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INSIDE: THE CEO OF PRUDENTIAL CORPORATION ASIA ON ETHICAL CULTURES GOOD. SMART. BUSINESS. PROFIT.
Essential reading for Directors, CEOs, General Counsel and Ethics & Compliance Professionals who see opportunity in ethical leadership
Essential reading for Directors, CEOs, General Counsel and Ethics & Compliance Professionals who see opportunity in ethical leadership
Cover Story p. 38
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FEATURE ETHISPHERE Magazine // Quarter 03 // 2013 // Ethics in Asia
TURN TO PAGE 76
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ETHISPHERE Magazine // Quarter 03 // 2013 // Ethics in Asia
SPEAKING UP From The Top // PAGE 06
MOUTHING OFF Letters to the Editor // PAGE 08
BY THE NUMBERS The Facts and Figures for this Quarter // PAGE 09
THE GOOD AND THE BAD Paper Bags and Profit Propellers // PAGE 10
COMPLIANCE & ETHICS The Road Less Traveled // PAGE 12 Sustainability Culture // PAGE 14 The Ticking Clock // PAGE 16 What Would Kimberley Do? // PAGE 24 Are Compliance and Ethics the Same? // PAGE 24
GLOBAL COMPLIANCE Global Compliance: Cambodia // PAGE 34
THOUGHT LEADERSHIP An Interview with Kelli Watts // PAGE 28 An Interview with Barry Stowe // PAGE 30 Ethics and Redemption? // PAGE 32
BRIBERY & ANTI-CORRUPTION The Nickle or Not? // PAGE 56 FCPA Counselor // PAGE 58 The New Chinese Checkers // PAGE 60
THE EVENT CALENDAR The Schedule // PAGE 76
THE FINAL WORD Asia Ethics Summit // PAGE 77
ISSUE INDEX Names and Companies in this Issue // PAGE 80
IF YOU WERE TO READ THIS ENTIRE EDITION OF ETHISPHERE ON ASIA ETHICS COMPLIANCE, YOU MIGHT SPEND SIXTY MINUTES PAGING THROUGH THIS ARTICLE AND MANY OTHERS. DURING THAT HOUR, OVER $100 MILLION IN BRIBES MAY HAVE BEEN PAID AROUND THE WORLD. ETHISPHERE \\ 2013 \ Q3 03
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EXECUTIVE EDITOR
Alexander F. Brigham EDITOR-IN-CHIEF
CREATIVE DIRECTOR
Stefan Linssen
Cory Michael Skaaren
MANAGING EDITOR
Aubrie Artiano CONTRIBUTORS
Brad Brooks-Rubin, Frank Brown Frank Bucaro, Eric R. Carlson Gary DiBianco, Nathaniel Edmonds Warren Feldman, Thomas Fox Khalil Gharbieh, Bradley Klein Martin Rogers, Charles Ross Mara V.J. Senn, Dmitriy Shakhnevich Kenneth Shropshire, Barry Stowe Robert W. Tarun, Emilio Tenuta James Wadham, Kellie Watts Oliver F. Wiliams , Samuel M. Witten
PUBLICATION DESIGN
Skaaren Design ILLUSTRATIONS & ART
RJ Matson (cover) Steve Tansley (special feature) Cory Michael Skaaren (editorial)
The conversation continues at www.ethisphere.com FUTURE RANKINGS Nominate your company for any and all of our rankings, awards and recognitions. If you want to nominate a company for the 2014 World’s Most Ethical Companies, or the 2014 Attorneys Who Matter, go to: www.ethisphere.com
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OUR MISSION STATEMENT The Ethisphere® Institute is an independent center of research, best practices and thought leadership that promotes best practices in corporate ethics and compliance and enables organizations to improve governance, mitigate risk and enhance relationships with employees, business partners, investors and the broad regulatory community. Ethisphere evaluates and benchmarks compliance and governance programs, honors superior achievement through its World’s Most Ethical CompaniesTM recognition program and publishes Ethisphere Magazine. Ethisphere is also the leading provider of independent verification of corporate ethics and compliance programs that include: Ethics Inside® Certification, Compliance Leader VerificationTM and Anti-Corruption Program Verification TM.
The opinions expressed in the magazine are those of the authors, not the printer, sponsoring organizations or the Ethisphere Institute.
The Ethisphere Institute has opened the survey questionnaire for the 2014 World’s Most Ethical Companies designation. The coveted World’s Most Ethical (WME) Companies designation recognizes those organizations who truly go beyond making statements about doing business “ethically” and demonstrate real and sustained ethical leadership within their industries. In its eighth year, Ethisphere anticipates a record number of applicants for the World’s Most Ethical (WME) Companies designation and will host three, 20-30 minute webinars to describe the application process and provide insight into what the designation means for companies around the globe. Events will include: • October 10, 2013 // 1:00 p.m. EDT // World’s Most Ethical Companies: Demystifying the Application Process • October 22, 2013 // 1:00 p.m. EDT // What It Means to Be a World’s Most Ethical Company • November 7, 2013 // 1:00 p.m. EST // What the World’s Most Ethical Companies Have in Common To learn more about or register for the upcoming event series, visit Ethisphere’s event page. Companies can also nominate themselves for 2014 World’s Most Ethical Companies consideration by going to: www.ethisphere.com.
Read more on the topics discussed in this issue by going to: WWW.ETHISPHERE.COM
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DEAR READERS We’ve increasingly heard from our readers that they appreciate the global focus of Ethisphere Magazine, with regular features such as “Global Compliance,” in which experts weigh in on the ethics and compliance challenges in countries around the world. But we also hear that “more” is always needed. It’s for that reason that this issue of Ethisphere focuses on Asia, and particularly focuses on what ethics and compliance officers need to know in order to ensure their companies’ programs, policies and procedures are appropriate and effective for their Asian operations. This issue features a number of experts, including academics, CEOs, white collar attorneys, NGO leaders and others providing guidance to readers on what they can expect when building an effective culture of ethics in key Asian markets. The discussion will continue in person on December 4th and 5th when Ethisphere and Thomson Reuters will host the first Asian Ethics Summit in Hong Kong. The event, similar to this issue, will highlight leading experts – including panels of CEOs, General Counsel, Compliance and Ethics Officers and outside attorneys – discussing the critical ethics and compliance challenges that companies face when doing business in Asia, with a particular focus on China. And of course the Summit’s faculty will also share lessons learned and best practices for creating an effective ethics programs. For those of you interested in attending the Asia Ethics Summit, and continuing the discussion from this issue of Ethisphere, I encourage you to go to the event’s website at www.asiaethicssummit2013.com to learn more. As always we appreciate the thoughts and feedback of our readers. If you have further insight, or lessons, to share on compliance and ethics in Asia, please don’t hesitate to share with us by going to our website at www.ethisphere.com. Remember: Good. Smart. Business. Profit.
Stefan Linssen Editor-in-Chief Ethisphere
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I BELIEVE MY SUBSCRIPTION TO YOUR PUBLICATION HAS CONCLUDED. HOW CAN I RE-SUBSCRIBE?
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QUARTER 02 // 2013
INSIDE: THE GC OF HOLLAND AMERICA LINE ON ENSURING GLOBAL COMPLIANCE
“I’m interested in speaking at one of your events, how do I learn more?” - Matthew T.
GOOD. SMART. BUSINESS. PROFIT.
Essential reading for Directors, CEOs, General Counsel and Ethics & Compliance Professionals who see opportunity in ethical leadership
Essential reading for Directors, CEOs, General Counsel and Ethics & Compliance Professionals who see opportunity in ethical leadership
Ethisphere response: Matthew T., great question. We are always looking for leaders within our industry to speak at upcoming events. Please send a brief note, including personal bio and area of expertise/interest, to info@ethisphere.com. Additionally, visit our 2014 Global Ethics Summit page, www.globalethicssummit2014.com and click on the Speakers tab. 2014 World’s Most Ethical Companies
“When will you begin accepting nominations for the 2014 World’s Most Ethical Companies?” - Stephanie W. Ethisphere response: Hi Stephanie W., nominations for our 2014 World’s Most Ethical Companies ranking are currently being accepted! To learn more about nominating your company, please visit www.ethisphere.com/ worlds-most-ethical. After filling out the form, you will be sent a notice prompting you to complete the survey. Ethisphere Magazine Cover Story p. 52
“I believe my subscription to your publication has concluded. How can I re-subscribe?” - Stephanie W.
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Ethisphere Events
Ethisphere response: John H., we’re thrilled that you wish to continue your subscription. Please visit www. ethisphere.com and click on the Magazine tab. There you will find the option to subscribe. Follow the prompts and you’ll be on our distribution list for the 2014 Quarter 1 issue! 9/4/13 2:07 PM
Write Us At: info@ethisphere.com or at Ethisphere Magazine, 6263 N. Scottsdale Road, Suite 205, Scottsdale, AZ, 85250
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BY THE NUMBERS 17: The former chief executive of DHB Industries Inc., a supplier of body armor to the U.S. military was sentenced to 17 years in prison for his involvement in a $200 million fraud ploy. 5: A recent report reveals that companies lose 5% of its revenues to fraud every year. According to the 2012 Report to the Nations of Occupational Fraud and Abuse, from the Association of Certified Fraud Examiners (ACFE), one-fifth of occupational fraud cases resulted in at least $1 million in losses.
39: Bank of America has agreed to pay $39 million this quarter to women who worked in its Merrill Lynch operation, to settle a discrimination suit brought forth by a number of female employees.
1: In the first ever pro-plaintiff ruling in a monopoly case in China, a medical device manufacturer will pay $86,000 for requiring its Chinese distributor to agree and abide to a price floor.
22: Becton Dickenson & Co. has agreed to settle antitrust allegations for a whopping $22 million over accusations that BD monopolized the hypodermic needles market. ETHISPHERE \\ 2013 \ Q3 09
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PAPER BAGS AND PROFIT PROPELLERS Paper Bags are bestowed upon companies and organizations that are involved in or have attempted to cover up scandals, violations or other embarrassing events.
Profit Propellers are awarded to companies and organizations that have recently done something interesting, innovative or brave in the area of ethical leadership.
Motorola’s Solutions Foundation has been crowned with a profit propeller for its recent announcement of its 2013 Innovation Generation grants, which will provide a total of $4.4 million to more than 100 organizations that focus on science, technology, engineering and math. The subjects and careers are especially geared towards girls and underrepresented minorities.
Grocer chain Safeway, Inc. is rapidly losing air in this paper bag, after settling a $600k fine over clean air violations with the US Environmental Protection Agency. Violations included leaks of HCFC-22 from its refrigerators, a heat-trapping gas that contributes to climate change.
Chevron has found itself once again in a paper bag, this time for another bribe in relation to its RICO trial. Lawyers and Ecuadorian villages have turned in proof to the U.S. court that the oil conglomerate attempted to bribe an Ecuador judge with $1 million to secure favorable testimony.
The Coca-Cola Company secured itself a profit propeller this quarter for its commitment with the project EKOCENTER™ - a kiosk designed to improve the well-being of 20 different communities by the end of 2015. Coca-Cola, alongside DEKA R&D, aim to provide safe drinking water to communities through means of a water purification system, Slingshot™, which allows communities the opportunity to be more sustainable.
CVS Caremark Charitable Trust has earned a profit propeller this quarter for its generous donation of more than $10,000, in support of Colorado’s destructive flash floods. The donation will go towards the families and communities that have been most affected by the floods. The rainstorms and subsequent flooding destroyed nearly 20,000 homes, washing out roads, bridges and power lines.
General Mills, one of the world’s leading food companies, earns a profit propeller as part of its sustainable sourcing program announced this quarter a four-year commitment with supplier partner AgroMantato to provide $1.1 million to help artichoke farmers in Peru increase production and improve profitability.
Do you have an example of a recent news story that you think should be awarded either a Profit Propeller or a Paper Bag in Ethisphere? Send your ideas to aubrie.artiano@ethisphere.com. 10 Q3 \ 2013 \\ ETHISPHERE
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COMPLIANCE & ETHICS Road Less Traveled...12 // Sustainability...14 // Ticking Clock...16 // Kimberley...19 // The Same?...24 2012 provides a helpful compilation of the those agencies’ view of potential liability under FCPA following acquisitions and investments.Title Where a non-U.S. company has not previously been subject to U.S. jurisdiction, acquisition by a U.S. issuer or company does not confer jurisdiction for preacquisition conduct. (See FCPA Guidance at 31.) However, post-acquisition bribery payments by the acquired company would be subject to potential investigation and prosecution (Id. at 32), not on a theory of successor liability but on a theory that the payments were violations by the U.S. entity.
THE ROAD LESS TRAVELED
Risk Based Anti-Corruption Diligence By Gary DiBianco, Warren Feldman & Bradley Klein This article contains information regarding the following topics: STRATEGY
In May 2013, communications technology manufacturer Harris Corporation disclosed in its periodic financial reports that it was cooperating with the U.S. Securities and Exchange Commission and U.S. Department of Justice in relation to potential anti-corruption issues in the China operations of Carefx, a company that Harris acquired in 2011. Harris’ disclosure described that following closing of the transaction, and in connection with an audit of Carefx China operations, Harris “became aware that certain entertainment, travel and other expenses in connection with the Carefx China operations may have been incurred or recorded improperly.” The disclosure further stated that in investigating the issues, Harris “learned that certain employees of the Carefx China operations had provided pre-paid gift cards and other gifts and payments to certain customers, potential customers, consultants and government regulators.” Harris voluntarily reported these issues to the SEC and DOJ, which “initiated investigations with respect to this matter.” (Harris Corp. Form 10-Q, May 2, 2013, at p. 49). 12 Q3 \ 2013 \\ ETHISPHERE
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The Harris disclosure highlights the importance of anti-corruption due diligence in connection with cross-border transactions. Indeed, transactions in Asia present particularized risks: pre-signing or preclosing access to a target’s operations may be limited as a result of logistical or legal issues; corporate history and ownership may be difficult to trace and confirm; and the role of company founders or promoters and their track record may not be fully transparent. State secrecy laws or data privacy concerns may limit the availability of relevant data. While even thorough diligence is not guaranteed to identify specific acts of past misconduct, a thoughtful, well-planned and well-executed diligence process will identify structural risks and compliance weaknesses that can be addressed in transaction agreements and in post-closing compliance enhancements. Framework For Successor Liability. The Foreign Corrupt Practices Act (“FCPA”) Guidance issued by the U.S. Department of Justice (DOJ) and U.S. Securities and Exchange Commission (SEC) in November
Where a target company was subject to the FCPA prior to a transaction, the DOJ and SEC may have jurisdiction to prosecute the predecessor company on a theory of direct liability or the acquiring company on a theory of successor liability. (See FCPA Guidance at 33). Where the acquirer has conducted robust diligence and sought to implement post-acquisition controls, the FCPA Guidance indicates that the DOJ and SEC are unlikely to prosecute the acquirer for pre-acquisition conduct on the basis that the acquirer sought to understand fully any anti-corruption risks and to remedy them appropriately. (Id.) Where both an acquirer and target were subject to the FCPA pre-transaction and improper conduct occurs at the acquired company post-transaction, the DOJ and SEC take the position that they can – and likely would – prosecute the acquirer. (See FCPA Guidance at 33 – 34). The DOJ and SEC take the position that the acquirer is familiar with its own (and the target’s) industry and risks, and thus is in a position to understand and remedy risks in its own operations as well as those of the acquired entity. (The FCPA Guidance is available at: www.justice.gov/criminal/fraud/fcpa/guidance/). In most transactions that have a degree of multi-jurisdictional corruption risk, it will be appropriate to: (1) include risk-based diligence procedures in the overall diligence plan; (2) implement post-closing enhancements to the target company’s compliance program; and (3) ensure education of management and directors on anti-bribery compliance. In addition, it is appropriate to tailor the diligence to the transaction structure. For example, diligence in connection with a 100% acquisition is likely to be more elaborate than diligence for a minority investment. In considering joint venture partnerships, a company should carefully assess the potential governance and board structures, and tailor diligence to gain comfort regarding the entities and personnel who will partner in the venture. Finally, where possible, it is beneficial to secure financial guarantees against past liWWW.ETHISPHERE.COM
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COMPLIANCE & ETHICS
REGULATORS EXPECT THAT APPROPRIATE CONTROLS WILL BE INTRODUCED ON “DAY ONE” FOLLOWING CLOSING.
abilities, to structure financial incentives to encourage enhancements or remedial measures, and to use contractual protections to promote ongoing compliance. Goals of Diligence. In light of the above framework regarding successor liability, transactional diligence has several goals. First and foremost, to assess the risks of questionable payments, improper accounting entries, or controls weaknesses that could create liability. Second, as an exercise of due care. If specific issues are not discovered pre-transaction but arise later, due diligence procedures will form the basis for arguments that no liability should be imposed on the acquirer/investor after the transaction is completed. Third, to identify specific control enhancements or remedial steps to implement upon closing to minimize forward-looking risks. Risk Profile. Established practices and guidance from U.S. and European regulators confirm that a risk-based approach to due diligence is appropriate, with diligence resources focused on high risk interactions with government customers and regulators. The diligence risk assessment should take into account the specific characteristics and risks of the target’s geographic profile and industry risks. Vigorous anti-corruption enforcement in the last several years has created a body of settlements from which risks can be gleaned. In the Asia-Pacific region, for example, settlements have identified improper payments in the areas of travel, meals, entertainment and gifts; improper payments through distributors to secure sales; and improper payments through agents, consultants and other third party vendors to secure regulatory approvals or to obtain business. Similarly, parties operating in the industries that have been the focus by anti-corruption authorities – such as oil and gas, freight forwarding and logistics, and pharmaceuticals and medical devices – should acWWW.ETHISPHERE.COM
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count for potential regulatory scrutiny in evaluating the risk profile of a transaction. Due Diligence Procedures. Anti-corruption due diligence usually can be performed, at least initially, in tandem with standard economic and financial due diligence requests and should focus on potentially high risk areas of a business. Because access to information during the diligence process is almost always more limited than in an investigation, risk should be assessed based on compiling information from several sources. In particular, information can be gathered and compiled from (1) data room materials; (2) financial ledger analysis; (3) management interviews; and (4) publicly available information on both the target and third parties retained by the target, such as sales consultants, agents, and distributors. In appropriate circumstances, an acquirer may seek to involve forensic accountants or investigators if there are indications of potential improper payments. Risk areas can be explored by seeking information regarding internal controls environment and history; sales to government entities; government subsidies, tax breaks or other benefits; regulatory relationships; travel, meals and entertainment expenses; charitable and political contributions and activity; third party relationships, including the use of consultants and agents. Timing of Anti-Corruption Due Diligence Procedures. Ideally, an acquirer or investor would have comprehensive pre-signing access to sufficient information to complete reasonable diligence. In reality this is rarely the case, either because of commercial pressures (including competitive bidding) legal restrictions (access to confidential information) or a combination of both. The DOJ’s 2008 Opinion Procedure Release to Halliburton Corporation (reaffirmed in the FCPA Guidance) describes a possible procedure for post-closing due diligence (and voluntary disclosures) in the context of a transaction where pre-closing due
diligence was not feasible. (See DOJ FCPA Opinion Procedure Release 08-02 (June 13, 2008)). The contemplated target operated in a number of jurisdictions with a high corruption perception index, and at the time Halliburton was under active DOJ and SEC investigation for its activities in many of these same regions. In this circumstance, Halliburton proposed, and the DOJ endorsed, a 180day post-closing period to conduct staged post-acquisition due diligence, and to selfreport any corruption, accounting, or controls violations identified. The 180-day post closing period set out in this Opinion Procedure Release has become somewhat of a benchmark for post-closing diligence and controls remediation, although any post-closing voluntary disclosures to regulators by an acquirer or investor should be carefully considered on a case-by-case basis. “Day One” Compliance. Even if no problematic issues are identified in pre-transaction due diligence or post-closing review, regulators expect that appropriate controls will be introduced on “day one” following closing of a transaction. In the merger context, and to the extent permitted by antitrust laws, parties to a transaction may want to begin outlining a post-closing compliance policy framework and organizational structure immediately after signing a letter of intent. Key elements of such a program include: (1) written policies that address governing anti-corruption laws; (2) revised reporting structures; (3) compliance resources for sales personnel and other relevant employees; (4) training; and (5) an audit function to review compliance. Post-closing compliance also should focus on review and enhancement of controls over third-party relationships. It may be appropriate, for example, to execute contract amendments or new contracts to incorporate appropriate anti-corruption representations and warranties and audit rights. Conclusion. In light of increasing anti-corruption enforcement activity in Asia, anticorruption due diligence should be considered as an important component of an acquisition or investment plan, and should be well documented and carefully executed.
Expert Biography Gary DiBianco, Partner, Skadden, Arps (London); Warren Feldman, Partner, Skadden, Arps (New York); Bradley Klein, Counsel, Skadden (Beijing). Gary, Warren and Brad all practice in Skadden’s white collar and government enforcement litigation group and regularly handle anti-corruption matters in Asia and elsewhere.
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COMPLIANCE & ETHICS The challenge, then, was to bring the two together, drawing from the best practices of each to create a robust, unified focus and approach. While weaving sustainability into every fiber of the company’s culture, operations and service is the ultimate goal, the journey thus far has yielded lessons that others, faced with the challenge of integrating sustainability efforts, may find applicable. LESSON 1: Leverage the power of purpose and vision
THE INTEGRATION OF TWO SUSTAINABILITY CULTURES
Lessons for Success When Companies Merge Written by Emilio Tenuta This article contains information regarding the following topics: STRATEGY
When companies merge, executives traditionally focus on integrating human resources, finance, procurement, R&D and other functional areas. When Ecolab and Nalco merged in late 2011, senior leaders followed tradition, but they also placed top priority on melding the two organizations’ sustainability efforts. Their ultimate goal: Make sustainability integral to culture, operations and service. The journey continues, but lessons learned thus far may be applicable to others faced with integrating sustainability efforts. When Ecolab and Nalco merged in late 2011, there was no question that sustainability would be an integral cultural value and strategic priority of the new $11 billion company. Before the merger, both Ecolab, the global leader in cleaning and sanitizing, and Nalco, the global leader in water treatment, had made sustainability a key focus of their operations – and a vital element of 14 Q3 \ 2013 \\ ETHISPHERE
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their customer value proposition. With the merger, senior leaders made clear that, going forward as a combined Ecolab, a single, unified sustainability effort would be a top priority. Although aligned in intent, the two companies’ sustainability programs were hardly identical. Each had its own metrics, terminology, and, in part, its own focus. Both had long recognized that their most significant environmental impact lay in providing products and services to help customers reduce water and energy consumption. But internally, Nalco, which provides water management technologies to manufacturing, energy, paper, mining and other industrial companies, had focused on reducing energy use at its manufacturing plants. And Ecolab, which offers cleaning and sanitizing products and services to hospitality, healthcare, and food and beverage customers, had made reducing fleet and facility greenhouse gas emissions a main priority.
Seemingly all successful change begins with a meaningful purpose and a clear vision – helping employees, customers and other constituents understand why the organization exists and what it envisions for the future. Recognizing the power of a clear purpose and bold vision, senior Ecolab and Nalco leaders worked closely before the merger to develop a purpose statement for the combined company. Through the statement, they sent a strong message about sustainability’s centrality: “We help make the world cleaner, safer and healthier,” they wrote, “protecting people and vital resources.” The vision they set for the company also reflected sustainability’s importance: “Ecolab will be a global leader in providing clean water, safe food, abundant energy and healthy environments.” By emphasizing sustainability in both purpose and vision, the company’s leadership gave added meaning to the day-to-day work of the merged company’s 40,000 employees – and provided them with inspiration to make a difference. LESSON 2: Develop a shared approach to achieving greatest impact In developing a sustainability approach, it’s important first to determine the greatest opportunity for positive impact. Many organizations make the greatest environmental impact upstream by setting high standards for suppliers, or internally by improving their own operations. Both Ecolab and Nalco knew their greatest impact was downstream, helping their customers conserve natural resources. With that core understanding, the challenge was to develop a shared approach for delivering sustainability benefits to customers. During the integration period, senior leaders from both companies agreed on a “total impact approach,” a holistic view of the environmental, economic and social impacts of the company’s products and services on customers. Going forward, each of the company’s businesses would need to consider how each of its solutions would increase efficiency, minimize use of natural resources and improve safety – from sourcing, manufacturing and use to disposal. LESSON 3: Demonstrate that sustainability is a priority Immediately after the merger closed, dedicated workstreams were implemented with WWW.ETHISPHERE.COM
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COMPLIANCE & ETHICS the ambitious goal to integrate people, policies, systems and operations in the newly combined organization within 12 months. Notably, of the hundreds of possible workstreams that could have been identified, sustainability was one of just 22 given top priority – equal standing with research and development, manufacturing, human resources and finance. So critical were the prioritized areas that they were required to report progress quarterly to the company’s chief executive officer. Clearly, by making sustainability a top priority, leadership bestowed it special status – and underscored its importance in the new organization. The sustainability integration team, made up of representatives from both companies and representing supply chain, safety, regulatory, corporate marketing and research, development and engineering, worked to define priorities, set common policies, synchronize reporting and metrics and design how the company would organize to promote sustainable practices across the organization. One outcome was bringing members of both company’s sustainability organizations together into a new, combined Office of Sustainability, charged with developing a blueprint for embedding sustainability practices throughout the company. Each sustainability team member brought a distinct area of expertise -- similar to that represented on the integration team. LESSON 4: Embed a sustainability mindset As taxing as it can be to define shared goals, set a common direction and synchronize policies, the long-term challenge is to embed a sustainability mindset – from senior leadership to the front line. Because Ecolab business unit leaders are held accountable for performance on many metrics, including sustainability, their role in integrating sustainability into day-today operations was critical. Thus, it was important to engage them in ongoing, meaningful ways. To do so, the corporate sustainability office organized an executive advisory team, made up of top leaders from business units and functions who meet monthly. Members of the group have worked together to define corporate-wide goals – to reduce water usage, greenhouse gas emissions and waste. They’ve led their respective teams in creating a sustainability mindset among front-line and middlemanagement employees. And they have regularly provided strategic direction, served as a sounding board for corporateled initiatives and offered insight into progress against goals. LESSON 5: Make sustainability part of the culture To make sustainability integral to daily routines and business practices, it needs to become part of the culture. As anyone who has been through a merger knows, getting culture “right” is critical but tricky. Ecolab and Nalco recognized this and imWWW.ETHISPHERE.COM
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ECOLAB, WHICH OFFERS CLEANING AND SANITIZING PRODUCTS AND SERVICES, HAD MADE REDUCING FLEET AND FACILITY GREENHOUSE GAS EMISSIONS A MAIN PRIORITY.
mediately began to make it clear that sustainability is part of “who we are.” Values the two organizations held in common before the merger became the foundation for a common set of shared sustainability principles. Shared sustainability goals were announced. Special activities, aimed at engaging employees globally in sustainability-focused events, such as World Water Day and World Environment Day, were sponsored. Special recognition was given – through global, internal communications channels – to employees who had made outstanding contributions to protect water and other resources. Relationships with non-governmental organizations and other stakeholders were expanded after extensive benchmarking of peer companies, customers and suppliers demonstrated the positive impact of engagement. The first combined sustainability report was published and promoted within the company. These and other activities – along with an ongoing focus on achieving sustainability targets across business operations – have helped shaped a culture in which employees know that sustainability matters. Clearly, integrating two sustainability programs requires time and work – more than might be expected. It also requires buy-in and engagement at every level: The front line, middle-management and senior leaders are critical, and should be engaged as soon in the change process as possible. The importance of metrics – in quantifying impact on customers and measuring progress against goals – also cannot be over-
emphasized. But most critical is leadership – defining a vision, articulating goals and commitment, making sustainability a top priority and demonstrating resolve to meet sustainability targets in the face of other pressing business challenges. The integration of the combined company’s sustainability programs has provided positive results for Ecolab, and the company continues to be recognized for its initiatives. In 2013, Ecolab was named to Ethisphere Institute’s list of the World’s Most Ethical Companies for the seventh consecutive year, and in September, Ecolab was named to the CDP Global 500 Climate Performance Leadership Index and CDP Global 500 Climate Disclosure Leadership Index, one of only 26 global companies to be named to both indices in 2013.
Expect Biography Emilio Tenuta is Vice President of Corporate Sustainability for Ecolab. He has held technical and marketing management positions serving various industries including food and beverage, pharmaceutical, healthcare, primary metals and automotive.
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COMPLIANCE & ETHICS
THE TICKING CLOCK
Companies Prepare for the SEC Conflict Minerals Rule Written by Samuel M. Witten, Mara V.J. Senn, & Khalil Gharbieh This article contains information regarding the following topics: STRATEGY + LEADERSHIP + WORKFORCE Some companies that file with the SEC were no doubt disappointed that a Washington, DC federal court reviewing the SEC’s Dodd-Frank conflict mineral disclosure rule recently upheld the new regulation. The case, brought by the National Association of Manufacturers, the Business Roundtable, and the U.S. Chamber of Commerce, argued that several of the SEC rule’s provisions were arbitrary and that the rule and Dodd-Frank statute violated the First Amendment. Since the SEC rule still stands, companies’ first disclosure reports are due to the SEC just eight months from now, in May 2014. Although the plaintiffs have appealed the lower court’s ruling in favor of the SEC, briefing will not be complete until midNovember 2013, with oral argument to follow. Thus, companies should assume they need to file the required disclosures with the SEC by May 31, 2014, as required by the original 2012 rule. 16 Q3 \ 2013 \\ ETHISPHERE
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The Dodd Frank Act’s conflict minerals provision, Section 1502, was intended to reduce the flow of funds from the extraction and sale of four minerals that have been used to finance armed conflict in the DRC and surrounding countries by increasing accountability for parties involved in the supply chains for those minerals. The SEC’s rule will require an estimated 6,000 companies that file annual reports with the SEC to review their supply chains and publicly disclose their use of the four minerals -- tantalum, tin, tungsten, and gold -- if any of those minerals are “necessary to the functionality or production of a product” that they manufacture or contract to manufacture. While many industries are affected, manufacturers of electronics, such as mobile phones, digital cameras, and computers, and companies in the automotive, construction, medical equipment, and aerospace sectors in particular utilize large quantities of the four minerals -- as do com-
panies that use electronics or otherwise include the four conflict minerals in their products. The SEC itself has estimated that the rule will impose an initial financial burden of approximately $3-$4 billion for companies to develop their compliance programs, and an additional $207-$609 million annually for ongoing compliance. The final rule requires all SEC filers to undertake an analysis that consists of as many as three steps. Those steps -- and our tips on what companies should be doing now to implement their requirements -- are as follows: STEP 1: Determine if your company is covered, i.e. whether your company manufactures or contracts to manufacture a product for which “conflict minerals” are necessary to the functionality or production of that product. “Conflict minerals” include gold, tin, tantalum, and tungsten, regardless of where they mined. WWW.ETHISPHERE.COM
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COMPLIANCE & ETHICS Share information within your company and develop a compliance plan. The rule is complex and determining whether your company is covered and, if so, how to address steps 2 and 3, may require inputs from many sections of the company, including the compliance, legal, and supply chain functions. ➢Analyze your company’s products to determine if they have conflict minerals and whether those minerals are necessary for the functionality or production of the product. Even if it appears obvious that your company is covered, such an analysis may help narrow the number of product lines for which it will need to perform supply chain inquiries. STEP 2: If your company does have products with necessary conflict minerals, it must conduct a “reasonable country of origin inquiry” (RCOI) to determine whether those minerals originated in the Democratic Republic of the Congo or any another Covered Country (Angola, Burundi, Central African Republic, the Republic of Congo, Rwanda, South Sudan, Tanzania, Uganda, and Zambia) and did not come from recycled or scrap sources. Review your company’s supply chain and decide how you will perform the RCOI. This will require inputs from your procurement and operations experts. It will also require you to decide whether you will rely entirely on first tier suppliers to provide information or whether you will also contact entities that your company does not have a direct relationship with, but which are closer to the minerals smelter or mine.
BY ANY MEASURE, COMPLIANCE WITH THE SEC’S CONFLICT MINERALS RULE WILL BE A CHALLENGE FOR ALL BUT THOSE FEW COMPANIES THAT START WITH A VERY CLEAR PICTURE OF THE COMPLETE SUPPLY CHAIN FOR THEIR RELEVANT PRODUCTS.
Begin engaging your company’s suppliers. In most cases it will be useful to inform your suppliers about the nature of the information you will need even before you make any formal requests. Determine the supplier questionnaire your company will use. Many companies have chosen to use the Electronic Industry Citizenship Coalition and the Global e-Sustainability Initiative’s Conflict Minerals Reporting Template. In addition, there are numerous software options companies can consider to help collect and organize information. STEP 3: If, after its RCOI, a company knows or has reason to believe that its conflict minerals originated in the Covered Countries and did not come from scrap or recycled sources, it must exercise due diligence on the source and chain of custody of its conflict minerals. It must also produce a Conflict Minerals Report, to be filed alongside its SEC disclosure, describing such due diligence measures, unless its due diligence ultimately establishes that its conflict minerals did not come from the Covered Countries or did derive from scrap or recycled sources. The aim of such required measures is to trace the minerals’ path from mine to smelter or refiner in orWWW.ETHISPHERE.COM
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der to determine whether the minerals financed or benefitted armed groups. ➢Prepare to obtain an independent private sector audit, should one become necessary. A company’s Conflict Minerals Report must be audited -- unless the company qualifies for the rule’s temporary exemption currently available to companies that are unable to determine whether the relevant minerals in their products financed armed groups in the Covered Countries. Start a dialogue with an auditing firm now, so that your company is prepared should an audit be necessary prior to May 31, 2014. LOOKING AHEAD Compliance with these three steps will require companies to deepen their understanding of their supply chains and sourcing practices, which means they will need
to pursue inquiries and analyses not necessarily relevant to their normal business practices or needs. In this respect, the rule and the SEC’s lengthy explanation of its reasoning do not answer all questions, and companies will have to exercise their own judgment on key issues. For example, SEC has required a “reasonable” supply chain inquiry and “reasonably reliable” representations from suppliers. Similarly, the SEC expects reports from companies that “contract to manufacture” products that are covered under the rule, but has provided limited guidance on what this phrase means. By any measure, compliance with the SEC’s conflict minerals rule will be a challenge for all but those few companies that start with a very clear picture of the complete supply chain for their relevant products. Companies will have to show a degree of ETHISPHERE \\ 2013 \ Q3 17
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COMPLIANCE & ETHICS Expert Biographies
COMPANIES WILL HAVE TO SHOW A DEGREE OF SERIOUSNESS OF PURPOSE.
seriousness of purpose and thoroughness in approaching compliance, document their work and decision points, and be prepared to answer questions from the public and the SEC about the steps they took to comply. Companies in trade associations will want to monitor any relevant guidance and many will seek to know as much as possible about what similarly-situated companies are doing. Although eight months remain before the SEC’s first compliance deadline, the unprecedented and time-intensive nature of the new reporting obligations mean, unfortunately, that the pressure is on now to begin devising a thorough and well thoughtout program.
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Facts & Figure
Roughly $30,000 worth of gold can fit in a pocket and around $700,000 in a briefcase, estimates The Enough Project, the rights group that specializes in conflict minerals in Congo and Sudan.
Arnold & Porter LLP counsel Samuel M. Witten advises multinational companies on issues including compliance with the SEC conflict minerals reporting requirements and the Foreign Corrupt Practices Act. He served for 22 years at the US State Department, including as Deputy Legal Adviser (equivalent to Deputy General Counsel) and Principal Deputy Assistant Secretary of State. He may be reached at Samuel.Witten@aporter. com or (202) 942.6115. Arnold & Porter LLP partner Mara V.J. Senn regularly represents clients before the SEC and DOJ in FCPA cases and advises clients on FCPA Compliance Programs. She regularly leads multijurisdictional corruption internal investigations and responds to government inquiries and investigations in a wide variety of industry sectors and countries. She also advises companies on conflict minerals issues. She may be reached at Mara. Senn@aporter.com or (202) 942.6448. Arnold & Porter LLP associate Khalil Gharbieh is a member of the firm’s litigaiton group, focusing on complex civil litigation. He has also closely followed the SEC’s conflict minerals rulemaking and other recent developments at the intersection of law and corporate social responsibility. He can be reached at Khalil.Gharbieh@ aporter.com or (202) 942.5982.
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COMPLIANCE & ETHICS
WHAT WOULD KIMBERLEY DO?
What China’s Kimberley Process Could Tell the World Written by Brad Brooks-Rubin This article contains information regarding the following topics: STRATEGY + LEADERSHIP + WORKFORCE
“The Chinese Century,” as the New York Times Magazine framed it in a 2004 cover story, has been upon us since before the 21st century even began. And while the influence of the Chinese economy on the world in the past several decades is undeniable, understanding the goals and motivations of that economic activity is much more complex. 2014 could shine an unprecedented light on just those drivers. Few other than the diamond industry or attentive moviegoers who remember the closing scenes of Blood Diamond know about the Kimberley Process (KP). But even for those unfamiliar with the relatively obscure initiative designed to curb the flow of “conflict diamonds,” China’s role as next year’s chair could provide important signals on China’s thinking on a range of key issues, from natural resources management and development in Africa to the evolution of consumer consciousness toward “ethical” products, WWW.ETHISPHERE.COM
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the role of civil society and the thorny subject of unilateral and multilateral sanctions. Unlike other international forums where China’s periodic leadership is a mandatory element, such as when it serves as Security Council President, the KP Chairmanship is voluntary. And given some of the structural elements of the organization, explained below, the chair can have inordinate influence on the progress – or stasis – of a given year. Having volunteered to take the reins of the KP and understanding the authority that comes with the role, China hopefully has an agenda in mind. Whether and how that agenda unfolds can tell us much. KIMBERLEY PROCESS PRIMER First, it’s important to note a few basic points for the KP-uninitiated. Non-governmental organization and UN reporting demonstrated that the rough diamond trade helped to fuel conflicts in the late
1990s in Angola, the Democratic Republic of the Congo, Liberia and Sierra Leone. Estimates ranged from 4-15 percent of the global diamond trade at the time may have been in stones sold to fund these wars. Both because of the need to preserve consumer confidence in diamonds and to take a stand against such horrors, the diamond trade joined with governments and NGO reporting to develop a response. The South African government convened the first meeting in Kimberley, South Africa, in May 2000, and the Kimberley Process was born. Over the next 2.5 years, backed along the way by UN General Assembly Resolution 55/56 (December 2000), negotiators developed a universal certification system for all cross-border trade in rough diamonds that would exclude “conflict diamonds.” The Certification Scheme requires participating governments to develop an “internal controls” system to ensure that conflict ETHISPHERE \\ 2013 \ Q3 19
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ACCORDING TO THE KIMBERLEY PROCESS’ DEDICATED STATISTICAL WEBSITE, THE INITIATIVE GENERALLY OVERSEES $12-$14 BILLION IN PRODUCTION AND MORE THAN $50 BILLION IN EXPORT AND RE-EXPORT TRADE EACH YEAR.
diamonds, defined as rough diamonds sold by rebel movements or their allies to fund efforts to overthrow legitimate governments, are excluded from the trade. Each shipment of rough diamonds, whether produced in the country or being re-exported, must be accompanied by a certificate attesting to the conflict-free status. The system of government certification is then complemented by a “System of Warranties” developed by the umbrella organization the World Diamond Council and implemented by the industry through use of a warranty statement on transaction documents. The KP is not a treaty-based organization, but rather has a common “core document” that governments agree to implement. This commitment is backed by a World Trade Organization waiver that allows for a closed trading system; exports may only be made to other countries within the system. As such, the system is “voluntarily mandatory,” meaning that a country need not join, but must do so if any of its consumers or companies want to engage in the rough diamond trade. Similarly, exclusion from the KP results in exclusion from the global trade. As of mid-2013, there are 81 countries within the system, representing more than 99 percent of global rough diamond production and trade. According to the Kimberley Process’ dedicated statistical website, the initiative generally oversees $12-$14 billion in production and more than $50 billion in export and re-export trade each year. All of this is achieved without a headquarters, governing board, funding mechanism to support implementation, or, 20 Q3 \ 2013 \\ ETHISPHERE
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until 2012, any type of administrative secretariat. Rather, the system is headed by an annually-rotating chair, managed by a system of working groups that also include the industry and NGOs as non-voting observers, and dependent on the resources of individual countries to be enforced. Decisions within the KP are taken through consensus by unanimity, meaning that a single “no” vote can defeat a proposal. LIKE A DIAMOND, IS THE KIMBERLEY PROCESS ALSO FOREVER? Early growing pains were followed by real challenges. In recent years, the once largely-technical body has become increasingly politicized following high profile disputes. The first emerged when NGOs within the KP reported that Venezuela had failed to implement any semblance of an internal controls system. After two years of difficult negotiations, the country eventually decided in 2008 to “self-suspend” and remove itself from the system while it developed a new compliance program. Venezuela has failed to do so five years on, leaving the KP unsure of how to push further progress. A December 2012 Reuters article claimed Venezuela was mocking the KP through its inaction. More significantly, the KP struggled from 2009-2011 to develop a response to grave, government-led violence in Zimbabwe’s Marange diamond fields in late 2008 and early 2009. Although many in the KP initially advocated for an outright suspension of the country, China and others argued that this could not be done because violence initiated by governments does not fall
within the definition of “conflict diamond.” A specific monitoring system was eventually implemented for Zimbabwe, but it was fraught with difficulty, leading to accusations that the West was pursuing other agendas through the KP. The monitoring system proved effective over time, but led to debilitating rifts. In 2012, the U.S. chair introduced an updated definition of “conflict diamond” seeking to address perceived deficiencies in the original construction. The U.S. chairmanship in 2012 did witness the adoption of several reforms but left the key question of the “conflict diamond” definition unresolved. South Africa was selected to guide the initiative through 2013, its tenth anniversary. In November 2013, South Africa will host the Plenary, where it is expected modest gains will be made to address the implementation and enforcement of the initiative. But absent a surprising turn of events, KP reform efforts will likely remain on the table. Through the range of disputes described above, the role of the chair proved increasingly critical. When the KP chair was willing to step forward and pursue a strong agenda, results often ensued. When the chair avoided an issue, pursued its own specific interests or refused to push against perceived impositions on participant sovereignty, the divisions deepened. UNCOMFORTABLE BUT UNAVOIDABLE QUESTIONS These disputes have given rise to a number of essential, if uncomfortable, questions that arguably threaten the viability of WWW.ETHISPHERE.COM
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COMPLIANCE & ETHICS the initiative itself. For those working in sectors beyond diamonds, the themes behind the questions posed above are likely to be quite relevant: • Can concepts of “human rights,” which implicitly drove the creation of the KP, be incorporated in an explicit and binding manner into a multilateral system managed by governments? Can Western approaches to respecting and protecting human rights be squared with those elsewhere? • Do consumers actually care about the ethical origin of the products they purchase, or are their main concerns price and quality? Have consumers in newly-dominant markets such as China, India or the Middle East developed ethical consciousness yet? Will they?
THE CHAIR OF THE KIMBERLEY PROCESS PLAYS A CRITICAL ROLE IN SETTING THE AGENDA.
• How strongly are governments willing to respond to violations by other governments within a multilateral system, especially when such violations result from internal issues that go to the heart of national sovereignty? • As African economic fortunes rise, largely on the back of natural resource production, how do African governments exercise political control and influence? What role does the large-scale Chinese investment in Africa play in defining African political perspectives? When China assumes the helm on January 1, these questions will likely remain unanswered. ENTER CHINA: A GUIDE FOR THE POTENTIALLY PERPLEXED As indicated above, the chair of the Kimberley Process plays a critical role in setting the agenda for the year and responding to issues that emerge along the way. The chair hosts two meetings per year, and what those meetings achieve -- and how they are perceived by observers -- depends largely on what the chair seeks to accomplish. For those outside the KP looking for clues to their own sectors that could emerge during China’s chairmanship, here is a guide for the potentially perplexed: • How does China handle the “conflict diamond” definition? The primary arguments in support of updating the definition of “conflict diamond” emanate from a view that consumers do not distinguish between rebelled and government-led violence and expect diamonds to be “bloodfree.” Yet there is little concrete data demonstrating consumer purchases of diamonds are driven by ethical concerns, even in the West. There is every possibility that the diamond WWW.ETHISPHERE.COM
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trade could follow the fur industry and wither as a result of consumer worries, but that has not been seen to date. China, as the home of an emerging consumer class and the world’s largest jewelry retailer, could take a proactive approach and support an updated definition to ensure consumer confidence. Or, alternatively, China could ignore, or officially terminate, the proposal, indicating that it does not believe there is sufficient market pressure in the West or at home to force a change. • If the definition itself does not expand, will China support other approaches to integrating human rights?
