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Anti-Corruption Risks in the
                          Energy Industry

How to Minimize Risk, Maximize Compliance, and Avoid
Enforcement
Michael Volkov                                                                         Mark Compton                                                                                                            November 2011
Partner                                                                                Partner
(202) 263-3288                                                                         XXXX
mvolkov@mayerbrown.com                                                                 mcompton@mayerbrown.com
Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe-Brussels LLP both limited liability partnerships
established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer
Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown
logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.
Overview


• FCPA Enforcement Trends
• Corruption Risk Factors for the Energy industry
• FCPA Legal Elements
• UK Bribery Act
• UK Bribery Act versus the FCPA
• Compliance Program
The Current Enforcement Picture
FCPA: Enforcement Trends
                 Aggressive FCPA enforcement
             has resulted in corporate mega-fines:

• For 2010, fines total over $1.6 billion
  - more than half of all federal criminal fines collected.

• Fueled by voluntary disclosures and industry-wide investigations -
  oil, pharmaceuticals and medical devices, military and law
  enforcement equipment, and telecommunications.

• FBI has dedicated FCPA squad which is using aggressive
  investigative tactics - consensual recordings, ambush
  interviews, undercover officers, informants, search warrants and
  wiretaps.

• SEC Dodd-Frank whistleblower bounty program will increase
  number of credible complaints, investigations and prosecutions.
                                 3
The Current Enforcement Picture
  FCPA: Increase in Enforcement Actions

2010 witnessed an 85% increase in FCPA enforcement actions over 2009, which itself was a record year.

  60
                                                                                                DOJ
  50                                                                            48
                                                                                                SEC

  40

  30                                                                26               26
                                                  20     20
  20                                         18
                                                              13         14
  10                  7           7 8
                          5
          2 3
   0
           2004       2005        2006        2007       2008        2009        2010


                                                     4
FCPA Enforcement at a Glance – Blockbusters
  Eight of the top ten monetary settlements in FCPA history were reached in 2010


$900
       Siemens                                                                                        2008
$800                                                                                                  2009
$700                                                                                                  2010
                 KBR/Halliburton                                                                      2011
$600

$500                    BAE Systems
                                 ENI/Snamprogetti
$400   $800                              Technip

$300             $579                                                                 JGC Corporation
                                                        Daimler
$200                    $400                                      Alcatel-Lucent   $218.8
                                   $365   $338
                                                                          Panalpina            Johnson & Johnson
$100                                                    $185
                                                                  $137      $82                 $70
 $0

                                                    5
FCPA Enforcement at a Glance – Prison Sentences

David Kay, Vice President
American Rice, Inc. (2002)                37 months

John Warwick, President
Ports Engineering
Consultants Corporation (2009)
                                          37 months

Robert Antoine, Director
Haiti Telco (2010)                        48 months
Juan Diaz, Owner
Third party consultant                    57 months
to Haiti Telco (2010)


Douglas Murphy, President
American Rice, Inc. (2002)                63 months

Albert Jack Stanley, CEO
and Chairman, KBR (2009)                  84 months
Charles Paul Edward Jumet,
President, Ports Engineering
Consultants Corporation (2009)            87 months
                                 0   10     20   30       40   50   60   70   80   90   100


                                                      6
The Current Enforcement Picture
 FCPA: Whistleblower Bounty

• Whistleblower Bounty program offers rewards of
  10 to 30 percent of any settlement over $1
  million. SEC’s Whistleblower Office opened on
  August 12, 2011.

• SEC regulations have been adopted
  (pending appeal).

• SEC estimates it will receive 30,000 complaints a
  year; 1-2 credible complaints each day.

• With certain exceptions, whistleblowers must
  first file complaint internally with company and
  wait for 120 days before filing with SEC.

• Companies will increase self-reporting to pre-
  empt whistleblowers.

                                          7
TRENDS IN
GLOBAL ANTI-
CORRUPTION
ENFORCEMENT


          8
Anti-Corruption Enforcement
• GLOBAL enforcement is on the rise.

• In the past three years, US prosecutors have
  enforced the FCPA to the tune of $3.6 billion.
• The UK Bribery Act became effective on July 1, 2011
• In response to international pressure, Canada is increasing enforcement of its
  anti-corruption law.
• China and the US are increasing cooperation and beginning to establish a
  framework for information sharing and enforcement.
• China enacted its own foreign bribery law
• Germany, Spain and other EU countries are increasing enforcement
• Latin American and Asia countries have been slower to enact tough, new anti-
  corruption laws and begin aggressive enforcement programs
• Risk of anti-corruption multi-jurisdictional, “piggy-back” actions is growing



                                         9
General Risk Factors for Corruption
                in the Energy Industry

• Governments play a significant role in the industry
   – Concessions and auctions
   – Regulation, licensing and permitting
• Resources are often located in undeveloped countries
  which have weak political and social institutions
• Oil and gas industries have history of corruption and are
  very lucrative
• New energy sources are heavily subsidized by
  governments and ripe for corruption
Specific Risks in the Oil and Gas Industry


• The oil and gas industry is – and has been -- the focus of
  enforcement agencies.
• Industry operates in countries known for corruption risks
• Many foreign governments are involved in oil and gas
  industry through state-owned enterprises and joint
  ventures
• Oil and gas industry relies on network of third-party
  agents and consultants who assist companies in local
  countries
Anti-Corruption Enforcement in the Oil & Gas Industry




                          12
US FOREIGN
CORRUPT
PRACTICES ACT
“As President Obama has said, ‘The struggle against corruption is one of
the great struggles of our time’… Corruption is, simply put, a scourge on
civil society. We must vigorously enforce our own laws that prohibit bribery
of foreign officials, such as… the Foreign Corrupt Practices Act. And we
must work together to support our partners in anti-corruption
enforcement.”

                         - Eric Holder, U.S. Attorney General (2009)




                                                         13
FCPA Anti-Bribery Provisions,
15 U.S.C. 78dd-2 et al.
• A payment, offer, authorization, or promise
  to pay money or anything of value to
• a foreign government official
• or to any person, while knowing that the payment or promise
  will be passed on to a foreign government official,
• with a corrupt motive for the purpose of
   – influencing any act or decision of such foreign government official,
   – inducing such person to do or omit any action in violation of his or her
     lawful duty,
   – securing an improper advantage, or
   – inducing such person to influence a foreign government (or
     instrumentality thereof) to affect or influence its acts or decisions,
   – all in order to obtain, retain, or direct business for or to any person.
                                     14
FCPA Accounting/ Record-Keeping Provisions,
15 U.S.C. 78dd-1 et al.
• Books and records must
  accurately and fairly reflect
  transactions and dispositions of
  assets.
• Internal Controls:
  1. Transactions are executed with management’s
     authorizations;
  2. Transactions are recorded to allow preparation of
     a report that conforms with generally accepted
     accounting principles;
  3. Access to assets is permitted only in accordance
     with management’s authorization; and
  4. Monitoring to ensure legitimacy of accounting.



                                              15
FCPA Elements – Who is covered?
       • Domestic:
          –   US “issuers”
          –   US citizens, nationals, or residents
          –   Entities organized under U.S. law
          –   Entities with U.S. principal place of business
       • Foreign:
          – Foreign corporations subject to SEC regulation
            (e.g., via ADRs) and using instrumentalities of
            interstate commerce
          – Foreign persons when in US territory, whether or
            not they use instrumentalities of interstate
            commerce
           This includes directors, officers, employees,
            and agents of entities subject to the statute
                                16
FCPA Criminal Penalties

           • Criminal Penalties for companies:
              – $2 million fine for an anti-bribery violation
              – $25 million fine for a books and records violation


           • Criminal Penalties for individuals:
              – 5 years in jail with a maximum $250,000 fine for
                an anti-bribery violation
              – up to 20 years in jail with a maximum $5 million
                fine for a books and records violation

     Under a federal alternative fine provision,
   companies and individuals may be fined up to
      TWICE the benefit sought or received.
                             17
FCPA Civil Penalties


• SEC and DOJ can impose a $10,000 fine
  per violation upon individuals and companies
• SEC may also impose further civil penalties ranging
  between $7,500 to $150,000 upon individuals and
  $75,000 to $725,000 upon companies


   Alternatively, the SEC may impose a civil penalty equal to
   the gross pecuniary gain to an individual or company and
       equitable relief, such as disgorgement of profits.


                              18
FCPA Elements – What is Prohibited?

• A covered entity may not pay, promise to
  pay or authorize the payment of money
  or anything of value.
   – This covers direct bribery or kickback payment but also
     includes, gifts, travel, meals or other lavish entertainment.
• With a corrupt intent to obtain or retain business or
  to secure a business advantage including:
   –   Government contracts
   –   Government-issued operating permits and licenses
   –    avoiding or reducing inspection reports and certifications
   –   tax refunds and reductions
   –   customs clearance
   –   health inspections
   –   beneficial changes to laws and regulations
                                    19
Intent to Obtain / Retain Contracts or
                Any Other Business Advantage
• Clearly making a payment to obtain or retain a contract
  violates the law but securing a business advantage qualifies
  too. This includes:
   – Government-issued operating permits
     and licenses
   – avoiding or reducing inspection reports and
     certifications
   – tax refunds and reductions
   – customs clearance
   – health inspections
   – beneficial changes to laws and regulations


                                  20
Giving or Promising Anything of Value


        No cash bribes or kickback payments.
        Laws also forbid
         gifts, meals, travel, entertainment, or even
         charitable donations under certain
         circumstances.
        CCI, a components manufacturer, gave a
         Ferrari, among other items, to a Mexican utility
         company official. $18.2 million FCPA fine
        Veraz Networks, a telecom company, paid a
         $300,000 FCPA fine and incurred $2.5 million in
         legal fees to resolve FCPA charges. In the
         charging documents, the US government
         specifically mentioned giving $4,500 worth of
         flowers to a Chinese official’s wife.
                         21
Foreign Government Official

    • Under the FCPA: Any
      officer, employee, or agent of a foreign
      government or any
      department, agency, or any
      instrumentality thereof.
    • This includes any entity that is owned or
      controlled by a Foreign Government.
       – i.e. all employees of a JV where a state owned
         or controlled entity is a party to the JV
       – Factors: percentage of financial
         ownership, designation under local
         law, appointment of
         management, membership on Board, even the
         company’s representations.
               22
FCPA Risk – Third Parties

• A covered entity may not make payments
  to any other person, knowing that the
 payment or promise will be passed on
 to a foreign official.
• Knowledge means…
   – Actual knowledge
   – Awareness or suspicion that an event is likely to occur
   – Avoiding knowledge of corrupt acts through willful blindness
• A company must investigate all red flags involving
  agents, joint venture
  partners, brokers, consultants, distributors, professional
  service firms, etc.
                                  23
FCPA Risk – Third Parties: RED FLAGS

           •Red flags are facts and circumstances that raise
           serious questions about the possibility of an
           FCPA violation and which require further
           investigation.
• Red flags include (but are not limited to):
   – Transactions in high risk countries
   – Objection to anti-compliance contractual provisions
   – Unusual payment arrangements: request for cash
     payments, excessive commission rates, payment to offshore
     accounts
   – Known affiliation with corrupt officials
   – No significant experience relevant to the business
                                  24
FCPA Risk – Mergers & Acquisitions
“Buying an FCPA violation”

• Acquiring company can be held liable for FCPA violations
  which occurred prior to the acquisition.
   – Corruption risk will also impact M&A considerations: value of a
     target company, acquisition structure, warranties and
     indemnification, or in some cases, withdrawal from the deal.
• To limit exposure, the acquiring company must conduct a
  due diligence review and adequately respond to red flags.
   – Due diligence is not a legal defense but it can minimize risk of
     liability when coupled with compliance commitment .




                                    25
FCPA Exception – Facilitation Payments

• Anti-bribery provisions do not apply to payments made to low
  level foreign government officials to expedite or secure
  performance of routine governmental action.
   – Examples: obtaining permits or licenses; processing governmental
     papers (visas and work orders); scheduling inspections; providing
     phone service, power, and water supply; loading or unloading cargo;
     protecting perishable products from deterioration; or actions of a
     similar nature
• Applies only when the foreign government official has no
  discretion in performing duties. Payment must be for
  something to which the payor was already entitled.
• UKBA bars facilitation payments.
• Best Practices: Prohibit facilitation payments entirely –
  80% of U.S. companies have banned them.
                                   26
FCPA Affirmative Defense –
Reasonable and Bona Fide Expenditures

• Reasonable and bona fide
  expenditures, such as travel and
  lodging expenses that are legal
  under local law and are directly
  related to:
   A. the promotion, demonstration,
      or explanation of products or
      services, or
   B. the execution or performance of a contract with a
      foreign government or performances of a contract with
      a foreign government or agency thereof.

                             27
FCPA Affirmative Defense –
Reasonable and Bona Fide Expenditures
        The Wrong Way:
        Lucent (2007)

        • 315 Trips
        • Value = $10 million
        • “Side trips:” Las Vegas, Disney World, Hawaii,
          Niagara Falls
        • Spouses and children included
        • Per diem: $500 - $1,000
        • MBA tuition - $21,000
        • Internal controls violations – Lack of training
        • Books and records violations – “Factory Inspection
          Account” without factory tours
                             28
U.K. BRIBERY
ACT
"The Bribery Act is good news for the UK and UK
business. It confirms our commitment to helping to
eradicate bribery from business practices. It will help
ensure that ethical businesses do not lose out to
others that use bribery and corruption to win
contracts. We shall enforce the act vigorously.”

