Tag: 2023 ECCP

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Compliance Tip of the Day

Compliance Tip of the Day: Go Experiential in Training

Welcome to “Compliance Tip of the Day,” the podcast where we bring you daily insights and practical advice on navigating the ever-evolving landscape of compliance and regulatory requirements.

Whether you’re a seasoned compliance professional or just starting your journey, our aim is to provide you with bite-sized, actionable tips to help you stay on top of your compliance game.

Join us as we explore the latest industry trends, share best practices, and demystify complex compliance issues to keep your organization on the right side of the law.

Tune in daily for your dose of compliance wisdom, and let’s make compliance a little less daunting, one tip at a time.

In today’s episode, we consider experiential learning, which challenges people to bring their creative and problem-solving capabilities to the learning situations, think creatively, and address meaningful problems.

For more information on the Ethico ROI Calculator and a free White Paper on the ROI of Compliance, click here.

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Ten Top Lessons from Recent FCPA Settlements – Lesson No. 10, Getting to Self-Disclosure: Speak Up, Triage and Internal Investigation

Over this series, I have reviewed the messages communicated by the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) from three key Foreign Corrupt Practices Act (FCPA) enforcement actions regarding their priorities in investigations, what they want to see in remediations, and what they consider best practices compliance programs. These enforcement actions warrant a close study of the lessons learned. They should guide not simply your actions should you find yourself in an investigation but also how you should think about priorities. One thing is abundantly clear: It all begins with self-disclosure.

The three FCPA enforcement actions we have reviewed are ABB from December 2022, Albemarle from November 2023, and SAP from January 2024. I added a fourth, the Gunvor S.A. enforcement action, as a discussion point, as it was released while I was writing this series. I have also cited several speeches by DOJ officials, including those from Deputy Attorney General Lisa Monaco and Assistant Attorney General Kenneth Polite. They pointed out a clear path for the company, which finds itself in an investigation, using extensive remediation to avoid monitoring. They provided insight for the compliance professional into what the DOJ expects in a best practices compliance program on an ongoing basis.

Late last week, there were two speeches at the ABA White Collar Conference: one by DAG Lisa Monaco and a second by Acting Assistant Attorney General Nicole M. Argentieri, which re-emphasized the points I have articulated. Today, I want to use their speeches to add another factor to my Top Ten Lessons List: a Speak Up Culture, effective triage, and quick, efficient, and accurate internal investigation when information is brought forward.

DAG Monaco could not have been clearer when she said, “When a business discovers that its employees broke the law, the company is far better off reporting the violation than waiting for DOJ to discover it. Now, when the DOJ does discover the violation, the company can still reduce its exposure by proactively cooperating in our investigation. But I want to be clear: no matter how good a company’s cooperation, a resolution will always be more favourable with voluntary self-disclosure.” [emphasis supplied]

DAG Monaco noted that the DOJ has structured its “Voluntary Self Disclosure (VSD) programs to encourage companies to take responsibility for misconduct within their organizations. And we’ve conditioned benefits on the company’s willingness to step up and own up — requiring it to disgorge profits, upgrade compliance systems, and cooperate in investigations of culpable employees…We want to empower them to make the business case for investing in compliance. And when they do, they can point to our policies. Early reports on this work are promising. We directed all components and U.S. Attorneys to implement self-disclosure programs.”

The benefits of the VSD come from this self-disclosure. The DOJ’s announcement that it was launching a whistleblower program for payments to people who come forward with information about criminal activity emphasised this idea even more. While the SEC, CFTC, IRS, and other agencies have whistleblower reward programs, this is a powerful message from the DOJ that if your company has an issue, it is far better to self-disclose than investigate, remediate, and hope the DOJ (or any other agency) never finds out about the matter. Put another way, Argentieri spoke about “the benefits that await those that voluntarily disclose misconduct.”

All of this means you must be able to intake, evaluate, and investigate the information.

Culture of Speak Up

Your organization must have an effective and efficient means of allowing employees to raise their hands and speak up. That speak-up can be through an anonymous hotline, by going into their supervisor’s office to report something, or by coming to the compliance function. Or it could be another avenue of reporting. The point is that every company must be ready, willing, and able to hear and act on internal reports of wrongdoing.

