FCPA and International Compliance

Transcription

1 FCPA and International Compliance Briefing to San Antonio Post, SAME C. Ernest Edgar IV General Counsel, Atkins North America 1

2 Agenda Understanding the FCPA The Nuts and Bolts of the FCPA Who Is Covered The Anti-Bribery Provisions The Accounting & Internal Controls Provisions Penalties Enforcement Trends and Predictions FCPA Risk Mitigation Strategies Compliance Due Diligence Identifying Red Flags 2

3 The FCPA in a Nutshell Enacted in the mid-1970s Two components to the FCPA Anti-Bribery provisions prohibit payments or offers to pay money or anything of value to foreign officials or third parties acting on their behalf, when payment is made to assist in obtaining or retaining business Accounting and internal controls provisions require U.S. public companies to maintain good books and records and internal controls Liability for individuals and companies Criminal: U.S. Department of Justice (DOJ) Civil: Securities and Exchange Commission (SEC) 3

4 Increased FCPA Enforcement Enforcement dramatically increased in early 2000s Corporate Penalties are on the Rise Siemens: More than $1.6 billion in combined fines in the U.S. and Germany (December 2008) Halliburton/Kellogg Brown Root: $579 million in combined fines (February 2009) Individual Prosecutions are on the Rise Investigations are on the Rise Hundreds of companies are currently under investigation SEC and DOJ are increasing the number of prosecutors and agents The SEC created a new specialized FCPA unit (August 2009) 4

5 Relationship to Foreign Laws OECD Convention on Combating Bribery (1997) Provisions are nearly identical to FCPA UN Convention Against Corruption (2003) Provisions similar to FCPA UK Bribery Act (2009) Became effective July 1, 2011 Expands on FCPA provisions Includes Anti-Kickback provisions Burden on company to show compliance ( adequate procedures ) 5

6 Who is Covered Anti-Bribery Provisions apply to: All U.S. companies, citizens or residents, whether or not they act within or outside of the U.S. All foreign companies listed on U.S. stock exchanges All foreign companies or individuals who execute any part of a bribery scheme from within the U.S. All officers, directors, employees or agents of the above Note: U.S. parent companies may be liable for the acts of foreign subsidiaries where parent authorized, directed or controlled the activity in question 6

7 Who is Covered (continued) Accounting and Internal Controls Provisions Only apply to issuers companies with securities registered in the U.S. or that file periodic reports with the SEC Foreign subsidiaries are not bound directly by these provisions But parent must in good faith use its influence to cause subsidiary to devise and maintain good accounting controls 7

8 Elements of an Anti-Bribery Violation Offer, promise, or payment To a Foreign Official Made with Corrupt Intent To assist in Obtaining or Retaining Business 8

9 Element 1 Element 1: Offer, promise, or payment Money Gift (e.g., holiday bottle of whiskey) Charitable contribution or donation (e.g., donation to foreign official s wife s charity) In-kind service Anything else of value (e.g., tuition, loan, travel upgrades, dinner, entertainment) Key Points Very broadly defined Payment need not be made: offers and attempts count No de minimus exception 9

10 Element 2 Element 2: Foreign Official Any officer or employee of Any foreign government, whether national, state, provincial or local Any department, instrumentality, or agency of a foreign government (e.g., the Ministry of Energy, the Customs service) Any state-owned or controlled company (e.g., a state oil company or state-controlled utility) Any non-u.s. political party Any public international organization (e.g., United Nations) Any candidate for foreign political office 10

11 Element 2 (continued) Examples of Foreign Officials The director of a regional health fund in Poland Officials of a government-owned bank in Argentina Customs officials in Haiti Physicians and laboratory personnel at government-owned hospitals in China Key Points Applies to any official regardless of rank or title Not always obvious, sometimes investigation is required 11

12 Element 3 Element 3: Corrupt Intent Intent to induce the Foreign Official to misuse his/her official position Related concept of acting willfully: you must intend to do something unlawful Awareness of the specific law your conduct may be violating is not relevant In other words, even if you do not know you are violating the FCPA, you can still be liable 12

13 Element 4 Element 4: Business Purpose Payment or offer or thing of value must be made to assist in Obtaining business Retaining business Directing business to any person or entity This, too, is very broad Covers payments to assist in obtaining or retaining business indirectly, such as reducing taxes or customs duties, thereby lowering a company s overall expenses in a particular market 13

14 Violations By Payments Through Third Parties The FCPA prohibits corrupt payments through intermediaries It is unlawful to make a payment to a third party while knowing all or a portion of that payment will go directly or indirectly to a foreign official Knowing = Actual Knowledge Knowing = Conscious Avoidance Knowledge under FCPA can be established if you are aware of a high probability of the existence of a fact and you consciously avoid confirming it 14

