Day: August 8, 2022

Over this series, I am reviewing the corruption enforcement action Involving the company formerly known as Chrysler Group LLC, now FCA US LLC (Chrysler or the company herein) which was criminally sentenced to pay a fine of over $96 million and a forfeiture money judgment over $203 million. These amounts were above a previous civil penalty of $310 million. All of this was for designing a vehicle emissions system for the company’s Jeep Grand Cherokee and Ram 1500 that would evade federal emissions standards for diesel vehicles and then lying about it to federal authorities. It was a different type of corruption from a Foreign Corrupt Practices Act (FCPA) enforcement action but corruption, nonetheless. Today, I want to consider some of the lessons for the anti-corruption compliance professional.

The actions by the company are instructive for what not to do in any corruption investigation. The Plea Agreement specified that the company did not receive credit for self-disclosure as it did not self-disclose its criminal conduct or fraud. The company did receive some cooperation credit for cooperating during the scope of the investigation but did not receive any credit for failures in both taking timely remedial action and for failing to discipline senior executives who were involved in or had knowledge of the criminal action and fraud. (Recall that one executive involved directly in the fraud was with the company until 2020.)

All these actions were very costly to the company in terms of how it was evaluated under the US Sentencing Guidelines. Under Section 8(C)2.5(g)(2) a company can receive credit of up to five (5) points for cooperating in the investigation and affirmatively accepting responsibility for it’s conduct. The company only received a two (2) point discount. Since the Plea Agreement specified the company did cooperate in the investigation, it clearly did not accept responsibility for its conduct. The lack of those three points in discount cost the company somewhere in the estimated range of $20 to $30 million in additional fines and penalties.

The Plea Agreement also specified for the first time the Monaco Doctrine of evaluating past conduct as a part of the overall evaluation of the company. The Plea Agreement detailed that the company had a prior criminal conviction for bribery and corruption under the National Labor Relations Act (NLRA) for bribing union officials. However, it is not clear how that worked into the overall fine and penalty except to note that the company paid the maximum under the US Sentencing Guidelines, after credit for the civil penalty.

Additionally, while there is no requirement for a monitor in this resolution of the criminal action, there was a such a requirement in the Consent Decree from the civil action. It mandated an Independent Compliance Auditor for a period of three years from the resolution of the civil matter, which was May 2019.

Lessons Learned

There are multiple lessons for the anti-corruption compliance professional from this enforcement action. Obviously, the need to engage in robust remediation for the matter at issue and your compliance program is critical. Moreover, and once again the Department of Justice (DOJ) criticized a company for tardiness in disciplining those who were involved in the fraud or those who were aware of it. As I noted in Part 1, multiple former company employees were criminally indicted for their conduct in this sordid affair. Yet some of them were with the company until 2019 and 2020 and not all were terminated, some left the company in voluntary separations, which sounds suspiciously like retirements. Such actions could save your organization literally millions of dollars.

One of the clearest, which was not stated in any of the resolution documents, was that every Chief Compliance Officer (CCO) needs to read the newspapers and stay abreast of current events in their industry. It was September 2015 that the Volkswagen (VW) emissions-testing scandal became public. It was by far the largest scandal in emissions-testing and cost VW billions in investigative and remediation costs, fines, penalties, buy-backs, market share loss and reputational damages. To say that anyone at the company was not aware of it is to simply defy belief.

Beyond just the CCO, every Board member was no doubt aware of the VW emissions-testing scandal. Under the current state of the Caremark Doctrine, there may well be a duty to make an inquiry by the Board of auto manufacturers to senior management to investigate if they have been involved in similar conduct. Here we do not know how the scandal got to the attention of the DOJ, but it was clear from the Plea Agreement, it was not from self-disclosure. CCOs and Boards need to be much more proactive when competitors get into trouble about investigating similar products or services which could lead to criminal and civil fines and penalties.

This matter warrants consideration by every CCO in every US public and private company. Every CCO can also use the case as instruction and training for both senior management and their company Board of Directors.

