FCPA Compliance and Ethics Blog

April 23, 2014

Gifts, Travel and Entertainment Under the FCPA – Part II

Travel and GiftsEd. Note – I know yesterday I said this would be a two-part series but as usual I got carried away so it has become a three part series. Today I review the Opinion Releases and Enforcement Actions dealing with gifts, travel and entertainment.

A. Opinion Releases

  1. Gifts

In the early 1980s the Department of Justice (DOJ) issued three Opinion Releases related to gifts under the Foreign Corrupt Practices Act (FCPA). While these Opinion Releases are clearly dated, they do remain instructive. In Opinion Release 82-01, the DOJ approved the gift of cheese samples made to Mexican governmental officials, made by the Department of Agriculture of the State of Missouri to promote the state of Missouri’s agricultural products. However the value of the cheese to be presented was not included. In Opinion Release 81-02, the DOJ approved a gift from the Iowa Beef Packers, Inc. to officials of the Soviet Ministry of Foreign Trade of its packaged beef products. The total value of all the samples presented was estimated to be less than $2,000 and the Iowa Beef Packers, Inc. averred that the individual sample packages would not exceed $250 in value. In Opinion Release 81-01, Bechtel sought approval to use the SGV Group to solicit business on behalf of Bechtel and Bechtel had proposed to reimburse the SGV Group for gift expenses incurred in this business solicitation. The DOJ approved gifts to be given by SGV in the amount of $500.00.

  1. Travel and Lodging for Governmental Officials

 Prior to the FCPA Guidance, the DOJ issued three Opinion Releases which offered guidance to companies considering whether, and if so how, to incur travel and lodging expenses for government officials. These facts provided strong guidance for any company that seeks to bring such governmental officials to the US for a legitimate business purpose. In Opinion Release 07-01, the Company was desired to cover the domestic expenses for a trip to the US for a six-person delegation of the government of an Asian country for an educational and promotional tour of one of the requestor’s US operations sites. In the Release the representations made to the DOJ were as follows:

  • A legal opinion from an established US law firm, with offices in the foreign country, stating that the payment of expenses by the US Company for the travel of the foreign governmental representatives did not violate the laws of the country involved;
  • The US Company did not select the foreign governmental officials who would come to the US for the training program;
  • The delegates who came to the US did not have direct authority over the decisions relating to the US Company’s products or services;
  • The US Company would not pay the expenses of anyone other than the selected officials;
  • The officials would not receive any entertainment, other than room and board from the US Company;
  • All expenses incurred by the US Company would be accurately reflected in this Company’s books and records.

In Opinion Release 07-02 the Company desired to pay certain domestic expenses for a trip within the US by approximately six junior to mid-level officials of a foreign government for an educational program at the Requestor’s US headquarters prior to the delegates attendance at an annual six-week long internship program for foreign insurance regulators sponsored by the National Association of Insurance Commissioners (NAIC). In the Release the representations made to the DOJ were as follows:

  • The US Company would not pay the travel expenses or fees for participation in the NAIC program.
  • The US Company had no “non-routine” business in front of the foreign governmental agency.
  • The routine business it did have before the foreign governmental agency was guided by administrative rules with identified standards.
  • The US Company would not select the delegates for the training program.
  • The US Company would only host the delegates and not their families.
  • The US Company would pay all costs incurred directly to the US service providers and only a modest daily minimum to the foreign governmental officials based upon a properly presented receipt.
  • Any souvenirs presented would be of modest value, with the US Company’s logo.
  • There would be one four-hour sightseeing trip in the city where the US Company is located.
  • The total expenses of the trip are reasonable for such a trip and the training which would be provided at the home offices of the US Company.

Lastly, is Opinion Release 12-02, in which the Requestors, 19 non-profit adoption agencies located in the US, asked the DOJ about bringing certain foreign governmental officials involved in the foreign country’s adoption process to the US. All the foreign governmental officials were involved in the process of allowing children from their country go through the adoption process with the US non-profits involved. The trips to the US would be for two days of meetings. The purpose of the visit would be to demonstrate the Requestors’ work to the government officials so that the officials can see how adopted children from the foreign country had adjusted to life in the US and to help the Requestors learn how they can provide that information to the foreign country’s government with appropriate information during the adoption process. The Requestors would allow the government officials to meet with the Requestors’ employees and to inspect the Requestors’ offices and case files from previous adoptions. The foreign country’s government officials would also meet with families who had adopted children from their country and learn more about the Requestors’ work.

The Requestors stated that they would pay for the following:

  • Business class airfare on international portions of flights for ministers, members of the legislature, and the director of the Orphanage Agency; coach airfare for international portions of flights for all other government officials; and coach airfare for domestic portions of flights for all government officials;
  • Two or three nights hotel stay at a business-class hotel;
  • Meals during the officials’ stays; and
  • Transportation between agencies and local transportation.

What can one glean from these three Opinion Releases? Based upon them, it would seem that a US company could bring foreign officials into the US for legitimate business purposes. A key component is that the guidelines are clearly articulated in a compliance policy. Based upon these Releases the following should be incorporated into a compliance policy regarding travel and lodging:

  • Any reimbursement for air fare will be for economy class, unless it is a long haul international flight, high ranking foreign officials or those entitled to travel business class by contract.
  • Do not select the particular officials who will travel. That decision will be made solely by the foreign government.
  • Only host the designated officials and not their spouses or family members.
  • Pay all costs directly to the service providers; in the event that an expense requires reimbursement, you may do so, up to a modest daily minimum (e.g., $35), upon presentation of a written receipt.
  • Any souvenirs you provide the visiting officials should reflect the business and/or logo and would be of nominal value, e.g., shirts or tote bags.
  • Apart from the expenses identified above, do not compensate the foreign government or the officials for their visit, do not fund, organize, or host any other entertainment, side trips, or leisure activities for the officials, or provide the officials with any stipend or spending money.
  • The training costs and expenses will be only those necessary and reasonable to educate the visiting officials about the operation of your company.

Incorporation of these concepts into a compliance program is a good first step towards preventing any FCPA violations from arising, but it must be emphasized that they are only a first step. These guidelines must be coupled with active training of all personnel, not only on the compliance policy, but also on the corporate and individual consequences that may arise if the FCPA is violated regarding gifts and entertainment. Lastly, it is imperative that all such gifts and entertainment are properly recorded, as required by the books and records component of the FCPA.

B. Enforcement Actions

Mike Volkov refers to the FCPA Paparazzi when he talks about those FCPA practitioners who confuse FCPA information with FCPA scare tactics and manipulate legal reasoning and practical advice with “marketing” using fear as opposed to reliable and accurate information. In a recent blog post, entitled “The So-Called Re-Emergence of Gifts, Meals and Entertainment as a Compliance Problem” Volkov bemoaned recent FCPA Paparazzi client alerts which said that the DOJ was now gunning after companies for FCPA transgressions in this area.

But one point Volkov raised for consideration by the compliance practitioner was the overall management of these risks. He asked the following questions: “Who is responsible for approving expenditures? What controls are in place for ensuring that money is used for proper purposes? How are these expenditures monitored? Who watches the person responsible for controlling the money and what controls are in place to monitor their behavior?” All good questions, and all questions that the compliance function should be able to answer going forward.

While there were three of enforcement actions in 2013 and one in 2014 where gifts, travel and entertainment were discussed. In only one of the four such enforcement actions were gifts, travel and entertainment discussed, where over a period of 15 months these actions were the primary cause of the violation. That matter was the Diebold enforcement action. In all others, HP, Weatherford and Stryker, the gifts, travel and entertainment matters were all ancillary to the primary illegal conduct at issue. This is consistent with DOJ enforcement of the FCPA so Volkov rights notes, the FCPA Paparazzi are howling at the moon once again.

Travel and Entertainment Enforcement Expense Box Score

Company Trip Locations Trip Costs & Perks Company Facilities Present
Lucent Technologies DisneyWorld, Hawaii, Las Vegas, Grand Canyon, Niagara Falls, Universal Studios, NYC $10 million in trips for 1000 Chinese governmental officials, including $34,000 for five days of sightseeing None of the travel destinations
Ingersoll-Rand Trip to Florence after trip to company facility in Vignate, Italy $1000 ‘pocket money’ per attendee Facilities in Vignate but not in Florence
Metcaf & Eddy First trip – Boston, Washington, D.C., Chicago and Orlando. Second trip – Paris, Boston and San Diego. First Class Travel and trip expenses for Egyptian governmental official and his family. Cash payments prior to trips of 150% of estimated daily expenses. Wakefield Mass., not in Washington DC, Chicago, Paris or DisneyWorld
Titan Corporation Reference in company books and records of $20,000 for promotional travel expenses. Not clear if ever funded (Remember a promise to pay equals making a payment under the FCPA)
UTStarcom Hawaii, Las Vegas and NYC Up to $7 million on gifts and all expense paid trips to US No company offices present in any of the travel destinations
Diebold Europe, with stays in:

  • Paris,
  • Amsterdam,
  • Florence,
  • Rome

In the US with visits to:

  • Disneyland,
  • Grand Canyon,
  • Napa Valley,
  • Las Vegas
$1.6MM to employees of Chinese state-owned banks; $175K to employees of Indonesian state-owned banks No company offices present in any of the travel destinations
Weatherford
  • Trip to Germany for the World Cup
  • Honeymoon for Sonatrach official’s daughter
  • Trip to Saudi Arabia for religious holiday
Payment of $24,000 in cash advance for Algerian government officials visiting Houston No legitimate business purpose for any of the business travel
Stryker NYC and Aruba $7000 for Polish gov official and wife No company offices present in any of the travel destinations
HP Las Vegas $35,000 in travel expenses paid for Polish gov official No company offices present in any of the travel destinations

Tomorrow we will tie it all together for you.

