (DPA) and the filing of a Criminal Information. Under the terms of the DPA, the DOJ agreed to defer prosecution of Technip for two years. Technip agreed, among other things, to retain an independent compliance monitor for a two-year period to review the design and implementation of Technip’s compliance program and to cooperate with the DOJ in ongoing investigations. If Technip abides by the terms of the deferred prosecution agreement, the DOJ will dismiss the criminal information when the term of the agreement expires. The Technip leads to a monetary count of the following:

SETTLEMENT (or RESERVED FOR SETTLEMENT) BOX SCORE

Entity Fine, Penalty and Disgorgement of Profits (in $ millions) Amount Reserved for Resolution (app. in $ millions)
Halliburton +KBR $579  
ENI   $350
Technip $338  
JGC   None yet reported
Total $917 $350

So for those of you keeping score at home, there has been and could be fines, penalties and profit disgorgement of over $1.2 billion. This figure does not include any costs for reduction of credit ratings, the payment of monitor fees, including monitor law firm fees and any forensic accounting fees during the pendency of the DPA. The costs listed above do not include the total cost paid by Technip for its internal company investigation into this matter. However based upon the reported fees to date paid by Halliburton, these investigation fees will surely be in the tens of millions of $$.

We are now anxiously awaiting the settlement of the FCPA cases against both ENI and JGC to determine if the Nigerian Bribery Scandal will yield the largest total fine for one long series of FCPA violations. All we can say is more will be revealed.

For a copy of the DOJ Press Release, click here.

For a copy of the SEC Press Release, click here.

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

© Thomas R. Fox, 2010

June 18, 2010

Gifts and Business Entertainment under the FCPA

If one were to reflect upon the providing of gifts and business entertainment to foreign governmental officials by a US Company, one might reasonably conclude that after 30 odd years of the Foreign Corrupt Practices Act (FCPA), US companies might follow its prescriptions regarding gifts and business entertainment. However 2009 brought about a couple of notable FCPA enforcement actions where one of the significant FCPA violations was precisely in this area.

In July 2009, Control Components, Inc (CCI) pled guilty to substantive FCPA anti-bribery charges and to conspiring to violate the FCPA. CCI engaged in actions including rewarding customers’ employees for the award of contracts with expensive gifts and extravagant overseas holidays, to destinations including Disneyland, Las Vegas and Hawaii, under the guise of training and inspection trips. In addition, CCI paid the college tuition for the children of at least two executives of CCI’s customers. For the Department of Justice (DOJ) information filed against CCI, click here.

To round out the year on December 31, 2009 UTStarcom pled guilty to conduct which violated the FCPA which included (among other FCPA violations):

1. Arranging and paying for travel to popular tourist destinations in the United States, including Hawaii, Las Vegas and New York City, when such trips were recorded as training expenses at UTStarcom facilities. However, it is worthwhile to note that UTStarcom had no facilities in these areas. The trips also included a cash allowance of between $800 and $3,000 per person.

2. Spending nearly $7 million on lavish gifts and all-expenses paid executive training programs in the US for existing and potential foreign government customers in China and Thailand.

3. Presenting expensive gifts to, and engaging in entertainment with, government agents such as nearly $10,000 on French wine, a gift to agents of a government customer, and spending $13,000 on entertainment expenses for the same customer in an attempt to secure business.

For the Non-Prosecution Agreement between the DOJ and UTStarcom, click here.

What does the FCPA Itself Say?

Although gift and business entertainment is an area open to vagueness under the FCPA as there are no clear guidelines in the FCPA or the legislative history, the conduct of CCI and UTStarcom went far beyond anything that has been previously approved or discussed in any DOJ Opinion Releases. While prohibiting payment of any money, or thing of value, to foreign officials to obtain or retain business, the FCPA arguably permits incurring certain expenses on behalf of these same officials. There is no de minimis provision. The presentation of a gift or business entertainment expense can constitute a violation of the FCPA if this is coupled with the corrupt intent to obtain or retain business. Under the FCPA, the following affirmative defense regarding the payment of expenses exists:

[it] shall be an affirmative defense [that] the payment, gift, offer or promise of anything of value that was made, was a reasonable and bona fide expenditure, such as travel and lodging expenses, incurred by or on behalf of a foreign official, party, party official, or candidate and was directly related to…the promotion, demonstration, or explanation of products or services; or…the execution or performance of a contract with a foreign government or agency thereof. 15 U.S.C. § 78dd-1(c)(2)(A)-(B).

