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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