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Richard L. Cassin Publisher and Editor

Andy Spalding Senior Editor

Jessica Tillipman Senior Editor

Elizabeth K. Spahn Editor Emeritus

Cody Worthington Contributing Editor

Julie DiMauro Contributing Editor

Thomas Fox Contributing Editor

Marc Alain Bohn Contributing Editor

Bill Waite Contributing Editor

Shruti J. Shah Contributing Editor

Russell A. Stamets Contributing Editor

Richard Bistrong Contributing Editor 

Eric Carlson Contributing Editor

Bill Steinman Contributing Editor

Aarti Maharaj Contributing Editor


FCPA Blog Daily News

Thursday
Nov012007

Ingersoll-Rand Pays $6.7 Million To Settle Oil For Food Violations

Charges Involve Fraud, FCPA Books and Records Violations and Improper Promotional Expenses

Bermuda-based heavy equipment maker Ingersoll-Rand Company Limited said on October 31, 2007 that it resolved fraud and U.S. Foreign Corrupt Practices Act violations in connection with illegal payments by subsidiaries to Iraqi officials under the U.N. Oil For Food Program. Ingersoll-Rand will pay a total of $6.7 million in penalties, interest and disgorgements. It consented to entry of a civil injunction with the Securities and Exchange Commission and a three-year deferred prosecution agreement with the Department of Justice.

The DOJ filed separate criminal informations against Ingersoll-Rand's subsidiary Thermo King Ireland Limited for conspiracy to commit wire fraud and against Ingersoll-Rand Italiana SpA for conspiracy to commit wire fraud and to violate the books and records provisions of the Foreign Corrupt Practices Act. After discovering and investigating the illegal payments, Ingersoll-Rand fired a number of employees. It conducted what the DOJ called a "thorough review of the improper payments" and self-reported the results to the government. If Ingersoll-Rand meets the terms of the three-year deferred prosecution agreement -- no further violations, enhanced compliance efforts, use of a "compliance consultant" -- the DOJ will dismiss the criminal charges against the subsidiaries.

The subsidiaries and their agents arranged and paid kickbacks to the Iraqi government in order to obtain contracts with ministries to provide road construction equipment, air compressors and parts, and refrigerated trucks. Between October 2000 and August 2003, employees of the subsidiaries paid about $600,000, and offered to pay an additional $250,000 in kickbacks by inflating the price of contracts by about 10 percent before submitting them to the United Nations for approval. Commissions were prohibited by U.N. sanctions in place against Iraq.

The SEC complaint charged Ingersoll-Rand with failing to maintain an adequate system of internal controls to detect and prevent the illegal payments and failing to record the true nature of the payments by calling them "sales deductions" or "other commissions." Ingersoll-Rand consented to the entry of a final judgment with the SEC permanently enjoining it from future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 [15 U.S.C. §§ 78m(b)(2)(A) and (B)].

The SEC's complaint describes, among other things, how Ingersoll-Rand's Italian affiliate improperly used the FCPA's affirmative defense for promotional expenses. In February 2002, I-R Italiana sponsored eight officials from the Iraqi Oil Ministry to spend two days touring a manufacturing facility in Italy. But the Iraqi officials spent two additional days "on holiday" touring Florence at the company's expense, and were also given $8,000 in "pocket money." I-R Italiana's payment of holiday travel expenses and "pocket money" violated Ingersoll-Rand's internal policies regarding payments to foreign government officials. The company's 2002 FCPA Manual permitted payments directly related to product demonstrations or actual contracts but expressly prohibited any payment for vacations. The company's Travel Guidelines expressly barred any cash payment of "pocket money" or "walking around money." Ingersoll-Rand also failed to account properly for its pocket money payments in its accounting books and records, recording the payments under a general ledger account for "cost of sales deferred."

Ingersoll-Rand trades on the New York Stock Exchange under the symbol IR. It says it "has been continuously listed on the NYSE since 1906 and is among the top 10 continuously listed companies on the NYSE."

View Ingersoll-Rand's October 31, 2007 News Release Here.

View the DOJ's October 31, 2007 News Release Here.

View Ingersoll-Rand's Deferred Prosecution Agreement Here.

View the SEC's Litigation Release No. 20353 / October 31, 2007 Here.

View the SEC's Complaint Here.

Wednesday
Oct312007

Faro Discloses Expected FCPA Resolution

Faro Technologies, Inc.'s third quarter disclosure describes a not-yet-effective deferred or non-prosecution agreement with the U.S. Department of Justice and the Securities and Exchange Commission.

In March 2006, Florida-based Faro -- which designs, develops, and markets software and portable, computerized measurement devices -- self-disclosed to prosecutors potential violations in China of the U.S. Foreign Corrupt Practices Act. On October 30, 2007, it said it expects to pay $2.65 million in estimated fines and penalties to resolve the case. It also said this:

"FCPA Update

"The Company anticipates that resolution of the FCPA matter will not result in formal criminal charges being filed against it by the DOJ. The Company expects, in addition to monetary sanctions, the final resolution of the FCPA matter with the SEC and the DOJ will include continuing obligations with the SEC and the DOJ with respect to monitoring, compliance with the FCPA and other laws, full cooperation with the government, and the adoption of a compliance code containing specific provisions intended to prevent violations of the FCPA.

"The Company expects that its monitoring obligations will continue for a period of two years starting with the final resolution of the FCPA matter with the SEC and the DOJ. The Company preliminarily estimates that the costs associated with the monitoring obligations to be in the range of $1 million to $2 million. However, because the scope of the monitoring obligation has not yet been determined and the outside monitoring firm has not yet been selected, the actual costs incurred may vary from the Company's preliminary estimate. The Company intends to provide updates with respect to the monitoring costs when additional information is available to the Company."

Faro Technologies, Inc. trades on NASDAQ under the symbol FARO.

View Faro's October 30, 2007 Press Release Here.

Tuesday
Oct302007

The Russia (Ware) House

It requires 54 procedures, takes 704 days, and costs 3,788% of annual per capita income to obtain the licenses and permits needed to build a warehouse in Moscow. So says the World Bank's Doing Business 2008. The averages for the OECD, by contrast, are 14 procedures, 153.3 days, and 62% of per capita income.

Red tape always breeds corruption. As the World Bank puts it, "Cumbersome entry procedures are associated with more corruption, particularly in developing countries. Each procedure is a point of contact—an opportunity to extract a bribe. Analysis shows that burdensome entry regulations do not increase the quality of products, make work safer or reduce pollution. Instead, they constrain private investment; push more people into the informal economy; increase consumer prices; and fuel corruption." So with today's Russia being such a U.S. Foreign Corrupt Practices Act minefield, any company serious about compliance will think twice about doing business there.

Listed below -- and weighing every bit as much as a sack of bricks on the back of a peasant -- are the 54 procedures needed to build that warehouse in the land of the czars:

1. Submit application to obtain Act of Permission for Use (APV) to Department of City Planning Documentation Development at the Architecture Planning Department

2. Request and obtain Situation Plan of District and Conclusion for a District Land Commission from Architecture Planning Department

3. Request and obtain Conclusion from Territorial Union of Land Use Regulation (TOP3)

4. Request and obtain Decision by District Land Commission on Land Plot Provision and City Planning Regulation

5. Request and obtain clearance of draft Disposition of Prefect with Architecture Planning Department (APD)

6. Request and obtain clearance of draft Disposition of Prefect with Local Government

7. Request and obtain clearance of draft Disposition with Territory union of land use regulation (TOP3)

8. Request and obtain the Disposition on Preparation of Act of Permission for Use (APV) by Prefect

9. Request and obtain Conclusion on compliance of proposed object with specified city planning and territory use regulations

