Tag: FCPA

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The Week That Was in Compliance – Clawbacks

We are in the midst of a multipart review of last week’s speeches from the Department of Justice (DOJ) at the recently concluded ABA’s 38th Annual National Institute on White Collar Crime, held in Miami. Compliance professionals, white collar defense lawyers and indeed corporate executives will be talking about the past week in Miami for many moons to come. The speeches were made by Deputy Attorney General Lisa Monaco (2023 Monaco Speech) and Assistant Attorney General Kenneth A. Polite (Polite Speech) and they previewed a number of initiatives by the DOJ which every compliance professional will need to study in some detail. These new initiatives included:

The Criminal Division’s Pilot Program Regarding Compensation Incentives and Clawbacks

Evaluation of Corporate Compliance Programs (ECCP)

Revised Memorandum on Selection of Monitors in Criminal Division Matters

Over this series, I will be taking a deep dive into these speeches and new Evaluation of Corporate Compliance Program, Monitor Selection and Pilot Program on Incentives and Clawbacks. Today we take a deep dive into those portions of the Monaco and Polite Speeches which dealt with clawbacks or in the terminology of the ECCP-consequence management.

Monaco Speech

DAG Monaco discussed the development of the clawback policy to promote “innovative approaches to compensation” which would “shift the burden of corporate malfeasance away from uninvolved shareholders onto those more directly responsible.” She believes “Companies should ensure that executives and employees are personally invested in promoting compliance” as “nothing grabs attention or demands personal investment like having skin in the game, through direct and tangible financial incentives.” This led the Criminal Division to “develop guidance, guidance on how to reward corporations with compliance-promoting compensation programs.”

The clawback initiative has two parts. Monaco said, “First, every corporate resolution involving the Criminal Division will now include a requirement that the resolving company develop compliance-promoting criteria within its compensation and bonus system. Second is the creation of a 3-year pilot program under which the “Criminal Division will provide fine reductions to companies who seek to claw back compensation from corporate wrongdoers.””

Finally, the DOJ has added some real benefits for companies which follow these prescripts. First is that any company which resolves a Foreign Corrupt Practices Act (FCPA) violation will “pay the applicable fine, minus a reserved credit equaling the amount of compensation the company is attempting to claw back from culpable executives and employees.” Additionally, “If the company succeeds and recoups compensation from a responsible employee, the company gets to keep that clawback money — and also doesn’t have to pay the amount it recovered.” Finally, if the company’s efforts at clawbacks are not successful or completed during the pendency of the investigation up to the settlement “the pilot program will also ensure that those who pursue clawbacks in good faith but are unsuccessful are still eligible to receive a fine reduction.” All of these efforts are designed to “shift the burden of corporate wrongdoing away from shareholders, who frequently play no role in the misconduct, onto those directly responsible.” Monaco concluded, “We intend this program to encourage companies who do not already factor compliance into compensation to retool their programs and get ahead of the curve.”

Polite Speech

 As expected, Polite provided more detail on the new clawback initiative. He said, “As to clawbacks: for companies that fully cooperate with our investigation and timely and appropriately remediate the misconduct, they may receive an additional fine reduction if the company has implemented a program to recoup compensation and uses that program. We expect companies that use these programs to address not only employees who engaged in wrongdoing in connection with the conduct under investigation, but also those who had supervisory authority over the employees or business area engaged in the misconduct, and knew of, or were willfully blind to, the misconduct.” (emphasis mine)

Expanding on the benefits for an organization, he stated, “If the company meets these factors and – in good faith – has initiated the process to recover such compensation at the time of resolution, our prosecutors will accord an additional fine reduction equal to the amount of any compensation that is recouped within the resolution term.” Finally, “if a company’s good faith effort is unsuccessful by the time the resolution term ends, our prosecutors will have discretion to accord a fine reduction of up to 25% of the amount of compensation that has been sought.”

