In today’s edition of Daily Compliance News:
Now 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 look at a burgeoning scandal from north of the border in Hockey Canada. Highlights include:
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In this episode, I take on a solo pod to discuss and consider the Oracle FCPA enforcement action brought by the Securities and Exchange Commission.
Key areas we discuss on this podcast are:
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For a White Paper on the Oracle FCPE enforcement action, email tfox@tfoxlaw.com
In today’s edition of Daily Compliance News:
The Biden Administration promised a new, aggressive approach to corporate crime. Well, the Justice Department just delivered a new, comprehensive policy that raises a number of issues, some of which are likely to be controversial. The new policy incorporates reforms announced last October that largely centered on prior corporate criminal and civil records, the appointment of independent compliance monitors, and expanding the review of responsible persons in an internal investigation. The Justice Department’s new Corporate Enforcement Policy (“CEP”), however, expands on earlier policy changes but includes some new and far-reaching reforms intended to increase individual accountability and promote corporate culture through financial incentives and deterrence policies. This last idea is a significant expansion of DOJ’s CEP and is sure to reverberate through the business and compliance community. Chief compliance officers face a new requirement for their companies — creating an effective system of carrots and sticks to punish misconduct and increase rewards for ethical behavior.DOJ’s new CEP also lays the groundwork for further consideration of corporate responsibility for preserving electronic messaging, ephemeral services, and other electronic data. DOJ’s discussion in this area reflects DOJ’s frustration with a corporate internal investigation that omits access to electronic data, especially in those situations where employees use personal devices for business-related communications. The revised CEP provides guidance to prosecutors and the business community to ensure individual and corporate accountability through the evaluation of various factors, including (1) Corporate History of Misconduct; (2) Self-Disclosure and Cooperation; (3) the Strength of a Company’s Compliance Program; (4) the Use and Monitoring of Corporate Monitors (including their selection and scope of a monitor’s work).
In this post, we conclude our exploration of the Foreign Corrupt Practices Act (FCPA) enforcement action involving the now recidivist Oracle Corporation. This enforcement action was concluded with the Securities and Exchange Commission (SEC) resulting in an Order. After having examined the background facts and bribery schemes in some details, we turn to what does it all mean for FCPA enforcement going forward and what lessons can the compliance profession draw from Oracle’s missteps.
Paper Programs Fail
One of the most prominent lessons to be garnered from this matter is that paper compliance programs Do Not Work. That may sound like perhaps the most basic truism in all of compliance but here we are in 2022, looking at a major multinational organization which had a ‘check-the-box’ compliance program around distributors and it eventually bit them in the backside.
After having its first FCPA enforcement action in 2012 involving distributors in India, where deep and unwarranted discounts were used to create a pot of slush funds to pay bribes, Oracle instituted a requirement for a ‘second set of eyes’ outside the business unit for unusual or excessive discounts. According to its policies regarding distributors, a valid and legitimate business reason was required to provide a discount to a distributor. Oracle used a three-tier system for approving discount requests above designated amounts, depending on the product. In the first level, Oracle at times allowed subsidiary employees to obtain approval from an approver in a subsidiary other than that of the employee seeking the discount. At the next level and for higher level of discounts, Oracle required the subsidiary employee to obtain approval from another geographic region and the final level (and for the highest discounts) was from someone at the Oracle corporate headquarters. So far so good.
The problem was there was no requirement for evidence of a business justification to support the requested discount. The Order noted, “Oracle reviewers could request documentary support, Oracle policy did not require documentary support for the requested discounts – even at the highest level.” A statement of why you need a discount without any supporting documents as evidence is simply that – a statement. In other words, there was no way for a higher-level approver to determine if such a request was valid or fraudulent. Ronald Reagan was on to a basic compliance concept when he intoned “Trust, but verify.” Those words still ring true as a basic requirement in any compliance program.
Data Analytics
The Oracle enforcement action emphasized why data analytics is mandatory for any current compliance program. In addition to creating slush funds through discounts to distributors, slush funds were created through fraudulent reimbursement requests for expenses associated with marketing Oracle’s products. If the request were under $5,000, business unit level supervisors at the subsidiaries could approve them without any corroborating documentation indicating that the marketing activity actually took place. In one example from the Order, it noted that an Oracle Turkey sales employees obtained such fraudulent reimbursements totaling approximately $115,200 in 2018 that were “ostensibly for marketing purposes and were individually under this $5,000 threshold.” There was apparently no one looking to see who and how often these reimbursement requests were made by any single employee or approved by any supervisor.
This is as basic a fraud scheme as one can imagine. Think of employee gift, travel and entertainment (GTE) reimbursement where anything over $100 must be preapproved. One BD type or one business unit routinely submits requests after purchases of $99.99 so no preapproval is required. The supervisor approves it, and it is automatically paid to the employee. One reimbursement at $99.99 may not raise a red flag but multiple requests should. The same concept holds true in this situation. However, no one at Oracle was looking at this bigger picture. This is where a data analytics program would pick up such anomalies and flag it for closer inspection and investigation. Oracle appears to have realized this through part of its remediation which included the implementation of a compliance data analytics program moving to proactive auditing.
Internal Control Upgrades
Putting in compliance enhancements to remediate your control failures is a key part to any FCPA enforcement resolution. In this area, there were improvements in the following capacities: (a) in distributor discounting by improving aspects of the Oracle discount approval process and increasing transparency in the product discounting process through the implementation and expansion of transactional controls; (b) in the Oracle procurement process through the increased oversight of, and controls on, the purchase requisition approval process; (c) by the removal of perverse incentives by limiting financial motivations and business courtesies available to third parties; (d) in basic gifts, travel and entertainment policies (GTE) by improving its customer registration and payment checking processes in connection with Oracle technology conferences.
Basic GTE
I cannot believe that in 2022 we are talking about companies that still do not have the most basic GTE policies in force. Since at least 2007, the Department of Justice (DOJ) made clear what was appropriate in business travel, business courtesies and business entertainment. Oracle’s 112 Project decidedly was not as it was designed to appear as a business trip to Oracle’s home office (then in California) related to Oracle’s bid on a project. However, the trip was designed to be a sham to hide boondoggle travel for four government officials. The alleged business meeting at the corporate headquarters lasted only 15 minutes and for the rest of the week, the Oracle BD folks entertained the government officials in Los Angeles and Napa Valley and then took them to a “theme park” in the greater Los Angeles area. Any travel involving government officials or any other covered persons under the FCPA should be submitted to and approved by your compliance function, including costs and the itinerary.
There was much to consider from the SEC enforcement action under the FCPA involving Oracle. We still have not heard from the DOJ. There may be more to come….
In today’s edition of Daily Compliance News:
