1. Kyiv
Anti-Corruption Seminar
Steve Huggard and Antonio Suarez-Martinez
Partners, EDWARDS WILDMAN
Oleh Marchenko, Partner, and Andriy Guck,
Senior Associate, MARCHENKO
DANEVYCH
© 2013 Edwards Wildman Palmer LLP & Edwards Wildman Palmer UK LLP

2. Overview
♦ The
US FCPA regime
♦ The
UK Bribery Act
♦ Ukrainian
♦ Why
anti-corruption laws
important to Ukrainian companies?
♦ Compliance
♦ What
should you do if you find a problem?
2

3. The Key Provisions of the US FCPA
♦ The
Foreign Corrupt Practices Act makes it illegal for any U.S.
person or company or anyone acting on their behalf (whether U.S.
person or not) or for any issuer (whether U.S. entity or not) to
bribe a foreign official or foreign political party for the purpose of
obtaining or retaining business
♦ The
FCPA also applies to foreign companies and persons if an act
in furtherance of the corrupt payment took place in the U.S.
♦ The
FCPA prohibits not only direct payments, but also any
payments made through any intermediary to a foreign government
official
3

4. What Constitutes a Bribe?
♦
Payment, offer of payment, promise to pay, or authorization to
pay
♦
Money or anything of value
♦
Corruptly or with Improper Purpose
♦
To a foreign official or third parties while knowing that all or a
portion will be used by the third party for the prohibited activities
4

5. What Does “Anything of Value” Mean?
♦ The
FCPA prohibits the giving (directly or indirectly) of anything of
value, not just money
♦ It
therefore applies to gifts, charitable donations, travel expenses,
goods or services, loans, excessive entertainment, or other
personal or financial favors for the foreign official or any member
of his or her family
♦ The
FCPA also includes favors such as political or charitable
donations (the favor does not have to be explicitly requested)
5

6. Limited Exception - Facilitating Payments
♦
Ordinarily and commonly performed by a foreign official
♦
Not intended to influence the exercise of discretion by the
foreign official
♦
Nominal amount and is made for the sole purpose of
facilitating, expediting or securing the performance of a
non-discretionary routine act to which Company is entitled
♦
Be very careful before authorizing these – it is a very
limited exception

7. Limited Exception - Facilitating Payments (continued)
♦
♦
♦
♦
These include:
♦ Obtaining permits, licenses, or other official documents;
♦ Processing papers such as visas and work orders;
♦ Providing police protection, mail pick-up and delivery, or scheduling
inspections associated with contract performance or inspections
related to transit of goods;
♦ Providing telephone service, power and water supply, loading and
unloading cargo, or protecting perishable products from
deterioration; or
♦ Actions of a similar nature
May not be permitted under local law
Not permitted under anti corruption laws enacted by many countries
Not permitted under Ukrainian law

8. What Does “Improper Purpose” or “Corruptly”
Mean?
♦
An improper purpose includes:
♦ to obtain or retain business
♦ to direct business to another person or firm
♦ to obtain any other unfair advantage, such as:
♦ tax exemption or benefit
♦ reclassification or under valuation for customs purposes
♦ issuance of license or permit
♦ government concession, franchise, or contract
♦ waiver of penalties for non-compliance with law
♦ facilitating VAT refund even if a company (exporter) is entitled to VAT
refund under the law (e.g. Alfred C. Toepfer International and ADM
investigations)
8

9. What Does “Knowledge of Improper Purpose”
Mean?
♦ Knowledge
can be demonstrated where a party is aware of:
♦
an improper payment
♦
circumstances for an improper payment exist
♦
an improper payment is substantially certain to occur
9

10. Who Are Government Officials?
♦ An
employee of a government agency
♦ A legislator
♦ A member of a political party
♦ A candidate for political office
♦ A member of a royal family who has government official
responsibilities
♦ An official or employee of a state-controlled or state-owned
business enterprise (including doctors in government hospitals)
♦ A consultant acting for or on behalf of a government or
government agent
♦ A public international organisation
10

11. Travel and Entertainment
♦ Certain
expenses including but not limited to gifts, business
entertainment, payment of travel expenses, lodging, meals,
charitable contributions, educational or employment opportunities
and/or assumption or forgiveness of debt may be treated as
"bribes" under relevant laws and the FCPA, as a thing of value, if
offered or given in order to obtain an improper business
advantage
11

12. Permissible Payments for Travel and
Entertainment
♦ Payments,
gifts, offers or promises of anything of value that are
reasonable and bona fide expenditures, such as travel or lodging
expenses incurred by or on behalf of a foreign official, and directly
related to:
♦
the promotion, demonstration or explanation of products or
services; or
♦
the execution or performance of a contract will not constitute a
bribe.
12

13. Permissible Payments for Travel and
Entertainment? (continued)
♦
All expenses should be:
♦
moderate or reasonable
♦
company representative present
♦
contemporaneous with event (directly related to promotion of product or
execution of contract) and appropriate balance between business
purpose and the entertainment and leisure activities
♦
decision-Maker alone; no spouses, children etc.
♦
transparent
♦
expenses supported by appropriate receipts
13

14. Bribes Paid with Employee Funds Are Still
Bribes
♦
It is not okay to pay the bribe out of your own pocket (the
Company will still get in trouble, and so will you).
Don’t be the reason the Company gets in trouble…
14

15. Accounting Provisions (US)
You are required to:
♦ keep books and detailed records that accurately reflect the
transaction and disposition of corporate assets
♦ devise and maintain an adequate system of internal accounting
controls:
♦ ensure transactions are executed in accordance with
management’s general or specific authorization
♦ ensure transactions are recorded to permit preparation of
financial statements in conformity with generally accepted
accounting principles, and to maintain accountability for assets
♦ Applies only to issuers
15

16. What Anti-Corruption Due Diligence is Required
for Mergers and Acquisitions?
♦
Aims of due diligence = proportionality
♦ ensure target business is sound and value not distorted by bribery
♦ identify early whether any bribery exposure
♦ ensure no successor liability
♦ provide basis for negotiating future penalties if wrongdoing uncovered
♦ provide basis for monitoring target to ensure quality of anti-bribery programme
♦
Conducting due diligence
♦
initiating the process
♦
appoint manager to lead anti-bribery component
♦ initial assessment of target and scoping of exercise
♦ develop timetable
initial screening
♦ identify anti-bribery programme
♦ first discussion with target
♦ identify immediate risks and red flags
♦
16

17. What Anti-Corruption Due Diligence is Required
for Mergers and Acquisitions? (continued)
♦ Detailed
analysis
♦ review of target’s markets and competitors
♦ corporate intelligence and background checks
♦ examine target’s anti-bribery programme
♦ interview management and key personnel and assess tone
from the top
♦ external interviews and site visits
♦ review data room
♦ detailed financial review
♦ Report and Decision
♦ Post-acquisition Due Diligence
17

18. Public Tenders
♦ Good
♦
♦
♦
practice
review procurement laws and comply
carefully review tender documents, award criteria and ensure
reasonable and level playing field
check for any conflicts of interest
♦ Pitfalls
♦
how do you respond to requests for civic improvements?
♦ identify and clarify decision-maker – query if sole individual
♦ gifts and hospitality
♦ check for any conflicts of interests
♦ use of middlemen
18

19. Training and Compliance Are Essential
♦ The
governments of the US and UK are looking for companies
that have a “culture of compliance.”
♦ US
government says training should occur “from the board room
to the supply room.”
♦ Employees
need to be trained and counseled and encouraged to
ask questions.
19

20. Who Enforces These Laws in the US, UK and
Ukraine?
The UK
♦ Serious
♦
♦
♦
Fraud Office
SFO attitude to self-reporting changed in October 2012
more pressure to self-report quickly
advantages to full investigation and self-reporting
♦ Future
♦
♦
Deferred Prosecution Agreements
prosecutions inevitable; SFO under pressure to deliver
20

21. Who Enforces These Laws in the UK, US and
Ukraine? (continued)
The US
Department of Justice/Securities & Exchange Commission –
they work both parallel and in tandem
♦ US Govt believes that you should self report at the first hint of
trouble
♦ Most companies prefer to know something about the facts first
♦ Very interested in patterns, large cases, and cases where
management ignored “red flags”
♦ Also very interested in books and record cases
♦ US
21

