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Global Issues: Compliance, M & A, JV, Due Diligence and More
The editor of Metropolitan Corporate Counsel interviews Scott Shaffer, vice president of Sale, Kreller Group.
Editor: Describe your business and the services it provides to global companies? Describe your employees?
Shaffer: The Kreller Group, Inc. specializes in the provision of due diligence and background investigations on companies and individuals worldwide. We carry and international credit inquiries and assist companies with the collection efforts. Specifically, my current responsibilities: Proactive consultation with existing customers due diligence to address goals, customizing due diligence programs for new customers, analyze current trends in terms of regulatory compliance, and works closely with national and to hold international investigators on current security issues. Kreller The staff has a team of licensed investigators and analysts with experience in federal, State and local law enforcement agencies and case managers who interact with customers to determine, due-diligence objectives. Furthermore, we use an exceptional Network of global contacts and resources to assist with international basic work.
Editor: How should in-house counsel select an outside firm Investigative? How can to keep costs in line?
Shaffer: In light of recent situations in which corporations with unprofessional investigators in-house counsel should be very careful in selecting an outside firm to help. The first step would be to identify the situations in which external agencies have used to be and find businesses that support your particular research. Professional associations, colleagues and staff, a recommendation or referral . Give Second, review of the company is not related to any case of improper or unethical studies in the past. Third, get references and licensed you speak directly with current customers. Finally, the company signed a non-disclosure agreement, discuss price, turn time, contractual obligations and expectations of investigations.
How much, I can only speak for our system of pricing, many investigative companies handle this differently than we do. Before an investigator hired to support the research, they should be given a clear understanding of the objectives of the work to be performed. How many companies? Where are they located? Are there people involved? If so, how many? Do they have subsidiaries or branches? If so, where are they? is understood by the breadth of the investigation, we prefer a low-cost and delivery time estimate be required based on our experience of time and resources to complete the project. But through the course of the investigation, it can we uncover additional areas of research that the use of the client can. Then we discuss it with the client and decide whether to continue.
Editor: What types of relationships require a third party due diligence?
Shaffer: strategic partnerships, joint ventures, mergers and acquisitions, vendor, customer acquisition, Distribution, upper-level management, Sales Agents / Consultants and license and franchise agreements.
Editor: Describe the scope of the FCPA and U.S. Export Controls? What are the penalties?
Shaffer: The Foreign Corrupt Practices Act ("FCPA") by the Congress in 1977 after the federal investigation in the mid-1970 years to affect more than 300 million U.S. dollars found in suspect passed on or even made illegal payments of hundreds of American companies to foreign officials favorable business decisions. Designed to ensure that U.S. companies International Business Conduct, ethically, the FCPA is jointly organized by the Department of Justice and the Securities and Exchange Commission enforced. It consists of two parts: anti-corruption regulations and accounting rules. Violations of the FCPA carry both criminal and civil liabilities, resulting in steep fines and prison sentences. Business entities are subject to first penalties of up to $ 2,000,000, while the individual officers, Directors, shareholders, employees and agents, up to $ 100,000 fine and up to five years for criminal violations of the anti-corruption provisions imprisoned. Actual fines can be much higher according to the Alternative Fines Act. Persons or companies that breach of the FCPA may still subject to other government measures, including the suspension of government procurement rights (for indictment along) to suspend and or refusing the application, the door Close to many companies. It's not just the government, the enforcement of the FCPA increasing (there are 29 investigations of FCPA violations and 16 federal lawsuits enforcement in the last year), but also more laws are created and enforced to aggressively attack fraud, corruption and bribery. The Patriot Act was developed, to prevent the financing of terrorism and money laundering by foreign and domestic criminals. Sarbanes-Oxley is forcing companies to detect fraud. Several other Countries have adopted similar measures, largely because of the global anti-corruption initiatives of the Organization for Economic Cooperation and Development (OECD).
Editor: We have talked about sanctions. What else can happen to an organization Harms besides financial loss?
Shaffer: Company to their export license and / or government procurement rights, and experience negative publicity, loss of confidence of the shareholders lose, weakened Corporate Integrity and damaged the trust of customers. be individuals directly involved face imprisonment.
Editor: In connection with M & A Transactions and joint ventures, to what extent you can provide information on the other party and the people involved? Do you support in Due Diligence? What protective steps do you recommend? Thurs strict privacy laws affect your activities in some countries? Examples?
Shaffer: In a typical JV or M & A transaction, we research the company and clients, as is desired by the customer. Principals may include, but are not limited to, economic owners, managers and other key persons. Our study would include: Corporate record research, writing media, criminal / Civil control, business / partnership membership, and discussions with regulatory authorities, reference / employment / training and a final examination Review of Denied Party Lists. If possible, I would recommend a thorough questionnaire and authorized consent by the subject and each potentially Interest will be completed to comply with various privacy laws around the world. Privacy Laws, also agrees with approved, our ability to access or limit certain information. For example, the Data Protection Act, the impact of the UK and most of the European Union prohibits the formal criminal justice issues. Privacy These laws are becoming increasingly common in both the U.S. and internationally and will most likely continue to increase.
Editor: Describe the dynamics between auditor and in-house counsel.
Shaffer: The process begins with a consultant to conduct the investigation (case managers) the acquisition of information on the topic and the development of an understanding of the specific objectives and concerns for the case to the hand. This information and understanding is then sent to the investigating body where a team of leading researchers assumes control of the process. The lead investigator of the dissemination of information to appropriate agents and contacts with the region and country to and focus the investigation is started. During the investigation it is important that the client and case manager maintain communication channels. As the investigator begins digging up " Business Intelligence, the ultimate aim of the study may change and additional work may or may not be necessary. Due to their complexity and sensitivity require some of the studies do "everything it takes" approach. But not every situation requires tens of thousands of dollars in order to obtain background information will be issued. More often than not, customers will have specific topics addressed, while the costs can be controlled. For the process to be successful, the firm and outside auditor must be the aim of the research, an accurate assessment of the legal and economic risks, which produce made by an association with a third party . Concentrate
Editor: What are the benefits of using an outside investigative agency?
Shaffer: For clarification should be outside law enforcement agencies not substitute its own internal due diligence efforts. Companies should be used to supplement and increase the amount of information you have on which your business Decision is based. Detective agencies provide an unbiased review of the potential target and should bring no negative information light. You can experience and competence in a region of the world where you can feel with your own lack of skills. Experience has shown that time and money in due diligence investigators has invested a lot of companies from financial disaster and reputation irrevocably saved embarrassment.
Editorial: Can recent examples, in the snide or topical treatment was found? How do you separate fact from fiction?
Shaffer: Business Development Manager of a major U.S. energy company is a sales representative in the Middle East, which he promised to deliver on public contracts. Before turning on him, the development manager will check the conditions with the legal / compliance department. This in turn asked the development manager of the Sales Agent to fill a request and authorization have, in which he agreed that he understood the FCPA and had no relations with government representatives. Through the course of our investigation, it was the sales agent was, was a PEP (Politically Exposed Person) because of his father's high-level the position of local government.
A large U.S. manufacturing company planned to acquire a smaller competitor in South America. Prior to the audit firms and lawyers were involved, the General Counsel requested a due diligence on the target company and select senior executives are carried out. It was noted that the primary owner of the object is currently involved with three other companies, two of which had filed for bankruptcy and the other as "dormant" noted. Further research showed the company to multiple civilian recent filings for large quantities due to the contractual issues that in turn call into question the solvency have led the company.
Separating fact from fiction is difficult, particularly in foreign jurisdictions in which the accessibility of records is minimal. Investigators should focus on the facts and try to separate them in gossip biased media reports or politically motivated negativity. If possible, Investigators should try, the information from different sources, or at least convince them, a credible explanation as to the validity of the Source text.
Editor: What are some of the potential "red flags" that companies should be on guard?
Shaffer: If one of the following Situations are found, direct questions of the candidate. It may be a suitable explanation, especially if it be in foreign locale. But what may seem like a small thing or omission may result in a trail of fraud and corruption:
· Failure of the applicant to ask for basic documents;
· Address specified is determined to be a mail drop;
• Before judgments, liens or bankruptcies;
· Non-disclosure of civil / criminal litigation;
· Criminal arrests;
to review · Missing information provided;
· Missing references confirm;
· Applicant Selection to be argumentative about basic information requirements;
· History of corruption in the country (Transparency International) and
· Family relationship between the participants and government officials.
About the Author
Scott Shaffer is the Vice President of Sale for the Kreller Group in Cincinnati, Ohio, where he manages international due diligence investigations and international background checks. Scott’s current responsibilities include: proactive consulting with existing clients to address due diligence objectives, customizing due diligence programs for new customers, analyzing current trends regarding regulatory compliance, and working closely with domestic and international investigators to keep current on security issues.
