Cartoon caption bubbleI hope everyone had a great 4th of July. One of the small pleasures I take each week is reading the New Yorker’s Cartoon Caption contest. I have entered most weeks for the past 10 years or so when the spirit moved me with a caption to submit. I won once, in the issue dated February 11 & 18, 2008. So you might imagine my surprise and thrill when I received a call from the section Editor, Bob Mankoff, last week to tell me I am a finalist yet again, for the July 25, 2016 issue. My request is that you go over to the contest and, if the spirit so moves, you will vote for me. You do not have to be a subscriber to vote but you do have to vote by Sunday, July 10th. You can go to the Cartoon Caption contest by clicking this link.

As you see from my entry, I was inspired by the long drought of Cleveland in winning a major sports championship, remedied by the Cavaliers in dramatic fashion in June. Having lived in or near Houston most of my life, I certainly understand futility of sports franchises. Yet I was reminded of my entry, the overcoming futility in a dearth of championship banners and their intersection with compliance in a The Atlantic magazine article by Jerry Useem, entitled “What Was Volkswagen Thinking?” Useem reviews the design and implementation of the VW defeat device that led to its emissions-testing scandal. He pointed to the sociologist Diane Vaughan, who coined the term normalization of deviance to explain the “cultural drift in which circumstances classified as ‘not Okay’ are slowly reclassified as ‘okay’.”

It is this type of corporate culture that leads to not only total disaster, such as currently being experienced by VW, but also allows companies to slip into conduct that violates the Foreign Corrupt Practices Act (FCPA). One step is that management does not model the behavior that it alleges to aspire to for its employees. Yet Vaughn goes further to describe the process as a “script” which develops a definition of the situation, which allows the employees to carry on as if nothing was wrong. It is this script about marching to make your numbers that causes many employees to come to grief. For it does not matter what your Code of Conduct says or even what senior management might say, it means if the focus is on making your numbers, employees will get that message.

Consider the recently concluded Analogic Corporation (Analogic) and BK Medical ApS (BK Medical) FCPA enforcement action. Here there were two separate high-level red flags raises over the BK Medical bribery program and neither the subsidiary, BK Medical, nor the parent, Analogic, followed through with an investigation, discovered the rather obvious (and blatant) conduct and ended it. How could this occur? Useem notes that Vaughan’s theory allows employees to move beyond acting as if nothing is wrong. They come to believe, “bringing to mind Orwell’s concept of doublethink, the method by which a bureaucracy conceals evil from not only the public but itself.”

Contrast the VW and Analogic examples of Useem who further wrote about Johnson & Johnson (J&J) who had one of the greatest corporate scares of all-time when there were cyanide-laced capsules sold in Chicago area stores in 1982. J&J set the gold standard for corporate crisis response when it pulled every bottle of Tylenol nationwide, warned consumers not to take the product and sustained a $100MM loss. Yet it turns out the genesis of this crisis response had occurred three years earlier when the company’s Chief Executive Officer (CEO), James Burke, became concerned that the J&J Credo, which included a duty to protect those who used the company’s products “had become something like the Magna Carta: an important historical document, but hardly a tool for modern decision making.” Burke led a reinvigoration of the company’s core values into its business practices.

This reinvigoration led directly to the company’s response to the Tylenol-cyanide poisoning. Indeed, Useem said the company’s actions “flowed more or less automatically from the signal sent three years earlier. Burke, in fact, was on a plane when the news of the poisoning broke. By the time he landed, employees were already ordering Tylenol off the store shelves.”

Useem’s article points towards why tone at the top is so important. The tone to do business in compliance with the FCPA must be set by senior management and that message must be continually communicated. When those communications stop and the message becomes ‘make your numbers’ then the company’s commitment to doing business the right way will also falter. Even disgraced former Chief Financial Officer (CFO) of Enron, Andy Fastow, recognized this when he was quoted in Useem’s article for the following, “A robust ‘code of conduct’ can be emasculated by one action of the CEO or CFO.”

