The Biden Administration promised a new, aggressive approach to corporate crime. Well, the Justice Department just delivered a new, comprehensive policy that raises a number of issues, some of which are likely to be controversial. The new policy incorporates reforms announced last October that largely centered on prior corporate criminal and civil records, the appointment of independent compliance monitors, and expanding the review of responsible persons in an internal investigation. The Justice Department’s new Corporate Enforcement Policy (“CEP”), however, expands on earlier policy changes but includes some new and far-reaching reforms intended to increase individual accountability and promote corporate culture through financial incentives and deterrence policies. This last idea is a significant expansion of DOJ’s CEP and is sure to reverberate through the business and compliance community. Chief compliance officers face a new requirement for their companies — creating an effective system of carrots and sticks to punish misconduct and increase rewards for ethical behavior.DOJ’s new CEP also lays the groundwork for further consideration of corporate responsibility for preserving electronic messaging, ephemeral services, and other electronic data. DOJ’s discussion in this area reflects DOJ’s frustration with a corporate internal investigation that omits access to electronic data, especially in those situations where employees use personal devices for business-related communications. The revised CEP provides guidance to prosecutors and the business community to ensure individual and corporate accountability through the evaluation of various factors, including (1) Corporate History of Misconduct; (2) Self-Disclosure and Cooperation; (3) the Strength of a Company’s Compliance Program; (4) the Use and Monitoring of Corporate Monitors (including their selection and scope of a monitor’s work).
Day: October 7, 2022
After revisiting “Parking in India” from 2012, we return to explore more from the Foreign Corrupt Practices Act (FCPA) recidivist Oracle Corporation. We previously reviewed the bribery schemes in general and how they worked in practice. Given not simply the recidivist status but the nature and location of the bribery schemes, one might reasonably ask questions about the resolution. Quite simply, how did Oracle achieve the result they did?
The Comeback
Under the FCPA Corporate Enforcement Policy, as developed by the Department of Justice (DOJ), the requirements for leniency were (1) self-disclosure, (2) extensive cooperation during the investigation and (3) thorough remediation up to the conclusion of the matter. Under the recent Monaco Memo, this prong 3 was further explained as creating a compliance program to address the issues which led to the compliance program and then testing that program prior to the conclusion of the resolution. While the Securities and Exchange Commission (SEC) does not have a similar written Policy they have followed the DOJ’s lead on since the implementation of the FCPA Corporate Enforcement Policy in November 2017.
In the 2022 Order, it specified there was some type of self-disclosure. The Order stated, “the Commission [SEC] considered that Oracle self-reported certain unrelated conduct, remedial acts it undertook, and cooperation afforded the Commission Staff.” This is one of the most oblique references to self-disclosure seen in an FCPA enforcement action. It is not clear what the ‘unrelated conduct’ might have been nor how it related to the FCPA violations. Whatever this unrelated conduct was, it was self-disclosed to the SEC and apparently that self-disclosure was enough to satisfy the SEC that self-disclosure had occurred.
The next requirement is thorough cooperation with the SEC during the investigation. Here the Order stated, “Oracle’s cooperation included sharing facts developed in the course of its own internal investigations, voluntarily providing translations of key documents, and facilitating the staff’s requests to interview current and former employees of Oracle’s foreign subsidiaries.” Each one of these factors should be digested by every compliance officer to understand what the SEC thinks is important. It may be different from the DOJ, particularly after the Monaco Memo, but these actions are all clearly important to the SEC.
Finally, of course, is the remediation. Here the Order specified several actions in greater detail than in most Orders. The Order stated, “Oracle’s remediation includes:
- terminating senior regional managers and other employees involved in the misconduct and separating from employees with supervisory responsibilities over the misconduct;
- terminating distributors and resellers involved in the misconduct;
- strengthening and expanding its global compliance, risk, and control functions, including the creation of over 15 new positions and teams at headquarters and globally;
- improving aspects of its discount approval process and increasing transparency in the product discounting process through the implementation and expansion of transactional controls;
- increasing oversight of, and controls on, the purchase requisition approval process;
- limiting financial incentives and business courtesies available to third parties, particularly in public sector transactions;
- improving its customer registration and payment checking processes and making other enhancements in connection with annual technology conferences;
- enhancing its proactive audit functions;
- introducing measures to improve the level of expertise and quality of its partner network and reducing substantially the number of partners within its network;
- enhancing the procedures for engaging third parties, including the due diligence processes to which partners are subjected;
- implementing a compliance data analytics program; and
- enhancing training and communications provided to employees and third parties regarding anti-corruption, internal controls, and other compliance issues.”
Resources
These changes appear to be extensive and potentially significant within the greater Oracle compliance program. There was increased resources made available to Oracle through an increase in head count (15 new positions), restructuring of compliance groups and creation of new compliance teams. Additionally, the implementation of a compliance data analytics program would also fall under additional resources. Finally, Oracle moved to more proactive auditing.
Discipline
There were terminations of Oracle employees including “senior regional managers and other employees involved in the misconduct” in addition to the termination of distributors and resellers involved in the misconduct. While not tied to a disciplinary role but clearly in the less is more approach Oracle substantially reduced the number of business partners within its network.
Training
Next was in the area of training. There was enhanced “training and communications provided to employees and third parties regarding anti-corruption, internal controls, and other compliance issues.” This would seem to indicate enhanced training for those remaining business partners.
Internal Controls
Finally, there was the area of internal controls enhancement. Here there were improvements in the following areas: (a) discounting by improving aspects of the Oracle discount approval process and increasing transparency in the product discounting process through the implementation and expansion of transactional controls; (b) procurement through the increased oversight of, and controls on, the purchase requisition approval process; (c) removal of perverse incentives by limiting financial motivations and business courtesies available to third parties; (d) basic GTE by improving its customer registration and payment checking processes and making other enhancements in connection with Oracle technology conferences.
DOJ
Obviously, recidivist behavior is one of the key areas the DOJ focused on in the Monaco Memo. It is one of the factors the DOJ assesses in any resolution of an enforcement action. The Monaco Memo does note that civil penalties over five years old will be given lesser weight so perhaps the 2012 SEC FCPA enforcement action involving Oracle’s conduct in India plays into the SEC analysis here. There is also the question of a monitor for a company with recidivist behavior which Oracle avoided in this SEC resolution. In the Monaco Memo, two of the areas of evaluation are:
- Whether, at the time of the resolution and after a thorough risk assessment, the corporation has implemented an effective compliance program and sufficient internal controls to detect and prevent similar misconduct in the future;
- Whether, at the time of the resolution, the corporation has adequately tested its compliance program and internal controls to demonstrate that they would likely detect and prevent similar misconduct in the future;
While the SEC Order lays out in detail the remediation, there is no information on any testing performed by Oracle on the new components of its compliance program or on its controls.
As yet there is no information on a DOJ resolution. Given the tenor of the most recent DOJ announcements including the Monaco Memo, and the subsequent speech by Principal Associate Deputy Attorney General Marshall Miller and speech by Assistant Attorney General Kenneth A. Polite, it appears that recidivism will be greatly frowned upon. Also, unclear would be whether the DOJ would require a monitor based upon the remediation made by Oracle as reported in the SEC Order. As noted, there is no indication of testing of the compliance program enhancements. All in all, lots of questions for the DOJ and we will have to wait for a DOJ resolution to see if we can begin to answer some of them.
Please join me tomorrow where I conclude this series by considering what does it all mean for the compliance professional.
Welcome to From the Editor’s Desk, a podcast where co-hosts Tom Fox and Kyle Brasseur, EIC at Compliance Week, unpack some of the top stories which have appeared in Compliance Week over the past month, look at top compliance stories upcoming for the next month, talk some sports and generally try to solve the world’s problems.
In this month’s episode, we look back at top stories in CW from September around the FCPA enforcement actions involving GOL and Oracle, the Monaco Doctrine as reflected in the Monaco Memo, and the SEC spanking of banks for nearly $2MM over employees using messaging apps. We discussed the ESG virtual event and previewed the CW 2022 in Europe, which will be held in Scotland, and the virtual 3rd Party Risk conference, scheduled for December.
We conclude with a look at some of the top sports stories, including a look at the Tua Tagavoiloa and the NFL concussion protocols, and ask Kyle how he would have covered; the Boston Celtic’s imbroglio regarding its suspended head coach Ime Udoka and Aaron Judge and his season for the ages.
In this podcast series, two complete MCU fans, Tom Fox, founder of the Compliance Podcast Network, and Megan Dougherty, co-founder of One Stone Creative, indulge in a passion for all things in the Marvel Cinematic Universe. We previously reviewed all the movies, and now we have a series on WandaVision. If you want to indulge in your love for the MCU with two fans passionate about all things MCU, this is the podcast series for you. For this offering, we conclude with Episode 9 Series Finale.
Some of the highlights include:
Ø The story synopsis.
Ø What are the key plot points?
Ø What were some of our favorite cookies?
We hope you have enjoyed our exploration of WandaVision. After a break, Megan and Tom will be back with a look at the summer’s MCU cinema releases, Dr. Strange in the Multiverse of Madness and Thor: Love and Thunder.
