Guidance from the FCPA Experience Building an Effective Approach to the UK Bribery Act

Transcription

1 Guidance from the FCPA Experience Building an Effective Approach to the UK Bribery Act Presented by: Toby Vick McGuireWoods LLP 1

2 I. THE FCPA EXPERIENCE THE FCPA HAS BECOME A PROMINENT COMPLIANCE ISSUE BECAUSE: The risks and costs are high. This is an enforcement focus for the Department of Justice and SEC. Jurisdiction is expansive. Third parties can create liability. Almost any payment or thing of value offered to secure almost any competitive advantage can result in scrutiny and potential liability, even if the offer is unsuccessful. 2

3 II. COMPARING THE FCPA AND THE UK BRIBERY ACT Although the Bribery Act is similar to the FCPA, it has taken the model several steps further. Notable differences include: Coverage of activities unrelated to governmental officials. The FCPA is focused exclusively on foreign government officials, whereas the general bribery and organizational oversight provisions of the Bribery Act cover any improper inducement. As a result, the Bribery Act creates offences that bring purely commercial business-tobusiness activities inside and outside the UK within their scope. Business nexus. Under the FCPA, the improper inducement must be offered or paid in order to obtain or retain some business advantage. Although this is an increasingly low hurdle, it is not required by the Bribery Act s general bribery offences, which focuses instead on whether the provider is attempting to induce improper action betraying a position of trust. The strict liability corporate offence does require a business nexus. 3

4 II. COMPARING THE FCPA AND THE UK BRIBERY ACT Notable differences (cont.): Scope of the strict liability corporate offence. Although the FCPA s accounting provisions do carry the risk of criminal liability for failure to maintain adequate systems of internal controls and are essentially a strict liability regime with regard to inaccurate financial books and records, the Bribery Act s strict liability approach is potentially more stringent and certainly covers a wider band of activities that can trigger liability. Further, it applies to all commercial organizations under its jurisdiction, whereas the FCPA s accounting provisions apply only to publicly-traded companies. Facilitation or grease payments. Under the FCPA, certain low-level payments meant to facilitate a non-discretionary government act are allowable, while in the UK they are not. Notably, corporations have approached this FCPA exception in an increasingly conservative fashion to the point that few U.S. companies allow their personnel to make such payments. Richard Alderman, the current director of the SFO, has stated publicly that prosecutions involving small amounts of money are unlikely. 4

5 II. COMPARING THE FCPA AND THE UK BRIBERY ACT Notable differences (cont.): Bona fide business expenditures. The FCPA provides an affirmative defense for payments that are reasonable and bona fide business expenditures directly related to the promotion, demonstration, or explanation of products or services, or the execution or performance of a contract with a foreign government or agency thereof. There is no similar counterpart under the Bribery Act, although this could be addressed via the guidance mandated by Section 9. The impact of local law. Under both the FCPA and the foreign official provision of the Bribery Act, it is a defense if the offer or inducement at issue was allowed under written local law. However, the general bribery offences allow this only as a mitigating factor or consideration. 5

6 II. COMPARING THE FCPA AND THE UK BRIBERY ACT Notable differences (cont.): Advisory opinions. The U.S. Department of Justice offers an FCPA advisory opinion procedure (FCPA Opinion Procedure) that provides a presumption of FCPA compliance if the opinion is relied upon and implemented by the requesting party. The SFO offers similar guidance, but without a formal procedure as such. Civil enforcement. Unlike the FCPA, which provides for civil enforcement by the Securities and Exchange Commission (SEC) or Department of Justice (DOJ) under lower standards and subject to lesser penalties, the Bribery Act offers only criminal enforcement. However, the CPS, RCPO and SFO do have separate statutory authority to make confiscation orders. 6

7 II. COMPARING THE FCPA AND THE UK BRIBERY ACT Notable differences (cont.): Severity of penalties. The Bribery Act carries the potential of up to 10 years imprisonment for individuals, and unlimited fines for commercial organizations. By comparison, under the FCPA s bribery provisions, the maximum sentence is generally five years imprisonment and up to $250,000 in fines for individuals and a $2 million fine for entities. Penalties for willful violations under the FCPA accounting provisions are much more severe, with potential imprisonment of up to 20 years and $5 million in fines for individuals and up to $25 million in fines for entities. However, under the Alternative Fines Act, 18 U.S.C. 3571, penalties for FCPA violations can actually be much higher, up to twice the benefit sought by making the corrupt payment. Although the UK does not have similar precedents for high corporate penalties in this area as those secured in the United States in recent years, a handful of UK cases since 2008 have involved multimillion pound settlements and fines of increasing size. 7

8 III. RECENT TRENDS IN FCPA ENFORCEMENT Daimler AG (2010) Earlier this year, German automaker Daimler AG entered into a $185 million settlement of FCPA violations based on millions of dollars worth of improper inducements designed to secure hundreds of millions of dollars worth of vehicle sales. In associated court filings, the U.S. government was highly critical of Daimler s compliance program and oversight efforts. Pursuant to a Deferred Prosecution Agreement, Daimler has committed to program improvements and other reforms meeting a number of minimum elements, such as: Clearly articulated corporate policies against violations of the FCPA. A revised system of financial and accounting procedures. Assigning oversight responsibility to one or more senior corporate officials. Mechanisms such as training and certifications designed to ensure that policies, standards and procedures are effectively communicated to all directors, employees and, where appropriate, agents and business partners. An effective reporting system and appropriate disciplinary procedures. Appropriate due diligence requirements pertaining to the retention and oversight of agents and business partners. Standard contractual provisions such as FCPA representations and undertakings, audit rights and the right to terminate an agent or partner as a result of violations. Periodic audits. 8

9 III. RECENT TRENDS IN FCPA ENFORCEMENT Siemens AG (2008) In a landmark case, the German conglomerate Siemens AG agreed to a $450 million criminal fine to the DOJ and $350 million in civil disgorgement to the SEC to resolve FCPA issues. This was in addition to a parallel settlement with German law enforcement valued at approximately $569 million in fines and disgorgement, and a previous settlement with German law enforcement valued at $287 million. Despite the large numbers, U.S. law enforcement praised Siemens for the affirmative steps the company took to counter corrupt activities once the scandal surfaced. Nature s Sunshine Products, Inc. (2009) Nature s Sunshine Products, Inc. ( NSP ), its CEO and former CFO entered into a settlement with the SEC over cash payments made to customs officials in 2000 and 2001 by a Brazilian subsidiary. Notably, the individuals were held liable because, in their roles as corporate officers, they were charged with the supervision of senior management and policies regarding NSP s international operations including direct or indirect oversight of personnel charged with making and keeping accurate books and records, and maintaining an adequate system of internal controls. Under this control person theory, liability attached even though neither individual was alleged to have engaged in any affirmative act related to the improper payments, nor even that they were aware of them. 9

10 IV. BUILDING AN EFFECTIVE ANTICORRUPTION COMPLIANCE PROGRAM THE CORE ELEMENTS An effective anticorruption compliance program requires: Written policies and procedures; Internal financial controls designed to prevent and detect improper payments; Oversight by one or more responsible personnel, including or with direct reporting to an upper manager; Personnel training; and Regular, periodic audits of the program both internally and through outside counsel. They should be implemented according to the following six principles. 10

11 IV. BUILDING AN EFFECTIVE ANTICORRUPTION COMPLIANCE PROGRAM 1. An effective anticorruption compliance program begins with a riskbased assessment of your company s needs. Increasingly, boards of directors and audit committees expect management to demonstrate that the company s compliance efforts are reasonably tailored to address its particular set of compliance risks. Similarly, prosecutors and regulators are coming to demand proof that a company s compliance program is based on a real world analysis of potential violations. The goal is to identify the full range of compliance risk faced by the company and prioritize those risks based on the likelihood of occurrence and the possible consequences for the company. 11

12 IV. BUILDING AN EFFECTIVE ANTICORRUPTION COMPLIANCE PROGRAM 2. You have to understand your business. There are no generic solutions, and program development will depend on: The industries in which the company and its business units operate; The scope and location of the company s operations; The company s customers; Any regulatory regimes that cover company business; Future targets of business development and expansion; and Past compliance issues. 12

13 IV. BUILDING AN EFFECTIVE ANTICORRUPTION COMPLIANCE PROGRAM 3. Your anticorruption compliance program is only as strong as your financial controls. If a company has stringent financial controls and is able to minimize or eliminate access to cash by its personnel, it places corrupt payments out of easy reach. This is particularly true if financial transactions require approval from multiple managers. Where that is the case, transfer of a corrupt payment using corporate funds would require collusion among multiple managers. 13

14 IV. BUILDING AN EFFECTIVE ANTICORRUPTION COMPLIANCE PROGRAM 4. Your program must have written policies, reinforced by training tailored to relevant business considerations and specific business functions. An anticorruption compliance program will not be useful unless it is made relevant to the day-to-day functions of personnel impacted by it. All relevant personnel need to receive training, and the training needs to address specific areas of concern for specific business functions, with emphasis on red flags they should be wary of. Relevant personnel would, at a minimum, include those who: Regularly operate overseas; Deal with non-domestic customers, partners, representatives or transactions; or Have oversight or management roles related to non-domestic activities. 14

15 IV. BUILDING AN EFFECTIVE ANTICORRUPTION COMPLIANCE PROGRAM 5. For the program to be effective and sustainable, it needs to be actively overseen, regularly reviewed and revised as necessary. Anticorruption initiatives that are passed down as fiats, without follow-up, face-to-face training and regular program reviews and audits, will not be effective. The program must have a high profile, be actively communicated to employees at all levels, and be overseen by a high-level manager with adequate resources, authority and autonomy. You must continually review, revisit and revise its program to reflect shifting needs and risk profiles. This can be accomplished through periodic self-assessments and regular auditing by internal and external resources. 15

16 IV. BUILDING AN EFFECTIVE ANTICORRUPTION COMPLIANCE PROGRAM 6. You must impose accountability. At each level of the organization, there should be an official responsible for enforcement of the program s policies and procedures. This includes each overseas operation. Personnel should have specific review and reporting requirements, including the prompt investigation, resolution and reporting of any red flags or issues. Policies and procedures should include appropriate reporting mechanisms (e.g., hotline numbers and ombudsmen). They should also include appropriate disincentives for violations, with even minor violations addressed in a prompt, serious fashion. 16

17 IV. BUILDING AN EFFECTIVE ANTICORRUPTION COMPLIANCE PROGRAM SOURCES OF GUIDANCE Several U.S. government and international resources offer guidance on what is needed for a compliance program to be considered robust and effective, including: The presence of a robust ethics and compliance program has long been a critical factor for federal prosecutors in deciding whether to charge a corporate defendant, pursuant to the U.S. DOJ s Principles of Federal Prosecution of Business Organizations (a.k.a. the Filip Memo, USAM, Title 9, Chapter ). The organizational provisions of the U.S. Sentencing Guidelines ( 8B2.1) outline the minimum requirements for a compliance program to be considered effective. The OECD has promulgated Good Practice Guidance on what should be considered the elements of an effective anticorruption compliance program. DOJ FCPA Opinion Release (ABB) is a detailed DOJ statement considered to be the paradigm for establishing a corporate FCPA compliance program and accompanying internal controls. 17

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