Ed. Note-I recently posted an article by Mary Shaddock Jones entitled “Suggestions for Starting a Regulatory Compliance Risk Assessment”.   Based on the response to the posting, I asked Mary to drill down a little more in subsequent articles on a few of the steps she suggested outlined in that article.  This is the first posting in this follow up series.

Remember that the hypothetical in the original article was that you had just been asked to perform a regulatory compliance risk assessment in all of the countries that your company currently operates. 

We believe that you can use the Enterprise-wide Risk Management (ERM) Framework to identify, analyze, respond to and monitor critical regulatory compliance risks on a country by country basis. The Committee of Sponsoring Organizations of the Treadway Commission’s (COSO) ERM Framework defines ERM as follows:


Enterprise risk management is a process, effected by an entity’s board of directors, management, and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within the risk appetite, to provide reasonable assurance regarding the achievement of entity objectives.


The key is that ERM is process.  It is not a “one time” exercise.  The same holds true for Legal/Regulatory /Compliance risks facing your company.  Laws and regulations can change on a regular basis.  Keeping up with the myriad of changes can be a difficult task for compliance and legal departments- especially at smaller firms or companies.  This is why we suggest that you need to “divide” the company into various “Risk Centers” and identify the “Risk Owners” within each Risk Center.  Responsibility for monitoring and notifying the Legal/Compliance departments of any change in the legal/regulatory requirements should remain with the “Risk Owner”.

So who are some of the key “Risk Owners” in any organization?  Clearly the Human Resources department is one key “Risk Center”.  There are a myriad of U.S. Federal and State employment laws including, but not limited to: (a) Title VII of the Civil Rights Act of 1964; (b) Age Discrimination in Employment Act; (c) Americans with Disabilities Act; (d) Equal Pay Act; (e) Immigration Reform and Control Act of 1986. In addition, if you are a company operating internationally, you must have a “risk owner” who has responsibilities for the local Human Resources laws.  For instance did you know that the Mexican Constitution (at least at one point in time) contained a “Declaration of Social Rights” that deals with minimum working conditions, salaries, equality of treatment, job security, the right to strike, and mandatory profit sharing?  The Brazilian Labor Code has adopted many of the same principles and has created a system of Labor Courts that are quite favorable to all Brazilian workers – both blue and white collar.  But there are small differences in the employment laws between Mexico and Brazil that require someone with specialized knowledge within your company to “own” the risk.

Another “Risk Center” could be the Logistics or Supply Chain Management Department.  If this Department is responsible for interfacing with Freight Forwarder companies (i.e. A company which is hired to move shipments between foreign and domestic locations, or a portion of the way.  Freight forwarders handle many of the formalities involved in exporting and importing such shipments), then it should “own” the legal/regulatory compliance risks associated with exporting and importing.  Again, there are a myriad of U.S. Federal and State laws and regulations touching upon Import and Export activities including, (a) The Export Administration Act; (b) The Export Administration Regulations (EAR); (c) The International Traffic In Arms (ITAR); (d) Trading with the Enemy Act; (e) Antiboycott Regulations; (f) Foreign Corrupt Practices Act, to name a few.  In addition to the U.S. laws, there are significant local laws in foreign countries that regulate the importation and exportation of goods into the countries.  Did you know that there are different laws for the importation of vessels into Brazil depending upon whether or not the vessel is being used in the oil and gas industry?  Or that there are laws regarding the importation of automobiles into China? The point is that there are so many laws and regulations in every aspect of doing business that the most practical way of ensuring compliance is by having identifiable “Risk Centers” which designate a “Risk Owner” who has the compliance responsibility.  The compliance department can then act as the repository of the information, but the Risk Owner (i.e. that person closest to the risk).

What about Financial Record Keeping and Reporting?  Tom Fox has written numerous blogs regarding the Books and Records requirements contained within the Foreign Corrupt Practices Act.  The FCPA requires “issuers” (any company including foreign companies) with securities traded on a U.S. exchange or otherwise required to file periodic reports with the Securities and Exchange Commission (“SEC”) to keep books and records that accurately reflect business transactions and to maintain effective internal controls.  Another U.S. law which has significant internal Control requirements in the Sarbanes-Oxley Act of 2002.   Clearly, the Accounting/Financial Department(s) are another “Risk Center”.

