Today Bristol Palin informs the debate on the efficacy of a compliance defense to the Foreign Corrupt Practices Act (FCPA). A noted expert on many areas around ethical behavior and family values, Ms. Palin was credited by Mary Elizabeth Williams in a Salon article, entitled “Bristol Palin’s pregnancy announcement is her coming out”, as being the “world’s least successful spokesperson for abstinence” when she announced last week, that, for the second time, she was pregnant out of wedlock. Ms. Palin had previously been a spokesperson for the Candie’s Foundation on, you guessed it, prevention of unwanted pregnancy through abstinence. How does Ms. Palin’s announcement inform the debate on a compliance defense to the FCPA? Quite simply, much like abstinence, the compliance defense is not effective if you say you have one but only if you are doing compliance.
This rather sad fact that although both abstinence and a compliance defense are simple in concept but perhaps not easy to accomplish in the real world was further driven home last week in a Wall Street Journal (WSJ) article by Joel Schectman, entitled “Russian Uranium Probe Reaches Into Small-Town Ohio”, where he reported that “A widening U.S. bribery probe involving Russian uranium has reached from Moscow to a company in the heart of America’s Rust Belt. U.S. authorities are investigating whether an executive in Bremen, Ohio—a rural community with about 1,500 residents roughly 40 miles southeast of Columbus—bribed Russian energy officials to win his company millions of dollars in contracts to supply shipping containers for uranium, according to people familiar with the matter.”
The rather amazing thing about this report is not that bribery and corruption had occurred in the past century or even the past decade but that bribery is reported to have begun in 2011 by Westerman Company and continued at least through 2013 after the entity was acquired by Worthington Industries Inc. Indeed the article identifies the company executive “Barry Keller, a Bremen native who has spent more than three decades at Westerman, working his way up from the shop floor to senior management” as the person involved in paying the bribes. Further, it does not even appear that the bribery scheme itself was too sophisticated or unique. According to Schectman, it involved paying a Russian middleman who “arranged for the bribe payments to be channeled through a maze of secret accounts in Cyprus, Latvia and Switzerland, where they were collected by higher-ranking officials at Rosatom, Tenex’s parent.” The bribes were funded via “5% of a Westerman contract, and would be paid through a consulting invoice”.
Keller’s involvement brings up a key reason why I think having a compliance defense will not increase the doing of compliance. He was the head of the company and then head of the business unit. Is it really possible that a company that did business internationally, with a foreign state owned enterprise and was a US public company did not understand that it needed to have a FCPA compliance program in 2011? Even aside from the fact that the bribery is alleged to have begun when Westerman was an independent entity, did Worthington bother to perform any pre-acquisition due diligence in the FCPA arena when they purchased Westerman in 2012? If Worthington did bother to engage in any pre-acquisition due diligence prior to buying Westerman, how about when it integrated the newly acquired entity into its ongoing compliance program, trained Westerman employees and performed a full FCPA forensic audit of Westerman as surely it identified Westerman’s sales to “Tenex, part of state-owned Russian nuclear company Rosatom” as potentially high risk?
From Schectman’s article it does not appear that Worthington determined internally that there was any FCPA violation in its operations as he quotes the company’s General Counsel (GC), Dale Brinkman, for the following statement “We first learned of [the investigation] in November, and we are fully cooperating with the Justice Department.” That does not sound much like a company that has appropriate internal controls or keeps books and records in accordance with public accounting requirements under the FCPA. But as with abstinence, saying you engage in it is easy.
I think the lesson to be learned from the Worthington matter, and the clarion call for a compliance defense appended to the FCPA, is that adding a compliance defense to the FCPA will not increase compliance with the FCPA. Corporations take their lead from the top on their priorities. If there is not senior management desire to do business in compliance, it does not matter what the benefits of having a compliance defense bring. In 2015, if a company is doing business outside the US with foreign government officials or officials of state owned enterprises, someone in the business, i.e. their lawyers, their auditors or their Board of Directors, knows that they must do business in compliance with the FCPA. I would argue that it was just as well known in 2011 when Westerman Companies is alleged to have begun its bribery scheme. Having a compliance defense will not help drive compliance if the business owner, business leader or senior management is not committed to doing business in compliance with the FCPA.
For even if such a company does institute a compliance defense, it is the doing of compliance which makes a compliance program effective, not having a written program. A key is how a company incentivizes conduct. For doing compliance in any effective way, a company must commit time and resources to the effort. No ‘out of the box’ solution will allow a company to do compliance because the doing of compliance means dealing with an intersecting matrix of employees, technology and third parties. This means that there must be money spent on compliance. In addition to the resource issues, if the company bases its salary, compensation and benefits to employees solely or even largely on sales only; that is what will be emphasized in a company. If, however, there are incentives built into the compensation structure, it will emphasize the importance of the doing of compliance in the day-to-day work of a company.
Bristol Palin has announced she does not want to be ‘lectured’ about her current pregnancy. Maybe her unique intellect has allowed her some insight into the irony of her situation (or then again perhaps not). However she was right about one thing. If you want to ensure that you do not get pregnant, abstinence is about the best way to do so. But abstinence only works if you are doing abstinence, not simply saying you are abstinent. The same is true for adding a compliance defense to the FCPA. A compliance defense only works if you are doing compliance.
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© Thomas R. Fox, 2015