HeroSometimes a hero can make a difference. But you do not have to be a John Wayne type-hero to make such a difference. The reason is the world is made up of real people and John Wayne heroes only exist in the movies. Even in the international fight against bribery and corruption, the stand of one person can make a difference. It could be as simple as saying “I am not going to pay bribes.” Yesterday I read two articles in the New York Times (NYT) which illustrate how regular people and their non-Hollywood regular actions can make a difference in the fight against corruption.

Earlier this week, a true hero died near Brussels. According to her NYT Obituary, Augusta Chiwy was a “Belgian nurse whose unsung bravery in saving countless American soldiers wounded in the Battle of the Bulge was belatedly celebrated in 2011.” A British historian named Martin King had found the amazing story of a Belgian immigrant, who was visiting her family in Bastogne when the Germans attacked in December 1944, an Army doctor named John Prior, “knocked on the door of her father’s house. “He told me that he had no one left, that his ambulance driver had been killed,” she recalled. She volunteered, along with a friend, Renee Lemaire, even trading her bloodstained clothes for an Army uniform, which would have subjected her to death if she were captured.”

Yet through her efforts, along with those of her friend Ms. Lemaire and those of Dr. Prior who all working on triage during the entire siege, “Men lived and families were reunited due to your efforts,” said Col. Joseph McGee, who commanded a brigade of the 101st Airborne Division at Fort Campbell, Ky., the unit whose paratroopers were surrounded during the fierce midwinter siege.” Dr. Prior noted, in a 1972 article for The Onondaga County Medical Society Bulletin, “The presence of these two girls was a morale factor of the highest order.” Chiwy’s only comment was “What I did was very normal. I would have done it for anyone. We are all children of God.” Heroism indeed.

Yet there is another kind of heroism also portrayed in yesterday’s NYT. It was the heroism of the citizens of Guatemala as detailed in an article by Azam Ahmed, entitled “Guatemala’s Corruption Investigations Make Swift Strides”. The heroism was demonstrated by “Jorge Castiglione, a 70-year-old engineer with a thinning ponytail, has gone to the Plaza de la Constitución here to support what has become a ritual in this nation: weekly protests calling for the resignation of the president and an end to political impunity.”

For while no one, certainly not the citizens of the country, thought that they could see the possible end of corruption, a small step was taken in the name of anti-corruption last week when an investigation extended to the top levels of the country’s government. Ahmed reported, “On Friday, the nation’s former vice president was arrested, and prosecutors claimed that the president, Otto Pérez Molina, was the chief beneficiary of a fraud ring that siphoned millions of dollars in customs revenues while basic public services suffered.”

Most interestingly the investigation began over a case which, under US law, might well have fallen within the rubric of facilitation payments under the Foreign Corrupt Practices Act (FCPA). Ahmed said, “The initial case, known as La Línea, involved customs stations across the country taking bribes from importers to reduce the amount of duties paid. More than 20 top officials were arrested in a scheme that prosecutors said drew in a quarter of a million dollars a week, the same scheme they accuse Mr. Pérez Molina of leading.” However that was only the beginning of the rotten leaves unturned in the investigation. Ahmed wrote, “another scandal emerged. This time, the authorities were accused of skimming millions off a contract meant to provide dialysis treatment for patients with kidney problems, among other things. Local papers reported that more than 13 patients died as a result of negligent treatment, connecting the corruption to actual lives.”

There are many in the US, from The Donald on down, who seem to think that corruption is simply a part of the way those people do business. The problem with that analysis is at least twofold. First it does not even consider the invidious nature of corruption. This view holds that it is really just a victimless crime or better yet, simply another way to get ahead – cheat your way to the top. Or the converse, only losers don’t pay bribes to get favors in return. The second problem is that if US companies buy into such logic, they not only feed the narrative but become part of the problem as well. Just think of the Lockheed and other US corporate corruption scandals that led to the original passage of the FCPA.