What are the laws/regulations under each area? What is the appropriate “Risk Center” for each law/regulation for your company? Who is the designated “Risk Owner”?  Mapping out the answers to these questions will clearly be a step in the right direction in performing your Legal/Regulatory Risk Assessment.   Here are a few legal risk areas for your consideration: (a) Antitrust; (b) Bribery, Gifts and Entertainment; Conflicts of Interest; (c) Consumer Protection; (d) Customs, Import and Export Controls; (e) Environmental, Health and Safety; (f) Labor and Employment Law; (g) Financial Record Keeping and Reporting; (h) Government Contracting; (i) Intellectual Property; (j) HIPAA/ Security and Privacy; (k) Records Management; (l) Securities and Insider Trading;  and (m) Anti-Money Laundering.   This doesn’t even touch applicable international laws!  But it should help you get started with your Risk Assessment.  Good Luck!

Mary Shaddock Jones, Attorney at Law can be reached via email at  msjones@msjllc.com or via phone at 337-515-8527 (c); 337-513-0335 (0).

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. 

In a previously life I was a civil trial lawyer. For a portion of that career I defended companies in catastrophic injury cases. One common themes running through each of the catastrophes which underlay the inevitable litigation was there was always one point where if an action had been taken, or in some cases not taken, and accident would probably not have occurred.

That concept also translates to the compliance world as well. In almost every circumstance where a significant FCPA or Bribery Act compliance violation has arisen, if the issue had been reported or at least sent up the chain for consideration, there is a good chance that the incident would not have exploded into a full FCPA compliance violation. Matthew King, Group Head of Internal Audit at HSBC calls this concept “escalation” and he believes that one of the more key features of any successful compliance program is to escalate compliance concerns up the chain for consideration and/or resolution.

This means that in almost every circumstance regarding a compliance issue he had been involved with, at some point a situation arose where an employee did not report a situation or event up to an appropriate level for additional review. This failure to escalate leads to the issue not reaching the right people in the company for review/action/resolution and the issue later beomes more difficult and more expensive to deal with in the company. A company needs to have a culture in place to not only allow elevation but to actively encourage elevation. This requires that both a structure and process for that structure must exist. Then the company must train, train and train all of its employees. Lastly, while a whistleblower process or hotlines are necessary these should not be viewed as the only systems which allow an employee to escalate a concern.

The starkest example of which I am aware of this failure of escalate is the HP matter involving its German subsidiary and allegation of bribery to receive a contract for the sale of hardware into Russia. The Wall Street Journal has reported that at least one witness has said that the transactions in question were internally approved by HP through its then existing, contract approval process. Mr. Dieter Brunner, a contract employee who was working as an accountant on the group that approved the transaction, said in an interview that he was surprised when, as a temporary employee of HP, he first saw an invoice from an agent in 2004. “It didn’t make sense,” because there was no apparent reason for HP to pay such big sums to accounts controlled by small-businesses, Mr. Brunner said. He then proceeded to say he processed the transactions anyway because he was the most junior employee handling the file, “I assumed the deal was OK, because senior officials also signed off on the paperwork”.

Think what position HP might be in today if this temporary employee had escalated his concern. Initially, HP would not have been under investigation by governmental authorities inGermanyand Russian. In the United States, both the DOJ and SEC are investigating the transaction. More ominously for HP, investigators from these jurisdictions are also now investigating other international operations, including those in Russia and the former CIS states to ascertain if other commissions paid involved similar allegations of bribery and corruption as those in this German-subsidiary’s transaction.

The key would appear to be both having the systems in place to allow such escalation and to train all employees, including contract employees on how to escalate an issue. So is your company encouraging its employees to escalate their concerns regarding a transaction or do your employees simply approve a transaction because everyone else has done so?

Matthew King, Group Head of Internal Audit at HSBC was interviewed by Project Counsel Founder Gregory P. Bufithis. A YouTube video of the Gregory P. Bufithis interview of Matthew King, see may be viewed by clicking here.

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

© Thomas R. Fox, 2011

Ed. Note-today we have a guest post from our colleague Stephen Clayton, who has prepared a lengthy review and commentary on the written testimony Michael Mukasey submitted in the Sensenbrenner hearings in House of Representatives on June 15th. The full article is available here.  A shorter summary is below.

