Internal Investigations Blog

News and Opinions on Corporate Inquiries

 

Avoiding Interrogations In Corporate Investigations

by admin on May 22, 2013 in Blog with No comments

Catching people doing the wrong thing – or verifying the contrary – is what investigators do. And while external investigations conducted by law enforcement agencies and internal investigations conducted by in-house or by outside counsel share that goal, the methodology of gathering evidence from human sources must be very different in the critical area of gathering information from real people.

In any investigation, questionable data and numbers are invaluable. They raise red flags and point in various directions that the inquiry may take. E-mails, texts, and letters can give context to suspicious conduct. But it is almost always the human component that confirms the worst fears or best hopes of the Board, Audit Committee, CEO, or General Counsel. In the absence of a signed confession – “Yes, I bribed the local customs official, made our division’s sales numbers, got my bonus, and am now off for parts unknown!” – only a living, breathing person or two or more can pull it all together and make an investigation make sense.

Employee and third-party interviews, then, are at the apex of any probe. Their results can make, break, or bog down the investigation. And the different pressures that may be brought to bear when these interviews are conducted by law enforcement personnel versus specialized investigations counsel and their staffs set the tone for these conversations and determine the likelihood of their being fruitful.

Plainly put, law enforcement “interrogates” suspects and witnesses, while everyone else can only “interview” employees and third persons. That makes for a big difference in tone, tactics, and results. It also means that non-law enforcement investigators have to work harder and smarter to get answers to their questions.

Interrogation has an innate, coercive component to it. Fourth, Fifth, and Sixth Amendment protections notwithstanding, there is an oppressive feel to questioning by government agents that is felt intuitively by most people. The David versus Goliath match-up is not so metaphorical, particularly when those being questioned are aware of the implicit – if not, explicit – threat of arrest and prosecution for whatever transgression that law enforcement can see and get past the giggle test of a Grand Jury.

Suffice it to say that it is much easier to get answers and cooperation when the interrogator is perceived as holding the keys to a jail cell and/or the poor house. Even the dimmest bulbs are usually recognize the fact that while a judge might say they were right on Monday morning, a government agent asking questions is judge, jury, and executioner on Friday night. That gets subjects motivated and questions answered.

Alternatively, outside counsel does not have much coercive force to bring in getting human cooperation in an internal investigation, save for the possibility of job losses that may be felt or even acknowledged to witnesses or suspected wrongdoers. In suggesting how to play that weaker hand, The Company Ethicist hit the nail on the head with the title “Internal Investigation: Interview, Don’t Interrogate.”

As said in the preceding paragraph, loss of employment may be the only real fear hanging over an employee or other witness in an internal investigation. Should the allegations being probed constitute a criminal offense, it may still fail as a motivating factor when an individual perceives – rightly or wrongly – that he or she may go to jail for his or her involvement in a given impropriety. Cooperate and save one’s job while handing a prosecutor the evidence for one’s own conviction at the same time? No thanks.

Further, the loss of a job may not be as devastating in today’s highly-mobile professional world as it once was. Or the employee or witness may not care to cooperate and provide information for who knows what reason. As a result, getting that cooperation is highly dependent upon investigators conducting a non-confrontational and conversational interview with an individual, as opposed to interrogating him or her.

Generally, people want to talk. They usually want to get their side of the facts out and understood by others, even investigators. They want someone to understand that if they helped to make or conceal an illegal payoff, it was only because of pressure to make in-time deliveries and to hit sales targets. Or because they felt that it was okay because everyone else was doing the same thing. Employees and other witnesses won’t say these things in what they perceive as a paper-tiger, company-authorized interrogation, but they often will say it in a conversation with investigators whom they rightly perceive as trying to flesh out not only the facts, but also the motivations for – and contexts of – their actions.

This tremendous difference, then, in approaching and obtaining cooperation from human witnesses is an important one that is probably largely unrealized by C-suiters commissioning probes of their organizations. Companies paying for internal investigations ought to be cognizant of the fact that outside counsel often has to take a different and more difficult tack than law enforcement in getting information and evidence from the people involved.

NCAA Likely to Mimic Corporate Brethren on Investigations

by admin on January 24, 2013 in Blog with No comments

Like Mark Twain, reports of the NCAA enforcement staff’s death are vastly exaggerated. It is true, even in light of this week’s announcement of a major glitch in the investigation of the University of Miami athletic program that has many pundits and observers mocking Mark Emmert and his troops.

