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FinCrimes Webinar Series Recap: The Role of Corruption Risk in a Financial Crimes Compliance Program
BuckleySandler hosted a webinar, The Role of Corruption Risk in a Financial Crimes Compliance Program: What are Banks Doing to Detect Corruption in the Wake of the FIFA Scandal?, on September 24, 2015 as part of their ongoing FinCrimes Webinar Series. Panelists included Thomas Coupe, EMEA Global Financial Crimes at Bank of America Merrill Lynch; and Compliance; Gaon Hart, Global Anti-Bribery & Corruption Policy and Education Lead at HSBC; and Denisse Rudich, Financial Crimes Compliance Specialist at Firedrake Consulting. The following is a summary of the guided conversation moderated by Jamie Parkinson, partner at BuckleySandler, and key take-aways you can implement in your company.
Best Practice Tips and Take-Aways:
- Corruption risk for a financial services firm is presented both directly and indirectly. Corruption risk is presented directly when an employee or third parties acting on behalf of an institution act in a way that implicated anti-corruption laws, such as the Foreign Corrupt Practices Act, U.K. Bribery Act or another anti-corruption law. Corruption risk is presented indirectly when a customer seeks to use a financial institution for a corrupt deal or to hold or transmit funds associated with a corrupt scheme.
- It is important to have one person your organization can look to when an anti-corruption concern arises. This person should serve as the point of contact for your regulators and have the ability to quickly escalate concerns to senior management and the board of directors.
- New customers with past corruption issues present special challenges. Be sure that your onboarding and due diligence processes are able to identify and evaluate these concerns.
- Bear in mind that corruption risk management also requires looking at your organization internally. This means examining your own employees for conflicts issues, evaluating your organization’s sponsorships and donations, and performing due diligence on your third-party suppliers.
- Effective anti-corruption risk management requires cultivating a culture within your organization that supports your efforts. This is an area that regulators are increasingly interested in.
Structuring an Effective Corruption Risk Management Function
The panelists began the session by discussing where best to locate corruption risk management within a bank. The panelists observed that corruption risk management differs from other financial crimes areas, such as anti-money-laundering, because it is more inwardly focused. Panelists commented that, for some institutions, corruption risk management might be a better fit with areas that deal more with the culture of the organization, such as reputational risk and conduct risk. One panelist observed that the regulators have been increasing their focus on the culture of organizations, heightening the importance of this aspect of corruption risk management.
The panelists discussed the most efficient way to structure an organization’s anti-corruption standards. Generally, the panelists agreed that it makes the most sense to develop centralized standards based on the most stringent anti-corruption statutes, such as the FCPA and UK Bribery act. This approach will help account for the extraterritorial application of the FCPA and UK Bribery act. The panelists recommended developing add-on standards that apply in countries where there is a local statute with additional requirements. In particular, the panelists observed that local statutes may provide different rules for entertainment expenses and facilitating payments.
The panelists observed that corruption-risk screening should be integrated into the onboarding process for new customers. In this area, it is important to consider the differences between Public Officials (“PO’s”) and Politically-Exposed Persons (“PEP’s”). One key issue to be aware of is that screening tools and databases designed to identify PEP’s may miss lower-level PO’s. PEP screening tools may also miss State-Owned Enterprises; for example if the government owns only a small share of the company. Therefore, it is important to look closely at new customers and suppliers to identify if there are indirect links to government officials, or if the company has a history of working closely with the government, or if the company’s beneficial ownership raises any concerns.
One of the panelists observed that a new customer with past corruption issues presents special concerns in the due diligence process. Here, robust due diligence is needed to assess what changes the customer has implemented since the corruption issue came to light, and whether they have cooperated with the authorities and/or compliance monitors. Heightened monitoring should also be put in place for these customers.
Responding to a Corruption Concern
The panelists discussed how to respond when the bank receives news that a counterparty or a customer may pose a corruption risk. Here, the panelists agreed that it is important to have a well-thought out and comprehensive incident response plan in place. This plan should:
- Identify who in the organization is the designated point person for coordinating the response. This person should serve as the contact point for regulators, and be able to quickly escalate issues to senior management and board of directors. Along these lines,
- Specify who is to be notified of the issue and when. The panelists stressed the need for the incident plan to also address reputational risk to the bank.
- Lay out steps that allow the bank to determine if the corruption risk affects the bank, and if so, to what degree. This will involve using databases to search for names of both corporate and individual customers. This will also require setting up suspense accounts if needed and reporting these accounts as appropriate. After addressing the funds on hand within the bank, it will be necessary to perform a historical look-back for suspicious transactions.
The panelists also discussed how to respond to corruption concerns that arise from within the organization. The panelists observed that AML monitoring tools will often detect transactions that may present a corruption risk. Therefore, it makes sense to have close communication between the AML function and corruption risk management. The panelists concluded the discussion by observing that corruption risk should become as central to a bank’s business function as credit-risk has been traditionally.
FIFA Investigation Ensnares President Blatter
After months of speculation about potential legal ramifications for FIFA President Joseph (“Sepp”) Blatter, the Office of the Attorney General of Switzerland announced that Mr. Blatter is the subject of criminal proceedings in that country. The allegations include criminal mismanagement related to a contract with the Caribbean Football Union that was purportedly against the interests of FIFA, as well as misappropriation related to a payment to the President of the Union of European Football Associations (UEFA). The Office of the Attorney General also reported that Mr. Blatter was interrogated and his offices were searched.