The proposals for reform being made by Mr. Mukasey could severely curtail the ability of the government to prosecute violations of the FCPA and could have the effect of reducing the incentive for companies to introduce or continue robust FCPA compliance programs.  The proposed amendments may make the world a safer place for those who pay bribes in international business.

My article agrees that clarifications to the way FCPA enforcement is done by the DOJ and SEC are necessary. But it joins with others who recommend this be done by guidance, not amendment to the FCPA itself.

In covering each of Mr. Mukasey’s 6 numbered proposals  – and 2 other proposals Mukasey references in his written testimony, the article hits the following points:

1. Adding a  Compliance Defense

Basing a major change to a working US law on the examples of untried UK and Italian laws is ill advised.   The details of the compliance defense in the UK law are not in the law but contained in Guidance from the Ministry of Justice. The UK affirmative defense of “having in place adequate procedures to prevent persons associated with the company from bribing” only applies to the strict liability crime of “Failure of Commercial Organisations to Prevent Bribery” stated in Section 7 of the Bribery Act. The FCPA does not contain the strict liability crime of Failure of a Commercial Organization to Prevent Bribery.  The combination of the Federal Sentencing Guidelines and guidance from the DOJ on the elements of an adequate FCPA compliance program (see Attachment C to the 2010 Alcatel-Lucent DPA) is more clear than the status of what constitutes “adequate procedures” under the UK law.

2. Clarifying the meaning of “Foreign Official” and “Instrumentality

The confusion Mukasey fears in this area is not serious and reducing the scope of these definitions is not critical to companies which already have in place robust FCPA Compliance programs. They have dealt with these issues and moved on to determining how to deal with private corruption which generally accompanies government corruption.  The rule now and for the last 4-5 years has been, “Don’t Bribe Anyone.”  It is very important to know when your customers and business partners are “government.” and companies must make  a serious effort to know that.  That being said, improved guidance from the DOJ would be welcome.

3.  Improving Guidance from the DOJ

Mr. Mukasey correctly states that there is need for more guidance and direction from the DOJ and SEC.  The article provides  some specific examples including a leniency program and publication of information on decisions to not prosecute. The DOJ should take the efforts by the Chamber of Commerce to push amendments to the FCPA seriously and move to put in place guidance which negates the need for amendment.

4. Limiting Successor Liability

There is  a danger that creating a statutory  limitation of successor liability will allow companies to use or even create an acquisition to shield themselves from liability for corruption.  Mukasey’s statements that companies do very robust, exhaustive FCPA due diligence in merger and acquisition transactions is wishful thinking.  FCPA due diligence in most M & A transactions is far from adequate.   DOJ provided guidance in its Opinion on Halliburton’s request, and should provide further specific guidance in this area.  The FCPA should not be amended  to allow the profits and business gained by  international bribery to be passed to a successor with no liability.

5. Adding a Willfulness Requirement for Corporate Criminal liability

Mr. Mukasey’s is proposing a defense based on company senior management not knowing what its employees, subsidiaries and business partners are doing. To exempt  companies from responsibility because management does not make the necessary effort  to understand and control their employees and business would be bad for reducing corruption and bad for business.  Companies can actually set up business systems to know what their employees and subsidiaries are doing. A good FCPA compliance program will help with that business goal.

Mukasey introduces 2 additional reforms in this section:

– A Rebuttable Presumption that Gifts of De Minimis Value are not a Violation. This is a solution looking for a problem from a practical point of view. Companies with adequate FCPA compliance programs have dealt with it, but it should be the subject of DOJ guidance; and

– A Materiality Standard for Books and Records and Corporate Controls violations.   This proposal is an insidious attempt to gut enforcement of the Books and Records and Corporate controls parts of the FCPA.  Bribes made in international business are almost never material in monetary amount, they are material precisely because they are a violation of criminal law.

6. Limiting Parent Liability for Subsidiary Conduct Not Known to the Parent

Parent companies have complete power to manage and operate their subsidiaries, hire and direct their management and have full access to all to the subsidiary’s records and information.  Amending the law to allow a parent to use a subsidiary as a conduit to pay bribes and a shield from liability for corrupt activities based on the parent failing to understand what is going on in this part of its business would be a huge step backwards for reducing corruption.  It would reward poor management.

