FCPA Compliance Report

Tom Fox has practiced law in Houston for 30 years and now brings you the FCPA Compliance and Ethics Report. Learn the latest in anti-corruption and anti-bribery compliance and international transaction issues, as well as business solutions to compliance problems.
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FCPA Compliance Report





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Now displaying: Category: compliance know-how
Jun 18, 2018

In this episode, I visit with Kristy Grant-Hart, founder of Spark Compliance Consulting and author of now three books in the compliance arena. We discuss her most recent book “How to Have a Wildly Successful Career in Compliance", which will be released on on June 19. For those of you who have seen Kristy speak you know she is high energy and very passionate about compliance and the compliance profession. She channels that energy and passion into her latest book. In this podcast we discuss:

  • Why she wrote this book?
  • Why the winding career of a compliance professional so important?
  • Why it more important for women to “Ask for it?” around salary/comp/promotions?
  • Why moving up the corporate ladder more like climbing a jungle gym?
  • Why understanding the numbers and business plan so important to a compliance professional?
  • How does one raise their profile in the compliance profession?
  • Why is collaboration so important for a compliance professional and a corporate compliance function?

Kristy is the author of two prior books on compliance, How to Be a Wildly Effective Compliance Officerand Wildly Strategic Compliance Officer Workbook. Both are must reads for compliance professionals. Her latest entry gives solid tips and point-by-point steps on how to have a successful career in the compliance field. But it is more than simply Kristy’s thoughts as she interviewed compliance professionals from literally across the globe on how they have become wildly successful.

Yet there is one thing about the book that I think makes it most useful for every compliance practitioner out there. It is that the book works on multiple levels and for multiple stakeholders. Obviously, it is targeted and works for the compliance practitioner but it also works for a CCO who is thinking about working with senior management and a Board of Directors. Further it works on a compliance program level, with many of Kristy’s tips translating into compliance program best practices.

Finally Kristy tackles head on the issue of women succeeding in the compliance profession. She writes this chapter with clear-eyed focus; not ranting or raving but giving women the tools, they need to succeed in the compliance profession and in the greater corporate world. I found this chapter so powerful I bought a copy for my 21-year-old daughter to help prepare her for your professional career after she graduates from college.

To purchase a copy of How to Have a Wildly Successful Career in Complianceon, click here.

For more information on Kristy’s books, check out her site, Compliance Kristy by clicking here.

Finally for more information on Kristy’s consulting company, Spark Compliance Consulting, click here.

Jun 11, 2018

In this episode, I visit with Rick Pearl, the Global Corporate Responsibility Officer and Vice President of Corporate Citizenship at State Street Corp. We discuss the 2017 State Street Corporation, Corporate Responsibility Report. Some of the highlights include:

  • Qs from section on Risk Culture and Compliance at State Street and its portfolio companies;
  • What are the three lines of compliance defense?
  • Should there be a risk committee at the Board level?
  • What is find once, fix many? How does SSGA implement this?
  • What is Ethical Decision-Making Framework and how does SSGA train on it?
  • How does SSGA use supplier assessment strategies?
  • What is SSGA’s Responsible sourcing programs?
  • What is SSGA’s internal governance program allowing for multilevel assessment of vendors and service providers globally?
  • What is SSGA’s Innovation for Value Creation?

Here are the links to State Street’s Corporate Responsibility Report and overview. 



Jun 6, 2018

In this episode, Matt Kelly and I take a deep dive into the issue of two factor authentication of cloud-based solutions and the intersection with compliance. While it may not appear as obvious, when you consider such preventative controls as authentication at log-in as a risk management strategy, the compliance angle becomes more clear. Two factor authentication is a current response to the risk of data breach through hacking. It requires a policy, training on that policy, coupled with communications and the ongoing monitoring of strategy.

When you couple all the above you can see the role compliance will play going forward. As with any best practices compliance program, it all starts with a risk management strategy. Begin with forecasting on whether you will use any cloud-based apps (you do), then move to a risk assessment follow up with risk-based monitoring. It all starts with the nuts and bolts of compliance and continues throughout the process.

Matt Kelly’s piece Let’s All Freak Over Cloud Apps, Security

Jun 4, 2018

Today, I begin a five-part series on Suspension and Debarment, with Rodney A. Grandon, Managing Director at Affiliated Monitors, Inc., (AMI) the sponsor of this series. During a 27-year career with the US military and government, Grandon served as the Air Force’s Suspending and Debarring Official as well as a wide variety of other functions which gives him subject matter expertise into issues surrounding this topic. Over the next five podcasts I will be exploring several topics with Grandon including:

Part 1-Introduction to Suspension and Debarment;

Part 2-What is the difference between Suspension and Debarment?

Part 3-What is the convergence between Suspension & Debarment and the FCPA?

Part 4-What is a present responsibility determination?

Part 5-Remedies and Compliance in Suspension and Debarment.

The series begins with introduction to suspension and debarment.

On the GSA website, it states, “The suspension and debarment process protects the federal government from fraud, waste and abuse by using a number of tools to avoid doing business with non-responsible contractors. Suspensions, Proposals for Debarment, and Debarments are the most widely known tools as these actions are visible to the public”.

More generally, suspension and debarment are not civil or criminal matters resulting in a penalty being imposed on a particular party. Suspension and Debarment is an administrative matter. In a civil or criminal matter, the Department of Justice (DOJ) takes the lead in those actions which are contested litigated matters, with civil and criminal rules around evidence and procedure.  While suspension and debarment have evidentiary and procedural considerations, they are much more informal. Grandon noted the rules basically say they should be as informal as it as is practicable under the circumstances.

Grandon also reiterated another key difference is the lack of a penalty. Suspension and debarment do not result in a penalty. In fact, the regulations make it very clear. They are used “only as a proactive protective measure, basically to protect the government’s interests from contractors that either don’t have the capability to perform or to provide the goods and services to be a suitable a business partner with the federal government.”

A final major distinction between a civil or criminal matter and suspension and debarment is they  are within the hands of the given agency, as opposed to the DOJ or a US Attorney’s offices who have the lead in civil criminal actions. Conversely,  when it comes to suspension and debarment, those actions are distributed across the various federal agencies. Each agency has its own Suspending and Debarring officials. Grandon noted they “have a lot of discretion that they can exercise in this process.”

I next inquired about the remedy of suspension and debarment itself: what is the process the government would go through to reach the point where they might invoke one of the remedies? Grandon noted the key in suspension and debarment is to protect the government’s interest. This means “when information is identified within the agency that a given contractor lacks the integrity or we suspect lacks integrity to be a good business partner for the government, or if a contractor fails to perform; the action an agency will begin to develop is a record of the issues involved.” There are a variety of tools an agency will use to develop a record including coordinating resources from the acquisition community, the investigators within the agency and the suspension and debarment community, which in most cases also has a responsibility for the agencies, fraud coordination or fraud remedies program.

The basic flow begins with the information to establish whether or not there is evidence that triggers a cause for the action and if there is evidence, then the decision can be made by the Suspending and Debarring official to initiate that action. Grandon noted, “information flow leads to whether or not to initiate the action. In the case of a suspension, the focus is usually on a matter that is still being investigated, as suspension is a temporary solution.” Debarment is more permanent.

Grandon concluded by noting that suspension and debarment, while being technically different, effectively impose the same conditions on the contractor that is the subject for the action. It is that the contractor is excluded from competing for or receiving award of federal contracts, federal grants and other federal financial assistance. The remedy of suspension and debarment can be very devastating. Grandon specifically said it has been “referred to as a potential death sentence for companies that are dependent on federal dollars for their revenues.” Yet that is not the basis for a decision which is “whether or not there’s a need to protect the government’s interest.”

Tomorrow we take up the differences between suspension and debarment.

Jun 4, 2018

I continue  a five-part series on Suspension and Debarment, with Rodney A. Grandon, Managing Director at Affiliated Monitors, Inc., (AMI) the sponsor of this series. During a 27-year career with the US military and government, Grandon served as the Air Force’s Suspending and Debarring Official as well as a wide variety of other functions which gives him subject matter expertise into issues surrounding this topic. During the series I will be exploring several topics with Grandon including:

Part 1-Introduction to Suspension and Debarment;

Part 2-What is the difference between Suspension and Debarment?

Part 3-What is the convergence between Suspension & Debarment and the FCPA?

Part 4-What is a present responsibility determination?

Part 5-Remedies and Compliance in Suspension and Debarment.

