Corruption in the Global Gateway - PowerPoint Presentation

Slide1

Corruption in the Global Gateway

Developments and Enforcement Trends Relating to the Foreign Corrupt Practices Act and Other Anti-Bribery Laws. 

Eduardo A. Santiago-Acevedo, Moderator

    Slide2
Overview

The FCPA

GenerallyRECENT DEVELOPMENTS: SEC Whistleblower ProgramRECENT DEVELOPMENTS: The Yates MemorandumRECENT DEVELOPMENTS: The Pilot Program

Voluntary DisclosureInternational Anti-Corruption EffortsCompliance efforts & Due DiligenceEnforcement TrendsQuestions2Slide3
THE FCPA GENERALLY

3Slide4
What is the FCPA?

The anti-bribery provision:

U.S. persons and businesses are prohibited from offering, promising, authorizing or making corrupt payments to foreign officials to improperly obtain or retain business or obtain an improper business advantage.

The “books and records” provision:Requires accurate reporting and recording of all transactions.Covers all payments to non-U.S. government officials, regardless of why the payments were made.

4

4Slide5
What Is a “Thing of Value”?

A “thing of value” for purposes of the FCPA can be any benefit or service that has value to its recipient, no matter how small. For example:

CashExcessive travel and entertainmentGiftsGift cardsLoansPolitical and charitable contributions/donationsEmployment,

internships, or scholarships5Slide6
What Is Acting “Corruptly”?

An act is “corrupt” for purposes of the FCPA if

it is intended to induce a government official to misuse his or her official position by, for example:Wrongfully directing business to a person paying a bribe

;Granting preferential treatment as a result of the bribe; orRefraining from taking official action against the person paying the bribe.What Is Willful Blindness?An individual may be liable under the FCPA if he or she:Has actual knowledge of a bribe;

Has a suspicion that a transaction involves a bribe;

or

Deliberately avoided knowledge of bribery through willful blindness.6Slide7
FCPA Accounting Provisions

Companies

listed on U.S. exchanges are required to maintain books and records that accurately reflect all transactions and dispositions of assets.The FCPA’s accounting requirements apply independently. This means that payment of a bribe is not required for an accounting violation.

Penalties for accounting violations can be more severe than bribery violations:

Maximum Fine (Corporations)

Maximum Fine (Individuals)Maximum Imprisonment (Individuals)

Anti-Bribery Violations$2 million$250,000

5 years

Accounting Violations

$25 million

$5 million

20 years

7Slide8
Selected FCPA Settlements 2015-2016

Olympus paid

$22.8 million

to settle claims of bribery by a Latin American subsidiary.Novartis paid $25 million to settle claims that it bribed Chinese doctors to prescribe its drugs.2015The Louis Berger Group, Inc. paid $17.1 million to settle claims of bribery to obtain construction contracts in India, Indonesia, Vietnam, and Kuwait.Ingenuity and Purpose paid $7.1 million

to settle claims of conspiracy to bribe a Kuwaiti official to obtain government contracts.

2016

VimpelCom paid $397 million

to settle

claims of bribes paid to a high-ranking Uzbekistan official with ties to the telecom industry.

8Slide9

SEC & DOJ FCPA Enforcement 2007-2016Slide10
FCPA Sanctions per Year

(in Millions)

Source: Stanford Law School: http://fcpa.stanford.edu/chart-penalties.html10Slide11
2016 FCPA Enforcement Statistics

Last year was the biggest enforcement year in

FCPA history, both in the number of enforcement actions and the overall amounts paid to resolve them. The SEC brought more FCPA enforcement actions in the first six months of 2016 than it had in any full year since 2011.  Approximately half of the total settlement amount was attributable to three enforcement actions (Teva,

Odebrecht/Braskem and VimpelCom).Although the total enforcement actions cover a wide variety of industries and countries, in 2016: Over 12 different industries were affected by an enforcement action, with the healthcare industry remaining the most active; China – involved in roughly half of the enforcement actions – continues to be an FCPA international hotspot.11Slide12
Why It Matters To You Personally

12Slide13
RECENT DEVELOPMENTS:SEC Whistleblower Program

13Slide14
Recent Developments:

SEC Whistleblower Program

Program HighlightsProgram Successes 14Slide15
Recent Developments:

Company vs. Individual

US vs. Foreign CompanyIndividual Exposure15Slide16
Recent Developments:

SEC and DOJ Enforcement

Jurisdictional reach of each officeCoordinationResources16Slide17
RECENT DEVELOPMENTS:The Yates Memorandum

17Slide18
Recent Developments:

The Yates Memorandum

On September 9, 2015, Deputy Attorney General Sally Yates issued a memo entitled “Individual Accountability for Corporate Wrongdoing” to all DOJ attorneys, commonly known as the “Yates Memo.” Signaled a new priority of pursuing, punishing and deterring individual wrongdoers.Provided guidance with six specific points of instruction

for DOJ attorneys.18Slide19
The Yates Memorandum –

6 Points of Instruction

COOPERATION CREDIT: In order to qualify for any cooperation credit, companies must provide to the DOJ all relevant facts relating to the individuals responsible for the misconduct;FOCUS ON INDIVIDUAL LIABILITY: Criminal and civil corporate investigations should focus on individuals from the inception of the investigation;COORDINATION BETWEEN CRIMINAL AND CIVIL ATTORNEYS: Criminal and civil attorneys handling corporate investigations should be in routine communication with one another;

19Slide20

RELEASE OF CULPABILITY: Absent extraordinary circumstances or approved departmental policy, the DOJ will not release culpable individuals from civil or criminal liability when resolving a matter with a company;

PLANS TO RESOLVE RELATED CASES: DOJ attorneys should not resolve matters with a company without a clear plan to resolve related individual cases, and should memorialize any declinations as to individuals in such cases; andCONSIDERATIONS FOR CIVIL ATTORNEYS:

Civil attorneys should consistently focus on individuals, as well as the company, and evaluate whether to bring suit against an individual based on considerations beyond that individual’s ability to pay.The Yates Memorandum – 6 Points of Instruction (cont.)20Slide21
The Yates Memorandum –

Updates

The DOJ issued two clarifications since the publication of the Yates Memorandum: Corporations must disclose all relevant facts regarding individuals’ misconduct to receive cooperation credit.A corporation may still be eligible for cooperation credit even if it cannot identify culpable individuals.Implies that companies seeking cooperation credit may be held to a best efforts standard.

Confirmed the continuation of the policy prohibiting prosecutors from requesting that companies waive privilege to receive cooperation credit .21Slide22
RECENT DEVELOPMENTS:The Pilot Program

22Slide23

In April 2016, the DOJ announced a one-year pilot program to encourage companies to voluntarily self-disclose FCPA-related misconduct, cooperate with the Criminal Division’s Fraud Section and remediate flaws in their internal controls and compliance programs.

This program only applies to FCPA matters brought by the Criminal Division’s Fraud Section.Through the program, a Company may receive up to a 50% reduction off the bottom end of the applicable US Sentencing Guidelines fine if itvoluntarily and promptly:discloses all relevant facts known to it (including facts about individual misconduct);

fully cooperates with the government’s investigation; andtimely and appropriately remediates. The DOJ will consider declining prosecution for companies that timely disclose, cooperate and remediate.Appointment of a monitor will not be required if a company has implemented an “effective compliance program” by the time of resolution. The Pilot Program23Slide24
The Pilot Program (cont.)

Through the Pilot Program, the DOJ Reviews A Company’s

: Compliance Program Efficacy:Adequately resourced and independent (includes review of reporting structure); Compliance personnel that are sufficiently experienced and knowledgeable about the business to identify and appreciate risky transactions or conduct;

Program design is tailored to address risks based on an effective risk assessment and then audited to ensure efficacy; and Compliance personnel are compensated and promoted in a way that does not compromise their independence or the fulfillment of their responsibilities.Discipline for Misconduct:A framework for disciplining employees responsible for misconduct, and potentially others who oversee them, and that takes into account how disciplinary infractions and oversight lapses affect compensation also are features identified for scrutiny in terms of assessing compliance program effectiveness.Efforts: Fraud Section attorneys are instructed to take note of other actions a company may take that demonstrate its understanding of the seriousness of the misconduct, responsibility for its actions, and efforts to reduce recurrence and other risky behavior.24Slide25

Additional Notes:

Disclosures already required by law, agreement or contract will not qualify as a voluntary self-disclosure.Cooperation will be evaluated by the scope, quantity, quality and timing of cooperation appropriate for the particular circumstances.Additional steps demonstrating company recognition of the misconduct’s seriousness, acceptance of responsibility and implementation of measures to reduce the risk of repetition may also be required. Companies failing to voluntarily disclose FCPA-related misconduct may still receive limited credit if they later cooperate and appropriately remediate.

However, cooperation credit will be limited to, at most, a 25% reduction off the bottom of the US Sentencing Guidelines fine range calculation.  The Pilot Program (cont.)25Slide26
Takeaways from the Yates Memorandum and Pilot Program

For any company that has uncovered possible violations of the FCPA:

promptly self-report the findings of the internal investigation;provide timely updates to the SEC and DOJ of the findings on a continuous basis, including audit results, identification of all improper payments, factual timelines, and supporting documentation, and translate the relevant documents into English (if applicable);voluntarily make witnesses available for interviews; andconduct a risk assessment to determine whether improper conduct occurred at other corporate locations.

26Slide27
Voluntary Disclosure

27Slide28
Considerations when making the decision whether or not to disclose to DOJ or the SEC:

Amount of the

paymentPrevalence of conduct Actors involvedDefenses/true FCPA violationInternational cooperation

Disclosure to the Government: Making the Decision28Slide29
No

disclosure and conduct does not come to the attention of regulators in the U.S. or abroadPros –

No fine/disgorgementNo monitorNo DOJ/SEC mandated investigation No adverse publicityCons –Uncertainty of discovery (whistleblower, industry probe, acquisition)Five year SOL Disclosure to the Government: Pros v. ConsScenario I

29Slide30
No

disclosure and conduct does come to the attention of regulators in the U.S. or abroadCons – Start in hole – have to justify/explain why not

disclosed DOJ/SEC may have pre-conceptions of conduct which will need to be overcomeDOJ/SEC may be more active in investigation Lose guideline benefit and DOJ/SEC may be less inclined to give benefit of certain conclusionsImpact on settlement Disclosure to the Government (cont.)Scenario II

30Slide31
Pros

- Can climb outExplain decision not to disclose – small amounts involved

Arguable whether violations (no concrete/direct proof of payment)Performed necessary investigation (DOJ/SEC standard) to determine problem Fixed problems any way – remedial measures Disclosure to the Government (cont.)Scenario II, cont.

31Slide32
Disclosure

to DOJ and SECCons –

Potential fine/disgorgementAdverse publicity DOJ/SEC have ability to request additional investigation as well as other marketsDisclosure to the Government (cont.)Scenario III32Slide33
Pros -

Enhanced credibility with DOJ/SEC re investigation process/findingsAbility to frame the issues as opposed to responding to allegations

Settlement impact – guideline benefit and DOJ/SEC may be inclined to give benefit of certain conclusions, increase prospect of no monitorRemedial measures – no additional effect as putting in place Possible pass – small amounts, no individuals (DOJ/SEC overwhelmed)Certainty Disclosure to the Government (cont.)Scenario III, cont.

33Slide34
International Anti-Corruption Efforts

34Slide35
Latin America Bribery Settlements

How corruption occurs in Latin AmericaAnti-Corruption Laws/Enforcement Abroad

Latin America OverviewMexico Anticorruption Law (Sistema Nacional Anticorrupcion)International Anti-Corruption Efforts 35Slide36

Latin America and the Caribbean

Bribery Settlements

2000 - 2015

8

Source: Last 15 years FCPA settlements involving LATAM

Costa Rica

2 cases

Colombia

1 case

Brazil

7 cases

Venezuela

7 cases

Mexico

12 cases

Bolivia

1 case

Panama

2 cases

Argentina

8 cases

Ecuador

2 cases

Honduras

2 cases

12

Countries

32

Companies

19

Industries

Haiti

1 Case

Bahamas

1 Case

36Slide37

How corruption occurs in Latin America

9

Source: Last 15 years FCPA settlements involving LATAM

70%

35%

22%

9%

22%

11%

85% of cases involved third parties

37Slide38

Fight Against Corruption in Latin America

The U.S. was a pioneer in passing legislation (FCPA) against the payment of bribes to foreign officials.

Since then several other countries have followed, including Latin American countries and today there is a strong global movement to against corruption.

OECD Anti-bribery Convention

–

In force: February 1999.

Ratified by 36 countries

–

including Argentina, Brazil, Chile, and Mexico.

Inter-American Convention Against Corruption

–

In force: March 1997.

Ratified by the 35 members of the Organization of American States (OAS) and 3 non-member countries.

U.N. Convention Against Corruption

–

In force: December 2005.

Ratified by 34 countries

–

including Brazil, Ecuador, El Salvador, Honduras, Mexico, Panama, Paraguay and Peru

– not

the United States.

Latin American countries have issued their own anti-corruption laws

Chile Anti-corruption law 20393 (2009)

Colombia Anticorruption law 1474 (2011)

Mexico Federal Law against Corruption in Public Procurements (2012)

Brazilian Clean Company Act 12.846 (2014

)

Sistema Nacional de Anti-

C

orrupcion

(enacted

2016 -

effective July 2016

)

Ley de

Responsabilidad

de Personas

Juridicas

por

Corrupcion

(enacted

2016 -

effective July 2016)

38Slide39

Mexican Anti-Corruption Law (Sistema Nacional

Anticorrupcion

)

April

2015

- Mexican

government enacted a series of reforms to existing laws and implemented new laws in what has been denominated as the National Anticorruption System (“NAS”).

July

18, 2016 -

Mexican President

promulgated secondary

laws that established the institutions, regulations and other mechanisms that will bring NAS into a functioning system.

Three

new laws

form

part of NAS (herein referred to as “NAS Laws”):

General

Law for the Anticorruption National

System

Organic

Law for the Federal Tribunal on Administrative

Justice

General

Law of Administrative Responsibilities

39Slide40

Mexican Anti-Corruption Law (Sistema Nacional

Anticorrupcion

)

NAS relevant facts

Five key actors part of the NAS.

Coordinating Committee created to set the public policy against

corruption.

Citizens’ Committee to be integrated by 5 citizens appointed by the

Senate.

Coordinating Committee to create the National Digital Platform where anonymous reports will be uploaded for investigation and a list of private companies or individuals sanctioned for acts of corruption will be included and

kept

up to

date.

Imposes Sanctions to individuals and Corporations.

Gives credit to companies with a compliance program.

40Slide41

Mexican Anti-Corruption Law (Sistema Nacional

Anticorrupcion

)

Minimal Requirements for a Compliance Program

Compliance Program

41Slide42

Mexican Anti-Corruption Law (Sistema Nacional

Anticorrupcion

)

Sanctions to Individuals and Corporations

Individuals

Corporations

Economic sanction of up to twice the amount of the acquired benefits or around

USD 600,000

Economic Sanction up to twice the amount of the acquired benefits or around USD 6,000,000

Temporary ineligibility to participate in procurement, leases, services or state-owned projects for 3 months to 8 years.

Temporary ineligibility to participate in procurement, leases, services or state-owned projects for a period raging from 3 months to 10 years

Indemnity for damages,

compensatory damages and lost profits to the public treasury

Indemnity for damages,

compensatory damages and lost profits to the public treasury

Suspension of activities for 3 months to 3 years

Partnership dissolution

42Slide43

Understand the local cultureAwareness of local legal environment and trends

TrainingComplianceInternally Addressing International Standards43Slide44
Compliance Programs & Due Diligence

44Slide45
Avoiding FCPA Liability

Code of Conduct

Rules of the RoadExpectationsOpportunities for Feedback (aka Ethics Hotline)TrainingSubstantivePeriodicDue DiligenceTimelyThoroughRisk Based (One size does not fit all)45Slide46
Avoiding FCPA Liability (cont.)

Contractual Terms

ClearRequire CertificationAudit RightsCompliancePolicies/SOPsMonitoringTestingAccountability46Slide47
Third-Party Exposure

Where is the exposure?

Agency RelationshipsDistributorsFranchiseesCommercial ContractsAcquisition Targets

Joint Venture Partners47Slide48
The Exposure Risk

Under the FCPA, the UK Bribery Act and other anti-corruption laws, a company can be liable not only for the corrupt actions of its employees, but also

for a third party’s actions when that third party is acting on the company’s behalf.A company may be liable for the actions of its agents, provided the agent was acting within the scope of its authority and one of its motives was to benefit the company.

United States v. Potter, 463 F.3d 9, 25 (1st Cir. 2006). In fact, approximately 90% of reported FCPA cases involve conduct by third party vendors or intermediaries. Source: Ernst & Young, 12th Global Fraud Survey (2013). 48Slide49
DOJ Guidelines: “Third-Party Due Diligence and Payments”

“Risk-based due diligence is particularly important with third parties and will also be considered by DOJ and SEC in assessing the effectiveness of a company’s compliance program.”

The “appropriate level of due diligence may vary based upon industry, country, size and nature of the transaction, and historical relationships with the third-party….”

That said, “some guiding principles always apply”:“Understand qualifications and associations of third parties”“The degree of scrutiny should increase as red flags surface”“Understanding of the business rationale” for hiring the third party“Undertake some form of monitoring”

Inform third parties of “commitment to ethical and lawful business practices”

49Slide50
Hallmarks of an Effective Third-Party Due Diligence Program

Know your vendors

Who are they?What is the business rationale?Are they equipped to provide the services?

Identify your “high-risk” vendorsConduct appropriate risk assessments.Implement a due diligence protocolUse questionnaires and background checks.Stress the importance of your commitment to ethical and lawful business practices.Include anti-corruption clauses in contractsAudit and monitor vendors consistentlyDocument everything50Slide51

Key Elements of Third-Party Due

Diligence

All International Accounts:CollectContact informationOwnership structureFinancial situationSubcontractor useRelevant policies and procedures

Conduct background checks

Implement

Revise contracts to include key protectionsRevise questionnaire and forms already in use

Document approval process

Assess

risks

and

improve

1. Data Collection

2. Data Verification/Validation

3. Evaluation of Results

51Slide52
Corporate Actions Involving M&A & Successor Liability, 2007-2016

Source: Stanford Law School: http://fcpa.stanford.edu/assets/img/carrousel/03-sanctions.png52Slide53
Enforcement Trends

53Slide54
Questions?

54