1. Alex M. Duarte OSB No. 020459 Alex.Duarte@stanfordalumni.org
Foreign Corrupt Practices Act and UK Bribery Act OSB Corporate Counsel and Business Law Sections Corporate Compliance Roundtable April 26, 2012
Alex M. Duarte
OSB No

2. Key Anti-Bribery/Anti-Corruption Laws
US Foreign Corrupt Practices Act
UK Bribery Act 2010
Most other countries have their own anti-corruption laws

3. What is the FCPA? FCPA (15 USC §§ 78dd-1, et seq.) generally prohibits
Giving or offering money or “anything of value”
To a foreign official (includes employees of State-owned entity)
To influence official or obtain improper advantage
To obtain or retain business
FCPA also prohibits
Giving money/anything of value
To a third person
Knowing that it will be offered or given
To a foreign official
DOJ (Department of Justice) enforces this part of FCPA

4. What is the FCPA? (cont.) “Anything of value” Not just cash
Has a very broad interpretation by governmental enforcement authorities
Can include numerous improper benefits, including
Cash equivalents (such as gift cards)
Kickbacks
Gifts
Loans
Special favors

5. Anything of value (cont.)
What is the FCPA? (cont.)
Anything of value (cont.)
Specific examples
Extravagant gifts
Political donations/charitable contributions
Hiring of a third party or family member
Luxury goods
Lavish travel or entertainment
Fancy meals
Tickets to expensive sporting events (World Cup)

6. What is the FCPA? (cont.) “Foreign Official”
Broad interpretations, and includes:
Any governmental or public official
Any employee (even low-level clerk)
Employees of State-owned/State-run companies
Common in certain countries (e.g., China, India)
Common in certain industries (e.g., utilities, power-generation, oil and gas, telecom)

7. What is the FCPA? (cont.) Third Parties
Applies to any party doing business with a company:
Sales agents
Distributors
Customers/suppliers/vendors
Consultants and Contractors
Other intermediaries
Pay special attention to independent sales agents (many bribery cases have involved sales agents)
Liability even if Company did not make bribe itself
If Company knew, or should have known, of bribery
No ostrich defense - “Willful blindness”/“head in sand”
Don’t ignore “red flags”

8. What is the FCPA? (cont.) Narrow Exceptions and Defenses
Facilitating payments (“grease” payments) for “routine government action by a foreign official” (but be careful- gray area/“sticky wicket”)
Lawful in country - the payment is lawful under the written laws of the foreign country
Promotional and marketing activities and expenses
Expenses for promotion or demonstration of a product or service
Expenses in connection with the performance of a contract with a foreign government or agency
Example- reasonable travel expenses for official to tour facility:
Must still be reasonable, not extravagant
directly related to legitimate business purpose of product/contract

9. FCPA - Accounting Provisions
The FCPA requires a corporation to:
Keep and maintain books, records and accounts that fairly and accurately reflect transactions
Maintain an adequate system of internal accounting controls
The SEC (Securities and Exchange Commission) enforces above

10. Recent FCPA Accounting Violations
One recent example-
$23M fine in 2010 alleged $3.6M bribes in U.N. “Oil for Food” program in Iraq
SEC found GE violated the FCPA:
“GE failed to maintain adequate internal controls to detect and prevent these illicit payments, and it failed to properly record the true nature of the payments in its accounting records.”

11. What is the FCPA? (cont.) Penalties
Penalties can be severe (corporations/individuals)
Corporations- fines, penalties and settlements can include millions of dollars
Individuals- fines can include $100K/violation, and up to five years of imprisonment
Fines and settlements- US (DOJ) and other countries have collected billions of dollars in fines, penalties and settlements (more than
$3 billion since 2009)

12. Potential Fines/Imprisonment
FINES US: Corporation = 2x profit Individual = $100K per violation UK: Unlimited
Siemens
$800M
2008
KBR/Halliburton
$579M
2009
BAE
$400M
2010
Technip SA
$338M
PRISON US: Up to 5 years/violation
UK: Up to 10 years

13. US Prosecutions are Increasing

14. Top 11 Corporate FCPA Settlements
The past four years have seen the 11 largest FCPA settlements, totaling more than $3 billion from 11 companies

15. Costs of FCPA Investigations Companies are devoting significant resources (attorneys and accountant fees) associated with FCPA investigations (often much more than the amount of bribe)

16. U.K. Bribery Act (2010) Broader than FCPA:
No public official requirement - prohibits any bribes, to anyone (i.e., private sector)
Applies to offenses committed in UK, and outside UK where person has a “close connection” with UK
No exceptions for “facilitating” payments or marketing and promotional activities or expenses
Unlimited fines possible; up to 10 years in prison
Adds crime for corporation unless it can show “adequate procedures in place to prevent bribery”

17. COMMON BRIBERY RISK AREAS
Promotional and Marketing Expenses - must be reasonable and not extravagant, and related to business purpose
“Facilitating” (“grease”) payments - allowed by FCPA, but must be nominal amounts and for routine actions (gray area)
Travel- must be reasonable, not extravagant and be related to business purpose (e.g., tour of a manufacturing facility)
Gifts and Entertainment - prohibited to any public official; must be reasonable for private parties
Charitable Contributions
Political Donations and Lobbying Activities

18. Bribery “Red Flags”
Country- country known for corruption (“BRIC” countries)
Agent and Governmental/Public Official Red Flags
Background/Structure - agent has questionable background or reputation, or shell company or other unusual structure
Recommendations - public official recommends agent
Objections to written contract
Objections to compliance representations
Close ties- agent and public official have close personal, family or business ties
Business interest in agent - public official has ownership interest in or business relationship with third-party agent
Agent not qualified/competent

19. Bribery “Red Flags” (cont.)
Not want to disclose identity
Anonymity/lack of transparency
Suspicious statements - “don’t want to know,” “don’t ask”
Compensation and Invoice Documentation Red Flags
Payment in cash or another country’s currency
Payment different from invoice
Other unusual payment arrangements
Fees/commissions excessive (exceed “going rate”)
Invoices- invoices are unusual, such as:
lack standard terms
do not reflect actual services rendered
have vague descriptions/“miscellaneous” charges

20. Bribery Red Flags[keep this one?]
Country and Political red flags
Country is known for corruption
Agent close ties with public official
Public official recommends or requires use of certain agent
Agent not qualified or competent
Agent requests anonymity
Agent’s questionable background
Payment Request red flags
Fees/commissions are excessive
Agent requests cash or payment in another country’s currency
Agent requests payment to someone other than the agent or to accounts in another country
Invoice red flags
Lack standard invoicing terms
Do not reflect actual services rendered or are inconsistent with underlying agreement
Contain vague descriptions of services rendered, or out-of-pocket expenses incurred
“Miscellaneous” charges
Consider above flags on a case-by-case basis using a totality of the circumstances approach

21. Corruption Perceptions Index 2011

22. Corruption Perceptions Index 2011
1. New Zealand
8. Australia
16. United Kingdom
19. Ireland
24. United States
25. France
57. Czech Republic
69. Italy
73. Brazil
75. China
95. India
100. Mexico
143. Russia
182. Somalia

23. Wal-Mart de Mexico
Last Sunday- blockbuster article in the New York Times about a $24 million bribery scandal by Wal-Mart’s Mexican subsidiary
On-going bribes for years, throughout the country
Allegedly used attorney fixers (“gestores”) to pay off public officials to obtain licenses and permits to build new stores
Sham accounting- suspicious documentation and mysterious codes masquerading as “facilitating” payments
Scheme allegedly known by senior executives and in-house counsel, including current CEO, Chair, Vice Chair and CAO
Alleged intervention by senior executives to pressure auditors from conducting a full or aggressive investigation

24. Wal-Mart de Mexico (cont.)
Investigation duties given to Mexico subsidiary GC- who was a target of the investigation!
Mexican sub GC conducted superficial “investigation” and promptly cleared all of wrong-doing (cover-up)
Wal-Mart failed to notify US or Mexican authorities until late (allegedly due to NYT investigating scandal)
DOJ and SEC now investigating- this won’t be the last you have heard about Wal-Mart de Mexico and FCPA/anti-corruption
Fines and penalties- possibly tens/hundreds of millions of dollars?
Moral (learned from Watergate)- Cover-up is worse than the crime

25. Take-aways for Corporate Counsel
Importance of Companies having strong FCPA/anti-corruption policies and procedures
FCPA has been big focus by DOJ and SEC in the past 4-5 years- companies large and small
FCPA policies and procedures- key aspect of Company’s internal Ethics and Code of Conduct policies
Preventative measures and training are key
Focus on “red flags” and third parties to reduce risk (know your customers and business partners)
FCPA violations can lead to more than fines and penalties (prison, reputational damage, stock price, careers, etc.)
Zero tolerance corporate policy/culture for bribery and corruption of anyone, by anyone