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FCPA Survival Guide

FCPA Survival Guide – Step 9 – Internal Controls

How can you survive an FCPA enforcement action? In this special podcast series, Tom Fox and Nick Gallo outline the Top 10 things you can do to reduce your overall fine and penalty, perhaps down to a complete declination. All of the actions you can take come from recent DOJ prosecutions under the FCPA and speeches from DOJ representatives. This podcast, sponsored by Ethico, is the companion series to the book The FCPA Survival Guide: Surviving and Thriving a Foreign Corrupt Practices Act Enforcement Action. Today, we discuss lesson number nine: internal controls.

Tom and Nick delve into the importance of internal controls in compliance, emphasizing the pivotal role they play in business operations. After studying the COSO Framework, Tom shares his transformation into a firm believer in internal controls, underscoring that robust financial controls can cover a significant portion of compliance requirements. They discuss real-world examples, including SAP’s lack of payment process controls and ABB’s successful avoidance of a monitor through proactive measures. The episode highlights the necessity of continuous improvement and collaboration between legal, financial, and business units to ensure the effectiveness of internal controls and the appropriate handling of overrides. The session concludes with a nod to the upcoming episode on speak-up, triage, and internal investigation.

Key Highlights and Issues

  • The Importance of Internal Controls
  • Financial Controls and Compliance
  • Continuous Improvement in Internal Controls
  • Effective Collaboration and Overrides

Resources:

Nick Gallo on LinkedIn

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The FCPA Survival Guide: Surviving and Thriving a Foreign Corrupt Practices Act Enforcement Action

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FCPA Survival Guide

FCPA Survival Guide – Step 8 – Investing in Compliance

How can you survive an FCPA enforcement action? In this special podcast series, Tom Fox and Nick Gallo outline the Top 10 things you can do to reduce your overall fine and penalty, perhaps down to a complete declination. All of the actions you can take come from recent DOJ prosecutions under the FCPA and speeches from DOJ representatives. This podcast, sponsored by Ethico, is the companion series to the book The FCPA Survival Guide: Surviving and Thriving a Foreign Corrupt Practices Act Enforcement Action. Today, we discuss lesson number eight: investing in your compliance program.

Tom and Nick highlight case studies from Albemarle, SAP, and ABB, emphasizing the importance of investing in resources, experienced personnel, and the need for continuous testing. The conversation underscores how these efforts build a credible compliance story for the DOJ and provide insights into successfully navigating FCPA remediation.

Key Highlights and Issues

  • Enhancing Your Compliance Program
  • ABB’s Compliance Transformation
  • Building a Compliance Story
  • The Importance of Authenticity in Compliance
  • Crafting a Persuasive Compliance Narrative

Resources:

Nick Gallo on LinkedIn

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The FCPA Survival Guide: Surviving and Thriving a Foreign Corrupt Practices Act Enforcement Action 

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Compliance Tip of the Day

Compliance Tip of the Day: Compliance Lessons from The ABB FCPA Enforcement Action

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 review the ABB FCPA Enforcement actions and tease out the compliance lessons.

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

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The FCPA Survival Guide

Today, I am thrilled to announce my first podcast series based on a book I have written. The book and the podcast series are titled FCPA Survival Guide and Ethico sponsors. The book is available in the Kindle format, and you can purchase it on Amazon.com here. You can listen to the podcast here. In the podcast, I am joined by Nick Gallo, Captain Culture and co-CEO at Ethico, throughout this special 10-part podcast series.

Over the past 18 months, the Department of Justice (DOJ) has clearly and consistently communicated its expectations for any company that finds itself in an FCPA enforcement action. The book and podcast are designed for the compliance professional and business executive who finds themselves in an investigation. It details your steps to obtain the most favorable resolutions possible. Since the advent of the FCPA Corporate Enforcement Policy in 2017 (now Corporate Enforcement Policy), the presumption for any company that self-discloses a potential FCPA violation to the DOJ is declination. Yet even if a company does not self-disclose or there are aggravating factors, a company can take advantage of significant discounts from the DOJ. In the DOJ’s own words, this book and podcast outline what a company can do and its actions to reduce fines and penalties.

