The 5 Top Compliance-Related Events of 2015

This article was republished with permission from Tom Fox’s FCPA Compliance and Ethics Blog.

Having gone through the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) enforcement year for the Foreign Corrupt Practices Act (FCPA), I would now like to turn to my top five compliance-related events of this year. Clearly the quantity of the DOJ’s FCPA enforcement actions dropped in the past year, but that did not mean the quality of overall FCPA enforcement dropped. Indeed, as I noted in my prior posts, there were several significant lessons for the compliance practitioner not only to learn, but also to put in place in any corporate anti-corruption compliance regime.

Even with this paucity of enforcement actions, some significant events occurred last year that I believe portend some of the greatest changes not only to compliance, but also to FCPA enforcement going forward.

The Yates Memo

In her speech announcing the new policy, Assistant Attorney General Sally Yates said the following, “we have revised our policy guidance to require that if a company wants any credit for cooperation, any credit at all, it must identify all individuals involved in the wrongdoing, regardless of their position, status or seniority in the company and provide all relevant facts about their misconduct. It’s all or nothing. No more picking and choosing what gets disclosed. No more partial credit for cooperation that doesn’t include information about individuals.” This statement ties directly into the first point of the Yates Memo, which states, “To be eligible for any cooperation credit, corporations must provide to the Department all relevant facts about the individuals involved in corporate misconduct.”

For the Chief Compliance Officer (CCO) or compliance practitioner, this means the entire focus of your investigative protocol must now change. Previously an investigation was to determine how conduct that might have violated the FCPA occurred, and then focus on how to remedy it. The first step a CCO or compliance practitioner would take when sufficient evidence was developed would be to fix the problem so that it did not reoccur going forward. If there were compliance program or internal control weaknesses, they would be immediately fixed so that neither the original perpetrators could continue the conduct, nor could others take advantage of any such structural weakness.

DOJ Compliance Counsel 

The hiring of Hui Chen marked a key change by the DOJ. Chen is a former DOJ-er who went into the corporate compliance world. She has great knowledge about cutting-edge best practices compliance programs. Chen has publicly announced she will be looking at several factors not usually considered when evaluating compliance programs for credit. These inquiries include (1) the amount of resources dedicated to compliance, (2) how thoughtfully your compliance program was designed, (3) how well your compliance program is operationalized in your company and (4) how well compliance communicates with all stakeholders in an organization.

Stephen Martin, the Managing Director and founder of Baker & McKenzie’s compliance consulting practice, has said, “Historically, it has been difficult for compliance professionals to explain the “return on investment” in compliance programs to senior management and Board[s] of Directors. Companies questioned whether DOJ and SEC really credited a pre-existing compliance program or enhancements done during an investigation and/or resolution… For companies, the ‘return on investment’ is clear…the benefits of an effective compliance program far outweigh the costs of the program and help mitigate government enforcement and compliance-related risks. For compliance professionals, the DOJ’s increasing focus provides the rationale for helping companies truly move to instituting and maintaining a practical, best practices compliance program that meets the rising expectations of the DOJ.”

First British DPA 

In late November, the UK Serious Fraud Office (SFO) announced its first deferred prosecution agreement (DPA) entered into under the Bribery Act. It involved the British banking institution ICBC Standard Bank PLC. The bank was charged with failing to prevent the payment of a bribe to obtain business from the government of Tanzania. This was a huge win for the SFO and perhaps a game changer in compliance for prosecutions under the UK Bribery Act.

SFO Director David Green said: “This landmark DPA will serve as a template for future agreements. The judgment from Lord Justice Leveson provides very helpful guidance to those advising corporates. It also endorses the SFO’s contention that the DPA in this case was in the interests of justice and its terms fair, reasonable and proportionate. I applaud Standard Bank for their frankness with the SFO and their prompt and early engagement with us.” Unlike in the U.S., the judiciary participated fully in this process. Also most interesting was a separate surcharge by the SFO for its “reasonable costs … in relation to the investigation and subsequent resolution of the DPA.” If this is a self-funding mechanism for the SFO, it is also a departure from enforcement actions under the FCPA. From where I sit, if you have a violation, it would certainly be better to get in line now, before the SFO comes knocking.

FIFA Corruption Scandal

In an era of increasing large and all-encompassing corruption scandals (2012, Walmart; 2013, GSK; 2014, Petrobras) Fédération Internationale de Football Association (FIFA) stands out as the world’s biggest sports scandal, touching literally every continent and almost every country on the planet. Yet only three U.S. citizens have been criminally charged at this point and some Americans asked why they should care about corruption in international soccer.

The FIFA prosecutions were a creative use by the DOJ of the Racketeer Influenced and Corrupt Organizations (RICO) statute to fight an international scourge. Frankly, only the DOJ has the wherewithal to take on the world’s largest sports organization, particularly one which thought itself above the law. While the U.S. certainly did not bring the indictments against FIFA alone, it clearly was the leader in this effort to continue the fight against global corruption and bribery. If America does not lead in this fight, others will not follow, so Americans should care greatly that the DOJ is continuing to lead this fight with the laws available to it.

Moreover, corruption is a global scourge. It is a component of political instability and terrorism. The FIFA scandal shows how corruption, which may appear to be victimless, can, does and has destroyed the fabric, if not the soul, of some of the world’s greatest institutions. As Americans, we should all want to fight the scourge of corruption wherever it might appear, and we certainly believe that there should be a level playing field for all who want to compete.

Volkswagen and the Zeitgeist of Compliance

The Volkswagen (VW) scandal may well become the world’s largest compliance scandal ever (at least until the next one). It was so large it damaged not only VW’s competitors, but also the German national brand of quality and honesty. First and foremost: the VW emissions-testing scandal. Going from the most trusted car manufacture in the world to an organization that does not seem to know its left hand from its right hand, nor where either hand resides. This is much more than a death of a thousand cuts, where information dribbles out on a daily basis. This is a company that cannot seem to make clear what cars, in what countries or even what engines may be part of the scandal.

I have always been fascinated with the zeitgeist. In the world of anti-bribery and anti-corruption compliance, one rarely has the chance to observe the zeitgeist in action. However, we are now seeing it play out in Germany in a very public way. It all involves the Made in Germany brand. Ulrich Grillo, the president of the BDI, the German global industry association, was quoted in Financial Times when he urged companies to check their “management processes, including compliance and control systems.” He suggested that the question to ask should be “Are we doing everything right?” This is where the zeitgeist comes in. When you have the President of a national industrial association saying compliance is the answer, the zeitgeist has arrived. You need to sit up and take notice.

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