FCPA Compliance and Ethics Blog

April 17, 2014

Post Traumatic Settlement Disorder

John HansonEd. Note-the following piece orignially appeared in the newsletter ‘The Informant’ of Artifice Forensic Financial Services LLC. and was also adapted  from two articles published by John Hanson through Corporate Compliance Insights during August 2011. It is published here with the permission of the author John Hanson. 

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The rigor and stress of an extensive corporate internal investigation is over. You’ve helped your client determine the scope of wrong-doing, take actions against wrong-doers, calculate the damages/amount of the fraud, fix and/or install internal controls, institute and/or strengthen its corporate compliance & ethics program, and negotiate a reasonable settlement with the relevant government agencies. You have helped your client survive what may well be one of the most traumatic events that it will ever face and it is now anxious to return its focus to its business.

But this is not the time to let up. That settlement agreement had requirements. In most instances, those requirements will focus on the organization’s compliance & ethics program, ethical tone and internal controls. This is not a time for relaxation, lest the organization fall into disorder and out of compliance with its settlement agreement. This is the time for vigilance.

Similar to a victim of a heart attack, who is moved from a hospital’s coronary intensive care unit to a general care unit after being stabilized, an organization could be seen as moving from an organizational intensive care unit to general care after the signing of a settlement agreement. Like the heart attack victim, the organization may be in a different place, but is not out of the hospital yet. Without the high level of attention, discipline and care necessary for a complete recovery, the organization can easily relapse back into disorder and return to organizational intensive care – or worse.

In Artifice’s role as an Independent Corporate Monitor (“Monitor”) and advisor to many other Monitors, Artifice has observed first-hand and heard about the post-traumatic settlement disorder that has occurred within numerous organizations. Because the role of a Monitor is so unique and close to an organization’s post-settlement activities, it provides unique insights into what can cause this disorder and how it can be avoided. From such a perspective, there are two key things that counsel may suggest that an organization should do to maintain order and better guarantee its timely and effective compliance with the terms of its settlement agreement: (1) assign and empower a project leader/manager and; (2) spiritual compliance.

The government likely relied on Chapter 8 of the United States Sentencing Guidelines (USSGs), which pertains to the sentencing of organizations, both for purposes of determining corporate liability and the remedial compliance measures required in the settlement agreement. In the spirit of §8B2.1(b)(1 &2) of the USSGs, the organization should designate an individual to monitor and oversee the organization’s compliance with the terms of the settlement agreement and report back to the highest levels of management of the organization regarding it. That person should be empowered to track and assure not only that the organization complies with its settlement agreement obligations, but also obtain and apply whatever resources are necessary to do so and hold people accountable for their roles in those efforts.

This should be done regardless of whether an outside Monitor is imposed as part of the settlement agreement. As part of a Monitor’s efforts to verify an organization’s compliance with the terms of a settlement agreement, a Monitor will track, test and report on an organization’s actions, but cannot participate in those efforts. A Monitor may and should provide guidance to an organization about its efforts, but it would compromise the Monitor’s independence if, for example, the Monitor drafted policies, conducted trainings or otherwise participated in designing or implementing the remedial measures that the Monitor would then be responsible for verifying the effectiveness of to the government. Compliance or non-compliance with its settlement agreement obligations rests solely upon the organization’s shoulders.

While the Compliance Officer may seem a good fit for such a project leader/manager role, because many of the remedial measures required by the settlement agreement may fall under the Compliance Officer’s responsibilities, someone more independent of those responsibilities might be considered. This is not at all to say that the Compliance Officer should never fill such a role, only that consideration should be given to whether or not the independence of the Compliance Officer in verifying to the organization’s management the timeliness and effectiveness of their own actions pursuant to the settlement agreement might be compromised, either in fact or by perception.

The presence of an outside Monitor has a significant impact in this regard and in many instances where a Monitor is imposed, the Compliance Officer is a perfectly appropriate, even preferable choice for this role. Without an imposed Monitor, as is seen in quality Compliance Programs where Internal Audit plays a role in verifying and reporting back to management on a Compliance Officer’s achievements against their yearly Compliance Plans, Internal Audit may provide the organization’s management with a more independent assessment of the organization’s timely and effective compliance with their settlement agreement obligations.