Even if the definition is not expanded, the KP could take supportive stances on the inclusion of human rights in the implementation of the initiative, such as ensuring respect in the circumstances of how diamonds are mined and traded. Moving away from a definition-based approach would mean that human rights issues could be raised within the KP as an area that a country needs to improve upon, but generally not threaten its ability to trade rough diamonds within the certification system. This has been endorsed by the diamond industry and is seen by many opponents of the definitional change as
a compromise approach. China’s adoption of this position would almost assuredly lead to its success. However, this would require China to acknowledge the potential applicability of human rights to economic systems implemented on a national level. From Internet freedom to labor rights, China has traditionally opposed such steps within its own borders. As the chair of a multilateral initiative, China could be convinced to accept it as a consensus-building path and start a new course. Should China maintain its position and oppose the introduction of human rights, it may augur the continuation of hostility towards such rights in other sectors. • What happens if diamond-related violence emerges among rebels in a KP Participant?
The Central African Republic (CAR) was suspended by the KP in mid-2013 following rebel activity that led to the overthrow of the existing government. The country was subsequently suspend from trading within the KP and is likely to remain suspended through the remainder of 2013. As China takes the helm, it will be forced to answer the question of how a specific “sanction” like this ETHISPHERE \\ 2013 \ Q3 21
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IF CHINA SHOWS SUPPORT FOR RECENT REFORMS THAT SEEK TO INTEGRATE DEVELOPMENT OBJECTIVES IT MAY DEMONSTRATE A RECOGNITION OF RESPONSIBILITY FOR ITS ACTIVITIES IN AFRICA.
suspension is managed. Traditionally, China seeks to avoid interference in domestic affairs or to infringe on sovereignty. But if the integrity of the trading system is to be maintained, then these types of actions are required. Should China recognize this necessity and stand behind the CAR suspension or endorse this step elsewhere, it could point to a potential opening in the Chinese willingness to accept this approach in other forums. If China proceeds to advocate for the lifting of the CAR suspension, or is unwilling to push for such steps should rebel activity emerge elsewhere, it could signal the continuation of Chinese hostility toward multilateral sanctions. • How does China respond to African producer concerns about not benefiting fully from the revenue generated by the diamond trade? One of Zimbabwe’s arguments against suspension was that the West was seeking to impose terms on an African producer that would only benefit the traders and consumers, hearkening back to the legacy of colonialism. Although untrue, it resonated with many producers, who expected that the KP would be an institution that would protect their interests and be a forum to promote development in Africa.
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its economy. Many lauded China’s approach as a new alternative to the West’s historic debt-and-aid approach. Over time, cracks are developing in China’s “no political questions asked,” particularly as many African governments move from dictatorships to democracy. For example, China tends to bring in its own workers and managers to perform the work, often leading to hostile relations with local citizens and political leaders. In some higher profile cases, such as copper mines in Zambia, this hostility has led to serious violence, leading the New Yorker to ask in June 2013 if China is a nation of “New Imperialists.” If China shows support for recent reforms that seek to integrate development objectives, such as improved oversight, regulation, and protection for artisanal miners and local communities in mining areas, into KP implementation, it may demonstrate a recognition of responsibility for its activities in Africa and around the globe. If it opposes such steps, then those hoping to see a change in approach from China toward Africa will be disappointed. And how African governments then respond to China will be perhaps the most telling aspect of all. KP, CHINA, AND 2014: MUCH ADO ABOUT…? The Chinese chairmanship of the Kimberley Process in 2014 could be a watershed for China, as it voluntarily steps forward to lead a multilateral, multi-stakeholder initiative. Whether it takes a proactive stance on some or all of these issues could signal a
new direction for the Chinese Century. The expectation for any leader is that they have to be “for” something and cannot simply oppose all progress. Where that progress is made will be instructive to many observers. But if China’s approach is to host two enjoyable meetings for participants that show no interest on the chair’s part to move these critical issues forward, it will not only mean rougher times for the KP, but show consumers, manufacturers, and other governments around the globe that the motivations of the Chinese Century will veer little from those seen to date.
Expect Biography Brad Brooks-Rubin is an attorney with Holland & Hart who advises national and international clients on nearly all aspects of trade sanctions, export controls and international trade laws and regulations. His practice also focuses on compliance challenges in the emerging fields of conflict minerals due diligence, and human rights and corporate social responsibility in business matters, enabling clients to benefit from a more comprehensive and efficient approach to supply chain management. From January 2009 – June 2013, he served at the U.S. Department of State as the working level representative of the United States to the Kimberley Process. He can be reached at babrooks-rubin@ hollandhart.com or 202-654-6912.
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COMPLIANCE & ETHICS
COMPLIANCE AND ETHICS, THE SAME? I THINK NOT! The Intersection Where Compliance Meets Ethics Written by Frank Bucaro
This article contains information regarding the following topics: STRATEGY + LEADERSHIP + WORKFORCE
One of the topics that has drawn much response from one of my postings on social media was the confusion about the term, compliance/ethics officer. Compliance is not ethics and ethics is not compliance. They are related but not the same. For example, if you look at practically any compliance/ethics position, it describes legal issues and the position description is usually for someone who is a JD. A compliance officer is, most of the time, an attorney for very practical reasons and rightly so. These are brilliant people in their field. However, your ethics officer is what occupation? Attorney, Philosopher? Theologian? Human Resource Professional? And more importantly what is their formal training in ethics? Compliance and ethics are like intersecting circles. There is a point where they overlap and both need careful and equal consideration. The question is, when they 24 Q3 \ 2013 \\ ETHISPHERE
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don’t overlap and there is an ethics issue, to whom do your people go for an ethical resolution? It is important to keep in mind that compliance is a reactive reality, in that one reacts to law that one did not have anything to do with its creation. Ethics, however, is only proactive. It is a personal choice to be or not. Therefore compliance is letter of the law and ethics is spirit of the law. Can a compliance ethics officer do both justice? I doubt it! Please don’t get me wrong here, I have a tremendous respect for the Compliance professionals. They are brilliant people, but ethics is not their formal training. Would you want someone who isn’t a JD or trained compliance professionals, doing compliance in your organization? Of course not! Well how about ethics? Why would you have someone not trained in ethics, deal with ethics?
It is time to separate the titles and concepts of a compliance/ethics officer or compliance/ ethics training (which is it?). Here’s another example of what I’m saying. A few weeks ago the county that I live in, asked me to consider applying for the role of Ethics Advisor for the County Board. I asked them for a job description and qualifications needed for this position. The job description was all compliance based and the qualifications were either a number of years in county government, a JD, County board experience, and last on the list, a professor of ethics from a university. I emailed my contact and said that you don’t want an Ethics advisor, you want a compliance officer, to which I explained the difference in concept and reality and the reply was maybe I was right! A client of mine, who is a compliance/ethics officer(and is a JD) in the pharmaceutical industry shared with me his “take” on the difference. WWW.ETHISPHERE.COM
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ETHICS IS MORE ABOUT YOUR PERSONAL VALUES. I HEARD AN EXPERT SAY, EITHER YOU HAVE ETHICS OR YOU DON’T. MAYBE THE RULES AND REGS ARE FOR THOSE THAT DON’T HAVE GUIDING PRINCIPLES THEY LIVE BY.
“Simply stated, ethics is the internal intangible that drives us. It’s the value system, or lack thereof, that guides us when we make decisions in our day to day actions. Compliance is much more clear cut. Compliance is about following the rules, the policies, the regulations that are articulated in laws and internally drafted documents. There are consequences for violating those policies and regulations that can result in discipline up to and including termination. Often, there’s no analysis related to intent. If you violate the rules, there will be consequences. Ethics is more about your personal values. I heard an expert say, either you have ethics or you don’t. Maybe the rules and regs are for those that don’t have guiding principles they live by. Employees that will do anything to get where they need to go, need a structure in place to stop them from crossing the line. Companies that incorporate a culture of ethical behavior, get employees to follow the rules, not just because they have to, but because it’s the right thing to do.“ The challenge for companies here is to help their people understand that one can be compliant and yet be unethical. The law is black and white and there are consequences. What do you do when something unethical happens, but it’s compliant? What your process modus operandi? What are the consequences? In short, compliance, by its very name is a reactive process. To be compliant is to respond to something you have been “taught” to obey, i.e. law. Ethics can only WWW.ETHISPHERE.COM
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be a proactive process. To be ethical is to focus on values, character, principles, etc what will give you a foundation to make those tough decisions, before they happen. If companies put as much time, effort and money into ethics training as they do for compliance training, develop proactive, ongoing training in both areas, maybe, just maybe, the way business is conducted, the way people are trained and treated, will take a major step in the ethical direction, which may help people choose to do right, rather than just make them do right.
Expect Biography Frank C. Bucaro, CSP, CPAE Values Based Leadership Expert Frank C. Bucaro and Associates, Inc. 630-483-2276
Facts & Figure
2/3: PwC’s 3rd Annual State of Compliance 2013 Survey results reveal that compliance committees are relatively well established in both US and UKbased companies, with almost two- thirds (60%) of respondents reporting that they have such a committee in place to support their compliance efforts (similar to the 2012 results). In the US, more heavily regulated industry sectors are more likely to establish a compliance committee. That includes, for example, healthcare (87%), pharma/life sciences (72%), and financial services (64%).
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THOUGHT LEADERSHIP An Interview: Kellie Watts... 28 // Interview: Barry Stowe... 30 // Ethics and Redemption... 38 Tell us what your group is focused on these days? It’s not a big group, it’s a group of me and another person who is our Ethics Director, and we’re focused on doing some planning and preparation for 2014. This includes training initiatives for next year and planning an ethics week. Primarily on doing a Speaking Up campaign, or focusing on anti-retaliation and whistleblowing kinds of initiatives. We are really ramping these campaigns up this year. And of course, we are still working on the regular changes, changes to our codes of ethics, etc. Are there any particular initiatives that you have found worked well and you would like to share with others? We do an ethics week, which we started back in 2011, and it did a tremendous job of raising awareness for our ethics program. Being such a small department, and back then I was the only person in charge of the ethics program; it took us awhile to get to the point where we had the resources, both monetary and support, to actually get this week launched. It’s a great way to focus just on ethics for an entire week, and hopefully engrain that we do in fact do this on a routine basis recognizing that this is not just a one shot deal, but we do continue to do activities throughout the year. It’s very important for people to get the support of their senior management, and we had several of our senior team film vignettes that were incredibly successful with our employees. We are very fortunate to have a group of senior leaders who are so committed to our program. These initiatives really do require all hands on deck.
AN INTERVIEW WITH KELLIE WATTS Vice President, Counsel and Corporate Ethics Officer, Alliance Data Interview by Aubrie Artiano
This article contains information regarding the following topics: LEADERSHIP CEOs may set the ethical tone from the top, but they need a supporting capable cast to tend to the day-to-day implementation of the company’s compliance and ethics programs. What are these leaders on the “front lines” talking about and doing these days? 28 Q3 \ 2013 \\ ETHISPHERE
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What part of your background has most prepared you for this position? My personal opinion is that my legal background, with a focus in employment law really helped to prepare me – mainly because we have 11,000 employees across the world. Being the primary counsel for the last 15 years and focusing almost exclusively on employment has given me exposure to a lot of compliance initiatives, HR policy compliance, and I’ve dealt with various employment issues that have arisen internally. Coming into this position, I already knew that employees are generally afraid to come forward – afraid to bring up their concerns, fearing their actions could negaWWW.ETHISPHERE.COM
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THOUGHT LEADERSHIP
WE DO AN ETHICS WEEK, WHICH WE STARTED BACK IN 2011, AND IT DID A TREMENDOUS JOB OF RAISING AWARENESS FOR OUR ETHICS PROGRAM. BEING SUCH A SMALL DEPARTMENT, AND BACK THEN I WAS THE ONLY PERSON IN CHARGE OF THE ETHICS PROGRAM; IT TOOK US AWHILE TO GET TO THE POINT WHERE WE HAD THE RESOURCES, BOTH MONETARY AND SUPPORT, TO ACTUALLY GET THIS WEEK LAUNCHED. IT’S A GREAT WAY TO FOCUS JUST ON ETHICS FOR AN ENTIRE WEEK, AND HOPEFULLY ENGRAIN THAT WE DO IN FACT DO THIS ON A ROUTINE BASIS.
tively impact themselves or their jobs. We made our first real focus in our ethics program on securing our employee hotline. We made it clear to our employees that it is an anonymous source line for their workrelated complaints, if you will, for lack of a better word. And I hate to use that term, because that isn’t what the line is for - it’s for legitimate good faith concerns from our employees about whatever is happening in their work environment.
have to be patient and you have to build the consensus along the way. It takes focus and persistence.
Is there one specific piece of advice that you would like to share that you wished you had known when you first got the job?
I report to our corporate general counsel, she is someone who has been in that role for the last three years. She is just one level from the board, so we have a lot more focus on the program in the last couple years; she has provided me more resources than I had before. Additionally, our CEO changed, and our current CEO has a different perspective about our business in general, and very willing to give the resources we need to the program.
I would say the biggest piece of advice I can offer for anyone starting out in an ethics program is to not be frustrated by the resource constraints or the commitment constraints that you may encounter in the beginning. It takes times to convince and/ or build rapport with enough of the senior leaders to get a program off the ground. Early on, generally speaking, many people thought that an ethics and compliance program was a check the box sort of program – today, it’s completely different. You still WWW.ETHISPHERE.COM
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That being said, I believe that patience and fortitude are the two most important traits a new corporate ethics officer possesses. To whom do you report? What role have they played in the compliance ethics program?
What keeps you up at night? You know, I was thinking about that earlier today and what keeps me up at night are those black swan events, those events that no one can possibly predict
and no one sees coming. What else is around the corner? That is what freaks me out! Whether with the economy, or with business, another Leman Brother situation, for example – Though, I think in general companies do more good than harm, and I think the chances of those being frequent events are very slim, but nonetheless it is certainly a possibility. Those possibilities are what keep me up at night. What’s the worst job that you have ever held? (Usually it is some job during college or the summer – or possibly even straight out of college) And why? When I was in high school I worked in fast food, and though, admittedly I liked to eat it, I didn’t like to work in it. I was young of course, and it was good in some respects, though I didn’t stay with it for long, contrary to my typical nature. And when they told me I had to work New Years Eve, I quit! Thanks for speaking with us, Kellie. It’s been a pleasure.
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THOUGHT LEADERSHIP
THE INSIDE MAN
An Interview with Barry Stowe, Chief Executive of Prudential Corporation Asia Interview by Ethisphere Magazine This article contains information regarding the following topics: STRATEGY + LEADERSHIP + WORKFORCE Barry Stowe is the Chief Executive of Prudential Corporation Asia (PCA), a subsidiary of London-based Prudential plc and one of the largest insurance and asset management firms in Asia. It has over 400,000 agents and 18,000 employees across 14 Asian countries. PCA is a large organization, and is one of the most commercially successful businesses in Asia, generating profits of nearly £1 billion last year. But the company has also been hugely successful in producing extraordinary results of a different kind: It is an industry leader in ethical practices and sets a standard for Corporate Social Responsibility that is the envy of the region.
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How has Prudential created a culture that enables it to be a paragon of ethical best practice? For answers, we visited with Mr Stowe. Here are some of his insights. As a London-based multinational company, you and your employees and agents are subject to very strict anti-corruption laws. How do you, as CEO, set a tone at the top that ensures compliance in Asia given the diversity in values, culture and regulatory developments across the region? It’s important to lead by example and set the tone at the very top. As a large multinational company, we have very clear anticorruption and compliance guidelines that are strictly enforced across our franchise. Every new employee we hire understands and signs a standard code of conduct that applies across our business units. We conduct mandatory training sessions annually to refresh employees’ awareness and understanding
of these guidelines. We also have clear processes in place to facilitate reporting of gifts received or given, and a confidential hotline to encourage whistleblowers to inform us of any malpractices from the ground up. The training is important…but embedding the idea of fairness and openness and straightdealing in the culture of the organization is what is most impactful. Did the new and very tough British Anti-Bribery Law create any new issues? The new laws have not created any new issues for us as we already hold ourselves to a standard that goes well beyond any legislation. Perhaps the only operational effect has been the result of the legislations reporting requirements…but it doesn’t impact our behavior. Not only has your company been a model of ethical compliance, but you have also been a model of corporate social responsibility. For example, your litWWW.ETHISPHERE.COM
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THOUGHT LEADERSHIP
SOME IN THE WEST DO TEND TO BELIEVE THAT WE HAVE MANY OF THE ANSWERS TO THE WORLD’S PROBLEMS. BUT, HAVING LIVED IN ASIA FOR 15 YEARS, I CAN ASSURE YOU THERE IS A LOT TO LEARN FROM THE WAY ASIANS DO BUSINESS AND THE WAY ASIAN SOCIETY WORKS. ONE NEED ONLY LOOK AT THE RATES OF VIOLENT CRIME AND YOU’LL QUICKLY SEE THAT WE CAN LEARN A GREAT DEAL ABOUT HARMONY FROM ASIA.
eracy campaign has been very effective in increasing the level of understanding about the importance of financial planning for consumers across the region. Can you describe your company’s use of CSR as a strategy and why this has worked so well for you? We don’t see CSR as a strategy. While clearly there are benefits that the organization enjoys for being seen to be engaged in giving back to the communities in which it operates, it is important that the entire organization see CSR not as a business strategy but as a responsibility. Most of us were taught as children that those with great means also bear increased responsibility to give back to society, it is similarly the responsibility of successful organizations to give back to the communities in which they do business. If you look at most of our CSR programmes in financial literacy, education and disaster preparedness, they are a natural outgrowth of the work we do every day – helping people build financially secure futures, and protecting them from potential misfortunes. We sometimes think, as westerners, that we are the best models of virtue but our own track record in recent years leaves much to be desired. What can we learn from Asians about ethics and ethical practices? Some in the West do tend to believe that we have many of the answers to the WWW.ETHISPHERE.COM
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world’s problems. But, having lived in Asia for 15 years, I can assure you there is a lot to learn from the way Asians do business and the way Asian society works. One need only look at the rates of violent crime in the west and compare that to the statistics in Asia and you’ll quickly see that we can learn a great deal about harmony from Asian culture. What advice about ethics leadership could you give others who lead large organizations in markets where compliance standards have traditionally been lower? It is crucial to lead by example, and to hold oneself up to the highest standards of ethics. It is also important to reinforce the message about good ethics and CSR to employees at every opportunity. Making good
behavior a cultural imperative is very powerful…I believe it both protects the company and propels it forward. Our business in Asia is purpose-driven…we constantly talk about our company as one that is “doing well by doing good.” We always remind our senior management members of our mission and of this ethos, who in turn lead by example in their markets. In all our business interactions – whether with customers, business partners, regulators, shareholders or employees – we demonstrate respect and fairness with every constituency. We create a standard that applies to everything we do, and we are relentless about meeting and exceeding that standard. This ultimately provides leadership for the markets in which we operate and helps to raise the bar for local ethical practices. Thank you for your time, Barry.
Facts and Figures 41: The majority of executives surveyed feel that data privacy (74 percent), conflicts of interest (70 percent), electronic data protection (68 percent), and bribery and corruption (62 percent) are 2013’s top ethics and compliance risks. Social media is also now considered a top risk by 41 percent of E&C leaders. - 2013 Ethics & Compliance Leadership Survey Report, by LRN.
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THOUGHT LEADERSHIP
ETHICS AND REDEMPTION
Applying Lessons Learned from Sports to the C-Suite and Beyond Written by Kenneth L. Shropshire This article contains information regarding the following topics: LEADERSHIP Would the CEO equivalent of New Orleans Saints head football coach Sean Payton or University of Central Florida head football coach George O’Leary be hired by corporate America following their respective ethical short falls? Payton was implicated in his team’s bounty program and O’Leary lost the opportunity to coach at Notre Dame when inaccuracies in his resume were assailed. Similarly, would the accusations of past physical and mental abuse against student athletes by Rutgers Athletic Director Julie Hermann be overlooked? All three sports leaders received second chances following alleged ethical violations: Payton staying where he was, following his punishment and O’Leary and Hermann landing at other institutions. There are many talented people in sports, from players to coaches and executives, who have gotten in trouble, and are seeking and sometimes given another opportunity. What role should the talent of the 32 Q3 \ 2013 \\ ETHISPHERE
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violator play in our hiring decisions? And when does talent cause us to look beyond ethical violations? It has been said in various forms that the best predictor for future performance by talent is past performance. However, we often seem to forget that past performance includes the negative past as well as the positive.
is a reputation that goes beyond abrasive or acts of bad judgment the recycling of those CEOs occurs for many of the same reasons that we see at the highest levels in sport: the experience talent pool is shallow and a record of success with some flaw is often viewed by decision makers as better than having little or no leadership record at all.
In my classes at Wharton whether focused on law, ethics or leadership, I always talk about the business lessons to be learned from sports. There are many traditional lessons. First, teamwork: …there is no “I” in team. Michael Jordan of course took that a step further, “There is no “I” in team but there is in win.” Next, leadership. Most of us are aware of the obvious leadership lessons like Vince “Lombardiisms, such as“…winning isn’t everything it is the only thing…” or John Wooden’s “success” pyramid often that grace the walls of CEOs.
The ethical issues in sports go beyond paying a kid under the table to come to a school, or Heisman Trophy winner Johnny Manziel allegedly getting paid for signing autographs. Those are the stories that make the cover of Time and Sports Illustrated. The stories that do not sustain our attention are those mentioned initially or the transition of stellar coaches like Pete Carroll from the University of Southern California to the Seattle Seahawks and Chip Kelly form the University of Oregon to the Philadelphia Eagles. Both left NCAA institutions that were confronted with NCAA violations that allegedly occurred under their watch. There was little hesitation, at
Often much less public than sports figures are the short comings of CEOs. Whether it
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THOUGHT LEADERSHIP least publicly, by their future employers, to go out and hire their men. Sure, leadership books like Good to Great, talk about having the “right” people on the bus. But ethically, how much leeway do we have in following that goal? What role do past ethical infractions play in making someone the wrong person? For example, if a coach is fired due to one scandal or another should another institution look to hire them? Or if a key player breaks a team rule how important is it that he or she play in that “big game” the next day or for another team next season? Certainly not all in sports make the immediate comeback after such foibles. Tom Williams, the former head football coach at Yale resigned from his job after claiming he was in the race for a Rhodes scholarship, when he apparently had not even applied. But had he been an even more successful coach, would a suspension be in the offing? The use of the N-word, for example, did not get Philadelphia Eagles wide receiver fired as is the not uncommon outcome in corporate America. But that wide receiver’s comment did not impact his ability to catch passes. To some extent the question is when should punishment continue on so long that someone cannot make a living at their chosen profession (especially if they have been otherwise successful)? It is one thing if there is a criminal wrong committed and incarceration occurs, but what about the ethical violations of lying on a resume, abusive but not illegal behavior with a player, or any form of rule but not law breaking? The mantra of the Oakland Raiders during the life of then owner Al Davis was “just win baby.” Their logo, a pirate cross boned black and white character matched the attitude for years known as the franchise, like the pirate ship of old, took on the troubled cast off athletes… if they could get the task done. In sports success does tend to open the door for a second chance. Redemption is allowable in the sports business, but the opportunity for redemption goes hand in hand with winning. So what should you do? What is the correct waiting period before declaring that redemption has taken place? Like many ethical questions that butt up against the law discretion exists. In law, there are formal limits, a statute of limitations that tell us when it’s too late or when we can move forward. When we set limits should we give slack to violators that are more successful than others? Sport, with few exceptions, closely ties that second redemptive opportunity with talent. It is talent that motivates many of us to take a look at the successful violator.
