We take things a different way in this episode as the commentators throw out five topics for consideration by the group. Last week we had topics from Jay and Matt; this week from Jonathan and Tom.
Topics from Jonathan:
Topics from Tom:
The top commentators in compliance are back for another episode of Everything Compliance.
In this episode, Matt Kelly and I take a deep dive into the Dodd-Frank and Sarbanes-Oxley reform initiatives in the House of Representatives and as articulated by incoming SEC Chairman Jay Clayton. Will the new administration gut SOX and Dodd-Frank compliance requirements?For more see Matt Kelly's blog post SEC Chair Clayton Talks Compliance Costs.
In this episode I visit with James Koukios, a partner at Morrison and Foerster on the firm’s newsletter, Top Ten International Anti-Corruption Developments for May 2017. Our topics include:
To see a full copy of the firm’s publication, Top Ten International Anti-Corruption Developments for May 2017, click here.
This week, Jay and I return for a wide-ranging discussion on some of the week’s top compliance and ethics related stories, including:
Show Notes for Everything Compliance-Episode 14
Topics from Matt:
Topics from Jay:
Rants are at the end of this week’s episode.
In this episode, Matt Kelly and I discuss the recent Second Circuit Court of Appeals decision in HSBC v. Moore. In this case a federal district court had ordered the release of redacted monitor’s report in the HSBC money-laundering Deferred Prosecution Agreement (DPA), based upon the request of an interested citizen. Both the Department of Justice (DOJ) and HSBC appealed the order and the Court of Appeals supported their position in overturning the trial court’s decision. The case is about a hook, line and sinker overturning of any trial court jurisdiction as one can have. The district court tried to claim it did not have the same role as a “potted plant” but the Court of Appeals left no doubt that is the only role it sees for any district court where a DPA is filed. We discuss the implications for the compliance practitioner, FCPA enforcement and any potential changes going forward.
For additional reading, see my blog post on this case by clicking here.
This week, Jay and I return for a wide-ranging discussion on some of the week’s top compliance and ethics related stories, including:
In this episode, Matt Kelly and I take a deep dive into the 4th of July weekend use of the New Jersey beaches by Governor Chris Christie. Governor Christie had closed the beaches in a budget dispute but was still able, as Governor, to give himself and his family full access to the now wide open beaches on the recently passes holiday weekend. We consider Governor Christie’s example of undeserved privilege in the context of ethical leadership and tone at the top. Matt draws upon his Catholic school education to remind us that undeserved privilege is private law, as “privilege” comes from the Latin privus, private law; and lex, law. It’s a private law that benefits only one person, who doesn’t deserve it.
Read more about the issue and Matt’s thoughts on his blog post Tone at the Top Gone Wrong: The Christie Example.
This week, Jay and I return for a wide-ranging discussion on some of the week’s top compliance related stories, including:
In this week which starts the 4th of July holiday weekend, Jay and I return for a wide-ranging discussion on some of the week’s top compliance related stories, including:
The top compliance roundtable podcast is back with a wealth of new topics. Stayed tuned to the end where there are some heartfelt and somber rants in this edition.
For Matt Kelly’s posts on Uber and the intersection of policies and procedures, see the following:
What Uber Teaches About Culture & Policy Management
For Mike Volkov’s post on blockchain and compliance, see the following:
Blockchain and the Future of Compliance
For reading on blockchain and compliance, see the following:
Will Blockchain Transform Compliance? by Tom Fox
How Blockchain Will Change Organizations, by Don Tapscott and Alex Tapscott in MIT Sloan Business Review.
Blockchain Explained, by Zach Church in MIT Sloan Management Review.
For the Cordery Compliance client alert see the following:
For Jay Rosen’s posts see the following:
The members of the Everything Compliance panel include:
In this episode, Matt Kelly and I take a deep dive, literally into the weeds of the convergence of the compliance profession and the nascent cannabis industry. While several states have made pot for medical use legal and one state, Colorado has made it legal for personal consumption, it is still illegal under federal law. We consider such questions as:
For more from Matt Kelly:
See his blog post Compliance, Careers and Cannabis Industry;
Hear Matt Kelly’s interview with Amy McDougal (yes Matt has his own podcast as well-the Radical Compliance podcast) by clicking here.
After last week’s guest announcers, Jay and I return for a wide-ranging discussion on some of the week’s top compliance related stories, including:
On June 16, 2017, the Department of Justice (DOJ) issued a Declination to Linde North American Inc. and Linde Gas North America LLC (collectively “Linde”). This is the first Declination issued by the DOJ in the era of the Trump Administration. For that reason alone, it was instructive and should be studied by the compliance profession. However, the case presented several interesting factors which merit consideration so we are discussing in depth to present lessons to be learned for the Chief Compliance Officer (CCO) or compliance practitioner.
