Show Notes for Episode 24, week ending September 30, 2016-the SCCE Edition

  1. Misonix discloses possible FCPA violations, as reported in the FCPA Blog:
  2. The Anheuser-Busch InBev SEC FCPA enforcement action, click for the SEC Order;
  3. Och-Ziff SEC FCPA enforcement action, click for the SEC Order,
  4. HMT LLC and NCH Corp receive Declinations yet are required to disgorge profits, for the HMT Declination letter, click here and for the NCH Declination letter click here;
  5. Final thoughts by Tom and Jay on the recently concluded SCCE 2016 Compliance and Ethics Institute; and
  6. Jay previews his Weekend Report.

arnold-palmerThe golfing world and the world of beverages lost one of their giants earlier this week. I, of course, refer to golfing and beverage legend Arnold Palmer. The legend around the beverage is that at dinner one evening Palmer ordered his favorite concoction, which was one-half iced tea and one lemonade. His dinner companion then said he would have what Palmer was having or simply ‘The Palmer’. The name stuck and history was made. And, of course, who else has their own Army named after them?

Yet Palmer did more than inspire a new form of refresh, as he was one of the first major sports entrepreneurs. He truly revolutionized sports marketing. He developed a business empire which was a far and wide as the sports management agency IMG to the original Golf Channel to real estate development. In his piece in the Wall Street Journal (WSJ), entitled “How Arnold Palmer Revolutionized the Business of Sports, Matthew Futterman wrote, “Palmer provided the blueprint for generations of athletes, many of whom now make exponentially more through their business ventures away from the field than they do for their sporting accomplishments.”

Coming home from the Society of Corporate Compliance and Ethics (SCCE) 2016 Compliance and Ethics Institute, I thought about Palmer and what he meant for not only the beverage world and golf but the greater sports business world. I have been thinking quite a bit about compliance and how it fits into the greater business world. I have been intrigued since the first time I attended the dinner announcing Ethisphere’s World’s Most Ethical Corporation Awards and learned about the superior financial returns posted by companies which were honored with the designation.

Palmer, the Compliance and Ethics Institute and Ethisphere all intersect to help explain why I am so passionate about compliance. I am passionate about the compliance profession, which is the greatest profession, because it is the only corporate discipline that impacts every corporate function. As Diana Urelius, Assistant Secretary and Senior Compliance Manager at Mitsubishi Caterpillar Forklift America Inc., said at a recent Greater Houston Business and Ethics Roundtable (GHBER) event that “The compliance profession is where the magic happens in a corporation.” Whether it be specific tasks of making sales, vetting relationships or the spade work of creating policies and procedures, it is compliance that drives the discussion of how we should do business. The corporate compliance profession fulfills the business obligation in doing things the right way for, at the end, it will be the compliance profession which implements the requirements of compliance whether those requirements are anti-corruption laws such as the US Foreign Corrupt Practices Act (FCPA), the UK Bribery Act, Anti-Money Laundering (AML), export control, anti-trust regulations, or any other regulation that you can name.

The compliance profession is revolutionizing how corporations do business by teaching corporations how to measure, evaluate and manage risks. It is the compliance profession that is leading that discussion in the corporate world. It is the compliance profession that is the most innovative in not only protecting corporations, but actually helping corporations do business, do business more efficiently, and do business more profitably. When you can put all those in one profession, that is something which will move the ball forward with a business solution.

A great example of this was one of the keynote speeches at SCCE given by Kristy Grant-Hart, the author of How to be a Wildly Effective Compliance Officer, who brought not only her passion for compliance to the role of a Chief Compliance Officer (CCO) but also discussed specific steps which a CCO can take, from a wide variety of disciplines, to help make businesses run better. Her talk encapsulated for me the evolution of the compliance profession, from someone inside a legal department or simply with legal training to using a much wider skill set, to help a company be run in a superior manner. While lawyers certainly can help to protect a company one thing we do not do is make businesses run better.