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

March 19, 2014

Miners Triumph and Opinion Release 14-01

Miners Win NCAAOn this date in 1966, the Texas Western University (now UTEP) Miners won the NCAA Basketball Championship, beating the University of Kentucky Wildcats. Now the first round has not even started by March 19, but it is not the date that made this event so noteworthy but the character of the teams. The Miners were the first team to start five African-Americans to win the NCAA championship. Adolph Rupp, who was making his final NCAA championship appearance that night after a long and storied career, coached the Wildcats. But on this night, the Miners clearly outplayed Rupp’s Wildcats, dominating them from the start to the finish.

I was thinking about the Miners and their triumph when I received a copy of the first Opinion Release of 2014, appropriately designated Opinion Release 14-01. In 14-01, the Department of Justice (DOJ) opined that paying a foreign government official for monies he was owed in the sale of a business interest that he owned prior to becoming a foreign government official would not be prosecuted as a Foreign Corrupt Practices Act (FCPA) violation. As intuitive as this decision might sound, there is, nevertheless, significant information for the compliance practitioner to take away from 14-01.

Background Facts

The Requestor had purchased Foreign Company A in 2007, from the Foreign Shareholder when he was a private citizen. To guarantee Foreign Shareholder’s participation, the parties’ agreement contained a five-year lock-in period that prohibited Foreign Shareholder from selling his interest prior to January 1, 2012. The Agreement did, however, allow Foreign Shareholder to leave Foreign Company A before the end of the five-year period if he were appointed to a minister level position or higher in the Foreign Country’s government.

In December 2011, Foreign Shareholder became a foreign government official under the FCPA when he was appointed to serve as a high-level official at Foreign Country’s central monetary and banking agency (“Foreign Agency”). Foreign Agency is responsible for bank and financial industry regulation and monetary policy. Upon his appointment, the Foreign Shareholder ceased to have any role or function at Foreign Company A, other than as a passive shareholder.

The now the foreign government official desired to sell his final interest in the company. However, under the formula for the repurchase of his interest, said interest was at zero value, primarily due to the financial crisis of 2008-9. Apparently the now foreign government official threatened to either sue or sell his interest to a third party and the Requestor decidedly did not want either eventuality. The parties agreed to another form of valuation and sought approval from the DOJ through its Opinion Release procedure regarding how to pay the now foreign government official under this new valuation.

Representations and Warranties by the Parties

The foreign government instrumentality involved did not regulate the Requestor but the Requestor has done business with said instrumentality in the past and would continue to do so. The now foreign government official informed the DOJ that he had not in the past “influenced or sought to influence, any decisions by Foreign Agency, Foreign Country’s government, or any third party with respect to” the entities in question and would not do so in the future. Additionally, the Requestor provided separate internal communications to the employees of the entity in question to the effect that their former owner was now a foreign government official and that “he is prohibited from participating in any discussion, consideration, or decision, or otherwise influencing any decision relating to the award of business” to the entity in question.

There were three additional representations, which I found significant, they were:

  • Requestor obtained a representation from now foreign government official that he has disclosed his ownership interest and the proposed sale of the shares in the entity in question to the relevant government authorities of Foreign Country and the relevant department at Foreign Agency, and the relevant government authorities have informed him that they approve or do not object to the sale of the shares.
  • Foreign Shareholder has warranted in writing that any payment to him to purchase the shares will be made to him solely as consideration for the shares, not in his official capacity or in exchange for any present or expected future official action.
  • The Requestor has received written assurance from local counsel in Foreign Country that the purchase of the shares is lawful in Foreign Country. 

DOJ Analysis

In its analysis, the DOJ focused on several factors. Initially, the DOJ noted that the commercial relationship began far before the individual at issue became a foreign government official. Further, even if the sales contract was not followed, because under it the foreign official would not have received fair value in the buy-out, the Requestor presented, “legitimate business considerations, prompted and justified the renegotiation of the buyout formula contained in the 2007 Agreement.” This justification was coupled with the new valuation set by “a leading, highly regarded, global accounting firm (the “Firm”) to determine the Shares’ value” and the apparent sharing of the entity’s financial information with the DOJ. The DOJ noted, “Requestor’s decision to engage the Firm to serve as the independent and binding arbiter of the value of the Shares provides additional assurance that the payment reflects the fair market value of the Shares, rather than an attempt to overpay Foreign Shareholder for a corrupt purpose. Neither Requestor nor Foreign Shareholder requested or obtained conditions or limitations on the valuation or the valuation formula prior to engaging the Firm, and the valuation was carried out strictly in accord with the terms of the engagement. There is no indication of either party requesting a minimum or specific valuation from the Firm or attempting to improperly influence the valuation.”

Equally important was the transparency involved. There was an “appropriate and meaningful disclosure of the parties’ relationship”. There was disclosure by the government official to his government of the relationship and pending sale. The “relevant government authorities of Foreign Country and the relevant department at Foreign Agency, and the relevant government authorities have informed him that they approve or do not object to the sale of the Shares.” Lastly, both the Requestor and the foreign government official involved had averred that he would not assist the US Company in obtaining or retaining business.

Discussion

For the compliance practitioner, there are several key points to consider. The first point is found in a footnote and it reads, “Following Requestor’s initial submission, the Department sent Requestor a letter seeking additional information on July 25, 2013. Requestor provided a partial response by letter on September 19, 2013, which was accompanied by significant backup documentation. Thereafter, the Department and counsel for Requestor had several follow up discussions to clarify certain issues. On February 13, 2014, Requestor provided a final submission that addressed the last outstanding issues raised by the Department.” This is the first time that I recall seeing a time line laid out in an Opinion Release. This gives a compliance practitioner some idea of the time frames involved in the process.

The second is the use of representations and warranties by the parties. In Opinion Release 13-01 a key component was an opinion from the Chief Legal Office of the foreign official’s country that the conduct in question would not violate that country’s laws. However in 14-01, the DOJ accepted representations that the foreign official in question would not pass on business in which he either had an interest or help the Relator to ‘obtain or retain’ business with the agency at which the foreign official now worked. This type of evidence is something that a company should now consider when designing protocols to satisfy issues similar to those presented in 14-01.

Next is the quality and quantity of payment(s) to be made to the now foreign official to cash him out and purchase his interest. Here the parties agreed to an independent valuation by an internationally recognized accounting firm. This provides some type of arms-length analysis. It also provides a market based approach to the payment issue so that there is evidence of true (or perhaps truer) market value, not some arbitrary number agreed to by the parties.

Finally, all the parties seemed to have documented everything. This clearly states to me the need for documentation, which can be reviewed and assessed by a regulator. As I often say the three most important things in FCPA compliance are: Document, Document and Document. I believe that Opinion Release 14-01 makes this point even clearer.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

January 16, 2014

Each Case is Unique – Drawing Lessons from Opinion Release 13-01

7K0A0032“Each case turns on its own facts.” How many times have you heard a representative of the Department of Justice (DOJ) or Securities and Exchange Commission (SEC) make that statement at a conference or other public event? The reality is that this is true and, in the context of Foreign Corrupt Practices Act (FCPA), both regulators look at the facts and circumstances around each case in making a wide range of assessments. While this is frustrating to business types, as a lawyer I find it to be not only an appropriate analysis but also an accurate way in which to look at things.

Late in 2013 the DOJ issued its only Opinion Release, that being Opinion Release 13-01. One of the things that this Opinion Release stands for is that each fact scenario presented under the FCPA must be evaluated on its own facts. While this maxim is certainly true, I believe that the Opinion Release goes further and provides significant information to the compliance practitioner for charitable donations going forward.