The setting of unrealistic sales goals individually or even by region can lead to the cutting of corners. Consider the illegal actions of GlaxoSmithKline PLC (GSK) in China, which led to a fine of approximately $497MM for the company’s bribery of Chinese government officials in the health care sector. GSK had set sales growth of 20% annually in China. How were the leaders of the Chinese business unit to hit these numbers? Apparently that was not something senior management in the corporate office was too worried about. The setting of such unrealistic sales goals can be the simple message that over-rides all the statements about doing business in concert with the business ethics expressed in your Code of Conduct.

Tone at the top does matter. But it is more than simply saying the right thing. It is setting your goals in a realistic manner that can allow employees to reach them without engaging in bribery and corruption or, in the case of VW, fraud. Useem ends his piece with the following, “Decisions may be the product of culture. But culture is the product of decisions.”

 

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

Lear's FoolI conclude my week honoring the 400th anniversary of the death of Shakespeare by using my favorite character in all his work to introduce today’s post. He is The Fool from King Lear. Of Shakespeare’s many theatrical innovations, his transformation of The Fool from the Renaissance Court Jester of songs, music, storytelling, medieval satire and physical comedy to commentator is right up there for me. The Fool became closer to the Greek Chorus. Shakespeare brought the Chorus commentary function back. As noted in Wikipedia, “Where the jester often regaled his audience with various skills aimed to amuse, Shakespeare’s fool, consistent with Shakespeare’s revolutionary ideas about theater, became a complex character who could highlight more important issues. Like Shakespeare’s other characters, the fool began to speak outside of the narrow confines of exemplary morality. Shakespeare’s fools address themes of love, psychic turmoil, personal identity, and many other innumerable themes that arise in Shakespeare”. Read More

ARound the GlobeWhile the US Foreign Corrupt Practices Act (FCPA) is still the most widely recognized and enforcement anti-bribery and anti-corruption law across the globe, there have been a number of initiatives which will lead directly to greater anti-bribery and anti-corruption enforcement. This increased enforcement will lead to increased risks for companies that do not have anti-bribery and anti-corruption compliance programs in place. This post discusses the efforts of other countries to enact and enforce legislation to curb bribery and corrupt across the globe.

China 

Over the past 18 months, GlaxoSmithKline PLC (GSK) was embroiled in a very public, very nasty bribery and corruption investigation. It culminated in the conviction of GSK and the assessment of a $491 million fine, criminal conviction of four senior GSK China subsidiary managers and the criminal convictions of two ancillary GSK-hired investigators. The entry of the Chinese government into the international fight against corruption and bribery is truly a game-changer. While there may be many reasons for this very public move by the Chinese government, it is clear that foreign companies are now on notice. Doing business the old fashioned way will no longer be tolerated. This means that international (read: western) companies operating in China have a fresh and important risk to consider; that being that they could well be subject to prosecution under domestic Chinese law.

The international component of this investigation may well increase anti-corruption enforcement across the globe. First of all, when other countries notorious for their endemic corruptions, for example India, see that they can attack their domestic corruption by blaming it on international businesses operating in their country, what lesson do you think they will draw? Most probably that all politics are local and when the localities can blame the outsiders for their own problems they will do so. But when that blame is coupled with violations of local law, whether that is anti-bribery or anti-price fixing, there is a potent opportunity for prosecutions.

One of the audit failures of GSK was around well known compliance risks in China, including (1) event abuse planning; (2) mixture of legitimate and illegitimate travel; (3) other collusion with travel agencies; and (4) parallel itineraries. So those risks are well known and have been documented. While the cost of monitoring is high and would involve the tedious work of verifying millions of receipts by calling hotels, airlines and office supply stores and scrutinizing countless transactions for signs of fraud; if your compliance risks are known for a certain profile, then you should devote the necessary resources to making sure you are in compliance in that area.

Brazil 

While GSK was a harbinger of international anti-corruption investigations and enforcement actions based on domestic anti-bribery laws; Brazil and its state-owned energy company Petrobras may become the world’s largest corruption investigation. In a New York Times (NYT) article, entitled “Scandal Over Brazilian Oil Company Adds Turmoil to the Presidential Race”, the scandal was detailed by a former Petrobras official, Paulo Roberto Costa. Mr. Costa was the person who oversaw the company’s refining operations. He has admitted to having engaged in the receipt of bribes for at least a 10 year period “equivalent to 3 percent of the value of the deals from the Brazilian construction companies that obtained the contracts” to build refineries. This amounted to literally millions being “stashed in bank accounts in Switzerland and the Cayman Islands.” He “inflated budgets for new projects” by 3% and then had that amount kicked back to him as bribes. The allegations were verified “through an associate, Alberto Youssef, a black-market money dealer who testified that he helped launder funds in the scheme. Mr. Youssef, who has also accepted a plea deal, testified that more than a dozen of Brazil’s largest construction companies had paid hefty bribes to obtain lucrative Petrobras contracts.” Interestingly, Brazilian President Rousseff “has also effectively acknowledged the prevalence of corruption inside the executive suites of Petrobras, while denying that she had known about the kickbacks when they were taking place.”

