Corruption Crime & Compliance Michael Volkov

Directive 2019/1937 of the European Parliament and Council dated 23 October 2019 on the “protection of persons who report breaches of Union law” (the “Directive”) is currently being implemented by EU Member States. The directive has broad applicability to organizations operating in the EU internal market and applies to both public and private sector organizations alike. Whistleblowers are guaranteed legal protection to the extent: (1) they have reasonable grounds to believe that the information reported was true at the time of the report; and (2) the whistleblower reported either internally to the organization, externally to a competent authority, or publicly. Private sector organizations with 50 or more workers are legally required to establish channels and procedures for internal reporting of EU law breaches and conduct appropriate follow-up. 

In this episode, Mike Volkov is joined by Daniela Melendez and Alex Cotoia from the Volkov Law Group, who bring their expertise to the table as they delve into the EU Directive and its implementation by several member states. Listen to this discussion to understand and navigate the complexities of the EU Whistleblowing Directive.

The EU Whistleblower Directive shifts the burden of proof on retaliatory actions to the person taking the detrimental action, requiring them to demonstrate it was not linked to reporting concerns.Global companies are taking a proactive stance by increasingly focusing on robust ethics and compliance programs. This strategic move is aimed at mitigating risks and promoting positive corporate citizenship in today's economy, where adherence to legal and ethical standards is paramount.France signed the EU Directive into law on March 21, 2022, outlining protocols for gathering and handling whistleblower reports, including a two-month deadline for imposing disciplinary sanctions.Germany enacted the EU Directive on May 12, 2023, allowing anonymous reports and setting a three-month investigation deadline after receiving the report.Spain addressed the EU Directive on February 2023 by covering additional topics like occupational health and safety breaches. The directive established a three-month deadline for investigations and allowed anonymous reports.Italy transposed the EU Directive on August 4, 2022, including administrative, financial, civil, and criminal offenses not covered by the Directive, with a 30-day deadline to conduct investigations upon receipt of reports.Companies are advised to make resources available to conduct investigations quickly due to the short timeframes set by various countries' whistleblower protection laws.
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Alex Cotoia on LinkedIn 
Email: acotoia@volkovlaw.com
Daniela Melendez on LinkedIn
Email: dmelendez@volkovlaw.com

NAVEX continues to produce high-quality compliance reports, many of which are a must-read in the compliance industry. Its annual Whistleblower Report is of particular note -- NAVEX is the leading provider of hotline services in the world, and its data is invaluable as a source of trends in this industry. This year --2024 -- is no exception. NAVEX combed through the data from 3784 organizations for 2023. Its headline conclusion -- 2023 was a busy year, with a record level of use and the substantiation rate reaching an eleven-year high. More reports came in, and more were found to be true. 

Listen in as Michael discusses the findings of these reports and why the increase is a good sign, not a bad sign. It means that employees trust their respective hotline reporting systems to produce results.

NAVX's 2024 Whistleblower Report revealed a record level of use and an 11-year high substantiation rate, indicating increased trust in employee reporting systems.Accounting-related reports, comprising approximately 4.3% of all reports in 2023, had a significant impact. With a median substantiation rate of 50%, these reports often led to employment separation events, underscoring the seriousness of the issues raised.Third-party reports were more likely to focus on business integrity and financial misconduct issues, accounting for 50% of reports compared to employees' 17%.Reports of imminent threats had a high substantiation rate in 2023, with nearly 9 out of 10 reports proven to be substantiated, highlighting the seriousness of such issues.Workplace civility complaints increased to 18% of reported cases, reflecting a growing concern within organizations about maintaining a respectful work environment and culture.HR issues, a significant portion of all reports in 2023, accounted for 55% of the total. This underscores the importance of addressing internal workplace issues, such as workplace discord, discrimination, harassment, and retaliation, to maintain a healthy and productive work environment.Clear Channel's extensive cooperation with the investigation, prompt sharing of facts, document production, and employee interviews demonstrated a commitment to transparency and accountability in addressing compliance issues.
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OFAC is capable of extending a long arm of enforcement, reaching sometimes non-U.S. companies that may "cause" another company to violate U.S. Sanctions laws. If you need to find an example of this long reach, look no further than OFAC's recent settlement with SCG Plastics ("SCG"). In this settlement, SCG, a Thai company that sells plastic resins, agreed to pay $20 million for violations of the Iran Sanctions Program.

In this episode, Michael Volkov explores the series of actions that led to that $20 million dollar settlement, and the consequences.

In a recent enforcement action, SCG Plastics paid OFAC $20 million to resolve violations of the Iran sanctions program, showcasing OFAC's far-reaching jurisdiction.SCG Plastics caused U.S. financial institutions to process $291 million in wire transfer sales of High-Density Polyethylene Resin (HDPE) of Iranian origin from 2017 to 2018, which violated the Iran sanctions program.SCG Plastics voluntarily disclosed 10 violations but did not disclose 457, which led to OFAC determining all 467 violations as egregious.The size of the settlement was due to multiple aggravating factors: SCG Plastics willingly engaged in a multi-year pattern of conduct designed to circumvent the Iran sanctions program, causing significant harm to OFAC sanction policy objectives while earning substantial revenues.Importantly, commercial activity that may fall outside the jurisdiction of OFAC sanctions can still result in a violation when the financial transactions related to the activity are processed through or involve U.S. financial institutions.OFAC emphasized the risks for non-U.S. companies engaging in conduct that causes U.S. persons to violate sanctions, in this case processing the transactions, which would not have been done with adequate disclosure, highlighting the importance of compliance with U.S. sanctions and export control laws.
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LRN continues to set the standard for ethics and compliance program research. Volkov Law is  a supporter of, and advocate for, LRN’s research because it has consistently confirmed what we all know and believe - ethical companies perform better in the marketplace over the long run. It is an intuitive fact that employees respond better to values-based leadership than a rules-based environment and culture. Volkov Law is committed to that mission with our clients, colleagues, partners, and thought leadership. 