Facts

The Requestor is a partner with a US law firm which represents Foreign Country A in various international arbitrations. This business relationship has enabled the law firm to bill Foreign Country A for over $2 million throughout the past 18 month; it is further anticipated that in 2014, the fees on matters for Foreign Country A will exceed $2 million. During the course of representation, the Requestor has become a personal friend of Foreign Official, who works in Foreign Country A’s Office of the Attorney General (the “OAG”). This Foreign Official’s daughter suffers from a severe medical condition that cannot effectively be treated in Foreign Country A or anywhere in the region. The physicians treating Foreign Official’s daughter have recommended that she receive inpatient care at a specialized facility located in Foreign Country B. Requestor reports that the treatment will cost between approximately $13,500 and $20,500 and that Foreign Official lacks financial means to pay for this treatment for his daughter. The Requestor has proposed to pay the medical expenses of the daughter of this foreign office.

Representations

The Requestor made the following representations in submitting the request for an Opinion Release.

  • The Requestor’s intention in paying for the medical treatment of Foreign Official’s daughter is purely humanitarian, with no intent to influence the decision of any foreign official in Foreign Country A with regard to engaging the services of the Law Firm, Requestor, or any third person.
  • The funds used to pay for the medical treatment will be Requestor’s own personal funds. The Requestor will neither seek nor receive reimbursement from the Law Firm for such payments.
  • The Requestor will make all payments directly to the facility where Foreign Official’s daughter will receive treatment in Foreign Country B. Foreign Official will pay for the costs of his daughter’s related travel.
  • Foreign Country A is expected to retain the Law Firm to work on one new matter in the near future. Requestor is presently unaware of any additional, potential matters as to which Foreign Country A might retain the Law Firm. However, if such a matter develops, Requestor anticipates that Foreign Country A would likely retain the Law Firm given its successful track record and their strong relationship.
  • Under the law for Foreign Country A, any government agency, such as OAG, that hires an outside law firm must publicly publish a reasoned decision justifying the engagement. It is a crime punishable by imprisonment under the penal code of Foreign Country A for any civil servant or public employee to engage in corrupt behavior in connection with public contracting.

In addition to the representations made by the Requestor, there was also information presented which showed that the Foreign Official and Requestor have discussed this matter transparently with their respective employers. Both the government of Foreign Country A and the leadership of the Law Firm have expressly indicated that they have no objection to the proposed payment of medical expenses. Additionally, the Requestor has provided a certified letter from the Attorney General of Foreign Country A that represents the following:

  • The decision by the Requestor to pay for or not to pay for this medical treatment will have no impact on any current or future decisions of the OAG in deciding on the hiring of international legal counsel.
  • In the opinion of Foreign Country A’s Attorney General, the payment of medical expenses for Foreign Official’s daughter under these circumstances would not violate any provision of the laws of Foreign Country A.

DOJ Analysis

In its analysis, the DOJ noted that “A person may violate the FCPA by making a payment or gift to a foreign official’s family member as an indirect way of corruptly influencing that foreign official. See United States v. Liebo, 923 F.2d 1308, 1311 (8th Cir. 1991). However, “the FCPA does not per se prohibit business relationships with, or payments to, foreign officials.” FCPA Opinion Release 10-03 at 3 (Sept. 1, 2010). Rather “the Department typically looks to determine whether there are any indicia of corrupt intent, whether the arrangement is transparent to the foreign government and the general public, whether the arrangement is in conformity with local law, and whether there are safeguards to prevent the foreign official from improperly using his or her position to steer business to or otherwise assist the company, for example through a policy of recusal.”

But I found the meat of the analysis to the following line of the Opinion Release, “the facts represented suggest an absence of corrupt intent and provide adequate assurances that the proposed benefit to Foreign Official’s daughter will have no impact on Requestor’s or Requestor’s Law Firm’s present or future business with Foreign Country A.”

Discussion

This analysis was based on several factors which are worth highlighting:

  • No role in obtaining or retaining business - The Foreign Official involved does not play any role in the decision to award Foreign Country A’s legal business to Law Firm.
  • Full transparency - Both the Requestor and Foreign Official informed their respective employers of the proposed gift and neither has objected.
  • The gift is not illegal under local law - The Attorney General of Foreign Country A has expressly stated that the proposed gift is not illegal under Foreign Country A’s laws. This is further reinforced by Foreign Country A’s public contracting laws, which require transparent reasoning in contracting for legal work and criminally punish corrupt behavior.
  • Direct payment to third party provider - The Requestor will pay the medical provider directly, ensuring that the payments will not be improperly diverted to Foreign Official.

I believe that Opinion Release 13-01 demonstrates once again that there is significant room for creative lawyering in the realm of FCPA compliance. Obviously the DOJ responded favorably by its final decision that it would not prosecute under the facts presented to it. For the compliance practitioner, there are several key takeaways beyond simply noting that you are limited only by your legal imagination. First, and foremost, is transparency. Both the Requestor and Foreign Official openly discussed this issue with their employers and superiors. One or both of them went to the Attorney General of the country in question and sought an opinion on the legality of the payment of medical expenses so there was visibility at the highest levels of the Foreign Country’s government in addition to confirmation that the gift was in fact legal under the laws of the country involved. Next is that the Foreign Official in question did have decision making authority over the law firm obtaining or retaining business. Finally, the direct payment to the third party provider is always a critical element which should not be overlooked.

I know, understand and appreciate that this Opinion Release is limited to its facts and circumstances but it gives the compliance practitioner some excellent guidance on how to think through charitable donations under the FCPA.

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

August 5, 2013

Savonarola and the Need to Evaluate Compliance in Pre-Acquisition Due Diligence

I have always found one of the most fascinating figures of the Florentine Renaissance to be Girolamo Savonarola, who effectively ruled Florence from 1494-1498. While not the first person to try and create a ‘City on the Hill’, he was able to bring his heavenly vision as the spiritual and temporal leader in Florence for a short time after Medici rule. It was Savonarola who inspired the original ‘bonfire of the vanities” where his supporters burned luxury clothes, musical instruments and artwork on the day that Carnival was formerly celebrated on. Savonarola fell from power when his foreign policy of allying with the French did not bring the promised economic benefits to the city. He was burned at the stake for his troubles.

I thought about Savonarola’s downfall, ordained by his lack of economic foresight, in the context of the compliance function in mergers and acquisitions (M&A). Most companies understand the need for post-acquisition integration of their compliance regime into an acquired entity. Such integration is also coupled with focused training for high risk employees and a detailed forensic audit to see if there are any problems under the Foreign Corrupt Practices Act (FCPA), UK Bribery Act or other anti-corruption laws. This post action conduct has been discussed by the Department of Justice (DOJ) extensively through both the Opinion Release procedure (Opinion Release 08-02) and several Deferred Prosecution Agreements (DPAs) including those involving Johnson & Johnson, Data Systems & Solutions and Pfizer.

However, many companies have not put the same effort into the pre-acquisition due diligence around compliance. This may have started to change with the release of the FCPA Guidance last November. In this document, there was a substantive discussion of what should go into pre-acquisition due diligence from the compliance perspective and a nod towards the tangible benefits of such work through the example in the FCPA Guidance of a company which received a declination to prosecute.

The subject of M&A made it to the list of ‘Ten Hallmarks of an Effective Compliance Program’ articulated in the FCPA Guidance. Under the final listed Hallmark, entitled “Mergers and Acquisitions: Pre-Acquisition Due Diligence and Post-Acquisition Integration”, the Guidance states that “A company that does not perform adequate FCPA due diligence prior to a merger or acquisition may face both legal and business risks. Perhaps 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 Guidance goes on to detail a quite specific example of pre-acquisition due diligence in the compliance context. It provided a hypothetical situation where a US company was purchasing a company which was not subject to FCPA jurisdiction. Prior to acquiring this entity, the US company had engaged in extensive due diligence of the foreign entity, including: (1) review by the US company’s legal, accounting, and compliance departments of the foreign entity’s sales and financial data, its customer contracts, and its third-party and distributor agreements; (2) performing a risk-based analysis of foreign entity’s customer base; (3) performing an audit of selected transactions engaged in by the foreign entity; and (4) engaging in discussions with foreign entity’s general counsel, vice president of sales, and head of internal audit regarding all corruption risks, compliance efforts, and any other corruption-related issues that have surfaced at foreign company over the past ten years. All of this was done with an goal towards determining if there were any payments which might violate the FCPA, whether the foreign company had appropriate anti-corruption and compliance policies in place, whether target’s employees had been adequately trained regarding those policies, how the foreign entity ensures that those policies are followed, and what remedial actions are taken if the policies are violated.

