May 7th 2 pm navigating the compliance landscape


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May 7th 2 pm navigating the compliance landscape

  1. 1. 1FCPA Enforcement andCompliance Developments2013 SuperConference Compliance PanelDavid H. ResnicoffMiller & ChevalierWashington, D.C.
  2. 2. 2Corporate Plea1Individual Pleas5Corporate DPAs7Corporate NPAs3Consent to SECComplaints (Individuals)8Consent to SECComplaints (Corporate)2SEC Admin. Proc.127 DispositionsNote: These statistics count FCPA resolutions involving multiple distinct companies and/or individuals in a singlesettlement or case as separate enforcement actions.2012 – The Year in NumbersBreakdown of Enforcement
  3. 3. 3Note: Updated through December 31, 2012. These statistics count each distinct resolution involving a company and its affiliates as a separateenforcement action. They also include the resolved enforcement actions against BAE and James Giffen, although neither was technically convicted on anFCPA charge. Finally, convictions that have since been vacated have been removed as enforcement actions (e.g., Si Chan Wooh, Lindsey Mfg., the SHOTShow guilty pleas).4149 1023149678 4832315 1483111 1154 413985SEC Corporate SEC Individual DOJ Corporate DOJ Individual2007 2008 2009 2010 2011 20122006184035357136272012 – The Year in NumbersA Look at Resolved FCPA Enforcement Actions by Year
  4. 4. 4252130331222262329051015202530352004 2005 2006 2007 2008 2009 2010 2011 2012Known Investigations Initiated (Resolved, Unresolved and Declined) (Affiliates Combined)Companies Entering Dispostions (Affiliates Combined)2012 – The Year in NumbersKnown Investigations Initiated from 2004 to 2012
  5. 5. 5 2012 saw a significant uptick indeclination decisions by theagencies What exactly constitutes adeclination? What is behind the recentuptick? Why is the DOJ decliningenforcement more often thanthe SEC?46562374110246810122008 2009 2010 2011 2012Declinations by SEC Declinations by DOJNote: Compiled through December 31, 2012. Includes only cases where formaldeclinations could be confirmed.Known Declinations in FCPA Investigationsfrom 2008 through 20122012 – The Year in NumbersA Look at FCPA Declinations by Year
  6. 6. 62514251 1 1 2 1 125198 2187 7282 22 2 2 10510152025Companies Receiving Declinations Companies Entering DispositionsNote: Tracks the approximate duration of FCPA-related investigations resolved or declined from 2006 to 2012. Estimates are upon publiclyavailable information detailing, with varying degrees of specificity, when each investigation was initiated or disclosed. These statistics combine allrelated dispositions and known declinations involving each company and its subsidiaries and affiliates and use the more recentdisposition/declination to measure the duration of each investigation.2012 – The Year in NumbersDuration of FCPA-Related Investigations from 2006 to 2012
  7. 7. 7Release of FCPA Guide On Nov. 14, 2012, DOJ and SEC jointly issued 120-page“Resource Guide on the U.S. FCPA” (FCPA Guide);agencies’ goal was to highlight hypotheticals and“practical tips” regarding various compliance issues FCPA Guide is "non-binding, informal, and summary”and "does not constitute rules or regulations," butagency representatives have stated that the Guidemay reasonably be relied on and cited whennegotiating with the agencies Overall, FCPA Guide does not fundamentally change key enforcementpositions (including those now being challenged in court), but expresslyclarifies current agency practices, while confirming and consolidating publicguidance and some “lore” in detail
  8. 8. 8FCPA Guide on Gifts & Hospitality Confirms the FCPA has no minimum threshold value for corrupt gifts orpayments, but dismisses notion that modest gifts and hospitality couldgive rise to an enforcement action:– Violations require corrupt intent, and “it is difficult to envision any scenario inwhich the provision of cups of coffee, taxi fare, or company promotional itemsof nominal value would ever evidence corrupt intent”– The DOJ and SEC use discretion – small gifts are mentioned in FCPA cases onlywhere they are part of a pattern of more egregious conduct Hypotheticals show that more substantial items (e.g., crystal vase,business class airfare, moderate dinner, baseball game, play) may beappropriate under the right circumstances
  9. 9. 9FCPA Guide on Gifts & Hospitality (cont’d) Compliance program implications– Warns companies against spreading compliance resources too thin– Notes that effective programs do not:• Put “too much focus on low-risk…transactions”• Devote “a disproportionate amount of time policing modestentertainment and gift-giving”– Guide positions do not eliminate need to consider questions of line-drawing and reasonableness of gifts and entertainment– Upcoming test of issues: World Cup tickets in Brazil
