Kokesh v. SEC, the US Supreme Court held the profit disgorgements operate as a penalty under the Securities and Exchange Act of 1934, as amended. As such “any claim for disgorgement in an SEC enforcement action must be commenced within five years of the date the claim accrued.” The position of the Securities and Exchange Commission (SEC) at the Supreme Court and in all other matters involving this issue was that profit disgorgement were not punitive, hence not a penalty but rather remedial in nature so the SEC could clawback all monies generated as a result of the illegal action. The decision, authored by Justice Sotomayor, was a 9-0 opinion which in the rarified world of Supreme Court decisions is about as clear a message as one can get. The Court first determined that profit disgorgement met the definition of a “penalty” under two basis, “First, whether a sanction represents a penalty turns in part on “whether the wrong sought to be redressed is a wrong to the public, or a wrong to the individual.” Second, a pecuniary sanction operates as a penalty if it is sought “for the purpose of punishment, and to deter others from offending in like manner” rather than to compensate victims.” [citations omitted] Thus, if a statute provided a compensatory remedy for a private wrong, it should not be characterized as penalty. For additional thoughts from Marc, see his piece on the FCPA Blog. For additional thoughts from myself, see my piece on the FCPA Compliance and Ethics Blog. [tweet_box design=”default” url=”http://wp.me/p6DnMo-3kd” float=”none”]The Kokesh decision has significant implications for FCPA enforcement going forward.[/tweet_box]]]>
Author: admin
This episode is dedicated to the chaotic (at best) first 100 days of the Trump administration related to compliance.
- Jonathan Armstrong leads a discussion of the Trump administration’s devolution of Privacy Shield, GDPR, and what they mean for American companies doing business in the UK and EU. He discusses the key differences in the DOJ’s Evaluation of Corporate Compliance Programs in an FCPA analysis and under the Bribery Act, differences in the EU approach to conflict minerals, and under the Trump Administration, and concludes by giving us his thoughts on what Brexit means for compliance.
For the Cordery Compliance client alerts, see the following:
EU conflicts minerals compliance legislation
DOJ Evaluation of Corporate Compliance: how does it compare to UK Bribery Act 2010?
BREXIT Glossary
- Jay Rosen considers what companies the intersection of business and politics under the Trump administration, the business response he has observed to Trump administrations steps and miss-steps, the comments made by DOJ representatives at Q1 conferences, and the vibe of compliance conference attendees.
For Jay’s posts, see,
Still in the Enforcement Business and Evaluation of Corporate Compliance Programs
“It Was the Best of Times, It was the Worst of Times,” or “Ignorance is Strength”
Matt Kelly opens with a discussion of regulatory enforcement under the Trump administration, how the ‘Trump Effect’ is negatively impacting corporations, and industry responses to deregulation issues and lays down some markers around compliance issues under the new administration.
For Matt Kelly’s posts, see:
Compliance in the Trump Era: More Markers Placed
Trump Administration Whacks Telco Firm for $892 Million
Drone Industry Pan Trump’s Regulatory
Trump Risk Disclosures Start Rolling In
First SEC Whistleblower Award of the Trump Era
Sessions Dodges, Weaves, Promises on FCPA
- Mike Volkov rounds out the discussion with a review of where the DOJ is currently under AG Sessions, remarks by DOJ officials on FCPA enforcement, the future of the Pilot Program, and DOJ Compliance Counsel Hui Chen.
For Mike Volkov’s posts, see the following:
Yates, AG Sessions and Individual Criminal Prosecutions
New E-Book — Moving the Goalposts: The Justice Department Redefines Effective Compliance
FCPA Remediation Focus on Supervisory Personnel
FPCA Pilot Program Motors On
For Tom Fox’s posts on the Trump administration’s first 100 days, see the following:
The Trump Administration-Kaos is Bad for Business
The Trump Administration-Failures in Leadership and Management
The Trump Administration-Preparing for a Catastrophe
The Trump Administration-the Business Response
DOJ Enforcement of the FCPA and the International Fight against Corruption in the Trump Administration
The members of the Everything Compliance panel include:
- Jay Rosen– Jay is Vice President, Business Development Corporate Monitoring at Affiliated Monitors. Rosen can be reached at JRosen@affiliatedmonitors.com
- Mike Volkov – One of the top FCPA commentators and practitioners around and the Chief Executive Officer of The Volkov Law Group, LLC. Volkov can be reached at mvolkov@volkovlawgroup.com.
