A newly published legal alert sent to us from our partner firm Baker & McKenzie in Moscow explores recent amendments to Russia’s anti-corruption law – Federal Law No. 273 “On Combating Corruption.” Article 13.3 of the law, which went into effect on January 1, 2013, imposes an affirmative duty on companies to develop compliance programs aimed at curbing corruption. More…
Compliance is the central theme in A Resource Guide to the U.S. Foreign Corrupt Practices Act recently issued by the Department of Justice and the Securities and Exchange Commission. Terms such as “foreign official”and “facilitation payment” are defined and clarified, enforcement approaches are explained, and the importance of self-reporting is addressed. But the crux of the matter remains C-O-M-P-L-I-A-N-C-E.
The Guide acknowledges that no compliance program is foolproof, and notes that enforcement agencies cannot provide formulaic requirements regarding compliance programs. Rather, companies are expected to be guided by common sense, and by three basic questions:
• Is the company’s compliance program well designed?
• Is it being applied in good faith?
• Does it work?
The Guide states that the individuals assigned to oversee the program must have both the authority and the autonomy to do their job. The authorities look at whether the resources devoted to the program are commensurate with the size, structure and risk profile of the business. Companies are admonished to focus resources where needed, and neither to treat all markets nor all transactions equally. Although in theory it makes sense that a “$50 million contract with a government agency in a high-risk country warrants greater scrutiny than modest and routine gifts and entertainment,” in practice not all companies take the sensible route.
This notion of using the corporate common sense to make compliance decisions will play a major role in the authorities’ assessment of a company’s compliance program. It’s actually a good thing that compliance professionals are expected to be smart as well as devoted. The DOJ and SEC stress the importance of effective, efficient vehicles for communicating compliance requirements and policies, and for training employees, executives and agents. The incentives and rewards which the company puts in place in order to encourage ethical behavior and both enforce and reinforce its compliance program will also be an important element in the assessment of a company’s compliance program. As stated in the Guide, the “DOJ and SEC will give meaningful credit to thoughtful efforts to create a sustainable compliance program if a problem is later discovered. Similarly, undertaking proactive evaluations before a problem strikes can lower the applicable penalty range…”
Lastly, the Guide expressly recommends that risk-based due diligence be performed, particularly on third parties. Some guiding principles to follow:
• Understand the qualifications and associations of third-party partners;
• Assess the business rationale for including the third party in the transactions.
• Develop a system of ongoing monitoring of third parties and third-party relationships.
The DOJ and SEC have, in this new Guide, compiled a useful and reassuring manual for FCPA compliance. Summing up the authorities’ approach to measuring the adequacy of companies’ compliance programs, the Guide explains,
“In the end, if designed carefully, implemented earnestly, and enforced fairly, a company’s compliance program—no matter how large or small the organization—will allow the company generally to prevent violations, detect those that do occur, and remediate them promptly and appropriately.”
Although we focus primarily on anti-bribery compliance, everyone at TRACE recognizes the links between bribery and other international crimes, including narco-trafficking, human smuggling, export violations and money-laundering. Today, we focus on government efforts to reduce human trafficking and an excellent article on the subject by Martina Vandenberg, Cynthia Robertson and Damien Specht.
New teeth have recently been added to the enforcement provision of the anti-human trafficking clause in the FAR: the U.S. Department of Defense has issued a rule amending DFARS 242.302. Now the law requires surveillance of contractor compliance with human trafficking rules. The change appears to be the result of two separate studies – one in 2010 concluding that contractor reporting is the only effective method for the DOD to obtain timely and relevant information on trafficking incidents, and the second, in 2011, concluding that DOD contracting officers generally lacked adequate procedures for obtaining information about trafficking connected with DOD contracts. Click here for the aforementioned article containing a thorough treatment of defense contracting and anti-human trafficking compliance.
The reinforced monitoring provision reflects a general shift in the approach to trafficking, which has gone from a hand-wringing ethical issue to a practical compliance challenge with feasible solutions capable of changing the lives of thousands of people around the world.
This is a good time for contractors to review their compliance programs. They’ll have to reinforce systems to prevent, identify and remedy forced labor and trafficking violations. This is difficult in areas at high risk for abuse, such as Iraq, Kuwait, Afghanistan, and equally difficult in countries notorious for exporting forced laborers, such as Cambodia, India, Vietnam and Pakistan. Some tips for contractors who want to protect themselves and safeguard workers are:
- train employees to recognize trafficking and report it
- establish an employee bill of rights including wages, working conditions, departure options, etc.
- be sensitive to employees’ cultural and linguistic setting
- question employees, inspect their workplaces and living quarters to get a clear picture of what is actually taking place
- conduct due diligence on labor recruiters and beware of unscrupulous practices
The federal rules could lead to criminal allegations as well as contract sanctions. Consequently, contractors should ensure that their compliance efforts are thorough, inclusive, and well documented, with enhanced due diligence and monitoring of labor suppliers.
Government contractors constitute only a tiny fraction of those who may profit from trafficking in human beings. The road to exploitation includes local organizations that may violate contract, labor and advertising laws when they recruit their victims; government officials such as customs authorities, border guards, and passport and visa issuing authorities; and multinational corporations, which may become involved when victims of trafficking are transported, housed, and advertised – and most significantly when trafficked laborers are used to produce goods for these large corporations. Likewise, upstanding members of the corporate community may become involved in trafficking when money is laundered through their enterprises.