Resources

DOJ Press Release

Information

Plea Agreement

Consent Decree from the civil action

In this special blog post, I want to pay tribute to the greatest baseball play by play announcer during my lifetime, Vin Scully, who passed away yesterday at age 94. According to his obituary in ESPN.com, Scully called Brooklyn and later LA Dodger games for 67 years, starting in the 1950s and moved with the team to Los Angeles in 1958. He called some of the most memorable plays in baseball along the way with the two most notable being Hank Aaron’s 715^th home run and Kirk Gibson’s 1988 World Series Game One walk off homer (I don’t believe what I just saw.) He also called the complete game of Sandy Kofaux perfect game, Mookie Wilson’s single which went through the legs of Bill Buckner, breaking the hearts of all New England in 1986 and to my eternal regret the game-ending touchdown throw by Joe Montana to Dwight Clark in the 1981 NFC Title Game, which ended the Dallas Cowboys 1970s dynasty.

Tim Erblich sent me the following quote from Bob Costas which appeared in an ESPN tribute to Scully from 2016, “”Somewhere around 1994, ’95, I was interviewing Ray Charles for an NBC news magazine and probably spent a couple of hours talking with him. … Then, when we’re done and the cameras had been turned off, he says to me, ‘You know who I would really like to meet?’ And I’m thinking, ‘He’s Ray Charles. He could have met just about anybody he’d wanted to have met throughout the course of his life. Who might it be?’ … ‘Vin Scully.’ And I say, ‘Why?’ And he says, ‘Well, because I love baseball. But you have to understand, to me the picture means nothing. It’s all the sound. And Vin Scully’s broadcasts are almost musical, so I enjoy baseball so much more listening to him.’ … So I set it up with Vin and took Ray to Dodger Stadium. I was sitting across from Ray, and there was an empty seat awaiting Vin’s arrival, and Vin came walking through the door wearing — as I remember — a royal blue jacket, the way he is always turned out for a baseball broadcast. And as he walked toward Charles, he said, ‘Ray, my name is Vin Scully, and it’s a pleasure to meet you.’ He might as well have said, ‘A pleasant good evening to you wherever you may be,’ because that’s how it struck Ray. And then they sat down, and we had a combination baseball and music discussion. Vin had a nice experience. And Ray Charles — and I mean this sincerely — he’s Ray freaking Charles — I believe he had one of the great experiences of his life.””

Scully was more than the Dodgers play by play guy; he was America’s play by play guy. He could make the sights, sounds and statistics of a baseball game sing with color. He put his love of the game into each call so that you could see the beauty of each pitch and each swing of the bat. While there have been many tributes to Scully, the one I want to salute comes from life-long Dodger fan Adam Turteltaub who said “Summers here will be a lot quieter.” Farewell Vin Scully.

Vin Scully Great Calls (from YouTube)

Hank Aaron 715

Kirk Gibson Walk off

Mookie Wilson Single

Montana to Clark

Field of Dreams Poem

Corruption comes in all shapes, sizes and forms. It is certainly far beyond bribery made illegal under the Foreign Corrupt Practices Act (FCPA) and UK Bribery Act. I was reminded of this fact this week and the company formerly known as Chrysler Group LLC, now FCA US LLC (Chrysler or the company herein) was criminally sentenced to, according to a Department of Justice (DOJ) Press Release, “pay a fine of $96,145,784; and a forfeiture money judgment of $203,572,892. The court also imposed a three-year term of organizational probation.” About all I can say after reading the Press Release and underlying  Information and  Plea Agreement is that both Lee Iacocca and Walter Chrysler are both turning over in their graves now.

The Plea Agreement detailed a series of corruption so deep and systemic within the organization that it is a wonder anyone ever wanting any type of clean diesel vehicle would ever purchase a Chrysler again (even if it is re-monikered an ‘FCA US LLC’ vehicle). Indeed, the over $300 million criminal assessment was only after a $310 million civil penalty. This means over $600 million in civil and criminal fines and penalties before we even get to pre-resolution investigative costs and post-resolution remediation. If you apply the standard multiplier of pre and post settlement costs of two to five X; you can see the company paid a very large price for its conduct.

