Anti Corruption Risks Aml Convergence 20111025

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  • The Current Enforcement PictureThe Elements of the FCPAThe Risks, Exceptions and DefensesCompliance Programs
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  • 0 90 140206 142 0
  • 0 90 140206 142 0
  • p. 4  DOJ seal and SEC seal at topp. 5 Picture of Eric Holderp. 6 picture of LannyBruererp.7 picture of Mary Schapiro and Cheryl Scarboro Your charts are fantastic!!!! p. 11 – picture of guy listening to wiretapp. 13 – add in Panalpina logo and move non-Panalpina stuff to next slidep. 15 – picture of whistle or whistleblowerp. 19 accounting books picture
  • ESF PIX
  • Domestic:US “issuers” US citizens, nationals, or residentsEntities organized under U.S. lawEntities with U.S. principal place of businessForeign:Foreign corporations subject to SEC regulation (e.g., via ADRs) and using instrumentalities of interstate commerce Foreign persons when in US territory, whether or not they use instrumentalities of interstate commerce
  • The Current Enforcement PictureFCPA: The ElementsThe Risks, Exceptions and DefensesCompliance Programs
  • The Current Enforcement PicturePrivate Equity and Hedge FundsDue DiligenceViolation and LiabilityCompliance Programs
  • Anti Corruption Risks Aml Convergence 20111025

    1. 1. Anti-Corruption Enforcement and Risks:The New ThreatThe FCPA, AML and Fraud Enforcement:Convergence Risks and Compliance October 26, 2011Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe-Brussels LLP both limited liability partnershipsMayer Brown is a global legal services provider comprising a limited liability partnership incorporated in England Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayerregistered in England and Wales number OC 303359); Mayerestablished in Illinois USA; Mayer Brown International LLP, legal practices that are separate entities (the "Mayer and Wales (authorized and regulated by the Solicitors Regulation Authority and Brown Europe-Brussels LLP both limited liability partnershipsestablished in Illinois USA; Mayer Brown International LLP, a limited liability partnershipits associated entities in Asia; Wales (authorized and regulated a Brazilian law partnership with whichand registered is associated. "Mayer Brown" and the Mayer BrownBrown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and incorporated in England and and Tauil & Chequer Advogados, by the Solicitors Regulation Authority Mayer Brown in England and Wales number OC 303359); MayerBrown, athe trademarks of theFrance; Mayer Brown JSM, their respective jurisdictions. its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brownlogo are SELAS established in Mayer Brown Practices in a Hong Kong partnership andlogo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.
    2. 2. Anti-CorruptionEnforcement and Risks:The New ThreatMichael VolkovPartner, Mayer Brown LLP(202) 263-3288mvolkov@mayerbrown.comRyan MorganWorld Compliancermorgan@worldcompliance.com © Copyright Mayer Brown LLP, 2011
    3. 3. Overview I. The Current Enforcement Picture II. The Elements of the FCPA III. The Risks, Exceptions and Defenses IV. Compliance Programs 3
    4. 4. The CurrentEnforcementPicture 4
    5. 5. The Current Enforcement PictureEnforcement Trends Aggressive FCPA enforcement has resulted in corporate mega-fines:  For 2010, fines total over $1.6 billion - more than half of all federal criminal fines collected.  Fueled by voluntary disclosures and industry-wide investigations - oil, pharmaceuticals and medical devices, military and law enforcement equipment, and telecommunications.  FBI has dedicated FCPA squad which is using aggressive investigative tactics - consensual recordings, ambush interviews, undercover officers, informants, search warrants and wiretaps.  SEC Dodd-Frank whistleblower bounty program will increase number of credible complaints, investigations and prosecutions. 5
    6. 6. The Current Enforcement PictureEnforcement Trends FCPA and Anti-Money Laundering Enforcement  FCPA criminal cases are typically tied to money laundering counts (18 USC 1956 and/or 1961).  DOJ has launched Kleptocracy initiative to “follow” corrupt money and prosecute money launderers, and seek criminal and/or civil forfeiture.  DOJ’s International organized crime initiative is likely to increase prosecutions in this area as companies and individuals cooperate and provide information.  DOJ and SEC has launched investigations of financial institutions, investment banks and private equity firms.  Increase in FCPA enforcement coincides with aggressive OFAC and AML programs. 6
    7. 7. The Current Enforcement PictureFCPA Enforcement at a Glance: Increase in Actions 2010 witnessed an 85% increase in FCPA enforcement actions over 2009, which itself was a record year. 60 DOJ 50 48 SEC 40 30 26 26 20 20 20 18 13 14 10 7 7 8 5 2 3 0 2004 2005 2006 2007 2008 2009 2010 7
