Yesterday, I began a three-part series on how two companies, which came to Foreign Corrupt Practices Act (FCPA) grief in China for bribery within their Chinese business units, received the rather stunning results of both Non Prosecution Agreements (NPAs) from the Securities and Exchange Commission (SEC) and a full declination to prosecute from the Department of Justice (DOJ). The companies were Akamai Technologies, Inc. (Akamai) and Nortek Inc. (Nortek). Today I want to look at the lessons to be garnered by the Chief Compliance Officer (CCO) or compliance professional based upon the factors listed in the DOJ Pilot Program and how the companies met those factors.
In a similar letter to both companies, Kahn stated, “Based upon the information known to the Department at this time, we have closed our inquiry into this matter. Consistent with the FCPA Pilot Program, we have reached this conclusion despite the bribery by an employee of the Company’s subsidiary in China and one of that subsidiary’s channel partners, based on a number of factors, including but not limited to Akamai’s prompt voluntary self-disclosure of the misconduct, the thorough investigation and fulsome cooperation by the Company (including by identifying all individuals involved in or responsible for the misconduct and by providing all facts relating to that misconduct to the Department) and its agreement to continue to cooperate in any ongoing investigations of individuals, the steps that the Company has taken to enhance its compliance program and its internal accounting controls, the Company’s full remediation (including promptly suspending at the start of the investigation the individual involved in the China misconduct who then resigned shortly thereafter, terminating the relationship with the channel partner involved in the misconduct, and disciplining five other employees who should have prevented other violations of the Company’s policies), and the fact that Akamai (or Nortek) will be disgorging to the SEC the full amount of disgorgement as determined by the SEC.”
Unpacking Kahn’s letters there are several key factors for any CCO who may find their company under a FCPA investigation.
Nortek’s NPA reported that even before completing its internal investigation, Nortek promptly self-reported its preliminary findings to both the SEC and the DOJ. The internal investigation was deemed thorough as “Nortek conducted an internal audit of Linear China’s books and records. The internal audit team identified questionable payments made to local Chinese officials.” Based on the preliminary information, “Nortek conducted an internal investigation of Linear China’s conduct and forensically analyzed Linear China’s financial records. The internal investigation confirmed Linear China had made improper payments to Chinese officials local to Shenzhen, China.”
Akamai also promptly self-reported its actions and conducted a timely and thorough investigation. The company was made aware of the allegations through an internal whistleblower who reported the “Regional Sales Manager had received improper payments from channel partners and had made improper payments to end customer employees to secure business.” Its NPA noted, “Within weeks, Akamai voluntarily disclosed its investigation to the Commission staff and the Department of Justice.”
Extensive Cooperation During Investigation
Both companies engaged in extension cooperation during the pendency of the investigation. Akamai provided comprehensive, organized, and real-time cooperation with the both the SEC and DOJ, “including: (i) sharing the detailed findings of its internal investigation, including the results of its audits of its Chinese channel partners, analyses of customer usage versus purchased capacities, summaries of witness interviews, and factual chronologies and supporting documentation; (ii) identifying and presenting relevant documents to the staff; (iii) timely updating the staff with additional findings when its investigation uncovered new information; (iv) proactively updating the staff on its remedial measures, including updates to its compliance policies and procedures; (v) voluntarily translating documents from Chinese into English; and (vi) voluntarily making witnesses available for interviews and testimony.”
Nortek’s NPA stated they “provided comprehensive, organized, and real-time cooperation with the staff of the [SEC] during the course of its internal investigation, including: (i) sharing the detailed findings of its internal investigation, including identifying all improper payments and potential improper payments made to foreign officials and providing its summaries of witness interviews; (ii) timely updating the staff with additional findings when its investigation uncovered new information; (iii) effectively segregating, organizing, and presenting the most salient documents to the staff; (iv) voluntarily translating documents from Chinese into English; (v) voluntarily making witnesses available for interviews, including those in China; and (vi) conducting a risk assessment to determine whether the improper conduct at Linear China occurred at Nortek’s other manufacturing locations in China.”
Remediating the Compliance Program
Both companies extensively remediated their compliance programs during the investigations. Akamai terminated both the Regional Manager involved in the conduct as well as the channel partner. Nortek terminated the employees at Linear China after they were interviewed for the internal investigation. It was also noted that those terminated included “Linear China’s managing director and chief financial officer.”
Beyond this Nortek, “(i) revised its internal audit testing and protocols to focus on quickly discovering any FCPA-related improprieties; (ii) strengthened its anti-corruption policies; (iii) developed a Compliance Committee consisting of representatives from management and subsidiaries to supervise compliance implementation of Nortek’s policies and training; (iv) provided extensive mandatory in-person and on-line trainings on the FCPA and anti-corruption policies to its employees around the globe in appropriate languages; and (v) adjusted its internal audit schedules to prioritize facilities located in geographic areas known for higher incidences of corruption.”
Akamai, as stated in its NPA, “(i) implemented comprehensive due diligence processes for channel partners, including engaging an outside consultant to conduct channel partner risk assessments; (ii) strengthened its anticorruption policies; (iii) implemented enhanced compliance monitoring functions and structures, such as naming a Chief Compliance Officer and staffing a global team of dedicated compliance professionals in Europe, the U.S., and Asia; (iv) provided extensive mandatory in-person and on-line trainings on FCPA and anti-corruption policies to its employees around the globe in appropriate languages; and (v) enhanced its travel and expense control requirements in China, including requiring more detailed expense descriptions and supporting documentation and appointing an independent function with Chinese language capability to review and approve expense claims.”
Both companies disgorged the profits they generated from their FCPA-violative conduct. The language in each NPA, “to pay disgorgement obtained or retained as a result of the violations discovered during the Investigation”, does not provide any insight into how the amount was calculated or what transactions this profit disgorgement was based on.
In my next post I will conclude this series with additional lessons to be learned for the CCO and compliance practitioner.
How did Akamai and Nortek meet the Pilot Program factors to receive their declinations?Click to tweet
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© Thomas R. Fox, 2016