In this episode, we discuss some of the key differences between a suspension and a debarment.

Recalling that on the GSA website, it states, “The Suspension and Debarment process protects the federal government from fraud, waste and abuse by using a number of tools to avoid doing business with non-responsible contractors. Suspensions, Proposals for Debarment, and Debarments are the most widely known tools as these actions are visible to the public”; A suspension is used when there is an immediate need. It is a temporary measure; there is a twelve-month limit, which can be extended for another six months. A debarment is for a specific term but is generally not longer than three years.  

Grandon noted a “suspension is to essentially take steps to protect the government’s interest from a contractor that is believed to be unsuitable as a business partner, until more of the facts can be assembled. Generally, the investigation is underway and there is a need to take protective steps before all the information has been fully gathered.” Grandon emphasized the temporary nature of a suspension while debarment is seen as more permanent, even with the limit of the term.  

Procedurally, a suspension requires notes at the time that a party is entered into the exclusive parties list on the System of Acquisition Management (SAM). A notice letter is issued to the contractor advising that the government has initiated the suspension, the factual basis for the suspension and the rights and procedures available to the respondent as it relates to the suspension. The notice usually indicates the exclusion is effective immediately.

A suspension is effective throughout the Executive Branch of the Federal government and applies to procurement and non-procurement programs. A suspended party cannot present offers or be awarded new contracts or contract renewals. Further, offers will not be solicited from, contracts will not be awarded to and existing contracts will not be renewed or otherwise extended, further subcontracts requiring Government approval will not be approved for a suspended company by any agency in the Executive Branch of the Federal government, unless the head of the agency taking the contracting action or a designee states, in writing, the compelling reason for continued business dealings between you and the agency.

A suspension prevents a company from conducting business with the federal government as an agent or representative of other contractors or of participants in Federal assistance programs, nor can they act as an individual surety to other Government contractors. It also prevents any such companies from being subcontractors to approved or at least non-suspended contractors. Finally, all affiliations of a suspended entity with a company doing business will be examined.

A debarment begins with notice of a proposed debarment and again the party is put into SAM on the exclusion list. A notice is sent out at the same time advising the party that they have been excluded from federal contracting under the procurement role. Once again, a debarment is temporary, is usually three years in length and is based upon a preponderance of the evidence, usually a conviction.

Another commentator has noted that suspension and debarment “essentially eliminate a company’s access to future government revenue, the consequences can be devastating. A company is not only excluded from future government contracts and subcontracts, it is also rendered ineligible for, among other things, federal grants, loans, and subsidies. In addition, the collateral consequences that stem from S&D can be equally, if not more, destructive. A suspended or debarred company may be precluded from contracting with state and local governments, foreign governments, or international organizations (such as the World Bank). A company may also lose its government security clearances and licenses. The reputational damage caused by the suspension or debarment may harm a company’s commercial interests as well.” Indeed, Grandon noted, “It can be very devastating in many cases and it has been referred to as a potential death sentence for companies that are dependent on federal dollars for their revenues.”

Some of the reasons for a suspension or debarment can include commission of fraud, embezzlement, theft, forgery, bribery, falsification or destruction of records, making false statements, tax evasion, violating Federal criminal laws, receiving stolen property or an unfair trade practice. A basis can also be if a company fails to perform the contract and, most interestingly, if a contractor knowingly fails “to disclose violation of criminal law”. The bottom line is suspension and debarment can strike fear into the heart of any federal government contractor.

Tomorrow we take up the convergent between the Foreign Corrupt Practices Act (FCPA) and suspension and debarment.

Jun 4, 2018

I continue a five-part series on Suspension and Debarment, with Rodney A. Grandon, Managing Director at Affiliated Monitors, Inc., (AMI) the sponsor of this series. During a 27-year career with the US military and government, Grandon served as the Air Force’s Suspending and Debarring Official as well as a wide variety of other functions which gives him subject matter expertise into issues surrounding this topic. During the series I will be exploring several topics with Grandon including:

Part 1-Introduction to Suspension and Debarment;

Part 2-What is the difference between Suspension and Debarment?

Part 3-What is the convergence between Suspension & Debarment and the FCPA?

Part 4-What is a present responsibility determination?

Part 5-Remedies and Compliance in Suspension and Debarment.

Today, we discuss some of the convergence between the Foreign Corrupt Practices Act (FCPA) and suspension and debarment. The bottom line is that conduct which violates the FCPA can become the basis for a suspension or debarment, even if the conduct is outside a contract with the Federal government.

Debarment may be based on actions so serious or compelling that it affects the present responsibility of the contractor or subcontractor. Grandon noted, “there is some fairly broad language as to what the basis for a suspension and debarment can be.” This means that in the context of anti-corruption laws, it can be the basis of a suspension or debarment, further meaning that under the FCPA, the conduct to incur a violation does not require actual bribery or corruption. It can be “bad record keeping associated with that and the context of engagements with foreign officials, the activity that would generally fall outside the realm of a public contract or subcontract. From the suspension and debarment perspective, it is critical to recognize here that the standard definition for contractor issues from the rule does not require that the entity actually has a contract in place.”

In the context of suspension and debarment, Grandon noted, “It’s just simply that they may have a contract or may compete at some point for a contract that they may become a contractor, so essentially any business activity that provides goods or services that the federal government may be interested in acquiring potentially could fall within the definition of contract. When one considers the FCPA, practically any business would fall within that definition of contractor. These sanctions are not limited to contractors that have existing contracts and they are not limited to misconduct that occurs in the context of a federal contract. In my experience, I have dealt with several matters involving violations of the FCPA activity that was clearly outside the scope of a federal contract or subcontract, but where the conduct was committed by a very large federal contractors.”

Another angle to the convergence of FCPA and suspension and debarment was raised by two authors, then South Texas College of Law student Nicholas J. Wagoner and Professor Drury D. Stevenson in a piece entitled “FCPA Sanctions: Too Big to Debar?”, where they posited the question: “Are certain private contractors too big to debar?” Their conclusion is “It appears so” and the authors stated, “The federal government is too dependent on a particular set of large, private-sector corporations for equipment and services. In addition to the virtual immunity from debarment enjoyed by these firms when they violate the FCPA, the fines imposed for engaging in foreign corrupt practices comprise a tiny fraction of the potential revenue generated by lucrative contracts with the U.S. and foreign states. When discounted by the low probability of detection, these sanctions are far too low to deter unlawful activity.” One solution raised by the authors for the issues regarding fines and penalties for companies which violate the FCPA, is debarment and suspension. They urge that debarment would be a significant deterrent for US government contractors and would “increase compliance with the FCPA.” The authors also suggest that the threat of debarment as a penalty would increase self-disclosure without any increased enforcement efforts if companies received the “meaningful reward” of a lesser penalty through self-disclosure.

Grandon reiterated that a wide variety of conduct can form the basis of a suspension or debarment. It can by “any fraud or criminal offense in the context of obtaining, attempting to attain, forming a public contract or subcontract that is within the scope of antitrust statutes, violations, whether federal or state embezzlement, theft forgery, ossification or destruction of records, false statements, tax evasion, violating basically any federal law.”

He concluded with the concept of “present responsibility, which is not defined anywhere on the regulatory structure. It is left to the discretion of the agency suspending or debarring and, in most cases, that official is going to look back at it.” The basic question asked will be “is there a reason to be concerned about the integrity of that contractor? And that gets us into a fairly deep dive of the ethics and compliance program.”

Tomorrow we take up the issue of present responsibility.

Jun 4, 2018

I conclude my five-part series on Suspension and Debarment, with Rodney A. Grandon, Managing Director at Affiliated Monitors, Inc., (AMI) the sponsor of this series. During his 27-year career with the US military and government, Grandon served as the Air Force’s Suspending and Debarring Official as well as a wide variety of other functions which gives him subject matter expertise into issues surrounding this topic. Over this series, we have explored several topics, including:

Part 1-Introduction to Suspension and Debarment;

Part 2-What is the difference between Suspension and Debarment?

Part 3-What is the convergence between Suspension & Debarment and the FCPA?

Part 4-What is a present responsibility determination? and

Part 5-Remedies and Compliance.

Today, we conclude the series with a discussion of remedies and compliance in suspension and debarment.

Grandon began by observing that the defense community largely led the process of putting together an effective ethics and compliance programs. “There were defense industry initiatives where the contractors get together and talk about what it takes to promote ethics and compliance and the defense industry been doing this for years.” This led Grandon to find, that non-governmental commercial industries were not as far along as defense industries.

However, Grandon believes there has “been a tremendous growth and understanding that ethics and compliance is critical for any company, whether it’s in the defense sector, the commercial sector, as companies have become more willing to do what is necessary to build these compliance programs, to try to instill within their workforce, appropriate standards of conduct, articulate clear expectations for employee behaviors and then understanding that there are consequences that flow from this. They worked hard to create cultures that allow communications to go up from the bottom of the workforce and down from the top of the workforce.”

In his experience, it all starts with the appropriate “tone at the top”. This is because “Integrity is critical for the company. Not simply to avoid problems, but it’s important to be honest with your customers and your stakeholders. All of this is absolutely critical.” While it is Grandon’s sense that initially “the defense community led this; the commercial community has as swiftly moved to catch up with this.”

We then turned to remedies where Grandon noted, “federal agencies, particularly within the Department of Defense, look to coordinate fraud remedies.” He said where there is an “indication of misconduct within the government contract or with involving a government contractor fairly broadly defined, there’s a focus on identifying and coordinating remedies, whether they be criminal, civil, administrative, to include suspension department or contractual in almost every one of these cases is at some point going to be an analysis.”

The key analysis is “going to come down to the integrity of that contractor. What does it have in place to achieve compliance within its business operations?” There is going to be a focus on the question of whether the contractor can be “trusted to get it right?” In the final analysis, the question will be “is there evidence to support the cause for the action?”

Grandon then walked through the next steps which would turn on the present responsibility determination. He said, “the inquiry goes to whether or not the contractor is presently responsible. This will make the focus on ethics and compliance and those companies that embrace their principles are going to have an advantage and be much better position.” Grandon emphasized that it is critical that companies take these challenges “so that they have ethics and compliance programs, that they test and make sure that those programs and those efforts are achieving the type of results that are expected in terms of employee behavior, in terms of good communication throughout the organization.”

In the realm of suspension and debarment, government agencies are increasingly requiring independent corporate monitors as part of their settlement agreements with organizations facing suspension, debarment or criminal prosecution. Grandon believes that an imposed monitorship can actually be an opportunity for a company. He said, “Usually these agreements are in place for roughly three years, but they give the contractor an opportunity to more holistically look at its operations and assess what it needs to do to truly build a strong ethics and compliance program. In most cases, the government will require the contractor which has entered into the administrative agreements, to hire an outside independent monitor to assess whether or not it is achieving those objectives. This creates this opportunity for companies to demonstrate the ability to be responsible, to continue to participate in the federal marketplace, while that trust relationship involving the contractors, integrity is continuing to be established.” This process also allows  contractors to “gain themselves a tremendous advantage in any of these sanctions reviews, civil, criminal or suspension and debarment, by having in place a strong commitment to ethics and compliance, solid training programs they are willing to test programs and stay on top of their risk profile.”

Grandon related that while he was a Suspending and Debarring Officer, he often required monitors as a part of an agreement. He said, “The Monitor is not there to be an advocate. The Monitor there is to be an independent and objective set of eyes and ears for the regulator, for the government. There has to be an arm’s length relationship between that monitor and the contractor. That’s not to say it’s antagonistic and it never should be a gotcha proposition. You know, where the monitor is, is trying to, I know through trickery or otherwise, put the contractor into an awkward situation.”

Grandon concluded by noting, “independence, objectivity of good business sense, the Monitor must understand how businesses operate, what are the challenges associated with a very diverse workforce. A monitor has to be able to take in all of these different considerations and at the end of the day be reasonable.”

I hope you have enjoyed this five-part series on suspension and debarment.

Jun 4, 2018

I continue a five-part series on Suspension and Debarment, with Rodney A. Grandon, Managing Director at Affiliated Monitors, Inc.,  the sponsor of this series. During a 27-year career with the US military and government, Grandon served as the Air Force’s Suspending and Debarring Official as well as a wide variety of other functions which gives him subject matter expertise into issues surrounding this topic. During this series we are exploring several topics, including:

Part 1-Introduction to Suspension and Debarment;

Part 2-What is the difference between Suspension and Debarment?

Part 3-What is the convergence between Suspension & Debarment and the FCPA?

Part 4-What is a present responsibility determination?

Part 5-Remedies and Compliance in Suspension and Debarment.

Today, we discuss present responsibility and its determination.   

Grandon began by stating that present responsibility has become sort of a “buzzword. It’s the underlying basis for action involving excluding a party from the federal marketplace through suspension or department.” Unfortunately, the phrase itself is not defined anywhere in the regulatory structure. This means its determination comes “down to the discretion of the federal officials who have been empowered to exercise the suspension and debarment authority.”

Yet even with this lack of a statutory or regulator definition, Grandon noted “there are some common factors and guidelines out there that can help the compliance community understand some of the elements of suspension and debarment, as they relate to this issue.” He went on to explain this meant “when an action is initiated, it is generally based on facts that trigger one of the causes that are set forth in the regulations, notwithstanding the fact that the evidence establishes the cause and which in most cases there’s generally no dispute that the cause has been proven by the appropriate burden of evidence.”

As with most processes there is a shifting burden of proof. First, “the evidentiary burden falls to the government. Once that burden is satisfied by the appropriate level of evidence, then the burden shifts to the contractor to establish it as personally responsible.” At this point a contractor, facing suspension or debarment, could look to Federal Acquisition Regulation (FAR) 9.406-1for guidance.

What does that mean? the FAR notes the following:

(a)It is the debarring official’s responsibility to determine whether debarment is in the Government’s interest. The debarring official may, in the public interest, debar a contractor for any of the causes in 9.406-2, using the procedures in 9.406-3. The existence of a cause for debarment, however, does not necessarily require that the contractor be debarred; the seriousness of the contractor’s acts or omissions and any remedial measures or mitigating factors should be considered in making any debarment decision. Before arriving at any debarment decision, the debarring official should consider factors such as the following:

(1)Whether the contractor had effective standards of conduct and internal control systems in place at the time of the activity which constitutes cause for debarment or had adopted such procedures prior to any Government investigation of the activity cited as a cause for debarment.

(2)Whether the contractor brought the activity cited as a cause for debarment to the attention of the appropriate Government agency in a timely manner.

(3)Whether the contractor has fully investigated the circumstances surrounding the cause for debarment and, if so, made the result of the investigation available to the debarring official.

(4)Whether the contractor cooperated fully with Government agencies during the investigation and any court or administrative action.

(5)Whether the contractor has paid or has agreed to pay all criminal, civil, and administrative liability for the improper activity, including any investigative or administrative costs incurred by the Government, and has made or agreed to make full restitution.

(6)Whether the contractor has taken appropriate disciplinary action against the individuals responsible for the activity which constitutes cause for debarment.

(7)Whether the contractor has implemented or agreed to implement remedial measures, including any identified by the Government.

(8)Whether the contractor has instituted or agreed to institute new or revised review and control procedures and ethics training programs.

(9)Whether the contractor has had adequate time to eliminate the circumstances within the contractor’s organization that led to the cause for debarment.

(10)Whether the contractor’s management recognizes and understands the seriousness of the misconduct giving rise to the cause for debarment and has implemented programs to prevent recurrence.

From Grandon’s perspective, it all “starts at the top with effective standards of conduct and internal controls at the time that misconduct occurred. Second, did the contractor disclose in this conduct to the government? Third has a contractor investigated the matters and made those results available to the government?, has the contractor cooperated with the government in terms of trying to work through the various challenges and the various remedies associated within this conduct?, and, finally, has the contractor taken appropriate corrective action taken?” Such corrective actions include “disciplinary action, and assessment of internal controls, policies and procedures that were designed to either prevent or identify a misconduct and what can be done to strengthen that process is the contract or willingly embracing the problem and pursuing an appropriate resolution.”

Tomorrow we conclude with the topics of remedies and compliance.

May 29, 2018

As every compliance practitioner is well aware, third-parties still present the highest risk under the FCPA. The Department of Justice Evaluation of Corporate Compliance Programs devotes an entire prong to third-party management. It begins with the following: 

How has the company’s third-party management process corresponded to the nature and level of the enterprise risk identified by the company? How has this process been integrated into the relevant procurement and vendor management processes? 

