In this episode, I visit with Doreen Edelman, a partner at Baker Donelson on the top FCPA enforcement action of 2017, the Telia Company matter. We discuss the background facts of the case; we explore the amount of the fines and penalties, were they too high or were they too low; we consider the involvement of senior management right up to the CEO and the Board’s role; we explore the multiple lessons for the compliance professional, the CCO, senior management and the Board of Directors. We conclude with what the enforcement action means going forward and the increase in international enforcement, cooperation and investigation in anti-corruption.

Doreen Edelman can be reached at dedelman@bakerdonelson.com.

Doreen blogs on export control and trade issue concerns at Export Control Matters.

Your company has just made its largest acquisition ever and your Chief Executive Officer (CEO) says that he wants you to have a compliance post-acquisition integration plan on his desk in one week. Where do you begin? Of course, you think about the 2012 FCPA Guidance but remember that it did not have the time lines established in the recent enforcement actions involving Johnson & Johnson (J&J), Pfizer and Data Systems & Solutions LLC.

While there are time frames listed in these Deferred Prosecution Agreements (DPAs) are a guide of timeframes; many compliance professionals struggle with is how to perform these post-acquisition compliance integrations. An article from the Harvard Business Review, entitled “Two Routes to Resilience”, Clark Gilbert, Matthew Eyring and Richard Foster wrote about business transformation which speak directly to the compliance practitioner to help create post-acquisition integration game plan.

The authors, reviewed the situation where an entity must transform itself, leading to a transformation the authors call “establishing a ‘capabilities exchange’- a new organizational process that allows the two efforts to share resources without interfering with each other’s operations.” That is what a compliance practitioner must accomplish through a post-acquisition integration in the compliance context.

Anyone who has gone through a large merger or acquisition knows how terrifying it can be for the individual employee. Many people, particularly at the acquired company will be fearful of losing their jobs. This fear, mis-placed or well-founded, can lead to many difficulties in the integration process. The creation of a Compliance Capabilities Exchange process which allows “the two organizations to live together and share strengths” and will coordinate “the two transformational efforts so that each gets what it needs and is protected from [unwanted] interference by the other.” There are five steps in this process.

  1. Establish Compliance Leadership. While this may be the “simplest step but also the one most open to abuse.” The process should be run by just a few top people, which I believe are the Chief Executive Officer, Chief Financial Officer and Chief Compliance Officer of the acquiring company and a similar counter-part from the acquired company.
  2. Identify the compliance resources the two organizations can or need to share. Hopefully the acquiring organization will have some idea of the state of the compliance program before the deal is closed. It may be that there is some or all of a minimum best practices compliance program in place. If so, attention needs to turn to what can continue and how will need to be integrated.
  3. Create Compliance Capability Exchange Teams. In many “synergy efforts, everyone is expected to think about ways resources might be shared.” In Compliance Capability Exchanges, the responsibility should be “carefully confined to a series of teams.” Senior leadership should create compliance teams by assigning a small number of people from both entities with the responsibility of allocating resources used in the integration project.
  4. Protect Boundaries. This one is tricky as employees from the former target may not want to move forward with the integration; for fear of losing their jobs or some other reason. There may be internal disputes as to which group may handle an issue going forward. This area is tricky because it is important not to alienate new employees who might have good ideas on the integration or how to move forward. Once again, the Leadership Team must step in and referee disputes decisively if required.
  5. Scale up and promote the new compliance program. It is important to celebrate and promote the new entity to both the acquiring company, others in the company and even external stakeholders. It is important that markets and others in the same or similar industry see this evolution and growth. Take the time to publicize the integrated compliance function with the internal customer; IE., company employees. This would include all other compliance stakeholders, including third party representatives, both on the sales and supply chain side of the house and even customers. Finally, be sure to inform your management, Board of Directors and regulators, such as the Department of Justice (DOJ), as appropriate.

Whatever compendium of steps you utilize for post-acquisition integration, they should be taken as soon as practicable.  The earlier you can deploy these steps the better off your company will be at the end of the day. In an Ernst & Young white paper, entitled “Increased Oversight of M&A: An Expanding Role for Audit Committees”, it stated “Failed M&A can destroy a company’s market value, destabilize its financial position and credit ratings, impair its strategic position, weaken the organization and damage the company’s reputation”. This is particularly true for failed M&A compliance. One need only consider the Latin Node FCPA enforcement actions where the acquiring company had to write off its entire investment.

Three Key Takeaways

  1. Planning is critical in the post-acquisition phase.
  2. Build upon what you learned in pre-acquisition due diligence.
  3. You literally need to be ready to hit the ground running when a transaction closes.

 

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.

In this episode, I have back James Koukios, a partner in the law firm of Morrison and Foerster. We review some of the top FCPA and international anti-corruption cases and issues which have occurred over the summer of 2017. The topics are based on the firm’s most excellent monthly newsletter Top Ten International Developments for Anti-Corruption, which is available at no charge on the firm’s website. In this podcast, we discuss topics from the following newsletters:

From the June newsletter 

  1. The Supreme Court decision in Kokesh-what does it mean for prosecutors, what does it mean for compliance practitioners and does it change the calculus around self-disclosure?
  2. DOJ Continues to Pursue “Declinations with Disgorgement.” What does this mean for companies going forward? Should it encourage or discourage self-disclosure?
  3. DOJ Files Forfeiture Complaint in connection with Alleged Malaysia Bribery Scheme. How does this tool relate to anti-corruption enforcement? Why is it such a powerful tool for prosecutors?

From the July newsletter

  1. The Halliburton FCPA enforcement action. What does it mean for the compliance practitioner?
  2. Three Long-Standing Corporate FCPA Investigations End without Charges. What can be learned from these cases about enforcement going forward?
  3. Dimitri Harder was sentenced to Five Years’ Imprisonment for FCPA Violations. What was the basis of the sentence? Do you see anything in this sentencing unusual?
  4. Was the Second Circuit decision in the FOREX trading case a setback for International Law Enforcement Cooperation? What is compelled testimony? What are the implications for international cooperation going forward?

From the August newsletter

  1. Following Undercover Investigation, DOJ Charges Retired U.S. Army Colonel with Conspiring to Bribe Haitian Officials. How do undercover operations work in the FCPA and what they might mean going forward?
  2. UK Financial Reporting Council Announces Plans to Require Increased Anti-Corruption and Bribery Disclosures. What does this mean for US companies doing business in the UK?

Check out the firm’s newsletter or better yet subscribe to it.

Jay and I return for a wide-ranging discussion on some of the top compliance and ethics related stories, including:

  1. Roy Shell considers whether compliance officers should be liked or respected. See his article on the SCCE Compliance and Ethics Blog.
  2. What is the intersection of sports, corruption and compliance? Jaclyn Jaeger explores in Compliance Week.
  3. The Alere FCPA enforcement action emphasized the convergence of rev rec and corruption. Richard Bistrong considers in the FCPA Blog.
  4. Bill Coffin asks who will be the next compliance hero, see his article in Compliance Week.
  5. Ireland requested a review by the European Court of Justice of the legality of contracts governing data transfers between Europe and the U.S. Ben DiPietro reports in the WSJ Risk and Compliance Report. Jonathan Armstrong reports from the UK perspective on the Cordery Compliance website.
  6. More chaos from the Trump Administration as Secretary of HHS Tom Price resigns. Matt Kelly reports on the ethical considerations in Radical Compliance.
  7. Proving once again that he is not a mere mortal, Jose Altuve hits 3 home runs in the first division playoff game, which the Astros win 8-2. He becomes only the 9th player in MLB history to do so. Stephanie Apstein reports in SI.com.
  8. Join Tom’s monthly podcast series on One Month to a More Effective Compliance Program. In October, I consider compliance with business ventures such as in the M&A context, joint ventures, distributors, channel ops partners, teaming agreements and all other manner of business venture. The second week I continue to take a deep dive in M&A and begin JVs under the FCPA. This month’s sponsor is the Volkov Law Group. It is available on the FCPA Compliance Report, iTunes, Libsyn, YouTube and JDSupra.
  9. Jay and I will be podcasting a live episode of This Week in FCPA from the SCCE 2017 Compliance and Ethics Institute, stay tuned for details on time.
  10. The Everything Compliance gang is back with Episode 19. Check in with the top roundtable podcast in compliance by clicking on Everything Compliance.
  11. Tom premiers an exciting new services offering the Doing Compliance Master Class.

The top compliance roundtable podcast is back with a wealth of new topics.

  1. Matt Kelly opens with a discussion of the Equifax data breach and its implications for the compliance profession.

For Matt Kelly’s posts on the Equifax data breach and cybersecurity, see the following:

Vendor, Cybersecurity Risk, Ugh

Clayton, Congress Talk Cybersecurity

  1. Jonathan Armstrong considers the Uber situation in London where it recently lost it license to do business from the regulator Transportation for London (TfL). He discusses a prior case that he handled which had similar issues.
  2. Jay Rosen considers the massive FBI undercover operation resulting in 10 arrests in college basketball for corruption regarding high school recruits.
  3. Tom Fox sits in for Mike Volkov, who is on assignment this week. He discusses the top FCPA enforcement action of all-time, the recently announced Telia enforcement action.

For Tom Fox’s posts on the Telia enforcement action, see the following:

The Telia FCPA Resolution, Part I – Introduction

The Telia FCPA Enforcement Action: Part II – The Bribery Schemes

The Telia FCPA Enforcement Action: Part III – The Individuals

Telia FCPA Enforcement Action: Part IV – Getting Some Monies Back

Telia FCPA Enforcement Action: Part V-Lessons Learned

The gang is back with rants which follow the discussions.

The members of the Everything Compliance panel include:

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