FCPA Prosecutions Against Individuals? Check Out April

One of the oft-heard criticisms of the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) is the lack of individual prosecutions under the Foreign Corrupt Practices Act (FCPA). That may well be on its way to changing as April 2013 may become known as “FCPA Individuals Month” for the charges and enforcement actions brought against various individuals for FCPA violations. The DOJ and SEC used several different types of enforcement actions, both criminal and civil, against a variety of individuals over the past month.

I.                   BizJet

One group of charges was the four enforcement actions involving individuals concerning BizJet. The lineup of those three BizJet executives and one employee involved in these enforcement actions is as follows:

1. Bernd Kowalewski – President and Chief Executive Officer (CEO);
2. Peter DuBois – Vice President of Sales and Marketing;
3. Neal Uhl – Vice President of Finance; and
4. Jald Jensen – Regional Sales Manager

Defendants DuBois and Uhl pled guilty in January, 2012 and had their pleas unsealed on April 5, 2013. Defendants Kowalewski and Jensen were charged by Criminal Indictment, also in January, 2012, but are still at large today. The DOJ Press Release states that “The two remaining defendants are believed to remain abroad.” The bribes were characterized as “commission payments” and “referral fees” on the company’s books and records. Payments were made from both international and company bank accounts here in the United States. In other words, this was as clear a case of a pattern and practice of bribery, authorized by the highest levels of the company, paid through US banks and attempts to hide all of the above by mis-characterizing them in the company’s books and records.

II.                Alstom

Two individuals from the company later identified as Alstom were charged or had their charges made public in April. According to a DOJ Press Release dated April 16, 2013, “Frederic Pierucci, 45, a current company executive [of Alstom] who previously held the position of vice president of global sales for the Connecticut-based U.S. subsidiary, was charged in an indictment unsealed yesterday in the District of Connecticut with conspiring to violate the Foreign Corrupt Practices Act (FCPA) and to launder money, as well as substantive charges of violating the FCPA and money laundering.” Pierucci was arrested. A former Alstom executive, “David Rothschild, 67, of Massachusetts, a former vice president of sales for the Connecticut-based U.S. subsidiary, pleaded guilty on Nov. 2, 2012, to a criminal information charging one count of conspiracy to violate the FCPA.”

In a post by the FCPA Professor, entitled “Current And Former Alstom Employees Charged In Connection With Payments In Indonesia”, he stated the two were involved with the following: “The conduct at issue concerned the Tarahan coal-fired steam power plant project in Indonesia.” Both were charged around the same set of facts. Pierucci and Rothschild, together with others, paid bribes to officials in Indonesia, including a member of Indonesian Parliament and high-ranking members of Perusahaan Listrik Negara (PLN), the state-owned and state-controlled electricity company, in exchange for those officials’ assistance in securing a contract for the company to provide power-related services for the citizens of Indonesia, known as the Tarahan project. The charges allege that, in order to conceal the bribes, the defendants retained two consultants purportedly to provide legitimate consulting services on behalf of the power company and its subsidiaries in connection with the Tarahan project. In reality, however, the primary purpose for hiring the consultants was allegedly to use the consultants to pay bribes to Indonesian officials.

The Pierucci Indictment specified the following Counts for violations of the FCPA involving the first consultant.

Count	Date	Means and Instrumentalities of Interstate and International Commerce
Two	11/16/2005	Wire transfer in the amount of $200,064 from Power Company’s Connecticut bank account to Consultant A’s bank account in Maryland for the purpose of bribing Official 1.
Three	1/4/2006	Wire transfer in the amount of $200,064 from Power Company’s Connecticut bank account to Consultant A’s bank account in Maryland for the purpose of bribing Official 1.
Four	3/7/2007	Wire transfer in the amount of $200,064 from Power Company’s Connecticut bank account to Consultant A’s bank account in Maryland for the purpose of bribing Official 1.
Five	10/5/2009	Wire transfer in the amount of $66,688 from Power Company’s Connecticut bank account to Consultant A’s bank account in Maryland for the purpose of bribing Official 1.

III.             Frederic Cilnis

In a blog post, entitled “The Danger of FCPA “Proactive” Investigations”, Mike Volkov stated “At the recent Dow Jones Compliance Symposium in Washington, D.C., an FBI official warned the attendees that the Shot Show debacle would not deter law enforcement from using proactive investigations techniques. It was a stark warning because it was realized in less than thirty days.” This was dramatically demonstrated with the arrest of Frederic Cilnis.

An article in the Financial Times (FT), entitled “FBI sting says that ‘agent’ sought to have mining contracts destroyed”, it was reported that “Frederic Cilins held the last of a series of meetings with the widow of an African dictator to discuss what she was going to do with some sensitive documents.” What were these ‘sensitive documents’? The FT reported that it had seen “some of the documents” and “According to one copy of a contract seen by the FT” it appeared to agree to pay $4m the wife of the then President of the country to help to secure rights to a mining concession in Guinea. Unfortunately for Cilins he “did not realise that the woman he was talking to was wearing a wire and that FBI agents were watching. As he left the meeting, the agents arrested him carrying envelopes filled with $20,000 in cash, the indictment says. That was a pittance compared with the $5m he was taped offering the dictator’s widow during what US authorities say was a two-month campaign to tamper with a witness and destroy records.”

IV.              Uriel Sharef

Uriel Sharef was a former officer and board member of Siemens. According to the SEC Press Release announcing resolution of his matter, “The settlement resolves the Commission’s civil action against Sharef for his role in Siemens’ decade-long bribery scheme to retain a $1 billion government contract to produce national identity cards for Argentine citizens. The final judgment, to which Sharef consented, enjoins him from violating the anti-bribery and related internal controls provisions of the FCPA and orders him to pay a $275,000 civil penalty, the second highest penalty assessed against an individual in an FCPA case.”

The FCPA Professor, in his April 19 Friday Roundup, posed the following “The burning question of course is whether the SEC would have prevailed against Sharef if he put the SEC to its burden of proof. As highlighted in this previous post, Sharef’s co-defendant, Herbert Steffen, did just that and in February Judge Shira Scheindlin dismissed the SEC’s complaint against Steffen finding that personal jurisdiction over Steffen exceeded the limits of due process.” However, the SEC Press Release seemed to anticipate this query by stating that “Sharef met with payment intermediaries in the United States and agreed to pay $27 million in bribes to Argentine officials. Sharef also enlisted subordinates to conceal the payments by circumventing Siemens’ internal accounting controls.”

