Afra Raymond: Myths About Corruption
We must have the courage to admit that we're uneducated about corruption.
Afra Raymond, an influential figure in Trinidad & Tobago's fight against fraud and the "looting of taxpayers money," defines corruption as "the abuse of a position of trust for the benefit of yourself, your friends, family, and financiers." In a TED talk (embedded below), he describes his years of experience working in the public sector during Trinidad & Tobago's sudden economic growth. In his speech, he proceeds to express why corruption is gravely misunderstood. He expounds, stating that the general populace has been misguided by mainstream myths.
Big Myth 1: It's not really a crime.
Raymond brings to light how citizens perceive crime. When people envision the word "crime" they think of violence on the street; they think of gangs and murder and physical theft: a seized car, a looted house, gun shots in the dark at night. In general, people don't envision public officials embezzling, whispered lies iterated in clandestine meetings, or white-collared businessmen talking while the sun is up. As he states: "When we get together and discuss crime in our country ... nobody is speaking about corruption. And that's the honest truth. When the Commissioner of Police comes on TV to talk about crime, he isn't speaking about corruption."
In other words, when we think about crime, we think of tangible statistics: talking points that create can easy-to-read picture, and therefore, an easy-to-understand conclusion.
To the average person, white-collared corruption seems vague, too intangible to be considered on the same level as lowly street crimes executed in anguish, desperation, and rage. Surely, they're less tantalizing stories, and certainly, there are distinct differences. At face value, it's hard to recognize corruption as a crime. Measured and calculated, the action involves handshakes, maybe smiles. In fact, some instances of prolific, habitual corruption could serve as examples of brilliant organization and cooperation. There's no physical injuries, and the consequences of their actions are often slow to evolve, unbeknownst to the average onlooker.
Despite this, Raymond makes his point crystal clear: corruption still is a crime. Specifically, it an economic crime, as it is the stealing of the taxpayer's money. It usually starts small, but if left unchecked, corruption becomes a habit, ingrains itself in the culture, and can ruin entire industries.
Big Myth 2: Corruption is only a small problem.
Raymond says that too often, people think that corruption isn't a big deal: that it has "been going on forever." This myth perpetuates the idea it's unstoppable, incurable. People who adhere to this myth say that there's no point in passing laws because ultimately we can't do anything about it. Our actions are not only worthless, they're fighting against human nature. This idea allows us to succumb to uglier aspects of humanity, letting us believe that it's simply the way of life, and it will always be a way of life. Raymond states how this is a "dangerous" way of thinking. He believes that the inaction caused by this belief paves the way for only more corruption.
From here, Raymond discusses how the Oil Money in the 1970s made Trinidad & Tobago boom in an unprecedented amount of money. His stories are outrageous. In one instance, two out of three dollars of taxpayer's money was "wasted or stolen." In another $1.0 billion out of the $1.6 billion allotted to build an airport was traced to offshore bank accounts.
Throughout his talk, Raymond explores ironies of horrendous acts of theft, giving us a very detailed perspective in merely 15 minutes. In his concluding remarks, he shares a notable truth:
“Where you have an expenditure of public money, and it is without accountability and it's without transparency, it will always be equal to corruption — whether you're in Russia or Nigeria or Alaska.”
Whether or not your company is engaged in Trinidad & Tobago, is besides his point. Raymond's insights formed by his 30 years of experience are incredibly relevant to compliance and legal professionals across the globe today. Fundamentally, his thoughts grapple with human nature and individual accountability. Compliance professionals must fight and explore ways to instill the counter-myths in their respective institution's membranes: corruption is a crime, and with structured accountability and transparency, we do, in fact, have the power to eliminate it.
If interested, his video below is well worth the time. You can watch the video here:
If you'd like insights on a company in a particular area of the world, please do not hesitate to request a redacted, due diligence report sample from us today or speak with a Global Diligence Consultant. We'd be more than happy to discuss your concerns and needs for International Investigations.
Of Maps and Diligence
On a global scale, Compliance and Legal Professionals are regularly challenged to reflect on diverse societies and cultures, and then calculate how these trends impact both their country and company. It’s an undertaking that involves deep studying on international trends – and it can be an overwhelming task.
However, we’ve found an abridged way of understanding overall international trends by looking at 40 maps, recently compiled by Max Fisher at the Washington Post Foreign Staff.
While we found several that can relate to compliance professionals, in this post we highlight three:
1. How the U.S. and China Compare on Global Popularity
2. Languages and Dialects of the Middle East and Central Asia
3. Where the People are the Most and Least Welcoming to Foreigners
1. How the U.S. and China Compare on Global Popularity
A recent Pew Survey, featured in the Washington Post last month, reveals the global attitudes towards two of the world’s more influential countries: China and the United States. While this map certainly gives a quick overview of various international opinions, it’s important to note that the map only portrays favorability—which, as the article states, is a “vague metric.” For instance, although Turkey and Nigeria both share a shaded pink, their views distinctly differ. Nigerians express high favorability towards both the U.S. and China with a slight preference to China, while Turkey had low ratings for both—just slightly lower for the United States.
That said, this map helps pinpoint what government each country identifies with, which can give insight on their interests as a country. The trends are as follows:
The United States is most popular with Europeans, Africans, and Asian allies, while China does better in Muslim countries; still, like Turkey, the Middle East numbers come from a strong U.S. dislike rather than a strong allegiance to China. In general, out of the several countries surveyed in Africa, they tend to hold both in high esteem—but have a slight preference for the United States. Latin America, however— as the recent Edward Snowden situation has brought to light— is “complicated,” perpetuated by the continuation of “Cold War-era meddling.” As the Center for Strategic & International Studies states, the millennial generation in particular has moved beyond the Cold War perspective, and the country has since has “adopted a more pragmatic view of their northern neighbor…understanding that U.S. policies…are driven by the country’s self-interest.”
While these metrics certainly aren’t holistic in their views, they do point at certain trends Compliance Professionals should keep in mind when interacting with companies in these regions.
2. Languages and Dialects of the Middle East and Central Asia
At first glance, the vast array of dialects and languages would be an easy explanation for misunderstandings and the resulting political unrest in these areas. Certainly, it is an impediment towards a Pan-Arab movement, such as Jamal al-Din al-Afghani in the late 19th century would find while gathering representatives from these different areas. But according to language experts, that explanation doesn't quite hit it on the nail. The language issues delve far deeper than that.
Alexander Brock, Former Fulbright Scholar in Egypt and current Middle Eastern Consultant based in D.C., shares that it’s the “dominant dialect” that one needs to consider to understand the trends, the culture, and the unrest.
In the Middle East, most countries have their own Arabic dialect – but everyone understands Egyptian colloquial Arabic, mostly due to Egypt’s traditional role as the leading producer in music, movies, and television. While this certainly benefits Egypt in conducting commerce with its neighbors – as a side effect – this allows for Egypt to exude cultural leadership, and therefore cultural supremacy. This fact is often overlooked by Westerners, but key in understanding this part of the world.
This spoken dialect isn't the only linguistic issue leveraged to exert power. Unlike English, Arabic has a formal standard, Al-FusHa that is codified by the Qur'an, used exclusively for decorous, significant purposes. Newspapers write in it; newscasters speak with it; politicians’ rhetoric embraces it. However, most of the population is unable to fully understand the Arabic in the Qur’an, which means that both political and religious messages are equally inaccessible, sanctioning politicians and religious scholars to have colossal power in interpreting scriptures and deciding what’s morally right or wrong. Often unchecked in their power, the use of this language can be seen as a controlling device.
On top of this, it facilitates a very elite culture. And while it could be blamed on the lack of education, again the issue is deeper than that. Al-FusHa is an exceedingly difficult language – and most everyday people do not need to be fluent in it to get by. Our Global Diligence Consultant, Danyal Solomon, states that this difficulty highlights the exclusivity of the language—while continuing to perpetuate the immense rift of class, politics and gender.
Furthermore, while this explanation focuses exclusively in the Middle East, it's important to note that language has been routinely used to assert cultural dominance throughout these areas, which is another factor to consider when assessing the risk in different parts of the world.
Scott Shaffer, VP of our Due Diligence Department, shares that when you do business with the Middle East, corporate and legal records are maintained in Arabic, and very rarely in their English translations. This in itself might demonstrate that dominance-by-language is an issue not exclusive to locals. Understanding this outlook can greatly inform your compliance decisions with the Middle East.
3. Where People are the Most and Least Welcoming to Foreigners
While being a neighbor and conducting business have distinct differences, it’s still important to consider a country's perspective on foreigners, as it could give pause on how they might interact with you – a foreigner. Questions Compliance Professionals might ask: Why might this country be less friendly towards foreigners? Are there major, ongoing immigration shifts in the area? Are there fears about employment? Is this simply reminiscent of nationalism?
If the country you’re working with in fact does have tendencies of not openly embracing foreigners, how can you work with this? What precautions can you make?
Solomon, having lived abroad several years, shares some of his insights:
Foreigners often deal in an opaque parallel economy when outside of their original jurisdictions. When doing business in a foreign nation, it is always critical to remember that a lack of cultural knowledge might impede legitimate attempts at transparency. So if a delegate of a company finds himself subjected to price gouging during everyday transactions, it is probable that a company be subjected to similar practices when working in the same jurisdiction. Precautionary measures for such a venture could include hiring a local liaison that has been thoroughly vetted, utilizing a member of the company who speaks the local language or understands the customs, and last but not least – conducting a thorough and diligent investigation of the foreign company’s prior business practices. Check with references who the company hasn’t disclosed. The likelihood of a candid evaluation is much more likely this way.
It goes without saying that the international landscape is in constant motion: as borders and maps change, perspectives are perpetually challenged. However, if your company's Compliance Program is in your hands, it's imperative to stay vigilant. If you'd like insights to a particular area of the world, please do not hesitate to request a redacted, due diligence report sample from us today or speak with a Global Diligence Specialist. We'd be more than happy to discuss your concerns and needs for International Investigations.
A compliance program is only as good as its weakest link.
When it comes to compliance, chain of command is critical, so if any link within the chain is rusty or broken, danger of a total collapse brought on by shady business practices could headline newspapers. This breakage is distinctly evident within the context of the recent allegations of bribery and corruption within the Glaxo Smith Kline probe, and there exists a multitude of lessons to consider. I’ve outlined four:
First: Evaluate engagements from a risk-based approach when considering FCPA scrutiny.
Risk-laden ventures warrant adequate levels of scrutiny from all levels of the company’s compliance program, and an effective compliance program will redistribute resources to vet the more risky engagements, and will constantly evolve in order to evaluate risks in new markets and business ventures. For example, winning a contract in the UK through legal and compliant channels warrants less scrutiny from a compliance program than a large pharmaceuticals contract won in China by way of engaging third party sales agents in China.
Second: The risk-based compliance approach is only effective if the company in question is realistic about the locale in which it is dealing.
Specific countries must be evaluated more deeply than others. Ukraine, China, and Russia are notorious for backroom deals. Any engagement within countries that are known for corruption should be evaluated intensively with a hands-on approach. Database searching is simply not enough. Deals wrought with location-based risk need deeper investigations which may cost a bit more, but are a fraction of a fraction less expensive than prosecution and corporate restructuring. In addition, if your bases are covered and it turns out that you have committed an FCPA violation, the prosecuting agency will look more favorably on the company that chose to conduct thorough diligence, rather than a company who simply typed a company’s name into Lexis Nexis and Google.
Third: Consider the industry.
GSK provided the world with a revealing purview of the sorts of dealings that are inherent within the pharmaceutical industry. Within the FCPA Compliance network, the medical device and pharma industries are the red-headed stepchildren and the golden geese. With so many hospitals, doctors, nurses, and administrators around the globe functioning as “foreign officials” for FCPA purposes, it has never been more important to appropriately analyze the relationships with such individuals prior to engaging them. Not necessarily because they are corrupt, or are seeking a bribe, but because such dealings are galactic-sized beacons for SEC and DOJ scrutiny. These relationships within the pharma industry make prosecutors lick their lips— so to insure that they don’t get the full three course meal, make certain that your diligence is truly diligent, and has been thoroughly documented.
Fourth: Consider for a moment the appearance of immorality of which GSK has been accused.
GSK has been accused of showering officials with $489mm worth of gifts and bribes, lining their pockets and cooking books – but who really paid for these massive bribes and subsequent profits? The people of China did. The costs of such actions were passed onto the consumer, and not within the scope of entertainment such as movie tickets or luxury goods, but vital healthcare needs. Inflated prices for medicine could have possibly caused enormous hardships for individuals, as well as insurance companies. This isn’t to say that any bribery isn’t always morally wrong in the eyes of DOJ and SEC, but the relative after effects on the infirmed will surely light the burner under caring federal prosecutors. Such acts that carry implications of inhumanity will surely garner much unwanted attention and scrutiny, and will increase the probability of intensive government investigations.
Danyal Solomon is a Global Diligence Consultant at Kreller. Coming from a strong Turkish descent, he hails from Tucson, Arizona, and received his Bachelor's Degrees in Political Science and Middle Eastern Languages at Columbia University in New York City. After graduating, he moved to Egypt to work as a Market Researcher at Microsoft, and then promptly watched his Cairo apartment burn on his flight back to New York during the Egyptian Revolution in 2010. He has since moved to Northern Kentucky, and enjoys renovating and refurbishing his home. Danyal is fascinated by laws, language, and culture, and is an avid traveler fluent in Arabic, Spanish, English, and Baseball.
Due Diligence Professionals Share 5 Compliance Tips on How to Achieve Compliance Greatness
The new compliance field is constantly evolving, refocusing, and reassessing its role in modern business. Since delivered Due Diligence Investigations before the term "Compliance Professionals" even came about, we've been uniquely positioned to witness fleeting trends, to long-lasting, attorney-implemented, "best practices," giving us a holistic perspective in the industry. Hence, five of our Due Diligence professionals have each shared a short insight on what they perceive as one of the effective actions when creating and maintaining a strong Compliance Program. You know, the kinds of actions that their most innovative clients are taking.
From the our visionary Vice President, Scott Shaffer, to our strategic consultants, we've collected an array of expert perspectives. And while implementing and maintaining a robust Compliance program certainly requires more than merely abiding by these 5 tips, we know this is a great place to start:
1) Assess your Risk:
John Batchelor, International Diligence Consultant
Take a hard look at your exposure, determine where the greatest risk lies in conjunction with the FCPA and create a metric that can be consistently followed by you and your compliance staff. A risk assessment should include:
2. Dollar Value
3. Governmental Exposure
4. Nature of the Relationship/Line of Business
Then, have a diligence or investigative approach for each level that corresponds to the level of risk.
2) Get Leadership on Board
Josh Logan, Senior International Diligence Consultant
Strive to get your business units on board with the importance and understanding of a strong compliance program. Your compliance program can be top notch but if you don’t have the support of the entire company, starting with the leaders on down to the various business units— your program will never work. Begin with the executives and board of directors, and then work down. Tone at the top is essential.
3) Make Training & Enforcement On-Going
Tom Engelhart, International Diligence Director
Training: Well-trained employees are the first line of defense in the anti-corruption setting. While it is tempting to train employees once, effective training requires an ongoing commitment. As an initial step, each relevant employee should receive training tailored to the company's geography, industry and structure. Thereafter, the company should follow up with routine anti-corruption updates to its employees as part of its overall continuing compliance education. Finally, the company should institute periodic employee certifications documenting completion of anti-corruption training and inquiring whether they are aware of any compliance issues.
Enforcement: The company's compliance program must have teeth to be effective. It is important that the program identify sanctions, up to and including termination of employment, for employees who fail to comply with the company's policies and procedures. Of course, the company must then have a record of implementing such enforcement provisions. This of course requires buy-in from the board and/or senior management, which Josh Logan has mentioned, above.
4) Actively Engage your Third-Parties
Scott Shaffer, Vice President
Encourage your third parties to be engaged in the due diligence process by making sure they complete requested documentation (applications, consents, compliance training, etc) in a timely manner. If your current vendors refuse to participate, it could be a sign that their methods are not compliant.
5) Implement & Maintain a Reviewing Process
Josh Lyons, Senior International Diligence Consultant
Having great relationship with a vendor does not guarantee forever. When implementing a compliance program, conducting proper due diligence isn’t a one-time deal. Rather, it’s imperative to keep track of your relationships by committing to a renewal process. You never know what can change in a few years, so spot-checking from time to time is critical in maintaing your company’s reputation.
That said, make sure the review process is not merely an empty paper policy. If the review process is only a casual procedure, it’s essentially worthless. It’s critical to not only review often—but review well.
Finally, while reading these secrets alone will might not secure you as the Greatest Compliance Professional alive, if you actually implement these steps with persevering discipline, you will see results, and certainly establish yourself as a forethinker in a profession that has yet to fully arrive.
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Government Serveillance & Anti-Corruption Compliance
Businesses and private citizens once took it for granted that their phones, emails, and inter-offices were private and secure. However, after recent news events, many are now questioning if those means of communication could now incorporate a third-party—the government. Those concerned with the FCPA and other Anti-Corruption compliance laws should also wonder what impact will these recent discoveries potentially have.
Surveillance News Summary
Late last week, the British Newspaper, The Guardian, revealed that The Obama administration has been collecting telephone records from U.S. Verizon customers under a top-secret court order obtained in April. This order allows the government to obtain metadata: phone numbers on both sides of the call, call duration, location, date, and time of call. Still, the order has yet to allow the government to listen in on the calls or gain further data, without going through proper consents and channels (ABC).
The purpose of acquiring this information, according to Mark Rossini, a former senior FBI official detailed to the CIA, would be to collect numbers in a massive database to merge and compare with others that the NSA picks up. The NSA would then use that information to look for patterns of activity related to subjects of U.S. investigations. “This pertains to terrorism, spying, industrial espionage, cyber, etc.” said Rossini. “This is all done to keep America safe and economically secure and ahead,” he added. The response from Verizon, was boiler-plate but at no point denied the veracity of The Guardian’s claim, “Verizon continually takes steps to safeguard its customers’ privacy. Nevertheless, the law authorizes the federal courts to order a company to provide information in certain circumstances, and if Verizon were to receive such an order, we would be required to comply” (ABC).
The Guardian also released another article claiming that the NSA has “direct access to the systems of Google, Facebook, Apple, and other US Internet giants.”The access is part of a previously undisclosed program called PRISM, which allows officials to collect material including search history, the content of emails, file transfers, and live chats, the document says.” The article continues, “The law allows for the targeting of any customers of participating firms who live outside the U.S., or those Americans whose communications include people outside the U.S. It also opens the possibility of communications made entirely with the U.S. being collected without warrants.” Believe this or not, this is more alarming than Verizon scandal, as unlike the Verizon scandal where only metadata is being stored, “this surveillance can include the content of communications” (The Guardian).
What companies are involved in PRISM? Micosoft, Yahoo, Google, Facebook, PalTalk, YouTube, Skype, AOL, and Apple. “The extent and nature of the data collected from each company varies,” says The Guardian. The article goes on to say, “Companies are legally obliged to comply with requests for users’ communications under US law, but the PRISM program allows the intelligence service direct access to the companies’ servers.” The PRISM program, renders any form of consent unnecessary, and “it allows the agency (NSA) to directly and unilaterally seize the commination off the companies’ servers”(The Guardian).
The document obtained by The Guardian indicates it was created in order to overcome “shortcomings of FISA warrants in tracking suspected foreign terrorists.” The implication is that “because FISA required individual warrants and confirmations that both the sender and receiver of a communication were outside the US” that it delayed or limited their ability to enforce the law. The article then further explains the extent to which these various governmental agencies, FBI, CIA, and NSA, are involved or implicated in the PRISM program (The Guardian).
Finally, in an article written last Friday by the American Spectator, we learned about a spy satellite run by the NSA, United Kingdom, Australia, New Zealand, and Canada. This satellite, “scans millions of phone calls, e-mail message, and faxes each hour, searching for keywords.” The most interesting part of the article was its specific implication in FCPA enforcement. “A February report by the European Union alleged that Echelon has been used for economic espionage. Former CIA Director James Woolsey told a German newspaper in early March that Echelon collects “economic intelligence.” One example Woolsey gave was espionage aimed at discovering when foreign companies are paying bribes to obtain contracts that might otherwise go to American Companies. Woolsey elaborated on his views in a condescending March 17 Wall Street Journal oped, justifying Echelon spying on foreign companies because some foreigners do not obey the US Foreign Corrupt Practices Act.”
How could this affect Compliance Professionals?
So why am I writing about this on a blog that focuses on anti-corruption and compliance? Because, while it currently doesn’t play a factor, it could potentially play a factor in the way that Anti-Corruption and FCPA related laws are enforced and prosecuted. Currently, the bulk of cases prosecuted by the DOJ or SEC come as a result of whistleblowing. However, in the future, with the capability of the government to sort through phone records, the contents of emails, Facebook, Skype, Google, etc., without a warrant, could they come from another sources? Could companies be targeted? Will enforcement change?
Currently it takes months or years to develop a solid FCPA case and most of those end up with fines and some type of penalty. Could that change to a new way of enforcement where the government targets a company, identifies corruption, gathers evidence, and instead of going through the motions, simply calls them to schedule a meeting, slapping a fine and a series of actionable tasks for the company in question? It’s not happening now, but that is a question. And, fine, let’s take a step back; let’s assume that will never happen. Under the FCPA we focus on anti-bribery, however, with our current emphasis on national security, I think there is a serious question to ask for any company that operates in high CPI areas where terrorist cells or money laundering outfits to terrorist cells operate. How well do you know your agents? How well do you know their relationships? How well do you know the companies they are affiliated with? Are there red-flags that low-level DPL type screenings might not uncover? I am not trying to scare anyone but at the same time, there is a tremendous amount of information available to governmental agencies. It’s imperative the companies and individuals protect themselves with as much information as they can.
John Batchelor is an Investigative and Anti-Corruption Consultant at Kreller Business Information Group, Inc. His current clients include Oil/Gas, Defense, Energy, Software, Pharmaceutical, Medical Device, and Outside Counsel. If you have any thoughts or questions please feel free to email him at firstname.lastname@example.org
Five Tips: When to Grant International Credit
Five Tips for Credit Managers
Navigating International Credit
While many of us are detail-oriented, it’s safe to say that no one reading his has the ability put together the details like the infamous Sherlock Holmes. Still, Sir Arthur Conan Doyle makes an excellent point: focusing on the smallest minutiae, one can make any mystery transparent. This is especially true in the world of Credit Managers. Approached daily to extend credit often up millions of dollars to unknown companies worldwide, knowing the right details up front can save their company time and money.
In my twenty years in Credit and Collections, I’ve run across some “clues” that can help in setting up your international accounts. Here’s a five easy tips to avoid collections:
1. Notice Business Cards & Letterheads.
The very name of a company does not seem like it would pose much of a problem, but considering the complications that ensue with language barriers, and multiple names for the same entity, it sometimes becomes one. Especially when it comes to international accounts, knowing the company’s name in its native language can make a dramatic difference in correctly determining exactly who you are dealing with.
For instance, often a Chinese company will have a generic English name, such as “Good Harmony Enterprises” for trading purposes abroad, but have an entirely different name in terms of how it is legally registered in its own country. To complicate matters, the correct legal name is usually in Mandarin or Cantonese characters, something most American Credit Managers just can’t “jot down.” This also occurs in the Russian Cyrillic spelling of some companies.* Even with our neighbor, Canada, a trade name rarely resembles their registered one, and often begin with a series of numbers, such as “657543 Ontario Inc.,” trading as “Enterprise Semiconductors.”
*Also, side note, many Russian firms’ legal names begin with the letters OOO (Limited Liability Company).
An easy solution to this problem is to keep copies of the company’s business card or letterhead. 9 times out of 10 it will have the company’s name perfectly captured, speeding up the credit investigation. Also, adding a line for a subject’s Legal Name and then a separate one for their DBA on the credit application can help you get the complete information to begin with.
2. Release Your Name in Mexico.
I would actually apply this advice to all of Latin America—but especially in Mexico. Sadly crime in these areas has become a real issue for many businesses. Consequently, many family-owned companies are very suspicious and (understandably so!) not to give out balance sheets with their net worth on it to a third party credit agency. How do they know if that information will be used to kidnap a family member or rob their business? What if the information is put on a public forum and then criminals use that information to target them? In this region, we have a much higher rate of obtaining balance sheets by suggesting the client email their contact at the company, and letting them know upfront that the “specific name of the credit agency” will be calling them by the due date of the report. Then, let the credit agency know that they are to release your name during the investigation. By doing this, the reporting agent can then assure the Latin American company that they are simply verifying financial data for this particular deal with your company. Also—as in Kreller’s case—we’ll be sure to tell them that the report is exclusively for our clients eyes and will not be sold to the public. Often this is the confirmation a private company in Latin America needs to hear before they feel comfortable to release the numbers you are seeking to make your decision.
3. References Should Match Exposure.
I would recommend asking an international company to supply you with 5 references—including some that are within the United States, with the same range you are being asked to extend. In our investigations we call the trade references on the credit applications and find out that even though our client wants a recommendation for $100,000, the highest credit extended on any of them is $5,000! Why should our client be the lucky one to be first in line to grant them a credit line of that size? Also, the inability to provide a U.S. reference might also confirm that you are first on the chopping block. It is O.K. to refuse to grant a company credit for a certain amount if they cannot provide you with a reference in the same exposure range that they are asking from you.
4. Obtain Tax IDs.
One easy item to add to your credit application is to ask for the Tax ID number of the subject company. Often we find 4-5 companies with similar names all at the same address and phone number—yet all of them are registered legally separate from the other (not liable for the other’s debts). Not only can this help make sure you get a credit report on the correct company, but it can also correctly assign liability if the bills are not paid. I have seen where companies use their grouping of “companies” (basically just registering several name variations) as a corporate veil l to hide behind, and “closing” the name that has the most debts under it!
5. Cover Yourself: Have a Signature Under Terms.
Lastly, ask for a signature at the bottom of your credit application with the terms that protect you internationally. Your inside legal counsel is a great reference to turn to when creating this. Some wording could state that if the debtor defaults in payment that collection and legal costs in that country are their responsibility. You could ask them to agree to cooperate with any credit information sought by your company or credit agency on your company’s behalf to grant them a credit line. If you are dealing with a sole proprietorship, a personal guarantee form may be added if the debt amount is large and the owner IS the company. Next to the written signature, ask for a typed name and title and date so you can actually read who signed it. The signer is also a good name to give the credit agency to ask for in their in country interview as the person requesting credit has more of a desire to cooperate than the receptionist who answers their phone! Suppose if the salesman presses you for open terms on a large sum and the controller signs the credit application with the above terms on it – but then still refuses to give out the balance sheets. You’re now fully justified to go secured as they have not met the terms you have set forth upfront in writing.
As the famous novelist Gustave Flaubert once said; "Le bon Dieu est dans le détail" (the good God is in the detail) or as we Americans like to say “The devil is in the details.” By pinning down the right details early, most things are made clear.
Have any questions? Want information?
Jennifer Hudgens, VP in Kreller’s Credit and International Collections Division, joined the company 20 years ago – soon after obtaining her B.A. in Psychology at the University of Cincinnati. She quickly found the international marketplace a fascinating and relevant vehicle for studying human behavior and world cultures – giving her unique and insightful leverage in her field. She now guides clients in obtaining current and dependable international credit information, along with consulting customers in pursuing foreign debt. You can contact her at email@example.com.
China & Corruption: New Laws, Old Ways
Despite corruption permeating China's higher ranks, recent laws and enforcements by the Chinese government have prioritized combating corruption and bribery. Several months ago, on December 26, 2012, China’s highest court publicized official guidance and interpretation of the Chinese criminal bribery law.
With a new layer of international laws for compliance professionals to navigate and consider, fresh questions arise. Most notably: will the Chinese government actually enforce these laws? And does it mean real risk for multinational companies conducting business in China?
A recent article by Robert H. Iseman, from Foley & Lardner LLP in Chicago, suggests that these new laws could mean more risk. To summarize some of his thoughts, we’ve listed four reasons why companies conducting business in China must be vigilant. And while some enforcements suggest that China’s new laws could have the potential to clean up the country’s long-standing corruption in government, caution and experience suggest that recent actions only concentrate fraud at the higher levels.
1. China’s culture is entangled in corruption. Mike Volkov did not exaggerate when he once dubbed China as the “Corruption Problem Child.” Responsible for one-third of FCPA criminal cases, bribery is built into the modern Chinese economy, and as Volkov notes, it’s a remnant of the communist system where the black market was integral for survival. Accustomed to providing basic services and products through bribes, corruption pervaded the culture, setting a precedent that makes bribery still acceptable. And as China’s heritage mingles gift-giving and favor-exchange with business—the lines of bribery to a foreigner can be blurred.
Additionally, government employees are integrated in every facet of Chinese life; many businesses and even entire industries are owned by the state or controlled by the state. For instance, since government owns all hospitals, virtually all medical employees are government employees—and there’s no difference from bribing them vs. any other “government official.”
Hence, China’s very culture is almost a set-up for FCPA violations and other anti-bribery enforcements from abroad. Robert Iseman states, “In fact, it has been reported that Chinese companies trying to operate in other countries have been surprised to find that bribery is not a common pre-requisite to doing business, and are wary of dealings in which their position has not been secured by bribes.” In other words, some Chinese businesses do not know how to operate without corruption.
Just a handful of recent FCPA enforcement actions from China include Pfizer-Wyeth, Maxwell Technologies, IBM, Biomet.
2. Even with new guidance, China’s anti-corruption laws remain vague, increasing subjectivity.
China has two different anti-corruption statues: (1) Criminal Law: The People’s Republic of China Criminal Code, and (2) Commercial Law: The People’s Republic of China Anti-Unfair Competition Law. The first statue, the Criminal Law, contains the amendment that prohibits the bribery of foreign government officials and international public organizations, often nicknamed “China’s FCPA.” It is this amendment for which China’s highest court has recently provided guidance.
It is clear that each statute prohibits bribery, but the legislation is unclear to define what constitutes as bribery. Even with the recent official guidance, the government still fails to define the difference between “a serious case” or “a very serious case.” This vagueness creates subjectivity, giving Chinese authorities a broad interpretation of what to prosecute, while inhibiting well-meaning businesses’ efforts to create structure or rules preventing violations.
3. China’s enforcements are inconsistent. Often enforced out-of-the-blue, and after years of ignoring the alleged violations, Chinese law enforcements usually include severe punishment. Courts also tend to be biased towards political or private interests, as the vagueness of the laws can trigger “political motivated enforcement” that are not only inconsistent, but are often harsh and sudden.
4. The new anti-corruption focus might trigger an intense zeal for show. Xi Jinping, the Chinese Communist Party’s new General Secretary has publically made corruption-fighting a priority since he’s entered office last November. He fervently states that corruption needs to be fought at all levels “from the tigers” (high-level officials) “to the flies” (low-level officials). And while his leadership has provided international news with flashy, licentious tales of officials’ debauchery lost in wealth and sex, it seems as if he’s catching more low-level “flies” than tigers, albeit colorful flies fit for headlines. And rather than fight real corruption in his government, he perpetuates it—suppressing the voice of the people as he privately amasses his own personal fortunes.
While China is taking new anti-bribery initiative, the laws are vague and prosecuted almost randomly at the whims of politics. Meanwhile, as the government allegedly seeks to fight the depravity of minor violators, the leaders continue to suppress the voice of the people. This, mixed with China’s culture of bribery, shows that corruption laws are neither applied fairly or consistently, and consequently could make business endeavors in China even more risky for foreigners. Nevertheless, with 1.3 billion people, China still bounds with financial opportunity and potential prosperity; and with proper vigilance and due diligence, working in this country can transform your company's bottom line. Just stay compliant.
Have any thoughts or questions? Working with China? Contact us today.
Compliance, Listen to your Employees.
Last week, FCPA and Compliance expert, Tom Fox, wrote an article on how to "Spice Up" Compliance Training, in an ambitious twenty minutes. He talks about how Joel Katz, the Chief Ethics and Compliance Officer (CECO) at CA Technologies recently shared his experience in Compliance Week Magazine, titled, "Putting Together an Action Plan for Compliance."
After his company went through a compliance investigation, Katz implemented a top-tier compliance program, and worked hard to intensively trained his employees. However, he soon realized that his employees were tuning out his compliance messages, suffering from "compliance fatigue." Realizing that nothing was actually changing, Katz worked to discover why, and conducted his own investigations. After a while, he was able to discover that the compliance complaints could be boiled down to the following four concerns:
1. Compliance training in itself was ineffective.
On a whole, the compliance training was too intangible. Asides from being to long, or too esoteric, the training wasn't relating to peoples day-to-day jobs. The employees wanted a more down-to-earth, practical approach. They wanted training that was integrated in their everyday, training that begged to answer the question: What does this have to do with me?
2. Compliance was lost in translation.
It's easy to forget that just because someone is fluent in English, doesn't mean that their training should be exclusively in English. The employees who were located in non-English speaking areas in the world thought that the message would better resonate in their own language. As compliance could easily become a convoluted subject, it's imperative that employees of different cultural backgrounds see this as something real, and not just more words from a different area of the world.
3. The role of compliance wasn't clear.
Essentially, no one knew what compliance did. So in turn, the employees really did not know what to do with compliance. How did a compliance professional spend their day? Were they legal? Were they HR? Were they government? They "lacked any real visibility" with the compliance issues that company was encountering.
4. Compliance seemed distrustful and condescending.
Another concern is employees' skepticism and distaste for compliance in general. Frankly, it felt "preachy." They felt that Compliance was an "ivory tower," and that the rules that were written in a way that made it seem that they did not trust their employees.
Steps towards better compliance communication.
In light of all these insights, Katz took action. His responses were as follows:
1. He made the compliance pitch more relevant to his employees. Ditch vendor training, and use internal resources. Focus on training on issue spotting and awareness. People have little care when a person is just showcasing their expertise, unless it directly applies to them.
2. Compliance training communications became creative and entertaining. For instance, the company illustrated a fictional character called "Griffin Peabody" for all its courses and awareness campaigns. Also, to help with logistics, he had HR departments assist in training, as well as the company communications team and leadership to make sure that the tone hit the note, as he wanted to eliminate "preachiness."
3. He kept it short. 25-minute sessions. Max. "We would rather have two 20 minute courses than one 40 minute course." As he realized that after twenty minutes, attention vanishes.
4. He published a quarterly newsletter. In order to effectively communicate what compliance did, he gave his employee updates. He included real, tangible stories of employee compliance issues that had happened within the past few months (changing names, of course), so his employees understood the relevancy, and really could sympathize with the compliance force--and not feel like an object of it.
The New Compliance Program Results?
Of his employees, Katz said that "they particularly liked reading the real-life cases and learning about how the company resolved these cases. Not all compliance officers agree with providing this level of transparency to employees, but our experience has been, thus far, very positive."
And to conclude with Tom Fox's input: "Employees can be your first and many times, best line of defense from a compliance issue becoming a full borne Foreign Corrupt Practices Act or other legal violation. Giving them tools to know when and how to raise their hand when something does not make sense is more important that droning on about the elements of a FCPA violation."
And while implementing these strategies might take a while (certainly more than 20 minutes), we feel that one phrase will simplify them all:
Don't just listen to your employees, understand them.
To read more from Tom Fox's blog, please go here: http://tfoxlaw.wordpress.com/2013/04/17/got-20-minutes-spicing-up-compliance-training/
Easy tips: Trying to Collect from a “Catfish Debtor."
