FCPA Compliance and Ethics Blog

December 27, 2013

My Favorite Blog Posts from 2013

One of the best things about the Foreign Corrupt Practices Act (FCPA), UK Bribery Act and other anti-corruption practice areas is the top notch quality of commentators. While Mike Volkov regularly derides the FCPA paparazzi for being scare mongers and the FCPA Professor chastises FCPA Inc. for attempts to paint FCPA enforcement in the worst possible light so as to draw clients to their collective resources; there is also a great set of bloggers, writers and pundits who put out solid, useful and well-reasoned pieces on FCPA and Bribery Act issues. In this blog post, I would like to highlight some of my favorite posts from some of my favorite commentators over the past year.

From the Dean

If you do not know who the Dean of FCPA bloggers is you have not been looking too long or too hard. It’s Dick Cassin, who is the Founder, Editor and Publisher of the FCPA Blog, which consistently reports on all things compliance around the globe. But for me, it is when Dick writes from the heart, he is able to articulate what many of us are feeling but cannot seem to put into words. My favorite post from Dick this year was his tribute to President Kennedy on the occasion of the 50th anniversary of the President’s assassination, entitled “And So The Legend of Camelot Was Born”. Dick ended his post with the following quote from Teddy White, “He advanced the cause of America at home and abroad. But he also posed for the first time the great question of the sixties and seventies: What kind of people are we Americans? What do we want to become?” The question still stands.

From the FCPA Professor

If you have never debated the FCPA Professor, live or via email, you should. But be prepared to bring your A-Game and your authority. He posts daily and has become a great resource for guest posts over the years which challenge the status quo on a variety of legal and compliance issues. Each morning I cannot wait to see what the Professor has to say that day. However, what I have really come to appreciate is his Friday Round-Ups. Each Friday, the Professor gives us a round-up of recent FCPA and related news, articles and developments not otherwise covered by him in his Monday – Thursday posts. I should also say he saves some of his best witticism for these posts. My favorite post from the Professor this year was the milestone of his 100th Friday Round Up, appropriately entitled “The 100th Edition of the Friday Round-Up”. Tune in each Friday for another edition of this great resource.

From Jim McGrath

I continually bemoan to Jim McGrath that he needs to post blogs more often than his twice or thrice weekly output. The reason being they are so good and I want to see more of his stuff. As you might guess from the title of his blog, Internal Investigations Blog, he tends to focus on investigations; some criminal, some civil, some internal and some external. McGrath is an ex-prosecutor and tends to view things through that prism and give us a different perspective of law enforcement. He writes about investigations inside and outside the realm of anti-corruption but his insights are certainly applicable to any FCPA or Bribery Act investigation.

My favorite post from McGrath this year was his piece on 7-Eleven, entitled “Human Trafficking Concerns for 7-Eleven in Wake of Payroll Scam”. In this article he detailed the federal investigation into allegations that 7-Eleven franchisees in New York and Virginia had engaged in human trafficking and possible involvement by the franchisor through its payroll system. His piece was a cautionary tale for the compliance practitioner about the need for internal controls, internal monitoring and internal investigations. McGrath ended his post with the following, “Further, its future due diligence efforts as regards suppliers and franchisees should include a review for human rights abuses such as those suggested here. Otherwise, it will have to sell a helluva lot of Slurpees to pay the fines, costs, and disgorgements that a failure to do so will no doubt entail.” In other words, trust but verify.

From Mike Volkov

Mike Volkov has worked at the Department of Justice (DOJ) on Capitol Hill and for Big Law. He now has founded his own firm, the Volkov Law Group and writes the Corruption, Crime & Compliance blog. Mike primarily writes about anti-corruption but he also writes about health care fraud, anti-trust compliance and enforcement and many other topics. While I cannot determine if he set out to have a theme this year, Volkov has written many articles this year which focus on the role and position of the Chief Compliance Officer (CCO), the need for independence and resources required for the position.

My favorite post from Volkov was entitled “The Only Thing [In-House Counsel and CCOs] Have to Fear, Is Fear Itself”. His title is a play-off of what I believe to be the most inspiring FDR speech so that alone is worth the price of admission. He also tells one of the great stories about his days from Big Law. Volkov related that he wrote his views on the UK Bribery Act and the length of time it would take for any meaningful enforcement to take place, “I received a call from the firm’s London partners and was chastised for undermining their entire “marketing” program. (In stark contrast, many clients wrote me and thanked me for my “honesty.)” As my 16 year old daughter might say, ‘Sometimes you just have to keep it real’.

From Across the Pond

If you do not subscribe to thebriberyact.com, you are missing out on the best site for all things UK Bribery. thebriberyact.com guys, Barry Vitou and Richard Kovalevsky QC, consistently give their readers both practical insight and in-depth analysis. Their interviews of the relevant players allow all compliance practitioners to develop insight into what the top UK regulatory officials are thinking about on the Bribery Act. They also write from the very British perspective of understatement and skewering satire, which is more than a ton of fun for us Americans to read.

My favorite post which illustrated all of the above traits was from March and is entitled “Parliament report calls for Bribery Act review: Our opinion – Junk in. Junk Out.” In this post, they took on the call for the urgent scrutiny of the UK Bribery Act by a parliamentary select committee claiming that the Act has met with “confusion and uncertainty.” To this rather inane claim, the guys responded “We cannot think of a piece of legislation which has sparked much more commentary, advisory, much of it on line and completely free, including our own eponymous website.” But my favorite line was their dénouement to the British MP who brought up the need for clarification of the UK Bribery Act, “And, Tony from Alderly PLC, if you’re reading feel free to give us a call.  We can help you.”

My Favorite from 2013 (Think Big)

My favorite blog post of the year was actually posted on December 28, 2012 by Matt Ellis, Founder and Editor of the FCPAméricas blog, which was entitled “Wal-Mart, Go Big on FCPA Compliance”. The reason that it is my favorite of 2013 is because it is the one post that I have thought the most about, talked the most about, read the most about and it even inspired me to write on the issue myself. In his post Ellis challenged Wal-Mart to “go big” on compliance in the wake of its world-wide FCPA investigation and policy implementation. He wrote, “Wal-Mart should instead use the FCPA investigation, and the attention it has generated, as an opportunity. It is an opportunity to go big on compliance.” Ellis went on to detail some specific suggestions that Wal-Mart could implement to help the fight against bribery and corruption that, due to its size and market share, would be in a unique opportunity to put in place.

Within the anti-corruption compliance community there was a noted buzz about Ellis’ piece and his suggestions. I was inspired to write a blog post, entitled “Wal-Mart-Be a Leader in Compliance”, due to the ideas articulated by Ellis. Seemingly inspired by Ellis’ example, Michael Scher, writing in the FCPA Blog, in a piece entitled “Michael Scher talks to the feds”, used the Wal-Mart investigation as a jumping off point to ask the DOJ to resolve several open issues on compliance as he saw them. In others words, Ellis piece (hopefully) got not only Wal-Mart to thinking but several others of us. That is why it is my favorite blog post of 2013.

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

September 24, 2013

Don’t Butt-Slide into Second Base: Be a Better Company

Most fortunately, the final week of the baseball season is here. This means that I no longer have to contend with living in the same city as the joke of an alleged major league team – the Houston Astros, at least when the regular season ends next week, the Astros stop playing and the play-offs begin. To say that the Astros season has been ridiculous for masquerading as a Major League Baseball (MLB) team would be a compliment but it moved to the absurd last week as one play summed it up better than anything that I could have made up – the butt-slide play. In this play, Astros shortstop, Jonathan Villar, slid face first into the butt-cheek of Reds second baseman Brandon Phillips. (For a video clip of the play, click here.)

The butt-slide play sums up the Astros 2013 season of futility. From the start of the season, with a team made up of largely AAA players, to the end of a season made up mostly of A-AA players. In between we’ve been treated to the Astros ending a 23 year relationship with the Astros wives charity, via a terse one-line email (i.e. you’re fired); to the interview of owner Jim Crane who informed us that he had made $100MM in the trucking business so he must be the smartest guy in the room; to a current 105 losses while on their way to yet another record-loss season; let’s not forget their TV contract with Comcast and the fabulous viewing figures recorded on Sunday by the Nielsen rating service, which racked up a fantastic score of 0.00, with an average audience of zero households viewing the game and, finally, all of this while being the most profitable team in the history of MLB. But, still, the ‘butt-slide’ says it all. When your slide into second base becomes not only a metaphor for the team’s entire season but fodder for an entire nation’s laughingstock, it really is time to cash it in.

Yesterday in the FCPA Blog, in a post entitled “Who Speaks for the Compliance Officers?”, Michael Scher said “The [International] Chamber [of Commerce] apparently will not be satisfied until there is little or no enforcement.” Scher’s statement was based on the letter that the International Chamber of Commerce (ICC) sent to the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) complaining about the FCPA Guidance, issued last year, which as Scher stated, “The letter has been correctly criticized for off-target “belly-aching.”” Scher’s criticism follows that of Michael Volkov,  see his blog post “FCPA “Reform”: Another Shot in the Dark” in Corruption,  Crime and Compliance and Jessica Tillipman’s blog post “Let’s Just Be Honest for a Moment” also in the FCPA Blog.

Instead of whining and belly-aching there might be another way for corporate America, and indeed the ICC, to approach the Foreign Corrupt Practices Act (FCPA) compliance. That path was laid about by Leslie Dach, in an article in the October issue of the Harvard Business Review (HBR), entitled “Don’t Spin a Better, Story. Be a Better Company”. The article was quite interesting for the following information which appeared with the author’s credentials, “Leslie Dach wrote this column shortly before stepping down as the executive vice president of corporate affairs at Walmart. He previously served as vice chairman of Edelman, a global communications firm.” While this statement certainly does not make clear why Dach left Wal-Mart, (i.e. did he ‘resign to pursue other opportunities’?) it does give one pause for some reflection.

Nevertheless, I found Dach’s thesis quite interesting. Dach’s bottom line is that he believes “it is a huge mistake to assume that once you’ve explained your perspective, the public will embrace you…I know what doesn’t work: thinking you can tell a better story without actually becoming a better company.” Ultimately Dach advises, “If a drumbeat of criticism starts up against your company, don’t rush to raise your voice above it. Stop to listen. And commit to getting better.” Dach detailed several areas inside the company where goals such as sustainability, women’s economic empowerment and more-healthful food were “compatible with building a stronger business.” He cited Wal-Mart’s increased efficiency of its trucking fleet and turning its waste stream into recycling income as examples of sustainability. He said that buying from local, women-owned businesses strengthened the company’s ties with local communities. He said that offering more healthful food meant more relevant products for the company’s consumers.

