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WELCOME Annual Meeting & Compliance Seminar. © 2010 Dechert The Internationalization of Anti-Corruption Compliance and Enforcement Cheryl A. Krause Dechert.

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Presentation on theme: "WELCOME Annual Meeting & Compliance Seminar. © 2010 Dechert The Internationalization of Anti-Corruption Compliance and Enforcement Cheryl A. Krause Dechert."— Presentation transcript:

1 WELCOME Annual Meeting & Compliance Seminar

2 © 2010 Dechert The Internationalization of Anti-Corruption Compliance and Enforcement Cheryl A. Krause Dechert LLP September 30, 2010 Annual Compliance Seminar and ACCGNY Annual Meeting

3 Global Anti-Corruption Outlook International Anti-Corruption Treaties Regional Anti-Corruption Treaties Domestic Anti-Corruption Laws

4 © 2010 Dechert Venezuela Chad Sudan Congo Dem. Rep. Congo Angola Iraq Iran Turkmenistan Uzbekistan Afghanistan Kyrgyzstan Myanmar (Burma) Guinea “Hot Spots” According To Corruption Perceptions Index 2009 Source: Transparency International

5 Economy Ease of Doing Business Rank Dealing with Construction Permits Singapore12 New Zealand25 Hong Kong SAR, China31 United States425 United Kingdom516 China89180 Russian Federation India Congo, Rep Sao Toamae and Principe Guinea-Bissau Congo, Dem. Rep Central African Republic The Correlation Between “Red Tape” And Corruption Top tier compliance jurisdictions have least red tape Lowest tier compliance jurisdictions have most red tape Bottom tier compliance jurisdictions have significant red tape “A high ranking on the ease of doing business index means the regulatory environment is conducive to the operation of business.” -- World Bank’s Economic Rankings Source: World Bank (http://www.doingbusiness.org/economyrankings/?direction=Asc&sort=1); FCPA Blog n = 183 countries How do you get a permit in China, Russia, or India?

6 Regional Bribing Disparities Warrant Geographic-Focused Due Diligence includes Armenia, Azerbaijan, Belarus, Georgia, Moldova, Mongolia, Russia, Ukraine

7 Companies Must Balance Perceived Corruption Risk With Economic Opportunities To Develop A Strategic Compliance Policy That Is Sensitive To Regional Disparities China UK Russia India Singapore high trade volume & low corruption high trade volume & high corruption low trade volume & high corruption low trade volume & low corruption New Zealand High Low Somalia Afghanistan Uzbekistan Turkmenistan Ukraine Canada Hong Kong Brazil

8 Global Anti-Corruption Outlook International Anti-Corruption Treaties Regional Anti-Corruption Treaties Domestic Anti-Corruption Laws

9 The Organization for Economic Co-Operation and Development (OECD) Convention On Combating Bribery Prohibition “Each Party shall take such measures as may be necessary to establish that it is a criminal offence under its law for any person intentionally to offer, promise or give any undue pecuniary or other advantage, whether directly or through intermediaries, to a foreign public official, for that official or for a third party, in order that the official act or refrain from acting in relation to the performance of official duties, in order to obtain or retain business or other improper advantage in the conduct of international business.” Implementation Parties must criminalize complicity (incitement, aiding and abetting, authorization) in bribery of foreign public officials by natural/legal persons, as well as improper accounting, and adopt effective sanctions, including seizure and confiscation of proceeds of bribery Parties must establish jurisdiction over bribery committed at least part in their own territory Parties must cooperate when they have shared jurisdiction Parties must cooperate in ongoing monitoring and reporting of obligations through “OECD Working Group on Bribery in International Business Transactions” Enforcement Subject to the domestic law of each party exercising jurisdiction Parties must render mutual legal assistance in criminal investigations/prosecutions Bribery is extraditable offense, and the OECD convention can substitute for an extradition treaty Status Ratified by 38 countries to date (including U.S., but not China or Russia) Purpose “[A]chieving progress in this field requires not only efforts on a national level but also multilateral co- operation, monitoring and follow-up”