Asset Recovery Specialist Reveals Tips From Reality TV
If you haven't seen the show Catfish: the TV Show, it's worth at least one watch for their online search techniques (and discoveries). The host, Nev Shulman, uncovers real life “Catfish” who try to lure in romantic online relationships by using false bios full of fictitious athletic hobbies and model-caliber pictures. Nev is contacted by people becoming concerned that they are not getting the true story from their online relationship and they want to know the truth before they invest anymore. Results are mind-blowing. He finds women posing as men, 12 year old boys trying to pick up 35 year old women, fake IDS created just to get revenge against someone, etc.
Now, what blows my mind is that the same premise takes place in Accounts Receivable departments across the nation.
I have a personal rule that I will only spend 5-10 minutes trying to locate a missing debtor before I hand it over to my collectors. I am always shocked what I am able to figure out in only 5 minutes using common, free search engines. While my tips below might seem like common sense to some, they might serve as great refreshers that could save you substantial time and money.
Let me share some tips on where you can start.
Online Records for Criminal Activity…
One client of ours recently had sold a printer and expensive fax machine to a tax service company who did not pay their bill. She placed the debt with us, but we found that the phone rang and rang with no answer. Before giving the file over to our collector, I looked for the owner online (who was listed as a CPA on our client’s paperwork.) She had an unusual name, and when I Googled several different variations of her name in the small town in question, I eventually found her arrest and conviction record—prison mug shot and all. She had been arrested 6 months prior for illegally representing a financial institution, practicing as a CPA without a license, stealing identities from Social Security numbers, and oh yeah, driving a stolen car! I found this in 5 minutes using a standard search engine. I wondered what happened to our client’s equipment. I then found a government announcement for an auction of unpaid storage lockers in that town to be held in the next 30 days. I searched the document with her name and found two of her unpaid storage lockers! Perhaps the unpaid for equipment was not in the locker and had already been sold before the debtor was convicted, but it was at least a lead for our client’s sales agent to show up at the auction and check it out.
Another case involved a deli that our client could no longer reach. The deli had been a good client for many years making steady payments on large balances, then all of a sudden the phone number did not work and they could not find the owner. I found an old Facebook page for the deli and it looked pretty large and prosperous. I did Google Earth for the address and went to a street view, but the photo had been taken with poor resolution, so I could not see a For Sale sign. About to give up, as I was approaching my 10 minute limit rule, I just put in the conversational sentence "Whatever happened to “Bob’s Deli” in city, state?" I found a chat forum from that town where someone had asked the same question a month prior. Another in the chat room responded, “I know, right? I was there yesterday, and there was an out of business sign on the door. I heard from the dry cleaners next door that they had been having troubles financially for the last year, and dude left town! Shame…I’ll miss their such and such sandwiches.” I also have found Google Earth to be very helpful in finding addresses of businesses next to the debtor’s company by dragging the yellow man icon around the debtor address in slow circles. You then call those companies and ask what they know. Adjoining businesses often have the scoop on their neighbor’s whereabouts, still pick up their mail, or know where the debtor has gone. Sometimes we find they simply moved to a new location, and we are able to get the new contact information from their old neighbor.
Use Google Image to match photos and signatures…
Sometimes the creditor themselves is the catfish …. I had a file sent to me recently for $480,000 by a potential client who found our website online. I was told this was a loan agreement that had not been honored. The first thing I noticed right away was the blurry four signatures at the bottom of the loan agreement. The debtor signature did not match at all. Say his name was Benjamin Johnson-the signature looked like “Emil”. The witness signatures were illegible and the creditor’s signature. Boy …that really looked familiar to me. I actually said out loud-“I have seen this before..” It really bugged me that I could not place it right off, so I used Nev Shulman’s great trick from his show and copied the signature to Google Image to see if I could find a match. I did get an identical match - for President Barak Obama. Sigh.
I also find when contacted to do a project from an overseas company, I will find the website of the company and copy the email I received and send it to them asking if that individual works for them. Fifty percent of the time they do not. Delete!
Don’t Judge a Book by Its Cover, But you Can Judge an Email by Its Grammar...
Other things I have found to look for in scam artists contacting your company for a sale… how strong is the English and grammar in the email? Is it terrible English but then signed with a British or American sounding name? Is the email for them ending in yahoo or hotmail instead of firstname.lastname@example.org? Many email scams are obvious fakes that you delete right away (just wire the money to my Nigerian bank account…), but I find much more sophisticated approaches coming at me lately where it does take a few minutes to rule it out.
Department of Corporations in the State...
If you cannot locate a company that owes you funds you can also look at the Department of Corporations in the state the debtor is based in and see if the company is still in good standing and who the registered agent is (often an attorney). You can call the attorney and let him/her know you cannot reach the debtor and what is going on. Sometimes payment can be arranged through the registered agent.
I hope you found a useful tip for your own 5 minute sleuthing to make your debtors pay or just get rid of another catfish wasting your time!
Jennifer Hudgens, VP in Kreller’s Credit and International Collections Division, joined the company 20 years ago – soon after obtaining her B.A. in Psychology at the University of Cincinnati. She quickly found the international marketplace a fascinating and relevant vehicle for studying human behavior and world cultures – giving her unique and insightful leverage in her field. She now guides clients in obtaining current and dependable international credit information, along with consulting customers in pursuing foreign debt. You can contact her at email@example.com or contact us to place an international collection here: