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Report
 FCPA & Trade Compliance


Steven W. Pelak
Holland & Hart LLP
Phone: 202-654-6929
Email: [email protected]
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Why Anti-Corruption Laws?
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Why? Corruption Clouds the Sun in Smog
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Foreign Corrupt Practices Act:
Overview
 Background - Passed in 1977, amended in
1988 and 1998. 15 U.S.C. § 78dd-1, -2 and -3
 Enforcement - Recent surge in
enforcement activity in the U.S. and abroad.
 Extraterritorial - Unprecedented application
of U.S. law throughout the world.
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U.S. Civil & Criminal Fines &
Forfeitures
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Siemens AG (2008)
KBR/Halliburton (2009)
BAE Systems (2010)
ENI/Snamprogetti (2010)
Technip S.A. (2010)
Daimler AG (2010)
Alcatel – Lucent, S.A.(2010)
Panalpina (2010)
ABB Ltd. (2010)
Pride International (2010)
Marubeni (2012)
$800 million
$579 million
$400 million
$365 million
$338 million
$185 million
$137 million
$89.1 million
$58.3 million
$56.2 million
$54.6 million
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FCPA: Enforcement Escalation
 1977-2000: The U.S. government averaged
three FCPA prosecutions per year.
 2000-2005: The number of prosecutions
increased ten-fold.
 2010: The U.S. government initiated 74
enforcement actions in one year.
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Rise in FCPA Actions
48
50
DOJ Actions
45
SEC Actions
40
35
30
26
25
18
15
20 20
13
10
0
25
23
20
5
26
2
14
12
11
78
7
3
19
5
3
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
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FCPA: Two Primary Components
1) Anti-bribery Provisions: Prohibits most
bribery and non-routine payments to
foreign government officials; and
2) Financial Record keeping & Internal
Control Provisions: Requires specific
records and financial internal controls to
be maintained to provide reasonable
assurance of accuracy of financial
records and to demonstrate compliance.
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FCPA Overview (cont.)
 Enforcement Authority:
Department
of Justice
• All criminal
enforcements
• All civil actions, except
those against issuers
Securities
and
• Only civil actions
Exchange
against issuers
Commission
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FCPA Jurisdiction –
Who is Covered?
• U.S. citizens & permanent resident aliens
• Foreign citizens if any part of “illegal act” occurs
in U.S. (including emails, bank transfers, etc.)
• U.S. Corporations and their employees
• Foreign Corporations whose securities are listed
on a U.S. exchange or who otherwise participate
in U.S. capital markets
• Foreign Individuals and companies -- if any part
of the underlying transaction is performed in the
U.S.
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Increased Anti-Corruption Enforcement
Around the World
 Germany: Aug. 24, 2013 -- German authorities raid
ThyssenKrupp–EADS joint venture in Bribery
investigation re submarine equipment to Greece
 Canada: Aug. 15, 2013 – Queen v. Karigar – first
Canadian conviction after trial for violation of Canadian
Corruption of Foreign Public Officials Act
– Consultant/agent for Cryptometrics Canada, Canadian
subsidiary of a US company, conspiring to bribe Indian
officials – India Air executives (a government owned airliner)
and the Minister of Civil Aviation in India.
– Case initiated by anonymous tip by Karigar to U.S. Justice
Department
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Increased Anti-Corruption Enforcement
Around the World
 China
 July 2011 -- “China Backs Worldwide Fight Against
Corruption” (China Daily-7/5/2011).
– “We need to strengthen our work with other countries and
regions on repatriation of suspects, asset recovery and
information exchanges to eliminate ‘safe havens’ of
corruption, and increase cooperation in punishing and
preventing corruption.” Zhou Yongkang, Secretary of the
Communist Party of China’s Central Commission for
Political and Legal Affairs.
 July 2013 -- Chinese authorities arrest dozens in
Bribery investigation re GlaxoSmithKline alleged
payments to medical doctors to prescribe GSK
medications (July 2013)
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FCPA: Enforcement Escalation
Extraterritorial Impact
 Since 2011, there has been a dramatic increase
in extraterritorial FCPA enforcement actions with
70% of FCPA-related penalties assessed
against non-US companies.
