FCPA Compliance and Ethics Blog

July 31, 2014

Lessons Learned from the Beautiful Game: Compliance, FIFA and the World Cup

World Cup e-BookThe 2014 World Cup is over and in the books. It was a great tournament for probably everyone across the globe but the host nation of Brazil. While there are many lessons to be learned from this event, the lead up to and events of this year’s World Cup provide some interesting insights for the compliance practitioner. I have collected some of my writings on FIFA, the World Cup and the world of the ‘Beautiful Game’ in one volume, entitled, “Lessons Learned from the Beautiful Game: Compliance, FIFA and the World Cup”. It is now out and available from amazon.com in Kindle e-reader format.

In this short volume I take a look at some for the following topics.

  • FIFA and its selection process for the 2022 World Cup in Qatar.
  • Performing due diligence and World Cup bids.
  • Referee Professionalism as an anti-corruption tool
  • What are some of the consequences for failure to set a proper tone-at-the-top.
  • Leadership lessons from managers of some of the world’s top soccer clubs.
  • Lessons learned from both compliance successes and failures.

I am sure that you will find this e-Book gives you some ideas for your anti-corruption compliance program, no matter which FIFA country you might practice compliance in. Finally, you cannot beat the price, as it is only $3.99. You can order a copy by going to amazon.com or by simply clicking here.

November 8, 2011

Jeannette Rankin, Infosys, Ethics and Compliance

Who was Jeannette Rankin and why do we celebrate her today in the context of ethics and compliance? She was the first female to be elected to Congress, as a Representative from Montana in the 1916 elections. In 1917 she was one of 50 votes opposing America’s entrance into World War I. She had the courage to vote with the conviction of her conscience. Her reason for opposing entry into the War, how could Congress support a war to “make the world safe for democracy” yet still refuse “the small measure of democracy to the women of our country” by denying them the right to vote? Vilified after this vote, she was not returned to Congress in the next election.

History is filled with ironies and in one of the most ironic twists that could be imagined, Jeannette Rankin was returned to Congress from Montana in 1940. In 1941 she was the sole vote, of 389, against America entering World War II against Japan, declaring “As a woman, I can’t go to war and I refuse to send anyone else.” As noted in the November 2011 issue of the ABA Journal, “She told her constituents, that she’d voted her convictions.”

I thought about Jeannette Rankin’s story as I was reading an article in the November issue of the Harvard Business Review (HBR), entitled “Why Don’t We Try To Be India’s Most Respected Company?” which was an interview by HBR’s Anand Raman with N. R. Narayana Murthy who was a founder of the Indian company Infosys and its most recent Chairman of the Board. I often write about “Tone at the Top”, noting that not only does the US Department of Justice (DOJ) mandate it as one of the requirements for a best practices compliance program, but in reality it is the only way to set the tone for a corporation’s ethics and compliance program.

Murthy said that he was one of the original founders of Infosys and his vision of the company included the question “Why don’t we aim to be India’s most respected company?” To obtain the respect of governments, this meant to “never violate any laws”. To help to achieve this goal, the founders agreed to create a “values-based organization.” Murthy said that he believed that business would come if the company was respected.

He said that while it took some time for this ethical corporate reputation to take hold, eventually it did. One of the results was that corrupt government officials stopped asking the company for ‘favors’. This ethical reputation also led to the generation of greater and greater business because “our clients entrusted us with increasingly bigger projects.” He said that “you have to learn to stand by your principles; it’s wrong to believe that you have to bribe your way to success.”

Murthy said that Infosys managers are expected to lead by example, explaining that “Leaders have to be careful not to create dissonance between what they say and do.” One example he discussed was the consistency of discipline. He cited the examples of board members, who paid “heavy fines for what could be considered minor infractions.” Murthy believes that “Setting an example at the top is the best way to instill confidence throughout the company.”

So what do Jeannette Rankin’s two votes against America entering two World Wars have to do with Murthy’s interview? They both laid down their beliefs in the most transparent manner possible. I wondered what would be the effect if a US company Chief Executive Officer gave such an interview. Even if his or her company was a values-based organization, would they have the courage of their conviction to speak about it in such an open manner? (We will leave aside the question of whether the Law Department would allow them to do so.) Nevertheless imagine the effect it would have on employees and the commitment to doing business in an ethical manner if they did so.

