We're With You On This One, Prof Koehler

Scholarship at its best can change things. It can cause judges to take a fresh look and lawmakers to fix problems. We hope Mike Koehler's new scholarship will do just that.

Koehler, an assistant professor of business law at Butler University, writes the excellent FCPA Professor blog. His latest work tackles the good faith defense for FCPA offenses.

As things now stand, the good faith defense doesn't exist. Koehler thinks it should.

Current U.S. law holds that if an employee violates the FCPA, his or her company is automatically responsible. It's called the doctrine of respondeat superior. Even if the employee went rogue, broke the company's own rules, and hid everything from others, the company is still on the hook. It can't fight and win so it settles. It may get 'sentencing credit' in the settlement for its compliance program. But it still usually has to admit wrongdoing and pay a big penalty.

Koehler wants to change that. In his opening paragraph, he gets right to it:

This article asserts that the current FCPA enforcement environment does not adequately recognize a company’s good faith commitment to FCPA compliance and does not provide good corporate citizens a sufficient return on their compliance investments. This article argues in favor of an FCPA compliance defense meaning that a company’s pre-existing compliance policies and procedures, and its good faith efforts to comply with the FCPA, should be relevant as a matter of law when a non-executive employee or agent acts contrary to those policies and procedures and in violation of the FCPA. This article further argues that a compliance defense is best incorporated into the FCPA as an element of a bribery offense, the absence of which the DOJ must establish to charge a substantive bribery offense.

We agree with Prof Koehler on the need for the good faith defense. It would give companies the best incentive to work hard at compliance. And if there's a downside to more compliance, we don't see it.

Mike Koehler's "Revisiting a Foreign Corrupt Practices Act Compliance Defense" (January 10, 2012), Wisconsin Law Review, forthcoming, can be downloaded at SSRN here.

Good News: Compliance Cuts Fraud

By Steve Biskie

Let’s take a breather from doom and gloom. The FCPA and other similar legislation do have a silver lining.

In the process of assuring FCPA and U.K. Bribery Act compliance, organizations are also combating fraud. The Association of Certified Fraud Examiners estimates that the average organization loses about 5% of annual revenues to fraud – a potential fraud loss of more than $2.9 trillion of the estimated 2009 Gross World Product. How much might that translate to for your organization?

And FCPA and U.K. Bribery Act compliance testing comes with some other pretty big standard business benefits. Tests for bribery risks can also double up to identify other risks in the Purchase-to-Pay, Travel & Entertainment, Procurement Cards, Payroll, and General Ledger areas – if the tests are correctly configured. Not too bad for a side effect.

Here are some other examples of where FCPA and U.K. Bribery Act compliance overlaps with other business risks:

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Steve Biskie, CPA, CITP, CISA, is the Director of Customer Solutions, ACL Services.

ACL Services is a sponsor of the FCPA Blog.

The Week's Best Blog Lit

On his Conflict of Interest Blog, Jeff Kaplan talked this week about people from one company serving on another company's board. He's not always against it. But he flags COI concerns that can come up.

This is always a hard one (ask any risk manager in a big law firm).

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Tom Fox wowed us again with his practical approach. His Ten Compliance Issues from 2011 included this gem: 'With the effective changes in the federal sentencing guidelines from November, 2010 and the DOJ comments this year,' Fox said, 'it has become clear that companies must give a more prominent role to the Chief Compliance Officer and separate that function from that of the General Counsel.'

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On the FCPA Professor, Mike Koehler's discussion about an FCPA appeal stood out. One of the Haiti Telco defendants, Carlos Rodriguez, was sentenced to seven years in prison in October last year. Now he's challenging the jury instruction on who's a 'foreign official.' Koehler thinks Rodriguez has a good shot at winning the appeal.

Incidentally, John O'Shea's 'foreign official' challenge was denied yesterday. Judge Lynn Hughes in Houston adopted the DOJ's view that foreign state-owned enterprises are instrumentalities under the FCPA, which makes their officers and employees 'foreign officials.' As Mike Koehler said today, this was the fifth time the DOJ's interpretation of 'foreign official' was challenged at the trial court level, and all have failed.

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Former federal prosecutor Michael Volkov penned this about wiretaps and the FCPA:

The idea of wiretaps in corporate board rooms sends shivers down every director’s spine. It should. The Justice Department no longer views white collar crime as different than organized crime, gangs or drug trafficking. What that means from a practical standpoint is that federal agents are using the same investigative tactics as they have historically used against organized crime and drug traffickers.

Volkov's Corruption, Crime, and Compliance blog is full of great writing.

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Ever wonder what makes the best news writing?

In a letter to the Washington Post, journalist John B. Holway of  Springfield, Virginia, cited short, simple sentences (and he used a bunch of them to make his point).

He said:

No opening adverbial phrases. No which/who/that subordinate clauses. No phrases between dashes. Throw out every “as” and every gerund. Use concrete nouns and active verbs. Subject-verb-direct object. Drop most adverbs and adjectives; probably the right noun or verb will suffice. Attribution can go in paragraph two. Where and when can also be in paragraph two. Or assume that “when” was “yesterday.”