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FCPA Elements: What is Illegal?
 A violation of the FCPA can be triggered
by the following:
– Anything of Value - A gift, payment, offer, or promise to pay
(even if not kept) of anything of value
– Offered to an Foreign Official (broadly defined) - To
any foreign government, political party official, candidate for political
office, whether directly or through a third party.
– To Induce an Action or Failure to Act by the Foreign
Official.
– For any Improper Advantage - To secure any improper
advantage or to obtain or retain business
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FCPA Overview
 Anti-Bribery Provisions:
Foreign
official
Anything
of value
Payment,
offer, or
promise
Corrupt
intent
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Elements
Obtain or
retain
business
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Payment, Offer or Promise
Offer or promise is just as much of a
bribe as an actual payment, even if the
bribing party never follows through on
the offer or promise
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Anything of Value
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Anything of Value
 No de minimis or “small payment”
exception under FCPA
 Subjective Standard
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Gifts – FCPA
 The FCPA is not a gift prohibition law, but likewise
it does not permit gifts as a general matter.
 FCPA looks at:
– ALL circumstance (i.e., the nature, amount or value,
frequency, and circumstances of the gifts);
– Intent
 Remember – Investigators/Prosecutors view
circumstances and intent after-the-fact.
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Gifts–Appropriate
 Small business items or ceremonial items of little or no
intrinsic value (e.g, pens and paper with logo, coffee
mug, etc.)
 Reasonable business meal in connection with and to
discuss business – not purely entertainment
 BUT NOTE: Even small payments or gifts violate
FCPA if offered corruptly and intended to be a bribe.
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Gifts – Inappropriate

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Entertainment Trips
Large or Expensive Gifts
Frequent Gifts or Expense Payments
Cash
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Gifts- Transparency
 Accurate Records and Receipts
 Need not be voluminous records but must record
openly, transparently, accurately
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Self-Reporting of FCPA Violations
 Reporting - The Department of Justice encourages
companies to voluntarily report known or suspected
FCPA violations. Voluntary reporting can provide
mitigation of violations.
 Failure to Report - A company’s failure to report a
violation can create more significant liability than the
actual conduct.
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“Mini-FCPA” for Defense Articles: Mandatory
Reporting to U.S. Government
 Mandatory Duty to Report to U.S. State Department “Fees or
Commissions” or “Political Contributions” to secure a sale to a
foreign government of defense articles – ITAR, 22 C.F.R.§ 130.9
– Caution to Contractors for Defense Industry & Intelligence Community
 U.S. v. BAE (2010) – Willful Failure to Report to State Department
“fees or commissions” paid in connection with sale of defense
articles to secure the conclusion of such sales to foreign
governments
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A “fee or commission” (including any loan, gift, donation or other payment)
made or offered aggregating $100,000 or more to secure the conclusion of the
sale of defense articles to a foreign government or a “political contribution”
aggregating $5,000 or more to secure such a defense article sale must be
reported to the State Department under the ITAR. 22 C.F.R. § 130.9.
A willful failure to so report is a 20-year felony. 22 U.S.C. § 2778(c)
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FCPA Criminal & Civil Penalties
Events can be divided into pieces to produce
multiple civil or criminal violations per transaction.
Criminal Penalties
 Corporate - Up to $2,000,000 fine per violation;
 Individual - Up to $250,000 fine per violation and five
years imprisonment.
Civil Penalties
 Corporate or Individual - Up to U.S. $10,000 per
violation.
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Application
Does our Company need an anticorruption program???
How Does a Company Determine if it
Needs an Anti-Corruption Program?
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First Step: Internal Analysis
 Perform Internal Analysis: Companies should only
implement compliance programs if needed to address an
actual or potential compliance risk.
– No Policy: If a company’s operations are exclusively domestic
and no intermediary agents are involved, an anti-corruption
program may not be essential or of great value.
