A Telescopic World-View Of Compliance

Friday, February 1, 2008 - 01:00

Editor: I understand you were named by a very distinguished group of thought-leaders to be among the "100 Most Influential People in Business Ethics." What achievements brought you to the attention of this group?

Weinstein: My guess as to what they found most interesting would include my role as a prosecutor 12 years ago when I prosecuted Lockheed in connection with some payments to a member of the Egyptian Parliament. Involving a record nearly $25 million fine, this was really the first big foreign corruption case following the passage of the Foreign Corrupt Practices Act. One of Lockheed's senior executives, after agreeing to come to the United States, fled to his ancestral homeland, Syria. To give you a sense of how different the times were, I actually went to Syria and met with the senior leadership of the Syrian government and obtained a commitment from the Syrians that they would both arrest him and encourage him to return to the United States and face the charges here. The executive, Suleiman Nassar, became the first person to ever go to jail under the Foreign Corrupt Practices Act, a statute that had been dormant for 20 some years.

After that, I went into private practice and between 1996 and 2000 designed and implemented compliance programs for many of the Fortune 500 companies just when the question of corporate governance was emerging - pre-Sarbanes-Oxley, pre-Enron. As these issues have heated up, I have spent much of the past seven years since 2000 as an adviser to many of the boards of directors of large companies on governance issues and have defended many companies that have had some of the larger problems in this area. We have had involvement in cases dealing with payments all over the world in an amazing myriad of fact patterns, as well as payments to quasi-military groups in Colombia (the Chiquita case), and have handled issues involving the military in Indonesia.

Over the past 20 years, I have seen both sides of major corporate governance matters, and have been lucky enough to have been recognized by a number of people for my work in this area. This may account for my recent recognition as being influential in business ethics.

Editor: As the head of Willkie's Compliance & Enforcement Practice Group, your practice undoubtedly gets into the realm of guiding clients in setting up compliance programs. Do you tailor a specific program based on each client's individual risk areas?

Weinstein: No two compliance programs look alike. Looking at companies' risk profiles, you will find that companies that basically sell what I call "small case goods" to private citizens, such as retailers selling toothbrushes, would have a totally different risk profile from companies selling large case goods to governments, like defense contractors or energy companies. Therefore, their compliance programs are going to look a lot different. There are some things that are consistent such as safety and employment issues, but their overall programs are going to look very different. There is no such thing as an effective cookie cutter compliance program. Programs should be tailored to individual companies not only in the legal context involving risk management but also in the organizational context. These days programs really have to be effective because if they are not, the risks for the companies are huge.

Editor: You mentioned a few generic principles indigenous to all compliance programs, such as safety. Would you care to elaborate on those?

Weinstein: There are some fundamental elements of running a business that all companies must focus on. For starters, they have to provide a safe and unbiased work environment for their employees. Also, if a company is doing business internationally, for instance, sourcing products from overseas, operating overseas factories, or selling products outside the United States, it is going to have to be prepared to deal with issues involving government officials. Additionally, there are employment issues, issues involving pricing, issues relating to accounting, intellectual property protection, etc. But the big issues where companies often find themselves in trouble are when there is some sort of failure of internal controls. There are similar themes to every aspect of a compliance program but they are going to look different depending upon whether you are a retailer or government contractor.

Editor: Do you foresee a fertile area for emphasizing and enacting better control systems in the cases of all the parties involved in the subprime debacle?

Weinstein: When we talk about the subprime area, I think we have to recognize there is a difference between a company engaging in some sort of deceptive marketing practice and one making bad economic decisions with respect to the selling of notes or signing of loans. If banks and financial institutions engaged in getting appraisals and putting people through only perfunctory credit checks failed to examine the legitimacy of appraisals or whether borrowers obtained proper credit scores - that is an internal controls issue. But that's one side of the equation. The other side of the equation is the situation where borrowers were signing mortgages whose terms put them in a position where ultimately they were more likely to default than the average person - that falls under the rubric of a bad business decision. Clearly banks are looking at their appraisal process and their credit-rating process, but it is not clear to me that there was a failure of internal controls that caused the subprime mortgage crisis.

Editor: So much was predicated on the thought that the housing market would continue to soar.

Weinstein: There are two or three things at play here. You have to ask yourself the following macroeconomic question: If the dollar had not weakened, if the price of energy had not gone up and if the U.S. budget deficit had not reversed itself from ten years ago, would we have a subprime mortgage crisis at all? The value, quality and ratings of the U.S. dollar vis--vis other currencies all have been dramatically reversed in the last four to five years. That has caused a lot of pressure on all sorts of individuals - not just with respect to mortgages, but with energy prices as well. These are major economic forces. Ultimately, it is the economic transformation of this country from where it was ten years ago to the economic climate we have now that is causing the problems currently gyrating through the economy - credit issues, subprime mortgage issues, a weakening dollar, and high energy prices. A lot of these things are being caused not by the business community or by a lack of legal controls but by major macroeconomic forces.

Editor: After the stock-options scandal and now subprime, how do we prevent other financial catastrophes from passing below the radar screen?

Weinstein: I think this is an issue that is enmeshed in corporate governance and corporate compliance. Companies have to risk-manage with a forward or prospective view and conduct an in-depth analysis. The crises that are ahead are not repeats necessarily of old crises. Then we, the public, have to be prepared to give businesses the opportunity of taking a long-term view - not penalize companies if their growth is slowed in the short term. That's a role not only for the regulators but also for the financial media, and it is also something where we need to have very strong business leaders who are incentivized to take long-term views as opposed to merely meeting the numbers every quarter.

Editor: FCPA is an area of focus for many companies with overseas operations. How do you devise a program that protects your clients from regulatory actions on the part of U.S as well as foreign authorities?

Weinstein: This is a huge issue. We are advising many of the largest U.S.-based and non-U.S. based multinationals. Any program has to take into account three specific areas. One is what I would call the direct payments area - the area of gifts, travel and entertainment of government officials, and issues involving conflict of interest, such as contracting with a government official's company, or government official's relative's company. You also need a strong program in the indirect area. In many countries there are forced marriages, i.e., you are asked to do business with companies that a foreign government "marries" you to. You may be required to take on a joint-venture partner or a local agent or do business with a state-owned company. These indirect relationships are responsible for 60 to 70 percent of all the big corruption cases. For example, you have to know your agents, be assured they are doing the right thing, and make sure they are compensated properly. Since they are not the company's employees, they may not be within the company's training program and often don't get the same compliance DNA injected into them that regular employees do. A third area is transactional. When you acquire a company, you have to make sure that company has a good program or impose your good program on them because once you acquire a company their sins become your sins. Conversely, if you want to sell a company, you need to make sure that company has a good program in place because its market value is otherwise diminished.

Editor: Would you care to describe some of the FCPA cases you have been involved with?

Weinstein: As previously mentioned, I led the prosecution of Lockheed in connection with payments to a member of the Egyptian Parliament. I represented Titan Corporation a number of years ago when it was prosecuted. The Titan case surpassed Lockheed in terms of its record fine. We have just represented Lucent in concluding its case involving some business practices issues in China. Additionally, I represent the audit committee of a major automobile manufacturer as well as a number of energy companies that are involved in various issues before the government. In the past, we have represented the former chief financial officer of Baker Hughes, who was accused of FCPA violations. We litigated the case against the SEC, and the SEC ultimately dismissed the charges against that individual. I was the outside lawyer for the Republican National Committee from 1996 through 2000 involving their campaign finance investigation by Congress, the Federal Election Commission and the Department of Justice. And we have represented executives involved in export control issues, including one of the executives in the recent ITT export control matter that was resolved with ITT agreeing to a fine of about $100 million, and another executive involved in the Chiquita issue involving payments to illegal paramilitary organizations in Colombia. Also, there are a host of internal investigations that we have gotten resolved.

Editor: Do you make calls on clients' foreign operations to see how they are implementing their level of controls and their corporate governance?

Weinstein: Yes, we do so regularly. Last year, I or members of my team were in over two dozen countries, visiting foreign operations, whether it was to investigate allegations of potential problems, to oversee and kick the tires on their compliance programs, or to provide training. I'm off to Nigeria in a few weeks to give some training seminars to a particular client. When we go to these places, we have a chance to see how the client's business works and the issues that they are faced with. We hire brilliant young lawyers who are multilingual and multicultural, and who most importantly understand the local business environment. It takes a special person to get on a plane, fly 24 hours and then jump off that plane in Asia and be ready to assess the compliance risks for a company's international operations. It has to be a person who has a special curiosity about the world. That is part of the DNA of our compliance group here at the firm.

Please email the interviewee at mweinstein@willkie.com with questions about this interview.