Categories: Risk Mitigation Strategy

As part of a 10 country initiative to provide anti-bribery and corruption training to senior leadership and middle management in designated high corruption risk countries, we developed and delivered ABAC training that was tailored to the type of corruption scenarios that could negatively impact the client's operations in each of the 12 countries. WCF professionals developed and led the training sessions in Moscow and Kuala Lumpur.  Other countries where other practitioners delivered training included Bulgaria, Romania, Poland, Turkey, Netherlands, Belgium, Hong Kong, China, Singapore and India.

In connection with a U.S. manufacturer's acquisition of a China-based competitors, a FCPA-themed due diligence investigation was performed that revealed inappropriate relationships with members of the Chinese military including a series of improper payments.   The team worked with the client's General Counsel, Internal Audit executives and outside counsel to develop and implement a series of compliance remediation steps as part of a Compliance Action Plan (CAP).  The CAP required the acquisition target to take a series of steps to remediate its internal controls, compliance program and business operation and included severing customer ties with the Chinese military.   Subsequent to the implementation of the Compliance Action Plan, a specialized audit was performed to measure if the agreed upon remediation steps had been taken.   The audit confirmed that the acquisition target had largely complied with the remediation plan and the deal was able to move forward to closing.

In connection with the proposed acquisition of a gas turbine manufacturing company, we were asked to assess the physical security of the campuses, buildings and information technology system servers of manufacturing plants in France and Germany.   The project consisted of interviews and process walkthroughs with key executives, a physical review of the grounds, building exteriors and interior spaces and the server rooms at the two facilities. The culmination of the reviews included a detailed listing of security vulnerabilities that were noted and a budget estimate of the costs needed to bring the acquisition target's two facilities into alignment with the security standards of the client organization.

On behalf of a federal financial regulator,  performed comprehensive background investigations of applicants to receive federal funds in connection with efforts to restart the country's asset-backed securitization markets by infusing capital into various types of consumer and commercial mortgage lenders. Hundreds of organizations applied for funding including numerous institutions that were eventually charged criminally in relation to the widespread mortgage-backed securities fraud that triggered the financial crisis in the first place.  Through our efforts, the regulator was able to prevent the program from lending to ineligible borrowers such as those that were under investigation.

Following revelations that it had been defrauded in a Ponzi scheme with exposure of over $80 million, a major hedge fund requested a comprehensive review of its investment due diligence processes including its use of investigative due diligence of potential investment deals.   The project consisted of a detailed review of the entities and individuals through whom the fund had invested, prior investigative due diligence performed, its sufficiency, how the fund responded when there were adverse findings and the extent to which these reports factored into their overall investment decision.  Upon the issuance of our report, the fund made numerous changes to its investment due diligence processes and investment governance.

On behalf of a Swiss headquartered investment bank, a due diligence investigation was performed of the investment group seeking investment banking investment in connection with the planned roll-up of numerous assisted living and nursing home facilities.   One of the individuals who had been described in the prospectus as the primary investor, had one item in the initial background check showing a recent criminal charge in the State of California.  State public records have a limited amount of information that is available electronically.   Consequently, a field investigator was deployed to review the manual court records and to make inquiries.  The field investigation revealed that the state prosecution was being held in abeyance in an anticipation of a forthcoming federal indictment charging embezzlement and criminal money laundering.   Further investigation revealed that this individual was an attorney who was charged with embezzling over $3 million from escrow monies on deposit with his law firm and using that money to fund his lifestyle.   It further revealed that his law practice had recently been closed down and filed for bankruptcy liquidation.  The investigation enabled the investment bank to deny the investment which in all likelihood would have been used to assist the main borrower to flee the jurisdiction along with the bank's investment.

A global manufacturer of highly engineered products retained WCF personnel after an acquisition due diligence report of a proposed merger revealed that an acquisition target may have made improper payments to various government officials in exchange for the award of lucrative government contracts. The work included a review of policies, procedures and internal controls, background investigations of key individuals, an extensive review of vendor disbursements and gifts, travel and entertainment expenditures and other forensic, investigative and compliance risk assessment procedures. The culmination of our work was the joint development of a Management Action Plan of steps that the acquisition target was required to take prior the transaction’s closing and then a follow up audit to determine that each step in the action plan had been taken as agreed. This work enabled the client to complete its purchase of a strategically important target while avoiding undue risk of successor liability.

