1. Winston & Strawn LLP © 2009 CHARLOTTE CHICAGO GENEVA HONG KONG LONDON LOS ANGELES MOSCOW NEW YORK NEWARK PARIS SAN FRANCISCO WASHINGTON, D.C. Foreign Corrupt Practices Act (FCPA) Enforcement & Compliance Strategies Overview Presented by: David Stern ACCA–SoCal DoubleHeader®: Preparing For The Rebound November 17, 2009

2. Winston & Strawn LLP © 2009 2 Presentation Contents FCPA Enforcement Priorities and Trends FCPA Overview Anti-bribery Provisions Accounting Standards and Internal Control Provisions Elements of Effective FCPA Compliance

3. Winston & Strawn LLP © 2009 3 FCPA Enforcement Priorities and Trends

4. Winston & Strawn LLP © 2009 4 FCPA Enforcement Trends FCPA Enforcement in 2007, 2008, and 2009 34 enforcement cases brought in 2007 by the DOJ and SEC are the most in the FCPA's 30-year history Enforcement activity has remained high through 2008 and the first three quarters of 2009 Within the last year the DOJ and the SEC have imposed roughly $1.4 billion in fines, penalties, and disgorgement With approximately 100 companies still under investigation, aggressive FCPA enforcement is expected for the foreseeable future * Through 3Q09 2009 *

5. Winston & Strawn LLP © 2009 5 Reasons for the Surge in FCPA Enforcement Cases More aggressive enforcement The surge in FCPA enforcement reflects the policy decision to more aggressively combat corruption domestically and abroad More and better resources are being devoted to FCPA enforcement Aggressive tactics Close coordination between the DOJ and SEC Better utilization of investigative tools (FBI Taskforce) The DOJ and SEC are pushing the limits of the FCPA's extraterritorial reach Increased international cooperation among law enforcement authorities In 2008, DOJ sent out at least 45 letters rogatory involving Mutual Legal Assistance Treaties International corruption transcends national borders, and evidence in the form of account records, emails, and witnesses is often located in multiple jurisdictions International conventions (e.g., OECD, U.N., OAS, African Union) provide a framework for international cooperation and the exchange of information among law enforcement personnel

6. Winston & Strawn LLP © 2009 6 Reasons for the Surge in FCPA Enforcement Cases (cont'd) Increased attention to corruption issues in connection with mergers and acquisitions, joint ventures, and initial public offerings Corporate cooperation More companies are voluntarily disclosing FCPA issues in the hope of avoiding or mitigating penalties by: Identifying potential violations that may have gone undetected in the past Challenging industry practices so that voluntary disclosures can trigger scrutiny for other market participants Even where a voluntary disclosure is not possible, corporations are increasingly cooperating with investigations Internal investigations Waiver of attorney-client and attorney work product protections Deferred prosecution and non-prosecution agreements

7. Winston & Strawn LLP © 2009 7 Targeting Individuals vs. Corporations Notwithstanding the unprecedented corporate fines assessed in 2009, the brunt of FCPA enforcement appears to be directed at individual officers and employees who are increasingly being held individually criminally liable Corporations are avoiding criminal prosecution where responsible individuals are not 60% of FCPA defendants in 2008 were individuals Corporations are able to resolve FCPA issues short of indictment far more readily than individuals

8. Winston & Strawn LLP © 2009 8 Siemens On December 15, 2008, the DOJ and the SEC announced that Siemens Aktiengesellschaft ("Siemens"), a German-based engineering firm, and three of its subsidiaries had agreed to plead guilty to FCPA books and records and internal control violations The charging documents filed by the DOJ and SEC allege that, between March 2001 and September 2007, Siemens made at least 4,283 corrupt payments totaling approximately $1.4 billion The mechanisms used by Siemens to effectuate improper payments included direct cash payments, the use of "business consultants" and other intermediaries to funnel corrupt payments, and slush funds and other off-book accounts U.S. and German authorities fined Siemens a total of roughly $1.6 billion (approx. $800 million each) Siemens incurred approximately $200 million in legal fees to cooperate with German and U.S. law enforcement investigations

