Www.hro.com A Ten Minute Overview of the Foreign Corrupt Practices Act David B. Wilson...

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A Ten Minute Overview of the Foreign Corrupt Practices Act

David B. [email protected]

Denver │ Boulder │ Colorado Springs│ Dublin │ London │Los Angeles │ Munich │ Phoenix │ Salt Lake City │ San Francisco

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How The U.S. DOJ Views The FCPA

“The investigation and prosecution of transnational bribery is an important priority for the Department of Justice, and we have been hard at work. In particular, over approximately the last two years, we have substantially increased the number of our prosecutions against corporations and individual executives, and we have collected more in criminal fines than in any other period in the history of our FCPA enforcement.”

Statement of Greg Andres, Acting Assistant Attorney General to U.S. Senate Judiciary Committee, Subcommittee on Crime and Drugs, November 30, 2010

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DOJ Enforcement Actions

• More than $1B in criminal penalties imposed in the past year. Some examples:Multinational defense contractor ($400m)U.S.-based global engineering firm ($240m) Multinational automobile manufacturer

($93.6m)International utilities industry contractor

($17.1m)International specialty chemicals manufacturer

($14.1m)U.S.-based tobacco company ($9.45m)U.S.-based telecommunications company

($1.5m)

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FCPA in a Nutshell

• 15 U.S.C. §§ 78dd-1, et seq.• Basic Prohibition

Unlawful to pay or offer to pay anything of value to a foreign official to assist in obtaining or retaining business with anyone.

Foreign official broadly defined.• Government official or employee• Political party or candidate• International organization• Employee of government owned venture or

enterprise

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FCPA in a Nutshell

• To whom does FCPA apply? Any individual, firm, officer, director,

employee, or agent of a firm and any stockholder acting on behalf of a firm.

Includes foreign subsidiaries of U.S. parents who authorized, directed or controlled the illegal activities.

• Corrupt Intent RequiredIntent to induce foreign official to

improperly influence any act or decision.

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FCPA in a Nutshell (cont’d)

Payments• All payments and gifts of money or anything of

value.Direct paymentsIndirect payments if know that value will be

provided to foreign official• Things of value—joint venture interests,

employment of family members, entertainment, gifts, stock, cash, etc.

• No de minimis exceptions.• No requirement for actual receipt—an offer,

promise or authorization to pay triggers a violation.

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• Criminal penaltiesFines of up to twice the benefit soughtImprisonment up to five yearsEmployer can’t pay fines against

individuals

• Civil penaltiesUp to the gross amount of pecuniary gain

to the defendant

• Other penaltiesBan from acting as a federal contractor

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Exception and Affirmative Defenses• Facilitating “routine government action” exception

Obtaining permits, licenses, or other official documents Processing governmental papers, such as visas and work

orders Providing police protection Mail pick-up and delivery Providing phone service, power and water supply Loading and unloading cargo Protecting perishable products Scheduling inspections associated with contract performance

or transit of goods across country• Affirmative defenses

Legal under written local law (not custom or practice) “Bona fide business expenditures” (e.g., required under

contract)

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Foreign Corrupt Practices Act:Developing an Effective Compliance Program

Garth B. [email protected]


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Objectives of Compliance Program

• Preventing violations of FCPA• Mechanism to identify and respond to

questionable practice• Demonstrate ethical practices

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Effective FCPA Compliance Programs

• Leadership and compliance personnel• Assessment of risks• Design of program• Written policies and procedures• Education and training• Monitoring and regular review of program• Periodic certification

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Leadership and Compliance Team

• Tone at the top

• Legal group or separate compliance group

• Internal audit team

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Assessment of Risks

• Where operations are conducted

• Business that relates to government officials

• Commercial parties that may be deemed to be government officials

• Internal personnel involved with government officials

• Use of external agents and consultants

• Red flags

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Design of Compliance Program

• Customized for company’s particular circumstances

• Program that doesn’t hinder operations

• Program that can be followed

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Written Policies and Procedures

• Clear statement of company ethics and FCPA compliance policy

• Clearly document procedures to follow

• Clear policies on common issues entertainment gifts

• Identify officer for compliance questions

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Compliance Education and Training

• Presentations

• Written material

• Periodic reviews

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Monitoring Compliance Program

• Internal audit function document review interviews

• Internal investigations

• Enforcing violations of policy

• Regularly review program for modifications due to changed circumstances

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Certifications

• May be part of regular Sarbanes-Oxley CEO and CFO certification procedures

• Demonstrates importance

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FCPA Enforcement and Anti-Bribery Lawsin Latin America

Troy R. [email protected]


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Corruption in Latin America

Transparency International (TI) Corruption Perceptions Index 2010

• Chile - Least corrupt in Latin American (#21, 7.2), below UK (7.6) and above Belgium, U.S. (7.1)

• Brazil - #69, 3.7, tied with Cuba

• Mexico - #98, 3.1, tied with Egypt

• Argentina - #105, 2.9, tied with Algeria, Kazakhstan

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Corruption in Latin America (cont’d)

Latin America Corruption Survey Oct 2008• 47% - corruption is a significant obstacle to

doing business in Latin America• 18% - anti-corruption laws are effective• 35% - do not think a company, individual, or

government official will be punished for making or receiving illegal payments related to obtaining business

• 59% - lost business to competitors who made illegal payments, but only 9% reported it

• 53% - clearly subject to the FCPA, but 30% did not know

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Corruption in Latin America (cont’d)

LatAm Corruption Survey Oct 2008 (cont’d)

Which authorities have significant corruption?

• 69% — Police• 51% — Customs Service• 56% — Municipal/Local Government• 56% — Legislative Branch• 54% — Executive Branch• 42% — Judicial Branch

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Areas of Concern

• Facilitating payments• Use of customs brokers, consultants & other agents• Interactions with regulators and local governments,

including obtaining and complying with permits• Interactions with customs officials• Interactions with police• State-owned entities (esp. Oil & Gas, Infrastructure,

Telecommunications & Pharmaceuticals)• Influence of prominent families• Acquisitions — Same concerns apply to Target

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Recent FCPA Enforcement Actions

• Nature’s Sunshine Products (Sept. 2009): Brazil

• Helmerich & Payne (July 2009): Argentina & Venezuela

• Latin Node (April 2009): Honduras• Siemens (Dec. 2008): Argentina, Mexico

& Venezuela• Paradigm (Sept. 2007): Mexico• Alcatel-Lucent (Sept. 2008, Jan., Feb.,

May 2010): Costa Rica

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OECD Convention on Combating Bribery

• Requires parties to criminalize bribery of a foreign public official by any person.

• Argentina, Brazil, Chile and Mexico have agreed to the Convention.

• No other Latin American country has agreed to the Convention.

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OAS Inter-American Convention

• 34 parties, including all Latin American countries, except Cuba & Dominican Republic

• Requires parties to criminalize a broad range of corruption, including bribery of foreign public officials, solicitation or acceptance of a bribe by a government official.

• Latin American countries have amended their laws as required by the OECD and OAS Conventions; but according to Transparency International, the laws are not being enforced.

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Argentina Anti-Bribery Laws

• Bribery of foreign public officials is prohibited under Criminal Code 258(b)

• Bribery of domestic public officials is prohibited under Criminal Code 256-259

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How Is Argentina Doing?

• Moderately enforcing the OECD Convention; 2 cases pending.

• Inadequacies in legal framework:Inadequate statute of limitationsNo criminal liability/sanctions for

corporationsCompanies not held responsible for

subsidiaries, JV’s, agents

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How Is Argentina Doing? (cont’d)

• Inadequacies in enforcement systemNo training of investigators and judgesJudiciary lacks sufficient protections for its

independencePolitical considerations influence investigationsNo whistleblower protectionDifficulty obtaining mutual legal assistance

• Facilitation payments prohibited in law, but not in practice.

• Recent developments — Deterioration in transparency

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Brazil Anti-Bribery Laws

• Bribery of foreign public officials is prohibited under Penal Code 337

• Bribery of domestic public officials is prohibited under Penal Code 317, 333

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How Is Brazil Doing?

• Little or no enforcement of OECD Convention; 1 case pending

• Significant inadequacies in legal framework No criminal liability (except environmental crimes) for

corporations, beyond ineligibility to bid for government contracts

Sanctions generally inadequate in law and in practice Companies not held responsible for subsidiaries, JV’s,

agents• Inadequacies in enforcement system:

Public agents susceptible to bribery due to low salaries and lack of inspection

Police have insufficient manpower, training, equipment and motivation

Complaint mechanisms are not efficient Lack of awareness about the foreign bribery offence

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How Is Brazil Doing? (cont’d)

• Facilitation payments prohibited by law• Recent developments — New law has been

proposed (expected to become law in 2011):Introduce civil and administrative liability for

corporationsIncrease punishment for corruption, including asset

seizures, fines of up to 30% of gross earnings, ineligibility for tax exemptions, suspension of corporate activities, and winding-up

Allow piercing corporate veil, so penalties could also be imposed on managers and partners or shareholders with management powers

Debarment could be extended to the individuals

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Chile Anti-Bribery Laws

• Bribery of foreign public officials is prohibited under Criminal Code 250 bis, 251 bis

• Bribery of domestic public officials is prohibited under Criminal Code 248, 248 bis, 249, 250

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How Is Chile Doing?

• Little or no enforcement of OECD Convention, no cases pending

• No significant inadequacies in legal framework, after 2009 reforms

• But still inadequacies in enforcement system:No effective whistleblower protectionUnequal access for whistleblowers in different

parts of the countryLack of specialized staff in the Public Prosecutor’s

OfficeOverburdened public prosecutorsLack of adequate special investigative tools

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How Is Chile Doing? (cont’d)

• Facilitation payments prohibited by law

• Recent developmentsRapid progressLegislation to improve legal frameworkOfficially joined OECDPending Special Unit for Complex CrimesTraining for diplomats and administrators to

receive and report allegations of foreign bribery

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Mexico Anti-Bribery Laws

• Bribery of foreign public officials is prohibited under Fed. Crim. Code Art. 222 bis

• Bribery of domestic civil servants is prohibited under Fed. Crim. Code Art. 222, Public Servant Accountability Law, Art. 47 Para. XI)

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How Is Mexico Doing?

• Little or no enforcement of OECD Convention; no cases pending

• Some inadequacies in legal framework, mainly inadequate statutes of limitation

• Numerous inadequacies in enforcement system: No coordination between investigation and prosecution No coordination among investigating federal agencies Lack of skills and resources in the courts Inadequate complaint mechanisms and whistleblower

protections Inadequate accounting and auditing requirements Reluctance among auditors to report suspicions of bribery

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How Is Mexico Doing? (cont’d)

• Administration is focused on fighting drug dealers

• Facilitation payments prohibited by law

• Recent developments — A few low-impact developments, including proposals that may help whistleblower protection, but nothing concrete yet

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The Bribery Act 2010:

The British Analogue to FCPA

David B. [email protected]


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The FCPA’s Unintended Consequences

• FCPA put U.S. companies at competitive disadvantage abroad.

• Thus, the U.S. lobbied for other countries to adopt similar anti-bribery laws.

• OECD Convention on Combating Bribery of Foreign Public Officials In International Business TransactionsU.S. and 37 other countries are signatories.Requires signatory countries to pass anti-bribery

legislation analogous to FCPA.

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The Bribery Act 2010

• Effective April 2011• Creates “two general offences covering the offering,

promising or giving of an advantage, and requesting, agreeing to receive or accepting of an advantage.”

• Creates “a discrete offence of bribery of a foreign public official.”

• Creates “a new offence of failure by a commercial organisation to prevent a bribe being paid for or on its behalf (it will be a defence if the organisation has adequate procedures in place to prevent bribery).”

• Requires “the Secretary of State to publish guidance about procedures that relevant commercial organisations can put in place to prevent bribery on their behalf.”

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Bribing another person

• Section 1

• Bribe when one offers, promises or gives a financial or other advantage to another person in order to induce or reward improper performance of duties.

• Applies whether bribe directly or through a third party.

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Bribing foreign public officials

• Section 6• Crime to bribe a foreign public official if intend

To influence the official (in capacity as an official) to act or refrain from acting; and

Make bribe to obtain or retain business or an advantage in conducting business.

“Foreign public official” broadly defined• Any government position of any kind• Anyone who exercises public function for government

agency or public enterprise.• Any official or agent of public international organisation.

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Failure to prevent bribery

• Section 7

• Crime by commercial organisation (“C”) if person associated with C bribes another personTo obtain or retain business for C; orTo obtain or retain an advantage in the

conduct of business for C.

• Senior officers can also be held liable under certain circumstances.

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What is a “commercial organisation?”

• Incorporated under laws of any part of UK and carries on business.

• Incorporated anywhere else, but carries on part of its business in UK.

• Partnership formed in UK and carries on business.

• Partnership formed anywhere else, but carries on part of its business in UK.

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What is an “associated person?”

• Section 8

• Person who performs services for C in any capacityEmployeeConsultantContractor

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Commercial organisation’s defense

• Section 7(2)

• “But it is a defence for C to prove that C had in place adequate procedures designed to prevent persons associated with C from undertaking such conduct.”

• Secretary of State to issue guidance as to what this means.

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Secretary of State’s draft guidance

• http://www.justice.gov.uk/consultations/docs/bribery-act-guidance-consultation1.pdf

• “Six Principles For Bribery Prevention”

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Six Principles for Bribery Prevention

1. Risk Assessment. The commercial organisation regularly and comprehensively assesses the nature and extent of the risks relating to bribery to which it is exposed.

Country risk Transaction risk Partnership risk

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Six Principles (cont’d)

2. Top level commitment. The top level management of a commercial organisation (be it a board of directors, the owners or any other equivalent body or person) are committed to preventing bribery. They establish a culture within the organisation in which bribery is never acceptable. They take steps to ensure that the organisation’s policy to operate without bribery is clearly communicated to all levels of management, the workforce and any relevant external actors.

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3. Due diligence. The commercial organisation has due diligence policies and procedures which cover all parties to a business relationship, including the organisation’s supply chain, agents and intermediaries, all forms of joint venture and similar relationships and all markets in which the commercial organisation does business. LocationMarket pricesBusiness partners

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4. Clear, Practical and Accessible Policies and Procedures. The commercial organisation’s policies and procedures to prevent bribery being committed on its behalf are clear, practical, accessible and enforceable. Policies and procedures take account of the roles of the whole work force from the owners or board of directors to all employees, and all people and entities over which the commercial organisation has control.

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5. Effective implementation. The commercial organisation effectively implements its anti-bribery policies and procedures and ensures they are embedded throughout the organisation. This process ensures that the development of policies and procedures reflects the practical business issues that an organisation’s management and workforce face when seeking to conduct business without bribery.

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6. Monitoring and review. The commercial organisation institutes monitoring and review mechanisms to ensure compliance with relevant policies and procedures and identifies any issues as they arise. The organisation implements improvements where appropriate.

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