Foreign Corrupt Practices Act resolution documents have long contained: (i) legal standards that simply do not exist; (ii) internally inconsistent standards; and/or (iii) vague or ambiguous terms.
However, these issues now take on a greater importance given that the DOJ is apparently requiring (at least in some enforcement actions) – as a condition of settlement – executive officer certifications as to the company’s compliance program.
The recent Glencore FCPA enforcement action (see here for the prior post) contains a so-called Attachment H and as discussed in this post Glencore’s Chief Executive Officer and Head of Compliance (the contemplated signatories of the certification) have been set up to fail. Moreover, it is surprising that Glencore’s legal counsel (WilmerHale) allowed the company to agree to such a mess of a compliance certification.
In the Attachment H Certification, Glencore’s Chief Executive Officer and Head of Compliance will be asked to certify that they are:
“aware of the Company’s compliance obligations under Paragraphs 9 and 10 [of the plea agreement] attachment C [of the plea agreement], and that, based on the undersigned’s review and understanding of the Company’s anti-corruption compliance program, the Company has implemented an anti-corruption compliance program that meets the requirements set forth in Attachment C.”
However, Paragraphs 9 and 10 of the plea agreement – as well as Attachment C – contain (i) legal standards that simply do not exist; (ii) internally inconsistent standards; and/or (iii) vague or ambiguous terms.
Paragraph 9 of the plea agreement states:
“9. The Defendant represents that it has implemented and will continue to implement a compliance and ethics program that meets, at a minimum, the elements set forth in Attachment C. Such program shall be designed to prevent and detect violations of the FCPA and other applicable anti-corruption laws throughout its operations, including those of its affiliates, agents, and joint ventures, and those of its contractors and subcontractors whose responsibilities include interacting with foreign officials or other activities carrying a high risk of corruption. Thirty days prior to the expiration of the Term [generally three years], the Defendant, by the Chief Executive Office and Head of Compliance of the Glencore Group, will certify to the Fraud Section, in the form of executing the document attached as Attachment H to this Agreement, that the Defendant has met its compliance obligations pursuant to this Agreement.”
Paragraph 10 of the plea agreement states in relevant part:
“10. In order to address any deficiencies in its internal accounting controls, policies, and procedures, the Defendant represents that it has undertaken, and will continue to undertake in the future, in a manner consistent with all of its obligations under this Agreement, a review of its existing internal accounting controls, policies, and procedures regarding compliance with the FCPA and other applicable anti-corruption laws. Where necessary and appropriate, the Defendant will adopt new or modify existing internal controls, compliance policies, and procedures in order to ensure that the Defendant maintains: (a) an effective system of internal accounting controls designed to ensure the making and keeping of fair and accurate books, records and accounts; and (b) a rigorous anti-corruption compliance program that incorporates relevant internal accounting controls, as well as policies and procedures designed to effectively detect and and deter violations of the FCPA and other applicable anti-corruption laws. The compliance program, including the internal accounting controls systems, will include, but not be limited to, the minimum elements set forth in Attachment C.
Before turning to Attachment C, there are many things that are problematic with Paragraphs 9 and 10.
For starters, “prevent and detect,” “detect and deter,” and/or “effective” are not even standards mentioned in the FCPA. Moreover, these apparent standards are inconsistent with the actual standards mentioned in the FCPA (i.e. Paragraph 10 references “compliance with the FCPA”). In addition, portions or Paragraph 10 are seemingly discretionary (i.e., “where necessary and appropriate”). Finally, Paragraph 10 is vague and ambiguous (i.e. “incorporates relevant internal accounting controls”).
Again, corporate FCPA resolution documents have long contained similar issues.
However, now that executive officers and compliance professionals are being asked – subject to criminal prosecution – to certify compliance programs, these long-standing issues become very important.
Turning to Attachment C (an attachment specifically referenced in the Attachment H certification as well as Paragraph 9 of the plea agreement), the problems continue.
The introductory paragraphs of Attachment C refer to “an effective system of internal accounting controls designed to ensure the making and keeping of fair and accurate books, records and accounts” as well as “policies and procedures designed to effectively detect and deter violations of the FCPA and other applicable anti-corruption laws.”
Again, such standards simply do not exist in the FCPA.
What is really interesting is that other portions of Attachment C acknowledge this.
For instance, the “Policies and Procedures” section of Attachment C states in pertinent part as follows:
4. The Company will ensure that it has a system of financial and accounting procedures, including a system of internal controls, reasonably designed to ensure the maintenance of fair and accurate books, records, and accounts. This system should be designed to provide reasonable assurances that:
a. transactions are executed in accordance with management’s general or specific authorization;
b. transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and to maintain accountability for assets;
c. access to assets is permitted only in accordance with management’s general or specific authorization; and
d. the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any difference.”
(a) – (d) above are direct quotes from the FCPA’s internal controls provisions – the actual statutory standard. Moreover, paragraph 4 accurately captures the FCPA’s “reasonable assurance” standard (but omits the salient point that the FCPA defines “reasonable assurance” to mean “such level of detail and degree of assurance as would satisfy prudent officials in the conduct of their own affairs.”).
In short, Attachment C contains standards that do not even exist in the FCPA and is internally inconsistent in that it actually does mention standards that exist in the FCPA.
Moreover, Attachment C – like Paragraphs 9 and 10 of the plea agreement – contains vague and ambiguous terms. For instance paragraph 6 of Attachment C states:
“6. The Company shall review its anti-corruption compliance policies and procedures no less than annually and update them as appropriate to ensure their continued effectiveness, taking into account relevant developments in the field and evolving international and industry standards.”
What are relevant developments in the field and evolving international and industry standards? Who decides?
After correctly referencing the actual FCPA standards in portions of Paragraph 4, Paragraph 18 of Attachment C (titled “Monitoring and Testing”) reverts back to a non-existent legal standard and continues to use vague and ambiguous terms.
“The Company will conduct periodic reviews and testing of its Code of Conduct and anti-corruption policies and procedures designed to evaluate and improve their effectiveness in preventing and detecting violations of anti-corruption laws and the Company’s Code of Conduct and anti-corruption policies and procedures, taking into account relevant developments in the field and evolving international and industry standards.“
The problems continue in Attachment H – the actual certification which states:
“The undersigned certifies that such compliance program is reasonably designed to detect and prevent violations of the FCPA and other applicable anti-corruption laws throughout the Company’s operations.
In sum, the interplay of Paragraphs 9 and 10 of the Glencore plea agreement and various paragraphs of Attachment C make the Attachment H certification a hot, muddy mess.
Would you want to sign it?