Roman Numbers 1-10.2I.     Training

The communication of your anti-corruption compliance program is something that must be done on a regular basis to ensure its effectiveness. The FCPA Guidance explains, “Compliance policies cannot work unless effectively communicated throughout a company. Accordingly, DOJ and SEC will evaluate whether a company has taken steps to ensure that relevant policies and procedures have been com­municated throughout the organization, including through periodic training and certification for all directors, officers, relevant employees, and, where appropriate, agents and business partners.”

“Conducting effective training programs” is listed in the 2011 US Sentencing Guidelines as one of the factors the DOJ will take into account when a company accused of a FCPA violation is being evaluated for a sentence reduction. The US Sentencing Guidelines mandate, “(4) (A) The organization shall take reasonable steps to communicate periodically and in a practical manner its standards and procedures, and other aspects of the compliance and ethics program, to the individuals referred to in subdivision (B) by conducting effective training programs and otherwise disseminating information appropriate to such individuals’ respective roles and responsibilities.”

While most people tend to overlook the issue of attendance at training, it is an issue that should also be considered. You should determine that all senior management and company Board members have attended FCPA compliance training. You should review the documentation of attendance and confirm this attendance. Make your department, or group leaders, accountable for the attendance of their direct reports and so on down the chain. Evidence of training is important to create an audit trail for any internal or external assessment or audit of your training program.

One of the key goals of any FCPA compliance program is to train company employees in awareness and understanding of the FCPA; your specific company compliance program; and to create and foster a culture of compliance. Up until recently, we had not heard anything from the DOJ around the testing the effectiveness of compliance training, however, beginning in the fall of 2015 through the announcement of the FCPA enforcement Pilot Program, they to talk about whether you have determined the effectiveness of your training.

You can begin with a baseline measurement of employees who participated in your compliance training through a general assessment of those trained on the FCPA and your company’s compliance program is a starting point. Some questions to use for the assessment of the effectiveness of your FCPA compliance training could include the following:

  1. What does the FCPA prevent?
  2. Does your company allow facilitation payments?
  3. How do you report compliance violations at your company?
  4. What types of improper compliance conduct should you report?
  5. What is the name of your company’s Chief Compliance Officer?

For high-risk employees, you can have a more focused evaluation. You can give some circumstances an employee might face when traveling or doing business abroad. As always, you need to document the training, attendance at the training and then the post-training testing. 

II.     Communication

Ethical leadership is absolutely mandatory to have a successful compliance program, whether it is based upon the FCPA or the UK Bribery Act. Senior management must not only be committed to doing business in compliance with these laws but they must communicate these commitments down to the organization. But leadership is not limited only to senior management within an organization. Tone at the Top begets Tone in the Middle; which begets Tone at the Bottom. At each rung there is the need for compliance leadership. Yet these communications can come in many forms. Consider the Morgan Stanley declination that specifically mentioned the ongoing compliance reminders as one of the reasons the company received a declination.

All of this leads me to consider the message of compliance inside of a corporation and how it is distributed. In a compliance program, a large portion of your consumers/customers are your employees. Social media presents some excellent mechanisms to communicate the message of compliance going forward. Many of the applications that we use in our personal communication are free or available at very low cost. So why not take advantage of them and use those same communication tools in your internal compliance marketing efforts going forward.

Another key issue seems to be that problem that companies do not write the way they speak, and do not speak the language of their employee base. In many ways, compliance is a brand and that compliance brand needs to make sure that the message of compliance will resonate with your audience, whether that be your employee base, third parties working for your company, even senior management or the Board. This is where social media can help you and the compliance function to hone your message through social media. Part of this is based on experimenting on what message to send and how to send it throughout your organization.

This means that you will need to work to groom your message but also continue to plug away to send that message out. I think the Morgan Stanley declination will always be instructional as one of the stated reasons the DOJ did not prosecute the company as they sent out 35 compliance reminders to its workforce, over 7 years. Social media can be used in the same cost effective way, to not only get the message of compliance out but also to receive information and communications back from your customer base, the company employees.

The key to training and communication is that they be done effectively. Whether you utilize one of the myriad of compliance training professionals, online training companies or another mechanism, the bottom line is that you need to risk rank your training attendees and follow up by measuring training effectiveness. If you can neither think of anything else nor have the budget for professional consultants, you can always start with the FCPA Guidance and use the hypotheticals as your training materials. I still maintain that in communications you are only limited by your own imagination. By keeping the communications fun, fresh and relevant, you can help keep the eye on compliance in your organization.

