0
Anticorruption Enforcement
FARA, FCPA, UK Bribery Act & Russia
Anticorruption Act
Presented by
Brian E. Dickerson, Esq. Le...
Global Anticorruption Laws
• Foreign Agents Registration Act (FARA) United States
• NGO Foreign Agents Registration Act (1...
Global Impact of Bribery Enforcement
3
• The DOJ filed a three-count criminal investigation charging
Total with FCPA consp...
• The French prosecutor said Total and its Chief Executive
Christophe de Margerie should face trial for allegedly
corrupti...
Global Impact of Bribery Enforcement
5
• The compliance program requires, among other things, that
Total’s Board of Direct...
Global Impact of Bribery Enforcement
6
• In May 2013, three members of the
U.K. House of Lords were accused in
two underco...
7
Global Impact of Bribery Enforcement
(Reuters) – Microsoft Corp said on
Tuesday that allegations of potential
bribery by...
8
Global Impact of Bribery Enforcement
• Investigations of potential violations
of the U.S. Foreign Corrupt Practices
Act ...
9
Global Impact of Bribery Enforcement
• Russian contractors and others who
have been involved in the building
boom to pre...
10
Global Impact of Bribery Enforcement
• Russian Interior Ministry said
on May 16, 2013 they had
opened an official crimi...
11
• TeliaSonera is under investigation
for allegedly paying more than
$300 million in bribes to a middleman
for Karimova ...
DOJ Increasing Civil and Criminal Enforcement
12
• Attorney General Holder announced
President Obama’s FY 2012 budget
prop...
DOJ Increasing Civil and Criminal Enforcement
13
• $700 million to investigate and prosecute financial crimes –
increase o...
DOJ Prosecution Key Trends
14
• Dodd/Frank Whistleblowers
• In FY 2012, the SEC received
3,001 whistleblower complaints;
1...
DOJ Prosecution Key Trends
15
Lanny A. Breuer (Assistant Attorney General) stated the
Department of Justice, Pharmaceutica...
DOJ Prosecution Key Trends
16
“You don’t get a free pass by saying, “We’re doing
business in a country where we believe br...
DOJ Prosecution Key Trends Corruption
Perceptions Index
17
DOJ Prosecution Key Trends Corruption
Perceptions Index
18
Russia improved to 133
DOJ Prosecution Key Trends Corruption
Perceptions Index
19
DOJ Prosecution Key Trends Corruption
Perceptions Index
20
DOJ Prosecution Key Trends
21
• Prosecution of individuals remains enforcement
priority
• “Our focus on individuals will n...
DOJ Prosecution Key Trends Largest
Settlements To Date
22
• Siemens paid $800 million to
resolve allegations of widespread...
DOJ Prosecution Key Trends / Wal-Mart
23
• Wal-Mart’s legal department
received reports of corruption,
allegedly conducted...
DOJ Prosecution Key Trends / Wal-Mart
24
• The company has spent some
$35 million to update its
anti-corruption program
an...
DOJ Prosecution Key Trends / Eli Lilly
25
• Between 2006 and 2009,
employees of Eli Lilly’s China
subsidiary falsified exp...
Eli Lilly and Company - $29 Million FCPA Fine
26
• In Poland, between 2000 and 2003,
Lilly’s subsidiary made eight payment...
Eli Lilly and Company - $29 Million FCPA Fine
27
• In some instances, the off-shore
entities appear to have been used
to f...
DOJ Prosecution Key Trends Bridgestone
28
• Bridgestone a Japanese corporation,
entered into a plea agreement in the
U.S. ...
Global Bribery Enforcement
29
• Siemens former employees and officers,
Germany & Argentina: Former executive
convicted in ...
Global Bribery Enforcement
30
• German private company
FERROSTAAL imposed a fine of
140 million Euros by Munich Court
for ...
Foreign Agents Registration Act
22 U.S.C. § 611
“The Foreign Agents Registration Act (FARA)
was enacted in 1938. FARA is a...
Foreign Agents Registration Act
22 USC § 611 Definitions
• (b) The term ‘‘foreign principal’’ includes—
• (1) a government...
Foreign Agents Registration Act
33
22 U.S.C. § 611
(c) Expect 1 as provided in subsection (d) of
this section, the term ‘‘...
Foreign Agents Registration Act
34
22 U.S.C. § 611
(d) The term ‘‘agent of a foreign principal”
does not include any news ...
Foreign Agents Registration Act Enforcement
35
• "Cuban Five" (1998–2000) five Cuban
intelligence officers were convicted ...
Foreign Agents Registration Act Enforcement
36
United States vs. Mark Deli Silajander (2010)
A. Defendant Mark Deli Siljan...
Foreign Agents Registration Act Enforcement
37
United States vs. Mark Deli Silajander (2010)
H. On January 24, 2004, with ...
Foreign Agents Registration Act Penalties &
Registration
38
Any person who willfully violates any provisions of this Act o...
NGO Foreign Agents Registration
39
Federal Law No. 121-FZ
“Introducing Amendments to Certain Legislative Acts of the
Russi...
NGO Foreign Agents Registration
40
• The primary requirements are that NCOs, whatever their
type, do not have the generati...
NGO Foreign Agents Registration
41
Russian law defines certain restrictions regarding potential
founders of NCOs. Regardin...
NGO Foreign Agents Registration
42
• According to these amendments, NCOs carrying out
“political activities” and receiving...
NGO Foreign Agents
43
NGO Foreign Agents Registration
44
Prosecutors claim some Russian NGOs
violate ‘Foreign Agents law’
• Alexander Buksman,
F...
NGO Foreign Agents Enforcement
45
• “The wave of inspections [of NGOs] by prosecutors checking
their adherence to the fore...
Foreign Corrupt Practice Act (FCPA) Overview
• The Foreign Corrupt Practice Act of 1977 was enacted for the
purpose of mak...
Foreign Corrupt Practice Act (FCPA) Overview
47
• The U.S. Foreign Corrupt Practices Act (“FCPA”) is aimed at
the preventi...
Foreign Corrupt Practice Act (FCPA) Overview
48
• Who is COVERED by the FCPA?
Employees and Officers Board of Directors Em...
Foreign Corrupt Practice Act (FCPA) Overview
49
• Intermediaries and Representatives
Freight Forwarders Distributors Others
Foreign Corrupt Practice Act (FCPA) Overview
50
• In general, the FCPA prohibits offering to pay, paying,
promising to pay...
FCPA Background Jurisdiction
51
• The FCPA’s anti-bribery provisions can apply to conduct both
inside and outside the Unit...
FCPA Background Jurisdiction
52
• Examples of conduct of Issuers or Domestic Concerns that
triggers the FCPA’s anti-briber...
FCPA Background Jurisdiction
• Two provisions – anti-bribery and books/records/internal
controls
• Applies to Issuers U.S....
FCPA Background
• Increased enforcement activity – over 260 reported
proceedings in the last 5 years
• Over 150 pending en...
FCPA Background
55
FCPA Background
• 88% of corporate FCPA violations filed since 2008 have been
brought against publicly traded companies, r...
FCPA Accounting Provisions
57
• The FCPA requires companies whose securities are listed in
the U.S. to meet accounting pro...
Definition Of A “Foreign Official”
58
• FCPA defines a foreign official:
“Any officer or employee of a foreign
government ...
Definition Of A “Foreign Official”
59
• Related term instrumentality is not defined
• Of concern, the DOJ and SEC have bro...
