World compliance 8 5-10


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World compliance 8 5-10

  1. 1. The Foreign C orrupt Practices A ct Michael L. Volkov
  2. 2. Basic OverviewAnti-bribery: • Domestic concerns (defined as a U.S. person or corporate entity) are prohibited from making corrupt payments or promises to pay foreign officials for the purpose of obtaining or retaining business.Accounting/Recordkeeping Provisions: • Internal control and recordkeeping provisions applicable to corporations whose securities are registered with the SEC, or who must file regular reports with the SEC.
  3. 3. Increased and A ggressive E nforcement• Corporate Mega Fines• Obama Administrations Focus: "HIGH PRIORITY"• New Tactics• Industry-Focus
  4. 4. The Numbers Tell the Story[1 ] Gibson, Dunn & Crutcher, LLP Publication "2009 Year-End FCPA Update" (Jan. 4, 201 0)
  5. 5. Fines and Penalties2008: $ 2.8 billion in fines and penalties assessed against • thirty-six corporations • sixty-four individualsRecent Blockbusters: • December 2008: Siemens A and three subsidiaries pled guilty to alleged FCPA G violations and agreed to pay $ 1.6 billion in fines to U.S. and foreign authorities. [2] • February 2009: Kellogg Brown & Root pled guilty to a bribery scheme in Nigeria and agree to pay $ 402 million in criminal fines, and $ 177 million in disgorged profits. [3][2] http:/www.j / pr/ opa/ 2008/ December/ 08-crm-1 1 05.html[3] http:/www.j / pr/ opa/ 2009/ February/ 09-crm-1 1 2.html
  6. 6. 2010 C orporate Fines and Penalties • February 201 0: BA Systems plc ends a ten plus year bribery ring involving middle E eastern countries and agreed to pay $ 400 million in fines. [4] • March 201 0: Innospec settled charges with the SEC and DOJ for $ 25 million in , fines and penalties. [5] • J 201 0: Technip, part of a four-company j uly oint venture that bribed Nigerian government officials over a 1 0-year period, will pay $ 98 million with an additional $ 240 million criminal penalty. [6] • J 201 0: Snamprogetti Netherlands B.V and Eni S.p.A will j uly . . ointly pay $ 125 million in disgorgement; and Snamprogetti will pay an additional criminal penalty of $ 240 Million. [7][4][5][6][7]
  7. 7. Individual Prosecution Rates Prosecutions of Individuals are Increasing • 2009 – 46 Individuals • 2008 – 1 6 Individuals Lanny A. Breuer, Assistant Attorney General for DOJs Criminal Division: • Significant sentences • FBI Investigative Squad • Strategic partnerships with the US Attorney Generals Office • Partnering with Internal Revenue Service [8][8] Comments by Lanny Breuer to the 22nd National Forum on Foreign Corrupt Practices A November 1 7, 2009, ct,available at http:/www.j / criminal/ speeches-testimony/ pr/ documents/ 1 -1 7-09aagbreuer-remarks-fcpa.pdf 1
  8. 8. A ggressive E nforcement Tactics2009: 2 Year S ting Operation • Undercover Informant • 22 Individuals Charged in US District Court in DCThe DOJs press release on the day of the arrest: • A pproximately 1 50 FBI agents • 1 4 search warrants in the United States [9] • 7 search warrants in the United Kingdom. [1 0][9] http:/www.mainj / 201 04/ fcpa-sting-case-why-gabon/ see al 0/ 05/ ; so http:/ / page2/an1 0/ j fcpa_ 01 261 0.html[1 0] http:/www.j / pr/ 0/anuary/ 0-crm-048.html opa/ 201 J 1
  9. 9. DOJ and SE C TechniquesAggressive law enforcement techniques: • Search Warrants • Undercover Officers • Confidential Informants • Wiretaps • Strategies typically reserved for investigations of violent gangs and drug trafficking organizations (i.e. undercover sting operations)
  10. 10. Whistleblowers Bounty Financial Reform Bill• Whistleblowers can recover between 1 0 and 30 percent of any settlement that exceeds $1 million• Based on significance of information and level of cooperation• Cannot receive if convicted of a criminal violation• Similar to False Claims Act
  11. 11. Who is a Foreign Official? Broadly Defined• Examples: – A Candidate for a Foreign Political Office – A Officer/ n Employee of a Public International Organization (e.g. The World Bank or the United Nations) – Officials of Government Owned Banks or Hospitals
  12. 12. What is an Instrumentality? Foreign Official includes " Instrumentalities"• Examples: – General Manager of a corporation owned in-part by a government owned entity (FCPA Op. Proc. Rev. 08-01 ) – US v. S namproget i Net and s B .V. – Instrumentality t herl 49% government owned – "Rescued" foreign banks
  13. 13. the " Knowing" Requirement " Knowing"• Actual Knowledge / Firm Belief• High Probability• Willful Blindness is not a defense
  14. 14. FC PA E xceptions Facilitating or Expediting Payments• Permits or Licenses• Utilities• Cargo Handling Services
  15. 15. FC PA A ffirmative Defense: Written L aws• Payment under WRITTEN foreign law• Examples: – Court administrator expenses (FCPA Op. Proc. Rel. 07-03) – The Nigerian fine and a "recommended" contractor (FCPA Op. Proc. Rel. 98-01 )
  16. 16. FC PA A ffirmative Defense: Reasonable Bona Fide E xpenditures• Payment of reasonable and bona fide expense related to promotion, demonstration or contract performance• Examples: – Travel expenses to United States (FCPA Op. Proc. Rel. 07-01 ) – Product samples for testing (FCPA Op. Proc. Rel. 09-01 ) – Journalist stipends (FCPA Op. Proc. Rel. 08-03) – Trips to tourist destinations (US v. Met f & Ed d y, Inc.; S E C v. cal Lucent Technol ogies, Inc.)
  17. 17. A ccounting Provisions: C ommon Violations• Failure to record transactions• Falsifying any aspect of a transaction• Misrepresenting purpose or circumstances• Examples: – Recording airline tickets for a foreign officials relative as a "commission payment." (Unit S t es v. Liebo) ed at – Classifying payments to foreign officials as an "incidental fee." (Unit S t es v. O H ara) ed at
  18. 18. PenaltiesAnti-bribery Provisions: • Criminal penalties – Companies: Up to $2 million per violation – Individuals: Up to $1 00,000 per violation and/ up to 5 or years imprisonment • Civil penalties – Corporations and Individuals • Inj unctive Relief • Up to $1 0,000 per violation
  19. 19. PenaltiesAccounting Provisions: • Criminal Fines for Knowing/ Willful Violations – Companies: $25 million per violation – Individuals: $5 million per violation and/ up to 20 years or imprisonmentS EC Enforcement Action: • Possible additional fine not to exceed the greater of the following – Gross amount of pecuniary gain to the Defendant – A specific dollar limitation ranging from $5,000.00 to $1 00,000.00 for a person and $50,000.00 to $500,000.00 for an entity
  20. 20. G lobal Industries are at the Greatest RiskMultinational corporations seeking entry into foreignmarkets • Certain industries: – Pharmaceutical – Telecommunications – Energy – Industrial/ Technology – Health Care – Financial Services
  21. 21. E lements of E ffective FC PA C omplianceFCPA issues arise typically in the following ways: • Direct bribers to government officials • Indirect bribers to government official via agents or third-party representatives • Entertainment and hospitality expenses • Payment of per diems for visiting officers • J venture arrangements oint • Mergers and acquisitions • Charitable contributions
  22. 22. E lements of E ffective FC PA C omplianceGoals: • Educating employees • Communicating that the company is serious about enforcement • Help employees determine when expert involvement is necessary • Monitor adherence to policies
  23. 23. E lements of E ffective FC PA C ompliance• Risk identification• Control identification• Resource identification• Scope and obj ectives identification• Compliance procedures• Accounting procedures• Testing procedures• Reporting procedures
  24. 24. E lements of E ffective FC PA C ompliance• Annual assessments• Implement an anti-corruption program – Training – Communication – Transaction testing – Disciplinary mechanisms
  25. 25. E lements of E ffective FC PA C omplianceTraining and Communications Programs: • Effective recruitment, background, and screening of employees • A nti-corruption training, with additional compliance resources and training to certain employees involved in high-risk transactions or areas • Ethics and business conduct policies and procedures • Policy for tracking payments accurately
  26. 26. E lements of E ffective FC PA C omplianceTransaction Testing:• Identify high risk – Locations – Business partners – A ctivities• Monitoring, Detection, and Auditing Process
  27. 27. E lements of E ffective FC PA C omplianceDisciplinary Mechanisms: • System for reporting suspected violations • Procedures for reporting and responding to problems of possible violations • Notification of appropriate compliance personnel and members of management • Transaction holds • Document preservation • Mechanisms for anonymous reporting
  28. 28. E lements of E ffective FC PA C omplianceOther Compliance Mechanisms: • Develop third party acceptance and retention policies – Compliance contract clauses – Maintain contracts in central location – Implement agent management and due diligence policies
  29. 29. Due Diligence Related to Third-Party A gents and Distributors• Weed out people or firms likely to make bribes• Document hiring decisions• Country desk at the State Department• Background check• Local databases and/ police records or• Written hiring procedures
  30. 30. Due Diligence Related to Third-Party Distributors• Written Questionnaire• Contractual Provisions – Tightly worded – No payment until written agreement in place with FCPA provisions – Written acknowledgment of FCPA
  31. 31. Due Diligence Related to Third-Party DistributorsExample Contract Provisions: • Independent Contractor • A ware of the FCPA and will not commit any actions that would cause an FCPA violation • Not an employer, officer, or representative of the foreign government, nor a candidate for office • No assignment of rights without consent • Issuer can review corporate books • Purchases made pursuant to an itemized list of expenses and in writing
  32. 32. Due Diligence Related to Third-Party DistributorsExample Contract Provisions: • No anonymous payment • Require consent before paying certain expenses, including gifts • Require keeping accurate books • A greement is void ab init if US Company believes that there io is any violation of either the US or the foreign company’s anti- bribery laws • Require notification of relevant changes
  33. 33. General Red FlagsExamples of general red flags include: • "Improper payment" audit in the past five years • Country history • A ccounts of payoffs, bribes, kickbacks • Industry history
  34. 34. Red Flags for Third-Party A gents and Distributors: Transaction Specific• Refusal to provide FCPA compliance statement• Relative/business ties to government official• Bad reputation• Listing on databases for known corruption risks• Request for non-disclosure of identity
  35. 35. Red Flags for Third-Party A gents and Distributors: Transaction Specific• Recommended by foreign government• Lack of facility and/ staff or• Previous violations of local law• Use of anonymous subcontractors• Large/frequent political contributions• Involvement of third-parties who do not add value to the transaction
  36. 36. Red Flags for Third-Party A gents and Distributors: Transaction Specific• Foreign partner owned by key official or relative• Undisclosed silent partner• Relationship does not comply with local laws or regulations• Assignment of rights or obligations• Unexplained breakup with another company
  37. 37. C ontrol-Based Red Flags for Third-Party A gents and Distributors• J venture partner insists on two sets of books oint• Refuses auditing• Inadequate/ Incomplete documentation of expenses
  38. 38. Red Flags for Payment Requests by Intermediaries• Excessive commissions• Payment through convoluted means• Over-invoicing• Anonymous payments• Unusual bonuses, success fees, or extraordinary payments
  39. 39. Necessity of E ffective C ompliance Program• Recent legislation• Tarnished Reputation• Expense of internal investigations and defense• Expense of penalties imposed
  40. 40. The Foreign C orrupt Practices A ct Michael L. Volkov
  41. 41. FC PA Due Diligence: Identifies persons or companies of risk prior to establishing a relationship Follow the funds: -Agents -Distributors -J venture partners oint -Resellers -Suppliers -Clients -Partners
  42. 42. FC PA Due Diligence: Questions to ask•Credible Identification - Photo - Date of Birth - Passport or National ID Number -A ddresses•A you currently holding an elected or appointed government reoffice (local, state, or national)?•Do you have a family member/ business partner who waselected or appointed government office (local, state, ornational)?
  43. 43. Systematic Due Diligence New Relationship High Risk entities: Foreign Officials: Already linked to corruption persons/ companies linked to investigation foreign governmentsPositive Match No Match Escalate Positive Match No Match Escalate
  44. 44. Systematic Due Diligence
  45. 45. Ongoing MonitoringA your organization to risk based on the following: lert• Current 3rd party has now been linked to a corruption investigation or otherillicit behavior• Current 3rd party now linked to a foreign government• Known “foreign official” relationship now has been linked to illicit behavior• Produce reports of when said parties have been screened and how the relationship was dispositioned
  46. 46. O ngoing D ue D iligence: the risk of any relationship can change in an instantReputable Database of foreign officials,and persons linked to corruption Match Report Monitoring Tool based on the following: •NameYour database of current •Dates of BirthrelationshipsVendors/ gents A Employees •Pas s port/ National ID Number •CountryCustomers Suppliers
  47. 47. A n Ounce of Prevention….Systematic Due Diligence should be applied to all divisions of a company that provide or receive products or services outside of the United States • Initial Due Diligence: - Screen all 3rd parties, regardless of locations, in a similar fashion - Gather critical details on contacts to ease the deconflicting process - Set up procedures to deal with names that fall in “gray” • Ongoing Due Diligence: - Gather and centralize information on 3rd parties - Process names in a “batch” screening environment - Implement monitoring application to alert to changes in risk
  48. 48. The Foreign C orrupt Practices A ct Q& A Michael L. V olkov M ichael Volkov D ickinson Wright PL L C (202) 659-6927 Ryan M organ World C om (305) 579-2298 x262