Tag: FCPA

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Compliance Into the Weeds

Compliance into the Weeds: SDNY’s New Declination Policy: Crime Categories, Cooperation, and Compliance Implications

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 look at the recently announced new Southern District of New York standard for Declinations.

They look at SDNY U.S. Attorney Jay Clayton’s newly released self-disclosure/cooperation/declination policy and its implications for corporate compliance. While the core elements, prompt voluntary disclosure, cooperation, remediation, and restitution, mirror existing DOJ expectations, they highlight a significant change: SDNY now treats “aggravated circumstances” as certain categories of crimes that are categorically ineligible for declinations, including foreign corruption/FCPA, sanctions evasion, terrorism, sex trafficking with minors, smuggling, drug cartels, and forced labor, rather than focusing on offense traits such as senior management involvement or recidivism. They note potential inconsistencies with DOJ’s corporate enforcement approach, uncertainty about disclosure timing despite references to promptness and pre-investigation disclosure, broad discretion in enforcement, and the risk of forum shopping.

Key highlights:

  • Why SDNY Declinations Matter
  • Clayton Policy Key Changes
  • Aggravated Circumstances Redefined
  • FCPA Carve Out Confusion
  • Timing and Disclosure Pressure
  • Cooperation Restitution Disgorgement

Resources:

Matt in Radical Compliance

Tom in the FCPA Compliance and Ethics Blog

Tom

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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.

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Blog

SDNY Just Raised the Stakes on Self-Disclosure: What Compliance Leaders Must Do in the First 14 Days

For years, compliance leaders have worked under a simple reality: if the government learns about a problem from someone else first, you have already lost leverage. The Southern District of New York (SDNY) just sharpened that reality into a clear, public framework. Its Corporate Enforcement and Voluntary Self-Disclosure Program for Financial Crimes, effective February 24, 2026, is not subtle. It is designed to force an earlier decision and reward companies that make it; this means making it fast, transparent, and with meaningful remediation and restitution.

This is not just a fraud prevention or reporting program. It reaches conduct that can show up in any company: accounting games, deceptive disclosures, market-facing misconduct, and the broader universe of financial crime risks that sit adjacent to bribery-and-corruption controls. If you are running a compliance program, you should read this initiative as a warning: even when the underlying misconduct is not charged as “bribery,” the financial-crimes hook is often where prosecutors live. You may think you are managing “corruption risk.” SDNY is telling you it is also “market integrity” and “victim harm” risk.

And SDNY is pairing that message with something rare in enforcement policy: speed. SDNY says qualifying companies “can expect to receive a conditional declination letter within two to three weeks of self-reporting”. That is a flashing sign for CCOs: the window for decision-making just got smaller.

The SDNY is pushing fiduciary duty and stewardship.

Business executives usually talk about self-disclosure as a tactical choice. Compliance professionals have long known better, and now the SDNY frames it as something deeper: governance and duty. The program states that corporate leaders are “fiduciaries” with a “fundamental duty” to ensure integrity and transparency, and it positions voluntary self-disclosure as a core act of good corporate citizenship and stewardship. It will be interesting to see whether this “fundamental duty” to ensure integrity and transparency, and the corporate leaders as ‘fiduciaries’, bring a new level of Caremark scrutiny to Delaware.

That language matters. It is not only prosecutors describing a pathway to leniency. It is prosecutors telling boards and executives what they believe ethical leadership requires when the company discovers misconduct that harms markets, counterparties, customers, or investors. In other words, SDNY is trying to turn self-disclosure into a leadership test.

The Carrot is Real and Designed to Change Behavior

SDNY’s incentives are intentionally strong. If a company meets the program requirements, including timely voluntary self-disclosure, full cooperation, and timely remediation, the SDNY says it will issue a declination and will not prosecute the company. It also states that there will be no criminal fine and that, if the company pays appropriate restitution to victims, SDNY will not require forfeiture. Even more significant for compliance leaders is the following: SDNY says it “generally will not require” an independent compliance monitor for a qualifying company.

Those are meaningful benefits. They are the kind of benefits that can change what a board is willing to authorize in the first two weeks of a crisis. But the benefits only matter if you can move fast enough, gather credible facts, and maintain control of the narrative.

The First 14 Days: what compliance leaders should do now, not later

If SDNY is telling you it can issue a conditional declination letter in “two to three weeks”, then your internal process cannot take three weeks to decide whether you even have a problem. The ethical governance move is to treat the first 14 days as a disciplined sprint, one that protects truth, protects victims, and protects the integrity of your program.

Days 1–2: Triage without spinning

Your first obligation is to stop the bleeding and preserve facts. That means:

  • immediate escalation into a controlled response team (Compliance, Legal, Finance, Internal Audit, IT/security, and, if needed, HR),
  • an evidence preservation hold that includes chat platforms, mobile devices, third-party messaging, deal rooms, and personal email, where permitted, and
  • a decision to ring-fence relevant individuals, accounts, and transactions so you do not create new harm.

Ethically, this is where senior leadership proves it wants the truth, not just a version of it.