FCPA – State Controlled Index
60
Third Party Relationships
61
“Third party risk still remains the most
significant FCPA risk.”
- Charles E. Duross, Deputy ...
Third Party Relationships
62
• Agents, consultants and distributors
• Local reputation and background check
• FCPA certifi...
Merger & Acquisitions – Due Diligence
63
• Protect against “Successor Liability”
• Inform valuation – how?
• Evaluate targ...
FCPA Intent
64
• In order for an individual to be criminally liable under the
FCPA, he or she must act “willfully.” “Willf...
FCPA Case Study
65
• Orthofix (2012): Mexico
• Agreed to pay $7.8 million to resolve DOJ and SEC FCPA
enforcement actions
...
FCPA Intent Knowing & Deliberate Ignorance
66
• FCPA prohibits corrupt payment knowing that it
will go to a foreign offici...
FCPA Intent Knowing & Deliberate Ignorance
67
• Companies encouraged to conduct due diligence
on third parties
• Knowing u...
DOJ/SEC FCPA Guidance – Impacts On Your
Company
68
• Issues that stakeholders want the enforcement agencies to
address are...
Whistleblower – SEC Program
69
• Created under Dodd-Frank Act
in July 2010
• Program produced big response
- SEC received ...
Whistleblower
70
• UBS
• IRS awarded ex-banker
$104 million for providing
information about overseas tax cheats – largest ...
Retaliatory Provisions
71
• h) Any employee who is discharged, demoted, suspended,
threatened, harassed, or in any other m...
FCPA Cases
72
2010 – General Electric, Ionics Inc., and Amersham plc
– SEC charged GE and two subsidiaries for illegal kic...
FCPA Cases
73
• Tyson Foods, Inc. (2011): Mexico
• Food processor made payments,
including through sham jobs, to relatives...
FCPA Cases
74
• Bizjet (2012): Mexico, Panama
• Agreed to pay $11.8 million criminal fine, entered
three-year DPA with DOJ...
FCPA Cases
75
• In court filings in 2011, the DOJ
said that Johnson & Johnson
(J&J) bribed doctors in Europe
stretching ba...
FCPA Cases
76
• J&J used sham contracts, slush funds
and off-shore companies in the
Isle of Man to process the bribes
• Th...
FCPA Cases
77
• DOJ Allowed Deferred Prosecution Agreement because:
• J&J voluntarily disclosed majority of misconduct
• J...
FCPA Cases
78
• 2012 – Allianz SE – SEC charged the Germany-
based insurer with violating the FCPA’s accounting
provisions...
FCPA Cases
79
• 2012 – Pfizer – SEC charged the
pharmaceutical company for illegal
payments made by its subsidiaries to
fo...
FCPA - Russia
80
• Damiler AG and certain of its subsidiaries resolved DOJ and
SEC FCPA enforcement actions in April 2010....
FCPA - Russia
81
• Diebold, a security systems and automated teller machine
company, disclosed in July 2010 that it was in...
FCPA Penalties
82
Criminal
For each violation of the anti-bribery visions,
the FCPA provides that corporations and other
b...
Enforcement Landscape 2013
83
• Increased enforcement – corporate and
individual
• Government continues to exercise an
ext...
DOJ – Investigative Tools
84
• DOJ using traditional criminal investigation tools in
white collar and health care fraud ca...
DOJ and Compliance Programs
85
• DOJ recognizes that no compliance program can ever
prevent all criminal activity by a cor...
DOJ and Compliance Programs
86
• DOJ encourages self-policing, including voluntary
disclosures to the government of any pr...
DOJ and Federal Sentencing Guidelines
87
• 2010 Federal Sentencing Guidelines
Manual – Chapter 8, Sentencing of
Organizati...
Compliance Programs
88
• Why effective compliance programs
are needed
• Exercise due diligence to prevent
and detect crimi...
Compliance Programs
89
• Three main problems compliance programs are designed to
address
• Bad people who do bad things
• ...
Compliance Programs
90
• Seven components of effective compliance program
1. Standards and Procedures
2. Strong Leadership...
Compliance Programs
Compliance Programs
Compliance Programs
93
“…having an effective compliance
program will be taken under
consideration when you talk to the
gov...
Morgan Stanley Compliance Program
Prevented Prosecution
94
• In a first-of-its-kind case, DOJ and
SEC opted not to bring a...
Morgan Stanley Compliance Program
Prevented Prosecution
95
• Top factor to winning exoneration was how quickly the
company...
Compliance Programs - Leadership
96
• Tone at the top is imperative
• Senior Management
• Depending on scope, consider com...
Compliance Programs – Risk Assessment
97
• What are the risk areas
• Are they changing or evolving
• Where are companies i...
Compliance Programs – Risk Assessment
98
• Large aggregate payments/benefits
to consultants
• Conferences/training are not...
Compliance Programs – Risk Assessment
99
• Inadequate, generic or otherwise
questionable descriptions on
invoices/requests...
Compliance Programs – Risk Assessment
100
• High commissions or unusually large
fees/gifts
• Insufficient/incomplete due d...
Compliance Programs – Risk Assessment
Third Parties
101
• Unusual payments
• History of corruption
• Lack of experience
• ...
Compliance Programs – Standards and
Controls
102
• Review standards and controls
• Given an organization’s risk areas, wha...
Compliance Programs – Standards and
Controls
103
• Maintain accurate financial record keeping
• Particularly in regard to ...
Compliance Programs – Training and
Communication
104
• Review the training and internal communication plans
• Does the com...
Compliance Programs – Monitoring, Auditing,
and Response
105
• Annually reexamine the process for verifying compliance
and...
Compliance Programs – Monitoring, Auditing,
and Response
106
• What is the company’s procedure if it concludes that
miscon...
Compliance Programs – Monitoring,
Auditing, and Response
107
• What is the company’s procedure if it concludes that
miscon...
CONTACT INFORMATION
108
Brian E. Dickerson, Partner
202.570.0248
bdickerson@ralaw.com
Lee L. Piovarcy, Chairman
901.522.90...
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Brian Dickerson. The Global Impact of the Foreign Corrup Practices 07.06.2013

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Transcript of "Brian Dickerson. The Global Impact of the Foreign Corrup Practices 07.06.2013"

  1. 1. Anticorruption Enforcement FARA, FCPA, UK Bribery Act & Russia Anticorruption Act Presented by Brian E. Dickerson, Esq. Lee L. Piovarcy, Esq.
  2. 2. Global Anticorruption Laws • Foreign Agents Registration Act (FARA) United States • NGO Foreign Agents Registration Act (121 -FZ) Russian Federation • Foreign Corrupt Practices Act (FCPA) United States • UK Bribery Act (UKBA) United Kingdom • Countering Corruption Act (FL 273) Russian Federation 2
  3. 3. Global Impact of Bribery Enforcement 3 • The DOJ filed a three-count criminal investigation charging Total with FCPA conspiracy and internal controls and books- and-records violations. Total agreed to resolve the FCPA charges by paying a $245.2 million criminal penalty, which was at the bottom of the $235.2 to $470.4 million range of fines available under the US Sentencing Guidelines. Total SA, Frances Largest Oil and Gas Producer agreed on May 29, 2013 to settle its FCPA civil and criminal investigations for $398 Million • U.S. authorities said that between 1995 and 2004, Total paid about $60 million in bribes to induce an Iranian government official to help the company obtain lucrative development rights in three oil and gas fields. Total Funneled the illegal payments to Swiss bank accounts at request of two intermediaries.
