By Sanday Chongo Kabange, The Red Flag Group®
There has been much talk recently as to whether companies will reduce compliance in light of the views of the incoming US President. It is our view that any company with any real focus on ethics, values and compliance would make no reductions to their compliance programs in light of the new administration. However, there are naturally going to be some people that see the comments from President-elect Trump as a suggestion that you can stop or tone down the compliance efforts.
For these people, the direction and coaching can be as follows:
- There is absolutely no chance that the concept of compliance will be going away anytime soon
- There is absolutely no chance that the DOJ and SEC will go away or will stop prosecutions, there ‘may’ be an adjustment to their tolerance and ‘turning a blind eye in a few cases’ but this remains unclear and is best not left to chance
- There is absolutely no chance that non-US based companies will somehow be let ‘off the hook’. If anything, the Trump ‘Buy American’ campaign would suggest that non-US companies are probably more under the spotlight than currently, and the administration will find any opportunity to attack a non-US based company for its mistakes
- There is absolutely no doubt that new laws and regulations will be introduced and old laws changed, which will inherently increase the need for compliance teams to adjust policies, training and procedures.
While it might be somewhat reasonable for a company to ‘read the tea leaves’ and adjust their own risk tolerance (i.e. taking more risk and focusing a little less on compliance practices) than under the previous administration, it would be a bold CEO to lead that change, and not something that we recommend.
View of FCPA
Donald Trump has gone on the record as saying the Foreign Corrupt Practices Act (FCPA) is a “horrible law and it should be changed” and that it puts US businesses at a “huge disadvantage.” This statement was made in the context of allegations of facilitation payments by US-based companies doing business in Mexico. Yet, even President-Elect Trump realized the invidiousness of bribery and corruption in the international business context as, in the same interview, he said that other countries should clean up the corruption which occurs within their borders. What does all of this and a Trump administration mean for FCPA enforcement and, more importantly, compliance as a whole going forward?
It unlikely that a Trump administration will drastically change FCPA enforcement for several reasons. On the political side, the FCPA is a key component in the international fight against terrorism. The direct link between corruption and terrorism is not only well-founded but has (unfortunately) been demonstrated again and again. Even low level corruption has been seen to lead to terrorism in the form of porous borders.
It is unclear if Trump the businessman understood the link between terrorism and corruption, however it is certain that President Trump will learn about this link very quickly. With his emphasis on US security from terrorism, the Trump Administration will not want to be seen as softening the war on terrorism by making things easier for terrorists. Clearly, Trump cannot be seen as the President who wanted to make corruption more prevalent across the globe. Finally, it is unlikely that Trump would ease corruption laws given his overarching rhetoric to “drain the swamp” in Washington during the campaign. FCPA enforcement will still likely be a key tool in the global fight against bribery and corruption which can be used to choke some instances of terrorist financing.
The practical reasons that FCPA enforcement will not significantly change under a Trump administration relate to the unique prosecution and enforcement model which was developed and has now been memorialized in the Department of Justice’s (DOJ) Yates Memo and the FCPA Pilot Program. Under the Yates Memo, for companies to receive any cooperation credit they must investigate and turn over information on potentially culpable individuals. Under the FCPA Pilot Program, companies can receive up to a 50% discount off the bottom end of the range of penalties under the US Sentencing Guidelines. However, since the announcement of the Pilot Program, several companies have received full declinations to prosecute for robust internal investigations, self-disclosure and effective remediation.
Interestingly, Deputy Attorney General Sally Yates, under whose name the memo went out, does not term it the “Yates Memo” but rather refers to it as the “Individual Accountability Memo”. Her designation of the memo is the key to how it may be viewed by Attorney General-Designate, Senator Jeff Sessions. Sessions is well known on Capitol Hill for his law and order views. As a federal prosecutor he was very aggressive in prosecuting individuals. This is unlikely to change if he becomes Attorney General. What this means in practice is that if individuals violate the FCPA, there will be aggressive prosecution going forward. When tied into the Justice Department Pilot Program, which rewards companies for turning over information on culpable individuals, it is clear that FCPA enforcement will continue; perhaps with more accountability for the individuals involved in the misconduct. For companies this means that it is more critical to have effective compliance programs in place so that they may take advantage of the results of the Pilot Program and receive a full declination.
Even if somehow President Trump was able to end FCPA enforcement, it would not end the global fight against bribery and corruption outside of the United States. Both the DOJ and SEC have worked quite diligently to increase standardization around anti-corruption enforcement in jurisdictions outside the US. At the 2016 ACI-FCPA conference Kara Brockmeyer, Chief, FCPA Unit, Division of Enforcement at the SEC, and Daniel Kahn, Chief, FCPA Unit, Fraud Section, Criminal Division at the DOJ, articulated the increase in international cooperation and enforcement. Both Brockmeyer and Kahn remarked about the increased sophistication of foreign prosecutors in both investigations of bribery and corruption and in understanding best practices.
Global enforcement efforts
Over the past several years, the DOJ and SEC have worked to create a network of international cooperation in the global war against bribery and corruption. In addition to forming liaisons, they have put on three conferences dedicated to training foreign prosecutors on investigations, best practices around anti-corruption compliance programs and cooperation between countries by sharing documents and other evidence.
In addition to increased cooperation with US authorities, many other countries’ anti-corruption regulators are now actively prosecuting bribery and corruption. Obviously Operation Car Wash in Brazil is a prime example where increased assistance with the US and enforcement lead to a major exposure of graft and large penalties. There were several late 2016 international enforcement actions against bribery and corruption that serve as prime examples of the phenomenon of enforcement on a global scale.
In the largest corruption enforcement action of all time, announced in late December 2016, the DOJ specifically noted the authorities in Brazil and Switzerland as providing significant cooperation. The total fine in the case was up to US$4.5 billion. The DOJ and SEC will receive about US$315 million with the remainder being paid out to authorities in Switzerland and Brazil.
The significance of this case and its implications going forward cannot be overstated. US regulators have the cache to bring all parties to the table for a global resolution. Moreover, this is in the interest of companies caught up in such an imbroglio. The worst thing for a company is to be whipsawed by multiple jurisdictions over fines and penalties. The uncertainty would be devastating for companies. As the incoming administration has indicated they will work to protect companies over individuals, this is one area where they can accomplish this goal, yet still be seen as tough on crime.
All of this means that the SEC and DOJ, have created an active and robust international anti-corruption enforcement regime, which is moving across the globe. Any US company doing business outside the US must have a compliance program in order to prevent, detect and remedy any corruption issues. Furthermore, if they want to receive the maximum credit from multiple regulatory bodies, they will need such a best practices compliance program.
Indeed, in some jurisdictions such a compliance program can be defence to criminal charges against corporations if employees are engaging in bribery and corruption. Yet even in the UK, where such a defence is available, a company must actually do compliance, not just have a paper program in place.
While there may be other areas of regulatory retreat, such as environmental, competition, and discrimination, those areas central to the fight against terrorism will remain robust. Clearly the global fight against corruption is tied at the hip to anti-money laundering enforcement. When you add in the export control of intellectual property and certain goods, this triumvirate of compliance will continue unabated going forward.
The power of (social) media
There have already been instances of President-Elect Trump going after companies with public statements on Twitter and in live interviews. Several themes have emerged from these interactions in that companies should:
- Keep jobs in America
- Pay their fair share of taxes
- Give the government a fair deal when selling their products and services.
This tweet from Trump on Dec. 4th summarizes some of his thoughts on corporate behaviours:
The U.S. is going to substantially reduce taxes and regulations on businesses, but any business that leaves our country for another country, fires its employees, builds a new factory or plant in the other country, and then thinks it will sell its product back into the U.S....without retribution or consequence, is WRONG! There will be a tax on our soon to be strong border of 35% for these companies...wanting to sell their product, cars, A.C. units, etc., back across the border. This tax will make leaving financially difficult, but...but these companies are able to move between all 50 states and negotiate a tax free deal!
Trump has clearly focused on automotive, manufacturing, retail and the aerospace industries with some of his recent remarks and we expect naming and shaming companies to continue after Trump takes office. Some of his statements could be hyperbole but there is often a seed of genuineness in such remarks.
While there are limits to the legislative and executive powers of the office of the President, Trump is finding new ways to put pressure on companies. His prowess on social media is well document and he will use it to further his political agenda outside of more traditional law making frameworks. The mainstream news media is likely to continue to shine their spotlight on Trump for calling out companies for what he considers poor corporate behaviour. This media attention can have a significant impact on companies as they look to avoid negative press and keep their names out of the headlines. Companies respond to these tweets and stockholders will weigh how much of an impact such remarks will have on their investments. Government legislation can move very slowly but the court of public opinion moves quite swiftly; Trump knows this. He has used social media during his campaign and will continue to use it as a way of enacting the changes that he wants to see in corporate America and, in turn, compliance. Enforcement of the laws is one method of controlling the behaviours of companies but it is not the only way.
Compliance is here to stay
Further, as regulators have increased enforcement of corruption laws over the past few years, companies have responded with increasingly robust compliance programs. This was a response to the legal risks of non-compliance. However, as corporate compliance programs have matured, businesses have seen how an effective compliance program makes a company operate more efficiently, with better controls and at the end of the day, more profitably. This means legal compliance has become a business solution which makes a company a better.
Not only do companies now see that compliance benefits the bottom line, they have matured in their collective thinking about third parties on the sales side, suppliers and even customers. Because the greatest corruption compliance risk has been perceived to be third party sales representatives, companies have demanded greater compliance programs from these sales representatives. Companies are now focusing on greater risks in the supply chain such as human trafficking and modern-day slavery. Such risks can drive down a company’s stock price with amazing speed in this age of hyper-transparency through social media.
The only response to all of these risks is to have an effective compliance program. All of this means doing compliance is even more important than ever and will be going forward; especially under a Trump administration.
The message for companies is clear; compliance is here to stay. They should continue to develop world-class operations with great governance and compliance. They should continue to monitor regulatory changes and adjust their operations and tolerance for risk accordingly.