Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

FCPA Enforcement Tends and Their Impact on Corporate Compliance Programs

732 views

Published on

This presentation was delivered at the ISO 37001 & Anti-Bribery PECB Insights Conference by William Marquardt, Director at Berkeley Research Group LLC in Florida

  • Get Paid For Your Opinions! Earn $5-$10 cash on your first survey.  http://ishbv.com/goldops777/pdf
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
  • Like Watching Videos? Want to get paid to do it? ◆◆◆ http://ishbv.com/socialpaid/pdf
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
  • Be the first to like this

FCPA Enforcement Tends and Their Impact on Corporate Compliance Programs

  1. 1. FCPA Enforcement Tends and Their Impact on Corporate Compliance Programs November 2017 William Marquardt Berkeley Research Group, LLC
  2. 2. 2 Table of Contents FCPA Enforcement Tends & Corporate Compliance Programs Topic Page U.S. Foreign Corrupt Practices Act Overview 3 FCPA – Enforcement Trends 2016 & Mid- year 2017 8 International Harmonization of ABAC Regulations 16 Hot Topics – Corporate Compliance Programs 20 Corporate Compliance Programs Continuous Improvement Opportunities 23 Questions 31
  3. 3. U.S. Foreign Corrupt Practices Act 1977
  4. 4. 4 U.S. Foreign Corrupt Practices Act (FCPA) Overview – Statutory Framework The FCPA has two provisions 1. The anti-bribery provision which makes it unlawful to make a corrupt payment to a foreign official for the purpose of obtaining or retaining business; and 2. The books/records and internal controls provisions, which requires companies with securities listed on the stock exchanges in the U.S. to make and keep records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls.
  5. 5. 5 FCPA Compliance Policies & Procedures An organization’s policies, procedures, and controls should address the classic areas of anti-bribery and anti-corruption (ABAC) risks taking into consideration the companies business profile and operating jurisdiction(s)/state(s) (e.g. operating context). 1. General Risks/Compliance Exposure Areas: a. Third-party due diligence, compliance requirements and complian7ce monitoring b. Gifts, meals and entertainment (employee costs) c. Customer sponsored travel d. Political and charitable contributions e. Facilitation payments f. Solicitation or proffering of payments g. Mergers and acquisitions (legacy operating issues)
  6. 6. 6 FCPA Compliance - continued 2. Company Profile Risks a. Non-U.S. sales/bidding activities b. Interactions with foreign regulators and state owned or controlled entities c. Engaging non-us sponsors – market entry requirement and/or local business partners (e.g. MOUs, Operating Agreements & JV entities) d. Political and socioeconomic concerns
  7. 7. 7 FCPA Compliance - continued 3. Compliance Program Elements a. Risk Assessment b. Monitoring and Improvement c. Training & Certification d. Resources & Guidance e. Employee Hot/Help Lines and Ethics & Compliance Investigations f. Employee Incentives & Discipline
  8. 8. FCPA – Enforcement Trends Full Year 2016 & Mid-year 2017
  9. 9. 9 ABAC Enforcement Trends General Enforcement Trends – 2016 & 2017  Increased Resources – U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC)  More prosecutors and FBI agents  Geographic focus in China and Latin America and industry focus within the healthcare/life sciences  Collateral Consequences are Increasing (Non-Sanction Costs)  Participation of Other Jurisdictions – cross boarder collaboration  Shareholder Lawsuits  Investigative Costs – Internal & External (accounting & legal fees)
  10. 10. 10 ABAC Enforcement Trends General Enforcement Trends – 2016 & 2017  Collateral Consequences are Increasing (Non-Sanction Costs) - continued  Remediation Costs – Monitors – DPA/NPA  Internal Costs – Lost Productivity  Market Devaluation of Stock Price  US DOJ Pilot Program – Voluntary Disclosure Incentives  Continued use of Corporate Monitors – 1 to 3 year periods
  11. 11. 11 ABAC Enforcement Trends Monetary Impact of FPCA Enforcement - 2016  Monetary Impacts are Increasing – 27 Enforcement Actions  2016 - $6 Billion in FCPA enforcement actions and sanctions settlements (highest ever – 1977 to date)  95% of the $6 Billion relates to six enforcement actions 1. Odebrecht/Braskem - $3.55 Billion (Brazilian Construction Conglomerate) 2. VimpelCom - $795 Million (Telecommunications) 3. Teva - $518.5 Million (Pharmaceuticals) 4. Och-Ziff - $414 Million (Hedge Fund/Asset Management) 5. Embraer - $287 Million (Brazilian Based Aircraft Manufacturer) 6. JP Morgan - $264 Million (Banking & Financial Services)
  12. 12. 12 ABAC Enforcement Trends Monetary Impact of FPCA Enforcement - 2016  $3.6 Billion of $6 Billion – shared with foreign governments  Brazil - $2.8 Billion  The Netherlands - $398 Million  Switzerland – $355 Million Odebretch/Braskem
  13. 13. 13 ABAC Enforcement Trends Individual Impact - 2016  27 Individual Defendants  DOJ – 19  SEC – 8  C-suite/High Ranking Executives are Being Pursued  LAN Airlines – CEO  Analogic’s Danish Sub – CFO  Harris Corporation (Chinese Subsidiary) – Chairman & CEO  Och-Ziff – CEO and Founder
  14. 14. 14 ABAC Enforcement Trends 2017 Mid-Year Update  18 FCPA enforcement actions initiated by DOJ (12) and the SEC (6) during the first half of 2017 (caveat – all were before Trump Administration was effectively in place – 15 of 18 actions were filed in January)  Most Interesting – SQM (Sociedad Química y Minera de Chile)  No quid pro quo identified and NO allegations of bribery  Books and records liability without a bribe – improperly documented payments (no observed bribe payment)  No third party due diligence  Involvement of charitable contributions  Paid a $30.5 million and accepted a two-year corporate compliance monitor.
  15. 15. 15 ABAC Enforcement Trends ABAC Enforcement Trends  Pilot Program Declinations – two to date: Program has been extended  February 2017: DOJ's Fraud Section released a new guidance document "Evaluation of Corporate Compliance Programs“ – comprehensive set of topics and sample questions related to corporate compliance programs but largely reinforces the same core standards by which corporate compliance programs have traditionally been evaluated.  11 "sample" topics for evaluating a compliance program  Common questions the DOJ may ask during an evaluation (119 questions)
  16. 16. International Harmonization of ABAC Regulations
  17. 17. 17 International ABAC Regulations International Cooperation & Other ABAC Regulations (Voluntary & Mandatory)  OCED Anti-bribery Convention  UK Bribery Act – 2010  Brazil Clean Company Act – 2014  Peru – Administrative Liability of Legal Entities for the Commission of Active Transnational Bribery – July 2017  Mexico – General Law of Administrative Accountability – July 2017  Argentina – Considering a bill that penalize corrupt business practices
  18. 18. 18 International ABAC Regulations International Cooperation & Other ABAC Regulations (Voluntary & Mandatory)  China – The multi-year effort underway to update the Anti- Unfair Competition Law, the country's primary civil statute that regulates commercial bribery is continuing in 2017.  India – In January 2017, the Indian government launched "Operation Clean Money" to investigate large cash deposits made into banks in India after the demonetization announcement (e.g. termination of the 500 and 1000 rupee bank notes). It is reported that it has detected over 54 billion Indian Rupees (more than $830 million) in undisclosed income, which may well lead to corruption investigations in the year(s) to come.
  19. 19. 19 International ABAC Regulations International Cooperation & Other ABAC Regulations (Voluntary & Mandatory)  France – Loi Sapin II anti-corruption legislation  South Korea - President Geun-Hye Park was impeached in December 2016 amid allegations of influence peddling and corruption
  20. 20. Hot Topics – Corporate Compliance Programs
  21. 21. 21 Hot Topics – Corporate Compliance Programs Focus on Specific Compliance Program Elements  Specific ABAC Compliance Program Issues  Hiring Practices – Enhanced Due Diligence  Travel & Entertainment  Third-party Due Diligence & Monitoring  Risk Management  ABAC Program Monitoring & Improvement
  22. 22. 22 Hot Topics – Corporate Compliance Programs Enforcement Learnings – HOT Topics  DOJ Pilot Program is Continuing  Individual Mandate Continues (Yates memo)  Jurisdiction – continued broad interpretation  Successor Liability – acquisition (Mondelez-Cadbury)  Whistleblower Activities – Monetary Rewards  Foreign Officials – State Owned Entities (SOEs) and related entities
  23. 23. Corporate Compliance Programs Continuous Improvement Opportunities
  24. 24. 24 ABAC Programs – Continuous Improvement Compliance Program Essentials  Necessary to Explain/Demonstrate a Functioning Compliance Program (Matrix)  Mapping Regulatory Requirements  Corporate Culture  Compliance as an Integrated Function  Culture of Compliance  Independent Compliance Function w/ Appropriate Reporting Structure  Incentives and Discipline  Continuous Improvement & Adequate Monitoring
  25. 25. 25 ABAC Programs – Continuous Improvement Compliance Program Essentials  Risk Assessments w/ Data Analytics  Qualitative – leveraging existing institutional knowledge  Quantitative – data analytics  Resources & Experience  Adequate resources  Experienced Personnel  Adequate Training & Systems Investments
  26. 26. 26 ABAC Programs – Continuous Improvement Compliance Program Essentials  Use of Available Regulatory Guidance 1. FCPA Guidance 2. DOJ Evaluation Guidance 3. Case Studies & Industry Guidance  Voluntary Standards – ISO 37001  Critical Compliance Program Areas  Sales Activities 1. Employees – Incentive Programs 2. Travel, Gifts & Entertainment  Third Party Intermediaries – 75% of all ABAC actions involved third parties & 96% of FCPA cases between 2005 and 2015.
  27. 27. 27 ABAC Programs – Continuous Improvement Compliance Program Essentials  Third Parties – DOJ/SEC “Three Rules” 1. Qualifications 2. Business Rationale 3. Ongoing Monitoring  Focus on the Money – Modes of Payment  Fake Invoices  Charitable Contributions  Employee Expenses  Measurement – Use of KPI’s and Data Analytics  Activity v. Impact KPIs  Data Analytics/Data Driven Remediation/Monitoring Activities  Incorporate Market Specific Information
  28. 28. 28 ABAC Programs – Continuous Improvement Compliance Program Essentials  PPB’s with flexibility to manage individual/jurisdiction specific issues with the appropriate guidance  Focus on reasonable assurance and the results of the risk assessment and risk mitigation activities (e.g. policies, processes, and controls)  Continuous Improvement
  29. 29. 29 ISO 37001 Value of Certification  Hui Chen, Former DOJ Compliance Counsel, recently noted that the DOJ will not outsource its investigative responsibilities when an issue arises.  No statistical evidence that a management system works  Measurement, analytics and improvement are critical to a compliance programs operating effectiveness  The ISO certification does not provide an affirmative defense to an ABAC investigation
  30. 30. 30 ISO 37001 Value of Certification Why Implement?  Independent Review Process (audit/monitoring)  Best Practices Opportunity (comparative analysis)  Another tool that promotes a systemic review – holistic review of the ABAC Management System  Third Parties – Independent evaluation opportunity that is significantly stronger than contractual language and/or a periodic review by the contracting organization.
  31. 31. 31 Questions? Thank You !

×