Like a Rolling Stone and Charitable Donations Under the FCPA

Today we celebrate one of the seminal achievements in rock and roll for it was on this day, 50 years ago, in 1965 that Bob Dylan recorded his single Like a Rolling Stone. Columbia Records executives initially rejected the song as too long to be released as a single because it came in at over 6 minutes in length. However, through a campaign of subterfuge, Dylan’s manager was able to have it played by New York City DJs. The popularity of the song became so great that the same Columbia Records executives were forced to release it and it went to Number 2 on the Top 40.

According to the site ThisDayInHistory.com, “The most important impact of “Like A Rolling Stone” was not commercial but creative. Rolling Stone magazine said Dylan “transformed popular song with the content and ambition of ‘Like a Rolling Stone.’” Or as Bruce Springsteen said of the first time he heard it, “[it] sounded like somebody’d kicked open the door to your mind.”” And my favorite part is the opening organ riffs played by a 21-year-old Al Kooper who was just sitting in on the session.

I thought about this odd convergence that came together to create what Rolling Stone magazine named as the greatest song of all time in 2004 in the context of the continuing fallout from the ongoing scandal involving the governing body of international soccer, the Fédération Internationale de Football Association (FIFA). In a BBC Online article, entitled “Fifa corruption: South Africa cash ‘worrisome‘”, Andrew Harding wrote “A key figure in South Africa’s football World Cup bid has broken ranks with the government to suggest there might be some truth to a claim that a $10m bribe was paid to secure the 2010 tournament.” That figure is Tokyo Sexwale who was “a member of both the World Cup bid team and local organising committee”. Sexwale has now questioned whether the $10MM payment made to Jack Warner of Trinidad was truly a donation.

Sexwale went on to ask, “”Where are the documents, where are the invoices, where are the budgets, where are the projects on the ground?””

I thought about those questions in the context of a Chief Compliance Officer (CCO) or compliance practitioner working under a Foreign Corrupt Practices Act (FCPA) or UK Bribery Act compliance program around charitable donations. There has been a paucity of FCPA enforcement actions around charitable donations. Both the Schering-Plough Corporation and Eli Lilly and Company enforcement actions centered in Poland were Securities and Exchange Commission (SEC) civil enforcement actions based upon violations of the books and records and internal controls provisions to the FCPA. There was no evidence of bribes being paid which rose to criminal conduct.

Generally, it is assumed that if you do the required review of the charitable organization that is due to receive a corporate donation and in this due diligence, there is no tie to a government official or family member, the donation can be made under the FCPA. However consider Sexwale’s comments around the evidence of whether a bribe was paid to Warner or if it was simply because “part of the feeling at the time – it’s a good thing, this [$10MM of] altruism (towards the African diaspora in the Caribbean)”. Yet even Sexwale noted the problem when he added, “The question is going to be: “What was done to make sure that your good intentions – you as the giver – have been realised?””

His comments gave me pause to think that companies who make charitable donations in foreign countries may now have to monitor these donations at a greater level and with greater scrutiny. The starting point may now well be as stated by Sexwale, “What was done to make sure that your good intentions – you as the giver – have been realized?” If this is now a standard of enquiry and oversight the Department of Justice (DOJ) will require validation on how your company can have assurances that your good intentions are realized? Once again you can look to the basic questions that Sexwale posed in the BBC online article, Where are the documents, where are the invoices, where are the budgets, where are the projects on the ground?

There have been four Opinion Releases around charitable donations under the FPCA. Opinion Release 95-01 was a request from a US-based energy company that planned to donate $10MM for equipment and other costs to a medical complex that was under construction near a large construction project. Opinion Release 97-02 dealt with a request from a US-based utility company who planned to donate $100K for construction and other costs to a government entity that proposed to build an elementary school near a facility. Before releasing funds, the utility company required certain guarantees from the government regarding the project, including that the funds would be used exclusively for the school. Also, the donation was directly to the foreign government and not a charity. Opinion Release 06-01 dealt with money to fund a pilot project in which the US Company would contribute $25,000 to the in country Ministry of Finance to improve local enforcement of anti-counterfeiting laws. The contribution was intended to provide incentive awards to local customs officials, needed because the African country involved was a major transit point for illicit trade and the local customs officials have no incentive to prevent the contraband. Finally, Opinion Release 10-02focused on the underlying due diligence engaged in by a US-based Micro Financial Institution (MFI) operating in an unnamed Eurasian country. The Release specified the three levels of due diligence that the US MFI had engaged in on the proposed locals MFIs which were listed as eligible to receive the funding. In addition to the specific discussion of the due diligence performed by the US MFI and noting the controls it had put in place after the funding was scheduled to be made the DOJ also listed several of the due diligence and/or controls that it had previously set forth in prior Opinion Releases relating to charitable donations.

While these Opinion Releases certainly imply a level of scrutiny at the post donation level, their primary focus is on who the donations are being made to and are they a government official. However, the DOJ may well expect both pre and post donation scrutiny, along the lines of Sexwale’s questions, which could demonstrate the legitimacy of the donation. However Sexwale’s questions also raise up something that the DOJ and SEC often say, that being that a good anti-corruption compliance program is really just good business. Shareholders and investors have the right to know how and where their money is begin spent. It would seem to behoove any company to want to the know the same thing that Sexwale wants to know about the $10MM payment to Jack Warner, What was done to make sure that your good intentions – you as the giver – have been realized? 

To hear the original version of Like a Rolling Stone on YouTube, click here.

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, 2015

Why Should Americans Care About the FIFA Indictments? Part IV – Corruption is a Global Scourge

Today, I conclude my four-part series on the above question posed to me recently by a colleague. In Part I, I responded that only the US government had the wherewithal and will to do so and that it continued the administration’s fight against the scourge of corruption. For Part II I focused on corruption on the pitch and how bribery and corruption ‘changes the truth of the game’ of soccer (AKA Football). In Part III, I reviewed why American citizens should care that US companies are not engaged in bribery and corruption. Today we look at reason number four of why Americans should care about the Department of Justice (DOJ) bringing indictments against the 14 named defendants who were all associated with the governing body of international soccer, the Fédération Internationale de Football Association (FIFA). Up today is the invidiousness of corruption, that it is not a victimless crime and how its scourge hurts countries.

