Introduction to the U.S. Foreign Corrupt Practices Act

Transcription

1 Introduction to the U.S. Foreign Corrupt Practices Act Presentation to the Alaska Bar Association International Law Section March 14, 2012 Richard C. Smith, Partner, Fulbright and Jaworski, Washington / Kimberly S. Walker, Sr. Counsel Anti-Bribery/Corruption & Anti-Money Laundering Regulatory Compliance, BP America Inc., Houston, /

2 Introduction Agenda The U.S. Foreign Corrupt Practices Act 1977 ( FCPA ) Key Provisions Recent Enforcement Actions Other International Anti-Corruption Law Developments Red Flags and Compliance 2

3 Foreign Corrupt Practices Act in 2012 The Foreign Corrupt Practices Act, or FCPA, was enacted in 1977, but focus on the law increased dramatically in the last 10 years. *Aggregated corporate cases 3

4 Foreign Corrupt Practices Act in 2012 Penalties have also increased *Includes civil and criminal fines and penalties, as well as disgorgement and pre-judgment interest paid by corporations. 4

5 Recent U.S. Enforcement Corporate Penalties Top U.S. enforcement priority for both the Department of Justice ( DOJ ) and Securities and Exchange Commission ( SEC ) All of the 10 largest FCPA settlements have occurred since 2008 and 9 of the top 10 settlements were non- U.S. companies The first guilty verdict against a corporation by a jury in an FCPA case was returned in May 2011 against Lindsey Manufacturing Company* Company Headquarters Fine & Penalty Year Siemens Germany $800M 2008 KBR/Halliburton U.S. $579M 2009 BAE U.K. $400M 2010 Snamprogetti Netherlands B.V./ENI S.p.A. Holland/Italy $365M 2010 Technip S.A. France $338M 2010 JGC Corporation Japan $218.8M 2011 Daimler AG Germany $185M 2010 Alcatel-Lucent France $137M 2010 Magyar Telekom/Deutsche Telekom Hungary/ Germany $ 95 M 2011 Panalpina Switzerland $ 81.8M

6 Examples of Recent U.S. Enforcement 6

7 Foreign Corrupt Practices Act in

8 Introduction Corruption Perception Source: Transparency International Corruption Perceptions Index an annual index of 178 countries, indicating the perceived level of publicsector corruption in a country/territory: ( 8

9 FCPA Key Provisions

10 The FCPA Creates both civil and criminal liability for individuals and companies and is enforced by the U.S. Department of Justice ( DOJ ) and the Securities and Exchange Commission ( SEC ) Two components Anti-bribery provisions: prohibit offering or providing anything of value to a foreign official to obtain or retain business, direct business to any person, or obtain a business advantage Accounting and internal controls provisions: require U.S. public companies to maintain accurate books and records and internal controls sufficient to detect and prevent violations 10

11 Who does the FCPA apply to? Anti-bribery provisions apply to: All U.S. companies, citizens, or residents, whether or not they act within or outside of the United States All companies listed on the U.S. stock exchanges or subject to SEC reporting requirements All companies or individuals who execute any part of a bribery scheme from within the United States All officers, directors, employees, or agents of the above Accounting provisions apply to: Issuers, which are companies with securities registered in the U.S. or that file periodic reports with the Securities and Exchange Commission Non-U.S. subsidiaries of issuers are not bound directly by these provisions, but the parent must in good faith use its influence to cause subsidiary to devise and maintain efficient accounting controls 11

12 FCPA Key Provisions Key elements of an anti-bribery violation: Offer, promise, or payment; To a foreign official; Made with corrupt intent; and To assist in obtaining or retaining business or directing business to any person. 12

13 FCPA Key Provisions Element 1: Offer, promise, or payment Money Anything else of value (e.g., tuition, loan, travel upgrades, dinner, entertainment) Gift (e.g., holiday bottle of scotch or champagne) Charitable contribution or donation (e.g., donation to foreign official s wife s charity) In-kind service 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 statecontrolled utility) Any non-u.s. political party Any public international organization (e.g., United Nations) Any candidate for non-u.s. political office Any non-u.s. political party 13

14 FCPA Key Provisions Element 3: Corrupt intent Intent to induce the foreign official to misuse his/her official position The intent to make the payment is relevant; not the intent to violate the FCPA Even if an agent or employee claims he did not know about the FCPA, the company and the individual may still be held criminally liable Element 4: Business purpose Payment, promise, or offer of thing of value must be made to assist in: Obtaining business Retaining business (loosely defined) Directing business to any person or entity This, too, is very broadly construed 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 Applies to any business, not just business with government customers (i.e. payment to antitrust official to approve a merger between two private companies may be an FCPA violation) 14

15 FCPA Key Provisions Facilitating Payments Exception Made to secure routine governmental action Must be small, reasonable, and well-documented Many local laws prohibit them Examples include: Obtaining copies of permits, licenses, official documents Processing governmental papers (e.g., visas, customs clearance) Providing police protection Delivering mail Providing utilities (phones, power, water) Scheduling inspections Two further limited exceptions Payment is a reasonable and bona fide expenditure to demonstrate or promote a product or execute a contract Payment is lawful under foreign country s written laws 15

16 FCPA Key Provisions Accounting (or Books and Records) Provision Issuers must maintain books, records, and accounts which in reasonable detail accurately reflect the transactions dispositions of their assets 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 The internal controls must be designed to detect and prevent violations 16

17 Recent Enforcement Actions

18 Recent U.S. Enforcement Corporate Cases Magyar Telecom (December 2011), $95 million Magyar allegedly entered into a secret agreement with highranking Macedonian officials wherein the officials agreed to delay the entrance of a new license into the market and provide other benefits. In order to obtain the money to recompense the officials, Magyar entered into sham consultancy contracts with entities owned and controlled by a Greek intermediary, knowing or being aware of a high probability that all or part of the $6 million paid to the intermediary would be passed on to government officials. 18

19 Recent U.S. Enforcement Corporate Cases Tenaris SA (May 2011) $8.9 million Allegedly paid bribes to Uzbekistan government officials through employees and agents to win contracts to supply pipelines for oil and gas transportation. Specifically, the SEC alleged that improper payments were made during the contract bidding process in 2006 and 2007 to obtain confidential information about competitors' bids, allowing Tenaris to submit revised bids to its advantage. Tenaris agreed to pay the agent 3.5% of the value of four separate contracts, while being aware or substantially certain that the agent would pay government officials. 19

20 Recent U.S. Enforcement Corporate Cases Rockwell Automation, Inc. (May 2011) $5.6 million The SEC alleged that employees of Rockwell's former Chinese subsidiary ("RAPS-China") paid approximately $615,000 to Chinese Design Institutes through third-party intermediaries, with the expectation that Design Institute employees would influence the enduser state-owned customers to purchase products from RAPS-China. The Design Institutes, which typically are also state-owned, provided some bona fide services in connection with RAPS-China's end-user contracts, but allegedly RAPS-China could not substantiate the specific services rendered. During the same period, RAPS-China employees allegedly funded approximately $450,000 in sightseeing and other non-business trips for employees of Design Institutes and other state-owned companies. 20

21 Recent U.S. Enforcement Corporate Cases Tyson Foods Inc. (February 2011) $5.2 million Tyson s Mexican subsidiary, Tyson de Mexico, allegedly paid approximately $90,000 between 2004 and 2006, to two publicly-employed veterinarians who inspected its Mexican plants, resulting in profits of approximately $880,000. The payments were made both directly to the veterinarians and indirectly through their wives, whom Tyson de Mexico listed on its payroll, although neither performed any services for Tyson. According to court documents, the bribe payments were made to keep the veterinarians from disrupting the operations of the meat-production facilities. When payments to the spouses were terminated in 2004, Tyson representatives agreed to increase the amount paid to the veterinarians to match the amount previously paid to their spouses. 21

22 Recent U.S. Enforcement Corporate Cases Ball Corporation (March 2011) $300,000 Allegedly, from July 2006 through October 2007, Ball offered and paid at least ten bribes of at least $106,749 to employees of the Argentine government to secure reduced tariffs on importation of prohibited machinery and exportation of raw materials. Ball made the payments through its Argentine subsidiary, Formametal, S.A. Ball acquired Formametal in March 2006, and certain accounting personnel learned that Formametal employees may have made questionable payments and caused other compliance problems before the acquisition. Despite this, Ball failed to take sufficient action to prevent future issues. Two Formametal executives then authorized the improper payments and the true nature of the payments was disguised as ordinary business expenses on the books and records. The true nature of the payments went undetected for over a year. 22

23 Recent U.S. Enforcement Individual Cases Jack Stanley, Wojciech Chodan, and Jeffrey Tesler (February 2012), 30 months, 1 year probation, and 21 months, respectively. Stanley was a KBR executive who allegedly orchestrated the bribing of Nigerian government officials in order to obtain business for a joint venture. Stanley was also ordered to make a restitution payment of $10.8 million. Chodan was a KBR employee who allegedly assisted in the payment of the bribes. Chodan was fined $20,000. Chodan was extradited from the UK. Tesler was an agent for the joint venture that was allegedly used to deliver the improper payments to the Nigerian officials. Tesler was ordered to forfeit $149 million as part of his plea deal. Tesler is a non-us citizen and resident and fought extradition to the United States. Tesler was also fined $25,

24 Recent U.S. Enforcement Individual Cases Joel Esquenazi and Carlos Rodriguez (August 2011) 15 years in prison and 7 years in prison, respectively Convicted of seven counts of substantive FCPA violations, twelve counts of money laundering, one count of conspiracy to violate the FCPA and wire fraud, and one count of money laundering conspiracy. According to the evidence presented at trial, Esquenazi and Rodriguez conspired to make and made corrupt payments to Haitian government officials for the purpose of securing business advantages for Terra, their Miami-based company. From 2001 to 2005, Haiti Teleco was the exclusive provider of land line telephone service in Haiti and Terra secured several contracts with Haiti Teleco. Esquenazi and Rodriguez made payments to Haiti Teleco officials from November 2001 through March 2005, during which time their company paid more than US$890,000 to shell companies, which in turn transferred the money to the Haitian officials. 24

25 Other International Anti- Corruption Law Developments

26 UK Bribery Act The UK Bribery Act 2010 was passed in April 2010 and came into force on July 1, 2011 The Act sets out 4 main offenses Giving, promising or offering a bribe Requesting, agreeing to receive or accepting a bribe Offense of bribing foreign public officials If any of the above offenses are committed by a body corporate with the consent or connivance of a senior officer or someone purporting to act in that capacity, the senior officer will also be liable for that offense Corporate offense of failing to prevent bribery by associated persons It is a defense to the corporate offense if a commercial organization has in place adequate procedures to prevent bribery and corruption by persons associated with the company Significant penalties for both businesses and individuals A body corporate guilty of an offense will be subject to an unlimited fine An individual found guilty of an offense will be subject to an unlimited fine or to a jail sentence of up to 10 years, or to both 26

27 UK Bribery Act Key Provisions Associated persons : A commercial organization may face liability for the corrupt activities of a person associated with it if the person performs services for or on behalf of the organization. Examples include: Employees Agents Subsidiaries Franchisees Joint Venture Partners Syndicates Intermediaries It is a defense to the corporate offense if a commercial organization has in place adequate procedures to prevent bribery and corruption. Requires companies to be proactive. 27

28 Material Differences Material differences between the FCPA and the UK Bribery Act: Unlike the FCPA, the UK Bribery Act 2010 does not allow facilitating payments The Bribery Act 2010 applies to corrupt dealings between private companies and private individuals, as well as dealings with governments and public sector entities The Bribery Act 2010 extends criminal liability to the receiver of the bribe, as well as the giver of the bribe, unlike the FCPA The Bribery Act 2010 does not include an FCPA-style books and records offense, but UK businesses are subject to requirements for accurate accounting provisions contained in other legislation, including the Companies Act

29 International Foreign Bribery Prosecutions Until 2005, there was minimal international foreign corruption enforcement Since 2005, many countries have brought foreign bribery prosecution actions, including Argentina, Australia, Belgium, Bulgaria, Canada, Denmark, Finland, France, Germany, Hungary, Italy, Japan, South Korea, the Netherlands, Norway, Spain, Sweden, Switzerland, and the UK Trend toward more and more international cooperation in investigating bribery activities The Siemens investigation included coordination among U.S. authorities, the Munich Public Prosecutor s Office, and other international enforcement agencies Siemens fines, penalties, and disgorgement totaled $1.6 billion paid to U.S. and German authorities Siemens AG has reported that authorities in China, Greece, Hungary, Indonesia, Israel, Italy, Liechtenstein, Nigeria, Norway, Russia, and Switzerland are also investigating potential violations by the company of anti-corruption laws 29

30 Whistleblowers Section 922 of the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act provides that whistleblowers who assist the SEC by voluntarily providing information about an FCPA violation may be awarded 10% to 30% of any monetary sanctions over $1M the SEC imposes a company on. Due to this bounty, employees with knowledge of FCPA issues may elect to report to the SEC rather than internally. Also, companies may learn of FCPA issues from the SEC, reducing the opportunity for self-reporting credit. In January 2010, the SEC announced its Enforcement Cooperation Initiative, a series of measures designed to encourage greater cooperation by individuals and companies in SEC investigations and related enforcement actions. The SEC announced the analytical framework it will use to evaluate whether, how much, and in what manner to credit cooperation. The UK Bribery Act 2010 does not contain any provisions for the reward of whistleblowers. The Act seeks to encourage cultural change within businesses: a top-down approach. 30

31 Red Flags and Compliance

32 Red Flags Companies need to be particularly vigilant in a number of areas, including purchasing and procurement, sales, and business development. For example, businesses should monitor carefully: Transactions with government-owned or operated partners, contractors and customers Dealings with third party agents, distributors, consultants, sponsors and representatives Payments to freight-forwarders and customs brokers Activities of Joint Venture partners Politically active transaction partners Close relationships with government officials and their relatives and employees of foreign officials Incomplete or inaccurate information or misrepresentations provided during pretransaction due diligence Requests for payments to be made to third parties or third countries Unwillingness to enter into written agreements History of corruption in the relevant jurisdiction Refusal to certify that transactions will comply with applicable anti-corruption laws Unusually high commissions 32

33 Compliance Compliance programs limit issues, make it easier to detect issues, and ensure issues are appropriately dealt with if/when they arise. Particularly important given the UK Bribery Act 2010 adequate procedures defence. Examples of best practices include: Ensure effective record keeping and transparency Establish board-level commitment to the anti-corruption program Nb: Potential disqualification of directors for 15 years under the UK Company Directors Disqualification Act 1986 Implement effective procedures to prevent bribery by associated persons, including employees, agents, franchisees, authorized dealers, JV partners, syndicate and consortia members Design a code of conduct and ethics standards which include an anticorruption element and enforce appropriate disciplinary measures for breaches of the code Undertake vetting of employees, particularly those operating in high-risk jurisdictions, and conduct appropriate training and disseminate information accordingly 33

34 Compliance Exercise due diligence in assigning substantial authority to third party agents and partners Implement a clearly defined travel, gifts and hospitality policy Carry out formal due diligence on potential targets, joint venture partners, franchisees, contractors, suppliers and agents Establish financial controls to minimize risks, including formal authorization procedures for the engagement of third parties, charitable or political donations, and payment to offshore accounts Develop and implement reporting and whistleblowing procedures Routinely test the effectiveness of compliance procedures Ensure that business partners and third parties meet company ethics and legal standards 34

35 Thank You! Richard C. Smith, Partner, Fulbright and Jaworski, Washington / Fulbright & Jaworski L.L.P. 866-FULBRIGHT ( )

36 When You Think FCPA COMPLIANCE, Think Fulbright. TM AUSTIN BEIJING DALLAS DENVER DUBAI HONG KONG HOUSTON LONDON LOS ANGELES MINNEAPOLIS MUNICH NEW YORK RIYADH SAN ANTONIO ST. LOUIS WASHINGTON, D.C FULBRIGHT [ ]