Can you pick up misconduct signals from a conversation? Joining us today is Brandon Carl, the Vice President of Product Management at Digital Reasoning. He oversees their product portfolio and brings together research, machine learning, and development for their audio analytics and conduct surveillance, and he’s here to share how artificial intelligence can change the way we do compliance.
Digital Reasoning Solutions
Digital Reasoning got its start working with government institutions on identifying bad actors. When they shifted over into conduct surveillance, it was a very natural foray into looking for misconduct or bad actors within financial markets. The key behind all these regulations is to instill confidence in people participating in markets and make sure that the market is protected and liquid and that they’re getting fair prices.
Finding signals
When you take a look at bad actors in general, you tend to find two buckets of people:
1) Negligent bad actors who don’t have bad intentions, but are probably just unaware of the laws, and 2) Nefarious bad actors who are working to skirt the system and are intentionally engaging in misconduct.
When you take a look at them, you will see signals around how people communicate: someone may ask people to “keep things confidential” after engaging in some form of misconduct; if someone is narcissistic, you may hear them boasting after the fact. So the technology not only looks for the act of misconduct itself, but these behavioral signals as well.
Passing on the information
There are two views of the world that their customers traditionally think of:
First, the Alert-Based View, which you can think of as a single communication travelling through time that the algorithm will scan. Second is the Investigations View, where teams will review and investigate the alerts.
Now you want to amalgamate the various alerts that have happened over time, and think of those as either weak indicators of misconduct (like boasting), or strong indicators of misconduct (that point to a very specific form of activity). The world has evolved, and we’re realizing our communications say a lot about who we are and what we do.
Ongoing Education Credits
If you’re a compliance professional looking for a convenient and effective way to fulfill your continuing education requirements, check out our 4 hour-long training packages that will keep you up to date with the latest developments in the compliance field.
Resources
Brandon Carl (LinkedIn)
Resources for Digital Reasoning
Website
Twitter
Facebook
Vimeo
Financial Conduct Surveillance
AI is Starting to Change Compliance Practices. Here’s how
Author: admin
In this episode, I consider the Adventure of the Red Circle and how it informs listening and communication in a best practices compliance program.
Shmoop found that in addition to the overall storytelling of Dr. Watson, “nearly every character in the Sherlock Holmes stories is a storyteller.” Storytelling is a crucial part of the entire detective fiction genre, and the Sherlock Holmes stories really explore this aspect. Each tale begins with a new case, which is always narrated by a participant, and ends with some sort of confession/explanation scene. While we are on this journey with Holmes and Watson, both they and we “encounter tons of different people and listen to their stories. In a way, the cases that Holmes and Watson solve are like giant umbrella stories composed of a dozens of smaller stories being told by a revolving door of characters.”
In the story The Adventure of the Red Circle, Holmes solves the immediate mystery in front of him, as told by the landlady of a boarding house. The first mystery is that a lodger has not been seen for over 10 days, always staying in his room and only communicating with oblique messages such as SOAP, MATCH, DAILY GAZZETTE printed on a torn piece of paper. But Holmes divines a greater mystery as it turns out the lodger is not a man but a woman whose life is under threat and her male traveling companion can only communicate with her through references to newspaper columns. Holmes stated to Watson, “Education never ends, Watson. It is a series of lessons with the greatest for the last. This is an instructive case. There is neither money nor credit in it, and yet one would wish to tidy it up. When dusk comes we should find ourselves one stage advanced in our investigation.”
This story illustrates a couple of key points for every CCO and compliance practitioner.
- The first is listening. Not only is listening a key part of any leadership skill but listening will bring you a much better picture of your compliance program, its faults and successes. The reason is that its own employees are a company’s best source of information about what is going on in the company. It is a best practice for a company to listen to its own employees, particularly to help improve its processes and procedures. This type of listening extends to an internal reporting system as a company should provide a safe and secure route for employees to escalate their concerns. Of course, the Dodd-Frank Whistleblower provisions also give heed to the implementation of a hotline.
- This second compliance point is communication. Just as education never ends for Holmes, it should never end for a compliance practitioner, your communications on compliance should never end either. Louis Sapirman calls this a 360-degree approach to communications.
In this episode I visit with Andrew Beato from the law firm of Stein Mitchell Beato & Missner LLP. We discuss the firm’s recent Federal Claims Act settlement with Walgreen on behalf of firm client Marc Baker. Walgreens agreed to pay $60 million to settle allegations that it knowingly overcharged government healthcare plans such as Medicaid for prescription drugs. With this settlement, Walgreens resolved allegations that the company defrauded the U.S. government and 39 states by submitting false and inflated prices for prescription drugs to increase its government reimbursements. The settlement is one of the largest of its kind against a retail pharmacy under the qui tam whistleblower provisions of the False Claims Act. Some of the highlights of the podcast include:
- The practice at Stein Mitchell Beato & Missner LLP;
- What are qui tamwhistleblower protection under the FCA;
- The allegations and resolution of the lawsuit against Walgreens.
