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10 For 10

10 For 10: Top Compliance Stories For the Week Ending November 16, 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.

  • Meta fined $840MM in EU for anti-trust violations. (NYT)
  • SBF LT. Builds fraud detection tool for DOJ. (Reuters)
  • Shell wins appeal in landmark climate case. (NYT)
  • ADM CCO steps down amid probe.  (Bloomberg)
  • End of ESG and crypt initiatives at SEC. (WSJ)
  • What science reveals about corruption. (El Pais)
  • Telefónica Venezuela settles FCPA action. (WSJ)
  • Handling a difficult employee with health issues. (NYT)
  • Hidden cost of textile and apparel non-compliance. (Homeland Security Today)
  • NetEase execs arrested for bribery and money laundering.  (biz)

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 full 3-book series, The Compliance Kids, on Amazon.com.

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Compliance Into the Weeds

Compliance into the Weeds: Understanding the Telefónica Venezolana FCPA Enforcement Action

The award-winning, Compliance into the Weeds is the only weekly podcast that takes a deep dive into a compliance-related topic, literally going into the weeds to explore a subject more fully. Are you 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 dive into the recently released FCPA enforcement action involving the Telefónica Venezolana subsidiary.

They explore the bribery scheme used by Telefónica Venezolana to win an auction for U.S. dollars in 2014, resulting in a significant criminal penalty. The episode delves into the complexities of compliance in high-risk jurisdictions, the importance of incorporating anti-corruption due diligence into supply chains, and the implications of the new enforcement landscape under different administrations. Key lessons include the surprising extent of supplier risk, the long tail of FCPA enforcement, and the financial benefits of robust compliance practices.

Key highlights:

  • Details of the Bribery Scheme
  • Consequences and Penalties for Telefónica Venezolana
  • Compliance Challenges and Lessons Learned
  • Risk Management in High-Risk Jurisdictions
  • The Importance of a Robust Compliance Program
  • Long-Term Implications of FCPA Violations
  • Future of FCPA Enforcement

Resources:

Matt in Radical Compliance

Tom in the FCPA Compliance and Ethics Blog

Tom

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Compliance Tip of the Day

Compliance Tip of the Day – Lessons Learned From Telefónica Venezolana

Welcome to “Compliance Tip of the Day,” the podcast where we bring you daily insights and practical advice on navigating the ever-evolving landscape of compliance and regulatory requirements. Whether you’re a seasoned compliance professional or just starting your journey, we aim to provide bite-sized, actionable tips to help you stay on top of your compliance game. Join us as we explore the latest industry trends, share best practices, and demystify complex compliance issues to keep your organization on the right side of the law. Tune in daily for your dose of compliance wisdom, and let’s make compliance a little less daunting, one tip at a time.

Today, we consider 3 key takeaways from the Telefónica Venezolana FCPA enforcement action announced last week.

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

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

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Daily Compliance News

Daily Compliance News: November 11, 2024 – The Veteran’s Day 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, or general interest for the compliance professional.

  • NetEase executives arrested for bribery and money laundering.  (gamesindustry.biz)
  • Hidden cost of textile and apparel non-compliance. (Homeland Security Today)
  • Handling a difficult employee with health issues. (NYT)
  • Telefónica Venezuela settles FCPA action. (WSJ)

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

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

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Blog

10 Compliance Lessons Learned from the Telefónica Venezolana FCPA Enforcement Action

Last week, the Department of Justice (DOJ) announced a resolution of a Foreign Corrupt Practices Act (FCPA) enforcement action involving Telefónica Venezolana, the Venezuelan subsidiary of Telefónica S.A. (Telefónica) involving significant compliance failures. Telefónica agreed to a $85.2 million penalty and Deferred Prosecution Agreement (DPA). Tom Fox will review the Top 10 Lessons for Compliance Professionals in this blog post.

  • Understanding the FCPA Risks in High-Risk Jurisdictions

Telefónica confirms the compliance risks inherent in high-risk jurisdictions where government intervention and currency restrictions are common. If you had any question that Venezuela was not high risk, this matter confirms it once again. Currency access is tightly controlled, creating opportunities for corruption in currency auctions that companies might exploit to obtain preferential treatment. Telefónica’s bribery of Venezuelan officials for U.S. dollar access exemplifies how companies in such markets might resort to unethical tactics to stay competitive.

