1. Doing Business Ethically in Africa
Success Stories and Challenges
October 21, 2015
Montréal

2. James M. Lord, Partner Sideman & Bancroft LLP 1999 Broadway, Suite 4300 Denver, CO T: F:
Xavier Oustalniol, CPA, CFF, CIRA Managing Director Alvarez & Marsal Global Forensic & Dispute Services LLC 425 Market Street, 18th Floor | San Francisco, CA Direct: | Mobile:
Obi Madubuko, Partner
McDermott, Will & Emery 340 Madison Avenue  New York , NY T:  F: 
Edward S. Goldenberg, C.M, Partner Bennett Jones Ottawa and Toronto Co-Head of Government Affairs and Public Policy  Governance, Public Policy and Government Relations T: T:

3. RECENT ANTI-CORRUPTION LAW ENFORCEMENT ACTIONS
Bristol-Myers Squibb (Oct 2015): $15M
Hitachi (Sept 2015): $19M
BHP Billiton (May 2015): $25M
Commerzbank (Mar 2015): $1.45B
Schlumberger Oilfield Holdings Ltd. (Mar 2015): $232.7M
Goodyear Tire & Rubber Co. (Feb 2015): $16M
Layne Christensen (Oct 2014): $5M
Weatherford (Nov 2013): $250M
Parker Drilling (Apr 2013): $4M
BHP Billiton (May 20, 2015): BHP paid $25 million to settle civil FCPA allegations involving paying for travel and hospitality of African officials to attend 2008 Olympic games in China
Fast forwarding to 2014 in Layne Christensen, the Houston-based global water management, construction, and drilling company, was forced to pay over $5 million in sanctions despite the fact that the SEC’s cease-and-desist order pleaded facts inconsistent with the Fifth Circuit’s opinion in Kay. In its discussion of Layne Christensen’s alleged violation of the FCPA’s anti-bribery provisions, the SEC only alleged that the company paid bribes to foreign officials in multiple African countries “in order to, among other things, obtain favorable tax treatment, customs clearance for its equipment, and a reduction of customs duties.” The SEC’s cease-and-desist made no reference to how these reduced costs were used to obtain or retain business, rendering the SEC’s charges facially deficient. Layne Christensen is not, however, the first time the DOJ and SEC have brought similar FCPA charges against companies without alleging how reduced taxes and customs duties were used to obtain or retain business. In the Panalpina cases from 2010, a series of enforcement actions against various international oil and gas companies, the DOJ and SEC treated the exchange of bribes for reduced taxes and customs duties as per se violations of the FCPA. Even in the 2012 FCPA Guide the enforcement agencies make clear that “bribe payments made to secure favorable tax treatment, or to reduce or eliminate customs duties satisfy the business purpose test.” Whether the DOJ’s and SEC’s approach to the “obtaining or retaining business” element of the FCPA stems from a misinterpretation of Kay or is an attempt to challenge the Fifth Circuit’s opinion, remains to be seen. Nevertheless, we are troubled by the lack of clarity in the DOJ’s and SEC’s approach as it ultimately disadvantages defendants who may otherwise be pressured to settle charges over conduct which does not necessarily constitute a crime.
$8.9 billion settlement reached last June between BNP Paribas S.A. and DOJ, FRB, DFS, and NYCDA for alleged violations of the Iran, Sudan, Cuba, and Burma sanctions programs.

4. CANADA’S RESPONSE TO CORRUPTION
1999: Corruption of Foreign Public Officials Act (CFPOA)
2007: Royal Canadian Mounted Police (RCMP) International Anti-Corruption Unit established
No significant convictions until:
2011: Niko Resources fined $9.5 million for bribes in Bangladesh
2013: Griffiths Energy convicted and fined $10.35 million for bribes to wife of Chad's ambassador to Canada
2013: Nazir Karigar convicted for conspiracy to bribe Indian Minister and Air India officials
2013 CFPOA amended: broader reach, tougher penalties
: Charges against former SNC-Lavalin employees
2014: Karigar sentenced to 3 years imprisonment; 3 others charged in same matter
30+ RCMP investigations ongoing

5. BUILDING AN EFFECTIVE COMPLIANCE PROGRAM
What are the hallmarks of an effective anti-corruption compliance program?
Setting the tone from the top
Having a clear written policy that is well known
Regular training of staff and related parties
Strong internal controls
Consistent and fair enforcement
Continual monitoring
Making changes when needed
US Sentencing Guidelines Manual, §8B2.1
In Sept 2010, UK Ministry of Justice circulated 6 principles that it will consider in determining whether a company’s compliance program is “adequate” under the UK Bribery Act of 2010, which will become effective in April 2011:
Risk assessment (know what the risk areas are)
Commitment from senior management (setting tone from the top)
Due diligence prior to entering into transactions
Clear and accessible policies
Effective implementation of those policies
Financial monitoring and review