- Why are qui tam actions to powerful?
- How do qui tam actions benefit the individual, the government and society as a whole?
- How whistleblowers in such actions are in a private-public partnership to prevent government fraud, waste and abuse?
Resources
Stein Mitchell Beato & Missner LLP website
Andrew Beato LinkedIn profile
Case Name: United States ex rel. Marc D. Baker v. Walgreen, Co., 12 Civ. 0300 (JPO) (S.D.N.Y.).
MARCH 11, 2019 BY TOM FOX
In today’s edition of Daily Compliance News:
- Wells Fargo and terrible corporate culture. (New York Times)
- Martin Shekreli continues to run company (from prison). (Washington Post)
- LSU suspends BB coach indefinitely. (Sports Illustrated)
- Leadership Lessons from Sandra Day O’Conner. (Wall Street Journal)
In this episode I visit with podcast favorite Erica Salmon Byrne, the EVP and Executive Director of Business Ethics Leadership Alliance at Ethisphere on its 2019 World’s Most Ethical company awards. The companies will be honored at the upcoming Some of the highlights of the podcast include:
- This year’s numbers include 128 companies honored. They were located in 21 countries and in 50 different industries;
- Ethisphere now has 13 years of data, what does it show?
- What is the ‘ethics premium’?
- What are some of the characteristics of WME award winning companies?
- What are the business benefits of transparency and open communications?
- How does diversity benefit a corporation?
- What can the compliance practitioner learn from these leading companies?
Additional Resources
LinkedIn Profile for Erica Salmon Byrne.
Byrne article: The Ethics Premium: Performance Founded in Purpose
For agenda and registration information on the 2019 Global Ethics Summit, click here.
For information on the Dinner honoring the 2019 World’s Most Ethical companies, click here.
MARCH 9, 2019 BY TOM FOX
In today’s edition of Daily Compliance News:
- A COI at the top is bad. (Financial Times)
- There are more $100 bills than $1 bills. What does that mean for compliance? (Financial Times)
- Will Justin Trudeau survive? (Financial Times)
- What happens when billionaires fight? (Financial Times)
Tom and Jay were both conferencing this week, albeit in different disciplines. Tom at Podfest Expo and Jay at the ABA White Collar Crime conference. In between they discussed some of this week’s top compliance and ethics stories which caught their collective eyes.
- MTS has massive FCPA resolution. Harry Cassin breaks the story in the FCPA Blog. See DOJ Press Release. See SEC Cease and Desist Order.
- CTFT to follow DOJ lead on enforcement and SEC lead on Whistleblowers. Dick Cassin reports in the FCPA Blog. See CTFT Press Release.
- Hacienda Healthcare is one of the worst corporate governance failures ever. Matt Kelly writes about it in Radical Compliance. Tom and Matt take a deep dive in Episode 113 of Compliance into the Weeds.
- Gulnara Karimova charged with conspiracy to commit money laundering in the whooping amount of $866MM. Harry Cassin reports in the FCPA Blog. See DOJ Press Release.
- Are consumers the new regulators of global business practices? Richard Young explores in the Navex Global’s Ethics and Compliance Matters
- Are Boards getting sufficient information on risk? Kristin Broughton reports in the WSJ Risk and Compliance Journal. Matt Kelly says compliance professionals can help in Navex Global’s Ethics and Compliance Matters.
- Is Baker MacKenzie in deep trouble over JBF bribery settlement? Former partner to be deposed over hire of Brazilian prosecutor. Michael Macagnone reports in Law360. The same partner left the firm to join Peirce Bainbridge, Clara Hudson reports in GIR. (sub req’d on both)
- Dutch prosecutors have told Shell the company will be criminally indicted over its role in obtain drilling rights in Nigeria. Chloe Taylor reports in CNBC.com.
- Jay begins a new role as a Featured Columnist on Corporate Compliance Insights. Check out CCI’s cool new look. (Interview with CCI’s new EIC Sarah Haddon next week).
- Rod Rosenstein says farewell to the compliance community. Text of Rosenstein speech here.
- Tom returns his periodic podcast series the Opinion Release Papers, with a five-part offering this week. Check out the following: Part 1-Opinion Release 10-03 on charitable donations under the FCPA; Part 2-Opinion Release 10-02 on hiring foreign officials as agents; Part 3– Opinion Release 07-01, travel for foreign officials; Part 4-Opinion Release 07-02, travel for and entertainment of foreign officials; Part 5-Opinion Release 11-01, why should you use the process. The podcast is available on multiple sites: the FCPA Compliance Report, iTunes, JDSupra, Panoplyand YouTube. The Compliance Podcast Network is now also on Spotify. It is now also on Corporate Compliance Insights.
