Topic will focus on the role of audit committees in tackling FCPA compliance
04 May 2010 – The chief executive of The Red Flag Group, a leading international compliance and corporate governance consultancy advising Fortune 500 companies, is set to speak at a US national conference on audit committee effectiveness to be held in Washington, DC.
Scott Lane, CEO of The Red Flag Group, is set to speak at the AICPA National Audit Committee Forum: Best Practices and Practical Applications organised by the American Institute of Certified Public Accountants. It will be held on July 29 and July 30. (http://www.cpa2biz.com/AST/Main/CPA2BIZ_Primary/AuditAttest/PRDOVR~PC-NACF/PC-NACF.jsp)
At the conference, Mr Lane will be speaking about the role of a company’s audit committee in ensuring compliance with the US Foreign Corrupt Practices Act (FCPA). They include:
• What should a board be asking management to consider as part of FCPA compliance
• What should management be doing to update the board
• The steps an audit committee should take when considering the company’s FCPA compliance programme
• The importance of an audit committee managing FCPA and anti-bribery programmes internationally
• The need for directors to be appraised of the risks around FCPA and international corruption
• Why an audit committee needs to make sure audit programmes are in place and proactively searching for FCPA risks
• That the audit committee, chief compliance officer, general counsel, and internal audit department all understand their roles and responsibilities in the organisation
“The Obama administration, through the Department of Justice and the SEC, has made curtailing corruption one of its main focuses. The board or audit committee of any US company which has significant operations overseas, and which isn’t taking corruption as a top priority, is effectively putting themselves in the cross hairs. This crackdown has been exemplified by the recorded fines that have been meted out by US anti-corruption agencies over the past few years,” said Mr Lane.
“At the same time, the new Bribery Bill passed by the UK parliament will allow companies to significantly reduce their prosecution risk if they have adequate internal controls in place to prevent corruption. In light of these new developments, corporate boards of directors and audit committees have an obligation to make sure they are actively managing their FCPA and anti-bribery compliance programmes. To do otherwise is to invite heavy criminal fines of the scale that we have witnessed in the market in recent years, as well as reputational damage which will have an impact long after the financial penalties have been written off and forgotten,” he added.
Mr Lane is a compliance sector veteran with over 12 years of experience in providing advice in issues ranging from legal, internal audit, export control, to ethics and corporate governance. He has led corruption investigations in over ten countries, and has published more than 20 articles in leading Asian newspapers and journals. He has worked in senior director and general counsel capacities in various multinational corporations in Australia, UK, and in Hong Kong.
The forum will be attended by top compliance professionals from around the world, senior officials from various US regulatory departments – among them Robert Khuzami, the US Securities and Exchange Commission’s (SEC) director of enforcement, as well as CEOs, CFOs, and other senior executives from global multinational corporations.
Wednesday, 5 May 2010
Monday, 22 February 2010
Daimler settles US bribery charges for US$200 million
German car maker Daimler AG has agreed to pay US$200 million to resolve US allegations that it paid bribes to win overseas business contracts, according to a report by Bloomberg. As part of the deal, two of Daimler AG’s subsidiaries will also plead guilty to having paid bribes to foreign government officials.
Citing unnamed sources familiar with the deal, the report said that Daimler has agreed to the payment to settle a US Department of Justice (DoJ) probe on whether it had violated the Foreign Corrupt Practices Act (FCPA), as well as a civil probe by the Securities and Exchange Commission (SEC).
The deal has been submitted by government lawyers to a US district court judge for approval. A spokesperson for Daimler said: “We are in discussions with the DoJ and SEC regarding consensually resolving the agencies’ investigations. There can be no assurances about whether and when settlement with the DoJ and SEC will become final and effective.”
Both US agencies declined to comment.
According to the report, the probes centred on a whistle-blower claim by an auditor at the car-marker’s former DaimlerCrysler subsidiary. The auditor, David Bazzetta, claimed in 2004 that he was fired after he learnt that the car-maker had kept secret bank accounts to bribe foreign government officials, and complained to his superiors. Mr Bazzetta dropped his complaint in 2005 after his claim was settled, the report said.
Citing unnamed sources familiar with the deal, the report said that Daimler has agreed to the payment to settle a US Department of Justice (DoJ) probe on whether it had violated the Foreign Corrupt Practices Act (FCPA), as well as a civil probe by the Securities and Exchange Commission (SEC).
