FCPA Compliance and Ethics Blog

May 30, 2014

Will TRACE Certify the World?

Chrisopher MarloweAaron Hernandez, formerly of New England Patriots tight end, was indicted for murder this week, allegedly killing a man for spilling his drink at a bar. But fatal disputes originating in taverns are not anything new as on this day, 501 years ago, the English playwright Christopher Marlowe, 29, was killed in a brawl over a bar tab. Marlowe was two months older than William Shakespeare. A bright student, he won scholarships to prestigious schools and earned his BA from Cambridge in 1584. While still in school, Marlowe wrote his play Tamburlaine the Great, about a 14th century shepherd who became an emperor. The blank verse drama caught on with the public, and Marlowe wrote five more plays before his death in 1593, including The Jew of Malta, Dido, Queen of Carthage and Dr. Faustus. He also published a translation of Ovid’s Elegies.

How famous was Christopher Marlowe? Marlowe heavily influenced Shakespeare himself in his work, from his reworking of Marlovian themes in Antony and Cleopatra, The Merchant of Venice, Richard II and Macbeth. In Hamlet, after meeting with the travelling actors, Hamlet requests the Player perform a speech about the Trojan War, which has an echo of Marlowe’s Dido, Queen of Carthage. In Love’s Labour’s Lost, Shakespeare brings on a character “Marcade” (three syllables) in conscious acknowledgement of Marlowe’s character “Mercury” from the Massacre at Paris. The most famous tribute to Marlowe was paid by Shakespeare in As You Like It, where he not only quotes a line from Hero and Leander (“Dead Shepherd, now I find thy saw of might, ‘Who ever loved that loved not at first sight?’”) but also gives to the clown Touchstone the words “When a man’s verses cannot be understood, nor a man’s good wit seconded with the forward child, understanding, it strikes a man more dead than a great reckoning in a little room.” This appears to be a reference to Marlowe’s murder, which involved a fight over the “Reckoning” (the bill), as well as to a line in Marlowe’s The Jew of Malta – “Infinite riches in a little room”.

I thought about Marlowe and his status as a playwright, even up to this day, when I considered something I heard Alexandra Wrage say at one of her recent talks here in Houston. She said, “TRACE wants to certify the world.” When I asked her what she meant by this she told me about the TRACE certification process. I had some familiarity with it, having seen reports from companies who had gone through the process and were presenting their certification when applying to do business as third party representatives for US or UK companies. The TRACE certification process is a detailed review, analysis and approval process that allows third parties to own and share their verified due diligence information. The TRACE certificationdue diligence reports contain a wealth of anti-bribery compliance information establishing that the candidate has been thoroughly vetted, trained and certified by TRACE. The report is packaged for the purpose of sharing verified due diligence information with an unlimited number of business partners. The TRACE certification is suitable for medium-to-higher risk relationships and involves an annual renewal requirement and a mandatory anti-bribery training course. Some of the key information contained in a report is as follows:

  • Red flags identified;
  • Comprehensive anti-bribery questionnaire;
  • Company literature collected and reviewed;
  • Business registrations;
  • Names and CVs for owners, directors, and key employees;
  • Contact information for three business references;
  • Financial reference; and
  • A signed Anti-Bribery Code of Conduct

One of the interesting things about the certification report is that TRACE calls them portable. By this, it means that once a company has gone through the TRACE certification process and receives its report, this report can be presented to other companies, which might desire to engage that third party. While there is no substitute for a company obtaining and evaluating the due diligence it receives based upon its own risk profile, the TRACE certification can be a powerful and persuasive tool to present to a company. In other words, the burden of performing due diligence is shifted away from the company to the foreign company seeking to show that they do business in compliance with anti-corruption laws, such as the Foreign Corrupt Practices Act (FCPA) or UK Bribery Act.

