In this episode Mike Volkov and I discuss the two official pronouncements from the Sessions’ Justice Department regarding FCPA enforcement. They were both declinations used under the FCPA Pilot Program, which was announced in April 2016. The first declination involved Linde Gas North America LLC and Linde North America Inc. Linde Gas is a wholly owned subsidiary of the Linde Group, a German based entity which is listed on multiple stock exchanges in Germany, but not listed in the US.  The second declination involved CDM Smith Inc. a privately held company, headquartered in Boston MA. As neither company is a US publicly listed entity, neither is subject to jurisdiction of the SEC. Hence both declinations were granted with the notation of declinations with disgorgement. In Linde Gas, the disgorgement amount was $7.8 million and forfeit $3.4 million, for a total of $11.2 million and in the CDM Smith declination the disgorgement amount was $4.037 million. Both declinations were superior results obtained by the companies as both had clearly violated the FCPA, for multiple years in ongoing bribery and corruption schemes.

For more on these two enforcement actions see the following:

  1. Linde in the Republic of Georgia: A Declination and Lessons Learned by Tom Fox;
  2. A Second Superior Result – CDM Smith Obtains a Declination by Tom Fox; and
  3. Justice Department Resolves Two Cases Under FCPA Pilot Program by Mike Volkov.

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

  1. The Mattis Memo on ethics. See Tom’s blog post on why this Memo is so significant for the compliance practitioner. Also check out Matt Kelly’s blog post on Radical Compliance.
  2. More Data Security Compliance on EU Horizon. See article Mara Lemos Stein’s article in Risk and Compliance Journal in the WSJ.
  3. One of the great musicians of the 20th century died this week, Glen Campbell. Tom pays tribute in a moving blog post.
  4. Matt Kelly explores the intersection of FCPA and non-GAAP financial reporting. See Matt’s article in Radical Compliance.
  5. Jay asks if FCPA defenses counsel are becoming to whiny, based upon an article in GIR (sub req’d) by Jenner & Block lawyers, David Bitkower and Nicholas Barnaby and associate Marguerite Moeller entitled, “DOJ must beware unintended consequences, as multilateral settlements rise
  6. Everything Compliance, Episode 16 is out. It is our first book review episode. We consider Jesse Eisinger’s book the Chickenshit Club. It is available on the FCPA Compliance Report, iTunes, Libsyn, YouTube and JDSupra. Eisinger and key book source Paul Pelletier have agreed to come on the FCPA Compliance Report to discuss the book next month.
  7. This month’s podcast series on One Month to a More Compliance Program has premiered. In August I review how to have greater continuous improvement in your compliance program. Affiliated Monitors is this month’s sponsor. It is available on the FCPA Compliance Report, iTunes, Libsyn, YouTube and JDSupra.
  8. Tom surpasses 2000 blog posts. See his blog post on surpassing 2000 blogs posts here.
  9. Jay discusses his Weekend Report, And you may ask yourself, well How did I get here?

Alan Peckolick, died last week. According to his obituary in the New York Times, he “overcame a failed art school career to emerge as a leading designer of some the world’s most distinctive logos”. In an interview with the Huffington Post, he said, “Basically, for me, if a word was a beautiful word, it wasn’t the sound of the word that intrigued me but the look of the word. I saw each letterform as a piece of design. Cat is not ‘cat’ — it’s c-a-t. That’s what led to the beginning of the expressive topography.” And expressive it was, serving a multiple of visual senses.

I thought about Peckolick and his work when I recently visited with Vincent DiCianni, President and Founder of Affiliated Monitors, Inc. and Eric Feldman, Senior Vice President (SVP) and Managing Director, Corporate Ethics and Compliance Programs also at Affiliated Monitors, Inc. about voluntary monitoring. One of the insights I gained was achieving multiple and intersecting compliance goals through voluntary monitoring. These are the goals laid out in the 2012 FCPA Guidance and Department of Justice’s (DOJ’s) Evaluation of Corporate Compliance Programs (Evaluation) as both continuous improvement and analysis and remediation of non-compliant conduct under the Foreign Corrupt Practices Act (FCPA).

According Feldman, voluntary monitoring is an approach where a company “uses the services of an independent monitor in order to find out how their program is working and to be able to use that data with government regulators and law enforcement to demonstrate their due diligence in creating and continuously improving their corporate ethics and compliance program.” There are at least two different types of voluntary monitoring. Feldman articulated the first as “reactive proactivity” which is the situation where a company determines it has a potential compliance violation and they bring in an independent monitor to address the issue.

The genesis for this type of monitoring is some event, such as a whistleblower report, internal report or investigation or detect control picking up information which warrants additional investigation. Feldman provided a couple of examples. The first might be “where one business unit has a problem and they’re worried about the other business units and they want to get an assessment.” Another situation could be there is a problem in a sector or “industry and they know that that industry is being scrutinized by law enforcement or the regulators and they fully expect the regulators or law enforcement to be coming in and looking at them.” Yet another area could be in a geographic area such as China or another high-risk region.