While the FCPA Guidance focused on the legal risks for failing to perform pre-acquisition due diligence on a target, there is also the business risk. Therefore, the steps suggested in the Guidance can be of great benefit to allow a company to understand the culture of the company it is targeting. This message was driven home by Connie Barnaba in a recent article in the Houston Business Journal (JHBJ), entitled “One of the costliest risks is acquiring an unknown culture”. One of the reason to engage in such extensive pre-acquisition due diligence is because “culture clashes may contribute in a significant way to the poor performance of businesses” after post-acquisition integration. Straight-forwardly, any business valuation will depend on variables taken into account at the time of the valuation. But Barnaba argues that “Since the valuation of the target company is usually conducted prior to the deal close, it does not take into account operational changes that are required to merge the two operations. It’s at this intersection that risk is created.”

Barnaba posits two scenarios which are interesting from the compliance perspective. Consider that an acquiring company is considering two targets. Both companies are in heavily regulated corporate environments and both take compliance with those regulations quite seriously. However Target A has chosen to treat each employee as a stakeholder with personal responsibility for compliance. It communicated this tenet beginning with the hiring process and then continuing throughout an employee’s tenure with the company, through training, promotion and compensation. These compliance values were so embedded in Target A that it was largely the employee base that prevented and then detected any compliance violations.

She contrasted this with Target B, which is also dedicated to regulatory compliance. However this entity believed that no matter how much you train on policies and procedures, “human errors and negligence” will always create compliance risk. To that end, Target B robustly engaged in monitoring and auditing of its financial systems and employees to ensure compliance and to try and prevent/detect non-compliance. Target B relied less on the human elements of training and communication and more on the technology dedicated to stay in compliance.

In Barnaba’s piece, the acquiring company is more similar to Target B in its approach to compliance but decides, for financial reasons, to acquire Target A. She believes that only after the post-acquisition process begins will the strategic error be apparent. She opines that the cultural differences in the approach to compliance could well lead to high turnover among the newly acquired employees, difficulty in creating high-performance work teams and lower morale, all leading to the destruction of the value of the acquired entity.

In today’s legal climate, the results for the failure to access a company’s compliance culture are not as severe as the fate which befell Savonarola. However, just as he tried to change the cultural norms of Florence through robust austerity, a company which does not assess how an acquired company’s culture will be successfully integrated can also lead to disaster. Barnaba ends her article with the observation “The marriage that was made in heaven becomes just another statistic of a marriage that ended up on the rocks.” Just as the FCPA Guidance notes, compliance related due diligence in the M&A context makes more than good legal sense, it makes good business intellect.

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

January 23, 2013

The FCPA Guidance on the Ten Hallmarks of an Effective Compliance Program

Many commentators are still mining the Department of Justice (DOJ)/Securities and Exchange Commission (SEC) publication, A Resource Guide to the U.S. Foreign Corrupt Practices Act, (the “Guidance”), which was released last November. I continue to find nuggets to provide to the compliance practitioner, as do others. But as we are a Base 10 culture, today I want discuss the 10 points listed as the ‘Hallmarks of Effective Compliance Programs”. They are a change in style, but not content, from the prior 13 point minimum best practices that the DOJ has in the Deferred Prosecution Agreements (DPAs) since at least November, 2010 and, indeed, from prior information made available by the DOJ.

I.                   Where Have We Been

Beginning with at least the Metcalfe & Eddy Consent and Undertaking, filed in December, 1999, the DOJ has laid out its thoughts on what should go into a Foreign Corrupt Practices Act (FCPA) anti-corruption compliance program. In the Metcalfe & Eddy Consent and Undertaking, the DOJ laid out ten points of an effective FCPA anti-corruption compliance program. This was modified somewhat in Opinion Release 04-02, which laid out a best practices compliance program in 12 points, where the DOJ reviewed the proposal by an investment group who were acquiring certain companies and assets from ABB Ltd. ABB Vetco Gray Inc. and ABB Vetco Gray (UK) Ltd., two of the entities being acquired, had previously pled guilty to FCPA violations. The investment group desired to protect itself from further liability, to the extent possible, by proposing to the DOJ a comprehensive best practices compliance program. While the DOJ noted that this compliance program was not a shield against future violations, the DOJ would not “intend to take an enforcement action [against the investors] for violations of the FCPA prior to their acquisition from ABB.”

In the Panalpina DPA, issued in November, 2010, the DOJ laid out a 13 point minimum best practices compliance program. This number was changed this past summer when the Data Systems & Solutions LLC (DS&S) DPA was announced. In this enforcement action the DOJ listed 15 points on its minimum best practices FCPA anti-corruption compliance program. Then later in the summer, the DOJ moved to a 9 point compliance program in the Pfizer DPA. Even with all these changes in the number, the substance of each compliance program has remained the same.

II.                Where Are We Now? Hallmarks of Effective Compliance Programs

The Guidance cautions that there is no “one-size-fits-all” compliance program. It recognizes that depending on a variety of factors such as size, type of business, industry and risk profile that a company should determine what is appropriate for its own needs regarding a FCPA compliance program. But the Guidance makes clear that these ten points are “meant to provide insight into the aspects of compliance programs that DOJ and SEC assess”. In other words you should pay attention to these and use this information to assess your own compliance regime.

  1. Commitment from Senior Management and a Clearly Articulated Policy Against Corruption. It all starts with tone at the top. But more than simply ‘talk-the-talk’ company leadership must ‘walk-the-walk’ and lead by example. Both the DOJ and SEC look to see if a company has a “culture of compliance”. More than a paper program is required, it must have real teeth and it must be put into action, all of which is led by senior management. The Guidance states that “A strong ethical culture directly supports a strong compliance program. By adhering to ethical standards, senior managers will inspire middle managers to reinforce those standards.” This prong ends by stating that the DOJ and SEC will “evaluate whether senior management has clearly articulated company standards, communicated them in unambiguous terms, adhered to them scrupulously, and disseminated them throughout the organization.”
  2. Code of Conduct and Compliance Policies and Procedures. The Code of Conduct has long been seen as the foundation of a company’s overall compliance program and the Guidance acknowledges this fact. But a Code of Conduct and a company’s compliance policies need to be clear and concise. The Guidance makes clear that if a company has a large employee base that is not fluent in English such documents need to be translated into the native language of those employees. A company also needs to have appropriate internal controls based upon the risks that a company has assessed for its business model. Some of the risks a company should assess include “the nature and extent of transactions with foreign governments, including payments to foreign officials; use of third parties; gifts, travel, and entertainment expenses; charitable and political donations; and facilitating and expediting payments.”
  3. Oversight, Autonomy, and Resources. This section starts with a discussion on whether a company has assigned a senior level executive to oversee and implement a company’s compliance program. Not only must a company assign such a person with appropriate authority but that person, and the overall compliance function, must have “sufficient resources to ensure that the company’s compliance program is implemented effectively.” Additionally, the compliance function should report to the company’s Board of Directors or an appropriate committee of the Board such as the Audit Committee. Overall the DOJ and SEC will “consider whether the company devoted adequate staffing and resources to the compliance program given the size, structure, and risk profile of the business.”
  4. Risk Assessment. The Guidance states that “assessment of risk is fundamental to developing a strong compliance program”. Indeed, if there is one over-riding theme in the Guidance it is that a company should assess its risks in all areas of its business. The Guidance lists factors that a company should consider in any risk assessment. They are “the country and industry sector, the business opportunity, potential business partners, level of involvement with governments, amount of government regulation and oversight, and exposure to customs and immigration in conducting business affairs.” The Guidance is also quite clear that when the DOJ and SEC look at a company’s overall compliance program, they “take into account whether and to what degree a company analyzes and addresses the particular risks it faces.”
  5. Training and Continuing Advice. Communication of a compliance program is a cornerstone of any anti-corruption compliance program. The Guidance specifies that both the “DOJ and SEC will evaluate whether a company has taken steps to ensure that relevant policies and procedures have been communicated throughout the organization, including through periodic training and certification for all directors, officers, relevant employees, and, where appropriate, agents and business partners.” The training should be risk based so that those high risk employees and third party business partners receive an appropriate level of training. A company should also devote appropriate resources to providing its employees with guidance and advice on how to comply with their own compliance program on an ongoing basis.
  6. Incentives and Disciplinary Measures. This involves both the carrot and the stick. Initially the Guidance notes that a company’s compliance program should apply from “the board room to the supply room – no one should be beyond its reach.” There should be appropriate discipline in place and administered for any violation of the FCPA or a company’s compliance program. Additionally, the “DOJ and SEC recognize that positive incentives can also drive compliant behavior. These incentives can take many forms such as personnel evaluations and promotions, rewards for improving and developing a company’s compliance program, and rewards for ethics and compliance leadership.” These incentives can take the form of a part of senior management’s bonuses or simply recognition on the shop floor.
  7. Third-Party Due Diligence and Payments. Here the Guidance focuses on the ongoing problem area of third parties. The Guidance says that companies must engage in risk based due diligence to understand the “qualifications and associations of its third-party partners, including its business reputation, and relationship, if any, with foreign officials.” Next a company should articulate a business rationale for the use of the third party. This would include an evaluation of the payment arrangement to ascertain that the compensation is reasonable and will not be used as a basis for corrupt payments. Lastly, there should be ongoing monitoring of third parties.
  8. Confidential Reporting and Internal Investigation. This means more than simply a hotline. The Guidance suggests that anonymous reporting, and perhaps even a company ombudsman, might be appropriate to have in place for employees to report allegations of corruption or violations of the FCPA. Furthermore, it is just as important what a company does after an allegation is made. The Guidance states, “once an allegation is made, companies should have in place an efficient, reliable, and properly funded process for investigating the allegation and documenting the company’s response, including any disciplinary or remediation measures taken.” The final message is what did you learn from the allegation and investigation and did you apply it in your company?
  9. Continuous Improvement: Periodic Testing and Review. As noted in the Guidance, “compliance programs that do not just exist on paper but are followed in practice will inevitably uncover compliance weaknesses and require enhancements. Consequently, DOJ and SEC evaluate whether companies regularly review and improve their compliance programs and not allow them to become stale.” The DOJ/SEC expects that a company will review and test its compliance controls and “think critically” about its own weaknesses and risk areas. Internal controls should also be periodically tested through targeted audits.
  10. Mergers and Acquisitions. Pre-Acquisition Due Diligence and Post-Acquisition Integration. Here the DOJ and SEC spell out what it expects in not only the post-acquisition integration phase but also in the pre-acquisition phase. This pre-acquisition information is not something that most companies had previously focused on. Basically, a company should attempt to perform as much substantive compliance due diligence that it can do before it purchases a company. After the deal is closed, an acquiring entity needs to perform a FCPA audit, train all senior management and risk employees in the purchased company and integrate the acquired entity into its compliance regime.