I thought about Dach’s ideas in the context of Wal-Mart and other companies which are going through very public FCPA-based or other corruption investigations. Publicly released information indicates that Wal-Mart may be spending over $1MM per day on their ongoing internal investigation and getting their compliance program up to speed. But what if the company took it a step further and applied Dach’s ideas to compliance. In his article he wrote about the company’s efforts to source $20bn of products from women-owned businesses. This took a concerted effort to identify which merchandising areas had the potential to produce such an amount of product, which the company could sell in its stores. This was coupled with incentives for the company’s buyers to show progress in purchasing goods from women-owned enterprises. But even more the company “took a 360-degree approach to the work, engaging our entire supply chain and our customers, communities, and employees.” Here is the part I liked best about Dach’s piece,  while the tone was set by Chief Executive Officer (CEO) Mike Duke “ultimately, the challenge isn’t the CEO’s job, or one person’s job; it is everyone’s job.”

Last December Matt Ellis wrote a great piece on his blog site, FCPAméricas, entitled “Wal-Mart, Go Big on FCPA Compliance”, where he challenged the company to innovate in compliance “by playing to its strengths.”  He cited examples of work in the company’s supply chain; its opportunities to “educate foreign audiences on [anti-corruption] compliance” through teaching persons in the communities where it has locations on “how to identify and avoid risks of petty corruption.” Ellis ended his piece with the following, “Wal-Mart has the spotlight. Time will tell if it chooses to use it.”

I think that Dach’s challenge to create a better company, coupled with Ellis’ specific challenge for Wal-Mart to go big for compliance, present an excellent juxtaposition to the whining and belly-aching of the ICC. Rather than claim that the FCPA is (1) too difficult to understand; (2) too hard to follow; and (3) unfair, they could advocate Dach’s approach to use the law as a basis to become better businesses. I cannot think of any non-criminal enterprises which aver that they want to do business unethically and corruptly. Companies faced with intense FCPA or other anti-corruption law scrutiny, such as GlaxoSmithKline PLC (GSK), might well take this opportunity to move outside the ordinary and become better companies by doing compliance right and better. Such actions would not only put them in better stead with the regulators but make them better companies. In other words, don’t simply whine like the ICC and butt-slide into second base.

Also, as it appears Leslie Dach is no longer working for Wal-Mart, they may want to give him a call to help them figure out how to do so.

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Episode 6 of the FCPA Compliance and Ethics Report is up. In this episode, I talk about the role of senior management in a compliance program. To watch or listen, 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, 2013

January 15, 2013

Rolls-Royce Brings in Lord Gold – Is it Thinking Big Enough?

In December 2012 the BBC online service reported that Rolls-Royce Motor Cars Limited (Rolls-Royce) was in talks with the UK Serious Fraud Office (SFO) regarding potential allegations of bribery and corruption in Indonesia and China. It was reported that the investigation began in 2011 when the SFO requested information from Rolls-Royce about possible bribe-paying in those two countries. This prompted Rolls-Royce “to bring in a legal firm to conduct an internal investigation earlier this year, which uncovered potential misbehaviour in other countries as well as the two named by the SFO.” The investigation focused on certain intermediaries involved in the countries in question. The Guardian reported the initial bribery issue was reported by a whistleblower, former Roll-Royce employee Dick Taylor, and involved allegations of bribery and corruption in Indonesia and China. According to the Financial Times (FT), Taylor had made these allegations for at least six years that Rolls-Royce paid bribes to secure business for its civil aircraft engines in Indonesia. At least as long ago as 2006 Taylor took his concerns public by posting statements on local newspaper and industry news internet sites. The Guardian stated that Taylor “claimed that Tommy Suharto – a son of the late President Suharto – received $20 million and a Rolls-Royce car to persuade the national airline, Garuda, to order Rolls-Royce Trent 700 engines in 1990.”

The FCPA Blog reported earlier this month that a pseudonymous blogger, named by the FT as ‘Soaringdragon’, claimed that “Rolls-Royce propelled itself into the Asian market with the help of payments passed to an executive of Air China and China Eastern Airlines. Executive Chen Qin, who worked for both airlines, allegedly acted as Rolls-Royce’s intermediary in two pivotal deals inked in 2005 and 2010, worth $2 billion in all. Chen is thought to have been detained for corruption in April 2011.” All the allegations currently made against Rolls-Royce were for actions prior to the application of the UK Bribery Act, which became effective on July 1, 2011.

Rolls-Royce is reported to be co-operating with the SFO in the investigation. The company announced that it found concern regarding the markets of China, Indonesia and other markets as well. The company reportedly released its findings over to the SFO which has not yet announced whether it would open a separate investigation or if it had made any decisions on whether it would prosecute the company. Chief Executive John Rishton was quoted as stating, “I want to make it crystal clear that neither I nor the board will tolerate improper business conduct of any sort and will take all necessary action to ensure compliance. This is a company with exceptional prospects, and I will not accept any behaviour that undermines its future success.”

Last week Rolls-Royce announced that it had retained Lord Gold to review its overall compliance program. The FT reported “Having to bring in Lord Gold to examine the robustness of the company’s compliance efforts indicates just how much Rolls-Royce wants to avoid an SFO, or worse, a DoJ probe. He has been brought in to Rolls-Royce precisely to avoid the costs associated with BAE’s bribery investigation, and thus his role is much more similar to the one Lord Woolf played at BAE.” For a company known to have an opaque culture, bringing in Lord Gold “has the potential to upset the Derby-based company’s deep-seated culture more than anyone in its recent history.”

I thought about this move by Rolls-Royce when I re-read a posting, entitled, “Wal-Mart, Go Big on FCPA Compliance”, by my colleague Matt Ellis, in his blog, FCPAméricas. In this post he detailed some of the ways that he thought Wal-Mart could use the opportunity afforded by its bribery and corruption scandal in Mexico “as an opportunity. It is an opportunity to go big on compliance.” Matt talked about how Siemens changed its culture after having paid the highest fine for violations of the Foreign Corrupt Practices Act (FCPA) in the history of the world ever. Moreover, Matt listed several things that he thought Wal-Mart was uniquely positioned to accomplish because of its size and strength, which were as follows:

  • Wal-Mart could use these same tools to build a state-of-the-art corruption risk-tracking program to which its compliance practices could respond in real time.
  • Wal-Mart could use its enormous leverage in international markets to educate foreign audiences on compliance.
  • Wal-Mart could train these landlords of the stores they lease internationally on compliance.
  • Wal-Mart could require landlords to put a FCPA or other anti-corruption compliance programs in place themselves.
  • Wal-Mart could begin to teach communities how to identify and avoid risks of petty corruption.
  • Wal-Mart could partner with local municipalities to launch reporting centers in its Supercenters.

I am not certain Lord Gold could accomplish some of the things that Matt has suggested that Wal-Mart put in place as Wal-Mart is the world’s largest retailer and Rolls-Royce is, well the name says it all, Rolls-Royce. But after the black-eye the British defense and aerospace industry took in the BAE corruption and bribery scandal, Rolls-Royce may be able to use this opportunity to lead a culture change in this British market segment. According to the FT, “Lord Gold’s job at Rolls-Royce will be closer to that of Lord Woolf, who made wide recommendations at BAE after it became embroiled in a corruption and bribery scandal. If Lord Gold is similarly radical, he could completely change the way Rolls-Royce does business, forcing it to limit its use of intermediaries, or even prompt the resignation of senior executives, as happened at BAE.”

I think that the lessons for the compliance practitioner from Rolls-Royce are two-fold. First and foremost, get ahead of the curve. If you believe that you have found evidence of systemic bribery and corruption, your company has to self-disclose and work with the appropriate enforcement agency, whether that is the US Department of Justice (DOJ) or the SFO. But more than self-disclosure and extraordinary cooperation, be proactive in attacking the policies, processes and procedures which led to the allegations of corruption.

Bringing in a Lord Gold, who has dealt with “A multibillion-pound spat between oligarchs, investigating cronyism in British politics, and helping one of the world’s best-known brands respond to corruption allegations have been his bread-and-butter since the veteran litigator set up his own advisory boutique in 2011”, can certainly help give you credibility on either side of the Atlantic. On the US side, the first name that pops in my mind is Louis Freeh, former Director of the Federal Bureau of Investigation (FBI), whose work has ranged from the Penn State/Jerry Sandusky investigation to the Trustee in the MF Global bankruptcy to his appointment to the Ethics Committee of FIFA. If you want another name, I can certainly recommend John Hanson, aka “The Fraud Guy”. He is a retired FBI agent, has worked in the fraud investigations and forensic accounting practice of a large publicly traded international financial consulting firm and has been an independent monitor under Deferred Prosecution Agreements (DPAs). Both of these guys know their stuff and are very well respected in the compliance community.

I think the clear import of Matt Ellis’ article is to ‘think big’ and outside the box. If you proactively attack what went wrong that led to bribery and corruption, I think it will pay off dividends with the DOJ or the SFO.

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 9, 2012

South America is Not a Country-Interview of Matt Ellis

Today we continue our interview series with last year’s New Comer of the Year-Matt Ellis, author of the FCPAméricas Blog.

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1. Where did you grow up and what were your interests as a youngster?

I grew up in Dallas, TX. I was lucky to graduate from the best private school in the city, where I was on significant financial aid. I loved it and excelled. My senior year I was elected student body President, and tried hard to do more than just plan good parties. Texas made a lasting impression on me. The heavy influences of Mexico gave me a taste early on for Latin American culture. The state’s entrepreneurial spirit eventually empowered me to launch my own law practice.

 2. Where did you go to college and what experiences there led to your current profession?

I went far away to Dartmouth where, in a small town in New Hampshire, I was exposed to the world. My first-year roommate was a Sikh from India who had never stepped foot in the United States. I took courses in Latin American politics, studied Spanish in Barcelona and Art History in Italy, taught English in Switzerland, and interned in the East Wing of the White House, where I observed Bill Clinton, up close, interacting with foreign dignitaries. College made me want to see the world.

After graduating, I moved to Argentina where I planned to stay for three months. I wound up staying for three years. My goal was to learn Spanish fluently, at a professional level, and I had to immerse myself. I moved in with a group of young Argentine guys who didn’t speak English. I got a job at General Motors Argentina. Ninety percent of my work was in Spanish and 100% of my socializing. I had no choice but to become fluent — if not, I wouldn’t have a pay check or a social life. Then the President of GM Argentina persuaded me to study Portuguese as well. He knew that Brazil would be the next big thing. This was before the term “BRIC” existed. He was right. Today, Brazil is the source of a good amount of my work.

