What a Long Strange Trip It’s Been – The First 1000 Blog Posts

Yes, indeed the Grateful Dead can and does inform your compliance regime as today is my 1000^th blog posting on the FCPA Compliance and Ethics Blog. To say that I ever thought I would see this day or this many blog posts, would portend a level of clairvoyance that even Carnac the Great could not conceive of pontificating upon. I had struggled with a theme for this momentous accomplishment but my sublimely-grounded English wife brought me down from the ethereal clouds with the following suggestion, “Even an old dog can learn new tricks.” Nothing like being married to a younger woman.

So today, I want to write about some of the things I have learned on this 4+ year journey, which began in late 2009/early 2010 after a serious automobile/bicycle event (Box Score: Hummer-1 Tom-0) where about the only thing I had on my hands was time while I was at home convalescing. I started to explore the world of social media, engaging on Twitter, webinaring from my home office and blogging. I was so un-savvy in this arena that about the only positive thing my teenaged daughter could say about me was “Dad, you are so unhip, you are retro. But that is cool too.” The first thing I learned was that even a complete computer misfit and social media idiot could set up a blog on WordPress. It is not only easy but free. I cannot say with any pride that some of my early blogs were very good but I can say that for a lawyer, whose only skill was to be able to perform word processing in Microsoft Word, I could type and then upload a blog post into WordPress. At that point in my blogging career, that was a major accomplishment.

Although it did take some time, I learned how to stop writing like a lawyer, with full citations in each blog, coupled with as much lawyerese as I could manage, by finally adjusting to a blogging format. I also relearned an old lesson, which says that if you really want to learn about a subject, write on it. I remember one of the first things I learned when researching the Travel Act was that this Kennedy era law, passed largely through the efforts of Bobby Kennedy, was designed to help in the fight against organized crime. So who would say a 60 year old law cannot be used for a 21^st century purpose? Or maybe even a Watergate-era like the Foreign Corrupt Practices Act (FCPA) could not have an expansive use, beyond that for which it was passed in 1977? I also learned that if you put out solid content people will read and listen to what you have to say.

I learned there are some great people out there blogging in the ethics and compliance space. I have met some fabulous colleagues through my blogging who have not only been incredibly supportive but whom I now cherish as good friends. Some of them include Mike Koehler, the FCPA Professor, for his scholarly rigor and continued intellectual challenges. Dick Cassin, the Dean of FCPA bloggers, for his unflinching support to myself and so many others. Mike Volkov, former prosecutor and DC-insider, who is always around to bounce a tough question off. Howard Sklar, who was my This Week in FCPA podcast partner, until we lost him to the corporate world. Francine McKenna, a great and generous mentor for myself and many others and the go-to person all issues in and around the accounting world. Jim McGrath, the internal investigations guy, who brings a former state prosecutor’s perspective to how investigations should be handled and critiqued. Matt Ellis, whose focus on and insights into South America (as in – it’s not a country) continue to shine a light on anti-corruption issues south of the border. Matt Kelly, Editor of Compliance Week, who saves some great witticisms for his weekly blog posts. These are but a very few of the folks I am now privileged to call friends because of my blogging.

I learned that there is way too much white noise in the FCPA space. The FCPA Professor calls them FCPA Inc. and Mike Volkov derides them as the FCPA paparazzi. Whatever you might call them, they put out reams and reams of information, sometimes useful but many times not. What I have tried to do is synthesize some of the most useful for the Chief Compliance Officer (CCO), compliance practitioner or anyone else who does the day-to-day work of anti-bribery/anti-corruption compliance. There are many, many things you can know but a far smaller subset of what you need to know. I try to bring to the compliance practitioner what they need to know. That is why the subtitle of my blog is ‘The Nuts and Bolts of FCPA Compliance’. I have tried to write about things which the compliance professional can use in the everyday practice of compliance.

I have learned that blog posts, which I thought were the most important, may turn out to be the least viewed blogs. Conversely, posts I did not think would be of great interest turned out to have the largest number of one-day hits. For instance, the largest single number of one-day hits I had was an article from two years ago about the SNC-Lavalin corruption investigation in Canada. [For a blog about FCPA compliance-go figure.] The second largest number was a recent blog post using the GM internal investigation as an exploration in the differences between a corporate legal function and its compliance function.

I have learned that by committing to something, you become much better at it. My first year of blogging, I tried to put out 2-3 blogs per week but beginning in 2011, I committed to a daily blog post. Once I made that commitment, blogging became a part of my workday. Once it became a part of my workday, it was like any other project or assignment. I had to set aside the time to work on it. It has made me a much more efficient and better writer to know that I need write something, during my workday. Yes there have been times I was up at 5 AM to write a post or stayed up way past my school-night bedtime trying to crank something out but those situations have become few and far between as I became more disciplined about my blogging.

But most of all I have learned that blogging is fun. It is fun because it is a challenge to write about something in an informative and engaging manner. It is fun to tie a Shakespeare play to a compliance and ethics theme. It is fun to read a week’s worth of Sherlock Holmes’ stories and tie a compliance topic to a story each day for one week. It is fun to find out what happened this day in history and use it as a hook to grab your readers’ attention. It is fun to engage in a debate with the FCPA Professor on a topic of mutual interest, where we look at the same thing, yet see it from different perspectives. And it is fun when you meet someone for the first time and after you introduce yourself, they say to you “When is a rose, not a rose? When it’s a FCPA violation”.

Where will the next 1000 blogs posts take me? I have no clue but if they are as much fun as the first 1000 posts have been I hope that you will continue to join my on This Long Strange Trip.

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

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

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

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

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

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

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

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

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

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

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

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

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

© Thomas R. Fox, 2013

South America is Not a Country-Interview of Matt Ellis

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

© Thomas R. Fox, 2012

Ethics Matters

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

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

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

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

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

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

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

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

© Thomas R. Fox, 2012

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

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

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

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

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

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

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

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

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

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

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

© Thomas R. Fox, 2011

Is the FCPA working? Three dispatches from Latin America

Ed. Note-today we have a guest post from Matt Ellis, Principle and Founder of the law firm of Matteson Ellis Law, PLLC. He blogs at the  FCPAméricas Blog, a blog that explores corruption issues throughout Latin America and speaks to the companies and business-people in the region seeking to comply with international anti-corruption norms. 

In his August 12, 2011 article entitled “Recent Disclosures Raise Many FCPA Questions,” the FCPA Professor Mike Koehler asks whether increased FCPA enforcement has done anything to deter future violations. This question is timely, especially given that the FCPA is under fire by major organizations (such as the U.S. Chamber of Commerce) for the burdens it places on U.S. businesses.

The Professor’s query also raises a broader question—how can levels of corruption even be measured? In an attempt to measure corruption, Transparency International gathers expert assessments and opinion surveys for its Corruption Perceptions Index. The World Bank’s Worldwide Governance Indicators project measures corruption in a similar manner by combining the views of numerous enterprise, citizen, and expert survey respondents in industrial and developing countries. Ultimately, these methods rely on subjective criteria and are limited by the inherent difficulties of applying consistent measures across countries. Assessing levels of corruption is not easy to do.

As a practitioner who has lived, worked, and conducted corruption investigations throughout Latin America for several years, I have developed my own perspective on the question. Following are three examples of how I believe the FCPA is making an impact in the region.

Compliance Programs at Work (Mexico). While conducting an internal investigation in a coastal town in Mexico for a major U.S.-based energy company, I observed an interesting phenomenon. Many oil and oil services companies were conducting their Gulf of Mexico operations from this particular town. Yet it appeared that local officials in the town had largely stopped demanding bribes. Why? The foreign energy companies operating there were some of the first to be hit by a wave of FCPA enforcement. As a result, they had developed and implemented advanced compliance programs to prevent their employees from paying bribes. I was there to assist with one of these programs—FCPA attorneys regularly conduct internal investigations to identify and assess the facts when an allegation of a corrupt payment arises. I learned from the foreign workers that, because of their strict internal prohibition against entertaining bribe requests from local officials, the officials had simply stopped asking. At routine traffic stops, the local police did not even bother to demand money because, if they did, the employee would ask to be taken to the police station where he or she would request a receipt for the payment. Workers were aware of the rules regarding foreign bribery because they had been subjected to FCPA training repeatedly. They also knew the consequences of paying a bribe because they had seen colleagues lose their jobs after doing so. The companies’ compliance programs were working together to send a message to local officials, which resulted in diminished requests for bribes.

Foreign Proceedings Inspired by U.S. Proceedings (Honduras).  In 2009, four executives from the Miami-based telecommunications company Latin Node Inc. pleaded guilty to FCPA violations in the U.S. District Court for the Southern District of Florida. The executives paid more than $500,000 in bribes to Honduran telecommunications officials to retain a valuable telecommunications contract. These U.S. prosecutions appear to have inspired the pursuit of justice in Honduras. According to the Honduran newspaper, La Prensa, investigators in Honduras have built their own “strong” case against the Hondurans involved in the scheme, encouraged by the U.S. proceedings. They have even requested that U.S. officials provide them with evidentiary assistance pursuant to the Article XIV mutual assistance provisions of the Inter-American Convention Against Corruption. Though Honduran courts have yet to begin official proceedings, action appears imminent. Perhaps as U.S. officials increase enforcement pressure, government officials in other parts of the region will be empowered to take action as well.

The FCPA as a Shield (Argentina). To a friend in Argentina—a U.S. citizen working as President of a major multinational corporation there—the FCPA serves as a shield. On several occasions, high-level Argentine officials have propositioned him for improper payments. When this happens, he stands behind the FCPA. He explains that making the payment would be illegal, would expose his company to significant liability, and would subject him to possible jail time. Given the history of high-level corruption cases in the country, my friend’s encounters are probably not unique. For example, the Siemens AG settlement dealt with multi-million dollar payments to high-level Argentine officials.  The payments were made to win a state contract for the development of national identity cards valued at around $1 billion. In the “maletinazo” case, Argentine airport customs officials found $790,000 in the suitcase of a Venezuelan businessman with ties to the Venezuelan government purportedly headed to assist President Cristina Fernández’s presidential campaign. I remember when the IBM case broke because I was living in Argentina at the time. In that case, U.S. officials brought an FCPA action against IBM when its subsidiary paid $4.5 million through an agent to Banco de la Nación Argentina officials. The payment was made to obtain a $250 million systems integration contract. As Tom Fox noted in his article “How to do Business in a Pure Pay to Play Country,” one of the FCPA’s three policy goals as set out in the preamble to the original 1977 legislation was to place U.S. companies in a better position to resist demands to pay bribes in countries where such activity is common. The Argentina example supports the assertion that this policy goal is being achieved, as the FCPA continues to provide executives with the shield they need to resist corruption.

While it is certainly true that progress in the battle against corruption is difficult to measure, perspectives like these are helpful in understanding the impact of enforcement efforts, even those that are difficult to quantify.

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Matt Ellis is a new and welcome addition to the world of FCPA compliance and blogging. His focus is on the Americas and as you might guess from the title of his blog, he has extensive experience in South America. Subscribe to his blog at  http://mattesonellislaw.com/fcpamericas/ and check his website out at http://mattesonellislaw.com/.

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They’re back for episode 18 of This Week in FCPA. Howard Sklar and I discuss the 1st year anniversary of Corruption Currents, the Wolfberg Report, the DOJ concession in CCI, KPMG and Dow Jones/ACAMS AML reports, News Corp (of course) and more. Check us out at http://thisweekinfcpa.wordpress.com/2011/10/03/episode-18/

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It’s not too late to register for the upcoming World Check FCPA event in NYC on Thursday morning at the Sheraton Hotel and Towers. Come eat some breakfast and hear the wit of myself and the wisdom of Mike Volkov and Jim Feltman on the FCPA and Private Equity: the Gathering Storm. It’s all free. Register at https://ethisphere.site-ym.com/events/attendees.asp?id=179863