Foreign Corrupt Practices Act


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Gray's Summary of the Foreign Corrupt Practices Act.

Gray International (Gray) is an international network of public accounting and consulting firms based in the U.S., Hong Kong, China and Europe. Gray was started over 10 years ago in the U.S. (via its predecessor) and took the form of Gray International in 2013 as the result of the networking of multiple independent practices and professionals.

Gray provides international accounting and compliance solutions in the U.S., Americas, Asia and Europe. Gray focuses on U.S. accounting, tax, and governmental compliance for multinational companies, investors, U.S. persons living overseas and foreign investors and companies investing in or moving to the U.S.

Gray also consults on compliance with U.S. laws for businesses and financial institutions overseas such as the Foreign Corrupt Practices Act (FCPA) and the Foreign Account Tax Compliance Act (FATCA), the IRS Offshore Voluntary Disclosure Program, and the Program for Non-Prosecution Agreements or Non-Target letters for Swiss Banks.

Grays principals, partners, and employees have served clients worldwide. Gray has offices in Geneva, Hong Kong, Seattle, Shanghai and plans to open an office in Singapore in late 2013.

Grays U.S. public accounting firm (Gray CPA, PC) is registered with the U.S. Public Company Accounting Oversight Board and is a member of the American Institute of Certified Public Accountants and the Center for Audit Quality.

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Foreign Corrupt Practices Act

  1. 1. U.S. FOREIGN CORRUPT PRACTICES ACT Overview of the FCPA International Accounting & Compliance GENEVA          |          HONG  KONG        |          SEATTLE        |          SHANGHAI        
  2. 2. LEGAL NOTICE IMPORTANT LEGAL INFORMATION PLEASE READ This  presentation  is  prepared  for  general  guidance  only,  and  does  not  constitute  the  provision  of  accounting,    legal   or  tax  advice  in  any  manner,  written  tax  advice  under  U.S.  Internal  Revenue  Service  Circular  230,  or  any  professional   advice  of  any  kind.  “Gray  International”  or  “Gray”  refers  to  Gray  CPA,  PC  (a  U.S.  CertiIied  Public  Accountant)  and   Gray  International  Ltd  (a  Hong  Kong  Limited  Company).     The  information  provided  in  this  presentation  should  not  be  a  substitute  for  consultation  with  qualiIied   professionals  who  understand  your  situation,  as  it  will  differ  from  others.  In  addition,  when  making  any  tax  planning   decisions  you  should  consult  with  your  own  legal,  tax,  accounting  and  other  professional  advisors.     This  presentation  has  been  provided  as  a  courtesy,  and  therefore  while  care  has  been  executed  in  the  preparation  of   this  information  Gray  CPA,  PC  (U.S.),  Gray  International,  Ltd.  and  all  of  their  afIiliates  make  no  representations  as  to   its  completeness,  accuracy  or  the  timeliness  of  the  information  and  takes  no  responsibility  to  update  this   information,  such  information  is  being  provided  without  warranty  of  any  kind.     IRS  Circular  230  notice:  Tax  advice,  if  any,  included  in  this  communication  (including  any  attachments)  is  not   intended  or  written  to  be  used,  and  cannot  be  used,  by  the  recipient  for  the  purpose  of  avoiding  penalties  that  may   be  imposed  under  the  U.S.  Internal  Revenue  Code  or  by  any  other  governmental  tax  authority.         ©  2013  Gray  CPA,  PC  and  Gray  International  Ltd.  with  all  rights  reserved,  this  document  shall  not  be  reproduced  or   distributed  without  the  express  written  permission  of  Gray  CPA,  PC  or  Gray  International,  Ltd.     For  more  information  about  us,  please  visit  us  at   International   Accounting &   Compliance  
  3. 3. WHO WE ARE OUR  PROFILE   Gray  International  (“Gray”)  is   an  international  network  of   public  accounting  and   consulting  Iirms  based  in  the   U.S.,  Hong  Kong,  China  and   Europe.  Gray  was  started  over   10  years  ago  in  the  U.S.  (via  its   predecessor)  and  took  the   form  of  Gray  International  in   2013  as  the  result  of  the   networking  of  multiple   independent  practices  and   professionals.     Gray  provides  international   accounting  and  compliance   solutions  in  the  U.S.,  Americas,   Asia  and  Europe.  Gray  focuses   on  U.S.  accounting,  tax,  and   governmental  compliance  for     multinational  companies,   investors,  U.S.  persons  living   overseas  and  foreign  investors   and  companies  investing  in  or   moving  to  the  U.S.       Gray  also  consults  on   compliance  with  U.S.  laws  for   businesses  and  Iinancial   institutions  overseas  such  as   the  Foreign  Corrupt  Practices   Act  (FCPA)  and  the  Foreign   Account  Tax  Compliance  Act   (FATCA),  the  IRS  Offshore   Voluntary  Disclosure  Program,   and  the  Program  for  Non-­‐ Prosecution  Agreements  or   Non-­‐Target  letters  for  Swiss   Banks.       Gray’s  principals,  partners,   and  employees  have  served   clients  worldwide.  Gray  has   ofIices  in  Geneva,  Hong  Kong,   Seattle,  Shanghai  and  plans  to   open  an  ofIice  in  Singapore  in   late  2013.                                                                                                                               Gray’s  U.S.  public  accounting     Iirm  (Gray  CPA,  PC)  is     registered  with  the  U.S.  Public   Company  Accounting   Oversight  Board  and  is  a   member  of  the  American   Institute  of  CertiIied  Public   Accountants  and  the  Center   for  Audit  Quality.     For  more  information  about   us,  please  visit  us  at:     International   Accounting &   Compliance  
