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The Boeing Saga: Compliance, Accountability, and the Path Forward

When it comes to corporate accountability, few cases are as significant as the ongoing litigation involving Boeing. Since the 737 MAX safety scandal erupted in 2021, the company has been embroiled in a complex legal journey. In July, the Department of Justice (DOJ) filed a proposed Plea Agreement with Boeing in the District Court in Dallas, Texas, under Judge Reed O’Connor. This filing stems from the original Deferred Prosecution Agreement (DPA) in 2021, and it underscores some critical issues that every compliance professional should be acutely aware of.

Boeing has agreed to plead guilty to one count of conspiracy to commit fraud against the Federal Aviation Administration (FAA) and the airplane evaluation group. This plea involves Boeing paying a $243 million fine, predetermined in the 2021 DPA. However, the Plea Agreement does not conclude the matter; it introduces several critical facets that warrant detailed exploration.

A poignant and complex aspect of this case is the involvement of the families of victims from the Lion Air Flight 610 and Ethiopian Airlines Flight 302 crashes. Under their statutory rights, these families participate in the proceedings and seek restitution for their profound losses. The court will determine whether any restitution should be awarded, a process fraught with emotional and legal challenges. The families argue that the proposed penalties are insufficient and that Boeing should explicitly acknowledge its responsibility for the tragic events.

Central to this plea agreement is the appointment of a Compliance Monitor tasked with overseeing Boeing’s adherence to compliance and safety protocols over the next three years. This monitor will be selected through a process involving the DOJ and Boeing, with a noteworthy exclusion: the district court will have no oversight of the monitor’s activities. This exclusion raises significant concerns about transparency and accountability, echoing past controversies in similar cases, such as the environmental crime case involving Carnival Cruise Lines.

The Compliance Monitor’s role in this case is unusually expansive. Beyond traditional compliance responsibilities—such as policies, procedures, internal controls, and training—the monitor will address anti-fraud measures, safety, and quality assurance/control (QA/QC) issues. This broader remit is essential, given the systemic failures at Boeing that contributed to the 737 MAX disasters.

The DOJ’s findings highlight disturbing lapses in Boeing’s safety and quality records. Employees reported feeling pressured to prioritize productivity and financial performance over safety and quality, a cultural flaw at the heart of the compliance breaches. This pressure led to out-of-sequence work, poor record-keeping, and inadequate safety audits, all indicative of a deeper systemic problem.

Addressing these issues requires a comprehensive culture-focused approach. The Compliance monitor must enforce existing standards and foster a culture of integrity and transparency within Boeing. This involves ensuring that employees can report concerns without fear of retaliation and that safety protocols are rigorously followed and documented.

The families of the crash victims are not mere bystanders in this process. They have voiced strong Objections to the Plea Agreement, particularly its perceived leniency and the lack of direct accountability for senior executives. They argue that the agreement implicitly exonerates those responsible for the safety lapses, a concern that resonates with many compliance professionals who advocate for robust accountability at all levels of an organization.

The district court’s exclusion from supervising the compliance monitor is unprecedented and troubling. In previous cases, judicial oversight has been crucial in ensuring that monitorships lead to genuine remediation. The current arrangement’s lack of transparency—where the monitor’s identity and activities are kept under seal—further exacerbates these concerns. Transparency is a cornerstone of effective compliance and accountability, and its absence could undermine the entire process.

For Boeing to restore its reputation and regain public trust, it must go beyond the minimum requirements of the plea agreement. This involves a commitment to comprehensive remediation, encompassing cultural change, structural reforms, and rigorous safety and compliance standards enforcement.

The Compliance Monitor’s broader remit is a step in the right direction, but it must be accompanied by genuine transparency and accountability. This includes involving the victims’ families meaningfully through regular updates and consultations and ensuring their concerns are addressed substantively.

The Boeing case is a stark reminder of the critical importance of compliance, transparency, and accountability in the corporate world. It highlights the devastating consequences of systemic failures and the urgent need for robust oversight mechanisms. As compliance professionals, we must advocate for comprehensive and transparent processes that ensure compliance with legal standards and foster a culture of integrity and responsibility.

Ultimately, true remediation and accountability are in the best interests of all stakeholders—from the victims’ families seeking justice to the company itself, striving to rebuild its reputation and restore public trust. Boeing’s path forward is clear: It must commit to rigorous compliance, transparent practices, and a culture prioritizing safety and integrity above all else. Only then can it hope to move beyond the shadows of the 737 MAX scandal and emerge again as a leader in the aviation industry.

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The Boeing Monitorship – Compliance, Accountability, and the Path Forward

Regarding corporate accountability and the often murky waters of compliance, few cases are as illustrative and significant as the ongoing litigation involving Boeing. Since the 737 MAX safety scandal erupted in 2021, the company has been embroiled in a complex legal journey. The Department of Justice (DOJ) recently filed a proposed Plea Agreement with Boeing in the District Court in Dallas, Texas. This filing stems from the original Deferred Prosecution Agreement (DPA) in 2021, and it underscores some critical issues that every compliance professional should be acutely aware of.

Boeing has agreed to plead guilty to one count of conspiracy to commit fraud against the Federal Aviation Administration (FAA) and the airplane evaluation group. This plea involves Boeing paying a $243 million fine, predetermined in the 2021 DPA. However, the plea agreement does not conclude the matter; it introduces several critical facets that warrant detailed exploration.

Matt Kelly, who was over in Radical Compliance, also looked at the compliance spending requirement agreed to by Boeing. As laid out in the Plea Agreement, Boeing must “make a sustained monetary investment in its compliance and safety programs of at least $455,000,000, which, on an annualized basis, is an amount equal to at least approximately 75 percent more than the company’s expenditure on compliance in fiscal year 2024.

Now, let’s do some math. If Boeing is supposed to spend $455 million over its three-year probation period, that’s an average of $151.6 million per year.” But here is the bottom line. It “means the company was devoting 0.12 percent of total revenue to its compliance program.”

A poignant and complex aspect of this case is the involvement of the families of victims from the Lion Air Flight 610 and Ethiopian Airlines Flight 302 crashes. Under their statutory rights, these families participate in the proceedings and seek restitution for their profound losses. The court will determine whether any restitution should be awarded, a process fraught with emotional and legal challenges. The families argue that the proposed penalties are insufficient and that Boeing should explicitly acknowledge its responsibility for the tragic events.

The families of the crash victims are not mere bystanders in this process. They have strongly objected to the plea agreement, particularly its perceived leniency and the lack of direct accountability for senior executives. They argue that the agreement implicitly exonerates those responsible for the safety lapses. This concern resonates with many compliance professionals who advocate for robust accountability at all levels of an organization.

Central to this plea agreement is the appointment of an independent compliance monitor tasked with overseeing Boeing’s adherence to compliance and safety protocols over the next three years. This monitor will be selected through a process involving the DOJ and Boeing, with a noteworthy exclusion: the district court will have no oversight of the monitor’s activities. This exclusion raises significant concerns about transparency and accountability, echoing past controversies in similar cases, such as the environmental crime case involving Carnival Cruise Lines.

The compliance monitor’s role in this case is unusually expansive. Beyond traditional compliance responsibilities—such as policies, procedures, internal controls, and training—the monitor will address anti-fraud measures, safety, and quality assurance/control (QA/QC) issues. This broader remit is essential, given the systemic failures at Boeing that contributed to the 737 MAX disasters.

The DOJ’s findings highlight disturbing lapses in Boeing’s safety and quality records. Employees reported feeling pressured to prioritize productivity and financial performance over safety and quality, a cultural flaw at the heart of the compliance breaches. This pressure led to out-of-sequence work, poor record-keeping, and inadequate safety audits, all indicative of a deeper systemic problem.

Addressing these issues requires a comprehensive approach. The compliance monitor must enforce existing standards and foster a culture of integrity and transparency within Boeing. This involves ensuring that employees can report concerns without fear of retaliation and that safety protocols are rigorously followed and documented.

The district court’s exclusion from supervising the compliance monitor is unprecedented and troubling. In previous cases, judicial oversight has been crucial in ensuring that monitorships lead to genuine remediation. The current arrangement’s lack of transparency—where the monitor’s identity and activities are kept under seal—further exacerbates these concerns. Transparency is a cornerstone of effective compliance and accountability, and its absence could undermine the entire process.

For Boeing to restore its reputation and regain public trust, it must go beyond the minimum requirements of the plea agreement. This involves a commitment to comprehensive remediation, encompassing cultural change, structural reforms, and rigorous safety and compliance standards enforcement.

The compliance monitor’s broader remit is a step in the right direction, but it must be accompanied by genuine transparency and accountability. This includes involving the victims’ families meaningfully through regular updates and consultations and ensuring their concerns are addressed substantively.

The Boeing case is a stark reminder of the critical importance of compliance, transparency, and accountability in the corporate world. It highlights the devastating consequences of systemic failures and the urgent need for robust oversight mechanisms. As compliance professionals, we must advocate for comprehensive and transparent processes that ensure compliance with legal standards and foster a culture of integrity and responsibility.

Ultimately, true remediation and accountability are in the best interests of all stakeholders—from the victims’ families seeking justice to the company itself, striving to rebuild its reputation and restore public trust. Boeing’s path forward is clear: It must commit to rigorous compliance, transparent practices, and a culture prioritizing safety and integrity. Only then can it hope to move beyond the shadows of the 737 MAX scandal and emerge again as a leader in the aviation industry.

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Boeing: Accept the Omnibus Monitor Approach

I recently wrote a series of blog posts and articles on why the Department of Justice (DOJ) should think big and go big with a completely new approach to the monitorship for Boeing under its agreement to take a guilty plea. Now, I want to turn to Boeing and appeal to the company directly, not to fight the biggest monitorship ever, but to embrace and use this opportunity to rebuild the company, in all aspects, literally from the ground up. Boeing is broken, and now it is facing a guilty charge. Boeing must not fight the monitorship or its scope in any way, shape, or form.

The interests involved with Boeing are too great, and too much is at stake for Boeing. This is not a situation where a company can focus on its shareholders. The framework from Business Roundtable’s Statement on the Purpose of a Corporation seems particularly useful here as there are multiple interests at stake with Boeing. Shareholders are interested in a viable, ongoing, profitable corporation, but if Boeing takes the steps outlined in this piece, the profits will be forthcoming and substantive. There are Boeing’s customers, Boeing’s suppliers, Boeing’s employees, and those localities where Boeing has factories, partners, and third-party relationships.

Start with the customers of Boeing. While there are direct relationships with airline carriers, I argue that the customers of Boeing should extend to those of us in the flying public. Nearly 200 million Americans flew domestically in 2023, and probably 90% flew on a Boeing jet. What about suppliers and localities doing business with and for Boeing? In 2023, Boeing is estimated to have generated over $77bn in revenue for America alone. The employees of Boeing are the biggest group of supporters of the company and the most significant source of information about what is wrong with the company and how to fix it. Yet this is an entirely untapped resource for Boeing as it has become clear as whistleblower after whistleblower has come publicly forward after literally beating their heads internally trying to raise their hands and speak up.

A standard monitorship involves the appointment of an independent monitor who oversees the company’s compliance with legal and regulatory requirements. This oversight ensures that the company adheres to the terms of its settlement and implements necessary reforms. The monitor acts as an impartial third party, reporting to the DOJ on the company’s progress and adherence to ethical standards.

But here, I have proposed a much bigger monitorship that Boeing should fully embrace. I have urged the DOJ to appoint an Omnibus Monitor to oversee multiple monitors in specific subject matter areas. This would be far too big for any law firm or consulting company. The Omnibus Monitor would be in charge of a wide variety of corporate disciplines that Boeing must get right out of the terrible corporate fix they find themselves in. What are some of the areas that should have their monitorship under an Omnibus Monitor? Safety is at the core, but so is culture, compliance, Speak Up and Listen Up, supply chain, fraud, export control, and sanctions. The DOJ needs to work with the Federal Aviation Authority (FAA) to oversee all aircraft manufacturing issues to meet the FAA regulatory requirements.

One of the most significant benefits of this Omnibus Monitor approach would be restoring trust and credibility for Boeing. The 737 Max incidents have deeply tarnished Boeing’s reputation among regulators, the public, investors, and other stakeholders. Accepting this Omnibus Monitor would demonstrate a commitment to transparency and accountability, demonstrating that Boeing is willing to undergo rigorous scrutiny to regain its standing.

Transparency is a cornerstone of trust. By allowing this Omnibus Monitor to evaluate and report on its practices, Boeing can show that it has nothing to hide and is dedicated to making genuine improvements. This openness can help rebuild confidence among customers, suppliers, and the aviation community.

As I noted, this Omnibus Monitor would have multiple monitors under it. A critical area where Boeing must improve is its internal culture. A monitor can play a pivotal role in this transformation of culture. The monitor can help Boeing develop a robust compliance program that prioritizes safety and ethical conduct by providing unbiased assessments and recommendations. An external perspective is invaluable in identifying blind spots and areas of resistance within the organization. Boeing has demonstrated that it cannot recognize and address deeply ingrained cultural issues. A monitor can provide the objectivity and expertise needed to drive meaningful change, ensuring safety and compliance are ingrained in every aspect of Boeing’s operations.

It is time for Boeing to step up and repair its relationships with regulators, from the FAA to the DOJ and all those regulatory bodies. Once again, Boeing has a terrible relationship with the regulators, and an Omnibus Monitor demonstrates a willingness to cooperate fully with the DOJ and other regulatory authorities. This goodwill can benefit the current settlement and any future interactions with regulators. By embracing this Omnibus Monitor approach, Boeing can show that it is taking its obligations seriously and is committed to rectifying past mistakes. This proactive approach can lead to more favorable settlement terms and potentially reduce the severity of any future penalties.

Implementing lasting reforms across the entire organization requires more than internal efforts; it requires sustained oversight and accountability. This Omnibus Monitor approach provides a structured framework for Boeing to follow, ensuring that reforms are implemented and maintained over time. The monitor’s periodic evaluations and reports create a continuous feedback loop, allowing Boeing to make necessary adjustments and improvements. This structured oversight will hopefully prevent the recurrence of past issues and promote a culture of constant improvement. It ensures that Boeing’s commitment to safety and compliance does not wane once the immediate scrutiny is lifted.

Shareholders and investors are all a part of this discussion as well. Investor confidence is crucial for any publicly traded company. The 737 Max crisis has shaken investor faith in Boeing. Embracing a monitorship can help reassure investors that Boeing is committed to addressing the root causes of its problems and is on a path to recovery. Investors seek stability and transparency. By accepting this Omnibus Monitor approach, Boeing can ensure that it is taking concrete steps to mitigate risks and enhance its governance practices. This reassurance can stabilize stock prices and restore investor confidence, which is essential for the company’s long-term financial health.

Boeing is not just any company; the US is the leader in the aerospace industry. It is one of the two biggest airplane manufacturers in the world. Its actions set precedents and influence industry standards literally on a worldwide basis. By willingly accepting this Omnibus Monitor approach, Boeing can set a positive example in the industry. Boeing can demonstrate that even the largest and most established companies are not above accountability and can benefit from external oversight. This leadership can have a ripple effect, encouraging other companies to prioritize safety, compliance, and ethical conduct. It can contribute to raising the overall standards of the aerospace industry, benefiting the entire ecosystem, including passengers, regulators, and competitors.

In conclusion, while the prospect of this Omnibus Monitor approach might initially appear daunting, it is, in fact, a powerful tool for Boeing to embrace. The benefits of restoring trust, enhancing compliance and safety culture, demonstrating good faith to regulators, facilitating lasting reforms, reassuring investors, and setting a positive industry example far outweigh the perceived burdens.

Boeing’s journey toward redemption and sustainable success hinges on its willingness to accept responsibility and make genuine improvements. By embracing this Omnibus Monitor approach as part of its settlement with the DOJ, Boeing can take a significant step forward in rebuilding its reputation and ensuring a safer, more ethical future for itself and the aerospace industry.

Embracing this oversight is not a sign of weakness but a testament to Boeing’s commitment to excellence and accountability. It is a strategic move that can pave the way for a brighter and more responsible future, reaffirming Boeing’s position as a leader in the aerospace industry.

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The Trafigura FCPA Enforcement Action – Part 4 – Lessons Learned

We conclude our exploration of the resolution of the FCPA enforcement action involving the Swiss trading firm G Trafigura Beheer B.V. (Trafigura), an international commodity trading company with its primary operations in Switzerland. The company pleaded guilty and will pay over $126 million to resolve an investigation stemming from the company’s corrupt scheme to pay bribes to Brazilian government officials to secure business with Brazil’s state-owned and state-controlled oil company, Petróleo Brasileiro S.A. – Petrobras (Petrobras). The matter was resolved via a Plea Agreement. Information detailing the company’s conduct was also issued.

Despite substantial violations of the FCPA and its extension into the corporate offices, Trafigura received the 10% discount noted above. The message from this enforcement action is the cost of failing to self-disclose, creating liability under the FCPA and creating jurisdiction for the DOJ to bring an enforcement action, denial that you have done anything wrong, failure to cooperate (at least initially), and not sanctioning any of the culpable company actors. In other words, there is a bit of reverse logic and analysis in this case. However, as noted several times, the DOJ rewarded Trafigura with some credit and gave them a discount. Most importantly, and perhaps inexorably, Trafigura was not required to retain a monitor.

Remediation 

While most of the remediation is reported as standard, the one item that every compliance professional should consider is that the company proactively discontinued using third-party agents for business origination. This point is perhaps the most significant, as we have now seen the DOJ call out Albemarle and SAP for discontinuing their use of third-party agents.

As Matt Kelly noted in Radical Compliance, in his discussion of Guvnor FCPA enforcement action, “This is the latest in a string of FCPA enforcement cases where we’ve seen a big, structural change to the sale function. Albemarle eliminated its use of third-party sales agents as part of its FCPA settlement last year; SAP eliminated its third-party sales commission model globally as part of its own FCPA settlement announced in January. Now we have a third global enterprise going that same route, reducing its FCPA risk in a deep, permanent way by restructuring its sales operations.” With Trafigura, we now have a fourth.”

As I noted in my review of the Albemarle and SAP enforcement actions, SAP eliminated its third-party sales commission model globally, prohibited all sales commissions for public sector contracts in high-risk markets, and enhanced compliance monitoring and audit programs, including the creation of a well-resourced team devoted to audits of third-party partners and suppliers. Albemarle changed its approach to sales and its sales teams. Guvnor also moved from being a third-party agent to a direct sales force.