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This Week in FCPA, Episode 22 is up. Howard Sklar and I debate of the use of DPAs in the UK;  Freeport-McMoRan, United Steelworkers, and paying for police protection; Embraer; Tognum resignation; Dadeleh; Allianz;  plus a Breakout on Training.

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

© Thomas R. Fox, 2011

February 28, 2011

After the Contract is Signed: How Frequently Should You Perform (FCPA) Due Diligence

Yesterday we participated in a workshop at the 2011 SCCE Utilities & Energy Compliance and Ethics Conference with Scott Lane, President of the Red Flag Group. In his presentation, he discussed a White Paper that he and his colleague James Walton recently released entitled, “Best Practices in Conducting FCPA /Anti-bribery Due Diligence”. We went back and read the article and found it to be an excellent resource for many questions relating to due diligence as required by the Foreign Corrupt Practices Act (FCPA) or any best practices anti-bribery and anti-corruption program. Today we will focus on the question of how often should a company perform due diligence on its foreign business relationships.

Lane and Walton begin by noting that due diligence is very hard to keep consistent as no two are ever the same. They believe it is important to keep a close watch on information sources, to search for improved providers, and ensure that the information you are looking at is useful for the business needs. The specific time frame for ongoing due diligence depends on the risk profile of a company’s foreign business relationship. They provide three benchmarks: (1) annually; (2) biennially; or (3) at contract renewal.

In making this determination, the authors suggest several risk factors which a company should evaluate in making this determination regarding the frequency of due diligence. these include:

Physical allocation of the partner: The authors define this risk as whether the foreign business partner is located in, or providing services to your company in a geographic area recognized as a high risk country. Reference can be made to the Transparency International Corruption Perceptions Index or another recognized country risk rating such as Country-Check.

Findings of the original due diligence: The authors define this factor as one based upon prior due diligence investigation. The key issues here are (1) were any Red Flags identified and (2) how were these Red Flags cleared?  It is assumed that if a Red Flag was raised in prior due diligence, then the Red Flag was cleared to enable the business relationship to come into existence. This also brings up an important point about Red Flags that is often overlooked. A Red Flag should not automatically mean that a foreign company cannot become a foreign business partner of your company. It does mean that the Red Flag must be investigated and cleared before such a foreign business relationship is created.

Type of partner: There are a side variety of foreign business relationship which require due diligence under the FCPA. As noted in several recent Deferred Prosecution Agreements, Alcatel-Lucent, Maxwell Technologies and the Panalpina settlements,  these can include resellers, agents, intermediaries, consultants, representatives, distributors, teaming partners, contractors and suppliers, consortia and joint venture partners. Those foreign business partners which are actively promoting your company in the market place put your company at the greatest risk and should therefore require more due diligence.

Type of customers the partner sells to: Most companies understand the motto  “Know Your Customer” but under FPCA, and other anti-bribery best practices, your company must also know the customers that your foreign business partner sells to or, in any other manner, interacts with. The more interaction with foreign governmental officials that your foreign business partner engages in, the more due diligence scrutiny is appropriate.

Amount of business being transacted by the partner: The authors point to this risk factor by noting that a company should keep a close watch on the dollar volume of business that it may engage in with a foreign business representative. We would suggest that a company should also review the relevant percentages of services or goods sold or services rendered for each foreign business partner. A company should certainly desire to know if a certain vendor provided a very high percentage of raw materials or any services critical to the delivery of products. Additionally if most, or all, of a company’s products are sold by or through one foreign business partner, this may call for greater due diligence scrutiny.

The authors end by noting that they believe the ideal solution for renewal of due diligence is a mixed approach based on risk. In most cases, renewals should be done annually or at least every two years. However, best practice also requires regularly checking whether the partner, or its directors, shareholders or senior executives are listed on any watch lists. This should be completed periodically – at least monthly.