In this post, we conclude our exploration of the Foreign Corrupt Practices Act (FCPA) enforcement action involving the now recidivist Oracle Corporation. This enforcement action was concluded with the Securities and Exchange Commission (SEC) resulting in an Order. After having examined the background facts and bribery schemes in some details, we turn to what does it all mean for FCPA enforcement going forward and what lessons can the compliance profession draw from Oracle’s missteps.
Paper Programs Fail
One of the most prominent lessons to be garnered from this matter is that paper compliance programs Do Not Work. That may sound like perhaps the most basic truism in all of compliance but here we are in 2022, looking at a major multinational organization which had a ‘check-the-box’ compliance program around distributors and it eventually bit them in the backside.
After having its first FCPA enforcement action in 2012 involving distributors in India, where deep and unwarranted discounts were used to create a pot of slush funds to pay bribes, Oracle instituted a requirement for a ‘second set of eyes’ outside the business unit for unusual or excessive discounts. According to its policies regarding distributors, a valid and legitimate business reason was required to provide a discount to a distributor. Oracle used a three-tier system for approving discount requests above designated amounts, depending on the product. In the first level, Oracle at times allowed subsidiary employees to obtain approval from an approver in a subsidiary other than that of the employee seeking the discount. At the next level and for higher level of discounts, Oracle required the subsidiary employee to obtain approval from another geographic region and the final level (and for the highest discounts) was from someone at the Oracle corporate headquarters. So far so good.
The problem was there was no requirement for evidence of a business justification to support the requested discount. The Order noted, “Oracle reviewers could request documentary support, Oracle policy did not require documentary support for the requested discounts – even at the highest level.” A statement of why you need a discount without any supporting documents as evidence is simply that – a statement. In other words, there was no way for a higher-level approver to determine if such a request was valid or fraudulent. Ronald Reagan was on to a basic compliance concept when he intoned “Trust, but verify.” Those words still ring true as a basic requirement in any compliance program.
Data Analytics
The Oracle enforcement action emphasized why data analytics is mandatory for any current compliance program. In addition to creating slush funds through discounts to distributors, slush funds were created through fraudulent reimbursement requests for expenses associated with marketing Oracle’s products. If the request were under $5,000, business unit level supervisors at the subsidiaries could approve them without any corroborating documentation indicating that the marketing activity actually took place. In one example from the Order, it noted that an Oracle Turkey sales employees obtained such fraudulent reimbursements totaling approximately $115,200 in 2018 that were “ostensibly for marketing purposes and were individually under this $5,000 threshold.” There was apparently no one looking to see who and how often these reimbursement requests were made by any single employee or approved by any supervisor.
This is as basic a fraud scheme as one can imagine. Think of employee gift, travel and entertainment (GTE) reimbursement where anything over $100 must be preapproved. One BD type or one business unit routinely submits requests after purchases of $99.99 so no preapproval is required. The supervisor approves it, and it is automatically paid to the employee. One reimbursement at $99.99 may not raise a red flag but multiple requests should. The same concept holds true in this situation. However, no one at Oracle was looking at this bigger picture. This is where a data analytics program would pick up such anomalies and flag it for closer inspection and investigation. Oracle appears to have realized this through part of its remediation which included the implementation of a compliance data analytics program moving to proactive auditing.
Internal Control Upgrades
Putting in compliance enhancements to remediate your control failures is a key part to any FCPA enforcement resolution. In this area, there were improvements in the following capacities: (a) in distributor discounting by improving aspects of the Oracle discount approval process and increasing transparency in the product discounting process through the implementation and expansion of transactional controls; (b) in the Oracle procurement process through the increased oversight of, and controls on, the purchase requisition approval process; (c) by the removal of perverse incentives by limiting financial motivations and business courtesies available to third parties; (d) in basic gifts, travel and entertainment policies (GTE) by improving its customer registration and payment checking processes in connection with Oracle technology conferences.
Basic GTE
I cannot believe that in 2022 we are talking about companies that still do not have the most basic GTE policies in force. Since at least 2007, the Department of Justice (DOJ) made clear what was appropriate in business travel, business courtesies and business entertainment. Oracle’s 112 Project decidedly was not as it was designed to appear as a business trip to Oracle’s home office (then in California) related to Oracle’s bid on a project. However, the trip was designed to be a sham to hide boondoggle travel for four government officials. The alleged business meeting at the corporate headquarters lasted only 15 minutes and for the rest of the week, the Oracle BD folks entertained the government officials in Los Angeles and Napa Valley and then took them to a “theme park” in the greater Los Angeles area. Any travel involving government officials or any other covered persons under the FCPA should be submitted to and approved by your compliance function, including costs and the itinerary.
There was much to consider from the SEC enforcement action under the FCPA involving Oracle. We still have not heard from the DOJ. There may be more to come….