The enforcement actions that formed the basis of the book and podcast series involve the following entities: ABB, Albemarle, SAP, and Gunvor. The book includes complete discussions of these enforcement actions and the lessons every compliance professional should take from them. Navigating the complex world of corporate compliance, especially when dealing with the DOJ and Foreign Corrupt Practices Act (FCPA), requires a clear strategy and decisive action. The book and podcast series details the top ten things you should prioritize to ensure your company stays on the right side of the law and minimizes the risks of costly enforcement actions.

1. Self-Disclosure

The DOJ places the highest value on self-disclosure. Companies that voluntarily come forward to report potential violations of the FCPA are more likely to receive favorable treatment. For instance, in the ABB enforcement action, despite the company being unable to disclose its misconduct before the media publicly revealed it, the DOJ still considered ABB’s intent to self-disclose positively. Similarly, in the Albemarle enforcement action, even though the disclosure was delayed by 16 months, the DOJ acknowledged the company’s effort, though it stressed the importance of timely self-disclosure. Kenneth Polite, then Assistant Attorney General, emphasized the importance of self-disclosure by stating that companies that uncover criminal misconduct should voluntarily self-disclose to avoid more severe penalties. The DOJ’s Corporate Enforcement Policy provides significant incentives, such as a presumption against prosecution and reduced penalties, for companies that self-disclose, fully cooperate, and timely remediate.

2. Speed in Reporting

Timely disclosure is critical, but it continues beyond there. The DOJ expects companies to share information with regulators as quickly as they uncover facts, even if they are unsure how this might affect their case. In 2023, Assistant Attorney General Kenneth Polite highlighted the transition from ‘full’ to ‘extraordinary’ cooperation, stressing the importance of immediate and consistent truth-telling and evidence-sharing. The DOJ values collaboration, allowing them to obtain evidence they otherwise could not, such as quickly providing electronic devices or recorded conversations. Companies must be prepared to share information in real time, as seen in the SEC Order against ABB, where the company’s rapid information sharing was crucial.

3. Extensive Remediation

Effective remediation is essential and must be well-documented with data analytics. Companies must invest significantly in compliance personnel, training, and monitoring. ABB, Albemarle, Gunvor, and SAP all demonstrated extensive remediation efforts, including hiring experienced compliance personnel, conducting root cause analyses, and restructuring their compliance programs. Albemarle, for example, strengthened its anti-corruption compliance program by investing in resources, expanding its compliance function, and eliminating the use of sales agents. SAP enhanced its compliance monitoring and audit programs, while ABB continuously tested and monitored.

4. Root Cause, Risk Assessment, and Gap Analysis

Remediation should begin with a root cause analysis, risk assessment, and gap analysis. This approach helps identify the underlying issues and address them effectively. SAP’s Deferred Prosecution Agreement (DPA) emphasized the importance of root cause analysis. The company conducted a thorough analysis, remediated the root causes, performed a gap analysis of internal controls, and conducted a comprehensive risk assessment focusing on high-risk areas and controls around payment processes.

5. Data Analytics

Implementing a data analytics program is now a best compliance practice. It allows for continuous monitoring and measuring of the compliance program’s effectiveness. Albemarle and SAP used data analytics to monitor compliance program effectiveness and identify high-risk transactions. This capability helped them avoid the need for a corporate monitor by demonstrating effective control implementation and testing.

6. Clawbacks and Holdbacks

The DOJ expects companies to include and enforce clawback and holdback provisions in their compensation agreements. These measures ensure that those involved in misconduct do not benefit from their actions. Albemarle and SAP implemented holdbacks, withholding bonuses from employees involved in wrongdoing. This approach penalized the individuals and qualified the companies for additional fine reductions under the DOJ’s Compensation Incentives and Clawbacks Pilot Program.

7. Change in Sales Models

Companies using third-party agents for sales should consider moving to a direct sales model to reduce corruption risks. This change helps ensure better control and compliance oversight. Albemarle eliminated third-party sales agents and switched to a direct sales model. SAP prohibited all sales commissions for public sector contracts in high-risk markets and enhanced its compliance monitoring and audit programs.