22. Who Enforces These Laws in the UK, US and
Ukraine? (continued)
Ukraine
♦
Public Prosecution Office, including coordination of efforts of all
enforcement agencies
♦
Organized Crimes Department of Interior Ministry
♦
Corruption and Organized Crimes Department of State Security
Service
♦
Ministry of Justice – responsible for coordination of anticorruption
strategies
22

23. UK Bribery Law?
♦
Consolidated scheme of offences
♦
Covers private and public sector bribery
♦
Introduced five criminal offences on July 1, 2011
♦
♦
requesting, agreeing to receive or accepting a bribe
♦
bribing a foreign public official
♦
new offence of the failure of a commercial organisation to prevent bribery
♦
♦
offering, promising or giving a bribe
directors and managers: ignoring or consenting to a bribe
Organisation must implement, maintain and enforce effective anti-bribery
policies, systems and controls
23

24. Who is Covered?
♦
Worldwide reach – will apply wherever the bribe is paid
♦
Liability for bribe paid anywhere in world
♦
Liability (failing to prevent bribery) for bribe paid anywhere in world by entity or
individual performing services on its behalf
♦
Applies to:
♦ UK individuals (e.g. including all UK passport holders, including OTs etc)
♦ UK companies
♦ residents in the UK
♦ foreign companies carrying on business in the UK
24

25. How is it Different from the FCPA?
♦ FCPA public
♦ FCPA does
♦ FCPA only
♦ UK
sector only
not prohibit facilitation payments
criminalises active not passive bribery
has statutory defence of “adequate procedures”
25

26. Ingredients of General Offences of Paying or
Receiving a Bribe
require “improper performance” of (widely-defined)
function or activity
♦ Offences
♦ What
♦
is improper performance?
breach of an obligation of good faith, impartiality or trust
♦ Improper
♦
♦
performance judged by UK standards
local custom or practice to be disregarded
unless permitted by written law
26

27. How Should You Respond to Requests for
Facilitation Payments?
♦ Facilitation
payments are unlawful in the UK
♦ However,
it is recognised that there is a defence of duress if
payment is made to protect against loss to life, limb or liberty
♦ Be
mindful of what payment is for and whether the amount
requested is proportionate
♦ Ask
for a receipt detailing the reason for payment
27

28. UKBA: Failing to Prevent Bribery – Adequate
Procedures (Section 7 Corporate Offence)
♦ Government
♦
♦
♦
♦
♦
♦
Guidance on adequate procedures:
top-level commitment to prevent bribery
risk assessment
proportionate policies and procedures to deter and detect
bribery
due diligence on those performing services on behalf of an
organisation (e.g. agents/intermediaries)
communication and training of policies and procedures
regular monitoring and review of policies/procedures
28

29. Accounting Provisions (UK)
386-387 Companies Act – failure to keep adequate
accounting records
♦ Section
♦ Section
17 Theft Act 1968 – false accounting
29

30. Deferred Prosecution Agreements
♦ DPAs
introduced on 25 April 2013 by Crime and Courts Act 2013
but not expected to be in force until early 2014
♦ DPAs apply to corporates, partnerships or unincorporated
association; not individuals
♦ DPAs apply to economic crimes including accounting fraud and
bribery
♦ DPP and SFO joint Code for Prosecutors to be published in late
2013: guidance on principles to be applied in deciding whether
DPA appropriate
♦ High level of judicial involvement increases risk of non-approval of
DPA
30

31. Ukrainian anti-corruption law (UACL)
UACL, dated April 7, 2011 # 3206-VI
♦
Covers public and private sector bribery
♦
Offences under UACL
♦
offering, promising or giving a bribe
♦
accepting a bribe or agreeing to a bribe (its offering or promise)
♦
bribing a foreign public official (including international organizations and
foreign state-owned enterprises)
31

32. Ukrainian anti-corruption law (UACL)
Bribes
♦
Money or any other property, including services, any favours or benefits
♦
Given or accepted (including promises or offers and their acceptance)
illegally,
including any indirect dealings (e.g. through agents, vendors, resellers,
legal representatives or any other related or unrelated intermediaries)
32

