In today’s edition of Daily Compliance News:
Tag: FCPA
In today’s edition of Daily Compliance News:
- China company accused of shipping to Iran. (WSJ)
- Boston Scientific announces FCPA probe in Vietnam. (Medical Design and Outsourcing)
- Guatemala is now going after the press that reports on corruption. (NYT)
- BitMEX employee guilty plea in AML violations. (Reuters)
In this episode of the FCPA Compliance Report, I am joined by fan favorite James Koukios, partner at Morrison and Foerster. In this episode we consider some of the key ABC issues in the always great MoFo Monthly Top 10 International Anti-Corruption Developments for February 2022. Highlights of this podcast include:
- KT FCPA Resolution
- Roger Ng convicted at FCPA trial.
Resources
James Koukios on the MoFo website
February International Anti-Corruption Newsletter here
Over this series, I am reviewing the corruption enforcement action Involving the company formerly known as Chrysler Group LLC, now FCA US LLC (Chrysler or the company herein) which was criminally sentenced to pay a fine of over $96 million and a forfeiture money judgment over $203 million. These amounts were above a previous civil penalty of $310 million. All of this was for designing a vehicle emissions system for the company’s Jeep Grand Cherokee and Ram 1500 that would evade federal emissions standards for diesel vehicles and then lying about it to federal authorities. It was a different type of corruption from a Foreign Corrupt Practices Act (FCPA) enforcement action but corruption, nonetheless. Today, I want to consider some of the lessons for the anti-corruption compliance professional.
The actions by the company are instructive for what not to do in any corruption investigation. The Plea Agreement specified that the company did not receive credit for self-disclosure as it did not self-disclose its criminal conduct or fraud. The company did receive some cooperation credit for cooperating during the scope of the investigation but did not receive any credit for failures in both taking timely remedial action and for failing to discipline senior executives who were involved in or had knowledge of the criminal action and fraud. (Recall that one executive involved directly in the fraud was with the company until 2020.)
All these actions were very costly to the company in terms of how it was evaluated under the US Sentencing Guidelines. Under Section 8(C)2.5(g)(2) a company can receive credit of up to five (5) points for cooperating in the investigation and affirmatively accepting responsibility for it’s conduct. The company only received a two (2) point discount. Since the Plea Agreement specified the company did cooperate in the investigation, it clearly did not accept responsibility for its conduct. The lack of those three points in discount cost the company somewhere in the estimated range of $20 to $30 million in additional fines and penalties.
The Plea Agreement also specified for the first time the Monaco Doctrine of evaluating past conduct as a part of the overall evaluation of the company. The Plea Agreement detailed that the company had a prior criminal conviction for bribery and corruption under the National Labor Relations Act (NLRA) for bribing union officials. However, it is not clear how that worked into the overall fine and penalty except to note that the company paid the maximum under the US Sentencing Guidelines, after credit for the civil penalty.
Additionally, while there is no requirement for a monitor in this resolution of the criminal action, there was a such a requirement in the Consent Decree from the civil action. It mandated an Independent Compliance Auditor for a period of three years from the resolution of the civil matter, which was May 2019.
Lessons Learned
There are multiple lessons for the anti-corruption compliance professional from this enforcement action. Obviously, the need to engage in robust remediation for the matter at issue and your compliance program is critical. Moreover, and once again the Department of Justice (DOJ) criticized a company for tardiness in disciplining those who were involved in the fraud or those who were aware of it. As I noted in Part 1, multiple former company employees were criminally indicted for their conduct in this sordid affair. Yet some of them were with the company until 2019 and 2020 and not all were terminated, some left the company in voluntary separations, which sounds suspiciously like retirements. Such actions could save your organization literally millions of dollars.
One of the clearest, which was not stated in any of the resolution documents, was that every Chief Compliance Officer (CCO) needs to read the newspapers and stay abreast of current events in their industry. It was September 2015 that the Volkswagen (VW) emissions-testing scandal became public. It was by far the largest scandal in emissions-testing and cost VW billions in investigative and remediation costs, fines, penalties, buy-backs, market share loss and reputational damages. To say that anyone at the company was not aware of it is to simply defy belief.
Beyond just the CCO, every Board member was no doubt aware of the VW emissions-testing scandal. Under the current state of the Caremark Doctrine, there may well be a duty to make an inquiry by the Board of auto manufacturers to senior management to investigate if they have been involved in similar conduct. Here we do not know how the scandal got to the attention of the DOJ, but it was clear from the Plea Agreement, it was not from self-disclosure. CCOs and Boards need to be much more proactive when competitors get into trouble about investigating similar products or services which could lead to criminal and civil fines and penalties.
This matter warrants consideration by every CCO in every US public and private company. Every CCO can also use the case as instruction and training for both senior management and their company Board of Directors.
Resources
DOJ Press Release
Consent Decree from the civil action
Thomas Fox and Michael DeBernardis discuss the inner workings of bribery in the tech industry, specifically cases involving HP, Microsoft, and Panasonic, the DOJ and SEC driving home the benefits of voluntary disclosure and their response to future cases, and how companies can practice due diligence even within internal controls.
Key points discussed in the episode:
✔️ Thomas Fox gives a brief background on the cases involving HP, Microsoft, and Panasonic.
✔️ Michael DeBernardis lays out the DOJ and SEC’s investigative process, with a focus on the benefits of voluntary disclosure. Data analytics has also been tossed in the forefront as Microsoft pioneered the transparency of looking into their distributor models and has now been added to compliance guidelines.
✔️ Petty cash has been proven to be an aspect worth examining as HP’s bribery case revolved around the lack of controls. HP’s schemes in Germany and Mexico also emphasized why training your team – whether contractual or full-time – should be trained to handle high-risk situations.
✔️ Internal and compliance controls must be interconnected. Otherwise, wrongdoers will find loopholes and take advantage of them. Making sales to a foreign government also means putting a target on your back.
✔️ Thomas Fox goes into detail about Panasonic’s case regarding corrupt agents, Microsoft’s move towards transaction monitoring, and HP’s suspicious commission discounts coinciding with the Parker Drilling case.
✔️ The DOJ has now provided clear guidance for compliance. Companies are now encouraged to fully disclose their transactions to benefit them in terms of credibility and reduced total penalties.
✔️ Greatly improving their responses, the DOJ has understood the value of cooperation and voluntary disclosure and widened its body of FCPA cases, making it easier for lawyers to counsel companies in preventing future issues from happening.
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Do you have a podcast (or do you want to)? Join the only network dedicated to compliance, risk management, and business ethics, the Compliance Podcast Network. For more information, contact Tom Fox at tfox@tfoxlaw.com.
In this episode of the FCPA Compliance Report, I am joined by Keith Williamson and Henry Chambers, Managing Directors at Alvarez and Marsal. We look at the firm’s Threatscape Report. Highlights of this podcast include:
A. Threat 1-ABC Threats
- Why do you see a potential increase in anti-corruption investigations?
- In addition to the US under the FCPA, do you see other countries are actively assisting US authorities in ABC investigations?
- The new DOJ Monaco Doctrine reinstate the Yates Memo and the DOJ focus on individuals. What does this mean for ABC investigations?
- What are some of the key challenges in handling investigations in China?
- How does this increase in ABC enforcement impact M&A?
B. Threat 2-Fraud and Digital Asset Fraud Threats
- What are digit assets and digit asset fraud?
- The US has not yet released many regulations regarding cryptocurrency. What is the role of other countries in such regulation, if any?
- Why is the Ukraine war the first ‘digital asset war’?
- How have the worldwide sanctions against Russia impacted the growth and use of digit assets?
- What are the key controls and screen tools for digital assets that you advocate a company employ?
C. Threat 3-Data Privacy and Data Protection
- What is the Personal Information Protection Law and how does it relate to the Chinese State Secrets and Data Security Laws?
- How can a non-Chinese company get data out of China?
- What are some of the key components of compliance program for this new law?
- How does this new law impact investigations in China?
Resources
- Threatscape 2022 report.
- Keith Williamson, MD and Head of Disputes and Investigations in Asia.
- Henry Chambers, Senior Director, Disputes and Investigations.
Thomas Fox and Michael DeBernardis shed light on the bribery schemes highlighted in the cases of Eli Lilly, Fresenius, and Teva and present the prosecutorial investigation, the questionable donations and expenses, preventative measures for companies to implement, and practicing due diligence to minimize risk.
Key points discussed in the episode:
✔️ Thomas Fox introduces the cases involving Eli Lilly, Fresenius, and Teva.
✔️ Michael DeBernardis breaks down the DOJ and SEC’s investigative process in uncovering Eli Lilly’s bribery schemes – by looking into other companies from similar industries and asking the pressing questions.
✔️ Thomas Fox describes the bribes made: money going to hospitals and to the doctors and nurses directly, sending individuals to five-star resorts for fake conferences and speeches, and paying for articles that were never published. Any prior SCC reinforcement action is already a red flag.
✔️ The Eli Lilly case has made companies warier of working with government officials as a Polish state-owned health organization was involved. Also, the intent of the fraudulent talks and events was fairly obvious from a prosecutorial perspective.
✔️ Michael DeBernardis and Thomas Fox share advice on how companies should approach charitable donations: Know where your money is going, do background checks on the receiving organization and publicize all donations.
✔️ Eli Lilly’s exceeding discount for a certain distributor was pushed to the spotlight. Overriding internal controls requires documenting for a business reason. Most due diligence problems can be solved by looking closer at business justifications.
The Compliance Life details the journey to and in the role of a Chief Compliance Officer. How does one come to sit in the CCO chair? What skills does a CCO need to navigate the compliance waters in any company successfully? What are some of the top challenges CCOs have faced, and how did they meet them? These questions and many others will be explored in this new podcast series. Over four episodes each month on The Compliance Life, I visit with one current or former CCO to explore their journey to the CCO chair. This month, my guest is Joe Burke, most recently the Chief Ethics & Compliance Officer and Employment Counsel, Quest Software Inc.
From Kentucky Fried Chicken in Louisville, Joe moved to Round Rock, TX, to work at Dell Inc. He began in Federal Government Sales, where he developed a compliance program for GSA and TAA work for Dell Federal. He moved into compliance with the “big switch” from commercial legal to Chief Compliance Counsel. In this role, he was instrumental in building a new FCPA program using the Federal Sentencing Guidelines as a guideline.
Resources
Joe Burke LinkedIn Profile
Thomas Fox and Michael DeBernardis discuss energy cases considered FCPA violations, highlighting Panalpina Settlement Day, the uncovered bribery methods, and its implications on the future of compliance, the written policies, and the solutions to commerce and transactions in higher-risk jurisdictions.
Key points discussed in the episode:
✔️ Tom Fox introduces the cases involving Shell, Transocean, Tidewater, Pride International, and Noble.
✔️ Michael DeBernardis describes the company’s methods as a hub-and-spoke arrangement and lays out the Department of Justice’s investigative process. The case has planted the seeds of the pilot program and corporate enforcement policy. The DOJ has become more deliberate in announcing settlements
✔️ Due diligence requires visibility across all aspects of the business. Thomas Fox shares a snippet of advice from a shipping company executive: “If you have a vendor with a 100% success rate, you have a problem.” Any business model based on bribery and corruption never ends well.
✔️ Panalpina’s methods were an open secret across other energy companies, designing ways to circumvent Nigerian customs. Monitoring during this time was less rigorous.
✔️ Due diligence is an ongoing process of improvement. High-risk jurisdictions for particular transactions are now thrown at the forefront.
✔️ Companies outside of the oil and gas industry have started to reconsider their strategies in high-risk areas. The solution is not to stop doing business completely but to work with companies that do compliance.
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Do you have a podcast (or do you want to)? Join the only network dedicated to compliance, risk management, and business ethics, the Compliance Podcast Network. For more information, contact Tom Fox at tfox@tfoxlaw.com.
In this episode of the FCPA Compliance Report, I am joined by fan favorite James Koukios, partner at Morrison and Foerster. In this episode we consider some of the key ABC issues in the always great MoFo Monthly Top 10 International Anti-Corruption Developments for January 2022. Highlights of this podcast include:
- Opinion Release 22-01.
- Summary Judgment granted in bribery related breach of contract case-use of bribery allegations to get out of contract.
- FIFA defendants raise local law defense. What is it and how is it raised and why it has never been successful in a FCPA context
- Former CEO of Pemex charged. Is Mexico finally stepping up to ABC enforcement?
- South African anti-corruption commission. Will this finally help SA move past capture and a culture of corruption.
Resources
James Koukios on the MoFo website
January International Anti-Corruption Newsletter here
