TRACE International warns against lax compliance programs

TRACE International, the leading global anti-bribery standard setting organization, recently published the third in its biennial How to Pay a Bribe: Thinking Like a Criminal to Thwart Bribery Schemes series. The collection offers an insider’s view on how bribery and corruption impact international business, making it an excellent instructional tool for compliance practitioners.

In a four-part series published exclusively on Corporate Compliance Insights, TRACE offers a preview into the 2016 edition of How to Pay a Bribe. The complete collection is available for purchase on Amazon.

This story is based on actual events, although some details – such as dates and names of entities and individuals – have been changed.  It is a story concerning fraud and corruption in public procurement and a tale of a culture that not only permits, but expects payments to government individuals – as a condition of public contracting.  Such practices are all the more troubling when involving important medical products and other goods needed for public health.  A general tolerance for graft creates a culture of impunity for bribe payers and the recipients of bribes and a lack of accountability – even in the face of hard evidence.

Click to read Part 1, Part 2 and Part 3.

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As Lee explained the scheme, I still couldn’t understand how he’d been able to circumvent his own company’s controls.  After all, the fees owed to the Minister and the Deputy were significant and yet were never questioned within the company and had somehow survived all audit exercises over the eight-year period they were made.  It was then that Lee explained to me that he’d commissioned his supervisor, Gerald Scott, to participate in the scheme.  Scott was a UK national who had lived in Tokyo for the last 20 years.  He’d signed off on Lee’s proposal to pay Che, agreeing on how the documentation would read and the accounts against which the commission would be charged. As the years passed, Scott became more involved in Lee’s oversight of Meenah and became aware of Lee’s payments to Che.  He never objected, and indeed, on one particular occasion, gave his tacit approval to the arrangement.  After meeting with Lee, I arranged an interview with Scott, who also initially denied knowledge of, and participation in, the scheme.  Similarly, he too ultimately acknowledged awareness when presented with several incriminating emails.

Perhaps the most impactful interview was of a lower-level administrative officer in the company responsible for processing payment invoices.  When I presented the payment request Lee had submitted seeking approval of the commission payment and the transfer, I asked the woman whether she in fact knew something was amiss, and that Lee was seeking authorization for something improper.  The woman bowed her head and then nodded – all in front of the company’s new lawyers – a major international law firm with an office in Singapore. Their faces turned white.

As my investigation neared its end, I presented my findings to SGC’s parent company, which was Japanese.  Surprisingly, both Scott and Lee, as well as many of the parent company’s executives and employees, expressed the greatest concern about the possibility for prosecution under the FCPA, rather than any other form of punishment.  Indeed, it was the only question raised.  Perhaps their questions and concerns were based on their knowledge of my prior DOJ experience, or the reputation of the FCPA generally in the region.  Nevertheless, no one expressed a concern about facing Singaporean, Japanese or Cambodian charges; the FCPA was by far their biggest fear.  A secondary concern for SGC’s parent was debarment from future government bidding.  However, because Cambodia and the region still required SGC to supply a large quantity of LLINs, the company received only a temporary suspension.  Lee and Scott were terminated, but the main cost to the company was the funds spent on legal fees.

The Global Fund’s final report also focused on answering the question of how the scheme could have lasted as long as it did in one of the largest public companies in the region.  Administrative officers in the company responsible for processing Meenah’s payments knew something was wrong with the payment authorizations Lee had submitted, but failed to raise the issue for fear of reprisal.  We found that the company had put in place only a very basic compliance program: one paragraph in its HR manual devoted to anti-corruption, accompanied by some anti bribery language in the incoming new employee welcome packet. The company did not have a Chief Compliance Officer, nor any official designated with such duties or responsibilities.  We concluded that anti-corruption compliance simply was not a priority in either company.

The public aftermath, when our investigation was referred to the country’s recently established anti-corruption commission, is also noteworthy.  The episode clearly illuminated the very basic and uncontroverted truth: that government sponsored contracts required the payment of a percentage of the overall contract amount to the government ministry officials involved.  But the commission ultimately declined to act on the referral, citing “a lack of evidence” of corruption  — despite the fact that the 174-page investigation report included perhaps every conceivable form of evidence, from incriminating emails, to taped oral and written confessions, to records of the wire and bank transfers and deposits.

We also wondered to ourselves how the French, Australians and Americans, as well as several other international organizations operating in the country, were not aware of this reality and did not act upon it.  At least all claimed not to be aware when we presented our findings.  While both Che and Soche were eventually removed from their posts, temporarily, Che was actually transferred to an even more senior post in the government later on.

At the insistence of the Global Fund, Cambodia’s Ministry of Health now requires procurements to be handled by third-party independent agencies and discourages direct contact between government officials and the contracting companies.  Steps in the right direction.  Otherwise, not much has changed, but quite a lot has been learned.

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About the Author

Robert Appleton is a partner in the law office of Day Pitney LLP, where he concentrates on white collar matters, government investigations, compliance, broker/dealer securities issues and asset recovery.  In 2006, Mr. Appleton was appointed by the UN Secretary General as the first ever Chairman of the UN Anti-Corruption Task Force (PTF), where he led corruption investigations throughout the world body between 2006 and 2009. In 2005, Mr. Appleton was appointed by Former U.S. Federal Reserve Chairman Paul Volcker as his Special Counsel to the Independent Inquiry Committee investigation into the Iraqi Oil for Food Scandal. In 2010, he was selected to serve as Senior Legal and Compliance Counsel and Director of Investigations at the Geneva-based Global Fund to Fight AIDS, Tuberculosis and Malaria, where he supervised more than 300 forensic financial investigations throughout the world as well as 50 investigators, and handled many Patriot Act, FCPA and AML matters. Previously, Mr. Appleton served as a federal prosecutor and then a Supervisory AUSA for more than 13 years in the U.S. Attorney’s Office in the District of Connecticut and at the DOJ.

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TRACE International and TRACE Incorporated are two distinct entities with a common mission to advance commercial transparency worldwide by supporting the compliance efforts of multinational companies and their third-party intermediaries. TRACE International is a nonprofit business association that pools resources to provide members with anti-bribery compliance support while TRACE Incorporated offers both members and non-members customizable risk-based due diligence, anti-bribery training and advisory services.  Working alongside one another, TRACE International and TRACE Incorporated offer an end-to-end, cost-effective and innovative solution for anti-bribery and third-party compliance. For more information, visit www.TRACEinternational.org.

TRACE Member companies should write to info@traceinternational.org to request their free copy of How to Pay a Bribe: Thinking Like a Criminal to Thwart Bribery Schemes. Others can purchase the book by clicking here.

To learn more about the How to Pay a Bribe series and other publications from TRACE International, visit www.TRACEinternational.org.


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