As with most matters under the FCPA, there is little direct guidance on what conduct may step over the line set out above. Of course there is always the gut check test, which simply measures “if it feels wrong in your gut, it probably is wrong”. It is something good to always keep in mind in any circumstance.

Opinion Releases

Somewhat surprisingly, this commentator was not able to find any recent DOJ Opinion Releases dealing with the values for gifts and business entertainment under the FCPA. However, there are three Opinion Releases from the early 1980s which can provide some guidance to current practitioners.

In Opinion Release 82-01, the DOJ approved the gift of cheese samples made to Mexican governmental officials, by the Department of Agriculture of the State of Missouri to promote the state of Missouri’s agricultural products. However the value of the cheese to be presented was not included in the Opinion Release. In Opinion Release 81-02, the DOJ approved a gift of its packaged beef products from the Iowa Beef Packers, Inc to officials from the Soviet Ministry of Foreign Trade. The total value of all the samples presented was estimated to be less than $2,000 and the Iowa Beef Packers, Inc averred that the individual sample packages would not exceed $250 in value.

The final Opinion Release relating to gifts is 81-01. In this release Bechtel sought approval to use the SGV Group, a multinational organization headquartered in the Republic of the Philippines and comprised of separate member firms in ten Asian nations and Saudi Arabia, which provide auditing, management consulting, project management and tax advisory services. The SGV Group desired to solicit business on behalf of Bechtel who had proposed to reimburse the SGV Group for gift expenses incurred in this business solicitation. Regarding the reimbursement of gift expenses by Bechtel to the SGV Group the DOJ stated:

(d) Expenses for gifts or tangible objects of any kind incurred without Bechtel’s prior written approval will be reimbursed only where such expenditures are permitted under the local laws, the ceremonial value of the item exceeds its intrinsic value, the cost of the gift does not exceed $500 per person, and the expense is commensurate with the legitimate and generally accepted local custom for such expenses by private business persons in the country.

Guidelines for Gifts and Business Entertainment under the FCPA

A. Gifts to Governmental Officials

Based upon the FCPA language and relevant Opinion Releases (81-01, 81-02 and 82-01), it would appear reasonable that a Company can provide gifts up to a value of $250. Below are the guidelines which the Opinion Releases would suggest incorporating into a Compliance Policy regarding gifts:

• The gift should be provided as a token of esteem, courtesy or in return for hospitality.
• The gift should be of nominal value but in no case greater than $250.
• No gifts in cash.
• The gift shall be permitted under both local law and the guidelines of the employer/governmental agency.
• The gift should be a value which is customary for country involved and appropriate for the occasion.
• The gift should be for official use rather than personal use.
• The gift should showcase the company’s products or contain the company logo.
• The gift should be presented openly with complete transparency.
• The expense for the gift should be correctly recorded on the company’s books and records.

B. Business Entertainment of Governmental Officials

Based upon FCPA language (there are no Opinion Releases on this point), there appears to be a threshold that a Company can establish a value for business entertainment of up to the amount of $250. However this must be tempered with clear guidelines incorporated into the business expenditure component of a FCPA Compliance Policy, which should include the following:

• A reasonable balance must exist for bona fide business entertainment during an official business trip.
• All business entertainment expenses must be reasonable.
• The business entertainment expenses must be permitted under (1) local law and (2) customer guidelines.
• The business entertainment expense must be commensurate with local custom and practice.
• The business entertainment expense must avoid the appearance of impropriety.
• The business entertainment expense must be supported by appropriate documentation and properly recorded on the company’s book and records.

The incorporation of these concepts into a FCPA Compliance Policy is a good first step towards preventing potential FCPA violations from arising, but it must be emphasized that they are only a first step. These guidelines must be coupled with active training of all personnel, not only on a Company’s FCPA Compliance Policy, but also on the corporate and individual consequences that may arise if the FCPA is violated regarding gifts and business entertainment. Lastly, it is imperative that all such gifts and business entertainment be properly recorded, as required by the books and records component of the FCPA. One of the FCPA violations alleged against UTStarcom was that it falsely recorded these trips as ‘training’ expenses, while the true purpose for providing these trips was to obtain and retain lucrative telecommunications contracts. All business gifts, entertainment and expenses must be properly recorded.

