Due Diligence, Due Diligence and More Due Diligence

In an article published in the August 30, 2011 Wall Street Journal, entitled “Iran’s Hong Kong Shipping Shell Game”, Claudia Rosett reported on efforts by Iran to reflag ships to companies with Hong Kong registries. While the focus of the article seemed to point to the Office of Foreign Assets Control (OFAC) sanctions against US companies doing business with Iran, and other trade sanctions issues, there was one paragraph that spoke to issue of due diligence under the Foreign Corrupt Practices Act (FCPA). The FCPA issue raised is that of continued due diligence of an agent after a contract is signed and the relationship established.

Author Rosett reported on the efforts of the Port of San Antonio (Texas) to increase its shipping and air freight between Asia and the trade corridor connecting San Antonio with the Mexican port of Lazaro Cardenas. Apparently the Port of San Antonio has been working with an agent, referred to in the article as Mr. Mak, of a Hong Kong company named H&T International Transport Limited (H&T). It turns out that Mr. Mak and H&T are also agents for Iranian shipping companies.

As interesting as that might seem, that was not the part which caught my eye, it was the following:

“In a recent phone interview, Port San Antonio’s vice president for business development, Jorge Canavati, said the Port San Antonio authorities have continued to work with H&T’s Mr. Mak: “We’re developing projects together.” He said Mr. Mak had not informed him that H&T in Hong Kong has been serving as an agent for 19 ships on Treasury’s Iran sanctions blacklist.”

If there is anyone out there subject to the FCPA who thinks they will be absolved of FCPA liability if their agent does not inform them that they also represent ships owned by Iran’s state shipping company? If so, please do not raise your hand.

I thought that this might be a good lesson learned for the following proposition. Even if you have done all the background due diligence that is appropriate for a foreign agent, it is the responsibility of the US company to perform additional due diligence, at a minimum, every three years. The better practice would be every two years because your agency agreement should only be for two years. Rosett reported in her article that Mr. Mak and H&T had been working with the Port of San Antonio since at least 2008.

I also thought it might be pertinent to assess the steps that a company should take in performing this due diligence. The review process should contain, at a minimum, inquiries into the following areas:

• Need for the relationship with an Agent: The Company Business Team or Business Person should articulate the business case for the proposed Agent relationship. This must be approved by management before it goes to legal or compliance for review.

• Credentials: List the critical reasons for selection of the proposed Agent. This should include a discussion of the business partner’s background and experience.

• Ownership Structure: Describe whether the proposed Agent is a government or state-owned entity, and the nature of its relationship(s) with local, regional and governmental bodies. Are there any members of the business partner related, by blood, to governmental officials?

• Financial Qualifications: Describe the financial stability of, and all capital to be provided by, the proposed Agent. Obtain financial records, audited for 3 to 5 years, if available.

• Personnel: Determine whether the Agent will be providing personnel, particularly whether any of the employees are government officials. Obtain the names and titles of those who will provide services to the US Company.

• Physical Facilities: Describe what physical facilities will be provided by the Agent. Who will provide the necessary capital for their upkeep?

• Reputation: Describe the business reputation of the proposed Agent in its geographic and industry-sector markets.

These inquiries are required under the US Federal Sentencing Guidelines and the guidance offered by the Department of Justice (DOJ) Opinion Releases and the publicly released Plea Agreements and Deferred Prosecution Agreements (DPA) entered into by US companies who admit to violating the FCPA. This due diligence should be recorded and maintained by the US Company for review, if required, by a governmental agency. Some of the due diligence can be handled by the US Company’s in-house legal and/or compliance groups. However, it is recommended that for any high risk Agent, an outside forensic auditing firm and outside legal counsel be retained to conduct the due diligence investigations. This brings a level of expertise usually not available within a corporation plus an outside perspective less susceptible to in-company business pressures.
After this initial inquiry is concluded the US Company should move forward to perform a background check on a prospective Agent by using the following resources:

• References: Obtain and contact a list of business references.

• Embassy Check: Obtain information regarding the intended business partner from the local US Embassy or a Commerce Department report such as an International Company Profile Report.

• Compliance Verification: Determine if the Agent, and those persons within the Agent who will be providing services to the US Company, have reviewed or received FCPA training.

• Foreign Country Check: Have an independent third party, such as a law firm, investigate the business partner in its home country to determine compliance with its home country’s laws, licensing requirements and regulations.

• Cooperation and Attitude: One of the most important inquiries is not legal but based upon the response and cooperation of the Agent. Did the business partner object to any portion of the due diligence process? Did it object to the scope, coverage or purpose of the FCPA? In short, is the business partner a person or entity that the US Company is willing to stand up with under the FCPA?

After a company completes these due diligence steps, there should be a thorough review by the Board, or other dedicated Management Committee, on the qualifications of the proposed foreign business relationship partner. It is critical that the reviewing Committee is not subordinate to the US company’s business unit which is responsible for the business transactions with the Agent. This review should examine the adequacy of due diligence performed in connection with the selection of overseas partners, as well as the Agent’s selection of subcontractors and consultants which will be used for business development on behalf of the US Company.

The steps listed herein do not include the use of, or continued management of, an Agent. These steps need to be taken by all US Companies entering into, or already engaged in, a relationship with an Agent as the FCPA applies to all US Companies, whether public or private. Remember, due diligence, due diligence and once that has been completed; more due diligence.

And never, ever, ever rely on the fact that the agent did not tell you and your company that they also represent Iranian shipping lines.

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, 2011

Questions, Questions, and More Questions

As I wrote last week I certainly do not need to invent compliance stories to blog about and even if I did no one would believe me. I was reminded of this once again last week when I read an article by Sam Rubenfeld, in the August 24, 2010 edition of the Wall Street Journal Corruptions Currents, entitled “Gulfsands In Business With Cousin Of Syrian President”. Rubenfeld reported that the London based company, with offices here in Houston, was working with a company controlled by Mr. Rami Makhlouf, reported to be the first cousin of the President of Syria.

