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31 Days to a More Effective Compliance Program – Day 22 – Levels of Due Diligence

Due diligence is generally recognized in three levels: Level I, Level II, and Level III. Each level is appropriate for a different level of corruption risk. The key is to develop a mechanism to determine the appropriate level of due diligence and then implement that going forward.

The 2023 ECCP stated, “A well-designed compliance program should apply risk-based due diligence to its third-party relationships. Although the need for, and degree of, appropriate due diligence may vary based on the size and nature of the company, transaction, and third party, prosecutors should assess the extent to which the company has an understanding of the qualifications and associations of third-party partners, including the agents, consultants, and distributors that are commonly used to conceal misconduct, such as the payment of bribes to foreign officials in international business transactions.”

The question becomes how you use the information you obtained in the business justification and the questionnaire to determine an appropriate level of due diligence for the next step in the five-step process of third-party management. A three-step approach with varying levels of due diligence is the appropriate analysis to take going forward.

There are many different approaches to the specifics of due diligence. By laying out some of the approaches, you can craft the relevant portions of your program. The Level I, II, and III trichotomies appear to have the greatest favor and are ones that you should be able to implement in a straightforward manner. But the key is that you must assess your company’s risk and then manage that risk. If you need to perform additional due diligence to answer questions or clear red flags, you should do so. And do not forget to “Document, Document, and Document” all your due diligence.

Three key takeaways:

1. Level I due diligence should only be used when there is a low risk of corruption.

2. Level II due diligence is sufficient in a high-risk jurisdiction if there are no red flags to be cleared.

3. Level III due diligence is a deep-dive, boots-on-the-ground investigation.

For more information on Ethico and a free White Paper on top compliance issues in 2024, click here.

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The Podcast On Podcasting Ep439: 5 New Ways To Monetize Your Podcast – Thomas Fox

Learn from renowned and seasoned podcaster Thomas Fox how to make money from your show using five unique strategies. Don’t miss this episode to find out how to start a podcast network, the value of guesting on other shows, and more so you can unlock the true potential of podcasting!

WHAT TO LISTEN FOR

  • #1 thing to think about when monetizing your podcast and website

  • Why it’s crucial to be consistent in your episode release cadence

  • A pro tip on setting an appearance fee for your guests effectively

  • 2 benefits of being a guest on other people’s podcasts

  • The best advice for podcasting newbies

    RESOURCES/LINKS MENTIONED

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Authors Over 50 – The Compliance Guy with Tom Fox

My guest today is literally the guy who wrote the book on compliance, “The Compliance Handbook, 4th edition,” published by LexisNexis in 2023.

He has authored 28 other books on business leadership, compliance ethics, and corporate governance, including international best-sellers and an award-winning series, “Fox on Compliance.”

He leads the social media discussion on compliance with his award-winning blog and is the Voice of Compliance, having founded the award-winning Compliance Podcast Network.

Welcome to Authors Over 50, Tom Fox.

EPISODE NOTES

Tom Fox’s Compliance Network

Julia Daily’s Twitter 

Julia Daily’s Facebook

Julia Daily’s Instagram 

Julia Daily’s Linked In 

Julia Daily’s Goodreads 

Authors Over 50 Podcast Links:

Amazon Music

Spotify

Apple Podcasts

Google Podcasts – authors over 50

Julia Daily’s Website

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One Month to More Effective Reporting and Investigations – Board Investigations

In their article, “Successful Board Investigations”, David Bayless and Tammy Albarrán, offered seven considerations to facilitate a successful Board investigation.

  • Consider whether you need independent outside counsel.
  • Consider hiring an experienced investigator to lead the internal investigation.
  • Consider the need to retain outside experts.
  • Analyze potential conflicts of interest at the outset and during the investigation.
  • Carefully evaluate whistleblower allegations.
  • Request regular updates from outside counsel, without limiting the investigation.
  • Consider whether an oral report at the conclusion of the investigation is sufficient.