- Matt Kelly – Founder and CEO of Radical Compliance, is the former Editor of Compliance Week. Kelly can be reached at mkelly@radicalcompliance.com
- Jonathan Armstrong – Rounding out the panel is our UK colleague, who is an experienced lawyer with Cordery in London. Armstrong can be reached at armstrong@corderycompliance.com
[tweet_box design=”default” url=”http://wp.me/p6DnMo-3eF” float=”none”]What has the Trump effect meant for FCPA? The experts weigh in.[/tweet_box]]]>
- Jonathan Armstrong discusses the Trump administration’s devolution of Privacy Shield, GDPR, and what they mean for American companies doing business in the UK and EU. He discusses the key differences in the DOJ’s Evaluation of Corporate Compliance Programs in an FCPA analysis, under the Bribery Act, in the EU approach to conflict minerals, and under the Trump Administration. He concludes by giving us his thoughts on what Brexit means for compliance.
For the Cordery Compliance client, alerts see the following: EU conflicts minerals compliance legislation DOJ Evaluation of Corporate Compliance: how does it compare to UK Bribery Act 2010? BREXIT Glossary
- Jay Rosen considers what companies the intersection of business and politics under the Trump administration, the business response he has observed to Trump administrations steps and miss-steps, the comments made by DOJ representatives at Q1 conferences, and the vibe of compliance conference attendees.
For Jay’s posts, see, Still, in the Enforcement Business and Evaluation of Corporate Compliance Programs “It Was the Best of Times, It was the Worst of Times,” or “Ignorance is Strength” Matt Kelly opens with a discussion of regulatory enforcement; under the Trump administration, how the ‘Trump Effect’ is negatively impacting corporations, industry responses to deregulation issues and lays down some markers around compliance issues under the new administration. For Matt Kelly’s posts, see Compliance in the Trump Era: More Markers Placed Trump Administration Whacks Telco Firm for $892 Million Drone Industry Pan Trump’s Regulatory Trump Risk Disclosures Start Rolling In First SEC Whistleblower Award of Trump Era Sessions Dodges, Weaves, Promises on FCPA.
- Mike Volkov rounds out the discussion with a review of where the DOJ is currently under AG Sessions, remarks by DOJ officials on FCPA enforcement, the future of the Pilot Program, and DOJ Compliance Counsel Hui Chen.
For Mike Volkov’s posts, see the following: Yates, AG Sessions and Individual Criminal Prosecutions New E-Book — Moving the Goalposts: The Justice Department Redefines Effective Compliance FCPA Remediation Focus on Supervisory Personnel FPCA Pilot Program Motors On For Tom Fox’s posts on the Trump administration’s first 100 days see the following: The Trump Administration-Kaos is Bad for Business The Trump Administration-Failures in Leadership and Management The Trump Administration-Preparing for a Catastrophe The Trump Administration-the Business Response DOJ Enforcement of the FCPA and the International Fight against Corruption in the Trump Administration The members of the Everything Compliance panel include:
- Jay Rosen– Jay is Vice President, Business Development Corporate Monitoring at Affiliated Monitors. Rosen can be reached at JRosen@affiliatedmonitors.com.
- Mike Volkov – One of the top FCPA commentators and practitioners and the Chief Executive Officer of The Volkov Law Group, LLC. Volkov can be reached at mvolkov@volkovlawgroup.com.
- Matt Kelly – Founder and CEO of Radical Compliance, is the former Editor of Compliance Week. Kelly can be reached at mkelly@radicalcompliance.com.
- Jonathan Armstrong – Rounding out the panel is our UK colleague, an experienced lawyer with Cordery in London. Armstrong can be reached at armstrong@corderycompliance.com.
In this episode, Jay Rosen returns from a week’s trip to Walt Disney World. Jay and I have a wide-ranging discussion on some of the week’s top compliance related stories. We discuss:
- DOJ Criminal Division’s Acting Principal Deputy Assistant Attorney General remarks on the FCPA and its enforcement. – See text of speech by clicking here. See Matt Kelly’s blog post by clicking here.
- Whistleblowers in the news. See Tom’s article on the Barclay’s CEO and Amtrust in FCPA Blog and on KPMG in Compliance Week. Mike Volkov weighs on whistleblowing as indicia of corporate culture here.
- One year reports note that declinations are on the rise under the on the now one-year old FCPA Pilot Program. For Miller & Chevalier report click here (sub. req’d). For the Stanford University FCPA Clearinghouse Report in the Wall Street Journal, click here.
- Tribute to Kara Brockmeyer, retiring as head of the SEC’s FCPA Unit. See Tom’s article in Compliance Week.
