October 2008 – Page 3 – Compliance Building

A corporate code of ethics is the flip side of the coin of a whistleblower policy: The code of ethics is the principal means of communicating to all staff a strong culture of legal compliance and ethical integrity, while the whistleblower policy is a way to implement such values.

The Power of How presentation by Dov Seidman

LRN published the transcript of a presentation by Dov Seidman at the Center for Business Ethics at Bentley University: The Power of How: Achieving Enduring Success Through Ethics.

Basically, in a world in which nothing stays hidden, you have to act as if you have nothing to hide. But before you can act as though you have nothing to hide, in fact, you must have nothing to hide. There is an opportunity to literally out-behave your competition. You might not be able to answer a phone faster. You might not be able to create an anti-tampering device and market your bottled water on the basis of that device, because all the manufacturers of bottled water have that nailed down. But you can out-behave someone.

Compliance at The Nature Conservancy

Back in 2004, The Nature Conservancy created the job of Chief Compliance Officer and formalized is compliance and governance policies.

There is an interview with Karen Berky, Chief Compliance Officer in The Nature Conservancy’s 2004 Annual Report: Conservation That Works.

Ms. Berky talks about the Conflict of Interest Policy and the Conflict of Interest Standard Operating Procedure.

The Nature Conservancy also has a Whistleblower Policy, for reporting suspected violations of law or policy.

Code of Ethics for Investment Advisers

Rule 204A-1 under the Advisers Act requires investment advisers to adopt a code of ethics. Adoption means establish, maintian and enforcing a written code. At a minimum, the code must include:

(1) A standard (or standards) of business conduct that you require of your supervised persons, which standard must reflect your fiduciary obligations and those of your supervised persons;

(2) Provisions requiring your supervised persons to comply with applicable Federal securities laws;

(3) Provisions that require all of your access persons to report, and you to review, their personal securities transactions and holdings periodically as provided below;

(4) Provisions requiring supervised persons to report any violations of your code of ethics promptly to your chief compliance officer or, provided your chief compliance officer also receives reports of all violations, to other persons you designate in your code of ethics; and

(5) Provisions requiring you to provide each of your supervised persons with a copy of your code of ethics and any amendments, and requiring your supervised persons to provide you with a written acknowledgment of their receipt of the code and any amendments.

17 CFR § 275.204A-1 Investment adviser codes of ethics

Information for Newly-Registered Investment Advisers

The Staff of the Securities and Exchange Commission’s Division of Investment Management and Office of Compliance Inspections and Examinations put together an information overview for Newly-Registered Investment Advisers.

It is intended to assist newly-registered investment advisers in understanding their compliance obligations with respect to these provisions. This information sheet also provides information about the resources available to investment advisers from the SEC to help advisers understand and comply with these laws and rules.

As an adviser registered with the SEC, you have an obligation to comply with all of the applicable provisions of the Advisers Act and the rules that have been adopted by the SEC. This information sheet does not provide a complete description of all of the obligations of SEC-registered advisers under the law. To access the Advisers Act and rules and other information, visit the SEC’s website at www.sec.gov (the Advisers Act and rules are available at http://www.sec.gov/divisions/investment.shtml).

FCPA Allegation Against McCain Fundraiser

Republican fundraiser Harry Sargent III is subject to a suit from Supreme Fuels that Sargent’s company International Oil Trading Company made illegal payments to Jordanian officials. IOTC has an exclusinve license to move military fuel through Jordan.

IOTC’s response, according to the NBC News Investigates story:

. . .in an email to NBC News, a spokesman said that there were no bribes and only a legitimate “fee” paid to the government of Jordan. “What Supreme [Fuels] calls a ‘bribe’ was a required fee for importing and transporting military fuel through Jordan,” a spokesman for Sargeant and IOTC said. “The fee was paid to an official agency of the Jordanian state and thoroughly documented. This and any other related charge have been shared with the Department of Defense (and to Congress) as part of our transparent disclosure of any and all costs related to the fuel delivery process.”

Under the Foreign Corrupt Practices Act, payments to agencies of a foreign government are not illegal. The FCPA is only applicable to payments to foreign officials. Foreign governments are free to extort as much money as they can. It is the personal gain by a government official that is a problem.

The other unusual part of the suit is that it is filed by a private party. There is no right for a private party to bring suit under the FCPA. Only the DOJ and SEC have the power to enforce the statue. The party is suing under RICO.

The leading case on private actions under FCPA is Lamb v. Philip Morris, Inc. (6th Cir. 1990) 915 F.2d 1024, cert. den. (1991) 498 U.S. 1086:

Since we find that no private right of action is available under the Foreign Corrupt Practices Act of 1977 (FCPA), 15 U.S.C. Secs. 78dd-1, 78dd-2, we affirm the dismissal of the plaintiffs’ FCPA claim.

FinCEN Proposes Regulatory Simplification

In a news release, the Financial Crimes Enforcement Network (FinCEN) announced the publication of a proposal to simplify its rules and regulations by centralizing them in its own new chapter of the Code of Federal Regulations.

The current organizational structure of FinCEN regulations developed over many years, during which Congress expanded FinCEN’s authority . As a result, the regulations are somewhat difficult to navigate. FinCEN’s regulations are currently included in the CFR as Part 103 in Chapter I under “Title 31, Money and Finance: Treasury.” FinCEN is proposing to reorganize and renumber its regulations into a new tenth chapter of Title 31 which would appear as “Title 31 Chapter X – Financial Crimes Enforcement Network.”

The proposal includes two structural changes to the organization of the BSA regulations. FinCEN regulations would be reorganized into a “General Provisions” part and then separate parts for each type of financial institution that has a BSA obligation. Therefore, under this simplified proposal, a compliance official for a Money Services Business, for example, would need only to look under “General Provisions” and then under “Rules for Money Services Businesses” to find pertinent FinCEN regulations. Additionally, FinCEN is proposing a numbering logic to its regulations. By having a uniform numbering system, specific FinCEN regulations will be easier to identify. For example, regulatory requirements for reports of suspicious transactions are proposed to be reorganized as 1010.320. The citation .320 will be universal in the part for each type of financial institution as well. The requirement for reports of suspicious transactions for banks will be 1020.320, for casinos and card clubs will be 1021.320, brokers or dealers in securities 1023.320, etc.

The Notice of Proposed Rulemaking is on the FinCEN website.

Certification Mark for EU Safe Harbor Framework

The Commerce Department’s International Trade Administration (ITA) has developed a certification mark for the U.S.-European Union Safe Harbor Framework. The mark may be used by companies on their websites to signify that they have self-certified compliance with the provisions of the Safe Harbor Framework. To display the certification mark, you must follow the Safe Harbor Certification Mark Instructions developed by ITA. Only those organizations that have self-certified and are listed on ITA’s official Safe Harbor Program list will be allowed to use the mark in an appropriate manner.

More than 1,500 U.S. companies participate in the Safe Harbor.

If you are considering joining the safe harbor, take the following steps:

Read the Safe Harbor Overview, including the Benefits of Joining.
Read the Safe Harbor Documents.
Review the Safe Harbor Workbook.
Review the Helpful Hints Before Self-Certification.

If you decide to join the safe harbor, you should:

Bring your organization’s policies and practices into compliance with the Safe Harbor’s Requirements;
Verify that your organization has done so; and
If you wish to assure your organization of safe harbor benefits, review the Information Required for Certification
complete and submit the Certification Form.

After your information has been reviewed for completeness, it will be posted to the Safe Harbor List.