The Hurricanes’ athletic compliance practices have been probed by the NCAA for nearly two years now after allegations of wrongdoing by its football and men’s basketball programs came to light last August. At that time, Yahoo!Sports published accusations brought by a former booster, Nevin Shapiro, about improper payments he made and benefits he gave to Miami athletes in return for their friendship. No stranger to creative financing, Shapiro is presently serving a 20-year term in federal prison for masterminding a $930 million Ponzi scheme.

Since the NCAA probe kicked off, Miami has been cooperating with investigators and has imposed two post-season competition bans upon itself in response to the inquiry. This has proved costly for the school, as the Hurricanes football team would have secured a spot in the Atlantic Coast Conference championship game this past season and – if they had won – would have qualified to play in the BCS Orange Bowl. Needless to say, it is anxious to get the investigation and any penalty into the rear view mirror, as the cost to date in revenue and recruits is significant.

Now, just as the NCAA was seemingly winding down its investigation at Coral Gables, a fly has been found in the ointment. Just two days ago, President Mark Emmert announced that the investigation of the Miami program was tainted to an as-yet undetermined degree by the irregular use of outside counsel to assist NCAA investigators in their work.

An Associated Press story reported that former enforcement staff members worked with the criminal defense attorney for former UM booster and convicted Ponzi scheme architect Nevin Shapiro “to improperly obtain information … through a bankruptcy proceeding that did not involve the NCAA.” One person deposed during Shapiro’s bankruptcy was former Miami equipment-room staffer Sean Allen, and his testimony may be among the information illicitly obtained. The employment or use of the Shapiro attorney by investigators was not approved by the NCAA’s general counsel and apparently only came to light when the lawyer submitted bills for services rendered to the Association.

In response, Emmert hired attorney Kenneth L. Wainstein of Cadwalader, Wickersham & Taft LLP to conduct the external review of what happened. One of the first orders of business for Wainstein is to determine the nature of that contractual arrangement with the attorney in question and what activity by him or her was involved. Regardless of what the answers to those questions may be, they will surely have implications as to the larger conflict-of-interest and impartiality issues that will color the accuracy and reliability of the larger, overall investigative work product.

The talking heads have largely piled on Emmert and the NCAA, continuing a drumbeat that started with the Penn State enforcement action. While reveling in the black eyes that the governing body seems to continue to incur, they miss the larger point.

It appears to this corner that Emmert is trying to take the NCAA out of its old enforcement model – whatever that may have been at any given time or on any given matter – and put it into a new one modeled on the corporate compliance requirements of Chapter Eight of the United States Sentencing Guidelines.

What most pundits fail to understand is that the NCAA is within the USSG’s reach – it is an “organization” as defined therein – and ought to function accordingly. On the enforcement side, this mandates that member schools maintain robust compliance programs, conduct vigorous internal investigations of breakdowns, take unilateral corrective action where appropriate, self-report violations, and lay themselves open to real sanctions and monitoring by the governing body, etc., more in the manner of Eli Lilly or Siemens than unruly fourth graders on the playground.

Indeed, the engagement of Cadwalader, Wickersham & Taft seems to be a case of the physician healing thy self. David Ridpath, Assistant Professor of Sports Administration at Ohio University told USA TODAY Sports’ George Schroeder that “[t]he revelation is the most shocking thing of all. That the NCAA brought it up and that they’re hiring an outside law firm to look at the case is the most surprising thing about this.”

Although Ridpath is a frequent critic of the NCAA’s enforcement arm and the disclosure “makes [him] think [the misconduct] is pretty big”, his commentary says more about this being a departure from past practices. Large gaffe on the Miami probe or not, it appears that the NCAA is prepared to subject itself to investigation by specialized, outside counsel just as it probably will come to expect its members to do in the enforcement future.

For all the handwringing by sportswriters and commentators, it appears that collegiate athletics is simply headed in the direction of playing by the same rules that are mandated for all other organizations – public or private, for-profit or non-profit – under the USSG. With the revenue and attention generated by the success of the NCAA and its member schools, perhaps it is better that this come to pass at the hands of Mark Emmert than at the hands of the same House and/or Senate that likes to threaten tinkering with Major League Baseball’s anti-trust exemption every time a scandal breaks there.

A Classic Revisited: FCPA Basics for Smaller Companies in 2011

by admin on January 23, 2013 in Blog with No comments

A discussion last week generated the return to a 2011 opinion piece for the Association of Corporate Counsel’s website by FCPA attorney Stephen Clayton. The focus of that article was FCPA basics that should have then been known to small compliance departments. Because the soundness of any piece of writing is whether it stands the test of time – and this one does – it is worth revisiting.

Clayton’s “Top Ten Basics of Foreign Corrupt Practices Act Compliance for the Small Legal Department” gave a brief but effective description of the anti-bribery and books-and-records components of the Foreign Corrupt Practices Act and then launched into a ten point primer of what those provisions meant to non-Fortune 500 companies. These continue to be important, for while Siemens and Wal-Mart and Eli Lilly always rack up headlines, the trickle-down effect of ramped-up enforcement continues to create exposure for smaller, privately-held companies in 2013. Surely, there are others like Gerald and Patricia Green out there; they just haven’t been served yet.

So, once again, here are Clayton’s points and his most important thoughts on each:

1. Corruption in international business is common and frequently ignored.
Managers and lawyers in most companies want to believe they work for clean, ethical organizations that hire law-abiding employees. This positive bias often blinds U.S. business people to the reality of international business, where bribes, kickbacks, and false or unrecorded transactions are common.

2. Investigation, prosecution and punishment under the FCPA is common.
Ten years ago, FCPA prosecutions were rare. Since 2008, the government has had around 150 FCPA investigations going on at any one time and has been bringing about 40 cases each year. Lately the cases have been about half against companies and half against individual company managers and employees.

3. Understand [the] company’s risk of being involved in international bribery.
Companies must assess the risk of FCPA violations in their international business. [It is necessary to] [u]nderstand every way in which [a] business has contact with government customers or government employees. For most companies, 80% of the FCPA risk will come from less than 20% of [its] business.

4. [A sound] program requires a “stand-alone” international anti-corruption compliance policy, and an executive who is accountable for the “Tone at the Top”.
Any company that is doing international business should enact a stand-alone FCPA Compliance Policy. Do not rely on having a few paragraphs about international corruption buried in your general Standards of Business Conduct; it is not sufficient. The senior management team sets the company’s tone at the top. If [the] Board has never mentioned the value of FCPA compliance to the management team – and the CEO, CFO and other responsible executives have never addressed employees about the company’s commitment to FCPA compliance – [the] company’s tone at the top is poor and employees may not believe the company is really committed to [it].

5. Train [the] board, management, employees and third parties who distribute [the company’s] products.
[T]raining should familiarize managers and employees with the actual corruption risks in [the given] industry, the countries where business [is done] and the business model [being used]. Smaller companies may think they are safer if they use third parties who also represent major U.S. and multi-national companies. They assume those companies have done proper vetting and provided training, but that may be wishful guessing that may or may not be true.

6. Know all the third parties [the] company uses in business outside the U.S. and conduct due diligence.
Understand that intermediaries do not shield [a] company from liability – they create liability. 90% of FCPA cases brought by the U.S. government involve conduct by third parties.

7. Establish a set of internal controls over company expenditures and assets.
[Companies] can have fine GAAP accounting and still fail to detect bribery or false or inaccurate records. [Employees] who are involved in corruption, kickbacks and creating false transactions are smart [and] know how to keep the books looking clean and hide evidence of corruption.

8. Do not permit facilitating payments.
The facilitating payment exception has never been [successfully] used [as a defense] in a reported case.

9. Plan for the likelihood [of] hav[ing] to conduct high quality international internal investigations.
Most small to mid-size companies have very little experience conducting international internal investigations. Learning on the job and repeating all the common mistakes can be very costly. Even if they are not involved, local managers may not appreciate the danger to the US parent company. They may try to conduct their own amateur investigation – or simply call a meeting of their managers and ask them what happened. In either case they will alert the perpetrators and evidence will be destroyed, documents fabricated or stories aligned so an actual professional investigation will be much longer, more difficult, and expensive. If [a company has] no experience conducting international internal investigations, engage experienced counsel.

10. Include clear FCPA terms in every international contract.
[Reinforce] the message that [a] company will not tolerate corruption [by] both your foreign partners and [its] own staff. [Contracts] should specifically mention the importance of FCPA compliance and require partners to represent that they know the elements of the law and will comply with it. FCPA compliance terms are not negotiable. If a potential partner refuses to execute the contract unless you remove your anti-corruption terms, find another partner.

Of course, No. 9 hits the highest note in this corner of the blogosphere. And as has been noted here before, an added danger for small to mid-sized companies is underestimating the response to an FCPA incident that is expected by the DOJ or SEC. This includes the high-quality, independent internal investigation that is required in most instances.

The remainder of the list is no less important, however, and continues to be just as applicable today as it was when first written. Like Shakespeare – or Dave Barry – it is worth re-reading every now and again.

Cutting Back on Wal-Mart E-Mails

by admin on January 17, 2013 in Blog with No comments

The thing about reversing field that makes it so devastating on the gridiron is the surprise factor. Tacklers are left grasping at air because the runner is not where he was anticipated a moment earlier. So, like Barry Sanders in his prime, this article also does a little cutting back, while still moving toward the same end zone: letting the Walmex investigation run its course.

Thanks to some invaluable assistance from Paul Greenspan of Alvarez and Marsal who provided copies of the Wal-Mart e-mails released by Congressman Henry Waxman and Congressman Elijah Cummings last week, a better evaluation of their import and impact is possible.

The two e-mails directed to Wal-Mart CEO Mike Duke do not contain references to illicit activities emanating from Bentonville. That may ultimately flesh out, given recent developments in India commented on here. But they do contain repeated and troubling references to business practices in Mexico that should and would generate a serious response from any home office on its FCPA game.

Subject only to some minor redactions of contact information, the e-mails to Duke – at the time the head of Wal-Mart International – contain incriminating subsidiary e-mails from a third-party law firm engaged to dig into the now well-known allegations of bribery and corruption in the company’s construction operations in Mexico. They very strongly allege a coordinated, high-level effort by the Mexico subsidiary to circumvent permitting and zoning obstacles to store construction in a handful of areas.

“Bell-ringers” alleged by the whistleblower and reported by the outside investigator include such gems as these:

• “. . . persons at the Tax and Accounting Departments were not aware of the irregular payments methodology”
• “. . . law firms (allegedly used to transmit bribes) were picked because of their ability to be available and perform according to the instructions given, not because of their sophisticated or important legal practices.”
• “Payments to the Mexico City Government were performed using several law firms.”
• “ . . . outside law firms would receive a 5 to 6% commission on payments that they would handle to resolve problems.”
• “. . . information was always hidden from Bentonville although with the accounting codes the payments could be traced to what their real purpose was . . . [.]”
• “[The whistleblower] witnessed at least 2 of those cash payments just to make sure that they were being turned over to the designated persons.”
• “In spite of those payments . . . there was no noticeable benefit of a speedy resolution to the . . . impact analysis.”
• “The National Institute of Anthropology (INAH) asked for an official donation of Mex$400,000.00, but the INAH’s President received an irregular payment of Mex$150,000.00 to give approval to the corresponding construction site . . . [.]”

[Emphases added.]

The e-mails also indicate that a disgruntled and bitter employee of the Law Department in Mexico was the source of allegations. That is not unusual for a whistleblower and higher-ups who ignore or give short-shrift to the claims such as those of this whistleblower do so – or have done so – at their own peril. Duke may or may not have done that and if he had, there will be more than just hell to pay. Fines and disgorgement will probably figure in, too.

Still, only the end of the parallel investigations into this matter will tell the tale. That should not change, regardless of how many times we have to make like Barry Sanders to get across that goal line..

As an aside – and perhaps as evidence of how little-recognized corrupt behavior under the FCPA is – it is amazing that one or more of the foregoing quotes were not included in the voluminous media coverage of the Waxman and Cummings release. Any one of them would have put a little more smoke to those guns brandished by the Congressmen.

Not Jumping the Gun on Wal-Mart FCPA E-Mails

by admin on January 15, 2013 in Blog with No comments

In chronicling the problems presented to Wal-Mart by bribery allegations in Mexico and later in India, it has been the position of this corner that multiple instances of the same possibly-illegal conduct at opposite ends of the globe make it harder and harder for Bentonville executives to deny knowledge of the conduct at issue. But, while internal Wal-Mart e-mails disclosed last week by members of Congress are being touted as smoking guns, they may or not be, as internal and external investigations of the company and its subsidiaries continue.

Multiple news outlets reported late last week that Representative Henry Waxman of California and Representative Elijah Cummings of Maryland released documents obtained by their staffs that they claim prove that CEO Mike Duke and other senior Wal-Mart officials were informed about bribery issues in Mexico back in 2005. These appear to be in the form of two or possibly three e-mails between company executives in October and November of that same year. This, as the retail giant is in the throes of an internal probe and presumed FBI and SEC investigations into possible violations of the Foreign Corrupt Practices Act with regard to operations in Mexico.

On January 10, 2013, Bloomberg reported that the first e-mail “contradict[s] the company’s earlier statements that senior executives had no knowledge of the bribery allegations involving the Teotihuacan store” according to Cummings and Waxman. Apparently referring to the same correspondence, Reuters quoted from Wal-Mart General Counsel Thomas Mars’ e-mail to Duke that summarized the corruption claims and closed by noting that the CEO would “want to read” the report. Mars also indicated that he was “available to discuss next steps.”

Fox News Latino reported that a second e-mail was a missive from Maritza Munich – then General Counsel of Wal-Mart International – to Duke and other senior Wal-Mart executives. It informed them of charges related to bribes paid to obtain permits for a store in Mexico. It also contained the summary of an interview with Sergio Cicero Zapata, the former in-house counsel for Wal-Mart de Mexico who oversaw obtaining building through permits throughout Mexico.

While these and other media sources report that these e-mails are the nail in Wal-Mart’s illicit overseas pay-to-play coffin, the context of the quotes referenced above is unclear. The Bloomberg, Reuters, and Fox News stories are curiously lacking in more extensive quotes from the suspect e-mails that would allow for a clearer interpretation of them.

While in no way taking a position on Wal-Mart’s guilt or innocence, one has to give a second thought as to whether these internal communications are the aforementioned smoking guns they have been claimed to be. This for two reasons:

First, the entirety of these primary sources is unseen. Despite references in numerous media accounts beyond those just cited here, reproduction – in whole or in part – of these documents could not be found as of this writing. Putting the sparse quotes provided into context and weighing the accuracy of the summarizations provided by Waxman and Cummings and paraphrased by news organizations is difficult at best, even if they ultimately prove to be correct.

Second, Wal-Mart issued a responsive statement indicating that has been providing information – including the documents that were released by the lawmakers on Thursday – to the DOJ and the SEC in connection with their FCPA probe. A Wal-Mart spokeswoman said Waxman and Cummings left the impression that the company’s earlier public statements were contradicted by the information that they released. She also stated that there was no contradiction between Wal-Mart statements and the e-mails and that no new information was released by the legislators. This seems an aggressive stance in an FCPA world where contrition all along the way generates cooperation credits.

Also curious is the fact that the Fox News Latino story reported that the first e-mail referenced “charges” relative to Wal-Mart activities in Mexico. This is odd because – as far as can be discerned from past reports – no charges had been brought against the company at the time of the e-mail referencing them or to the present. Maybe it is just a poor or premature choice of a word – if in the e-mail in question verbatim – but it is unusual for a legal correspondence to reference a term of art that has not yet become operable.

Regardless, and with three ongoing investigations likely – Wal-Mart’s internal probe and the DOJ and SEC external ones – it’s probably best to wait and see what those inquiries yield instead of allowing parts of e-mails and their summaries to be the final word on Wal-Mart’s guilt or innocence at this point.

Taiwanese Manufacturer Deals All Cards Up in Bribery Probe

by admin on January 10, 2013 in Blog with No comments

In an investigative move that would surely make FCPA enforcement officials here envious, Taiwan-based Hon Hai Precision Industry Co., Ltd. is cooperating with a corruption probe by officials in mainland China. In that pursuit, the company seems to be working hand-in-glove with police investigators in a manner often recommended to American companies with bribery concerns by the Department of Justice’s point man, Lanny Breuer.

Hon Hai – also known by the trade name Foxconn – assembles electronic gadgets for high-profile customers such as Apple and Sony in factories across China that employ in excess of one million people. It manages an extensive supply chain for its customers and buys a wide range of components – such as touch screens – for use in its end products.

Yesterday, a Wall Street Journal article and a Corruption Currents posting both reported that Hon Hai was the subject of a probe by mainland Chinese authorities into the alleged bribery of its supply-chain partners by employees. This cooperation, according to a person familiar with the probe, included turning one worker over to police, presumably for questioning and possible prosecution.

The company didn’t disclose further specifics about the surrendered individual or others involved, but the Taiwan edition of Next magazine cited unnamed sources as saying that the individual referenced was a Hon Hai executive in the southern city of Shenzhen and that he or she had been detained by police there. The report couldn’t be independently verified and public security officials in Shenzhen couldn’t be reached for comment before the WSJ story went to press.

While the mid-investigation arrest of an executive by authorities is essentially unheard of in the FCPA context, the early self-reporting and cooperation with an enforcement agency exhibited by Hon Hai is not without precedent here. Even so, the company is all in for the Chinese version of cooperation credits.

Hon Hai said in a statement that it was reviewing the company’s practices to strengthen internal controls and is “working with law-enforcement officials who we brought in to work with our own internal audit team as part of an investigation into allegations against a number of Foxconn employees related to illegal payments from supply-chain partners[.]” [Emphasis added.]

To its credit, Hon Hai seems committed to openness in response to questions about its business practices and has a history of affording the same. In the past, it has cooperated with inquiries by Apple, Dell, and HP into excessive suicides by company workers; by Nintendo into the alleged use of underage workers; and one by the Fair Labor Association into overall working conditions at company plants.

Each of the foregoing probes has concluded with Hon Hai accepting the results of those investigations and agreeing to take steps to improve its operations from a compliance and ethics perspective. Perhaps is should be unremarkable, then, that it is fully and jointly engaged with Chinese authorities in this bribery investigation.

And while it is unclear as to who is leading and who is following – police or auditors – in this matter, one ne thing is clear. The ultimate findings will be the product of a transparency that is not always seen – nor always advisable – in companies facing corruption investigations by U.S enforcement agencies.

Corporate Law Lesson for San Diego School

by admin on January 9, 2013 in Blog with No comments

Sometimes it is hard to find the right words to describe a situation. Other times one can’t quite grasp the right axiom. In the case of allegedly puffed-up placement statistics – and resulting litigation – plaguing one California law school, “do as we say and not as we do” is probably as close to accurately describing its response or non-response to serious fraud allegations when it comes to the internal investigation angle.

While not as sexy as an FCPA or health care fraud claim involving a monolithic, money-grubbing for-profit corporation, if ever there was a case that cries out for an internal investigation, it is the one that is currently blackening the eye of San Diego’s Thomas Jefferson Law School.

Last May, Anna Alaburda, a 2008 Thomas Jefferson graduate, kicked off a wave of litigation alleging fraud by law schools when she sued her alma mater on behalf of herself and other graduates. In a complaint that goes well beyond notice pleading and reads like a PBS Frontline voiceover, Alaburda alleges that Thomas Jefferson School of Law inflated employment statistics for its graduates and that she relied – to her detriment – upon the same in enrolling and completing her degree at that institution.

With counts predicated upon alleged violations of California’s Unfair Competition Law, Business & Professions Code, and Consumer Legal Remedies Act, as well as common law claims for fraud and negligent misrepresentation, Alaburda – as yet unemployed or under-employed – claims that her school wrongly led her to believe that she would be able to begin and sustain a legal career of a certain caliber and income level if armed with a degree from it. Of course, this litigation began because Alaburda’s anticipated results did not come to fruition.

The torrent of similar litigation referenced above was perhaps sparked by supposedly-inflated statistics at other schools directly referenced or alluded to by various academic officials that were cited in the complaint. To be sure, Paragraphs 21 – 30 certainly read like an indictment of a widely-corrupted self-reporting system.

Alaburda’s lead seemingly inspired suits against other law schools around the country on similar grounds, including a batch filed against fourteen other law schools around the country by a trio of lawyers in New York. More suits followed. Most of these cases have not gone well for their plaintiffs, including five that have been dismissed since March. However, three against California law schools have survived motions to dismiss, including the Alaburda case.

The National Law Journal recently covered a hearing on a motion for summary judgment that was submitted by TJSL arguing that Alaburda’s claims were barred by the statute of limitations, that she lacked standing pursuant to one of the statutes involved, and that she failed to mitigate her damages. The court denied the schools dispositive motion and the case will seemingly proceed to trial.

Of particular interest, though, is the fact that a former law school employee had given a sworn statement last August in which she admitted to padding 2006 graduate employment statistics.

On October 23, 2011, The National Law Journal had already reported that Karen Grant, a former Assistant Career Services Dean at TJSL, averred that she counted recent graduates as employed if they had worked in any capacity since graduation, even though American Bar Association rules mandate a stricter criterion.

She stated that she “was to ask first if they were currently employed. If the graduate indicated he or she was not currently employed, [she] would then inquire whether he or she was employed at any time after graduation. If the graduate indicated he or she was employed at any time after graduation (even though currently unemployed), [Grant] was instructed to record the graduate as ‘employed’ for the record.”

She blamed pressure by her supervisor to improve the school’s jobs statistics as the reason for her actions.

According to the statement, Grant worked in the law school’s career services office between September 2006 and September 2007 where tracking graduate employment statistics was part of her job. Her boss then was former Career Services Dean Laura Weseley, whom Grant alleges to have repeatedly pressured her to record the statistics other than as dictated by the ABA.

Reading all of this, one can’t help but think that if these facts unfolded in a business setting – not that education isn’t big business – the whistleblower would be stirring a board or general counsel or compliance officer to start probing the depths of the organization in question.

It is more than somewhat ironic that TJSL is an educational institution that is likely teaching corporate law courses – ones that include developments, trends, and best practices in compliance and ethics, risk management, and crisis response – while taking apparently taking no cue from those lectures. It seems advisable for TJSL to have loudly commissioned an internal probe of its actions in connection with the allegations made by Alaburda and Grant and to trumpet the findings and any remedial action taken, if only for the sake of for the sake of salving its reputation, protecting its accreditation, and assuring alumni donors.

_____________________________________________________________________________________________

In the interest of full disclosure, the author contacted TJSL when this story first broke in October to inquire as to whether an internal investigation was contemplated and to offer his firm’s services in that regard, if needed. He received a response indicating that the school’s attorneys – presumably trial counsel – were handling the case. TJSL’s declination of that offer of assistance in no way colors the views expressed herein as to the advisability of conducting an internal probe under these circumstances.

Christmas FCPA Violations Probed

by admin on December 24, 2012 in Blog with No comments

The allegations being investigated surround gifts being given by individual businessmen to the family of an Israeli government official a number of years ago.  These businessmen – a Mr. Balthasar, a Mr. Gaspar, and a Mr. Melchior – supposedly provided a family in the royal line of King David with significant gifts, including gold, frankincense, and myrrh, in return for favorable consideration of an as-yet undetermined project in the Middle East.

The three men are believed to be third-party intermediaries for a multitude of Christian church organizations within the United States, and any jurisdictional nexus would seem to be predicated upon such a fact, if verified.

Whether any member of the family that received the gifts was or is a “government official” – as that term has come to be expansively defined by the DOJ – is unverified, but nonetheless likely.  While Transparency International’s Corruption Perceptions Index does not reference them in any of its yearly rosters, there is a large volume of other source material that seemingly establishes one or more of them as being related to the ruling family in Israel.

Regardless of the strength of the government’s case in these regards, there is still the hurdle presented by the age of the alleged violations.  They are reported to have occurred approximately 2,012 years ago.  The DOJ could be expected to assert that the clock did not begin to run until the government recently became aware of Balthazar’s, Gaspar’s, and Melchior’s conduct, however, there appears to be a strong argument that voluntary self-disclosure was made some time ago, thus commencing the running – and expiration – of the statutory period.

This line of inquiry will continue in multiple, parallel investigations.

We take our firmly-set tongues out of our cheeks to wish you Merry Christmas, Happy Holidays, and/or Season’s Greetings, as the case may be!

Thank you for your readership and commentary this year, and we’ll see you again in 2013.

Little Things Mean A Lot: The FCPA Guide on Internal Investigations

by admin on December 12, 2012 in Blog with No comments

The formal title of the DOJ/SEC white paper is A Resource Guide to the U.S. Foreign Corrupt Practices Act and it covers a variety of topics over its 10 chapters spanning 130 pages. Of particular note to this corner is Chapter 5 which covers “Guiding Principles of Enforcement” and is broken down into the following subject areas: 

  • What Does DOJ Consider When Deciding Whether to Open an Investigation or Bring Charges?
  • What Does SEC Consider When Deciding Whether to Open an Investigation or Bring Charges?
  • Self-Reporting, Cooperation, and Remedial Efforts
  • Corporate Compliance Program
  • Hallmarks of Effective Compliance Programs
  • Other Guidance on Compliance and International Best Practices

Within “Hallmarks of an Effective Compliance Program” is found the following prescription:

“Confidential Reporting and Internal Investigation”

“An effective compliance program should include a mechanism for an organization’s employees and others to report suspected or actual misconduct or violations of the company’s policies on a confidential basis and without fear of retaliation. [Footnote omitted]  Companies may employ, for example, anony­mous hotlines or ombudsmen. Moreover, once an allegation is made, companies should have in place an efficient, reliable, and properly funded process for investigating the allegation and documenting the company’s response, including any disciplinary or remediation measures taken. Companies will want to consider taking “lessons learned” from any reported violations and the outcome of any resulting investigation to update their internal controls and compliance program and focus future training on such issues, as appropriate.  [Emphasis added.]”

While internal investigations have always been part of the back end of effective compliance programs and have become a lucrative cottage industry in recent years – as noted in a Wall Street Journal story from October 2012 – the government expecting companies to budget for them seems to be a new requirement.

Notice again that the above-quoted text mandates that companies not only have “in place an efficient [and] reliable . . . process for investigating [an] allegation”, but that it be “properly funded” as well.  This should raise concerns for CCOs across the land, since “properly funded internal investigation” has now been added to the pile of ill-defined terms such as “foreign official”, “instrumentality”, and “anything of value”. 

And aside from worrying about what constitutes a properly pre-funded investigations budget – note that it says “in place” – what happens if the unforeseeable occurs and the wheels come off in far greater severity than anticipated when the CCO stocked the internal probe war chest?  Will that shortcoming be considered a hallmark of a less-than-effective compliance program and militate against a non-prosecution or deferred prosecution agreement or will it factor into a higher culpability score and greater penalties?  And who – as if practitioners didn’t know – will decide these issues?

It is much food for thought, because troubling big things – the influenza virus, a tax bill, in-laws – often come in small packages.

Significance of Wal-Mart’s FCPA Woes in India

by admin on December 3, 2012 in Blog with No comments

On the eve of India’s parliament meeting to discuss a hotly-debated plan to allow foreign companies to hold majority shares of retail stores there, Bharti Wal-Mart announced the suspension of its chief financial officer in India, Pankaj Madan, amidst an internal investigation into corrupt business practices. According to Marketwatch and The Economic Times, he is also acting legal counsel and the head of Bharti Wal-Mart’s five-member legal team.  Each of those team members was also suspended while its internal investigation progresses.

In some of the most expansive coverage of the story, Quartz confirmed through several persons with personal knowledge that the probe revealed that government agencies were being paid bribes in order to get clearances for licenses and building approvals for its stores throughout the country.  This could not be confirmed by one company spokeswoman who did not respond to requests for comment, nor by Madan or the other suspended staff members, who were similarly unavailable.  Other than confirming that suspensions were made, another Bharti Wal-Mart spokeswoman’s commentary was limited to insisting that the company was committed to conducting a complete and thorough investigation.

If the allegations against Bharti Wal-Mart are true – India was ranked 95th on Transparency International’s Corruption Perception Index 2011 and it is widely held that running a business without bribing government officials is nearly impossible there – it would likely put the company and its American parent in the Justice Department’s FCPA crosshairs once more. 

In follow-up damage control last week, Wal-Mart Asia CEO Scott Price addressed employees in the wake of the suspensions and reiterated that the company will operate only on the right side of the law, no matter how difficult it is.  He said the company was working diligently to strengthen its global compliance programs at great cost and that it will have zero tolerance for any violations of the Foreign Corrupt Practices Act.

But that may prove too little, too late in terms of what might be coming down the pike for Wal-Mart in punishment on the FCPA front.  Bentonville is still not finished dealing with these same claims in another part of the world.  The same illicit payments to government officials in Mexico to secure building and other permits cropped up in April and this latest turn of events might lead one to suspect that taking these shortcuts is a systemic practice.  Perparps particularly so because Mexico lives in the same risk neighborhood as India, ranking 100th on the Corruption Perceptions Index 2011.

It is certain that the DOJ will look into the potentially-bad-tone-at-the-top angle and so should Wal-Mart’s internal investigation team.   

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