Tom Fox – Compliance Building

Best Practices Under the FCPA and Bribery Act

Tom Fox is prolific writer on the Foreign Corrupt Practices Act. He publishes the excellent FCPA Compliance and Ethics Blog. One of the downsides to a blog is that it’s a running commentary and not a narrative guide. Blogs are great for sharing ideas among practitioners. But a blog does not come together as a nuts and bolts tool.

Tom took action and organized some of his best posts into Best Practices Under the FCPA and Bribery Act. Now you can pull a comprehensive collection off your shelf to help you create and manage a world class compliance program for bribery and corruption.

The book is a “best of” collection, but organized topically, making it a great resource for the FCPA practitioner.

I was not an unbiased reader of the book. I’ve spoken with Tom many times and spent some time with him at the Compliance Week conference in 2010. Tom kindly mentioned me in the acknowledgements and sent me a copy of the book.

My only demerit on the book is that there is little new material that did not appear on his blog.

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Compliance, the Tour de France, and Doping

One of the biggest challenges with any compliance program is proving effectiveness. It’s really hard to prove that you prevented a bad thing from happening. You may be able to detect bad things when they occur. But most policies and procedures cannot prove they capture 100% of the bad things. Cycling is a case in point.

The disgraced cyclist Lance Armstrong never failed one of this tests for doping. There were hundreds of tests and none of them proved he was cheating. It turns out the tests failed. Armstrong was doping. He was a liar. He cheated.

On Sunday, Chris Froome of Team Sky crossed the Champs Elysees as the winner of the 100th edition of the Tour de France. He dominated his contenders since the first mountain stage, finishing atop Ax-Trois-Domaines well ahead of his rivals.

Was he too dominant? Was he doping?

He passed the tests. Tests which are much more likely to detect illegal substances than years ago.

Froome is stuck in the position of trying to prove he is clean and did not break the rules. How to you prove that you didn’t break a rule?

Cycling fans, like me and Tom Fox, have been heartbroken to learn that some of our favorite riders were breaking the rules. That makes it hard to have 100% faith in Chris Froome.

It’s not a lack of faith in him; it’s a lack of faith in the testing system. Clearly, the testing regime failed to detect nearly a decade of cheaters. Armstrong’s titles did not fall to the next placed riders during those years, because nearly all of those who stood beside him on the podium were found to also be cheaters.

In looking at a compliance program, do you have faith that it is catching all the cheaters and deterring possible cheaters? Do the regulators and leaders of your firm have faith in your systems? Can you prove compliance? Or merely show that you haven’t caught anyone cheating?

References:

Froome Wins the Tour and a Victory for Law Firms on Their Privilege by Tom Fox
Up the Champs Elysees is by Greg Leach. His watercolors are available at the Art of Cycling

Compliance Bricks and Mortar – Mayan Apocalypse Edition

If you’re reading this, then the Mayan Apocalypse didn’t happen. (At least not yet.) That means back to work and a look at some of the compliance stories that caught my attention recently.

Dispatches From the Front Lines of the Ethics & Culture Wars by Matt Kelly in Compliance Week

Does your organization know what its values actually are? That was the first question I asked at our roundtable, playing to the cynics who say most companies either don’t have clearly articulated values beyond the profit motive, or don’t bother telling employees what those values are. More than a few roundtable participants reluctantly agreed that the cynics have a point.

Cole-Frieman & Mallon LLP 2012 End of Year Checklist

December is the busiest month of the year for most hedge fund managers. In addition to all of the administrative details involved in closing out the year, the regulatory landscape has shifted dramatically over the past year. As a result, year-end processes and 2013 planning are particularly important, especially for General Counsels, Chief Compliance Officers and key operations and financial personnel. We have updated our own year-end checklist to help managers stay on top of these priorities.

More on “Chaos in the SEC’s Inspector General’s Office: ‘He Said, They Said'” in CorporateCounsel.net

The latest is that former Assistant Inspector General Weber has filed a $20 million lawsuit alleging he was fired for being a whistleblower. And the complaint is full of juicy details (which may – or may not – be true). Here are some articles on this development: …

Banks Behaving Badly or Brother Can You Spare A Billion (or Two)? by Tom Fox

Remember when a billion dollars was real money? Over the past couple of weeks there have been some mammoth fines paid by financial institutions for conduct, which would appear to fall under the category of “Banks Behaving Badly”. Last week HSBC agreed to pay a fine of $1.92 billion for its transgressions involving money laundering. UBS is in the final stages of negotiations to pay $1.5 billion to resolve allegations that it tried to rig interest rate benchmark (i.e. ‘Libor’) to boost trading profits. Finally, on December 10, coming in at a paltry $327 million are our old friends Standard Chartered, which admitted processing thousands of transactions for Iranian and Sudanese clients through its American subsidiaries; subsequently to avoid having Iranian transactions detected by the US Treasury Department computer filters, Standard Chartered deliberately removed names and other identifying information, according to the authorities. All in all, it’s not been a bad couple of weeks for the US Treasury, given the current stalemate over the ‘fiscal cliff’ and the need to reduce the US deficit.

Does The Victims Of Corporate Fraud Compensation Fund Deny Due Process? by Keith Paul Bishop in California Corporate & Securities Law blog

Under SB 1058, a person who obtains a final judgment against a corporation based upon the corporation’s fraud, misrepresentation, or deceit, made with intent to defraud, may after “diligent collection efforts” submit a claim to the Secretary of State for payment from the fund. Cal. Corp. Code § 2282. The Secretary of State is required to give notice to the corporation (which may contest granting of the application for payment). Cal. Corp. Code § 2282.1 The Secretary of State may deny or grant the application or may enter into a compromise with the claimant to pay less in settlement than the full amount of the claim. Cal. Corp. Code § 2284. The legislation expressly authorizes only the judicial review of a denial of a claim. Cal. Corp. Code § 2287. If the Secretary of State grants the application, she is subrogated to the claimant’s rights. Cal. Corp. Code § 2293.

FCPA Opinion Procedure Release 10-02

A continuing quirk of the Foreign Corrupt Practices Act is the ability to ask the Department of Justice whether a particular set of facts would be a violation of the Act. Given all of the recent FCPA activity I expected there to be an uptick in Opinion Procedure Releases under the FCPA. So far that does not seem to be the case. There was one release in 2009 and only the second for 2010 has recently been issued.

Maybe the bribery situations being faced by corporate America are straightforward and don’t need interpretation (or unwanted attention) from the Department of Justice.

The Opinion Requestor runs a micro-finance operation in a country in Eurasia. (I’m not sure why they used this identification.) They are trying to convert from a non-profit model to a commercial operation. The government of the unnamed Eurasian country is insisting that the requestor make a significant grant to local micro-finance institution. The regulating agency has provided a short list of six local MFIs in the Eurasian country. Either cough of the cash to get it localized or it can’t get its operating permits.

Of the six local micro-finance institutions, they found three “as generally unqualified to receive the grant funds and put them to effective use.” They then conducted further diligence on the remaining three and ruled out two more: one for conflict of interest concerns, the other after the discovery of a previously undisclosed ownership change in the entity.

That left them with one choice, so they dove deeper in their diligence. They discovered that one of the board members of the local micro-finance institution was also a government official.

The requestor laid out a series of controls is would put in place to protect the investment in the local micro-finance institution from corrupt influence and prevent money from flowing to board members.

There is some interesting discussion about what charitable institutions need to look at and controls needed to avoid FCPA violations. The DOJ also refers to three prior releases that have dealt with charitable-type grants or donations: