an article in the Tuesday Wall
Street Journal (WSJ), entitled "More
foreign banks probed for sanctions violations", Brett Wolf reported
that the New York County District Attorney's Office will shortly announce
additional enforcement actions against banks for sanctions violations regarding
Iran and Syria. In a speech made on November 14, Manhattan District Attorney
Cyrus Vance talked about payments made to persons associated with sanctioned countries
as constituting a threat "to US national security."
reminded me of the ideas that my "This Week in FCPA" colleague Howard Sklar
often speaks about; that being 'compliance convergence.' One of these areas
where there is convergence with anti-corruption and anti-bribery compliance
programs is anti-money laundering. While many persons discuss the techniques
used in anti-money laundering as techniques which can or should be used in
banking and other financial institutions' compliance programs, there is one
area which companies should adopt from anti-money laundering directly into
their anti-corruption and anti-bribery compliance programs and that is
some time now banks have been required to monitor transactions of Politically
Exposed Persons (PEPs). Generally speaking this effort includes requiring banks
to apply enhanced due diligence to bank accounts and transactions by PEPs;
requiring financial institutions to assess and evaluate risk so that it can be
more carefully managed; promoting transparency in all transactions and
monitoring transactions which might be termed suspicious. This means more than
single transaction monitoring and is a more sophisticated approach which allows
cataloguing and cross-referencing transactions.
begin with the need for enhanced due diligence that they can determine when
dealing with a foreign governmental official. This due diligence must include
procedures "reasonably designed to detect and report transactions that may
involve the proceeds of foreign corruption." Banks make some or all of the
following list of inquiries: identify the stakeholder and any beneficial
owners; from this identification, determine the PEP status; obtain employment
information and evaluate for industry and sector risk of corruption; review the
stakeholder's country of residence and evaluate for level of corruption; check
references; obtain information on immediate family members to determine PEP
status; and make reasonable efforts to review public sources of information.
not couched in terms of the compliance lingo "Red Flag", anti-money laundering
requirements make clear that simply identifying a stakeholder as a PEP does not
disqualify the candidate. It means that additional investigation must be performed.
Therefore, if a PEP comes up in your Foreign Corrupt Practices Act (FCPA)
compliance program due diligence investigation, as an owner of a Foreign
Business Partner, additional investigation must be performed to determine the
relationship of this governmental official; the transaction at issue; and
any potentials for conflicts-of-interest or self-dealing. The promotion of
transparency requires actual knowledge of the parties who are involved in all
transactions. In addition to identifying those owners and any beneficial
parties as indicated above, care should be taken to identify any shell
companies which a PEP might have ownership or interest in. This is a critical
analysis which companies should take as part of their overall due diligence
many compliance programs do a good job of the above due diligence and attendant
analysis; companies do not take the next step, that being transaction
monitoring, and integrate it into their compliance function.
the Treasury Department, or some other functional group in a company has a
policy preventing payments to locations other than (1) where services are
delivered or (2) the home country of the payee. However, this other functional
department rarely works in concert with the Compliance or Legal Department, in
terms of notifying other company groups of a suspicious payments or even
providing documentation of such suspicious payments and storage of such
information in a mutually accessible database. Contrasting this, situation most
companies will have a policy regarding the retention and contracting with
agents or other foreign business representatives or partners but how often are
such policies found for vendors in the Supply Chain. The next step in this
transaction monitoring process is monitor each transaction to determine if it
is 'suspicious', that is the term generally recognized by banks in the
anti-money laundering context. How many companies have systems in place to
perform the same suspicious activity analysis in the normal course of
transacting business? Further, there are software program and other tools which
a company can utilize which will automate this monitoring process.
reported that Manhattan District Attorney Vance said that payments out of
certain financial institutions had "stripped wire transfer payments of
information that would have revealed that sanctioned parties were engaging in
US dollar transactions." How many companies could monitor that type of
information for payments they may have made to vendors in the Supply Chain or
agents in the Sales Chain for that matter? Near the end of his speech, Vance
said that his office was "well positioned" to pursue such claims.
banks and other financial institutions become more robust in their anti-money
laundering programs, many nefarious individuals may move their activities to
companies with less robust procedures and back-up systems to detect, record,
store and share any such activity with the appropriate group within a company.
This may well be the next US government target for inquiry.
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 secrets.
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Thomas R. Fox, 2011
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