The Bribery Scheme
Linde acquired Spectra Gases, Inc. (Spectra Gases) in October 2006. In November 2006, it purchased certain assets from the National High Technology Center (NHTC) of the Republic of Georgia. One of the keys to this purchase was a piece of equipment called the ““boron column,” which were used to produce boron gas.” Sales of boron gas after the acquisition helped fund the purchase price and payout to Spectra executives who stayed on after Linde purchased Spectra Gases.
Unfortunately, the three Spectra executives who stayed on were in cahoots with corrupt offices from the NHTC who made the sales agreement with Linde. Part of the Earn-Out by the former Spectra (now Linde) officials was paid to these corrupt government officials, both directly and through certain third parties. But the funding scheme to pay the bribes was quite creative and demonstrates once again to the compliance practitioner the myriad ways in which funds can be generated to pay bribes.
For reasons not made clear, Linde did not purchase the boron column outright but allowed the former Spectra executives and the corrupt NHTC officials to form two new entities to own and operate the boron column, Spectra Investors LLC (Spectra Investors) and Spectra Gases Georgia, which was wholly owned by Spectra Investors. Spectra Investors was owned 51% by the corrupt NHT officials and 49% by the Spectra Gases executives who now worked for Linde. Spectra Gases Georgia was formed as a separate management company, by the NHTC officials, which was claimed to provide services to Spectra Investors for which it would receive recompense. Of course, there was no evidence of services being delivered under this arrangement as it was simply a mechanism to funnel monies to the corrupt officials.
As a result of the ownership structure of Spectra Investors, with 51% being owned by corrupt NHTC officials and the management services contract, the corrupt NHTC officials received “approximately 75% of the profits generated by the boron column” while Spectra Gases received 25% of the profits. Clearly even with bribery and corruption, it was a bad business deal. In January 2010, Linde dissolved Spectra Gases and became its successor-in-interest and at some point later discovered the illegal conduct. Prior to the time of the dissolution, Spectra Gases had “received approximately $6,390,000”. After Linde became the direct owner, it “received approximately $1,430,000 as a result of the corrupt” actions.
The Declination
While there is a dearth of fact about how the matter came to the attention of Linde and when it disclosed the matter to the DOJ, the decision to decline to prosecute was based on the following factors: (1) Linde’s timely self-disclosure; (2) a “thorough, comprehensive and proactive investigation” [emphasis supplied]; (3) Linde’s full cooperation and meeting the Yates Memo requirement for disclosing all known relevant facts about the “individuals involved in or responsible for the misconduct”; (4) full profit disgorgement; (5) Linde’s enhancement of its compliance program and internal controls; and (6) Linde’s full remediation, including termination or discipline of the three Spectra executives and lower-level employees involved in the misconduct; termination of the fraudulent management contract between the corrupt NHTC officials and Spectra Investors and termination of the Earn-Out payment due to the former Spectra executives who became Linde employees. The company also made the following payments.
Lessons Learned
This was yet another Foreign Corrupt Practices Act (FCPA) action where a company performed insufficient due diligence in the acquisition phase. The timing of the Linde purchase of Spectra Gases and Spectra Gases’ purchase of the income producing assets is too close in time to be a coincidence. It would certainly appear that Linde purchased Spectra Gases to facilitate its acquisition of the boron column and other assets. If your company is going to make such a multi-step acquisition, you must perform due diligence on all the actors and the assets involved.
The Byzantine corporate structure created for the ownership of the boron column, its operation and management contract are clear red flags that any CCO should sniff out immediately. While I am sure the internal corporate excuse for this clear ruse was the ubiquitous ‘tax considerations’; every such transaction should be reviewed by compliance as well. Anytime there is more than one entity to accomplish one task, there is the possibility of fraud present. Further, it is not clear how Linde could not have been aware of the ownership interests of a company which it ultimately controlled. It would seem that the company did not even make any inquiry.
Even in 2006, the Republic of Georgia’s reputation for bribery and corruption was quite high. The 2006 Transparency International-Corrupt Perceptions Index (TI-CPI) listed Georgia at 99 out of 176 countries listed so that alone warranted red flag scrutiny. If you are purchasing an entity in a country with such well known affinity for corruption, extra care is warranted. Perhaps back in 2006, Linde did not view the FCPA as something which it would deal with in such a situation.
