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Ten Top Lessons from Recent FCPA Settlements – Lesson No. 9, Internal Controls

Over the past 15 months, the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) have made clear, through three Foreign Corrupt Practices Act (FCPA) enforcement actions and speeches, their priorities in investigations, remediations, and best practices compliance programs. Every compliance professional should study these enforcement actions closely for the lessons learned and direct communications from the DOJ. They should guide not simply your actions should you find yourself in an investigation but also how you should think about priorities.

The three FCPA enforcement actions are ABB from December 2022, Albemarle from November 2023, and SAP from January 2024. Taken together, they point out a clear path for the company that finds itself in an investigation, using extensive remediation to avoid monitoring and provide insight for the compliance professional into what the DOJ expects in an ongoing best practices compliance program.

Over a series of blog posts, I will lay out what I believe are the Top Ten lessons from these enforcement actions for compliance professionals who find themselves in an enforcement action. Today, we continue with Number 9, Internal Controls. The DOJ has made it clear that any organization under FCPA scrutiny must use its internal controls to continuously test, monitor, and improve all aspects of its compliance program.

SAP

As a part of its remediation, the company conducted a gap analysis of internal controls. This remediation found those internal controls “lacking.” SAP also undertook a “comprehensive risk assessment focusing on high-risk areas and controls around payment processes and enhancing its regular compliance risk assessment process.” Using this risk assessment as a starting point, the company performed a gap analysis, determined the overall remediation regime needed, and effectuated that remediation. 

ABB

The ABB Plea Agreement reported that ABB “performed a root-cause analysis of the conduct at issue. From there, the company revamped its internal controls, investing significant additional resources in control testing and monitoring throughout the organization. While not often seen as a part of internal controls, the company restructured its reporting by internal project teams to ensure compliance controls oversight.

Additionally, ABB essentially created its monitoring program around controls, testing its compliance program, and reporting to the DOJ. In the “Written Work Plans, Reviews, and Reports” section, ABB agreed to conduct a first review and prepare a report, followed by at least two follow-up reviews and reports. But more than simply reporting on control testing, ABB agreed to create and submit for review a work plan for this ongoing testing of its compliance program, as the program was detailed in the DPA. The DPA specified, “No later than one (I) year from the date this Agreement is executed, the Company shall submit to the Offices a written report setting forth:

  • a complete description of its remediation efforts to date;
  • a complete description of the controls testing conducted to evaluate the effectiveness of the compliance program and the results of that testing; and
  • It proposes to ensure that its compliance program is reasonably designed, implemented, and enforced so that the program is effective in deterring and detecting violations of the FCPA and other applicable anti-corruption laws.”

The bottom line is that all these companies worked very hard to significantly enhance their controls, testing, and monitoring and then improve based on that information. None of the actions taken by these companies were particularly new or even innovative. Indeed, these strategies have been available from the DOJ since at least the first edition of the FCPA Resource Guide in 2012. It was, however, the work by the company to understand the deficiencies in their internal controls regime and their superior efforts to upgrade them.

Albemarle

The Albemarle SEC Order was instructive regarding internal controls for a different reason than we have been considering throughout this series. The Order detailed a series of internal control failures by the company across multiple business units in several other countries. The entire story painted a picture of a company that did not have adequate or easily overridden internal controls.

Vietnam. The Order noted, “Albemarle’s system of internal accounting controls was insufficient to prevent or detect these improper payments, which Albemarle Singapore falsely recorded as legitimate commissions in books and records consolidated into Albemarle’s financial statements.”

India. A backdated agreement increased an India agent’s commission multiple times without compliance oversight or approval. Commissions went from “extremely high” to “far from any possible realistic justification.” Finally, “the agreement called for payment of a three percent commission to India Agent, a rate three times higher than that paid to Albemarle’s existing agent for India.”

Indonesia. Albemarle’s system of internal accounting controls was insufficient to prevent or detect the improper payments made to and through Indonesia Agent, which Albemarle Singapore falsely recorded as legitimate commissions and business expenses in books and records consolidated into Albemarle’s financial statements.”

China.  When an Albemarle business director questioned China Agent’s compensation as “high,” an Albemarle Netherlands business director provided the business justification that he anticipated significant returns on the contract.

UAE.  No due diligence was conducted on an agent until after the agent agreement had been executed. The agent provided no discernible services other than conveying confidential tender evaluations and competitors’ bids obtained from the customer.

Each of these resolutions drives home the importance of internal controls, creation, and remediation as a key part of your overall compliance regime during any investigation. The sooner you can start on your internal controls, the better off you will be in your negotiations with the DOJ and SEC.

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Ten Top Lessons from Recent FCPA Settlements – Lesson No. 8, Enhancing Your Compliance Program

Over the past 15 months, the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) have made clear, through three Foreign Corrupt Practices Act (FCPA) enforcement actions and speeches, their priorities in investigations, remediations, and best practices compliance programs. Every compliance professional should study these enforcement actions closely for the lessons learned and direct communications from the DOJ. They should guide not simply your actions should you find yourself in an investigation but also how you should think about priorities.

The three FCPA enforcement actions are ABB from December 2022, Albemarle from November 2023, and SAP from January 2024. Taken together, they point out a clear path for the company that finds itself in an investigation, using extensive remediation to avoid monitoring and providing insight for the compliance professional into what the DOJ expects in an ongoing best practices compliance program.