Triage

Given the number of ways that information about violations or potential violations can be communicated to government regulators, having a robust triage system is a critical way to separate the wheat from the chaff and bring the correct number of resources to bear on a compliance problem. One important area is determining whether to bring in outside counsel to head up an investigation and the resources you may want or need to commit to a problem. You need to “kick the tyres” of any allegations or information so that you know the circumstances in front of you before you make decisions. You can achieve this through a robust triage process.

Internal Investigations

You can decide whether or not to investigate by consulting with other groups, such as the Compliance Committee of the Board of Directors or the Legal Department. The head of the business unit in which the claim arose may also be notified that an allegation has been made and that the Compliance Department will be handling the matter on a go-forward basis. Using a detailed written procedure, you can ensure complete transparency on all parties’ rights and obligations once an allegation is made. This gives compliance the flexibility and responsibility to deal with such matters, from which it can best assess and decide how to manage them.

We concluded this series where we began with the need for or benefits of self-disclosure. The benefits laid out by the DOJ are clear, tangible, and direct. If you self-disclose, provide extraordinary cooperation, extensively remediate, and disgorge any ill-gotten gains through profit disgorgement, there will be a presumption of declination. Even if you do not meet the self-disclosure threshold, you can still garner significant discounts under the DOJ’s Corporate Enforcement Policy through extraordinary cooperation and extensive remediation.

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Ten Top Lessons from Recent FCPA Settlements – Lesson No. 3, Extensive Remediation

Over the past 15 months, the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) have made clear, through three Foreign Corrupt Practices Act (FCPA) enforcement actions and speeches, their priorities in investigations, remediations, and best practices compliance programs. Every compliance professional should study these enforcement actions closely for the lessons learned and direct communications from the DOJ. They should guide not simply your actions should you find yourself in an investigation but also how you should think about priorities.

The three FCPA enforcement actions are ABB from December 2022, Albemarle from November 2023, and SAP from January 2024. Taken together, they point out a clear path for the company that finds itself in an investigation, using extensive remediation to avoid monitoring and provide insight for the compliance professional into what the DOJ expects in a best practices compliance program on an ongoing basis.

Over a series of blog posts, I will lay out what I believe are the Top Ten lessons from these enforcement actions for compliance professionals who find themselves in an enforcement action. Today, we continue with Number 3, Extensive Remediation. The DOJ expects extensive remediation, well documented with data analytics to support everything you have done. Each of the companies engaged in extensive remediation.

ABB

The plea agreement said that ABB “took a lot of corrective action,” such as hiring experienced compliance staff and, after figuring out what caused the behavior described in the Statement of Facts, putting a lot more money into testing and monitoring compliance across the whole company; putting in place targeted training programs and extra case-study sessions on-site; and continuing to test and monitor to see how things are going. This final point was expanded on in the SEC Order, which reported that all employees involved in the misconduct were terminated.

At this point, there are not many specific components of the ABB remediation available, but we do know that ABB was given credit for hiring “experienced compliance personnel,” starting with the hiring of Natalia Shehadeh, SVP and Chief Integrity Officer, and then allowing Shehadeh to hire a dream team of compliance professionals to work with her.

Albemarle

The NPA cited several remedial actions by the company that helped Albemarle obtain a superior result regarding the discounted fine and penalty. These steps were taken during the pendency of the DOJ investigation so that when the parties were ready to resolve the matter, Albemarle had built out an effective compliance program and had tested it. The NPA provided that Albemarle engage in the following remedial efforts:

  • Strengthening its anti-corruption compliance program by investing in compliance resources, expanding its compliance function with experienced and qualified personnel, and taking steps to embed compliance and ethical values at all levels of its business organization;
  • Transformed its business model and risk management process to reduce corruption risk in its operation and to embed compliance in the business, including implementing a go-to-market strategy that resulted in eliminating the use of sales agents throughout the Company, terminating hundreds of other third-party sales representatives, such as distributors and resellers, and shifting to a direct sales business model;
  • Provided extensive training to its sales team, restructuring compensation and incentives so that compensation is no longer tied to sales amounts;
  • Used data analytics to monitor and measure the compliance program’s effectiveness and
  • We are engaged in continuous testing, monitoring, and improving all aspects of its compliance program, beginning immediately after identifying misconduct.

