Understanding the Federal corrupt foreign practices act (fcpa)

Report
Understanding Bribery: Foreign
Corrupt Practices Act & U.K.
Bribery Act
Jennifer Sawayda
Program Specialist
Anderson School of Management
University of New Mexico
Albuquerque, NM
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Disclaimer: Not Legal Device
• Much of this material has been derived
from Corpedia and the Department of
Justice.
• This presentation is NOT legal advice.
• Anyone determining that they need
legal advice or representation should
seek counsel from an attorney or law
firm.
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What is Bribery?
• Bribery is the offering of payments or other
incentives to gain illicit advantages.
• In business bribery is used to influence an
organization or individual to provide preferential
treatment.
• Bribery is therefore considered to be unfair
because it interrupts the competitive process.
• The difference between bribery and gifts can be
a grey area in business.
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What is the U.S. FCPA?
• The Foreign Corrupt Practices Act makes it
illegal for individuals, firms, or third parties with
operations in the United States to offer
payments (bribes) to government officials to
secure or retain business.
• To be found liable, the Department of Justice
must find that the bribe was willful or intentional.
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What is the U.K. Bribery Act?
• The U.K. Bribery Act has made it illegal to pay
bribes to both public and private individuals or
enterprises. It applies to any company that has a
business presence in the U.K., whether or not
the firm is a foreign company.
• Bribes between private businesspeople are
illegal under the U.K. Bribery Act.
• Companies can be held liable even if they didn’t
have explicit knowledge of the crime.
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Complying with the Laws…
…is not as easy as it may appear!
• While bribery is considered unacceptable in
countries such as the U.S. or U.K., in many
countries it is an established way of doing
business.
– This can limit business opportunities in certain
countries.
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10 Countries Most Likely to Use Bribery in Business
1.
2.
3.
4.
5.
Russia
China
Mexico
Indonesia
United Arab
Emirates
6. Argentina
7. Saudi Arabia
8. Turkey
9. India
10.Taiwan
Source: Associated Press. “The 10 Countries Most Likely to Use Bribery in Business.” Huffington Post. November 2, 2011.
http://www.huffingtonpost.com/2011/11/02/bribery-business-countries-most-likely_n_1071452.html#slide=449030.
Retrieved November 30, 2012.
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Facilitation Payments
• Under the Foreign Corrupt Practices Act, small
facilitation payments are allowed to expedite
transactions.
• However, the 2010 U.K. Bribery Law does not
allow for facilitation payments. The U.K. Bribery
Law is similar to the FCPA, but many consider it
to be even more extensive.
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What is the Difference Between Bribes and Gifts?
• In Japan, it is customary to bring small gifts to meetings. So
what is the difference between a bribe and a gift?
• Is a coffee mug a gift or a bribe? What about tickets to the
Super Bowl? Much of this depends upon how valuable the gift
or entertainment is.
• Many companies’ codes of conduct will specify a certain
amount that a company official cannot exceed to prevent the
appearance of bribery.
• Nike’s Code of Conduct forbids acceptance of gifts or
entertainment with a value of $200 or more.
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A Brief History of the FCPA
• The FCPA was instituted in 1977 after the
Watergate scandal. An SEC investigation
revealed that more 400 companies were
involved in bribing foreign government officials to
secure business.
• Companies were also falsifying documents to
hide bribes.
• The FCPA made such payments illegal.
Subsequent years would see the introduction of
many amendments to the FCPA.
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Hypothetical Scenario #1
• Pierre is a French citizen working for an
American firm. In order to secure business in
Mexico, Pierre authorized the payment of
thousands of dollars to certain government
officials. Although Pierre knows this violates the
provisions of the FCPA, he believes this law only
applies to American citizens. Is Pierre subject to
the FCPA?
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Answer
Yes!
– Under the FCPA it is illegal to provide payments to
gain an illicit business advantage among foreign
citizens employed by or acting as agents for the
United States. Pierre is violating the FCPA.