Yet even with all the apparent miss-steps and non-steps of compliance, the company was able to secure a declination from the DOJ. While there may be some additional penalties or sanctions by the Securities and Exchange Commission (SEC) for the failures of internal controls, the result obtained by Linde was certainly a superior result. The company would seem to have met the four pillars under the FCPA Pilot Program through (a) self-disclosure, (b) extraordinary cooperation, (3) full remediation, and (d) profit disgorgement. Interestingly, the profit disgorgement in this case would appear to have been beyond the five year of limitations for profit disgorgement under the recent Supreme Court decision in Kokesh. If there is a FCPA enforcement action brought by the SEC perhaps additional facts will be recited in any resolution documents.
Nevertheless, kudos are due to Linde and its counsel for obtaining this declination. Every CCO should study it for both the superior result received and underlying facts to see if you face anything similar in the Republic of Georgia or elsewhere.
For a full copy of the Linde Declination, click here.
In this episode, James Koukios, a partner at Morrison & Foerster returns to discuss the firm's newsletter Top Ten International Anti-Corruption Developments for April 2017. In this episode we highlight the three following matters for discussion and what lessons can be garnered from them.
World Bank Veteran to Change Positions.The World Bank announced that Pascale Helene Dubois would become the new head of the World Bank Group’s Integrity Vice Presidency, known as INT. The INT is an independent unit within the World Bank Group that investigates and pursues sanctions related to allegations of fraud and corruption in World Bank Group‑financed projects. Dubois is well known in the anti-corruption community and has long been a thought leader in this space. In her current post, she has worked to increase transparency and due process at the World Bank generally and in the Office of Suspension and Debarment specifically. Koukios relates how Dubois’s work and that of INT has helped foster greater cooperation between the World Bank and law enforcement agencies around the world.
Engineering Firm and Its Executive Debarred by World Bank for Bribery in Southeast Asia.
In April the World Bank Group announced the debarment of Denmark-based Consia Consultants ApS and its managing director. According to the World Bank, INT’s investigation revealed evidence that the company made payments to officials to influence contract awards in connection with the World Bank-financed Strategic Road Infrastructure Project in Indonesia. The World Bank stated that the company further failed to disclose its agreement and commissions paid to its agent in connection with the project and misrepresented the availability of key staff it has claimed would be assisting with the execution of its technical assistance contract under the project. The World Bank also said it found evidence that the company made corrupt payments in Vietnam in connection with the Hanoi Urban Transport Development Project, in addition to fraudulent misconduct relating to the Second Northern Mountain Poverty Reduction Project. The World Bank debarred the company for 14 years and its managing director for 3.5 years.
Former Diplomat Pleads Guilty to FCPA Charges in United Nations Bribery Case, While Judge Denies Motion to Dismiss FCPA Charges against Another Defendant.
On April 28, 2017, Francis Lorenzo, a former deputy ambassador from the Dominican Republic, pleaded guilty in the Southern District of New York to conspiring to violate the FCPA and to pay and receive bribes and gratuities in a bribery scheme allegedly involving Ng Lap Seng, a Chinese national and real estate developer accused of bribing former U.N. General Assembly President John Ashe. Lorenzo pleaded guilty to related charges in 2016 and is expected to testify against Seng at trial, currently set to begin May 30, 2017. Two days before Lorenzo’s guilty plea, on April 26, 2017, Southern District of New York Judge Vernon S. Broderick denied Seng’s motion to dismiss FCPA and related charges against him, finding that the superseding indictment sufficiently presented the essential facts underlying the charges and that the prosecution had made sufficient disclosures concerning the nature of the charged offenses by other means, including through the various complaints filed in the case, extensive discovery, agent affidavits, and a written response to Seng’s letter request for a bill of particulars.
To read a full copy of the firm's newsletter, click here.
In this episode, I visit with Roy Snell about his recent announcement that he is stepping down as head of the SCCE. We review the current state of the SCCE and how the Roy has seen the compliance evolve from its start after the 1992 US Sentencing Guidelines. We discuss where Roy sees compliance going in the next several years and where the SCCE may go to support the profession.
This announcement comes when the SCCE has grown to 50 staff members and one of the has one of the strongest boards in the professional association world. the SCCE has a strong footprint in the US and is a material player internationally with 17,500 members in 95 countries. It has a great reputation and its success to date has been quite remarkable.
The call for applications will close on August 20th 2017. A detailed job description and position summary are available at http://www.corporatecompliance.org/CEO. SCCE plans to complete the interview and selection process in the Fall of 2017 and onboard a Deputy CEO in early 2018. The Deputy CEO will likely assume the role of the CEO sometime in 2019. Roy will stay on with the organization for roughly one year to work on special projects. To be considered for the CEO of SCCE and HCCA, please fill out the questionnaire with return instructions available at: http://www.corporatecompliance.org/CEO.
