Emily Post for FCPA Prosecutions:

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Emily Post for FCPA Prosecutions  How the
Prosecution and Defense May Conduct Themselves to
the Best Advantage
Michael King, U.S. Securities Exchange
Commission Wes Loegering, Jones Day Todd Ranta,
PwC Forensic Services Pravin Rao, Perkins Coie
LLP Bill Mateja, Fish Richardson P.C.
(Moderator)
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What To Expect Today

• Presentation Topics
• Brief FCPA Primer
• Interpretations on Recent FCPA Guidance
• FCPA Compliance Programs/Internal Controls
• FCPA Enforcement Update
• FCPA Trends from 2012
• FCPA Legal Developments
• Recent and Notable FCPA Cases
• Collateral Consequences of FCPA Actions
• International Anti-Corruption Enforcement
• How To Survive an FCPA Investigation

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FCPA Primer

• The FCPA is composed of two parts
• The Anti-Bribery Provision prohibits the offer,
  authorization, promise or payment of anything of
  value to a foreign official, international
  organization official, political party, party
  official, or candidate for public office in order
  to obtain or retain business. It applies to
  issuers, domestic concerns, or persons acting
  within the U.S.
• The Accounting Provision only applies to
  companies issuing securities registered on U.S.
  stock exchanges and includes the following two
  provisions
• The Books and Records Provision requires issuers
  to accurately record transactions in reasonable
  detail.
• The Internal Controls Provision requires public
  companies to maintain a system of internal
  policies and procedures sufficient to provide
  reasonable assurances that transactions are
  executed and recorded according to appropriate
  standards and under managements specific or
  general authorization.

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FCPA Primer Three Kinds of Defenses

• Exception under the FCPA includes
• Facilitating Payments FCPA explicitly provides
  an exception for grease payments that expedite
  or secure the performance of routine governmental
  action or merely move a particular matter toward
  an eventual act or decision. In theory, these
  types of facilitating payments relate to actions
  on the part of foreign officials that are
  nondiscretionary.
• Affirmative defenses under the FCPA include
• Bona Fide Business Expenditures The payment,
  gift, offer, or promise of anything of value that
  was made, was a reasonable and bona fide
  expenditure, such as travel and lodging expenses
  and was directly related to (a) the
  promotion, demonstration, or explanation of
  products or services or (b) the execution or
  performance of a contract with a foreign
  government or agency .
• Payments Permitted by Local Law Payments that
  are lawful under the written laws and regulations
  of the foreign officials country (a narrow
  exception given that no country authorizes
  corrupt payments to its public officials).

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Interpretations on FCPA Guidance

• SEC and DOJ jointly released FCPA Guide in
  November 2012
• Purpose
• To compile helpful information some previously
  known and some newly interpreted into one
  resource for companies of any size
• Adequacy of corporate compliance programs
• Program should change as business and risks
  change
• Clarification of a foreign official
• Ownership threshold An entity is unlikely to
  qualify as an instrumentality if a foreign
  government does not own or control a majority of
  its shares, unless other indices of substantial
  control are present.
• Intent of Gifts, Travel and Entertainment
• Helpful hypothetical scenarios clarify corrupt
  intent
• Third party due diligence
• Especially as it relates to mergers and
  acquisitions activity
• Reaffirming the value of self-reporting,
  cooperation and remedial efforts
• Factors for declinations by SEC and DOJ include
  good faith, reasonable inquiry, cooperation, and
  effective remediation.

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Additional Thoughts re FCPA Guidance

• Self-Reporting and Cooperation with the SEC and
  DOJ
• Penalties, Sanctions and Remedies
• FCPA Compliance Monitoring Programs
• Strong compliance emphasis

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FCPA Compliance Program

• Hallmarks of an effective program
• Management commitment and a clearly articulated
  policy against corruption
• Code of conduct
• Compliance policies and procedures
• Oversight, autonomy and resources
• Risk-based assessment (not one-size-fits-all)
• Training and continuing advice
• Incentives and disciplinary measures
• Third party due diligence
• Confidential reporting and internal investigation
• Continuous improvement through periodic testing
  and review

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Due Diligence of Third Parties and Intermediaries

• 80-90 of recent FCPA actions involve payments
  made by third parties and intermediaries
• Consultants
• Sales Agents
• Distributers and resellers
• Documentation of vendor due diligence
• Risk-based approach

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FCPA Concerns in the Merger and Acquisition
Context

• Traditional due diligence and data rooms not
  enough.
• Need to actively investigate FCPA issues before
  sale because if you buy it you own it.
• Deals can and do fall apart over FCPA issues.
• Questions to ask
• Country, region, industry with history of
  corruption?
• Agents reputation? Ties to the local government?
• Incomplete statements statements that indicate
  non-disclosure?
• Payments that are disproportionate to the
  services provided?
• Vague invoices, up-front payments, and/or cash
  payments?
• Payments to an unrelated third party?

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Number of FCPA Enforcement Actions

• DOJ Actions

• SEC Actions

• 2004 2 actions
• 2005 7 actions
• 2006 7 actions
• 2007 18 actions
• 2008 20 actions
• 2009 26 actions
• 2010 48 actions
• 2011 23 actions
• 2012 11 actions

• 2004 3 actions
• 2005 5 actions
• 2006 8 actions
• 2007 20 actions
• 2008 13 actions
• 2009 14 actions
• 2010 26 actions
• 2011 25 actions
• 2012 12 actions

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Monetary Amount of FCPA Settlements
Year Company/Individual FCPA Settlement to DOJ and SEC
2008 Siemens 800M
2009 KBR/Halliburton 579M
2010 Panalpina 82M
Alcatel-Lucent 137M
Daimler AG 185M
Technip 338M
Snamprogetti Netherlands/ENI 365M
BAE 400M
2011 JGC Corp 219M
Magyar Telekom/Deutsch Telecom 95M
2012 Smith Nephew PLC 22.2M
Orthofix 7.42M
Pfizer/Wyeth LLC 45M
BizJet International Sales and Support, Inc. 11.8M
Data Systems and Solutions LLC 8.82M
NORDAM Group Inc. 2M
Biomet 22.85M
Oracle 2M
Tyco International, Inc. 26.81M
Eli Lilly and Company 29.40M
Allianz SE 12.40M
Marubeni Corporation 54.6M
Garth Peterson of Morgan Stanley 3.6M
Thomas O'Rourke of Noble Corporation 35K
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FCPA Enforcement Actions Against Companies and
Individuals

• Individuals

• Companies

• 2006 6 individuals
• 2007 7 individuals
• 2008 18 individuals
• 2009 21 individuals
• 2010 36 individuals
• 2011 18 individuals
• 2012 4 individuals

• 2006 4 companies
• 2007 16 companies
• 2008 10 companies
• 2009 11 companies
• 2010 21 companies
• 2011 16 companies
• 2012 12 companies

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FCPA Trends from 2012

• Focus on specific industries
• Healthcare, medical devices, and pharmaceuticals
• Fully half of the 12 corporate enforcement
  actions of 2012 involved allegations against
  healthcare companies.
• The two notable healthcare cases of 2012 were
  Orthofix International N.V. and Pfizer, Inc.
• Financial services and insurance firms
• Telecom and technology
• Military and law enforcement
• Energy, oil, and gas
• Aircraft maintenance, repair, and overhaul
  services

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FCPA Trends from 2012

• Corporate FCPA settlements encompass a broad
  range of conduct
• Anti-bribery
• Books and records
• Internal control violations
• Other criminal statutes include
• Money Laundering (e.g., Siriwan and Haiti Teleco
  cases).
• Permits DOJ to prosecute foreign officials and
  others otherwise outside the reach of the FCPA.
• Travel Act (e.g., Control Components,
  Nexus/Nguyen).
• The government must prove (1) interstate travel
  or use of an interstate facility (2) with the
  intent to . . . promote . . . an unlawful
  activity and (3) followed by performance or
  attempted performance of acts in furtherance of
  the unlawful activity.
• OFAC Enforcement (e.g., Innospec).
• Antitrust (e.g., Bridgestone).

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FCPA Trends from 2012

• External monitors are giving way to
  self-assessments
• Only 4 of 12 company settlements in 2012 vs. 40
  of all company settlements in 2004 to 2010 were
  assigned an external monitor.
• Since 2009, self-monitoring and reporting
  requirement has quickly grown to be the norm in
  corporate FCPA resolutions.
• Half of the 12 settlements in 2012 called for
  self-assessments rather than external monitors.

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FCPA Legal Developments

• Interpreting the Term Foreign Official
• Two courts ruled that employees of foreign
  state-owned enterprises could qualify as foreign
  officials (i.e., Lindsey Mfg. and Control
  Components).
• Willful Blindness
• In Bourke, Second Circuit upheld willful
  blindness instruction knowledge may be
  established when a person is aware of a high
  probability of its existence, and consciously and
  intentionally avoided confirming that fact.
• UK Bribery Act Consented or connived in
  violations can result in personal liability.
• SFO Director stated that if corporate officers
  turn a blind eye to bribery, that is
  connivance.
• Dodd-Frank and its Impact on the FCPA

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FCPA Legal Developments

• Potential FCPA Legislation/Amendments
• Private Right of Action
• Automatic/Mandatory Debarment
• Possible New Executive Branch Auditing Agency
• FCPA Reform A Good Faith Compliance Defense
• Define foreign official and instrumentality.
• Limit parent/successor liability.
• Adopt formal corporate leniency program.
• RICO predicate.

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Recent and Notable FCPA Cases

• Lindsey Manufacturing reversal (2011)
• Haiti Teleco conviction (2011)
• Bourke appeal (2011)
• OShea acquittal and dismissal (2012)
• ShotShow acquittals and dismissals (2012)
• Morgan Stanley (2012)
• WalMart investigation (2012)
• Pfizer (2012)
• Marubeni Corporation (2012)
• Eli Lilly and Company (2012)

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Collateral Consequences of FCPA Actions

• Collateral Civil Litigation
• Shareholder class actions alleging inadequate
  disclosure of FCPA risks.
• Derivative actions alleging companys officers
  and directors failed to prevent bribery.
• Civil settlements can cost much more than DOJ/SEC
  resolutions.
• Minor solutions
• Courts recognize compliance programs as a defense
  to civil suits (Dow Chem. Co. Deriv. Litig., No.
  4349-CC (Del. Ch., Jan 11, 2010)).
• FCPA investigation insurance available.

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International Anti-Corruption Enforcement

• Globally
• The UK and the UK Bribery Act
• Europe and the EU
• China
• Russia

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How to Survive an FCPA Investigation What to
Expect and How to Respond

• What to do in the first day, week, and month.
• The implications of data privacy.
• Preserving the cooperative image of the company.
• When is self-disclosure advisable in the U.S.?
  Overseas?
• When should the company take immediate corrective
  action?
• What the authorities will expect in your due
  diligence file.
• How to make employment decisions regarding
  termination.

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How to Survive an FCPA Investigation What to
Expect and How to Respond

• Organizing your response.
• Ensuring compliance while working under a DPA.
• The true impact of voluntary disclosure how it
  affects investigations.
• Addressing disclosure to sensitive customers.
• Living with a compliance monitor How to select
  one and establish a working relationship.
• Restoring your reputation in the industry and
  with the government.