Tom Fox is the Compliance Evangelist and can be reached at tfox@tfoxlaw.com. Jay Rosen is Mr. Monitor and can be reached at jrosen@affiliatedmonitors.com.
For more information on how an independent monitor can help improve your company’s ethics and compliance program, visit our sponsor Affiliated Monitors at www.affiliatedmonitors.com.
MARCH 8, 2019 BY TOM FOX
In today’s edition of Daily Compliance News:
- Gulnara Karimova charged with conspiracy to commit money laundering in the whooping amount of $866MM. (FCPA Blog)
- How to win friends and influence enemies? (Financial Times)
- Facebook says it not prioritizes privacy. Do you believe it? (New York Times)
- What happens when billionaires fight? (Wall Street Journal)
The only Opinion Release of 2011 (11-01) may have left compliance practitioners initially scratching their heads. However, this collective head scratching is not because the Opinion Release is so difficult to understand and has no application to the everyday business of compliance, but for a polar opposite reason – the question posed to the Department of Justice (DOJ) is so straight-forward, and has been previously asked and answered, that it is difficult to understand how any first year compliance practitioner did not know the answer to it. Yet there is more than this facile analysis as to what may have been going on.
Background
The Requestor was a US Company which facilitated international infant adoptions and it desired to bring some foreign governmental officials over to the US to learn more about it. The foreign government selected the officials to travel, the travel was economy class and it involved no WAGs (wives and girlfriends). The trip was scheduled to be for two days and the US Company paid all the vendors, airlines, hotels, local transportation and food service providers directly. No cash was provided to the traveling officials and any gifts would be branded and of nominal value.
Requestor Representations
In addition to those statements by the Requestor, it also represented to the DOJ the following:
- It had no non-routine business (e.g., licensing or accreditation) under consideration by the relevant foreign government agencies.
- Its routine business before the relevant foreign government agencies consists primarily of seeking approval of pending adoptions. Such routine business is guided by international treaty and administrative rules with identified standards.
- The Requestor did not select the particular officials who will travel. That decision will be made solely by the foreign government agencies.
- Apart from the expenses identified above, the Requestor did not compensate the foreign government agencies or the officials for their visit, nor will it fund, organize, or host any other entertainment, side trips, or leisure activities for the officials, or provide the officials with any stipend or spending money.
- The visit will be for a two-day period (exclusive of travel time), and costs and expenses will be only those necessary and reasonable to educate the visiting officials about the operations and services of U.S. adoption service providers.
- The Requestor has invited another adoption service provider to participate in the visit.
DOJ Discussion
The DOJ cited to Opinion Releases 07-01 and 07-02 for the general rules around travel and entertainment for foreign officials. It then stated, “Based upon all of the facts and circumstances, as represented by the Requestor, and consistent with these prior opinions, the expenses contemplated are reasonable under the circumstances and directly relate to “the promotion, demonstration, or explanation of [the Requestor’s] products or services.” 15 U.S.C. § 78dd-2(c)(2)(A). Therefore, the Department does not presently intend to take any enforcement action with respect to the planned program and proposed payments described in this request.”
Discussion
In his testimony before the House Judiciary Committee, then DOJ Representative Greg Andres spoke about the Opinion Release Procedure as one of the mechanisms by which the DOJ can not only bring transparency to the area of information relating to Foreign Corrupt Practices Act (FCPA) but also can allow businesses with substantive questions to seek and receive specific answers to queries regarding factual scenarios which they may face. So what are the requirements under the Opinion Release Procedure? Initially I would note that DOJ has posted on its website, the Foreign Corrupt Procedures Opinion Procedure, (28 C.F.R. part 8).
The stated purpose is noted as follows: “These procedures enable issuers and domestic concerns to obtain an opinion of the Attorney General as to whether certain specified, prospective–not hypothetical–conduct conforms with the Department’s present enforcement policy regarding the antibribery provisions of the [FPCA]” (§80.1). The requirements of the Opinion Release Procedure are (1) the submission must be in writing; (2) an original and copies must be provided; and (3) must be sent to address provided. (§80.2) In addition to these specific requirements there are certain general requirements listed. (§80.6) They include that complete copies of all operative documents and detailed statements of all collateral or oral understandings. The request must be signed by an appropriate senior officer.
While there is additional language in the Opinion Release Procedure that it only relates to the query submitted to the DOJ, does not bind any other agency or department and can change if different facts occur or that the DOJ can ask for additional information from the party making the request, it is required under the terms of the Opinion Request Procedure “within 30 days after receiving a request that complies with the foregoing procedure, respond to the request by issuing an opinion that states whether the prospective conduct, would, for purposes of the DOJ’s present enforcement policy, [violate the FCPA].” (§80.8)
So there may be an addition lesson learned from Opinion 11-01, which is that the Opinion Release Procedure can be straightforward. The DOJ can be available to assist in interpreting the FCPA based upon the facts and circumstances a company faces in the real world. I have argued for greater transparency by the DOJ in providing information for companies and the compliance practitioner and the Opinion Release Procedure is one of the mechanisms by the DOJ does provide transparency and information.
However there might be another aspect to this specific Opinion Release. While I had discussed the above points from the perspective of an outside counsel, in-house lawyer or compliance office who specialized in FCPA compliance work; the Opinion Release Procedure is designed so that any person or company may submit a query to the DOJ and could be utilized by a company that does not have either an in-house compliance practitioner or even a General Counsel (GC). Simply put, a question can be submitted to the DOJ as straight forwardly as with a one-page document setting forth the information required under the Opinion Release Procedure.
In the second Opinion Release of 2007, 07-02, the Department of Justice (DOJ) considered another scenario where a US company desired to pay for travel to the US of foreign officials and for some business entertainment while these persons were in the US. It had some additional facts beyond those from Opinion Release 07-01 which are important for a compliance program.
Background
In Opinion Release 07-02 the Company desired to pay certain domestic expenses for a trip to the US by approximately six junior to mid-level officials of a foreign government for an educational program at the Requestor’s US headquarters prior to the delegates attendance at an annual six-week long internship program for foreign insurance regulators sponsored by the National Association of Insurance Commissioners (NAIC). The event was held at the Requestor’s US headquarters. The six officials have been selected by the foreign government, without the involvement of the Requestor.
The purpose of the trip was to familiarize the officials with the operation of a United States insurance company. The Requestor has no non-routine business pending before the foreign government agency that employs these officials. The sponsored training program will last for approximately six days (five days of training plus travel time). The Requestor paid the travel expenses where were limited to domestic economy class air travel to the Requestor’s U.S. headquarters. The Requestor paid for the domestic lodging, local transport, meals and incidental expenses (up to a modest set amount per day upon presentation of a receipt), and a modest four-hour city sightseeing tour for the six officials.
Requestor Representations
In Opinion Release 07-02 the representations made to the DOJ were as follows:
- The US Company would not pay the travel expenses or fees for participation in the NAIC program.
- The US Company had no “non-routine” business in front of the foreign governmental agency.
- The routine business it did have before the foreign governmental agency was guided by administrative rules with identified standards.
- The US Company would not select the delegates for the training program.
- The US Company would only host the delegates and not their families.
- The US Company would pay all costs incurred directly to the US service providers and only a modest daily minimum to the foreign governmental officials based upon a properly presented receipt.
- Any souvenirs presented would be of modest value, with the US Company’s logo.
- There would be one four-hour sightseeing trip in the city where the US Company is located.
- The total expenses of the trip are reasonable for such a trip and the training which would be provided at the home offices of the US Company.
DOJ Response
As with Opinion Release 07-01, the DOJ ended this Opinion Release by stating, “Based upon all of the facts and circumstances, as represented by the Requestor, the Department does not presently intend to take any enforcement action with respect to the planned educational program and proposed payments described in this request. This is because, based on the Requestor’s representations, consistent with the FCPA’s promotional expenses affirmative defense, the expenses contemplated are reasonable under the circumstances and directly relate to “the promotion, demonstration, or explanation of [the Requestor’s] products or services.” 15 U.S.C. § 78dd-2(c)(2)(A).
Discussion
What can one glean from these two 2007 Opinion Releases? Based upon them, it would seem that a US company can bring foreign officials into the US for legitimate business purposes. A key component is that the guidelines are clearly articulated in a Compliance Policy. Based upon Releases Opinions 07-01 and 07-02, the following should be incorporated into a Compliance Policy regarding travel and lodging:
- Any reimbursement for air fare will be for economy class.
- Do not select the particular officials who will travel. That decision will be made solely by the foreign government.
- Only host the designated officials and not their spouses or family members.
- Pay all costs directly to the service providers; in the event that an expense requires reimbursement, you may do so, up to a modest daily minimum (e.g., $35), upon presentation of a written receipt.
- Any souvenirs you provide the visiting officials should reflect the business and/or logo and would be of nominal value, e.g., shirts or tote bags.
- Apart from the expenses identified above, do not compensate the foreign government or the officials for their visit, do not fund, organize, or host any other entertainment, side trips, or leisure activities for the officials, or provide the officials with any stipend or spending money.
- The training costs and expenses will be only those necessary and reasonable to educate the visiting officials about the operation of your company.
Yet these are only the first steps. A company must train its employees not only the specifics of a gift, travel and entertainment program in a compliance program. Pre-travel and entertainment approval by your compliance function book-ended with post monitoring of all expenses should be documented in case the regulators ever come knocking.