Over this series of blog posts, I will lay out what I believe are the Top Ten lessons from these enforcement actions for compliance professionals who find themselves in an enforcement action. Today, we continue with Number 8, Enhancement of Compliance. The DOJ has clarified that any company undergoing an FCPA enforcement action must significantly enhance its compliance program with a budget, headcount, and expertise in reporting, investigations, and consequence management processes.

Albemarle

The Albemarle NPA cited several remedial actions by the company that helped Albemarle obtain superior results regarding the discounted fine and penalty. These steps were taken during the pendency of the DOJ investigation so that when the parties were ready to resolve the matter, Albemarle had built out an effective compliance program and had tested it. The NPA provided that Albemarle

  • Strengthening its anti-corruption compliance program by investing in compliance resources, expanding its compliance function with experienced and qualified personnel, and taking steps to embed compliance and ethical values at all levels of its business organization;
  • Transformed its business model and risk management process to reduce corruption risk in its operation and to embed compliance in the business, including implementing a go-to-market strategy that resulted in eliminating the use of sales agents throughout the Company, terminating hundreds of other third-party sales representatives, such as distributors and resellers, and shifting to a direct sales business model;
  • Provided extensive training to its sales team, restructuring compensation and incentives so that compensation is no longer tied to sales amounts;
  • Used data analytics to monitor and measure the compliance program’s effectiveness and
  • It engaged in continuous testing, monitoring, and improvement of all aspects of its compliance program, beginning almost immediately after identifying misconduct.

The NPA noted that Albemarle engaged in holdbacks, as they did not pay bonuses to certain employees involved in the conduct or those with oversight. The NPA said, “During its internal investigation, the Company withheld bonuses totaling $763,453 from employees suspected of wrongdoing.” The illegal behavior involved people who “(a) had supervisory authority over the employee(s) or business area engaged in the misconduct; and (b) knew of, or were willfully blind to, the misconduct.” This effort was important because it allowed Albemarle to get an extra fine reduction of a dollar for every dollar they spent on the investigation.

Indeed, Deputy Attorney General Lisa Monaco cited the Albemarle FCPA resolution: “The company received a clawback credit for withholding bonuses for employees who engaged in misconduct. Not only did Albemarle keep the bonuses that would have gone to wrongdoers, but the company also received an offset against its penalty for the same amount. That’s money saved for Albemarle and its shareholders—and a concrete demonstration of the value of clawback programs.”

SAP

SAP did an excellent job in its remedial efforts to build out its compliance program. In addition to the prior discussions of SAP’s remedial efforts, the DOJ also pointed out the company’s Enhancement of Compliance. Here, the company significantly increased the budget, resources, and expertise devoted to compliance, restructuring its Offices of Ethics and Compliance to ensure adequate stature, independence, autonomy, and access to executive leadership; enhancing its code of conduct and policies and procedures regarding gifts, hospitality, and the use of third parties; and improving its reporting, investigations, and consequence management processes.

Next were the holdback actions SAP engaged in. The DPA noted SAP withheld bonuses totaling $109,141 during its internal investigation from employees who engaged in suspected wrongdoing in connection with the conduct under investigation or who both (a) had supervisory authority over the employee(s) or business area engaged in the misconduct and (b) knew of, or were willfully blind to, the misconduct, and further engaged in substantial litigation to defend its withholding from those employees, which qualified SAP for an additional fine reduction in the amount of the withheld bonuses under the DOJ’s Compensation Incentives and Clawbacks Pilot Program.

ABB

According to the ABB Plea Agreement, ABB “took a lot of corrective actions,” such as hiring experienced compliance staff and, after figuring out what caused the behavior described in the Statement of Facts, spending a lot more money on compliance testing and monitoring across the whole company; putting in place targeted training programs and extra case-study sessions on-site; and continuing to test and monitor to as This final point was expanded on in the SEC Order, which reported that all employees involved in the misconduct were terminated.

Additionally, ABB essentially created its monitoring program to test its compliance program and report to the DOJ. In a section entitled “Written Work Plans, Reviews, and Reports,” ABB agreed to conduct a first review and prepare a first report, followed by at least two follow-up reviews and reports. But more than simply reporting, ABB decided to create and submit for review a work plan for this ongoing testing of its compliance program, as the program was detailed in the DPA. The DPA specified, “No later than one (I) year from the date this Agreement is executed, the Company shall submit to the Offices a written report setting forth:

  • a complete description of its remediation efforts to date;
  • a complete description of the testing conducted to evaluate the effectiveness of the compliance program and the results of that testing; and
  • It proposes to ensure that its compliance program is reasonably designed, implemented, and enforced so that the program is effective in deterring and detecting violations of the FCPA and other applicable anti-corruption laws.”

The bottom line is that all these companies worked very hard to significantly enhance their compliance programs, with a budget, headcount, and expertise in their reporting, investigations, and consequence management processes. None of the actions by these companies were particularly new or even innovative, as with the innovations around data analytics programs. Indeed, these strategies have been available from the DOJ since at least the first edition of the FCPA Resource Guide in 2012. It was, however, the work of each company to understand the deficiencies in their compliance programs and their superior efforts to upgrade them.

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Ten Top Lessons from Recent FCPA Settlements – Lesson No. 7, Changing Your Business Model

Over the past 15 months, the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) have made clear, through three Foreign Corrupt Practices Act (FCPA) enforcement actions and speeches, their priorities in investigations, remediations, and best practices compliance programs. Every compliance professional should study these enforcement actions closely for the lessons learned and direct communications from the DOJ. They should guide not simply your actions should you find yourself in an investigation but also how you should think about priorities.

The three FCPA enforcement actions are ABB from December 2022, Albemarle from November 2023, and SAP from January 2024. Taken together, they point out a clear path for the company that finds itself in an investigation, using extensive remediation to avoid monitoring and provide insight for the compliance professional into what the DOJ expects in a best practices compliance program on an ongoing basis.

Over a series of blog posts, I will lay out what I believe are the Top Ten lessons from these enforcement actions for compliance professionals who find themselves in an enforcement action. Today, we continue with Number 7, the Change in Sales Model. This is one of the more intriguing insights from these enforcement actions, as changing a sales model has not been previously called out by the DOJ in prior commentary, iterations of the Evaluations of Corporate Compliance Programs, either in the FCPA Resource Guide or in speeches. However, it is such a self-evident change that you might wonder why it has not been called out previously. One reason may be that it seems like a simple change but is challenging. Therefore, many companies may be reluctant to try to do so.

Albemarle

Albemarle changed its approach to sales and its sales teams. Corrupt third-party agents caused the company such FCPA grief. Many of the quotes in the NPA and Order make it clear that Albemarle executives had an aversion to paying bribes but greater moral flexibility when a third-party agent was involved. This led to the company moving away from third-party agents to a direct sales force.

 SAP

On the external sales side, SAP eliminated its third-party sales commission model globally and prohibited all sales commissions for public sector contracts in high-risk markets. It also enhanced compliance monitoring and audit programs, including creating a well-resourced team devoted to third-party partners and supplier audits. On the internal side, SAP adjusted internal compensation incentives to align with compliance objectives and reduce corruption risk.

Gunvor S.A.

The Gunvor FCPA enforcement action was announced in early March. According to the DOJ Press Release, the company has “pleaded guilty and will pay over $661 million to resolve an investigation by the U.S. Justice Department into violations of the Foreign Corrupt Practices Act (FCPA).” I have not included it in this discussion up to this point. However, the DOJ noted that Gunvor had done away with “eliminating the use of third-party business origination agents.” While this is not a complete change in its sales model, it certainly is a significant part of such an action. It also demonstrates that a company can partly change its overall sales model and sales method in a manner that will draw favor from the DOJ.

Moving to a direct sales force does have its risks that must be managed. Still, those risks can certainly be managed with an appropriate risk management strategy, strategy monitoring, and improvement. 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. By having a direct sales business model, your organization will have a direct relationship with your customers and, therefore, the ability to develop it further.

If your organization is under FCPA investigation, you should examine its sales model to determine its maintenance risks. Suppose your model is fully commission-based or highly commission-dependent. In that case, you may consider moving to a direct sales model to help remediate and manage your risks more effectively.

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Ten Top Lessons from Recent FCPA Settlements – Lesson No. 6, Clawbacks and Holdbacks

Over the past 15 months, the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) have made clear, through three Foreign Corrupt Practices Act (FCPA) enforcement actions and speeches, their priorities in investigations, remediations, and best practices compliance programs. Every compliance professional should study each of these enforcement actions closely for the lessons learned and direct communications from the DOJ. They should guide not simply your actions should you find yourself in an investigation but also how you should think about priorities.

The three FCPA enforcement actions are ABB from December 2022, Albemarle from November 2023, and SAP from January 2024. Taken together, they point out a clear path for the company that finds itself in an investigation: using extensive remediation to avoid a monitor. They also provide insight for the compliance professional into what the DOJ expects in an ongoing best practices compliance program.

Over a series of blog posts, I will lay out what I believe are the Top Ten lessons from these enforcement actions for compliance professionals who find themselves in an enforcement action. Today we continue  with Number 6, Clawbacks and Holdbacks. These strategies are relatively new to the DOJ’s arsenal, and they want companies to employ them in enforcement actions. While the DOJ and SEC have long made clear that they view monetary structure for incentive compensation, as far back as the FCPA Resource Guide, 1st edition (2012), they did not focus as intensely on the disincentive side of the equation. Prior to the Monaco Memo, clawbacks had not been generally seen as a necessary part of a compliance program.

This began to change in the Monaco Memo. It is now unequivocally required by the DOJ and listed as a crucial area of DOJ inquiry in the 2023 Evaluation of Corporate Compliance Programs. Moreover, having such a penalty in place is also seen as part of an excellent corporate culture, which not only penalizes those who engage in unethical behavior in violation of a company’s policies and procedures but will also “promote compliant behavior and emphasize the corporation’s commitment to its compliance programs and its culture.”

The DOJ was told to look into whether companies have “clawback” clauses in their pay agreements and whether “as soon as the company found out about the misconduct, the company has, as much as possible, taken affirmative steps to carry out such agreements and clawback compensation previously paid to current or former executives whose actions or omissions led to or contributed to the criminal conduct at issue.”

The Monaco Memo directed “to develop further guidance by the end of the year on how to reward corporations that develop and apply compensation clawback policies, including how to shift the burden of corporate financial penalties away from shareholders—who in many cases do not have a role in misconduct—onto those more directly responsible.” This clause is an effort by the DOJ to keep companies from shielding recalcitrant executives from the consequences of their own illegal and unethical conduct.

However, the Monaco Memo clarified that it is not simply having a written policy and procedure. If warranted, there must be corporate action under the clawback policy and procedure. In the Albemarle and SAP enforcement actions, the DOJ evaluated the companies’ actions, “Following the corporation’s discovery of misconduct, a corporation has, to the extent possible, taken affirmative steps to execute on such agreements and clawback compensation previously paid to current or former executives whose actions or omissions resulted in or contributed to the criminal conduct at issue.”

