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Recent Declination in Morgan Stanley DOJ Case Spells Out Keys to Effective FCPA Compliance Policy
Recently the U.S. Department of Justice (DOJ) issued a press release announcing their decision to “decline” to prosecute Morgan Stanley in connection with its Foreign Corrupt Practices Act (FCPA) investigation of a Morgan Stanley employee. This “declination” provides useful insights to in-house counsel who are looking to create an effective FCPA compliance policy for their companies.
Gwen Hassan, Manager of Corporate Compliance in the Office of the General Counsel of Navistar, Inc., explained the DOJ has issued comparatively few opinion letters regarding its enforcement of FCPA matters since the legislation was passed in 1977; for example, there has been only one FCPA-related Opinion Release in the last two years.
“The key here is there’s almost no case law related to the FCPA because if someone is accused of an FCPA violation, they almost always settle,” said Hassan. As a result, the average practitioner or in-house counsel has to look at the DOJ’s enforcement history in order to gain insights into the DOJ’s reasoning in these cases.
Most notably, the DOJ declined to prosecute Morgan Stanley in a case involving a Morgan Stanley employee who allegedly provided “expensive advantages” to a Chinese official, the then-chairman of the state-owned real estate development arm of a local district government in Shanghai. Unusually profitable real estate deals and cash in the form of so-called “finder’s fees” were apparently given to the official in exchange for steering business to Morgan Stanley and providing much-needed government licenses and approvals, said Hassan. Morgan Stanley responded to the investigation by cooperating with the DOJ and providing “exhaustive detail” on the compliance training it provided the employee (on seven separate occasions) and documentation that the employee was specifically warned by the company’s compliance officer that he was dealing with a foreign official and was sent no less than thirty-five reminders of the company’s code of conduct that prohibited bribery of foreign officials.
As a result of the breadth of the information that Morgan-Stanley provided, the DOJ decided the employee was a rogue actor and would not pursue enforcement against the company. The agency issued its reasoning in press release 12-534.
“So, that kind of information is golden to an in-house practitioner because … you can reverse engineer that declination and ask ‘oh my gosh, what did Morgan Stanley do that we’re not doing yet?’” said Hassan.
Hassan said some of the key takeaways from the Morgan Stanley decision include: tracking the date, time and location of each training session and compliance communication; and archiving and storing a copy of each training program the employee attended and each compliance policy communication sent to the employee.
She said that U.S. Attorney General Eric Holder has indicated that he plans to issue new guidance that should answer some long held questions about the FCPA.
“So everyone is sort of holding their breath … waiting to see if we finally get a definition of foreign official; or if we finally get more clarity around what is and what is not a facilitating payment; whether they finally set forth some specific rules or guidelines about what a compliance program should have and what credit a company might get for having a robust program,” said Hassan.
Stephen Martin of Baker & McKenzie LLP, who is the managing director of his firm’s compliance advisory services subsidiary, said that Morgan Stanley’s “robust training” and “effective auditing and monitoring capabilities” as well as documentation were key to the successful outcome of the FCPA investigation.
Martin said, in his practice, he notices that many companies fail to do a comprehensive risk assessment to truly understand their FCPA–related risks as well as anti-bribery–related risks around the world or implement an effective third party auditing and monitoring program.
“Regulatory bodies around the world are becoming more sophisticated and now there’s increased cross-border enforcement where the DOJ is working with other countries to take on these anti-corruption types of initiatives,” he said. Companies should undertake efforts to know who the players are in the countries in which they are doing business as well as the third-party agents.
“A company should have a third-party program designed to help them understand what the contractual provisions are—what is this third-party agent really doing for the company, how you are paying them and why you are paying them? What type of training and certifications exist around the company’s expectations on FCPA,” he said.
Martin also recommends that companies follow up on third parties after they have completed their due diligence to ensure conditions have not changed during the ongoing business relationship.
Marc Litt, also of Baker & McKenzie LLP, and a member of the firm’s Global Compliance Practice, said that there has been much criticism of the DOJ’s enforcement of the FCPA statute due to the lack of “transparency” regarding how much benefit a company can receive for cooperating with an investigation.
“Other concerns have included holding parent companies responsible for FCPA violations committed by subsidiaries that were only acquired by parent companies long after the violations occurred, and failing to provide an ‘adequate’ procedures defense, like that contained in the United Kingdoms Bribery Act, for companies that have taken appropriate steps to prevent corruption and bribery” Litt said.
“Over the last couple of years the drumbeat has grown louder and louder on that front and so I think partly in response to that, the DOJ and SEC [Securities Exchange Commission] have wanted to send a clear and strong message that there is a benefit to cooperation, and that there is a benefit to having adequate procedures in place even though the FCPA statute does not provide a statutory defense,” he said.
“I think that they’ve gone out of their way to send this message because the DOJ and SEC can’t effectively enforce the FCPA without the cooperation and assistance of companies. Prosecutors and regulators simply don’t have the resources to oversee every industry and every company doing business in countries all over the world. They’re obviously committed to the mission of enforcing the law, but their success depends in part on good companies doing quality investigation when things come to light and remediating whatever issues may arise,” said Litt.
Disclaimer: The views and opinions expressed in this article are those of the individual sources referenced and do not reflect the views, opinions or policies of the organizations the sources represent.