Day: March 6, 2023

Categories
Blog

The Week That Was in Compliance – The Polite Speech: Part 1

We are in the midst of a multipart review of last week’s speeches from the Department of Justice (DOJ) at the recently concluded ABA’s 38th Annual National Institute on White Collar Crime, held in Miami. Compliance professionals, white collar defense lawyers and indeed corporate executives will be talking about the past week in Miami for many moons to come. The speeches were made by Deputy Attorney General Lisa Monaco (2023 Monaco Speech) and Assistant Attorney General Kenneth A. Polite (Polite Speech) and they previewed a number of initiatives by the DOJ which every compliance professional will need to study in some detail. These new initiatives included:

The Criminal Division’s Pilot Program Regarding Compensation Incentives and Clawbacks

Evaluation of Corporate Compliance Programs (Updated March 2023)

Revised Memorandum on Selection of Monitors in Criminal Division Matters

Over this series, I will be taking a deep dive into these speeches and new Evaluation of Corporate Compliance Program, Monitor Selection and Pilot Program on Incentives and Clawbacks. Today we continue with an initial review of the Polite Speech.

Polite began with a clear plea for the righteousness of being a prosecutor. Interestingly he began by describing what he saw at the ABA White Collar conference in San Francisco, “During a short afternoon walk between the hotel and the U.S. Attorney’s Office, we saw homelessness, and drug addiction, and food insecurity, and lack of hygiene, and violence.” He went on to add “Human suffering. We see it in every city where this conference gathers, be it the Tenderloin area of San Francisco, Liberty City here in Miami, or the Lower Ninth Ward in New Orleans. The same things could be found in nearly every town across this country. Across this globe. Right outside. Right around us. Right around you, if you decide to open your eyes and accept a broader definition of community.” From there he related being a DOJ prosecutor to a calling to help fix these problems but being “problem-solvers”.

He used these domestic urban ills to transition to what he called a ‘righteous’ prosecution of Claudia Patricia Diaz Guillen, the former National Treasurer of Venezuela and her husband. They were charged with accepting over $100 million “in bribes from a Venezuelan billionaire businessman for access to purchase bonds from the Venezuela National Treasury at a favorable exchange rate. All the while, millions of Venezuelans had to confront daily economic crisis, rampant inflation, and unimaginable poverty and hunger.” This is while “96% of Venezuelans lived in poverty.” He ended this section by noting the prosecution was “a virtuous case that spanned the globe to hold multiple corrupt actors accountable and remove corrupt leadership – this prosecution exemplifies what our prosecutors can do.”

Polite believes that there is a clear tie between poverty and corruption. (One reason the San Francisco remarks were so interesting.) This is why it is important to prosecute corrupt government officials such as Diaz because her actions keep the people of Venezuela in such dire economic straits. He stated, “Just as crime recognizes no borders, our efforts to combat it must be equally boundless. We need our partners – both domestic and international – to solve community problems. That is where the Criminal Division thrives.” In the Diaz case there was international cooperation at various levels. Think about that for a moment, the US and Venezuelan governments cooperating on anything, yet they apparently did cooperate on this matter. Polite added that several recent Foreign Corrupt Practices Act (FCPA) corporate enforcement matters, “Glencore, ABB, Danske, and Stericycle, among many others, underscore the successes that we’ve shared with our colleagues abroad.”

To be truly effective community problem-solvers, we have to broaden our sense of community by literally ‘spanning the globe’ to fight crime, including bribery and corruption. Polite stated, “Crime does not limit itself by country or region. Corruption’s corrosive effects are global, with the world’s poor often bearing the brunt. Bribery threatens our collective security by undermining the rule of law and providing a breeding ground for other crime and authoritarian rule.”

He pointed to this level of international cooperation which “has also been critical to MLARS’s work on the Kleptocracy Asset Recovery Initiative, which has targeted and restrained more than $3.6 billion relating to foreign official corruption and associated money laundering affecting the U.S. financial system.” As the US financial systems plays the central role in the world’s financial community and international banking system, the US MLARS Bank Integrity Unit (BIU) has worked to bring to justice “actors around the world seek to exploit the U.S. financial system, in some instances working with global financial institutions that facilitate their crimes.” Hence why the US and not Danske Bank’s home country of Denmark brought the criminal charges against the Banks for its role in a years-long money laundering operation out of its Estonia branch.

To demonstrate this commitment for the DOJ Polite stated, “since 2010, the BIU – with just 12 attorneys – has imposed more than $13 billion in financial penalties in 10 corporate criminal resolutions with global financial institutions for sanctions violations.” But more commitment is on the way as Polite pointed to “our Deputy Attorney General’s announcement yesterday of additional resources for the BIU and her focus on the intersection of national security and corporate prosecution. I know our BIU prosecutors will build upon their outstanding track record while continuing to work shoulder to shoulder with our partners in the National Security Division to achieve our united mission.”

Finally, in a most welcomed development, Polite stated “there’s no better way to broaden community than to speak your partners’ language – literally.” He announced the Criminal Division’s Office of Prosecutorial Development, Assistance, and Training – or OPDAT – will re-issue the FCPA Resource Guide in Spanish later this month. Kudos to the DOJ for taking this step.

Join me tomorrow where I take a deep dive into clawbacks and other new components of a compliance program.

Categories
Blog

The Week That Was in Compliance – The Monaco Speech

In the ‘60s there was a television show called That Was the Week That Was. As with many great US television shows, it started in the UK on the BBC. It ran on NBC and introduced an American audience to David Frost, from the original British cast. It brought weekly and topical satire to US television and some of the contributors were among the greatest comedians of their generation. They included Henry Morgan, Phyllis Newman, Pat Englund, Buck Henry, Bob Dishy, Doro Merande, Alan Alda, Sandy Baron, Tom Bosley, Jerry Damon, Stanley Grover, Burr Tillstrom’s Puppets and The Norman Paris Orchestra. I still remember the theme song as it was sung by Nancy Ames in addition to her participating in the show.

I thought of that TV show when I looked back at the two days of speeches from the Department of Justice (DOJ) at the recent ABA 38th Annual National Institute on White Collar Crime, held in Miami. Compliance professionals, white collar defense lawyers and indeed corporate executives will be talking about the past week for many moons to come. The speeches were made by Deputy Attorney General (DAG) Lisa Monaco (2023 Monaco Speech) and Assistant Attorney General Kenneth A. Polite, Jr. (Polite Speech) and they previewed a number of initiatives by the DOJ which every compliance professional needs to study in some detail. These new initiatives included:

The Criminal Division’s Pilot Program Regarding Compensation Incentives and Clawbacks

Evaluation of Corporate Compliance Programs (Updated March 2023)

Revised Memorandum on Selection of Monitors in Criminal Division Matters

Over the next several blog posts, I will be taking a deep dive into these speeches and the new Evaluation of Corporate Compliance Program, Monitor Selection and Pilot Program on Incentives and Clawbacks. Today we begin with a review of the 2023 Monaco Speech.

Monaco began by referencing her October 2012 speech to the Fall White Collar Crime conference, noting she “directed some immediate policy changes to invigorate corporate criminal enforcement, and I did so based on a few fundamental principles: preventing misconduct before it happens; holding individual wrongdoers accountable; and deterring and punishing recidivism.”

Around that time Monaco announced the “Corporate Crime Advisory Group to recommend more advances, based on input, and this is important, input from outside as well as inside the department.” This led to the September 2022 announcement of the Monaco Doctrine as laid out in the Monaco Memo where the DOJ changed its focus to “promoting cultures of corporate compliance, while also ensuring consistency and predictability in the way the government treats corporate crime.” Her goal was to “empower companies to do the right thing, by investing in compliance, in culture and in good corporate citizenship — while at the same time empowering our prosecutors to hold accountable those who don’t follow the law.”

At the end of the day, perhaps the most significant pronouncement from Monaco was the following “in today’s complex and uncertain geopolitical – very uncertain quite frankly – geopolitical environment, corporate crime and national security are overlapping to a degree never seen before, and the department is retooling to meet that challenge.” This fits with the Biden Administration’s Strategy on Combatting Corruption, which elevated the fight against bribery and corruption through enforcement of laws such as the Foreign Corrupt Practices Act (FCPA) to a National Security Issue. Of course, the Biden DOJ has said several times in the past that “Sanctions are the new FCPA” and Monaco reiterated that in her speech last week.

Monaco set the tone for the week by identifying five general areas of DOJ focus. (1) Inspiring a Culture of Compliance; (2) Voluntary Self-Disclosure Programs; (3) Promoting Compliance through Compensation and Clawback Programs; (4) Resource Commitments to Corporate Criminal Enforcement; and (5 ) Individual Accountability.

  1. A Culture of Compliance

The Monaco Memo “emphasized the department’s commitment to finding the right incentives to promote and support a culture of corporate compliance.” Monaco hoped to do so by creating two new areas of focus in addition to those laid out in the FCPA Resource Guide,  the 2017 Evaluation of Corporate Compliance Program and its 2020 Update and Chief Compliance Officer (CCO) certification requirement. In the 2023 Monaco Speech, she stated, “I noted two new areas of particular focus: a cross-department approach to promoting voluntary self-disclosure and how compensation structures can foster responsible corporate behavior. We want companies to step up and own up when they discover misconduct and to use compensation systems to align their executives’ financial interests with the company’s interest in good corporate citizenship.”

What is interesting about these two components is that they previously existed but were made more important in the Monaco Memo. Clear rewards for self-disclosure have been a part of FCPA enforcement since 2016 with the initiation of the Pilot Program around self-disclosure. Financial incentives and penalties (carrots and sticks) have been a part of best practices compliance programs since at least 2004 and were included in the original 2012 FCPA Resource Guide. But now a company must engage in both actions to demonstrate a “culture of compliance” to obtain the presumption of a declination under the Corporate Enforcement Policy.

  1. Voluntary Self-Disclosure

Seemingly buried in the speech is perhaps the most significant statement about white collar criminal enforcement. Monaco said, “Now, with respect to voluntary self-disclosure, I am pleased to report that, for the first time, every U.S. Attorney’s Office now has, and every component I should say, that prosecutes corporate crime, now has in place an operative, predictable and transparent voluntary self-disclosure program. These policies share a common principle: absent aggravating factors, no department component will seek a guilty plea where a company has voluntarily self-disclosed, cooperated and remediated the misconduct.” She went on to add, “Let me be very very clear. I want every general counsel, every executive and board member to take this message to heart: where your company discovers criminal misconduct, the pathway to the best resolution will involve prompt voluntary self-disclosure to the Department of Justice.” Her example was an excellent one: the ABB FCPA enforcement action.

  1. Compensation and Clawbacks

Once again Monaco emphasized a part of every best practices compliance program over the past 20 years, financial incentives for doing business ethically and in compliance. However, in her 2023 Speech, she emphasized the disincentives or clawbacks. She stated, “First, every corporate resolution involving the Criminal Division will now include a requirement that the resolving company develop compliance-promoting criteria within its compensation and bonus system…Second, under the pilot program, the Criminal Division will provide fine reductions to companies who seek to claw back compensation from corporate wrongdoers.”

Monaco said the goal is “to shift the burden of corporate wrongdoing away from shareholders, who frequently play no role in the misconduct, onto those directly responsible.” The DOJ will incentivize such behavior in the following manner. “At the outset of a criminal resolution, the resolving company will pay the applicable fine, minus a reserved credit equaling the amount of compensation the company is attempting to claw back from culpable executives and employees. If the company succeeds and recoups compensation from a responsible employee, the company gets to keep that clawback money — and also doesn’t have to pay the amount it recovered.  And because we heard from stakeholders about how challenging and how expensive the pursuit of clawbacks can be, the pilot program will also ensure that those who pursue clawbacks in good faith but are unsuccessful are still eligible to receive a fine reduction.”

  1. Resource Commitments

This section of the speech deals with DOJ resource commitments but it is still significant. Here Monaco emphasized the intersection of corruption, money-laundering, sanctions and National Security. This continues the Biden Administration trend on this score. There are new and additional resources the DOJ is bringing to bear in all of these areas. This includes the international arena as well. But a huge part of this commitment is that companies are now seen in many ways as the front line of criminal enforcement through self-disclosure of illegal conduct. If the DOJ continues down this path, both the incentives for self-disclosure and cooperation as well as the pain the DOJ will bring for companies which do self-disclose will be significant.  Monaco closed her speech with the following, “Investing now in a robust compliance program is good for business, and it is good for our collective economic and national security.”

  1. Individual Accountability

As far back as 2015, in the Yates Memo, the DOJ has said they will emphasize individual accountability, through individual, as opposed to corporate, enforcement actions. In her speech, Monaco pointed to charges brought against two of the current most prominent alleged fraudsters, Sam Bankman-Fried and Carlos Watson and the convictions out of Theranos; Elizabeth Homes and Sunny Balwani. She also stated, “The Criminal Division’s Fraud Section, for example, secured more individual convictions at trial last year than in any of the previous five years.  So, our message is clear: the department will zealously pursue corporate crime in any industry, and we will hold wrongdoers accountable, no matter how prominent or powerful they are.” While this has yet not been seen in FCPA enforcement, perhaps it will be this year and beyond.

Join me tomorrow where I look at the Polite Speech.

Categories
Compliance Kitchen

Compliance Kitchen on Navigating the 10th Package of EU Sanctions and DOJ’s Disruptive Technology Strike Force

The Compliance Kitchen with host Silvia Surman is the podcast you need to stay up-to-date on regulation details. In the most recent episode, Silvia dives into the EU’s tenth package of sanctions against Russia and the DOJ’s new disruptive technology strike force. Surman covers details such as entities and people added to the Russia sanctions list, additional trade restrictions, enforcement and anti-convention measures, and the prohibition on transmitting dual use items and goods and technology from the EU through Russian territory. Additionally, Surman talks about the DOJ’s new strike force encompassing more than 10 cities to enforce U.S. laws protecting advanced technologies from illegal acquisition. Tune into The Compliance Kitchen for the need-to-know information on regulation details!

Highlights Include

  • EU Sanctions
  • DOJ Disruptive Technology Strike Force

Notable Quotes

  1. “The EU has added a number of entities and people to the Russia sanctions list.”
  2. “Also those who continue to press the Kremlin’s propaganda and spread this information in the media.”
  3. “The goal is to prevent critical technologies from being acquired or used by certain nation state adversaries such as China, Russia, North Korea, and Iran.”
  4. “This is a joint venture that encompasses more than 10 cities and aims to enforce U. S. Laws to protect advanced technologies from illegal acquisition and used by certain nation state adversaries.””

Resources

Silvia Surman on LinkedIn

Categories
Principled Podcast

Season 9 Episode 5 – How Company Principles and Values Make Compliance Simple?

What you’ll learn on this podcast episode?

What is the most effective way to help employees make ethical and compliant decisions regardless of the different situations they face? Should they consult a lengthy list of rules and try to find one that fits the situation? Or can they be trusted to apply critical principles that embed company values? In this episode of the Principled Podcast, host Susan Divers talks with Dana McMahon, the vice president and chief compliance officer of Stryker, about how her team works to empower and help its employees live the medical device company’s mission and values. Their secret? Simplicity. 

Guest: Dana McMahon

Principled_Podcast_Dana_McMahon_Guest

Dana McMahon leads global compliance, privacy, and enterprise risk at Stryker. Prior to her current role, Dana served as Chief Legal Counsel and led a global legal and compliance team advising on regulatory and quality, manufacturing and supply, technology and cybersecurity, commercial and government contracting, and privacy.

Dana has 20 years of experience in the life sciences industry. She joined Stryker in 2017 from Novo Nordisk, where she served as Assistant General Counsel. During her 14-year career at Novo Nordisk, Dana held several positions of escalating responsibility within the legal team, overseeing support to the commercial, regulatory, clinical, medical affairs, compliance, and government affairs organizations. Dana has worked extensively on matters related to product development and commercialization, market access and compliance. Previously, Dana worked in private practice at O’Melveny in New York City.

Dana received her law degree from New York University School of Law and her bachelor’s degree from Hamilton College.

Host: Susan Divers

Headshot_Susan_S7E18

Susan Divers is the director of thought leadership and best practices with LRN Corporation. She brings 30+ years’ accomplishments and experience in the ethics and compliance arena to LRN clients and colleagues. This expertise includes building state-of-the-art compliance programs infused with values, designing user-friendly means of engaging and informing employees, fostering an embedded culture of compliance, and sharing substantial subject matter expertise in anti-corruption, export controls, sanctions, and other key areas of compliance.

Prior to joining LRN, Mrs. Divers served as AECOM’s Assistant General for Global Ethics & Compliance and Chief Ethics & Compliance Officer. Under her leadership, AECOM’s ethics and compliance program garnered six external awards in recognition of its effectiveness and Mrs. Divers’ thought leadership in the ethics field. In 2011, Mrs. Divers received the AECOM CEO Award of Excellence, which recognized her work in advancing the company’s ethics and compliance program.

Before joining AECOM, she worked at SAIC and Lockheed Martin in the international compliance area. Prior to that, she was a partner with the DC office of Sonnenschein, Nath & Rosenthal. She also spent four years in London and is qualified as a Solicitor to the High Court of England and Wales, practicing in the international arena with the law firms of Theodore Goddard & Co. and Herbert Smith & Co. She also served as an attorney in the Office of the Legal Advisor at the Department of State and was a member of the U.S. delegation to the UN working on the first anti-corruption multilateral treaty initiative.

Mrs. Divers is a member of the DC Bar and a graduate of Trinity College, Washington D.C. and of the National Law Center of George Washington University. In 2011, 2012, 2013 and 2014 Ethisphere Magazine listed her as one the “Attorneys Who Matter” in the ethics & compliance area. She is a member of the Advisory Boards of the Rutgers University Center for Ethical Behavior and served as a member of the Board of Directors for the Institute for Practical Training from 2005-2008. She resides in Northern Virginia and is a frequent speaker, writer and commentator on ethics and compliance topics.

Categories
31 Days to More Effective Compliance Programs

One Month to More Effective Compliance for Business Ventures – JV risks under the FCPA

Just as the FCPA enforcement field is covered with actions centering around M&A, multiple actions involve JVs. JVs continue to plague many U.S. companies up to this day. In many ways, JVs present more difficult issues for the compliance practitioner than M&A because of the control issues present in JVs with foreign governments or state-owned enterprises ownership.

There are other risks that a company must seek to avoid. These include transferring things of value to a state-owned enterprise for the benefit of someone outside the JV. A company must avoid payments for which there is no legitimate business purpose to the state-owned enterprise in the JV itself, as they will be deemed illegal benefits to the state-owned enterprise outside the JV.

The bottom line is JVs present a unique set of FCPA risks for the compliance practitioner. You will need to incorporate risk management techniques in all phases of the JV relations; pre-formation, the JV agreement, and in operations after the JV has begun operation. The compliance obligations and compliance process are ongoing.
Three key takeaways:

  1. JVs present unique FCPA risks.
  2. Control is only one issue a compliance practitioner must consider in evaluating JV risks.
  3. Companies continue to have significant FCPA risks from JVs.
Categories
Corruption, Crime and Compliance

Financial Controls: Contract/Purchase Order to Invoice to Payment Procedures

The contract to invoice to payment process may seem like a small part of a larger process, but it’s at the core of many enforcement issues, particularly when it comes to the FCPA. In fact, we’ve seen some important cases that have highlighted the critical nature of this process, including the Oracle case from last year. This episode of Crime, Corruption and Compliance is not just a review of the FCPA, but rather an in-depth exploration of how companies can implement effective internal controls around their financial operations, and avoid potential problems that can arise from breakdowns in this process. I dive into the details of this important topic so you can learn how to build an effective control environment for your company’s financial operations.

These are some key ideas I discuss in this episode:

  • Internal controls are critical to preventing fraud and corruption, and must be established and maintained to ensure the proper use of corporate assets.
  • The accounting provisions of the FCPA include the books and records provision and the internal controls provision, which require issuers to keep accurate and detailed records of their transactions and maintain a system of internal accounting controls.
  • The contract to invoice to payment process is a key area where breakdowns in internal controls can occur, leading to illegal payments and bribery risks.
  • A robust due diligence process is required to confirm the ownership, legal compliance, reputation, and other important factors of potential vendors and suppliers.
  • Accounts payable and accounts receivable personnel are critical frontline actors in the procurement to pay process, and should be trained in compliance to mitigate risks and elevate red flags when necessary.
  • The coordination and communication between finance, procurement, and compliance functions is crucial to establishing effective controls and preventing potential high-risk situations.
  • Contract and purchase order management systems should be established to link the contracting and purchasing process with invoicing and payment, ensuring proper review and verification of invoices and payments.
  • Invoicing and payment processes should be closely monitored and authorized in accordance with contractual and purchase order terms to avoid unauthorized use of corporate assets and reduce bribery risks.
  • Compliance programs should include a monitoring program and transaction testing program to regularly review and test the effectiveness of internal controls in the procurement to pay process.

 

KEY QUOTES:

“Compliance has to push their way into the environment here and start to take some responsibility for transaction testing, for monitoring, for partnerships related to high value or high risk third parties, to make sure that we’re monitoring and addressing that risk.” – Michael Volkov

 

“One of the things that has to go along with your third party due diligence program is what I would call a contract management system.” – Michael Volkov

 

“Accounts payable personnel should always be relied on in terms of natural allies and open communications. Having them elevate red flags to the business and the compliance functions has to be a key priority here because they are on the front lines.” – Michael Volkov

 

Resources

Michael Volkov on LinkedIn | Twitter

The Volkov Law Group

Categories
FCPA Compliance Report

Egle Karalyte on Creating a Brand for the World

Welcome to the award-winning FCPA Compliance Report, the longest-running podcast in compliance. In this episode, I am joined by Egle Karalyte, founder and CEO of Karalyte. Tom and Egle discussed branding in the corporate world. Egle explained that a brand is an expression and system that encapsulates services, products, and values that customers will resonate with going forward. A successful UX strategy can keep customers coming back for more. The conversation then shifted toward discussing how different branding rules apply to products and services. Egle discusses how the Metaverse is taking UX to new heights and why this benefits companies and customers.

Key Highlights

·      Developing a Brand: A Systematic Approach [00:05:01]

·      Branding Services vs. Products in Adobe [00:09:37]

·      The Benefits of an Improved User Experience (UX) [00:14:04]

·      The Benefits of Virtual Reality Gaming with Karalyte[00:18:55]

Notable Quotes

1. “For me, a brand is really kind of a certain belief system that is packaged into a certain package that also kind of incorporates a product, reach of service, and really consolidates everything that the customer would resonate with.”

2. “I’ve developed a system where I go through every client, a methodology where we look into the branch world from all possible angles.”

3. “It’s like falling in love. Like, you have to have certain elements in place that would then trigger the spark. So it’s the same thing with a brand. Like, the brand needs to get its foundational elements in place so that people, when they discover it, they really kind of fall in love with the brand and with the product, and then the advocacy, you know, becomes natural because when we find what we like, we simply just naturally want to share it with people.”

4. “Good UX definitely helps to make people interested in what we have to offer. When we discover a brand online and come to the website, how we experience the website will determine whether the brand will hook us in or not.”

 Episode Links

Karalyte

Connect with Egle Karalyte on LinkedIn

Connect with Tom Fox on LinkedIn

Categories
Daily Compliance News

March 6, 2023 – The Enshittification 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:

  • Why do websites go to dogs? (FT)
  • Why Jeffrey Epstein still haunts JPMorgan and Barclay’s. (FT)
  • Are layoffs a cakewalk? (FT)
  • Open for Business-Venezuela? (FT)