             - Richard Alderman, Director,
               UK Serious Fraud Office




                                                          29
UK Bribery Act Basics –
Four New General Offenses
• Offering, promising, or giving a bribe
  (Section 1 Offense)

• Requesting, agreeing to receive, or
  accepting a bribe (Section 2 Offense)

• Bribing a foreign public official to
  obtain or retain business or a business
  advantage (Section 6 Offense)

• Failure to prevent bribery on behalf of
  a commercial organization (Section 7
  Offense)


                                 30
UK Bribery Act – Jurisdiction
• Sections 1, 2, and 6 Offenses
   – UK national or resident
   – Entity incorporated in the UK
   – Foreign persons committing an act in the UK
• Section 7 Offense
   – Entity incorporated or formed in the UK
   – Entity carrying on business or part of a business in the UK
     (wherever in the world it may be incorporated or formed)
       • Requires “demonstrable business presence”
       • UK stock listing is not sufficient by itself to satisfy this
         requirement, nor is a UK subsidiary if it acts “independently” of
         the parent

                                     31
UK Bribery Act Offenses - Bribing Another Person
 (Section 1 Offense)
• Directly or indirectly offers, promises or gives a financial or other
  advantage to another person:
    – to induce a person to perform a function or activity improperly or
      to reward a person for the improper performance of a function or
      activity or
    – knowing or believing that the acceptance of the advantage in itself
      constitutes the improper performance of a relevant function or
      activity
• Bribe may take any form (“financial or other advantage”)
• “Directly or indirectly” – it is not necessary for the person to whom the
  bribe is promised to be the same person who acts improperly


                                      32
UK Bribery Act Offenses - Receiving a Bribe
(Section 2 Offense)

                • Requests, agrees to receive, or accepts a
                  financial or other advantage, intending, in
                  consequence, a relevant function or
                  activity should be performed improperly
                • Financial or other advantage can be for
                  the benefit of the person receiving the
                  bribe or another person
                • An offence may be committed even if
                  there is no intention to commit a criminal
                  act



                           33
UK Bribery Act Offenses - Bribing a Foreign Public
Official (Section 6 Offense)

• Prohibits the offering, promising, or giving of a financial or other advantage
  to a foreign public official intending:
    – (i) to influence the official in his capacity as a foreign public official and
    – (ii) to obtain or retain business or an advantage in the conduct of business, and the
      official is not permitted or required by written law to be so influenced

• “Foreign Public Official”
    – an individual who holds a legislative, administrative or judicial position in a country or
      territory outside the UK
    – an individual who exercises a public function for or on behalf of a country or territory
      outside the UK or for any public agency or enterprise of that country or territory
    – an individual who an official agent of a public international organisation




                                                 34
UK Bribery Act Offenses – Corporate Failure to
 Prevent Bribery (Section 7 Offense)

•Strict Liability if person associated with a
 commercial organization bribes another.
•Defense: If the commercial organization has
 “adequate procedures” to prevent such bribery
 from occurring.
•The bribery may occur anywhere in the world – a
 conviction for bribery in the local jurisdiction is
 not required.

                           35
UK Bribery Act – Associated Persons
(Section 7 Offense)

• Persons who performs services for or on behalf of the company
   – An agent, subsidiary, joint venture partner, or employee if the payment is
     intended to obtain or retain business, or a business advantage, for the
     commercial organization (not solely for the associated person or a third party)

• Categorizing Associated Persons:
   – Employees are presumptively associated persons .
   – Bribes made by a subsidiary create liability only if the subsidiary intended the
     parent to benefit.
   – Joint Ventures/Joint Venture Partners are not automatically “associated” with
     their members and co-venturers. A member will be liable only if the JV performs
     services for the member, AND a bribe was paid with the intention of benefiting
     the member. (Indirect benefit is not enough.)
   – A supplier performing services probably is an associated person.
   – A seller of goods probably is not an associated person.


                                         36
UK Bribery Act – Adequate Procedures, UK Ministry
of Justice Guidance (March 30, 2011)
                   SIX PRINCIPLES FOR BRIBERY PREVENTION
1. Proportionate Procedures: Procedures to prevent bribery by persons associated with the
    organisation are proportionate to the bribery risks it faces and to the nature, scale and
    complexity of the organisation’s activities. They are clear, practical, accessible, effectively
    implemented and enforced.

2. Top Level Commitment: Top level management should issue statement of commitment to
   counter bribery in all parts of the organisation’s operation.

3. Risk Assessment: Regular and comprehensive assessment of the nature and extent of the
    organisation’s risks relating to bribery.

4. Due Diligence: Polices and procedures cover all parties to a business
    relationship, including the organisation’s supply chain, agents and intermediaries, all forms
    of joint venture and similar relationships. Business partners: Reputation for bribery, Linked
    to public office holders or Politically Exposed Persons.

5. Communication: Policy and Procedures, training, and support and operational
    procedures.

6. Monitoring and Review: Institute monitoring and review mechanisms to ensure
    compliance with relevant policies and procedures and to identify any issues as they arise.
    Implement improvements where appropriate.   37
UK Bribery Act – Civil / Criminal Penalties

• Unlimited fine for individuals and/or
  companies
• Ten years imprisonment
• Prevention Orders, Confiscation Orders, winding up
  proceedings, debarment, director disqualification and
  regulatory/disciplinary action
• Civil Recovery Orders – no criminal conviction required
  (lower threshold of proof)
• Note: UK does NOT permit non-prosecution &
  deferred prosecution agreements
                            38
UKBA VS. FCPA
“Partnerships like the one we have with the Serious Fraud Office are critical to our transnational
approach to combating foreign bribery, and we intend increasingly to rely on our foreign partners
in future cases.”
                                             - Lanny Breuer, Assistant US Attorney General




                                                39
FCPA v. UK Bribery Act: Key Differences
Offences and Defenses
                     FCPA                                              UK Bribery Act
Bribery of foreign government officials                 Bribery of public and private sector individuals
(including state enterprise employees, political        – includes a discrete offence of bribing a
parties, party officials, political candidates,         foreign public official
public international organization employees)
Only penalizes those making bribes                      Accepting bribes is also punishable
Prosecutes active participation in bribery,             No accounting offence in the Bribery Act but
though internal controls requirement is                 Companies Act 2006 includes an offence of
independent of any bribery activity                     failing to keep adequate accounting records
Consideration of compliance programs at                 “Adequate procedures” is the only potential
prosecution and sentencing stages                       defense available against failing to prevent
                                                        bribery
Statutory exception for “facilitation payments”         Facilitation payments only permitted if local
narrowly defined                                        written law so permits
Reasonable and bona fide expenditure on                 No express exception for corporate hospitality
travel, lodging and entertainment expenses              but Guidance advises that “reasonable and
permitted if directly related to promotion of           proportionate” hospitality is permissible.
product or service or to performance of
government contract
                                                   40
FCPA v. UK Bribery Act: Key Differences
Territorial Effect and Punishment
                        FCPA                                                    UK Bribery Act
Conduct within the US by anyone                                Conduct (including omissions) within the UK by
                                                               anyone
Conduct outside of the US if by an issuer of US                Conduct (including omissions) outside of the UK by
Securities or a “domestic concern” (e.g. a company             persons (natural and legal) with a close connection to
organized under US law or having its principal place           the UK, if that conduct would form an offence if
of business in the US) – or anyone acting on its               committed in the UK. If a commercial organization
behalf; foreign persons who commit an act in the               “carries on a business or part of a business in the UK”
United States in furtherance of a subject act are also         then may be
covered                                                        prosecuted for “failing to prevent” bribery even if
                                                               the bribery occurs entirely outside of the UK
Up to 5 years prison sentence for bribery, 20 years for        Up to 10 years prison sentence – accounting offences
accounting offences                                            may be prosecuted under other Statutes
Criminal fine for entities up to $2m for bribery or            Unlimited fine; additionally Serious Crime
$25m for violation of accounting provisions, or twice          Prevention Orders, Confiscation Orders, Winding up
the benefit sought, and debarment; for                         proceedings, debarment, director disqualification
individuals, fines of up to $100,000 (bribery) or $5           and regulatory/disciplinary action
million (accounting offences)
Civil penalties up to $10,000 per bribery                      Civil Recovery Orders – no criminal conviction
violation or $500,000 per corporate                            required (lower threshold of proof)
accountancy violation

                                                          41
UK Bribery Act: Effective this Year

Jurisdiction Over Non-UK Companies


• Extends to non-UK companies that carries on a business
  or part of a business in the UK
• Guidance defines to require “demonstrable business
  presence”
• UK stock listing is not sufficient by itself to satisfy this
  requirement, nor is a UK subsidiary if it acts
  “independently” of the parent
• Key issue will be harm to UK business interests



                                42
UK Bribery Act: Effective this Year

Corporate Hospitality

• “Reasonable and proportionate” hospitality is legal
• Legitimate purposes: Improving your image, Presenting products and services, and
  Establishing cordial relations
• Use of limits and pre-approval is recommended
• MoJ examples of acceptable hospitality (private sector): Wimbledon, Grand
  Prix, Airport transfers, and Dining and tickets to an event
• MoJ examples of acceptable hospitality (FPOs):
     – Reasonable travel and accommodation to visit mining operations

     – Flights and hotel in New York, along with fine dining and baseball(“match”) for FPO and partner, as
       long as there is “genuine mutual convenience”

     – Ordinary travel and lodgings to enable a visit to a hospital

• But, if hospitality is not clearly connected with business activity, or is excessively
  lavish, the likely inference is that it is a disguised bribe


                                                     43
Compliance
 Programs
Designing And Implementing An Anti-Corruption Compliance Program
     Principles for a Successful Compliance Program


The key elements of a successful program require:
1) A commitment to compliance from top management and a consistent
   message throughout the company.
2) A careful weighing of risk, commitment to compliance and business
   needs so that there is “buy-in” at every level of the company.
3) A business-practical approach which is flexible to respond to risks, local
   business operations, and effective compliance needs.
4) Create positive compliance structure which emphasizes common
   sense, communication and issue identification; solutions to common
   problems; and recognizes importance of business operations and new
   opportunities.




                                      45
Designing and Implementing an Anti-corruption Compliance Program

Basic Elements of FCPA Compliance Program

FCPA Compliance Policy and Tone at the Top.

• The Company should develop and promulgate a clearly
  articulated and visible corporate policy against violations of
  the FCPA and a strong commitment from senior
  management.

• Strong policy statement should be adopted by the Board.

• Board and senior management should be required to make
  commitment to anti-corruption compliance.

• Compliance commitment must be demonstrated by actions.

                                   46
Designing and Implementing an Anti-corruption Compliance Program

Use of Risk Assessment

The Company should develop its compliance standards
and procedures using a risk assessment.
• The risk assessment should be a formal and documented
  review which examines:

   − the nature and extent of corruption in each country in which
     the company does business relying on public and internal
     sources of information (Transparency International, OECD, etc);

   − the extent of government interactions and the persons in the
     company responsible for such interactions; and

   − the use of third-party agents, consultants in each country.

                                   47
Designing and Implementing an Anti-corruption Compliance Program

        Corruption Risks




                  48
Designing and Implementing an Anti-corruption Compliance Program

Senior Management Oversight and Reporting

• The Company should assign responsibility to one or
  more senior corporate executives of the Company for
  the implementation and oversight of its Company's
  anti-corruption policies.

• Company should designate a compliance officer in
  senior management and provide adequate resources to
  compliance office.
   − Compliance officer should be separate from General Counsel
     and internal auditing functions.



                                  49
Designing and Implementing an Anti-corruption Compliance Program

Anti-Corruption Policies and Procedures

The Company should develop and promulgate compliance standards
and procedures which shall include policies governing:
• gifts;

• hospitality, entertainment, and expenses;

• customer travel;

• political contributions;

• charitable donations and sponsorships;

• facilitation payments; and

• solicitation and extortion.


                                       50
Designing and Implementing an Anti-corruption Compliance Program

Ongoing Assessment

• Annual Review. The Company should review its anti-
  corruption compliance standards and procedures, on no
  less than an annual basis to ensure they are working.

• Ongoing Assessment. The Company should conduct
  ongoing assessments of its FCPA compliance program.
   − During the year, spot checks and quarterly audits of the
     compliance program should be conducted.
   − Dynamic process for modifying the compliance program should
     be made as new information is learned.



                                   51
Designing and Implementing an Anti-corruption Compliance Program

Internal Controls

The Company should ensure that it has a system of internal
controls for the purpose of foreign bribery or concealing
bribery.
• Internal controls are key to identifying and preventing bribery.

• Internal audits must be supplemented with forensic audits since
  internal audits hinge on “materiality” and may not catch bribery
  schemes.

• Every expenditure of money where bribery may occur should have
  specific controls and management procedures to prevent bribery
  (e.g. gifts and hospitality, review form for certain amounts and
  review by compliance and legal offices).


                                    52
Designing and Implementing an Anti-corruption Compliance Program

Training
• FCPA training which shall include: (a) training for all
  directors and officers, and, where necessary and appropriate,
  employees, agents, and business partners; and (b) annual
  certifications, certifying compliance with the training
  requirements.

• Training programs should be tailored to different audiences
  and risks. Offices that have interactions (sales and
  regulatory) with foreign officials should have different
  program from senior management.

• Legal and compliance staff throughout organization should
  have separate training program.


                                  53
Designing and Implementing an Anti-corruption Compliance Program

Ongoing Advice and Internal Reporting
• The Company should establish or maintain an effective system
  for
   − Providing Guidance;
   − Internal Reporting; and
   − Response to such internal reporting
• Internet-based guidance and reporting systems
• Hot-line reporting system for employees to make anonymous
  reports
• Detailed procedure for review and response to internet
  and hot-line reports



                                  54
Third Party Agents and Due Diligence

Due Diligence Screening of Third Party Agents

• Screen the Initial Terms of Relationship with Third Party:
   − Review the creation of relationship, or any subsequent changes to
     responsibilities or countries where agent operates.
   − Establish procedure for centralized review of contracts to ensure
     consistent standards.
   − Depending on size of company, should establish review at highest
     level within the company.

