Bad News Barnes and China’s Overseas Efforts to Fight Corruption

Marvin ‘Bad News’ Barnes died last week. Barnes probably summed up the state of professional basketball more than any one person in the 1970s. He was enigmatic, supremely talented, defiantly self-indulgent, fell prey to drugs and alcohol and lost everything. He exploded onto the national scene in 1973 with a Providence team who went to the Final Four and then went on to play for one of the most unique collection of basketball talents ever assembled; the aptly named St. Louis Spirits in the old American Basketball Association (ABA). After the folding of the ABA, he played for Boston, Detroit, Buffalo and San Diego in the National Basketball Association (NBA). In his obituary in the New York Times (NYT), entitled “Marvin Barnes, Enigmatic Basketball Player, Dies at 62”, reporter Bruce Weber quoted former Spirits owner Donald Schupak, from a 1976 interview where he said of Barnes, “He’s a nice guy, a sweet guy, everybody likes him. He’s just totally unreliable. He’s probably in the top five players talent-wise. In terms of value to the team, he’s probably in the bottom 10 percent.” My personal favorite Bad News Barnes story was the time he showed up for a Pistons game in the middle of the first quarter, dressed in his game jersey and a full length mink coat, eating some French Fries, claiming he had ‘overslept’. Bad news indeed.

I thought about Bad News Barnes whilst reading some recent Financial Times (FT) articles about China’s fight against corruption. They were “China takes its anti-corruption battle to foreign shores” and “China bribe cases pose test for west as suspects flee” both by Jamil Anderlini. I thought they posed some interesting questions for anti-compliance practitioners, law enforcement officials who enforce anti-corruption laws and the anti-corruption commentariatti out there.

The problem of corruption in China is both well known and well documented, as is the ongoing anti-corruption campaign. In the former article, Anderlini says, “The US-based group Global Financial Integrity estimates illegal flows out of China amounted to $2.83tn [that is Trillion] between 2005 and 2011. The article details that China is carrying the fight against anti-corruption outside the boundaries of the country to seek those persons who may have been the recipients of corrupt payments and have fled the country.” He wrote, “Communist party officials have launched an investigation into assets and individuals based in New Zealand.” The effort, code named “Fox Hunt 2014” (you have to love that moniker), is being run by the Communist Party’s “Central Commission for Discipline Inspection [CCDI], a shadowy organization with a controversial human rights record”. It has set a dedicated office to “investigate allegedly corrupt officials who have absconded or sent relatives and assets abroad.”

In the later article, Anderlini wrote that CCDI status is as the “extralegal body that answers only to the Communist party leadership and has the power to indefinitely detain any of the country’s 86m party members without trial and without access to legal representation. It is often accused of torture, inhumane treatment of suspects and politically motivated investigations, according to human rights groups.” Moreover, some believe this pursuit raises difficult questions for western democracies. Anderlini quoted one un-named diplomat for the following, “Our countries don’t want to be seen as havens where corrupt officials can flee to with their ill-gotten gains but there are serious questions facing any democratically elected government about how far they can co-operate with China’s authoritarian system.” Further, unlike the US, many countries ban the death penalty, which is still legal in China for those Communist Party and government officials who are convicted of accepting bribes. Finally is the issue of the CCDI and the Chinese judicial system. Anderlini said, “Even when cases have been transferred by the CCDI to China’s formal legal system, there are serious questions about judicial independence because the courts ultimately answer to the party hierarchy.”

For some of these reasons and perhaps others, “China does not have extradition treaties with any western democracies although it does have agreements with 38 countries and has repatriated 730 people suspected of “major economic crimes” since 2008, according to state media.” The Chinese government hopes it will “catch more fugitives in countries such as Canada, Australia and the US – the three most popular destinations for allegedly corrupt officials, according to Chinese state media.” Finally, Anderlini noted that multiple “Beijing-based diplomats from several western countries, including the UK, say China has applied growing pressure in recent months in an attempt to secure their help for investigations in their countries.”

