Houston – The Epicenter of FCPA Conferences in June

Next month the 7^th Annual Compliance Week Conference will be held in Washington DC. In my opinion, it is the very best all-around compliance conference in the country and I would urge you to attend if you can do so. However, in the month of June, the city of Houston is playing host to three of the best conferences focusing on the Foreign Corrupt Practices Act (FCPA) compliance that I have recently seen. If you are a compliance practitioner and want to hear about the most cutting edge best practices regarding FCPA compliance and meet some of the top compliance practitioners in the US, you should plan to attend one or all of these upcoming events. So for one month Houston will be the epicenter of FCPA conferences, rather than its prior moniker as the epicenter of FCPA enforcement actions.

University of Houston

The University of Houston, Law Center – Center for Consumer Law, is hosting the “First Annual Ethics and Compliance Symposium” on Thursday June 7. The event is billed as one “to provide practical advice about real-world challenges that face ethics and compliance officers.  From training, to monitoring and auditing, to specific emerging risks like export controls, the Symposium is meant to be an interactive and useful event for the practicing E&C professional.”

The panelists include practitioners from the sponsoring law firm of Baker and McKenzie, notably Paul McNulty (he of the ‘McNulty’s maxims’) and White Collar specialist Ryan McConnell. There are also several Chief Compliance Officers (CCO’s) from well-known local energy companies such as Doug Walter from Phillips 66, Jay Martin from Baker Hughes and Dan Chapman from Parker Drilling. Rounding out the presenters are those from forensic and consulting firms such as Michael Schwartz from KPMG, Ramsey Pace from FTI and Mike McConnell from Grant Thorton LLP.

Bottom Line: Anytime you can hear Paul McNulty talk about “What Enforcement Authorities Expect in a Company’s Compliance Program” drop what you are doing and go listen.

World Check

World Check continues its program of top FCPA speakers with an event in Houston on June 26. The panel includes two of the best compliance practitioners I know; my “This Week in FCPA” cohort Howard Sklar and Jonathan Marks, he of the Marks’ “13 Step FCPA Action Plan”. I have heard them both speak and they are good.

Howard will examine ‘Schedule C’, which is the Department of Justice’s (DOJ) minimum 13-point best practices list of elements which should be included in your compliance program. It is found in recent Deferred Prosecution Agreements (DPA) entered into by the DOJ. Howard provides a color-by-number guide to compliance in his usually cool, calm and collected manner.

Jonathan Marks, a Partner & Leader in the Fraud, Ethics & Anti-corruption Practice at Crowe Horwath LLP, will give an overview of how organizations can deter problems before they arise and how to work toward building or enhancing a culture of compliance that addresses both the FCPA and the UK Bribery Act. I have used Jonathan’s 13 Step FCPA Action Plan in my practice. It is an excellent guide by which you can evaluate or assess your current compliance program and it is flexible enough to act as a guidepost for compliance program implementation or enhancement.

Bottom Line: Are you kidding – would you miss the opportunity to see Howard Sklar rant in person? But seriously, I know both of these guys and they both know their stuff as well as anyone in the field. This is the Tuesday event that I will attend. And the price is right – as in the event is complimentary.

Hanson Wade – Oil and Gas Supply Chain Compliance

Hanson Wade has put together one of the absolute best aggregations of FCPA compliance talent that has ever come to Houston for a conference; over three days, June 26-28. I realize the first day overlaps with the World Check event but that’s the way the cookie crumbles. The first day of the conference is Workshop Day with two great workshops. One on Supplier Due Diligence presented by Paul Liebman and the second on Managing the Risk of Third Parties by Rich Battaglia.

I have previously written about Dan Chapman and his interview presaging the event. In addition to Dan and several other top CCOs from the Houston area, the conference will be the only Texas appearance of the FCPA Professor, Mike Koehler, who will moderate a panel on “Does the Current FCPA Enforcement Environment Adequately Recognize Good Faith Compliance?” In addition to Dan Chapman, the FCPA Professor and other CCOs who will speak, there are some of the very top compliance practitioners, from both in-house and private practice, who will speak about doing the business of compliance on a day-to-day basis. It all starts with Jeff Spalding, Assistant General Counsel of Halliburton who is the event’s Chairman. Also included are such compliance industry leaders as Julia Symon from KBR; Julian Ranzato from DHL; Sam Tate from BP; Steven Gyeszly from Weatherford; Arvind Sharma from Flowserve and Ronald Sponberg from Baker Hughes.

