Archive for the ‘Compliance’ Category

Is Incentive-Based Compensation A Scapegoat?

Tuesday, June 30th, 2015

ScapegoatEveryday, real business people interact with real foreign officials in the context of real business conditions.

The vast majority of these interactions do not result in Foreign Corrupt Practices Act violations.

It is only when these real people are ethically compromised that FCPA violations occur.

Examining how and why these real people were ethically compromised is interesting to ponder.

In recent months Richard Bistrong (an individual who pleaded guilty to one count of conspiracy to violate the FCPA and spent fourteen months in federal prison) has suggested that incentive-based compensation for international sales, marketing, and business development teams “create[] incentives that foster corruption.”  

Bistrong further wrote:

“There will be no shortage of sales, marketing and business development employees, with lucrative incentive compensation packages, who are going to want to push the envelope on finding a way to deliver sales success over compliance to a sales manager.  In an unstable procurement environment, where purchases are sporadic, unpredictable, yet financially significant, a sales person knows that if he or she misses a major procurement, it may or may not come back in the sales and bonus cycle.

Thus, when confronted with a corrupt transaction, the sales person may think, “I have a lot on the line here personally, this purchase won’t happen again for another year, at least, so what does my sales manager want, compliance or sales?”

Bistrong has a perspective on FCPA violations that many people do not have.

However, I find the suggestion that incentive-based compensation is to blame, at least in part, for FCPA violations to be a scapegoat.

Such a suggestion fails to recognize that millions of individuals are working today subject to incentive-based compensation structures yet will not be ethically compromised to violate their employers compliance policies or engage in criminal activity.

That a few will does not mean that the incentive-based compensation in which they work is to blame.

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As a courtesy, I reached out to Bistrong to comment on the above post.

He writes:

“Compensation should never be used as a scapegoat, attempt to blame, or in any way to deflect the responsibility for unethical and illegal conduct onto other individuals or business components.  The question I ask, is if compliance professionals are focusing upon incentive structures as an “unspoken” organizational message and to insure that they do not conflict with the promotion of anti-bribery compliance programs.  If perhaps they do, especially where they are indexed to personal performance in low integrity regions, then perhaps a realignment  provides an opportunity to demonstrate to front-line teams that compensation and compliance all point to the promotion and fostering of ethical conduct. Incentive compensation is a proven positive driver for business development. In the context of anti-bribery compliance, from my perspective, it requires an additional level of scrutiny to insure that it does not send a conflicting message (as opposed to a scapegoat) to front-line teams.”

A Training Solution To A Training Problem

Wednesday, June 10th, 2015

Problem SolutionThe vast majority of corporate Foreign Corrupt Practices Act enforcement actions are based, in whole or in part, on the conduct of third parties (whether agents, representatives, distributors, or joint venture partners).

Against this backdrop, a recent survey found that approximately 50% of companies NEVER train third parties on anti-bribery and corruption laws and related compliance policies and procedures.

As to this survey finding, it was noted “companies may be reluctant to spend money and time to push training to third parties because they suspect they will not get much enthusiasm from third parties, who may view it as one more compliance exercise.”

That of course depends on what type of training it is.

I myself would not be enthusiastic about much of the FCPA and related training I’ve come across as it is filled with powerpoints and legalese.

FCPA and related training doesn’t have to be this way.

There is another option.

It’s the Global Anti-Bribery and Corruption Training Course I developed with Emtrain (an innovative compliance training company) and numerous companies across industry sectors have already selected it for their on-line anti-bribery training needs.

The approximate 60-minute course features several interactive components such as 20+ video clips that engage learners and illustrate real-world business scenarios that present risk and an enforcement risk spectrum that helps learners “issue spot” bribery and corruption risks. Other features of the course include:

  • Executive and non-executive versions;
  • The ability to configure the course with company-specific messages and videos from corporate leaders, company specific policies, and company employee hotline or reporting information;
  • Availability in the following languages: English, Spanish, Portuguese, Chinese (simplified), Japanese, French, Russian and others upon request.
  • The ability to use video scenes outside the e-Learning experience in live training, discussion groups, or company emails and reminders; and
  • A compliance Learning Management System enabling an administrator to launch and track training efforts and generate audit-ready training reports showing time spent on each video, screen, policy, etc.

To see what others are saying about the Global Anti-Bribery and Corruption Training Course, see here.

To preview the course, use the below button. 

 

Assistant AG Caldwell Regarding Exorbitant Pre-Enforcement Action Professional Fees and Expenses – “That’s Not Us, That’s The Companies” Who Are Responsible, Plus Other DOJ Musings

Thursday, May 28th, 2015

SoapboxThe war of words regarding who is to blame for exorbitant pre-enforcement action professional fees and expenses continued in recent weeks.

By way of background and as highlighted in this prior post, in April Assistant Attorney General Leslie Caldwell stated – “we do not expect companies to aimlessly boil the ocean.”

Certain FCPA lawyers disputed Caldwell’s assertion – see here and here.

Recently, Assistant AG Caldwell again shot-back stating – as noted in this Wall Street Journal Risk & Compliance post - “That’s not us. That’s the companies” who are responsible for the pre-enforcement action professional fees and expenses.

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Staying with the same topic, as noted in this recent Morgan Lewis “Lawflash,” here is what DOJ Fraud Section Chief Andrew Weissmann had to say at a recent event:

“When asked about the rising costs of Foreign Corrupt Practices Act (FCPA) investigations, Mr. Weissmann dismissed the suggestion that high investigative and defense expenses—which have cost some companies nearly half a billion dollars—are a predicate to receiving full cooperation credit. Noting some of the staggering legal fees in the hundreds of millions of dollars, Mr. Weissmann advised the audience that companies do not need to “boil the ocean” when investigating corporate misconduct. Although there may be “historical evidence” of DOJ asking companies to engage in “widespread investigations,” he assured the audience that this “is not the current Department of Justice view.”

Mr. Weissmann described a “real life example” of a multinational company that voluntarily disclosed FCPA misconduct in an unnamed foreign country by a team of individuals who also had responsibilities in three other countries. Because “there was very good reason to think that they would have engaged in the same conduct in those other countries,” Mr. Weissmann said, DOJ expected the company to investigate those countries in order to receive full cooperation credit, and the company complied. Mr. Weissmann noted that the company was neither asked nor expected to expand its investigation to the “Antarctic,” for instance, or high-risk countries (as determined by Transparency International’s Corruption Perceptions Index) where the company operated. As explained by Mr. Weissmann, “If there is an issue in one country and just speculation that the same issues could be happening elsewhere, then we should deal with the issue that is before us and come to a very quick resolution.” Investigations should be “appropriately tailored to the facts at issue,” he said, because both DOJ and the companies it investigates share the same interest in “prompt resolutions.”

As noted in this prior post, prior to becoming DOJ Fraud Section Chief, Weissmann was a vocal critic of various aspects of DOJ FCPA enforcement.  Set forth below is what Weissmann wrote in Restoring Balance: Proposed Amendments to the FCPA.

“The current FCPA enforcement environment has been costly to business. Businesses enmeshed in a fullblown FCPA investigation conducted by the U.S. government have and will continue to spend enormous sums on legal fees, forensic accounting, and other investigative costs before they are even confronted with a fine or penalty, which, as noted, can range into the tens or hundreds of millions. In fact, one noteworthy innovation in FCPA enforcement policy has been the effective outsourcing of investigations by the government to the private sector, by having companies suspected of FCPA violations shoulder the cost of uncovering such violations themselves through extensive internal investigations.

From the government’s standpoint, it is the best of both worlds. The costs of investigating FCPA violations are borne by the company and any resulting fines or penalties accrue entirely to the government. For businesses, this arrangement means having to expend significant sums on an investigation based solely on allegations of wrongdoing and, if violations are found, without any guarantee that the business will receive cooperation credit for conducting an investigation.”

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Back to Morgan Lewis’s “Lawflash” – here is what it says about other aspects of Weissmann’s recent remarks.

“Mr. Weissmann confirmed DOJ’s commitment to providing more transparency regarding cooperation credit and declinations by including greater factual details in non-prosecution agreements (NPAs) and deferred prosecution agreements (DPAs) and providing “general statistics” about declinations in a series of “anonymized examples.” Currently, because declinations are rarely, if ever, publicly announced, companies and their counsel have limited insight into how and why such determinations are made. That will change, Mr. Weissmann said, with DOJ providing the public with greater transparency about the declinations process and what companies can do to increase their chances of receiving declinations. Likewise, although DOJ’s website already contains some information about DPAs and NPAs, Mr. Weissmann assured the audience that they can expect to see more detail in the future about what exactly happened that resulted in specific dispositions to help companies assess the benefits of full cooperation.”

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Finally on the DOJ speech “beat,” Assistant AG Cadlwell recently delivered this speech to a paying audience at Compliance Week.

The topic?

“[C]orporate accountability.  How corporations should be holding themselves accountable by designing compliance programs that don’t just look good on paper but actually work.  Compliance programs that are designed to protect the company’s reputation, customers, counterparties and the public, as well as ensuring compliance with the law.”

In pertinent part, Caldwell stated:

“A corporation’s internal compliance policies and practices, and its compliance professionals, are the first lines of defense against fraud, abuse and corruption. As all of you know, there is no “one size fits all” compliance program.  Rather, effective compliance programs are those that are tailored to the unique needs, risks and structure of each business or industry. While a corporate compliance program must, by definition, address regulatory risk and the risk of potential violations of law, a strong compliance program will not stop there. A strong program also will aim to deter employee misconduct, whether or not that misconduct poses obvious regulatory risk.

While companies have for years appropriately adopted a “risk-based” approach to compliance, we have seen that corporations all too often misdirect their focus to the wrong type of risk.  We have repeatedly seen corporations target the risk of regulatory or law enforcement exposure of institutional and employee misconduct, rather than the risk of the misconduct itself. The result: compliance programs are too often behind the curve, effectively guarding against yesterday’s corporate problem but failing to identify and prevent tomorrow’s scandals.

In designing compliance programs, companies would be wise to examine all of their lines of business – including those not subject to regulation – and determine where specific risks are and how best to control or mitigate them. It is also critical that compliance programs take into account the operational realities and risks attendant to the particular company’s business, and are designed to prevent and detect particular types of misconduct likely to occur in a particular line of business.

For example, to comply with the Foreign Corrupt Practices Act (FCPA), businesses that tend to be exposed to corruption must employ different internal controls than businesses that have less exposure to corruption.

[...]

Too often we have heard companies say that a particular course of criminal conduct took them by surprise, when a hard look at the business practices would have identified the risk.  And, far too often, we have heard companies exclaim in defense that everyone else is doing it – that others in the industry are engaged in the same misconduct.  But as you all know, an industry-wide compliance failure is not a defense to knowing and willful criminal activity.

With this principle that compliance programs should be proactive, and not merely reactive in mind, there are some general hallmarks of effective compliance programs that I’d like to share with you today.

  • A company must ensure that its senior leaders provide strong, explicit and visible support for its corporate compliance policies.Corporate management must enforce compliance policies, not tacitly encourage or pressure employees to engage in misconduct to achieve business objectives.
  • We look not just at the written policies, but to other messages otherwise conveyed to employees, including through in-person meetings, emails, telephone calls, incentives/bonuses, etc.; and will make a determination regarding whether the company meaningfully stressed compliance or, when faced with a conflict between compliance and profits, encouraged employees to choose profits.
  • Senior executives should be responsible for the implementation and oversight of compliance.Those executives should have authority to report directly to independent monitoring bodies – for example, internal auditors or the board of directors.
  • A company’s policies should be clear and in writing and should easily be understood by employees.But having written policies – even those that appear specific and comprehensive “on paper” – is not enough.
  • Compliance teams need adequate funding and access to necessary resources.And they must have an appropriate stature within the company.
  • A company should have an effective process – with sufficient resources – for investigating and documenting allegations of violations.
  • A company periodically should review its compliance policies and practices to keep it up to date with evolving risks and circumstances, including when the company merges with or acquires another company.In particular, if a U.S.-based entity merges with, acquires or is acquired by a foreign entity, all compliance policies should be reviewed and revised accordingly.
  • A company should have an effective system for confidential, internal reporting of compliance violations.
  • A company should implement mechanisms designed to enforce its policies, including incentivizing compliance and disciplining violations.
  • A company should sensitize third parties with which it interacts (for example, vendors, agents or consultants) to the company’s expectation that its partners are compliant.This means more than including boilerplate language in a contract.It means taking action – including termination of a business relationship – if a partner demonstrates a lack of respect for laws and policies.