    8. 8. The Current Enforcement PictureFCPA Enforcement at a Glance: Blockbusters Eight of the top ten monetary settlements in FCPA history were reached in 2010.$900 Siemens 2008$800 2009$700 2010 KBR/Halliburton 2011$600$500 BAE Systems ENI/Snamprogetti$400 $800 Technip$300 $579 JGC Corporation Daimler$200 $400 Alcatel-Lucent $218.8 $365 $338 Panalpina Johnson & Johnson$100 $185 $137 $82 $70 $0 8
    9. 9. The Current Enforcement PictureFCPA Enforcement at a Glance: Prison SentencesDavid Kay, Vice President 37 monthsAmerican Rice, Inc. (2002)John Warwick, PresidentPorts Engineering 37 monthsConsultants Corporation (2009)Robert Antoine, Director 48 monthsHaiti Telco (2010)Juan Diaz, OwnerThird party consultant 57 monthsto Haiti Telco (2010)Douglas Murphy, President 63 monthsAmerican Rice, Inc. (2002)Albert Jack Stanley, CEO 84 monthsand Chairman, KBR (2009)Charles Paul Edward Jumet,President, Ports Engineering 87 monthsConsultants Corporation (2009) 0 10 20 30 40 50 60 70 80 90 100 9
    10. 10. The Current Enforcement PictureFCPA: Whistleblower Bounty  Whistleblower Bounty program offers rewards of 10 to 30 percent of any settlement over $1 million. SEC’s Whistleblower Office opened on 8/12/2011.  SEC regulations have been adopted (pending appeal).  SEC estimates it will receive 30,000 complaints a year; 1-2 credible complaints each day.  With certain exceptions, whistleblowers must first file complaint internally with company and wait for 120 days before filing with SEC.  Companies will increase self-reporting to pre-empt whistleblowers. 10
    11. 11. The Current Enforcement PictureAnti-Corruption Enforcement GLOBAL enforcement is on the rise. In the past three years, In response to international US prosecutors have pressure, Canada its increasing enforced the FCPA to enforcement of its the tune of $3.6 billion. anti-corruption law. Germany, Spain and other The UK Bribery Act became EU countries are effective on July 1, 2011. increasing enforcement. China and the US are increasing Asia and Latin American countries cooperation and beginning to establish have been slower to enact tough, new a framework for information sharing anti-corruption laws and begin and enforcement; China enacted aggressive enforcement programs. its own foreign bribery law. Risk of anti-corruption multi-jurisdictional, “piggy-back” actions is growing. 11
    12. 12. The Current Enforcement PictureFCPA – DOJ Priority US FOREIGN CORRUPT PRACTICES ACT “As President Obama has said, ‘The struggle against corruption is one of the great struggles of our time.’ . . . Corruption is, simply put, a scourge on civil society. We must vigorously enforce our own laws that prohibit bribery of foreign officials, such as . . . the Foreign Corrupt Practices Act. And we must work together to support our partners in anti-corruption enforcement.” —Eric Holder, U.S. Attorney General, Nov. 7, 2009 12
    13. 13. The ElementsOf The FCPA 13
    14. 14. The Elements Of The FCPAAnti-Bribery Provisions, 15 U.S.C. 78dd-2 et al.  A payment, offer, authorization, or promise to pay money or anything of value to;  a foreign government official;  or to any person, while knowing that the payment or promise will be passed on to a foreign government official;  with a corrupt motive for the purpose of: – influencing any act or decision of such foreign government official, – inducing such person to do or omit any action in violation of his or her lawful duty, – securing an improper advantage, or – inducing such person to influence a foreign government (or instrumentality thereof) to affect or influence its acts or decisions, – all in order to obtain, retain, or direct business for or to any person. 14
    15. 15. The Elements Of The FCPAAccounting/Record-Keeping Provisions, 15 U.S.C. 78dd-1 et al. Accounting / Recordkeeping Provisions: Books and records must accurately and fairly reflect transactions and dispositions of assets. Internal Controls: 1. Transactions are executed with management’s authorizations; 2. Transactions are recorded to allow preparation of a report that conforms with generally accepted accounting principles; 3. Access to assets is permitted only in accordance with management’s authorization; and 4. Monitoring to ensure legitimacy of accounting. 15
    16. 16. The Elements Of The FCPAWho is covered?Domestic US “issuers” US citizens, nationals, or residents Entities organized under U.S. law Entities with U.S. principal place of businessForeign Foreign corporations subject to SEC regulation (e.g., via ADRs) and using instrumentalities of interstate commerce Foreign persons when in US territory, whether or not they use instrumentalities of interstate commerce This includes directors, officers, employees, and agents of entities subject to the statute 16
    17. 17. The Elements Of The FCPACriminal Penalties  Criminal Penalties for companies: – $2mm fine for an anti-bribery violation – $25mm fine for a books and records violation  Criminal Penalties for individuals: – 5 years in jail with a maximum $250,000 fine for an anti-bribery violation – up to 20 years in jail with a maximum $5mm fine for a books and records violation Under a federal alternative fine provision, companies and individuals may be fined up to TWICE the benefit sought or received. 17
    18. 18. The Elements Of The FCPACivil Penalties  SEC and DOJ can impose a $10,000 fine per violation upon individuals and companies.  SEC may also impose further civil penalties ranging between $7,500 to $150,000 upon individuals and $75,000 to $725,000 upon companies. Alternatively, the SEC may impose a civil penalty equal to the gross pecuniary gain to an individual or company and equitable relief, such as disgorgement of profits. 18
    19. 19. The Elements Of The FCPAWhat is Prohibited?  A covered entity may not pay, promise to pay or authorize the payment of money or anything of value. – This covers direct bribery or kickback payment but also includes, gifts, travel, meals or other lavish entertainment.  With a corrupt intent to obtain or retain business or to secure a business advantage including: – Government contracts – Government-issued operating permits and licenses – avoiding or reducing inspection reports and certifications – tax refunds and reductions – customs clearance – health inspections – beneficial changes to laws and regulations 19
    20. 20. The Elements Of The FCPAIntent to Obtain / Retain Contracts or Any Other Business Advantage Clearly making a payment to obtain or retain a contract violates the law but securing a business advantage qualifies too. This includes:  Government-issued operating permits and licenses  avoiding or reducing inspection reports and certifications  tax refunds and reductions  customs clearance  health inspections  beneficial changes to laws and regulations 20
    21. 21. The Elements Of The FCPAGiving or Promising Anything of Value  No cash bribes or kickback payments.  Laws also forbid gifts, meals, travel, entertainment, or even charitable donations under certain circumstances.  CCI, a components manufacturer, gave a Ferrari, among other items, to a Mexican utility company official. $18.2 million FCPA fine.  Veraz Networks, a telecom company, paid a $300,000 FCPA fine and incurred $2.5 million in legal fees to resolve FCPA charges. In the charging documents, the US government specifically mentioned giving $4,500 worth of flowers to a Chinese official’s wife. 21
    22. 22. The Elements Of The FCPAForeign Government Official  Under the FCPA: Any officer, employee, or agent of a foreign government or any department, agency, or any instrumentality thereof.  This includes any entity that is owned or controlled by a Foreign Government. – i.e. all employees of a JV where a state owned or controlled entity is a party to the JV. – Factors: percentage of financial ownership, designation under local law, appointment of management, membership on Board, even the company’s representations. 22
    23. 23. The Elements Of The FCPAInteractions with Foreign Officials Dealings with foreign representatives can violate FCPA, UK Bribery Act and other anti-corruption laws.  In 2008, DOJ warned banks, investment banks, private equity and hedge funds to conduct due diligence of overseas investments to determine foreign government ties.  Two district court decisions (Noriega and Carson) have upheld Justice Department position that officials at private companies which is “controlled ” by government entity are “foreign officials”. 23
    24. 24. The Elements Of The FCPAInteractions with Foreign Officials Representatives of Sovereign Wealth Funds and Foreign Public Institutional Investors are “foreign officials” under the FCPA and “public officials” under the UK Bribery Act.  In late 2010 and early 2011, SEC initiated industry inquiry into anti-corruption compliance by banks, investment banks, private equity and hedge funds and focused on dealings with Sovereign Wealth Funds. – SEC inquiry letters issued to at least 10 entities. – Investigation later expanded to dealings with foreign public institutional investment funds. 24
    25. 25. The Elements Of The FCPACase Study: Goldman Sachs and Libyan Sovereign Wealth Fund  In August 2011, SEC launched investigation of Goldman Sachs and its dealings with Libyan Sovereign Wealth Fund.  SEC officials are interested in a $50 million fee Goldman initially agreed to pay the Libyan sovereign-wealth fund as part of a proposal by the bank to help the fund recoup losses.  The Libyan Investment Authority would have passed the $50 million payment to an outside adviser, Palladyne International Asset Management, which was run at the time by the son-in-law of the head of Libya’s state-owned oil company.  The $50 million payment was never made, but could still have violated FCPA since it was an “offer” to pay. 2 5
    26. 26. TheRisks, Exceptionsand Defenses 26
    27. 27. Risks, Exemptions and DefensesFCPA Risk: Third Parties  A covered entity may not make payments to any other person, knowing that the payment or promise will be passed on to a foreign official.  Knowledge means… – Actual knowledge – Awareness or suspicion that an event is likely to occur – Avoiding knowledge of corrupt acts through willful blindness A company must investigate all red flags involving agents, joint venture partners, brokers, consultants, distributors, professional service firms, etc. 27
    28. 28. Risks, Exemptions and DefensesFCPA Risk: Third Parties; RED FLAGS Red flags are facts and circumstances that raise serious questions about the possibility of an FCPA violation and which require further investigation. Red flags include (but are not limited to):  Transactions in high risk countries  Objection to anti-compliance contractual provisions  Unusual payment arrangements: request for cash payments, excessive commission rates, payment to offshore accounts  Known affiliation with corrupt officials  No significant experience relevant to the business 28
    29. 29. Risks, Exemptions and DefensesFCPA Risk: Mergers & Acquisitions “Buying an FCPA violation” Acquiring company can be held liable for FCPA violations which occurred prior to the acquisition.  Corruption risk will also impact M&A considerations: – value of a target company; – acquisition structure; – warranties and indemnification; or – in some cases, withdrawal from the deal. 29
    30. 30. Risks, Exemptions and DefensesFCPA Risk: Mergers & Acquisitions To limit exposure, the acquiring company must: conduct a due diligence review AND adequately respond to red flags.  Due diligence is not a legal defense but it can minimize risk of liability when coupled with compliance commitment. 30
    31. 31. Risks, Exemptions and DefensesFCPA Exception: Facilitation Payments  Anti-bribery provisions do not apply to payments made to low level foreign government officials to expedite or secure performance of routine governmental action. – Examples: obtaining permits or licenses; processing governmental papers (visas and work orders); scheduling inspections; providing phone service, power, and water supply; loading or unloading cargo; protecting perishable products from deterioration; or actions of a similar nature.  Applies only when the foreign government official has no discretion in performing duties. Payment must be for something to which the payor was already entitled.  UKBA bars facilitation payments. Best Practices: Prohibit facilitation payments entirely – 80% of U.S. companies have banned them. 31
    32. 32. Risks, Exemptions and DefensesFCPA Affirmative Defense Reasonable and Bona Fide Expenditures Reasonable and bona fide expenditures, such as travel and lodging expenses that are legal under local law and are directly related to:  the promotion, demonstration, or explanation of products or services, or  the execution or performance of a contract with a foreign government or performances of a contract with a foreign government or agency thereof. 32
    33. 33. CompliancePrograms 33
    34. 34. Compliance ProgramsPrinciples for a Successful Compliance Program The key elements of a successful program require:  A commitment to compliance from top management and a consistent message throughout the company.  A careful weighing of risk, commitment to compliance and business needs so that there is “buy-in” at every level of the company.  A business-practical approach which is flexible to respond to risks, local business operations, and effective compliance needs.  Create positive compliance structure which emphasizes common sense, communication and issue identification; solutions to common problems; and recognizes importance of business operations and new opportunities.  AML Compliance programs and controls can be leveraged into Anti- Corruption Compliance programs. 34
    35. 35. Compliance ProgramsAML Convergence and Compliance AML compliance program can be leveraged into anti-corruption compliance:  Risk Assessment: AML risk assessment can be expanded to include FCPA issues to create a broader risk profile.  Training: AML training programs (including record-keeping) for employees and officers can be expanded to include anti-corruption issues.  Compliance Officer: Companies have a designated AML compliance officer, as required by the USA Patriot Act, and this same person could be appointed to lead anti-corruption compliance programs.  Corporate Governance: The core compliance functions in an anti- corruption compliance program, including policies, procedures and investigation, have significant overlap with AML, and governance and internal reporting and review issues should be handled in a similar way. 35
    36. 36. Compliance ProgramsAML Convergence and Compliance AML compliance program can be leveraged into anti-corruption compliance:  Financial Investigations Units (FIUs) can be expanded to include: – Anti-corruption flags for existing alerts; – Transaction monitoring systems can be modified to add new data and new scenarios of concern (e.g. accounts payable and general ledger entries, and gifts, meals and entertainment expenses can be monitored since they are a significant bribery risk); – Politically Exposed Persons who are already identified but can be expanded to include government officials who are vendors, agents and third party intermediaries.  Internal Audits: Both AML and anti-corruption compliance programs need to be tested and audited. Existing internal auditors can be trained to examine anti-corruption issues, or develop new procedures to ensure adequate auditing and monitoring. 36
    37. 37. Compliance ProgramsDesigning and Implementing  Tone at the Top -- The Company should develop and promulgate a clearly articulated and visible corporate policy against violations of the FCPA and a strong commitment from senior management.  Risk Assessment -- The Company should develop its compliance standards and procedures using a risk assessment. The risk assessment should be a formal and documented review. 37
    38. 38. Compliance ProgramsDesigning and Implementing  Senior Management Oversight and Reporting -- The Company should assign responsibility to one or more senior corporate executives of the Company for the implementation and oversight of its Companys anti-corruption policies. Company should designate a compliance officer in senior management and provide adequate resources to compliance office.  FCPA Training -- (a) training for all directors and officers, and, where necessary and appropriate, employees, agents, and business partners; and (b) annual certifications, certifying compliance with the training requirements. 38
    39. 39. Compliance ProgramsDesigning and Implementing  Anti-Corruption Policies and Procedures -- The Company should develop and promulgate compliance standards and procedures for gifts; hospitality, meals, entertainment; customer travel; political contributions; charitable donations and sponsorships; facilitation payments; and solicitation and extortion.  Annual Review -- The Company should review its anti-corruption compliance standards and procedures, on no less than an annual basis to ensure they are working. 39
    40. 40. Compliance ProgramsDesigning and Implementing  Internal Guidance and Reporting – The company should establish or maintain an effective system for providing guidance, inetrnal reporting of potential violations and responding to internal complaints. Most companies provide an internet-based guidance and reporting system, including hot lines and anonymous reporting.  Internal Controls -- The Company should ensure that it has a system of internal controls for the purpose of foreign bribery or concealing bribery. 40
    41. 41. Compliance ProgramsDesigning and Implementing  Due Diligence Screening for Third Party Agents –Screen the initial terms of relationship with Third Party: Review the creation of relationship; establish procedure for centralized review of contracts to ensure consistent standards; and Develop a Different Screening Procedures for Review of Individual Transactions.  Ongoing Assessment -- The Company should conduct ongoing assessments of its FCPA compliance program. 41
    42. 42. Compliance ProgramsGuidelines for Due Diligence Process  Do not over-standardize procedure: − Need to tailor to individual circumstances in each country based on risk.  Need to conduct background check to determine (5-10 year history): − Existence of ties to foreign government officials and employees; − Existence of any pending or prior investigations of bribery or other criminal conduct or civil violations.  Create written package and record of review and approval process to demonstrate compliance. 42
    43. 43. Compliance ProgramsGuidelines for Due Diligence Process  Existence of relationships with foreign government officials: − Purchasing authority; − Licensing or other regulatory authorities.  Prior history of bribery and other crimes.  Nature of services, compensation and payment method.  Written contract: − Representations and warranties on compliance; − Right to inspect and audit third-party books; − Right to terminate contract if believe violation has or will occur. 43
    44. 44. Contact InformationMichael VolkovPartner, Mayer Brown LLP(202) 263-3288mvolkov@mayerbrown.comRyan MorganWorld Compliancermorgan@worldcompliance.com 44

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