Lesson Learned. High-Risk. High-Risk. High-Risk. Businesses operating in high-risk regions must be vigilant in identifying regulatory challenges that could prompt employees or agents to seek shortcuts, including bribery or fraud. Implementing strong local compliance measures, training employees on anti-bribery practices, and emphasizing adherence to legal processes—no matter the regulatory hurdles—are essential to maintaining compliance integrity.

  • The Role of Third Parties in Concealing Corrupt Practices

In the scheme, the Company indirectly engaged suppliers to pay bribes, concealing these payments as inflated prices on equipment purchases. Third-party risks remain one of the most challenging aspects of compliance, as intermediaries are often used to circumvent direct involvement in corrupt activities, thereby masking unethical practices from internal oversight.

Lesson Learned. For the past 25 years, corrupt third parties have had the highest risk in FCPA compliance. This makes comprehensive third-party due diligence as crucial as any other part of your compliance program. Every relationship with suppliers, contractors, or intermediaries should undergo rigorous vetting, including checks for conflicts of interest, bribery risks, and financial irregularities. Companies should employ contract clauses requiring third parties to comply with anti-corruption laws and establish transparent compliance reporting and monitoring mechanisms. However, the key is managing the relationship after the contract is signed.

  • Internal Controls and Transaction Monitoring: The First Line of Defense

The bribery scheme involved purchasing equipment from two suppliers at inflated prices and funneling bribes through manipulated invoices. A robust internal control system might have flagged these irregularities, potentially preventing or detecting the misconduct earlier. The case illustrates the importance of scrutinizing financial transactions, especially those that deviate from standard pricing practices.

Lesson Learned. This case demonstrates that strengthening internal controls is vital, particularly in financial transaction monitoring. Implementing controls such as approval hierarchies, independent review of non-standard transactions, and regular financial audits by third parties can reduce opportunities for corrupt practices. Compliance professionals should also integrate forensic accounting expertise into their monitoring and investigative functions to analyze suspicious transactions and identify potential compliance breaches.

  • A Proactive Approach to Third-Party Payment Oversight

Telefónica used inflated equipment purchase prices to conceal bribes, showing how intermediaries and indirect payments can mask corrupt practices. The company has since improved its compliance framework, including enhanced oversight of third-party payments through proprietary software.

Lesson Learned. For Compliance Professions, the lesson is that companies must develop and enforce rigorous third-party payment controls. Companies can detect unusual payment patterns that may signal compliance risks by implementing technology solutions to monitor payment flows. Finally, compliance teams must collaborate with finance departments to establish alerts for atypical payment activities, thus fostering cross-departmental vigilance against corruption.

  • Building a Robust and Independent Compliance Function

In response to its FCPA violations, Telefónica strengthened its compliance function, appointing a Chief Compliance Officer (CCO) with direct access to the Audit Committee and investing in compliance resources. This demonstrates the need for compliance independence and empowerment to address corporate misconduct effectively.

Lesson Learned. For a compliance program to be effective, it must be both empowered and independent. The CCO should report directly to the Board of Directors or the Audit Committee to ensure unfiltered communication of compliance concerns directly to the company’s top. Companies should also continually assess their compliance structures and allocate sufficient resources to compliance functions, ensuring the team has the tools and authority to address risks proactively.

  • The Importance of Timely and Transparent Cooperation in Government Investigations

Telefónica’s delayed cooperation with the DOJ affected the investigation’s efficiency and ultimately impacted the company’s cooperation credit. It also no doubt frustrated the DOJ lawyers handling the matter. While the Company later assisted DOJ investigators, this case reinforces that delays in providing relevant information can result in increased penalties or reduced credit in FCPA investigations.

Lesson Learned. When under investigation, timely, transparent cooperation with government authorities is essential. Delaying the disclosure of relevant information hinders the investigation and may also increase penalties or other sanctions. Companies should have protocols for efficiently gathering and disclosing information to authorities, especially when compliance breaches are suspected.

