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U.K. Bribery Act now slated to take effect July 1, 2011

After receiving widespread criticism for the lack of guidance and compliance clarification, the U.K. Bribery Act of 2010 (Bribery Act) originally scheduled for implementation in April 2011, is now set to take effect July 1, 2011. The act’s jurisdiction extends to commercial organizations incorporated or formed in the U.K. or “which carr

[y] on a business or a part of a business in the U.K. irrespective of the place of incorporation or formation.” Determination of such existence will be made by the U.K. courts and will require “a demonstrable business presence.” The official guide states that an organization will not be deemed to be carrying on a business in the U.K. merely by virtue of having its securities listed on the London Stock Exchange or by having a U.K. subsidiary.

Unlike the anti-bribery provisions of the U.S. Foreign Corrupt Practices Act (FCPA), which focus primarily on corruption involving non-U.S. government officials, the Bribery Act  widens its scope to prohibit domestic and international bribery across both private and public sectors. And while the FCPA allows exceptions for facilitation payments (generally small payments to lower-level officials for “routine government actions,”) the Bribery Act does not. These payments were illegal under the previous legislation and the common law, but the difference under the Bribery Act is that non-U.K. organizations are broadly subjected to these restrictions for the first time.

The Bribery Act specifically criminalizes the offering, promising or giving a bribe (active bribery) and the requesting, agreeing to receive or accepting a bribe (passive bribery) to obtain or retain business or secure a financial or other advantage. It also contains a provision whereby an organization that fails to prevent bribery by anyone associated with the organization can be charged under the Bribery Act unless it can establish the defense of having implemented preventive “adequate procedures.” The official guide recommends the following six principles as foundation for developing “adequate procedures” to prevent bribery:

  • Proportionality – Actions should be proportionate to the risk, nature, size and complexity of the organization.
  • Top-level Commitment – Board of directors, owners, officers or equivalent top level- management should establish and promote a culture where bribery is never acceptable and be committed to preventing bribery, both within the organization and with anyone associated with the organization externally.
  • Risk Assessment – Various risk exposures, both internal and external, such as country of operation, business sector, types of transaction, new markets, and business partnerships should be evaluated and documented on an ongoing basis.
  • Due Diligence – Proportionate, risk-based approach to due diligence procedures assessing existing and proposed relationships should be taken to ensure trustworthy associations and mitigate identified bribery risks.
  • Communication – Appropriate channels of communication, awareness and training, both internal and external, on anti-bribery policies and procedures should be implemented and evaluated on a regular basis.
  • Monitoring and Review – Anti-bribery policies and procedures should be monitored on an ongoing basis and amended as quickly as possible when activities and risks change.

The penalties for violating the Bribery Act are severe, with individuals facing up to 10 years in prison and organizations facing unlimited fines. Violations also may result in damaging collateral consequences such as director disqualification, ineligibility for public contracts, and asset confiscation.

 

May 9th, 2011|Categories: Compliance Corner for Employment Decisions|Tags: , , , |

FTC and CFTC will share information on energy investigations

The Federal Trade Commission (FTC) and the Commodity Futures Trading Commission (CFTC) announced yesterday that they entered into a Memorandum of Understanding (MOU) to share non-public information on investigations being conducted by the agencies, including investigations into the oil and gasoline markets. The agreement will help the FTC enforce its petroleum market manipulation rule, which prohibits fraudulent manipulation of U.S. petroleum markets. The information sharing also will assist the CFTC in exercising its authority in the oil markets.

Both the FTC and CFTC can take legal actions in connection with fraud-based manipulation of the petroleum markets, but the CFTC has exclusive jurisdiction to regulate exchanges, clearing organizations and intermediaries in the U.S. futures industry. This MOU will further facilitate information sharing on regulatory issues of common interest.

The MOU also directs the FTC and CFTC to ensure that the confidentiality of the non-public information is maintained, and provides that the agreement does not modify the agencies’ current abilities, responsibilities, or obligations to comply with existing laws or regulations, including the FTC’s confidentiality mandates under the pre-merger laws.

April 13th, 2011|Categories: Commercial Transactions Due Diligence|Tags: , |

China’s bribery law amendment resembles a version of the FCPA

In February 2011, the People’s Republic of China (PRC) legislature, among 49 amendments, passed Amendment No. 8 to Article 164, which criminalizes the payment of bribes to non-PRC government officials and to international public organizations. Legal experts say that that the passing of this amendment is the PRC’s effort to comply with the United Nations Convention Against Corruption to which the PRC is a signatory. Although no interpretive guidance has been issued, the amendment resembles an early version of the Foreign Corrupt Practices Act (FCPA).

Before the amendment was passed, the PRC prohibited bribery of PRC officials and provided for civil and criminal liability for making commercial bribes to private parties for the purpose of obtaining illegitimate benefits, but had no specific law that criminalized the payment of bribes to non-PRC officials. Effective May 1, 2011, the amendment adds the following clause to Article 164 of the PRC Criminal Law:

“Whoever, for the purpose of seeking illegitimate commercial benefit, gives property to any foreign public official or official of an international public organization, shall be punished in accordance with the provisions of (Article 164.)”

Article 164 states that “if the payer is an individual, depending on the value of the bribes, he/she is subject to imprisonment for up to 10 years. If the payer is an entity, criminal penalties will be imposed against the violating entity and the supervisor chiefly responsible; other directly responsible personnel also may face imprisonment of up to 10 years. Penalties may be reduced or waived if the violating individual or entity discloses the crime before being charged.”

According to legal experts, the PRC Criminal Law applies to all PRC citizens (wherever located); all natural persons in the PRC regardless of nationality; and all companies, enterprises, and institutions organized under PRC law. Thus, in addition to PRC domestic companies, any joint venture or other business entity formed under PRC law, including ones involving non-PRC companies, may be criminally liable under the amendment. Non-PRC companies with representative offices in the PRC may also be subject to the provisions of the amendment.

 

April 4th, 2011|Categories: Commercial Transactions Due Diligence|Tags: , , |

Maryland resident charged with making false statements on federal job applications

The Department of Justice reported yesterday that Karen M. Lancaster, of Upper Marlboro, MD, has been charged with four counts of making false statements, three counts of submitting false documents and one count of engaging in a concealment scheme in connection with her multiple job applications to U.S. federal government agencies.

According to the indictment, Lancaster was employed in various positions with the U.S. Department of Defense (DoD) from 1991 until March 2005. She subsequently was notified by DoD that she was being fired due to performance failures. In October 2006, according to the indictment, Lancaster reached a settlement with DoD whereby she was allowed to resign, retroactive to March 2005.

Between 2006 and 2008, Lancaster applied for jobs at the U.S. Departments of State, Commerce and Defense, as well as with the SEC. The indictment states that as part of the application processes, Lancaster allegedly submitted documents that falsified and concealed information about her criminal history, employment history and suitability for employment with the federal government. Specifically, Lancaster allegedly concealed and falsified informatabout her prior arrests, charges, convictions and prison terms, the unfavorable circumstances under which she had resigned from prior federal employment, the roles and responsibilities she had at previous federal jobs; and her salary history.Lancaster will be arraigned on March 25, 2011, in U.S. District Court in Alexandria. The maximum penalty for each count of making a false statement, submitting a false document and engaging in a concealment scheme is five years in prison. Lancaster also faces a maximum fine of $250,000 per count.

The Department of Justice notes that an indictment is merely an accusation, and a defendant is presumed innocent unless proven guilty in a court of law.

March 17th, 2011|Categories: Compliance Corner for Employment Decisions|Tags: , , |

“Operation Empty Promises” yields more than 90 FTC enforcement actions

The Federal Trade Commission announced that it stepped up its ongoing campaign against scammers who falsely promise guaranteed jobs and opportunities to be “your own boss.” “Operation Empty Promises,” a multi-agency law enforcement initiative, resulted in more than 90 enforcement actions, including three new FTC cases and developments in seven other matters, 48 criminal actions by the Department of Justice (many involved the assistance of the U.S. Postal Inspection Service), seven additional civil actions by the Postal Inspection Service, and 28 actions by state law enforcement agencies in Alaska, California, Indiana, Kansas, Maryland, Montana, New Jersey, North Carolina, Oregon, Washington, and the District of Columbia.

In addition to making false claims about employment opportunities, one of the actions also alleged that the defendants overcharged for background checks. In its complaint against National Sales Group, Anthony J. Newton, Jeremy S. Cooley, and I Life Marketing LLC, also doing business as Executive Sales Network and Certified Sales Jobs, filed in the U.S. District Court for the Northern District of Illinois, Eastern Division on February 22, 2011, the FTC charged that the defendants advertised nonexistent sales jobs with “good pay” and benefits on CareerBuilder.com and other online job boards, that their telemarketers falsely told consumers that the company recruited for Fortune 1000 employers and that they had a unique ability to get the consumers interviewed and hired. The FTC also alleged that the defendants charged fees they said covered background checks and other services, and often overcharged, taking $97 from consumers who had agreed to pay $29 or $38. Further, the defendants allegedly charged some consumers recurring fees of $13.71 or more per month without their consent.

According to other documents filed in the court, the defendants’ actions generated more than 17,000 complaints to law enforcement agencies, online forums, and job boards, and defrauded consumers of at least $8 million. (CareerBuilder.com dropped the company from its website due to complaints.) The court temporarily halted the defendants’ deceptive practices, froze their assets, and put the company into receivership.

See http://www.ftc.gov/opa/2011/03/emptypromises.shtm for information about other enforcement actions brought through “Operation Empty Promises.”

March 12th, 2011|Categories: Commercial Transactions Due Diligence|Tags: |

Uncovering hidden assets

Exactly what is a hidden asset? Several business reference books define it a valued asset that is not listed on the balance sheet of its owner or beneficiary, and/or is moved or transferred with the intention to defraud, hinder or delay discovery by anyone classified as a creditor. Just about any type of asset can be hidden, including real property, jewelry, stocks, bonds, vehicles, aircraft, watercraft, and the most liquid of all assets – money.

Many hidden assets, such as those existing in corporate holdings, various trusts, family-limited partnerships, limited liability companies, charitable foundations, real estate, lawsuit payouts, judgment awards, and vehicle, aircraft and watercraft ownership, can be found through searches of public records. Comprehensive searches of media sources can provide further details about these assets and also supply clues to funds from royalties, contracts, patents, inheritances and other distributions.

The hardest of all hidden assets to reach — and those not reported in public records — are held outside of the United States. Various Caribbean and other island nations, and certain European enclaves are laden with “wealth preservation strategies” that offer secrecy-ruled offshore accounts and asset protection trusts (OAPTs) that keep the creditors away. Financial experts and fraud examiners say that OAPTs are especially popular hideouts because the “hider” can make himself or herself the beneficiary of these trusts, and thus protect the money from third-party claims, consistent with foreign laws which do not recognize the American “fraudulent transfer” concept. OAPTs are nearly impossible to collect against, even with a valid judgment from the U.S. While information for such assets is not publicly available, media reports about mode of living and certain activities can provide indications of possible concealed assets abroad.

March 10th, 2011|Categories: Commercial Transactions Due Diligence|Tags: |

Wall Street firms slow in reporting infractions to FINRA

The Financial Industry Regulatory Authority (FINRA), Wall Street’s self-reporting system that allows investors to vet stockbrokers and other financial professionals, says that it has a persistent problem with financial firms not reporting infractions properly or in a timely manner.

FINRA, which shares oversight of Wall Street with federal agencies such as the Securities and Exchange Commission (SEC), requires financial firms to disclose employee infractions within 30 days. Those records, ranging from serious criminal offenses to minor customer complaints, are then entered into a database known as the Central Registration Depository. Individual investors use the 30-year-old system to check out a stockbroker’s history, including employment, criminal records and client lawsuits. Institutions use the database to investigate job candidates.