Jack Warner, the former FIFA Executive Committee member and head of the North American regional soccer federation CONCACAF, is alleged to have received a $10MM bribe to swing votes to South Africa so that it could land the hosting of the 2010 World Cup. However Warner had (allegedly) been previously paid by Morocco for his votes. The Sunday Times, in an article entitled “‘Please, this is very secret’ –the explosive claims of bribery and vote-rigging that Fifa decided to kick into the long grass”, reported that two former FIFA officials, Ismail Bhamjee and Michel Bacchini told the paper that Warner had been paid $1MM by Morocco to secure his vote but Warner double-crossed the country by selling out to South Africa for $10MM. Where is a little honor among crooks? The answer may be in the character of Jack Warner, who is a Minister of Parliament in Trinidad and was once a government minister, but resigned because of fraud allegations. Is that the type of character you really want in your government? What do you thing that type of politician will do when faced with an ethical dilemma? (Hint-take the money)

What about South Africa and its role as an alleged bribe payor? South Africa originally denied any payment was made. However, in an article in the Sunday Times, entitled “Trinidad’s ‘Robin Hood’ plots escape from sheriff”, Tony Allen-Mills reported that the country later changed its story to say that the payment was made to Warner “to fund football development.” Even assuming it was a charitable donation, one can only conclude there were zero protections around the payment.

For we next were told that South Africa did not actually make the payment but FIFA did directly. Amazingly, and pulling a full 180 degree Bat-Turn from his previous positions, the Secretary General of FIFA, Jérôme Valcke said on Wednesday said that he had authorized a $10 million payment to Warner after a full 13 days of denying it. The Sunday Times also reported that US authorities were investigating former FIFA President Sepp Blatter about a meeting, where he was present, and this payment was discussed.

Whoever made the payments, Ed Thomas, in a BBC online article entitled “Fifa corruption: Documents show details of Jack Warner ‘bribes’”, reported that this $10MM was not used for any soccer development in Trinidad but was used by Warner himself. Thomas reported that three payments were made into CONCACAF accounts controlled by Warner, one on January 4, 2008, one on February 1, 2008 and a final payment on March 10, 2008; all adding up to $10MM. Thomas also reviewed documents to show how the money was either laundered and then paid back to Warner or simply used to pay Warner’s personal expenses such as personal loans and credit card bills.

To those who maintain that bribery is a victimless crime, simply imagine what a country like Trinidad could do with $10MM to invest in its soccer programs and infrastructure? How many youth academies could be funded with that amount of money? How many soccer fields could be built? The answers is lots and lots but when corruption is so endemic that a $10MM bribe can be paid with such ease, with no oversight or even questions being raised, it is the citizens of Trinidad who are the victims.

But more than simply Jack Warner and his corruption in Trinidad are at play here. Even world soccer power Brazil has welcomed the investigation into FIFA, as one of those arrested was José Maria Martin, the former head of Brazil’s soccer federation, the CBF. Writing in the Financial Times, (FT) Joe Leahy, in an article entitled “Arrests sparks hope of cleaner Brazilian game”, wrote, “For Brazil, his arrest prompted hopes that finally one of the dirtiest institutions, football, might be held to account.” He quoted Flávio de Leão Bastos Pereira, a professor of criminal law at Mackenzie University in Sao Paulo for the following, “This could stimulate the necessary changes in Brazilian football in terms of greater professionalism, ethics and transparency.”

Apparently endemic corruption reigned in the country that has won five World Cup championships for many years with multiple persons involved in the corruption. Unfortunately for some (at this point unknown) US company or companies, payments were made through a third party agent, “Jose Hawilla – the head of Brazilian based marketing company Traffic and one of the main paymasters behind the corruption at Fifa”. So much money went through Hawilla that in his guilty plea agreement he agreed to forfeit $151MM in his profits.

Interestingly, and probably for an entirely different set of reasons, Brazilian President Dilma Rousseff announced that she welcomed the investigation. In another FT article, entitled “Fifa corruption scandal threatens to engulf Nike as sponsors raise pressure”, Joe Leahy and Mark Odell reported that the President wanted an outside agency to investigation corruption around the CBF because soccer was run by private organizations and the public prosecutors had been unable to crack it. She was quoted as saying “I say that if it needs to be investigated, investigate it – all the world cups, everything.” This is certainly a refreshing change from her attitude towards the investigation into corruption at Petrobras.

The point to all this is that corruption is a global scourge. I, and many others, believe it is a component of political instability and terrorism. But the FIFA scandal shows how corruption, which may appear to be victimless and not appear to hurt anyone, can, does and has destroyed the fabric if not the soul of some of the world’s greatest institutions. Even if you simply think it is much to-do about a game, we all should have some expectation that games will be played fairly with the best team on any given day. Unfortunately the FIFA scandal shows that ‘fixing’ has been there for a long time. The world’s most popular game deserves better. As Americans we should all want to fight the scourge of corruption wherever it might appear and we certainly believe that there should be a level playing field for all who want to compete.

So to my friend who started me on this four-part journey of why Americans should care about the FIFA scandal, I hope that I have persuaded you why you should care. For the rest of you, I hope you have enjoyed this series. One of the joys of blogging and podcasting is engaging with readers and listeners. So keep those questions coming and you too can help me engage in the fight against the global scourge of bribery and corruption.

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, 2015

Why Should Americans Care About the FIFA Indictments? Part III – Corruption and US Companies

Today, I continue my four-part series on the above question posed to me recently by a colleague. In Part I, I wrote that only the US government had the wherewithal, tools and will to do so. Yesterday, I focused on corruption on the pitch and how bribery and corruption ‘changes the game’ of soccer (AKA Football). Today is the third of my of my four reasons on why Americans should care about the Department of Justice (DOJ) bringing their indictments against the 14 named defendants who were all associated with the governing body of international soccer, the Fédération Internationale de Football Association (FIFA). Up today is the corruption and US companies.

While there were no US companies specifically identified in the indictments, there were allegations that bribes were paid and pocketed in connection with the sponsorship of the Brazilian national soccer team by “a major U.S. sportswear company.” This company was later determined to be Nike. In an initial statement Nike denied any involvement in the payment of bribes and said they were cooperating with the relevant authorities. However, they later changed this original statement to say, “Like fans everywhere we care passionately about the game and are concerned by the very serious allegations. Nike believes in ethical and fair play in both business and sport and strongly opposes any form of manipulation or bribery. We have been cooperating, and will continue to cooperate, with the authorities.”

Nike is not alone in its World Cup sponsorship as there are numerous other American companies involved, both sportswear manufacturers and other retailers, such as those from the beverage industry. The involvement of US companies and companies subject to the Foreign Corrupt Practices Act (FCPA) brings up the specter of the FCPA for companies involved in FIFA sponsorship and marketing partnerships. I do not see this as an issue so much about level playing fields for business or even the greater benefits that US companies can bring even when they are required to pay bribes. (The latter argument was used by Wal-Mart apologists around the company’s payments of bribes to do business in Mexico as benefiting the people of Mexico. Let us be quite clear-the bribes paid by Wal-Mart benefitted Wal-Mart and its income from its Mexican operations.)

