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FCPA Summit Houston


Tom Fox gives an excellent overview of the FCPA citing recent cases and lessons to be learned from DPAs and NPAs

Tom Fox gives an excellent overview of the FCPA citing recent cases and lessons to be learned from DPAs and NPAs

Published in Business , Technology
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  • 1. ContactWorldCompliance FCPA Summit 2011 HoustonAddressing Real World Problems with Real World Solutions Ryan Morgan Direct: +1 305.579.2298 Ext. 262 Richard L. Cassin Michael Volkov Direct: (202) 263-3288 Cell: (240) 505-1992
  • 2. Are New Ethical Obligations Created?FCPA Compliance Program Best Practices: Lessons Learned from Recent Deferred Prosecution Agreements © Thomas R. Fox / PC All Right Reserved
  • 3. Presenter and Contact Information• Thomas R. Fox ph: 832-744-0264• Follow me at• Follow my blog at © Thomas R. Fox / PC
  • 4. Legal Disclaimer• The views stated herein are solely that of the presenter.• Everything in this presentation is a generalization and is subject to numerous exceptions. © Thomas R. Fox / PC
  • 5. What this presentation will cover?• Overview• Panalpina Settlements-Vendors• RAE Systems-Joint Ventures• Alcatel-Lucent, Maxwell Technologies and Tyson Foods- Risk Assessment• Johnson and Johnson-Self-Disclosure and Enhanced Compliance Program• Tenaris-Ongoing Reviews and Assessments © Thomas R. Fox / PC
  • 6. Panalpina Settlements © Thomas R. Fox / PC
  • 7. Best Practices Compliance Policy• 1. Code of Conduct• 2. Tone at the Top• 3. Anti-Corruption Policies and Procedures• 4. Use of Risk Assessment• 5. Annual Review• 6. Senior Management Oversight and Reporting• 7. Internal Controls• 8. Training• 9. Ongoing Advice and Guidance• 10. Discipline• 11. Use of Agents and Other Business Partners• 12. Contractual Compliance Terms and Conditions• 13. Ongoing Assessment © Thomas R. Fox / PC
  • 8. Foreign Business Partners• Compliance Policies Apply• Training• Ongoing Advice and Guidance• Compliance Terms and Conditions in all Contracts © Thomas R. Fox / PC
  • 9. Use of Agents and Other Business Partners• To the extent that the use of agents and business partners is permitted at all by the Company, it should institute appropriate due diligence and compliance requirements pertaining to the retention and oversight of all agents and business partners, including:• a. Properly documented risk-based due diligence pertaining to the hiring and appropriate and regular oversight of agents and business partners;• b. Informing agents and business partners of the Companys commitment to abiding by laws on the prohibitions against foreign bribery, and of the Companys ethics and compliance standards and procedures and other measures for preventing and detecting such bribery; and• c. Seeking a reciprocal commitment from agents and business partners. © Thomas R. Fox / PC
  • 10. RAE SystemsJoint Ventures © Thomas R. Fox / PC
  • 11. Joint Venture-KLH (2004)• 2004- RAE-KLH, Limited (KLH) was originally owned 64% by RAE.• 2006- RAE increased its ownership interest to 96%.• DOJ and “troubling findings”-sales sets pricing, no management oversight• Internal RAE documents “how much [FCPA] risk we are taking.”• “If you want them to be aggressive and grow business per set goals, they will do”.• These purposes included the “corrupt giving of gifts and paying for entertainment, as well as direct and indirect payment, to customers”. © Thomas R. Fox / PC
  • 12. Joint Venture-Fushun(2006)1. No pre-acquisition due diligenceconducted.2. Gifts made to family members ofChinese governmental officials; including“jade, fur coats, kitchen appliances,business suits and high-priced liquor.”.3. Consulting contracts given to Chinesegovernmental officials. © Thomas R. Fox / PC
  • 13. RAE Failed to Implement Internal Controls• 1. Transactions were not executed in accordance with managements general or specific authorization;• 2. Transactions were not recorded as necessary to (a) permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and (b) maintain accountability for assets;• 3. Access to assets were not permitted in accordance with managements general or specific authorization; and• 4. The recorded accountability for assets was not compared with the existing assets at reasonable intervals, and appropriate action taken with respect to any differences. © Thomas R. Fox / PC
  • 14. Actions Leading to NPADOJ noted “…non-prosecution agreement based, inpart, on the following factors: (a) RAE Systemsstimely, voluntary, and complete disclosure of the factsdescribed in Appendix A; (b) RAE Systemssthorough, real-time cooperation with the Departmentand the U.S. Securities and Exchange Commission("SEC"); (c) the extensive remedial efforts alreadyundertaken and to be undertaken by RAE Systems;and (d) RAE Systemss commitment to submit periodicmonitoring reports to the Department.” © Thomas R. Fox / PC
  • 15. Alcatel-Lucent, Maxwell Technologies and Tyson Foods Risk Assessments © Thomas R. Fox / PC
  • 16. Alcatel-Lucent• Background Facts 1. World Wide Bribery Scheme 2. Extensive Use of Agents to Funnel Payments 3. Charged with Books and Record Violations Only• Fine and Penalty 1. $92MM to DOJ 2. $45MM to SEC 3. Lack of Reduction for Cooperation-$20MM to $10MM cost? © Thomas R. Fox / PC
  • 17. Maxwell Technologies• Background Facts 1. Swiss subsidiary of Maxwell paid at least $2.5 million in bribes from 2002 through May 2009 for contracts that generated more than $15 million in revenues. 2. Maxwell executive approved sales contracts with the Chinese state- owned entities knowing that the purchase orders were inflated by 20% to cover the bribes. 3. Company knowingly falsified book and records to hide payments• Fine and Penalty 1. $8MM to DOJ 2. $6.3MM to SEC 3. Criminal Fine Range-$10.5MM to $21MM 4. Payment Schedule over 24 months © Thomas R. Fox / PC
  • 18. Tyson Foods• Background Facts 1. Payments for Non-Existent Work 2. Payments to Wives of Federal Inspectors 3. Home Office Knowledge and Complicity• Fine and Penalty 1. $4MM to DOJ 2. $1.2MM to SEC 3. Criminal Fine Range-$5.4MM to $10.8MM © Thomas R. Fox / PC
  • 19. Risk Assessment1. Geography2. Interaction with types and levels of Governments.3. Industrial Sector of Operations4. Involvement with JVs5. Licenses and Permits in Operations6. Degree of Government Oversight7. Customs and Immigration © Thomas R. Fox / PC
  • 20. Johnson and Johnson• The Facts Bribes to doctors in Greece, Poland and Romania Using sham contracts, offshore companies and slush funds Violation of Oil for Food © Thomas R. Fox / PC
  • 21. Johnson and Johnson• Fines and Penalties $21.4 MM Criminal Penalty to DOJ $48.6 MM Disgorgement and Civil Penalty to SEC £4.8 ($7.9)MM to SFO Total=approximately $77MM © Thomas R. Fox / PC
  • 22. Johnson and Johnson• Reductions and Credits J&J “voluntarily and timely disclosed” misconduct Self-disclosure, cooperation and acceptance led to overall reduction in Culpability Score of -5 Information on other drug companies? Are new or different ethical obligations created for in- house counsel © Thomas R. Fox / PC
  • 23. Enhanced Compliance Obligations• A. Compliance Department - A senior executive will serve as the Chief Compliance Officer (CCO) and shall report to the Audit Committee of the Board. There shall be heads of compliance within each business sector and corporate function. There shall be a Global Compliance Leadership Team which reports to the CCO.• B. Gifts, Hospitality and Travel - Gifts are limited to those in “modest” value and appropriate under the circumstances. Hospitality and travel is limited to reasonably priced meals, accommodations and incidental expenses and should be a part of education programs, training, business meetings or conferences. Hospitality and travel are limited to the officials not others.• C. Complaints and Reports - In addition to maintaining a mechanism for making reports, the company shall create a “Sensitive Issue Triage Committee” to review and respond to any such FCPA issues as may arise.• D. Risk Assessments and Audits - The company will conduct risk assessment in markets where it has customers who are foreign governments.. © Thomas R. Fox / PC
  • 24. Enhanced Compliance Obligations• E. Acquisitions - To the extent possible, conduct a pre-acquisition FCPA audit of any acquisition target and after acquisition a full FCPA audit within 18 months and training of all relevant personnel and business representatives within 12 months of acquisition.• F. Relationships with Third Parties• G. Training - Annual training to all directors, officers and employees who could “present corruption risk” to the company. The company shall provide enhanced and more in-depth training to those involved in company sponsored FCPA audits or those on the company acquisition team. Last, the company shall provide training to “relevant third parties acting on the companies behalf” at least every three years.• H. Annual Certifications - The company shall implement a system of certifications from “each of J&J’s corporate-level functions, divisions, and business units in each foreign country confirming that their local standard operating procedures adequately implement J&J’s anticorruption policies and procedures, including training requirements, and that they are not aware of any FCPA or other corruption issues that have not already been reported to corporate compliance.” © Thomas R. Fox / PC
  • 25. Third Parties-Due Diligence9. J&J will conduct due diligence reviews of salesintermediaries, including agents, consultants, representatives,distributors, and joint venture partners. At a minimum, suchduediligence shall include:a. A review of the qualifications and business reputation ofthe sales intermediaries;b. A rationale for the use of the sales intermediary; andc. A review of FCPA risk areas. © Thomas R. Fox / PC
  • 26. Third Parties-Due Diligence10. Such due diligence will be conducted by local businessesand reviewed by local healthcare compliance officers. Newintermediaries that have not worked for the company prior tothe date of this agreement, or where due diligence raises anyred flags, shall be reviewed by a regional compliance officer withspecific knowledge of and responsibility for anticorruption duediligence of sales intermediaries. Due diligence will beconducted prior to retention of any new agent, consultant,representative, distributor, or joint venture partner and for allsuch intermediaries will be updated no less than once everythree years. © Thomas R. Fox / PC
  • 27. Third Parties-Contract T&C’s11. Where necessary and appropriate and where permitted byapplicable law, J&J shall include standard provisions designed to preventviolations of the FCPA and other applicable anticorruption laws andregulations in agreements, contracts, grants, and renewals thereof withagents, distributors, and business partners, including:a. Anticorruption representations and undertakings relating tocompliance with the anticorruption laws and regulations;b. Rights to conduct audits of the books and records of the agent,distributor, or businesspartner that are related to their business with J&J; andc. Rights to terminate the agent, distributor, or business partner as aresult of any breach of anticorruption laws and regulations orrepresentations and undertakings relating to such anti-corruption laws andregulations. © Thomas R. Fox / PC
  • 28. Tenaris• First DPA issued by the SEC• SEC shift to more aggressive enforcement by the agency.• "This is a potential game-changer for the division of enforcement.• Tenaris two-year deferred prosecution agreement requires it to review and update its code of conduct beginning in February next year.• Directors, officers, and management-level employees have to certify compliance with the code of conduct starting now.• And the company has to provide "effective training" to most management employees and related staff. © Thomas R. Fox / PC
  • 29. DPA FACTORS1. Timely, voluntary and complete disclosure2. Extensive, real time cooperation with DOJ and SEC3. Voluntary, investigation of company operations onworld wide basis with full disclosure to DOJ/SEC4. Remedial efforts of company, including voluntaryenhancements to compliance program5. Commitment going forward to enhanced complianceprogram © Thomas R. Fox / PC
  • 30. Copies of Power Point Presentation or DPAs• Contact me via email for copy of article this presentation is based upon. © Thomas R. Fox / PC
  • 31. Are New Ethical Obligations Created?Questions? © Thomas R. Fox / PC
  • 32. Barry Vitou & Richard Kovalevsky QC The Bribery Act Uncut