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Compliance Into the Weeds

Compliance into the Weeds: The BCG Declination – Key Insights for Compliance

The award winning, Compliance into the Weeds is the only weekly podcast which takes a deep dive into a compliance related topic, literally going into the weeds to more fully explore a subject. Looking for some hard-hitting insights on compliance? Look no further than Compliance into the Weeds!

In this episode, Tom Fox and Matt Kelly take a deep dive into the recent Department of Justice (DOJ) declination for the Boston Consulting Group (BCG).

They highlight why this case garnered significant attention and dissect the substantive actions BCG took to avoid prosecution, including firing implicated employees and forcing equity forfeiture. The duo also explores the seven factors that led to the declination, such as timely self-reporting, full cooperation, and improved compliance measures. The episode provides a comprehensive analysis of the BCG case, offering crucial takeaways for compliance officers on how to handle potential corruption issues and DOJ expectations.

Key Highlights:

  • Overview of the Boston Consulting Group Declination
  • DOJ’s Factors for Declination
  • Full Cooperation, Timely Self-Disclosure and Employee Consequences
  • Remediation Efforts and Compliance Improvements

Resources:

Matt in Radical Compliance

Tom in the FCPA Compliance and Ethics Blog

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Blog

The Boston Consulting Group Declination: A Money Shot for Clawbacks

In a recent development that has garnered significant attention in the compliance community, the U.S. Department of Justice (DOJ) declined prosecution of Boston Consulting Group, Inc. (BCG) for violations of the Foreign Corrupt Practices Act (FCPA). Despite evidence of bribery involving BCG’s operations in Angola, the decision to forgo prosecution serves as a powerful reminder of the critical role that timely self-disclosure, cooperation, and effective remediation play in navigating the complexities of corporate compliance and, most significantly, clawbacks play in a decision to decline to prosecute. The decision was made public via a letter from the DOJ to BCG.

Between 2011 and 2017, BCG’s Lisbon, Portugal office engaged in a scheme to secure business contracts with Angolan government agencies, including the Ministry of Economy (MINEC) and the National Bank of Angola (BNA). BCG funneled approximately $4.3 million in commissions to an agent with close ties to Angolan government officials. These payments, made through offshore entities, helped BCG secure twelve contracts, resulting in revenues of $22.5 million and profits of $14.424 million.

The misconduct was serious: BCG employees in Portugal were aware of the agent’s ties to government officials and took deliberate steps to conceal the true nature of the agent’s work. This included backdating contracts and falsifying documents to cover up the corrupt activities. Such actions violated the FCPA, which prohibits U.S. companies from engaging in bribery of foreign officials to secure business advantages.

The money shot in this Declination was in the area of clawbacks. In the Wall Street Journal  (WSJ), Dylan Tokar wrote, “The consulting group’s disciplinary actions come amid pressure on companies by Justice Department officials to clawback compensation from employees involved in wrongdoing. Officials have said they want to shift the burden of penalties for corporate misconduct to those most responsible.” Mary Shirley, quoted by Tokar in the same article, noted, “That’s a strong message. While they’re not stated, the actual figures involved for individuals could be quite high.”

In his Radical Compliance piece on the Declination, Matt Kelly emphasized Shirley’s point: “That final point on surrendering equity — wow. That’s a punitive measure with real bite. Not only has BCG damaged the offenders’ future employment prospects by firing them and leaving a black mark on their records, but the loss of equity is a wallop to all their past employment with the firm. I have no idea how much that equity might have been worth, but BCG is a giant and prosperous business, so it’s entirely possible those offenders just lost millions of dollars.”

Given the severity of the misconduct, the DOJ’s decision to decline prosecution may seem surprising at first glance. However, more conduct was conducted by BSG after discovering the illegal conduct, which led to this superior result. The decline reveals that BCG’s response to finding the potential FCPA violation was exemplary, and equally importantly, it aligned with the DOJ’s Corporate Enforcement and Voluntary Self-Disclosure Policy. These factors included:

  • Timely and Voluntary Self-Disclosure: In a 2014 email, BCG uncovered evidence of the potential FCPA violation and promptly disclosed the misconduct to the DOJ. This proactive step is crucial in the DOJ’s assessment of whether to pursue prosecution, as it demonstrates the company’s commitment to transparency and accountability.
  • Full and Proactive Cooperation: BCG did not merely disclose the misconduct; the company fully cooperated with the DOJ’s investigation. This included providing all relevant facts, including information about the individuals involved in the bribery scheme. Cooperation of this magnitude significantly mitigates the risk of prosecution, as it aids the government in its investigation and potential prosecutions of individuals responsible for the wrongdoing.
  • Comprehensive Remediation: BCG’s response to the misconduct was swift and decisive. The company terminated the personnel involved, imposed compensation-based penalties, and required implicated partners to forfeit their equity in the company. BCG also denied these individuals the financial transitions typically accorded to departing employees, underscoring the seriousness of the misconduct.
  • Significant Compliance Improvements: Beyond addressing the immediate issue, BCG substantially enhanced its compliance program and internal controls. These improvements included formalized employee training, vendor and client screening protocols, and the establishment of local and global risk committees. Such measures demonstrate BCG’s commitment to preventing future misconduct and fostering a culture of compliance.
  • Absence of Aggravating Factors: The DOJ’s decision was also influenced by the absence of certain aggravating factors, such as executive management’s involvement in the misconduct, significant profit relative to the company’s size, or a history of criminal recidivism. These factors often weigh heavily in the decision to prosecute, but in BCG’s case, their absence worked in the company’s favor.
  • Disgorgement of Ill-Gotten Gains: BCG agreed to disgorge $14.424 million, representing the profits from the contracts secured through the corrupt scheme. This financial penalty further reinforced BCG’s commitment to addressing the consequences of its actions and aligning with legal and ethical standards.

The BCG case offers several critical lessons for compliance professionals. First and foremost, the importance of timely and voluntary self-disclosure cannot be overstated. When a company discovers potential misconduct, promptly bringing it to the authorities’ attention can significantly influence the outcome, potentially leading to a declination of prosecution.

Full cooperation with government investigations is essential. Compliance teams must be prepared to provide all relevant information, facilitate interviews, and support the investigation process. This cooperation demonstrates the company’s commitment to addressing the issue and helps build a collaborative relationship with the authorities.

Remediation is another crucial aspect. Companies must swiftly and meaningfully address the root causes of misconduct, including holding individuals accountable and implementing robust compliance measures to prevent future violations. A strong compliance program, reinforced by ongoing training and risk assessment, is vital in demonstrating a company’s commitment to ethical business practices.

Finally, the BCG case underscores the importance of avoiding aggravating factors. Companies should strive to cultivate a culture of integrity from the top down, ensuring compliance is embedded in every aspect of the organization. By doing so, they can reduce the likelihood of misconduct occurring in the first place and mitigate the impact if it does.

The DOJ’s decision to decline BCG’s prosecution is a powerful reminder of the value of self-disclosure, cooperation, and remediation in corporate compliance. For compliance professionals, the BCG case highlights the critical role they play in guiding their organizations through complex legal and ethical challenges. By fostering a culture of compliance, responding proactively to potential issues, and working closely with authorities, companies can navigate the difficult terrain of regulatory enforcement while upholding their commitment to ethical business practices.

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10 For 10

10 For 10: Top Compliance Stories For The Week Ending May 25, 2024

Welcome to 10 For 10, the podcast that brings you the week’s top 10 compliance stories in one podcast each week.

Tom Fox, the Voice of Compliance, brings to you, the compliance professional, the compliance stories you need to be aware of to end your busy week.

Sit back, and in 10 minutes, hear about the stories every compliance professional should be aware of from the prior week.

Every Saturday, 10 For 10 highlights the most important news, insights, and analysis for compliance professionals, all curated by the Voice of Compliance, Tom Fox.

Get your weekly filling of compliance stories with 10 for 10, a podcast produced by the Compliance Podcast Network.

  • Can shareholders criticize companies (without being sued)? (WSJ)
  • Brazil Supreme Court throws out Car Wash convictions.(FT)
  • Prosecutorial misconduct eviscerates Fat Leonard convictions.(WaPo)
  • First declination in the export control case. (WSJ)
  • FIFA rolls back ABC reforms.(NYT)
  • Investment advisors must vet customers.(WSJ)
  • Meta faces EU probe over child abuse protections.(WSJ)
  • ABC crusader picked as Vietnam’s next president. (Bloomberg)
  • Prosecutorial misconduct eviscerates Fat Leonard convictions.(WaPo)
  • Fewer meetings, more memos.(FT)

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

You can check out the Daily Compliance News for four curated compliance and ethics related stories each day here.

