Considerations for Response to A Claim of Corruption Within the Company

1. The 5 Critical Considerations
What to do When an Allegation of a FCPA Violation
Is Raised Within Your Company
A GRC WHITEPAPER
FROM THE NETWORK

2. WHAT TO DO WHEN AN ALLEGATION OF A FPCA VIOLATION IS RAISED WITHIN YOUR COMPANY THE NETWORK – page 2
The reaction to corruption by both national
enforcement authorities here and abroad, as well
as within multi-national corporations throughout
the world, has changed dramatically over the past
10 years. In 2004-05, U.S. federal government
FCPA investigations were at their infancy, and
the DOJ and the FBI were just beginning to focus
heavily on significant global corruption and
foreign bribery investigations and prosecutions.
Similarly, many companies, including a number
of multi-nationals, did not have “compliance”
departments, and the mere mention of the term
“compliance” was often met by a strange look of
unfamiliarity.
Back in 2005, on behalf of Former Federal Reserve
Chairman Paul Volcker and the Independent
Inquiry Committee Investigation Into the Iraqi
Oil for Food Programme (OFFP), I was meeting
regularly with national authorities from all over
the world, Europe, Asia and elsewhere, who were
focusing on corruption, including some of my
former colleagues at the Fraud Section at Main
Justice. The purpose of my efforts at the time was
to refer completed OFFP corruption investigations
and evidence of bribery and corruption schemes
involving the Government of Iraq and thousands
of companies, for further enforcement actions,
including criminal prosecution and civil forfeiture
and asset recovery efforts. The referrals helped
lead to an increase in focus by the US Government
and others on the topic of foreign bribery.
Corruption investigations elsewhere, especially
extraterritorial - focusing on activities beyond
a country’s own borders - were virtually non-
existent. Likewise, the exchange of a benefit for a
government contract, or as a gratuity/expression
of appreciation for one, in many parts of the
world, was engrained in the society’s culture as
well as the government institutions themselves.
In a number of regions, a “commission” was
expected to be made for a government contract,
or as an expression of appreciation. Not only
were such payments not punished, in a number of
places the practice wasn’t even considered illegal.
In addition, there were, and still are, very few
extraterritorial laws addressing corruption that
occurred beyond a country’s own borders, and
even less efforts to enforce them. As one high
level government official in Southeast Asia told me
in 2013, “We don’t investigate cases of our citizens
bribing foreign officials. Our laws do not address
that. It’s only if [the corruption] happens [here].”
On several occasions in distant lands, I came
across actual tables on how the profits of bribery
were to be divided through the government
hierarchy, increasing proportionally depending
upon the level of seniority of the official. All of
this translated into a circumstance where just a
fraction of the incidents of bribery and corruption
were investigated, let alone successfully
prosecuted.
THE 5 CRITICAL CONSIDERATIONS:
WHAT TO DO WHEN AN ALLEGATION OF A FCPA VIOLATION IS RAISED WITHIN YOUR COMPANY
A WHITEPAPER BY ROBERT APPLETON, ESQ., DAY PITNEY LLP

3. WHAT TO DO WHEN AN ALLEGATION OF A FPCA VIOLATION IS RAISED WITHIN YOUR COMPANY THE NETWORK – page 3
Today, circumstances have changed somewhat,
albeit not dramatically. They have changed
enough to drive a difference in the response to
allegations of corruption. Companies engaged
in commercial activity beyond their borders,
wherever located, must take allegations of
corruption and bribery, as well as their compliance
efforts to lessen these risks, seriously. To do
otherwise, companies risk a fate similar to that
which befell Alstom and Siemens, as well as others
that have been highly publicized, or worse. Now,
the downside risk of punishment and potential
consequence for a bribery or corruption finding
has increased exponentially, even though only
a fraction of contracts tainted by bribery are
pursued by enforcement officials. In addition,
in order to promote greater accountability,
whistleblower reward programs have formed,
and some have received the commitment of
substantial funding. As a result of enabling
legislation and agency programs, there is now at
least the potential for significant whistleblower
and insider rewards for disclosure of evidence of
corruption within corporations.
Similarly, much tougher anti-corruption
legislation has been passed in a number of
important countries, including Brazil and China,
and prosecutions are on the rise. While a paltry
number of corruption cases are prosecuted in Asia
and Africa, much greater attention is being paid to
this issue.
In addition, African countries are now demanding
a greater percentage of the fines and penalties
being imposed by foreign authorities that
prosecute cases in their territory – asserting that
their communities are the victims of schemes,
and they should therefore join in the spoils of the
recoveries.
Further, fine and penalty amounts are increasing
substantially, and the SEC and DOJ have publicly
announced intentions to hold individual corporate
officials personally responsible for undertaking
as well as intentionally turning a blind eye to
corruption schemes. And last but not least,
compliance programs and compliance officers are
now an ever increasing subject of enforcement
actions. The very recent case of BHP Billiton is a
potential paradigm shift - wherein the company
agreed to pay a $25 million fine to the SEC for
alleged failures in their compliance program
and their “Olympic Hospitality Program,” where
no there was no actual contract procured, no
government involvement, and no quid pro quo
was proven to exist. The case represents the trend
where the pendulum has swung to a landscape
where there is much more scrutiny not only on
the acts of corruption, but the instrumentalities
of it as well - such as gifts, hospitality, travel and
entertainment, and even the hiring of relatives
of foreign government officials as a basis for an
enforcement action.

4. WHAT TO DO WHEN AN ALLEGATION OF A FPCA VIOLATION IS RAISED WITHIN YOUR COMPANY THE NETWORK – page 4
While most agree that all companies must now
take allegations of corruption, improper benefits,
and faulty compliance, seriously, when an
allegation is raised, the question what a company
should do does not lend itself to an easy answer.
The question of if, and when, to disclose the
issue to the government haunts many. The goal
of this article is to examine some important
considerations for corporate leaders when such
an issue arises, either through a whistleblower
hotline, a direct complaint, a routine audit, a
compliance review or some other manner. The
first two considerations assume that notice of the
allegation has not reached the government, and
that a subpoena or notice that the DOJ and/or SEC,
or some other enforcement body is investigating,
has not been received. The premise is that the
issue has arisen entirely internally. If such is not
the case, and notice has been achieved through
a subpoena, search warrant, or a visit from a
government agent, much of the later discussion in
this piece nevertheless remains relevant.
If the matter is raised internally, you might
consider the following.
What to do first depends upon the size
and structure of your company, where it is
headquartered, and whether you are publicly
traded or privately held. It also depends on the
nature of the allegation, and what it encompasses,
and to whom it is directed. The first thing not
to do though, in any case, is to bury it. Such a
course could be potentially catastrophic, and, if it
later become known, is a decision that may well
be considered “aggravating” by the government
when penalty time rolls around. It is axiomatic
that enforcement authorities expect companies to
address deficiencies in compliance, and remediate
weaknesses as well as failures, regardless of
whether an enforcement action ensues. If such an
action does later arise, the failure to strengthen
existing compliance programs, remediate the
deficiencies and address the complaint and/
or failure(s) will all substantially increase fine
amounts at the very least, and may lead to other
consequences.
WHAT NOT TO DO - IGNORE

