BACC Ohio - FCPA Anti Corruption presentation

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A presentation by the law firm of Taft, Stettinius & Hollister LLP on the Foreign Corrupt Practices Act given to the British American Chamber of Commerce Ohio in January 2013.

Reproduced and published by kind permission of Taft, Stettinius & Hollister LLP

For more information, please visit www.baccohio.org

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BACC Ohio - FCPA Anti Corruption presentation

  1. 1. Compliance with the Foreign Corrupt Practices Act& International Anti-Corruption Laws in the Era of Enforcement Presentation to the British-American Chamber of Commerce, Ohio Chapter ▪ Friday, January 25, 2013 ▪ Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  2. 2. Today’s ObjectivesGain a fundamental understanding of:• What constitutes a violation of the FCPA and related international anti-corruption laws• The current enforcement environment and the likely future enforcement environment• The elements of an effective risk-based anti-corruption compliance program• How FCPA violations are typically resolved2 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  3. 3. Overview of the FCPA& Related International Anti-Corruption Laws Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  4. 4. FCPA Overview • Passed in 1977; Amended in 1988 and 1998 • Prohibits corrupt payments to foreign officials to obtain or retain business • Two Parts: 1. Anti-bribery provision, enforced by the DOJ 2. Books and records and internal controls provisions, enforced by the SEC and the DOJ 4 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  5. 5. Anti-Bribery Provision It is unlawful for: 1. A covered person or company 2. To offer, pay, promise to pay, or authorize payment 3. Directly or indirectly 4. Of anything of value 5. To a “foreign official” 6. Corruptly/willfully 7. To obtain or retain business 5 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  6. 6. Books & Records & Internal Controls Provisions • Issuers must: – Make and keep books, records, and accounts • Which, in reasonable detail accurately and fairly reflect the transactions and dispositions of their assets 6 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  7. 7. Books & Records & Internal Controls Provisions • Issuers must: – Have a system of internal accounting controls that provides reasonable assurances that: • Transactions are authorized • Access to assets is authorized • Accurate financial statements are able to be prepared (GAAP standards) 7 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  8. 8. Exception & Affirmative Defenses • Exception – Facilitation Payments • Affirmative Defenses – Payments that are lawful under local law – Expenses related to promotion, demonstration, or explanation of products or services or the execution of contract 8 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  9. 9. UK Bribery Act vs. the FCPA • Broader jurisdictional reach • Prohibits commercial bribery • Prohibits receipt of a bribe • No facilitation payments exception • Offense of failure to prevent bribery – But includes an “adequate procedures” defense with civil balance of probabilities standard 9 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  10. 10. International Proliferation • Other statutes • Voluntary initiatives • Conventions • Increased law enforcement cooperation • IGOs and NGOs 10 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  11. 11. The CurrentEnforcement Environment Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  12. 12. “Vast Mexico Bribery Case Hushed Up by Wal-Mart After Top-Level Struggle” • 8.2% decline in stock value • $19 billion loss in market value • Derivative lawsuits • Reconsideration of global expansion plans12 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  13. 13. Welcome to the Era of Enforcement Reported FCPA Proceedings 90 80 70 60 50 40 30 20 10 0 2004 2005 2006 2007 2008 2009 2010 2011 Ye ars 13 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  14. 14. The Enforcement Era: Corporations & Companies $800 Million $579 Million $365 Million $338 Million 14 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  15. 15. The Enforcement Era: Corporations & Companies • Some commentators have asserted that smaller companies are more likely to be criminally indicted than large ones – For example, Nexus Technologies was found to be a “criminal purpose organization” under Section 8C1.1 of the U.S. Sentencing Guidelines – Judge ordered dissolution of Nexus and turnover of all assets to court 15 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  16. 16. The Enforcement Era: Individuals “The number of individual prosecutions [under the FCPA] has risen – and that’s not an accident. That is quite intentional on the part of the Department. It is our view that to have a credible deterrent effect, people have to go to jail.” –Mark Mendelsohn Former Deputy Chief DOJ Fraud Section 16 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  17. 17. The Future of Enforcement • SEC formed specialized nationwide FCPA enforcement unit in 2010 • FBI has doubled the number of agents in its FCPA unit • Use of aggressive law enforcement techniques (informants, stings, wiretaps) • Proliferation of similar laws in other countries 17 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  18. 18. The Future of Enforcement “I would not say that our vision, the U.S. Department of Justice’s vision, is short. I would say it’s long-term. This is not a project which is going to be five years. It is not a project that’s ten years. This is a project which is thirty years.” – Excerpt from government argument at U.S. v. Naaman (2011) sentencing hearing 18 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  19. 19. Trends • Increase in individual prosecutions – More trials and case law • More whistleblowers (Dodd-Frank bounty provision) • More legal scholarship • Greater international efforts and cooperation (but also raises multi- jurisdictional issues) 19 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  20. 20. Risk-Based Anti-Corruption Compliance Programs Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  21. 21. Risk-Based Program in a Multi-Jurisdictional Environment • US Sentencing • World Bank Integrity Guidelines (§8B2.1.c) Compliance Guidelines (Guideline 3) • UK Ministry of Justice guidance on “Adequate • SEC Procedures” (Principle 3) 21 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  22. 22. Taft’s Anti-Corruption Risk Management Process 22 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  23. 23. IdentifyAnti-Corruption Hazards Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  24. 24. Risks - External Transaction Country Risk Sector Risk Risk Business Business Opportunity Partnership Risk Risk 24 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  25. 25. Transparency International 25 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  26. 26. Risks - Internal Deficient Bonus Unclear Policies Personnel Culture & Procedures Deficient Financial Leadership Tone Controls and Culture 26 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  27. 27. Assess Anti-Corruption Hazards to Determine Anti-Corruption Risks Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  28. 28. Develop Anti-Corruption Controls & MakeAnti-Corruption Risk Decisions Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  29. 29. Control Requirements • Control must remove the hazard or reduce the residual risk to an acceptable level • Feasible – The business unit must have the capability to implement the control • Acceptable – The benefit gained by implementing the control must justify the cost in resources and time (largely subjective) 29 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  30. 30. Overarching Controls Tone/Culture at the Top Supervision & Evaluation Documentation 30 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  31. 31. Prevention Controls - Educational Anti-Corruption Broad Code Policies & of Conduct Standards Anti-Corruption Financial & Compliance Guide Accounting Policies 31 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  32. 32. Prevention Controls – Educational (continued) Anti-Corruption Anti-Corruption Compliance Training Compliance & Certifications Communication Compliance Helpline 32 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  33. 33. Prevention Controls - PhysicalAnti-Corruption Anti-Corruption Third Party/M&A Compliance Compliance Due Diligence Structure Procedures Financial & Anti-CorruptionStandard Contract Accounting Compliance Provisions Procedures Incentives 33 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  34. 34. Detection Controls Routine Testing Investigations & Audits Reporting Incentives Whistleblower & Outlets Protections 34 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  35. 35. Reassess Risk • With controls applied, determine: – Residual risk associated with each hazard, and – Overall residual risk for the business operation • Continue to develop and apply controls and reassess risk until: – Acceptable level of risk is achieved, or – All risks are reduced to a level where benefits outweigh potential cost 35 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  36. 36. ImplementAnti-Corruption Controls Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  37. 37. No “Paper Programs” • Controls are meaningless, and a potential source of liability, if not properly implemented37 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  38. 38. Integration into the Business MISSION Core purpose of the organization VALUES Timeless guiding principles VISION Word picture of the ideal future STRATEGY Your “game plan” for success STRATEGY MAP Graphical presentation of key objectives BALANCED SCORECARD Performance measures, targets and initiatives CASCADING MEASURES Performance measures for all departments/individuals that align with overall goals STRATEGIC MANAGEMENT SYSTEM Linking the Balanced Scorecard to processes such as budgeting, reporting and compensation (http://www.finbrain-itc.be/en/services/balance-scorecard) 38 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  39. 39. Supervise Execution of Anti-Corruption Controls& Evaluate their Effectiveness Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  40. 40. Supervision • Effective supervision ensures: – Controls are implemented, monitored, and remain in place (be mindful of control person liability) – Personnel understand how, when, and where controls are implemented – Complacency, deviation from standards, or violations of policies and other controls are not allowed to threaten success • Provides compliance team and management the situational awareness necessary to anticipate, identify, and assess any new hazards and to develop or modify controls as necessary 40 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  41. 41. Evaluation • Evaluation process occurs during all phases of business operations • Identify any hazards that were not identified as part of the initial assessment, or identify new hazards that evolved during the operation or activity – Any time that personnel, operations, new locations, etc. change the initial risk management analysis, the control measures should be reevaluated 41 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  42. 42. Evaluation • Assess effectiveness in supporting business operational goals and objectives • Assess the implementation, execution, and communication of the controls • Assess accuracy of residual risk and effectiveness of controls in eliminating hazards and controlling risks 42 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  43. 43. Disclosure& Resolution Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  44. 44. Disclosure Decision Receive Do Not Disclose Notice Disclose from Gov’t 44 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  45. 45. Possible Outcomes Gov’t Gov’t Gov’t Never Discovers Declination NPA/DPA Violation Guilty Plea/ Ancillary Settlement Issues or Trial 45 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com
  46. 46. Questions? Michael Wager mwager@taftlaw.com (216) 706-394046 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com

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