Moving to a direct sales force does have its risks, which must be managed, but those risks can certainly be managed with an appropriate risk management strategy, monitoring of the strategy, and improvement; those risks can be managed. Yet there is another reason, and more importantly, a significant business reason, to move towards a direct sales business model. Whenever you have a third-party agent or anyone else between you and your customer, you risk losing that customer because your organization does not have a direct relationship with the customer. A direct sales business model will give your organization more direct access to your customers.

Another exciting aspect of this approach used by Albemarle, SAP, and Trafigura is that it is not an approach laid out in either the 2020 FCPA Resource Guide, 2nd edition, or the 2023 Evaluation of Corporate Compliance Programs. The companies developed all of these strategies based on their own analysis and risk models. It may have come from a realization that the risk involved with 3rd party sales models was too great, that the companies wanted more control over their sales, or another reason. Whatever the reason for the change, the DOJ clearly noted each organization and viewed it affirmatively.

Bribery Schemes

This area is essential for all compliance professionals to take note of. The bribes were initially funded with a $ 0.20 surcharge or uplift for every barrel of oil traded. With the price of oil fluctuating wildly at the time in question, between $60 to $100 per barrel, I am not sure such a small amount would even seem anomalous. It would not rise to a rounding error but generate $19 million in bribes. While I am not sure that the bribery scheme was designed to be so hard to detect, the reality is that no compliance professional could look at the trades and determine if a bribe was baked into the pricing.

Yet there was even a deeper part of the bribery scheme. Executives at Trafigura and corrupt traders at Petrobras prearranged the oil trading prices rather than letting the market determine them. The information noted, “The Trafigura Executive 2 and Brazilian Official 1 agreed to prices for trades of oil products and bribe amounts for each trade. After determining the price, Trafigura Executive 2 instructed Trafigura traders to negotiate with Petrobras, which Trafigura Executive 2 knew to be a sham, to arrive at the pre-agreed price.” [emphasis supplied]

Finally, another set of bribes was funded through an unrelated business unit. This occurred when one of the two corrupt Trafigura executives involved in the bribery scheme was transferred to run the company’s Singapore business unit. From there, this corrupt executive had a corrupt third party in Hong Kong bill the Singapore business unit for non-existent consulting services related to the Chinese market for $500,000. This money funded additional bribes to corrupt Petrobras employees. This extra step would require someone in compliance to connect the dots between a corrupt third-party bribery scheme in Singapore and China and the corruption at Petrobras in Brazil.

Lack of a Monitor

The following DOJ Memo governs the decision of whether a company needs a monitor: Revised Memorandum on Selection of Monitors in Criminal Division Matters, released in March 2023. The memo has 10 factors a prosecutor must consider.

  1. Did the corporation voluntarily self-disclose?
  2. At the time of the resolution and after a thorough risk assessment, has the company implemented an effective compliance program and sufficient internal controls to detect and prevent similar misconduct in the future?
  3. At the time of the resolution, the company had adequately tested its compliance program and internal controls to demonstrate that they would likely detect and prevent similar misconduct.
  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 through 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 exploiting an inadequate compliance program or system of internal controls.
  6. Did the conduct involve the active participation of compliance personnel?
  7. Did the company take adequate investigative or remedial measures to address the underlying criminal conduct, including terminating business relationships and practices that contributed to it?
  1. At the time of the resolution, the company’s risk profile had substantially changed.
  2. Whether the corporation faces any unique risks or compliance challenges.
  3. Is the company subject to other oversight?

A review of the Information and Plea Agreement reveals no self-disclosure. Equally significantly, there is no information about whether the company has implemented an effective compliance program or sufficient controls, let alone tested them. According to the data, the conduct was long-lasting across multiple business units. If there were internal controls in place, they were undoubtedly inadequate. There does not appear to be involvement in the compliance function. The only positive factor from the resolution documents is that Trafigura did terminate its use of third parties to initiate and foster business development, but that appears to be the only factor they have met.

Writing again in Radical Compliance, Matt Kelly said, “Either way, these cases send mixed messages to the compliance community. It looks like you can get away with not self-disclosing misconduct and perhaps even slow-rolling your cooperation if you’re prepared to invest lots in a newly invigorated compliance program and tolerate the Fraud Section as your new BFFs for the next three years of a settlement agreement.”

If the DOJ has discontinued its monitoring program or changed the requirements, it is undoubtedly its prerogative to do so. It would be helpful if they communicated that change to the compliance community.

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Compliance Into the Weeds

Compliance into The Weeds: Trafigura FCPA Enforcement Action

The award-winning Compliance into the Weeds is the only weekly podcast that takes a deep dive into a compliance-related topic, literally going into the weeds to more fully explore a subject.

Looking for some hard-hitting insights on compliance?
Look no further than Compliance into the Weeds!

In this episode, Tom and Matt take a deep dive into the recent SEC enforcement actions involving the Swiss trading company Trafigura.