  • Remedial Actions as a Key to Reducing Penalties

Telefónica implemented significant remedial measures to address its compliance failings, including employee terminations, third-party vetting improvements, and transaction review process overhauls. These actions likely contributed to the DOJ’s decision to reduce the penalty by 20%, reflecting the importance of remedial actions in mitigating penalties.

Lesson Learned. Remediation is critical when responding to compliance failures. Swift and decisive action—such as disciplining or terminating employees involved in misconduct, overhauling control processes, and enhancing compliance programs—demonstrates a genuine commitment to addressing and preventing future issues. These actions can positively influence regulators’ decisions, potentially reducing fines or penalties.

  • Lessons on the Impact of Prior Compliance Failures

Telefónica’s parent company, Telefónica S.A., has a history of compliance failures, including a prior FCPA enforcement action involving a subsidiary, Telefónica Brasil. The enforcement action involving the Venezuelan subsidiary shows how previous infractions can impact a company’s current settlement terms, as regulators consider a company’s past compliance record when determining penalties.

Lesson Learned. Companies should be mindful that a history of compliance breaches can affect regulatory leniency in future cases. Ensuring that corrective actions are implemented following any past compliance issues—and documented as part of a continuous improvement process—is critical for maintaining regulatory goodwill and potentially reducing penalties in subsequent cases.

  • Global Cooperation in Compliance Investigations

In Telefónica’s case, the DOJ coordinated with international authorities in Panama, Switzerland, and Luxembourg to gather evidence and move the investigation forward. The international cooperation underscores the global nature of anti-corruption enforcement and the heightened risk of detection and prosecution across jurisdictions.

Lesson Learned. Compliance officers should understand that global regulatory cooperation makes it harder for companies to evade accountability. With enforcement agencies increasingly sharing information and resources, companies must adopt a global approach to compliance, ensuring their practices align with international regulations and anti-bribery standards.

  • Long FCPA Tail

The underlying facts of this matter occurred in 2012-2013. This demonstrates the lengthy (some say forever) tail of FCPA enforcement. Writing in Law360, Dorothy Martin noted, “But prosecutors allege in 2014, Telefónica Venezolana participated in a corrupt currency auction that allowed the telecom giant to exchange its local currency for more than $110 million in U.S. dollars. According to court documents, during the auction, Telefónica  allegedly won more than 65% of the $172 million that the local government awarded to 16 telecom companies.”

Lesson Learned. The lesson for compliance professionals is that actions from a subsidiary from many years can come back and bite you in your collective corporate backside. It was clear that Telefónica did not self-disclose, nor did it initially cooperate with the DOJ. These actions and positions taken by the Company may have been because the distance of time between the illegal actions and investigation may have made the Company perform an investigation and even dig out documents. This involves data and access to data by the compliance function.

The Telefónica Venezolana FCPA enforcement is a stark reminder of the consequences of FCPA violations, particularly in high-risk markets where bribery and corruption risks are prevalent. This case highlights the critical need for strong internal controls, rigorous third-party oversight, and a proactive approach to compliance culture. By learning from these lessons, compliance professionals can better equip their companies to navigate complex regulatory environments and avoid the costly consequences of corruption.

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Compliance Into the Weeds

Compliance into the Weeds: Unveiling RTX’s Costly Compliance Failures and Corporate Misconduct

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

In this episode, Tom Fox and Matt Kelly take a deep dive into the RTX Foreign Corrupt Practices Act enforcement action.

Their discussion unveils complex bribery schemes involving millions paid to Qatari agents and the family of the Emir to secure defense contracts. Despite strict regulatory oversight, Raytheon’s (now RTX) compliance missteps spanned from 2012 into the 2020s, resulting in massive fines. Matt and Tom scrutinize these failures, detailing the SEC and DOJ’s mandates for dual monitorships due to violations of the False Claims Act and FCPA and the Board’s critical role in addressing these issues. Additionally, a comparative look at other significant FCPA cases, including Moog’s penalties for bribery in India, highlights persistent corporate misconduct and the ongoing challenges in achieving effective corporate compliance.