The basic facts of the case and actions by Chrysler included deliberately creating a vehicle designed to evade and defeat emissions testing from at least 2010 up to 2017, some two years after the Volkswagen emission testing scandal broke. In addition, Chrysler engineers and others intentionally lied to the US government during the emission certification process. Finally, the conduct of Chrysler after the scandal broke was so forlorn the company did not receive full credit for full cooperation or in accepting full responsibility for its actions.

The underlying facts were as disheartening to read as any I have recently come across. According to the Information, beginning at least as early as 2010, Chrysler developed a new 3.0-liter diesel engine for use in FCA US’s Jeep Grand Cherokee and Ram 1500 vehicles to be sold in the United States. They were marketed as “clean EcoDiesel” vehicles with best-in-class fuel efficiency. However, and to the contrary, the company installed software features and engaged in other deceptive and fraudulent conduct intended to avoid regulatory scrutiny all the while “maintaining features that would make them more attractive to consumers, including with respect to fuel efficiency, service intervals, and performance.”

According to the Information, the company purposely calibrated the emissions control systems on the vehicles to produce less NOx emissions during the federal test procedures, or driving “cycles,” than when the vehicles were being driven by customers under normal driving conditions. But as the Press Release noted, Chrysler took it several steps further as it “engaged in deceptive and fraudulent conduct to conceal the emissions impact and function of the emissions control systems from its U.S. regulators and U.S. customers by (a) submitting false and misleading applications to U.S. regulators to receive authorization to sell the vehicles, (b) making false and misleading representations to U.S. regulators both in person and in response to written requests for information, and (c) making false and misleading representations to consumers” in advertisements and in window labels, including that the vehicles complied with US emissions requirements, had best-in-class fuel efficiency as measured by EPA testing, and were equipped with “clean EcoDiesel engine[s]” that reduced emissions.

A number of those identified in the Plea Agreement have been criminally indicted as well. According to the Press Release, “In the related criminal prosecution, three FCA employees, Emanuele Palma, Sergio Pasini, and Gianluca Sabbioni were indicted for conspiracy to defraud the United States and to violate the Clean Air Act and six counts of violating the Clean Air Act. They await trial.” Of these individuals who were involved, most worked on the corrupt emissions work around beginning as early as 2010 and some were with the company up to 2020.

For reasons not explained in any of the resolution documents, the company avoided the imposition of an external monitor. They do however have a reporting obligation to the DOJ of annual reports on the compliance program required under the Plea Agreement. The reporting is required for three years on a go-forward basis.

Join me tomorrow where I look at some of the lessons learned from this sordid affair for the anti-bribery/anti-corruption compliance professional.

I would have expected Queen’s We are the Champions to be sung across Wembley Stadium Sunday evening in London but instead it was the equally familiar strains of Sweet Caroline as the English Women’s soccer team ‘brought it home’ by winning the 2022 UFEA Cup beating Germany 2-1. It was the first English victory in a major international soccer competition in 56 years. So, tip of the hat to the Lionesses for bringing the Cup home to the land which invented football.

As promised in yesterday’s blog, today we honor the passing of someone as famous as Nichelle Nichols and her character, Lt. Uhura. It, of course, is Bill Russell, perhaps the greatest champion in the history of any American professional sport. According to his New York Times obituary, “Russell was the ultimate winner. He led the University of San Francisco to N.C.A.A. tournament championships in 1955 and 1956. He won a gold medal with the United States Olympic basketball team in 1956. He led the Celtics to eight consecutive N.B.A. titles from 1959 to 1966, far eclipsing the Yankees’ five straight World Series victories (1949 to 1953) and the Montreal Canadiens’ five consecutive Stanley Cup championships (1956 to 1960).” In addition to his run of eight consecutive National Basketball Association (NBA) championships, he won one championship in 1957 and then ended with two more in 1968-69, for a total of 11 professional championships in 13 years. He was also a five-time MVP and 12-time NBA All-Star. In 1980, he was voted as the best NBA player of all time. In other words, he was the best of the best.

