The Foreign Corrupt The Foreign Corrupt Practices Act: Practices Act: Effective Compliance Effective Compliance Strategies Strategies ACC In-House Counsel Forum April 28, 2011 MARKUS FUNK (Moderator) tner, Perkins Coie deral Prosecutor (Chicago) 2000-10 DOJ Section Chief in Kosovo SEAN RADCLIFFE (Panelist) S, Inc. P and Chief Compliance Officer hief Legal Counsel - Corporate MICHELLE R. RAFIK (Panelist) Ball Corporation •Senior Attorney MICHAEL MCGAWN (Panelist) Chipotle Mexican Grill, Inc. •Corporate Counsel
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The Foreign Corrupt Practices Act: Effective Compliance Strategies The Foreign Corrupt Practices Act: Effective Compliance Strategies ACC In-House Counsel.
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"The Department places a significant and high priority on its FCPA program." — Mendelsohn (Mar. 23, 2010)
"FCPA Enforcement is stronger than it's ever been – and getting stronger. . . We are in a new era of FCPA enforcement.’"
— Assistant Attorney General Lanny A. Breuer (November 16, 2010)
What the Government Is Doing …..
0
50
100
150
200
2004 2005 2009 2010
EnforcementActions
Enforcement Actions Fines & Disgorgements
…. 2010 totals smashed 33 years of prior records
More Examples: Top 2010 Enforcement Actions
BAE (U.K.) $ 400 million criminal fine
Snamprogetti (Holland/Italy) $240 million criminal fine; SEC disgorged $125 million in profits
Technip S.A. (France) $240 million criminal fine; SEC disgorged $98 million
Panalpina (Switzerland) $70.5 criminal fine; SEC disgorged $11.3 million
Pride International, Inc. (USA) $32.6 million criminal fine; SEC disgorged $23.5 million
Shell Nigeria (U.K./Holland) $30 million criminal fine; SEC disgorged $18.1 million
Today's Parade of FCPA Horribles
Criminal Penalties Anti-Bribery Provisions
Corporations: $2 million maximum per violation
Individuals: 5 years incarceration; $250,000 per violation
Books & Records Provisions Corporation: $25 million Individual: $5 million; 20 years
. . . . and that is not all . . . .
Substantial civil penalties/disgorgement Debarment from government contracts License termination Conduct serve as basis for a civil RICO case Conduct can lead to a shareholder suit Adverse publicity/damage to reputation Prosecution in foreign jurisdiction Court appointment of monitor
Company Beware:Surveying Key FCPA Pitfalls
Michelle R. Rafik – Ball CorporationMichelle R. Rafik – Ball Corporation
"Responding To The Growing Threat of Third-Party FCPA Liability – What
Proactive Steps Should Companies Take?"
Third-Party Liability
Make or authorize improper payments to foreign officials, political party, or candidate ("actual knowledge" -- very rare)
or Make payment to third party, with a conscious
disregard for whether portion of money will be paid directly to foreign officials, political party, or candidate (constructive knowledge – more common)
Now On FCPA Hook for Difficult-To-Control Acts of Foreign:
Translation: Basically anyone with whom company has foreign business relationship!
Some "Red Flags"
Countries/industries with history of public corruption
Familial or personal government or political connections
Disjunction between the work to be performed and qualifications
Reliance on political or governmental contracts Reluctance to sign and abide by requirements No – or incomplete - written contracts or invoices Refusal or inability to develop a market strategy
Some "Red Flags" (Continued)
Interest in keeping the relationship secret History of improper payment practices Poor business reputation Unusually high fees, commissions, or bonus
requests Requests for cash payment Payment directed to offshore accounts Requests for unusual advance payments
Successor FCPA Liability: What You Know Can Hurt You
Acquire company AND existing liabilities Eg, Allianz & Halliburton/KBR
Due Diligence is the key! Government selects cases to prosecute
If Due Diligence Uncovers Problem(s) …. Self report (either party) Allocate potential fees and fines in merger agreement Institute appropriate safeguards (if no current FCPA liability) Or … Walk away
ALWAYS make sure all disclosures in public filings are accurate
"Updating Compliance Policies and Procedures to Reflect Recent
Amendments to the Corporate Sentencing Guidelines"
20-Year-Old US Sentencing Guideline's Categorical Bar on Fine Reduction Now
History
Section 8C2.5(f) – Corporate Sentencing Guideline
Old Guidelines: No three-level (50% or more) reduction for company in which "high-level personnel" participated in, condoned, or were willfully ignorant of the offense.
New (November 2010) Guidelines:
(1) The individual or individuals with operational responsibility for the compliance and ethics program have direct reporting obligations to the company’s governing authority or appropriate subgroup thereof;
(2) The compliance and ethics program detected the offense before discovery outside the company or before such discovery was reasonably likely;
(3) The company promptly reported the offense to the appropriate governmental authorities; and
(4) No individual with operational responsibility for the compliance and ethics program participated in, condoned, or was willfully ignorant of the offense.
The amendments respond to public concerns that:
(1) The categorical bar to the reduction operated too broadly; and
(2) Internal and external reporting of criminal conduct is, in appropriate cases, better encouraged by providing an exception to the general prohibition.
How To Avoid Liability In Four Easy Steps: Review, Revise, Hire, and Submit
1. Review compliance and ethics program to ensure the compliance and ethics officers have direct responsibility, set forth in writing, to the board of directors audit committee, or similar subgroup to immediately inform them of suspected non-compliance or criminal conduct;
2. Revise existing compliance policies and procedures to identify and promptly remedy potential internal control and compliance weaknesses;
3. Hire outside counsel to investigate cases of suspected non-compliance, and to suggest appropriate amendments to the company's compliance and ethics program to help stave off questions concerning whether the company took "reasonable steps" upon learning of the suspected criminal conduct; and
4. Submit an annual report assessing the implementation and effectiveness of the company's compliance and ethics program.
M. Sean Radcliffe (IHS, Inc.)M. Sean Radcliffe (IHS, Inc.)
"Responding to the Recent Dodd-Frank 'Whistleblower Bounty Incentives' -- The
Problem of Supply & Demand"
Government Has Many Sources of Allegations
Internal audits Due diligence review during merger/acquisition Voluntary disclosures Whistleblowers/anonymous complaints Foreign law enforcement referrals Competitors Media reports Overseas US embassies/FBI Legal Attaches
Industry-wide investigations
2011 Dodd-Frank Whistleblower Provisions…..
Requirement: ‘‘Original’’ violation-related information
Promised Award: Minimum of 10 percent, maximum of 30 percent, of all
monetary recoveries in ‘‘successful resolution’’ of settlement exceeding $1 million
Enhanced Whistleblower Protections: Anonymity until pay-out Covers subsidiary employees Private retaliation cause of action Right to appeal denial of award