Polite did leave room for companies to weigh a variety of factors in bringing a clawback claim. He noted, “We are not trying to incentivize waste. To the contrary, companies should make an assessment about the potential cost to shareholders and prospect of success of clawback litigation, given any applicable laws, and weigh it against the value of recoupment – and proceed in accordance with their stated corporate policies on executive compensation. This Pilot Program will be in effect for three years, allowing us to gather data and assess its effectiveness and also aid other components and offices in considering this important issue.”

As a recovering trial lawyer, I know that any litigation is always fraught with unknowns, both known and unknown. Given the imbroglio involving the DOJ and Cognizant Technologies Solutions over the DOJ prosecution of former executives, the road to any successful clawback will be fraught with peril. Additionally, it is not clear how far companies or the DOJ will push for clawbacks from “those who had supervisory authority over the employees or business area engaged in the misconduct.” If scope creep comes in it could be a wide group.

Join me tomorrow as I begin an exploration of the updated Evaluation of Corporate Compliance Programs.

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31 Days to More Effective Compliance Programs

One Month to More Effective Compliance for Business Ventures – JV Due Diligence

When you bring two entities together to operate jointly, there are several difficult issues to analyze. For the U.S. company operating under the FCPA, there must be an adequate business justification for a JV with a specific partner, all in writing and approved by an appropriate level of the organization. This is where the due diligence process comes into play. The due diligence process should be built on principles similar to those involving third parties. The procedure should be robust, documented, and address all potential risks. A company should use its due diligence review of the JV partner to properly assess and uncover corruption risks. Using this due diligence and its evaluation, you can move to contractual clauses, certifications, representations, and warranties from a JV partner or insist on other remedial measures to minimize risk exposure.

A U.S. business looking to engage a JV partner must consider the people who make up its JV partner. As you will have to mesh what may be two very different cultures and understandings of compliance, it is important to assess how your potential JV partner will take these obligations before rather than after you ink the JV agreement.

Three key takeaways:

  1. JV’s due diligence must focus on the unique risks.
  2. Ask for a detailed list of information from your potential JV partner.
  3. Be sure to do the onsite investigation of your potential JV partner.
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The Week That Was in Compliance – The Polite Speech: Part 1

We are in the midst of a multipart review of last week’s speeches from the Department of Justice (DOJ) at the recently concluded ABA’s 38th Annual National Institute on White Collar Crime, held in Miami. Compliance professionals, white collar defense lawyers and indeed corporate executives will be talking about the past week in Miami for many moons to come. The speeches were made by Deputy Attorney General Lisa Monaco (2023 Monaco Speech) and Assistant Attorney General Kenneth A. Polite (Polite Speech) and they previewed a number of initiatives by the DOJ which every compliance professional will need to study in some detail. These new initiatives included:

The Criminal Division’s Pilot Program Regarding Compensation Incentives and Clawbacks

Evaluation of Corporate Compliance Programs (Updated March 2023)

Revised Memorandum on Selection of Monitors in Criminal Division Matters

Over this series, I will be taking a deep dive into these speeches and new Evaluation of Corporate Compliance Program, Monitor Selection and Pilot Program on Incentives and Clawbacks. Today we continue with an initial review of the Polite Speech.

Polite began with a clear plea for the righteousness of being a prosecutor. Interestingly he began by describing what he saw at the ABA White Collar conference in San Francisco, “During a short afternoon walk between the hotel and the U.S. Attorney’s Office, we saw homelessness, and drug addiction, and food insecurity, and lack of hygiene, and violence.” He went on to add “Human suffering. We see it in every city where this conference gathers, be it the Tenderloin area of San Francisco, Liberty City here in Miami, or the Lower Ninth Ward in New Orleans. The same things could be found in nearly every town across this country. Across this globe. Right outside. Right around us. Right around you, if you decide to open your eyes and accept a broader definition of community.” From there he related being a DOJ prosecutor to a calling to help fix these problems but being “problem-solvers”.