15 Violations By Payments Through Third Parties (continued) Many types of payments to Third Parties can put a company at risk, including those to: Subsidiary or other affiliate Agent, sponsor, representative, distributor, consultant Freight forwarder Customs broker Joint venture partner Relative of a foreign official Employee of a foreign official s company 15

16 Accounting & Internal Controls Provisions Applicable to SEC-registered Issuers U.S. public companies Foreign companies listed on U.S. stock exchanges Books and Records Provision Issuers must maintain books, records and accounts which in reasonable detail accurately reflect the transactions and dispositions of their assets Books and records is very broadly defined No materiality requirement 16

17 Accounting & Internal Controls Provisions (continued) Internal Controls Provision Issuers must devise and maintain a system of internal accounting controls to provide reasonable assurance that transactions are authorized by management and financial statements are in conformity with GAAP Easier to prove than anti-bribery provisions Even greater penalties than anti-bribery provisions No exception for facilitating payments 17

18 What Do These Provisions Mean in Practice? Maintain robust compliance policies Maintain good controls: follow procedures for approval of payments and vendors, e.g. Take reasonable steps to ensure affiliates maintain appropriate internal controls Record all transactions Keep receipts and other support for transactions Records should be kept consistent with overall document retention and record-keeping policies 18

19 Penalty Provisions Criminal Penalties Anti-Bribery Provisions Up to $2 million fine per violation for companies Up to 5 years in jail and up to $100,000 fine for individuals Criminal Penalties Accounting Provisions Up to $25 million fine per violation for companies Fine can be assessed up to 2x what the defendant sought to obtain through corrupt payment Civil Penalties Disgorgement of Profits Other Consequences of a Violation Debarment from government contracts Corporate monitors Collateral Consequences Reputational damage Legal fees from an investigation 19

20 Enforcement Trends Cases are often deferred prosecution or nonprosecution agreements, often with: Large fines Independent compliance monitors International cooperation is on the rise Multi-jurisdictional cases are on the rise Increase in industry-wide investigations 20

21 Enforcement Trends (continued) How the DOJ gets its cases Foreign law enforcement tip-line & whistleblowers Civil lawsuits Cooperation from companies and individuals under investigation, e.g., Siemens Voluntary disclosures 21

22 Enforcement Predictions FCPA enforcement will only increase Effect of Siemens case and Siemens cooperation Proposed legislation increasing funding for FBI white collar agents Penalties will remain high DOJ indicating it will follow the Sentencing Guidelines Individuals will be targeted more Nature s Sunshine case: Control person liability under Section 20(a) of the Securities Exchange Act 22

23 FCPA Compliance Program Elements Clearly articulated policy prohibiting improper payments, with detailed compliance procedures Training for all employees that is periodically updated, with required certifications of compliance Mechanism in place to report violations (hotline) Disciplinary process Clear due diligence procedures for agents, vendors, etc. Compliance program supervised at management level and periodically evaluated for effectiveness 23

24 FCPA Due Diligence When Due Diligence May Be Needed Acquisitions of companies with foreign operations Joint ventures with companies with foreign operations, including foreign government entities Investments in countries with a history of corruption Use of 3rd party intermediaries and service providers such as marketing agents and customs brokers 24

25 FCPA Due Diligence Be On the Lookout for Red Flags Large payments or commissions to foreign agents or foreign operations managers Unusual payments to vendors (e.g., round $ figures) Lack of transparency in expense and accounting records Gifts, travel, entertainment for government officials Agent who refuses to provide FCPA representations Operations in countries with history of corruption See Transparency International World Map (darker colors mean greater perceived corruption risks) 25

26 Countries with History of Corruption Transparency International 2008 World Map 26

27 Third Party Due Diligence Strategies Due Diligence Questionnaire Provided to all prospective third parties Information sought: Basic contact and background information Identity(ies) of government official affiliates Qualifications to provide services Names of legal counsel, accountants, and references Review Internet and other public sources Interview relevant personnel as necessary Scrub third party s books and records Conduct reasonable inquiry into each red flag Document steps in your due diligence 27

28 Third Party Due Diligence Strategies (continued) Suggestions for contract language Reps and warranties that agent has complied with the FCPA and any local anti-corruption statutes Indemnity for any violations Right to immediate termination if there is a violation Right to audit third party s books and records Requirement that third party s personnel undergo FCPA training Obtain annual or other periodic compliance certifications Restriction on assigning subcontractors (unless they satisfy all of the same reps and warranties) 28

29 Questions? Acknowledgements Fulbright & Jaworski Greenberg Traurig Transparency International, 29