The FCPA and Fight Against Terrorism

I admit it took me awhile to finally get it. I have long wondered what could have caused the explosion in Department of Justice (DOJ) and Securities and Exchange Commission (SEC) enforcement of the Foreign Corrupt Practices Act (FCPA). Starting in about 2004, FCPA enforcement has not only been on the increase from the previous 25 years of its previous existence but literally exploded. Of course, I had heard Dick Cassin and Dan Chapman, most prominently among others, talk and write about FCPA enforcement as an anti-terrorism security issue post 9/11, but I never quite bought into it because I did not understand the theoretical underpinnings of such an analysis.

I recently finished listening to the Teaching Company’s “Masters of War: History’s Greatest Strategic Thinkers” by Professor Andrew Wilson of the Naval War College. It is a 24 lecture series on the content and historical context of the world’s greatest war strategists. In his lecture on ‘Terrorism as Strategy” Professor Wilson explained that corruption is both a part of the strategy of terrorism and a cause of terrorism. After listening to his lecture and reflecting on some of the world events which invoked both parts of his explanation, it became clear to me why FCPA enforcement exploded and, more importantly, why the US government needs to continue aggressive enforcement of the FCPA and encourage other countries across the globe to enact and enforce strong international and domestic anti-corruption and anti-bribery laws.

Corruption as a Terrorist Strategy

One need look no further than last fall’s massacre of civilians in Kenya at the Westgate Mall to see how terrorists use bribery and corruption. Dick Cassin, who has consistently written about the connection between bribery-corruption and security did so again after the attack, in a post entitled “The Price for Impunity is Higher Than Ever”, where he pointed to the continued corruption in Kenya and how this corruption led to guns and terrorists being able to cross the border and carry out the attack. Cassin said that the border controls are so porous due to corruption in Kenya that in a prior episode involving the UK Serious Fraud Office (SFO), the UK government had banned certain Kenyan government officials from traveling to the UK, in large part because the country failed to take action against obvious cases of bribery and corruption. He said, “The visa ban followed a criminal investigation by the U.K. Serious Fraud Office into contracts between the Kenyan government and U.K. shell businesses. The contracts for passport controls and border security systems went to phantom overseas companies at prices about ten times the actual cost. Kenya refused to cooperate and in early 2009 the SFO was forced to end its investigation.”

Giles Foden, in an article in The Guardian, entitled “Kenya: behind the terror is rampant corruption”, was even more specific about the culture of crime and corruption in Kenya, when he that corruption was one of the signature factors, which led to the massacre. He wrote, “In Kenya crime and terrorism are deeply linked, not least by the failure of successive Kenyan governments to control either. These attacks are part of a spectrum of banditry, with corruption at one end, terrorism at the other, and regular robbery in the middle. Money that should have been spent on security and other aspects of national infrastructure has been disappearing for generations.”

He concluded his piece with this warning, “You can gesture at the transnational problem of Islamist terrorism all you like, but it’s just hot air unless you invest in proper security on the ground in your own country, with the right safeguards to civil liberties. For now Kenya must mourn its dead. But unless the corruption stops, and real investment is made in the social fabric, Kenya will once again be faced with systemic shocks it is hardly able to deal with.”

Professor Wilson made it clear that terrorists incorporate these concepts into their overall strategy. If a country has strong border controls and government officials, which I believe is the situation here in the US and UK, then the terrorist will seek out a country friendly to the US or UK, where the government officials can be bribed or corrupted and use those as ports of entry. Similarly, they can directly attack civilians in a country like Kenya where the border is so porous that both terrorist and arms can flow through with impunity.

 Corruption as a Precursor to Terrorism

But, not only can corruption be used by terrorists, ironically, it can also be the cause of terrorism. One only need look at the Arab Spring and what started it. It was a lone fruit and vegetable seller, Mohammed Bourazizi, who doused himself in paint thinner and set himself on fire in front of a local municipal office because of the corruption of Tunisian government officials and police officers. Yuri Fedotov, head of the United Nations Office of Drugs and Crimes (UNODC) has said that the Arab Spring’s call for greater democracy was “an emphatic rejection of corruption and a cry for integrity” and that the international community must listen to the millions of people involved. At the center of the Arab Spring movement was a deep-seated anger at the poverty and injustice suffered by entire societies due to systemic corruption. Do you think there was any terrorism associated with the Arab Spring?

If one wants to look back a little further in history, I would submit that China is the most prime example of the 20^th century. For all the hand wringing about “Who Lost China”, I think a clear key was the endemic corruption of the Nationalist and their allies. Their corruption helped remove the moral authority of their government and allowed the Communists to take up that mantle in the 1940s. The Nationalists were certainly defeated on the battlefield but the groundwork was laid in large part due to the corruption of their government. It really did not matter how much money, foreign aid and material that the US government provided to Chaing Kai-Shek; his cronies and his government simply stole it, sold it or gave it away for other favors.

Moving to today’s news, the government of Thailand is currently under siege by its own citizens. While economic issues are certainly a part of the problem, so is the corruption of the government. The corruption is so bad that even China has scrapped a deal to purchase some 1.2MM tons of rice from Thailand. Michael Peel, writing in the Financial Times (FT), in an article entitled “China ditches Thai rice deal over concern on corruption”, pointed out that this “is about 14 percent of [Thailand’s] annual exports.” He said “Beijing was spooked by the Thai national anti-graft agency’s probe into the rice support programme.” One Thai government official said that the Chinese pulled out of the deal because they “lacked confidence to do business with us”. Peel also wrote that this program is “soaking up $4bn a year officially and much more by other estimates.” What does it say about a country’s government that the Chinese will not do business with because they are too corrupt?

Now I understand how terrorists use corruption both as a strategy and a tool.  Moreover, when you begin to understand these inter-related theoretical underpinnings of corruption and terrorism, you can see why aggressive enforcement of anti-corruption laws such as the FCPA and UK Bribery Act is so important and is here to stay. In another blog post entitled “9/11 and the FCPA” Cassin said, “What happened that day a decade ago changed the way the world looks at corruption. The tracks of the 9/11 perpetrators and those who helped them led back to corrupt third-world countries — Afghanistan, Sudan, Somalia, Yemen, and others. Those regimes had leaky borders, weak passport control, unreliable law enforcement agencies, poor anti-money laundering programs — just what the bad guys needed.”

I do not have any insight into the discussions of the Bush Administration after 9/11 about ways to fight terrorism. But just as governments have a role to play by being part of the solution, so do private businesses. Fedotov said that preventive action was needed by Chief Executive Officers (CEOs) in their boardrooms as much as by police on the streets or civil servants in their departments: “All of us must contribute to a culture of integrity. The eyes previously closed to corruption must become the open eyes of justice and equality.” For the DOJ and the SEC this means continued enforcement of the FCPA so that companies subject to the Act will move forward to do business in a way that does not start down the slippery slope to terrorism. Simply because the FCPA was passed in the post-Watergate era does not mean that it cannot be used for today’s problem.

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

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 50^th 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 100^th Friday Round Up, appropriately entitled “The 100^th 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

AML for the Compliance Practitioner: The KPMG 2011 Survey on Anti-Money Laundering

Dick Cassin, writing in his FCPA Blog, has consistently raised the issue of Anti-Money Laundering (AML) in the wider battle against bribery and corruption. He set out some of his thoughts in a post entitled “9/11 and the FCPA”. He also speaks regularly about AML laws as one component of the ongoing battle against world-wide terrorism since 9/11and how that relates to anti-bribery and anti-corruption compliance. I thought about Dick’s writing and ideas while I was reading the survey released yesterday by KPMG, entitled “Global Anti-Money Laundering Survey 2011”. While this survey focused on the banking industry, there were many issues identified that are applicable to the wider compliance field. The survey is one of the continuing releases by KPMG that gives insight into what compliance practitioners are thinking, some of the challenges that they face and provides a summary of best practices which anti-bribery and anti-corruption practitioners can incorporate into their company’s US Foreign Corrupt Practices Act (FCPA) and UK Bribery Act compliance programs.

The part of the survey which struck me as most applicable to the FCPA and Bribery Act compliance practitioner was ongoing monitoring. My ‘This Week in FCPA’ colleague, Howard Sklar, often speaks that he believes a compliance program must be nimble and agile enough to evaluate new risks as they arise or become known to a company. The KPMG survey noted that “This principle [ongoing monitoring] also applies to wider risk management arrangements. Ongoing risk assessment should include intelligence generated internally as well as externally, and a key source for this data is monitoring tools and activities.” Ryan Morgan, Anti-Corruption Specialist at World Compliance, spoke, at the ACI-FCPA Boot Camp held in Houston this past January, about the need to perform ongoing due diligence on parties on more than an annual basis.  This is because such due diligence is simply a snapshot of time going back from the date of the due diligence. Morgan made clear that 3 months, 6 months or 9 months into the future this snapshot might change.

Another reason to do ongoing monitoring relates to Dick Cassin’s work on the connection of compliance programs to anti-terrorism. To assist banks and other financial institutions in the fight against money laundering and terrorist financing KPMG suggests they undertake ‘ongoing monitoring’ of the business relationship with each customer. This ongoing monitoring has two components. First such institutions should monitor all of the transactions involving the customer to ensure that they fall within expectations. This concept has clear resonation in the FCPA compliance area under one of the well-recognized Red Flags regarding third party business partners. If a proposed foreign business partner does not have experience in your company’s field of expectation for the services or products your company offers, or the commission the foreign business partner sought, or has received, do not fall within a range of monetary expectations, these are viewed as ‘Red Flags’.

The second component of ‘ongoing monitoring’ would fall into the category of “Know Your Customer” or as it is known by its acronym ‘KYC’. KPMG notes that this second element of the ‘ongoing monitoring’ requirement is the need to keep relevant KYC data items up-to-date. Without up-to-date data, banks cannot understand their customers, nor screen a company’s principals effectively against sanctions lists. As Ryan Morgan noted in his ACI presentation many times it is difficult to obtain accurate information on officers, directors and related parties in the ownership chain of a foreign business partner because of the inherent inefficiencies in  a foreign governments corporate records filing systems. This means that the tools must be in place but those tools must also be utilized on a regular basis.

The KPMG survey is filled with much information for any banking compliance officer but also solid information for the anti-bribery and anti-corruption practitioner. I heartily recommend it to you for your consideration.

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