FINRA depends on Wall Street, which finances its operations, to update the records. But dozens of new cases show that critical information is missing, out of date or erroneous. And Wall Street has a checkered history of reporting infractions by brokers. When regulators last cracked down on disclosure violations in 2004, the sweep ensnared nearly 30 securities firms. At the time, the National Association of Securities Dealers, FINRA’s predecessor, fined brokerage firms a collective $9.2 million for failing to report customer complaints and criminal convictions properly. That same year, Morgan Stanley was hit with a $2.2 million penalty, the largest ever levied against a firm for disclosure issues, for failing to appropriately report 1,800 incidents of customer complaints and other problems. In 2010, the regulator suspended 56 brokers for failing to report previous infractions, up from 34 in 2006. Annual fines rose to $2 million from $1.6 million over the same period.

In one of the most prominent cases in 2010, FINRA fined Goldman Sachs $650,000 for failing to disclose that a trader, Fabrice P. Tourre, and another employee had received an SEC “Wells” warning that the agency was considering an enforcement action against them. Tourre was the only individual named in the SEC fraud case against Goldman Sachs last year, which accused the investment bank of misleading investors about subprime mortgages. Tourre purportedly was ”principally responsible” for marketing the bonds. Goldman, without admitting or denying any wrongdoing, settled the SEC’s charges in July 2010 for $550 million – one of the largest fines ever paid by a Wall Street firm. The charges against Tourre are pending.

Also in 2010, FINRA fined Citigroup $150,000 for filing inaccurate disclosures regarding about 120 brokers who had been fired or resigned after being accused of theft or fraud. In its disciplinary action, FINRA said that Citigroup ”hindered the investing public’s ability to access pertinent background information.” It fined JPMorgan Chase $150,000 for similar violations in 2009.

FINRA soon will face another test. Policy makers are considering whether to expand its responsibilities, giving the regulator oversight of tens of thousands of investment advisers, on top of the 600,000-plus brokers it already under its purview.

March 2nd, 2011|Categories: Commercial Transactions Due Diligence|Tags: , , |

Tyson Foods charged with violations of the Foreign Corrupt Practices Act

 

The Securities and Exchange Commission (SEC) today charged Tyson Foods Inc. with violating the Foreign Corrupt Practices Act (FCPA) by making illicit payments to two Mexican government veterinarians responsible for certifying its Mexican subsidiary’s chicken products for export sales.

The SEC alleged that Tyson de Mexico concealed the improper payments by putting two veterinarians’ wives on its payroll but they performed no work for the company. The spouses were later removed from the payroll and their payments were processed with invoices issued for “services.” Tyson de Mexico paid the veterinarians, who were responsible for certifying Tyson’s chicken products for export and served as official Mexican government veterinarians at Tyson facilities, a total of $100,311. It was not until two years after Tyson Foods officials first learned about the subsidiary’s illicit payments that its counsel instructed Tyson de Mexico to cease making the payments.

The SEC further charged that in connection with these improper payments, Tyson Foods failed to keep accurate books and records and failed to implement a system of effective internal controls to prevent salary payments to phantom employees and the payment of illicit invoices. The improper payments were recorded as legitimate expenses in Tyson de Mexico’s books and records, and included in Tyson de Mexico’s reported financial results for fiscal years 2004, 2005 and 2006. Tyson de Mexico’s financial results were, in turn, a component of Tyson Foods’ consolidated financial statements filed with the SEC for those years.

Without admitting or denying the SEC’s allegations, Tyson Foods consented to the entry of a final judgment ordering disgorgement plus pre-judgment interest of more than $1.2 million and permanently enjoining it from violating the anti-bribery, books and records, and internal controls provisions of the FCPA. The proposed settlement is subject to court approval.

In a related criminal action announced today, the Department of Justice (DOJ) charged Tyson Foods with conspiring to violate the FCPA and violating the FCPA. The DOJ and Tyson Foods agreed to resolve the charges by entering into a deferred prosecution agreement. Tyson Foods also agreed to pay a $4 million criminal penalty.

February 12th, 2011|Categories: Commercial Transactions Due Diligence|Tags: , , , |

Fraudulent credentials rampant in China

Media sources report that scholars in China say that fraud in education and scientific research, and faking credentials to get work or advance in careers is staggering. With frequent news of falsified resumes by prominent officials and company heads, employers in the country have adopted stricter background checks of job candidates.