He used these domestic urban ills to transition to what he called a ‘righteous’ prosecution of Claudia Patricia Diaz Guillen, the former National Treasurer of Venezuela and her husband. They were charged with accepting over $100 million “in bribes from a Venezuelan billionaire businessman for access to purchase bonds from the Venezuela National Treasury at a favorable exchange rate. All the while, millions of Venezuelans had to confront daily economic crisis, rampant inflation, and unimaginable poverty and hunger.” This is while “96% of Venezuelans lived in poverty.” He ended this section by noting the prosecution was “a virtuous case that spanned the globe to hold multiple corrupt actors accountable and remove corrupt leadership – this prosecution exemplifies what our prosecutors can do.”

Polite believes that there is a clear tie between poverty and corruption. (One reason the San Francisco remarks were so interesting.) This is why it is important to prosecute corrupt government officials such as Diaz because her actions keep the people of Venezuela in such dire economic straits. He stated, “Just as crime recognizes no borders, our efforts to combat it must be equally boundless. We need our partners – both domestic and international – to solve community problems. That is where the Criminal Division thrives.” In the Diaz case there was international cooperation at various levels. Think about that for a moment, the US and Venezuelan governments cooperating on anything, yet they apparently did cooperate on this matter. Polite added that several recent Foreign Corrupt Practices Act (FCPA) corporate enforcement matters, “Glencore, ABB, Danske, and Stericycle, among many others, underscore the successes that we’ve shared with our colleagues abroad.”

To be truly effective community problem-solvers, we have to broaden our sense of community by literally ‘spanning the globe’ to fight crime, including bribery and corruption. Polite stated, “Crime does not limit itself by country or region. Corruption’s corrosive effects are global, with the world’s poor often bearing the brunt. Bribery threatens our collective security by undermining the rule of law and providing a breeding ground for other crime and authoritarian rule.”

He pointed to this level of international cooperation which “has also been critical to MLARS’s work on the Kleptocracy Asset Recovery Initiative, which has targeted and restrained more than $3.6 billion relating to foreign official corruption and associated money laundering affecting the U.S. financial system.” As the US financial systems plays the central role in the world’s financial community and international banking system, the US MLARS Bank Integrity Unit (BIU) has worked to bring to justice “actors around the world seek to exploit the U.S. financial system, in some instances working with global financial institutions that facilitate their crimes.” Hence why the US and not Danske Bank’s home country of Denmark brought the criminal charges against the Banks for its role in a years-long money laundering operation out of its Estonia branch.

To demonstrate this commitment for the DOJ Polite stated, “since 2010, the BIU – with just 12 attorneys – has imposed more than $13 billion in financial penalties in 10 corporate criminal resolutions with global financial institutions for sanctions violations.” But more commitment is on the way as Polite pointed to “our Deputy Attorney General’s announcement yesterday of additional resources for the BIU and her focus on the intersection of national security and corporate prosecution. I know our BIU prosecutors will build upon their outstanding track record while continuing to work shoulder to shoulder with our partners in the National Security Division to achieve our united mission.”

Finally, in a most welcomed development, Polite stated “there’s no better way to broaden community than to speak your partners’ language – literally.” He announced the Criminal Division’s Office of Prosecutorial Development, Assistance, and Training – or OPDAT – will re-issue the FCPA Resource Guide in Spanish later this month. Kudos to the DOJ for taking this step.

Join me tomorrow where I take a deep dive into clawbacks and other new components of a compliance program.

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The Week That Was in Compliance – The Monaco Speech

In the ‘60s there was a television show called That Was the Week That Was. As with many great US television shows, it started in the UK on the BBC. It ran on NBC and introduced an American audience to David Frost, from the original British cast. It brought weekly and topical satire to US television and some of the contributors were among the greatest comedians of their generation. They included Henry Morgan, Phyllis Newman, Pat Englund, Buck Henry, Bob Dishy, Doro Merande, Alan Alda, Sandy Baron, Tom Bosley, Jerry Damon, Stanley Grover, Burr Tillstrom’s Puppets and The Norman Paris Orchestra. I still remember the theme song as it was sung by Nancy Ames in addition to her participating in the show.