5. WHAT TO DO WHEN AN ALLEGATION OF A FPCA VIOLATION IS RAISED WITHIN YOUR COMPANY THE NETWORK – page 5
WHAT TO DO
Perhaps the first consideration when an allegation
surfaces is the question of whether the claim or
complaint possibly has merit – and whether it
in fact gives rise to an FCPA or related violation.
In other words, is it something to worry about?
The answer whether there indeed is a problem
largely depends upon the nature of the allegation,
the evidence that is presented or discovered to
support it, the credibility of the complainant and
the claim, and jurisdictional considerations. For
purposes of this exercise, the company should
treat the allegation has having prima facie merit,
and, if on its face a violation is present, (assuming
that the allegation is accepted) should be
assessed. Much of the time, the complaint should
at least be preliminarily investigated.
Depending upon the size of the company and the
allegation, the process should begin internally.
A smaller company, without an internal audit or
compliance function, should consider employing
the services of an outside expert (an individual or
a firm) that is credible, competent, well-versed and
experienced in the art of internal investigation, as
well as the relevant laws and regulations at issue.
Acting under the direction and supervision of a
lawyer or law firm, the results of the investigation
or forensic audit would in most cases may be
covered by the attorney client privilege. When
a law firm drives the process, the report is not
subject to disclosure through compulsory process.
Privilege has many benefits, not the least of which
is that it renders the report secure and while there
are exceptions, mostly undiscoverable.
1. Assess Whether You Have a Possible
FCPA or Similar Violation
The preliminary inquiry should be thorough, and
should not cease simply because no evidence
has been provided along with the claim. It is not
the complainant’s job to produce evidence, but
the reporting system should encourage this. An
effort should be made to identify evidence that
supports as well as evidence that undercuts
the claim, unless the complaint is patently
frivolous on its face or includes other indicia of
clear untrustworthiness. Unless the complaint
is clearly something that cannot or should
not be addressed, effort should be made to
collect all relevant information, documents and
materials. Due consideration needs to be given
to confidentiality, and any inquiry, especially a
preliminary one, should be conducted with the
utmost discretion. Formal interviews should not
be conducted at this stage, but should wait until a
full investigation is deemed necessary. Likewise,
forensic efforts should, for the most part, wait.
ALSTOM
2ND
Highest Fine On Record
“We encourage companies to maintain robust
compliance programs, to voluntarily disclose and
eradicate misconduct when it is detected, and
to cooperate in the government’s investigation.
But we will not wait for companies to act
responsibly.”
- Assistant Attorney General Caldwell
Alstom’s failure to report the violations and failure
to cooperate until they received subpoenas resulted
in driving the penalty up to a $772 million fine – the
second highest FCPA enforcement fine on record.

6. WHAT TO DO WHEN AN ALLEGATION OF A FPCA VIOLATION IS RAISED WITHIN YOUR COMPANY THE NETWORK – page 6
Depending upon the nature of the allegation, and
the evidence that supports it, sometimes a full and
comprehensive internal investigation, buttressed
by forensics, is warranted. While this process
should be done expeditiously, it should also be
accomplished comprehensively and fairly. When
an allegation is raised in a subsidiary or office in a
country within a company that has operations in
many other countries throughout the world, it is
most often not necessary to conduct the internal
investigation everywhere – but investigators
should follow the natural progression of where
the evidence leads and follow the investigation of
this complaint through to its logical conclusion.
Operations in other countries should be
examined to ensure this issue has not arisen
elsewhere, but that examination most often can
be conducted under a different scale and scope.
The investigation of the allegation raised need not
be repeated everywhere (unless the focus of the
allegation is just that, a claim that the issue(s) is/
are company-wide and pervasive).
2. Assess Whether to Undertake a Deeper Internal Investigation
If there is a division of views from experienced
professionals on whether to undertake a thorough
internal investigation, one should err on the
side of caution and conduct it. If done correctly,
there is not a lot of downside to the exercise,
other than cost. There is potentially substantial
benefit, including identifying other deficiencies
before they become larger, and more challenging,
problems. These exercises as well can be used as
an alternative and substitute to deep compliance
audits, which should be undertaken regularly
nevertheless.
The investigation should also be thorough, using
forensic tools, and be done by experienced
professionals in this field. Remember, this is
not an audit – not a review of processes, but an
investigation of the merits of an allegation. An
investigation counsel should supervise the effort
and analyze the results. An experienced white
collar lawyer is best placed to review, analyze and
assess the outcome of the investigation and the
findings.

7. WHAT TO DO WHEN AN ALLEGATION OF A FPCA VIOLATION IS RAISED WITHIN YOUR COMPANY THE NETWORK – page 7
A company can get good credit for correcting
compliance deficiencies that surface or come
to light during an inquiry, and similarly, also
be punished for ignoring compliance when a
deficiency emerges. Remediation is important,
and an opportunity for the company to turn a
potential problem into a vehicle for credit.
Behind voluntary disclosure and cooperation,
remediation is often cited as the third most
important corrective measure a company
can undertake to mitigate possible penalties.
Failure to remediate is sometimes considered
an “aggravating” factor, warranting increased
penalties at the time of resolution.
It should be noted that remediation should not
delay the engagement with the government,
the disclosure of investigation results and the
production of the internal investigation report, in
order to ensure “timely” cooperation. Remediation
is a completely different exercise than
investigation, and this distinction is important. The
investigation need not be conducted throughout
the company unless it is logical to do so and
remediation efforts should be well documented as
they happen.
An allegation of corruption at a subsidiary, a
country office, a merger or acquisition target, or
against an official, presents a great opportunity
to review the company’s compliance program
generally. It’s also a mechanism to test the
compliance program across the company’s
operations, to ensure that the alleged issue,
deficiency or problem has not expanded to
other locations or offices, or reached other
departments. Based on a number of comments
by key government officials recently, such an
effort is expected by government enforcers to be
undertaken by companies subject to the FCPA and
other federal laws.
“Marubeni rolled the dice (by deciding not to self-
report) and suffered gambler’s remorse.”
- A top SEC official
MARUBENI
Gambler’s Remorse
3. Assess Internal Controls and Compliance – Remediate
In 2012, Marubeni received an $88 million fine,
increased partially by the failure to self report. The plea
agreement cites Marubeni’s refusal to cooperate with the
department’s investigation when given the opportunity
to do so, its lack of an effective compliance and ethics
program at the time of the offense, and its failure to
timely remediate as several of the factors considered by
the department in determining the resolution.

8. WHAT TO DO WHEN AN ALLEGATION OF A FPCA VIOLATION IS RAISED WITHIN YOUR COMPANY THE NETWORK – page 8
4. Assess Whether to Make A Voluntarily Disclosure
The question whether to disclose a potential
violation to a previously unaware government
agency presents perhaps the greatest challenge
for many corporate leaders. To many, disclosure
is synonymous with “confession,” an admission
of guilt, that may result in a cascading never
ending series of punishments, debarments,
loss of reputation and business. The decision
to disclose a violation is often counter-intuitive,
despite the repeated claims by the government of
the “benefit” of the practice. Senior government
officials routinely and consistently espouse the
virtues of disclosure, including limitations on
penalties and heavy decreases on fine amounts.
“Credit” is often promoted as a reward for early
and timely disclosure. Regardless, many still push
back and decline.
My analysis of the many cases over the past five
years, including those where I have been involved,
generally bears out that if cooperation is done
correctly, and in good faith, the potential benefits
are substantial. Valuable lessons have been
learned along the way.
For instance, a couple of very important
considerations must be kept in mind – first, the
disclosure must be early, before the government
becomes aware of the issue, or at least well before
you believe the government becomes aware of it.
A disclosure is not considered by the government
to be “voluntary” if a company willingly responds
to subpoenas by producing documents only after
being compelled to do so.
The kind of disclosure that is considered
“voluntary” is one that it is undertaken close to the
time the issue is raised, before the matter is on
the radar screen of the enforcement authorities,
and well before formal requests are made for the
production of documents, witnesses and internal
investigation reports.
LAYNE CHRISTENSEN
Self-Reporting Pays Off
“In addition to self-reporting the misconduct,
Layne cooperated with the SEC’s investigation
by providing real time reports of its investigation
findings, producing English language translations
of documents, and making foreign witnesses
available. The company also undertook a
significant remediation effort. Layne self
reported its violations, cooperated fully with the
investigation and revamped FCPA compliance
program . . . [all efforts that] were credited in
determining the appropriate remedy.”
Layne Christensen paid effectively no fine beyond
disgorgement and interest because of the credit
received for self-reporting and extraodinary
cooperation.

9. WHAT TO DO WHEN AN ALLEGATION OF A FPCA VIOLATION IS RAISED WITHIN YOUR COMPANY THE NETWORK – page 9
Generally, a study of previous cases reveals that
companies receive approximately 20% reduction
from the bottom of the sentencing guideline
range for early disclosure, sometimes more if
coupled with extensive cooperation
(as discussed below), sometimes
less – if other aggravating factors
are present. Voluntary disclosure,
coupled with full and timely
cooperation, generally results in the
greatest benefit, and can produce
decreases in fine amounts of 50% or more from
the bottom of the guideline range. But companies
must go all of the way, disclosure must be
complete and unequivocal, and without conditions
– meaning that nothing can be held back.
Disclosure includes producing the internal
investigation report, witness summaries,
documents, emails, names and identification of
company personnel. Any limitation imposed will
undoubtedly result in lesser mitigation and less of
a penalty reduction, and even possibly a finding of
“aggravation”. The more that is volunteered and
produced, the stronger the government’s view and
recommendation of the nature and extent of the
disclosure.
As discussed below, the company must be willing
to disclose, irrespective of where the evidence
leads, including into the higher levels of the
company – even executives. No exception can
be made. Efforts to protect senior officials, such
as in the Avon case, will lead to an increase in
penalty, rather than a decrease. It is often better
not to disclose, if a company will place significant
limitations on what it is willing to turn over.
This can actually result in a circumstance worse
than saying nothing at all, if it is viewed by the
government that the company is trying to protect
certain officials, or keep certain embarrassing,
problematic or difficult facts from them, or out of
the realm of public scrutiny.
Efforts to protect senior officials, such as in the
Avon case, will lead to an increase in penalty,
rather than a decrease.
AVON
A Missed Opportunity
“Avon missed an opportunity to correct
potential FCPA problems at its subsidiary,
resulting in years of additional misconduct that
could have been avoided.”
Avon management learned about potential FCPA
problems at the subsidiary through an internal
audit report in late 2005, but didn’t follow up
until 2008, after the CEO received a letter from a
whistleblower.
This issue is often best considered on a case by
case basis, but there is a good track record now
from which an estimate of the degree of benefit
can be assessed. But many factors go into the
analysis and an outside review by competent and
experienced counsel is a must.
When the decision is made to disclose, to
whom should the disclosure be made? If there
is jurisdiction in the United States, where there
often is, the SEC and the DOJ are the options. The
selection depends on the case. The DOJ principally
handles criminal matters and the SEC civil and
administrative. However, these often overlap, and
both have jurisdiction much of the time. Often,
disclosure to both is the safest play.

10. WHAT TO DO WHEN AN ALLEGATION OF A FPCA VIOLATION IS RAISED WITHIN YOUR COMPANY THE NETWORK – page 10
Next to the question whether to disclose, the next
most difficult, but also the most important issue,
is whether to cooperate with the government
investigation that will likely follow notice to
enforcement authorities of a possible violation.
As with disclosure, the nature and extent of the
cooperation drives the amount of the reduction
of the fine, or, the benefit for the cooperation.
To achieve maximum benefit, and a real and
substantial reduction of the penalty amount,
cooperation must be “full” and complete. Meaning,
nothing can be withheld. Not the internal
investigation report, not summaries of internal
witness interviews, not the identification of lists of
all responsible individuals, nor emails, hard drives
or files. All records, employees, including senior
officials and third party agents and intermediaries,
must be made available and produced. Even
delays will result in a reduction in the amount of
benefit that will be offered.
However, coupled with disclosure, full cooperation
can drive a penalty substantially downward. It
can make the difference between a requirement
to enter a guilty plea, or the ability to secure
a Deferred Prosecution Agreement (DPA) or
Non-Prosecution Agreement (NPA) with the
government. It can result, if full and considered
“extraordinary” in more than a 50% reduction in
the guidelines fine – see Alcoa, Goodyear Tire, HP
and a number of others. One need only compare
and contrast the Alcoa resolution with Alstom fine,
the Goodyear Tire and HP resolutions with the
fines in the Weatherford and Avon cases, to get
a sense of the difference in penalty between full
cooperation and early disclosure, as against no
disclosure and what may be perceived as “tardy”
cooperation. In the Alcoa/Alstom cases, it meant a
difference of many hundreds of millions of dollars
- down for Alcoa, and up for Alstom.
We have tested all of the resolutions over the
past three years, and generally this trend holds,
with some exceptions that can be explained. Any
reservation, or withholding, translates directly
in limits on the decrease of the fine amounts.
Generally, the greater the cooperation and the
earlier and more complete the disclosure, the
greater the benefit.
However, these decisions must be made with the
advice and counsel of legal counsel that is well
versed in these issues, with a deep understanding
of how such penalties are fashioned. A misstep
could literally result in a difference of hundreds
of millions of dollars - or the company being
criminally charged.
Again, the only thing possibly worse – is to ignore
the issue and pray that it goes away. Such a
gamble is the ultimate roll of the dice, and a
choice where the odds get worse with every day
that passes.
BIO-RAD
Extraordinary Cooperation
“This enforcement action, which reflects credit
for Bio-Rad’s cooperation in our investigation,
reiterates the importance of all companies
ensuring they have proper internal controls to
prevent FCPA violations.”
Bio-Rad received a non-prosecution agreement from
the DOJ after self-disclosing and fully cooperating
with the agency.
5. Assess Whether to Fully Cooperate with a Government Investigation

11. WHAT TO DO WHEN AN ALLEGATION OF A FPCA VIOLATION IS RAISED WITHIN YOUR COMPANY THE NETWORK – page 11
Robert Appleton is a Partner in the law office of Day Pitney LLP, where he
concentrates on white collar matters, government investigations, compliance,
broker/dealer securities issues and asset recovery. Robert provides strategic
counsel to broker/dealers, companies and individuals facing state, federal, DOJ
or SEC investigations and prosecutions or financial losses; advice and defense
on FCPA matters, export control-sanctions and enforcement advice; and
compliance-including compliance assessments and preparation of individual
tailored compliance programs in the areas of export control, FCPA and
securities law.
Mr. Appleton has served in many senior positions, both in the US and abroad, and led and managed
hundreds of international cross border financial fraud, securities and financial misuse investigations over
his career as a US federal prosecutor, high profile international investigator and senior global compliance
attorney.
Robert has prosecuted numerous high profile international fraud, money laundering, weapons trafficking
and terrorism cases, and twice won the prestigious Director’s Award – the second highest accolade in the
Department of Justice, for exemplary service in key cases. He has successfully tried more than 20 cases
before juries and briefed and argued more than 20 appeals before the Second Circuit of Appeals in New
York.
In 2006, Robert Appleton was appointed by the UN Secretary General as the first ever Chairman of the
UN Anti-Corruption Task Force (PTF), where he led corruption investigations throughout the world body
between 2006 and 2009. In 2005, Mr. Appleton was appointed by Former US Federal Reserve Chairman
Paul Volcker as his Special Counsel and then Chief Investigative Counsel to the Independent Inquiry
Committee investigation into the Iraqi Oil for Food Scandal. He was also appointed to lead the sensitive
investigation of the Secretary General and, with Reserve Chairman Volcker, deposed the Secretary
General twice. In 2010 he was selected to serve as Senior Legal and Compliance Counsel and Director
of Investigations at the Geneva based Global Fund to Fight AIDS, Tuberculosis and Malaria, where he
supervised more than 300 forensic financial investigations throughout the world, and handled many
Patriot Act, FCPA and AML matters throughout the world. Mr. Appleton served as a federal prosecutor and
then a Supervisory AUSA for more than 13 years in the US Attorneys Office in the District of Connecticut
and at the DOJ.
You can reach him via email at rappleton@daypitney.com or find him on Twitter @BobAppletonFCPA.
ABOUT THE AUTHOR
Robert Appleton, Partner at Day Pitney LLP

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