According to news reports, Fang Zhouzi, known for exposing plagiarism and academic fraud in China, said that Tang Jun, who was president of Microsoft’s China operations from 2002 to 2004, had falsely claimed in his autobiography that he earned a doctorate degree from the California Institute of Technology, when in fact, the degree was bought from California-based Pacific Western University, known as a “diploma mill.” The scandal was later dubbed the “fake credentials gate” by Chinese media.

Several media publications also brought up the case of Zhang Wuben, who through television shows, DVDs and a best-selling book, convinced millions of people that raw eggplant and immense quantities of mung beans could cure lupus, diabetes, depression and cancer. Zhung’s patient consultations, for which he charged $450 for ten minutes, were booked solid through 2012. But when Chinese journalists dug deeper into Zhung’s background, they learned that contrary to his claims, Zhung was not from a long line of doctors (his father was a weaver) nor did he earn a degree from Beijing Medical University. His only formal education was a correspondence course that he took after losing his job at a textile mill.

The exposure of Zhang’s fake credentials gained media focus and started a new round of scrutiny into the dishonest practices that plague Chinese society, and the Chinese government has vowed to address the problem. To facilitate employers’ checks of their job candidates, the China’s Ministry of Education released a list of approved Chinese-foreign jointly-run schools and a list of overseas colleges. And employers now have a greater awareness of the value of background investigations. Zhu Shibo, manager of recruitment at the China International Intellectech Corporation, one of the country’s leading human resources service providers, told media sources that the company has received unprecedented commissions to investigate job applicants. A typical background investigation includes highest education verification, employment experience confirmation and criminal record searches.

February 8th, 2011|Categories: Compliance Corner for Employment Decisions|Tags: , , |

Beware of background investigation companies that offer FBI NCIC checks

All you need to do is type in a few key words into Google and headlines pop up promising easy access to FBI criminal records. But when you click on the link, it goes nowhere or to a background screening company’s Web site which then states that it searches public records only, and makes no further mention of the teasing lead.

And except for a few non-government entities, such ones performing authorized criminal justice functions under contract with law enforcement agencies, entities whose purpose is to provide information to authorized agencies to facilitate the apprehension of fugitives or locate missing persons and stolen property, or similar objectives, and federally chartered banking institutions, their bank subsidiaries and direct affiliates, the records are off-limits to the public. Of course, an individual can request his/her own record, typically for a personal review, to challenge the information on file, to meet a requirement for adopting a child in the U.S. or internationally, to satisfy a mandate to live, work, or travel in a foreign country, or to obtain certain professional licenses.

So exactly what is the FBI’s National Crime Information Center? The NCIC, as it is commonly known, is the United States’ central database for tracking crime related information. Maintained by the FBI’s Criminal Justice Information Services Division, the NCIC is interlinked with similar systems held by each state. Data is received from federal, state, local and tribal law enforcement agencies, along with railroad police, and non-law enforcement agencies, such as state and federal motor vehicle registration and licensing authorities.

The NCIC was launched January 27, 1967 with five files and 356,784 records. By the end of 2009, it amassed more than 15 million active records in 19 files, separated into seven property files containing records of stolen articles, boats, guns, license plates, parts, securities, and vehicles, and 12 person-related files containing information in connection with supervised releases, national sex offender registry, foreign fugitives, immigration violators, missing persons, protection orders, unidentified persons, U.S. Secret Service protective list, gangs, known or suspected terrorists, wanted persons, and identity theft. Also a part of the system is the Interstate Identification Index, which provides images that can be associated with NCIC records to help identify people and property items.

The database is not infallible. Its many critics say that the underfunded system is limited in content, contains errors and has outdated information. But the black market for NCIC records is flourishing, despite risks of prison time and financial penalties. While in most instances the motivation for misuse is monetary gain, in an extreme example of personal incentive, a former law enforcement officer in Arizona obtained NCIC information from three other officers and used it to track down and murder his girlfriend.

January 26th, 2011|Categories: Compliance Corner for Employment Decisions|Tags: , , |
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