Days 3–5: Board notice and decision rights

If you are waiting for “certainty” before you brief the board or a board committee, you are already behind the SDNY clock. The goal is not to accuse. The goal is to establish governance: decision rights, cadence, and oversight. SDNY’s fiduciary framing means this cannot be treated as a management-only event. The board must be positioned to make an informed decision on disclosure, remediation, and restitution as facts develop.

Days 6–10: Outside counsel, scoped investigation, and credibility building

This is when you decide whether to engage outside counsel and forensic support to ensure independence and speed. For SDNY purposes, credibility is currency. The company needs to show it can:

  • Identify the misconduct,
  • identify who was involved,
  • quantify harm, including victims and losses,
  • explain control failures, and
  • demonstrate remediation beyond “we are reviewing policies.”

Remember: SDNY’s program is built around concrete action, self-reporting, cooperation, remediation, and restitution. If your internal processes create delays and ambiguity, you are squandering the very benefits SDNY offers.

Days 11–14: Regulator strategy and the self-disclosure decision

This is the moment of ethical leadership. You will not know everything. You will know enough to determine whether misconduct occurred and whether it falls into a category SDNY will view as market-harming or integrity-compromising. SDNY is offering a structured benefit for early self-reporting, but it is also signaling that waiting for a subpoena is not a strategy.

Five Lessons for the Compliance Professional

Lesson 1: SDNY is reframing self-disclosure as a fiduciary duty rather than optional crisis PR.

The program’s emphasis on leaders as “fiduciaries” with a “fundamental duty” of integrity and transparency is a direct ethical challenge to boards and executives. If your organization treats disclosure solely as a legal risk calculation, SDNY is telling you that you have already missed the governance point.

Lesson 2: Speed is now a moral and operational requirement.

The “two to three weeks” commitment to a conditional declination letter is SDNY saying: “Do not slow-walk the truth.” In compliance terms, timeliness is not merely a matter of efficiency. It is ethical stewardship. Delay increases harm, increases victim loss, and increases the chance that someone else tells your story first.

Lesson 3: Restitution is not a side issue; it is a core ethical outcome.

SDNY’s program explicitly states that paying “appropriate restitution to victims” is central, and it links that to the decision not to pursue forfeiture. Compliance leaders should read this as a directional signal: the government is measuring corporate ethics by whether the company makes harmed parties whole, not merely by whether it updates a policy.

Lesson 4: The benefits are real, but they are earned through cooperation and remediation that changes behavior.

No prosecution, no fine, and generally no monitor are extraordinary incentives. But SDNY is also telling you what it values: companies that step forward, cooperate fully, remediate quickly, and do not play games with facts. Ethically, this is “clean hands” enforcement: if you want mercy, show you deserve it.

Lesson 5: Some conduct is simply disqualifying, and compliance must stop pretending every risk is manageable with process.

SDNY calls out aggravating circumstances that can make a company ineligible for a declination under the program. The list includes conduct tied to terrorism, sanctions evasion, foreign corruption, trafficking, cartels, forced labor, violence, and related financing or laundering. That matters because it draws an ethical boundary: there are categories of wrongdoing so corrosive that the “cooperate and remediate” story is not enough. For CCOs, the lesson is to build escalation protocols that treat these risks as existential and non-negotiable.

A Blunt Wake-up Call: The Cost of Not Self-Reporting is Going Up

SDNY is trying to end the era of corporate hesitation. The program signals that a company’s decision not to self-report will weigh heavily against it when prosecutors later assess resolutions. This is the part compliance leaders must say out loud internally: the old playbook of “let us wait and see” is increasingly incompatible with how prosecutors say they will exercise discretion. If your organization has not pre-built a rapid disclosure decision tree, you are asking to miss the window SDNY is dangling in front of you. You will not get the benefit of a program you were not prepared to use.

Conclusion: Compliance and Ethics that Move at Prosecutorial Speed

The SDNY initiative is not merely a new memo. It is a redefinition of what “responsible corporate conduct” looks like in real time. It asks boards and senior executives to behave like fiduciaries: to choose integrity and transparency early, to protect victims through restitution, and to treat cooperation and remediation as proof that the company is worthy of trust. For the compliance professional, the message is simple and uncomfortable: your program will not be judged by the elegance of your policies. It will be judged by whether your leadership can tell the truth quickly, act with stewardship, and make hard decisions when the facts are incomplete but the duty is clear.

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From the Editor's Desk

From The Editor’s Desk: Episode 37: Season 2 – Reflections from February and Insights into March for Compliance Week

In this episode of ‘From the Editor’s Desk,’ Tom Fox visits with Aaron Nicodemus to discuss highlights from Compliance Week in January and February and take a look at what is coming down the pike in March, including the upcoming “Inside the Mind of the CCO” survey. They also begin to preview the 2026 National Conference in May.

Key highlights:

  • February Story Roundup
  • March AI Coverage Plans
  • CCO Survey Early Findings
  • Long Form Investigations Ahead
  • AI Governance Reality Check
  • TPRM Conference Teaser

Resources:

Aaron Nicodemus on LinkedIn

Compliance Week

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Blog

The Hobson FCPA Trial: Five Operational Lessons for the Compliance Professional

If you want to see how an FCPA case gets built in real time, you could do a lot worse than studying what came out at trial in the Hobson matter. The evidence presented to the jury did not turn on a single suspicious invoice or an isolated payment. It was the aggregation of ordinary commercial mechanics (commissions, pricing pressure, contract awards) with extraordinary risk indicators (coded language, commission splits tied to named initials, informal transfer channels, and documentation gymnastics). That is exactly why the Hobson trial matters to in-house compliance professionals: it shows how day-to-day operational decisions can be reframed as corrupt intent when the surrounding facts align.