 3. After beginning your career in a large, multi-national law firm you went to the World Bank. Can you tell us why you moved over, what you did and how has it informed your compliance and ethics practice going forward?

Very few attorneys from the United States have the chance to work on anti-corruption matters at The World Bank’s Integrity Vice Presidency (INT). After law school at Georgetown, I was working at a major law firm with a leading FCPA practice. We were advising INT on the development of the World Bank’s Sanctions program, grappling with questions like: How does the Bank ensure that the funds it loans to the developing world actually make it to building the roads and bridges, purchasing the medicine, etc., and are not diverted into the pockets of corrupt government officials?  INT was staffed with a smart group of people from every corner of the world, and I hit it off with the team. When I received an offer to work as an investigator and litigation specialist, I seized it. I spent two years at the Bank, conducting internal investigations throughout Central Asia and Eastern Europe.

I took three vital lessons from my time at the World Bank. Each has informed my FCPA compliance work since then. First, contrary to the view that corruption is “cultural” or “accepted” by certain people, I learned that ethical business is an important concept wherever you are in the world. On the front lines, no matter the country or culture, rarely are citizens accepting when public officials use government positions for personal gain. Toleration should never be mistaken for endorsement. Second, the rapidly developing anti-corruption norms with which we work are having a profound effect on the ground throughout the globe. The more that corrupt actors are brought to justice, the more that individuals see universal business standards at work, and the more they are empowered themselves to push back. Third, an appreciation for cultural nuance is essential to compliance. When introducing World Bank procurement standards to a small, regional consulting firm in India, or vetting a sales agent in Brazil, practitioners have to account for context, language, and background to do the job effectively.

 4. Many people think that South America is a country. You seem to have different thoughts on the subject. What are some of the unique or specific challenges when working on compliance related issues in South America? Are they different if you represent an indigenous company rather than a US company with a South American affiliate?

Compliance in Latin America must respond to the local landscape to work. Corruption risks in the mountainous jungles of Colombia are different from those in the concrete jungles of Sao Paulo. While companies can usually count on the police in Chile, in Mexico the police are often the problem. To design an internal reporting program in Argentina that works, practitioners must understand the inherent skepticism that people there have for anonymous tips.

Cultural nuance is even more important when working on compliance for Latin America-based companies. Imagine a local company that has been built over the years where corruption is around every corner, and has now gone global. Education on compliance takes time and steady commitment. Buy-in is achieved person-by-person, unit-by-unit. With time, companies begin to see the value in adhering to international standards. Only when business leaders appreciate the stakes are they willing to engage in the wholesale reform and commitment of resources necessary for compliance to work. The learning curve is steep. But the trends of globalization are going in only one direction.

5. Why did you start your Blogsite, what did you hope to achieve from it and what will be your focus going forward?

I want FCPAméricas to serve as a bridge between two worlds. One world involves United States law that is currently driving anti-corruption compliance by creating powerful incentives. The other world is where the bribery usually occurs, a world of drastically different cultures, norms, languages, and histories. The blog’s aim is to try to connect the two.

My experiences interacting, living, working and attending school with people from around the world drive the blog’s direction. I relate my job as an FCPA lawyer to the jobs many of my graduate schoolmates now have in the foreign service, working in embassies all over the world, where they liaise with foreign officials and help U.S. companies working abroad navigate the waters. I perform a similar service. I help companies manage risks when doing business in far-off countries. I help them understand the rules of the global economy. Why is this important? In an age of globalization, the world of business opportunity has suddenly grown a lot bigger. At the same time, companies cannot do business like they used to. In the past, cross-border business could be done with a handshake, and the hand often had a $20 bill in it. Nowadays, multi-million dollar investments are made with the click of a button. But bribes can put people in jail. As a result, the challenge of global business no longer is about paying off the right person to get the job done. It is about ensuring that your company thrives while following applicable international rules. This means structuring compliance programs to be effective. This requires local know-how. I help companies bridge the gap.

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

March 15, 2012

Ethics Matters

The word ‘ethics’ is in the title of this blog. While I rarely write solely on the subject of ethics two recent events caused me to do so today. The first was an article last week by Matt Ellis, writing in his FCPAméricas Blog, who posted an article entitled, “Bad Press is the Worst Sanction”.  The second was an article yesterday, in the Op-Ed page of the New York Times by Greg Smith entitled, “Why I am Leaving Goldman Sachs”.

Ellis began his posting by stating, “In Latin America, a company’s reputation matters.” He based this statement on a recent survey, conducted by Germany’s Humboldt-Viadrina School of Governance, which sought to assess how incentives and sanctions affect a company’s willingness to take seriously ethical behavior. Ellis reported that the survey found that in Latin America, more people than in any other region rated reputational considerations as the most important factor to motivate businesses to counter corruption, which was a higher percentage than any other geographic region reviewed.

Unfortunately this does not appear to be true at Goldman Sachs, at least according to Smith, who as of yesterday, is listed as former “Goldman Sachs Executive Director and head of the firm’s equity derivatives business in Europe, the Middle East and Africa.” In absolutely damning detail, Smith stated that the “decline in the firm’s moral fiber represents the single most serious threat to its long term survival.” What is this “decline in moral fiber” that Smith anguished over? It is that Goldman Sachs, in his opinion, now puts its own monetary interests ahead of its clients.