10.Request and obtain technical conditions from water and sewage services

11. Request and obtain technical conditions to connect to electricity with MosEnergo

12. Request and obtain technical conditions to connect to telephone line

13. Request and obtain approval from Moscomarchitectura on engineering supply of the facility

14. Request and obtain Act of Permission for Use (АРИ) from Committee on Architecture and City Planning – Moscomarchitectura

15. Request and obtain Disposition of Prefect on Inception of Construction Designing (Decision on Construction)

16. Request and obtain the approval of conditions for designs by Department of Well-Being of Moscomarchitectura

17. Request and obtain the approval of conditions for designs by Department of Preparation of Project Approvals of Moscomarcitectura

18. Request and obtain approval of conditions for designs by Local Government

19. Request and obtain approval of conditions for designs by Prefect’s Office

20. Request and obtain approval of conditions for designs by Emergency Situation and Civil Defense Department

21. Request and obtain approval of conditions for designs by Moscow State Expertise

22. Request and obtain Act of Moscow Geological - Geodesic Department

23. Request and obtain approval of conditions for designs with Sanitary Services (Rospotrebnadzor)

24. Request and obtain the approval on transport routes from Moscow City Transport Agency

25. Request and obtain the approval from State Inspection of Road Safety (GIBBD) 2

26. Request and obtain the approval from Department of Comprehensive Well-Being of City

27. Request and obtain the approval from Department of Nature Use under State Ecological Expertise

28. Request and obtain Sketch No. 2 from Moscow Geological Institute

29. Request and obtain approval of Sketch No. 2 with Moscow Architecture Committee

30. Request and obtain the construction passport from Moscow City Geological Unit

31. Request and obtain approval of Volumes of «Outline of Construction Arrangement» and “GenPlan” from Moscomarchitectura Comm

32. Request and obtain approval of Volumes of «Outline of Construction Arrangement» and “GenPlan” from Prefecture

33. Request and obtain approval of Volumes of «Outline of Construction Arrangement» and “GenPlan” from GenPlan Institute

34. Request and obtain Regulation No. 2 and Certificate of approval of Architectural City Planning Decision

35. Request and obtain approval on project by Moscow State Expertise

36. Request and obtain Permission for construction

37. Receive inspection from Inspection on Architecture and Construction Supervision during foundation works

38. Receive inspection from Inspection on Architecture and Construction Supervision during structure works

39.Receive inspection from Inspection on Architecture and Construction Supervision during engineering works

40. Receive inspection by Union of Administrative Technical Inspection (UATI) - I

41.Receive inspection by Union of Administrative Technical Inspection (UATI) - II

42.Receive inspection by Union of Administrative Technical Inspection (UATI) - III

43. Receive inspection by Union of Administrative Technical Inspection (UATI) - IV

44. Receive inspection by Union of Administrative Technical Inspection (UATI) - V

45. Receive inspection by Union of Administrative Technical Inspection (UATI) - VI

46. Receive inspection by Union of Administrative Technical Inspection (UATI) - VII

47. Connect to water services

48. Request and receive inspection from Energy Supervision

49. Connect to electricity –sign agreement with “Energosbyt”

50. Request and connect to telephone services

51. Request and convene Acceptance Commission

52. Request and receive the Disposition on operation of building (Occupancy Permit)

53. Request and receive Plans from Bureau of Technical Inventory (BTI)

54. Register the building after completion



View the World Bank's Doing Business 2008 Here.

Monday
Oct292007

Let's Be Reasonable

It's a material world -- at least for auditors, public-company executives and securities lawyers. Material losses. Material misstatements and omissions. Material adverse changes. But wait. When it comes to the books and records provisions of the U.S. Foreign Corrupt Practices Act, forget materiality. The standard becomes reasonableness -- a head fake that confounds professionals and produces a steady stream of compliance calamities.

Why reasonableness? Why -- for the FCPA's accounting standards -- should issuers "make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer?" Why do issuers have to "devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are properly executed and recorded?" Why are similar transactions measured at reasonable intervals as a way to sniff out impropriety?

The best explanation comes from former SEC Chairman Harold Williams. His 1981 speech about the FCPA's accounting standards was so illuminating and succinct, it became an official policy statement. And his remark then that "[t]housands of dollars ordinarily should not be spent conserving hundreds" entered the compliance argot that is still with us today. Here's part of what he said:

"But, materiality, while appropriate as a threshold standard to determine the necessity for disclosure to investors, is totally inadequate as a standard for an internal control system. It is too narrow -- and thus too insensitive -- an index. For a particular expenditure to be material in the context of a public corporation's financial statements -- and therefore in the context of the size of the company -- it would need to be, in many instances, in the millions of dollars. Such a threshold, of course, would not be a realistic standard. Procedures designed only to uncover deficiencies in amounts material for financial statement purposes would be useless for internal control purposes. Systems which tolerated omissions or errors of many thousands or even millions of dollars would not represent, by any accepted standard, adequate records and controls. The off-book expenditures, slush funds, and questionable payments that alarmed the public and caused Congress to act, it should be remembered, were in most instances of far lesser magnitude than that which would constitute financial statement materiality.

"Reasonableness, rather than materiality, is the appropriate test. Reasonableness, as a standard, allows flexibility in responding to particular facts and circumstances. Inherent in this concept is a toleration of deviations from the absolute. One measure of the reasonableness of a system relates to whether the expected benefits from improving it would be significantly greater than the anticipated costs of doing so. Thousands of dollars ordinarily should not be spent conserving hundreds. Further, not every procedure which may be individually cost-justifiable need be implemented; the [Foreign Corrupt Practices] Act allows a range of reasonable judgments."

See Foreign Corrupt Practices Act of 1977: Statement of Policy, SEC Release No. 34-17500 (Jan. 29, 1981) [46 FR 11544]. SEC Release No. 34-17500 is the codification of SEC Chairman Harold Williams' speech on January 13, 1981 to the American Institute of Certified Public Accountants Annual Conference.

See also 15 U.S.C. §§ 78m(b)(2)(A) and 78m(b)(2)(B) [Securities Exchange Act of 1934 Section 13(b)(2)(A) 13(b)(2)(B)].

View Chairman Williams' January 29, 1981 Speech Here.

Sunday
Oct282007

Enough Said

Thursday
Oct252007

Malang, East Java Runs Amok

In a tie with Gambia, Togo and Russia, Indonesia ranks 143rd out of 179 on Transparency International's Corruption Perception Index. That lowly score warns us to expect some world-class silliness when it comes to red tape, which always walks hand-in-hand with corruption. Still, we thought a report on a website called Indonesia Matters was either a joke or an exaggeration. It described the requirements for obtaining permission to employ women workers at night in Malang, East Java -- a city of about 800,000 people. Curious, we looked up the regulations and found they actually exist. We reproduce them below in eye-watering completeness. Be warned, however, that to stay on the right side of this local law, the administrative hurdles need to be jumped not once but every year.

SERVICE OF WOMAN NIGHT TIME WORKING PERMIT

1.Administrative Qualification

* Request Letter of Service of Woman Night Time Working Permit;
* Copy of Resident Identity Card and NPWP of the owner/the director/the commissariat of the legal based company (double pages);
* Copy of Company Building Certificate of the legal based company;
* Copy of the Evidence Letter of Business Location Owning, land Certificate, Rent Contract legalized by Village Chief (2 pages);
* List of names of the Woman Night Time Working;
* Copy of infrastructure lists;
* Colored Photograph size 4 X 6 (2 pages).

2.Finishing Time, Used Period and Retribution Cost

* Finishing time is 22 days
* Used period is a year then renewed
* Retribution cost is based on Local Policy Number 16 Year 2002 about Business and Retribution Cost in the employment field.