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Real Life Scenario
• Siemens is a German engineering firm. An
investigation has revealed that Siemens paid
bribes to foreign officials across the globe,
including Bangladesh and Argentina. If it didn’t
pay bribes to anyone in the United States, can
Siemens be penalized for violating the FCPA
since it is a foreign company?
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Answer
It can, and was!
– While not all foreign companies may be subject to
penalties under the FCPA, foreign companies can
still be found liable for various reasons:
• It is a U.S. subsidiary
• It has a class of securities registered under Section 12
of the Securities and Exchange Commission Act
• The bribe was performed within the U.S.
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The Case of Siemens
• Siemens owned American Depository Receipts
traded on the New York Stock Exchange.
• It was therefore subject to the FCPA.
• The company was fined $800 million for bribing
foreign officials, the largest bribery fine recorded
to date.
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Other Corporate Bribery Scandals
• Avon: A global bribery scandal cost the firm more than $250
million in legal expenses and the ouster of CEO Andrea Jung.
• Johnson & Johnson: Paid $70 million to settle claims by the
SEC and Department of Justice that it had bribed doctors in
Europe and offered kickbacks in Iraq.
• IBM: Paid $10 million to settle claims that it had given cash
and gifts to officials in China and South Korea in exchange for
contracts.
• Monsanto: Fined $1.5 million for paying a bribe to an
Indonesian official.
• Wal-Mart: Accused of paying significant bribes to Mexican
officials to win contracts for building stores.
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What is A Bribe Under the FCPA?
• It can be anything of significant value used to
influence firms to create or retain business.
This can include the following:
– Money
– Gifts or Entertainment
– Improper Travel
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Can This Be Seen As A Bribe?
• Your company agrees to pay for a foreign government
official to fly to your Los Angeles-based company to
discuss legitimate business opportunities. The tickets are
expensive. Is this a bribe?
– Most likely no. It involves a legitimate business activity.
• The foreign official decides he would like to take an
extended vacation in Los Angeles. He also wants to take
his extended family along and wants you to foot the bill
for the entire family. Could this be construed as a bribe if
your firm agrees?
– It certainly could be. Under the FCPA, this could be seen as trying
to influence the foreign official’s business decision.
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Hypothetical Scenario #2
• A government official of a small country in the
Caribbean wants your company to donate $5 million
to a chosen charity in his country for orphan children
before he’ll consent to do business with you. The
official will not receive any of the money. Since the
money is going to a good cause, is it considered to be
a bribe under the FCPA?
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Answer
Yes!
– Charitable contributions of value used to influence a
business decision is a violation of the FCPA. Just
because a bribe is not paid directly to a foreign
official does not mean the company offering the bribe
is safe from prosecution.
– New guidance on the FCPA seeks to close loopholes
regarding indirect inducements.
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Bribery in Other Countries
• Even countries where bribery is seen to be more acceptable
have recently begun to crack down on the practice
• A Japanese national received a three-year prison sentence in
Indonesia for bribing a judge to rule in favor of his company
in a dispute.
• A Chinese Mobile executive was sentenced to death (with the
possibility for life imprisonment) for accepting more than $2.5
million in bribes.
• Brazil has been debating whether to accept an anti-bribery
bill that would make it illegal to bribe domestic and foreign
officials.
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Who is A Foreign Official?
• An employee or officer of a foreign government.
• An agency or department of an public international
organization.
• Any official acting in official capacity of or on behalf of a
foreign government or public international organization.
• Is this a bribe?
– A company provides payments to the board members of a foreign
private company. One of the board members has some government
duties. Does this violate the FCPA? Possibly.
• Companies must be especially careful when dealing with
countries in which many of the organizations are state-owned
(e.g. Russia, China).
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Why Have A Compliance Program?
• Often a company can have fines for misconduct
reduced if it can prove that it had an effective
compliance program in place to prevent bribery.
• When determining whether the company has an
effective compliance program, the following
approach can be used:
– Is the program designed well?
– Was it applied in good faith?
– Does it work?
