1. Slide 1 FastFacts Feature Presentation January 11, 2012 We are using audio during this session, so please dial in to our conference line… Phone number: 888-651-5908 Participant code: 182500 © 2012 The Johns Hopkins University. All rights reserved.

2. Slide 2 Todays Topic Well be taking a look at… Complying With Foreign Corrupt Practices Act (FCPA) And U.S. Anti-Boycott Laws

3. Slide 3 Todays Presenter E. Bernard Justis, Esq. Sunanda K. Holmes, Esq.

4. Slide 4 Session Segments Presentation Bernard and Sunanda will provide an overview of the Foreign Corrupt Practices Act and the U.S. Anti-Boycott Laws. During Bernard and Sunandas presentation, your phone will be muted. Q&A After the presentation, well hold a Q&A session. Well open up the phone lines, and youll be able to ask questions. Bernard and Sunanda will answer as many of your questions as time allows.

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7. Slide 7 Survey At the end of this FastFacts session, well ask you to complete a short survey. Your honest comments will help us to enhance and improve future FastFacts sessions.

8. Slide 8 Complying With Foreign Corrupt Practices Act (FCPA) And U.S. Anti-Boycott Laws

9. Slide 9 Agenda This session will focus on the following topics: The requirements of the Foreign Corrupt Practices Act and the U.S. Anti-Boycott Laws. How these laws apply to the universitys activities in foreign countries. How the university can remain compliant with these laws and achieve its objectives overseas.

10. Slide 10 FCPA Background Enacted in 1977 in response to corporate scandals. U.S. was the only country that criminalized bribery of foreign government officials for 20 years. More attention to FCPA due to new laws passed such as PATRIOT Act, Sarbanes-Oxley Act 2002 (SOX), and other anti-corruption laws/conventions. Other countries have since passed similar anti-corruption and bribery laws/conventions (e.g. OECD Anti-Bribery Convention, UK, etc.). Recent substantial increase in FCPA enforcement proceedings.

11. Slide 11 Foreign Corrupt Practices Act (FCPA) Two Major Provisions: Anti-bribery Provisions - 15 U.S.C. §§ 78dd-1, et seq. Prohibits the direct or indirect bribery of or offer or promise to bribe (by the payment of money or anything of value) a foreign official, foreign political party, or any candidate for foreign political office, or any person while knowing that all or a portion of such bribe will be paid, given, promised or offered to pay any of the preceding, in order to direct, obtain or retain business to, for or with any person. Applies to a company/organization as an entity itself along with its shareholders, directors, agents, officers and employees. SEC Accounting Standards and Internal Audit Controls - Section 13, Securities Exchange Act of 1934 Requires publicly-traded companies to design a system of internal accounting controls that will adequately ensure all transactions subject to the FCPA are properly executed and recorded. Publicly-traded companies covered by the FCPA are required to establish and maintain books and records that accurately demonstrate all transactions of the company.

12. Slide 12 FCPA – Anti-Bribery Provisions Prohibited Payments: It is unlawful to pay or give (or offer, promise or authorize to pay or give) money or anything of value to a foreign official, a foreign political party or official thereof, a candidate for foreign political office, or any person, while knowing that all or a portion of such money or thing of value will be paid or offered to pay any of the preceding, to influence official action or decisions or to secure any improper business advantage in order to direct, obtain or retain business to, for or with any person. Five elements: Who - Applies to any U.S. company, issuer, officer, director, employee or agent of such company or issuer. Payment - Cannot offer, pay or promise to give money or anything of value. Corrupt Intent - The payer must have a corrupt intent and the payment must be intended to induce misuse of an official position. Recipient - To any foreign official, foreign political party or official thereof, candidate for foreign political office, or any third party, if it is known that the payment will be used to influence official action or secure improper advantage in violation of the FCPA. Business Purpose Test - To influence official action or to secure any improper advantage in order to direct, obtain or retain business.