Rubenfeld also referred to a Gulfsands Press Release dated on August 24, 2011; from the information presented in the Press Release, it would appear that Gulfsands has sustained quite a long relationship with Mr. Makhlouf. The release reported the following:

1.         Administrative Services Contract. The original agreement with Mr. Makhlouf, a company owned by the Makhlouf Interests was signed in 2000. Mr. Makhlouf was engaged by a Joint Venture (JV), which consisted of Ocean Energy (80% Owner) and Gulfsands (20% Owner). The original contract stated that Mr. Makhlouf would provide “various support and administrative services” to the JV. There is no total amount of monies paid under this agreement reported in the  Press Release but it reports that total fees paid “aggregate less than $250,000 per annum”. Further, the services agreement entered into with Mr. Makhlouf at that time was done under the oversight of Ocean Energy’s general counsel.

2.         The majority owner of the JV, Ocean Energy was acquired by another company, Devon. This acquisition occurred in 2003. Devon withdrew from the JV in 2005. So the 2000-2005 issues may fall on Devon as part of its acquisition of Ocean Energy.

3.         Milestone Payments: In addition to the payments under the Administrative Services Contract of something of an “aggregate of less than $250,000 per annum” over the past 11 years, Mr. Makhlouf has also received “milestone payments totaling $900,000 from the JVs. The Press Release uses the plural “joint ventures” but does not identify to which JVs these milestone payments were made and does not reference the contract under which these milestone payments were made.

4.         In addition to the above, the Press Release noted that “a company owned beneficially by Makhlouf Interests, owns 5.75% of the Company’s issued share capital. These shares were acquired in August 2007, at a premium to the then prevailing market price.”

5. Lastly, “The Group rents office premises in Damascus from a company owned beneficially by Makhlouf Interests. The lease is on terms negotiated at arms-length and considered normal for a commercial lease of this kind in Syria.”

So, whatever the relationship between Gulfsands and Mr. Makhlouf, they have been long standing and on-going. At least until August 24, 2011, when, as reported by Rubenfeld, Gulfsands said in the statement that it suspended all payments to interests of Makhlouf following sanctions imposed in May, and it “suspended the voting, dividend and transfer rights pertaining to the shares in Gulfsands held by Al Mashreq.”

So what does a compliance officer, or as Jim McGrath would say, ‘specialized outside counsel’ need to review here? Should counsel start with Gulfsands or maybe even Devon? Would it be the Administrative Services Contract or the Milestone Payment Contract? Should you analyze the payments made to Mr. Makhlouf to see if there is sufficient back up documentation to support these payments? What about the milestone payments? Do you review the office lease at all? Does the fact that the Administrative Services Contract was “under the oversight of Ocean Energy’s general counsel” at the time it was executed between the parties in any way protect Gulfsands? And last, but by no means least, should you contact and maybe self-disclose any of this to the Department of Justice? Questions, Questions and More Questions…

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, 2011

How to Engage Employees in Compliance

In the September 2011 issue of the Harvard Business Review, in an article entitled “How to Cultivate Engaged Employees”, author Charalambos A. Vlachoutsicos wrote about his experiences in working for a family-owned multi-national organization. From his experiences he learned how to “engage contributions from and thereby promote engagement by, local employees” in a multi-national organization.” His article detailed some of his lessons learned in “fostering a sense of mutual dependence” or what he termed “mutuality”. I believe that the principles that he set out in his article can be of guidance to a compliance practitioner who is working across a wide spectrum of countries and cultures to foster a better working relationship between the Compliance Department and business units in an organization.

1.      Be Modest

Here Vlachoutsicos believes providing “condescending, absurdly detailed instructions” together with irrelevant stories is not the way to move forward in a meeting. If you recount your own experiences, relate them to your audience. Make clear to your business team that your ideas and advice can help them do more, and better, business. More importantly, show that you are human, that you make mistakes but that the point is you learn from your mistakes, not that the business unit personnel will be sanctioned immediately for one foul-up.

2.      Listen Seriously and Show It

Most companies teach managers the value of listening. However, communication is a multifaceted exercise and you must be aware of your cultural setting and surroundings. In some cultures it is viewed as rude to take extensive notes while listening to another person. If you must do this, explain in advance that you are taking notes and explain that no disrespect is intended. Conversely in some cultures it is viewed as an insult if you do not take notes because the employee you are listening to will feel that what they are saying is not even worth writing down.  Managing these signals is critical. But whatever culture you are in do not keep looking at your watch or take a cell phone call when involved in such a conversation.

3.      Invite Disagreement

You should view every interaction as an opportunity to tap into the expertise of your workforce. This requires you to let employees say what they think. One of the first (and most insistent) questions you will face as a compliance practitioner is explaining how and why the Foreign Corrupt Practices Act (FCPA) applies to a country and culture far from the United States. Another related question is often along the lines of the endemic corruption in a country and how the business unit personnel cannot do business any other way. Let your co-workers express these thought and sentiments and then explain why the law(s) applies and how they can do business going forward. The business unit will usually have a solution to these problems and if you can get them to engage with you, it may well be a solution for you and the company.

4.      Focus the Agenda

You will still need to focus the agenda of any group meeting. Failure to do so can lead to lengthy discussions and critical agenda items are never reached in the time allotted for a meeting. Vlachoutsicos suggests sequencing your issues according to importance so that the key issues are reached. If issues of lesser importance are not reached, they can be held over for another meeting or handled offline.

5.      Don’t Try to Have All the Answers

I learned from a very wise law school professor that only Socrates has all the answers and those were only to the questions which he posed to his students. A compliance professional should seem him or herself as a catalyst for problem solving. As a lawyer I understand that you are required to know law and compliance requirements. But remember-it is OK not to know everything. That is the whole point of collaboration.

6.      Don’t Insist that a Decision Must be Made

If you make a decision all the time the chances are that, some of that time, you may well make the wrong decision. But beyond this factor, people may stop proposing ideas to you because either think that “you already have your mind made up in advance” or that you know some fact that they do not which was pertinent to the decision. This could well quell any information which might come to you through dissent. The key here is not to avoid making a decision; it is to follow a process which allows input before final decision is made.

Vlachoutsicos’ six factors can be used by any company to help them work through collaboration issues. They show how you can create ‘mutuality’ with the work force. As a compliance practitioner your strongest asset is how you are perceived by the business folks. I think that if you take these factors to heart it will greatly help you to sell and improve the compliance message in 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, 2011

Using HR to Change your Company’s Compliance DNA

In his Editor’s View column, in the August issue of Compliance Week, entitled, “Compliance, Collaboration and HR”, Matt Kelly wrote about the interaction of Compliance Departments and Human Resources (HR). He noted that while Compliance Departments may look to HR to support internal investigations, HR can also be used to assist in “molding company culture.” However, it is rarely used for this function. I heartily agree with Matt’s sentiments. In addition to supporting internal investigations, I believe that HR can be used in some of the following ways to assist the Compliance Department. It can be a key component in changing or maintaining your company’s compliance DNA.

Training

 A key role for HR in any company is training. This has traditionally been in areas such as discrimination, harassment and safety, to name just a few, and, based on this traditional role of HR in training, this commentator would submit that it is a natural extension for HR’s function to expand to the area of Foreign Corrupt Practices Act (FCPA) compliance and ethics training. There is a training requirement set forth in the US Sentencing Guidelines and companies are mandated to “take reasonable steps to communicate periodically and in a practical manner its standards and procedures, and other aspects of the compliance and ethics program, to the individuals referred to in subdivision (B) by conducting effective training programs and otherwise disseminating information appropriate to such individuals’ respective roles and responsibilities.”

What type of training should HR utilize in the FCPA compliance and ethics arena? The consensus seems to be that there are three general approaches which have been used successfully. The first is the most traditional and that is in-person classroom training. This gives employees an opportunity to see, meet and interact directly with the trainer, not an insignificant dynamic in the corporate environment. It can also lead to confidential discussions after such in-person training. All FCPA compliance and ethics training should be coordinated and both the attendance and result recorded. Results can be tabulated through short questionnaires immediately following the training and bench-marked through more comprehensive interviewing of selected training participants to determine overall effectiveness.

Employee Evaluation and Succession Planning

What policy does a company take to punish those employees who may engage in unethical and non-compliant behavior in order to meet company revenue targets? Conversely what rewards are handed out to those employees who integrate such ethical and compliant behavior into their individual work practices going forward? One of the very important functions of HR is assisting management in setting the criteria for employee bonuses and in the evaluation of employees for those bonuses. This is an equally important role in conveying the company message of adherence to a FCPA compliance and ethics policy. This requirement is codified in the US Sentencing Guidelines with the following language: “The organization’s compliance and ethics program shall be promoted and enforced consistently throughout the organization through (A) appropriate incentives to perform in accordance with the compliance and ethics program; and (B) appropriate disciplinary measures for engaging in criminal conduct and for failing to take reasonable steps to prevent or detect criminal conduct.”

Does a company have, as a component of its bonus compensation plan, a part dedicated to FCPA compliance and ethics? If so, how is this component measured and then administered? There is very little in the corporate world that an employee notices more than what goes into the calculation of their bonuses. HR can, and should, facilitate this process by setting expectations early in the year and then following through when bonuses are released. With the assistance of HR, such a bonus can send a powerful message to employees regarding the seriousness with which compliance is taken at the company. There is nothing like putting your money where your mouth is for people to stand up and take notice.

In addition to employee evaluation, HR can play a key role in assisting a company to identify early on in an employee’s career the propensity for compliance and ethics by focusing on leadership behaviors in addition to simply business excellence. If a company has an employee who meets, or exceeds, all his sales targets, but does so in a manner which is opposite to the company’s stated FCPA compliance and ethics values, other employees will watch and see how that employee is treated. Is that employee rewarded with a large bonus? Is that employee promoted or are the employee’s violations of the company’s compliance and ethics policies swept under the carpet? If the employee is rewarded, both monetarily and through promotions, or in any way not sanctioned for unethical or non-compliant behavior, it will be noticed and other employees will act accordingly. One of the functions of HR is to help ensure consistent application of company values throughout the organization, including those identified as ‘rising stars’. An important role of HR in any organization is to help in building trust throughout the company and recognizing the benefits which result from that trust.

Background Screening

 A key role for HR in any company is the background screening of not only employees at the time of hire, but also of employees who may be promoted to senior leadership positions. HR is usually on the front lines of such activities, although it may in conjunction with the Legal or Compliance Departments. This requirement is discussed in the US Federal Sentencing Guidelines for Organizations (FSGO) as follows “The organization shall use reasonable efforts not to include within the substantial authority personnel of the organization any individual whom the organization knew, or should have known through the exercise of due diligence, has engaged in illegal activities or other conduct inconsistent with an effective compliance and ethics program.”

What type of background checks should HR utilize in the FCPA compliance and ethics arena? The consensus seems to be that HR should perform at least routine civil, criminal and credit background checks. Care should be noted in any such request made in countries outside theUnited Statesas such information may be protected by privacy laws or where the quality of such information is different in substance from that of theUnited States. For instance in the United Kingdom, the request of a credit check can negatively impact a prospective employee’s credit score so such a background check may not provide useful information to a prospective employer.

Additionally, although it may be difficult in theUnited Statesto do so, a thorough check of references should be made. I say that it may be difficult because many companies will only confirm that the employee worked at the company and only give out the additional information of dates of employment. In this situation, it may be that a prospective employer should utilize a current employee to contact former associates at other companies to get a sense of the prospective employee’s business ethics. However, it should be noted that such contacts should only be made after a thorough briefing by HR of the current employee who might be asked to perform such duty.

A company can also use HR to perform internal background checks on employees who may be targeted for promotions. These types of internal background checks can include a detailed review of employee performance; disciplinary actions, if any; internal and external achievements, while employed by the company and confirmation of both ethics and compliance training and that the employee has completed the required annual compliance certification. A key internal function where HR can be an important lead is to emphasize that an employee, who has been investigated but cleared of any alleged ethics and compliance violations, should not be penalized.

When the Government Comes Calling

While it is true that a company’s Legal and/or Compliance Department will lead the  response to a government investigation, HR can fulfill an important support role due to the fact that HR should maintain, as part of its routine function, a hard copy of many of the records which may need to be produced in such an investigation. This would include all pre-employment screening documents, including background investigations, all post-employment documents, including any additional screening documents, compliance training and testing thereon and annual compliance certifications. HR can be critical in identifying and tracking down former employees. HR will work with Legal and/or Compliance to establish protocols for the conduct of investigations and who should be involved.

Lastly, another role for HR can be in the establishment and management of (1) an Amnesty Program or (2) a Leniency Program for both current, and former, employees. Such programs were implemented by Siemens during its internal bribery and corruption investigation. The Amnesty Program allowed appropriate current or former employees, who fully cooperated and provided truthful information, to be relieved from the prospect of civil damage claims or termination. The Leniency Program allowed Siemens employees who had provided untrue information in the investigation to correct this information for certain specific discipline. Whichever of these programs, or any variations, that are implemented HR can perform a valuable support role to Legal and/or Compliance.

Doing More with Less

 While many practitioners do not immediately consider HR as a key component of a FCPA compliance solution, it can be one of the lynch-pins in spreading a company’s commitment to compliance throughout the employee base. HR can also be used to ‘connect the dots’ in many divergent elements in a company’s FCPA compliance and ethics program. The roles listed for HR in this series are functions that HR currently performs for almost anyUS company with international operations. By asking HR to expand their traditional function to include the FCPA compliance and ethics function, aUS company can move towards a goal of a more complete compliance program, while not significantly increasing costs. Additionally, by asking HR to include these functions, it will drive home the message of compliance to all levels within a company; from senior to middle management and to those on the shop floor. Just as safety is usually message Number 1, compliance can be message Number 1A. HR focuses on behaviors, and by asking this department to include a compliance and ethics message, such behavior will become a part of a company’s DNA.

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I have previously written about Catelas software, see here. It does some very cool stuff. The Catelas guys are putting on a series of events to highlight their software and its uses in a FCPA compliance program. On Tuesday, August 23 and August 30, at 1 PM EDT, they are hosting a webinar entitled, “FCPA Investigations – Generate a Risk Assessment report, identify all key people & content before you fly!” Information and Registration can be found 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, 2011

Using the Octagon: Lozier’s Eight Steps to Further Your Compliance Program

In an article published in the July 29, 2011 issue of the Houston Business Journal entitled “Eight Steps to a More Effective Anticorruption Compliance Function” Chris Lozier, Principal at UHY Advisors in Houston and Manager of the FCPA – Foreign Corrupt Practices Act – Anti-Corruption Compliance Group on LinkedIn, wrote about the gaps that companies are finding in their compliance programs. To help remedy these gaps Lozier discussed eight key steps he believes that companies can take immediately to establish a more effective anti-corruption compliance program. They are as follows:

1. Identify the requirements of anti-corruption laws in all the countries in which your company does business. This is critical in understanding the key differences in requirements that your company may be facing. A clear example is the differences in the FCPA and the UK Bribery Act, which does not have an exempt for facilitation payments and extends liability to private, commercial bribery.

2. Publish a statement from senior management. This demonstrates a strong company commitment to a robust compliance program. This statement must leave no doubt that pursuing “business as usual” will not be tolerated and that employees or business representatives will no longer be associated with the company. This statement should be reinforced with strong training for relevant company employees and any third parties which represent the company.

3. Using the information that you developed in Point 1, update your company compliance program to a more comprehensive global anti-corruption policies that extend past the FCPA. If your company is subject to the UK Bribery Act, not only should you revisit the issue of facilitation payment as discussed in Number 4 below, but remember that here the US is the foreign jurisdiction and all conditions that your company places on business outside the US should be included inside the US as well.

4. If your company is outside of the United Kingdom, you should revisit the issue of facilitation payments. While the FCPA does allow facilitation payments, the UK Bribery Act does not. Additionally, several respected international organizations such as the Organization for Economic Development (OECD) have advocated for the end of such payments. The end of facilitation payments is most likely coming so your company should be ready for this change,

5. Perform an updated, detailed and defendable anti-corruption risk assessment. This risk assessment should include such factors as geographic risk, level of interaction your company has with government officials, industry risk, extent of third party representation and review the results of any previous audits or assessments to determine their effectiveness.

6. Identify, categorize and list parties that represent the company and those vendors in the Supply Chain which provide services involving a foreign governmental official and implement a risk based due diligence program. Your due diligence will be influenced by this categorization.

7. Provide or update an effective means for anonymous reporting, such as a hotline. With the implementation of the Dodd-Frank whistleblower provisions, a company must have a robust internal reporting system. It is therefore in the best interest of your company to have an effective hotline and response system in place.

8. Perform reviews to assess the effectiveness of your internal compliance program. This should include testing of your internal controls and the examination of transactions. You should have, at a minimum a full FCPA compliance audit every two years, but your company should also perform an annual assessment on selected portions of your compliance program as well.

While Lozier’s 8 steps are not comprehensive they certainly are a good start and excellent reference point from which you can assess your company’s program, determine where any gaps might be and move to remedy those deficiencies.

