Harry PotterOne of the things I have enjoyed for years is listening to some of America’s top professors and academics that teach in their subject area of expertise through lectures from the Teaching Company. I just completed the 24 episode series entitled “Heroes and Legends: The Most Influential Characters of Literature” by Professor Thomas A. Shippey. I was interested in his episode on Harry Potter, whom he identified as a ‘whistleblower’. I have to admit I had never thought of Potter in this manner.

In his show notes, Professor Shippey articulates that Harry’s role is largely to prepare the magic world for the return of the Dark Lord, whose name , Lord Voldemort, is not to be mentioned. If Voldemort returns he will not only take over the world of magic but also lead its rule over the rest of us, the world of muggles.

Shippey believes this war is being fought on several fronts, which is a contemporary situation. Shippey writes, “Just like Harry, we face serious threats to our security: terrorism, financial instability, climate change, and more. We have to trust the state to protect us from those threats, but do we trust the institutions of the state? Skepticism about politicians, lobbyists, and bureaucrats is very much a part of the modern mindset. For this reason, ever since Watergate, we’ve had a word for another new kind of hero: the whistle-blower. As a whistle-blower, Harry tries to alert his community to one threat, but he also faces the other threat of the forces that are trying to hush him up.”

I thought about the struggles of Potter as a whistleblower when I read a piece by Michael Skapinker, in the Business and society column in the Financial Times (FT) entitled “The Libor trial and how to deal with a bullying dishonest boss”. One of the defendants, who was convicted this week in a trial in London, is Jonathan Mathew. According to Skapinker, “He told the court that he had no idea he was behaving dishonestly and only did what Peter Johnson, his manager, told him to do. Mr Mathew said he dealt mainly with Canadian dollar Libor matters and other currencies and only set US dollar rates when Mr Johnson was out of the office or on holiday.”

But more than following his boss’s dictate (I should note that Johnson has pled guilty to the Libor rate-fixing charges and is awaiting sentencing) Mathew was mercilessly bullied by Johnson. Skapinker wrote, “Early on, when another banker asked him to set a particular US dollar rate, he ignored the email, which earned him a rebuke from Mr Johnson when he returned. In future, Mr Johnson told him, he should take a “firm-first approach” and “help these guys out”. He also told the court that Mr Johnson used to hit him on the back of the head with a miniature baseball bat. This was to humiliate, not hurt him. Mr Johnson also made him stand on a chair on the trading floor when he could not name the capital of the Philippines.”

Not surprisingly the bullying was not only physical but verbal as well. In testimony it came out that Johnson had called Mathew, “a “deaf git” (Mr Mathew has hearing difficulties) and once sent him an email headed “brick dain” because the bank’s compliance department would have picked up an email headed “dick brain”.” If this was not evidence of a completely toxic workplace, I have not seen a much greater example.

However it is more than simply a failure of corporate culture, it is a failure of compliance. Roy Snell has been one of the most forceful in articulating the proposition that a Chief Compliance Officer (CCO) and compliance practitioner has to stand up for employees like Mathew and against corporate bullies like Johnson. One of the things every compliance function has to create is a safe place for such bullying conduct to be reported. Skapinker noted that he has “interviewed several whistleblowers over the years. Most have been driven half-crazy by the persecution, law suits and vituperation that followed their act of public service.” He further noted that while “You could call the ethics hotline. This is clearly the right thing to do, but it will almost certainly spell the end of your career and you and your family’s happiness.”

Every compliance department must make it clear that any such employee who comes forward with such tales will not face retaliation. Moreover, such a whistleblower should be actively rewarded for bringing such antithetical conduct to the attention of someone at the company who can do something about it. For if such a culture is allowed to not only exist but to flourish there will always be legal repercussions, in the form of some legal violations.

Harry Potter was willing to be a whistleblower and suffer the consequences. Not all of us have the wherewithal to do so. That is where compliance has to make a stand for what is right. Business is not the Marine Corp, where actions can literally be life and death. These are white-collar businesses and there is no place for the type of bullying that Johnson engaged in with Mathew Skapinker ended his piece with “There have been many villains in the financial crises of the past few years. Mr Mathew does not strike me as the worst.” I would add that every compliance practitioner needs to commit to preventing such conduct at his or her company. There should be some type of detection system in place to pick up such conduct if it does occur. Finally, there should be a remedy immediately brought to bear if such conduct does appear.