As I commented earlier in this article, the DOJ and SEC have communicated what they believe are the important parts of a risk based, anti-corruption compliance program for many years. I do not think that a compliance defense could be set out any more succinctly. However, I do like things set out in Base 10 and the “Hallmarks of Effective Compliance Programs” is an excellent compilation of where we are and what you need in place to go forward. I recommend this as a good a starting point for any compliance practitioner to implement a new compliance program or to evaluate the state of an ongoing compliance regime so assess your company’s risks and use these hallmarks as a basis to move forward.

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

October 31, 2012

The Wolfman and Opinion Release 12-02

Even a man who is pure in heart,

and says his prayers by night,

may become a wolf when the wolfsbane blooms,

and the autumn moon is bright.

 

Today is Halloween and in this post I conclude my celebration of the Universal Pictures classic monster movies from the 30s and 40s. Today I submit, for your compliance consideration, my favorite of the classic monsters movies The Wolfman. I simply cannot see this movie enough. From the horrific scene where Lon Chaney Jr. kills Bela, the gypsy who had the pentagram, the mark of the wolf, to the ending scene where Claude Rains inadvertently kills his son, Lon Chaney Jr., in his incarnation as the beast with a silver tipped cane, I find it to be the most psychologically complex of all the classic Universal monsters.

The acting was first rate. Lon Chaney Jr. as Larry brought a psychologically-nuance to the role that rivals only Karloff as Frankenstein’s Monster for depth and complexity. Claude Rains, although a good 6 inches shorter than Chaney, plays his father Sir John Talbot and showed why he was one of the great character actors from the 1930s to the 1960s. Maria Ouspenskaya as the gypsy fortuneteller Maleva who cares for Chaney after he has been attacked by her son and changed into a werewolf brings heart and soul to a role which could have easily fallen into camp. And then there is Evelyn Ankers as Gwen Conliffe, Talbot’s love interest. In many ways she ascended to the ‘damsel in distress’ role created by Fay Wray in King Kong. She is gorgeous in the role and just the right amount of innocence and sex appeal.

In the twilight and with low hanging shrouds of fog, Larry attempts to rescue Gwen’s friend Jenny from what he believes to be a sudden wolf attack, he kills the beast with his new walking stick, but is bitten on the chest in the process. The gypsy fortune teller, Maleva reveals to Larry that the animal which bit him was actually her son Bela (played by the omnipresent Béla Lugosi) in the form of a wolf. She tells Larry that Bela had been a werewolf for years and now he would be transformed into one. When the full moon rises, the sign of the Pentagram appears on Larry and he is transformed into a wolf-like creature and stalks the village, first killing the local gravedigger. He retains vague memories of being a werewolf and wanting to kill, and continually struggles to overcome his condition. He is finally bludgeoned to death by Sir John, with his own silver walking stick, after attacking Gwen.

My favorite scene? It actually occurs in the first sequel, Frankenstein Meets The Wolfman, where two forlorn grave robbers break into the Talbot Family Crypt, where Larry is buried after being killed by his father at the end of the original Wolfman movie. They pry open the burial tomb just as the full moon is arising, which of course awakens the beast in Larry. He transforms into the Wolfman and kills the grave robbers. It simply is a fantastic cacophony of light, shading, violence, folklore and terror.

So what does The Wolfman introduce from the compliance perspective? In this case, it is reverse psychology. It is the latest Department of Justice (DOJ) Opinion Release, 12-02, which was dated October 18, 2012 but was not released publicly until last week. In 12-02 certain Requestors, which were 19 non-profit adoption agencies located in the US, asked the DOJ about bringing certain foreign governmental officials involved in the foreign country’s adoption process to the US. All the foreign governmental officials are involved in the process of allowing children from their country go through the adoption process with the US non-profits involved. The trips to the US will be for two days of meetings.

The purpose of the visit will be to demonstrate the Requestors’ work to the government officials so that the officials can see how adopted children from the foreign country have adjusted to life in the US and to help the Requestors learn how they can ensure that they provide the foreign country’s government with appropriate information during the adoption process. The Requestors will allow the government officials to meet with the Requestors’ employees and to inspect the Requestors’ offices and case files from previous adoptions. The foreign country’s government officials will also meet with families who have adopted children from their country and learn more about the Requestors’ work.

In this Opinion Release, the DOJ opined on a question regarding the payment for travel of these foreign governmental officials and whether the proposed trip would violate the Foreign Corrupt Practices Act (FCPA).

The Opinion Release set out the representations made by the Requestors to the DOJ which formed the basis for its decision. The Requestors stated that they would pay for the following:

  • Business class airfare on international portions of flights for ministers, members of the legislature, and the director of the Orphanage Agency; coach airfare for international portions of flights for all other government officials; and coach airfare for domestic portions of flights for all government officials;
  • Two or three nights hotel stay at a business-class hotel;
  • Meals during the officials’ stays; and
  • Transportation between agencies and local transportation.

The DOJ also noted the Requestors spending on meals and hotels would not exceed the rate set by the US General Services Administration for US government employees traveling within the US. The Requestors also made the following presentations which are consistent with prior DOJ guidance on travel, meals and entertainment.

  • Entertainment - The entertainment will be of nominal cost and will involve families who have adopted children from the foreign country. In other words, a clear business purpose is involved.
  • Selection - The Requestors did not select the foreign governmental officials to attend the trip but left that decision to the foreign government.
  • No WAGS - The Requestors would only host the foreign governmental officials selected for the trip. There would be no spouses or family members brought along on this trip.
  • Souvenirs - If there are any souvenirs presented to the visiting foreign officials, they will be of nominal value.
  • Spending money - There will be no spending money provided to the foreign officials and they will not receive any stipends. There will be no additional monies paid to the visiting officials in any form.

So while poor Larry Talbot was doomed to run afoul of the laws of man when he became the Wolfman, you need not have the same result under your compliance program. I believe that Opinion Release 12-02 shows once again that if you have a compliance question or concern, the Opinion Release procedure is available to you to ask the DOJ if your proposed activity would violate the FCPA. But more than simply showing the procedure, I think that the DOJ once again shows how a reasoned approach, laid out in a rational manner, will be seriously considered, reviewed and can lead to a favorable result. Even the question of business class airfare can be handled in reasoned approach as shown by this Opinion Release. I disagree with the FCPA Professor in that there is a “high level of anxiety and skittishness in this current era of FCPA enforcement out there” because, as this Opinion Release shows you need not fear FCPA enforcement, even when the wolfsbane blooms, and the autumn moon is bright.

I hope that you have enjoyed this series of posts using the Universal Pictures classic monsters films as starting points for the discussion of compliance issues. I certainly have enjoyed writing about them and watching them yet again. A special thanks to my wife Michele for sitting through yet another October viewing of these movies. If you did enjoy these posts and want to see the best versions of these movies currently available, you should check out the Universal Classic Monsters: The Essential Collection [Blu-ray].