In this Episode Michael Volkov discusses LRN's latest PEI Report, a copy of which can be obtained at https://lrn.com/resources/ethics-compliance-program-effectiveness-report

LRN's 2024 Program Effectiveness Report highlights the importance of corporate values, culture, and accountability in mitigating risks and maximizing financial performance.The report is based on a survey of over 1,400 ethics and compliance professionals from 19 countries and 26 industries.60% of organizations now incorporate ethical behavior into performance management, hiring decisions, promotions, and bonuses to elevate ethical conduct incentives.Top priorities for 2024 include training content, measuring ethical culture, improving web-based compliance resources, internal controls, and audit and compliance monitoring plans.Companies are adapting compliance programs to include remote and hybrid employees post-COVID-19, reflecting changing workplace needs.Senior management engagement in risk mitigation controls and company values is crucial, with 52% of respondents confirming actions over words in fulfilling ethics and compliance responsibilities.Nearly two-thirds of respondents stated their boards actively address misconduct by senior executives or excellent performers, relying on values to ensure ethical behavior.
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On the heels of the Gunvor FCPA settlement for $661 million, DOJ announced its settlement with Trafigura, the latest commodities trading company to fall under DOJ's FCPA Sweep against the industry. Trafigura joined the list of international commodity trading companies to suffer FCPA enforcement actions like Vitol, Sargeant Marine, Glencore, Freepoint, and Gunvor.

DOJ's corporate resolutions are connected to individual prosecutions and guilty pleas of 19 individuals, including six government officials, eight corrupt intermediaries, and five trading companies.

Trafigura Beheer B.V. ("Trafigura"), based in Switzerland, plead guilty and agreed to pay $126 million as part of a plea agreement to resolve FCPA violations in Brazil. Trafigura pleaded guilty to conspiracy to violate the anti-bribery provisions of the FCPA and agreed to pay a fine of over $80 million and forfeiture of $46 million. DOJ agreed to credit up to $26 million of the fine against the amounts Trafigura pays to resolve an ongoing Brazil investigation.

Trafigura, a global commodity trading company, pled guilty and agreed to pay $126 million to resolve FCPA violations in Brazil, involving a corrupt scheme to pay bribes to Brazilian officials to secure business with Petrobras.DOJ cited Trafigura's cooperation and acceptance of responsibility, including providing timely updates, facilitating employee interviews, and producing relevant documents, but criticized their failure to preserve and produce certain evidence in a timely manner.Trafigura's bribery scheme involved paying bribes to Petrobras officials from 2003 to 2014 to obtain and retain business, with payments ranging from 5 to 20 cents per barrel for oil transactions.The bribery payments were facilitated through offshore bank accounts, U.S. banks, and coded language in emails, with Trafigura entities earning approximately $51 million in profits from the scheme.DOJ's successful sweep of the commodities trading industry resulted in six corporate resolutions and 20 individual convictions, totaling over $1.7 billion in penalties, emphasizing the importance of robust compliance and surveillance strategies.Trafigura's lack of compliance oversight and failure to maintain proper third-party due diligence or risk management programs allowed the bribery scheme to operate with impunity, highlighting the need for enhanced controls and monitoring in high-risk industries.Despite the challenges faced during the investigation, Trafigura's guilty plea and cooperation with DOJ demonstrate a commitment to addressing corruption and compliance issues in the global commodity trading sector.
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In a recent speech on March 7, 2024, Deputy Attorney General Monaco announced that, in the next 90 days, DOJ would implement a new whistleblower program to reward reporting of criminal misconduct at public and private companies. In particular, DOJ will encourage reporting of potential violations of the Foreign Corrupt Practices Act ("FCPA") and the recently enacted Foreign Extortion Prevention Act ("FEPA"). AAG Monaco noted that DOJ will be particularly interested in "foreign corruption cases" involving "non-issuers and violations of the recently enacted FEPA," along with criminal abuses of the United States financial system and domestic corruption cases.

DAG Monaco also reiterated the importance of voluntary self-disclosures. DOJ employs a "mix of carrots and sticks" to incentivize companies to build stronger compliance programs that proactively mitigate risks and disclose misconduct to DOJ when appropriate. DAG Monaco underscored the fact that a corporate resolution "will always be more favorable with voluntary self-disclosure."

In this episode, Michael Volkov discusses DOJ's new initiatives on whistleblowing and encouraging voluntary self-disclosures.

DOJ's planned whistleblower program will significantly impact individual incentives to report financial misconduct and corporate decisions regarding voluntary self-disclosures.The program's focus extends beyond FCPA violations, encompassing other significant financial abuse schemes and potential reporting against non-issuer companies.Global companies are facing unprecedented risks and challenges in today's economy, leading them to prioritize robust ethics and compliance programs to promote positive corporate citizenship.The SEC whistleblower program has been successful, resulting in serious prosecutions and the derailment of fraudulent schemes. However, only around 10% of reports involve FCPA anti-bribery allegations.The Department of Justice recently announced its plan to create a whistleblower bounty program, which would fill gaps in existing programs and coordinate with voluntary self-disclosure policies.DOJ's whistleblower program will reward reporting of criminal misconduct at both public and private companies, encouraging reporting of potential violations of the FCPA and the Foreign Extortion Prevention Act.Companies are urged to disclose misconduct to earn valuable benefits, and the DOJ emphasizes the benefits of voluntary self-disclosure and cooperation to mitigate risks and maximize financial performance.
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