Presentation on theme: "The Long Reach of the Law"— Presentation transcript:
1The Long Reach of the Law What Your Company Needs to Know AboutInternational Foreign Corruption LawsMay 8th, 2012Presentation to the Georgia Chapter of theAssociation of Corporate CounselBenjamin I. BardEthics & Compliance CounselThe Coca-Cola CompanyTim LoveInternal Audit Group ManagerUnited Parcel Service, Inc.Paul Schabas, PartnerBlake, Cassels & Graydon LLP
2IntroductionAs business becomes increasingly global, companies with international operations need to ensure compliance with not just domestic but also international anti-corruption laws.
3Introduction (cont’d) In this presentation, we will:compare and contrast U.S., Canadian and U.K. anti-corruption legislation;2. discuss recent enforcement trends in Canada and the U.S.;discuss specific Canadian anti-corruption considerations which companies carrying on business in Canada should be aware of; andaddress considerations in building a robust anti-corruption compliance program.
4Anti-Corruption Legislation Corruption of Foreign Public Officials Act (CFPOA)Canadian LegislationDedicated RCMP unitsRecent charges, raids, and several investigations pendingForeign Corrupt Practices Act (FCPA)U.S. LegislationVery active enforcement by SEC and DOJBribery Act 2010 (Bribery Act)U.K. LegislationCame into force July 1, 2011Very broad applicationStrict liability
5CFPOAProhibits bribery of foreign public officials by criminal sanctionPenalties for breach include:Imprisonment for up to five years for individualsUnlimited finesProbation for corporations, including monitoring and compliance conditionsForfeiture of all proceeds – not just profits – of any contract obtained by corruptionSignificant reputational and business lossesPotential debarmentNo limitation periodApplies to any conduct where there is a “nexus” or “real and substantial” connection to Canada
6CFPOA (cont’d) Applies to corporations and individuals Corporations can be held vicariously responsible for the acts of their employees, agents or contractorsThe bribe does not need to be cash, it can be anything of valueIf it constitutes a “material or tangible gain” to the foreign official, it is a benefitWhat constitutes a “material or tangible gain” may be different in Canada than for a foreign official earning US$200/monthFor example: gifts, extravagant hospitality, travel, accommodations, tickets to events, use of company property or services, or jobs or education for family members, could be considered benefitsCovers bribes that are given directly or indirectlyIncludes bribes given by agents, joint venture partners and other third parties
7CFPOA (cont’d) Foreign Public Officials include: Any person who holds a legislative, judicial or administrative position in any level of government (national to local)Employees of wholly or partially state-owned or controlled corporationsBribes paid to relatives or political parties are also prohibited3 exceptions to the CFPOA bribery offence:Payments permitted under the laws of the foreign stateReasonable expenses incurred by or on behalf of the foreign public official that are directly related to:the promotion, demonstration or explanation of your products or services, orthe execution or performance of a contract with the foreign official’s stateFacilitation payments
8FCPAEnacted in 1977 in response to the Watergate scandal and revelations that U.S. businesses frequently bribed foreign public officialsThe FCPA applies to:U.S. IssuersDomestic ConcernsAn individual who is a citizen, national or resident of the U.S.A corporation, partnership or business trust organized pursuant to the laws of the U.S., or that has its principal place of business in the U.S.Includes officers, directors and agentsForeign Nationals or Businesses that take any action in furtherance of a corrupt payment in the U.S.DOJ position: only tenuous U.S. connection required
9FCPA (cont’d) Similar to CFPOA, though 2 key differences: books, records, and internal control requirements for issuers; andoption for civil enforcement through SEC.FCPA anti-bribery provisions prohibit:corruptly offering anything of value to any foreign official for the purpose of influencing the decision of that official to do anything that assists the offeror in the obtaining or retaining of business, or gaining an improper advantageSimilar exceptions to CFPOA
10FCPA (cont’d) Liability for Third Parties: A company may be liable for a payment by an agent or third party if: (a) the company authorized such payment; or (b) if it “knew” the improper payment would be madeA company is deemed to have knowledge of a payment if it is aware of a “high probability” that such an offer, promise, or payment will be madeMany companies regularly contract with third parties, such as sales or marketing agents, consultants and joint venture partnersThese relationships can greatly increase corruption risks in one of two ways:a third party makes improper payments to government officials, ora third party is owned by or affiliated with a government official
11FCPA (cont’d) Books and Records Requirements: Rationale is to prohibit companies from concealing bribes in accounting recordsFCPA imposes certain record-keeping requirements on issuersRequires every issuer to “make and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets”Applies to subsidiariesIssuers must also maintain a system of internal controls that “provides reasonable assurances that….transactions are executed in accordance” with GAAPSubstantial cash rewards for whistleblowers (10-30% of monetary sanctions over US$1-million) – Dodd-Frank Act
12U.K. Bribery Act Came into force July 1, 2011 Applies to: U.K. individuals or organizations regardless of where the conduct occursNon-U.K. individuals or organizations that carry on “a business, or part of a business, in any part of the United Kingdom”Potentially very broadCould apply to any company or individual that has even a small subsidiary, affiliate or other minor presence in the U.K.No part of the offence need take place in the U.K.
13U.K. Bribery Act (cont’d) Applies to both public- and private-sector briberyNew corporate offence of failing to prevent briberyStrict liability offence: knowledge or intent to bribe on the part of the organization is not requiredMain defense for commercial organizations is to demonstrate “adequate procedures” in place, e.g.measures relating to monitoring and communication within the corporation;top-level commitment;proportionate procedures; andrisk assessment.Very important to have anti-corruption compliance programFacilitation and hospitality payments are not permitted
14Recent Enforcement Trends in Canada Niko ResourcesGuilty plea and joint submission for total fine of $9,499,000Followed six-year investigationBribes involving provision of SUV to individual in BangladeshSentence included for three years’ probation with extensive monitoring conditions:Broad document disclosure to RCMPRequirement to establish a detailed compliance, record-keeping and monitoring program subject to review by an independent auditor
15Recent Enforcement Trends in Canada (cont’d) Niko sentence dwarfed only prior conviction under the CFPOA, a C$25,000 fine in 2005Sentencing precedents submitted by the prosecutor were U.S. FCPA casesThe Probation Order was also copied from U.S. precedentsLikely sets a benchmark for CFPOA fines in Canada
16Ongoing CFPOA Investigations In 2010, the RCMP announced it had 23 open investigations.Nazir KarigarFormer employee of Cryptometrics, a company developing facial recognition software for airports and governmentsCharges laid against him individuallyAllegations of bribes paid to Indian officials concerning a security system contractBlackfire Exploration Ltd.Criminal investigation underwayRCMP executed a search warrant and raided the Calgary officesStems from 14 payments made to the Mayor of Chicomuselo, Mexico for protection from anti-mining protestsSNC Lavalin GroupIn September 2011, the RCMP raided its Toronto officesAllegations of corruption in the bid process of World Bank-funded Padma Bridge Project in Bangladesh
17U.S. Enforcement TrendsMassive Penalties: Under the FCPA, the U.S. government has assessed over US$3.4-billion in penalties since December 2008U.S. Enforcement Agencies continue to enforce the FCPA aggressively. There were 54 resolved actions in 201110 Largest FCPA Settlements:Siemens (Germany): $800 million in 2008KBR / Halliburton (U.S.): $579 million in 2009BAE (U.K.): $400 million in 2010Snamprogetti Netherlands B.V. / ENI S.p.A. (Holland/Italy): $365 million in 2010Technip S.A. (France): $338 million in 2010JGC Corporation (Japan): $218.8 million in 2011Daimler AG (Germany): $185 million in 2010Alcatel-Lucent (France): $137 million in 2010Panalpina (Switzerland): $81.8 million in 2010Johnson & Johnson (U.S.): $70 million in 2011Eight of the top 10 largest FCPA settlements occurred in 2010 or 2011
18U.S. Enforcement TrendsPursuance of personal criminal liability for directors and officers is a significant aspect of the strategy of U.S. enforcement authorities“Let me be clear, prosecuting individuals is a cornerstone of our enforcement strategy…. the risk of heading to prison for bribery is real, from the boardroom to the warehouse.” – U.S. Attorney General, Eric Holder (Paris, May 26, 2010)Many individuals charged: 17 (2010), 42 (2009), 16 (2008), 17 (2007)January 2010, DOJ arrested and indicted 22 individual defendants as a result of a wide-ranging sting operation2011, Geoffrey Tesler, former agent of the TSKJ consortium, pleaded guilty to offences carrying a maximum sentence of 10 years and agreed to forfeit $149-million held in his company’s Swiss bank accounts to the U.S. governmentOctober 26, 2011, Joel Esquenazi, former president of Terra Telecommunications, received 15-year sentence relating to scheme to bribe officials of Haiti Teleco. Longest jail term under the FCPA.
19Canadian Domestic Anti-Corruption Laws Aside from compliance with international anti-corruption legislation, companies with operations in Canada need to ensure compliance with Canadian domestic anti-corruption legislation.The Canadian Criminal Code contains provisions which go beyond the FCPA, CFPOA or Bribery Act.
20Practical Strategies for Compliance with Anti-Corruption Legislation An anti-corruption risk mitigation strategy should be part of an overall compliance program for all companies that do business internationallyThree main components to an anti-corruption risk mitigation strategy:risk assessment – spotting the “red flags”;implementing an appropriate compliance program; andif a potential incident occurs, respond appropriately.
21Spotting the “Red Flags” The following are “red flags” that indicate your organization is potentially at risk:Employee, agent or partner is a foreign official, related to a foreign official, or has a close relationship with a foreign officialPayments are made to accounts outside the country you are doing business in, or made to “cash” or “bearer”Employee, agent or partner is requesting payment of unusually large commissionsEmployee, agent or partner has undisclosed sub-agents or associatesEmployee, agent or partner is making payments to, or incurring expenses in respect of, undisclosed personsPartner or agent appears to lack necessary qualificationsEmployee, partner or agent is submitting expenses that are unusual or unaccounted for, or lack transparencyAgent or partner resides outside the country
22Spotting the “Red Flags” (cont’d) Other red flags:An industry that has been the subject of recent anti-bribery investigations, for example, oil and energy sector, mining, telecommunications, pharmaceuticals, defenceSignificant use of third-party agents, for example, sales representatives, consultants, distributors, subcontractors, or logistics personnel (customs, visas, freight forwarders)Significant contracts with a foreign government or state owned or controlled corporationSubstantial revenue from a foreign government or state owned or controlled corporationSubstantial system of regulatory approval, for example, for licenses and permits, in the foreign countryHistory of prior government bribery or investigations or prosecutionsPoor or no anti-bribery policy and trainingWeak corporate compliance program and cultureSignificant issues in past anti-corruption auditsWeak internal controls at the parent or in foreign country operations
24Compliance ProgramAn appropriate compliance program includes the following components:communication of a top-down commitment to anti-corruption complianceimplementation of an appropriate anti-corruption policytrain officers and employees on your anti-corruption policy and enforce the policyuse appropriate contractual terms with agents and partnersconduct periodic due diligence
25Train and Enforce the Policy Policy needs to send a strong message that corruption and bribery will not be toleratedSenior member(s) of the company should be appointed to oversee compliance and to act as Compliance OfficerDo not delegate substantial discretionary authority to foreign agents or other high-risk individualsShould include a mechanism for reporting potential violationsAny Facilitation Payment or payment for the expenses of a foreign official should be pre-approved by a Compliance OfficerForeign agents and joint venture partners should only be used with pre-approval of the Compliance OfficerCompliance Officer should have authority to retain counsel and investigate
26Anti-Corruption Policy Even the best written policy is of little use if it is not implemented and enforcedPeriodic training should be provided to employees and officers on your company’s policy and CFPOA complianceBe sure to document all trainingA system of discipline for violations of your company’s policy is also required
27ConclusionIncreased enforcement and penalties have resulted in corporations coming under greater scrutiny to ensure that foreign operations comply with anti-corruption legislationAs a result, to avoid future liability, companies should implement a robust compliance program that includes an effective anti-corruption policy, training of officers and employees, the use of appropriate contractual terms with agents and partners, and due diligenceIt is increasingly important that companies conduct appropriate and thorough due diligence in transactions in which a business with foreign operations is acquired