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IMPLEMENTING AN EFFECTIVE
FCPA COMPLIANCE PROGRAM
Introduction

•F o r e i g n C o r r u p t P r a c t i c e s A c t ( F C PA ) e n a c t e d i n 1 9 7 7 – U . S .
law that imposes civil & criminal penalties on corporations &
individuals that bribe foreign government officials
• R e c e n t l y, p e n a l t i e s f o r c o r p o r a t i o n s h a v e b e e n i n e x c e s s o f
$800M, while individuals have been sentenced to prison &
ordered to pay fines
• F C PA c o m p l i a n c e p r o g r a m s s h o u l d i m p l e m e n t e d a n d i n c l u d e
e d u c a t i o n , p r e v e n t i o n / d e t e c t i o n & r e s o l u t i o n o f a n y F C PA
issues
Recent Examples of FCPA
                       Enforcement
 In the past few years, FCPA enforcement has increased dramatically, as have the
  penalties extracted from FCPA violators:
     Siemens AG - $1.6 Billion
         Siemens AG & three of its subsidiaries falsified corporate books and records and knowingly failed to implement and
          circumvent existing internal controls
     BAE Systems - $400 Million
         Pled guilty to conspiring to defraud the U.S., violated the AECA and ITAR; one of the largest criminal fines in the history of the
          DOJ’s ongoing effort to combat overseas corruption

     Charles Paul Edward Jumet – 87 month prison sentence
         Paid bribes to former Panamanian government officials to secure maritime contracts
     Daimler AG - $185 Million
         Charged with one count of conspiracy to violate the anti-bribery provisions of the FCPA; paid bribes to foreign
          government officials through the use of corporate ledger accounts known internally as TPAs
         Made hundreds of millions of dollars worth of improper bribes to secure contracts with government customers for
          the purchase of Daimler vehicles
Understanding the FCPA

T h e P r i m a r y o b j e c t i v e o f t h e F C PA i s t o d e t e r
    corporations and individuals from bribing foreign
    officials through:


      1.   Anti-Bribery Provisions
      2.   Books and Records provisions
      3.   Enforcement & Penalties
Anti-Bribery Provisions


 To Whom do the Provisions Apply?


 What are the Elements of an Anti-Bribery Violation?


 Any Exceptions or Affirmative Defenses to the Anti-
 Bribery Provisions?
To Whom do the Provisions Apply?

1.       Issuers
         Any entity that has securities registered with the SEC or is required to file
          reports with the SEC (U.S. and foreign companies that trade on any of the
          U.S. stock exchanges)
         Officer, director, employee, or agent of such issuer acting on issuers behalf


2.       Domestic Concerns
         Individual who is a citizen national or resident of the U.S. or any organization
          which has its principal place of business in the U.S.


3.       “Persons other than Issuers or Domestic
         Concerns”
         Individual or organization that while in the U.S. territory committed an act of
          prohibited payment
What are the Elements of an Anti-Bribery
                      Violation?

U.S. Department of Justice must prove all of the
   following to establish an anti-bribery violation:

1.   Use of an instrumentality of interstate commerce

2.   Made an offer, payment or promise to pay money or anything of value

3.   An offer, promise, or payment to a foreign official, political party, party
     official or candidate for foreign political office was made

4.   Mad the prohibited payment “corruptly”

5.   Mad the prohibited payment in order to assist in obtaining or retaining
     business for or with anyone
Any Exceptions or Affirmative Defenses to the
           Anti-Bribery Provisions?

 1 Exception:
   “Facilitating Payments” – often small in amount made to
    “expedite/secure the performance of routine governmental
    action by a foreign official”
        i.e. issuance of permits/licensing, visa processing, police
         protection, mail delivery, scheduling of inspections, phone service
         & cargo handling


 2 Exceptions
    1.     If an offer/payment is permissible under a written local
           laws/regulations
    2.     The offer or payment is a reasonable bona fide expenditure
Books and Records Provisions

 Applies to issuers with 50.1% + interest in foreign
  subsidiary
 Unlikely that prohibited payment will be
  recorded/reported

    REQUIRES:
      Issuers keep books/records that fairly reflect transactions and
       dispositions of assets
      System of internal accounting that provides reasonable
       assurances that the transactions are properly authorized
Enforcement & Penalties

1. Who is Responsible for FCPA Enforcement?
   Department of Justice – criminal enforcement & civil
    enforcement against concerns, foreign entities & individuals
   SEC – responsible for civil enforcement against issuers


2. What are the Penalties for an FCPA Violation?
   Criminal Penalties – fines & penalties
   Civil Penalties – fines depending upon the egregiousness of
    the conduct
Components of an Effective
         FCPA Compliance Program