In the month of April, the US enforcement agencies certainly seemed to be answering the questions about bringing FCPA criminal charges and civil complaints against individuals. You may quibble about the sentences handed out in the BizJet case but that is another discussion for another day. For those who may have thought that the use of wire taps, cooperating witness and other proactive federal law enforcement techniques may not be used in FCPA cases after the Gun Sting cases dismissals, such techniques were used in both the BizJet matters and the action against Cilnis. Lastly, one phone call to the US may not create in personam jurisdiction but if you come to the US and engage in conduct which violates the FCPA, personal jurisdiction will attach.

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

© Thomas R. Fox, 2013

My FCPA and Bribery Act Musings Continue

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

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

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

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

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

Remedies of FCPA Violations – Lessons Learned from the Boeing 787 Lithium-ion Battery Issue

Over the past three months, the aircraft manufacturer Boeing has gone through a public relations nightmare and financial disaster over the failure of lithium-ion batteries in its new flagship aircraft, the 787. This Boeing case study can provide some interesting lessons for the compliance professional who is working under a Foreign Corrupt Practices Act (FCPA) or Bribery Act compliance program.

One of the issues raised over this matter was the use of third party supplier and subcontractors to third party suppliers for the design and manufacturing of the batteries. As reported in a New York Times (NYT) article by James B. Stewart, entitled Japan’s Role in Making Batteries for Boeing, the construction of the batteries at issue was outsourced by Boeing to a Japanese company called GS Yuasa. Stewart’s article points out the need for close review of suppliers and what can happen if the quality does not meet the standards required for the project. In an article entitled, “Boeing and the Conduct of Due Diligence on Sub-Suppliers”, I considered the use of sub-suppliers from the anti-corruption/anti-bribery compliance program perspective. In this post, I will consider Boeing’s response to the problem of the failure of the lithium-ion batteries.

In a Wall Street Journal (WSJ) article, entitled “How Boeing Rescued the 787”, reporter Andy Pasztor discussed the background to Boeing’s problems and the company’s response. The planes, which have been grounded since mid-January due to “The images of the burned batteries—one of which prompted an emergency landing and passenger evacuation of a Dreamliner in Japan—tarnished a plane that Boeing executives have said is key to its future.” While the company has not “disclosed the cost of the 787’s grounding, but analysts say the company could have to pay penalties to customers. The grounding also halted new Dreamliner deliveries, delaying hundreds of millions of dollars in revenue.” Further, the public relations disaster was palatable.

Somewhat naively, after the initial grounding, Boeing executives “told FAA officials that a few easy changes in cockpit checklists, some enhanced battery inspections, and stepped-up surveillance of battery health during flights would be enough to solve the problem.” But that was not good enough for Transportation Secretary Ray LaHood who said at “a news conference the planes wouldn’t resume flying until regulators were “1,000% sure” they were safe.” Based on this statement, it became clear to Boeing that “the FAA would insist on more extensive and time-consuming changes.”

Yet, even in the face of Secretary LaHood’s pronouncement, Boeing’s engineers were frustrated in all their attempts to determine the cause of the batteries’ failures. As reported by Pasztor, “By the end of the first week on the ground, Boeing “had 500 engineers dedicated to understanding” the complex technical issues, Mike Sinnett, the 787’s chief engineer, said last month. Their next focus was to try to pinpoint the specific cause of internal battery short circuits, and develop a targeted engineering solution. Boeing teamed up with government investigators from the U.S. and Japan, but the goal remained elusive.”

From these initial frustrations, Boeing engineers turned to the concept of a “containment box.” The containment “box serves several purposes: withstanding higher temperatures than the old design, and keeping dangerous chemicals from leaking. It also vents smoke outside the plane, and in the event of overheating automatically sucks oxygen from the battery. That is intended to snuff out any fire in a fraction of a second.”

I think that Secretary LaHood was on to something when he said that the 787 would not fly again until “regulators were “1000% sure” they were safe.” It is not simply a fix on a specific issue, although that is a part of any solution. But the solution must be reviewed with a holistic approach in mind. There must be additional protections in place so that if there is another failure, that failure will be contained. For Boeing this would prevent a replay of the scene on the Japan Airlines 787 where a fire in the lithium-ion batteries spread outside the battery itself.

From the anti-corruption/anti-bribery compliance program perspective what I found interesting was the final solution which Boeing hit upon, even if forced to by Secretary LaHood. Since Boeing was not able to determine the specific cause of the lithium-ion batteries failures, it took a more systemic approach to the remedy. The company “shifted to wide-ranging internal battery fixes aimed at combating a variety of potential causes.” This is the type of response which we saw highlighted in the Department of Justice (DOJ)/Securities and Exchange Commission (SEC) FCPA Guidance released last year. In the section on ‘Declinations’ the Guidance had information on six declinations to prosecute companies who self-disclosed FCPA violations. Two of the common factors to each declination were that (1) each company remedied the specific matter which gave rise to the FCPA violation but equally importantly (2) each company made their overall compliance program more robust.

In other words, do not simply remedy the conduct at issue; make sure you catch it quickly before it spreads. This would also equate to McNutly Maxim’s One and Two. 1-What did you do to prevent it?and 2-What did you do to detect it? Or as my process oriented wife might say, ‘you need a second set of eyes on it’ to validate the process and prevent failure in the process.

Perhaps the most interesting thing about this entire Boeing 787 episode is to show the intersection of anti-corruption/anti-bribery compliance and safety. I have often pondered how closely these disciplines seem to interact and overlap. I think that this Boeing situation shows that we in compliance can learn quite a bit from our colleagues in safety.

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

© Thomas R. Fox, 2013

Actions Taken During a FCPA Enforcement Action-Lessons from Parker Drilling and Ralph Lauren

In the two most recent corporate Foreign Corrupt Practices Act (FCPA) enforcement actions, the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) to communicate not only what they believe constitutes a best practices compliance program but equally importantly what actions a company can engage in which will significantly reduce a company’s overall fine and penalty. These matters involved Parker Drilling Company (Parker Drilling) and the Ralph Lauren Corporation. Parker Drilling received a Deferred Prosecution Agreement (DPA) and Ralph Lauren sustained a Non-Prosecution Agreement (NPA).

Fines and Penalties

Parker Drilling’s conduct earned it an “approximately 20 percent reduction off the bottom of the fine range” which suggested a fine of between $14.7MM to $29.4MM. The final DOJ fine was  $11,760,000. The company also agreed to pay disgorgement of $3,050MM plus pre-judgment interest of $1,040,818, to the SEC. Ralph Lauren  agreed to pay $882K to the DOJ and $593K in disgorgement and $141K in pre-judgment interest to the SEC.