33. Ukrainian anti-corruption law
Who are public officials?
♦
♦
♦
♦
♦
♦
♦
♦
an officer in any governmental agency (national or local)
a legislator (national or local)
a judge
an officer of governmental enforcement agencies
a tax officer
an officer in any state owned entity or enterprise
any person offering public services, including auditors, experts, arbitrators
an officer in any foreign governmental agency, international
organization, or foreign state-owned enterprise
33

34. Ukrainian anti-corruption law
Private Sector Offences
♦
Private sector offences under UACL
♦
offering, promising or giving a bribe
to an officer or an employer of any company or any legal entity in Ukraine
♦
accepting a bribe or agreeing to a bribe (its offering or promise) by
an officer or an employee of any company or any legal entity in Ukraine
34

35. Ukrainian anti-corruption law
Exceptions
♦
UACL provide for very limited actions for gifts
♦
No exception for facilitation payments, e.g.:
♦
♦
♦
to obtain licenses and permits
to obtain timely VAT refunds
to enforce a court decision
35

36. Ukrainian anti-corruption law
Liability
♦
Any money or property obtained as a result of a bribery are subject to
confiscation by the state based on decision of a court
♦
Any transaction entered into as a result of a bribery is void
36

37. Ukrainian anti-corruption law
Criminal Liability
♦
Bribing a public official, including officers of state-owned or municipally-owned
enterprise, could result in jail of maximum 10 years and confiscation of personal
property
♦
from September 1, 2014, a private legal entity would become criminally liable for
bribes:
♦
maximum fine of UAH 1,275,000
37

38. Ukrainian anti-corruption law
Anti-Trust (Unfair Competition)
♦
Bribing public or private officials to obtain any commercial benefit in Ukraine, e.g. to
win a public tender for lucrative contracts, could be treated as unfair competition
violation
♦
Unfair competition violations are subject to a fine in Ukraine up to 5% of worldwide
sales
♦
Unfair competition violations are enforced by the Anti-Monopoly Committee of
Ukraine
38

39. Why US FCPA and UKBA Important for
Ukrainian Companies?
Ukrainian company
♦
♦
♦
♦
♦
♦
♦
considers dealing with US or UK companies
considers a joint venture with US or UK companies
considers a future merger with US or UK companies
considers listing its shares on US stock exchange
considers business in the US or UK
same applies to dealings, joint venture or prospective mergers with any non-US or
non-UK companies, which are subject to US FCPA or UKBA rules, including US
listed companies
same applies to affiliate of UK or UK companies
39

40. Risk Areas
Risk areas:
♦
♦
♦
♦
♦
♦
uncontrolled use of cash
inadequate control procedures
payments to charities and public bodies
payments to intermediaries, including distributors, vendors, resellers, legal
representatives, especially if not commercially justified or close to any illegally
obtained benefit (e.g. award of a public tender, VAT refund, etc.)
payments to intermediaries in the US or US bank accounts of foreign
intermediaries
public tenders
40

41. FCPA Investigations
Alfred C. Toepfer International (Germany) / ADM (US)
♦
December 20, 2013, US DOJ Press-Release
♦
ACTI, German subsidiary of ADM, pleaded guilty
ACTI agreed to pay USD 17 M in criminal fines to resolve charges that it paid bribes through
vendors to Ukrainian government officials to obtain VAT refunds
ADM failed to implement sufficient policies and procedures to prevent the bribe payments,
although ultimately ADM disclosed the conduct, cooperated with the US government, and
instituted extensive remedial efforts. DOJ entered into NPA with ADM
ADM agreed to pay USD 36.5 M to the US SEC
ADM and ACTI also agreed to cooperate with DOJ, to periodically report the companies’
compliance efforts, and to continue implementing enhanced compliance programs and
internal controls designed to prevent and detect FCPA violations
♦
♦
♦
♦
41