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

© Thomas R. Fox, 2011

 

 

February 3, 2011

The ERC on Whistle Blowing Workplace Misconduct: Attitude Matters

In December 2010, the Ethics Resource Center (ERC) released a White Paper entitled, “Blowing the Whistle on Workplace Misconduct.” This White Paper report detailed several findings that the ERC had determined through surveys, interviews and dialogues. Although the article reviewed types of misconduct broader than the compliance and ethics sphere, we believe that the ERC’s findings can be of particular use to the Foreign Corrupt Practices Act (FCPA) compliance practitioner in designing, assessing and revising a company’s whistle-blower program.

Need to Report Misconduct?
The ERC began by discussing some of the results of its own 2009 survey entitled, “Reporting: Who’s Telling You What You Need to Know, Who Isn’t and What Can You Do About It”. This report determined that over 60% had observed and reported misconduct within their respective companies, most usually to an internal authority. This led the ERC to conclude that almost 40% of employees who had observed misconduct did not step forward to report it and noted that convincing employees to step forward when they do observe misconduct is a challenge for any compliance practitioner. ERC opined that to remedy this situation, some companies have linked ethical conduct to performance reviews to make clear that good behavior is a job expectation. Other companies, believing that some workers do not report violations because they fear retaliation, have set up hotlines that assure reporting can be done in private with less risk of being seen by a co-worker. Even Congress have gotten into the whistle blower’s action, with the inclusion of legal protections for whistleblowers and the establishment monetary rewards for tipsters to encourage insiders to come forward with information that could send wrongdoers to jail for US securities violations in the 2010 Dodd-Frank Act.

Retaliation and Methods of Reporting
The ERC 2009 Survey also found that up to 15% of employees who had reported misconduct felt that they had been retaliated against. The retaliation conduct had ranged from receiving the cold should from fellow employees to job loss or even felt threatened by physical retaliation. This finding was contrasted with the discovery that almost all who reported misconduct did not use an anonymous reporting hotline but directly to another person in the company. The reason for this was that most employees felt that their reports would be taken more seriously if there were shared face-to-face with someone else in the company. This reporting was to both immediate supervisors and upper management.

The ERC believes that understanding the method by which employees choose to report misconduct can assist a company to understand the motivation involved in reporting and how to encourage that motivation. ERC has confidence that informs the compliance practitioner that the decision by an employee to report to one’s direct supervisor versus higher management is related to the ethical culture and climate of the workplace. In strong ethical cultures, with a tone at the top that makes it clear that ethics do matter; where supervisors aggressively reinforce the ethics message; and where both employees and managers alike are held to high ethical standards, more employees report to their direct supervisor. Conversely, reporting to higher management increases in weaker cultures and among employees who feel pressure not to report such misconduct or for those employees who are not confident that that their direct managers are fully committed to strong ethics. These concerns may also include the fear of retaliation for reporting misconduct. However, it may be that employees simply lack confidence that their direct supervisor will pursue their reports. In those instances, turning to senior management can provide the safety of the organizational structure and a belief that higher management has the resources to address the issue effectively.

A Culture of Ethics Matters
The ERC notes in its White Paper report that the key take-away from all of the data is that a culture of ethics within a company does matter. Such a culture should start with a strong commitment to ethics at the top, however it is also clear that this message must be reinforced throughout all levels of management, and that employees must understand that their company has the expectation that ethical standards are vital in the business’ day-to-day operations. If employees have this understanding, they are more likely to conduct themselves with integrity and report misconduct by others when they believe senior management has a genuine and long-term commitment to ethical behavior. Additionally those employees who report misconduct are often motivated by the belief that their reports will be properly investigated. Conversely, most employees are less concerned with the particular outcome than in knowing that their report was seriously considered.

For the FCPA compliance practitioner the message would seem clear. It is not just “Tone at the Top” but also in the middle and below. If all employees have a reasonable belief in an ethical culture, these same employees can be your best resource to prevent, deter and detect any compliance violations going forward. The ERC ends its White Paper by noting that when a company succeeds at building an ethical culture, with strong training programs and committed management, reporting of misconduct goes up and wrongdoing goes down. Attitude matters. If you wish to boost the odds of ethical conduct in your company, attitude and culture are places for focus.

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

© Thomas R. Fox, 2011


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