Show Notes for Episode 53, for the week ending May 19, the I Left My Heart in SF Edition

This week, Jay and I have a wide-ranging discussion on some of the week’s top compliance related stories. We discuss:

  1. Brazilian President Temer comes under corruption fire? See article in the New York Times.
  2. The turmoil at FIFA continues as FIFA’s ethics watchdogs quit in protest after their chairman was fired. See article in Bloomberg.
  3. Should compliance and ethics be wedded? New report by Institute of Business Ethics and the Ethics Institute considers the issues. See article in WSJ Risk and Compliance Journal.
  4. The Fat Leonard scandal lands U.S. Navy Rear Admiral Robert Gilbeau with a prison sentence of 18 months. See article in the FCPA Blog.
  5. Almost one-third of all open FCPA investigations involve Brazil. Only 17% involve China. See article in the FCPA Blog.
  6. Astros lead the MLB with the best record in baseball. Will they regress to the mean?
  7. ComTech is here. Are you ready? See Tom’s article in the FCPA Compliance and Ethics Blog.
  8. Jay previews his Weekend Report.
  9. It is not too late to join me at Compliance Week 2017. Listeners to this podcast can received a discount to Compliance Week 2017. Go to registrationand enter discount code CW17TOMFOX.

 

Jay Rosen can be reached:

Mobile (310) 729-6746

Toll Free (866)-201-0903

JRosen@affiliatedmonitors.com

Tom Fox can be reached:

Phone: 832-744-0264

Email: tfox@tfoxlaw.com

 

 

 

 

In this second of a two-part series, we conclude the panel’s discussion of the first 100 days of the Trump administration as it relates to compliance. This episode concludes with the panelists’ rants.

  1. Matt Kelly opens with a discussion of regulatory enforcement under the Trump administration, how the ‘Trump Effect’ is negatively impacting corporations, industry responses to deregulation issues and lays down some markers around compliance issues under the new administration.

For Matt Kelly’s posts see the following:

Compliance in the Trump Era: More Markers Placed

Trump Administration Whacks Telco Firm for $892 Million

Drone Industry Pan Trump’s Regulatory

Trump Risk Disclosures Start Rolling In

First SEC Whistleblower Award of Trump Era

Sessions Dodges, Weaves, Promises on FCPA

  1. Mike Volkov rounds out the discussion with a review of where the DOJ is currently under AG Sessions, remarks by DOJ officials on FCPA enforcement, the future of the Pilot Program and DOJ Compliance Counsel, Hui Chen.

For Mike Volkov’s posts see the following:

Yates, AG Sessions and Individual Criminal Prosecutions

New E-Book — Moving the Goalposts: The Justice Department Redefines Effective Compliance

FCPA Remediation Focus on Supervisory Personnel

FPCA Pilot Program Motors On

 

For the Cordery Compliance client alerts see the following:

EU conflicts minerals compliance legislation 

DOJ Evaluation of Corporate Compliance: how does it compare to UK Bribery Act 2010?

 

For Jay Rosen’s posts see the following:

 Still in the Enforcement Business and Evaluation of Corporate Compliance Programs

“It Was the Best of Times, It was the Worst of Times,” or “Ignorance is Strength”

 

For Tom Fox’s posts see the following:

The Trump Administration-Kaos is Bad for Business

The Trump Administration-Failures in Leadership and Management

The Trump Administration-Preparing for a Catastrophe

The Trump Administration-the Business Response

DOJ Enforcement of the FCPA and the International Fight against Corruption in the Trump Administration

 

The members of the Everything Compliance panel include:

  • Jay Rosen– Jay is Vice President, Business Development Corporate Monitoring at Affiliated Monitors. Rosen can be reached at JRosen@affiliatedmonitors.com
  • Mike Volkov – One of the top FCPA commentators and practitioners around and the Chief Executive Officer of The Volkov Law Group, LLC. Volkov can be reached at mvolkov@volkovlawgroup.com.
  • Matt Kelly – Founder and CEO of Radical Compliance, is the former Editor of Compliance Week. Kelly can be reached at mkelly@radicalcompliance.com
  • Jonathan Armstrong – Rounding out the panel is our UK colleague, who is an experienced lawyer with Cordery in London. Armstrong can be reached at armstrong@corderycompliance.com

In this episode, I visit with Pat Harned, Chief Executive Officer of the Ethics and Compliance Initiative on the recently concluded annual conference. She discusses the speech of Attorney General Jeff Sessions and the panel of former Deputy Attorney Generals, as well as some of the other Key Note speaking session highlights. She also details some of the upcoming ECI events for 2017.

What will be the role of Artificial Intelligence (AI) in compliance going forward? In Wednesday’s Compliance into the Weeds podcast, Matt Kelly and I continue our discussion, that we began several years ago, of how technology is changing the role of the Chief Compliance Officer (CCO). Matt tends to see things through an Enterprise Risk Management (ERM) framework while I consider the issue through more of a legal/compliance context. A recent article in the Financial Times (FT), entitled Cheap, accurate artificial intelligence closes in on the work of junior lawyers, reviewed the LawTech world and how it is reshaping many areas of private practice. I found the article had multiple implications for the compliance function. Indeed, I wondered if there might even be a ComTech industry lurking down the road.

Obviously, document review is one area where ComTech would be most useful. There are many companies who provide key word searches and these same concepts translate readily into the compliance world through massive database searches for key words, such as an ongoing email review through email sweeps. The concept is straightforward; at regular intervals, you sweep through your company email database for identified key words that can be flagged for further investigation, if required. Such a sweep is not limited to anti-corruption compliance but any of the risk factors identified for your company.

The objective of this approach is to find the evidence of a compliance breakdown by sweeping systems to uncover items that may contain real issues. From here, you can assess and prioritize, by checking and verifying if an issue needs investigating and focusing on the issues you want to investigate first. Further, and if warranted, you can invoke your investigation protocol, with all the requisite protections and securities. AI can help you to perform all of this more cheaply and efficiently.

Soon compliance will be pushed more to the forefront in the area of anti-money laundering (AML). As banking institutions continue to tighten and strengthen AML controls, criminals and other nefarious actors will move into non-financial corporations to move money for the simple reason that such robust controls required in the financial and financial services world are not generally required in the non-financial corporate world. Non-financial corporations should have robust AML controls in place and one of the requirements for any best practices AML policy is to “Know Your Customer” (KYC). AI will allow a more robust KYC approach.

Another area where compliance is often left behind is in the arena of Mergers and Acquisitions (M&A). Since the 2012 FCPA Guidance, the focus of compliance in M&A has been more and more on the pre-acquisition phase of a deal. Often the compliance function is either brought in at the last minute and does not have the time to perform adequate compliance due diligence or there is an overwhelming amount of data to be reviewed and the resources available (or made available) to the compliance function is woefully inadequate. AI can help in this area. The FT article cited to one company which has software that allows thousands of documents to be reviewed in the M&A context.

The review could include such issues as whether third party sales representatives have the requisite background due diligence in the files, their status and commission rates paid. There could be a review of top sales and business developments folks in high-risk regions, correlated with a gift, travel and entertainment analysis. Finally, you could consider sales in high risk regions or even sales spikes from low risk areas from the compliance perspective.

A prime example of where AI can assist the compliance function is with third parties in the Supply Chain arena. Every multi-national has literally thousands of vendors. Getting a handle on those is always a challenge simply because of the numbers involved. Through the use of AI, a compliance practitioner can immediately identify vendors that present anti-corruption compliance or other risks to an organization. Once again, having led an effort to list out all employer’s vendors by hand to begin the risk ranking process, I can personally attest to the greater efficiencies AI can bring to the exercise.

Blending over from the LawTech sector space, there is yet another set of AI tools which can review contracts to see if any specific types of clauses are non-standard. It would seem a relatively easy software coding exercise to adapt such products to compliance clauses. This type of approach could also be used for non-standard governance clauses in joint venture (JV) or other types of partnerships agreements. Having once been assigned the task of reading all my employer’s JV agreements (87) and third party sales agents contracts (211) from across the globe and recalling the amount of time it took to do so, I can personally attest again to the greater efficiencies we are considering.

This final example also points to the limitations of AI. While it might have helped to have AI review all my former employer’s JV agreements and third party sales agents’ contracts, it only could identify non-standard contract language. Unfortunately, since most of the aforementioned agreements and contracts were bespoke they were uniformly non-standard. Further, the assignment I was given required an analysis of each non-standard contract so the judgment of a human was required. Even as AI becomes more sophisticated, the judgment of a professionally trained compliance practitioner is still required to validate the areas flagged by AI as anomalies.

Gary Kasparov recognized this after his loss to IBM’s Big Blue in a chess match. In a review of his recent book Deep Thinking-Where Artificial Intelligence Ends and Human Creativity Begins, it noted that Kasparov “recognized that computers do well what humans do badly and vice versa, suggesting a useful complementarity.” Moreover, “he argues that humans are often fallible, finding patterns in randomness and correlations where none exist. Computers can help us be more objective and amplify our intelligence. Technological progress can never be stopped even if it should be better managed.” Kasparov even formulated his own theorem, which he calls “Kasparov’s Law” and it reads, “Weak human + machine + better process is superior to strong human + machine + inferior process.”

There have always been technological innovations which help make corporate disciplines run more efficiently, more smoothly and more profitably. AI is simply another step in this line of technological developments. There is certainly no reason to be afraid of using it. Put another way, if disruption hits the legal world through LawTech; disruption is not far behind in the compliance world through ComTech.

 

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, 2017

This week, Jay and I have a wide-ranging discussion on some of the week’s top compliance related stories. We discuss:

  1. What is the real risk in a FCPA enforcement action? See Mike Volkov’s post in Corruption, Crime and Compliance.
  2. FIFA fires its lead internal investigators for doing their job investigating. See Tom’s article in Compliance Week.
  3. ECI Report Finds Use of Corporate Monitors is on the Rise. For a copy of report, click here. For a webinar replay with Affiliated Monitors’ Eric Feldman and Nasdaq’s Michael Kallens click here.
  4. Why the judgment of CEOs and their actions really do matter. See James Stewart considers Barclays’ Jes Staley in his Common Sense column in the New York Times.
  5. What role do incentives play in a compliance program? See Tom’s two podcasts on the issue, incentives for executives and incentives in sales programs.
  6. Astros lead the MLB with the best record in baseball. The Rockets gag on the big one.
  7. Jay previews his Weekend Report, compliance lessons from a trip to the zoo.
  8. Listeners to this podcast can received a discount to Compliance Week 2017. Go to registrationand enter discount code CW17TOMFOX.

Jay Rosen can be reached:

Mobile (310) 729-6746

Toll Free (866)-201-0903

JRosen@affiliatedmonitors.com

Tom Fox can be reached:

Phone: 832-744-0264

Email: tfox@tfoxlaw.com

What do monitorships have to do with best practices in compliance. Find out on This Week in FCPA.