What was the business rationale for the use of the third-parties in question? What mechanisms have existed to ensure that the contract terms specifically described the services to be performed, that the payment terms are appropriate, that the described contractual work is performed, and that compensation is commensurate with the services rendered?  

This first set of queries clearly specifies that the DOJ expects an integrated approach that is operationalized throughout the company. This means your compliance process must have a process for the full life cycle of third-party risk management. There are five steps in the life cycle of third-party risk management, which will fulfill the DOJ requirements laid out in the 10 Hallmarks of an Effective Compliance Program and the Evaluation. They are:   

  1. Business Justification and Business Sponsor;
  2. Questionnaire to Third-party;
  3. Due Diligence on Third-party;
  4. Compliance Terms and Conditions, including payment terms; and
  5. Management and Oversight of Third-parties After Contract Signing.

To purchase a copy of The Complete Compliance Handbook on click here.

To purchase an autographed copy of The Complete Compliance Handbook from the author click here.

May 29, 2018

Hallmark Nine of Ten Hallmarks of an Effective Compliance Program, as articulated in the 2012 FCPA Guidance, states: "a good compliance program should constantly evolve."

Keeping track of external and internal events which may cause change to business process, policies and procedures. Some examples are new laws applicable to your business organization and internal events which drive changes within a company (i.e., a company reorganization or major acquisition). 

Continuous improvement requires that you not only audit but also monitor whether employees are staying with the compliance program. In addition to the language set out in the 2012 FCPA Guidance, two of the seven compliance elements in the U.S. Sentencing Guidelines call for companies to monitor, audit, and respond quickly to allegations of misconduct. These three activities are key components enforcement officials look for when determining whether companies maintain adequate oversight of their compliance programs. 

The 2012 FCPA Guidance made clear that each company should assess and manage its risks. It specifically noted that small and medium-size enterprises likely will have different risk profiles and therefore different attendant compliance programs than large multi-national corporations. Moreover, this is something that the DOJ and SEC consider when evaluating a company’s compliance program in any FCPA investigation. This is why a “check the box” approach is not only disfavored by the DOJ, but, at the end of the day, it is also ineffectual. It is because each compliance program should be tailored to the enterprise’s own specific needs, risks, and challenges. 

One tool that is extremely useful in the continuous improvement cycle, yet is often misused or misunderstood, is ongoing monitoring. This can come from the confusion about the differences between monitoring and auditing. Monitoring is a commitment to reviewing and detecting compliance variances in real time and then reacting quickly to remediate them. A primary goal of monitoring is to identify and address gaps in your program on a regular and consistent basis across a wide spectrum of data and information.

To purchase a copy of The Complete Compliance Handbook on click here.

To purchase an autographed copy of The Complete Compliance Handbook from the author click here.

May 29, 2018

In the context of mergers and acquisitions under the FCPA, in a near perfect example of the Howard Sklar maxim that ‘water is wet” the 2012 FCPA Guidance stated “mergers and acquisitions present both risks and opportunities. A company that does not perform adequate FCPA due diligence prior to a merger or acquisition may face both legal and business risks. Perhaps most commonly, inadequate due diligence can allow a course of bribery to continue—with all the attendant harms to a business’s profitability and reputation, as well as potential civil and criminal liability.” While most compliance practitioners have been long aware of the requirement in the post-acquisition context, the 2012 FCPA Guidance focused many compliance practitioners for the need to engage in robust pre-acquisition due diligence.

Under Prong 11. Mergers and Acquisitions; there were a series of queries which tied together how pre-acquisition due diligence and post-acquisition integration. Due Diligence ProcessWas the misconduct or the risk of misconduct identified during due diligence? Who conducted the risk review for the acquired/merged entities and how was it done? What has been the M&A due diligence process generally? 

The pre-acquisition process was then tied to post-acquisition with the following: Process Connecting Due Diligence to ImplementationWhat has been the company’s process for tracking and remediating misconduct or misconduct risks identified during the due diligence process? What has been the company’s process for implementing compliance policies and procedures at new entities? 

May 29, 2018

One new and different item was laid out in the Evaluation of Corporate Compliance Program, supplementing the Ten Hallmarks of an Effective Compliance Program from the 2012 FCPA Guidance. This was the performance of a root cause analysis for any compliance violation which may led to a self-disclosure or enforcement action. Under Prong 1-Analysis and Remediation of UnderlyingMisconduct, the Evaluation states: 

What is the company’s root cause analysis of the misconduct at issue? What systemic issues were identified? Who in the company was involved in making the analysis?  

Were there prior opportunities to detect the misconduct in question, such as audit reports identifying relevant control failures or allegations, complaints, or investigations involving similar issues? What is the company’s analysis of why such opportunities were missed?  

The new Department of Justice (DOJ) FCPA Corporate Enforcement Policy brought forward this requirement for a root cause analysis with the following language: 

Demonstration of thorough analysis of causes of underlying conduct (i.e., a root cause analysis) and, where appropriate, remediation to address the root causes. 

Initially you need to understand the difference between a root cause analysis and a risk assessment. Obviously, you would perform a root cause analysis after an incident occurs so to that extent it is reactive rather than proactive. The site has defined root cause analysis as:

The purpose of root cause analysis is to strike at the root of a problem by finding and resolving its root causes. Root cause analysis is a class of problem solving methods aimed at identifying the root causes of problems or events. ... The practice of root cause analysis is predicated on the belief that problems are best solved by attempting to correct or eliminate root causes, as opposed to merely addressing the immediately obvious symptoms.

Well known fraud investigator Jonathan Marks, in an interview with the author, defines a root cause analysis “is a research based approach to identifying the bottom line reason of a problem or an issue; with the root cause, not the proximate cause the root cause representing the source of the problem.” He contrasted this definition with that of a risk assessment which he said “is something performed on a proactive basis based on various facts. A root cause analysis analyzes a problem that (hopefully) was previously identified through a risk assessment.”

May 29, 2018
  1. Financial Incentives for Compliance

One of the areas that many companies have not paid as much attention to in their compliance programs is compensation. However, the DOJ and SEC have long made clear that they view monetary structure for compensation, rewarding those employees who do business in compliance with their employer’s compliance program, as one of the ways to reinforce the compliance program and the message of compliance. As far back as 2004, former SEC Director of Enforcement Stephen M. Cutler noted that integrity, ethics and compliance needed to be part of promotion, compensation and evaluation processes: “At the end of the day, the most effective way to communicate that “doing the right thing” is a priority, is to reward it.” 

The 2012 FCPA Guidance stated the “DOJ and SEC recognize that positive incentives can also drive compliant behavior. These incentives can take many forms such as personnel evaluations and promotions, rewards for improving and developing a company’s compliance pro­gram, and rewards for ethics and compliance leadership.”

2. The Fair Process Doctrine

One of the areas which Human Resources can operationalize your compliance program is to ensure that discipline is handed out fairly across an organization and to reward those employees who integrate such ethical and compliant behavior into their individual work practices going forward. In addition to providing a financial incentive for ethical behavior, it also provides a sense of institutionalobjectivity. Institutional objectivity comes from procedural fairness and is one of the things that will bring credibility to your compliance program. 

Today, that kind of objectivity is called the Fair Process Doctrine, which recognizes that there are fair procedures, not arbitrary ones, in processes involving rights. Considerable research has shown that people are more willing to accept negative, unfavorable, and non-preferred outcomes when they are arrived at by processes and procedures that are perceived as fair. As you incorporate the Fair Process Doctrine in your compliance program, there are three key areas to focus on.

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May 21, 2018

Leadership’s Conduct at the Top 

Under the Evaluation of Corporate Compliance Programs, Prong 2, it states: 

Senior and Middle Management

Conduct at the Top – How have senior leaders, through their words and actions, encouraged or discouraged the type of misconduct in question? What concrete actions have they taken to demonstrate leadership in the company’s compliance and remediation efforts? How does the company monitor its senior leadership’s behavior? How has senior leadership modelled proper behavior to subordinates? 

Moving Compliance Tone Down Through an Organization 

  • Muddle in the middle
  • Tone at the bottom 

The Board and Operationalizing Compliance 

What is the role of a company’s Board of Director as laid out in the Evaluation of Corporate Compliance Programs?In an area of inquiry entitled, “Oversight” the DOJ asked three basic questions. Under Prong 2, Senior and Middle Management, the Evaluation posed three questions directed at the Board, OversightWhat compliance expertise has been available on the board of directors? Have the board of directors and/or external auditors held executive or private sessions with the compliance and control functions? What types of information have the board of directors and senior management examined in their exercise of oversight in the area in which the misconduct occurred?  