  5. 5. WHAT WE DO OUR  PRACTICE  AREAS   AUDIT  AND  ATTEST  SERVICES   INTL.  FORENSIC  ACCOUNTING   U.S.  TAX  COMPLIANCE   Our  experienced  auditors  provide   extensive  experience  auditing  public   and  private  companies  in  the   developed  and  developing  markets.       Let  us  put  our  extensive  experience   operating  in  the  U.S.,  Asia,  Europe  and   the  Americas  to  work  for  you.     Our  forensic  accounting  services  are   designed  to  providing  vigilance  before   the  fact,  reconstructing  and  tracing   records  after  the  fact,  and  preparing   for  trial  once  the  Iindings  are  made.     Our  team  of  experts  are  available  for   worldwide  engagement.   U.S.  FATCA  COMPLIANCE   INTL.  TAX  STRUCTURING   Gray  provides  extensive  U.S.  tax   compliance  solutions  to  clients   worldwide.  We  work  with  individuals,   family  ofIices,  investors,  Iinancial     institutions,  multinational  companies   and  domestic  (U.S.)  businesses.       Let  us  guide  you  through  the  maze  of   complex  U.S.  tax  compliance.     No  single  piece  of  U.S.  legislation  will   have  a  larger  impact  on  foreign   Iinancial  institutions  and   intermediaries  in  the  next  5  years  as   FATCA.       Let  us  help  you  assess  how  this  will   impact  your  organization  and  how  to   implement  a  practical,  affordable   solution.   In  today’s  global  landscape   international  tax  structuring  and   planning  has  never  been  more   important.       From  transfer  pricing,  treaty   compliance,  withholding   minimization,    estate  planning  and   domiciliation,    to  pre-­‐residency  tax   planning  Gray  is  ready  to  help  you   navigate  this  difIicult  terrain.   U.S.  FCPA  COMPLIANCE   Widespread  globalization  brings     increased  risks  of  corrupt  practices,   and  correspondingly,  an  increase  in   FCPA  enforcement,  penalties  and   prosecutions.       Let  Gray  help  you  prepare  and   implement  appropriate  controls  to   protect  your  organization  from   violations.   International   Accounting &   Compliance  
  6. 6. WHERE WE WORK GEOGRAPHIC AREAS OF EXPERIENCE Greenland   Alaska   Iceland   Canada   USA   Bahamas   Mexico   Belize   Guatemala   El  Salvador   Cuba   Honduras   Nikaragua   Dom.  Rep.   Jamaica   Venezuela   Costa  Rica   Guyana   Panama   Columbia   Suriname   Fr.  Guyana   Ecuador   Brazil   Peru   Norway   Sweden   Russia   Great     Germany   Belarus   Ireland   Britain     Poland   Ukraine   Kazazhstan   France   Mongolia   Romania   Uzbekistan     Kyrgysistan     Italy   North  Korea   Spain   Portugal   Turkey   Tajikistan   Japan   Greece   Syria   Turkmenistan   China   South  Korea   Tunisia   Lebanon   Iraq   Iran   Afghanistan   Morocco   Bhutan   Israel   Nepal   Qatar   Algeria   Libya   Pakistan   Saudi   Westsahara   Taiwan   Egypt   Myanmar   Arabia   U.A.E   India   Laos   Eritrea   Oman   Mauritania   Bangladesh     Mali   Niger   Vietnam    Chad   Senegal   Yemen   Sudan   Cambodia   Burkina   Guinea   Philippines   Nigeria   Thailand   Ethiopia     Sierra  Leone   C.A.R.   Kamerun     Somalia   Malaysia   Liberia   Togo   Uganda   Ghana   Cote  d‘Ivoire   Gabun   D.  R.     Kenya   Congo     Indonesia   Tanzania   R.  Congo   Angola   Bolivia   Paraguay   Finland   Namibia   Zambia   Papua  New  Guinea   Mozambique   Zimbabwe     Botswana   Madagascar   Australia   Swaziland   South  Africa   Chile   Uruguay   Argenena   Lesotho   New  Zealand   International   Accounting &   Compliance  
  7. 7. THE U.S. FOREIGN CORRUPT PRACTICES ACT     A BRIEF OVERVIEW International   Accounting &   Compliance  
  8. 8. INTRODUCTION The  (U.S.)  Foreign  Corrupt  Practices  Act1  (“FCPA”  or  “the  Act”)  was  enacted  by  congress  in  1977  in   response  to  revelations  of  widespread  bribery  of  foreign  ofIicials  by  U.S.  companies.       The  Act  makes  it  illegal  for  U.S.  companies  or  individuals  (domestic  concerns),  public  companies  listed   on  stock  exchanges  in  the  United  States  or  who  are  required  to  Iile  reports  with  the  Securities  and   Exchange  Commission  (Issuers),  acting  anywhere  in  the  world,  to  directly  or  indirectly,  offer  or  pay   anything  of  value  to  foreign  ofIicials  for  the  purpose  of  obtaining  or  retaining  business.  The  accounting   provisions  of  the  act  requires  issuers  to  make  and  keep  accurate  books  and  records  and  to  devise  and   maintain  an  adequate  system  of  internal  accounting  controls.       The  U.S.  Department  of  Justice  (DOJ)  and  the  Securities  and  Exchange  Commission  (SEC)  share  FCPA   enforcement  authority.     The  FCPA  is  a  sweeping  law  with  widespread  implication  for  any  U.S.  persons  or  companies  doing   business  internationally.  Due  to  the  pace  of  globalization  (and  other  factors),  the  U.S.  government  has   increased  enforcement  efforts  resulting  in  massive  Iines  and  jail  time  for  violators.       As  a  result  of  the  increased  scrutiny,  companies  and  individuals  doing  business  internationally  face  an   increasing  range  of  exposure  under  the  FCPA.  Even  for  small  organizations  and  relatively  minor   infractions  the  Iines  and  penalties  are  so  signiIicant  they  can  result  in  the  insolvency  of  the  organization.      Any  U.S.  business  doing  business  overseas  should  have  a  compliance  strategy,  continuously    monitor  compliance  and  be  acutely  aware  of  the  risks  to  the  organization  and  its  principals.           1.  (15  U.S.C.  §§  78dd-­‐1,  78dd-­‐2,  78dd-­‐3,  78m)       International   Accounting &   Compliance  
  9. 9. DOES THE FCPA APPLY TO ME? The  FCPA  has  a  broad  range  of  individuals  and  businesses  that  it  applies  to  including:     §  “Issuers”  (including  foreign  companies,  explanation  below),  their  ofIicers,  directors,  employees,   agents  and  shareholders   §  Domestic  concerns     §  Foreign  companies  while  acting  in  the  territory  of  the  United  States  (either  directly  or  through  an   agent)     A  company  is  an  “issuer”  under  the  FCPA  if  it  has  a  class  of  securities  registered  under  Section  12  of  the   Exchange  Act  or  is  required  to  Iile  periodic  or  other  reports  with  the  SEC  under  Section  15(d)  of  the   exchange  act.  In  practice  this  means  that  any  company  with  a  class  of  securities  listed  on  a  national   securities  exchange  in  the  U.S.,  or  any  company  with  a  class  of  securities  quoted  in  the  over-­‐the-­‐counter   market  in  the  U.S.  (and  required  to  Iile  periodic  reports  with  the  SEC)  is  an  issuer.       Domestic  concerns  (15  U.S.C.  §  78dd-­‐2)  are  further  deIined  as  any  individual  who  is  a  citizen,  national,   or  resident  of  the  U.S.,  or  any  corporation,  partnership,  association,  joint-­‐stock  company,  business  trust,   unincorporated  organization,  or  sole  proprietorship  that  is  organized  under  the  laws  of  the  U.S.  or  its   states,  territories,  possessions  or  commonwealths  or  that  is  has  its  principal  place  of  business  in  the  U.S.     OfIicers,  directors,  employees,  agents,  or  stockholders  acting  on  behalf  of  a  domestic  concern,  including   foreign  nationals  or  companies  are  also  covered.      A  company  does  not  need  to  be  a  U.S.  Company,  nor  have  any  place  of  business  in  the  U.S.  to    be  deemed  an  issuer.             International   Accounting &   Compliance  
  10. 10. FCPA: THE PROVISIONS The  FCPA  addresses  the  issue  of  international  corruption  with  two  provisions,   the  anti-­‐bribery  provisions  and  the  accounting  provisions  as  described  below:     §  Anti-­‐bribery  provisions:  These  provisions  prohibit  individuals  and  business   from  bribing  foreign  government  ofIicials  in  order  to  obtain  or  retain   business.       §  The  accounting  provisions:  These  provisions  impose  certain  requirements   on  issuers,  and  prohibit  individuals  and  companies  from  knowingly   falsifying  an  issuer’s  books  and  records  or  circumventing  or  failing  to   implement  an  issuer’s  system  of  internal  controls  (note:  these  provisions   only  apply  to  issuers).      Violations  of  the  FCPA  can  lead  to  civil  and  criminal  penalties,  sanctions,    and  remedies,  including  Iines,  disgorgement,  and/or  imprisonment.               International   Accounting &   Compliance  
  11. 11. ANTI-BRIBERY PROVISIONS The  FCPA’s  anti-­‐bribery  provisions  make  it  unlawful  to  pay,  offer  to  pay,  promise  to  pay,  or  authorize  to   pay  money  or  anything  of  value  to  a  foreign  ofIicial  in  order  to  inIluence  any  act  or  decision  of  the   foreign  ofIicial  in  his  or  her  ofIicial  capacity  or  to  secure  any  other  improper  advantage  in  order  to   obtain  or  retain  business.       The  FCPA  anti-­‐bribery  provisions  can  apply  to  conduct  both  inside  and  outside  the  United  States.   Issuers  and  domestic  concerns  –  as  well  as  their  ofIicers,  directors,  employees,  agents,  or  stockholders  –   may  be  prosecuted  for  using  the  U.S.  mails  or  any  means  or  instrumentality  of  interstate  commerce  in   furthers  of  a  corrupt  payment  to  a  foreign  ofIicial.     The  act  deIines  “interstate  commerce”  as  “trade,  commerce,  transportation,  or  communication  among   several  states,  or  between  any  foreign  country  and  any  State  or  between  any  State  and  any  place  or  ship   outside  thereof…”  the  Term  also  includes  the  intrastate  use  of  any  interstate  means  of  communications,   or  any  other  interstate  instrumentality.  Placing  a  telephone  call,  sending  an  e-­‐mail,  text  message  or  fax,   from,  to,  or  through  the  U.S.  involves  interstate  commerce.         International   Accounting &   Compliance  
  12. 12. ANTI-BRIBERY PROVISIONS: BUSINESS PURPOSE REQUIRED The  FCPA  applies  only  to  payments  intended  to  induce  or  inIluence  a  foreign  ofIicial  to  use  his  or  her   position  “in  order  to  assist…  in  obtaining  or  retaining  business  for  or  with,  or  directing  business  to,  any   person  (note:  meaning  applicable  entities  or  persons).       This  requirement  is  known  as  the  “business  purpose  test  “and  it  is  broadly  interpreted  by  the  U.S.   Government  and  courts.       SpeciIically,  the  FCPA  also  prohibits  bribes  in  the  conduct  of  business  or  to  gain  a  business  advantage.       Examples  of  actions  taken  to  obtain  or  retain  business  are  as  follows:   •  •  •  •  •  •  •        Winning  a  contract   InIluencing  the  procurement  process   Circumventing  the  rules  for  importation  of  products   Gaining  access  to  non-­‐public  bid  tender  information   Evading  taxes  or  penalties   InIluencing  the  adjudication  of  lawsuits  or  enforcement  actions   Obtaining  exceptions  to  regulations   International   Accounting &   Compliance  
  13. 13. ANTI-BRIBERY PROVISIONS: WHO IS A FOREIGN OFFICIAL? The  designation  of  “foreign  ofIicial”  is  broad  and  can  include  individuals  that  would  not  have  otherwise  been  considered   “ofIicials”  under  a  traditional  deIinition.         These  include:     •  Any  ofIicer  or  employee  of  a  foreign  government  or  any  department,  agency,  instrumentality  thereof;   •  Any  ofIicer  or  employee  of  a  public  international  organization;   •  Any  person  acting  in  an  ofIicial  capacity  for  or  on  behalf  of  any  such  government,  department,  agency  or   instrumentality;     •  Any  person  acting  in  an  ofIicial  capacity  for  on  on  behalf  of  any  such  public  international  organization.   The  FCPA  broadly  applies  to  corrupt  payments  “any”  ofIicer  or  employee  of  a  foreign  government  and  to  those  acting  on   the  foreign  government’s  behalf.  This  means  that  the  FPCA  covers  both  low  ranking  and  high  ranking  ofIicials.        In  addition,  the  inclusion  of  the  language  “department,  agency  or  instrumentality  of  a  foreign  government”    includes  an  even  wider  range  of  potential  government  ofIicials.  This  can  include  (and  it  is  of  particular  note    when  doing  business  in  developing  countries)  ofIicers,  employees,  agents  of  state  owned  or  state-­‐controlled   entities.  There  is  no  “bright  line”  when  evaluating  whether  a  company  is  considered  an  instrumentality  of  a  foreign   government.  It  is  advisable  in  cases  where  this  is  not  clear  to  perform  a  fact-­‐speciIic  analysis  of  an  entity’s  ownership,   control,  status,  and  function  to  make  a  determination.     Public  international  organization  is  any  organization  designed  as  such  by  Executive  Order  under  the  International   Organizations  Immunities  Act,  22  U.S.C.  §  288  or  any  other  organization  that  the  president  so  designates.  These   include  organizations  such  as:  the  World  Bank,  the  International  Monetary  Fund,  the  World  Intellectual   Property  Organization,  the  World  Trade  Organization,  the  OECD,  the  Organization  of  American  States  and   numerous  others.             International   Accounting &   Compliance  
  14. 14. ANTI-BRIBERY PROVISIONS: 5 ELEMENTS NEEDED FOR A VIOLATION In  order  for  a  payment  (or  promise  of  payment)  to  constitute  a  violation,  Iive  elements   exist:     •  The  U.S.  government  has  jurisdiction  over  the  party  involved.   •  The  regulated  party  makes  a  payment,  offer,  promise  to  pay,  or  authorization  to  pay   or  offer  anything  of  value.   •  The  payment  is  made  to  a  foreign  ofIicial.   •  The  person  making  or  authorizing  the  payment  has  a  corrupt  intent  (it  is  intended   that  the  payment  induce  its  recipient  to  misuse  his  ofIicial  position).   •  The  purpose  of  the  payment  is  to  inIluence  a  government  ofIicial’s  actions  or   decisions,  or  lack  of,  that  violate  the  ofIicial’s  or  other  government  ofIicial’s  duties  or   responsibilities.               International   Accounting &   Compliance  