  4. 4. • The French prosecutor said Total and its Chief Executive Christophe de Margerie should face trial for allegedly corrupting foreign public officials over contracts with Iran in the 1990s and early 2000s. • The company also settled a related civil case with the US Securities and Exchange Commission for $153 million in disgorgement of its profits in the scheme. The criminal case will be dismissed after three years if Total complies with the deferred prosecution agreement, which requires Total to (i) retain a corporate compliance monitor, who will conduct annual reviews; (ii) cooperate with authorities and (iii) implement an enhanced compliance program designed to prevent and detect FCPA violations Global Impact of Bribery Enforcement
  5. 5. Global Impact of Bribery Enforcement 5 • The compliance program requires, among other things, that Total’s Board of Directors and senior management “provide, strong, explicit and visible support and commitment” to the company’s anti-corruption policy and that they appoint a senior executive to oversee the program and report directly to an independent authority, such as internal audit, the Board or a committee thereof. Total’s problems, however, are not over. French prosecutors have recommended that the company and its chief executive officer be brought to trial on violations of French law, including France’s foreign bribery law.
  6. 6. Global Impact of Bribery Enforcement 6 • In May 2013, three members of the U.K. House of Lords were accused in two undercover investigations by journalists of agreeing to carry out Parliamentary work for payment. Ulster Unionist Lord Laird and Labor's Lord Mackenzie of Framwellgate and Lord Cunningham were filmed by the Sunday Times striking a deal to allegedly host events at Parliament in exchange for money and provide personal lobbying. Separately, the BBC and Daily Telegraph secretly filmed Lord Laird discussing a retainer to ask parliamentary questions about Fiji. The two Labor peers have been suspended from the party and Lord Laird has resigned the party ship pending an investigation.
  7. 7. 7 Global Impact of Bribery Enforcement (Reuters) – Microsoft Corp said on Tuesday that allegations of potential bribery by employees in China, Romania and Italy should be reviewed by U.S. agencies and its own compliance unit, but declined to address the specifics of any cases. March 19, 2013 • The software giant's comments came after the Wall Street Journal reported that the U.S. Department of Justice (DOJ) and U.S. Securities and Exchange Commission (SEC) had launched investigations over tips from a former Microsoft employee in China that the company handed kickbacks to foreign government officials in return for software contracts. Microsoft claims to have conducted a 10 month internal investigation and found no wrongdoing.
  8. 8. 8 Global Impact of Bribery Enforcement • Investigations of potential violations of the U.S. Foreign Corrupt Practices Act (FCPA) are fairly common among U.S. companies. Microsoft rival International Business Machines Corp agreed in 2011 to pay $10 million to resolve SEC charges over improper gifts to government officials in South Korea and China, but is still waiting for a judge to sign off on the deal.
  9. 9. 9 Global Impact of Bribery Enforcement • Russian contractors and others who have been involved in the building boom to prepare for the Sochi Games have complained of widespread corruption, but government officials have dismissed such reports and defended the cost overruns. • Russian opposition leader Boris Nemstov told reporters in preparing for they Sochi Winter Olympics that $25 to 30 Billion US Dollars has been stolen. • No Charges have been filed.
  10. 10. 10 Global Impact of Bribery Enforcement • Russian Interior Ministry said on May 16, 2013 they had opened an official criminal investigation against CEO of SocGen’s Russian unit, Vladimir Golubkov, who was detained on Wednesday, and his senior vice president, Tamara Polyanitsyna - a final step before formally charging them • Golubkov was in charge of a turnaround strategy at Rosbank, into which SocGen's other Russian banking interests were folded in 2011. But, plagued by high costs and declining market share, Russia's ninth-largest bank lost money last year. • Golubkov's lawyer, Dmitry Kharitonov, told Reuters he denied committing the crime. "He is being held for 48 hours by the Investigative Committee and faces up to seven years if convicted," Kharitonov said.
  11. 11. 11 • TeliaSonera is under investigation for allegedly paying more than $300 million in bribes to a middleman for Karimova to win access to the Uzbek telecom market in 2007. • Documents leaked to Swedish investigative journalists appear to offer fresh evidence of a link between Swedish telecom giant TeliaSonera and Gulnara Karimova, the daughter of the president of Uzbekistan. And the documents suggest that TeliaSonera agreed to pay bribes as recently as the summer of 2012. • Some documents appear to show Karimova 'personally dictating the terms of the negotiations through a series of scribbles, complaints, and queries handwritten on the documents,' the report said. May 24, 2013 Global Impact of Bribery Enforcement
  12. 12. DOJ Increasing Civil and Criminal Enforcement 12 • Attorney General Holder announced President Obama’s FY 2012 budget proposal totaling $28.2 billion for DOJ • President Obama’s 2013 proposed budget for DOJ is $36.5 billion • The Obama administration has increased health care fraud enforcement by more than 75% • Increase of $71.7 million proposed for a total of $294.5 million for expansion and increased staffing of Medicare fraud strike forces
  13. 13. DOJ Increasing Civil and Criminal Enforcement 13 • $700 million to investigate and prosecute financial crimes – increase of $55 million over 2012 (FCPA) • $8 billion to the FBI • $2 billion to the DEA • $2 billion for prosecutors
  14. 14. DOJ Prosecution Key Trends 14 • Dodd/Frank Whistleblowers • In FY 2012, the SEC received 3,001 whistleblower complaints; 115 were FCPA related • Focus on specific industries • Pharmaceutical • Energy • Technology • Financial Services
  15. 15. DOJ Prosecution Key Trends 15 Lanny A. Breuer (Assistant Attorney General) stated the Department of Justice, Pharmaceutical and Medical Devise Industries are The Top Targets for Foreign Corrupt Practices Act (“FCPA”) Enforcement Meeting (Nov. 2009) “will be intensely focused on rooting out foreign bribery in your industry. That will mean investigation and, if warranted, prosecution of corporations, to be sure, but also it will involve investigation and prosecution of senior executives.”
  16. 16. DOJ Prosecution Key Trends 16 “You don’t get a free pass by saying, “We’re doing business in a country where we believe bribery is rampant,’… If you’re in a country that … poses greater challenges, I’m going to want to know what did your compliance program do to deal with that …If it’s state- of-the-art and you truly were prepared for the environment you were in, that will be helpful to you.” Lanny A. Breuer, Assistant Attorney General for the Criminal Division, U.S. DOJ, “DOJ Warns on Heightened Fraud Enforcement.” Compliance Week
  17. 17. DOJ Prosecution Key Trends Corruption Perceptions Index 17
  18. 18. DOJ Prosecution Key Trends Corruption Perceptions Index 18 Russia improved to 133
  19. 19. DOJ Prosecution Key Trends Corruption Perceptions Index 19
  20. 20. DOJ Prosecution Key Trends Corruption Perceptions Index 20
  21. 21. DOJ Prosecution Key Trends 21 • Prosecution of individuals remains enforcement priority • “Our focus on individuals will not change.” – Deputy Chief, Fraud Section, Head of FCPA Unit (November 8, 2011) • Global cooperation e.g., DOJ, SEC, UK SFO • M&A Due Diligence • Inadequate M&A diligence can result in inheritance of target’s liability and/or allow a course of bribery to continue, resulting in liability for the acquiring company due to ongoing FCPA violations
  22. 22. DOJ Prosecution Key Trends Largest Settlements To Date 22 • Siemens paid $800 million to resolve allegations of widespread bribery in 2008 • KBR and its former parent Halliburton paid $579 million in 2009 • BAE Systems paid $400 million in 2010
  23. 23. DOJ Prosecution Key Trends / Wal-Mart 23 • Wal-Mart’s legal department received reports of corruption, allegedly conducted an investigation that found hundreds of suspect payments totaling more than $24 million, and evidence that Wal-Mart de Mexico’s top executives knew of, and concealed, payments from Wal-Mart U.S. executives • Internal investigation was initially shut down, a move that proved costly • The company's costs to conduct the entire investigation - which already stand at $250 million - could be larger than its eventual fines
  24. 24. DOJ Prosecution Key Trends / Wal-Mart 24 • The company has spent some $35 million to update its anti-corruption program and has named a new chief compliance officer for Wal- Mart International and a new vice president of global investigations – both new positions for the company • Stiff penalties and massive fallout from charges are pending. • Investigation now expands into the jurisdictions of Brazil, India, China and South Africa.