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What Regulatory Authorities Look for to
Determine Effectiveness
–
–
–
–
–
–
–
–
–
Tone at the top
Code of Conduct
Oversight and Resources
Risk Assessment
Training
Incentives and Disciplinary Measures
Third Party Due Diligence
Confidential Reporting
Periodic Testing
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Tone at the Top
• An ethics and compliance officer can do little without
support from top management and the board of
directors.
• Often the most toxic corporate cultures have a
disinterested or unethical tone at the top.
• Top managers set the tone for the entire organization.
They act as role models for employees.
• Top managers should communicate the firm’s ethical
values and expectations to all the different levels of the
company.
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Code of Conduct
• A code of conduct should not only describe the firm’s
ethical expectations of employees, but it should also
express the firm’s ethical values and goals.
• An effective code of conduct has comprehensive
content, is communicated to all levels of the
organization, and has support from both immediate and
higher-level managers.
• A global code of supplier conduct is important for
multinationals to develop because of differing cultural
values and beliefs.
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Dedicated Resources
• There must be someone in charge of the ethics
program that has authority (part of the “C-Suite”
of executives) and who can discuss matters with
the CEO and board members.
• Companies should know their risks and dedicate
more resources (time, money, etc.) to high-risk
areas.
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Risk Assessment
• Understand the ethical risk areas in your organization.
• Adapt the program to address the specific risks of your
organization.
• Target resources at the highest ethical risk areas.
• Gain employee feedback to understand how ethical they
believe the corporate culture is and whether they feel as
if they would report misconduct.
– An employee culture survey can determine how employees view the
ethical culture of the organization.
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Training
• Training communicates the firm’s ethical values and
expectations.
• It also prepares employees for some of the most
common ethical risks they are likely to face.
• Incorporate finance and audit teams into FCPA training
development as they will have good knowledge of
specific company risks.
• Develop different FCPA training for different employees
and third parties based upon their risks.
– A “one-size-fits-all” is generally not considered to be effective.
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Incentives and Disciplinary Measures
• Disciplinary measures must be enforced; otherwise, the
code of ethics is little more than “window-dressing.”
• Incentives for ethical conduct have rarely been
discussed but could be a great way to promote an ethical
corporate culture.
• The FCPA Guidelines recommend:
– Incorporating ethics and compliance into employee performance
evaluations
– Incorporating ethics and compliance into promotion decisions
– Providing rewards for those who make the “right” decision
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Third Party Due Diligence
• Implement training for third parties such as
suppliers.
• Separate suppliers into high, medium, and low
risk areas and tailor supplier training accordingly.
• Using metrics to analyze the “risks” of certain
countries can help determine the riskiness of
suppliers and third parties.
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Confidential Reporting and Internal Investigations
• Establish confidential reporting mechanisms such as hotlines to
reassure employees they will not be punished for reporting.
• Research has shown that reporting to supervisors and through
hotlines is indicative of a more ethical corporate culture.
• Follow up on reports with internal investigations.
• WARNING! Just because the company is not receiving any calls
through the hotline does not necessarily mean that employees
are not observing misconduct.
• This is why it’s vital to investigate potential issues and know
what is going on within the organization.
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Periodic Testing and Review
• Ethics and compliance is never static. The ethics
program should be periodically reviewed to
determine its effectiveness.
• Activities such as supplier audits can be
particularly important for third parties operating
in different countries.
• The bigger the company’s global operations, the
more likely an FCPA violation may occur if
proper oversight is not provided.
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Conclusions
• The costs of FCPA compliance might be expensive
depending upon the organization’s size and operations.
• But the costs of fines and legal fees for a violation is even
greater!
• Know bribery laws of other countries.
– The U.K. bribery law applies to any company that has
operations in the U.K., whether or not the violation occurred
in the country.
– As a result of the more stringent U.K. bribery laws, many
companies are placing provisions in their codes of conduct
to discourage all forms of bribery.
– The U.K. law is also more lenient on companies who are
seen to have effective ethics and compliance programs in
place.
• Your best bet: Avoid bribery altogether with an effective
compliance program.
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