Global Models of
Anti-Corruption Law and the
Often Overlooked Dangers of
the Books and Records
Provisions
Max Carr-Howard
...
2
Anti-Corruption Legislation Continues to Grow
Around the Globe and Enforcement is Unrelenting
• FCPA, the granddaddy of ...
Two Basic Models
for Anti-Corruption Legislation
• The North American Model (US, Mexico and Canada) focus on Public
Corrup...
4
The Foreign Corrupt Practices Act
Governs:
• Any publicly traded company registered in
the United States or its agents
•...
5
The Anti-Bribery Provision:
(global reach, limited connection to US required)
•Prosecutions can be brought against:
• U....
6
The Anti-Bribery Provision:
• Prohibits, directly or indirectly, giving or offering
anything of value to a foreign offic...
7
Broad Definition of “Foreign Official”
• Foreign officials include officers and employees of:
• All branches of a non-U....
8
The FCPA: Accounting Provisions
• Applies to all U.S. and foreign companies with registered securities and
companies tha...
9
The FCPA: Accounting Provisions
• Requirements (cont’d)
• Implement a system of internal controls that:
• Prevents impro...
Canada's
Corruption of Foreign Public Officials Act
• Updated in 2013
• Prohibits bribery of foreign officials like FCPA
•...
11
FCPA Penalties: For the Company
• Anti-Bribery:
• Criminal: up to USD $2M fine (per violation)
and/or restitution
• Civ...
12
FCPA Penalties: For the Individual
• Anti-Bribery:
• Criminal: Up to 5 years in prison and up to a $250k fine
(per viol...
13
Let me be clear, prosecuting individuals is a cornerstone
of our enforcement strategy because, as long as it remains
a ...
14
UK Bribery Act
A Broader Definition of Bribery
• Governs Public and Private Sectors, no “government
official” limitatio...
15
Travel Act Permits US Prosecution of Commercial Bribery
• Prohibits “traveling” (including use of mail and wires) to pr...
16
After considering all the available facts and
circumstances, including that Morgan Stanley
constructed and maintained a...
17
Compliance Works, DOJ Has Declined Prosecutions
• United States v. Peterson (2012)
• Corruption scheme by Peterson, US ...
But Watch those books and records….
• US Prosecutors use the books and records provisions way outside of a typical
bribery...
© 2014 Dentons
Dentons is an international legal practice providing client services worldwide through its member firms and...
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Global Models of Anti-Corruption Law and the Often Overlooked Dangers of the Books and Records Provisions

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Global Models of Anti-Corruption Law and the Often Overlooked Dangers of the Books and Records Provisions

  1. 1. Global Models of Anti-Corruption Law and the Often Overlooked Dangers of the Books and Records Provisions Max Carr-Howard Partner, Kansas City Dentons +1 816 460 2440 maxwell.carr-howard@dentons.com CLE Seminar for In-House Counsel May 20, 2014 Kansas City, MO
  2. 2. 2 Anti-Corruption Legislation Continues to Grow Around the Globe and Enforcement is Unrelenting • FCPA, the granddaddy of anti-corruption was born in the 1970s and is now bolstered by the Travel Act and related laws • OECD, anti-corruption goes global • UK Bribery Act claims extraterritorial jurisdiction and creates corporate offense of failing to prevent corruption • Italian Legislative Decree 231 • Canadian Corruption of Foreign Public Officials Act (CFPOA) • Mexican Anti-Corruption Law for Government Procurement • Russian Federal Law On Countering Corruption as amended by the Obligation of Organizations to Undertake Anti-Corruption Measures • Chinese Anti-Unfair Competition Law and Criminal Bribery Laws • New Brazilian Law permits enforcement from all levels • and many, many others… all call for a unified global policy prohibiting commercial and public bribery May 20, 2014
  3. 3. Two Basic Models for Anti-Corruption Legislation • The North American Model (US, Mexico and Canada) focus on Public Corruption and Public Officials • Aims to prevent corporations and individuals from improper public influence • Penalizes the act of bribing public officials, not bribery generally • Encourages compliance through risk of liability and prosecutorial discretion • The UK Model Prohibits All Bribery regardless of who is bribed • Crime to give or receive • Aims to penalize efforts to undermine trust (duties of good faith or fair dealing) • Creates new corporate crime of failing to prevent bribery; imposes duty to control acts of bribery (accepting or receiving) by employees 3 May 20, 2014
  4. 4. 4 The Foreign Corrupt Practices Act Governs: • Any publicly traded company registered in the United States or its agents • Any United States Person, including citizens, residents, or “domestic concerns” • Any “foreign national or business” acting or causing actions within the United States Prohibits Bribery of Foreign Officials: • Payment of “anything of value” (directly or through a third party) • To a “foreign official,” foreign political party, or candidate for office, including officials of state-owned businesses • With a “corrupt intent” to influence a government decision, obtain business, or obtain an improper advantage Books and Records: • Publicly Traded Companies must maintain accurate books that reflect all transactions • Publicly Traded Companies must have internal accounting controls to ensure all transactions and dispositions are recorded • It is a crime to circumvent such controls Penalty: Up to 5 years imprisonment, fines for individuals; entities $2M to $25M fine per violation, disgorgement & debarment The SEC investigates compliance with the FCPA, provides civil enforcement led by a FCPA unit headquartered in Washington and expanding across the nation The Department of Justice prosecutes criminal violations of the FCPA through its Fraud Section and 94 US Attorney's Offices 18 U.S.C. §§ 78dd-1, et seq. May 20, 2014
  5. 5. 5 The Anti-Bribery Provision: (global reach, limited connection to US required) •Prosecutions can be brought against: • U.S. companies, both public and private • Most non-U.S. subsidiaries of U.S. companies • U.S. citizens, persons in the US, and resident aliens • Third parties or employees of any nationality acting for a U.S. company • Third parties or employees of any nationality who cause an act in the U.S. in furtherance of a bribe to a non-U.S. official • Foreign issuers listed on U.S. stock exchanges May 20, 2014
  6. 6. 6 The Anti-Bribery Provision: • Prohibits, directly or indirectly, giving or offering anything of value to a foreign official for the purpose of influencing a decision • Must have intent to “corruptly” influence a decision or obtain an improper business advantage • Ignorance is not bliss • Beware of liability for third-party conduct • Offer need not be accepted • Government need not be your customer May 20, 2014
  7. 7. 7 Broad Definition of “Foreign Official” • Foreign officials include officers and employees of: • All branches of a non-U.S. government • All non-U.S. government entities and instrumentalities • Non-U.S. government-owned or government-controlled businesses, such as airlines, hospitals, or oil companies • Public international organizations • Any person acting in an official capacity • Also governs payments to: • Non-U.S. political parties and party officials • Candidates for non-U.S. public office (It does not matter whether the foreign official is paid or unpaid or holds an “official” state post) May 20, 2014
  8. 8. 8 The FCPA: Accounting Provisions • Applies to all U.S. and foreign companies with registered securities and companies that file reports with the SEC • Creates a basis for an “aiding and abetting theory” of liability • Imposes duty to maintain accurate books and records • Must include reasonable detail • Must accurately and fairly reflect nature of transactions • Must accurately record disposition of assets • No clear distinction • But there is no requirement that a books and records charge implicates bribery • And the definition of books and records is fuzzy May 20, 2014
  9. 9. 9 The FCPA: Accounting Provisions • Requirements (cont’d) • Implement a system of internal controls that: • Prevents improper payments • Ensures that transactions are executed with management's authorization • Ensures that assets are recorded in a manner that permits preparation of accurate financial statements • Conduct periodic audits at reasonable intervals • The audits should ensure financial accountability • If discrepancies in the books are found, they must be researched to determine the cause • Something to consider for those thinking about going public or positioning themselves for acquisition or investment May 20, 2014
  10. 10. Canada's Corruption of Foreign Public Officials Act • Updated in 2013 • Prohibits bribery of foreign officials like FCPA • Added a new "books and records" offense comparable to FCPA • Prohibits manipulating or falsifying accounting records or concealing bribery but requires purpose to bribe a foreign official • Reaches all organizations • public traded or privately owned • for profit or not-for-profit • Imposes substantial penalties (14 years) • Investigations and prosecutions are up 10 May 20, 2014
  11. 11. 11 FCPA Penalties: For the Company • Anti-Bribery: • Criminal: up to USD $2M fine (per violation) and/or restitution • Civil: USD $16,000 fine per violation (for public companies) • Accounting Provisions: • Criminal: up to USD $25M fine (per violation) and/or restitution • Civil: gross amount of pecuniary gain or up to USD $725k per violation • Important Additional Potential Harm: Debarment from doing business with the government or specific agencies Export licenses revoked or denied Disgorgement of profits Alternative Fines Act May 20, 2014
  12. 12. 12 FCPA Penalties: For the Individual • Anti-Bribery: • Criminal: Up to 5 years in prison and up to a $250k fine (per violation) plus restitution • Civil: $16k per violation • Accounting Provisions: • Criminal: 20 years in prison, up to $5m fine (per violation), and restitution • Civil: gross amount of pecuniary gain or up to $150k per violation • Important additional considerations: • “Issuers” are prohibited from paying criminal and civil fines that may be imposed on an officer, director, employee, agent, or stockholder. • Foreign nationals may face extradition to the U.S. and/or seizure of personal assets. May 20, 2014
  13. 13. 13 Let me be clear, prosecuting individuals is a cornerstone of our enforcement strategy because, as long as it remains a tactic, paying large monetary penalties cannot be viewed by the business community as merely "the cost of doing business." The risk of heading to prison for bribery is real, from the boardroom to the warehouse. United States Attorney General Eric Holder, OECD Address 2010 May 20, 2014
  14. 14. 14 UK Bribery Act A Broader Definition of Bribery • Governs Public and Private Sectors, no “government official” limitation (but stand alone foreign official provision included with lesser threshold) • Giving or Receiving Bribe − in exchange for (intended to induce) improper performance − breaching “good faith,” “impartiality,” or a “position of trust” − Jurisdiction over any acts in UK, or any acts in the world by UK entities, citizens or residents • No Facilitation Payments Exception May 20, 2014
  15. 15. 15 Travel Act Permits US Prosecution of Commercial Bribery • Prohibits “traveling” (including use of mail and wires) to promote, manage or facilitate “unlawful activity,” including violation of state commercial bribery laws • US v. Ott 2008 Prosecution included Travel Act Charges based on New Jersey Commercial Bribery Statute • Control Components, Inc. 2009 Prosecution included Travel Act Charges based on California’s Commercial Bribery Statute • Nexus Technologies 2010 Prosecution included Travel Act Charges based on Pennsylvania's Commercial Bribery Statue • Effective compliance should pursue all forms of corruption, public or private. Each influences the other May 20, 2014
  16. 16. 16 After considering all the available facts and circumstances, including that Morgan Stanley constructed and maintained a system of internal controls, which provided reasonable assurances that its employees were not bribing government officials, the Department of Justice declined to bring any enforcement action against Morgan Stanley. DOJ Press Release 2012 Regarding United States v. Peterson May 20, 2014
  17. 17. 17 Compliance Works, DOJ Has Declined Prosecutions • United States v. Peterson (2012) • Corruption scheme by Peterson, US citizen serving as director in China • Peterson sentenced to prison and significant fines and disgorgement of $4M • Acted as an agent of Morgan Stanley but it was also victim • DOJ did not bring any enforcement action against Morgan Stanley • Extensive compliance program, documentation, and training key to government’s decision not to charge Morgan Stanley • In Re Ralph Lauren (2013) • Bribes paid by manager RL subsidiary to avoid duties and inspections • Self reported, investigated, employees made available to DOJ, training • Non-prosecution agreement, $882,000 penalty plus $734,846 disgorgement, SEC resolution, and dramatically enhanced compliance and auditing functions • Risk of enforcement continues, extensive oversight and supervision ongoing May 20, 2014
  18. 18. But Watch those books and records…. • US Prosecutors use the books and records provisions way outside of a typical bribery investigation • United States v. Kovzan • United States v. Lake • Enron Scandal Remember it is not just Public Corruption… (in the UK, the US, and elsewhere) And Don't Forget that Compliance is a Defense… and a Potential Criminal Offense… Build One Solution for the One Problem, Corruption 18 May 20, 2014
  19. 19. © 2014 Dentons Dentons is an international legal practice providing client services worldwide through its member firms and affiliates. This publication is not designed to provide legal or other advice and you should not take, or refrain from taking, action based on its content. Please see dentons.com for Legal Notices. Thank you! Max Carr-Howard Dentons US LLP 4520 Main Street, Suite 1100 Kansas City, MO 64111 USA

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