The scandal has not only engulfed suppliers to Petrobras in Brazil. It has now moved to the international stage. From shipyards in Singapore, which have been alleged to have paid bribes to Petrobras, to Rolls Royce in Great Britain which has been alleged to have paid bribes for the sale of turbine engines; this scandal truly is international in scope and may engulf more companies going forward. In addition to violations of Brazilian law, the US government has reportedly opened an investigation, as Petrobras USA is a US stock-exchange issuing entity and subject to the FCPA. Indeed, in the US there are already multiple shareholder derivative lawsuits against the US entity for mis-representing its true value because of the corruption allegations against the company in Brazil.

The Petrobras scandal continues to make news almost daily and its repercussions continue to reverberate across the globe. The FCPA Blog, in an article entitled “Swiss AG freezes $400 million in Petrobras bribe probe”, stated that in Switzerland alone there are nine open investigations into alleged money laundering tied to Petrobras. In mid-March the Office of the Attorney General of Switzerland (OAG) announced that they had issued an order to freeze $400 million of assets allegedly tied to a Petrobras corruption scheme. The FCPA Blog further stated the OAG announced “The release of over $120 million reflects Switzerland’s clear intention to take a stand against the misuse of its financial center for criminal purposes and to return funds of criminal origin to their rightful owners.”

The domestic Brazilian Anti-Bribery Law, the Clean Company Act, enacted into law in 2014, is uniquely designed for oversight by internal audit. Compliance programs will be evaluated on three prongs: the structure of the program; specifics about the legal entity; and an evaluation of the program’s efficiency. The first prong will include consideration of the existence of mechanisms for reporting suspected or actual misconduct, training, code of conduct, policies and procedures, periodic risk assessments, and application of disciplinary measures against employees (including senior management too) involved in wrongdoing. Under the second prong, the compliance risks associated will be considered. Compliance programs should be tailored to the company’s risks; “one-size-fits-all” programs will not be accepted. The third prong will consist of a case-by-case verification, that it is not simply a paper program.

Finally, and no doubt spurred by the Petrobras corruption scandal, the FCPA Blog also reported, in another article entitled “After protests, Brazil president issues anti-graft regulations”, that Brazilian President Dilma Roussef issued a presidential decree with regulations under the Clean Company Act. The new regulations issued address some of the crucial questions concerning the administrative procedure for imposing corporate liability and assessing fines. It also set out the criteria for determining fines, evaluating compliance programs, and entering into leniency agreements. Finally, the decree also provides that books and records accuracy and completeness will be a key criterion for evaluating compliance programs, no doubt inspired by the FCPA accounting provisions. As the FCPA Blog said, “The regulations under the Clean Company Act are a critical milestone in the effort to restore credibility to Brazil’s federal government, in light of its past commitments to fighting corruption in the corporate world.”

Conclusion 

What does all of the above mean for a global company? It means that some law that prohibits bribery and corruption will cover your business. It will not and does not matter if you are a US, UK or Brazilian company doing business outside of your home country, somewhere a law prohibiting bribery and corruption will cover your actions. Even if you are not covered by the FCPA, the UK Bribery Act or the Clean Company Act, if you are doing business in a local country you can still be subject to prosecution under its domestic anti-bribery laws. This means that there will be greater enforcement going forward and greater cooperation between enforcement agencies.

For businesses the only response to this plethora of new laws is to implement and enhance a best practices anti-bribery/anti-corruption compliance program and there are several examples that companies can follow to do so. In the US, the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) provided their suggestions with their Ten Hallmarks of an Effective Compliance Program; the UK Ministry of Justice (MOJ) has provided commentary on the Six Principles of an Adequate Procedures compliance program and the Organization of Economic Cooperation and Development (OECD) has put forth its Good Practice Guidance on Internal Controls, Ethics, and Compliance.

