"Operating in good faith": an interview with Michael Volkov, former federal prosecutor and beneficial ownership expert

"There's nothing quite like hearing 'Michael Volkov is representing the United States'."

So says Michael Volkov, who was a prosecutor for the United States in numerous criminal trials in Washington, D.C. for nearly 20 years until going into private practice in 2008.

After stints at three large law firms – where he'd turned his attentions away from white-collar crime prosecution and on to defence – the Georgetown alumnus struck out alone in 2013, founding the D.C.- and San Diego-based Volkov Law Group, which has become as much a compliance consultancy as a law firm.

Operating in the compliance space ourselves, we've known Mike for a while and are big fans of his approach. So he agreed to an interview in which we discuss his professional journey and life as a prosecutor, how he mixes law with compliance consultation, and the importance of identifying beneficial owners across borders.

Let's start with where he is now – and focus on what advice he offers compliance specialists.

Compliance, ethics and internal investigations

What made Mike leave his last big firm and set up The Volkov Law Group?

It wasn't the only reason but "compliance, ethics and internal investigations were becoming increasingly more interesting," says Mike, who was already well-known on the scene through his influential and highly-regarded blog on matters relating to the Foreign Corrupt Practices Act (FCPA), a US federal law that continues to set international trends for lawyers and compliance officers in our globalised world.

"Lawyers tend to be pessimistic," he adds. "They think: 'What's the worst-case scenario? What would or could fall apart? Are we protected?' Now that's not a criticism but there is more optimism in the field of being a compliance officer."

In a role that sees his work "split about 50:50 between representing individuals or companies in trouble or under investigation [as a lawyer] versus building systems to help keep people out of trouble [as a compliance consultant]," he says: "The unique perspective I bring is in approaching ethics and compliance like a prosecutor."

Meaning?

"You need to have perspective. Is the risk enforceable? How do you identify and deal with it? Know what prosecutors are looking for and what evidence they need."

But, more simply:

"To protect yourself, act like you're not a criminal. What do they do? They act in secrecy. They operate in small groups. And they don't write things down – unless they're stupid criminals, and we have plenty of these!"

And to avoid this?

"You need to write things down, prepare, document, bring in groups of people to make decisions. You must act in an open and transparent way."

That's some great advice. Who does he offer it to?

Mike's clients include "some of the biggest oil and gas companies, community banks, pharmaceuticals companies, medical device companies, transportation, the 'whole round', big and small." He also has a "fair number of European and Asian clients".

And his work is "mostly legal and regulatory, so FCPA-related issues, money laundering, anti-corruption, sanctions, and third-party due diligence," which includes "screening, reviewing, building systems and conducting thousands of surveys".

"Reputational risks come into it too," Mike adds. "You don't want to be that company that relies on suppliers with slave labour. There are deep concerns there and it's getting bigger, in my view."

So how are his clients coping and what's their starting point?

"There have been some situations where [the client has] nothing beyond a paper statement on their code of conduct that's just two pages long, and they want to put a full compliance programme in place," says Mike.

And the "biggest lesson learned" is that "it takes time." He adds: "You can't rush a compliance programme. It's a multi-year process. Rushing it will invariably not work. Build it a step at a time."

But there are ways of reducing the pain, particularly when setting up systems to identify, validate and monitor beneficial ownership, something that's forever changing and hard to keep track of.

Solutions and the size of the beneficial ownership research challenge

At a general level, "Bureau van Dijk is a unique and essential service," says Mike, drawing attention to the Orbis database of 247 million companies from all countries globally, and the Compliance Catalyst risk assessment tool. It offers a "unique perspective with its content".

And on beneficial ownership?

"From a client's perspective I can't in good conscience sign off on any kind of work that requires knowing who you're dealing with – acquiring, hiring, whatever it may be – unless I know the identity of the beneficial owners. I can't sign off on that unless I get the information and verify it," says Mike. "Bill Hauserman [Bureau van Dijk's senior director of compliance solutions] always talks about identification and validation, and I agree with him," he adds.