• Develop a Different Screening Procedures for Review of
  Individual Transactions.



                                   55
Third Party Agents and Due Diligence

Guidelines for Due Diligence Process

• Do not over-standardize procedure.
   − Need to tailor to individual circumstances in each country based
     on risk.

• Need to conduct background check to determine (5-10 year
  history).
   − Existence of ties to foreign government officials and employees.
   − Existence of any pending or prior investigations of bribery or other
     criminal conduct or civil violations.

• Create written package and record of review and approval
  process to demonstrate compliance.


                                   56
Third Party Agents and Due Diligence

Basic Issues to Cover

• Existence of relationships with foreign government officials
   − Purchasing authority
   − Licensing or other regulatory authorities

• Prior history of bribery and other crimes

• Nature of services, compensation and payment method

• Written contract
   − Representations and warranties on compliance
   − Right to inspect and audit third-party books
   − Right to terminate contract if believe violation has or will occur


                                    57
For Assistance:
   Contact
 Information

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Anti Corruption Risks In The Energy Industry

  • 1. Anti-Corruption Risks in the Energy Industry How to Minimize Risk, Maximize Compliance, and Avoid Enforcement Michael Volkov Mark Compton November 2011 Partner Partner (202) 263-3288 XXXX mvolkov@mayerbrown.com mcompton@mayerbrown.com Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe-Brussels LLP both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.
  • 2. Overview • FCPA Enforcement Trends • Corruption Risk Factors for the Energy industry • FCPA Legal Elements • UK Bribery Act • UK Bribery Act versus the FCPA • Compliance Program
  • 3. The Current Enforcement Picture FCPA: Enforcement Trends Aggressive FCPA enforcement has resulted in corporate mega-fines: • For 2010, fines total over $1.6 billion - more than half of all federal criminal fines collected. • Fueled by voluntary disclosures and industry-wide investigations - oil, pharmaceuticals and medical devices, military and law enforcement equipment, and telecommunications. • FBI has dedicated FCPA squad which is using aggressive investigative tactics - consensual recordings, ambush interviews, undercover officers, informants, search warrants and wiretaps. • SEC Dodd-Frank whistleblower bounty program will increase number of credible complaints, investigations and prosecutions. 3
  • 4. The Current Enforcement Picture FCPA: Increase in Enforcement Actions 2010 witnessed an 85% increase in FCPA enforcement actions over 2009, which itself was a record year. 60 DOJ 50 48 SEC 40 30 26 26 20 20 20 18 13 14 10 7 7 8 5 2 3 0 2004 2005 2006 2007 2008 2009 2010 4
  • 5. FCPA Enforcement at a Glance – Blockbusters Eight of the top ten monetary settlements in FCPA history were reached in 2010 $900 Siemens 2008 $800 2009 $700 2010 KBR/Halliburton 2011 $600 $500 BAE Systems ENI/Snamprogetti $400 $800 Technip $300 $579 JGC Corporation Daimler $200 $400 Alcatel-Lucent $218.8 $365 $338 Panalpina Johnson & Johnson $100 $185 $137 $82 $70 $0 5
  • 6. FCPA Enforcement at a Glance – Prison Sentences David Kay, Vice President American Rice, Inc. (2002) 37 months John Warwick, President Ports Engineering Consultants Corporation (2009) 37 months Robert Antoine, Director Haiti Telco (2010) 48 months Juan Diaz, Owner Third party consultant 57 months to Haiti Telco (2010) Douglas Murphy, President American Rice, Inc. (2002) 63 months Albert Jack Stanley, CEO and Chairman, KBR (2009) 84 months Charles Paul Edward Jumet, President, Ports Engineering Consultants Corporation (2009) 87 months 0 10 20 30 40 50 60 70 80 90 100 6
  • 7. The Current Enforcement Picture FCPA: Whistleblower Bounty • Whistleblower Bounty program offers rewards of 10 to 30 percent of any settlement over $1 million. SEC’s Whistleblower Office opened on August 12, 2011. • SEC regulations have been adopted (pending appeal). • SEC estimates it will receive 30,000 complaints a year; 1-2 credible complaints each day. • With certain exceptions, whistleblowers must first file complaint internally with company and wait for 120 days before filing with SEC. • Companies will increase self-reporting to pre- empt whistleblowers. 7
  • 9. Anti-Corruption Enforcement • GLOBAL enforcement is on the rise. • In the past three years, US prosecutors have enforced the FCPA to the tune of $3.6 billion. • The UK Bribery Act became effective on July 1, 2011 • In response to international pressure, Canada is increasing enforcement of its anti-corruption law. • China and the US are increasing cooperation and beginning to establish a framework for information sharing and enforcement. • China enacted its own foreign bribery law • Germany, Spain and other EU countries are increasing enforcement • Latin American and Asia countries have been slower to enact tough, new anti- corruption laws and begin aggressive enforcement programs • Risk of anti-corruption multi-jurisdictional, “piggy-back” actions is growing 9
  • 10. General Risk Factors for Corruption in the Energy Industry • Governments play a significant role in the industry – Concessions and auctions – Regulation, licensing and permitting • Resources are often located in undeveloped countries which have weak political and social institutions • Oil and gas industries have history of corruption and are very lucrative • New energy sources are heavily subsidized by governments and ripe for corruption
  • 11. Specific Risks in the Oil and Gas Industry • The oil and gas industry is – and has been -- the focus of enforcement agencies. • Industry operates in countries known for corruption risks • Many foreign governments are involved in oil and gas industry through state-owned enterprises and joint ventures • Oil and gas industry relies on network of third-party agents and consultants who assist companies in local countries
  • 12. Anti-Corruption Enforcement in the Oil & Gas Industry 12
  • 13. US FOREIGN CORRUPT PRACTICES ACT “As President Obama has said, ‘The struggle against corruption is one of the great struggles of our time’… Corruption is, simply put, a scourge on civil society. We must vigorously enforce our own laws that prohibit bribery of foreign officials, such as… the Foreign Corrupt Practices Act. And we must work together to support our partners in anti-corruption enforcement.” - Eric Holder, U.S. Attorney General (2009) 13
  • 14. FCPA Anti-Bribery Provisions, 15 U.S.C. 78dd-2 et al. • A payment, offer, authorization, or promise to pay money or anything of value to • a foreign government official • or to any person, while knowing that the payment or promise will be passed on to a foreign government official, • with a corrupt motive for the purpose of – influencing any act or decision of such foreign government official, – inducing such person to do or omit any action in violation of his or her lawful duty, – securing an improper advantage, or – inducing such person to influence a foreign government (or instrumentality thereof) to affect or influence its acts or decisions, – all in order to obtain, retain, or direct business for or to any person. 14
  • 15. FCPA Accounting/ Record-Keeping Provisions, 15 U.S.C. 78dd-1 et al. • Books and records must accurately and fairly reflect transactions and dispositions of assets. • Internal Controls: 1. Transactions are executed with management’s authorizations; 2. Transactions are recorded to allow preparation of a report that conforms with generally accepted accounting principles; 3. Access to assets is permitted only in accordance with management’s authorization; and 4. Monitoring to ensure legitimacy of accounting. 15
  • 16. FCPA Elements – Who is covered? • Domestic: – US “issuers” – US citizens, nationals, or residents – Entities organized under U.S. law – Entities with U.S. principal place of business • Foreign: – Foreign corporations subject to SEC regulation (e.g., via ADRs) and using instrumentalities of interstate commerce – Foreign persons when in US territory, whether or not they use instrumentalities of interstate commerce This includes directors, officers, employees, and agents of entities subject to the statute 16
