Tag: FCPA

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2 Gurus Talk Compliance

2 Gurus Talk Compliance – Episode 8 – Florida Man

What happens when two top compliance commentators get together? They talk compliance of course. Join Tom Fox and Kristy Grant-Hart in 2 Gurus Talk Compliance as they discuss the latest compliance issues in this week’s episode! In this episode, they discuss whether a compliance crisis is coming, a new compliance law in the UK, and why companies may be dialing down their public statements on ESG and DEI. They also delve into a survey on compliance concerns, the importance of preventing corruption in Ukraine, and the creation of a Department of Justice corporate crime database. With exciting stories like a bizarre crime tale and insight into the controversial Wall Street Journal article, this episode will keep you engaged and informed. Don’t miss out on this opportunity to improve your compliance.

Highlights Include

·      Corporate Compliance in a Time of Budget Cuts

·      Preparing for UK’s New Economic Crime Offense

·      Compliance and ESG in corporate culture

·      Managing Unwanted Change in Compliance

·      Legal issues of cryptocurrency exchange

·      Rebuilding Ukraine: Business Opportunities and Corruption

·      Stress-free Workplace Priorities

·      Corporate crime database

·      Florida Man strikes again 

Resources 

1.     Compliance Crisis Coming?

2.     2023 Global Compliance Risk Benchmarking Survey

3.     Managing Unwanted Change

4.     Ukraine and Corruption

5.     DOJ launches corp crime data base

6.    Florida Man Strikes Again (Honorary Darwin Award nominee as well)

7.    How Great Companies Give Their People What They Want

8.    DOJ Drop SBF FCPA Charges

9.    Companies Quiet Diversity Talk

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2 Gurus Talk Compliance

2 Gurus Talk Compliance – Once A Con, Always A Con

What happens when two top compliance commentators get together? They talk compliance of course. Join Tom Fox and Kristy Grant-Hart in their podcast, 2 Gurus Talk Compliance, as they dive into hot compliance topics. In this episode, they cover the Elizabeth Holmes goes to prison, the current office imbroglios, a record whistleblower award, the perils of using ChatGPT, cyber breach reporting, Gartner and trust and lightening and compliance. With their unique insights and engaging storytelling, this podcast is a must-listen for anyone in the compliance field. Don’t miss the latest episode of 2 Gurus Talk Compliance and stay ahead of the curve!

Highlights Include

·      Racial Justice at the Board

·      Gartner FCPA enforcement action

·      Cyber Incident Reporting

·      AI and Corporate Governance

·      Once a con, always a con

·      Record whistleblower award

·      WFH, RTW and Hybrid-Work

·      CCO Comp

·      Using ChatGPT

·      Penalties low, benefits high

 Resources 

  1. Racial Justice Initiative
  2. Gartner FCPA enforcement action
  3. FSB Report on Cyber Incident Reporting
  4. AI and Corporate Governance
  5. What the Hell Happened Here?.
  6. Record $279 Million Whistleblower Award
  7. Thank Goodness We Didn’t Get Struck by Lightening
  8. 3 Tips for Adapting to the Post-Pandemic Culture Shock at Work
  9. CCO Compensation Up 8%
  10. Here’s What Happens when Your Lawyer Uses ChatGPT

Connect with Kristy Grant-Hart on LinkedIn

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Phillips FCPA Enforcement Action: Lessons Learned – Part 3

We conclude our exploration of the Koninklijke Philips N.V. (Philips) Foreign Corrupt Practices Act (FCPA) enforcement action involving the Securities and Exchange Commission (SEC), for Phillips actions in China and its Chinese subsidiary, Phillips China. As set out in the SEC Order, Philips was order to “pay disgorgement of $41,126,170, prejudgment interest of $6,047,633, and a civil monetary penalty of $15,000,000” for a total fine and penalty of $62 million. Yesterday we considered the bribery schemes employed by Phillips China. After having reviewed the facts and Order we look at some lessons learned.