 

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

Dark Side of the Moon“There is no dark side of the moon really. Matter of fact it’s all dark.”

If you went to college in the 70s or 80s (or maybe even the 90s) you know what the next album is, Pink Floyd’s Dark Side of the Moon. For in the prog rock world, this is truly the standard bearer for all time to come. Reed Fischer, writing in Rolling Stone, said, “Easily the peak of prog rock’s commercial success – and often cited as trailing only Michael Jackson’s Thriller in total global album sales – Pink Floyd’s lean concept album has soundtracked countless planetarium light shows and just as many critical unpackings.”

From many a late night in the dorm room, inspired by your favorite enhancement, this was the best prog rock album by far. Fischer noted, “From its sync-up with The Wizard of Oz (press play after the lion’s third roar) to the Flaming Lips and friends’ track-for-track covers project to Krusty the Clown’s lost Dark Side of the Moonpie to the endless hawking of the prism-and-rainbow logo, the album has endured as a pop culture touchstone since its release. Sonically, it covers classic rock (“Money”), soul (“The Great Gig in the Sky”), glam symphonia (“Brain Damage”), chiming clocks (“Time”) and analog synthesizers (pretty much all of it). Lyrically, Roger Waters was universal yet personal, peeling back the human condition’s paper-thin skin.” To this day, I would challenge anyone to put on a set of phones and not be blasted to the netherworld when those alarm clocks go off.

This album also has the single best line from any prog rock album and perhaps any rock and roll album period, “There is no dark side of the moon really. Matter of fact it’s all dark”. This iconic line introduces us to our old friend Volkswagen (VW), and its continued foot-in-mouth defense of the world’s biggest emissions-testing fraud scandal ever. VW has consistently denied that top management had any knowledge that some group of rogue engineers had engaged in fraud by installing a defeat device, let alone directed that they do so. Of course, these statements were made by senior management to not only save their collective backsides from personal criminal liability but also to help shield the company from the massive civil liability it will owe everyone from the shareholders, to VW’s dealers to its customers for orchestrating a massive fraud campaign against them.

Senior Management

As reported in the Financial Times (FT) by Patrick McGee and Robert Wright, in a article entitled “VW management back in scandal spotlight”, the then Chief Executive Officer (CEO) Martin Winterkorn had been informed about the “irregularities” in VW emissions-testing as far back May 2104, via a memo. Of course, VW no doubt protecting its former CEO at all costs, noted it was not clear if Winterkorn had actually read the memo sent to him.

Further, Winterkorn was also present at a meeting where, the meeting notes indicate, the “diesel issue” was discussed. VW doubling down on its protection of Winterkorn said, “It is not clear whether [the meeting] participants understood already at this point in time that the change in software violated US environmental regulations.” They quoted one analyst, who declined to be named, that “This is either gross incompetence or extreme arrogance.” There is no dark side of the moon really.

It appears that VW will try to argue to the Department of Justice (DOJ) and Environmental Protection Agency (EPA) that “senior managers understood neither that the defeat devices breached US law nor the consequences would be severe.” The article quoted Carl Tobias, who derived this formulation with the “well-known legal aphorism, “Ignorance of the law is no excuse, right?””

The Board

Another FT piece on VW, in the Lex Column, looked at the company’s response from the perspective of the board of directors. The article stated, “There is a more general notion at work here, though: that VW is less culpable if any wrongdoing took place below upper management levels. It is as actions unknown to the board are like an individual’s involuntary bodily movements. “I slipped and the gun just went off, your honour.” But it is surely wrong. Just because the board is the prefrontal cortex does not mean it is off the hook when the metaphorical hands get into trouble.” There is no dark side of the moon really.

 Whistle-blowers at VW

The darkness found on the far side of the moon in VW’s world does not end with the CEO, senior management or even the board. A New York Times (NYT) article by Jack Ewing, entitled “Whistle-Blower’s Suit accuses Volkswagen of Deleting Data”, said, “A former Volkswagen employee has filed a whistle-blower lawsuit in Michigan, asserting that co-workers illegally deleted electronic data shortly after the United States government accused the carmaker of cheating on emissions tests. The former employee, Daniel Donovan, who according to the lawsuit worked as an information manager in an Auburn Hills, Mich., office overseen by Volkswagen’s in-house lawyer, says he was fired in December because his superiors believed that he was about to report the company to the American authorities for obstruction of justice.” VW responded that the suit was “without merit”.