  15. 15. ANTI-BRIBERY PROVISIONS: LIABILTY FOR THIRD PARTIES Under  the  theory  of  vicarious  liability,  individuals  and  organizations  subject  to  jurisdiction  under   the  act,  can  be  held  liable  for  the  violations  of  third  parties.       This  means  that  if  an  organization  participates  in  transactions  with  third  parties  (ex:  sales   agents,  consulting  companies,  consultants,  attorneys,  lobbyists,  governmental  relations  Iirms,   agents,  etc.)  where  the  organization  had  knowledge  that  all  or  a  portion  of  such  transaction   (money  or  thing  of  value)  will  be  offered,  given,  or  promised,  directly  or  indirectly,  to  a  foreign   ofIicial  it  can  be  held  liable  and  prosecuted  under  the  act.       In  this  context  “knowledge”  includes  both  “conscious  disregard”  and  “deliberate  ignorance.”  This   means  that  you  can  be  prosecuted  even  if  you  do  not  have  direct  knowledge  of  the  speciIic  act  or   action.        The  provisions  for  third  party  liability  has  wide  ranging  applicability  in  the  developing    markets  where  payments  to  government  ofIicials  may  be  seen  as  the  “cost  of  doing   business”  and  structured  through  third  parties  so  that  the  beneIiciary  can  feign    ignorance  of   the  transaction.         There  is  further  liability  for  aiding  and  abetting  and  conspiracy  which  will  not  be  discussed  in   this  presentation.   International   Accounting &   Compliance  
  16. 16. ANTI-BRIBERY PROVISIONS: SUCCESSOR LIABILITY When  a  company  merges  with  or  acquires  another  company,  the  successor  company  assumes  the   predecessor  company’s  liabilities.    These  liabilities  include  liability  under  the  FCPA.  Some   general  rules  for  successor  liability  as  it  applies  to  the  FCPA  are  listed  below:   •  Whether  successor  liability  applies  to  a  particular  corporate  transaction  depends  on  the  facts   and  circumstances  and  applicable  federal,  state,  and  foreign  law.   •  Liability  cannot  be  created  by  transaction  where  it  would  have  otherwise  not  have  existed   before.  This  means  that  if  a  U.S.  parent  acquires  a  foreign  company  which  was  not  previously   subject  to  FCPA’s  jurisdiction,  the  acquisition  of  the  foreign  company  would  not  retroactively   create  FCPA  liability  for  the  acquiring  company.    Any  company  considering  the  acquisition  of  another  business  which  operates  or    conducts  business  internationally  should  conduct  pre-­‐acquisition  due  diligence  to   identify  either  violations  or  internal  control  weaknesses  which  could  result  in  violations.     In  a  signiIicant  number  of  instances  the  DOJ  and  SEC  have  declined  to  take  action  against   companies  that  have  voluntarily  disclosed  and  remediated  conducted  and  cooperated  with  the   DOJ  and  SEC  in  the  merger  and  acquisition  context.   International   Accounting &   Compliance  
  17. 17. ANTI-BRIBERY PROVISIONS: PARENT SUBSIDIARY LIABILITY A  Parent  may  be  liable  for  the  FCPA  violations  of  its  subsidiaries.  This  is  generally  in  one  of  two   ways:     •  A  parent  has  participated  sufIiciently  in  the  activity  to  be  directly  liable  for  the  conduct  (ex:   the  parent  directed  or  supervised  the  activities).   •  A  parent  may  be  liable  under  traditional  agency  principles.  The  fundamental  agency  in  this   case  is  control.     In  the  case  of  agency,  the  DOJ  and  SEC  evaluate  the  parent’s  control,  including  the  parent’s   knowledge  and  direction  of  the  subsidiary’s  actions,  both  generally  and  in  the  context  of  a   speciIic  transaction.  Not  only  is  the  formal  relationship  between  the  parent  and  the  subsidiary   important  but  also  the  function  of  how  the  parent  and  subsidiary  interact  (function  over  form).       If  agency  exists,  then  a  subsidiary’s  actions  and  knowledge  are  imputed  to  its  parents.  Under  the   traditional  principles  of  respondeat  superior,  a  company  is  liable  for  the  acts  of  its  agents,   including  its  employees,  undertaken  within  the  scope  of  their  employment  and  intended  to  at   least  beneIit  the  Company.       International   Accounting &   Compliance  
  18. 18. FCPA ANTI-BRIBERY PROVISIONS: EXCEPTIONS   The  FCPA  contains  an  explicit  exception  for  certain  types  of  payments,  referred  to  as   “facilitating  or  expediting  payments”  which  are  made  to  expedite  or  secure  performance  of   a  routine  governmental  action  by  a  foreign  ofIicial,  political  party,  or  party  ofIicial  that   relates  to  the  performance  of  non-­‐discretionary  acts.     Examples  of  this  are  payments  to  process  visas,  permits/licenses  to  do  business  in  a   foreign  country,  governmental  papers,  provide  police  protection,  provide  mail  service,   expedite  supply  of  utilities  such  as  water,  sewer,  electrical.  SpeciIically  excluded  from  this   are  any  payments  made  which  includes  a  decision  to  aware  new  business  or  retain  current   business.     This  allows  companies  to  avoid  liability  where  small  amounts  are  paid  to  expedite  certain   non-­‐discretionary  government  acts.      Warning:  This  exception  is  narrowly  construed  and  facts  and  circumstances  may    determine  that  due  to  size,  intent,  or  other  circumstances  a  facilitating  payment    may  still  be  deemed  a  violation.  The  payor  (or  beneIiciary  in  the  case  of  third   party  payments)  has  the  burden  of  proof  to  establish  that  the  exception  applies.  Careful   consideration  should  be  made  prior  to  making  these  types  of  payments.     International   Accounting &   Compliance  
  19. 19. FCPA ANTI-BRIBERY PROVISIONS: PENALTIES Penalties  for  violations  of  the  Act  are  severe  and  in  most  cases  range  from  the  millions  of   dollars  to  the  hundreds  of  millions  of  dollars.       Each  violation  of  the  anti-­‐bribery  provisions    can  carry  penalties  of  up  to:     •  Corporations  and  other  business  entities:  are  subject  to  a  Iine  of  up  to  $2  million   •  Individuals,  including  ofIicers,  directors,  stockholders,  and  agents  of  companies:     subject  to  a  Iine  of  up  to  $100,000  and  imprisonment  for  up  to  Iive  years.     This  means  that  a  company  with  50  violations  of  the  anti-­‐bribery  provisions  (i.e.  50   separate  corrupt  payments)  the  penalties  could  be  as  high  as  $100  million.     International   Accounting &   Compliance  
  20. 20. ANTI-BRIBERY PROVISIONS: AFFIRMATIVE DEFENSES The  FCPA  provides  two  afIirmative  defenses  to  the  anti-­‐bribery  provisions.  They  are  as   follows:     •  The  payment  was  lawful  under  the  written  laws  and  regulations  of  the  foreign  country.   •  The  payment  was  a  reasonable  and  bona-­‐Iide  expenditure  related  to  product   promotion  or  performance  of  a  government  contract.  In  order  to  establish  this  defense,   the  defendant  must  show  that  the  bona  Iide  expenditures  lack  a  corrupt  purpose.       Examples  of  the  second  defense  may  be  bona-­‐Iide  travel  expenses  for  a  foreign   government  ofIicial  to  tour  your  plant,  meet  with  engineers,  and  see  the  product  testing   environment.  Every  component  of  the  trip  as  paid  for  by  the  Company  would  need  to  be   substantiated,  so  a  company  paid  “side  trip”  to  Las  Vegas  or  New  York  with  no  business   purpose,  or  exorbitant  expenses  such  as  luxurious  accommodations,  limos,  $10,000   dinners,  etc.  would  be  a  violation.   International   Accounting &   Compliance  
  21. 21. ACCOUNTING PROVISIONS The  FCPA  accounting  provisions  are  primarily  related  to  books  and  records  and  internal   controls.  They  are  as  follows:   •    •  Books  and  records:  Issuers  must  make  and  keep  books,  records,  and  accounts  that,  in   reasonable  detail,  accurately  and  fairly  reIlect  and  issuer’s  transactions  and   dispositions  of  and  issuers  assets.   Internal  Controls:  Issuers  must  devise  and  maintain  a  system  of  internal  controls   sufIicient  to  assure  management’s  control,  authority,  and  responsibility  of  the  Iirm’s   assets.     The  accounting  provisions  are  primarily  designed  to  prevent  publicly  traded  companies   from  disguising  bribes  as  legitimate  commercial  transactions.     The  accounting  provisions  are  more  limited  in  scope  than  the  anti-­‐bribery  provisions  as   they  only  apply  to  issuers  (as  de:ined  previously).  However,  the  accounting  provisions   apply  regardless  of  whether  the  issuer  engages  in  foreign  activities.                 International   Accounting &   Compliance  
  22. 22. ACCOUNTING PROVISIONS: BOOKS AND RECORDS Because  bribes,  both  foreign  and  domestic,  are  often  mischaracterized  in  an  issuer’s  books  and  records   the  FCPA  requires  that  issuers  must  make  and  keep  books,  records,  and  accounts  that,  in  reasonable   detail,  accurately  and  fairly  reIlect  and  issuer’s  transactions  and  dispositions  of  an  issuer’s  assets.     This  requirement  is  designed  to  prevent  the  following:     •  The  failure  to  record  the  improper  transactions.   •  The  alteration  of  records  to  conceal  the  improper  transactions.   •  The  creation  of  records  that  are  for  the  most  part  correct  (i.e.  income  and  expense  is  correctly   reported),  but  fails  to  adequately  describe  the  aspects  of  a  potential  corrupt  payment.     The  term  “reasonable  detail”  is  deIined  in  the  statute  as  the  level  of  detail  that  would  “satisfy  prudent   ofIicials  in  the  conduct  of  their  own  affairs,”  which  means  that  a  number  of  factors  must  be  weighted   that  are  relevant  to  a  speciIic  transaction(s),  and  also  taking  into  account  the  costs  of  compliance.       The  SEC  which  has  rulemaking  authority  over  the  accounting  provisions  has  also  adopted  two   regulations  enforcing  these  provisions.  Rule  13b2-­‐1  makes  it  unlawful  to  falsify  accounts,  providing  that   no  person  shall,  directly  or  indirectly,  falsify  of  cause  to  be  falsiIied,  any  book,  record  or  account  which   is  required  to  be  kept  under  the  act.  Additionally,  Rule  13b2-­‐2  makes  it  unlawful  to  supply  false   information  to  auditors.                 International   Accounting &   Compliance  
  23. 23. ACCOUNTING PROVISIONS: INTERNAL CONTROLS Issuers  must  adopt  a  system  of  internal  account  controls  to  provide  reasonable  assurance  that:     •  Transactions  are  executed  in  accordance  with  management’s  general  or  speciIic  authorization;   •  Transactions  are  recorded  as  necessary  to  (i)  permit  preparation  of  Iinancial  statements  in  conformity  with   generally  accepted  accounting  principles  or  any  other  criteria  applicable  to  such  statements,  and  (ii)  to   maintain  accountability  for  assets;   •  Access  to  assets  is  permitted  only  in  accordance  with  management’s  general  or  speciIic  authorization;  and     •  The  recorded  accountability  for  assets  is  compared  with  the  existing  assets  at  reasonable  intervals  and   appropriate  action  is  taken  with  respect  to  any  differences…     The  act  deIines  “reasonable  assurances”  as  such  level  of  detail  and  degree  of  assurance  as  would  satisfy  prudent   ofIicials  in  the  conduct  of  their  own  affairs.    There  is  no  proscribed  set  of  controls  as  each  company  operates   differently  and  has  particular  set  of  needs  and  circumstances,  a  robust  and  reasonable  set  of  internal  controls  is   necessary  to  help  prevent  FCPA  violations  for  all  companies  doing  business  internationally.      The  FCPA  requires  that  a  company  make  a  good-­‐faith  effort  to  ensure  that  any  company,  including    joint  ventures,  in  which  the  U.S.  company  or  one  of  its  subsidiaries  holds  50  percent  or  less  of  the    voting  power  comply  with  the  FCPA  accounting  provisions.       International   Accounting &   Compliance    
  24. 24. ACCOUNTING PROVISIONS: PENALTIES Individuals  and  companies  are  subject  to  criminal  and  civil  penalties  for  violating  the   FCPA’s  accounting  and  control  provisions.       •  Civil  liability:  The  SEC  can  seek  civil  penalties  of  up  to  $500,000  for  covered  entities   and  $100,000  for  individuals  per  violation.   •  Criminal  liability:  In  criminal  cases,  a  willful  violation  of  the  accounting  and  controls   provision  is  punishable  by  a  Iine  of  up  to  $25  million  against  entities,  and  a  Iine  of  up   to  $5  million  and  imprisonment  for  up  to  20  years  for  individuals.      An  individual  may  be  held  criminally  liable  for  “knowingly”  falsifying  any  book,    record,  or  account,  or  circumventing  or  failing  to  implement  a  system  of  internal    controls.  “Knowing”  in  this  context  may  include  willful  blindness  or  conscious   attempts  not  to  know.     Important:  the  accounting  provisions  do  not  contain  a  materiality  standard  and  no  proof  of   knowledge  or  intent  is  required  to  establish  a  civil  violation.           International   Accounting &   Compliance  
  25. 25. ENFORCEMENT EXAMPLES Below  are  some  relevant  examples  of  recent  FCPA  enforcement  actions  and  penalties:     •    •    •    •    •    •    •    Total  S.A.    -­‐  SEC  charged  the  France-­‐based  oil  and  gas  company  for  paying  bribes  to  intermediaries  of  an  Iranian  government   ofIicial  who  then  exercised  his  inIluence  to  help  the  company  obtain  valuable  contracts  to  develop  oil  and  gas  Iields.  Total   agreed  to  pay  $398  million  to  settle  SEC  and  criminal  charges.  (5/29/13)   Parker  Drilling  Company  -­‐  SEC  charged  the  worldwide  drilling  services  and  project  management  Iirm  with  violating  the   FCPA  by  authorizing  improper  payments  to  a  third-­‐party  intermediary  in  order  to  entertain  Nigerian  ofIicials  involved  in   resolving  the  company's  customs  disputes.  Parker  Drilling  agreed  to  pay  $4  million  to  settle  the  SEC's  charges.  (4/16/13)   Koninklijke  Phillips  Electronics  -­‐  SEC  charged  the  Netherlands-­‐based  health  care  company  with  FCPA  violations  related  to   improper  payments  made  by  employees  at  its  Polish  subsidiary  to  health  care  ofIicials  in  Poland.  Philips  agreed  to  pay  more   than  $4.5  million  to  settle  the  charges.  (4/5/13)   Eli  Lilly  and  Company  -­‐  SEC  charged  the  Indianapolis-­‐based  pharmaceutical  company  for  improper  payments  its  subsidiaries   made  to  foreign  government  ofIicials  to  win  business  in  Russia,  Brazil,  China,  and  Poland.  Lilly  agreed  to  pay  more  than  $29   million  to  settle  the  charges.  (12/20/12)   Garth  R.  Peterson  -­‐  SEC  charged  Garth  R.  Peterson  with  secretly  acquiring  millions  of  dollars  worth  of  real  estate  investments   for  himself  and  an  inIluential  Chinese  ofIicial  who  in  turn  steered  business  to  Morgan  Stanley's  funds.  