Day: March 2, 2023

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31 Days to More Effective Compliance Programs

One Month to More Effective Compliance on Business Ventures: Key M&A cases under the FCPA

What are some of the key FCPA enforcement actions involving M&A? These enforcement actions, FCPA Resource Guide and the Evaluation of Corporate Compliance Program (and Update) have all made clear that the DOJ and SEC will vigorously prosecute companies which allow bribery and corruption to continue after a merger or purchase occurs. The key point to remember is that if a company was engaging in bribery and corruption before it was acquired and continues to do so after the transaction is completed, it is now you who is engaging in bribery and corruption, not them.

Syncor International Corporation, 2002.  This was the first time the DOJ charged a foreign company under the 1998 amendments, for acts taking place in the U.S. (i.e., Chairman’s approval). Parent liability was established through the foreign subsidiary’s books and records and employees of a state-owned entity are instrumentalities of the government. This case also demonstrated how a government investigation can slow the closing of an acquisition as the acquisition by Cardinal Health was delayed until the investigation was concluded and agreements were struck with the DOJ and SEC. The acquirer brought Syncor for a lower price than originally negotiated.

Titan Corporation, 2005. Some of the basic tenets of a compliance program were laid out in this enforcement action. They included: a company must conduct meaningful due diligence with respect to foreign agents and consultants and must ensure that the services alleged to be performed are provided. Internal controls must be designed to detect “red flags”, such as offshore payments and inconsistent invoices. From the M&A perspective, representations and warranties in a merger agreement must be accurate (or qualified) when included in a proxy statement. There can be a risk of additional prosecution under the International Traffic in Arms Regulations (ITAR) and possible suspension of export privileges, potential U.S. and foreign tax exposure and possible contractor debarment issues by the Department of Defense. Ultimately and most importantly from the business perspective, the merger failed when Titan was unable to meet contractual agreement to settle with the U.S. government by a certain time.

Latin Node, 2009. This was the first FCPA enforcement action based entirely on pre-acquisition conduct that was unknown to the buyer when the transaction closed. The purchaser’s entire $22+ million investment in Latin Node was wiped out due to inflated acquisition price of corrupt company and investigation costs. All of this demonstrated the need for rigorous pre-acquisition due diligence in addition to the post-acquisition integration. It also exposed individuals to the real possibility of jail time for their actions.

There have been several M&A cases since these three, but they set the model for the DOJ’s prosecution going forward. Every compliance practitioner should be aware of these cases and communicate to management that one of the most well settled areas of FCPA enforcement is around M&A. Simply put if you do not engage in appropriate pre-acquisition due diligence and there continues to be ongoing bribery and corruption after you acquire an entity, your company will bear the brunt of any prosecution.

Three key takeaways: 

  1. FCPA enforcement in the M&A space is one of the most well settled areas of enforcement.
  2.  Failure to perform pre-acquisition due diligence can significantly devalue a purchased asset.
  3. Always remember that if bribery continues after an acquisition it is no longer them engaging in bribery and corruption but you who are engaging in bribery and corruption.

 

Categories
Presidential Leadership Lessons for the Business Executive

Leadership Lessons from Presidents of the Republic of Texas, David G. Burnet, the First President of the Republic of Texas

Presidential Leadership Lessons is a podcast hosted by Tom Fox. This begins a four-part series on leadership lessons not from US Presidents but from Presidents from the Republic of Texas, from 1836 to 1845. In this series, Tom is joined by Don Frazier, head of the Texas Center at Schreiner University in Kerrville TX to discuss the four Presidents which Texas was its own country. In this first episode, Tom and Don discuss David G. Burnet and the first President of the Republic of Texas. He served from March 1836 to October 1836.  Join Tom Fox and Don Frazier and listen to the incredible stories of President David G. Burnet and the actual events which made him a leader of the Republic of Texas.

David G. Burnet arrived in what was then Mexico by way of Cincinnati. He took up the project of Texas independence almost immediately. He was driven with a clear view of what he considered right and wrong and had the courage to stand up to the challenges he faced. He successfully led a series of retreats when Santa Ana and his forces closed in on him and his nascent government. Santa Ana eventually was captured by the Mexican government and Burnet led the negotiations over the Treaty to end the war effectively, navigating the volatile situation.

Key Highlights

The Power of Standing up for Your Rights: David G. Burnet’s Story [00:04:23]

The Relationship Between David G. Burnet and Sam Houston [00:08:29]

The Capturing of Santa Ana and David G. Burnet’s Role. [00:12:27]

Comparing the Visions of David G. Burnett and Saint Houston in Texas [00:16:36]

The Power of Perseverance [00:20:38]

Notable Quotes:

1.      “He was an early adopter of filibustering, etcetera. And during the Latin American wars for independence, he lent his sword to the rebels down in Venezuela, and I think he fought in Chile too.”

2.     “He stands up on a table or a bench and says, look. You know, we need to get this going. Well, let’s get a government organized, and guess what? I will put my head through that noose.”

3.     “David G. Burnet stood up in the rowboat and looked back at the Mexican saying, look, if you’re going to shoot somebody, shoot right here, but, you know, my wife’s over here so you hit me and not her.”

4.     “David G. Burnet protected Santa Ana’s life by keeping him Ana on the boat. And that preserves Santa Ana to fight another day, and he’ll have a long and interesting career after this.”

Resources:

Don Frazier, Director The Texas Center

The Texas Center at Schreiner University

Categories
Hidden Traffic Podcast

We Need a Table, Not a Stool – The Four “Legs” of Human Trafficking Prevention with Kristen Abrams from the McCain Institute

Kristen Abrams is the Director of the Human Trafficking Initiative at the McCain Institute for International Leadership at Arizona State University. She is an experienced prosecutor who has worked to combat human trafficking both in the United States and internationally. At the McCain Institute, Kristen leads efforts to prevent human trafficking by partnering with organizations, governments, and individuals to develop innovative and effective strategies. She is a sought-after speaker and has appeared on numerous panels and podcasts to discuss this important issue.

In this episode, host Gwen Hassan and Kristen talk about the four key areas that need to be addressed to combat human trafficking effectively: legislative and policy frameworks, law enforcement and prosecution, engagement with the private sector, and survivor leadership. Kristen provides valuable insights into the challenges and opportunities within each area, drawing from her experience working with government agencies, NGOs, and prosecutors from around the world. All four areas need to work together in a coordinated effort to tackle the complex issue of human trafficking.

 

Kristen discusses the current state of human trafficking, noting that despite increased efforts to combat it, the number of investigations, prosecutions, and convictions has decreased. She suggests that the best way to fight human trafficking is through a multifaceted approach involving four “legs” of prevention: enforcement, policy and legislation, private sector engagement, and survivor leadership.

 

The first leg of prevention is enforcement, which involves specialized human trafficking prosecutors working in criminal justice systems around the world to prosecute offenders. The Global Prosecutors Consortium is a group of prosecutors from 18 different countries who met recently to discuss the challenges they face and to build a network of specialized prosecutors who can learn from each other and share best practices. Kristen stresses that it is important to keep the individual victim at the center of the work.

 

The second leg of prevention is policy and legislation, which involves enacting laws to prevent human trafficking and to punish those who engage in it. Kristen cites the Uighur Forced Labor Act and proposed legislation in Europe that would prevent goods produced with forced labor from entering major economies as examples of promising efforts.

 

The third leg of prevention is private sector engagement, which involves engaging companies and institutional investors to assess their supply chains and ensure that their products are not produced with forced labor. Kristen notes that consumer demand and regulatory and investor pressure are key drivers of this engagement.

 

Finally, the fourth leg of prevention is survivor leadership, which involves empowering survivors of human trafficking to lead the fight against it. Kristen remarks that survivor leadership is often overlooked and that it is important to include survivors in all aspects of prevention efforts.

 

Overall, a multifaceted approach to preventing human trafficking is necessary, which Kristen likens to a table with four legs rather than a stool with two legs. Each leg of the table is necessary to support the other legs, and without all four legs, the table cannot stand. By involving specialized prosecutors, enacting legislation, engaging the private sector, and empowering survivors, it is possible to make progress in the fight against human trafficking.

 

Resources

Kristen Abrams on LinkedIn | Twitter | Email

McCain Institute For International Leadership

Categories
Life with GDPR

Russian Cyber Attack Gangs Sanctioned

Tom Fox and Jonathan Armstrong, renowned expert in cyber security, co-host the award-winning podcast, Life with GDPR. In the most recent episode, they review the recent sanctions the UK and US have imposed on seven Russia-based individuals linked to ransomware. They explain that there are around 20-30 known vulnerabilities in software that could be responsible for the majority of ransomware attacks, and if these are taken care of, individuals and organizations are less likely to become susceptible. Finally, the host delve into how some ransomware attackers may become public about their actions in order to try and make those affected pay up. Listen to Life with GDPR for the most up-to-date and helpful advice about cyber security and ransomware.

 Key Highlights

·      Sanctions levied against Russian cyber-attack gangs [00:01:28]

·      Steps to take to Protect Against Ransomware Attacks [00:06:12]

·      The Dangers of Ransomware Attacks [00:10:49]

 Notable Quotes

1.     “Sanctioning ransomware gangs is not especially new. The US has done it before, but this is a move that’s a giant move from the UK and the US to sanction 7 Russia based individuals.”

2.     “It’s good business sense to payers because x is less than y. So just because GDPR is on the agenda of ransomware gangs, it obviously means that organizations have to take that much more seriously because ransomware gangs trying to push GDPR figures.”