13. Slide 13 Who Is Bound? Domestic concerns – US citizens, nationals and residents, and corporations and other business entities having their principal place of business in the United States or organized under US laws. Other persons who act in furtherance of a corrupt payment while in a territory of the United States (i.e., by use of U.S. mail, faxes, wire transfers, etc.) Potential liability for acts of non-US citizens (i.e., authorized, directed or controlled activities of a foreign subsidiary)

14. Slide 14 FCPA-Prohibited Payments Prohibited Payments: Cannot offer, pay or promise to give anything of value, which may include, among other things: Cash Cash Equivalents Services Payment of Travel Expenses Entertainment Expenses Gifts Loans Charitable Contributions Promises of Future Employment College Scholarships Sports or Other Equipment Intangible Property (e.g., information)

15. Slide 15 FCPA: What is Corrupt Intent? The person making or authorizing the payment must have a corrupt intent, and the payment must be intended to induce the recipient to misuse his official position to direct business wrongfully to the payer or to any other person. A corrupt act need not succeed in order to violate the FCPA. The mere offer or promise of corrupt payment may be sufficient.

16. Slide 16 FCPA: Who is a Foreign Official? The FCPA broadly defines foreign official as: Any officer or employee of a foreign government, or any department, agency, or instrumentality of such government; Any officer or employee of a public international organization (e.g. the UN); Any person acting in an official capacity for or on behalf of any such foreign government or department, agency, or instrumentality, or for or on behalf on any public international organization (i.e., may even include a member of the foreign countrys royal family); and Officers, employees and agents of government-owned or controlled commercial entities.

17. Slide 17 FCPA – Business Purpose Test Business Purpose Test/Prohibited Activities: Cannot pay or give, or offer, promise or authorize to pay or give, money or anything of value for the purpose of: influencing any act or decision of a foreign official, party or candidate in his or its official capacity, or inducing such foreign official, party or candidate to do or omit to do any act in violation of their lawful duty, or securing any improper advantage, or inducing any foreign official, candidate or party to use his/her or its influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, or any person, while knowing that all or a portion of money or a thing of value will be paid or offered to any of the preceding, in order to assist the company in obtaining or retaining business for or with, or directing business to, any person (e.g., business may include, among other things, obtaining contracts with the government or any non-governmental party, diminution of duties or taxes, obtaining registrations or licenses, etc.).

18. Slide 18 FCPA: Definition of Knowledge It is illegal to pay ANYONE when knowing that all or part of the payment will be passed to a foreign official or other prohibited persons for purposes of directing, obtaining or retaining business. Knowledge is defined to include: Actual knowledge Awareness of a high probability of the existence of the circumstance Willful blindness (consciously disregarding facts)

19. Slide 19 FCPA-Exceptions and Affirmative Defenses Exception Facilitating payments (i.e., grease payments) in order to secure routine governmental action Affirmative defenses (1) Payment lawful under written foreign law – very rare (2) Reasonable and bona fide expenditure directly related to the promotion, demonstration or explanation of services, or the execution or performance of a contract with a foreign government or agency thereof

20. Slide 20 FCPA - Exception Facilitation Payments for routine governmental actions, including: Obtaining licenses or permits to do business Processing government papers (visas, work orders) Providing police protection, mail or cargo service Providing telephone service, power or water supply Caveats Must be ministerial – no discretionary authority Cannot affect decision to award new business or to continue existing business

21. Slide 21 FCPA – Affirmative Defenses Payment lawful under foreign law There must be something in the written law or regulations of the foreign country (this is very rare). Traditional or customary payments that are not legally enforced do not qualify. Reasonable and bona fide business expenditure Incurred to promote or demonstrate a business or product; must be directly related to a legitimate business purpose. Includes trip expenses, tours of company facilities, product demonstrations and training. Must be reasonable and bona fide.

22. Slide 22 FCPA – Materiality Irrelevant No materiality threshold for FCPA Any prohibited payment is wrongful FCPA non-compliance can have material negative impact on operations and reputation Criminal and civil penalties may be substantial

23. Slide 23 FCPA Penalties Anti-BriberyFinancial Reporting Criminal Individual Fines up to $250,000 Fines up to $5M 5 years imprisonment 20 years imprisonment Corporate Fines up to $2M or 2x pecuniary gain Fines up to $25M or 2x pecuniary gain Civil Individual $11,000 per violation $6,500-110,000 per violation Corporate $11,000 per violation $60,000-600,000

24. Slide 24 Other FCPA Enforcement Options Criminal fraud charges Censure Civil injunctive action Administrative cease and desist proceedings Disgorgement of ill-gotten gains Pre-judgment interest Loss of certain U.S. export privileges Cancelation of contracts by foreign governments Debarment by foreign governments Other remedial measures Debarment by the U.S. government Implementation of FCPA compliance program Independent monitor Continuing reporting obligation Deferred prosecution agreements

25. Slide 25 FCPA – Red Flags Companies with significant overseas operations Operations in countries with high risk for bribery (i.e. Southeast Asia, Middle East) Operations in high risk industries (i.e. defense, aircraft, oil, engineering, construction) Joint ventures with foreign government entities Foreign consulting/agency relationships Large payments to foreign agents relative to local prevailing rates for services provided Agent refuses to provide FCPA compliance representations Unusual bonuses paid to foreign operational managers Unusual payment arrangements to vendors Commissions inconsistent with the going rate Public red flags such as political contributions, payoffs, bribes, kickbacks or excessive rebates

26. Slide 26 FCPA Myths The FCPA doesnt apply to conduct that takes place entirely outside of the United States without U.S. parent company involvement. False The FCPA applies only when doing business with foreign government customers. False The FCPA applies only when money is given to a foreign official False The FCPA doesnt apply when foreign officials travel to the United States if the predominate purpose of the travel is business-related False

27. Slide 27 Public-Owned Enterprises In countries where a majority of businesses may be partially state- owned, any U.S. company or individual conducting activities with those businesses should be aware that they may be in essence dealing with foreign officials. This should alert any employee or agent of a U.S. company about the dangers of potential FCPA violations for seemingly legal and ethical business transactions.

28. Slide 28 Reporting Possible FCPA Violations Contact the Office of Hopkins Internal Audits, the Office of Vice President and General Counsel, or the Office of International Business Compliance. Call the university hotline at 877-932-6675 (1-877-WE-COMPLY). You may remain anonymous. Overseas callers should identify the appropriate country code by checking this website: http://www.business.att.com/bt/access.jsp?c=a http://www.business.att.com/bt/access.jsp?c=a If the country you are calling from does not support international access codes, call the operator and request a collect call to the U.S. number 704-916-1251. All the expenses related to the call will be paid for by JHU.

29. Slide 29 U.S. Anti-Boycott Laws

30. Slide 30 Foreign Embargoes and U.S. Anti-boycott Laws Many countries restrict trade relations with other countries as part of their foreign policy. Bans on imports, exports. May be enforced through contract clauses, import license procedures, country-of-origin certificates. Some of these restrictions are consistent with U.S. policy and some are not. Defining boycott Boycott involves the entering into an agreement as a condition of doing business in a country. The agreement requires a person to refrain from doing business in (or hiring employees from) another country or with other persons that do business in (or hire employees from) the other country.

31. Slide 31 U.S. Anti-Boycott Laws Anti-Boycott Laws – counteract participation of U.S. citizens in other countrys economic boycotts and embargoes Ribicoff Amendment to the 1976 Tax Reform Act (TRA) 1977 Amendment to the Export Administration Act (EAA) Main Purpose – prohibit U.S. companies from participating in the Arab League boycott of Israel or countries that are friendly to the U.S. The primary boycott prohibits citizens of an Arab League member from buying from, selling to, or entering into a business contract with either the Israeli government or an Israeli citizen. The secondary boycott extends the primary boycott to any entity world-wide that does business with Israel. A blacklist of global firms that engage in business with Israel is maintained by the Central Boycott Office, and disseminated to Arab League members. The tertiary boycott prohibits an Arab League member and its nationals from doing business with a company that in turn deals with companies that have been blacklisted by the Arab League. Arab League members that boycott goods/services from Israel: Kuwait Lebanon Libya Qatar Saudi Arabia Syria United Arab Emirates Republic of Yemen

32. Slide 32 Export Administration Act – Anti-Boycott Laws Who is Covered by the Laws? Applies to U.S. persons engaged in interstate or foreign commerce individuals, corporations and unincorporated associations residing in the U.S. permanent domestic affiliates of foreign concerns in the U.S. U.S. citizens living abroad What Does the Law Prohibit? Agreements to refuse or actual refusal to do business with or in Israel or with blacklisted companies. Agreements to discriminate or actual discrimination against other persons based on race, religion, sex, national origin or nationality. Agreements to furnish or actual furnishing of information about business relationships with or in Israel or with blacklisted companies. Agreements to furnish or actual furnishing of information about the race, religion, sex, or national origin of another person. Implementing letters of credit containing prohibited boycott terms or conditions. Tax Reform Act does not prohibit conduct but denies tax benefits for certain types of boycott-related agreements.

33. Slide 33 Intent to Boycott No intent to comply with or respond to a boycott request – reportable. Unsolicited invitations to bid containing boycott-related requests are not reportable if no response to the solicitation will be submitted. Requests received from a boycotting country where the U.S. company has business is reportable, even if no intent to comply with the boycotting requests. Activities undertaken with "intent" to further a boycott request constitute a anti-boycott violation and is reportable. Must have "knowingly agreed to take certain specified actions with intent to comply with, further, or support an unsanctioned foreign boycott. No intent to boycott, may mean no violations.

34. Slide 34 Reporting Requirements Export Administration Regulations (EAR) requires mandatory reporting of boycott requests: Form BIS-621P (quarterly report of Request for Restrictive Trade Practice or Boycott - Single Transaction to Bureau of Industry and Securitys (BIS) Office of Anti-boycott Compliance)BIS-621P Form BIS-6051P (quarterly report of Request for Restrictive Trade Practice or Boycott - Multiple Transactions to BIS)BIS-6051P Tax Reform Act (TRA) requires taxpayers to report "operations" in, with, or related to a boycotting country or its nationals and requests received to participate in or cooperate with an international boycott. Department of Treasury publishes a quarterly list of "boycotting countries."

35. Slide 35 Exceptions to EAR Reporting Requirements Examples of Exceptions to Reporting Requirements: Requests for affirmative certifications regarding country of origin, name of suppliers, manufacturers or suppliers of services, or destinations of export; Requests to comply with another country's laws, unless the request specifies the country's boycott laws; Requests to supply information about an individual for immigration, passport, visa, or employment purposes; or Requests to ship goods via a particular route or to refrain from shipping goods on a carrier flying a flag of a certain country. See 15 C.F.R. § 760.5(a)(5)

36. Slide 36 EAA Anti-Boycott Penalties Civil (Administrative) Penalty Denial or suspension of export privileges Fines of up to $11,000 per violation and/or Exclusion from practice Criminal Penalty Up to $50,000 or 5 times the value of exports involved, whichever is greater and/or 5 years imprisonment

37. Slide 37 IRS Form 5713: Boycott Report Purpose of IRS 5713 is to report: operations in or related to boycotting countries; receipt of boycott requests; and/or boycott agreements made. Applies to: U.S. persons with operations in or related to a boycotting country, with the government, company or a national of a boycotting country. U.S. branches of foreign corporations When: form is due at the filing of the tax returns Penalties: willful failure to file may result in a $25,000 fine, imprisonment up to 1 year, or both. May be denied foreign tax credit among other tax benefits.

38. Slide 38 Defining Operations Operations means all forms of business or commercial activities and transactions (or parts of transactions), whether or not productive of income, including, but not limited to: selling; purchasing; leasing; licensing; banking, financing, and similar activities; extracting; processing; manufacturing; producing; constructing; transporting; performing activities related to the activities above (for example, contract negotiating, advertising, site selecting, etc.); and performing services, whether or not related to the activities above. Reporting is required for boycott requests or boycott agreements against Israel as well as other countries friendly to the U.S. Reporting is made on IRS 5713 on an annual basis to the Internal Revenue Service.

39. Slide 39 Examples of Boycott Requests Prohibited Language on Purchase Orders: In the case of overseas suppliers, this order is placed subject to the suppliers being not on the Israel boycott list published by the central Arab League. Goods of Israeli origin not acceptable. Prohibited Boycott Conditions in Contracts: The Seller shall not supply goods or materials which have been manufactured or processed in Israel nor shall the services of any Israeli employees be used in handling or transporting the goods or materials. The Contractor shall comply in all respects with the requirements of the laws of Saudi Arabia relating to the boycott of Israel. Goods manufactured by companies blacklisted by the Arab Boycott of Israel Office may not be imported into Saudi Arabia and must not be supplied against this Contract. For information concerning the Boycott List, the Contractor can approach the nearest Arab Consulate. Prohibited Boycott Condition in Instructions to Bidders on a Contract: No produced commodity shall be eligible for... financing if such commodity contains any component or components which were imported into the producing country from Israel and countries not eligible to trade with... the Peoples Republic of Bangladesh. The equipment and materials must not be of Israeli origin. The supplier/bidder who are not black listed by Arab boycott of Israel will be allowed to participate in this bid. Prohibited Condition in a Trademark Application: Requirement for the registration of pharmaceutical companies: Certification letter regarding the boycott of Israel (i.e., do not comprise any parts, raw materials, labor or capital of Israeli origin). Prohibited Boycott Condition in Tenders: The quotation should not include any material manufactured or exported by Boycotted companies as per the Kingdom of Saudi Arabia regulations. The bidder/supplier who are not subject to the Boycott regulations of the League of Arab States or of the Kingdom of Saudi Arabia will only be considered. Prohibited Boycott Language Against Countries Other Than Israel: The Service Provider will not hire employees of Indian origin to fulfill the tasks outlined in this Memorandum of Understanding.

40. Slide 40 Conclusion This session covered The requirements of the Foreign Corrupt Practices Act and U.S. Anti-Boycott Laws How these laws apply to the universitys activities in foreign countries How the university can remain compliant with these laws and achieve its objectives overseas

41. Slide 41 Resources: Bureau of Industry and Security – Division of US Dept. of Commerce: http://www.bis.doc.gov/complianceandenforcement/antiboycottcompliance.htm http://www.bis.doc.gov/complianceandenforcement/antiboycottcompliance.htm BIS Specific Examples: http://www.bis.doc.gov/antiboycottcompliance/oacantiboycottrequestexamples.html http://www.bis.doc.gov/antiboycottcompliance/oacantiboycottrequestexamples.html OFAC – Office of Foreign Assets Control: http://www.treasury.gov/about/organizational- structure/offices/Pages/Office-of-Foreign-Assets-Control.aspxhttp://www.treasury.gov/about/organizational- structure/offices/Pages/Office-of-Foreign-Assets-Control.aspx JHU Office of International Business Compliance – Anti-boycott Laws: http://finance.jhu.edu/depts/ibc/anti_boycott_laws.html http://finance.jhu.edu/depts/ibc/anti_boycott_laws.html DOJ – FCPA Website: http://www.justice.gov/criminal/fraud/fcpa/http://www.justice.gov/criminal/fraud/fcpa/ DOJ Laypersons Guide to FCPA: http://www.justice.gov/criminal/fraud/fcpa/docs/lay-persons- guide.pdfhttp://www.justice.gov/criminal/fraud/fcpa/docs/lay-persons- guide.pdf JHU Office of International Business Compliance – FCPA: http://finance.jhu.edu/depts/ibc/fcpa.htmlhttp://finance.jhu.edu/depts/ibc/fcpa.html

42. Slide 42 Contact Information Questions/Comments Bernard Justis - ejustis1@jhu.eduejustis1@jhu.edu (410) 516-8128 Sunanda Holmes - sunandaholmes@jhu.edusunandaholmes@jhu.edu (443) 997-5325

43. Slide 43 Were going to open the phone lines now! There will be a slight pause, and then a recorded voice will provide instructions on how to ask questions over this conference call line. Well be answering questions in the order that we receive them. Well also be answering the questions that were emailed to us during the presentation. If theres a question that we cant answer, well do some research after this session, and then email the answer to all participants. Q&A

44. Slide 44 Thank You! Thank you for participating! We would love to hear from you. Are there certain topics that you would like us to cover in future FastFacts sessions? Would you like to be a FastFacts presenter? Please email us at: fastfacts@jhu.edu

45. Slide 45 Survey Before we close, please take the time to complete a short survey. Your feedback will help us as we plan future FastFacts sessions. Click this link to access the survey… http://connect.johnshopkins.edu/fastfactssurvey/ http://connect.johnshopkins.edu/fastfactssurvey/ Thanks again!