These changes will also require academia to change the manner in which it trains compliance practitioners. If your role is to work with an organization to measure, evaluate and manage risk; you will need to know far more than simply the law. You will need a basic understanding of a wide variety of corporate disciplines which requires a multi-disciplinary approach to education. Nor will simply one business ethics course be sufficient. Moving beyond simply doing the right thing business wise to making a company’s internal controls more efficient to prevent, find and fix problems will require an understanding of business processes and how controls fit into this structure. Simply hoping internal audit will pick up something is too far back a retrospective application of a discipline which must be more forward looking; moving from preventative to prescriptive.

The Department of Justice (DOJ) and Securities and Exchange Commission (SEC) have consistently led this discussion by articulating that compliance programs must evolve. Certainly the static paper program based compliance defense has long gone by the wayside in favor of well-thought out programs, specifically tailored to fit the risks of the individual companies.

Just as Arnold Palmer revolutionized how sports figures can market themselves; the SCCE is leading the revolution in the growth and widening of the compliance profession through a variety of ongoing education, certification and support. This year’s Compliance and Ethics Institute was a great example of how far the profession has evolved and in many ways presaged where it is going. I am thrilled to a part of this journey and look forward to seeing what might be explored at the 2017 Compliance and Ethics Institute in Las Vegas. I hope you will plan to join me there.

 

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

qtq80-OqbmVYThe second day of the SCCE Compliance and Ethics Institute (CEI) Conference began with Principal Deputy Associate Attorney General Bill Baer providing remarks. After opening with how aggressively the Department of Justice (DOJ) had prosecuted banks for illegal activity during the 2008 financial crisis, he turned to a more compliance focus subject matter; that being what constitutes extensive cooperation under the DOJ Foreign Corrupt Practices Act (FCPA) Pilot Program and, more broadly, which would allow a company to receive a reduction in a fine or penalty.

Most interestingly he said that DOJ consideration for cooperation credit is only available where an entity has satisfied the requirements of the Yates Memo which he termed the “department’s Individual Accountability policy.” To meet this initial threshold, companies who want credit for their cooperation must disclose all facts relating to the individuals involved in the wrongdoing, no matter where those individuals fall in the corporate hierarchy. He stated, “We will not credit cooperation unless this threshold requirement has been met.”

He went on to give the general disclaimer that while each investigation and defendant will be treated differently, there were some common elements the DOJ has observed. The first is that the cooperation should be proactive; that is, the company should materially assist the DOJ, including by disclosing facts that are relevant to the investigation, even when not specifically asked to do so. This could mean such things as a “company describing its own conduct and pointing us to inculpatory documentary evidence, such as emails and text messages.” It could also mean providing documents or access to witnesses that the department might not have obtained through its subpoena power. Somewhat more troublingly, Baer also said such cooperation could be “providing information that the government did not know about or did not recognize would be significant.”

He provided some examples where cooperation with the DOJ makes case administration easier and more efficient for the DOJ. These Instances included providing summaries of evidence that were designed to specifically to assist the government’s investigation; providing data compilation to the DOJ in a manner which is helpful and that the DOJ could not readily achieve on its own. It also included encouraging individuals with knowledge of the relevant conduct to cooperate with the investigation. Finally he listed providing information that might otherwise not have been discovered in the ordinary course of the investigation.

Baer cautioned that another linchpin is timeliness of the cooperation. If it is in the early stages of an investigation it is substantially more helpful than cooperation after the DOJ has “invested significant time and energy in exposing problematic conduct.” The corollary to this is that “little or no cooperation credit will be afforded in situations where the supposed cooperation occurs after the department has completed the bulk of its investigation.” One can think back to both the Weatherford and Total FCPA enforcement actions, where the companies actively resisted the DOJ’s investigation until at some point they ‘got it’ and began to actively cooperate.

This series of remarks ties into something observed in the Nortek Corporation FCPA enforcement action, where the company self-reported to the government even before completing its internal investigation. Baer said that a company should come in as early as it possibly can, even if it has not completed an internal investigation. He did acknowledge that “A company will not be disqualified from receiving cooperation credit simply because it doesn’t have all the facts lined up on the first day; rather, under those circumstances, we expect that cooperating companies will simply continue to turn over the information to our lawyers as they receive it.”