And, as always, do not forget the gut check test.

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

© Thomas R. Fox, 2010

June 15, 2010

FCPA Reporting-To Whom Does Your CCO Report?

There is an ongoing debate in the compliance arena as to whom a Chief Compliance Officer (CCO) should report. Should the CCO report to the Board of Directors or appropriate Board committee such as an Audit Committee or Compliance Committee? Or can a CCO report to a company’s General Counsel (GC) but have access to the Board of Directors for periodic, but no less than annual, reporting? Is there any specific guidance from the Foreign Corrupt Practices Act (FCPA) or any of the US government interpretations such as the US Sentencing Guidelines, Deferred Prosecution Agreement to which the DOJ and recalcitrant companies have entered into or Opinion Releases? Is one approach more right or more wrong than the other? 

US companies are reported to take both approaches. A recent survey released by the Society of Corporate Compliance and Ethics, entitled “The Relationship Between the Board of Directors and the Compliance and Ethics Officer”, dated April 2010, reported that of the publicly traded companies reporting only 41% had their CCO report directly to the Board of Directors. If the CCO did not report to the Board of Directors, the survey found such position could report to not only the GC but also the Chief Financial Officer (CFO) and other senior level positions within a company. The report concluded with two perspectives from its findings. First that as the proposed change in the US Sentencing Guidelines would require “a direct” relationship between a CCO and a Board of Directors, most publicly traded companies do not meet this obligation. Second, many compliance reports are “heavily vetted” before they are delivered to the Board of Directors so that it may be hard to for a Board to garner a true picture of a company’s compliance program. 

I.                   US Sentencing Guidelines 

Under the 2010 Amendments to the US Sentencing Guidelines which are now proposed to Congress, §8B2.1 (b)(2)(C) requires: 

Specific individual(s) within the organization shall be delegated day-to-day operational responsibility for the compliance and ethics program. Individual(s) with operational responsibility shall report periodically to high-level personnel and, as appropriate, to the governing authority, or an appropriate subgroup of the governing authority, on the effectiveness of the compliance and ethics program. To carry out such operational responsibility, such individual(s) shall be given adequate resources, appropriate authority, and direct access to the governing authority or an appropriate subgroup of the governing authority. 

Commentators have weighed in on this amendment. In a recent White Paper entitled “U.S. Sentencing Commission Amends Requirements for an Effective Compliance and Ethics Program”, the law firm of Gibson, Dunn and Crutcher noted that this amendment “could be problematic for corporations that vest overall responsibility for compliance in a senior member of management” such as the GC, while having operational responsibility of the company’s compliance function detailed to a subordinate to the GC. They raised the concern that such a reporting structure might allow the GC to act as a “filter in deciding which conduct warrants reporting” to the Board of Directors, if the CCO reported. This would also imply there was a problem if a GC, rather than Board of Directors, performed an annual evaluation or in some other manner controlled the actions of the CCO. 

II.                Opinion Release 04-02

Through the mechanism of the Opinion Release 04-02 the Department of Justice (DOJ) may have provided prior guidance. The Opinion Release dealt with certain Requestors which were desired in order to acquire a business that had admitted to FCPA violations. As part of the proposed purchase of this “Newco”, the Requestors agreed that this Newco would adopt a rigorous anti-corruption compliance code which would include the following element: 

(B)      The assignment to one or more independent senior Newco corporate officials, who shall report directly to the Compliance Committee of the Audit Committee of the Board of Directors, of responsibility for the implementation and oversight of compliance with policies, standards, and procedures established in accordance with Newco’s Compliance Code; [emphasis supplied] 

III.             Industry Debates 

There has been debate in the FCPA compliance world as to what this requirement specifies. At the recent Compliance Week 2010 Annual Conference, a panel consisting of representatives from the US Sentencing Commission indicated that they believed that this section only required that CCOs have access to a company’s Board of Directors. Such a requirement could be fulfilled through a reporting structure whereby a CCO reported to a GC but had access to report to the Board of Directors, even if the CCO went to the Board of Directors with the GC present, such as reporting structure was in compliance with the proposed Sentencing Guidelines. 