I thought of that TV show when I looked back at the two days of speeches from the Department of Justice (DOJ) at the recent ABA 38th Annual National Institute on White Collar Crime, held in Miami. Compliance professionals, white collar defense lawyers and indeed corporate executives will be talking about the past week for many moons to come. The speeches were made by Deputy Attorney General (DAG) Lisa Monaco (2023 Monaco Speech) and Assistant Attorney General Kenneth A. Polite, Jr. (Polite Speech) and they previewed a number of initiatives by the DOJ which every compliance professional needs to study in some detail. These new initiatives included:

The Criminal Division’s Pilot Program Regarding Compensation Incentives and Clawbacks

Evaluation of Corporate Compliance Programs (Updated March 2023)

Revised Memorandum on Selection of Monitors in Criminal Division Matters

Over the next several blog posts, I will be taking a deep dive into these speeches and the new Evaluation of Corporate Compliance Program, Monitor Selection and Pilot Program on Incentives and Clawbacks. Today we begin with a review of the 2023 Monaco Speech.

Monaco began by referencing her October 2012 speech to the Fall White Collar Crime conference, noting she “directed some immediate policy changes to invigorate corporate criminal enforcement, and I did so based on a few fundamental principles: preventing misconduct before it happens; holding individual wrongdoers accountable; and deterring and punishing recidivism.”

Around that time Monaco announced the “Corporate Crime Advisory Group to recommend more advances, based on input, and this is important, input from outside as well as inside the department.” This led to the September 2022 announcement of the Monaco Doctrine as laid out in the Monaco Memo where the DOJ changed its focus to “promoting cultures of corporate compliance, while also ensuring consistency and predictability in the way the government treats corporate crime.” Her goal was to “empower companies to do the right thing, by investing in compliance, in culture and in good corporate citizenship — while at the same time empowering our prosecutors to hold accountable those who don’t follow the law.”

At the end of the day, perhaps the most significant pronouncement from Monaco was the following “in today’s complex and uncertain geopolitical – very uncertain quite frankly – geopolitical environment, corporate crime and national security are overlapping to a degree never seen before, and the department is retooling to meet that challenge.” This fits with the Biden Administration’s Strategy on Combatting Corruption, which elevated the fight against bribery and corruption through enforcement of laws such as the Foreign Corrupt Practices Act (FCPA) to a National Security Issue. Of course, the Biden DOJ has said several times in the past that “Sanctions are the new FCPA” and Monaco reiterated that in her speech last week.

Monaco set the tone for the week by identifying five general areas of DOJ focus. (1) Inspiring a Culture of Compliance; (2) Voluntary Self-Disclosure Programs; (3) Promoting Compliance through Compensation and Clawback Programs; (4) Resource Commitments to Corporate Criminal Enforcement; and (5 ) Individual Accountability.

  1. A Culture of Compliance

The Monaco Memo “emphasized the department’s commitment to finding the right incentives to promote and support a culture of corporate compliance.” Monaco hoped to do so by creating two new areas of focus in addition to those laid out in the FCPA Resource Guide,  the 2017 Evaluation of Corporate Compliance Program and its 2020 Update and Chief Compliance Officer (CCO) certification requirement. In the 2023 Monaco Speech, she stated, “I noted two new areas of particular focus: a cross-department approach to promoting voluntary self-disclosure and how compensation structures can foster responsible corporate behavior. We want companies to step up and own up when they discover misconduct and to use compensation systems to align their executives’ financial interests with the company’s interest in good corporate citizenship.”

What is interesting about these two components is that they previously existed but were made more important in the Monaco Memo. Clear rewards for self-disclosure have been a part of FCPA enforcement since 2016 with the initiation of the Pilot Program around self-disclosure. Financial incentives and penalties (carrots and sticks) have been a part of best practices compliance programs since at least 2004 and were included in the original 2012 FCPA Resource Guide. But now a company must engage in both actions to demonstrate a “culture of compliance” to obtain the presumption of a declination under the Corporate Enforcement Policy.

