Anti-Corruption Enforcement and Compliance Update. Michael Volkov, Esq. Carlos Ortiz, Esq.

Transcription

1 Anti-Corruption Enforcement and Compliance Update Michael Volkov, Esq. Carlos Ortiz, Esq. November 2012

2 Today s presenters and some notes... Mike Volkov Washington, D.C. Carlos Ortiz Washington, D.C. Welcome. With the high number of attendees, please note all lines have been muted for the event. Q&A can be posted at the right of your screen, but any questions (time permitting) will be addressed at the end of the event. If using Q&A please send to both the host and the presenter. You can send direct questions (including request for copy of slides) to seminars@leclairryan.com with Anti- Corruption Update in the subject for reply after the event. 2

3 Overview FCPA Reform Where is Waldo (FCPA Guidance)? FCPA Enforcement Summary Review of Significant Cases and Compliance Implications Opinion Release 12-1 and Foreign Official 2013 Expectations 3

4 FCPA Reform Chamber of Commerce launched FCPA reform effort last year Hired big guns and sought to reform FCPA citing: Need for clarification to facilitate compliance Ambiguity in definition of foreign official Unfair application of successor liability Absence of a de minimis exception for gifts, meals, and entertainment DOJ vigorously opposed Overtaken by events 4

5 FCPA Guidance Justice Department is expected to release guidance any day Reiteration of aggressive enforcement Expected issues Successor Liability Foreign Official definition and SOEs Gifts and Entertainment Cooperation and disclosure benefit 5

6 2012 FCPA Enforcement Key Trends FCPA enforcement numbers are down from 2011, which in turn, were down from record year of 2010 ($1.6 billion) Number of major investigations are coming close to end (Weatherford, Avon, Alstom) Number of major investigations have started (News Corp, global retail sweep, film industry in China, Embraer) Slow-down does not reflect retreat from aggressive enforcement 6

7 2012 FCPA Enforcement: Key Takeaways Financial institutions declination based on corporate compliance program (Morgan Stanley) Drug companies New enhanced compliance requirements and relaxed merger and acquisition integration time deadlines (Pfizer) Medical device companies use of distributors is legally same as use of third-party agents (Smith & Nephew) Corporate aviation - complete failure of corporate governance and subsequent extraordinary cooperation (BizJet) Fire, safety & security suppliers - use of internal audit for detection and prevention (Tyco) 7

8 Morgan Stanley: Individual Prosecution The most significant case of 2012? Peterson, Morgan Stanley official, was prosecuted, while DOJ declined to prosecute Morgan Stanley Facts related to real estate transaction involving Chinese stateowned enterprise DOJ s first public declination of case based on company s compliance program DOJ and SEC vigorously disagreed about declination Did politics play a part in the declination? Question is how much precedential value will the case have. Will it be limited to facts or will DOJ cite the case as precedent in future declinations? 8

9 Factors Cited in Declination 1. Morgan Stanley trained Peterson on anti-corruption policies and the FCPA at least seven times between 2002 and Morgan Stanley distributed to Peterson written training materials specifically addressing the FCPA, which Peterson maintained in his office. 3. A Morgan Stanley compliance officer specifically informed Peterson in 2004 that employees of Yongye, a Chinese state-owned entity, were government officials. 4. Peterson received from at least 35 FCPA-compliance reminders from Morgan Stanley. 9

10 More Factors Cited in Declination 5. Morgan Stanley required Peterson, on multiple occasions, to certify his compliance with the FCPA. 6. Morgan Stanley required each of its employees, including Peterson, annually to certify adherence to Morgan Stanley s Code of Conduct. 7. Morgan Stanley required its employees, including Peterson, annually to disclose their outside business interests. 8. Morgan Stanley had policies to conduct due diligence on its foreign business partners. 10

11 Compliance Lessons 1. Regularly update your policies and procedures. 2. Increase the frequency of your training. 3. Send out compliance reminders. 4. Engage in ongoing Due Diligence, including transaction monitoring. 11