Key Highlights:

  •  Overview of Raytheon’s Violations
  •  Qatari Agent and Further Corruption
  •  Raytheon’s Compliance Failures
  • Management and Compliance Failures
  • Board Oversight and Responsibilities
  •  Reflections on Compliance and Enforcement

Resources

1.    Blogs

Matt in Radical Compliance

2.     Tom 

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10 For 10

10 For 10: Top Compliance Stories For The Week Ending October 19, 2024

Welcome to 10 For 10, the podcast which brings you the week’s Top 10 compliance stories in one podcast each week. Tom Fox, the Voice of Compliance, brings to you, the compliance professional, the compliance stories you need to be aware of to end your busy week. Sit back, and in 10 minutes hear about the stories every compliance professional should be aware of from the prior week.

Every Saturday, 10 For 10 highlights the most important news, insights, and analysis for 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.

  • Kenya impeaches deputy President.  (Al Jazeera)
  • McKinsey is close to settling its part in the opioid crisis.  (Reuters)
  • A Boeing judge wants additional information on Monitor and selection. (Law360)
  • RTX settles FCPA and fraud cases. (WSJ)
  • Meta fires staff who abused $25 meal credits. (FT)
  • Is routine legal advice risky? If you advise paying a bribe. (Law.com)
  • Grewal moves to Wall Street. (WSJ)
  • Which EU country is the most corrupt? (EuroNews)
  • Moog settles FCPA claim. (WSJ)
  • Canada’s reputation for clean banking is gone in 40 minutes. (The Globe and Mail)

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Daily Compliance News

Daily Compliance News: October 17, 2024 – The RTX Settles Edition

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

Each day, we consider four stories from the business world: compliance, ethics, risk management, leadership, or general interest for the compliance professional.

In today’s edition of Daily Compliance News:

  • RTX settles FCPA and fraud cases. (FT)
  • Mexico ex-Drug Czar to be sentencing for accepting bribes. (Reuters)
  • McKinsey is close to settling its part in the opioid crisis. (Reuters)
  • A Boeing judge wants additional information on Monitor and selection. (Law360)

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Blog

Deere FCPA Enforcement Action: Lessons on Post-Acquisition Integration and Investigation in M&A

We recently had a Foreign Corrupt Practices Act (FCPA) enforcement action that reminded me that everything old is new again in anti-corruption compliance. The Securities and Exchange Commission (SEC) FCPA enforcement action involving Deere has bribery schemes that were torn literally from the first decade of the 21st century as they involved gifts, travel, and entertainment. In other words, it was about a low set of hanging fruit that any compliance officer would see. Today, I want to conclude my multipart look at the case and see what lessons the enforcement action can provide to the 2024 compliance professional.

Deere offers valuable insights for compliance professionals tasked with ensuring that corruption risks are identified, mitigated, and resolved during the post-acquisition phase of M&A. This post will explore the key lessons from the Deere FCPA enforcement action, focusing on post-acquisition integration and investigation. As organizations expand through acquisitions, especially in foreign markets, the compliance team is critical in safeguarding the company from inheriting liabilities that could have been avoided with effective post-acquisition measures.

Deere, a multinational corporation known for its agricultural machinery, faced FCPA enforcement following its acquisition of a foreign company, the Wirtgen Group, which operates in regions with high corruption risks, specifically in Thailand. The Wirtgen Group-Thailand had engaged in corrupt practices, including the bribery of foreign officials to win contracts. After the acquisition, these activities continued for a period, undetected by Deere’s compliance team, which had not yet fully integrated the acquired company into its compliance program.

This case is a cautionary tale for compliance professionals on the importance of swift and effective post-acquisition integration and investigation processes. The lesson here is clear: post-acquisition efforts cannot be an afterthought. They must be a central part of the compliance strategy from day one.

Establish a Post-Acquisition Integration Plan from the Start

One key takeaway from the Deere FCPA enforcement action is the need for a well-defined post-acquisition integration plan with a robust compliance component. All too often, post-acquisition focuses on operational integration, with compliance being pushed down the priority list. However, Deere’s case demonstrates that failing to integrate compliance programs immediately can result in ongoing illegal activities that expose the acquiring company to FCPA violations.

Compliance professionals must ensure that the integration plan includes the following.

Immediate roll-out of the parent company’s compliance policies and procedures to the acquired entity.

