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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)
Categories
Sunday Book Review

March 5, 2023 – The Cambridge University Press – Futures Edition

In the Sunday Book Review, I consider books that interest the compliance professional, the business executive, or anyone curious. It could be books about business, compliance, history, leadership, current events, or anything else that might interest me. In today’s edition of the Sunday Book Review, we consider some of the top recently released by the Cambridge University Press:

  • Unwired by Gaia Bernstein
  • You Can’t Always Say What You Want by Dennis Baron
  • No Miracle Needed by Mark Jacobson
  • Bounce by Robert Wicks
Categories
The Night Sky

Jeff Stone – Eclipse Chasing and the Night Sky

Welcome to The Night Sky: A Podcast on the Eclipses Comes to Kerrville, a podcast that celebrates that for two days over the next 18 months, Kerrville, TX, will be the Eclipse Capitol of the World. This podcast, hosted by Andrew Gay and Tom Fox, will celebrate these two eclipses and discuss how Kerrville will prepare for an influx of a quarter million (or more) visitors. The Texas Hill Country Podcast Network hosts this podcast.

In this second episode, Andrew and Tom visit with Jeff Stone, who has been an eclipse chaser and long-time watcher of the skies. Jeff describes the wonder and awe he found looking into the night skies as a young boy, his passion for working at NASA, chasing eclipses, and the beauty of the darkened night sky.

Highlights include:

  • What is a solar eclipse?
  • What is an annular eclipse?
  • What is a total eclipse?
  • What is the best way to watch an eclipse?
  • Working at NASA?
  • What is the ‘Night Sky’ movement?
  • How and why Kerrville, TX, will be the epicenter of both eclipses.

Resources

Jeff Stone on LinkedIn

Andrew Gay on LinkedIn

Tom Fox on LinkedIn

For information on the eclipses in Kerrville, go here

Categories
Daily Compliance News

March 4, 2023 – The Corruption and Murder 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 pleads guilty again. (WSJ)
  • Judge delivers two life sentences in the Alex Murdaugh conviction. (The Guardian)
  • Corruption is Iran’s, Achilles Heel. (Foreign Policy)
  • Nooses at Exxon plant=EEOC lawsuit. (Reuters)
Categories
Wirecard

Season 3, Episode 39 – Coming off the Rails

Welcome to Season 3 of Lies, Spies & Corporate Crimes: The Wirecard Saga. The Wirecard Saga has become the world’s leading source of all things Wirecard. In The Wirecard Saga, Lies, Spies & Corporate Crimes, host Mikhail Reider-Gordon, Managing Director of Institutional Ethics & Integrity at Affiliated Monitors, looks at the biggest financial scandal in post-war Germany from a variety of angles. In this episode, our host analyses the series of events connected to the company’s downfall and follows the trial dates and the Singaporean Police Force’s investigation. In addition, the podcast examines other entities connected to the Wirecard scandal, including the German Ministry of Defense. Tune in to The Wirecard Saga for all the latest updates!

Key Highlights

  • Trial dates set in Singapore
  • Why won’t Germany take up Singapore’s offer?
  • Braun as Captain of the Titanic
  • He’s not a joiner
  • Second-guessing CEO’s decisions
  • Judge Frodisch just can’t understand
  • TPA’s were firewalls
  • CEO of only some departments
  • Another loan to an off-shore entity
  • EY gets pulled back in
  • Wirecard Card Solutions’ legacy
  • PayRNet and RailsR ‘historic’ problem
  • Lietuvos Bankas says PayRNet engaged in gross TF
  • From Bad to Worse
  • Procurement Corruption
  • 4Strat and the Austrian-Russian connection

Notable Quotes

1.     “I have never been a gang member or even their leader. I had no personal relationship with any of these people.”

2.     “I didn’t believe for a single second that the business wasn’t there.” “We said very clearly, we regard the third-party partners as an intermediate step. The TPA is reviewed as a form of firewall, essentially, intercessors who create a distance between Wirecard and dealers, a layer that appears to reduce risk.”

3.     “I am convinced that the business existed, but significant parts did not flow into the escrow account.”