1 . E D U C AT E M A N A G E M E N T A N D E M P L O Y E E S


2. PREVENT AND DETECT POTENTIAL ISSUES


3 . R E S O LV E A N Y F C PA I S S U E S
Education of Management & Employees

1. What are the FCPA risks of your company?
   Determine your company’s FCPA risk profile

2. What are your FCPA Policies?
   Create FCPA policies that are practical for your employees,
    that are easy to read and located somewhere accessible by
    all
   “Tone from the top”

3. Does your Company offer FCPA Training?
   Mandatory and regularly periodic FCPA training that
    incorporates real-life examples
Prevention & Detection of Potential FCPA
                  Issues

1. Due Diligence
   Obtain as much background information as possible on
    potential new agents; be cautious if any red flags pop up
   Important that FCPA compliance-related provisions are
    incorporated into the contract with the agent
2. Audit
   Independent external auditor that performs periodic audits of
    company’s financial and accounting controls
3. Board Reporting
   Company FCPA compliance officers should prepare annual
    reports to the Board of Directors on the status/effectiveness
    of their FCPA compliance program
Compliance Pitfalls

      Foreign Affiliates             Facilitation Payments

 U.S. companies may be           Not violations of FCPA
  liable for the FCPA
  violations of its foreign       Doesn’t provide specific max.
  agents/subsidiaries              allowable dollar amounts or list
                                   type of officials and activities
 Acquisitions may introduce       eligible
  problems with foreign
  company’s unfamiliarity with    Risky to leave foreign affiliates
  FCPA regulations                 to setting their own facilitation
                                   policies
 U.S. firms should enforce
  their position on FCPA
  compliance
Conclusion

 An effective FCPA compliance program involves
 officers, directors, managers, and employees who
 are committed to compliance

 A compliance program helps manage, detect, and
 discipline FCPA violators

 A failure to develop & implement an effective FCPA
 program can result in SIGNIFICANT criminal & civil
 penalties – as we have recently seen!
About CHESTER PLLC

                            J.F. (Jim) Chester, JD/LL.M, Managing Attorney

                                          www.chester-law.com
                                         info@chester-law.com

                                     877-34-WORLD (TOLL FREE)
                                            214-988-9248

Advise entrepreneurs, start-ups, privately held companies with trademarks, copyrights, trade secret
   protection, licensing & enforcement and assist companies in commercial transactions in the U.S. and
   abroad