Albemarle

Albemarle went in a different direction—not clawbacks, but holdbacks. While the DOJ has made much noise about clawbacks from recalcitrant executives, Albemarle engaged in holdbacks, where they did not pay bonuses to certain employees involved in the conduct or those who had oversight. The NPA stated, “The company withheld bonuses totaling $763,453 during the course of its internal investigation from employees who engaged in suspected wrongdoing.” The illegal conduct involved those who “(a) had supervisory authority over the employee(s) or business area engaged in the misconduct; and (b) knew of, or were willfully blind to, the misconduct.” The significance of this effort was vital as it qualified Albemarle for an additional fine reduction of a dollar-for-dollar credit of the amount of the withheld bonuses under the Criminal Division’s March 2023 Compensation Incentives and Clawbacks Pilot Program. 

SAP

SAP had extensive holdbacks as well. The DPA noted SAP withheld bonuses totaling $109,141 during the course of its internal investigation from employees who engaged in suspected wrongdoing in connection with the conduct under investigation, or who both (a) had supervisory authority over the employee(s) or business area engaged in the misconduct and (b) knew of, or were willfully blind to, the misconduct, and further engaged in substantial litigation to defend its withholding from those employees, which qualified SAP for an additional fine reduction in the amount of the withheld bonuses under the DOJ’s Compensation Incentives and Clawbacks Pilot Program.

The DOJ has given significant credit to both Albemarle and SAP for their holdbacks, and we would expect them to continue to do so. If your organization has not instituted a Clawback/Holdback Policy, now is the time to do so rather than wait until you are in the middle of an investigation or enforcement action. Also, remember that the DOJ gives a dollar-for-dollar credit on any settlement where the company engaged in either clawbacks or holdbacks.

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Ten Top Lessons from Recent FCPA Settlements – Lesson No. 5, Data Analytics

Over the past 15 months, the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) have made clear, through three Foreign Corrupt Practices Act (FCPA) enforcement actions and speeches, their priorities in investigations, remediations, and best practices compliance programs. Every compliance professional should study these enforcement actions closely for the lessons learned and direct communications from the DOJ. They should guide not simply your actions should you find yourself in an investigation but also how you should think about priorities.

The three FCPA enforcement actions are ABB from December 2022, Albemarle from November 2023, and SAP from January 2024. Taken together, they point a clear path for the company that finds itself in an investigation, using extensive remediation to avoid monitoring, and provide insight for the compliance professional into what the DOJ expects in a best practices compliance program on an ongoing basis.

Over a series of blog posts, I will lay out what I believe are the Top Ten lessons from these enforcement actions for compliance professionals who find themselves in an enforcement action. Today, we continue with Number 5, Data Analytics. Data analytics was previously seen as cutting-edge in compliance. Now, they are recognized as part of a best practices compliance program. By this time next year, they will be table stakes for every compliance program. However, the DOJ specifically called out the use of data analytics in these three enforcement actions and the incorporation of data analytics into their compliance regimes in the future.

Albemarle

Albemarle’s NPA specifically called out the Company’s use of data analytics in two ways. The first was to monitor the Company’s compliance program, and the second was to measure the compliance program’s effectiveness. While this language follows a long line of DOJ pronouncements, starting with the 2020 Update to the Evaluation of Corporate Compliance Programs, about the corporate compliance functions’ access to all company data, this is the first time it has been called out in a settlement agreement in this manner. Moreover, although not explicitly tied to the lack of a required corporate monitor, it would appear that by using data analytics, Albemarle was able to satisfy the DOJ requirement for implementing controls and then effectively testing them throughout the pendency of the DOJ investigation.

Andrew McBride, Chief Risk & Compliance Officer at Albemarle. He noted that if you think about each element of a compliance program—policies and procedures, training, due diligence, and pre-approvals—and your investigation process, a recurring theme throughout is the role of data to test that those program elements are working as you intend. McBride believes there are four critical purposes for using data and data analytics to support the ethics and compliance program, which he listed as follows:

  1. Risk Identification Issues. It can be used as a part of transaction testing and auditing to identify problematic behavior, support investigations, and highlight areas of residual risk.
  2. Risk Response. Data analytics can be used as a form of internal control. Albemarle uses data analytics as a form of gatekeeper.
  3. Compliance Program Testing. Data analytics can be used to determine the effectiveness of your ethics and compliance program.
  4. Finally, and perhaps most significantly for the DOJ’s purposes in FCPA enforcement actions, are the reporting requirements to demonstrate that the company meets its requirements as laid out in the resolution documents, whether a DPA, NPA, or other.

SAP

The SAP resolution made several references to data analytics and data-driven compliance. SAP did so around its third-party program and expanded its data analytics capabilities to cover over 150 countries, including all high-risk countries globally. The SEC Order also noted that SAP had implemented data analytics to identify and review high-risk transactions and third-party controls. The SAP DPA follows the Albemarle FCPA settlement by stating that SAP now uses data analytics to measure the compliance program’s effectiveness. This language follows a long line of DOJ pronouncements, starting with the 2020 Update to the Evaluation of Corporate Compliance Programs, about the corporate compliance function’s access to all company data; this is the second time it has been called out in a settlement agreement in this manner. Additionally, it appears that by using data analytics, SAP was able to satisfy the DOJ requirement for implementing controls and then effectively testing them throughout the pendency of the DOJ investigation, thereby avoiding monitoring.