SAP

SAP also did an excellent job in its remedial efforts, whether SAP realized that, as a recidivist in dire straits, it was after the publicity in South Africa around corruption or some other reason that the company made major steps to create an effective, operationalized compliance program that met the requirements of the Hallmarks of an Effective Compliance Program as laid out in the 2020 FCPA Resource Guide, 2nd edition.

The remedial actions by SAP can be grouped as follows:

  1. Root Cause, Risk Assessment, and Gap Analysis. After doing a gap analysis of internal controls and fixing any problems found, the company did a root cause analysis of the behavior in question and fixed the issues it found. It then did a full risk assessment, focusing on high-risk areas and controls around payment processes, and used the results to improve its compliance risk assessment process.
  2. Enhancement of Compliance. Here, the company significantly increased the budget, resources, and expertise devoted to compliance; restructured its Offices of Ethics and Compliance to ensure adequate stature, independence, autonomy, and access to executive leadership; enhanced its code of conduct and policies and procedures regarding gifts, hospitality, and the use of third parties; enhanced its reporting, investigations and consequence management processes;
  3. Change in sales models. On the external sales side, SAP eliminated its third-party sales commission model globally, prohibited all sales commissions for public sector contracts in high-risk markets, and enhanced compliance monitoring and audit programs, including creating a well-resourced team devoted to audits of third-party partners and suppliers. On the internal side, SAP adjusted internal compensation incentives to align with compliance objectives and reduce corruption risk.
  4. Data Analytics. Here, SAP expanded its data analytics capabilities to cover over 150 countries, including all high-risk countries globally, and comprehensively used data analytics in its risk assessments.

Each of these entities worked quite diligently to rebuild their compliance programs from the ground up. Whatever the faults of their prior compliance programs, each company was quite diligent in revamping their compliance regimes. While each company builds out a program based on its own risk, there is quite a bit of guidance you can draw from if your company finds itself in this position.

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31 Days to More Effective Compliance Programs

31 Days to a More Effective Compliance Program: Day 31 – Using a Root Cause Analysis for Remediation

The 2023 ECCP re-emphasized the need for both performing a root cause analysis but equally importantly using it to remediate your compliance program. It stated, “a hallmark of a compliance program that is working effectively in practice is the extent to which a company is able to conduct a thoughtful root cause analysis of misconduct and timely and appropriately remediate to address the root causes.” It went on to state, what additional steps the company has taken “that demonstrate recognition of the seriousness of the misconduct, acceptance of responsibility for it, and the implementation of measures to reduce the risk of repetition of such misconduct, including measures to identify future risk.”

When you step back and consider what the DOJ was trying to accomplish with its 2023 ECCP, it becomes clear what the DOJ expects from the compliance professional. Consider the structure of your compliance program and how it inter-relates to your company’s risk profile. When you have a compliance failure, use the root cause analysis to think about how each of the structural elements of your compliance program could impact how you manage and deal with that risk.

 Three key takeaways:

1. The key to using a root cause analysis is objectivity and independence.

2. The critical element is how did you use the information you developed in the root cause analysis?

3. The key is that after you have identified the causes of problems, consider the solutions that can be implemented by developing a logical approach, using data that already exists in the organization.

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31 Days to More Effective Compliance Programs

31 Days to a More Effective Compliance Program – Day 27 – Compliance Function in an Organization

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, 2020 FCPA Resource Guide, 2nd edition, under the 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 original FCPA Corporate Enforcement Policy and 2023 ECCP. In the FCPA Corporate Enforcement Policy, the DOJ listed the following as factors relating to a corporate compliance function, that it would consider as indicia of an effective compliance and ethics program: 1) the resources the company has dedicated to compliance; 2) the quality and experience of the personnel involved in compliance, such that they can understand and identify the transactions and activities that pose a potential risk; 3) the authority and independence of the compliance function and the availability of compliance expertise to the board; 4) the compensation and promotion of the personnel involved in compliance, in view of their role, responsibilities, performance, and other appropriate factors; and 5) the reporting structure of any compliance personnel employed or contracted by the company.