Previous FCPA Scorecard coverage of this investigation can be found here.
FIFA Investigation Expands In Scope; Former FIFA VP Extradited to United States
On September 14, U.S. Attorney General Loretta Lynch announced that the DOJ is expanding its FIFA investigation to pursue additional charges against individuals and companies. AG Lynch made these comments at a press conference in Zurich with Switzerland’s Attorney General, Michael Lauber. The DOJ has been working closely with Swiss officials in its investigation, and has charged 14 FIFA officials with racketeering, wire fraud, and money laundering.
Additionally, on September 17, the Swiss Federal Office of Justice approved the extradition of Eugenio Figueredo, a former vice president of the South American Football Confederation and former vice president of FIFA, to the United States. Figueredo was one of seven defendants fighting extradition from Switzerland. In July, Jeffrey Webb, a former vice president of FIFA, agreed to be extradited to the United States, but the remaining five defendants are awaiting decisions on extradition.
Previous BuckleySandler coverage of this investigation can be found here.
SEC Opens FIFA-Related Investigations
Although not yet confirmed by the SEC, media reports suggest that the SEC has opened several investigations of publicly traded companies who contracted with FIFA. Indictments in the FIFA cases have alleged that certain companies paid kickbacks to officials of FIFA and related organizations in order to win marketing and apparel contracts. The specific companies targeted in the SEC’s new probe have not yet been named. Without the apparent involvement of a foreign official in the FIFA cases, presumably the SEC will be focusing on the books and records and internal controls provisions of the FCPA, along with other potential violations.
Previous BuckleySandler coverage of this investigation can be found here.
FIFA Investigation Update: First FIFA Official Extradited to United States
On July 15, after 50 days of detention, a high-ranking FIFA official widely reported to be former FIFA Vice President Jeffrey Webb was extradited from Switzerland to the United States. Webb ultimately agreed to be extradited despite initially contesting his extradition at a hearing following his arrest. Six other FIFA officials arrested in connection with DOJ’S corruption investigation are continuing to fight extradition. The Swiss Federal Office of Justice is overseeing the extradition proceedings.
All seven officials were formally indicted by the DOJ on May 27.
Previous BuckleySandler coverage of this investigation can be found here
FIFA Investigation Updates: Plea Agreement with American FIFA Official Unsealed
On June 15, the U.S. District Court for the Southern District of New York unsealed a 2013 plea agreement under which American FIFA Executive Committee Member Chuck Blazer secretly pleaded guilty to ten charges related to corruption in the soccer organization. Mr. Blazer agreed to forfeit more than $1.9 million, and to pay back-taxes and penalties on more than $11 million in unreported income.
According to the plea agreement, Mr. Blazer began cooperating with the DOJ’s investigation in December of 2011, even agreeing to work undercover making secret recordings. The unsealing of the plea agreement is the latest development in the ongoing fallout from the racketeering, wire fraud, and money laundering indictments announced three weeks ago by the DOJ against soccer executives at FIFA and others tied to the organization. Mr. Blazer’s testimony at his plea hearing in November 2013 was unsealed two weeks ago.
FIFA Investigation Updates: President Resigns Amidst Corruption Probe; Interpol Issues Red Notices For Six
On June 2, continuing the fallout from the racketeering, wire fraud, and money laundering indictments announced last week by DOJ against soccer executives at FIFA and others tied to the organization, FIFA President Sepp Blatter announced his resignation, less than a week after being re-elected to lead soccer’s governing body. It has been reported that Mr. Blatter is the focus of the same federal corruption investigation. Blatter’s announcement was a reversal from his remarks after winning re-election, stating then “Why would I step down? … That would mean I recognize that I did wrong.”
One day after Blatter’s announcement, Interpol issued Red Notices for six individuals linked to the FIFA corruption investigation, including for two former FIFA officials. The two former FIFA executives, Jack Warner, a Trinidad & Tobago national and former FIFA vice president and executive committee member, and Nicolás Leoz, a Paraguayan national and former FIFA executive committee member, have been arrested in their home countries. The other four Red Notices, which alert Interpol’s member nations that arrest warrants have been issued by a judicial authority (here, the United States) and seek the location and arrest of wanted persons with a view to extradition, were issued for four South American nationals and corporate executives.
DOJ Indicts 14 In Global FIFA Corruption Crackdown, Announces 6 Guilty Pleas
The DOJ on May 27 unveiled indictments in one of the most sprawling, long-running alleged corruption rings in recent decades, charging nine executives of FIFA or related soccer governing bodies, as well as five sports marketing or broadcast executives, with racketeering, wire fraud, and money laundering. The defendants were charged with offering and accepting over $150 million in bribes and kickbacks over a 24-year period related to the media and marketing rights for soccer tournaments. In addition, the DOJ unsealed guilty pleas previously entered by four individual and two corporate defendants.
Seven of the defendants were arrested in Switzerland as a result of U.S. arrest warrants, pending extradition, continuing the trend of international cooperation between U.S. and foreign anti-corruption enforcement agencies. Continuing a different trend, one of the individuals who pleaded guilty was a former FIFA executive who acted as an informer for the DOJ, including by taping key conversations.
While the indictment mainly concerned media and marketing rights, at least one reference was made to alleged bribes related to voting for World Cup host countries, and the Swiss government announced an inquiry into the awarding of the 2018 and 2022 World Cups. Additional charges appear likely to be brought in the future, whether by the U.S. or other jurisdictions. The U.S.’s jurisdiction to bring the charges is also likely to be challenged.