  • Compliance Committee on the Board
  • Compliance Expertise on the Board
  • Compliance Oversight by the Board

There are some specific areas of inquiry by a Board of Directors around the compliance. I have adapted 20 questions which reflect the oversight role of directors. These are questions which the Board should ask of both senior management and the Board itself. The questions are not intended to be an exact checklist, but rather a way to provide insight and stimulate discussion on the topic of compliance. The questions provide directors with a basis for critically assessing the answers they get and digging deeper as necessary.

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To purchase an autographed copy of The Complete Compliance Handbook from the author click here.


May 21, 2018

The Code of Conduct 

What is the value of having a Code of Conduct? 

“First and foremost, the standards of conduct demonstrate the organization’s overarching ethical attitude and its “system-wide” emphasis on compliance and ethics with all applicable laws and regulations.” They go on to state, “The code is meant for all employees and all representatives of the organization, not just those most actively involved in known compliance and ethics issues. This includes management, vendors, suppliers, and independent contractors, which are frequently overlooked groups.” From the board of directors to volunteers, the authors believe that “everyone must receive, read, understand, and agree to abide by the standards of the Code of Conduct.” 

The substance of your Code of Conduct should be tailored to your company’s culture, and to its industry and corporate identity. It should provide a mechanism by which employees who are trying to do the right thing in the compliance and business ethics arena can do so. The Code of Conduct can be used as a basis for employee review and evaluation. It should certainly be invoked if there is a violation. Your company’s Code of Conduct should emphasize it will comply with all applicable laws and regulations, wherever it does business. The Code needs to be written in plain English and translated into other languages as necessary so that all applicable persons can understand it. 

Policies and Procedures

There are numerous reasons to put some serious work into your compliance policies and procedures. They are certainly a first line of defense when the government comes knocking. The 2012 FCPA Guidance made clear that “Whether a company has policies and procedures that outline responsibilities for compliance within the company, detail proper internal controls, auditing practices, and documentation policies, and set forth disciplinary procedures will also be considered by DOJ and SEC.” 

The Evaluation of Corporate Compliance Programs builds up on the requirements articulated in the 2012 FCPA Guidance. Under Prong 4, Policies and Procedures, there are two parts: Design and Accessibility and Operational Integration. This Part A has the following components. 

Designing Compliance Policies and ProceduresWhat has been the company’s process for designing and implementing new policies and procedures? Who has been involved in the design of policies and procedures? Have business units/divisions been consulted prior to rolling them out? 

 Applicable Policies and ProceduresHas the company had policies and procedures that prohibited the misconduct? How has the company assessed whether these policies and procedures have been effectively implemented? How have the functions that had ownership of these policies and procedures been held accountable for supervisory oversight? The Evaluation then goes on to ask about both accessibility and effectiveness of the compliance policies and procedures by stating, 

The specific written policies and procedures required for a best practicescompliance program are well known and long established. The 2012 FCPA Guidance stated, “Among the risks that a company may need to address include the nature and extent of transactions with foreign governments, including payments to foreign officials; use of third parties; gifts, travel, and entertainment expenses; charitable and political donations; and facilitating and expediting payments.” Policies help form the basis of expectation for conduct in your company. Procedures are the documents that implement these standards of conduct. 

Internal Controls and Compliance

What specifically are internal controls in a compliance program? Internal controls are not only the foundation of a company but are also the foundation of any effective anti-corruption compliance program. 

The DOJ and SEC, in the 2012 FCPA Guidance, stated, “Internal controls over financial reporting are the processes used by compa­nies to provide reasonable assurances regarding the reliabil­ity of financial reporting and the preparation of financial statements. Moreover, “the design of a company’s internal controls must take into account the operational realities and risks attendant to the company’s business, such as: the nature of its products or services; how the products or services get to market; the nature of its work force; the degree of regulation; the extent of its government interaction; and the degree to which it has operations in countries with a high risk of corruption.” 

This was supplemented in the Evaluation of Corporate Compliance Programs with the following:

ControlsWhat controls failed or were absent that would have detected or prevented the misconduct? Are they there now? 

The whole concept of internal controls is that companies need to focus on where the risks are, whether they be compliance risks or other, and they need to allocate their limited resources to putting controls in place that address those risks, and in the compliance world, of course, your two big risks are the assets or resources of a company. Not just cash but inventory, fixed assets etc., being used to pay a bribe, and then the second big element would be diversion of company assets, such as unauthorized sales discounts or receivables and write offs, which are used to pay a bribe. 

There are four significant controls that I would suggest the compliance practitioner implement initially. They are: (1) Delegation of Authority (DOA); (2) Maintenance of the vendor master file; (3) Contracts with third parties; and (4) Movement of cash / currency.

To purchase a copy of The Complete Compliance Handbook on click here.

To purchase an autographed copy of The Complete Compliance Handbook from the author click here.


May 21, 2018

CCO Authority and Independence 

The role of the Chief Compliance Officer (CCO) has steadily grown in stature and prestige over the years. In the 2012 FCPA Guidance, under Hallmark Three of the 10 Hallmarks of an Effective Compliance Program, the focus was articulated by the title of the Hallmark, Oversight, Autonomy, and Resources. 

The DOJ’s Evaluation of Corporate Compliance Programs, made the following query about the CCO position: Prong3. Autonomy and Resources  

Stature– How has the compliance function compared with other strategic functions in the company in terms of stature, compensation levels, rank/title, reporting line, resources, and access to key decision-makers? What has been the turnover rate for compliance and relevant control function personnel? What role has compliance played in the company’s strategic and operational decisions?  

Autonomy Have the compliance and relevant control functions had direct reporting lines to anyone on the board of directors? How often do they meet with the board of directors? Are members of the senior management present for these meetings? Who reviewed the performance of the compliance function and what was the review process? Who has determined compensation/bonuses/raises/hiring/termination of compliance officers? Do the compliance and relevant control personnel in the field have reporting lines to headquarters? If not, how has the company ensured their independence?  

In the Policy, the DOJ laid out additional factors around CCO authority:  

  1. The quality and experience of the personnel involved in compliance, such that they can understand and identify the transactions and activities that pose a potential risk;
  2. The authority and independence of the compliance function and the availability of compliance expertise to the board;
  3. The compensation and promotion of the personnel involved in compliance, in view of their role, responsibilities, performance, and other appropriate factors; and
  4. The reporting structure of any compliance personnel employed or contracted by the company.  

This new language would seem to signal the death knell for the dual GC/CCO role. 

Compliance Function in an Organization 

Autonomy and Resources 

Compliance Role – Was compliance involved in training and decisions relevant to the misconduct? Did the compliance or relevant control functions (e.g., Legal, Finance, or Audit) ever raise a concern in the area where the misconduct occurred?  

Empowerment – Have there been specific instances where compliance raised concerns or objections in the area in which the wrongdoing occurred? How has the company responded to such compliance concerns? Have there been specific transactions or deals that were stopped, modified, or more closely examined as a result of compliance concerns?  

Funding and Resources – How have decisions been made about the allocation of personnel and resources for the compliance and relevant control functions in light of the company’s risk profile? Have there been times when requests for resources by the compliance and relevant control functions have been denied? If so, how have those decisions been made?  

The Evaluation added one new set of queries based upon the evolution of corporate compliance programs since 2012. 

Funding and Resources 

You will now have to justify your corporate compliance spend. 

You now have to justify your compliance budget request denials. 

To purchase a copy of The Complete Compliance Handbook on click here

To purchase an autographed copy of The Complete Compliance Handbook from the author click here.



May 21, 2018

How to Perform a Risk Assessment 

One cannot really say enough about risk assessments in the context of an anti-corruption programs. Since at least 1999, in the Metcalf & Eddyenforcement action, the DOJ has said that risk assessment which measure the likelihood and severity of possible FCPA violations the manner in which you should direct your resources to manage these risks. The 2012 FCPA Guidance stated it succinctly when it said, “Assessment of risk is fundamental to developing a strong compliance program, and is another factor DOJ and SEC evaluate when assessing a company’s compliance program.” 

