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Today, we continue our exploration of the Monaco Memo by considering the sections relating to the evaluation of cooperation during the pendency of the investigation and the evaluation of a company’s compliance program at the conclusion of the resolution. These portions of the Monaco Memo should be studied intently by every compliance professional as they lay out what the Department of Justice (DOJ) will require to grant discounts under the FCPA Corporate Enforcement Policy.

Evaluation of Cooperation

Cooperation with the DOJ during the pendency of an investigation has always been a critical factor of the overall costs of a Foreign Corrupt Practices Act (FCPA) resolution since this factor can be added as a discount under the US Sentencing Guidelines and the FCPA Corporate Enforcement Policy. Essentially a company can double dip in discounts with superior cooperation. Indeed, we have seen companies have the fines and penalties increase by tens of millions when they failed to cooperate.

The Monaco Memo acknowledges what a corporation can obtain by stating, “Cooperation can be a mitigating factor, by which a corporation – just like any other subject of a criminal investigation – can gain credit in a case that is appropriate for indictment and prosecution.” Further, “Credit for cooperation takes many forms and is calculated differently based on the degree to which a corporation cooperates with the government’s investigation and the commitment that the corporation demonstrates in doing so. The level of a corporation’s cooperation can affect the form of the resolution, the applicable fine range, and the undertakings involved in the resolution.”

Principal Associate Deputy Attorney General (DAG) Marshall Miller, recently said in a speech, “I trust one thing came through loud and clear: the Department is placing a new and enhanced premium on voluntary self-disclosure.” This is where the timeliness issue becomes so critical. Miller went on to state, “The DAG also provided important guidance on corporate cooperation. The key point I want to highlight relates to timeliness. In building cases against culpable individuals, we have heard one consistent message from our line attorneys: delay is the prosecutor’s enemy — it can lead to a lapse of statutes of limitation, dissipation of evidence, and fading of memories. The Department will expect cooperating companies to produce hot documents or evidence in real time. And your clients can expect that their cooperation will be evaluated with timeliness as a principal factor. Undue or intentional delay in production of documents relating to individual culpability will result in reduction or denial of cooperation credit. Where misconduct has occurred, everyone involved — from prosecutors to outside counsel to corporate leadership — should be “on the clock,” operating with a true sense of urgency.”

Miller fleshed out the Monaco Memo regarding this DOJ expectation when he intoned that the DOJ expects “cooperating companies to produce hot documents or evidence in real time.” Moreover, “The key point I want to highlight relates to timeliness.” This could mean literally when you find a smoking, still hot or even cold gun you had better pick up the phone and call the DOJ. Finally, when it comes to cooperation credit the DOJ will evaluate companies “timeliness as a principal factor.” It cannot be stated any plainer or more simply than that.

Evaluation of Corporate Compliance Programs

Equally important for compliance professionals was the section on evaluating compliance program. The DOJ has presented significant information to the compliance community with the release of the 2019 Evaluation of Corporate Compliance Programs and its 2020 Update. The Monaco Memo recognizes these documents as key components for the DOJ to review compliance programs of companies under investigation. Moreover, although there is no compliance defense to prosecution of illegal conduct, such compliance programs have “a direct and significant impact on the terms of a corporation’s potential resolution with the Department.”

To that end, the Monaco Memo directs prosecutors to “evaluate a corporation’s compliance program as a factor in determining the appropriate terms for a corporate resolution, including whether an independent compliance monitor is warranted. Prosecutors should assess the adequacy and effectiveness of the corporation’s compliance program at two points in time: (1) the time of the offense; and (2) the time of a charging decision. The same criteria should be used in each instance.”

However, the Monaco Memo focused attention on an area given little weight previously in determining the effectiveness of an effective compliance program, that being clawbacks. While compensation, particularly in the form of bonus or other compensation based on positive compliance actions, has long been a part of a best practices compliance program (the carrot) we have not previously seen its equivalent disincentive (the stick).

The Monaco Memo stated, “Corporations can best deter misconduct if they make clear that all individuals who engage in or contribute to criminal misconduct will be held personally accountable. In assessing a compliance program, prosecutors should consider whether the corporation’s compensation agreements, arrangements, and packages (the “compensation systems”) incorporate elements ­ such as compensation clawback provisions – that enable penalties to be levied against current or former employees, executives, or directors whose direct or supervisory actions or omissions contributed to criminal conduct. Since misconduct is often discovered after it has occurred, prosecutors should examine whether compensation systems are crafted in a way that allows for retroactive discipline, including through the use of clawback measures, partial escrowing of compensation, or equivalent arrangements.” This is a change.

Miller expanded on this when he said the DOJ would start with two questions:

1. Has the company clawed back incentives paid out to employees and supervisors who engaged in or did not stop wrongdoing?
2. Is the company targeting bonuses to employees and supervisors who set the right tone, make compliance a priority, and build an ethical culture?

Miller went on to add, “What we expect now, in 2022, is that companies will have robust and regularly deployed clawback programs. All too often we see companies scramble to dust off and implement dormant policies once they are in the crosshairs of an investigation. Companies should take note: compensation clawback policies matter, and those policies should be deployed regularly. A paper policy not acted upon will not move the needle — it is really no better than having no policy at all.”

My suggestion is that you develop a clawback policy and write it into the contracts of your senior management going forward.

I hope you will join me tomorrow where I look at guidance around monitors and monitorships.

Today, we continue our exploration of the Monaco Memo by considering the section entitled “Timely Disclosures and Prioritization of Individual Investigations”. This portion of the Monaco Memo re-emphasized the reinstitution of the Yates Memo, first announced by Deputy Attorney General (DAG) Lisa Monaco in October 2021. Clearly the Department of Justice (DOJ) wants to increase the accountability of individuals who have engaged in criminal activities such as bribery and corruption under the Foreign Corrupt Practices Act (FCPA).

It is well-settled under the FCPA Corporate Enforcement Policy that for a company to be considered for a Declination or cooperation credit, the company must self-disclose its illegal conduct. However, self-disclosure is not enough; it now must be timely. The DOJ wants speed as well because, “If disclosures come too long after the misconduct in question, they reduce the likelihood that the government may be able to adequately investigate the matter in time to seek appropriate criminal charges against individuals. The expiration of statutes of limitations, the dissipation of corroborating evidence, and other factors can inhibit individual accountability when the disclosure of facts about individual misconduct is delayed.”

The Monaco Memo stated, “it is imperative that Department prosecutors gain access to all relevant, non­privileged facts about individual misconduct swiftly and without delay.” [emphasis supplied] This means, “ to receive full cooperation credit, corporations must produce on a timely basis all relevant, non-privileged facts and evidence about individual misconduct such that prosecutors have the opportunity to effectively investigate and seek criminal charges against culpable individuals.” If a company fails to meet this burden, it will “place in jeopardy their eligibility for cooperation credit.” The DOJ goes the next step by placing the burden on companies to demonstrate timeliness, stating they “bear the burden of ensuring that documents are produced in a timely manner to prosecutors.”

Moreover, it is not simply data or information. A company must seek out and disclose on this ‘timely’ basis, the evidence “that is most relevant for assessing individual culpability.” This type of evidence could include “information and communications associated with relevant individuals during the period of misconduct.” While the DOJ may well ask companies to prioritize evidence they are seeking in investigation, even with no such instruction or request from the DOJ, “cooperating corporations should understand that information pertaining to individual misconduct will be most significant.”

All of this was driven home by adding this timeliness requirement to the analysis of factors surrounding a company’s cooperation with the DOJ, as laid out in the FCPA Corporate Enforcement Policy. The Monaco Memo stated, “in connection with every corporate resolution, Department prosecutors must specifically assess whether the corporation provided cooperation in a timely fashion.” Some of the factors in this new analysis could include “whether a company promptly notified prosecutors of particularly relevant information once it was discovered, or if the company instead delayed disclosure in a manner that inhibited the government’s investigation.” And then the stick is lowered when “prosecutors identify undue or intentional delay in the production of information or documents – particularly with respect to documents that impact the government’s ability to assess individual culpability ­ cooperation credit will be reduced or eliminated.” There are no percentages as to how much this might entail but conceivably it could reduce a cooperation credit by between 25% to 50%. Of course, if this analysis is factored into the fine and penalty calculation under the US Sentencing Guidelines, the cost could even be higher to a company.

This new requirement presents several challenges for any company and compliance professionals involved in the corporate investigatory process. The DOJ emphasis is now on ‘timeliness’ which equates to speed. When a whistleblower or other report comes in, there should now be even more urgency to assess and triage and then elevate the report to the appropriate level. Remember, this is not about a corporate decision to self-disclose or not; although there are clear implications in that decision, this is about turning over evidence of culpable individuals. If the DOJ deems your turning over evidence as not timely, it could seriously impact your ability to get the full 25% credit under the FCPA Corporate Enforcement Policy for cooperation and remediation.

In terms of your investigation protocol, under the prior Policy interpretations, you complete the investigation and then bring it to DOJ. But now the DOJ may have an argument that you were untimely because you took three months, six months, nine months; however long it takes you to perform an investigation. James Koukios also provided some other examples, “you learn that there is going to be a newspaper article which is coming out shortly and it will allege your company of corruption. Ordinarily, you would go to DOJ first, even if do not have an investigative plan in place yet because you need to get ahead of that article.”

A similar situation could involve a whistleblower or if the government comes knocking. In these situations, your organization may not have been aware of the allegations or facts. “This means you will have to investigate and at that point, it is hard to say that you will deliver timely information at any point, because you do not know things up front.” This begs the question “is it timely that I bring it to you?” This can be even more problematic “if a prosecutor thinks, you should have brought this to me two months earlier, or you should have brought this to me three months earlier.” This may be even more true as the burden is on the company to demonstrate timeliness.

As I said there are many questions on this topic going forward.

I hope you will join me tomorrow where I look at guidance on corporate accountability.

Last week saw the announcement of two significant and related releases of information from the Department of Justice (DOJ) around Foreign Corrupt Practices Act (FCPA) enforcement and corporate compliance programs. They were the Monaco Memo and a Speech by Assistant Attorney General Kenneth A. Polite made at the University of Texas Law School. Every compliance professional should study them both.

Over the next several days, I will be blogging about each of them and other DOJ announcements. I will also have a series of podcasts about different aspects of the releases with a variety of guests including Affiliated Monitors, Inc. (AMI) founder Vin DiCianni, Morrison & Foerster LLP (MoFo) partner James Koukios and my Compliance into the Weeds co-host, Matt Kelly. The Memo is broken down into four main sections: I. Guidance on Individual Accountability; II. Guidance on Corporate Accountability; III. Independent Compliance Monitorships; and IV. Commitment to Transparency in Corporate Criminal Enforcement. Today I want to introduce each release and try to place it into the overall context of DOJ communications to the compliance community, compliance professionals and Chief Compliance Officers (CCOs).

The Monaco Memo builds on many of the topics first articulated by Deputy Attorney General (DAG) Lisa Monaco last October in a speech to the ABA White Collar Bar conference. Koukios said he had two major reactions to the Monaco Memo. First, “I think it’s great when the department puts out a Memo like this, that lays out very clearly.” It sets out the DOJ expectations which Koukios believes the DOJ strives to do for the corporate compliance professional and the white-collar defense bar, which they have done so in an iterative matter. From releases of documents such as the Phillips Memo, to the FCPA Corporate Enforcement Policy to the Evaluation of Corporate Compliance Program and its Update. He added, “I think this is another one of those really helpful memos that sets out the factors that the DOJ will consider.”

He sees the Monaco Memo going further by delineating the implications of the factors it sets out.  He went on to note, “I think that there is a lot more in this Memo than there have been in some other, more recent memos.” Moreover, it lays out multiple changes at both “a high level and at the more granular level as well.” Koukios concluded, “I think it’s a very impactful Memo that practitioners’ compliance officers and other people dealing with this space really should spend time reading and understanding.”