"So you've got to find out beneficial ownership, and you guys are the leaders in that area," says Mike. Bureau van Dijk offers "probably the most effective and reliable window into beneficial ownership. The work it does is absolutely critical."

So beneficial ownership identification is a challenge that needs to be addressed?

"There are so many schemes these days, brought to light by the Panama Papers and [often involving] corrupt officials, [which are designed] to disguise the identities of ownership and to avoid detection," Mike explains. "If a foreign official has an interest in a company through their family... well, there are horror stories after horror stories.

"Take Cobalt Energy's offshore drilling operation in Angola. They'd partnered with a private equity firm in that country and it was years into the venture before [it was revealed that] a foreign official had a disguised 10% stake in the firm. They had to spend millions to avoid prosecution. This is how critical it is to uncover the information."

"The same goes for sanctions," continues Mike. "If a Russian official is on a sanctions list, and a company's ownership includes the Russian official and related family members, you can, without knowing about the situation, violate US sanctions law, because it's based on 'strict liability'. It doesn't rely on knowing or intent. These are the bumps and barriers of the global economy. What we're trying to do is refine the standards and systems, and increase transparency, intelligence and information that everyone can access."

So, what are Mike's top four tips for staying out of trouble?

Four top tips

1. Operate in good faith

2. Document your decisions

3. Operationalise your compliance programmes

4. Promote and maintain your culture

"You must create a compliance culture that is fair, reliable, enforced, accountable. Promote and maintain it. People don't realise that your culture is your most important compliance control."

Mike's professional journey

Knowing what he's achieved and where he is now, you'd be forgiven for assuming that his course has been smooth, albeit one reliant on hard work. But when he launched his career, there were one or two small bumps in the road. "I started out in telecoms law," says Mike, "and concluded that it wasn't going to be a big thing – then everyone [who stayed in that field] got rich!"

But what he lacked in early wealth, he made up for in professional fulfilment; soon after, Mike "went to the anti-trust division in the Justice Department," he explains. "I started to do some criminal investigations and fell in love with it."

From there, he "went to the US Attorney's Office in D.C., doing local and federal prosecution. I was there for nearly 20 years."

He adds that he "worked on Capitol Hill for two [of those] years with the then head of the Senate Judiciary Committee, Senator [Orrin] Hatch," now president pro tempore of the US Senate. Then he did a stint under Jim Sensenbrenner, the then Chairman of the House Judiciary Committee.

Rubbing shoulders with such big beasts, it's little wonder he "loved being a federal prosecutor". He adds that "it was the best job I ever had – though I have a passion for the work I now do too, and creating our firm is one of the best things I ever did".

But I sense that it was the work itself of which he's understandably most proud.

He was "lead trial attorney in several lengthy, complex criminal trials, and handled over 50 jury trials, including two lengthy RICO gang prosecutions, and argued over 20 appeals." RICO is the Racketeer Influenced and Corrupt Organizations Act and, while not directly connected to the compliance work Mike now does, it's in a similar sphere.

This led to a side-line as an FBI Academy instructor, helping new agents handle complex RICO investigations, perhaps sowing the seeds for the consultancy services he now offers.

But before founding The Volkov Law Group, he was in private practice for five years from 2008, where he "got into defending white-collar cases."

How was that experience, I ask?

"Big law serves a purpose," says Mike, be that "litigation, mergers, high-level stakes. But it controls your lifestyle, your clients, your work, that's it."

Mike prefers the niche he's created through his blog, which predates his own firm by several years. But in those days before everyone was blogging, not everyone was a fan [of lawyers having blogs]. "Despite winning 16 clients through it, they [the company he was working for at the time] told me to drop my blog," he says.

This was one of the factors behind his decision to leave and start his own practice. The rest is history.

More information

On-demand – webinars about beneficial ownership

• Beneficial ownership – have you got it right? (first broadcast June 2017)
• Unravelling corporate structures (first broadcast October 2016)