FCPA for Roundtable - Oregon State Bar Corporate Counsel Section

Foreign Corrupt Practices Act
and UK Bribery Act
OSB Corporate Counsel and Business Law Sections
Corporate Compliance Roundtable
April 26, 2012
Alex M. Duarte
OSB No. 020459
[email protected]
Key Anti-Bribery/Anti-Corruption Laws
US Foreign Corrupt Practices Act
UK Bribery Act 2010
Most other countries have their own anticorruption laws
What is the FCPA?
FCPA (15 USC §§ 78dd-1, et seq.) generally prohibits
• Giving or offering money or “anything of value”
• To a foreign official (includes employees of State-owned entity)
• To influence official or obtain improper advantage
• To obtain or retain business
FCPA also prohibits
• Giving money/anything of value
• To a third person
• Knowing that it will be offered or given
• To a foreign official
• To obtain or retain business
DOJ (Department of Justice) enforces this part of FCPA
What is the FCPA? (cont.)
“Anything of value”
• Not just cash
• Has a very broad interpretation by governmental
enforcement authorities
• Can include numerous improper benefits,
o Cash equivalents (such as gift cards)
o Kickbacks
o Gifts
o Loans
o Special favors
What is the FCPA? (cont.)
Anything of value (cont.)
Specific examples
o Extravagant gifts
o Political donations/charitable contributions
o Hiring of a third party or family member
o Luxury goods
o Lavish travel or entertainment
o Fancy meals
o Tickets to expensive sporting events (World Cup)
What is the FCPA? (cont.)
“Foreign Official”
Broad interpretations, and includes:
• Any governmental or public official
o Any employee (even low-level clerk)
• Employees of State-owned/State-run companies
o Common in certain countries (e.g., China, India)
o Common in certain industries (e.g., utilities,
power-generation, oil and gas, telecom)
What is the FCPA? (cont.)
Third Parties
• Applies to any party doing business with a company:
o Sales agents
o Distributors
o Customers/suppliers/vendors
o Consultants and Contractors
o Other intermediaries
• Pay special attention to independent sales agents
(many bribery cases have involved sales agents)
• Liability even if Company did not make bribe itself
o If Company knew, or should have known, of bribery
o No ostrich defense - “Willful blindness”/“head in sand”
o Don’t ignore “red flags”
What is the FCPA? (cont.)
Narrow Exceptions and Defenses
• Facilitating payments (“grease” payments) for “routine government
action by a foreign official” (but be careful- gray area/“sticky wicket”)
• Lawful in country - the payment is lawful under the written laws of
the foreign country
• Promotional and marketing activities and expenses
o Expenses for promotion or demonstration of a product or service
o Expenses in connection with the performance of a contract with a
foreign government or agency
o Example- reasonable travel expenses for official to tour facility:
 Must still be reasonable, not extravagant
 directly related to legitimate business purpose of product/contract
FCPA - Accounting Provisions
The FCPA requires a corporation to:
 Keep and maintain books, records and
accounts that fairly and accurately reflect
 Maintain an adequate system of internal
accounting controls
The SEC (Securities and Exchange Commission) enforces above
Recent FCPA Accounting Violations
• One recent example• $23M fine in 2010 alleged $3.6M bribes in U.N. “Oil for
Food” program in Iraq
• SEC found GE violated the FCPA:
“GE failed to maintain adequate internal controls to detect
and prevent these illicit payments, and it failed to properly
record the true nature of the payments in its accounting
What is the FCPA? (cont.)
Penalties can be severe (corporations/individuals)
• Corporations- fines, penalties and settlements
can include millions of dollars
• Individuals- fines can include $100K/violation,
and up to five years of imprisonment
• Fines and settlements- US (DOJ) and other
countries have collected billions of dollars in
fines, penalties and settlements (more than
$3 billion since 2009)
Potential Fines/Imprisonment
US: Corporation = 2x profit
Individual = $100K per violation
UK: Unlimited
Technip SA
PRISON US: Up to 5 years/violation
UK: Up to 10 years
US Prosecutions are Increasing
Department of Justice
Securities and Exchange Commission
2 3
7 5
7 8
18 20
Top 11 Corporate FCPA Settlements
The past four years have seen the 11 largest FCPA
settlements, totaling more than $3 billion from 11 companies
Siemens (2008)
KBR/Halliburton (2009)
BAE (2010)
ENI/Snamprogetti (2010)
Technip (2010)
JGC (2011)
Daimler AG (2010)
Alcatel-Lucent (2010)
Deutsche Tel/Magyar (2011)
Panalpina (2010)
Johnson & Johnson (2011)
In Millions
$0 $100 $200 $300 $400 $500 $600 $700 $800 $900
Costs of FCPA Investigations
Companies are devoting significant resources (attorneys and accountant fees)
associated with FCPA investigations (often much more than the amount of bribe)
U.K. Bribery Act (2010)
Broader than FCPA:
• No public official requirement - prohibits any bribes,
to anyone (i.e., private sector)
• Applies to offenses committed in UK, and outside UK
where person has a “close connection” with UK
• No exceptions for “facilitating” payments or marketing
and promotional activities or expenses
• Unlimited fines possible; up to 10 years in prison
• Adds crime for corporation unless it can show
“adequate procedures in place to prevent bribery”
• Promotional and Marketing Expenses - must be
reasonable and not extravagant, and related to business purpose
• “Facilitating” (“grease”) payments - allowed by FCPA, but
must be nominal amounts and for routine actions (gray area)
• Travel- must be reasonable, not extravagant and be related to
business purpose (e.g., tour of a manufacturing facility)
• Gifts and Entertainment - prohibited to any public official; must
be reasonable for private parties
• Charitable Contributions
• Political Donations and Lobbying Activities
Bribery “Red Flags”
Country- country known for corruption (“BRIC” countries)
Agent and Governmental/Public Official Red Flags
• Background/Structure - agent has questionable background
or reputation, or shell company or other unusual structure
Recommendations - public official recommends agent
Objections to written contract
Objections to compliance representations
Close ties- agent and public official have close personal, family
or business ties
• Business interest in agent - public official has ownership
interest in or business relationship with third-party agent
• Agent not qualified/competent
Bribery “Red Flags” (cont.)
• Not want to disclose identity
• Anonymity/lack of transparency
• Suspicious statements - “don’t want to know,” “don’t ask”
Compensation and Invoice Documentation Red Flags
• Payment in cash or another country’s currency
• Payment different from invoice
• Other unusual payment arrangements
• Fees/commissions excessive (exceed “going rate”)
• Invoices- invoices are unusual, such as:
o lack standard terms
o do not reflect actual services rendered
o have vague descriptions/“miscellaneous” charges
Bribery Red Flags[keep this one?]
Country and Political red flags
 Country is known for corruption
 Agent close ties with public official
 Public official recommends or
requires use of certain agent
 Agent not qualified or competent
 Agent requests anonymity
 Agent’s questionable background
Payment Request red flags
 Fees/commissions are excessive
 Agent requests cash or payment in
another country’s currency
 Agent requests payment to
someone other than the agent or
to accounts in another country
Invoice red flags
 Lack standard invoicing terms
 Do not reflect actual services
rendered or are inconsistent with
underlying agreement
 Contain vague descriptions of
services rendered, or out-of-pocket
expenses incurred
 “Miscellaneous” charges
Consider above flags on a caseby-case basis using a totality of
the circumstances approach
Corruption Perceptions Index 2011
Corruption Perceptions Index 2011
New Zealand
United Kingdom
United States
Czech Republic
Wal-Mart de Mexico
Last Sunday- blockbuster article in the New York Times about a
$24 million bribery scandal by Wal-Mart’s Mexican subsidiary
• On-going bribes for years, throughout the country
• Allegedly used attorney fixers (“gestores”) to pay off public
officials to obtain licenses and permits to build new stores
• Sham accounting- suspicious documentation and mysterious
codes masquerading as “facilitating” payments
• Scheme allegedly known by senior executives and in-house
counsel, including current CEO, Chair, Vice Chair and CAO
• Alleged intervention by senior executives to pressure
auditors from conducting a full or aggressive investigation
Wal-Mart de Mexico (cont.)
• Investigation duties given to Mexico subsidiary GC- who was a
target of the investigation!
• Mexican sub GC conducted superficial “investigation” and
promptly cleared all of wrong-doing (cover-up)
• Wal-Mart failed to notify US or Mexican authorities until late
2011 (allegedly due to NYT investigating scandal)
DOJ and SEC now investigating- this won’t be the last you have
heard about Wal-Mart de Mexico and FCPA/anti-corruption
Fines and penalties- possibly tens/hundreds of millions of dollars?
Moral (learned from Watergate)- Cover-up is worse than the crime
Take-aways for Corporate Counsel
• Importance of Companies having strong FCPA/anticorruption policies and procedures
• FCPA has been big focus by DOJ and SEC in the past 4-5
years- companies large and small
• FCPA policies and procedures- key aspect of Company’s
internal Ethics and Code of Conduct policies
• Preventative measures and training are key
• Focus on “red flags” and third parties to reduce risk (know
your customers and business partners)
• FCPA violations can lead to more than fines and penalties
(prison, reputational damage, stock price, careers, etc.)
• Zero tolerance corporate policy/culture for bribery and
corruption of anyone, by anyone

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