For more information on this Hallmark, check out my book Doing Compliance: Design, Create and Implement an Effective Anti-Corruption Compliance Program, which is available through Compliance Week by clicking here.

To listen to my podcast on this Hallmark, click 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, 2016

 

 

 

 

 

 

 

 

 

 

Roman Numbers 1-10.2I.     Autonomy

The DOJ has made clear over the years the importance of this hallmark. In the FCPA Guidance it states, “In appraising a compliance program, DOJ and SEC also consider whether a company has assigned respon­sibility for the oversight and implementation of a com­pany’s compliance program to one or more specific senior executives within an organization.” But this person must also have the expertise and resources to adequately fill that role. This last point was made clear when the DOJ announced its Pilot Program in April 2016.

Here we refer to the 2011 Amendments to the US Sentencing Guidelines, §8B2.1 (b)(2)(C), which specified:

Specific individual(s) within the organization shall be delegated day-to-day operational responsibility for the compliance and ethics program. Individual(s) with operational responsibility shall report periodically to high-level personnel and, as appropriate, to the governing authority, or an appropriate subgroup of the governing authority, on the effectiveness of the compliance and ethics program. To carry out such operational responsibility, such individual(s) shall be given adequate resources, appropriate authority, and direct access to the governing authority or an appropriate subgroup of the governing authority.

There once was an ongoing debate in the compliance world about whether a company can or should combine or separate the role of the Chief Compliance Officer (CCO) from that of the General Counsel (GC). However it would appear that initial debate has ended because of the differences in focus. The GC and legal department are present to protect the company. The CCO and compliance function exist to prevent, detect and remedy issues as they arise.

In the 2015 Deloitte/Compliance Week Compliance Trends Survey, it reported, “Out of 364 respondents, 57 percent now say their CCO reports directly to either the chief executive officer (CEO) or the board. This number has fluctuated over time (from as low as the mid-40s), but is now clearly marching upward. Fifty-one percent say the CCO has a seat on the executive management committee, and 59 percent say the CCO job is a stand-alone position. Fifty-five percent say they regularly brief the board on the company’s overall ethics and culture.” These changes “suggest that most CCOs, especially those at larger corporations, now have an opportunity to participate in high-level discussions about corporate strategy, values, and culture.”

Neither the DOJ nor SEC have taken a formal position on which approach they favor. Whichever structure your company may utilize, it is incumbent that any CCO must have “sufficient authority and independence to oversee the integrity of the compliance program.” Indeed the DOJ Pilot Program specifies this with the following language, “The independence of the compliance function”. Some indicia of independence would include a reporting line to the company’s Board of Directors and Audit/Compliance Committee with, more importantly, “unfiltered” access to the Board. There should also be employment protection including an employment contract with a “nondiscretionary escalation clause” and a requirement for Board approval for any change in the terms and conditions of employment, including termination. There must also be sufficient resources in the form of an independent budget and adequate staff to manage the overall compliance program.

II.     Oversight

A Board’s duty under the FCPA is well known. In the FCPA Guidance there are two specific references to the obligations of a Board. The first in Hallmark No. 1, it states, “Within a business organization, compliance begins with the board of directors and senior executives setting the proper tone for the rest of the company.” The second here in Hallmark 3, where it discusses that the CCO should have “direct access to an organization’s governing authority, such as the board of directors and committees of the board of directors (e.g., the audit committee).” Further, under the US Sentencing Guidelines, the Board must exercise reasonable oversight on the effectiveness of a company’s compliance program. The DOJ’s Prosecution Standards posed the following queries: (1) Do the Directors exercise independent review of a company’s compliance program? and (2) Are Directors provided information sufficient to enable the exercise of independent judgment?

A Board must not only have a corporate compliance program in place but also actively oversee that function. Further, if a company’s business plan includes a high-risk proposition, there should be additional oversight. In other words, there is an affirmative duty to ask the tough questions. But it is more than simply having a compliance program in place. The Board must exercise appropriate oversight of the compliance program and indeed the compliance function. The Board needs to ask the hard questions and be fully informed of the company’s overall compliance strategy going forward.

III.    Resources 

Funding your compliance program is always one of the biggest challenges for any CCO. Short of being in the middle of a worldwide FCPA investigation you are never going to receive all the funding you want or even think that you are going to need. But this corporate reality is not going to save you if the government comes knocking. The FCPA Guidance provides the following, “Moreover, the amount of resources devoted to compliance will depend on the company’s size, complexity, industry, geographical reach, and risks associated with the business. In assessing whether a company has reasonable internal controls, DOJ and SEC typically consider whether the company devoted adequate staffing and resources to the compliance program given the size, structure, and risk profile of the business.” In the Pilot Program it requires only “the company dedicates sufficient resources to the compliance function.”

But there are some things that a CCO might do to try and obtain the resources needed. One thing you can do is have a list of information prepared and be ready to present to the Board or CEO who may provide funding is for your compliance function. If you lay out the information in a coherent manner, it would allow the Board or senior management to get some perspective on the compliance function; what you are asking for and why.

Once again recognizing that every compliance function will always be resource constrained, you can look to other areas in your company to assist the compliance function. An obvious starting place is Human Resources (HR). Internal Audit is another function that you may want to look at for assistance as they should have access to your company’s accounting systems, which allows them to pull data for ongoing monitoring. This may allow you to move towards continuous controls monitoring, on an internal basis. A corporate IT department has several functions that can assist compliance. Finally, do not forget your business teams. You can embed a compliance champion in all divisions and functions around the company. You can take this a step further by placing a Facility Compliance Officer at every site or location where you might have a large facility or corporate presence.

For more information on this Hallmark, check out my book Doing Compliance: Design, Create and Implement an Effective Anti-Corruption Compliance Program, which is available through Compliance Week by clicking here.

You can listen to a podcast on this Hallmark No.3 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, 2016

 

 

Roman Numbers 1-10.2One cannot really say enough about risk assessments in the context of anti-corruption programs. Since at least 1999 the DOJ has said that risk assessments that measure the likelihood and severity of possible Foreign Corrupt Practices Act (FCPA) violations identifies how you should direct your resources to manage these risks. The FCPA Guidance stated it succinctly when it said, “Assessment of risk is fundamental to developing a strong compliance program, and is another factor DOJ and SEC evaluate when assessing a company’s compliance program.” The simple reason is straightforward; one cannot define, plan for, or design an effective compliance program to prevent bribery and corruption unless you can measure the risks you face.

What risks should you assess? The FCPA Guidance states, “Factors to consider, for instance, include risks presented by: the country and industry sector, the business opportunity, potential business partners, level of involvement with governments, amount of government regulation and oversight, and exposure to customs and immigration in conducting business affairs.”

These factors provide guidance into some of the key areas that the DOJ apparently believes can put a company at higher FCPA risk. One approach to putting these amorphous guidelines into place was detailed by David Lawler, in his book “Frequently Asked Questions in Anti-Bribery and Corruption”. He broke the risk areas to evaluate down into the following categories: (1) Company Risk, (2) Country Risk, (3) Sector Risk, (4) Transaction Risk and (5) Business Partnership Risk.

  1. Company Risk – High risk companies involve some of the following characteristics:
  • Private companies with a close shareholder group;
  • Large, diverse and complex groups with a decentralized management structure;
  • An autocratic top management;
  • A previous history of compliance issues; and/or
  • Poor marketplace perception.
  1. Country Risk – this area involves countries, which have a high reported level or perception of corruption, have failed to enact effective anti-corruption legislation and have a failure to be transparent in procurement and investment policies. Obviously the most recent, Transparency International Corruption Perceptions Index can be a good starting point. Other indices you might consider are the Worldwide Governance Indicators and the Global Integrity index.
  1. Sector Risk – these involve areas that require a significant amount of government licensing or permitting to do business in a country. It includes the usual suspects of:
  • Extractive industries;
  • Oil and gas services;
  • Large scale infrastructure areas;
  • Telecoms;
  • Pharmaceutical, medical device and health care; and/or
  • Financial services.
  1. Transaction Risk – this risk takes a look at the financial aspects of a payment or deal. This means that it is necessary to think not only about where your money is ending up but what is the source of the funding. Indicia of transaction risk include:
  • High reward projects;
  • Involve many contractor or other third party intermediaries; and/or
  • Do not appear to have a clear legitimate object.
  1. Business Partnership Risk – this prong recognizes that certain manners of doing business present more corruption risk than others. It may include:
  • Use of third party representatives in transactions with foreign government officials;
  • A number of consortium partners or joint ventures partners; and/or
  • Relationships with politically exposed persons (PEPs).

There are a number of ways you can slice and dice your basic inquiry. As with almost all FCPA compliance, it is important that your protocol be well thought out. If you use one, some or all of the above as your basic inquiries into your risk analysis, it should be acceptable for your starting point.

How Should You Assess Your Risks? 