However, at the same conference, Assistant Attorney General, Criminal Division for the Department of Justice, Lanny Breuer said that a CCO should have direct access to a company’s Board of Directors suggesting that the CCO not have to report through a GC but report directly to the Board. Breuer opined that the change in the Sentencing Guidelines implies that the CCO should now report directly to the Board of Directors and not through another person, whether the GC, CFO, Head of Internal Audit or any other person in an organization. 

For yet a third perspective at the same conference, the question was put to a panel of members who sit on various Boards of Directors on multi-national US corporations, they responded that, as Board members, they only wanted the information to come to them so they could fulfill their obligations as Board members, they were not too concerned how it was presented to them or who did so. Further they were not concerned who the CCO reported to or which company officer or employee in the corporate structure evaluated the CCO. 

A recent webcast by the firm of Ernst and Young further delineated this dichotomy. When posed the question of to whom should the CCO report to; either directly to the Board or the GC, panelists Brian Loughman and Jeff Taylor both indicated that it was important for the CCO to report directly to the Board. Such a reporting structure made a much more positive impression on the Board (Loughman) and that less filter of the CCO’s information gave a stronger message to the Board (Taylor) than if the CCO reported through the GC. Loughman added that the change in the Sentencing Guidelines mandated this reporting structure. However, panelist Amy Hawkes responded that she did not believe the issue of who the CCO reported to was as important if there the appropriate ‘tone at the top’ by the Board. By this she explained that if the Board was committed to a compliance culture, it did not matter whether the CCO reported directly to the Board or to the Board through the GC. 

This direct reporting approach is utilized by Halliburton, to which I posed the following question, “Who does the Chief Compliance Officer report to in your Company and why does your company utilize this approach?” Susan Ponce, Senior Vice President and Chief Ethics and Compliance Officer of Halliburton responded, “At Halliburton, the Chief Ethics and Compliance Officer reports directly to the company’s Board of Directors, advising both the Audit Committee and the full Board on all matters relating to legal compliance issues.  We structured the CEC Office that way in order to leave no doubt that the CECO has direct, independent and unfettered access to our Board and support from board members and our senior executives.

 The answer to the initial question posed appears to have two correct responses. The guidelines and debate goes both ways. The key is in the actual reporting. As long as the CCO reports on a regular basis to the Board, both lines of authority are appear to be acceptable. 

So which approach does your company utilize? 

A shorter version of this post appeared in the FCPA Blog, to read click here.

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

© Thomas R. Fox, 2010

June 11, 2010

Mickey, Donald and the FCPA

The Foreign Corrupt Practices Act (FCPA) enforcement arena is scattered with US companies which have gone many miles past the extra mile in providing travel and entertainment. Most practitioners will recall the Lucent Technologies 2007 enforcement action. Between 2001 and 2003 Lucent provided trips consisting primarily or entirely of sightseeing to locations such as Disneyland, Universal Studios, the Grand Canyon and in cities such as Los Angeles, San Francisco, Las Vegas, Washington, DC, and New York City, and typically lasted 14 days each and cost between $25,000 and $55,000 per trip. These trips were provided to Chinese governmental representatives. To close out 2009, the Department of Justice (DOJ) announced a resolution of an enforcement action against UTStarcom which had arranged and paid for travel by Chinese governmental representatives to tourist destinations in the United States, including Hawaii, Las Vegas and New York City, when such trips were recorded as training expenses at UTStarcom facilities. These trips included a cash allowance of between $800 and $3,000 per person. The thing about these trips was that UTStarcom had no facilities in these areas.

A. The FCPA

So what is the problem with paying for travel to the US for foreign governmental officials? Is it a Chinese issue? Should US companies only allow travel to places where the actually have a facility (well, that’s a good start). The FCPA does not prohibit all payments to foreign officials, it is not that broad. What it does prohibit are corrupt payments (or promises of them) made to obtain or retain business. The FCPA allows payments to foreign officials for expenses related directly to “the promotion, demonstration, or explanation of products or services” that are “reasonable and bona fide” 15 U.S.C. §§ 78dd-1(c)(2)(A) and 78dd-2(c)(2)(A). This affirmative defense, however, is notoriously hard to use (and easy to abuse), mainly because no one is quite sure what reasonable and bona fide really mean.