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

October 8, 2012

Won’t Get Fooled Again: An Atypical Exploration under Opinion Release 12-01

As many readers of this blog know, I am an avid cyclist. I enjoy riding with rock and roll music blasting away in my ears. I even have lists on my iPod with such titles as 20 mile ride and 40 mile ride. Yesterday I decided to take pot luck and put it on ‘Shuffle’ and one of the songs selected for me was The Who classic “Won’t Get Fooled Again” from the timeless album Who’s Next. The ending line has stuck with me since I initially heard it back in the ’70s: “Meet the new boss, same as the old boss” which then follows with an ending crescendo of Keith Moon’s pounding drums, John Entwhisle’s sonic bass and Pete Townsend’s crashing electric guitar.

In a peculiar way that signature line crystalized my thinking about the latest Foreign Corrupt Practices Act (FCPA) Opinion Release from the Department of Justice (DOJ); that being Opinion Release 12-01 (12-01). As first noted by the FCPA Professor, in his post entitled “DOJ’s Recent Opinion Procedure Release Creates Additional “Foreign Official” Confusion”, 12-01 is dated September 18, 2012, but was apparently only publicly released last week. Pedaling away and listening to The Who it made me think of the evolving nature of not only best practices under the FCPA but also the DOJ’s thinking on the subject. So while the song’s ending line speaks of nothing changing, I realized the nature of FCPA analysis is and can be changing. So rather than being confused, I think that the DOJ has underlined again the fact intensive nature of the analysis required under the FCPA and how companies, if they used a reasoned approach for a specific FCPA issue or problem, can go a long way towards protecting themselves from potential FCPA liability or exposure.

I.                   The Underlying Representations

12-01 notes that a US lobbying firm, the Requestor desired to contract with a third party, the Consulting Company, which has, as one of its principals, a member of the Royal Family in a country where royalty exists. However, the country in question is not a monarchy and the Royal Family Member in question has only held one governmental position in the country’s government, in the late 1990’s. The work in question for which the Consulting Company would be hired is to lobby the country’s Foreign Embassy here in the US to represent the home country here in the US. The specific services that the Consulting Company would perform were stated as “strategic advice and counsel on public policy and business development issues of interest to the [Foreign Country Embassy], as well as make selected liaisons with U.S. and [Foreign Country] interlocutors on behalf of the [Foreign Country Embassy].”

1. Consulting Company Representations. 12-01 had three significant representations made by the Consulting Company. First, the Consulting Company represented that “none of its members, or principals are ‘foreign officials’ as that term is defined in the FCPA.” Second, the Consulting Company represented that it “principals and members are familiar with, and agree to abide by, the FCPA and all U.S. and [Foreign Country] anti-bribery and anticorruption laws.” Third, the Consulting Company has represented that it has “adopted the Good Practice Guidance on Internal Controls, Ethics and Compliance issued by the Organization for Economic Cooperation and Development (OECD) and have pledged that all partners and employees would be bound by the procedures covered in the Good Practices Guide.”

2.  Transparency. Here the Requestor represented that there would be full transparency in not only the home country of the Consulting Company but in the US as well. This would be accomplished through publishing not only the names of the parties to any contract, but the actual contract that the principals of the Consulting Company would sign individually.

3. Compensation. Here there were some interesting provisions listed in 12-01 which provided a level of detail not usually seen in previous Opinion Releases regarding the issue of compensation. First, the parties would agree “in advance on the scope of the Consulting Company’s work” for any set of services the Consulting Company provided. Additionally, any fee would be “at or below the amount charged by other entities…for such services.”

Thereafter, the Requestor anticipated “paying to the Consulting Company twenty percent of what it receives from the Foreign Country Embassy, so long as that percentage accurately reflects the amount of work provided.” The Requestor even went so far as to list the amount of money it is expecting to pay each principal of the Consulting Company on a monthly basis; that being $2,000 per month to each principal. Taking the 20% figure noted above the fee would work out to be $6,000 per month, to the Consulting Company, which equates to a fee of $30,000 per month for lobby services that the Requestor would bill the Foreign Embassy.

4. Contract Review. In a footnote, 12-01 states that “The proposed agreement also provides that “[b]oth [the Requestor] and [the Consulting Company] agree that [the Requestor] will submit this proposed contract to the United States Department of Justice (‘DOJ’) for review under its Foreign Corrupt Practices Act (‘FCPA’) Opinion Procedure and that this agreement will not become effective until such approval is received.””

II.                DOJ Analysis

After initially noting that “A person’s mere membership in the royal family of the Foreign Country, by itself, does not automatically qualify that person as a “foreign official” the DOJ goes on to reiterate its long held position that each question must turn on a “fact-intensive, case-by-case analysis” for resolution. The DOJ follows with a list of factors which should be considered. They include:

  1. The structure and distribution of power within a country’s government;
  2. A royal family’s current and historical legal status and powers;
  3. The individual’s position within the royal family; an individual’s present and past positions within the government;
  4. The mechanisms by which an individual could come to hold a position with governmental authority or responsibilities (such as, for example, royal succession);
  5. The likelihood that an individual would come to hold such a position;
  6. An individual’s ability, directly or indirectly, to affect governmental decision-making; and the (ubiquitous)
  7. Numerous other factors.

In addition to the above, the DOJ also relied upon the factors from District Courts, such as those expressed in United States v. Carson:

  • The foreign state’s characterization of the entity and its employees;
  • The foreign state’s degree of control over the entity;
  • The purpose of the entity’s activities;
  • The entity’s obligations and privileges under the foreign state’s law, including whether the entity exercises exclusive or controlling power to administer its designated functions;
  • The circumstances surrounding the entity’s creation; and
  • The foreign state’s extent of ownership of the entity, including the level of financial support by the state (e.g., subsidies, special tax treatment, and loans).

Finally, the DOJ also reviewed the factors that it set forth in its prior Opinion Release 10-03 for the following factors of whether a Royal Family Member is a foreign governmental official. These 10-03 factors are: “(i) how much control or influence the individual has over the levers of governmental power, execution, administration, finances, and the like; (ii) whether a foreign government characterizes an individual or entity as having governmental power; and (iii) whether and under what circumstances an individual (or entity) may act on behalf of, or bind, a government.”

Based upon its analysis, the DOJ concluded, “The Department concludes that the Royal Family Member does not presently qualify as a foreign official” for the purposes of the FCPA.

III.             Discussion

So how does all of the above relate to The Who and “Won’t Get Fooled Again”? I believe that 12-01 emphasizes that there is no ‘one-size-fits-all’ analysis under the FCPA. While I probably never would have made the determination that a Royal Family Member is not a foreign governmental official under the FCPA, 12-01 makes clear that every analysis stands on its own facts and circumstances. The reason I would not have ever opined that a Royal Family Member was not a foreign governmental official, is that I have only used the “status analysis” that was used by the Carson court

The FCPA Professor correctly points out that the DOJ has introduced a “duties analysis” into the mix. Where I disagree with him, is that I do not believe that the duties analysis is elevated above the status analysis from the Carson case, which focuses on the status of the entity within the foreign country itself. I think that both analyses were used by the DOJ in 12-01 and both analyses can be used going forward. So under the status analysis, the DOJ stated that “The Royal Family Member also cannot, by virtue of his membership in the royal family, ascend to a governmental position and has no benefits or privileges because of his status as a Royal Family Member.” But 12-01 goes onto incorporate a duties analysis as well when it stated “the Royal Family Member has no power to affect the Foreign Country government’s award of the engagement the Requestor seeks.”

One of the primary jobs of a lawyer is to take precedent from case law and apply them to the facts of a specific situation. In the FCPA arena there is a dearth of case law precedent but in most cases the DOJ has used two types of analysis of who is a foreign governmental official. It is not clear from 12-01 if the Requestor or the DOJ analyzed the facts as presented using both of these tests but, whether they were lawyers representing the Requestor or DOJ lawyers, kudos for coming up with a new legal argument to make by combining both the status analysis and the duties analysis.

But equally importantly to the novel argument made, is the use of the Opinion Release procedure itself. Recognizing that it took some seven months to obtain the formal Opinion Release does not take away from the power of the procedure. A lawyer was faced with what I would have termed an intractable problem; that being a Royal Family Member and the issue of a foreign governmental official. With some creativity in the legal argument and the use of the Opinion Release procedure, the Requestor was able to obtain a way forward which accomplished both its business goals and the goals of doing business in compliance with the FCPA.

I believe the ultimate takeaway from 12-01 is that the DOJ not only listens but it considers all the facts. In other words, not only does the analysis change as facts evolve but the final answer may change as well and it does not necessarily mean that the new boss will be the same as the old boss or you ‘won’t get fooled again’ into thinking there is absolutely, positively no way to manage a potential FCPA issue. One of your jobs as a lawyer is to be creative and Opinion Release 12-01 shows you that there is a way to do so.

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For a You Tube playing of the classic Who’s Next album cut of “Won’t Get Fooled Again” click here.

