by T. GormanPosted on Posted in SECActions

The role of the chief compliance officer is the talk of the Securities and Exchange Commission these days – or at least some of its Commissioners. Those who are speaking for the record agree that the role of the CCO is important. Those who are speaking for the record agree that the CCO should not have a target on his or her back. But what is the message to CCOs that two SEC Commissioners and the Chair of the agency are discussing their role and if they should be concerned about an SEC enforcement action?

First, there was SEC Commissioner Gallagher who published a dissenting statement regarding two recent, settled enforcement actions filed by the agency. One was In the Matter of Blackrock Advisers, LLC, Adm. Proc. File No. 3-16501 (April 20, 2015). The other was In the Matter of SFX Financial Advisory Management Enterprises, Inc., Adm. Proc. File No. 3-16590 (June 15, 2015). Each case centered on the adequacy of the policies and procedures of the firm. In each case the CCO settled with the Commission.

The point of Commissioner Gallagher’s dissent was two-fold. First, he argued that Rule 206(4)-7 is “not a model of clarity” since it is addressed to the adviser but applied to the CCO. Second, there is no guidance as to the distinction between the role of the CCO and that of management in carrying out the compliance function. And, enforcement actions are not the way to give guidance to these critical gatekeepers, Commissioner Gallagher noted. Statement of Commissioner Daniel Gallagher, June 18, 2015 (here).

Then Commissioner Luis Aguilar weighed in with comments appropriately titled “The Role of Chief Compliance Officers Must be Supported.” Commissioner Aguilar, who is a former head of compliance, expressed “concern that the recent public dialogue may have unnecessarily created an environment of unwarranted fear in the CCO community . . . [that ] is unhelpful, sends the wrong message . . .”

Commissioner Aguilar then pointed out that the SEC has brought “relatively few cases targeting CCO’s relating solely to their compliance-related activities.” Rather, the “vast majority of these case involved CCOs who ‘wore more than one hat’. . .” Citing Commissioner Gallagher’s remarks he went on to argue that “those who believe that Rule 206(4)-7 unduly puts a target on the back of CCOs. . .” are simply wrong. Since the adoption of the Rule “enforcement actions against individuals with CCO-only titles and job functions have been rare.” Those few cases should not be of concern. Rather, “the Commission has approached CCO cases very carefully. . .” Remarks of Commissioner Luis Aguilar, June 29, 2015 (here).

Now Chair White has joined the discussion. After reiterating the remarks of her fellow Commissioners regarding the importance of the position and its gatekeeper function, the Chair stated: “To be clear, it is not our intention to use our enforcement program to target compliance professionals. We have tremendous respect for the work you do. You have a tough job in a complex industry where the stakes are extremely high. That being said, we must, of course, take enforcement action against compliance professionals if we see significant misconduct or failures by them. Being a CCO obviously does not provide immunity from liability, but neither should our enforcement actions be seen by conscientious and diligent compliance professionals as a threat.” Chair Mary Jo White, “Opening Remarks at the Compliance Outreach Program for Broker-Dealers,” Washington, D.C. (July 15, 2015)(here).

For all the words spoken, and reassurances given, are CCO’s comforted that they are not being targeted by the SEC? That the standards which might be used in any enforcement actions might be vague? Or that only appropriate enforcement actions will be brought? In the end what message does it send to CCOs who are praised for being key gatekeepers that three SEC Commissioners – enough to authorize and enforcement action – are debating their role, the standards and the prospects of an enforcement action?

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by T. GormanPosted on Posted in SECActions

The DOJ resolved another FCPA action with the company entering into a deferred prosecution agreement, paying a criminal fine and agreeing to the imposition of a monitor after self reporting and cooperating. Two of the firm’s senior executives pleaded guilty to criminal conspiracy charges and are awaiting sentencing. U.S. v. Luis Berger International, Inc., Mag. No. 15-3624 (D. N.J.).

Louis Berger International, Inc. is a privately held international consulting firm that provides engineering, architecture, program and construction management services. It is based in New Jersey. Richard Hirsch was a Senior Vice President with the firm who at times oversaw the operations of the firm in, among other locations, Indonesia and Vietnam. James McClung was also a Senior Vice President with the firm. He was based in India where at times he oversaw the firm’s operations in Vietnam and India.

The criminal complaint alleges conspiracy to violate the FCPA bribery provisions, centered on the payment of bribes to government officials in India, Indonesia, Kuwait and Vietnam to obtain business. The bribes totaled over $3.9 million. The bribes were generally paid through employees and agents. They were referred to in emails and other communications as a “commitment fee,” “counterpart per diem,” “marketing expenses” and similar terms.

Louis Berger commenced operations in Indonesia in 1967 and closed its office in Jakarta in June 2011. Through employees and agents the firm paid “commitment fees” and “counterparty per diems” in connection with government contracts. The arrangements are reflected in a number of e-mails involving Mr. Hirsch beginning as early as August 2003 and continuing through 2010.

The conduct in Vietnam reflects a similar pattern. There the company began operations in the early 1990’s. Mr. Hirsch was involved in payments beginning in 2003. Two years later Mr. McClung assumed responsibility for the area. At that time Mr. Hirsch explained he would “need to find a new way to generate bribe money for foreign officials because the Foundation [a conduit for bribe payments] would soon cease operations,” according to the criminal complaint. The arrangements continued through 2010.

In India the company began operations in 1998. There the firm was apparently a consortium partner in 2009 and 2010 revolving around one project. A tracking schedule prepared by a partner stated that the company had paid $976,630 in bribes in connection with the Goa Project up to that point.

Finally, in Kuwait LBI secured a $66 million road construction project with the Kuwait Ministry of Public Works. To obtain the project the firm, through its employees and agents, made a series of payments to an official with the Ministry of Public Works totaling about $71,000. Those payments were labeled “business development.” The arrangement is reflected in part through an e-mail from a joint venture partner.

To resolve the charges LBI entered into a deferred prosecution agreement. That agreement requires the appointment of a monitor for three years. The firm will also pay a $17.1 million criminal fine which is the bottom of the sentencing guideline range of $28.5 million to $17.1 million.

The DOJ acknowledged the cooperation of the company which included: 1) Self-reporting; 2) voluntarily making U.S. and foreign employees available for interviews and collecting, analyzing and organizing evidence and information for investigators; 3) engaging in extensive remediation which included terminating the officers and employees who were responsible for the payments; and 4) it committed to improving compliance and internal controls.

Messrs. Hirsch and McClung each pleaded guilty to one count of conspiracy to violate the FCPA and one substantive count of violating the Act. Sentencing is scheduled for November 5, 2015.

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