9. Current Enforcement Picture Legal Elements of the Offense UK Bribery Act Effective Date Designing and Implementing a Compliance Program Third Party Agents and Due Diligence Overview 9 9
11. FCPA Global Enforcement Trends 11 Corporate mega fines fueled by voluntary disclosure process. DOJ has dedicated additional prosecutors to FCPA cases. FBI has dedicated FCPA squad. Obama administration is continuing focus on FCPA prosecutions. FBI is using aggressive investigative tactics. DOJ is increasing use of industry-wide investigations.
12. FCPA Enforcement in Latin and Central America 12 US Department of Justice is increasing prosecution of non-US corporations and individuals in United States Courts. In 2010, 70 percent of the companies prosecuted for criminal FCPA violations were foreign companies Many of the criminal cases involve corruption in Latin and Central America, particularly Brazil, Mexico, Venezuela, and Argentina. US Department of Justice is increasing coordination with Latin and Central America enforcement agencies
13. Increase in FCPA Enforcement Actions 13 2010 witnessed an 85% increase in FCPA enforcement actions over 2009, which itself was a record year. 60 48 50 40 DOJ 30 26 26 SEC 20 20 18 20 14 13 8 10 7 7 5 3 2 0 2004 2005 2006 2007 2008 2009 2010
14. Blockbuster FCPA Settlements 14 * Eight of the top ten monetary settlements in FCPA history were reached in 2010. $900 2010 Siemens $800 2009 $700 2008 KBR/Halliburton $600 $500 BAE Systems ENI/Snamprogetti $800 $400 Technip $300 $579 Daimler $400 $200 Alcatel-Lucent $365 $338 Panalpina ABB $100 $185 Pride International $137 $82 $58 $52 2010 Total*: $1617 $0
15. David Kay,American Rice, Inc. 37 months John Warwick,Ports EngineeringConsultants Corporation 37 months Robert Antoine,Haiti Telco 48 months Juan Diaz,Third party consultantto Haiti Telco 57 months Douglas Murphy,American Rice, Inc. 63 months Albert Jack Stanley,KBR 84 months Charles Paul Edward Jumet,Ports EngineeringConsultants Corporation 87 months 0 10 20 30 40 50 60 70 80 90 100 Most Severe Jail Sentences for FCPA Violations 15
16. Industry-Wide Investigations 16 Oil and Oil-Services Industry – Panalpina Investigation – Vetco settled FCPA case in 2007 based on illegal bribes made through Panalpina. Following settlement, DOJ issued at least 11 letters to oil and oil services companies, requesting information about their dealings with Panalpina. On Nov. 4, 2010, DOJ and the SEC announced settled FCPA enforcement actions against Panalpina plus six of these oil and oil services firms (most of which were Panalpina customers) totaling $236.5 million in disgorgement, fines, and penalties.
19. Latin America Economic Trends 19 Countries in Latin America, such as Brazil, Mexico, Colombia, Peru, Chile and others, are attracting global investment because of significant economic opportunities The region is viewed as attractive for foreign investment At the same time, governments are increasing anti-corruption and other enforcement programs to reduce corruption and anti-competitive activities.
21. Global Perception of Latin America Corruption 21 Transparency International has reported that 22 of the 32 countries in Latin America are perceived to suffer from high levels of corruption This problem of corruption goes hand in hand with the high level of inequity that has not been overcome by the economic growth experienced by the region in the last few years. Weak government institutions, low levels of governance and the influence of particular interests negatively affect efforts to promote equitable and sustainable human development.
22. International Efforts to Reduce Corruption 22 Nearly all Organization of American States (OAS) member states have signed and ratified two key legal instruments that provide a foundation for preventing corruption: the Inter-American Convention against Corruption and the UN Convention against Corruption. Most signatory countries have joined the follow-up mechanism of the Inter-American Convention, a fundamental step for the treaty to become truly effective. Member states have generally been slow to implement meaningful reforms and enforcement program
28. FCPA was first enacted in 1977 but it has acquired new vigor in the post-SOX environment. The FCPA consists of civil and criminal penalties The FCPA has two parts: The anti-bribery provisions The books and records/internal controls provisions (applies to "U.S. issuers") FCPA Violations
32. All foreign persons when in US territory, whether or not they use instrumentalities of interstate commerceIncludes directors, officers, employees, and agents of entities subject to the statute
33. Elements of an FCPA Violation 27 Accounting / Recordkeeping Provisions: Under the books and records provisions, issuers must keep accurate books and records and maintain adequate internal controls.
34. Anti-Bribery Provisions 28 “It is a crime for any U.S. Person or Company to directly or indirectly pay or promise money or anything of value to any foreign official to obtain or retain business or any other improper advantage.”
35. Money or Anything of Value Cash Gifts (such as expensive meals, wines, merchandizing with the Company logo) Services Travel expenses Business Opportunities; Advantages; Changes in law. Bribe need not to be paid ― the promise of a bribe is also illegal. The terms “obtaining or retaining business” or any “improper advantage” are construed very broadly.
36. Foreign Official Government officials and employees Political party candidates and employees Employees of government controlled companies or instrumentalities Employees of public international organizations Any others in an official capacity (including honorary positions)
37.
38. FCPA applies to interactions between businesses and state-owned companies owned by foreign governments (e.g. Ecopetrol in Colombia)
39.
40.
41. The SEC may also impose further civil penalties ranging between $7,500 to $150,000 upon individuals and $75,000 to $725,000 upon companies.
56. Due diligence review will identify the past FCPA violations and the target might need to make a disclosure to the Justice Department.
57. Companies will have to address past FCPA violations: change in price, structure, additional warranties and indemnifications; deal could terminate or be delayed.
62. UK government is conducting “review” of law because of UK business complaints.
63. UK prosecutors have stated they intend to aggressively enforce the Act against global companies “doing business” in UK.
64.
65.
66. No company wants to be the “guinea pig” for initial UK Bribery Act enforcement actions.
67. Companies need to review and revise FCPA compliance programs to address Bribery Act.
68.
69. FCPA Compliance Policy and 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. Strong policy statement should be adopted by the Board. Board and senior management should be required to make commitment to anti-corruption compliance. Compliance commitment must be demonstrated by actions. Basic Elements of FCPA Compliance Program 47
70. The Company should develop and promulgate compliance standards and procedures which shall include policies governing: gifts; hospitality, entertainment, and expenses; customer travel; political contributions; charitable donations and sponsorships; facilitation payments; and solicitation and extortion. Anti-Corruption Policies and Procedures 48
71.
72. the extent of government interactions and the persons in the company responsible for such interactions; and
73. the use of third-party agents, consultants in each country.Use of Risk Assessment 49
74.
75. Dynamic process for modifying the compliance program should be made as new information is learned.Ongoing Assessment 50
76. The Company should assign responsibility to one or more senior corporate executives of the Company for the implementation and oversight of its Company's anti-corruption policies. Company should designate a compliance officer in senior management and provide adequate resources to compliance office. Compliance officer should be separate from General Counsel and internal auditing functions. Senior Management Oversight and Reporting 51
77. The Company should ensure that it has a system of internal controls for the purpose of foreign bribery or concealing bribery. Internal controls are key to identifying and preventing bribery. Internal audits must be supplemented with forensic audits since internal audits hinge on “materiality” and may not catch bribery schemes. Every expenditure of money where bribery may occur should have specific controls and management procedures to prevent bribery (e.g. gifts and hospitality, review form for certain amounts and review by compliance and legal offices). Internal Controls 52
78. FCPA training which shall include: (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. Training programs should be tailored to different audiences and risks. Offices that have interactions (sales and regulatory) with foreign officials should have different program from senior management. Legal and compliance staff throughout organization should have separate training program. Training 53
79. The Company should establish or maintain an effective system for Providing Guidance; Internal Reporting; and Response to such internal reporting. Internet-based guidance and reporting systems Hot-line reporting system for employees to make anonymous reports Detailed procedure for review and response to internet and hot-line reports Ongoing Advice and Internal Reporting 54
80. The Company should have appropriate disciplinary procedures to address violations of the anti-corruption laws and the Company's anti-corruption compliance code, policies, and procedures. Specific disciplinary procedure should be adopted for employees who commit corruption offense. No tolerance policy should be adopted and enforced. Discipline 55
81. Foreign Business Representatives. The Company shall: Perform appropriate due diligence on foreign business representatives; Inform foreign business partners of its FCPA compliance program; Seek reciprocal written anti-corruption and anti-bribery commitments from its foreign business partners. Compliance Terms and Conditions. The Company should include FCPA terms and conditions in its contracts with foreign business partners. Foreign Business 56
83. Due Diligence Screening of Third Party Agents 58 Screen the Initial Terms of Relationship with Third Party: Review the creation of relationship, or any subsequent changes to responsibilities or countries where agent operates. Establish procedure for centralized review of contracts to ensure consistent standards. Depending on size of company, should establish review at highest level within the company. Develop a Different Screening Procedures for Review of Individual Transactions.
84. Guidelines for Due Diligence Process 59 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.
85. Basic Issues to Cover 60 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
86. Red Flags 61 Due diligence review of relationship or individual transactions must include red flags which require additional investigation before approval. Red flags are facts and circumstances that raise serious questions of an FCPA violation. Companies which ignore red flags run the risk of FCPA enforcement actions, criminal fines and the need for costly remedial measures. A red flag only means that further scrutiny is warranted.
87. Red Flag Procedure 62 Red flags should be tailored to each country and the relevant risks. Red flags should be categorized based on risk factors (e.g. some are significant and require more investigation than others).
88. A few thoughts - The perfect FCPA program Elements of a program that stands up to the Justice Department: The settlement in late 2010 between RAE Industries and the Justice Department and SEC included a detailed outline of “best practices” for a forward-looking FCPA compliance program. Code of Conduct, Tone at the top, Anti-Corruption Policies and Procedures, Use of Risk Assessment, Annual Review, Oversight and Reporting, Internal Controls, Training, Ongoing Advice and Guidance, Discipline, Use of Agents and Business Partners, Contractual Terms And Conditions, Ongoing Assessment 75% of the 1.8 Billion related to failure in the Due Diligence process
89. A few thoughts - The perfect FCPA program Elements of a program that stands up to the Justice Department: Bullet point 11: Exercise appropriate due diligence and implement compliance requirements to ensure proper oversight of agents and business partners. These requirements should include: performing risk-based due diligence for “the hiring and appropriate and regular oversight of agents and business partners”; informing agents and business partners of the company’s commitment to follow the laws against foreign bribery and of the standards, procedures and other measures the company has in place to detect and prevent bribery; and seeking a reciprocal commitment from agents and business partners. Bullet point 12: Include standard provisions in agreements and contracts with agents and business partners that are designed to prevent violations of the anti-corruption laws. These provisions might include, depending on the circumstances: anti-corruption representations and undertakings; rights for the company to conduct audits of the books and records of the agent of business partner; rights for the company to terminate its relationship with an agent or business partner as a result of any breach of anticorruption laws. Conduct periodic review and testing of thetionship with an agent or business partner as a result of any breach of anticorruption laws
90. How do you recognize a Red Flag? Definition: a flag that serves as a warning signal “Existence of Relationships with Foreign Government Officials” -Gather the name of the owners/executives of the 3rd Parties -Compare against a reputable database of Foreign Officials – Screening “Prior History of Bribery and other Crimes” -On average Google finds 500 new articles on “corruption investigation” -Company or Person with history of fraud or money laundering may be a precursor to corruption risk 65
93. “Who they are” is just half the pieWilliam Kelleher - Reseller in Ireland CarraignabhFear Cork City, Ireland DOB 1/15/1972 66
94.
95. 3rd party is not being investigated for corruption (or fraud, or money laundering, etc.)William Kelleher Billy Kelleher President, XYZ FO Mstr. of State ,Trade and Commerce CarraignabhFear 1st Street Cork City, Ireland Dublin, Ireland DOB 1/15/1960 DOB 1/20/1968 67
96. Unsystematic Due Diligence Systematic Due Diligence High Risk Agents Partners TIPs in high risk jurisdiction Medium Distributors Resellers Low Risk Suppliers Vendors High Risk Medium risk Low Risk
97. Building Blocks of Systematic Due Diligence Take out the Garbage - Validate your information, gather critical data such as owners Details Knock down the silos – create a central database that is consistent for all 3rd parties Screen – Prove who they aren’t, investigate Corruption happens every day, so should your due diligence Document, Document, Document 69
98. GIGO - “Check the Box” is not a sound policy Company: ABC Corporation Location: Hong Kong Owner: 唐老鸭 TLI – Too Little Information You can’t prove “who they aren’t” without the proper information: WorldCompliance has 140 Foreign Officials or their contacts containing “Juan and Ramirez” Without a UI, Unique Identifier, you can waste valuable time and money proving who they are 70
99. Building Blocks of Systematic Due Diligence Take out the Garbage - Validate your information, gather critical data such as owners Details Knock down the silos – create a central database that is consistent for all 3rd parties Screen – Prove who they aren’t, investigate Corruption happens every day, so should your due diligence Document, Document, Document 71
105. Only part of your program that protects you continuously? 73
106. Building Blocks of Systematic Due Diligence Take out the Garbage - Validate your information, gather critical data such as owners Details Knock down the silos – create a central database that is consistent for all 3rd parties Screen – Prove who they aren’t, investigate Corruption happens every day, so should your due diligence Document, Document, Document 74
107. Who they aren’t 1 of a million documented foreign officials or their contacts 1 of tens of thousand of persons investigated for corruption 1 of thousands known corrupt foreign officials
108. Building Blocks of Systematic Due Diligence Take out the Garbage - Validate your information, gather critical data such as owners Details Knock down the silos – create a central database that is consistent for all 3rd parties Screen – Prove who they aren’t, investigate Corruption happens every day, so should your due diligence Document, Document, Document 76
109. Building Blocks of Systematic Due Diligence Carl Ahlgrimm – Mayor of small town in Germany – Appointed 2010 NereuAlves De Moura – Member of Chamber of Deputies, newly elected Mohammed Abul-Enein – Chairman of Group Cleopatra, largest producer in the world of Ceramic Tiles, founded 1983 77
111. Document your process and decisions Stopped using XYZ Company in Romania as of March 3, 2011 for logistics as owner was brother of Mr. Teselena 79
112. Systematic Due Diligence Your Checklist should used to gather information, not checking boxes Not a one time check There is no DOJ “anti corruption” certificate, yet Training is a component of your program, not the program Is a process that is continuous, and covers all TiPs not just the top of the pyramid 80
130. Deciding who is a true match or no match has never been easier WorldCompliance
131. Monitoring – risk profiles for relationships change over time Vendors/ Agents World Compliance Global Database GSL, GPL, GEL, GAL,GIL Employees Alerts Customers Partners Name Matching Software Name Matching Report
136. Create an audit trail that tracks all decisions, and documents90
137. Review WorldCompliance With the FCPA, the “long arm” of the US Justice System just got longer….. Due diligence is the cornerstone of your Anti Corruption and Anti Fraud programs WorldCompliance offers the largest database of Foreign Officials, the largest and most comprehensive database of high risk persons = the most protection With FCPA Force, we can offer all 4 pieces to providing complete protection for your organization in Latin Am and overseas
138. Contact Ryan Morgan Pablo Ferrante Direct: +1 305.579.2298 Ext. 262 Direct: +1-713-238-2662 RyanM@worldcompliance.com Cell: +1-713-240-5202 pferrante@mayerbrown.com Richard L. Cassin info@cassinlaw.comBruno Werneck Direct: +55-11-2504-4245 Michael Volkov Cell: +55-11-9104-1185 Direct: (202) 263-3288 bwerneck@mayerbrown.com Cell: (240) 505-1992 mvolkov@mayerbrown.com