The 2023 ECCP and 2023 Update to the FCPA Corporate Enforcement Policy both demonstrate the continued evolution in the thinking of the DOJ around the corporate compliance function. Their articulated inquiries can only strengthen a corporate compliance function specifically; and the compliance profession more generally. The more the DOJ talks about the independence of the compliance function, coupled with resources being made available and authority concomitant with the corporate compliance function, the more corporations will see it is directly in their interest to provide the resources, authority and gravitas to compliance position in their organizations.

 Three key takeaways:

1. How is compliance treated in the budget process?

2. Has your compliance function had any decisions over-ridden by senior management?

3. Beware outsourcing of compliance as any such contractor must have access to company documents and personnel.

For more information on Ethico and a free White Paper on top compliance issues in 2024, click here.

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The Compliance Function in an Organization

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, 2020 FCPA Resource Guide, 2nd edition, under the 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 original FCPA Corporate Enforcement Policy and 2023 ECCP. In the FCPA Corporate Enforcement Policy, the DOJ listed the following as factors relating to a corporate compliance function, that it would consider as indicia of an effective compliance and ethics program: 1) the resources the company has dedicated to compliance; 2) the quality and experience of the personnel involved in compliance, such that they can understand and identify the transactions and activities that pose a potential risk; 3) the authority and independence of the compliance function and the availability of compliance expertise to the board; 4) the compensation and promotion of the personnel involved in compliance, in view of their role, responsibilities, performance, and other appropriate factors; and 5) the reporting structure of any compliance personnel employed or contracted by the company.

Clearly the DOJ is articulating that in an operationalized compliance program, it expects true compliance professionals, who understand the way compliance interacts with and supports the business. Companies must compensate and promote compliance professionals within their organization.

Funding and resources. You will now have to justify your corporate compliance spend. This means at a minimum you will have to meet some general industry standard. If a corporation tries to low-ball both the pay to compliance professionals, as well as the dollar and head count made available to a compliance function, it will not be viewed positively. Also noted in the Evaluation, a company must be prepared to defend any request for compliance resources which are turned down. Budget requests and allocations are always difficult times in any corporation. There is never enough money to go around and most senior management thinks it is their job to slash all budget requests as a simple matter of course. Now such blanket management will be penalized.

If a compliance function is so hampered by resource restrictions it cannot carry out the basic functions needed for a compliance program to operate, it will not find favor under either the Evaluation or the FCPA Corporate Enforcement Policy. If there are compliance projects needed to address basic compliance risks which are not funded because management failed to heed a CCOs or compliance functions budget request, this could be evidence of conscious indifference by senior management.

Role of compliance and empowerment. More than simply throwing money at the compliance function (as if that would ever happen) the DOJ is now inquiring into how the compliance function and its recommendations are treated. If there is business unit over-ride of compliance decisions, there must be an auditable decision trail. This, of course, is anathema to corporate executives who do not want to put themselves at risk.

But more than simply preventing management over-ride, a corporate compliance function has to be empowered by the Board and CEO to intervene in business decisions that implicate the company’s ethics and compliance issues, compliance with business code of ethics, agent/distributor and supplier codes of conduct, training, communication and internal investigations. If a company considers a business decision or practice that implicates the company’s ethical principles, the compliance function must have the internal authority to weigh in and ensure that ethical principles and compliance issues are factored into the business decision.

In the 2023 ECCP, under Section III, Does Your Compliance Program Work in Practice, is the following new language “Independence and Empowerment – Is compensation for employees who are responsible for investigating and adjudicating misconduct structured in a way that ensures the compliance team is empowered to enforce the policies and ethical values of the company? Who determines the compensation, including bonuses, as well as discipline and promotion of compliance personnel or others within the organization that have a role in the disciplinary process generally?”

This is a significant new addition to the ECCP. It forces a company to adequately compensation those employees who investigate and pass judgment on misconduct. But it is more than simply adequate compensation as it also requires a company not to retaliate via low salaries or limited raises or other compensation for doing their jobs as compliance officers. In other words, if the CEO is being investigated by compliance; that same CEO should not be setting or reviewing the salary of the CCO or those doing the investigation. This mandates that the DOJ will review the entire corporate organization on these issues.

