As I conclude this section on joint ventures, I want to emphasize again the risk they pose under the FCPA. Mike Volkov has stated, “A joint venture requires the integration of disparate company cultures. It can be successful, and is usually one of the significant reason for the joint venture itself.” Both parties should assess each other and decide that the joint venture is a good fit, meaning that each side will benefit. Too much time is spent on looking at the joint venture partner’s compliance toolbox (e.g. policies, procedures, and controls), and not enough time is spent on identifying compliance strengths and weaknesses. You must bring it all together with one format.

While the 2012 FCPA Guidance only provided that “companies should undertake some form of ongoing monitoring of third-party relationships”. This means that you must have an experienced compliance and audit team, actively engaged in the corporate office and in the business units, to ensure that financial controls and compliance policies are followed and that remedial measures for violations or gaps are tracked, implemented and rechecked, as additional detection and prevention. Caldwell noted it is a more encompassing “sensitization” to anti-corruption compliance that is needed. There are several ways for you to do so in a joint venture relationship. 

The starting point for the both the compliance and business management of a joint venture, is a Relationship Manager for every joint venture with which your company does business. The Relationship Manager should be a business unit employee who is responsible for monitoring, maintaining and continuously evaluating the relationship between your company and the joint venture. Some of the duties of the Relationship Manager may include:

  • Point of contact with the joint venture for all compliance issues;
  • Maintaining periodic contact with the joint venture;
  • Meeting annually with the joint venture to review its satisfaction of all company compliance obligations;
  • Submitting annual reports to the company’s Compliance Oversight Committee summarizing services provided by the joint venture;
  • Assisting the company’s Compliance Oversight Committee with any issues with respect to the joint venture.

Just as a company needs a subject matter expert in compliance to be able to work with the business folks and answer the usual questions that come up in the day-to-day routine of doing business internationally, joint ventures also need such access to such a resource. A joint venture may not be large enough to have its own compliance staff so a company should provide such a dedicated resource to joint venture, if so required. I do not believe that this will create a conflict of interest or that there are other legal impediments to providing such services. The US partner can also include compliance training for the joint venture, either through onsite or remote mechanisms. The compliance professional should work closely with the Relationship Manager to provide advice, training and communications to the joint venture. 

A company should have a Compliance Oversight Committee review all documents relating to the full panoply of a joint venture’s compliance program. It can be a formal structure or some other type of group but the key is to have the senior management put a ‘second set of eyes’ on any joint ventures. In addition to the basic concept of process validation of your risk management of joint ventures, this is a manner to deliver additional management of that risk going forward.

After the commercial relationship has begun the Compliance Oversight Committee should monitor the joint venture on no less than an annual basis. This annual audit should include a review of remedial due diligence investigations and evaluation of any new or supplemental risk associated with any negative information discovered from a review of financial audit reports on the joint venture. The Compliance Oversight Committee should review any reports of any material breach of contract including any breach of the requirements of the Company’s of joint venture’s Code of Ethics. In addition to the above remedial review, the Compliance Oversight Committee should review all compliance-impacted payments by the joint venture to assure such payment are within the company guidelines and are warranted by the contractual relationship with the joint venture. Lastly, the Compliance Oversight Committee should review any request to provide the joint venture any type of non-monetary compensation and, as appropriate, approve such requests.

A key tool in managing the affiliation with a joint venture post-contract execution is auditing. Audit rights are a key clause in any compliance terms and conditions and must be secured. Your compliance audit should be a systematic, independent and documented process for obtaining evidence and evaluating it objectively to determine the extent to which your compliance terms and conditions are followed. Noted fraud examiner expert Tracy Coenen described the process as (1) capture the data; (2) analyze the data; and (3) report on the data, which is also appropriate for a compliance audit. 

In addition to monitoring and oversight of your joint ventures, you should periodically review the health of your joint venture management program. The robustness of your joint venture management program will go a long way towards preventing, detecting and remediating any compliance issue before it becomes a full-blown FCPA violation. As with all the steps laid out, you need to fully document all steps you have taken so that any regulator can review and test your metrics. The Evaluation of Corporate Compliance programs lays out what the DOJ will be reviewing and evaluating going forward for your compliance program. You should also use these metrics to conduct a self-assessment on the state of your compliance program for your joint ventures. 