42. FCPA Investigations
Daimler AG and DaimlerChrysler Automotive Russia SAO (DCAR)
♦
April 1, 2010, the DOJ Press-Release
♦
Daimler AG (Germany), and 3 of its subsidiaries, including DCAR, have resolved charges
related to FCPA investigation by the US DOJ into the company’s worldwide sales
practices, and agreed to pay USD 93.6 M in criminal penalties
DCAR admitted that it made improper payments to Russian federal and municipal
government officials to secure contracts to sell vehicles by over-invoicing the customer and
paying the excess amount back to the government officials, or to other designated third
parties that provided no legitimate services to DCAR or Daimler AG. When requested, DCAR
or Daimler AG employees caused the wire transfer of payments from Daimler AG’s bank
accounts in Germany to, among other destinations, U.S. and Latvian bank accounts held by
shell companies with the understanding that the money, in whole or in part, was for the
benefit of Russian government officials.
♦
42

43. Compliance – How Do You Assess and Respond
to Risk?
♦ Periodic
assessment
♦ A risk assessment should consider risks that arise from:
♦
countries
♦
business sectors
♦
types of transaction involved in
relationships business conducted
♦ Appropriately resourced, identifying internal and external
information sources allowing risk to be assessed
♦ Overseen by top level management
♦ Anti-Corruption and Bribery Policy
♦
43

44. Compliance – Who Should Run It?
♦ Commitment
from board of directors to preventing bribery and
establishing correct culture
♦ Top-level
management involved in development of bribery
prevention procedures, risk assessment approval and
communication of the organisation’s stance
♦ Independent
Compliance team to manage and report to the
Board?
♦ Awareness
from all levels of management and workforce
44

45. Compliance: Third Parties, Agents, and the
Need for Due Diligence
♦ FCPA/UKBA
prohibit corrupt payments through intermediaries,
including distributors, joint venture and agents
♦ Prior to using any third party agent, companies should:
♦ establish that the third party is not a foreign official
♦
establish that the third party is qualified
♦
evaluate the proposed compensation
♦
evaluate the reputation of the third party
♦
investigate red flags
♦
ensure that any third party signs agreements that include antibribery provisions, and is aware of the FCPA and corporate
policy
45

46. Compliance – Level of Training
♦ Proportionate
procedures
♦ Procedures embedded and understood in organisation
♦ Effective communication in high risk areas e.g. hospitality and
charitable donations
♦ Tailored training to identified risks associated with specific
positions and countries
♦ Policies and procedures should be monitored and reviewed
♦ Encouragement regarding raising concerns
46

47. Whistleblowers?
♦
♦
♦
US perspective
♦ incentivised whistle-blowing
♦ Dodd-Frank law encourages whistleblowers. Very large rewards
UK perspective
♦ no incentivised whistle-blowing … yet
♦ “adequate procedures”
♦ protection of whistleblowers – Public Interest Disclosure Act 1998
Ukraine perspective
♦ Criminal liability for failure to report bribery
♦ An individual failing to report could be treated as an accomplice
47

48. Dodd-Frank Act
Whistleblower Provisions: Section 922
♦
♦
♦
♦
Act amends the Securities Exchange Act and establishes a new whistleblower
incentive program that provides monetary rewards between 10 and 30% to
whistleblowers who report securities violations that lead to the recovery of
sanctions exceeding $1 million in criminal and civil proceedings
Amount received includes not only monies collected by the SEC, but also fines
and penalties assessed by the DOJ, self-regulatory organizations and state
Attorneys General
Whistleblower provisions previously only covered insider trading violations and
applied solely to civil penalties recovered and did not provide guaranteed
minimum reward
Dodd-Frank expands scope of conduct to include violations of Foreign Corrupt
Practices Act (worldwide reach)

49. Whistleblower Provisions: Section 922
Original Information
♦ Original
♦
♦
♦
♦
♦
Information:
Derived from independent knowledge or analysis
Not previously know to the Commission
Not derived from material uncovered in existing investigations,
attorney or client communications, but there is a significant
issue here over what the SEC can use with respect to a
company’s internal personnel and its communications with
company personnel
Cannot be obtained from publicly available sources, but
question remains what about “analysis” of public information
Does not have to be “first hand’ account of information

