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Understanding Bribery: Foreign Corrupt Practices Act & Understanding Bribery: Foreign Corrupt Practices Act &

Understanding Bribery: Foreign Corrupt Practices Act & - PowerPoint Presentation

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Understanding Bribery: Foreign Corrupt Practices Act & - PPT Presentation

Jennifer Sawayda Program Specialist Anderson School of Management University of New Mexico Albuquerque NM Disclaimer Not Legal D evice Much of this material has been derived from Corpedia ID: 178302

fcpa bribery company foreign bribery fcpa foreign company business bribe countries ethical official compliance bribes act program conduct organization

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Slide1

Understanding Bribery: Foreign Corrupt Practices Act & U.K. Bribery Act

Jennifer Sawayda

Program Specialist

Anderson School of Management

University of New Mexico

Albuquerque, NMSlide2

Disclaimer: Not Legal

D

evice

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.Slide3

What

i

s 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.Slide4

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. Slide5

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.Slide6

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.Slide7

10 Countries Most Likely to Use

B

ribery in Business

Russia

China

Mexico

Indonesia

United Arab Emirates

Argentina

Saudi Arabia

Turkey

India

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. Slide8

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. Slide9

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.Slide10

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.

C

ompanies 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.Slide11

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? Slide12

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.Slide13

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? Slide14

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.Slide15

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. Slide16

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.Slide17

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 TravelSlide18

Can This Be S

een 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. Slide19

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? Slide20

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.Slide21

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.Slide22

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). Slide23

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?Slide24

What Regulatory Authorities

L

ook for to Determine

E

ffectiveness

Tone at the top

Code of Conduct

Oversight and Resources

Risk Assessment

Training

Incentives and Disciplinary Measures

Third Party Due Diligence

Confidential Reporting

Periodic TestingSlide25

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.Slide26

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.Slide27

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.Slide28

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.Slide29

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.Slide30

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” decisionSlide31

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.Slide32

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.Slide33

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. Slide34

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.