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Creating an FCPA Program

  • 1. IMPLEMENTING AN EFFECTIVE FCPA COMPLIANCE PROGRAM
  • 2. Introduction •F o r e i g n C o r r u p t P r a c t i c e s A c t ( F C PA ) e n a c t e d i n 1 9 7 7 – U . S . law that imposes civil & criminal penalties on corporations & individuals that bribe foreign government officials • R e c e n t l y, p e n a l t i e s f o r c o r p o r a t i o n s h a v e b e e n i n e x c e s s o f $800M, while individuals have been sentenced to prison & ordered to pay fines • F C PA c o m p l i a n c e p r o g r a m s s h o u l d i m p l e m e n t e d a n d i n c l u d e e d u c a t i o n , p r e v e n t i o n / d e t e c t i o n & r e s o l u t i o n o f a n y F C PA issues
  • 3. Recent Examples of FCPA Enforcement  In the past few years, FCPA enforcement has increased dramatically, as have the penalties extracted from FCPA violators:  Siemens AG - $1.6 Billion  Siemens AG & three of its subsidiaries falsified corporate books and records and knowingly failed to implement and circumvent existing internal controls  BAE Systems - $400 Million  Pled guilty to conspiring to defraud the U.S., violated the AECA and ITAR; one of the largest criminal fines in the history of the DOJ’s ongoing effort to combat overseas corruption  Charles Paul Edward Jumet – 87 month prison sentence  Paid bribes to former Panamanian government officials to secure maritime contracts  Daimler AG - $185 Million  Charged with one count of conspiracy to violate the anti-bribery provisions of the FCPA; paid bribes to foreign government officials through the use of corporate ledger accounts known internally as TPAs  Made hundreds of millions of dollars worth of improper bribes to secure contracts with government customers for the purchase of Daimler vehicles
  • 4. Understanding the FCPA T h e P r i m a r y o b j e c t i v e o f t h e F C PA i s t o d e t e r corporations and individuals from bribing foreign officials through: 1. Anti-Bribery Provisions 2. Books and Records provisions 3. Enforcement & Penalties
  • 5. Anti-Bribery Provisions  To Whom do the Provisions Apply?  What are the Elements of an Anti-Bribery Violation?  Any Exceptions or Affirmative Defenses to the Anti- Bribery Provisions?
  • 6. To Whom do the Provisions Apply? 1. Issuers  Any entity that has securities registered with the SEC or is required to file reports with the SEC (U.S. and foreign companies that trade on any of the U.S. stock exchanges)  Officer, director, employee, or agent of such issuer acting on issuers behalf 2. Domestic Concerns  Individual who is a citizen national or resident of the U.S. or any organization which has its principal place of business in the U.S. 3. “Persons other than Issuers or Domestic Concerns”  Individual or organization that while in the U.S. territory committed an act of prohibited payment
  • 7. What are the Elements of an Anti-Bribery Violation? U.S. Department of Justice must prove all of the following to establish an anti-bribery violation: 1. Use of an instrumentality of interstate commerce 2. Made an offer, payment or promise to pay money or anything of value 3. An offer, promise, or payment to a foreign official, political party, party official or candidate for foreign political office was made 4. Mad the prohibited payment “corruptly” 5. Mad the prohibited payment in order to assist in obtaining or retaining business for or with anyone
  • 8. Any Exceptions or Affirmative Defenses to the Anti-Bribery Provisions?  1 Exception:  “Facilitating Payments” – often small in amount made to “expedite/secure the performance of routine governmental action by a foreign official”  i.e. issuance of permits/licensing, visa processing, police protection, mail delivery, scheduling of inspections, phone service & cargo handling  2 Exceptions 1. If an offer/payment is permissible under a written local laws/regulations 2. The offer or payment is a reasonable bona fide expenditure
  • 9. Books and Records Provisions  Applies to issuers with 50.1% + interest in foreign subsidiary  Unlikely that prohibited payment will be recorded/reported  REQUIRES:  Issuers keep books/records that fairly reflect transactions and dispositions of assets  System of internal accounting that provides reasonable assurances that the transactions are properly authorized
  • 10. Enforcement & Penalties 1. Who is Responsible for FCPA Enforcement?  Department of Justice – criminal enforcement & civil enforcement against concerns, foreign entities & individuals  SEC – responsible for civil enforcement against issuers 2. What are the Penalties for an FCPA Violation?  Criminal Penalties – fines & penalties  Civil Penalties – fines depending upon the egregiousness of the conduct
  • 11. Components of an Effective FCPA Compliance Program 1 . E D U C AT E M A N A G E M E N T A N D E M P L O Y E E S 2. PREVENT AND DETECT POTENTIAL ISSUES 3 . R E S O LV E A N Y F C PA I S S U E S
  • 12. Education of Management & Employees 1. What are the FCPA risks of your company?  Determine your company’s FCPA risk profile 2. What are your FCPA Policies?  Create FCPA policies that are practical for your employees, that are easy to read and located somewhere accessible by all  “Tone from the top” 3. Does your Company offer FCPA Training?  Mandatory and regularly periodic FCPA training that incorporates real-life examples
  • 13. Prevention & Detection of Potential FCPA Issues 1. Due Diligence  Obtain as much background information as possible on potential new agents; be cautious if any red flags pop up  Important that FCPA compliance-related provisions are incorporated into the contract with the agent 2. Audit  Independent external auditor that performs periodic audits of company’s financial and accounting controls 3. Board Reporting  Company FCPA compliance officers should prepare annual reports to the Board of Directors on the status/effectiveness of their FCPA compliance program
  • 14. Compliance Pitfalls Foreign Affiliates Facilitation Payments  U.S. companies may be  Not violations of FCPA liable for the FCPA violations of its foreign  Doesn’t provide specific max. agents/subsidiaries allowable dollar amounts or list type of officials and activities  Acquisitions may introduce eligible problems with foreign company’s unfamiliarity with  Risky to leave foreign affiliates FCPA regulations to setting their own facilitation policies  U.S. firms should enforce their position on FCPA compliance
  • 15. Conclusion  An effective FCPA compliance program involves officers, directors, managers, and employees who are committed to compliance  A compliance program helps manage, detect, and discipline FCPA violators  A failure to develop & implement an effective FCPA program can result in SIGNIFICANT criminal & civil penalties – as we have recently seen!
  • 16. About CHESTER PLLC J.F. (Jim) Chester, JD/LL.M, Managing Attorney www.chester-law.com info@chester-law.com 877-34-WORLD (TOLL FREE) 214-988-9248 Advise entrepreneurs, start-ups, privately held companies with trademarks, copyrights, trade secret protection, licensing & enforcement and assist companies in commercial transactions in the U.S. and abroad