The topics will be among the most relevant and most informative that you could ever ask for. They include FCPA prosecutions and enforcement actions, risk assessments and risk intelligence, dealing with facilitation payments, FPCA compliance training, and FCPA risk assessment in merger and acquisition work and in dealing with joint ventures, auditing and compliance convergence. Simply put the scope of the Hanson Wade event is as broad and far-ranging as you might ask for nevertheless the focus is on the compliance practitioner and the business of doing compliance inside a corporation.

Bottom Line: This is one of the very best FCPA conferences that has ever been staged in Houston. It will offer some of the most cutting edge best practices on a wide variety of issues that bedevil compliance practitioners on a day-to-day basis. This list of speaker is the most ‘A-List’ that has ever been seen at such an event in Houston. You owe it to yourself to attend.

For information on the Hanson Wade Conference, click here. For readers of this blog, a discount is offered by Hanson Wade. You can receive the discount by entering the online discount code: FOXLAW. You can also use this discount code if you register directly with Hanson Wade.

For information on the World Check event, click here. The event is free so no discount is needed.

For information on the University of Houston event, click here. Sorry but I haven’t been authorized to offer any discounts.

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, 2012

Pink Floyd’s The Wall and Compliance

Roger Waters is currently touring with a massive audio visual presentation of Pink Floyd’s “The Wall”. The show is so spectacular that it was recently profiled on 60 Minutes. I thought about the album, Water’s show and the message of The Wall reading this week’s Corner Office Section in the Sunday New York Times (NYT).

One of the most important things that I got out of this interview is that sometimes you just hit the brick wall. You carefully plan a strategy, implement the planned strategy and then measure the results but it falls completely flat. In other words, you hit the proverbial brick wall. So what should happen? Should you be fired for trying something that does not work? Be sent off for a two year punishment detail at some far flung company outpost? This is not the tack taken by Kyle Zimmer, Chief Executive Officer (CEO) and co-founder of First Book as discussed in an article, entitled “So, Your Idea Hit a Brick Wall. Congratulations!” by reporter Adam Bryant. Zimmer instead may reward such activity through her company’s ‘Brick Wall Reward’; which is Zimmer’s way of saying, “It’s O.K., you did the thinking, and you gave it your best shot, and it crashed, but it was an honorable step.”

Failure as a Positive

Why does Zimmer believe that such failure can be ‘an honorable step’? She considers that our culture teaches us to “fear failure” which she thinks is a huge mistake. The reason is that if you are out there trying something, “you’re going to fail way more than you succeed.” Or put another way, “You can fail without ever succeeding, but you can’t succeed without ever failing.” To that end Zimmer begins to explore this question during her initial interview process with prospective hires. She asks the interviewee “Have you ever started anything? From the time you were little, did you invent anything? An organization? Did you start a club?” Then I’ll ask, “What was the hardest part of that? What about failure? Talk to me about failure.” She believes that not only do people learn from their mistakes and become better employees but also in her organization, “the times we’ve been most creative were a result of the pressure of a failure or near failure.”

Everyone Needs a Reason to Play

Zimmer gave several other concepts which she has learned that are excellent tips for the compliance practitioners. One expanded upon the old 90s maxim ‘Win-Win”. She explained that team concept is paramount for a chance at long term success. This is because more people are invested in the outcome; they will be more willing to participate. Zimmer stated, “I learned that the best business deals are the ones that are brilliantly crafted so that everybody has a reason to play.” So, more than making others in your organization winners, try a new initiative with your employees, if you can invest them in the process, you will have a greater chance to sustain the initiative.

Humility

Not a word usually associated with lawyers. However, in addition to being a CEO, Zimmer is also a Juris Doctor. But particularly in starting the entity, First Book, which is a non-profit company which provides books for children in need, Zimmer realized that she was learning about the publishing industry ‘from the ground up”. Even if she wanted to have all the answers, she simply could not because she did not have the professional training. So she learned to reach out to “as many brilliant minds” as she could find. Ultimately, she realized “that it really didn’t matter if I knew anything. What mattered is whether I could get people to the table who did, because you’re never going to know enough.”

Be a Builder

Zimmer values the concept of team building quite high on the scale of importance in First Book. For this trait, Zimmer looks for employees who “have tried things, and have failed, and have risen above it.” If someone is accomplished, this generally means that the person is a builder and has already developed the skills to overcome setbacks. She has found that “people who have tried things on their own and struggled are the ones who are least protective of their work and the most collaborative.” This is because in the corporate world the myth of the lone scientist working in his or her lab to create the next thing is simply that, a myth. She believes that organizational accomplishment is a team sport and those are the people that she wants in her company.

Just as Roger Water’s message in his current tour is that it is really only walls that separate us and that they can come down, I found Zimmer’s ideas to be quite useful in the compliance context. Fear of failure is rife in the corporate world but she clearly articulates some reasons why it should not be viewed as such. More importantly, her thoughts on  team concepts and that if employees are invested in the process, it will make for stronger and more long-lasting end results and these are important points for the compliance practitioner to take away from this article.

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, 2012

Frequently Asked Questions on the FCPA and Bribery Act-a New Book Answers Them

Many Chief Compliance Officers (CCO’s), General Counsels (GC’s) and others in the compliance area, say that there is often too much information widely available on compliance. It makes it sometimes difficult to sort through it all to find out the specific answers to specific questions that are often required in the corporate world for the business unit folks. More and more dedicated compliance practitioners are publishing books which can be used as excellent resources in this arena. I often talk about Aaron Murphy and his work “Foreign Corrupt Practices Act – A Practical Resource for Managers and Executives” which is a very good one-volume work to keep handy and I have published a book entitled “Lessons Learned on Compliance and Ethics”. These are but two to refer to and as the compliance field matures there will be additional works to help the compliance officer in his or her day-to-day task of achieving compliance in their company.

I recently received a copy of a book entitled “Frequently Asked Questions in Anti-Bribery and Corruption” by David Lawler which is an excellent resource for the compliance practitioner. In this work, Lawler reviews the requirements for compliance programs which would withstand scrutiny under the UK Bribery Act, the US Foreign Corrupt Practices Act (FCPA) and Organization for Economic Cooperation and Development (OECD). It brings together not only information on compliance programs based upon these requirements but it is also a great resource for many specific issues relating to anti-bribery and anti-corruption.

The chapters are entitled as follows:

1. Timeline
2. Who Pays Bribes?
3. What Are the Key Sets of Rules that Govern International Bribery
4. Frequently Asked Questions
5. How Do I Set Up Proportionate Yet Effective Anti-Bribery Compliance Procedures?
6. How Do I Carry out a Review to Detect and Deter Bribery?
7. Cautionary Tales – What Happens if You Get Caught?
8. What Are My Predictions for 2012 and Beyond?
9. Appendices

Lawler also provides references and information on how to get copy of at least the English statues on your smartphone using QR codes. Additionally Lawler includes a list of terms, acronyms and a ‘quick index’ which are extremely useful for the novice compliance practitioner.

The longest chapter is No. 4 “Frequently Asked Questions.” Here Lawler provides responses to 43 different queries ranging from “Is the Bribery Act Stricter than the FCPA?” and “How is an Actual FCPA Fine Calculated?” to “How Can I Stay Up to Date?” In answering all of these questions, Lawler initially provides a short answer to the question of a few paragraphs and then a longer and more detailed response of several pages. I found that the responses were very good and they pointed to additional resources that are available in the public record if additional research is warranted by the compliance specialist.

This book is a welcome addition to the anti-bribery and anti-corruption compliance library as it contains solid information on both the FCPA and UK Bribery Act. I strongly recommend that you obtain and use it in your own practice.

Frequently Asked Questions in Anti-Bribery and Corruption can be found on amazon.com by clicking here.

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

© Thomas R. Fox, 2012

Memorial Day – A Big Thank You

Today’s is a personal blog. Monday is Memorial Day. It is traditionally the day we celebrate the men and women who have served our country in our armed forces. One of the things that I have long rued was the manner in which returning veterans were treated when they came home from Vietnam, no parades, no congratulations, no thank you for serving. In my mind one of the best things to come out of the first Gulf War was the change in how our returning veterans were treated. When they first landed on American soil, at Bangor, Maine, cheering crowds were there to greet them. I find this to be right and proper. And while I disagree with 99.99999999999999999% of what Governor Goodhair says and stands for I do agree with his suggestion that there be a national parade for the veterans of the Iraq War.

But as I said today is personal. I want to especially honor the men and women who served our country in World War II. I certainly view them as “the greatest generation” for a whole host of reasons, not in the least their collective fight against the forces of evil in the world. Name any right you hold sacred as an American and the men and women of that era fought to defend it. Right to vote, freedom of expression, freedom of religion, are but a few. However, there are many other rights that might you might not think of that we owe to these men and women who fought and sacrificed for us during this conflict.

My father served in that conflict. He is still alive and kicking today at 85. For the past 40 years he has been a labor arbitrator. He believes that working people should have due process regarding their jobs and as an arbitrator he has put that belief into practice by requiring companies who terminate employees to follow the due process requirements of termination for just cause. Put another way, if an employer is going to deliver a death penalty sanction in the workplace, in the form of job termination, it must do so fairly and justly. This does not prevent management from exercising its rights or prevent management from running its business. At a bare minimum, it means that a company must have an agreed upon disciplinary process in place and that process must be followed if the company is going to terminate an employee. A company must investigate and it must allow an employee to tell his or her side of the story, the employee must have the right for union or other representation in the process and the final appeal of any termination must be made by someone other than the original decision maker. In other words, the fair process doctrine. It is one of the rights which the greatest generation defended in that conflict.

So on this Memorial Day, I honor my father and all of the other ever-dwindling number of World War II veterans for their part in making this country the greatest country in the world. I would ask each of you to honor our veterans on Memorial Day in your own way, even if it is just a moment to reflect on those who made the ultimate sacrifice in giving their lives or those who raised their right hands and swore to protect the rest of us.

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, 2012

JP Morgan and Risk: Mission Creep, Mission Expansion, Mission Explosion

In an article in today’s Financial Times (FT), entitled “JP Morgan shows the futility of fighting complexity”, Sallie Frawcheck posited that the JP Morgan trading loss demonstrated that regulators are fighting the wrong battle regarding risk. She believes that the main reason for the problems engulfing JP Morgan was that the size and complexity of the company’s trading positions were so great that the company is still coming to terms with just how large the loss will be and how JP Morgan can unwind itself from those trading positions.

She believes that one of the solutions would be for regulators to “turn their attention to the issue of understanding how much risk the banks are taking in total, fixing measurements of risk that have fallen short and then making certain that banks have enough capital to support that risk.” However, she also warns that if a bank’s risk assessments are “unable to keep up with the complexity of certain types of trades [such as the ones at issue] or sub-businesses, then the activities should not be allowed in a regulated banking entity. Full stop.” [emphasis mine]

Her article brought up one of the ongoing battles that I continually fought as an in-house counsel, both in my transactional attorney role and compliance professional role and that battle was Mission Creep; leading to Mission Expansion; leading to Mission Explosion. In the transaction world, this would occur when parties contract for the provision of specific services or specific goods and then the contract is used as a basis for a completely different product or service. So if my client provides engineering services, there will be terms and conditions appropriate for a services contract. These terms could spread or assign risk to one party or the counter-party through such clauses as warranty, indemnity, limitation of liability, confidentiality and insurance. However, if the relevant business units of each party then decided to use the contract for the purchase of raw products the scope of the contract has changed or Mission Creep has begun. If the client then asks for the engineering services company to lead the fabrication of the raw materials we have sped up to Mission Expansion. If this Creep and Expansion continue for any length of time, we will move to Mission Explosion.

The risks which were agreed upon for services work are far different for the purchase and delivery of goods. The risks are even more divergent if fabrication of the products are required. These changes in risks can affect the risk management clauses detailed above. A services warranty is usually quite different from a product or even Original Equipment Manufacturers (OEM) warranty. If an indemnity is fault based, are products purchased under a contract which covers engineering services only? What about your limitation of liability – is it limited to the value of a contract, what if the contract for fabrication of the entire systems crashes burns, injures or kills someone? What about Intellectual Property (IP) indemnity for goods and products vs. services delivered? The list of questions is almost endless.

In the compliance world this Mission Creep, Mission Expansion, Mission Explosion trichotomy plays out when a company moves into a new geographic area or product line. Have the compliance risks been adequately evaluated? Have they been evaluated at all? Perhaps more importantly has the relevant business unit communicated to the Compliance Department these new initiatives so that the compliance risks can be assessed?

The failure by JP Morgan to properly assess its risk or use risk intelligence correctly may have indeed had its genesis in the complexity of the trading positions the company was taking. But Frawcheck’s article pointed out that it is not simply complexity which can lead to failure in the assessment and management of risk. In JP Morgan’s case, it may be that one step on the Mission Creep continuum led to more steps of Mission Explosion, which inevitably led to Mission Explosion. But, whatever the reason, I think one of the clear lessons from the JP Morgan debacle is if your risk assessment cannot determine what your risk is or your risk intelligence cannot evaluate your risk assessment in a meaningful way, you need to slow things down until you can do so. Or as Sallie Frawcheck said: Full Stop!

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, 2012

Assessing Risk? ethiXbase is an Invaluable Tool

Most compliance practitioners have gotten the message that a risk assessment should inform the creation of, or enhancements to, your Foreign Corrupt Practices (FCPA) or Bribery Act anti-corruption compliance program. But just say that you are Compliance Officer and the Chief Compliance Officer (CCO) comes into your office and tells you that the company wants to look at going into China to either manufacture a key component of your company’s most valuable product or go into Russia to sell a new product line. The CCO would like you to do a risk assessment from the anti-corruption/anti-bribery perspective. You cannot go to outside counsel or an outside expert. Faced with this problem, what might be the best single resource for you to begin this research?

Put another way, what is the best one-stop database site for anti-corruption and anti-bribery on a worldwide basis? I think that the answer is will lead you to one resource that I would suggest you take a very hard look and that is ethiXbase.com. The reason – it simply has a breadth and scope that cannot be matched.

The database has five tabs which allow you to research in a wide variety of areas. In addition to the individual tabs, details of which are listed below, you can set notifications for email alerts. You should also note that the site is updated on a daily basis. The specific information includes the following:

Dashboard

This tab allows you to set any of the BRIC, Brazil, Russia, India and China, countries as a default country. From this setting you will receive information on the latest actions in the country; the latest FCPA enforcement actions related to the country you have selected; enforcement statistics and trends and summary of legislation relating to anti-corruption, translated into English. This tab also provides general statistics on the country such as population, capitol and elected federal officials.

FCPA Index

This tab provides a simply breath-taking scope of information for the compliance practitioner. Every FCPA enforcement action and publicly announced on-going investigation is available to you in a searchable database. The ease of use is outstanding. There is information on Federal register, federal agency, public laws, and Congress bills related to the FCPA and, finally, there are risk factors disclosed by companies around the world in all of the above. Amazingly, this database is updated on an hourly basis so you have the most up-to-date information available.

Global Index

This database is equally broad in scope to the FCPA Index but set up for the entire world. Pick any country and you will immediately have access to anti-corruption legislation and the applicability of the Organization for Economic Co-operation and Development (OECD) and United Nations Convention against Corruption (UNCAC). You will find OECD reports as well as other Non-Government Organizations (NGOs) such as the International Monetary Fund (IMF). There is also an index of ancillary laws such as privacy laws and anti-money laundering legislation in each country.

Law Firm Memos

For any compliance practitioner, this resource is simply fabulous; it houses the best legal Memos from the best law firms in the world. It is database of more than 1,000 client alerts and white papers from firms specializing in compliance issues. It is searchable by law firm name, topic and title. You can set up customized watches or bookmark specific memos.

News

Last, but certainly not least, is the News section. This features news in the following categories: Home, News Home, Featured, Africa, Middle East, Europe, North America, Central-South America, South East Asia, Australasia, South Asia and Central Asia. Why is this so important? It can keep you abreast of the most current anti-corruption and anti-bribery news across the globe. More importantly, if an issue or matter pops up in your industry or a geographic region in which your company does business, you will know about it and can be prepared to review it internally. It is a great way to understand how and where the Department of Justice (DOJ) is using its investigative resources.

So how does all of this relate to your assigned task? ethiXbase allows you to research the relevant laws of each jurisdiction that you wish to enter. You can also review all FCPA enforcement actions to determine if your sales model may be similar to any companies which have run afoul of the FCPA. The Law Firm Memo section will give you the underlying legal basis to support your findings. With the Dashboard you can set up the email notifications for any new legal enforcement actions, Memos or news for the country or countries that you need to follow closely. Lastly, the News section will allow you to keep abreast of the reported information for each country.

I have thoroughly reviewed ethiXbase and use it in my compliance legal practice. You should as well.

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, 2012

I Can’t Drive 55: The Uselessness of a ‘Custom and Practice’ Defense under the FCPA

For anyone who learned to drive before 1975, the bane of our driving existence thereafter was the 55 mile per hour (mph) speed limit. About the only thing that I can say it did was increase the budgets of state highway patrols through all the tickets they gave out to persons who were driving closer above that hallowed highway speed limit. But as much as we did not like the new speed limit, it was the law and if you drove over it and were clocked by radar, you were eligible for a ticket and it did not matter how many other speeders there were buzzing by that day.

I thought about that old Sammy Hagar song while reading about the forlorn attempt by the remaining US v. Carson defendants, Paul Cosgrove and David Edmonds. As reported by the FCPA Blog, in a post entitled “Feds: Widespread Corruption Is No Defense”, these defendants have sought a jury instruction that mimics that old Sammy Hagar classic. According to the FCPA Blog, the defendants “want an [jury] instruction about ‘industry practices’ in some of the countries where CCI did business. And they want to introduce evidence about corruption in those countries, including China.” The FCPA Blog goes on to site the Department of Justice (DOJ)  response which properly recites a nearly 50 year old legal standard that “Neither custom nor the widespread nature of an illegal act is a defense to a criminal charge. “Custom, involving criminality, cannot justify a criminal act.” Smith v. United States, 188 F.2d 969, 970 (9th Cir. 1951).”

Perhaps the defendants became confused about the inclusion of a local law defense in the Foreign Corrupt Practices Act (FCPA) under which payments to foreign governmental officials that are otherwise prohibited are permitted if the “payment, gift, offer, or promise of anything of value that was made, was lawful under the written laws and regulations of the foreign official’s…country.” The local law defense is an affirmative defense which was added to the FCPA in 1988 as part of a series of amendments designed to address criticisms of the statute.  As noted by Kyle Sheehan, in his article “I’m Not Going to Disneyland”, one such criticism of the FCPA was that through it the United States was more interested in exporting its cultural biases than its products”; may have placed “unreasonable restrictions on American corporations operating in foreign countries”; and that payments to foreign government officials rendered unlawful by the FCPA may have been legal in many countries. The Fifth Circuit Court of Appeals spoke to this issue in its decision in United States v. Castle, where it noted that “the [FCPA] drafters acknowledged, and the final law reflects this, that some payments that would be unethical or even illegal within the United States might not be perceived similarly in foreign countries, and those payments should not be criminalized.”

However, Sheehan also noted that Congress made it clear that in order for the local law defense to apply, the alleged corrupt payment must be legal under the written laws of the foreign country. The conference report on the 1988 amendments states “that the absence of written laws in a foreign official’s country would not by itself be sufficient to satisfy this defense.” Consequently, FCPA defendants planning to invoke the defense must know that the written law of the foreign official’s country expressly permits the payment. It cannot simply be that the “payments rendered illegal by the FCPA are part of the unwritten custom and practice of doing business in foreign countries.”

So how about Sammy Hagar and his iconic song? Just as the remaining Carson defendants have no hope of claiming some sort of ‘custom and practice’ defense to the FCPA because, after all, everyone else is doing it, the recent spate of new commentators to the FCPA who have made the same argument that the US has no business enforcing the FCPA because others are breaking the law are similarly forlorn. Simply reflect upon that defense to your speeding ticket for driving 70 mph in a 55 mph zone. It will not work in Traffic Court, it will not work in a federal District Court and it will not work in arguing that the DOJ should not enforce the FCPA.

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To listen to the music video version of Sammy Hagar belting out the classic, “I Can’t Drive 55” click here.

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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, 2012

The Homestead Act and Doing Compliance

What was the single greatest transfer of property from the US government to its citizens? It was public lands that were given to persons willing to farm the land. Today we celebrate the 150^th anniversary of the Homestead Act, passed on May 20, 1862, which facilitated this donation. Under this law, any person, over 21, could stake a claim of up to 160 (later increased to 640) acres if they were a citizen or declared the intention to become a US citizen and agreed to farm the land for five years. In an article in the Saturday Wall Street Journal (WSJ), entitled “How the West Was Really Won”, author Fergus Borderwich quoted President John F. Kennedy who stated in celebrating the Centenary of the Homestead Act, “more than 1.1 billion acres of the original public [domain] have been transferred to private and non-federal public ownership.”

Borderwich goes on to write that it was farming that tamed and then settled the West. But more than simply planting, it led to technical innovations in agriculture, animal-feeding and water management. Land-grant colleges followed to provide educations to children of these homesteaders, which led to further growth and innovation. Borderwich quotes Bonnie-Lynn Sherow, “If you measure the achievement of homesteading by the value of today’s GDP alone, it was an enormous success.” From the article I gleaned that it was the day-to-day work of farmers, innovators, educators and a host of others that created the great breadbasket that is the United States.

This drove home to me that what a company really needs to accomplish regarding compliance is to do the day-to-day work in its company to help create and foster a culture of compliance. Recently May 7-11 was designated as “Compliance and Ethics Week”. One of the panelists I saw last week at the IQPC Upstream Contract Risk Management conference spoke about how his company celebrated this event and used it as a springboard to internally publicize its compliance program. Their efforts included three separate prongs: they were hosting inter-company events to highlight the company’s compliance program; providing employees with a Brochure highlighting the company’s compliance philosophy and circulating a Booklet which provided information on the company’s compliance hotline and Compliance Department personnel.