DiCianni noted there is a second type of voluntary monitorship. It is where a company wants a true independent “to come in to test the quality of the program to see how impactful” the company’s compliance program is operating. It could assess a variety of issues, such as the compliance internal controls to test their benchmarking of a company’s compliance program. In this type of voluntary monitorship, the examiner is not focusing on one issue or region as laid out in the first example but it is broader.

Moreover, it allows a true independent to perform the assessment as DiCianni noted, “it’s very difficult for companies and for compliance officers and their teams to self-assess the strength of their programs. They just have difficulty doing that. It’s just not an easy thing for them to get their hands on, how good a job am I doing? By having an independent come in with no skin in the game, with complete objectivity, neutrality, no judgements, or pre-judging the work, looking at the company’s program, the quality of the program, the makeup of the team, the organizational structure, where it’s placed. All of those kinds of things are parts of this voluntary approach.” 

The benefits of both types of voluntary monitoring are multifold. It certainly helps to meet the Control Testing requirement found in the Evaluation. The 2012 FCPA Guidance stated, “An organization should take the time to review and test its controls, and it should think critically about its potential weaknesses and risk areas.” This type of approach can provide benefits if a company finds itself in FCPA hot water, as both the DOJ and Securities Exchange Commission (SEC) “will give meaningful credit to thoughtful efforts to create a sustainable compliance program if a problem is later discovered. Similarly, undertaking proactive evaluations before a problem strikes can lower the applicable penalty range under the U.S. Sentencing Guidelines.” Yet the Guidance intones a business reason for the use of such techniques as voluntary monitoring when it stated, “Although the nature and the frequency of proactive evaluations may vary depending on the size and complexity of an organization, the idea behind such efforts is the same: continuous improvement and sustainability.”

Feldman pointed out yet another reason for such a proactive approach. It can create an administrative record, which a company can use to demonstrate it has remedied the problems. Equally important it establishes the company is maintaining its commitment to doing business in compliance. The key is the independence of the monitoring personnel so they can present an accurate, unbiased opinion.

He presented the example of a company which had been debarred by the US government and needed to demonstrate an acceptable level of compliance to get off the debar list. He and his team performed a baseline assessment and from there developed a remediation plan, which the company implemented. After six months or so, he and his team came back to assess the progress made by the company. From this follow-up assessment, they generated a report which was used in a submission to the government which essentially noted, “We are now ready to be a responsible contractor as defined by the federal acquisition regulations and we propose an administrative agreement with continued monitored that would move it from voluntary monitoring over to mandatory monitoring for the next three years.”

Voluntary monitoring is an excellent technique through which a company can engage in continuous improvement. Nonetheless it has many other benefits as well, including regulatory and evidence in a criminal investigation if needed under anti-corruption laws such as the FCPA. The bottom line is that all those scenarios might justify a company to engage a voluntary monitorship to come in and do a complete ethics and compliance and cultural assessment or audit of their organization.

 

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2017

In this episode, the Everything Compliance trio of Matt Kelly, Jay Rosen and Tom Fox unpack our first book review. We consider the recently released The Chickenshit Club by Jesse Eisinger and it may mean for the compliance practitioner. We consider the internal journey of the Department of Justice from their days of Enron, WorldCom and Adelphia convictions to the 2008 financial crisis where no senior executives were prosecuted. It was a series of steps which led to this change and we discuss the key changes in the DoJ’s thinking. The book is a real page turner and our discussion reflects this. We believe that every compliance practitioner should read the book and understand its lessons from DOJ prosecution.

 

You can purchase a copy of the book The Chickenshit Club by clicking here.

 

In this special Saturday edition, Jay and I return for a wide-ranging discussion on some of the week’s top compliance and ethics related stories, including:

  1. Net 1 UEPS Technologies, Inc. obtains a full declination. Yet the company went through the investigation after being turned in by a competitor. Bryan Cave attorneys Mark Srere and Kristin Robinson explore in their article FCPA Investigations – Competitors Dropping the Dime.
  2. OFAC brings an enforcement action against a non-US company. See article in the FCPA Blog.
  3. Financial health as an indicia for third parties and corruption. See Tom’s article What is the Financial Health of Your Third Parties.
  4. MasterCard uses a Richard Bistrong video in its compliance training. See article by Sam Rubenfeld in WSJ.
  5. After 10 years, the FCPA Blog is still dancing. See Dick Cassin’s article in the FCPA Blog.
  6. Across the Board premiers. In this new podcast, I explore issues relating to the Board of Directors, risk management and corporate governance. In Episode 1, Richard Lummis and I consider the role of the Uber Board of Directors in the company’s struggles. It is available on the FCPA Compliance Report, iTunes, Libsyn, YouTube and JDSupra.
  7. This month’s podcast series on One Month to a More Effective Compliance program has premiered. In August I review how to have greater continuous improvement in your compliance program. Affiliated Monitors is this month’s sponsor. It is available on the FCPA Compliance Report, iTunes, Libsyn, YouTube and JDSupra.
  8. Jay reports on the state of compliance in Mexico and Panama.
  9. Jay discusses his latest piece for the SCCE Magazine, How compliance can be a business advantage