Mukasey bases his argument that amendments are necessary on faulty premises. His arguments are based the illusion that all companies have robust, state of the art FCPA compliance programs and are going to great expense to comply with a confusing and poorly written law.  Despite their sincere efforts to comply, they are being subjected to oppressive prosecution by the SEC and DOJ. They are being prosecuted for matters which are beyond their knowledge and control. Therefore substantial changes must be made to the law.  The trouble is that is not true.

Bribery in international business is common in many parts of the world and pervasive in some countries. Falsification of corporate books and records for various reasons is not unusual in international business.  There is an international trend towards criminalizing bribery in international business which has been led by the USA for 30 years. Weakening the FCPA through the amendments Mukasey advocates could end that US leadership and lead to more corruption. Companies can deal with bribery in their own business by instituting good business practices.  Companies with robust FCPA compliance programs are rarely subjected to prosecution. Despite the past 5 years of increased enforcement, most companies still have inadequate FCPA compliance programs which are not properly budgeted or staffed – or have no program at all. Many business people still do not take the law seriously.  The information is available for companies to determine how to assess their specific risks and set up a cost effective FCPA compliance program to prevent bribery and detect occurrences of corruption that slip through despite reasonable efforts.  Companies would be helped by further guidance from the DOJ and SEC.

Stephen Clayton ran the global anti-corruption compliance and investigation program for Sun Microsystems and has been an international business lawyer for over 30 years. He is now doing FCPA consulting in the San Francisco Bay Area and teaching a course in International Anti-corruption at Golden Gate University School of Accounting. He can be reached at stephen@stephenclaytonlaw.com.

I recently wrote about the White Paper, “Resisting Extortion and Solicitation in International Transactions” (RESIST). It is a practical tool to help companies train employees to respond appropriately to a variety of solicitations. In addition to the 22 scenarios which discuss solicitation of bribes, in the context of project implementation and in day-to-day project operations, RESIST provides an Annex entitled “Guidance on Generic Good Practice Related to Extortion and Solicitation.” The Annex is designed to provide an overview of generic responses to demands for these types of payments, as well as addressing major aspects of these individual risks.

The Annex sets out, for the compliance practitioner, a spectrum of practical actions to avoid or combat solicitation or extortion scenarios. The information is intended as practical suggestions, but the information is not intended as alternatives for sound ethical management judgment and common sense, based on appropriate professional legal, accounting, tax and other specialized advice when addressing a specific situation, in particular the advice necessary to understand and comply with national laws and regulations.

The Annex guidance is broken into two general areas. (1) Demand Prevention and (2) Demand Response. The suggestions are as follows:

I.      Demand Prevention – How to reduce the probability of the demand being made in the first place

General company anti-corruption policies

  • Implement and enforce a zero tolerance anti-bribery policy.
  • Establish a no-bribe and zero tolerance reputation by publicizing anti-corruption policies efforts and the related anti-corruption program.
  • The company policies should be publicly available.
  • Set up clear company directives including a whistleblowing policy.
  • Provide training to operational and field personnel on relevant regulations and competition laws. Emphasize the criminal and reputational risks for the company and employees.
  • Require high risk employees to sign a code of conduct statement no less than annually.
  • Introduce anti-corruption clauses and audit rights in contracts with business partners, e.g. suppliers and sub-contractors, agents and consultants.
  • Ensure that employees understand they should not refuse payment if faced with threats of violence.

Policies on Facilitation Payments

  • Whenever feasible for your operations, implement a zero-tolerance policy against facilitation payments.
  • If this is not possible, then implement a policy that rejects facilitation payments whenever possible, permitting only payments that are clearly unavoidable, requiring clear documentation of any such payment and having as an ultimate goal the elimination of such payments.
  • Make demanding facilitation payments more difficult, e.g. having employees advise officials demanding payments that they must record and escalate within the company the payment and the relevant details, including the official’s name.

