On this episode of the Innovation in Compliance Podcast, we have Patrick Conroy, RegTech Leader and Managing Director at ACA Technology. What does ACA do, what technologies and solutions do they offer, and how can you leverage them to make your compliance programs more strategic, nimble, and proactive?

Professional background

Patrick shares how he got his start in financial services, to working at the largest global banks in the world, and honing his skills as a compliance practitioner and embracing technology. Through that lens, he started building compliance services and looking at different emerging technologies, as well as focusing on RegTech at the firm.

ACA products and services

ACA’s solutions are derived from subject matter expertise with tech enablement around it, to help firms develop and architect their overall compliance programs. They focus across a few different verticals: compliance risk, advisory consulting, managed services, education and training, and technology solutions. Patrick goes into detail about each of these verticals, outlining the specific programs, support, and services they offer for each of them.

ComplianceAlpha and Compliance ELF

Compliance Alpha is ACA’s centralized platform which helps firms mitigate their risks through the efficiencies of synergies, as well as scale the workflows while keeping everything harmonized and transparent at the organizational level.

Within the platform are the Compliance ELF, the code of ethics, personal trading, and employee compliance management modules. This moves the actual doing and operationalization of compliance to the front lines at the employee level, where they’re inputting and capturing the data that can later be used by compliance professionals, the board of directors, or senior management in more of an oversight role.

All in all, the ComplianceAlpha allows organizations to have the tools at their fingertips to hone in on what’s really important — like detecting fraudulent behavior and mitigating overall firm risks — so they can become a lot more nimble, strategic, and proactive.

Resources

Patrick Conroy | ACA Compliance Group| 6 Ways to Stay Ahead of Financial Regulators with RegTech

In this episode, I consider the Adventure of the Red Circle and how it informs listening and communication in a best practices compliance program.

Shmoop found that in addition to the overall storytelling of Dr. Watson, “nearly every character in the Sherlock Holmes stories is a storyteller.” Storytelling is a crucial part of the entire detective fiction genre, and the Sherlock Holmes stories really explore this aspect. Each tale begins with a new case, which is always narrated by a participant, and ends with some sort of confession/explanation scene. While we are on this journey with Holmes and Watson, both they and we “encounter tons of different people and listen to their stories. In a way, the cases that Holmes and Watson solve are like giant umbrella stories composed of a dozens of smaller stories being told by a revolving door of characters.”

In the story The Adventure of the Red Circle, Holmes solves the immediate mystery in front of him, as told by the landlady of a boarding house. The first mystery is that a lodger has not been seen for over 10 days, always staying in his room and only communicating with oblique messages such as SOAP, MATCH, DAILY GAZZETTE printed on a torn piece of paper. But Holmes divines a greater mystery as it turns out the lodger is not a man but a woman whose life is under threat and her male traveling companion can only communicate with her through references to newspaper columns. Holmes stated to Watson, “Education never ends, Watson. It is a series of lessons with the greatest for the last. This is an instructive case. There is neither money nor credit in it, and yet one would wish to tidy it up. When dusk comes we should find ourselves one stage advanced in our investigation.”

This story illustrates a couple of key points for every CCO and compliance practitioner.

  1. The first is listening. Not only is listening a key part of any leadership skill but listening will bring you a much better picture of your compliance program, its faults and successes. The reason is that its own employees are a company’s best source of information about what is going on in the company. It is a best practice for a company to listen to its own employees, particularly to help improve its processes and procedures. This type of listening extends to an internal reporting system as a company should provide a safe and secure route for employees to escalate their concerns. Of course, the Dodd-Frank Whistleblower provisions also give heed to the implementation of a hotline.
  2. This second compliance point is communication. Just as education never ends for Holmes, it should never end for a compliance practitioner, your communications on compliance should never end either. Louis Sapirman calls this a 360-degree approach to communications.

King Kong Bundy died this week. According to his New York Times (NYT) obituary, he “was massive even by wrestling standards. A bald, scowling goliath, he stood about 6 feet 4 inches tall and was said to weigh 450 pounds or more in his prime. His fellow wrestler Gorilla Monsoon [no shrinking violet] called him a “walking condominium,” and an announcer at a 1985 match sponsored by the World Wrestling Federation (now World Wrestling Entertainment) said that colliding with Bundy’s outstretched arm was like “running into a Sherman tank.”

Bundy had some epic battles with both Hulk Hogan and Andre the Giant in the early 1980s. He played the role of the heel but he did it with gusto. Even with his massive girth and stature, he could move surprisingly agilely. Most significantly for the WWF he was fun to watch. A heel for sure but he is part of those legends who made the WWF as it broke out into a national phenomenon in the mid-1980s.

The only Opinion Release of 2011 (11-01) may have left compliance practitioners initially scratching their heads. However, this collective head scratching is not because the Opinion Release is so difficult to understand and has no application to the everyday business of compliance, but for a polar opposite reason – the question posed to the Department of Justice (DOJ) is so straight-forward, and has been previously asked and answered, that it is difficult to understand how any first year compliance practitioner did not know the answer to it. Yet more than this facile analysis may have been going on.

Background

The Requestor was a US Company which facilitated international infant adoptions and it desired  to bring some foreign governmental officials over to the US to learn more about it. The foreign government selected the officials to travel, the travel was economy class and it involved no WAGs (wives and girlfriends). The trip was scheduled to be for two days and the US Company paid all the vendors, airlines, hotels, local transportation and food service providers directly. No cash was provided to the traveling officials and any gifts would be branded and of nominal value.

Requestor Representations

In addition to those statements by the Requestor, it also represented to the DOJ the following:

  • It had no non-routine business (e.g., licensing or accreditation) under consideration by the relevant foreign government agencies.
  • Its routine business before the relevant foreign government agencies consists primarily of seeking approval of pending adoptions. Such routine business is guided by international treaty and administrative rules with identified standards.
  • The Requestor did not select the particular officials who will travel. That decision will be made solely by the foreign government agencies.
  • Apart from the expenses identified above, the Requestor did not compensate the foreign government agencies or the officials for their visit, nor will it fund, organize, or host any other entertainment, side trips, or leisure activities for the officials, or provide the officials with any stipend or spending money.
  • The visit will be for a two-day period (exclusive of travel time), and costs and expenses will be only those necessary and reasonable to educate the visiting officials about the operations and services of U.S. adoption service providers.
  • The Requestor has invited another adoption service provider to participate in the visit.

DOJ Discussion

The DOJ cited to Opinion Releases 07-01 and 07-02 for the general rules around travel and entertainment for foreign officials. It then stated, “Based upon all of the facts and circumstances, as represented by the Requestor, and consistent with these prior opinions, the expenses contemplated are reasonable under the circumstances and directly relate to “the promotion, demonstration, or explanation of [the Requestor’s] products or services.” 15 U.S.C. § 78dd-2(c)(2)(A). Therefore, the Department does not presently intend to take any enforcement action with respect to the planned program and proposed payments described in this request.”

Discussion

In his testimony before the House Judiciary Committee, then DOJ Representative Greg Andres spoke about the Opinion Release Procedure as one of the mechanisms by which the DOJ can not only bring transparency to the area of information relating to Foreign Corrupt Practices Act (FCPA) but also can allow businesses with substantive questions to seek and receive specific answers to queries regarding factual scenarios which they may face. So what are the requirements under the Opinion Release Procedure? Initially I would note that DOJ has posted on its website, the Foreign Corrupt Procedures Opinion Procedure, (28 C.F.R. part 8).

The stated purpose is noted as follows: “These procedures enable issuers and domestic concerns to obtain an opinion of the Attorney General as to whether certain specified, prospective–not hypothetical–conduct conforms with the Department’s present enforcement policy regarding the antibribery provisions of the [FPCA]” (§80.1). The requirements of the Opinion Release Procedure are (1) the submission must be in writing; (2) an original and copies must be provided; and (3) must be sent to address provided. (§80.2) In addition to these specific requirements there are certain general requirements listed. (§80.6) They include that complete copies of all operative documents and detailed statements of all collateral or oral understandings. The request must be signed by an appropriate senior officer.

While there is additional language in the Opinion Release Procedure that it only relates to the query submitted to the DOJ, does not bind any other agency or department and can change if different facts occur or that the DOJ can ask for additional information from the party making the request, it is required under the terms of the Opinion Request Procedure “within 30 days after receiving a request that complies with the foregoing procedure, respond to the request by issuing an opinion that states whether the prospective conduct, would, for purposes of the DOJ’s present enforcement policy, [violate the FCPA].” (§80.8)

So there may be an addition lesson learned from Opinion 11-01, which is that the Opinion Release Procedure can be straightforward. The DOJ can be available to assist in interpreting the FCPA based upon the facts and circumstances a company faces in the real world. I have argued for greater transparency by the DOJ in providing information for companies and the compliance practitioner and the Opinion Release Procedure is one of the mechanisms by the DOJ does provide transparency and information.

However there might be another aspect to this specific Opinion Release. While I had discussed the above points from the perspective of an outside counsel, in-house lawyer or compliance office who specialized in FCPA compliance work; the Opinion Release Procedure is designed so that any person or company may submit a query to the DOJ and could be utilized by a company that does not have either an in-house compliance practitioner or even a General Counsel (GC). Simply put, a question can be submitted to the DOJ as straight forwardly as with a one-page document setting forth the information required under the Opinion Release Procedure.

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, 2019

In the second Opinion Release of 2007, 07-02, the Department of Justice (DOJ) considered another scenario where a US company desired to pay for travel to the US of foreign officials and for some business entertainment while these persons were in the US. It had some additional facts beyond those from Opinion Release 07-01 which are important for a compliance program.

Background

In Opinion Release 07-02 the Company desired to pay certain domestic expenses for a trip to the US by approximately six junior to mid-level officials of a foreign government for an educational program at the Requestor’s US headquarters prior to the delegates attendance at an annual six-week long internship program for foreign insurance regulators sponsored by the National Association of Insurance Commissioners (NAIC). The event was held at the Requestor’s US headquarters. The six officials have been selected by the foreign government, without the involvement of the Requestor.

The purpose of the trip was to familiarize the officials with the operation of a United States insurance company. The Requestor has no non-routine business pending before the foreign government agency that employs these officials. The sponsored training program will last for approximately six days (five days of training plus travel time). The Requestor paid the travel expenses where were limited to domestic economy class air travel to the Requestor’s U.S. headquarters. The Requestor paid for the domestic lodging, local transport, meals and incidental expenses (up to a modest set amount per day upon presentation of a receipt), and a modest four-hour city sightseeing tour for the six officials.

Requestor Representations

In Opinion Release 07-02 the representations made to the DOJ were as follows:

  • The US Company would not pay the travel expenses or fees for participation in the NAIC program.
  • The US Company had no “non-routine” business in front of the foreign governmental agency.
  • The routine business it did have before the foreign governmental agency was guided by administrative rules with identified standards.
  • The US Company would not select the delegates for the training program.
  • The US Company would only host the delegates and not their families.
  • The US Company would pay all costs incurred directly to the US service providers and only a modest daily minimum to the foreign governmental officials based upon a properly presented receipt.
  • Any souvenirs presented would be of modest value, with the US Company’s logo.
  • There would be one four-hour sightseeing trip in the city where the US Company is located.
  • The total expenses of the trip are reasonable for such a trip and the training which would be provided at the home offices of the US Company.

DOJ Response

As with Opinion Release 07-01, the DOJ ended this Opinion Release by stating, “Based upon all of the facts and circumstances, as represented by the Requestor, the Department does not presently intend to take any enforcement action with respect to the planned educational program and proposed payments described in this request. This is because, based on the Requestor’s representations, consistent with the FCPA’s promotional expenses affirmative defense, the expenses contemplated are reasonable under the circumstances and directly relate to “the promotion, demonstration, or explanation of [the Requestor’s] products or services.” 15 U.S.C. § 78dd-2(c)(2)(A).

Discussion

What can one glean from these two 2007 Opinion Releases? Based upon them, it would seem that a US company can bring foreign officials into the US for legitimate business purposes. A key component is that the guidelines are clearly articulated in a Compliance Policy. Based upon Releases Opinions 07-01 and 07-02, the following should be incorporated into a Compliance Policy regarding travel and lodging:

  • Any reimbursement for air fare will be for economy class.
  • Do not select the particular officials who will travel. That decision will be made solely by the foreign government.
  • Only host the designated officials and not their spouses or family members.
  • Pay all costs directly to the service providers; in the event that an expense requires reimbursement, you may do so, up to a modest daily minimum (e.g., $35), upon presentation of a written receipt.
  • Any souvenirs you provide the visiting officials should reflect the business and/or logo and would be of nominal value, e.g., shirts or tote bags.
  • Apart from the expenses identified above, do not compensate the foreign government or the officials for their visit, do not fund, organize, or host any other entertainment, side trips, or leisure activities for the officials, or provide the officials with any stipend or spending money.
  • The training costs and expenses will be only those necessary and reasonable to educate the visiting officials about the operation of your company.

Yet these are only the first steps. A company must train its employees not only the specifics of a gift, travel and entertainment program in a compliance program. Pre-travel and entertainment approval by your compliance function book-ended with post monitoring of all expenses should be documented in case the regulators ever come knocking.

In 2007, the DOJ issued two Foreign Corrupt Practices Act (FCPA) Opinion Releases which offered guidance to companies considering whether to, and if so how to, incur travel and lodging expenses for government officials. Both Opinion Releases laid out the specific representations made to the DOJ, which led to the Department approving the travel to the US by the foreign governmental officials. These facts provided strong guidance to any company which seeks to bring such governmental officials to the US for a legitimate business purpose. In this podcast I discuss Opinion Release 07-01. In the next episode, I will take up 07-02.

Background

In Opinion Release 07-01, the Company was desired to cover the domestic expenses for a trip to the US for a six-person delegation of the government of an Asian country for an educational and promotional tour of one of the requestor’s US operations sites. The purpose of the visit was to familiarize the delegates with the nature and extent of the requestor’s operations and capabilities and to help establish the requestor’s business credibility. The requestor desired to participate in future business opportunities in the foreign country similar to those it conducts in the U.S. The visit was scheduled to last for four days and will be limited to domestic economy class travel to one U.S. operations site only. The requestor paid for the domestic lodging, local transport, and meals for the six officials. The foreign government plans to pay the costs of the international airfare.

Requestor Representations

In Opinion Release 07-01 the representations made to the DOJ were as follows:

  • A legal opinion from an established US law firm, with offices in the foreign country, stating that the payment of expenses by the US Company for the travel of the foreign governmental representatives did not violate the laws of the country involved;
  • The US Company did not select the foreign governmental officials who would come to the US for the training program;
  • The delegates who came to the US did not have direct authority over the decisions relating to the US Company’s products or services;
  • The US Company would not pay the expenses of anyone other than the selected official;
  • The officials would not receive any entertainment, other than room and board from the US Company;
  • All expenses incurred by the US Company would be accurately reflected in this Company’s books and records.

DOJ Response

The DOJ stated: “Based upon all of the facts and circumstances, as represented by the requestor, the Department does not presently intend to take any enforcement action with respect to the proposal described in this request. This is because, based on the requestor’s representations, consistent with the FCPA’s promotional expenses affirmative defense, the expenses contemplated are reasonable under the circumstances and directly relate to “the promotion, demonstration, or explanation of [the requestor’s] products or services.”

Discussion

What can one glean from this Opinion Release? First, it would seem that a US company can bring foreign officials into the US for legitimate business purposes. A key component is that the guidelines are clearly articulated in a Compliance Policy. Based upon this Opinions Release, the following should be incorporated into a Compliance Policy regarding travel and lodging:

  • Any reimbursement for air fare will be for economy class.
  • Do not select the particular officials who will travel. That decision will be made solely by the foreign government.
  • Only host the designated officials and not their spouses or family members.
  • Pay all costs directly to the service providers; in the event that an expense requires reimbursement, you may do so, up to a modest daily minimum (e.g., $35), upon presentation of a written receipt.
  • Any souvenirs you provide the visiting officials should reflect the business and/or logo and would be of nominal value, e.g., shirts or tote bags.
  • Apart from the expenses identified above, do not compensate the foreign government or the officials for their visit, do not fund, organize, or host any other entertainment, side trips, or leisure activities for the officials, or provide the officials with any stipend or spending money.
  • The training costs and expenses will be only those necessary and reasonable to educate the visiting officials about the operation of your company.

Incorporation of these concepts into a compliance program is a good first step towards preventing any FCPA violations from arising, but it must be emphasized that they are only a first step. These guidelines must be coupled with active training of all personnel, not only on the Compliance Policy, but also on the corporate and individual consequences that may arise if the FCPA is violated regarding gifts and entertainment. Lastly, it is imperative that all such gifts and entertainment are properly recorded, as required by the books and records component of the FCPA.