But it was for his work on and off the court in support of racial justice and equality which will always be his most lasting legacy. I will not detail the bigotry and hate Russell was subjected to while in Boston as a player. Suffice to say, it was a disgusting as anything you can image. Or as Russell said, “a flea market of racism.” Yet Russell was somehow able to stand above it and not simply persevere but be a national leader. “He took part in the 1963 March on Washington for Jobs and Freedom and was seated in the front row of the crowd to hear the Rev. Dr. Martin Luther King Jr. deliver his “I Have a Dream” speech. He went to Mississippi after the civil rights activist Medgar Evers was murdered and worked with Evers’s brother, Charles, to open an integrated basketball camp in Jackson. He was among a group of prominent Black athletes who supported Muhammad Ali when Ali refused induction into the armed forces during the Vietnam War.”

Russell was also instrumental in opening up head coaching positions for black athletes and others. In addition to his greatness as a player, he was inducted a second time into the Basketball Hall of Fame, as a coach. Marc J. Spears, writing in Andscape, said his “second induction into the Basketball Hall of Fame as a coach who made history as the NBA’s first African American head coach. He led the Celtics to two titles as a player-coach and also coached the Seattle SuperSonics and Sacramento Kings. He “was not the first Black head coach in professional sports, but he had the greatest impact as the first to be chosen, in 1966, to lead a team in one of America’s major sports leagues. Fritz Pollard, a star running back, had coached in the National Football League, but that was in the 1920s, when it was a fledgling operation. John McLendon coached the Cleveland Pipers of the American Basketball League in 1961-62, but the A.B.L. was a secondary attraction.” As noted, he led the Celtics to two additional NBA titles in 1968 and 1969 as the team’s player coach.

John Doleva, president and Chief Executive Officer (CEO) of the Basketball Hall of Fame, said of Russell’s induction as a coach he “made it known that it was important to him that the museum continue to induct Black pioneers and overlooked legends. “He saw over time that we were making the right moves in terms of African American players before him,” Doleva told Andscape in a phone interview. “There was evident widespread support of him being enshrined as a coach. Being the first African American coach was something to celebrate. He was a man of few words later in his life, but he quietly appreciated what we were doing. But he also gave me the look that there was more to do, which I took with enthusiasm.””

I cannot think of a greater tribute to Russell than the one which came from then President Barack Obama who awarded Russell “the Presidential Medal of Freedom, the nation’s highest civilian award, at the White House in 2011, honoring him as “someone who stood up for the rights and dignity of all men.””

Right about now Red Auerbach is probably twirling a stogie in anticipation of lighting it up after another classic matchup between Russell and Wilt Chamberlain in the great beyond. Farewell Bill Russell for a life well lived.

Decision making is a critical skill for any Chief Compliance Officer (CCO) or compliance professional. Continuous monitoring and continuous improvement are now accepted as standard components of any table stakes compliance program. The Department of Justice (DOJ), in the 2020 Update to the Evaluation of Corporate Compliance Programs, made clear the need for continuous improvement in any compliance program. It stated quite succinctly, “One hallmark of an effective compliance program is its capacity to improve and evolve. The actual implementation of controls in practice will necessarily reveal areas of risk and potential adjustment. A company’s business changes over time, as do the environments in which it operates, the nature of its customers, the laws that govern its actions, and the applicable industry standards. Accordingly, prosecutors should consider whether the company has engaged in meaningful efforts to review its compliance program and ensure that it is not stale.”

Indeed, the 2020 Update posed the following questions that the DOJ might ask a company under a Foreign Corrupt Practices Act (FCPA) investigation, “How often has the company updated its risk assessments and reviewed its compliance policies, procedures, and practices? Has the company undertaken a gap analysis to determine if particular areas of risk are not sufficiently addressed in its policies, controls, or training? What steps has the company taken to determine whether policies/procedures/practices make sense for particular business segments/subsidiaries? Does the company review and adapt its compliance program based upon lessons learned from its own misconduct and/or that of other companies facing similar risks?”But one question not posed is around your decision-making process in when to move from continuous monitoring to continuous improvement. I was therefore interested in a recent FastCompany.com article, entitled “3 Steps Navy SEALs Use to Make Decisions”, by Stephanie Vozza. Vozza quotes former Navy SEAL and Chief Executive Officer (CEO) of ADS, Inc., Ryan Angold who said, “With so much information out there, a lot of people get analysis paralysis. You want to do your research and you want to access all the resources you have so you can make the right decision. But you can’t sit in analysis paralysis forever. Ultimately, there’s no 100% perfect decision.”