Self-Disclosure

In the DOJ/SEC FCPA Guidance released last year one of the clear messages was that companies should self-disclose any potential FCPA violations. While this question is debated by the FCPA intelligentsia and in compliance/legal department across the country, one of the key takeaways is that companies should self-disclose. In the section on Declinations, which included stripped out information on six companies which received declinations to prosecute, one of the common factors was that each company self-disclosed its FCPA violation.

In the Ralph Lauren NPA, the DOJ stated that one of the factors which led to the NPA was “the Company’s timely, voluntary, and complete disclosure of the conduct”. This is contrasted with the Parker Drilling DPA, where there was no information listed regarding self-disclosure. In its Press Release announcing the resolution of the Parker Drilling matter, the DOJ stated it “stemmed from the DOJ’s Panalpina-related investigations.”

What Did You Do When You Found Out About It? Prong II – Extensive Cooperation

Both companies provided extensive cooperation to the DOJ and SEC throughout the pendency of their respective investigations. In the Ralph Lauren NPA, the DOJ detailed the company’s conduct by stating that “the Company’s extensive, thorough, and real-time cooperation with the Department, including conducting an internal investigation, voluntarily making employees available for interviews, making voluntary document disclosures, conducting a world-wide risk assessment, and making multiple presentations to the Department on the status and findings of the internal investigation and the risk assessment”. In the Parker Drilling DPA, the DOJ stated that “the Company’s cooperation, including conducting an extensive internal investigation and collecting, analyzing, and organizing voluminous evidence and information for the Department”.

What Did You Do When You Found Out About It? Prong I – Remediation

Implementing one of the prongs of McNulty’s Maxim No. 3, both companies engaged in extensive remediation during the investigations. The Ralph Lauren NPA stated that “the Company’s early and extensive remedial efforts already undertaken – including conducting extensive FCPA training for employees world-wide, enhancing the Company’s existing FCPA policy, implementing an enhanced gift policy as well as other enhanced compliance, control and anti-corruption policies and procedures, enhancing its due diligence protocol for third-party agents, terminating culpable employees and a third-party agent, instituting a whistleblower hotline, and hiring a designated corporate compliance attorney – and to be undertaken, including enhancements to its compliance program as described in Attachment B (Corporate Compliance Program);”.

Parker Drilling also engaged in extensive work to create a gold standard compliance program all the while undergoing its own internal investigation. According to the DPA, “the Company has engaged in extensive remediation, including ending its business relationships with officers, employees, or agents primarily responsible for the corrupt payments, enhancing its due diligence protocol for third-party agents and consultants, increasing training and testing requirements, and instituting heightened review of proposals and other transactional documents for all the Company’s contracts.” Parker Drilling also hired “a fulltime Chief Compliance Officer and Counsel who reports to the Chief Executive Officer and Audit Committee, as well as staff to assist the Chief Compliance Officer and Counsel.” The Company worked to strengthen its internal controls. Lastly, and I hope that you remember this from the Morgan Stanley Declination, Parker Drilling implemented “a compliance-awareness improvement initiative and program that includes issuance of periodic anti-bribery compliance alerts.”

Self-Monitoring and Reporting to the DOJ

In an area that is sometimes overlooked in both DPAs and NPAs, both companies agreed to self-monitor the effectiveness of their compliance programs and make no less than annual reports to the DOJ. In its three-year DPA, Parker Drilling agreed to monitor and “that it will report to the Department periodically, at no less than twelve-month intervals during a three-year term, regarding remediation and implementation of the compliance program and internal controls, policies, and procedures”. In its two year NPA, Ralph Lauren agreed to monitor and “report to the Department periodically, at no less than twelve-month intervals during a two-year term, regarding remediation and implementation of the compliance program and internal controls, policies, and procedures.”

Both the DOJ and SEC continue to communicate to the compliance practitioner what they expect from companies in the way of a best practices compliance program and what a company should do if they discover a potential FCPA violation. These communications, through enforcement actions, DPAs, NPAs and Declinations, are consistent with the information provided by the DOJ/SEC in the FCPA Guidance. Both of these enforcement actions demonstrate that if a company gets ahead of the curve, it can significantly lessen its overall penalty and pain.

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

© Thomas R. Fox, 2013

Using Bribery and Corruption to Steal Business – A Thyestean Feast?

Not much beats the ancient Greek House of Atreus for dramatic gore: infanticide, patricide, fratricide, filicide, matricide, cannibalism, incest and about every other horror which can befall one family occurs in the various stories of this, the ruling family of Mycenae. One of the most horrific stories involves the brothers Atreus and Thyestes. After Atreus steals the throne from Thyestes, Thyestes seeks his revenge by sleeping with Atreus’ wife Aerope. Atreus then invites Thyestes to a reconciliation banquet where he serves the roasted heads of Atreus’ two sons on platters as the main course. Atreus then puts a curse on Atreus and all his offspring, which lasted throughout Greek antiquity (i.e. longer than the Curse of the Bambino or Curse of the Billy Goat). To this day a Thyestean Feast is synonymous as cannibalistic feast. In other words, at what cost did you really prevail?

I thought about the above myth in the context of the arrest of two articles I wrote about yesterday which appeared in the Weekend Edition of the Financial Times (FT) about the arrest of Frederic Cilins, a French citizen, for seeking to obstruct a federal grand jury investigation about alleged Foreign Corrupt Practices Act (FCPA) violations. The two articles were “Contracts link BSGR to alleged bribes” (mine rights article) and “FBI sting says that ‘agent’ sought to have mining contracts destroyed” (FBI sting article). Both articles were by the same triumvirate of FT reporters, Tom Burgis, Misha Glenny and Cynthia O’Murchu.

To recap, the articles revolved around allegations that “The resources arm of Beny Steinmetz Group agreed to pay $2m to the wife of an African president to help it secure rights to one of the world’s richest untapped mineral deposits, according to documents seen by the Financial Times”. These payments were allegedly memorialized in “Copies of two contracts from 2007 and 2008, apparently signed by BSGR’s representatives in the mineral-rich west African nation of Guinea, set out agreements for the company to make payments and transfer shares to Mamadie Touré, wife of the then president Lansana Conté.”