  25. 25. DOJ Prosecution Key Trends / Eli Lilly 25 • Between 2006 and 2009, employees of Eli Lilly’s China subsidiary falsified expense reports to provide improper gifts and cash payments to government-employed physicians • In 2007, a pharmaceutical distributor hired by Lilly in Brazil paid bribes to government health officials in a Brazilian state to assure sales of a Lilly product to state government institutions
  26. 26. Eli Lilly and Company - $29 Million FCPA Fine 26 • In Poland, between 2000 and 2003, Lilly’s subsidiary made eight payments totaling approximately $39,000 to a small charitable foundation that was founded and headed by one of the regional government health authorities at the same time that the subsidiary was seeking the official’s support for placing Lilly drugs on the government reimbursement list • Lilly’s Russian subsidiary paid millions to off-shore entities for “alleged services” beginning in 1994 through 2005 for pharmaceutical distributors and government entities to purchase Lilly’s drugs
  27. 27. Eli Lilly and Company - $29 Million FCPA Fine 27 • In some instances, the off-shore entities appear to have been used to funnel money to government officials or others with influence in order to obtain business for the subsidiary – these off-shore entities rarely provided for the contracted-for services • Between 2005 and 2008, contemporaneous with requests to government officials to support the purchase or reimbursement of Lilly’s products, the subsidiary in Russia made proposals to government officials about how the company could donate to, or otherwise support various initiatives that were affiliated or important to, the government officials
  28. 28. DOJ Prosecution Key Trends Bridgestone 28 • Bridgestone a Japanese corporation, entered into a plea agreement in the U.S. regarding FCPA violations for contracts with sales agents who would then develop relationships with foreign stated- owned customers throughout the world and as a result, payments were made to foreign officials for the purpose of gaining business advantage • Bridgestone originally objected the FCPA jurisdiction however, it had a U.S. subsidiary which assisted in the contracts with sales agents and thus entered into a CPA, paid $28 million dollar fine and agreed to continue to cooperate with DOJ on other FCPA investigations
  29. 29. Global Bribery Enforcement 29 • Siemens former employees and officers, Germany & Argentina: Former executive convicted in Munich Court for role in bribery of foreign officials in Argentina. Fined 30,000.00 Euros. • Siemens in August 2012 agreed to pay the Greece Ministry of Finance 330 Million Euros to resolve bribery allegations of Greek Subsidiary. • Central European Distribution Corp. (CEDC),Poland: Disclosed to DOJ in October of 2012 of improper payments to foreign officials to gain business advantage. Investigation ongoing.
  30. 30. Global Bribery Enforcement 30 • German private company FERROSTAAL imposed a fine of 140 million Euros by Munich Court for bribery allegations related to contracts with Greece and Portugal through sham “consulting agreements”. Facts also revealed FERROSTAAL arranged bribe payments through consulting agreements for other German companies in exchange for fees • Two former FERROSTAAL company managers were sentenced in Munich Criminal Court to a two year suspended sentence and fined 36,000 Euros
  31. 31. Foreign Agents Registration Act 22 U.S.C. § 611 “The Foreign Agents Registration Act (FARA) was enacted in 1938. FARA is a disclosure statute that requires persons acting as agents of foreign principals in a political or quasi- political capacity to make periodic public disclosure of their relationship with the foreign principal, as well as activities, receipts and disbursements in support of those activities. ” www.fara.gov Department of Justice controlled website 31
  32. 32. Foreign Agents Registration Act 22 USC § 611 Definitions • (b) The term ‘‘foreign principal’’ includes— • (1) a government of a foreign country and a foreign political party; • (2) a person outside of the United States, unless it is established that such person is an individual and a citizen of and domiciled within the United States, or that such person is not an individual and is organized under or created by the laws of the United States or of any State or other place subject to the jurisdiction of the United States and has its principal place of business within the United States; and • (3) a partnership, association, corporation, organization, or other combination of persons organized under the laws of or having its principal place of business in a foreign country. 32
  33. 33. Foreign Agents Registration Act 33 22 U.S.C. § 611 (c) Expect 1 as provided in subsection (d) of this section, the term ‘‘agent of a foreign principal’’ means— (1) any person who acts as an agent, representative, employee, or servant, or any person who acts in any other capacity at the order, request, or under the direction or control, of a foreign principal or of a person any of whose activities are directly or indirectly supervised, directed, controlled, financed, or subsidized in whole or in major part by a foreign principal, and who directly or through any other person— (i) engages within the United States in political activities for or in the interests of such foreign principal; (ii) acts within the United States as a public relations counsel, publicity agent, information- service employee or political consultant for or in the interests of such foreign principal; (iii) within the United States solicits, collects, disburses, or dispenses contributions, loans, money, or other things of value for or in the interest of such foreign principal; or (iv) within the United States represents the interests of such foreign principal before any agency or official of the Government of the United States; and (2) any person who agrees, consents, assumes or purports to act as, or who is or holds himself out to be, whether or not pursuant to contractual relationship, an agent of a foreign principal as defined in clause (1) of this subsection.
  34. 34. Foreign Agents Registration Act 34 22 U.S.C. § 611 (d) The term ‘‘agent of a foreign principal” does not include any news or press service or association organized under the laws of the United States or of any State or other place subject to the jurisdiction of the United States, or any newspaper, magazine, periodical, or other publication for which there is on file with the United States Postal Service information in compliance with section 3611 2 of title 39, published in the United States, solely by virtue of any bona fide news or journalistic activities, including the solicitation or acceptance of advertisements, subscriptions, or other compensation therefor, so long as it is at least 80 per centum beneficially owned by, and its officers and directors, if any, are citizens of the United States, and such news or press service or association, newspaper, magazine, periodical, or other publication, is not owned, directed, supervised, controlled, subsidized, or financed, and none of its policies are determined by any foreign principal defined in subsection (b) of this section, or by any agent of a foreign principal require
  35. 35. Foreign Agents Registration Act Enforcement 35 • "Cuban Five" (1998–2000) five Cuban intelligence officers were convicted of acting as an agents of a foreign government under FARA, as well as various conspiracy charges after entering the United States to spy on the U.S. Southern Command and various Cuban-American groups thought to be committing terrorist acts in Cuba. • United States v. Samir A. Vincent (2005) included a charge of conspiracy to act as an unregistered agent of a foreign government in the "oil-for-food" scandal helping Saddam Hussein's government. Samir was fined $300,000 and sentenced to probation. • Syed Ghulam Nabi Fai, a Pakistani from Kashmir, was arrested in 2011 by the Federal Bureau of Investigation for lobbying secretly for Pakistan's Inter-Services Intelligence agency. He later pled guilty to tax evasion and making false statements.
