BEST PRACTICES IN INTERNATIONAL FCPA COMPLIANCE: ISSUES AND GUIDANCE ON DEVELOPING FCPA POLICIES, TRAINING, AND COMPLIANCE PROGRAMS.

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1 BEST PRACTICES IN INTERNATIONAL FCPA COMPLIANCE: ISSUES AND GUIDANCE ON DEVELOPING FCPA POLICIES, TRAINING, AND COMPLIANCE PROGRAMS June 25, 2014 Alyssa B. Greenwald Yale University New Haven, Connecticut I. Introduction The rapid rise in the number of prosecutions and the size of penalties under the Foreign Corrupt Practices Act ( FCPA ) in the past decade has been a topic of frequent discussion. In addition, the past few years have seen the introduction of new anti-corruption measures in key foreign jurisdictions such as the United Kingdom (2010 UK Bribery Act) and China (amendments of the PRC Criminal Law effective in 2011). Consequently, both for-profit and non-profit companies are increasingly focused on preventing and detecting violations of the FCPA and foreign anticorruption laws. At the same time, many universities have been expanding their international activities, which increase the risks of non-compliance with anticorruption laws. Universities often struggle with creating and implementing effective FCPA compliance programs in part because the focus of FCPA enforcement and, consequently, FCPA guidance, has been on for-profit multinational companies. Furthermore, it can be difficult convincing an academic audience that the FCPA s emphasis on obtaining business advantages is relevant in the university setting. Yet a university s daily activities both on campus and abroad can implicate the FCPA (and foreign anti-corruption laws), often in unexpected ways. With this in mind, the following suggestions have been developed to help universities in designing and implementing FCPA compliance programs. They are not intended to be an exhaustive checklist but rather to highlight some key considerations to keep in mind when creating a program. II. Creating and Implementing an Effective University FCPA Compliance Program 1. Risk Profile/Risk Assessment. Identify your university s risk areas. In what countries is your university active? Are these high-risk countries (i.e., countries with high corruption)? 1 With whom are your employees working with abroad? Are 1 Transparency International provides a useful index that ranks countries according to the perceived level of corruption. The National Association of College and University Attorneys 1

2 they frequently dealing with foreign officials? Keep in mind the broad definition of a foreign official under the FCPA. Doctors and professors at government-owned or government-controlled hospitals, clinics, or universities may be considered foreign officials. You may find that your university s employees come into contact with foreign officials much more often than you had thought. Is your university hiring foreign agents or consultants or entering into collaborations with foreign partners such as foreign universities, for example? Are those agents or partners engaging with foreign officials on behalf of your university? Any effective risk assessment must consider third parties who increase a university s risk as will be discussed below. During the risk assessment you may find certain departments or schools within your university are higher-risk than others because they are conducting activities in high-risk countries, have several contracts with foreign governments, or otherwise are frequently dealing with foreign officials. You can then direct your program to these units first. It is important not to focus solely on government contracts. Many FCPA violations arise outside the context of attempting to procure or renew a government contract. In the high-profile Walmart FCPA case, the bribes were paid to speed up licensing and obtain permits for Walmart s new stores. A university may similarly be applying for permits to build local campuses or open local offices in addition to the numerous other types of licenses and permits a university may need to carry out its broad range of activities in a country, such as export/import licenses or environmental permits and approvals. A university may also be attempting to receive favorable government approval in another form, such as approval of a government subsidy. Do not focus solely on your university s activities abroad as activities on your domestic campuses also can pose issues under the FCPA. For example, evaluate foreign officials visits to campus. Did the university pay for travel, lodging, or entertainment and provide gifts? Did the university provide free access to university facilities to foreign officials? Do not restrict yourself to academic departments. Actions taken by university admissions and HR can also implicate the FCPA. For example, a foreign official may suggest (perhaps through a subordinate) that the foreign official would look favorably upon the university if the university were to hire his/her son for a job/internship. This type of favorable treatment could give rise to an FCPA violation. Remember to analyze your exposure under foreign laws and not just the FCPA when conducting your risk assessment. Many local laws are broader and include commercial bribery as well as bribery of government officials, or do not have exceptions for payments for promotion of your university s services, which could increase the university s risk. The National Association of College and University Attorneys 2

3 Once you have identified the activities and situations that might expose your university to FCPA or local law risk, analyze the controls your university currently has to address these risks. For example, is the university conducting sufficient due diligence on high-risk third parties? Are the employees in the high-risk departments receiving training? More discussion of FCPA controls is included throughout this document. 2. Tone at the Top and Culture of Compliance There is perhaps no more important part of an FCPA compliance program (or any compliance program) than establishing a culture of compliance at your university. In order to create such a culture, the leaders of your university must set the proper tone by explicitly articulating the importance of ethical conduct and compliance with the law. While the FCPA is certainly not the only law universities must encourage compliance with, it is important that the FCPA is explicitly mentioned as part of this message of compliance, that senior management is buying in to the requirements of the FCPA, and is specifically enforcing compliance with the FCPA. This is particularly true for universities because too often the risks of non-compliance with the FCPA and foreign anti-corruption laws are erroneously seen as remote or inapplicable. 3. Code of Conduct and Compliance Policies and Procedures A university should have a succinct ethical code of conduct for all employees. The code should be clear, concise, easily accessible and up to date. If your university has employees in other countries, this code should be translated into all relevant languages. In addition, a university should have policies and procedures that directly address compliance with anti-corruption laws. It is best to keep such a policy broad and not focus solely on the FCPA, as its important to encourage compliance with all relevant anti-corruption laws particularly for employees that are conducting activities in or based in other countries. While best practice is to have a stand-alone anti-corruption policy, many universities may choose to address anti-corruption in several policies and procedures. At a minimum such policies and procedures should address transactions with foreign governments, including but not limited to, gifts to foreign officials, travel and entertainment expenses, facilitating payments, and political/charitable donations. 4. Oversight An effective FCPA compliance program should have at least one senior leader who is overseeing the implementation of the program and has The National Association of College and University Attorneys 3

4 appropriate authority and adequate resources. In the decentralized university environment, some of the oversight responsibility may be delegated to several individuals but a program should have at least one person monitoring the compliance program as a whole. This person should have sufficient autonomy, which according to the 2010 amendments to the U.S. Sentencing Guidelines includes direct access to the governing authority or an appropriate subgroup of the governing authority. 5. Training If your university does not already have anti-corruption training, you should introduce it. The most important part of any training program is that it be carefully tailored to your university and if possible to the particular group of employees attending each training session. Make sure to include hypotheticals in the training that are specific to the university environment. Provide information at the training session on where employees should go for further advice if needed. Make sure to document the training. A successful training program often includes a hybrid of in-person training and web-based training. If possible, include your agents and other business partners in the training program. The FCPA, and anti-corruption laws generally, are complex and the goal of any training program should not be to produce an army of experts. Rather the goal is to raise awareness of generally what these laws prohibit, the consequences of non-compliance, and ensure that your employees are able to identify red flags and know who to go to for advice. There are many vendors that offer FCPA compliance training though these trainings are often designed for multinational for-profit companies. You will need to work with such vendors to make sure the training is customized to your needs. Finally, you should make sure to include information in your training on your university s anti-retaliation policies in order to encourage the reporting of any questionable behavior or practice. 6. Financial and Accounting Systems Many people often forget that the FCPA encompasses two related sets of provisions. In addition to the anti-bribery provisions, the FCPA also establishes books and records and internal controls requirements (the accounting provisions ) intended to deter corrupt practices. Although the accounting provisions technically only apply to certain public companies, a university will be unable to effectively prevent and detect FCPA violations (and other financial improprieties for that matter) if it does not have strong bookkeeping practices and accounting controls in line with the generic requirements of the FCPA accounting provisions. While there is no one-size fits all approach to establishing effective internal controls, effective financial systems should be able to flag high-risk transactions for review and analysis before a payment is made. As you evaluate your university s internal controls, consider for example how these The National Association of College and University Attorneys 4

5 high-risk transactions can be identified in the accounting/expense systems, who at the university should be required to review and approve, and what documentation should be kept documenting the validity of the payment and the approval. 7. Third Parties An FCPA compliance program cannot be effective unless it considers the risks raised through association with third parties and adequately addresses them. More than half of the recent FCPA enforcement actions have included alleged violations by third parties such as business partners and agents. Universities may have many foreign business partners such as foreign universities involved in a research collaboration, foreign medical centers assisting in clinical care or clinical trials, organizations serving as subgrantees on a research project, vendors, investment managers or consultants and agents among others. university activities funded by entities or individuals could pose another kind of third party risk. When analyzing your compliance program, evaluate whether the relevant departments are conducting appropriate risk-based due diligence before hiring an agent or entering a relationship with a business partner. The due diligence conducted on a foreign university with whom your university has had collaborations with for decades will be very different than the due diligence conducted on a consultant in a high-risk country that will be paid a high fee to assist in a project that is government-funded. Your employees should be trained to ask questions such as: (1) Why are we entering into this relationship or hiring this agent? (2) Does this third party seem qualified and capable of carrying out its responsibilities? ; (3) Do they have a good reputation? ; (4) Do they have ties to the foreign government? Your employees should also be familiar with red flags to look out for when dealing with third parties including but not limited to: unusual payment patterns or financial arrangements, third parties in high-risk countries, secrecy or lack of transparency in records (e.g. invoices without sufficient detail), unusually high commissions, third parties seemingly unqualified to perform the services or who have been recommended by a foreign official or with close ties to a foreign official, and third parties who refuse to include the university s standard FCPA language in the agreement. You should incorporate into your agreements with all third parties, representations that the third party will comply with all relevant laws including the FCPA and local anti-corruption laws. High-risk relationships may require more detailed contract provisions such as provisions requiring periodic certifications of compliance, opinions of U.S. and foreign counsel that the actions contemplated under the Agreement do not violate the FCPA and/or local law, termination and claw-back provisions, anti-corruption training requirements, and provisions regarding access to the third party s books and records. The National Association of College and University Attorneys 5

6 Finally, third parties should be continuously monitored. For high-risk relationships, this may include annual certifications or other disclosures. 8. Reporting/Investigation/Advice Ensure that your university s internal complaint reporting system is adequate to handle reports of possible anti-corruption violations. Whether your university has a hotline or an address for complaints, you should ensure that the contact information is sufficiently advertised. You need to set up your reporting system so that it is capable of handling complaints in foreign languages. If you hire a vendor to handle your hotline they may be able to partner with a translation service vendor if they don t already. As mentioned above, your training sessions should include information for all employees on where to go to seek advice whether it s a compliance officer or the General Counsel s office or another office. If your university has employees in other countries, it should be clear where these employees should go to report an issue or seek advice. This can be a more sensitive issue for foreign-based employees if they are used to seeking advice locally but you are now instructing them to call someone at the U.S. campus. Finally, when developing your process for investigating the complaints you must make sure you have procedures for how the investigation should be conducted and documented. If the investigation is conducted abroad, these procedures will likely vary, as they will need to take into account local laws and regulations. The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act ), which increased the incentives and protections for whistleblowers, also increased the importance of having effective internal reporting systems and conducting thorough internal FCPA investigations. Then again, if an individual is inclined to make an external whistleblower report, particularly considering the financial bounty they may receive, an internal reporting and investigation system may not prevent them from doing so. But if the allegation in the whistleblower report was already reported internally and investigated thoroughly, you will be in a better position to respond to the government inquiry or make a voluntary disclosure preemptively. 9. Incentives/Discipline An effective FCPA compliance program must have appropriate disciplinary procedures to address violations of anti-corruption laws. As discussed above, this can be a complicated issue if your university has foreign employees because you will have to ensure that any discipline you wish to take is in compliance with local law. For example, some countries have strict privacy laws that may make it difficult to carry out an investigation. Other countries may have strict laws regarding terminating an employee and how long after a complaint is filed a university has to take disciplinary action. Most likely you will need the assistance of local counsel. The National Association of College and University Attorneys 6

7 10. Monitoring Compliance and Continuing to Improve You should be continuously monitoring and improving your FCPA compliance program. This should include, for example, annually evaluating your training program, conducting internal audits, monitoring signed contracts with high-risk third parties, or periodic meetings with individuals in high-risk departments to evaluate whether your FCPA compliance program is working. Talk with your internal audit team to make sure any anti-corruption audit plan is carefully tailored to your university s risk profile, and the policies and procedures you have adopted. As you evaluate your compliance program consider the following question: if the university were to receive a DOJ subpoena tomorrow for documents relating to its FCPA compliance, what would we turn over? Do we have policies and procedures that address the FCPA, are they still in draft form, how current are they? Do we have evidence of carefully tailored training sessions and of continuing due diligence we conducted on high-risk third parties including contracts with provisions that require representations of compliance with the FCPA and other anti-corruption laws? Do we have evidence of internal audits including evidence of the follow-up that was conducted to address any deficiencies? These are only some of the questions you should ask yourself as you consider how you would show DOJ that your FCPA program is effective not just on paper but in practice and is carefully tailored to your university s unique risks. III. CONCLUSION As DOJ and SEC emphasized in their 2012 A Resource Guide to the U.S. Foreign Corrupt Practices Act, When it comes to compliance, there is no one-size-fits-all program Compliance programs that employ a check the-box approach may be inefficient and more importantly ineffective. (pg. 57) The suggestions included in this note highlight some of the unique issues universities face when creating and implementing an effective FCPA program. They are by no means an exhaustive resource on FCPA compliance; additional useful resources are included below. The National Association of College and University Attorneys 7

8 USEFUL RESOURCES A Resource Guide to the U.S. Foreign Corrupt Practices Act developed by the US Department of Justice and U.S. Securities and Exchange Commission available at Good Practice Guidance on Internal Controls, Ethics and Compliance, developed by the Organisation for Economic Co-operation and Development (OECD) available at U.S. Department of Justice FCPA Website, available at Guidance on the U.K. Bribery Act, available at Transparency International s Corruption Perceptions Index, available at Yale University International Toolkit (includes section on anti-bribery laws), available at The National Association of College and University Attorneys 8

9 CASE STUDIES IN FCPA COMPLIANCE June 30, 2015 Daniel J. Munsch Carnegie Mellon University Pittsburgh Pennsylvania I. Introduction The last decade has seen a significant increase the in the number of prosecutions under the Foreign Corrupt Practices Act 15 U.S.C. 78dd-1 et seq. ( FCPA ). Recent FCPA enforcement trends in the healthcare industry have increased awareness of FCPA compliance issues in higher education. At the same time, many institutions of higher education have been expanding their international activities, thereby increasing their exposure to potential FCPA investigations and violations. This 30 minute briefing session consists of an interactive discussion of case studies in FCPA compliance, focusing on problem solving and practical considerations. The session builds on the introductory FCPA program presented at the 2014 NACUA Annual Conference entitled Best Practices In International FCPA Compliance: Issues and Guidance on Developing FCPA Polices, Training and Compliance Programs. Individuals attending this briefing session are expected to be familiar with the basics of the FCPA. As such, the session will not include a review of FCPA basics. However, the materials below provide a general overview of the FCPA for reference prior to, during, or after the briefing session. II. FCPA Background 1. General Overview The FCPA was enacted by Congress in 1977 in response to revelations of widespread global corruption in the wake the Watergate scandal. Passage of the FCPA was viewed as critical to stopping corporate bribery, which Congress believed had tarnished the image of U.S. businesses, impaired public confidence in the financial integrity of U.S. companies and hindered the proper functioning of markets. The FCPA is contains two main components: (1) the anti-bribery provisions, and (2) the accounting provisions. In general, the anti-bribery provisions prohibit the bribing of foreign government officials by offering the official anything of value in order to assist in obtaining or retaining business. The accounting provisions require issuers of stock registered with the U.S. Securities and Exchange Commission ( SEC ) to maintain accurate books and records and maintain a system of internal accounting controls. The National Association of College and University Attorneys 9

10 2. Scope The anti-bribery provisions of the FCPA apply to domestic concerns, issuers, and certain other persons acting within the territory of the United States. The accounting provisions of the FCPA apply only to issuers. Issuers 15 U.S.C. 78dd-1 A company that has a class of securities registered under Section 12 of the Securities Exchange Act of 1934 ( Exchange Act ) or that is required to file periodic and other reports with the SEC under Section 15(d) of the Exchange Act. Domestic Concerns 15 U.S.C. 78dd-2 any individual who is a citizen, national, or resident of the United States, or any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship that is organized under the laws of the United States or its states, territories, possessions, or commonwealths or that has its principal place of business in the United States. Domestic concerns also include officers, directors, employees, agents, or stockholders acting on behalf of a domestic concern. Others within the territorial jurisdiction of the U.S. 15 U.S.C. 78dd-3 any person other than an issuer or a domestic concern who while in the territory of the United States corruptly makes use of the mails or any instrumentality of interstate commerce. Colleges and universities in the United States are generally subject to the FCPA as domestic concerns, although institutions that issue stock may be covered as an issuer. Foreign institutions of higher education may also be covered by the FCPA if the allegedly corrupt activity occurs makes use of an instrumentality of interstate commerce. 3. Enforcement Enforcement authority for anti-bribery and accounting provisions of the FCPA is shared between the SEC and the U.S. Department of Justice ( DOJ ). SEC is responsible for civil enforcement of the FCPA over issuers. DOJ has criminal FCPA enforcement authority over issuers, domestic concerns, and others in the territorial jurisdiction of the U.S. Within the DOJ, the Fraud Section of the Criminal Division has primary responsibility for FCPA enforcement. III. FCPA Anti-Bribery Provisions 1. Elements of Offense Generally, the anti-bribery provisions prohibit the bribing of foreign government officials by offering the official anything of value in order to assist in The National Association of College and University Attorneys 10

11 obtaining or retaining business or otherwise secure an improper advantage. The specific elements of a violation of the anti-bribery provisions are: Any offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give or authorization of the giving of anything of value; To a foreign official; For the purpose of obtaining or retaining business, or securing improper advantage With knowledge; and With corrupt intent. See 15 U.S.C. 78dd-2(a) 2. Foreign Officials The anti-bribery provisions apply to corrupt payments made to any foreign official, any foreign political party or official thereof, and any candidate for foreign political office. The FCPA further defines foreign official to include: any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization. In short, the scope of the term foreign official should be presumed to have as broad an application as possible. Foreign officials include government ministers, military officers, police officers, officials of political parties, elected officials, judges, etc. The FCPA covers corrupt payments to both low-ranking and high-ranking foreign officials. Employees of business and institutions that are partially or wholly stateowned or government controlled may also qualify as foreign officials under the FCPA. This may include employees of government controlled utility companies, health care facilities, and institutions of higher education. Whether employees of an entity qualify as foreign officials depends on whether the entity is considered an instrumentality of a foreign government. There are several factors that are weighed in determining whether an entity is an instrumentality of a foreign government: The foreign government s extent of ownership of the entity The foreign government s degree of control over the entity The foreign government s characterization of the entity and its employees The circumstances surrounding the entity s creation The National Association of College and University Attorneys 11

12 The purpose of the entities activities The entity s obligations and privileges under the foreign government s laws. The exclusive or controlling power vested in the entity to administer its designated functions The level of financial support by the foreign state The entity s provision of services to the jurisdiction s residents Whether the governmental end or purpose sought to be achieved is expressed in the policies of the foreign government The general perception that the entity is performing official or governmental functions It is important to note that improper payments need not be made directly to a foreign official. The FCPA also prohibits payments to friends or family members of foreign officials or other organizations if such payments are made in order to influence the official. 3. Payments to Obtain or Retain Business The anti-bribery provisions of the FCPA only prohibit payments made for the purpose of obtaining or retaining business, or securing improper advantage (also known as the business purpose test ). The SEC and DOJ have interpreted this requirement broadly to include efforts to obtain any economic benefit. The business purpose test was addressed in U.S. v. Kay, 359 F.3d 738 (5th Cir. 2004), which held: Congress intended for the FCPA to apply broadly to payments intended to assist the payor, either directly or indirectly, in obtaining or retaining business for some person, and that bribes paid to foreign officials to secure illegally reduced customs and tax liability constitute a type of payment that can fall within this broad coverage. Examples of actions taken to obtain or retain business include: Wining a contract Influence the procurement process Circumventing the rules for importation or products Gaining access to non-public bid tender information Evading taxes or penalties Influencing the adjudication of lawsuits or enforcement actions Obtaining exceptions to regulations Avoiding contract termination The business sought to be obtained or retained does not have to be with a foreign government or instrumentality of a foreign government. Business relationships with private The National Association of College and University Attorneys 12

13 entities may implicate the FCPA so long as there is a payment to a foreign official for the purpose of obtaining or retaining such business. Payments prohibited by the FCPA are not limited to cash or other forms of currency but also include anything of value. Improper payments may include travel expenses, meals, entertainment, expensive gifts or other benefits such as admission to a selective program or event. There is no de minimis exception to the FCPA. 4. Intent To constitute a violation of the FCPA, a payment must be made with a corrupt intent, which means there must be intent to wrongfully influence the recipient. Where corrupt intent is present, the FCPA prohibits the paying, offering or promising anything of value to a foreign official. The requirement of corrupt intent means that a corrupt act does not need to succeed in its purpose to violate the FCPA. Therefore, the FCPA may be violated even in cases where no bribe is ultimately paid and in cases where the bribe does not have the desired effect. The intent to influence corruptly is sufficient to implicate the FCPA. In addition, in order for an individual defendant to be criminally liable under the FCPA, the individual must act with knowledge or willfully. To establish knowledge the government must prove that the defendant acted with knowledge that the conduct was unlawful, although the individual need not know that the conduct specifically violates the FCPA. Furthermore, knowledge also includes the principle of willful blindness. A conscious disregard or willful blindness of circumstances that would alert a reasonable person to the fact that improper payments are likely being made will likely be sufficient to establish knowledge under the FCPA. Proof of knowledge is not required to establish corporate criminal liability or civil liability under the FCPA, although proof of corrupt intent is still required. 5. Payments to Third Parties The FCPA also specifically prohibits improper payments to foreign officials made through third-parties or intermediaries. Outsourcing improper payments to a third-party will not insulate an organization from liability under the FCPA. As mentioned above, the principles of knowledge and willful blindness apply to the FCPA. With respect to third parties, organizations will not avoid liability by turning a blind eye to actions of third parties, intermediaries, foreign subsidiaries, or other agents of the organization. When doing business with a third-party that will act as a representative, agent or other intermediary of a college or university with a foreign government or in a foreign country, there are several red flags that and institution should be mindful of. The National Association of College and University Attorneys 13