All of this means that going through a TRACE certification process can have benefits for both parties in the lifecycle management of third parties for a company that wants to hire a foreign company as a third party representative. First, and foremost, is the cost as it is the foreign party who pays for the TRACE certification so this shifts the cost away from the US or UK Company because it is the foreign company who seeks the certification. But more than simply the cost can be the elimination of a large part of the expense and delay associated with the vetting process. Further, the TRACE certification offers ongoing monitoring of third party relationships with daily screening of names against international sanctions and enforcement lists and can aid to simplify third party recertification process for all companies in the process, both the companies seeking third party representatives and the foreign entities seeking to represent or do business with US or UK companies on a commercial basis.

For the entity outside the US or UK that wants to demonstrate its commit to doing business in compliance with anti-bribery legislation, the TRACE certification can provide appropriately qualified intermediaries with a valuable business credential, widely recognized in the compliance community, for successfully completing the due diligence gold standard. And again it allows foreign third parties to share their verified due diligence information with all of their business partners from a company known across the globe for its commitment to anti-bribery and anti-corruption – TRACE.

So while Marlowe may not receive all of the kudos that Shakespeare does; he is certainly well thought of. For a foreign company who wants to do business with a US or UK company, you might want to head over to the TRACE website and check out their certification process. It could provide to you a true market differentiator from others that might desire to represent US or UK companies.

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

 

June 28, 2013

The NHL and Compliance: Some Thoughts From Alexandra Wrage On Doing Business Ethically

This past week I chaired the Beacon Events Corruption and Compliance – Asia Congress 2013 conference. One of the speakers was Alexandra Wrage, the founder and President of TRACE International, Inc (TRACE). If you have never heard Alexandra speak on anti-corruption, you have missed one of the most dynamic speakers in the industry. Alexandra is Canadian and, in our chats during the event, one of the things that we talked about was the National Hockey League (NHL) championship series between the Chicago Blackhawks and the Boston Bruins. Not only was the series the first championship between two of the Original Six teams since 1979 but the hockey was some of the finest and most exciting played in recent memory. Alexandra noted my somewhat forlorn use of the Houston Astros as a teacher in lessons around compliance and ethics. She also remarked that I had never discussed hockey in any of my blogs so she challenged me to use one of her homeland’s greatest gifts to mankind in a blog post. So here goes.

Last week the Chicago Blackhawks won the NHL’s championship, thereby securing the Stanley Cup, named after Lord Stanley former Governor General of Canada. The six-game series between the Blackhawks and the Boston Bruins was fabulous, in the deciding game, Game Six, the Blackhawks scored two goals in the final 90 seconds to not only erase a 2-1 deficit but win the game and bring the Cup back to Chicago. But here is the compliance angle, this most physical of all sports was played cleanly with no fighting, no cheap shots or dirty checks and no major penalties imposed on the players of either team. It was a great example that the game can be played the right way and done so at the highest level.

This translates into anti-corruption and anti-bribery in the business world as well because as Alexandra put it in her talk to the conference, entitled “Turning compliance into a tool and a strategic asset to drive company performance”, ethical principles are business advantages. She explained that by doing business ethically, not only does a company protect itself for the increasing international enforcement regimes that are being enacted but organizations can protect themselves in a myriad of other ways. If a company agrees to pay a bribe to obtain a contract, that is but one step that puts a company at risk during the entire process and relationship. As Wrage described, when you pay a bribe you are targeting your company for a relationship that can be endlessly changed. It becomes an endless pit of payments from which you cannot extricate yourself. Any government official who accepts a bribe has control over you and the amount that he or she can squeeze out of you going forward. You completely lose control of the negotiating process and indeed the entire contract because there is nothing that you have to enforce. A bribe, even if memorialized in writing, cannot be enforced in any court of law or other legal proceeding such as arbitration.