3.     “Have a plan to deal with ransomware. It is inevitable a ball that somebody will target you. Maybe create a playbox so that you can work through key considerations in add advance.”

4.     “You’re only as strong as your weaker link. And oftentimes, it is suppliers, HR providers, payroll providers, outsourced sales solutions that are a real area of vulnerability.””

Resources

For more information on the issues raised in this podcast, check out the Cordery Compliance, News Section. For more information on Cordery Compliance, go their website here. Also check out the GDPR Navigator, one of the top resources for GDPR Compliance by clicking here.

Connect with Tom Fox

●      LinkedIn

Connect with Jonathan Armstrong

●      Twitter

●      LinkedIn

Categories
Daily Compliance News

March 2, 2023 – The All WSJ Edition

Welcome to the Daily Compliance News. Each day, Tom Fox, the Voice of Compliance, brings you compliance-related stories to start your day. Sit back, enjoy a cup of morning coffee, and listen to the Daily Compliance News. All from the Compliance Podcast Network. Each day we consider four stories from the business world, compliance, ethics, risk management, leadership, or general interest for the compliance professional.

Stories we are following in today’s edition of Daily Compliance News:

  • Ericsson CCO leaves. (WSJ)
  • SW Airlines tries to save 4 minutes. (WSJ)
  • Huawei export licenses may be revoked. (WSJ)
  • More Glencore restitution was ordered. (WSJ)
Categories
Blog

Levels of Due Diligence-Part II

In the conclusion of this blog post series on levels of due diligence, I am drawing from Candice Tal, Founder and CEO of Infortal Worldwide, in her seminal article entitled, Deep Level Due Diligence: What You Need to Know.

Level II. Level II due diligence encompasses supplementing Global Watch lists with a deeper screening of international media, typically major newspapers and periodicals from all countries plus detailed internet searches. Such inquiries will often reveal other forms of corruption-related information and may expose undisclosed or hidden information about the company; the third-party’s key executives and associated parties. I believe that Level II should also include in-country database searches. Other types of information you should consider obtaining are country of domicile and international government records; use of in-country sources to provide assessments; a check for international derogatory electronic and physical media searches, which should be performed both English and foreign-languages, in its country of domicile. Further, if you are in a specific industry, use technical specialists and obtain information from sector specific sources.

Level III. This level is a deep dive. It will require an in-country ‘boots-on-the-ground’ investigation. I agree with Tal that a Level III due diligence investigation is designed to supply your company “with a comprehensive analysis of all available public records data supplemented with detailed field intelligence to identify known and more importantly unknown conditions. Seasoned investigators who know the local language and are familiar with local politics bring an extra layer of depth assessment to an in-country investigation.” Further, “Direction of the work and analyzing the resulting data is often critical to a successful outcome; and key to understanding the results both from a technical perspective and understanding what the results mean in plain English. Investigative reports should include actionable recommendations based on clearly defined assumptions or preferably well-developed factual data points.”

Level III should also include deep dark and historical Internet searches, also known as Open Source Intelligence Investigations (OSINT). Although AI can be used for some of this work, it should be noted that AI without investigative analysis will yield less adverse information. Investigative analysis looks at hidden and undisclosed information and searches for information that should have been found but was not. It is an integrated approach incorporating ‘boots on the ground’, intelligence gathering, and due diligence investigations. Relying on basic Google searches is a certain mistake as hidden and undisclosed information are unlikely to be discovered.

But more than simply an investigation of the company, including a site visit and coupled with onsite interviews, Tal says that some other things you investigate include “an in-depth background check of key executives or principal players. These are not routine employment-type background checks, which are simply designed to confirm existing information; but rather executive due diligence checks designed to investigate hidden, secret or undisclosed information about that individual.” Tal believes that such “Reputational information, involvement in other businesses, direct or indirect involvement in other lawsuits, history of litigious and other lifestyle behaviors which can adversely affect your business, and public perceptions of impropriety, should they be disclosed publicly.”

Further, you may need to engage a foreign law firm to investigate the third-party in its home country to determine their compliance with its home country’s laws, licensing requirements and regulations. Lastly, and perhaps most importantly, you should use a Level III to look the proposed third-party in the eye and get a firm idea of his or her cooperation and attitude towards compliance as one of the most important inquiries is not legal but based upon the response and cooperation of the third-party. More than simply trying to determine if the third-party objected to any portion of the due diligence process or did they object to the scope, coverage or purpose of the FCPA; you can use a Level III to determine if the third-party is willing to stand up with you under the FCPA and are you willing to partner with the third-party?

There are many different approaches to the specifics of due diligence. By laying out some of the approaches, you can craft the relevant portions into your program. The Level I, II and III trichotomy appears to have the greatest favor and one 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.