Tag: FCPA

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FCPA Compliance Report

James Koukios on the Monaco Memo

In this special 5 part podcast series, I am taking a deep five into the Monaco Memo and analyzing it from a variety of angles. In this episode of the FCPA Compliance Report, I am joined by fan-fav James Koukios, a partner at MoFo. James is a former member of the FCPA Unit, and in this podcast, we take a deep dive into the Monaco Memo. Some of the highlights include:

  1. Issues involving individual accountability.
  2. Burden shifting on communications devices and timeliness of self-disclosing and reporting.
  3. How does the Monaco Memo lay out DOJ expectations?
  4. Monaco Memo at 30,000 ft and ground level…
  5. Tweaks to the Yates Memo formulation.
  6. New requirements to the FCPA Corporate Enforcement Policy
  7. Will the incentives be enough?

 Resources

James Koukios on MoFo

Tom 5-Part blog post series in the FCPA Compliance and Ethics Blog

  1. A Jolt for Compliance
  2. Timely Self-Disclosure
  3. Corporate Compliance Programs
  4. Monitors
  5. Polite Speech

Monaco Memo

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Monaco Memo – A Jolt for Compliance: Part 4 – New Factors in Selecting Monitors

Today, we continue our exploration of the Monaco Memo by considering the sections relating to the evaluation of cooperation during the pendency of the investigation and the evaluation of a company’s compliance program at the conclusion of the resolution. These portions of the Monaco Memo should be studied intently by every compliance professional as they lay out what the Department of Justice (DOJ) will require to grant discounts under the FCPA Corporate Enforcement Policy. Today, I want to look at the provisions regarding monitors and monitorships. In many ways, they are some of the most interesting parts of the Monaco Memo.

The section on monitors and monitorships is broken down into three parts; (1) criteria for determining if a monitor is warranted; (2) criteria for selection of a monitor; and (3) monitor oversight. I am going to focus on the first prong, the criteria for determining if a monitor is warranted. You may recall the prior test to determine whether a monitor was warranted was last

articulated in the Benczkowski Memo. The test basically had an organization implement an effective compliance program and then test it. However, now there is a 10-factor test, which as Washington & Lee University, School of Law Professor Karen Woody says, greatly increases the temperature on corporations. The 10 factors are:

  1. Whether the corporation voluntarily self-disclosed the underlying misconduct in a manner that satisfies the particular DOJ component’s self-disclosure policy;
  2. Whether, at the time of the resolution and after a thorough risk assessment, the corporation has implemented an effective compliance program and sufficient internal controls to detect and prevent similar misconduct in the future;
  3. Whether, at the time of the resolution, the corporation has adequately tested its compliance program and internal controls to demonstrate that they would likely detect and prevent similar misconduct in the future;
  4. Whether the underlying criminal conduct was long-lasting or pervasive across the business organization or was approved, facilitated, or ignored by senior management, executives, or directors (including by means of a corporate culture that tolerated risky behavior or misconduct, or did not encourage open discussion and reporting of possible risks and concerns);
  5. Whether the underlying criminal conduct involved the exploitation of an inadequate compliance program or system of internal controls;
  6. Whether the underlying criminal conduct involved active participation of compliance personnel or the failure of compliance personnel to appropriately escalate or respond to red flags;
  7. Whether the corporation took adequate investigative or remedial measures to address the underlying criminal conduct, including, where appropriate, the termination of business relationships and practices that contributed to the criminal conduct, and discipline or termination of personnel involved, including with respect to those with supervisory, management, or oversight responsibilities for the misconduct;
  8. Whether, at the time of the resolution, the corporation’s risk profile has substantially changed, such that the risk of recurrence of the misconduct is minimal or nonexistent;
  9. Whether the corporation faces any unique risks or compliance challenges, including with respect to the particular region or business sector in which the corporation operates or the nature of the corporation’s customers; and
  10. Whether and to what extent the corporation is subject to oversight from industry regulators, or a monitor imposed by another domestic or foreign enforcement authority or regulator.

