Ben DiPietro | September 26, 2016

The Morning Risk Report: Harris FCPA Case Shows Cooperation Benefits

The decision earlier this month by the U.S. Securities and Exchange Commission to issue a declination to communications and technology company Harris Corp. is the first time a large public multinational firm has avoided prosecution after one of its employees was penalized for Foreign Corrupt Practices Act violations that exposed the company to potential FCPA liability. The ruling shows regulators are serious about giving deference to companies that emphasize compliance and cooperate in investigations, said an attorney representing the company.

The case arose from Harris Corp.’s 2011 purchase of CareFx Corp. and its subsidiaries, including CareFx China, which sells electronic patient records software to Chinese hospitals and health agencies. An audit of CareFx China by Harris uncovered an alleged bribery scheme that a former  top executive at the subsidiary had failed to disclose to Harris. After an investigation by its law firm, the company told the SEC and U.S. Department of Justice about improper payments made by the executive to Chinese government officials that totaled between $200,000 and $1 million. The subsidiary in return received $9.6 million in contracts from the officials. The DOJ said in December 2015 that it would decline to prosecute Harris. The SEC this month said it also would not prosecute the company, but it did impose a $46,000 civil penalty on the executive.

“The authorities have claimed that a company could possibly obtain a declination by having a robust compliance program, voluntarily disclosing misconduct and cooperating with the government; the Harris resolution is the first example of the authorities actually following through on their representations,” said Robert Kent, a partner at Baker & McKenzie who served as lead counsel for Harris Corp. in the CareFx China investigation. He pointed out even though CareFX China was a small part of the deal, the company did extensive due diligence, and instituted training at the subsidiary after the deal closed. The outcome “demonstrates the real benefits” of a strong compliance program and “alters the voluntary disclosure calculus going forward,” he said.

EXCLUSIVE ON RISK AND COMPLIANCE JOURNAL

Employees don’t know social media policies. A report on workplace cybersecurity issues by Wombat Security Technologies found safe use of social media is a top challenge for employees and companies, with 31% of participants incorrectly answering questions about how to safely use social media.

COMPLIANCE

U.S. lawmakers push Syria sanctions. Momentum is growing on Capitol Hill for new sanctions against supporters of Syrian President Bashar al-Assad’s regime, as many lawmakers’ patience with the Obama administration’s approach wears thin following the collapse of the latest cease-fire agreement, the WSJ reports. President Barack Obama has opposed stepping up sanctions. House Speaker Paul Ryan (R., Wis.) urged the White House last week to lift behind-the-scenes pressure that has prevented House Democrats from backing sanctions legislation headed to the chamber’s floor.

Takata didn’t report airbag break. Japanese automotive supplier Takata Corp. failed to alert U.S. regulators to a 2003 rupture of an air bag in Switzerland, despite second thoughts from an engineer, according to an internal report detailing exploding safety devices that resulted in record recalls and numerous deaths and injuries, the WSJ reports. The rupture occurred in a vehicle in May 2003, and Takata attributed the incident to overloading air-bag inflater propellant, according to the report from law firm Dechert LLP, which represents the parts supplier. The company made manufacturing changes the same year to address the problem.

Brazil approves probe of president. Brazil’s Supreme Court late Friday gave the green light to prosecutors to open a probe into corruption allegations that President Michel Temer is linked to a sprawling graft scandal centered on the nation’s state-run oil company, the WSJ reports. Brazil Supreme Court Judge Teori Zavascki approved the preliminary investigation, which is based on plea-bargain testimony by a key witness that allegedly implicates Mr. Temer and several high-ranking members of his Brazilian Democratic Movement Party or PMDB, including Senate President Renan Calheiros, according to a lawyer close to the case.

Korea seeks arrest of Lotte chairman. South Korean prosecutors are requesting a warrant to arrest Lotte Group Chairman Shin Dong-bin as part of a corruption investigation, the BBC reports. A Lotte Group spokesman said Mr. Shin would co-operate fully with the investigation.

Thailand may target tech cos over tax. Thailand is considering more stringer tax-collection rules for internet and technology firms, according to the head of the country’s tax-collection authority, who was interviewed by Reuters.

Finra sues whistleblower. The Financial Industry Regulatory Body is suing a whistleblower on behalf of J.P Morgan, Financial Planning reports. The whistleblower, a registered investment advisor, alleged the bank forced him to favor its own products but the suit alleges he caused the client loss.

DATA SECURITY

State actors target individuals. In the wake of the Yahoo hack, intelligence and security experts say individuals are at risk of being targeted by state-sponsored hackers seeking even a minor connection to power, the New York Times reports. It reports Washington officials had been getting warnings for more than a year that their Yahoo accounts and those of family members were being targeted.

GOVERNANCE

Larry Ellison’s pay drops. Oracle Corp. said Friday that its top executives saw their total compensation drop in the 2016 fiscal year, with the package for co-founder and chief technology officer Lawrence Ellison declining 35% to a total value of $41.5 million, the WSJ reports. Mr. Ellison earned a salary of only $1 in 2016, unchanged from the previous year, but his stock and option awards were less, according to a regulatory filing.

RISK

Many CEOs consider leaving Britain. Three-quarters of British chief executives surveyed are considering moving their headquarters or some of their operations outside the United Kingdom as a result of the country’s decision to leave the European Union, according to accounting firm KPMG, the WSJ reports.

OPERATIONS

Banks struggle with technology upgrades. Even as banks build new technology in response to threats from fintech upstarts, some of their existing systems are struggling to keep up with new regulations, the WSJ reports. The Commodity Futures Trading Commission in the past several months has fined Deutsche Bank AG, J.P. Morgan Chase & Co. and Barclays PLC over failure to report of derivatives trades in a timely and accurate way. The problem: technology issues in the banks’ back-office systems for accurately or rapidly reporting trades of swaps, which are bets on the direction of interest rates, commodities and other assets.