  • Compliance training for all acquired company employees, focusing on FCPA and anti-corruption standards.
  • Review and revise the acquired entity’s third-party relationships to ensure compliance with the company’s standards and the FCPA.
  • Enhanced monitoring of high-risk activities, particularly interactions with foreign officials or government contracts.

Had Deere implemented these steps immediately post-acquisition, it could have identified and halted the corrupt practices sooner, avoiding the costly consequences of prolonged illegal activities.

Prioritize Post-Acquisition Investigations

Post-acquisition investigations are crucial in identifying undisclosed or ongoing corrupt activities within the acquired entity. The Deere case highlights how important it is for compliance professionals to conduct thorough investigations after the acquisition to ensure that any risks missed during the pre-acquisition phase are uncovered.

Key components of a post-acquisition investigation include:**

  • Forensic reviews of financial transactions, particularly payments to third parties, to detect any suspicious or abnormal patterns that could indicate bribery or corruption.
  • Employee interviews at various levels of the acquired entity to gather information about day-to-day operations, compliance culture, and potential risks.
  • Contracts and business deals are reviewed to ensure no irregularities or unethical practices, particularly in jurisdictions with high corruption risks.
  • 3rd-party audits of key suppliers, agents, and intermediaries who may have been involved in transactions with government entities or foreign officials.

In Deere’s case, a thorough post-acquisition investigation could have identified the ongoing corrupt practices early, allowing the company to take corrective action before it became the subject of an FCPA enforcement action.

Leverage Internal and External Resources for Compliance Integration

Deere’s failure to quickly integrate its compliance program into the acquired entity highlights the need for compliance professionals to leverage internal and external resources to accelerate the integration process. Post-acquisition compliance integration is often resource-intensive, especially when acquiring companies with operations in high-risk regions.

Key steps include the following.

  • Internal audit teams will be utilized to conduct a deep-dive assessment of the acquired entity’s financial and operational controls, focusing on FCPA compliance.
  • Engaging external forensic auditors and FCPA specialists to assist with investigations in high-risk jurisdictions where corruption is more likely to occur.
  • Establishing cross-functional teams that include representatives from compliance, legal, finance, and operations to ensure that compliance integration is holistic and touches every aspect of the acquired business.

Deere could have benefited from engaging external experts to help accelerate the compliance integration process and identify areas of concern within the newly acquired entity. By failing to do so, the company allowed corrupt practices to continue, resulting in significant FCPA penalties.

Monitor and Reassess Compliance Risks Regularly

Post-acquisition compliance efforts don’t end with the initial integration. Continuous monitoring and reassessment of compliance risks are essential to ensure that the acquired entity remains aligned with the parent company’s standards and the requirements of the FCPA. This is particularly important in industries and regions where corruption is more prevalent.

Continuous monitoring should include the following.

  • Regular audits of financial transactions and third-party payments.
  • Ongoing risk assessments that factor in changes in business operations, market conditions, and regulatory environments.
  • Compliance reporting mechanisms, such as whistleblower hotlines, allow employees of the acquired entity to report any concerns anonymously.
  • Periodic reviews of the acquired entity’s compliance culture are needed to ensure that employees adhere to the company’s anti-corruption policies.

In Deere’s case, ongoing monitoring could have helped identify and mitigate corruption risks earlier in the post-acquisition phase. The absence of regular monitoring and reassessments allowed corrupt practices to continue unchecked for an extended period.

Act Swiftly on Red Flags if They Appear

The most critical lesson from the Deere case is quickly identifying red flags. In this case, the acquired entity had numerous warning signs, including operations in high-risk regions, dealings with government officials, and lacking robust internal controls. However, these red flags should have been addressed promptly, allowing illegal activities to persist.

When red flags are identified, take some of the following steps.

  • Launch a formal investigation immediately to determine the scope of the issue.
  • Take corrective action, including terminating contracts with third parties involved in corrupt practices or dismissing employees who engage in illegal activities.
  • Notify regulatory authorities if there is a risk of FCPA violations and work proactively to resolve the issue before enforcement actions are taken.

