Category Archives: Due diligence

Alleviating the Burden of Compliance through Collective Action Reply

Due diligence, TRACE • Tags: , , , , ,

A new book edited by one of the most distinguished names in the anti-corruption world offers insights into the use of collective action to combat international bribery.  In Collective Action:  Innovative Strategies to Prevent Corruption, editor Mark Pieth brings together the experience and insights of 23 prominent authors. With the publication of the book, available for purchase here, the Basel Institute is launching an International Center for Collective Action (ICCA), to serve as a resource for companies seeking to improve their anti-corruption programs.

Transparency as a shared goal fosters collaboration. As TRACE president Alexandra Wrage details in the chapter entitled, “Collective Action: a compliance case study,” collective action in the compliance world, particularly anti-bribery compliance, helps to both enable a more powerful response to a bribe solicitation and to reduce the time and resources associated with compliance. Indeed, transparency, a critical resource for anti-corruption efforts, increases exponentially as participation grows, and through collective action, a community of companies with a shared goal of avoiding extortionate demands can become a powerful force against bribery.

TRACE as an organization is based on the principles of collective action. Corporate compliance measures must rely on shared resources to be effective and cost-efficient. TRACE membership services, including benchmarking surveys, due diligence, on-line training, a database of local anti-bribery laws and resources and conferences and workshop, are all funded collectively by membership dues. TRACE sets the standard for anti-bribery compliance by continually benchmarking the practices of members. The free resources offered by TRACE, including the TRACE Compendium, the Global Enforcement Report, and many other publications, are all manifestations of the same philosophy – that by pooling resources and sharing ideas, companies can maintain the most robust compliance programs at the lowest price.

TRAC, our new global due diligence platform for supply and marketing chain compliance, is the largest shared-cost project to date. It captures, assesses and shares due diligence information on organizations and individuals across the supply chain and assigns a universal ID (TRAC number) to all approved applicant. TRAC provides a new standard for base level due diligence based entirely on the principles of collective action.

To learn more about TRAC, please visit www.tracnumber.com.

Chocolate for Children, not Children for Chocolate Reply

Due diligence, TRACE • Tags: , , , , , , , , , , , ,

Many of us were delighted to learn from a recently published study  that eating chocolate might make us thinner, not fatter.  That only added to the joy we felt a few years back, when we learned that chocolate may keep us safe from cancer, heart disease and stroke. It has high energy, works as a stimulant, provides protein, vitamin B and vitamin E. And what better season than Spring, when chocolate consumption rises the world-over, to relish all this good news?

Alas, not all the news about chocolate is good.  Theobroma cacao is a small tropical tree that bears foot-long pods along its trunk and branches.  The white pulp and dark beans inside the pod are used to make chocolate in a labor-intensive seasonal process.  Cocoa was brought to Europe from Central America by the Spaniards in the 1500s, and planted in Asia, South America and Africa by European colonists during the ensuing four centuries.  Of the three million tons of cocoa produced worldwide, 70% comes from West Africa.  Côte d’Ivoire is the largest producer in the world, with over 500,000 farmers producing 35% of all the world’s cocoa supply.  Ghana is the second largest global producer, but lags well behind  Ivorian production, followed by Indonesia and then Brazil.

So, high cocoa production in developing areas, increasing demand for what turns out to be not only a delicious but a healthy treat – all this sounds like the perfect recipe for sustainable, positive development.  But the recipe contains more than the sugar, milk and flavoring used to turn the bitter, fermented cocoa beans into the confection we enjoy.  It contains the sweat and sadness of children who have been coerced into slavery.  With a wink and a modest bribe to the border guard, a few dollars to the bus driver, and a regular payment to the agricultural inspector, children as young as seven are transported  from their homes, whisked across national boundaries, and forced to work for no wages, meager food provisions, minimal housing, no sanitation, no health care, no education, with no love and no future.

Efforts are being made to curb these horrific practices.  In addition to UN and regional charters banning slavery, the Harkin-Engel Protocol was signed in 2001.  Based on the principles of the International Labor Organization’s Convention No. 182 prohibiting some types of child labor, the Protocol is a compromise between the chocolate industry and Congress.  In it, chocolate manufacturers acknowledge the problem of forced child labor in West Africa, and a public certification system is endorsed.  Although federal agencies may no longer be allowed to source their cocoa purchases in Ghana or Cote d’Ivoire, and Fair Trade movements have had some impact, child trafficking remains an unsolved problem in the global chocolate industry.

We know that corruption allows such trafficking to flourish.  For responsible, proactive companies seeking to avoid the reputational damage that these practices carry with them, due diligence all the way down the supply chain is an excellent place to begin.  TRACE has recently introduced TRAC.  This publicly-available global platform captures, assesses and shares baseline supply chain due diligence, including information on forced and trafficked labor, and assigns a universal ID number which can be shared among users.