Smith listed the “three quick ways to become a leader” at Goldman Sachs. They are “a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.

While averring that he did not “know of any illegal behavior” he bemoaned “It makes me ill how callously people talk about ripping their clients off.” Smith intoned that senior management did not seem to understand what he termed a “basic truth: If clients don’t trust you they will eventually stop doing business with you.”

So how do ethics matter in the United States of America? For Goldman Sachs it may well have something to do with its stock value which went down 4.17 (approximately 3.35%) points yesterday. With approximately 50 million outstanding shares, that is (according to my trial lawyer math) somewhere in the range of $1.5 to $2 billion in shareholder value that went poof yesterday. I guess ethics does matter.

How will Goldman Sachs respond to this article? Its response may well tell the story of its commitment to ethics. Will it attack Greg Smith as a (now) former disgruntled employee out on some type of vendetta? Will it file suit against Smith for libel? Will it issue a strident press release that it is absolutely committed to ethical values? Or will it be as Smith states, “I hope this can be a wake-up call to the board of directors.”

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 16, 2012

The SFO Speaks in the Mabey & Johnson Case: Private Equity – Are You Listening?

As reported by thebriberyact.com, on January 13, 2012, the UK Serious Fraud Office (SFO) announced the final piece of the Mabey & Johnson (M&J) case, in which the company’s sole shareholder Mabey Engineering (Holdings) Limited agreed to pay back dividends gained as a result of corruption of  M&J obtain Iraqi bridge-building contracts. SFO Director Richard Alderman lauded it as “the final act in an exemplary model of corporate self-reporting and co-operative resolution”. I hope that every compliance officer of a private equity company read the report by the Bribery Act guys because this is a remedy which may soon be aimed directly at your company.

To recap this case, as reported in the SFO Press Release, entitled “Shareholder agrees civil recovery by SFO in Mabey & Johnson”, said that M&J has worked with the SFO since the beginning of 2008 when M&J self-reported certain instances of corruption it had identified as a result of an internal investigation. Following the self-disclosure and subsequent co-operation with the SFO’s investigations, the company pled guilty to charges of corruption and breaches of United Nations sanctions and was convicted at Southwark Crown Court in September 2009. Since the self-disclosure, the company has introduced new management, implemented anti-bribery and corruption procedures and appointed an independent monitor. The SFO noted that “the company is viewed by the SFO as having conducted itself in an exemplary way through its self-referral, extensive co-operation with the authorities and the transformation of the company.”

However, there is now one additional remedy that the SFO used against M&J. The sole shareholder of M&J, Mabey Engineering, agreed to pay a penalty of £131,201 under the Proceeds of Crime Act. The sum represents the dividends which the parent company collected from the contracts at the center of the UN Sanctions prosecutions. The company will also pay costs in the amount of £2,440.

Director Alderman is quoted as saying:

“There are two key messages I would like to highlight.  First, shareholders who receive the proceeds of crime can expect civil action against them to recover the money.  The SFO will pursue this approach vigorously.  In this particular case, however, the shareholder was totally unaware of any inappropriate behaviour.  The company and the various stakeholders across the group have worked very constructively with the SFO to resolve the situation, and we are very happy to acknowledge this.

The second, broader point is that shareholders and investors in companies are obliged to satisfy themselves with the business practices of the companies they invest in.  This is very important and we cannot emphasise it enough.  It is particularly so for institutional investors who have the knowledge and expertise to do it. The SFO intends to use the civil recovery process to pursue investors who have benefitted from illegal activity.  Where issues arise, we will be much less sympathetic to institutional investors whose due diligence has clearly been lax in this respect.”

Commenting on these statements, thebriberyact.com said, that with these remarks, Director Alderman “took the opportunity to fire a warning a shot across the bows of institutional shareholders and the higher standards the SFO will expect of them”. I usually do not disagree with thebriberyact.com guys. However, here I think they were way too subtle, because even if a shareholder did not know about illegal conduct, the SFO will go after the proceeds of the criminal activity. This is not the situation where a recalcitrant company agrees to disgorge profits, which is a standard Securities and Exchange Commission (SEC) remedy. This is a situation where a shareholder who received dividends was required to return its money.

Director Alderman goes on to imply that institutional shareholders will be held to a higher standard. The “broader point is that shareholders and investors in companies are obliged to satisfy themselves with the business practices of the companies they invest in. This is very important and we cannot emphasise it enough.” Think about that statement for a minute. If you are a private US equity company, with a UK portfolio company which sustains a Bribery Act violation and prosecution, you may well have to return profits, even where you did not have knowledge of the violative conduct.

More importantly for private US equity companies, how long do you think it will take for the Department of Justice (DOJ) to incorporate this form of remedy into a Foreign Corrupt Practices Act (FCPA) enforcement action? I can give you the answer; NOT LONG. The SEC enforces the books and records component of the FCPA against publicly listed companies. Most equity companies are privately held so profit disgorgement may not be available in an enforcement action against a portfolio company. Nevertheless, based on the Mabey case, the DOJ may well seek return of dividends, profits or other monies which went from a portfolio company to its private equity owner.