The deal has been submitted by government lawyers to a US district court judge for approval. A spokesperson for Daimler said: “We are in discussions with the DoJ and SEC regarding consensually resolving the agencies’ investigations. There can be no assurances about whether and when settlement with the DoJ and SEC will become final and effective.”
Both US agencies declined to comment.
According to the report, the probes centred on a whistle-blower claim by an auditor at the car-marker’s former DaimlerCrysler subsidiary. The auditor, David Bazzetta, claimed in 2004 that he was fired after he learnt that the car-maker had kept secret bank accounts to bribe foreign government officials, and complained to his superiors. Mr Bazzetta dropped his complaint in 2005 after his claim was settled, the report said.
Rio Tinto executives officially charged
China has officially charged four employees of Anglo-Australian mining giant Rio Tinto, who were arrested last year amid tense price negotiations with Chinese steel companies, with bribery and obtaining commercial secrets.
The four, including Australian citizen Stern Hu, were detained in July and officially arrested in August on suspicion that they had violated Chinese national security. According to a statement released by the Number 1 branch of the Shanghai People’s Procuratorate, the four are officially indicted on charges of “taking advantage of their position to seek profit for others, and asking for, or illegally accepting, huge amounts of money from Chinese steel enterprises.” The executives allegedly requested and accepted bribes from Chinese steel companies.
They are also accused of attempting to steal commercial secrets from Chinese steel companies by making “promises”, or through illegal means, according to the report which was published by the state-run news agency Xinhua.
The report added that the police had concluded its investigation and sent the case to prosecutors on January 11.
Last year’s arrests came as Rio Tinto was engaged in tense price negotiations with Chinese steel companies over the sale of iron ore. It also came in the heels of Rio Tinto’s rejection of a US$19.5 billion deal to buy an 18 per cent stake in the company by the Aluminium Corp of China. Because of the timing, there has been speculation that the case was politically motivated.
The Wall Street Journal has reported that the Australian government has confirmed the indictments, but added that a trial date has not be set.
The Journal also reported that the case came as many foreign companies have re-evaluated their China strategies – especially whether the benefits of doing business in the world’s fastest growing emerging market outweigh the risks. It cited a threat from internet search giant Google to leave the China market, over an alleged attempt to break into its email system that was traced back to China.
The report also said that at least two foreign mining companies are now asking for waivers prior to commencing commercial negotiations, to preclude their executives from being charged with criminal wrongdoing in the performance of their duties.
The four, including Australian citizen Stern Hu, were detained in July and officially arrested in August on suspicion that they had violated Chinese national security. According to a statement released by the Number 1 branch of the Shanghai People’s Procuratorate, the four are officially indicted on charges of “taking advantage of their position to seek profit for others, and asking for, or illegally accepting, huge amounts of money from Chinese steel enterprises.” The executives allegedly requested and accepted bribes from Chinese steel companies.
They are also accused of attempting to steal commercial secrets from Chinese steel companies by making “promises”, or through illegal means, according to the report which was published by the state-run news agency Xinhua.
The report added that the police had concluded its investigation and sent the case to prosecutors on January 11.
Last year’s arrests came as Rio Tinto was engaged in tense price negotiations with Chinese steel companies over the sale of iron ore. It also came in the heels of Rio Tinto’s rejection of a US$19.5 billion deal to buy an 18 per cent stake in the company by the Aluminium Corp of China. Because of the timing, there has been speculation that the case was politically motivated.
The Wall Street Journal has reported that the Australian government has confirmed the indictments, but added that a trial date has not be set.
The Journal also reported that the case came as many foreign companies have re-evaluated their China strategies – especially whether the benefits of doing business in the world’s fastest growing emerging market outweigh the risks. It cited a threat from internet search giant Google to leave the China market, over an alleged attempt to break into its email system that was traced back to China.
The report also said that at least two foreign mining companies are now asking for waivers prior to commencing commercial negotiations, to preclude their executives from being charged with criminal wrongdoing in the performance of their duties.
Hong Kong Police probes failed PCCW buyout
The Hong Kong Police is investigating the failed bid by tycoon Richard Li Tzar-kai to take city’s telecommunications provider PCCW private, a buyout that was dogged by allegations of vote-rigging in a shareholder ballot needed to approve the deal.