This week, as their tribute to their Dad, we are guest hosted by Jay’s daughters, Millie and Michela. They lead us through a wide-ranging discussion on some of the week’s top compliance related stories, including:
In this episode, I visit with Lauren Briggerman, a member at the firm of Miller & Chevalier. She discusses the latest edition of the firm newsletter, Executives at Risk: Navigating Individual Exposure in Government Investigations-Spring 2017. We discuss several recent developments in significant government investigations which highlight the tactics prosecutors are deploying and the risks faced by corporate executives:
In this episode I visit with Luciana Silveira, a PhD candidate who is studying the FCPA and how it is has affected international trade flows. Some of the questions she is considering include the following: Was US business abroad affected? Did US companies decide to change their foreign business strategy because of the FCPA? After so many years of the law, what is the private sector overall opinion about the FCPA?
Silveira believes the answers to these questions are neither straightforward nor simple. To that end, the PhD research she is developing will hopefully provide us with some new and updated answers, as well shed more light to the impacts of the FCPA to US international trade. Equally importantly, she is using the FCPA as reference to my studies on potential impacts of the Clean Company Act, a similar anticorruption legislation that came into force in Brazil in January 2014. To complement a quantitative analysis regarding merchandise trade flows, she is using a 15-questions survey (available at https://ldosilveira.typeform.com/to/uhtKYZ). It is confidential, and there is no question that requires strategic corporate information. She hopes that you will participate as all input is welcome and encouraged.
In this episode, Matt Kelly and I take a deep dive into the corporate governance fiasco which is Uber. We consider the revelations in the failures of corporate governance, culture and internal controls at the organization. The company provides a fascinating study of what happens when a tech start up raised in the fraternity culture is successful and how changes are required for it to act like a multi-billion organization. Both Matt and I have written on Uber. Our podcast comes out the same day the Holder Report to the Uber Board was released so we weave in the recommendations from Covington & Burling as well.
For more on Uber see the following:
Matt Kelly’s piece Car Crash Governance at Uber
Tom Fox’s pieces on Uber
Will Culture Change at Uber Before its Too Late
CEOs and Win at All Costs-Where Does it Lead
For a copy of the Holder Report on corporate governance, cultural and internal controls failures at Uber and recommendations, click here.
Today I am joined again by Professor Samuel Buell, from Duke University School of Law to discuss a recent paper he co-authored with Rachel Brewster entitled, "The Market for Global AntiCorruption Enforcement". In the paper and in this podcast Professor Buell discusses the internal structural changes which took place in the 1980s and 1990s which set the stage for the explosive growth in FCPA enforcement. He then relates the changes on the domestic scene which facilitated its explosive growth. He ends by exposing the myth of the revolving door.
Show Notes for Episode 56, for the week ending June 9, the Who’s On First Edition
This week, Jay and I have a wide-ranging discussion on some of the week’s top compliance related stories. We discuss:
Jay Rosen can be reached:
Mobile (310) 729-6746
Toll Free (866)-201-0903
Tom Fox can be reached:
Phone: 832-744-0264
Email: tfox@tfoxlaw.com
In the case of Kokesh v. SEC, the US Supreme Court held the profit disgorgements operate as a penalty under the Securities and Exchange Act of 1934, as amended. As such “any claim for disgorgement in an SEC enforcement action must be commenced within five years of the date the claim accrued.” The position of the Securities and Exchange Commission (SEC) at the Supreme Court and in all other matters involving this issue was that profit disgorgement were not punitive, hence not a penalty but rather remedial in nature so the SEC could clawback all monies generated as a result of the illegal action.
The decision, authored by Justice Sotomayor, was a 9-0 opinion which in the rarified world of Supreme Court decisions is about as clear a message as one can get. The Court first determined that profit disgorgement met the definition of a “penalty” under two basis, “First, whether a sanction represents a penalty turns in part on “whether the wrong sought to be redressed is a wrong to the public, or a wrong to the individual.” Second, a pecuniary sanction operates as a penalty if it is sought “for the purpose of punishment, and to deter others from offending in like manner” rather than to compensate victims.” [citations omitted] Thus, if a statute provided a compensatory remedy for a private wrong, it should not be characterized as penalty.
In this episode, I visit with Chris Morton, the SVP, Marketing and Corporate Development for Navex, about the firm's new resource for the Compliance Community, ComplianceNext.com. It is a free, compliance community driven learning platform designed to offer real-world education and skill enhancement for the compliance professional. Morton discusses its launch, the partners involved, highlights some of the content and discusses the user experience. Best of all, this resource is FREE. For more information, check out the site ComplianceNext.com.
This week, Jay and I have a wide-ranging discussion on some of the week’s top compliance related stories. We discuss: