Author: Marc Y. Tassé

Marc Y. Tassé

About Marc Y. Tassé

Marc Y. Tassé, MBA, CPA, CA, FCPA (USA), CICA (USA), CFF (USA), is a senior instructor for the Canadian Centre of Excellence for Anti-Corruption, a special advisor to international organizations, a guest contributor on corporate governance and ethics for CBC/Radio-Canada, and a guest blogger on white-collar crime.

Governance Response to Rumors of Bribery

Corporate board members devote significant time to financial oversight and strategy, while often neglecting steps needed to protect and promote its most important intangible asset – its culture and reputation. The negative effects of rumors of bribery and corruption can often be as problematics as clear accusations or even convictions.

Corporate boards would be well advised to assess the actual and potential impact that allegations of corruption and other unethical conduct may have on the share price of their company including their company’s market capitalization.

Corporate directors and officers have three general legal duties; the duty to act carefully, the duty to act loyally, and the duty to act lawfully. First, the duty of care of corporate directors and officers is a special case of the duty of care imposed throughout the law under the general heading of negligence. Laws builds on moral, policy, and experiential propositions. The law of negligence is no exception. The moral proposition that underlies the law of negligence is-that if a person assumes a role whose performance involves risk that affect others, this person is under a moral duty to perform that role carefully. Therefore, corporate directors and officers are under an obligation to take steps to affirmatively reduce risks, and an omission may be wrongful.

On this foundation of moral blame, the law of negligence has established a structure of legal blame or liability. The structure of legal blame under the law of negligence generally parallels the structure of moral blame. government officials are engaged by definition in governing, their decisions will often have adverse effects on other persons. When officials are threatened with personal liability for acts taken pursuant to their official duties, they may well be induced to act with an excess of caution or otherwise to skew their decisions in ways that result in less than full fidelity to the objective and independent criteria that ought to guide their conduct.

There are plenty of case studies that evaluate the impact that the loss of trust from key stakeholders resulting from public rumors and allegations can have. These stakeholders may be the general public and institutional investors but they also include existing and potential clients. Especially the institutional investors are increasingly sensitive to compliance related violations (or rumors thereof) by companies within their portfolio. As an example, the world’s largest pension fund (Norwegian Government Pension Fund) excluded ZTE from funding due to alleged corrupt behavior.

International authorities are beginning to establish a track record of corporate convictions and multi-million-dollar penalties. Recent and ongoing criminal prosecutions of individuals have also put executives on notice that they too will face the harsh consequences of violating anti-corruption laws including the U.S. Foreign Corrupt Practices Act (FCPA) or the Canadian Corruption of Foreign Public Officials Act (CFPOA).  Under Canada’s Integrity Regime, companies that do business with government also face suspension or debarment when charged or convicted under the CFPOA or similar foreign anti-corruption laws.

Internationally, cases have shown that enforcement agencies are going to continue to scrutinize anti-bribery and anti-corruption (ABC) compliance programs and will likely bring charges when violations are the result of willful or reckless conduct. In particular, enforcement agencies may bring charges when there is a failure to adequately ensure the existence of an effective ABC compliance program resulting in the failure to prevent violations of the law.

Therefore, board members and executives must protect their organizations and themselves, by effectively implementing a robust ABC compliance program, as well as maintaining effective detection and investigation procedures including continuous improvement of the effectiveness of any existing ABC compliance program.

Here are some practical suggestions that may be useful to Board members and senior executives:

• Sustained leadership on transparency and integrity is vital.

• Strong anti-corruption measures and repeated staff training is crucial.

• The compliance office must be answering directly to the CEO and report to the Board.

• When allegations occur, move quickly with a forensic audit and if criminal issues are uncovered turn them over to the appropriate authorities.

• Ensure that the staff remuneration is not an incentive to sell contracts at all cost.

• Make it clear in documentation that this is a “clean” company that does not bribe – this has been demonstrated to be a deterrent for bribe asking.

• Include in the external audit a review of the compliance on anti-corruption measures.

• Ensure full transparency in contract management.

• Publish who the real beneficial owners of their company and subsidiaries are.

• Beware of transfer pricing and tax evasion since it creates impoverishment in countries where the company is working; especially in the natural resources sector and in poorer countries.