One of the questions that I hear most often is how does one actually perform a risk assessment? Mike Volkov has suggested a couple of different approaches in his article “Practical Suggestions for Conducting Risk Assessments.” Here Volkov differentiates between smaller companies which might use some basic tools such as “personal or telephone interviews of key employees; surveys and questionnaires of employees; and review of historical compliance information such as due diligence files for third parties and mergers and acquisitions, as well as internal audits of key offices” from larger companies. Such larger companies may use these basic techniques but may also include a deeper dive into high risk countries or high risk business areas. If your company’s sales model uses third party representatives, you may also wish to visit with those parties or persons to help evaluate their risks for bribery and corruption that might well be attributed to your company.

It is suggested that you combine the scores or analysis you obtain from the corruption markers you review; whether it is the DOJ list or those markers under the UK Bribery Act, and from there create a “rudimentary risk-scoring system that ranks the things to review using risk indicators of potential bribery.” This ensures that high-risk exposures are done first and/or given more time. As with all populations of this type, there is likely to be a normal or ‘bell curve’ distribution of risks around the mean. So 10-15% of exposure falls into the relative low-risk category; the vast majority (70-80%) into the moderate-risk category; and the final 10-15% would be high risk.

How do You Evaluate a Risk Assessment?

Volkov has advised that you should prepare a risk matrix detailing the specific risks you have identified and relevant mitigating controls. From this you can create a new control or prepare an enhanced control to remediate the gap between specific risk and control. Finally, through this risk matrix you should be able to assess relative remediation requirements. One way to do so was explored by Tammy Whitehouse, in an article entitled “Improving Risk Assessments and Audit Operations”, in which she looked at the risk evaluation process used by Timken Company (Timken).

Once risks are identified, they are then rated according to their significance and likelihood of occurring, and then plotted on a heat map to determine their priority. The most significant risks with the greatest likelihood of occurring are deemed the priority risks, which become the focus of the audit/monitoring plan. A variety of solutions and tools can be used to manage these risks going forward but the key step is to evaluate and rate these risks.

 The ‘Likelihood’ factors to consider include: the existence of internal controls, written policies and procedures designed to mitigate risk; leadership capable to recognize and prevent a compliance breakdown; compliance failures or near misses; and training and awareness programs. The Priority Rating factors are the product of ‘likelihood’ and significance ratings reflects the significance of particular risk universe. It is not a measure of compliance effectiveness or to compare efforts, controls or programs against peer groups.

The most significant risks with the greatest likelihood of occurring are deemed to be the priority risks. These “Severe” risks become the focus of the audit-monitoring plan going forward. A variety of tools can be used, such as continuous controls monitoring with tools like those provided by the Red Flag Group (RFG), relationship-analysis based software or other analytical based tools. But you should not forget the human factor. This means not only training but ongoing communication with employees to guard against the most significant risks coming to pass and to keep the key messages fresh and on top of the mind. RFG also produces a risk control summary that succinctly documents the nature of the risk and the actions taken to mitigate it.

The keys to this approach are the action steps prescribed by their analysis. This is another way of saying that the risk assessment informs the compliance program, not vice versa. This is the method set forth by the DOJ in its FCPA Guidance and in the UK Bribery Act’s Adequate Procedures. The DOJ has made clear that it wants to see a reasoned approach with regards to the actions a company takes in the compliance arena. The model described is a reasoned approach and can provide the articulation needed to explain which steps were taken.

For more information on this Hallmark, check out my book Doing Compliance: Design, Create and Implement an Effective Anti-Corruption Compliance Program, which is available through Compliance Week by clicking here.

To listen to my podcast on this Hallmark, click 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, 2016

 

 

 

 

 

Roman Numbers 1-10.2The cornerstone of a Foreign Corrupt Practices Act (FCPA) compliance program is its written protocols. This includes a Code of Conduct, policies and procedures. In the FCPA Guidance, the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) state, “A company’s code of conduct is often the foundation upon which an effective compliance program is built. As DOJ has repeatedly noted in its charging documents, the most effective codes are clear, concise, and accessible to all employees and to those conducting business on the company’s behalf.” Indeed, it would be difficult to effectively implement a compliance program if it was not available in the local language so that employees in foreign subsidiaries can access and understand it. When assessing a compliance program, DOJ and SEC will review whether the company chapter has taken steps to make certain that the code of conduct remains current and effective and whether a company has periodically reviewed and updated its code.

FCPA compliance best practices now require companies to have additional standards and controls, including, for example, detailed due diligence protocols for screening third-party business partners for criminal backgrounds, financial stability and improper associations with government agencies. Ultimately, the purpose of establishing effective standards and controls is to demonstrate that your compliance program is more than just words on a piece of paper.

