What General Counsel and International Lawyers Need to Know About Doing Business in East Asia

ABA 2015 ASIA FORUM—TOKYO

March 2, 2015

What’s the Deal Failures of corporate compliance in the 1970s and

1980s leading to a lack of trust in corporate legal and HR departments by US enforcement agencies

Not just the US anymore – governments around the globe are creating new regulatory regimes and expectations for antitrust and bribery investigations

Pressures of more-aggressive FCPA enforcement and new statutes like Dodd-Frank and the UK Bribery Act and now China clamping down on “corruption”

Technology and globalization are creating business opportunities, but also enabling regulators to expand their reach

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Major Statutes and Regulators to Be Concerned About US

Foreign Corrupt Practices Act (FCPA) The Department of Justice, the Securities and Exchange

Commission, the Federal Trade Commission UK

The Bribery Act The Crown Prosecution Service, the Serious Fraud Office,

the Financial Conduct Authority, the Competition and Markets Authority

China The PRC Criminal Law The PRC Anti-Unfair Competition Law National Development and Reform Commission Central Commission for Discipline Inspection

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Recent Trends and Developments with Implications for Asia Whistleblower Program created by Dodd-Frank Aggressive enforcement of the FCPA outside the US The aggressive prosecution of anti-cartel behavior

criminally with prison sentences and harsh fines/sanctions

Expansion of local enforcement activity in the US (e.g., the New York Department of Financial Services)

Increase in shareholder activism by hedge funds Advent of Deferred Prosecution Agreements in the UK Increased enforcement of anti-bribery and anti-

competition laws in China

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History Lesson – How Did We Get to Where We Are Today? Lockheed bribery scandal in Japan (1976) Ethics in Government Act: “ethics official” (1978) Treadway Commission: COSO standards (1985) US Sentencing Guidelines: (1991) Caremark opinion: directors liable if fail to oversee:

(1996) Enron, WorldCom, Tyco scandals in the US (2001,2002) Arthur Andersen collapses; Sarbanes-Oxley: (2002) Amendments to US Sentencing Guidelines: ethics (2004) Lehman Brothers collapses (2009) Passage of Dodd-Frank Act and related regulations (2010) Passage of the UK Bribery Act (2010) GSK bribery scandal in China (2013)

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New Requirements for General Counsels Business acumen Ability to interact with the board Ability to negotiate with regulators and

watchdog agencies Strong external network; rolodex Ability to develop a risk management culture

and an ethical culture Ability to operate across geographical

boundaries Ability to outsource legal work appropriately

and cost-effectively

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What Keeps GCs and CCOs Awake at Night? Legal ethics Business ethics issues and criminal compliance Reputation management Conflicts of interest and corporate opportunities Antitrust and anti-competition investigations FCPA enforcement Cybersecurity and privacy IP protection Competitive intelligence, industrial espionage and

other anti-competitive behavior Insider trading Accounting irregularities/accurate reporting

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What is it About Ethics? Ethics is one of the most challenging issues

facing in-house lawyers Ethical compliance is complicated by

globalization Particular concerns for legal ethics in the

“international” context: Multiplicity of authorities and rules governing

ethics and the sanctions that follow breaches Attorney-client privilege and confidentiality Conflicts of interests; waivers Negotiation ethics Competence

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What is it About Ethics? (cont’d) Another layer of complexity is the business ethics

and compliance program required to satisfy regulators

Under the US Federal Sentencing Guidelines for Organizations implemented in 1991, organizations with ethics and compliance programs meeting defined standards earn credit toward reduced penalties if employees engage in wrongdoing – but organizations with substandard programs receive far tougher penalties

An organization must have standards of conduct and internal controls reasonably capable of reducing the likelihood of criminal and other improper conduct

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Some Common Roles for the GC

Compliance Officer

Enterprise-wide Risk Manager and Crisis Manager

Risk owner e.g., FCPA, antitrust

Investigator

Case manager

Regional liaison

Consigliere10

Some Common Titles/Roles of the CCO

Chief Ethics & Compliance Officer

VP – Business Practices & Compliance

AGC - Compliance

GC & CCO

Global Ethics Director

Direct Access Reporter to Board

Liaison to Regulators11

Should the GC Also Be the CCO? Many arguments against:

GC is a full-time job “[T]he GC should not be CCO ...because rigorous

oversight of the compliance processes demands too much time.” - Ben Heineman, former General Electric GC

Different/conflicting mandates Clear momentum for independent CCO that works

closely and collaboratively with Legal Recent corporate settlement agreements or

pressure from regulators/investors have increasingly required separation of Compliance from Legal

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Should the GC also Be the CCO? (cont’d) Some arguments in favor or support:

Compliance and Legal have separate, but supportive mandates

Compliance is not a legal function, but lawyers and in-house counsel have many critical roles in the program

Role of privilege, confidentiality and other legal principles spill over to Compliance

Smaller enterprises may be able to combine the GC and the CCO because of different level of complexity

Still difficult to determine the right approach

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What are Some Best Practices for Managing an Internal Investigation? Plan for an investigation in advance – have clearly defined

document collection/retention and reporting guidelines in place

Consider disclosure obligations Hire independent counsel and experts (e.g., IT, forensic

accounting) who have relevant experience in the local jurisdiction

Understand how attorney-client privilege will (or will not) work

Determine whether employees or executives potentially involved in the investigation need separate legal representation and whether they should be indemnified for legal expenses

Avoid retaliation against any whistleblowers Develop an appropriate internal and external response that

addresses the company’s obligations to its various stakeholders: shareholders, employees, customers, regulators and the public

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What Are Some Best Practices for Cross Border M&A and JVs? Take the UK Bribery Act and the FCPA very seriously –

both have significant extraterritorial application and the sanctions for non-compliance can be severe

Take due diligence to the highest level - understand how the target or JV partner does business

Investigate related party transactions carefully Address attorney-client issues when investigating a

target’s litigation and regulatory issues Address any antitrust or anti competition issues at the

onset Retain local counsel who has an above board relationship

with the local regulators Build termination right into JVs for a violation of anti-

corruption statutes or related non-compliance

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Extraterritoriality of US Economic Legislation Recent surge in the enactment and enforcement

of US laws and regulations (especially those aimed at persuading Iran to abandon its nuclear program)

Have significant extraterritorial impact on foreign individuals and companies- including many with minimal or no contacts with the US

Raises the issue of “judicial imperialism” as well as the clash of competing national laws

The FCPA is almost 40 years old, yet only in 2010 was there a significant spike in enforcement activity, with particular attention on non-US persons – so why now?

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China – New Kid On the Block In December 2012, President XI announced a campaign

to combat the “four forms of decadence” – formalism, excessive bureaucracy, hedonism and extravagance

Whether by coincidence or not, the Chinese government has recently been tough in punishing foreign companies that have allegedly run afoul of Chinese anti-bribery or unfair competition laws (e.g., GSK, Qualcomm)

Raises new questions for multinational corporations operating in China To what extent will Chinese investigations observe the rule of

law norms expected by multinational corporations Will it be possible to navigate parallel investigations by

Chinese and US enforcement authorities

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