Distributors Under the FCPA

This is the third recent FCPA enforcement action involving distributors, following Oracle and Microsoft. Along with those cases, Phillips drives home the message that distributors are a risk under the FCPA. Oracle got into FCPA hot water regarding distributor discounts and marketing reimbursement. Microsoft came to OFAC grief as it did not know to whom its distributors were doing business as some distributors were selling to sanctioned entities. While distributors may not seem to be as high a risk commissioned sales agents, they do present a risk, which must be assessed and then managed with ongoing monitoring and improvements as appropriate. None of these steps were apparent from this FCPA enforcement action or found in the Order.

As noted yesterday, Philips in 2013 had agreed to “enhanced an anti-corruption training program that includes a certification process and a variety of training applications to ensure broad-based reach and effectiveness.” Whatever this training was, it does not seem to have reached China. Effective training is about communications, engagement and demonstrable implementation of the training messaging going forward. Once again Philips China did not seem as if that communications about not engaging in bribery and corruption was taken into its business operations.

Recidivist Behavior Under 2023 Corporate Enforcement Policy

As noted yesterday, in a May 10, 2023 Press Release,  Phillips announced that “The U.S. Department of Justice (DOJ) has closed its parallel inquiry into these matters” and the company intoned that it “fully cooperated with the SEC and DOJ.” Philips also reported that the FCPA matter had “previously been disclosed in Philips’ Annual Reports 2019 through 2022.”

There has been no statement by the Department of Justice (DOJ) regarding Philips. Further there has been no declination regarding Philips publicly announced by the DOJ. Given the strong statement about recidivists by Deputy Attorney General Lisa Monaco in announcing the Monaco Doctrine last September and the need for speed referenced by Kenneth Polite in announcing changes to the Corporate Enforcement Policy in January 2023; one might have expected some statement from the DOJ.

If the DOJ really wants companies to step forward and self-disclose, it would seem that Philips would be a good example to use. Apparently there was not self-disclosure, not extraordinary cooperation and no compliance with the 2013 SEC Order concluding the first Philips FCPA enforcement action. In other words, all the requirements for a company to obtain the significant credit under the 2023 Updated Corporate Enforcement Policy. If you add in Philip’s prior FCPA enforcement action into the mix, it would certainly appear that Phillips’ culture of compliance was lacking, at least along the lines of that aspect of the Monaco Doctrine.

Lessons Learned

With Phillips filing out the trio of recent distributor enforcement actions, it is clear that companies need to start paying more attention to the distributor sales model as a source of risk. Of course, robust due diligence screening is a must but it is only a starting point. Companies need to monitor the relationship after the contract is signed. The Philips FCPA enforcement action points toward the need for robust data analytics particularly around special price discounts with distributors creating excessive distributor margins which could be used to fund improper payments to employees of state-owned enterprises or governmental officials. A data analysis would quickly and efficiently show any special discount or discount beyond the standard range given to distributors. Moreover, regional discounts could be taken into account easily using the data analytics approach.

Additionally the maintenance of adequate books, records, and accounts concerning special price discounts to demonstrate that the discounts were supported by adequate documentation to ensure their business justification and management’s approval of them. This basic step also acts as a basic compliance internal control so that there can not only be oversight of the proposed distributors and any discounts but also creates a documented audit trail if a regulator ever comes knocking.

At this point there is perhaps some head-scratching about the final resolution, if any, regarding Philips given the state of the record as laid out by the Order. However it is clear there are significant lessons for the compliance professional from the Phillips enforcement action around distributors. I hope that at some point there is greater clarity under the 2023 Corporate Enforcement Policy update.

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Blog

Phillips FCPA Enforcement Action: Violations, Remediation and Recidivism – Part 2

We continue our exploration of the Koninklijke Philips N.V. (Philips) Foreign Corrupt Practices Act (FCPA) enforcement action involving the Securities and Exchange Commission (SEC), for Phillips actions in China and its Chinese subsidiary, Phillips China. As set out in the SEC Order, Philips was order to “pay disgorgement of $41,126,170, prejudgment interest of $6,047,633, and a civil monetary penalty of $15,000,000” for a total fine and penalty of $62 million. Yesterday we considered the bribery schemes employed by Phillips China. Today we consider the responses made by Phillips which led to its internal investigation, Phillips remediation and the prior FCPA enforcement action.

A. The FCPA Violations

In the SEC Order, Phillips was not charged with the payment of bribes. Rather, Phillips was charged with a failure of internal controls. Under the FCPA, companies which are issuers are required “devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances.”

  1. Transactions are executed in accordance with management’s general or specific authorization;
  2. Transactions are recorded as necessary (I) to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and (II) to maintain accountability for assets;
  3. Access to assets is permitted only in accordance with management’s general or specific authorization; and
  4. The recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

Philips violated the FCPA “failing to devise and maintain an adequate system of internal accounting controls regarding distributor transactions and the use of these third parties.” Additionally, “Philips’ internal accounting controls were not sufficient to provide reasonable assurances that transactions were executed in accordance with management’s general or specific authorization and that access to assets was permitted only in accordance with management’s general or specific authorization.”

B. Cooperation and Remediation

Interestingly Phillips did not self-disclose this issue. Nor did Phillips appear to engage in any ‘extraordinary” cooperation. This cooperation was noted in the Order as “Philips undertook an internal investigation and regularly shared with Commission staff the facts developed in its inquiry, including facts previously unknown to the staff, and identified and voluntarily provided translations of key non-privileged documents.” I was particularly intrigued by the statement “facts previously unknown to the staff” which would seem to indicate there were some facts which were previously known to the SEC (and not by the way of a self-disclosure.)

Phillips did engage in remediation efforts which were recognized by the SEC. These included:

  • Phillips made structural improvements to its policies and procedures;
  • The company improved its tone at the top and the middle, with a focus on Philips China;
  • Phillips increased accountability for enforcing compliance policies by its business leaders;
  • The company highlighted compliance as a key component of ethical business practices;
  • Phillips terminated or disciplined Philips China employees involved in the conduct;
  • Phillips terminated business relationships with distributors involved in the conduct;
  • The company also improved its internal accounting controls relating to distributors;
  • Phillips improved its ability to monitor its subsidiaries bidding practices and their use of discounts and special pricing; and
  • Finally, Philips has revised its compliance training.

 C. Prior FCPA Enforcement Action

In 2013 (the year before these actions began) Phillips agreed to its first FCPA enforcement action, also involving the SEC (2013 Order). That matter related to the company’s action in Poland. According to the FCPA Blog, “from 1999 to 2007, in at least 30 bids, employees of Philips’ subsidiary in Poland ‘made improper payments to public officials of Polish healthcare facilities to increase the likelihood that public tenders for the sale of medical equipment would be awarded to Philips. The bribes and kickbacks were 3% to 8% of the contract amounts.” In that 2012 enforcement action, “Philips agreed to pay $4.5 million in the settlement, consisting of disgorgement of $3.1 million and prejudgment interest of $1.4 million.” Of course, Phillips also agreed to “cease and desist from committing or causing any violations and any future violations of” the FCPA.

As for the remedial actions taken by Phillips for the 2013 Order it stated, “Philips also retained three law firms and two auditing firms to conduct the investigation and design remedial measures to address weaknesses in its internal controls. Included in changes to internal controls, Philips established strict due diligence procedures related to the retention of third parties, formalized and centralized its contract administration system and enhanced its contract review process, and established a broad-based verification process related to contract payments. In addition, Philips has made significant revisions to its Global Business Principles policies and continually revises the policies to keep them current and relevant. Philips also established and enhanced an anti-corruption training program that includes a certification process and a variety of training applications to ensure broad-based reach and effectiveness.”

Given that the Phillips China bribery scheme started in 2014 does it sound like Phillips took these obligations very seriously. I wonder just where those three law firms and two audit firms were looking when they conducted an investigation and designed “design remedial measures to address weaknesses in its internal controls.”  Finally I am not sure where the company’s “certification process” went after the 2013 Order, but apparently not as far as China.

All this means that Phillips is yet another FCPA recidivist. There was no statement in the 2023 Order that Phillips self-disclosed the illegal conduct in China to the SEC. Nevertheless, Phillips seemed to get the benefit of the doubt from the DOJ. In a May 10, 2023 Press Release,  Phillips announced that “The U.S. Department of Justice (DOJ) has closed its parallel inquiry into these matters” and the company intoned that it “fully cooperated with the SEC and DOJ.” Phillips also reported that the FCPA matter had “previously been disclosed in Philips’ Annual Reports 2019 through 2022.”

There has been no statement by the Department of Justice (DOJ) regarding Phillips. Further there has been no declination regarding Phillips publicly announced by the DOJ. Given the strong statement about recidivists by Deputy Attorney General Lisa Monaco in announcing the Monaco Doctrine last September and the need for speed referenced by Kenneth Polite in announcing changes to the Corporate Enforcement Policy in January 2023; one might have expected some statement from the DOJ.

Or perhaps not. Tomorrow, we conclude with some final thoughts.

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Blog

Phillips FCPA Enforcement Action: The Risks with Distributors – Part 1

Last week the Amsterdam based Koninklijke Philips N.V. (Philips) agreed pay more than $62 million to the Securities and Exchange Commission (SEC) to resolve charges that it violated the Foreign Corrupt Practices Act (FCPA) with respect to conduct related to the sales of medical diagnostic equipment in China. This case is yet another recent FCPA enforcement matter involving distributors. It demonstrates once again some of the inherent risks in a distributor sales model, as opposed to the model traditionally seen as the highest risk, the commissioned sales-agent. (Shout out to Harry Cassin at the FCPA Blog for breaking the story to the compliance community.)

According to the SEC Press Release announcing the matter, “Philips’ subsidiaries in China, cumulatively referred to in the order as Philips China, used special price discounts with distributors that created a risk that excessive distributor margins could be used to fund improper payments to government employees.” Equally significant was that the “SEC’s Order also found that employees, distributors, or sub-dealers of Philips’ subsidiaries in China engaged in improper conduct to influence hospital officials to draft technical specifications in public tenders to favor Philips’ products.” The SEC pointed to two examples, “in one instance, a district sales manager at Philips China provided funds to a hospital director in return for the director’s assistance in the procurement process, and, in another instance, Philips China employees discussed tailoring technical specifications for a public tender with hospital directors so that only Philips China and two other manufacturers would qualify for the bid.” As a result of its conduct, Philips was unjustly enriched by approximately $41 million.

I. Introduction

According to the Order, in “China the majority of hospitals and other healthcare providers are state-owned enterprises. These government-owned entities purchase the majority of their diagnostic imaging equipment through public tenders. By 2016, the majority of Philips China’s sales were made indirectly through authorized distributors or sub-dealers engaged by the authorized distributors. By 2018, 91% of Philips’ diagnostic imaging revenue in China was earned through this indirect sales channel.”

Philips China aggressively grew its diagnostic imaging business, winning public tenders in an increasingly competitive market. Phillips was aggressive in its pricing discounts to do so. According to the Order, “in some transactions, at the request of distributors, Philips China provided special pricing discounts on the health technology equipment that it sold to its distributors. However, Philips China’s approval processes and its recording of the special pricing discounts were not subject to sufficient internal accounting controls to ensure appropriate management authorization of the discounts.”

II. The Corruption Schemes

  1. The Hospitals

The Order related that in multiple transactions between 2014 through 2019, Philips China employees, distributors, or sub-dealers engaged in improper bidding practices to increase the likelihood that Philips China’s distributors or their sub-dealers were awarded public tenders to sell medical equipment to government-owned hospitals. There were three general prongs to these bribery schemes. The employee responsible for writing the technical specifications, in consultation with a bidder such as Phillips would provide that same bidder “with a competitive advantage in the public tender prior to the opening of the bidding period” by providing the information to the bidder prior to the formal beginning of the bidding process.

Another scheme was to draft specifications which would meet that bidder’s equipment “to increase the likelihood that the selected manufacturer would qualify for the winning bid.” In the final bribery scheme the “hospital employee directed the winning bidder or its distributor or sub-dealer to prepare the manufacturer’s bid and also two additional accompanying bids to meet the three-bid requirement of public tenders and give the appearance of legitimacy.” Further, “Phillips China employees who participated in the conduct described above included district sales managers, sales employees, and employees in the technical group that supported sales.”

  1. Phillips Responses

The SEC Order pointed to three examples of bribery schemes engaged in by Philips in response to the corruption perpetrated by the health care providers.

a. Bribes for Inside Information

In one example a Philips China district sales manager for Hainan Province delivered approximately $14,500 directly to the home of a director of the hospital’s radiology department in return for the director’s assistance in the procurement process. With the inside information obtained through this payment, “the sales team discussed the specifications to be included in the bid with the relevant hospital director, and its distributor prepared an accompanying bid with another manufacturer’s products.” It ended with a “procurement award for two Philips devices valued at $4.6 million.”

b. Bribes to Obtain Unlawful Influence

In another example, the decision-making directors at a hospital discussed tailoring the technical specifications with Philips China employees so that only Philips China and two other manufacturers would qualify to compete in the bidding process. In October 2017, a Philips China distributor won the bid to sell two Philips devices to the hospital. This tender was won as a result of inappropriately influencing the tender specifications, netting Philips a tender valued at $475,000.

c. Excessive Discounts Provided to Distributors

In perhaps the most classic distributor bribery model, Philips China’s use of special price discounts with distributors created the risk that excessive distributor margins could be used to fund improper payments to employees of government-owned hospitals. The SEC Order did not specify the amount of the discounts or how it differed from the standard (if any) discount provided to Philips distributor.

Join us tomorrow where we consider Philips lack of internal controls, the fine and penalty, the recidivism of Philips and any potential Department of Justice (DOJ) enforcement action.

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SBR - Authors' Podcast

Jon May ‘Who Says You Can’t’

Welcome to the Sunday Book Review, the Authors Podcast! On this episode, Tom as he welcomes Jon May, a seasoned compliance expert and author of the book “Who Says You Can’t?” to this week’s episode of Sunday Book Review-Author’s Edition.

In this engaging podcast, Tom and Jon discuss their favorite cases, including John Adams’ defense of British soldiers in the Boston Massacre and the tactics used to establish their innocence. They also cover topics such as fraudulent activity, white-collar criminal defense, and discussing the delicate balance between protecting civil liberties and fighting criminal activity. Jon’s unique perspective and experience in the field make for an informative and thought-provoking discussion you won’t want to miss. Tune in now to gain insights into compliance and to learn more about Jon’s book and practice.

Tune into Sunday Book Review-Author’s Edition for an exceptional conversation about how to live according to values and make great things happen. This fascinating podcast will surely bring insights, discussion, and knowledge to the forefront. Don’t miss Sunday Book Review-Author’s Edition and get an insightful look into the power of living out your values.

Key Highlights Include

·      Jon May’s Career and Compliance Interest

·      Motivation for Writing and John Adams’ Defense

·      Jury selection and criminal defense strategies

·      Corporate executives and prosecution

Notable Quotes

1.     “Over and over again, it is a master class in how to do a closing argument.”

