UK’s Law Commission on Reforming Bribery

The United Kingdom’s Law Commission has published its recommendations in a new report on reforming the bribery laws in the United Kingdom. The LC Report 313 on reforming bribery (.pdf) states:

  1. Bribery has been contrary to the law at least since Magna Carta declared, “We will sell to no man…either justice or right”. Most people have an intuitive sense of what “bribery” is. However, it has proved hard to define in law. The current law is both out-dated and in some instances unfit for purpose.
  2. We propose repeal of the common law offence of bribery, the whole of the 1889,1906 and 1916 Acts, and all or part of a number of other statutory provisions.
  3. These offences will be replaced by two general offences of bribery, and with one specific offence of bribing a foreign public official. In addition, there will be a new corporate offence of negligently failing to prevent bribery by an employee or agent.
  4. In the text below, the precise statutory terms and definitions have not alwaysbeen used. The draft Bill must be consulted for these. Not all of our recommendations and draft clauses are discussed below.

Top Ten Ways to Prevent Employee Theft

From Tracy Coenen of the Fraud Files Blog, Top Ten Ways to Prevent Employee Theft:

1. Education . If employees are aware of fraud and how it happens, they will be your best on-the-job sleuths.

2. Surprise Audits . . .

3. Hotlines . A mechanism for anonymous reporting of fraud encourages employees to look out for the best interests of the company, without fear of reprisal.

4. Assessment of Internal Controls . Companies need to take an honest look at what fraud prevention controls they have in place. They also need to be honest about whether or not those procedures and policies are being followed and whether or not they really work.

5. Background Checks . . .

6. Open Door Policy . Make employees feel that it is okay to discuss concerns with management. And then when they do discuss their concerns, act accordingly. Ask lots of questions, but be supportive.

7. Perception of Fairness . . . .

8. Employee Empowerment . Give employees the authority and confidence to make decisions and take action. The more involved and empowered employees feel, the more likely they are to look out for the best interests of the business.

9. Continuous Improvement . Management should be constantly looking for ways to improve policies and procedures. Fraud prevention is an ongoing, dynamic process that requires continuous evaluation and improvement.

10. Employee Involvement . Your employees are the people who are most aware of areas vulnerable to fraud. Talk to them and ask for their help in securing the company’s assets. Fraud prevention applies to everyone, from the top down.

Fraud Detected More Often At Bankrupt Companies

Bankrupt companies are three times more likely to have been cited for fraud by U.S. regulators, according to a study released on Monday from Deloitte Financial Advisory Services LLP. The study also showed that fraud incidents were much more likely to land a company in bankruptcy court.

Sheila Smith, head of reorganization services at Deloitte said it was not clear whether employees at bankrupt companies are more likely to commit fraud or whether the microscope of bankruptcy makes it easier for regulators to detect it.

See also:

Implementation of Foreign Investment and National Security Act

Davis Polk & Wardwell attorneys Margaret M. Ayres and Jeanine P. McGuinness prepared a memorandum entitled FINSA Final Regulations (.pdf) discussing the final regulations issued by the U.S. Department of the Treasury to implement the Foreign Investment and National Security Act of 2007. That law amended the 1988 “Exon-Florio” statute and made significant changes to the scope of review and process for evaluating foreign acquisitions of U.S. businesses for national security risks. The regulations also codify recent improvements to the practices of the Committee on Foreign Investment in the United States.

The new regulations include the concept of a “covered transaction” and give additional guidance on key terms, including “control.”

A “covered transaction” is a transaction that could result in control of a U.S. businesss by a foreign person.

“Transaction” is broadly defined [§800.224] to include acquisitions, mergers, joint ventures and long term leases.

“U.S. Business” is also broadly defined [§800.226] to include any entity engaged in interstate commerce in the U.S. For real estate that excluded raw land and equipment. If contracts go along with the assets, then you could have a U.S. Business. Although raw land is excluded a leased building probably would be a U.S. business.

“Control” is broadly defined [§800.204] to give the CFIUS broad discretion. A list of minority shareholder protections are listed in §800.204(c) as not in themselves conferring control. This list is fairly short compared to most minority shareholder protections. There is another relatively safe harbor in §800.302(b) that a transaction with a foreign person holding 10% or less of the voting interest and holding that interest solely for passive investment will not be a covered transaction.

The final regulations were published in the Federal Register on November 21 and will become effective on December 22, 2008.

Leading Corporate Integrity: Defining the Role of the Chief Ethics and Compliance Officer

Fellows of the Ethics Resource Center, Business Roundtable Institute for Corporate Ethics, the Ethics and Compliance Officer Association, the Open Compliance and Ethics Group (OCEG), and the Society of Corporate Compliance & Ethics put together Leading Corporate Integrity: Defining the Role of the Chief Ethics and Compliance Officer (pdf).

Senior corporate executives are under great pressure to build and maintain strong  organizational ethics programs. The stakes are high for any organization that fails to make ethics a priority and then finds itself embroiled in scandal. Public perceptions—often driven by the media—spoil a company’s reputation and weaken its brand value. Lowered trust among investors can devastate a company’s ability to attract support for growth. Regulators and lawmakers may move swiftly to punish and/or further regulate those who step outside accepted ethical boundaries.

Today, many organizations are choosing to consolidate the critical responsibility for ethics and compliance programs under a chief ethics and compliance officer (CECO). But the specific roles and reporting lines for this relative newcomer among corporatemanagement positions are not always clearly defined;many CECOs report feeling set up for failure due to insufficient authority or inadequate resources.

This paper is intended to serve as the starting point for a dialogue within corporate management circles—particularly among CEOs, boards of directors and the CECOs themselves—about the proper placement, qualifications, and responsibilities for a leader of the corporate ethics and compliance function. This paper also provides resources and identifies additional steps for further examination of this critical management function.

Specially Designated Nationals and Blocked Persons List Updated

Here are the new bad guys on the OFAC’s Specially Designated Nationals list:

AW-MOHAMED, Ahmed Abdi (a.k.a. ABUZUBAIR, Muktar Abdulrahim; a.k.a. AW MOHAMMED, Ahmed Abdi; a.k.a. “ABU ZUBEYR”; a.k.a. “GODANE”; a.k.a. “GODANI”; a.k.a. “SHAYKH MUKHTAR”); DOB 10 Jul 1977; POB Hargeysa, Somalia; nationality Somalia (individual) [SDGT]

EL HABHAB, Redouane (a.k.a. “ABDELRAHMAN”), Iltisstrasse 58, Kiel 24143, Germany; DOB 20 Dec 1969; POB Casablanca, Morocco; nationality Germany; National ID No. 1007850441 (Germany) issued 27 Mar 2001 expires 26 Mar 2011; Passport 1005552350 (Germany) issued 27 Mar 2001 expires 26 Mar 2011; currently incarcerated in Lubeck, Germany (individual) [SDGT]

ISSA, Issa Osman (a.k.a. ATTO, Abdullah; a.k.a. BUR, Abdullah; a.k.a. SUDANI, Abdala; a.k.a. “AFADEY”; a.k.a. “MUSSE”); DOB 1973; POB Malindi, Kenya; nationality Kenya (individual) [SDGT]

ROBOW, Mukhtar (a.k.a. ALI, Mujahid Mukhtar Robow; a.k.a. ALI, Mukhtar Abdullahi; a.k.a. ALI, Shaykh Mukhtar Robo; a.k.a. RUBU, Mukhtar Ali; a.k.a. “ABU MANSOUR”; a.k.a. “ABU MANSUR”); DOB 1969; alt. DOB 10 Oct 1969; POB Xudur, Somalia; alt. POB Keren, Eritrea; nationality Eritrea; National ID No. 1372584 (Kenya); Passport 0310857 (Eritrea) issued 21 Aug 2006 expires 20 Aug 2008; (Following data derived from an Eritrean passport issued under the alias name of Mukhtar Abdullahi Ali: Alt. DOB: 10 October 1969; Alt. POB: Keren Eritrea; nationality: Eritrean; National ID No.: 1372584, Kenya; Passport No.: 0310857, Eritrea, Issue Date 21 August 2006, Expire Date 20 August 2008) (individual) [SDGT]

Full SDN lists.

Violation Reporting under the Federal Acquisition Regulations

Government contractors have new reporting requirements under the Federal Acquisition Regulations. Beginning December 12, 2008, contractors and subcontractors performing federal contracts—irrespective of monetary value or duration—will be legally obligated to disclose to the relevant federal agency’s Office of Inspector General credible evidence of

  • federal criminal law violations involving fraud, conflict of interest, bribery or gratuities;
  • violations of the civil False Claims Act; or
  • significant overpayment on the contract.

Contractors should not automatically disclose every potential violation. “Credible evidence” implies that you have the opportunity to conduct a preliminary internal investigation of the facts before determining whether or not disclosure is necessary.

Government contractors should not be caught by surprise when the rule becomes effective on December 12, 2008. They should consider the following questions before they are confronted with reported violations relating to the contract:

  • Who will determine whether disclosure under the FAR is required?
  • How should disclosure be made to the agency OIG?
  • Who should make the disclosure?
  • How will the resulting government investigation be managed?
  • How will public relations consequences be handled?

You should also consider legal consequences of mandatory reporting, including the effect of disclosure on the preservation of attorney-client privilege, self-incrimination, preservation of company defenses to government claims, and maintenance of coverage under applicable insurance policies.

See my prior blog posts:

Update to the Federal Acquisition Regulations

The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council (Councils) have agreed on a final rule amending the Federal Acquisition Regulation (FAR) to amplify the requirements for a contractor code of business ethics and conduct, an internal control system, and disclosure to the Government of certain violations of criminal law, violations of the civil False Claims Act, or significant overpayments.

On November 12, 2008 the Department of Defense published amendments to the Federal Acquisition Regulation: Federal Register Volume 73, No.219 page 67064 -67093. Key is the amendment to 52.203-13 that enlarges the requirements for a contractor’s code of business ethics and conduct.

Under 52.203-13(c)(2)(F) requires:

Timely disclosure, in writing, to the agency OIG, with a copy to the Contracting Officer, whenever, in connection with the award, performance, or closeout of any Government contract performed by the Contractor or a subcontractor thereunder, the Contractor has credible evidence that a principal, employee, agent, or subcontractor of the Contractor has committed a violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 U.S.C. or a violation of the civil False Claims Act (31 U.S.C. 3729-3733).

These amendments go into effect on December 12, 2008.