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An Effective Compliance Program, For Pete’s Sake

A sharp-eyed reader of our post Ten Elements Of An Effective Compliance Program suggested in a comment that it “may also be wise to take a peek at DOJ Opinion Release 04-02, which has a bit more FCPA-specific guidance. For example, it goes into a bit more detail about due diligence with regard to business partners.” So we did just as Pete from DC instructed and found that he’s more than a bit right. Opinion Procedure Release No .: 04-02 (July 12, 2004) is the mother lode — an encompassing FCPA-specific description of the elements of an “effective compliance program.” We’re therefore setting out the operative language verbatim, capital letters and all.

As background, Opinion Procedure Release 04-02 responds to a request from a JP Morgan-led group and their investment vehicles (“Newcos”) that were acquiring companies and assets from ABB Ltd. ABB had already settled FCPA charges with the U.S. Securities and Exchange Commission relating to the target businesses. So the “effective compliance program” was to be imposed on the ABB businesses after their acquisition by the Newcos. The circumstances explain the extra compliance features, including periodic independent audits by outside counsel and auditors (a good idea for any company, by the way).

The Newcos’ “effective compliance program” looks like this:

(A) A clearly articulated corporate policy against violations of the FCPA and foreign anti-bribery laws and the establishment of compliance standards and procedures to be followed by all directors, officers, employees, and all business partners, including, but not limited to, agents, consultants, representatives, and joint venture partners and teaming partners, involved in business transactions, representation, or business development or retention in a foreign jurisdiction (respectively, “Agents”; and “Business Partners”) that are reasonably capable of reducing the prospect that the FCPA or any applicable foreign anti-corruption law of Newco’s Compliance Code will be violated;

(B) The assignment to one or more independent senior Newco corporate officials, who shall report directly to the Compliance Committee of the Audit Committee of the Board of Directors, of responsibility for the implementation and oversight of compliance with policies, standards, and procedures established in accordance with Newco’s Compliance Code;

(C) The effective communication to all shareholders’ representatives directly involved in the oversight of Newco (“Shareholders”) and to all directors, officers, employees, Agents, and Business Partners of corporate and compliance policies, standards, and procedures regarding the FCPA and applicable foreign anti-corruption laws, by requiring (i) regular training concerning the requirements of the FCPA and applicable foreign anti-corruption laws on a periodic basis to all Shareholders, directors, officers, employees, Agents, and Business Partners and (ii) annual certifications by all Shareholders, directors, officers, employees, including the head of each Newco business or division, Agents, and Business Partners certifying compliance therewith;

(D) A reporting system, including a “Helpline”; for directors, officers, employees, Agents, and Business Partners to report suspected violations of the Compliance Code or suspected criminal conduct;

(E) Appropriate disciplinary procedure to address matters involving violations or suspected violations of the FCPA, foreign anti-corruption laws, or the Compliance Code;

(F) Clearly articulated corporate procedures designed to assure that all necessary and prudent precautions are taken to cause Newco to form business relationships with reputable and qualified Business Partners;

(G) Extensive pre-retention due diligence requirements pertaining to, as well as post-retention oversight of, all Agents and Business Partners, including the maintenance of complete due diligence records at Newco;

(H) Clearly articulated corporate procedures designed to ensure that Newco exercises due care to assure that substantial discretionary authority is not delegated to individuals whom Newco knows, or should know through the exercise of due diligence, have a propensity to engage in illegal or improper activities;

(I) A committee consisting of senior Newco corporate officials to review and to record, in writing, actions relating to (i) the retention of any Agent or subagents thereof, and (ii) all contracts and payments related thereto;

(J) The inclusion in all agreements, contracts, and renewals thereof with all Agents and Business Partners of provisions: (i) setting forth anti-corruption representations and undertakings; (ii) relating to compliance with foreign anti-corruption laws and other relevant laws; (iii) allowing for internal and independent audits of the books and records of the Agent or Business Partner to ensure compliance with the foregoing; and (iv) providing for termination of the Agent or Business Partner as a result of any breach of applicable anti-corruption laws and regulations or representations and undertakings related thereto;

(K) Financial and accounting procedures designed to ensure that Newco maintains a system of internal accounting controls and makes and keeps accurate books, records, and accounts, and;

(L) Independent audits by outside counsel and auditors, at no longer that three-year intervals, to ensure that the Compliance Code, including its anti-corruption provisions, are implemented in an effective manner.

View Department of Justice Opinion Procedure Release No .: 04-02 (July 12, 2004) Here.

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