Nonetheless for US companies these developments in Guatemala should serve as a very large wake-up call for their Central and South American operations, if, indeed, they needed one. Obviously Petrobras is on everyone’s mind now as the world’s current top poster child for bribery and corruption. For US companies, this means that their Brazilian operations could come into Department of Justice (DOJ) and Securities and Exchange Commission (SEC) scrutiny. The increased in anti-corruption scrutiny has moved part and parcel with increased political activism by citizens such as Jorge Castiglione in Guatemala. Ahmed noted, “A wave of political activism has emerged in Brazil, Chile, Ecuador, Honduras and Peru. Feeding the swell of discontent, experts say, is a growing middle class with greater expectations.” It is also clear that corruption is a large problem in many of these countries as well.

This confluence of factors that were present in Guatemala; the newly aggressive anti-corruption investigations coupled with the increase in political protests mirror those which occurred in Brazil over the past couple of years and may become more prevalent in other countries in the region. US companies need to understand that many of these most ardent anti-corruption prosecutors and investigators have had legal or other training the US. Further, the DOJ has for a number of years been training prosecutors in other countries on techniques to investigate and combat corruption. Once again witness the well-known Brazilian prosecutors from Operation Car Wash; they had US legal training. It would not be surprising at all if they are sharing their information with the relevant US authorities.

Of course, US companies could take the direct route and simply not pay bribes and not violate the FCPA. But doing compliance takes a corporate will, requiring commitment and work. If you do not have such commitment, you may find yourself in FCPA hot water in areas of the world waking up to the fact that they can actually fight bribery and corruption. Sometimes it only takes a hero to make the difference.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2015

Mini CooperThe price of oil hovers near $40 per barrel. There are all manner of responses suggested to this drop from nearly $100 per barrel just a short time ago. Yet the price of oil has long been much more than a political conversation, sometimes it leads to innovation. Today we celebrate the birth of the British Motor Corporation’s (BMC) newest car, with the launch of the small and affordable – at a price tag of less than $800 – Mark I Mini. The diminutive Mini went on to become one of the best-selling British cars in history.

Yet it was an energy crisis that led to the development of the Mini. The story behind the Mini began in August 1956, when President Gamal Abdel Nasser of Egypt nationalized the Suez Canal in response to the American and British decision to withdraw funding for a new dam’s construction due to Egypt’s Communist ties. The international crisis that followed led to fuel shortages and gasoline rationing across Europe. Sir Leonard Lord, head of BMC, wanted to produce a British alternative to the tiny, fuel-efficient German cars that were cornering the market after the Suez Crisis. His response was released on this date in 1959 and it has remained a British classic to this day.

I thought about Lord’s thoughtful response to a political and energy crisis when I read this week’s Corner Office column in the Sunday New York Times (NYT), where reporter Adam Bryant profiled Mark Toro, Managing Partner and Chairman of North American Properties – Atlanta Ltd., in an article entitled “Who Will Do What by When?. Toro had some interesting observations, which I thought would be useful for the Chief Compliance Officer (CCO) and compliance practitioner in working towards a best practices compliance program.

One of the more prescient concepts from Toro was one passed on from his father who was a mechanical engineer. Bryant wrote, “My father had another great saying: “You worry about the wrong things.” It was kind of his version of “Don’t sweat the small stuff.” There are very important things in life, so let’s spend our time on things that are relevant and consequential to the mission, whatever your mission is, as opposed to all the other noise that’s out there, because there’s lots of noise.” As a CCO or compliance practitioner you need to understand not only what is important in terms of resource allocation but also from an anti-corruption risk perspective for your organization.

Equally insightful was an early business lesson on leadership. Once in a moment of machismo, Toro literally pounded a meeting table with his fists to emphasize a point. When the person who was the subject of the tirade left the meeting, Toro said, “my boss looked at me and said, “You didn’t see it, did you?” I said, “What?” He said, “About five minutes into your tirade, he sat back and he was done listening to you.” Toro found this to be an “early lesson in self-awareness and how you impact others. It was not easy to develop, but I worked on it.”

Toro is a very results driven leader. Yet it is not the maniacal devotion to data analytics that he rewards. He believes in allowing his employees to commit to something and then follow through with the commitment. Toro said, “There are only two types of people in the world: people who do what they say they’re going to do when they say they’re going to do it, and people who don’t do what they say they’re going to do when they say they’re going to do it.” The key is that you ask for a commitment to do something, complete a task or an assignment and then there is accountability for that person.

Interestingly Toro suggests that being a creator is a way to get ahead in business. When asked about what he would tell college graduates, one of the things that will set you apart is to create. He stated, “Whether you’re a writer, a painter, a real estate developer, create something from whole cloth and do not be an intermediary. If you create value, you will be rewarded well beyond anything you could do from being in a middleman role, which makes you beholden to those who truly create the value.”

However it does not end at that point. Baker Hughes CCO Jay Martin has said that the difference in mediocre and great is in the execution. Toro obviously agrees when he said, “The process of conception, planning and execution is also hard for most people. And it’s the last part where people typically have trouble, because execution is about doing what you say you’re going to do.” Finally, he noted a key component of any CCO or compliance practitioner position, to manage compliance projects. Any program, policy or procedure implementation or enhancement is a project. It will require conception, planning and execution. Toro observes, “My perspective now is that everybody’s a project manager, no matter what business you’re in, and everybody’s a salesman. The people who can marry those two skill sets will always have an edge.”

Toro’s perspectives and the British Mini are lessons in project management including conception, planning and execution. The development of the Mini began in 1957 and took place under a veil of secrecy; the project was known only as ADO 15. After about two and a half years, a relatively short design period, the new car was ready for the approval of Lord, who immediately signed off on its production. The Mini Cooper followed a few years later, engineered by the racecar builder John Cooper, which became a favorite of Mini enthusiasts worldwide.

How iconic is the Mini? By the year 2000, 5.3 million Minis had been produced. Around that same time, a panel of 130 international journalists voted the Mini “European Car of the Century.” An interesting outcome to an energy issue from the 1950s.

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This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2015

Water Going Uphill 2Usually the question I am posed is how far down the chain must you go in your due diligence to ensure that your suppliers are in compliance with the Foreign Corrupt Practices Act (FCPA). I would pose that now, after the Petrobras scandal, a company may need to examine the flow in the other direction. I thought about this directional shift when I read an exhaustive report in the Sunday New York Times (NYT) on the Petrobras scandal, entitled “Brazil’s Great Oil Swindle, by David Segal. The article reviews the genesis of and details the ongoing nature of the Petrobras scandal.

While I have previously written about the other Brazilian companies that have been caught up in the scandal, such as Oderbrecht, Camargo Corrêa and UTC Engenharia, Segal’s article detailed a level of immersion in corruption that should concern every US Company subject to the FCPA and catch the eye of Department of Justice (DOJ) prosecutors handling FCPA cases. It appears that the companies that had direct contracts with Petrobras also colluded in the old-fashioned anti-trust sense, so that not only did they control all the subcontract work done on any Petrobras project but they would also demand bribes from the subcontractors which they then passed up the chain to Petrobras executives and eventually Brazilian politicians. If this scheme turns out to be true, it literally could explode potential FCPA exposure for any US Company doing business on any subcontract where Petrobras was the eventual beneficiary.

Segal reported, “according to prosecutors, these companies stopped competing and started to collaborate. They formed a cartel and decided, in advance, which of them would win a particular deal. A charade competition was orchestrated, and the anointed winner could charge vastly more than it would in a free market.” Further, “A document obtained by prosecutors laid out what it called the “rules of the game.” The trumped-up bidding process was labeled a “sports tournament”, with an assortment of rounds and a “trophy.” There was a no-sore-loser codicil, too: “The teams that participate in a round should honor the rules that have been agreed on, even when they are not the winner.”

But the corruption did not stop simply at these non-Petrobras entities. These companies would demand bribes from their subcontractors that they passed up the line to Petrobras. Segal wrote, “From 1 to 5 percent of the value of a given contract was diverted to those on the receiving end of the scheme, a group that included 50 politicians from six parties, according to prosecutors. Money from cartel members took a circuitous route to politicians’ pockets, passing through ghost corporations whose owners made bribes look like consulting fees.”

Think about all of this for a minute. What happens when everyone and every company associated with a National Oil Company (NOC) is in on the corruption? I thought about this question when I read an article in the Financial Times (FT) by Andres Schipani, entitled “We were terrorized by the drop in oil prices, where he discussed how the drop in world oil prices has negatively affected Venezuela more than any other top oil producing company. Part of the country’s trouble is the rampant corruption around its NOC PDVSA. Schipani quoted a former minster for the following, “The design of the political economy here only benefits the corrupt.” Moreover, the country is near the bottom of the Transparency International Corruption Perceptions Index (TI-CPI) coming in at 161st out of 175 countries listed.

Most Chief Compliance Officers (CCOs) and compliance practitioners had focused their third party risk management program around third parties, first on the sales side and then in the Supply Chain (SC). However now companies may well have to look at other relationships, particularly those where the company is a subcontractor involved in a country prone to corruption with a NOC or other key state owned enterprise. Last year the Wall Street Journal (WSJ) in an article entitled “Venezuelan Firm Is Probed In U.S.”, by José De Córdoba and Christopher M. Matthews, reported that a US company ProEnergy Services LLC (ProEnergy), a Missouri based engineering, procurement and construction company, sold turbines to Venezuelan company Derwick Associates de Venezuela SA (Derwick), who provided them to the Venezuelan national power company. The article reported that the DOJ’s “criminal fraud section are reviewing actions of Derwick and ProEnergy for possible violations of the Foreign Corrupt Practices Act”. Derwick was reported to have been “awarded hundreds of millions of dollars in contracts in little more than a year to build power plants in Venezuela, shortly before the country’s power grid began to sputter in 2009”. All of this with a commission rate paid by ProEnergy to Derwick of a reported 5%.

The Brazilian investigation poses far more dire consequences for any US Company that did business with the cartel of Brazilian companies that had locked up the Petrobras work. It means that you need to go back immediately and not only review the underlying due diligence which you did (probably none); then review the contracts with those entities; and, finally, cross-reference to see if there were any contract over-charges which were rebated back to the cartel members. If so, you may well have a serious problem on your hands as any unwarranted rebates, refunds, customer credits or anything else that could have been readily converted into cash to be used to fund a bribe.

This second part is one thing that challenges many compliance officers. The compliance function does not always have visibility into the transactions assigned to specific contracts or projects like your company might be engaged in for Petrobras in Brazil. However it also speaks to the need for transaction monitoring as not simply a cutting edge technique or even best practice but a required financial controls tool that is also applicable to compliance internal controls as well.

As Brazilian prosecutors expand ever outward from Petrobras, US companies subject to the FCPA and UK companies and others subject to the UK Bribery Act would do well to review everything around their Brazilian operations, contracts and dealings. The Petrobras scandal has shown two clear trends to-date. First is that we are far from the end of this scandal. Second, the prosecutors have been fearless so far in following the corruption trail wherever it may go. If they follow it to US companies, they could prosecute them on their own in Brazil for violation of domestic anti-bribery and anti-corruption laws or turn the evidence over to the DOJ. The thing to do now is to get out ahead of this all too certain waterfall.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2015

Bee FarmerI continue my exploration of the use of social media in doing compliance by taking a look at a very innovative social media solution to a difficult compliance issue around, of all things, honey. This example shows how creative thinking by a lawyer, in the field of import compliance, led to the development of a software application, using some of the concepts that I discussed earlier in the week around social media. Once again demonstrating the maxim that lawyers (and compliance practitioners) are only limited by their imagination, the use of this software tool demonstrates the power of what social media can bring to your compliance program.

This innovation contrasts with a reader’s comment earlier this week when I began my series on the use of social media in doing compliance. The comment was that this reader’s company, while actively using social media to reach, communicate with and receive information back from its customer base; did not allow employees to access Facebook, Twitter, Pinterest, Snapchat and a whole host of other social media sites on company purchased computers. While the company’s stated reason was security, the true reason is that they simply did not trust their employees not to “waste time” by accessing such sites during work hours.

Such corporate attitudes, while clearly from the time of the dinosaurs, unfortunately still exist. Companies need to understand that social media is a tool which can and should be used affirmatively. Like any tool, it can be abused but if you cannot trust your employees not to goof off (1) they probably should not be your employees and (2) the company is a lousy manager; so there is lots of opportunity for growth. It reminds of when I was working for a corporation back in 2004 and they did not want employees to have company issued cell phones, because you know they might use them for personal use. The bottom line is that social media is here to stay. Millennials and others are only going to communicate through that medium so if companies want to stay relevant, not only with products and services but also with their employee base, they need to understand that social media is an important and significant tool of the future. But enough of my mini-Howard Sklar rant.