All of these anti-bribery/anti-corruption regimes set forth easily digested concepts that a company could implement. However, there must be more than simply a paper program in place. A company must actually do compliance for it to be effective. By making compliance a part of normal business practices, it will be possible to prevent, detect and then remediate any bribery or corruption issues that may arise.

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, 2015

GSK in China-the bookThe year 2013 brought the anti-corruption compliance world a new situation as the Chinese government aggressively investigated, for the first time, a western company for bribery and corruption of Chinese citizens in China, based on Chinese domestic law. The company, GlaxoSmithKline PLC (GSK), was convicted of corruption in September 2014. I wanted to put together, in one volume, the background facts, information from the trials and conviction and add some of the most significant lessons to be learned for any compliance practitioner going forward. For these reasons, I am pleased to announce the publication of my latest book, GSK in China: Anti-Bribery Enforcement Goes Global which is now available through Amazon.com.

I believe that GSK will be a watershed in the global fight against bribery and corruption. Behavior and conduct, which was illegal under Chinese law but previously tolerated and even accepted by Chinese government officials, quickly became a quagmire that the company was caught in when charges of corruption were leveled against them last year. David Pilling, writing an article in the Financial Times (FT), entitled “Why corruption is a messy business”, said “Multinationals are discovering that there is only one thing worse than operating in a country where corruption is rampant: operating in one where corruption was once rampant – but is no longer tolerated.” GSK became the first western company to pay the piper when this new tune began to play.

When it began, it was not it clear why China’s Communist Party Chief Xi Jinping began his anti-corruption push. Some speculated that it was an attack on western companies for more political reasons that economic reasons. Others took the opposite tack that the storm, which broke with the bribery and corruption investigation of GSK, was China’s attack on western companies to either hide or help fix problems endemic to the Chinese economic system. My take is that his campaign has a different purpose but incorporates both political and economic reasons. That purpose is that Xi has recognized something that the US government officials, and most particularly the DOJ, have been preaching for some time. That is, the insidiousness of corruption and its negative effects on an economic system.

Xi and China have realized that corruption is a drain on the Chinese economic system. Publications as diverse as the Brookings Institute to the Wall Street Journal (WSJ) have noted that one of the reasons for the anti-corruption campaign is to restore the Chinese public’s faith in the ruling Communist Party. Bob Ward, writing in the WSJ article, entitled “The Risks in China’s Push to Root Out Wrong”, said, “China’s anticorruption drive began in late 2012 as a way to cleanse the ruling Communist Party and convince ordinary Chinese that the system isn’t rigged against them. Investigators are targeting some of China’s most powerful officials and disciplining tens of thousands of lower-echelon officials who party investigators contend got used to padding their salaries.” Cheng Li and Ryan McElveen, writing online for Brookings in an article entitled “Debunking Misconceptions About Xi Jinping’s Anti-Corruption Campaign”, wrote, “If there were ever any doubts that Xi could restore faith in a party that had lost trust among the Chinese public, many of those doubts have been dispelled by the steady drumbeat of dismissals of high-ranking officials since he took office.”

There have already been demonstrated economic benefits to China’s anti-corruption campaign. In September, Bloomberg reported that China’s fight against bribery and corruption could boost economic growth, generating an additional $70 billion for the budget, in summarizing economists’ forecasts. An article in the online publication Position and Promotions, reported that the bribery “could trigger a 0.1-0.5 percent increase in the world’s second-biggest economy, equivalent to $70 billion dollars.” This crackdown should also be welcomed by western companies, as “it could also benefit foreign companies operating on the Chinese market, who have experienced the negative effects of the omnipresent palm-greasing, according to Joerg Wuttke, president of European Chamber of Commerce in China.”

GSK’s actions during the pendency of this entire series of events will long be studied as one NOT to follow when faced with allegations of corruption and bribery. GSK sealed its own fate when they, in the face of credible allegations of bribery and corruption by a well-informed whistleblower, performed an investigation and came up with no evidence to support such allegations. It took the Chinese government less than 30 days to not only develop credible evidence but also secure confessions from GSK employees topped off with a very public corporate apology.

