I read a very interesting article yesterday on NYTimes.com, by John Kinnucan of Broadband Research. The FBI “invited” him to wear a wire and essentially entrap clients. He said no, and he told his clients about the FBI’s request. Of course, some are skeptical about his FBI story, but it makes for interesting reading and raises some good points pertinent to my forensic accounting practice.

Some may say that if Kinnucan was innocent, he should have just worn the wire to prove he was on the up-and-up. His article explains that it wasn’t quite so simple. The FBI said they believe Kinnucan and his clients were guilty, and they threatened to arrest him immediately.

I’ve recently been looking more closely at the Foreign Corrupt Practices Act (FCPA) as I consider the types of services companies will need from independent forensic accountants. This is an area in which government enforcement is skyrocketing, and so there are lots of opportunities for me to work with companies that need investigations or ongoing compliance work.

There are significant problems with FCPA enforcement, and Mike Koehler does an excellent job of discussing the issues in his paper, The Facade of FCPA Enforcement. He makes the case that the enforcement activities are not transparent and not tested legally. He says:

From Pyramid Scheme Alert newsletter, by Robert FitzPatrick

The largest of all multi-level marketing companies, Amway, just agreed to pay $150 million in restitution and reform to settle consumer charges of fraud. The heart of the consumers’ complaints is that Amway uses false information to trick consumers into investing in its “business opportunity.” Among other reforms, Amway has agreed to change its “disclosure” of income averages. A similar lawsuit has been filed in Canada.

A front page story, USA Today on Oct. 15, 2010, entitled, “Fortune Hi-Tech: American dream or pyramid scheme?” documents widespread claims of deception, involving tens of thousands of US consumers, leveled against one of the newer and fastest growing MLMs. The MLM scheme has been prosecuted in two states and is under investigation by seven others states, according to the article. Misleading “disclosures” are at the heart of the charges and negative publicity.

From my Thought Leadership series at Securities Docket:

The financial part of a case can become overwhelming very quickly. Particularly in cases involving white collar crime, securities fraud, Ponzi schemes, or other fraud recoveries, the trail of financial documentation is often very long. A forensic accountant needs to examine the financial documents and piece together the evidence in a way that attorneys, judges, and juries can understand.

Yesterday’s Milwaukee Journal Sentinel had an article on the concept of merit pay for teachers. The idea has been floated many times, but not tried very often. Teachers are against it for the most part. Wouldn’t you be? Why give up your $100,000 compensation package in return for having to earn your pay and benefits?

Yesterday, Sue Sachdeva was sentenced to 11 years in prison for her $34 million theft from her employer, Koss Corp.  I predicted a little slap on the wrist of 5 to 7 years, so she got two little slaps instead.

The Washington Post is reporting that Judge Lynn Adelman gave her less than the 15 to 20 years requested by the prosecutor because of her “acceptance of responsibility and the genuineness of her remorse.”

A recent Compliance Week article, An Expensive Lesson on FCPA Compliance [subscription required], provides some valuable insights on the direction that our government is taking with enforcement. Foreign Corrupt Practices Act violations are a huge focus of the feds right now. Why? Because there are plenty of violations, there is pressure on the SEC to enforce laws of some sort, and there is money to be made in fining the violators.

According to Richard Kassin at The FCPA Blog:

Yesterday the government’s sentencing memorandum in the criminal case against Sujata Sachdeva (the woman who stole more than $34 million from her employer, Koss Corp.) was released.  It had a number of items of interest. Prior to sentencing, the prosecution and the defense each get to make their case for a higher or lower sentence.

The defense’s arguments were absurd. They argued that Sue Sachdeva should get a lighter sentence because:

a. she’s been a law-abiding citizen until now

b. the fraud was “simple”

c. and poor, poor Sue has a “compulsive shopping disorder”

From my Thought Leadership series at Securities Docket:

When companies have big problems, they usually bring out the big guns. The benefits of using large law firms, audit firms, and other professional service firms are undeniable. These firms offer a depth of experience that is invaluable, and they have seemingly unlimited resources in terms of manpower. A large firm often has the ability to mobilize an engagement team quickly, and can bring in experts from around the world.

The United States Sentencing Guidelines (USSG) continue to make life tough for those in charge of corporate compliance and ethics. Corporate attorneys, both in-house and outside counsel, must ensure that companies are following protocols set for by the USSG. Rightfully, companies focus first on profits. But where does that leave the issues of compliance and ethics?

Although the creation and maintenance of a proper compliance program is secondary to core business pursuits, wise managers and executives know how critical it is to obtain specialized outside counsel to conduct internal investigations.