France Decides Not to Criminalize International Bribery

eiffel tower

“France has severely restricted its jurisdiction and its ability to prosecute cases with an international dimension, which, given the country’s importance in the international economy and the scale of many of its companies, is very regrettable,” according to a report by GRECO. The Group of States against Corruption (GRECO) was established in 1999 by the Council of Europe to monitor States’ compliance with the organization’s anti-corruption standards.

In June of 2000, France introduced legislation related to the OECD Convention. However in the GRECO report the evaluation team wonders “why, despite the economic weight of France and its close historical links with certain regions of the world considered to be rife with corruption, it has not yet imposed any penalties for bribing foreign public officials.” (¶ 76)

France ratified the Criminal Law Convention on Corruption (ETS 173) on April 25, 2008 with an effective date of August 1, 2008. France entered two reservations as part of enacting the law.

France’s Reservation on the Offense:

“In accordance with Article 37, paragraph 1, of the Convention, the French Republic reserves the right not to establish as a criminal offence the conduct of trading in influence defined in Article 12 of the Convention, in order to exert an influence, as defined by the said Article, over the decision-making of a foreign public official or a member of a foreign public assembly, referred to in Articles 5 and 6 of the Convention.”

France’s Reservation on Jurisdiction:

“In accordance with Articles 17, paragraph 2, and 37, paragraph 2, of the Convention, the French Republic declares that it reserves the right to establish its jurisdiction as regards Article 17, paragraph 1.b, of the Convention, only when the offender is one of its nationals and the offences are punishable under the legislation of the country where they have been committed, and that it reserves the right not to establish its jurisdiction regarding the situations referred to in Article 17, paragraph 1.c, of the Convention.”

In my reading of the GRECO report, it sounds like France dropped the international bribery charge because it is too hard to prove and obtain conviction. (¶ 83)

To be fair to France, GRECO has not yet completed the Third Evaluation Round for all 46 members. So other countries many take a similar position. But the 11 made public so far have not excluded bribery of foreign officials.

France causes other problems with compliance programs. France blocks traditional SOX whistleblower programs because of concerns abut worker’s privacy.  If you want a whistleblower program in France, you need to register it with the CNiL and it must be limited to reports about the “vital interests of the company or it its employee’s physical or mental integrity”

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Approaching the Sphinx: The DOJ’s Opinion Release Procedure under the FCPA

wrageblogAlexandra Wrage of the WrageBlog shares her experiences using the Department of Justice’s opinion release procedure under the Foreign Corrupt Practices Act: Approaching the Sphinx: The DOJ’s Opinion Release Procedure.

Ms. Wrage takes us through the experiences of TRACE International in obtaining FCPA Opinion Procedure Release 08-03.

The opinion release procedure for the Foreign Corrupt Practices Act is fairly unique for a criminal law. You can ask the government if your proposed action is potentially criminal.

Betting the Corporation: Compliance or Defiance

Lawrence D. Finder, Ryan D. McConnell & Scott L. Mitchell drafted a paper surveying the sixteen corporate deferred prosecutions and non-prosecution agreements entered into by the Department of Justice in 2008.

Betting the Corporation: Compliance or Defiance? Compliance Programs in the Context of Deferred and Non-Prosecution Agreements – Corporate Pre-Trial Agreement Update – 2008

In 2008, every agreement contained some sort of corporate compliance reform provision – continuing a trend we have seen over the last few years. This trend is the focus of this update. Aside from building on prior observations, this piece attempts to draw empirical observations about the types of compliance programs that come out of corporate pre-trial agreements. The authors recognize there is no one-size fits all template for corporate compliance programs. But by examining compliance programs in the context of DPAs and NPAs, the authors strive to provide a picture of what types of compliance measures are negotiated by the DOJ and corporate targets to resolve internal control and other business deficiencies that resulted in criminal wrongdoing. We hope that this will provide some guidance for attorneys and other professionals who deal with compliance issues.

The authors note that one of the big changes in 2008 was the DOJ’s implementation of a new charging policy. (You can find it at 9-28.000 of the U.S. Attorney’s Manual.) Although the policy is no longer associated with a particular person (like the 2006 McNulty memo, the  2003 Thompson memo and the 1999 Holder memo), the nine factors for charging a corporation are still the same:

  1. the nature and seriousness of the offense;
  2. pervasiveness of wrongdoing;
  3. the company’s history of similar conduct;
  4. the company’s timely and voluntary disclosure;
  5. the existence and effectiveness of a pre-existing compliance program;
  6. the company’s remedial actions;
  7. the collateral consequences (including harm to shareholders) of a conviction;
  8. the adequacy of prosecution of individuals; and
  9. the adequacy of civil or regulatory remedies

There is a new statement in USAM 9-28.200:” In certain instances, it may be appropriate, upon consideration of the factors set forth herein, to resolve a corporate criminal case by means other than indictment. Non-prosecution and deferred prosecution agreements, for example, occupy an important middle ground between declining prosecution and obtaining the conviction of a corporation.”