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

© Thomas R. Fox, 2012

June 20, 2012

The DOJ Listens: the Evolution of FCPA Compliance in M&A

Earlier this week the US Department of Justice (DOJ) released a Deferred Prosecution Agreement (DPA) with the company Data Systems & Solutions (DS&S). I explored the factual allegations against DS&S and the highlights of the DPA in yesterday’s post. Today I want to discuss the DS&S DPA in the context of the DOJ’s evolution in thinking regarding what a company can do to protect itself under the Foreign Corrupt Practices Act (FCPA) when it purchases another entity or otherwise engages in mergers and acquisitions (M&A) work. In other words, forces the evolution of best practices.

Previously many compliance practitioners had based decisions in the M&A context on DOJ Opinion Release 08-02 (08-02), which related to Halliburton’s proposed acquisition of the UK entity, Expro. In the spring of 2011, the Johnson & Johnson (J&J) DPA changed the perception of compliance practitioners regarding what is required of a company in the M&A setting related to FCPA due diligence, both pre and post-acquisition. On June 18, the DOJ released the DS&S DPA which brought additional information to the compliance practitioner on what a company can do to protect itself in the context of M&A activity.

Opinion Release 08-02 began as a request from Halliburton to the DOJ from issues that arose in the pre-acquisition due diligence of the target company Expro. Halliburton had submitted a request to the DOJ specifically posing these three questions: (1) whether the proposed acquisition transaction itself would violate the FCPA; (2) whether, through the proposed acquisition of Target, Halliburton would “inherit” any FCPA liabilities of Target for pre-acquisition unlawful conduct; and (3) whether Halliburton would be held criminally liable for any post-acquisition unlawful conduct by Target prior to Halliburton’s completion of its FCPA and anti-corruption due diligence, where such conduct is identified and disclosed to the Department within 180 days of closing.

I.                   08-02 Conditions

 

Halliburton committed to the following conditions, if it was the successful bidder in the acquisition:

Within ten business days of the closing, Halliburton would present to the DOJ a comprehensive, risk-based FCPA and anti-corruption due diligence work plan which would address, among other things, the use of agents and other third parties; commercial dealings with state-owned customers; any joint venture, teaming or consortium arrangements; customs and immigration matters; tax matters; and any government licenses and permits. The Halliburton work plan committed to organizing the due diligence effort into high risk, medium risk, and lowest risk elements.

a)      Within 90 days of Closing. Halliburton would report to the DOJ the results of its high risk due diligence.

b)      Within 120 days of Closing. Halliburton would report to the DOJ the results to date of its medium risk due diligence.

c)      Within 180 days of Closing. Halliburton would report to the DOJ the results to date of its lowest risk due diligence.

d)     Within One Year of Closing. Halliburton committed full remediation of any issues which it discovered within one year of the closing of the transaction.

Many lawyers were heard to exclaim, “What an order, we cannot go through with it.” However,  we advised our clients not to be discouraged because 08-02 laid out a clear road map for dealing with some of the difficulties inherent in conducting sufficient pre-acquisition due diligence in the FCPA context. Indeed the DOJ concluded 08-02 by noting, “Assuming that Halliburton, in the judgment of the Department, satisfactorily implements the post-closing plan and remediation detailed above… the Department does not presently intend to take any enforcement action against Halliburton.”

II.                Johnson & Johnson “Enhanced Compliance Obligations”

Attachment D of the J&J DPA, entitled “Enhanced Compliance Obligations”, is a list of compliance obligations in which J&J agreed to undertake certain enhanced compliance obligations for at least the duration of its DPA beyond the minimum best practices also set out in the J&J DPA. With regard to the M&A context, J&J agreed to the following:

 

7. J&J will ensure that new business entities are only acquired after thorough FCPA and anti-corruption due diligence by legal, accounting, and compliance personnel. Where such anti-corruption due diligence is not practicable prior to acquisition of a new business for reasons beyond J&J’s control, or due to any applicable law, rule, or regulation, J&J will conduct FCPA and anti-corruption due diligence subsequent to the acquisition and report to the Department any corrupt payments, falsified books and records, or inadequate internal controls as required by … the Deferred Prosecution Agreement.

8. J&J will ensure that J&J’s policies and procedures regarding the anti-corruption laws and regulations apply as quickly as is practicable, but in any event no less than one year post-closing, to newly-acquired businesses, and will promptly, for those operating companies that are determined not to pose corruption risk, J&J will conduct periodic FCPA Audits, or will incorporate FCPA components into financial audits.

a. Train directors, officers, employees, agents, consultants, representatives, distributors, joint venture partners, and relevant employees thereof, who present corruption risk to J&J, on the anticorruption laws and regulations and J&J’s related policies and procedures; and

b. Conduct an FCPA-specific audit of all newly-acquired businesses within 18 months of acquisition.

These enhanced obligations agreed to by J&J in the M&A context were less time sensitive than those agreed to by Halliburton in 08-02. In the J&J DPA, the company agreed to following time frames:

A.     18 Month - conduct a full FCPA audit of the acquired company.

B.     12 Month - introduce full anti-corruption compliance policies and procedures into the acquired company and train those persons and business representatives which “present corruption risk to J&J.”

So there is no longer a risk based approach as set out in 08-02 and the tight time frames are also relaxed. Once again we applaud the DOJ for setting out specific information for the compliance practitioner through the release of the J&J DPA. As many have decried 08-02 is a standard too difficult to satisfy in the real world of time constraints and budget cuts, the “Acquisition” component of the J&J DPA should provide those who have made this claim with some relief.

III.             DS&S

In the DS&S DPA there are two new items listed in the Corporate Compliance Program, attached as Schedule C to the DPA, rather than the standard 13 items we have seen in every DPA since at least November 2010. The new additions are found on items 13 & 14 on page C-6 of Schedule C and deal with mergers and acquisitions. They read in full:

13. DS&S will develop and implement policies and procedures for mergers and acquisitions requiring that DS&S conduct appropriate risk-based due diligence on potential new business entities, including appropriate FCPA and anti-corruption due diligence by legal, accounting, and compliance personnel. If DS&S discovers any corrupt payments or inadequate internal controls as part of its due diligence of newly acquired entities or entities merged with DS&S, it shall report such conduct to the Department as required in Appendix B of this Agreement.

 14. DS&S will ensure that DS&S’s policies and procedures regarding the anticorruption laws apply as quickly as is practicable to newly acquired businesses or entities merged with DS&S and will promptly:

a. Train directors, officers, employees, agents, consultants, representatives, distributors, joint venture partners, and relevant employees thereof, who present corruption risk to DS&S, on the anti-corruption laws and DS&S’s policies and procedures regarding anticorruption laws.

b. Conduct an FCPA-specific audit of all newly acquired or merged businesses as quickly as practicable.

 This language draws from and builds upon the prior Opinion Release 08-02 regarding Halliburton’s request for guidance and the J&J Enhanced Compliance Obligations incorporated into its DPA. While the DS&S DPA does note that it is specifically tailored as a solution to DS&S’s FCPA compliance issues, I believe that this is the type of guidance that a compliance practitioner can rely upon when advising his or her clients on what the DOJ expects during M&A activities.

FCPA M&A Box Score Summary

Time Frames

Halliburton 08-02

J&J

DS&S

FCPA Audit
  1. High Risk Agents - 90 days
  2. Medium Risk Agents - 120 Days
  3. Low Risk Agents - 180 days
18 months to conduct full FCPA audit As soon “as practicable
Implement FCPA Compliance Program Immediately upon closing 12 months As soon “as practicable
Training on FCPA Compliance Program 60 days to complete training for high risk employees, 90 days for all others 12 months to complete training As soon “as practicable

I believe that the DOJ does listen to the concerns of US companies about issues relating to FCPA enforcement, which is consistent with its duty to uphold that law. Last month we saw the issue of the Morgan Stanley declination in the context of the Garth Peterson FCPA prosecution. With the DS&S DPA, there is clearly more flexible language presented in the context of M&A work and potential liability for ‘buying a FCPA claim.’

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

January 13, 2012

DOJ Should Release FCPA Declination Opinions

Welcome to the Washington Legal FoundationEd. Note-I was asked by the Washington Legal Foundation if I would pen an article expressing my views on why the DOJ/SEC should release Declination Opinions. The following is the article and can be downloaded from their website by clicking here. Please note as I wrote it for the Washington Legal Foundation, they, not I, hold the copy-write. 