Corporations also must ensure compliance with the laws of all the countries in which they operate.  We appreciate that this may present a major compliance challenge, as international corporations often must bridge cultural, as well as geographic, divides.  But such challenges do not justify non-compliance.

[...]

Overall, our message is simple: we expect corporate entities to take compliance risk as seriously as they take other business-related risks.

[...]

When a compliance program works and a company suspects or discovers potential criminal wrongdoing, a company would be wise to conduct a thorough internal investigation. While we in the Criminal Division will not tell a company how it should conduct an investigation, we evaluate the quality of a company’s internal investigation, both through our own investigation and in considering what if any charges to bring against a company.  In that regard, we have seen some “best practices” with regard to internal investigations.

Good internal investigations uncover the facts.  They don’t promote corporate talking points or whitewash the truth.  The investigation should be focused on rooting out the relevant facts, identifying and interviewing the knowledgeable actors and capturing and preserving relevant documents and other evidence.  The investigation should seek to identify responsible individuals, even if those individuals hold senior positions at the company.

It is reasonable to take resources – time and money – into account.  If an internal investigation unearths criminal conduct, the inquiry should be thorough enough to identify the relevant facts, players, documents and other evidence, and to get a sense of the pervasiveness of the misconduct. But, we do not believe that it is necessary or productive for a company to employ its internal investigators to look under every rock and pebble – particularly when a company has offices or personnel around the globe that do not appear to be involved in the misconduct at issue. In fact, doing so will cost companies much more in the end, both in fees but also because it ultimately will delay our investigation and delay resolution and closure for the company.

For example, if a multi-national corporation discovers an FCPA violation in one country, and has no basis to suspect that the misconduct is occurring elsewhere, the Criminal Division would not expect that the internal investigation would extend beyond the country in which the violation was discovered.  By contrast, if the known offenders operated in multiple countries, we would expect that the internal investigation would extend into those locations as well.

Once your company learns of potential criminal conduct and confirms it through a reasonable internal investigation, the company then must choose whether to disclose the conduct to the government, and whether to cooperate in the government’s investigation. These are the company’s choices, and very few companies have a legal obligation to disclose criminal misconduct to the department.  Likewise, there is no obligation to cooperate beyond compliance with lawful process. But if a company chooses to cooperate with the government in its investigation – particularly at an early stage – the company likely will receive significant credit for such efforts when the government is contemplating what prosecutorial action to take.

In conducting an investigation, determining whether to bring charges and negotiating plea or other agreements, federal prosecutors take into account, among other factors, the corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents.  Prosecutors also consider the availability of alternative or supplemental remedies such as civil or regulatory enforcement action.

To receive cooperation credit, a company must do more than comply with subpoenas or other compulsory process.  Companies must provide a full accounting of the known facts about the conduct or events under review, and affirmatively must identify responsible individuals (and provide evidence supporting their culpability), including corporate executives and officers – and they must do so in a timely way. A company’s cooperation may be particularly helpful where the criminal conduct continued over an extended period of time, and the knowledgeable or culpable individuals and/or the relevant documents are dispersed or located abroad. Under these circumstances, cooperation includes helping to circumvent barriers to the investigation by making knowledgeable personnel available for interviews or testimony, and by producing documents and other evidence that otherwise may not be readily accessible to the government.

We recognize that some foreign data privacy laws may limit or prohibit the disclosure of certain types of data or information.  Over the years, the Criminal Division has developed an understanding of certain oft-cited data privacy laws, and we will challenge what we perceive to be unfounded reliance on these laws to justify withholding requested information.  Companies should avoid this by giving careful consideration to the government’s requests for information, refraining from making broad “knee jerk” claims that large categories of information are protected from disclosure and producing what can be disclosed.

[...]

Corporate accountability through a strong, tailored compliance program and thorough internal investigations should be the standard for your companies.