  1. Voluntary Self-Disclosure

Seemingly buried in the speech is perhaps the most significant statement about white collar criminal enforcement. Monaco said, “Now, with respect to voluntary self-disclosure, I am pleased to report that, for the first time, every U.S. Attorney’s Office now has, and every component I should say, that prosecutes corporate crime, now has in place an operative, predictable and transparent voluntary self-disclosure program. These policies share a common principle: absent aggravating factors, no department component will seek a guilty plea where a company has voluntarily self-disclosed, cooperated and remediated the misconduct.” She went on to add, “Let me be very very clear. I want every general counsel, every executive and board member to take this message to heart: where your company discovers criminal misconduct, the pathway to the best resolution will involve prompt voluntary self-disclosure to the Department of Justice.” Her example was an excellent one: the ABB FCPA enforcement action.

  1. Compensation and Clawbacks

Once again Monaco emphasized a part of every best practices compliance program over the past 20 years, financial incentives for doing business ethically and in compliance. However, in her 2023 Speech, she emphasized the disincentives or clawbacks. She stated, “First, every corporate resolution involving the Criminal Division will now include a requirement that the resolving company develop compliance-promoting criteria within its compensation and bonus system…Second, under the pilot program, the Criminal Division will provide fine reductions to companies who seek to claw back compensation from corporate wrongdoers.”

Monaco said the goal is “to shift the burden of corporate wrongdoing away from shareholders, who frequently play no role in the misconduct, onto those directly responsible.” The DOJ will incentivize such behavior in the following manner. “At the outset of a criminal resolution, the resolving company will pay the applicable fine, minus a reserved credit equaling the amount of compensation the company is attempting to claw back from culpable executives and employees. If the company succeeds and recoups compensation from a responsible employee, the company gets to keep that clawback money — and also doesn’t have to pay the amount it recovered.  And because we heard from stakeholders about how challenging and how expensive the pursuit of clawbacks can be, the pilot program will also ensure that those who pursue clawbacks in good faith but are unsuccessful are still eligible to receive a fine reduction.”

  1. Resource Commitments

This section of the speech deals with DOJ resource commitments but it is still significant. Here Monaco emphasized the intersection of corruption, money-laundering, sanctions and National Security. This continues the Biden Administration trend on this score. There are new and additional resources the DOJ is bringing to bear in all of these areas. This includes the international arena as well. But a huge part of this commitment is that companies are now seen in many ways as the front line of criminal enforcement through self-disclosure of illegal conduct. If the DOJ continues down this path, both the incentives for self-disclosure and cooperation as well as the pain the DOJ will bring for companies which do self-disclose will be significant.  Monaco closed her speech with the following, “Investing now in a robust compliance program is good for business, and it is good for our collective economic and national security.”

  1. Individual Accountability

As far back as 2015, in the Yates Memo, the DOJ has said they will emphasize individual accountability, through individual, as opposed to corporate, enforcement actions. In her speech, Monaco pointed to charges brought against two of the current most prominent alleged fraudsters, Sam Bankman-Fried and Carlos Watson and the convictions out of Theranos; Elizabeth Homes and Sunny Balwani. She also stated, “The Criminal Division’s Fraud Section, for example, secured more individual convictions at trial last year than in any of the previous five years.  So, our message is clear: the department will zealously pursue corporate crime in any industry, and we will hold wrongdoers accountable, no matter how prominent or powerful they are.” While this has yet not been seen in FCPA enforcement, perhaps it will be this year and beyond.

Join me tomorrow where I look at the Polite Speech.

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One Month to More Effective Compliance for Business Ventures – JV risks under the FCPA

Just as the FCPA enforcement field is covered with actions centering around M&A, multiple actions involve JVs. JVs continue to plague many U.S. companies up to this day. In many ways, JVs present more difficult issues for the compliance practitioner than M&A because of the control issues present in JVs with foreign governments or state-owned enterprises ownership.

There are other risks that a company must seek to avoid. These include transferring things of value to a state-owned enterprise for the benefit of someone outside the JV. A company must avoid payments for which there is no legitimate business purpose to the state-owned enterprise in the JV itself, as they will be deemed illegal benefits to the state-owned enterprise outside the JV.