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WHAT ROLE DO PAST ETHICAL INFRACTIONS PLAY IN MAKING SOMEONE THE WRONG PERSON? IF A COACH IS FIRED DUE TO ONE SCANDAL OR ANOTHER SHOULD ANOTHER INSTITUTION LOOK TO HIRE THEM? OR IF A KEY PLAYER BREAKS A TEAM RULE HOW IMPORTANT IS IT THAT HE OR SHE PLAY IN THAT “BIG GAME” THE NEXT DAY?
Facts and Figures
Expert Biography Kenneth L. Shropshire is an attorney with Duane Morris LLP and also the David W. Hauck Professor at the Wharton School specializing in legal, ethical and business issues related to the sports industry.
84: While 84% of boards reported that they receive sufficient data to monitor academic progress of athletes by team, according to AGB Intercollegiate Athletics Project Survey 2012, only about 1/3 of respondents reported having sufficient information to oversee student-athletes’ declared academic majors or the demands of sports participation on students’ time.
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GLOBAL COMPLIANCE Global Compliance...34 // Ethical Climate...35 // Compliance and Ethics Issues...36 // Etiquette Tips...37
GLOBAL COMPLIANCE: CAMBODIA Written by Ethisphere
This article contains information regarding the following topics: RISK MANAGEMENT + MARKETS + WORKFORCE
This regular section of Ethisphere Magazine focuses on compliance and ethics issues in global business. Each issue spotlights a different country, and includes information around key compliance challenges companies can expect when operating in each market. Additional global compliance country reports can be accessed online, at www.ethisphere.com. 34 Q3 \ 2013 \\ ETHISPHERE
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GLOBAL COMPLIANCE Cambodia, which is officially known as the Kingdom of Cambodia, is located in Southeast Asia, near the bottom of the Indochina Peninsula, which is the peninsula also containing Thailand, Laos, Vietnam and Myanmar. Cambodia shares its border with Thailand (northwest of Cambodia), Laos (sharing the country’s north border) and Vietnam (bordering the eastern edge of Cambodia). To the south is the Gulf of Thailand.
GENERAL COUNTRY FACTS
Phnom Penh
Cambodia has a long history, with humans documented having lived in the region as far back as 7,000 BCE. In the first century CE, a political state that occupied current Cambodia, known as the Kingdom of Funan, is believed to have had contact with the Roman Empire, as a number of Roman trinkets have been discovered from Funanese archaeological sites. A number of indigenous kingdoms thrived in the region until France entered into an agreement in which Cambodia became a French protectorate in the mid 19th century. Later, Cambodia would become critically involved as part of the regional conflict during the Vietnam War.
CAMBODIA’S ECONOMY HAS FARED WELL RECENTLY, GROWING BY SIX TO SEVEN PERCENT OVER THE PAST DECADE. THE FASTEST GROWING INDUSTRY IN CAMBODIA IS TOURISM. DESPITE THE IMPROVEMENTS, CAMBODIA RANKS POORLY IN MANY ECONOMIC COMPARISONS.
Capital: Phnom Penh Population: 15,205,539 Life Expectancy: 63.41 years Languages: Khmer, French, English Literacy Rate: 73.9% GDP (PPP): $37.25 billion GDP (Real Growth Rate): 6.5% Inflation: 2.9% Major Industries: Tourism, garments, construction, rice milling, fishing, wood and wood products, rubber, cement, gem mining, and textiles.
TOP IMPORT PARTNERS
Thailand
27.2%
Modern Cambodia was influenced by a United Nations peacekeeping mission in the 1980’s and early 1990’s as an effort to end a civil war that had been occurring for years. In 1993 Cambodia held an election in which leaders were chosen to establish a new constitution for the country. The government structure remains a complicated situation at best, and is officially deemed a multiparty democracy under a constitutional monarchy, according to the CIA World Factbook.
Vietnam
20%
Singapore
7.1%
Hong Kong
5.9%
The chief of state in Cambodia is King Norodom Sihamoni, who came to power after King Norodom Shianouk abdicated the throne. The king is chosen by a Royal Throne Council from eligible male heirs. The head of government is Prime Minister Hun Sen, who has been prime minister since 1985. The prime minister is chosen from a member of the majority party or coalition following elections.
South Korea
4.3%
Cambodia’s economy has fared well in recent years, growing by six to seven percent on average over the past decade. The fastest growing industry in Cambodia is tourism. Despite the improvements, Cambodia ranks poorly in many economic comparisons. For example, the country ranks 175 out of 185 countries on ease of starting a business by the International Finance Corporation. The IFC also ranks Cambodia 149 on ease of dealing with construction permits and 152 on resolving insolvency. The country’s highest score is on ease of getting credit, in which Cambodia ranks as number 53. Other indicators of challenges for Cambodia include Transparency International’s ranking of the country as number 157 on its annual Corruption Perceptions Index.
U.S.
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TOP EXPORT PARTNERS
25.9%
UK
7.7%
Germany Canada
7.7% 7.7%
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GLOBAL COMPLIANCE
COMPANIES MUST BE FULLY AWARE OF WHERE AND HOW THEIR PRODUCTS ARE BEING DEVELOPED, AND MUST STOP ANY MISBEHAVIOR AS SOON AS IT IS UNCOVERED.
FIVE COMPLIANCE AND ETHICS ISSUES TO CONSIDER CORRUPTION As noted earlier, corruption is a critical challenge for Cambodia. Transparency International ranks the country at the bottom of its annual Corruption Perceptions Index list. Fortunately, some experts predict that the level of corruption will improve as the country experiences a growing economy and increased foreign investment from investors that are very sensitive to the economic challenges that corruption brings. Nevertheless companies have to be vigilant in enforcing their internal anti-corruption policies in order to ensure their employees are in compliance with global anti-corruption laws, and to help reduce the levels of corruption throughout the country.
Deal with it: Cambodia ratified a new anti-corruption law in 2010, however that clearly has not led to significant improvement in the levels of corruption across the country. Anti-corruption is an issue that most companies dedicated to the idea of ethics and implementing a strong compliance program have already spent considerable time thinking about. Operating in any country at high risk of corruption, including Cambodia, should happen only have senior leadership has thoroughly reviewed and discussed the company’s anticorruption policies and programs. These policies must be strictly adhered to and communicated to all employees throughout high risk countries. HEALTH Poverty remains a top concern for Cambodia, both in terms of its impact on the health and quality of life of the population, and its impact on business and financial success. A recent report by the Asian Development Bank shows that more than half of children under five years of age are diagnosed with anemia. Malnutrition stunts the growth of 40 percent of children in the country. These health concerns also create a hardship for businesses and the country’s economy as costs grow to help provide effective care to Cambodians. 36 Q3 \ 2013 \\ ETHISPHERE
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Deal with it: Providing healthcare is a challenge that many companies are not prepared or equipped to handle. Many experts recommend that companies concerned about health and quality of life in Cambodia partner with internationally-recognized NGOs and other organizations dedicated to solving the problem, often through financial or personnel time contributions. CHILD LABOR Child labor has long been a concern for Cambodia. As the economy grows, the need for increased production grows with it, and many experts suggest that increases the number of children brought to factories and other manual labor jobs. The International Labor Organization suggested that more than one in seven children in Phnom Penh are employed in some capacity.
Deal with it: It is rare that a global corporation would directly hire underage employees. Rather, the danger comes from thoroughly vetting suppliers and contractors. This vetting includes site visits that must be regular and unannounced. Many instances of companies employing child labor involve a supplier, thought to be trustworthy, subcontracting the work out to other companies in the area that are less scrupulous in their employment habits. Companies must be fully aware of where and how their products are being developed, and must stop any misbehavior as soon as it is uncovered. One example of such a crack down is Nike’s response to the discovery that child laborers were employed through the company’s subcontractors. Nike demanded that the factories which employed children immediately cease the children’s employment, pay them a livable wage, cover the cost of their education, and then only rehire them when they become of legal age to work.
with instances of internal conflict, fighting with neighboring countries, and foreign intervention. A recent election hints at the possibility of a new majority party in the country, however many independent observers have commented in irregularities in the voting process.
Deal with it: Companies and business people operating in Cambodia should stay aware of the political situation through actively consuming news and reports of activity throughout the country. Foreigners should strictly avoid being near any political demonstrations or protests. As in other countries, foreigners should register with their local embassies in order to receive alerts on any potential dangerous activity taking place in their area. HUMAN RIGHTS Cambodia receives criticism from Western governments and NGOs around the government’s treatment of ethnic minorities. Independent experts accuse the Cambodian government of bringing violence and intimidation tactics against critics of the government, including journalists, minority political parties and demonstrations. There are also prevalent accusations of child and female sex trafficking throughout the country.
Deal with it: Similar to improving other social issues, companies can partner with well-respected human rights organizations and NGOs to support improved conditions throughout Cambodia. Joining and abiding by rules and ideas from organizations such as the United Nations Global Compact also provides benefits to various regions at high risk of human rights violations, and having clear policies and procedures to prevent improper behavior at your company is critical.
GOVERNMENT INSTABILITY The current government in Cambodia is relatively young, having existed for less than two decades in its contemporary form. The recent history of Cambodia is littered WWW.ETHISPHERE.COM
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GLOBAL COMPLIANCE
FIVE ETIQUETTE TIPS YOU SHOULD KNOW BEFORE YOU GO GREETINGS In group settings, the individual with most seniority is introduced first. You should be prepared to introduce your colleagues in a similar fashion. Individuals will greet one another by bringing their hands together and bowing. The lower the level of bow the greater the show of respect. Cambodians however are increasingly adopting the Western handshake for greetings. DRESS AND ATTIRE Dress in Cambodia for both casual and formal settings is more conservative than in other cultures. Always err on the side of caution and be prepared to wear formal attire for business interactions. This means a dark suit and tie for men, and a dark suit for women, which should fully cover the shoulders and legs. GIFT GIVING Gifts are not expected during business meetings. If invited to an associate’s home or invited to a dinner event, it is polite to bring a small gift such as flowers or small trinkets. As Cambodians take pride in modesty, expect your gift to be declined WWW.ETHISPHERE.COM
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upon the first offering. Similarly you should decline a gift that is offered to you at first. When the gift is offered further, it will be accepted. BUSINESS CARDS Business cards should be exchanged at the beginning of meetings. While one side of the card can be in English, the information should also be printed in Khmer, the official language of Cambodia. The side of the card printed in Khmer should be handed face up when distributing your card. Similar to in other Asian countries, business cards should be given by holding the card with both hands MEETINGS
meeting agendas, so be prepared for discussion topics to bounce from idea to idea. Cambodians consider it a loss of face to show emotion, and so one should always temper their feelings when in a meeting or negotiation. Cambodians also prefer to say “no” directly to a request, and so will substitute it with less direct terms showing their disagreement. DINING ETIQUETTE Seating is often assigned during meals and a guest should wait to be told where to sit. The eldest member of the group will often be seated first, and similarly one should wait for the oldest person to eat first before you begin to eat.
While it is important to arrive for meetings on time, do not expect your meeting to begin at the assigned time as they will often start much later than planned. Cambodians will often remain silent rather than saying something that disagrees with someone else at the meeting or something that is potentially offensive and so one should be aware of this cultural sensitivity when participating in business meetings. Cambodians will often divert from planned ETHISPHERE \\ 2013 \ Q3 37
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Addressing Asia’s Ethics and Compliance Challenges
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he Asian market for American firms is estimated to be in the range of $150-200B, with annual growth still exceeding 10%, according to the USCBC 2012 China Business Environment Survey. And its principle gateway announces the promise of market share and profitability in spectacular fashion. These numbers are very compelling, so much so that truly global organizations can no longer ignore the prospect of doing business in the region. However, alongside these promising numbers come longstanding compliance and ethics challenges that companies must be aware of as they compete across critical Asian markets.
The following pages feature expert insight into the ethics and compliance environment throughout key Asian markets.
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BY THE NUMBERS The luxurious image and financial lure of many parts of Asia are relatively recent developments; it is only within the last decade that Asia’s emerging economies account for the greater percentage of global economic growth. However, all the recent industrialization, market expansion and profit potential throughout the various regions of Asia, however enticing to growing western organizations, carry risks that are serious, pervasive and well documented- extending well beyond the obvious challenges of distance, time, language and occasional bouts of culture shock. Asia can be a complex, demanding and unforgiving business environment. Despite, and in some instances as a result of the massive market growth, companies navigating business in the region still face crippling cost increases, local competition and the uncertainties of vague, shifting and loosely enforced regulatory laws and guidelines. There is a long list of critical considerations that all companies must address before investing in the Asian market, and this extends doubly for companies’ compliance and ethics officers. Many of these compliance challenges are briefly listed, below.
ASIA’S SHADES OF CORRUPTION Exploring hidden opportunities
Managing these compliance challenges is no easy task: the investment and attendant risk must be judiciously calculated and rigorously tracked. In order to truly get a handle on what the compliance team needs to focus on, companies need to first ask themselves, why consider Asia an option for business?
By Frank Brown
In a recent interview with Asia Society Studios in New York, Kent Kedl, China and North Asia Managing Director of Control Risks, noted that in order to get a handle on compliance challenges, companies must first clearly understand and agree upon “why” they are expanding their business to Asia. “Companies need to really find out why they are going and why they are doing what they are doing,” said Kent. “It’s not a nine-month mini project. You’re going to be there for a long time. It’s going to go up and down and you have to have the staying power to really succeed there.” The lure: companies are reportedly experiencing increased global margins from their business operations in Asia. According to the USCBC 2012 China Business Environment Survey, U.S. companies are continuing to see expansion and strong profitability in China. Two-thirds of businesses surveyed said that their revenue in the region improved by 10 percent within the last year. However, the reverse side of that positive statistic comes in the form of recent legal and reputation challenges that companies in Asia have found themselves in. Asia is certainly no stranger to corruption, scandals and serious, costly ethical infractions. Recent bad news stories from the region have plagued U.S. headlines, from billion dollar corruption scandals to factory devastations.
Some examples are listed below: ASIA IN THE SPOTLIGHT Bangladesh
Bangladesh has long been identified as a place of widespread corruption. In 2011, Transparency International reported that 66% of respondents in Bangladesh had paid a bribe to a public official or service within the previous 12 months. Corruption, bribery, safety and labor violations are rampant: After the Bangladesh factory fires stole thousands of lives due to improper safety measurements and procedures (a recent
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Over the year since Russia hosted the APEC 2012 Economic Leaders Meeting in the Pacific port of Vladivostok, the country’s business and political leadership have taken a series of high-profile steps to combat corruption. The moves include moving ahead energetically to join the OECD Working Group on Bribery, the enactment of a new federal law requiring businesses to have compliance programs, and the adoption of an ambitious Anti-Corruption Charter by Russia’s four largest business associations. Although combating corruption was a key initiative adopted at APEC 2012 by Asian leaders, Russia has its own set of reasons for pursuing the issue. As is the case with markets across the region, Russian leaders are keen to revive flagging economic growth by attracting investment. Corruption, however, is a major barrier to foreign capital.. So far, what this means for levels of corruption in Russia is unclear. But, at the Center for International Private Enterprise (CIPE), a non-governmental organization affiliated with the U.S. Chamber of Commerce, the new climate in Russia represents an opportunity. As one of the four core institutes of the Washington D.C.-based National Endowment for Democracy, CIPE has long spearheaded anti-corruption work in emerging markets from Asia to the Indian subcontinent to Latin America. CIPE’s approach has often focused on promoting legal and regulatory reforms that reduce corruption by, for example, working with partners to eliminate vague or contradictory legislative language that gives government officials the discretion to solicit bribes. But the investment-hungry climate in emerging markets, combined with heightened enforcement of anti-corruption legislation in some of the world’s leading economies, has resulted in a healthy opening for additional work. In 2013, Canada and Brazil joined the United States and United Kingdom in enacting laws that prohibit bribery abroad. This further increases a sense of momentum and inevitability for multinationals concerned about managing their corruption risk overseas. For CIPE, it gives added relevance to existing programs that leverage large firms’ anticorruption commitments to create...
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BBC Panorama program revealed that there have been as many as 50 factory fires within the last 10 months), it came as no surprise that Bangladesh apparel factory workers began protesting this quarter, forcing factories to shut down their operations. A total of 100 factories countrywide closed their doors as thousands of workers filled the streets, demanding a $100-dollar minimum monthly wage. The investigation also reported that workers were putting in nineteen-hour days, for a monthly wage of $38 dollars. The apparel industry accounts for 77 percent of the country’s exports, and $20 billion per year. Major corporations, such as Walmart, agree that the country serves as a major “important sourcing market.”
UP, UP AND AWAY Chinese IPOs on the SEHK By Martin Rogers & James Wadham A mere three months after its IPO on the Hong Kong Stock Exchange in December 2009, shares in Hontex International Holdings Company Ltd (a leading Chinese chain store brand owner) were suspended as the Hong Kong Securities and Futures Commission (SFC) alleged major securities fraud against its management and controlling shareholders. In July 2013, the SFC filed proceedings to wind up China Metal Recycling (Holdings) Limited, the largest scrap metals recycler in China. The allegation major securities fraud dating back to its Hong Kong IPO, 4 years earlier. These are just the two most high-profile examples of relatively recent problem IPOs of Chinese companies on the Hong Kong Stock Exchange. There are a significant number of other newly listed Chinese companies in Hong Kong the stock of which has been suspended seemingly indefinitely pending completion of investigations into allegations of securities fraud. The SFC, with the support of the Hong Kong Government has responded aggressively. It has used a battery of statutory powers to obtain interim injunctions and other relief against problem companies, including the appointment of provisional liquidators, in civil actions in the Hong Kong High Court. New legislation has come into force in Hong Kong, effective 1 January 2013, to impose statutory liability on directors of listed companies, including independent directors sitting on audit committees, if the boards fail to put in place systems and controls to ensure that they consistently announce material information on a timely basis. Whilst details are not yet public, because of the statutory secrecy which cloaks pending SFC investigations, the SFC is already actively pursuing a significant number of cases. The SFC has chosen to address concerns about continuing securities fraud in Hong Kong by cranking up the pressure on the investment banks which sponsor listings. October 2013 sees the introduction of significantly enhanced regulation of investment banks sponsoring Hong Kong IPOs. In its original consultation paper, the SFC said that it had “been concerned that standards of...
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Many western clothing company brands were found amidst a burned factory’s rubble, and each company was quick to release a PR statement promising that they would become more informed and engaged in the management of onsite safety and the working conditions of their respective local employees. Nevertheless, they sustained real brand damage from the event.
ASIA IS NO STRANGER TO CORRUPTION, SCANDALS AND SERIOUS, COSTLY ETHICAL INFRACTIONS. BAD NEWS STORIES FROM THE REGION HAVE PLAGUED U.S. HEADLINES. Workplace disasters and employee strikes can significantly damage a company’s reputation, also evidenced by the Foxconn workers strike, which was closely linked to Apple for several months in newspaper headlines. Western companies remain under the microscope when it comes to matters pertaining to ethics and compliance. This means, for companies establishing an Asian foothold, ensuring that every element of their supply chain is meeting or making real and overt efforts to comply with American ethics and labor standards is critically important. Bo Xilai
The distinction between the public and private sectors is often blurred in Asia- to the peril of the unwitting (and the greedy). Westerners need to tread with extreme caution. Once a prominent and highly respected politician, Bo Xilai’s whirlwind downfall was one of China’s most notable corruption scandals. Xilai gained popularity during his tenures as the mayor of Dalian and governor of Liaoning. He won the devotion of his people by advocating against organized crime, creating campaigns to revive the red culture and working to lower corporate income taxes. But his dual roles as a politician and a businessman tragically overlapped. Things became complicated for Xilai after the death of Neil Heywood, a British businessman and Xilai’s business partner. Heywood was also a close friend of Xilai’s wife, Gu Kailai. Investigations revealed that Heywood’s death had been the result of a poisoning, allegedly administered by Gu herself.
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A TOTAL OF 100 FACTORIES CLOSED THEIR DOORS AS THOUSANDS OF WORKERS FILLED THE STREETS, DEMANDING A $100 MINIMUM MONTHLY WAGE. The spiral continued – Xilai was linked directly to several corruption schemes, one that directly involved his police chief. It was only a matter of time before he was removed from his posts and convicted. The Chinese court found him guilty of bribery and abuse of power, and sentenced him to life in prison, his personal assets confiscated. The clear lesson is that companies much choose their partners and business associates carefully, and ensure proper and thorough diligence and vetting has been completed on each, even when a partner is in the highest levels of authority within the country. While this case took place in China, it could easily occur in many other Asian nations. BRIBERY, CORRUPTION; KEEPING IT IN THE FAMILY A slew of recent bribery probes have made headlines this quarter, one of the most notable cases involving drug maker GlaxoSmithKline. News reports claimed that the company had a long history of bribing local Chinese doctors to promote its products, generating scrutiny into the company’s cultural ethics. A Chinese police probe revealed that GSK had, in fact, engaged in illegal activities with local vendors, spending a total of $490 million in the execution of bribes. JPMorgan, too, faces a U.S. probe this quarter for allegations pertaining to the company’s local hiring scheme, claiming that JPMorgan Chase purposely hired the children of powerful Chinese officials in order to drive more business in the region. An internal investigation has been launched, and as many as 200 new hires have been flagged for further review. Not too far away, an arrest was made in Singapore this Quarter of an Immigration and Checkpoint Authority officer on counts of corruption. The officer allegedly accepted bribes in the form of cash in exchange for granting visas. While many countries in Asia are developing anti-corruption programs and commissions dedicated to rooting out corruption, it’s never been more important for global companies to ensure their anti-corruption programs meet or exceed best practices and are vigorously communicated to employees across Asia, and proper discipline is enforced without exception when a violation occurs. Cambodia Respect the workplace, and monitor your facilities: Questionable and dangerous factory conditions again swept headlines in May of 2013, only days after the Bangladesh factory fire stole thousands of lives. This time all eyes were on Cambodia when the floor of a popular sneaker factory collapsed, killing three and injuring several others. Reports from the scene alleged that the factory floor had been piled with heavily laden boxes, crates and other dense materials.