B. Opinion Releases

In 2007, the DOJ issued two FCPA Opinion Releases which offered guidance to companies considering whether to and, if so how to, incur travel and lodging expenses for government officials. In Opinion Release 07-01, the Company was desired to cover the domestic expenses for a trip to the United States by a six-person delegation of the government of an Asian country for an educational and
promotional tour of one of the requestor’s US operations sites.

Both Opinion Releases laid out the specific representations made to the DOJ which led to the DOJ approving the travel to the US by the foreign governmental officials. These facts can provide good guidance to any company which seeks to bring such officials to the US for a legitimate business purpose. In Opinion Release 07-01 the representations made to the DOJ were as follows:

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

Based upon these representations, the DOJ noted, “Based upon all of the facts and circumstances, as represented by the requestor, the Department does not presently intend to take any enforcement action with respect to the proposal described in this request. This is because, based on the requestor’s representations, consistent with the FCPA’s promotional expenses affirmative defense, the expenses contemplated are reasonable under the circumstances and directly relate to “the promotion, demonstration, or explanation of [the requestor’s] products or services.”

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

In Opinion Release 07-02 the representations made to the DOJ were as follows:

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

As with Opinion Release 07-01, the DOJ ended this Opinion Release by stating, “Based upon all of the facts and circumstances, as represented by the Requestor, the Department does not presently intend to take any enforcement action with respect to the planned educational program and proposed payments described in this request. This is because, based on the Requestor’s representations, consistent with the FCPA’s promotional expenses affirmative defense, the expenses contemplated are reasonable under the circumstances and directly relate to “the promotion, demonstration, or explanation of [the Requestor’s] products or services.” 15 U.S.C. § 78dd-2(c)(2)(A).

C. Travel and Lodging for Governmental Officials

What can one glean from these two Opinion Releases? Based upon them, it would seem that a US Company should be able to bring foreign officials into the United States for legitimate business purposes. A key component is that the guidelines are clearly articulated in a Compliance Policy. Based upon Releases Opinions 07-01 and 07-02, the following should be incorporated into a Compliance Policy regarding travel and lodging:

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

Incorporation of these concepts into a Compliance Policy is a good first step towards preventing any FCPA violations from arising, but it must be emphasized that they are only a first step. These guidelines must be coupled with active training of all personnel, not only on the Compliance Policy, but also on the corporate and individual consequences that may arise if the FCPA is violated regarding gifts and entertainment. Lastly, it is imperative that all such gifts and entertainment are properly recorded, as required by the books and records component of the FCPA. One of the FCPA violations alleged against UTStarcom was that it falsely recorded these trips as ‘training’ expenses, while the true purpose for providing these trips was to obtain and retain lucrative telecommunications contracts. All business gifts, entertainment and expenses must be properly recorded.

So the visit with Mickey and Donald will just have to wait until the foreign governmental official comes back with his family on his own nickel and not that of your Company.

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

  

© Thomas R. Fox, 2010

June 4, 2010

What are the Elements of an Effective FCPA Compliance Program? Berland on the OECD Good Practice Guidance on Internal Controls, Ethics, and Compliance

Filed under: compliance programs,OECD — tfoxlaw @ 4:15 pm
Tags: , ,

In our last blog posting we discussed the speech by Assistant Attorney General, for the Criminal Division of the US Department of Justice (DOJ), Lanny Breuer at the Compliance Week 2010 Annual Conference where he outlined what he believed are elements of an effective FCPA compliance program. One of the sources Breuer cited as a benchmark is the Organization for Economic Co-operation and Development OECD Good Practice Guidance on Internal Controls, Ethics, and Compliance. We were therefore pleased when we received a copy of this quarter’s Society of Corporate Compliance and Ethics Magazine (SCCE) (Vol. 7 / No. 3) and found an article by our colleague Russ Berland on this source material referenced by Breuer in his talk.