10 United Nations Convention Against Corruption Provisions Requires parties to criminalize public bribery as related to national and foreign officials (Arts. 15, 16) Parties are encouraged to prevent private bribery, and to adopt books and records controls, but are not required to criminalize improper conduct in this regard (Arts. 12, 21) Principal weaknesses Non-binding provisions (e.g., those requiring that parties “shall take measures, in accordance with the fundamental principles of its domestic law,” or that merely require states to “consider” adopting legislative prohibitions) No enforcement mechanism to deter violations Status Adopted by UN General Assembly Resolution on Oct. 31, 2003 and entered into force Dec. 14, 2005 Broad adherence by 140 parties (includes China, Russia, United States)

11 Global Anti-Corruption Outlook International Anti-Corruption Treaties Regional Anti-Corruption Treaties Domestic Anti-Corruption Laws

12 Regional Anti-Corruption Treaties Council of Europe Criminal Law Convention on Corruption –Requires parties to criminalize public corruption, including corruption of both the public officials in the party’s country, as well as foreign public officials, and officials of public international organizations –Requires parties to criminalize private corruption –43 parties to date; U.S. has signed, but not ratified, the Convention Civil Law Convention on Corruption –Requires parties to provide civil remedies for victims of corruption, including victims of public corruption, and to cooperate in international civil proceedings (including service, obtaining evidence, and enforcement of judgments). Query: potential civil liability for corporation found to have damaged private European plaintiff? –34 parties to date, not including the U.S. Organization of American States Inter-American Convention Against Corruption –Requires parties (including the U.S.) to adopt domestic laws to prohibit public corruption African Union African Union Convention on Preventing and Combating Corruption –Requires parties to adopt domestic laws to prohibit both public and private corruption

13 Global Anti-Corruption Outlook International Anti-Corruption Treaties Regional Anti-Corruption Treaties Domestic Anti-Corruption Laws

14 UK Bribery Act Of 2010 Offense: Failure to prevent bribery (strict liability) UK claims jurisdiction over any company, “wherever incorporated,” that “carries on a business, or part of a business, in any part of the United Kingdom” –Company’s connection with the UK can be minimal and the act of bribery can take place anywhere in the world. Thus, even if bribe is paid outside UK, and the benefit is realized outside UK, and company’s dealings with UK are limited, there can still be liability. Offense: Active Bribery For the payer or recipient of a bribe to be subject to the Act, one of two tests must be met: –Act or omission forming part of the offense must have occurred in the UK, or –The offender must be a British citizen, a British corporation or an individual ordinarily resident in the United Kingdom Status Guidance issued Sept. 14, 2010 Consultative process continues until November 8, 2010 New guidance to be offered in new year New law will be effective April 2011

15 UK Bribery Act Of 2010 (cont’d) Private commercial bribery covered Prohibits both commercial bribery of private parties as well as bribery of public officials Giving and receipt of bribe (“active” and “passive” bribery) both criminalized Unless the recipient is a foreign public official Defenses and exceptions New affirmative defense for companies: “adequate procedures” to prevent bribery No exception for “facilitating payments”

16 UK Ministry of Justice’s Sept. 14 Proposed Guidance 1.Risk assessment. Requires attention to: qualifications of those conducting the risk assessment; the business’s market and industry; country risks; transaction risks; business partner risks. 2.Senior Management Commitment. Requires establishing a culture of compliance and conveying this message regularly to staff and business partners; appointment of a senior manager with oversight of compliance. 3.Due diligence. Requires knowing with whom you are dealing; ensuring that business relationships are transparent and ethical; knowing why, when, and to whom funds are being released; reciprocal anti-bribery agreements; inquiries about bribery risks in particular countries; inquiries about risks of a particular business opportunity; inquiries regarding reputation of individuals or organizations involved in key decisions, such as joint venture partners. 4.Clear, practical, accessible procedures. Must apply to all employees and business partners; covers political and charitable contributions, gifts, hospitality, and promotional expenses; requires policies and procedures to deal with bribery allegations and making anti-bribery code of conduct part of employment contract 5.Effective implementation. Requires evidence that policy is not simply a “paper policy,” including evidence of: internal controls; recruitment; training; communications. 6.Monitoring and review. Requires auditing and financial controls; and consideration of how often to review, and whether external review is required.

