Scrutiny alerts, post-enforcement action compliance enhancements, my own two cents, reality TV, and for the reading stack. It’s all here in the Friday roundup.
This December 2017 post highlighted the unusual origin of OSI Systems FCPA scrutiny – a short seller published a research report accusing the company of corruption. Yesterday, OSI Systems formally disclosed:
“Following a report by a short seller, the Securities and Exchange Commission (SEC) commenced an investigation into the Company’s compliance with the Foreign Corrupt Practices Act (FCPA). The U.S. Attorney’s Office for the Central District of California (DOJ) has also said it intends to request information regarding FCPA compliance matters. The SEC and DOJ are also conducting an investigation of trading in the Company’s securities, and have subpoenaed information regarding trading by executives, directors and employees, as well as Company operations and disclosures in and around the time of certain trades. In relation to the matters that are the subject of the trading-related investigation, the Company has taken action with respect to a senior-level employee. At this time, the Company is unable to predict what, if any, action may be taken by the DOJ or SEC as a result of these investigations, or any penalties or remedial measures these agencies may seek. The Company places a high priority on compliance with its anti-corruption and securities trading policies, and is cooperating with each of the government investigations.”
Add one to the list, take one off.
As highlighted in this previous post, in January 2015 Cobalt International beat back the SEC after receiving a Wells Notice which stated that it “made a preliminary determination to recommend that the SEC institute an enforcement action against the Company” to concerning the company’s long-standing FCPA scrutiny concerning business practices in Angola.
Thereafter, as highlighted in this prior post, in March 2017 Cobalt again become the subject of FCPA scrutiny as it disclosed:
“In connection with entering into our RSAs for Blocks 9 and 21 offshore Angola, two Angolan–based E&P companies were assigned as part of the contractor group by the Angolan government. We had not worked with either of these companies in the past, and, therefore, our familiarity with these companies was limited. In 2010, we were made aware of allegations of a connection between senior Angolan government officials and one of these companies. In 2011, a formal order of investigation was issued by the SEC related to these allegations and, to avoid non–overlapping information requests, we voluntarily contacted the U.S. Department of Justice (“DOJ”) with respect to the SEC’s investigation and offered to respond to any requests the DOJ may have. We were notified in January 2015 that the SEC’s investigation had concluded and that the SEC did not intend to recommend any enforcement action. In February 2017, we received a letter from the DOJ advising us that the DOJ has closed its investigation into our operations in Angola. This formally concluded the DOJ investigation and no regulatory action has been taken against us as a result of these investigations. On March 13, 2017, the SEC informed us by telephone that it had initiated an informal inquiry regarding Cobalt related to the Sonangol Research and Technology Center (the “Technology Center”). As background, on December 20, 2011, we executed the PSC under which we and BP are required to make certain social contributions to Sonangol, including for the Technology Center. On March 13, 2017, we also received a voluntary request for information regarding such inquiry. We believe our activities in Angola have complied with all applicable laws, including the FCPA, and we will cooperate with the SEC’s inquiry.”
Earlier this week, Cobalt disclosed:
“On January 29, 2018, the United States Securities and Exchange Commission (the “SEC”) concluded its FCPA investigation relating to the Angolan operations of Cobalt International Energy, Inc. (“Cobalt”) and advised that the SEC staff does not intend to recommend any enforcement action by the SEC against Cobalt. This formally concludes the SEC investigation, which was opened in March 2017.”
Post-Enforcement Action Compliance Enhancements
As highlighted in this previous post, in 2013 Germany-based Bilfinger resolved an FCPA enforcement action concerning alleged conduct in Nigeria by agreeing to pay approximately $32 million. The enforcement action was resolved via a three-year deferred prosecution agreement, which as noted in this article was extended and remains active. The article highlights comments from Olaf Schneider (GC and Chief Compliance Officer at the company) and Michael Bernhardt (head of human resources at the company) describe the following post-enforcement action changes at the company.
- Reducing complex holdings of 600 subsidiaries and legal entities in various countries to just 200, shedding the companies most exposed to risk. That included the joint venture in Nigeria where millions in bribes led to the 2013 DOJ action under the Foreign Corrupt Practices Act. Much of the bribe scheme took place in Texas, where the prosecution was centered.
- Assessing each of the 200 remaining entities for risk, prioritizing them, and implementing 13 new compliance reforms by priority. By the end of this quarter, Schneider said 60 percent of the organization will have reforms in place, with the remainder to be done by June.
- Implementing a new code of conduct and communicating it through the 200 entities.
- Adding resources. Schneider now has 102 lawyers for both legal and compliance. He also has 35 compliance managers spread around the globe, where previously managers were only in Germany, plus 10 compliance investigators. Bilfinger also redesigned and added staff to the audit department.
- Incentivizing integrity. Bernhardt explained that a person’s level of integrity is used as a “multiplying factor” on compensation. The higher the integrity level, the higher the compensation. Conversely, a lack of integrity could cost an employee.
- Setting the tone at the top. The company supervisory board, much like a board of directors, has compliance at the top of every board meeting agenda. Schneider said compliance has a direct reporting line to the supervisory board as well as to the executive board, made up of the CEO, the CFO and Bernhardt.
According to the article, the price tag for all of this was approximately $250 million ($124 million in outside costs to upgrade compliance, plus another $124 million for internal costs such as more employee and updated IT systems).
Proves, once again, that settlement amounts in an FCPA enforcement action are often just a minor component of the overall financial consequences for companies resolving enforcement actions. (See here for the article “FCPA Ripples”).
My Two Cents
This recent Wall Street Journal Risk & Compliance post notes that “Accenture has unleashed a flood of visits to its code-of-business-ethics website with a chatbot that lets staff answer compliance questions without plowing through lengthy documents.” The company’s general counsel and chief financial officer explains:
“On our code of business ethics website, there’s a bot interface on it, and it’s mobile-enabled as well. We have over 2,000 visits a week, up 20 times from before we launched the bot. Employees are accessing it on a daily and weekly basis, which solves one of the problems we wanted to fix. Ethics and compliance, if you just look at the external environment in today’s world, is becoming increasingly broad and increasingly complicated. Investors, board members and other constituents are demanding that companies step up and behave ethically in ways that are beyond traditional compliance concerns, such as with social responsibility. Employees are also asking more and more questions beyond the areas of traditional compliance. And, particularly, our population of employees, which includes a lot of millennials and those younger, want to work for a company that is ethical, committed to ethics and provides them real-time tools to behave ethically. What the chatbot does is rather than giving employees a lengthy document or forcing them to search for answers, does all that work for them and provides them with answers or points them in the right direction to get those answers.”
My own two cents.
Sounds like just another category of information the DOJ and SEC will seek to review when a company is under scrutiny.
Is a ChatBot providing any substantive information / guidance that was not provided before?
Are these exchanges archives? If not, how does this intersect with the blurb in the recent DOJ FCPA Corporate Enforcement Policy “Appropriate retention of business records, and prohibiting the improper destruction or deletion of business records, including prohibiting employees from using software that generates but does not appropriately retain business records or communications.”
Can a reality TV show discourage corruption? I doubt it, but that is the question posed by this Economist article.
“In this reality television show [Integrity Idol], honest civil servants working in corrupt countries compete for glory, fame and, occasionally, a live chicken. The show is a hit: over 10m people have watched it and more than 400,000 have cast their votes in favour of their Integrity Idols. “Integrity Idol” started in Nepal in 2014 and has since spread to Pakistan, Mali, Liberia, Nigeria and South Africa.”
The most recent edition of the always informative FCPA Update by Debevoise & Plimpton is here.
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