© Copyright 2013 by K&L Gates LLP. All rights reserved.

MODERATOR: Dick Thornburgh, D.C. PANELISTS: Amy L. Sommers, Shanghai Matt T. Morley, D.C. Jim Bulling, Melbourne Elizabeth Robertson, London Christopher Keane, Sydney William Reichert, Moscow Edward J. Fishman, D.C. OCTOBER 16, 2013

How Can Global Companies Meet the Challenges of Different

Enforcement Approaches?

Spanning the Globe With Anti-Corruption and Anti-Bribery Government Actions

OVERVIEW

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Battle against corruption and bribery at center-stage as global financial crisis showcased economic and social costs of corruption

Significant evolution of laws around the globe since 1977 enactment of FCPA in the US 2010 UK Bribery Act;

2011 China Anti-Corruption Law;

2013 Russian Anti-Corruption Law Amendments;

2013 Brazilian Anti-Corruption Law.

Laws mirror each other more than they differ Social, cultural and political differences affect

global development of anti-corruption and anti-bribery laws Wide prosecutorial discretion Execution is the key – how aggressively

governments enforce their laws makes a difference Execution may vary and depends on political

circumstances in each country/region

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Global companies can take comfort that approaches to having effective compliance program are similar country-by-country and region-by-region

Importance of on-the-ground information, local support and relationships in structuring global compliance programs and in responding to enforcers who knock on your door

We have assembled 7 of our anti-corruption experts from our offices across the globe to share their insight on latest developments in the laws and enforcement in their regions, and on their impact on anti-corruption programs klgates.com 4

CHINA

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AMY SOMMERS K&L GATES, SHANGHAI OFFICE + 86 21 221 2085 amy.sommers@klgates.com

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Brief summary of the anticorruption legal framework

Recent trends in enforcement

Suggested preventative measures

PRC LEGAL FRAMEWORK - ANTIBRIBERY

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Bribes to/from officials

The Criminal Law of the People’s Republic of China (“Criminal Law”)

Bribes given/paid Commercially

Anti-Unfair Competition Law & associated regulations (civil offense) + Criminal Law (criminal offense)

Bribes to Foreign Officials

Criminal Law (as of 2011)

TWO TYPES OF ANTI-BRIBERY ENFORCEMENT CURRENTLY UNDERWAY IN CHINA

Official Commercial

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OFFICIAL BRIBERY ENFORCEMENT – WHAT ARE DRIVERS?

Internal Party power

struggles

Consolida-tion

Power

Targeted enforcement against key officials (e.g., Bo Xilai, Zhou Yongkan)

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COMMERCIAL BRIBERY ENFORCEMENT – PRICE-DRIVEN? …. WHAT COMES NEXT?

Retail price maint.

• Spring 2013: • Baby formula

Anticorruption

• Summer 2013: • Pharma co’s +

doctors/hospital personnel

Anticorruption? AML?

• Autumn 2013/Winter 2014: Medical devices? Eyeglasses?

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WHAT DO RECENT DEVELOPMENTS MEAN FOR COMPANIES OPERATING IN CHINA?

Good news (sort of): If your company gives a bribe to a PRC official and it comes to light, the PRC gov’t probably isn’t going to prosecute your company

Bad news: If your company is giving commercial bribes, you’re facing a real enforcement risk in from Chinese regulators that could implicate the FCPA even tho’ the behavior appears not to involve ‘officials’ from a China law perspective

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IMPLICATIONS (CONT’D): CHINAWHYS

Peter Humphrey, respected China-hand and founding director of ChinaWhys consultancy – arrested: Global Times: “Paying from 800 ($131) to 2,000 yuan per piece,

the couple started purchasing and collecting Chinese citizens' personal information, including names of family members, household property, addresses, overseas travel records and vehicle ownership.”

Humphrey and his partner/wife were arrested on criminal charges of trafficking personal information of Chinese citizens

Characterized as part of a nationwide sweep: “The case is part of a nationwide campaign launched by the Ministry of Public Security aimed at cracking down on infringement upon citizens' personal information. Since August 7, police in Shanghai have captured 126 suspects for illegal trading of personal information, of them 35 have been detained under criminal charges. Some 100 million pieces of personal information waiting to be sold have also been found.”