Note that this whistleblower worked in an office overseen by VW’s in-house counsel. After the uproar against the DOJ over its lack of individual prosecutions in the General Motors (GM) ignition switch scandal, particularly among the in-house counsel involved, this could be quite a serious situation for the company’s legal department. At best these allegations “could be a blow to Volkswagen’s credibility in difficult settlement negotiations with authorities in Washington.”

Of course being a whistleblower, even internally at VW, comes with risks. McGee and Wright’s FT article concluded with the following, “When rumours emerged in 2013 that then VW chairman Ferdinand Piëch could be resigning for health reasons, the chairman infamously responded at the Frankfurt auto show: “First I must be sure who it is, then I will send him to the guillotine.” When the Chairman of the Board communicates that attitude towards whistleblowers, you understand that employees will be very unlikely to come forward with untoward news. There is no dark side of the moon really.

It is not clear how and where VW will stumble next but the smart money says they will continue to do so. The company currently has a March 24 deadline to report to a federal district judge its plan to remediate the 500,000 cars in the US with the defeat device. What do you think the chances are that VW will meet that deadline?

I hope you have enjoyed my visit with some old and treasured friends from the prog rock genre. I had thought today would end my series but on Monday, I will have a post featuring my favorite prog rock song of all-time. Stay tuned.

To listen to a YouTube version of the entire Dark Side of the Moon, 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

Golden Gate BridgeToday, we celebrate one of the greatest engineering achievements of the century. On this date in 1937, the Golden Gate Bridge opened. At 4200 feet long, it was at the time the world’s longest suspension bridge. But not only was it an engineering and architectural milestone, its aesthetic form was instantly recognized as classical and to this day is one of the most iconic structures in the US if not the world. With just a few years until its 80th birthday, it demonstrates that a lasting structure is more than simply form following function but contains many elements that inform its use and beauty.

I use the Golden Gate Bridge as an entrée to my continued discussion on the series on steps that you can use in your compliance program if you find yourself, your company or your industry in an economic downturn. Whether you are a Chief Compliance Officer (CCO) or compliance practitioner, these steps are designed to be achieved when you face reduced economic resources or lessened personnel resources going forward due to a downturn your economic sector. Yesterday, I discussed mapping your current and existing internal controls to the Ten Hallmarks of an Effective Compliance Program so that you can demonstrate your compliance with the Foreign Corrupt Practices Act’s (FCPA) internal control prong to the accounting procedures. Today I want to discuss the issues surrounding the inevitable layoffs your company will have to endure in a downturn.

In Houston, we have experienced energy companies laying off upwards of 30% of their workforce, both in the US and abroad. Employment separations can be one of the trickiest maneuvers to manage in the spectrum of the employment relationship. Even when an employee is aware layoffs are coming it can still be quite a shock when Human Resources (HR) shows up at their door and says, “Come with me.” However, layoffs, massive or otherwise, can present some unique challenges for the FCPA compliance practitioner. Employees can use layoffs to claim that they were retaliated against for a wide variety of complaints, including those for concerns that impact the compliance practitioner. Yet there are several actions you can take to protect your company as much as possible.

Before you begin your actual layoffs, the compliance practitioner should work with your legal department and HR function to make certain your employment separation documents are in compliance with the recent SEC v. KBR Cease and Desist Order regarding Confidentiality Agreement (CA) language which purports to prevent employees from bringing potential violations to appropriate law or regulatory enforcement officials. If your company requires employees to be presented with some type of CA to receive company approved employment severance package, it must not have language preventing an employee taking such action. But this means more than having appropriate or even approved language in your CA, as you must counsel those who will be talking to the employee being laid off, not to even hint at retaliation if they go to authorities with a good faith belief of illegal conduct. You might even suggest, adding the SEC/KBR language to your script so the person leading the conversation at the layoff can get it right and you have a documented record of what was communicated to the employee being separated.