I visited with DiCianni on the Independent Compliance Monitorships component. DiCianni believes the Monaco Memo is both further clarification and further guidance for line prosecutors when they are considering whether or not to put a monitor in place. Echoing Koukios in this section of the Memo, he noted that it lays out both broad goals and guidelines and then drills down into specific requirements in a way “we’ve  never seen before.” Further, while many of the factors “are really quite interesting there are not really anything new and from the monitors perspectives.” And while we have seen these factors in a disparate manner, in disparate places, “here they are in writing.” Once again this echoed something Koukios told me, that perhaps the greatest significance is that the Memo sets down all of these matters in writing which leads to a blueprint for DOJ thinking and a roadmap for anyone who finds themselves in an FCPA investigation or enforcement action.

I see the Monaco Memo and the Speech as complimentary releases which drive home several key changes in DOJ enforcement. Perhaps changes is too strong, but they these announcements make clear the DOJ is dedicated to individual accountability and prosecution. Corporations will have to reorient their approach to investigations and sharing of information with the DOJ to this new approach. Next the DOJ is strongly shifting the burden in the investigatory and negotiation phases to make clear the company must come forward with evidence to support lower fines and penalties and greater discounts, particularly in the area of individual financial penalties and incentives, i.e., clawbacks. Finally, the Monaco Memo lays out not simply how to avoid a monitor but a program of proactive monitoring which can lead to the prevention of a crime before the FCPA is violation.

The Memo itself said that the DOJ had established the Corporate Crime Advisory Group (“CCAG”)  to evaluate and recommend further guidance and consideration after the Monaco Speech from October 2021. This CCAG included leaders and experienced prosecutors from “components of the Department that handle corporate criminal matters: the Criminal Division; the Antitrust Division; the Executive Office of United States” to both evaluate and provide “revisions and reforms to enhance our approach to corporate crime, provide additional clarity on what constitutes cooperation by a corporation, and strengthen the tools our attorneys have to prosecute responsible individuals and companies.”

The DOJ review considered input from “a broad cross-section of individuals and entities with relevant expertise and representing diverse perspectives, including public interest groups, consumer advocacy organizations, experts in corporate ethics and compliance, representatives from the academic community, audit committee members, in-house attorneys, and individuals who previously served as corporate monitors, as well as members of the business community and defense bar.”

The Memo itself is designed to “promote consistency across the Department” by applying it  Department-wide. Some announcements establish the first-ever DOJ-wide policies on certain areas of corporate crime, “such as guidance on evaluating a corporation’s compensation plans; others supplement and clarify existing guidance. The policies set forth in this Memorandum, as well as additional guidance on subjects like cooperation, will be incorporated into the Justice Manual through forthcoming revisions, including new sections on independent corporate monitors.”

I hope you will join me tomorrow where I look at individual accountability and internal investigations.

I recently had the opportunity to visit with several folks from Assent Inc. for a sponsored podcast series entitled Supply Chain and ESG – What You Need to Know. We discussed: ESG drivers with Jared Connors and James Calder; UFLPA, Supply Chain and ESG with Travis Miller and Jamie Wallisch; the New World of Product Compliance and ESG, with Cally Edgren and Devin O’Herron; Emissions Reporting Strategies with Devin O’Herron and Jared Connors; and Responsible Minerals, Supply Chain and ESG, with Jared Connors and Daniel Zamora. Today, we consider a Scope 3 emissions reporting strategy.

We began with a discussion of the requirements for emissions reporting. There are three Scope levels within the emissions reporting strategy. Scope 1 and 2 are those emissions that are owned or controlled by a company, whereas Scope 3 emissions are a consequence of the activities of the company but occur from sources not owned or controlled by it. Connors provided some examples of each Scope, “Scope 1 is such things as your own vehicle fleets or things you are doing around your facility. Scope 2 is purchases such as heat or electricity for your facility, such as from your municipal power source. Scope 3 is all those variables outside your four walls.”

Connors went on to note, “This makes Scope 3 the most important of the three Scope emissions reporting, because it is so broad. It even includes things like employee travel. The most important aspect of Scope 3 is purchased goods, which has a very large impact on organizations that may not necessarily take in raw materials and directly manufacture from fabrication of those raw materials into a finished goods. Even if your organization designs products and influences those products, you typically will obtain your raw materials components through your supply chain. So purchased goods or supply chain is a very huge impact on the overall emission strategy for companies.”

O’Herron pointed to a recent Accenture study which estimated that Scope 3 emissions are typically 11 times larger than an organization’s Scope 1 and 2 emissions combined. With the increasing use of carbon taxes, and as they progress as a key tool, “the overall mission strategy frankly needs to start accounting for Scope 3.” But it is not simply risks but also opportunities, “because when it comes to Scope 3 emissions in particular, as we think about things like carbon taxes, risk in terms of risk, if you don’t understand what exactly that applies to your organization, you are missing a big opportunity.”

He further cautioned that while the conversation today is dominated by carbon, there may well be other minerals which fall under regulatory ambit. Moreover, there are other environmental factors at play, such waste management, recycled content in products, water usage. All of these additional costs that have not been traditionally quantified and accounted for when thinking about the product life cycle and design of the product. He stated, “when we are talking about Scope 3, in a broader context of just carbon, it’s about broadening the measure of impact burn closer to understanding and identifying the truthful cost of how we provision ourselves today.”

The bottom line is that organizations need to get a handle on their total emissions footprint, which includes what they are collecting from their suppliers upstream, their purchased goods or services, and those in Scope 3 emissions. You cannot manage what you do not measure. This means the “idea of diving into these details, has gained such relevancy and traction in the market.” It is providing a common language and identifying these common topics to focus on in terms of getting that information.

This is a big part of the overall strategy, the data collection at each level in the supply chain and how we may interact with our Tier 1 suppliers, but the disclosure that we get from them, there should be policies, procedures and programs around also creating transparency with their upstream suppliers. Connors concluded, “they have an element of pass down accountability as the phrase was coined so many years ago. I actually try to think of it as pass up accountability, because we are thinking about our supply chain upstream and what we need to collect from those organizations in order to meet the expectations of these regulatory pressures or these market disclosure requirements to create and promote transparency, not only in my operations, my four walls, but upstream of me as well.”

Please plan to join us tomorrow for our final post in this series, on responsible minerals, supply chain and ESG.

To listen to the podcast this blog post is based upon, click here.

I recently had the opportunity to visit with several folks from Assent Inc. for a sponsored podcast series entitled Supply Chain and ESG – What You Need to Know. We discussed: ESG drivers with Jared Connors and James Calder; UFLPA, Supply Chain and ESG with Travis Miller and Jamie Wallisch; the New World of Product Compliance and ESG, with Cally Edgren and Devin O’Herron; Emissions Reporting Strategies with Devin O’Herron and Jared Connors; and Responsible Minerals, Supply Chain and ESG, with Jared Connors and Daniel Zamora. Today, in our final post, we consider responsible minerals, supply chains and ESG.

We began with a review of the evolution on responsible mineral sourcing. It started with conflict minerals, which has been around for 10 years or so. This led to a rather dramatic shift in the worldwide corporate mindset and companies and stakeholders determined that there needed to be more engagement all levels within the supply change. Zamora pointed to the example of due diligence. “It began as a data collection exercise where you get transparency into your supply chain, but now it’s all about, what can you do  with that information after you collect data? What you see from the expectations of stakeholders is performing risk management, right to diligence activities within your supply chain.” This means going beyond regulatory requirements, it means risk management activities related to identifying sanctions within your supply chain.

One of the key themes of this series has been how a comprehensive ESG program can bring a much more integrated, holistic approach to not simply regulatory compliance but also in overall business operations. That also presents the opportunity to use an ESG approach to move from simply a reactive to proactive program. With Zamora, we look at steps a company can take to facilitate this change.

Zamora said, the “first step is you need to collect data efficiently. Once you do that officially, it allows your organization to have the resources in place to focus at how to perform risk management from within your supply chain. Number two, you need to have a specific program in place that would allow you to see and identify the risks so you can see where minerals are coming from and where the minerals are going afterwards. This allows you to identify those risks ahead of time, having risk assess verifiable sources out there that will allow determine who the bad actors are before then engage in bad behaviors.”

All of this allows a company to make better business decisions in terms of risk management. Zamora said, “it gives them time. It gives them a lot of power to take corrective actions, according to those risks. It could be communicating that those risks within their own supply chain. It could be passing that information along to their legal team. Once you have that ability to see these risks live as if an organization is being proactive about it instead of being reactive and waiting for those risks to show up in your supply change; a company will have a lot of power to have corrective action in order to mitigate those risks.”

We concluded with a discussion of the stakeholders who might be concerned with responsible minerals and how a corporation can use an overall ESG program to engage with them. This can include the shareholders, it could include customers, it could include employees, it could include third parties your organization does business with, and it could include the locales where a company does business or operates. Zamora said, “conversations have definitely changed,”. Now it has expanded to “even metal associations.” These conversations are also at “multiple levels within the supply chain. It is no longer the downstream companies and the shareholders right now, you see expectations at the mid-tier suppliers, you see these conversations at the smelters and at the upstream level.” All these levels are getting engaged in discussions and conversations around the ESG requirements.

To listen to the podcast this blog post is based upon, click here.

The UFLPA is a law which targets goods made, whole or in part, by forced labor in the China Jing Jang region or made by forced labor in other parts of China by Uighurs, or other minorities. Wallisch explained that it is designed to operate as a de facto trade ban on goods from the Jing Jang region of China. US businesses will face the high burden needed to overcome an expectation of forced labor presumption. Wallisch believes this is the most “significant law placed around the issue of forced labor, and it has the most tangible and concrete terms of repercussions, that companies can potentially face.” Further, she believes the key will be around your documentation to provide to US Customs and Border Protection. Miller noted that this means if you are “asking companies to look back into where the actual sand came from, that got turned into the silica, that got turned into the semiconductor, that got turned into the circuit board, that got turned into the device that finds its way into your laptop. There’s just never been anything like it.”

Interestingly, this ties directly into a company’s overall ESG framework as it is combining all elements in such a program. When you tie the UFLPA, together with anti-corruption laws such as the Foreign Corrupt Practices Act (FCPA), export controls laws and regulations enacted by both the Trump and Biden Administrations and anti-money laundering (AML) laws, such as the AML Law of 2020, you begin to see a more integrated approach by the government and how companies must respond with an integrated approach such as a corporate ESG program. Wallisch concluded, “it’s really signaling the intersectionality of all these particular topics under ESG.”

Miller noted, interestingly, about how much this law and its guidance weave together existing business processes. He believes the UFLPA was “birthed out of the America Supply Chain Executive Order in the US/China trade war, which was focused on semiconductors, critical, raw materials elements that are the subject of the extractives. To comply with it, you could not actually start unless you already had a product compliance program in place. This means that if you do not know the bill of materials, if you do not have an approved vendor list, if you do not know where your components are being manufactured; how do you even begin the ESG program? So really in my opinion, the UFLPA is not novel in that it created something new; it is  novel in that it is forcing companies to use all the existing business processes to tie back the breadcrumbs and figure out things that they should already know and then to be responsible for reporting on them.”

Miller believes that even with the UFLPA and other regulatory initiatives, the real driver here is business and business operations. He believes it will require organizations to recognize that their organizational footprint, for each business extends beyond the four corners of the organization. This will come into play for financing whether through private equity investment, public market offerings, bank loans or other mechanisms. It has not extended down into individual responses to requests for quotes in the business world.

Equally importantly, he said, “it’s also about who you chose to do business with, who you chose to profit from, and it’s not enough that you can just say, well, I outsource the bad stuff; slaves being used in my supply chain and bribery occurring in the same place. That is no longer a sufficient answer. It’s this assessment, it’s this realization that you are the sum of your components. You are the sum of your relationships. The business is not an island. It’s everything being pulled together and your entire impact on the globe, on the people on the world, on the business processes that derives your profitability now must be considered. And that’s quite revolutionary. If you think about it.”

Join us in Part 3, where we consider the new world of product compliance and ESG.

To listen to the podcast this blog post is based upon, click here.

I recently had the opportunity to visit with several folks from Assent Inc. for a sponsored podcast series entitled Supply Chain and ESG – What You Need to Know. We discussed: ESG drivers with Jared Connors and James Calder; UFLPA, Supply Chain and ESG with Travis Miller and Jamie Wallisch; the New World of Product Compliance and ESG, with Cally Edgren and Devin O’Herron; Emissions Reporting Strategies with Devin O’Herron and Jared Connors; and Responsible Minerals, Supply Chain and ESG, with Jared Connors and Daniel Zamora. Today we review the intersection of the Uyghur Forced Labor Prevention Act (UFLPA), Supply Chains and ESG.

The UFLPA is a law which targets goods made, whole or in part, by forced labor in the China Jing Jang region or made by forced labor in other parts of China by Uighurs, or other minorities. Wallisch explained that it is designed to operate as a de facto trade ban on goods from the Jing Jang region of China. US businesses will face the high burden needed to overcome an expectation of forced labor presumption. Wallisch believes this is the most “significant law placed around the issue of forced labor, and it has the most tangible and concrete terms of repercussions, that companies can potentially face.” Further, she believes the key will be around your documentation to provide to US Customs and Border Protection. Miller noted that this means if you are “asking companies to look back into where the actual sand came from, that got turned into the silica, that got turned into the semiconductor, that got turned into the circuit board, that got turned into the device that finds its way into your laptop. There’s just never been anything like it.”

Interestingly, this ties directly into a company’s overall ESG framework as it is combining all elements in such a program. When you tie the UFLPA, together with anti-corruption laws such as the Foreign Corrupt Practices Act (FCPA), export controls laws and regulations enacted by both the Trump and Biden Administrations and anti-money laundering (AML) laws, such as the AML Law of 2020, you begin to see a more integrated approach by the government and how companies must respond with an integrated approach such as a corporate ESG program. Wallisch concluded, “it’s really signaling the intersectionality of all these particular topics under ESG.”

Miller noted, interestingly, about how much this law and its guidance weave together existing business processes. He believes the UFLPA was “birthed out of the America Supply Chain Executive Order in the US/China trade war, which was focused on semiconductors, critical, raw materials elements that are the subject of the extractives. To comply with it, you could not actually start unless you already had a product compliance program in place. This means that if you do not know the bill of materials, if you do not have an approved vendor list, if you do not know where your components are being manufactured; how do you even begin the ESG program? So really in my opinion, the UFLPA is not novel in that it created something new; it is  novel in that it is forcing companies to use all the existing business processes to tie back the breadcrumbs and figure out things that they should already know and then to be responsible for reporting on them.”

Miller believes that even with the UFLPA and other regulatory initiatives, the real driver here is business and business operations. He believes it will require organizations to recognize that their organizational footprint, for each business extends beyond the four corners of the organization. This will come into play for financing whether through private equity investment, public market offerings, bank loans or other mechanisms. It has not extended down into individual responses to requests for quotes in the business world.

Equally importantly, he said, “it’s also about who you chose to do business with, who you chose to profit from, and it’s not enough that you can just say, well, I outsource the bad stuff; slaves being used in my supply chain and bribery occurring in the same place. That is no longer a sufficient answer. It’s this assessment, it’s this realization that you are the sum of your components. You are the sum of your relationships. The business is not an island. It’s everything being pulled together and your entire impact on the globe, on the people on the world, on the business processes that derives your profitability now must be considered. And that’s quite revolutionary. If you think about it.”

Join us in Part 3, where we consider the new world of product compliance and ESG.

To listen to the podcast this blog post is based upon, click here.