As with any good scandal there is a sex angle with a sex tape surfacing involving the GSK China Country Manager. This sex tape and GSK’s attempts to investigate its provenance led to the conviction of a husband and wife investigators, who are a UK and US citizen, in a trial for violations of Chinese privacy laws.

At the close this phase of GSK’s bribery and corruption saga in China, GSK in China – The Book, provides some thoughtful reflection, which you may be able to put to good use in your compliance program going forward. For the compliance practitioner there have been many specific lessons to be learned from GSK’s missteps. I think the clearest lesson is that the only real hope that a company has in today’s world is an effective, best practices anti-corruption compliance program. Whether it is designed to help a company comply with the US Foreign Corrupt Practices Act (FCPA), UK Bribery Act or other anti-corruption legislation, really does not matter. It is the only, and I mean only, chance your company will have when an issue in some far-flung part of the world splashes your company’s name across the world’s press.

But there may also be cause for celebration to those who have long preached against the evils of corruption, whether it is for economic reasons or for those who view the fight against anti-corruption as a part of the fight against terrorism. For if China is attacking domestic corruption, I believe that will lead other countries to do so as well. So while GSK may well suffer going forward, the fight against global bribery and corruption may just have moved a few feet forward.

For a copy of my new book GSK in China: Anti-Bribery Enforcement Goes Global in bound version, click here.

For a copy of my new book GSK in China: Anti-Bribery Enforcement Goes Global in Kindle version, 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, 2015

Partridge Family BusToday we celebrate an anniversary of one of the all-time lows in the American cultural milieu; for on this date in 1970, the television show The Partridge Family appeared on the ABC Television network. Symbiotically created from the ashes of the television show The Monkees and the real-life family pop group The Cowsills; The Partridge Family starred, as its TV-mom, Oscar winning actress Shirley Jones and as her eldest TV son, and teenaged girl heartthrob, her real-life stepson David Cassidy. Proving once again that 1960s and 1970s television really was largely a cultural wasteland, the family romped and sang their way across a never-ending sunny southern California in multi-colored converted school bus. While the episodes themselves were as close to putrid as one can get, they did have better success with their lip-synced music from each episode. One song, I Think I Love You, reached No. 1 on the Billboard Pop Charts that year.

I thought about this strange convergence of history and culture (or perhaps the lack of culture) when considering more lessons learned from the GlaxoSmithKline PLC (GSK) corruption scandal. I was particularly focused on GSK’s response to at least two separate reports from an anonymous whistleblower (brilliantly self-monikered as GSK Whistleblower) of allegations of bribery and corruption going on in the company’s China business unit. One of the clear lessons from the GSK matter is that serious allegations of bribery and corruption require a serious corporate response. Not, as GSK appears to have done, in their best Inspector Clouseau imitation, not being able to find the nose on their face.

Further, and more nefariously, was GSK’s documented treatment of and history with internal whistleblowers. One can certainly remember GSK whistleblower Cheryl Eckard. A 2010 article in The Guardian by Graeme Wearden, entitled “GlaxoSmithKline whistleblower awarded $96m payout”, where he reported that Eckard was fired by the company “after repeatedly complaining to GSK’s management that some drugs made at Cidra were being produced in a non-sterile environment, that the factory’s water system was contaminated with micro-organisms, and that other medicines were being made in the wrong doses.” She later was awarded $96MM as her share of the settlement of a Federal Claims Act whistleblower lawsuit. Eckard was quoted as saying, “It’s difficult to survive this financially, emotionally, you lose all your friends, because all your friends are people you have at work. You really do have to understand that it’s a very difficult process but very well worth it.” So to think that GSK may simply have been SHOCKED, SHOCKED, that allegations of corruption were brought by an internal whistleblower may well be within the realm of accurate.

There would have seemed to have been plenty of evidence to let the company know that something askance was going on in its Chinese operations. The international press was certainly able to make that connection early on in the scandal. An article in the Financial Times (FT), entitled “China accuses GSK of bribery” by Kathrin Hille and John Aglionby, reported “GSK said it had conducted an internal four-month investigation after a tip-off that staff had bribed doctors to issue prescriptions for its drugs. The internal inquiry found no evidence of wrongdoing, it said.” Indeed after the release of information from the Chinese government, GSK said it was the first it had heard of the investigation. In a prepared statement, quoted in the FT, GSK said ““We continuously monitor our businesses to ensure they meet our strict compliance procedures – we have done this in China and found no evidence of bribery or corruption of doctors or government officials.” However, if evidence of such activity is provided we will act swiftly on it.”

