www.hro.com

1
A Ten Minute Overview of the Foreign Corrupt
Practices Act David B. Wilsondavid.wilson_at_hro.co
m
www.hro.com
2
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

3
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)

4
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

5
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 Required
• Intent to induce foreign official to improperly
  influence any act or decision.

6
FCPA in a Nutshell (contd)

• Payments
• All payments and gifts of money or anything of
  value.
• Direct payments
• Indirect payments if know that value will be
  provided to foreign official
• Things of valuejoint venture interests,
  employment of family members, entertainment,
  gifts, stock, cash, etc.
• No de minimis exceptions.
• No requirement for actual receiptan offer,
  promise or authorization to pay triggers a
  violation.

7
FCPA in a Nutshell (contd)

• Criminal penalties
• Fines of up to twice the benefit sought
• Imprisonment up to five years
• Employer cant pay fines against individuals
• Civil penalties
• Up to the gross amount of pecuniary gain to the
  defendant
• Other penalties
• Ban from acting as a federal contractor

8
FCPA in a Nutshell (contd)

• 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)

9
Foreign Corrupt Practices ActDeveloping an
Effective Compliance Program Garth B.
Jensengarth.jensen_at_hro.com
www.hro.com
10
Objectives of Compliance Program

• Preventing violations of FCPA
• Mechanism to identify and respond to questionable
  practice
• Demonstrate ethical practices

11
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

12
Leadership and Compliance Team

• Tone at the top
• Legal group or separate compliance group
• Internal audit team

13
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

14
Design of Compliance Program

• Customized for companys particular circumstances
• Program that doesnt hinder operations
• Program that can be followed

15
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

16
Compliance Education and Training

• Presentations
• Written material
• Periodic reviews

17
Monitoring Compliance Program

• Internal audit function
• document review
• interviews
• Internal investigations
• Enforcing violations of policy
• Regularly review program for modifications due to
  changed circumstances

18
Certifications

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

19
FCPA Enforcement and Anti-Bribery Lawsin Latin
America Troy R. Braeggertroy.braegger_at_hro.com
www.hro.com
20
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

21
Corruption in Latin America (contd)

• 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

22
Corruption in Latin America (contd)

• LatAm Corruption Survey Oct 2008 (contd)
• Which authorities have significant corruption?
• 69 Police
• 51 Customs Service
• 56 Municipal/Local Government
• 56 Legislative Branch
• 54 Executive Branch
• 42 Judicial Branch

23
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

24
Recent FCPA Enforcement Actions

• Natures 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

25
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.

26
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.

27
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

28
How Is Argentina Doing?

• Moderately enforcing the OECD Convention 2 cases
  pending.
• Inadequacies in legal framework
• Inadequate statute of limitations
• No criminal liability/sanctions for corporations
• Companies not held responsible for subsidiaries,
  JVs, agents

29
How Is Argentina Doing? (contd)

• Inadequacies in enforcement system
• No training of investigators and judges
• Judiciary lacks sufficient protections for its
  independence
• Political considerations influence investigations
• No whistleblower protection
• Difficulty obtaining mutual legal assistance
• Facilitation payments prohibited in law, but not
  in practice.
• Recent developments Deterioration in
  transparency

30
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

31
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,
  JVs, 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

32
How Is Brazil Doing? (contd)

• Facilitation payments prohibited by law
• Recent developments New law has been proposed
  (expected to become law in 2011)
• Introduce civil and administrative liability for
  corporations
• Increase 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

33
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

34
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 protection
• Unequal access for whistleblowers in different
  parts of the country
• Lack of specialized staff in the Public
  Prosecutors Office
• Overburdened public prosecutors
• Lack of adequate special investigative tools

35
How Is Chile Doing? (contd)

• Facilitation payments prohibited by law
• Recent developments
• Rapid progress
• Legislation to improve legal framework
• Officially joined OECD
• Pending Special Unit for Complex Crimes
• Training for diplomats and administrators to
  receive and report allegations of foreign bribery

36
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)

37
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

38
How Is Mexico Doing? (contd)

• 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

39
The Bribery Act 2010 The British Analogue to
FCPA David B. Wilsondavid.wilson_at_hro.com
www.hro.com
40
The FCPAs 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
  Transactions
• U.S. and 37 other countries are signatories.
• Requires signatory countries to pass anti-bribery
  legislation analogous to FCPA.

41
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.

42
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.

43
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.

44
Failure to prevent bribery

• Section 7
• Crime by commercial organisation (C) if person
  associated with C bribes another person
• To obtain or retain business for C or
• To obtain or retain an advantage in the conduct
  of business for C.
• Senior officers can also be held liable under
  certain circumstances.

45
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.

46
What is an associated person?

• Section 8
• Person who performs services for C in any
  capacity
• Employee
• Consultant
• Contractor

47
Commercial organisations 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.

48
Secretary of States draft guidance

• http//www.justice.gov.uk/consultations/docs/bribe
  ry-act-guidance-consultation1.pdf
• Six Principles For Bribery Prevention

49
Six Principles for Bribery Prevention

• 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

50
Six Principles (contd)

• 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
  organisations policy to operate without bribery
  is clearly communicated to all levels of
  management, the workforce and any relevant
  external actors.

51
Six Principles (contd)

• 3. Due diligence. The commercial organisation has
  due diligence policies and procedures which cover
  all parties to a business relationship, including
  the organisations supply chain, agents and
  intermediaries, all forms of joint venture and
  similar relationships and all markets in which
  the commercial organisation does business.
• Location
• Market prices
• Business partners

52
Six Principles (contd)

• 4. Clear, Practical and Accessible Policies and
  Procedures. The commercial organisations
  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.

53
Six Principles (contd)

• 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 organisations management
  and workforce face when seeking to conduct
  business without bribery.

54
Six Principles (contd)

• 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.