The old Benczkowski Memo test is found in factors 2 and 3. However, factor 1 is whether or not the company self-disclosed the incident(s) at issue. Moreover, factors 4-6 all related to conduct and actions when the illegal activity occurred, not after discovery and self-disclosure. Factor 4 relates to the length or pervasiveness of the conduct and whether senior management was involved. Factor 5 reviews “the exploitation of an inadequate compliance program or system of internal controls.” Factor 6, asks if compliance personnel were involved or were basically negligent in failing to “appropriately escalate or respond to red flags.” Factors 7-10 refine company actions post-reporting and do relate to actions after a company became aware such as investigations and remedial actions (factor 7), a reduction in the company’s risk profile (factor 8), or unique regulatory or business challenges (factors 9 and 10).

The Monaco Memo states, “prosecutors will not apply any general presumption against requiring an independent compliance monitor (“monitor”) as part of a corporate criminal resolution, nor will they apply any presumption in favor of imposing one.” The Monaco Memo also states, “Prosecutors should analyze and carefully assess the need for a monitor on a case­ by-case basis, using the following non-exhaustive list off actors when evaluating the necessity and potential benefits of a monitor.” Finally, the DOJ believes “compliance monitors can be an effective means of reducing the risk of further corporate misconduct and rectifying compliance lapses identified during a corporate criminal investigation.” This statement leads me to believe the DOJ is very concerned about corporate recidivism. Whatever the ultimate reasons are it does appear that, as Professor Woody noted, the heat is definitely turned up.

One thing did strike me about this list is that provides a clear roadmap for compliance professionals to use in proactive manner. You now know the precise factors the DOJ will review so you can look at them on an ongoing basis to (1) determine if your organization has issues which need to be addressed; (2) allows you to remediate before the government comes knocking or you have to self-disclose; and (3) if you use an independent third-party as a part of this proactive process, you can document compliance if you need to do so going forward if the government comes knocking independently of your self-reporting.

I hope you will join me for my next post to wrap up with some final thoughts.

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Monaco Memo: A Jolt for Compliance: Part 3 – Cooperation and Compliance Program Evaluation

Today, we continue our exploration of the Monaco Memo by considering the sections relating to the evaluation of cooperation during the pendency of the investigation and the evaluation of a company’s compliance program at the conclusion of the resolution. These portions of the Monaco Memo should be studied intently by every compliance professional as they lay out what the Department of Justice (DOJ) will require to grant discounts under the FCPA Corporate Enforcement Policy.

Evaluation of Cooperation

Cooperation with the DOJ during the pendency of an investigation has always been a critical factor of the overall costs of a Foreign Corrupt Practices Act (FCPA) resolution since this factor can be added as a discount under the US Sentencing Guidelines and the FCPA Corporate Enforcement Policy. Essentially a company can double dip in discounts with superior cooperation. Indeed, we have seen companies have the fines and penalties increase by tens of millions when they failed to cooperate.

The Monaco Memo acknowledges what a corporation can obtain by stating, “Cooperation can be a mitigating factor, by which a corporation – just like any other subject of a criminal investigation – can gain credit in a case that is appropriate for indictment and prosecution.” Further, “Credit for cooperation takes many forms and is calculated differently based on the degree to which a corporation cooperates with the government’s investigation and the commitment that the corporation demonstrates in doing so. The level of a corporation’s cooperation can affect the form of the resolution, the applicable fine range, and the undertakings involved in the resolution.”

Principal Associate Deputy Attorney General (DAG) Marshall Miller, recently said in a speech, “I trust one thing came through loud and clear: the Department is placing a new and enhanced premium on voluntary self-disclosure.” This is where the timeliness issue becomes so critical. Miller went on to state, “The DAG also provided important guidance on corporate cooperation. The key point I want to highlight relates to timeliness. In building cases against culpable individuals, we have heard one consistent message from our line attorneys: delay is the prosecutor’s enemy — it can lead to a lapse of statutes of limitation, dissipation of evidence, and fading of memories. The Department will expect cooperating companies to produce hot documents or evidence in real time. And your clients can expect that their cooperation will be evaluated with timeliness as a principal factor. Undue or intentional delay in production of documents relating to individual culpability will result in reduction or denial of cooperation credit. Where misconduct has occurred, everyone involved — from prosecutors to outside counsel to corporate leadership — should be “on the clock,” operating with a true sense of urgency.”

Miller fleshed out the Monaco Memo regarding this DOJ expectation when he intoned that the DOJ expects “cooperating companies to produce hot documents or evidence in real time.” Moreover, “The key point I want to highlight relates to timeliness.” This could mean literally when you find a smoking, still hot or even cold gun you had better pick up the phone and call the DOJ. Finally, when it comes to cooperation credit the DOJ will evaluate companies “timeliness as a principal factor.” It cannot be stated any plainer or more simply than that.

Evaluation of Corporate Compliance Programs

Equally important for compliance professionals was the section on evaluating compliance program. The DOJ has presented significant information to the compliance community with the release of the 2019 Evaluation of Corporate Compliance Programs and its 2020 Update. The Monaco Memo recognizes these documents as key components for the DOJ to review compliance programs of companies under investigation. Moreover, although there is no compliance defense to prosecution of illegal conduct, such compliance programs have “a direct and significant impact on the terms of a corporation’s potential resolution with the Department.”

To that end, the Monaco Memo directs prosecutors to “evaluate a corporation’s compliance program as a factor in determining the appropriate terms for a corporate resolution, including whether an independent compliance monitor is warranted. Prosecutors should assess the adequacy and effectiveness of the corporation’s compliance program at two points in time: (1) the time of the offense; and (2) the time of a charging decision. The same criteria should be used in each instance.”

However, the Monaco Memo focused attention on an area given little weight previously in determining the effectiveness of an effective compliance program, that being clawbacks. While compensation, particularly in the form of bonus or other compensation based on positive compliance actions, has long been a part of a best practices compliance program (the carrot) we have not previously seen its equivalent disincentive (the stick).

The Monaco Memo stated, “Corporations can best deter misconduct if they make clear that all individuals who engage in or contribute to criminal misconduct will be held personally accountable. In assessing a compliance program, prosecutors should consider whether the corporation’s compensation agreements, arrangements, and packages (the “compensation systems”) incorporate elements ­ such as compensation clawback provisions – that enable penalties to be levied against current or former employees, executives, or directors whose direct or supervisory actions or omissions contributed to criminal conduct. Since misconduct is often discovered after it has occurred, prosecutors should examine whether compensation systems are crafted in a way that allows for retroactive discipline, including through the use of clawback measures, partial escrowing of compensation, or equivalent arrangements.” This is a change.

Miller expanded on this when he said the DOJ would start with two questions:

  1. Has the company clawed back incentives paid out to employees and supervisors who engaged in or did not stop wrongdoing?
  2. Is the company targeting bonuses to employees and supervisors who set the right tone, make compliance a priority, and build an ethical culture?

Miller went on to add, “What we expect now, in 2022, is that companies will have robust and regularly deployed clawback programs. All too often we see companies scramble to dust off and implement dormant policies once they are in the crosshairs of an investigation. Companies should take note: compensation clawback policies matter, and those policies should be deployed regularly. A paper policy not acted upon will not move the needle — it is really no better than having no policy at all.”

My suggestion is that you develop a clawback policy and write it into the contracts of your senior management going forward.

I hope you will join me tomorrow where I look at guidance around monitors and monitorships.

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Compliance Into the Weeds

Polite Speech-A Jolt for Compliance

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 more fully explore a subject. In this episode, we look at Assistant Attorney General Kenneth A. Polite’s recent speech at the University of Texas Law School. The speech focused on corporate and individual accountability in FCPA enforcement actions. Highlights and questions posed include:

·      What are clawbacks, and how would they work in practice?

·      Does a lack of corporate clawbacks lead to aggravating factors?

·      How much credit will a company receive by instituting clawbacks?

·      CCO certifications are here to stay.

·      How does the Polite Speech relate to the Monaco Memo?

Resources

Matt in Radical Compliance

Text of Polite Speech

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Monaco Memo: A Jolt for Compliance: Part 2 – Swiftly and Without Delay

Today, we continue our exploration of the Monaco Memo by considering the section entitled “Timely Disclosures and Prioritization of Individual Investigations”. This portion of the Monaco Memo re-emphasized the reinstitution of the Yates Memo, first announced by Deputy Attorney General (DAG) Lisa Monaco in October 2021. Clearly the Department of Justice (DOJ) wants to increase the accountability of individuals who have engaged in criminal activities such as bribery and corruption under the Foreign Corrupt Practices Act (FCPA).

It is well-settled under the FCPA Corporate Enforcement Policy that for a company to be considered for a Declination or cooperation credit, the company must self-disclose its illegal conduct. However, self-disclosure is not enough; it now must be timely. The DOJ wants speed as well because, “If disclosures come too long after the misconduct in question, they reduce the likelihood that the government may be able to adequately investigate the matter in time to seek appropriate criminal charges against individuals. The expiration of statutes of limitations, the dissipation of corroborating evidence, and other factors can inhibit individual accountability when the disclosure of facts about individual misconduct is delayed.”

The Monaco Memo stated, “it is imperative that Department prosecutors gain access to all relevant, non­privileged facts about individual misconduct swiftly and without delay.” [emphasis supplied] This means, “ to receive full cooperation credit, corporations must produce on a timely basis all relevant, non-privileged facts and evidence about individual misconduct such that prosecutors have the opportunity to effectively investigate and seek criminal charges against culpable individuals.” If a company fails to meet this burden, it will “place in jeopardy their eligibility for cooperation credit.” The DOJ goes the next step by placing the burden on companies to demonstrate timeliness, stating they “bear the burden of ensuring that documents are produced in a timely manner to prosecutors.”

Moreover, it is not simply data or information. A company must seek out and disclose on this ‘timely’ basis, the evidence “that is most relevant for assessing individual culpability.” This type of evidence could include “information and communications associated with relevant individuals during the period of misconduct.” While the DOJ may well ask companies to prioritize evidence they are seeking in investigation, even with no such instruction or request from the DOJ, “cooperating corporations should understand that information pertaining to individual misconduct will be most significant.”

All of this was driven home by adding this timeliness requirement to the analysis of factors surrounding a company’s cooperation with the DOJ, as laid out in the FCPA Corporate Enforcement Policy. The Monaco Memo stated, “in connection with every corporate resolution, Department prosecutors must specifically assess whether the corporation provided cooperation in a timely fashion.” Some of the factors in this new analysis could include “whether a company promptly notified prosecutors of particularly relevant information once it was discovered, or if the company instead delayed disclosure in a manner that inhibited the government’s investigation.” And then the stick is lowered when “prosecutors identify undue or intentional delay in the production of information or documents – particularly with respect to documents that impact the government’s ability to assess individual culpability ­ cooperation credit will be reduced or eliminated.” There are no percentages as to how much this might entail but conceivably it could reduce a cooperation credit by between 25% to 50%. Of course, if this analysis is factored into the fine and penalty calculation under the US Sentencing Guidelines, the cost could even be higher to a company.

This new requirement presents several challenges for any company and compliance professionals involved in the corporate investigatory process. The DOJ emphasis is now on ‘timeliness’ which equates to speed. When a whistleblower or other report comes in, there should now be even more urgency to assess and triage and then elevate the report to the appropriate level. Remember, this is not about a corporate decision to self-disclose or not; although there are clear implications in that decision, this is about turning over evidence of culpable individuals. If the DOJ deems your turning over evidence as not timely, it could seriously impact your ability to get the full 25% credit under the FCPA Corporate Enforcement Policy for cooperation and remediation.

In terms of your investigation protocol, under the prior Policy interpretations, you complete the investigation and then bring it to DOJ. But now the DOJ may have an argument that you were untimely because you took three months, six months, nine months; however long it takes you to perform an investigation. James Koukios also provided some other examples, “you learn that there is going to be a newspaper article which is coming out shortly and it will allege your company of corruption. Ordinarily, you would go to DOJ first, even if do not have an investigative plan in place yet because you need to get ahead of that article.”

A similar situation could involve a whistleblower or if the government comes knocking. In these situations, your organization may not have been aware of the allegations or facts. “This means you will have to investigate and at that point, it is hard to say that you will deliver timely information at any point, because you do not know things up front.” This begs the question “is it timely that I bring it to you?” This can be even more problematic “if a prosecutor thinks, you should have brought this to me two months earlier, or you should have brought this to me three months earlier.” This may be even more true as the burden is on the company to demonstrate timeliness.

As I said there are many questions on this topic going forward.

I hope you will join me tomorrow where I look at guidance on corporate accountability.

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Monaco Memo: A Jolt for Compliance: Part 1 – Introduction

Last week saw the announcement of two significant and related releases of information from the Department of Justice (DOJ) around Foreign Corrupt Practices Act (FCPA) enforcement and corporate compliance programs. They were the Monaco Memo and a Speech by Assistant Attorney General Kenneth A. Polite made at the University of Texas Law School. Every compliance professional should study them both.

Over the next several days, I will be blogging about each of them and other DOJ announcements. I will also have a series of podcasts about different aspects of the releases with a variety of guests including Affiliated Monitors, Inc. (AMI) founder Vin DiCianni, Morrison & Foerster LLP (MoFo) partner James Koukios and my Compliance into the Weeds co-host, Matt Kelly. The Memo is broken down into four main sections: I. Guidance on Individual Accountability; II. Guidance on Corporate Accountability; III. Independent Compliance Monitorships; and IV. Commitment to Transparency in Corporate Criminal Enforcement. Today I want to introduce each release and try to place it into the overall context of DOJ communications to the compliance community, compliance professionals and Chief Compliance Officers (CCOs).

The Monaco Memo builds on many of the topics first articulated by Deputy Attorney General (DAG) Lisa Monaco last October in a speech to the ABA White Collar Bar conference. Koukios said he had two major reactions to the Monaco Memo. First, “I think it’s great when the department puts out a Memo like this, that lays out very clearly.” It sets out the DOJ expectations which Koukios believes the DOJ strives to do for the corporate compliance professional and the white-collar defense bar, which they have done so in an iterative matter. From releases of documents such as the Phillips Memo, to the FCPA Corporate Enforcement Policy to the Evaluation of Corporate Compliance Program and its Update. He added, “I think this is another one of those really helpful memos that sets out the factors that the DOJ will consider.”

He sees the Monaco Memo going further by delineating the implications of the factors it sets out.  He went on to note, “I think that there is a lot more in this Memo than there have been in some other, more recent memos.” Moreover, it lays out multiple changes at both “a high level and at the more granular level as well.” Koukios concluded, “I think it’s a very impactful Memo that practitioners’ compliance officers and other people dealing with this space really should spend time reading and understanding.”

I visited with DiCianni on the Independent Compliance Monitorships component. DiCianni believes the Monaco Memo is both further clarification and further guidance for line prosecutors when they are considering whether or not to put a monitor in place. Echoing Koukios in this section of the Memo, he noted that it lays out both broad goals and guidelines and then drills down into specific requirements in a way “we’ve  never seen before.” Further, while many of the factors “are really quite interesting there are not really anything new and from the monitors perspectives.” And while we have seen these factors in a disparate manner, in disparate places, “here they are in writing.” Once again this echoed something Koukios told me, that perhaps the greatest significance is that the Memo sets down all of 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.