Outsourcing of compliance. This area of compliance practice has arisen largely since the articulation of the Hallmarks in the 2020 FCPA Resource Guide, 2nd edition. While this might make sense from a cost perspective, it can be largely problematic if it is not managed properly. Rarely do outsiders have the same access as corporate employees, particularly in a function as important as compliance. Additionally, there will never be the trust level with outsiders there is with someone who wears the same color shirt as the employees. Here a company must not only have a rationale in place, which will largely be cost savings; a company must also have a mechanism in place to assess, on an ongoing basis, any outsourced compliance function. This will be beyond the reach of probably 99% of the companies engaged in such outsourcing.

The 2023 ECCP had further detailed questions to pose:

Structure—Where within the company is the compliance function housed (e.g., within the legal department, under a business function, or as an independent function reporting to the CEO and/or board)? To whom does the compliance function report? 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? Are compliance personnel dedicated to compliance responsibilities, or do they have other, non-compliance responsibilities within the company? Why has the company chosen the compliance structure it has in place? What are the reasons for the structural choices the company has made?

Seniority and Stature—How does the compliance function compare with other strategic functions in the company in terms of stature, compensation levels, rank/title, reporting line, resources, and access to key decision-makers? What has been the turnover rate for compliance and relevant control function personnel? What role has compliance played in the company’s strategic and operational decisions? How has the company responded to specific instances where compliance raised concerns? Have there been transactions or deals that were stopped, modified, or further scrutinized as a result of compliance concerns?

Experience and Qualifications—Do compliance and control personnel have the appropriate experience and qualifications for their roles and responsibilities? Has the level of experience and qualifications in these roles changed over time? How does the company invest in further training and development of the compliance and other control personnel? Who reviews the performance of the compliance function and what is the review process?

Funding and Resources—Has there been sufficient staffing for compliance personnel to effectively audit, document, analyze, and act on the results of the compliance efforts? Has the company allocated sufficient funds for the same? Have there been times when requests for resources by compliance and control functions have been denied, and if so, on what grounds?

Data Resources and Access—Do compliance and control personnel have sufficient direct or indirect access to relevant sources of data to allow for timely and effective monitoring and/or testing of policies, controls, and transactions? Do any impediments exist that limit access to relevant sources of data and, if so, what is the company doing to address the impediments?

Autonomy—Do the compliance and relevant control functions have direct reporting lines to anyone on the board of directors and/or audit committee? How often do they meet with directors? Are members of the senior management present for these meetings? How does the company ensure the independence of the compliance and control personnel?

The 2023 ECCP and 2023 Update to the FCPA Corporate Enforcement Policy both demonstrate the continued evolution in the thinking of the DOJ around the corporate compliance function. Their articulated inquiries can only strengthen a corporate compliance function specifically; and the compliance profession more generally. The more the DOJ talks about the independence of the compliance function, coupled with resources being made available and authority concomitant with the corporate compliance function, the more corporations will see it is directly in their interest to provide the resources, authority and gravitas to compliance position in their organizations.

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31 Days to More Effective Compliance Programs

31 Days to a More Effective Compliance Program – Day 26 – CCO Authority and Independence

The role of the CCO has steadily grown in stature and prestige over the years. In the 2020 FCPA Resource Guide, 2nd edition, under the Hallmarks of an Effective Compliance Program, it focused on whether the CCO held senior management status and had a direct reporting line to the Board.

In the 2023 Update to the FCPA Corporate Enforcement Policy, the DOJ lists these factors as follows:

1) The quality and experience of the CCO, such that they can understand and identify the transactions and activities that pose a potential risk; 2) The authority and independence of the CCO; 3) The compensation and promotion of the CCO, in view of their role, responsibilities, performance, and other appropriate factors; and 4) The reporting structure of any CCO employed or contracted by the company.

All of these factors are enhanced by the CCO Certification requirement, as announced by Kenneth Polite back in 2022. A CCO must certify the effectiveness of a compliance program after a DPA or NPA has been concluded. This requirement will only become more important moving into 2023 and beyond. In addition to CCO Certification, the Delaware Court of Chancery’s decision in the case of McDonald’s Corporation and its former Executive Vice President and Global Chief People Officer of McDonald’s Corporation, David Fairhurst, formally recognized the oversight duties of officers of Delaware corporations for the first time.

