May 02, 2014

Dan Collins Quoted in

Chicago partner Dan Collins was quoted in an article titled, “Managing Corporate Fraud and Corruption,” in Financier Worldwide.

Corrupt and fraudulent behavior remains a significant issue for businesses worldwide. Advances in technology and globalization mean that those committing fraud now have access to a much larger pool of potential victims, and more complex business processes make crimes easier to conceal. Businesses must do everything in their power to manage internal controls and avoid non-compliance with regulations – especially since global authorities have ramped up their investigation activities. Sound controls and a culture of compliance are key to minimizing fraud. When a firm suspects that fraud may be occurring, decisive action must be taken.

Despite the almost unending stream of regulation and legislation designed to crack down on economic crime and corporate malfeasance, such efforts seem like a drop in the ocean considering the true scale of corrupt and fraudulent activity.

The fraud and corruption landscape has witnessed a number of legal and regulatory developments in the past 18 months. April 2013 saw the SEC enter into its first ever non-prosecution agreement in an FCPA matter. The settlement with Ralph Lauren Corp. resolved allegations that employees at the company’s wholly-owned Argentinian subsidiary had bribed Argentinian officials to the tune of $600,000 in an attempt to gain greater market access for the company’s products.

Dan explained that “the Ralph Lauren settlement demonstrates the United States government’s commitment to hold a parent corporation both civilly and criminally liable under the anti-bribery provisions of the FCPA, even in the absence of any evidence that the parent authorized, directed or controlled the actions of the subsidiary.” While the United States has claimed in the past that the FCPA is not a ‘strict liability’ statute, the filings related to the settlement alleged nothing more than that the subsidiary employee was an ‘agent’ of the parent.

This approach ignores the corporate form and principles necessary to ‘pierce the corporate veil’. Ralph Lauren Corp. ultimately paid $1.6m in penalties to resolve matters with both the DOJ and the SEC. However, a number of government-cited factors spared the firm the full weight of the law. The case is an important benchmark, demonstrating the US government’s commitment to rewarding companies that take seriously the issues of compliance, cooperation and remediation. It also highlights the commitment of regulators to pursuing parent firms for the transgressions of their subsidiaries.

In the last few years, the SEC has been more aggressive in pursuing this theory to impose civil liability on a parent, although, as Dan points out, the Ralph Lauren global settlement demonstrates that the DOJ has now adopted this theory for the purpose of imposing criminal liability.

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