I see the Monaco Memo and the Speech as complimentary releases which drive home several key changes in DOJ enforcement. Perhaps changes is too strong, but they these announcements make clear the DOJ is dedicated to individual accountability and prosecution. Corporations will have to reorient their approach to investigations and sharing of information with the DOJ to this new approach. Next the DOJ is strongly shifting the burden in the investigatory and negotiation phases to make clear the company must come forward with evidence to support lower fines and penalties and greater discounts, particularly in the area of individual financial penalties and incentives, i.e., clawbacks. Finally, the Monaco Memo lays out not simply how to avoid a monitor but a program of proactive monitoring which can lead to the prevention of a crime before the FCPA is violation.

The Memo itself said that the DOJ had established the Corporate Crime Advisory Group (“CCAG”)  to evaluate and recommend further guidance and consideration after the Monaco Speech from October 2021. This CCAG included leaders and experienced prosecutors from “components of the Department that handle corporate criminal matters: the Criminal Division; the Antitrust Division; the Executive Office of United States” to both evaluate and provide “revisions and reforms to enhance our approach to corporate crime, provide additional clarity on what constitutes cooperation by a corporation, and strengthen the tools our attorneys have to prosecute responsible individuals and companies.”

The DOJ review considered input from “a broad cross-section of individuals and entities with relevant expertise and representing diverse perspectives, including public interest groups, consumer advocacy organizations, experts in corporate ethics and compliance, representatives from the academic community, audit committee members, in-house attorneys, and individuals who previously served as corporate monitors, as well as members of the business community and defense bar.”

The Memo itself is designed to “promote consistency across the Department” by applying it  Department-wide. Some announcements establish the first-ever DOJ-wide policies on certain areas of corporate crime, “such as guidance on evaluating a corporation’s compensation plans; others supplement and clarify existing guidance. The policies set forth in this Memorandum, as well as additional guidance on subjects like cooperation, will be incorporated into the Justice Manual through forthcoming revisions, including new sections on independent corporate monitors.”

I hope you will join me tomorrow where I look at individual accountability and internal investigations.

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Daily Compliance News

September 19, 2022 the Queen Elizabeth Funeral Edition

In today’s edition of Daily Compliance News:

  • Queen Elizabeth’s funeral. (All Papers)
  • New British PM Chief of Staff witness in a bribery probe. (FT)
  • DOJ wants clawbacks. (DOJ Press Release)
  • Activity is not productivity. (WSJ)
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Daily Compliance News

September 17, 2022 the Uber Cyberbreach Edition

In today’s edition of Daily Compliance News:

  • GOL Airlines settle FCPA claims for $41MM. (FCPABlog)
  • RR near strike is not about pay but scheduling. (NYT)
  • White House releases crypto regulation framework. (CryptoBriefing)
  • Uber was hit with a massive cyber breach. (WSJ)
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Daily Compliance News

September 3, 2022 the All DOJ Edition

In today’s edition of Daily Compliance News:

  • Phillips is to pay 24MM for FCA claims.
  • $10MM was awarded to companies manufacturing defeat devices.
  • Bayer is to pay $40MM for alleged kickbacks and bribery.
  • Two NGO officers were charged with violating the FCPA.

Resources

Today’s stories came from the DOJ Press site, found here.

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Corruption, Crime and Compliance

Episode 245 – Second Circuit Affirms Trial Judge’s Dismissal of FCPA Counts Against Alstom Executive

The Second Circuit Court of Appeals affirmed the district judge’s post-conviction dismissal of FCPA counts against Lawrence Hoskins, a former Alston executive, for his involvement in a bribery scheme to secure a $118 million energy contract in Indonesia. The Hoskins FCPA case has had a long and tortious path through the court system. The Second Circuit’s decision, which was decided by a 2-to-1 majority, ended with a fractured court decision that raised more questions than provided answers. The majority decision appeared to reflect a pre-ordained decision searching for legal and factual arguments to support the resolution. Indeed, the dissent presented a cogent and more defensible position. In this episode, Michael Volkov reviews the Second Circuit’s decision.