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Daily Compliance News

April 27, 2023 – The De-Risking Edition

Welcome to the Daily Compliance News. Each day, Tom Fox, the Voice of Compliance, brings you compliance-related stories to start your day. Sit back, enjoy a cup of morning coffee, and listen to the Daily Compliance News. All from the Compliance Podcast Network. Each day we consider four stories from the business world, compliance, ethics, risk management, leadership, or general interest for the compliance professional.

Stories we are following in today’s edition:

·       De-risking bank customers.  (WSJ)

·       UK blocks Activism/Blizzard merger.  (NYT)

·       Jury begins deliberations in ComEd corruption case. (Chicago Sun Times)

·       Former Eskom CEO refuses to name names. (FT)

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Daily Compliance News

March 21, 2023 – The Cancel Spring Break Edition

Welcome to the Daily Compliance News. Each day, Tom Fox, the Voice of Compliance, brings you compliance-related stories to start your day. Sit back, enjoy a cup of morning coffee, and listen to the Daily Compliance News. All from the Compliance Podcast Network. Each day we consider four stories from the business world, compliance, ethics, risk management, leadership, or general interest for the compliance professional.

Stories we are following in today’s edition of Daily Compliance News:

  • Miami Beach wants to cancel Spring Break. (WSJ)
  • The $17bn wipe out. (FT)
  • South African corruption investigator murdered. (BBC)
  • Does Venezuela Oil Minister resign in corruption probe? (Reuters)
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Daily Compliance News

March 14, 2023 – The $27bn In Corruption Edition

Welcome to the Daily Compliance News. Each day, Tom Fox, the Voice of Compliance, brings you compliance-related stories to start your day. Sit back, enjoy a cup of morning coffee, and listen to the Daily Compliance News. All from the Compliance Podcast Network. Each day we consider four stories from the business world, compliance, ethics, risk management, leadership, or general interest for the compliance professional.

Stories we are following in today’s edition of Daily Compliance News:

·       Qatar alleged to have spied on Swiss FIFA prosecutor. (Times of Israel)

·       $27bn tax and corruption scandal in Indonesia. (TheStraitsTimes)

·       South African corruption watchdog to clear President Ramaphosa. (NYT)

·       Coal company receives declination. (FCPA Blog)

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Daily Compliance News

February 24, 2023 – The Just Say No—To Drag Shows Edition

Welcome to the Daily Compliance News. Each day, Tom Fox, the Voice of Compliance, brings you compliance-related stories to start your day. Sit back, enjoy a cup of morning coffee, and listen to the Daily Compliance News. All from the Compliance Podcast Network. Each day we consider four stories from the business world, compliance, ethics, risk management, leadership, or general interest for the compliance professional.

Stories we are following in today’s edition of Daily Compliance News:

  • The State of Tennessee seeks to restrict drag shows. (Reuters)
  • After the assassination attempt, the Eskom chief fired. (FT)
  • Mom is always there when you need her. (FT)
  • Not a bribe, just an open-ended loan that was never repaid. (Ohio Capital Journal)
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Daily Compliance News

January 25, 2023 – The Public Intoxication but Full Confidence Edition

Welcome to the Daily Compliance News. Each day, Tom Fox, the Voice of Compliance, brings you compliance-related stories to start your day. Sit back, enjoy a cup of morning coffee and listen to the Daily Compliance News. All from the Compliance Podcast Network. Each day we consider four stories from the business world, compliance, ethics, risk management, leadership, or general interest for the compliance professional.

Stories we are following in today’s edition of Daily Compliance News:

  • Corruption leads to 10-hour-per-day power cuts in South Africa. (FoxNews)
  • Tyson Foods CFO pleads guilty to public intoxication. (WSJ)
  • US sues to break up Google ad unit. (Bloomberg)
  • Former FBI agent charged with corruption. (WSJ)
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Daily Compliance News

January 11, 2023 – The Firm Hours Down Edition

Welcome to the Daily Compliance News. Each day, Tom Fox, the Voice of Compliance, brings you compliance-related stories to start your day. Sit back, enjoy a cup of morning coffee and listen to the Daily Compliance News. All from the Compliance Podcast Network. Each day we consider four stories from the business world, compliance, ethics, risk management, leadership, or general interest for the compliance professional.