  • 17. FCPA Criminal Penalties • Criminal Penalties for companies: – $2 million fine for an anti-bribery violation – $25 million fine for a books and records violation • Criminal Penalties for individuals: – 5 years in jail with a maximum $250,000 fine for an anti-bribery violation – up to 20 years in jail with a maximum $5 million fine for a books and records violation Under a federal alternative fine provision, companies and individuals may be fined up to TWICE the benefit sought or received. 17
  • 18. FCPA Civil Penalties • SEC and DOJ can impose a $10,000 fine per violation upon individuals and companies • SEC may also impose further civil penalties ranging between $7,500 to $150,000 upon individuals and $75,000 to $725,000 upon companies Alternatively, the SEC may impose a civil penalty equal to the gross pecuniary gain to an individual or company and equitable relief, such as disgorgement of profits. 18
  • 19. FCPA Elements – What is Prohibited? • A covered entity may not pay, promise to pay or authorize the payment of money or anything of value. – This covers direct bribery or kickback payment but also includes, gifts, travel, meals or other lavish entertainment. • With a corrupt intent to obtain or retain business or to secure a business advantage including: – Government contracts – Government-issued operating permits and licenses – avoiding or reducing inspection reports and certifications – tax refunds and reductions – customs clearance – health inspections – beneficial changes to laws and regulations 19
  • 20. Intent to Obtain / Retain Contracts or Any Other Business Advantage • Clearly making a payment to obtain or retain a contract violates the law but securing a business advantage qualifies too. This includes: – Government-issued operating permits and licenses – avoiding or reducing inspection reports and certifications – tax refunds and reductions – customs clearance – health inspections – beneficial changes to laws and regulations 20
  • 21. Giving or Promising Anything of Value  No cash bribes or kickback payments.  Laws also forbid gifts, meals, travel, entertainment, or even charitable donations under certain circumstances.  CCI, a components manufacturer, gave a Ferrari, among other items, to a Mexican utility company official. $18.2 million FCPA fine  Veraz Networks, a telecom company, paid a $300,000 FCPA fine and incurred $2.5 million in legal fees to resolve FCPA charges. In the charging documents, the US government specifically mentioned giving $4,500 worth of flowers to a Chinese official’s wife. 21
  • 22. Foreign Government Official • Under the FCPA: Any officer, employee, or agent of a foreign government or any department, agency, or any instrumentality thereof. • This includes any entity that is owned or controlled by a Foreign Government. – i.e. all employees of a JV where a state owned or controlled entity is a party to the JV – Factors: percentage of financial ownership, designation under local law, appointment of management, membership on Board, even the company’s representations. 22
  • 23. FCPA Risk – Third Parties • A covered entity may not make payments to any other person, knowing that the payment or promise will be passed on to a foreign official. • Knowledge means… – Actual knowledge – Awareness or suspicion that an event is likely to occur – Avoiding knowledge of corrupt acts through willful blindness • A company must investigate all red flags involving agents, joint venture partners, brokers, consultants, distributors, professional service firms, etc. 23
  • 24. FCPA Risk – Third Parties: RED FLAGS •Red flags are facts and circumstances that raise serious questions about the possibility of an FCPA violation and which require further investigation. • Red flags include (but are not limited to): – Transactions in high risk countries – Objection to anti-compliance contractual provisions – Unusual payment arrangements: request for cash payments, excessive commission rates, payment to offshore accounts – Known affiliation with corrupt officials – No significant experience relevant to the business 24
  • 25. FCPA Risk – Mergers & Acquisitions “Buying an FCPA violation” • Acquiring company can be held liable for FCPA violations which occurred prior to the acquisition. – Corruption risk will also impact M&A considerations: value of a target company, acquisition structure, warranties and indemnification, or in some cases, withdrawal from the deal. • To limit exposure, the acquiring company must conduct a due diligence review and adequately respond to red flags. – Due diligence is not a legal defense but it can minimize risk of liability when coupled with compliance commitment . 25
  • 26. FCPA Exception – Facilitation Payments • Anti-bribery provisions do not apply to payments made to low level foreign government officials to expedite or secure performance of routine governmental action. – Examples: obtaining permits or licenses; processing governmental papers (visas and work orders); scheduling inspections; providing phone service, power, and water supply; loading or unloading cargo; protecting perishable products from deterioration; or actions of a similar nature • Applies only when the foreign government official has no discretion in performing duties. Payment must be for something to which the payor was already entitled. • UKBA bars facilitation payments. • Best Practices: Prohibit facilitation payments entirely – 80% of U.S. companies have banned them. 26
  • 27. FCPA Affirmative Defense – Reasonable and Bona Fide Expenditures • Reasonable and bona fide expenditures, such as travel and lodging expenses that are legal under local law and are directly related to: A. the promotion, demonstration, or explanation of products or services, or B. the execution or performance of a contract with a foreign government or performances of a contract with a foreign government or agency thereof. 27
  • 28. FCPA Affirmative Defense – Reasonable and Bona Fide Expenditures The Wrong Way: Lucent (2007) • 315 Trips • Value = $10 million • “Side trips:” Las Vegas, Disney World, Hawaii, Niagara Falls • Spouses and children included • Per diem: $500 - $1,000 • MBA tuition - $21,000 • Internal controls violations – Lack of training • Books and records violations – “Factory Inspection Account” without factory tours 28
  • 29. U.K. BRIBERY ACT "The Bribery Act is good news for the UK and UK business. It confirms our commitment to helping to eradicate bribery from business practices. It will help ensure that ethical businesses do not lose out to others that use bribery and corruption to win contracts. We shall enforce the act vigorously.” - Richard Alderman, Director, UK Serious Fraud Office 29
  • 30. UK Bribery Act Basics – Four New General Offenses • Offering, promising, or giving a bribe (Section 1 Offense) • Requesting, agreeing to receive, or accepting a bribe (Section 2 Offense) • Bribing a foreign public official to obtain or retain business or a business advantage (Section 6 Offense) • Failure to prevent bribery on behalf of a commercial organization (Section 7 Offense) 30
  • 31. UK Bribery Act – Jurisdiction • Sections 1, 2, and 6 Offenses – UK national or resident – Entity incorporated in the UK – Foreign persons committing an act in the UK • Section 7 Offense – Entity incorporated or formed in the UK – Entity carrying on business or part of a business in the UK (wherever in the world it may be incorporated or formed) • Requires “demonstrable business presence” • UK stock listing is not sufficient by itself to satisfy this requirement, nor is a UK subsidiary if it acts “independently” of the parent 31
  • 32. UK Bribery Act Offenses - Bribing Another Person (Section 1 Offense) • Directly or indirectly offers, promises or gives a financial or other advantage to another person: – to induce a person to perform a function or activity improperly or to reward a person for the improper performance of a function or activity or – knowing or believing that the acceptance of the advantage in itself constitutes the improper performance of a relevant function or activity • Bribe may take any form (“financial or other advantage”) • “Directly or indirectly” – it is not necessary for the person to whom the bribe is promised to be the same person who acts improperly 32