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, 2011

Reading a Crystal Ball? Guidance on Instrumentality under the FCPA-Part II

In Part I of Reading a Crystal Ball? Guidance on Instrumentality under the FCPA, we listed the factors which the three federal district courts have set forth for the determination of whether an entity is an instrumentality under the Foreign Corrupt Practices Act (FCPA). In Part II, we will review these factors to see if there is any pattern which we can suggest to the compliance practitioner or indeed the US Chamber of Commerce, which desires to bring some ‘clarity’ to this question, all of which might help an understanding of when the FCPA applies to a transaction or business partner. The chart below consolidates the factors raised by the courts and are set out for reference:

Factor	Lindsey	Carson	Esquenazi
1	Entity provides services to citizens, in many cases all in country	Foreign states characterization of the entity and its employees	Does the entity provides services to citizens and inhabitants of country
2	Are key officers/directors government employees or appointed by government employees	Foreign State’s control over the entity	Are key officers/directors government employees or appointed by government  employees
3	Is entity financed by or in large measure by government appropriations or through government mandates	Purpose of the entity’s activities	Extent of government ownership or does government provide financial support
4	Is entity vested with or does it exercise exclusive/controlling power to administer its designated functions	The Entity’s obligations and privileges under country’s laws, including whether it exercises exclusive/controlling power to administer its designated functions	Extent of obligations and privileges under its country’s laws, including whether it exercises exclusive/controlling power to administer its designated functions
5	Is entity widely perceived and understood to be providing official functions	Circumstances around the entities creation	Is entity widely perceived and understood to be providing official functions
6		The foreign state’s extent of ownership of the entity, including the level offinancial support by the state

I.                   Overlap?

There is clear overlap in the Lindsey and Esquenazi factors.

Identical – does the government appoint the officers/directors and is the entity understood to be owned by or an agency of the government in the home country? In Lindsey and Esquenazi, the courts agree on factors (2) Are key officers/directors government employees or appointed by government employees; and (5) Is the entity widely perceived and understood to be providing official functions?

Similar – are the services provided by the entity available to all citizens of the home country? In Lindsey and Esquenazi, the similar factors are (1) Does the entity provide services to the inhabitants of the country?

Related – does the government finance the entity in question and does it own the entity? Does it exercise exclusive/controlling power to administer its designated functions and the extent of obligations and privileges under its country’s laws? In Lindsey and Esquenazi, two courts had nearly similar factors, but the Esquenazi court added an additional component. In factor (3) The Lindsey court inquired ‘is the entity financed by or in large measure by government appropriations or through government mandates’ and the Esquenazi court added to this inquiry ‘the extent of government ownership.’ In factor (4) the Lindsey court inquired, ‘Is entity vested with or does it exercise exclusive/controlling power to administer its designated functions’ and the Esquenazi court added the factor of ‘Extent of obligations and privileges under its country’s laws’.

II.      Compare and Contrast

At first blush it may appear that the Carson court takes a slightly different approach. If one examines the Carson factors in detail they are not significantly different from Lindsey and Esquenazi. One clear factor that Carson has in common with Lindsey and Esquenazi is the factor of the entity’s obligations and privileges under its country’s laws, including whether it exercises exclusive/controlling power to administer its designated functions. Carson combines two of the Esquenazi factor of the extent of government ownership and financial support by said government. While Lindsey does not speak to financial ownership it does have the factor of government financing and government appointment of officers and directors. Carson speaks to the entity’s purpose while Lindsey and Esquenazi list the factor of providing services to the country’s citizens. Indeed the only factor included in Carson and not found in Lindsey and Esquenazi is the following: the circumstances around the entity’s creation. It is incumbent to note that both the Lindsey and Carson court opinions and the Esquenazi jury instructions all have language that indicates these factors are not exclusive, and no single factor will determine whether an entity is an instrumentality of a foreign government.

III.             Reading the Crystal Ball

With all this information in mind what inferences can be drawn by a compliance officer, or indeed the US Chamber of Commerce, for guidance on whether a business is an instrumentality under the FCPA? Reviewing the foregoing, the factors can be distilled down to a manageable list, which I believe is as follows:

1. Ownership/Financial Control – There is no percentage amount listed but the inclusion of financial control would clearly indicate that anything over 50% would be a significant factor.
2. Actual control is key in all three court decisions. In Lindsey and Esquenazi, it is characterized as the government’s right to appoint key officers and directors. In Carson, it is called government control. But this means that if actual control is exercised by the government in question, it may trump the 50% guidance stated above.
3. Privileges and Obligations are also mentioned in all three. Does the entity have the right to control its own functions?
4. Financing – Is the entity a for-profit entity, financed through its own revenues or does it depend on financing by its government?
5. Perception is Reality – André Agassi’s immortal words appear again. If it is widely perceived to be providing an official function, then it is an instrumentality under the FCPA.

That leaves Carson factor 5, the circumstances around the entity’s creation. While I believe this could well be the last factor in your analysis, it can be one which is ascertained. Most government entities will disclose how they were formed; this information can be found on their website or within their company history. If you cannot determine how a business was formed perhaps you need to think hard about doing business with them.

So that is my reading of the Crystal Ball. You may have a different reading but for my money the information is out there to be read and indeed it may not be all that difficult.

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This Week in FCPA is back. Howard Sklar and I continue our conversation on all things FCPA and global anti-corruption. The audio is up. 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, 2011

Stranger than Fiction: Questions in the FCPA World

I had intended to post Part II of my series the recent court rulings on instrumentalities. However, sometimes events overtake you. In the world of the Foreign Corrupt Practices Act (FCPA), some of the fact scenarios are so preposterous that if they were in a book, labeled as fiction, they would probably be placed on the Science Fiction shelf. I was reminded of the maxim that sometimes life is stranger than fiction when we saw the article “Lawyer for Mexico arm of US drugmaker Baxter recorded allegedly offering payment in lawsuit” by reporter Ricardo Alonso-Zaldivar, in the Chicago Tribune’s August 17, 2011 edition. While I cannot say that the players came out of central casting, the facts certainly seem to have been dreamed up by a screen writer.

Alonso reported that a Chicago based US company, Baxter, is in litigation in Mexico with a local company Translog. Baxter alleges that Translog breached a contract for delivering certain time sensitive medical supplies. Translog alleges that Baxter breached the contract between the parties. Alonso reports that a trial lawyer for Baxter, Jorge Hernandez Martin, is alleged to have offered an expert, retained by Translog, Rafael Aspuru Alvarez money to “leave the country on a key court date to undermine the case”. At another point Alonso reports that Hernandez told Aspuru, “If you tell me, ‘You know I was going to charge 100,000 pesos (about $8,100),’ I’ll you double.”

All of the above was allegedly recorded by Aspuru during a meeting he held with Hernandez in February of this year. A Translog representative provided a copy of the recording to the Associated Press (AP). Hernandez is also reported to have said to Aspuru, “I told the company” presumably about the offer. Providing comment for article, a Baxter spokesman said to AP that “[Hernandez] now has absolutely no role in this matter or representing Baxter in any capacity.”

Inspired, as always by the FCPA Professor to question, question and question; we ask the following:

1.         Does the FCPA apply to judicial proceedings overseas?

2.         Is a private individual, who is an expert to assist a foreign court, a “foreign official” under the Act?

3.         Is such a private official an “instrumentality thereof” of a foreign government?

We could not find any FCPA enforcement actions relating to US lawyers involved in overseas litigation so there does not appear to be any case law, enforcement actions or Opinion Releases discussing this issue, we believe that US courts would find that the FCPA does apply to foreign judicial proceedings because you cannot get more ‘foreign government’ than a foreign country’s court system. We also believe that the Department of Justice (DOJ) would take the position that it does and give severe sanctions against an individual who attempts to use bribery to influence a foreign judicial proceeding. The FCPA Blog, in a post entitled, “Disorder in the Court” puts it more succinctly by noting, “judges, court clerks and others in the judicial system are ‘foreign officials’ under the U.S. Foreign Corrupt Practices Act. Bribing them can violate U.S. law and certainly violates local law.”

However, the FCPA requires an action “in order to assist such domestic concern in obtaining or retaining business for, or with, or directing business to, any person”. Right now all we have to go on is Alonso’s article. He reports that Baxter had a contract with Translog to have certain critical medical supplies shipped. Baxter alleges that Translog, after “running into financial problems” refused to make the shipments and Baxter was forced to use other shippers. Translog counters that it had an exclusive contract with Baxter and Baxter’s use of other shipping companies violates this exclusive contract. Alonso reports that the dispute is valued at $25 million. That certainly sounds like obtaining or retaining business.

Having opined that the answers to the above queries would be answered in the affirmative, is a private citizen, who provides a judge in a judicial proceeding “impartial technical advice” a private official under the FCPA?  Is this the ‘other’ referred to by the FCPA Blog? This is a closer question. In the US, an expert is generally viewed as one who can bring technical advocacy to a jury but an expert’s role may be different under the Mexican legal system. This difference might make such an expert a part of the Mexican judicial system and therefore covered by the FCPA.

So once again, unlike Socrates, we do not know the answers but at least we can pose some interesting questions. Sometimes I wonder if the FCPA Professor has to make up questions for his Final Examinations or he just reads the newspapers and get his ideas from the strange world of international business. The Baxter matter indicates that he only need look in the newspaper.

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, 2011

Reading a Crystal Ball? Guidance on Instrumentality under the FCPA-Part I

One the criticisms of the Foreign Corrupt Practices Act (FCPA) is that it provides little guidance as to what constitutes an instrumentality under the Act and attendant question of who is a foreign governmental official. One of the five points raised by the US Chamber of Commerce in its lobbying efforts to amend the FCPA is on this issue. In the Chamber’s White Paper, authored by Andrew Wiessmann and Alixandra Smith, entitled “Restoring Balance-Proposed Amendments to the Foreign Corrupt Practices Act”, they wrote that this lack of statutory guidance has led US companies to have “no way of knowing whether the FCPA applies” to a transaction because there is allegedly no way to know if a foreign governmental official is involved.

The authors suggest that the definition of an instrumentality and foreign governmental official be more clearly defined to include such information as (1) “the percentage ownership by a foreign government that will qualify a corporation as an “instrumentality”; (2) whether ownership by a foreign official necessarily qualifies a company as an instrumentality and, if so, (3) whether the foreign official must be of a particular rank or the ownership must reach a certain percentage threshold; and (4) to what extent “control” by a foreign government or official will qualify a company as an “instrumentality.” At the House Judiciary Committee hearing in June, former Attorney General and current Debevoise & Plimpton partner Michael Mukasey followed this article up by urging a clarification of the definition of instrumentality.

As reported by the FCPA Professor, in a post entitled “House Hearing-Overview and Observations”, Mukasey stated that the federal district court rulings in the Lindsey Manufacturing and Carson cases did very little to clarify the limits of the “foreign official” issue other than to say that whether an employee of an alleged state-owned or state-controlled enterprise could constitute a “foreign official” varied depending on the circumstances. Mukasey stated that leaving this issue in the hands of a jury in a criminal trial makes it “impossible” for companies to determine in advance who is a “foreign official” thereby increasing uncertainty and barriers to US business. According to Mukasey, “majority ownership is the most plausible threshold” for whether a state-owned or state-controlled enterprise constitutes a foreign government “instrumentality.”

In addition to the definitions found in the Lindsey Manufacturing and Carson cases, there has been the district court’s jury instruction in the recent trial of Joel Esquenazi and Carlos Rodriguez. This case involved the lengthy saga of the Haitian Telecom matter. In July, both men were found guilty by a Miami jury. In this post we will set out factors the courts have set out to define an instrumentality under the FCPA in these three cases. In our next post we analyze these factors to see what they have in common and what guidance, if any, that they may provide.

a.      Lindsey Manufacturing

The court in Lindsey Manufacturing pointed to various characteristics of foreign government ‘instrumentalities’ that would provide coverage under the FCPA. The court listed five non-exclusive factors:

•           The entity provides a service to its citizens, in many cases to all the inhabitants of the country.

•           The key officers and directors of the entity are government officials or are appointed by government officials.

•           The entity is financed, at least in large measure, through governmental appropriations or through revenues obtained as a result of government-mandated taxes, licenses, fees or royalties, such as entrance fees to a national park.

•           The entity is vested with and exercises exclusive or controlling power to administer its designated functions.

•           The entity is widely perceived and understood to be performing official functions.

In Lindsey Manufacturing the foreign governmental entity at issue was the Mexican national electric company CFE. The trial court found that the entity had all of the characteristics listed in the five non-exclusive factors. It was created as a public entity; its governing Board consisted of high ranking government officials; CFE described itself as a government agency and it performed a function that the Mexican government itself said was a government function, the delivery of electricity.

b.      Carson

 In the Carson case, the court denied the “foreign official” challenge ruling that “the question of whether state-owned companies qualify as instrumentalities under the FCPA is a question of fact.” The court cited the following factual inquiries to determine whether a business entity constitutes a “government instrumentality” including:

(1)   The foreign state’s characterization of the entity and its employees;

(2)   The foreign state’s degree of control over the entity;

(3)   The purpose of the entity’s activities;

(4)   The entity’s obligations and privileges under the foreign state’s law, including whether the entity exercises exclusive or controlling power to administer its designated functions;

(5)   The circumstances surrounding the entity’s creation; and

(6)   The foreign state’s extent of ownership of the entity, including the level of financial support by the state (e.g., subsidies, special tax treatment, and loans).

The Court specifically noted that the factors were non-exclusive and no single factor is dispositive. Later, in its opinion, the court added additional guidance with the following, “Admittedly, a mere monetary investment in a business by the government may not be sufficient to transform the entity into a government instrumentality. But when a monetary investment is combined with additional factors that objectively indicate that the entity is being used as an instrumentality to carry out governmental objectives that business entity would qualify as a governmental instrumentality.” Lastly, as it is a factual inquiry, the question will go to the jury.

c.       Esquenazi and Rodriguez

In the Esquenazi and Rodriguez case, the defendants challenged the Department of Justice’s (DOJ) foreign official interpretation and the DOJ. However, the district court denied the Motion to Dismiss with a short order which did not set out any factors for analysis. Nevertheless, the court did provide contested jury instructions on the definition. As reported by the FCPA Professor, the jury instructions were as follows.

“An ‘instrumentality’ of a foreign government is a means or agency through which a function of the foreign government is accomplished. State-owned or state-controlled companies that provide services to the public may meet this definition. To decide whether [Haiti Telecom] is an instrumentality of the government of Haiti, you may consider factors including but not limited to:

(1) whether it provides services to the citizens and inhabitants of Haiti;

(2) whether its key officers and directors are government officials or are appointed by government officials;

(3) the extent of Haiti’s ownership of Teleco, including whether the Haitian government owns a majority of Teleco’s shares or provides financial support such as subsidies, special tax treatment, loans or revenue from government-mandated fees;

(4) Teleco’s obligations and privileges under Haitian law, including whether Teleco exercises exclusive or controlling power to administer its designated functions; and

(5) whether Teleco is widely perceived and understood to be performing official or government functions. These factors are not exclusive, and no single factor will determine whether [Teleco] is an instrumentality of a foreign government. In addition, you do not need to find that all the factors listed above weigh in favor of Teleco being an instrumentality in order to find that Teleco is an instrumentality.”

Tomorrow we will compare these factors and attempt to distill a formula which can bring the clarity that the Chamber of Commerce so desires.

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, 2011

Don’t Fold ‘Em: Making the Case for Ethical Leadership

In an article published in the June issue of ACC Docket, entitled “Playing the Cards You’re Dealt”, James Nortz raised the interesting issue of the lack of company leadership to “create an ethical vision, the moral courage to pursue that vision and the ability to effectively communicate the vision to others.” I think that most of us will recognize ‘Tone at the Top’ as a key component of any successful compliance program. It is certainly recognized by the Department of Justice (DOJ) in its best practices for a Foreign Corrupt Practices Act (FCPA) Compliance Program. Nortz propounds that a “root cause” for many compliance failures is that management is not fully committed to a strong ethical culture. He noted that according to the “Ethics Resource Center’s 2009 National Business Ethics Survey, only 18 percent of US corporations have a strong ethical culture.”

He posed the question of what can you do as a Law or Compliance Department member to facilitate the creation, implementation and sustainment of a strong ethical culture, where such initiative is not found in the company leadership, and play with the weak compliance hand you may have been initially dealt. He laid out four steps to think through this process.