ABB

While not explicitly called out in its DPA, ABB has instituted a significant and company-wide data analytics program as a part of its overall remediation effort. Tapan Debnath, Head of Integrity, Regulatory Affairs, & Data Privacy—Process Automation at ABB, spoke about some of the challenges ABB faced and overcame to institute its data analytics program. He said, “The way data is hosted for us and probably for a lot of organizations is in lots of different places, and there needs to be a lot of data cleanup before we can utilize and use data.” He related that another challenge “for us has also been getting hold of data in different jurisdictions. There may be data privacy laws around data transfer, and there may be blocking statutes around this same thing. So navigating the local law requirements around data transfer, getting a hold of the data, and all of those things have been key challenges, as well as resourcing internally how to do this and getting the external stakeholders to support. I think These key fundamental steps need to be ironed out and looked at early on in the process.”

In November, Nicole Argentieri, Acting Assistant Attorney General for the Criminal Division, speaking at the ACI National FCPA, reported that the DOJ is stepping up its use of data analytics to identify instances of corporate misconduct and will boost its cooperation with overseas law enforcement to bring more anti-corruption cases as well. The DOJ and SEC increasingly focus on data analytics for corporate compliance, signaling higher expectations for larger companies.

Data-driven analytics have become a significant part of any best practices compliance program. The DOJ sees it as a critical remedial step for any company in an FCPA enforcement action. The actions taken by ABB, Albemarle, and SAP demonstrate that the DOJ also wants to impress this upon the greater compliance community.

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Ten Top Lessons from Recent FCPA Settlements – Lesson No. 4, Start with a Root Cause Analysis

Over the past 15 months, the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) have made clear, through three Foreign Corrupt Practices Act (FCPA) enforcement actions and speeches, their priorities in investigations, remediations, and best practices compliance programs. Every compliance professional should study these enforcement actions closely for the lessons learned and direct communications from the DOJ. They should guide not simply your actions should you find yourself in an investigation but also how you should think about priorities.

The three FCPA enforcement actions are ABB from December 2022, Albemarle from November 2023, and SAP from January 2024. Taken together, they point out a clear path for the company that finds itself in an investigation, using extensive remediation to avoid monitoring and provide insight for the compliance professional into what the DOJ expects in a best practices compliance program on an ongoing basis.

Over a series of blog posts, I will lay out what I believe are the Top Ten lessons from these enforcement actions for compliance professionals who find themselves in an enforcement action. Today, we continue with Number 4, Root Cause, Risk Assessment, and Gap Analysis. Your remediation should begin with a root cause analysis. From there, move on to a risk assessment and gap analysis, and then you are ready to start your complete remediation.

SAP

The SAP Deferred Prosecution Agreement (DPA) laid out the best example of how this works in practice. The DPA reported extensive remediation by SAP, and the information provided in the DPA is instructive for every compliance professional. SAP engaged in a wide range of remedial actions. It all started with a root cause analysis. Root Cause analysis was enshrined in the FCPA Resource Guide, 2nd edition, as one of the Hallmarks of an Effective Compliance Program. It stated, “The truest measure of an effective compliance program is how it responds to misconduct. Accordingly, for a compliance program to be truly effective, it should have a well-functioning and appropriately funded mechanism for the timely and thorough investigations of any allegations or suspicions of misconduct by the company, its employees, or agents. An effective investigation’s structure will also have an established means of documenting the company’s response, including any disciplinary or remediation measures taken.”

This means a company should respond to the specific incident of misconduct that led to the FCPA violation. This means your organization “should also integrate lessons learned from misconduct into the company’s policies, training, and controls. To do so, a company will need to analyze the root causes of the misconduct to timely and appropriately remediate those causes to prevent future compliance breaches.” The SAP DPA noted that SAP engaged in the following steps based on these factors:

1. Conducted a root cause analysis of the underlying conduct, then remediated those root causes through enhancement of its compliance program;
2. Conducted a gap analysis of internal controls, remediating those found lacking;
3. Undertook a “comprehensive risk assessment focusing on high-risk areas and controls around payment processes and enhancing its regular compliance risk assessment process”;
4. SAP documented using “comprehensive operational and compliance data” in its risk assessments.

In addition to having a mechanism for responding to the specific incident of misconduct, the company’s compliance program should also integrate lessons learned from any misconduct into the company’s policies, training, and controls on a go-forward basis. To do so, a company will need to analyze the root causes of the misconduct and remediate those causes promptly and appropriately to prevent future compliance breaches. This SAP did it during its remediation phase.

Albemarle

Albemarle also received credit “because it engaged in extensive and timely remedial measures.” This remedial action began based on the company’s root cause analysis of its FCPA violations.
This root cause analysis led to a risk assessment, which led to remediation. All of these steps were taken during the pendency of the DOJ investigation so that when the parties were ready to resolve the matter, Albemarle had built out an effective compliance program and had tested it.

ABB

ABB also did an excellent job in its remedial efforts. According to the ABB Plea, ABB “engaged in extensive remedial measures, including hiring experienced compliance personnel and following a root-cause analysis of the conduct,” which led to the FCPA enforcement action. More on the ABB remediation later.

Each entity worked diligently to rebuild its compliance programs from the ground up. Whatever the faults of their prior compliance programs, each company was quite diligent in revamping their compliance regimes. While each company builds out a program based on its own risk, there is quite a bit of guidance you can draw from if your company finds itself in this position.

Here, the DOJ communicates that your remedial measures should start with a root cause analysis of the FCPA violation. From there, move to a risk assessment and internal control gap analysis to create a clear risk management strategy.

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Ten Top Lessons from Recent FCPA Settlements – Lesson No. 3, Extensive Remediation

Over the past 15 months, the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) have made clear, through three Foreign Corrupt Practices Act (FCPA) enforcement actions and speeches, their priorities in investigations, remediations, and best practices compliance programs. Every compliance professional should study these enforcement actions closely for the lessons learned and direct communications from the DOJ. They should guide not simply your actions should you find yourself in an investigation but also how you should think about priorities.

The three FCPA enforcement actions are ABB from December 2022, Albemarle from November 2023, and SAP from January 2024. Taken together, they point out a clear path for the company that finds itself in an investigation, using extensive remediation to avoid monitoring and provide insight for the compliance professional into what the DOJ expects in a best practices compliance program on an ongoing basis.

Over a series of blog posts, I will lay out what I believe are the Top Ten lessons from these enforcement actions for compliance professionals who find themselves in an enforcement action. Today, we continue with Number 3, Extensive Remediation. The DOJ expects extensive remediation, well documented with data analytics to support everything you have done. Each of the companies engaged in extensive remediation.

ABB

The plea agreement said that ABB “took a lot of corrective action,” such as hiring experienced compliance staff and, after figuring out what caused the behavior described in the Statement of Facts, putting a lot more money into testing and monitoring compliance across the whole company; putting in place targeted training programs and extra case-study sessions on-site; and continuing to test and monitor to see how things are going. This final point was expanded on in the SEC Order, which reported that all employees involved in the misconduct were terminated.

At this point, there are not many specific components of the ABB remediation available, but we do know that ABB was given credit for hiring “experienced compliance personnel,” starting with the hiring of Natalia Shehadeh, SVP and Chief Integrity Officer, and then allowing Shehadeh to hire a dream team of compliance professionals to work with her.

Albemarle

The NPA cited several remedial actions by the company that helped Albemarle obtain a superior result regarding the discounted fine and penalty. These steps were taken during the pendency of the DOJ investigation so that when the parties were ready to resolve the matter, Albemarle had built out an effective compliance program and had tested it. The NPA provided that Albemarle engage in the following remedial efforts:

  • Strengthening its anti-corruption compliance program by investing in compliance resources, expanding its compliance function with experienced and qualified personnel, and taking steps to embed compliance and ethical values at all levels of its business organization;
  • Transformed its business model and risk management process to reduce corruption risk in its operation and to embed compliance in the business, including implementing a go-to-market strategy that resulted in eliminating the use of sales agents throughout the Company, terminating hundreds of other third-party sales representatives, such as distributors and resellers, and shifting to a direct sales business model;
  • Provided extensive training to its sales team, restructuring compensation and incentives so that compensation is no longer tied to sales amounts;
  • Used data analytics to monitor and measure the compliance program’s effectiveness and
  • We are engaged in continuous testing, monitoring, and improving all aspects of its compliance program, beginning immediately after identifying misconduct.

SAP

SAP also did an excellent job in its remedial efforts, whether SAP realized that, as a recidivist in dire straits, it was after the publicity in South Africa around corruption or some other reason that the company made major steps to create an effective, operationalized compliance program that met the requirements of the Hallmarks of an Effective Compliance Program as laid out in the 2020 FCPA Resource Guide, 2nd edition.

The remedial actions by SAP can be grouped as follows:

  1. Root Cause, Risk Assessment, and Gap Analysis. After doing a gap analysis of internal controls and fixing any problems found, the company did a root cause analysis of the behavior in question and fixed the issues it found. It then did a full risk assessment, focusing on high-risk areas and controls around payment processes, and used the results to improve its compliance risk assessment process.
  2. Enhancement of Compliance. Here, the company significantly increased the budget, resources, and expertise devoted to compliance; restructured its Offices of Ethics and Compliance to ensure adequate stature, independence, autonomy, and access to executive leadership; enhanced its code of conduct and policies and procedures regarding gifts, hospitality, and the use of third parties; enhanced its reporting, investigations and consequence management processes;
  3. Change in sales models. On the external sales side, 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 creating a well-resourced team devoted to audits of third-party partners and suppliers. On the internal side, SAP adjusted internal compensation incentives to align with compliance objectives and reduce corruption risk.
  4. Data Analytics. Here, SAP expanded its data analytics capabilities to cover over 150 countries, including all high-risk countries globally, and comprehensively used data analytics in its risk assessments.

Each of these entities worked quite diligently to rebuild their compliance programs from the ground up. Whatever the faults of their prior compliance programs, each company was quite diligent in revamping their compliance regimes. While each company builds out a program based on its own risk, there is quite a bit of guidance you can draw from if your company finds itself in this position.

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Blog

Ten Top Lessons from Recent FCPA Settlements – Lesson No. 1, Self-Disclosure

Over the past 15 months, the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) have made clear, through three Foreign Corrupt Practices Act (FCPA) enforcement actions and speeches, their priorities in investigations, remediations, and best practices compliance programs. Every compliance professional should study these enforcement actions closely for the lessons learned and direct communications from the DOJ. They should guide not simply your actions should you find yourself in an investigation but also how you should think about priorities.

The three FCPA enforcement actions are ABB from December 2022, Albemarle from November 2023, and SAP from January 2024. Taken together, they point a clear path for the company that finds itself in an investigation, using extensive remediation to avoid monitoring, and provide insight for the compliance professional into what the DOJ expects in a best practices compliance program on an ongoing basis.

