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FCPA Panel - Directors and Officers Conference - 2011
 

FCPA Panel - Directors and Officers Conference - 2011

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    FCPA Panel - Directors and Officers Conference - 2011 FCPA Panel - Directors and Officers Conference - 2011 Presentation Transcript

    • Foreign Corrupt Practices Act – Yes, This is Something Directors and Officers Need to Brush Up On! Summit 2011 Directors & Officers Training Conference December 1, 2011
    • This is What Your Business Sees 1© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • This is What the Prosecutor Sees 2© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • Todays Discussion Topics 3  What is the Foreign Corrupt Practices Act?  FCPA Basics  Hot Issues in FCPA Compliance  Monitoring Considerations and Best Practices© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • FCPA – Overall Summary 4 ANTI-BRIBERY BOOKS & RECORDS PROVISIONS PROVISIONS Prohibits bribery of Requires SEC-registered foreign government or or reporting issuers to political officials for the make and maintain purpose of obtaining or accurate books and retaining business or records and to implement securing any improper adequate internal business advantage accounting controls© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • What is the Foreign Corrupt Practices Act? 5  An anti-bribery statute • Federal statute passed by post-Watergate Congress in 1977 to prohibit bribery of foreign government officials for the purpose of obtaining or retaining business  DOJ and SEC have jurisdiction; either or both may investigate and charge© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • Continued Robust Enforcement 6 Department of Justice – Enforcement Action Overview Number of DOJ Enforcement Actions 32 30 21 18 8 5 5 4 2004 2005 2006 2007 2008 2009 2010 As of Oct 2011© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • Headline Risk 7 Former Officer and Director of a Halliburton Subsidiary Pleaded Guilty to Foreign Bribery and Kickback Charges Sept. 3, 2008 (DOJ) - WASHINGTON – Albert Stanley pleaded guilty to conspiring to violate the Foreign Corrupt Practices Act (FCPA) by participating in a decade-long scheme to bribe Nigerian government officials to obtain engineering, procurement and construction (EPC) contracts. The EPC contracts were valued at more than $6 billion. Stanley admitted that he authorized the hiring of two agents to pay bribes to a range of Nigerian government officials to assist the joint venture in obtaining contracts. Stanley also admitted that, at crucial junctures before the award of the contracts, he and others met with three successive former holders of a top-level office in the executive branch of the Nigerian government to ask the office holder to designate a representative with whom the joint venture should negotiate bribes to Nigerian government officials. The joint venture paid approximately $132 million to one consulting company and more than $50 million to the other during the course of the bribery scheme. Stanley admitted that he had intended for the agents fees to be used, in part, for bribes to Nigerian government officials. In a related civil action, the Securities and Exchange Commission (SEC) today charged Stanley with violating the anti-bribery provisions of the FCPA and related provisions of the federal securities laws. On the two conspiracy counts, Stanley faces a maximum penalty of 10 years in prison and a $500,000 fine. Under his plea agreement, which the court accepted at todays guilty plea hearing, Stanley faces a sentence of seven years in prison and the payment of $10.8 million in restitution. A sentencing date has not been set.© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • Headline Risk (continued) 8 Willbros. Group Inc. Enters Deferred Prosecution Agreement and Agrees to Pay $22 Million Penalty for FCPA Violations May 14, 2008 (DOJ) - WASHINGTON – Willbros Group Inc. (Willbros Group), a publicly-traded company that provides construction, engineering and other services in the oil and gas industry, and Willbros International Inc. (Willbros International), the wholly owned subsidiary through which it conducts international operations, have agreed to pay a $22 million criminal penalty in connection with corrupt payments to Nigerian and Ecuadoran government officials in violation of the Foreign Corrupt Practices Act (FCPA). In a related matter, Willbros Group reached a settlement today with the Securities and Exchange Commission (SEC) in which the company agreed to pay $10.3 million in disgorgement of all profits and pre-judgment interest in connection with the corrupt payments to the Nigerian government officials. In total, Willbros agreed to pay more than $32 million in penalties, disgorgement and interest in the criminal and SEC cases. In recognition of Willbros thorough review of the improper payments, the companies exemplary cooperation, the companies implementation of enhanced compliance policies and procedures, and the companies engagement of an independent corporate monitor, the Department has agreed to defer prosecution of these companies for three years. If Willbros Group and Willbros International abide by the terms of the agreement, the Department will dismiss the criminal information when the term of the agreement ends.© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • FCPA BasicsDavid Rudd, Partner, Ballard Spahr, LLP
    • FCPA Basics: 10Anti-Bribery Provision It is unlawful for:  an issuer, domestic concern, or anyone acting within the jurisdiction of the United States  with "corrupt intent"  to directly or indirectly  offer, pay, promise to pay, or authorize payment  of "anything of value"  to a "foreign official"  for the purpose of obtaining or retaining or securing any improper advantage© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • FCPA Basics: 11Who is Covered  U.S. citizens and nationals  Businesses organized in the United States (including overseas branches)  Officers, directors, employees, agents and stockholders acting on behalf of such businesses  U.S. residents  Businesses organized outside the U.S. with principal place of business in the U.S.  Non-U.S. issuers of U.S. securities© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • FCPA Basics: 12Impermissible Actions Some act in furtherance of an: • Offer • Gift Of anything of value • Promise • Authorization of an offer, gift or promise© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • FCPA Basics: 13"Corrupt" Purpose  Knowledge  Deliberate recklessness  Includes willful blindness© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • FCPA Basics: 14To a Foreign Government Official  Officials at all levels of government (national, regional, etc.)  Officials of public international organizations  Political parties, party officials and candidates  Officers and employees of state-owned or controlled companies  Any agent or other intermediary acting in an official capacity on behalf of any of the foregoing© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • FCPA Basics: 15To Gain an Unfair Business Advantage To violate the FCPA, the payment or gift must be to: • Influence an official act or decision of a foreign official or • Induce the official to use influence or • Secure an improper advantage© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • FCPA Basics: 16Exception The FCPA allows facilitating or "grease" payments to foreign government officials for routine, non-discretionary actions, such as: • Obtaining permits or licenses to qualify to do business • Processing governmental papers (e.g., visas) • Providing police protection • Providing mail delivery, phone service, power and water supply, loading and unloading cargo • Scheduling inspections associated with contract performance or transit of goods across country© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • FCPA Basics: 17Books and Records Provision The FCPA also contains internal accounting control and record keeping requirements • Objective is to ensure that a company maintains reasonable control over its assets and all transactions involving its assets • Payments made in connection with foreign sales transactions, including T&E, payroll, and commissions, must be accurately recorded • Often, the internal controls and books and records requirements are where the DOJ or SEC have the strongest case for enforcement© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • Hot IssuesSusan Muck, Partner, Fenwick & West
    • Hot Issues In FCPA Compliance: Third-Parties 19  Illegal if: • Made under circumstances that indicate payment would be passed along to a prohibited recipient • Intended to reach a prohibited recipient  Distinguish between payments for services rendered by the intermediary vs. those intended to reach government officials  The SEC has noted that a payment is suspicious if it is "substantially in excess of the going rates" for services rendered© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • Hot Issues In FCPA Compliance: "Red Flags" 20  "Red Flags" are situations or circumstances in which extra scrutiny should be applied  If employees or consultants have knowledge of improper or unethical business conduct, the employer may be held responsible for the conduct  Knowledge includes ignoring "Red Flags" or information or circumstances that a prudent person would investigate  "Red Flags" do not necessarily mean that business cannot be conducted  Making payments in a country with a history of FCPA violations or corruption (some Middle Eastern, African and Asian countries)  Making payments to persons or entities in third world countries  Customer suggests bid be made through a specific representative© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • Hot Issues In FCPA Compliance: "Red Flags" 21 A proposed representative or distributor that: • Has reputation for or been accused of improper business practices • Has influence on buying decision • Has relationship with the government or a government official • Asks for unusually large commission, profit or other payments compared with the going rate • Requests unusual bonuses for operational managers or others • Insists on receiving commission or other payment before award decision • Requests that commissions or other payments be made in an unusual manner • Refuses to make representations about FCPA compliance© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • Hot Issues In FCPA Compliance: Gifts 22 Gift: Bribe: Modest / nominal in cost Extravagant Routinely given Extraordinary Not money (e.g., food or flowers) Money (anytime) Items: Items: Small Large (color TV, refrigerator) With company logo Specified by recipient Not related to order Related to an order To foster goodwill generally To get an order or reward placement of an order© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • Hot Issues In FCPA Compliance: Entertainment 23 Entertainment: Bribe: Very reasonable Extravagant Customary (e.g., golf or dinner) Not customary (e.g., all expense trip to resort) In your presence You are not present Decision maker and primary Extra "troops" (other individuals) participants To foster goodwill generally To get an order or reward placement of an order© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • Hot Issues In FCPA Compliance: Travel 24 Business Travel: Bribe: Reasonable accommodations Extravagant accommodations Narrowly limited to business Unrelated stops on itinerary not purpose (e.g., product related to business purpose demonstration or testing) (e.g., trip includes stop at Orlando Disney World) Length limited to business Extra days for vacationing or purpose sightseeing Officials Only Many family members© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • What Does FCPA Non-Compliance Cost You? 25 Criminal  Companies fined $2 million per violation  Individuals fined $100,000 per violation and/or five (5) years in prison  Fines may be higher under Alternative Fines Act • Up to twice the benefit sought by the action  Company cannot pay fines on employees behalf Civil  $10,000 per violation for companies and individuals  In SEC enforcement action, court may impose an additional fine not to exceed the greater of: • Gross amount of the pecuniary gain or • Specified dollar limitation based on the egregiousness of the violation – $5,000 to $100,000 for a "natural person" – $50,000 to $500,000 for any other person  Attorney General or SEC may exercise civil injuncture and subpoena power Source: Lay-Persons Guide to FCPA – US Department of Justice© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • Other Hot Issues: UK Bribery Act v. FCPA 26 Covers bribery by an associated person of private persons (as well as an associated person of governmental persons) Covers bribes paid to associated persons of a company Associated persons defined as anyone who performs services for or on behalf of the company Does not require that the payments are made with corrupt intent No exception for facilitation payments Commercial organizations strictly liable for the offense of “failure to prevent bribery” • Affirmative defense for organizations based on “adequate procedures” • No affirmative defense for bona fide reasonable expenditure Violation may cause enforcement under Proceeds of Crime Act 2002 • Proceeds derived from bribery may be considered money laundering • Directors and company may be liable
    • Monitoring Considerations Jamon Jarvis, General Counsel Nature’s Sunshine ProductsJohn Springer, Assistant Corporate Controller Cadence Design Systems
    • Best Practices 28  Know your business partners, agents and consultants • Are they state-owned? • Are any employees government officials?  Know your exposure to or contacts with foreign government officials (including employees of state-owned businesses)  Understand the services to be provided and how the payments will be made  Conduct a "red flag" analysis© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • FCPA Compliance Audit Sample Scope 29  Policies and procedures  Training • FCPA  Foreign bank accounts and bank reconciliations • Code of conduct / business ethics  Payments and gifts • Affirmation / confirmation • Distributors, agents and  Distributor, agent / sub-agent and representatives representative due diligence • Foreign government officials • Due diligence questionnaire • Travel and expenses • Completed background check • Consulting fees • Agreements  Foreign financial statements • Affirmation / confirmation  Petty cash funds and disbursements • Sponsor form • Bank information© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • Business Partner Due Diligence Analysis 30 Factors to consider in evaluating FCPA risk: • Territorys reputation for corruption • Reasonableness and method of payment • Industrys reputation for corruption • Ensure compliance with local law • Competence of business partner • Integrate FCPA safeguards into the • Integrity of business partner contracts • Business partners relationship to • Continuing oversight of business foreign government officials partners activities • Certification of compliance • Maintenance of accurate books and records • Consistent standards© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • Lessons Learned 31  Understand the context in which you do business locally • Compliance programs that are successful in the U.S. may experience challenges in foreign subsidiaries  Internal control should be proactive, not reactive • Devise and maintain internal control  Due diligence and oversight of agents  Due diligence on potential business partners  Reinforce compliance efforts in high-risk countries  Business culture – set tone at the top about what is acceptable and what is not  Competition – highly competitive market creates incentives for bribery – be alert for these situations  Accounting controls – document payments and other key processes© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • FCPA – Key Part of Risk Management 32 Inappropriate stock transfers Inappropriate Use of Customer Data Concealed Liabilities Skimming Employee Theft Kickbacks Fictitious Sales Bribery Tax Schemes Ghost Employees Conflicts of Interest IP Theft Fraudulent Financial Reporting Fictitious Revenues Payroll schemes Inventory Theft Fraudulent Invoicing Scrap Theft Corruption Misleading Revenue Bookings Misdirection of Funds© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • Ongoing Risk Management & Key “Take-Aways” Jason Roberts, Director, Protiviti
    • What You Did Five Years Ago 34is Not Enough Today  Review FCPA policies and procedures  Review FCPA training program  Review current agents / consultants and due diligence files for each  Review last FCPA audit results  Conduct yearly audits and compliance reviews© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • FCPA Risk Monitoring 35  Follow-up on non-compliance with certification / affirmation of Code and related training  FCPA compliance audits  FCPA risk assessment considerations  Extended "in-country" internal audit procedures  Quarterly review of payments • Agents • Vendors  "Vendor-right-to-audit" clause© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.
    • FCPA – Key "Take-aways" 36  No longer an option for U.S. companies doing business abroad  Liability risks are too great  Costs of investigations are significant  Legal advisers will recommend assurances and due diligence because. .. . • The presence of certifications and comprehensive due diligence will limit the risk of prosecution by the U.S. government • Identifying corruption risks will enable clients to evaluate the true value of the transaction • It is important for the parties to understand and to agree how business will be conducted© 2011 Protiviti Inc. An Equal Opportunity Employer. This document is for your companys internal use only and may not be distributed to any other third party.