Rolls-Royce: Why it never pays to keep quiet

Rolls-Royce has agreed to pay £671m in fines to the authorities in the UK, the US and Brazil. This offer suspends the prosecution and brings to a close a torrid period for the venerable British engineering firm. While there are many lessons to be learned from this debacle, perhaps the easiest and quickest to digest is that lying and obfuscation is not the way to deal with allegations of corruption.

As the FT notes in its report linked below, the investigation into graft and bribery goes back to questionable conduct in the late 1980s in the US, and it was also found that ‘Rolls-Royce’s leadership was aware of questionable conduct since 2010 and decided not to notify the authorities.’

CNS Risk advises companies on how to take action in situations such as these; we assist through investigations that prepare for self-reporting, and work with counsel and other advisors to help companies respond to and cooperate with the relevant authorities. Contact us directly for more information on how we can help.

The FT reports: Rolls-Royce humbled in corruption case

Telia facing $1.4 billion Uzbek corruption settlement

Dutch and US regulators have requested a whopping $1.4 billion in fines from Nordic telecom company Telia. The settlement addresses Telia’s entry into the Uzbek market in 2007. The company has not shied away from accepting blame, and said last September that it would gradually exit its Central Asian markets after probes into local corruption.

In a statement, Telia Chairwoman Marie Ehrling said: “I have said on many occasions in the past that Telia Company’s entry into Uzbekistan was done in an unethical and wrongful way and we are prepared to take full responsibility.”

While that may be the case, the size of the proposed settlement has come as an unpleasant surprise.

“Our initial reaction to the proposal is that the amount is very high,” Ehrling’s statement added.

In February of this year VimpelCom Ltd said it would pay $795 million to resolve U.S. and Dutch probes into a bribery scheme in Uzbekistan.

Why they did it – answers from the fraudsters

Another week, another fascinating look at why fraudsters commit their crimes. In this book, the author relies on first hand testimony – in the form of letters received from the criminals – to tell the story. As Bloomberg reports, Eugene Soltes’ new book, ‘Why They Do It: Inside the Mind of the White-Collar Criminal’ is out on Oct 11.

Having read Soltes’s accounts of these and other white-collar characters, one answer comes into focus above all others to the author’s question of why they did it. They did it because they thought they could get away with it.”

Why white-collar criminals evade justice

“Why White Collar Crime Is Here to Stay” – Bloomberg reports on a new book by ENRON investigator Samuel Buell.

If “corporations are people too,” why isn’t anyone in jail? The former head of the Enron Corp. Task Force explains why it’s so difficult to convict companies and their executives.

Opening up shell companies

The Economist reports on efforts to make ‘offshore’ less synonymous with corruption and tax evasion.

  “Tracing illicit funds to a shell’s bank account is of little use if you cannot identify the individuals who control it. This worries business people as well as policymakers: a recent survey of corporate leaders in 62 countries by EY, an accounting firm, found strong support for more openness in ownership; legitimate firms want to know whom they are trading with.”

The article concludes that in spite of the attention afforded offshore havens via the blanket coverage of the Panama Papers and others, there is little hope for a full, open register of such entities any time soon, and we’re inclined to agree.

Kazakh Privatization: Ensuring Safe Investment

On December 25, 2015, the Kazakh National Economy Ministry published a list of large state-owned organizations to be privatized during 2016 – 2020. These include Temir Zholy, the Kazakh railway company; KAzMunaiGaz, an oil and gas company; Samruk-Energy, a company engaged in the production, transmission, distribution, and sale of electricity; Kazachstan Gharysh Sapary, focusing on development of space activity in Kazakhstan; Kazgeologiya, the national geological exploration company; the Kazakh sovereign wealth fund Samruk-Kazyna; and the Astana international airport.[1] According to the Minister, large-scale privatization is a priority of the Kazakh government in 2016.

Given the global relevance of the Kazakh market, many international corporations are expected to participate in this privatization: last month the country became the 162nd member of the WTO, recent trade and investment deals were signed with the UK,[2] US and China[3], and Kazakhstan has been for several years developing a national FDI strategy.

Privatization, as one of the market reforms, often aims at improving economic efficiency by reducing the role of the state. Yet, the process of privatization, which is the cornerstone for prospective efficiency, has to be carried out with great care.

Corruption, which in the words of Joseph Stiglitz, represents “perhaps the most serious concern with privatization, as it has so often been practiced ….”[4] might greatly impair those involved – both the state and the competing investors.

Corruption continues to represent not only a moral disgust, but also a substantial economic burden on corporations. Furthermore, often neglected are the tremendous legal risks for individuals and their respective corporations.

It is of the utmost importance that all companies that take part in this privatization invest considerable time and resources in corruption prevention measures. To that end, deep-dive legal and risk due diligence must be undertaken, and strategic business intelligence must be collected and studied before making any commitment to the undoubted opportunities presented by Kazakh privatization.

CNS Risk has deep and varied experience of advising international corporates in Kazakhstan. Contact us directly to learn how we can help your company.

A.H.

[1] A complete list of the state-owned companies that will be offered for privatization can be found at: http://economy.gov.kz/upload/Files/Celevie_indikat_real_komp_plana_privatiz_na_2016-2020g_ru.doc.

[2] See e.g. https://www.gov.uk/government/world/kazakhstan.

[3] See e.g. http://thediplomat.com/2015/03/china-kazakhstan-sign-23-billion-in-deals/.

[4] See Stiglitz, J., Globalization and Its Discontents, 58 (2002, Allen Lane the Penguin Press, UK).

The Economist looks at whistleblowing

A very good piece in this week’s Economist, highlighting some of the benefits and pitfalls of whistleblowing, and the often irrational reaction of corporates to such behaviour.

“Ideally, firms would put in place a formal system for hearing and noting complaints—for their own sakes, as well as those of whistleblowers. When people fail to report wrongdoing, the main reason is often not the fear of retaliation but the suspicion that nothing will be done about it. Companies often see whistleblowers as motivated by revenge or greed. But studies consistently show that most are driven to right a wrong. That is why more than 90% of them sound the alarm internally first, rather than running straight to the authorities or newspapers. Given the choice, they would rather warn than accuse.”

Read the whole piece here – The Age of the Whistleblower

CNS RISK/ CIBG/ HBLF/ DLA PIPER – 2nd Integrity Workshop, Oct 13 2015

How prepared are you to react to today’s growing risks?

Oct 13 2015: CIBG, CNS RISK, DLA PIPER and the Hungarian Business Leaders Forum present a second interactive senior executive workshop with prominent CEE business leaders. The workshop will again explore challenges to business integrity and how they can be mitigated.

  • Interaction with peers & experts on managing whistleblowers or allegations of misconduct.
  • Learn how corporate intelligence is employed as a preventative measure and how it should be a third pillar of any due diligence exercise.
  • Consider how cultural differences across companies can render a compliance system useless.

The event is free of charge, but places are strictly limited.

For more details see here: Budapest Integrity Workshop, October 13

Contact CNS Risk for an invite:   Request an Invite

 

The long arm of the SEC – Ford, Germany and Russia

A few weeks ago the SEC joined a long running German investigation into alleged bribery and corruption of Russian customs officials by Ford Germany and DB employees.  Sources suggest that if the allegations are proven to be true, the accumulated penalties could run into several hundred million euros.

The case raises two important issues.

1. Catching up to UK and US prosecutors, the German authorities are now taking firmer interest in the conduct of German registered companies abroad.

2. If a parent company has any exposure whatsoever to FCPA regulations, the SEC’s reach is long and punitive.

Reuters has the background to the story here: SEC joins German Bribery Investigation

CIBG, CNS RISK & DLA PIPER – Integrity Academy

How prepared are you to react to today’s growing risks?

July 14 2015: CIBG, CNS RISK & DLA PIPER present an interactive senior executive workshop with prominent CEE business leaders. The workshop will explore challenges to business integrity and how they can be mitigated.

  • Interaction with peers & experts on managing whistleblowers or allegations of misconduct.
  • Learn how corporate intelligence is employed as a preventative measure and how it should be a third pillar of any due diligence exercise.
  • Consider how cultural differences across companies can render a compliance system useless.

The event is free of charge, but places are strictly limited.

Contact CNS Risk for further details:   Tell me more

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