Over a series of blog posts, I will lay out what I believe are the Top Ten lessons from these enforcement actions. Today, we begin with Number 1, self-disclosure. The first and most important thing is that a company should self-disclose a potential FCPA violation to the DOJ.

The DOJ expects and will reward self-disclosure above all else. The ABB enforcement action all began with ABB’s putative attempt to self-disclose. ABB set up a meeting where they intended to self-disclose but only set up the meeting without telling the DOJ the reason for the meeting. Unfortunately for ABB, this attempt was unsuccessful, as the South African press broke the story of ABB’s bribery and corruption between the time ABB called to set up a meeting and sat down with the DOJ. Yet the DOJ spent significant time discussing the underlying facts, and it was clear it positively impacted the DOJ.

Kenneth Polite, then Assistant Attorney General, said of ABB’s conduct around this attempt, “Before the meeting, however, a media report drew public attention to the wrongdoing.  But because the company could demonstrate intent and efforts to self-disclose before, and without any knowledge of, the media report, the Department weighed both the early detection of the misconduct and the intent to disclose it significantly in ABB’s favor.”

In the Albemarle enforcement action, there was a significant discussion in the NPA around Albemarle’s voluntary self-disclosure to the DOJ. “The disclosure was not “reasonably prompt,” as it was made approximately 16 months ago to the DOJ after initial discovery by the company. This meant the self-disclosure “was not within a reasonably prompt time after becoming aware of the misconduct in Vietnam,” and it means that Albemarle did not meet the standard for voluntary self-disclosure. While the DOJ “gave significant weight” to the company’s voluntary, even if untimely, disclosure of the misconduct, it is certainly cautionary.

Equally interesting was the SAP enforcement action. Although this factor was not present in the SAP enforcement action, the DOJ’s message regarding the DOJ’s expectation of self-disclosure and the obvious and palpable benefits could not be any clearer. Under the Corporate Enforcement Policy, SAP’s failure to self-disclose cost it an opportunity of at least 50% and up to a 75% reduction off the low end of the U.S. Sentencing Guidelines fine range. Its actions as a criminal recidivist resulted in it not receiving a reduction of at least 50% and up to 75% from the low end of the U.S.S.G. fine range but rather at 40% from above the low end. SAP’s failure to self-disclose cost it an estimated $20 million under the Sentencing Guidelines. SAP’s failure to self-disclose and recidivism cost it a potential $94.5 million in discounts under the Corporate Enforcement Policy. The DOJ’s message could not be any clearer.

In addition to these enforcement actions, Kenneth Polite, in a speech announcing changes in the Corporate Enforcement Policy, made clear the importance of self-disclosure in the eyes of the DOJ. “Our existing policy provides that if a company voluntarily self-discloses, fully cooperates, and timely and appropriately remediates, there is a presumption that we will decline to prosecute absent certain aggravating circumstances involving the offense’s seriousness or the offender’s nature. These aggravating circumstances include, but are not limited to, involvement by executive management of the company in the misconduct; a significant profit to the company from the wrongdoing; egregiousness or pervasiveness of the misconduct within the company; or criminal recidivism.” If a company self-discloses, but a criminal resolution is warranted, our existing policy offers 50% off of the low end of the applicable Sentencing Guidelines penalty range.

He re-emphasized this position: “When a company has uncovered criminal misconduct in its operations, the clearest path to avoiding a guilty plea or an indictment is voluntary self-disclosure.  It is also the clearest path to the greatest incentives that we offer, such as a declination with disgorgement of profits.” While noting the difficulty of a company deciding to self-disclose, “we are underscoring that a corporation that falls short of our expectations does so at its own risk. Make no mistake – failing to self-report, cooperate, and remediate fully can lead to dire consequences.” [emphasis supplied]

The DOJ could not be clearer. The No. 1 lesson is that you need to self-disclose if you want any of the benefits available.

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Self-Disclosure is Now the Key

The Department of Justice (DOJ) has been making significant strides in emphasizing the importance of voluntary self-disclosure in corporate enforcement cases, particularly in the Foreign Corrupt Practices Act (FCPA) realm. This shift in approach is evident in recent policy announcements and enforcement actions, beginning with the 2022 ABB Foreign Corrupt Practices Act (FCPA) settlement to the 2023 Albemarle FCPA resolution and continuing to the 2024 SAP Foreign Corrupt Practices Action settlement. Through these three resolutions,  the DOJ clarified that its most important criteria for evaluating a company for a fine under the FCPA is whether or not it self-discloses.

Representatives of the DOJ Kenneth Polite and Lisa Monaco further discussed this incentive in speeches in 2023. In announcing a revision to the 2017 FCPA Corporate Enforcement Policy, which became the 2023 Corporate Enforcement Policy, Kenneth Polite emphasized the ‘need for speed’ both in self-disclosure and during the pendency of any FCPA or compliance real compliance-related involving the DOJ.

The DOJ’s focus on incentivizing self-disclosure is a strategic move to encourage companies to come forward with violations and cooperate with authorities. The new Corporate Enforcement Policy offered up to a 75% reduction in penalties for voluntary disclosure. This discount is available even if there were ‘aggravating factors’ in the matter, such as C-Suite involvement in bribery and corruption. The DOJ could not send a more precise signal and be more transparent about what they want and will incent. This approach reflects a broader trend toward rewarding companies that proactively address compliance issues and work collaboratively with law enforcement agencies.

