Compliance Wasn't Broke, Still Gets Fixed

Next week the World Compliance FCPA Tour, which we're pleased to be a part of, will be in Colombia -- Bogota, Barranquilla, and Medellin -- hosted there by AmCham.

The tour kicked off last week in Houston, and after Colombia will continue in Palo Alto, Washington, D.C., New York, and Boston.

We always enjoy talking about the FCPA and laws like it. It's a chance to hear what's on people's minds.

Causing the most concern right now for issuers is the Dodd-Frank SEC whistleblower rule for potential FCPA violations. The proposed rule, available here, was issued a few months ago and is in force; the final rule is due out next month.

The concern about the rule is understandable. In November, TI-USA's Shruti Shah and Rob Walton talked in this space about the risk of the SEC's whistleblower reward program bypassing existing corporate compliance processes for internal reporting.

Over the past couple of weeks, professionals already helping companies deal with complaints made to the SEC -- which consist of lawyer's letters from 30 to 40 pages long -- have painted a grim picture. The reward program is cutting off internal reporting, the professionals have said. Responding to the SEC about the complaints is diverting time, attention, and money away from existing compliance programs. And companies are being forced to create a parallel mechanism  -- which may become permanent -- to deal with the complaints and responses to them. 

Experts warned the SEC that compliance programs that were years in the making would suffer when corporate resources were diverted by the whistleblower reward program. Although that's already happening, the SEC is moving ahead with the rule as proposed.

This week, Robert Khuzami, the director of the SEC's enforcement division, told a gathering of compliance professionals in Phoenix that the SEC has "received and studied many comments to the proposed rule, and adoption of the rule is set for April."

He continued:

The proposed rule has provoked some passionate views, particularly on the issue of the role of internal corporate compliance programs. In the proposed rule, we have worked hard to strike the right balance between incentivizing and protecting whistleblowers who want to report suspected misconduct, but at the same time acknowledging the value and obligation of corporate compliance programs to identify and remediate misconduct in the company’s operations. We look forward to implementing the whistleblower program in a way that factors in the important role of corporate compliance programs while providing whistleblowers a direct path to the SEC in appropriate circumstances.

Not much comfort from Mr. Khuzami. Issuers will now be burdened with diverting and expensive response drills to SEC whistleblower complaints.

Corporate resources would be better used for making sure compliance programs meet the requirements set out years ago by the DOJ, SEC, and the U.S. Sentencing Commission. 

Shot-Show Prosecution May Expand

As reported Friday, one of the 22 shot-show defendants, Daniel Alvirez, is expected to plead guilty soon to charges of conspiracy to violate the Foreign Corrupt Practices Act. The government's two-count superseding information alleged that he plotted to bribe defense officials in Africa and the Republic of Georgia.

What to expect now? We asked someone familiar with the evidence, who requested anonymity. Here's what he or she told us:

The government's video and audio tapes are of good quality and the confidential informant, Richard Bistrong, should be an effective witness despite some baggage. Overall, the cases appear to be strong and supported by ample evidence.

There are indications of more foreign bribery involving the military-equipment industry; the allegations in the first 16 indictments (available here) and the superseding information may be the tip of the iceberg. 

The Justice Department is seeking to build bigger cases against some current defendants. It may also indict other individuals.

Investigators could also be looking at involvement by some well-known industry leaders -- an Indian military-equipment supplier, three U.S. public companies, and two large private security contractors among them.

Countries and governments involved may include not just Georgia (mentioned in the superseding information) but also Peru, Mexico, Saudi Arabia, Guatemala, the Philippines, Colombia, and others. Representatives from some of the countries could be targeted by the Justice Department.