Category: Corporate Compliance

White Collar Crime

The National Law Review would like to advise you of the upcoming White Collar Crime conference sponsored by the ABA Center for CLE and Criminal Justice Section, General Practice,  &   Solo and Small Firm Division:

Event Information

When

February 29 – March 02, 2012

Where

  • Eden Roc Renaissance Miami Beach
  • 4525 Collins Ave
  • Miami Beach, FL, 33140-3226
  • United States of America
Primary Sponsors

  • Highlight

The faculty includes some of the leading white collar lawyers in the United States.  The keynote panels for the 2012 program will continue to focus on the role of ethics and corporate compliance in today’s business environment.

  • Program Description

Each year the National Institute brings together judges, federal, state, and local prosecutors, law enforcement officials, defense attorneys, corporate in-house counsel, and members of the academic community.  The attendees include experienced litigators, as well as attorneys new to the white collar area.  Attendees have consistently given the Institute high ratings for the exceptional quality of the Institute’s publication, its valuable updates on new developments and strategies, as well as the rare opportunity it provides to meet colleagues in this field, renew acquaintances and exchange ideas.

The faculty includes some of the leading white collar lawyers in the United States.  The keynote panels for the 2012 program will continue to focus on the role of ethics and corporate compliance in today’s business environment.  Once again, we expect excellent representation from the corporate sector.

  • CLE Information

ABA programs ordinarily receive Continuing Legal Education (CLE) credit in AK, AL, AR, AZ, CA, CO, DE, FL, GA, GU, HI, IA, ID, IL, IN, KS, KY, LA, ME, MN, MS, MO, MT, NH, NM, NV, NY, NC, ND, OH, OK, OR, PA, RI, SC, TN, TX, UT, VT, VA, VI, WA, WI, WV, and WY. These states sometimes do not approve a program for credit before the program occurs. This course is expected to qualify for 11.0 CLE credit hours (including TBD ethics hours) in 60-minute-hour states, and 13.2 credit hours (including TBD ethics hours) in 50-minute-hour states. This transitional program is approved for both newly admitted and experienced attorneys in NY. Click here for more details on CLE credit for this program.

White Collar Crime

The National Law Review would like to advise you of the upcoming White Collar Crime conference sponsored by the ABA Center for CLE and Criminal Justice Section, General Practice,  &   Solo and Small Firm Division:

Event Information

When

February 29 – March 02, 2012

Where

  • Eden Roc Renaissance Miami Beach
  • 4525 Collins Ave
  • Miami Beach, FL, 33140-3226
  • United States of America
Primary Sponsors

  • Highlight

The faculty includes some of the leading white collar lawyers in the United States.  The keynote panels for the 2012 program will continue to focus on the role of ethics and corporate compliance in today’s business environment.

  • Program Description

Each year the National Institute brings together judges, federal, state, and local prosecutors, law enforcement officials, defense attorneys, corporate in-house counsel, and members of the academic community.  The attendees include experienced litigators, as well as attorneys new to the white collar area.  Attendees have consistently given the Institute high ratings for the exceptional quality of the Institute’s publication, its valuable updates on new developments and strategies, as well as the rare opportunity it provides to meet colleagues in this field, renew acquaintances and exchange ideas.

The faculty includes some of the leading white collar lawyers in the United States.  The keynote panels for the 2012 program will continue to focus on the role of ethics and corporate compliance in today’s business environment.  Once again, we expect excellent representation from the corporate sector.

  • CLE Information

ABA programs ordinarily receive Continuing Legal Education (CLE) credit in AK, AL, AR, AZ, CA, CO, DE, FL, GA, GU, HI, IA, ID, IL, IN, KS, KY, LA, ME, MN, MS, MO, MT, NH, NM, NV, NY, NC, ND, OH, OK, OR, PA, RI, SC, TN, TX, UT, VT, VA, VI, WA, WI, WV, and WY. These states sometimes do not approve a program for credit before the program occurs. This course is expected to qualify for 11.0 CLE credit hours (including TBD ethics hours) in 60-minute-hour states, and 13.2 credit hours (including TBD ethics hours) in 50-minute-hour states. This transitional program is approved for both newly admitted and experienced attorneys in NY. Click here for more details on CLE credit for this program.

Brief Filed in Litigation Challenging the NLRB’s Final Rule Requiring All Employers to Post Notice of Employee Rights Under the NLRA

Recently posted in the National Law Review  an article by Labor & Employment Practice of Morgan, Lewis & Bockius LLP regarding the NLRB’s Final rule:

 

 

On August 25, the National Labor Relations Board (NLRB or Board) issued a Final Rule (Rule) that requires all employers subject to the Board’s jurisdiction—i.e., the vast majority of employers doing business in the United States—to post a notice in the workplace informing employees of their right, among other things, to “[o]rganize a union,” to “take action . . . to improve your working conditions by, among other means, raising work-related complaints directly with your employer or with a government, and seeking help from a union,” and to “strike and picket.”

Under the Rule, the notice must be posted in the same place where other employment-related notices are posted, which may include the employer’s intranet or Internet site if the employer customarily communicates with its employees by such means. Failure to post the notice could have three adverse effects: (1) it will be an unfair labor practice under Section 8(a)(1) of the National Labor Relations Act (NLRA), (2) it could toll the six-month statute of limitations for filing unfair labor practices, and (3) it could be used as evidence of an employer’s unlawful motive in unfair labor practice cases.

The Rule is scheduled to go into effect on January 31, 2012.

The Status of the Litigation Challenging the Rule

After the Rule was announced, three separate lawsuits were filed in federal court to block its implementation: two in Washington, D.C. (which were consolidated into one case) and one in South Carolina. The cases challenge, among other things, the NLRB’s authority to issue the Rule.

Cross-motions for summary judgment were filed on October 26 in the District of Columbia action and on November 11 in the South Carolina action. On November 15, John Kline, the Chairman of the House of Representatives’ Committee on Education and the Workforce, along with 35 other members of the House of Representatives, filed in both pending cases an amicus brief supporting the challenge to the Board’s authority to issue the Rule.

The amicus brief was authored by Morgan Lewis attorneys, led by Philip Miscimarra and including former NLRB member Charles Cohen. “Our brief was filed on behalf of thirty-six members of Congress, including John Kline, Chairman of the House Committee on Education and the Workforce, many other members of that Committee, and additional House Members. Their interest in the litigation stems from the fact that legislative decisions are reserved for Congress. The Members we represent believe the NLRB’s creation of a notice-posting obligation—which Congress did not place into the National Labor Relations Act—is contrary to the NLRA and exceeds the NLRB’s authority,” Miscimarra said.

The brief highlights for the first time in either litigation important legislative history showing that the original version of the NLRA contained a notice provision and a specific unfair labor practice relating to the notice provision. Led by Senator Robert Wagner, the sponsor of the law, a unanimous Senate Labor Committee intentionally eliminatedthe notice provision before the NLRA became law. “As the legislative history makes clear, Senator Wagner himself, together with his colleagues, thought there should be no requirement for companies to provide notification to employees. It is time for the NLRB to honor those wishes and abandon its ill-fated notice requirement,” said Cohen.

The amicus brief also discusses how Congress intentionally limited the NLRB’s jurisdiction to actual parties in pending cases—a limitation that was deemed by Congress to be central to the NLRA’s constitutionality. Finally, the amicus brief argues that the new NLRB-created notice obligation undermines important rights afforded by other statutes that explicitly provide for notice provisions. View a copy of the amicus brief at http://www.morganlewis.com/pubs/AmicusBriefUSHouseMembers_DC_15nov11.pdf. A decision regarding whether the NLRB had the authority to issue the Rule is expected before the current implementation date of January 31, 2012.

