Foreign Corrupt Practices Act Compliance In Joint Ventures and Consortia

Cpresents Minimizing FCPA Risk Amid Heightened Government Enforcement

presents

A Live 90-Minute Teleconference/Webinar with Interactive Q&AToday's panel features:

Edward J. Fishman, Partner, K&L Gates, Washington, D.C.Judith A. Lee, Partner, Gibson Dunn & Crutcher, Washington, D.C.

Edward L. Rubinoff, Partner, Akin Gump Strauss Hauer & Feld, Washington, D.C.

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Wednesday, April 21, 2010

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FCPA RISKS INFCPA RISKS INJOINT VENTURES AND CONSORTIA

Edward J. Fishman

Strafford Publications CLE Webinar

April 21, 2010

K&L Gates LLP1601 K Street, NW

Washington, DC 20006

Overall FCPA Enforcement Trends

Vigorous enforcement activity continues

U S regulators using more “proactive” techniques U.S. regulators using more proactive techniques

DOJ/FBI Sting Operation SEC - Specialized FCPA Unit SEC - Specialized FCPA Unit

Global convergence of anti-corruption regimes

U K Anti Bribery Legislation U.K. Anti-Bribery Legislation Innospec – Coordinated Global Settlement

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Overall FCPA Enforcement Trends

Recent High-Profile Settlements

Daimler – $185 million settlement with DOJ and SEC Daimler $185 million settlement with DOJ and SEC covering conduct in 22 countries

BAE - $447 million settlement with U.S. and UK

Focus on individuals continues

DOJ also targeting bribe recipients

Expansive legal theories

E.g. “control person liability”

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g p y

FCPA Risks in JVs and ConsortiaG l L l F k General Legal Framework

FCPA anti-bribery provisions apply to “any agent” of a U S issuer or domestic concerna U.S. issuer or domestic concern

FCPA anti-bribery provisions also prohibit acts within the U.S. in furtherance of an improper payment by non U S issuers or domestic concernsnon-U.S. issuers or domestic concerns

FCPA accounting provisions apply to U.S. issuers, including any entity in which issuer holds more than 50% of the voting power (through ownership of stock or otherwise)

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FCPA Risks in JV and Consortia

Applicability of Books and Records and Internal Control Requirements

Wh U S i h ld 50% l f th ti f Where U.S. issuer holds 50% or less of the voting power of a domestic or foreign firm, the issuer is required to “proceed in good faith to use its influence, to the extent reasonable under the issuer’s circumstances, to cause such domestic or foreign the issuer s circumstances, to cause such domestic or foreign firm to devise and maintain a system of internal accounting controls”

The relevant “circumstances” referred to above include “the l i d f h i hi d h “l d relative degree of the issuer’s ownership” and the “laws and

practices governing the business operations of the country in which such firm is located.”

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Unique JV and Consortium Partner Risks

Lack of Adequate Diligence on Business Partner

Viewed differently from third-party agentsViewed differently from third party agents More complicated business relationships

Governance Challengesg

Less direct control over actions of JV partner Different accounting systems and practicesg y p

Different Compliance Expectations

Legally and practically

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Legally and practically

Unique JV and Consortium Partner Risks

State-owned enterprise as JV partner

Common in China Africa and the Middle EastCommon in China, Africa and the Middle East Creates complexities on various levels:

SOE partner may exercise control over interactions with “government officials” because of relationships

SOE partner may be getting unwarranted benefits

Project-specific JVs and ConsortiaProject specific JVs and Consortia

High-risk industries – e.g., infrastructure Complicated multi-party arrangements

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Complicated, multi party arrangements

Representative FCPA Enforcement Actions Involving JVs and Consortia

Halliburton/KBR

Bonny Island LNG Project Bonny Island LNG Project Corporate and individual enforcement

proceedingsproceedings Global investigation Complex multi party relationships Complex, multi-party relationships

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Representative FCPA Enforcement Actions Involving JVs and Consortiag

Former Rep William Jefferson Former Rep. William Jefferson

Bourke/Kozeny – Azerbaijian Investment ConsortiumConsortium

FCPA Opinion Procedure Release 01-02 (July 18 2001)18, 2001)

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Due Diligence and Contracting Issues

Business Partner Due Diligence Risks

Risk of inheriting weak internal controls and Risk of inheriting weak internal controls and accounting practices

Commercial pressure to limit diligence

JV Contracting Requirements

Audit and termination rights Efforts to implement compliance program

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Contact Information

Edward J. FishmanK&L Gates LLP1601 K Street N.W.Washington, D.C. 20006(202) 778-9456 (direct)ed fishman@klgates comed.fishman@klgates.com

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STRAFFORD PUBLICATIONSSTRAFFORD PUBLICATIONS

F i C t P ti A t IForeign Corrupt Practices Act In Joint Ventures

Judith A. LeeJudith A. Lee

GIBSON, DUNN & CRUTCHER LLP

April 21, 2010

What Kind of Joint Venture?

consortium jv (“cooperative agreement”) –for a specific project onlyp p j yspecial FCPA issues continuing business relationshipcontinuing business relationship

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Consortium Issues

Why a consortium? Usually one party wants technical expertise or service from panother party. That party could be responsible for management and project p g p joperation – permits, licenses etc needed from the foreign governmentg g

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Organization of JV – FCPA Effect

corporation partnershippartnership unincorporated entity

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Why form a JV?Why form a JV? Affects FCPA risks

reduce 'entry' risks by using the local partner's assets insufficient knowledge of local institutional or legal

environment access to local borrowing powers goodwill of the local partner is carried forward laws may not permit foreign nationals to operate alone laws may not permit foreign nationals to operate alone access to local resources through participation of national

partner influence of local partners on government officials influence of local partners on government officials 'compulsory' access by one partner to foreign technology

or expertise

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Downsides to a JVDownsides to a JVAffects FCPA Risk

differing philosophies, expectations and objectives of the JV partners

i b l i h l l f i d an imbalance in the level of investment and expertise brought to the JV by the JV partners

inadequate identification support and inadequate identification, support, and compensation of senior leadership and management teams or

conflicting corporate cultures and operational styles of the JV partners

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What Can Be Expected of JVWhat Can Be Expected of JV Partners

Compliance with Local Laws

Compliance with International Conventions

Compliance with US Law

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China-specific risks

Sino-Foreign Equity Joint Ventures (EJVs) Sino-Foreign Co-operative Joint Ventures (CJVs)g p ( ) Wholly Foreign-Owned Enterprises (WFOE) Foreign Investment Companies Limited by Shares g p y

(FICLBS) Investment Companies through Foreign Investors p g g

(ICFI)

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DOCUMENTINGDOCUMENTING COMPLIANCE OBLIGATIONS JV contracts and agreements should include

anti-corruption clauses, termination clauses and audit rights Certifications of FCPA and anti-corruptionCertifications of FCPA and anti corruption

clauses from each JV partner

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Suggested Provisions

JV will comply fully with the FCPA; JV will comply fully with local laws, p y y ,

regulations and policies; payments of any commissions could be p y y

disclosed to both the U.S. Government and the foreign government; certifications that JV compliance with the

FCPA has been and will be maintained10

SAMPLE CONTRACTSAMPLE CONTRACT PROVISION

Local Party warrants and represents that neither Local Party nor any of its officers, directors, employees, agents or other representatives has performed or will perform any of the following acts in connection ith this Agreement an saleacts in connection with this Agreement, any sale made or to be made hereunder, any compensation paid or to be paid hereunder or any otherpaid or to be paid hereunder, or any other transactions involving the business interests of the jv:

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pay, offer or promise to pay, or authorize h f i ithe payment of, any money, or give or promise to

give, or authorize the giving of, any services or anything else of value either directly oror anything else of value, either directly or through a third party, to any official or employee of any governmental authority or instrumentality, y g y y,or of a public international organization, or of any agency or subdivision thereof, or to any political party or official thereof or to any candidate for political office for the purpose of:

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f (i) i fl i d i i f hof (i) influencing any act or decision of that person in his official capacity, including a decision to fail to perform his official functions with such pgovernmental agency or instrumentality or such public international organization or such political party, (ii) inducing such person to use his p y, ( ) g pinfluence with such governmental agency or instrumentality or such public international organization or such political party to affect ororganization or such political party to affect or influence any act or decision thereof or (iii) securing any improper advantage.

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Sample CertificationI have received and read the Foreign Corrupt P ti A t P li St t t d C liPractices Act Policy Statement and Compliance Guide (the “Guide”). I am familiar with the Guide and the related procedures contained therein. I understand the provisions of the FCPA and the consequences of its violation. I also understand the Policy that prohibits activity in violation of the y p yFCPA, and I agree to abide by such Policy and the provisions and procedures contained in the Guide. I know where a copy of the Guide isGuide. I know where a copy of the Guide is located and to whom I should refer questions should issues or questions arise.

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GIBSON DUNN & CRUTCHER LLPGIBSON, DUNN & CRUTCHER LLPFind Us

D i Offi I i l OffiDomestic Offices:

Los Angeles333 South Grand AvenueLos Angeles, California 90071‐3197(213) 229‐7000

Palo Alto1881 Page Mill RoadPalo Alto, California 94304‐1125(650) 849‐5300

International Offices:

LondonTelephone House2‐4 Temple AvenueLondon EC4Y 0HB United Kingdom

Century City2029 Century Park EastLos Angeles, California  90067‐3026(310) 552‐8500

New York

Orange County3161 Michelson DriveIrvine, CA 92612‐4412(949) 451‐3800

Dallas

London EC4Y 0HB, United Kingdom44‐20‐7071‐4000

Paris166 rue du Faubourg Saint Honoré75008 Paris, France33 1 56 43 13 00New York

200 Park AvenueNew York, New York  10166‐0193(212) 351‐4000

Washington, D.C.1050 Connecticut Avenue, N. W.

Dallas2100 McKinney Avenue, Suite 1100Dallas, Texas  75201‐6911(214) 698‐3100

Denver1801 California Street, Suite 4200

33‐1‐56‐43‐13‐00

MunichWidenmayerstraße 1080538 Munich, Germany49‐89‐189‐33‐0

Washington, D. C.  20036‐5306(202) 955‐8500

San FranciscoOne Montgomery StreetSan Francisco, California  94104‐4505(415) 393 8200

fDenver, Colorado  80202‐2641(303) 298‐5700 Brussels

Avenue Louise 4801050 Brussels, Belgium32‐2‐554‐70‐00

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(415) 393‐8200

Foreign Corrupt Practices Act: Compliance in Joint Ventures and ConsortiaCompliance in Joint Ventures and ConsortiaEdward L. Rubinoff

Akin Gump Strauss Hauer & Feld, LLPAkin Gump Strauss Hauer & Feld, LLP1333 New Hampshire Avenue, NWWashington, DC 20036(202) 887-4026erubinoff@akingump comerubinoff@akingump.com

April 21, 2010

© 2010 Akin Gump Strauss Hauer & Feld LLP

AgendaAgenda

Ensuring FCPA Compliance

Identifying and Responding to Red Flags

Managing Internal In estigations Managing Internal Investigations

Resolving Disputes with JV and Consortium Partners Resolving Disputes with JV and Consortium Partners

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Ensuring FCPA Compliance: Inherent ChallengesEnsuring FCPA Compliance: Inherent Challenges

● JVs and consortia, by definition, are partnerships to expand resources capital or market access where control is dividedresources, capital or market access where control is divided among partners.

● Sharing control and/or influence may expose partners to risk in g y p pthe event that other entities are not willing or able to comply with the FCPA.

● To address power sharing issues partners must both assert● To address power sharing issues, partners must both assert compliance priorities and mitigate compliance risks.

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Ensuring FCPA ComplianceEnsuring FCPA Compliance

To ensure FCPA compliance after JV and consortium partners enter into an agreement: g

● Communicate FCPA compliance expectations to all JV and consortium partners;

● Institute a comprehensive FCPA compliance program;

● Maintain a JV/consortium due diligence file; and

● Provide on-going JV/consortium oversight.

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Ensuring FCPA Compliance: CommunicationsEnsuring FCPA Compliance: Communications

Communicate FCPA compliance expectations to all JV and consortium partners:p

● Explain FCPA requirements that result from partnering with a U.S. company to all JV and consortium partners;

● Communicate expectations to all levels of employees, particularly those involved with sales, accounting or government contracts;

● Provide regular training; and● Provide regular training; and

● Customize training and informational materials to local languages and customs.

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Ensuring FCPA Compliance: Compliance Program

Institute a comprehensive FCPA compliance program:

Ensuring FCPA Compliance: Compliance Program

● Ensure global integration of corporate FCPA policies;■ Code of conduct; gifts, travel and entertainment expenses; charitable

and political contributions.

● Ensure third party broker/ agents/ consultants agreements contain FCPA language;

● Implement approval and accounting process for payments;

● Provide strong enforcement mechanisms including certification● Provide strong enforcement mechanisms including certification programs, reporting and independent oversight; and

● Audit and monitor FCPA compliance

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● Audit and monitor FCPA compliance.

Ensuring FCPA Compliance: Due Diligence FileEnsuring FCPA Compliance: Due Diligence File

The due diligence file should include:

● Agreements with JV or consortium partners and all amendments;

● FCPA due diligence questionnaires database results and other● FCPA due diligence questionnaires, database results and other records;

● Written reports on activities of JV or consortium partners; and

● Records of all payments made by and to JV or consortium.

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Ensuring FCPA Compliance: OversightEnsuring FCPA Compliance: Oversight

Provide on-going JV/consortium oversight:

● Obtain regular reports on JV/consortium business activities;

● Review personnel changes at the senior level;

● Provide written FCPA guidance in local language;

● Conduct periodic audits or on-site visits;

● Consider engaging external monitors to identify risks; and

● Establish a company “Hotline” that provides 24/7 access,

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p y p ,anonymity and reporting/escalation mechanism.

Identifying and Responding to Red FlagsIdentifying and Responding to Red Flags

In connection with JV/consortium remain vigilant for FCPA red flags:

● Unusual commissions;

● Convoluted payment requests or invoices;

● Requests for payments of cash to the JV or consortium;

● Rumors of improper payments;

● Abnormally large or frequent political contributions;

● Incomplete or inaccurate information in required disclosures;

● Retention of unnecessary employees;

● General lack of candor or transparency; and

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● Other instances of unusual or suspicious circumstances.

Identifying and Responding to Red FlagsIdentifying and Responding to Red Flags

What if a JV or consortium partner appears poised to violate the FCPA?

● Follow FCPA procedures.

● Ensure that adequate lines of communication exist.Ensure that adequate lines of communication exist.

● Follow chain of command.

● Seek an outside opinion to clarify issues, as necessary.

● Send a cease and desist notice, when appropriate.

● Consider terminating JV or consortium agreement.

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● Consider filing voluntary disclosure(s) with government authorities.

Managing Internal Investigations: ConsiderationsManaging Internal Investigations: Considerations

JV and consortium partners may have different approaches to FCPA compliance and internal investigations. p g

● Applicability and scope of FCPA and other anticorruption laws.

Acti ities that req ire in estigation● Activities that require investigation.

● Nature of investigation:■ Who may authorize/conduct an investigation?■ Scope of matters under investigation?■ Who bears the cost of investigation?

● Appropriate post-investigation action:● Appropriate post investigation action:■ Employee repercussions; disclosure/settlement; termination of JV

or consortium.

Partners should incorporate appropriate forward-looking

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language into the JV or consortium agreement to prepare for worst-case scenarios.

Managing Internal Investigations: InitiationManaging Internal Investigations: Initiation

When should an internal investigation be conducted?

● Any time an FCPA violation is suspected.

Why should you conduct an internal investigation?Why should you conduct an internal investigation?

● An internal investigation allows the partners to determine whether violations have occurred and the scope of the violations, if any.

● Permits well-informed decision-making.

● Provides information necessary for self-disclosure.

● While disruptive, it is less disruptive than a government investigation.

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Managing Internal Investigations: ConductManaging Internal Investigations: Conduct

Who should conduct an internal investigation?

● In-house audit committee■ Allows for quick and effective investigation; particularly efficient for low level

violations.

● General counsel■ Attorney-client privilege provides an extra level of confidentiality.

● Outside counsel● Outside counsel ■ Attorney-client privilege; additional outside resources; ensures impartiality.

● Forensic consultantsForensic consultants■ Provides specialized skill set; useful for complicated accounting issues.

● Special JV or consortium committeeAll f ti d di ti ith JV ti t

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■ Allows for cooperation and coordination with JV or consortium partners.

Managing Internal Investigations: ConductManaging Internal Investigations: Conduct

How should an internal investigation be initiated?

● Board of Directors, special committee or general counsel should authorize investigation.

Id tif bj ti f th i ti ti d ti● Identify objectives, scope of the investigation and reporting responsibilities.

● Consider initial notice of voluntary self-disclosure to preserve the right to● Consider initial notice of voluntary self disclosure to preserve the right to voluntary self-disclosure in the event violations are discovered.

● Notice of the investigation should be given to the affected company l ithpersonnel with:

■ An order to retain all relevant documents; ■ A request to report any inadvertent destruction of records; and ■ An explanation that the matter should be kept confidential.

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■ An explanation that the matter should be kept confidential.

Managing Internal Investigations: ScopeManaging Internal Investigations: Scope

What does an internal investigation entail? ● Document collection● Document collection■ Immediate priority as “adverse inferences” can be drawn from destruction. ■ For strategic purposes, consider whether documents outside the U.S. should

remain outside of the U.S.

● Witness interviews■ Identify key witnesses, provide Upjohn warnings, and interview as soon as

possiblepossible.

● Careful review and analysis of information/documents gathered.

● Dealing with adverse discoveries: ■Use document review and witness interviews to identify and resolve “red flags.”

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Managing Internal Investigations: ResolutionManaging Internal Investigations: Resolution

What is the final result of an internal investigation?

● Written report to senior management.

D t i h t l th i● Determine how to resolve the issue:■ Discipline or adverse action for relevant employees.■ Effect on senior management.■ Long-term effect on JV or consortium partnership.■ Long term effect on JV or consortium partnership.■ Disclosure to U.S. government agencies and/or appropriate

foreign entities.

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Resolving Disputes with JV and Consortium PartnersResolving Disputes with JV and Consortium Partners

JVs and consortia business disputes may arise generally from:

● Differing objectives;

● Inadequate definition of the scope of business activities;

● Arguments over control, responsibilities and chains of command;

I tibl t t l i l di● Incompatible management styles, including:■ Cultural differences;■ Unclear or poorly defined leadership; and■ Problems consolidating standard business practices,■ Problems consolidating standard business practices,

such as accounting and personnel management.

● Terms governing indemnification and expenses.

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Resolving Disputes with JV and Consortium PartnersResolving Disputes with JV and Consortium Partners

Additionally, JVs and consortia may need to contend with differences in opinion over FCPA compliance, including: p p , g

● Necessity of FCPA compliance and scope of FCPA jurisdiction.

● What is legal under local law or facilitation exceptions?● What is legal under local law or facilitation exceptions?

● What investments in compliance are necessary?

● What requires investigation?

● How will an investigation be conducted?

● What remedial actions are appropriate?

● When to correct and strengthen FCPA safeguards?

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● When to disclose to relevant authorities?

Resolving Disputes with JV and Consortium PartnersResolving Disputes with JV and Consortium Partners

JV/consortium disputes will be dictated by the weight and influence of the parties involved.

Partners should be aware that this may affect their ability to effectively and efficiently resolve disputes.

JV and consortium dispute resolution may require:

● Looking to the agreement:■ To define relative influence and control. ■ To clearly describe management responsibilities and

measurable milestonesmeasurable milestones.■ For structural solutions such as providing an independent

director with a swing vote, or outside authorities.

● Considering bilateral discussions.

● Undertaking third party mediation or arbitration.

● As a last resort the JV or consortium relationship may be

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● As a last resort, the JV or consortium relationship may be terminated.

QUESTIONS?

Edward L. RubinoffAkin Gump Strauss Hauer & Feld, LLPp1333 New Hampshire Avenue, NWWashington, DC 20036(202) 887 4026(202) 887-4026erubinoff@akingump.com

© 2010 Akin Gump Strauss Hauer & Feld LLP

Cover PagePollSound QualityFishman - FCPA in Joint VenturesLee - FCPA in Joint VenturesRubinoff - FCPA and Joint Venture Consortia