- Jay details his upcoming conference schedule and weekend report on ethics and compliance observations from the Florida version of the Magic Kingdom.
- Listeners to this podcast can received a discount to Compliance Week 2017. Go to registration and enter discount code CW17TOMFOX.
[tweet_box design=”default” url=”http://wp.me/p6DnMo-3dv” float=”none”]Check out the top weekly podcast in compliance-This Week in FCPA.[/tweet_box]]]>
Jay Rosen new contact information:
Jay Rosen, CCEP
Vice President, Business Development
Monitoring Specialist
Affiliated Monitors, Inc.
Mobile (310) 729-6746
Toll Free (866)-201-0903
JRosen@affiliatedmonitors.com
[tweet_box design=”default” url=”http://wp.me/p6DnMo-3aD” float=”none”]How can the use of data help to operationalize your compliance program?[/tweet_box]]]>
Management of Relationships – How has the company considered and analyzed the third party’s incentive model against compliance risks? How has the company monitored the third parties in question? How has the company trained the relationship managers about what the compliance risks are and how to manage them? How has the company incentivized compliance and ethical behavior by third parties?
If you do not manage the relationship it can all go downhill very quickly and you might find yourself with a potential FCPA violation. Now the DOJ has explicitly adopted this approach as a key determination of whether you have operationalized your compliance program. There are several different ways that you should manage your post-contract relationship.
Relationship Manager
There should be a Relationship Manager for every third party which the company does business with through the sales chain. The Relationship Manager should be a business unit employee who is responsible for monitoring, maintaining and continuously evaluating the relationship between your company and the third party. Some of the duties of the Relationship Manager may include:
- Point of contact with the Third Party for all compliance issues;
- Maintaining periodic contact with the Third Party;
- Meeting annually with the Third Party to review its satisfaction of all company compliance obligations;
- Submitting annual reports summarizing services provided by the Third Party;
- Assisting the company’s compliance function with any issues with respect to the Third Party.
The Relationship Manager can be the Business Sponsor who prepared the Business Rationale discussed on Day 17. By using the Business Sponsor as the Relationship Manager, your company will further operationalize compliance by continuing to have the business unit lead the front-line relationship, communications and contact with the third party. As noted compliance commentator Scott Moritz has said, “This puts the onus on each stakeholder.”
Compliance Professional
Just as a company needs a subject matter expert (SME) in anti-bribery compliance to be able to work with the business folks and answer the usual questions that come up in the day-to-day routine of doing business internationally, third parties also need such a resource. A third party may not be large enough to have its own compliance staff so any company using third party representatives should provide a dedicated resource to third parties. This will not create a conflict of interest nor are other legal impediments to providing such services. They can also include anti-corruption training for the third party, either through onsite or remote mechanisms. The compliance practitioner should work closely with the relationship manager to provide advice, training and communications to the third party.
Third Party Oversight Committee
A Third Party Oversight Committee further operationalizes compliance. It review all documents relating the full panoply of a third party’s relationship with a company. It can be a formal structure or some other type of group but the key is to have the senior management put a ‘second set of eyes’ on any third party who might represent a company on the sales side. In addition to the basic concept of process validation of your management of third parties, as third parties are recognized as the highest risk in anti-corruption compliance, this is a manner to deliver additional management of that risk.
After the commercial relationship has begun the Third Party Oversight Committee should monitor the third party relationship on no less than an annual basis. This annual audit should include a review of remedial due diligence investigations and evaluation of any new or supplement risk associated with any negative information discovered from a review of financial audit reports on the third party. The Third Party Oversight Committee should review any reports of any material breach of contract including any breach of the requirements of the Company Code of Ethics and Compliance. In addition to the above remedial review, the Third Party Oversight Committee should review all payments requested by the third party to assure such payment are within the company guidelines and are warranted by the contractual relationship with the third party. Lastly, the Third Party Oversight Committee should review any request to provide the third party any type of non-monetary compensation.
Audit
A key tool in operationalizing the relationship with a third party post-contract is auditing the relationship. You should secured audit rights, as that is an important clause in any compliance terms and conditions. Your audit should be a systematic, independent and documented process for obtaining evidence and evaluating it objectively to determine the extent to which your compliance terms and conditions are followed. Noted fraud examiner expert Tracy Coenen described the process as one to (1) capture the data; (2) analyze the data; and (3) report on the data, which is also appropriate for a compliance audit. As a base line, any audit of a third party include, at a minimum, a review of the following:
- the effectiveness of existing compliance programs and codes of conduct;
- the origin and legitimacy of any funds paid to Company;
- books, records and accounts, or those of any of its subsidiaries, joint ventures or affiliates, related to work performed for, or services or equipment provided to, Company;
- all disbursements made for or on behalf of Company; and
- all funds received from Company in connection with work performed for, or services or equipment provided to, Company.