This language was supplemented in the 2017 in both the Evaluation and the new FCPA Corporate Enforcement Policy. Under Prong 4 of the Evaluation, Risk Assessments, the following issues were raised: Risk Management ProcessWhat methodology has the company used to identify, analyze, and address the particular risks it faced?Manifested RisksHow has the company’s risk assessment process accounted for manifested risks?In the FCPA Corporate Enforcement Policy it stated, “The effectiveness of the company’s risk assessment and the manner in which the company’s compliance program has been tailored based on that risk assessment”. 

What Should You Assess? 

  1. Geography-where does your Company do business.
  2. Interaction with types and levels of Governments.
  3. Industrial Sector of Operations.
  4. Involvement with Joint Ventures.
  5. Licenses and Permits in Operations.
  6. Degree of Government Oversight.
  7. Volume and Importance of Goods and Personnel Going Through Customs and Immigration. 

How Do You Evaluate a Risk Assessment? 


Likelihood Rating


Evaluation Criteria


Almost Certain

High likely, this event is expected to occur



Strong possibility that an event will occur and there is sufficient historical incidence to support it



Event may occur at some point, typically there is a history to support it



Not expected but there’s a slight possibility that it may occur



Highly unlikely, but may occur in unique circumstances

 ‘Likelihood’ factors to consider: The existence of controls, written policies and procedures designed to mitigate risk capable of leadership to recognize and prevent a compliance breakdown; Compliance failures or near misses; Training and awareness programs.


Priority Rating


 Evaluation Criteria



Immediate action is required to address the risk, in addition to inclusion in training and education and audit and monitoring plans



Should be proactively monitored and mitigated through inclusion in training and education and audit and monitoring plans









Risks at this level should be monitored but do not necessarily pose any serious threat to the organization at the present time.

Priority Rating: Product of ‘likelihood’ and significance ratings reflects the significance of particular risk universe. It is not a measure of compliance effectiveness or to compare efforts, controls or programs against peer groups. 

At Timken, the most significant risks with the greatest likelihood of occurring are deemed to be the priority risks. These “Severe” risks become the focus of the audit monitoring plan going forward. A variety of tools can be used to continuously monitoring risk going forward.  However, you should not forget the human factor. At Timken, one of the methods used by the compliance group to manage such risk is by providing employees with substantive training to guard against the most significant risks coming to pass and to keep the key messages fresh and top of mind. The company also produces a risk control summary that succinctly documents the nature of the risk and the actions taken to mitigate it.

To purchase a copy of The Complete Compliance Handbook on click here

To purchase an autographed copy of The Complete Compliance Handbook from the author click here.


May 21, 2018

360 Degrees of Compliance Communications 

A 360-degree view of compliance is an effort to incorporate your compliance identity into a holistic approach so that compliance is in touch with and visible to your employees at all times. It is about creating a distinctive brand philosophy of compliance which is centered on your consumers. In other words, it helps a compliance practitioner to anticipate all the aspects of your employees needs around compliance your employees, who are the customers of your compliance program. This is especially true when compliance is either perceived as something that comes out of the home office or is perceived as the Land of No, largely inhabited by Dr. No. A 360-degree view of compliance gives you the opportunity to build a new brand image for your compliance program. 

The Use of Social Media in Compliance 

What is the message of compliance inside of a corporation and how it is distributed? In a compliance program, the largest portion of your consumers/customers are your employees. Social media presents some excellent mechanisms to communicate the message of compliance going forward. Many of the applications that we use in our personal communication are free or available at very low cost. Why not take advantage of them and use those same communication tools in your internal compliance marketing efforts going forward? 

What is Effective Compliance Training? 

Also raised in the Evaluation was the focus of your training programs, where the DOJ inquired into whether your training was “tailored” for the audience. The Evaluation, In Prong 6, Training and Communication, asked, in part: Risk-Based TrainingWhat training have employees in relevant control functions received? Has the company provided tailored training for high-risk and control employees that addressed the risks in the area where the misconduct occurred? What analysis has the company undertaken to determine who should be trained and on what subjects?  

The key going forward is that you have thoughtfully created your compliance training program. Not only in the design but who receives it, all coupled with backend determination of effectiveness. Finally, all of this must be documented. In Prong 6, Training and Communication, of the Evaluation it read, in part: 

Form/Content/Effectiveness of Training– Has the training been offered in the form and language appropriate for the intended audience? How has the company measured the effectiveness of the training? 

  1. Figure out what you want to measure. Before you ever train an employee, you should have a goal in mind. What actions do you want employees to take? What risks do you want them to avoid? In compliance training, you want them to avoid non-ethical and non-compliant actions that would lead to potential violations. Your goal is to train employees to follow your Code of Conduct and your compliance program policies and procedures so you avoid liability related to actions.
  2. Were employees satisfied with the training? What is their engagement? The next step is to get a sense of whether employees feel that the training you provided is relevant and targeted to their job. If it’s not targeted, employees will likely not be committed to changing risky behavior. One way to obtain such data is through a post-training survey. This should give you insight into determining if employees thought the training was beneficial and effective in answering their questions and concerns.
  3. Did employees actually learn anything? A critical part of any employee training is the assessment. You must know whether they actually learned anything during training. You can collect this data in a number of ways, but for compliance training, the best way is to measure pre- and post-training understanding over time. Basically, each time you train an employee, measure comprehension both before and after training.
  4. Are employees applying your training? A survey should be used to determine employee application and their implementation of the training topics. To do so, you must conduct surveys to understand whether they ceased engaging in certain risky behaviors or better yet understand how to conduct themselves in certain risky situations. These surveys can provide a good sense of whether the training has been effective.

To purchase a copy of The Complete Compliance Handbook on click here

To purchase an autographed copy of The Complete Compliance Handbook from the author click here.

May 7, 2018

Over the next five podcasts, I will visit with Don Stern, Managing Director, Corporate Monitors and Consulting Services at Affiliated Monitors, Inc. on working with monitors. Over this series we will consider, in Part I-Fears and Concerns in Working with Monitors; in Part II-the Impact Monitors Can Have for an Organization; in Part III-How Monitors Do Their Jobs; in Part IV-Regulators Using Monitors; and in Part V-Attorneys Using Monitors. At the end of this series you will have a much broader appreciation on the benefits of an independent monitor, how monitors work and how the different types of monitorships can benefit a wide variety of businesses, transactions and business relationships.

There can be a wide variety of concerns for those considering or being required to work with a monitor, both from the corporate perspective and individual employees. From the corporate perspective, the concerns can include the costs of a monitorship and that impact on the bottom line; opening up books the books to an outsider and interference with business operations. These are acerbated by a fear the monitor does not understand the business of the organization or even how business in done in the real world. Things that tend to bring more fear are that the monitor will engage in slow but sure mission creep and exceed the boundary of the charge. Many see monitors as an extension of the government and believe that monitors are  junior G-men and investigators, tasked by the by the government to investigations ongoing. Employees tend to be more afraid the monitor will come in dictatorial powers and exercise them. Employees are usually more concerned with the company’s reputation and business credibility with employees and subcontractors.

Stern believes some of the fears and concerns are understandable, particularly if a company, does not have experience with the positives of the use of an independent monitor and a monitor’s assisting a company in improving the compliance program. While some of it may have to do with the unknown, one area is simply the extra costs associated with a monitor. If the monitor is a part of a government settlement or resolution, there can be the fear, sometimes driven by war stories, that monitors will have mission creep and continue the investigation, even after a resolution. A company may fear that a monitor will come in and look under every nook and cranny. This feeds into both concerns of cost and mission creep.

Another concern is that many monitors are former prosecutors and still retain a prosecutorial mindset. This can lead many companies and their employees to fear a ‘got-cha’ mentality of a monitor who is looking for items to run back to the government or regulators with through their monitorship investigations.

Stern believes that all of these concerns can be handled if not fully alleviated, through thorough discussions with monitor candidates. . Stern noted that one of the areas a company needs to be asking during the monitor selection process is what is “the approach that the monitor is going to take? What's the approach in a meeting or an interview with a mid-level employee in a branch office. Is that person going to feel as if they're under attack or are they brought in a to explain all the good things and all the bad things that are going on so that the monitor can basically make some helpful recommendations.”

In addition to the monitor interview process, companies should understand that the terms of any monitorship are set in the resolution agreement. This is why it is important not only to address these issues during settlement discussions but also take care in the drafting of such agreements to try and remove as many ambiguities as possible. At times, the parties may not want to address what they believe are sensitive issues head on as part of the negotiation process, other times there is not a full understanding of how monitors works. Stern has been brought in as the parties have negotiating to simply educate people as to what monitors do and how they operate and, to demonstrate how the monitorship can be more successful for both sides, for the government side and the company. In drafting the resolution agreement, the key is to lay out the scope, properly and tightly designed. When there are ambiguities which come up in the process of the monitors work, the monitors should work with both sides, as a facilitator to have both parties basically come together and to resolve those issues.

The key is for companies to have a thorough understanding of the monitorship process, whether it is a post-resolution monitorship where the monitor is focused on the company’s compliance with its agreement in the resolution document, Deferred Prosecution Agreement, Non-Prosecution Agreement or other; or a pro-active monitorship. This understanding comes from discussions, reviewing and negotiating the scope of the agreement and hiring experienced monitors who understand their role and more importantly what is not their role going forward.

For more information on how an independent monitor can help improve your company’s ethics and compliance program, visit our sponsor Affiliated Monitors at

May 7, 2018

I continue my five-podcast exploration of working with monitors. I am joined by Don Stern, Managing Director, Corporate Monitors and Consulting Services at Affiliated Monitors, Inc. (the sponsor of this five-part series) on working with monitors. Today we take up the impact using a monitor can have on an organization.

Interestingly many of the benefits of a company in working with a monitor come from answering the employees fears and concerns. Many employees are intimidated by attorneys and some even fell guilty about themselves and their work even though they have done nothing wrong. Often employees do not feel like them can trust the company, particularly if the company does not employ the Fair Process Doctrine or institutional justice as a core value of the organization. Other employees feel validated and when they can open up to outsiders it can be a cathartic experience for employees. For the larger organization, the monitor can tell the company what it does not know and provide a much needed “Big Picture” impact; delivering insight on how the company can be run more efficiently and profitably. The bottom line is that the benefits in using an independent monitor can be as behavioral and psychological as compliance and legal.

Stern described the impact of working with a monitor is present at several different levels. The first is a very personal, at the employee level. He said, “I've seen this time and time again when we will sit with either an individual employee at different levels, it could be at a lower level, it could be at the CEO level. The employee will feel validated and in some ways innocent. It sounds odd to say that because you would think that if the company was working properly that each employee would have an opportunity to sort of say their piece, describe observations and things that they were experienced. Unfortunately, that is not the way the real world works when people have concerns and fears of retaliation and the like.”

Stern has found after doing an interview or a focus group, they will sometimes say, “ I have been wanting to say these things to somebody and I hope that, this is not attributed this to me. I'm not looking for you to go back ono anybody and say that I said this, but I hope that you will take what I have said and what others have said and make some suggestions to the company.” The bottom line is that a key impact from working with a monitor is that the monitor listens and “I do think that employees feel better kind of explaining their perspective on what's happening internally in the company.”

Another important reason all of this works is if an organization uses a truly independent monitor. This means one which is not the lawyer for the firm or with the company’s regular outside counsel. This is something most employees more fully appreciate talking to “outsiders who were being were coming in, who they do not interact with on a day to day basis.” Even if the monitorship is required under an enforcement action and in the in the context of a government settlement, Stern has found that if the monitor makes it clear they are independent from the government, employees are more likely to not only open up but also appreciate the experience.  

These concepts tie directly into the Fair Process Doctrine, which most generally holds that if the process is fair, people are more likely to accept undesired outcomes. An independent monitor, who does not perform ongoing work with the company, will certainly be perceived as more fair. As Stern noted, “it’s just human nature.”

This independent nature also gives the monitor the ability to impact the company by helping it turn the page on any conduct which may have gotten it into trouble in the first place. This is particularly true where a company has gone through an enforcement action and resolved the matter with the government and is now ready to move on in a positive way. Stern said that employees typically want to feel good about the organization they work for, they want to be proud of who they work for. Stern said, “time and time again, people aspire to work for a company that they feel good about. They want to tell their spouse that wants to tell their children. They want to feel good. When the neighbors asked them, who do they work for and when companies get into trouble, um, they liked the fact that the pages being turned in that once again, that can be very proud of where they work.”

This independence from the government also works to positively impact the work of a monitor. Stern noted that although an independent monitor has “an obligation to report to the government faithfully as to what we are seeing; the good, bad and the ugly; an independent monitor is not beholding to the government.” Stern’s experience has been “at the end of the day respect us and they recognize that it's in their interest for us to be independent. If we're in the company's pocket and we do whatever the company wants it at the end of the day, the government will see right through that and it's not going to be a good outcome.”

The bottom line is that the positive impacts of working with a monitor can happen on many levels. Obviously for a company which has recently concluded an enforcement action, a monitor can yield many benefits to improve a compliance program. Yet some of the greatest benefits may be more behavioral and psychological to the company’s employees. Not only can talking to a truly independent outsider be cathartic for employees but the entire process can help to reinstill a sense of pride in who they are, who they work for and what the organization means.

For more information on how an independent monitor can help improve your company’s ethics and compliance program, visit our sponsor Affiliated Monitors at

May 7, 2018

I continue my five-podcast exploration of working with monitors. I am joined by Don Stern, Managing Director, Corporate Monitors and Consulting Services at Affiliated Monitors, Inc. (the sponsor of this five-part series) on working with monitors. Today we consider how monitors work.

Stern explained that there are variety of tasks and roles a monitor uses when engaging in an independent monitorship. A monitor should understand type of approaches they will take to make an organization more compliant, starting with understanding the work plan. Many times, the monitor must push the organization along by getting buy-in and building consensus. Finally, there should be an awareness of helping the company being compliant in the future.

The starting point is understanding what is the mission of the monitorship. As Stern put it, “we really begin at the beginning.” We meet sometimes meet separately with the government agency to get an appreciation understanding as to why they think things have reached that point, what they see as the problems in the company, what they see as the problems in the industry. And then of course we do the same thing with the company.” Such meetings could also include “outside counsel who have been sort of living with the whatever the precipitating cause a problem which led to the settlement with the government or the investigation. They've lived with it for years. And in many cases, by the way, the company has already remediated significant portions of the problem.”

A monitor should have a particular focus on a particular goal, a particular set of tasks. Yet from there, Stern explained it is “very much a people exercise. The thing that is often obvious relatively early on, a one way or the other is whether the company has a paper program or real program.” Stern indicated that a monitor should spend time at both the higher levels of the company and at the middle and lower levels of the company. Some of the specific techniques can be one on one interviews, site visits to specific offices and with “focus groups where we get people at the same level so we don't get middle managers and upper managers together in one room.”

Stern emphasized it is critical that both company management and the regulators not be surprised by a finding. This means the monitor (and team) should literally “pour through the company” to come up an honest final assessment or report for the organization. It is important to give the company credit where it has remediated or shown improvement and this means emphasizing to the government the wins a company’s compliance program may have sustained.

Interestingly, Stern emphasized that in monitorships as with compliance programs in general, one size does not fit all. A monitor should test whether there is sufficient training on the Code of Conduct, compliance policies and procedures and other issues such as Conflicts of Interest policy. There should also be inquiries into hotline overview and use. Yet there can also be recommendations which arise from the employee interviews, which the monitor may raise to senior management for implementation.

Here Stern presented a simple yet powerful example. It was around having a compliance moment once per week at company meetings. The organization was an engineering company and they took safety very seriously, opening each company meeting with a safety moment. This led to the suggestion of opening meetings with a compliance moment, which employees used not simply to state ethics and compliance issues but to describe situations they faced daily.

A situation arose where an employee was offered tickets to a baseball game by a vendor. The company policy on conflicts of interest prevented the employee from accepting the tickets and he felt conflicted because he wanted to go to the game. More importantly he did not know what to tell the vendor to make them understand he could not accept the tickets. Through discussing this issue after a compliance moment in a company meeting, there was a dialogue allowed the company employees to feel that they have an opportunity to be part of the process. It demonstrated that ethics and compliance is not something imposed on them, but something that is part and parcel of their job and part and parcel of their responsibility.

A monitor must literally work with groups as diverse as the Board of Directors to employees on the shop floor. It is incumbent to use a variety of tactics and techniques to fulfill the mission of a monitor. An independent and experienced monitor is required to use a variety of tools to help an organization move forward with a compliance regime. Stern noted, “a monitor should also have the experience to come in and not only look at how your company is doing, but also benchmark against what is happening not only in your industry but in other industries. And at the end of the day it's a little bit like the making of sausage. At the end of the day we're going to have some recommendations and the expectation is that your company is going to be top of the heap, that you will have a state of the art compliance and ethics program and you will have contributed to making it better.”

For more information on how an independent monitor can help improve your company’s ethics and compliance program, visit our sponsor Affiliated Monitors at

May 7, 2018

I conclude this five-podcast exploration of working with monitors, where I have been joined by Don Stern, Managing Director, Corporate Monitors and Consulting Services at Affiliated Monitors, Inc. (the sponsor of this five-part series) on working with monitors. In this final episode we consider lawyers using monitors, most typically where the clients are under investigation for some regulatory issue, such as a Foreign Corrupt Practices Act (FCPA) enforcement action.

Stern said the biggest mistake lawyers make is to wait too long before bringing in an independent monitor. His experience is that if  you wait until after the conclusion of a matter, you have lost valuable time and potentially cost yourself money, in the form or higher fines and penalties, by waiting. The government expects compliance shortcomings to be remediating during the pendency of an investigation. A monitorship can even begin before  self-reporting to the government. This is because a company should want to find the problem before it voluntarily reports the problem to the government. In this manner, the company could receive get the credit for having done so. It also allows the company to package the entire process “in a way to say not only we discovered the problem, not only are we reporting the problem, but we fixed the problem. We did with an independent third party and we may even want to keep that third party with us to independently assess how we do going forward. That's very persuasive to prosecutors and I've certainly seen situations where in some cases it's resulted in a declination or in a significantly diminished” fine and penalty.   

This is using an independent monitor in a pro-active manner which demonstrates how serious the company is about compliance. It can also be a way to demonstrate any illegal conduct may simply have been an outlier and does not reflect the values, culture and the way the company generally does business. This can provide quite a positive story to present to prosecutors, particularly under the new FCPA Corporate Enforcement Policy.

If your company is active in the remediation phase, particularly through an independent monitorship, it is looking at the problem in a holistic approach. It is more than assessing that problem, coming up with some solutions and then implementing the solutions. More importantly an organization is taking that information and looping it back in, in a literally a feedback loop so the companies can improve their compliance program. This is an approach which can be persuasive to regulators.

Stern noted this approach is even more critical for what he called ‘repeat customers’ or recidivist actors. He said government regulators are becoming much more sophisticated in understanding whether a compliance program is simply a paper program. The government wants to know if this a real program. One clear indicia is the feedback loop from an assessment by an independent monitor looping the information back to the company, making changes, testing to see whether the changes are real changes are working changes.

One final area that using an independent monitor is in the area of credibility. One thing I have consistently heard from white-collar practitioners perhaps the most important thing in any FCPA investigation or enforcement action is credibility with the prosecutors. By having a truly independent monitor who is even independent of the outside counsel, who may be heading up an investigation and assessing the compliance program; is one more way to bring that credibility to a, in front of the prosecutors. Stern noted that as the former US Attorney for Massachusetts, your reputation in representing clients before the government is absolutely critical. Having that independence as a monitor can aid a company by giving credibility to their compliance program efforts and this can pay off with real benefits in terms of lesser penalties all the way to a declination.

For more information on how an independent monitor can help improve your company’s ethics and compliance program, visit our sponsor Affiliated Monitors at

May 7, 2018

I continue my five-podcast exploration of working with monitors. I am joined by Don Stern, Managing Director, Corporate Monitors and Consulting Services at Affiliated Monitors, Inc. (the sponsor of this five-part series) on working with monitors. Today we consider the various manners in which regulators at all levels, from the federal, to state and local levels, use monitors. We also consider how monitors can be used outside the regulatory context in areas as diverse as mergers and acquisitions, business ventures, IP and licensing.  

Most compliance practitioners are aware of the role monitors play in the Foreign Corrupt Practices Act (FCPA) enforcement arena. However, the use of independent monitors is much broader than simply in criminal or civil enforcement actions involving a Deferred Prosecution Agreement, Non-Prosecution Agreement, Corporate Integrity Agreement or other form of resolution. Federal agencies use monitors for a wide variety of roles to ensure compliance with agreements.

At its most basic level, an independent monitor is a way for the government to extend its reach. Both in terms of lengthening out the time that you have true government oversight and in terms through many of the techniques we discussed earlier:  focus group meetings, review documents, talking senior and middle management. It is a very cost-effective way for federal, state and even local governments to extend out their reach. This cost-effectiveness is driven home by that fact that the cost is not borne by the governmental entity or the regulators. The cost is borne by the entity involved.

Stern pointed to the use of an independent monitor by the Federal Communications Commission (FCC) to ensure that the conditions around anti-competitive and other issues, the FCC approved for the merger between AT&T and Direct TV, were fulfilled. He went on to provide an example where “one of the conditions was  they had to offer a discounted broadband service to certain low-income households. The FCC  wanted access to broadband for low income families, particularly for school kids. The monitor assessed the marketing program on this issue, looking at their efforts to provide discounted broadband, low income households.”

Stern provided another example of regulator use of an independent monitors, this time by a state regulator, the Attorney General of Rhode Island in the area of hospital conversions. This is the situation where a non-profit hospital is purchased by a for profit chain. In such situations, the state attorney general in most states will have to approve that transfer of assets from charitable assets to for-profit assets, applying certain conditions. It could be in the area of recruiting  physicians or requiring the acquiring institutions to keep the mental health services open. You don't have to spend x millions of dollars on new equipment. It is generally around very specific metrics  and it is “increasingly being used by government agencies as a way of not only having confidence that the regulatory decisions are being followed but provides some comfort and confidence to the public knowing that who is looking over the shoulder of the organizations in the public’s interest.”

Yet an independent monitor can be used in non-regulatory areas. One that certainly comes up is pre-acquisition due diligence in the FCPA realm. An independent monitor can be used to assess whether a target or takeover candidate has a robust compliance program. These same concepts also work in the licensing area in pre-acquisition work and even for company which want to test the audit compliance of customers.

The bottom line is independent monitors can come in and look at the system of controls in a wide variety of regulatory and legal areas. This is true because there is no substitute for having somebody independent of the company with some expertise and common sense and practical reality coming in and asking, how are you doing? Stern concluded, “You don't have to do this all the time. It isn't something you need to do even every year, but every once in a while, have somebody come in and take a hard look at how you're doing and then reporting back internally to the company. It is money well spent because you have established that the organization being reviewed has a good program and if you need to fine tune your program in certain ways. Here again, I think that's all to the good.”

For more information on how an independent monitor can help improve your company’s ethics and compliance program, visit our sponsor Affiliated Monitors at

Apr 25, 2018

In this episode, Matt Kelly and I go into the weeds to consider the recent racial incident at Starbucks store in Philadelphia where two African-American males were arrested for criminal trespass while waiting for a third colleague to join them for a business meeting. They had not purchased any products but were not engaging any type of disruptive behavior. They were released with no charges filed.

We consider several points around this incident from the compliance perspective, including the lessons for compliance officers are really about the challenges of policy and procedure at large organizations. The gap between those two requirements is filled by employee judgment — and that is where things went awry. We consider if a single solution, such as  all seats and bathrooms are reserved for patrons who have already purchased a product, create more problems than they solve. We also review the underlying premise of ‘what is Starbucks’ to see if a more robust risk assessment process might have helped identify these gaps.

This week’s discussion is literally torn from recent headlines. It provides an excellent example of the many compliance challenges every business and CCO face.

For more reading, see Matt’s blog post Starbucks and Policy Management Perilsand Tom’s blog post Starbucks and Lessons for the Compliance Practitioner in Risk Management

Apr 23, 2018

In this episode of the FCPA Compliance Report, I visit with Laura Perkins, a partner at Hughes Hubbard & Reed. Perkins formerly worked with the Department of Justice, FCPA Unit, departing in September 2017. We discuss the decision to self-disclose a potential FCPA violation to the Justice Department. Some of the highlights include:

  • What should a company expect after it makes a decision to self-disclose the to DOJ? What information should be in the initial self-disclosure?
  • What should be in the initial investigation plan they present to the DOJ?
  • When should remediation begin and how much information does the government want to know about in this area?
  • What should a company do to satisfy the government it has secured all documents and communications?

We next turned to the resolution phase and discussed several topics including:

  • When is a company ready to present information to the DOJ that it believes the matter should be closed?
  • Whether through declination or charging document?
  • How is the final penalty decided? and
  • Is it through negotiation or simply presented to the company?

For more information on Laura Perkins and Hughes Hubbard & Reed, check out the firm’s website, here.

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