The FBI sting article also revealed a bit more of the history of the underlying mining rights at issue. The Australian company Rio Tinto “held the rights to the whole of Simandou, a mountain range groaning with iron ore in Guinea’s remote interior, for a decade.” But in August, 2008, the Conté government withdrew the mining group’s concession, “saying it had taken too long to develop a mine.” In December 2008, just days before the dictator’s death, the then Guinean government assigned over half the rights of Simandou to BSGR. The FT also reported that “One African mining veteran described BSGR’s sale as the “best private mining deal of our generation.”” After spending $160m developing its assets in Guinea, 18 months later, in April 2010, BSGR sold a 51% stake of its Guinean venture to Vale of Brazil for $2.5bn.

The FT also reported that after the transfer of mining rights from Rio Tinto to BSGR, another mining entity, “Vale of Brazil, the world’s biggest iron ore miner, bought a 51 per cent in BSR’s Guinea assets in April 2010. Late last year, as a Guinean government committee levelled corruption allegations against BSGR, Vale put the Simandou project on hold. Earlier this month, it suspended payments on the $2.5bn it agreed to pay for its stake.”

Now all of the above are only allegations at this point and BSGR has clearly stated that it believes the allegations have no merit. As the mining rights article noted, “BSGR said in a statement to the FT on Friday: “Allegations of fraud in obtaining our mining rights in Guinea are entirely baseless. We are confident that BSGR’s position in Guinea will be fully vindicated.””

But under such a scenario, what might be the cost to be to a company which engages in such conduct. Fortunately we have somewhat evolved past the blood feuds that the ancients Greeks engaged in were they wronged. We have developed the litigation system to help redress violations of law. In an interesting note, even this was foreshadowed in the Greek myths where the final play about the House of Atreus involved a trial rather than blood revenge.

In the above scenario, what might be some of the legal rights of the parties listed? In an article entitled “Use of the FCPA in State-Law Unfair Competition Cases”, Edward Little, Jr. explored the question of whether the FCPA can serve as the basis as a predicate act for civil liability under state unfair competition laws. He makes a powerful case that such lawsuits may be the next frontier for FCPA cases.

Little next noted that the violation of the FCPA may provide a basis for civil liability under federal or state anti-trust laws, “especially when it is proved that the foreign bribery had an anti-competitive effect within the United States.” Little pointed to the example of two Phillip Morris subsidiaries that bribed officials in several South American countries “to obtain price controls on tobacco.” There was also a recent FCPA/anti-trust enforcement action against Bridgestone which may provide such a trigger.

Little turned to state unfair competition laws which, if based on the Revised Uniform Deceptive Trade Practices Act, can “provide severe penalties for violations of federal and state laws when committed in trade or commerce.” These penalties can include treble damages and attorneys’ fees. He pointed to a currently pending litigation matter styled “Newmarket Corp. v. Innospec, Inc. Civil Action No. 10-503-HEH (E.D Va.)” in which Newmarket has brought claims under the Sherman Act, the Robinson-Patman Act and the state of Virginia Business Conspiracy Act. This state law makes illegal “combinations of two or more persons for the purpose of willfully and maliciously injuring another in his…business…”

Most states have some type of law which broadly declares that “unfair methods of competition are…unlawful.” If a company admits to guilt under the FCPA the facts of liability are laid out in a Deferred Prosecution Agreement (DPA). There is some discussion of the amount of bribes paid, usually referencing both the monetary value of the contract or other business obtained through the conduct, which laid the predicate for the FCPA violation. Lastly, there is often a specific amount of money identified as profit disgorgement that is remitted to the government. Doesn’t this sound something like “Did the defendant engage in illegal conduct which impacted the plaintiff?” and “If so, what are the plaintiff’s damages?”

As a recovering trial lawyer, I was proud to engage in a profession which can trace its roots back to ancient Greece. As a lawyer, who specializes in the FCPA, I wonder if a company which uses corruption and bribery to steal or even procure a contract or business might find that the cost of obtaining such business is too high if they are forced to defend themselves in a civil trial and pay out the amount of damages that their conduct caused. Indeed, might it even be the modern day equivalent to a Thyestean Feast?

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

© Thomas R. Fox, 2013

PED Cheats and FCPA Violators – Kissing Cousins?

“I never failed a drug test” has become one of the iconic lines of performance enhancing drug (PED) cheats from Lance Armstrong to A-Rod. This denial has a kissing cousin in the Foreign Corrupt Practices Act (FCPA) world in the phrase, “He (or she) is not our employee”. How do these two kissing cousins relate to each other? Both phrases are absolutely meaningless when it comes to the underlying conduct. Why? Because we all know (or should know); violations of the FCPA can occur for direct, i.e. your employee, or indirect, i.e. not your employee, conduct.

In the FCPA world, there was a stark example of this reported in two articles in the Weekend Edition of the Financial Times (FT) about the arrest of Frederic Cilins, a French citizen for seeking to obstruct a federal grand jury investigation about alleged FCPA violations. The two articles were “Contracts link BSGR to alleged bribes” (mine rights article) and “FBI sting says that ‘agent’ sought to have mining contracts destroyed” (FBI sting article). Both articles were by the same triumvirate of FT reporters, Tom Burgis, Misha Glenny and Cynthia O’Murchu.

The mine rights article reports that underlying matter revolved around allegations that “The resources arm of Beny Steinmetz Group agreed to pay $2m to the wife of an African president to help it secure rights to one of the world’s richest untapped mineral deposits, according to documents seen by the Financial Times”. These payments were allegedly memorialized in “Copies of two contracts from 2007 and 2008, apparently signed by BSGR’s representatives in the mineral-rich west African nation of Guinea, set out agreements for the company to make payments and transfer shares to Mamadie Touré, wife of the then president Lansana Conté.” As the quid pro quo for these commission payments, “Ms Touré would take “all necessary steps” to advance its efforts to win rights to the Simandou deposit, a February 2008 contract says. A further $2m would be dispersed among other people to facilitate the acquisition of the rights.”     While Mr. Cilins has been described by the Guinean government as “an agent of BSGR” the company was quoted in the article as saying, “Mr Cilins was not one of its employees”.

The mining rights dispute centers around a contract that the company received days before the death of the President of Guinea. The mining rights article also reported that “the Guinean government granted BSGR rights to half the Simandou deposit, having earlier stripped them from rival mining house Rio Tinto. After spending $160m developing its assets in Guinea, 18 months later in April 2010 BSGR sold a 51 per cent stake of its Guinean venture to Vale of Brazil for $2.5bn. One African mining veteran described BSGR’s sale as the “best private mining deal of our generation”.”

As interesting as all of the above is, it was the FBI sting article that had some very interesting details. Before I get to the issues involved I have to cite to yesterday’s blog post by Mike Volkov, entitled “The Danger of FCPA “Proactive” Investigations”, where he stated “At the recent Dow Jones Compliance Symposium in Washington, D.C., an FBI official warned the attendees that the Shot Show debacle would not deter law enforcement from using proactive investigations techniques. It was a stark warning because it was realized in less than thirty days.” Spot on Mike.

The FBI sting article reported that on Sunday April 14, 2013, “Frederic Cilins held the last of a series of meetings with the widow of an African dictator to discuss what she was going to do with some sensitive documents.” Unfortunately for Cilins he “did not realise that the woman he was talking to was wearing a wire and that FBI agents were watching. As he left the meeting, the agents arrested him carrying envelopes filled with $20,000 in cash, the indictment says. That was a pittance compared with the $5m he was taped offering the dictator’s widow during what US authorities say was a two-month campaign to tamper with a witness and destroy records.”

What were these documents that “Cilins was allegedly so keen to destroy”? The FT reported that it had seen “some of the documents” and “According to one copy of a contract seen by the FT, dated February 27 2008 and which appears to be signed by Asher Avidan, BSG Resources’ head in Guinea, the company agreed to pay $4m to secure rights to Simandou. That would be split into $2m to be distributed among “people of goodwill who contribute to facilitating the assignment” of the rights and $2m for a company called Matinda. Ms Touré’s name is listed on the contract and her signature appears on it. She is named in US corporate records as the registered agent of a company also called Matinda, based at a Jacksonville address.”

The FBI sting article also revealed a bit more of the history of the underlying mining rights at issue. The Australian company Rio Tinto “held the rights to the whole of Simandou, a mountain range groaning with iron ore in Guinea’s remote interior, for a decade. But in August that year, the Conté government withdrew the mining group’s concession, saying it had taken too long to develop a mine. In December, just days before the dictator’s death, the government signed over half the rights to Simandou to BSGR. Vale of Brazil, the world’s biggest iron ore miner, bought a 51 per cent in BSGR’s Guinea assets in April 2010. Late last year, as a Guinean government committee levelled corruption allegations against BSGR, Vale put the Simandou project on hold. Earlier this month, it suspended payments on the $2.5bn it agreed to pay for its stake.”

The FBI sting article also reports that BSGR said that “Mr. Cilins was not one of its employees.” However, the FT article reported that the indictment which led to the arrest of Cilins describes “a company that in 2008 acquired rights to half of Guinea’s Simandou iron-ore deposit after it had been stripped from another miner points in one direction: the resources arm of Beny Steinmetz Group, the conglomerate managed on behalf of the family of Israeli diamond tycoon, Beny Steinmetz. Mr Cilins has been described by the Guinean government as an agent of BSGR. The company said Mr Cilins was not one of its employees.” And while “Neither does the indictment identify the woman who has sought immunity from prosecution in exchange for co-operating with the FBI investigation and helping to deliver Mr Cilins. It refers only to a “former wife of a now deceased high-ranking official in the government of Guinea” who was approached by Mr Cilins at the inception of the alleged bribery scheme.”

As the mining rights article noted, “BSGR said in a statement to the FT on Friday: “Allegations of fraud in obtaining our mining rights in Guinea are entirely baseless. We are confident that BSGR’s position in Guinea will be fully vindicated.”” And, of course, there is that ubiquitous “not our employee”. Whatever the real answer is it will be very interesting to see how all this plays out.

What about the obstruction of justice charge? First, it should be noted that this charge is nothing like the charge brought and later dropped against Rose Carson in the Control Components Inc. matter, where it was alleged she destroyed documents before meeting with company investigators. Here the allegations are attempts to destroy documents in the face of a federal investigation. What about the FBI sting part of all this? It looks like what the agent said, as quoted by Mike Volkov in his piece, was very prescient. Maybe the lesson is simply don’t destroy documents or even don’t engage in bribery.

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

© Thomas R. Fox, 2013

Da Bears and 10 Steps to Managing a Front Page Crisis

Ed. Note-just to demonstrate that I do not lose all the wagers that I make on the Houston Texans, to the left you see Gini Dietrich, CEO of  founder and CEO of Arment Dietrich. Gini lost a wager to me when the Texans beat the Bears in Chicago last season and for losing her wager she had to wear a Texans shirt and write a guest post. We are all better off for the Bears loss. This is her guest point on what to do if your company faces a front-page crisis. 

In 2006, Wal-Mart was caught redhanded cheating its way through the Internet to receive attention.

Their PR firm hired actors to pretend they were traveling the country in an RV, visiting Wal-Mart locations as they drove, and blogging about their experience.

This was before anyone really realized how the social web works and many organizations were taking some risk to figure it out.

But in 2013? In 2013, there are many experts out there in the world who know what happens when you give a customer, an employee, or a journalist or a blogger a megaphone.

And yet.

Companies Embroiled in Scandal

Wal-Mart was once again embroiled in a scandal: This time with bribing Mexican authorities to receive permits and to do business in the country. And then again when their PR firm (a different one from 2006) posed as journalists at a news conference to try to persuade union workers to allow them to open a store in Chinatown in Los Angeles.

Unfortunately, it’s not just Wal-Mart that deals with crisis and scandals that put them on the front page of the New York Times and every mainstream blog on the web.

Other examples abound: Applebee’s, Susan G. Komen, Penn State, Carnival Cruise Lines, and – most recently – Rutgers University.

If it seems like more and more of this is happening, it’s because it is. The web provides a way for stories like this to spread like grassfire. And it’s not good.

It used to be you’d hire a PR firm and have them write a crisis plan that was then put in the drawer and revisited only once a year.

Now? Now a crisis can erupt in mere seconds if someone has a bad experience with your organization.

Ten Steps for Managing a Crisis

So what happens if you end up on the front page of the newspaper?

