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month, in the FCPA Blog, Bruce Hinchey discussed his upcoming
publication, "Punishing the Penitent: Disproportionate Fines in Recent
FCPA Enforcements and Suggested Improvements " which analyzes
differences between bribes paid and penalties levied against companies that do
and do not self-disclose under the Foreign Corrupt Practices Act (FCPA). Using
a regression analysis, Hinchey concluded that those companies which did
voluntarily self-disclose paid higher fines than companies which did not self-disclose their FCPA violations to the DOJ. He concluded his post by noting
that this evidence was contrary to the conventional wisdom that a company
receives a benefit from self-disclosure and such evidence would "raise
questions about whether current FCPA enforcement is fundamentally fair".
We were intrigued
by this paper, as were many other commentators. However, as Hinchey's analysis
was limited to reviewing the issue of self-disclosure or not and the
fine-to-bribe ratio companies pay for FCPA violations, we wondered if there
were other factors which the Department of Justice (DOJ) might take into
account when assessing a fine and if so, what some of these factors might be?
On Wednesday of
this week, the FCPA Professor answered this question, in part, in his
post on the FCPA enforcement actions against two US
companies - Alliance One International, Inc. and Universal Corporation,
discussing the factors the DOJ took into account when calculating the fines and
penalties for both companies. We are thankful to the FCPA Professor for not
only reading the near 300 pages released by the DOJ and Securities and Exchange
Commission (SEC) but synthesizing them down to a manageable and coherent length
for his post. As reported by the FCPA Professor, within the documents, were the
specific steps taken by both companies during the pendency of their
respective investigation. The steps listed helped to yield significant
reductions of the fines for the FCPA violations. We will review the steps
taken by these two companies and hope to further condense some key lessons
learned from these enforcement actions.
I. THE COMPANIES AND THEIR FCPA VIOLATIONS
The companies involved in the investigations were the US companies, Alliance
One and Universal Corporation. They are both in the tobacco merchant business.
Alliance One's liability was predicated on successor liability for the FCPA
transgressions of an entity it purchased. Both companies made improper cash
payments, gifts and bribes in Central Asia and the Far East. The companies
signed Non Prosecution Agreements and there were criminal pleas by individuals
involved in the criminal activity. It is significant to note that both
companies self-reported to the DOJ.
II. CREDIT RECEIVED FOR COOPERATION
Both companies received substantial reductions in fines assessed for their
conduct. The penalty box score is as follows:
Range Fine Suggested Per US Sentencing Guidelines
Final Agreed Fine
$4.2 to $8.4MM
$6.3 to $12.6MM
STEPS DID THE COMPANIES TAKE?
A. With the
1. The Company's cooperation was both timely and thorough.
2. During the course of the government's investigation, Alliance and its
outside counsel fully cooperated in good faith with the Department, and
produced thousands of pages of documents and financial records.
3. Alliance terminated or sought resignations from all employees who were found
to have knowledge of or participated in the improper payments.
4. Alliance voluntarily produced memoranda of employee interviews conducted by
counsel. Alliance and their counsel have been available to meet with Department
attorneys to brief them on the progress and findings of their internal
1. Alliance took remedial
actions including enhancement of its corporate compliance program.
2. Replacement of responsible management.
3. Discipline or termination of wrongdoers.
1. Directed management to deliver a "clear and proactive message" that:
a. Illegal acts will not be tolerated.
b. Any potentially illegal act should be brought to the attention of the
General Counsel prior to execution of the transaction.
c. Any individual that believes that an illegal act may have occurred should
contact the General Counsel immediately.
d. Implemented a new policy requiring Chief Financial Officer or Controller
pre-approval of any material payment in cash.
1. Issued a directive to regional executives and all accounting personnel that
any questionable expenses or payments and expenses without adequate explanation
or documentation must be reported to the Corporate Compliance Officer.
2. Issued a direction to employees that no payments to public officials or
political parties are to be made in any form without the express advance
approval of the Corporate Compliance Officer.
3. Responsible personnel, including senior management in Europe and Kyrgyzstan
were terminated or left company voluntarily. Other employees were reprimanded.
1. Required all personnel to re-take an online training course covering the
FCPA provided by Integrity Interactive.