3.Service Process Mechanism

1. The applicant comes to the Employment Department and brings the bundle of complete qualifications then fill the request form;
2. The locket staff will accept and check the bundle of administrative qualifications of Woman Night Time Working Permit from the applicant;
3. Incomplete bundle will be returned to the applicant for being completed;
4. Bundle that fulfilling the administrative qualifications will be made a receipt;
5. Bundle that fulfilling the administrative qualifications will be given a registration number and will be noted on Proposal Book of Woman Night Time Working Permit;
6. The staff gives the complete bundle to the processing staff for being reviewed;
7. The processing staff will research and analyze the proper of Woman Night Time Working Permit. After fulfilling the technical qualifications, the staff will make a recommendation and agreement proposal to The Mayor signed by the Head of Employment Department;
8. Based on the recommendation from the Employment Department, the Mayor will sign the legalizing/refusing of the Woman Night Time Working Permit Proposal;
9. After the permit has been legalized and agreed by the mayor, the bundle of agreement will be returned to the Employment Department;
10. The staff makes accounting and fixing of permit retribution cost;
11. The staff gives Paying Instruction Letter of Legalizing Woman Night Time Working Permit for paying retribution cost to the Helper of Cash Holder then to the Employment Department;
12. After paying the retribution, the cash holder helper will make a receipt of the Woman Night Time Working Permit to the applicant;
13. The applicant gives the receipt of the Woman Night Time Working Permit;
14. The service locket staff gives the legalizing of Woman Night Time Working Permit to the applicant;
15. Retribution Deposit Mechanism is based on the Mayor’s decision of Malang City Number 55 Year 2003 about the acceptance and payment of Local Income in the scope of City Government of Malang City.

View the above regulations on the Malang, East Java site Here.

Thursday
Oct252007

Victor Kozeny’s Extradition From the Bahamas Is Denied

The Bahamas News Online Edition (The Bahama Journal) reports today that the Supreme Court there has ruled against the extradition of Victor Kozeny (left). The ruling means Kozeny is no longer under arrest in the Bahamas, which had detained him at the request of the U.S. government. He was indicted in the United States in October 2005 for violating and conspiring to violate the U.S. Foreign Corrupt Practices Act in connection with a scheme to bribe senior government officials in Azerbaijan.

On June 21, 2007, the U.S. District Court for the Southern District of New York dismissed all FCPA and related counts against Kozeny and his co-defendants, Frederic Bourke, Jr. and David Pinkerton, based on the running of the five-year statute of limitations. The Justice Department's appeal against the dismissal is still pending. If the charges are reinstated, only Bourke and Pinkerton will now go to trial.

According to the report, the Bahamas court said the FCPA charges against Kozeny were not provable or prosecutable under local law, and there was an abuse of the court process. Apparently the U.S. government did not properly disclose the U.S. trial court's dismissal of the FCPA charges on statute of limitations grounds, a failing the Bahamas judge cited as a reason for the ruling.

Victor Kozeny is from the Czech Republic. He reportedly has Irish citizenship and has lived in the Bahamas for more than a decade. American prosecutors had sought evidence against him and his co-defendants from the Netherlands and Switzerland. Delays in obtaining the evidence led to the running of the statute of limitations in the U.S. prosecution.

View the report from the Bahamas News Online Edition Here.

View a prior post about Victor Kozeny Here.

Wednesday
Oct242007

Panalpina's Problems Keep Spreading

Schlumberger N.V., the world's biggest oil and gas services company, is among the dozen or more firms in that industry being investigated in connection with Panalpina's freight-forwarding and customs clearance practices. Schlumberger made the disclosure in its October 24, 2007 quarterly filing with the U.S. Securities and Exchange Commission. It said in full:

"In July 2007, Schlumberger received an inquiry from the United States Department of Justice ('DOJ') related to the DOJ’s investigation of whether certain freight forwarding and customs clearance services of Panalpina, Inc., and other companies provided to oil and oilfield service companies, including Schlumberger, violated the Foreign Corrupt Practices Act. Schlumberger is cooperating with the DOJ and is conducting its own investigation with respect to these services."

Schlumberger trades on the New York Stock Exchange under the symbol SLB.

View Schlumberger's Form 10-Q for the period ending September 30, 2007 Here.

View other posts about the Panalpina-related investigations Here.

Wednesday
Oct242007

An Effective Compliance Program, For Pete's Sake

A sharp-eyed reader of our post Ten Elements Of An Effective Compliance Program suggested in a comment that it "may also be wise to take a peek at DOJ Opinion Release 04-02, which has a bit more FCPA-specific guidance. For example, it goes into a bit more detail about due diligence with regard to business partners." So we did just as Pete from DC instructed and found that he's more than a bit right. Opinion Procedure Release No .: 04-02 (July 12, 2004) is the mother lode -- an encompassing FCPA-specific description of the elements of an "effective compliance program." We're therefore setting out the operative language verbatim, capital letters and all.

As background, Opinion Procedure Release 04-02 responds to a request from a JP Morgan-led group and their investment vehicles ("Newcos") that were acquiring companies and assets from ABB Ltd. ABB had already settled FCPA charges with the U.S. Securities and Exchange Commission relating to the target businesses. So the "effective compliance program" was to be imposed on the ABB businesses after their acquisition by the Newcos. The circumstances explain the extra compliance features, including periodic independent audits by outside counsel and auditors (a good idea for any company, by the way).

The Newcos' "effective compliance program" looks like this:

(A) A clearly articulated corporate policy against violations of the FCPA and foreign anti-bribery laws and the establishment of compliance standards and procedures to be followed by all directors, officers, employees, and all business partners, including, but not limited to, agents, consultants, representatives, and joint venture partners and teaming partners, involved in business transactions, representation, or business development or retention in a foreign jurisdiction (respectively, "Agents"; and "Business Partners") that are reasonably capable of reducing the prospect that the FCPA or any applicable foreign anti-corruption law of Newco's Compliance Code will be violated;

(B) The assignment to one or more independent senior Newco corporate officials, who shall report directly to the Compliance Committee of the Audit Committee of the Board of Directors, of responsibility for the implementation and oversight of compliance with policies, standards, and procedures established in accordance with Newco’s Compliance Code;

(C) The effective communication to all shareholders' representatives directly involved in the oversight of Newco ("Shareholders") and to all directors, officers, employees, Agents, and Business Partners of corporate and compliance policies, standards, and procedures regarding the FCPA and applicable foreign anti-corruption laws, by requiring (i) regular training concerning the requirements of the FCPA and applicable foreign anti-corruption laws on a periodic basis to all Shareholders, directors, officers, employees, Agents, and Business Partners and (ii) annual certifications by all Shareholders, directors, officers, employees, including the head of each Newco business or division, Agents, and Business Partners certifying compliance therewith;

(D) A reporting system, including a "Helpline"; for directors, officers, employees, Agents, and Business Partners to report suspected violations of the Compliance Code or suspected criminal conduct;

(E) Appropriate disciplinary procedure to address matters involving violations or suspected violations of the FCPA, foreign anti-corruption laws, or the Compliance Code;

(F) Clearly articulated corporate procedures designed to assure that all necessary and prudent precautions are taken to cause Newco to form business relationships with reputable and qualified Business Partners;

(G) Extensive pre-retention due diligence requirements pertaining to, as well as post-retention oversight of, all Agents and Business Partners, including the maintenance of complete due diligence records at Newco;

(H) Clearly articulated corporate procedures designed to ensure that Newco exercises due care to assure that substantial discretionary authority is not delegated to individuals whom Newco knows, or should know through the exercise of due diligence, have a propensity to engage in illegal or improper activities;

(I) A committee consisting of senior Newco corporate officials to review and to record, in writing, actions relating to (i) the retention of any Agent or subagents thereof, and (ii) all contracts and payments related thereto;

(J) The inclusion in all agreements, contracts, and renewals thereof with all Agents and Business Partners of provisions: (i) setting forth anti-corruption representations and undertakings; (ii) relating to compliance with foreign anti-corruption laws and other relevant laws; (iii) allowing for internal and independent audits of the books and records of the Agent or Business Partner to ensure compliance with the foregoing; and (iv) providing for termination of the Agent or Business Partner as a result of any breach of applicable anti-corruption laws and regulations or representations and undertakings related thereto;

(K) Financial and accounting procedures designed to ensure that Newco maintains a system of internal accounting controls and makes and keeps accurate books, records, and accounts, and;

(L) Independent audits by outside counsel and auditors, at no longer that three-year intervals, to ensure that the Compliance Code, including its anti-corruption provisions, are implemented in an effective manner.