1. Act Swiftly. Perhaps you sell capital equipment or professional services or product packaging. Surely your organization doesn’t have any issues. In today’s digital world an employee could say something racist online. A customer could have it out for you and spread lies through their Facebook page. A competitor might engage in whisper campaigns against you. The only way to win at that game is to be prepared, have a communications expert on your team (or have one on speed dial), and act swiftly. Not in a week, not in a month, not in three months. In the same day.
2. Address the problem. It’s not fun having to come out and say you screwed up or something bad has happened or you made a mistake. In fact, it kind of sucks having to do that. But it’s the only way to prevent a crisis. It’s amazing how two little words in the English language work as well as they do: I’m sorry. Not I’m sorry, but…just, I’m sorry.
3. Communicate the story. When a story gets out of control is when you haven’t told your side and people begin to speculate. Like with Tiger Woods and the tabloids speculating he was going in and out of a sex addict clinic (he wasn’t), he hadn’t told his side of the story so they began to make things up based on what little information they had.
4. Communicate where it happens. If an issue or crisis is exploding on YouTube, that is where you take to the waves to tell your story. When employees were caught sneezing and spitting in food on video, the Domino’s CEO recorded a video and his team posted it to YouTube. He apologized in the same spot people were looking for the employee video.
5. Hire a communications expert. I’m not talking about someone who knows how to use social media. I’m not talking about someone who works for a company that has experienced an issue or crisis. I’m talking about someone who has deep and intense experience in managing an issue or crisis. Typically these people work in PR firms and specialize in crisis communication or reputation management. It’s unlikely a company will go through enough issues or crises in its lifetime to give someone the expertise you’ll need if something happens. If you can’t afford a communications expert, become BFFs with someone who can help you think through issues when they arise. Put them on your advisory board. If you have a paid board, add them to that. Have that person on speed dial.
6. Think before you act. Yes, things happen in real-time. Yes, we live in a 24/7/365 world. Yes, it’s fast-paced and you have to act quickly. But that does not excuse you from thinking. When we were kids, my dad used to tell us all the time, “Don’t ever put anything in writing you don’t want used against you later.” That’s very sage advice in today’s digital world.
7. Empower your team. Let your team help. Set the expectations and boundaries, give them the tools and resources they need to be successful, and let them at it!
8. Say I’m sorry. I know we covered this already, but it’s worth repeating. Of course, you have to mean it and it can’t be accompanied with the word “but.” When you practice saying “I’m sorry” in your every day communications, it becomes easier to say it – and mean it – when an issue develops.
9. Back down when you’re wrong. If you hold a position on something and someone points out there is a double standard or you’re being hypocritical, reassess your policy.
10. Have a communications expert on speed dial. Oh I already said this, didn’t I? Whenever I repeat this to friends, colleagues, or peers, someone will text me with some smarty pants remark such as, “How quickly do you respond to communication crises?” Have someone on speed dial who has lots and lots and lots of experience with issues and crisis management. You might think you’ll never need it – and maybe you won’t – but Murphy’s Law dictates the second you don’t, something will happen. It’s like having insurance: If you have it, you won’t need it.

Because most of you do work with the Foreign Corrupt Practices Act and compliance and ethics, it’s highly likely you’ll have a situation like this you’ll need to manage. The next step, of course, is what to do after the fallout.

Perhaps I’ll cover that on Spin Sucks in the next few weeks…or maybe Tom will invite me back sans the Texans shirt.

Gini Dietrich is the founder and CEO of Arment Dietrich, a Chicago-based integrated marketing communication firm. She is the lead blogger at PR and marketing blog, Spin Sucks, co-author of Marketing in the Round, and co-host of Inside PR, a weekly podcast about  communications and social media. Her second book, Spin Sucks, is due out in November 2013. Connect with her on Google+, Twitter, Facebook, Pinterest, Instagram, or LinkedIn.

Edgar Allen Poe and Innovation in the Compliance Function

Tomorrow, April 20 is the anniversary of a truly innovative work of literature. On April 20, 1841, Edgar Allen Poe’s story, The Murders in the Rue Morgue, first appeared in Graham’s Lady’s and Gentleman’s Magazine. The tale is generally considered to be the first detective story. The genre is distinctive from a general mystery story in that the focus is on analysis. The story describes the extraordinary analytical powers used by Monsieur C. Auguste Dupin to solve a series of murders in Paris. The character of Dupin became the prototype for many future fictional detectives, including Arthur Conan Doyle’s Sherlock Holmes and Agatha Christie’s Hercule Poirot. Like the later Sherlock Holmes stories, the tale is narrated by the detective’s roommate. Poe biographer Jeffrey Meyers sums up the significance of “The Murders in the Rue Morgue“: “[it] changed the history of world literature.” Poe’s role in the creation of the detective story is reflected in the Edgar Awards, given annually by the Mystery Writers of America. For both myself and the many worldwide fans of Sherlock Holmes, we owe a tip of the hat to Poe for inventing the genre.

As Poe demonstrated, innovation can come in many forms. Earlier this week I wrote about some of the innovative ways that Joel Katz, of CA Technologies, had improved his company’s compliance function. In this post, I will discuss how Katz was able to increase the participation of business leaders into the doing of compliance. He did so by the creation of ‘Regional Business Ethics Councils.’ I found the CA Technology creation and use of these Regional Business Ethics Councils as an innovative approach to help move compliance into the company’s DNA in a robust manner.

The Regional Business Ethics Councils are designed to “largely serve as a communication vehicle between our corporate compliance team in the United States, business leaders, and employees.” These Regional Business Ethics Councils were created in the company’s three major geographic regions which consisted of the Americas, Europe and the Middle East (EMEA) and Asia-Pacific (APAC). Each Regional Business Ethics Council is comprised of six to eight senior business leaders from each part of the company’s functional business, including legal, finance, HR, sales, development, administration, and others. The Regional Business Ethics Councils meet quarterly.

Katz believes that the Regional Business Ethics Council members play a critical role with compliance messaging to employees in their respective regions. Their meetings are used to “discuss current compliance issues and internal and external trends, significant legal or regulatory changes that impact the business, and upcoming compliance initiatives.” This structure allows the company to be more nimble and be in a position to respond more quickly to different external issues that may arise and impact the compliance function.

CA Technologies also uses the Regional Business Ethics Councils as a mechanism to “solicit feedback from the business on the current business environment, any concerns the business leaders may have about our business or our compliance program, and any other issues they wish to discuss.” One of the constant challenges for employees is getting foreign employees to trust and communicate with the compliance function. The Regional Business Ethics Council can provide another route by which information and concerns can be conversed up to the compliance function.

Katz acknowledged that the level of engagement of the individual council members varies from both person to person and Regional Business Ethics Council to Regional Business Ethics Council. Nevertheless, the company has found that the Regional Business Ethics Council initiative “has succeeded in creating more visibility into the compliance function for company business leaders and more visibility into the global business for our compliance team.” Additionally, the Regional Business Ethics Councils can assist the compliance group by focusing on issue-spotting and awareness-raising within their specific region. Katz believes that this is helpful because it “is consistent with our belief that if we can get people talking about compliance and asking questions, we can address most issues long before they become compliance problems.”

