Anti-Corruption Compliance
FCPA Follow-up Due Diligence
- DOJ: Risk-based due diligence (may vary based upon industry, country, size and nature of the transaction, and historical relationships with the third-party...) • Companies should REGULARLY monitor 3rd party relationships by: ○ Double-checking due diligence checklists items and "red flags" ○ Obtaining written certifications from foreign business partners that certify compliance with relevant laws ○ Reviewing 3rd party performance and compensation ○ Verifying reports submitted by the foreign business partner ○ Maintaining required documents and approvals Ensuring that the 3rd party has the Company's Global Anti-Corruption Policy
FCPA Analysis
- Did an employee or agent - offer or pay anything of value - to a foreign official - for the purpose of influencing the official to secure an improper business advantage? 1. is this an employee or agent/third party (distributor, franchisee, commercial contractor, joint venture) acting on the company's behalf? - was the agent acting within the scope of its authority and one of its motives was to benefit the company? 2. Did the individual act "willfully" or "corruptly"? - "willfully": 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 - An act is "corrupt" 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 brine; or Refraining from taking official action against the person paying the bribe 3. Was the offer or payment "anything of value? - A "thing of value" may be: ○ Cash or cash equivalent ○ Charitable donations ○ Travel expenses ○ Services ○ Loans ○ Entertainment unrelated to customary entertainment connected with a particular deal or contract • In most circumstances, an item is NOT considered a "thing of value" if it is: ○ Nominal in value ○ Not cash ○ Customary in type and value in host country ○ Permitted under local law ○ Made as a courtesy or token of regard or esteem given openly ○ Accurately recorded 4. Was it to a "foreign official"? - • A government official or employee can be anyone who participates in official decisions or who has decision-making power. Examples: ○ Customs officials ○ State-owned media and its employees ○ State-owned utilities ○ Tax, health or other government inspectors Persons appointed by a government official
DOJ Principles of Federal Prosecution of Business Organizations
- Nine factors are considered in conducting an investigation, determining whether to charge a corporation, and negotiating plea or other agreements: ○ the nature and seriousness of the offense, including the risk of harm to the public; ○ the pervasiveness of wrongdoing within the corporation, including the complicity in, or the condoning of, the wrongdoing by corporate management; ○ the corporation's history of similar misconduct, including prior criminal, civil, and regulatory enforcement actions against it; ○ the corporation's timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents; ○ ******the existence and effectiveness of the corporation's pre-existing compliance program;********* ○ the corporation's remedial actions, including any efforts to implement an effective corporate compliance program or improve an existing one, replace responsible management, discipline or terminate wrongdoers, pay restitution, and cooperate with the relevant government agencies; ○ collateral consequences, including whether there is disproportionate harm to shareholders, pension holders, employees, and others not proven personally culpable, as well as impact on the public arising from the prosecution; ○ the adequacy of the prosecution of individuals responsible for the corporation's malfeasance; and ○ the adequacy of remedies such as civil or regulatory enforcement actions.
FCPA
- Prohibits bribing public officials - Requires maintaining books and records in reasonable detail - Requires companies to maintain a system of internal controls to ensure transactions are property authorized and recorded - Imposes standards of conduct to insure that US companies do not commit bribery in foreign countries - Specifically, it is illegal for any US person or company - or anyone acting on their behalf - to bribe a foreign officials or foreign political party in order to gain or retain business
UK Bribery Act
- Prohibits: (1) bringing any person or entity (public or private) to induce or reward "improper behavior" and (2) accepting bribe - Prohibits bribing a foreign public official in order to "influence" them - Creates new offenses for (1) companies that fail to prevent bribery by their "associated persons" and (2) "senior officers" who allow bribes to be paid by the company • Affirmative requirement to have an anti-corruption compliance program Proscriptive
SEC's Framework for Evaluating Cooperation by Companies
- Seaboard Report the report identifies four broad measures of a company's cooperation: • self-policing prior to the discovery of the misconduct, including establishing effective compliance procedures and an appropriate tone at the top; • self-reporting of misconduct when it is discovered, including conducting a thorough review of the nature, extent, origins, and consequences of the mis- conduct, and promptly, completely, and effectively disclosing the misconduct to the public, to regulatory agencies, and to self-regulatory organizations; • remediation, including dismissing or appropriately disciplining wrongdoers, modifying and improv- ing internal controls and procedures to prevent recurrence of the misconduct, and appropriately compensating those adversely a ected; and • cooperation with law enforcement authorities, including providing SEC staff with all information relevant to the underlying violations and the company's remedial efforts.