Over the past week, there has been intense media discussion regarding private equity due to the GOP primary. These discussions have even reached the FCPA compliance commentariati with an article by Matt Ellis, writing in his blog FCPAméricas, entitled “Mitt Romney, Private Equity, and the FCPA.” The lawyers at the DOJ read the papers like everyone else and they see this increased scrutiny and this scrutiny, coupled with this new development by the SFO, will put this type of enforcement remedy squarely in front of US regulators. If you are a private equity company, you need to heed Director Alderman’s warning that “This is very important and we cannot emphasise it enough”; you will be “obligated to satisfy [yourself] with the business practices of the companies [you] invest in.” It does not get any more straight forward than that.

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

December 16, 2011

More Wisdom from the Bribery Act Guys

Ed. Note-today we host our colleague Matt Ellis who reports on the recent World Compliance event where the Bribery Act guys spoke. This article originally appeared in Matt’s blog, FCPAméricas Blog, which we reprint, in its entirety with his permission. 

In FCPAméricas’s last post, it gave highlights from Tom Fox at the World Compliance FCPA Summit 2011 in Houston, TX. At the same seminar, the Bribery Act Guys (UK attorneys Barry Vitou and Richard Kovalevsky QC) offered their own wisdom.

 Transitioning Away from Facilitating Payments

While it is commonly known that, unlike the FCPA, the UK Bribery Act prohibits facilitating payments, the Bribery Act Guys offered insight into how the Serious Fraud Office (SFO) will give companies time to bring their practices into compliance. The SFO has offered a 6-step guidance. The Bribery Act Guys explain that, “If the answers to these questions are satisfactory then the corporate should be shielded from prosecution”:

Whether the company has a clear issued policy regarding such payments;

  1. Whether written guidance is available to relevant employees as to the procedure they should follow when asked to make such payments;
  2. Whether such procedures are being followed by employees;
  3. If there is evidence that all such payments are being recorded by the company;
  4. If there is evidence that proper action (collective or otherwise) is being taken to inform the appropriate authorities in the countries concerned that such payments are being demanded;
  5. Whether the company is taking what practical steps it can to curtail the making of such payments.

Corporate Hospitality under the UK Bribery Act

The Bribery Act Guys report that, when deciding whether a specific corporate expenditure falls outside of the bounds of reasonable and proportionate hospitality, the SFO will look to see whether:

the company has a clear issued policy regarding gifts and hospitality;

  1. the scale of the expenditure in question fell within the confines of such policy and if not, whether special permission for it had been sought at a high level within the organization;
  2. the expenditure was proportionate with regard to the recipient;
  3. there is evidence that such expenditure had been recorded by the company; and,
  4. the recipient was entitled to receive the hospitality under the law of the recipient’s country.

Predictions on UK Bribery Act Enforcement in Coming Months

The Bribery Act Guys have built a good track record with their predictions. They correctly predicted the delay on UK Bribery Act guidance, dismissed suggestions that the Bribery Act would be canned and said that the SFO would survive when others thought it would not.

They have now offered their predictions on enforcement activity. These predictions are timely since the UK Bribery Act just went into force on July 1, 2011 and applies only to conduct occurring after that date (although enforcement may incorporate prior activity if it is part of a ongoing “system” of wrongdoing). Will they get these ones right too?

Proceedings against Foreign Companies. The Director of the SFO, Richard Alderman, has a personal commitment to enforcement similar to that of U.S. Department of Justice Assistant Attorney General Lanny Breuer. Both regulators see their jobs as crusades. As such, Alderman is concerned less with proceeding against “low hanging fruit” and more in pursuing the harder cases that test the limits of the UK Bribery Act, especially with respect to extraterritorial jurisdiction. As a result, the Bribery Act Guys predict several proceedings against foreign companies so that the SFO can “level the playing field,” similar to the approach taken by U.S. enforcement.

  1. Alderman’s Successor Might Seek to Bring in Money. After Alderman departs in Spring 2011, his successor might look to bring easier, lucrative cases. The SFO is highly underfunded, a fact that has impeded its ability to fully flex its muscles. Revenue from cases can change that.
  2. Focus on Individuals. Like U.S. authorities, the SFO will focus on prosecuting individuals. For example, if a company discloses prior bribery of an acquiree discovered in acquisition due diligence, it can obtain a clean bill of health going forward. The individuals authorizing the scheme for the seller, on the other hand, will likely be prosecuted. Likewise, the target may also be subject to enforcement proceedings to recover the benefits of the proceeds of crime.
  3. The Announcement of First Major Cases Will Take Time. It will likely take at least a year for major SFO prosecutions to be announced. This is because, broadly speaking, the SFO only announces actions at a very advanced stage or after it has concluded the investigation.

When the SFO Can Use UK Subsidiaries to Assert Jurisdiction over U.S. Parents

For the UK Bribery Act offenses of bribing, receiving a bribe, and bribing a foreign public official, it is, generally speaking, harder to assert jurisdiction over an overseas parent (unless the activity takes place in the jurisdiction). But for the offense of failing to prevent bribery, the SFO has more leeway in asserting jurisdiction over the parent through its UK subsidiary, even if the subsidiary is not directly involved in the scheme.

The SFO takes the view that, the less autonomous the UK subsidiary’s operations are from those of the U.S. parent, the more authority the SFO has to bring a case, even if the bribe was committed in a third country by an entirely different subsidiary. In other words, the more common the management and services functions between the UK subsidiary and the U.S. parent, the stronger the jurisdictional basis for proceeding against the parent. The extent of the connection will likely be tested in the courts.