Laurie Burkitt, reporting in the Wall Street Journal (WSJ) in an article entitled “China Accuses Glaxo of Bribes”, wrote that “Emails and documents reviewed by the Journal discuss a marketing strategy for Botox that targeted 48 doctors and planned to reward them with either a percentage of the cash value of the prescription or educational credits, based on the number of prescriptions the doctors made. The strategy was called “Vasily,” borrowing its name from Vasily Zaytsev, a noted Russian sniper during World War II, according to a 2013 PowerPoint presentation reviewed by the Journal.” Burkitt reported in her article that “A Glaxo spokesman has said the company probed the Vasily program and “[the] investigation has found that while the proposal didn’t contain anything untoward, the program was never implemented.”” From my experience, if you have a bribery scheme that has its own code name, even if you never implemented that scheme, it probably means that the propensity for such is pervasive throughout the system.

I have often written about the need for a company to have an investigative protocol in place so that it is not making up its process in the face of a crisis. However the GSK matter does not appear to be that situation. It would not have mattered what investigation protocol that GSK followed, it would seem they were determined not to find any evidence of bribery and corruption in their China business unit. So the situation is more likely that GSK should have brought in a competent investigation expert law firm to head up their investigation in the face of this anonymous whistleblower’s allegations.

In an ACC Docket article, entitled “Risks and Rewards of an Independent Investigation”, authors James McGrath and David Hildebrandt discuss the use of specialized outside counsel to lead an independent internal investigation as compliance and ethics best practices. This is based upon the US Sentencing Guidelines, under which a scoring system is utilized to determine what a final sentence should be for a criminal act. Factors taken into account include the type of offense involved and the severity of the said offense, as well as the harm produced. Additional points are either added or subtracted for mitigating factors. One of the mitigating factors can be whether an organization had an effective compliance and ethics program. McGrath and Hildebrandt argue that a company must have a robust internal investigation.

McGrath and Hildebrandt take this analysis a step further in urging that a company, when faced with an issue such as an alleged Foreign Corrupt Practices Act (FCPA) violation, should engage specialized counsel to perform the investigation. There were three reasons for this suggestion. The first is that the Department of Justice (DOJ) would look towards the independence and impartiality of such investigations as one of its factors in favor of declining or deferring enforcement. If in-house counsel were heading up the investigation, the DOJ might well deem the investigative results “less than trustworthy”.

Matthew Goldstein and Barry Meier discussed the need for independence from the company being investigated in an article the New York Times (NYT) about the General Motors (GM) internal investigation entitled “G.M Calls the Lawyers”. They quoted William McLucas, a partner at WilmerHale, who said, “If you are a firm that is generating substantial fees from a prospective corporate client, you may be able to come in and do a bang-up inquiry. But the perception is always going to be there; maybe you pulled your punches because there is a business relationship.” This is because if “companies want credibility with prosecutors and investors, it is generally not wise to use their regular law firms for internal inquiries.” Another expert, Charles Elson, a professor of finance at the University of Delaware who specializes in corporate governance, agreed adding, “I would not have done it because of the optics. Public perception can be affected by using regular outside counsel.””

Adam G. Safwat, a former deputy chief of the fraud section in the Justice Department, said that the key is “Prosecutors expect an internal investigation to be an honest assessment of a company’s misdeeds or faults, “What you want to avoid is doing something that will make the prosecutor question the quality of integrity of the internal investigation.”” Also quoted was Internal Investigations Blog editor, Jim McGrath who said, “A shrewd law firm that gets out in front of scandal can use that to its advantage in negotiating with authorities to lower penalties and sanctions. There is a great incentive to ferret out information so they can spin it.”

The GSK experience in China will inform compliance practitioners for years to come with the company’s plethora of miss-steps. Perhaps one day the company will become as successful as The Partridge Family and they can open their annual meeting with The Partridge Family Theme Come On Get Happy!

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, 2014