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PROSECUTING ANTI-CORRUPTION The Importance in Asia By Nathaniel Edmonds If you were to read this entire edition of Ethisphere on Asia Ethics Compliance, you might spend sixty minutes paging through this article and many others. During that hour, over $100 million in bribes may have been paid around the world. Newspapers, blogs and social media are taking bribery rumors, investigating the alleged improper payments, and using technology to broadcast stories around the world. Whistleblowers, sensing an opportunity to make money for reporting misdeeds, are downloading files from their employers and sharing them with law enforcement agencies around the globe. During my decade as a corruption prosecutor in the U.S. Department of Justice (“DOJ”) focusing on violations of the Foreign Corrupt Practices Act (“FCPA”), I witnessed first-hand the U.S. government enhancing its anticorruption enforcement efforts and working with countries around the world, and especially in Asia, to encourage them to do the same. Asian countries are now acting aggressively to investigate and prosecute corruption cases that years ago might not have been discovered or even discussed. Viewed in conjunction with the significant increase in FCPA enforcement in the past five years, the message is clear — navigating the legal complexity created by a multi-jurisdictional anticorruption regime requires (A) a grasp of the worldwide anticorruption framework, and (B) a deep understanding of the importance of anticorruption compliance. (A) International Anticorruption Framework The United States has more prosecutors and FBI agents successfully bringing more cases against companies in the past five years than in the previous 25 years combined. As recent press stories indicate, numerous countries in Asia, especially China and Indonesia, are taking a more visible role in investigating alleged corruption. Most companies do not recognize the significant efforts that the United States has made encouraging other countries to pass and enforce anticorruption laws. The U.S.-China Joint Liaison Group Anti-Corruption Working Group, in which I participated for several years on...
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According to the Wall Street Journal, a factory employee, Yarn Neat, had helped load the heavy materials on the mezzanine floor a week prior to the collapse. She reported that the floor felt shaky and unstable to her at the time. Though she promptly approached higher-level managers with her concerns, nothing was done. This incident, though much smaller than other factory and workplace tragedies, fits the pattern of life threatening safety hazards and abysmal conditions in many Asian garment factories. The lesson again is that companies must thoroughly vet their supply chains. Many times these stories hit the news because a supposedly legitimate supplier was subcontracting to another supplier listed on the company’s banned parties list. Random audits are necessary, and companies should be certain that their Asia suppliers are not sub contracting to improper third parties.
A Moving Target Business Ethics in China By Oliver F. Williams China is often the subject of unfavorable stories about ethics in its business operations. For example, in March 2012, The New York Times highlighted a feature about Foxconn Technology Group, a company operating in China which, among other things, had unsafe working conditions, forced labor, overcrowded dormitories and did not pay a living wage. It would be a mistake, however, to characterize China as disinterested in business ethics and corporate social responsibility (CSR). Business ethics and CSR in China are a work in progress and while they still have a way to go, Chinese companies are moving fast. As a member of the three-person Board of Directors of the United Nations Global Compact Foundation, I have been especially interested in business ethics and CSR in China. Founded in 2000 by the then-UN Secretary-General Kofi Annan, the UN Global Compact (UNGC) is intended to increase and diffuse the benefits of global economic development through voluntary corporate policies and programs. By promoting human rights, labor rights, enhancing care for the environment and encouraging anticorruption measures, the 10 principles of the Global Compact are designed to facilitate more just societies. In addition to integrating the 10 principles into their strategic plan, companies are also asked to take on projects that advance UN goals, for example, the Millennium Development Goals (MDGs) to overcome poverty. Initially comprising several dozen companies, the compact as of 2013 had over 7,000 businesses and 1,000 nongovernmental organizations (NGOs) in 135 countries. I am convinced that the Global Compact is the best initiative that can address the major challenge posed by globalization: developing a consensus on global ethical norms. The United Nations with its visibility, global reach, universality, neutrality and convening power is considered legitimate and with more than 100 local networks of the UNGC operating almost everywhere, there are channels for crucial dialogue readily available. Through the process of persuasion, discussion and arguing about practices—such as those related to...
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India India still ranks rather high on the corruption scale. A Transparency International 2013 survey revealed that 40 percent of respondents believed that corruption has in fact worsened in India over the last two years. The survey further revealed that respondents believe that corruption within public institutions is very high: 65 percent felt parliament and legislature were extremely corrupt, and 75 percent expressed the same opinion of local police. One of the most noteworthy bribery scandals to plague India this quarter involves former railway minister Pawan Kumar Bansel’s nephew, Vijay Singla, and suspended railway board member Mahesh Kumar, for the Rs. 10 crore cash-for-post railway bribery scheme. A scheme that involved an alleged $160,000 payment to a railway’s policy-making board member, in exchange for a plum post in the state-run network. A Changing Culture? The question for compliance officers becomes, are business conditions improving in Asia? Yes and no. Asian countries are taking strides towards a more ethical tomorrow, buckling down on domestic crime more harshly than ever before. But there are conflicting interests.
THE LESSON IS THAT COMPANIES MUCH CHOOSE PARTNERS CAREFULLY, AND ENSURE PROPER AND THOROUGH DILIGENCE This was evidenced in the Bo Xilai trial and his sentence: a small victory for ethics, but not everyone was pleased to learn of Bo’s fate. Several Chinese official’s statements were leaked shortly after the verdict, arguing that the punishment was excessive, and that the Chinese culture needs to separate itself from any western influence. On the 2012 Transparency International’s Corruption Perception Index, countries like Korea, Afghanistan, Bangladesh and Indonesia all scored very poorly in perception of public sector corruption. Hong Kong, conversely, scored very well, as did Japan and Singapore.
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ASIAN COUNTRIES ARE TAKING STRIDES TOWARDS A MORE ETHICAL TOMORROW, BUCKLING DOWN ON DOMESTIC CRIME MORE HARSHLY THAN EVER BEFORE. THE ASIAN MARKET IS SIMPLY TOO BIG TO IGNORE Regardless of the legal, ethical and reputation issues that companies face in Asia, it’s a fact that the region is too big for companies to ignore. The USCBC 2012 China Business Environment Survey reveals that Western companies are becoming increasingly likely to conduct business in Asia today than ever before. Companies are focusing more on the domestic market in the region, and less on exportation. Asia represents a $150 to $200 billion market. These numbers are seductive, but distract from the many hardships of conducting business abroad.
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• In Singapore 59% of respondents say that their anti-bribery and corruption policy is good in principle but does not work well in practice • In Indonesia 36% of respondents say it is a commonplace to use bribes to win contracts in their industry • In China 34% still believe that company management is likely to take shortcuts when economic conditions are tough • In Vietnam 52% of companies are concerned about money laundering in the next 12 months
• In 51 countries around the world, political parties were seen to be the most corrupt institution. • 50-74.9% of respondents paid a bribe in Cambodia in the last 12 months
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SPECIAL FEATURE
THE INTERSECTION OF RISK Navigating China’s Corruption Storm
Written by Eric R. Carlson, Covington & Burling LLP Illustration by Steve Tansley Near-daily headlines trumpet new corruption issues in China: the Chinese government targeting a multinational or local corporation, the US government investigating a multinational, a multinational conducting its own internal investigation related to its China operations, or the Chinese government prosecuting a government official for taking bribes from a company.
US enforcement authorities have viewed employees of these SOEs as “foreign officials” under the US Foreign Corrupt Practices Act (“FCPA”). Further, many other entities in China are designated under PRC law as quasi-public institutions (shiye danwei), including most hospitals and medical institutions, universities, research institutions, and many trade associations. In many cases, US enforcement officials are also likely to deem employees of these institutions as “foreign officials.”
This article outlines key risks that makes compliance particularly difficult in China and provides suggestions for how companies can mitigate those risks through China-specific modifications to compliance programs and by preparing now for future investigations should a storm hit.
B. Use and Frequency of Third Parties As in many countries, companies operating in China use a range of third parties -- agents, consultants, travel agencies, meeting companies -- to outsource tasks that the company does not have the capacity or interest to do in-house. A common approach in China is to also outsource corruption, and many times a third party is hired to get something done -- a regulatory approval, a sale to a government-affiliated customer -- while turning a blind eye to what the money is actually being used for. In many cases, this is viewed locally as being a perfectly acceptable -- even preferred -- way to outsource risk. This approach, of course, could violate the FCPA, Bribery Act, and PRC law.
I. KEY CORRUPTION RISKS IN CHINA The intersection of a significant level of corruption, massive amounts of foreign investment, and uneven local law regulatory regimes and enforcement combine to make China one of the locations with the most significant corruption risks for multinational companies. Outlined below are some of the key risk factors that make China particularly challenging: A. Heavy government influence in the economy and society It is probably not surprising that China -- and China’s economy -- is heavily influenced by government and government regulation. “Traditional” government agencies (e.g., Ministry of Commerce, Ministry of Health, Ministry of Land and Resources) exercise a broad range of regulatory approvals at national, provincial, and local levels. Laws outlining regulatory approval processes often are drafted broadly, giving agencies -- and individual government officials -- wide discretion in approving or rejecting regulatory applications, creating potential for companies to use improper influence to curry favor with officials. China’s massive number of state-owned enterprises (“SOEs”) reach down to the national and provincial levels and occupy significant swathes of the economy, in many cases having monopoly, oligopoly, or similar power, in some sectors making them a company’s key customers. Because of opaque ownership structures and lack of public company information in some cases, it is often difficult to tease out exactly what entities are government-owned, government-affiliated, government-influenced, or purely private.
C. Travel and Travel Agencies Paying for travel for government officials, customers at stateowned enterprises, or customers at private enterprises can present corruption risks in any country, including China. Using travel -- particularly disguised as a “research trip” or a “study visit” -- is a common way to curry favor with Chinese government officials and SOE customers, as evidenced by the 10 companies that have settled FCPA enforcement actions in the last six years related in part or in whole to providing allegedly improper travel benefits in China. Travel agencies are used broadly in China not only to book air and train tickets and hotels, but also as meeting planners and event organizers. In some cases, company employees collude with travel agencies or their employees to submit inflated fapiaos (tax-valid receipts), where the amount on the fapiao is more than the actual expense, allowing the difference to be used for an improper payment (or simply pocketed). Similarly, travel agencies have been known to submit fapiaos for events that never actually occurred. Travel agencies also can book transportation and provide a fapiao for an employee to seek reimbursement, then later cancel the ticket and refund the money to the employee, allowing the
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employee to be reimbursed for travel that never occurred. Further, travel agencies sometimes collude with employees to submit an “official” itinerary to be approved through the company’s official processes, and a “real” itinerary showing the actual itinerary, which might include significant sightseeing or stopovers. D. Gifts, Meals, and Entertainment China is rightly known as a relationship- and hospitality-driven culture, where gifts, meals, and entertainment play a key role in facilitating business relationships and building guanxi. These practices sometimes command attention from the compliance department because of the perception that Chinese business culture is markedly “different” than other cultures, and because companies (and their local employees) sometimes (incorrectly) assume that what might be a common local practice in some cases -- such as expensive gifts, lavish meals, or excessive entertainment -- is unlikely to violate either local law or other laws related to transnational bribery. E. Employee and Third-Party Expense Fraud Fraud is common in China in a variety of forms. Some of it is simply stealing money from the company for personal gain. In other cases, however, employee expense reports or third-party expense fraud is used to create a slush fund for improper payments. The fapiao is a tax-valid receipt provided by the recipient to show that the payment actually occurred. In theory, the fapiao system is meant to reduce fraud and tax evasion. In practice, however, fake fapiaos are readily available, as anyone with a Chinese mobile phone will attest from the neardaily text messages offering such fapiaos. And while some fake fapiaos can be detected by checking online on the Tax Bureau website, not all fapiaos can be thus checked, and some vendors advertise “high-end” fake fapiaos that will pass muster even with the Tax Bureau.
PROCURATORATE:
F. Industry-specific Risks Nearly every industry in China has its “hidden rules” (qian guize) -- unwritten rules known by industry insiders regarding how things are actually done in the industry in China. For pharmaceutical and medical device companies, for instance, industry-specific risks include consulting arrangements, sponsorships of doctors to attend meetings, sponsorship of certain meetings, clinical trials, distributors, and donations. The risk for multinationals doing business in China is that a newly hired local employee with significant industry experience might mistakenly assume that the company will tolerate -- or even encourage -- “playing by the local rules” in order to promote the company’s business interests. G. Uneven Regulatory Regimes and Enforcement of Local Law In addition to enforcement risks posed by laws on transnational bribery such as the FCPA and the Bribery Act, local PRC law has also grabbed headlines, particularly of late. China does not have a unified anti-corruption law; instead, relevant anti-corruption provisions and restrictions are found in: • the PRC Criminal Law, which provides for criminal penalties for both public-sector and commercial bribery; • the PRC Anti-Unfair Competition Law and its implementing regulations, which detail administrative enforcement of commercial bribery; and • additional restrictions and prohibitions found in various agency policies and rules. Three main agencies investigate and prosecute public-sector and commercial bribery in China. This table shows, in slightly simplified terms, how this authority is allocated.
PUBLIC SECURITY (POLICE)
ADMINISTRATION FOR INDUSTRY AND COMMERCE
Criminal only
Criminal only
Commercial bribery (administrative enforcement), but can refer charges to criminal authorities if evidence of a crime is committed
Power to investigate, inspect, and raid?
Yes (particularly if bribery/ corruption relates to public officials)
Yes
Yes
Power to bring charges against individuals and companies?
Yes
No (will refer case to Procuratorate for prosecution)
Yes
Power to enforce/assess penalties?
No (only courts have ability to determine criminal penalties)
No (only courts have ability to determine criminal penalties)
Yes (fines, confiscation of illegal income; commercial bribery violation may also result in blacklisting by other government
Other enforcement jurisdiction
Prosecute all crimes
Investigate crimes (other than those related to public officials); public order and other duties
Antitrust (non-pricing aspects of anticompetitive agreements and abuse of dominance), advertising, consumer protection, business registration, trademark infringement
Criminal vs. administrative enforcement authority?
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SPECIAL FEATURE PRC laws related to bribery and corruption are unevenly but sometimes aggressively enforced. PRC government efforts historically focused more on demand-side enforcement -- targeting corrupt government officials -- than the supply-side companies and individuals providing those bribes. As recent cases show, there is significant evidence that that paradigm has shifted, putting companies and individuals squarely in the cross-hairs for enforcement for commercial bribery or criminal bribery violations. Commercial bribery laws in particular are broadly worded and unevenly interpreted in different jurisdictions, giving local enforcers significant discretion in bringing charges and negotiating settlements, which in some cases relate to conduct that would be considered normal commercial behavior in other countries. Further, in many provinces and industries, a company violating commercial bribery laws will be blacklisted from public tenders (or in some industries, such as the pharma and device industries, all sales in a particular province) for multiple years. In most cases, a multi-year blacklisting can have a much more significant effect on revenue that paying even a large fine or undertaking a significant internal or external investigation. H. US Law Enforcement Related to China Perhaps because of the risks outlined above, since 2008, 24 FCPA enforcement actions against companies, and 15 FCPA enforcement actions against individuals, related in part or in full to payments in China. An additional 24 companies have publicly announced internal investigations into the possibility that improper payments have been made in China. These statistics do not include more than a dozen companies that publicly announced China-related FCPA investigations that were subsequently closed without an enforcement action. II. MITIGATING RISKS While risks can never be eliminated, they can be mitigated through tailoring compliance programs for Chinese-specific risks and by preparing in advance for internal or external investigations. A. Tailored Compliance Programs Most thoughtful companies already have well-established compliance programs in place that address many of the risks outlined above. Listed below are several additional considerations for maximizing a compliance program’s effectiveness in China. 1. Understand PRC law and tailor policies, procedures, and training accordingly. Many companies’ policies, including contractual clauses and training modules, are modeled on the FCPA. Unlike the FCPA, PRC law covers both public-sector bribery and commercial bribery, so programs must include both for maximum effectiveness. In my experience conducting dozens of trainings in Mandarin, local employees in China are significantly more likely to pay attention to the training when the presenter leads with a detailed explanation of PRC law -- the requirements and risks of enforcement -- and then follows with an overview of the FCPA and/ or Bribery Act, explaining why the company’s policies and procedures protect both the employee and the company from risk under all of these laws. 2. Ensure that policies, procedures, and training are in Chinese. It can be challenging to convince an employee to read a detailed compliance policy even in their native language, and it can be even more difficult to make compliance material accessible to someone in their second language. Ensure that the translation of materials is accurate and readable. We are contacted every few months to re-do a translation of a compliance policy because headquarters has found that the original Chinese translation is either unintelligible to local employees or, worse, misleading about what is expected.
COMMERCIAL BRIBERY LAWS ARE BROADLY WORDED AND UNEVENLY INTERPRETED.
Similarly, ensure that live and online training is presented in Chinese. While many local employees have solid English skills, often the nuanced, factor-specific explanations of what makes a particular activity acceptable versus unacceptable are missed when training is presented in English rather than Chinese. In my experience, the large majority of local employees want to do the right thing and will try their best to do so if they clearly understand expectations. 3. Third Parties: Make Sure Due Diligence Makes Sense. Risk-based due diligence is just that: different levels of diligence for different types of third parties. Mitigating risk related to third parties -- agents, distributors, consultants, travel agencies, conference companies -- depends on understanding the types of services a third party provides and then conducting appropriate due diligence. Due to the limited availability of reliable online or publicsource information, contracting with external due diligence providers may be advisable in some higher-risk situations, although the recent enforcement action against ChinaWhys suggests that such providers may also themselves be at risk of enforcement action, even for conducting normal business due diligence. While robust contractual clauses related to anti-corruption are of course necessary, I have found that a candid training and/ or conversation with a third party about the company’s expectations related to compliance (anti-corruption and in other aspects) can be very effective in talking through what types of activities are and are not acceptable, and removing the suggestion to the third party that the company’s compliance policies are a “paper tiger.” Those types of informal measures should,
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FRAUD IS COMMON IN CHINA IN A VARIETY OF FORMS. SOME OF IT IS SIMPLY STEALING MONEY FROM THE COMPANY FOR PERSONAL GAIN. IN OTHER CASES, HOWEVER, EMPLOYEE EXPENSE REPORTS OR THIRD-PARTY EXPENSE FRAUD IS USED TO CREATE A SLUSH FUND FOR IMPROPER PAYMENTS.
of course, be supplemented -- at least in higher risk cases -- with more formal, auditable due diligence controls. 4. Take a Sensible Approach to Gifts, Meals, and Entertainment. While gifts, meals, and entertainment can create risk if not controlled sensibly, it is important that scarce compliance resources be dedicated to the highest risk areas. Most companies find success in establishing reasonable limits and internal approval processes in this area. The approach that works best is the one that makes sense for the company and its unique risks based on the company’s need for regular interactions with customers and government. 5. Consider a Compliance Audit for China. Many companies have found success and comfort in conducting a “compliance audit” of their China affiliate. Sometimes termed a “risk assessment” or “compliance health check,” this is similar to doing M&A due diligence -- but on your own affiliate. Different from a financial audit or an investigation, a compliance audit might include, with the assistance of internal or external resources, a review of local policies and procedures, targeted testing/sampling of books and records and compliance-related documentation (including third-party invoices and employee reimbursable expenditures), and interviews with local management and employees at different levels. After we have assisted in such audits, our clients often comment on some or all of the benefits:
compliance: employees at the affiliate almost always pay much closer attention to compliance after they have been interviewed as part of an assessment • Improves confidence at headquarters in what is “actually going on in China” 6. Invest Appropriate Resources in China. While many things in China are cheaper than at headquarters, qualified China-based compliance officers are not always one of them. As the number of companies operating in China have expanded and the compliance risks have increased, finding sophisticated compliance officers -- particularly those significant experience -- has turned into a talent war. Companies can reduce turnover by ensuring that local compliance officers are properly recruited, compensated, and supported. 7. Look for Opportunities for Collective Action. Most companies in a particular industry face similar corruption risks and exposure. Working through an industry association, chamber of commerce, or other external organization can help to develop a China-specific industry code of conduct so that a company is not disadvantaged vis-à-vis its competitors for having a robust compliance program. Collective action may also be useful to engage the government to clarify policies and issue guidance regarding regulatory procedures that can lessen the scope for government officials seeking improper payments.
• Permits discovery of problems or potential problems before they become the subject of an investigation or the subject of a whistleblower complaint (internal or external)
B. Peacetime Preparations for Investigations An internal investigation -- and especially an external investigation by a government regulator -- can be an harrowing experience, particularly in China, where local laws and local regulators can seem especially unfamiliar. Companies can prepare in advance during “peacetime” to maximize effectiveness and response when an investigation arises.
• Allows informed modifications (sometimes tightening, sometimes loosening) to policies and procedures to account for local laws and circumstances • Effectively signals to local employees the importance of
1. Train Employees on “Dos and Don’ts” of Interacting with Government Investigators. Some companies have developed a short list of “dos and don’ts” of interacting with government investigators. Such a list can
• Provides a more nuanced approach to risk, allowing the company to more effectively deploy resources
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SPECIAL FEATURE help employees remember what to do during a “dawn raid” by local officials and ensure that the legal and compliance department is kept informed as the inspection progresses, and that the investigation response is conducted consistent with local regulatory requirements. 2. Develop a Rapid Response/Triage Plan. When an adverse story in the Chinese media hits, a regulator schedules an announced visit, or a whistleblower in China sends an email with explosive allegations, senior company executives usually want basic answers fast: how big is the problem, and what can we do to find out as much as possible as soon as possible? It is useful to have a template plan ready to do an initial, triaged investigation to determine the size of the potential problem and decide how aggressive the response needs to be. That plan should identify local internal and external resources available to assist in data preservation, interviews, review of hard copy and electronic documents, and advising on local law implications of investigation steps. 3. Understand in Advance China’s Data Privacy and State Secrets Laws. China’s data privacy laws have evolved considerably in the last two years. Knowing in advance of an investigation what can and cannot be done with respect to collecting, reviewing, and exporting employee data can save valuable time. A clear and current policy governing employee use of company IT assets, drafted in Chinese, can help to further mitigate risk of inadvertently violating PRC data privacy laws.