For her piece she also interviewed former Navy and current VMWare Chief Digital Transformation Officer Mike Hayes and author of the book, Never Enough: A Navy SEAL Commander on Living a Life of Excellence, Agility, and Meaning, who laid out a framework he used as an active SEAL for decision making.

1. Gather Input

When you are a CCO or compliance professional in a corporate compliance function, you most probably have created experiences from which you can draw. Angold noted, “The requirement in SEAL teams is that you have you’ve gone through multiple different scenarios, you’ve trained for the most extreme environment, the most challenging environment, the worst-case scenarios. These reference points are helpful. You can say, ‘Okay, we’ve seen something like this before.’ Maybe this isn’t the exact scenario—it never is. But you’ve learned how the team works and can make quick decisions.”

Both Jonathan’s from the award-winning Everything Compliance gang, Jonathan Armstrong and Jonathan Marks, talk about not simply crisis and scenario planning but practice as well. Such practice not only gives you the muscle memory of what to do when a true crisis appears but also provide the types of experiences that Angold references that the SEALs then use in missions.

Hayes added that you should listen to difference voices or inputs, noting, “Too often, we tend to seek out like-minded input. Artists tend to hire artists and engineers hire engineers. By getting input from people who don’t think like us and by having a culture that celebrates differences and raising other ideas, you help people be comfortable saying things like, ‘Hey, sir, I don’t think that’s a great idea. Here’s how I would do it.’ That framework enables the best possible decisions.” Note that Hayes’ remarks also illuminate the importance and benefits of a true “Speak-Up Culture”.

2. Decide When to Decide

Most interestingly, the first thing you have to determine is when to make your decision. Hayes said, “The first decision is when to make your decision. That’s the thing that most people get wrong.” Obviously in combat your decision-making window can be quite short, but the same principle applies in the corporate world. Here Hayes noted, “At some point, the value of those extra inputs in your input streams costs more than the time associated with getting more inputs. At that inflection point is when you want to make your decision. You start losing value by waiting longer.”

But this point is where experience can become more paramount. In the corporate compliance world, you will likely get information, which is both quantitative and qualitative, particularly through continuous monitoring. Do not become paralyzed at this point, and you can rely on your gut or, as Hayes said, “there are other times where you need to operate in instinct. Instinct is really a set of experiences that you can’t quite crystallize, but that you extract logic from.”

3. Be Willing (and ready) to Course Correct

Here a key CCO and compliance professional soft skill, that of humility, both “intellectual and real will help you get to the right decision.” Do not let your ego get in the way or start considering your sunk costs. You may garner new information which gives new input. Even John Maynard Keynes said, “When my information changes, I alter my conclusions. What do you do, sir?”

Hayes said this is “the ultimate sign of leadership because it’s a sign of comfort in your own skin and not needing to look good in front of an organization. Instead, you’re putting the organization before self and doing the right thing.” Angold phrased it as “It takes a lot of humility for someone to be able to recognize it was the wrong call,” he says. “That’s where the communication is important and having that transparency with your team. You can gain a lot of additional trust from your team, when you acknowledge a wrong decision.”

Continuous improvement through continuous monitoring or other similar techniques will help keep your compliance program abreast of any changes in your business model’s compliance risks and allow growth based upon new and updated best practices specified by regulators. A compliance program is in many ways a continuously evolving organism, just as your company is. You need to build in a way to keep pace with both market and regulatory changes to have a truly effective anti-corruption compliance program. By using this three-step approach, you can best determine how to move from the monitoring to the improvement phase.

The Star Trek world and family lost one of its dearest members on Sunday with the passing of Nichelle Nichols, Lt. Nyota Uhura. George Takei spoke for many of us when he wrote on Twitter, “For today, my heart is heavy, my eyes shining like the stars you now rest among, my dearest friend.” The role of Lt. Uhuru was truly ground-breaking for television in the 1960s; a black woman was an officer of a naval ship (well OK combined services); manning a key role on the executive leadership team of the Starship Enterprise. For a television show which premiered only a couple of years after the landmark Civil Rights Act of 1964, her role was almost revolutionary.

