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Creating an FCPA Program


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Guidance for creating and implementing a corporate FCPA compliance program.

Published in: Business, Economy & Finance
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Creating an FCPA Program

  2. 2. Introduction•F o r e i g n C o r r u p t P r a c t i c e s A c t ( F C PA ) e n a c t e d i n 1 9 7 7 – U . S .law that imposes civil & criminal penalties on corporations &individuals that bribe foreign government officials• R e c e n t l y, p e n a l t i e s f o r c o r p o r a t i o n s h a v e b e e n i n e x c e s s o f$800M, while individuals have been sentenced to prison &ordered to pay fines• F C PA c o m p l i a n c e p r o g r a m s s h o u l d i m p l e m e n t e d a n d i n c l u d ee d u c a t i o n , p r e v e n t i o n / d e t e c t i o n & r e s o l u t i o n o f a n y F C PAissues
  3. 3. Recent Examples of FCPA Enforcement In the past few years, FCPA enforcement has increased dramatically, as have the penalties extracted from FCPA violators:  Siemens AG - $1.6 Billion  Siemens AG & three of its subsidiaries falsified corporate books and records and knowingly failed to implement and circumvent existing internal controls  BAE Systems - $400 Million  Pled guilty to conspiring to defraud the U.S., violated the AECA and ITAR; one of the largest criminal fines in the history of the DOJ’s ongoing effort to combat overseas corruption  Charles Paul Edward Jumet – 87 month prison sentence  Paid bribes to former Panamanian government officials to secure maritime contracts  Daimler AG - $185 Million  Charged with one count of conspiracy to violate the anti-bribery provisions of the FCPA; paid bribes to foreign government officials through the use of corporate ledger accounts known internally as TPAs  Made hundreds of millions of dollars worth of improper bribes to secure contracts with government customers for the purchase of Daimler vehicles
  4. 4. Understanding the FCPAT h e P r i m a r y o b j e c t i v e o f t h e F C PA i s t o d e t e r corporations and individuals from bribing foreign officials through: 1. Anti-Bribery Provisions 2. Books and Records provisions 3. Enforcement & Penalties
  5. 5. Anti-Bribery Provisions To Whom do the Provisions Apply? What are the Elements of an Anti-Bribery Violation? Any Exceptions or Affirmative Defenses to the Anti- Bribery Provisions?
  6. 6. To Whom do the Provisions Apply?1. Issuers  Any entity that has securities registered with the SEC or is required to file reports with the SEC (U.S. and foreign companies that trade on any of the U.S. stock exchanges)  Officer, director, employee, or agent of such issuer acting on issuers behalf2. Domestic Concerns  Individual who is a citizen national or resident of the U.S. or any organization which has its principal place of business in the U.S.3. “Persons other than Issuers or Domestic Concerns”  Individual or organization that while in the U.S. territory committed an act of prohibited payment
  7. 7. What are the Elements of an Anti-Bribery Violation?U.S. Department of Justice must prove all of the following to establish an anti-bribery violation:1. Use of an instrumentality of interstate commerce2. Made an offer, payment or promise to pay money or anything of value3. An offer, promise, or payment to a foreign official, political party, party official or candidate for foreign political office was made4. Mad the prohibited payment “corruptly”5. Mad the prohibited payment in order to assist in obtaining or retaining business for or with anyone
  8. 8. Any Exceptions or Affirmative Defenses to the Anti-Bribery Provisions? 1 Exception:  “Facilitating Payments” – often small in amount made to “expedite/secure the performance of routine governmental action by a foreign official”  i.e. issuance of permits/licensing, visa processing, police protection, mail delivery, scheduling of inspections, phone service & cargo handling 2 Exceptions 1. If an offer/payment is permissible under a written local laws/regulations 2. The offer or payment is a reasonable bona fide expenditure
  9. 9. Books and Records Provisions Applies to issuers with 50.1% + interest in foreign subsidiary Unlikely that prohibited payment will be recorded/reported  REQUIRES:  Issuers keep books/records that fairly reflect transactions and dispositions of assets  System of internal accounting that provides reasonable assurances that the transactions are properly authorized
  10. 10. Enforcement & Penalties1. Who is Responsible for FCPA Enforcement?  Department of Justice – criminal enforcement & civil enforcement against concerns, foreign entities & individuals  SEC – responsible for civil enforcement against issuers2. What are the Penalties for an FCPA Violation?  Criminal Penalties – fines & penalties  Civil Penalties – fines depending upon the egregiousness of the conduct
  11. 11. Components of an Effective FCPA Compliance Program1 . E D U C AT E M A N A G E M E N T A N D E M P L O Y E E S2. PREVENT AND DETECT POTENTIAL ISSUES3 . R E S O LV E A N Y F C PA I S S U E S
  12. 12. Education of Management & Employees1. What are the FCPA risks of your company?  Determine your company’s FCPA risk profile2. What are your FCPA Policies?  Create FCPA policies that are practical for your employees, that are easy to read and located somewhere accessible by all  “Tone from the top”3. Does your Company offer FCPA Training?  Mandatory and regularly periodic FCPA training that incorporates real-life examples
  13. 13. Prevention & Detection of Potential FCPA Issues1. Due Diligence  Obtain as much background information as possible on potential new agents; be cautious if any red flags pop up  Important that FCPA compliance-related provisions are incorporated into the contract with the agent2. Audit  Independent external auditor that performs periodic audits of company’s financial and accounting controls3. Board Reporting  Company FCPA compliance officers should prepare annual reports to the Board of Directors on the status/effectiveness of their FCPA compliance program
  14. 14. Compliance Pitfalls Foreign Affiliates Facilitation Payments U.S. companies may be  Not violations of FCPA liable for the FCPA violations of its foreign  Doesn’t provide specific max. agents/subsidiaries allowable dollar amounts or list type of officials and activities Acquisitions may introduce eligible problems with foreign company’s unfamiliarity with  Risky to leave foreign affiliates FCPA regulations to setting their own facilitation policies U.S. firms should enforce their position on FCPA compliance
  15. 15. Conclusion An effective FCPA compliance program involves officers, directors, managers, and employees who are committed to compliance A compliance program helps manage, detect, and discipline FCPA violators A failure to develop & implement an effective FCPA program can result in SIGNIFICANT criminal & civil penalties – as we have recently seen!
  16. 16. About CHESTER PLLC J.F. (Jim) Chester, JD/LL.M, Managing Attorney 877-34-WORLD (TOLL FREE) 214-988-9248Advise entrepreneurs, start-ups, privately held companies with trademarks, copyrights, trade secret protection, licensing & enforcement and assist companies in commercial transactions in the U.S. and abroad