12 Pfizer Total fines and penalties -- $61 million, earned discount through significant cooperation and agreement to enhanced compliance program Long running bribery scheme through travel and conference sponsorships Focus of enforcement was failure of Pfizer to identify and implement compliance program in acquired companies (Wyeth being the most significant) 12

13 Pfizer: The New Normal? 1. Maintenance of significant resources for the compliance function. 2. Establishment of a global international investigations group; 3. Creation of an anti-corruption program office providing centralized assistance and guidance; 4. Implementation of a mergers and acquisitions compliance function to identify compliance risks from complex business transactions and to ensure the integration compliance procedures into newly acquired entities. 13

14 Proactive Audits FCPA review team (e.g. compliance and legal) is required to conduct on-site visits with auditors, when appropriate Review representative sample (adjusted for risk of market) of contracts with and payments to individual foreign government officials; Create action plans, share with senior managers, and identify mandatory remedial steps to repair process weaknesses and deter violations; Audit distributors books, where feasible, and permissible under local law 14

15 Anti-Corruption Compliance Integration Requirements 1. Pfizer will ensure that its [anti-corruption policies and procedures] apply as quickly as is practicable, but no later than one year after closing. 2. Pfizer will promptly: a) train directors, officers, and senior managers; b) train its agents and business partners, where necessary and appropriate; and c) include all newly-acquired businesses in its regular anti-corruption auditing schedule. 15

16 DOJ Relaxing Integration Requirements 16

17 Smith & Nephew Medical device company required to pay $22 million in fines and penalties Elaborate bribery scheme resulting in payments to doctors and other foreign health service providers Used distributors to carry out scheme Company is liable for conduct of its distributors just as third-party agents 17

18 BizJet Issue of bribery was brought directly to the Board and Board did nothing to stop Payments for airport maintenance service contracts Cooperation led to significant reduction of fine Sentencing Guideline Range from $34.2MM to $17.1MM Final Penalty-$11.8MM 18

19 What is Extraordinary Cooperation? BizJet voluntarily disclosed problem with third parties BizJet s cooperation was extraordinary Conducted extensive internal investigation Made U.S. and foreign employees available for interviews; and Collected voluminous evidence for the DOJ. BizJet undertook extensive remediation Terminated responsible officers and employees Enhanced its due diligence process Heightened review of proposals and other transacts BizJet agreed to continue to cooperate in any ongoing investigation of its officers, directors, employees, agents, and consultants 19

20 Tyco Second bite at the apple Settled FCPA violations case in 2006 Tyco secured a Non-Prosecution Agreement based on its cooperation; subsidiary was required to plead guilty No evidence that parent company had any knowledge of awareness of conduct Fines and penalties of $26.8 million Tyco demonstrated commitment to its compliance program, global investigation and extensive remediation 20

21 DOJ Opinion Release DOJ approved request to retain firm which included a member of royal family DOJ analyzed issue with same factors cited in prior cases relating to person s status and person s actions and representations to refrain from any influence over the government Generated confusion as to DOJ analysis and factors to be examined Foreign Official determination continues to be fact-intensive 21

22 2013 Predictions Election results will have no impact on FCPA enforcement Guidance will relax merger integration requirements and tighten foreign official analysis for state-owned enterprises Expansion of Compliance Program requirements to embrace enhanced elements Major settlements in Avon, Weatherford, Alstom Individual Prosecutions will increase criminal and civil 22

23 23 QUESTIONS?

24 Contact Information: THANK YOU! Michael Volkov Carlos Ortiz 24

25 Disclaimer This presentation provides general information and is not legal advice and should not be used or taken as legal advice for specific situations. You should consult legal counsel before taking any action or making any decisions concerning the matters in this presentation. This communication does not create an attorney-client relationship between LeClairRyan, A Professional Corporation, and the recipient. Copyright 2012 LeClairRyan, A Professional Corporation. All rights reserved. 25