If you want to engage in a deeper dive you might consider evaluation of some of the following areas:
- Review of contracts with third parties to confirm that the appropriate FCPA compliance terms and conditions are in place.
- Determine that actual due diligence took place on the third party.
- Review FCPA compliance training program; both the substance of the program and attendance records.
- Does the third party have a hotline or any other reporting mechanism for allegations of compliance violations? If so how are such reports maintained? Review any reports of compliance violations or issues that arose through anonymous reporting, hotline or any other reporting mechanism.
- Does the third party have written employee discipline procedures? If so have any employees been disciplined for any compliance violations? If yes review all relevant files relating to any such violations to determine the process used and the outcome reached.
- Review employee expense reports for employees in high-risk positions or high-risk countries.
- Testing for gifts, travel and entertainment that were provided to, or for, foreign governmental officials.
- Review the overall structure of the third party’s compliance program. If the company has a designated compliance officer to whom, and how, does that compliance officer report? How is the third party’s compliance program designed to identify risks and what has been the result of any so identified?
- Review a sample of employee commission payments and determine if they follow the internal policy and procedure of the third party.
- With regard to any petty cash activity in foreign locations, review a sample of activity and apply analytical procedures and testing. Analyze the general ledger for high-risk transactions and cash advances.
Three Key Takeaways
- Management of the third party relationship is the key step in determining the effectiveness of your compliance program in this risk area.
- By using non-compliance functions, such as the Business Sponsor or Relationship Manager you more fully operationalize your compliance program.
- Never forget to put a second set of eyes on all third party relationships.
This month’s podcast series is sponsored by Oversight Systems, Inc. Oversight’s automated transaction monitoring solution, Insights On Demand for FCPA, operationalizes your compliance program. For more information, go to OversightSystems.com.
[tweet_box design=”default” url=”http://wp.me/p6DnMo-37H” float=”none”]Management of 3rd parties is where the rubber meets the road in operationalizing your compliance program.[/tweet_box]]]>
David vs. Goliath; Ethics & Compliance Lessons to be Learned from the Oscars” and Matt Kelly look at the control failures and other issues in his blog post on Radical Compliance, “And the Oscar for Control Failures Goes to…”
Jay Rosen new contact information:
Jay Rosen, CCEP
Vice President, Business Development
Monitoring Specialist
Affiliated Monitors, Inc.
Mobile (310) 729-6746
Toll Free (866)-201-0903
JRosen@affiliatedmonitors.com
[tweet_box design=”default” url=”http://wp.me/p6DnMo-35z” float=”none”]What were the compliance lessons from the Oscars flub?[/tweet_box]]]>
Tale of Sound & Fury: The 404(b) Debate”.
[tweet_box design=”default” url=”http://wp.me/p6DnMo-34O” float=”none”]Congress has said it wants to raise the exemption on SOX 404(b) reporting. Does that really mean anything?[/tweet_box]]]>
In this episode, Matt Kelly and myself take a deep dive into the Department of Justice (DOJ) recent release, entitled “Evaluation of Corporate Compliance Programs” (Evaluation), which went up on the Fraud Section website on February 8.
The document is an 11-part list of questions which encapsulates the DOJ’s most current thinking on what constitutes a best practices compliance program. Within the list are some 46 different questions that a Chief Compliance Officer (CCO) or compliance practitioner can use to benchmark a compliance program. In short, it is an incredibly valuable and most significantly useful resource for every compliance practitioner.
The Evaluation, most generally, follows the DOJ and Securities and Exchange Commission’s (SEC) seminal Ten Hallmarks of an Effective Compliance Program, released in the 2012 FCPA Guidance. If there is one over-riding theme in the Evaluation, it is the DOJ’s emphasis on doing compliance as the questions posed are designed to test how far down your compliance program is incorporated into the fabric of your organization. The Evaluation is not simply a restatement of the Ten Hallmarks, as it clearly incorporates the DOJ’s evolution in what constitutes a best practices compliance program, and it certainly builds upon the information put forward in the DOJ’s FCPA Pilot Program regarding effective compliance programs, most particularly found in Prong 3 Remediation.
[tweet_box design=”default” url=”http://wp.me/p6DnMo-33Q” float=”none”]What does the DOJ Evaluation mean for compliance programs?[/tweet_box]]]>