– Yes Policy: If business operations or contractual
relationships outside the U.S., some form of anticorruption compliance program is essential for good
business.
-- Foreign Supply Chain as well as Foreign Buyers.
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Implementing an Effective
Anti-Corruption Program
 Systematic Approach- A systematic approach to create
an effective and defensible anti-corruption compliance
program:
– Phase I - Assessment of compliance liabilities by reviewing
global operations and creating a register of applicable legal
restrictions.
– Phase II – Create an Anti-Corruption Program based on
operations and applicable legal restrictions and identifying
defensive data to be collected.
– Phase III - Support in implementing and maintaining an
effective Anti-Corruption Compliance Program with internal
controls ensuring defensive data is collected and maintained.
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Implementing an Effective
Anti-Corruption Program
Basic Anti-Corruption Program Components:
–
–
–
–
Policy
Operational Procedures
Training
Risk-based due diligence of third parties and
potential business partners
– Standard contract term requiring regular compliance
certifications
– Accountability, including regular self-assessments
and audits
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Compliance Programs:
Generation of Defensive Data
 Critical Component: An effective anti-corruption
compliance program must generate defensive data.
 Defensive Data: The ongoing collection of records
and data that demonstrate corporate compliance
with applicable laws.
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Compliance Programs:
Defensive Data
 Defensive data may include:
– Proof of Policy Review: Signed acknowledgment by each
employee who has reviewed anti-corruption policies and
procedures;
– Proof of Compliance Training: Compliance training minutes and
attendees;
– Proof of Testing: Online compliance training testing data;
– Proof of Due Diligence: Risk-based due diligence records
performed on third parties.
– Certifications: Compliance certifications provided by third-party
contractors and agents as required by contract; and
– Assessments: Internal and external audit reports.
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Compliance Programs:
Use of Defensive Data
The generation of defensive data serves multiple
purposes, including:
– Compliance Tracking: Provides a tool to efficiently
track compliance efforts;
– Issue Spotting: Highlights deficiencies in the
compliance program that must be addressed;
– Evidence: Provides critical evidence to defend against
an anti-corruption enforcement action.
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Value of Defensive Data
Value of Defensive Data: The value of
maintaining an effective anti-corruption
compliance program and collecting
defensive data was most recently
highlighted in a 2012 FCPA enforcement
action.
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Value of Defensive Data
Morgan Stanley Case
• Facts: In April 2012, a Morgan Stanley executive based in
Shanghai pleaded guilty to corruption charges for offering
significant bribes to a government official in order to secure new
business.
• Traditional Prosecution Model: Historically, the U.S.
government would pursue an aggressive FCPA enforcement
action against the company as a result of an employee’s illegal
conduct.
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Value of Defensive Data
Morgan Stanley Case con’t…
• New Order: Instead, the U.S. government decided not to pursue
a criminal or civil enforcement action against Morgan Stanley,
citing defensive data provided by the company demonstrating
that it maintained an effective anti-corruption program.
• Clear Statement: The U.S. government took the rare step of
publicly acknowledging that it “declined to bring any enforcement
action against Morgan Stanley,” based in large part on the firm’s
proof of strong controls and compliance efforts, “which provided
reasonable assurances that its employees were not bribing
government officials.”
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Anti-Corruption Compliance
Programs
 Program Value - International companies implement
anti-corruption programs based on numerous factors,
including:
– Compliance is a shared goal – Laws are designed to prevent
conduct that jeopardizes the company’s international reputation
and the integrity of foreign institutions.
– Prevents Costs - The cost of implementing a compliance
program is a fraction of defending an enforcement action.
– Protects Business Opportunities - FCPA enforcement actions
can harm or preclude private business opportunities and
partnerships for years to come.
– Uncommon Not to Have One - It has become best practices for
international companies to have a global anti-corruption program.
The market and investors expect to see it.
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Conclusion
 Conclusions
 Questions?
______________________________________
Steven Pelak
Holland & Hart LLP
Phone: 202-654-6929
Email: [email protected]
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