2.     “In each of my articles, I found a different tactical problem that I tried to develop the best practices for where they weren’t any best practices.”

3.     “Adams found the perfect way of having the jurors see what was facing the soldiers, what how the mob looked to the soldiers looking through their eyes so that they could feel the chunks of ice being thrown.”

4.     ” If Tom Fox said yes that I put it in a book, hey, you know, he has that much confidence in me.”

Resources

Jon May 

On Creative Criminal Defense Consultants

Who Says You Can’t: Strategy and Tactics for Becoming a More Creative Criminal Defense Lawyer

 

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FCPA Compliance Report

Jon May On Defending Individuals in FCPA Cases

Welcome to the award-winning FCPA Compliance Report, the longest-running podcast in compliance. In this episode, Tom Fox interview well-known curmudgeon and iconoclast Jon May. May, who is not a compliance officer, talks about his approach to the topic, which has caught Tom’s attention. The conversation traverses May’s professional background, discussing Miami’s wild west environment in the 1980s and corruption within the police department. The podcast takes a deep dive into corporate strategy, DOJ’s enforcement policies, and the changes in whistleblower laws. The author provides an exclusive hotline number for listeners to call him and wraps up by describing where to purchase his book! Take advantage of this engaging podcast with the brilliant Jon May, hosted by Tom Fox.

Key Highlights:

· Negotiating with Government in Corporate Criminal Conduct

· Navigating US Sentencing Guidelines for Defense Lawyers

· Pleading Guilty and Self-Disclosure for White-Collar Crimes

· Changing view of whistleblowers and self-disclosure regulations

· Balancing Crime Fighting and Civil Liberties

 Notable Quotes

“It is the company’s recommendation that they obtain counsel before they are interviewed by the company or the company’s outside counsel.”

“I have, as you know, always been very critical of the government’s care and stick approach to convincing companies to self-disclose.”

“But showing the prosecutor that there’s a very different side requires a great deal of work.”

“You might not get 3 points. You might only get 2 points. But the amount of time you can save by litigating various aspects of sentencing could be years and years.”

Resources

Jon May

On Creative Criminal Defense Consultants

Who Says You Can’t: Strategy and Tactics for Becoming a More Creative Criminal Defense Lawyer

Tom Fox

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Blog

2022-The Year in FCPA

2022 saw a relatively slow year in Foreign Corrupt Practices Act (FCPA) enforcement actions. Yet, as usual, the cases themselves were packed with much for the compliance professional to digest. Moreover, 2022 was a very significant year for every compliance practitioner and compliance program. My latest book, 2022 – The Year in FCPA – FCPA Enforcement Actions, DOJ Commentary and Key Lessons for Compliance from 2022 reviews the corporate FCPA enforcement actions from the past year and mine them for lessons which can be garnered by the compliance practitioner.

The cases themselves ranged in fine and penalty values from $1.1 billion (Glencore International A.G.) down to $6.3 million (KT Corporation). The Department of Justice (DOJ) FCPA prosecutions involved the following entities: Stericycle Inc. (Stericycle), with an overall fine of $84 million; Glencore, with an overall fine of $1.1 Billion; GOL Linhas Aéreas Inteligentes S.A. (GOL), with an overall fine of $41 million; ABB Ltd. (ABB) with an overall fine of $315 million and, concluding the year, Honeywell UOP, with an overall fine of $160 million. From the Securities and Exchange Commission (SEC) we saw enforcement actions involving the following entities: KT Corp, with a penalty of $6.3 million; Tenaris S.A., with a penalty of $78 million; Oracle Corporation (Oracle), with a penalty of $23 million, and Stericycle, GOL, ABB and Honeywell, with the fine amounts noted above. Finally, Glencore was also fined by the Commodity Futures Trading Commission (CFTC).

The total fines and penalties were $1.396 billion. Under the new monitorship policy, announced in October 2021 and put into practice through the Monaco Memo, there were two cases which  included appointments of Corporate Monitors (Glencore and Stericycle). From the DOJ there were two Declinations. The first involved the French entity Safran S.A. and included a $17 million disgorgement. The second involved the UK entity Jardine Lloyd Thompson Group Holdings Ltd. (JLT) and included a $29 million disgorgement. 2022 saw one individual FCPA trial involving former Goldman Sachs Group Inc. Managing Director Roger Ng, who was convicted for criminally circumventing the firm’s internal controls. The Swedish telecom company Telefonaktiebolaget LM Ericsson (Ericsson) had its monitorship extended for 1 year amidst ongoing investigation they breached the Deferred Prosecution Agreement (DPA) and, finally, the Russian entity Mobile TeleSystems PJSC (MTS) also had its monitorship extended for 1 year.

In the realm of individuals prosecuted there were 24 individual criminal prosecutions and it appeared that individual criminal prosecutions continued at aggressive pace. With the formalization of the Monaco Memo, the DOJ will be targeting more individuals for prosecutions in 2023 so the pace of individual prosecutions will continue and probably increase. In 2022, the majority of the individual prosecution stemmed from prior FCPA actions involving a small number of companies; most notably Petróleos de Venezuela S.A. (PDVSA), Vitol Inc., Odebrecht S.A. and Sargeant Marine Inc. It is significant that the DOJ has continued its use of anti-money laundering (AML) charges, which have a 20-year maximum sentence together with FCPA charges, which have a five-year maximum sentence.

However, 2022 was a very significant year for every compliance practitioner and compliance program. While there was a paucity of corporate FCPA enforcement actions, three actions were significant, with multiple lessons for the compliance professional. In ABB, we learned about the costs of a corrupt culture and recidivism. In Glencore, we saw what happens to a company that engages in worldwide systemic bribery and corruption. Finally, in Stericycle, the company had a culture of corruption burned into the DNA of the LATAM business unit, which was so thorough that it was documented via bribery spreadsheets and analysis of revenue based on payments of bribes in LATAM. Yet even with this corrupt culture, the Stericycle enforcement action demonstrated how a company could take advantage of the discounts available under the FCPA Corporate Enforcement Policy by extensive cooperation and remediation during the pendency of the FCPA investigation, as the company obtained a 25% reduction off the bottom of the applicable US Sentencing Guidelines fine range.

September saw the announcement of a significant refinement of DOJ enforcement policies on the FCPA enforcement and corporate compliance programs. It was encapsulated in the Monaco Memo and a speech by Deputy Attorney General Lisa Monaco announcing the Monaco Doctrine. There was additional commentary by Principal Associate Deputy Attorney General Marshall Miller in a speech and by Assistant Attorney General Kenneth A. Polite. Every compliance professional should know them in detail as they significantly turn the heat up on corporate compliance programs. The Monaco Memo is further clarification and guidance for line prosecutors when considering whether to put a monitor in place. While we have seen these factors in a disparate manner, in disparate places, here they are in writing. Perhaps the greatest significance is that the Memo sets down all these matters in writing, which leads to a blueprint for DOJ thinking and a roadmap for anyone who finds themselves in an FCPA investigation or enforcement action. Finally, the Monaco Memo cemented the new DOJ requirement for CCO certification of compliance programs at the end of a resolution.

The final key event for compliance in 2022 was very much under the radar. The DOJ hired Matt Galvan to help develop data analytics expertise and capability for the FCPA Unit and the Fraud Section. Galvan was most recently the CCO at AB InBev and perhaps the top compliance professional in data analytics for a corporate compliance program. It will be most interesting to see where Galvan and the DOJ take this initiative, but it does portend the increasing use of data analytics in FCPA enforcement and compliance.

What did the year 2022 in FCPA mean for you. Check out 2022-The Year in FCPA now available on Amazon.com.