Inter-Company Events

These were ‘Lunch-N-Learn’ events hosted throughout the week. Topics included

• Monday: Navigate and Learn the Corporate Compliance Website;
• Tuesday: How to Determine if You Have a Conflict of Interest;
• Wednesday: Review of the company’s pre-approval procedures for gifts, travel and entertainment of non-US officials and employees of State Owned Enterprises;
• Thursday: Understanding the purpose and importance of the Company’s Alertline; and
• Friday: Ethical Behavior that Wins Business and Attracts Top Talent.

Participation in these events allowed the Compliance Department to meet informally with the business unit folks. Even in a corporate headquarters, most conferences are more formalized training but the ‘Lunch-N-Learn’ concept provides a more casual atmosphere and, therefore, better opportunities for interaction.

Cost: Sandwiches for lunch

Brochure

The Company regularly distributes a short Compliance Brochure. In the Brochure, which announced the company’s celebration of Compliance Week, it included the following phraseology that I quote in its entirety as I thought it was so eye-catching. The Brochure had spelled out ‘Compliance’ vertically and assigned phrases to each letter so that it reads as follows:

Commit to ‘Doing the Right Thing’

Observe the policies that apply to your job

Make compliance awareness a part of your job

Put Code of Conduct in assessable place

Lead by example

If in doubt, check it out

Attend educational and mandatory training sessions

Notify your supervisor of possible wrongdoings

Communicate openly and honestly

Ethics is a part of all activities

In addition to the above phrasing the Brochure included information on the Company hotline; contact information for the Compliance Department and a listing of some of the information available on the Company’s internal intranet site.

Cost: Regular printer paper

Compliance Booklet

The final piece of information provided during the company’s Compliance Week celebration was a four-page Booklet provided to each employee, specifically tailored to the Compliance Week celebration. It listed out several elements from the company’s compliance program and  the company’s Vision and Core Values. It also provided the contact information on the company hotline and contact information on the Compliance Department personnel. One of the most interesting things it listed was the company’s Compliance Department philosophy about what it believed it owed the company’s employees. This included the following:

• Guidance on the policies and procedures that apply to your duties
• Training to enable your compliance with all applicable policies and procedures
• Monitoring to ensure compliance with policies, procedures and laws
• An environment that will not tolerate retaliation against those who report compliance concerns in good faith

Cost: Thick printer paper

I have set out all of the above in some detail to demonstrate some of the lessons learned from the Morgan Stanley declination/Garth Peterson enforcement action. You can take steps right now, as in this minute, to help foster a culture of compliance in your organization. The Department of Justice (DOJ), in its Press Release regarding the declination, listed persuasive events such as training and as simply as email notices sent to Peterson. What is the cost of sending out an email notice? Not too high.

The Compliance Week celebration demonstrates, once again, that it is doing compliance which drives home not only the message of compliance within a company but also demonstrates to any regulatory body reviewing a company, that compliance is living part of the organization. So just as the Homestead Act created the opportunity for the taming and settling of the American West, it was the homesteaders, doing the work of farming which the Homestead Act was designed to foster, who made it a reality.

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We send out a big congratulations to Chelsea and all their fans for winning the UEFA Cup on Saturday evening.

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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, 2012

The End is Nigh? MLB and Fairness in Administration of a FCPA Compliance Program

Less than three months after he ruled against Major League Baseball (MLB) in the Ryan Braun suspension, Arbitrator Shyman Das was fired by MLB. He had been an approved arbitrator under the MLB Collective Bargaining Agreement for almost 13 years before he was abruptly terminated by MLB. In an article in the New York Times (NYT), entitled “Arbitrator Who Overturned Braun’s 50-Game Suspension Is Fired”, an un-named “person with knowledge of the decision said that the Braun decision was only one of several factors that led to Das’ dismissal.” Apparently MLB thought it was the National Football League (NFL) in that if you don’t play my way, you can take the highway. Or maybe MLB will just fire every arbitrator who rules against it until there are no arbitrators left.

This firing of an arbitrator, whose job it is to follow the collective bargaining agreement in making his rulings, reminded me of the issue of fairness as a key component of a compliance program. I have written about the Fair Process Doctrine, which 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.