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Daily Compliance News

Daily Compliance News: May 24, 2024 – The Declination 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.

In today’s edition of Daily Compliance News:

  • First declination in a export control case. (WSJ)
  • Does the Constitution protect Menendez in delivering quo?  (Politico)
  • HSBC was fined for failing to help customers.  (BBC)
  • Cracks in the prosecution of Archegos. (Bloomberg)

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

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2 Gurus Talk Compliance

2 Gurus Talk Compliance – The Disturbing Edition

What happens when two top compliance commentators get together? They talk compliance of course. Join Tom Fox and Kristy Grant-Hart in 2 Gurus Talk Compliance as they discuss the latest compliance issues in this week’s episode! In this episode, Tom and Kristy take on a wide variety of topics including Florida Woman gone astray.

In the ever-evolving world of regulatory compliance and risk management, challenges are constant and strategies must be dynamic. Tom highlights recent FCPA enforcement actions and a Declination. Kristy highlights the criminal enterprise that was Binance and the role of its former CCO, asks why employees are so miserable, and checks in on Florida Woman. Join Tom Fox and Kristy Grant-Hart as they delve deeper into these issues in this episode of the 2 Gurus Talk Compliance podcast.

  • FCPA enforcement actions involving UK Reinsurers. FCPA Blog
  • Compliance Officers feeling regulatory heat. Compliance Week
  • Why you should be very wary of forever chemicals. CCI
  • Lifecore receives declination. Pryor Cashman
  • ABC insights from Sierra Leone GAB
  • ‘I am personally disturbed’ by FDIC harassment allegations: Gruenberg Yahoo Finance
  • Binance Penalties Include a Number of Crypto Industry Firsts WSJ
  • Kristy’s new book has been published! Your Year as a Wildly Effective Compliance Officer
  • Why Is Everyone So Unhappy at Work Right Now? WSJ
  • Florida woman with outstanding warrants busted after calling cops to report stolen weed worth $5. New York Post

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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

December 28, 2022 – The Declination 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:

  • Peru arrests generals for corruption. (DW)
  • Safran gets Declination. (WSJ)
  • Meta settles for Cambridge Analytica. (BBC)
  • Angola court orders dos Santos asset seizure. (Al Jazeera)
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Daily Compliance News

August 11, 2021 the Declination edition


In today’s edition of Daily Compliance News:

  • Following DOJ, SEC to close FCPA inquiry into Pactiv Evergreen. (WSJ)
  • Does more money counter work-burnout? (NYT)
  • Corruption targeted in Australia. (The Guardian)
  • Will anti-cheating czars come to colleges? (WSJ)
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Shakespeare on Compliance

Shakespeare on Compliance – A Different Interpretation

I recently saw the performance of King Lear with Glenda Jackson as the mad king. It was a magnificent production and if you have the chance to see, I would certainly urge you to do so. The production had many interesting features and interpretations which seemed to be great entrees into several compliance topics. The play was directed by Sam Gold and it was scored by Phillip Glass but the star power was derived from Jackson as King Lear. It was a fabulous take on the story and one that will resonate directly to our turbulent times. Therefore, inspired by octogenarian Jackson and her performance, I am going to use King Lear as a deep dive into several compliance topics this week. In this episode, I want to discuss how Jackson, starring in the role of King Lear, added a new level of complexity, nuance and interpretation to the entire play.

