In this five-part podcast series, I visit with Terry L Orr, a Managing Director at Kroll, a division of Duff & Phelps, the sponsor of this podcast series. We visit on the current state of compliance through the lens of recent Foreign Corrupt Practices Act (FCPA) enforcement actions and the Evaluation of Corporate Compliance Programs, 2019 Guidance, consider some of the specific issues in compliance for private equity and the increased importance of compliance in the healthcare industry. It is a comprehensive look at state of compliance at the half-year mark of 2019. In Part II, we consider what can be learned from recent FCPA investigations and settlements.
We began with the basic question of, “How are best practices determined”? Orr responded that best practices are developed by what is learned from and the corrective actions taken because of “failed practices”. This means that the findings and recommended corrective actions in the Department of Justice’s (DOJ’s) past investigations often become the standard for what is expected as best practices going forward.
We then turned to some of the DOJ’s 2018 settlements that had an impact on best practices going forward. Orr began with the Stryker Corporation enforcement action. In this matter, Stryker used “a hub-and-spook distributor distribution system in China.” The bribes were paid by distributors in the network to get government contracts. Stryker vetted distributors, in the distributor network, through the first 2 layers (the initial distributor and secondary distributors that the initial distributor used). The DOJ noted that Stryker should have vetted distributors to the 5th level of distributors. Orr noted, “This is a significant expansion of the vetting process I’ve seen most company’s employ and results in a significant change in what might be considered best practices.”
The next case we discussed was Société Générale S.A. Orr began by noting that it is “not uncommon for companies to pay an agent for introductions to government officials. Société Générale paid an agent an introductory fee between 1.5% to 3.0% for various introductions resulting in work for the Company. The concern in paying agents a fee is that they use the fee to bribe government officials.” A fee of 1.5% to 3.0%, in and of itself, generally does not seem unusually high. However, in this matter the agent was ultimately paid approximately $20 million, which is a sum large enough to be used for paying bribes, which ultimately was the case. The DOJ indicated that besides looking at the percentage of the fee Société Générale agreed upon, they should have looked at the amount of the fee that ultimately could have been paid the agent.
Orr pointed to several smaller fines, which are equally instructive enforcement actions. The first is Polycom, Inc. In this matter the company provided significant discounts to Chinese distributors and retailers, supposedly because of competition. However, the discounts were used to pay bribes to government officials. In Vantage Drilling International, an independent director was provided funds and reimbursements, which he used to pay bribes to bring in drilling contracts. Finally, was the interesting matter involving Beam Suntory, Inc. In this case the company paid government bribes to obtain favorable shelf space. This falls into the category of paying bribes to retain business. Finally, is the Declination provided to Dun & Bradstreet, Inc. (D&B). In this enforcement action, the company sourced much of its data from public sources. But in China, its subsidiary used third-party agents to make unlawful payments to obtain confidential data vital to D&B’s business as a provider of business financial information.
We concluded by considering what Orr might see on the horizon for 2019? He stated, “I see more of the same in that the DOJ will be expanding the boundaries of what should be covered by a company’s compliance programs and who is responsible for the implementation of a healthy compliance program. This is evidenced in the DOJ’s recent Evaluation of Corporate Compliance Programs, 2019 Guidance.”
Which will be the topic of our next Podcast. For more information on Kroll, a division of Duff & Phelps, click here. For more information on Terry Orr, click here. Join us for our next episode where take a deep dive into DOJ’s recent Evaluation of Corporate Compliance Programs, 2019 Guidance.