1. Required supporting information for all payments made in cash from any
entity where such payments exceed $2500 annually.
2. Issued a directive to minimize cash payments for anything other than
3. Required that all cash accounts must be maintained in the company's name.
4. Required that all cash transactions be documented by receipts and signed by
the recipient and they established a periodic review and approval process for
5. Required that all non-incidental types of expenses paid in cash to ensure
payments would comply with Company policy and the law.
A. With the
1. Universal's cooperation was both timely and thorough.
2. Universal retained outside counsel to conduct an extensive internal
3. Universal and their counsel were consistently available to meet with
Department attorneys to brief them on the progress and findings of their
4. Universal and its outside counsel fully cooperated in good faith with the
Department and produced thousands of pages of documents and financial records
and made employees available for interviews.
5. The Company terminated or reprimanded employees who were determined to have
authorized and facilitated the improper payments.
1. Universal took remedial actions including enhancement of its corporate
2. It strengthened internal controls.
3. It implemented a rigorous compliance program.
4. The Company engaged an independent corporate monitor to conduct a
comprehensive review of the Company's compliance standards and procedures and
its internal controls.
5. Independent corporate monitor to prepare an initial report and two follow-up
reports of the findings and make recommendations for improvements in the
company's compliance programs over the three-year term.
6. The Company replaced the responsible management.
1. Management established a Compliance Committee comprised of the Chief
Financial Officer; General Counsel; Head of Internal Audit; Treasurer;
Controller and the Principle Sales Director, which meets on a monthly basis to
review and evaluate Universal's compliance programs and training.
2. Management established a Chief Compliance Officer who is responsible for the
day-to-day operations of Universal's compliance program and Chairs the
3. Management issued a revised and updated Code of Conduct and translated the
Code into fourteen (14) languages.
4. Management required sales, finance, and executive-level personnel to attend
a day long in-person training session devoted to FCPA and local anti-bribery
5. Management revised and enhanced its payment approval policy which now
requires an 'approving officer' to review all supporting documentation for a
payment and to understand the purpose of the payment prior to approval. The
'approving officer' must certify that he or she has reviewed the existing
documentation and obtained an understanding of the legitimate business purpose
of the payment. The policy also requires that employees investigate any
questionable payments and determine that they are legal, legitimate, and
appropriate prior to approving the payment.
6. Management revised and enhanced its due diligence process for agents.
Initially, the Company suspended all commission payments to agents worldwide
subject to legal department confirmation that each requested payment was
adequately supported. Thereafter, it instituted a formal and standardized
process for the assessment and approval of existing and proposed sales agents,
which is coordinated by the Legal Department. As part of this policy, an
officer, known as a 'Relationship Officer,' is required to complete a 'Sales
Agent Due Diligence Checklist' for each prospective sales agent. This detailed
checklist includes disclosure of relationships with foreign governments by
owners, officers, directors and employees of the third-party agent or their
family members, reference checks, and a list of potential red flags.
7. Management conducted, and has pledged to continue to conduct, compliance
and/or FCPA training at every global conference held for Company employees.
8. Management terminated and reprimanded certain employees involved in the
One additional factor noted by the DOJ was that FCPA violations came to the
attention of the Company pursuant to its internal compliance program, The
Company was given some unspecified credit for this portion of the Company's
pre-existing compliance program.
These two matters provide to companies in the midst of FCPA enforcement actions
specific steps that should be implemented during the pendency of an
investigation to present to the DOJ. Initially it should be noted that full
cooperation with the DOJ at all times during the investigation is absolutely
mandatory. Thereafter from the Alliance One matter, the focus was on accounting
procedures and control of cash payments. From the Universal case, a key driver
appears to be the due diligence on each pending international transaction, and
subsequent full due diligence on each international business partner. Next is
the management of any international business partner after due diligence is
completed and a contract executed. Lastly is the focus on the Chief Compliance
Officer position, emphasizing this new position throughout the organization and
training, training and more training on FCPA compliance.
Visit the FCPA Compliance and Ethics Blog, hosted by
Thomas Fox, for more commentary on FCPA compliance, indemnities and other forms
of risk management for a worldwide energy practice, tax issues faced by
multi-national US companies, insurance coverage issues and protection of trade
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