8. Enhancement of Compliance Programs

It is crucial to significantly enhance the compliance program, including increasing budget, headcount, and expertise. This enhancement should cover reporting, investigations, and consequence management processes. Albemarle and SAP significantly invested in their compliance programs, restructuring their Offices of Ethics and Compliance, enhancing policies and procedures, and increasing resources devoted to compliance. ABB also invested in compliance testing and monitoring throughout its organization.

9. Internal Controls

Companies must use their internal controls to continuously test, monitor, and improve all aspects of their compliance programs. This approach ensures ongoing effectiveness and adaptability. SAP conducted a gap analysis of its internal controls and enhanced its compliance risk assessment process. ABB invested in controls testing and monitoring, restructuring internal reporting to ensure compliance oversight. Albemarle’s SEC Order highlighted the need for adequate internal controls to prevent and detect improper payments.

10. Investigation Protocol

Having a robust investigation protocol that can quickly triage any claim and escalate decisions. This protocol should facilitate timely self-disclosure and determine the best course of action. A culture of “speak up” encourages employees to report wrongdoing. Effective triage helps prioritize and allocate resources for investigations. Detailed written procedures ensure transparency and responsibility in managing allegations.

These top ten actions provide a roadmap for companies to navigate compliance challenges effectively. These steps, from self-disclosure and rapid information sharing to extensive remediation and robust internal controls, help build a strong compliance program that meets DOJ expectations. Companies can mitigate risks by integrating data analytics, enforcing clawbacks, enhancing compliance efforts, and demonstrating their commitment to ethical conduct.

This is my first pairing of a book and limited podcast series. I hope that however you consume information via written word or audio, I can provide it to you.

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Ten Top Lessons from Recent FCPA Settlements – Lesson No. 9, Internal Controls

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 an ongoing best practices compliance program.

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 9, Internal Controls. The DOJ has made it clear that any organization under FCPA scrutiny must use its internal controls to continuously test, monitor, and improve all aspects of its compliance program.

SAP

As a part of its remediation, the company conducted a gap analysis of internal controls. This remediation found those internal controls “lacking.” SAP also undertook a “comprehensive risk assessment focusing on high-risk areas and controls around payment processes and enhancing its regular compliance risk assessment process.” Using this risk assessment as a starting point, the company performed a gap analysis, determined the overall remediation regime needed, and effectuated that remediation. 

ABB

The ABB Plea Agreement reported that ABB “performed a root-cause analysis of the conduct at issue. From there, the company revamped its internal controls, investing significant additional resources in control testing and monitoring throughout the organization. While not often seen as a part of internal controls, the company restructured its reporting by internal project teams to ensure compliance controls oversight.

Additionally, ABB essentially created its monitoring program around controls, testing its compliance program, and reporting to the DOJ. In the “Written Work Plans, Reviews, and Reports” section, ABB agreed to conduct a first review and prepare a report, followed by at least two follow-up reviews and reports. But more than simply reporting on control testing, ABB agreed to create and submit for review a work plan for this ongoing testing of its compliance program, as the program was detailed in the DPA. The DPA specified, “No later than one (I) year from the date this Agreement is executed, the Company shall submit to the Offices a written report setting forth:

  • a complete description of its remediation efforts to date;
  • a complete description of the controls testing conducted to evaluate the effectiveness of the compliance program and the results of that testing; and
  • It proposes to ensure that its compliance program is reasonably designed, implemented, and enforced so that the program is effective in deterring and detecting violations of the FCPA and other applicable anti-corruption laws.”

The bottom line is that all these companies worked very hard to significantly enhance their controls, testing, and monitoring and then improve based on that information. None of the actions taken by these companies were particularly new or even innovative. Indeed, these strategies have been available from the DOJ since at least the first edition of the FCPA Resource Guide in 2012. It was, however, the work by the company to understand the deficiencies in their internal controls regime and their superior efforts to upgrade them.

Albemarle

The Albemarle SEC Order was instructive regarding internal controls for a different reason than we have been considering throughout this series. The Order detailed a series of internal control failures by the company across multiple business units in several other countries. The entire story painted a picture of a company that did not have adequate or easily overridden internal controls.