1. Engage in the research and study necessary to develop a clear and realistic vision of what “good” or, better yet, “great” would look like for your firm. This vision can be developed by tapping into the vast body of literature on compliance and ethics. An additional resource is to reach out to other legal/compliance professionals who are usually very willing to share the experiences of their companies.
2. Plan your internal marketing efforts carefully. My colleague Howard Sklar often talks about the internal sales efforts that a compliance officer must make to obtain additional funding for compliance programs. Here your challenge may be greater as you are marketing a new concept or program. According to Nortz, “you must identify, and be able to articulate, concrete benefits your company will realize as a consequence of investing time and money in pursuing your vision.” This should translate into the following business concepts: enhancement of your company’s reputation, a lowering of conduct which may violate anti-corruption proscriptions, improvement of workforce engagement and productivity, lowering of overall enterprise risks, all of which will lead to a measurable return to the bottom line.
3. Develop a strong game plan. Nortz suggests using three questions based on Machiavelli’s “The Prince”. They are: (a) Have I done all I can to secure my position and the strength and stability of my organization? By this he means that “if you have no power or influence over others, you have no chance of affecting organizational change. (b) Have I thought creatively and imaginatively about my organization’s role in society and its relationship to its stakeholders? This requires that your vision for a compliance and ethics program must be attuned to your company’s overall mission. (c) Should I play the lion or the fox? Nortz believes that this necessitates fluidity in your approach, strong as lion at times and wily like my four-legged brethren when need be.
4. Think long term. This means you must consider something beyond, weeks, months or the next quarter. The transformation of a corporate culture takes time. This may be truer if this change comes from the legal/compliance department rather than the Chief Executive Officer (CEO). Even if you can obtain CEO buy-in and leadership, you may likely be the driving force, do not be discouraged as no one among us has attached perfection in this area.

Nortz ends by noting that taking on the challenge of helping your leaders develop the skills necessary to build and sustain a strong ethical culture is not an easy task. He believes that such “work requires unrelenting determination, extraordinary shrewdness and guts.” However, the results can be well worth it. He has laid out several steps that you can incorporate into your overall compliance strategy, whether or not you are seeking to implement an initial compliance program or enhance an existing program. I would recommend that you consider some or all of the steps that he has proposed and to “play the cards you’ve been dealt as best you can.”

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, 2011

Henry II Revisited: The Fair Process Doctrine as a Key Component of a Compliance Program

In a recent post entitled “Will No One Rid Me of this Meddlesome Priest?” I highlighted ‘Tone at the Top’ by discussing the words of Henry II leading to the subsequent murder of Thomas Becket. One of the things I learned on my recent vacation to England was that Henry II developed many of the procedural safeguards which became the basis of Anglo-American jurisprudence. While English Kings, at least after William the Conqueror, had always been able to issue Writs to direct the King’s subjects to perform tasks, Henry II developed certain standardized Writs which could be utilized to determine disputes between the King’s subjects, in a more fair and judicial manner. So today we will honor Henry II by discussing how he helped to bring procedural fairness to English law and how that relates to modern day compliance program.

Two of the most famous were the Writ of Novel Disseisin, which would allow a person to contest property ownership through a trial on the merits, decided by a jury. The second was a Writ of Mort D’Ancestor which allowed heirs to contest property distribution after a person’s death. As with the Writ of Novel Disseisin, it would be issued in the King’s name to the County Sheriff, who would seize the property in question. The matter would then go through a legal process culminating in a trial by jury to determine rightful ownership. Both of these Writs allowed a manner of procedural fairness to come into disputes which heretofore had not been present in English law.

Procedural fairness is one of the things that will bring credibility to your Compliance Program. Today it is called the Fair Process Doctrine and this Doctrine generally recognizes that there are fair procedures, not arbitrary ones, in a process involving rights. Considerable research has shown that people are more willing to accept negative, unfavorable, and non-preferred outcomes when they are arrived at by processes and procedures that are perceived as fair. Adhering to the Fair Process Doctrine in two areas of your Compliance Program is critical for you, as a compliance specialist or for your Compliance Department, to have credibility with the rest of the workforce.

A. Internal Investigations

The first area is that of internal company investigations. If your employees do not believe that the investigation is fair and impartial, then it is not fair and impartial. Further, those involved must have confidence that any internal investigation is treated seriously and objectively. I have recently written about several aspects of internal investigations, in order to emphasize how to handle internal whistleblower complaints in light of the Dodd-Frank implications. One of the key reasons that employees will go outside of a company’s internal hotline process is because they do not believe that the process will be fair.

This fairness has several components. One would be the use of outside counsel, rather than in-house counsel to handle the investigation. Moreover, if company uses a regular firm, it may be that other outside counsel should be brought in, particularly if regular outside counsel has created or implemented key components which are being investigated. Further, if the company’s regular outside counsel has a large amount of business with the company, then that law firm may have a very vested interest in maintaining the status quo. Lastly, the investigation may require a level of specialization which in-house or regular outside counsel does not possess.

B. Administration of Discipline and Employee Promotions

However, as important as the Fair Process Doctrine is with internal investigations, I have come to believe it is more important in another area. That area is in the administration of discipline after any compliance related incident. Discipline must not only be administered fairly but it must be administered uniformly across the company for the violation of any compliance policy. Simply put if you are going to fire employees in South America for lying on their expense reports, you have to fire them in North America for the same offense. It cannot matter that the North American employee is a friend of yours or worse yet a ‘high producer’. Failure to administer discipline uniformly will destroy any vestige of credibility that you may have developed.

In addition to the area of discipline which may be administered after the completion of any compliance investigation, you must also place compliance firmly as a part of ongoing employee evaluations and promotions. If your company is seen to advance and only reward employees who achieve their numbers by whatever means necessary, other employees will certainly take note and it will be understood what management evaluates, and rewards, employees upon. I have often heard the (anecdotal)tale  about some Far East Region Manager which goes along the following lines “If I violate the Code of Conduct I may or may not get caught. If I get caught I may or may not be disciplined. If I miss my numbers for two quarters, I will be fired”. If this is what other employees believe about how they are evaluated and the basis for promotion, you have lost the compliance battle.

So we should thank Henry II for showing us that he was more than simply about ‘Tone at the Top’. His changes in English jurisprudence helped lead us down the road to procedural fairness in the law and today in the workplace. You should thank him and remember that people will be more loyal if they think they have been treated fairly, even if the results are not exactly what they wanted.

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, 2011