Does a Compliance Policy Really Provide a Legal Defense?
A former Morgan Stanley executive, Garth R. Peterson, who served as managing director of the company’s real estate investment and fund advisory business in Shanghai, pleaded guilty to criminal and civil charges for secretly funneling millions of dollars in bribes to a Chinese official. This official then helped the company acquire business while enriching himself through similar means. However, the US Justice Department said in a release that it had declined to prosecute Morgan Stanley and detailed the numerous instances in which Peterson subverted the company’s internal controls or certified his compliance with the FCPA.
Why didn’t the US DOJ prosecute Morgan Stanley when the affair of corruption in China came to light?
For the first time the Department of Justice declined to prosecute a company, specifically, Morgan Stanley, giving as its reason the transparency and levels of cooperation shown by Morgan Stanley towards investigators. The US DOJ and SEC both recognized and valued the implementation of internal systems to prevent fraud and corruption. Even though Mr. Peterson was able to circumvent these systems the DOJ and SEC appreciated the sincere and concrete attempts made by Morgan Stanley to prevent fraud and corruption.
Which procedures were viewed most favorably in the eyes of the DOJ vis-a-vis Morgan Stanley’s anti-corruption compliance program?
- clear written procedures, regularly updated to take into account changing legal frameworks and the nature of the risks;
- communication with company employees on compliance including training and the certification of key employees in the corruption prevention program. Over a 7-year period, Morgan Stanley trained its Asia-based employees 54 times on anti-corruption.
- an employee whistleblowing system ;
- controls to detect suspect payments and transaction monitoring with special emphasis on high risk areas or activities;
- an ongoing due diligence program that included random audits of people and partners;
- thorough and well-documented due diligence on third parties;
regular evaluation of their anti-corruption compliance systems and a conflict resolution mechanism. Moreover, it was noted that there are 1,200 Morgan Stanley employees out of a total of 61,000 who work in Ethics, Compliance or Legal.
What particularity does Morgan Stanley have that enables an effective anti-corruption compliance program?
The Ethics and Compliance officers at Morgan Stanley are autonomous, visible and have the power and resources to effectively carry out their mission. They have direct access to the Board. These elements convinced the DOJ and the SEC of the sincerity of the compliance program.
Although the DOJ and SEC have always maintained that a pre-existing compliance program generates benefits for a corporation, they hadn’t been prepared to detail reasons for declining to bring prosecutions. The good work of Morgan Stanley however, in the area of compliance, was an occasion for the DOJ and SEC to highlight an example of what they expect in anti-corruption compliance. “After considering all the available facts and circumstances, including that Morgan Stanley constructed and maintained a system of internal controls, which provided reasonable assurances that its employees were not bribing government officials, the Department of Justice declined to bring any enforcement action against Morgan Stanley related to Peterson’s conduct, “ the release said. “The company voluntarily disclosed this matter and has cooperated throughout the department’s investigation.”
Tags : Secure Finance, Morgan Stanley, benefits of compliance, US DOJ, US SEC
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