In today’s edition of the Daily Compliance News:
A company that does not perform adequate due diligence prior to a merger or acquisition may face both legal and business risks. Perhaps most commonly, inadequate due diligence can allow a course of bribery to continue – with all the attendant harms to a business’s profitability and reputation, as well as potential civil and criminal liability. While most compliance practitioners have been long aware of the requirement in the post-acquisition context, the 2012 FCPA Guidance focused many compliance practitioners of the need to engage in robust pre-acquisition due diligence.
This was expanded again in the 2017 Evaluation but the 2019 Guidance made even more clear the need for a robust compliance presence in the pre-acquisition phase. It stated, “A well-designed compliance program should include comprehensive due diligence of any acquisition targets. Pre-M&A due diligence enables the acquiring company to evaluate more accurately each target’s value and negotiate for the costs of any corruption or misconduct to be borne by the target. Flawed or incomplete due diligence can allow misconduct to continue at the target company, causing resulting harm to a business’s profitability and reputation and risking civil and criminal liability.
Three key takeaways:
From Vaudeville to the Silver Screen to the Small Screen, the Marx Brothers made an impact wherever people found them. Now Tom Fox and Mike Volkov have wedded their love of the Marx Brothers with their passion for compliance and bring them into the boardroom to help explain and explore the sometimes-chaotic world of governance, risk-management, ethics and compliance. In this episode they begin a three-part series where they discuss the movie A Night at the Opera and how it informs the 2019 in Compliance, FCPA enforcement actions and Compliance into 2020 and beyond. In this episode we review the year in compliance. Highlights from the podcast include:
Resources
Mike Volkov-A Record Year in Enforcement and Compliance
In the Episode, I visit with Philip Urofsky, partner at Shearman & Sterling, Editor-in-Chief of the firm’s most excellent FCPA Digest. We visit about the firm’s 2020 FCPA Digest, Recent Trends and Patterns in the Enforcement of the FCPA and consider some of the highlights from the report. We also take a deep dive into the issue of agency under the FCPA, which was a major legal issue in the Hoskins trial and an ongoing debate on the issue of parent-subsidiary liability under the FCPA. Some of the highlights include:
Resources
To download a copy of the Shearman & Sterling 2020 FCPA Digest, Recent Trends and Patterns in the Enforcement of the FCPA click here.
To use the fully searchable Shearman & Sterling FCPA digest, click here.
One of the areas articulated in the 2019 Guidance was around payments and payroll. For the both the compliance professional and the corporate payroll function, there is a significant role to play in the operationalization of a corporate compliance program. The Evaluation of Corporate Compliance Programs – Guidance Document (2019 Guidance) was replete with references to payment and its critical nature to any best practices compliance program. This includes references to payments to foreign officials, payments to third parties and hiding bribes in payments to distributors.
The 2019 Guidance begins with an admonition to stop wasting time on low hanging fruit when there are much higher risks in your business operations. It stated: Risk-Tailored Resource Allocation – Does the company devote a disproportionate amount of time to policing low-risk areas instead of high-risk areas, such as questionable payments to third-party consultants, suspicious trading activity, or excessive discounts to resellers and distributors? Does the company give greater scrutiny, as warranted, to high-risk transactions (for instance, a large-dollar contract with a government agency in a high-risk country) than more modest and routine hospitality and entertainment? The 2019 Guidance then drills down into the payment and payroll system, stating: Appropriate Controls – How does the company ensure there is an appropriate business rationale for the use of third parties? If third parties were involved in the underlying misconduct, what was the business rationale for using those third parties? What mechanisms exist to ensure that the contract terms specifically describe the services to be performed, that the payment terms are appropriate, that the described contractual work is performed, and that compensation is commensurate with the services rendered?
Taken together, these questions may not seem particularly new, innovative, or even something different from what payroll currently does for an organization. However, the 2019 Guidance , clearly demonstrates the role of payroll in compliance. The 2019 Guidance requires that payroll not only form a part of any best practices compliance program, but when it comes to the specific subject matter expertise, payroll is on the front lines of any attempts to prevent, detect, and then remediate anti-corruption compliance violations.
Three key takeaways:
In today’s edition of Sunday Book Review:
The role of the compliance professional and the compliance function in a corporation has steadily grown in stature and prestige over the years. When it came to the corporate compliance function, 2012 FCPA Guidance, under Hallmark Three of the Ten Hallmarks of an Effective Compliance Program, simply noted the government would “consider whether the company devoted adequate staffing and resources to the compliance program given the size, structure, and risk profile of the business.”
This Hallmark was significantly expanded in both the 2019 Guidance and the FCPA Corporate Enforcement Policy. And in so doing, the DOJ has increased the prestige, authority and role of both the corporate compliance function. The 2019 Guidance has four general areas of inquiry around the corporate compliance function. (1) What is the seniority and stature of the compliance function within an organization? (2) What are the experience and stature of the compliance personnel with an organization? (3) What is the funding and resources made available to the compliance function? (4) How much autonomy does the compliance function have to report to the Board of Directors?
Three key takeaways:
In today’s edition of the Daily Compliance News:
The role of the CCO has steadily grown in stature and prestige over the years. In the 2012 FCPA Guidance, under Hallmark Three of the Ten Hallmarks of an Effective Compliance Program, it focused on the whether the CCO held senior management status and had a direct reporting line to the Board; stating:
In appraising a compliance program, DOJ and SEC also consider whether a company has assigned responsibility for the oversight and implementation of a company’s compliance program to one or more specific senior executives within an organization. Those individuals must have appropriate authority within the organization, adequate autonomy from management, and sufficient resources to ensure that the company’s compliance program is implemented effectively. Adequate autonomy generally includes direct access to an organization’s governing authority, such as the board of directors and committees of the board of directors.
This Hallmark was significantly expanded in both the 2019 Guidance and the FCPA Corporate Enforcement Policy. And in so doing, the DOJ has increased the prestige, authority and role of both the CCO and corporate compliance function. The 2019 Guidance has four general areas of inquiry around the CCO and corporate compliance function. (1) How does the CCO salary and stature within the organization compare to other senior executives within the company. (2) What are the experience and stature of the CCO with an organization? Does the CCO have appropriate training for the role? (3) How much autonomy does the CCO have to report to the Board of Directors? How often do the CCO meet with directors? Are members of the senior management present for these meetings with the Board of Directors or of the Audit Committee? (4) Is the compliance function run by a designated chief compliance officer, or another executive within the company, and does that person have other roles within the company?
Three key takeaways:
