Global Corruption Enforcement

The disruption and cost of internal investigations standing alone make counsel with foresight a tremendous value. Over the past decade, the standard practice has been to institute a “letter-of-the-law” compliance program rather than designing integrated compliance protocols that are specific to a business's operations. Unfortunately, many of these compliance programs have left businesses vulnerable to “work around” cultures where operators quickly find ways to avoid compliance processes. For example, if a company sets a monetary limit that requires legal or compliance approval, that company should monitor how many transactions occur right below the limit in ensuing periods.

Notably, almost every multinational business to announce FCPA settlement with the U.S. Department of Justice (DOJ) had a compliance program, code of conduct and Chief Compliance Officer (CCO). This alone should be a forewarning to counsel that it is not enough to have a program in place. Businesses today are better served by moving beyond “compliance programs” to focus on structures that promote and actively market business integrity.

Embedding Compliance

It is evident from dozens of internal investigations, as well as federal criminal investigations and prosecutions, that compliance functions must be embedded within business operations. “Compliance” needs to be internally defined as ethical business practices and the exercise of good judgment. The initial step for counsel, directors, and management is to ensure that an effective compliance program is in place, meaning a program that actively eliminates opportunities for inappropriate behavior by company employees and third-party contractors. Operations should be incentivized and encouraged to make compliance a part of everyday decision-making. Compliance activities and controls also need to be structured in a way that allows compliance to continually evolve with the business. Companies rely on their general counsels to advise management and boards to ensure compliant cultures and protect assets.

Embedding compliance as part of operations allows for inclusion in real business dynamics, cultivating risk assessment and monitoring, and improving the allocation of resources. It can also reduce tension between personnel, by repositioning compliance specialists as “best practice consultants” in roles designed to achieve business objectives while assuring the transaction costs of non-compliance are evaluated during execution.

The Legal Landscape

For much of the first two decades after President Carter signed the FCPA into law in 1977, DOJ enforcement actions were rare. By the early 2000s, that began to change, and by 2010, dozens of multinational companies had lawyers and consultants engaged in expensive and distracting internal investigations around the globe. The DOJ has proclaimed that the rationale for aggressive enforcement is its mission to protect consumers. In its 2013 Resource Guide to the U.S. FCPA, the DOJ states: “Corruption has corrosive effects on democratic institutions, undermining public accountability and diverting public resources from important priorities such as health, education, and infrastructure. When business is won or lost based on how much a company is willing to pay in bribes rather than on the quality of its products and services, law-abiding companies are placed at a competitive disadvantage ' and consumers lose.”

The key FCPA sections provide for criminal prosecution for the bribery of foreign government officials and, for those companies that issue securities subject to the jurisdiction of the SEC (“issuers”), for inaccurate record-keeping and inadequate internal accounting controls. While individual prosecutions have been infrequent, the DOJ is always publicizing its intent to increase arrests and prosecutions. In 2010 Congressional testimony, the DOJ took the position that “the department has made the prosecution of individuals a critical part of its FCPA enforcement strategy” because it is considered “an important and effective deterrent.” The DOJ makes similar proclamations annually, but still retains a limited staff of prosecutors.

The anti-bribery provisions make it unlawful to “corruptly” offer or pay “anything of value” to a “foreign official” to assist “in obtaining or retaining business.” These broad terms cover payments intended to influence a foreign official's decision-making or to help to secure a business advantage. The term “corruptly” has been interpreted broadly to mean that the offer or payment must have been “intended to induce the recipient to misuse his official position.” Further, it is not necessary that the benefit be in the form of government business. For example, a payment that secures a business advantage, like favorable tax treatment or reduced customs duties, is prohibited. Courts have defined “anything of value” to include both tangible and intangible benefits. For example, promises of future employment and even sex have been found to constitute value. United States v. Gorman, 807 F.2d 1299 (6th Cir. 1986) and United States v. Moore, 525 F.3d 1033 (11th Cir. 2008).

This discussion continues in next month's issue.

Kirk Ogrosky and Jeffrey Hessekiel are members of the White Collar Criminal Defense and FDA/Healthcare Practice Groups at Arnold & Porter LLP. Prior to joining the firm, Mr. Ogrosky was the head of healthcare fraud enforcement in the Criminal Division of the U.S. Department of Justice from 2006 to 2010, and Mr. Hessekiel was the Chief Compliance Officer of Gilead Sciences Inc. from 2007 to 2012.

For multinational corporations, reducing the risks and concomitant expenses associated with corrupt employee behavior must be a priority. In today's environment, counsel, directors and management must recognize that companies can no longer rely on the mere existence of a compliance program and code of conduct. This article discusses the benefits of embedding compliance doctrine within operations, and how businesses could market integrity and compliance to gain a competitive advantage.

Expansion and the FCPA

Expansion into markets with challenging regulatory systems poses added risks to companies subject to the Foreign Corrupt Practices Act (FCPA), 15 U.S.C. ” 78dd-1, et. seq. Whether driven through acquisition or organic growth, expansion demands extra attention and expertise by specialized counsel. For instance, companies should prepare for enhanced U.S. and German enforcement efforts. Mere identification of issues after expansion, however, will be insufficient to minimize risk and deal with enforcement.

The disruption and cost of internal investigations standing alone make counsel with foresight a tremendous value. Over the past decade, the standard practice has been to institute a “letter-of-the-law” compliance program rather than designing integrated compliance protocols that are specific to a business's operations. Unfortunately, many of these compliance programs have left businesses vulnerable to “work around” cultures where operators quickly find ways to avoid compliance processes. For example, if a company sets a monetary limit that requires legal or compliance approval, that company should monitor how many transactions occur right below the limit in ensuing periods.

Notably, almost every multinational business to announce FCPA settlement with the U.S. Department of Justice (DOJ) had a compliance program, code of conduct and Chief Compliance Officer (CCO). This alone should be a forewarning to counsel that it is not enough to have a program in place. Businesses today are better served by moving beyond “compliance programs” to focus on structures that promote and actively market business integrity.

Embedding Compliance

It is evident from dozens of internal investigations, as well as federal criminal investigations and prosecutions, that compliance functions must be embedded within business operations. “Compliance” needs to be internally defined as ethical business practices and the exercise of good judgment. The initial step for counsel, directors, and management is to ensure that an effective compliance program is in place, meaning a program that actively eliminates opportunities for inappropriate behavior by company employees and third-party contractors. Operations should be incentivized and encouraged to make compliance a part of everyday decision-making. Compliance activities and controls also need to be structured in a way that allows compliance to continually evolve with the business. Companies rely on their general counsels to advise management and boards to ensure compliant cultures and protect assets.

Embedding compliance as part of operations allows for inclusion in real business dynamics, cultivating risk assessment and monitoring, and improving the allocation of resources. It can also reduce tension between personnel, by repositioning compliance specialists as “best practice consultants” in roles designed to achieve business objectives while assuring the transaction costs of non-compliance are evaluated during execution.

The Legal Landscape

For much of the first two decades after President Carter signed the FCPA into law in 1977, DOJ enforcement actions were rare. By the early 2000s, that began to change, and by 2010, dozens of multinational companies had lawyers and consultants engaged in expensive and distracting internal investigations around the globe. The DOJ has proclaimed that the rationale for aggressive enforcement is its mission to protect consumers. In its 2013 Resource Guide to the U.S. FCPA, the DOJ states: “Corruption has corrosive effects on democratic institutions, undermining public accountability and diverting public resources from important priorities such as health, education, and infrastructure. When business is won or lost based on how much a company is willing to pay in bribes rather than on the quality of its products and services, law-abiding companies are placed at a competitive disadvantage ' and consumers lose.”

The key FCPA sections provide for criminal prosecution for the bribery of foreign government officials and, for those companies that issue securities subject to the jurisdiction of the SEC (“issuers”), for inaccurate record-keeping and inadequate internal accounting controls. While individual prosecutions have been infrequent, the DOJ is always publicizing its intent to increase arrests and prosecutions. In 2010 Congressional testimony, the DOJ took the position that “the department has made the prosecution of individuals a critical part of its FCPA enforcement strategy” because it is considered “an important and effective deterrent.” The DOJ makes similar proclamations annually, but still retains a limited staff of prosecutors.

The anti-bribery provisions make it unlawful to “corruptly” offer or pay “anything of value” to a “foreign official” to assist “in obtaining or retaining business.” These broad terms cover payments intended to influence a foreign official's decision-making or to help to secure a business advantage. The term “corruptly” has been interpreted broadly to mean that the offer or payment must have been “intended to induce the recipient to misuse his official position.” Further, it is not necessary that the benefit be in the form of government business. For example, a payment that secures a business advantage, like favorable tax treatment or reduced customs duties, is prohibited. Courts have defined “anything of value” to include both tangible and intangible benefits. For example, promises of future employment and even sex have been found to constitute value. United States v. Gorman , 807 F.2d 1299 (6th Cir. 1986) and United States v. Moore , 525 F.3d 1033 (11th Cir. 2008).

This discussion continues in next month's issue.

Kirk Ogrosky and Jeffrey Hessekiel are members of the White Collar Criminal Defense and FDA/Healthcare Practice Groups at Arnold & Porter LLP. Prior to joining the firm, Mr. Ogrosky was the head of healthcare fraud enforcement in the Criminal Division of the U.S. Department of Justice from 2006 to 2010, and Mr. Hessekiel was the Chief Compliance Officer of Gilead Sciences Inc. from 2007 to 2012.