In this episode, Jay Rosen reports live from the ABA White Collar Conference at the Fontainebleau Hotel in Miami.  In addition to providing his insights on the highlights of the conference and the buzz around the new Justice Department Evaluation of Corporate Compliance Programs document released in February, we discuss:

  1. Adam Davidson’s piece in the New Yorker Magazine entitled, “Donald Trump’s Worst Dealwhich looks at a Trump organization transaction in Azerbaijan which raises both FCPA and sanctions issues.
  2. The newly revamped Justice Department’s Fraud Section’s website.
  3. Highlight the rollout of the International Association of Independent Certified Monitors’ (IAICM) new website.
  4. Review the week’s FCPA related issues.
  5. Take a deep dive into the blockbuster trade announced between the Houston Texans and Cleveland Browns where the Texans sent their starting QB and a second round pick to the Browns for a fourth round pick in return (who says Texans are not great horse-traders!)
  6. Jay previews his weekend report.
  7. Tom reports on a talk about 3rd party ROI at the upcoming Third-Party Risk Management & Oversight Summit, on March 20 & 21 at the Princeton Club in New York City. Listeners to this podcast will receive a 15% discount off of the regular price of the event. To take advantage of this offer enter the Code CMP 161. For more information on the event, check out the website 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 New Yorker reporter Adam Davidson, who penned an article in the New Yorker which looked at a hotel deal between the Trump organization and a family of Politically Exposed Persons (PEPs) in Azerbaijan. Davidson talks about what intrigued him about the story, his reporting and most troubling, the PEPs alleged ties to funding from the Iranian Revolutionary Guard. It is a cautionary tale about major construction project in countries with a high perception of corruption, the need to understand who your business partners are and the source of their funding. The article is Donald Trump’s Worst Deal.  

Jay Rosen and I dedicate the entire episode to the FUBAR surrounding the Oscar ceremony where the Best Picture award was given to the wrong picture. We consider the control failures around the incident, look at it from a compliance program perspective, consider the failures in light of the new Justice Department Evaluation of Corporate Compliance Programs and conclude with the lessons to be learned for the compliance practitioner from the entire fiasco.

For some additional reading see, Jay’s piece on Linkedin, “David vs. Goliath; Ethics & Compliance Lessons to be Learned from the Oscars” and Matt Kelly look at the control failures and other issues in his blog post on Radical Compliance, “And the Oscar for Control Failures Goes to…”

 

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

Ned Garver died earlier this week. Not a familiar name to you? It may be due to the fact he is the only pitcher in the modern era to win 20 games pitching for a team which lost over 100 games in a season; a feat which he accomplished in 1951 pitching for the worse than hapless St. Louis Browns. How dominating was his performance? The next highest number of wins on the pitching staff was 6. He came in second to Yogi Berra for the American League’s (AL’s) Most Valuable Player (MVP) Award for the season. How bad were the Browns? Garver once said, “The crowd didn’t dare boo us. The players had them outnumbered.”

According to his obituary in the New York Times (NYT), “Garver, a right-hander who was just 5 feet 10 and 180 pounds, thrived with sinkers and sliders while changing speeds and taking advantage of hitters’ strengths and weaknesses. He pitched for 14 seasons in the A.L. and won 129 games. He lost 157 times, but never pitched for a first-division team. Satchel Paige, a Browns teammate of Garver’s, recalled in his 1962 memoir, “Maybe I’ll Pitch Forever,” written with David Lipman. “Even with that slow stuff of his, he did right well all along, just using his head.””

One event which promises to be most excellent is the upcoming Third-Party Risk Management & Oversight Summit, on March 20 & 21 at the Princeton Club in New York City. I will be attending and speaking at the event and I hope that you can join me. I have had the opportunity to do podcasts with the Event Chair, Melissa Evans, Lead, Quality Systems – Supply Chain Management, Royal Caribbean Cruises (Episode 307) and Forrest Deegan, the Chief Ethics and Compliance Officer for Abercrombie & Fitch (A&F) (Episode 311).

Melissa discussed the nature of this year’s event and discussed her experience from last year that led her to Chair this year’s Summit. She detailed her role as Lead, Quality Systems – Supply Chain Management, and provided some of the highlights of the conference. She discussed the audience the conference would benefit. Forrest detailed how to perform an return on investment (ROI) analysis of a third-party program for both the sales and supply chain side of things, drawing from his experience at A&F. He related some of the costs for getting it wrong in the short-term, along with smart money investments and cost-cutting ideas and then provided some insight into the cost-benefit analysis on A&F third-party programs.

There is going to be a good mix of corporate compliance practitioners, in-house legal eagles, outside counsel and government regulators, including the always informative Kara N. Brockmeyer, Chief, FCPA Unit, Division of Enforcement, US Securities and Exchange Commission (SEC), who will relate SEC expectations around third-party risk management. With the recent release of the Department of Justice’s (DOJ’s) Evaluation of Corporate Compliance Programs (Evaluation), it will be interesting to hear the SEC take on the document.

Other highlights include Stephanie Meltzer, Vice President, Assistant General Counsel, Chief Compliance Counsel, Pfizer Innovative Health, Compliance Division Pfizer Inc. and Cynthia Roller, Americas Trade Compliance Manager Caterpillar Inc., on the topic of “Conducting Risk Assessments for Different Third Parties: Agents, Vendors, JVs, Suppliers”. They plan to discuss the following topics: evaluating typical and relevant risk factors quantitatively and qualitatively, conducting risk assessment interviews and questionnaires, how to evaluate relationships and connects, how to customize your view based on the relationship, the best use of background and reputation checks and understanding special risks when dealing with family-owned business.

Paul Wear, Director, Channel & Business Compliance – Internal Audit, NetApp, Inc., and Janice Avery, CPA, FCPA, CFF, CHCC, Global FCPA Manager, Arthrex Inc., will lead a discussion on how to best conduct an effective third-party audit. Highlights include where to begin as there is no ‘one size fits all’ approach, how to align your audit to the risks you are addressing, a framework to help you assess what you should be testing, exploring the value for the partner, vendor, or supplier being reviewed to enhance your business relationship and finally reporting the results of your audit.

For the more legal minded among you, James Davis, Counsel American Express, Iskah C. Singh, Director, Global Anti-Corruption, Xylem Inc., and Lindsey Wilson, Corporate Counsel, will lead a panel which focuses on critical compliance terms and conditions which you should include in your third-party agreements. They will speak to the clauses that are a must have, nice to have and one you can negotiate away. They will explain how such legal clauses can help to set firm and unwavering standards and values you insist your vendors follow. Bookending this panel will be one which discusses your termination option for when it all goes wrong and you need to exit from a contractual relationship.

A most interesting panel consisting of James J. Gibson, Global Compliance Counsel, The Coca-Cola Co., Diana M. Jagiella, Vice President, Chief Compliance Officer, The Mosaic Company, and Paul Sullivan, Vice President, International Business Development, Acrow Corporation of America, will lead a discussion of Anti-Corruption Landmines: Risks When Dealing With Third Parties Outside the United States. They plan to discuss the latest Foreign Corrupt Practices Act (FCPA) trends and updates, identifying not-so-obvious bribes and corruption to stay ahead of the game, identify potential government relationships (that may not seem obvious), how anything of value really does mean anything and lay out the specific risks in certain regions of the world (e.g. Chinese agents that are also foreign officials).

As you can see from this detailed discussion it will be a most excellent event and if you are in NYC or somewhere close I hope you can join the event. I will be speaking on the ROI of third-party panel with Forrest Deegan and I have already communicated to him just how much I expect to learn from him.

The best part of having read this blog is you, as a reader of this blog, will receive a 15% discount off of the regular price of the event. To take advantage of this offer enter the Code CMP 161. For more information on the event, check out the website 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, 2017

Today I conclude my two-part series on the recent Foreign Corrupt Practices Act (FCPA) enforcement action involving the Chilean chemicals and mining company Sociedad Química y Minera de Chile (SQM), which agreed to pay a criminal penalty of $15.5 million and a civil penalty of $15 million for a total fine and penalty of $30.5 million. The company settled with the Department of Justice (DOJ) via a Criminal Information and Deferred Prosecution Agreement (DPA) and with the Securities and Exchange Commission (SEC) via a Cease and Desist Order (Order).

However, before I conclude the review of the SQM enforcement, today we honor the very first ‘Trial of the Century’ involving the Big Bill Haywood, Charles Moyer, and George Pettibone, all officers of the labor union the Western Federation Miners, for the murder of former Idaho Governor Frank Steunenberg which had occurred the prior year. On this date in 1906 the three were arrested and extradited to Idaho to stand trial. Haywood’s defense counsel, Clarence Darrow, successfully defended him and secured an acquittal. The trial made national headlines and even President Theodore Roosevelt publicly commented on it. Some 20 years later Haywood fled to Russia and is one of two Americans buried at the Kremlin.

