Issue to ponder, scrutiny alert, laughable, silly, $50 million spent in approximately 9 months, and for the reading stack. It’s all here in the Friday roundup.
Issue to Ponder
If the FCPA and U.K. Bribery Act “have been broadly effective in addressing and remediating corrupt practices within … companies [subject to the laws]” as asserted in this article, then why – generally speaking – is there more (not less) enforcement actions under these laws over time?
Scrutiny Alert
Stericycle, Inc. (an Illinois-based waste management company) recently disclosed:
“On June 12, 2017, the SEC issued a subpoena to the Company, requesting documents and information relating to the Company’s compliance with the Foreign Corrupt Practices Act (“FCPA”) or other foreign or domestic anti-corruption laws with respect to certain of the Company’s operations in Latin America. In addition, the Department of Justice has notified the Company that it is investigating this matter in parallel with the SEC. The Company is cooperating with these agencies. The Company is also conducting an internal investigation of these matters, under the oversight of the Audit Committee of the Board of Directors and with the assistance of outside counsel, and this investigation has found evidence of improper conduct. We have not accrued any amounts in respect of this matter, as we cannot estimate any reasonably possible loss or any range of reasonably possible losses that we may incur. We are unable to make such an estimate because, based on what we know now, in our judgment, the factual and legal issues presented in this matter are sufficiently unique that we are unable to identify other circumstances sufficiently comparable to provide guidance in making estimates.”
Laughable
Some laughable FCPA commentary to share in the hopes that people will be more disciplined and diligent when writing about the FCPA.
*****
This FCPA Compliance and Ethics Report post states that under the FCPA “internal controls must be effective.”
False.
The statutory standard is that issuers shall “devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances” relevant to the four financial objectives set forth in the statute.
*****
A laughable statement from Mother Jones.
“Under the Foreign Corrupt Practices Act (FCPA), American companies that operate abroad must screen any potential business partners for hints of corruption or ethical shadiness.”
Where to even begin with this statement?
*****
From Representative Jackie Speier (D-CA) recently on MSNBC’s Hardball. “if you do business in any country where you believe that there is money that`s being used that is being laundered, you`re subject to the Foreign Corrupt Practices Act.”
Silly
Last week I was interviewed by one of the journalists who wrote this article in the Wall Street Journal finding that “Wall Street regulators have imposed far lower penalties in the first six months of Donald Trump’s presidency than they did during the first six months of 2016, a comparable period in the Obama administration.”
I said that the analysis was silly in that it compared the first six months of an established administration to the first six months of a new administration. Furthermore, it is silly to make any conclusions based on six months worth of data. Moreover, of the $750 million cited in the article from the first six months of 2016, $162.5 million (22%) was from just one enforcement action (Vimpelcom).
$50 Million Spent in Approximately 9 Months
This 2016 post highlighted Cognizant Technology Solutions Corp.’s FCPA scrutiny first disclosed in late September 2016.
This February 2017 post asked “is it possible to spend $20 million in one quarter conducting an FCPA investigation?” Apparently so because highlighted in the prior post Cognizant incurred approximately $20 million in Q4 2016 due to the ongoing investigation.When Cognizant thereafter disclosed “in 2016, we incurred $27 million in costs related to the FCPA investigation and related lawsuits” this post asked is Cognizant “boiling the ocean?”
As highlighted in this prior post, for first quarter of 2017 Cognizant disclosed that it “incurred $14 million in costs related to the FCPA investigation and related lawsuits.”
Recently, Cognizant disclosed:
“We are conducting an internal investigation focused on whether certain payments relating to Company-owned facilities in India were made improperly and in possible violation of the U.S. Foreign Corrupt Practices Act, or FCPA, and other applicable laws. In September 2016, we voluntarily notified the U.S. Department of Justice, or DOJ, and Securities and Exchange Commission, or SEC, and are cooperating fully with both agencies. The investigation is being conducted under the oversight of the Audit Committee, with the assistance of outside counsel. To date, the investigation has identified a total of approximately $6 million in payments made between 2010 and 2015 that may have been improper. During the year ended December 31, 2016, we recorded out-of-period corrections related to $4 million of such payments that had been previously capitalized that should have been expensed. These out-of-period corrections and the other $2 million in potentially improper payments were not material to any previously issued financial statements. The investigation is also examining various other payments made in small amounts in India and elsewhere that may not have complied with Company policy or applicable law. There were no adjustments recorded during the six months ended June 30, 2017.
[…]
During the quarter ended June 30, 2017, we incurred $8 million in costs related to the FCPA investigation and related lawsuits. We expect to continue to incur expenses related to these matters for the remainder of 2017 and future periods, including with respect to remediating the material weakness in our internal control over financial reporting.
[…]
We have undertaken a number of measures designed to directly address, or that may contribute to, the remediation of our material weakness or the enhancement of our internal controls over financial reporting. While the internal investigation is ongoing, based on the results of the investigation to date, the members of senior management who may have participated in or been aware of the making of the identified potentially improper payments and failed to take action to prevent the making of the identified potentially improper payments are no longer with the Company or in a senior management position. Additional personnel actions have been taken with respect to other employees and further actions may be required.
Further, among other things, we have made certain new management appointments, including a new President and a new General Counsel, added resources and personnel to our compliance function and programs, enhanced our oversight controls in the areas of procurement and accounts payable as they relate to real estate transactions in India, and enhanced our compliance program and control environment through a number of actions, including additional and improved anti-corruption and ethical conduct training programs and a distribution of a revised code of ethics to all employees.
Changes to internal controls over financial reporting need to operate for a period of time in order for management to evaluate and test whether the internal control changes are effective. We have commenced our evaluation of the effectiveness of certain changes to our internal controls over financial reporting implemented to directly address the material weakness.”
Add it up and Cognizant has spent approximately $50 million in approximately 9 months in connection with its FCPA scrutiny and related civil lawsuits.
During my nearly decade-long FCPA private practice career, I conducted several FCPA internal investigations around the world. Such investigations are not a cost-free exercise.
However, Cognizant’s disclosure that it has incurred approximately $50 million in approximately 9 months strikes me as highly unusual and if I were a Cognizant board member (not to mention a Cognizant shareholder), I would have some serious concerns.
For the Reading Stack
This article really has nothing to do with ethics and compliance, but it goes to show that what is generally perceived to be best practices at the time don’t necessarily turn out to be actual best practices.
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