View Department of Justice Opinion Procedure Release No .: 04-02 (July 12, 2004) Here.

Tuesday
Oct232007

Compliance Resources -- India and Nigeria

Signs that the influence of the U.S. Foreign Corrupt Practices Act is felt around the world come today from India and Nigeria.

Pradeep Akkunoor lets us know about a December 16, 2007 FCPA Conference sponsored by Indiaforensic. It's a non-profit group founded in 2003 by Chartered Accountant Mayur Joshi to raise compliance awareness and bring together the anti-fraud professionals in India. "We call it India's first organized effort to combat white-collared crime," says Mr. Akkunoor. "What began as a one-man effort is today a network of over 600 professionals from across India. Indiaforensic conducts research, informs and supports those engaged in fighting fraud around the country." Messrs. Akkunoor and Joshi also run Indiaforensic Consultancy Services, which specializes in fraud examinations and forensic accounting in India, as well as training and education in bank forensic accounting, anti-money laundering and corporate forensic accounting.

From Nigeria, we hear from ddcheck.com. It does one thing: due diligence checks on Nigerian companies. Run by a group of FCPA-savvy lawyers accredited by the Nigerian Corporate Affairs Commission to conduct public-records searches, it has an interesting approach. No up-front fees, and if the company being searched doesn't exist, there's no charge at all. The people at ddcheck.com acknowledge that "Nigerians are frequently considered 'high risk' business partners . . . . Until now, international businesses have found it very difficult to obtain urgent and reliable background or due diligence information about Nigerian companies. We solve this problem for you by obtaining all the important information you want from the Nigerian Corporate Affairs Commission and other official sources. We save you significant time, effort and money so that you can easily verify information about Nigerian companies quickly, conveniently and confidentially." Finally, if the target or its principals don't look legitimate, ddcheck.com will help their client file reports with appropriate anti-corruption agencies.

Monday
Oct222007

Ten Elements Of An Effective Compliance Program

The purpose of an “effective compliance program” is to prevent and detect criminal conduct. Why is this important? Because an organization that violates the U.S. Foreign Corrupt Practices Act but has an “effective compliance program” is eligible for a reduced sentence -- by up to 95% of the statutory penalties. FCPA violations can happen no matter how much effort is made to prevent them -- and the consequences of a violation can be catastrophic -- so an “effective compliance program” might be an organization's last and best defense.

The requirements for an "effective compliance program" are described in the United States Federal Sentencing Guidelines and summarized as follows:

1. A Written Program. The organization must have standards and procedures to prevent and detect criminal conduct.

2. Board Oversight. The organization’s board of directors or equivalent must be knowledgeable about the content and operation of the compliance and ethics program and must exercise reasonable oversight of its implementation and effectiveness.

3. Responsible Persons. One or more individuals among the organization's high-level personnel must be assigned overall responsibility for the compliance and ethics program.

4. Operating and Reporting. One or more individuals must be delegated day-to-day operational responsibility for the compliance and ethics program. They must report periodically to high-level personnel and, as appropriate, to the board of directors or its audit committee or equivalent on the effectiveness of the program. The individuals must have adequate resources, appropriate authority, and direct access to the board or audit committee.

5. Management's Record of Compliance. The organization must use reasonable efforts not to hire or retain personnel who have substantial authority and whom the organization knows or should know through the exercise of due diligence have engaged in illegal activities or other conduct inconsistent with an effective compliance and ethics program.

6. Communicating and Training. The organization must take reasonable steps to communicate periodically and in a practical manner its standards and procedures, and other aspects of the compliance and ethics program, to directors, officers, executives, managers, employees and agents -- by conducting effective training programs and otherwise disseminating information appropriate to the individuals’ respective roles and responsibilities.

7. Monitoring and Evaluating; Anonymous Reporting. The organization must take reasonable steps (a) to ensure that its compliance and ethics program is followed, including monitoring and auditing to detect criminal conduct, (b) to evaluate periodically the effectiveness of the compliance and ethics program and (c) to have and publicize a system, which may include mechanisms that allow for anonymity or confidentiality, whereby the organization’s employees and agents may report or seek guidance regarding potential or actual criminal conduct without fear of retaliation.

8. Consistent Enforcement -- Incentives and Discipline. The organization’s compliance and ethics program must be promoted and enforced consistently throughout the organization through appropriate (a) incentives to perform in accordance with the compliance and ethics program and (b) disciplinary measures for engaging in criminal conduct and for failing to take reasonable steps to prevent or detect criminal conduct.

9. The Right Response. After criminal conduct has been detected, the organization must take reasonable steps to respond appropriately and to prevent further similar criminal conduct, including making any necessary modifications to the organization’s compliance and ethics program.

10. Assessing the Risk. The organization must periodically assess the risk of criminal conduct and take appropriate steps to design, implement, or modify its compliance program to reduce the risk of criminal conduct identified through this process.

The Sentencing Guidelines stipulate that the failure to prevent or detect an FCPA offense "does not necessarily mean that the program is not generally effective in preventing and detecting criminal conduct." That means the potential benefits of an "effective compliance program" (mitigation of penalties by up to 95%) will be available when needed most -- after a violation happens.

View Chapter 8, Part B of the U.S. Federal Sentencing Guidelines Here.

Thursday
Oct182007

Counting Corruption

A friend from Nigeria, which appears on these pages for the wrong reasons all too often, visited us this week. He gives a face and a voice to the human cost of his country's terrible twins, red tape and corruption.

The statistics are bleak. An entrepreneur starting a new warehouse business in Nigeria will spend at least 350 days obtaining necessary licenses and permits, completing required notifications and inspections, and securing utility connections. If the business gets off the ground, the entrepreneur will need to make at least 35 separate tax payments every year, and spend a staggering 1,120 hours preparing, filing, and paying his or her annual taxes, compared to 183 hours on average in the OECD (roughly speaking, the world's 30 most developed economies). Imports for the entrepreneur's business will require 46 days, compared to 10.4 in the OECD. Exporting a product will take 26 days, almost three times longer than the OECD average. It's no wonder Nigeria ranks 147th out of 179 countries on Transparency International's Corruption Perception Index.

The economy can't move forward, and real people like our friend and his young family are victimized. Schools deteriorate, electricity is an occasional luxury, roads are ruled by bandits. Far worse, new generations of Nigerians -- a country of more than 140 million people -- come to believe their condition is unchangeable. They gradually see themselves the same way many foreign business people do -- the ones who show up with a business plan based on nothing more than greasing the system at every opportunity. An irony, our friend says, is that he gets things done simply by making sure the paperwork is in order and treating regulators and bureaucrats with a normal measure of respect. It takes patience, he says, but the strategy has never failed in nearly ten years of professional life.

In 1976, a year before the U.S. Foreign Corrupt Practices Act became law, A. A. Sommer, Jr., a Commissioner of the Securities and Exchange Commission, said we should ponder the harm to a country and its citizens when payments land in the pockets of corrupt officials instead of the national treasury. "This is surely a dimension that most people have not consid­ered, and yet, I think is a most important one for it may well involve an ethical consideration that is perhaps more meaningful and more important than the legal problems associated with the bribe itself."

As we listen to our friend talk about the damage corruption inflicts on ordinary people in Nigeria, Commissioner Sommer's words come to mind, and we're reminded again why the FCPA matters.

View the World Bank's "Doing Business Project" Here.