It is a question asked by all parties in a matter with potential criminal consequences. The prosecutor — considering whether to invest time in an enforcement investigation or, later, seek an indictment — must assess whether a prosecution of the target’s offense conduct would be time-barred under the statute of limitations. In-house corporate counsel, confronting the discovery of a violation of law, must weigh the benefits of a voluntary disclosure to the government against the possibility that the company might quietly remediate the problem and wait out the statute of limitations. Defense counsel, pondering the range of motions to file on behalf of a client facing indictment, must consider whether to attack the indictment on the grounds that the government’s charges are outside of the statute of limitations.

In enacting the Wartime Suspension of Limitations Act (“Suspension Act” or “Act”), Congress gave the Department of Justice vast discretion to bring charges beyond the standard five-year statute of limitations. Thus far, however, the Suspension Act has had only a marginal measurable impact on the prosecution of procurement fraud and corruption relating to the wars in Afghanistan and Iraq.

General Rules and Principles

The purpose of a statute of limitations is to protect individuals from the unfairness of prosecution after significant periods of time have elapsed since the alleged commission of offenses, as probative evidence may have become lost or destroyed and witness memories may have faded. As the Supreme Court has stated, statutes of limitations “may also have the salutary effect of encouraging law enforcement officials to investigate suspected criminal activity.”

Title 18, Section 3282 of the U.S. Code sets forth the general statute of limitations applicable to most federal crimes. It states that “no person shall be prosecuted, tried, or punished for any offense, not capital, unless the indictment is found or the information is instituted within five years next after such offense shall have been committed.” This five-year statute of limitations applies to most of the criminal offense conduct arising out of the wars in Afghanistan and Iraq, including violations of the False Claims Act, bribery, illegal gratuities, kickbacks, wire fraud, false statements, money laundering, and the theft of government property. It also applies to conspiracies to commit a federal offense against the United States or to defraud the United States, although the statute of limitations does not begin to run in such cases until the last overt act in furtherance of the conspiracy has been committed.

Congress has prescribed longer statutes of limitations for certain criminal offenses. For example, major fraud against the United States (i.e., fraud of $1 million or more) carries a statute of limitations of seven years. But the most far-reaching and elastic statute of limitations pertinent to the wars in Afghanistan and Iraq is the Suspension Act.

Wartime Suspension of Limitations Act

The Suspension Act, codified at Title 18 of the U.S. Code, Section 3287, originally was enacted in 1921 as a temporary exception to the prevailing three-year statute of limitations on frauds committed against the United States during World War I. The Act extended the statute of limitations to six years in cases of “offenses involving the defrauding or attempts to defraud the United States or any agency thereof, whether by conspiracy or not, and in any manner, and not indictable under any existing statutes.” Congress repealed the statute in 1927 after the Department of Justice announced that it contemplated no further prosecutions of fraud arising out of World War I.

Congress re-enacted the statute in 1942 after the United States entered World War II, but included a sunset provision in the law calling for the suspension of the statute of limitations to expire on June 30, 1945, “or until such earlier time as the Congress by concurrent resolution, or the President may designate.” As Congress explained in the legislative history regarding the amendment, the suspension statute was intended to give the government sufficient time to investigate and prosecute pecuniary frauds committed while the United States was distracted by the demands of war. In language evocative of what later characterized the flood of U.S. government contracting that followed the U.S. invasion of Iraq in 2003, Congress was particularly concerned about “the exceptional opportunities to defraud the United States that were inherent in its gigantic and hastily organized [World War II] procurement program.” “These frauds,” the Senate report explained, “may be difficult to discover as is often true of this type of offense and many may not come to light for some time to come.”

In 1944, Congress amended the law twice to add specific references to wartime contracts, and the statute was recodified in 1948 to provide for a three-year suspension of the statute of limitations. Between 1948 and October 2008, the Act provided that:

When the United States is at war the running of any statute of limitations applicable to any offense (1) involving fraud or attempted fraud against the United States or any agency thereof in any manner, whether by conspiracy or not, or (2) committed in connection with the acquisition, care, handling, custody, control or disposition of any real or personal property of the United States, or (3) committed in connection with the negotiation, procurement, award, performance, payment for, interim financing, cancellation, or other termination or settlement, of any contract, subcontract, or purchase order which is connected with or related to the prosecution of the war, or with any disposition of termination inventory by any war contractor or Government agency, shall be suspended until three years after the termination of hostilities as proclaimed by the President or by a concurrent resolution of Congress. (Emphasis added.)

In October 2008, the Suspension Act was amended to expand its applicability to times “[w]hen the United States is at war or Congress has enacted a specific authorization for the use of the Armed Forces, as described in section 5(b) of the War Powers Resolution….” (Emphasis added.) The amendment also extended the suspension period until “5 years after the termination of hostilities as proclaimed by a Presidential proclamation, with notice to Congress, or by a concurrent resolution of Congress.” (Emphasis added.) The Senate report accompanying the legislation underscored Congress’s desire to give U.S law enforcement agencies and auditors more time to investigate fraud associated with the wars in Iraq and Afghanistan.

It is important to understand the breadth of the Suspension Act’s potential applicability. As amended, the statute of limitations period does not begin to run until five years after the “termination of hostilities” specified in the Act – i.e., either a Presidential proclamation with notice to Congress or a concurrent resolution of Congress. Thus, for example, if a U.S. contractor operating in Afghanistan committed a criminal violation of the False Claims Act in 2009, and the President issued the requisite Presidential proclamation in 2013, the statute of limitations under the Suspension Act would not begin running until 2018. Hence, the government could wait another five years until 2023 to bring charges.

Moreover, the government’s application of the Act is not limited to procurement fraud relating to the prosecution of a war. As indicated above, the Act also extends the time to prosecute any fraud against the United States, as well as offenses concerning real property of the United States, which occur while the United States is “at war” or when Congress has enacted a specific authorization to use force. The courts have construed this aspect of the Act to simply require proof of a “pecuniary fraud” against the United States, regardless of whether the fraud is related to a war.

Minimal Impact of the Suspension Act

On its face, the Suspension Act would appear to be a substantial boon to prosecutors, particularly given the magnitude of fraud and corruption associated with the wars in Afghanistan and Iraq. In fact, however, the Department of Justice has made only sparing use of the Act to pursue criminal cases stemming from the two wars.
The best available measure of the government’s reliance on the Act is the incidence of litigated cases where the government has brought an indictment and the defendant has moved to dismiss the indictment on the grounds that the charged offense conduct is outside the statute of limitations. Since 2001, there have been only five reported cases in which the Suspension Act was an issue. One of those was a fraud case involving the “Big Dig” project in Boston, totally unrelated to any military conflict; another was a civil qui tam action under the False Claims Act brought by a relator without the intervention of the U.S. Government.

There may be several reasons for this dearth of reported decisions. As a preliminary matter, in many instances, the government has been able to assemble prosecutable cases within the standard five-year statute of limitations, so it has not needed to invoke the Suspension Act. Some cases in which the government may be relying on the Suspension Act result in convictions by plea agreement in which there is no specific mention of the Suspension Act and the defendant has waived his or her right to appeal. In other cases, the issue might have been litigated in pretrial motions but the district court simply issued a non-descriptive, unpublished order denying the defendant’s motion. (The latter is true in the Texas case of United States v. Pfluger, a case recently affirmed by the U.S. Court of Appeals for the Fifth Circuit.)

In cases where the offense conduct was committed after the expiration of the general five-year statute of limitations, the Department of Justice may have been reluctant to bring more criminal cases because of concerns regarding the Act’s constitutionality. In the government’s appellate brief in the Pfluger case, for example, the government “expresse[d] no view on whether a due process claim would lie” in the circumstance where the government invoked the Suspension Act long after the expiration of the termination of hostilities. In addition, the government may have been deterred by previous erratic decisions by district courts construing the Suspension Act. The courts have been in conflict, for example, as to whether the Suspension Act as amended in 2008 should apply to offenses that occurred before passage of the 2008 amendments. In addition, the courts have been divided as to whether the pre-amendment Suspension Act requires a formal declaration of war or whether the authorized use of military force is sufficient. In two separate cases decided in 2010 and 2011, for example, the district courts found that the United States was not “at war” for purposes of the pre-amendment Suspension Act even though Congress explicitly had authorized the use of military force in both Afghanistan (September 2001) and Iraq (October 2002) and there had been an obvious and enormous commitment of blood and treasure by the United States in both conflicts – on the grounds that Congress had not formally declared war in either situation.

So, too, there have been bizarre court decisions regarding when a “termination of hostilities” has occurred that would trigger the running of the statute of limitations (and thereby accelerate the government’s need to make a charging decision). In 2008, the U.S. District Court in Massachusetts ruled that a termination of hostilities in Afghanistan occurred on December 22, 2001, when the United States formally recognized, and extended full diplomatic relations to, the new Afghan government of Hamid Karzai, and that a termination of hostilities in Iraq occurred on May 1, 2003, when President George W. Bush proclaimed on the deck of the U.S.S. Abraham Lincoln that “[m]ajor combat operations in Iraq have ended.” A district court in Mississippi endorsed that ruling in a decision in 2010. On June 21, 2012, the Fifth Circuit rejected this position in the Pfluger case, holding – under “the plain and unambiguous language” of the Suspension Act – that a termination of hostilities occurs only when either the President or Congress meet “the formal requirements” of the Act.

More Pervasive Obstacles to Prosecution

It is doubtful, however, that any Justice Department concerns about the courts’ application of the Suspension Act have materially affected the number of procurement fraud prosecutions stemming from the wars in Iraq and Afghanistan. Rather, based on my own experience, the number of indicted cases has been limited more by the inherent problems that often plague these cases – regardless of the applicable statute of limitations.

Because the offense conduct and evidence thereof are often centered overseas, efforts to investigate fraud and corruption regarding U.S. government contracting in Iraq and Afghanistan have been fraught with challenges not confronted in most criminal cases. Mutual Legal Assistance Treaties, which provide a formal mechanism for obtaining evidence from a foreign country, have not yet been executed by the United States with either Iraq or Afghanistan. As a result, obtaining access to foreign business and financial records, or to foreign nationals for purposes of witness interviews, must often take place on an informal, ad hoc basis that is frequently unreliable – and inadmissible as evidence in a U.S. court. Access to bank records in Iraq and Afghanistan – and in nearby countries like Jordan where U.S. contractors favor depositing ill-gotten gains to avoid scrutiny – has proven particularly difficult. Difficulty in obtaining U.S. Government contracting records (particularly records maintained at U.S. military facilities abroad) sometimes complicates procurement fraud investigations, as does frequent turnover in U.S. Government contracting personnel overseas and law enforcement agents assigned overseas to such investigations.

Conclusion

The Fifth Circuit’s decision in Pfluger provides the Department of Justice with significant new judicial precedent to pursue fraud cases under the Suspension Act, as the government can now proceed with greater confidence that the Act’s termination clause has not ripened with respect to the wars in Afghanistan and Iraq, and that the applicable statute of limitations therefore has not yet begun to run. Nonetheless, the government will likely remain wary of bringing cases based on offense conduct so dated that prosecution might test the outer boundaries of due process. For now, federal prosecutors will likely continue to pursue war-related fraud cases the old-fashioned way, striving to assemble admissible evidence within the traditional five-year statute of limitations.

David H. Laufman is the Principal of The Law Offices of David H. Laufman, PLLC (www.davidlaufmanlaw.com), a law firm in Washington, DC, specializing in corporate compliance and white-collar defense. From 2010 to 2011, he served as Special Trial Attorney to the Fraud Section at the Department of Justice, where he investigated fraud and corruption relating to U.S. reconstruction assistance to Iraq. Mr. Laufman previously served as an Assistant United States Attorney for the Eastern District of Virginia and as Chief of Staff to the Deputy Attorney General.

The following list of 100 individuals represents those that had significant impact in the realm of business ethics over the course of the last year.

Although many listed here are deserving of a lifetime achievement award, this list recognizes those that have made a significant impact specifically during 2011.

These individuals represent ten distinct categories; Government and Regulatory; Business Leadership; Non-Government Organization (NGO); Design and Sustainability; Media and Whistleblowers; Thought Leadership; Corporate Culture; Investment and Research; Academics; and Philanthropy.

Some are world famous and some are unknown, but from law changing hunger strikes to using recycled materials to create $10,000, energy efficient homes, the following 100 individuals have impacted the world of business ethics in ways that will continue to resonate for many years.

Click their name to learn why they made the list!

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Palmina M. Fava, Partner, Litigation Department

Paul Hastings

Palmina M. Fava is a partner in the Litigation Department of Paul Hastings, and a co-chair of the firm’s Global Compliance and Disputes practice. Ms. Fava conducts internal corporate investigations, drafts and implements corporate governance programs, and represents corporations and individuals in civil litigation and government investigations.

Ms. Fava’s clients include publicly traded, privately held, and non-profit companies in the fields of technology; finance and banking; defense contracting; telecommunications and multi-media; drug, industrial, and consumer product manufacturing; hospitality; and insurance.

Ms. Fava conducts internal investigations on behalf of senior management and boards of directors with respect to the Foreign Corrupt Practices Act (FCPA), international anti-corruption and anti-bribery restrictions, fraud, kickbacks, accounting irregularities, and off-label pharmaceutical marketing, and regularly represents companies in such matters before the United States Department of Justice, the Securities and Exchange Commission, other federal and state agencies and international regulatory bodies. Ms. Fava has led teams in internal investigations in the Middle East, Europe, Asia, Latin America, and South America. She works collaboratively with clients’ in-house resources and other third parties to conduct comprehensive inquiries and to enhance corporate compliance programs.

Ms. Fava also designs and implements comprehensive corporate compliance programs addressing a client’s particular risks, provides employee and third-party agent training, conducts routine proactive audits of a client’s high risk areas, structures commercial arrangements to protect against compliance risks, and handles due diligence of agents, joint venture partners, and targets in M&A transactions. Additionally, Ms. Fava provides strategic and general business advice to clients faced with potential criminal investigations, class action lawsuits, and shareholder derivative claims.

Ms. Fava’s litigation practice focuses on complex commercial, business tort, and intellectual property disputes. She has served as lead litigation and trial counsel on matters involving breaches of fiduciary duty, breaches of contract, interference with business relationships, commercial misrepresentation, defamation, libel and slander, fraud, negligence, misappropriation of trade secrets, trademark and trade dress infringement, insurance coverage, and employment termination. She has successfully tried and defended cases in federal and state courts and arbitration panels, and represented clients in appellate arguments, mediations, and negotiations. Ms. Fava also advises clients on litigation avoidance and preparedness, and performs litigation and government investigation risk assessments on behalf of hedge funds and financial institutions.

Ms. Fava earned her J.D. from Fordham University School of Law in 1997 with honors and a B.A. from Georgetown University (cum laude) in 1994. She is admitted to practice in New York. Ms. Fava is a recipient of the Fordham University School of Law Joseph D. Crowley Award and a Pro Bono Service Award, and the Italian Government’s Distinguished Service Award. She is fluent in Italian.

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This article considers the anti-corruption enforcement landscape in the UK. In recent years there has been a very significant stepping up of enforcement activity in this area which, coupled with its far-reaching new Bribery Act, will make the UK regime a real force to be reckoned with. Equally, two significant recent cases demonstrate the continued difficulties surrounding plea discussions with UK prosecutors.

Background: The UK landscape

From the time the UK became a signatory to the OECD Anti-Bribery Convention until relatively recently, it has been roundly criticised for its perceived failure to effectively implement the Convention, and for the marked absence of corporate prosecutions for overseas corruption.

This impression was compounded by the decision of the Serious Fraud Office (“SFO”), the UK’s prosecutor of serious and complex crime, at the end of 2006, to terminate its investigation into BAE’s arms deals with Saudi Arabia, on the basis that to do so would be detrimental to the UK’s national interest.

Against this negative political and media background, the UK Government has sought to send clearer signals that it intends to treat overseas corruption as a prosecution priority. A new Bribery Act (which will come into force in April 2011) introduces legislation which will make it significantly more straightforward for corporate prosecutions to be brought.

In addition, the SFO under its present Director has been active in stating publicly that overseas corruption will receive greater attention. It has been increasingly willing to adopt a more U.S.-style approach to investigating and prosecuting bribery, and published a Guide encouraging companies to self-report overseas corruption issues. The SFO offers companies who self-report a “carrot” in the form of the prospect of a civil rather than a criminal outcome, using new civil recovery powers it was granted in 2008. A civil settlement avoids the UK’s draconian confiscation regime, and its EU-derived rules on mandatory debarment from public procurement contracts, which apply to companies convicted of corruption.

There have been a number of instances over the past two years where the SFO has pursued companies in the civil rather than the criminal courts, or has pursued offences of failing to maintain proper accounting records (which do not trigger the mandatory disbarment provisions), rather than corruption charges.

The UK Government also issued Guidelines on plea discussions in cases of serious or complex fraud. Whilst these expressly state that the sentencing judge remains the sole arbiter of what is an appropriate sentence, there has nevertheless been an expectation that the sentencing judge will, in the majority of cases, approve the terms of a plea agreement between a defendant and the SFO. However, that expectation is no longer (if it ever was) well founded.

Developments in 2010: Plea agreements

In March 2010, Innospec Limited, a UK company and wholly owned subsidiary of Innospec Inc., was sentenced following its decision to plead guilty to conspiracy to corrupt in relation to payments made to Indonesian public officials. Following an investigation by the U.S. authorities, Innospec Inc. was also found to have paid kickbacks in relation to the UN Oil for Food Programme for Iraq and to have acted in breach of U.S. trade embargoes with Cuba.