Katz ended his article by explaining that at CA Technology “compliance training and communication plan is and will always be a work in progress” which he believes is appropriate for “every organization, as such organizations and legal and regulatory landscapes will undoubtedly evolve and change over time.” His article helps to drive home the message that a company “should examine its plan at least annually to ensure it is still viable and continually look for opportunities to improve it. This iterative approach to training and communication will help ensure that messages are being heard, understood, acted upon and appreciated by your employees.”

I have often written about the need for some type of management oversight above the compliance function which sits below a company’s Board of Directors. The CA Technology approach of using the Regional Business Ethics Council provides another level of engagement by corporate functions. But just as a Regional Business Ethics Council can be used to communicate from areas outside the US back to the corporate headquarters, the Council structure allows the compliance function to communicate back into the regions. I believe that this can help companies to communicate the importance of compliance more thoroughly and more effectively throughout an organization.

Lastly, one of Katz’s themes is to help the company employees understand that compliance is there to help them do work business more efficiently and at the end of the day in a manner more consistent with the company’s overall ethical values. I believe that the use of the Regional Business Ethics Council program can be a key way to demonstrate this commitment to employees. I would suggest that this type of program may be something that you should consider for 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, 2013

What’s the Message from BizJet? Self-Disclose and Cooperate

Over the past week there has been a plethora of Foreign Corrupt Practices Act (FCPA) enforcement actions released. One group was the four enforcement actions involving individuals concerning BizJet. While I cannot say that the enforcement actions against the individuals were stunning, perhaps what was surprising were the penalties that two of the individual received. The lineup of those three BizJet executives and one employee involved in these enforcement actions is as follows:

1. Bernd Kowalewski – President and Chief Executive Officer (CEO);
2. Peter DuBois – Vice President of Sales and Marketing;
3. Neal Uhl – Vice President of Finance; and
4. Jald Jensen – Regional Sales Manager

Defendants DuBois and Uhl pled guilty in January, 2012 and had their pleas unsealed on April 5, 2013. Defendants Kowalewski and Jensen were charged by Criminal Indictment, also in January, 2012 but are still at large today. The Department of Justice (DOJ) Press Release states that “The two remaining defendants are believed to remain abroad.”

BizJet Bribery Box Score

From the previously released Bizjet Deferred Prosecution Agreement (DPA) and the recently released documents, I have updated the “BizJet Bribery Box Score”.

BizJet Executive or Employee Named	Payment Made To	Amount of Payment	Others Involved
Jald Jensen	Official 6	Cell Phone and $10K	Peter DuBois and Neal Uhl
Jald Jensen	Official 3	$2K	Peter DuBois
Peter DuBois, Neal Uhl and Jald Jensen	Official 2	$20K
Neal Uhl	Official 2	$30K	Jald Jensen
Peter DuBois	Mexican Federal Police Chief	$10K	Neal Uhl and Jald Jensen
Neal Uhl	Official 5	$18K	Jald Jensen
Jald Jensen	Official 4	$50K
Jald Jensen	Mexican Federal Police	$176	Neal Uhl
Jald Jensen	Official 4	$40K
Jald Jensen	Mexican Federal Police	$210K	Neal Uhl
Jald Jensen	Official 5	$6K	Neal Uhl
Neal Uhl	Official 5	$22K

The above bribes were characterized as “commission payments” and “referral fees” on the company’s books and records. Payments were made from both international and company bank accounts here in the United States. In other words, this was as clear a case of a pattern and practice of bribery, authorized by the highest levels of the company, paid through US banks and attempts to hide all of the above by mis-characterizing them in the company’s books and records.

Penalty Box Score

As bad as the conduct of the BizJet executives and sales manager was – and it was very bad – the thing that stood out in the enforcement actions announced last week was the sentences. So without further ado here is the “Penalty Box Score” for defendants DuBois and Uhl.

Individual	Fine or Disgorgement	Potential Incarceration	Actual Incarceration
Peter DuBois	$159,950	108 to 120 months in jail	8 months home incarceration, 60 month’s probation
Neal Uhl	$10,000	60 months in jail	60 month’s probation

The clear import of the BizJet DPA was that a company can make a comeback in the face of very bad facts. In the BizJet DPA, the calculation of the fine, based upon the factors set out in the US Sentencing Guidelines, ranged between a low of $17.1MM to a high of $34.2MM. The final agreed upon monetary penalty was $11.8MM. This was a significant reduction from the suggested low or high end, or as was noted by the FCPA Blog “BizJet’s reduction was 30% off the bottom of the fine range, and a whopping 65% off the top of the fine range.” Finally, BizJet was able to avoid having an external monitor put in place.

Cooperation is the Key

What led to these sentence reductions? Quite simply the answer is full cooperation with the DOJ. The FCPA Professor stated, in a post entitled “Unsealed Documents In Enforcement Acton Against Former BizJet Executives Reveal A Trove Of Information”, that “As part of his plea agreement, DuBois worked in an undercover capacity for the government. The motion specifically states as follows. “As part of his work in an undercover capacity, Mr. DuBois has recorded conversations with former BizJet executives and other subjects of the government’s ongoing investigation.” Later, the motion to seal states that “public identification of Mr. DuBois as a defendant who likely is cooperating with the government may jeopardize the undercover aspect of the government’s investigation.”

In addition to his work as an undercover operative, the Professor quoted from the DOJ Sentencing Memorandum that “assisted in the investigation from the outset and cooperated fully with the government throughout its investigation. DuBois submitted to multiple interviews by the government and has assisted in every way that the government has asked. DuBois told the truth to the government from the outset and continued to do so up until this very day. DuBois’ cooperation not only assisted the government in connection with its investigation into BizJet, but also led to the investigation of another maintenance, repair, and overhaul company engaged in a similar scheme to pay bribes to government officials overseas.”

With regarding to UHL, the Professor quoted from the DOJ Motion for a Downward Departure as follows, “Uhl “agreed to a voluntary proffer session and, when confronted by the government, admitted to the illegal conduct. Throughout the course of the investigation, Uhl was cooperative and provided truthful information that substantially assisted the government in confronting other co-conspirators and witnesses. Uhl offered to assist in any way that he could.”