Stories we are following in today’s edition of Daily Compliance News:

  • Danone sued over plastic use. (NYT)
  • Can the ANC or South Africa save itself from corruption? (Foreign Affairs)
  • Air India is embarrassed by the pee scandal. (BBC)
  • Billable hours drop in 2022. (FT)

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Compliance Into the Weeds

ABB FCPA Resolution

The award-winning, Compliance into the Weeds is the only weekly podcast that takes a deep dive into a compliance-related topic, literally going into the weeds to explore a subject. In this episode, we consider the ABB Foreign Corrupt Practices Act resolution. We deep dive into the case and ask three key questions: (1) How did ABB obtain such a superior resolution? (2) As a three-time FCPA violator, how did the company avoid a monitor? (3) Why was there no requirement for Chief Compliance Officer (CCO) certification?

Some of the highlights included:

  • The background facts.
  • The corrupt supplier’s ABB used to facilitate their bribery and corruption.
  • The convoluted self-disclosure in this matter. (Should they have used Twitter with the notation #committedbribery?)
  • What constituted extraordinary cooperation during the pendency of the investigation?
  • What are the implications of real-time sharing during an investigation?
  • What were the steps which demonstrated the exception remediation?
  • A root cause analysis is a basic Hallmark of an effective compliance program. Why was it separately called out?
  • Did the DOJ change its policy from mandatory CCO certification to discretionary?

 Resources

Tom has a five-part series in the FCPA Compliance and Ethics Blog

Matt Kelly in Radical Compliance

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Blog

ABB FCPA Resolution: Part 3 – The Bribery Schemes

We continue our exploration of the latest resolution of a Foreign Corruption Practices Act (FCPA) violation involving the Swiss construction giant, ABB Ltd. The most obvious significance is from the fact that ABB is now the first three-time convicted violator of the FCPA, having prior FCPA resolutions in 2004 and 2010. The moniker of a three-time FCPA violator is certainly not one that any corporation wants to claim, yet here we are. The total fine and penalty for the violation was $315 million, with credited amounts going to South Africa, Switzerland, and Germany for ABB’s violations of those country’s anti-corruption laws. There was also a $75 million fine credited to the Securities and Exchange Commission (SEC). In addition to the SEC Order, the DOJ Press Release and Plea Agreement are also available. Conspicuously missing at this point are resolution documents from South Africa, Switzerland, and Germany.

We are exploring this FCPA enforcement action to see what lessons might be garnered from it. While we are doing so, please keep three key questions in mind: (1) How did ABB obtain such a superior resolution? (2) As a three-time FCPA violator, how did the company avoid a monitor? (3) Why was there no requirement for Chief Compliance Officer (CCO) certification? Today, we consider the bribery schemes used by ABB to fund the bribes.

Bribery Pre-Payment

One of the things we rarely see is the pre-payment of a bribe for a contract to be awarded corruptly in the future as usually there is a quid pro quo or payment made after a contract is corruptly awarded. Perhaps the corrupt Eskom official who awarded the contract to ABB saw their actions in passing on internal and confidential information, which ABB used to secure the contract, as worthy of payment, perhaps the Eskom official wanted a show of ‘good-faith’. Whatever the reason, the corrupt Eskom official wanted an upfront, pre-payment for the corruption award of the contract to ABB.

As I detailed previously the corrupt Subcontractor 1 who was the lead bribe facilitator was awarded a contract worth $7.2 million and then paid, according to the Plea Agreement, $798,000 as an ‘advanced payment’ ($720,000 according to the SEC Order) and that money was to be paid to the corrupt Eskom official. However corrupt Subcontractor 1 balked at making the payment and kept the money for themselves. ABB’s answer was to bring in a corrupt Subcontractor 2 to facilitate this pre-payment to the corrupt Eskom official.

Funding Through Variation Orders

Because of the original contract with the corrupt Subcontractor 1, ABB had to come up with another mechanism to fund the bribe payments to the corrupt Eskom official. The solution was elegantly simple, the ‘Variation Order’. Under this, “The scheme was effectuated through the abuse of “variation orders” provided for in the contract between ABB-South Africa and Eskom. These provisions allowed Eskom to make changes to the contract and resulted in ABB-South Africa claiming additional costs from Eskom. Eskom Official and Capture Team Lead agreed upon a target price, which ABB-South Africa would then quote based on proposals that included inflated, unnecessary, or unjustified costs and Eskom would officially approve. An official at Service Provider B then ensured that money was transmitted to Eskom Official and his family members from the payments.”

The Variation Orders were not based on the value of additional work but were costed out by the corrupt Eskom official and ABB jointly. They would figure out how much the bribe needed to be and then would hit on a “target price” for the Variation Order. In less than two years, from 2016-2017, ABB corruptly paid some $37 million in bribes to the corrupt Eskom official. As the SEC Order somewhat dryly noted, “The various payments to Service Provider B, much of which was intended as bribes for Eskom Official, were inaccurately reflected in ABB-South Africa’s books and records as legitimate engineering services and involved the use of false purchase orders and contracts. ABB-South Africa’s books and records were consolidated into ABB’s for purposes of Commission filings.”

While these bribery schemes were not all that sophisticated, they do point out a key issue for compliance professionals. In high-risk jurisdictions, there must be continual monitoring of billings from and payments to government and state-owned entity customers. As previously detailed the mechanisms by which corrupt Subcontractors 1 and 2 were onboarded clearly presented red flags which were not followed up on by ABB compliance. These funding mechanisms also demonstrated significant red flags which should have been more scrupulously reviewed as well. Compliance does not stop when the contract is signed, it must be an ongoing prevention, detection, and remediation program.

In short, there is much to unpack in this matter. Join us tomorrow where we look at the ABB self-disclosure, investigative and remedial responses which led to its superior result.

Categories
Blog

ABB FCPA Resolution: Part 1 – Introduction

Late last week, the Department of Justice (DOJ) announced a highly anticipated resolution of Foreign Corruption Practices Act (FCPA) violation involving the Swiss construction giant, ABB Ltd. The most obvious significance is from the fact that ABB is now the first three-time convicted violator of the FCPA, having prior FCPA resolutions in 2004 and 2010. The moniker of a three-time FCPA violator is certainly not one that any corporation wants to claim. The total fine and penalty for the violation was $315 million, with credited amounts going to South Africa, Switzerland and Germany for ABB’s violations of those country’s anti-corruption laws. There was also a $75 million fine credited to the Securities and Exchange Commission (SEC). Over the next several blog posts, we will explore this FCPA enforcement action, and, most particularly, three key questions: (1) How did ABB obtain such a superior resolution? (2) As a three-time FCPA violator, how did the company avoid a monitor? (3) Why was there no requirement for Chief Compliance Officer (CCO) certification?

At this point, not all of the resolution documents are publicly available. The only two documents are the DOJ Press Release and Plea Agreement. Conspicuously missing at this point are resolution documents from the SEC and those from South Africa, Switzerland and Germany. As noted, the overall FCPA fine and penalty is $315 million with credit of $75 million to the SEC and according to the Press Release, “ABB’s total criminal penalty is $315 million. The department has agreed to credit up to one-half of the criminal penalty against amounts the company pays to authorities in South Africa in related proceedings, along with other credits for amounts ABB pays to resolve investigations conducted by the SEC and authorities in Switzerland and Germany, so long as payments underlying an anticipated resolution with German authorities are made within 12 months of today’s date.”

According to Assistant Attorney General Kenneth A. Polite, Jr. of the DOJ’s Criminal Division, “This is the department’s first coordinated resolution with authorities in South Africa, where much of ABB’s criminal scheme was carried out, reflecting our commitment to relationship-building and our ever-deepening partnerships in the global fight against corruption. ABB bribed a high-ranking official at South Africa’s state-owned energy company in order to corruptly obtain confidential information and win lucrative contracts. In addition, our partners in South Africa have brought corruption charges against that official. This resolution demonstrates the Criminal Division’s thoughtful approach to appropriately balancing ABB’s extensive remediation, timely and full cooperation, and demonstrated intent to bring the misconduct to the department’s attention promptly upon discovering it, while also accounting for ABB’s historical misconduct.” The DOJ also noted, “the assistance provided by law enforcement authorities in South Africa, Switzerland, and Germany.”