Policies for Company Representatives Who May be Exposed to Corruption Risks

  • Train and discuss anti-corruption polices with relevant personnel before the start of a project.
  • Consider incentives to report bribery demands.
  • Consolidate disbursement mechanisms for high risk personnel.
  • Whenever possible, operate as a team consisting of at least two employees who must comply with strict reporting directives and control mechanisms.
  • When meeting with other parties, request to be accompanied by a lawyer, other professional adviser or another third party to reduce the probability of being asked for a bribe.
  • Be on alert for inappropriate schemes; consult experts familiar with international transactions (financial, tax and legal) where concerns exist.
  • Set up an action plan, in particular security measures, that can be relied upon to anticipate and manage the retaliation risk against people and assets.

Dealing with Specific Risk

  • Establish a zero tolerance policy against payment or receipt of kickbacks from private business partners.
  • Have a clear policy addressing conflicts of interest.
  • Have a clear policy addressing gifts, entertainment and hospitality.
  • Have a clear policy addressing political donations and charitable contributions.

Due Diligence and Management of Intermediaries and Agents

  • Perform due diligence on agents, consultants and others involved in dealings with government agencies or business partners.
  • Have clear guidelines governing selection of intermediaries.
  • Ensure internal authorizations are obtained by appropriate corporate officials  prior to engaging a consultant or agent and making any fee payments.
  • Enter into written agreements with intermediaries that include description of services provided, anti-corruption undertakings, maximum commission, termination and legal compliance clauses, including prohibition against payments to public officials and the right to audit intermediaries’ accounts.
  • Ensure that all payments made by intermediaries are approved and/or co-signed by the company, and that company employees or representatives (e.g. lawyers) attend meetings between agent and public officials.

Implement Additional Control Procedures

  • When beginning operations in a country, ensure that your company has sufficient knowledge of relevant laws, rules and procedures.
  • Plan for project delays caused by your refusal to pay bribes.
  • Ensure that your company complies with all relevant regulations and official requirements for operations in a country.
  • Identify relevant key public officials and make them acquainted with your company and its anti-corruption policy and programs.
  • Challenge illegitimate claims by public officials after seeking professional advice.

Support Transparency of the Procurement Process with Foreign Governmental Officials

  • Engage in a dialogue with the appropriate foreign governmental officials to improve procedures in the procurement process and increase transparency.

Additional Precautions on the Procurement Process Involving Foreign Governmental Tenders

  • Include assessment of corruption risk as standard procedure when selecting proposal opportunity.
  • Assess corruption risks at the project level before engaging in bidding process.
  • When bidding for large contracts, favor projects that are financed by multilateral financial institutions (e.g. World Bank) and that have a clear anti-corruption policy.
  • Standardize review of bids by non-project team members, including senior operational personnel, risk management and finance specialists.
  • Maximize opportunities for detection by employing additional control procedures to detect bribes.
  • Segregate disbursement activities related to the bid from bid approval processes.

Initiation of Collective Action to Improve Business Integrity

  • Encourage local professional and business associations and NGOs to engage with the government to enact laws and rules for transparent projects and transactions.
  • Seek the leverage of international financial institutions to enhance the quality and predictability of public procurement.

Legal and Financial Precautions

  • State in contracts that contractual disputes will be submitted to international arbitration on neutral ground.
  • Provide contractually for disputes to be submitted to the jurisdiction of the International Centre for the Settlement of International Disputes if the host country and the country of the investor are parties to the ICSID Convention.
  • Apply for guarantee by the Multilateral Investment Guarantee Agency (MIGA) if the host country and the country of the investor are MIGA members, or by a similar national organization of the country of the investor.

II.   Demand Response – How to react if such a demand is made?

Immediate Response

  • Take time to think about the situation, do not act alone, and stick to your mandate.
  • Answer that the solicitation (direct or indirect) is to be made in writing and needs to be reported to your management.
  • Refuse payment on the grounds that any solicitation violates the business principles of your company.

Report Internally

  • Immediately report to management or the appropriate officer assigned with matters involving the code of conduct (e.g. compliance officer) and define an appropriate strategy.
  • Record the incident and make an internal assessment to define corrective actions.


  • Investigate the deal and the intermediary, as well as past deals with the same counterparties and/or intermediary in same country or even other countries.
  • Include legal, operational and risk management specialists.
  • Retain investigation results for both legal implications and future risk assessments.

Discuss With the Relevant Parties

  • Go back to the soliciting person or his/her superior with at least one witness (management, adviser, bank representative) with the following position: Reaffirm your willingness to do business, perform the project or transaction, carry out the activity and ignore the solicitation.
  • Report (directly or anonymously) to the appropriate level of the organization allegedly represented by the person demanding the bribe.
  • Explain to the persons making the solicitation that the proposed scheme could expose all the parties (individual and company) to a prosecution risk not only in the country where the deal occurs but also in OECD countries under regulations fighting corruption or money laundering.
  • Convene meetings of all parties and discuss potential challenges to successful dealings such as requests for bribes, without disclosing too many details this should serve as a deterrent to the guilty party.

If Suspicions are Substantiated, Disclose Externally

  • Government – use various governmental agencies to report corrupt organizations.
  • Embassy or consulate representing your home country to seek guidance and support.
  • Financing institutions, if any export credit financing or coverage is proposed.
  • Competitors, if they are subject to a regulatory environment similar to yours.
  • Industry trade association in the host country to report on a “no name” basis and in a collective manner such solicitation to relevant authorities.


  • Withdraw from the project or transaction and disclose the reasons for the withdrawal to the public, to international organizations and/or selected officials of the country organizing the tender.

This list is not designed to be exhaustive. Each situation may demand unique responses. Nevertheless, the above list is an excellent road map by which the compliance practitioner can evaluate several aspects of a company’s compliance program. We recommend it to you.

The full document may be downloaded at http://www.iccwbo.org/policy/anticorruption/index.html?id=37568.

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

So what are Red Flags and where do they appear? What level of due diligence does your company require for an entity based in the United States? How often during the pendency of a transaction or business relationship should your company update its due diligence? These questions and others were brought up in a recent article in the Wall Street Journal (WSJ) about a civil-racketeering lawsuit by the government of Ukraine against Olden Group, an Oregon based company. In the June 13, 2011 edition of the WSJ was an article by Dionne Searcy entitled, “Court Order US Firm to Pay Ukraine”. The article details a lawsuit which stemmed from an investigation, ordered by the President of the Ukraine, into medical supplies purchased by the government administration which preceded the most current administration.

The investigation was assisted by the US Company Kroll Inc., which issued a report on Olden Group. In its report, Kroll noted that Olden was tied to a “web of offshore companies registered in the US and tied Olden to past fraudulent schemes.” The Kroll Report and other information led the Ukrainian government to file the lawsuit. The Ukraine lawsuit alleged that Olden entered into sham contracts with a Ukrainian firm named Interfarm LLC to submit “phony customs declarations” which misstated prices that the Ukrainian government paid for vaccines. These overcharged monies were then laundered through both US and Latvian banks. These monies have disappeared.

As reported in the WSJ, based upon corporate records obtained from the state of Oregon, Olden Group is owned by two separate companies. The first is named Worldwide Management and has an address which is a post office box in Belize. The second is an entity named International United Holding AG and is based in Niue, an island in the South Pacific. Further these two companies are shareholders of numerous companies owned by two individuals, Charles Mathias and W. Rick Fletcher, who were reported in WSJ article to be “shareholders in numerous companies incorporated in Oregon.” When reached by the WSJ for comment, Mr. Mathias related that he has “registered numerous firms on behalf of several Eastern European organizations.” State of Oregon records revealed that Mr. Mathias had registered about 2,762 companies in Oregon.

The WSJ article also noted that one of the firms related to the Olden Group was named in the US Department of Justice’s (DOJ) bribery and corruption case against Daimler. This allegation involved one of the 2,762 companies which Mr. Mathias had incorporated in Oregon, United Petrol Group. It was alleged by the DOJ to be a part of Daimler’s corrupt acts to bribe certain Latvian government officials to obtain contracts. Lastly another entity formed by Mr. Mathias, Ronberg Gruppe, was placed on the World Bank blacklist in September 2010 for having “engaged in fraudulent practices relating to a [World Bank] project in Afghanistan.

I have set out this rather detailed description of the WSJ article to illustrate, once again, the need for continued vigilance throughout the due diligence process. Simply because your agent/vendor/business relationship is located in the United States, does not mean that you can automatically limit your due diligence inquiry to a Level One search. You must also be vigilant in obtaining related party information on the entity with which you are doing business with and obtain a list of the principles and check on them as well. The experience of the Ukraine government and the information from the Wall Street Journal article clearly demonstrates the pitfalls of failing to do so.

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