  36. 36. Foreign Agents Registration Act Enforcement 36 United States vs. Mark Deli Silajander (2010) A. Defendant Mark Deli Siljander (Siljander) is United States citizen and was, at all times relevant, a resident of Virginia. Siljander is a former member of the United States House of Representatives, from the State of Michigan. At all times relevant, Siljander operated a consulting business known as Global Strategies, Inc. At no time relevant was Siljander a registered agent of any “foreign principal,” as that term is defined in 22 U.S.C. § 611(b), and that no lawful exemption existed permitting him to act as such an agent without registering with the Attorney General. B. Defendant Abdel Azim El-Siddig (El-Siddig) is, and was at all times relevant, a naturalized United States citizen and resident of Illinois. At all times relevant, El-Siddig was associated with, and worked as a fund-raiser for, the Islamic American Relief Agency. C. The Islamic American Relief Agency (IARA) was an Islamic charitable organization based in Columbia, Missouri, that was the United States office of an international organization headquartered in Khartoum, Sudan. Originally, the Columbia, Missouri office of IARA was known as the Islamic African Relief Agency-United States Affiliate, or IARA-USA. On May 25, 2000, IARA legally changed its name to the Islamic American Relief Agency.
  37. 37. Foreign Agents Registration Act Enforcement 37 United States vs. Mark Deli Silajander (2010) H. On January 24, 2004, with the assistance of El-Siddig and Siljander, Hamed, on behalf of IARA, hired a former United States Congressman and registered lobbyist, hereinafter identified by the initials “R.P.H.,” to advocate for IARA’s removal from the list and reinstatement as an approved government contractor, by gathering information and meeting with individuals and agencies of the United States government. On January 24, 2004, Hamed signed a $15,000 check that was issued to R.P.H., drawn on IARA’s principal bank account. For his assistance in brokering the transaction, Siljander received $6,000 in referral fees from R.P.H. • Siljander, sentenced to 12 months and one day in prison, pleaded guilty to obstruction and acting as an unregistered foreign agent. Prosecutors said Siljander received $75,000 from the charity to push for its removal from the list, and that $50,000 of it was part of unused grant money that was supposed to have been returned to the U.S. Agency for International Development after it terminated its grants for two relief projects in Mali, Africa, with the charity in 1999. • Prosecutors said Siljander, lied to the FBI about being hired to lobby for the charity. He told investigators that the money he received was a donation to help him write a book about Islam and Christianity.
  38. 38. Foreign Agents Registration Act Penalties & Registration 38 Any person who willfully violates any provisions of this Act or any regulations thereunder, or in any registration statement or supplement thereto or in any other documents filed with or furnished to the Attorney General under the provisions of this Act willfully makes a false statement of a material fact or willfully omits any material fact required to be stated therein or willfully omits a material fact or a copy of a material document necessary to make the statements therein and the copies of documents furnished therewith not misleading, shall, upon conviction thereof, be punished by a fine of not more than $10,000 or by imprisonment for not more than five years. For some offenses the punishment shall be a fine of not more than $5,000 or imprisonment for not more than six months, or both. Any alien who shall be convicted of a violation of, or a conspiracy to violate, any provisions of this Act or any regulation thereunder shall be subject to deportation A public official of the United States in the executive, legislative, or judicial branch of the Government or in any agency of the United States, including the District of Columbia, is or acts as an agent of a foreign principal required to register under the Foreign Agents Registration Act of 1938 or a lobbyist required to register under the Lobbying Disclosure Act of 1995 in connection with the representation of a foreign entity, as defined in section 3(6) of that Act, shall be fined not more than $10,000 or imprisoned for not more than two years, or both. http://www.fara.gov/forms.html
  39. 39. NGO Foreign Agents Registration 39 Federal Law No. 121-FZ “Introducing Amendments to Certain Legislative Acts of the Russian Federation Regarding the Regulation of Activities of Non-commercial Organizations Performing the Function of Foreign Agents.” NCO signed by President Putin in July 2012 • The Foreign Agents Registration Act came into force in Russia in November 2012. According to the law, non-profit organizations that conduct political activities in Russia on the funds they receive from abroad should be registered with the Ministry for Justice as foreign agents.
  40. 40. NGO Foreign Agents Registration 40 • The primary requirements are that NCOs, whatever their type, do not have the generation of profit as their primary objective and do not distribute any such profit among their participants (Article 50(1), Civil Code). • The Federal Law on Public Associations builds upon this framework and carves out a sub-category of NCOs called "public associations" which consist of public organizations, mass movements, public foundations, public institutions, and several other forms. • Some 220,000 NCOs are registered in Russia; approximately 50% of them are public associations.
  41. 41. NGO Foreign Agents Registration 41 Russian law defines certain restrictions regarding potential founders of NCOs. Regarding non-citizens, only those foreign nationals and stateless persons who are “legally domiciled in the Russian Federation” may be founders, members, or participants in public associations or NCOs. Certain persons may not become founders, members or participants, including: • Foreign nationals or stateless persons whose stay is deemed “undesirable”; • Persons appearing on a money laundering and anti-terrorist financing watch list maintained by the Russian government; • Organizations that have been suspended under the Law Countering Extremist Activities; • Persons found by court decision to show signs of participating in extremist activity; and • Persons who are currently incarcerated as a result of conviction of a crime.
  42. 42. NGO Foreign Agents Registration 42 • According to these amendments, NCOs carrying out “political activities” and receiving foreign funding, or, even intending to do so, are required to register in a special registry maintained by the Ministry of Justice. • Such registration, and, especially, being labeled as a “foreign agent” may result in additional administrative burdens for NCOs, as well as in damaging the reputation of NCOs. • The threat of being labeled a “foreign agent” may discourage many organizations to seek foreign funding.
  43. 43. NGO Foreign Agents 43
  44. 44. NGO Foreign Agents Registration 44 Prosecutors claim some Russian NGOs violate ‘Foreign Agents law’ • Alexander Buksman, First Deputy Prosecutor General (RIA Novosti/Vladimir Pesnya) A senior Russian law enforcer has told the press that some Russian non-government organizations are receiving their funding from abroad, but failed to register as foreign agents. He warned these organizations could face sanctions in the future. • “The current situation is as follows: the finances keep coming from abroad, but no organization is registered,” First Deputy Prosecutor General Aleksandr Buksman said on Thursday.
  45. 45. NGO Foreign Agents Enforcement 45 • “The wave of inspections [of NGOs] by prosecutors checking their adherence to the foreign agents law included many analysis centers and the Association of Independent Centers of Economic Analysis. It showed that any NGO receiving funding from abroad and involved in anything remotely connected to politics is at risk,” the economists wrote, referring to checks carried out at hundreds of NGOs earlier this year. RIA Novosti 30/05/2013 • In late April, election monitoring NGO Golos was fined 300,000 rubles (around $10,000) by a Moscow court for failing to register as a “foreign agent,” in the first case of an NGO facing administrative penalties following the introduction of the law. RIA Novosti 30/05/2013 • “We may discuss the elimination of the organization by a court ruling if it [Golos] fails to comply with the law,” Konovalov said, adding that an earlier fine imposed by a court on the organization justifies the ministry’s action against Golos. RIA Novosti 15/05/2013
  46. 46. Foreign Corrupt Practice Act (FCPA) Overview • The Foreign Corrupt Practice Act of 1977 was enacted for the purpose of making it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business. • Anti-bribery provisions of the FCPA prohibit the willful use of the mails or any means of instrumentality of inter-state commerce corruptly in furtherance of any offer, payment or promise to pay, or authorization of payment of money or anything of value to any person 46
  47. 47. Foreign Corrupt Practice Act (FCPA) Overview 47 • The U.S. Foreign Corrupt Practices Act (“FCPA”) is aimed at the prevention of bribery of foreign officials. The FCPA is enforced by the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) and contains both anti-bribery and accounting provisions. Violations of the FCPA can lead to civil and criminal penalties, sanctions, and remedies, including fines, disgorgement, and/or imprisonment.