Information in the indictments was quite damning about the involvement of a company identified as ‘sportswear company A or E’. In a Financial Times (FT) article, entitled “Fifa corruption scandal threatens to engulf Nike as sponsors raise pressure”, Joe Leahy and Mark Odell reported one of the cooperating defendants Jose Hawilla, owner of Traffic Group and who has pled guilty, acted as a third party agent for Nike’s landmark 1996 agreement to allow Nike to fit out the Brazilian national soccer team. Moreover, the article noted, “The prosecutors said that additional financial terms between Traffic and the unnamed sportswear company were not reflected in the CBF agreement. Under these terms, the company agreed to pay a Traffic affiliate with a Swiss bank account an additional $30m in ‘base compensation’ on top of the $160m it paid to the CBF. Three days later, the company and Traffic signed a one-page contract saying the CBF had authorized Traffic to invoice Nike directly “for marketing fees earned upon successful negotiation and performance of the agreement”. Anyone see any Red Flags in that scenario?

Beyond the criminal side of the FCPA, there is the civil side enforced by the Securities and Exchange Commission (SEC) through the Accounting Provisions, which consist of the books and records provisions and the internal controls provisions. According to the FCPA Guidance, “The FCPA’s accounting provisions operate in tandem with the anti-bribery provisions and prohibit off-the-books accounting. Company management and investors rely on a company’s financial statements and internal accounting controls to ensure transparency in the financial health of the business, the risks undertaken, and the transactions between the company and its customers and business partners. The accounting provisions are designed to “strengthen the accuracy of the corporate books and records and the reliability of the audit process which constitute the foundations of our system of corporate disclosure.””

As was made clear with the recent BHP Billiton FCPA enforcement action, violations of the accounting provisions do not apply only to brib­ery-related violations of the FCPA. The FCPA Guidance states these provisions “stand alone to help investors have assurance that all public companies account for all of their assets and liabilities accurately and in reasonable detail.” For the books and records provisions this means that US public companies must “make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer.” For the internal controls provisions, US public companies must provide a system of internal controls that “provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements.” In other words, the accounting provisions are designed to protect investors in addition to working towards preventing, detecting and remediating bribery and corruption.

In addition to these basic legal requirements, which are all set out in the FCPA and violation thereof could lead to criminal or civil exposure; there will be the costs. The FCPA Professor has identified “three buckets” of costs relating to an alleged FCPA violation. The first is the pre-resolution investigative and remediation costs, the second is the fine and penalty assessment and the third is the post-resolution implementation costs. It is generally recognized that buckets one and three can be up to two to six times the amount of the fine and penalty.

But with the FIFA scandal, there will be another huge factor for companies to consider and that is the negative publicity. This scandal is the largest worldwide corruption case ever brought. It is also the highest profile corruption case ever brought. It will command attention for years to come. If any US companies are linked to bribery and corruption at FIFA, their name will be dragged through the international press ad nauseum. If there are leaks about information on companies before they investigate or get out ahead of any allegations, which may spill into the press, it will certainly not look good.

For a taste of this you can look to the accounting firm KPMG, who is the auditor for FIFA. In a story originally reported by Francine McKenna at the Wall Street Journal (WSJ) and later reported by the New York Times (NYT), KPMG has blessed FIFA’s books since at least 1999. In the NYT piece, entitled “As FIFA case grows, focus turns to its auditors”, Lynnley Browning wrote that the KPMG audits “only heightens the puzzling disconnect between the different pictures that are emerging of FIFA as an organization: riddled with bribes and kickbacks in the view of prosecutors yet spotless according to the outsider most privy to its internal financial dealings.” How well do you think KPMG will come out of this?

The bottom line is that any US company or any other entity subject to the FCPA had better take a close look at its dealings with FIFA, regional soccer federations such as CONCACAF and national soccer federations. A full review is in order starting with who you did business with and how you did business with them. As Mike Brown would say, “follow the money” and see where it went, if you can account for it and if it was properly recorded on your company’s books and records. Finally, now would be a very propitious time to review your internal controls; for even if you had a robust paper system of internal controls like BHP Billiton did, if it is simply a check-the-box exercise or even worse you do not follow the internal compliance controls you have in place, you should begin remediation now.

As to why Americans should care about US companies engaging in corruption, that answer would seem to be straightforward. Companies which engage in bribery and corruption mislead investors and diminish the marketplace of information to base investments upon. If a company is engaging in bribery and corruption, they never report it in their books and records; they always try to hide it so that it cannot be detected. Usually poor internal controls exist, which can allow bribery and corruption to exist or even the possibility of it, once again demeaning the value of a company if that company cannot assure its investors that funds will be paid out with the approval of management. Further, contracts or other business obtained through bribery and corruption presents a false picture of the true financial health of a company as it allows profits obtained through illegal means to be booked as legitimate. Finally, if a company is engaging in bribery and corruption, the financial cost to the company can be astronomic. There is only one Wal-Mart that can sustain hundreds of millions dollars spent to investigate allegations of bribery and corruption and remediate any issues. Avon spent north of $500MM on its pre-resolution investigation and remediation. All of this does not even get to the issue of inflated stock values and the inevitable shareholder derivative litigation. Lastly, there is reputational damage. If a company is willing to engage in bribery and corruption as a part of a business strategy do you want to invest in the organization?

As an American should I care about US companies involved in the FIFA corruption scandal? If the facts reported in the FT are close to correct, I would certainly think so. If monies were paid by a ‘sportswear’ company in the form of marketing fees to Traffic or even a flat $40MM payment to a Traffic affiliates Swiss bank account, this is something which should not be tolerated.

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, 2015

 

 

 

 

Why Should Americans Care About the FIFA Indictments? Part II – Corruption Changes the Truth of the Game

Today, I continue my (now) four-part series on the above question posed to me recently by a colleague. (I know I wrote that it would be a three-part series but as usual I got carried away when I started writing.) Yesterday, I wrote that only the US government had the wherewithal, tools and will to do so. Today, I focus on the second of my four reasons on why Americans should care about the Department of Justice (DOJ) bringing their indictments against the 14 named defendants who were all associated with the governing body of international soccer, the Fédération Internationale de Football Association (FIFA). Up today is the corruption in the game of international soccer (AKA Football).

Corruption never stands alone because once bribes are paid for one thing, a business, entity or person opens themselves up to other situations involving bribery and corruption. So if a company hires someone with a propensity to pay bribes, such a person would have no compunction in defrauding the company in other ways. Put another way, a tiger doesn’t change its stripes very often. Take South Africa, the country which is alleged to have paid Jack Warner a $10MM bribe to secure his vote and the votes of those in the regional soccer federation he controlled, CONCACAF, to be awarded the right to host the 2010 World Cup.

