"Former Cisco Execs Allege Vast Kickback Scheme in Russia." The Red-Flags You Don't See.

In yesterday's Buzz Feed World, Adam Roston, Buzz Feed Staff, posted an article (link here) about allegations of bribery involving Cisco employees in Russia.  I believe this a must read for the FCPA compliance community, as the reporting details significant events surrounding foreign bribery.  Furthermore, it has a number of significant lessons for the compliance professional which I will try to frame  in the context of my own experience.

First, it shows how the consequences of foreign bribery are not symmetrical to sales volume. According to the article, Cisco sales in Russia, where the conduct occurred, "make up less then 2%" of Cicso's revenue. Against those sales  will come the consequences of the conduct, including legal and investigatory costs, business costs to unwind its in-country obligations, not to mention whatever fines (both individual and corporate) might be assessed. Of course, there is the cost of liberty, of which I am familiar, that some of these executives might face. Again, it is another example of how a small business segment gone wrong, can have a disproportional corporate cost  in terms of  dollars, reputation damage and perhaps, loss of liberty. 

There is a great deal in this article to demonstrate the obvious importance of compliance professionals who are on the constant watch for red-flags, such as after-sale rebates, designation of payments to tax-haven countries, not to mention the risk of doing business in a country with a "low integrity" reputation, all of which were present in this article. However, those are not the most troubling parts from my perspective.

"The Ostrich Defense Does Not Work."- Former DoJ Official. 

What should be highly concerning to the compliance professional is the part of the article when one of the former Cisco executives stated that when the time came to talk about the issues of where the money was going "I left the room," and when invited to remain, he said "I don't want to...."  If you refer back to my blog post "In Walks a Public Official" , this is exactly the type of behavior where  compliance professionals need to be concerned.  I ask: how many of your overseas sales personnel are "walking out of rooms," "pretending they didn't hear" or telling their agents to "stop talking" as they conduct business with third parties? You might think that it does not happen in your organization; that your sales team would instead immediately disclose the conduct to appropriate personnel and cease and desist with respect to the transaction. Right?

However, what if it is happening in the field and it is not being reported up? Perhaps now the challenge is to try to better understand how your compliance programs and corporate ethics are being  communicated down to the lowest levels of your overseas sales organization. Are your making a focused effort a to understand their challenges, and provide them with  compliance solutions that are both global and regional to help them manage and report risk in their territories?

How can I help my sales team?

You can start by taking a  walk over to the  HR Department and reviewing the compensation packages on all your overseas personnel working in "low integrity" regions to see how they are being compensated. Are people working in regions with a reputation for  corruption while having a majority of their compensation based on personal sales performance? If they are, you are building in an inherent conflict between compensation and compliance, whereby you are in fact incentivizing people to be an "ostrich."  Cicso is not unique, and I am obviously not judging this case, but what Mr. Roston described is a compliance professional's worse nightmare: Personnel in isolated, corrupt regions, looking the other way.  It is the red flag you don't see.

Again, I know its easy to say "not here," but in my experience, a major start to supporting an overseas sales and marketing team is with a compensation package that reflects the programs and ethics of an anti-bribery culture. A sales person in Germany, a highly developed mature market with a high integrity reputation should not be compensated on the same incentive plan as someone responsible for sales in  a region which has an undeveloped procurement process and ranks poorly on the corruption index.

In sum, if there is high level of individual financial upside in your sales  incentive plan along with a "low integrity" country index in that person's territory, the best compliance and ethics programs may in fact contain the "seeds to their own destruction" (a term used by George Kennan in his famous "X" article, "The Sources of Soviet Foreign Conduct." It seemed to me an appropriate quote given the territory). I know that the story of compliance and international sales does not end with a discussion of compensation, but based on my own experiences and observations its a good place start.