  10. 10. 10FCPA Guide on “Instrumentality” FCPA Guide endorses recent court rulings defining “instrumentality,”incorporating list of non-exclusive factors State-owned or controlled entities can be instrumentalities, but no bright-line rule—fact-specific inquiry to be left to jury FCPA Guide states that "as a practical matter” entities unlikely to qualify asinstrumentalities if government does not own or control a majority ofshares."– Only a presumption. Guide cites Alcatel-Lucent as one exception where“instrumentality” status was found even though there was no majorityownership Majority ownership/control alone not sufficient for status as“instrumentality,” but also theoretically not required
  11. 11. 11FCPA Guide on Facilitating/Extortion Payments FCPA Guide generally confirms existing interpretation offacilitating payments exception Explicitly acknowledges that legality of a facilitating payment isdependent upon its purpose, not value, but notes that largerpayments are “more suggestive of corrupt intent to influence”non-routine action Confirms that true extortion or duress does not give rise toFCPA liability because payments made will lack requisite intentand purpose of violation, but must involve real threats to“health and safety”
  12. 12. 12FCPA Guide on Vicarious Liability/Conscious Avoidance FCPA Guide includes discussion of past dispositions plus “commonred flags” Directs companies to focus on risk-based due diligence, withincreasing scrutiny as red flags are uncovered – hypotheticalprovides added details on possible steps—instructive in showinghow due diligence can fail For third party vetting, highlights additional considerations (as partof an effective compliance program):– Due diligence on partners and providers– Appropriate business rationale, including written contract that specificallydescribes actual services to be performed and establishes clear payment termsthat provide for reasonable compensation, benchmarked by industry andcountry (if possible)
  13. 13. 13FCPA Guide on Vicarious Liability/Conscious Avoidance (cont’d) On-going monitoring of 3rd party activities:– Documenting work performance– Ensuring that compensation is commensurate with services beingprovided– Periodic training and messaging on compliance expectations– Obtaining annual compliance certifications– Exercising audit rights– Schedule for updating due diligence
  14. 14. 14FCPA Guide on Successor Liabilityand M&A Due Diligence Confirms agencies’ views that successor liability can apply where pre-merger FCPA violations are discovered post-closing States that companies that conscientiously seek to identify and quicklyremedy bribery issues—either before or soon after completing deal—willbe given considerable credit– Such credit can include no action against acquiring company– Past cases also have been brought solely against predecessor entities– Many past cases have involved egregious conduct or post-closing conduct Notably promises that a covered company that acquires a foreign entitynot previously subject to FCPA will not be held retroactively liable for pre-acquisition improper payments made by acquired entity Contains two hypotheticals on successor liability, featuring risk-based duediligence, targeted audits, and disclosure to agencies
  15. 15. 15FCPA Guide on Accounting and Internal ControlsRequirements: Basics Requirements provide far-reaching basis for liability forparents related to actions of foreign subsidiaries – virtuallystrict liability (civil) for improperly recorded books andrecords, even when anti-bribery elements not present Obligations automatically flow down to majority-owned orcontrolled subsidiaries Good-faith obligation for non-controlled subsidiaries SEC: Any illicit payment is “material” per se
  16. 16. 16FCPA Guide on Accounting and Internal ControlsRequirements Notes that bribes are often concealed in records as legitimate payments,and includes long list of past mischaracterizations Confirms that “design of a company’s operational controls must take intoaccount the operational realities and risks attendant to the company’sbusiness” Summarizes different types of schemes resulting in internal controls“failures” in Siemens, Daimler cases Emphasizes key role of “targeted audits to make certain controls on paperare working in practice” SEC officials speaking during rollout repeatedly emphasized important roleof internal audit functions in ensuring compliance program and controlsintegrity and effectiveness
  17. 17. 17Hallmarks of an Effective Compliance Program:FCPA Guide’s General Overview DOJ and SEC have “no formulaic requirements” Make inquiries related to 3 basic questions:Does itwork?Is the company’scompliance programwell designed?Is it being appliedin good faith?
  18. 18. 18Hallmarks of an Effective Compliance Program:Ten Hallmarks Summary:1. Commitment from Senior Management and a Clearly ArticulatedPolicy Against Corruption2. Code of Conduct and Compliance Policies and Procedures3. Oversight, Autonomy, and Resources4. Risk Assessment5. Training and Continuing Advice6. Incentives and Disciplinary Measures7. Third-Party Due Diligence and Payments8. Confidential Reporting and Internal Investigation9. Continuous Improvement: Periodic Testing and Review10. M&A: Pre-Acquisition Due Diligence and Post-Acquisition Integration
  19. 19. 19Hallmarks of an Effective Compliance Program:Tone at the Top Commitment from senior management Clearly articulated policy against corruption Code of Conduct and compliance policies andProcedures– “A company’s code of conduct is often the foundationupon which an effective compliance program is built.”
  20. 20. 20Hallmarks of an Effective Compliance Program:Oversight, Autonomy, and Resources Assign responsibility for oversight andimplementation of the compliance program– One or more “specific senior executives”– Who have appropriate authority– Adequate autonomy from management– Sufficient resources To ensure that the company’s compliance program isimplemented effectively.
  21. 21. 21Hallmarks of an Effective Compliance Program: RiskAssessment “DOJ and SEC will give meaningful credit to acompany that implements in good faith acomprehensive, risk-based compliance program evenif that program does not prevent an infraction in alow risk area because greater attention andresources had been devoted to a higher risk area.”
  22. 22. 22Hallmarks of an Effective Compliance Program:Training and Continuing Advice Training and certification for directors, officers, relevantemployees and where appropriate, agents and businesspartners Information presented should be appropriate for the targetedaudience, including providing training and training materialsin the local language Provide different types of training to sales and accountingpersonnel, with hypotheticals or sample situations that aresimilar to the situations they might encounter Develop measures to provide guidance when such advice isneeded urgently
  23. 23. 23Hallmarks of an Effective Compliance Program:Incentives and Disciplinary Measures Disciplinary procedures– Should be applied reliably and promptly– Should be commensurate with the violation Positive incentives can take the form of– Personnel evaluations and promotions– Rewards for improving and developing a company’scompliance program– Rewards for ethics and compliance leadership
  24. 24. 24Hallmarks of an Effective Compliance Program: ThirdParty Due Diligence and Payments As noted earlier, in connection with 3rd partyrelationships, FCPA Guide calls for:– Due diligence on partners and providers– Appropriate business rationale– On-going monitoring of 3rd party activities
  25. 25. 25Hallmarks of an Effective Compliance Program:Continuous Improvement, Periodic Testing A good compliance program should “constantly evolve” Take time to review and test controls Think critically about its potential weakness and risk areas– Employee surveys– Targeted audits– “Proactive evaluations”
  26. 26. 26Hallmarks of an Effective Compliance Program:Mergers and Acquisitions As discussed in connection with successor liability earlier,FCPA Guide underscores importance of effective M&A-relateddue diligence on acquisition targets
  27. 27. 27Hallmarks of an Effective Compliance Program: Otherguidance Cited by the Guidance Dep’t of Commerce: Business Ethics: A Manual for Managing aResponsible for Business Enterprise in Emerging Market Economies Dep’t of State: Fighting Global Corruption: Business Risk Management OECD 2009 Anti-Bribery Recommendations and Annex II Asia-Pacific Economic Cooperation – Anti Corruption Code of Conduct forBusiness International Chamber of Commerce – ICC Rules of Combating Corruption Transparency International – Business Principals for Countering Bribery UN Global Compact – The Ten Principles World Bank-Integrity Compliance Guidelines World Economic Forum - Partnering Against Corruption – Principles forCountering Bribery
  28. 28. 28FCPA Guide – Key Takeaways Clarifies agencies’ views of Act’s provisions that lack clarity on their face– However, some of these views are currently being litigated and may beaffected by future court rulings Confirms long-standing agency positions and practices in certain areas,such as extortion Provides a "one-stop shop" that articulates enforcement priorities,compliance expectations, and, to some extent, the general analyticalframework the agencies will use when evaluating particular factualscenarios. Some important open issues remain, despite FCPA Guide’s overallcomprehensive scope
  29. 29. 29Questions?For more information, please contact:David H. Resnicoff 202.626. 5833