[...]

Corporate accountability through compliance, investigations and protections against breaches is a good practice for all of your companies.  And in the Criminal Division, I am emphasizing accountability on our side as well, particularly through our work with regulators and other law enforcement agencies, and through increased transparency about our decision-making where possible.

Many of the cases handled by the Criminal Division also involve parallel investigations or civil or enforcement actions by civil or regulatory authorities.  Even if certain misconduct could be pursued civilly or through regulatory action, criminal investigation and prosecution often is appropriate.

It is department policy that criminal prosecutors and civil attorneys coordinate with one another and with agency attorneys, to the extent permissible, to protect and advance the government’s overall interests.  Early and effective coordination is critical to ensuring the efficient use of resources and the best ultimate outcome.

We have heard concerns expressed about regulatory “piling on.”  We agree that there is the potential for unfairness when a company is asked to pay penalties and fines to different regulators and enforcement authorities based on the same set of facts.

Different law enforcement authorities have distinct and important functions.  Companies know who their regulators are, and they know that they are subjecting themselves to those regulatory schemes and the laws of the countries in which they operate.  But we are trying to address this concern and are mindful of making sure that companies are not punished unfairly.

Since becoming Assistant Attorney General, one of my priorities has been to ensure that the Criminal Division is as transparent as possible about its decision making.  While we are limited in the information we can disclose to the public about matters in which we decline to prosecute, when we file charges, secure a guilty plea or enter into a deferred prosecution or non-prosecution agreement, the Criminal Division will place in the public record detailed information explaining the rationale for the particular resolution whenever possible.

Whether we secure a guilty plea or enter into an NPA or DPA, these resolutions generally have the same key components: admissions, a detailed statement of facts, remediation and/or enhanced compliance requirements and penalties.  Depending on the facts and circumstances of a particular case, the Criminal Division also may require the imposition of a compliance monitor. Companies would be wise to study these publicly-available documents to measure their compliance or to assess their exposure.

In our view, increased transparency benefits everyone.  From the Criminal Division’s perspective, if companies know the benefits that likely will flow from self-reporting or cooperating with the government’s investigation, we are confident that more companies will be willing to voluntarily disclose identified misconduct and cooperate, including against culpable individuals. In addition, transparency takes a significant amount of the guess work out of assessing the likely benefits of cooperation, as well as the costs of refusing to cooperate or offering limited or partial assistance.

Regardless of the form of resolution, the Criminal Division is committed to enforcing compliance with its terms.  In particular, when a company that is subject to the terms of an NPA or a DPA violates the terms of the agreement, if proportional to the breach, the Criminal Division will not hesitate to tear up the agreement and prosecute the offending entity based on the admitted statement of facts. If we do so, as with the other resolutions, the Criminal Division will be transparent and include its rationale in publicly-filed documents. In addition to statements contained in public filings in cases investigated or prosecuted by the Criminal Division, our commitment to transparency also is effectuated by the participation of Criminal Division personnel in conferences such as this one.”

Friday Roundup

Friday, May 8th, 2015

Roundup2The anti-bribery business, quotable, scrutiny alerts and updates, and for the reading stack.  It’s all here in the Friday Roundup.

“The Anti-Bribery Business”

Several articles have been written about FCPA Inc., a term I coined in April 2010 (see here), as well as the “facade of FCPA enforcement” (see here for my 2010 article of the same name).

The articles have included: “Cashing in on Corruption” (Washington Post); “The Bribery Racket” (Forbes); and “FCPA Inc. and the Business of Bribery” (Wall Street Journal).

I talked at length with The Economist about the above topics and certain of my comments are included in this recent article “The Anti-Bribery Business.”

“The huge amount of work generated for internal and external lawyers and for compliance staff is the result of firms bending over backwards to be co-operative, in the hope of negotiating reduced penalties. Some are even prepared to waive the statute of limitations for the conclusion of their cases. They want to be sure they have answered the “Where else?” question: where in the world might the firm have been engaging in similar practices?

In doing so, businesses are egged on by what Mr Koehler calls “FCPA Inc”. This is “a very aggressively marketed area of the law,” he says, “with no shortage of advisers financially incentivised to tell you the sky is falling in.” Convinced that it is, the bosses of accused companies will then agree to any measure, however excessive, to demonstrate that they have comprehensively answered the “Where else?” question. So much so that even some law enforcers have started telling them to calm down. Last year Leslie Caldwell, head of the DOJ’s criminal division, said internal investigations were sometimes needlessly broad and costly, delaying resolution of matters. “We do not expect companies to aimlessly boil the ocean,” she said.

Her words have provided scant comfort: defence lawyers say that their clients feel that if they investigate problems less exhaustively, they risk giving the impression that they are withholding information. Some say the DOJ is maddeningly ambiguous, encouraging firms to overreact when allegations surface.”

Quotable

Assistant Attorney General Leslie Caldwell is spot-on in this recent Q&A in Fraud Magazine as to the importance of uniquely tailored compliance.

“I think companies have to tailor their compliance programs and their investigative mechanisms to their businesses. There’s no one-size-fits-all compliance program. Different businesses have different risks. And a company needs to do an assessment that’s very tailored to their risks and game out what could go wrong and figure out how to prevent that from happening.”

She is less than clear though when describing when the DOJ would like companies to voluntarily disclose:

“We don’t want a company to wait until they’ve completed their own investigation before they come to us. We’ll give them room to do that, but there may be investigative steps that we want to take that maybe the company is not even capable of taking. We definitely don’t want to send a message that the company should complete its own investigation and then come to us. However, we obviously don’t expect a company to report to us as soon as it receives a hotline report that it hasn’t even checked into yet.”

For your viewing pleasure, here is the video of a recent speech by Caldwell (previously highlighted here) along with Q&A.

Scrutiny Alerts and Updates

Bilfinger

Reuters reports:

“German engineering firm Bilfinger has become the first international company to disclose to Brazil that it may have paid bribes as it seeks leniency under a new anti-corruption law, Comptroller General Valdir Simão said on Thursday. By reporting potential graft to the comptroller, known by the acronym CGU, Bilfinger hopes to continue operating in Brazil, Simão said, though it may still pay damages. ”The company knows it will be punished in Brazil; it is not exempt from fines,” Simao said at a conference in Sao Paulo adding that in exchange the company could be guaranteed the right to keep operating in Brazil. Companies that are convicted for bribery could be banned from future contracts in Brazilunder the law, which took effect in January 2014. Bilfinger said in March that it may have paid 1 million euros to public officials in Brazil in connection with orders for large screens for security control centers during the 2014 soccer World Cup. It is conducting an internal investigation and collaborating with Brazilian authorities, Bilfinger said in a statement at the time. Five companies are pursuing leniency deals with the CGU, Simao said, adding that such deals are “quite new” for the country. Four are tied to a scandal at Brazil’s state-run oil firm Petroleo Brasileiro SA, he said.”

As highlighted in this previous post, in December 2013 German-based Bilfinger paid approximately $32 million to resolve an FCPA enforcement action concerning alleged conduct in Nigeria.  The enforcement action was resolved via a three-year deferred prosecution agreement.

Siemens

Reuters reports:

“A Chinese regulator investigated Siemens AG last year over whether the German group’s healthcare unit and its dealers bribed hospitals to buy expensive disposable products used in some of its medical devices, three people with knowledge of the probe told Reuters. The investigation, which has not previously been reported, follows a wide-reaching probe into the pharmaceutical industry in China that last year saw GlaxoSmithKline Plc fined nearly $500 million for bribing officials to push its medicine sales. China’s State Administration for Industry and Commerce (SAIC) accused Siemens and its dealers of having violated competition law by donating medical devices in return for agreements to exclusively buy the chemical reagents needed to run the machines from Siemens, the people said.”

In 2008, Siemens paid $800 million to resolve DOJ and SEC FCPA enforcement actions that were widespread in scope.  The enforcement action remains the largest of all-time in terms of overall settlement amount.

Dun & Bradstreet

The company recently disclosed the following update regarding its FCPA scrutiny.

“On March 18, 2012, we announced we had temporarily suspended our Shanghai Roadway D&B Marketing Services Co. Ltd. (“Roadway”) operations in China, pending an investigation into allegations that its data collection practices may have violated local Chinese consumer data privacy laws. Thereafter, the Company decided to permanently cease the operations of Roadway. In addition, we have been reviewing certain allegations that we may have violated the Foreign Corrupt Practices Act and certain other laws in our China operations. As previously reported, we have voluntarily contacted the Securities and Exchange Commission (“SEC”) and the United States Department of Justice (“DOJ”) to advise both agencies of our investigation, and we are continuing to meet with representatives of both the SEC and DOJ in connection therewith. Our investigation remains ongoing and is being conducted at the direction of the Audit Committee.

During the three months ended March 31, 2015 , we incurred $0.4 million of legal and other professional fees related to matters in China, as compared to $0.3 million of legal and other professional fees related to matters in China for the three months ended March 31, 2014.

As our investigation and our discussions with both the SEC and DOJ are ongoing, we cannot yet predict the ultimate outcome of the matter or its impact on our business, financial condition or results of operations. Based on our discussions with the SEC and DOJ, including an indication from the SEC in February and March 2015 of its initial estimate of the amount of net benefit potentially earned by the Company as a result of the challenged activities, we continue to believe that it is probable that the Company will incur a loss related to the government’s investigation. We will be meeting with the Staff of the SEC to obtain and to further understand the assumptions and methodologies underlying their current estimate of net benefit and will subsequently provide a responsive position. The DOJ also advised the Company in February 2015 that they will be proposing terms of a potential settlement, but we are unable to predict the timing or terms of any such proposal. Accordingly, we are unable at this time to reasonably estimate the amount or range of any loss, although it is possible that the amount of such loss could be material.”

Bio-Rad

The company disclosed as follows concerning civil litigation filed in the aftermath of its November 2014 FCPA enforcement action (see here for the prior post).

“On January 23, 2015, the City of Riviera Beach General Employees’ Retirement System filed a new shareholder derivative lawsuit in the Superior Court of Contra Costa County against three of our current directors and one former director. We are also named as a nominal defendant. In the complaint, the plaintiff alleges that our directors breached their fiduciary duty of loyalty by failing to ensure that we had sufficient internal controls and systems for compliance with the FCPA; that we failed to provide adequate training on the FCPA; and that based on these actions, the directors have been unjustly enriched. Purportedly seeking relief on our behalf, the plaintiff seeks an award of restitution and unspecified damages, costs and expenses (including attorneys’ fees). We and the individual defendants have filed a demurrer requesting dismissal of the complaint in this case.

On January 30, 2015, we received a demand pursuant to Section 220 of the Delaware General Corporation Law from the law firm of Scott + Scott LLP on behalf of International Brotherhood of Electrical Workers Local 38 Pension Fund to inspect certain of our books and records. The alleged purpose of the demand is to investigate potential wrongdoing, mismanagement, and breach of fiduciary duties by our directors and executive officers in connection with the matters relating to our FCPA settlement with the SEC and DOJ, and alleged lack of internal controls. We objected to the demand on procedural grounds by letter. On May 1, 2015, International Brotherhood of Electrical Workers Local 38 Pension Fund filed an action against us in the Delaware Court of Chancery to compel the inspection of the requested books and records.

On March 13, 2015, we received a demand pursuant to Section 220 of the Delaware General Corporation Law from the law firm of Kirby McInerney LLP on behalf of Wayne County Employees’ Retirement System to inspect certain of our books and records. The alleged purpose of the demand is to investigate potential wrongdoing, mismanagement, and breach of fiduciary duties by our directors and executive officers in connection with the matters relating to our FCPA settlement with the SEC and DOJ, and alleged lack of internal controls. We objected to the demand on procedural grounds by letter. On April 21, 2015, Wayne County Employees’ Retirement System filed an action against us in the Delaware Court of Chancery to compel the inspection of the requested books and records.”

Nortek

The company disclosed its FCPA scrutiny earlier this year and stated as follows in its recent quarterly filing:

“For the first quarter of 2015 approximately $1 million was recorded for legal and other professional services incurred related to the internal investigation of this matter. The Company expects to incur additional costs relating to the investigation of this matter throughout 2015.”

For the Reading Stack

From Global Compliance News by Baker & McKenzie titled “When a DPA is DOA:  What The Increasing Judicial Disapproval of Corporate DPAs Means for Corporate Resolutions With the U.S. Government.”

“The legal setting in which corporations are negotiating with U.S. regulators is always evolving. Federal judges’ increasing willingness to second-guess negotiated settlements between the government and corporations is likely to encourage government attorneys to seek even more onerous settlements to ensure that judges do not reject them or criticize the agency in open court. Companies and their counsel should be ready to push back, using the judicial scrutiny to their advantage where possible.”

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A good weekend to all.

FCPA Compliance – It’s Not Just For Big Companies

Thursday, May 7th, 2015

Big vs. smallThe Foreign Corrupt Practices Act is a law most logically implicated when doing business in international markets. In this new era, business organizations large and small, and across a variety of industry sectors, are doing more business in international markets than ever before.

Because of this, FCPA compliance is not just for big companies, but for small to medium size enterprises (SMEs) as well.  As the SEC stated in connection with the 2014 FCPA enforcement action against Smith & Wesson:

“This is a wake-up call for small and medium-size businesses that want to enter into high-risk markets and expand their international sales. When a company makes the strategic decision to sell its products overseas, it must ensure that the right internal controls are in place and operating.”

Smith & Wesson should not have been the first wake-up call because prior to the enforcement action, there have been numerous FCPA enforcement actions against SMEs as highlighted by the below chart. (Note: the term SME does not just refer to private companies.  After all private companies can be very large just as publicly companies can be very small.  Moreover, the term SME lacks a bright line definition).

FCPA Enforcement Actions Against SME’s (2007-present)

  • FLIR Systems
  • PBSJ Corp.
  • Dallas Airmotive
  • Bruker Corp.
  • Layne Christiansen
  • Smith & Wesson
  • Bio-Rad
  • NORDAM Group
  • Data Systems & Solutions
  • BizJet International
  • Watts Water Technologies
  • Comverse Technologies
  • Maxwell Technologies
  • Alliance One International
  • Armor Holdings
  • Lindsey Manufacturing
  • RAE Systems
  • Veraz Networks
  • NATCO Group
  • Cinergy Telecommunications
  • Latin Node
  • UTStarcom
  • Helmerich & Payne
  • Nature’s Sunshine Products
  • Control Components
  • Nexus Technologies
  • AGA Medical
  • Delta & Pine Land Co.

In addition to the above actions, although the DOJ’s manufactured Africa Sting enforcement action was a disaster, it did lead to greater recognition among SMEs of the importance of pro-active FCPA compliance policies and procedures.  Indeed, the 2010 OECD Phase 3 Report on the U.S. stated that a “recent ‘sting operation’ involving mid-sized firms, was also believed to have had a significant impact, particularly on SMEs, making them more aware of the need for effective compliance.”

Nevertheless, survey after survey suggests that a significant percentage of business organizations subject to the FCPA – most prominently SMEs’ – fail to act consistent with FCPA compliance best practices.  Common deficiencies include failure to conduct FCPA training of employees and agents and failure to conduct due diligence of third-parties.

As to the former deficiency, the anti-bribery training  course I developed with Emtrain (an innovative compliance training company) is a good remedy. Indeed, numerous companies – including SMEs – across industry sectors have already selected it for their on-line anti-bribery training needs.

The approximate 60-minute course features:

  • Executive and non-executive versions;
  • The ability to configure the course with company-specific messages and videos from corporate leaders, company specific policies, and company employee hotline or reporting information;
  • 20+ video clips that engage learners and illustrate real-world business scenarios that present risk ;
  • Availability in the following languages: English, Spanish, Portuguese, Chinese (simplified), Japanese, French, Russian and others available upon request.
  • An Enforcement Risk Spectrum that helps learners “issue spot” bribery and corruption risk;
  • The ability to use video scenes outside the e-Learning experience in live training, discussion groups, or company emails and reminders;
  • A compliance Learning Management System enabling an administrator to launch and track training efforts and generate audit-ready training reports showing time spent on each video, screen, policy, etc.

To see what others are saying about the course, see here.

To preview the course, use the below button.