Gar Hurst, a partner in the law firm of Givens and Johnston PLLC in Houston, faced an issue around US anti-dumping laws for honey that originated in China. The US Government applies anti-dumping trade sanctions to goods from a particular country. They do this when a domestic interest group alleges and proves, at least theoretically, that the producers in a foreign country are selling their goods into the US market at below fair-market value. By doing this, they are harming the US domestic industry. The dumping duties, which can result from this, can easily be 100, 200, even up to 500 % of import duties. To get around the anti-dumping laws, importers would ship Chinese originated honey to Indonesia, Vietnam or some other country and pass it off as originating from one of those locations.

The problem that Hurst’s client faced was how to prove the honey did not originate from China. In an interview, Hurst said, “We were working with a Southeast Asian honey producer. They were in this situation where Customs was essentially treating them as though they were a Chinese producer. We’ve provided them documents. We’ve provided them invoices. We’ve provided them production docs. We’ve provided them all sorts of documents but there was nothing that we could give them documentary that they didn’t believed could be fake. That was the problem, documents on their face are just a form of testimonial evidence. Meaning, somebody somewhere said, this stuff is actually from the Philippines. It’s only as good as the word of the person who wrote it on. We needed something that would get beyond that problem.”

So using awareness around communications through a smart phone, Hurst and his team came up with an idea “that with the explosion of smartphone technology which is in the hands of basically everybody in the United States and soon to be everyone in the world, these devices basically allow a person to take a picture that is geo-tagged and time and date stamped and then upload that picture to a database in the cloud. Effectively, that’s what we did.” As Hurst explained the process which they came up it was amazingly simply, “We basically created an app that resided on Android phone that they could then go around and document the collection of all these various barrels of honey and its processing. Every time they take a picture, it would be time and date stamped with geo-tagging as well. You know when and where a picture of a particular barrel of honey which we would label with some special labels so you could identify it when and where that was taken.” The product they came up with is called CoVouch.GeoTag

From there the information is uploaded into a secure database that Hurst and his team created in the cloud. His firm then took all of the evidence they had documented that the honey originated in Indonesia, not China, and presented it to the US Customs service to show his client had not sourced its honey in China. In version 2.0 Hurst and his development team are creating a searchable database which US Customs can use to make spot checks and other determinations.

Recognizing the level of technical sophistication of honey farmers in Asia, CoVouch is amazingly simply to use. It takes pictures, puts time stamps on them and puts geo-tags that show the location where the picture was taken and with glued or pasted on bar codes, you can trace the shipment of honey throughout its journey. But it does so in a way that tells a story. Hurst said, “you’re telling the story but the provenance, if you will, of one imported barrel of honey and how did it get to where it’s at. It’s different. Yeah, that’s right. That’s exactly what we’re trying to do and trying to do it in a way that is easy enough so that, as you put it, a fairly, uneducated farmer in Indonesia can do it and a busy Customs agent in the United States can review it.”

Such a software system uses the concepts around social media to make a honey farmer a provider of documents evidence, through photographs, to meet US anti-dumping laws. But I see the application as a much broader tool that could be used by anyone who needs to verify information on delivery, delivery amounts, delivery times and delivery locations. This could be a field hand who is delivering chemicals even West Africa and does not know how to speak English. Hurst pointed to uses around whether something might be eligible for special import or export regulations due to NAFTA, whether restricted trade goods, such as those used in the oilfield industry, worked their way into Iran and even applicability under the Buy American Act around the US content in goods.

For the anti-corruption compliance practitioner, you could use such a tool to not only receive information, and more importantly photographic evidence, but you could also deliver information. But the key is that you are only limited by your imagination. CoVouch could be a tool that you use internally for delivery of information and receipt of information inside your company.

Tomorrow I will end my weeklong exploration of the use of social media in your compliance program by discussing some of the more common social media applications and how you might use them.

Once again please remember that I am compiling a list of questions that you would like to be explored or answered on the use of social media in your compliance program. So if you have any questions email them to me, at tfox@tfoxlaw.com, and I will answer them within the next couple of weeks in my next Mailbag Episode on my podcast, the FCPA Compliance and Ethics Report.

To check out the CoVouch website, click here.

To listen to my podcast with Gar Hurst, go to the FCPA Compliance and Ethics Report, Episode 181, by clicking here.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2015