Three Key Takeaways

  1. It all starts with a Relationship Manager.
  2. Have company oversight of all joint ventures. Couple this with a Compliance Oversight Committee for a second set of eyes.
  3. Audit, monitor and remediate (as appropriate) your joint ventures on an ongoing basis.

 

This month’s podcast series is sponsored by Michael Volkov and The Volkov Law Group.  The Volkov Law Group is a premier law firm specializing in corporate ethics and compliance, internal investigations and white collar defense.  For more information and to discuss practical solutions to compliance and enforcement issues, email Michael Volkov at mvolkov@volkovlaw.com or check out www.volkovlaw.com.

For this Friday’s installment of the October compliance Classic Monster Movie fest, I combine two installments in the 1940s reimaging of the 1932 classic; The Mummy’s Tomb and The Mummy’s Ghost. I combine them both as they are essentially sequential follow-ons to the 1940 film The Mummy’s Hand.

The Mummy’s Tomb picks up the story thirty years after the conclusion of the previous film. It begins with Steve Banning reciting the story of Kharis to his family and evening guests one night. He relates the destruction of the creature, at the tombs back in Egypt. However, surviving their supposed demise, Andoheb explains the legend of Kharis, (now played by Lon Chaney, Jr.) to his follower, Mehemet Bey. Andoheb passes on instructions for the use of the tana leaves and assigning the task of terminating the remaining members of the Banning Expedition and their descendants. Bey and Kharis leave Egypt for the journey to the United States to fulfill their destiny, which they largely accomplish, killing nearly everyone involved in the original expedition.  

The Mummy’s Ghost picks up with Andoheb, the aging High Priest, summoning Yousef Bey to the Temple of Arkam to pass on the duties of High Priest. He explains the legend of Kharis to Bey and informs Bey that Kharis still lives and that Yousef’s mission is to retrieve Kharis and the body of Ananka and return them to their rightful resting place in Egypt. Back in Mapleton, Massachusetts, where the last Mummy rampage occurred and where Kharis is located, a student, Tom Hervey, meets up with his girlfriend Amina Mansori, a beautiful woman of Egyptian descent. She will become the immortal love interest of Kharis.

Kharis senses Amina as the carrier of Ananka’s soul and kidnaps her. Tom tries to rescue her but is fought off by Kharis. Unfortunately, Amina ages to become the same vintage as Kharis as he lumbers off with her where they sink into quicksand in a swamp. Tom’s last anguished sight of Amina is that of a 3,000-year-old Egyptian Princess as Kharis and Ananka disappear under the water, united in death.

What is the connection of compliance and these two installments in the Mummy oeuvre? It is professional development (don’t worry – it will be clear by the end). My good friend Corina Manea wrote a great post yesterday over on Spin Sucks, entitled “How to Build Your Professional Development Plan for Habit”, which I have purloined and adapted for the compliance professional. There are only eight working weeks left in the year. What have you achieved against the professional development goals you set in January? It is very easy to stuck in the details of our day job.

Too often your learning goals suffer because you are too busy or too tired to even think about it. Or because you have no time and have other obligations. Yet there is no job, particularly the compliance profession, in which you can function if you do not focus and invest in your professional development now. One of the clear themes of this year’s SCCE 2017 Compliance and Ethics Institute (CEI) was the need for professional development.

Professional Development is a Must for Every Compliance Professional

I want you to look around…really look around you. Artificial intelligence (AI) is gaining ground and will be a part of the compliance practice in a very short time. Can you read a spreadsheet? If not, you probably will not ever be a CCO.

Blockchain has been called the new internet and will certainly be one of the most important tools in compliance down the road. Your work must be measured but you have no idea how to read the data in front of you. Professional development is a must for every compliance professional no matter how much – or how little – experience you have. Things are moving much more quickly and it is hard to keep up with technology, not to mention stay ahead of trends. Which brings me back to investing in your professional development now, as opposed to later.

Treat Professional Development as a Client

The key insight is that as a compliance professional, you must treat your professional development as if it were a client. This means to give it the same attention, dedication, and passion you have for your day-to-day work. In time and with hard work (there is no way around that), it will pay off. Take your career into your own hands and invest in your professional development. It starts with a plan, one that will help you create the habit. Your plan should include, at a minimum:

  • How much time per day you will spend learning;
  • The top five publications, blogs, or online magazines you want to read every day;
  • Online courses you want to take in the next three months; and
  • The top three conferences you want to attend next year.

Do not forget to include digital networking, as well. Once you have your plan in place, it’s time to split each goal into monthly and weekly tasks. Schedule a meeting with yourself at the end of each week – actually put it on your calendar – to review your progress, see what worked and what did not work for your development and adjust for the following week. Apply the same strategy at the end of each month and quarter. Write down your weekly and monthly results and progress. There is no bigger motivator than getting results from your efforts. Do not treat it lightly; write it down; all of it and then commit to it. 

How can you achieve all of this? A good way to start would be to join me next week for my inaugural Doing Compliance Master Class Series. You a trusted partner who delivers relevant content, which can be used to solve a wide variety of issues, even those outside the anti-corruption compliance space. This series delivers timely topical information you can trust, is relevant to the compliance business function, and comes at a reasonable cost.  As the Compliance Evangelist, I bring a unique insight into what many companies have done right and many have done not so well over the years. This professional experience enables me to put together a unique training program for any professional who wants to succeed in compliance. For more information, check out Doing Compliance Master Class Series. 

The lesson from the two Mummy movies that opened this piece are that lifelong learning is something you must engage in as a compliance practitioner. The compliance world will not sit still and neither should you. Manea was right, you must treat your professional development with the same seriousness that you treat your internal customers and clients; i.e. your employees. Set out a plan, follow it, measure your actual progress against the plan and adjust as needed.

 

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

In this episode, I visit with branding expert Linda Justice. We discuss the role of a Board of Directors in corporate branding. We discuss ‘what is branding?’

  • Perception of a company?
  • The customer experience?
  • The stakeholders’ experience?
  • Investors experience?
  • Employees experience?
  • Is it found in print, advertising, word of mouth?
  • Or is it LIVE—as in Twitter, Customers complaining or praising in real time?

Linda explains how branding is all of these things. She explains why a Board should care about branding as it helps to grow the company and protects (or harms) the company’s reputation. She also explains how With a STRONG BOARD and a STRONG ETHICAL BACKBONE and CULTURE, this enhances branding for Customers, Employees and other stakeholders. Justice also relates that a company grows on the strength of its employees and on customers buying their products and services and concludes on the note that ethics must be part of the brand to sustain and grow both.

Numerous US companies have come to FCPA grief for their overseas joint ventures and the continue to be a bane for many companies under the Act. There are some basic compliance terms and conditions which should be considered for any foreign joint venture agreement to help US companies manage these compliance risks.

As a starting point, it is important to have compliance terms and conditions, these reasons can include some of the following: (1) to set expectations between the parties; (2) to demonstrate the seriousness of the issue to the non-US party; and (3) to provide a financial incentive to do business in compliant manner.

