"Episode 184 -- Marc Bohn on the Mead Johnson FCPA Enforcement Action"The FCPA Compliance and Ethics Report
In this podcast, Marc Alain Bohn discusses practical lessons learned for the compliance practitioner resulting from Mead Johnson Nutrition's recent Securities and Exchange Commission's (SEC) settlement. Although Mead Johnson had a compliance program in place, identified and investigated the alleged misconduct in 2011 and ultimately discontinued the discount program at issue out of an abundance of caution, the SEC still opted to prosecute the company for violations of the Foreign Corrupt Practices Act (FCPA) after learning of the allegations two years later. Bohn attributed this, in part, to the fact that "the company appeared to be caught flat-footed" when approached by the SEC about the allegations in 2013 and failed to inform the SEC that it had previously looked into this matter. "As the SEC continued making inquiries [however], it came out that this prior investigation had been conducted and no improper payments had been identified through it," which Bohn said was a "a one-two punch." He explained that "the SEC feels as though if a company's allegations are significant enough, they should be voluntarily disclosing these allegations. There's nothing statutorily that obligates a company to do so, but if you want to receive the cooperation credit's full amount from authorities, then you need to consider that when significant allegations come up." When there are systemic issues, Bohn said the SEC may feel there is a stronger case for voluntary disclosure. "Our clients give a lot of thought to this and if they do not decide to voluntarily disclose a particular matter, then we always recommend they make up for that by conducting a very defensible, well-documented investigation that would turn over the same stones the SEC or [Department of Justice] would ask them to," he said.
In deciding whether to voluntarily disclose a potential violation, Bohn said board members should consider how allegations are going to look if they eventually come to light, as well as the size of payments involved, the scope of the misconduct, how senior the employees involved were and how far the misconduct extends. "The further up the ladder it goes, the larger the scheme, the more systemic the issue, the more that the agencies are going to see this as something that should have been voluntarily disclosed," he said.
Bohn also noted that to be effective, compliance programs must grow with the business. "In this instance," he said "it's not clear that Mead's compliance program kept pace with its growth in the region, so, [while] it may have had a defensible compliance program when it was in 28 cities, if the number of compliance personnel that it had available to assist and the scope of its controls, etc., did not grow with the company's business -- which grew by 1000% in that period, they expanded to 241 cities -- then the compliance personnel they had that were sufficiently meeting the needs of 28 cities are probably not going to be meeting the needs of 241 cities."