Shining the FCPA’s spotlight on clinical trials 1

Argentina, Brazil, China, Due diligence, enforcement, FCPA, TRACE • Tags: , , , , , , , , , , , , , , , , , , , , ,

 On two recent occasions (here and here), we have noted the importance of compliance in clinical trials of pharmaceuticals and medical implants. A number of junctures in the clinical trials process could easily – and do in fact – lend themselves to corruption.  This, combined with a neglect of this area by the major enforcement bodies, has allowed risks to multiply.

And although drug makers and medical device manufacturers are the subject of easily a dozen ongoing investigations, with others having entered into costly settlements with the Department of Justice and the Securities and Exchange Commission, until now there have been no prosecutions based on bribery in clinical trials.

That is, until Monday, when the DOJ announced that it had entered into a Deferred Prosecution Agreement with Biomet, Inc. (available here).  Biomet admitted to a number of allegations in the signed statement of facts:  improper payments to doctors in Argentina, in Brazil, and in China, through subsidiaries and independent distributors over a period of eight years.  It was Biomet’s conduct in China that caught our eye, however.  The description of the company’s actions in 2005 includes a section about clinical trials.  “On March 14, 2005, Director of Internal Audit instructed an auditor to code improper payments being made to doctors in connection with clinical trials as entertainment.’  In addition, on December 28, 2005, an employee of Biomet China emailed Associate Regional Manager, noting that doctors conducting clinical trials are paid a 10-15% ‘consulting fee’.”

So here it is:  clinical trials in the spotlight.  In Johnson & Johnson’s deferred prosecution agreement (available here), the parties agreed that “ J&J Poland engaged in professional services contracts with publicly-employed Polish HCPs [health care providers], known as ‘civil contracts… purportedly for professional services including lecturing, leading workshops, and conducting clinical trials.”  But unlike Johnson & Johnson, where no clinical trials were in fact conducted, the Biomet case provides the compliance community with food for thought.  And a handful of new reasons to sharpen compliance programs, perform rigorous due diligence, and keep a lookout for enforcement actions to come.

Charities, Charitable Contributions and Corruption Reply

charitable contributions, Due diligence, enforcement, FCPA, Haiti, Russia, TRACE • Tags: , , , , , , , , , , , , , , , , , , , , , , , , , ,

By now, everyone must be familiar with the charitable giving of Schering Plough in Poland, which landed the company with a USD 500,000 fine, an injunction, and an obligatory compliance monitor.  The fact that the charitable recipient, the Chudow Castle Foundation, was a legitimate charity seems at first glance to complicate compliance with anti-corruption laws.

But does it?

Sorting through cases of charitable corruption, we find numerous instances in which charities have been accused of extravagant spending to benefit board members or organization presidents – cases like the conviction of Robert E. Jones of NCSED, the pending lawsuit against the Hershey Trust Company, or the investigation of  Yele Haiti, the charity founded by Wyclef Jean to help poor Haitians overcome adversity.  These cases may involve corruption; but bribery is certainly not at issue.  What we wanted to examine are cases in which, like Schering Plough, companies are alleged to have made contributions to a legitimate charity in order to inappropriately influence a public official, or in which public officials have received bribes through the vehicle of contributions to a sham charity.

Surprisingly, the cases are few and far between.  There is Wynn Resorts Ltd, in which a dispute between major shareholders spawned two civil lawsuits and two separate corruption investigations, one of them probing a USD 135 million donation to Macau University.  There is no dispute about whether the University is a legitimate recipient of charitable donations in general, but only whether Wynn’s donation was given in exchange for lucrative casino licenses in Macau.  The timing of the gift – the last installment is scheduled for the year in which Wynn’s gaming license expires – rather than the large amount seems to have aroused suspicion.

And there is the controversy surrounding the Federation Fund concert held in Moscow in December 2010, collecting millions of dollars before the presumed charity was registered with the Russian authorities.  Where the funds went is not clear; what does seem clear are the organizer’s ties to senior Russian officials.

These scandals, whether they involve real or sham charities, have important compliance implications, in terms of procedural checks for corporate giving, and in terms of due diligence.  Companies should have clear written policies governing charitable giving.  They should also have in place a multi-stage process for the review of requests for donations.  As part of that process, questions about the amount and purpose of the donation, the individual who has proposed the donation, and the manner and timing of the proposed donation must be satisfactorily answered.   The possibility that the proposed gift might influence a decision-making process affecting the company must be considered, and if extant, then the request should be rejected. The review process should also include a stringent due diligence component.  The due diligence should involve adequate screening of recipient entities and associated persons and entities, as well as appropriate documentation of the screening process.  Many companies have now established independent committees to review all potential charitable contributions.  This gives the local employee the ability to point to the committee and so distance himself from the decision making process. With these safeguards in place, companies can fulfill their roles as good corporate citizens, and need not shy away from charitable giving.