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IMPLICATIONS (CONT.): EMPLOYMENT HISTORY - REVIEW

Unhappy recent exits?

Likely whistleblowers?

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IMPLICATIONS (CONT.): INTERNAL AUDIT HISTORY - REVIEW

Red flags ?

Have they been

resolved?

If not, is that a smoldering

fire?

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UNITED STATES AND THE FCPA

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MATT MORLEY K&L GATES, WASHINGTON, DC OFFICE (202) 778-9850 matt.morley@klgates.com

US: AGGRESSIVE PROSECUTION

US authorities say FCPA prosecutions “a top priority”

Recoveries of enormous amounts of fines and penalties Disgorgement of profits from tainted contracts, in addition to

fines Ability to charge multiple offenses on the same set of facts

Exceptionally broad assertion of extraterritorial jurisdiction

Most cases resolved by settlement rather than litigation Limited case law Facilitates ability of prosecutors to take increasingly

aggressive positions unchecked by judicial authority

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US: ELEMENTS OF EFFECTIVE COMPLIANCE No program can prevent all violations

Three key questions: Is the company’s compliance program well designed? Is it being applied in good faith? Does it work?

US DOJ/SEC Guide: “hallmarks of effective compliance” Senior management commitment Policies and procedures Oversight, autonomy and resources Risk assessment Training Incentives and disciplinary measures. Due diligence Confidential reporting and internal investigation. Periodic testing and review.

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US: SOURCES OF PROSECUTIONS

Most significant source cases is corporate self-reporting Leveraging of limited enforcement resources by offering

leniency in exchange for self-reporting

Other sources may become increasingly important Dodd-Frank whistleblower bounties

10 to 30 percent share of recovery Tips from employees, former employees, competitors, ex-

spouses Increased likelihood that authorities will learn of violations Significant pressure for company to self-report

Increasing international cooperation

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OECD Convention on Bribery (1997 vs. 2013)

US: INTERNATIONALIZATION OF ANTICORRUPTION EFFORTS

OECD Convention was largely a US initiative

According to Transparency International, of 39 signatories, only seven were “actively” enforcing their laws implementing the OECD Convention

Many nations do not make it a priority to devote resources to expensive prosecutions that may harm domestic companies

Suggestions that these laws may be used as a competitive weapon against other nations

9 of the 10 largest FCPA cases involved non-US companies.

UK authorities have said that they will prioritize Bribery Act prosecutions where a UK company was disadvantaged.

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AUSTRALIA

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JIM BULLING K&L GATES, MELBOURNE OFFICE +61 3 9640 4338 jim.bulling@klgates.com

AUSTRALIAN ANTI-CORRUPTION LEGISLATION Legislation prohibiting bribery of foreign officials similar

to UK, US and elsewhere Law reinforced by agreements with many trading

partners: mutual cooperation arrangements extradition arrangements

No specialist enforcement agency like SFO or DOJ enforced by Australian Federal Police Australian Crime Commission has mandate

Small number of convictions current cases before courts involve French, Australian

nationals

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GOVERNANCE AND PREVENTATIVE MEASURES Company can be guilty of offence where it or senior

executive authorised payment Defence available if company has governance

program in place and corporate culture of compliance Tools for prevention

Board statement and policies Codes of conduct for employees, agents, contractors Clear guidance on hospitality, entertainment Compliance resources, internal audit Due diligence, monitoring and remuneration of in-country agents Act on early warning signs

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WHEN THINGS GO WRONG

Not just another compliance issue AFP have special tools available Phone tapping, arrest, search warrants

ACC and powers of compulsion Need coordination of response across

jurisdictions on issues such as: Cooperation/resistance Privilege Representation Employee assistance

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LATIN AMERICA AND AFRICA

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EDWARD J. FISHMAN K&L GATES, WASHINGTON, DC OFFICE (202) 778-9456 edward.fishman@klgates.com

CORRUPTION RISK IN LATIN AMERICA AND AFRICA

Many countries in these regions are in the bottom half of Transparency International’s 2012 Corruption Perceptions Index e.g. Angola (157 of 174); Nigeria (139 of 174); Brazil (69 of

174); Venezuela (165 of 174)

Many of these same countries offer significant business opportunities for global companies

