Richard Steinberg 270004HRBG email@example.com | | Tags:  compliance morgan stanley fcpa grc openpages wal-mart sec | 0 Comments | 3,200 Visits
Chief Compliance Officers, General Counsels and other business executives have long been pushing regulators to provide clarity around the FCPA and more consistent (and appropriately fair) enforcement. Well, companies finally have something reasonably definitive to look at which shows how a well-constructed compliance program implemented in good faith can have extremely positive consequences – it’s the recent Morgan Stanley case, which we’ll get to in a moment.
At the other end of the spectrum is the Wal-Mart fiasco. You know the story – senior Wal-Mart executives knew of millions of dollars being paid to government officials in Mexico to aid expansion in that country, but shut down an investigation. The Justice Department and Securities and Exchange Commission are all over this, and things will not go well for the company. The last thing the DOJ or SEC looks favorably on is executives not reporting a suspected or known violation, and not conducting a full and comprehensive internal investigation. Now proxy advisory firms ISS and Glass Lewis, as well as major public pension funds, are recommending that Wal-Mart shareholders vote against members of the board of directors for neglecting their responsibilities. And there are indications the bribery might extend beyond the Mexican subsidiary. The stock price has taken a hit, the company faces potentially huge fines, executives could wind up in prison, and investors are suing. As is often the case, it’s not so much the bad action, but the cover-up. And it’s also whether the system, here the compliance process, was well designed, implemented and maintained.
Now to Morgan Stanley. The DOJ and SEC have long said that in enforcement actions they give credit to companies for already having a good compliance system in place, but we’ve seen little direct evidence of that. But now we have a game changer. The problems at Morgan Stanley reportedly arose when Garth Peterson, a managing director, successfully pushed for the firm to sell a real estate interest to a Chinese state-owned company, but it turned out to be a shell company in which Peterson had a direct interest, with related cash payments to himself and a Chinese official. Peterson pleaded guilty, facing a potential six-figure fine and five years in prison. But what happened to Morgan Stanley, or didn’t, is the real story here. The DOJ and SEC decided not to bring an enforcement action against the company. The reason – Morgan Stanley has had a strong compliance system, including relevant internal controls. It regularly updated controls to reflect risks of misconduct, and provided extensive training to its personnel, compliance reminders, annual confirmations by personnel, and continuous monitoring. And, when evidence of misconduct surfaced, the firm immediately began and conducted a thorough investigation.
So, there we have two well-known brand-name companies, one of which is likely to pay a high price, the other none at all and whose reputation is enhanced. The message now is clearer than ever. Engage in a cover-up, and deal with forceful regulators and angry shareholders. Have an effective compliance system and do the right thing, and the regulators and others will indeed look favorably upon the company.
Richard Steinberg 270004HRBG firstname.lastname@example.org | | Tags:  openpages compliance sec fcpa | 0 Comments | 2,752 Visits
We know the Justice Department and SEC in recent years revved up enforcement of the Foreign Corrupt Practices Act, which certainly has gotten the close and widespread attention of the business community. With the vast majority of U.S. companies large and small operating globally, general counsels, compliance officers, boards of directors, and other business executives are focusing on related risks and controls. And now the U.S. Chamber of Commerce’s Institute for Legal Reform, noting that companies want to comply with provisions of the FCPA but unclear enforcement makes it challenging, thinks "it is common sense that the rules of the road are clarified." As such, the Chamber has put forth five recommendations: Adding a compliance defense, limiting liability for the prior actions of an acquired company, adding a “willfulness” requirement for corporate criminal liability, limiting liability for acts of a subsidiary, and defining what constitutes a "foreign official."
It appeared these proposals might gain some traction, and then along came Wal-Mart. The charges of bribery in Mexico and subsequent cover-up seems to have dampened interest in modifying, or some would say softening, the FCPA and related enforcement. Certainly Wal-Mart has put tremendous effort into successfully lobbying legislators in both parties – and supporting the President’s initiatives in health coverage and pollution control, and the First Lady’s on healthy foods to combat childhood obesity – all of which may serve the company in good stead in containing political fallout. But we can also expect notoriety around the Wal-Mart case to signal the continued relevance of the Act and deflect efforts to weaken it.
It seems there’s an interesting analogy here, where the Wal-Mart bribery case might be to the FCPA what WorldCom was to Sarbanes-Oxley. After Enron imploded, there was stirring inside the Beltway about need for legislation, but nothing much was expected to happen – until a few months later when the WorldCom fiasco hit the headlines, thereby generating momentum that turned into a rush to get a law passed. In this instance, it may well be the converse – a law that might have been weakened is more likely to stay as is, with continued strong enforcement by regulators. We’ll stay tuned to see what transpires.