Wrage also talked about the hidden costs involved in any bribery scheme. An entire set of falsified documents must be created and even alternative corporation structures put in place to set the criminal structure to facilitate bribes. Company employees are not doing their regular jobs when they are engaging in such criminal actions. Indeed, if an employee is willing to engage in bribery, it does not take a long leap for that employee to turn to other criminal activities such as embezzlement. If there is money being syphoned off to pay bribes, it certainly can be routed into an employee’s individual bank account.

Wrage also explained why doing business ethically can benefit companies in the mergers and acquisitions (M&A) context. She talked about the off-cited example of eLandia, where the acquiring company basically had to write off an entire investment because it discovered that the entity purchased had a long running bribery scheme which artificially inflated the value of the company and post-acquisition, when the bribery scheme was stopped, the value plunged.

Wrage also noted that it is well-nigh impossible to get proper valuation on a potential acquisition target if bribery and corruption is occurring inside it. This is because if you take away the business generated from the bribery and corruption, what is the business worth? Put another way, what is your deal worth? Your inquiry needs to extend further than simply into the business as well. You need to understand any target’s sales model and understand how their business partners operate. Additionally, if their sales model is third parties, that is obviously your greatest risk.

Wrage’s thoughts echoed in many ways some of the discussion we saw in last year’s Department of Justice (DOJ)/Securities and Exchange Commission (SEC) FCPA Guidance, where for the first time, there was an extensive discussion about pre-acquisition due diligence, in addition to post-acquisition compliance integration, in the M&A context. The FCPA Guidance related that “most commonly, inadequate due diligence can allow a course of bribery to continue—with all the attendant harms to a business’s profitability and reputation, as well as potential civil and criminal liability.” The FCPA Guidance listed several hypotheticals which discussed pre-acquisition due diligence and that by engaging in such efforts a company may well be able to shield itself from Foreign Corrupt Practices Act (FCPA) liability after the merger occurs.

The FCPA Guidance also presented a fact pattern in its discussions of Declinations to Prosecute (Declination) where a US company was acquiring a foreign entity which was not previously subject to the FCPA. In one example, a US company received its Declination based upon its extensive pre-acquisition due diligence which allowed it to identify and halt the corruption. As there was no continuing misconduct post-acquisition, the FCPA was not violated. The clear import is that if this pre-acquisition due diligence was not performed; a Declination may not be forthcoming.

The bottom line from Wrage is that compliance is good for business. She made clear that ethical principles are a business advantage and not a business disadvantage. Having a strong compliance program in place also builds moral among employees. Lastly, Wrage believes that doing business ethically also builds good reputation with customers. There are numerous stakeholders for any corporation. Wrage has been one of the leading lights to demonstrate that by doing business ethically, and in compliance with anti-corruption/anti-bribery laws like the FCPA and the UK Bribery Act, a company can satisfy many of those constituency simultaneously.

The Blackhawks and the Bruins showed that professional hockey can be played at the highest level without the extracurricular activity that mars so many of the regular season games. So, just as doing business ethically and in compliance with international anti-corruption regimes is good for business, playing great hockey within the rules makes for not only great hockey to watch but improves the entire NHL hockey.

And who says a Texan, or any other Southerner for that matter, cannot fully appreciate hockey?

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

March 26, 2013

McNulty’s Maxim No. 3 and Response to Allegations of Bribery

In a Wall Street Journal (WSJ) article by Chris Matthews, Joe Palazzolo and Shira Ovide, entitled “U.S. Probes Microsoft Bribery Allegations”, they reported that the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) were investigating “kickback allegations made by a former Microsoft representative in China, as well as the company’s relationship with certain resellers and consultants in Romania and Italy”. A whistleblower alleged that an executive of Microsoft’s China subsidiary had told the whistleblower “to offer kickbacks to Chinese officials in return for signing off on software contracts”. Additionally, they reported that “investigators are also reviewing whether Microsoft had a role in allegations that resellers offered bribes to secure software deals with Romania’s Ministry of Communications”.