  • 33. UK Bribery Act Offenses - Receiving a Bribe (Section 2 Offense) • Requests, agrees to receive, or accepts a financial or other advantage, intending, in consequence, a relevant function or activity should be performed improperly • Financial or other advantage can be for the benefit of the person receiving the bribe or another person • An offence may be committed even if there is no intention to commit a criminal act 33
  • 34. UK Bribery Act Offenses - Bribing a Foreign Public Official (Section 6 Offense) • Prohibits the offering, promising, or giving of a financial or other advantage to a foreign public official intending: – (i) to influence the official in his capacity as a foreign public official and – (ii) to obtain or retain business or an advantage in the conduct of business, and the official is not permitted or required by written law to be so influenced • “Foreign Public Official” – an individual who holds a legislative, administrative or judicial position in a country or territory outside the UK – an individual who exercises a public function for or on behalf of a country or territory outside the UK or for any public agency or enterprise of that country or territory – an individual who an official agent of a public international organisation 34
  • 35. UK Bribery Act Offenses – Corporate Failure to Prevent Bribery (Section 7 Offense) •Strict Liability if person associated with a commercial organization bribes another. •Defense: If the commercial organization has “adequate procedures” to prevent such bribery from occurring. •The bribery may occur anywhere in the world – a conviction for bribery in the local jurisdiction is not required. 35
  • 36. UK Bribery Act – Associated Persons (Section 7 Offense) • Persons who performs services for or on behalf of the company – An agent, subsidiary, joint venture partner, or employee if the payment is intended to obtain or retain business, or a business advantage, for the commercial organization (not solely for the associated person or a third party) • Categorizing Associated Persons: – Employees are presumptively associated persons . – Bribes made by a subsidiary create liability only if the subsidiary intended the parent to benefit. – Joint Ventures/Joint Venture Partners are not automatically “associated” with their members and co-venturers. A member will be liable only if the JV performs services for the member, AND a bribe was paid with the intention of benefiting the member. (Indirect benefit is not enough.) – A supplier performing services probably is an associated person. – A seller of goods probably is not an associated person. 36
  • 37. UK Bribery Act – Adequate Procedures, UK Ministry of Justice Guidance (March 30, 2011) SIX PRINCIPLES FOR BRIBERY PREVENTION 1. Proportionate Procedures: Procedures to prevent bribery by persons associated with the organisation are proportionate to the bribery risks it faces and to the nature, scale and complexity of the organisation’s activities. They are clear, practical, accessible, effectively implemented and enforced. 2. Top Level Commitment: Top level management should issue statement of commitment to counter bribery in all parts of the organisation’s operation. 3. Risk Assessment: Regular and comprehensive assessment of the nature and extent of the organisation’s risks relating to bribery. 4. Due Diligence: Polices and procedures cover all parties to a business relationship, including the organisation’s supply chain, agents and intermediaries, all forms of joint venture and similar relationships. Business partners: Reputation for bribery, Linked to public office holders or Politically Exposed Persons. 5. Communication: Policy and Procedures, training, and support and operational procedures. 6. Monitoring and Review: Institute monitoring and review mechanisms to ensure compliance with relevant policies and procedures and to identify any issues as they arise. Implement improvements where appropriate. 37
  • 38. UK Bribery Act – Civil / Criminal Penalties • Unlimited fine for individuals and/or companies • Ten years imprisonment • Prevention Orders, Confiscation Orders, winding up proceedings, debarment, director disqualification and regulatory/disciplinary action • Civil Recovery Orders – no criminal conviction required (lower threshold of proof) • Note: UK does NOT permit non-prosecution & deferred prosecution agreements 38
  • 39. UKBA VS. FCPA “Partnerships like the one we have with the Serious Fraud Office are critical to our transnational approach to combating foreign bribery, and we intend increasingly to rely on our foreign partners in future cases.” - Lanny Breuer, Assistant US Attorney General 39
  • 40. FCPA v. UK Bribery Act: Key Differences Offences and Defenses FCPA UK Bribery Act Bribery of foreign government officials Bribery of public and private sector individuals (including state enterprise employees, political – includes a discrete offence of bribing a parties, party officials, political candidates, foreign public official public international organization employees) Only penalizes those making bribes Accepting bribes is also punishable Prosecutes active participation in bribery, No accounting offence in the Bribery Act but though internal controls requirement is Companies Act 2006 includes an offence of independent of any bribery activity failing to keep adequate accounting records Consideration of compliance programs at “Adequate procedures” is the only potential prosecution and sentencing stages defense available against failing to prevent bribery Statutory exception for “facilitation payments” Facilitation payments only permitted if local narrowly defined written law so permits Reasonable and bona fide expenditure on No express exception for corporate hospitality travel, lodging and entertainment expenses but Guidance advises that “reasonable and permitted if directly related to promotion of proportionate” hospitality is permissible. product or service or to performance of government contract 40
  • 41. FCPA v. UK Bribery Act: Key Differences Territorial Effect and Punishment FCPA UK Bribery Act Conduct within the US by anyone Conduct (including omissions) within the UK by anyone Conduct outside of the US if by an issuer of US Conduct (including omissions) outside of the UK by Securities or a “domestic concern” (e.g. a company persons (natural and legal) with a close connection to organized under US law or having its principal place the UK, if that conduct would form an offence if of business in the US) – or anyone acting on its committed in the UK. If a commercial organization behalf; foreign persons who commit an act in the “carries on a business or part of a business in the UK” United States in furtherance of a subject act are also then may be covered prosecuted for “failing to prevent” bribery even if the bribery occurs entirely outside of the UK Up to 5 years prison sentence for bribery, 20 years for Up to 10 years prison sentence – accounting offences accounting offences may be prosecuted under other Statutes Criminal fine for entities up to $2m for bribery or Unlimited fine; additionally Serious Crime $25m for violation of accounting provisions, or twice Prevention Orders, Confiscation Orders, Winding up the benefit sought, and debarment; for proceedings, debarment, director disqualification individuals, fines of up to $100,000 (bribery) or $5 and regulatory/disciplinary action million (accounting offences) Civil penalties up to $10,000 per bribery Civil Recovery Orders – no criminal conviction violation or $500,000 per corporate required (lower threshold of proof) accountancy violation 41
  • 42. UK Bribery Act: Effective this Year Jurisdiction Over Non-UK Companies • Extends to non-UK companies that carries on a business or part of a business in the UK • Guidance defines to require “demonstrable business presence” • UK stock listing is not sufficient by itself to satisfy this requirement, nor is a UK subsidiary if it acts “independently” of the parent • Key issue will be harm to UK business interests 42
  • 43. UK Bribery Act: Effective this Year Corporate Hospitality • “Reasonable and proportionate” hospitality is legal • Legitimate purposes: Improving your image, Presenting products and services, and Establishing cordial relations • Use of limits and pre-approval is recommended • MoJ examples of acceptable hospitality (private sector): Wimbledon, Grand Prix, Airport transfers, and Dining and tickets to an event • MoJ examples of acceptable hospitality (FPOs): – Reasonable travel and accommodation to visit mining operations – Flights and hotel in New York, along with fine dining and baseball(“match”) for FPO and partner, as long as there is “genuine mutual convenience” – Ordinary travel and lodgings to enable a visit to a hospital • But, if hospitality is not clearly connected with business activity, or is excessively lavish, the likely inference is that it is a disguised bribe 43
  • 45. Designing And Implementing An Anti-Corruption Compliance Program Principles for a Successful Compliance Program The key elements of a successful program require: 1) A commitment to compliance from top management and a consistent message throughout the company. 2) A careful weighing of risk, commitment to compliance and business needs so that there is “buy-in” at every level of the company. 3) A business-practical approach which is flexible to respond to risks, local business operations, and effective compliance needs. 4) Create positive compliance structure which emphasizes common sense, communication and issue identification; solutions to common problems; and recognizes importance of business operations and new opportunities. 45
  • 46. Designing and Implementing an Anti-corruption Compliance Program Basic Elements of FCPA Compliance Program FCPA Compliance Policy and Tone at the Top. • The Company should develop and promulgate a clearly articulated and visible corporate policy against violations of the FCPA and a strong commitment from senior management. • Strong policy statement should be adopted by the Board. • Board and senior management should be required to make commitment to anti-corruption compliance. • Compliance commitment must be demonstrated by actions. 46
  • 47. Designing and Implementing an Anti-corruption Compliance Program Use of Risk Assessment The Company should develop its compliance standards and procedures using a risk assessment. • The risk assessment should be a formal and documented review which examines: − the nature and extent of corruption in each country in which the company does business relying on public and internal sources of information (Transparency International, OECD, etc); − the extent of government interactions and the persons in the company responsible for such interactions; and − the use of third-party agents, consultants in each country. 47
  • 48. Designing and Implementing an Anti-corruption Compliance Program Corruption Risks 48
  • 49. Designing and Implementing an Anti-corruption Compliance Program Senior Management Oversight and Reporting • The Company should assign responsibility to one or more senior corporate executives of the Company for the implementation and oversight of its Company's anti-corruption policies. • Company should designate a compliance officer in senior management and provide adequate resources to compliance office. − Compliance officer should be separate from General Counsel and internal auditing functions. 49
  • 50. Designing and Implementing an Anti-corruption Compliance Program Anti-Corruption Policies and Procedures The Company should develop and promulgate compliance standards and procedures which shall include policies governing: • gifts; • hospitality, entertainment, and expenses; • customer travel; • political contributions; • charitable donations and sponsorships; • facilitation payments; and • solicitation and extortion. 50
  • 51. Designing and Implementing an Anti-corruption Compliance Program Ongoing Assessment • Annual Review. The Company should review its anti- corruption compliance standards and procedures, on no less than an annual basis to ensure they are working. • Ongoing Assessment. The Company should conduct ongoing assessments of its FCPA compliance program. − During the year, spot checks and quarterly audits of the compliance program should be conducted. − Dynamic process for modifying the compliance program should be made as new information is learned. 51
  • 52. Designing and Implementing an Anti-corruption Compliance Program Internal Controls The Company should ensure that it has a system of internal controls for the purpose of foreign bribery or concealing bribery. • Internal controls are key to identifying and preventing bribery. • Internal audits must be supplemented with forensic audits since internal audits hinge on “materiality” and may not catch bribery schemes. • Every expenditure of money where bribery may occur should have specific controls and management procedures to prevent bribery (e.g. gifts and hospitality, review form for certain amounts and review by compliance and legal offices). 52
  • 53. Designing and Implementing an Anti-corruption Compliance Program Training • FCPA training which shall include: (a) training for all directors and officers, and, where necessary and appropriate, employees, agents, and business partners; and (b) annual certifications, certifying compliance with the training requirements. • Training programs should be tailored to different audiences and risks. Offices that have interactions (sales and regulatory) with foreign officials should have different program from senior management. • Legal and compliance staff throughout organization should have separate training program. 53
  • 54. Designing and Implementing an Anti-corruption Compliance Program Ongoing Advice and Internal Reporting • The Company should establish or maintain an effective system for − Providing Guidance; − Internal Reporting; and − Response to such internal reporting • Internet-based guidance and reporting systems • Hot-line reporting system for employees to make anonymous reports • Detailed procedure for review and response to internet and hot-line reports 54
  • 55. Third Party Agents and Due Diligence Due Diligence Screening of Third Party Agents • Screen the Initial Terms of Relationship with Third Party: − Review the creation of relationship, or any subsequent changes to responsibilities or countries where agent operates. − Establish procedure for centralized review of contracts to ensure consistent standards. − Depending on size of company, should establish review at highest level within the company. • Develop a Different Screening Procedures for Review of Individual Transactions. 55
  • 56. Third Party Agents and Due Diligence Guidelines for Due Diligence Process • Do not over-standardize procedure. − Need to tailor to individual circumstances in each country based on risk. • Need to conduct background check to determine (5-10 year history). − Existence of ties to foreign government officials and employees. − Existence of any pending or prior investigations of bribery or other criminal conduct or civil violations. • Create written package and record of review and approval process to demonstrate compliance. 56
  • 57. Third Party Agents and Due Diligence Basic Issues to Cover • Existence of relationships with foreign government officials − Purchasing authority − Licensing or other regulatory authorities • Prior history of bribery and other crimes • Nature of services, compensation and payment method • Written contract − Representations and warranties on compliance − Right to inspect and audit third-party books − Right to terminate contract if believe violation has or will occur 57
  • 58. For Assistance: Contact Information

Notas del editor

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  2. The Current Enforcement PicturePrivate Equity and Hedge FundsDue DiligenceViolation and LiabilityCompliance Programs
  3. The Current Enforcement PicturePrivate Equity and Hedge FundsDue DiligenceViolation and LiabilityCompliance Programs