Avoiding Corruption: Compliance for Legal Professionals An Overview of Challenges and Practices Alessandro Volcic | Head | Russia & CIS 19 March 2015 1 Avoiding Corruption - Alessandro Volcic Proprietary and Confidential
Global Coverage 2,000 Employees in 55 Offices Across 26 Countries 2 Avoiding Corruption - Alessandro Volcic
Challenges Legal professionals are so busy helping others, often forget to help themselves Legal services professionals are under tremendous strain in the current climate – driven by competition, market conditions, complex laws and processes, and increasing client demands Given familiarity and proximity to clients and client needs – from disputes to risk management, legal services professionals often have “tunnel vision” - only looking at issues impacting clients, not themselves Important to understand how legal professionals are at risk – and how one mitigates risks in our competitive and challenging environment 3 Avoiding Corruption - Alessandro Volcic
Key Risks Where are legal professionals most at risk? There are many areas where a legal professional is exposed to risk, whether far reaching such as the UK Bribery Act, established and robust such as the FCPA, or increasingly important local bribery and corruption enforcement Kroll identified three key areas where legal professionals are exposed: High risk clients High risk transactions Failure to maintain adequate processes to mitigate risks 4 Avoiding Corruption - Alessandro Volcic
High Risk Clients Lucrative but risky clients pose substantial threats High profile clients with sophisticated legal goals and significant net worth are often among the more lucrative ones to work for. However, such clients pose heightened risks – either because they can attract the wrong type of attention or because the nature of their work has a higher probability of opening one to corruption violations. High risk clients can include: Politicians and government officials and their families (PEPs) High Influence Individuals, such as oligarchs, high net worth families, or key executives at major companies Clients with little profile or track record and “red flags”, such as originating from a fiduciary industry or from a place where money laundering or corruption is commonplace The key risks associated with high risk clients are: Their work tends to attract government attention, particularly from regulators or law enforcement agencies High risk clients tend to get involved in complex legal proceedings 5 Avoiding Corruption - Alessandro Volcic
High Risk Transactions Kroll’s experience is that certain transactions, even when done in good faith, may lead to risky behaviour In the past, law firms have asked us to: Attempts to obtain non-public information on behalf of clients, such as bank accounts or assets Attempts to gain intelligence into client competitors, legal adversaries, or government investigations Issue of off-shore entities and beneficial owners 6 Avoiding Corruption - Alessandro Volcic
Risk Mitigation Mitigating the risk goes a long way to keeping one’s business reputation intact and doing business intelligently It is impossible to run a risk-free business, but implementing the right processes, hiring the right people, and making smart decisions will greatly mitigate risks and often attracts the right type of clients Kroll’s key risk mitigation strategies are: Implementation of Know Your Client (KYC) due diligence systems Implementation of internal ethics standards and training Implementation of a Risk Committee Awareness of general money laundering issues and geographical and sectorial risk 7 Avoiding Corruption - Alessandro Volcic
Know Your Client A good KYC program can let you get ahead of the risk Many clients implement KYC programs to understand their clients KYC programs should be implemented wisely – not all clients require extensive due diligence, and high risk clients should get more scrutiny than regular clients Kroll champions idea of “risk based approach” – increasing depth of due diligence with level of risk Good KYC process allows for the management of bribery and corruption, reputational, as well as commercial risks Spectrum of risk-based due diligence on following slide 8 Avoiding Corruption - Alessandro Volcic
Different levels of KYC DD for different needs 9 Avoiding Corruption - Alessandro Volcic
Ethics and Risk Management The implementation of internal processes to mitigate risk helps to put in place systematic controls Annual or bi-annual training to all staff at all levels helpful – not only do people become aware of the risks, but such a program also allows the company to show regulators and enforcement officials evidence that staff were trained and the company was proactive in mitigating bribery and corruption issues Each company should have a clearly worded and easily available policy on compliance issues such as money laundering, corruption, and fraud. A nominated compliance person, preferably at a senior level, should be appointed to “champion” the cause Crucial to have a “tone from the top” about compliance and transparency to establish a culture of doing things appropriately To protect employees, companies may consider establishing Risk Committees to discuss certain clients, cases, and/or processes to ensure the company is comfortable with employee behavior before action is taken 10 Avoiding Corruption - Alessandro Volcic
Key Strategies for an Effective Compliance Program Key elements - summary Ensure that you have a clearly articulated corporate policy that is widely available to all staff A mechanism, such as a hotline, for employees to seek guidance and report wrongdoing A nominated figure, at a senior level, to act as the compliance “go to” person KYC and due diligence processes, preferably based on a risk-weighted approach Checks and balances between various stakeholders, to include the business team, the compliance figure, and internal legal/finance teams Anti-bribery language in contracts and relevant internal documents Strong internal accounting controls Systematic and substantive training for all employees 11 Avoiding Corruption - Alessandro Volcic
An effective compliance cycle Management-led Compliance and Anti-Bribery • Company management to set clear guidelines and champion anti- corruption and anti-bribery from the top Investigation and Policies and Checks and Enforcement Balances Ability to effective navigate through the An ability to investigate and relevant stakeholders and ensure that take action against those compliance plays a role in commercial who are actively violating decisions company policies Training Should be systematic and encompass Risk Committee and all employees Internal Decision Making Systems Communication Cases should be brought before risk committees and the company Need to communicate clearly and have should be able to decide on on- communication readily accessible. boarding clients or using certain Critical to augment with internal reporting methods Due Diligence and ability to seek guidance. On risky clients or third parties 12 Avoiding Corruption - Alessandro Volcic
Alessandro Volcic Head of Russia & CIS Kroll Investigations & Disputes avolcic@kroll.com Alessandro “Alex” Volcic is an Associate Managing Director in Kroll’s Investigation & Disputes Team, and has oversight over work in Central Eastern Europe for the firm. Alex joined Kroll in 2004 in the London office. He has led due diligences, complex international fraud investigations, internal investigations and investigations into potential Foreign Corrupt Practices Act breaches. Alex has conducted cases in Germany, CEE, Russia and the Middle East. In 2011, Alex left Kroll to work in BP’s Fraud and Misconduct Investigations team. This role focused on internal investigations in the Caspian. Prior to joining Kroll, Alex worked in a public affairs consultancy, conducting research and lobbying European politicians. He has also worked at the European Parliament and taught politics at the London School of Economics. 13 Avoiding Corruption - Alessandro Volcic
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