When it comes to interacting with employees first thing any company needs to do, is to treat employees with as much respect and dignity as is possible in the situation. While every company says they care (usually the same companies which say they are very ethical), the reality is that many simply want terminated employees out the door and off the premises as quickly as possibly. At times this will include an ‘escort’ off the premises and the clear message is that not only do we not trust you but do not let the door hit you on the way out. This attitude can go a long way to starting an employee down the road of filing a claim for retaliation or, in the case of FCPA enforcement, becoming a whistleblower to the Securities and Exchange Commission (SEC), identifying bribery and corruption.

Treating employees with respect means listening to them and not showing them the door as quickly as possible with an escort. From the FCPA compliance perspective this could also mean some type of conversation to ask the soon-to-be parting employee if they are aware of any FCPA violations, violations of your Code of Conduct or any other conduct which might raise ethical or conflict of interest concerns. You might even get them to sign some type of document that attests they are not aware of any such conduct. I recognize that this may not protect your company in all instances but at least it is some evidence that you can use later if the SEC (or Department of Justice (DOJ)) comes calling after that ex-employee has blown the whistle on your organization.

I would suggest that you work with your HR department to have an understanding of any high-risk employees who might be subject to layoffs. While you could consider having HR conduct this portion of the exit interview, it might be better if a compliance practitioner was involved. Obviously a compliance practitioner would be better able to ask detailed questions if some issue arose but it would also emphasize just how important the issue of FCPA compliance, Code of Conduct compliance or simply ethical conduct compliance was and remains to your business.

Finally are issues around hotlines, whistleblower and retaliation claims. The starting point for layoffs should be whatever your company plan is going forward. The retaliation cases turn on whether actions taken by the company were in retaliation for the hotline or whistleblower report. This means you will need to mine your hotline more closely for those employees who are scheduled or in line to be laid off. If there are such persons who have reported a FCPA, Code of Conduct or other ethical violation, you should move to triage and investigate, if appropriate, the allegation sooner rather than later. This may mean you move up research of an allegation to come to a faster resolution ahead of other claims. It may also mean you put some additional short-term resources on your hotline triage and investigations if you know layoffs are coming.

The reason for these actions are to allow you to demonstrate that any laid off employee was not separated because of a hotline or whistleblower allegation but due to your overall layoff scheme. However it could be that you may need this person to provide your compliance department additional information, to be a resource to you going forward, or even a witness that you can reasonably anticipate the government may want to interview. If any of these situations exist, if you do not plan for their eventuality before you layoff the employee, said (now) ex-employee may not be inclined to cooperate with you going forward. Also if you do demonstrate that you are sincerely interested in a meritorious hotline complaint, it may keep this person from becoming a SEC whistleblower.

Just as the Golden Gate Bridge provides more to the human condition than simply a structure to get from San Francisco to Marin County, layoffs in an economic downturn provide many opportunities to companies. If they treat the situation appropriately, it can be one where you manage your FCPA compliance risk going forward.

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

 

 

 

Green KnightWe continue our King Arthur themed week with an exploration of one of the most interesting characters in the Arthur canon, The Green Knight, so called because his skin and clothes are green. The meaning of his greenness has puzzled scholars since the discovery of the poem, that identifies him as the Green Man, a vegetation being in medieval art; a recollection of a figure from Celtic mythology; a Christian symbol or the Devil himself. According to Wikipedia, C. S. Lewis suggested the character was “as vivid and concrete as any image in literature” and J. R. R. Tolkien called him the “most difficult character” to interpret in the introduction to his edition of Sir Gawain and the Green Knight. His major role in Arthurian literature includes being a judge and tester of knights, and as such the other characters see him as friendly but terrifying and somewhat mysterious.

In his primary story with Sir Gawain, the Green Knight arrives at Camelot during a Christmas feast, holding a bough of holly in one hand and a battle-axe in the other. Despite disclaim of war, the knight issues a challenge: he will allow one man to strike him once with his axe, under the condition that he return the blow the following year. At first, Arthur takes up the challenge, but Gawain takes his place and decapitates the Green Knight, who retrieves his head and tells Gawain to meet him at the Green Chapel at the stipulated time. One year later, while Gawain is traveling to meet the Green Knight, he stays at the castle of Bercilak de Hautedesert. At Bercilak’s castle, Gawain’s loyalty and chastity is tested, Bercilak sends his wife to seduce Gawain and arranges that they shall exchange their gains for the other’s. On New Year’s Day, Gawain meets the Green Knight and prepares to meet his fate, where upon the Green Knight feints two blows and barely nicks him on the third. He then reveals that he is Bercilak, and that Morgan le Fay had given him the double identity to test Gawain and Arthur.

