Tag: DPA

Categories
Blog

Scoular DPA Part 5: From Reinspection Fees to Executive Signatures: Final Lessons from Scoular

From Reinspection Fees to Executive Signatures: Final Lessons from Scoular

The Scoular Company FCPA enforcement action began with a deceptively simple fact pattern. Customs brokers allegedly paid Mexican officials approximately $2,000 per train so agricultural shipments could cross the border despite adverse inspection findings. The brokers invoiced the payments to Scoular as “reinspection fees.” That description, however, was only the first layer of the case.

Across this blog post series, Scoular Company became a study in third-party risk, internal controls, cartel exposure, off-channel communications, facilitating payments, data analytics, voluntary disclosure, remediation, DOJ oversight, and executive accountability. Each article examined one part of the control environment. Taken together, they tell a larger story about how bribery becomes normalized inside an operating process and what a company must do when that process fails.

The source distinction matters. I have now posted two series on the enforcement action. The first series relied on the DOJ Press Release, which announced the resolution and described the government’s allegations and conclusions. The second series relied on the formal Deferred Prosecution Agreement (DPA), in which Scoular admitted, accepted, and stipulated that the facts were true. The DPA did not merely add detail. It changed the evidentiary foundation of the analysis.

I.              Series One: Lessons From the DOJ Press Release

a.     A Small Payment Became an Enterprise Control Failure

The Press Release series began with the mechanics of the scheme. According to the DOJ announcement, the conduct ran from 2013 through 2019, involved more than $400,000 in bribes, and enabled Scoular to avoid more than $6.5 million in fees and costs. Scoular entered a three-year DPA and agreed to pay a $9,769,521 criminal penalty and $414,351 in forfeiture.

The compliance lesson was never the size of one payment. It was repetition. A recurring round-dollar charge, submitted by customs brokers, approved over six years, and recorded under a plausible description became part of the company’s operating model.

The phrase “reinspection fee” demonstrated why invoice controls must examine commercial substance. A three-way match can confirm that an invoice, purchase order, and approval agree. It cannot establish that the underlying service was legitimate. For a high-risk customs payment, the control must ask what government action occurred, who received the money, whether an official fee schedule supports the amount, and what happened to the shipment after payment.

This also exposed the limits of onboarding due diligence. Screening a broker and obtaining an anti-corruption certification are only the beginning. Effective third-party management connects onboarding to invoices, transaction monitoring, business outcomes, periodic review, audit rights, and termination decisions.

b.    Cartel Risk Expanded the Compliance Perimeter

The Press Release stated that a portion of the bribe payments ultimately benefited individuals associated with a cartel operating at the U.S.-Mexico border, although the DOJ said Scoular Company and its employees did not know of that connection.

In an episode of the FCPA Compliance Report,  Matt Ellis discussed a broader question. Traditional anti-corruption diligence focuses on government-facing intermediaries, ownership, political exposure, adverse media, and government relationships. Organized-crime connections may not appear in a corporate registry or screening database.

The lesson was not that every cross-border transaction benefits a cartel. It was that companies must understand the environment in which their money, goods, and third parties move. Customs brokers, trucking companies, warehouses, security providers, labor contractors, and subcontractors can create overlapping corruption, money-laundering, sanctions, trade, security, and organized-crime risks.

c.     WhatsApp Was Part of the Control Environment

The Press Release series also examined WhatsApp and other communications used to discuss shipments and payments. The critical point was not that employees selected an unapproved application. It was that the substantive business decision could occur in a private message while the formal system recorded only the resulting invoice. Ellis emphasized that enforcement priorities may change, but evidence does not. A WhatsApp message can establish knowledge, authorization, concealment, or control circumvention even without a standalone off-channel communications charge.

A defensible program must identify the applications employees actually use, define which business activities may occur there, preserve relevant records, address local privacy and employment law, and enforce violations consistently. The company must also be able to connect communications with payment records, inspection results, shipment identifiers, approval logs, and bank data.

Facilitation Payments Did Not Fit the Facts

The Press Release series then addressed why the payments were not protected as facilitating payments. The FCPA exception is narrow. It may cover a payment intended to expedite a routine, nondiscretionary governmental act that the company is already entitled to receive. Scheduling an inspection may be routine. Paying an official to disregard a failed inspection is not. The alleged Scoular payments did not change timing. They changed the outcome and enabled shipments to cross despite findings of dirt, soil, and other impurities.

Amount, urgency, local custom, invoice wording, and use of a third party do not create the exception. Nor does the exception authorize a false accounting entry. A company that permits facilitating payments must still confront local law, accurate books and records, approval controls, and the practical difficulty of asking employees to make a narrow legal distinction under commercial pressure.

II.   Lessons From the DPA and Admitted Facts

a.     The DPA Showed How the Scheme Became Normal

The DPA blog post series began by distinguishing allegations in the Press Release from facts Scoular Company admitted. The Statement of Facts showed that stricter Mexican inspections created operational pressure (IE., more or new/different risks) in 2013. A broker proposed a fee on every train and promised that Scoular Company would “not have a single risk of adverse determinations.” The proposal was discussed at Scoular Company’s Kansas office and then replicated through additional brokers and border crossings.

The communications removed ambiguity. Employees discussed soil findings, special payments, trains released after inspections, and situations in which “normal procedures are not working.” By 2018, a communication referred to offering officials more than was normally given. These facts showed normalization. The scheme was not simply a broker’s unauthorized act. It became a repeatable process linking operational pressure, management knowledge, third parties, communications, invoices, approvals, and favorable business outcomes.

b.    Stopping the Conduct Was Not Self-Disclosure

The DPA disclosed that internal reports emerged in 2019 and Scoular Company changed its practices and ended direct engagement with the brokers. Yet the company did not receive voluntary self-disclosure credit because it did not voluntarily and timely report the conduct. The DPA does not reveal the company’s internal debate so that speculation would be inappropriate. It does establish a governance lesson. An internal report starts two clocks: the investigation clock and the disclosure-decision clock. Stopping the conduct is remediation. It is not a substitute for a documented, timely decision about disclosure.

Scoular later received cooperation and remediation credit, including a 25 percent reduction from the bottom of the applicable Sentencing Guidelines range. That outcome demonstrates that missing voluntary-disclosure credit does not make later cooperation irrelevant. It also demonstrates that the two forms of credit are not interchangeable.

c.     Executive Signatures Became the Final Control

The DPA’s attachments translated compliance expectations into personal executive responsibility. They required compliance access to the board, adequate authority and resources, incentives and discipline, third-party business-rationale documentation, verification of services, reasonable compensation, data access, root-cause analysis, and remediation.

They also required two distinct certifications. The CEO and CFO must certify disclosure obligations. The CEO and Chief Legal Officer must certify the truth and completeness of DOJ reports and the design of the anti-corruption compliance program. The certification language references potential exposure under 18 U.S.C. §§ 1001 and 1519 for materially false statements or records.

The signature is therefore not ceremonial. It requires an evidence chain from front-line controls through management testing to board oversight.

d.    Data Analytics Connects Both Series

Vince Walden’s analysis supplied the final detection lesson. No single anomaly proves bribery. The stronger signal is a sequence: an adverse inspection, an unusual recurring broker payment, and a favorable shipment release.

The words “reinspection fee” were searchable. The approximately $2,000 round-dollar amount was testable. The brokers, routes, inspection outcomes, timing, and releases were linkable. Communications could then provide context. Analytics should rank anomalies for human investigation, not declare guilt by algorithm.

This is where internal controls become dynamic. The company should test transaction text, payment amounts, vendor concentration, duplicate descriptions, approval patterns, inspection results, clearance timing, and user access together. Every substantiated alert should improve the next rule, risk model, training decision, and control test.

e.     Compliance Takeaways

  1. Treat the process as the risk unit. Review the third party, payment, message, inspection, route, approval, accounting entry, and business outcome together.
  2. Test substance, not labels. Require evidence of the service performed, the lawful basis for the fee, the recipient, the calculation, and the official result.
  3. Expand third-party risk beyond corruption screening. Integrate organized-crime, sanctions, anti-money-laundering, trade, security, and supply-chain intelligence where the risk profile requires it.
  4. Govern communications as business records. Know which channels employees use, restrict substantive approvals to controlled systems, preserve records, and test retrieval before an investigation.
  5. Create a disclosure decision protocol. Define who evaluates material facts, what information is needed, when senior management and the board are briefed, and how the decision is documented.
  6. Use analytics to connect events. Build monitoring around sequences and outcomes, then route alerts to trained investigators with access to operational, financial, and communications data.
  7. Make certifications evidence-based. Executive signers and boards should demand documented control testing, root-cause analysis, remediation status, and unresolved exceptions before signing.

The final lesson from Scoular Company is that bribery rarely sits in one control. It moves through an operating system. An effective compliance program must see that system, test it continuously, and ensure that the people who oversee it can stand behind the evidence.

Categories
Blog

The Scoular DPA Part 4: The Signature Is the Control – Executive Accountability in the Scoular DPA

The Scoular Company Deferred Prosecution Agreement (DPA) ends where every effective compliance program should begin: accountability. The agreement does not leave anti-corruption compliance solely with the Chief Compliance Officer, legal department, or internal audit. It assigns responsibilities throughout the enterprise, then requires senior executives to certify that the company has met its disclosure and compliance obligations.

The CEO signs twice. The Chief Financial Officer signs the disclosure certification. The Chief Legal Officer signs the compliance certification. Each certification is expressly treated as a material statement and representation for purposes of 18 U.S.C. Sections 1001 and 1519. A compliance program is not effective because someone owns it. It is effective when executives can reasonably rely on tested evidence and personally stand behind the result.

Attachment C Creates an Accountability System

Attachment C contains the minimum elements Scoular must maintain in its anti-corruption compliance program. Read separately, they look familiar: risk assessment, policies, training, reporting, investigations, incentives, discipline, third-party management, testing, data access, and remediation. Read together, they create an accountability system.

Directors and senior management must provide strong, explicit, and visible support through actions and words. Middle management must reinforce that commitment in day-to-day operations. One or more senior corporate executives must oversee the anti-corruption program and have authority to report directly to internal audit, the board, or an appropriate board committee.

Those officials must also have adequate autonomy from management and sufficient resources, authority, and senior leadership support. This is more demanding than tone at the top. It asks whether compliance can challenge the business, reach the board, obtain data, investigate allegations, and require remediation when commercial pressure is greatest.

In the DPA, the admitted conduct involved customs brokers, failed inspections, disguised invoices, communications, and recurring business benefits. An empowered compliance function must connect those facts across organizational boundaries. Formal reporting access means little if the function lacks the people, technology, information, or standing to do that work.

Compensation and Discipline Make Culture Measurable

Attachment C requires compliance criteria in compensation and bonus systems. It also requires disciplinary procedures to be applied consistently and fairly, regardless of an individual’s position or perceived importance. Those provisions address the incentives that can turn a workaround into an operating model.

If a logistics team is rewarded only for delivery speed, it may treat a delayed train as failure. If a senior manager receives credit for avoiding demurrage but no consequence for bypassing controls, the company has placed its real values inside the compensation plan. Training cannot overcome incentives that point in the opposite direction.

