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Foreign Corrupt Practices Act Compliance (Series: Corporate & Regulatory Compliance Boot Camp - Part 1)

The Federal Corrupt Practices Act (“FCPA”) prohibits a U.S. company or person from bribing foreign government officials to obtain a business advantage. Along with this seemingly simple restriction comes accounting and record keeping requirements with which companies must comply. The FCPA requires the implementation of a compliance program which addresses FCPA concerns and establishes an FCPA corporate policy. This webinar covers the basics of the FCPA, including an introduction to the regulators, both the SEC and DOJ, and recent communications to the public regarding the FCPA from these regulatory bodies. The standards for a compliance program review is analyzed, including what makes a program current and effective as well as how often the program requires review. The role of a compliance coordinator is discussed, as is record keeping, training, and retaliation. Finally, meals and entertainment, gifts, travel, charitable contributions, and hiring are all discussed with reference to recent government actions and legal decisions.

To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/foreign-corrupt-practices-act-compliance-2021/

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Foreign Corrupt Practices Act Compliance (Series: Corporate & Regulatory Compliance Boot Camp - Part 1)

  1. 1. 1
  2. 2. 2 Practical and entertaining education for attorneys, accountants, business owners and executives, and investors.
  3. 3. Disclaimer The material in this webinar is for informational purposes only. It should not be considered legal, financial or other professional advice. You should consult with an attorney or other appropriate professional to determine what may be best for your individual needs. While Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate, Financial Poise™ makes no guaranty in this regard. 3
  4. 4. Meet the Faculty MODERATOR: Rafael Zahralddin - Armstrong Teasdale LLP PANELISTS: Guillermo Christensen - Ice Miller LLP Corey Lee - Hunton Andrews Kurth, LLP Alex Gonzalez - New Jersey Resources Corporation 5
  5. 5. About This Webinar – Foreign Corrupt Practices Act Compliance The Federal Corrupt Practices Act (―FCPA‖) prohibits a U.S. company or person from bribing foreign government officials to obtain a business advantage. Along with this seemingly simple restriction comes accounting and record keeping requirements with which companies must comply. The FCPA requires the implementation of a compliance program which addresses FCPA concerns and establishes an FCPA corporate policy. This webinar covers the basics of the FCPA, including an introduction to the regulators, both the SEC and DOJ, and recent communications to the public regarding the FCPA from these regulatory bodies. The standards for a compliance program review is analyzed, including what makes a program current and effective as well as how often the program requires review. The role of a compliance coordinator is discussed, as is record keeping, training, and retaliation. Finally, meals and entertainment, gifts, travel, charitable contributions, and hiring are all discussed with reference to recent government actions and legal decisions. 6
  6. 6. About This Series - Corporate & Regulatory Compliance Boot Camp This webinar series covers corporate and regulatory compliance as it relates to procurement and government contracting, the Foreign Corrupt Practices Act, data privacy and social media. The various episodes examine these topics from a company’s perspective, delving into compliance issues that pertain to specific company practices across industries and borders and impact companies of all sizes and types. Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and executives without much background in these areas, yet is of primary value to attorneys, accountants, and other seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that participants will enhance their knowledge of this area whether they attend one, some, or all episodes. 7
  7. 7. Episodes in this Series #1: Procurement & Government Contracting Compliance Premiere date: 2/10/20 #2: Foreign Corrupt Practices Act Compliance Premiere date: 3/10/20 #3: Data Privacy Compliance Premiere date: 4/14/20 8
  8. 8. Episode #2 Foreign Corrupt Practices Act Compliance 9
  9. 9. Foreign Corrupt Practices Act Telia – The Sweden-based telecommunications provider agreed to pay $965 million in a global settlement to resolve violations of the FCPA to win business in Uzbekistan. (9/21/17) Halliburton – The company agreed to pay $29.2 million and a former vice president agreed to pay a $75,000 penalty to settle charges related to payments made to a local company in Angola in the course of winning lucrative oilfield services contracts. (7/27/17) Michael L. Cohen and Vanja Baros – The former Och-Ziff executives were charged with being the driving forces behind a far-reaching bribery scheme that paid tens of millions of dollars in bribes to high-level government officials in Africa. (1/26/17) NOTE: Och-Ziff and other executives settled charges in 2016. 10
  10. 10. Foreign Corrupt Practices Act Orthofix International – The Texas-based medical device company agreed to pay more than $6 million to settle charges that its subsidiary in Brazil used high discounts and improper payments to induce doctors under government employment to use Orthofix products. (1/18/17) SQM - Chilean-based chemical and mining company Sociedad Quimica y Minera de Chile S.A. agreed to pay more than $30 million to resolve parallel civil and criminal cases finding that it violated the FCPA by making improper payments to Chilean political figures and others. (1/13/17) 11
  11. 11. Foreign Corrupt Practices Act Biomet - The Warsaw, Ind.-based medical device manufacturer agreed to pay more than $30 million to resolve SEC and Justice Department investigations into the company's anti-bribery violations in Brazil and Mexico. (1/12/17) Cadbury Limited/Mondelez International - The global snacking business agreed to pay a $13 million penalty for FCPA violations occurring after Mondelez (then Kraft Foods Inc.) acquired Cadbury and its subsidiaries, including one in India that proceeded to make illicit payments to obtain government licenses and approvals for a chocolate factory in Baddi. (1/6/17) Source- https://www.sec.gov/spotlight/fcpa/fcpa-cases.shtml 12
  12. 12. Foreign Corrupt Practices Act • U.S. businesses with foreign contacts • Foreign subsidiaries of U.S. businesses • Select foreign companies and individuals • Catch-All - ―any person‖ who commits bribery on a U.S. Territory 13
  13. 13. Issuers • Issuers are defined as a publicly traded company with 500 or more shareholders and more than $1 million in total assets • Domestic Issuers are responsible for the acts of officers, employees, agents, and other representatives • Domestic Issuers are responsible for subsidiaries, even if they don’t have a 50% ownership interest • FCPA accounting and reporting requirements for Issuers • Issuers have enhanced penalties for non-compliance 14
  14. 14. Domestic Concerns • Any business organized in the United States, U.S. citizen or resident • Domestic Issuers are responsible for the acts of officers, employees, agents, and other representatives • Domestic Issuers are responsible for subsidiaries, even if they don’t have a 50% ownership interest • Domestic Concerns are subject to anti-bribery rules, but not reporting requirements 15
  15. 15. Accounting and Record Keeping for Issuers • Issuers must keep detailed records • FCPA accounting provisions facilitate exposing illegal payments • Records  ―Accurately and Fairly‖ reflect all of the issuer’s transactions and assets  ―Reasonable Detail‖ 16
  16. 16. Bribery of Foreign Officials • Issuers, Domestic Concerns, and their agents or representatives are subject to the FCPA’s anti-bribery rules  U.S. nationals and businesses (including foreign subsidiaries) can not engage in bribery of foreign officials  Foreign nationals and businesses in the U.S. or it's territories can not engage in bribery of foreign officials 17
  17. 17. Business Scenarios with Elevated Risk • Permitting / licensing  E.g., payment to expedite a federal/regional/municipal/local permit to operate a certain type of facility; payment to obtain environmental or construction permit without conforming to all requirements • Government contracts  E.g., payment to win or extend a government contract or to gain an advantage in negotiations with a government customer • Public procurement  E.g., payment to gain an advantage in a tender (disqualify another bidder, influence tender specifications, obtain confidential tender information, etc.) • Customs  E.g., payment to avoid required registration; payment to avoid or lower duties 18
  18. 18. Bribery - Foreign Officials • Foreign Officials – intentionally broad definition  Not limited to public officials in foreign governments  Political parties, their officials, and all candidates for public office  Employees of state-owned or state-controlled corporations (e.g. universities, hospitals, utilities)  Officers and employees of public international organizations (organizations whose employees are treated the same as diplomats; e.g. World Bank, EBRD)  Intermediaries officially acting on behalf of a foreign official  Relatives or dependents of a foreign official • Significant risk in many countries (e.g. China): an employee of a seemingly private enterprise may be an ―official‖ under the FCPA 19
  19. 19. Bribery - Improper Payments • ―Payment‖ – not just money but anything of value • Includes promises, offers, and the authority to make payments in addition to payments that are completed • Foreign official does not have to receive the benefit of the payment • Can’t use a surrogate/intermediary – an indirect payment is a payment 20
  20. 20. Level of Knowledge Required for Payments • Payor doesn’t need to know that a payment is or may be improper • ―Conscious disregard of suspicious circumstances‖ • ―Deliberate ignorance‖ of an illegal payment • ―Corruptly‖ = intent ―to induce the recipient to misuse his official or to influence someone else to do so.‖ • Voluntarily and with ―bad purpose‖ in order to ―obtain or retain business‖ 21
  21. 21. Allowable Payments • Foreign officials requesting or suggesting the bribe does not sanitize the transaction or reduce liability • Extortion payments are not subject to liability under the FCPA  Narrow exception, does not include economic coercion • Payment made with conscious disregard of circumstances suggesting that a foreign official will benefit from it likely violates the FCPA 22
  22. 22. Allowable Payments • Must be carefully exercised as there are narrow exceptions  ―Expedite or to secure the performance of a routine governmental action‖ - ―Grease payments‖ allowed for expediting non-discretionary actions by minor officials  Payments explicitly allowed under the host country’s written laws  Reasonable and bona fide expenditures that are directly related to promotion or demonstration of products or the performance of a government contract are allowed (payments designed to cover travel and lodging incurred by government officials as part of normal business operations 23
  23. 23. Key Risk Area - Third Parties • Indirect payments are improper: e.g., through consultants, sales agents, customs agents, distributors, contractors, lawyers, etc. • Third parties play a role in the majority of all FCPA enforcement actions • Ignorance is not bliss – companies must act upon third-party ―red flags.‖ E.g.: • Red flags are not a violation but warrant further inquiry, particularly depending on the third party’s role and the potential for improper activity 24 1. Shell company / inadequate staff 2. Little experience or insufficient qualifications in its line of work 3. Negative or questionable reputation in its market 4. Uses bank accounts in off-shore havens or unrelated countries 5. Bank accounts in off-shore havens or unrelated countries 6. Vague language in invoices to describe its services 7. An official requested the use of this third party 8. Is owned by or related to an official
  24. 24. Key Risk Area - Improper Payment Types • Travel and Hospitality  E.g., airfare (esp. first-class), hotel stays, expenses, and/or high per-diems, particularly in popular destinations or locations without a business nexus, or for family members even where a business purpose exists • Gifts and Entertainment  E.g., extravagant gift-giving (luxury watches, shopping sprees, computer equipment, etc.), expensive wine-and-dine, or multiple gifts of smaller value • Charitable/political contributions  E.g., donation to a charity associated with a government official’s relative or to a political party, seeking for the official to exercise any authority or influence 25
  25. 25. Enforcement • SEC  Civil suits and enforcement of FCPA’s accounting requirements • DEPARTMENT OF JUSTICE  Criminal prosecution • Agencies work together through referrals and will work together on some cases 26
  26. 26. Disgorgement (SEC Act of 1934) - Telia • Telia Company AB's $965.6 million settlement September 2017 included disgorgement to the SEC of $457 million, the biggest disgorgement ever ordered in an FCPA enforcement action. • Telia won't actually pay the SEC $457 million in disgorgement. • About $40 million of the disgorgement will be satisfied by a forfeiture payment to the DOJ. • Up to $208.5 million will be offset for any confiscation or forfeiture payment Telia makes to Swedish or Dutch prosecutors. • So from the total disgorgement of $457 million ordered by the SEC, subtract $40 million for the DOJ forfeiture, and $208.5 million for the Dutch and Swedish payments. • That leaves disgorgement actually payable to the SEC of $208.5 million, or half of the ordered $457 million. Source http://www.fcpablog.com/blog/2017/9/25/telia-also-tops-our-new-top-ten-disgorgements-list.html 27
  27. 27. Prison Sentences and Yates Memo Top Five Longest FCPA Related Prison Sentences: 1. Joel Esquenazi: 180 months (2011) 2. William Jefferson: 156 months (2009) 3. Charles Paul Edward Jumet: 87 months (2010) 4. Carlos Rodriguez: 84 months (2011) 5. Douglas Murphy: 63 months (2005) Source - http://www.fcpablog.com/blog/2017/9/25/telia-also-tops-our-new-top-ten- disgorgements-list.html 28
  28. 28. Prison Sentences and Yates Memo • Companies will have to turn over information on involved individuals in order to get cooperation credit • All investigations will start with a focus on individuals in a company • Criminal and civil attorneys will work in lockstep on corporate cases, sharing information freely • Senior DOJ attorneys approve protection • Individual actions have to be resolved or have a plan before corporate actions can be resolved • Civil actions will be pursued against culpable individuals, even if they can’t pay a substantial fine 29
  29. 29. Yates Memo Liability • Corporations are responsible for the criminal acts of their employees  Acting in apparent or actual scope of employment and  Intends in part to benefit the company  Even if the actions violate Corporate policy or express corporate order  If the employee is guilty the company is guilty • Corporation’s timely and voluntary disclosure is helpful • Corporation’s remedial actions are helpful • Corporate compliance, existence and effectiveness, also are evaluated • Upjohn – Corporate Miranda 30
  30. 30. Dodd-Frank Act – Private Referrals and Whistleblower Protections • Whistleblowers, including foreign nationals, can apply for monetary rewards based on reporting bribery prohibited under the FCPA. • The Dodd-Frank Wall Street Reform and Consumer Protection Act mandates that the U.S. Securities Exchange Commission (SEC) pay whistleblowers monetary rewards (Ten to thirty percent of the amount recovered) if they provide the U.S. government with information that leads to the successful enforcement of the FCPA. • The Act is applicable even if bribes are paid in a foreign country and the whistleblower is a foreign national. • Anonymity is protected and there are anti-retaliation provisions that provide protection for employees who work in the United States 31
  31. 31. Wildlife Crimes (Case Study on Concurrent Liability with Other Federal and International Compliance) • Wildlife trafficking and related wildlife crimes often involve FCPA violations. • Example, if a publicly traded cargo company bribed an official at a Liberian port so that the company could load ivory (or illegal timber, etc.) onto the ship without the official interfering, this would be a violation of the FCPA. • Whistleblowers worldwide can qualify for monetary rewards when reporting wildlife trafficking, illegal logging and illegal fishing.  The Lacey Act and the Endangered Species Act, direct the Fish and Wildlife Service, the National Marine Fisheries Service and the Departments of Interior, Commerce, Treasury and Agriculture to pay monetary rewards to persons who disclose original information concerning wildlife crimes that results in a successful enforcement action.  Whistleblowers may also qualify for rewards under the Foreign Corrupt Practices Act and the Act to Prevent Pollution from Ships/ Marpol Protocol. 32
  32. 32. Penalties • PUBLICLY TRADED COMPANIES  Barred from doing business with government agencies or contractors  Export licenses suspended or debarred from the Commodity Futures Trading Commission  FCPA can trigger other enforcement actions from a variety of agencies • Willful violations can result in $25 million fines for accounting violations and $2 million for a violation of anti-bribery provisions • Civil penalties of up to $10,000 per violation • Defense costs are substantial 33
