In this episode I visit with Jonathan Armstrong on his views on the new DOJ Evaluation of Corporate Compliance Programs. Armstrong provides a detailed analysis of some of the key differences between how compliance is operationalized in the US as opposed to the UK and EU countries. He explains how the enhanced requirements for root cause analysis, risk assessments and investigations and the supplemented requirements to tie back into the ongoing compliance monitoring and updating, could run afoul of UK and EU data protection and data privacy requirements.  He also considers what a non-US company, subject to the FCPA what should look to as a best practices compliance program to best protect the organization. Finally explores just how far does all of this go? He provides on statistic that puts a huge bow on the difficulties going forward.

For the Cordery Compliance article see the following, US Department of Justice on Evaluation of Corporate Compliance : how does it compare to UK Bribery Act 2010?

In this episode, Jay and I have a wide-ranging discussion on why good compliance and is good for business. We discuss:

  1. LRN Ethics and Compliance Program Effectiveness Report. Click here for Report.
  2. Ethisphere’s 2017 World’s Most Ethical Companies. Click here for Report.
  3. Why good compliance is good for business. See Tom’s blog post.
  4. Women in compliance: A key to organizational diversity. See article in the FCPA Blog.
  5. ECI Podcast: Engaging With Your Monitor: Best Practices from ECI’s Independent Monitor Benchmarking Group. To listen to the podcast, click here.
  6. Jay previews his weekend report.
  7. Tom previews a presentation he will give with Jenny O’Brien and Roy Snell at the SCCE European Ethics and Compliance Institute in AprilJay previews a presentation at the same event by Eric Feldman of Affiliated Monitors. For more information on the event, check it out by clicking here.

Jay Rosen new contact information:

Jay Rosen, CCEP

Vice President, Business Development

Monitoring Specialist

Affiliated Monitors, Inc.

Mobile (310) 729-6746

Toll Free (866)-201-0903

JRosen@affiliatedmonitors.com

In this episode I visit with WSJ MarketWatch reporter Francine McKenna on the recently concluded Taylor Bean litigation against PwC and what it might mean for the Big 3 going forward.

Hugh O'BrienWyatt Earp died this week. Not the original Wyatt Earp who died in 1929 but the Wyatt Earp of my lifetime, who was actor Hugh O’Brian. O’Brien portrayed Earp in the long running television series Wyatt Earp which ran in the early 1960s and in reruns forever since. Tall and fearless, O’Brian roamed the streets of Tombstone Arizona to keep it safe for all citizens and visitors.

Yet, when I read his obituary in the New York Times (NYT), I discovered that O’Brian was more than just my memory of Wyatt Earp as he founded and ran for over 60 years the entity Hugh O’Brian Youth Leadership. O’Brian came to the attention of Nobel Peace Prize winner Albert Schweitzer who invited him to visit his mission in Africa. According to the NYT, O’Brian was so inspired by Schweitzer’s call to services that he established “a nonprofit organization that presents seminars that prepare high school students to “become positive catalysts for change.”” Since it’s founding the organization claims more than 300,000 alumni.

I thought about a different type of catalyst when I read an article in the Wall Street Journal (WSJ) by Tom Wright and Bradley Hope, entitled “Behind the 1MDB Scandal: Banks That Missed Clues and Bowed to Pressure. In their article they detailed numerous red flags that were presented to banks involved in the transfers of money from the Malaysian Sovereign Wealth fund (1MDB) to the personal accounts of multiple individuals. Moreover, the article detailed how several banks compliance functions were bullied into or stymied from using their authority to stop the illegal flow of funds out of 1MDB into numerous shell companies controlled by family members and friends of the Malaysian Prime Minister.

The article named some of the banks involved in the money transfers and they included Deutsche Bank, Citigroup, J.P. Morgan Chase, Wells Fargo and Standard Chartered. Banks which held accounts for 1MDB included AMBank, the Swiss bank BSI and Standard Chartered. While the 1MDB scandal within the banking industry is generally related to money-laundering, the WSJ article has some interesting points for the anti-corruption compliance practitioner to consider in administering a best practices compliance program under the Foreign Corrupt Practices Act (FCPA).

In one transaction detailed in the WSJ piece, a bank officer at Deutsche Bank wanted to understand why monies contractually obligated to a joint venture (JV) between 1MDB and the Saudi Arabian entity PetroSaudi were being sent to a third entity, unrelated to the JV and located in the well-known money laundering location, the Seychelles Islands. Bank officials also wanted to understand the provenance of the unrelated third party recipient of the funds, a shell company named Good Star Ltd.

The WSJ reported that 1MDB’s executive director told the bank “to push through the payment or face blame if the deal goes off.” According to transcripts reviewed by the WSJ, the banker responded, “Let me just convince the compliance person. It’s a little bit sticky.” Deutsche Bank processed the transaction.

In another transaction, Good Star Ltd. sent funds to a third party, who then sent the money via an intermediary to the Malaysian Prime Minster.

At one point, 1MDB developed a scheme for vouching for monies diverted out of the fund, which were then provided to some of individuals looting the fund, including the Malaysian Prime Minister. In one instance where the Prime Minister was being given $100MM, a letter was provided, allegedly from Saud Abdulaziz Majid al Saud, who was reported to be a “minor Saudi royal.” In this letter al Saud reported that the monies were “a reward for Malaysia’s ‘good work to promote Islam around the world’”.

The letter went on to specify that the gift “should not in any event be construed as an act of corruption.” When a purported letter makes the blanket statement that monies transferred should not be considered as ‘an act of corruption’ that can only mean they are specifically an illegal, corrupt payment. Yet this same language was used in subsequent letters, all involving transfers to the Prime Minister, which eventually totaled nearly $1bn.

In another suspect scheme, the US entity Goldman Sachs “sold $3.5bn in 1MDB bonds in two offerings.” The article reported that half of the monies developed from this bond offering, “went into offshore shell companies overseen” by friends of the Malaysian Prime Minister. In an equally brazen scheme, 1MDB allegedly went into partnership with International Petroleum Investment Co. (IPIC) an Abu Dhabi sovereign wealth fund. 1MDB “told its auditors and bankers that it was sending $1.4bn to IPIC as a ‘refundable deposit’”. However the money was never received by IPIC but sent to a company with a similar name registered in the British Virgin Islands. Finally, the WSJ reported numerous conversations where one of the principals involved in the corrupt money transfer scheme, Mr. Jho Low, had several conversations discussing the need for secrecy and discretion.

How does all of this inform the anti-corruption compliance practitioner? First and foremost, the actions by several of the banks involved revolve around over-riding or work arounds to the compliance function. Companies must make clear when a transaction does not pass regulatory muster, whether that be under the FCPA or under relevant anti-money laundering (AML) strictures, the compliance function must have the authority to stop the transaction, until all red flags have been cleared.

To follow on from the above if the information presented to clear a red flag raises more red flags, the transaction is most probably illegal. When a letter concludes that a transaction “should not in any event be construed as an act of corruption” it usually means the opposite. Moreover, when such language appears in several letters justifying similar transactions and it is signed or sent by the same person it portends a bad omen. From the FCPA enforcement world, one only need consider the BHP Billiton enforcement actions, where one of the failures was the business unit cut and pastes of the same business justification for gifts, travel and entertainment provided to foreign officials around the 2008 Beijing Olympics.

The 1MDB scandal may well become the single largest looting of a sovereign wealth fund by corrupt government official’s to-date. Given the strategic importance of Malaysia and its Prime Minster to the US and its fight against global terrorism, it will be instructive see how the US efforts at forfeiture of funds and any criminal prosecutions move forward. However, with the unambiguous statements recently made by US Secretary of State John Kerry that corruption of public funds is a direct precursor to unrest and terrorism, the day may well be here when US allies must join in this prong of the fight against terrorism.

It might be time for Wyatt Earp to return to us.

 

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, 2016

 

 

 

This Week in FCPA-Episode 19, the International Edition

Show Notes for Week ending August 26, 2016

  1. John Kerry: Corruption is ‘root cause’ of terrorism, on FCPA Blog.
  2. Eric Ben-Artzi Op-Ed piece on why he turn down his whistleblower award, as featured in the Financial Times.
  3. Lessons from History-the Tudors on compliance, from the FCPA Compliance Report.
  4. FedEx trial debacle for the DOJ, and Paul Pelletier’s recommendation to fix recent spate of ill-fated and advised DOJ prosecutions, as featured in the FCPA Blog.
  5. Hallmarks 1-5 of the Ten Hallmarks of an Effective Compliance Program, as featured in the FCPA Compliance Report.