The authors conclude their piece by stating, “By keeping in mind the issues addressed above, the Board will be better prepared for the investigation and readily able to exercise good judgment throughout the review. A well-conducted investigation by the Board may spare the company further disruption and costs associated with follow-on investigations by the regulators, or at the very least minimize the company’s exposure.”

Three key takeaways:

  1. Retain the right counsel. Consider conflicts and appearance.
  2. Carefully evaluate all whistleblower allegations and reject retaliation.
  3. Consider receiving oral reports on an ongoing basis and one lengthy oral report at the end of the investigation.
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Farewell to Jim Brown: Compliance and the Regulation of AI

Jim Brown died last week. Although I just saw Brown at the end of his career and at the start of my NFL fandom, he was the best player I ever saw. He is certainly the greatest running back of all-time, even if others have exceeded his yards gained the hard way, on the ground. A multi-sport All-American at Syracuse University, in both football and lacrosse, (and in the HOF for both sports) Brown played for the Cleveland Browns under legendary coach, Paul Brown. According to his New York Times (NYT) obituary, “Brown was voted football’s greatest player of the 20th century by a six-member panel of experts assembled by The Associated Press in 1999. A panel of 85 experts selected by NFL Films in 2010 placed him No. 2 all time behind the wide receiver Jerry Rice of the San Francisco 49ers.” The legendary New York Giants linebacker Sam Huff said of Brown, ““All you can do is grab, hold, hang on and wait for help.”

Brown was equally famous for his life after football where he was an action movie star, most notably (for me) in The Dirty Dozen. More importantly he was a voice of social conscience as well. According to the NYT, “he founded the Negro Industrial and Economic Union (later known as the Black Economic Union) as a vehicle to create jobs. It facilitated loans to Black businessmen in poor areas — what he called Green Power — reflecting his long-held belief that economic self-sufficiency held more promise than mass protests.” He later founded “the Amer-I-Can Foundation to teach basic life skills to gang members and prisoners, mainly in California, and steer them away from violence. The foundation expanded nationally and remains active.”

But I will always remember the highlights of the greatest running back ever; breaking tackles and outrunning all defenders to daylight and the end zone.

The Call For Regulation

Brown’s social advocacy informs today’s post about the coming regulation of AI. Last week, we were all treated to the spectacle (yet again) of another tech entrepreneur testifying before Congress, asking them to do their job which they seem to be incapable of doing any longer—passing legislation. Writing the Harvard Business Review, in an article entitled “Who Is Going to Regulate AI? Blair Levin and Larry Downes noted that “OpenAI chief executive Sam Altman said it was time for regulators to start setting limits on powerful AI systems.” They then quoted from his testimony for the following “As this technology advances we understand that people are anxious about how it could change the way we live. We are too…If this technology goes wrong, it can go quite wrong, [with] significant harm to the world.” Altman agreed with lawmakers that government oversight will be critical to mitigating the risks.

 Who Will Regulate AI

There is no shortage of potential government actors who might step in to regulate AI. As the authors note, “First, there’s Congress, where Senate Majority Leader Chuck Schumer is calling for preemptive legislation to establish regulatory “guardrails” on AI products and services. The guardrails focus on user transparency, government reporting, and “aligning these systems with American values and ensuring that AI developers deliver on their promise to create a better world.” The vagueness of this proposal, however, isn’t promising.”

Next is the Biden Administration, which created a White House blueprint for an AI Bill of Rights, last October. Here the authors said, “The blueprint is similarly general, calling for developers to ensure “safe and effective” systems that don’t discriminate or violate expectations of privacy and that explain when a user is engaging with an automated system and offer human “fallbacks” for users who request them.”

Next at the Department of Commerce, the National Telecommunications and Information Administration (NTIA) has begun to explore the “usefulness of audits and certifications for AI systems. The agency has requested comments on dozens of questions about accountability for AI systems, including whether, when, how, and by whom new applications should be assessed, certified, or audited, and what kind of criteria to include in these reviews.”