Last year the New York Times (NYT) reported that the entire FIFA referee system came under great concern because of match-fixing allegations that swirled around the South African soccer federation. Given what we know now about how that organization operated is it any wonder other parts would be corrupt? And it turned out that FIFA knew about it all along.

In a NYT 2014 ‘Rigged’ two part series, entitled “Fixed Soccer Matches Cast Shadow Over World Cup” and “Inside the Fixing: How a Gang Battered Soccer’s Frail Integrity”, reporters Declan Hill and Jeré Longman wrote about a NYT investigation of match fixing ahead of the 2010 World Cup in South Africa. The articles provided an unusually detailed look at the ease with which professional gamblers can fix matches. The article reviewed an “internal, confidential report by FIFA, soccer’s world governing body. FIFA’s investigative report and related documents, which were obtained by The New York Times and have not been publicly released, raise serious questions about the vulnerability of the World Cup to match fixing.” The reporters noted that the FIFA “report found that the match-rigging syndicate and its referees infiltrated the upper reaches of global soccer in order to fix exhibition matches and exploit them for betting purposes. It provided extensive details of the clever and brazen ways that fixers apparently manipulated “at least five matches and possibly more” in South Africa ahead of the World Cup. As many as 15 matches were targets, including a game between the United States and Australia, according to interviews and emails printed in the FIFA report.”

These NYT articles detailed how betting syndicates would target the national football associations that are charged with selecting and supplying the referees in international matches. The articles pointed out how the betting syndicates would find the weakest link in any security or compliance system and then exploit it. In the 2010 World Cup it was both the South African football association that signed contracts and its allowing the betting syndicates to select the referees for games to actually bribery of referees themselves which were the root causes of the corruption.

Imagine the difference if the South African soccer federation was not corrupt and had won the rights to host the 2010 World Cup on the strength of their bid, not their payment of bribes. Think the tone down through organization about corruption and bribery would have been any different if down the line, they knew the top of the organization was committed to winning the bid (and did so) through legal means?

Yet the corruption of individual soccer matches at the international level continued into the 2014 World Cup. In a The Telegraph article, entitled “Football match-fixing: Ghana deal casts cloud over World Cup finals in Brazil”, reporters Claire Newell, Holly Watt and Ben Bryant detailed that the “Ghana Football Association calls in police after undercover investigation by The Telegraph and Channel Four’s Dispatches programme finds that the President of Ghana’s FA agreed for the team to play in international matches that others were prepared to rig.”

They wrote, “The president of the country’s football association then met the undercover reporter and investigator, along with Mr Forsythe and Mr Nketiah, and agreed a contract which would see the team play in the rigged matches, in return for payment. The contract stated that it would cost $170,000 (£100,000) for each match organised by the fixers involving the Ghanaian team, and would allow a bogus investment firm to appoint match officials, in breach of Fifa rules. “You [the company] will always have to come to us and say how you want it to go…the result,” said Mr Forsythe. “That’s why we will get the officials that we have greased their palms, so they will do it. If we bring in our own officials to do the match… You’re making your money. You have to give them [the referees] something… they are going to do a lot of work for you, so you have to give them something,” said Mr Nketiah, who is also the chief executive of the Ghanaian football club Berekum Chelsea and sits on the management committee of the Ghana U20 national team.”

In a meeting prior to the 2014 World Cup, when Ghana was playing warm-up matches in the US, Forsythe and Nketiah introduced the undercover team to Kwesi Nyantakyi, the president of the Ghana FA. In a meeting in “Florida, the president agreed to a contract that stated each match would cost the investment company $170,000 and that they could appoint the match officials for each game. A contract was drawn up that specified that “The Company will appoint and pay for the cost of the referees/match officials in consultation with an agreed Fifa Member association(s),” in direct breach of the rules that prohibit third parties from appointing officials, in order to protect their impartiality. During the meeting, the president suggested that the fictional investment company put on two matches after the World Cup to prove that they were able to organise games.”

But even more troubling is that FIFA itself has directly affected the integrity of international soccer. In an article in The Sunday Times, entitled “Special One appalled by €5m Fifa payment”, reporter Jonathan Northcraft wrote about the reaction of Chelsea manager Jose Mourinho (AKA the ‘Special One’) to the revelations that the FIFA Executive Committee paid the Football Association of Ireland, €5 million in bribe money “to drop legal action after a controversial goal gave France victory over Ireland in a playoff for the 2010 World Cup.” The issue revolved around the on-field illegal handball played by French striker Thierry Henry that “went unsanctioned in the second leg of their playoff in 2009. The FAI launched a legal appeal to become the ‘33^rd team’ at the World Cup but stopped proceedings after receiving the payment from Fifa.”

So now the FIFA scandal has gone from paying bribes to fixing game venues to corrupting contracts to changing how games are decided. Mourinho was quoted, “This one, for me, is the end of the world. You change the truth of the game for €5m? What next? Because more stories will come for sure.”

Why should Americans care about the about FIFA indictments? I realize that most Americans do not hold the game of international soccer with the same passion as the rest of the world. But for anyone who loves sports, to have the worlds most premier sporting championship tinged with corruption and evidence of match fixing, as the Special One said, changes the truth of the game. That would seem to me to be reason enough to care.

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, 2015

 

 

Why Should Americans Care About the FIFA Indictments? Part I – Only the US Government Could Do It

A colleague recently posed that question to me. I thought it was an interesting one and although at first blush the response to me might appear self-evident, the fact that it was posed means that my view may not be universal. The more I thought about how to respond to my friend’s query, the longer my response became. So today, I begin a three-part series on why Americans should care about the Department of Justice (DOJ) bringing their indictments against the 14 named defendants who were all associated with the governing body of international soccer, the Fédération Internationale de Football Association (FIFA).

Over the weekend, I went to England to attend the wedding of my sister-in-law. My wife has numerous aunts, uncles, nieces, nephews and cousins and they all attend such family events. One of the more interesting comments I heard was from one of my wife’s cousins who said, “only America was big enough to take on FIFA” and that “you can say what you want about Americans but they get things done.” I realize the sample size may have been small to fully validate these perceptions but consider the headline from the lead editorial in the Sunday Times today which read “JUSTICE 1, FIFA O” where the Times discussed the revelations that Sepp Blatter himself is now under investigation by the US DOJ for direct involvement of the $10MM bribe paid to Jack Warner to swing his vote to award South Africa the 2010 World Cup.

The statement by my cousin-in-law presages something that is not discussed consistently about prosecutions under the Foreign Corrupt Practices Act (FCPA); that is the US government is the undisputed worldwide leader in the global fight against corruption and bribery. For all the discussion about whether it is fair or right to prosecute companies with headquarters outside the US for FCPA violations, the bottom line is if the US government did not engage in such prosecutions, no one else would do so. But these are not companies that lie outside the jurisdiction limit of US justice; these are companies that have voluntarily subjected themselves to US jurisdiction. Remember TOTAL, who howled about how unfair it was that the US government was prosecuting them? It turned out that they wired part of their bribes through the US banking system. Alstom was another company that fought the DOJ over jurisdiction. Yet it has listed securities on certain US exchanges which invoked FCPA jurisdiction, engaged in illegal conduct in the US and involved US citizens in the bribery and corruption allegations against it.

This fact of US leadership in the global fight against corruption and bribery was driven home even more so with the FIFA indictments. The Sunday Times had been investigating FIFA through investigative journalism for years. As far back as 2010, the Sunday Times published evidence that votes of FIFA executives could be purchased for votes to secure World Cup tournaments. The Sunday Times handed over wire tapes, videotapes and transcripts confirming these allegations to FIFA officials. FIFA’s response was to discipline those who had talked with reporters from the Sunday Times. Most amazingly, in May 2011 the Sunday Times provided this evidence to a British Parliamentary commission.

Did anything come about from this evidence being handed over to the UK government? A generous response might be not that we know of, as yet. This is in the face that the UK has arguably the strongest anti-corruption law on the books, the UK Bribery Act, which makes illegal the paying and receiving of bribes in both the public and private sector. So the laws are in the books in the UK, if the UK government wanted to enforce them.

The DOJ has made clear they will use all tools available to them in the fight against international corruption and bribery. For US companies or others subject to the FCPA, that means using a supply-side law, which criminalizes the conduct of the bribe payor. But there are numerous other laws that criminalize the conduct of the bribe receiver. We saw a couple of those at play with the FIFA indictments. These include money laundering and tax evasion, with tax evasion first. Ever since the conviction of Al Capone, the government has made use of laws against evading taxes on monies you are paid for criminal activity. Under FCPA cases, the companies seem to report the income from their ill-gotten gain accurately so we have not seen that tool used in FCPA prosecutions. However individuals who receive bribe payments generally do not report the income because they cannot account for receiving it for any honest or legal services. Since they do not report it, they do not pay taxes on it.

Anti-money laundering (AML) laws are an important tool in the fight against international bribery and corruption. My colleague Mike Brown, no doubt channeling his inner Woodward and Bernstein, often says that when it comes to bribery and corruption, you should “follow the money”. This is the basic truth about money laundering and why it is such an important tool in the fight against corruption. We have seen it used occasionally as an adjunct to FCPA prosecutions. Most recently was the money laundering charge against María de los Ángeles González de Hernandez, the official at a state-owned Venezuelan bank, Banco de Desarrollo Económico y Social de Venezuela (BANDES) who was paid upward of $5MM in bribes to win bond trading work. She was extradited to the US and pled guilty.

The bottom line is that only the US government has the wherewithal to engage in such a worldwide investigation and coordinate the actions of numerous of countries in providing assistance. Do you think the Swiss police would have been so involved if it was not for the US government lead in this investigation? From President Obama on down, the US government has made clear that it will lead the international fight against bribery and corruption. The FIFA indictments are yet one more indication that they will continue to do so.

But the US is no longer alone in this fight. Witness the large numbers of countries that have passed domestically and internationally focused laws against bribery and corruption. Whatever the motives behind the Chinese government prosecution of GlaxoSmithKline PLC (GSK) in China, the fact of the prosecution sent shock waves through western companies doing business in China that the old ways of bribing officials was no longer acceptable. The effect was that western companies doing business in China beefed up their compliance function and oversight of compliance. The same has been true from the burgeoning Petrobras corruption scandal in Brazil. Brazil itself has only recently enacted domestic anti-corruption legislation and it may have been the political fallout from the Petrobras corruption scandal that finally led the President of the country to accede to having the law made effective.

FIFA is the biggest sports empire in the world. The National Football League (NFL) is downright paltry when it comes to the monies, numbers and passions around international soccer. However the US government became aware of the inherent corruption at FIFA; whether through the investigative work of The Sunday Times, a whistleblower, an unrelated investigation into other criminal activities or some other means, Americans should care about the FIFA indictments because it shows the US government continues to lead the world’s fight against bribery and corruption.

Why should Americans care about the FIFA indictments? First as a measure of national pride, we have a Justice Department that has the wherewithal to take on the world’s largest sports organization, particularly one which thought itself above the law. While the US certainly did not bring the indictments against FIFA alone, it clearly was the leader in this effort to continue the fight against global corruption and bribery. For if America does not lead, others will not follow in this fight so Americans should care greatly that the DOJ is continuing to lead this fight with the laws available 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.

© Thomas R. Fox, 2015

FIFA, the DOJ and the Global Fight Against Corruption

The Department of Justice (DOJ) gave the global fight against anti-corruption a huge boost last week when it announced it was bringing charges against 14 members or persons associated with Fédération Internationale de Football Association (FIFA). To say that the scope and breadth of the charges were breathtaking really does not capture this moment in history for the anti-corruption advocates around the globe. FIFA had held itself above the law for so long, that it finally took the DOJ to start the process of rooting out the corruption that appears to have been endemic in the organization.

My FCPA Blog contributor colleagues Mike Scher and Alistair Craig, both writing in the FCPA Blog, respectively asked why we in the compliance community had not protested against FIFA corruption louder and what took the DOJ so long to prosecute? I have to disagree with both positions. The compliance community had worked to be a part of the solution at FIFA for some time. Both Transparency International and Alexandra Wrage at TRACE International worked to help bring transparency and accountability to FIFA. Both were summarily shown the door by FIFA and specifically Sepp Blatter. Just as an alcoholic cannot get sober until they become ready and willing, FIFA has not, until very recently, been willing or able to face its issues of corruption.

Moreover, even when FIFA gave the appearance about somehow even being remotely concerned about bribery and corruption, it was all for show. It asked former federal prosecutor Michael Garcia to internally investigate allegations of bribery and corruption around the awarding of the 2018 World Cup to Russia and the 2022 World Cup to Qatar, then summarily obstructed his investigation. Finally when Garcia did produce a report, FIFA shelved it and released a sham summary that Garcia promptly disavowed. Garcia resigned from FIFA due to the organization’s conduct over his report and its burial.

Even when national governments tried to do something about the bribery and corruption endemic in FIFA, they were stymied. Nigeria (of all places) tried to investigate allegations of match fixing around its national soccer federation. FIFA’s response? It decreed that Nigeria could face the ultimate sanction of being expelled from FIFA if the organization determined there had been unacceptable government interference. How’s that for playing ball?

Clearly FIFA demonstrated it was an organization that was unable to replace an institutional structure that fostered bribery and corruption when it re-elected Blatter last Friday for yet another five-year term as President. Yet Blatter resigned this week. Why did he do so? In an article in the BBC online it reported that Blatter said the mandate he was given at the time of his re-election (last Friday) no longer “seemed to be supported by everyone in the world of football.” He was reported to have said the organization need “profound restructuring.” Time was much blunter when it said, in an article entitled “FIFA’s Sepp Blatter Is Under Investigation for Corruption, Reports Say”, that “FIFA president Sepp Blatter is himself in the crosshairs of the corruption investigation that saw several of the organization’s top brass indicted over the past week, with U.S. officials reportedly saying that he was a target of their probe into world soccer’s governing body. The New York Times says that it was told by officials, speaking on condition of anonymity, that investigators hoped to work their way up to Blatter with the cooperation of the FIFA officials already taken into custody.”

On NPR’s All Things Considered, there was a report that senior FIFA officials were no longer gong to attend this month’s Women’s World Cup in Canada for fear of being arrested and extradited immediately to the US. Does that sound like a group of men who have nothing to hide? I am reminded of the 1960s magazine article and movie Suppose They Gave a War and Nobody Came? Truly the inmates are running the asylum.

What about the companies that sponsor FIFA, regional soccer federations and national soccer organizations and their role in all of this? In another BBC article, entitled “Fifa sponsors welcome Sepp Blatter’s resignation”, Emily Young reported that “both Visa and Coca-Cola repeated warnings that they expected a swift overhaul at Fifa. And McDonald’s said it hoped this would be the first step towards “gaining back trust from fans worldwide.”” I found this response by sponsors to be a key part in the international fight against bribery and corruption. Moreover, it demonstrated the role of all parties in fighting bribery and corruption.

Clearly it is not in the interest of any multi-national to be associated with a corrupt entity such as FIFA from a reputational perspective. But more than simply self-interest to protect their own brand name, companies have a role in the fight directly. This can be summed up by Scott Killingsworth in his writings on ‘private-to-private’ (P2P) solutions to the US Foreign Corrupt Practices Act (FCPA) or what I call a business solution to a legal problem. If you want to do business with a company, you should contractually mandate that company has an anti-corruption compliance program under the FCPA, UK Bribery Act or other recognized international standard.

The FIFA international bribery scandal and criminal enforcement action will be around for quite sometime to come. For the Chief Compliance Officer (CCO) or compliance practitioner in a US company there will be many lessons to be learned going forward, even if the initial criminal charges are against the bribe-takers for violations of Racketeer Influenced and Corrupt Organizations Act (RICO), money-laundering laws and tax evasion. Many of these lessons will be applicable to a FCPA or UK Bribery Act based best practices anti-corruption compliance program.

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, 2015

 

FIFA and Good-Faith Investigations

You know things are getting bad when the Wall Street Journal (WSJ) questions a business’ moral authority. Things certainly cannot be much better when the regulators begin nosing around your own self-indulgence. What happens when you realize all of a sudden that all those actions you have taken may actually fall under the jurisdiction of both the United Kingdom and the United States and their respective anti-corruption laws, the UK Bribery Act and the US Foreign Corrupt Practices Act (FCPA)? It turns out all of this may have come through for our friends at Fédération Internationale de Football Association (FIFA).

Last week FIFA announced that it had considered the investigation into allegations of corruption into the awarding of the 2018 World Cup tournament to Russia and the 2022 World Cup tournament to Qatar and found, as reported in the Financial Times (FT) by Roger Blitz in an article entitled “Fifa thrown into fresh turmoil over Qatar World Cup corruption claims”, that “any improper behaviour in the bidding process for the tournament was “of very limited scope.”” This conclusion was made by a FIFA appointed former judge, “Hans-Joachim Eckert, who is chairman of the adjudicatory chamber of Fifa’s ethics committee.” Eckert had reviewed a 350-page report by investigator Michael J. Garcia, who is a former US prosecutor now practicing law in New York. Eckert released a 42 page “summary study” of the Garcia report, which he claimed supported his decision.

Unfortunately for FIFA and Eckert, Blitz reported in another FT article, entitled “Garcia and Eckert set for showdown over Fifa report”, that “Mr Eckert’s summary was disowned within hours of its publication by Mr Garcia, who claimed it misrepresented his findings. He has protested to Fifa’s appeals committee.” Garcia’s statement “has blown apart Fifa’s attempt to bring to a close nearly three years of allegations of unethical behaviour and has left Mr Eckert under increasing pressure to publish the Garcia investigation.” This action by FIFA led Reinhard Rauball, president of the German football league (DFL), to say, “Europe would have to consider breaking away from Fifa unless the Garcia investigation was published in full.”

All of this came after the summary itself noted that documents and evidence surrounding the Russian bid were lost because the computers on which they were stored had been destroyed. Garcia was not even able to speak with all the relevant witness in the Qatar bid as well. Even with this lack of full investigation, Garcia issues a statement which said that Eckert’s summary contained “numerous and materially incomplete and erroneous representations of the facts and conclusions detailed in the investigatory chamber’s report.”

What does all of this mean for FIFA? Certainly if the head of the German football league says that the European soccer federations may have to pull out of the organization because it is so corrupt that portends poorly. In another article in the FT, entitled “Brussels launches sliding tackle against Fifa”, Alex Barker reported “The EU’s top sports official is urging Fifa to come clean with findings from its corruption investigation, in a warning that signals a Brussels rethink over the commercial freedoms enjoyed by football’s scandal-tarnished governing body. In a direct swipe at Fifa’s attempt to clear Russia and Qatar to run the next two World Cups, Tibor Navracsics, the EU commissioner for sports, has called for full publication of a graft report into the 2010 bidding process to “remove doubts” about its findings. While Sepp Blatter’s Fifa is an unregulated Swiss body independent from government, its lucrative business activities in the European market are subject to rules overseen by EU regulators, including sales of television rights.”

What about any criminal issues? A quick Google search reveals that FIFA has offices in both the US and the UK. Given the very broad jurisdiction of the FCPA and perhaps the UK Bribery Act, it does not seem too far a stretch for either the Department of Justice (DOJ), the FBI, the UK Serious Fraud Office (SFO) or even the Overseas anti-corruption unit of the London police might want to open an investigation. Indeed CNN reported that the FBI is investigating FIFA at this time, saying “Investigators are moving ahead with their probe, which could result in charges against senior FIFA officials, the U.S. law enforcement officials said.”

For the compliance practitioner there are a couple of important lesson in all of this. First and foremost, in your internal investigations, you need to provide access of both documents and witnesses to your counsel. If you do not that alone may certainly compromise your investigation. This point was recently re-emphasized in the ongoing General Motors (GM) scandal over its ignition switch problems. It turns out that over two months prior to the public announcement the company had ordered over 500,000 new switches from its supplier. According to Hilary Stout and Bill Vlasic, writing in the New York Times (NYT) in an article entitled “G.M. Ordered a Half-Million Replacement Switches 2 Months Before Recall”, the order was placed after an internal company committee met. But no records of the meeting were provided to company’s outside counsel investigating this matter, Anton R. Valukas. Interestingly Valukas released a statement which the article quoted, ““To my knowledge, G.M. provided me access to all information in its possession related to G.M. inquiries regarding various repair options and part availability as G.M. considered potential fixes for the ignition switch in the event that a recall would occur,” the statement said.” That is lawyer-speak for I looked at what they showed me.

Hiding or not providing access to internal or outside counsel can be a recipe for disaster with the DOJ. The reason is the same as it is a disaster for FIFA in Europe. There is no trust left for the organization. Ask any ex-DOJer and they will tell you that it is all about credibility when you self-disclose to the DOJ or when you are in negotiations with the DOJ over a potential FCPA penalty. I regularly hear Stephen Martin and Mike Volkov say precisely that when they talk about their experiences from working for the US government. If you do not allow your investigators access to all relevant documents and those witnesses under your control, the DOJ will most probably not consider the results of your investigation valid. The DOJ may not even consider your exertions worthy of a good-faith effort.

One thing is also very relevant for the compliance practitioner. If your outside counsel disavows him or herself from the company’s interpretation of it going forward, you are in big trouble. Even the WSJ, in its Op-Ed piece said, “FIFA’s moral failure stands out.”

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

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

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

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

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

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

World Cup Finale – Compliance Lessons to be learned from Success and Failure

Over the past few weeks, I have written several articles on the lessons a compliance practitioner can draw from this year’s World Cup and the international group which runs the event, the Fédération Internationale de Football Association or more commonly know as FIFA. Over on my podcast site, the FCPA Compliance and Ethics Report, Mike Brown, the Managing Director of Infortal and myself have just concluded a 7 part World Cup Report, where we discussed issues surrounded FIFA and this year’s World Cup in the context of anti-corruption programs. Whatever else FIFA may be, it is certainly is a compliance practitioner’s dream for lessons learned on bribery and corruption.

The 2014 championship is over and Germany came through this year’s tournament as the clear victors. Over the past couple of weeks, I was lucky enough to see the current Queen/Adam Lambert Tour. They ended both concerts with We Are the Champions and I could not but help think of the German soccer team and indeed the entire German country, winning its first World Cup title since unification. And, of course, any discussion of Germany, its title and this year’s World Cup will have to include is absolute destruction of the Brazilian team and the hearts of the host country with its 7-1 uber-win in the Semi-Finals. How long will that game be remembered? My guess is as long as soccer is played.

While Argentina did have its shots at Germany in the finals, in order to win they were required to play a near perfect game, which, unfortunately for the team and the country, it failed to do in the finals. Does this mean that Messi is not the greatest player in the game today? I really do not know but I still love watching him play and that is good enough for me.

From all of this, the lessons for the compliance practitioner can be many but I wanted to focus on two leadership lessons: What can you learn from failure? and What can your learn from success? Losing first. In an article in this week’s issue of Sports Illustrated, entitled “And Then There was Ein”, Grant Wahl wrote about how Germany turned its national soccer program around from one of its most devastating performances in Euro 2000 where it finished last in its group and did not win a single match in the tournament. From that nadir, “the national federation teamed up with German clubs to overhaul the country’s youth development.” Players from this development program were instrumental in leading the 2014 German team to the 2014 World Cup win. In other words, the German soccer federation learned from its past mistakes and grew a team that became champions.

Contrast this lesson with Wahl’s take on Brazil. He quoted Alex Bellos who said the following, “What does it mean to be the five-time champion if you let in four goals in six minutes?… The world’s biggest footballing country hosting a World Cup, in front of their own fans, and were made to look like they couldn’t play football. And against a team that was playing with artistry and sophistication and happiness, all the thing that Brazil is supposed to play with. You couldn’t have devised a more devastating epitaph for the Beautiful Game.” Bellos went on to say, “Brazil’s week from hell revealed a nation satisfied with resting on past soccer achievements and unwilling to seek new ideas abroad.”

Just as lessons can be learned from failure they can also be learned from success. In this week’s Corner Office section in the New York Times (NYT), Adam Bryant profiled Kat Cole, the President of Cinnabon, in an article entitled “Questioning Success More Than Failure”. While thinking about Germany’s success in the World Cup I was intrigued when Bryant quoted Cole for the following, “I’ve learned to question success a lot more than failure. I’ll ask more questions when sales are up than I do when they’re down. I ask more questions when things seem to be moving smoothly, because I’m thinking: “There’s got to be something I don’t know. There’s always something.” This approach means that people don’t feel beat up for failing, but they should feel very concerned if they don’t understand why they’re successful. I made mistakes over the years that taught me to ask those questions.”

Both of these perspectives can be very useful for the Foreign Corrupt Practices Act (FCPA) or UK Bribery Act compliance practitioner. Just as it is axiom that your compliance program should not be static but dynamic and evolving, what are you learning from your compliance failures and compliance successes? Most lawyers and compliance practitioners can review root cause/analyses to help determine how a compliance failure might have arisen. But how many are looking at your compliance successes. By this I do not mean celebrating your compliance successes but performing the same type of root cause/analyses to determine how a fact pattern arose but was prevented from becoming a full-blown FCPA violation. If something came in through the hotline, did you interview the whistleblower about what caused them to have confidence to report in that manner? Did you look at the training delivered to the whistleblowing employee? How about their supervisor? Did you interview that supervisor to see how he or she got the message out to not only use the hotline but stress the message of no retaliation?

In her interview Cole put it another way when she said, “I learned to make sure I take the full authority of my role. When I haven’t, I knew it immediately. And so I keep a keen eye out for whether my young leaders are forgoing an opportunity to lead. Their intentions might be right but the action and outcome are wrong. I remind people that they were hired for their point of view: “I want 100 percent of your brain 100 percent of the time, and there is a respectful way to communicate and disagree. Please do not hold back, because I want 100 percent of my investment in you.””

For the compliance practitioner, I found Cole’s insights useful in other areas. Although given in the context of ambitious employees who might want to succeed at Cinnabon, I found them to be useful in compliance as well. “First, I talk about being incredibly coachable, because we all give each other feedback. If you want to move up, you’ve got to get as many inputs as possible to continue to develop. Second, take your development into your own hands and be curious about the entire company. If there’s something you want to learn, go learn it. The structure here is like a start-up. Then I talk about productive achievers and destructive achievers, and that I only promote and support productive achievers. And that’s about mentoring and helping others while you are delivering results.

Germany is the new king of the soccer world. Long live the King, at least until the next World Cup. The lessons that Germany took to heart in the wake of its disaster in Euro 2000 directly led to it hoisting the trophy this year. Conversely, Brazil rested on its considerable laurels and now must live with the ignominy of a 7-1 shellacking, probably for the rest of the country’s collective memory. For a compliance program to be effective it must evolve. As Wahl’s Sports Illustrated article makes clear, lessons can be learned and evolution made from failure. However, as Bryant’s Corner Office article interview of Cole makes clear as well, lessons can be learned from successes as well.

Perhaps that is the final lesson from the 2014 World Cup…

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

How A Failure to Set Tone-at-the-Top Led to a Fractured Vertebra

What does ‘Tone-at-the-Top’ mean to any anti-bribery or anti-corruption program? Conversely, what if management says to do the right thing but only judges employees on their sales; what is the message that only ‘Talking The Talk’ sends; if a company fails to ‘Walk-the-Walk’ of doing business in compliance with anti-corruption laws such as the Foreign Corrupt Practices Act (FCPA)? Finally, how long does it take for the dissonance of telling people do to the right thing without training, communicating and then following up with them? Unfortunately these questions were answered in a very real and very ugly way in last week’s World Cup quarterfinal match between Brazil and Colombia.

For those of you who did not watch the match, Brazil lost its top player, Neymar, to a fractured vertebra, after Colombian player Juan Camilo Zúñiga kneed him in the back. As reported in the New York Times (NYT), in an article entitled “Brazil Takes a Painful Step Forward”, Andrew Keh wrote “With about five minutes left to play, the Colombian defender Juan Camilo Zúñiga went airborne on a loose ball and ended up driving his knee into the lower back of Neymar, who immediately crumpled to the turf in pain. Neymar’s teammates could be seen signaling to the bench for a substitution as a stretcher was brought onto to the field. He was taken to a nearby hospital, where a crowd of fans soon formed.” After the match was completed, “the team doctor Rodrigo Lasmar said that Neymar had sustained a fractured vertebra in his lower back. Lasmar said the injury would not require surgery, but would take three to four weeks to heal. It was a huge blow to the team, the country and the tournament. Neymar, 22, who plays for Barcelona, has had his face plastered on billboards and shown in television commercials since well before the tournament. For such a young player, he was shouldering a huge amount of responsibility.”

But this hard foul did not come out of nowhere nor did it appear that the Colombian team had targeted Brazil’s star player. This hard foul was a direct result of the failure of referee to set the proper tone against hard fouls throughout the match. Keh wrote, “There were 54 fouls called in the game, the highest total of any match in the tournament. Scolari [the Brazilian coach] acknowledged that both teams probably played with too much physicality, but he said the referee, Velasco Carballo, did not do enough to control the tenor of the game.” The Colombian coach was also critical of the referee and was quoted as saying, “We lost fluidity to the game because of that friction and intensity.”

Sam Borden, in another NYT article entitled “For Bellicose Brazil, Payback Carries Heavy Price: Loss of Neymar”, seemed to believe that it was Brazil and its tactics which may have reaped what they had sown with hard fouls against Colombian players. Nevertheless, “Soccer referees will often show yellow cards to players for “persistent infringement” of the rules, a phrase tha t generally means committing three or four serious fouls. Fernandinho [Brazilian midfielder] was called for four fouls in just the first half of the game, three of them significant hacks at Rodríguez. But Velasco Carballo gave him no penalty.”

After halftime, the referee still did not take control of the game. Borden wrote, “It was in the 57th minute, though, when the match began to boil over. The Colombians had continued to mostly sit back and take the punishment, but they were clearly infuriated when Silva crushed Ramos from behind as he went toward a ball. Velasco Carballo, again, declined to whistle a foul. The Colombians’ ire was raised even more 10 minutes later when the referee showed a yellow card to Rodríguez — who was apoplectic at the decision — for an innocuous trip that was, as Rodríguez vociferously pointed out with multiple hand gestures, a first offense compared with Fernandinho’s harrying.”

Borden leveled his most direct criticism at Carballo when he wrote the following “Velasco Carballo’s role in the ugliness cannot be minimized. A Spaniard, he is known as a high-level official, but it seemed clear that he was determined to avoid using cards to control the players. That decision backfired, particularly as it related to Fernandinho; instead of giving the players a comfort level to play more freely early on, his lenience served as an elastic band on the game, encouraging the players, especially the Brazilians, to try to see just how much contact they could get away with on Rodríguez without being punished. It was a poor miscalculation from Velasco Carballo, and one he compounded by neglecting to adjust as the game progressed. His culpability is impossible to ignore.”

Rarely do you see such a course of action or perhaps more aptly put, failure to engage in a course of action, as leading to such a catastrophic result. In any competitive match, for almost any sport, it is up to the referee to keep things from getting out of control. If they start to get to physical and play outside the rules, then it is the job of the referee to enforce penalties against the offending party or parties. Of the 54 fouls called against Brazil in its match with Colombia, 31 were against the host nation. It was only a matter of time before things got out of hand. If players are told by a referee’s action that there will be no sanctions for hard fouls that cross over the line, they will certainly get that message.

For the compliance practitioner, I do not think the lesson learned could be any clearer. Companies which continue to reward, through promotion and compensation, high producing sales people, while turning a blind eye towards their sales techniques which may be in violation of company policy or even the FCPA; will communicate that playing by the rules is not in your interest if you want to get ahead in this company. Correspondingly, if a company’s first action when an anonymous whistleblower raises an allegation is to try and find out the identity of the whistleblower, that also sends a strong message that the company will get you, one way or another.

For Brazil, the loss of its star player can certainly not help its chances going forward. For the rest of us, we will lose the sight of seeing one of the world’s greatest footballers on its greatest stage. And let’s not forget Neymar, who is the one with the fractured back.

===============================================================================================================================================================================================================================================

The FCPA Compliance and Ethics Report, Episode 73-World Cup Report Part V, is now up. In this episode Mike Brown and I continue our discussion of the World Cup, FIFA, compliance and ethics, including a review of the topic of this blog. To view the episode, click here.

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