A global manufacturer with a prior FCPA enforcement action in its past learned that its third-party business partners in multiple countries may have been making improper payments to foreign government officials to secure the award of government contracts. WCF personnel oversaw a company-wide review of its business intermediaries consisting of the collection of vendor master file and disbursement records from over 500 ERP systems, devising and implementing a risk scoring framework and the performance of over 5000 investigative due diligence reports many of which included in country investigations and site visits spanning over 60 countries. This retroactive review was performed in parallel to the creation and implementation of a much more rigorous vendor onboarding process that included the designation of business sponsors, questionnaires, a sophisticated risk scoring process that considered inherent, relationship, geographic, disclosure and financial risk and an adjudication process in which business sponsors engaged directly with intermediaries seeking clarity on any findings resulting from due diligence investigations. This third-party corruption risk program continues to serve as a gold standard that many organizations have sought to replicate. It was also the centerpiece of the company’s presentation to the DOJ and the SEC which enabled them to enter into a very favorable settlement.

The U.S. Foreign Corrupt Practices Act includes two notable exceptions in which it is permissible to provide something of value to foreign public officials: promotional payments and facilitating payments. Promotional payment exceptions make it permissible to pay the travel, lodging and incidental expenses of government officials if the travel is to attend or speak at a conference, tour a company facility, or view a product demonstration. The planned event was a combination of each of these exceptions, but the client wanted to have a clear understand as to which of its invited guests met the definition of a foreign public official, employee of a foreign government or instrumentality of a foreign government or public international organization. A WCF professional was asked to assist a global organization to review thousands of invited guests to a global conference they were hosting at their corporate headquarters to assist the company in determining which of their guest list was a government official, employee of a state-owned company or public international organization, perform a high level background investigation of any of those individuals who met the definition and also enable the client to submit those individual names for compliance review and pre-approval as required under their anti-bribery and corruption policy. This review enabled this important, annual event to proceed as planned and created a framework for it to operate within the constraints of their anti-bribery and corruption policy.

In a meeting with the SEC, a major software company was asked a series of questions about its customers. Which of your customers is state-owned? How do you come to those conclusions? What heightened standard of care do you hold those state-owned customers to once they’ve been identified? At the time, the client was not able to answer any of the SEC’s questions. A WCF executive subsequently devised a methodology to investigate all 1400 of the company’s customers following a defined scope intended to answer the SEC’s questions and provide further information to assist the client in ensuring each customer was well-suited for a commercial relationship and that there weren’t any other historical or ongoing issues that could prove problematic to the client organization. Within 10 days, the team was able to provide a report on all 1400 customers identifying which was a government agency or state-owned company, other issues that could impact their suitability as a customer or may suggest the need for enhanced controls, and a recommended course of action for each customer. The timely completion of the project enabled the customer to have a much more productive dialogue with the SEC in their next meeting and help set a much more positive tone for subsequent discussions.

Most commercial relationships and partnerships entail putting assets and your reputation at risk. It is therefore a common practice to perform background investigations of entities and related individuals to provide clients with some assurance that the representations that they have made are truthful and that there is nothing in their background that reflects negatively on the character, integrity and history conduct that would make them ill-suited as business partner. Some examples of findings from such investigations include involvement in human trafficking; a pending indictment for theft of client escrow money; a murder-for-hire conviction; one party to the deal was incarcerated in federal prison at the time of the proposed transaction; one of the subjects had a criminal conviction for embezzlement; a potential private wealth management client had a prior conviction for running a stock boiler room operation for an organized crime family; a former employee who was listed as an Office of Foreign Assets Control Specially Designated National for having sold two naval surplus attack patrol boats to the Sadam Hussein regime in Iraq; and an SEC debarment from serving as an officer of a public company due to previous accounting fraud violations while serving as CFO. Not all investigations lead to such findings, but it is better to know these things before you put assets at risk and your reputation.

A large private sanitation company charged with acts of racketeering was placed under a court-appointed monitor by means of a post-indictment restraining order. The entity had a total of 33 separate legal entities, each of which was placed under a separate monitorship. The monitoring process had several objectives. Preserve the government’s future ownership interest in the company by putting controls in place to protect against the dissipation of assets. Undertake procedures to ensure that the criminal activity giving rise to the indictment is not continuing. Review and approval of all non-recurring expenses prior to disbursement. The monitorships continued until after the government secured criminal convictions at which point the companies were forfeited to the government and thereby ending organized crime’s control over the companies.