Federal Trade Commission (FTC) Chair Lina Kahn is looking at AI regulation through an anti-competitive and consumer protection lens “in the direction of the new technology. Kahn speculates that AI could exacerbate existing problems in tech, including “collusion, monopolization, mergers, price discrimination, and unfair methods of competition.” Generative AI, the FTC chair also believes, “risks turbocharging fraud” with its ability to create false but convincing content.” Khan has also express concern of the inherent bias in AI and a discriminatory impact.

Finally, the Department of Commerce is considering creating “a sustainable certification process, or the political clout to get the tech industry to support NTIA’s efforts. Further, as the Department acknowledges, its inquiry is only part of the larger White House effort to create a trusted environment for AI services, an objective that would require previously unseen levels of coordination and cooperation across numerous government silos.”

What Should Compliance Do?

I certainly believe there will be  combination of government action, as the authors note in the “legislative, regulatory, or judicial’ sphere will be a “balancing act of maximizing the value of AI while minimizing its potential harm to the economy or society more broadly.” But as is well known, law advances incrementally while technology evolves exponentially. I agree with the authors that compliance professionals “should take their cue from the Department of Commerce’s ongoing initiative, and start to develop nongovernmental regulators, audits, and certification processes that identify and provide market incentives to purchase ethical and trusted AI products and services, making clear which applications are and are not reliable.”

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The Woody Report -Succession: The Final Season, Episode 3 – Connor’s Wedding

Co-hosts Tom Fox and Karen Woody are back as they delve deep into the final season of Succession. From the recurring theme of personal vs. business decisions to the amazing performance from Shiv, these two bring you it all! But that’s not all – learn valuable lessons about deal-making and cultural fit, and find out why the attention to detail in the clothing and accessories of the characters is so important. And if you’re looking for a great podcast recommendation, tune in to catch their thoughts on a brand-new show – who knows, you might find your next binge-worthy obsession! Don’t miss the upcoming second episode of The Woody Report, where Tom and Karen bring you all the latest in pop culture, business, and more.

Karen Woody and Tom Fox are back with another incredible episode of The Woody Report, and this time they are discussing the third episode of Succession. The episode is being hailed as one of the best hours of television ever seen, and for a good reason. Karen and Tom agreed, “That was a master class, to be sure,” when discussing the exceptional acting and production of the show. The acting was spectacular, and the show highlighted the abilities of triple-A cast members. The actors who portrayed Kendall, Roman, and Shiv brought their A-games, and it showed. The method acting techniques used by the actors shone through, with each of them drawing from depths not seen before.

If you’re a fan of excellent productions and masterful acting, you must tune into The Woody Report as they recap this incredible episode 3.

Highlights Include

·      Incredible acting

·      The telephone next to the ear

·      The wedding goes through

·      Code Aggressive Behavior

·      Should the Board meeting go forward?

·      Who is in control?

·      Favorite lines

Resources

Karen on LinkedIn

Karen at Washington & Lee, School of Law

Tom

Instagram

Facebook

YouTube

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Episode 144 – Avani Desai

In this episode of The Ethics Experts, Nick welcomes Avani Desai. Avani is a Partner and Chief Executive Officer at Schellman, the largest niche CPA firm in the world that focuses on technology and security assessments. She also sits on the board of Cogent Bank, a Florida based community bank, as a Director and the head of the Technology Committee.

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Compliance Lessons from the World Series: Part 5

We conclude our celebration of the Houston Astros winning the 2022 World Series and how this world series may have helped the Astros in the one area they struggled with since the sign stealing scandal broke in 2019; their reputation and why that area has become so critical for the compliance profession. All baseball fans know the story, as related by Tom Verducci in SI.com, “The Astros won the 2017 title with the help of stealing signs off a live video feed and relaying them to the batter with a system of banging on a trash can. Crane fired manager Hinch and general manager Jeff Luhnow after MLB in ’20 imposed a one-year ban on them and bench coach Alex Cora, who by then was managing the Red Sox.”