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FCPA Compliance Report

Ryan Patrick on the Role of a US Attorney Under the Monaco Memo, CEP & ECCP

Welcome to the award-winning FCPA Compliance Report, the longest running podcast in compliance. Looking for a podcast that will give you insights into the Department of Justice’s corporate enforcement policy and the implications for corporations facing investigations? Look no further than FCPA Compliance Report! In this episode, Tom Fox sits down with Ryan Patrick, a former US district attorney for the southern district of Texas. They discuss the importance of staying up-to-date with DOJ memos and speeches, the difficulty for corporations in deciding whether or not to self-disclose, and the implications of outside counsel being deputized. Ryan emphasizes the importance for companies to work with lawyers who know judges and have pre-existing relationships with local prosecutors, including US attorneys and line prosecutors. They discuss the Southern District of Texas and its role in border-related issues, as well as the Patrick’s time as a US Attorney for the Southern District of Texas. This podcast is a must-listen for anyone looking to gain a better understanding of corporate enforcement and compliance policies. Don’t miss out on the conversation between Tom Fox and Ryan Patrick!

 Key Highlights

·      Discussing U.S District Attorney’s work challenges

·      Evolution of Corporate Enforcement Policy by DOJ

·      Challenges in Communication with Corporations for Attorneys

·      Challenges of Self-Disclosure for Businesses

·      Navigating Legal Issues with Local Counsel

·      Challenges to Attorney-Client Privilege in Corporate Cases

·      Border Security and Cryptography Cases in Texas

·      US Attorney General Advisory Committee in Presidential Administration

·      Role of Southern District of Texas in law enforcement and corporate enforcement

·      Inside a Federal Prosecutor’s Role

 Notable Quotes

·      “It seems to me that this broaden beyond simply anti-corruption in FCPA and whether it be fraud, whether it be antitrust, whether it be environmental, whether it be a wide variety of other types of issues that an AUSA and a local district attorney US district attorney’s office would prosecute.”

·      “Asking the US attorney’s offices now to step into this space where really thinking from the idea of self-disclosure and from monitoring or audio auditing, so to speak, someone’s compliance program.”

·      “One of the not perhaps most difficult, but hardest conversations a corporation has is whether or not to self-disclose under the FCPA.”

·      “Bring it to me. I will consider it because it’s not 1 size fits all.

Resources

Ryan Patrick on LinkedIn

Ryan Patrick on Haynes and Boone

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31 Days to More Effective Compliance Programs

One Month to a More Effective Compliance Program for Business Ventures – Distributor Liability Under the FCPA

Three enforcement actions made clear that there were no distinctions between agents and distributors. They were the Smith & Nephew, Inc., Oracle (2012 and 2022), and Eli Lilly and Company. Each of these enforcement actions had different FCPA violations, and they each revealed separate steps a company should take to prevent and detect FCPA violations in their company.

These three separate bribery schemes call for three different but overlapping responses. The Lilly enforcement action also makes clear the need for internal audits to follow up with ongoing monitoring and auditing. Internal audit can help determine the reasonableness of a commission rate outside the accepted corporate norm. The 2012 and 2022 Oracle enforcement actions demonstrated that Oracle needed to institute the proper controls to prevent its employees at Oracle India from creating and misusing the parked funds in the distributor’s account. The Company needed to audit and compare the distributor’s margin against the end user price to ensure excess margins were not being built into the pricing structure. Smith & Nephew did not perform sufficient due diligence on these distributors, nor did they document any.

Further, the distributor was domiciled in a location separate and apart, the UK, from the sole location it was designed to deliver products or services into, Greece. This clearly demonstrated that the entities were used for a purpose the company wished to hide from Greek authorities. While it is true that a distributor might sell products in a country different than its domicile, if the products are going into a single country, this should have raised several Red Flags.

Three Key Takeaways:

  1. Use auditing and monitoring.
  2. Distributors will be treated the same as other business ventures.
  3. Robust due diligence must be performed.