9. Winston & Strawn LLP © 2009 9 Albert "Jack" Stanley and KBR KBR and its predecessor, MW Kellogg, were the subject of a transnational bribery investigation that has lasted for more than five years and resulted in the guilty plea of KBR's former CEO, Albert "Jack" Stanley The KBR investigation began with an inquiry by a French magistrate The DOJ and SEC initiated a parallel probe within a year of the beginning of the French investigation, and worked closely with French officials The DOJ/SEC probe of KBR was initially limited to allegations concerning activities in Nigeria; however, it developed into a wide- ranging inquiry, exploring the activities of KBR, its executives, and its agents in Nigeria, Egypt, Yemen, Malaysia, Algeria, and numerous other countries Earlier this year, to settle pending criminal and civil enforcement actions, KBR pleaded guilty, paid a $402 million criminal fine, and paid $177 million in disgorgement of ill-gotten gains

10. Winston & Strawn LLP © 2009 10 FCPA Overview

11. Winston & Strawn LLP © 2009 11 The FCPA is Comprised of Two Primary Sets of Provisions Anti-Bribery Provisions Accounting Standards and Internal Controls

12. Winston & Strawn LLP © 2009 12 Overview: Anti-Bribery Provisions Approximately eight elements for an anti-bribery violation. It is unlawful for: 1.a U.S. "domestic concern” (i.e., U.S. person or U.S. company), “issuer,” or any other person in the United States 2.with corrupt intent 3.to offer, pay, promise to pay, or authorize payment 4.directly or indirectly 5.of anything of value 6.to a “foreign official,” foreign political party (or official thereof), or any candidate for foreign political office, or any person while "knowing" that all or a portion of the payment or thing of value will be offered, given, or promised directly or indirectly to a "foreign official," foreign political party (or official thereof), or any candidate for foreign political office 7.for the purpose of influencing any official act or decision, inducing any act or omission in violation of a lawful official duty, or securing an improper advantage 8.in order to assist in obtaining, retaining, or directing business to any person

13. Winston & Strawn LLP © 2009 13 Who Must Comply with the FCPA's Anti-Bribery Provisions The anti-bribery provisions apply to: individuals who are citizens, nationals, or residents of the United States; any entity which is registered or organized under the laws of a state, territory, or possession of the United States; entities or businesses located in the United States, or a territory or possession of the United States; and individuals, entities, or businesses, wherever situated, which while in the United States engage in an act in furtherance of a bribe by using the mails or any other means or instrumentality of interstate commerce.

14. Winston & Strawn LLP © 2009 14 Prohibited Recipients The anti-bribery provisions of the FCPA prohibit corrupt payments to 1.A "foreign official," which means: any officer or employee of a foreign government or any department, agency, or instrumentality of a foreign government (including foreign militaries and government-owned companies); any officer or employee of a public international organization (including the United Nations or the World Bank); or any person acting in an official capacity for or on behalf of any foreign government or public international organization. 2.any foreign political party or official thereof or any candidate for foreign political office; or 3.any person, while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly to any of the above persons

15. Winston & Strawn LLP © 2009 15 Knowledge Under the FCPA, it is illegal to pay anyone (including third-party agents) when "knowing" that all or part of the payment will be passed to a covered official for purposes of obtaining or retaining business "Knowledge" is defined broadly and includes: Actual knowledge Awareness of a high probability of the existence of the circumstance Willful blindness (consciously disregarding facts)

16. Winston & Strawn LLP © 2009 16 Knowledge (cont'd) The FCPA knowledge standard imposes an affirmative duty to determine reputation of agents, commissioned sales representatives, and certain other third-party intermediaries or contractors that have any interaction with foreign officials

17. Winston & Strawn LLP © 2009 17 Exceptions and Affirmative Defenses Exception for routine government action The anti-bribery provisions of the FCPA do not apply to facilitating or expediting payments Such payments may nevertheless violate (i) the accounting provisions of the FCPA if not accurately reported, and (ii) local law Anti-corruption laws in many countries (e.g., the UK, Germany, and Italy) do not have this exemption Affirmative defenses A payment is lawful under the WRITTEN foreign law Reasonable and bona fide expenditures for promotion/demonstration or contract performance

