D&B shows the right way to handle an FCPA probe

While the case had been ongoing since 2012, it was the first major FCPA matter resolved after the implementation of the new FCPA Corporate Enforcement Policy by the Justice Department. This enforcement action presented several important factors that every compliance practitioner can learn from going forward.

From a tactical perspective, D&B ran into FCPA trouble in China, largely through entities it either acquired or was involved in as joint venture partners. The first was HDBC, formed as a joint venture between D&B’s Chinese subsidiary and Huaxia. In the preformation stage, D&B’s due-diligence efforts indicated that Huaxia was directly acquiring certain non-public business data by making improper payments. Senior D&B executives and the executive responsible for data acquisition in China allowed this practice to continue until 2012.

The second entity was Roadway, which D&B acquired in 2009. As a part of its due diligence process, Roadway informed D&B that it could not warrant improper payments for information. D&B did not conduct further due diligence to verify whether sales representatives were in fact making improper kickbacks of a portion of commissions in order to secure business. After the closing, follow-up internal audit reviews after the acquisition failed to detect the improper payments.

The D&B settlement puts real teeth into the new FCPA Corporate Enforcement Policy. It shows the presumption of a declination is not only a powerful incentive but a useful tool in the government’s desire to reward companies that step forward to self-report, extensively cooperate, and thoroughly remediate.

The lesson is clear: China still presents high risk for companies from the United States and other nations in the western world. Not only must there be extensive due diligence to know the business model and business approach of any entities you may acquire, but also those you enter into business venture partnerships with in China. It is more than simply robust due diligence that is necessary, it is also robust management of the relationship after the deal is inked.

On the strategic level, one cannot say enough about the response of D&B, which led to the Justice Department’s declination in the face of clear evidence of what the government said  was “the bribery committed by employees of the company’s subsidiaries in China.” There were several levels to D&B’s robust response. The first was that the company uncovered the conduct and self-reported to the Justice Department and SEC. Next, the company engaged in a thorough investigation, fully cooperating with the Justice Department, including reporting all relevant facts and making both former and current employees available for interviews by flying them to the United States. Finally, and per the Yates Memo, the company identified “all individuals involved in or responsible for the misconduct.”

Equally significant was the remediation engaged in by D&B. The company has worked to create a top compliance program since its self-disclosure and is engaging in significant discipline. The company terminated those involved directly in the misconduct, and it went much further. It also disciplined other employees “by reducing bonuses, reducing salaries, lowering performance reviews, and formally reprimanding them.” The level and degree of discipline demonstrated a significant level of commitment to a culture of compliance far beyond the company’s compliance program.

The D&B settlement puts real teeth into the new FCPA Corporate Enforcement Policy. It shows the presumption of a declination is not only a powerful incentive but a useful tool in the government’s desire to reward companies that step forward to self-report, extensively cooperate, and thoroughly remediate. It is a welcome step for the compliance profession, which can now point toward a real and tangible benefit to using the Justice Department process.

While companies will always need to return any ill-gotten gain in the form of profit disgorgement, the D&B declination and FCPA resolution demonstrates the government’s twin goals of robust enforcement and any rewards to companies that follow the prescripts of the new FCPA Corporate Enforcement Policy.

The D&B enforcement action should act as a guide for compliance practitioners seeking to prevent an FCPA issue and for tips on what to do when they are hit with one.