He  agreed  to  a   settlement  in  which  he  is  permanently  barred  from  the  securities  industry  and  must  pay  more  than  $250,000  in   disgorgement  and  relinquish  his  approximately  $3.4  million  interest  in  Shanghai  real  estate  acquired  in  his  scheme.   (4/25/12)   Smith  &  Nephew  -­‐  SEC  charged  the  London-­‐based  medical  device  company  with  violating  the  FCPA  when  its  U.S.  and  German   subsidiaries  bribed  public  doctors  in  Greece  for  more  than  a  decade  to  win  business.  The  company  and  its  U.S.  subsidiary   agreed  to  pay  more  than  $22  million  to  settle  civil  and  criminal  cases.  (2/6/12)   Magyar  Telekom  -­‐  SEC  charged  the  largest  telecommunications  provider  in  Hungary  and  three  of  its  former  top  executives   with  bribing  government  and  political  party  ofIicials  in  Macedonia  and  Montenegro.  The  Iirm  and  its  parent  company  agreed   to  pay  $95  million  to  settle  civil  and  criminal  charges.  (12/29/11   International   Accounting &   Compliance  
  26. 26. ENFORCEMENT EXAMPLES (Cont.) Below  are  some  relevant  examples  of  recent  FCPA  enforcement  actions  and  penalties:     •  Watts  Water  Technologies  and  Leesen  Chang    -­‐  SEC  charged  the  company  and  a  former  vice  president   of  sales  for  improper  payments  disguised  as  sales  commissions  by  its  Chinese  subsidiary  to   employees  at  state-­‐owned  design  institutes  in  order  to  inIluence  design  speciIications  that   favored  their  valve  products  for  infrastructure  products  in  China.  (10/13/11)   •  Armor  Holdings  -­‐  SEC  charged  the  Jacksonville,  Fla.-­‐based  body  armor  supplier  for  illicit  payments   to  United  Nations  ofIicials  to  obtain  contracts  related  to  U.N.  peacekeeping  missions.  Armor   Holdings  agreed  to  an  SEC  settlement  of  $5.7  million  and  a  criminal  Iine  of  $10.29  million.   (7/13/11)   •  Data  Systems  &  Solutions  LLC  –  The  DOJ  charged  the  Reston,  Va.  based  nuclear  facility  design,  installation,   maintenance  and  other  service  provider  for  paying  bribes  to  ofIicials  employed  by  the  Ignalina  Nuclear   Power  Plant,  a  state-­‐owned  nuclear  power  plant  in  Lithuania.  Data  Systems  entered  into  a  deferred   prosecution  and  paid  a  $8.82  million  criminal  penalty.  (06/18/2012)   •  Biomet,  Inc.  –  The  DOJ  charged  the  Indiana  based  medical  device  company  for  making  various  improper   payments  to  publicly  employed  healthcare  providers  in  Argentina,  Brazil  and  China  to  secure  lucrative   business  in  hospitals.  The  Company  entered  into  a  deferred  prosecution  agreement  and  paid  a  $17.28   million  criminal  penalty.  (03/26/2012)   •  Marubeni  Corporation  –  The  DOJ  charged  the  Tokyo  based  trading  company  with  conspiracy  and  aiding   and  abetting  violations  of  the  FCPA  in  a  scheme  to  bribe  Nigerian  government  ofIicials  to  obtain   contracts.  Under  the  terms  of  a  deferred  prosecution  agreement  the  Company  paid  $54.6  million  criminal   penalty  and  $1.7  billion  in  total  penalties  for  all  members  of  the  joint  venture  (Halliburton  $579  million,   Technip  $338  million,  Snamprognett  $365  million,  JGC  $218.8  million).  (01/17/2012)   International   Accounting &   Compliance  
  27. 27. GRAY’S FCPA SOLUTIONS Gray  believes  that  the  FCPA  is  the  single  most  important  compliance  issue  for  companies  doing   business  internationally.  The  Law’s  broad  reach  can  apply  to  businesses  and  individuals  that  never   thought  that  they  would  be  subject  to  its  provisions.     With  civil  and  criminal  penalties  in  the  tens  to  hundreds  of  millions  of  dollars  and  the  potential  of   jail  time,  no  compliance  problem  needs  addressing  as  urgently  by  international  organizations  than   the  FCPA.  Single  violations  can  put  small  to  medium  size  companies  out  of  business,  multiple   violations  result  in  insolvency  for  even  large  companies.     To  help  you  navigate  implications  of  the  FCPA  for  your  business,  Gray  provides  a  broad  range  of   FCPA  compliance  solutions  tailored  to  your  organization  and  operating  environment.  With  a  deep   expertise  of  operating  and  auditing  in  the  emerging  markets  Gray  is  uniquely  position  to  provide   world  class  services  to  your  organization:       INTERNAL  CONTROL  DESIGN     ANTI-­‐CORRUPTION  PROGRAMS   IMPLEMENTATION   THIRD  PARTY  MONITORING   FCPA  INVESTIGATIONS   International   Accounting &   Compliance  
  28. 28. CONTACT US Gray  welcomes  your  questions,  comments  and  inquiries  and   would  like  the  opportunity  to  serve  you.   Addresses U.S.  International  OfIice   Attn:  Jeremy  Stobie,  CPA,  CFE 10900  NE  8th  Street   Suite  1000     Bellevue,  WA  98004                                 Phone +  001  425.999.3685  xt  10   Website   E-mail     International   Accounting &   Compliance