Vietnam. The Order noted, “Albemarle’s system of internal accounting controls was insufficient to prevent or detect these improper payments, which Albemarle Singapore falsely recorded as legitimate commissions in books and records consolidated into Albemarle’s financial statements.”

India. A backdated agreement increased an India agent’s commission multiple times without compliance oversight or approval. Commissions went from “extremely high” to “far from any possible realistic justification.” Finally, “the agreement called for payment of a three percent commission to India Agent, a rate three times higher than that paid to Albemarle’s existing agent for India.”

Indonesia. Albemarle’s system of internal accounting controls was insufficient to prevent or detect the improper payments made to and through Indonesia Agent, which Albemarle Singapore falsely recorded as legitimate commissions and business expenses in books and records consolidated into Albemarle’s financial statements.”

China.  When an Albemarle business director questioned China Agent’s compensation as “high,” an Albemarle Netherlands business director provided the business justification that he anticipated significant returns on the contract.

UAE.  No due diligence was conducted on an agent until after the agent agreement had been executed. The agent provided no discernible services other than conveying confidential tender evaluations and competitors’ bids obtained from the customer.

Each of these resolutions drives home the importance of internal controls, creation, and remediation as a key part of your overall compliance regime during any investigation. The sooner you can start on your internal controls, the better off you will be in your negotiations with the DOJ and SEC.

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Ten Top Lessons from Recent FCPA Settlements – Lesson No. 8, Enhancing Your Compliance Program

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 providing insight for the compliance professional into what the DOJ expects in an ongoing best practices compliance program.

Over this 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 8, Enhancement of Compliance. The DOJ has clarified that any company undergoing an FCPA enforcement action must significantly enhance its compliance program with a budget, headcount, and expertise in reporting, investigations, and consequence management processes.

Albemarle

The Albemarle NPA cited several remedial actions by the company that helped Albemarle obtain superior results 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

  • 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
  • It engaged in continuous testing, monitoring, and improvement of all aspects of its compliance program, beginning almost immediately after identifying misconduct.

The NPA noted that Albemarle engaged in holdbacks, as they did not pay bonuses to certain employees involved in the conduct or those with oversight. The NPA said, “During its internal investigation, the Company withheld bonuses totaling $763,453 from employees suspected of wrongdoing.” The illegal behavior involved people who “(a) had supervisory authority over the employee(s) or business area engaged in the misconduct; and (b) knew of, or were willfully blind to, the misconduct.” This effort was important because it allowed Albemarle to get an extra fine reduction of a dollar for every dollar they spent on the investigation.

Indeed, Deputy Attorney General Lisa Monaco cited the Albemarle FCPA resolution: “The company received a clawback credit for withholding bonuses for employees who engaged in misconduct. Not only did Albemarle keep the bonuses that would have gone to wrongdoers, but the company also received an offset against its penalty for the same amount. That’s money saved for Albemarle and its shareholders—and a concrete demonstration of the value of clawback programs.”

SAP

SAP did an excellent job in its remedial efforts to build out its compliance program. In addition to the prior discussions of SAP’s remedial efforts, the DOJ also pointed out the company’s Enhancement of Compliance. Here, the company significantly increased the budget, resources, and expertise devoted to compliance, restructuring its Offices of Ethics and Compliance to ensure adequate stature, independence, autonomy, and access to executive leadership; enhancing its code of conduct and policies and procedures regarding gifts, hospitality, and the use of third parties; and improving its reporting, investigations, and consequence management processes.

Next were the holdback actions SAP engaged in. The DPA noted SAP withheld bonuses totaling $109,141 during its internal investigation from employees who engaged in suspected wrongdoing in connection with the conduct under investigation or who both (a) had supervisory authority over the employee(s) or business area engaged in the misconduct and (b) knew of, or were willfully blind to, the misconduct, and further engaged in substantial litigation to defend its withholding from those employees, which qualified SAP for an additional fine reduction in the amount of the withheld bonuses under the DOJ’s Compensation Incentives and Clawbacks Pilot Program.