Training Executives On Anti-Corruption Laws – Best Practices

This week, White Collar Post features a guest post from internationally known compliance and anti-corruption expert Marc Y. Tassé.

Good strategists manage uncertainty by playing the probabilities, but too many executives use wishful thinking when it comes to anti-corruption compliance. Playing the probabilities means understanding the odds of success. Just 1 in 12 companies manages to Mitigate Reputational Risk Exposure resulting from non-compliance and therefore this result in a High Level of Reputational Risk Exposure.

Non-compliance seriously increases risk and liability; depreciates M&A and joint venture value; potentially damages the brand; undermines and reduces trust and confidence; increases the potential for prosecution; and threatens sustainability. Executives must be pro-active and continuously diligent in their efforts to mitigate individual and organizational risks.

Corporate board members devote significant time to financial oversight and strategy, while ignoring steps needed to protect and promote its most important intangible asset – its culture and reputation. Corporate boards are due for a rude awakening – compliance expectations and competing stakeholders are demanding increased more effective oversight. Directors need to learn how to carry out these important functions.

When training executives on anti-corruption laws we need to make them realize that Boards and senior executives need to do substantially more than a once-a-year “flyover” of their anti-corruption compliance programs if they expect the DOJ to conclude that their program meets the government’s definition of “effective.”

Boards need to be well-versed in all elements of the anti-corruption compliance program, regularly interact with compliance and legal personnel, and receive timely briefings on the program and the personnel responsible for its stewardship and operationalization. Directors and senior executives must understand that any compliance failures are something that they may have to answer to.

The existence of adequate policies and procedures does not provide a full defence against bribery charges but can be a useful tool for negotiating with authorities or avoiding proceedings against corporate entities. Further, because liability can also be founded on ‘wilful blindness’, the existence of anti-corruption policies and procedures can be helpful in rebutting any inference that a company or its executives ignored bribery.

There is still a place for tone at the top. The board and senior leadership must set the right tone in their communications across the company and outwardly. But tone needs to be paired with persistent actions on the part of the board and senior leadership signaling that ethics and compliance are a top priority and that the company is committed to doing business the right way and is prepared to back up its words with actions, including walking away from business and relationships that are not in alignment with the company’s organizational ethos. That is how tone at the top becomes conduct at the top.

When training Boards and senior executives on anti-corruption laws, we also need to make them realize that they cannot control the integrity of individuals, but they can certainly influence it. An organization’s culture influences the integrity of those employees that are either on the fence or would rationalize wrongdoing when the culture promotes willful blindness, permits ignorance of policies and controls, or encourages the avoidance of those controls through unreasonable business goals and rewarding success by any means.

Finally, Boards and senior executives need to be aware that no controls, compliance program, or business culture can eliminate or totally prevent people without integrity from doing wrong, but the absence of those factors greatly increases the capacity of wrongdoers to operate with impunity, while the strong presence of those factors greatly increases the likelihood of preventing and detecting wrongdoing, as well as providing a foundation to mitigate its impacts and consequences on the organization.

Guest Post: Panama Papers and the emergence of anti-corruption compliance

This week, White Collar Post features a guest post from internationally known compliance and anti-corruption expert Marc Y. Tassé.

While the leaks continue from the “Panama Papers”, continuing to make headlines around the world, and as the related scandals intensify, there have been numerous articles written on the whole topic. My following comments and remarks take under consideration and outline some of those and my own comments.

The International Consortium of Investigative Journalists obtained millions of documents showing heads of state, criminals and celebrities using secret hideaways in tax havens.

  • Files reveal the offshore holdings of 140 politicians and public officials from around the world
  • Current and former world leaders in the data include the prime minister of Iceland, the president of Ukraine, and the king of Saudi Arabia
  • More than 214,000 offshore entities appear in the leak, connected to people in more than 200 countries and territories
  • Major banks have driven the creation of hard-to-trace companies in offshore havens

Offshore banking is not in itself illegal, and those named in the “Panama Papers” should not automatically be presumed to have done anything wrong, but history has shown that secrecy attracts those with something to hide. The offshore banking system is being abused for illicit purposes such as tax evasion and money laundering resulting from corruption.

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