Industries, and the companies which operate within them, adapt to changing market conditions. Companies that fail to heed this central tenet of business management often fail.
The international financial and legal community has spent the past week focused intently on the initial reports arising from a journalistic investigation now known as the Panama Papers matter. The investigation centers on a leak of documents from Panamanian law firm Mossack Fonseca involving multiple high-profile and politically connected individuals — 140 politicians and 29 billionaires, according to some reports. Allegedly, the documents encompass some 40 years of the firm’s files. The International Consortium of Investigative Journalists — the group that has been investigating Mossack Fonseca — has alleged that the firm incorporated offshore shell companies for the benefit of famous individuals, including government officials and their relatives, in order to enable those parties to evade taxes, launder money, and dodge sanctions by hiding their money in the shell companies. Mossack Fonseca has stated that many of its clients come to Mossack through some of the largest financial institutions across the world.
There is a sense in the United States that compliance professionals are moving into the crosshairs of government enforcement actions. For years, the government has sought to bring actions not only against those who committed the primary violations, but also against the so-called “gatekeepers;” the lawyers, the accountants, and now, the compliance professionals who the government believes facilitated the illegal misconduct. When misconduct is uncovered in a company, US enforcement officials will always ask, “Was the compliance system adequate?” Senior enforcement officials will ask their investigators whether the company took appropriate steps to detect and prevent misconduct in determining whether an action against the company is appropriate. The enforcement investigator will therefore take steps to evaluate the effectiveness of the compliance system. If the government finds the compliance system was inadequate, there appears to be a growing likelihood that US enforcement agencies will name an individual as responsible for that failure. As James Loonam, Deputy Chief of the Business & Securities Fraud Section in the US Attorney’s Office for the Eastern District of New York said recently at a conference, when the government gets a resolution against a company only, and not an individual, he considers that a failure.
Multinational companies with substantive connections to the United States have long established systems to comply with the requirements of the U.S. Foreign Corrupt Practices Act (FCPA). In addition, many multinationals also have systems to comply with the anticorruption laws of the respective host countries where they operate (in particular, the UK Bribery Act and the EU Criminal Law Convention on Corruption). Fewer companies, however, have developed and put in place compliance systems designed specifically to ensure compliance with Chinese anticorruption laws. With the increased focus by Chinese regulators on anticorruption enforcement, companies must work to understand Chinese anticorruption law and take appropriate remedial measures in response.
On October 22, the SEC and DOJ announced that they had settled a joint FCPA enforcement action against Diebold Inc., the Ohio-based global provider of ATMs and bank security systems. The settlement comes almost three years after Diebold first announced that it was the subject of such an investigation. The SEC and DOJ settlements concern allegedly illicit business activities in China, Indonesia, and Russia. In settling the matter, Diebold agreed to (i) pay approximately $48 million to the US government, (ii) appoint an independent compliance monitor for eighteen months, and (iii) continue to implement a compliance and ethics program designed to prevent and identify violations of the FCPA.
Companies can identify certain factors that will play a role in determining whether it will weather an FCPA or anti-bribery investigation.