  48. 48. Foreign Corrupt Practice Act (FCPA) Overview 48 • Who is COVERED by the FCPA? Employees and Officers Board of Directors Employees of Foreign Subsidiaries Officers of Foreign Subsidiaries Agents
  49. 49. Foreign Corrupt Practice Act (FCPA) Overview 49 • Intermediaries and Representatives Freight Forwarders Distributors Others
  50. 50. Foreign Corrupt Practice Act (FCPA) Overview 50 • In general, the FCPA prohibits offering to pay, paying, promising to pay, or authorizing the payment of money or anything of value to a foreign official in order to influence any act or decision of the foreign official in his or her official capacity or to secure any other improper advance in order to obtain or retain business. • Congress used the phrase “anything of value” because it recognized that bribes can take on many different forms, such as cash, travel, entertainment, gifts, and even charitable donations. The FCPA does not contain a minimum threshold amount for corrupt gifts or payments. The Anti-Bribery Provisions
  51. 51. FCPA Background Jurisdiction 51 • The FCPA’s anti-bribery provisions can apply to conduct both inside and outside the United States. Issuers and Domestic Concerns (and their officers, directors, employees, agents, and stockholders) may be prosecuted for using U.S. mails or any means or instrumentality of interstate commerce in furtherance of a corrupt payment to a foreign official. The FCPA defines “interstate commerce” broadly.
  52. 52. FCPA Background Jurisdiction 52 • Examples of conduct of Issuers or Domestic Concerns that triggers the FCPA’s anti-bribery provisions include: • placing a telephone call or sending an e-mail, text message, or fax from, to, or through the United States; • traveling across state borders or internationally to or from the United States; or • sending a wire transfer from or to a U.S. bank or otherwise using the U.S. banking system.
  53. 53. FCPA Background Jurisdiction • Two provisions – anti-bribery and books/records/internal controls • Applies to Issuers U.S. or foreign companies with securities listed on the U.S. exchanges • Includes officers, directors, employees, agents, or stockholders acting on behalf of issuers, as well as subsidiaries and affiliates in some circumstances • Applies to Domestic Concerns – U.S. companies and citizens, nationals, and residents • Applies to Territorial Jurisdiction – foreign persons that engage in any act in furtherance of a corrupt payment “while in the territory of the United States 53
  54. 54. FCPA Background • Increased enforcement activity – over 260 reported proceedings in the last 5 years • Over 150 pending enforcement matters with DOJ and SEC • 88 publically traded companies disclosed pending investigation at the end of 2012 – up from 78 in 2011 • Top 10 settlements range from $82 million to $800 million 54
  55. 55. FCPA Background 55
  56. 56. FCPA Background • 88% of corporate FCPA violations filed since 2008 have been brought against publicly traded companies, roughly 78% of individuals charged have been representatives and/or employees of privately held companies. Public company will pay with money as they don’t want to harm the shareholders more, and private companies pay through the persons involved in the activity. • Increased enforcement activity – over 260 reported proceedings in the last 5 years • Over 150 pending enforcement matters with DOJ and SEC • 88 publically traded companies disclosed pending investigation at the end of 2012 – up from 78 in 2011 • Top 10 settlements range from $82 million to $800 million 56
  57. 57. FCPA Accounting Provisions 57 • The FCPA requires companies whose securities are listed in the U.S. to meet accounting provisions – see 15 U.S. C. § 78m • These accounting provisions, which were designed to operate in tandem with the anti-bribery provisions of the FCPA, require corporations covered by the provisions to: • Make and keep books and records that accurately and fairly reflect the transactions of the corporation • Devise and maintain an adequate system of internal accounting controls
  58. 58. Definition Of A “Foreign Official” 58 • FCPA defines a foreign official: “Any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality or for or on behalf of any such public international organization”
  59. 59. Definition Of A “Foreign Official” 59 • Related term instrumentality is not defined • Of concern, the DOJ and SEC have broadly interpreted instrumentality to mean not only heads of state or persons holding official titles but also individuals who work for government-owned or controlled private businesses
  60. 60. FCPA – State Controlled Index 60
  61. 61. Third Party Relationships 61 “Third party risk still remains the most significant FCPA risk.” - Charles E. Duross, Deputy Chief, Fraud Section, Criminal Division, U.S. Department of Justice, November 8, 2011
  62. 62. Third Party Relationships 62 • Agents, consultants and distributors • Local reputation and background check • FCPA certification • Provision of sample contracts and contract language
  63. 63. Merger & Acquisitions – Due Diligence 63 • Protect against “Successor Liability” • Inform valuation – how? • Evaluate target’s existing systems and controls • Analyze target’s risk • Specific audit • Risk can be managed by • Adjusting deal price • Allocating responsibility for potential fines • Indemnification agreements
  64. 64. FCPA Intent 64 • In order for an individual to be criminally liable under the FCPA, he or she must act “willfully.” “Willfully” means an act committed voluntarily and purposely, and with a bad purpose, i.e., with knowledge that the individual was doing a “bad” act under general rules of law. Courts require the government to prove that the defendant acted with knowledge that his conduct was unlawful, though it need not be established that the defendant was specifically aware of the FCPA or knew that his or her conduct violated its provisions. Proof of willfulness is not required to establish corporate criminal or civil liability.
  65. 65. FCPA Case Study 65 • Orthofix (2012): Mexico • Agreed to pay $7.8 million to resolve DOJ and SEC FCPA enforcement actions • Improper payments were made by Orthofix’s wholly owned Mexican subsidiary, Promeca S.A. de C.V. • DOJ alleged that Orthofix purchased existing companies like Promeca, in high risk markets and failed to engage in any form of corruption related due diligence
  66. 66. FCPA Intent Knowing & Deliberate Ignorance 66 • FCPA prohibits corrupt payment knowing that it will go to a foreign official, even if routed through any intermediary • Any intermediary, including agent, a distributor, a consultant, or any unaffiliated third party • “knowing” includes conscious disregard and deliberate ignorance (ignoring duties or knowledge)
  67. 67. FCPA Intent Knowing & Deliberate Ignorance 67 • Companies encouraged to conduct due diligence on third parties • Knowing use of agents, distributors, consultants, or anyone to make illegal payment is equivalent to making it yourself • Analysis of size and why payment of third party is justified by businesses • Is the intermediary related to the government? • Any other red flags?
  68. 68. DOJ/SEC FCPA Guidance – Impacts On Your Company 68 • Issues that stakeholders want the enforcement agencies to address are: • Element of required intent in criminal actions to prove an entity violated the FCPA • Proof of a corrupt intent to hold someone liable for providing small gifts or entertainment (e.g., a bottle of wine) • Scope of the “facilitating payments” exception • Definition of an “instrumentality” under FCPA November 2012 DOJ SEC Guidance
  69. 69. Whistleblower – SEC Program 69 • Created under Dodd-Frank Act in July 2010 • Program produced big response - SEC received tips in record numbers • In it’s first year of operations, SEC received 2,870 tips – approximately 8 tips per day • Contrasts with the dozen every six months allotted by previous program • Retaliatory Claims
  70. 70. Whistleblower 70 • UBS • IRS awarded ex-banker $104 million for providing information about overseas tax cheats – largest amount ever rewarded • Exposed tax evasion at UBS AG that resulted in $780 million fine and unprecedented agreement to turn over American tax dodgers to IRS • Case led to erosion of use of Swiss bank secrecy by wealthy Americans to cheat IRS
  71. 71. Retaliatory Provisions 71 • h) Any employee who is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment by his or her employer because of lawful acts done by the employee on behalf of the employee or others in furtherance of an action under this section, including investigation for, initiation of, testimony for, or assistance in an action filed or to be filed under this section, shall be entitled to all relief necessary to make the employee whole… − (31 USC § 3730(h)) • Relief: − (h) … Such relief shall include reinstatement with the same seniority status such employee would have had but for the discrimination, 2 times the amount of back pay, interest on the back pay, and compensation for any special damages sustained as a result of the discrimination, including litigation costs and reasonable attorneys’ fees. (31 USC § 3730(h))
  72. 72. FCPA Cases 72 2010 – General Electric, Ionics Inc., and Amersham plc – SEC charged GE and two subsidiaries for illegal kickback payments made in the form of cash, computer equipment, medical supplies, and services to the Iraqi government in order to obtain U.N. Oil for Food Program contracts. GE paid $23 million to settle the charge. 2011 – Tenaris – SEC sanctioned the global manufacturer of steel pipe products for bribing Uzbekistan government officials during a bidding process to supply pipelines for transporting oil and natural gas. Tenaris agreed to pay $5.4 million under a Deferred Prosecution Agreement, and paid a $3.9 million criminal fine.
  73. 73. FCPA Cases 73 • Tyson Foods, Inc. (2011): Mexico • Food processor made payments, including through sham jobs, to relatives of Mexican veterinarians in charge of certifying products for export • Alcatel-Lucent (2010): Costa Rica, Honduras, Nicaragua and Educador • French telecom company made payments, through intermediaries, to government officials at state-owned telecom authorities for contracts
  74. 74. FCPA Cases 74 • Bizjet (2012): Mexico, Panama • Agreed to pay $11.8 million criminal fine, entered three-year DPA with DOJ • Through a shell company and also via direct “referral” and “incentive” payments made directly to officials, Bizjet bribed Mexican Federal Police, presidential fleet officials, and Panamanian Aeronautic Authority officials in connection with aircraft service and repair projects
  75. 75. FCPA Cases 75 • In court filings in 2011, the DOJ said that Johnson & Johnson (J&J) bribed doctors in Europe stretching back to 1998 and paid kick-backs in Iraq to obtain business • The SEC and DOJ accused the company of giving cash and trips to doctors and administrators at state run hospitals in Greece, Poland, and Romania in exchange for the prescribed use of J&J medical devices and pharmaceuticals
  76. 76. FCPA Cases 76 • J&J used sham contracts, slush funds and off-shore companies in the Isle of Man to process the bribes • The company admitted the conduct outlined by the DOJ, but neither denied or admitted the allegations by the SEC • To avoid a conviction, the J&J may have been the source of a wide ranging probe that resulted in the investigation of AstraZeneca, Baxter International, Eli Lilly & Co, and Bristol- Meyers-Squibb
  77. 77. FCPA Cases 77 • DOJ Allowed Deferred Prosecution Agreement because: • J&J voluntarily disclosed majority of misconduct • J&J conducted thorough internal investigation of misconduct • J&J cooperated fully with DOJ investigation • J&J undertaken substantial remedial measures • J&J continues to cooperate with DOJ related to violations of FCPA
  78. 78. FCPA Cases 78 • 2012 – Allianz SE – SEC charged the Germany- based insurer with violating the FCPA’s accounting provisions in conjunction with improper payments to government officials in individuals that resulted in $5.3 million in profits. Allianz agreed to pay more than $12.3 million to settle the SEC’s charges. • 2012 – Tyco International – SEC charged the Swiss-based global manufacturer with violating the FCPA when subsidiaries arranged illicit payments to foreign officials in more than a dozen countries. Tyco agreed to pay $26 million to settle the SEC’s charges and resolve a criminal matter with the DOJ.
  79. 79. FCPA Cases 79 • 2012 – Pfizer – SEC charged the pharmaceutical company for illegal payments made by its subsidiaries to foreign officials in Bulgaria, China, Croatia, Czech Republic, Italy, Kazakhstan, Russia, and Serbia to obtain regulatory approvals, sales, and increased prescriptions for its products. Pfizer and recently acquired Wyeth LLC – charged with its own FCPA violations – agreed to pay a combined $45 million in their settlements. • 2012 – Smith & Nephew – SEC charged the London-based medical device company with violating the FCPA when its U.S. and German subsidiaries bribed public doctors in Greece for more than a decade to win business. The company and its U.S. subsidiary agreed to pay more than $22 million to settle civil and criminal cases.
  80. 80. FCPA - Russia 80 • Damiler AG and certain of its subsidiaries resolved DOJ and SEC FCPA enforcement actions in April 2010. Daimler escaped FCPA antibribery charges and did not have to plead guilty to anything (it was offered a deferred prosecution agreement), DaimlerChrysler Automotive Russia SAO ("DCAR")(now known as Mercedes-Benz Russia SAO) pleaded guilty to a criminal information charging conspiracy and FCPA antibribery violations. The charged conduct focused on Daimler's and DCAR's relationships with: "the Russian Ministry of Internal Affairs ("MVD") a department and agency of the Russian government principally responsible for police, militia, immigration and other functions" including supervising the "Russian traffic police; "the Special Purpose Garage ("SPG") an 'instrumentality' of the Russian government"; "Machinoimport a Russian government-owned and controlled purchasing agent for the City of Moscow," an "instrumentality of the Russian government"; and "Dorinvest a Russian government-owned and controlled purchasing agent for the City of Moscow," an "instrumentality of the Russian government."
  81. 81. FCPA - Russia 81 • Diebold, a security systems and automated teller machine company, disclosed in July 2010 that it was investigating payments by its Russian subsidiary that may have been in breach of the FCPA. At the end of October 2010, it revealed that the SEC issued a subpoena and the Justice Department requested documents. In November 2010, the company fired its Russian leadership amid the probe, and by February 2011, Diebold discovered possible violations in the Asia- Pacific region as well. By July of 2011, it appeared the internal probe was winding down. The company has spent more than $5 million on expenses related to the FCPA investigation, according to regulatory filings. In January 2013, the company said that it had set aside roughly $18 million for the eventual resolution of the FCPA investigation.
  82. 82. FCPA Penalties 82 Criminal For each violation of the anti-bribery visions, the FCPA provides that corporations and other business entities are subject to a fine of up to $2 million. Individuals (including officers, directors, stockholders, and agents of companies) are subject to a fine of up to $100,000 and up for five years imprisonment. Civil For each violation of the anti-bribery visions, the FCPA provides that corporations and other business entities are subject forfeiture of the benefit of the bribe, not just the amount of the bribe. This is most often the revenue that resulted from the bribe, gift or benefit.
  83. 83. Enforcement Landscape 2013 83 • Increased enforcement – corporate and individual • Government continues to exercise an extensive jurisdictional power • More Deferred Prosecution Agreements • Focus on sales force training & monitoring • Voluntary disclosures and self-policing
  84. 84. DOJ – Investigative Tools 84 • DOJ using traditional criminal investigation tools in white collar and health care fraud cases • Wire tapping and email recovery • Trash removal and recovery • Informants and undercover tracking • Wire tap warrants
  85. 85. DOJ and Compliance Programs 85 • DOJ recognizes that no compliance program can ever prevent all criminal activity by a corporation’s employees • Critical factors in evaluation any compliance program • Program adequately designed fro maximum effectiveness in preventing and detecting wrongdoing by employees? • Corporate management enforcing the program or is tacitly encouraging or pressuring employees to engage in misconduct to achieve business objectives?
  86. 86. DOJ and Compliance Programs 86 • DOJ encourages self-policing, including voluntary disclosures to the government of any problems that a corporation discovers on it own • Existence of a compliance program is not sufficient, in and of itself, to justify not charging a corporation for criminal misconduct undertaken by its officers, director
  87. 87. DOJ and Federal Sentencing Guidelines 87 • 2010 Federal Sentencing Guidelines Manual – Chapter 8, Sentencing of Organizations • Part B – Remedying Harm from Criminal Conduct, and Effective Compliance and Ethics Program • United States Attorney Manual 9-28-800 • Sets forth what a United States Attorney has to review in the process of determining whether a company has viable compliance program and to criminally or civilly prosecute the company or individuals
  88. 88. Compliance Programs 88 • Why effective compliance programs are needed • Exercise due diligence to prevent and detect criminal behavior • Promote an organization culture that encourages ethical conduct and a commitment to compliance with law • Program shall be reasonably designed, implemented, and enforced to it is generally effective in preventing and detecting criminal conduct
  89. 89. Compliance Programs 89 • Three main problems compliance programs are designed to address • Bad people who do bad things • Good people who make bad decisions under pressure • How are employees compensated or evaluated • Evaluate how supervisors manage divisions • Good people who make bad decisions because they are poorly informed
  90. 90. Compliance Programs 90 • Seven components of effective compliance program 1. Standards and Procedures 2. Strong Leadership 3. Education & Training 4. Monitoring & Auditing 5. Reporting Abilities 6. Enforcement and Discipline 7. Risk Assessment, Response & Prevention
  91. 91. Compliance Programs
  92. 92. Compliance Programs
  93. 93. Compliance Programs 93 “…having an effective compliance program will be taken under consideration when you talk to the government about a criminal violation. We take it seriously and it will have a positive impact on negotiations. ” - Gary Grindler, Acting Deputy Attorney General, U.S. DOJ, “DOJ Warns on Heightened Fraud Enforcement,” Compliance Week
  94. 94. Morgan Stanley Compliance Program Prevented Prosecution 94 • In a first-of-its-kind case, DOJ and SEC opted not to bring an enforcement action over FCPA violations, citing the company’s robust compliance program as the reason for declining to prosecute • “This case illustrates the SEC’s commitment to holding individuals accountable for FCPA violations, particularly employees who intentionally circumvent their company’s internal controls.” – SEC’s Division of Enforcement Director, Robert Khuzami
  95. 95. Morgan Stanley Compliance Program Prevented Prosecution 95 • Top factor to winning exoneration was how quickly the company moved to launch a full internal investigation • The company conducted a thorough internal investigation to determine the scope of the improper payments and other misconduct involved • Morgan Stanley frequently trained its employees on its internal policies, the FCPA, and other anti-corruption laws • Between 2002 and 2008, the company trained various groups of Asia-based personnel on anti-corruption policies on at least 54 occasions
  96. 96. Compliance Programs - Leadership 96 • Tone at the top is imperative • Senior Management • Depending on scope, consider compliance officer that directly reports to Board’s audit committee • Program oversight and reporting relationship
  97. 97. Compliance Programs – Risk Assessment 97 • What are the risk areas • Are they changing or evolving • Where are companies in similar industries getting into trouble • What are areas of significant government regulation • Is the company doing business in high-risk countries • Has there been a high turnover in personnel • Due diligence in relation to pertinent business function (consultants/directors/agents) • Should a company wide risk survey be conducted
  98. 98. Compliance Programs – Risk Assessment 98 • Large aggregate payments/benefits to consultants • Conferences/training are not appropriate to vendor or customer. • Extensive or inappropriate entertainment/dinner/travel • Unusual increase in product purchases
  99. 99. Compliance Programs – Risk Assessment 99 • Inadequate, generic or otherwise questionable descriptions on invoices/requests • Missing or incomplete documentation • Substantial activity for new vendor • Invoices paid too quickly; payments in cash or check
  100. 100. Compliance Programs – Risk Assessment 100 • High commissions or unusually large fees/gifts • Insufficient/incomplete due diligence (i.e. government relationship, credit) • Distributor/agent lacks expertise or track record • Distributor/agent unusually successful in obtaining government contracts/benefits • Payments into offshore accounts
  101. 101. Compliance Programs – Risk Assessment Third Parties 101 • Unusual payments • History of corruption • Lack of experience • Refusal to provide FCPA certification • Unusually high commissions or discounts • Lack of transparency in records • Lack of quality recommendations
  102. 102. Compliance Programs – Standards and Controls 102 • Review standards and controls • Given an organization’s risk areas, what standards and procedures address those areas • Document standards and procedures regularly to reflect changes in governmental requirements • If any compliance and ethics issues arose in the recent past, could standards and procedures be changing to prevent those issues from recurring • Ensure a screening process for individuals who have engaged in past misconduct prior to their being hired or promoted
  103. 103. Compliance Programs – Standards and Controls 103 • Maintain accurate financial record keeping • Particularly in regard to travel and entertainment expense • Train finance staff on precise entries • Retain documents • Integration with local laws • Specific guidelines for gifts, travel and entertainment
  104. 104. Compliance Programs – Training and Communication 104 • Review the training and internal communication plans • Does the company have a plan for its compliance and ethics standards and expectations • Who receives training and how often • How does the training and communication plan focus on the company’s risks • Document internal communication and training program attendance • Train business partners
  105. 105. Compliance Programs – Monitoring, Auditing, and Response 105 • Annually reexamine the process for verifying compliance and evaluating the overall program effectiveness • What controls are in place to verify compliance and ethics standards are being followed (or not) • Identification of sensitive individuals/functions • Are incentives for compliance and ethics in place • Is discipline levied for violations • Reassess the response and remediation process annually
  106. 106. Compliance Programs – Monitoring, Auditing, and Response 106 • What is the company’s procedure if it concludes that misconduct has occurred • Does the procedure include consideration of both remediation of harm and prevention of recurrence • Include mechanism for reporting violations (e.g. whistleblower hotline) • Perform periodic audits in high-risk markets
  107. 107. Compliance Programs – Monitoring, Auditing, and Response 107 • What is the company’s procedure if it concludes that misconduct has occurred • Does the procedure include consideration of both remediation of harm and prevention of recurrence
  108. 108. CONTACT INFORMATION 108 Brian E. Dickerson, Partner 202.570.0248 bdickerson@ralaw.com Lee L. Piovarcy, Chairman 901.522.9000 lpiovarcy@martintate.com The content of the presentation cannot be applied as legal counselling as this will always be subject to actual and specific knowledge of the client’s situation.
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