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Reports detail how Haiti’s public administration is a cesspool of corruption | Ap

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Fictitious government jobs and contracts, political patronage, embezzlement, and university employees and civil servants who use government bank accounts as their personal checkbooks.

Those are just some of the scandalous findings released late this week by Haiti’s Anti-Corruption Unit following the investigations of 10 different state-run institutions and agencies that include the municipalities of Petit Goave, Fort-Liberte, Saint-Raphael and Anse Rouge; the national lottery; Haiti National Police and the School of Law and Economics in Gonaives.


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bribery for legislation

DOJ and SEC Secure $41 Million Settlement from Brazilian Airline for FCPA Violations (Part I of II)

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The Department of Justice and the Securities and Exchange Commission reached a $41 million settlement with GOL Linhas Aéreas Inteligentes S.A. (“GOL”) to resolve criminal and civil foreign bribery charges.

GOL entered into a three-year deferred prosecution agreement (“DPA”) with DOJ in exchange for payment of a $17 million criminal penalty.  DOJ credited $1.7 million of that penalty against a $3.4 million fine that GOL agreed to pay law enforcement authorities in Brazil to resolve charges in Brazil.

In a separate resolution, GOL agreed to pay $24.5 million over two years to the SEC. The SEC’s initial settlement calculation was for $70 million, but it was reduced to $24.5 million based on GOL’s financial condition.

Between 2012 and 2013, GOL paid approximately $3.8 million in bribes to foreign officials in Brazil to secure passage of two pieces of legislation favorable to GOL.  Specifically, the legislation provided payroll tax and fuel tax reductions that benefitted GOL (as well as other Brazilian airlines).

Interestingly, the bribery scheme was carried out, with the assistance of others, by a member of GOL’s board of directors. To fund the scheme, GOL entered into sham contracts with various entities connected to Brazilian officials.  GOL made false entries into its books and records stemming from these transactions.  GOL listed the expenses as advertising and other expenses.

DOJ’s resolution did not include appointment of an independent compliance monitor.  GOL will continue to enhance its compliance program and will submit regular reports to DOJ and the SEC concerning remediation and implementation of compliance measures.

The DPA settlement includes specific certification requirements.  First, at the end of the three-year DPA, GOL’s CEO and CFO are required to certify that the company complied with all disclosure requirements under the DPA. Second, third days prior to the expiration of the three-year DPA, GOL’s CEO and CCO are required to certify that GOL has implemented a compliance and ethics program that is “reasonably designed” to prevent and detect future violations. 

Applying the Corporate Enforcement Policy factors, DOJ considered the nature, seriousness and pervasiveness of the offense; GOL received full credit for its cooperation, which included timely providing the facts obtained through GOL’s internal investigation, review of voluminous documents, interview of witnesses, and testing over two thousand transactions. 

GOL promptly remediated its compliance program, and implemented an entire anti-corruption compliance program. GOL created a separate compliance department, hired a new CCO, implemented a robust third-party risk management system, and terminated its relationship with all third parties involved in the bribery scheme.  GOL also ended its relationship with the member of its board who executed much of the bribery scheme. 

As a result, DOJ agreed to a 25 percent reduction off the bottom of the U.S. Sentencing Guidelines.  Because of GOL’s financial condition, however, GOL agreed to a reduced penalty of $17 million.


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Brazilian bribery

GOL’s Bribery Schemes Orchestrated by Board Director (Part II of II)

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GOL’s bribery schemes present some interesting lessons.  Interestingly, at the center of the bribery scheme was a member of GOL’s board of directors. 

The bribery scheme was motivated by potential legislation that would benefit GOL and other Brazilian airlines.  In 2011, Brazil proposed an economic stimulus consisting, in part, with reduced payroll taxes for labor-intensive industries.  To support this reduction, GOL’s director agreed to pay $5.4 million in bribes to Brazilian politicians, including an influential leading politician, and specifically included GOL and other companies in which the GOL director had ownership interests.  As a direct result of the bribes, by the end of 2012, the legislation was enacted with a significant reduction in taxes for GOL and other businesses in which the GOL director had ownership interests.

Between October 2012 and November 2013, GOL paid approximately $1.4 million in bribes to the influential Brazilian official.  GOL paid these bribes through a third-party intermediary associated with the GOL director, as well as two companies that the Brazilian official owned and which were characterized on GOL’s books as advertising expenses.

In 2013, GOL paid $494,600 in bribes to a company associated with a different Brazilian legislator.  A close associate to the Brazilian official also received a bribe of $137,000 from GOL through a consulting company he owned. GOL listed these expenses as for other services even though no services were ever rendered.  This same close associate received $350,000 from a U.S.-based company controlled by the GOL director.

In total, GOL saved approximately $39.7 million in tax savings because the airline industry was added a year earlier to the new economic stimulus legislation.

In 2013, the GOL director met with the influential Brazilian official and other politicians to discuss lowering aviation fuel taxes in the Federal District of Brasilia.  At the time, the tax was set at 25 percent.  If reduced, GOL could use the central location as a refueling station in Brazil.  The GOL director, the Brazilian official and others agreed to a bribery scheme that resulted in the lowering of the aviation tax fuel to 12 percent.

In addition to this scheme, from June through August 2013, GOL and the GOL director paid $552,400 in bribes to a company associated with a former Brasilia official.  GOL listed the expenses in its books as a fee for other service even though no servers were ever provided. As a result, Brasilia lowered its aviation fuel tax to 12 percent. GOL saved approximately $12.24 from the reduced taxes and increased hub efficiency.

GOL’s internal controls failed to ensure compliance with controls requiring competitive vendor selection; instead, GOL was able to pay vendors through sole source contracts outside of the supply department.  GOL also paid vendors despite the fact it never received any services from the vendors. Further, the procurement process did not include effective review of documentation submitted before or after the payment of funds.  Given these weaknesses, GOL’s director was able to authorize and verify these payments with little oversight or review.


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Employee Reporting Systems

Focusing on an Effective Employee Reporting and Investigation System

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We often hear about the “essential” elements of an effective ethics and compliance programs.  It is natural for professionals to define specific elements of an ethics and compliance framework.  This is an important way to break down a program for assessment purposes.

While analyzing the specific functions in a program, it is important to avoid a narrow review of each element. Instead, as in most issues, the analysis of each element has to incorporate a factor that captures the interdependency of various elements.  For example, the effectiveness of one element may enhance or improve the operation of another element.  A simplistic way to express this idea is — the whole is often larger than the sum of the parts.

In practical terms — an example is the interdependency of employee reporting systems, investigations and specific training programs.  Let’s start with the reporting system.  There is no question that a company’s compliance program operates more effectively when the company maintains an efficient and trusted mechanism to report allegations of misconduct (either anonymously or confidentially).  As part of this element, a company has to embed multiple avenues for employee reporting of potential misconduct, publicize the reporting avenues to increase reporting, and train managers on how to respond to employee concerns when directly raised by employees.  When all three of these sub-elements are operating effectively, the sum of the overall performance will exceed the performance of each individual sub-element.  In other words, the three distinct sub-elements are interdependent and can be leveraged to produce positive results by recognition of this important relationship. 

In reviewing each element (or sub-element), a company needs to ensure that employees know that the company encourages employee reporting, are aware of the various reporting mechanisms, and that they are receiving tailored messages to promote understanding and awareness of reporting systems. 

By themselves, these are important issues to assess.  These issues, however, cannot be viewed in isolation.  Any employee reporting system is dependent on an effective internal investigation program.  If concerns are raised and they are not promptly investigated and fairly resolved, employees will quickly lose trust in the system. 

Thus, as an important corollary to an employee reporting system, companies have to implement an effective internal investigation program.  The analytical interdependency is obvious — employees will report more concerns when they trust that their concerns will be investigated fairly, resolved promptly, and appropriate actions are taken when the investigation is completed.  This logic demonstrates how elements (and sub-elements) operate to enhance each other and improve the overall performance of the ethics and compliance program.

From a broader perspective, the link between an ethical culture and employee reporting can be easily demonstrated.  When employees report concerns, their trust in the overall system will increase when the company’s culture supports and promotes employees who report concerns.  A culture of ethics and compliance, by definition, should support and encourage employee reporting to uncover issues, conduct an investigation, and remediate any substantiated claims.  The interdependency of these issues, when coordinated and performing optimally, ensures that the overall operation of an employee reporting system is effective.

On a more granular level, companies that train mid-level managers on how to respond to employee concerns are building an effective relationship between employees and management in responding to employee concerns, referring matters for internal investigations and promoting a system that is working on all cylinders.  Recognizing the interdependency of ethics and compliance functions ensures that companies prioritize ethics and compliance issues to maximize efficiency, remediation and overall performance.


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