Released 44 years ago last month Blood on the Tracks is my favorite Bob Dylan album. While most point to Tangled Up in Blue as their favorite track, I have another favorite. My personal favorite track is Lily Rosemary and the Jack of Hearts. It tells the story of love, betrayal, a bank robbery, murder and a hanging. It is a cacophony of sound, sights and atmosphere that never ceases to move me. It tells the story of Big Jim, who owns the town; Rosemary, his long-suffering wife, Lily, his mistress as well as the Jack of Hearts, the enigmatic un-named hero who engineers the bank robbery and mysteriously enters and leaves town. What does it all mean? Dylan has never formally commented. However, Tim Riley of NPR has said, “Lily, Rosemary and the Jack of Hearts’ is an intricately evasive allegory about ‘romantic facades’ that hide ‘criminal motives’, and the way one character’s business triggers a series of recriminations from people he doesn’t even know.”

Yesterday, I wrote about Link Ray’s Rumble in the context of regime change. In the post, I explored how democratic regime change can foreshadow corruption investigations and enforcement actions. Today, I wanted to write about some of the solutions which might be available to a corporation, Chief Compliance Officer (CCO) or compliance professional. I recently had the opportunity to interview James Tillen and Marc Alain Bohn, attorneys at Miller & Chevalier Chartered, for a podcast on the firm’s 2018 FCPA Winter Report. I put the question to them about what advice they are providing around this issue of regime change leading to corruption investigations and prosecutions.

Tillen believes it is an opportunity to encourage companies to do a risk assessment to evaluate the contacts that they may have had with the prior administration or the prior regime. From there an organization should consider the risks associated with that. He noted, “in many of these countries, there is a local content requirement and often the choice of a local partners is limited. You may end up partnering with someone that does have connections to the regime and hopefully you put in safeguards to address and mitigate those risks.” Yet, when there is a regime change, it is “definitely time to reevaluate, to consider whether your safeguards are effective, consider the exposure that may come from scrutiny on a local partner or a third party. From there you should next consider whether you need to make any changes as a result.”

Bohn then pointed to another example right next door to the US, Mexico. Once again, we saw a regime change through peaceful democratic elections. The election of the new Mexican President Andrés Manuel López Obrador brought about a regime change. Obrador swiftly moved to cancel the new Mexico City airport project based on his supporter’s wishes due to concerns about transparency in the bidding and contract procurement process. Bohn stated, “Whether or not there were improprieties in connection with the bid process on that project, a company that may have been on that will find themselves out of luck whether or not they were involved in misconduct.

Bohn also suggested that a CCO or compliance function should also review a wide variety of actions outside the US from the compliance perspective, even if the actions do not at first blush appear to directly impact compliance. He said that “I think as an initial matter is one more reason for companies to avoid political activities outside the US and to avoid political donations. It can change quickly and you can find yourself on the opposite end of an administration and fairly or unfairly have your company linked to the prior administration and scrutinized simply on that basis.”

Additionally, doing business in a transparent manner is one of the most important things a company can do. A company should take clear steps to ensure they conduct business in an above-board manner. Transparency is the light that clears out the darkness in securing any governmental contracts or government interactions so that when they are reviewed, they will pass the light of day muster. Bohn concluded, “you can never avoid risk. I think it’s hard to predict what’s going to occur in some of these situations, but you’re going to position yourself as best you can to weather that regime change.”

All of this reminds me of the Volkswagen (VW) emissions-testing scandal. VW went from one of the most trusted car manufacturers in the world to an organization that did not seem to know not only its left hand from its right hand but to even where either hand resided. This was much worse than a death of a thousand cuts where information dribbled out on a daily basis. Yet as bad as things were for VW, consider the entire German auto industry that, through no fault of their own, were put under a regulatory and reputational scrutiny.

In the face of all this, Ulrich Grillo, BDI president of the German global industry association, who insisted that the German national brand would not be damaged by “the unacceptable behavior of one company”. He added “I don’t think that this single case, however big, significant and unacceptable as it is, is damaging the whole image of the brand Made in Germany.” Anticipating what may lay down the road, he pleaded for fair handling by the US in any criminal probe and in a call to German politicians “warned regulators in Germany against reacting to the crisis by imposing new rules on industry.”

Grillo recognized that compliance is the answer. He urged companies to check their “management processes, including compliance and control systems.” He suggested the question to ask should be “Are we doing everything right?” When you have the President of a national industrial association saying compliance is the answer, compliance as the answer has arrived. In the context of regime change, you need to sit up and take notice. While you are at it, listen to Lily Rosemary and the Jack of Hearts, at 11.

Set List (from YouTube)

Lily Rosemary and the Jack of Hearts

Tangled Up in Blue

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© Thomas R. Fox, 2019