Three key takeaways:

1. How can you show the CCO really has a seat at the senior executive table?

2. What are the professional qualifications of your CCO?

3. Delaware says the CCO is Number 2 in an organization, behind the CEO.

For more information on Ethico and a free White Paper on top compliance issues in 2024, click here.

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31 Days to More Effective Compliance Programs

31 Days to a More Effective Compliance Program: Day 25 – Responding to Investigative Findings

There is nothing like an internal whistleblower report about a compliance violation, the finding of such an issue, or (even worse) a subpoena from the DOJ or notice letter from the SEC to trigger the attention of the Board of Directors and senior management to the compliance function and the company’s compliance program. Such an event can trigger much gnashing of teeth and expressions of outrage, followed immediately by the proclamation, “We are an ethical company.” However, it may well be the time for a very serious reality check.

You may find yourself in a position where you will have to have some very frank discussions about what to expect in terms of costs and time outlays. While much of these discussions will focus on the investigative process and those costs, these discussions will allow you to initiate the talk about remediation going forward and begin to explain why money must be budgeted for the remediation process.

Finally, there should be a solid line of communication between the people who are doing the investigation and the people who are leading the remediation. Otherwise, you can only begin your remediation in the most general terms and you will not be able to deal with specific gaps in your compliance program or risks that need to be managed. Such an approach can also be a recipe for disaster. First and foremost, the DOJ will not give you credit and you may lose the types of benefits articulated in the FCPA Corporate Enforcement Policy. Moreover, the executive attention will have dissipated and you will have lost your momentum to clean things up through a thorough remediation.

Three key takeaways:

1. A serious FCPA allegation gets the attention of the Board and senior management. Use this time to move the compliance program forward.

2. Be aware of how your investigation can impact and even inform your remediation efforts.

3. Be prepared to deal with the dreaded “where else” question.

For more information on Ethico and a free White Paper on top compliance issues in 2024, click here.

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Internal Reporting and Triaging of Claims

The call, email or tip comes into your office; an employee reports suspicious activity somewhere across the globe. That activity might well turn into a FCPA issue for your company. As the CCO, it will be up to you to begin the process which will determine, in many instances, how the company will respond going forward. This system has become even more important after the 2022 announcement of the Monaco Memo. Further, as the 2022 ABB FCPA resolution made clear, self-disclosing to the DOJ is the vital first step for all discounts under the Corporate Enforcement Policy to begin.

This scenario was driven home by the WPP Foreign Corrupt Practices enforcement action in 2021. Here, a whistleblower reported internally on allegations of bribery and corruption in the company’s India subsidiary. WPP turned over the investigation to an inexperienced accounting firm in India and then allowed the investigation to be controlled by the business unit management that was engaging in the bribery and corruption. The result, unsurprisingly, was no adverse findings. However, the whistleblower did not stop there and reported six more times (seven total) with an increasing amount of documentary support. Finally, the company took the allegations seriously and commissioned an internal investigation.

Internal reporting. The 2020 FCPA Resource Guide, 2nd edition, has as clear and concise a statement about hotlines as any other requirement found in Hallmarks of an Effective Compliance Program. It states:

An effective compliance program should include a mechanism for an organization’s employees and others to report suspected or actual misconduct or violations of the company’s policies on a confidential basis and without fear of retaliation.

The Evaluation reinforced this language with the following found under Reporting and Investigation:

How has the company collected, analyzed, and used information from its reporting mechanisms? How has the company assessed the seriousness of the allegations it received? Has the compliance function had full access to reporting and investigative information?

This is more than simply maintaining hotlines. Companies have to make real efforts to listen to employees. You need to have managers who are trained on how to handle employee concerns; they must be incentivized to take on this compliance responsibility and you must devote communications resources to reinforcing the company’s culture and values to create an environment and expectation that managers will raise employee concerns.

The reason is that a business’s own employees are a company’s best source of information about what is going on in the company. It is certainly a best practice for a company to listen to its own employees, particularly to help improve its processes and procedures. But more than listening to its employees, a company should provide a safe and secure route for employees to escalate their concerns. This is the underlying rationale behind an anonymous reporting system within any organization. Both the U.S. Sentencing Guidelines and the Organization of Economic Cooperation and Development (OECD) Good Practices list as one of their components an anonymous reporting mechanism by which employees can report compliance and ethics violations. Of course, the Dodd-Frank Whistleblower provisions also give heed to the implementation of a hotline.

What are some of the best practices for a hotline? Start with the following:

• Availability. Your reporting mechanism can be easily accessed by your entire employee base. This may require more than one tool, such as telephone report, internet reporting and other mechanisms.

• Anonymity. There must be a manner to make reports anonymously if the reporter so desires.

• Escalation. You must have a protocol or mechanism to take any reports up the chain if they warrant being heightened within the organization.

• Follow-up. There must be a sufficient follow up protocol to make sure any reported events receive the warranted attention. There should also be a way to keep the incident reporter informed as to the progress of the matter within your investigative protocol.

• Oversight. There should be multiple levels of review within your organization on reports which come into your organization. This would include senior compliance department staff, senior company management and up to the Board of Directors.

In this area is that of internal company investigations, if your employees do not believe that the investigation is fair and impartial, then it is not fair and impartial. Furthermore, those involved must have confidence that any internal investigation is treated seriously and objectively. One of the key reasons that employees will go outside of a company’s internal hotline process is because they do not believe that the process will be fair.

After your investigation is complete, the Fair Process Doctrine demands that any discipline must not only be administered fairly but it must be administered uniformly across the company for a violation of any compliance policy. Failure to administer discipline uniformly will destroy any vestige of credibility that you may have developed.

Triaging claims. Given the number of ways that information about violations or potential violations can be communicated to the government regulators, having a robust triage system is an important way that a company can determine what resources to bring to bear on a compliance problem.

Jonathan Marks has articulated a five-stage triage process which allows for not only an early assessment of any allegations but also a manner to think through your investigative approach. Marks cautions you must have an experienced investigator or other seasoned professional making these determinations, if not a more well-rounded group or committee. Next, consider what will be the types of evidence to review going forward. Finally, before selecting a triage solution, understand what tools are available, including both forensic and human, to complete the investigation.

Marks’ five-stage process for early assessments are as follows:

• Stage 1. These consist of allegations that have a low threat level and do not suggest a breakdown of internal controls. Tips that get grouped into this stage do not have a financial or reputational impact.

• Stage 2. These allegations are more serious in nature, and often indicate some deficiency in the design of internal controls. Examples include business rule violations such as recurring employee theft or patterns of falsifying expense reports.

• Stage 3. These allegations are serious in nature, generally involve an override of internal controls, and thus are at a minimum a serious deficiency. But they have only a minimal impact on the financial statements or the company’s reputation. More serious allegations in this category include fraud, embezzlement, and bribery involving employees or mid-level management.

• Stage 4. These are serious allegations that could have an impact on the completeness and accuracy of the audited financial statements, and that could indicate a material weakness in internal controls. They do not, however, appear to involve any member of the senior management team.

• Stage 5. These are serious allegations that involve one or more members of the senior management team or are serious enough to damage the company’s reputation. The receipt of allegations in this stage usually places the company into crisis management mode and could result in the restatement of audited financial statements or added regulatory scrutiny.

Finally, after you ascertain you have an effective reporting mechanism through your hotline and demonstrate you have a robust and properly scoped investigation protocol, you must use the information you receive to remediate any issues which may arise. It is not enough merely to show that a hotline exists, you must present the data it produces.

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The Investigation Protocol

After the internal report comes in and you have properly triaged the matter, you need to scope out and investigate it, promptly, thoroughly and with competent personnel. In the 2023 ECCP, provided these series of questions about your internal investigations:

Properly Scoped Investigations by Qualified Personnel—How does the company determine which complaints or red flags merit further investigation? How does the company ensure that investigations are properly scoped? What steps does the company take to ensure investigations are independent, objective, appropriately conducted, and properly documented? How does the company determine who should conduct an investigation, and who makes that determination?

Investigation Response—Does the company apply timing metrics to ensure responsiveness? Does the company have a process for monitoring the outcome of investigations and ensuring accountability for the response to any findings or recommendations?

Resources and Tracking of Results––Are the reporting and investigating mechanisms sufficiently funded? How has the company collected, tracked, analyzed, and used information from its reporting mechanisms? Does the company periodically analyze the reports or investigation findings for patterns of misconduct or other red flags for compliance weaknesses? Does the company periodically test the effectiveness of the hotline, for example by tracking a report from start to finish?

Your company should have a detailed written procedure for handling any complaint or allegation of bribery or corruption, regardless of the means through which it is communicated. The mechanism could include the internal company hotline, anonymous tips, or a report directly from the business unit involved. You can make the decision on whether or not to investigate with consultation with other groups such as the Audit Committee of the Board of Directors or the Legal Department. The head of the business unit in which the claim arose may also be notified that an allegation has been made and that the Compliance Department will be handling the matter on a go-forward basis. Through the use of such a detailed written procedure, you can work to ensure there is complete transparency on the rights and obligations of all parties, once an allegation is made. This allows the compliance team to have not only the flexibility but also the responsibility to deal with such matters, from which it can best assess and then decide on how to manage the matter.

Indeed, there are a variety of factors around giving credit to corporate investigations including: Did management, the Board or committees consisting solely of outside directors oversee the review? Did company employees or outside persons perform the review? If outside persons, have they done other work for the company? If the review was conducted by outside counsel, had management previously engaged such counsel? How long ago was the firm’s last representation of the company? How often has the law firm represented the company? How much in legal fees has the company paid the firm?

In a presentation Jay Martin, former Chief Compliance Officer at Baker Hughes, and Jacki Trevino, Director, Relationship Manager at True Office Learning, discussed the specifics of an investigation protocol. It consisted of 1) opening and categorizing the case; 2) planning the investigation; 3) executing the investigation plan; 4) determining appropriate follow-up; and 5) closing the case. If you follow this basic protocol, you should be able to work through most investigations, in a clear, concise and cost-effective manner. Furthermore, you should have a report at the end of the day which should stand up to later scrutiny if a regulator comes looking. Finally, you will be able to “Document, Document, and Document”, not only the steps you took but why and the outcome obtained.

Opening and categorizing the case. This is the first step to categorize a compliance violation. You should notify the relevant individuals, including those on your investigation team and any senior management members under your notification protocols. After notification, you should assemble your investigation team for preliminary meetings and assessments. This step should be accomplished in one to three days after the allegation comes into compliance, either through your reporting structure or other means.

Planning the investigation. After assembling your investigation team, determine the required investigation tasks. These would include document review and interviews. If hard drives need to be copied or documents put on hold or sequestered in any way, or relationships need to be analyzed through relationship software programs or key word search programs, this should also be planned out at this time. These tasks should be integrated into a written investigation or work plan so that the entire process going forward is documented. Also, if there is a variation from the written investigation plan, such variation should be documented, with an explanation provided as to why there was such a variation. Lastly, if international travel is involved this should also be considered and planned for at this step. This step should be accomplished within another one to three days.

Executing the investigation plan. Under this step, the investigation should be completed. I would urge that the interviews not be affected until all documents are reviewed and ready for use in any interviews. Care should be taken to ensure that an appropriate Upjohn warning is issued, and that the interviewee clearly understands that whoever is performing the interview represents the company and not the person being interviewed, whether they are the target of the investigation or not. The appropriate steps should also be taken to preserve the attorney-client privilege and attorney work product ruminations. This step should be accomplished in one to two weeks.

Determining appropriate follow-up. At this step, the preliminary investigation should be complete, and you are ready to move into the final phases. In some investigations, it is relatively easy to determine when the work is essentially complete. For example, if the allegation is both specific and narrow, and the investigation reveals a compelling and benign explanation for the conduct alleged, then the investigation typically is complete, and you are ready to convene the investigation team and the relevant business unit representatives. This group would decide on the appropriate disciplinary steps or other actions to take. This step should be completed in under a week. (Note that at this step, if there are findings of specific or discrete allegations of corruption and bribery, a decision must be made as how to handle such findings going forward.)

Closing the case. Under this final step, communicate the investigation results to the stakeholders and complete the case report. Everything done in the above steps should be documented and stored, either electronically or in hard copy form. The case report should be completed. This step should be completed in under a week.