In an area like Foreign Compliance Practice Act (FCPA) enforcement, where guiding caselaw is largely non-existent, compliance practitioners must rely on the actions and decisions of federal enforcement agencies for information. Such information is available in the form of enforcement actions, the release of Deferred Prosecution Agreements (DPAs) and Non-Prosecution Agreements (NPAs), and hypothetical fact patterns presented to the Department of Justice (DOJ) through its Opinion Release procedure. But one highly valuable source of guidance has been kept from regulated entities and their counsels: DOJ and Securities and Exchange Commission (SEC) “declination” decisions, opinions which are drafted when the agencies decline to prosecute an individual or organization.  A change is needed in this counterproductive policy.  The release of substantive information on declinations would help foster greater compliance with the FCPA by providing practitioners with specific facts of circumstances where investigations did not result in an enforcement action.

The Issue Regarding Declinations.  In an article by Miller & Chevalier attorneys James G. Tillen and Marc Alain Bohn, “Declinations During FCPA Boom” the authors reported that since 2008, there have been “at least twenty‐five formal declinations by the DOJ and/or SEC involving twenty companies, nearly all of them publicly‐listed. We also identified several additional cases that might represent declinations, but for which we could find no explicit confirmation of a decision to decline prosecution.” However, these raw numbers do not provide information as to the reasons for the declinations as “it is often unclear why a government investigation has closed without enforcement. It could be that no violations were found to have occurred, that no basis for jurisdiction existed, that enforcement authorities elected to do nothing in deference to a foreign investigation, or that the declination itself represents a benefit in recognition of a company’s voluntary self‐disclosure, remediation and/or cooperation.”

Tillman and Bohn believe that the majority of cases where DOJ or SEC issued declinations were matters in which a company self-reported a potential FCPA violation. Such information would seem to add credence to the oft-stated DOJ position that a company should always self-report. The authors also noted that were such information made publicly available, it could be better quantified and then corporations would understand that self-disclosure can provide a measurable benefit. Others, including Professor Mike Koehler, have called for the public release of the facts and circumstances around the DOJ/SEC decisions not to prosecute companies that self-disclose what they believe are FCPA violations.

DOJ Response.  Why would DOJ not provide substantive information regarding declinations? One possible answer, Tillen and Bohn wrote, came from a June 2011 House Judiciary Committee on the FCPA, where DOJ representative Greg Andres explained that the government does not disclose this information “in large part because we don’t want to penalize a company or an individual that’s been investigated and not prosecuted”

suggesting “[t]here may be some prejudice from that.” Interestingly, soon after the conclusion of the House Judiciary Committee hearing, Chairman James Sensenbrenner and Representative Sandy Adams sent Andres a letter and requested information on DOJ declinations.  The letter stated, “Please provide to us information on cases that been brought to the attention of DOJ, but your agency decided, for one reason or another, not to investigate or pursue prosecution within in the last year along with the rationale for those decisions.”

As reported in The FCPA Professor blog in a post entitled DOJ Declines to Get Specific in Declination Responses, DOJ responded to the request. Assistant Attorney General Ronald Weich wrote that “the Department has declined to prosecute corporate entities in several cases based on particular facts and circumstances presented in those matters, and taking into account the available evidence.”  He also provided several examples of matters DOJ has declined to prosecute where “some or all of the following circumstances existed”:

1. A corporation voluntarily and fully self-disclosed potential misconduct;

2. Principals of a corporation voluntarily engaged in interviews with DOJ and provided truthful and complete information about their conduct;

3. A parent corporation voluntarily and fully self-disclosed information to DOJ regarding alleged conduct by     subsidiaries;

4. A parent company conducted extensive pre-acquisition due diligence of potentially liable subsidiaries, and engaged in significant remediation efforts in acquiring the relevant subsidiaries;

5. A company provided information to DOJ about the parent’s extensive compliance policies, procedures, and internal controls, which the parent had implemented at the relevant subsidiaries; and

6. A company agreed to a civil resolution with the SEC, while also demonstrating that a declination was appropriate for additional reasons; a single employee, and no other employee, was involved in the provision of improper payments; and the improper payments involved minimal funds compared to the overall business revenues.

Proposal.  Imagine the guidance which DOJ could have provided if any or all of the above six instances cited in Weich’s letter was made available to companies and compliance practitioners. A model to follow for doing this already exists at DOJ. Its Opinion Release procedure offers a specific opinion on whether a certain set of hypothetical facts, based upon a written submission, would lead to a FCPA enforcement action.

In the declination process, DOJ is handling a much broader and more significant amount of information. A self-disclosing company has investigated or will investigate a matter, most likely with the aid of specialized outside FCPA investigative counsel. DOJ has the opportunity to review the investigation and suggest further or other lines of inquiry. Company personnel are made available for DOJ interviews, if appropriate. In short one would have actual facts and detailed oversight by DOJ, which in the case of a declination to prosecute, would provide substantive guidance on why it did not believe a FCPA violation had occurred in the face of a company’s good faith belief that it had violated the FCPA.

DOJ’s reasoning for refusing to release declination opinions is misplaced. While DOJ is appropriately concerned with the release of names or other substantive identifiers of any company which receives a declination, such information can be easily removed or scrubbed. In Opinion Releases, DOJ identifies the industry, geographic location, and other specific facts which are of great benefit to compliance practitioners. DOJ could easily do the same with declinations while still providing its reasoning for declining to prosecute.

The substantive portions of declinations, excised of company-specific information, would greatly increase FCPA enforcement transparency. This, in turn, would inspire greater FCPA compliance through a better understanding of how DOJ interprets the law with the specific facts presented to it.

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.

November 1, 2011

Evaluating Integration of the Compliance Function in Pre-Acquisition Due Diligence

In an article in the most recent issue of the Houston Business Journal, entitled “Putting a partner through too many changes increases risk”, columnist Connie Barnaba discusses one of the risks often overlooked in a mergers and acquisitions (M&A) transactions. It is the risk inherent with the integration of the purchased entity. Barnaba identifies two types of risks characteristic with strategic deals. The first is the “buy decision” and the second is the aforementioned integration aspect.  She phrases it as “Most companies attempting those types of deals tend to move forward with the deal without an examination of the unknown conditions that could adversely affect post-deal integration.” I would take this a step further and say that most company’s focus on this risk is not limited to strategic deals but with all  M&A transactions. Her column gave me pause to consider such matters in a compliance context.

Barnaba notes that “conventional wisdom” would tell you that when two strong companies merge, the manifestation of the merger will result in a stronger company. Similarly, if there is a merger between a strong company and a smaller, or lesser, company then the culture of the stronger company will prevail. But what happens in the area of compliance? Admittedly the time during any due diligence for an assessment of compliance is limited. This may well lead to a purchasing entity completing a transaction with unknown compliance risks in place. This can have several negative consequences, including successor liability under the Foreign Corrupt Practices Act (FCPA). However, I would like to focus on the issue of compliance integration.

I believe that the Department of Justice (DOJ) would seem to have responded about the time frame to complete compliance due diligence with two public statements. The first was Opinion Release 08-02 (the Halliburton Opinion Release) which provided a time frame of 90 days for high risk third parties; 120 days for medium risk third parties and 180 days for low risk third parties to perform a compliance audit after the closing of a proposed transaction. This time frame was expanded in the Johnson & Johnson Deferred Prosecution Agreement (DPA) last spring to a more manageable 18 months to complete a compliance audit of the purchased entity.

However, how does a company turn to integration of compliance throughout an acquired entity? As Barnaba points out, “if unknown risks are triggered, decisions makers may find themselves in a reactive mode simultaneously attempting to gather reliable intelligence about the unknown conditions, devise stop-loss tactics and minimize the adverse impact to the execution of the business strategy…” In the compliance arena that may well translate into a very public disclosure of material events, and, at the same time, a self-disclosure to the DOJ and/or Securities and Exchange Commission (SEC).

Even if this nightmare scenario is not activated, the more mundane day-to-day issues of merger integration are ongoing. These include the execution of a compliance strategy, the number of changes in the acquired company’s compliance program, or indeed the wholesale adoption of it into the purchasing company’s compliance program and communication to all relevant third parties regarding the changes in these relationships, the complexity of a new compliance policy, the transparency of a new compliance program in the acquired entity and the cost of implementing such changes. Clearly cultural changes are an important part of the implementation of any compliance program.

Barnaba also notes the importance of cultural differences. American companies have run afoul of the FCPA in the acquisition of Chinese companies whose activities, prior to and after being acquired, constituted FCPA violations. Two recent examples are Watt Water Technologies and RAE Systems, Inc. Barnaba advocates that an assessment of post-deal integration risks should be a part of your company’s pre-transaction due diligence. This includes the compliance due diligence to “provide decision-makers with a comprehensive assessment of the [compliance] risk inherent with the deal…”

Barnaba’s article brings up several lessons in M&A transaction due diligence which should be implemented in your compliance due diligence. You may well need to assess the culture of compliance in the entity your company is purchasing. In addition to the “buy decision” there should be an evaluation of the risk inherent with integration of compliance programs into the acquired company. Failure to do so may set up a culture class or other basis which may seriously downgrade the value of the acquired entity.

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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