According to the Bloomberg report, which cited unnamed sources, the offices of at least one of Li’s companies were searched on February 10. They also searched the offices of Fortis Insurance (Asia), which was embroiled in the PCCW vote-rigging scandal last year. The report also said the police had search warrants for Li’s residences, without saying whether they were exercised.
Last year, the city’s securities market regulator, the Securities and Futures Commission, blocked a bid by Pacific Century Regional Development (PCRD), which was controlled by Li, to execute a HK$2.1 billion buyout of PCCW – a company on which Li also serves as chairman. This came amid allegations that hundreds of people, including employees at Fortis, were given shares in the telecoms giant in return for voting in favour of the deal. While the practice was technically legal, a Hong Kong court ruled that it undermined the spirit of the law, and amounted to manipulation. The deal was finally blocked.
The report said that no charges have yet been filed, and the investigation is on-going. Li has not been accused of any wrongdoing.
“We will cooperate fully with any investigation and wish to see it resolved as soon as practically possible. We do not believe Richard Li is the target of any investigation or that any senior management of PCRD or PCCW has committed any wrongdoing,” lawyer Martin Rogers, representing Li, told the wire service.
Fortis Asia confirmed it had received inquiries from the police earlier in the month, but declined to say whether they were related to Li or PCCW. PCCW, the SFC, as well as the police did not comment.
According to the Bloomberg report, which cited unnamed sources, the offices of at least one of Li’s companies were searched on February 10. They also searched the offices of Fortis Insurance (Asia), which was embroiled in the PCCW vote-rigging scandal last year. The report also said the police had search warrants for Li’s residences, without saying whether they were exercised.
Last year, the city’s securities market regulator, the Securities and Futures Commission, blocked a bid by Pacific Century Regional Development (PCRD), which was controlled by Li, to execute a HK$2.1 billion buyout of PCCW – a company on which Li also serves as chairman. This came amid allegations that hundreds of people, including employees at Fortis, were given shares in the telecoms giant in return for voting in favour of the deal. While the practice was technically legal, a Hong Kong court ruled that it undermined the spirit of the law, and amounted to manipulation. The deal was finally blocked.
The report said that no charges have yet been filed, and the investigation is on-going. Li has not been accused of any wrongdoing.
“We will cooperate fully with any investigation and wish to see it resolved as soon as practically possible. We do not believe Richard Li is the target of any investigation or that any senior management of PCRD or PCCW has committed any wrongdoing,” lawyer Martin Rogers, representing Li, told the wire service.
Fortis Asia confirmed it had received inquiries from the police earlier in the month, but declined to say whether they were related to Li or PCCW. PCCW, the SFC, as well as the police did not comment.
UBS loses trade secrets theft case
The US Financial Industry Regulatory Authority (FINRA) has ruled against UBS in its allegations that three of its former employees stole an algorithmic trading code used by the bank.
The arbitration case found in favour of the three employees – Jatin Suryawanshi, Partha Sarkar, and Sanjay Girdhar. According to the UBS complaint, they were accused of misappropriating trade secrets, breach of contract, breach of fiduciary duty, unfair competition and “other wrongdoing” while they were employed by UBS Securities.
They were accused of obtaining proprietary company information – in this case the source code for UBS’s algorithmic trading programmes. They were then planning to give the source code to their new employees at investment bank Jefferies & Co, according to the report which appeared in Securities Industry News.
Reports said that Sarkar had allegedly copied 25,000 lines of computer source code from UBS computers. This was roughly equal to the length of one algorithm, or parts of several. He then allegedly emailed this code to this personal email account. Suryawanshi was also accused of attempting to hide his colleague’s theft by deleting the records from a UBS computer.
The three were also accused of starting their new jobs at Jefferies & Co while still employed at UBS. Suryawanshi was accused of a breach of fiduciary duties by poaching the other two programmers to work for other investment bank. The three former UBS employees had denied the charges.
Citing an unnamed source, the report said that the ruling ends the dispute, with neither party seeking further action. All requests for injunctions or damages were rejected, and the arbitration fees will be split between UBS and the three former employees.
Of the three member arbitration panel, one member dissented the final decision but no further explanation was given, the report said.
“We are absolutely delighted to have this put behind them so that they, and Jefferies, can go forward,” said lawyer Lance Gotko, who represented the former UBS programmers.
FINRA said it does not comment on the results of its arbitration cases. UBS has also declined to comment.