The historical levels of corruption, the size of government contract opportunities and the relative lack of transparency and consistency in regulatory processes creates enormous corruption risk

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ANTI-CORRUPTION ENFORCEMENT IN BRAZIL

Recent scandals involving public corruption and infrastructure development for the World Cup and Olympics prompted Brazilian legislature to enact robust anti-corruption legislation

The legislation becomes effective in January 2014 and imposes civil (not criminal) penalties on companies that bribe Brazilian or foreign public officials; effective compliance is a mitigating factor but not a full defense

Recent internal investigations or settled U.S. enforcement proceedings involving Brazil include Embraer, Eli Lilly and Nature’s Sunshine

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ANTI-CORRUPTION ENFORCEMENT IN NIGERIA

Several of the largest FCPA settlements involved Nigeria, including the TSKJ Consortium (Bonny Island), Noble Corporation and Panalpina

Nigerian authorities prosecuted and reached settlements with KBR over the Bonny Island scandal

Nigerian government continues to focus on domestic public corruption, including ongoing scandal involving petroleum sales and continuing allegations that former government officials amassed overseas fortunes through hidden ownership of companies involved in oil and gas business

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KEY LESSONS IN THESE MARKETS

Importance of Due Diligence Third Party Agents and Local Partners – focus on their

beneficial ownership and shareholders, reputation, experience/value and compliance culture

Projects and Transactions – ensure the proposed business makes economic and logical sense; look for “traps” that may be potential evidence of bribery scheme

M&A Due Diligence – thoroughly vet any target company operations in high-risk markets

Implementation of Robust Compliance Programs Training of Local Employees, JV Partners and Agents Continuous Monitoring and Oversight

Increasing Local Awareness of Anti-Corruption Risks and Compliance Best Practices

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SOUTHEAST ASIA AND THE SOUTH PACIFIC

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CHRISTOPHER KEANE K&L GATES, SYDNEY OFFICE +61 2 9513 2562 christopher.keane@klgates.com

SOUTH EAST ASIA AND THE SOUTH PACIFIC: MAJOR CHALLENGES AND DRAMATIC RESPONSES A highly problematic region for corporations engaged in

international commerce A major social and political issue Dramatic legislative reforms Emphasis remains ‘local’ but increasingly with a cross-

border focus

3 jurisdictions indicative of the reforms, challenges and risks throughout the region

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SOUTH EAST ASIA & THE SOUTH PACIFIC: INDONESIA

Pursuit of high profile targets Willingness to pursue foreign directors and corporations Participation in global investigations and information

sharing The rise of anti anti-corruption law?

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SOUTH EAST ASIA & THE SOUTH PACIFIC: PHILIPPINES

‘Minor’ offending with major repercussions The reverse onus of proof and its impact on policies

regarding facilitation payments and gifts Increasingly sophisticated laws regarding financial record

keeping Witness immunity to maximize prospects of successful

convictions

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SOUTH EAST ASIA & THE SOUTH PACIFIC: PAPUA NEW GUINEA AND THE ISLAND NATIONS OF THE SOUTH PACIFIC

Tiny nations, massive projects

Who is a public official? Lack of enforcement activity is no guarantee the law will

not be enforced against you Politically and commercially motivated prosecutions Use of unconventional methods to secure a conviction

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BRIBERY AND CORRUPTION IN SOUTH EAST ASIA & THE SOUTH PACIFIC: ADAPTING COMPLIANCE AND RISK MANAGEMENT FOR MAXIMUM EFFECT

Stop thinking ‘regional’ and start thinking ‘local’

Introduce a compliance program that can and will be complied with

Identify all of the potential repercussions - its not just the company that is under threat

Monitoring compliance from afar

Anticipate what could go wrong in the event of an investigation

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ANTI-CORRUPTION COMPLIANCE IN RUSSIA

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WILLIAM REICHERT K&L GATES, MOSCOW OFFICE +7 495 643 1700 william.reichert@klgates.com

ANTI-CORRUPTION LAW There is no unified anti-corruption law in Russia Anti-corruption rules are dispersed among two federal laws, three codes and other

pieces of legislation Gifts to public officials are prohibited in connection with their official duties (with

certain limited exceptions) Bribe giving, bribe taking and commercial bribery by individuals are all prohibited

under the Russian Criminal Code Commercial bribes may result in criminal liability for individuals Criminal liability is applied to individuals (regardless of whether a bribe is given

personally or through an intermediary, or directly to a public official or to his/her relatives)

Bribery by legal entities is prohibited under the Code of Administrative Offences (there is no criminal liability for legal entities in Russia)

A failed attempt to bribe can still result in liability

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AMENDMENTS TO ANTI-CORRUPTION LAW In January 2013 Russia enacted amendments to the Federal Law “On Counteracting

Corruption” with Article 13.3 “The Obligation of Organizations to Undertake Anti-

Corruption Measures”

Article 13.3 imposes an affirmative obligation on companies doing business in Russia

to implement anti-corruption compliance measures that may include:

Identifying departments and officers who will be responsible for compliance

Cooperating with law enforcement agencies

Developing and implementing anti-corruption standards

Adopting a code of professional ethics and conduct

Preventing and resolving conflicts of interest

Preventing the creation and use of false documents

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AMENDMENTS TO ANTI-CORRUPTION LAW Article 13.3 contains only suggestions with regard to possible anti-corruption measures

The sufficiency of an organization’s anti-corruption compliance measures will still

require a case-by-case judicial determination

Article 13.3 does not contain a penalty provision, and so the court will refer to the Code

of Administrative Offences

In the event of a violation a legal entity may be fined for up to100 times the amount of

the bribe

A legal entity may be deemed liable under the Code of Administrative Offences if it

failed to take “all measures to comply” that were within its control

There is no court practice yet available with regard to the application of Article 13.3

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CORRUPTION RED FLAGS IN RUSSIA Because endemic corruption is widespread, you may be deemed to be on notice before you even

enter the market A major risk in Russia involves use of third parties, including agents, intermediaries, resellers,

distributors, and joint venture partners Lack of transparency is a red flag Examples of non-transparent practices include:

Complicated ownership arrangements Use of or affiliations with shell companies Use of offshore holding companies Use of offshore bank accounts Use of fake invoices and stamps Use of sham counterparties to create unrecorded cash (obnalichka/obnalichivanie)

Difficult (but not impossible) to detect in audit Often also used for tax avoidance and money laundering

This underscores the need for heightened scrutiny of business partners in the region

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UNITED KINGDOM

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ELIZABETH ROBERTSON K&L GATES, LONDON OFFICE Head, Corporate Crime Practice Group +44 (0) 20 7360 8255 elizabeth.robertson@klgates.com

BRIBERY ACT 2010

Four Offences “Bribing” (s1) “Being bribed” (s2) “Bribery of a foreign public official” (s6) UK Public Officials? “Failure [by a company] to prevent bribery” (s7) Also consent or connivance by senior officer (s14) ANYWHERE And anyone not just public officials

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DEFERRED PROSECUTION AGREEMENTS

To become Law in the UK 2014

The power to negotiate deferred prosecutions will be available to SFO, CPS, FSA and OFT

The onus and the financial burden will be on potential corporate defendants to make sure they comply with the law

Middle and senior management “go under a bus”?

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UK BRIBERY ACT – ADEQUATE PROCEDURES THE SIX GUIDANCE PRINCIPLES FOR PREVENTION OF BRIBERY

What do we need to demonstrate to show we take this seriously? Proportionate procedures – anti-bribery procedures that are proportionate to the

specific risks we face and to the nature, scale and complexity of our operations Top level commitment – senior management demonstrate commitment to

preventing bribery, establish a culture that supports this commitment and communicate our anti-bribery policy throughout the group

Risk assessment – assess, know and respond to the nature and extent of our corruption risks

Due diligence – understand the background and reputation of the parties with whom we do business

Communication (including training) – communicate and effectively embed our policy controls in our day to day business processes

Monitoring and review – appropriate monitoring and review mechanisms to ensure compliance with our policy and controls

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UK DPA V US DPA: A COMPARISON (TAKEN FROM THE LEGISLATION AND THE DRAFT CODE) Level of Judicial Oversight Availability to individual defendants

Selection of the Monitor

Controls on the Monitor

Required Disclosure

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Key Issues and Themes for General Counsel

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