I.     Code of Conduct

In an article in the Society for Corporate Compliance and Ethics (SCCE) publication, The Complete Compliance and Ethics Manual, 2016 Ed., entitled “Essential Elements of an Effective Ethics and Compliance Program”, authors Debbie Troklus, Greg Warner and Emma Wollschlager Schwartz, state that your company’s Code of Conduct “should demonstrate a complete ethical attitude and your organization’s “system-wide” emphasis on compliance and ethics with all applicable laws and regulations.” Your Code of Conduct must be aimed at all employees and all representatives of the organization, not just those most actively involved in known compliance and ethics issues. From the board of directors to volunteers, the authors believe that “everyone must receive, read, understand, and agree to abide by the standards of the Code of Conduct.” This would also include all “management, vendors, suppliers, and independent contractors, which are frequently overlooked groups.”

There are several purposes identified by the authors, which should be communicated in your Code of Conduct. Of course the overriding goal is for all employees to follow what is required of them under the Code of Conduct. You can do this by communicating what is required of them, to provide a process for proper decision-making and then to require that all persons subject to the Code of Conduct put these standards into everyday business practice. Such actions are some of your best evidence that your company “upholds and supports proper compliance conduct.”

The substance of your Code of Conduct should be tailored to the company’s culture, and to its industry and corporate identity. It should provide a mechanism by which employees who are trying to do the right thing in the compliance and business ethics arena can do so. The Code of Conduct can be used as a basis for employee review and evaluation. It should certainly be invoked if there is a violation. To that end, I suggest that your company’s disciplinary procedures be stated in the Code of Conduct. These would include all forms of disciplines, up to and including dismissal, for serious violations of the Code of Conduct. Further, your company’s Code of Conduct should emphasize it will comply with all applicable laws and regulations, wherever it does business. The Code needs to be written in plain English and translated into other languages as necessary so that all applicable persons can understand it.

As I often say, the three most important things about your FCPA compliance program are ‘Document, Document and Document’. The same is true of communicating your company’s Code of Conduct. You need to do more than simply put it on your website and tell folks it is there, available and that they should read it. You need to document that all employees, or anyone else that your Code of Conduct is applicable to, has received, read, and understands the Code. For employees, it is important that a representative of the Compliance Department, or other qualified trainer, explains the standards set forth in your Code of Conduct and answers any questions that an employee may have. Your company’s employees need to attest in writing that they have received, read, and understood the Code of Conduct and this attestation must be retained and updated as appropriate.

The DOJ expects each company to begin its compliance program with a very public and very robust Code of Conduct. If your company does not have one, you need to implement one forthwith. If your company has not reviewed or assessed their Code of Conduct for five years, I would suggest that you do in short order as much has changed in the compliance world.

What is the value of having a Code of Conduct? I have heard many business folks ask that question over the years. In its early days, a Code of Conduct tended to be lawyer-written and lawyer-driven to “wave in a defense situation” by claiming that “see we have one”. But is such a legalistic code effective? Is a Code of Conduct more than simply, your company’s law? What is it that makes a Code of Conduct effective? What should be the goal in the creation of your company’s Code of Conduct?

II.     Policies, Procedures and Controls

The written policies and procedures required for a best practices compliance program are well known and long established. As stated in the FCPA Guidance, “Among the risks that a company may need to address include the nature and extent of transactions with foreign governments, including payments to foreign officials; use of third parties; gifts, travel, and entertainment expenses; charitable and political donations; and facilitating and expediting payments.” Policies help form the basis of expectation and conduct in your company and Procedures are the documents that implement these standards of conduct.

Another way to think of policies, procedures and controls was stated by Aaron Murphy, in his book “Foreign Corrupt Practices Act”. Murphy wrote that you should think of all three as “an interrelated set of compliance mechanisms.” Murphy went on to say that, “Internal controls are policies, procedures, monitoring and training that are designed to ensure that company assets are used properly, with proper approval and that transactions are properly recorded in the books and records. While it is theoretically possible to have good controls but bad books and records (and vice versa), the two generally go hand in hand – where there are record-keeping violations, an internal controls failure is almost presumed because the records would have been accurate had the controls been adequate.”

The FCPA Guidance ends its section on policies with the following, “Regardless of the specific policies and procedures implemented, these standards should apply to personnel at all levels of the company.” This cannot be over-emphasized. If an employee is going to be terminated for fudging their expense accounts in Brazil, you had best make sure that the same conduct lands your top producer in the US with the same quality of discipline.

For more information on this Hallmark, check out my book Doing Compliance: Design, Create and Implement an Effective Anti-Corruption Compliance Program, which is available through Compliance Week by clicking here.

You can listen to a podcast on this Hallmark No. 2 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, 2016