In another post, entitled “Where Was the BizJet Board?”, the FCPA Professor noted that the conduct engaged in by BizJet was “egregious” and I would certainly second that, perhaps adding that it was about as bad as it could get in the FCPA world. He goes on to state that “Yet, BizJet was allowed to resolve the enforcement action via a deferred prosecution agreement, meaning that should it abide by the terms and conditions of the agreement, BizJet will never be required to plead guilty to anything.” He went on to pose the question, “If that is the DOJ position, then it must be asked – does corporate criminal liability actually mean anything if a company like BizJet – given the DOJ’s allegations – is not actually criminally prosecuted or required to plead guilty?” He ended his post with the following, “In short, the resolution vehicles the DOJ has created and championed has again lead to a “facade of enforcement” – albeit an instance on the opposite end of the spectrum that I normally highlight.”

I think that there is another way to look at the BizJet enforcement action and the individual enforcement actions against DuBois and Uhl. BizJet self-disclosed to the DOJ, engaged in what the DOJ termed “extraordinary cooperation” and remediated the people and conduct in question. Further, DuBois and Uhl not only offered themselves up but actively worked with and assisted the DOJ in its investigation going forward. If one of the goals of the DOJ is to achieve greater compliance with the FCPA, I think that the BizJet cases is a clear demonstration that if a company has FCPA violations they can self-disclose and be given credit for working very diligently in conjunction with the DOJ to remedy the conduct at issue and move the investigation forward.

I believe the same is true for individuals who have engaged in FCPA violations. If a person provides the same level of cooperation as DuBois and Uhl and the DOJ then prosecutes them to the full extent of the US Sentencing Guidelines, how much cooperation do you think the DOJ will engender going forward once the word gets out in the white collar defense bar?

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

© Thomas R. Fox, 2013

Got 20 Minutes? Spicing Up Compliance Training

How can you create or revise your compliance program? One of the first steps you should take is to devise an action plan. A recent article in the March edition of the Compliance Week magazine, entitled “Putting Together an Action Plan for Compliance”, Joel Katz, the Chief Ethics and Compliance Officer (CECO) for CA Technologies, wrote about his experiences in updating the company’s compliance training program.

He said that after the company had gone through a compliance investigation, it created a “best-in-class” compliance program. However, after a few years of intensive training and continued corporate reminders about compliance, the employees began to suffer from ‘compliance fatigue’. Katz decided it was time to come up with a way to determine what was working and what was not working regarding the company’s compliance program in the “eyes of the employees”. To facilitate this Katz literally went around the CA Technology world listening to employees, both in focus groups and individually, about what they thought was working and what they thought did not work. He found that the company’s managers and employees generally had the same four critiques, which were:

1. The compliance training was ineffective; it was too long, often too esoteric, and very often not helpful to employees because it did not relate to their core job responsibilities. Employees expressed a strong desire for training that was more engaging and relevant to their jobs.
2. Employees wanted live training but in their local language. Although most employees are fluent in English, many expressed the desire to be trained in the local language to ensure that nothing was getting “lost in translation.”
3. There was a lack of understanding regarding the role of the compliance group within the company. Both employees and managers at all levels felt that the compliance organization was a bit of a mystery to them – they did not fully understand what the compliance organization did on a day-to-day basis and felt that they lacked any real visibility into the types of compliance issues that the company was encountering.
4. At times compliance seemed liked the ivory tower as employees also felt that messaging around compliance was, at times, either condescending or written in a way that made it appear that the company did not trust its employees.

I found Katz’s responses to the training critiques very interesting and had some components that you may wish to incorporate into your program. CA Technologies decided to ditch all outside vendors for training and put it on using internal resources. The company also “made a conscious choice to focus our compliance training energies on issue spotting and awareness-raising, rather than on in-depth subject matter expertise” which was done for two reasons. First, the company did not believe that employees were retaining the information being covered in courses that attempted to deliver in-depth learning. Second, by “Focusing on issue-spotting and awareness-raising is consistent with our belief that if we can get people talking about compliance and asking questions, we can address most issues long before they become compliance problems.”

To make the training more real and more entertaining, the company began to use examples of “compliance related transgressions” demonstrated by the fictional character “Griffin Peabody” in courses and awareness campaigns. The company also used this character in company training videos that its employees starred in as participants. To help with the logistics of training, the compliance department enlisted the CA Technology law and HR departments to assist in putting on the training. Interestingly, compliance did not specify to the trainers how to put on the training, instead they gave them the flexibility to put on training in variety of ways such as ‘lunch-n-learns’ or other less formal training. But here is the real kicker – Katz “issued a mandate that no compliance course would take longer than 25 minutes to complete. We would rather have two 20 minute courses than one 40 minute course. Our experience has been that even the most interested audience begins to fade after about 20 minutes.”

To help de-mystify the role that the compliance function had in CA Technology, the group published “a quarterly newsletter called “Walk the Talk.” Each newsletter includes profiles of real-life, company compliance cases and quarterly compliance statistics (including the number of compliance cases by geographic region with a comparison from the prior year, as well as a breakdown of the types of compliance issues we are addressing, such as fraud, conflicts of interest, and others).” Katz noted that the names were removed to protect the innocent and guilty but that the company did “provide comprehensive descriptions of the compliance issues and how the issues were resolved (in many instances, employees were either disciplined or dismissed).” What Katz found was that CA Technology employees said that “they particularly liked reading the real-life cases and learning about how the company resolved these cases. Not all compliance officers agree with providing this level of transparency to employees, but our experience has been, thus far, very positive.”

In the article, Katz admitted that the compliance group “might, on occasion, come off as sounding a bit “preachy” to employees when discussing certain compliance issues”. To address this issue, the compliance team worked with the company communications team and the company’s global leadership team to “help ensure that our messaging has the right tone to effectively resonate with our employees. We strive to create communications that are engaging and easily understood by all employees.” With this assistance, Katz believes that the compliance group ensures “that we take the time to focus on how we are messaging things to our employees and this has helped improve employee perception about the compliance function.”

Katz’s article had several salient points around training for the compliance practitioner. His change in focus of the company’s compliance training from the subject matter expertness to issue raising awareness is something that certainly resonates with me. Employees can be your first and, many times, best line of defense from a compliance issue becoming a full bore Foreign Corrupt Practices Act (FCPA) or other legal violation. Giving them to tools to know when and how to raise their hand when something does not make sense is more important than droning on about the elements of a FCPA violation. Also the CA Technology methods for delivering compliance training are quite innovative but in many ways very cost effective. By moving the training in-house and allowing the trainers to determine how to deliver the training, you can obtain greater buy-in and participation. Lastly, how many of you out there put on training for only 20 minutes? Do you think that would make your employees sit up and take notice, if not smile, if they could get their compliance training in 20 minute increments?

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

© Thomas R. Fox, 2013