6. DOJ FCPA GUIDANCE (Issued in November 2012)
Regular FCPA risk assessments emphasized
Anticorruption policies and procedures should be clear and endorsed by senior management
Appoint senior level FCPA point person, preferably with Board access
Enforcement should be consistent and fair
Third parties must be vetted, monitored and controlled
DOJ expects appropriate pre-deal FCPA due diligence for all international deals
In the M&A context, DOJ expects affirmative steps to integrate the acquired entity into the existing compliance program post-merger
Self-reporting and full cooperation with DOJ stressed
Risk Assessments:DOJ views risk assessments as being the cornerstone for determining whether a company has appropriately managed its FCPA risk. It will look to whether a company has undertaken regular FCPA risk assessments to determine whether the company’s FCPA compliance program is effective, which is a mitigating factor for DOJ charging and sentencing purposes. Risk assessments will inform how a company should prioritize and allocate its resources to combat international corruption. FCPA risk profiles should be routinely updated based on changes in the business model or company operations and should include an analysis based on a variety of factors including but not limited to geographic, industry, and transactional risks. The DOJ FCPA Guidance further stressed the need for companies to perform risk assessments on a periodic basis (including the need for periodic external risk assessments) to gauge the sufficiency of a company’s FCPA compliance program and internal controls. [CITE GUIDANCE PAGE REFERENCES HERE]
Policies & Procedures: FCPA Guidance stresses need to establish a corporate culture of compliance as dictated by the existence of clear written policies and procedures that are endorsed by senior management and understood by company employees and other relevant third parties. [CITE DOJ GUIDANCE PAGE REFERENCE HERE]
FCPA Point Person: The Guidance indicates that DOJ expects that there will be a senior person at the company in charge of managing and implementing the company’s FCPA program. [CITE DOJ GUIDANCE PAGE REFERENCE HERE] Current best practices dictate that the role of chief compliance officer be separate from that of general counsel and that the chief compliance officer have direct access to the Board of Directors, particularly when it comes to reporting on FCPA compliance matters. [CITE GUIDANCE DOJ PAGE REFERENCE & US SENTENCING GUIDELINE UPDATE HERE]
Enforcement: The Guidance reemphasizes the need for the company to enforce its FCPA policies in a way that is consistent and fair (no sacred clients or exempt senior managers). For Audit Committee purposes, it should be kept abreast of FCPA related investigations, remediations, and prevention strategies on a regular basis. The Audit Committee should probe on the sufficiency of anticorruption controls throughout the company and how well the company is at identifying and managing its corruption risks. [CITE GUIDANCE DOJ PAGE REFERENCE HERE]
Third Parties: The Guidance acknowledged that many FCPA problems result from the reliance on third parties and local agents when doing business abroad. For that reason, DOJ stressed the need for appropriate 3rd party due diligence, and it is highly recommended that Barnes use FCPA representations and warranties in standard contracts, and require FCPA certificates of compliance from key employees and relevant third parties as needed. [CITE GUIDANCE DOJ PAGE REFERENCE HERE]
FCPA Due Diligence/Successor Liability: DOJ expects pre-deal due diligence on anticorruption related risks. FCPA due diligence should include geographic risk, industry risk, joint venture risk, strategic partner or other relevant third party risks, and internal control risks. The Guidance also provided further information on limitations for FCPA successor liability, including an acknowledgement that DOJ would not seek to prosecute entities that it would not have jurisdiction over but for the joint venture for pre-acquisition violations. [CITE GUIDANCE DOJ PAGE REFERENCE HERE]. However, the Guidance also noted that DOJ takes the position that it has full jurisdiction over all co-conspirators in FCPA cases, including foreign persons or companies that it would not independently have jurisdiction over. [CITE GUIDANCE DOJ PAGE REFERENCE HERE]. It should be noted that many of the positions taken by DOJ have not been tested in a court of law as most corporate FCPA cases are resolved via non-court litigated settlements.
Self Reporting: The Guidance also stressed the importance of self reporting any FCPA violations to the DOJ, and how self reporting figures into the DOJ’s calculation of cooperation credit, which can be a significant factor in its charging and sentencing decisions. [CITE GUIDANCE DOJ PAGE REFERENCE HERE]

7. AN AUTOMATED THIRD-PARTY DUE DILIGENCE PROCESS
Data Collection
Provide Online Forms
3rd Party Answers Online
Risk Assessment
Answers Inputted into Risk Matrix
Risk Score Generated
Risk Category Assigned
Due Diligence Process
Due Diligence Tasks Assigned
Documents provided to 3rd parties
Completion of tasks tracked
Audit trail
Necessary Approvals Obtained
Projects Closed

8. FCPA ACCOUNTING PROVISIONS
FCPA accounting provisions require issuers to establish and maintain a system of internal controls sufficient to assure that:
Transactions are executed in accordance with management’s authorization
Access to assets is permitted only with proper authorization
The accounting records reflect the existing assets

9. FCPA ACCOUNTING CONTROLS
Accounting controls help ensure that company funds are not used for bribery. At a very basic level, this means that:
Individuals with approval power for expenses are independent and have properly delegated authority
Approvals are based on supporting documentation
Transactions are properly and accurately recorded
Processes are regularly monitored, audited, and tested
Finance personnel is trained to spot red flags
Approval – web based approval process
Example of red flag -- Invoice vaguely describes the services provided; Requests an unusual advance payment.
Much is being made about FCPA, but similar controls can be relied upon to prevent and detect accounting fraud, diversion of assets.

10. CHALLENGE WITH INTERNAL CONTROLS : CASH
General environment
No de minimis rules (FCPA) – government employees paid very little, threshold for corruption is low
Cash economy still prevalent – banking system is not developed and therefore traceability of funds a challenge
Automated tools can only go so far (treasury management tools with red flags rules)
Cash is always difficult to track – by definition
Documentation and quality of the evidence
Require evidence of payment/receipts/descriptive transaction records
Vague descriptions of the purpose of transactions are to be avoided
Recurring payments for low amounts should be investigated
Documentation as to choice of vendors/consultants should be evaluated (due diligence)
Account descriptions in the accounting records should not be vague
Record keeping standards should be clear and adhered to
Minimize or eliminate vague account and transactions descriptions- no sign off
Review the content and economic purpose of non-descriptive transactions
Reconcile accounts / Budgets – analyze variances
Monitoring
Train staff (accounting/compliance/operations/supervision)
Bank reconciliations should be performed timely, reviewed and petty cash records reviewed
Authorization should be documented
Segregation of duties should be enforced/electronic access and physical access
Discrepancies investigated
Write offs investigated
Internal audit should evaluate and visit the subsidiaries
Control of cash to the subs from parent could be contingent upon quality of controls and records
Rotation of individuals/training of accounting staff to spot issues locally
Reward identification of issues/red flags
No exception and zero tolerance

11. NON-ACCOUTING INTERNAL CONTROLS
Five important areas that should be captured in a company’s internal controls framework include:
Vendor Relationships
Companies reduce risk that their third parties will pay bribes on their behalf by placing controls over the selection and performance of vendors.
Gift-Giving
Companies implement specific policies to ensure that gifts are given for legitimate purposes.
Charitable Donations and Political Contributions
Controls should ensure that a company’s charitable donations and political donations are not, in fact, disguised bribes.
Human Resources
HR can help administer both incentive and disciplinary measures related to employee compliance. It can also probe compliance issues during exit interviews.
Training
Companies should effectively communicate their anticorruption policies and procedures to their employees and their third parties.
Vendor Relationships - A vendor selection process should require that multiple providers are considered and compared, selection is based on quality and price, and decisions are made according to delegations of authority. Request for audit rights. Companies should conduct risk based third party due diligence and monitoring. In addition, vendor selection and use should be periodically and randomly audited to ensure processes are followed and no red flags are present.
2. Gift Giving - Companies implement specific policies to ensure that gifts are given for legitimate purposes, such as to promote general goodwill, visibility, or
reputation, and not to improperly influence an official to secure an improper advantage. Specific policies should prohibit cash gifts, establish preauthorized value and frequency limits, create special authorization requirements for higher valued gifts, track aggregate amounts, consider local laws, and ensure supporting documentation with the names of recipients and business purposes.
3. Charitable Donations and Political Contributions - Controls should ensure that a company’s charitable donations and political donations are not, in fact, disguised bribes. Policies should require such disbursements to be reviewed by senior compliance officials. Processes should confirm that recipients are legitimate and do not create integrity concerns, principals and officers of charitable organizations are not linked to public officials, and recipients of political contributions are not positioned to improperly benefit the company.
4. Human Resources - A company’s HR Department has an important role to play in its anticorruption program. For example, it can conduct background checks on new employees for integrity related issues, identify when employees are related to public officials, and ensure that new employees receive anticorruption compliance training. HR can help administer both incentive and disciplinary measures related to employee compliance. It can also probe compliance issues during exit interviews.
5. Training - Companies should effectively communicate their anticorruption policies and procedures to their employees and, where necessary, their third parties too. Trainings should be documented and repeated periodically. Training programs should convey appropriate compliance lessons to targeted audiences. They can provide examples of practical cases and common red flags.

12. CHALLENGE WITH INTERNAL CONTROLS : CONTRACTS
Side agreements for large contracts
Nebulous third parties
Never been in business before
Consulting arrangements – what kind of consulting, other options available, comparable consultants, name of individuals, connection to government officials
Skills of intermediaries
Who suggested them
Location – payment instructions
When it’s too good to be true, it can be
Which foreign company is investing (culture of the company’s country of origin)?
What won this deal?
Who was the competition?
Are internal audit teams aware of risks ?
Are outside professionals involved ?
History of success/failure