Scoular must therefore do more than add a generic compliance factor to an annual review. It should define the behaviors that affect compensation, document how compliance input changes an award, and test whether consequences are applied upward as well as downward. The board should examine outcomes. Who lost compensation? Who received recognition for escalating a concern? Were supervisors assessed for misconduct they tolerated or failed to detect? Did seniority affect the consequence? Culture becomes credible when employees can see that ethical conduct affects careers, compensation, and promotion.

Third-Party Accountability Requires Proof of Work

The bribery scheme operated through customs brokers. Attachment C responds directly to that risk. Scoular Company must document the business rationale for using a third party, assess reputation and foreign-official relationships, describe services specifically in the contract, confirm that the work was actually performed, and determine whether compensation is reasonable for the industry and geography. Ongoing monitoring may include updated due diligence, training, audits, and annual certifications. This is an operating control, not a procurement checklist.

An approved broker, executed contract, and completed screening report do not establish that a reinspection occurred or that a payment was legitimate. The business owner must be accountable for the service, finance must validate the invoice, compliance must assess red flags, and internal audit must test whether the control works. The central question is not whether the broker passed onboarding. It is whether the company knows what the broker did with its money.

Data Access Connects Oversight to Evidence

Attachment C requires compliance and control personnel to have sufficient direct or indirect access to relevant data for timely and effective transaction monitoring and testing. It also requires root-cause analysis of misconduct and the sharing of systemic issues, control failures, and remediation with management as appropriate. That obligation connects the program to the certifications.

Executives cannot make a defensible representation about program effectiveness if compliance cannot obtain accounts-payable data, broker records, shipment information, inspection results, communications, investigation files, and audit findings. The company cannot certify complete disclosure if allegations remain fragmented across the hotline, internal audit, legal, due diligence, and business systems. Data access is therefore an accountability issue. It determines whether management can see the whole risk picture before signing.

Two Certifications, Two Different Questions

The DPA requires two certifications at the end of its term.

The CEO and CFO Certify Disclosure

Attachment E requires the CEO and CFO to certify that Scoular has disclosed any evidence or allegations required by the DPA, including qualifying FCPA or Foreign Extortion Prevention Act matters involving employees or agents.

The form expressly reaches information identified through the compliance and controls program, whistleblower channel, internal audit reports, due diligence, investigations, or other processes.

The CFO’s inclusion is significant. Disclosure is not treated as a legal department judgment alone. The certification requires an enterprise process capable of gathering information from finance, controls, audit, compliance, investigations, and the business.

Before signing, the CEO and CFO should know what allegations were received, how they were triaged, which matters were investigated, what remains open, and how the company determined whether each matter was reportable.

The CEO and CLO Certify the Program

Attachment F requires the CEO and Chief Legal Officer to certify that Scoular’s DOJ reports are “true, accurate, and complete.” They must also certify, based on their review and understanding, that the company has implemented a program meeting Attachment C and that the program is reasonably designed to detect and prevent anti-corruption violations throughout Scoular’s operations. That is not a promise that misconduct will never occur. No compliance program can guarantee that result.

It is a representation about design, implementation, coverage, and the quality of the reports submitted to the government. The signatories therefore need evidence that the program operates across the enterprise, including in high-risk markets and functions. The CCO may build and test much of that evidence, but the CCO does not sign Attachment F. The DPA places the final representation with the CEO and CLO.

Sections 1001 and 1519 Change the Sign-Off Process

Both certification forms state that they constitute material statements and representations for purposes of Section 1001 and records or documents for purposes of Section 1519. That language should create rigor, not panic. It does not mean an executive should refuse to sign because testing found exceptions. A credible program should find weaknesses. The question is whether the certification and supporting reports accurately describe the program, testing, findings, remediation, and remaining limitations.

The greater risk is a ceremonial sign-off supported by filtered information, unresolved contradictions, narrow testing, or undocumented assumptions. Scoular Company should treat certification as a process rather than an event. That process should include:

  1. A written certification standard tied to each representation in Attachments E and F;
  2. Sub-certifications from the leaders who own finance, compliance, legal, internal audit, investigations, human resources, procurement, and high-risk operations;
  3. A complete inventory of allegations, investigations, audit issues, control exceptions, remediation items, and DOJ commitments;
  4. Independent challenge of management’s evidence and closure decisions;
  5. Documented treatment of qualifications, unresolved matters, and contrary evidence; and
  6. Audit committee review before the executives sign.

Sub-certifications should support executive diligence without diluting executive responsibility. The purpose is to create a reliable chain of evidence from the operational control to the final signature.

The Board Must Oversee the Evidence

The board does not sign Attachments E or F. Its oversight role is nevertheless central. The board authorized the DPA, and Attachment C gives the anti-corruption function access to the board or an appropriate committee. The board should use that access to test whether management’s certification process is credible.

Directors should not ask only whether the company is on schedule. They should ask what evidence could prevent a certification, which findings remain open, whether management has limited the scope of testing, and whether compliance, legal, finance, and internal audit agree on the facts. This is also a Caremark-style oversight lesson. Board-level information systems must bring significant compliance risks and red flags to directors, particularly during a formal government resolution. A dashboard should not replace discussion of disputed findings, repeat issues, overdue remediation, or business resistance.

Is It Real or Is It Memorex

I acknowledge there is a contrary view of this which comes to us from my Compliance into the Weeds co-host, Matt Kelly. In a blog post entitled Scoular DPA Unveiled, Doesn’t Help, he questions why the company CCO is not required to certify the DPA. It could be, as Kelly writes, that “an agriculture supply business with 1,250 employees and $7.3 billion in revenue — even has a chief compliance officer; maybe it doesn’t, and the chief legal office also holds the CCO role.” He goes on to write, “Then again, if a company’s chief legal officer pulls double duty as the chief compliance officer too, and that’s why he or she is signing the certification — doesn’t that whole arrangement run contrary to the spirit of what the Justice Department wants to see for an empowered and autonomous compliance function?” He concludes by asking, “But if we’re now letting companies sign prosecution agreements where they commit to a strong, independent, empowered compliance function, except for the part that you don’t even have an actual chief compliance officer — then what are we even doing here, people?” [Emphasis supplied]

The Scoular Company website lists the Chief Legal Officer as Tim Manning, whose duties include leading “ Scoular’s legal team and serves as principal advisor on legal, risk, compliance, governance, and other matters to Scoular’s Senior Leadership Team and Board of Directors. He also has oversight of Scoular’s real estate function.” It appears the CCO and GC functions are wrapped into one person’s job description.

The Bottom Line on Accountability

We began this week’s blog post series with the admitted facts from the DPA: a payment process designed to prevent adverse customs decisions. It then examined the missed voluntary-disclosure window and a deep dive into how the use of data analytics and internal controls could have caught the FCPA violation. Today we end with the signatures. Scoular Company’s DPA demonstrates that executive accountability is not an abstract statement about culture. It is built through access, resources, incentives, discipline, third-party controls, data, testing, root-cause analysis, and complete reporting. The signature is not the beginning of accountability. It is the final confirmation that accountability has operated throughout the company, at least during the term of the DPA.

Categories
Blog

The Scoular DPA: Part 1 – From Suelo to the Bribery System at Scoular

My earlier analysis of The Scoular Company FCPA enforcement action necessarily relied on the Department of Justice Press Release. That release described the government’s allegations. The formal Deferred Prosecution Agreement (DPA) expands the footing of the discussion. We are no longer working only from a prosecutor’s summary. We now have a detailed chronology of facts the company formally admitted.

Those facts reveal a scheme connecting stricter Mexican inspections, commercial pressure, employees, multiple customs brokers, a meeting at a company office, invoices, wire payments, WhatsApp, and millions in avoided costs. The central compliance lesson is normalization. A corrupt proposal became a repeatable business process. Over the next four blog posts, I will be taking a deep dive into the DPA, what it tells us, and what we must speculate on.

The Scheme Began With a Change in Enforcement

Scoular transported corn and other agricultural products from the United States into Mexico. Those trains were inspected by Mexico’s Secretariat of Agriculture and Rural Development, referred to in the DPA by its former name, SAGARPA.

Inspectors looked for dirt, soil, and other impurities, sometimes described as “suelo.” SAGARPA approval was required before a train could enter Mexico. When inspectors detected suelo, the agency could delay entry, and the shipment could incur fumigation and demurrage costs.

Beginning around 2013, Mexican authorities conducted the inspections more rigorously. The result was more soil findings in Scoular shipments and greater exposure to delay, fumigation, and demurrage. This legitimate business problem called for better product controls and contingency planning. It also created pressure that made a corrupt alternative attractive.

Compliance failures often begin here. Regulation becomes more rigorous, costs increase, and delivery commitments are threatened. The governance question is whether management improves the process or finds a way around the control. This demonstrates why a continuous risk assessment is so critical; when your risks change, you need to perform an updated risk assessment.

The Proposal Was a Guarantee Against Adverse Decisions

In June 2013, customs broker Carlos Leopoldo Alvelais contacted a Scoular sales employee and a Scoular senior manager. According to the DPA, he proposed a procedure under which Scoular would pay a fee on every train. The purpose was not ambiguous. The proposal was designed to ensure that Scoular would “not have a single risk of adverse determinations from Mexican inspectors.” That sentence captures the scheme.

A legitimate broker can prepare documents, coordinate an inspection, and challenge an incorrect result. It cannot guarantee that a regulated company will never receive an adverse decision. A promise of zero regulatory failure should be treated as a red flag, not a service level. James Min made this clear with his risk matrix for assessing risk in customs broker clearance rates. If a customs broker offers you a 100% success rate – to quote Monty Python from The Holy Grail: Run Away Run Away, do not walk away.

The DPA says that, later in June 2013, Alvelais traveled to Scoular’s Kansas office and met with Scoular employees and others. After that meeting, he began paying bribes to Mexican officials and invoicing Scoular for reimbursement. The invoices described the payments as “REVISION SAGARPA PROCESS” (Reinspection Fees herein), generally in round amounts of $2,000.

The Kansas meeting is a significant new fact. The arrangement was not confined to an informal exchange between a local employee and a broker at a remote border crossing. The broker presented the approach at a company office. After the meeting, the payments began. This speaks to a serious failure in an overall compliance program: failure in communication, failure in training, failure in risk assessments, failure in internal controls, and failure in overall compliance visibility into the business operations of an organization it is supposed to keep in compliance.

At a minimum, when a high-risk third party visits a company office to propose a government-facing payment process, the arrangement should require a documented business rationale, legal and compliance review, a payment protocol, and supporting evidence. Without those controls, the meeting can move misconduct into the company’s operating structure. This basic failure led to catastrophe for Scoular Company.

The Payment Process Was Replicated

The DPA places a sales employee and a senior manager who worked on international grain sales and shipments at the center of the conduct. They authorized reimbursement of Reinspection Fees to Alvelais and his companies while knowing that at least part of the money would be used to bribe Mexican border officials. The objective was to ensure that Scoular trains passed inspection without the fumigation, demurrage, and other costs associated with soil findings and failed inspections.

But it got worse from there. Scoular then replicated the approach with two other customs brokers. That replication is critical. This was not simply a broker corrupting a customer. Company personnel took a method used with one broker and extended it to additional agents. The model followed the business.

The DPA describes cash payments of up to $2,000 per train. Scoular employees and agents coordinated the scheme through email, messaging applications, and other communications. Invoices were transmitted, and Scoular caused payments to be made by wire. The scheme therefore had all the components of a functioning process:

  • A recurring commercial problem
  • A third-party payment mechanism
  • Employee knowledge and authorization
  • Multiple participating brokers
  • Standard invoice descriptions
  • Company reimbursement
  • Off-channel and conventional communications
  • A measurable business benefit

Each component could look ordinary when reviewed separately. Together, they formed the bribery scheme.

The Communications Made the Purpose Clear

The admitted communications are especially instructive because they connect payment, knowledge, and outcome. In August 2015, an Alvelais employee informed a Scoular employee that inspectors had detected soil in a train. The train was nevertheless released without delay, and the account would include a $2,000 charge. In October 2015, a Scoular employee sent a WhatsApp message to the senior manager stating that Alvelais would provide a favorable rate and guarantee that no train headed to a particular buyer would be stopped for soil. Another October 2015 communication listed “Dispatch of merchandise in the presence of soil” at $2,000 per shipment.

Later that month, a Scoular employee reported that the broker was doing everything possible to move a shipment, but an inspector’s supervisors were in town and “normal procedures” were not working. By 2018, the language was even more direct. During an exchange concerning pests detected in a shipment, an Alvelais employee wrote that the broker had offered more than it normally gave and the officials had not accepted it. A Scoular employee responded by asking why the broker was requesting double if the issue was fixed for soil.

These communications defeat any claim that employees believed they were paying published government fees. They describe adverse findings, guarantees against stopped trains, and payments beyond ordinary amounts. No single record tells the complete story. The invoice supplies the accounting description, the message supplies intent, the inspection record supplies the regulatory event, and the release time supplies the outcome. Investigations and monitoring must connect all four.

The Scheme Continued Into 2019

The DPA identifies three invoices from 2019:

  • A $3,000 “SAGARPA process” fee from an Alvelais company
  • A $1,750 “Other Inspection” fee from a second customs broker
  • A 35,000 Mexican peso “SERVICIOS DE SAGAR” fee, approximately $1,835, from a third customs broker

Scoular promptly paid each invoice.

The changing descriptions are a lesson in internal control design. A monitoring rule limited to “reinspection fee” would have missed “SAGARPA process,” “Other Inspection,” and “SERVICIOS DE SAGAR.” Compliance analytics must identify families of risk, not merely exact words.

The DPA says that internal reports alleging improper business practices connected to the SAGARPA fees arose in 2019. Scoular then changed its practices for grain shipments into Mexico and terminated direct engagement with the customs brokers involved.

That response ended the factual chronology, but it opens the next compliance question: what happened between the internal reports and the DOJ resolution, and why did Scoular receive no voluntary self-disclosure credit? That will be the focus of Part 2.

The Economics Show Why the Scheme Endured

Between approximately 2015 and 2019, Scoular authorized $414,351 in bribes to bypass inspections and secure unhindered passage into Mexico. The company avoided approximately $6,513,014 in demurrage and related costs. That is more than $15 in avoided costs for every dollar paid in bribes.

The ratio does not excuse the conduct. It explains the incentive that allowed it to become embedded. A $2,000 charge could appear small against the cost of a delayed train, while the accumulated benefit rewarded the business process that produced the misconduct. This is why compliance cannot evaluate customs payments only by individual transaction value. The relevant indicators include frequency, round amounts, timing, inspection outcome, avoided cost, broker success rate, and management awareness.

The Compliance Failure Was Normalized

The Scoular Statement of Facts shows how misconduct can become ordinary:

  • External enforcement became more rigorous.
  • The business faced higher costs and delays.
  • A broker proposed a fee-based solution.
  • The broker met with employees at a company office, and payments followed.
  • Brokers paid officials and invoiced Scoular.
  • Employees authorized reimbursement.
  • The approach expanded to other brokers.
  • Messages and invoices developed a shared vocabulary.
  • The business received predictable passage and high avoided costs.
  • The process continued until internal reports surfaced.

The DPA does not describe a control that failed once. It describes an alternative control environment that operated for years.

The DPA sharpens the Scoular lesson. The scheme was not simply a series of border bribes. It was a business process built to eliminate the risk of adverse government decisions. When a third party offers that result, compliance should assume the risk has not disappeared. It has merely been transferred into a payment, an invoice, and a promise that deserves immediate scrutiny.

Join us tomorrow, where we take a deep dive into the Scoular Company’s failure to self-disclose and the long-term ramifications.

Categories
Compliance Into the Weeds

Compliance into the Weeds: Scoular Company FCPA Settlement: Cartel Links, Border Trade Risks, and Compliance Lessons

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 it more fully. Looking for some hard-hitting insights on compliance? Look no further than Compliance into the Weeds! In this episode of Compliance into the Weeds, Tom Fox and Matt Kelly discuss the recent FCPA resolution with the Scoular Company. Both Tom and Matt have blogged on this matter, so check out the Resources link below for additional discussions.

The recent FCPA enforcement action against Scoular Company involved a $10.2 million payment and a three-year deferred prosecution agreement over bribes by third-party customs brokers to Mexican border officials to expedite cross-border shipments. DOJ emphasized alleged cartel connections, including a strong statement from the U.S. Attorney for the Western District of Texas, which raised questions about expanded local U.S. attorney involvement and how cartel or potential FTO designations could heighten trade and compliance risks. The company received no voluntary self-disclosure credit but got a 25% discount, with remediation cited (including dropping brokers and strengthening tone at the top). They highlight off-channel WhatsApp use, the lack of released key documents (DPA, statement of facts, criminal information), and practical compliance takeaways on third-party oversight, data analytics, and risk assessments.

Resources:

Matt in Radical Compliance

Tom in FCPA Compliance and Ethics Blog

Tom

Instagram

Facebook

YouTube

Twitter

LinkedIn

A multi-award-winning podcast, Compliance into the Weeds was most recently honored as one of the Top 25 Regulatory Compliance Podcasts, a Top 10 Business Law Podcast, and a Top 12 Risk Management Podcast. Compliance into the Weeds has been conferred the Davey, Communicator, and W3 Awards, all for podcast excellence.

Categories
Compliance Into the Weeds

Compliance into the Weeds: Navigating DOJ’s Evolving Self-Disclosure Strategies

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 the subject more fully. Looking for some hard-hitting insights on compliance? Look no further than Compliance into the Weeds! In this episode of Compliance into the Weeds, Tom Fox and Matt Kelly discuss a recent Law360 post by Hui Chen on the evolving calculus for self-disclosure.

Hui Chen’s insights into the Department of Justice’s (DOJ) evolving self-disclosure strategies are crucial for companies navigating the complexities of compliance in today’s uncertain regulatory environment. As a former DOJ compliance counsel and a Microsoft compliance officer, Chen emphasizes the challenges posed by a politicized, understaffed DOJ, urging companies to reassess their compliance programs amid shifting enforcement dynamics. Tom and Matt echo Chen’s concerns regarding the DOJ’s current state. Tom, acknowledging Chen’s expertise, highlights the impact of the department’s politicization and understaffing on the effectiveness of compliance efforts, while Matt underscores the importance of proactive self-disclosure despite uncertainties, stressing the potential risks of inaction under the current administration. Both agree that the fractured nature of the DOJ requires a reevaluation of traditional compliance and self-disclosure strategies.

Key highlights:

  • Navigating DOJ Self-Disclosure Strategies with Wei Chen
  • Justice Department’s Impact on Corporate Prosecutions
  • Mitigating Criminal Violations through Self-Disclosure
  • Benefits of Self-Disclosure in Corporate Enforcement

Resources:

Hui Chen on Law360 (sub req’d)

Tom

Instagram

Facebook

YouTube

Twitter

LinkedIn

A multi-award-winning podcast, Compliance into the Weeds was most recently honored as one of the Top 25 Regulatory Compliance Podcasts, a Top 10 Business Law Podcast, and a Top 12 Risk Management Podcast. Compliance into the Weeds has been conferred a Davey, a Communicator Award, and a W3 Award, all for podcast excellence.

Categories
Daily Compliance News

Daily Compliance News: June 27, 2025, The ABB Gets Out of DPA 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 in 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, and general interest, all of which are relevant to the compliance professional.

Top compliance stories:

  • Is it a lawsuit settlement or a bribe? (WSJ)
  • Staley ban upheld by British court. (FT)
  • Data and shareholder capitalism. (Bloomberg)
  • ABB was released from its DPA early. (Lexology)
Categories
Blog

The Boeing 737 Max Imbroglio: Part 1 – The DOJ Ditches Transparency

In recent weeks, the spotlight has again intensified on The Boeing Company, following a provocative motion filed by families of victims from the tragic 737 Max crashes. They have petitioned a Texas federal judge to appoint a special prosecutor in Boeing’s criminal conspiracy case, arguing fervently against the Department of Justice’s recent Non-Prosecution Agreement (NPA) with Boeing. At stake is not merely corporate accountability but, fundamentally, the integrity of our justice system itself. Today, I begin a two-part look at the current set of issues raised in the DOJ capitulation to Boeing, its ignoring of the families of the crash victims, and its complete lack of holding Boeing accountable beyond financial penalties.

The victims’ families and the general flying public represent crucial stakeholders who deserve answers, accountability, and assurances of safety. Disturbingly, the DOJ’s actions appear dismissive of these stakeholders. This lack of consideration significantly undermines public confidence in Boeing and the effectiveness of regulatory enforcement.

The victims’ families seek accountability, including criminal charges for executives, strict compliance oversight, and transparency to prevent future disasters.  Instead, they have received a diminished settlement and an opaque independent consultant, leaving them rightly skeptical and outraged, all of which occurred without any meaningful consultation with the DOJ. At its core, the families argue, the DOJ’s latest move sets a hazardous precedent, allowing corporations essentially to circumvent accountability through financial settlements and carefully crafted agreements.

The current controversy revolves around the DOJ’s decision to dismiss a conspiracy charge under the conditions outlined in the $1.1 billion NPA. This agreement, critics assert, permits Boeing to effectively “buy its way out of a criminal conviction,” marking a disturbing shift in how corporate criminal cases might be handled going forward.

The families’ legal representatives have raised compelling arguments about why the NPA represents a perilous deviation from standard judicial procedures. Specifically, their motion asserts that the NPA dangerously erodes the separation of powers by attempting to bypass the judicial review requirement mandated by the Federal Rule of Criminal Procedure 48(a). Such maneuvering, the families contend, could become a worrying precedent that effectively creates a new branch of governmental power, immune to the checks and balances essential to American governance.

Moreover, this case highlights critical issues surrounding the Crime Victims’ Rights Act (CVRA), legislation designed to ensure victims and their families are treated fairly throughout judicial proceedings. The families argue passionately that the NPA, in its current form, diminishes their statutory rights and sidesteps meaningful accountability, thus undermining the broader principles of justice.

Equally concerning is Boeing’s historical engagement with DOJ agreements. Initially, under a Deferred Prosecution Agreement (DPA) brokered in 2021, Boeing pledged reforms and accepted specific responsibilities. However, a disturbing mid-air incident involving a Boeing 737 Max 9 jet in January 2024 revealed serious safety oversights and compliance deficiencies, prompting the DOJ to reexamine Boeing’s commitments. Boeing’s readiness to plead guilty evaporated swiftly when the political landscape appeared favorable, a clear indication, families argue, that the aerospace giant’s commitments were strategic rather than genuine.

This raises fundamental questions about corporate culture, accountability, and oversight. Compliance professionals everywhere must consider: What mechanisms truly ensure meaningful corporate reform? Can performative contrition substitute for authentic, monitored change?

Under the revised NPA, Boeing has agreed to pay significant fines and allocate funds to victim compensation and program enhancements for compliance. Yet notably absent from this agreement is any oversight mechanism akin to the independent compliance monitor stipulated in previous arrangements. Instead, Boeing must merely retain an independent compliance consultant, a far softer requirement and one that has rightly alarmed observers concerned with genuine reform.

From a compliance standpoint, the removal of the independent monitor provision is a clear red flag. Monitors are essential to verifying that changes implemented within a corporation are genuine, sustained, and effective. By settling for a consultant rather than an empowered, independent monitor, the DOJ is creating an environment that is ripe for surface-level reforms that fail to address deeply rooted, systemic issues.

This scenario underscores a crucial lesson for corporate compliance professionals: genuine compliance reforms cannot rely solely on internal assurances or perfunctory oversight. Rigorous external verification mechanisms are essential to ensuring that compliance efforts are meaningful, impactful, and sustained over the long term. The bottom line is that transparency is the key, and this DOJ has completely deleted any Boeing requirement for transparency in its remediation process.

Furthermore, this case illustrates the importance of judicial independence and the robust application of oversight principles. Without vigilant oversight, corporations could increasingly perceive settlements as mere financial calculations rather than genuine opportunities to recalibrate organizational ethics and compliance cultures. Compliance professionals must advocate for and implement frameworks that prioritize meaningful oversight and genuine reform.

As compliance leaders, we must recognize the far-reaching implications of the Boeing case. This case serves as a stark reminder that true corporate reform cannot be bought—it must be earned through demonstrable, monitored change. Regulators and justice departments globally must hold corporations accountable not just financially but also operationally and culturally.

The demand by the victims’ families for a special prosecutor highlights a crucial juncture. Will we endorse a system where accountability is negotiable and oversight diluted? Or will we reaffirm the essential tenets of justice, ensuring robust judicial review, stringent oversight of compliance, and genuine corporate reform?

Boeing’s future actions, closely scrutinized, will reflect its genuine commitment to change. Compliance professionals, corporate leaders, and regulators alike must take heed—reform without rigorous oversight is merely an empty promise. The integrity of corporate compliance demands far more.

Ultimately, the Boeing case offers a powerful lesson: the pursuit of meaningful corporate compliance and ethical integrity requires more than financial penalties; it demands transparency, accountability, and true oversight. For corporations, anything less risks not only reputational harm but also the profound erosion of public trust, which is essential to long-term sustainability.

Tomorrow, we will explore a court-imposed solution to this imbroglio.

Categories
Everything Compliance

Everything Compliance: Episode 153, The CW 25 Edition

Welcome to this edition of the award-winning Everything Compliance. In this episode, the quartet of Matt Kelly, Jonathan Armstrong, Karen Moore, and Karen Woody is hosted by Tom Fox, the Compliance Evangelist.

  1. Karen Moore looks at state, international, and private prosecutions of various ABC laws. She rants at the Department of Education for setting up a 1984-style anonymous reporting line for students to report on their teachers.
  2. Matt Kelly reviews the Glencore DPA record. He has a shout-out to Microsoft for picking up Jenner & Block as counsel and rants about the GOP effort to abolish the PCAOB.
  3. Jonathan Armstrong reviews changes at the UK SFO. He shouts out to the compliance community for their support of Diana Trevley and encourages her continuing recovery now that she is back in the US.
  4. Karen Woody considers tariffs as a new source for FCA claims and shouts out to the movie Conclave.
  5. Tom Fox shouts out to former San Antonio Spurs coach Gregg Popovich, who announced his retirement on May 1.

The members of Everything Compliance are:

Tom Fox, the Voice of Compliance, is the host, producer, and sometimes panelist of Everything Compliance. He can be reached at tfox@tfoxlaw.com. The award-winning Everything Compliance is part of the Compliance Podcast Network.

Categories
10 For 10

10 For 10: Top Compliance Stories For the Week Ending December 7, 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 you the compliance professional and the compliance stories you need to know to end your busy week. Sit back, and in 10 minutes, hear the stories every compliance professional should know from the prior week. Every Saturday, 10 For 10 highlights the most important news, insights, and analysis for the compliance professional, 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.

  • McKinsey agrees to FCPA settlement for corruption in South Africa. (DOJ Press Release)
  • Judge rejects DOJ/Boeing settlement.  (WSJ)
  • Defense in Trafigura case can’t knock out star prosecution witness. (FT)
  • Was it corruption or a smart (or dumb) business deal? (TNR)
  • Tesla lost the case on the 2nd Musk pay package. (WSJ)
  • Was it fraud or worse? (NYT)
  • Paul Atkins was selected to head SEC. (FT)
  • Trump-appointed Texas judge enjoins CTA nationally. (Bloomberg)
  • OIG looks to hold nursing care execs responsible. (McKnight’s Long-Term Care News)
  • Buying/Selling homes and compliance.  (Mortgage News Daily)

For more information on the Ethico Toolkit for Middle Managers, available at no charge, click here.

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

Check out the entire 3-book series, The Compliance Kids, on Amazon.com.

Connect with Tom 

Instagram

Facebook

YouTube

Twitter

LinkedIn

Categories
Blog

The Boeing Monitorship: Memo to Attorney General Garland and Kelly Ortberg

To: Attorney General Merrick Garland and Boeing CEO Robert ‘Kelly’ Ortberg

From: Tom Fox

Re: The Boeing Monitorship

===============================================================

Gentlemen

I have written blog posts and articles about the proposed Plea Agreement negotiated between Boeing and the Department of Justice (DOJ). As the leaders of both organizations, I wanted to address you both directly.

To General Garland, this is the most important monitorship in the history of the DOJ.

To CEO, Ortberg-Boeing has to turn around its culture completely.

To both of you, business as usual will not suffice.

The DOJ must start with full transparency in the process, for sunshine in the light of day is always the best disinfectant. There must be full transparency in the selection process and the oversight of the Monitorship itself, with a party outside the DOJ and Boeing overseeing this process. In other words, it cannot simply be a process where the DOJ decides who will be the monitor, tells the court its selection, and then the DOJ goes off to oversee the process and, in three years, tells us whether Boeing has met the terms of the Monitorship.

First, completing the Plea Agreement by fulfilling the terms laid out must be a condition of the Probation, which the Court must approve. Second, this process must be overseen by the District Court. The Monitor should report to the Court or a court-appointed Special Master to determine whether Boeing has met the requirement to “create and foster a culture of ethics and compliance with the law in its day-to-day operations.” Both parties must realize that Boeing’s culture is broken and must be fixed. This is beyond policies and procedures and a best practices compliance program. This is fixing Boeing’s DNA.

The DOJ recognized that it is more than compliance at Boeing, which is broken; it starts with culture and moves to safety, QA/QC, and even down to record and document keeping. It is far beyond the current mandate of the Plea Agreement, which states that the Monitor should test “the effectiveness of the Company’s compliance program and internal controls, record-keeping, policies, and procedures as they relate to the Company’s current and ongoing compliance with U.S. fraud laws.”

At least this is a decent start, but there are so many other areas that Boeing, the DOJ, and the Monitor must fix. I urged the DOJ to ‘Think Big’ about this monitorship. It concerns not only fraud and record keeping but also culture, safety, QA/QC, compliance, Speak Up and Listen Up, Supply Chain, fraud, Export Control, Sanctions, and a wide variety of other areas not addressed in the Plea Agreement.

Put all of that responsibility on the Monitor but make sure the Monitor has the resources to oversee this work for all of the stakeholders involved: Boeing, its shareholders, the victims’ families, employees, third parties, the U.S. government, Boeing’s customers and the U.S. and global flying public. It all starts at the top of the organization. The Monitor must not simply assess the Board of Directors and senior management’s commitment to and effective implementation of the corporate compliance program “as necessary to address and reduce the risk of any recurrence of the Company’s misconduct”; both the Board and senior management must lead this effort by example.

Finally, the DOJ must get this right. Everyone knows the DOJ’s failures from the 2008 financial crisis to prosecute any bank meaningfully. The phrase ‘too big to fail’ has entered the Lexicon as a byword for corporate malfeasance that gets off with ZERO consequences. This matter is much more important than those banks. It concerns the U.S.’s flagship airline manufacturer and whether it can be turned around through government oversight. If the DOJ does not get this Monitorship right, it will demonstrate once and for a time the failure of this program as a tool to fix a broken business that violates the law multiple times.

But this is not all on the backs of the DOJ or the Monitor. Boeing has an equally key role in this Monitorship. That is why the role of the new CEO is so important. Kelly Ortberg must fully embrace this monitorship and all it will entail to the company as the last and best way to turn it around. He comes from but is outside the organization, so he is not tainted with the company’s prior cultural miasma. Further, he comes from a former supplier to Boeing, Rockwell International. This means he knows the business, and he knows Boeing.

His main focus will be to turn around the company’s manufacturing side and create a culture where employees have enough trust in their employer to raise their hands and speak up when they see something wrong. They also know that the company will not harass or terminate them for doing so. In short, he must set the correct cultural tone and go into the weeds to fix how the company builds planes.

This focus requires Ortberg to fully embrace the Monitorship and a Monitor selected with full transparency and oversight by the Court. Ortberg should welcome the opportunity to turn Boeing around literally with all the help he can garner, not do as his predecessors did with so much opaqueness, where they clearly did not accept their responsibility to fix the company’s broken culture.

Finally, Ortberg must reach out to the victims’ families of the two 737 MAX crashes and listen to their concerns. The victims’ families’ interests are aligned with Boeing on one key point: They do not want any family to go through what they had to go through. Ortberg’s meeting with and listening to the victims’ families can go a long way toward their healing.

Boeing is a key component in U.S. national security. Boeing provides advanced missile defense systems, including the Ground-based Midcourse Defense (GMD) system, which protects the United States from ballistic missile attacks. The company also offers solutions for tracking and monitoring space objects, which is vital for maintaining the safety and security of space operations. Boeing is also involved in the Internal Space Station (ISS), orbital test vehicles, and deep space exploration.

In short, no single institution is as important to the U.S. in manufacturing as Boeing. Nearly 200 million Americans who fly in Boeing planes depend on Boeing to get it right. The U.S. (and the world) economy needs the drive that Boeing provides. The U.S. national security depends on a well-functioning Boeing to lead the technological drive to protect the U.S. for the rest of the 21st century and beyond. Boeing needs to continue its work as one of the leading companies in space exploration. Lastly, and indeed not least, the families of the victims of the two 737 MAX crashes should receive some justice for all they have been through and then seeing Boeing not live up to its agreement in the original DPA or worse for there to be more failures under this Plea Agreement.

So one final plea to General Garland and CEO Ortberg-Get it Right This Time