OECD and IBA form Task Force to develop corruption guidance for lawyers

The Organisation for Economic Co-operation and Development (OECD) and the International Bar Association (IBA) will form a Task Force to develop conduct standards and guidance for lawyers involved in international commercial structures and recommendations for governments.  The Task Force will be comprised of lawyers and policy leaders with experience in professional ethics, taxes, anti-money laundering, anti-corruption, financial services, trade and government affairs. 

When the International Consortium of Investigative Journalists (ICIJ) published the “Panama Papers” on May 9, 2016 it exposed a landscape with potential land mines for lawyers to unknowingly assist their clients in concealing assets or in laundering money.

The Financial Action Task Force (FATF) has published international standards for conducting due diligence on customers and identifying beneficial owners.  However, it’s become obvious these standards are not sufficient alone.  Underlying this issue is the professional obligation lawyers have to maintain attorney-client privilege.

In a December 14, 2016 OECD news release IBA President David W Rivkin, said the following: “It is undeniable that lawyers must play a central role in complex offshore financial transactions.  To ensure that they do not unwittingly facilitate economic crime, it is imperative that lawyers ask the right questions of their clients, vet them sufficiently, understand who are to be the ultimate beneficiaries of their client’s actions, and have an understanding of sovereign laws.  In practice, inevitably complications arise. For example, what are a law firm’s obligations when conflicting sovereign laws apply in cross-border transactions? Recent events have shown that existing international and professional standards may not provide sufficiently clear guidance to lawyers who handle such transactions. Recent actions also present the danger that in their anti-corruption activities, governments may ignore the need for lawyers to advise their clients in confidence. For this reason, the IBA has partnered with the foremost inter-governmental organization analysing and promoting economic policies, the OECD, to create appropriate standards while, at the same time, respect the fundamental rules applicable to the profession that are a key element of the rule of law. Each organization will bring its relevant expertise to the project.”  

Some of the questions the Task Force will consider, per the OECD news release, include the following:

• What is the legal profession’s role in combatting corruption, tax evasion money-laundering and terrorism financing taking into account relevant international standards professional duties of lawyers and the role that such duties play in preserving the rule of law?

• What steps, if any, should lawyers take in the event that acts or transactions previously legal become illegal as a result of a change of law?

• What should be the result when – notwithstanding the best efforts from the law firm – the client engages in activities that are legal in one jurisdiction but illegal in another?

• What use, if any, may be made of illegally garnered information and what liability do lawyers have for inadvertent breach of client confidentiality?

• What steps should governments take to provide transparency of such transactions while recognizing legitimate attorney-client privilege and professional secrecy?

OECD issues guidance designed to reduce corruption in the aid sector

On December 9, 2016 the Organisation for Economic Co-operation and Development (OECD) issued guidance intended to improve control systems for avoiding and responding to corruption in the management and delivery of aid. 

The guidance is designed to implement more checks and balances in work processes of international development agencies and private firms.  The recommendations apply to the 41 countries party to the OECD Anti-Bribery Convention and the 30 members of the OECD Development Assistance Committee (DAC). 

The report recommendations include implementing the system of controls (as appropriate) noted below:

• Code of Conduct
• Ethics or anti-corruption assistance/advisory services
• Training and awareness on anti-corruption
• High level of auditing and internal investigation
• Active and systematic assessment and management of corruption risks
• Measures to prevent and detect corruption enshrined in contracts
• Sanctioning regime
• Joint responses to corruption
• Taking into consideration the risks posed by the environment of operations

You can access the full report here: 

Recommendation of the Council for Development Co-operation Actors on Managing the Risk of Corruption 2016

FCPA Legislation Introduced to Allow Individuals and Companies to take Legal Action

On June 9, 2016 U.S. Representative Ed Perlmutter (CO-07) introduced legislation (H.R. 5438) that would expand the Foreign Corrupt Practices Act (FCPA).  Enforcement actions under the FCPA may only be brought by the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC). The legislation introduced by Rep. Perlmutter, would also give individuals and companies the ability to take legal action against corporations who are violating the anti-bribery provisions of the FCPA.

In his press release, Rep. Perlmutter said, "This legislation helps encourage foreign companies to play by the rules or be brought to court.  Most importantly, it is a way to level the playing field and help U.S. companies compete abroad."

Key Amended Text:

"Authorized Plaintiffs. - Any person that violates subsection (a) shall be liable in an action brought in accordance with this subsection in any court of competent jurisdiction to any issuer that is subject to section 30A of the Securities and Exchange Act of 1934, domestic concern that is subject to this section, or other person that is a United States person, that is damaged by the violation of subsection (a) of this section, for damages caused to such issuer, domestic concern, or other person by the violation."

Key Link(s):

• Press Release
• Text - H.R. 5438 - Foreign Business Bribery Prohibition Act of 2016
• 15 USC 78dd-2: Prohibited foreign trade practices by domestic concerns

Customer Due Diligence Requirements

On May 11, 2016 the Department of the Treasury, Financial Crimes Enforcement Network (FinCEN) published final rules (81 FR 29397-29458) under the Bank Secrecy Act to clarify customer due diligence requirements for Banks; brokers or dealers in securities; mutual funds; and futures commission merchants and introducing brokers in commodities. 

Unlike most other federal agencies where they've taken the approach to provide guidelines or inferred expectations around customer due diligence, these rules contain explicit customer due diligence requirements.

FinCEN makes the case that there are four core elements of customer due diligence (CDD):

• Customer identification and verification (already a requirement)

• Beneficial ownership identification and verification (required by the new final rule)

• Understanding the nature and purpose of customer relationships to develop a customer risk profile (implicitly required already and will now be explicitly required by the new final rule)

• Ongoing monitoring for reporting suspicious transactions and, on a risk-basis, maintaining and updating customer information (implicitly required already and will now be explicitly required by the new final rule)

These four core elements are also good basic guidelines for any global business, regardless of industry, with third party relationships.  Companies that fail to maintain an adequate level of oversight of their third parties risk conducting business with people and entities that do not share their same values for integrity.  This can lead to relationships that end with compliance failures that could damage the company's reputation and in some instances result in criminal/civil penalties.

A good third party due diligence program will include these basic elements:

• Written policy with Executive level support

• Third Party verification and screening against denied party/restricted party lists as well as for adverse media events

• Desktop procedures that include when, what and how a third party is to be on-boarded and for how an existing third party relationship is to be monitored (for changes in their risk profile)

• Red Flags awareness and a process for handling Red Flags as they arise

• Prioritization of third parties by level of risk and categorization by required levels of due diligence (low, moderate, high)

• Training    

Global Compliance Solution Group (GCSG) is well versed in assessing and implementing corporate third party due diligence programs.  If you have any questions or needs in this area please contact us directly at info@globalcompliancesg.com. 

The final rules become effective on July 11, 2016 and covered institutions must fully comply by May 11, 2018.

Key definitions:

• Third Party - means customers or intermediaries that conduct business on a company's behalf with persons outside of the company and encompasses those contracted in both sales and supply channels.

• Intermediaries - may include joint venture partners, consortium partners, agents, advisor (e.g. legal, tax, financial, consultant, lobbyist), supplier, vendor, service provider (e.g. communications, logistics, storage, brokers, forwarders, etc.) or distributor/reseller. 

Key link(s):

• Department of the Treasury

• FinCEN

• 81 FR 29397-29458

Singapore probing complex transactions involving 'many shell companies'

"SINGAPORE authorities are probing "complex and layered transactions" with "cross border elements" involving many shell companies...it is widely accepted that the case involves the probe into the money trail of Malaysia's troubled state-backed firm."

Article Link: "Singapore probing complex transactions involving 'many shell companies' in 1MDB case"

Source Credit: The Business Times

ISO 37001 Anti-bribery Management Systems - Gets Vote of Approval

On April 14, 2016 the International Organization for Standardization (ISO) announced the draft version of the new ISO 37001 Anti-Bribery Management Systems (ABMS) standard received a 91% vote of confidence. 

The ABMS "is designed to help organizations implement effective measures to prevent and address bribery, and instill a culture of honesty, transparency and integrity."   

The standard is intended to be used by small to large public, private, or voluntary sector companies.  The ABMS standard includes a few basic principles such as:

• Adopting an anti-bribery policy
• Appointing a person to oversee anti-bribery compliance
• Training
• Risk assessments and due diligence on projects and business associates
• Implementing financial and commercial controls
• Instituting reporting and investigation procedures

The standard is expected to be published in late 2016.

Key Links:

• Purchase the draft version of the ISO 37001 standard in the ISO Store
• ISO 37001 ABMS

DOJ Launches New FCPA Prosecutorial Guidance Pilot Program

On April 5, 2016 the Department of Justice (DOJ) Criminal Division announced a new one-year pilot program within the Fraud Section's FCPA Unit.  The pilot program provides guidance to DOJ prosecutors for resolutions in FCPA cases.  The program was designed to assist companies with their decision making process as to whether they should voluntarily self-disclose FCPA violations, cooperate with the Fraud Section, and when appropriate, correct gaps in their controls and compliance programs. 

The program describes what is meant by "voluntary self-disclosure", "full cooperation", and "timely and appropriate remediation".  The guidance states that when a company cooperates, remediates, and voluntarily self-discloses violations, it will be eligible for the full range of mitigation credit.  In the event a criminal resolution is warranted, a company may be granted a reduction of up to 50 percent below the low end of the applicable U.S. Sentencing Guidelines range.  In addition the company would generally not require the appointment of a monitor.

What are the reader's thoughts on the value of this pilot program?   

Related Documents:

• "Individual Accountability for Corporate Wrongdoing", by Deputy Attorney General Sally Yates, on September 9, 2015
• "The Fraud Section's Foreign Corrupt Practices Act Enforcement Plan and Guidance" on April 5, 2016