17 People’s Republic Of China Anti-Corruption Laws PRC criminal code prohibits both private commercial bribery and bribery of officials (broader than FCPA) –Commercial bribery (Art. 163) requires: demanding, offering, or receiving property from others; by or from a member of the working personnel of a company or enterprise; in return for a benefit, or for assistance in obtaining a benefit; and the amount of the bribe is of a relatively large value. (The term "relatively large value" is not specifically defined, but acceptable gifts have included moon cake coupons, modest dining and reasonable travel expenses.) –Bribery of officials (Art. 389) requires: giving property; to a state functionary; in return for illegitimate gain. –Applies to both foreigners and Chinese citizens PRC Unfair Competition Law –Provides a broad definition of commercial bribery "by giving property or otherwise" and prohibits commercial bribery by operators –Applies to less severe bribery cases Source: Metropolitan Corporate Counsel (Aug. 2010); Note: PRC criminal law broader than FCPA because includes commercial bribery prohibition PRC criminal law narrower than FCPA regarding official bribery because requires actual giving of item of value, not mere promise

18 Recent Chinese Enforcement Of Anti-Corruption Laws Recent new measures –New regulations adopted in July 2010 require mid-level Communist Party officials and state-owned enterprise executives to declare their financial interests and those of their family members –New measures motivated by public concern with levels of corruption, which PRC leaders view as a threat to the regime Evidence of active enforcement –Over 3,375 commercial bribery investigations by State Administration of Industry and Commerce (“SAIC”) in 2009 –Recent prosecution of 4 Rio Tinto employees (Australian mining co.) for accepting bribes from Chinese steel industry (one of which was disguised as home loan), allegedly in exchange for steering iron ore shipments to the Chinese manufacturers. Resulted in prison sentences of 7-14 years –Other offenders include Carrefour hypermarkets, IBM, and Hitachi Source: Metropolitan Corporate Counsel (Aug. 2010);

19 Recent Chinese Enforcement Of Anti-Corruption Laws (cont.) Other recent cases –Huang Guangyu – The founder of GOME (and one-time richest man in China) was sentenced to two years imprisonment for violating China’s anti bribery legislation. Huang bribed or instigated others to bribe five government officials between 2006 and 2008 in exchange for corporate benefits. –Jiahe Life – China charged Jiahe Life, a Chinese insurance company, and individuals within the company with bribing employees of China’s Agricultural Bank. Jiahe was fined RMB1.2 million and the person responsible for approving the bribes was sentenced to 21 months imprisonment. –Zhang Jingli - China has recently begun investigating Zhang Jingli, one of four deputy heads of China's State Food & Drug Administration for "suspected disciplinary violations." It appears that Zhang was ousted after authorities began probing a number of pharma companies, including the Shanghai branch of Johnson & Johnson, for bribery offenses.

20 Russia’s Anti-Corruption Laws Background –An estimated $300 billion in bribes are paid annually in Russia –Russia ranked 146 out of 180 countries in Transparency International’s 2009 Global Corruption Index –Russia adopted new anti-corruption legislation on Dec. 30, 2008 which became effective Jan. 10, 2009 –Russia enacted a federal law "On Counteracting Corruption" and amended more than 20 existing laws of the Russian Federation in January 2009 ("the Anti-corruption Legislation") –This legislation was motivated by Russian President Dmitry Medvedev’s National Plan for Counteraction to Corruption of July 31, 2008 and Russia’s commitments under the UN Anti-Bribery Convention and the Council of Europe’s Criminal Law Convention on Corruption Source:

21 Russia’s Anti-Corruption Laws (cont.) Bribing an Official (Article 291 of the RF Criminal Code) –What Is Prohibited: Giving something of value To an official In return for: –actions (or inaction) by an official and within the official’s authority; or –an official’s assistance in effecting such action or omission; or –an official’s “general patronage”; for the benefit of the person providing the bribe or related party –an “Official” is: a person who permanently, temporarily or under specific authority performs the functions of a state representative or performs organizational (management) or administrative (economic) functions in state, local municipal bodies, or armed forces (including lawmakers, representatives of state control and supervisory bodies, judges, customs officials etc.) Commercial Bribery (Article 204 of the RF Criminal Code) –Punishes giving money, securities (commercial paper), or other material goods, or the unlawful rendering of services, material in nature, to an officer of a commercial organization in exchange for certain benefits and in connection with such officer’s position in a commercial organization

22 Russia’s Anti-Corruption Laws (cont.) Elements of the new legislation –Increases public control over public officials and transparency of governmental functions by giving President the right to form anticorruption commissions and increasing access of public to information on the activities of governmental bodies –Imposes new requirements and restrictions on public officials, including a requirement to regularly disclose personal financial information –Introduces whistle-blowing provisions requiring public officials to notify authorities of violations of anticorruption laws and of attempted corruption –Includes new requirements and restrictions on judges and candidates for judicial positions relating to professional qualifications and experience, criminal history, and referrals from previous employers –Imposes more severe sanctions for corruption Note: Prohibition broader than FCPA because includes commercial bribery prohibition Prohibition narrower than FCPA regarding official bribery because requires actual giving of item of value, not mere promise

23 Recent Russian Enforcement of Anti-Corruption Laws Russian investigators cooperated with German and United States authorities in the Hewlett Packard probe, and raided HP's Moscow offices in April 2010 In May 2010, Russian prosecutors received information from the United States to aid their investigation into allegations of bribery by Daimler AG 4,500 corruption cases were brought to court in the first half of 2009 in Russia, with 532 public officials convicted However, it is questionable whether there has been an actual improvement in enforcement – according to Russia’s Justice Ministry, the number of corrupt officials exposed and punished has not increased over the last three years Sources: RIA Novosti (May 2010), at Wall Street Journal (August 2010), at RIA Novosti (July 2010), at Moscow Times (September 2010), at words-not-deeds/ html

24 Risk Factors When Conducting Internal Investigations Dan Karson Executive Managing Director Kroll New York, New York September 30, 2010

25 Disclaimer: The information herein is of a summary nature and is limited to the U.S.; international rules and regulations may differ. It is not intended to be taken as advice with respect to any individual situation and cannot be relied upon as such, nor as financial, regulatory or legal advice which we are not authorized to provide.

26 IP Theft FCPA Violations – Kickbacks Stealing Company Money, Assets ALLEGATIONS

27 Assessing the situation Investigative strategy Where to look for evidence Whom to interview What not to do Laws and cases relevant to the investigation WHAT WE’LL DISCUSS

28 What first steps should I take? Where might I find good evidence? Electronic evidence Physical evidence Witness evidence THE SEARCH FOR EVIDENCE

29 Electronic evidence Electronic data lasts (almost) forever Image/copy − −Electronic organizer files −Word-processing and spreadsheet files Webmail −Network logs of the subject’s internet usage −Suspend IT deletion schedule with respect to all server files that the subject created or modified EVIDENCE UNDER YOUR CONTROL

30 DATA PROTECTION LAWS RESTRICT THE RETRIEVAL AND TRANSMISSION OF DATA EU Data Protection Directive – Safe Harbor Latin America – evolving data protection laws: −Argentina law is similar to Europe −Mexico: new DP regulations are in effect

31 DATA PROTECTION LAWS RESTRICT THE RETRIEVAL AND TRANSMISSION OF DATA Europe – generally the rule for examining hard drives: −Is what I’m doing fair? −Do I have a reason to look at this?  Answer: Yes, if you are investigating potential fraud or misconduct

32 DATA PROTECTION LAWS RESTRICT THE RETRIEVAL AND TRANSMISSION OF DATA Data transfer −Even if you are entitled to retrieve data, you may be restricted from transferring it out of the country −You must have a Safe Harbor certification

33 DATA PROTECTION LAWS RESTRICT THE RETRIEVAL AND TRANSMISSION OF DATA Pro-employee countries may be even more restrictive: France, Italy. −Employee consents may not be sufficient

34 DATA PROTECTION LAWS RESTRICT THE RETRIEVAL AND TRANSMISSION OF DATA Defamation can be a criminal offense in Latin America and Europe. −An investigative report could be deemed to be a criminal offense in many countries, e.g: Argentina, Brazil, Colombia, Mexico, Belgium France, Germany, Sweden, Poland, Russia, Spain, Switzerland.

35 DATA PROTECTION LAWS RESTRICT THE RETRIEVAL AND TRANSMISSION OF DATA Criminal liability may not attach against a business in certain countries. A charge of defamation therefore could be brought against a corporate officer.

36 COMPREHENSIVE DUE DILIGENCE IS INDISPENSABLE Companies must investigate employees and managers, especially employees responsible for purchasing goods and services and seeking government contracts. Verify education, employment and backgrounds; investigate affiliations with private businesses Confirm reasons for departing previous employers Investigate agents and representatives – people to whom you “give your pen”

37 COMPREHENSIVE DUE DILIGENCE IS INDISPENSABLE Lay down the law on FCPA and zero tolerance for bribery Require vendors to sign vendor codes of conduct Red Flag: the new head of purchasing replaces your traditional vendors −Good reason: lower prices, higher quality, faster delivery −Bad reason: these are the vendors who paid him off at his last job Audit your vendor list. Make sure vendors are real companies supplying real goods and services. Work with reputable consultants and investigators. You are responsible for their actions.

38 Risk Factors When Conducting Internal Investigations Dan Karson Executive Managing Director Kroll New York, New York September 30, 2010

39 Disclaimer: The information herein is of a summary nature and is limited to the U.S.; international rules and regulations may differ. It is not intended to be taken as advice with respect to any individual situation and cannot be relied upon as such, nor as financial, regulatory or legal advice which we are not authorized to provide.

40 IP Theft FCPA Violations – Kickbacks Stealing Company Money, Assets ALLEGATIONS

41 Assessing the situation Investigative strategy Where to look for evidence Whom to interview What not to do Laws and cases relevant to the investigation WHAT WE’LL DISCUSS

42 What first steps should I take? Where might I find good evidence? Electronic evidence Physical evidence Witness evidence THE SEARCH FOR EVIDENCE

43 Electronic evidence Electronic data lasts (almost) forever Image/copy − −Electronic organizer files −Word-processing and spreadsheet files Webmail −Network logs of the subject’s internet usage −Suspend IT deletion schedule with respect to all server files that the subject created or modified EVIDENCE UNDER YOUR CONTROL

44 DATA PROTECTION LAWS RESTRICT THE RETRIEVAL AND TRANSMISSION OF DATA EU Data Protection Directive – Safe Harbor Latin America – evolving data protection laws: −Argentina law is similar to Europe −Mexico: new DP regulations are in effect

45 DATA PROTECTION LAWS RESTRICT THE RETRIEVAL AND TRANSMISSION OF DATA Europe – generally the rule for examining hard drives: −Is what I’m doing fair? −Do I have a reason to look at this?  Answer: Yes, if you are investigating potential fraud or misconduct

46 DATA PROTECTION LAWS RESTRICT THE RETRIEVAL AND TRANSMISSION OF DATA Data transfer −Even if you are entitled to retrieve data, you may be restricted from transferring it out of the country −You must have a Safe Harbor certification

47 DATA PROTECTION LAWS RESTRICT THE RETRIEVAL AND TRANSMISSION OF DATA Pro-employee countries may be even more restrictive: France, Italy. −Employee consents may not be sufficient

48 DATA PROTECTION LAWS RESTRICT THE RETRIEVAL AND TRANSMISSION OF DATA Defamation can be a criminal offense in Latin America and Europe. −An investigative report could be deemed to be a criminal offense in many countries, e.g: Argentina, Brazil, Colombia, Mexico, Belgium France, Germany, Sweden, Poland, Russia, Spain, Switzerland.

49 DATA PROTECTION LAWS RESTRICT THE RETRIEVAL AND TRANSMISSION OF DATA Criminal liability may not attach against a business in certain countries. A charge of defamation therefore could be brought against a corporate officer.

50 COMPREHENSIVE DUE DILIGENCE IS INDISPENSABLE Companies must investigate employees and managers, especially employees responsible for purchasing goods and services and seeking government contracts. Verify education, employment and backgrounds; investigate affiliations with private businesses Confirm reasons for departing previous employers Investigate agents and representatives – people to whom you “give your pen”

51 COMPREHENSIVE DUE DILIGENCE IS INDISPENSABLE Lay down the law on FCPA and zero tolerance for bribery Require vendors to sign vendor codes of conduct Red Flag: the new head of purchasing replaces your traditional vendors −Good reason: lower prices, higher quality, faster delivery −Bad reason: these are the vendors who paid him off at his last job Audit your vendor list. Make sure vendors are real companies supplying real goods and services. Work with reputable consultants and investigators. You are responsible for their actions.

52 Risk Factors When Conducting Internal Investigations Dan Karson Executive Managing Director Kroll New York, New York September 30, 2010

53 Disclaimer: The information herein is of a summary nature and is limited to the U.S.; international rules and regulations may differ. It is not intended to be taken as advice with respect to any individual situation and cannot be relied upon as such, nor as financial, regulatory or legal advice which we are not authorized to provide.

54 IP Theft FCPA Violations – Kickbacks Stealing Company Money, Assets ALLEGATIONS

55 Assessing the situation Investigative strategy Where to look for evidence Whom to interview What not to do Laws and cases relevant to the investigation WHAT WE’LL DISCUSS

56 What first steps should I take? Where might I find good evidence? Electronic evidence Physical evidence Witness evidence THE SEARCH FOR EVIDENCE

57 Electronic evidence Electronic data lasts (almost) forever Image/copy − −Electronic organizer files −Word-processing and spreadsheet files Webmail −Network logs of the subject’s internet usage −Suspend IT deletion schedule with respect to all server files that the subject created or modified EVIDENCE UNDER YOUR CONTROL

58 DATA PROTECTION LAWS RESTRICT THE RETRIEVAL AND TRANSMISSION OF DATA EU Data Protection Directive – Safe Harbor Latin America – evolving data protection laws: −Argentina law is similar to Europe −Mexico: new DP regulations are in effect

59 DATA PROTECTION LAWS RESTRICT THE RETRIEVAL AND TRANSMISSION OF DATA Europe – generally the rule for examining hard drives: −Is what I’m doing fair? −Do I have a reason to look at this?  Answer: Yes, if you are investigating potential fraud or misconduct

60 DATA PROTECTION LAWS RESTRICT THE RETRIEVAL AND TRANSMISSION OF DATA Data transfer −Even if you are entitled to retrieve data, you may be restricted from transferring it out of the country −You must have a Safe Harbor certification

61 DATA PROTECTION LAWS RESTRICT THE RETRIEVAL AND TRANSMISSION OF DATA Pro-employee countries may be even more restrictive: France, Italy. −Employee consents may not be sufficient

62 DATA PROTECTION LAWS RESTRICT THE RETRIEVAL AND TRANSMISSION OF DATA Defamation can be a criminal offense in Latin America and Europe. −An investigative report could be deemed to be a criminal offense in many countries, e.g: Argentina, Brazil, Colombia, Mexico, Belgium France, Germany, Sweden, Poland, Russia, Spain, Switzerland.

63 DATA PROTECTION LAWS RESTRICT THE RETRIEVAL AND TRANSMISSION OF DATA Criminal liability may not attach against a business in certain countries. A charge of defamation therefore could be brought against a corporate officer.

64 COMPREHENSIVE DUE DILIGENCE IS INDISPENSABLE Companies must investigate employees and managers, especially employees responsible for purchasing goods and services and seeking government contracts. Verify education, employment and backgrounds; investigate affiliations with private businesses Confirm reasons for departing previous employers Investigate agents and representatives – people to whom you “give your pen”

65 COMPREHENSIVE DUE DILIGENCE IS INDISPENSABLE Lay down the law on FCPA and zero tolerance for bribery Require vendors to sign vendor codes of conduct Red Flag: the new head of purchasing replaces your traditional vendors −Good reason: lower prices, higher quality, faster delivery −Bad reason: these are the vendors who paid him off at his last job Audit your vendor list. Make sure vendors are real companies supplying real goods and services. Work with reputable consultants and investigators. You are responsible for their actions.


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