As trafficking burgeons into a multi-million dollar, many-faceted industry involving scores of corporations and individuals on every continent, the moment has come for efforts to be coordinated between governments and actors on the multinational scene. Corporate compliance programs can – and should – be made to incorporate anti-trafficking considerations. Companies must take the lead in saying no to trafficking. When they follow suit, governments can work with the private sector to make anti-trafficking policies part of their overall anti-corruption strategies. This is obviously the humane and ethical approach. In fact it’s the cost-efficient one too, and would save governments huge sums of money in lost tax revenues and social and health costs.
TRACE’s on-line third party compliance management tool – TRAC – includes compliance questions about forced and trafficked labor. Companies using this tool for managing lower-risk third parties can report with confidence that the issue has been addressed and certifications obtained in every case.
Last year, it became apparent that there was a strong need within our member community for a tool to make the process of tracking gifts, travel and hospitality easier. We focused our efforts on developing cost-effective, intuitive software. The resulting tool was launched at the end of 2011. Julie Coleman, Director, Advisory Services, has been working with companies to train them on this online tool and they are now integrating it into their ongoing anti-bribery compliance efforts. You can learn more by contacting Julie at coleman@TRACEinternational.org
Earlier this year, TRACE expanded the tools and services available to companies in need of cost-effective compliance tools by introducing a software solution that tracks incoming and outgoing gifts, hospitality and travel. Companies will now have access to a tailored website which collects key information across their worldwide operations and highlights bribery risks and compliance weaknesses. This software solution was designed by TRACE specifically for corporate legal and compliance departments concerned with effectively implementing robust anti-bribery compliance programs and continuously monitoring these programs for evolving risks. This software is included in TRACE membership at no additional charge and can be licensed to non-member companies for $10,000.
The impetus for developing this anti-bribery software solution was twofold. First, as with many of the tools and services TRACE offers, we listened to our members who expressed a desire for “off-the-shelf” software to track corporate gift giving. Many of these companies were relying on reports generated from accounts payable software to flag problematic transactions. However, accounts payable software is not designed to uncover risks specific to bribery and corruption (for example, by identifying whether a recipient is a government official). Furthermore, these systems capture only gifts and hospitality expenditures for which reimbursement is sought, and sometimes long after the gift is made.
Second, TRACE closely monitors bribery enforcement actions and noted the heightened expectations of regulatory authorities regarding effective compliance programs. Not long ago, “tone-at-the-top” and clear policies prohibiting bribery were the gold standard for compliance programs. Now, enforcement actions brought for violations of the U.S. Foreign Corrupt Practices Act and other anti-bribery laws show that regulators expect to see a dynamic culture of compliance where ongoing risk assessments inform and influence anti-bribery policies and procedures. In addition, they want to see that compliance with anti-bribery policies and procedures is the duty of individuals at all levels of the company, and that appropriate disciplinary action is taken when violations are detected.
In response to this, the TRACE Gifts, Travel & Hospitality Tracking Software enables companies to generate reports – risk assessments – that aggregate data across an enterprise to detect bribery risks, such as:
- A concentration in gifts from or to a particular government official, government agency or customer or
- An uptick in gift giving in connection with material corporate events, such as the closing of a public tender or the award of a large contract
In addition, the software:
- Detects violations of internal policies and procedures, such as failing to receive appropriate approvals for gift requests or failing to provide a legitimate business purpose for a proposed gift
- Tracks both outgoing and incoming gifts and hospitality to address the UK Bribery Act (which prohibits both paying and receiving a bribe), as well as our members’ concerns that incoming gifts can improperly influence decision-making by their employees; and
- Reduces the risk of bribery by reinforcing the importance of company policies and procedures to employees at all levels, reminding them that gifts, travel and hospitality is a significant risk area for bribery.
The TRACE Gifts, Travel & Hospitality Tracking Software is a practical solution that we believe sets the standard for collecting key information regarding both incoming and outgoing gifts, hospitality and travel across an enterprise. To learn more about TRACE, please visit www.TRACEinternational.org.
The membership fee for TRACE is US$15,000 and includes:
- Access to our online Resource Center, which includes summaries of local anti-bribery laws in over 130 countries and other topics such as:
- Country Bulletins answering the twenty-one questions that companies should ask before retaining an intermediary in a particular country;
- Country-specific gifts and hospitality guidelines; and
- Benchmarking surveys and “best practices” research.
- Attendance at the annual TRACE Forum for in-house counsel and compliance officers.
- Anti-bribery workshops held at locations around the world for local employees and intermediaries.
- Access to international anti-bribery experts at designated “TRACE Firms” in over 130 countries. In addition, we are hosting our first ever Global Anti-bribery In-house Network (GAIN) in April of this year, giving TRACE members an opportunity to meet the law firms that support TRACE worldwide and to hear about challenges specific to the over 130 countries we cover. In turn, our partner firms will hear how they can best support TRACE members in their international operations. Each TRACE member company may send one representative to GAIN for no fee; additional member company representatives may attend for a $1,000 fee.
- Multilingual online anti-bribery training.
- Access to a list of pre-vetted third party intermediaries.
- Access to our new Gifts, Travel & Hospitality Tracking Software.
In addition to the above, through March 1, 2012, one person from each member company is eligible for complimentary enrollment in TASA, the TRACE Anti-bribery Specialist Accreditation program. Please visit TASA- TRACE Anti-bribery Specialist Accreditation – Courses – Recorded Courses for a list of courses.