Single KnightAs most readers of this blog know, I am a recovering trial lawyer. To this day, some of my best friends are still out there, still teeing it up as trial lawyers. They have an important place in our country’s legal system, including defending corporations, which was my primary client base in those long ago days of yore. To be a trial lawyer requires a certain cache; as you really are a hired gun, king’s champion, free lance fighter, single combat warrior for your client. If not exactly a knight in shining armor, certainly one ready to take on all comers with something as blunt as a mace, as the company’s single combat champion. Frankly there is nothing much better than standing up in front of an antagonistic jury and announcing that I am proud to represent XXXX (name the corporation). It may not be the same as standing up and saying you represent the People of the United States, the People of the Great State of Texas or the People of Houston, but it is still very cool.

But just as it takes a certain skill set and mentality to be able to pull that off that trial lawyer hutzpah, such skills and mentality do not necessarily translate into the skills necessary to be good counselors. As Donna Boehme continually reminds us that is even truer when it comes to the compliance function in a Foreign Corrupt Practices Act (FCPA) compliance program. That point was driven home to me yet again in a recent article in the Texas Lawyer, entitled “FCPA Practices: Right-to-Audit Clauses”. In this article the authors, have a section denominated as ‘Defending An Audit’. I would suggest that if you are in a commercial contract relationship and your attitude starts with ‘defending an audit’ you are getting seriously low-value compliance counseling for your lawyer-dollars.

Contract negotiations which begin with such an adversarial attitude are apt to go nowhere on a slow boat to China. The right to audit was enshrined in every commercial contract that I ever negotiated, whether my client was paying money out or receiving money back for services or products delivered. If you are going to start fighting about the audit clause out of the box, frankly you probably have engaged outside counsel who is charging by the word. Worse, everyone from the Department of Justice (DOJ) down the chain of compliance understands the absolute need for audit rights. If your company comes out of the box fighting about audit terms so that you can defend an audit it certainly marks you as outside of the mainstream of entities around the best practices of compliance. Moreover, it would immediately set off huge Red Flags, if not cannonades of ringing church bells saying that my company has something to hide. Your corporate counter-party could very easily say that your client is not someone they could or even should do business with, if they want to fight over such a basic component in a best practices compliance program as audit rights.

It is that type of trial lawyer mentality which also seems to seep into the debate about a compliance defense under the FCPA. Leaving aside the Arthur Andersen effect of 63,000 people losing there livelihoods because one corporation made an idiotic decision to go to trial; the trial lawyer mentality that wants to tee it up with the DOJ does not serve the counseling function which corporations require. What does a trial lawyer tell a client about its chances at trial? You have a 10% chance; 20% chance; 50% chance; 75% chance of winning? What is that based on? Knowing what 12 (or perhaps 6) citizens will say? If there is a potential $500MM fine for a guilty verdict and there is a 10% chance of losing, is settling for $50MM reasonable? What if your illegal conduct was over five years ago, are you really going to trial on statute of limitations defense, where your own conduct hid the FCPA violations? Want to try and use that fact issue to persuade a jury that the government waited too long to indict?

Further, what are the true costs of litigating a criminal charge against your company? Attorney fees, defense costs for all those individuals the company has to defend, zero to no productivity for some period of time? What about all the negative stuff that will come out at trial about the company’s conduct, think there might be any negative effect on your corporate reputation, if not what about tanking of the stock price? How about all those plaintiff’s lawyers circling in the water with their shareholder derivative actions lawsuits firmly planted in their teeth, think they might be interested in what the Board knew, when it knew it or conversely that it did not know anything? Do you really want to put your Chief Executive Officer (CEO) up on the stand and have him or her cross-examined by the DOJ on what he/she allowed the compliance function to do at the company? Remember the great performance by Ken Lay at his company’s trial? (It’s my company – I do what I want.)

Yesterday, Mike Volkov wrote a blog post, entitled “Working in the Compliance Field – The Need for Practical Solutions”, where he said “compliance professionals need support with practical solutions to real problems. In some cases, compliance support professionals can help to define a strategy to solve a problem.” That seems to me to be the clearest articulation of why a compliance defense appended to the FCPA would not mean anything in the practice of compliance inside a corporation. If no corporation is going to trial, standing up and saying we have a compliance defense is not going to help the compliance practitioner do compliance inside a company. So as much as trial lawyers want to create something so that they can take on the DOJ over some FCPA issues at trial, such a defense will not move forward the doing of compliance.

Near the end of his piece Volkov said, “In the end, compliance professionals need less theoretical mumbo jumbo and more practical, real-world solutions.” Here, here Mike. Fighting your customer over audit rights is not a real world solution that a compliance practitioner needs.

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

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