Compliance A New Vision

Compliance-A New Vision

Thomas R. Fox-General Counsel, Drilling Controls, Inc.IQPC Contract Risk Management ConferenceHouston TX May 29, 2008

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Legal Disclaimer

The views stated herein are solely those of the author and are not those of Drilling Controls, Inc. or Aibel Group Ltd.

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Aibel and Deferred Prosecution Agreement

Aibel entered into a DPA with the US DOJ on February 6, 2007, agreeing to:

Comply with all commitments made to US government.

Comply with all additional requirements.

Implement and monitor compliance program and internal control procedures.

Compliance Counsel-Ray Bonoun

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FCPA-Why Enforcement?

FCPA enacted into law in 1977

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Enforcement Explosion-What is Response?

Compliance

Compliance

Compliance

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Compliance-Steps in Response

What did you do to stay out of trouble?Code of ConductHotlineTrainingDue Diligence

What did you do when you found out?InvestigateInternal v. External

What remedial action did you take?Disciplinary ActionVoluntary Disclosure

Paul McNulty-Baker McKenzie General Counsel Seminar-April 1, 2008

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Costs and Risks

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Costs

Financial Costs

Direct Financial Costs-standard commission of 10% but often higher.

Repeated Demands-once paid, precedent set.

No recourse-no control over outcome or how money is used.

Substandard business partners, sub-contracts or suppliers.

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RISKS

In addition to the costs there are other Risks for companies who do not operate ethically.

Risk of Blackmail

Risk of Violence

Political Risk

Risk of Public Perception

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A New Vision- Positive Effects of Compliance

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Protect and Strengthen Sales, Brand Image and Reputation

Companies should do more than just “give money”.

50% considered punishing a company based upon its “social actions”.

30% avoided doing business with a company for its “social actions”.

(Environics International Survey)

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Protect the Company

M&A-Misrepresentations in merger agreement can lead to a securities fraud claim. Titan Corporation

Wrongful Termination-failure to engage in illegal act. Sabin Pilots

Franchisor Liability-more than vicarious liability

Successor Liability-US entity acquiring foreign entity

Non-Controlling Investor in Foreign Entity-FCPA does not distinguish between controlling and non-controlling affiliation.

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Strengthen Employee Loyalty and Commitment

Only 6% of employees were inclined to stay when they believed their leaders to be unethical. (Walker Information Survey)

Employees who believe they work in an ethical environment are 6X more likely to be loyal. (Hudson Institute Survey)

Employees are generally more positive about their work and have greater loyalty if they work for a company with good values and ethical practices. (Diener and Seligman, “Beyond Money” Psychological Science in the Public Interest, Vol. 5, No. 1, 2004))

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Avoid New and Additional Regulation

Enron/World Com/SOX

SOX and other regulatory changes as evidence of a “frame shift” in which “all history is put through a new lens” (Wall Street Journal, January 15, 2003)

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Weather the Storm with Integrity Capital

Companies with a demonstrated commitment to ethical behavior can limit vulnerability to

shareholder and outside activist pressure due to heightened credibility.

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Reduced Costs

Cost Reduction through Enhanced Communications:

Proactive and effective engagement with shareholders.

Reporting identifies the effectiveness of programs.

Reporting identifies priorities to insure the greatest impact of available resources.

Reporting to use as a benchmark for overall organizational effectiveness.

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Improved Attractiveness to Investors

Shareholders, particularly institutional investors welcome increased disclosures.

A growing number include non-financial metrics in their analysis on the quality of investments, such as corporate governance.

75% of stakeholders believe that overall Board and Corporate Governance factors as important as financial performance for large institutional investors. (McKinsy/World Bank Large Institutional Investor Survey)

Large institutional investors will to pay higher prices for stocks of companies considered to be accountable. (McKinsy/World Bank Large Institutional Investor Survey)

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Marketplace Advantages

Accountability makes market entry and retention easier.

Know your customer.

Due diligence your suppliers, agents and business partners.

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Supplier Due Diligence

Background research and inqueries required under the Aibel Directive for certain Supplier Due Diligence:

Certificate of Incorporation/Articles of Incorporation.

Company Brochures or Other Promotional Materials.

Annual Report. Resumes of Senior Personnel. Media Search Results-Google Media Search Results-Lexis/Nexis

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Supplier Due Diligence-cont’d

7.Boycott Data Base Search Results.

8. Special Designated Person (SDN) Data Base Search Results.

9. Inquiry to Government Agencies and Other Sources.

10. Certification Regarding Absence of Legal Prohibitions.

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Supplier Due Diligence-cont’d

11.Report of In Person Interview.

12. Report of Business Reference Interview.

13. Report of Financial Reference Interview.

14. Comparative Fee Inquiry

15. Annual Update

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Questions