The arbitration case found in favour of the three employees – Jatin Suryawanshi, Partha Sarkar, and Sanjay Girdhar. According to the UBS complaint, they were accused of misappropriating trade secrets, breach of contract, breach of fiduciary duty, unfair competition and “other wrongdoing” while they were employed by UBS Securities.
They were accused of obtaining proprietary company information – in this case the source code for UBS’s algorithmic trading programmes. They were then planning to give the source code to their new employees at investment bank Jefferies & Co, according to the report which appeared in Securities Industry News.
Reports said that Sarkar had allegedly copied 25,000 lines of computer source code from UBS computers. This was roughly equal to the length of one algorithm, or parts of several. He then allegedly emailed this code to this personal email account. Suryawanshi was also accused of attempting to hide his colleague’s theft by deleting the records from a UBS computer.
The three were also accused of starting their new jobs at Jefferies & Co while still employed at UBS. Suryawanshi was accused of a breach of fiduciary duties by poaching the other two programmers to work for other investment bank. The three former UBS employees had denied the charges.
Citing an unnamed source, the report said that the ruling ends the dispute, with neither party seeking further action. All requests for injunctions or damages were rejected, and the arbitration fees will be split between UBS and the three former employees.
Of the three member arbitration panel, one member dissented the final decision but no further explanation was given, the report said.
“We are absolutely delighted to have this put behind them so that they, and Jefferies, can go forward,” said lawyer Lance Gotko, who represented the former UBS programmers.
FINRA said it does not comment on the results of its arbitration cases. UBS has also declined to comment.
Sunday, 7 February 2010
BAE’s US$450 million bribery settlement
British aerospace company BAE Systems has agreed to pay nearly US$450 million in fines to settle longstanding bribery allegations in the US and UK.
The US portion of the settlement, which has been hailed as an example of increasing willingness of US federal authorities to impose the country’s tight ethical standards on foreign defence contractors, includes a fine of US$400 million to settle a charge of conspiring to make false statements in connection with regulatory filings and undertaking – about whether the company had created an anti-corruption programme. BAE also agreed in its agreement with the US Department of Justice (DoJ) to strengthen its compliance programmes.
It will also pay a penalty of £30 million to settle a charge by the UK’s Serious Fraud Office (SFO) of breach of duty to keep accounting records in relations to payments made to a former consultant in Tanzania. Part of the UK fine will be made to an as-yet unnamed Tanzanian charitable foundation. The agreements also stipulate that BAE will plead guilty to both the US and UK charges. For the SFO, the case represents a victory of sorts. The agency in 2004 had initially launched an investigation into BAE’s alleged bribery payments in Saudi Arabia, a case that spilled over into Czech Republic, Romania, South Africa, and Tanzania. The case was then scuttled in 2006, causing widespread public criticism for the office.
Both settlements are in connection with allegations that the company made commission payments to a marketing consultant related to the sale of a radar system to Tanzania in 1999. BAE admitted that it failed to accurately record the payments in its accounting books, and that it failed to thoroughly examine the records to make sure they were reasonably accurate and permitted them to remain uncorrected.
Richard Alderman, director of the SFO, said in an interview with the Wall Street Journal: “The SFO has been totally vindicated.”
“This is a first and it brings a pragmatic end to a long-running and wide-ranging investigation. I’d … like to acknowledge the efforts made by BAE to conclude this matter and I welcome its declared commitment to high ethical standards,” he said separately in a statement.
“These settlements enable the company to deal finally with significant legacy issues,” BAE chairman Dick Olver said in a statement. He added that the company has systematically enhanced its compliance policies and processes in recent years, and regretted and accepted full responsibility for its past failings.
The US portion of the settlement, which has been hailed as an example of increasing willingness of US federal authorities to impose the country’s tight ethical standards on foreign defence contractors, includes a fine of US$400 million to settle a charge of conspiring to make false statements in connection with regulatory filings and undertaking – about whether the company had created an anti-corruption programme. BAE also agreed in its agreement with the US Department of Justice (DoJ) to strengthen its compliance programmes.
It will also pay a penalty of £30 million to settle a charge by the UK’s Serious Fraud Office (SFO) of breach of duty to keep accounting records in relations to payments made to a former consultant in Tanzania. Part of the UK fine will be made to an as-yet unnamed Tanzanian charitable foundation. The agreements also stipulate that BAE will plead guilty to both the US and UK charges. For the SFO, the case represents a victory of sorts. The agency in 2004 had initially launched an investigation into BAE’s alleged bribery payments in Saudi Arabia, a case that spilled over into Czech Republic, Romania, South Africa, and Tanzania. The case was then scuttled in 2006, causing widespread public criticism for the office.
Both settlements are in connection with allegations that the company made commission payments to a marketing consultant related to the sale of a radar system to Tanzania in 1999. BAE admitted that it failed to accurately record the payments in its accounting books, and that it failed to thoroughly examine the records to make sure they were reasonably accurate and permitted them to remain uncorrected.
Richard Alderman, director of the SFO, said in an interview with the Wall Street Journal: “The SFO has been totally vindicated.”
“This is a first and it brings a pragmatic end to a long-running and wide-ranging investigation. I’d … like to acknowledge the efforts made by BAE to conclude this matter and I welcome its declared commitment to high ethical standards,” he said separately in a statement.
“These settlements enable the company to deal finally with significant legacy issues,” BAE chairman Dick Olver said in a statement. He added that the company has systematically enhanced its compliance policies and processes in recent years, and regretted and accepted full responsibility for its past failings.
Board independence not translating into corporate governance
Just because a company has increased the formal side of the independence of its board of directors, does not actually mean that that it has improved its corporate governance standards, a recently-released study has warned.
Published in the February edition of the Academy of Management Journal, the study, conducted by researchers James Westphal and Melissa Graebner, noted that corporate CEOs are adopting tactics which give an impression of high board independence – something which is traditionally equated with good corporate governance practices in the financial community, the report said. However, this appearance of board independence was only superficial, and was being done to manipulate investment bank stock analysts into producing favourable reports of the company, they said.
Surveying 1,300 CEOs from large companies in the US, the report noted that while many companies appointed directors which had no formal ties to the company he is charged with monitoring, but in reality they are typically connected socially with its senior management – most notably the CEO. While this may give an appearance that the company’s board of directors had a high degree of independence from senior management, such a board may in actuality be influenced through the personal ties that its individual members have with the company’s CEO, the report said.
The latest research is part of series of studies conducted by the authors on impression management– which examines how companies manipulate outside impression of its management practices, without effecting actual change in the company itself. The study found that by engaging in activities that are typically pleasing to stock analysts, they increased the likelihood of a stock upgrade by 36 per cent, and reduced the likelihood of its downgrade by 45 per cent.
“Obviously, the CEOs were pushing the right ideological buttons,” noted the study’s authors, who also suggested that companies include information on the social relationships of board members to CEOs as part of standard information provided in basic company literature.
“If the CEO is a college classmate of a director or they worked together for the same firm or they are board members of the same organisation, these relationships are probably going to affect a company’s governance. Why should it be hard for stock analysts or investors or other interested parties to get access to that information? Certainly there is a case for transparency here,” they said.
Published in the February edition of the Academy of Management Journal, the study, conducted by researchers James Westphal and Melissa Graebner, noted that corporate CEOs are adopting tactics which give an impression of high board independence – something which is traditionally equated with good corporate governance practices in the financial community, the report said. However, this appearance of board independence was only superficial, and was being done to manipulate investment bank stock analysts into producing favourable reports of the company, they said.
Surveying 1,300 CEOs from large companies in the US, the report noted that while many companies appointed directors which had no formal ties to the company he is charged with monitoring, but in reality they are typically connected socially with its senior management – most notably the CEO. While this may give an appearance that the company’s board of directors had a high degree of independence from senior management, such a board may in actuality be influenced through the personal ties that its individual members have with the company’s CEO, the report said.
The latest research is part of series of studies conducted by the authors on impression management– which examines how companies manipulate outside impression of its management practices, without effecting actual change in the company itself. The study found that by engaging in activities that are typically pleasing to stock analysts, they increased the likelihood of a stock upgrade by 36 per cent, and reduced the likelihood of its downgrade by 45 per cent.
“Obviously, the CEOs were pushing the right ideological buttons,” noted the study’s authors, who also suggested that companies include information on the social relationships of board members to CEOs as part of standard information provided in basic company literature.
“If the CEO is a college classmate of a director or they worked together for the same firm or they are board members of the same organisation, these relationships are probably going to affect a company’s governance. Why should it be hard for stock analysts or investors or other interested parties to get access to that information? Certainly there is a case for transparency here,” they said.
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