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  1. 1. Foreign Corrupt Practices Act / Anti-Corruption Trends and Compliance Victor Vital ~ [email_address] ~ 214.665.3664
  2. 2. FCPA in the popular culture
  3. 3. FCPA Basics: Anti-Bribery Provisions <ul><li>In sum, these provisions prohibit corruptly offering, making, or authorizing a payment of </li></ul><ul><ul><li>1. Anything of value to any person , </li></ul></ul><ul><ul><li>2. Knowing that it will be offered or given to a foreign official </li></ul></ul><ul><ul><li>3. To obtain or retain business . </li></ul></ul>
  4. 4. FCPA Basics: “Anything of value” <ul><li>Cash or cash equivalent </li></ul><ul><li>Gifts or services </li></ul><ul><li>Charitable donations </li></ul><ul><li>Political contributions </li></ul><ul><li>Loans </li></ul><ul><li>Travel expenses </li></ul><ul><li>Sporting events </li></ul><ul><li>Entertainment outings </li></ul><ul><li>Hiring </li></ul>
  5. 5. FCPA Basics: Payments to “Any Person” <ul><li>The FCPA does not simply prohibit direct illegal payments. </li></ul><ul><li>It prohibits payments to a intermediary. </li></ul><ul><li>Most FCPA investigations focus on so-called middlemen – e.g., the “consultant” </li></ul>
  6. 6. FCPA Basics: “Knowing” <ul><li>FCPA liability can be based on conscious disregard of wrongful conduct or willful blindness. </li></ul><ul><ul><li>Reason to believe that circumstances are questionable but consciously choosing not to inquire further. </li></ul></ul><ul><li>If you see something that looks suspicious, you cannot close your eyes and pretend you don't know. </li></ul>
  7. 7. FCPA: Mens rea ??? <ul><li>“ We thought [Bourke] knew [about the bribery] and definitely could have known. He’s an investor. It’s his job to know </li></ul><ul><li>(Jury Foreman, U.S. v. Bourke) </li></ul>
  8. 9. FCPA Basics: Red Flags <ul><li>Red flag? Suspicious facts and circumstances deemed to put a person on notice of potentially improper conduct. </li></ul><ul><li>Caution </li></ul><ul><li>Due Diligence </li></ul><ul><li>Failure to exercise caution and due diligence could be willful blindness. </li></ul>
  9. 10. FCPA Basics: Foreign Official” <ul><li>Any officer or employee of a foreign government or governmental agency </li></ul><ul><li>Any person acting in an official capacity on behalf of a government </li></ul><ul><li>Officers and employees of government-owned entities </li></ul><ul><li>Relatives of government officials </li></ul><ul><li>Political parties and officials of political parties </li></ul><ul><li>Members of a governing royal family </li></ul>
  10. 11. Foreign Official – Proceed with Caution… <ul><li>November 17, 2009 address to The 22nd National Forum on the Foreign Corrupt Practices Act </li></ul><ul><ul><li>“ In some foreign countries and under certain circumstances, nearly every aspect of the approval, manufacture, import, export, pricing, sale and marketing of drug product may involve a “foreign official” within the meaning of the FCPA. The depth of government involvement in foreign health systems, … creates, in our view, a significant risk that corrupt payments will infect the process.” </li></ul></ul><ul><ul><li>Lanny Breuer, Assistant Attorney General, Criminal Division </li></ul></ul>
  11. 12. FCPA Basics: “Obtain or Retain Business” <ul><li>E.g., to obtain a license, a project or win a contract </li></ul><ul><li>Construed broadly – could include relationship-building and payments made to make performance of a contract more economically advantageous. </li></ul>
  12. 13. FCPA Basics: Exceptions and Defenses <ul><li>Facilitating Payments </li></ul><ul><li>Payments legal under foreign country’s laws </li></ul><ul><li>Gift, travel or hospitality </li></ul>
  13. 14. FCPA Basics: The Penalties <ul><li>Criminal Penalties </li></ul><ul><ul><li>Company -- Up to $2 million or an alternative based on the gain to the company </li></ul></ul><ul><ul><li>Individuals -- up to $100,000, five years in prison, or both </li></ul></ul><ul><ul><li>Individual fines may not be paid by employer </li></ul></ul><ul><li>Civil Penalties </li></ul><ul><ul><li>Up to $10,000 plus disgorgement of profits </li></ul></ul><ul><ul><li>Suspension or debarment from Federal procurement programs </li></ul></ul>
  14. 15. FCPA Basics: Books and Records <ul><li>Issuers are required to “keep books, records, and accounts” which: </li></ul><ul><ul><li>are in reasonable detail </li></ul></ul><ul><ul><li>accurately and fairly reflect transactions and the disposition of assets </li></ul></ul><ul><li>Issuers are required to have internal controls sufficient to assure that: </li></ul><ul><ul><li>Transactions are executed and assets are accessed only in accordance with management's authorization </li></ul></ul><ul><ul><li>Financial statements can be prepared </li></ul></ul><ul><ul><li>Audits can be conducted </li></ul></ul><ul><ul><li>Appropriate action can be taken in response to issues that arise </li></ul></ul>
  15. 17. Uptick in FCPA Enforcement <ul><li>May 25, 2011 Franz-Hermann Brüner Memorial Lecture at the World Bank </li></ul><ul><ul><li>“ [O]ver the two-plus years of this Administration, we have dramatically increased our enforcement of the FCPA. The numbers speak for themselves. In 2004, the Justice Department charged two individuals under the Act and collected around $11 million in criminal fines. In 2005, we charged five individuals and collected around $16½ million. By contrast, in 2009 and 2010 combined, we charged over 50 individuals and collected nearly $2 billion.&quot; </li></ul></ul>
  16. 18. Changes in Government Resources <ul><li>DOJ has increased the number of prosecutors dedicated to FCPA investigations </li></ul><ul><li>DOJ is using prosecutors from other working groups in the Fraud Section </li></ul><ul><li>DOJ established partnerships with </li></ul><ul><ul><li>Numerous U.S. Attorney’s Offices throughout the country </li></ul></ul><ul><ul><li>National Criminal Enforcement Section of the Antitrust Division </li></ul></ul><ul><ul><li>Internal Revenue Service’s Criminal Investigations Division </li></ul></ul><ul><li>DOJ has an FBI squad dedicated to FCPA investigations </li></ul><ul><li>SEC has an FCPA Unit </li></ul>
  17. 20. FCPA Enforcement Trends <ul><li>Court authorized wiretaps </li></ul><ul><li>Use of undercover agents </li></ul>
  18. 21. Anti-Corruption Trends Worldwide <ul><li>Enforcement across the globe </li></ul><ul><ul><li>e.g., Munich Public Prosecutor, UK Serious Fraud Office </li></ul></ul><ul><li>Multinational Cooperation </li></ul><ul><li>UK Anti-Bribery Statute </li></ul>
  19. 22. Lindsey Manufacturing: FCPA Trial Against a Corporation <ul><li>First ever FCPA conviction of a corporation after a trial </li></ul><ul><li>Lindsey Manufacturing Case - U.S. v. Aguilar , No. 10-cr-1031 (C.D. Cal.) </li></ul><ul><li>May 10, 2011 - Lindsey Manufacturing Company and its President Keith Lindsey and CFO Steve Lee were convicted on one count of conspiracy to violate the FCPA and five substantive FCPA violations </li></ul>
  20. 23. Lindsey Manufacturing: FCPA Trial Against a Corporation <ul><li>Allegations: Lindsey Manufacturing, President Lindsey, and CFO Lee violated the FCPA by paying sales representative Grupo Internacional de Asesores SA commission payments that “would be used to pay bribes to Mexican officials in exchange for [Comision Federal de Electricidad, a state-owned Mexican utility company] awarding contracts to Lindsey Manufacturing.” </li></ul><ul><li>Also notable, the Court rejected defendants’ motion to dismiss the FCPA claims that a “foreign official” did not include employees of foreign state-owned corporations </li></ul>
  21. 24. Lindsey Manufacturing: FCPA Trial Against a Corporation – DOJ Response <ul><li>Assistant Attorney General Lanny A. Breuer, “Today’s guilty verdicts are an important milestone in our Foreign Corrupt Practices Act enforcement efforts. Lindsey Manufacturing is the first company to be tried and convicted on FCPA violations, but it will not be the last. Foreign corruption undermines the rule of law, stifling competition and the health of international markets and American businesses. As this prosecution shows, we are fiercely committed to bringing to justice all the players in these bribery schemes – the executives who conceive of the criminal plans, the people they use to pay the bribes, and the companies that knowingly allow these schemes to flourish. Bribery has real consequences.” </li></ul>
  22. 25. More Trends: Whistleblowers <ul><li>Potential amounts received in pending legislation </li></ul><ul><ul><li>10 – 30% of the amount recovered through enforcement actions with penalty amounts in excess of $1 million </li></ul></ul><ul><ul><li>The SEC would determine the award amount </li></ul></ul><ul><ul><li>Amount would be based on sanctions imposed not only by the SEC, but any other sanctions brought by other agencies in “related actions” </li></ul></ul><ul><li>Whistleblowers would have to provide “original information” voluntarily to the SEC </li></ul><ul><li>Whistleblowers would be permitted representation by counsel </li></ul><ul><li>Whistleblowers providing information anonymously would be required to have counsel </li></ul>
  23. 27. Possibility of Legislative Reforms to FCPA <ul><li>Remarks by U.S. Representative Jim Sensenbrenner, Chairman of Subcommittee on Crime, Terrorism, and Homeland Security of the House Judiciary Committee, at June 14, 2011 Hearing </li></ul><ul><ul><li>“ I really think that it would behoove the Department [of Justice] to realize that this statute needs updating because China was a lot different in 1977 than it is today, and I think most of the Middle East is going to be changing pretty rapidly if the newspaper reports are correct. . . .[W]e are going to be drafting a bill.” </li></ul></ul><ul><ul><li>“ You know, the thing is is that if you were the general counsel of a corporation that was involved in the globalized economy and you had to go advise your CEO and everybody else who is involved in this, you are going to be advising in the most narrow way and exercising the greatest amount of caution because of what is going on. And as a result, legitimate business activity which is not bribery in nature is going to be quashed, and we end up being put at a significant disadvantage to our foreign competitors. Get the message, sir, and tell that to the AG.” </li></ul></ul>
  24. 28. Possibility of Legislative Reforms to FCPA <ul><li>Proposed Changes by Former Attorney General Michael Mukasey at June 14, 2011 Hearing </li></ul><ul><ul><li>Adding a compliance defense; </li></ul></ul><ul><ul><li>Clarifying the meaning of “foreign official”; </li></ul></ul><ul><ul><li>Improving the procedures for guidance and advisory opinions from the DOJ; </li></ul></ul><ul><ul><li>Limiting a company’s criminal liability for the prior actions of a company it has acquired; </li></ul></ul><ul><ul><li>Adding a “willfulness” requirement for corporate criminal liability; and </li></ul></ul><ul><ul><li>Limiting a company’s liability for acts of a subsidiary not known to the parent. </li></ul></ul>
  25. 29. Effective FCPA Compliance <ul><li>Management involvement and support </li></ul><ul><li>Clearly communicated standards and procedures </li></ul><ul><ul><li>General policy statements are not enough </li></ul></ul><ul><ul><li>Procedures tailored to fit the company’s business </li></ul></ul><ul><ul><li>Train employees and managers </li></ul></ul><ul><ul><ul><li>On substance </li></ul></ul></ul><ul><ul><ul><li>On process </li></ul></ul></ul><ul><ul><ul><li>Annual certification </li></ul></ul></ul>
  26. 30. Effective FCPA Compliance <ul><li>Established procedures for reporting and investigations possible wrongdoing </li></ul><ul><ul><li>Internal reporting mechanisms </li></ul></ul><ul><ul><li>Strong non-retaliation protections </li></ul></ul><ul><li>Continuous audits / reviews of operations </li></ul><ul><ul><li>Sales and marketing </li></ul></ul><ul><ul><li>Expense reports </li></ul></ul><ul><ul><li>Finance </li></ul></ul>
  27. 31. Effective FCPA Compliance <ul><li>Diligence in Engaging Agents and Distributors </li></ul><ul><ul><li>Should conduct due diligence regarding reputation and integrity </li></ul></ul><ul><ul><li>Establish objective criteria to be met </li></ul></ul><ul><ul><li>Document selection process </li></ul></ul><ul><ul><li>Document due diligence </li></ul></ul><ul><ul><li>Continuous monitoring / oversight after selection critical </li></ul></ul>
  28. 32. Best Practices: Foreign Business Partners <ul><li>Thorough due diligence on the prospective business partners </li></ul><ul><ul><li>Use only partners with a known reputation as experienced business persons who act with integrity </li></ul></ul><ul><li>Certification of knowledge of and compliance with the FCPA critical </li></ul><ul><li>Clearly defined duties in contract, with strong FCPA representatives and warranties </li></ul><ul><li>Audit and Termination rights </li></ul><ul><li>Prohibit business partners from employing sub-agents without prior approval </li></ul><ul><ul><li>Sub-agents submitted through agent vetting process </li></ul></ul>
  29. 33. Best Practices: Foreign Business Partners <ul><li>No abnormal or above-market payments </li></ul><ul><ul><li>Do not exceed the “going rate” for commissions or fees to the business partner </li></ul></ul><ul><ul><li>Invoice business partner only the actual sales price for the goods supplied </li></ul></ul><ul><li>Maintain a detailed file on each business partner </li></ul>