UK Bribery Act (UKBA)
- The Bribery Act applies to any company that conducts business - or part of a business - in the UK - Encourages companies to act as whistle-blowers on their rivals - Section 7 of the UK Bribery Act: Failure to Prevent Bribery • A company commits an offence if an "associated person" bribes someone else to obtain or retain business for the company ○ An "associated person" is anyone who "performs services for or on behalf of the company" ○ The bribe can be paid anywhere in the world ○ It is irrelevant that the Company had no knowledge of the bribe BUT, it is a defense for the Company to prove that it had in place "adequate procedures" that were designed to prevent bribery
DOJ Principles of Federal Prosecution (individuals)
- prosecutors should recommend or commence federal prosecution if the putative defendant's conduct constitutes a federal offense and the admissible evidence will probably be sufficient to obtain and sustain a conviction unless: ○ (1) no substantial federal interest would be served by prosecution; ○ (2) the person is subject to effective prosecution in another jurisdiction; or (3) an adequate non-criminal alternative to prosecution exists
SEC considerations when deciding whether to open an investigation or bring charges
- the statutes or rules potentially violated; - the egregiousness of the potential violation; - the potential magnitude of the violation; - whether the potentially harmed group is particularly vulnerable or at risk; - whether the conduct is ongoing; - whether the conduct can be investigated efficiently and within the statute of limitations period; and - whether other authorities, including federal or state agencies or regulators, might be better suited to investigate the conduct. - Other considerations: ○ whether the case involves a possibly widespread industry practice that should be addressed, ○ whether the case involves a recidivist, and ○ whether the matter gives SEC an opportunity to be visible in a community that might not otherwise be familiar with SEC or the protections afforded by the securities laws.
SEC-DOJ Hallmarks of an Effective Anti-Corruption Compliance Program
1. Commitment from Senior Management and a Clearly Articulated Policy Against Corruption 2. Code of Conduct & Compliance Policies & Procedures 3. Oversight, Autonomy, and Resources 4. Risk Assessment 5. Training and Continuing Advice 6. Incentives & Disciplinary Measures 7. Third-Party Due Diligence and Payments 8. Confidential Reporting and Internal Investigation 9. Continuous Improvement: Periodic Testing and Review 10. Mergers & Acquisitions: Pre-Acquisition Due Diligence & Post-Acquisition Integration
Risk Assessment: Methodology
• 1. Reviewed background documentation • 2. Held discussions with company legal and compliance personnel • 3. Identified current controls • 4. Assessed transactions embedded within products, services and corporate activities • 5. Considered geographic overlay to assessment of products, services and corporate activities • 6. Categorized products and corporate activities as high, medium or low risk 7. Matched current controls with regulator guidance
FCPA Accounting Provisions
• Apply to publicly held US companies considered "issuers" under the Exchange Act of 1934 • To qualify as an issuer under the FCPA, an entity either must be required to file reports with the SEC under Sec. 15(d) of the Exchange Act or must have securities registered with the SEC under Sec. 12 of the Exchange Act • The definition of "issuers" is broad and covers corporations with bonds or American Depository Receipts traded on US markets or stock exchanges • Unlike the antibribery provision, the accounting provisions do not apply to "domestic concerns" that are not issuers • Most non-US operations of domestic businesses also are covered • The accounting provisions apply to all majority-owned subsidiaries (domestic or foreign) of US issuers • In addition, the Act provides that with respect to any company (including joint ventures) in which the issuer or one of its subsidiaries holds 50% or less of the voting power, the issuer is required to make a "good faith [effort] to use its influence, to the extent reasonable under the issuer's circumstances, to cause such domestic or foreign firm to devise and maintain a system of internal accounting controls." • The local laws and accounting practices of the jurisdiction in which the foreign affiliate does business largely determine what constitutes "reasonable" compliance with the statue Issuers that demonstrate good-faith efforts at compliance are presumed to have fulfilled their legal obligations under the Act
FCPA Accounting Requirements
• Books and record must be accurate and reasonably detailed • Devise and maintain internal accounting controls sufficient to provide assurances that: ○ Transactions are executed with management's authorization (either general or specific); ○ Transactions are recorded ○ Access to assets is limited and controlled Records are maintained and regularly audited
Scope of Risk Assessment
• Business Operations • Anti-Corruption Risk and Compliance Infrastructure • Risk Identified and Considered ○ Government customers and state-owned enterprises ○ Location of customers ○ Employee demographics ○ Use of third parties in sales activities (brokers and consultants) ○ Vendors and employees that interact with government officials ○ Licenses and permits ○ Current compliance controls Current State of Anti-Corruption Compliance Controls
Business Courtesies (things that are OK)
• Business courtesies may include gifts, meals, entertainment and travel • Many companies allow payment or reimbursement of reasonable and bona fide expenses that are: ○ Directly related to the marketing, promotion, demonstration or explanation of the company's products or services ○ Directly related to the performance of a contract • Approval is necessary before making any payment or reimbursement • Many companies will create maximum limits for gifts or courtesies involving non-government officials - Business Courtesies (Government Officials) • Business courtesies involving government should be extremely limited • Typically companies will heavily restrict, or altogether ban, any such gifts In addition, companies will often rely on robust approvals process
Risk Assessment: Key Considerations
• Government customers and state owned enterprises • Location of customers • Employee demographics • Use of third parties and sale activities (brokers and consultants) • Vendors and employees that interact with government officials • Licenses and Permits Current compliance controls
FCPA Baseline Compliance Expectations
○ Clear, concise and accessible Code of Conduct ○ Commitment from senior management ("tone at the top") ○ Clear management and oversight of compliance program ("Tone at the middle") ○ Autonomy from management (Direct access to governing authority) and sufficient resources ○ Risk assessments (the DOJ/SEC will give meaningful credit to a company that implements a comprehensive, risk-base compliance program) ○ Training and continuing advice ○ Incentive and disciplinary measures ○ Risk-based due diligence ○ Confidential reporting and internal investigation (hotline) Continuous improvement: "a good compliance program should constantly evolve"