FCPA, Sanctions, Export, & Antiboycott Compliance

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1 FCPA, Sanctions, Export, & Antiboycott Compliance Charlie Parker Cam Barker

2 The Law US PERSONS CANNOT: Bribe foreign government officials FCPA Enter into transactions with Sanctioned Countries Sanctions Regulations Enter into transactions with specific individuals and entities Sanctions Regulations Export or disclose controlled goods, services, software or technology without a license ITAR & EAR Participate in non-us sponsored embargos - Antiboycott

3 Tone at the Top Sentencing Guidelines to have an effective compliance and ethics program an organization shall promote an organizational structure that encourages ethical conduct and a commitment to compliance with the law.

4 Tone at the Top No paper Compliance Program Training, Training, Training

5 Penalties -FCPA Business Maximum fine of $2,000,000 per violation or twice the gross loss or gain Individuals Maximum fine of $250,000 or twice the gross loss or gross gain; imprisonment of not more than five years; or both

6 Penalties Sanctions & Administrative Civil: Exports > of $250,000 or 2x value of the transactions Denial of export privileges Criminal: $1,000,000; 20 years

7 Penalties KBR $559 million settlement Monitor 3 years CEO 84 month prison sentence Baker Hughes $44 million in sanctions Monitor and organizational probation for 3 years Willbros Group $32.3 million settlement Monitor 3 years Dresser Energy equipment to Iran, Libya & Cuba $1.1 million settlement

8 DOJ Focus DOJ Fraud Division is actively investigating FCPA DOJ created National Export Control Coordinator to improve the investigation and prosecution of illegal exports

9 US Foreign Corrupt Practice Act Two different approaches Anti-bribery Sections Books and Records Sections

10 FCPA- Anti-bribery Unlawful: To offer or anything of value To a foreign official To influence an official act, induce to do or omit to do any act in violation of lawful duty, to secure an improper advantage, or to use influence with the government to affect or influence any act or decision of the government To obtain, retain or direct business to any person

11 Obtain or Retain Business DOJ/SEC view of what violates FCPA includes payments beyond those directly related to any contract or business; obtain or retain business includes all payments that provide a competitive advantage; Could include incentives to officials for favorable customs/sales tax rulings (i.e., to reduce payments your company would otherwise have to make)

12 FCPA Who is Covered Issuer essentially any company whose stock is traded in the U.S. Domestic concern U.S. citizen, national, resident, or a U.S. company or a company with its principal place of business in the U.S. or officers, directors, stockholders, employees, and agents of such an entity Any person, if acting in U.S. territory Any U.S. national or U.S. company acting outside the U.S. requires no use of interstate commerce

13 FCPA- Foreign Official Any officer or employee of a foreign government, department, entity or instrumentally of such government INCLUDING: Any person acting in an official capacity Third parties hired to review and accept bids for government agency; Uncompensated honorary/ceremonial officials if they have actual influence in award of business; Government owned corporation/company Any foreign political party or official or candidate for foreign political office Any officer or employee of a public international organization: World Bank, IMF, Olympic Committee

14 FCPA Exception Facilitating payment Small Payment to expedite the performance of non-discretionary, legitimate and customary duties such as mail delivery, electricity, visas.

15 FCPA Affirmative Defenses Payments permitted by local law; Limited government statutes something that is customary is not sufficient Gifts/promotional expenses but must be: Customary and reasonable; Directly related to either the promotion or explanation of the company s products or services; Not directly related to obtaining/ retaining business

16 FCPA Books and Records Keep books, records and accounts, that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer Record-Keeping provision do not require any showing of materiality, regardless of the amount of any transactions All transactions must be recorded

17 FCPA Books and Records No person shall knowingly Circumvent or fail to implement a system of internal accounting controls or Knowingly falsify any book, record, or account Criminal liability applies

18 Problem Areas Facilitating/Grease Payments Use of Agents/Representatives Shipping Agents Promotional Activities Gifts and Entertainment Travel Expenses Taxes

19 Compliance Strategies Facilitating/Grease Payments Place complete or other restrictions to keep employees from blanket acceptance of country culture; Require employees to make formal written request to make payments; Monitor and properly record facilitation payments.