Had Deere acted swiftly on the red flags within the acquired entity, the company might have been able to avoid the FCPA enforcement action and the associated penalties.

The Deere FCPA enforcement action provides a sobering reminder that compliance efforts cannot end with signing an acquisition deal. For compliance professionals, the real work begins in the post-acquisition phase. By prioritizing compliance integration, conducting thorough post-acquisition investigations, leveraging internal and external resources, continuously monitoring compliance risks, and swiftly acting on red flags, companies can avoid the pitfalls that Deere faced.

In today’s global business environment, with companies expanding through M&A in high-risk jurisdictions, compliance professionals must take a proactive and vigilant approach to post-acquisition compliance. The lessons from Deere remind us that the cost of failure is high, but with the right strategies in place, the risks can be managed effectively.

As a compliance professional, your role is to ensure post-acquisition compliance becomes integral to your company’s M&A strategy, protecting your organization from FCPA risks and safeguarding its reputation in the global marketplace.

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Blog

Deere’s FCPA Enforcement Action: Performing a Root Cause Analysis to Inform Remediation

We recently had a Foreign Corrupt Practices Act (FCPA) enforcement action that reminded me that everything old is new again in anti-corruption compliance. The Securities and Exchange Commission (SEC) FCPA enforcement action involving Deere and Company (Deere) has bribery schemes torn literally from the first decade of the 21st century as they involved gifts, travel, and entertainment. In other words, it was about a low set of hanging fruit that any compliance officer would see. Today, I want to take a multipart look at the case and see what lessons the enforcement action can provide to the 2024 compliance professional.

Compliance Professionals all know the pressure to act swiftly when misconduct is discovered. It is often tempting to jump straight into remediation to address the problem, protect the company, and appease regulators. However, the case of Deere’s recent FCPA enforcement action reminds us that acting without first understanding the root cause of the misconduct can lead to superficial fixes that fail to prevent future violations.

In the Deere enforcement action, the company faced significant penalties due to bribes paid by subsidiaries of Wirtgen Group, which Deere acquired in 2017. Between 2011 and 2017, Wirtgen subsidiaries engaged in corrupt practices, paying bribes to government officials in several countries, including China and India. While Deere eventually addressed the misconduct post-acquisition, its failure to perform robust due diligence and root cause analysis before remediation exposed it to regulatory and reputational damage.

This case highlights the critical need for companies to conduct a thorough root cause analysis before embarking on remediation efforts. In this blog post, we will detail why a root cause analysis should always precede remediation, what the process entails, and how it can protect your company from future enforcement actions and compliance failures.

Understanding the True Nature of the Problem

The first and most obvious reason to conduct a root cause analysis before remediation is to ensure you address the correct problem. In the Deere case, the misconduct stemmed from bribery by Wirtgen subsidiaries, but the real issue wasn’t just the bribery itself—it was the company’s failure to identify and prevent this behavior in the first place. Simply punishing the employees involved or updating internal policies would have been insufficient without understanding why these bribes were paid.

Before designing an effective remediation plan, you must understand why the misconduct occurred. Was it due to weak internal controls? A culture that tolerated unethical behavior? Inadequate training? A failure to perform due diligence on third parties? Each of these potential causes requires a different remediation strategy. If you do not identify the true cause of the problem, your remediation efforts will be superficial and may not prevent future violations. Root cause analysis allows compliance officers to uncover the underlying reasons for misconduct, enabling them to design targeted solutions that address the actual problem—not just the symptoms.

Root Cause Analysis Helps Identify Systemic Issues

One of the biggest risks when dealing with FCPA violations or corporate misconduct is that the issue may not be isolated to one event or individual. Corruption or compliance failures are often systemic, indicating deeper issues within the company’s culture, policies, or risk management framework. If Deere had conducted a more thorough root cause analysis post-acquisition, it could have uncovered broader issues in Wirtgen’s compliance program and taken proactive steps to address those weaknesses company-wide.

Root cause analysis forces you to ask tough questions about your company’s broader compliance infrastructure. Are certain business units, regions, or third-party relationships more misconduct-prone? Are there patterns of behavior that suggest systemic problems? You can implement more effective, company-wide remediation efforts by identifying these systemic issues beyond addressing a single incident.