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Matt Ellis, Principle and Founder of the law firm of Matteson Ellis Law, PLLC. He blogs at the  FCPAméricas Blog, a blog that explores corruption issues throughout Latin America and speaks to the companies and business-people in the region seeking to comply with international anti-corruption norms. He can be reached via phone at 1.855.FCPA.LAW.

November 14, 2011

Fast and Furious: Corruption in Brazil and Upcoming World Cup and Olympics

Filed under: FCPA,FCPAmericas,Matt Ellis,Risk Assessment — tfoxlaw @ 1:49 am
Tags: , ,

I recently saw the latest installment of the Fast and Furious franchise, entitled “Fast Five”. In this installment, Vin Diesel as Dominic Toretto and Paul Walker as Brian O’Conner led a team which steals over $100 million from a Brazilian crime boss. One of the storylines of the movie is that this crime boss has corrupted the Rio police force through bribery. Of course this movie is fiction but one of the legacies of the most recent former Brazilian President, Luiz Inάcia Lula da Silva, is one of systemic corruption at the highest levels of power in the country. Sometimes truth is stranger than fiction indeed.

In a recent article in the Wall Street Journal (WSJ), entitled “Brazil Corruption Ills Expose Underside of Lula Legacy”, Paulo Prada reported on the corruption scandal which has engulfed the Cabinet of the current President (and handpicked successor of Mr. da Silva), Dimla Rousseff.  Prada reported that since June of this year, the following Cabinet Ministers have resigned amid the following allegations for the subsequent reasons (a/k/a the Corruption and Resignation Box Score)

Month Minister Involved Reason for Resignation
June Chief of Staff (OK – technically not a Ministry Alleged to have used public office to reap millions through a private consulting firm
July Transportation Minister Alleged to have exchanged commission for contracts
August Agriculture Minister Reports of widespread kickbacks throughout Ministry
September Tourism Minister Reports he used public funds for personal expenses
October Sports Minister Allegations of kickbacks from social programs
November Labor Minister – no resignation as yet Accusations that ministry officials were taking kickbacks

So if the Labor Minister resigns sometime this month it will be a stunning 6 for 6 over the past 6 months. What kind of odds do you think any Las Vegas casino would have given for that Pick 6 in May? Indeed, do you believe that any casino in Brazil would have even put such a Pick 6 on the odds board? While noting that “Corruption is nothing new in Latin American politics and certainly not in its biggest country”, this type and pattern of corruption would certainly appear to be breathtaking. Prada noted that the cost to Brazil for bribery is estimated to be 2% of the country’s economy or over $48 billion.

What does all this mean for a US company doing business in Brazil? A compliance practitioner would hope that any such company would at least be cognizant of this amount of reported corruption. The Transparency International 2010 Corruption Perceptions Index gives Brazil a rating of 3.7. Although this score is only the “perception” of corruption, it is certainly not the best of scores. On a more general note, the recently released Chadbourne Compliance Quarterly Special Report, authored by Scott Peeler entitled “A Study of Individual Liability under the Foreign Corrupt Practices Act”, listed the region where the most Foreign Corrupt Practices Act (FCPA) violations occurred as Mexico, Central and South America.

If there is an American company which is doing business in Brazil and is not aware of such information and findings, then its compliance program should be nimble and agile enough to recognize Brazil as a country in which the risk of FCPA violations could well be high and that management of such FCPA risk should be moved up a notch or two. The recognition of such increased risk is precisely what a Risk Assessment is designed to flesh out by looking at a variety of factors such as (1) Geography – where does your Company do business; (2) Interaction with types and levels of Governments; (3) Industrial Sector of Operations; (4) Involvement with Joint Ventures; (5) Licenses and Permits in Operations; (6) Degree of Government Oversight; and (7) Volume and Importance of Goods and Personnel Going Through Customs and Immigration. If your company meets some or all of these criteria, you next need to assess the robustness of your compliance program as it applies to and in Brazil. You may also want to do some internal controls testing and internal auditing to see if you have any issues with your Brazilian operations today.

After performing the Risk Assessment, my next suggestion would be to read Matt Ellis’ recent 4-part series on “Doing Business in Brazil” on his blog FCPAméricas. Matt has a ton of experience working in Brazil and he is fluent in Portuguese and Spanish. Lastly, give Matt a call and put him on retainer, you will need him.

As great as the business opportunities are in Brazil today, they are getting ready to explode with the upcoming 2014 World Cup and 2016 Olympics. There will be many, many American companies which have not done work in Brazil previously, who will be bidding on and/or doing work for these events. All of this bidding and work will be directly or indirectly for the Brazilian government so any company doing work on either of these two world class events should assume the FCPA applies in each and every transaction. Remember, the promise of a bribe equals actually paying a bribe under the FCPA. The bottom line for any US company doing or considering doing business in Brazil is that the reward may be great but the risks are equally great. But with all things FCPA, it is a risk and that risk can be managed. Compliance Departments are not, nor should they be, “The Land of No”. They exist to help companies manage the risk of FCPA compliance.

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Episode 23 of This Week in FCPA is up. Check Howard Sklar and myself as we discuss the Lanny Breuer speech at the ACI National FCPA Conference, Olympus, the Bribery Act and more.

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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, 2011

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