One of the key factors influencing the DOJ’s enforcement actions is the impact of recidivism. In October 2021, the DOJ, through a speech by Lisa Monaco and memorialized in the 2023 Evaluation of Corporate Compliance Programs (2023 ECCP), made it clear that it will not tolerate repeat offenders and is prepared to impose harsh penalties on companies that fail to self-disclose violations. However, even recidivist companies are encouraged to come forward and address compliance issues head-on, with the potential for significant penalty reductions if they demonstrate genuine cooperation and remediation efforts. The ABB resolution, in which the company was the first three-time FCPA recidivist yet received a superior outcome, once more demonstrated the DOJ’s current focus. The attempted self-disclosure fell short by only a day or two, as ABB had scheduled a meeting with the DOJ to self-disclose but had not formally done so. In the interim, a news story broke in South Africa about ABB’s systemic bribery and corruption in that country.

Although this factor was absent from the SAP enforcement action, the DOJ’s message regarding the benefits of self-disclosure and the DOJ’s expectation of self-disclosure could not have been clearer. Under the Corporate Enforcement Policy, SAP’s failure to self-disclose costs it an opportunity of at least 50% and up to a 75% reduction off the low end of the acceptable range of the US Sentencing Guidelines. Its actions as a criminal recidivist resulted in it not receiving a reduction of at least 50% and up to 75% from the low end of the USSG acceptable range but rather at 40% from above the low back. SAP’s failure to self-disclose cost it an estimated $20 million under the Sentencing Guidelines. Its inability to self-disclose and recidivism cost it a potential $94.5 million in discounts under the Corporate Enforcement Policy. The DOJ’s message could not be any clearer.

There was a significant discussion in the NPA around Albemarle’s voluntary self-disclosure to the DOJ. However, NPA noted that “the disclosure was not “reasonably prompt” as defined in the Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy and the US Sentencing Guidelines.” The NPA reported that Albemarle learned of allegations regarding possible misconduct in Vietnam approximately 16 months before disclosing them to the DOJ. Interestingly, the SEC Order only stated, “Albemarle made an initial self-disclosure to the Commission of potential FCPA violations in Vietnam after completing an internal investigation of such conduct and, simultaneously, self-reported potential violations it was investigating in India, Indonesia, and China. Albemarle later self-disclosed potential violations in other jurisdictions to the Commission as part of an expanded internal investigation.”

This meant the self-disclosure “was not within a reasonably prompt time after becoming aware of the misconduct in Vietnam,” which means that Albemarle did not meet the standard for voluntary self-disclosure under the Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy. While the DOJ “gave significant weight” to the Company’s voluntary disclosure, even if untimely, disclosure of the misconduct is undoubtedly cautionary.

The tradeoffs involved in balancing different factors, such as self-disclosure, cooperation, and remediation, can present challenges for companies navigating the complex landscape of FCPA enforcement. While the DOJ’s emphasis on self-disclosure offers potential benefits regarding penalty reductions and monitoring requirements, companies must carefully weigh the risks and rewards of voluntary disclosure against the possible consequences of non-disclosure.

The importance of considering the impact of decisions about the DOJ’s FCPA enforcement actions cannot be overstated. Companies that prioritize a culture of compliance, proactive monitoring, and data-driven analytics are better positioned to detect and address potential violations before they escalate into costly enforcement actions. By aligning their compliance programs with the DOJ’s expectations and demonstrating a commitment to ethical business practices, companies can mitigate the risks associated with FCPA violations and build a strong foundation for long-term success.

What the DOJ wants is self-disclosure as soon as possible. One only needs to recall the case of Cognizant Technologies, where the company received a complete declination, and there were allegations of C-Suite involvement in the bribery schemes. This Declination was provided mainly because the company self-disclosed only two weeks after the information was filtered to the Board of Directors. While Cognizant Technologies may be the gold standard, a company’s timely self-disclosures can be considered for a full Declination.

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FCPA Compliance Report

FCPA Compliance Report – Tom Fox and Michael Volkov Look at Incentives for Self-Disclosure

Welcome to the award-winning FCPA Compliance Report, the longest-running podcast in compliance. In this episode, Tom Fox welcomes back Michael Volkov as they take a deep dive into the ABB, Albemarle, and SAP FCPA enforcement actions to try and unpack the DOJ’s pivot away from heavy penalties for recidivists to prioritizing self-disclosure above all else.

Volkov’s perspective on the Department of Justice’s (DOJ) FCPA enforcement actions is both critical and analytical, shaped by his extensive experience. He underscores the necessity of transparency and explanation in the factors considered by the DOJ, highlighting its significance to practitioners in the field. Volkov also recognizes the shift in DOJ policy towards data-driven compliance, requiring companies to provide data to substantiate their conclusions and demonstrate their compliance efforts. He further notes the evolving landscape of voluntary disclosure and remediation, suggesting these areas are now pivotal in the DOJ’s enforcement approach. Volkov’s insights reflect a nuanced understanding of the changing dynamics in FCPA enforcement and the imperative for companies to adapt to these shifts.

Key Highlights:

  • Importance of Cooperation in Corporate Enforcement Cases
  • Incentivizing Self-Disclosure in DOJ’s FCPA Enforcement
  • Increased Penalty Reduction for Voluntary Self-Disclosure
  • DOJ’s Evolving Approach to Corporate Penalties
  • Benefits of Voluntary Self-Disclosure in Enforcement

Resources:

Volkov Law Group

Corruption, Crime and Compliance

Tom Fox

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