Copyright © 2011 by Morgan, Lewis & Bockius LLP. All Rights Reserved.

OSHA Seeking Comment on SOX Whistleblower Complaint Rules

 

 

 

 

Posted in the National Law Review an article by attorney Virginia E. Robinson of  Greenberg Traurig regarding OSHA  seeking public comment on interim final rules that revise its regulations on the filing and handling of Sarbanes-Oxley Act (SOX) whistleblower complaints

GT Law

The U.S. Department of Labor’s Occupational Safety and Health Administration (OSHA) is seeking public comment on interim final rules that revise its regulations on the filing and handling of Sarbanes-Oxley Act (SOX) whistleblower complaints.

OSHA, the entity charged with receiving and investigating SOX whistleblower complaints, issued the interim rules in part to implement the amendments to SOX’s whistleblower protections that were included in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Those amendments include an extension of the statute of limitations period for filing a complaint from 90 to 180 days. They also clarify that nationally recognized statistical rating organizations and subsidiaries of publicly traded companies are covered employers under SOX.

In addition to implementing the Dodd-Frank amendments, the interim rules also seek to improve OSHA’s handling of SOX whistleblower complaints, and will permit the filing of oral complaints and complaints in any language.

The planned amendments to those regulations were published in the Nov. 3 Federal Register. Comments must be received by Jan. 3, 2012, and may be submitted online, by mail, or by fax. The Depatment of Labor’s recent news release provides additional details.

©2011 Greenberg Traurig, LLP. All rights reserved.

White Collar Crime

The National Law Review would like to advise you of the upcoming White Collar Crime conference sponsored by the ABA Center for CLE and Criminal Justice Section, General Practice,  &   Solo and Small Firm Division:

 

 

Event Information

When

February 29 – March 02, 2012

Where

  • Eden Roc Renaissance Miami Beach
  • 4525 Collins Ave
  • Miami Beach, FL, 33140-3226
  • United States of America
Primary Sponsors

  • Highlight

The faculty includes some of the leading white collar lawyers in the United States.  The keynote panels for the 2012 program will continue to focus on the role of ethics and corporate compliance in today’s business environment.

  • Program Description

Each year the National Institute brings together judges, federal, state, and local prosecutors, law enforcement officials, defense attorneys, corporate in-house counsel, and members of the academic community.  The attendees include experienced litigators, as well as attorneys new to the white collar area.  Attendees have consistently given the Institute high ratings for the exceptional quality of the Institute’s publication, its valuable updates on new developments and strategies, as well as the rare opportunity it provides to meet colleagues in this field, renew acquaintances and exchange ideas.

The faculty includes some of the leading white collar lawyers in the United States.  The keynote panels for the 2012 program will continue to focus on the role of ethics and corporate compliance in today’s business environment.  Once again, we expect excellent representation from the corporate sector.

  • CLE Information

ABA programs ordinarily receive Continuing Legal Education (CLE) credit in AK, AL, AR, AZ, CA, CO, DE, FL, GA, GU, HI, IA, ID, IL, IN, KS, KY, LA, ME, MN, MS, MO, MT, NH, NM, NV, NY, NC, ND, OH, OK, OR, PA, RI, SC, TN, TX, UT, VT, VA, VI, WA, WI, WV, and WY. These states sometimes do not approve a program for credit before the program occurs. This course is expected to qualify for 11.0 CLE credit hours (including TBD ethics hours) in 60-minute-hour states, and 13.2 credit hours (including TBD ethics hours) in 50-minute-hour states. This transitional program is approved for both newly admitted and experienced attorneys in NY. Click here for more details on CLE credit for this program.

Anti-Money Laundering Compliance Costs

Recently posted in the National Law Review an article by Emily Holbrook of Risk and Insurance Management Society, Inc. (RIMS) regarding anti-money laundering  initiatives take more precedence in the corporate world:

 

Each year, anti-money laundering (AML) initiatives take more precedence in the corporate world, particularly within the financial industry. According to Celent, global spending on AML compliance, including operations and technology, will reach a staggering $5.8 billion within the financial sector by 2013.

Overall, the AML compliance burden is expected to expand at a rate of 7.8% annually while global spending on AML software is projected to expand at a rate of 10.4% per year. But what is the motivation behind such a drive? The research firm found that 42% of respondents cited regulatory requirements, and 25% pointed to reputational risk and brand protection as the main driver for AML compliance spending. And in further findings, financial institutions cited the integration of their AML and anti-fraud operations and technologies as a long-term goal.

“Although intuitively attractive, many institutions may find it difficult to build a business case for integrating AML with anti-fraud,” said Neil Katkov, senior vice president for Celent. “Fortunately, the compliance-driven development of modern AML software, analytics and case management has created a new generation technology that can often deliver better results than legacy anti-fraud systems.”

It seems it’s out with the old and in with the new — and expensive — AML

Risk Management Magazine and Risk Management Monitor. Copyright 2011 Risk and Insurance Management Society, Inc. All rights reserved.

Seeking Corporate Dissolution: One Way to Turn Up the Heat on a Deadbeat Debtor

Posted in the National Law Review an article by Jeffrey M. Schwartz of Much Shelist Denenberg Ament & Rubenstei P.C. regarding a seldom-used remedy that can significantly increase your chances of recovering a debt:

Put yourself in the place of a creditor. One of your customers, an Illinois corporation, owes you money. The customer does not dispute the debt and has even admitted it in writing. However, you can’t get the customer to pay. You have tried everything. First, you are told “the check is in the mail” and of course, it does not show up. The customer then agrees to a payment plan but fails to make the required payments. Finally, the customer promises to “pay next month when we have the money.” Still no check. In a last ditch effort, you call repeatedly, but the customer has now gone incommunicado. It has become obvious that the only way to collect the debt is to file a lawsuit.

You are hesitant, however, because of the time and expense it will take to obtain and enforce a judgment. After all, the customer will likely go to great lengths to delay the lawsuit and hold you at bay for as long as possible. From the customer’s point of view, the worst case scenario is that it will have to pay you the money it has already admitted it owes. Is there anything you can do to minimize the time and expense of obtaining and enforcing a judgment?

You may want to consider a seldom-used remedy that can significantly increase your chances of recovering a debt. Under the Illinois Business Corporation Act, a creditor may seek to have its claims against an Illinois corporation satisfied by bringing an action for dissolution in the state’s circuit court. By adding a cause of action for corporate dissolution to a collection lawsuit, creditors may increase pressure on the debtor to pay what is owed or resolve the dispute in a timely, cost-effective manner. In essence, this alternative remedy can change the dispute from a simple beach of contract or collection matter to a scenario where the customer risks losing control of the corporation and must fight for its very existence.

The Illinois Business Corporation Act, which has little case law interpreting it, does not require much. The statute provides that in an action brought by a creditor, a circuit court in Illinois may dissolve a corporation if it is established that:

  1. The creditor’s claim has been reduced to judgment, a copy of the judgment has been returned unsatisfied and the corporation is insolvent; or
  2. The corporation has admitted in writing that the creditor’s claim is due and owing, and the corporation is insolvent.

(Note: Many other states have similar statutes that allow a creditor to satisfy a claim against a corporation through dissolution or liquidation. Accordingly, if your customer is not an Illinois corporation, you should check to see if its state of incorporation has a similar statute.)

One advantage of using this statute is that it does not actually require a creditor to obtain a judgment. The creditor need only show that the debtor has admitted in writing that it owes the money and that the corporation is insolvent. The written admission can come in a variety of forms. For example, the debtor may have sent a letter or e-mail admitting that it owes the debt or may have acknowledged the debt in a forbearance or settlement agreement. In addition, the admission need not be made directly to the creditor. According to People Ex Rel. Day v. Progress Ins. Ass’n, a 1955 Illinois Appellate Court decision, it may be sufficient that the indebtedness is recognized in the debtor’s books and records. Furthermore, the insolvency requirement is satisfied if the corporation is “unable to pay its debts as they become due in the usual course of its business,” as stated in the Illinois Business Corporation Act.