CHINA’S CORRUPTION CRACKDOWN SHOWS NO SIGNS OF ABATING. COMPANIES THAT PREPARE NOW CAN MINIMIZE RISK.
Separately, China’s State Secrets Law can, in some cases, provide investigative challenges in obtaining and exporting certain types of data held by the China affiliate or its employees, so it is useful to understand well in advance whether it is likely that the China affiliate’s data might be subject to those restrictions. 4. Understand the China Affiliate’s IT Architecture and Accessibility of Information. Some of our clients have realized through hard experience that their IT system in China is not configured the same way as at headquarters, so tasks such as remotely or covertly collecting email or network data from China either is impossible or takes significantly longer than anticipated. Understanding in advance what data collection is and is not possible in China and what level of local IT personnel involvement is necessary can save valuable time when an investigation arises.
FACTS & FIGURES
5. Update and Tailor Crisis Management, Media Responses, and Government Relations Strategies. Some companies have started to tailor their global crisis management plan to be specific to China, particularly with regard to differences in media, social media, and government interactions in China. For bribery and corruption issues, it may be useful to draft, in Chinese and English, a template stand-by statement and key questions and answers covering situations such as a whistleblower report made to the press, a government investigation, or the arrest of an employee related to improper conduct. China’s corruption crackdown shows no signs of abating, but companies that prepare now can minimize risk and brace themselves if trouble does come through specific modifications to compliance programs and by preparing now for future investigations.
EXPERT BIO Eric R. Carlson is a Beijing-based partner at Covington & Burling LLP. He specializes in anti-corruption compliance and internal investigations, with a particular focus on China and other regions of Asia. He speaks fluent Mandarin and Cantonese.
34: In China, 34% believe that company management is likely to take shortcuts when economic conditions are tough according to the 2013 Asia-Pacific Fraud Survey by Ernst & Young, a study which interviewed nearly 700 executives, managers and working-level employees about perceptions of fraud, bribery and corruption across the Asia Pacific region, specifically focusing on Australia, China, Indonesia, Malaysia, New Zealand, Singapore, South Korea and Vietnam.
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As global enforcements on corruption intensify, a company’s transparency in all business transactions is essential—now more than ever. Neglecting thorough due diligence is not an option when your company’s reputation and stock value is at stake. Aggravated by the global economic crisis, desperate people will cut ethics for an extra dollar, and if associated, your company’s future is at risk. So, dig deep. Do more than check. Investigate » info.kreller.com/due-diligence-report for a free sample report
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www.kreller.com | 1.800.444.6361 SINCE 1988 ETHI_Q4_2012_G&B.indd 1
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BRIBERY & ANTI-CORRUPTION The Nickel Or Not?...56 // FCPA Counselor ...58 // The New Chinese Checkers ...60
THE NICKEL OR NOT?
The Fifth Amendment Privilege For Individuals In FCPA Investigations. Written By Charles A. Ross and Dmitriy Shakhnevich This article contains information regarding the following topics: STRATEGY + LEADERSHIP + RISK MANAGEMENT During the past few years the Department of Justice (DOJ), the Securities and Exchange Commission (SEC) and local United States Attorney’s Offices have increasingly begun investigating and prosecuting individuals for violations of the Foreign Corrupt Practices Act (FCPA). While FCPA investigation and enforcement has long focused upon companies, it has become clear that the DOJ means to put employees, former employees, officers and directors of corporate entities in the cross hairs of investigation and potential indictment. If an individual receives a subpoena by DOJ for grand jury testimony, they may explore the viability of invoking their Fifth Amendment privilege and 56 Q3 \ 2013 \\ ETHISPHERE
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refuse to answer questions posed in either a grand jury proceeding or in a proffer session with prosecutors and agents. The SEC or other regulatory agencies may request an on the record statement. If there are on-going and concurrent civil regulatory investigations, such as a potential SEC enforcement action, the individual runs the risk that an invocation will serve to allow regulators to argue for an adverse inference instruction before a jury if a civil action reaches trial. Moreover, companies may hold some sway over individuals and encourage them to cooperate in order to remain in good standing as an employee at the company. Thus, “taking five” is a much more delicate proposition than if a
client is simply faced with possible criminal charges alone. The United States Supreme Court has held that the 5th Amendment’s privilege against self-incrimination can be invoked in any proceeding, civil or criminal, administrative or judicial, investigatory or adjudicatory. Kastigar v. United States, 406 U.S. 441, 444 (1972). An adverse inference may be drawn against a person who has asserted the privilege in civil and administrative cases. Baxter v. Palmigiano, 425 U.S. 308, 318 (1976). However, there is no rule that a jury must learn of a party’s or witness’ invocation of the Fifth Amendment. The court generally has significant discretion to decide whether or not to admit evidence of a witness’ invocation of the Fifth Amendment. SEC v. WWW.ETHISPHERE.COM
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BRIBERY & ANTI-CORRUPTION Colello, 139 F.3d 674, 677 (9th Cir. 1988). Approaches To Avoid An Adverse Inference Charge Once a client has decided to accept the advice of counsel and invoke their 5th Amendment privilege there are a variety of arguments that may be made to avoid an adverse inference charge if the client is ultimately named in a civil regulatory or enforcement action. First, a stay request may be available if both criminal and civil charges are brought simultaneously. Often government prosecutors request that civil proceedings be stayed pending the outcome of a criminal indictment. Second, an invocation is “proceeding specific”. If the client invokes in connection with a DOJ request, civil regulators may not seek to admit that invocation to obtain an adverse inference charge. However if a client invokes their Fifth Amendment privilege in response to a request from the SEC for a formal statement, what arguments are available to counter regulators claims at trial for an adverse inference charge? An SEC investigation, as opposed to an enforcement proceeding, does not adjudicate an individual’s rights. The client is not presented with potential allegations, causes of action, or any specific instances of violations of the law from which he might prepare a response. Thus, it can be argued that the investigation was not the proceeding in question. A formal enforcement action is a different proceeding. Moreover, the SEC’s Division of Enforcement investigates and litigates the same laws and rules, albeit with different intent requirements and burdens of proof, as criminal prosecutors at DOJ. The SEC can impose fines and restitution, injunctions, industry bans and bar orders. Enforcement proceedings can end careers and bankrupt those who commit civil violations of the federal securities laws. Thus, an SEC enforcement proceeding is quasicriminal in nature. Indeed, arguments by the SEC in the trial of an enforcement action to draw an adverse inference against a client who invoked privilege at the investigative stage or even a client who invoked at trial may be analyzed with greater scrutiny especially in light of United States v. Stein, et al. In Stein, the Second Circuit Court of Appeals affirmed a lower court decision to order the extraordinary remedy of dismissing an indictment. In Stein, the court held that the government interfered with the defendant’s Sixth Amendment right to counsel and intimidated the defendants’ employer to adopt and enforce a policy that required cooperation as a condition for the employer advancement of client legal fees. Under the Stein analysis, a forceful compelling argument may be made to a future court to interpret such pressure as an unconstitutional interference with an individWWW.ETHISPHERE.COM
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WHILE FOREIGN CORRUPT PRACTICES ACT INVESTIGATIONS AND ENFORCEMENT HAVE LONG FOCUSED UPON COMPANIES, IT HAS BECOME CLEAR THAT THE DEPARTMENT OF JUSTICE MEANS TO PUT EMPLOYEES, FORMER EMPLOYEES, OFFICERS AND DIRECTORS OF CORPORATE ENTITIES IN THE CROSS HAIRS OF INVESTIGATION AND POTENTIAL INDICTMENT.
ual’s Fifth Amendment right against selfincrimination, much as the Second Circuit held that the government’s meddling into the payment of private attorney’s fees was an unconstitutional interference with the defendants’ Sixth Amendment rights. Finally, under Rule 403 of the Federal Rules of Evidence the balancing of prejudice versus probative value makes a strong case in favor of denying an adverse inference. The quasi-criminal nature of a regulatory proceeding, the potential consequences, and the governmental intimidation factor should all contribute to a strong case for denial of the adverse inference.
Expect Biography Charles A. Ross is the founding member of Charles A. Ross & Associates, LLC, with offices in New York City and Miami. A cum laude graduate of New York Law School, he is a former Chair of The White Collar Crime Group at Herrick Feinstein and Partner at the former Brafman & Ross, PC., now Brafman and Associates. Dmitriy Shakhnevich is a graduate of New York Law School and an intern at the firm.
DOJ and SEC work in tandem very often. Whether in an FCPA case or securities fraud case the same arguments may be made to defend against a regulator seeking to admit a client’s invocation of the Fifth Amendment to try to get an adverse inference. ETHISPHERE \\ 2013 \ Q3 57
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BRIBERY & ANTI-CORRUPTION
FCPA COUNSELOR FOR SILICON VALLEY An Interview with Robert W. Tarun Interview By Ethisphere
This article contains information regarding the following topics: STRATEGY + LEADERSHIP + RISK MANAGEMENT
Ethisphere sat down with Robert Tarun this quarter, Partner at Baker & Mckenzie and author of the Third Edition of The FOREIGN CORRUPT PRACTICES ACT HANDBOOK: A PRACTICAL GUIDE FOR MULTINATIONAL GENERAL COUNSEL, TRANSACTIONAL LAWYERS AND WHITE COLLAR CRIMINAL PRACTITIONERS, to gain some insight and learn a bit more about his recent accomplishments. Bob, why did you decide to write a Third Edition in less than four years? The American Bar Association reported that the two previous editions were among its best-sellers and, of course, the FCPA remains a major DOJ and SEC enforcement priority. Nine months ago, I analyzed the Second Edition and found I could update 75% of its Sections so I decided to “forego a life” for 58 Q3 \ 2013 \\ ETHISPHERE
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half a year. The handbook has doubled from 550 pages to 1020 pages in less than 3 years, notwithstanding some pruning.
What value does THE FCPA HANDBOOK offer to multinational general counsel and in-house colleagues?
Give us some examples of new material in the Third Edition?
B: First and foremost, as the title suggests, this is a highly practical handbook - based on over 100 internal investigations in fifty countries for multinational companies, so it speaks to their world. More FCPA internal investigations today are being handled jointly with in-house counsel; in working closely with these lawyers, I can, for example, quickly direct counsel to the data privacy hurdles or potential remedial measures in Chapter 8, or guide them, or an audit committee or board to strategies in Chapter 9; or offer similar factual scenarios among the 100-plus enforcement actions describe in Chapter 10. We can quickly coordinate be on the same page and understand the next steps.
I cover the November 2012 DOJ-SEC Resource Guide to the FCPA in detail as well as devote substantial attention to the UK Bribery Act since both are top of mind for many multinational corporations. While the Resource Guide is a welcome update to the DOJ Layperson’s Guide to the FCPA, it still is, in significant part, only the DOJ and SEC’s view of the law and, as important, does not address conducting an FCPA internal investigation or, of course, defending a DOJ or SEC investigation. THE FCPA HANDBOOK devotes two chapters and over 100 pages to these critical subjects.
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BRIBERY & ANTI-CORRUPTION What are the challenges of voluntary disclosure? There are benefits and downsides to voluntary disclosure. The benefits from the DOJ include more DPAs and NPAs for companies that truly and fully cooperate. Downsides include delays and penalties that still do not in my opinion sufficiently credit in many cases good companies, their management, and boards. My colleague Peter Tomczak and I proposed an FCPA Leniency Program in the American Criminal Law Review’s Silver Anniversary issue. It received significant attention on the Hill and within the defense bar, but the DOJ and SEC have not pushed the cooperation credit needle as much as they could. Regardless, whether companies choose to voluntarily disclose, they must stop any misconduct and promptly remediate. What do you mean by delays? Many multinationals conduct quality internal investigations, voluntarily disclose and report their findings to the government. In some cases the DOJ and SEC have taken six months or much longer to come to resolution after receiving largely uncontested facts from multinationals. Those delays, while not intended by the DOJ and SEC’s talented and dedicated lawyers, hurt innocent shareholders and companies that have long since addressed misconduct. As with FCPA opinion release procedures today, I believe the DOJ and SEC should implement strong internal timetables to promptly turn around and fairly resolve matters for companies that have disclosed and fully cooperated. What do you see in Silicon Valley on the FCPA front? I wish I saw Silicon Valley more, but I travel a third of the year – often for Silicon Valley companies and their foreign subsidiaries. As with other industries, I see some companies that are way ahead on compliance, some saying the FCPA is on their priority list and a few dangerously betting FCPA enforcement will not come to their theatre. Smart companies proactively customize their FCPA compliance, training and audits to the real risks they face - be it the channel sales model or BRIC operations. The DOJ and SEC will quickly spot a paper program or canned training. What advice do you have for companies that want to conduct internal investigations in-house? It can work if one has available and experienced internal resources, but it is usually best done in coordination or consultation with FCPA counsel. There remains a significant risk that the DOJ and SEC, rightly or wrongly, may dismiss a solely in-house counsel investigation as not sufficiently independent. I have seen joint inside counsel - outside counsel investigations work extraordinarily well. WWW.ETHISPHERE.COM
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IN SOME CASES THE DOJ AND SEC HAVE TAKEN SIX MONTHS OR MUCH LONGER TO COME TO RESOLUTION AFTER RECEIVING LARGELY UNCONTESTED FACTS FROM MULTINATIONALS.
Can you give an example? We represented a Fortune 500 example in California where the DOJ and SEC were able to efficiently conclude their work in six months - due in substantial part to very skilled in-house counsel who quickly marshaled key employees and secured relevant databases. I cannot share the name or details. That case will remain in a confidential drawer of declined matters. What are five areas where FCPA counsel can especially help GCs and in-house staff? 1) Properly “scoping” an investigation; 2) committing to credible, lasered searches of emails - the DNA of white collar criminal investigations; 3) upgrading thoughtful internal controls, audits and third party due diligence when resources are limited; 4) implementing important remedial measures including, as appropriate, discipline of managers who either failed to supervise or crossed the line; and 5) adhering to a remediation timetable when other pressing business matters come along. The Third Edition has received exceptional praise from top lawyers and forensic accountants alike in New York, London, Shanghai, Silicon Valley and Washington. Are you surprised?
cal and useful to professionals wherever they work. The most satisfying praise was not from the far corners of the world, but from a former student of mine at the University of Chicago Law School, and now a partner at a major law firm in Indianapolis, who wrote that his second edition was “dog-eared.” You co-authored the highly respected CORPORATE INTERNAL INVESTIGATIONS (Law Journal Press) twenty years ago and now what some call “the FCPA Bible”. What’s next? At some point a Great American novel. Really? Really. It’s a dream, but so were both legal publications.
Expert Biography Bob Tarun is a Baker & McKenzie partner in San Francisco. A former Executive Assistant U.S. Attorney in Chicago and a past regent of the American College of Trial Lawyers, he recently was appointed the first independent corporate antitrust monitor ever.
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BRIBERY & ANTI-CORRUPTION
THE NEW CHINESE CHECKERS
GSK as a Game Changer in International Anti-Corruption Enforcement Written By Thomas Fox This article contains information regarding the following topics: STRATEGY + LEADERSHIP + RISK MANAGEMENT
In June of this year, the Chinese government announced that it had found evidence that the UK pharmaceutical giant GlaxoSmithKline PLC (GSK) was involved in bribery and corruption of Chinese doctors. An article in the Financial Times (FT), entitled “China accuses GSK of bribery” by Kathrin Hille and John Aglionby, reported that “China has accused GlaxoSmithKline of being at the centre of a “huge” scheme to raise drug prices in three of the country’s biggest cities and said the UK-based drugmaker’s staff had confessed to bribing government officials and doctors. China’s Ministry of Public Security said a probe in Changsha, Shanghai and Zhengzhou found that GSK had tried to generate sales and raise drug prices by bribing government officials, pharmaceutical industry associations and foundations, hospitals and doctors.” 60 Q3 \ 2013 \\ ETHISPHERE
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They reported that some of the techniques used included the issuance of “fake VAT receipts and used travel agents to issue fake documents to gain cash, according to the ministry. Some executives had also taken advantage of their positions to take kickbacks from organising conferences and projects.” Further, ““There are many suspects, the illegal behaviour continued over a long time and its scale is huge,” the ministry said.” In another FT article, entitled “China steps up GSK bribery probe”, Andrew Jack and Leslie Hook reported that “The Chinese authorities have stepped up their investigation into GlaxoSmithKline accusing it of being the ringleader of a half-abillion-dollar bribery scandal involving 700 companies.” They reported on a briefing given by “Gao Feng, the lead Chi-
nese investigator on a probe into the UK drugs group, said police were examining Rmb3bn ($488m) in deals from as far back as 2007. Chinese police believe that GSK used travel agencies and consultancies as a conduit to bribe doctors and lawyers in order to boost sales and profits.” These findings flew in the face of the company’s own internal investigation into allegations of bribery and corruption brought by a whistleblower. Hille and Aglionby reported that “GSK said it had conducted an internal four-month investigation after a tip-off that staff had bribed doctors to issue prescriptions for its drugs. The internal inquiry found no evidence of wrongdoing, it said.” Indeed after the release of information from the Chinese government, which GSK said was the first it had heard of the investigation, WWW.ETHISPHERE.COM
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BRIBERY & ANTI-CORRUPTION it released a statement quoted in the FT article, which stated ““We continuously monitor our businesses to ensure they meet our strict compliance procedures – we have done this in China and found no evidence of bribery or corruption of doctors or government officials. However, if evidence of such activity is provided we will act swiftly on it,” the company said.” Unfortunately for GSK, it appears that not only did the Chinese government uncover evidence of bribery and corruption, such information was viewed and reported on by the WSJ. Laurie Burkitt, in an article entitled “China Accuses Glaxco of Bribes”, wrote that “Emails and documents reviewed by the Journal discuss a marketing strategy for Botox that targeted 48 doctors and planned to reward them with either a percentage of the cash value of the prescription or educational credits, based on the number of prescriptions the doctors made. The strategy was called “Vasily,” borrowing its name from Vasily Zaytsev, a noted Russian sniper during World War II, according to a 2013 PowerPoint presentation reviewed by the Journal.” Burkitt reported in her article that “A Glaxo spokesman has said the company probed the Vasily program and “[the] investigation has found that while the proposal didn’t contain anything untoward, the program was never implemented.” Burkitt also reported that the Chinese crackdown may be a part of a larger crackdown on bribery and corruption. While it is not clear at this point, she stated that “scrutiny of foreign corporations operating in China has been heightened in recent months, as the government has launched a campaign to clean up its commercial sector, cracking down on practices authorities view as abusive or anticompetitive.” In an FT article, entitled “GSK claims show frailty of Chinese system”, Andrew Jack said that “The Chinese government has been clamping down on such practices [bribery and corruption] and attempting to keep a lid on drug costs, with an increasing focus on multinational companies. The National Development and Reform Commission in Beijing last week signaled that it was examining pricing by 60 companies.” Most ominously FT reporters, Patti Waldmeir, Jamil Anderlini and Andrew Jack wrote in a piece entitled “China drug bribe probes broaden”, that Chinese authorities are widening their probe of western pharmaceutical companies. The entry of the Chinese government into the international fight against corruption and bribery is truly a game-changer. While there may be many reasons for this very public move by the Chinese government, it is clear that foreign companies are now on notice. Doing business the old fashioned way will no longer be tolerated. I agree with Volkov, that the GSK bribery and corruption investigation will be the Number 1 development for the year in WWW.ETHISPHERE.COM
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THE INTERNATIONAL COMPONENT OF THIS INVESTIGATION MAY WELL INCREASE ANTI-CORRUPTION ENFORCEMENT ACROSS THE GLOBE.
anti-corruption compliance. This means that international (read: western) companies operating in China have a fresh and important risk to consider; that being that they could well be subject to prosecution under domestic Chinese law. The international component of this investigation may well increase anti-corruption enforcement across the globe. First of all, when other countries notorious for their endemic corruptions, for example India, see that they can attack their domestic corruption by blaming it on international businesses operating in their company; what lesson do you think they will draw? Most probably that all politics are local and when the localities can blame the outsiders for their own problems they will do so. But when that blame is coupled with violations of local law, whether that is anti-bribery or anti-price fixing, there is a potent opportunity for prosecutions. Just as importantly is the individual perspective. For many western ex-pats who are considering working in China, this may cause them to rethink whether or not they are willing be stationed in the country for fear of being caught up in the Chinese judicial system, which is a system not known for protecting individual due process rights and this factor cannot be overstated because wherever you do not want to be, imprisoned in China is near the top of the list.
think that the GSK matter will be with us for some time. As bad as it seems about now, and it certainly appears bad, there are many lessons which the compliance practitioner can not only draw from but use for teaching moments within your company. The prior premonition “if you are subjected to a FCPA sweep” may now have changed to “when” so one of those lessons should be expanded to include investigations by local or national officials regarding violations of their own domestic laws against bribery and corruption.
Expert Biography Thomas Fox has practiced law in Houston for 25 years. He is now assisting companies with FCPA compliance, Risk Management and international transactions. He was most recently the General Counsel at Drilling Controls, Inc., a worldwide oilfield manufacturing and service company. He was previously Division Counsel with Halliburton Energy Services, Inc. where he supported Halliburton’s software division and its downhole division, which included the logging, directional drilling and drill bit business units.
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SPECIAL FEATURE
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TO HELP YOU WADE THROUGH, WE’VE NARROWED IT DOWN TO THE MUST KNOWS FOR THE BUSY PERSON RESPONSIBLE FOR THE ETHICAL LEADERSHIP, COMPLIANCE AND CORPORATE SOCIAL RESPONSIBILITY.
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THE FOLLOWING SUMMARIES OF VERY IMPORTANT CASES, REGULATIONS AND ENFORCEMENTS CAN BE EXTREMELY BORING.
INDEX ON THE FACING PAGE By Ethisphere 64 Q3 \ 2013 \\ ETHISPHERE
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ANTITRUST & BUSINESS PRACTICES • Brazilian Oil Company Settles $1.3M Antitrust Case • Apple App Store Antitrust Suit Thrown Out by Judge • Apple e-Book Settlement Requires Antitrust Monitor
CORPORATE CITIZENSHIP & ETHICS • AT&T Selected as Meal Exchange’s 2013 Supporter of the Year • MillerCoors Sustainability Report Reveals Water Conservation Record
PRODUCT LIABILITY • Chobani Yogurt Recalls Product for Mold Contamination • Surgical Device Manufacturer Faces Liability Suit Over Injuries
TRADE SECRECTS & IP • Three HTC Employees Accused of Stealing Trade Secrets • $5M Award Affirmed in Trade Secrets Settlement
WHISTLEBLOWERS EMPLOYMENT LAW & DISCRIMINATION • $160M Race Discrimination Suit Settlement Reached • SF Giants Pay $545K in Back Wages
ENVIRONMENT, HEALTH & SAFETY • Safeway Fined $600K for Clean Air Act Violations
• MGM Resort Ordered to Rehire Whistleblower; $325k Fine • Whistleblower Claims Laboratory Defrauded Virginia Medicaid Program
WORKPLACE, CUSTOMER SAFETY • Company Faces $1M Fine for 24 Workplace Safety Violations • OSHA Awards $10.1M in Safety and Health Grants
FINANCE & FRAUD • Former Insurance Agent Sentenced to 18 Months For Fraud • Ex JPMorgan Trader Arrested for Involvement in • Medical Spokeswoman Fined $200K in Medicare Fraud
GOVERNANCE, BOARDS & CEOS • Chicago Medical Group CEO Charged With Medicare Fraud • Former CEO Convicted of Tax Fraud
INSIDER TRADING • Former RBC Employee Sentenced to 23 Months in Prison • Financial Analyst Pleads Guilty
INTERNATIONAL/FCPA
ACCORDING TO EUROINVENSTOR, REGULATORS AFFIRMED THAT OGX AGREED TO PAY A THREE MILLION BRAZILIAN REAIS FINE ($1.3 MILLION USD) FOR THE MOVING FORWARD WITH THE SALE WITHOUT LEARNING OF THE AGENCY’S DECISION.
• China Drug Maker Investigating $130M Bribe Allegations • Eli Lily Facing $4.9M China Bribery Allegations • JPMorgan Under US Probe For Chinese Hiring Scheme
MARKETING & CUSTOMER RELATIONS • Businessman Settles $1.3M Market Manipulation Scheme
PRIVACY & INFORMATION SECURITY • New Study on Anonymity, Privacy and Online Security • Facebook Delays New Privacy Policy
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CALL YOUR ATTORNEY ANTITRUST & BUSINESS PRACTICES
CORPORATE CITIZENSHIP & ETHICS
Brazilian Oil Company Settles $1.3M Antitrust Case
AT&T Selected as Meal Exchange’s 2013 Supporter of the Year
Brazil’s largest private sector oil company, OGX Petroleo e Gas Participacoes, specializing in the exploration and production of natural gas and oil, was fined by local antitrust authorities for an offshore oil concession purchase deal that had not yet received approval. According to EuroInvenstor, regulators affirmed that OGX agreed to pay a three million Brazilian reais fine ($1.3 million USD) for the moving forward with the sale without learning of the agency’s decision.
This quarter, the Canadian national youth-driven charity, Meal Exchange has selected AT&T as its 2013 supporter of the year, for its numerous contributions and service aid this past year. According to a statement, AT&T CARES recently donated $5,000 in addition to 48 hours of employee volunteerism. All support went towards helping the organization connect with Canada’s youth in helping to alleviate local hunger and gain food security.
As reported by EuroInvestor, OGX purchased a 40% stake in the BS-4 oil natural-gas exploration block from Petroleo Brasileiro for $270 million. The agency reserved the right to rescind the purchase, but instead imposed the fine due to the sale having not generated any anticompetitive effect and because the field is not yet in operation. Apple App Store Antitrust Suit Thrown Out by Judge Attacks trending against Apple this past quarter took a turn for the better, after a U.S. District judge in California threw out a two-year-old lawsuit. The suit was filed by consumers who alleged that Apple had monopolized its phone’s app sales, further alleging that Apple was acting criminally by approving the high sale price of certain applications, verses the cheaper versions which were not approved by Apple. “At a minimum, plaintiffs must allege facts showing that each named plaintiff has personally suffered an injury-in-fact based on Apple’s alleged conduct,” Judge Yvonne Gonzalez Rogers said, according to Bloomberg. According to TechnoBuffalo, Apple nets 30% of the revenues from the apps sold from the app store, which serves as a source of controversy for consumer’s; however, the process in which an app is either green light or nixed is a meticulous process in which Apple determines whether or not the application will damage its phone’s “software experience”. That being said, the higher the price of the application, the more Apple will make off the sale of the product. TechnoBuffalo reports that the plaintiffs intend to refile their case. Apple e-Book Settlement Requires Antitrust Monitor In relation to the previous quarters ruling that Apple and five publishers were involved in an e-book price fixing scheme, U.S. District Judge Denise Cote ruled that Apple must pay for an independent antitrust monitor for the next five years. According to the Los Angeles Times, the ruling also prevents Apple from making deals with those same five publishers, should the terms of the deal limit any option for discounts. Those five publishers, which Ethisphere reported on in the Q1, reached settlement agreements before Apple had gone to trial. Despite the ruling, Apple declines to admit fault, and mentioned of its plans to appeal the injunction. “Apple did not conspire to fix e-book pricing,” said spokesman Tom Neumayr in a statement. “The iBookstore gave customers more choice and injected much-needed innovation and competition into the market.”
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“The issue of hunger is something that requires consistent support,” said Peter Kapler, Executive Director, Meal Exchange, in a statement. “We are very thankful for AT&T’s employee engagement and funding contributions to support the community service and university campus programs designed to provide adequate food for those suffering from hunger.” “Meal Exchange continues to do tremendous work to help alleviate hunger in Canada,” said David Aspinall, Sales Vice President of AT&T Global Services in Canada, in a statement. “We are thrilled that our employees continue to lend their support to this student-led organization, and we are honored to be recognized as Meal Exchange’s Supporter of the Year.” AT&T CARES continues its commitment to Meal Exchange by assisting with community service programs that provide for those struggling with hunger. MillerCoors Sustainability Report Reveals Water Conservation Record MillerCoors’ recent Sustainability Report released this quarter revealed that the company has decreased water use by 6.1 percent to a record low 3.82 barrels in 2012. MillerCoors aims to reduce its overall water footprint by reducing water use in its supply chain. In partner with The Nature Conservancy, MillerCoors established a new farm in Idaho’s Silver Creek Valley where is intends to explore new farming techniques that reduce water use. “Our employees are the driving force behind our sustainability efforts,” said MillerCoors CEO Tom Long, in a statement. “Whether it’s reducing water use in the brewery, finding ways to send zero waste to landfills or ensuring that our consumers get a safe ride home, our people are committed to doing the right thing.” According to a press release put out by MillerCoors this quarter, the company has several new initiatives it executed in 2012, most notably its efforts to reduce waste, achieving a zero waste to landfill status. Additionally, the company’s sustainability report also highlights other successes in sustainability, according to CSR wire, which includes: • Celebrating 25 years of providing safe rides across the country through the Miller Lite Free Rides program • Expanding efforts to prevent underage access to alcohol to 18 new communities and 616 new retailers • Decreasing energy use by 5.4 percent, achieved in part by installing new brewery processes, including an efficient refrigeration system at some breweries • Increasing spending with minority- and women-owned businesses to $1.75 billion since 2009 • Generating $14.2 million for nonprofit partners through employee and corporate fundraising initiatives
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CALL YOUR ATTORNEY EMPLOYMENT LAW & DISCRIMINATION $160M Race Discrimination Suit Settlement Reached Merrill Lynch has reached a $160 million settlement with approximately 1,200 African American financial advisors over a lawsuit that accuses the brokerage firm of racial discrimination. Though still pending federal judge approval, the case is one of the largest racial discrimination suits ever, according to Bloomberg Businessweek. Plaintiff George McReynolds accused Merrill Lynch of keeping African American brokers from the most profitable business ventures, allowing its Caucasian employees to earn significantly more, a 43% deficit in compensation on average in 2006, Bloomberg Businessweek reports. According to a plaintiffs 2009 filing, they claim that fewer than 2 percent of the brokers at Merrill Lynch are African American.
ENVIRONMENT, HEALTH & SAFETY Safeway Fined $600K for Clean Air Act Violations Grocery chain conglomerate Safeway, Inc., has been fined a total of $600,000 for Clean Air Act violations, dating from 2004 o 2007. Safeway violated the clear air laws by failing to fix leaks in its refrigerators in a timely manner. Safeway also failed to keep proper maintenance records at its facilities. According to Bloomberg Businessweek, the settlement reached with Safeway and the U.S. Environmental Protection Agency and the DOJ is the largest ozone protection case settlement ever reached under the Clean Air Act. Additionally, Safeway has agreed to reduce its average leak rate from 25% to 18% by 2015, and will accomplish by investing a reported $4.1 million in new equipment and systems upgrades.
According Bloomberg, Merrill Lynch released the following statement; “We’re not at this point commenting on the existence of the settlement nor the status of a settlement.” SF Giants Pay $545K in Back Wages World Series champions, the San Francisco Giants paid roughly $545,500 in damages and back wages to a total of 74 clubhouse employees, in addition to administrative employees. The Giants violated minimum wage requirements, overtime and record keeping laws, according to the Huffington Post. The Department of Labor revealed that during a three year period, clubhouse employees were working longer hours than were actually being reported, and were instead receiving pay that equated to less than the federal minimum wage of $7.25 an hour.
IT WAS DISAPPOINTING TO LEARN THAT CLUBHOUSE WORKERS PROVIDING SERVICES TO HIGH-PAID SPORTS STARS WEREN’T MAKING ENOUGH TO MEET THE BASIC REQUIREMENTS.
on
“I am encouraged that the Giants acted to resolve this issue, but it was disappointing to learn that clubhouse workers providing services to high-paid sports stars weren’t making enough to meet the basic requirements of minimum-wage law,” said Susana Blanco, the director of the San Francisco office of the Labor Department’s Wage and Hour Division, in a statement. According to Giants spokesperson, the Giants made the necessary changes to its clubhouse employee compensation system to meet all federal requirements, thus resolving the issue.
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CALL YOUR ATTORNEY FINANCE & FRAUD
GOVERNANCE, BOARDS & CEOS
Former Insurance Agent Sentenced to 18 Months For Fraud
Chicago Medical Group CEO Charged With Medicare Fraud
Former insurance agency owner, Suzanna Gannon-Anderson was sentenced this quarter to 18 months in federal prison and three years of supervised release, for her conviction of wire fraud, according to a Department of Justice press release. Gannon-Anderson was found guilty of six counts of separate wire fraud transactions, dating from November of 2012 through January 2008.
Chicago based medical group, Mobile Doctors has had its chief executive officer and leading physician both arrested and charged with healthcare fraud this quarter. This is Chicago’s second high-profile case of healthcare fraud this year. CEO Dike Ajiri and physician, Bania Koroma were taken into custody by federal agents this month for false claims in connection with the delivery of healthcare benefits, according to the Chicago Tribune.
In her former position with SGA Insurance Services, GannonAnderson applied for and accepted insurance premium loans on behalf of customers and finance companies, but instead she would deposit premiums into her own personal account, at which she would for her own expenses. In some cases, Gannon-Anderson obtained loans for clients that didn’t exist, in addition to double-financing insurance coverage, using the proceeds for her personal exploitations. In addition to her jail sentence, Gannon-Anderson was ordered to make restitution to Associated Insurance Agency of McFarland, to whom she sold her company before the scandal was uncovered, in the amount of $259,392.14, according to a Department of Justice press release. Ex JPMorgan Trader Arrested for Involvement in London Whale Scandal Former JPMorgan Chase & Co. employee, Javier MartinArtajo was arrested this quarter in Madrid Spain for his alleged involvement in the London Whale Scandal. MartinArtajo had been wanted by the U.S. for allegedly falsifying documents in order to cover up a total of $6 billion in trading losses, according to Huffington Post. Martin-Artajo had criminal charges brought against him in August, claiming that he and a colleague marked up the market value of an investment portfolio in an attempt to conceal its significant decrease in value. According to the Huffington Post, the portfolio incurred a $6 billion loss for JPMorgan. Despite being charged with conspiracy to falsify records and cooks, wire fraud and falsify SEC filings, Matin-Artajo denies the charges and says they are based on a false accusation. Medical Spokeswoman Fined $200K in Medicare Fraud Suit
According to the charges, Ajiri has schemed over the last seven years to increase Medicare billings by submitting false claims, making even the most routine of appointments look complex. Mobile Doctors provide healthcare services in the Midwest states, with visits typically lasting anywhere from ten to thirty minutes. Court records allege that Mobile Doctors received more than $34 million in relation to their fraud scandal.
AJIRI HAS SCHEMED OVER THE LAST SEVEN YEARS TO INCREASE MEDICARE BILLINGS BY SUBMITTING FALSE CLAIMS, MAKING EVEN THE MOST ROUTINE OF APPOINTMENTS LOOK COMPLEX. MOBILE DOCTORS PROVIDE HEALTHCARE SERVICES IN THE MIDWEST STATES, WITH VISITS TYPICALLY LASTING ANYWHERE FROM TEN TO THIRTY MINUTES.
Medical equipment saleswoman, Mary Monica Wilson-Lefler was indicted this quarter for defrauding Highmark’s Security Blue Medicare Program out of $200,000 by submitting fraudulent claims for mattresses for did not actually need them. According to the Bradenton Herald, Wilson-Lefler worked with two separate medical equipment suppliers to purchase the mattresses, which she claimed went to bedridden patients who were at risk for skin ulcers and bedsores. WilsonLefler falsely submitted information for 83 patients to doctors in regards to her mattress scandal.
60: Medicare fraud is estimated to be $60 billion annually. An example of alleged Medicare fraud is given above, for $200,000.
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Former CEO Convicted of Tax Fraud Rodney Miller, the former chief executive officer of the Roy L. Schneider Hospital in St. Thomas (2003-2007) has been convicted of tax fraud this quarter. According to the New York Times, a federal jury convicted Miller of filing a fraudulent tax return in 2006, cutting $250,000 off his annual income. Miller was involved in an unrelated embezzlement case in 2011, but the case ended in a mistrial. According to the New York Times, the DOJ said in a statement that Miller would face a maximum penalty of three years jail time and a $250,000 fine. His court date is scheduled for later this year in Q4.
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CALL YOUR ATTORNEY TRADE SECRECTS & IP
INSIDER TRADING
Three HTC Employees Accused of Stealing Trade Secrets
Former RBC Employee Sentenced to 23 Months in Prison
On September 3, three employees of Taiwanese smartphone-maker HTC were detained based off allegations which claim they stole technology relating to HTC’s new Sense 6.0 smartphones. The three employees involved in the alleged scheme are the vice president of product design, director of R&D, and a senior designer.
Formal Royal Bank of Canada employee, John Kay Jin Khoo will sere 23 months in prison after pleading guilty to charges of insider trading. Khoo was sentenced in the Sydney District Court and will serve a minimum of 14 months in prison.
Police searched the homes and offices of the three men, successfully seizing their computers and cell phones hoping to find evidence of the theft. Allegedly, the three men worked together and formed design companies in Taiwan and China with the intent of selling Chinese smartphone makers the HTC information. Moreover, they are accused of defrauding HTC for more than $300,000 in which they used to fund their illegal endeavors. $5M Award Affirmed in Trade Secrets Settlement This quarter, a Texas district appeals court awarded $4.9 million in lost profits to two entities in relation to a trade secrets case against investors in a gas reservoir. According to the claims, investors wrongfully accessed a seismic map of a Ricochet Energy property, and then used the map as a reference for plotting the placement of their wells. The court argued that the defendants “did not have the right to use the map in a manner adverse to Ricochet,” the court said, according to Law360. “Their actions to the contrary fell below the accepted standards of commercial morality and reasonable conduct.” The map of the property used an estimated 10-12 billion cubic feet of gas, with a roughly estimated value of $40$60 million.
Khoo learned of the inside details pertaining to the proposed acquisition of Macarthur Coal Limited by Peadbody Energy Corporation and ArcelorMittal S.A, and the proposed takeovers of Caledon Resources PLC by Guangdong Rising Assets Management Co Limited and of Mantra Resources Pty Ltd by JSC Atomredmetzoloto from 2010 to 2011, according to Financial Standard. Cathie Armour, The Australian Securities and Investments Commission (ASIC) commissioner, said in a statement: “Insider trading will not be tolerated. Regardless of whether it is buying and selling, communicating information, or any other form, ASIC has the people, ASIC has the power, and ASIC has the systems in place to catch the individuals involved in this behavior and punish them accordingly. “It cannot be any clearer. If you choose to act in this way, there is a very good chance you will be caught, and as today’s judgment shows, there is a very good chance you will go to jail.” Financial Analyst Pleads Guilty Australian financial analyst, Trent Martin pled guilty this quarter one charge of conspiracy to commit securities fraud, in relation to the $1.2 million 2009 acquisition of software company SPSS by IBM. Martin lived and worked in Connecticut at the time, where he worked for an international services firm. Martin shared the sensitive information with his roommate, and two additional friends. “I knew that my actions were wrong in violation of the law,” Martin said in U.S. District Court in New York, according to Reuters.
THIS QUARTER, A TEXAS DISTRICT APPEALS COURT AWARDED $4.9 MILLION IN LOST PROFITS TO TWO ENTITIES IN RELATION TO A TRADE SECRETS CASE AGAINST INVESTORS IN A GAS RESERVOIR. ACCORDING TO THE CLAIMS, INVESTORS WRONGFULLY ACCESSED A SEISMIC MAP OF A RICOCHET ENERGY.
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Martin will be sentenced in March or 2014, where he will face a maximum of five years in prison. According to Reuters, Martin is allowed to live with his parents in Australia until his sentencing, per his bail agreement.
“I KNEW THAT MY ACTIONS WERE WRONG IN VIOLATION OF THE LAW,” MARTIN SAID IN U.S. DISTRICT COURT IN NEW YORK, ACCORDING TO REUTERS.
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CALL YOUR ATTORNEY INTERNATIONAL/FCPA
MARKETING & CUSTOMER RELATIONS
China Drug Maker Investigating $130M Bribe Allegations
Businessman Settles $1.3M Market Manipulation Scheme
This quarter, Chinese drug maker Gan & Lee are internally investigating allegations that it spent 800 yaun on bribes to doctors in exchange for promoting its drugs. Recently published newspaper articles claim that the drug maker has been bribing its clients for as long as five years.
Investor and venture capitalist David Blech, once referred to as the “King of biotech”, has reached an $1.03 million agreement with the U.S. Securities and Exchange Commission over, a market manipulation scheme.
“From 2008 until now the amount of bribery involved is probably around 800 million yaun, and close to 300 million yuan in 2012 alone ... Gan & Lee has been very skillful with their bribes,” the whistleblower told the newspaper, according to Reuters. Gan & Lee is among many companies seeking IPO approval from the China Securities Regulatory Commission, Reuters reports. The company started its application in June.
Blech was accused of buying and selling significant amounts of stock in through more than 50 different brokerage account in the names of friends and family to give the illusion of activity. Blech purchased and sold large amounts of two separate biopharmaceutical companies, Pluristem Therapeutics Inc and Intellect Neurosciences Inc, according to Business Insider. Moreover, Blech was handed a four-year jail sentence back in May after he pled guilty to a related stock manipulation ploy.
“Because Gan & Lee is striving to list, it took a ruthless approach to performance and didn’t hesitate to offer business bribes in return for increased sales,” the whistleblower said in a statement. Eli Lily Facing $4.9M China Bribery Allegations This quarter, attention turns to Eli Lily as an anonymous whistleblower steps forward alleging that the drug maker spent more than 30 million yuan bribing doctors to promote and sell its products. “In order to hit sales at rival companies and push the company’s own products, bribes and special payments of all sorts were extremely common at the company. The level of the problem was just as bad as at GlaxoSmithKline,” an anonymous former Eli Lilly senior manager, using the pseudonym Wang Wei, was quoted as saying, according to International Business Times. The whistleblower further alleges that illegal payments were a common and widespread occurrence at the company’s China location, claiming that bribes were paid to promote its two key insulin products by company staff, according to International Business Times. The whistleblower also adds that illegal kickbacks were provided to doctors. International Business Times reports that China’s National Development and Reform Commission is currently investigating 60 foreign and domestic pharmaceutical firms. JPMorgan Under US Probe For Chinese Hiring Scheme U.S. authorities have opened an investigation into allegations that JPMorgan Chase intentionally hired children of powerful Chinese officials in an attempt to help drive business in China. Reuters reports that the practice of hiring politically connected and socially prominent bankers in the region was widespread in the early to mid 2000s. This practiced coined the term “elephant hunting’, which describes the chasing of mandates to manage the hefty stock offerings of the country’s large state-owned enterprises. This method is especially successful in China due to the critical role relationships and personal connections play in business endeavors. The investigation comes while the bank is already under intense scrutiny follow the $6 billion trading loss as a result of the infamous “London whale” debacle.
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CALL YOUR ATTORNEY PRIVACY & INFORMATION SECURITY
PRODUCT LIABILITY
New Study on Anonymity, Privacy and Online Security
Chobani Yogurt Recalls Product for Mold Contamination
A new study this quarter conducted by the Pew Research Center’s Internet Project revealed some interesting percentages in relation to online security and anonymity. Key findings from 792 internet users whom were surveyed include:
Popular Greek yogurt brand, Chobani was forced to recall an unidentified amount of its most popular product this quarter, after reports of mold and illnesses in customers. According to Bloomberg Businessweek, Chobani did not release exactly how many of its products were affected by the mold contamination, but a statement on the company’s website revealed that the affected yogurt came from its Idaho plant location. The recall pertains to products with expiration dates from September 11 and October 7.
• 86% of internet users have taken steps online to remove or mask their digital footprints. • 55% of internet users have taken steps to avoid observation by specific people, organizations, or the government. • 21% of internet users have had an email or social networking account compromised or taken over by someone else without permission. • 12% have been stalked or harassed online. • 11% have had important personal information stolen such as their Social Security Number, credit card, or bank account information. • 6% have been the victim of an online scam and lost money. • 6% have had their reputation damaged because of something that happened online. • 4% have been led into physical danger because of something that happened online. “Users clearly want the option of being anonymous online and increasingly worry that this is not possible,” said Lee Rainie, Director of the Pew Research Center’s Internet Project, in a statement. “Their concerns apply to an entire ecosystem of surveillance. In fact, they are more intent on trying to mask their personal information from hackers, advertisers, friends and family members than they are trying to avoid observation by the government.” Facebook Delays New Privacy Policy After much scrutiny over the new proposed Facebook privacy policy, the company has decided to postpone and reevaluate the plan. The intention was to revise its Statements of Rights and Responsibilities and Data Use Policy to inform users that by using its network, users are granting permission to Facebook to use their name, picture and information. All this information will then be used to help determine its ads and sponsored content. “We are taking the time to ensure that user comments are reviewed and taken into consideration to determine whether further updates are necessary and we expect to finalize the process in the coming week,” Facebook said in a statement. In addition to its updated policy, Facebook users under the age of 18 acknowledge that the networks new terms have been read, understood and agreed upon by one of their legal guardians.
