1. GREENBERG TRAURIG, LLP ATTORNEYS AT LAW WWW.GTLAW.COM ©2010. All rights reserved. Managing Compliance Risk in International Transactions Michael X. Marinelli Washington, D.C. marinellimx@gtlaw.com  202.530.8503

2. - 2 - Heightened Compliance Risk in Current Market  Foreign Corrupt Practices Act (FCPA) □ Aggressive national prosecution strategy  Export controls and trade sanctions □ Legislation dramatically increased penalties  Practical steps to manage compliance and control risk

3. - 3 - Transparency International Corruption Perceptions Index

4. - 4 - FCPA Prohibitions  Paying bribes to foreign officials to obtain business or other “improper advantage”  Paying money to a third party knowing that the third party will use it to pay bribes to foreign officials  Offering, authorizing or agreeing to pay bribes

5. - 5 - Proving Knowledge  Knowledge □ Positive information that a bribe will be paid □ Awareness of a high probability that a bribe will be paid □ Willful blindness □ Knowledge is most often established by showing the company ignored “Red Flags”

6. - 6 - Red Flags  Unusual payment patterns or financial arrangements □ Payments to third countries □ Payments to parties not involved in the deal  Agents or representatives that do nothing □ Late-arriving agents □ Backdated agreements  A history of corruption in the country  Unusually high commissions

7. - 7 - Red Flags  Business partner lacks qualifications or resources  Agent is recommended or selected by the government customer  Refusal by the foreign business partner to provide an FCPA certification  Lack of transparency in expenses and accounting records □ Representative’s records □ Company’s records

8. - 8 - FCPA Basics: Exceptions and Defenses  Payments that are lawful under the “written laws and regulations” of the official’s country  Bona fide and reasonable expenses  Payments to facilitate routine government actions – “grease payments”  “Everyone does it” (customary payments) is not a defense  There is no de minimis exception to the FCPA

9. - 9 - Recent Penalty Cases  Siemens: $1.6 billion □ $450 million in U.S. criminal fines □ $350 million in profits disgorged to the U.S. government  Halliburton/KBR: $402 million  Baker Hughes: $44 million  ABB Vetco: $26 million  Willbros: $22 million

10. - 10 - Faro Technologies  Paid bribes of $430,000 secure contracts worth $4.54 million  Internal investigation cost $3.6 million during the first nine months  Net Income for the same nine months was $4.5 million  Ultimately paid $1 million criminal fine

11. - 11 - Practical Lessons From the Cases 1.Most violations are obvious when they are happening; don’t ignore red flags. 2.Demands for bribes are common and do not provide a defense. 3.Be prepared to give up the deal. 4.Make sure employees understand the rules. 5.Conduct and document due diligence on business partners before you sign the deal.

12. - 12 - Practical Lessons From the Cases 6.Having a compliance program is not enough. 7.Audit compliance on a regular basis. 8.It is the purpose, not the size, of the payment that matters. 9.The collateral damage can be worse than the formal penalty.

13. - 13 - Export Controls and Sanctions Regimes  Export Controls □ Product Based Controls  Classification is the key  Controls apply to goods, software and technology  Controls capture items that we would consider low-tech □ End-Use Controls  Depend on what the customer will do with the product  Apply to virtually all U.S. products

14. - 14 - Export Controls and Sanctions Regimes  Trade Sanctions □ Restricted Countries  Cuba  Iran  North Korea  Sudan  Syria □ Restricted Party Lists  Specially Designated Nationals (Treasury)  Denied Persons (Commerce)  Entity List (Commerce)

15. - 15 - Recent Export Cases  ITT: $100 million  Balli: $17 million  Sirchie: $2.5 million  EMD Biosciences: $904,500  Wilden Pump: $700,000  Cryostar: $500,000

16. - 16 - Protecting the Company: Effective Compliance  Management involvement and support  Clearly communicated standards and procedures □ General policy statements are not enough □ Procedures tailored to fit the company’s business □ Train employees and managers  On substance  On process

17. - 17 - Protecting the Company: Effective Compliance  Diligence in Engaging Agents and Distributors □ Establish objective criteria to be met □ Document the selection process □ Document due diligence regarding agent □ Include compliance language in agreements  Procedures for assessing business information from the compliance perspective □ Who is the customer? □ Is it a government entity? Military entity?

18. - 18 - Protecting the Company: Effective Compliance  Audit and review operations □ Sales and marketing operations □ Expense reports □ Finance operations  Procedures for reporting and investigating possible wrong-doing □ Internal reporting mechanism □ Clear chain of command for response □ Include legal and finance teams