The topic at hand is the Trafigura FCPA enforcement action, a pivotal case that shines a light on the methods of the Justice Department in dealing with corporate misconduct. This case involves a Swiss company, Trafigura, that was culpable of bribery allegations in Brazil and faced scrutiny for its failure to disclose such schemes.

Matt zeroes in on the absence of a compliance monitor in Trafigura’s case, highlighting the company’s extensive misconduct and questioning whether enhanced compliance reporting could adequately replace such a monitor. He advocates for reforming corporate culture through monitoring and expresses confusion over the DOJ’s inconsistent enforcement strategy.

Fox notes Trafigura’s failure to self-disclose and cooperate and its history of recidivist behavior. He too questions the effectiveness of enhanced compliance reporting as a substitute for a compliance monitor and expresses concern over the Justice Department’s prioritization of fines over reform.

Key Highlights:

  • FCPA Enforcement Action: Importance of Compliance
  • Enhancing Fraud Detection Through Forensic Collaboration
  • Evolution in DOJ Compliance Enforcement Strategies
  • Enforcement Discrepancies in Recidivist Oversight
  • What does it all mean for the compliance professional?

Resources:

Matt on Radical Compliance

Tom on the FCPA Compliance and Ethics Blog

 Tom 

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Compliance into The Weeds: Compliance and Internal Controls in The Trump Organization

The award-winning Compliance into the Weeds is the only weekly podcast that takes a deep dive into a compliance-related topic, literally going into the weeds to more fully explore a subject. Looking for some hard-hitting insights on compliance? Look no further than Compliance into the Weeds! In this episode, Tom and Matt look at the Trump Organization Monitor and Independent Director of Compliance required in the trial court order.

The topic of internal controls within the Trump Organization has recently come under scrutiny, with the need for improved financial practices and systems of accounting control becoming increasingly apparent. Tom views internal controls as the backbone of financial reporting and compliance. He points out the inconsistencies and errors in the Trump Organization’s financial disclosures, emphasizing the need for accurate certifications and attestations about the organization’s financial health. Similarly, Matt underscores the importance of consistent and accurate financial disclosures. He raises concerns about the lack of basic financial controls within the Trump Organization and sees the need for a significant overhaul of internal controls to ensure transparency, accuracy, and compliance with financial reporting standards. Both Fox and Kelly’s perspectives are shaped by their extensive experience in the field of compliance and their understanding of the critical role internal controls play in maintaining financial integrity.

Key Highlights:

  • Compliance Monitor’s Oversight in Fraud Detection
  • Navigating Financial Compliance in the Trump Organization
  • Implementing Effective Accounting Control Systems at Trump
  • Enhancing Financial Integrity in the Trump Organization

Resources:

Matt on Radical Compliance

Tom 

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Cookies, Chocolates and IP: The Stericycle FCPA Enforcement Action – Part IV

Last week, the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) announced a Foreign Corrupt Practices Act (FCPA) enforcement action, involving the waste management company, Stericycle, Inc. (Stericycle). According to the Information and Deferred Prosecution Agreement (DPA), Stericycle entered into a three-year DPA. The company was charged with two counts of conspiracy to violate (1) the anti-bribery provision of the FCPA, and (2) the FCPA’s books and records provision. Under the DPA, Stericycle agreed to a criminal penalty of $52.5 million of which the DOJ agreed to credit up to one-third of the criminal penalty against fines the company pays to authorities in Brazil in related proceedings. According to the SEC Cease and Desist Order (Order), Stericycle violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA and agreed to pay approximately $28.2 million in disgorgement and prejudgment interest. The SEC Order also provided for an offset of up to approximately $4.2 million of any disgorgement paid to Brazilian authorities. Today we consider the lessons learned.
Rapid Expansion
Similar to what we saw in the WPP enforcement action, Stericycle engaged in rapid expansion in a series of foreign jurisdiction. In this case it was Latin America. Stericycle does not seem to have made the same mistakes as WPP in holding back part of the overall acquisition payout to the owners in the locales where they purchased entities and thereby incentivizing corruption to meet sales goals. Under Stericycle, there was nothing about this same type of incentive plan used by WPP. However, Stericycle did appear to keep the former owners on as the executives in these new foreign subsidiaries without taking into account how those former owners may have done business or the risk model it entailed.
Which brings us to pre-acquisition due diligence, which is not simply looking at the financial issues involved but also considering the potential purchase from the compliance perspective. How did the companies which were purchased to form the foreign subsidiaries in Latin America do business before they were purchased? Did Stericycle review those companies from the compliance standpoint?
Moreover, and as Candice Tal, founder of Infortal, continually reminds us, due diligence is more than simply a site investigation or a couple of interviews. It should include “an in-depth background check of key executives or principal players. These are not routine employment-type background checks, which are simply designed to confirm existing information; but rather executive due diligence checks designed to investigate hidden, secret or undisclosed information about that individual.” Tal believes that such “Reputational information, involvement in other businesses, direct or indirect involvement in other lawsuits, history of litigious and other lifestyle behaviors which can adversely affect your business, and public perceptions of impropriety, should they be disclosed publicly.” Clearly, Stericycle did not engage in this level of due diligence in either the acquisitions of the entities which became Stericycle subsidiaries in Latin America, nor in their key personnel. Employees up and down the chain of an organization do not simply wake up one day and decide to engage in bribery and corruption and create a full set of records so the effectiveness of your bribery-based business process can be evaluated. 
Impact of the FCPA Corporate Enforcement Policy
The Stericycle enforcement action once again demonstrates how the FCPA Corporate Enforcement Policy can benefit even the most corrupt organization and allow a significant reduction of the overall fine and penalty under the US Sentencing Guidelines. According to the DPA, Stericycle received a 25% discount off the bottom of the applicable Sentencing Guidelines fine range for its cooperation during the pendency of the investigation and the extensive remediation.
I have previously estimated Stericycle saved between $25 million to $30 million from their final criminal fine. That is certainly a significant amount and one every Chief Compliance Officer (CCO) needs to have ready to submit to your CEO to demonstrate the power of committing time and resources to both internal investigations and remediation during the pendency of the investigation.
Impact from the Lisa Monaco Doctrine
a. The Monitor
The is first FCPA enforcement action to show the full impact of the change in DOJ enforcement priorities after the Lisa Monaco speech of October 2021, in a variety of ways. The first is the imposition of a monitor. It was required under both the DPA and the Order. Interestingly, even though the company was long aware of its compliance and ethical failures and even though it had been investigating this matter since at least 2016; the company could not seem to get its collective act together enough to fully implement and test the new compliance regime set out in the DPA. The DPA stated, “despite its extensive remedial measures described above, the Company to date has not fully implemented or tested its enhanced compliance program, and thus the imposition of an independent compliance monitor for a term of two years, as described more fully below and in Attachment D, is necessary to prevent the recurrence of misconduct.” [Emphasis supplied] Clearly the DOJ (and SEC) did not trust that the company would follow through with its resolution documents obligations and was “necessary to prevent the recurrence of misconduct.”
b. Culture
One part of the Monaco speech which drew much criticism from the White-Collar defense bar and others were her remarks around culture and that the DOJ would start assessing corporate culture in the context of other fines, penalties and regulatory enforcement actions from outside the FCPA context. Many articulated fears that conduct completely unrelated to a FCPA enforcement action could form the basis of a FCPA enforcement action. Those fears were alleviated in the Stericycle DPA which stated, “the Company has some history of prior civil and regulatory settlements, but no prior criminal history”. At least at this point, no unrelated civil or regulatory actions were assessed in the context of a FCPA enforcement action.
There was and continues to be much to consider and learn from the Stericycle FCPA enforcement action. I am sure we will be revisiting it in the future.

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Not Your Father’s Monitor – Bethany Hengsbach on White Collar Enforcement and Defense

In October, Deputy Attorney General (DAG) Lisa O. Monaco gave a Keynote Address at ABA’s 36th National Institute on White Collar Crime (Monaco Speech). Her remarks reframed a discussion about the uses of, reasons for and perceptions on independent monitors and monitorships. I asked Affiliated Monitors Inc. (AMI) founder Vin DiCianni for his thoughts around the remarks on monitors. He said, “For Affiliated Monitors this refreshed approach by DAG Monaco highlights the seriousness which businesses must place on the investment in their programs and in addressing what has for some been a negative experience with a monitor. For those who might be the subject of a monitorship, DAG Monaco recognized that the negativity that has sometimes surrounded monitorships as being punitive, should be seen in a different light bringing value, pointing a way forward and as a solution which has had great success in resolving matters.”
Monaco’s remarks should be studied by every compliance professional as they portend a very large change in the way the Department of Justice (DOJ) will utilize monitors going forward. Over this podcast series, sponsored by AMI, we will consider why DAG Monaco’s remarks herald a new era for monitorships. We will consider Monaco’s remarks from a variety of perspectives. Bethany Hengsbach will consider this change in monitorships from the white-collar enforcement and defense perspective. Mikhail Reider-Gordon will look at global aspects of the new DOJ monitor’s focus. Cristina Revelo will discuss how ethics and compliance (E&C) assessments help drive more compliant companies. Jesse Caplan brings his views on the twin topics of antitrust and healthcare compliance. We will conclude the series with Vin DiCianni who will look at where monitorships are going in 2022 and beyond. In Part 1, Bethany Hengsbach, Managing Director of Global Corporate Compliance, looks at the speech from the perspective of white-collar enforcement and defense.
Hengsbach was present for the Monaco Speech. She noted that while the remarks were a bit of a surprise because of their content and their timing, she did not believe they were a change in policy but “going back to the way things had been for a long time. And obviously, you know, she specifically rescinds certain guidance from the past specifically with respect to monitors” [Benczkowski Memo]. Moreover, the Monaco Speech emphasized the “non-punitive” nature of monitorships. The DOJ views the imposition of independent monitors as appropriate to do so in order to satisfy itself that a company is living up to its compliance and disclosure obligations under a settlement agreement. Hengsbach believes this is “a recognition of the role, that monitors play in fostering an environment of compliance, not just as a penalty, or even as a component of NDA or a DPA or a plea agreement, but really as a tool to incentivize compliant conduct on the front end.”
The Monaco Speech really drove home the message that monitorships do not have to be a negative experience. Here Hengsbach believes “it is incumbent upon the independent monitorship community understand that our role is not to play the ‘gotcha’. It’s to lend a helping hand to the company to say, this is the way forward. This is the way out of this difficult situation.” A monitorship can be used to build a stronger, more compliant company that has better relationships with regulators. Hengsbach added, “the change in policy is important but I think it’s incumbent also upon monitors themselves to really react to this, to this change in policy and ensure that monitors, are not viewed in a punitive way, because in many ways I think that was earned.”
Hengsbach concluded by considering the third component of the Monaco Speech, recidivism. Obviously, this is something the DOJ is very concerned about, both in the Foreign Corrupt Practices Act (FCPA) context as well as other white collar enforcement actions. A more proactive use of monitors can help keep the company from becoming a recidivist during the pendency of a Deferred Prosecution Agreement (DPA) or Non-Prosecution Agreement (NPA) or other form of settlement agreement through putting in a more robust compliance program to prevent and detect compliance violations. A monitorship also acts to expand the reach of the DOJ to also stop recidivist conduct.
The one other area I wanted to visit with Hengsbach about was related to DAG Monaco’s remarks about recidivism. If you draw a line back to monitorships, monitors can be used in yet another way, in addition to the non-punitive manner, in addition to extending the DOJs reach through the use of the tool of the monitorship, it could actually help to prevent future corruption, because we do have recidivous in the FCPA world, or we have it had in the past. How can the use of a monitorship keep a company from a coming of recidivists, from getting into more trouble, having additional financial penalties or other burdens put upon them as well?
Hengsbach has represented a recidivist corporation. She stated, “the issue of recidivism is real. I think that since then it has become unfortunately much more common. What we need to keep in mind here is what the Monaco Speech said about culture.” For it is through installing and maintaining a culture of compliance that you fix ongoing problems, particularly when it comes to corruption is to change the culture. Hengsbach believes this is a key reason why there are “repeat offenders in the FCPA world, because the fixes that are put in place are extremely narrow and geared at logistics or operations and not culture.”
What really drives compliance is real changes in culture. Hengsbach believes this is “an area in which monitors can be extremely useful. We have engagements now where we are exclusively focused on culture and companies, really smart companies, realize that cultural issues are the canary in the coal mine, oftentimes for real enforcement problems.” Hengsbach concluded, “this shift in policy to use monitors to prevent recidivism is fantastic. Especially when you take into account the impact that we as monitors can have on culture.”
For more from Bethany Hengsbach, check out her podcast here.

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The Affiliated Monitors Expert Podcast

Considerations When Hiring a Monitor


In this episode, I am joined by Eric Feldman, Senior Vice President and Managing Director of Corporate Ethics and Compliance Programs for Affiliated Monitors, Inc. (AMI). Today, we consider what issues a company should consider when hiring or retaining a corporate monitor.  It is important to note right off the bat, that the selection of an appropriate monitor can either make or break the entire monitorship program for an organization. Feldman advises that the forestall such a problem a company needs to have a clear understanding of what it is trying to get out a monitorship. If you are at the end of a Foreign Corrupt Practices Act (FCPA) enforcement action, your goals may be different than attempting to engage in a pre-settlement monitorship. You also need to understand what might be required by the government in any post-resolution settlement.
For more information, visit Affiliated Monitors by clicking here.

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The Affiliated Monitors Expert Podcast

What is a Post-Resolution Monitorship?


In this podcast, I am joined by Eric Feldman, Senior Vice President and Managing Director of Corporate Ethics and Compliance Programs for Affiliated Monitors, Inc. Today, we consider what is a post-resolution monitorship. Feldman explained that most generally, a “post resolution monitor ship is essentially a situation where a government agency and a private organization, it could be a corporation it could be a nonprofit organization, as a requirement of settling some kind of a dispute or a matter between those two entities the company; the regulator agrees they are going to use a monitor to ensure that any specific conditions of the agreement to settle the matter are met.”
For more information, visit Affiliated Monitors by clicking here.