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Harry Cassin
Publisher and Editor

Andy Spalding
Senior Editor

Jessica Tillipman
Senior Editor

Bill Steinman
Senior Editor

Richard L. Cassin
Editor at Large

Elizabeth K. Spahn
Editor Emeritus

Cody Worthington
Contributing Editor

Julie DiMauro
Contributing Editor

Thomas Fox
Contributing Editor

Marc Alain Bohn
Contributing Editor

Bill Waite
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Shruti J. Shah
Contributing Editor

Russell A. Stamets
Contributing Editor

Richard Bistrong
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Eric Carlson
Contributing Editor

What We’ve Learned From Morgan Stanley

As recently reported, after receiving a sentence of nine months for pleading guilty to violating the FCPA, Garth Peterson went on the attack and said Morgan Stanley’s compliance program was less in evidence than the DOJ has claimed. However, we previously learned from the DOJ that “[Peterson] used a web of deceit to thwart Morgan Stanley’s efforts to maintain adequate controls designed to prevent corruption.”

What were Morgan Stanley’s efforts that saw both the DOJ and SEC decline to charge them? It starts with the questions likely to drive the general lines of inquiry for investigations by these agencies:

  1. What did you do to stay out of trouble?
  2. What did you do when you found out?
  3. What remedial action did you take?

So what did Morgan Stanley do to stay out of trouble? According to the DOJ, they “constructed and maintained a system of internal controls, which provided reasonable assurances that its employees were not bribing government officials.“ When it came to Peterson, he had received FCPA related training on seven separate occasions and received at least 35 FCPA compliance reminders.  He had provided written certifications of his compliance with the FCPA on multiple occasions and was specifically informed that employees of state-owned enterprises in China could be deemed ‘government officials’ under the FCPA.

So what did Morgan Stanley do when they found out? The SEC stated that the company “conducted a thorough internal investigation to determine the scope of the improper payments and other misconduct involved.”

So what remedial action did Morgan Stanley take? According to the DOJ, “The company voluntarily disclosed this matter and has cooperated throughout the department’s investigation.” The company also terminated Peterson’s employment in 2008.

The fact is, while Peterson may have gone on the offensive because the DOJ pushed for a long sentence even though he pleaded guilty, the history of FCPA cases over the years tells us the DOJ and SEC are not so quick to let companies off the hook when it comes to allegations employees have engaged in corrupt conduct.

At a high-level, what we know of the evidence Morgan Stanley provided to these agencies in answering these three questions will help any company in strengthening its anti-corruption compliance framework.

You can learn more about how Morgan Stanley stayed out of trouble here.

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Jarrod Baker, above, is a Director in the Forensic practice of KordaMentha, an Asia-Pacific advisory firm. Currently based in Australia, he has extensive anti-corruption consulting and investigation experience across the globe and previously worked in an FCPA compliance role for a Fortune 100 company. Jarrod can be contacted here.

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