The U.S. and UK prosecuting authorities considered the potential fines and penalties in the U.S. and UK could exceed $400 million and $150 million respectively. However, Innospec did not have the financial ability to pay such amounts. It was agreed that Innospec would pay $25.8 million plus a possible further $14.4 million contingent on securing certain contracts; $12.7 million of this was “allocated” to the UK. The SFO entered into a plea agreement with Innospec and prepared a joint submission on sentencing which provided for the $12.7 million to be split $6.7 million in relation to Indonesian corruption, and $6 million as part of a civil recovery order in relation to Iraq.

Whilst the U.S. courts approved the settlement, the UK court considered the SFO had exceeded its authority and sent a clear message to the SFO that it should not proceed in a similar way in future cases. The sentencing judge stressed that it was for the court and not the prosecutor to determine an appropriate sentence; the SFO was not able to reach an agreement with an offender as to penalty. The court should rigorously scrutinise the plea and sentence in open court.

The judge also stated that it would only in very rare situations be appropriate for criminal conduct by a company to be dealt with by means of a civil as opposed to a criminal sanction. However, as the matter had already been approved by the U.S. courts the sentencing judge, reluctantly, did not upset the financial amount attributed to the UK settlement but ordered that all of it be paid as a fine, by reference to the conduct concerning Indonesia.

The judge also made it clear that the corruption of foreign public officials was at the top end of serious offending. The judge signalled that the UK should adopt a uniform approach to financial penalties for corruption and there was no reason why fines in the UK should not be on a par with those in the U.S. Had it not been for Innospec’s financial position, the fine would have been significantly higher.

Separately, in May 2010 the Court of Appeal heard an appeal by a defendant, Mr. Dougall, against the imposition of a custodial sentence following his guilty plea to various offences of overseas corruption, made as part of a plea agreement with the SFO. On the particular facts, the Court of Appeal allowed Mr Dougall’s appeal and imposed a suspended sentence. In doing so it also took the opportunity to highlight the limitations on prosecutors insofar as plea agreements are concerned. The Court of Appeal made the following observations:

1. Guidelines should not give the impression that cases of fraud or corruption were more respectable than other forms of crime and that those who commit such crimes were less deserving of prison sentences than “common criminals.”
2. In the UK a plea agreement between a prosecutor and defendant in which the sentence is agreed or an agreed package is prepared for the court’s acquiescence is contrary to principle.
3. Whilst it was permissible for the prosecutor to make submissions about the range of possible sentences, it should not make submissions in support of a particular outcome.
4. In the UK there is no principle that the first person to co-operate with an investigative authority will automatically benefit from the most favourable sentencing outcome. Whilst this provides substantial mitigation, it has to be considered in the overall context of the case.

Conclusion

The effect of these two decisions could potentially be to make it less attractive for companies to self-report corruption to the SFO as there is less certainty as to outcome and they can expect to receive larger fines than previously contemplated in the event of a criminal conviction. It also makes the position of the SFO rather more difficult when dealing with overseas prosecuting authorities in the context of international corruption issues. Nonetheless, the SFO has stated that it will continue to pursue an approach of reaching out to corporates, albeit taking on board the judges’ comments. In that content, the outcome of the BAE case, where the SFO has announced but the Court has yet to approve a settlement of £30 million in relation to BAE’s conduct involving Tanzania, is eagerly waiting as a test of the post-Innospec climate.

Introduction

The territory that now occupies the Republic of Iraq, often called “the cradle of civilizations” by historians, is the original site of Mesopotamia, Sumeria (creators of writing) and Babylonia (creators of the first Hammurabi compendium of laws). The modern state of Iraq comprises a diverse population coping with dramatic political and economic change. It is considered rich in commercial potential but full of challenges for business executives seeking to operate in the country.

Iraq is bordered by Turkey to the north, Iran in the east, Kuwait and Saudi Arabia in the south and Jordan and Syria in the northwest. In the seventh century, Muslims conquered Mesopotamia, established the Ottoman Empire and designated Baghdad as its capital. World War I ended Ottoman rule and Iraq was occupied by Britain. The country re-gained independence in 1932, becoming a republic in 1958. The Ba’th party coup in 1963 allowed the rise of Saddam Hussein in 1979. Within a year the Iran-Iraq war began with devastating consequences to the Iraqi economy. The subsequent Iraqi invasion of Kuwait in 1990 set the stage for a U.S.-led war that expelled Iraqi troops from Kuwait in 1991. The ensuing period was characterized by an extended interlude of international tensions and UN sanctions. The 2003 U.S. invasion by President Bush ended Saddam Hussein’s rule and opened a new and uncertain chapter in Iraqi history.

The fall of Saddam Hussein also ended Ba’th party rule, and Iraqi society is still trying to regain stability and its former status. The three decades of war have exacerbated problems of corruption, scarcity and violence. As the U.S.-led military forces withdraw from the country, the Iraqi population will increasingly determine the role this ancient civilization will play in the international and business communities.

Iraq has three key areas for business activity. Baghdad is the capital and a key business center for banking and public sector services. Basra is located in the oil-rich south and is host to the Southern Oil Company which controls 80 percent of exports. Erbil is the capital of Kurdistan, the resource-rich semi-autonomous region, and is considered the safest of the country’s cities. For business people, the key question as the Iraqi government assumes full responsibility is whether a secure and stable business environment can be established that allows business to take advantage of the latent development opportunities.

Business Etiquette

Greetings

People in Iraq are often referred to by their first name but in the form of “Yusef bin Ali”: Yusef the son of Ali, as an example. It will be appreciated if you learn a few Arabic words before your visit. The Arabic greeting is “asalaamu alaikum” to which the response is “wa alaikum salaam.” Both phrases mean “peace be with you.” Other regularly used phrases include “Keif Halac” (how are you), “Marhaba salam alekom” (hello) and “Shukran” (thank you). Shaking hands is the most common greeting in Iraq, but given the special status of women, only shake hands after they have offered theirs.

Business Meetings

Business attire in Iraq tends to be very formal and conservative, especially for business women. Business hours are from 8am to 4pm, with some government offices closing by 1pm. Since a large portion of the population is Muslim, Fridays are considered a holy day and therefore most businesses are not open. When meeting an Iraqi counterpart always arrive 15 minutes before the scheduled time as punctuality is expected from respectful visitors. It is also important to allow time for informal exchanges prior to discussing business. Meetings tend to begin with general conversation and polite inquiries into people’s families or personal relationships. This is fundamental in Iraqi culture and you should therefore allow enough time to engage in a personal discussion. Once the niceties have passed, however, Iraqis have a reputation for tough negotiations and conclusions are unlikely to be reached during the first meeting. Plan to take the time to build confidence and trust among the parties.

Business Cards

Business cards are exchanged by senior business representatives during initial meetings. It is important to have one side of the business card in English and the other one translated into Arabic or Kurdish, depending on who you are meeting. Ranks, positions and titles signaling position in an organization are fundamental, and therefore any relevant information regarding them should be included. When providing your card, hand it over with the Arabic/Kurdish side facing up.

Gift Giving

Gift giving is not expected when doing business, but will be appreciated if you find yourself invited for dinner. Chocolates, pastries or cookies make good gifts. If a man needs to give a gift to a woman it is customary to indicate that the gift has been sent by his wife, mother, sister or some other female relation. Gifts are often not opened when received and must be presented using both hands. Expensive gifts should be avoided as they could be misinterpreted as bribes.

Dinner and social events

Hospitality runs deep in Iraqi culture and you should not be surprised if you are invited to your host’s home. Islamic tradition even suggests that a guest’s stay may not be questioned their stay until 3 days after their arrival. Never turn down an invitation to dine at an Iraqi house. Remember it is not a time to discuss business but an opportunity to build trust, so be polite and formal. If the meal is served on a mat on the ground, you must avoid touching the mat with your feet and sit cross-legged or kneeling on one knee. Always use the right hand for eating and drinking, and leave some food on your plate when you finish eating to signal that you are satisfied.

The Ethical Climate for Commerce

Anyone that follows the news will recognize that corruption is a major challenge in Iraq. For example, one report by a U.S. correspondent in 2006 showed how several government ministries and their employees were involved in cases of misappropriation of funds. Kickbacks and payoffs like this became engrained during the time of sanctions and the Oil-For-Food program in the 1990s. Since the end of the war, allied countries have further injected more than USD $50 billion in reconstruction aid. Unfortunately, some government inquiries have uncovered cases where 90 percent of the funds cannot be accounted for.

While the growing business opportunities, the reconstruction needs, the diversity of natural resources and increasing oil production present a rare opportunity for business, any company entering Iraq must prepare for the ethically challenging business situations with a strategic and informed approach.

According to Transparency International’s Corruption Perception Index, Iraq occupies 176th place out of 180 countries. Fighting corruption can be dangerous as well with people threatened or even killed for exposing corrupt practices. What follows can only be considered the most basic of starting points and companies serious about entering Iraq will need to develop a much more detailed understanding and strategy.

Five Compliance and Ethics Issues to Consider

Internal Corruption

Corruption is the most pressing ethical business issue in Iraq, and it can be useful to think of two types of corrupt activity: internal and external. Within the country, corruption can occur at all ranks and political status and has generally been exacerbated by inflow of aid. For example, an audit found that 96 percent of $9.1 billion in U.S. aid destined for electricity, security and water service improvements could not be accounted for. The corrupt diversion of funds has important social impacts. For example, a corrupt government purchase of expired chlorine in 2008 has been linked to cholera deaths from poor sanitation.

Deal with it

While kickbacks and other corrupt payments are endemic, recent events indicate Iraq’s population is becoming more sensitive to the issue of corruption. Corruption scandals like UN aid packages being sold at open markets is angering some Iraqis and turning the public against such practices. That said, for security reasons you should exercise caution in direct confrontation with the military or high political positions. Instead, collective action with other businesses and local organizations can be useful ways to activate legal protections. Within your enterprise, recognize that Iraq’s high unemployment rate can help in gaining compliance with policies. When employees recognize ethical misconduct will lead to disciplinary action they become more vigilant in their actions and decisions. A lack of training, poor employee compensation and limited access to health care services all exacerbate corruption problems, so proactive policies in this area can help improve compliance.

External corruption

While internal corruption is a major issue, actions by international commercial players in establishing, contracting or paying for business is aggravating problems. Illegal capital extraction from Iraq is a growing concern. There have been claims of American citizens being illegal detained for calling attention to these questionable international financial transactions. In response, both the American and British governments are increasing their vigilance of funds entering and exiting Iraq.

Deal with it

Training programs that educate employees with cases describing the actions and consequences of being involved in this type of corruption can help prepare them for the challenges. Companies employing local representatives in Iraq should use thorough screening and provide similar training in company policies. The U.S. Treasury Department has also created Fincen, a government office charged with collecting data and tracking suspicious financial transaction and use of funds. Such agencies can be contacted in order to accelerate investigation processes.

Commercial Policies

Companies selling products or services in Iraq may find a lack of information and predictability regarding the laws for the commercialization of goods. Regulations regarding taxes, tariffs, sanctions and barriers have been lifted or modified repeatedly making it difficult for companies to understand how to operate within regulatory compliance. For instance, all goods imported under the Iraq Reconstruction Program are supposed to be tax exempted, but it is difficult to determine which specific goods are considered to be inside the program. It is also often unclear which organizations in Iraq are actually participating in the program.

Deal with it

Although the Doing Business report ranks Iraq 153 out of 183 countries, Iraq has been improving in key categories including starting a business, dealing with construction permits and enforcing contracts. Due diligence and seeking competent advice is critical. Paying taxes especially requires patience and good local advice, as the rules are updated often. Because of the complexity of issues like property rights and labeling, many companies sub-contract these tasks. When doing so it is vital to insure that consultants are in compliance with regulations and your company’s policies. Some experts recommend establishing a subsidiary as a first step towards representation in Iraq as they are unlikely to enter a double taxation category. Be aware of requirements specified by the National Investment Commission which can include the condition of hiring at least 50 percent local employees, along with other specific human resource policies.

Contracting

Contracting for reconstruction efforts is and will continue to be one of the keys to the country’s redevelopment efforts. However, abuse, delays, lack of compliance with contracts and overestimation of costs threatens the success of many projects. Official audits show that billions of dollars are involved in the fraudulent representation of projects and that thousands of initiatives are never concluded due to the disappearance of funds.

Deal with it

To do business in Iraq you will likely be expected to employ local contractors in addition to foreign service providers. You therefore need adequate systems to measure, follow up and audit the progress of projects in the country. In addition, most foreign businesses operating in Iraq are subject to their home country laws and internationally accepted accounting rules. Best practices like avoiding micro-purchases, implementing tracking systems, auditing, issuing and demanding receipts especially for cash transactions (many day-to-day operations still need to be paid for in cash) should be a baseline for your compliance efforts.

Women in Iraq

Women in Iraq are subject to discrimination in both a social and often legal sense. Laws regarding inheritance or divorce laws tend to favor men, with social implications. One study found that 9 percent of women in Iraq are married before 15, and a large percentage of all women are not empowered in the home. This situation is mirrored in the workplace where women are excluded from many jobs such as becoming a public transportation driver. Although the 1958 revolution mandated the Personal Status Code providing equal status for men and women, the authorities have yet to interpret this in favor of women rights.

Deal with it

The January 2005 elections in Iraq saw record voter participation by women and indicated that things are shifting. When given the opportunity, many women take advantage of the education programs made available by NGOs. Companies should consult with local experts about both existing laws and existing cultural practices. Care must be exercised in company policies to ensure that you are supporting your employees and do not end up harming female employees in their private lives. Establishing policies of equal treatment in your enterprise are beneficial when approached with cultural sensitivity and patience.

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August

09 Fed Opens Merck FCPA Probe; HP CEO Canned Over Fudged Expenses; Snowmobile FCPA Conviction

06 Frisbee Suit Is Tossed; DOJ Fights Afghan Corruption on Front Lines; Court Allows Age Discrim Suit Based on Stray Comments; Mothers Behaving Badly

05 Blackberry Resists Pressure; Crocs Settles Trade Secret Case Involving IC; D&T Pays $1.1M to Settle Insider Trading Charges

04 EU Raids Foam Corps; Tobacco Exec Guilty of $3M Overseas Bribes; Portly Man Has Helicopter Rage

03 HP Settles Fed Kickbacks Charge; Digi Investigation Dropped; Study Finds No Benefit to FCPA Self-Disclosure; New Food Safety Legislation

02 5 Year FCPA Sentence; PFG Sues Employee Over Spilled Tomato Secrets; Counterfeit Toilet Paper Crime Up; Judge Rules Cristal Doesn’t Cost $7.99

July

30 Feds Sue Oracle; SEC Sues Billionaires for Insider Trading; Omega’s Creative Copyright Exploitation; Dell Tech Support Lifts Nudie Pics; Companies Downloading Hacked Facebook Data

29 Siemens Finds Integrity is Profitable; Volvo Sues Over Price-Fixing Damages; Transparency International Blasts OECD Lack of Enforcement; Bimbo Can Prevent Exec from Taking Hostess Job; GS Wants Cleaner Email

28 Soon-to-be-Ex-CEO of BP Skips Out on Senate Hearing; Amazon Friends Facebook; Rite Aid to Settle HIPAA Violation; Guy Tries to Rob Starbucks in Front of Cops

27 Facebook Sold On Craigslist?; EU Investigates IBM; Mattel Victory Tossed; NGO Warns Do Not Eat Store Receipts

26 SEC Pays $1M Bounty; BP Sues Ex-Employees for Trade Secret Theft; Office Depot Sues FLAG to Prevent Doc Disclosure

23 GM Trade Secret Theft; $100M Dell Settlement; Copyright Patent Troll; Man Claims Mexican Burrito Gang Assassinates Workers’ Comp Filers; WWBD?

22 Moody’s and S&P May Halt Ratings; Privacy No Concern for Facebook Users; Sears and Kmart Overcharge Customers; Apple Evades Privacy Probe

21 BPs Secret Concert Ticket Hotline; UK Bribery Act Postponed; Harvard Med School New Rules Limit Corporate Influence

20 Man Held on $100M Trade Secret Theft Charge; EU Fines Animal Feed Cartel $226M; Sumner Redstone is an Angry 87-Year-Old, Dagnabit

19 BP Modified BOP in China; ExpressJet to Pay $1.1M for Orientation Discrimination; Putin Tags Beluga Whale

16 Adventures of Willy the Wizard Not Best Seller; Plagiarism, Plagiarism; BP Owes Spill Royalties; Housekeeper Doesn’t Want Job Back

15 SEC Seeks Proxy Comments; Nestle False Marketing Claims; Worst Diamond Escort EVER; Jobs for People Who Can Order Pizza

14 Feds Examine Drug Trials Over FCPA; GE Sets $200M Open Innovation Contest; You Can Force Employees to Exercise; Did BP Pressure UK Govt on Lockerbie Bomber?

13 Was Facebook Sold in 2003?; Blizzard CEO’s Privacy Invaded; Digital Drugs Harming Kids?; Your Records Sold for Less Than a Penny

12 HIPAA Dramatically Expanded; GSK Withheld Data; HSBC Criminal Investigation Ramped Up; Excel Pricing Model Stolen

09 J&J 8th Recall; Mean CEOs Make More Money; CEP Alters Email Evidence in Amerisource Lawsuit; BP Board Game Underscores Licensing Hazards

08 Lingering Handshake Leads to Company’s Demise; Whistleblowing.gov Debuts; ENI’s Bribes Too Heavy to Carry; WellCare OK’ed to Run Over Former Execs

07 Alan Mulally and Bill Ford Accept WME on Behalf of Ford; Pharma Reps Get Overtime; Italy Exec Extradited to U.S. for FCPA; Vatican Christmas Card List Shortened

06 China Sentences U.S. Citizen to 8 Yrs Over IP; SEC Sues Over Canned Sandwich; CT AG Takes on WellPoint Over Data Breach

02 FIFA Investigating Wife Bribery; Foreign Liability Bill in Congress; Ahold Conviction Tossed

01 SEC Limits Advisor Donations; NY Fed Chair’s COI; Grassley Demands Top Drug Corps Disclose Whistleblower Controls

June

30 Dell’s Cover-Up of Defective Computers; Veraz $300K FCPA Fine; FSA Says Don’t Drink and Trade Oil; FDA Shrinks Magic Coffee

29 Sarbanes-Oxley Survives; Wynn Sues IBM for Overcharges; Technip to Pay $338M over FCPA

28 FMLA Extended for Same-sex Partners; Kellogg Soap Cereal Recall; CEO Sued Over $1,300 Skiing Lessons; Unicorn Meat Limited; N Korean Wins World Cup

25 Is SarbOx Going to Die?; Brocade CEO Gets Jail; Anadarko Sued for Safety Statements; Don’t Taze My Grandma

24 Supreme Court Tosses Honest Services Fraud; Corporate Culture at Its Best – Entergy; Experienced Human Pool Float Tester Available (barely)

23 Solo Cup Wins Important IP Ruling; Compliance Officer Loses Gig for Resume Lies; Lloyd Wants To Be on Oprah

22 IMDB Pressured on Age Listings; Madoff’s Secret $9B Stash; J&J Loses Supreme Appeal; Worst Vacuum Salesmen Ever

21 J&J Bribing Top Chinese Official; 70% of Execs Like SarbOx; New USDA Antitrust Rules; American Standard Fined in EU Cartel

18 NY Biz Man Jumps From 19th Floor Before FCPA Indictment; BP Searches for New Ethics Officer; Ford Tops Quality Survey; Red Cross Fined $16M

17 General Mills Punked by Fake PR; Wackenhut Double Whammy; Oracle Overcharged Feds; FIFA Dislikes

16 US Accounts for 75% of Global Anti-Bribery Enforcement; AT&T Has Issues with New iPhone; Student Attacks Hell’s Angels, Escapes on Bulldozer

15 Temple-Inland Violates ADEA; Boeing Trade Secret Theft Charge Upheld; Painter of Light Gets Lit

14 Aeropostale Kickbacks; New BP Logo Contest; No Uggs at American Apparel; Women in Beards Raid French Boardrooms; Hallmark Pulls Offensive Card; Mercer to Pay $500M

11 Are DPAs Useless?; Dell CEO $100M Fraud; VT Boar-Hunter Fleece Best Buy; Vinson Says BP Engaged in Pencil-Whipping; Tech Cos Take on H1-B Guidance

10 DuPont Scientist Guilty; U-Haul Price Fixing Deal; New SEC Goldman Investigation; Amazon.com Sued Over Trademarks

09 Pemex Says BASF Knowingly Buys Stolen Oil; Starwood and Hilton in Secret Talks; J&J Wants Kickback Charges Dropped; Bank CEO Needs Urgent Fashion Advice

08 BP Bankruptcy Chatter; Egg Antitrust Settlement; American Eagle Transgender Change; J&J Misses Doc Deadline; Nigeria Daimler Bribery Investigation

07 HIPAA Jail Term; McKinsey Consultant Violates Iran Embargo; Carbon Offset CEO Arrested for FCPA Violation; China Pounds Goldman

04 DOJ Rejects BAE’s Compliance Monitors; 1995 Akin Gump Warning Memo Surfaces; Check the Brakes Before Stealing

03 New DOJ Memo on Corp Monitors; Dyncorp Hollywood Film; Petco to Pay $1.7M for Animal Neglect; Wrigley to Pay $6M Over Bad Breath; Diebold Fraud; SEC Charges R&D VP

02 BP Criminal Charges; Fitch Will Downgrade for FCPA; SEC Plays Chicken with Rattner; Bin Laden Flies British Airways

01 Ex-Employee Sued for LinkedIn Account; Holder Vows Bribery Crackdown; Google Maps Sued for Accident

May

31 J&J’s Secret Motrin Recall; Spill Clean-up Workers Getting Sick; BP’s Culture of Non-Compliance

28 Uma Uncovers Fraud; DOJ Stays Stojitz; Swiss Cosmetics Cartel Fined $22M; Pequot Busted Under New SEC Regime

27 DOJ Heralds New Era of Compliance; NY to Allow Boss Bully Suits; Disney Admin Lacks Intelligence but Likes Shoes

26 Yale Benefactor in $60M Fraud; Criminal Charges in BP Case; Pay Your Verizon Bill on Time or Else

25 CRAB May End Rating Oligopoly; Cheesecake Factory Employees Skiming Credit Cards; SEC Opens SF FCPA Office; Hero Beer Cooler

24 FCPA Whistleblower Bounty Survives; Your New Shareholder: PETA; Coach Sues Chicago

21 75% of Boards Fear Personal Liability Over FCPA; PA AG Doesn’t Like Twitter Critics; Target Trunk Recall

20 J&J and Pfizer FCPA Settlements; Likelock CEO’s Identity Stolen 13x; Don’t Manage Your Money through Craigslist

19 Target and Coach Settle Differences; Microsoft Sues Salesforce.com; Pizza in a Can Wouldn’t be Healthy

18 Novartis Discriminates Against Women; McKinsey Director to Pay $2.8M; Union Exec Blows $85k at Pure Go Go

17 DOJ Says Disclose FCPA Problems to Us First Before Investigating; 6 Billion Shillings is Still a Lot of Dough

14 J&J Exec Released Early; BP Didn’t Maintain Diagrams; P&G Pampers Lawsuit

13 Germany Abetted Greek Corruption; Virgin May Lose Immunity; Somalians Pirates Don’t Have CNN

12 GC Fired for Sexual Harassment; As We Predicted, Morgan Stanley in CDO Fraud Probe; Dole Victimized by Virile Workers

11 Baxter TEVA $500M Punitive; $500M Penalty for ABN AMRO; JP Morgan $500M Whistleblower Wealth Manager

10 BA Execs Acquitted; Moody’s Facing Charges; Goldman May Pay $1B to Settle SEC Fraud Case

07 AIG Drops Goldman; Merck Infant Vaccines Have Pig Virus; Swiss Charge Banker in Alstom FCPA Case

06 Atlas Air Duct Tape; Macmillan Busted in Textbook Bribery; SpongeTech Execs Arrested; HBS Dean Wants Manager Code of Ethics

05 FDA Punks Baxter and J&J; Watch Out for SEC’s New Investigative Angle; SAP Settles Embarrassing Incompetence Suit

04 AT&T Text Price Fixing Suit; Possible Cargill Collusion Charges; BP Says “It Wasn’t Us” in Disaster Rebranding

03 Avon FCPA Probe Expanded; Massey Energy Bribery Investigation; Massive J&J Toddler Meds Recall

The following list of 100 individuals represents those that had significant impact in the realm of business ethics over the course of the year.

Although many listed here are deserving of a lifetime achievement award, this list recognizes those that have made a significant impact specifically during 2009.

These individuals represent eight distinct categories; Government and Regulatory; Business Leadership; Non-Government Organization (NGO); Design and Sustainability; Media and Whistleblowers; Thought Leadership; Corporate Culture; and Investment and Research.

Some are world famous and some are unknown, but from designing sustainable packaging to uncovering billion dollar fraud schemes, the following 100 individuals have impacted the world of business ethics in ways that will continue to resonate for many years.

The winners are broken down into the following eight core categories:

Government and Regulatory Did the individual impact government rules or enforcement trends?	Business Leadership Did the individual substantially transform a specific business’ operational practices consistent with profitable ethical leadership, forcing competitors to follow suit or fall behind?	Non-Government Organization (NGO) Did the individual impact a company’s (or industry’s) practices through external, non-regulatory leadership either through positive collaboration or negative publicity for a positive end?
Design and Sustainability Did the individual substantially contribute to or lead a product or service redesign, which resulted in less natural resource use, or increased consumer acceptance of sustainability without diminishing the quality of the original product or service?	Media and Whistleblowers Did the individual raise awareness on a critical issue or expose corruption?	Thought Leadership Did the individual conceive of new approaches or otherwise materially contribute to the field of business ethics theory in a way that could be easily applied by corporate leaders?
Corporate Culture Did the individual show success to transforming the ethical culture and behavior of a corporation or institution, particularly if such corporation or institution previously had a less than ethical culture and values system?	Investment and Research Did the individual impact corporate behavior through influencing investor decisions and the deployment of investment capital due to research or institutional fund management practices?

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The List:

 

1. John Kopchinski 2. Peter Solmssen 3. Mary Schapiro 4. Keith Jubah 5. Neelie Kroes 6. Mike Duke 7. Carter Roberts 8. Sir David Walker 9. Huguette Labelle 10. Dame Deirdre Hutton 11. Andrew Cuomo 12. Lanny Breuer 13. Beth Holzman 14. Jon Leibowitz 15. Sharon Allen 16. Charles Grassley 17. Jeff Immelt 18. Bibit Samad Riyanto 19. Herbert Fisk Johnson III 20. Sergey Magnitskiy 21. Ernst Ligteringen 22. Delos M. Cosgrove, M.D. 23. Jay S. Golden 24. Jon Johnson 25. Christine Varney

26. William Ballhaus 27. Mitch Jackson 28. Bob Stoffel 29. Thomas Donaldson 30. Alexandra Wrage 31. Michael Ranneberger 32. Timothy J. Carey 33. Barack Obama 34. Robert Khuzami 35. Ed Lonergan 36. Michael Hershman 37. Graeme Ashley-Fenn 38. Bill Gates 39. Martyn Hocking 40. Alexei Dymovsky 41. Jon Iwata 42. R. Edward Freeman 43. Arthur B. Weissman 44. Hector Sants 45. Margaret Cole 46. Ben W. Heineman, Jr. 47. Benedict XVI 48. Abol Jalilvand 49. John Castellani 50. Dan Gorsky

51. Paul Dickinson 52. Shan Rambaruth 53. Michael Schlein 54. Joel Makower 55. David Michaels 56. M Siddiqi 57. Jacqueline Brevard 58. Marc Gunther 59. Dean Krehmeyer 60. Tom Cantor 61. Chris MacDonald 62. Kathleen Edmond 63. Ed Breen 64. Thomas P. O’Brien 65. Jack Welch 66. Maggie Fox 67. Bennett Freeman 68. Nicholas Kristof 69. Newsweek Greenrankings Team 70. Brady Long 71. Marjorie Doyle 72. Mark Lee 73. Jay Whitehead 74. Carlos Minc 75. Antoine Mach

76. Timothy J. Mayopoulos 77. Christine Legarde 78. Karen Kaiser 79. Turney Stevens 80. Mindy Lubber 81. Mark Chandler 82. Linda Chatman Thomsen 83. Eduardo Perez Motta 84. Brian Martin 85. James Farrar 86. Pat Quinn 87. Wilfried Vanhonacker 88. Olivia Zaleski 89. Georgina Verdugo 90. Alina Dizik 91. Rich Blumenthal 92. Claire McCaskill 93. Michael Passoff 94. Aron Cramer 95. Eveline Widmer-Schlumpf 96. Pascal Bourdin 97. Mahinda Rajapaksa 98. Farida Mzamber Waziri 99. Peter Eigen 100. Joachín Almunia

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1. John Kopchinski- Former Sales Representative, Pfizer

Category: Media and Whistleblower

Kopchinski blew the whistle on Pfizer’s marketing activity and received $51.1 million of the penalty that Pfizer paid for illegally marketing some of its drugs. Four other whistleblowers received some of the award as well, but Kopchinski earned the largest piece of the pie for his role. Officially turned whistleblowing into big business.

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2. Peter Solmssen- General Counsel, Siemens

Category: Corporate Culture

Solmssen was called in to clean up Siemens and revamp its culture. Many eyes around the world (regulators, companies considering disclosing FCPA violations, shareholders, and many more) will be watching Solmssen’s actions as a live case study as to how a company as large as Siemens can recover from such a large legal issue. One example is Siemen’s new $100 million anti-corruption initiative that will fund global anti-corruption programs.

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3. Mary Schapiro- Chairman, SEC

Category: Government and Regulatory

Schapiro leads the SEC and in 2009 clearly created a new tone compared to that set by her predecessor. Schapiro also announced that the SEC would hold its first Chief Compliance Officer National Seminar.

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4. Keith Jubah- Head of Public Procurement and Concessions Commission, Liberia

Category: Government and Regulatory

Jubah was killed in Liberia for doing his job. Unfortunately, that job involved fighting corruption in a country widely perceived to be among the most corrupt in the world. Jubah was shot to death near Liberia’s capital.

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5. Neelie Kroes- Commissioner for Competition, EU

Category: Government and Regulatory

She’s still got it, but this may be the last year that Kroes makes this list (a former #1 heavyweight from two years ago), as her term has ended and she is being replaced by Joachín Almunia. In her last year in this post, EU remained a leader in the antitrust and cartel-busting world, going after a few industries, including the “special glass sector.”

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6. Mike Duke- CEO, Wal-Mart

Category: Business Leadership

Duke played a key role in shaping the heightened expectations that his company has set for suppliers worldwide via Wal-Mart’s Sustainability Index, leveraging the retail giant’s clout to make thousands of companies around the globe more sustainable.

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7. Carter Roberts- CEO, World Wildlife Fund

Category: NGO

WWF isn’t just the group that successfully wrangled its acronym from the World Wrestling Federation, it’s become a (if not “the”) leading NGO protecting wildlife and the environment. Roberts makes this list for heading up the group. This year, WWF has been extremely busy, not only working to improve public policy but also advising companies such as Kroger and Diversey.

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8. Sir David Walker- Senior Adviser, Morgan Stanley International

Category: Corporate Culture

This year, Walker continues to lead an important independent review of corporate governance in the UK banking industry which will provide a foundation for governance changes for many years to come.

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9. Huguette Labelle- Chair, Transparency International

Category: Non-Government Organization

TI continues its relevance and recently published its 2009 corruption perceptions index report. While many individuals in TI are doing great work, Labelle earns the spot on this list for leading the organization.

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10. Dame Deirdre Hutton- Chair, Food Standards Agency, UK

Category: Government and Regulatory

In 2008 FSA encouraged companies to voluntarily ban additives that lead to hyperactivity in children. In 2009 several companies stepped up and took the pledge to do so.

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11. Andrew Cuomo- Attorney General, New York

Category: Government and Regulatory

Cuomo spent 2009 working to unravel governance issues in companies. His name gained particular notoriety in stories dealing with governance issues at AIG, Bank of America, and other major TARP recipients. Less publicized (outside of New York, that is), he also spent 2009 going after smaller, albeit just as important, fraudulent organizations. One example is the allegedly fraudulent charity, United Homeless Organization.

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12. Lanny Breuer- Assistant Attorney General, Department of Justice

Category: Government and Regulatory

Breuer has moved from defending high profile clients such as President Bill Clinton and Roger Clemmens to find himself in a position that oversees all U.S. attorneys general. Since taking up his new job in January of this year, he is responsible for the thousands of federal white collar prosecutions (and many, many more prosecutions that don’t deal with white collar issues) that took place in the U.S. this year

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13. Beth Holzman- CSR Strategy & Reporting Manager, Timberland

Category: Business Leadership

Beyond just an annual sustainability report, Timberland publishes key CSR performance indicators on a quarterly basis. This year the company has reduced travel emissions, increased use of renewable energy and partnered with leading environmental NGOs, (as well as other initiatives), in order to become carbon neutral by 2010. Very aggressive goal.

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14. Jon Leibowitz- Chairman, Federal Trade Commission

Category: Government and Regulatory

The FTC has noticeably stepped up enforcement throughout 2009 (as Ethisphere predicted in its cover story for its Q4, 2008 magazine — but that’s beside the point). One example? The comission has recently enacted legislation that requires advertisers to disclose payments made to blogs for positive coverage.

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15. Sharon Allen- Chairman, Deloitte

Category: Corporate Culture

Allen leads the environment at Deloitte, an environment that is increasingly known for using business ethics as a competitive advantage to secure clients and retain top employees. Allen travelled quite a bit during 2009, often to speak on the advantages of using business ethics to further a company’s operational goals.

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16. Charles Grassley- Senator, Iowa

Category: Government and Regulatory

Grassley’s is a leading voice in the Senate speaking out against corruption and financial fraud. Even before the financial crisis of last year, Grassley’s name always seemed to come up in financial fraud stories. He is aware of what’s going on and is aggressively going after those that commit fraud.

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17. Jeff Immelt- CEO, General Electric

Category: Business Leadership

GE wasn’t without controversy in 2009, but for such a large company it is doing a lot of things very well. This year, under Immelt’s leadership, GE has implemented initiatives such as new investments in renewable energy and partnering with leading business schools such as Notre Dame’s Mendoza College of Business to engage students in case studies around business ethics.

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18. Bibit Samad Riyanto- Deputy Chief, Indonesia Anti-Corruption Task Force

Category: Government and Regulatory

Bibit, along with colleague Chandra Hamzah, was a senior official with Indonesia’s Corruption Eradication Commission (KPK) and was arrested for being too successful at going after corruption cases. He was arrested by the National Police on the very controversial charges of “abuse of power.” Many in Indonesia accuse the National Police of orchestrating the arrest in order to damage the influence of the KPK.

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19. Herbert Fisk Johnson, III- Chairman & CEO, SC Johnson

Category: Design and Sustainability

On top of initiatives such as reducing carbon emissions, SC Johnson decided to publicly list all ingredients for every product the company makes at www.whatsinsidescjohnson.com.

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20. Sergey Magnitskiy- Attorney, Firestone Duncan

Category: Media and Whistleblower

Magnitsky was arrested in Russia in 2008 after testifying against alleged financial fraud committed by Russian officials. He spent 11 months in jail and died this year in prison from heart failure, according to a spokesperson for the Russian Interior Ministry. According to Magnitskiy’s attorneys, his appeals for health care while in prison were continuously ignored.

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21. Ernst Ligteringen- CEO, Global Reporting Initiative

Category: Non-Government Organization

Through the tireless efforts of its staff, Board, secretariat, etc, GRI has become the leading expert on sustainability reporting guidelines. More and more companies around the world turned to GRI in 2009 to help provide insight into creating best in class CSR reports.

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22. Delos M. Cosgrove, M.D.- Chief Executive Officer, Cleveland Clinic

Category: Corporate Culture

Dr. Cosgrove made this list after the Cleveland Clinic required all of its physicians and researchers to publicly disclose industry relationships as part of the Clinic’s transparency initiatives involving the conflict of interest and managing innovations processes.

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23. Jay S. Golden- Co-Director Sustainability Consortium

Category: Non-Government Organization

Heard about the Wal-Mart sustainability index? While Wal-Mart is championing the initiative, a group called the Sustainability Consortium is managing its day-to-day activities. Golden is a co-director of that group.

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23. Jon Johnson- Co-Director, Sustainability Consortium

Category: Non-Government Organization

Along with Golden (see above), Johnson is co-director at Sustainability Consortium. The group made a big impact in partnership with Wal-Mart when they created the company’s much advertised sustainability index.

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25. Christine Varney- Assistant Attorney General, Department of Justice

Category: Government and Regulatory

Since taking her current post this year as chief antitrust enforcer in the U.S., Varney was responsible for the cases concerning Google and Microsoft, among other multinational companies.

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26. William Ballhaus- CEO, DynCorp

Category: Corporate Culture

Ballhaus fired the general counsel of DynCorp after it was discovered DynCorp subcontractors may have violated U.S. anti-bribery laws. Usually people in a senior position such as the GC spot are presented the opportunity to “resign” or “move on to other opportunities.” Not in this case. This action will set a precedent for many other in-house legal counsel, and certainly impacted the tone from the top coming from DynCorp’s executive suite.

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27. Mitch Jackson- Staff Director, FedEx Corp Environmental Affairs & Sustainability, FedEx

Category: Business Leadership

In case you haven’t heard about any of FedEx’s new corporate social responsibility initiatives (including commitments to cut emissions in its fleet), you can go to the company’s corporate social responsibility blog to find out more. Some new sustainability initiatives include cutting emissions by 20 percent by 2020 and improving fuel economy of its vehicles by 20 percent by the same time.

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27. Bob Stoffel- SVP Engineering, Strategy, Supply Chain Distribution, Sustainability, UPS

Category: Business Leadership

Like its archrival FedEx, UPS was busy in 2009 improving its sustainability performance and announcing new initiatives. Initiatives include allowing customers to purchase carbon offsets for packages and committing to a 20 percent carbon emission reduction by 2020.

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29. Thomas Donaldson- Mark O. Winkelman Professor, The Wharton School, University of Pennsylvania

Category: Thought Leadership

Donaldson is a sought after advisor by boards and executive teams. In 2009 he also became host of the new PBS program on business ethics, In Search of the Good Corporate Citizen, where he leads discussions among a panel of business leaders on the pressing ethics issues of the day. This year he also received the Aspen Institute Beyond Gray Pinstripes Lifetime Achievement Award and he is as a trustee of the Carnegie Council for Ethics in International Affairs and an Academic Advisor for the Business Roundtable Institute for Corporate Ethics.

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30. Alexandra Wrage- President, TRACE International

Category: Non-Government Organization

Wrage heads up one of the leading global NGOs dealing with anti-corruption issues. This year TRACE International launched the TRACE Compendium on anti-corruption issues, an online compilation of anti-bribery enforcement actions around the world.

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31. Michael Ranneberger- U.S. Ambassador to Kenya

Category: Government and Regulatory

In November, Ranneberger publicly announced on his twitter page that he had denied a U.S. visa to Kenya’s attorney general, Amos Wako. The significance of this is that it’s very rare that denial of a visa to a foreign official is made public. The reason Ranneberger denied Wako is because Wako is “obstructive in the fight against corruption.”

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32. Timothy J. Carey- Director of Sustainability, PepsiCo

Category: Design and Sustainability

Carey earns a spot on this list for Pepsi’s new “Eco-Fina” bottle. The new bottle, less harmful to the environment than traditional plastic bottles, received glowing reviews from some of the most ardent anti-plastic bottle groups out there.

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33. Barack Obama- President, United States of America

Category: Government and Regulatory

President Obama accomplished a few things this year relating to business ethics, but the one that earned him a spot on this list was for signing the Ledbetter Fair Trade Act, a bill that had been swirling around Congress for a few years. The Act, named after Lilly Ledbetter, extends the amount of time that pay discrimination complaints can be filed. Obama also signed the Fraud Enforcement and Recovery Act of 2009 (FERA), an expansive fraud-busting bill.

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34. Robert Khuzami- Director of SEC’s Division of Enforcement, SEC

Category: Government and Regulatory

New rules by the SEC allow Khuzami and the SEC’s Division of Enforcement to directly penalize CEOs over company fraud scandals, regardless of if the CEOs were actually involved in the fraud. This is a controversial new precedent to be sure, but it is also a carrot to encourage CEOs to conduct their due diligence.

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35. Ed Lonergan- CEO, Diversey

Category: Business Leadership

After meeting his company’s goal of reducing emissions by 8 percent by 2013 within a year after announcing the plan, Lonergan decided to up the bar and reduce total emissions by 25 percent by 2013. Lonergan claims his company gets $2.15 back for every $1 invested in reducing greenhouse gas emissions.

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36. Michael Hershman- President and CEO, The Fairfax Group

Category: Thought Leadership

This year Hershman went to Congo at the behest of the U.S. State Department to help work on anti-corruption initiatives. He also makes this list for his leadership role this year in founding and developing the Vienna-based International Anti-Corruption Academy.

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37. Graeme Ashley-Fenn- Director, Permissions, Decisions and Reporting, Financial Services Authority

Category: Government and Regulatory

This summer, the FSA placed new responsibility on UK financial institutions to encourage “senior and well-paid” traders to conduct due diligence in their organizations. If they don’t, they can now be fined directly by the FSA and Ashley-Fenn.

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38. Bill Gates- Founder, Bill and Melinda Gates Foundation

Category: Non-Government Organization

The Gates Foundation not only makes enormouus contributions to world health and education, the organization continued this year to bring useful business tools into the non-profit world which will improve the accuracy of effectiveness assessments.

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39. Martyn Hocking- Editor, Which? Magazine

Category: Media and Whistleblower

This fall, Hocking and his Which? Magazine undertook a study relating to kids’ health and discovered a number of companies that make unhealthy kids’ snack products, yet market the products as healthy. The results were published in Which? and made international headlines.

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40. Alexei Dymovsky- Former Police Officer, Russia

Category: Media and Whistleblower

Dymovsky, a former police officer in Russia, was dismissed from the force after he published a seven minute video on YouTube addressed to Prime Minister Vladimir Putin that accused several high level Russian officials of corruption. With all the media attention that the video obtained, the Russian Interior Minister, Rashid Nurgaliyev, promised an investigation. Two hours later the probe was officially complete, and Dymovsky was quickly fired for “libel and actions that tarnish the honor” of the police.

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41. Jon Iwata- Senior Vice President, Marketing and Communications, IBM

Category: Corporate Culture

Iwata and his team are responsible for instilling IBM Values into the company’s practices and operations, and for coordinating IBM’s corporate affairs initiatives. This year Iwata led efforts to advocate IBMers responsible engagement of business and social issues via online communications tools fostering relationships, learning and collaboration.

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42. R. Edward Freeman- Elis and Signe Olsson Professor, University of Virginia’s Darden School of Business

Category: Thought Leadership

Jack Welch’s statement that “shareholder value” was “the dumbest idea in the world” was equivalent to saying “R. Edward Freeman is right.” Freeman’s stakeholder model, spurred by his most recent book Stakeholder Theory: The State of the Art, is a potent influence to business leaders who embrace their social role. He is a sought after speaker by executives and academics from around the globe with engagements in Asia, Europe and Australia.

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43. Arthur B. Weissman- President and CEO, GreenSeal

Category: Non-Government Organization

GreenSeal, under Weissman, expanded its certification line in 2009 to certify companies for sustainability programs, not just the individual products those companies make.

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44. Hector Sants- Chief Executive, Financial Services Authority

Category: Government and Regulatory

Sants made this list after the UK’s FSA introduced new tests to ensure that candidates for top UK finance position have proper ethical training for their jobs. If the candidates fail the test, they are unable to obtain a senior position.

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45. Margaret Cole- Director of Enforcement, Financial Services Authority

Category: Government and Regulatory

In January of 2009, Cole and the FSA brought the first changes ever levied against an individual for insider trading by the FSA. This action set a new precedent for 2009 and the years to come.

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46. Ben W. Heineman, Jr.- Senior Fellow, Harvard’s Kennedy School of Government

Category: Thought Leadership

On top of teaching a course at Harvard’s Kennedy School of Government, Heineman remained an influential voice in international board rooms this year. When he’s not writing influential books on business ethics, he’s contributing to periodicals such as The Atlantic on issues including the role of shareholders in the financial crisis.

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47. Benedict XVI- Pope, Catholic Church

Category: Thought Leadership

Benedict XVI makes this list for his Encyclical Letter, “Charity in Truth,” published in June of this year. The letter clearly draws the line between authentic and bogus CSR, it lays down the requirements for true business ethics, it spells out the proper role of profits in business, it articulates the conditions for “decent work”, it puts the concern for the environment in its proper perspective of integral human development, it posits the challenge of putting the forces of globalization at the service of human beings, and it encourages the development of civil society (with its logic of communion and gratuitousness) as the solution to the dialectic between the market and the state.

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48. Abol Jalilvand- Dean, Loyola Business School

Category: Thought Leadership

A number of leading business schools have really ramped up their focus on business ethics in light of the financial crisis that began last year. Under Jalilvand’s leadership, Loyola’s business school was ranked #1 in 2009 by BusinessWeek as the b-school with the strongest ethics curriculum.

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49. John Castellani– President, Business Roundtable

Category: Business Leadership

Castellani helped form the Divided We Fail Coalition with the SEIU and AARP to promote health care reform that meets the mutual interests of business, employees and the American public. This year, Castellani spoke out on behalf of member chief executive officers of leading U.S. companies with more than $5 trillion in annual revenues and more than 12 million employees.

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50. Dan Gorsky– Senior Vice President, Supply Chain Management, McDonald’s

Category: Business Leadership

McDonald’s took a proactive approach towards its supply chain in 2009 and announced it will survey its U.S. potato suppliers and publish a list of best practices that will help reduce pesticide use by the company’s suppliers. The results of the survey will be released in the company’s annual CSR report.

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51. Paul Dickinson– CEO, Carbon Disclosure Project

Category: Non-Government Organization

Dickinson and the Carbon Disclosure Project (CDP) have been busy this year as each year more companies sign onto the sustainability wave and agree to cut emissions (among other programs). One unique initiative CDP launched this year was its Water Disclosure Initiative which developed a mechanism for companies to report water use throughout their operations.

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52. Shan Rambaruth– Competition Commissioner

Category: Government and Regulatory

Rambaruth and the South African Competition Commission may not receive as much international attention as the U.S. and EU, but they certainly are just as busy attacking cartels. This year Rambaruth went after 30 South African companies accused of operating a cartel relating to production and supply of food in the country.

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53. Michael Schlein– President and CEO, ACCION International

Category: Non-Government Organization

ACCION International, provides loans to entrepreneurs in developing countries — sometimes the loan is as small as $100. ACCION has become the leading microlending organization in the United States. Schlein took the reigns of the company this year after the previous President and CEO, María Otero, accepted an appointment by President Obama to be Under Secretary of Global Affairs at the Department of State.

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54. Joel Makower– Editor, GreenBiz

Category: Media and Whistleblower

On top of attending, sponsoring or hosting a number of conferences on sustainability issues, GreenBiz, under Makower’s leadership, continues to be a great source of news for environmental issues and other CSR initiatives implemented by leading companies.

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55. David Michaels– Assistant Secretary of Labor, OSHA

Category: Government and Regulatory

Michaels, Assistant Secretary of Labor for the Occupational Safety and Health Administration, must seem a bit more intimidating to Board Rooms than his predecessors as it was recently ruled that private companies that perform work for public companies will be liable under Sarbanes-Oxley regulations. This expands the authority of SOX which also expands the powers of OSHA, the regulatory body that oversees SOX.

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56. M Siddiqi– CEO, Vedanta Aluminum, Ltd.

Category: Business Leadership

Vedanta, under Siddiqi’s leadership, publicly committed this year to spending 5 percent of the company’s profit on CSR activities.

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57. Jacqueline Brevard– Chief Ethics and Compliance Officer, Merck

Category: Corporate Culture

Brevard is the longest standing chief ethics and compliance officer of a major company. In 2009 she was active in a number of compliance and ethics initiatives and membership organizations and continued to set a strong leadership example within the compliance and ethics field.

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58. Marc Gunther– Author, MarcGunther.com

Category: Media and Whistleblower

Gunther’s nearly daily blog postings (sometimes more than that) covering corporate sustainability, combined with freelance reporting, combined with frequent travel, equals one very busy CSR expert.

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59. Dean Krehmeyer– Executive Director, Business Roundtable Institute for Ethics

Category: Thought Leadership

Krehmeyer heads the Business Roundtable Institute for Ethics, a leading think tank on business ethics. This year Krehmeyer launched a free online global video series covering business ethics.

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60. Tom Cantor– CEO, Scantibodies Laboratory

Category: Media and Whistleblower

He may not have made as big a splash as John Kopchinski, but he did earn “Whistleblower of the Year” award from the Taxpayers against Fraud organization after he filed a qui tam whistleblower suit against Quest Diagnostics and the Nichols Institute. The two organzations allegedly sold diagnostic tests that gave faulty results. Oh, and after the companies settled the suit, Cantor also received a reported $40 million for his efforts.

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61. Chris MacDonald– Editor, Business Ethics Blog

Category: Thought Leadership

MacDonald doesn’t seem to ever tire of writing about business ethics (or companies’ lack thereof). His blog, The Business Ethics Blog, continued to stay relevant throughout the year, publishing intelligent commentary on everything from business students to medical devices.

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62. Kathleen Edmond– Chief Ethics Officer, Best Buy

Category: Business Leadership

Edmond made the list for her Best Buy’s Chief Ethics Officer Blog. As the author of that blog, she discusses actual case studies of recent events within the company such as when a manager was terminated for inappropriate photos on the manager’s computer, or when another manager was accused of accepting kickbacks. More often than not, companies will try to avoid embarassing issues like these. Edmond and Best Buy take an opposite approach and use them as teaching lessons for employees.

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63. Ed Breen– Chairman and CEO, Tyco

Category: Corporate Culture

When he first accepted the CEO position of embattled Tyco earlier this decade, Breen very quickly fired 290 of the 300 top executives working there. Soon after he fired the board (the same board that voted to give him the job). Those kinds of changes set the foundation for the company to beat earnings expectations in 2009, earnings that were influenced in no small way by an improved ethical culture.

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64. Thomas P. O’Brien– U.S. Attorney, DOJ

Category: Government and Regulatory

O’Brien took “aggressive” to a new level when he went after stock option backdating at KB Home. He charged CEO of KB Home, Bruce Karatz, with 15 different charges that add up to 415 years of prison if found guilty on all counts. This occurred after Karatz already paid over $7 million to settle stock option backdating charges with the SEC in 2008.

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65. Jack Welch– Former CEO, General Electric

Category: Business Leadership

Welch makes the list for admitting in an interview with Financial Times that his focus on “shareholder value” was “the dumbest idea in the world.” After immense push back from the financial word and criticisms of ideas around CSR, largely based on Welch’s idea of shareholder value, Welch finally came around to the other side.

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66. Maggie Fox– President and CEO, Alliance for Climate Protection

Category: Non-Government Organization

Alliance for Climate Protection (ACP) just continued to pick up steam in 2009. ACP boasts being the parent organization of such notable groups as “Repower America” and “Reality” (if you haven’t seen an advertisement — print, online or television — for any of these groups recently then you have been living under a rock). The ACP is leading the dialogue of the renewable energy movement.

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67. Bennett Freeman– Senior Vice President, Sustainability Research and Policy, Calvert Group

Category: Investment and Research

Calvert remained a leading SRI firm this year, managing over $14 billion in assets. Freeman actively promoted the idea and benefits of socially responsible around the world.

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68. Nicholas Kristof– Columnist, New York Times

Category: Media and Whistleblowers

Kristof has feverously written on life in developing countries, having spent a lot of time living there himself. In January of this year he wrote a provocative column on the benefits of sweat shops in these regions. He continues to push forward the dialogue when it comes to quality of life in developing countries.

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69. Newsweek Greenrankings Team– Newsweet

Category: Investment and Research

Three individuals collectively earned this spot. They are: Peter Kinder, President of KLD Research & Analytics; Simon Thomas, Chief Executive of Trucost; and Paul Scott, Managing Director of CorporateRegister.com. On top of heading up leading an SRI investment company, environmental data collection company and CSR information provider, respectively, Kinder, Thomas and Scott also put together and launched Newsweek’s first annual Green Rankings.

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70. Brady Long– Chief Compliance Officer, Pride International, Inc.

Category: Business Leadership

Long has created a top of the line compliance program at Pride International during his tenure there, and this year was as active as any compliance officer espousing the ideals of ethics and compliance as part of a company’s long term business strategy, particularly when it comes to FCPA issues.

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71. Marjorie Doyle– President, Marjorie Doyle & Associates, LLC

Category: Business Leadership

Doyle, former chief ethics and compliance officer at DuPont and one of the folks responsible for that company’s great ethics and compliance program, began her own ethics and compliance consultancy this year. On top of consulting leading organizations, she spent 2009 extensively speaking on compliance and business ethics issues.

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72. Mark Lee– CEO, SustainAbility

Category: Non-Government Organization

We have no idea how SustainAbility was able to nab the url for www.sustainability.com in this environmentally focused time, but they did (although that has nothing to do with why Lee made the list). Lee made the list this year for his work consulting top multinational companies as to how they can improve their CSR programs.

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73. Jay Whitehead– President & Publisher, Corporate Responsibility Officer

Category: Media and Whistleblower

Whitehead is the publisher of Corporate Responsibility Officer (CRO), a leading publication covering business ethics and compliance issues. In 2009 CRO produced a number of leading conferences around the United States and Whitehead remained a leading voice in global CSR discussions.

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74. Carlos Minc– Environment Minister, Brazil

Category: Government and Regulatory

Minc won an internal battle with his policy advisers and political rivals to get Brazil to commit to reducing 36 percent of its carbon emissions by 2020. A large part of the reductions will be obtained by dramatically reducing deforestation.

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75. Antoine Mach– Director and Co-Founder, Covalence

Category: Investment and Research

Covalence, under Mach’s leadership, provides companies with an EthicalQuote, or a score of a company’s ethical reputation. Covalence also has a public version of EthicalQuote online, a daily updated database that measures the ethical reputation of multinational companies.

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76. Timothy J. Mayopoulos– Former General Counsel, Bank of America

Category: Media and Whistleblowers

Mayopoulos disclosed to Bank of America’s board the issues with Merrill’s mounting losses and was then terminated at B of A. But, he also upheld B of A’s privilege when questioned by Cuomo — and did so until B of A waived it.

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77. Christine Lagarde– Finance Minister, France

Category: Government and Regulatory

Lagarde spent a significant amount of time in the latter part of this year encouraging European Financial Stability Board Chairman Mario Draghi to investigate whether consolidation of large financial institutions in the aftermath of the financial crisis is hurting competition. In the rush to stem the bleeding, this question was rarely, if ever, publicly asked.

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78. Karen Kaiser– Former wife of David Kilkha

Category: Media and Whistleblower

First, Kaiser filed for divorce from Kilkha. In the divorce proceeding, Zilkha’s former psychologist was called to testify. Turns out Zilkha told his psychologist that he was fired after he stopped providing his company with confidential information about a rival. The psychologist presented that information and the divorce proceeding, and then testified at a trial against the company.

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79. Turney Stevens- Dean, College of Business, Lipscomb University

Category: Thought Leadership

This year Dean Stevens helped to create the new Dean Institute for Corporate Governance and Integrity at Lipscomb University. The Institute’s mission will explore the idea of implementing integrity in business operations, even if that comes at the expense of “undesirable” short term consequences.

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80. Mindy Lubber– President, Ceres

Category: Investment and Research

Ceres is another leading SRI firm that grew its influence in 2009 (in fact, the financial crisis generally acted as a great sales pitch for socially responsible investing). This year Ceres was a leading voice in activist shareholder resolutions, which includes conducting a study on the success of these types of resolutions over the year.

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81. Mark Chandler– General Counsel, Cisco

Category: Business Leadership

Chandler spent 2009 with a strong commitment to improving anti-corruption best practices and reinventing corporate legal practices and services. He was also a founder of the social networking site for attorneys, Legal Onramp, which continued to gain steam this year as well.

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82. Linda Chatman Thomsen– Director, SEC Division of Enforcement

Category: Government and Regulatory

As of this year, the SEC leads its own investigations relating to FCPA instead of tagging along behind the DOJ. Thomsen heads up those efforts.

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83. Eduardo Perez Motta– Chairman, Mexican Federal Competition Commission (Cofeco)

Category: Government and Regulatory

Cofeco, under Motta’s guidance, opened an investigation into potential monopoly practices in Mexico’s soft drink market — a market that drinks more coca-cola products per capita than any other country in the world, according to Reuters. Antitrust investigations are largely reported on in the U.S. and EU. It’s refreshing to hear of one occuring outside those two regions.

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84. Brian Martin– SVP and General Counsel, KLA-Tencor

Category: Corporate Culture

Martin, SVP and GC for KLA-Tencor, spent 2009 helping to bring a strong ethics and compliance program to his company, and remained very active in the ethics community, including writing a column for InsideCounsel Magazine, teaching a course on ethics, presenting in over 15 CLE programs on ethics, developing…well, you get the idea.

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85. James Farrar– Vice President of CSR, SAP

Category: Thought Leadership

On top of advising companies on how to develop and implement CSR initiatives, SAP also has a pretty good international program itself, led by Farrar, including SAP’s Africa Drive Project and partnerships with NGOs such as the HOPE Foundation in India.

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86. Pat Quinn– Governor of Illinois

Category: Government and Regulatory

Records show that not only did Quinn not abuse travel privileges as lieutenant governor; he actually paid for a good bit of his travel himself. This deserves particular mention in a year that had its first half plagued with headlines of either taxpayer or shareholder abuse for personal privilege.

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87. Wilfried Vanhonacker– Dean, Moscow School of Management in Skolkovo

Category: Thought Leadership

Vanhonacker leads the Moscow School of Management in Skolkovo, Russia. The school recently announced that it will focus on anti-corruption, a welcome change to the high profile reports of alleged corruption that came from Russia this year (see above).

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88. Olivia Zaleski– Journalist, Huffington Post

Category: Media and Whistleblower

Zaleski is a leading voice in the green movement, having covered environmental issues for online sites Treehugger, TheDailyGreen, Eco-Chick and Huffington Post and profiled by Fast Company in August. This year she also created regular video segments for CNNMoney.com called “Home Work” and “The Business of Green.”

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89. Georgina Verdugo– Director, Health and Human Services Office for Civil Rights

Category: Government and Regulatory

After some big privacy violations in 2008 and 2009, the maximum fine for HIPAA privacy violations jumped to $1.5 million per provision, compared to the prior rate of $25,000. As Director of the Health and Human Services Office for Civil Rights, Verdugo now has a bigger weapon to use against those that violate privacy laws.

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90. Alina Dizik – Journalist, Wall Street Journal, BusinessWeek and others

Category: Media and Whistleblower

Throughout 2009, Dizik wrote a series of articles covering CSR and business ethics initiatives for the Wall Street Journal and BusinessWeek, including stories covering b-schools’ ethics, CSR networking and how to use CSR to improve a corporate culture.

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91. Rich Blumenthal– Attorney General, Connecticut

Category: Government and Regulatory

Blumenthal was one of the leading Attorneys General this year when it came to protecting consumers against leading issues. Example: When the swine flu became a major story, he investigated some of the largest pharmacies (CVS, RiteAid and Wallgreens) for allegedly inflating prices of Tamiflu after that drug was promoted as a leading anti-flu medication.

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92. Claire McCaskill– U.S. Senator

Category: Government and Regulatory

McCaskill added whistleblower protections to the stimulus bill that passed earlier this year. This provision protects as a whistleblower those who report discrepancies or illegal activity in regards to the use of stimulus money.

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93. Michael Passoff- Associate Director, Corporate Social Responsibility Program, As You Sow

Category: Design and Sustainability

Activist shareholder resolutions are a dime a dozen, particularly in regard to environmental initiatives. This year marked a milestone — the first of those resolutions to ever pass. Passoff, Associate Director of As You Sow, helped to organize the resolution and the investor vote, which requires Idaho utility company IdaCorp to set greenhouse gas reduction goals.

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94. Aron Cramer- President and CEO, Business for Social Responsibility

Category: Thought Leadership

Helming his company Business for Social Responsibility (BSR), Cramer was a leading consultant in 2009 for companies looking to implement new CSR initiatives.

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95. Eveline Widmer-Schlumpf- Head of FDJP, Switzerland

Category: Government and Regulatory

Under Widmer-Schlumpf’s leadership, the Swiss Department of Justice (FDJP) received thousands of names of individuals who had more than $1 million in UBS bank accounts, and will hand that information over to U.S. authorities. Tax evaders everywhere have since “lawyered-up.”

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96. Pascal Bourdin- SVP, and GM of European Chocolate Business, Kraft

Category: Business Leadership

Bourdin and Kraft agreed in 2009 to increase the amount of Rainforest Alliance Certified cocoa beans ten-fold that the company uses within four years. This will increase the amount of beans used to a total of 30,000 tons by the end of 2012.

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97. Mahinda Rajapaksa– President, Sri Lanka

Category: Government and Regulatory

Rajapaksa admitted that bribery and corruption have ruined his country and that it needs to change. Although he is low on the list this time around, he could quickly work his way up the ranks next year depending on his actions follow up his statements.

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98. Farida Mzamber Waziri- Executive Chairman, Nigeria’s Antigraft Agency

Category: Government and Regulatory

Have you been lucky enough to receive an email from a wealthy Nigerian looking to transfer wealth to someone just like you? Well, Waziri is working to shut down those notorious scam websites, known as 419 Scams. While the effort is laudible, our inbox tells us that he has a lot of work ahead of him…

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99. Peter Eigen- Chairman, Extractive Industries Transparency Initiative

Category: Thought Leadership

Eigen heads up the influential Extractive Industries Transparency Initiative, a coalition that promotes ethics within the extractive industry. This year the organization held its biennial global conference in Doha, Qatar, and continued to push for global transparency within its field.

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100. Joachín Almunia- Competition Commissioner, EU

Category: Government and Regulatory

Almunia just took this job and must be aware of the large shoes that he has to fill. All signs say he is going to be very proactive and aggressive, just like his predecessor, Neelie Kroes. Who knows, if he lives up to expectations, maybe he will move all the way up to the #1 spot next year.

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Learning from Others’ Mistakes: 2009’s Top 10 People We Won’t Miss

Influence isn’t only brought about by positive actions, sometimes unintended improvement comes from ethical missteps. Here are the top ten individuals that have influenced business ethics through professional flubs.

1. Juan Dominguez – Dominquez represented thousands of South American banana plantation workers in ongoing suit against Dole, accused of using fake witnesses and creating false evidence.
2. Antasari Azhar – Azhar was the former anti-corruption chief of Indonesia. It’s not good to be an anti-corruption chief and be accused of murdering your lover’s lover.
3. Ngo Quang Truong – Truong, director of Vietnamese real estate investment company Hoang Hai Ltd, was accused this year of hiring people to kill the whistleblower accusing him of corruption.
4. Scott Murray – A jury decided that Murray, the HR director at Nutrition Management, had insufficient knowledge of FMLA when he fired a pregnant employee. This insufficient knowledge caused the fine against his company to double.
5. Steven Cauley – Cauley, a partner at Cauley, Bowman, Carney & Williams, allegedly diverted escrow funds from a $65.8 million class action settlement in order to fund his failing car wash business and other ventures.
6. Charles Conaway – Conaway, former CEO of K-Mart, was found guilty earlier this year of lying to investors about the status of K-Mart’s financial health.
7. Anonymous Hacker – This anonymous hacker hacked into the Virginia Department of Health and stole 8.3 million patients’ personal information in Virginia. He/she would only return the data for a $10 million ransom.
8. Tom Petters – Petters, who was accused last year of orchestrating a multi-billion dollar ponzi scheme, was found guilty in early December 2009 on 20 counts of wire fraud, mail fraud and money laundering. Petters faces up to 30 years in prison for the scheme.
9. Gunther Than – Than and his company View Systems were caught this year for promoting contracts with Verizon Wireless that didn’t exist.
10. Hartmut Mehdron – Deutsche Bahn was wrapped up in a massive employee spying scandal while Mehdron was at the helm. The scandal certainly involves more than just Mehdron, but the buck has to stop somewhere. Mehdron stepped down early this year after the news made international headlines.

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Ethisphere would like to thank the following individuals for their help in creating this list:

• Marianne Jennings, Professor of Management, Arizona State University
• Joseph Holt, Director for Executive Ethics, Notre Dame University
• Charles Elson, Director of the John L. Weinberg Center for Corporate Governance, University of Delaware
• Brian Moriarty, Associate Director of Communications, Business Roundtable Institute for Corporate Ethics
• Alejo José G. Sison, Senior Fellow at the Center for Business and Society, IESE

The following essay received third place in TRACE International’s 2008 essay contest and was selected for publishing in ethisphere Magazine.

Writers were asked to write their thoughts on “what personal behaviors, what laws or policies, what deterrents or incentives, what reporting devices or transparency mechanisms, what educational campaigns, what measures of any kind have been or could be effective in resisting or curtailing bribery?”

Bribery is an important part of life in India. With an elaborate and almost Byzantine bureaucratic system and a long legacy of a corrupt civil service, it’s hard to escape the clutches of corruption. From handing over a hundred rupee note when you get pulled over for speeding to escape a ticket, to assuming that getting a file from the government offices will require “grease money,” to scams worth thousands of billions of rupees involving the top politicians in the country: we have come to accept corruption, while at th e same time berating it at every juncture. Innovative means are sometimes used to fight it: there were reports recently of people in Orissa, a state in India, who printed a note with a denomination of zero rupees to give to officials demanding bribes in order to register their protest at this practice. However, more serious efforts have been initiated and have been successful as well. This essay won’t deal with a description of corruption as such, and will focus on various innovative means to fighting bribery that have been employed in India. In the course of the essay, the term corruption will be used to encompass not just bribery but other similar social phenomena as well, in order to give a more holistic description of the problem.

01 // MKSS and the Right to Information Movement

The right to information has been a real boon in the fight against governmental bribery in India.1 In the early nineties, a mass-based organization calling itself the Mazdoor (Labour) Kisan (Farmer) Shakti (Strength) Sangathan (Organization) (MKSS) started working in one of the most neglected areas of the Indian state of Rajasthan. Meeting their basic needs with modest public contributions from the community, the core group started out life in a small mud hut in the village of Devdungari.2 The MKSS prepared no project proposals, received no foreign funds, recruited no administrative staff and attracted no visitors, thus making it difficult to classify and slot them. All they did was walk from village to village asking simple questions: “Did the people know how much money was coming to their village for development and where it was being spent?” The problem lay in the fact that next to no information was available to the villagers, and the officials denied them the same. At the national and state levels, planners, politicians and administrators, all out of touch with reality, were claiming there was total transparency. At the village level, however, vouchers, bills and muster rolls that showed who was receiving payments or wages were kept secret.

The MKSS launched a people’s campaign the like of which had never been seen or experienced in Rajasthan since the Freedom Movement in the 1940s. The campaign included several public hearings where cases of misappropriation and corruption of public funds were shared with several thousand people.4 Very slowly, and with much battling with the government, the Right to Information Act was finally put into effect.

For the first time since the Panchayat movement was founded in the 1950s under Nehru, village representatives began to return the money they had embezzled from their constituencies. It was not fear of the law or arrest or departmental inquiry or suspension that made them act this way. It was fear of the people through the public hearings that finally humbled them.5 This case highlights an innovative solution to the problem of corruption: the solution was found not in the acts or publications of the government but by realizing the immense power of the right to information. Public access to information is important in a number of ways. Firstly, it exposes existing corruption. While many members of the public may correctly believe that corruption exists in the administration, few if any would know the specifics involved. Yet it is these specifics that matter most in bringing corruption to light. Also, since corruption deprives members of the public of their basic entitlements, information is necessary for them to secure what is rightfully theirs.

In the gathering of information relating to development projects and detection of corruption therein, a powerful weapon is the social audit. A social audit collects official data and compares it with the actual progress of a project. For instance, a social auditor may take the progress report or measurement book for a development work and compare it with the on ground construction thus highlighting discrepancies between the official version and actual fact. A social audit can be carried out by any interested members of the public. Often social audits turn up interesting results.

The right to information is a very important tool, and, as this case study shows, has been effective in weeding out corruption at the grass roots level. This example is being emulated in various parts of the country, which is a very positive development.

02 // Corruption in the NREGA

The NREGA—the National Rural Employment Guarantee Act—is a social legislation enacted by the government in recent years which aims to provide employment to millions of India’s population settled in the villages. With such a wide scope, safeguards are necessary. The example of MKSS highlighted above was used in this regard. The Comptroller and Auditor General of India recently released a report regarding the working of the NREGA, focusing mainly on procedural lapses and questioning whether NREGA funds actually reach the poor. The methodology used was that of muster roll verification which was developed in Rajasthan in the context of the right to information movement. This learning process offered an opportunity to develop a range of transparency safeguards for public works schemes (such as the pro-active disclosure of muster rolls, regular maintenance of “job cards,” and social audits). Many of them have been incorporated in the Operational Guidelines of NREGA, and even in the Act itself. There is a good deal of informal evidence from Rajasthan that these safeguards can go a long way in preventing corruption.6

Innovative and serious efforts have been taken to prevent the spread of corruption in NREGA. For instance, the govern-ment of Tamil Nadu has initiated an imaginative system of muster roll maintenance whereby each labourer has to enter her signature or thumbprint in the muster roll every day to mark attendance. This ensures not only that the muster roll is available for public scrutiny at the worksite, as required by the NREGA guidelines, but also that large numbers of people actually see it every day. In this and other ways, much progress has been made towards a “leak-proof” system. The government of the Indian state of Andhra Pradesh has taken the bold step of paying all NREGA wages through post offices. This is an example of the “separation of payment agencies from implementing agencies,” recommended in the NREGA guidelines. This sys- tem helps to remove the incentive the implementing agencies have to fudge muster rolls, because the payments are beyond their reach. In addition, Andhra Pradesh has put in place a system of institutionalized social audits, involving routine verification of NREGA records through participatory processes. Social audit reports cite these safeguards as quite effective. While various forms of petty corruption, such as bribes being taken by postmasters, have emerged from the social audits, there is no evidence of the sort of large-scale fraud that plagued public works schemes in Andhra Pradesh just a few years ago.7 If bribery and corruption can be reduced by incorporating simple structural changes like these, perhaps these changes can be incorporated into national legislation and reach and improve the lives of millions who suffer.

03 // Using the Internet as a means of spreading information

The information superhighway is advancing and entering the lives of millions of Indians, and the Internet is proving to be one of the most effective means of countering corruption. By ending the information asymmetry and placing it directly in the hands of the people, a large change is being wrought. Earlier, vital information, including budget allocations, status of application etc., was the stronghold of the bureaucrats and the middlemen, which was a festeriflashpoint for rampant brib- ery and corruption. With e-governance removing the need for middlemen and placing information directly at the doorsteps of the people, such practices have automatically seen a decline. For example, the Gyandoot programme in the Dhar district of Madhya Pradesh is networked to 31 village centres. The service covers wide ranging information needs of the villagers like agri- cultural produce, auction centre rates, copies of land records, on-line registration of applications, village auction sites and more. In Rajasthan, Nyala became the first village of the state to have the Raj Nidhi Information Kiosk, through which citizens are able to access information related to health, family planning, employment, taxes and water and electricity. The Andhra Pradesh Twin Cities Network Services [TWINS] launched in December 1999 provides an initial set of 18 services to the citizens of Ward 8 of Hyderabad.8 Bringing the government one step closer to the people removes the middlemen and the consequent need to give them bribes in order to get work done.

The Internet can be used in other ways in the fight against bribery and corruption. Consider the example of Sunanda Devi, a woman whose husband is a whistleblower in the civil services in India. When he began to be threatened by the people whose corruption he was helping bring to light, she started her own website9 to help raise awareness about her husband’s plight. With more people finding out about his work, the threats to his life ceased as well.10 Her example shows that if you bring the act of bribery and corruption out in the open and publicly name and shame the officials, one can do more than quietly accept the treatment meted out to you.

WHILE VIGILANTE JUSTICE AND PRACTICES OUTSIDE THE LEGAL FRAMEWORK ARE EXTREME, THE DESPERATE POVERTY IN MOST PARTS OF RURAL INDIA NO DOUBT CONVINCES THE GULABI GANG AND THEIR ADMIRERS THAT THEIR ACTIONS ARE THE ONLY EFFECTIVE OPTIONS.

These examples indicate that when information spreads, it is harder for officials to continue with their corrupt practices. By making sure that official, procedural and other kinds of information reach down to the lowest grassroots level to all sections of the society—even the most marginalized ones—these people are being empowered and the stronghold of corruption is being weakened.

04 // The Gulabi Gang

The term “gulabi gang,” which roughly translates into “Pink Brigade,” refers to a group of women who have come together to fight a number of difficulties that they face, supreme amongst them being corruption. They wear pink saris and go after corrupt officials and boorish men with sticks and axes.12 The several hundred vigilante women of India’s northern Uttar Pradesh state’s Banda area who proudly call themselves the “gulabi gang” have struck fear in the hearts of wrongdoers and earned the grudging respect of officials.13 Although it is difficult to accept or endorse such violent vigilantism, one can perhaps understand its origins.

A look at their background reflects, perhaps, the need for a group of such commitment, if not such tactics. Banda is at the heart of the blighted region that is Bundelkhand, one of the poorest parts of one of India’s most populous states. It is among the poorest 200 districts in India which were first targeted for the federal government’s massive jobs-for- work programme. Over 20% of its 1.6 million people living in 600 villages are lower castes or untouchables. Drought has parched its already arid, single-crop lands. To make matters worse, women bear the brunt of poverty and discrimination in Banda’s highly caste-ridden, feudalistic and male dominated society. Dowry demands and domestic and sexual violence are common. It is disturbing, but not surprising, that a women’s vigilante group has sprung up in retaliation to this landscape of poverty, discrimination and chauvinism.

While vigilante justice and practices outside the legal framework are extreme, the desperate poverty in most parts of rural India no doubt convinces the gulabi gang and their admirers that their actions are the only effective options.

One other common form of corruption should be explored. Any bureaucrat who spends the money budgeted and allocated is considered efficient, so the mad rush to show that the annual budget has actually been spent at year-end is simply solved by falsifying receipt vouchers and muster rolls on a colossal scale. Thousands of schools, dispensaries, roads, small dams, community centres and residential quarters have been shown to be complete on paper, but in reality are incomplete and abandoned. The defenseless poor therefore turn to groups like the gulabi gang: people taking up arms against an obviously corrupt and unjust system. It can be tempting to conclude that in places where the government has left such an evident void, it is perhaps better that justice is served through unconven- tional means than not at all.

These examples have illustrated a number of radically different approaches to the problem of corruption. As corruption has become institutionalized and is very much a part of the system, it may be too optimistic to think of a complete removal of this evil. It is often even said to be economically beneficial, since it is increasing efficiency at a small cost. However, when it gets out of hand, the means and methods that do seem to be helping are the unorthodox and creative means being devised by people who bear the brunt of the problem and come up with innovative solutions to help themselves. These range from the slightly ludicrous—there were reports of people printing zero Rupee notes to give as mock bribes to corrupt officials—to much more effective ones, as highlighted above. These efforts provide clues on how to implement these measures on a more formal and long term basis as well.

Ms. Vrinda Maheshwari is from New Delhi, where she is a student at the National Law School of India University. She was the third place winner in TRACE International’s recent essay contest on bribery.

1 Abhijeet Singh, “Corruption and Economic Development: Right to Information as a Remedy”

2 See generally: www.mkssindia.org/.

3 “RTI Campaign: MKSS gift to India,” at rti.aidindia.org/content/view/12/54/.

4 Ibid.

5 Ibid.

6 “Rajasthan Role Model for Muster Roll Verification,” The Hindu, July 13, 2007.

7 Not all experiences have been as good. Orissa, as has been widely reported, has been a rude shock. There muster roll verification exercises were conducted in October 2007 for 30 randomly selected worksites spread over three districts (Bolangir, Boudh and Kalahandi). The findings of this investigation have been reported elsewhere (The Hindu, November 20, 2007). Orissa had barely begun the transition from the “traditional system” of corruption in public works schemes (involving private contractors, mass fudging of muster rolls, and institutionalized kickbacks) towards a transparent and accountable system. The transparency safeguards had been sabotaged by vested interests and the system was virtually unverifiable. In Bolangir and Kalahandi, the infamous “PC system” (whereby various functionaries demand fixed percentages of scheme funds) continued and seemed to absorb around 22 percent of NREGA funds. The silver lining is that even in this corruption-ridden region, there were many indications of positive change. As checks and balances are put in place, the system is becoming harder for vested interests to manipulate, and corruption is coming down. The clampdown on corruption has recently intensified, after Orissa earned a bad name for mass corruption in NREGA.

8 Dominic Mendis, “E-governance in India,” at http://www.the-south-asian.com/Oct2001/E-Governance.htm.

9 www.letsfightcorruptionnow.wikidot.com.

10 http://www.iht.com/articles/2007/07/02/news/india.php?page=1.

11 CMS Study on Corruption In India: An Overview of Corruption in Urban Services, 2000.

Anyone who thinks bribery is good for business should think again. Last year was a record for Foreign Corrupt Practices Act (FCPA) enforcement with the highest ever number of cases filed and with offending corporations and individuals paying record penalties for bribery.

The U.S. Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) marked the Act’s 30th anniversary by filing a record 38 cases in 2007. The DOJ also imposed a record $26 million in criminal fines against three wholly-owned subsidiaries of Vetco Gray International and a record $44 million in combined civil and criminal penalties against Baker Hughes.

The FCPA has become the de facto international benchmark for anti-bribery and corruption, yet despite the news-paper headlines generated by some of the huge fines, knowledge of the Act is surprisingly low.

Ernst & Young’s 10th global fraud survey, released earlier this year, shows that although companies are recognising the risks of corruption and are doing more to combat it, knowledge of anti-corruption legislation such as the FCPA remains patchy, with a third of respondents saying they had some knowledge of it and an astonishing 58 percent of senior in-house counsel admitting they were not familiar with it.

The United States introduced the FCPA following a survey done by the SEC in the mid-1970s in which more than 400 companies, including 117 in the Fortune 500, admitted making questionable or illegal payments in excess of $300 million to foreign government officials, politicians and political parties. In addition to ethical concerns and reputational damage to the United States, there were also worries that bribery on the scale disclosed would have a corrosive impact on the free market eco-nomy and would put pressure on ethical enterprises to lower their standards or risk losing business.

FCPA initially made it illegal for all U.S.companies to bribe foreign officials to obtain or retain business. It was then extended to cover foreign companies that issued shares and were regulated in the United States. Foreign companies and individuals are also covered by the Act if they either directly or indirectly, through agents, are responsible for corrupt pay-ments within the United States. So, for example, Chinese companies listed on U.S. exchanges have to be FCPA compliant. U.S. government officials are currently investigating the British firm BAE Systems to determine if it paid bribes to win the so-called al-Yamamah arms contracts with Saudi Arabia, which date back more than 20 years. The DOJ is interested because it believes BAE used the U.S. banking system to transfer regular payments to accounts controlled by a senior figure in the Saudi royal family at Riggs Bank in Washington, D.C.

Damage to companies that run afoul of the FCPA is significant. Along with stiff penalties, the U.S. government continues to regularly seek disgorgement of profits earned from the business allegedly won as a result of bribery. To avoid prosecu-tion, companies will frequently agree to deferred prosecution, involving an enhanced compliance program and the engagement of an independent corporate monitor. In addition, companies also face the prospect of private lawsuits from competitors that can claim damages arising out of corruptly obtained business. Compass Group, the world’s largest catering company, recently agreed to pay $74 million to settle claims made by two rival companies that they lost business after Compass allegedly bribed United Nations officials to secure contracts offering food rations to peacekeepers. On top of all this, companies found guilty of FCPA violations also typically suffer reputational damage and loss of business.

To avoid inadvertently violating the FCPA, companies need to ensure that when they sign an agreement with an overseas business partner, vendor or distributor, they know whether or not politically exposed persons are connected either directly or indirectly through business associates or relatives to their business partners.

The term “foreign official” is quite broad and may include an officer, employee or person acting in an official capacity for a foreign government department, agency or public international organisation (including employees of state-owned enterprises); or an external consultant acting in an official capacity on behalf of a foreign government. It can include members of the police, the military, judiciary and members of political parties. It also covers business associates and family members from acting as intermediaries for officials.

Certain payments are permissible under the FCPA. These include payments that are legal under the laws of the host country and those made in connection with the promotion, marketing or sale of a product, or in connection with the performance of a contract with the foreign government.

The FCPA also provides an exception for facilitating payments. Facilitating payments are small dollar amounts meant to expedite routine government action, such as securing basic utilities and speeding up paperwork.

Companies face considerable chal-lenges in tracking the conduct of foreign officials, particularly in emerging and frontier economies. This is because there is no comprehensive way of tracking them. They are a moving target because appointments change, parties are voted out and people die. One possible solution is to subscribe to a foreign official database. Some of these databases are used primarily for banking and money laundering compliance and perform the same function.

The Internet can also provide information on foreign officials. But contrary to popular belief, most of the information on the Internet is not in English. So, for example, to find out who is an official in Mongolia requires doing a local language search and replicating the English language searches in a foreign language.

Lack of information can be another problem in emerging economies. It is difficult to obtain lists of politically exposed persons in places such as the Central African Republic, Afghanistan or Nigeria.

Even more problematic than tracking foreign officials is tracking the business associates and family members of foreign officials. This requires a higher level of investigation and involves searching around an official’s name by trawling through local media and official biographies. Local languages again add yet another layer of difficulty.

So what kind of information do companies need to know to protect themselves? The DOJ has a suggested list of questions which should raise a red flag if not answered satisfactorily. These include:

• Is the transaction or contracting party in a country that has a history of bribes and kickbacks?
• Is the transaction or contracting party involved in an industry that has a history of FCPA violations?
• Is the transaction or contracting party in a country where there is widespread corruption?
• Are the subjects on a debarred or proscribed list?
• Do the subjects have a family or business relationship with a government official?
• Is the subject’s identity confidential or secretive?
• Does the subject maintain an opaque or secretive ownership or management structure?
• Does the subject have relevant business experience?
• Does the subject have a history of making improper payments?
• Does the subject refuse to comply with the FCPA?
• Does the subject or individuals connected to it have a poor business reputation?

In many emerging economies, some of these questions cannot be answered. The ownership structure of a company is not in the public domain, for example, in Taiwan and the United Arab Emirates. Incomplete answers to some of these questions do not necessarily rule out doing business with a potential partner, but they do indicate a higher level of risk.

A key issue for companies is how to screen international partners and vendors. One school of thought advocates reaching out to vendors by asking them to offer the information that companies use as a basis for screening. This approach has its draw-backs. Companies have to wait for their vendors to fill out and return a self-reported questionnaire-if they even agree to do it in the first place. And many vendors are reluctant to admit to derogatory practices such as paying bribes. Additionally, some firms may take offense at what they perceive to be the imposition of western values on local trading practice. Given that any response to a vendor questionnaire will need to be verified to maintain compliance “best practice,” this approach is time-consuming, inefficient and fundamentally ill-suited for large-scale international screening projects.

It is generally better for both the business relationship and the effectiveness of the background screening if the company performs a screening based on publicly available information sourced from primary sources, such as company registries, courthouses, foreign official databases and other databases. This way, the vendor need never know he is being screened and the checks can be completed in a matter of days. Companies such as IntegraScreen, with experience in working in emerging and frontier market environments, have developed FCPA programs for particular geographical regions and industries.

A further advantage of such a program is that, in the event of an FCPA investigation, companies can demonstrate they have a system in place and that they took reasonable steps to guard against FCPA violations.

An effective FCPA program also helps to form the basis of a wider risk management program within a company. Screening potential business partners is an integral part of managing the risk of fraud through tender rigging and purchasing fraud, and in protecting intellectual property. It should be part of a holistic enhanced due diligence program within the firm that encompasses background screening not only for business partners, but also for staff. The program should involve staff training in anti-corruption and anti-fraud measures, and a clear message should be sent to the company’s business partners and staff that it does not tolerate corruption.

The cost of implementing a screening program is a small price to pay compared to the costs of an FCPA violation or of being defrauded.

Michael Short is a founder and also the functional head for international FCPA compliance solutions for IntegraScreen-one of the largest international compliance screening companies which has operations in 13 emerging market locations.

Will there ever be an end to the Oil-for-Food abuses? Flowserve Corporation announced last Thursday that it will pay nearly $10.6 million to the U.S. Securities and Exchange Commission and the U.S. Department of Justice for violating the United Nation’s Iraq Oil-for-Food humanitarian program. A Dutch and French-based subsidiary of the company, Flowserve Pompes SAS, came under investigation by the the SEC and DOJ in 2006 for allegedly paying kickbacks to Iraqi government officials. The kickbacks were were worth approximately 10 percent of the price of the contract, or just over Continue Reading

// BY STEFAN LINSSEN

In the post-Enron era of heightened scrutiny on corporate governance and business ethics, public companies have borne the brunt of the attention. Not surprisingly, this has contributed to an increasing number of companies going private.

In this environment, it takes a lot more for a privately owned company to stand out enough from its peers to warrant public scrutiny. Through the following, one organization did just that:

That company is Fidelity Investments, the nation’s largest 401(k) administrator and manager of over $3 trillion in investment assets.

It’s inevitable to include the irony of Fidelity’s name in this story, so perhaps it’s best to just get it out of the way now. Fidelity, by a dictionary’s standards, is “the quality or state of being faithful or loyal.”

THE QUESTION IS – TO WHOM IS FIDELITY LOYAL?
The fundamental premise of the Ethisphere Institute is that ethical leadership is rewarded over the longer term through sustained competitive advantage and superior profits. But Fidelity, the former wunderkind investment manager of the 1980s, seems to have sacrificed longterm leadership- ethical, innovative and far-thinking- for short-term profits for the controlling Johnson family.

The preponderance of evidence that leaks out to the public- despite the company’s best efforts to suppress it- affirms that conclusion. Some suggest that major business media have been dissuaded from digging in themselves, for fear of losing millions of dollars of Fidelity advertising.

Enter Ethisphere.

When a company is the largest player in an industry, as is Fidelity, the public increasingly expects them to set a positive tone for others to follow. This piece is an opinion piece based upon meticulous research and scrutiny of publicly available information. In the ensuing pages, we raise some of the issues the company has faced in recent years and present a recommended “investment” strategy for Fidelity to get itself back on track.

EXECUTIVE EXODUS
In early August of this year, Ellyn McColgan, a top Fidelity executive, stepped down. There wasn’t much hoopla about it- no significant press releases or statements from her former employer. The official word was that she merely left “to pursue opportunities outside of the company.” For those familiar with Fidelity, this was an unexpected move: McColgan was thought to be a leading contender to succeed CEO Ned Johnson. So, why did she resign to seek “opportunities” elsewhere?

Maybe McColgan was just getting fed up, but whatever the reason, she’s not alone. Recently, an unprecedented number of high-level managers have been leaving Fidelity’s ranks, making it impossible to ignore. And with some of the incidents that have reached the press in recent years, perhaps it’s not all that surprising.

THE GLOBAL TERRORISM CONNECTION
This summer, David van Duyn, one of Fidelity’s former compliance officers in charge of ensuring Fidelity’s compliance with the anti-terrorism and anti-money laundering provisions of the U.S. Patriot Act, sued Fidelity as a whistleblower over willfully violating the Act’s antiterror measures.

Van Duyn accused Fidelity’s Anti- Money Laundering Chief, R. Stephen Ganis, of instructing him to ignore requirements to monitor and report financial transactions to government authorities and to falsify documents. These reports were designed to prevent money laundering by terrorist groups.

According to his lawyer, van Duyn was allegedly ordered to stop watching certain accounts for specific periods of time in order to avoid “embarrassment” for Fidelity and important clients.

While many cases of alleged Patriot Act noncompliance make national news, this one didn’t. Within hours, Fidelity countersued, and rushed to block public record of van Duyn’s claims.

OUTLAWED INVESTMENTS SOLD TO U.S. MILITARY PERSONNEL
That wasn’t the first time that Fidelity or its broker-dealers have come under scrutiny for violating industry regulations. Earlier this year, the National Association of Securities Dealers (NASD) raised a complaint against Fidelity for presenting U.S. military personnel with faulty sales material for two out-of-date Fidelity mutual funds.

The funds, known as Destiny I and II, used “contractual plans,” a type of investment that requires monthly contributions for 10 to 15 years, but charges half of the first year’s investment in fees. These systematic investment plans were banned by Congress in 2006. In fact, even before Congressional intervention brought these plans to a halt, many professionals in the mutual fund world were already aghast at these types of investments.

“Would I ever recommend that an investor buy contractual plans? No, I would not,” John C. Bogle, founder of the Vanguard Group, told The New York Times in 2004.

The sales material used to advertise these Destiny plans claims they outperformed the S&P 500 index over the past 10 to 15 years. In reality, the plans drastically underperformed.

“These failures were aggravated by the fact that the plans were sold primarily to military personnel, who often have limited time to study the marketing materials for investment products,” said James Shorris, NASD Executive Vice President. “And these particular products involve complex or unique features that may not be fully understood by the customers to whom they are offered or by the brokers who recommend them.”

Ultimately, the NASD fined two of Fidelity’s brokerage dealers $400,000 for the violations and required the two dealers, Fidelity Investments Institutional Services Company of Smithfield, Rhode Island, and Fidelity Distributors Corporation of Boston, to allow current Destiny account owners to increase investment in their plans without paying the initial 50 percent startup cost.

Although Fidelity declined to admit guilt, it agreed to pay the fine. The $400,000 went to NASD’s nonprofit Investor Education Foundation, a group that helps educate members of the U.S. military and their families on financial decisions.

FIDELITY’S PROXY VOTES SUPPORT MANAGEMENT
The issue that is perhaps the most complicated, and potentially the most dangerous to investors, is the tremendous conflict of interest that Fidelity brings upon itself through expanding its business services beyond mutual funds for the masses. Impressively, the company has leveraged its position to become the nation’s largest manager of corporate 401(k) employee retirement plans. Sometimes, their mutual fund and benefits sectors intersect.

Examples: Fidelity’s giant mutual fund Magellan owns 3 million shares of Rockwell Collins stock, a company that also pays Fidelity to manage its benefits. Additionally, Fidelity’s largest mutual fund, Contrafund, owns 622,000 shares of FMC Technologies, and Fidelity runs benefits for that firm as well.

What is the conflict? When Fidelity’s mutual funds own stock in the same businesses that pay Fidelity for other services, the question becomes, “Who is looking out for whom?”

Some have suggested that by virtue of having a company as a client, Fidelity will be less inclined to vote against the company or its management- even if the vote is in the interest of the broader shareholder base. Could the quest to maximize profit from all revenue streams cause Fidelity to turn a blind eye and unquestionably vote with management so as not to jeopardize its lucrative 401(k) management practice?

Consider Tyco International before the 2002 scandal when CEO Dennis Kozlowski and CFO Mark Schwartz were accused of stealing $600 million from the company. In 1998, Fidelity was the largest shareholder of Tyco at 14 percent. In addition, Fidelity managed Tyco’s employee benefits program, reportedly earning $1.8 million. When Tyco shareholders proposed an amendment to make directors financially independent from executives, Fidelity voted with management. Fifteen other investment firms sided with the shareholders. When the scandal broke in 2002, Tyco lost $80 billion in market value.

THE GOVERNMENT REGULATES
Until recently, investment firms were not required to disclose how they vote at shareholder meetings. The change occurred when the SEC realized the potential conflict of interest. Their first course of action was to get opinions on the matter from businesses, mutual fund advisers and various institutions.

Three thousand responses came back, some from outside the United States. One letter, sent on behalf of several major institutional shareholders in Europe, including British Airways Pension Investment Management and Shell Pensions Management Services, not only asked the SEC to mandate proxy voting disclosure, but to mandate that companies publicly disclose any potential conflicts of interest as well. Fidelity Investments, on the other hand, was one of the investment firms campaigning against the new measures.

Finally in 2003, after sorting through all the responses, the SEC ruled that mutual funds must disclose their proxy votes. The SEC hoped this would “encourage funds to become more engaged in corporate governance of issuers held in their portfolios,” which in turn would be in the best interest of all investors.

Although investment firms are legally required to use their proxy votes to protect the best interests of shareholders, there was no real way to enforce this standard prior to the SEC’s decision. While Fidelity had its proxy voting guidelines posted on the company website, whether or not they followed them is unknown, as no actual voting records were released to the public. In contrast, Calvert Group and PAX World Management both revealed their guidelines and actual voting history.

With proxy votes now in the open, one can consider the example of Rockwell Collins. Rockwell Collins’ leadership hired Fidelity to manage its 401(k) and retirement packages. At the same time, Fidelity’s Magellan fund manages $200 million worth of stock in Rockwell Collins, earning it significant voting power. When the time came to vote for management at a February 2007 Rockwell Collins shareholder meeting, how did Fidelity vote? They voted to reelect all managers. Fidelity also voted for all managers in a 2007 FMC shareholder meeting.

DOES THIS ACTUALLY MEAN ANYTHING?
Fidelity won’t argue that it usually votes with management. After all, Fidelity executives say if they didn’t like the management they wouldn’t have invested in the first place, or would sell the shares that they have.

“If we make a determination that a company is not being run well, we have the option to sell our shares and, in fact, we make such decisions to buy and sell shares daily in the market,” says Fidelity spokesperson Anne Crowley.

However, problems arise when Fidelity owns a large quantity of shares in a specific company, making it very difficult to divest. Mutual funds have discovered that it’s not easy to use the “Wall Street rule” of selling- just selling the stock instead of battling management- when a company performs badly. Many experts recommend instead that Fidelity capitalize on its large stakes in companies to monitor ethical corporate governance. The company has the ability and is in the position to be an ethical trendsetter.

HIDDEN 401(K) FEES
Conflicts of interest aside, additional complications arise with Fidelity’s 401(k) management.

According to a 2006 report by the Government Accountability Office (GAO), approximately half of all workers participate in some sort of employer-sponsored retirement or pension plan. The fastest growing and most widely used defined contribution plans are 401(k) accounts.

As part of owning a 401(k), participants pay managerial fees associated with operating the plans. These fees, although usually a small percentage, can add up significantly over time. For instance, a one percent increase can reduce savings by 17 percent over 20 years.

The danger comes from opaque companies administering 401(k) plans. Often, corporations and their fund administrators won’t reveal the fees associated with a plan or will force participants to sort through several different types of documents to get an accurate amount.

“The 401(k) world is various,” says Barbara Bovbjerg, Director of Education, Workforce, and Income Security Issues for the GAO. “Some participants probably are getting really good, direct, straightforward information on the fees they’re paying, but that’s not uniformly true.” Many participants have no idea of the fees associated with their retirement plans, and it’s because the information just isn’t out there.

“The law, the statute and the regulations don’t really require a certain format, they don’t require all fees to be disclosed, they don’t require it all to be in one place,” Bovbjerg says. Investors can pore over account statements, annual reports and other documents, and still not find an accurate representation of what they’re paying.

The Employee Retirement Income Security Act (ERISA) requires retirement plan fiduciaries to act in the best interests of plan holders. This includes keeping costs (amounts paid for management, daily operations and so on) as low as possible. However, many times these fees can devolve into unethical profit for several companies involved.

For this very reason, a group of employees from Deere & Co. sued Fidelity,along with Deere, in December 2006. At the heart of the case were accusations that Fidelity charged indirect, hidden and excessive fees to administer the employees’ 401(k) accounts. The workers claimed that Deere and Fidelity had an undisclosed profit-sharing system set up under which Fidelity shared some of the fees it charged participants with Deere.

The suit was eventually thrown out by the judge overseeing the case. While profit-sharing existed, the judge felt that Deere and Fidelity had no responsibility to disclose it to workers.

Why such a secret? Besides shedding light on behind-the-scenes deals, transparent fees also help lower costs by increasing competition. “The more people become aware of what fees should be charged and what amount they’re paying, it’s likely more competition will emerge,” explains Tamara Cross, assistant director at the GAO.

Unfortunately, since the largest corporations are failing to address this issue, it is left to the legislatures to address. Although Bovbjerg notes that Congress and Labor are proactively working on the problem, she believes disclosure is ultimately the key.

“I think that getting more information to participants would be a really valuable thing,” she says. “Sunshine is a crucial aspect in fees. If more sunshine can be let in I think it will be better for everybody.”

A ‘MOO’T POINT?
Inadequately disclosed fees may be one thing, but then there’s the small-scale skimping. As the Wall Street Journal originally reported, Fidelity’s Westlake, Texas, campus owns 24 cattle that graze on a portion of its property in order to save money through a state property tax law.

The law was originally designed to help farmers and ranchers save a little extra money by giving a tax break to those who raise livestock, grow crops or protect natural wildlife, but now is being exploited by big companies operating in the area, such as Fidelity.

Fidelity took this approach and, although its primary business is clearly investments, applied for the tax break for owning cattle. So what does the company save by raising the livestock? About $318,000 a year- Fidelity’s county-property tax on the portion of land that the cattle graze on dropped from $319,417 to $714.

Fidelity manages about $3 trillion and over 41,000 employees. Its revenue in 2006 was close to $13 billion, and its income about $1.2 billion. Fidelity’s 77-year-old CEO Edward “Ned” Johnson III and daughter Abigail are often found on Forbes Magazine’s “most wealthy” lists. Yet, the company uses a law designed to help protect farmers and plops 24 cattle on a customer service campus to save .0025 percent of its annual revenue.

OFFERING KICKBACKS TO CERTAIN TRADERS
As part of a long-running investigation, Fidelity came under further scrutiny in 2004 by the SEC, NACD and its own independent board of trustees. They were all looking at alleged kickbacks that Fidelity traders had received from third-party brokerage firms and the potential harm that this caused Fidelity funds.

Although Fidelity’s Board determined there was no proof of harm, they said the danger was real and agreed to pay $42 million plus interest to the at-risk Fidelity mutual funds.

According to Crowley, the NASD reached a settlement with four of Fidelity’s broker-dealers associated with the kickback scandal (Fidelity Brokerage Services, Fidelity Investments Institutional Services, National Financial Services and Fidelity Distributors Corporation) to pay $3.75 million. “Fidelity neither admitted nor denied the findings in connection with that settlement,” Crowley said.

The SEC investigation is still pending.

Fidelity has apologized on several occasions for this issue, including issuing what was considered a rare public apology by Ned Johnson.

DWARF-THROWING, WOMEN-FOR-HIRE AND OTHER SHENANIGANS
What is an example of a kickback that employees received? In 2005, Fidelity traders accepted over $75,000 to fi nance the bachelor party of one of their star employees, Thomas Bruderman, Jr., by brokerage houses Jefferies & Co, Lazard and SG Cowan.

According to media reports, the brokerages supplied a $65,000 private jet to take Bruderman and his guests from Boston to Miami and paid for the rooms at the high-end Delano Hotel. The lavish party included strippers, yachts and an activity known as “dwarf tossing.” Use your imagination to fi gure out how that works. Hint: It involves little people and Velcro walls. An internal investigation of the event discovered that at least 16 Fidelity traders had broken company rules. Guests of Bruderman included Scott Desano, former head of stock trading for Fidelity, and Dennis Kozlowski, the former head of Tyco.

A STRUGGLING BEHEMOTH
External troubles aren’t the only problems for Fidelity. As mentioned earlier, a recent exodus of high-level talent, such as Ellyn McColgan, has raised questions on internal morale as well.

Another notable executive that left the company is former COO Bob Reynolds, who stepped down in July, forcing CEO Ned Johnson to personally handle the company’s daily operations- which is probably not what the 77-year-old patriarch had in mind for his golden years.

What’s strange about all this is that during 2007, Fidelity funds have actually done quite well. This year, Fidelity diversified U.S. equity funds had some of the highest average returns compared to its four biggest competitors, according to research provided by Morningstar analysts. It’s not performance, therefore, that is causing some of these people to leave.

The problem isn’t constrained to just high-level executives, either. Many employees complain about the heavy politics involved in getting ahead within the company and the constant fear of having their jobs outsourced to another country. Now, managers who a few years ago would have been hard-pressed to leave have recently begun taking rivals’ offers.

As one disgruntled employee posts on a discussion board about Fidelity, “In its own hometown, Fidelity is a running joke. All companies have too much politics, of course, but at Fidelity, politics is your job. You will spend all day, every day, in meetings. Those who seek to do a good day’s work, challenge themselves, and grow, all know they have no place in this company.” This seems to sum up the views of most of the people participating in the discussion.

Whether the low morale is a result of the missteps Fidelity has taken or some other root cause, the one thing that is clear is that all of these issues underscore the company’s bottom-line tactics.

And, while Crowley does accurately point out that “the mere fi ling of a lawsuit does not in any way suggest a finding of fact,” it’s hard to ignore a pattern that suggests ill-advised or even potentially illegal behavior happening at a higher pace than would be expected.

Perhaps high-level Fidelity bosses aren’t aware of these occurrences, or believe them to be isolated incidents, but it all comes down to the same question of whether the company has adequate compliance controls. The legal troubles have come from a variety of divisions within the company, scattered around the country, but it seems as though the company merely responds on an issue-by-issue basis, caving in after enough pressure is applied, rather than proactively improving the overall ethical culture. If that’s the case, then it’s not only the investors and general public that get harmed, but the company suffers with a damaged reputation as well. In the end, this approach benefits no one.

RECOMMENDATIONS FOR A REMEDY
So what needs to be done? Here are five steps Fidelity can make to move toward transparent and honorable business conduct.

The future in asset management is going to be competitive.

Lower fees, greater investment disclosure, increased product competition,higher demands for transparency and a heightened focus on compliance are five trends that are expected to accelerate in the asset management industry. Given Fidelity’s dominance in the asset management industry, we would certainly like to see Fidelity improve and exercise ethical leadership.

Whether Fidelity chooses to be a leader or a laggard when it comes to addressing all five of these trends for the future, that remains to be seen. Judging by its actions up until now, we’d put our money on the latter.

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Ah, there’s nothing like a woman scorned! Shouye’s mistress (one of at least five), a young, unmarried woman whom the Communist Party of China declined to identify, blew the whistle on Mr. Shouye’s involvement in $20 million worth of kickbacks, bribery and other economic crimes. Not only was Shouye kicked out of the National Legislature and sentenced to death, but the CPC launched a new code of conduct and compliance/ethics drive in response.

What comes to mind when you mention “a professor from Switzerland?” Perhaps mild-mannered man hiking in knickers between yodels? Banish that when it comes to Pieth. Yes, he is a professor at the University of Basel but between co-founding the Basel Institute on Governance and chairing the OECD Working Group on Bribery in International Business Transactions, Pieth is too busy fighting crime than to stop and smell the edelweiss. As a member of the Independent Inquiry Committee into the Iraq Oil-for-Food Program by the UN Secretary-General, Pieth is doggedly ensuring that companies that paid kickbacks in the oil-for-food scandal are penalized.

Historically a nation opposed to foreign investment, the Chinese economy has recently shifted into a modern, market-oriented system that caters heavily to international business. Today, the country is a major player in several important industries such as manufacturing, food processing, petroleum and textiles.

Now, business leaders across the world eagerly turn their eyes towards China and notice a country that relishes its newfound power and the attention that comes with it. Such change doesn’t come without its share of obstacles – with thousands of years of history come deep-rooted traditions, some of which test the boundary of moral principles as they are understood in the western world. Bribery and corruption, for example, are not just common, but each runs rampant throughout the nation’s business practices. In order for Western companies to enter China’s booming market, its first necessary to understand the unique cultural and legal processes involved in conducting business in the country.

THE ETHICAL CLIMATE FOR FOREIGN ENTERPRISES

When international business managers and chief executives open dialog about expanding their business to China, they discuss topics such as intellectual property protection, stifling government bureaucracy, lack of product quality standards, discrimination issues and rampant corruption in business dealings. While the government is making attempts at improving these categories, many concerns remain unaddressed.

Although China has significantly strengthened its intellectual property laws since joining the World Trade Organization (WTO) in 2001, the country still has the highest piracy rate in the world – an estimated $1 billion is lost each year to Chinese piracy alone. Even though the Chinese government formed the State Intellectual Property Office in 1998 to help enforce patent, trademark and copyright laws, this organization is considered relatively ineffective by outside sources.

The government was also forced to reexamine its quality standard regulations after a series of scandals involving contaminated or harmful toothpaste, pet food and, most recently, toys. New committees were formed to tackle these issues but it remains to be seen how productive they will be.

Discrimination issues run rampant throughout the country. Gender discrimination against women has been documented for years. More complicated are the discrimination issues involving migrant workers moving from rural farmlands to cities and towns. There have even been reports of height and other physical requirements necessary for obtaining certain Chinese government positions.

Business dealings with the government are notoriously strewn with unethical practices, both under-the-table and overt. A strong sense of family and loyalty to ones friends leads to a very nepotistic business environment. Some Chinese refer to the famous philosopher Confucius who surmises in Analects, “The father conceals the wrongs of his son, and the son conceals the wrongs of his father. This is justice.” Foreign businesses entering the market with no significant political connections have a considerably more difficult task of integrating than those who do.

Corruption isn’t limited to government dealings, however. It’s common for Chinese business deals to include various perks and benefits for the buyer, including lavish vacations and expensive electronics, in addition to any negotiated price to help secure important contracts. While the Organization for Economic Cooperation and Development (OECD), whose members include the United States, Japan and the EU, has helped curb corruption in international business dealings in recent years, China has been and remains notably absent from the group.

Ultimately experts believe that China is proactively working to fix its ethical problems. Shanghai is a positive example of a city leading the way in this regard. One theory for the improvements points to the increasing standard of living for many Chinese who no longer rely on shady benefits or under-the-table bribes for their livelihood. As Chinese businesses increase their presence throughout the world, they will consequently bring their ethics with them, good or bad. Politicians and business leaders in China are aware that ethical policies are demanded by consumers in a free-market economy nowadays. If the country and its businesses want to compete with other economically successful nations, the improvements will have to continue.

GREETINGS
In China, it is a sign of respect to greet a person using his or her family name only, such as Mr. Fong or Ms. Li. Unlike in a western environment, the Chinese family name comes first and is usually one syllable. In some cases, multiple names follow the family name which can be difficult for some Westerners. In some cases, Chinese people also insert an English name. It is always a good idea to ask a native speaker which name is the family name if you are confused. To be on the safe side, simply assume the first name is the surname.

BUSINESS MEETING
In China, it is assumed that the first person that enters the room is the head of the group. Try and keep to this approach so as not to confuse everyone. For business purposes, formality is a sign of respect; do not try to become too friendly too soon. Never tell jokes to start a meeting. Meetings in China tend to start slow, don’t rush the meeting and talk business right away. Pace yourself. Dress formally in China. Men should wear a suit and tie at all times, despite what can be harsh temperatures. Women should dress conservatively and stick to plain colors. Negotiating in China can be quite interesting. Always remember that negotiations are rarely sequential. It is perfectly possible to “go over old ground time after time. No deal is closed, until it is “signed and chopped.”

BUSINESS CARDS
Business cards, or name cards as they are known in Asia, are extremely important. Always have plenty of them with you, in your pockets, your jacket, and your briefcase. Treat your own business cards with respect, place them in a small leather wallet and protect them. When exchanging business cards, never toss or “deal” your business card across the table. Always hold the card out with both hands with the writing facing the receiver. When you receive a card, don’t slap it into your wallet or in your pocket. Look at the card, treat it with respect, check it over, ask any questions about the card, i.e. “You are based here in Beijing, I see.” This is always a sign of respect and interest in the person you are meeting. At the table, it is acceptable to lay the card in front of you on the table.

GIFT GIVING
Gift giving is becoming less common, particularly as Western companies enforce their gift-giving policies. In addition, many Chinese government officials will not accept gifts after recent crackdowns on corruption. If you have to give a gift, it should be small, customary, thoughtful and always wrapped.

DINNER AND SOCIAL EVENTS
Always be prepared for a very long dinner or lunch engagement. Food is an important part of doing business in China. Be prepared to give a brief and friendly speech in response to the hosts speech at a banquet. When invited for a meal, never just “dig in” as in many Western environments. Always wait either to be served first by your host, or for you to serve your host the food from the shared dishes. It is considered poor etiquette to look after yourself despite others.

Make sure you sample every dish. Sometimes this is hard, but it will greatly impress your host. Always leave something on your plate at the end of the meal or your host might think that you are still hungry. If a Chinese person gives you a compliment, it is polite to deny it graciously. Modesty is highly valued in China. Keep the above guidelines in mind, but above all, be yourself.

01 // CORRUPTION, BRIBERY AND KICKBACKS
It is often said that doing business in China is an ethics and compliance mine field, with bribery and corruption standing in the way of a successful operation. While there has been some progress in the last few years, in part thanks to new government efforts to fight corruption resulting in some serious sentences for corrupt government officials, the situation is still far from ideal. Corruption is said to be closely related to the “guanxi,” or a network of business relations or connections that creates a basis for social interaction and the development of trust and cooperation.

DEAL WITH ITTo minimize bribery, begin with an understanding of how the Chinese power system, guanxi, works and how you can actually use it to help you. Take time to develop a corporate guanxi; its quite possible to create and sustain relationships with high level government officials without resorting to bribery. Create a policy that, while reflecting the company global values and principles, takes into account and specifically speaks to local traditions. Put gifts and entertainment into context and perspective. Find allies among local management and capitalize on the desire of Chinese technocrats and managerial class to adopt U.S. and European business standards, best practices and “rule of law.” Be polite and firm, but not patronizing.

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02 // TRADE SECRETS AND CONFIDENTIAL INFORMATION
Chinas booming economy has encouraged many foreign high-tech companies to open R&D, design or manufacturing centers in the mainland. As a result, more local employees have access to trade secrets, which creates a significant risk of loss and intellectual property infringement. Chinese laws do offer some protection of trade secrets, but they also require the aggrieved party to show evidence of actual damage before pursuing legal remedies.

DEAL WITH IT The passive and reactive approach to protecting trade secrets by the Chinese law, the lack of preventative remedies and inefficient enforcement creates some serious complications. Take strong proactive steps including: 1) Create a strong and unambiguous confidentiality policy; 2) Require all employees to sign confidentiality and non-compete agreements; 3) Introduce the disclosure procedure to identify conflicts of interest and concurrent employment; and 4) Conduct periodic audits.

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03 // CONFLICTS OF INTEREST
Chinese culture offers a somewhat different perspective on conflicts of interest. Favoritism is fairly common. Favoring family and cronies has roots in Chinese Confucian tradition although some counter arguments exist as well. The system of guanxi may also be a contributing factor.

DEAL WITH IT Evaluate how big the problem is and what the costs and consequences are. If you tackle it, tread carefully; imposing U.S. policies in this area will likely be met with resistance and will not achieve much. Introduce transparent hiring and purchasing processes and criteria. Reward employees for recommending a successful job candidate or a vendor, but remove that employee from the decision-making process. Introduce other ways of favoring family and friends, such as offering discounts and events. Try to make guanxi your ally rather than your enemy.

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04 // WORKPLACE DISCRIMINATION
Although there is a ban on discrimination for government posts, Chinese companies routinely refuse to employ people because of their sexual orientation, medical condition or gender. Discrimination lawsuits against Western companies in China are relatively rare, but not unheard of. Nokia China is facing legal action for allegedly turning away a successful applicant in Guangdong because he is a carrier of Hepatitis B (HBV). In a recent case involving giant Chinese appliance maker Galanz, a man hanged himself just days after he was denied employment because of HBV. Not only can discrimination result in costly lawsuits and settlements, the damage to a companies reputation can be significant.

DEAL WITH IT Zero tolerance, active policy enforcement and training are the best and probably the most cost effective solutions. Apply the same standards you would apply at home. Make sure your local HR and hiring managers understand the importance of an antidiscrimination policy, the benefits of diversity and the consequences for discriminatory conduct. This is a good example of when a Western company can and should apply a higher standard than local business practice.

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05 // PRODUCT LIABILITY
In the wake of product recalls and safety scares in the United States and Europe, ranging from dog food to seafood and from tires to toys, product liability risk is suddenly at the top of the agenda for many companies that have their products made in China. The root causes of the problem are multiple, the most obvious being long and often complex supply chains in China, but also an extremely fragmented manufacturing industry, weak manufacturing and quality standards, often inefficient or non-existent quality controls both by the Chinese and by the foreign importers who sometimes put too much trust in their suppliers and differing business cultures.

DEAL WITH IT Depending on the severity and the nature of risk and the scope and extent of the involvement with Chinese manufacturing, a company may take some of the following steps:
1) Make an effort to understand your supply chain in China;
2) Know your risks by conducting a proper periodic risk assessment on a proactive basis;
3) Insist that your prime vendors inform you when they change subcontractors or make other product substitutions and pass this requirement along the line;
4) Introduce quality control standards that your vendors will need to adhere to as the condition of doing business with you and make sure these requirements are passed along the supply chain;
5) Educate your vendors and help them do things right; most Chinese companies are reputable and care about their reputation and product quality as much as you;
6) Trust but verify: Implement audit and inspection programs for the vendor facilities and introduce your own quality control for all imports with a proper evaluation for design and manufacturing defects; and
7) Create a comprehensive quality control program. It may not prevent all risks but it may serve as an affirmative defense.

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Fluor Corporation Engineers Sound Ethical Culture

// BY ALAN BOECKMANN

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SCENARIO
Several years ago, Fluor was doing a significant project for a major client when we came into some evidence by virtue of an employee who used a confidential ethics hotline. We investigated and found out that our project manager on that site was receiving significant kickbacks from a supplier of a subcontractor. In fact, he had systematically gone and performed additional scopes of work for this subcontractor. Apparently, he also had a Swiss bank account set up where they were funneling money back to him. When we found out about it and had obtained sufficient evidence, I made a call to the CEO of our company at that time. This was a significant issue and we stood to have considerable liabilities and penalties under that specific contract. Within twenty-four hours, I received a call back from the client saying that, while they were aware of the situation, they wanted us to know that they would not pursue any retaliatory courses of action, but that they appreciated our candor in bringing it to their attention. We jointly dealt with the case and put it behind us. As I investigated and handled the issue, I suspected that a reaction like that from the client was what we would get, but it was definitely nice to experience first-hand. The situation and outcome speaks for itself when it comes to self-reporting you just always have to do the right thing. It may be painful, but you must use a zero-tolerance approach whether you are dealing with an extremely large case like this or a situation that is not quite so significant. .

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WHAT ACTUALLY HAPPENED
Alan responded quickly and proactively to a situation which could have had potentially severe consequences for the entire corporation. A serious offense was committed by the project manager, and Alan and his superiors at Fluor sent an unmistakable message of zero-tolerance and ethical compliance as they dealt with the situation internally and disclosed the issue to the client.

WHY WAS THIS IMPORTANT?
With corruption being widely perceived as rampant within the construction industry, the leadership at Fluor showed considerable integrity and initiative in addressing the allegations. It is also very important to emphasize the use of a confidential reporting system in this instance: a complaint was made, the reporter’s identity was kept confidential, and the claim was investigated and appropriately addressed by Fluor leaders. This reinforces not only a strict zero-tolerance policy within the company, but encourages ethical behavior and a culture of accountability from the top down. It also strengthens the viability of an anonymous self-reporting tool and reassures employees that any reports made will not be taken lightly, but that their anonymity will be protected. Alan believes that employees “should take action because they’re proud of the company they work for, and they practice the zero-tolerance approach themselves. You have to ingrain that in the culture.”

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About Alan Boeckmann
Alan Boeckmann is the CEO of the Fluor Corporation, one of the worlds leading and largest engineering, procurement, construction and maintenance services companies. Prior to assuming his current position in February 2002, Boeckmann served as president and chief operating officer of Fluor since January 2001. He has served as president and chief executive officer of Fluor Daniel, the engineering and construction unit of Fluor Corporation, and president of Fluor Daniels Energy & Chemicals group, Fluor Daniels Chemicals, Plastics & Fibers operating company and the Chemical Processes & Industrial business group. Prior to that, he served as vice president of the company’s business unit that formed its DuPont alliance and as the functional leader of Engineering. For the past four years Alan has also been leading a global effort for the World Economic Forum (WEF) to eradicate corruption from businesses via the Partnership Against Corruption Initiative (PACI). His efforts initially centered on the engineering and construction industries, but soon came to include the metals and mining sectors as well. Today, PACI functions as one of the most vigorous programs at the WEF.

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About Leaders on Ethics
Leaders on Ethics is an ongoing project involving CEOS and other leaders providing insights into challenging ethical situations they’ve faced, decisions they’ve made, and lessons they’ve learned. Curriculum is being developed for use in the classroom to help future leaders consider the role that character will play in career success.

TWO WAYS TO GET INVOLVED IN LEADERS ON ETHICS

1. Nominate a leader
2. Become an organizational sponsor for Leaders on Ethics

Call (800) 369-7583 for more information.

Home Depot confirmed yesterday that it terminated four purchasing managers nearly two weeks ago for allegedly taking over $1 million in kickbacks from suppliers.

Reportedly, the three lower-level managers were taking large bribes from flooring vendors out of Asia in return for featuring these vendors’ products in Home Depot stores.

Home Depot is cooperating with law enforcement authorities who are looking into the situation – prosecution against these employees is a possibility.

The company released a statement adding to their stance on the situation:

“Maintaining our ethical standards is of utmost importance to the Home Depot and is something we enforce strongly.”

O RLY?

Unfortunately, crashing housing and home renovation markets aren’t the only things buffeting Home Depot. The company has also been fighting ethics, compliance and governance scandals on multiple fronts:

(1) Paying a CEO $225 million while employees were continually laid off and the stock declined (Nardelli, who was later terminated after he refused to answer questions at the annual shareholders’ meeting).

(2) The subject of wrongful termination lawsuits by former employees in Maryland and Alabama who claim that they were fired in retaliation for blowing the whistle on Home Depot, accusing the company of pumping up its financials with fraudulent product return procedures (which the SEC is now investigating).

(3) Admitting this past December that the company had engaged in improper stock option backdating for 26 years.

Commentary: We talked to a number of companies that have done business with Home Depot, and many of them repeated stories that indicated a broad culture of ‘browbeating’ and unreasonable demands being made by purchasing personnel at the company. Interestingly, such culture doesn’t appear to be limited to store merchandising – it extends elsewhere in the company as well. For example, we heard about the IT department demanding free products from vendors for the company simply so the vendor can promote Home Depot as a client.

We are also told that the company has virtually ZERO ethics and compliance training or programs.

The US DOJ has filed a suit against two big real-estate brokerage firms, accusing them of receiving illegal kickbacks for steering home sellers to a provider of hazard reports.

The suit was filed in federal court for the central district of California and seeks to recover “illegitimate profits” generated by “sham” joint ventures formerly operated by Realogy Corp., the owner of the Coldwell Banker and Century 21 chains; a unit of Prudential Financial Inc., and and Property I.D. Corp. of Los Angeles.

According to media reports, Property I.D. Corp., which provides home sellers with information for their disclosures about such hazards as earthquake and flood risks, improperly funneled payments of $25 per report — a quarter of the fee paid by home sellers — back to the brokers in exchange for their referrals of business.

Commentary: While it is admirable that DOJ wants to root our all illegal arrangements, this really seems like small potatoes compared to appraisal fraud and other potential priorities to focus on. Perhaps they are just using this as an entry point to bigger information and cases. Or perhaps they are wasting time and resources.

In a “I broke up with you”… “No, you didn’t. You only broke up with me because I was going to break up with you” spat, Kodak and the Better Business Bureau have parted ways. While it is not uncommon for companies to join or quit the BBB over the years, what makes this particularly interesting is that Kodak was one of the founding members of the BBB back in 1971.

It appears that Kodak simply sped along a separation process that was already going to occur, as The Better Business Bureau had initiated explusion proceedings against Kodak for failing to adequately share information about how they handled (or didn’t handle) customer compliants.

According to local news reports in Rochester, people didn’t seem surprised that Kodak was on the verge of getting kicked out of the BBB due to declining service standards.

Commentary: This is a sad development at, and reflection upon, what used to be a terrific company. And to think that Kodak allegedly simply had to provide information on how it handled 183 customer complaints – which it refused to do. There have been a series of mistakes and poor judgments in recent years which, in our opinion, are a reflection of a poor ethical corporate culture and lack of effective leadership on compliance and ethics. Beyond the BBB explusion proceedings, there have been whistleblowers alleging Kodak illegally tampers with digital photos stored on its system resulting in permanent degradation, as well as benefited from tax accountants who took kickbacks from vendors and illegally worked to artificially lower tax valuations on Kodak’s properties. Charges on that latter case continue to come, including even today.

Officials for Medco Health Solutions have said that the pharmacy benefit manager has agreed in principle with the Department of Justice to settle fraud allegations. Medco officials said that the company would take a pretax charge of $163 million to cover the settlement and related legal costs. The allegations, which involve mail-order prescriptions provided to members of the Federal Employees Health Benefits Program, include most of a complaint filed by two former company employees under the False Claims Act. Medco canceled prescriptions, switched prescriptions without physician consent, did not fill prescriptions completely and failed to inform physicians about adverse medication interactions. In addition, DOJ alleges that Medco paid illegal kickbacks to large clients in exchange for their business.

Federal officials reached a $10 million settlement with Lincare Holdings, the maker of home oxygen and other respiratory equipment, over accusations that Lincare paid kickbacks to doctors. Doctors were treated to sports tickets and gift certificates, taken on fishing trips and golf outings and given office and medical equipment. Lincare was also accused of giving doctors kickbacks through payments disguised as consulting fees, like medical director agreements. Federal officials accused Lincare of paying doctors to refer patients to the company from 1993 through 2000.

As the government’s demands for waiver of privilege in white-collar prosecutions have sparked the ire of attorneys worried about the sanctity of client communications, the waiver issue in the Milberg Weiss Bershad & Schulman case is presenting an especially tricky problem with the grand jury indictment on the securities class action law firm and two of its partners. The government alleges that the firm paid clients more than $11 million in kickbacks to serve as plaintiffs in as many as 150 class action and derivative lawsuits. But Milberg Weiss’ case involves a key distinction – because it is a law firm – which some experts say makes the potential infringement on attorney-client communications all the more serious. After U.S. Attorney Debra Wong Yang in the Central District of California announced an indictment against Milberg Weiss, the law firm in its own statement asserted that prosecutors had demanded access to communications with its counsel, Zuckerman Spaeder of Washington, in exchange for deferred prosecution. Milberg Weiss’ refusal to grant access to that communication led to its indictment, the firm said.

Commentary: We can’t recall another case in which the defendant has so publicly protested and pointed out that the government indicted in direct reaction to the company’s refusal to waive privilege. Not surprisingly other corporate clients of Milberg Weiss have begun to leave the firm out of concern of waived confidentiality and privilege as to how it could affect their matters, even if these “other” corporations had nothing to do with the cases in question. Furthermore, it is very hard for a general counsel to justify to his/her leadership and board the continued use of an indicted law firm. We would be surprised if Milberg Weiss survived this prosecution as nearly as meaningful an entity, if at all.

Wheat farmer organizations are calling for US government and regulatory action against AWB in retaliation for allegations of bribery and other illegal activity by the company. Australia’s designated monopoly wheat exporter and major rival of companies that sell US wheat overseas, AWB, allegedly paid some $220 Million in kickbacks to Saddam Hussein’s regime under the UN Oil for Food Program, in breach of UN sanctions. An Australian inquiry into the scandal resulted in the resignation of CEO, Andrew Lindberg.