Depending on such factors as resources, level of independence sought, expertise, the requirement of an outside Monitor, etc., an organization may also consider bringing in an outside professional to track, assure and report to management on the organization’s compliance with its settlement agreement. This person may act in a capacity very similar to that of an imposed Monitor, but the organization would exercise a much greater degree of control over their scope and fees and the extent to which they could leverage the organization’s internal resources. Moreover, the organization could empower such a person to design remedial measures, affect change and take actions on behalf of the organization that an imposed Monitor cannot do because of their strict independence requirements.

This is among the greatest causes of disorder among many organizations in their post-settlement actions, who by fracturing this responsibility jeopardize their ability to timely, effectively and fully comply with their settlement agreement obligations, as well as management’s ability to exercise oversight of it. One person, appropriately empowered, enabled and accountable, brings order to the situation and minimizes these risks. In performing this role, such a person should design a workplan that identifies everything that the organization is required to do (and elects to do) and be responsible for assuring that everything is completed timely and effectively, as well as documented and appropriately reported.

Pass or Fail Another significant and common contributor to post traumatic settlement disorder is a tendency by some organizations to focus on meeting the “letter” of its settlement agreement obligations and not the “spirit.” Compliance with the terms of a settlement agreement should not be viewed as a “check the box” exercise.

The government takes a dim view of organizations that have compliance programs that “live on a shelf” and may penalize more harshly such organizations than those who have no compliance program at all. Similarly, if the efforts of an organization to comply with their settlement agreement obligations exist on paper and not in practice, the organization assumes a grave risk.

One of the primary goals of the government in requiring certain post-settlement actions by an organization is the institution of an effective Compliance and Ethics Program and internal controls aimed at reducing the risk of recurrence of the same or similar misconduct as that which led to the settlement agreement. Accordingly, how quickly the organization meets its obligations and, more importantly, the effectiveness of its efforts in doing so, are of tremendous importance.

Determining the effectiveness of an organization’s remedial measures requires much more effort than mere compliance with the letter of a settlement agreement’s obligations. Take, for example, compliance training. While a settlement agreement may require quarterly compliance training, such training is meaningless if the employees who receive the training cannot understand or apply it within the context of their roles. Accordingly, aside from assuring that the training is appropriately designed and affected to maximize such an understanding, an organization may utilize tests, surveys and/or post-training interviews to assess the training’s effectiveness. To the extent it is found not to be effective, it should be immediately remediated.

Another common post-settlement goal of the government is the strengthening or institution of a high ethical tone within an organization, commonly referred to as “tone at the top.” To successfully meet the spirit of an organization’s compliance with its settlement agreement obligations, the upper management of an organization must set the tone and take the lead. The degree to which management demands that the organization’s post-settlement efforts go beyond the letter of compliance has a great impact, in the same manner as their tone, actions and personal accountability does in affecting an ethical tone throughout an organization.

“Tone at the top” is not a compliance buzzword or catch phrase, it is real and plays a very significant role in affecting employee behavior and compliance throughout an organization. How upper management acts and holds themselves accountable sets the ethical tone and standard for how all employees are expected to conduct themselves and their accountability in doing so. While the settlement agreements used by government agencies may vary in how directly they address an organization’s ethical tone, it is generally among their chief concerns.

In living up to the spirit of a settlement agreement, an organization’s management, starting at the very highest levels, must take an active role in setting and living a tone that exemplifies ethical behavior and accountability. In the post-settlement world, this may well begin with the tone they set as it regards complying with their settlement agreement obligations. If, for example, a settlement agreement requires that all employees certify their having read and understood an organization’s compliance policies, upper management should be among the first to do so.

Another strong indicator of spiritual compliance and a positive tone is when organizations look for ways to go above and beyond the letter of their obligations as per the settlement agreement. While settlement agreements have become standardized to some extent, and in such a manner as to address compliance and ethics program issues relatively adequately, the government officials who are involved in drafting them are generally not experts in compliance and ethics programs and may, in fact, have little or no compliance knowledge and/or experience. Because of this, the obligations required in settlement agreements that pertain to corporate compliance and ethics programs may sometimes be minimal, vague and not necessarily comport with that necessary to achieve the government’s ultimate goals.

As an organization endeavors to meet its settlement agreement obligations, it should keep in mind the goals and spirit of its settlement agreement and seek ways to assure that such overarching goals are met or exceeded. One example of this occurred with an organization that Artifice served as the Monitor of, which instituted a process around business opportunities that went beyond that required in its settlement agreement and proved successful in preventing the same misconduct that gave rise to its problems. This reflected very favorably upon how seriously the organization and its management viewed compliance and the ethical tone within the organization.

There are other things that occur within organizations that contribute to post traumatic settlement disorder, but the two discussed above are two of the largest contributors to problems and/or failure that we have seen through the unique lens of an Independent Corporate Monitor.

Getting out of organizational intensive care doesn’t equate to discharge. Organizations must be vigilant, disciplined, rigorous, and take with grave seriousness its settlement agreement obligations. A focus on the spirit of the settlement agreement, together with order and accountability in assuring that all settlement obligations are met timely and effectively, significantly mitigates the risk of post traumatic settlement disorder and ultimately helps an organization become stronger and better servants of its customers, employees, shareholders/owners and the public-at-large.

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John Hanson is the founder and Executive Director of Artifice. A CPA (LA), Certified Fraud Examiner, and Certified Compliance & Ethics Professional, John has more than 23 years of fraud investigations, forensic accounting, corporate compliance & ethics, and audit experience. Though well regarded for his investigative and litigation support skills and experience, John is a thought leader in the field of Independent Corporate Monitors, having had substantial involvement in five (5) Federal Monitorships, three (3) as the named Monitor. A former Special Agent of the FBI, John spent nearly 10 years refining his white collar crime investigative skills investigating a variety of complex criminal fraud schemes and financial crimes. Prior to forming Artifice in 2010, John was a leader in the fraud investigations and forensic accounting practice of a large publicly traded international financial consulting firm. John can be reached jhanson@artificeforensic.com. s the founder and Executive Director of Artifice. A CPA (LA), Certified Fraud Examiner, and Certified Compliance & Ethics Professional, John has more than 23 years of fraud investigations, forensic accounting, corporate compliance & ethics, and audit experience. Though well regarded for his investigative and litigation support skills and experience, John is a thought leader in the field of Independent Corporate Monitors, h© John Hanson

ving had substantial involvement in five (5) Federal Monitorships, three (3) as the named Monitor. A former Special Agent of the FBI, John spent nearly 10 years refining his white collar crime investigative skills investigating a variety of complex criminal fraud schemes and financial crimes. Prior to forming Artifice in 2010, John was a leader in the fraud investigations and forensic accounting practice of a large publicly traded international financial consulting firm. Hanson is the founder and Executive Director of Artifice.  A CPA (LA), Certified Fraud Examiner, and Certified Compliance & Ethics Professional, John has more than 23 years of fraud investigations, forensic accounting, corporate compliance & ethics, and audit experience.  Though well regarded for his investigative and litigation support skills and experience, John is a thought leader in the field of Independent Corporate Monitors, having had substantial involvement in five (5) Federal Monitorships, three (3) as the named Monitor.  A former Special Agent of the FBI, John spent nearly 10 years refining his white collar crime investigative skills investigating a variety of complex criminal fraud schemes and financial crimes.  Prior to forming Artifice in 2010, John was a leader in the fraud investigations and forensic accounting practice of a large publicly traded international financial consulting firm. 

December 20, 2010

The Fraud Guy and Corporate Monitors under the FCPA

Most compliance practitioners are aware of the use of corporate monitors. There are many benefits to the use of a corporate monitor for a company coming out of a lengthy Foreign Corrupt Practices Act (FCPA) investigation. Some of these benefits can include increased corporate awareness of compliance and the integration of best practices into a company’s compliance program. A corporate monitor can also boost shareholder, employee and public confidence in a company which has had a lengthy FCPA investigation and enforcement action.

One of the more vexing questions which a General Counsel or Chief Compliance Officer may face is how to select and interact with a corporate monitor? There is very little helpful guidance for compliance practitioners on this subject. However, one such resource has arisen in the past year which is welcome addition for the compliance practitioner, it is “The Monitorand it is issued by Artifice Financial Forensic Services, LLC, and its head, John Hanson. Hanson is a CPA, CFE and, furthermore, he’s a former FBI Agent, who also publishes a very useful blog entitled “The Fraud Guy”. 

In September, Hanson presented a session on corporate monitors at the 9th Annual Compliance & Ethics Institute of the Society of Corporate Compliance and Ethics (SCCE) entitled, “Understanding and Working Effectively With Independent Corporate Monitors”. In this session Hanson outlined some of the key points a compliance practitioner needs to understand when engaging or dealing with a corporate monitor. In this presentation, which included panelists Doug Lankler, Senior VP and Chief Compliance Officer of Pfizer, Inc., and Jacob Frankel, partner in the law firm of Shulman Rogers, Hanson noted that a corporate monitor is one who is an  independent third-party used to verify an company’s compliance with an Agreement between the company and a Governmental Agency or Agencies (think Department of Justice [DOJ] and Securities and Exchange Commission [SEC] and a Deferred Prosecution Agreement [DPA] or Non-Prosecution Agreement [NPA]). Additionally a corporate monitor has the primary responsibility to assess and monitor a corporation’s compliance with the terms of a DPA, NPA or other relevant Agreement.

 Hanson suggested several qualifications that a company should look towards in selecting a corporate monitor. These include the capability of the monitor candidate to handle a large and potentially multi-year assignment. A determination should be made on the credibility and integrity of the business and professional reputation of the corporate monitor. There must be real and perceived independence and objectivity by the corporation monitor, who should not have had prior business dealings with the company. A corporate monitor should have desirable, relevant experience and must have the staying power to remain on the job during the entire term of the monitorship. 

Hanson emphasized that the role of the corporate monitor should be driven by the relevant DPA, NPA or other Agreement. The over-riding goals of the corporate monitor should be independent verification of a company’s compliance with the terms and conditions of its relevant agreement, whether DPA, NPA or other Agreement. This focus is primarily through corporate compliance assessments. A corporate monitor should primarily observe, test and report. While a corporate monitor may utilize some investigative techniques, it is generally not within the corporate monitor’s scope to investigate. To this final point, Hanson has recently published an article entitled, “Corporate Monitor Not an In-House Investigator” which further expanded on this issue. 

Hanson discussed the need for transparency in the monitorship. This begins with the negotiations involved with the work plan, including the projected costs of the monitorship. The cost of a corporate monitor has been identified as a significant issue with even US Federal District Court judges so care should be taken so that the corporate monitor cost itself does not become an issue.  We recommend the following list of topics be considered by any company in regards to the cost of a corporate monitor: hourly rate v. fixed fee; expenses; rate adjustments, both upward and downward. If other personnel are to be used in the process, there should be full disclosure of the personnel and their rates. One item that Hanson related was that the bulk of costs for a corporate monitorship occur during the initial reporting period. 

With regard to the Report itself, its scope and timing are determined by the DPA, NPA or other relevant Agreement. However, both the company and the governmental agency should agree on the form and content of the Report. Generally, there should be no review by the company of the report prior to the delivery to the governmental agency. However, if during the pendency of the reporting period, there is sharing of concerns, observations and findings, there should not be any surprises in the final Report, absent extraordinary circumstances. The Report itself should include the presentation method, it should address any potential inaccuracies in reporting and it should highlight any expansions or contractions in overall monitorship scope. The Report should also list appropriate remedial measures that the company should employ but note both positive compliance actions and any self-corrective actions by the company during the pendency of the reporting period. 

Hanson recommends that to work effectively with a monitor, a company should assume a non-adversarial, collaborative position with the corporate monitor with open and frequent communications. The company should have a full understanding of the monitor’s roles and responsibilities as well as its own role and responsibility in the monitorship. Hanson ended by emphasizing that the company should recognize that there is joint effort for any monitorship to succeed between the company and corporate monitor. By working collaboratively with a corporate monitor, the company puts itself in the best position to work through any obligations it may have assumed in a DPA, NPA or other Agreement and come through the process as one of its industry’s leaders in compliance. 

We recommend John Hanson, his newsletter “The Monitor” and website “The Fraud Guy” to all FCPA compliance practitioners as an excellent resource for the issue of corporate monitors. 

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, 2010

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