“While this type of mold is common in the dairy environment, particularly when using only natural ingredients that are absent of artificial preservatives, it’s still unacceptable to me and all of our yogurt makers,” said Chobani CEO, Hamdi Ulukaya, in a statement. Earlier this quarter, reports of containers that appeared bloated or swollen were brought to light. Ingesting mold can have potentially serious side effects, ranging from allergic reactions to respiratory reactions. The voluntary recall was announced on September 5, following a statement that assured customers of its dedication to providing only the best of yogurt without preservatives. Surgical Device Manufacturer Faces Liability Suit Over Injuries This quarter, Michael Grasso is suing Intuitive Surgical in addition to Thomas Jefferson University Hospital, Jefferson University Phycisians, and Jefferson Urology Associates in relation to injuries he claims to have sustained during a prostate surgery. According to the suit, a robotic surgical device malfunctioned during Grasso’s procedure, extending the length of the operation. Additionally, The Pennsylvania Record reports that Grasso also claims to have sustained “bladder spasms, unbearable pain, nerve damage, bladder blockage, anxiety depression, lower extremity injuries, prolonged hospitalizations and rehabilitation, loss of chance for full recovery and other injuries.”
WHILE THIS TYPE OF MOLD IS COMMON IN THE DAIRY ENVIRONMENT, IT’S STILL UNACCEPTABLE TO ME AND ALL OF OUR YOGURT MAKERS, SAID CHOBANI CEO, HAMDI ULUKAYA.
“We simplified the explanation to make clear how advertising works on Facebook and what exactly people can expect when it comes to how we use their name, profile picture, content and personal information,” Facebook said in a statement.
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CALL YOUR ATTORNEY WHISTLEBLOWERS
WORKPLACE, CUSTOMER SAFETY
MGM Resort Ordered to Rehire Whistleblower; $325k Fine
Company Faces $1M Fine for 24 Workplace Safety Violations
This quarter MGM Resorts International was ordered by the Occupational Safety and Health Administration to rehire a whistleblower and pay a total of $325,000 in back wages and damages. According to the OHSA filing, MGM reportedly fired an employee at a condominium subsidiary in 2008 after that employee informed managers that co-workers had violated SEC regulations.
Republic Steel, a leading producing in supplier of SBQ steel was cited this quarter the U.S. Department of Labor’s Occupational Safety and Health Administration for a total of 24 safety violations. Republic Steel now faces up to $1,138,500 million in fines over its flawed fall protection standards.
Additionally, the employee reportedly felt pressure to join his colleagues in forecasting to potential buyers without authority to do so, according to Bloomberg Businessweek. Despite the claims, MGM revealed that it is likely to appeal, releasing a statement saying:
According to an OSHA press release, two workers were seriously injured in falls at its Canton factory site, in June and August of 2012. A formal complaint from the United Steelworkers Union claimed that the location did not have the proper fall protection, nor did it take the necessary steps to protect the workers from the hazards its melt shop.
“We view this preliminary finding as fundamentally wrong on the facts and the law of this matter. We intend to pursue avenues for further review.” Whistleblower Claims Laboratory Defrauded Virginia Medicaid Program Quest Diagnostics Inc., and Laboratory Corporation of America Holdings have allegedly defrauded the state of Virginia’s Medicaid program, having billed it at higher rates that other customers, according to a whistleblower report that was filed this quarter. Quest Laboratories billed Medicaid $10.42 for a common blood test that should have cost roughly $1.42. According to a report by NJ.com, a complaint filed by Hunter Laboratories LCC and it’s chief executive officer, Chris Riedel, assert that the companies “made false claims for payment of Medicaid- covered laboratory tests by falsely representing that the fees being charged were no greater than the maximum fees payable pursuant to Virginia regulations,” and that under Virginia state law, the companies were “required to provide their services to Medicaid patients at the same rates billed to others.” The Virginia complaint seeks civil penalties at $11,000 a pop for an undisclosed amount of false claims, according to NJ.com.
TWO WORKERS WERE SERIOUSLY INJURED IN FALLS AT ITS CANTON FACTORY SITE IN JUNE AND AUGUST OF 2012.
“People working hard to provide for their families should not have worry each day whether they’ll come home,” said Secretary of Labor Thomas E. Perez, in a press release. “Republic Steel put their workers’ lives in danger, and that kind of disregard for safety will not be tolerated.” The company’s Canton plant has been inspected by OHSA a total of 16 times, which revealed one willful, two repeat 22 series and 23 other-than-serious final order citations, according to an OSHA press release. Republic Steel has 15 days from receipt of the citation to take action. OSHA Awards $10.1M in Safety and Health Grants
QUEST DIAGNOSTICS INC., AND LABORATORY CORPORATION OF AMERICA HOLDINGS HAVE ALLEGEDLY DEFRAUDED THE STATE OF VIRGINIA’S MEDICAID PROGRAM, HAVING BILLED IT AT HIGHER RATES THAT OTHER CUSTOMERS.
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This quarter, the U.S. Department of Labor’s Occupational Safety and Health Administration today awarded a whopping $10.1 million through its Susan Harwood Training Grant Program. A total of 70 nonprofit, employer associated; colleges and universities; labor unions and many others received oneyear grants to fund the education and training for workers and employees, according to an OSHA press release. The goal of the training is to inform employees of potential workplace safety and health hazards and how to prevent injuries through the means of preventative practices. “These grants reflect the department’s commitment to ensuring all workers and employers have the tools and skills to identify hazards and prevent injuries,” said Secretary of Labor Thomas E. Perez, in a press release. “By further advancing a culture of workplace safety and health, we help to eliminate the false choice between enhancing workplace safety and productivity.”
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SOMEWHERE ELSE YOU HAVE TO BE? Ethisphere Event
Keystone Partner
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OCTOBER 2013 OCTOBER 22ND
2013 Asia Ethics Summit
Ethisphere What it means to be a World’s Most Ethical Company Live Webcast
OCTOBER 23RD
MetricStream Due Diligence on Third Parties Live Webcast
OCTOBER 24TH
Ethisphere and AECOM Best Practices in Ethics Communication New York, NY
NOVEMBER 2014 NOVEMBER 7TH
Ethisphere Lessons from World’s Most Ethical Companies Live Webcast
DECEMBER 2014 DECEMBER 4TH, 5TH
Ethisphere and Thomson Reuters 2013 Asia Ethics Summit Hong Kong
I always avoid prophesying beforehand, because it is a much better policy to prophesy after the event has already taken place.
To register for the event, or to read more, visit: www.asiaethicssummit2013.com 2014 Global Ethics Summit On March 20-21, 2014, The Ethisphere Institute and Thomson Reuters will team up to host the 6th annual Global Ethics Summit. Attended by CEOs, Board Chairs, GRC leaders, and government and regulatory officials, the event offers critical and timely insight into the challenges compliance and ethics professionals face while navigating an increasingly complex and daunting global legal landscape.
The agenda for the 2014 event, along with information on speakers and sponsorship information can be found by going to the event’s website at: www.globalethicssummit2014.com
DECEMBER 6TH
Baker & McKenzie Anti-Corruption Roundtable Hong Kong
MARCH 2014
On December 4 – 5, Thomson Reuters and the Ethisphere Institute will host the 2013 Asia Ethics Summit in Hong Kong. The event will be attended by CEOs, Board Chairs, GRC leaders, and government and regulatory officials, and will offer critical and timely insight into the challenges compliance and ethics professionals face in Asia while navigating an increasingly complex and daunting legal landscape.
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MARCH 20TH, 21ST
Ethisphere and Thomson Reuters 2014 Global Ethics Summit New York, NY
All Ethisphere events are free to Ethisphere Council members. Non-members may register for a Symposium, Conference or eRoundtable at www.ethisphere.com/events or by email aubrie.artiano@ethisphere.com or call 480-397-2600.
Unless otherwise noted, roundtables and online symposiums are archived for review by coucil members. However, certain eRoundtables are closed to the media and not recorded due to sensitive disclosures. 76 Q3 \ 2013 \\ ETHISPHERE
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As companies continue to grow and expand business internationally, they continue to explore practical and actionable insights to differentiate their organization’s business practices in an everchanging global regulatory environment. Additionally, companies that continue to expand and compete in the global marketplace are met with constant reminders of the importance of maintaining a robust global ethics and compliance program. It is for this reason that Ethisphere is taking the lead by hosting a series of global conferences on regional ethics and compliances issues, the first of which took place in São Paulo, Brazil this past summer. The next installment in Ethisphere’s international conference series takes place December 4th and 5th in Hong Kong. In partnership with Thomson Reuters and Asian Legal Business, Ethisphere will host the first annual Asia Ethics Summit, covering ethics and compliance issues throughout Asia. This conference offers participants the opportunity to gain critical and timely insights into the risks and challenges of conducting business. By bringing together CEOs, Board Chairs, and GRC leaders – as well as government and regulatory officials – this event will offer attendees an in-depth, multi-faceted learning experience that encourages the sharing of best practices for navigating an increasingly complex and daunting global corporate landscape. CEOs, CFOs, board directors, chief compliance and risk officers, general counsels, government and regulatory officials, FCPA attorneys and consultants, and NGO executives will all convene at the Asia Ethics Summit for two days of sharing ideas and networking. Speakers at the event include general counsel, compliance officers and business unit leaders from some of the largest global corporations, including Boeing and General Electric, in addition to many of the 2013 World’s Most Ethical Companies honorees. Other speakers include local government officials, leading academics and other prominent thought leaders within the GRC and ethics space. To learn more about the upcoming 2013 Asia Ethics Summit, including how to register, visit www.asiaethicssummit2013.com.
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Continued from “Asia’s Shades of Corruption” p. 41 ... powerful business collectives which pledge to uphold high standards. In Thailand, CIPE has since 2010 supported its longtime partner the Thai Institute of Directors (IOD) in implementing a compliance pact among the country’s leading firms, which together employ about 1 million people and represent an estimated 15 percent of the economy. The voluntary pact compels member companies to adopt internal anti-corruption measures and subject themselves to an annual audit, and marks an important step for a country that has historically suffered from high levels of corruption. This approach in Thailand is in keeping with CIPE’s overall anticorruption efforts, as articulated in a recent Huffington Post piece by CIPE Executive Director John D. Sullivan. He wrote, “Successfully fighting corruption in transitions requires collective action of engaged citizens through associations, civil society groups, think tanks and other groups. Providing assistance to these organizations in the form of technical, management and even financial assistance can help foster a successful transition.” Collective action, whether by citizens or individual businesses, requires a shared consciousness on corruption. One way to create that is to measure and publicize public perceptions’ of corruption. The best known example of this is Transparency International’s countryby-country Corruption Perception Index, which is used by many in the private sector to gauge risk. These efforts can be effective on the local level as well, as CIPE found in funding such an index in Pakistan with support to the Young Entrepreneurs Forum (YEF), part of the Islamabad Chamber of Commerce and Industry. The survey helped analyze how corruption is a barrier to entrepreneurship and economic growth. In China and elsewhere, CIPE has helped frame corruption issues by looking at them through the lens of property rights. The China Property Markets Scorecard, launched in 2011 with a local partner, offers a look at how unsecured property rights – especially for small and mid-sized firms without the power to defend their interests– can heighten vulnerability to harassment and intimidation by corrupt officials. With the baseline information provided by the Scorecard, the degree to which mid-sized firms are dependent on a solid rule of law is all the more apparent. When a country’s judiciary does not function, business is highly vulnerable. So, going forward, it is mid-sized firms’ place in global value chains that may provide the best opportunity for CIPE and others to leverage worldwide anti-corruption trends in a way that improves local corruption environments. As countries such as Russia enact legislation that, in principle at least, mirror the FCPA and U.K. Bribery Act in their international reach, CIPE sees tremendous potential in combating corruption by, for example, highlighting the business risk for a U.S.-based retailer that sells a piece of wooden furniture assembled in a corruptly-operated factory in China from timber harvested illegally in Siberia.
Expert Biography Frank Brown is a program officer for Russia and Ukraine at the Center for International Private Enterprise. The Center for International Private Enterprise (CIPE), an affiliate of the U.S. Chamber of Commerce, works to strengthen democracy around the globe through private enterprise and market-oriented reform. CIPE objectives include fostering institutions necessary to establish and sustain market-oriented democracies.
Continued from “Up, Up and Away” p. 42 ... sponsor work have fallen short of reasonable expectations” and proposed the introduction of civil and criminal prospectus liability for sponsors. In its consultation conclusions, the SFC rejected concerns expressed by sponsors that the new enhanced regulation would be over-the-top and would be detrimental to Hong Kong’s attractiveness as a listing venue. The SFC cited considerable buy-side support for the reforms. This week, closing arguments have been heard by the Hong Kong High Court in proceeding brought by the SFC trying to force Ernst & Young to disclose its audit working papers on mainland Chinese based Standard Water Limited. The company had sought a listing in 2009 but Ernst & Young had resigned as reporting accounts and the company had withdrawn its listing application. Ernst & Young claims that its affiliate in mainland China, Hua Ming, did the work for the IPO and that Mainland state secrecy law prevents disclosure. The SFC’s action closely resembles the US SEC’s action against Deloitte in the US. The SFC appears to be betting that the appetite of Chinese businesses for listing on the Hong Kong Stock Exchange, and the strategic imperative on the part of investment banks to capture a significant share of the sponsor (and more importantly, in terms of fees) underwriting work in Asia, are both so strong that the end result will be an acceptance of very tough regulation and a continued flow of listings with better due diligence and disclosure. In the short term, the bet seems correct. In the long-term, the very tough regulation may negatively impact Hong Kong’s capital markets as they become unattractive in terms of regulatory risk for professional advisers and candidates for roles as independent non-executive directors of Hong Kong listed companies. It is important that tough regulation against professional advisers and non-executive directors is matched by the SFC actively engaging its mainland Chinese counterpart, the China Securities Regulatory Commission, to find ways to enforce higher standards of corporate governance at the level of executive management of these businesses and to increase the cross-border flow of information with the mainland, to facilitate investigations of fraudulent management of offshore listed Chinese businesses. On the mainland, increasingly active enforcement, against both local and international businesses, can already be seen in the areas of anticorruption and anti-trust.
Expert Biographies Mr. Wadham is a partner in Davis Polk’s Litigation Department, resident in Hong Kong. His global enforcement and litigation practice focuses on commercial dispute resolution and advising on regulatory investigations and enforcement. Mr. Wadham handles a broad range of complex commercial litigation and arbitration, including corporate litigation, shareholder and joint venture disputes, professional negligence and cross-border disputes. Mr. Rogers is a partner in Davis Polk’s Litigation Department, based in Hong Kong. He is regarded as one of the market’s leading litigation and financial services regulatory lawyers with over 20 years’ experience in Asia.
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Continued from “Prosecuting Anti-Corruption” p. 43 ... behalf of the DOJ, has been critical in addressing corruption issues affecting businesses operating in both jurisdictions. I was one of the U.S. officials meeting in Washington and Beijing with Chinese counterparts at the Ministry of Supervision, Ministry of Justice, Supreme People’s Procuratorate and the Ministry of Commerce, and we discussed the legal parameters of U.S. and Chinese corruption laws, strategies for investigating corruption and ways to coordinate efforts to reduce corruption worldwide. Similarly, the DOJ has been working with Indonesia’s corruption prosecutors, the Komisi Pemberantasan Korupsi (the “Corruption Eradication Commission” or “KPK”) in certain cases when payments allegedly violate both U.S. and Indonesian corruption laws. In a reflection of the increasingly cross-border and coordinated nature of anticorruption enforcement, companies must recognize that an allegation is unlikely to disappear or remain isolated in Asia. Small problems can grow to be enormous, and the resources devoted to understand the scope of the problem can be monumental. Management attention which would be best used to grow the business is diverted to putting out fires associated with corruption investigations occurring simultaneously in the United States and Asia. Consequently, sophisticated companies are increasingly investing resources now to develop and enhance compliance programs and conduct risk assessments to minimize corruption risks for their Asian business operations. (B) The Importance of Anticorruption Compliance Given the reality of the international business world and the corruption risks in Asia, even the most ethical companies will face the prospect of an improper payment being made within their organization. Having been involved in hundreds of corruption cases as an FCPA prosecutor, I have seen issues arise not only in government procurements, but in every type of interaction with government officials, including tax disputes, licensing and permitting, real estate transactions, regulatory filings and customs clearances. Consequently, the best programs examine not just the specific government contracts that the company may be pursuing, but also how the regulations and required government approvals may cause a corruption “chokepoint” that employees must try to navigate. Companies can use their limited compliance resources most effectively by developing and implementing practical, tailor-made compliance programs that take into consideration the company’s specific business environment, needs, and risks. Off-the-shelf paper compliance programs are almost always insufficient and can be detrimental to a company trying to seriously address corruption risks. While no program can ever be perfect, the best compliance programs do three things: prevent, detect and continually improve. A best-in-class compliance program “prevents” many of the problems before they occur by emphasizing the importance of ethical behavior, as well as implementing appropriate risk-based due diligence policies, which increase deterrence by making employees realize that they are more likely to get detected if they violate company policy. However, because no compliance program can stop all improper payments, the program must also be designed to quickly “detect” violations of company policy. Companies must invest in appropriate compliance, investigative and audit resources to stop a problem before it spirals out of control and causes significant long-term damage. Finally, the compliance program must “continually improve.” When an improper payment is identified, companies must conduct internal investigations not just to figure out what went wrong, but to use the findings of the internal investigation to implement a fix to the compliance program to prevent another employee from exploiting the same gap in the company’s controls. Corruption challenges are complex, unique to each enterprise, and potentially debilitating to a company. Ignoring bribery will
not make it disappear, but by establishing an effective risk-based compliance program and conducting appropriately scoped internal investigations, the most effective companies are identifying problems early and implementing improvements that they hope will keep them far away from the ever increasing attention of prosecutors in the United States and around the world.
Expert Biography Nathaniel Edmonds is a partner in the Litigation Department of Paul Hastings based in the firm’s Washington, D.C. office. Mr. Edmonds was a former Assistant Chief of the Foreign Corrupt Practices Act Unit of the Fraud Section in the Criminal Division of the DOJ.
Continued from “A Moving Target” p. 44 ... sweatshops or climate change, for example—the norms and values that enable global governance are internalized and voluntary compliance of the UNGC principles shapes the new CSR agenda. As an “International Scholar” in Asia for the 2012-13 academic year, I have learned much from the UNGC members in China, where there is a relatively new UNGC local network. The Global Compact China Network, with 300-plus member companies, consists of Chinese state-owned companies, private companies and multinationals in China. An example of Chinese concern for ethical values was evidenced during a July Global Compact China Network meeting in Beijing to address climate change and low-carbon development. With officials from the UN and the Chinese Government, business leaders developed a significant proposal for joint action against climate change. Following international conventions on climate change, the meeting highlighted best practices of Chinese companies and encouraged all business to begin lowering greenhouse gas emissions. The comments of a Chinese official at a Global Compact China Network meeting offer a summary of the country’s vision for the future. Peng Huagang, the Director General of the Research Bureau of the Chinese State Assets Supervision and Administration Commission of the State Council (SASAC) expressed it well. “The Global Compact China Network will facilitate the communication and collaboration between Chinese and foreign companies, helping Chinese companies to make a greater contribution to the UN MDGs (Millennium Development Goals). I sincerely wish that the Global Compact China Network will play a greater role to enhance corporate social responsibility and international collaboration.” The quote from Peng Huagang contains a crucial message: the Chinese are quite open to collaboration with foreign companies when it comes to ethics and CSR. They do not appreciate Western paternalism. China’s own philosophic traditions, such as that of Confucius and Mozi, have much to offer when it comes to responsibility and universal values. Given time, I believe we will see leadership in this area coming from China.
Expert Biography Oliver Williams, C.S.C. specializes in the areas of business ethics, corporate governance, and Catholic social teaching. Williams is the editor or author of 15 books as well as numerous articles on business ethics in journals. He is the Director of the Notre Dame Center for Ethics and Religious Values in Business in the Mendoza College of Business at the University of Notre Dame.
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Companies in this issue are indexed to the first page of the article in which each is mentioned.
Al Davis // 33 Alliance Data // 28 Arnold & Porter LLP // 18 Baker & McKenzie // 58 Bank of America // 09 Barry Stowe // 30 Becton Dickenson & Co. // 09 Brad Brooks-Rubin // 19 Bradley Klein // 13 Bi Xilai // 38 Carefx // 12 CDP Global 500 Climate Performance Leadership Index // 15 Charles Ross // 56 Chevron // 10 Chip Kelly // 32 CIA World Factbook // 35 Corruption Perceptions Index // 36 Covington & Burling LLP // 43 CVS // 10 DHB Industries Inc. // 09 Dmitriy Shakhnevich // 56 Duane Morris LLP // 33 Ecolab // 14 Emilio Tenuta // 14 Eric R. Carlson // 43 Ernst & Young // 78 Frank Bucaro // 24 Foxconn // 38
Gary DiBianco // 12 General Mills // 10 George O’Leary // 32 GlaxoSmithKline // 60 Gu Kailai // 38 Harris Corporation // 12 Holland & Hart // 22 John Wooden // 32 Johnny Manziel // 32 Julie Hermann // 32 Kellie Watts // 28 Kenneth Shropshire // 32 Khalil Gharbieh // 18 Mara V.J. Senn // 18 Merrill Lynch // 09 Michael Jordan // 32 Ministry of Commerce // 43 Ministry of Health // 43 Ministry of Land and Resources // 43 Motorola // 10 Nalco // 14 National Association of Manufactures // 16 New Orleans Saints // 32 Nike // 36 Notre Dame // 32 Oakland Raiders // 33 Pete Carroll // 32 Philadelphia Eagles // 32 Prudential Corporation Asia // 30
Robert W. Tarun // 58 Rutgers // 32 Safeway // 10 Samuel M. Witten // 18 Sean Payton // 32 Skadden // 13 Sports Illustrated // 32 Steve Tansley // 43 The American Bar Association // 58 The Coca-Cola Company // 10 The National Development and Reform Commission // 61 Thomas Fox // 60 Time // 32 Transparency International // 38 U.S Chamber of Commerce // 16 U.S. Department of Justice // 12, 13, 56, 57, 58, 59 U.S. Securities and Exchange Commission // 12, 16, 17, 56, 57, 58, 59 University of Central Florida // 32 University of Oregon // 32 University of Southern California // 32 Wal-Mart // 61 Wall Street Journal // 61 Warren Feldman // 13 Wharton // 32 World’s Most Ethical Companies // 15 Yale // 33
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