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Developments in U.S. Anti-Corruption and Other Criminal Law Practical Lessons for Those Doing Business in Russia Darryl Lew & Daniel Levin 13 November.

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Presentation on theme: "Developments in U.S. Anti-Corruption and Other Criminal Law Practical Lessons for Those Doing Business in Russia Darryl Lew & Daniel Levin 13 November."— Presentation transcript:

1 Developments in U.S. Anti-Corruption and Other Criminal Law Practical Lessons for Those Doing Business in Russia Darryl Lew & Daniel Levin 13 November 2014

2 Agenda  FCPA Jurisdiction  Enforcement Environment  Compliance Programs  Self-reporting, Cooperation, and Internal Investigations  Conclusion 1

3 FCPA Jurisdiction

4 FCPA: Anti-bribery Provisions  Prohibits – An offer, payment or promise to pay something of value (i.e., money, gifts, or entertainment) – Made with corrupt intent to a non-U.S. public official, – or to any other person (i.e., an intermediary) knowing that all or part of the thing of value will be paid or offered to the non-U.S. public official – To obtain, retain or direct business 3

5 FCPA: Accounting Provisions  Books and records – Must be kept “in reasonable detail” – Must “accurately and fairly reflect transactions and disposition of assets of the issuer”  Internal controls – Issuer must “devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances” of accuracy and transparency – FCPA does not mandate a specific set of internal controls 4

6 FCPA: Accounting Provisions Jurisdiction  Covered Persons – Issuers of securities in the U.S. – Issuers also responsible for subsidiaries in which the issuer holds more than 50% voting power Issuers holding 50% or less voting power in a subsidiary must in good faith use its influence to cause the subsidiary to devise and maintain adequate internal controls 5

7 FCPA: Anti-Bribery Jurisdiction  Worldwide jurisdiction over U.S. individuals and domestic concerns – Business entities organized under U.S. laws or with their principal place of business in the U.S. – Any individual “who is a citizen, national or resident of the United States”  Worldwide jurisdiction over U.S.-issuers  Worldwide jurisdiction over non-U.S. issuers when the conduct involves the use of the U.S. “mails or any means or instrumentality of interstate commerce”  Any other person who, while in U.S. territory, takes action in furtherance of an improper payment 6

8 FCPA Jurisdiction  U.S. authorities broadly interpret their jurisdiction over non-U.S. companies and individuals  U.S. authorities are relying on traditional U.S. legal principles to prosecute conduct by non-U.S. companies and individuals that occurs outside of the U.S. 7

9 FCPA Anti-Bribery Jurisdiction: Instrumentality of Interstate Commerce  U.S. authorities interpret the term “instrumentality of interstate commerce” to cover, e.g., any form of communication or movement that crosses state borders – s routed through or stored on servers located in the U.S. – Telephone calls, text messages, and faxes sent to, from, or through the U.S. – Wire transfers to or from a U.S. bank and other uses of the U.S. banking system – Travel to or from the U.S. 8

10 FCPA Anti-Bribery Jurisdiction: Acts in U.S. Territory  U.S. authorities’ view is that even brief contact with the U.S. undertaken or caused by non-U.S. persons in furtherance of corrupt payments establishes jurisdiction – Wire transfers via correspondent bank accounts in U.S. in furtherance of bribery scheme establish jurisdiction - U.S. v. JGC Corp., No. 11-cr-260 (S.D. Tex. 2011) – But see U.S. v. Patel, No. 1:09-cr (D.D.C. June 6, 2011) - Mailing package from U.K. to U.S. containing agreement allegedly in furtherance of bribery scheme insufficient to establish jurisdiction, suggesting possible requirement of physical presence in U.S. in furtherance of corrupt act 9

11 Application of Traditional Criminal Law Concepts to Expand FCPA Jurisdiction  DOJ relies on traditional criminal law concepts to support FCPA jurisdiction over foreign conduct of non-U.S. parties – Conspiracy – Aiding and abetting – Agency 10

12 FCPA: Conspiracy  Conspiracy is an agreement of two or more persons to do an illegal act, or to do a lawful act by unlawful means  U.S. authorities view is that any individual or company who conspires with another individual or entity over which FCPA jurisdiction exists is subject to FCPA jurisdiction and liability – Non-U.S. parties may be subject to jurisdiction and FCPA liability, even if the company never took action in the U.S. – Non-U.S. parties who are conspirators may also be liable for reasonably foreseeable substantive crimes committed by a co-conspirator in furtherance of the conspiracy even if the party does not participate in, or know about the crime committed by the co-conspirator 11

13 U.S. v. Snamprogetti Netherlands B.V., No. 10-cr-460 (S.D. Tex. 2010)  Snamprogetti, a non-U.S. issuer, was a partner in a joint venture that included a U.S. company; this joint venture obtained contracts to build LNG facilities in Nigeria  Jurisdiction was premised upon Snamprogetti’s conspiring with/aiding and abetting its U.S. partner to violate the FCPA; Snamprogetti agreed to a deferred prosecution agreement and paid $240 million to resolve the charges 12

14 FCPA: Agency  An agency relationship exists when a person or organization acts on behalf of another, or provides a particular service to another  FCPA applies to agents of an issuer or domestic concern, as well as to the issuer or domestic concern itself  Non-U.S. persons can be subject to FCPA liability if they are agents of entities and individuals subject to FCPA jurisdiction  Likewise, a U.S. parent company may be liable for the acts of its non- U.S. subsidiary if it is found that the subsidiary was an agent of the parent 13

15 FCPA: Agency  The DOJ and SEC will consider the nature and degree of the parent’s control in determining whether the subsidiary is an agent of the parent  When an agency relationship is established, the subsidiary’s conduct and knowledge is attributed to the parent 14

16 Agency: Ralph Lauren (2013) – The DOJ and SEC entered into a non-prosecution agreement with Ralph Lauren, in which the company admitted that from its Argentine subsidiary paid bribes and gave gifts to Argentine customs officials to clear goods through customs – Anti-bribery jurisdiction over Ralph Lauren was based on DOJ/SEC determination that the general manager of the subsidiary was an agent of Ralph Lauren because of his position at the subsidiary and Ralph Lauren’s role in appointing him – The manager was an employee and officer of the subsidiary, and there were not allegations of authorization, direction, control by, or knowledge of the parent company in the misconduct 15

17 Enforcement Environment

18 Trend of Aggressive FCPA Enforcement  U.S. authorities continue to aggressively enforce the FCPA – Since 2009, DOJ brought 131 enforcement actions and the SEC brought 88 enforcement actions against companies and individuals – While the number of subject companies in 2013 decreased from prior years, the amount of penalties levied has increased, as have prosecutions against individuals – In remarks on Oct. 1, 2014, Assistant Attorney General for the Criminal Division Leslie Caldwell said that DOJ “is more committed than ever to investigating corporate fraud and corruption” 17

19 Enforcement Against Non-U.S. Companies  U.S. authorities have vigorously enforced the FCPA against non-U.S. companies – Since 2009, more than 42% of foreign bribery enforcement actions against companies were against non-U.S. companies – 8 of the top 10 corporate fines for FCPA violations have been against non-U.S. companies 18

20 FCPA: Enforcement 19

21 Aggressive Enforcement of Other U.S. Laws  Authorities are also aggressively enforcing other U.S. laws including sanctions, fraud, and money laundering – BNP Paribas agreed to pay almost $9 billion to settle criminal charges and civil claims with U.S. and state authorities for conduct related to the bank’s violation of U.S. sanctions – DOJ indicted Elgawhary, a U.S. person and a former executive of a U.S. company that partnered in a joint-venture with an Egyptian state-owned and controlled company, for mail fraud, wire fraud, conspiracy to launder money, and tax law violations 20

22 Multinational Investigations & Cooperation  Trend of increasing multinational investigations and settlements and cooperation among and between U.S. and foreign regulatory authorities – Increased and frequent use by DOJ, SEC, CFTC, and others of mutual legal assistance treaty requests and memoranda of understanding to obtain evidence located outside of U.S.; these instruments are reciprocal – Trend of non-U.S. enforcement authorities initiating parallel investigations  Increasing risk of exposure across multiple jurisdictions 21

23 Application of Traditional Investigative Techniques to FCPA/White Collar Cases  DOJ is increasingly using investigative techniques in white collar cases that were once reserved for organized crime and drug investigations – Wiretaps; body wires; physical surveillance; border searches – U.S. v. Cilins, No. 13-cr-315 (KMW) (S.D.N.Y. 2013), a French citizen was caught on a wire tap directing a witness, who was cooperating with U.S. authorities in a bribery investigation in Guinea, to “destroy everything, everything, everything;” in 2014, Cilins pleaded guilty to obstructing a criminal investigation 22

24 Enforcement Against Individuals  Trend of increased prosecution of individuals – “The prosecution of individuals – including corporate executives – for white-collar crimes is at the very top of the Criminal Division’s priority list.” Remarks of DOJ Principal Deputy Assistant Attorney General M. Miller, Sept. 17, 2014  U.S. enforcement authorities increasingly expect companies cooperating in investigations to focus on and share information about individuals who engaged in wrongdoing 23

25 Enforcement Against Individuals  A by-product of increased prosecutions of individuals is more judicial interpretations of key provisions of the FCPA and related personal jurisdictional issues – “Foreign Officials” U.S. v. Esquenazi, No , (11th Cir. May 16, 2014) - the court held that employees of a Haiti state-owned telecommunications company were “Foreign Officials” under the FCPA such that payment to such persons would be illegal under the statute – Personal Jurisdiction SEC v. Straub, 11 Civ (S.D.N.Y. Feb. 8, 2013) - the court held that there was personal jurisdiction over non-U.S. defendants when they sent s routed through U.S. servers, signed off on misleading representations to auditors, and signed false SEC filings 24

26 Compliance Programs

27  U.S. authorities’ aggressive enforcement efforts place a premium on having an effective compliance program – SEC/DOJ consider it a critical component of internal controls – Potential basis for a defense to a corruption prosecution (U.K. Bribery Act) or a mitigating factor in determining existence/extent of a violation (U.S.) 26

28 Compliance Programs  As anti-corruption enforcement has evolved, so have expectations of enforcement authorities for an effective compliance program – Initial focus on whether companies had compliance policies and procedures – Focus shifted to whether companies implemented those policies and procedures – Now, focus on whether program has appropriate mix of elements and whether companies conduct periodic risk-based compliance evaluations 27

29 Evolution of Compliance Program Expectations: Acquisition Due Diligence  Example of evolution of expectations for acquisition due diligence as part of an effective compliance program – Neither pre- nor post-acquisition due diligence was required – Then, pre-acquisition due diligence was expected – Now, current expectation is that companies will devote significant resources to rigorous post-acquisition due diligence 28

30 Compliance Programs  Convergence of expectations of enforcement authorities in U.S., U.K., Russia and elsewhere, as well as international organizations including the OECD and ICC, around necessary elements for an effective compliance program: – Robust and Continuing Risk Analysis – Commitment to Compliance by Senior Management – Written Code of Conduct, Compliance Policies and Procedures – Communication and Guidance – Third Party Due Diligence and Payments – Continuous Improvement: Periodic Testing and Review – Disciplinary Measures and Compliance Incentives – Recordkeeping 29

31 U.S. Authorities Continued Focus on Compliance Programs  Oct. 7, M. Miller, Principal Deputy Assistant Attorney General, DOJ Criminal Division – “A corporation’s ability to use compliance to uncover misconduct and, just as importantly, identify wrongdoers is central to [DOJ’s] evaluation of a compliance program.” – “Policies – however strong written – are meaningless if not thoughtfully enforced and backed by commitment and resources.”  Oct. 1, L. Caldwell, Assistant Attorney General, DOJ Criminal Division – “ [M]onitoring compliance on a global scale is difficult, but difficulty cannot be used as an excused to turn a blind eye to problematic business practices. Compliance programs must be put into place and – more importantly – communicated repeatedly and enforced property throughout the entire organization.”  Existence and effectiveness of compliance programs are important charging and penalty considerations 30

32 U.S. v. Weatherford Int’l Ltd., No. 4:13- cr (S.D. Tex. 2013)  In 2013, Weatherford International entered a deferred prosecution agreement based on its subsidiary’s bribing foreign officials and its own lack of an adequate compliance program – Prior to 2008, it lacked dedicated compliance personnel, anti-corruption training, or an effective system for investigating internally reported violations – It had a written compliance policy, but failed to translate it despite having operations in more than 100 countries  Having an adequate compliance program could have limited Weatherford’s penalty. M. Miller, Principal Deputy Assistant Attorney General, DOJ Criminal Division stated Oct. 7, 2014: – “Weatherford’s compliance policy was a program in name only. It wasn’t worth the paper it was written on. Had Weatherford employed even a basic compliance program, it may not have found itself paying over $252 million” 31

33 U.S. v. Peterson, No. 12-cr-224 (E.D.N.Y. 2012)  Peterson was managing director for Morgan Stanley who circumvented internal controls to transfer an interest in a Shanghai building to himself and a Chinese official  DOJ declined to prosecute Morgan Stanley in part because of its robust internal compliance program – Morgan Stanley’s compliance efforts included: 7 years of annual training for Peterson on anti-corruption; distribution of training materials to Peterson; requiring Peterson to certify his compliance in writing on multiple occasions; discussions between a compliance officer and Peterson regarding the transaction involved in the misconduct Morgan Stanley voluntarily disclosed Peterson’s misconduct to the government and cooperated in the ensuing investigation 32

34 Self-reporting, Cooperation, and Internal Investigations

35 Developments Relevant to Self- reporting and Cooperation  No obligation to self-report potential misconduct to U.S. authorities or to cooperate in official investigation  Whether to self-report/cooperate is an important strategic decision in each case  Benefits of doing so are not fixed or predetermined; self- reporting/cooperation are factors considered by U.S. authorities in determining whether/how to charge a person 34

36 Developments Relevant to Self- Reporting and Cooperation  Two developments may influence this decision-making – Recent case settlement or statements by DOJ seeking to highlight what cooperation means and the resulting benefit of self- reporting/cooperation – SEC “whistleblower” rewards program 35

37 Expectations for Cooperation  Recent statements by U.S. authorities identify the following elements of meaningful cooperation: – Self-reporting – Timely and complete cooperation – Rooting out the misconduct and identifying the individuals responsible, even if they are senior executives – Providing DOJ with relevant documents and evidence – Ensuring that foreign data privacy claims are honest and not obstructionist 36

38 Cooperation: Recent Emphasis on Providing Evidence of Individual Culpability  Recent DOJ statements have emphasized expectation that cooperating companies will prioritize providing evidence of individual culpability – Sept. 17, 2014 Remarks by M. Miller, Principal Deputy Assistant Attorney General, DOJ Criminal Division “A true cooperator... must forthrightly provide all the available facts and evidence so that the most culpable individuals can be prosecuted.” “[W]hen prosecutions of culpable individuals are prevented, the government’s interest may only be vindicated by prosecuting the corporation itself.”  Recent case settlements have underscored this point 37

39 PetroTiger  In 2014, DOJ charged former PetroTiger executives for paying bribes to a Colombian official to secure an oil services contract but did not charge the company itself – U.S. v. Hammarskjold, No. 13-cr-2086 (D.N.J. 2013) – U.S. v. Sigelman, No. 13-cr-2087 (D. N.J. 2013) – U.S. v. Weisman, No. 13-cr-730 (D. N.J. 2013)  DOJ noted that PetroTiger voluntarily disclosed this misconduct to DOJ and fully cooperated with DOJ’s investigation, and as a result, no charges and no non- prosecution agreement were filed against PetroTiger 38

40 U.S. v. BNP Paribas, S.A., 1:14-cr LGS-1 (S.D.N.Y. June 30, 2014)  In 2014, BNPP agreed to pay almost $9 billion to settle criminal charges and civil claims with U.S. federal and state authorities related to violations of sanctions laws – In remarks on Oct. 1, 2014, L. Caldwell, Assistant Attorney General, DOJ Criminal Division stated, “In the plea agreement with [BNPP], [DOJ] highlighted the bank’s lack of cooperation with the government investigation as a crucial factor in the decision to require a guilty plea and record money penalties.... BNPP affirmatively hampered the department’s ability to prosecute individual executives and employees for their criminal misconduct.... But, had the bank fully cooperated with the government investigation from the outset and provided the facts about the involvement of its employees, the bank would have been in a much better position on its day of reckoning.” 39

41 Benefits of Cooperation: U.S. v. Alcoa World Alumina LLC, No. 2:14-cr-7 (W.D. Pa. 2014)  In 2014, Alcoa pleaded guilty to FCPA charges stemming from bribes paid to officials in Bahrain  DOJ said absent cooperation, Alcoa could have faced a fine of over $1 billion, but cooperation lowered the fine’s size to $209 million, 53% below the low end of the penalty range calculated under the U.S. Sentencing Guidelines  DOJ commended Alcoa for its cooperation, including: An extensive internal investigation Making proffers to the government Voluntarily marking employees available for interviews Providing relevant documents 40

42 41  Pursuant to the Dodd-Frank Act, since 2011, the SEC can provide monetary awards to individuals who disclose “high-quality original information” that leads to an SEC enforcement action in which over $1 million in sanctions is ordered  Whistleblowers can received an award of 10-30% of the money collected by the SEC, thus incentivizing whistleblowers to come forward and report misconduct SEC Whistleblower Rewards Program

43 Whistleblowers  SEC can receive tips from individuals inside and outside the U.S. – Between 2011 and 2013, the SEC received whistleblower tips from individuals in 68 countries – In September 2014, the SEC announced an expected award of more than $30 million to a whistleblower living outside the U.S. “This award... shows the international breadth of our whistleblower program.... Whistleblowers from all over the world should feel similarly incentivized to come forward with credible information about potential violations” Sean McKessy, Chief of the SEC’s Office of the Whistleblower 42

44 Whistleblowers: 120-Day Period  If whistleblower provides information to an internal compliance program, the whistleblower has a 120-days to disclose this information to the SEC and still be eligible for an award – 120-day period encourages reporting to internal programs, but a whistleblower may report only to the SEC – 120-day period is not a deadline or a grace period for company to complete its internal investigation and self-report, but company must consider possibility whistleblower will be financially motivated to report to the SEC 43

45 Internal Investigations  Merely conducting an internal investigation is insufficient, because DOJ will critically assess internal investigations – “[W]e will use our own parallel investigation to pressure test a company’s internal investigation: to determine whether the company actually sought to root out the wrongdoing and identify those responsible... or instead merely checked a box on a cooperation punch list.” – “Companies that have not conducted comprehensive investigations will not secure significant cooperation benefits. Worse, companies that hamper the government’s investigation... will pay a price when they ask for cooperation credit.” Sept. 17, 2014 Remarks by M. Miller, Principal Deputy Assistant Attorney General, DOJ Criminal Division 44

46 Conclusion

47  To navigate the evolving and aggressive enforcement environment and meet expectations of U.S. authorities, it is important to retain experienced counsel to conduct risk assessments, audits of compliance efforts, and to advise regarding the conduct of an internal investigation, self- reporting, and cooperation should potential misconduct be discovered 46

48 Additional FCPA Resources  DOJ and SEC FCPA Guidance –  U.K. Guidance on the Bribery Act –  OECD Anti-Corruption Documents –  International Chamber of Commerce – responsibility-and-anti-corruption/ responsibility-and-anti-corruption/  White & Case Report on Trends in Global Investigations – signals/ signals/ 47

49 Thank You


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