A second change in 2008 was the issuance of the Morford Memo that addresses the use of corporate monitors, providing guidance on issues that may arise in the selection of a monitor and the monitor’s duties.

2008 STATISTICS:

Total Number of Agreements: 16
Number of Privilege Waivers: 2   (13%)
Number of Agreements with Compliance Monitors: 6   (38%)
Number of Agreements With Compliance Reforms: 16 (100%)

The link above is to a draft copy of the paper. The final version is scheduled to be published in the South Texas  Law Review in May 2009.

Let’s Get Ethical!, Ethical!, I Want To Get Ethical…

Those of you that watch NBC’s “The Office” see some of the best examples of what NOT to do in business every week. They also tackled what not NOT to do in an Ethics Training course. The clip shows some of the worst training skills (reading from the binder, HR-speak, etc.).

It also provides an unusual example of a compliance problem, with Meredith sleeping with a supplier in exchange for a discount.

Unfortunately, the ethical lapses are not limited to the rag-tag Scranton office, but also exist in the main office. The response to Meredith’s confession from the home office?: “I’m not sure that these circumstances warrant any action…this seems like a grey area.”

Twitter and Presentations

Follow me on Twitter
Follow me on Twitter

At President Obama’s State of the Union address, there was a fair amount coverage by the media and by the Congressman in attendance. Several dozen Congressmen have twitter accounts and many were sending out messages during the address.

Is this Good or Bad?

What about people in the audience when you are giving your next presentation?

Is this Good or Bad?

At my recent presentation with Bruce Carton, Web 2.0 – Leveraging New Media to Maximize Your Securities & Compliance Practice, Bruce and I kept an eye on the Twitter backchannel. I had published the #SecuritiesD hashtag and publicized it on a blog post and Twitter. There were a handful of twitter users during the presentation asking questions and publishing notes about the webinar to their followers. One tweet corrected an outdated statistic I cited. David Hobbie of Caselines used Twitter to keep his notes about the webinar and to capture soundbites from me and Bruce.

I also had the experience of participating in a conference through Twitter. I did not attend LegalTech New York this year, after having attended it the last few years. Fortunately, several people I know and several people I follow on Twitter did attend. They were able to relay their thoughts about the speakers, relay soundbites and communicate with each other during the conference. I even asked a question on Twitter that got relayed to speaker, answered and relayed back to me through Twitter. The use of Twitter spread the conference beyond the four walls of the convention hall. That is very powerful.

Is Twitter a good thing during presentations? Yes!

Try integrating it during your next presentation. I will.

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Waiving the Attorney-Client Privilege By Seeking Tax Advice

john-adams-courthouse for the Mass SJC

The Massachusetts Supreme Judicial Court focused on the issue of whether the attorney-client privilege protected  communications between an in-house corporate counsel and outside tax accountants. Commissioner of Revenue v. Comcast Corporation, et al., SJC-10209 (March 3, 2009). The general rule is that the voluntary disclosure of privileged information to a third party consultant for the company’s business purposes will be deemed to waive the privilege.

We saw a similar issue addressed in the context of SEC filings in the case of  Roth v Aon. In the Roth case, they were trying to compel the release of draft SEC filings. That court rejecting the request and recognized that the process of preparing SEC filings involves legal judgments throughout, even where the disclosure in question concerns operational rather than legal matters.

In Comcast, Corporate counsel retained two Massachusetts-based Arthur Andersen partners to provide Massachusetts tax law advice in connection with a proposed stock sale. The Andersen partners spoke with in-house counsel and prepared several memoranda discussing options for the company relating to the stock sale. Litigation ensued concerning the tax implications of the stock sale. The Commissioner of Revenue sought production of the Arthur Andersen memoranda, which Comcast withheld on the basis of the attorney-client privilege and/or work product doctrine.

The SJC held that the memoranda were not protected by the attorney-client privilege.

In addressing whether the attorney-privilege exists, Comcast bears the burden of proof and needed to show:

“(1) the communications were received from a client during the course of the client’s search for legal advice from the attorney in his or her capacity as such; (2) the communications were made in confidence; and (3) the privilege as to these communications has not been waived.”

Comcast argued that the memoranda fell within the “derivative privilege” recognized in United States v. Kovel, 296 F.2d 918 (2d Cir.1961). In the Kovel decision, the Second Circuit held that the attorney-client privilege is not waived when disclosure to a third party consultant is necessary to facilitate communication between the attorney and the client and assist the attorney in rendering legal advice to the client. One example of the derivative privilege is that of an interpreter brought in to translate for a client and his attorney who speak different languages.

With respect to accountants, the Court in Kovel held that the privilege is waived unless the communication is made for the specific purpose of the client obtaining legal advice from the lawyer. The privilege is waived if  (a) what is sought is not legal advice but only accounting services, or (b) if the advice sought is the accountant’s rather than the lawyer’s . In Comcast, the SJC agreed that the Kovel doctrine applies only when the accountant’s role is to clarify or facilitate communications between attorney and client. The majority of courts take the same position.

Lesson? Tax advice from your accountant is unlikely to be protected by attorney-client privilege.

Before disclosing attorney-client communications to a third party, ask yourself whether the third party is being consulted in order to (a) simply to provide her own advice, or (b) facilitate communication between the attorney and the client. If your answer is (b), disclosure of the confidential information will likely waive the attorney-client privilege.

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Madoff Goes From His Penthouse to the Big House

madoff

Bernie Madoff filed past a sea of reporters and camera flashes to enter his guilty plea in front of Judge Denny Chin. Several victims spoke, asking the judge to reject the plea and force a trial. They want grueling trial to make Madoff suffer and to bring more facts out to the public.

Since he turned himself in to authorities back in December, Mr. Madoff has been living in his multi-million dollar penthouse. Back in December, the magistrate ruled that Mr. Madoff was not a flight risk and allowed him to stay confined in his palatial home.

But now Mr. Madoff is guilty. Mr. Madoff’s attorney, Ira Sorkin, tried to argue for bail. But Judge Chin would have none of it. Judge Chin revoked Madoff’s bail, calling him a “flight risk” in light of the severity of the charges for which he just entered a guilty plea. He granted the government’s request for remand. The prosecution did not even have to rebut Mr. Sorkin’s argument for bail.

According to the New York Law Journal’s Mark Hamblett, Mr. Madoff was taken out of court in handcuffs. I have not seen pictures of that yet, but I am sure there are many people looking to get a copy of that picture to frame. In handcuffs, he was delivered to Manhattan Correctional Center. (If you were thinking of sending some money to Bernie to help his cause, you should take a look at the Bureau of Prison’s Inmate Money Policy.”The deposit must be in the form of a money order.”)

Fox Business takes us on a tour of his new home until his June 16 sentencing hearing:

Presumably, Mr. Madoff’s lawyer will appeal the bail revocation. The chances of Mr. Madoff being released on bail are slim and none, and slim’s 401(k) has turned into a 201(k). After all, the appellate court gives lots of deference to the district court on bail decisions.

The next question will be how much time will Mr. Madoff serve and where. Lets add up the charges:

  • Count 1: Securities fraud. Maximum penalty: 20 years in prison; fine of the greatest of $5 million or twice the gross gain or loss from the offense; restitution.
  • Count 2: Investment adviser fraud. Maximum penalty: Five years in prison, fine and restitution.
  • Count 3: Mail fraud. Maximum penalty: 20 years in prison, fine and restitution.
  • Count 4: Wire fraud. Maximum penalty: 20 years in prison, fine and restitution.
  • Count 5: International money laundering, related to transfer of funds between New York-based brokerage operation and London trading desk. Maximum penalty: 20 years in prison, fine and restitution.
  • Count 6: International money laundering. Maximum penalty: 20 years in prison, fine and restitution.
  • Count 7: Money laundering. Maximum penalty: 10 years in prison, fine and restitution.
  • Count 8: False statements. Maximum penalty: Five years in prison, fine and restitution.
  • Count 9: Perjury. Maximum penalty: Five years in prison, fine and restitution.
  • Count 10: Making a false filing with the Securities and Exchange Commission. Maximum Penalty: 20 years in prison, fine and restitution.
  • Count 11: Theft from an employee benefit plan, for failing to invest pension fund assets on behalf of about 35 labor union pension plans. Maximum penalty: Five years in prison, fine and restitution.

That’s a maximum penalty of 150 years. Some of these may end up being concurrent sentences. But given that Mr. Madoff is 70, it would be a good guess that he will end up spending the rest of his life in prison.

Where will he be spending that time? Jeff Chabrowe of the Blanch Law Firm told Esquire that he thinks it will be the Federal Correctional Institute in Otisville, New York because it is one of the few with a kosher kitchen. Sounds like a wild guess to me.

It is good to see justice happening swiftly and effectively. After all the fear of prosecution is one of the better ways to stop Ponzi schemes. It seems like Mr. Madoff just wants this to end and accept his punishment.

The compliance officer in me wants to hear more about the underlying facts of what made Madoff go bad. In his allocution Madoff states that:

When I began the Ponzi scheme, I believed it would end shortly and I would be able to extricate myself and my clients from the scheme. However, this proved difficult, and ultimately impossible.

What made him begin the scheme? What would have stopped him from starting the scheme? What lessons can learn from Mr. Madoff to deter the next Madoff from going to the dark side? How did he think he could extricate himself?

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Seven Questions to Ask to Optimize Your Compliance Programs

compliance_week_logo

Compliance Week put on a webinar covering Practical Guidance: Seven Questions to Ask to Optimize Your Compliance Programs. Bruce McCuaig, Vice President, Risk and Compliance and Mike Rost, Vice President, Marketing of Paisley presented.

Mike started off with some background of Paisley, then moved onto the “Why?” of Compliance. Companies want to avoid the downside that comes from compliance failures.

Bruce then took over and set forth the seven questions:

  1. Do you have an effective compliance program?
  2. Have you assessed the scope of your compliance program?
  3. Is your compliance program risk-based?
  4. Do you have effective controls over your compliance risks?
  5. Is your compliance program integrated?
  6. Are you leveraging technology to support your compliance program?
  7. Do you have a plan to instill and sustain your compliance program processes?

Effectiveness has a basis in the federal sentencing guidelines. You need to have culture of compliance. You need to be effective in prevention. You need to document standards and procedures. You need to communicate and report. There is a need for continual improvement.

In assessing the scope of your compliance program, you need to look at the laws, standards and regulations that you must comply with. What jurisdictions to you operate in? What subjects do I need to pay attention to? You need to take a top-down risk-based approach to address the scope of your program. You need to find the most significant risks to compliance.

To think about if your compliance program is risk-based, you need to look at the root cause of possible failure. They break it into three pieces. You need to look at behavioral or cultural factors, impact factors and external factors. Behavior focuses on people. Do your people know the rules. Impact factors look at systems and external are things outside your control.

For effective controls you need to know the rules, know the rules have to be followed. You also need to know when the rules are broken. If they are broken they need to be penalized for failure. It is important that employees read and certify that they understand the rules. Where compliance failures are a risk, the regulators expect there to be a dedicated compliance officer. You need to use compliance metrics.

An un-integrated approach has redundancy in testing and documentation, with common activities across business lines. Bruce sees five point of convergence:

  • Shared context in organization and process structure
  • Common language of risk and control
  • Common methodology
  • Enterprise wide reporting
  • GRC convergence technology

Bruce thinks technology is important. You need a library of intelligent information on laws and regulations. You need to manage the life-cycle of the policies and procedures. They are useful to show that everyone has read and affirmed their understanding of the policies.

Bruce labels the four steps of maturity: (1)  reacting, (2)  anticipating, (3) collaborating, and (4) orchestrating.

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Conducting C-Suite Investigations

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EthicsPoint presented a webinar on conducting C-Suite Investigations, with Sally Rhys, BA, MS, CCEP of Business Ethics Focus.  No-one wants to believe that allegations against the C-suite (Senior Executives) could be true. But with daily news reports of more cases of illegal and unethical transgressions by senior leaders, we all know that every organization is potentially at risk. It can happen at any time, even in your own organization. Are you prepared to handle such a crisis? These are my notes from the presentation.

sally

Sally Rhys started off with a fraud scenario involving the CFO: A call from someone that she thinks the CFO is overstating earnings and has convincing reports.” What do you do now?

Investigating C-suite involves bigger risks. There are also psychological barriers involving loyalty to the organization and its management. Sally points out the need for a plan:

  1. Secure a sponsor.
  2. Engage a a stakeholder team to act as a sounding board.
  3. Identify the positions which require an investigation protocol.
  4. Create plans for each position that needs a protocol. You may want to have an outside investigator for some positions. You may also want to have a PR plan and methods for dealing with clients, employees and other stakeholders. You also want to well document the steps and the investigation. You also want to be clear about the non-retaliation policy.
  5. Seek board approval. Craft a persuasive message to convince the board to approve a C-suite protocol.
  6. Publish the protocol. Write it down, publish it in the code and make it accessible. Only do this if you are actually going to follow the protocol.

It is good to have some method for quickly determining if there is some basis for the claim. You need to show that take the allegation seriously, but you want to move quickly to respond appropriately.

It is important to show the board where executives go wrong.

The attendees said the most likely chilling effect on a C-Suite investigation is the concern that you will not be supported.  Of the attendees, 46% picked this choice out of the four.

It is important to protect yourself. Make sure you have support of the board or other key stakeholders. Be professional and leave emotions at the door. be respectful and thorough. You need to stay credible.

Sally thought it was important to separate the role of general counsel and the compliance officer/investigator. Of course, you need to have a protocol for yourself/your position.

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