20 Compliance Strategies for Agents Perform due diligence on Agent/Reps/Contractors including shipping agents) Require completion of the questionnaire Check reference Check whether compensation is reasonable May need to conduct interview Require a written agreement with specific anti-corruption clauses Require annual certification of compliance No ownership by public official No violation of anti-corruption laws

21 Compliance Strategies for Promotional Activities/ Gifts and Entertainment Where possible pay for expenses (e.g., airfare) directly Per diem payments should not be excessive and should be tied to a standard or reasonable estimate where possible If possible pay per diem s to the government, not the individual Let the government select the individual that will be traveling and notify you in writing Properly documents the reason for any trip and all costs Set approval limits

22 Political Contributions Company should consider whether political contributions will be allowed

23 Compliance Strategies for Donations to Charities/Community Development Perform due diligence on the charities Verify that not owned or controlled by public officials (or their relatives) or terrorist organization, etc. Is this a reputable charity The donation should generate publicity and goodwill for the company and demonstrate commitment to the community Get written commitment from government that the funds will only be used for the project.

24 Sanctions Basics In general, Sanctions programs require: Blocking of property No imports from or through the sanctioned country No exports to or through the sanctioned county No facilitation of such transactions

25 Who Licenses Exports? Bureau on Industry and Security (BIS) Directorate of Defense Trade Controls (DDTC) Offices of Foreign Assets Control (OFAC) Arms & Control & Disarmament Agency Nuclear Regulatory Commission Department of Energy Defense Technology Security Administration Department of the Interior Drug Enforcement Administration Food and Drug Administration Patent and Trademark Office Environmental Protection Agency

26 Bureau of Industry and Security Department of Commerce Most comprehensive source All items not controlled elsewhere Maintains the Commerce Control List Export Control Classification Numbers Denial List, Entity List; Unverified List Antiboycott Compliance

27 Offices of Foreign Assets Control Enforce Economic and Trade Sanctions Specific Countries Anti-Terrorism Narcotics Traffickers Non-proliferation Diamond Trading Specifically Designated Nationals and Blocked Persons List (SDN List)

28 Country Based Sanctions US Person cannot provide its goods, technology, or services to the following without a license(s): Cuba, any Cuban national, company organized in Cuba, or any other person entity if US Person knows it will be used to benefit Cuba Burma (natural resources related contracting) Iran Syria Sudan North Korea (impacts imports, vessels, exports subject to EAR)

29 Facilitation USA Persons, wherever located, may not be involved in transactions associated with Sanctioned countries persons or entities, such as: Business planning Legal planning Decision making Approval of transaction Designing, ordering, transporting goods Financial, insurance, warranties, guarantees or backing other risks Change its or subs policies or operating procedures Refer POs, RFPs, or other business opportunities

30 Sanctions Checklist Written Sanctions Policy Written procedures for checking representatives, customers Sales to Sanctioned destinations OFAC Licenses Interdiction Software Non-US Affiliates with US Persons Product mix (e.g., Oilfield equip or service?)

31 Export Controls What is an Export? An actual shipment or transmission of items out of the United States Disclosure of technology to foreign national Transmission of electronic data that will be received abroad Items produced abroad using US technology Reexport of previously exported items Making technology available on the Internet

32 What is Controlled? Commodities, products, tangible things Software Technology Technical data Technical Know-how Services

33 Deemed Export Rule Any release of technology or source code to a foreign national Visual inspection of U.S. origin equipment or facilities Oral exchanges of information in US or abroad The application to situations abroad of personal knowledge or technical experience acquired in the U.S.

34 Commercial Goods or Technology Commerce Controlled List Items Identifies items controlled for national security, missile tech, non-proliferation, antiterrorism Export Control Classification Number (ECCN) determines if license in required Some Exceptions apply Can I ship this product to this person in that country?

35 Export Checklist Documented policy and procedures ECCN Classification Technology transfer issues H1B Visa holders Affiliates (IT access restrictions, global engineering)

36 Antiboycott - Prohibitions Agreements to refuse to do business with or furnishing info about your relationships with Israel or blacklisted companies Agreements to discriminate or furnish info concerning race, religion, sex, national origin, nationality Implementing letters of credit that contain prohibited boycott terms or conditions

37 Antiboycott 2 Laws EAR 760 IRS Same penalties as above Quarterly reporting requirements Lose foreign tax credit Annual tax form must be submitted

38 Antiboycott Look for: Contract Clauses Purchase order clause Tender documents Letter of Credit Customs Forms Power of attorney form Trademark application form

39 Antiboycott Yes, it is a problem 7/13/07 Dresser, Inc. failed to report 9 requests from Pakistan. 5/16/07 - Cooper, Inc. transmitted info regarding relationship with Israel to Kuwait and UAE 11/17/05 Oceanic Container Line, Inc. eligibility of vessel to enter port of Qatar.

40 Constraints Foreign Blocking Statutes Canada Must report to Canadian government any restraint or trading with Cuba; Can t agree to restraint on trade on Cuba; EU Each EU country has implemented blocking statutes; Mexico

41 Constraints U.K./E.U. Privacy Laws Can t share personal information with a US person.

42 Constraints

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