Today, we consider five lessons learned for the compliance professional, each grounded in trial evidence and framed as operational indicators you can use in your program tomorrow morning.

Lesson 1: High commissions are not a “commercial issue.” They are an anti-corruption control failure waiting to happen.

One of the most important themes in the testimony was the economics of commissions. One witness described the agent’s commission levels as unusually high in the industry, citing a long-term arrangement in the range of $7 to $7.50 per metric ton, in contrast to what he described as a far lower norm for international sales agents. That is not a mere “sales comp” debate. In a high-risk market, the commission structure becomes the channel through which influence can be purchased.

The operational problem is not simply that the commission is high. It is that the commission becomes hard to explain as legitimate, and easy to justify internally as “what it takes” to win. In the testimony, jurors heard about internal communications implying there were “a few” people the agent had to “take care of,” and the witness described being shocked at how openly the subject was discussed.

Operational indicators to take away

  • A third-party commission materially above benchmark, especially when defended as “market practice” without evidence.
  • Business rationales that drift from services rendered into “this is what it takes to get the deal.”
  • Commission tied to award timing, acceptance, or “sorting things out” with a committee-like body at the counterparty.

Program moves

  • Require commission benchmarking and documented justification for outliers, with Compliance signoff for deviations.
  • Treat commission letters and renewals as high-risk events: refresh due diligence, re-paper services scope, and re-evaluate the payment model.
  • Add a “commission-to-service” test: what services were delivered, how were they evidenced, and how do they map to the payment amount.

Lesson 2: The third party is not the risk. The relationship ownership model is the risk.

The defense narrative emphasized distance: the company hired the agent, the company paid the agent, and once the agent was paid, the payer did not control what happened next. Compliance people have heard this argument in conference rooms for twenty years, usually dressed up as “commercial reality.”

But what the trial evidence highlights is a different issue: relationship ownership. The cooperating witness testified that the defendant took the lead on the relationship because of his contact with the agent. That is a control issue. When a single commercial leader “owns” the third party informally, the organization often loses the ability to enforce discipline: who approves what, who monitors what, and who escalates what.

Operational indicators to take away

  • A relationship that is “owned” by one person, with limited transparency and limited cross-functional involvement.
  • Commission approvals and payment pressure are driven by a single commercial voice rather than by a documented governance process.
  • Escalations framed as “help me pay him so we do not lose the business,” rather than “help me validate services and risks.”

Program moves

  • Assign “relationship ownership” formally: business owner, finance owner, and compliance owner, each with defined decision rights.
  • Require periodic third-party business reviews that are not sales calls: services delivered, invoices, payment routes, red flags, and counterparty risk.
  • Put “single-threaded third-party management” on your audit plan. It is a quiet failure mode.

Lesson 3: Communications are evidence, and code words are a control signal you can detect.

The most operationally actionable evidence from the trial is the communications that Hobson used with Ahmed. Jurors heard about messages that mixed coal pricing negotiations with discussions of who would receive parts of a commission, including initials corresponding to individuals connected to the state-affiliated buyer. This is the classic compliance trap: people treat messaging as informal chatter, while prosecutors and juries treat it as evidence of intent.

Even more pointed, testimony described the use of coded language for money, including references to “Mr. Yen,” and urgency about when the money would be available and in what currency. Whether a company can see those messages at the time is a separate question. The compliance lesson is that coded language almost always sits atop a known risk: someone believes the underlying conduct would not survive daylight.

Operational indicators to take away

  • Pricing plus commission allocation discussed in the same thread, especially where there is talk of who “needs to be paid” to keep contracts.
  • Code words for money, urgency cues, and currency references.
  • Language that treats counterparty actors as extracting “shares” tied to deal economics.

Program moves

  • Train sales and trading teams on “what will read badly to a jury” without being melodramatic. Show examples of risky phrasing and rewrite them.
  • Build a targeted communications surveillance protocol for the highest-risk channels and roles, consistent with local law and internal policy.
  • Add “coded language and euphemisms” to your investigation playbook as an escalation trigger, not an afterthought.

Lesson 4: Money movement patterns are where the story crystallizes.

The government’s evidence leaned heavily on how money moved: informal transfer mechanisms, travel touchpoints, offshore entities, and a money trail that could be explained individually but looked incriminating when sequenced.

For in-house compliance, this is the heart of operational control. The trial coverage covered Western Union transfers, travel to Dubai, cash declarations, and an entity structure involving a Dubai company and a US affiliate sharing the same address. It also described an “invoice construction” episode: drafting an invoice for a substantial payment, struggling to reproduce an official seal, then sending a wire and having the funds transferred.

You do not need to be a prosecutor to see the compliance problem: if you cannot explain who is being paid, why they are being paid, what they did, and where the money went, you do not have controls in place. You have hope.

Operational indicators to take away

  • Use of informal transfer services, cash, or complex routing in connection with third-party compensation.
  • Offshore entities are introduced late in the process, especially where documentation is improvised.
  • Payment routes that create distance between the payer, the payee, and the ultimate beneficiary.

Program moves

  • Tighten payment controls for third parties: no payment without a validated contract scope, documented services evidence, and verified bank account ownership.
  • Require screening for beneficial ownership and “connected parties” among third-party entities, including affiliates and payment intermediaries.
  • Implement a red-flag workflow for travel-linked payments, cash, and informal transfers: automatic review by Compliance and Finance.

Lesson 5: Investigation readiness is not a crisis skill. It is a design choice.

Finally, the verdict and the path to it underscore a point compliance professionals sometimes miss: your program is being built for a future fact-finder. In this case, the prosecution presented an overall theory built from messages, financial records, and a cooperating witness; the jury returned guilty findings across FCPA-related counts and related conspiracy and laundering charges.

The operational compliance lesson is not about litigation tactics. It is about what your systems retain and what your systems can explain. If your third-party file includes evidence of benchmarking, due diligence, contract scope, and monitoring, you have a fighting chance of showing legitimate intent. If your file is thin and the communications are ugly, the story will be told for you, in the immortal words of the Compliance Evangelist-Document Document Document.

Operational indicators to take away

  • Repeated internal discomfort expressed without escalation or remediation; IE., the “we know this is strange, but we need the deal” pattern.
  • Documents created to facilitate payment rather than to evidence legitimate services.
  • Controls that rely on “we did not know” rather than “we can show what we did and why.”

Program moves

  • Update your investigations protocol to integrate commercial data: pricing, commissions, and contract award timing, not just payment logs.
  • Build a rapid response kit for third-party risk: document hold, device preservation process, and review checklist for messaging platforms.
  • Treat high-risk third-party relationships as living files: quarterly updates, not annual check-the-box refreshes.

The Hobson trial is a reminder that compliance does not fail in the abstract. It fails in the seams: a commission justified without evidence, a relationship owned by one person, a payment routed because “it is easier,” and a set of messages that people assumed would never be read out loud in a courtroom. If you want your program to prevent the next case, focus on those seams, because prosecutors, juries, and regulators will, too.

Resources:

Articles by Matthew Santoni in Law360

Coal Exec Knew Egyptian Broker Paid Bribes, Jury Told

Coal Exec’s Co-Worker Says Emails Hinted At Egypt Bribes

Egypt’s ‘Social Law’ Doesn’t Endorse Bribery, Jury Told

Coal Exec Used ‘Mr. Yen’ To Talk Kickbacks, FBI Testifies

Coal Exec ‘Had No Ability’ To OK Paying Bribes, Jury Told

Jury Finds Ex-Coal Exec Guilty Of Authorizing Bribes

 

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Red Flags Rising

Red Flags Rising: S01 E37: Carole Basri on Subsidizing World Peace: The U.S. Experiment, and the Dynamic Relationship between National Security & Corporate Compliance

Back in January 2024, Mike and Brent had the good fortune to meet Carole Basri at an event at NYU Law School. On this episode of Red Flags Rising, they welcome her as a guest to talk about her specialties: national security, geopolitics, and corporate compliance. They specifically discuss Carole’s extensive professional background (00:59), a new treatise on National Security Law that Carole, Mike, and Brent are writing for the Practising Law Institute (PLI) (04:00), an upcoming event co-hosted by the New York State Bar Association’s International Section, Corporate Compliance Committee and Morgan Lewis, to which the new Assistant Secretary for Export Enforcement David Peters is an invited keynote speaker (08:18), why public enforcement officials remarks are relevant under U.S. export controls and other probability-based (i.e., “red flags”-driven) national security laws (09:26), how the U.S. Foreign Corrupt Practices Act (FCPA) was not only an example of that but also was really a child of an era where economic interdependency required a level of transparency and clean commerce to continue (12:00), and the relationship between Bretton Woods, Belt and Road, and Mike’s favorite book, Tales of an Economic Hitman, and what could be viewed with hindsight as effectively a U.S. policy decision to trade its own economic security for decades of (relative) world peace, increased global productivity, and increased living standards (16:52). Brent then closes out the discussion with the latest installment of his “Managing Up” segment (21:57), after which Mike makes some (further) book recommendations based on the discussion for those interested in further exploring some of the idea and concepts covered during the discussion:

More about Carole

Contact Brent: brent@redflagsrising.com

Contact Mike: michael.huneke@morganlewis.com

Interested in learning more about the March 10, 2026, event? Contact Mike & Brent at the email addresses above.

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Blog

The Dog Bite Defense Fails Again – Defendant Found Guilty in FCPA Trial

To the surprise of absolutely no one, former Corsa Coal executive Charles ‘Hunter’ Hobson was found guilty last week for FCPA violations. As most readers of this blog know, I am a recovering trial lawyer. I almost always represented corporations as defense counsel during my trial lawyer career. In the trial lawyer world, there are four recognized defenses to any claim, which are known as the “Dog Bite Defenses”. They are:

  1. My dog didn’t bite you.
  2. Even if my dog did bite you, it’s because you provoked him.
  3. Even if my dog did bite you, you really aren’t injured.
  4. My dog didn’t bite you because I don’t have a dog.