50. Whistleblower Provisions: Section 922
Representation
♦ Whistleblower
may be represented by counsel through whom they
can provide information anonymously
♦ Identity
of whistleblower must be disclosed prior to payment of any
award
♦ Claims
to the SEC must be filed under oath and subject to perjury
charges (the SEC provides claim forms in the proposed rules)

51. What Should You Do if You Find a Problem?
INVESTIGATION – The three Cs:
Confidence
♦ know the facts well enough to make an appropriate decision
(2) Credibility
♦ vigorous investigation in good faith
♦ well documented
(3) Cost
♦ balancing costs with need for confidence and credibility
(1)
51

52. Red Flags to Possible Violations
Money passing through an agent or consultant to a foreign official or
political leader to obtain certain actions
♦ Use of a consultant who is connected or affiliated with a foreign official
or political leader
♦ Prior accusations involving the agent or consultant alleging improper
business practices
♦ Requests that commissions or other payments be made in a third
country or to another entity
♦ Requests that commission payments be made before public tender
award decision
♦ Payments that appear to be higher than customary or standard rates
♦ Payments to persons outside the scope of a transaction
♦ Insistence by the foreign customer that a particular person be used as
an intermediary
♦
52

53. Conducting an Effective Investigation
♦ Initial
checklist
♦ terms of reference
♦ identify witnesses
♦ identify documents
♦ resources
♦ suspend potential wrongdoers
♦ costs
♦ insurer
♦ engage external/local lawyers or forensic accountants
♦ keep detailed record
♦ legal privilege
♦ Resources
53

54. Conducting an Effective Investigation (continued)
♦
♦
Documents
♦ record of collation and review exercise
♦ types of documents and locations
♦ key custodians
♦ collation exercise
♦ storage
♦ review
♦ report
People Issues
♦ tipping off
♦ interviewer
♦ what to tell the interviewee
♦ preparation
♦ record of interviews
♦ suspension of employee
♦ disciplinary process/termination of employment
54

55. Conducting an Effective Investigation (continued)
♦ Conclusions
recording conclusions
♦ reporting to the Board
♦ Self-reporting
♦ Civil Litigation
♦ Follow-up
♦ compliance programme
♦ dismissal of employees
♦ PR (internal and external)
♦
55

56. Who Should Run the Investigation?
of investigators – must be credible for management
to have confidence in the results
♦ Senior Managers
♦ Non-Executive directors
♦ In-house Counsel/Compliance/Audit
♦ External lawyers
♦ External auditors
♦ Independence
56

57. Data Protection Concerns
♦ Can
be problematic
♦ Data protection and privacy laws in each country need to be
considered and obeyed
♦ Data may not be able to be removed from country
♦ Some countries, e.g. France, Germany and China, have markedly
different laws when it comes to interviewing employees, reviewing
documents and data, and removing investigation related materials
from the country.
♦ Data may need to be reviewed in-country
57

58. Self-Reporting
♦ UK
♦
♦
♦
♦
New SFO guidance
More pressure to self-report quickly
Advantages to full investigation and self-reporting
Will prospect of DPA incentivise self-reporting?
♦ US
♦
♦
♦
♦
Encouraged to self-report as soon as become aware
Usually, at least some investigation takes place first
Whistleblower considerations
Penalty considerations
58

59. Conclusion
♦ Concluding
remarks
♦ Questions
59

60. Attorney Contact Information
EDWARDS WILDMAN
Stephen G. Huggard
Partner
+1 617 239 0769
shuggard@edwardswildman.com
111 Huntington Avenue
Boston, MA 02199
United States
Antonio Suarez-Martinez
Partner
+44 (0) 20 7556 4526
asuarez-martinez@edwardswildman.com
Dashwood, 69 Old Broad Street
London EC2M 1QS
United Kingdom
60

61. Attorney Contact Information
MARCHENKO DANEVYCH
Oleh Marchenko
Partner
+380 44 220 0711
oleh.marchenko@marchenkodanevych.com
Office 49, 4-B, Ivana Franka Str.
Kyiv, Ukraine
Andriy Guck
Senior Associate
+380 44 220 0711
andriy.guck@marchenkodanevych.com
Office 49, 4-B, Ivana Franka Str.
Kyiv, Ukraine
61