Regulators Expect a Root Cause Analysis

Regulators, including the DOJ and the Securities and Exchange Commission (SEC), expect companies to conduct thorough root-cause analyses when investigating FCPA violations. The DOJ’s 2024 ECCP explicitly states that prosecutors will consider whether a company has adequately identified and remediated the root causes of misconduct when determining penalties. Additionally, this was specifically called out in the SAP Deferred Prosecution Agreement (DPA) earlier this year, where the DOJ stated, “5. Conducted a root cause analysis of the underlying conduct then remediating those root causes through enhancement of its compliance program;”.

In the Deere enforcement action, part of the company’s challenge was showing regulators that it had addressed the bribes themselves and the underlying reasons that allowed the misconduct to occur. Companies that skip the root cause analysis and rush into remediation without clearly understanding what went wrong will likely face harsher penalties.

Performing a root cause analysis is more than good practice; it has moved to a regulatory expectation. The more comprehensive your analysis, the more likely regulators (DOJ and SEC) are to view your remediation efforts as credible. A company that can demonstrate it understands the root cause of its compliance failures—and has taken meaningful steps to address those causes—is more likely to receive leniency during enforcement actions.

Preventing Recurrence: Moving Beyond Quick Fixes

One of the major pitfalls of jumping into remediation without a root cause analysis is the risk of implementing quick fixes that don’t address the root problem. For example, in the Deere case, if the company had updated its anti-corruption policy without addressing the broader cultural or systemic issues, it would have left the door open for future violations.

Root cause analysis ensures that your remediation efforts are comprehensive and designed to prevent future violations. Instead of focusing solely on policies or individuals, you’re addressing the broader systems and processes that allowed the misconduct to occur. This might involve rethinking your company’s approach to third-party due diligence, improving internal reporting mechanisms, or enhancing employee training programs to emphasize ethical behavior. A quick fix might resolve the immediate problem, but a comprehensive root cause analysis will prevent recurrence and protect your company long-term.

Improving Your Compliance Program Over Time

Root cause analysis is not a reactive tool; it is a mechanism to continuously improve your company’s compliance program. By regularly performing root cause analyses in response to compliance failures or near misses, you can identify trends, weaknesses, and gaps in your existing program. This allows you to make proactive adjustments and improvements, ensuring that your compliance program evolves to meet new risks and challenges.

Compliance is an ongoing process, and root cause analysis is key. By taking the time to understand why compliance failures happen, you can strengthen and improve your program over time. Don’t wait for a major enforcement action to identify weaknesses in your compliance program—use root cause analysis as a tool for continuous improvement.

Building a Culture of Accountability

Finally, one of the most important benefits of conducting a root cause analysis before remediation is that it fosters a culture of accountability. When employees see that the company is taking a thoughtful, thorough approach to addressing misconduct, they’re more likely to trust the compliance function and adhere to ethical standards.

In the Deere case, the company’s failure to identify and address the root causes of Wirtgen’s corrupt practices could have contributed to a culture where employees felt that bribery was tolerated or encouraged. By contrast, companies emphasizing accountability and transparency in their root cause analyses send a clear message: misconduct will be thoroughly investigated, and systemic issues will be addressed.

Building a strong culture of compliance starts with holding people—and processes—accountable. Root cause analysis helps you identify the individuals responsible for misconduct and the broader systems and structures that allowed it to happen. This accountability, in turn, strengthens your compliance culture and reinforces your company’s commitment to ethical behavior.

The Deere FCPA enforcement action powerfully reminds us of the importance of conducting a root cause analysis before proceeding with remediation. Companies need to understand why misconduct occurred before implementing superficial fixes. By taking the time to perform a thorough root cause analysis, compliance professionals can ensure that their remediation efforts are comprehensive, effective, and designed to prevent future violations.

Remember, root cause analysis isn’t just a best practice, as the DOJ has now noted several times in several places and through several different media; it is a regulatory expectation. It’s also a critical tool for improving your compliance program, building a culture of accountability, and protecting your company from future compliance failures. This means that before you rush to fix the problem, ensure you understand it first. Only then can you design a remediation plan that addresses the cause of misconduct and sets your company up for long-term success.