  1. Prohibition of all forms of bribery and corruption. Many foreign joint venture partners may not understand that the FCPA applies to them if they partner in a business relationship with a US company. Further, they do not understand that they may be governmental officials under the FCPA. This all must be spelled out for them so you should have language regarding the following:
  • Prohibition of all forms of bribery and corruption, but you should be careful to make note that FCPA is broader than simple bribery; it includes hospitality/gifts/entertainment/travel as well.
  • Affirmation of FCPA compliance, this should be in writing and it should also require that the non-US party understand or have familiarity with the FCPA, as well as that they will comply with the tenets of the FCPA.
  • Agreement to comply with local laws and customs regarding anti-bribery and anti-corruption in the jurisdiction where it is located and/or does business.
  1. Right to Cancel and Recoupment rights. These should include the following:
  • Right to cancel the contract if there is a compliance violation or breach of contract because that allows you maximum flexibility.
  • Withhold any payments due.
  • Allow for disgorgement of any monies previously paid under the agreement.
  • Take any other action you think necessary or appropriate.
  1. Duties
  • Spell out exact duties and deliverables of the Joint Venture.
  • Employees of the joint venture have continuing duty to adhere to training.
  • There will be updated due diligence performed on the JV partner.
  • There is an ongoing duty to report changes in ownership structure of any non-US partner. This includes changes in corporate structure and/or corporate leadership. There must be immediate notification to the US company and it is particularly important when government changes.
  • Require that the joint venture follow generally accepted accounting principles (GAAP), and conduct an annual audit by an agreed upon independent accounting firm.
  • Prohibit the creation of any funds without the approval of the joint venture’s governing body (supermajority approval in the case of minority interest by the multinational).
  • If the foreign joint venture partner has day-to-day management responsibilities, require dual signatures for checks or electronic funds transfers drawn on joint venture bank accounts.
  • Require that the joint venture conduct investigative due diligence on agents, consultants and other third parties retained by the joint venture.
  • Require the implementation of a code of business conduct by the joint venture and implement an anonymous reporting mechanism for joint venture employees.
  1. Audit Rights – these are an important tool in your joint venture risk management process and must be included in any joint venture agreement. In addition to putting your JV partner on notice that you are not simply willing to look the other way once the agreement is signed, it is an active acknowledgement that there will be ongoing transactional review during the term of the joint venture agreement. If any illegal payments are made or discovered the US company should retain full access to the audit trail which it can then turn over to the proper authorities. Additionally, the joint venture should have the right to audit any agent(s) it may hire for its own use.

If you have audit rights you must exercise them. The same calculus is true for termination rights. If you have a good faith belief that your JV-US partner has violated the FCPA, you better exercise your right to terminate. If you do not do so, your US company will probably be in more hot water with the DOJ.

  1. Prohibited Parties – the Joint Venture will not deal with US designated Prohibited Countries, Prohibited Parties or any other persons or entities on any such OFAC prohibited list.
  2. Certifications-you should specify that the foreign partners will annually, personally, certificate that they have not violated the FCPA on any matters relating to the joint venture, are aware of no FCPA violations by the joint venture which they have not previously reported and have received and understood annual FCPA training.

Lastly one area which is continuing to be problematic is that of how to make payments. Some of the tools to manage this risk are the following:

  • Always try to make payments via wire transfer.
  • No large upfront payments unless designated for legitimate start-up expenses.
  • Pay only to the named company, not unknown third parties.
  • Payment in local currency, however you can pay in USD. The key is consistency in how you are paying and your documentation.
  • Pay where the agent’s country of residence or where the work is done.

All the above steps should be taken only after extensive due diligence has been completed. After the contract is signed your company will have to work just as hard to keep the compliance program for any joint venture robust and meaningful. However, with these terms and conditions in place, you will have a chance to maintain your FCPA obligations and to manage the risk that is involved when working jointly with non-US companies.

Three Key Takeaways

  1. Failure to secure appropriate compliance terms and conditions in a JV agreement can cause great FCPA risk for a US company.
  2. Certifications are important requirements to obtain.
  3. Audit rights must be secured and equally importantly, exercised.

 

 

This month’s podcast series is sponsored by Michael Volkov and The Volkov Law Group.  The Volkov Law Group is a premier law firm specializing in corporate ethics and compliance, internal investigations and white collar defense.  For more information and to discuss practical solutions to compliance and enforcement issues, email Michael Volkov at mvolkov@volkovlaw.com or check out www.volkovlaw.com.

On the second full day of the SCCE Compliance and Ethics Institute (CEI) Liz Wiseman was one of the keynote speakers. Wiseman is the co-author with Greg McKeown of Multipliers: How the Best Leaders Make Everyone Smarter, which is a book about the various types of leaders. They focus two different types of leaders, Diminishers and Multipliers. Multipliers are leaders who encourage growth and creativity from their workers, while Diminishers are those who hinder and otherwise keep their employees’ productivity at a minimum. The authors give what they consider to be solutions and guidance to the issues they bring up in the book.

Wiseman walks the audience through some of key findings of the book and I found them very interesting points for not only every Chief Compliance Officer (CCO) to use as a business leader but also for every compliance practitioner to utilize in their work to more fully operationalize corporate compliance programs. In short Wiseman’s remarks had something for almost everyone in the audience.

Her basic thesis is that multipliers increase, often exponentially, the intelligence of the people around them. They lead organizations or groups that are able to understand and solve hard problems rapidly, achieve their goals, and adapt and increase their capacity over time. On the other hand, diminishers literally drain the intelligence, energy and capability from the employees or team members around them. They lead groups that operate in silos, find it hard to get things done, seem unable to do what’s needed to reach their goals.

Wiseman breaks multipliers into five disciplines in which they differentiate themselves from diminishers. The first is the Talent Magnet, who attracts and optimizes talent; the second is the Liberator, who creates intensity that requires an employee’s best thinking; next is the Challenger who extends challenges by having others do the hard lifting so that they can stretch themselves; next is the Debate Maker who facilitates a debate between his or her team which leads to a decision improving a process or issue; and finally is the Investor, who instills ownership and accountability with his/her employee base. Interestingly Wiseman believes that multipliers increase efficiency and productivity by two times.

Diminishers also break down into five different prototypes. They are the Empire Builder, who is only interested in collecting very talented people around themselves so that they look good; next is the Tyrant, whose name is almost self-disclosing but ruins all those around them with their insistent criticisms; next is the Know-it-all who give directives simply to showcase how much they know limiting what their teams can achieve to what they themselves know how to do. This means the team must try to deduce, literally in the dark, the soundness of the decision instead of executing it; and finally, there is Micromanager, who generally believes they are only person who can figure something out and approach execution by maintaining ownership, jumping in and out of a project and reclaiming responsibility for problems which they have delegated. Diminishers usually reduce efficiencies by up to 50%.

Wiseman presented several ways that a leader could use multiplier effects and I found many of them would work particularly well for the compliance practitioner who is working to operationalize a best practices compliance program. This is particularly true because it is through persuasion that compliance works best by getting other corporate disciplines to embrace compliance.

Some of the specific techniques Wiseman discussed in her presentation were to identify not only what the skills are for those on your team but also what comes easily and natural to them. By doing so you can more effectively utilize their talents in implementing a compliance regime. Interestingly you can get employees to stretch through a technique Wiseman calls ‘supersizing’ which is the situation where you give someone a task that may be “one size too big” but allows them to grow into it. This is certainly applicable when working to operationalize compliance in business units outside the United States which may only have been dictated to previously but where not involving in doing compliance.

As the CCO or compliance leader working to more fully operationalize your compliance program, you should work to limit your direct comments to a minimum going forward. This will allow the non-compliance team members to not only stretch themselves but also allows for more impactful intervention when necessary but the simple fact is you are intervening less.

Mistakes are going to happen in any implementation. The same is true when you are operationalizing your compliance program. To overcome this Wiseman suggests a couple of leadership strategies. The first is to talk up your mistakes within the team for debriefing and analysis. The second is to actually make room for mistakes (think of a sandbox) where your team can experiment, take some risks and recover from the mistakes.

I found her next point fascinating, which was to lead by asking questions. As a law student I was drilled by the Socratic method so asking questions is something I am quite comfortable with going forward. Basically, every question is answered by another question. Her technique of leading with questions works with all five categories of multipliers. The reason it is so successful is that people are smart, they not only want to get things right but they want to build and eventually they will figure out how to do it. It is not simply a case of getting out of their way. It is about guiding them with your compliance expertise to come up with not only the right answer but a solution which will work.

Now imagine applying this leadership technique as you are trying to more fully operationalize your compliance program. If you take this approach of leading by asking questions, you not only guidance the functional unit but you get greater buy-in to the entire concept and process as it becomes their process. The non-compliance team may design it and have ownership over it.

Wiseman concluded by challenging each of us to multiply our influence to make those with work with and even work for better. You can use these skills to more fully operationalize your compliance program. If you do so, you will not only fulfill the requirements of the Department of Justice, laid out in the Evaluation of Corporate Compliance Programs, you will bake compliance into the DNA of your company by making it a part of the way you conduct your business.

 

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