14 Red Flags for Third-Parties: Recommended by a foreign official; Close relationship with a foreign official Apparent lack of qualifications or resources to perform the desired task Reputation for unethical or suspicious business practices or there is evidence of past violations of local law or policy Demands unusually high commissions or fees Requests false invoices or other documentation Demands payment in cash Politically active Provides incomplete or inaccurate information Unwilling to enter into a written agreement Refuses to certify compliance with applicable anti-corruptions laws Fails to create transparency in expenses and records Red flags raise potential FCPA compliance concerns that should be addressed before proceeding with a transaction. But the existing of a red flag issue does not necessarily mean that the transaction violates the FCPA. 6. Affirmative Defenses There are three categories of affirmative defenses or exceptions to the FCPA: (1) local law defense; (2) reasonable and bona fide promotional expenses; and (3) facilitating payments. The local law defense is a very narrow defense that only applies where a defendant can establish that the payment, gift, offer, or promise of anything of value that was made, was lawful under the written laws and regulations of the country. It is not sufficient that the laws of a foreign country are silent with respect to bribery of officials. In practice, the local law defense is extremely rare as few if any countries have written laws that specifically authorize improper payments to their officials. The second affirmative defense allows companies to provide reasonable and bona fide travel and lodging expenses to a foreign official that are directly related to the promotion of a company s products or services, or are related to a company s execution or performance of a contract with a foreign government or agency. The DOJ has stated that the following types of expenditures on behalf of foreign officials did not warrant FCPA enforcement action: Travel and expenses to visit company facilities or operations Travel and expenses for training Product demonstration or promotion activities, including travel and expenses for meetings Finally, the FCPA also contains a narrow exception for facilitating payments. This exception allows for payments to foreign officials the purpose of which is to expedite or The National Association of College and University Attorneys 14

15 secure the performance of a routine, non-discretionary action government action. The facilitating payments exception only applies to non-discretionary actions and is generally limited to payments of small denominations. Examples of facilitating payments include obtaining copies of documents, expediting the processing of governmental papers (e.g. visas), obtaining police protection, delivering the mail and proving utility service. In addition, payments made under the imminent threat of physical harm do not constitute a violation of the FCPA because there is no corrupt intent. Economic coercion with no threat of physical harm, however, does not excuse an otherwise improper payment. IV. FCPA Accounting Provisions The accounting provisions of the FCPA only apply to issuers. The accounting provisions are divided into two main sections: (1) the books and records provisions and (2) the internal controls provisions. Although the accounting provisions were enacted as a part of the FCPA, the accounting provisions are not limited to bribery-related violations. Rather, the accounting provisions are intended to ensure that publicly traded companies keep accurate and detailed financial records and the accounting provisions may be used to prosecute many types of financial fraud beyond the bribery of foreign officials. The books and records provisions require issuers to make and keep books, records and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer. These provisions are intended to prevent the mischaracterization or concealment of bribes, as well as to prevent other forms of accounting fraud. Even in cases where there is insufficient evidence or facts to establish a violation of the anti-bribery provisions, a company may still be liable if an improper payment was not accurately recorded in the company s financial records as required by the books and records provisions. The internal controls provisions require issuers to devise and maintain a system of internal accounting controls sufficient to ensure management s control, authority, and responsibility over the company s assets. The FCPA does not detail the particular controls that companies are required to adopt. Rather, the internal control provisions give companies the flexibility to develop and maintain a system of controls that is appropriate based on the particular needs and circumstances of the company. The accounting provisions only apply to issuers and, as such, most colleges and universities technically are not covered by these provisions. Nonetheless, the accounting provisions are often critical to implementing effective compliance programs for the antibribery provisions. An institution that does not have strong accounting standards and internal controls may be vulnerable to potential violations of the anti-bribery provisions which may go undetected or other fraud and financial improprieties. Thus, it is often sound business sense to voluntarily comply with the accounting provisions of the FCPA, even though it is not technically required. The National Association of College and University Attorneys 15

16 V. Penalties and Sanctions Corporations and other business entities may be subject to fines of up to $2 million for each violation of the anti-bribery provisions. In addition, an FCPA conviction may result in disgorgement of any ill-gotten profits, debarment from federal contracting, and/or loss of export licenses. Individuals, including officers and directors, may be subject to fines of up to $250,000 and imprisonment for up to five years. DOJ and SEC also have authority to pursue civil claims under the FCPA. DOJ has authority to file civil actions for violations of the anti-bribery provisions by domestics concerns and by other individuals and entities acting within the territorial jurisdiction of the U.S. The SEC may pursue civil actions against issuers for violations of the anti-bribery provisions. Individuals and corporations may be subject to civil fines of up to $16,000 per violation of the anti-bribery provisions. Individual fines may not be paid by the employer of the individual. VI. Compliance Programs While institutions of higher education generally have lower exposure to FCPA violations than other business entities, it is nonetheless important for colleges and universities to adopt an effective FCPA compliance program. Such programs are particularly important for any institution with a significant presence in a foreign country or other significant international business relationships. A brief summary of the common components of an effective FCPA compliance program is provided below. However, FCPA compliance programs were the focus of a detailed presentation at the 2014 Annual NACUA Conference and anyone interested in more details on FCPA compliance programs should reference his presentation. 1 A copy the materials from this prior presentation are attached. Common Components of Effective FCPA Compliance Programs: 1. Written policies and procedures 2. Compliance oversight by senior leaders 3. Effective financial and accounting systems 4. Conduct thorough due diligence on all agents and vendors 5. Require agents and vendors to certify FCPA compliance 6. FCPA training for institutional employees 7. Require certain institutional employees to certify FCPA compliance 8. Internal reporting and investigation 9. Disciplinary procedures 10. Ongoing monitoring of compliance 11. Self-disclosure of violations 1 Best Practices In International FCPA Compliance: Issues and Guidance on Developing FCPA Polices, Training and Compliance Programs presentation at the NACUA 2014 Annual Conference in Denver Colorado, by Xinning Shirley Liu, Alyssa Greenwald, Frederick Robinson, and Jay Darden The National Association of College and University Attorneys 16

17 VII. Conclusion Although it has been in existence for nearly forty years, the FCPA is an increasingly important compliance obligation for colleges and universities. As globalization and international programs in higher education continue to expand, colleges and universities must be mindful of FCPA compliance. At the same time, the number of enforcement actions by DOJ continues to rise. Recent enforcement trends focusing on the healthcare industry should serve as a warning for higher education. Even the appearance of potential impropriety with respect to interactions with foreign officials may result in a time consuming and costly FCPA investigation. Colleges and universities are well advised to adopt robust FCPA compliance programs to prevent FCPA violations and ensure that legitimate business relationships are well documented. The National Association of College and University Attorneys 17

18 USEFUL RESOURCES A Resource Guide to the U.S. Foreign Corrupt Practices Act developed by the US Department of Justice and U.S. Securities and Exchange Commission available at Best Practices In International FCPA Compliance: Issues and Guidance on Developing FCPA Polices, Training and Compliance Programs, presentation at the NACUA 2014 Annual Conference in Denver Colorado, by Xinning Shirley Liu, Alyssa Greenwald, Frederick Robinson, and Jay Darden. Good Practice Guidance on Internal Controls, Ethics and Compliance, developed by the Organisation for Economic Co-operation and Development (OECD) available at U.S. Department of Justice FCPA Website, available at Transparency International s Corruption Perceptions Index, available at Yale University International Toolkit (includes section on anti-bribery laws), available at The National Association of College and University Attorneys 18

19 Foreign Corrupt Practices Act Case Studies in Higher Education Speaker: Moderator: Daniel Munsch, Carnegie Mellon University Alyssa Greenwald, Yale University

20 Introduction Advanced Session Assumes basic knowledge of the FCPA 2014 NACUA Conference Best Practices in International FCPA Compliance: Issues and Guidance on Developing FCPA Policies, Training, and Compliance Programs.

21 Presentation Outline Interactive discussion of FCPA issues for in-house counsel at institutions of higher education. Example FCPA Controls. Hypothetical case studies to spark discussion. Issue spotting Due diligence Remediation

22 FCPA Anti-Bribery Provisions Anti-bribery provisions prohibit: any offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving; to a foreign official; of anything of value; directly or indirectly for the purpose of obtaining business, retaining business, or otherwise securing an improper advantage; with knowledge; and with corrupt intent.

23 FCPA Controls Basic Controls Contract clauses Due diligence on payees Training Contracts Warrant compliance with FCPA Right to inspect books and records Incorporate FCPA Controls into Existing Finance Forms & Procedures Vendor / Supplier Information Forms Gifts to Non-Employees Honorariums Charitable Contributions Expense Reimbursements (employee & non-employee)

24 FCPA Controls Initial Due Diligence on Payees Acknowledgment of institutional FCPA policy. Is your company / employer owned or controlled by a foreign government? Are you or any members of your family officials of a foreign government? Are any owners of the company (or family members of owners) an official of a foreign government? Do you anticipate that it will be necessary to interact with any foreign official on behalf of the university? Location. If necessary, additional fact-specific due diligence based on responses to the above questions.

25 FCPA Controls Escalation of Review at Carnegie Mellon Complete applicable forms. Accounts Payable reviews forms for completeness. Certain answers to Yes-No questions triggers further review. Substantive review of FCPA issues by University Contracts Office. Case specific due diligence. If necessary, review by Office of the General Counsel. If necessary, review by executive management.

26 Hypothetical Scenarios Scenario # 1 Third party intermediaries. Scenario # 2 Meals and entertainment and instrumentalities of foreign governments. Scenario # 3 Unanticipated issues arising from due diligence on payees.

27 Scenario # 1 Your institution recently received permission from a foreign government to open a branch campus in its country. The Minister of Education recommends that you use a particular consulting firm to coordinate the creation of the new campus and says that this consultant has experience working with the local authorities. The country is ranked # 94 on the Transparency International Corruptions Perceptions Index.

28 Corruptions Perceptions Index Transparency International World Map 10

29 Corruption Perception Index Rankings Transparency International annually ranks 183 countries and assigns a CPI from 0 to = LEAST corrupt 0 = MOST corrupt RANK COUNTRY CPI 2014 SCORE 1 Denmark United States Qatar United Arab Emirates Saudi Arabia Egypt, Columbia, Liberia, Armenia China Russia North Korea, Somalia 8 11

30 Scenario # 1: Investigation Should your institution use the consulting firm? Recommended by Minister of Education. The consulting firm is owned by a third cousin of the Minister of Education. The consulting firm is willing to enter into a written contract and certifies that it will comply with the FCPA and other anti-corruption laws. But the firm refuses to grant your institution the right to audit or inspect its books and records. The consulting firm is used by other US companies, including several Fortune 500 companies. The rates of the consulting firm are a bit high but still within the range of rates charged by similar consulting firms. The consulting firm is politically active in supporting the administration currently in power.

31 Third-Party Risks Insufficient due diligence and improperly supervised third parties pose a high risk and enforcement activity against third parties is increasing There can be FCPA liability where: (1) a payment is made to a third party, and (2) the company or individual knows the payment will go to a Foreign Official Knowing includes conscious disregard and deliberate ignorance of issues that a reasonable person would review before proceeding with a particular transaction Many types of third parties can put you at risk Joint venture partners Subsidiaries or other affiliates Agents, contractors, representatives, distributors, consultants Relatives and friends of Foreign Officials Companies owned by Foreign Officials Customs brokers and freight forwarders Any persons acting on your behalf 13

32 Third Party Red Flags Red flags are compliance issues that must be addressed before proceeding with a transaction they are not necessarily violations Very fact-specific Third party: Has been recommended by a Foreign Official Has a close relationship with a Foreign Official Third party appears to lack of qualifications or resources to perform desired tasks Has a reputation for unethical or suspicious business practices or evidence of past violations of local law or policy Demands unusually high commissions or fees Requests false invoices or other documentation Demands fees in cash Is politically active Provides incomplete or inaccurate information Is unwilling to enter into written agreement Refuses to certify that it will comply with applicable anti-corruption laws Fails to create transparency in expenses and records 14

33 Scenario # 2 A professor at your institution travels to a foreign country to meet with a faculty member at a foreign university about possible collaboration on a research project. After returning to the US, the professor requests reimbursement for a $700 dinner at a restaurant during the trip. The expense reimbursement submitted by the professor indicates that 5 people attended the dinner, including the professor, the faculty member from the foreign university, a department head from the same university, and their spouses. The receipt for the meal is in a foreign language.

34 Scenario # 2: Investigation Is the foreign university an instrumentality of the state? The university claims it is a private institution. The foreign government does not classify the university as a government agency. The university was established by a royal decree about 25 year ago. The same dynasty is still in power. 4 out 10 positions on the university s Board of Trustees are appointed by the King. The current chairman of the board is the King s nephew. The university receives 40% of its funding from the government. Employees of the university are not eligible to participate in government pension programs.

35 Instrumentality Factors Instrumentality Factors: the foreign states extent of ownership of the entity the foreign states degree of control over the entity (including whether key officers and directors of the entity are, or are appointed by, government officials) the foreign states characterization of the entity and its employees; the circumstances surrounding the entity s creation the purpose of the entity s activities the entity s obligations and privileges under the foreign state s law - US. v. Esquenazi, 752 F.3d 912 (11th Cir. 2014)