The bottom line is JVs present a unique set of FCPA risks for the compliance practitioner. You will need to incorporate risk management techniques in all phases of the JV relations; pre-formation, the JV agreement, and in operations after the JV has begun operation. The compliance obligations and compliance process are ongoing.
Three key takeaways:

  1. JVs present unique FCPA risks.
  2. Control is only one issue a compliance practitioner must consider in evaluating JV risks.
  3. Companies continue to have significant FCPA risks from JVs.
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Daily Compliance News

March 3, 2023 – The Spread The Pain Edition

Welcome to the Daily Compliance News. Each day, Tom Fox, the Voice of Compliance, brings you compliance-related stories to start your day. Sit back, enjoy a cup of morning coffee, and listen to the Daily Compliance News. All from the Compliance Podcast Network. Each day we consider four stories from the business world, compliance, ethics, risk management, leadership, or general interest for the compliance professional.

Stories we are following in today’s edition of Daily Compliance News:

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Daily Compliance News

March 1, 2023 – The We Are Not Corrupt Edition

Welcome to the Daily Compliance News. Each day, Tom Fox, the Voice of Compliance, brings you compliance-related stories to start your day. Sit back, enjoy a cup of morning coffee, and listen to the Daily Compliance News. All from the Compliance Podcast Network. Each day we consider four stories from the business world, compliance, ethics, risk management, leadership, or general interest for the compliance professional.

Stories we are following in today’s edition of Daily Compliance News:

  • Swiss regulator finds fault with Credit Suisse but no penalty. (WSJ)
  • Stanley Black & Decker discloses possible FCPA violations. (WSJ)
  • Turkish firm demands retraction of ‘inferred’ corruption allegation. (Bloomberg)
  • TD Bank to pay $1.2bn in 14-year-old Ponzi scheme. (NYT)
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Daily Compliance News

February 20, 2023 – The Presidents’ 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 to the Daily Compliance News. All from the Compliance Podcast Network. Each day we consider four stories from the business world, compliance, ethics, risk management, leadership, or general interest for the compliance professional.

Stories we are following in today’s edition of Daily Compliance News:

  • China top investment banker disappears. (Bloomberg)
  • Main Justice to take over corruption investigation into Texas AG. (MSNBC)
  • Can the arbitration clause eviscerate CA state law on employment claims? (Reuters)
  • Freeport trader charged with FCPA violations. (WSJ)

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Daily Compliance News

February 10, 2023 – The Going to War Edition

Welcome to the Daily Compliance News. Each day, Tom Fox, the Voice of Compliance, brings you compliance-related stories to start your day. Sit back, enjoy a cup of morning coffee, and listen to the Daily Compliance News. All from the Compliance Podcast Network. Each day we consider four stories from the business world, compliance, ethics, risk management, leadership, or general interest for the compliance professional.

Stories we are following in today’s edition of Daily Compliance News:

  • SW blames the weather, and its pilots blame outdated tech. (Reuters)
  • 5th circuit says foreigners can be charged under FCPA for work outside the US. (Law360)
  • Starting the fight against corruption in schools. (Miami Herald)
  • Merck insurers deny payment for cyber-attack based on war exclusion. (WSJ)
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31 Days to More Effective Compliance Programs

One Month to More Effective Internal Controls – What Are Internal Controls?

What specifically are internal controls in a compliance program? Internal controls are not only the foundation of a company but are also the foundation of any effective anti-corruption compliance program. Internal controls expert Joe Howell has said that internal controls are systematic measures, such as reviews, checks and balances, methods, and procedures instituted by an organization that performs several different functions. Howell also notes that for compliance purposes, controls are those measures specifically to provide reasonable assurance any assets or resources of a company cannot be used to pay a bribe. This definition includes the diversion of company assets, such as by unauthorized sales discounts or receivables write-offs, as well as the distribution of assets.

Three key takeaways:

  1. Effective internal controls are required under the FCPA.
  2. Internal controls are a critical part of any best practices compliance program.
  3. There are multiple FCPA enforcement actions that demonstrate the enforcement spotlight on internal controls.