- The document discusses the strategic value of having a Chief Ethics & Compliance Officer (CECO) who is independent from the General Counsel in order to effectively manage legal and ethical risks across different jurisdictions. - It argues that the CECO's role should be autonomous and separate from the GC to avoid conflicts of interest that could weaken compliance processes and a company's ability to comply with anti-corruption laws. - The strategic collaboration between the independent CECO and GC is vital for companies to adequately manage their global operations and facilitate compliance with various US and foreign laws.

1. ISM Forward Scan
Insights for Today’s Supply Leaders
Exclusively for Supply Leaders in the ISM Corporate Program Vol. 2:3 June 2012
A Separate Guardian: The
Strategic Value of the CECO
By Dr. Adriana Sanford
Sound business ethics is essential to longstanding success in the global corporate
environment and the recovery of public trust in market economies. Unfortunately,
bribes, “facilitation fees,” and/or “mordidas” are still common and acceptable
practices as the “cost of doing business” in some competitive business environments.
Traditionally, the compliance position was filled by either human resources or legal
staff. However, after a number of high-profile corporate fraud cases demonstrated that
these dynamics could be skewed due to an inadequate level of autonomy, the strategic
role of the Chief Ethics & Compliance Officer (CECO) began to emerge.
In the past, the lack of clarity regarding the role of legal versus compliance (such as when
the General Counsel is the CECO or the CECO reports to the General Counsel), often
weakened the effectiveness of the compliance processes, including the multinational’s
ability to readily comply with U.S. and foreign legal obligations (such as the U.S. Foreign
Corrupt Practices Act or the U.K. Bribery Act). The issue of the CECO reporting to
the General Counsel (GC) has received much attention in the resolution of various
high-profile cases, where multinationals have agreed that their CECO will neither be
nor be subordinate to the GC or CFO. The former U.S. Securities & Exchange Com-mission
(SEC) Chief Accountant, Lynn Turner, also stated that the CECO and the
whistleblower reporting line must report directly to the Audit Committee (rather than
the GC) or it is “worthless.”1
1 Patrick Gnazzo and Donna Boehme, “Whistleblower 3.0: Preparing For Life (and Compliance) Under The
New Dodd-Frank Bounty Rules”, Compliance & Ethics Professional, August 2011. Available at
http://compliancestrategists.net/sitebuildercontent/sitebuilderfiles/scce.df301.gnazzoboehme.pdf

2. Similar to audit and accounting, with the separate focus
and a different function between the CECO and the
GC there should be no duplication of work, no organi-zational
overlap, and no confusion.2 Moreover, as audi-tors
require independence to be free of conflict and to
report to the Board, the CECO role requires the same
independence. The 2010 amendments to the U.S. Fed-eral
Sentencing Guidelines also supported the need for
a CECO with “direct reporting obligations” to the gov-erning
body. Preferably, the CECO should have (i)
employment decided and terminated only at the direction
of the Board of Directors; (ii) directly report to either the
Board or the CEO; (iii) have direct, unfiltered access to
the Board; and (iv) achieve performance goals as defined
by the Board and CEO3.
Whether due to proactive strategic vision or reactive
necessity, this independence between the legal and ethics
& compliance functions is critical, especially in regions
with high risk for money laundering, crime or corruption
Even though the United States does not follow the Gatekeeper Initiative,
U.S. prosecutors may also prosecute an attorney if they think the attorney
has somehow conspired to help violate anti-money laundering laws
or has violated other foreign laws.8
(particularly when foreign laws include the Gatekeeper
Initiative4 or some variation thereof), as the GC is often
faced with a significant legal dilemma when complying
with both U.S. and foreign law.5
The General Counsel’s Legal Dilemma
The Gatekeeper Initiative, through Recommendation 13,
can directly conflict and/or violate Rule 1.6 (a) of the
American Bar Association Model Rules of Professional
Conduct (“Model Rules”) and the duty of confidentiality,
which is the pillar of the attorney-client relationship.
While the American Bar Association strongly opposes
U.S. federal legislation that would impose “gatekeeper
regulations” on lawyers (including bills that could subject
the legal profession to key anti-money laundering com-pliance
provisions of the Bank Secrecy Act), the reality is
that many foreign jurisdictions already have adopted such
regulations and require the U.S. licensed GC to disclose
any suspicious information, “based on a mere suspicion
that the funds involved in a client’s transaction stemmed
from some type of illicit activity”.6
According to Bruce Zagaris7, U.S. case law also shows that
even though the United States does not follow the Gatekeeper
Initiative, U.S. prosecutors may also prosecute an attorney if they
think the attorney has somehow conspired to help violate
anti-money laundering laws or has violated other foreign
laws.8 Consequently, merely abiding by Rule 1.16 of the
Model Rules by “terminating the legal representation” is
often considered inadequate for many GCs in order to avoid
personal criminal liability under certain foreign jurisdic-tions,
and most surprisingly, sometimes even under U.S. law.
Although international strategies and standards for com-bating
corporate corruption and money laundering
have been in development for almost fifteen years, the
environment in which organized crime develops is con-stantly
evolving and some U.S. multinationals are still
ill-equipped to handle these challenges. The strategic col-laboration
between the GC and the CECO has been con-sidered
vital for many companies to adequately manage
their global supply chain.
Facilitating Compliance with U.S. and
Foreign Legal Requirements
Many global companies are incorporating the CECO role
into the organizational management team. For critical
decisions with a legal or ethical component, the CECO
should partake along with the GC and the CFO in meet-ings
or discussions with the CEO or the Board as a sepa-rate
“Guardian” with additional expertise and knowledge
in international law and ethical risks in order to prevent
intrusive government investigations, reduce significant
fines and in some cases, avoid possible jail terms.
2 The CECO audits, monitors, educates, investigates, manages the anony-mous
reporting mechanism, and enforces discipline.
3 “Leading Corporate Integrity: Defining the Role of the Chief Ethics and
Compliance Officer”, Ethics Resource Center, August 2007. http://www.
ethics.org/files/u5/CECO_Paper_UPDATED.pdf
4 The Gatekeeper Initiative traces its origin to the Moscow Communiqué
issued at the 1999 meeting of the G-8 Finance Ministers. Ministerial
Conference of the G-8 Countries on Combating Transational Organized
Crime (Moscow, October 19-20, 1999)—Communiqué. See http://www.
g8.utoronto.ca/adhoc/crime99.htm; www.ustreas.gov/press/releases/
docs/ml2000.pdf. Through the Gatekeeper Initiative, countries consider
various means to address money laundering through the efforts of pro-fessional
gatekeepers of the international financial system, including
lawyers, accountants, company formation agents, and others. Lawyers
are considered “gatekeepers” because “they have the ability to furnish
access (knowingly or unwittingly) to the various functions that might help
the criminal with funds to move or conceal.” Financial Action Task Force,
Report on Money Laundering Typologies 2000-2001 (Feb. 1, 2001), http://
www.fatf-gafi.org/dataoecd/29/36/34038090.pdf.
5 Adding to these international compliance pressures is a myriad of existing
and pending regional anti-corruption and bribery legislative frameworks.

3. The strategic collaboration between the GC and the CECO has
been considered vital for many companies to adequately manage
The CECO’s role, as well as other forms of legal integra-tion
into strategic leadership functions (such as Inter-national
Human Resource Management9), will better
assist global companies in facilitating compliance with
U.S., foreign country and regional anti-corruption laws,
mitigate damages should a violation occur, and ultimately
better position companies in the marketplace.
Dr. Adriana Sanford is the Executive Producer and
Co-Host of “Beyond The Curve,” which provides strategic
insights in international law and international business
(www.beyondthecurveshow.com). She is a transactional
lawyer by training and specializes in compliance issues arising
in multinational businesses, including issues arising from tax
compliance, cross-border financial transactions (money laun-dering)
and product counterfeiting. Dr. Sanford has six years
of law school, including a double LL.M. in Taxation and Inter-national
& Comparative Law from Georgetown University and
a law degree from the University of Notre Dame. Dr. Sanford
is currently working on her latest degree, an Executive MBA
from the Thunderbird School of Global Management. She is
fluent in English, French, Spanish and Portuguese.
6 John W Brooks And Roberta Vassallo, “Attorney Cathy’s Continuing
Quandary, or Can the Gatekeeper Initiative be Reconciled with the Multi-
Jurisdictional Practice of Law?,” The International Lawyer, Spring 2007,
Vol. 41, No.1. Available at http://www.americanbar.org/content/dam/
aba/publishing/rpte_ereport/AttorneyCathy.authcheckdam.pdf; see also
Financial Action Task Force on Money Laundering, The Forty Recommenda-tions
, June 2003, available at http://www.fatf-gafi.org
7 Bruce Zagaris is the founder and editor of the International Enforcement
Law Reporter and author of “International White Collar Crime”.
8 The Pasquantino case demonstrates that any person in the U.S. who
assists in a foreign tax crime commits a crime in the U.S. See Pasquantino
In today’s marketplace, end users and consumers
expect organizations to abide by ethical guidelines
in their business and sourcing practices. This expec-tation
has made brand reputation a critical initiative
in organizations large and small. And it’s not only
external pressure. Organizations’ employees want
assurances that executives are playing by the rules
and practicing the ethical codes of conduct dissemi-nated
to their stakeholders. The recent removal of
Yahoo! Inc.’s CEO for padding his résumé and similar
cases, only reinforce the need to have transparency
and trust within and outside of organizations.
Who should hold that primary responsibility? Within
many multinationals, the chief ethics and compliance
officer (CECO) is tasked with that strategic focus.
However, challenges exist. Who should the CECO
report to and how vast is that individual’s reach
within the enterprise? In many ways, the CECO and
CPO face similar issues. Both want and need a seat
at the table for operational strategies and ethical
policies to permeate the organization. And the suc-cess
of the CECO and CPO are dependent upon
maintaining ethical and compliant behavior of those
doing business within and outside of the organization.
This all circles back to brand reputation. Whether
you’re a CECO or a CPO, protecting the company’s
brand is at the forefront. And it’s these two roles
that can have the most influence in that endeavor.
John Yuva is the editor of ISM’s flagship publica-tion,
Inside Supply Management® magazine.
Editorial Insights
v. U.S., 544 U.S. 349 (2005). Moreover, the Kuehne case shows how the
U.S. government will prosecute attorneys who it thinks are, through their
advice, helping to violate foreign currency exchange control laws (in this
case, the laws of Colombia). U.S. v. Benedict Kuehne, U.S. District Court
in S.D.Fla., Case No. 05-20770-Cr-Cooke. See 11th Cir. Ct. of App., No.
09-10199, Oct. 26, 2009 for the dismissal of the indictment against Kuehne.
9 International Human Resource Management (IHRM) has become instru-mental
in reducing many expensive and embarrassing fraud investigations.
IHRM managers often are the first to receive internal complaints and they
are adequately trained to respond to possible charges of misconducts
along the global supply chain.
their global supply chain.

4. ISM Forward Scan is an exclusive product for supply leaders in the ISM Corporate Program. This practical
publication focuses on the profession’s next imperatives affecting strategic supply management deci-sions
today. The articles provide insights on emerging trends, technology, challenges and best practices
in business. They give decision-makers both a macro and micro view of the supply horizon as a unique
tool for supply leaders to impact their company’s bottom line. Look for more ISM Forward Scan issues
throughout the year as a benefit of being an ISM Corporate Program participant.
For additional information on the ISM Corporate Program, contact:
Mary Lue Peck
Vice President, Corporate Development
800/888-6276 or +1 480/752-6276,
extension 3133
mpeck@ism.ws
Candace Craig
Manager, Corporate Development
800/888-6276 or +1 480/752-6276,
extension 3089
ccraig@ism.ws
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