  33. 33. SEC FCPA Opinion Procedure • Issuers and Domestic Concerns can obtain an opinion of the Attorney General as to whether specific, prospective, not hypothetical, conduct on firm’s with the Department’s present enforcement policy regarding the anti-bribery provisions of the FCPA. Response is required by 30 days of the receipt of complete information in a request.  Must be submitted in writing  Actual and not hypothetical requirement does not require an executed contract  Only applies to the applicant parties  Requires o Disclosure of all relevant and material information o Authorized by the CEO and signed by a senior officer that has the operational responsibility for the conduct under review o The Justice Department can require the CEO of the applicant and any subsidiaries to also attest to the truth of the submission • Does not excuse the applicant from the accounting requirements. 34
  34. 34. Penalties • Accounting  Willful violations by individuals can be up to $5 million and twenty years in prison for each violation • Anti-bribery  Willful violations by individuals can be up to $100,000 and five years in prison for each violation • Civil penalties can be up to $10,000 per violation • Corporations can not indemnify or pay any fines levied against their employees or agents under the FCPA 35
  35. 35. FCPA Compliance • Any payments to foreign officials must be scrutinized or avoided • Due diligence on foreign partners and surrogates is crucial (including continuous review of books and records) • Contracts must include FCPA compliance provisions, including that a violation is a material breach • Avoid cash payments (harder to track and reduce the ability to make transactions transparent) and keep fees reasonable to avoid making transfers suspect • Codes of conduct, education, reporting protocols, and careful screening of all employees, especially those working abroad 36
  36. 36. About the Faculty 37
  37. 37. About The Faculty Rafael Zahralddin - RZahralddin@atllp.com Rafael Zahralddin-Aravena is a skilled business lawyer and litigator with significant experience advising clients in corporate and commercial litigation, insolvency, distressed M&A, compliance, corporate law and entity formation, corporate governance, commercial transactions, cyber law, regulatory actions and cross- border issues. Rafael represents clients in all aspects of bankruptcy and restructuring and has extensive experience in international commercial law issues, including cross-border insolvency, federal bankruptcy court matters, and assignments for the benefits of creditors and receiverships. Rafael’s international law experience particularly in international commercial transactions brings a unique and nuanced approach to business issues both inside and outside of distressed situations. He has also worked for two decades with early stage companies and venture capitalists and private venture funds as both a transactional lawyer and a corporate litigator. He has assisted businesses in starting, selling, or buying a business, and dealing with employees and contracts, among other operational issues. This experience has been critical in representation of both debtors and creditors committees in chapter 11. Rafael is noted for his problem solving abilities, especially with varied constituencies on official and ad hoc committees, including trade creditors, bondholders, labor unions and other key stakeholders in insolvency matters. 38
  38. 38. Guillermo Christensen – guillermo.christensen@icemiller.com Guillermo Christensen combines 30 years of international work as a CIA intelligence officer and an attorney in the private sector to inform the advice he provides to clients on white collar/government investigations, cybersecurity and national security. A partner in Ice Miller’s Washington DC office, Guillermo has conducted sensitive investigations on FCPA, OFAC and export control matters for clients in high-risk jurisdictions — spanning the Middle East, (Kurdistan/Iraq, Saudi Arabia, Kuwait, UAE, and Egypt); Latin America (Mexico, Venezuela, Colombia, Ecuador, Argentina), Asia and Africa. Guillermo also conducts diligence of third parties for clients, including several in Myanmar, Brunei, Malaysia, China, Chad, Angola, Nigeria. Drawing on his public and private sector international experience, he provides market entry counseling to clients, and designs and implements tailored compliance and ethics programs for small- to large public companies. Guillermo returned to public service in 2010-2011 to serve as the Science and Technology Advisor to the U.S. Mission to the OECD in Paris, France. He is a life member of the Council on Foreign Relations and currently serves on the international advisory board of the Reeves Center at William and Mary. Born in Argentina, Guillermo is active with the Hispanic community and is a 2016 Fellow of the Leadership Council on Legal Diversity. 39 About The Faculty