4.     “You couldn’t run everything, the Wirecard Bank. And remember, all those illicit card charges needed to be recorded to get past Visa, Mastercard, Wirecard, and Amex. And the intermediary banks, don’t forget them. There were a lot of moving parts.”

Categories
31 Days to More Effective Compliance Programs

One Month to More Effective Compliance on Business Ventures: Dis-linking Illegal Conduct

One of my favorite words in the context of FCPA enforcement is dis-link. It a useful adjective in explaining how certain conduct by a company must be separated from the winning of business and more broadly it works on many different levels when discussing the FCPA. This concept of dis-linking was most prominently laid out in Opinion Release 14-02. It provided one of the most concrete statements from the DOJ on the unidimensional nature of compliance in the M&A context; both in the pre-acquisition and post-acquisition phases.

Opinion Release 14-02, taken together with the steps laid out in the 2020 FCPA Resource Guide, 2nd edition, has provided the post-acquisition actions a compliance professional needs to take after the transaction is closed. If you cannot perform any or even an adequate pre-acquisition due diligence, the time frames you put in place after the acquisition closes will need to be compressed to make sure that you are not continuing any nefarious FCPA conduct going forward.
But it all goes back to dis-linking. If a Target is engaging in conduct that violates the FCPA but the Target itself is not subject to the jurisdiction of the FCPA, you simply cannot afford to allow that conduct to continue. If you do allow such conduct to continue your company will be actively engaging and participating in an ongoing FCPA violation. That is the final takeaway from this Opinion Release; it is allowing corruption and bribery to continue which brings companies into FCPA grief. Opinion Release 14-02 provides a roadmap of the steps you can take to prevent such exposure.
Three key takeaways:

  1. In the M&A context, the key is to dis-link any illegal conduct going forward.
  2. Opinion Release 14-02 provides the clearest roadmap for pre- and post-acquisition compliance actions in the M&A context.
  3. Never forget the Opinion Release procedure. It has been used successfully in two important M&A matters (08-02 and 14-02).
Categories
Sports and Compliance

The Dan Snyder Indemnity Edition

Welcome to the Sports and Compliance podcast. For the longest time, I have wanted to have a podcast on the intersection of Sports and the World of Compliance and Ethics, both for those stories as the play out on the Sports Page and for the lessons they provide to business executives and compliance professionals. In this podcast series, I am joined by one of the top compliance commentators around, Stephen Martin, CCO at Skillsoft. Together will use our love of sports and competition to discuss current ethical issues in sports, look at compliance through a sports lens and determine how the world of sports and its stories can be a guide for the compliance professional.

In today’s episode, Tom and Stephen look at the sale of the team formerly known as the “team who will not be named,” the investigation surrounding Alabama Crimson Tide basketball player Brandon Miller, and MLB’s changes to the game such as the size of the bases, clocks on pitchers and hitters and outlawing shifts; all in the hopes of speeding up the game. Tom and Stephen explore the stories from different perspectives and always keeping their compliance audience in mind. Learn more with Sports and Compliance and keep up with current sports news, with a dash of compliance laid in.

Key Highlights

·       The Mary Jo White Report and Confidence in the NFL [00:03:56]

·       The Alabama Basketball Imbroglio [00:06:53]

·       The Consequences of Poor Decision Making [00:10:33]

·       The Impact of Baseball’s Rule Changes on the Game [00:13:49]

·       The Impact of the Shift on Baseball [00:17:13]

·       Baseball Speed Up: Positive Effects on Keeping Fans Interested [00:19:56]

Notable Quotes

1.    “You don’t often see it when somebody causes their own problems and then ask to be identified for them, but we’ve seen that with CEOs before.”

2.    “It’s a classic example of a couple of things we see in compliance. Star performers. Sometimes there’s just different rules for them. Right? And that’s just how it goes.”

3.    “It’s just it’s shocking to me that Alabama has done it this way.””

4.    “You can’t just say, I’m being mistreated. We’ve had that conversation in our household the last few days about what’s fair and when rules are in place, what happens? And these are all good things to understand because they’re there are consequences whether positive or negative to rule changes and you can figure them out.”