ABB

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

Additionally, ABB essentially created its monitoring program to test its compliance program and report to the DOJ. In a section entitled “Written Work Plans, Reviews, and Reports,” ABB agreed to conduct a first review and prepare a first report, followed by at least two follow-up reviews and reports. But more than simply reporting, ABB decided to create and submit for review a work plan for this ongoing testing of its compliance program, as the program was detailed in the DPA. The DPA specified, “No later than one (I) year from the date this Agreement is executed, the Company shall submit to the Offices a written report setting forth:

  • a complete description of its remediation efforts to date;
  • a complete description of the testing conducted to evaluate the effectiveness of the compliance program and the results of that testing; and
  • It proposes to ensure that its compliance program is reasonably designed, implemented, and enforced so that the program is effective in deterring and detecting violations of the FCPA and other applicable anti-corruption laws.”

The bottom line is that all these companies worked very hard to significantly enhance their compliance programs, with a budget, headcount, and expertise in their reporting, investigations, and consequence management processes. None of the actions by these companies were particularly new or even innovative, as with the innovations around data analytics programs. Indeed, these strategies have been available from the DOJ since at least the first edition of the FCPA Resource Guide in 2012. It was, however, the work of each company to understand the deficiencies in their compliance programs and their superior efforts to upgrade them.

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Ten Top Lessons from Recent FCPA Settlements – Lesson No. 5, Data Analytics

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 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 5, Data Analytics. Data analytics was previously seen as cutting-edge in compliance. Now, they are recognized as part of a best practices compliance program. By this time next year, they will be table stakes for every compliance program. However, the DOJ specifically called out the use of data analytics in these three enforcement actions and the incorporation of data analytics into their compliance regimes in the future.

Albemarle

Albemarle’s NPA specifically called out the Company’s use of data analytics in two ways. The first was to monitor the Company’s compliance program, and the second was to measure the compliance program’s effectiveness. While this language follows a long line of DOJ pronouncements, starting with the 2020 Update to the Evaluation of Corporate Compliance Programs, about the corporate compliance functions’ access to all company data, this is the first time it has been called out in a settlement agreement in this manner. Moreover, although not explicitly tied to the lack of a required corporate monitor, it would appear that by using data analytics, Albemarle was able to satisfy the DOJ requirement for implementing controls and then effectively testing them throughout the pendency of the DOJ investigation.

Andrew McBride, Chief Risk & Compliance Officer at Albemarle. He noted that if you think about each element of a compliance program—policies and procedures, training, due diligence, and pre-approvals—and your investigation process, a recurring theme throughout is the role of data to test that those program elements are working as you intend. McBride believes there are four critical purposes for using data and data analytics to support the ethics and compliance program, which he listed as follows:

  1. Risk Identification Issues. It can be used as a part of transaction testing and auditing to identify problematic behavior, support investigations, and highlight areas of residual risk.
  2. Risk Response. Data analytics can be used as a form of internal control. Albemarle uses data analytics as a form of gatekeeper.
  3. Compliance Program Testing. Data analytics can be used to determine the effectiveness of your ethics and compliance program.
  4. Finally, and perhaps most significantly for the DOJ’s purposes in FCPA enforcement actions, are the reporting requirements to demonstrate that the company meets its requirements as laid out in the resolution documents, whether a DPA, NPA, or other.

SAP

The SAP resolution made several references to data analytics and data-driven compliance. SAP did so around its third-party program and expanded its data analytics capabilities to cover over 150 countries, including all high-risk countries globally. The SEC Order also noted that SAP had implemented data analytics to identify and review high-risk transactions and third-party controls. The SAP DPA follows the Albemarle FCPA settlement by stating that SAP now uses data analytics to measure the compliance program’s effectiveness. This language follows a long line of DOJ pronouncements, starting with the 2020 Update to the Evaluation of Corporate Compliance Programs, about the corporate compliance function’s access to all company data; this is the second time it has been called out in a settlement agreement in this manner. Additionally, it appears that by using data analytics, SAP was able to satisfy the DOJ requirement for implementing controls and then effectively testing them throughout the pendency of the DOJ investigation, thereby avoiding monitoring.

ABB

While not explicitly called out in its DPA, ABB has instituted a significant and company-wide data analytics program as a part of its overall remediation effort. Tapan Debnath, Head of Integrity, Regulatory Affairs, & Data Privacy—Process Automation at ABB, spoke about some of the challenges ABB faced and overcame to institute its data analytics program. He said, “The way data is hosted for us and probably for a lot of organizations is in lots of different places, and there needs to be a lot of data cleanup before we can utilize and use data.” He related that another challenge “for us has also been getting hold of data in different jurisdictions. There may be data privacy laws around data transfer, and there may be blocking statutes around this same thing. So navigating the local law requirements around data transfer, getting a hold of the data, and all of those things have been key challenges, as well as resourcing internally how to do this and getting the external stakeholders to support. I think These key fundamental steps need to be ironed out and looked at early on in the process.”

In November, Nicole Argentieri, Acting Assistant Attorney General for the Criminal Division, speaking at the ACI National FCPA, reported that the DOJ is stepping up its use of data analytics to identify instances of corporate misconduct and will boost its cooperation with overseas law enforcement to bring more anti-corruption cases as well. The DOJ and SEC increasingly focus on data analytics for corporate compliance, signaling higher expectations for larger companies.

Data-driven analytics have become a significant part of any best practices compliance program. The DOJ sees it as a critical remedial step for any company in an FCPA enforcement action. The actions taken by ABB, Albemarle, and SAP demonstrate that the DOJ also wants to impress this upon the greater compliance community.

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Ten Top Lessons from Recent FCPA Settlements – Lesson No. 4, Start with a Root Cause Analysis

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 4, Root Cause, Risk Assessment, and Gap Analysis. Your remediation should begin with a root cause analysis. From there, move on to a risk assessment and gap analysis, and then you are ready to start your complete remediation.

SAP

The SAP Deferred Prosecution Agreement (DPA) laid out the best example of how this works in practice. The DPA reported extensive remediation by SAP, and the information provided in the DPA is instructive for every compliance professional. SAP engaged in a wide range of remedial actions. It all started with a root cause analysis. Root Cause analysis was enshrined in the FCPA Resource Guide, 2nd edition, as one of the Hallmarks of an Effective Compliance Program. It stated, “The truest measure of an effective compliance program is how it responds to misconduct. Accordingly, for a compliance program to be truly effective, it should have a well-functioning and appropriately funded mechanism for the timely and thorough investigations of any allegations or suspicions of misconduct by the company, its employees, or agents. An effective investigation’s structure will also have an established means of documenting the company’s response, including any disciplinary or remediation measures taken.”

This means a company should respond to the specific incident of misconduct that led to the FCPA violation. This means your organization “should also integrate lessons learned from misconduct into the company’s policies, training, and controls. To do so, a company will need to analyze the root causes of the misconduct to timely and appropriately remediate those causes to prevent future compliance breaches.” The SAP DPA noted that SAP engaged in the following steps based on these factors:

1. Conducted a root cause analysis of the underlying conduct, then remediated those root causes through enhancement of its compliance program;
2. Conducted a gap analysis of internal controls, remediating those found lacking;
3. Undertook a “comprehensive risk assessment focusing on high-risk areas and controls around payment processes and enhancing its regular compliance risk assessment process”;
4. SAP documented using “comprehensive operational and compliance data” in its risk assessments.

In addition to having a mechanism for responding to the specific incident of misconduct, the company’s compliance program should also integrate lessons learned from any misconduct into the company’s policies, training, and controls on a go-forward basis. To do so, a company will need to analyze the root causes of the misconduct and remediate those causes promptly and appropriately to prevent future compliance breaches. This SAP did it during its remediation phase.

Albemarle

Albemarle also received credit “because it engaged in extensive and timely remedial measures.” This remedial action began based on the company’s root cause analysis of its FCPA violations.
This root cause analysis led to a risk assessment, which led to remediation. All of 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.

ABB

ABB also did an excellent job in its remedial efforts. According to the ABB Plea, ABB “engaged in extensive remedial measures, including hiring experienced compliance personnel and following a root-cause analysis of the conduct,” which led to the FCPA enforcement action. More on the ABB remediation later.

Each entity worked diligently to rebuild its 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.

Here, the DOJ communicates that your remedial measures should start with a root cause analysis of the FCPA violation. From there, move to a risk assessment and internal control gap analysis to create a clear risk management strategy.

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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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Ten Top Lessons from Recent FCPA Settlements – Lesson No. 1, Self-Disclosure

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 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. Today, we begin with Number 1, self-disclosure. The first and most important thing is that a company should self-disclose a potential FCPA violation to the DOJ.

The DOJ expects and will reward self-disclosure above all else. The ABB enforcement action all began with ABB’s putative attempt to self-disclose. ABB set up a meeting where they intended to self-disclose but only set up the meeting without telling the DOJ the reason for the meeting. Unfortunately for ABB, this attempt was unsuccessful, as the South African press broke the story of ABB’s bribery and corruption between the time ABB called to set up a meeting and sat down with the DOJ. Yet the DOJ spent significant time discussing the underlying facts, and it was clear it positively impacted the DOJ.

Kenneth Polite, then Assistant Attorney General, said of ABB’s conduct around this attempt, “Before the meeting, however, a media report drew public attention to the wrongdoing.  But because the company could demonstrate intent and efforts to self-disclose before, and without any knowledge of, the media report, the Department weighed both the early detection of the misconduct and the intent to disclose it significantly in ABB’s favor.”

In the Albemarle enforcement action, there was a significant discussion in the NPA around Albemarle’s voluntary self-disclosure to the DOJ. “The disclosure was not “reasonably prompt,” as it was made approximately 16 months ago to the DOJ after initial discovery by the company. This meant the self-disclosure “was not within a reasonably prompt time after becoming aware of the misconduct in Vietnam,” and it means that Albemarle did not meet the standard for voluntary self-disclosure. While the DOJ “gave significant weight” to the company’s voluntary, even if untimely, disclosure of the misconduct, it is certainly cautionary.

Equally interesting was the SAP enforcement action. Although this factor was not present in the SAP enforcement action, the DOJ’s message regarding the DOJ’s expectation of self-disclosure and the obvious and palpable benefits could not be any clearer. Under the Corporate Enforcement Policy, SAP’s failure to self-disclose cost it an opportunity of at least 50% and up to a 75% reduction off the low end of the U.S. Sentencing Guidelines fine range. Its actions as a criminal recidivist resulted in it not receiving a reduction of at least 50% and up to 75% from the low end of the U.S.S.G. fine range but rather at 40% from above the low end. SAP’s failure to self-disclose cost it an estimated $20 million under the Sentencing Guidelines. SAP’s failure to self-disclose and recidivism cost it a potential $94.5 million in discounts under the Corporate Enforcement Policy. The DOJ’s message could not be any clearer.

In addition to these enforcement actions, Kenneth Polite, in a speech announcing changes in the Corporate Enforcement Policy, made clear the importance of self-disclosure in the eyes of the DOJ. “Our existing policy provides that if a company voluntarily self-discloses, fully cooperates, and timely and appropriately remediates, there is a presumption that we will decline to prosecute absent certain aggravating circumstances involving the offense’s seriousness or the offender’s nature. These aggravating circumstances include, but are not limited to, involvement by executive management of the company in the misconduct; a significant profit to the company from the wrongdoing; egregiousness or pervasiveness of the misconduct within the company; or criminal recidivism.” If a company self-discloses, but a criminal resolution is warranted, our existing policy offers 50% off of the low end of the applicable Sentencing Guidelines penalty range.

He re-emphasized this position: “When a company has uncovered criminal misconduct in its operations, the clearest path to avoiding a guilty plea or an indictment is voluntary self-disclosure.  It is also the clearest path to the greatest incentives that we offer, such as a declination with disgorgement of profits.” While noting the difficulty of a company deciding to self-disclose, “we are underscoring that a corporation that falls short of our expectations does so at its own risk. Make no mistake – failing to self-report, cooperate, and remediate fully can lead to dire consequences.” [emphasis supplied]

The DOJ could not be clearer. The No. 1 lesson is that you need to self-disclose if you want any of the benefits available.