18. Winston & Strawn LLP © 2009 18 Penalties for Violating Anti-Bribery Provisions Criminal Penalties (Knowing/Willful Blindness) $2 million per violation for business entities Individuals may face criminal fines of up to $100,000 and/or receive sentences of up to five years imprisonment To the extent a criminal offense causes a pecuniary gain or loss, U.S. law authorizes alternative maximum fines equal to the greater of twice the gross gain or twice the gross loss Civil Penalties The FCPA authorizes civil penalties of up to $10,000 against enterprises and individuals for civil violations of the anti-bribery provisions In addition, in an SEC-enforcement action, the court may impose an additional fine not to exceed the greater of (i) the gross amount of the pecuniary gain to the defendant as a result of the violation, or (ii) a specified dollar limitation. The specified dollar limitations are based on the egregiousness of the violation, ranging from $5,000 to $100,000 for a natural person and $50,000 to $500,000 for any other person

19. Winston & Strawn LLP © 2009 19 Examples of Penalties and Fines December 2008: The DOJ and SEC announced that Siemens, a German-based engineering company, and three of its subsidiaries agreed to plead guilty to FCPA violations and pay a total of $1.6 billion in fines ($800 million in fines to U.S. authorities and $800 million in fines to German authorities) April 2007: Baker Hughes settled parallel DOJ and SEC FCPA proceedings by pleading guilty to three felony charges and agreeing to pay more than $44 million in criminal fines, civil penalties, and disgorgement of illicit profits February 2007: Three subsidiaries of Vetco International Ltd. pled guilty to violations of the FCPA Anti-bribery provisions and agreed to a combined total fine of $26 million

20. Winston & Strawn LLP © 2009 20 Sanctions Faced by Individuals Individual officers, directors, and employees of companies that violate the FCPA can be (and are routinely) fined and imprisoned: The former President and part owner of Pacific Consolidated Industries pled guilty to a two-count criminal information charging him with violating the FCPA's anti-bribery provisions for causing PCI to execute a "marketing agreement" with a relative of an official of the United Kingdom Ministry of Defense and subsequently causing the payment of roughly $70,000 to the relative A former Regional Manager of ITXC Corporation, a publicly held telecommunications company, was sentenced to 18 months in prison for conspiring to violate the anti-bribery provisions of the FCPA stemming from corrupt payments to foreign officials in order to retain business for ITXC in Africa Four former employees of a subsidiary of ABB Ltd. -- including a senior vice president and the former regional sales manager for West Africa -- settled an SEC civil action alleging that they violated the FCPA. As part of the settlement, the former regional sales manager paid a civil penalty of $50,000 and disgorged over $60,000, while the other three former employees paid civil penalties of $40,000 each

21. Winston & Strawn LLP © 2009 21 Collateral Consequences Violations of the FCPA may involve violations of other U.S. and foreign laws Money laundering Fraud (mail and wire) Conspiracy Antitrust violations (e.g., price-fixing, bid-rigging) Obstruction/false statements FCPA Investigations may trigger follow-on civil litigation (e.g., securities fraud actions, lawsuits brought by competitors and foreign governments) Criminal violations of the FCPA may trigger other collateral consequences, including: Debarment from contracting with the U.S. Government Loss of certain U.S. export privileges Foreign governments may consider cancelling contracts achieved through corrupt means as well as debarment

22. Winston & Strawn LLP © 2009 22 Overview: Accounting and Internal Control Provisions FCPA accounting and internal control provisions only apply to "Issuers," as well as individual officers, directors and employees of Issuers Issuers are public companies with registered securities in the United States or companies required to file reports under the Securities Exchange Act FCPA accounting and internal control provisions apply not only to the Issuer itself, but also subsidiaries, joint ventures and affiliates owned and controlled (i.e., more than 50% of the voting power) by the Issuer

23. Winston & Strawn LLP © 2009 23 Overview: Accounting and Internal Control Provisions (cont'd) Maintain accurate books and records that reflect in reasonable detail, accurately and completely, transactions and asset dispositions Establish effective systems of internal accounting controls With respect to non-U.S. affiliates in which a U.S. Issuer owns 50% or less of the voting power, the Issuer is required to make a good faith effort to cause such affiliates to maintain internal accounting controls Note: Although ownership is indicated by voting power, if a U.S. Issuer has effective control via management structure or local law regardless of ownership percentage, a "good faith effort" would require compliance

24. Winston & Strawn LLP © 2009 24 Overview: Accounting and Internal Control Provisions (cont'd) Effective internal accounting controls must provide reasonable assurances that: Transactions are carried out as authorized Transactions are accurately recorded Preparation of GAAP-based financial statements is possible Only authorized access to assets is allowed There are periodic audits

25. Winston & Strawn LLP © 2009 25 Issuers May Violate the FCPA's Record-Keeping and Internal Control Provisions by: Failing to record transactions, including facilitation payments (e.g., using off-the-books slush funds) Falsifying an aspect of a transaction to conceal its real purpose or nature (e.g., recording a payment to X that was actually made to Y) Making a qualitative misrepresentation as to a transaction (e.g., recording payment of $100,000 to agent "X" but failing to record that $20,000 of it would be used to bribe a foreign official)

26. Winston & Strawn LLP © 2009 26 Examples of Violations from SEC Enforcement Cases Designation of a payment as an "advance payment for expenses related to" securing government approval of a merger, when in reality the payment was to an agent who requested the money to expedite approval (In re Baker Hughes Inc., Exchange Act Release No. 44784) Recording a "maritime donation" and a "maritime agreement" that were actually payments to a Columbian customer's agent (In re Chiquita Brands International, Inc., Exchange Act Release No. 44902) Recording third-party subcontractor payments where the subcontractor funneled money to foreign officials, and back-dating authorization letters (In re International Business Machines Corp., Exchange Act Release No. 43761)

27. Winston & Strawn LLP © 2009 27 Penalties for Violating Accounting Provisions of the FCPA Criminal Penalties (Knowing/Willful) Fines of up to $25 million per willful violation for business entities Individuals may face criminal fines of up to $5 million and/or receive sentences of up to 20 years imprisonment for willful violations Civil Penalties The FCPA authorizes civil penalties of up to $500,000 against business entities and $50,000 for individuals for civil violations of the FCPA books and records provisions In addition, in an SEC enforcement action, the court may impose an additional fine not to exceed the greater of (i) the gross amount of the pecuniary gain to the defendant as a result of the violation, or (ii) a specified dollar limitation. The specified dollar limitations are based on the egregiousness of the violation, ranging from $5,000 to $100,000 for a natural person and $50,000 to $500,000 for any other person

28. Winston & Strawn LLP © 2009 28 Enforcement Under the FCPA's record-keeping and internal control provisions, the SEC has held parent companies responsible for the conduct of their subsidiaries, even where the parent companies had no knowledge or even suspicion of the subsidiaries' FCPA violations : The SEC charged Triton Energy with a record-keeping violation when its foreign subsidiary's agent made an improper payment to a foreign official, even though Triton Energy did not expressly authorize its subsidiary's actions or the improper recording of the payments IBM agreed to pay a civil fine based on violations by its foreign subsidiary. The SEC observed that IBM did not falsify or destroy any records. However, in consolidating its subsidiaries' financial results, IBM, without the knowledge or approval of any U.S. employee, incorporated false information into its Form 10-K, which it filed with the SEC

29. Winston & Strawn LLP © 2009 29 Elements of Effective FCPA Compliance

30. Winston & Strawn LLP © 2009 30 How FCPA Issues Arise FCPA issues can arise in any number of contexts, including: Direct bribes to government officials Indirect bribes to government officials (via agents or other third parties) Entertainment and hospitality expenses (per diems) Joint venture arrangements Mergers and acquisitions Charitable contributions

31. Winston & Strawn LLP © 2009 31 Compliance Program Must implement an effective compliance program which includes the following elements: 1.Clearly written company-wide FCPA compliance code and policies (In the case of “Issuers,” they must create and maintain a system of internal controls) 2.Appointment of a compliance officer 3.Communication from upper management setting tone from top 4.Performance of due diligence of agents, potential joint venture partners, and potential targets for M&A 5.Inclusion of FCPA compliance provisions in certain international contracts 6.Hotline or other means for internal disclosures 7.Employee training, especially for those individuals involved with international agents and customers

32. Winston & Strawn LLP © 2009 32 Effective FCPA Compliance Takes Into Account U.S. law (FCPA) Domestic/local laws (law of the jurisdiction where activity is undertaken) Other applicable laws (based on nationality of individuals, the jurisdictions where companies and other business entities are organized, transnational contacts/communications) International Anti-Corruption Standards United Nations Convention Against Corruption OECD International Anti-Bribery Convention Inter-American Convention Against Corruption

33. Winston & Strawn LLP © 2009 33 FCPA Policies A company’s FCPA policy must address: 1.Policy Statement: “No corrupt payments. No exceptions. Even if everyone else is doing it.” 2.Basics of the FCPA and why it is crucial to company Anti-Bribery Accounting Provisions (if Issuer) 3.Consequences for noncompliance (company-specific sanctions as well as legal sanctions) 4.Grease/Facilitation Payments 5.Interactions with Government-Owned Businesses 6.Agent Interactions and Due Diligence 7.Meals & Entertainment 8.Gifts & Hospitalities 9.Foreign Charitable Contributions

34. Winston & Strawn LLP © 2009 34 Policy Position on Facilitation Payments General Rule: No "grease" or facilitating payments Violates almost all local laws Difficult for employees to determine what are routine or non-routine decisions Could violate FCPA accounting provisions (in case of Issuer) if not accurately reported (and if reported, could constitute an admission of a local law violation) Exceptions for payments which are minor in value (and clearly for non-discretionary matters); necessary if one’s life is at stake; or thoroughly vetted by the Law Department If made, must be accurately recorded in the books of an issuer

35. Winston & Strawn LLP © 2009 35 Agent Interaction and Due Diligence The actions of a third-party acting as an agent, representative, or consultant can expose U.S. companies to liability under the "knowing" standard Care must be taken in the retention of such persons: Establish business justification FCPA Briefing Due diligence Written agency agreements (FCPA representations)

36. Winston & Strawn LLP © 2009 36 Agent Interaction and Due Diligence (cont'd) Careful and thorough due diligence, as well as continuing oversight, helps to establish the defense that any improper or questionable payments were made without the company's (or any individual officer's or employee's) knowledge

37. Winston & Strawn LLP © 2009 37 Agent Business Justification Business Justification Work to be performed Economics of appointment Other options for reaching customer, if any, such as more qualified intermediaries Interview Requirement All potential agents should have a face-to-face interview with the key account manager, business unit manager or regional manager Should receive FCPA briefing

38. Winston & Strawn LLP © 2009 38 Agent Due Diligence Focus on reputation, corrupt history, qualifications, and red flags Sample list of due diligence materials: 1.Agents Questionnaire 2.Commercial and Special Registrations under Local Law 3.Business References 4.Database Searches, including U.S. restricted parties lists 5.FCPA certification 6.U.S. Embassy Reference (ICP) or local counsel report Due diligence materials should be gathered by a business division other than the division which intends to retain the agent for sales promotion. This injects objectivity into process Due diligence materials should be reviewed by legal counsel which can then address/resolve “red flags”

39. Winston & Strawn LLP © 2009 39 Agent Due Diligence (cont'd) Agent Questionnaire: Agent contact information Ownership of agent Management (officers, directors and executives) Branches, subsidiaries or affiliates Ties to political or government officials (e.g., relatives, close personal associates, etc.) Resumes and credentials of important employees Prior criminal charges Contact information for at least three commercial references Annual report, financial statement, or statement of opinion from outside auditor or bank

40. Winston & Strawn LLP © 2009 40 Agent Due Diligence (cont'd) Completion of the Business Reference Form Prior experience Nature of relationship Impression of ethics and business practices Opinion of view in business community Known political, government or military ties Opinion of qualifications

41. Winston & Strawn LLP © 2009 41 Agent Due Diligence (cont'd) Additional Due Diligence Sources: Make inquiries regarding the agent's reputation, connections and other relevant information Commercial attaché at the U.S. Embassy or Consulate Country desks at the State Department Country or business desks of the Commerce Department Search various U.S. Government restricted parties lists Make appropriate local law inquiries The use and registration of agents Limits or guidelines on compensation "Revolving-door" restrictions Update due diligence regularly (e.g., every four to five years or so)

42. Winston & Strawn LLP © 2009 42 Agent Compliance Certifications Agent Certification and Contractual Provisions: Each prospective agent is required to make FCPA certifications No ties to public authorities or officials No family relationships Agent understands anti-corruption obligations and corporate policies Agent will not violate corporate policies or applicable law Standard agency/representative agreement should contain compliance with law and anti-corruption provisions

43. Winston & Strawn LLP © 2009 43 Due Diligence Red Flags Red Flags include: Failure to comply with local law Refusal to execute FCPA compliance representations or warranties or cooperate with FCPA due diligence information Agent has a bad reputation or is the subject of allegations of corrupt, unethical and/or criminal activity Agent or joint venture partner has been previously convicted of a corruption offense or other crime Agent is a current government official, political candidate or royal family member Agent is an immediate family relative or business associate of a government official or political candidate Agent is recommended by a government official or political candidate

44. Winston & Strawn LLP © 2009 44 Due Diligence Red Flags (cont'd) Unusually high commission rate, or demands for excessive compensation (obtain comparables) Agent requests for cash payment, payment to offshore accounts, or payment to an account in a different name Agent has undisclosed owners Agent has undisclosed subagents or subcontractors that assist with the representation Agent requests cooperation in tax avoidance or other illegal conduct Agent lacks the organizational resources to undertake the proposed activities Country has a reputation for government corruption

45. Winston & Strawn LLP © 2009 45 Meals and Entertainment Company personnel must provide meals and entertainment in good faith and not with any corrupt intent or expectation of a favor Meals and entertainment should be directly related to a bona fide and legitimate business purpose The value of the meal or entertainment should be reasonable The meal or entertainment should comply with local law The venue should be tasteful and comply with generally accepted business and professional standards Company personnel should be in attendance Regular meals or entertainment to the same official or group of officials may create an appearance of impropriety The issuer's books and records must accurately reflect the value and nature of all meals and entertainment Expense reports should be supported by adequate documentation such as receipts

46. Winston & Strawn LLP © 2009 46 Gifts and Gratuities Gift giving is very important in some cultures and absolutely prohibited in others Company personnel must only provide gifts in good faith and not with any corrupt intent or expectation of a favor The value of the gift should be reasonable Gifts should be directly related to a bona fide and legitimate business purpose To the extent possible, gifts should be embossed with the Company's logo Regular gifts to the same official or group of officials may create an appearance of impropriety The issuer's books and records must accurately reflect the value and nature of all gifts Expense reports should be supported by adequate documentation, such as receipts

47. Winston & Strawn LLP © 2009 47 Travel/Delegation Visits Company personnel must provide travel for business purposes in good faith and not with any corrupt intent or expectation of a favor Travel and accommodations should be reasonable and directly related to a bona fide and legitimate business purpose Tourist and entertainment excursions should generally not be paid for by the Company Money (compensation or per diem) should generally not be given to individuals unless required by the agreement with the government customer The law department should approve travel expenses The delegation members should be selected by the customer (not the Company) Prior written notification, itinerary and budget of the trip should be given to the government organization that employs the recipient The issuer's books and records must accurately reflect the value and purpose of travel

48. Winston & Strawn LLP © 2009 48 Charitable Contributions Corruption issues may be present if a government official responsible for a transaction has an interest or position with a foreign charity Due diligence should be performed before making charitable contributions Following a donation, confirmation that such donation has been used for its intended purpose should be obtained Schering-Plough case Total of $76,000 was paid over four years to a charity operated by a government official Payments were broken into small amounts to avoid detection

49. Winston & Strawn LLP © 2009 49 Training Compliance efforts should include regular anti-corruption training All employees whose activities could raise FCPA or anti-corruption concerns, or who supervise such persons, are required to regularly attend training seminars Training seminars may be tailored to the issues and challenges presented in individual markets

50. Winston & Strawn LLP © 2009 50 Problem Management/Escalation Protocol Compliance programs should include procedures for reporting and responding to problems or possible violations, including: Notification of appropriate compliance personnel and members of management Transaction holds Document preservation A mechanism should also be in place to permit anonymous reporting

51. Winston & Strawn LLP © 2009 51 Conclusion Indications are that the recent surge in FCPA enforcement activity will continue for the foreseeable future Companies need to ensure that their compliance policies cover the necessary topics and provide procedures for dealing with issues as they arise The goal is to comply and be competitive. There are ways of achieving a business objective without violating the FCPA or other applicable law