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1  FCPA & Trade Compliance  Steven W. Pelak  Holland & Hart LLP Phone: 202-654-6929

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Presentation on theme: "1  FCPA & Trade Compliance  Steven W. Pelak  Holland & Hart LLP Phone: 202-654-6929"— Presentation transcript:

1 1  FCPA & Trade Compliance  Steven W. Pelak  Holland & Hart LLP Phone: 202-654-6929 Email:

2 2 Why Anti-Corruption Laws?

3 3 Why? Corruption Clouds the Sun in Smog

4 4 Foreign Corrupt Practices Act: Overview  Background - Passed in 1977, amended in 1988 and 1998. 15 U.S.C. § 78dd-1, -2 and -3  Enforcement - Recent surge in enforcement activity in the U.S. and abroad.  Extraterritorial - Unprecedented application of U.S. law throughout the world.

5 5  Siemens AG (2008)$800 million  KBR/Halliburton (2009)$579 million  BAE Systems (2010)$400 million  ENI/Snamprogetti (2010)$365 million  Technip S.A. (2010)$338 million  Daimler AG (2010)$185 million  Alcatel – Lucent, S.A.(2010)$137 million  Panalpina (2010)$89.1 million  ABB Ltd. (2010)$58.3 million  Pride International (2010)$56.2 million  Marubeni (2012)$54.6 million U.S. Civil & Criminal Fines & Forfeitures

6 6 FCPA: Enforcement Escalation  1977-2000: The U.S. government averaged three FCPA prosecutions per year.  2000-2005: The number of prosecutions increased ten-fold.  2010: The U.S. government initiated 74 enforcement actions in one year.

7 7 Rise in FCPA Actions

8 8 FCPA: Two Primary Components 1)Anti-bribery Provisions: Prohibits most bribery and non-routine payments to foreign government officials; and 2)Financial Record keeping & Internal Control Provisions: Requires specific records and financial internal controls to be maintained to provide reasonable assurance of accuracy of financial records and to demonstrate compliance.

9 9 FCPA Overview (cont.)  Enforcement Authority: All criminal enforcements All civil actions, except those against issuers Department of Justice Only civil actions against issuers Securities and Exchange Commission

10 10 FCPA Jurisdiction – Who is Covered? U.S. citizens & permanent resident aliens Foreign citizens if any part of “illegal act” occurs in U.S. (including emails, bank transfers, etc.) U.S. Corporations and their employees Foreign Corporations whose securities are listed on a U.S. exchange or who otherwise participate in U.S. capital markets Foreign Individuals and companies -- if any part of the underlying transaction is performed in the U.S.

11 11 Increased Anti-Corruption Enforcement Around the World  Germany: Aug. 24, 2013 -- German authorities raid ThyssenKrupp–EADS joint venture in Bribery investigation re submarine equipment to Greece  Canada: Aug. 15, 2013 – Queen v. Karigar – first Canadian conviction after trial for violation of Canadian Corruption of Foreign Public Officials Act –Consultant/agent for Cryptometrics Canada, Canadian subsidiary of a US company, conspiring to bribe Indian officials – India Air executives (a government owned airliner) and the Minister of Civil Aviation in India. –Case initiated by anonymous tip by Karigar to U.S. Justice Department

12 12 Increased Anti-Corruption Enforcement Around the World  China  July 2011 -- “China Backs Worldwide Fight Against Corruption” (China Daily-7/5/2011). –“We need to strengthen our work with other countries and regions on repatriation of suspects, asset recovery and information exchanges to eliminate ‘safe havens’ of corruption, and increase cooperation in punishing and preventing corruption.” Zhou Yongkang, Secretary of the Communist Party of China’s Central Commission for Political and Legal Affairs.  July 2013 -- Chinese authorities arrest dozens in Bribery investigation re GlaxoSmithKline alleged payments to medical doctors to prescribe GSK medications (July 2013) 

13 13 FCPA: Enforcement Escalation Extraterritorial Impact  Since 2011, there has been a dramatic increase in extraterritorial FCPA enforcement actions with 70% of FCPA-related penalties assessed against non-US companies.

14 14 FCPA Elements: What is Illegal?  A violation of the FCPA can be triggered by the following: –Anything of Value - A gift, payment, offer, or promise to pay (even if not kept) of anything of value –Offered to an Foreign Official (broadly defined) - To any foreign government, political party official, candidate for political office, whether directly or through a third party. –To Induce an Action or Failure to Act by the Foreign Official. –For any Improper Advantage - To secure any improper advantage or to obtain or retain business

15 15 FCPA Overview  Anti-Bribery Provisions: 5 Elements Payment, offer, or promise Anything of value Foreign official Corrupt intent Obtain or retain business

16 16 Payment, Offer or Promise Offer or promise is just as much of a bribe as an actual payment, even if the bribing party never follows through on the offer or promise

17 17 Anything of Value

18 18 Anything of Value  No de minimis or “small payment” exception under FCPA  Subjective Standard

19 19 Gifts – FCPA  The FCPA is not a gift prohibition law, but likewise it does not permit gifts as a general matter.  FCPA looks at: –ALL circumstance (i.e., the nature, amount or value, frequency, and circumstances of the gifts); –Intent  Remember – Investigators/Prosecutors view circumstances and intent after-the-fact.

20 20 Gifts–Appropriate  Small business items or ceremonial items of little or no intrinsic value (e.g, pens and paper with logo, coffee mug, etc.)  Reasonable business meal in connection with and to discuss business – not purely entertainment  BUT NOTE: Even small payments or gifts violate FCPA if offered corruptly and intended to be a bribe.

21 21 Gifts – Inappropriate  Entertainment Trips  Large or Expensive Gifts  Frequent Gifts or Expense Payments  Cash

22 22 Gifts- Transparency  Accurate Records and Receipts  Need not be voluminous records but must record openly, transparently, accurately

23 23 Self-Reporting of FCPA Violations  Reporting - The Department of Justice encourages companies to voluntarily report known or suspected FCPA violations. Voluntary reporting can provide mitigation of violations.  Failure to Report - A company’s failure to report a violation can create more significant liability than the actual conduct.

24 24 “Mini-FCPA” for Defense Articles: Mandatory Reporting to U.S. Government  Mandatory Duty to Report to U.S. State Department “Fees or Commissions” or “Political Contributions” to secure a sale to a foreign government of defense articles – ITAR, 22 C.F.R.§ 130.9 –Caution to Contractors for Defense Industry & Intelligence Community  U.S. v. BAE (2010) – Willful Failure to Report to State Department “fees or commissions” paid in connection with sale of defense articles to secure the conclusion of such sales to foreign governments  A “fee or commission” (including any loan, gift, donation or other payment) made or offered aggregating $100,000 or more to secure the conclusion of the sale of defense articles to a foreign government or a “political contribution” aggregating $5,000 or more to secure such a defense article sale must be reported to the State Department under the ITAR. 22 C.F.R. § 130.9.  A willful failure to so report is a 20-year felony. 22 U.S.C. § 2778(c)

25 25 FCPA Criminal & Civil Penalties Events can be divided into pieces to produce multiple civil or criminal violations per transaction. Criminal Penalties  Corporate - Up to $2,000,000 fine per violation;  Individual - Up to $250,000 fine per violation and five years imprisonment. Civil Penalties  Corporate or Individual - Up to U.S. $10,000 per violation.

26 26 Application Does our Company need an anti- corruption program??? How Does a Company Determine if it Needs an Anti-Corruption Program?

27 27 First Step: Internal Analysis  Perform Internal Analysis: Companies should only implement compliance programs if needed to address an actual or potential compliance risk. –No Policy: If a company’s operations are exclusively domestic and no intermediary agents are involved, an anti-corruption program may not be essential or of great value. –Yes Policy: If business operations or contractual relationships outside the U.S., some form of anti- corruption compliance program is essential for good business. -- Foreign Supply Chain as well as Foreign Buyers.

28 28 Implementing an Effective Anti-Corruption Program  Systematic Approach- A systematic approach to create an effective and defensible anti-corruption compliance program: –Phase I - Assessment of compliance liabilities by reviewing global operations and creating a register of applicable legal restrictions. –Phase II – Create an Anti-Corruption Program based on operations and applicable legal restrictions and identifying defensive data to be collected. –Phase III - Support in implementing and maintaining an effective Anti-Corruption Compliance Program with internal controls ensuring defensive data is collected and maintained.

29 29 Implementing an Effective Anti-Corruption Program Basic Anti-Corruption Program Components: –Policy –Operational Procedures –Training –Risk-based due diligence of third parties and potential business partners –Standard contract term requiring regular compliance certifications –Accountability, including regular self-assessments and audits

30 30 Compliance Programs: Generation of Defensive Data  Critical Component: An effective anti-corruption compliance program must generate defensive data.  Defensive Data: The ongoing collection of records and data that demonstrate corporate compliance with applicable laws.

31 31 Compliance Programs: Defensive Data  Defensive data may include: –Proof of Policy Review: Signed acknowledgment by each employee who has reviewed anti-corruption policies and procedures; –Proof of Compliance Training: Compliance training minutes and attendees; –Proof of Testing: Online compliance training testing data; –Proof of Due Diligence: Risk-based due diligence records performed on third parties. –Certifications: Compliance certifications provided by third-party contractors and agents as required by contract; and –Assessments: Internal and external audit reports.

32 32 Compliance Programs: Use of Defensive Data The generation of defensive data serves multiple purposes, including: –Compliance Tracking: Provides a tool to efficiently track compliance efforts; –Issue Spotting: Highlights deficiencies in the compliance program that must be addressed; –Evidence: Provides critical evidence to defend against an anti-corruption enforcement action.

33 33 Value of Defensive Data Value of Defensive Data: The value of maintaining an effective anti-corruption compliance program and collecting defensive data was most recently highlighted in a 2012 FCPA enforcement action.

34 34 Value of Defensive Data Morgan Stanley Case Facts: In April 2012, a Morgan Stanley executive based in Shanghai pleaded guilty to corruption charges for offering significant bribes to a government official in order to secure new business. Traditional Prosecution Model: Historically, the U.S. government would pursue an aggressive FCPA enforcement action against the company as a result of an employee’s illegal conduct.

35 35 Value of Defensive Data Morgan Stanley Case con’t… New Order: Instead, the U.S. government decided not to pursue a criminal or civil enforcement action against Morgan Stanley, citing defensive data provided by the company demonstrating that it maintained an effective anti-corruption program. Clear Statement: The U.S. government took the rare step of publicly acknowledging that it “declined to bring any enforcement action against Morgan Stanley,” based in large part on the firm’s proof of strong controls and compliance efforts, “which provided reasonable assurances that its employees were not bribing government officials.”

36 36 Anti-Corruption Compliance Programs  Program Value - International companies implement anti-corruption programs based on numerous factors, including: –Compliance is a shared goal – Laws are designed to prevent conduct that jeopardizes the company’s international reputation and the integrity of foreign institutions. –Prevents Costs - The cost of implementing a compliance program is a fraction of defending an enforcement action. –Protects Business Opportunities - FCPA enforcement actions can harm or preclude private business opportunities and partnerships for years to come. –Uncommon Not to Have One - It has become best practices for international companies to have a global anti-corruption program. The market and investors expect to see it.

37 37 Conclusion  Conclusions  Questions? ______________________________________ Steven Pelak Holland & Hart LLP Phone: 202-654-6929 Email:

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