I thought about this story of testing when I read an article in the Wall Street Journal (WSJ), entitled “SEC Gives More Than $600,000 to Whistleblower in Retaliation Case” by Rachel Louise Ensign. She reported on the Paradigm securities matter where an award was made to the whistleblower, which was settled by the firm late last year. The settlement was for $2.2MM and $600, 000 of that amount was paid to the whistleblower for the firm’s retaliation against him. This was the first award to a whistleblower for retaliation from the act of whistleblowing. The award is 30% of $2.2MM, which is the maximum amount a tipster can get under the program. The agency said the “unique hardships” he faced were a factor in the size of his award. Securities and Exchange Commission (SEC) Enforcement Director, Andrew Ceresney, was quoted in the article as saying ““We appreciate and recognize the sacrifice this whistleblower made and the important role the whistleblower played in the success of the SEC’s first anti-retaliation enforcement action.””

This award to a whistleblower caps a stunning couple of weeks for whistleblowers who have brought information forward under the Dodd-Frank whistleblowing provisions. First there was the KBR pre-taliation fine and Cease and Desist Order.  In this matter, KBR was fined for having language in its internal employee Confidentiality Agreement (CA) that required employees to go to the company’s legal department before releasing certain confidential information to outside parties such as the SEC. The SEC held that such restrictions violated the “whistleblower protection Rule 21F-17 enacted under the Dodd-Frank Act. KBR required witnesses in certain internal investigations interviews to sign confidentiality statements with language warning that they could face discipline and even be fired if they discussed the matters with outside parties without the prior approval of KBR’s legal department. Since these investigations included allegations of possible securities law violations, the SEC found that these terms violated Rule 21F-17, which prohibits companies from taking any action to impede whistleblowers from reporting possible securities violations to the SEC.” This was in the face of zero findings that KBR had actually used such language or restrictions to prevent any employees from whistleblowing to the SEC.

In another part if its Press Release regarding the KBR case Director Ceresney said, “By requiring its employees and former employees to sign confidentiality agreements imposing pre-notification requirements before contacting the SEC, KBR potentially discouraged employees from reporting securities violations to us. SEC rules prohibit employers from taking measures through confidentiality, employment, severance, or other type of agreements that may silence potential whistleblowers before they can reach out to the SEC.  We will vigorously enforce this provision.”

Then we have the case of Tony Menendez, who was profiled by Jessie Eisinger in an article entitled “The Whistleblower’s Tale: How An Accountant Took on Halliburton”. The article told the story of a whistleblower, who took his concerns to government regulators and was then outed by the company as the SEC whistleblower and retaliated against. Interestingly, the SEC took no action on the whistleblower claims and the company argued on appeal that “since the SEC hadn’t brought any enforcement action, his complaint about the accounting was unfounded.” The company also claimed that simply because the whistleblower was identified by name, this alone was not the basis for a “material adverse action” against him. While Halliburton won at the administrative hearing level, it lost at the Fifth Circuit Court of Appeals.

So now there is a Court of Appeals opinion holding that if whistleblowing was a “contributing factor” only to the retaliation. Further, the employee is not required to prove motive. Well-known whistleblower expert Jordan Thomas also explained in the Eisinger article, “Whistleblowers can be victims of retaliation even if they are ultimately proved wrong as long as they have a “reasonable” belief that the company was doing something wrong.”

It appears that the SEC will be more like the Green Knight going forward. It will be a tester to determine if retaliation against whistleblowers occurs. From preventing companies from trying to stop whistleblowing via CA’s, to monetary awards for retaliation even where there is no SEC or government action taken, to the award to whistleblowers as a part of an SEC settlement for retaliation by their former employers; the SEC is making very clear that they will test how your company treats whistleblowers. If the SEC finds your company’s conduct lacking, you may well be facing something like the Green Knight going forward.

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