Berland began with a background discussion of the genesis of the Working Group on Bribery in International Transactions Organization for the OECD and its development of the specific elements of a compliance program. In his article Berland, lists 12 specific instructions for companies to utilize as a basis to construct an effective compliance program upon. They are:

  1. A culture of compliance with the appropriate “tone at the top”.
  2. Clearly articulated and visible policy against bribery and corruption.
  3. It must be the duty of every employee to company with a company’s anti-bribery program.
  4. One or more senior officers in charge of the compliance program who must report directly to the Board or appropriate Board Committee.
  5. Design the compliance program to prevent and detect bribery and corruption.
  6. Make the program applicable to third party business partners.
  7. Have a system of internal financial controls in place to ensure that bribery and corruption cannot be hidden.
  8. Have periodic communications and training on the compliance program.
  9. Provide positive support for employees to comply with the compliance program.
  10. Consistently discipline employees for violations of the compliance program.
  11. Provide guidance and advice for employees on the compliance program.
  12. The compliance program should be periodically re-assessed and re-evaluated to take into account new developments.

 

Near the end of his article, Berland asks the question, will DOJ prosecutors find a company’s FCPA compliance program “effectively designed when it was based on the OECD guidance?” Much like Socrates (in that he knows the answer to his question), Berland responds “The answer should be yes.” We heartily agree and thank Russ for his much needed article providing specific guidance on what the OECD finds to be the elements of an effective compliance program.

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

 

© Thomas R. Fox, 2010

June 2, 2010

An Effective FCPA Compliance Program-thoughts of Lanny Breuer

Filed under: compliance programs,Sentencing Commission — tfoxlaw @ 4:05 pm

At the recent Compliance Week 2010 Annual Conference one of the issues discussed by Assistant Attorney General, for the Criminal Division of the US Department of Justice, Lanny Breuer, was what the Department of Justice (DOJ) might consider as an “effective compliance and ethics program” under the Foreign Corrupt Practices Act (FCPA), if a FCPA violation occurs and a company’s compliance program comes under scrutiny from the Criminal Division of the DOJ. We believe that Breuer gave the conference attendees quite a bit of information that can be utilized by companies in crafting and evaluating their compliance policies.

Breuer noted that the most effective type of compliance program is one that “prevents fraud and corruption in the first place but when such compliance program has not done so, there are defined policies in place to “quickly detect, fix and report the [FCPA] violations.” Additionally, an effective compliance program should not be static but dynamic to meet changing business circumstances, such as when a company might move to doing business in a high risk country. Effective compliance programs should also be ever-evolving through continued assessments, as the compliance world grows and matures. Breuer cited two source material references as benchmarks; he listed (1) the Principles of Federal Prosecution of Business Organization and its full section on corporate compliance programs and (2) the OECD Good Practice Guidance on Internal Controls, Ethics, and Compliance.

Breuer then delineated several elements that the Criminal Division would evaluate in assessing a company’s compliance program, should a FCPA violation occur.

• Does your company have an effective compliance “Tone at the Top”; so that the Board and CEO are demonstrated to be fully committed to an effective compliance program?
• A company’s compliance program should not only punish compliance violations, through termination, other disciplinary actions or reduction in or denial of bonus but should also reward good ethical behavior in a corporation by promotion of ethical employees or other rewards such as a significant component of an overall bonus program. Regarding employee discipline, Breuer emphasized the DOJ would review all circumstances surrounding a company’s decision regarding discipline but that any “superficial steps” would not impress the DOJ.
• A company should have a strong whistle-blower program through a hotline or other appropriate mechanism and protection for any employee who reports such conduct through anonymous reporting and a clear no-retaliation policy.
• The compliance function led by a person with senior level management authority, the overall compliance function should have clear reporting lines to such senior level employee and such person should have a direct reporting by a company’s compliance officer to the company’s Board of Directors.
• There should be periodic reviews of a company’s compliance program, utilizing internal resources such as a company’s Internal Audit function and outside professional consultants.
• A company’s effective compliance program should be extended directly into foreign business partners, such as agents, distributors, reseller and joint venture partners.

Breuer ended this portion of his talk by re-emphasizing that the DOJ was not only interested in your company’s compliance program but also other companies with whom you might be doing business with and the effectiveness (or lack thereof) of their compliance program. This would not only extend to foreign business partners but also those companies in your Supply Chain and conceivably down to your customer base.

So do you have an “effective compliance program” as outlined by Lanny Breuer?

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

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

© Thomas R. Fox, 2010

Blog at WordPress.com.