Tag: The Corruption Files

Categories
The Corruption Files

Episode 13: Avon China Bribes

When beauty company Avon Products Inc. was charged in 2014 with violating the Foreign Corrupt Practices Act (FCPA) due to failure to detect and prevent bribery acts happening in China, they settled for ten times more than the cost they paid for in “gifts.”

Today, the FCPA investigation and enforcement action still stand as one of the most interesting cases for companies and compliance professionals to learn much from.

Tune in to this new episode of The Corruption Files — The Avon China Bribes with Tom Fox and Michael DeBernardis.

Key points discussed in the episode:

  1. Tom Fox shares the background facts on such an “insane case,” with the investigation almost as interesting and important as the resolution.  
  2. Michael DeBernardis states that Avon China Bribes the grandfather case for a couple of other similar FCPA cases. 
  3. The internal audit department identified this issue of paying gifts and recommended FCPA training for the team, which did not push through due to the lack of budget.
  4. In-fighting or territoriality is not surprisingly uncommon at big companies, leading to compliance and corruption problems. 
  5. Tom cites how in 2012, the government became so frustrated with Avon that they started issuing grand jury subpoenas for individuals. 
  6. A key part of the corporate process is to have systems that talk to each other. And if you don’t, the costs can be astronomical. 
  7. Avon’s $8 million in bribes led to $500 million in pre-settlement costs, $135 million in settlement costs, and $250 million in post-settlement resolutions.  
  8. Tom reminds companies that if there’s a potentially high reward, it generally means there’s a high risk.
  9. Michael emphasizes that Compliance budgets can be tight, but skipping small training can catch up with you in the long run. 

—————————————————————————-

Do you have a podcast (or do you want to)? Join the only network dedicated to compliance, risk management, and business ethics, the Compliance Podcast Network. For more information, contact Tom Fox at tfox@tfoxlaw.com.

Categories
The Corruption Files

Episode 12: The Ralph Lauren Bribery Case with Tom Fox and Michael DeBernardis

If you’re aggressive with your response, you’ll be rewarded.

Tom Fox and Michael DeBernardis break down the facts and lessons learned in the Ralph Lauren bribery case in Argentina. Discover why anti-corruption programs and worker training matter, how speedy cooperation improves resolution leniency, and why organizations shouldn’t be complacent when it comes to risk.

▶️ The Ralph Lauren Bribery Case with Tom Fox and Michael DeBernardis

Key points discussed in the episode:

✔️ Tom Fox gives an overview of the Ralph Lauren case. Michael DeBernardis highlights how this case shows that risk exists in any industry outside the U.S.

✔️ Providing an anti-corruption program and employee training got Ralph Lauren ahead of its resolutions and lowered their penalties. It was unclear what monetary value their bribe payments had.

✔️ Ensure your employees deeply understand your policies by translating them into different languages. Ralph Lauren took this step and greatly benefited in the case outcomes.

✔️ Ralph Lauren’s speedy response and decision for a policy rollout were rewarded with a lenient resolution. This sends a powerful message to regulators that you’re taking the issue seriously.

✔️ A tailored risk assessment is helpful. Set up a plan to spot audits and do compliance checks in foreign locations in a certain period. Ralph Lauren’s case is an early model for the corporate enforcement program.

✔️ The Ralph Lauren case jumpstarted the corporate enforcement policy. Their proactivity is the biggest takeaway for organizations to apply.

—————————————————————————-

Do you have a podcast (or do you want to)? Join the only network dedicated to compliance, risk management, and business ethics, the Compliance Podcast Network. For more information, contact Tom Fox at tfox@tfoxlaw.com.

Categories
The Corruption Files

Episode 09: Odebrecht/Braskem with Tom Fox and Michael DeBernardis

Brazilian petroleum company Petrobras caught itself in an intricate bribery scheme involving top construction corporations like Odebrecht and Braskem and political parties. Tom Fox and Michael DeBernardis lay out the facts and share their insights on what lessons other companies can learn and practice to avoid similar compliance troubles.

▶️ Odebrecht/Braskem with Tom Fox and Michael DeBernardis

Key points discussed in the episode:

✔️Tom Fox gives a brief background on the Petrobras-Odebrecht-Braskem case.

✔️Michael DeBernardis clarifies more facts on the case, such as the bribery feedback loop and the increasing spending on litigation. Tom Fox adds that even if you “create bad law, it’s still a law.” It has also brought attention to compliance authorities and politicians in Brazil. More companies in other countries were also involved in the scheme.

✔️The bribery scheme was intricately designed to avoid compliance detection. Michael DeBernardis recommends ensuring maximum procurement controls. Petrobras employees benefited mostly in this case. This case has emphasized the importance of visibility in supply chains.

✔️Michael DeBernardis emphasizes the importance of having appropriate controls to mitigate supply chain risk despite being lower than other aspects of the business. It also exposed the massive scale of corruption.

✔️Michael DeBernardis and Tom Fox hit home their suggestions to companies: Do a deep risk analysis, get to know your joint venture partners, and any form of defense is helpful. Although the danger is not easy to detect up front, it can help lessen the risk. Also, you should not close the doors to working with businesses with a little bit of controversy.

—————————————————————————-

Do you have a podcast (or do you want to)? Join the only network dedicated to compliance, risk management, and business ethics, the Compliance Podcast Network. For more information, contact Tom Fox at tfox@tfoxlaw.com.

Categories
The Corruption Files

Episode 08: Banks Behaving Badly with Tom Fox and Michael DeBernardis

Tom Fox and Michael DeBernardis discuss the dubious bribery cases of financial institutions, specifically Deutsche Bank, Credit Suisse, and Societe Generale (SocGen), that utilized commission agents of significant political power. They also talk about why compliance committees should look closer into the backgrounds of company agents and how the Deutsche Bank kickstarted France’s fight against corruption.

▶️ Banks Behaving Badly with Tom Fox and Michael DeBernardis

Key points discussed in the episode:

(00:00:36) Michael DeBernardis gives a brief background on the Deutsche Bank case.

(00:05:10) Tom Fox examines the compliance lessons to be learned from the Deutsche Bank case. Compliance professionals should consider not only families but friends of commission agents. The worst misconduct can gain reduced penalties when companies cooperate with investigations. Michael adds how Deutsche Bank took corrective action to achieve a significant discount.

(00:11:09) Two possible discounts companies may get for compliance are (1) a cooperation discount under the US sentencing guidelines and (2) a discount under the FCPA corporate enforcement policy.

(00:12:15) Michael DeBernardis’ standpoint as a lawyer to his clients: be forthcoming and argumentative when appropriate.

(00:13:54) Michael DeBernardis gives a brief background on the SocGen case.

(00:19:28) The SocGen case was the first US-France anti-corruption collaboration. Though bribery through agents has been done by others, it’s still an effective dishonest practice. Michael adds that companies have since improved in doing background checks on their agents.

—————————————————————————-

Do you have a podcast (or do you want to)? Join the only network dedicated to compliance, risk management, and business ethics, the Compliance Podcast Network. For more information, contact Tom Fox at tfox@tfoxlaw.com.

 

Categories
The Corruption Files

The Sophisticated Conduct of Och-Ziff’s African Bribery with Tom Fox and Michael DeBernardis

In 2016, the DOJ and SEC served enforcement action against Och-Ziff Capital Management Group for inappropriate business practices in Africa. It seemed like only yesterday when this successful hedge fund was incriminated in a complex scheme of bribing government officials to maintain and get new business. The settlement was $412 million (and even more for restitution for the victims), making it one of the biggest payments for violating the Foreign Corrupt Practices Act (FCPA).

▶️ The Sophisticated Conduct of Och-Ziff’s African Bribery with Tom Fox and Michael DeBernardis

Key points discussed in the episode:

✔️ A crisis can breed opportunities for corruption. Even as its red flags became increasingly apparent, the option remained for the Och-Ziff to stop its bribery and illegal action before and even after its activities were discovered.

✔️ Compliance professionals need to have their eyes extra peeled, not simply to vet due-diligence partners but to look deeply into the ongoing business relationships with joint-venture partners. Och-Ziff Subsidiary was involved in corruption issues tied to its mining projects in the Democratic Republic of Congo. What was blatantly amiss was the review and audit necessary to view the joint venture from the compliance perspective.

✔️ Find a joint-venture partner that approaches compliance the same way you do. In handling joint ventures, there is a need for ongoing due diligence — and ongoing management of the relationship beyond due diligence. In the lifecycle of a third-party agent, work starts when the contract is signed, and the joint venture is formed.

✔️ There are various means for auditing available that don’t include turning the place upside down. Here are some good ways to keep an eye on an entity like a joint venture:

-Do spot checks on certain transactions
-Do sampling from a distance
-Make the audit by interviewing the employees to ensure they understand and follow the compliance requirements.

✔️ Remember, it becomes more complicated when you are not in control. Regarding building contractual protections and having strict control, ensure that you find a joint-venture partner that approaches compliance the same way you do.

✔️ Companies have always had audit rights but haven’t exercised those rights. It’s almost a requirement when making high-risk transactions to not only build in the audit rights but also exercise them. Ask the right questions and gauge whether the third party has been honest in the due diligence process.

Many companies get scared off by the idea of the disruption and invasion involved, but that’s what takes away the potential problems and the unnecessary bouts with the SEC and the Department of Justice (which is responsible for enforcing the FCPA).

—————————————————————————-

Do you have a podcast (or do you want to)? Join the only network dedicated to compliance, risk management, and business ethics, the Compliance Podcast Network. For more information, contact Tom Fox at tfox@tfoxlaw.com.

Categories
The Corruption Files

Episode 06: The Instrumentality Ruling of United States v. Esquenazi

Welcome to another episode of The Corruption Files!

Tom Fox and Michael DeBernardis explore their biggest takeaways from the appeal of the conviction of former Terra Telecommunications Corp. executive Joel Esquenazi. He and other involved parties were proven to pay bribes to Haitian government officials in a grand scheme. The case remains an example of a significant conclusion from a defense involving the FCPA.

▶️ The Instrumentality Ruling of United States v. Esquenazi with Tom Fox and Michael DeBernardis

Key points discussed in the episode:

✔️ The Esquenazi decision is vital in providing clear guidance for businesses to design robust compliance programs to address corruption, avoid making grease payments to foreign government officials, and remove the temptation to cull business favors and advantages for their company.

✔️ Companies doing business abroad should never forget the learnings from the Esquenazi decision in 2014. Following the conclusion of the Court of Appeals was identifying ownership and financial control to decipher the “instrumentalities” of foreign governments and to correctly identify that there were no red flags for FCPA compliance.

✔️ The 11th Circuit Court of Appeals’ opinion clarifies how a two-part test is crucial in determining the “instrumentality” of an employee, officer, agency, or department as an entity of foreign governments. The elements of “control” and “function” served as the two prongs that the US Court of Appeals for the Eleventh Circuit made in its decision for Esquenazi and the others involved in the case.

✔️ A key indicia of a governmental entity is it doesn’t have to make a profit. Think about the United States Postal Service — today; it still stands as a government service. Everyone uses it — and we don’t want it to go away even if it doesn’t make a profit. Indeed, non-earning can be the biggest indicator if you assess what constitutes any employee, officer, agency, or department as an “instrumentality” of foreign governments where clients are conducting business.

✔️ United States v. Esquenazi is a well-settled FCPA case that didn’t go to the U.S. Supreme Court. The Esquenazi decision is a significant case law that came out of a defense trial with the defendant paying heavily and sentenced to prison for 15 years — a landmark decision that remains relevant today.

✔️ Key lessons learned from United States v. Esquenazi:

1. Ownership/Financial Control – There is no percentage amount listed, but the inclusion of financial control would indicate that anything over 50% would be a significant factor.

2. Actual control is key in all three court decisions. In Lindsey and Esquenazi, it is characterized as the government’s right to appoint key officers and directors. In Carson, it is called government control. But this means that if the government exercises actual control, it may trump the 50% guidance stated above.

3. Privileges and Obligations are also mentioned in all three. Does the entity have the right to control its functions?

4. Financing – Is the entity a for-profit entity financed through its revenues, or does it depend on financing by its government?

5. Perception is Reality – André Agassi’s immortal words appear again. If it is widely perceived as providing an official function, it is an instrumentality under the FCPA.

—————————————————————————-

Do you have a podcast (or do you want to)? Join the only network dedicated to compliance, risk management, and business ethics, the Compliance Podcast Network. For more information, contact Tom Fox at tfox@tfoxlaw.com.

Categories
The Corruption Files

Hiring in the Financial Space

Welcome to another episode of The Corruption Files!

Thomas Fox and Michael DeBernardis discuss questionable hiring practices from JP Morgan, Credit Suisse, and Bank of New York (BNY) Mellon in employing relatives of high-profile clients to gain favor. They also discuss how companies can find a middle ground in hiring families, why Hiring can be a high-risk area, preventative questions to avoid a violation, and the significance of internal control and documentation.

▶️ Hiring in the Financial Space with Thomas Fox and Michael DeBernardis

Key points discussed in the episode:

✔️ Thomas Fox gives a brief background on the BNY Mellon case.

✔️ Michael DeBernardis mentions how Hiring based on connections has existed for a long time and doesn’t directly violate any laws. It’s all up to a company’s intent. For BNY Mellon, it was to maintain close connections with major clients. He recommends compliance professionals look into their company’s hiring process.

✔️ Hiring unqualified people means you’re hiring them for other reasons. JP Morgan took in ineligible candidates for leverage with high-profile clients and free advertising in their respective home countries. Documentation stopped JP Morgan in its tracks.

✔️ JP Morgan structured hiring program managed to override compliance controls, revealing regulation flaws. Being discovered next to BNY Mellon’s case, it was not the last instance of son-and-daughter corruption.

✔️ Thomas Fox retells the Credit Suisse case. Retracing the company’s spreadsheets revealed their inner workings.

✔️ The risk of hiring relatives can be minimized when there is a middle ground. Thomas Fox shares questions to ask to prevent violations. He also adds strengthening internal control can put a company on the good side of regulators.

—————————————————————————-

Do you have a podcast (or do you want to)? Join the only network dedicated to compliance, risk management, and business ethics, the Compliance Podcast Network. For more information, contact Tom Fox at tfox@tfoxlaw.com.