Indeed, as noted by Jake Tapper on Twitter, perhaps her biggest fan was Dr. Martin Luther King. After the first season of the show, she was considering leaving but reconsidered after meeting Dr. King at an NAACP fundraiser. She said he introduced himself as a fan and grew visibly horrified when she explained her desire to abandon her role, one of the few non-servile parts for Blacks on television. Nichols told Entertainment Tonight, “Because of Martin, I looked at work differently. There was something more than just a job.” As reported in The Hollywood Reporter, “He told me that Star Trek was one of the only shows that his wife Coretta and he would allow their little children to stay up and watch,” she recalled. “I thanked him and I told him I was leaving the show. All the smile came off his face and he said, ‘You can’t do that. Don’t you understand, for the first time, we’re seen as we should be seen? You don’t have a Black role. You have an equal role.’ “I went back to work on Monday morning and went to Gene’s office and told him what had happened over the weekend. And he said, ‘Welcome home. We have a lot of work to do.’ Said Roddenberry in the documentary, “I was pleased that in those days, when you couldn’t even get Blacks on television, that I not only had a Black but a Black woman and a Black officer.””

Adam Bernstein, writing in the Washington Post, said, “Nichelle Nichols, an actress whose role as the communications chief Uhura in the original “Star Trek” franchise in the 1960s helped break ground on TV by showing a Black woman in a position of authority and who shared with co-star William Shatner one of the first interracial kisses on American prime-time television.” He went on to say, “On the bridge of the starship Enterprise, in a red minidress that permitted her to flaunt her dancer’s legs, Ms. Nichols stood out among the otherwise all-male officers. Uhura was presented matter-of-factly as fourth in command, exemplifying hopeful future when Blacks would enjoy full equality.”

On the subject of that kiss, the first inter-racial kiss went to Sammy Davis, Jr. and Nancy Sinatra but was simply a “peck on the cheeks.” Her kiss with Shatner was anything but a peck on the cheek. Bernstein wrote, “Her most prominent “Star Trek” moment came in a 1968 episode, “Plato’s Stepchildren,” about a group of “superior” beings who use mind control to make the visiting Enterprise crew submit to their will. They force Kirk and Uhura, platonic colleagues, to kiss passionately.” But if you watch the episode, I as recently did for its upcoming treatment on my podcast series Trekking Through Compliance, you will see that it is something very different than a passionate kiss, as it was forced onto the characters of Kirk and Uhura by beings who controlled their minds. In rewatching the entire episode, it is a troubling episode with this kiss perhaps the most troubling seen.

The Hollywood Reporter said of that kiss, “When NBC execs learned about the kiss during production, they feared stations in the Southern states would not air the episode, so they ordered that another version of the scene be filmed. But Nichols and Shatner purposely screwed up every additional take. Finally, the guys in charge relented: ‘To hell with it. Let’s go with the kiss,” Nichols wrote in her 1994 book, Beyond Uhura: Star Trek and Other Memories. “I guess they figured we were going to be canceled in a few months anyway. And so the kiss stayed.”

Even though Star Trek, the Original Series went off the air in 1969, “Nichols’s continued association with Uhura at Trekkie conventions led to a NASA contract in 1977 to help recruit women and minorities to the nascent space shuttle astronaut corps.” Nichols said of that recruiting effort, “I went everywhere. I went to universities that had strong science and engineering programs. I was a guest at NORAD [the North American Aerospace Defense Command], where no civilian had gone before. “At the end of the recruitment, NASA had so many highly qualified people. They took six women, they took three African-American men … it was a very fulfilling accomplishment for me.”

In many ways, the fight for equality that Nichols participated in is still ongoing. Diversity, Equity and Inclusion (DEI) is under attack in many states across the nation, with states such as Florida and Texas considering legislation which prevents companies from DEI initiatives such as those by pioneers such as Nichols.

Sunday, we lost another pioneer in the fight for DEI and social justice but from a very different world from Nichols. That pioneer was Bill Russell, and his world was sports. Please join me tomorrow when I pay tribute to Russell.