Interestingly, as reported by Chris Matthews in a WSJ post in Corruption Currents, entitled “Microsoft Responds to FCPA Allegations”, Microsoft publicly responded to the reports. Matthews reported that Deputy General Counsel (GC) John Frank wrote in a blog post “As our company has grown and expanded around the world, one of the things that has been constant has been our commitment to the highest legal and ethical standards wherever we do business”. Frank also said that “The matters raised in the Wall Street Journal are important, and it is appropriate that both Microsoft and the government review them.”

Commenting on this situation with Microsoft, Alexandra Wrage, President of Trace International, wrote an article on Forbes.com, entitled “Microsoft And The Rising Federal Scrutiny Of Bribery”, where she said, “All of this should not be discouraging to companies worried about complying with anti-bribery laws. Strong compliance programs, even those that fail to prevent all forms of bribery, do provide protection from liability. “[A] company’s failure to prevent every single violation does not necessarily mean that a particular company’s compliance program was not generally effective,” write the DOJ and SEC in their recently published Resource Guide to the FCPA. “[The] DOJ and SEC…do not hold companies to a standard of perfection,” the Guide continues. This may not be enough to guarantee corporate compliance officers a full night’s rest, but it should provide some comfort.”

Wrage also noted that the Microsoft investigation underscores that fact that with any company that does business internationally you cannot watch all the people, or indeed all the third parties, all the time and that violations of anti-corruption laws such as the FCPA or anti-bribery laws, such as the UK Bribery Act, are a constant risk in worldwide business operations. She believes that Microsoft, by all accounts, would appear a robust anti-bribery compliance program. She understands that Microsoft’s Standards of  Business Conduct intones a strict policy against bribes, quoting it for the following:

“Microsoft prohibits corruption of government officials and the payments of bribes or kickbacks of any kind, whether in dealings with public officials or individuals in the private sector. Microsoft is committed to observing the standards of conduct set forth in the United States Foreign Corrupt Practices Act and the applicable anti-corruption and anti-money laundering laws of the countries in which we operate.”

The company also requires all outside vendors to read and comply with the Microsoft Vendor Code of Conduct, which also prohibits incentives such as kickbacks or bribes.

But, as she says, for a large multinational like Microsoft, which has offices in more than 100 countries, it does not always mean that thousands of business partners all across the globe will be compliant all of the time. Indeed, as admitted by Microsoft Deputy GC Frank in his blog post, “In a company of our size, allegations of this nature will be made from time to time. It is also possible there will sometimes be individual employees or business partners who violate our policies and break the law. In a community of 98,000 people and 640,000 partners, it isn’t possible to say there will never be wrongdoing.”

I think the final quote from Frank above, points to the specific usefulness of the Guidance, which states, “In the end, if designed carefully, implemented earnestly, and enforced fairly, a company’s compliance program—no matter how large or small the organization—will allow the company generally to prevent violations, detect those that do occur, and remediate them promptly and appropriately.” These three clauses point to Paul McNulty’s three maxims but the Microsoft response points to McNulty Maxim No. 3, “What did you do about it?

I have asked Paul what he meant by this which he broke down into two parts. The first part is did you investigate it thoroughly and did you remediate those factors which led to the underlying issue? As reported by Matthews, Palazzolo and Ovide “The allegations in China were also the subject of a 10-month internal investigation that Microsoft concluded in 2010, according to people briefed on the internal investigation. The probe, conducted by an outside law firm, found no evidence of wrongdoing, these people said.” As noted above, DOJ and SEC lawyers are now looking at these allegations, as well as those issues in Romania and Italy.

The second part is what remediation did you do? At this point it is not clear what remediation, if any, will be appropriate so we may have to leave that prong open at this time. However, there is one other matter brought up by the Guidance that is certainly raised in the context of this Microsoft matter that should be looked at. It is government involvement. One of the nine factors listed in the US Sentencing Guidelines state, “the corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents”. Further, the Guidance makes clear throughout that a company benefits from self-disclosing and cooperating with the government. While it is not clear if Microsoft self-disclosed anything back in 2010 when it conducted its internal investigation, it does appear that it is cooperating with the DOJ and SEC at this time.

While several commentators have pointed to this Microsoft matter as an example of how difficult it might be to do business in full compliance with the US Foreign Corrupt Practices Act (FCPA) all the time, I draw a different lesson from this matter. I believe that an aggressive approach to McNulty Maxim No. 3 shows that it is not about how hard it is to do business internationally, or that the FCPA is too difficult to follow; but it is the strength of your compliance program and your response to allegations which should be the determinative factor for compliance. I think McNulty’s advice was good when I initially heard and I think it is good now. Moreover, it is a part of the FCPA Guidance which shows it is not just how McNulty might think through these issues but how the DOJ and SEC do so 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, 2013

November 19, 2012

The FCPA Guidance: An Exploration of ‘Corruptly’ and ‘Willfully’

I am back from my surgery and convalescence and I wanted to thank everyone for the good wishes and thoughts. I would also like to give a very big special thanks to Mary Shaddock Jones for her entire series of timely and topical articles that she and her associate Miller Flynt wrote while I was out. I would also like to thank Candice Tal, Founder and CEO of Infortal Worldwide and Alexandra Wrage, Founder and President of Trace International, for their articles as well. I hope that you enjoyed the articles from all of these great compliance practitioners.

Today I wanted to begin to look at the Department of Justice (DOJ) “A Resource Guide to the U.S. Foreign Corrupt Practices Act” (the “Guidance”), which was released last week and available (at no cost) here. My review will be through the prism of Major League Baseball (MLB) and the events last week where the owner of the Florida Marlins completely and utterly neutered the team through the fire sale give away of all of the team’s talent. The giveaway of the Marlins talent was so devastating that I can only say that the Houston Astros are no longer the worst team, nor have the lowest payroll, in baseball. Jeffrey Loria, owner of the Marlins, promised all of the Marlin fans, politicians and voters of south Florida that if they publicly funded a new stadium for him to the tune of $400MM, he would commit to paying for and fielding a competitive baseball team. Not only did he not tell the truth to those folks, he apparently continued to ‘dissemble’ while assembling his now traded talent. According to Sports Illustrated, “Shortstop Jose Reyes and left-hander Mark Buehrle, two of the five Marlins headed to Toronto in a pending blockbuster, are upset that the team broke verbal promises to them regarding trades, according to major-league sources. The Marlins do not award no-trade clauses, but club officials, while recruiting Reyes and Buerhle as free agents last offseason, assured both players that they would not be moved, sources said. Buehrle knew the Marlins’ history of dumping high-priced players, and it concerned him, according to a friend. Team president David Samson, however, told both Buehrle and his wife, Jamie, that the team was committed to a long-term vision, sources said. A source close to Reyes, asked if the shortstop also received verbal assurances from the Marlins that he would not be traded, responded, “The answer is yes. A vehement yes.””

I thought about the above while reading the Guidance. Initially I would note that despite the protestations of numerous of the FCPA commentariatti, the Guidance is an excellent resource for the compliance professional. It collects, in one very usable volume, the DOJ and SEC enforcement actions, Opinion Releases, current compliance best practices, and relevant Prosecutorial and Sentencing Guidelines. The item which caught my eye with regard to the Marlins giveaway of their players was the section on “What Does “Corruptly” Mean”. Fortunately for Loria, he is not subject to the FCPA as the definition cited by the DOJ reads as follows:

In order for a corporation to be criminally liable under the FCPA, it must be found to have acted corruptly. The word “corruptly” is used in order to make clear that the offer, payment, promise, or gift, must be intended to induce the recipient to misuse his official position; for example, wrongfully to direct business to the payor or his client, to obtain preferential legislation or regulations, or to induce a foreign official to fail to perform an official function.

The Guidance goes on to relate that the FCPA focuses on intent, so that it does not require that a corrupt act succeed in its purpose. Further, a foreign official need not solicit, accept or indeed receive a bribe for the FCPA to be violated. The Guidance points to the Innospec enforcement action in which “a specialty chemical company promised Iraqi government officials approximately $850,000 in bribes for an upcoming contract. Although the company did not, in the end, make the payment (the scheme was thwarted by the U.S. government’s investigation), the company still violated the FCPA and was held accountable.” Further this is why “Regardless of size, for a gift or other payment to violate the statute, the payor must have corrupt intent—that is, the intent to improperly influence the government official. The corrupt intent requirement protects companies that engage in the ordinary and legitimate promotion of their businesses while targeting conduct that seeks to improperly induce officials into misusing their positions.”

But beyond corruptly, for an individual to be criminally liable under the FCPA, that person must act ‘willfully’. The Guidance notes that the FCPA does not define ‘willfully’ but the Guidance points to its construction by federal court decisions. Indeed in US v. Kay, the US Supreme Court upheld jury instructions stated that willfully is “knowledge that [a defendant] was doing a ‘bad’ act under the general rules of law” thereby connoting a willful act is one which is committed both voluntarily and purposefully, and with a bad pursose in mind. The Guidance went on to cite the US Supreme Court in Bryan v. United States, for the proposition that “[a]s a general matter, when used in the criminal context, a ‘willful’ act is one undertaken with a ‘bad purpose.’ In other words, in order to establish a ‘willful’ violation of a statute, ‘the Government must prove that the defendant acted with knowledge that his conduct was unlawful.’”

So what if we look at Jeffery Loria under these two requirements of the FCPA? First, under the corporate requirement of ‘corruptly’ do you think that he misled the voters of Florida when he told them that if they built it, they (top notch ballplayers) will come because Loria would pay for them. Remember its “offer, payment, promise, or gift, must be intended to induce the recipient” but that payment does not have to be made, or in Loria’s case withdrawn. What about under the individual requirement of ‘willfully’ regarding Loria’s and the Marlin’s statements to the players it signed? Here the standard is “knowledge that [a defendant] was doing a ‘bad’ act under the general rules of law”. Were they doing a bad act when they promised that they would not be traded and then they were unceremoniously traded? I guess the bottom line is that Mr. Loria had better be glad he is not subject to the UK Bribery Act where bribery of both public officials and regular citizens is a violation of that law.

Or here in Houston we could simply celebrate that there is a worse owner than Jim Crane because, you know, we got new Astros uniforms from him. I feel better already.

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

November 16, 2012

Share more. Spend less. Reduce Risk.

Alexandra Wrage, President of TRACEEd. Note-today we have a guest post from Alexandra Wrage, President of  Trace International.

Well over a thousand people with an interest in enhancing transparency worldwide met in Brasilia for the International Anti-Corruption Conference last week to share best practices, brainstorm, promote new ideas and, often, just to complain about the slow pace of change.

At this conference, as elsewhere, three themes have emerged.

1.The burden on companies will continue to grow.

Governments hoping to have an impact on transnational crime recognize that exerting pressure on multinational companies is the most expedient way to proceed. Governments are hampered by legal obstacles and political sensitivities and cannot easily reach across borders to solve significant social, economic and security challenges. They can, however, require their companies or companies listed on their exchanges to work to reduce bribery (the FCPA and similar laws in other jurisdictions), curb the use of forced or trafficked labor (California Transparency in Supply Chains Act of 2012), reduce violence associated with conflict minerals (Dodd-Frank Wall Street Reform and Consumer Protection Act), and prevent money laundering, (various new initiatives impacting the financial services industry).

2.The current pace of expenditure on compliance is unsustainable.

The numbers of employees companies are expected to train on compliance topics, using both on-line and in-person training, is increasing. Many companies have determined that it’s simpler to just train everyone rather than invest the resources to sort and track different categories of employees. Companies are searching denied parties lists with increasing frequency. Ten years ago, many companies searched only the entity name and only upon contract renewal. Many now prudently search the entity name and the names of all owners, — and they search weekly or daily. The world of due diligence has probably changed the most dramatically as companies are encouraged to seek certainty in all of their relationships. Certainty isn’t available at any price, and near-certainty is very expensive indeed. Companies spend breathtaking sums to try to prove that a media report is not true, that a rumor is unfounded or that a government official’s golf buddy is not likely to trade on the relationship.

And that’s just for compliance with the FCPA. Now companies are looking at setting up parallel due diligence systems to vet their suppliers with respect to their use of conflict minerals or for egregious labor practices. The former may be the purview of the procurement department and the latter the responsibility of the labor and employment group. Multiple processes, occasionally duplicative and often without visibility across departments, result in mounting expense, compliance fatigue and employee cynicism.

3.Companies will have to choose between a more collective, shared-cost approach to compliance, doing too little or paying too much.

Companies have, on the whole, not been able to overcome their queasiness about ill-defined anti-trust concerns or their natural instincts to avoiding sharing information with competitors. That needs to change for the business community to begin stemming the financial hemorrhage and increasing levels of risk.

Here are just three examples of how this could work. Spoiler alert: one is a TRACE project of which we’re very proud.

On-line training: Currently, companies choose either to create their online training in-house with some combination of video vignettes and PowerPoints or pay for generic or moderately tailorable off-the-shelf training that isn’t always relevant to their industry or the regions in which they operate. Instead, industry groups could get organized.  They could pool the resources of their members to create an on-line training module tailored to the specific needs of that industry, with carefully selected case studies relevant to their respective employees, pay a third party LMS to host the module and then share the product amongst the contributors. The benchmarking and exchange of expertise around the roll-out ensures a high-quality product. Everyone gets trained to the same high standard and the cost is shared.

Model policies: Most compliance experts agree that a purely off-the-shelf compliance program is inadequate and companies simply cut and paste their program at their peril. On the other hand, there are component parts of any compliance program that are largely duplicative and vary little. Companies can benefit from perusing the policies of other multinationals and highlighting the aspects relevant to their business. Once this benchmarking step is complete, in-house counsel or compliance experts are in an informed position and can speak to their outside counsel knowledgeably, making the process more meaningful and less expensive. Similarly, access to databases of policies can support on-going benchmarking efforts for companies keen to maintain their state-of-the-art policies. The United Nations Office on Drugs and Crime maintains such a database with the policies of the Global Fortune 500. Industry groups could also work to pool redacted policies for the benefit of all members.

Due diligence: Currently, companies – in-house or through vendors – collect baseline due diligence information about their third party representatives including ownership, ties to the government, past misconduct, denied party hits and compliance certifications. And then the next company does the same thing all over again. The collection of this first round of information is labor-intensive and requires attention to detail, but – apart from the fact of the relationships themselves – none of the information gives rise to either competitive or anti-trust concerns.  Intermediaries themselves will tell you that they are being bludgeoned with repetitive, near-identical requests for information from multiple companies. Instead, third parties could be invited to answer all questions and upload documentation once to a secure global platform, subject to rigorous verification and continuous watch list screening, and all companies could have access to this baseline due diligence with the third party’s approval. (As foreshadowed, TRACE has built this public tool – TRACnumber.com)  Companies pay nothing. Third party intermediaries pay a modest fee to fund the platform and the translation and verification process. The information is shared, saving both parties the cost and delay of duplicative efforts. (Click here to see a 90-second animated video on TRAC.

There are a lot of smart and creative people working in the field of compliance, including the intrepid but briefly incapacitated host of this blog. Accomplishing the more basic tasks through these and other collective approaches will free up time and budget, enabling companies to direct their more complex problems to these experts for carefully tailored solutions.

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.

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