We're lucky to bat .220 against those fastballs. Plenty of room for improvement. Wish us luck. Later.

Giving A Voice To Compliance Professionals

By Benjamin Kessler

Roy Snell, left, CEO of the Society of Corporate Compliance and Ethics, helps set the standards for the compliance profession.

According to its mission statement, SCCE “is dedicated to improving the quality of corporate governance, compliance and ethics.” The Minneapolis-based nonprofit provides educational resources and networking opportunities to more than 2,500 members.

Prior to joining SCCE in 2001, Snell served as Corporate Compliance Officer for the University of Wisconsin Hospital and Clinics and the University of Wisconsin Medical Foundation in Madison.

He very kindly answered a few questions about what's changing in the world of corporate compliance:

Q: How do you see your field evolving in the next five to ten years?

A: Corporate compliance will continue to get more authority, responsibility, and independence. Consolidation will occur as compliance-related functions currently scattered around the company, such as privacy, safety, etc., are moved into the compliance department.

Q: How can compliance officers and teams become more proactive?

A: We need to focus less on passive compliance tools and more on active compliance tools. Compliance professionals who constantly focus on education, policy writing, telling people to do the right thing, and continually editing and re-editing their code of conduct are going to end up reacting to problems. Compliance and ethics professionals who take the fight to the high-risk areas with auditing, investigating, interviewing, discipline, and responding to hotline calls are going to get ahead of the curve.

Q: Where will you be directing the efforts of SCCE in 2012?

A: We have a little problem at the moment related to people who have never worked in the profession trying to define our profession. Legal thinks it's all about the law, Risk thinks it's all about risk, and Audit thinks it's all about audit. Some have a vested interest, are concerned about their turf, or truly think they understand our job.

The problem is that few of them do understand it enough to define the profession. Few people who have never held a compliance job understand compliance. This is probably because it was never taught in school and the job is so new. We are trying to get a voice. One of the things we can do is gain new members.  … If we can continue the rapid growth we are currently experiencing, we should be able to get to the point where we can speak for ourselves.

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Benjamin Kessler is an editor and writer for Ethics 360. He can be contacted here.

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[Editor's note: This post is part of our series profiling global compliance leaders. Most appear on our sponsor Ethisphere’s annual list of the 100 Most Influential People in Business Ethics.]

The Justice Department, Miss Havisham, And A Wish For The New Year

By Jeffrey M. Kaplan

In a post occasioned by the twentieth anniversary of the Federal Sentencing Guidelines for Organizations, I described two very different approaches to promoting compliance programs that exist within the U.S. Department of Justice.

The first – that of the Fraud Section – is characterized by embracing the considerable promise of such programs to prevent and detect wrongdoing. It involves not only use of the “stick” of punishing companies for not having good  anti-corruption programs, but also the “carrot” – by providing companies with credit for “pre-existing” programs and specifying, in settlement documents, what anti-corruption efforts should entail.

By contrast, the latter approach – that of the Antitrust Division – has been characterized by near total neglect. Not surprisingly, antitrust compliance efforts ― at least relative to those for other risk areas ― seem to have receded in importance since the Guidelines went into effect.

Recently, the oddity of the Justice Department’s split personality on compliance programs was highlighted in a way that, to my knowledge, has never happened before. Last fall, Bridgestone Corporation was prosecuted for both FCPA and antitrust violations. As part of the settlement, the company was required to maintain various specified anti-corruption measures similar to those mandated in various recent FCPA cases. But on the subject antitrust compliance there was nothing of this sort.

(Bridgestone's plea agreement (pdf) can be downloaded here. Attachment B is the corporate compliance program.)

In other words, the Department of Justice seemed to believe that it was important for the company to have, among other things, risk assessments, clearly articulated policies, procedures, training, certifications, reporting protocols, self-assessments and many other measures to prevent the recurrence of corruption - but none of these steps to prevent the recurrence of antitrust violations. Is this really the message the Department wants to send?  E.g., if it makes sense to require a company to assign one or more senior executives the responsibility for ensuring anti-corruption compliance – executives with the requisite level of authority, autonomy and resources to do that job – why wouldn’t the government do the same for antitrust?

The Bridgestone plea agreement is indeed a strikingly peculiar read from a law enforcement policy perspective. One almost has the sense from it that the Antitrust Division, when it comes compliance, has become the Miss Havisham of the U.S. enforcement community – stuck in the past and missing out on today.

On the other hand, by highlighting the Department’s long standing lack of consistency on compliance in such a singular way, perhaps the case will contribute to 2012 being the year that the Antitrust Division finally gets serious about encouraging companies to promote law abidance through compliance programs.

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Jeffrey M. Kaplan, a partner in the Princeton, New Jersey office of Kaplan & Walker LLP, has practiced in the compliance law field since the early 1990’s. He serves as Adjunct Professor of Business Ethics at NYU’s Stern School of Business. His Conflict of Interest Blog is the authoritative source for COI discussion online. He can be contacted here.