  39. 39. About The Faculty Corey Lee – leec@HuntonAK.com Corey is a partner in the Miami office of Hunton Andrews Kurth LLP. Corey has experience conducting internal investigations, including investigations related to the Foreign Corrupt Practices Act (FCPA), theft of trade secrets, healthcare fraud, False Claims Act and Racketeer Influenced and Corrupt Organizations Act (RICO). He generally works with financial services, health care, consumer and retail companies. Corey also regularly assists his clients with establishing FCPA compliance programs, and provides FCPA compliance training to employees. Corey also has an active commercial litigation practice, litigating matters arising from information security and data breach incidents, contract disputes, class actions, business torts, securities litigation, product liability litigation, and electronic discovery. 40
  40. 40. About The Faculty Alex Gonzalez – AGonzalez@NJResources.com Alex Gonzalez is Assistant General Counsel at New Jersey Resources Corporation, a publicly traded energy company in its day-to-day operations including: transactions, M&A, securities, finance, information technology, cybersecurity, compliance, investor relations, corporate communications and governance. Prior to joining New Jersey Resources, Alex was an Associate at Dechert LLP and Pepper Hamilton LLP. He clerked for the Honorable Eduardo C. Robreno on the Federal District Court for the Eastern District of Pennsylvania and externed for the Honorable Dolores K. Sloviter on the United States Court of Appeals for the Third Circuit. Alex has received accolades and awards for his work in the legal profession and in the community, including recognition as a Top Lawyer Under 40 by the Hispanic National Bar Association in 2020. Mr. Gonzalez is a 2020 Lead New Jersey Fellow and an Alumni Steering Committee Member of the Rutgers Center for Corporate Law and Governance. Alex received his J.D. from Rutgers School of Law, with honors, in 2007, and his B.A. from Rutgers College in 2004. 41
  41. 41. Questions or Comments? If you have any questions about this webinar that you did not get to ask during the live premiere, or if you are watching this webinar On Demand, please do not hesitate to email us at info@financialpoise.com with any questions or comments you may have. Please include the name of the webinar in your email and we will do our best to provide a timely response. IMPORTANT NOTE: The material in this presentation is for general educational purposes only. It has been prepared primarily for attorneys and accountants for use in the pursuit of their continuing legal education and continuing professional education. 42
  42. 42. About Financial Poise 43 DailyDAC LLC, d/b/a Financial Poise™ provides continuing education to attorneys, accountants, business owners and executives, and investors. It’s websites, webinars, and books provide Plain English, entertaining, explanations about legal, financial, and other subjects of interest to these audiences. Visit us at www.financialpoise.com Our free weekly newsletter, Financial Poise Weekly, updates you on new articles published on our website and Upcoming Webinars you may be interested in. To join our email list, please visit: https://www.financialpoise.com/subscribe/

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The Federal Corrupt Practices Act (“FCPA”) prohibits a U.S. company or person from bribing foreign government officials to obtain a business advantage. Along with this seemingly simple restriction comes accounting and record keeping requirements with which companies must comply. The FCPA requires the implementation of a compliance program which addresses FCPA concerns and establishes an FCPA corporate policy. This webinar covers the basics of the FCPA, including an introduction to the regulators, both the SEC and DOJ, and recent communications to the public regarding the FCPA from these regulatory bodies. The standards for a compliance program review is analyzed, including what makes a program current and effective as well as how often the program requires review. The role of a compliance coordinator is discussed, as is record keeping, training, and retaliation. Finally, meals and entertainment, gifts, travel, charitable contributions, and hiring are all discussed with reference to recent government actions and legal decisions. To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/foreign-corrupt-practices-act-compliance-2021/

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