Yesterday I began an exploration of the General Cable Corporation (General Cable) Foreign Corrupt Practices Act (FCPA) enforcement action. It was settled with the DOJ via a Non-Prosecution Agreement (NPA) and the SEC via a Cease and Desist Order ( General Cable Order). There was also the resolution of a civil charge by the SEC against a former General Cable executive, Karl Zimmer, via a Cease and Desist Order (Zimmer Order). The fines and penalties paid by General Cable were not insignificant. The company paid a $20MM fine based upon its criminal conduct and paid another $51MM in profit disgorgement. Finally, based upon the conduct laid out by the SEC in the General Cable Order, the company was assessed another $6.5MM for violations of the FCPA’s accounting provisions. The $20MM figure reflects a 50% discount off the bottom of the US Sentencing Guidelines fine range, demonstrating that as bad as the underlying bribery and corruption may have been, the DOJ will give significant credit when the company meets the requirements under the FCPA Pilot Program.
In Part I, I laid out the bribery scheme in some detail. Today I consider how General Cable was able to obtain such positive result in the light of multiple bribery schemes in multiple jurisdictions and corporate awareness or conscious indifference to them. Clearly the four prongs of the FCPA Pilot Program were met. As stated by Assistant Attorney General Leslie Caldwell in the DOJ Press Release announcing the enforcement action, “General Cable paid bribes to officials in multiple countries in a scheme that involved a high-level executive of the company and resulted in profits of more than $50 million worldwide. But General Cable also voluntarily self-disclosed this misconduct to the government, fully cooperated and remediated. This resolution demonstrates the very real upside to coming in and cooperating with federal prosecutors and investigators. It also reflects our ongoing commitment to transparency.”
Reviewing each of the Pilot Program prongs separately, there was self-disclosure by General Cable. The NPA stated, “the Company received voluntary self-disclosure credit because it voluntarily and timely disclosed to the Fraud Section the conduct described in the Statement of Facts attached hereto as Attachment A (the “Statement of Facts”).” The issue of self-disclosure is one which has bedeviled companies for quite some time. However, the General Cable enforcement action continues to demonstrate the DOJ takes this seriously and will give credit when companies do self-disclose.
In the area of significant cooperation, the NPA stated, “the Company received full credit for its cooperation with the Fraud Section’s investigation”. The parameters of this cooperation included conducting a thorough internal investigation; “making regular factual presentations and proactively providing updates to the DOJ; voluntarily making foreign based employees available for interviews in the United States; producing documents, including translations, to the DOJ from foreign countries in ways that did not implicate foreign data privacy laws; collecting, analyzing, and organizing voluminous evidence and information for the DOJ; and identifying, investigating, and disclosing conduct to the DOJ that was outside the scope of its initial voluntary self-disclosure.”
This is the first time I have seen a specific reference to production of documents in a manner which “did not implicate foreign data privacy laws”. It is not clear from this statement how the implication was avoided, whether through employee consent or having a duplicate document in a more corporate friendly country. This shows the DOJ has some sensitivity to foreign document privacy laws but there are almost always alternative methods of production.
Also note the additional information provided to the DOJ which was “outside the scope of its initial voluntary self-disclosure.” This means the DOJ will accept the results of a less than complete internal investigation if you supplement the information regularly and on a timely basis. The important point was noted to be that by the conclusion of the investigation, General Cable had provided to the DOJ all relevant facts known to the company, “including information about individuals and third parties involved in the misconduct.”
Next was in the area of remediation. The NPA is replete with the steps taken by General Cable. As laid out in the NPA they included:
- Terminating the employment or accelerating the previously-planned departures and resignations of 13 employees who participated in the misconduct;
- Causing the resignation of employees and accelerating the previously-planned departure of an additional employee who failed to supervise effectively others who were engaged in the misconduct described in the Statement of Facts;
- Causing the resignation of an additional employee who failed to take appropriate steps in response to identifying the misconduct;
- Terminating the business relationships with 47 third-party agents and distributors who participated in the misconduct described in the Statement of Facts;
- Hiring a Chief Compliance Officer (CCO) who has an executive officer position in the Company and separate reporting lines to the Chief Executive Officer (CEO) and Audit Committee of the Board of Directors;
- Conducting a global and enterprise-wide risk assessment and evaluation;
- Developing and implementing a risk mitigation plan for risks identified through the assessment and evaluation;
- Developing a comprehensive compliance program that integrates business functions into compliance leadership roles, is designed to deliver clear and consistent communications and expectations Company-wide through policies and procedures, and includes frequent leadership communications to all employees;
- Revamping the ethics and compliance helpline;
- Delivering tailored face-to-face compliance training, including training on the FCPA, to the Board of Directors and senior executives, Internal Audit personnel, sales leaders, and all salaried employees;
- Adopting heightened controls on the selection and use of third parties, including building a system for third-party due diligence that assigns ownership to business personnel to shepherd prospective third parties through a comprehensive risk assessment, review, and approval process;
- Issuing, and providing training on, business amenities policies specific to certain countries; and
- Conducting on-site global compliance audits to test adherence to enhanced controls and procedures.
These remediation steps can be broken down into three general categories. First was the disciplining of the persons directly involved, those who knew or should have known and recalcitrant third parties. Next was the hiring of a CCO with real authority and power to act and get things accomplished. Finally, was the specifics of the compliance program which was implemented.
While many of these steps have been laid out previously as a part of a best practices compliance program, there is one I want to highlight. It is No. 10, which specifies “Delivering tailored face-to-face compliance training, including training on the FCPA, to the Board of Directors and senior executives, Internal Audit personnel, sales leaders, and all salaried employees.” [emphasis supplied] The word tailored communicates the DOJ’s expectation for training far beyond the standard out of the box compliance training. It means you must put on training which is not only designed for the risk group it is being presented to but you must have some thought into the different risks for each discipline within an organization and their respective role in any compliance program.
There is quite a bit for the compliance practitioner to consider in this NPA. Tomorrow I will present some of the lessons to be garnered by the General Cable FCPA enforcement action.
What steps did General Cable take which met the requirements of the Pilot Program leading to its result?Click to tweet
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© Thomas R. Fox, 2017