U.S. businesses should take note of the enhanced benefits now available to companies that self-disclose misconduct or otherwise cooperate with the U.S. Department of Justice (DOJ) under the DOJ Criminal Division’s new Corporate Enforcement Policy. The policy, as revised, governs not only the DOJ’s handling of matters under the Foreign Corrupt Practices Act (FCPA),but also the DOJ’s handling of matters under other federal criminal statutes as well. Broadly, the FCPA bars U.S. companies, foreign public companies, and certain foreign persons subject to U.S. jurisdiction “from giving bribes or kickbacks to any foreign official to obtain or retain business.” It also imposes record-keeping and internal accounting control requirements on U.S. public companies and foreign public companies listed on U.S. stock exchanges, as well as their subsidiaries and affiliates.

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In the wake of DOJ’s touted reenergized enforcement of the Foreign Corruption Practices Act, the new year began with DOJ dangling perhaps its largest carrot yet to lure corporations worldwide to assist DOJ in investigating them and their employees – not limited to the FCPA arena. DOJ’s latest Corporate Enforcement Policy aims to give more companies additional reasons to disclose misconduct by using increased incentives and opportunities to coax corporations once excluded from the program or lacking prior motivation to cooperate. As part of its continuing evolution designed at fulfilling its promise to “vigorously enforce” foreign bribery cases after a lackluster first two years, the Biden administration is building upon the so-called “Monaco Memo” and other DOJ officials’ public pronouncements.

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Start-ups and pre-IPOs today are operating across a patchwork of solutions. To proactively address risk and bring their companies to the market in the current environment, start-ups and pre-IPOs must manage risks across their business processes. To protect transactions and sensitive data, start-ups, and pre-IPOs need to implement an in-depth controls program that utilizes clearly defined functional roles and automated controls. In light of the recent FTX revelations and the record-breaking years IPOs have had, revisiting the importance of strong internal controls is particularly relevant. FTX is a reminder of the importance of governance and internal control systems to ensure transparency and accountability. This blog will focus on the steps start-ups and pre-IPOs can take to establish governance, risk management, and internal control systems to prevent similar events.

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The cybersecurity landscape in all respects — from the threats posed to the methods used to counter them, plus the regulatory requirements about how to prevent, detect and mitigate cyber incidents – is always changing. That’s a given. What’s a little harder to understand is how to work with the government, and when to do so, during an unfolding cybersecurity crisis.

The WSJ reported on February 9 that after FBI agents infiltrated the networks of Hive, a ransomware group that had extorted about 1,000 companies, hospitals, and other targets, the agency learned something shocking from their investigative data.  Their discovery? Only 20 percent of these affected businesses had approached law enforcement about their attacks.

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A chief risk and compliance officer recently told me about a dilemma he faced with his board of directors. Compliance monitoring had uncovered a control failing that meant his firm seemed to be in breach of a regulatory policy.

The requirement was for a manufacturing firm to collect information regarding fees charged to customers along the whole of the supply chain. The intent of the rule was obvious: for the manufacturing firm to assess whether the ultimate price charged for the product was fair and good value. The board’s decision was to ignore the requirement, their reasoning being collecting and maintaining the information across all its distribution channels, partners, and products would be onerous and disproportionate. Further, the impact on intermediaries in the supply chain would be even more burdensome. Each would be expected to report on its product fees to each of the manufacturers it dealt with, even when they had no direct relationship with the manufacturer. That would be a difficult sell to the firm’s partners. In a market where no other manufacturer seemed to be demanding such data, my colleague’s request for compliance with the rule was declined.

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Corporate governance practices vary significantly among public companies. This reflects many factors, including: Differences in their stage of development, including the relative importance placed on various business objectives (for example, focus on growth and scaling operations may be given more importance for technology and life sciences companies); Differences in the investor base for different types of companies; Differences in expectations of board members and advisors to companies and their boards, which can vary by a company’s size, age, stage of development, geography, industry and other factors; and The reality that corporate governance practices that are appropriate for large, established public companies can be meaningfully different from those for newer, smaller companies. Since the passage of the Sarbanes-Oxley Act of 2002, which signaled the initial wave of corporate governance reforms among public companies, each year Fenwick has surveyed the corporate governance practices of the companies included in the Standard & Poor’s 100 Index (S&P 100) and the technology and life sciences companies included in the Fenwick – Bloomberg Law Silicon Valley 150 List.

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Corporate governance failures and executive misconduct have always been headline news—and the trend is not slowing down. It seems the lead story for just about every business publication these days is about illicit executive behavior, lax or nonexistent business controls or some other violation that strains credulity. It’s gotten so frequent that this behavior is regularly exploited to make highly successful television shows, podcasts and documentaries. What was once the purview of compliance professionals and those who make a point to pay attention is now very much front-page news.

Early headlines about Enron and WorldCom—whose poor management and misconduct contributed to the creation of the Sarbanes-Oxley Act (SOX)—have evolved to focus on new companies, such as with the recent FTX situation. I think it, too, will likely be the basis for new regulatory measures and increased enforcement.

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The Securities and Exchange Commission said Wednesday it settled charges against African Gold Acquisition Corp. for internal controls, reporting and recordkeeping violations that enabled its former chief financial officer to misappropriate about $1.2 million from the company's bank account.

The SEC said the special purpose acquisition company made materially false filings with the agency and maintained inaccurate books and records. African Gold agreed to a cease-and-desist order and to pay a $103,591 civil monetary penalty without admitting or denying the SEC's findings. African Gold's only liquid asset was the money held in its operating bank account but despite this risk gave former CFO Cooper Morgenthau control over nearly all of the account and the financial reporting process with little to no oversight, the SEC's order alleged.

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Contact: Mr Nereo Guzman Mendoza

Email: nguzman@businesssolutionvalley.com

Tel: +52 811 181 3514

Control Quotes:

“Incredible change happens in your life when you decide to take control of what you do have power over instead of craving control over what you don't.”

― Steve Maraboli