The fourth version of the Dog Bite defense is certainly an ‘all-in’ move. You had either (1) better be right or (2) have some big kahunas to make that argument to a jury with a straight face.

Defense No. 1 – Hobson did not pay or direct anyone to pay.

Hobson’s attorneys said the government was overreaching by charging Hobson with FCPA violations on several grounds. His lawyer argued that Hobson did not know, pay, or direct Nassar to bribe anyone. “Mr. Hobson never saw Ahmed the broker pay any money to anyone,” his attorney told the jury in the opening. Further, Hobson never hired Ahmed, the broker, and claimed that Mr. Hobson never paid him. Corsa hired Ahmed, the broker; Corsa paid Ahmed, the broker; and Corsa approved Ahmed’s commissions, not Mr. Hobson.

Defense No. 2- Social custom in Egypt says it’s OK to pay a bribe.

Attorneys for Hobson tried to undermine the government’s expert witness by pointing to opinions he had given that bribery was not only not illegal in Egypt but actually socially acceptable. They confronted Mohamed Arafa, an adjunct professor focusing on comparative law at Cornell University, with law review articles he had previously written, where he said that corruption was “commonly accepted and had become the ‘social law’” in Egypt. The Professor distinguished the expert opinion on Egyptian law that he offered at trial and “his prior, scholarly opinions on whether people adhered to that law in modern Egypt. Santoni quoted him saying, “I’m not here to talk about that; I’m here to talk about the law,” Arafa said. ” … Saying something like that does not make the act legal.””

Defense No. 3- His bosses approved it.

Here, Hobson tried to argue that once Nassar was paid his commission, which was due and owing, it was not up to Hobson what Nassar did with it, nor was it “Corsa’s money” any longer. Hobson’s attorney also said that “Mr. Hobson never saw Ahmed, the broker, pay any money to anyone,” Price said. “Mr. Hobson never hired Ahmed the broker, Mr. Hobson never paid Ahmed the broker. Corsa hired Ahmed the broker, Corsa paid Ahmed the broker, and Corsa approved Ahmed’s commissions, not Mr. Hobson.” His counsel also said that Hobson had been tasked with opening up new foreign markets for Corsa. Having never dealt in Egypt before, he spoke with employees of a company that had recently merged with Corsa and had done business there, who connected him with Nassar.

Defense No. 4-Ahmed wasn’t a government official.

Here was the truly all-in defense (I don’t own a dog). It was that Ahmed was not a government official or did not work at an instrumentality of the Egyptian government. In his cross-examination of cooperating witness Frederick Cushmore, Jr., who worked for Hobson, his defense counsel questioned Cushmore about any indications he had that Al Nasr was affiliated with the Egyptian government. Obviously, trying to take the entire case out of an FCPA criminal action by alleging that one of the elements of an FCPA was not present. The issue is that payments are being directed to a government official or to someone at a government-affiliated company. But Cushmore said it was “industry knowledge” and pointed to a 2017 email from Hobson that said both the shipping company and Al Nasr were “Egyptian-owned companies”. Counsel then questioned whether Hobson really meant that to indicate “owned by the Egyptian government.”

Two prosecution witnesses eviscerated Hobson’s defense. The first was Frederick Cushmore Jr., who pled guilty to conspiring to violate the FCPA. He agreed to testify against Hobson, said their emails and WhatsApp messages talked about people at Al Nasr Co. for Coke and Chemicals being “taken care of” by keeping Corsa’s agent, Ahmed Nassar, paid high commissions for the sales he brought in, implying that Nassar’s higher-than-normal pay was being passed on as bribes to Al Nasr officials.

According to Matthew Santoni reporting in Law360, “Cushmore read a November 2016 email from Hobson, then a vice president of sales at the Somerset County, Pennsylvania-based coal mining company, that said there were “a few the agent has to take care of” during an early discussion of Nassar’s proposed commission payments. “I took that as people at Al Nasr who would be receiving bribes… I was shocked at how open the discussion was,” Cushmore, whom prosecutors said held various international sales positions with Corsa Coal. “I simply said, I suspected… ‘What’s he doing with all that money?’ Mr. Hobson said, ‘What do you think he’s doing with all that money?'””

The second was Mohamed Arafa, an adjunct professor focusing on comparative law at Cornell University. He made clear, in no uncertain terms, that bribery of government officials was illegal under Egyptian law, not a matter of social custom. The defense had no rebuttal for either witness’s testimony.

Although the trial lasted over one week, the jury was out for less than one day before finding the defendant guilty. The sentencing date has not been set.

Join us tomorrow, where we look at the lessons a compliance professional can draw from the Hobson trial.

Resources:

Articles by Matthew Santoni in Law360

Coal Exec Knew Egyptian Broker Paid Bribes, Jury Told

Coal Exec’s Co-Worker Says Emails Hinted At Egypt Bribes

Egypt’s ‘Social Law’ Doesn’t Endorse Bribery, Jury Told

Coal Exec Used ‘Mr.. Yen’ To Talk Kickbacks, FBI Testifies

Coal Exec ‘Had No Ability’ To OK Paying Bribes, Jury Told

Jury Finds Ex-Coal Exec Guilty Of Authorizing Bribes

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Compliance Into the Weeds

Compliance into the Weeds: FCPA Trial Rarity: Charles Hobson Convicted

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 look at the recent conviction of Charles ‘Hunter” Hobson for FCPA violations.