Certainly, the cooperation and partnering with South Africa is a welcoming sign, given the corrupt nature of the South African government under the prior regime of President Zuma. The allegations of state capture involving Zuma, his family and the Gupta brothers rocked the country for many years. Although this enforcement action involving ABB does not appear to have been a part of the state capture allegations, it may portend a reckoning of companies who have conducted business in the corrupt state over the past decade. It may be that ABB is only the opening salvo on corruption cases from South Africa which could rival Lava Jato from Brazil.

As for the actual resolution, the Press Release noted, “ABB entered into a three-year deferred prosecution agreement (DPA) with the department in connection with the filing of a criminal information in the Eastern District of Virginia charging the company with conspiracy to violate the FCPA’s anti-bribery provisions, conspiracy to violate the FCPA’s books and records provisions, and substantive violations of the FCPA. In addition, ABB subsidiaries ABB Management Services Ltd. (Switzerland) and ABB South Africa (Pty) Ltd. (South Africa) each pleaded guilty to one count of conspiracy to violate the anti-bribery provisions of the FCPA.” Once again there is a parent receiving a DPA with subsidiaries agreeing to make criminal pleas.

The bribery schemes themselves involved a series of actions between 2014 and 2017, where ABB subsidiaries paid bribes to a South African government official at the state-owned and controlled energy company, Eskom Holdings Limited (Eskom), to obtain business advantages in connection with the award of multiple contracts. Moreover, “ABB engaged multiple subcontractors associated with the South African government official and made payments to those subcontractors that were intended as bribes. ABB worked with these subcontractors despite their poor qualifications and lack of experience. In return, ABB received improper advantages in its efforts to obtain work with Eskom, including, among other benefits, confidential and internal Eskom information. As part of the scheme, ABB conducted sham negotiations to obtain contracts at inflated prices that ABB had pre-arranged with the South African government official, all on the condition that ABB employ a particular subcontractor associated with that official. ABB also falsely recorded payments to the subcontractors as legitimate business expenses when, in fact, a portion of the payments were intended as bribes for the South African government official.”

But as bad as ABB’s conduct was during this period, perhaps even more impressive was its conduct after it uncovered the bribery and corruption. Although ABB did not self-disclose the conduct before it was made public, the company “demonstrated intent to disclose the misconduct promptly to the department.” Thereafter, the company engaged in “extraordinary cooperation with the department’s investigation” as well as extensive remediation. The DOJ specifically called out the company “carrying out a root-cause analysis of the misconduct and making significant investments in compliance personnel, compliance testing, and monitoring through the organization.” There were also statements in the DPA which made inapplicable the DOJ’s prior statements on monitors and certifications, including “ABB’s commitment to further enhance its compliance program and internal controls, including enhanced reporting provisions that require ABB, during the pendency of the DPA, to meet with the department at least quarterly and to submit yearly reports regarding the status of its remediation efforts, the results of its testing of its compliance program, and its proposals to ensure that its compliance program is reasonably designed, implemented, and enforced, so that it is effective in deterring and detecting violations of the FCPA and other applicable anti-corruption laws.”

In short, there is much to unpack in this matter. Join us tomorrow where we look at the bribery schemes.

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Daily Compliance News

December 2, 2022 the Huge Management Failure Edition

Welcome to the Daily Compliance News. Each day, Tom Fox, the Voice of Compliance, brings you four compliance-related stories to start your day. Sit back, enjoy a cup of morning coffee and listen to the Daily Compliance News. All from the Compliance Podcast Network.

Stories we are following in today’s edition of Daily Compliance News:

  • More FCPA cases are on the horizon. (WSJ)
  • SBF says it was a ‘huge management failure.’ (NYT)
  • Does anyone perform due diligence anymore? (FT)
  • SA President urged to step down due to corruption allegations. (Aljazeera)