The statue also allows the circuit court, as an alternative to dissolution, to (1) appoint a custodian to manage the business and affairs of the corporation to serve for the term and under the conditions prescribed by the court; and (2) appoint a provisional director to serve for the term and under the conditions prescribed by the court. Like the prospect of dissolution itself, these alternatives put the debtor at risk of losing control of the company.

While your customer may be willing to take the chance that a judgment will be entered against it after extensive litigation and delay, it may not be willing to risk dissolution or loss of control of the corporation. Therefore, adding a count for corporate dissolution to a collection lawsuit can alter the playing field and give you—the creditor—significant negotiating power to resolve the dispute quickly and on better terms.

© 2011 Much Shelist Denenberg Ament & Rubenstein, P.C.

 

 

Entrepreneur’s Guide to Litigation – Blog Series: Complaints and Answers

Recently posted at the  National Law Review  by John C. Scheller of Michael Best & Friedrich LLP an entrepreneur’s guide to the litigation process.

A.  The Complaint

Litigation begins with a Complaint. “Complaint” is capitalized because it is a specific legal document, rather than a garden-variety complaint about something. The Complaint lays out the plaintiff’s specific legal claims against the defendant. It needs to contain enough facts that, if everything stated is true and there are no extenuating circumstances, a judge and jury could find in favor of the plaintiff.

As an example, Paul Plaintiff is suing Diana Defendant for violating a contract. Paul files a Complaint with a court claiming several facts: 1) Diana signed a contract to buy widgets; 2) Paul delivered the widgets; and 3) Diana did not pay the agreed-upon amount. If the court finds that these facts are true, then, unless there were extenuating circumstances, Diana probably breached a contract with Paul and should pay damages.

Paul’s Complaint also needs to allege facts showing that he has a right to be in that court. For example, if Paul wants to sue Diana inTexas, he has to show that the case and the parties have some connection toTexas. If he wants to sue her in a federal court, he has to meet a number of other criteria. (Federal court is generally only available if the parties are based in different states and the damages are relatively substantial or if the legal question is one of federal law.)

B.  Response to a Complaint

Once the defendant officially learns of the Complaint, she has a certain limited time to file some sort of response with the court. The time to respond, however, does not run from when the plaintiff filed the lawsuit, but generally when he officially delivered notice of the Complaint to the defendant. (There is a timeline that starts ticking when the defendant becomes aware of a state court lawsuit she wants to “remove” to federal court.) The amount of time for the defendant to respond varies by what court the case is in, but is generally a short period of time.

After receiving the complaint, the defendant has three options: 1) Ignore the Complaint and have the court grant judgment in favor of the plaintiff; 2) Tell the court that the Complaint is defective and ask for dismissal; or 3) Answer the Complaint. Option one is usually not a good plan; courts do not look favorably on defendants who ignore the legal process, and this option prevents a defendant from fighting the plaintiff’s claims.

Option two does not deal with the merits of the plaintiff’s issue. It is simply telling the court that the Complaint is defective for a variety of reasons including, for instance, how it was served, who the parties are (or are not), which court the case is in, or simply that, even if everything is true, the plaintiff cannot win. For example, if Paul sues Diana, but never tells Diana about the suit, Diana can then ask the court to dismiss the case. Also, if Diana works for DefendCo and Paul’s contract was actually with DefendCo and not with Diana, personally, she may be able to have the case dismissed because Paul sued the wrong party. If Paul sued Diana in a federal court inTexaswhen both parties are residents ofCaliforniaand neither has ever been to or done business in Texas, then Diana may be able to get the case dismissed, at least from theTexascourt.

Finally, there is the “So, what?” defense. If the Complaint doesn’t actually allege a cause of action, the defendant can ask the court to dismiss it. This usually happens because the plaintiff simply assumes a fact, but does not include it in the Complaint. If, for example, Paul alleges only that Diana failed to pay him a certain amount of money, but does not allege that a contract existed between them, then Diana can essentially say “So, what?” and ask the court to dismiss the case. She would ask the court to dismiss the case because, even if true (she really did not pay him any money), he did not plead any facts showing that she was supposed to pay him money. The defendant is not admitting the truth of the allegation; she is just saying that even if true, the plaintiff cannot win.

Finally, a defendant can file an Answer. Again, “Answer” is capitalized because it is a specific legal document. In an Answer, the defendant responds, paragraph by paragraph, to each of the plaintiff’s allegations. The defendant must admit, deny, or say that she does not know the answer to each specific allegation. Saying “I don’t know” functions as a denial.

For example, Paul’s Complaint probably alleges that Diana lives at a certain address. Assuming Diana actually lives there, she has to admit that fact. Paul may allege that he delivered the correct number of working widgets to Diana. If the widgets were not what she actually ordered or did not work, Diana would deny that allegation. Finally, Paul may claim that those widgets cost him a certain amount of money. Diana likely has no way to know how much Paul paid for the widgets, so she would say she does not know – thus leaving Paul to prove that allegation.

Also in the Answer, the defendant can claim affirmative defenses. Those tell the court that there were extenuating circumstances so that, even if everything the plaintiff says is true, the court should not find in favor of the plaintiff.

For example, if Paul told Diana not to worry about paying him for the widgets for six months but then turned around and immediately sued her, she would claim that as an affirmative defense.

Finally, the Answer may contain counterclaims. These claims are the defendant counter-suing the plaintiff for something. The counterclaims may be related to the original suit or not. Usually they are related, but they do not have to be. This section follows the same rules as if the defendant were filing a complaint.

For example, Diana may counterclaim against Paul because he sent her the wrong widgets and, perhaps, add a claim that when Paul delivered the widgets to her warehouse, he backed his truck into her building and caused damage. She would then counterclaim for breach of contract and property damage. The court would then sort out the whole mess to decide who owed whom how much.

Click Here: to view the previous post in the Entrepreneur’s Guide to Litigation – Blog Series: Introduction

© MICHAEL BEST & FRIEDRICH LLP

Interview with C. David Morris, Senior Counsel International at Northrop Grumman Corporation

Recently postd at the National Law Review by Michele Westergaard of marcus evans an interview with a Senior in house Counsel of Northrop Grumman about FCPA compliance issues: 

With the steady increase in enforcement, organizations need to now move beyond FCPA compliance and embrace a global anti-corruption compliance program. Global companies should assess their existing anti-corruption compliance programs and adjust them to meet potentially more stringent requirements.

C. David Morris, Senior Counsel International at Northrop Grumman Corporation is a speaker at the 6th FCPA & Anti-Corruption Compliance Conference taking place on June 22-24, 2011 in Washington, DC.

Mr. Morris is Senior Counsel in the Northrop Grumman Corporation International Law Department located in Linthicum, MD. His practice focuses on international regulatory compliance and cross-border transactions involving the corporation’s domestic and international businesses and joint ventures. David answered a series of questions on how to enhance FCPA and anti-bribery initiatives to adapt to heightened global anti-corruption enforcement.

What is the importance for companies to conduct regular compliance training for FCPA and foreign anti corruption laws?

DM:  From a legal perspective, the U.S. Government has made it clear through many Department of Justice and Securities and Exchange Commission settlement agreements and the Federal Sentencing Guidelines that regular training is an essential component of a corporate compliance program for companies that conduct business with foreign government entities. As such, a company’s history of conducting anti-corruption training can be viewed as either a mitigating or aggravating factor should a company find itself in litigation on a FCPA matter. Likewise, the Guidance to the UK Bribery Act also identifies training as a key component to the corporate defense of having adequate compliance procedures. In this regard, the failure to provide training could be detrimental to the statutory defense. From a business perspective, anti-corruption training is a wise investment as part of a preventative law program.  Regular anti-corruption training helps to reinforce and shape a corporation’s ethical culture and standards of business conduct. When clear policies and expectations are communicated, a culture for ethical behavior becomes engrained throughout the enterprise.    

How can companies not only meet the minimal expectationsforFCPA compliancebut also exceed them?

DM: Two features of a robust compliance program that companies can undertake to achieve top tier status are to conduct benchmarking activities relative to their industry peer companies and to regularly conduct comprehensive internal risk assessments on a periodic basis. Collaboration with outside experts on these activities can be particularly helpful because they can bring an independent perspective to aid in the decision making process. In addition, there are numerous webinars, conferences, and bar association committees that provide useful practice tips and networking opportunities to stay abreast of best practices. Finally, the OECD published guidance in this area last year with their Good Practice Guidance on Internal Controls, Ethics, and Compliance, which is often cited by enforcement authorities as a model for companies to embrace.

What are the effects of non-compliance on share price, organizational reputation etc?

DM:  The effects of a corruption related enforcement action can be devastating on all of a company’s constituencies. For shareholders, it is fairly common to see a company’s market capitalization decline following the announcement of a government investigation or a financial reserve set aside to cover potential fines and penalties. In 2010 alone, there were five settlements with the DOJ and SEC in excess of $100M.  For customers and trading partners, uncertainties about the reliability of a company undergoing an enforcement action can be problematic because of the possibility of suspension, debarment, and/or revocation of export privileges in some cases. For employees, morale can take a hit when they observe their leaders prosecuted for criminal activity. Lastly, the enterprise as a whole can suffer because the lifecycle of a typical enforcement action (investigation, litigation, consent decree, and compliance monitor) can consume management focus for many years.

How can existing anti corruption programs be strengthened to take account of emerging global anti-corruption trends?

DM:  Given the extra-territorial reach of the FCPA, the jurisdictional reach of the UK Bribery Act, and the level of inter-country prosecutorial cooperation, companies need to review their policies, procedures, and internal controls to ensure their anti-corruption compliance program is in lock-step with their corporate footprint. As with any business activity, capital, human, and technological resources need to be deployed where they will be most effective and adjusted as the business evolves. An internal risk assessment and procedural gap review are two features of a healthy continuous improvement program. Lastly, I would add that partnering with Internal Auditors, Country Managers, Ethics Officers, Finance personnel and others with an anti-corruption focus can be a beneficial way to leverage and extend the reach of existing resources.

How best can red flags of possible FCPA violations be identified?

DM:  The FCPA’s accounting and internal controls provisions require companies to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are executed in accordance with management’s authorization and are recorded as necessary to maintain accountability for assets. In addition, there are Sarbanes-Oxley requirements for management to provide a statement of the effectiveness of the company’s internal control structure and procedures for financial reporting. As such, procedures and controls should be established for entering into third party commitments, making payments, and cash disbursements to detect red flags which may require additional due diligence. In addition to periodic internal risk assessments and related interviews of key personnel, it is a good practice to provide awareness training on red flags and to require those involved with international transactions to certify if they are aware of red flags or adverse information at milestones throughout a business transaction. The establishment of an anonymous hot line to report ethical concerns is also often cited as a best practice to detect red flags. In terms of identifying red flags of external trading partners, periodic media searches can reveal a wealth of information.  The commercial attaché of the US Embassy of the country in question can also be a valuable red flag identification resource, as well as in-country employees and outside counsel.

© Copyright 2011 marcus evans

 

 

 

An Ounce of Prevention – The Importance of Periodic Corporate Audits

Posted this week at the National Law Review by James M. O’Brien, III and David R. Krosner of  Poyner Spruill LLP – a good overview of the many reasons managed care organization should perform periodic corporate audits:  

Most, if not all, long term care providers operate their business in an entity form, such as a corporation or limited liability company.  Many use multiple entities – for example, one entity to own the real estate (or a separate entity to own each parcel of real estate) and another to operate the business.

Although the type of entity (or entities) used in your business was likely selected based on an evaluation of the benefits and drawbacks of each type of entity (including tax considerations and management structure), one of the principal benefits of both a corporation and a limited liability company (LLC) is limited liability, which is often referred to as the “corporate veil” or “corporate shield.” The corporate veil refers to the concept that the owners of the corporation or LLC are generally not liable for the debts and obligations of the entity. Rather, the “corporate veil” protects the owners from that personal liability and places responsibility for the entity’s debts and obligations on the entity.

As we all know, for every rule, there are exceptions, and that holds true with respect to the corporate shield. Some of these exceptions are created by statutes and others by case law. For example, under federal statutes, employees who are responsible for the entity’s payroll or financial affairs may be personally liable (and also subject to penalties) for willfully failing to collect and remit required federal withholding or employment taxes. Similarly, under certain federal environmental laws, corporate officers who have authority and control over the disposal of hazardous wastes can be held personally liable for the corporation’s failure to comply with certain environmental laws.

In the category of case law type exceptions, generally an individual will always be liable for his own wrongdoing. For example, if I get frustrated at work and punch my partner in the nose, the corporate shield will not protect me from liability to my partner! We all understand (and can’t legitimately complain about) those types of exceptions to the corporate shield. But there is also a broader set of case law that creates additional exceptions that allow plaintiffs to “pierce the corporate veil.” Under this concept, a judge may decide that the facts of a particular case warrant piercing the corporate veil and, thereby, holding the owners of the entity personally liable for the matter being litigated. Generally, the courts examine a laundry list of factors, including, most importantly whether the facts suggest that a refusal to pierce the corporate veil would result in fraud or similar injustice.

Generally, to succeed in a veil piercing case, the plaintiffs would have to prove, among other items, that the owners of the entity so dominated its finances, policy and business that the entity had no separate mind, will or existence of its own. In determining whether that level of control exists, a court looks to several factors (none of which are typically decisive in and of themselves). These factors include (i) inadequate capitalization of the entity, (ii) noncompliance with corporate formalities, (iii) excessive fragmentation of a single enterprise into multiple entities, (iv) absence of company records, and (v) siphoning of funds from the company by the dominant owner.

Although the case law rules for veil piercing vary somewhat from state to state, the good news is that courts are typically very reluctant to pierce the corporate veil. The perhaps better news is that there are steps you can take to make it less likely that the veil of your entity will be pierced. So what can you do to lessen the risk of a successful veil piercing claim? For one, be sure your entity complies with appropriate corporate formalities and maintains appropriate corporate records. For example, if your entity is a corporation, each year the corporation should hold a shareholders’ meeting to elect its Board of Directors and the directors should appoint the officers. All major corporate actions should be approved by the Board of Directors and records of those approvals should be maintained. If money is distributed to the owners or there are multiple entities and money flows between the entities, all of this should be approved in writing by the directors and properly documented. Generally, these types of records are kept in the entity’s minute book. If the last entry in your minute book dates from 1982, your entity is not keeping proper records!

As a service to our clients, we often conduct legal reviews of a client’s corporate/LLC records, including, as applicable, minute books, shareholders’ or operating agreements, articles of incorporation/articles of organization, bylaws, annual reports, stock transfer ledgers, foreign qualifications, good standing certificates, tax clearance certificates, etc., to ensure the records are up to date, reflect the current operations of the company, comply with current law, and generally reflect compliance with the governing documents and formalities applicable to the company. To the extent we find deficiencies, we propose a course of action and help our clients implement corrections. This is an easy and inexpensive way for you to eliminate one of the factors associated with piercing the corporate veil and help protect owners from personal liability.

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