Former Corsa Coal senior sales executive Charles Hunter Hobson was found guilty in Pennsylvania of helping arrange roughly $4.8 million in bribes to officials tied to a state-owned Egyptian coal company, using an intermediary, to secure about $143 million in contracts. Also, Hobson allegedly pocketed about $200,000. Tom and Matt  Hobson’s unsuccessful “dog bite” defenses. They also discuss tensions between corporate and individual accountability, the practical reality that companies may cooperate and “turn on” individuals, and that individuals can also expose companies by cooperating with prosecutors. Finally, they speculate on why DOJ pursued trial amid shifting enforcement signals, referencing other recent FCPA matters (Millicom DPA, Smartmatic indictment) and past DOJ trial losses, and conclude that the best approach is to avoid bribery and avoid being the “last man standing.”

Key highlights:

  • Hobson Case Overview
  • Dog Bite Defense Breakdown
  • Payment Red Flags
  • Declinations and Individual Risk
  • Why Go to Trial?

Resources:

Matt in Radical Compliance

Tom

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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.

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Blog

The Hobson FCPA Trial: Commissions, Coded Cash, and the Compliance Risk Indicators

The Foreign Corrupt Practices Act (FCPA) trial of a former coal company executive offers a real-time reminder that FCPA cases are rarely about a single payment. They are about systems;  how third parties are engaged, how commissions are justified, how money moves, and how people communicate when they think no one is watching. The trial of former Corsa Coal executive Charles Hunter Hobson has featured opening statements from both sides, testimony from a cooperating former colleague, testimony from an FBI agent who reviewed messages and bank records, and expert testimony on the status of the foreign counterparty and the legality of bribery under Egyptian law.

Prosecutors have advanced a bribery theory based on inflated commissions paid to a sales agent, with kickbacks allegedly returning to the executive. Defense counsel has argued a lack of knowledge, a lack of control over the agent’s downstream conduct, and challenges around whether the foreign buyer qualifies as a state-owned enterprise for FCPA purposes. At this point, the defense has not presented its Case-in-Chief, so it is unknown if the defendant will testify. The value for compliance professionals lies in seeing how ordinary-seeming commercial mechanics are translated into an FCPA narrative before a jury.

The Prosecution Narrative: High Commissions, Bribes to “the Team,” and Business Won

In opening arguments, prosecutors told jurors that the company’s Egypt-based agent received higher-than-normal commissions and used a portion of those payments to bribe officials connected to the buyer, Al Nasr, in exchange for coal purchase contracts valued at roughly $143 million. Prosecutors further alleged that the agent paid $4.8 million to individuals described as government employees or employees of a state-owned business, and that the executive received approximately $200,000 in kickbacks.

In the government’s telling, this was not incidental. It was purposeful: pay the agent more than market, allow the agent to distribute those funds to secure business, and then share the proceeds back to the executive. The business obtained through the relationship and the revenue tied to those contracts form the “benefit” side of the alleged corruption equation. The alleged bribe payments and kickbacks form the “means.”

For compliance professionals, the risk indicator is not merely “third party in a high-risk market.” It is the combination of (1) pricing and award dynamics, (2) commission pressure, (3) coded communications, and (4) money movement patterns that appear designed to avoid normal transparency.

The Defense Narrative: No Direction to Bribe, No Control After Payment, and Disputed Knowledge

The defense has pressed a different story: that the executive did not hire the broker, did not personally pay him, and did not direct bribery; that once commissions were paid, the company did not control what the agent did with his earnings; and that the executive did not know or believe the buyer was government-affiliated at the relevant time.

Defense counsel also highlighted practical gaps a jury may notice: the absence of testimony from the foreign agent and foreign officials, and the difficulty of proving what happened abroad when the investigation is largely built on U.S.-available records. This posture is familiar in many FCPA matters: the defense seeks to separate commission payments from corrupt intent and to isolate the alleged misconduct to a third party’s independent actions.

The risk indicator here is the argument itself: organizations routinely assume that once a third party is paid, the risk transfers. However, that is not true in compliance or under the FCPA. Most certainly, such a willful blindness approach will not sit well with the DOJ when there is evidence suggesting knowledge, willful blindness, or coded coordination.

Third-Party Risk: Onboarding, Commission Benchmarking, and Relationship Ownership

Across the testimony elicited to date, the third-party storyline turns on three governance pressure points: how the agent was onboarded, how commission levels were justified, and who “owned” the relationship operationally. A cooperating former colleague of the defendant testified that the commissions were unusually high compared to industry norms and described communications he interpreted as references to individuals who needed to be “taken care of,” including discussions about keeping commissions high to support pricing and approvals. That is the heart of third-party compliance risk: when the commission structure becomes the economic channel through which influence is allegedly purchased, the company’s controls on justification, approvals, and monitoring become central to how the story is told to a jury.