The Astros became the most hated team in baseball after the cheating scandal broke. They were already disliked for their blatant tanking leading to three years of 100-loss seasons from 2011-2013 and their holier than thou attitude since Luhnow took over as General Manager (GM). In other words, there was much the Astros had to both answer for and overcome.

Up until the sign-stealing scandal broke, the Astros winning the 2017 World Series was the highlight of my professional sports-watching career. But then it became sullied and although much like a wayward relative, I finally forgave them, that taint will always be associated with that first World Series title. Even if, as some claim they did not cheat in the World Series, everyone on the team admitted they cheated during the season. My ennui was felt by players on the team as well. Verducci quoted San Diego Padres “pitcher Joe Musgrove, who pitched on that ’17 Astros team and won a game in that World Series, and who said, “I still don’t feel great about wearing that ring around or telling people that I was a World Series champion on that team. I want one that feels earned and that was a true championship. It was a powerful admission. This was not the media, fans or opponents referring to that 2017 title as less than genuine.” Even Astros pitcher, Lance McCullers Jr., who played on the 2017 title team and still pitches for the Astros said, “I understand the negative attention to it and why people feel the way they do.”

To overcome all this a change started at the top when owner Jim Crane brought in Dusty Baker to run the club as manager. Verducci said, “the Astros owner who needed someone not just to manage his team in 2020 after he fired A.J. Hinch in the wake of the team’s sign-stealing scandal, but also to manage the choppy waters around it. Crane could not change the taint associated with the ’17 team—that’s here to stay—but he needed a championship that moved the franchise forward.” Baker was the manager to do so. Bradford Doolittle writing in ESPN said, “Dusty Baker arrived, then, too, and the beloved manager’s very presence restored a measure of integrity to the Astros when they badly needed it.”

James Click did the same from the GM side of things. Doolittle said of new GM, “the soft-spoken, analytics-savvy executive, took over one of the most proficient front offices in the game, and under his management, the Astros haven’t missed a beat. In some ways, they’ve even iterated into a higher form, especially given the pitching depth that is the envy of the majors.” Moreover, “through those additions and plenty more, the Astros have remained at the forefront of the baseball world because of excellence in scouting, development and analytic innovation.” Of course, the players had to perform, and they did so magnificently.

Compliance Lessons

What are the compliance lessons from this story? The first lesson is that you can always come back from the abyss. I once worked for a company which, in 2007, had the largest Foreign Corrupt Practices Act (FCPA) fine in the history of the world ever. The Board of Directors made a clean sweep of senior management and brought in a new management team, and we were charged with implementing the best compliance program that we could put in place. It was light years ahead of the 2007 version of a best practices compliance program and had strategies that are still seen as cutting edge today in areas such as Supply Chain anti-corruption risk management.

What it takes to do so is a commitment from the very top. From my company it was the Board of Directors; from the Astros it was owner Jim Crane. Once that commitment is made, it must be executed upon by senior management and then cascaded down through the organization. It takes long hard work. Sometimes you have to put your head down and just plod along. Name any major, as in billion dollar or above anti-bribery/anti-corruption scandal of the past few years and in response, you will see a company fully committed to remedying their errors and moving forward in a different path.

In his piece, Doolittle asked, “Does this championship allow the Astros to completely turn the page on the scandal?” I only partly agree with his answer of, “The truth is, they don’t have to, because that happened a long time ago. All of the Astros, those who were there and those who were not, have heard it all over the past few years. It no longer really matters.” Ryan Pressly, the Astros lights out closer, said, “We don’t really care what the fans think. Everywhere we go, we get booed. It’s Houston versus y’all.”

I will leave the final word to my friend, colleague and longtime LA Dodgers fan Adam Turteltaub who has razzed me unmercifully since the cheating scandal broke (and rightly so). On the day after the Astros beat Philadelphia, he emailed me the following, “This win was legit (at least we think so as of now).” That line about sums up what the rest of the world thinks and will always think about the Astros.

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The Week In FCPA

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Life With GDPR