However, there is another way to look at fairness in the compliance context. In the recent IQPC, Contract Risk Management conference, held in Houston, I led a panel discussion on Foreign Corrupt Practices Act (FCPA) compliance issues. One of the panelists talked about fairness in the context of administration of your compliance program. Another way to view it might be termed consistency, but I was intrigued that he chose to use the word ‘fairness’. He said that if you are going to discipline an employee for violation of your Company’s Code of Conduct or Code of Business Ethics, you must do so consistently across the board. 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 believe that in many ways, Andre Agassi was right that “perception is reality”. If your employees perceive that your compliance program is administered fairly, there is a much better chance that they will buy into the compliance program and have faith in it. However, if you fire employees in Brazil for falsifying expense reports and do not do so when US employees engage in the same behavior, this may well destroy the credibility that you have worked hard to build up.

Fortunately MLB cannot always act in such a unilateral manner, as MLB players have a collective bargaining agreement which protects them, somewhat, from arbitrary and capricious actions by MLB. However, not all employees have such protections and, subsequently, this means that compliance practitioners must make fairness a part of any compliance program going forward.

We end by noting that the Mayan calendar predicts the end of the world in 2012. This past week saw two potential indicia of this phenomenon. First Manchester City won the English Premier League title with two goals scored during extra time in the final game of the season AND the Baltimore Orioles not only lead the American League East for the first time in 20 years but have the best record in baseball. Happy weekend to all….

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, 2012

The Value in Conducting Thorough Background Checks on Executives

Ed. Note-today we have a guest post by Scott Lane, President of the Red Flag Group.

Internet giant Yahoo! has now been forced to undertake another extensive search for a Chief Executive Officer to help salvage its underperforming business. Today it was announced that Scott Thompson would be stepping down from his recently appointed position at the company in the wake of allegations surrounding the accuracy of his education record. The scenario that Yahoo! is now in serves as a reminder to organisations of the importance of conducting thorough background checks on new senior executive appointments as a means of avoiding potential shareholder disputes and detrimental publicity.

Not long after Scott Thompson was appointed CEO of Yahoo! in January 2012, rumours began circulating about the authenticity his academic credentials as detailed on his CV. Mr Thompson’s CV listed an accounting and computer science degree from Stonehill College in the United States. Daniel Loeb, the boss of the hedge fund Third Point who own 5.8% of Yahoo!, claimed that Mr Thompson had not in fact graduated with a degree in computer science. The discrepancy in Mr Thompson’s record was deemed to be the result of an “inadvertent error” by Yahoo!. Mr Loeb initiated a number of inquiries on behalf of other shareholders as to how Yahoo!’s vetting process had not picked up that Mr Thompson never graduated with a degree in computer science.

This case divided opinion as to the seriousness of Mr Thompson’s misrepresentation, particularly as his performances in previous roles had earned him considerable acclaim. However, Yahoo! had exposed themselves to potential litigation by using Mr Thompson’s degree information on regulatory filings, and the ongoing discussions about his background continued to be a distraction from becoming established in his new role. So much so that the decision has been made that Mr Thompson is to step down as CEO. Not only will Yahoo! now have to undertake another expensive and time consuming search for his replacement, his departure also comes at the expense of other existing directors who were responsible for his employment. More so, over the past number of weeks Yahoo! has been the focus of considerable media attention for all the wrong reasons, and its board’s reputation to make decisions in the best interests of all stakeholders tarnished.

This is certainly not the first time a company has suffered the indignity of having to replace senior executives. Last year the chief executive of InterContinental Hotels Group’s Asia-Pacific operations, Patrick Imardelli, resigned after it was discovered that he had misrepresented his academic record on his CV.

This issue could have been addressed if companies:

• Conducting a detailed background check to ascertain the overall accuracy of an individual’s CV including all previous work and study credentials
• Detailed research into the person’s profile in International media in each of the markets where they have lived, carried on business or managed people
• Interviews with other colleagues, business associates, and previous employers to address the overall integrity of the person in all markets in which they have worked
• Interviews with the person to assess their understanding of compliance and legal risks, their approach to ethical and integrity issues and their answers to a series of hypothetical corporate situations posing ethical challenges and testing their responses along the way
• The conducting of psychometric testing based on integrity issues to assess independently the responses to certain situations

Background screening and integrity assessments should be an essential part of the hiring and promoting process. This is important with all new employees, but even more so with those moving into senior positions. The incident involving Mr Thompson will for some time remain a blight against Yahoo! in the eyes of some of its shareholders, but they will no doubt adopt screening measures to heavily scrutinise all candidates in the future. Whilst undertaking extensive screening operations can be time consuming and costly, it is not as damaging to an organisation as disharmony amongst shareholders when it is discovered that a recently appointed individual’s credentials are false.

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For more information on the Red Flag Group, click here.

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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.