State-Owned Enterprise and Egyptian Law: Why It Matters and What the Jury Heard

A key FCPA element is whether the recipients are “foreign officials,” which can include employees of state-owned enterprises. The DOJ presented expert testimony that the buyer was a public entity under Egyptian law and that bribery involving public officials is illegal under the Egyptian Penal Code. The defense challenged the expert’s treatment of Egyptian corporate structure and attempted to undermine the legal framing by citing academic discussions of corruption as socially prevalent, an approach the court rejected while allowing limited exploration of the distinction between written law and real-world practice. For compliance professionals, the risk indicator is straightforward. If your counterparty’s status as state-owned is ambiguous, you must assume that ambiguity will be litigated, and prosecutors will use foreign-law testimony to make the entity’s status legible to a U.S. jury.

The Money Trail: How the Government Says Funds Moved and Why It Matters

The most operationally revealing testimony described in coverage to date comes from the FBI agent who reviewed communications and financial records. The government presented a picture of commerce and payments operating in parallel:

  1. Commercial negotiation and commission splitting. Messages allegedly mixed coal pricing discussions with references to commission allocations associated with initials that the agent said corresponded to individuals at the foreign buyer and to the two principals themselves. The government’s point was not merely that commissions were paid; it was that commissions were structured and discussed in a manner consistent with the intended distribution.
  2. Coded references to cash and timing pressure. The phrase “Mr. Yen” was presented as a coded term for money, with messages allegedly asking for “Mr. Yen” by a certain day and asking whether it would be in U.S. dollars. In the government’s narrative, the coding supports consciousness of wrongdoing and intent to conceal.
  3. Use of informal transfer mechanisms and offshore touchpoints. Testimony referenced Western Union transfer records and a Dubai-based company, with messages and timing tied to travel and financial activity. The government described the executive receiving money through these channels, including activity linked to a Dubai entity and subsequent movement of funds to a U.S. entity sharing the executive’s address.
  4. Invoice construction to facilitate payment. The jury heard about exchanges in which an invoice was drafted for a substantial payment (described as $150,000), including efforts to create documentation, such as a business seal, and then a wire to the Dubai entity, followed by the transfer of a large portion of the funds.

The compliance relevance of this money trail is not that every company has Dubai entities or international wires. The relevance is that prosecutors can take a set of operational steps that may be individually explainable and argue that, taken together, they show an intent to route funds in ways that obscure purpose and beneficiaries. In a trial context, the story is built from the alignment of sequencing, communications, and financial records.

Conclusion

The Hobson trial, at this point, is a live demonstration of how an FCPA case can be built from a combination of commission economics, business obtained, communications, and money movement. Prosecutors say inflated commissions funded bribes and that kickbacks flowed back to the executive; the defense says the executive did not direct bribery, did not control the agent’s conduct after payment, and did not know the buyer’s alleged government affiliation at the time.

For the readers of this Blog, the value is not in sensational details. The value is in the compliance risk indicators that a jury is now being asked to interpret: what was said, what was paid, how it was routed, and what business it helped secure. That is the terrain where compliance programs either demonstrate discipline or discover, far too late, that “commissions” can become the government’s favorite word for “bribery.”

Resources

All Law360 articles written by Matthew Santoni. Unfortunately, a subscription is required to access the articles.

Coal Exec Used ‘Mr… Yen’ To Talk Kickbacks, FBI Testifies

Egypt’s ‘Social Law’ Doesn’t Endorse Bribery, Jury Told

Coal Exec’s Co-Worker Says Emails Hinted At Egypt Bribes

Coal Exec Knew Egyptian Broker Paid Bribes, Jury Told

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2 Gurus Talk Compliance

2 Gurus Talk Compliance – Episode 70 – The Ethics 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!

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From Enforcement-Driven to Purpose-Driven Compliance

For more than two decades, corporate compliance programs have been built around one central organizing principle: enforcement. Where regulators go, compliance resources follow. When the Department of Justice prioritizes anticorruption, companies invest in FCPA controls. When regulators turn to privacy, cybersecurity, or AML, compliance budgets pivot accordingly. This enforcement-driven approach has shaped the modern compliance profession.

Yet, as Veronica Root Martinez persuasively argues in her recent working paper, Purpose-Driven Compliance, this dominant model may be fundamentally flawed, certainly in the era of Trump.  Despite unprecedented investments in compliance infrastructure, corporate misconduct persists. Repeat offenders remain common. Penalties grew larger, but behavior did not meaningfully improve. For compliance professionals, this raises an uncomfortable question: are we optimizing for the wrong objective?

Martinez’s answer is both challenging and clarifying. Compliance programs should not be primarily designed to satisfy enforcement authorities or to maximize mitigation credit after failure. Instead, they should be anchored in the organization’s own purpose, business risks, and ethical standards. In short, it is time to move from enforcement-driven compliance to purpose-driven compliance.

The Limits of Enforcement-Driven Compliance

The enforcement-driven model rests on two assumptions. First, that enforcement priorities reflect a company’s most significant risks. Second, that imperfect compliance is inevitable and acceptable so long as the organization can demonstrate good-faith efforts. Martinez brings both under scrutiny.

Regulatory priorities often lag behind real business risks. Enforcement agencies focus on certain categories of misconduct because they are visible, politically salient, or historically entrenched. But the risks that most threaten an organization’s mission may lie elsewhere. Martinez highlights how firms can become over-invested in compliance areas that attract enforcement attention while under-investing in mission-critical risks to their operations.

The second assumption, that some level of misconduct is acceptable, is even more troubling. Behavioral ethics research suggests that tolerating small violations creates conditions for larger ones. When leaders frame misconduct as statistically insignificant or “within expectations,” they risk normalizing behavior that undermines culture, trust, and ultimately performance. Wells Fargo’s infamous “1% problem” illustrates this danger. Senior leadership took comfort in the idea that only a small fraction of employees were engaging in misconduct, failing to appreciate that those numbers reflected only the misconduct that had been detected.

An enforcement-driven mindset encourages this type of thinking. If the organization is sanctioned, then low detection rates look like success. But if the question is whether the organization is living up to its own purpose and values, the same data tell a very different story. This is not the broken windows theory of enforcement, but something else.

The Cost of Treating Compliance as a Cost of Doing Business

Another weakness of enforcement-driven compliance is that it can turn sanctions into a predictable line item. As firms grow larger and penalties are discounted through cooperation credit, fines risk being internalized as a cost of doing business. Empirical work cited by Martinez suggests that large, repeat offenders often pay penalties that are small relative to their assets and revenues. In that environment, enforcement loses much of its deterrent effect.

For compliance professionals, this dynamic creates a structural tension. Programs may be technically “effective” under DOJ guidance while still failing to prevent misconduct that harms customers, employees, and communities. The distinction between standards of review and standards of conduct becomes critical. Meeting the government’s expectations for leniency is not the same as meeting the organization’s ethical obligations to itself and its stakeholders.

What Is Purpose-Driven Compliance?

Purpose-driven compliance begins with a simple but powerful shift in perspective. Instead of asking, “What does the regulator expect?” the organization asks, “What risks threaten our ability to achieve our purpose and what standards of conduct are required to address them?” Martinez defines purpose-driven compliance as programs directed by three elements: the firm’s purpose, the inherent risks associated with pursuing that purpose, and the ethical standards the organization sets for itself. This approach does not reject enforcement frameworks; rather, it treats them as a floor, not a ceiling.

In practical terms, purpose-driven compliance requires leadership to articulate why the organization exists and how misconduct undermines that mission. For a bank, this may mean focusing on customer trust and market integrity. For a pharmaceutical company, it may mean prioritizing patient safety and scientific integrity. For a university, it may mean safeguarding academic freedom and institutional trust. For a summer camp, it means protecting the campers from flash floods and other storms.

Once the purpose is clearly defined, compliance risk assessments become more meaningful. Risks are evaluated not only by enforcement exposure but by their potential to compromise the organization’s core objectives. This reframing helps compliance leaders resist the temptation to chase regulatory trends at the expense of mission-critical risks.

Moving Beyond Mitigation to Aspirational Standards

A key insight in Martinez’s work is that firms often confuse mitigation with excellence. Compliance programs are designed to minimize penalties rather than to maximize ethical performance. Purpose-driven compliance challenges that mindset by encouraging organizations to adopt high, ethical, and aspirational standards of conduct.

This does not mean pursuing perfection through draconian controls or internal criminalization. Martinez rightly warns against overdeterrence and strict liability regimes that incentivize concealment rather than transparency. Instead, purpose-driven compliance emphasizes ethical framing, employee voice, and organizational learning. Compliance should never be Dr. No, sitting in the Department of Business Non-Development.

The examples of Wells Fargo and Novartis are instructive. Both organizations suffered repeated compliance failures under enforcement-driven regimes. Their subsequent reforms went beyond addressing the specific violations that triggered enforcement. They re-examined culture, leadership incentives, and ethical expectations. In Novartis’s case, tying bonuses to ethical performance and co-creating a new code of ethics signaled a shift from box-checking to values anchored in purpose.

Why Purpose-Driven Compliance Matters for the Modern CCO

For today’s chief compliance officer, Martinez believes purpose-driven compliance offers three critical benefits.

First, it creates durability. Enforcement priorities shift with administrations. Indeed, this Administration has signaled a cutback in white-collar enforcement by offering essentially get-out-of-jail-free cards to companies that self-disclose early. This underscores the importance of compliance programs. A compliance program anchored solely in regulatory expectations will always be reactive. Purpose-driven programs are more stable because they are tied to the organization’s identity rather than external politics.

Second, it improves the quality of compliance metrics. Measuring effectiveness against internal standards allows organizations to ask harder questions about culture, decision-making, and root causes. Not every initiative will succeed, but a willingness to acknowledge failure is itself a sign of program maturity.

Third, it enhances credibility with boards and senior leadership. When compliance is framed as a strategic partner in achieving the organization’s mission, rather than as a defensive function, it earns a more meaningful seat at the table.

Conclusion

Compliance has never been more sophisticated, expensive, or visible. Yet sophistication alone does not guarantee effectiveness. Martinez’s Purpose-Driven Compliance challenges compliance professionals to rethink the foundations of their programs. Enforcement-driven compliance has taken us far, but it cannot take us far enough.

The next evolution of compliance requires organizations to define their own standards of conduct, grounded in purpose, risk, and ethics. That shift is not easy. It requires courage from compliance leaders and commitment from boards and executives. But if compliance is truly about preventing harm and sustaining trust, purpose-driven compliance is not optional. It is essential.