Presenting a live 90‐minute webinar with interactive Q&A

Foreign Corrupt Practices Act in the Middle EastCompliance Strategies Given the Region's Unique Cultural and Governmental Intricacies

T d ’ f l f

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

THURSDAY, JULY 21, 2011

Today’s faculty features:

Kevin T. Connor, Partner, Squire Sanders, Riyadh, Saudi Arabia

Carol M. Welu, Partner, Squire Sanders, London, England

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FCPA in the Middle East

Carol M. Welu

Carol.Welu@ssd.com

Strafford Webinar

21 July 2011

Middle East FCPA Risksdd e ast C s s

High risk countries

Business with

governmentsgovernments

Thi d t Hi h i kThird-party agents

High-risk industries

2011 Global Integrity ReportC iti l f Middl E tCritical of Middle East

Tracks global trends in 36 countries

Middle East reform lagging behind the rest of the worldgg g

Steady deterioration in Egypt, Morocco, the West Bank and Yemen

Only Israel and UAE scored higher than “Very Weak”

Average ME score 51/100; global average 66/100

* May 2011 Global Integrity Report

Transparency International CPI Middl E t R tiCPI Middle East Ratings

TI Corruption Perception Index Rank (out of 178)*1. Qatar – 9 10. Morocco - 85 2 UAE 28 11 Egypt 982. UAE – 28 11. Egypt – 983. Israel – 30 12. Algeria - 105 4. Oman - 41 13. Lebanon - 127 5. Bahrain - 48 14. Syria – 1276. Jordan - 50 15. Iran – 1467 S di A bi 50 16 Lib 1467. Saudi Arabia - 50 16. Libya – 1468. Kuwait – 54 17. Yemen – 1469. Tunisia - 59 18. Iraq - 175

*Transparency International Corruption Perception Index 2010

q

Overview of FCPA EnforcementOverview of FCPA Enforcement

• FCPA prosecutions continue at a record setting pace:– 2008: 33 enforcement actions resolved; year of large fines; y g

– 2009: 40 enforcement actions resolved; individuals targeted

– 2010: 47 enforcement actions resolved; non-US companies and industry sweeps

– 2011: court decisions, trials and congressional hearings

• Recent monetary penalties exceeded the total penalties assessed in the previous 31 years

Enforcement Actions by Industryo ce e t ct o s by dust y

FCPA Top Ten C op e

Company (Country) Industry Fine YrCompany (Country) Industry Fine Yr

1. Siemens (Germany) Telecom $1.6 billion* 2008

2. KBR/Halliburton (USA) Oil & Gas $579 million 2009

( ) & $3. BAE (UK) Aerospace & Defence

$400 million 2010

4. Snamprogetti Netherlands/ENI (Holland/Italy) Oil & Gas $365 million 2010

5. Technip (France) Oil & Gas $338 million 2010

6. JGC Corp (Japan) Oil & Gas $218.8 million 2011

7. Daimler (Germany) Automotive $185 million 2011

8 Alcatel Lucent (France) Telecom $137 million 20108. Alcatel-Lucent (France) Telecom $137 million 2010

9 Panalpina (Switzerland) Logistics $81.8 million 2010

10. Johnson & Johnson (USA) Medical Device $70 million 2011

* ($800 million US + $800 million Germany)

Middle East Related FCPA Enforcement Cases dd e ast e ated C o ce e t Cases

Health South (2004)

Micrus (2005) Control Components (2009)

United Industrial (2009) Statoil (2006)

Salam (2006)

Oil for Food 30+ cases (2007

Latin Node (2009)

BAE Systems (2010) Oil-for-Food 30+ cases (2007-

2010)

Turk Deltapine (2007)

Daimler (2010)

Pride International (2010)

York International (2007)

Siemens (2008)

Comverse Technology (2011)

pending Sovereign Wealth Fund investigationFund investigation

Who is subject to FCPA jurisdiction?o s subject to C ju sd ct o

Important amendment in 1998 expanded application of FCPAto foreign persons

Continuing debate over whether a person covered whileoutside the territory of the United States

Sapsizian (2008) Alcatel is a French company with no Sapsizian (2008) - Alcatel is a French company with nooperations in the U.S.; Sapsizian is a French national whonever entered the U.S.; the bribery was authorised in Franceand paid to Costa Rican officials but transferred through U Sand paid to Costa Rican officials but transferred through U.S.bank; Sapsizian pled guilty

Who is subject to FCPA jurisdiction?o s subject to C ju sd ct o

Siemens (2008), Halliburton/KBR (2009), Technip and Snamprogetti (2010) and Tenaris (2011)• DOJ argued that U.S. jurisdiction over foreign parties established

through clearing U.S. dollar denominated transactions through correspondent accounts in U.S. intermediary banks

Patel in SHOT Show Trials (June 2011) - first successful challenge to expansive territorial jurisdiction• DHL package sent from the UK to government informant in the

US did not establish jurisdiction

Who is a “Foreign Official”o s a o e g O c a

Whether a foreign state-owned enterprise (SOE) is an “instrumentality” of a foreign government

Several recent cases have challenged without success Several recent cases have challenged without success

Lindsay Manufacturing - SOE is an instrumentality based on certain factors

Control Components - question of fact for the jury

Some determining factors Does the SOE provide a public service? officers appointed by Does the SOE provide a public service? officers appointed by

government officials? financed through government appropriations? vested with exclusive power to administer? perceived to be performing official function?

US Legislative and R l t D l tRegulatory Developments

Congressional hearings on pro-business FCPA amendments but not clear that the FCPA will be amendedamended

Dodd-Frank whistleblower provisions Awards bounties of 10%-30% of monetary sanctions over $1

million

Whistleblower given robust protection against retaliationWhistleblower given robust protection against retaliation

UK Bribery Act U be y ct

Four types of offenses Offering, promising or giving a bribe

Requesting, agreeing to receive or accepting a bribeRequesting, agreeing to receive or accepting a bribe

Bribing a foreign public official

Failure by a company to prevent a bribe

More restrictive than the FCPA More restrictive than the FCPA No facilitation payment exception

Strict liability for failure to prevent a bribe

Prohibits commercial as well as public bribery

Broad extraterritoriality reach

Broad definition of “associated person”

Foreign Corrupt Practices Act in the Middle EastCompliance StrategiesKevin T. Connorkevin.connor@ssd.com21 July 2011

Squire, Sanders & Dempsey refers to an international legal practice which operates worldwide through a number of separate legal entities. Please visit www.ssd.com for more information.

21 July 2011

Defining the Regiong g

Geography Geography

Culture

P liti (th A b S i ) Politics (the Arab Spring)

History

Country specific

19

Understanding the Dynamicsg y

Complexity of issues

Different legal systems

Shari’a

Change as a constant

Perceptions versus realityPerceptions versus reality

Transparency

Systemic risk Systemic risk

20

Creating a Risk Matrixg

Due Diligence and the importance of being earnest

Market allure

Balance of approachpp

Expectation Management• Hurry up and wait

Relationships• Communication and education

FCPA compliance – a category of its own

21

Identify FCPA Risk Factorsy

Political risk• Local and national

Cultural risk

Communication Risk

Third Party Risk

Nature of Investment/ Market Activity• Commercial Agency• Joint Venture

22

Identify FCPA Risk Factorsy

Licensing and Company Formation

Record Keeping and Accounting

Disclosure

Cost

Tax AvoidanceTax Avoidance

23

A Suggested Approachgg pp

Pre investment phase• Responsible risk analysis• Assign a likelihood to the risk• Cost benefit review

Post investment phase• Risk management plan

C /• Corporate governance / compliance

24

Local Anti-Bribery Laws, Saudi Arabiay ,

Islamic Law

Bribery Law• 1930s Abuse of Position

R l D N M/36 (1992)• Royal Decree No. M/36 (1992)• Defintion of Bribery• Definition of Public Employee• Penalties• Enforcement

25

Local Anti-Bribery Laws, Saudi Arabiay ,

Investigation Authority

Gift Giving• Internal Controls

E-Governance

Public Procurement

26

Local Anti-Bribery Laws, United Arab Emiratesy ,

Overview

UAE Federal Penal Code• Definition of Bribery

UAE Federal Money Laundering Law

Dubai Government Human Resources Management Law

Gift Giving• Value of Gifts/Hospitality• Frequency• Frequency

27

Local Anti-Bribery Laws, United Arab Emiratesy ,

Gift Giving, continued• Intention• Relevance to Receipient/Offerer

Practical Guidelines Practical Guidelines• Marketing• Conduct of Duties• Favorable Treatment

28

Global Perspectivep

29

Fundamentals of a Compliance Program From th DOJ’ P tithe DOJ’s Perspective

The DOJ has commented on the expected elements of a rigorous compliance program in its Opinion Procedure Releases, including: Adoption of a corporate code of conduct against violating FCPA &

foreign anti-bribery laws with standards/policies/procedures for directors/officers/employees and third party ‘partners’

Assignment of one or more officers responsible to ensure Assignment of one or more officers responsible to ensure implementation and to report to Audit Committee

Regular training on compliance for directors/officers/employees/third partiesp y p

Annual or periodic certifications of compliance by same persons Centrally maintained Standard Language Agreements

Fundamentals of a Compliance Program From th DOJ’ P ti ( t’d)the DOJ’s Perspective (cont’d)

Implementation of a reporting system (e.g., ‘help/hot line’) for employees/others to reported suspected violation of company compliance program or code of conductp p g

Code of Conduct and Training (translated)

Clear procedures for prudently identifying reliable third partyClear procedures for prudently identifying reliable third party business partners

Use of financial/accounting procedures to ensure internal ti t laccounting controls

Independent counsel/auditor audits every three years

Gifts and HospitalityG ts a d osp ta ty

Gifts and Hospitality Corporate gifts with company logo preferred – standard and tied to

promoting the businesspromoting the business

Ask: Would giver or recipient be embarrassed if gift disclosed? If answer yes, rethink. Would gift/entertainment pass the relevant “newspaper test?”newspaper test?

Gift must be properly booked and controlled

Avoid lavish gifts, particularly at time of g p yprocurement tender

Gift policy should embody the local law gift giving requirements g g(e.g. Qatar strict Civil Service Law prohibiting government employees from accepting gifts, regardless of whether there is corrupt intent)

Risk Not Comforts ot Co o t

“Everybody is doing it” a risk, not a comfort

Industry-wide Investigations

– Freight forwarding and customs consultants

– Medical device companies

– UN Oil-for-Food Program

– Industry-wide investigation – lessons learned from Panalpina investigation p g

Countries can choose at any moment to enforce anti-bribery laws on the books

Third-Party Agent Compliance Programd a ty ge t Co p a ce og a

Assessing the risks upfront

Conducting due diligence on the agentI l d l i Internal and external review

If unresolved “red flags” heightened review

Comply with local law requirements (e.g. revolving door, p y q ( g g ,

registration, etc requirements)

Documentation D t il f itt d f th d dili Detail of written record of the due diligence process

Contractual compliance language

Continuing management and training of agent g g g g

FCPA – Third Party Agent Red FlagsC d a ty ge t ed ags

Family or business relationships with foreign government official or royal family member

Is specified or recommended by a government official Is specified or recommended by a government official

Is owned by a government entity or refuses to disclose owners or partners

Refuses to comply with the company’s code of ethics and business conduct or to provide FCPA certifications

Advanced payments or unusually high commission

Requests to pay a non-related person/entity or to a country with weak banking transparency g p y

FCPA Third Party Agent Red FlagsFCPA – Third Party Agent Red Flags

Appears unqualified or understaffed to perform the contracted activities

Requests that his identity be kept hidden Requests that his identity be kept hidden

Requests that he be paid in cash or up front

Requests that the company create false documents Requests that the company create false documents

Seeks reimbursement for unusually high, ill-defined or undocumented expenses

Is indifferent to local laws and regulations

Reputation, reputation, reputation

Standard DownfallsSta da d o a s

“Head in the sand” attitude toward agents, consultants and partners

Failure to require third parties to comply ith ti b ib i twith anti-bribery requirements

Lack of adequate training of foreign nationals in charge of operations

Failure to establish adequate transparency of financial and operational reporting

Lack of management and internal audit /oversight/monitoring

Compliance program is not a living, breathing program but just a paper tiger