Jackson is an octogenarian, the oldest person I have ever seen play Lear. Having seen my two parents age, I have some understanding that a person does not gain in stature, power or strength after they cross the 80-birthday mark. In other productions I have seen Lear roar and rail at Cordelia however, Jackson played it understated with nary a raised voice.
Even after the intermission, one of the most powerful scenes is when Lear carries of the lifeless body of Cordelia. Lear is in shock, bereaving and clearly quite mad. Yet to pull this off this scene requires an actress playing Cordelia to be of a size that the actor playing Lear can physically carry. Jackson is far too frail to do so. In this penultimate scene she sat on the stage with Cordelia’s head cradled in her lap, gently stroking her dead daughter’s hair. It was one of the most tender, loving and affectionate presentations I have ever seen in Lear.
The same week as the Mobile TeleSystems PJSC (MTS) Foreign Corrupt Practices Act (FCPA) enforcement action was announced there were two significant speeches by Department of Justice officials. The first was by Deputy Attorney General Rod Rosenstein. The second was by Assistant Attorney General Brian Benczkowski.
I want to focus on how both speeches explain what many found to be the stunning result Cognizant Technology Solutions Corporation (CTSH) received when it obtained a declination for its FCPA violations, both from the strategic and tactical levels.
Taken together, these two speeches made clear the reasons why the DOJ handed a declination to CTSH. The company engaged in the type of conduct, after it discovered its FCPA violation, that the DOJ wanted to reward and encourage going forward. Rosenstein made this crystal clear in his remarks, when he stated, “We aim to incentivize companies to report crimes, disgorge illegal proceeds, take remedial actions, and identify accountable officials so we can prosecute them – and do it all promptly. That will result in less corporate crime in the future.” This is not going soft on corporate crime; this is bringing corporate America into a role in the global fight against bribery and corruption.
Yet the Benczkowski speech had equal import for the compliance professional. The DOJ rewarded CTSH for not only its quick decision to self-disclose and then doing so; they also rewarded the company for having a robust pre-existing compliance program even though C-Suite executives led the bribery effort. This recognition by the DOJ makes even more important the corporate compliance function and a corporate compliance program to protect an organization if nefarious actors arise.

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Compliance Into the Weeds

Compliance into the Weeds – Episode 43 – The Linde Declination

On June 16, 2017, the Department of Justice (DOJ) issued a Declination to Linde North American Inc. and Linde Gas North America LLC (collectively “Linde”). This is the first Declination issued by the DOJ in the era of the Trump Administration. For that reason alone, it was instructive and should be studied by the compliance profession. However, the case presented several interesting factors which merit consideration, so we are discussing in depth to present lessons to be learned for the Chief Compliance Officer (CCO) or compliance practitioner.

Lessons Learned

This was yet another Foreign Corrupt Practices Act (FCPA) action where a company performed insufficient due diligence in the acquisition phase. The timing of the Linde purchase of Spectra Gases and Spectra Gases’ purchase of the income-producing assets is too close in time to be a coincidence. It would certainly appear that Linde purchased Spectra Gases to facilitate its acquisition of the boron column and other assets. If your company is going to make such a multi-step acquisition, you must perform due diligence on all the actors and the assets involved.

The Byzantine corporate structure created for the ownership of the boron column, its operation, and its management contract are clear red flags that any CCO should sniff out immediately. While I am sure the internal corporate excuse for this clear ruse was the ubiquitous ‘tax considerations,’ every such transaction should also be reviewed by compliance. Anytime there is more than one entity to accomplish one task, there is the possibility of fraud. Further, it is unclear how Linde could not have been aware of the company’s ownership interests that it ultimately controlled. It would seem that the company did not even make any inquiries.

Even in 2006, the Republic of Georgia’s reputation for bribery and corruption was quite high. The 2006 Transparency International-Corrupt Perceptions Index (TI-CPI) listed Georgia at 99 out of 176 countries, which warranted red flag scrutiny. Extra care is warranted if you are purchasing an entity in a country with such a well-known affinity for corruption. Perhaps in 2006, Linde did not view the FCPA as something it would deal with in such a situation.

Yet even with all the apparent miss-steps and non-steps of compliance, the company was able to secure a declination from the DOJ. While there may be some additional penalties or sanctions by the Securities and Exchange Commission (SEC) for the failures of internal controls, the result obtained by Linde was certainly superior. The company has met the four pillars under the FCPA Pilot Program through (a) self-disclosure, (b) extraordinary cooperation, (3) full remediation, and (d) profit disgorgement. Interestingly, in this case, the profit disgorgement would have been beyond the five-year limitations for profit disgorgement under the recent Supreme Court decision in Kokesh. If the SEC brings an FCPA enforcement action, additional facts may be recited in any resolution documents.

Nevertheless, kudos are due to Linde and its counsel for obtaining this declination. Every CCO should study it for both the superior result received and underlying facts to see if you face anything similar in the Republic of Georgia or elsewhere.

For a full copy of the Linde Declination, click here