Turning to the quality of the information provided, Baer said that a company (or individual for that matter) would be considered for credit where it provides information that allows the DOJ to obtain conclusions that are more significant. He explained, “where a cooperator enables the government to pursue conduct that might not otherwise have been addressed. This type of cooperation may involve detailing relevant conduct by a different party (or parties) participating in the same or similar scheme or that enables the department to net greater recoveries.”

He went on to add that a company could take other actions which could lead to a reduced fine or penalty or even a declination to prosecute. They turned on situations where a company acknowledged the responsibility for it negative actions. He also noted a key factor could be a company’s efforts to help assist victims of the illegal conduct. Baer conceded, “These actions are distinct from cooperation, which is focused on helping us uncover and understand the underlying conduct.  But they can be important additional factors in the department’s determination of an appropriate outcome.”

Baer also had some cautionary remarks around cooperation. He stated, “not every interaction between the government and a party under investigation will constitute cooperation.” He then provided an example from the DOJ’s enforcement action against “the RMBS banks, mere compliance with legal requirements such as subpoenas, or one-sided presentations urging the department to decline an enforcement action, do not measure up. Indeed, the department may view some such activities – including the belated provision of information that an entity was legally obligated to produce – as impediments to investigative work rather than genuine examples of cooperation.”

No doubt drawing on his inner Potter Stewart, Baer concluded with the ubiquitous remark, “We know meaningful cooperation when we see it.” He went on to cite a recent matter involving an un-named prescription drug chain that overbilled the government for orders of prescription drugs that were never picked up by customers. He said that the evidence involved handwritten pick-up signature logs kept at the cash registers of thousands of pharmacies and noted, “The company decided to cooperate early and in ways that mattered. In addition to the thousands of pages of the handwritten logs, the defendant produced extensive spreadsheets reflecting the information on the logs. To accomplish this, the defendant had a team enter the information line by line into a format where it could be analyzed. The defendant also shared its analysis using the information from the logs. This effort avoided the need to spend months and significant government resources tabulating the logs.”

From these remarks it is clear that the DOJ expects no adversarial relationship if you self-disclose and want cooperation credit. It was unclear from these remarks if that would also include the negotiations of any proposed fine or penalty. It will be interesting to see what happens to Telia Company AB and Deutsche Bank in their negotiations as they both balked at paying the originally proposed fine, stating they were simply the DOJ’s “opening demand”. If they actively fight the fine amounts, I wonder if it will penalize their cooperation credit.

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

The year 2016 may well be one for the books in the enforcement of the Foreign Corrupt Practices Act (FCPA). In February there were nearly as many FCPA enforcement actions as there were in all of 2015. Yet the summer of 2016 brought some significant enforcement actions which may well portend long-term changes in FCPA enforcement. In my new eBook,  I explore these enforcement actions, discuss the underlying facts of each and provide the lessons for the compliance practitioner. I will also look at the enforcement actions in the context of the Yates Memo and recently announced change in the way the Department of Justice (DOJ) will assess damages in its prosecutions based upon the FCPA Pilot Program, announced in April, 2016.

My latest eBook is published by Corporate Compliance Insights and joins a list of books which I have partner with CCI to publish. You can download this eBook for free by clicking here. At the 2016 FCPA enforcement year moves towards conclusion, it may well be one for the books. The summer of 2016 may prove to be as significant a three month period of FCPA as we have seen in some time.

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 Not Your Father’s FCPA-Summer 2016, the New Era of Enforcement

 

For more information see the following blog posts:

  1. On the FCPA Compliance Blog-THREE KEY QUESTIONS TO ASK IN HIRING OF FAMILY MEMBERS OF FOREIGN OFFICIALS
  2. On the Global Anti-Corruption Blog- Does an FCPA Violation Require a Quid Pro Quo? Further Developments in the JP Morgan “Sons & Daughters” Case