Anderlini reported that some people in New Zealand have been made uncomfortable with all of this. He said, “the New Zealand public remains deeply sceptical of closer ties with the authoritarian Chinese government.” Moreover, “In the case of New Zealand, the overwhelming importance of the economic relationship has made at least some people argue for closer co-operation with Beijing in tackling the flow of illicit funds and fugitives from China.” He also quoted Russel Norman, co-leader of New Zealand’s Green Party, who believes “The NZ Police, Ministry of Foreign Affairs and Trade and Prime Minister’s office need to tell the public of New Zealand what, if any, access we are willing to allow the Chinese Communist party to New Zealand residents. Allowing this to happen would be like giving the KGB access to expatriate Russian citizens during the cold war.”

What should the response of western governments be regarding the efforts of the Chinese government to fight internal corruption? Should western governments, such as here in the US, cooperate with the Chinese government in requests for documents, other evidence or interviews? Can the US or other western governments expect reciprocity from the Chinese in a Foreign Corrupt Practices Act (FCPA) or UK Bribery Act investigation if they do not give the same courtesy to Chinese prosecutors? Should the fact that China has harsher penalties for accepting bribes, even up to the death penalty, preclude western governments from cooperating with the Chinese officials. (Please note such argument would not apply in the great state of Texas, where the death penalty most surely does still exist.) What about the CCDI, the “extralegal body” which is heading up this investigation? Should western countries be required to evaluate who is enforcing the Chinese laws on the books against corruption? Can or should you compare the CCDI with the KGB? If you are going to evaluate that body, does it logically lead to an evaluation of the entire Chinese legal system? Finally, if western governments believe that bribery and corruption are insidious matters that require responses, should they care whether an extrajudicial organ of the Chinese Communist Party is involved? All I can conclude is Bad News indeed for those Chinese officials who the CCDI is after, no matter where they might have fled.

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

© Thomas R. Fox, 2014

Use of Influence in the Compliance Function

One of the challenges for any Chief Compliance Officer (CCO) is how to influence the conduct and actions in a corporate environment, particularly as compliance is viewed as non-revenue generating and usually does not exist simply to protect the company, which is how the legal department is often viewed. Folks like myself who came into compliance from the legal function tend to think of a top-down approach where compliance is centralized at the corporate officer, usually in the United States. But because the role is very different than that of a General Counsel (GC), a CCO needs to bring another skill set to bear to do his or her job. In a session at the SCCE 2014 Compliance and Ethics Institute, SCCE Chief Executive Officer (CEO) Roy Snell and Jenny O’Brien, CCO at United Health Care, talked about the techniques that a CCO can use to influence decision making in a company in order to do business in compliance and ethically.

Snell began the session with some basic questions about why there are positions such as a CCO and why there is a compliance function within an organization. After all, departments like legal and internal audit have existed in business organizations for up to at least a few hundred years. He posed two questions that I found interesting “Why are we here?” and “What did those who came before us to fail to do?” He listed some of the scandals from the late 90s and early 00s such as Enron, WorldCom, HealthSouth, Adelphia and others where he believed that the problems, which led to the disintegration of these organizations, were well known within the companies themselves. So the situation was not that people did not find the problems, the issue was that the people inside these organizations did not fix the problems. Snell believed that the persons who could and would have stood up to raise questions or say this should stop lacked some skill or ability to influence others to make the right decision. He concluded that such business and ethical collapses were a failure of influence.

This led into his presentation with O’Brien about techniques for a CCO to employ to help influence decision-making within an organization. They labeled them as the “Seven Steps of Influence” and they are as follows:

1. Collaboration. O’Brien emphasized that as a CCO you need to know your company’s business. If you are new to an organization she said you must take time to learn the business. You should sit in on sales meetings and, when appropriate, you should go out on sales call. Channeling her inner Atticus Finch, she characterized this as walking in the shoes of the business leaders you are assisting. By doing so, you will not only understand the products and services that your company offers but also the challenges that your business development team will face out in the world.
2. Here O’Brien emphasized that she has to work constantly at active listening, which is listening, thinking and then speaking, and not just jump into the middle of a conversation, talk to people in a manner that will address their concerns. When you do speak you should be prepared to make the case for the compliance proposition that you are trying to get across. She noted that as a CCO or compliance practitioner, you should strive to be relevant in every interaction you have with your senior management peers. O’Brien said that sometimes it means speaking up at meetings or other forums but sometimes it means listening. You should try to develop a rapport with your business team and this rapport can lead to trust building.
3. Relationships. Snell opened his remarks on this topic by intoning that by relationships he did not mean inter-personal relationships. He believes that it is mainly through relationships with other functions in an organization that a CCO or compliance practitioner can best bring influence to bear. It all begins with building trust with others within your organization. Invest time to find others in your organization that you want to work and with those with whom you desire to build relationships. Snell believes that some of the more key relationships that a CCO or compliance practitioner can develop are with the audit function, the legal department, Human Resources, IT and corporate communications. Snell said that when one of these groups offered to help him move the ball forward in compliance he always viewed it as a positive and wanted to work with these and other corporate groups. He did not view it as a turf war at all. The only thing that he said he requested were the terms of working together. Of those, he said the most important was that if another group in the company took on some project related to compliance, such an internal audit, that the group finish whatever they take on.
4. Humility. O’Brien believes that humility is important because it empowers. Moreover, it can empower others to expand the circle of influence and get others in a corporation to influence an ever-expanding circle on behalf of compliance. The CCO does not need center stage. She reiterated her belief that business units should solve compliance issues, as compliance is really just another business process. Further, through such influence where you can get the business unit resources to solve a compliance problem, you will hold down the costs of the compliance function. She ended by noting that it is not about being right but about moving the compliance ball forward in the right direction.
5. Negotiation. Here Snell said that negotiation should not be about the dichotomy of winning and losing an argument or debate. A CCO should strive to redefine what a win might look like or what a win might consist of for a business unit employee. He said that when faced with such a confrontation, he would try to determine what both sides wanted then give them something else in addition to what they thought they wanted. He provided the example of a CCO quietly listening and when the room is just right and all the participants are worn out, you, as the compliance practitioner, throw out an idea where the apparent loser in the argument receives even more than they thought they were asking for in the requesting. A CCO can be considered a mediator not just simply an enforcer or Dr. No from the Land of No. He ended by saying that as a compliance practitioner you need to learn the art of compromise.
6. Triple ‘C’. What do the three C’s stand for? Calm, cool and collected. O’Brien believes that all company employees, up and down the chain, are watching the CCO. For this reason, she said that as a compliance practitioner you should be poker faced. To this end she keeps the sign “Keep Calm and Carry On” in her office. She believes that the Triple C’s are important because organizations look to the CCO to solve complex issues with simple solutions. When faced with a compliance issue or an obstacle you should endeavor to keep everything on an even keel and never let them see you sweat.
7. Credibility. The final of the seven pillars was that the CCO role needs to be adequately scoped and that the accountabilities need to be clearly defined. Put another way, what is your job scope as the CCO and what is the function of the compliance department? What is your accountability to decide the resolution to an issue? Snell agreed with O’Brien that there should be business unit ownership for every issue that comes into the compliance department. Yet, as a CCO, you must demonstrate your value as a non-revenue function. This may require you to get out of your office and put on a PR campaign for compliance. Finally, Snell ended by saying that a CCO needs to guard their independence in job function and reporting. You must make clear that you will have independent reporting up to the Board or Audit Committee of the Board.

Snell concluded by reminding us all that influencing is not a one-time activity. It is ongoing. Tying back to his original question of why the compliance function exists in the quantum it does today, he said that he believes a CCO or compliance practitioner exists to help influence a company to build a better business environment by acting more ethically and responsibility. By moving the ball forward in this manner, it may well lead to a country’s economy to be trusted which could well lead to greater economic development.

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

© Thomas R. Fox, 2014