Earlier, I considered the facts of the SQM case and they were quite damning indeed, with Chief Executive Officer (CEO) involvement in the illegal conduct and Board awareness, yet do-nothingness in the face of clear illegal conduct. Today I want to consider how the company was able to achieve such a successful resolution, which included a 25% reduction off the lower end of the range suggested by the US Sentencing Guidelines and only a two-year independent monitorship.

The Deferred Prosecution Agreement (DPA) acknowledged there was no self-disclosure. Yet the company received full credit for its cooperation, with the DPA stating “the Company received full cooperation credit based on its cooperation with the Fraud Section’s investigation, which included: conducting a thorough internal investigation; producing relevant documents from overseas, accompanied by translations of key documents, to the Fraud Section; and providing to the Fraud Section all relevant facts known to it, including information about individuals involved in the misconduct”.

The DPA also detailed the extensive remediation engaged in by the company during the pendency of the enforcement action. It noted, “the Company has … engaged in a number of remedial measures, including: (1) reconstituting and staffing new compliance and internal audit divisions; (2) implementing new internal accounting/payment process controls; (3) revising the corporate Code of Ethics and conducting training for all personnel; (4) voluntarily paying over $9 million in taxes, interest, and penalties to Chilean authorities in connection with the improper payments described in the Statement of Facts; (5) disciplining the employees involved in the improper payments and false books and records described in the Statement of Facts – including terminating the employment of a senior officer of the Company and demoting another employee; and (6) providing in-depth anti-corruption and compliance training and consultations with outside compliance and internal controls experts to an employee who failed to take appropriate steps in response to red flags regarding the misconduct”.

In a December 2015 Form 6K filing to the SEC, the company provided additional detail on the scope of its remediation. It stated, “The measures that have already been adopted include: (i) dismissing Mr. P. Contesse G. from his position as SQM’s CEO; (ii) filing corrected tax returns with the Chilean Internal Revenue Service; (iii) creating SQM’s Corporate Governance Committee, which is comprised of three of its directors; (iv) separating and strengthening the team and responsibilities of the Internal Audit and Compliance departments, both of which report to SQM’s board of directors, while the latter also reports to the Company’s CEO; (v) hiring KPMG, the auditing firm, to review SQM’s payment process controls; (vi) improving the Company’s payment process controls and approvals; and, (vii) reformulating SQM’s Code of Ethics.”

Finally, the company agreed to a two-year external monitor because, as noted in the Information, “Although the Company has taken a number of remedial measures, the Company is still in the process of implementing its enhanced compliance program, which has not had an opportunity to be tested, and thus the Company has agreed to the imposition of an independent compliance monitor for a term of two years to diminish the risk of reoccurrence of the misconduct; the independent compliance monitor will serve a term of two years instead of three because of the significant enhancements the Company has already made to its compliance program, and because the Company’s size and risk profile are such that an independent compliance monitor should not need more than two years to test the Company’s compliance program.”

Embedded throughout this affair are numerous lessons for the compliance practitioner and others. First, and foremost, is the senior executive involvement which demonstrates a clear risk for corruption at the highest levels of an organization. When you couple such blatant disregard for legal standards, with unlimited discretion and no Board oversight, you have a recipe for disaster, which is what befell SQM. The next point is the specific failure of the company’s Board of Directors in its oversight role for compliance. Apparently not realizing that by listing its shares in the US public markets, it subjected itself to US laws, the SQM Board had a total abdication of its oversight responsibility. Even when presented with clear evidence of both FCPA violations and specific failures around internal controls, the Board failed to act. One might well wonder if this had been company with a US based Board if there might finally have been a criminal prosecution of Board members for failure to fulfill their obligations under the Ten Hallmarks of an Effective Compliance program.

Finally, are the various schemes used by SQM to hide the dodgy payments. There were payments to relatives of foreign officials, through mechanisms such as “financial services” allegedly provided to the company, the always popular consulting services, one my engineering father would have loved engineering and statistical services and, finally, one which may take the cake, an invoice for areas of fertilized tests. There were also payments to various foundations and charitable entities run by or affiliated with Politically Exposed Persons (PEPs).

The jurisdictional reach of the FCPA is quite broad. On the simplest level, the US does not want companies which take advantage of raising money with US investors to be so oblivious to the basics of anti-corruption as the failure to any type of compliance program can lead to defrauding of US investors. More importantly for the global scourge of corruption, the SQM enforcement points once again to the imperative of broad US enforcement of the FCPA as the most powerful tool to combat this scourge. The moral authority of the US to do, depends on large part from its willingness to lead this fight. It should continue to do so.

 

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