Emerging Issues, Trends and Best Practices - … FCPA...Emerging Issues, Trends and Best Practices 2013 Experis Education Series . ... Agilent Technologies Inc 4) Alcoa Inc 5) Alstom

Presenter: Ed Williams, Manager, Risk Advisory Services, Denver

October 8, 2013

FCPA and Global Anti-Corruption Programs Emerging Issues, Trends and Best Practices

2013 Experis Education Series

FCPA and Global Anti-Corruption Programs

Experis Finance | Tuesday, October 8, 2013 2

Disclaimer

The presentation you are about to enjoy should not be relied upon or

construed as legal advice. Please consult with your own legal

departments before making any policy or procedure changes.



Meet Our Presenter

Ed Williams CIA, CFE, CRMA Manager, Risk Advisory Services

Ed is a Manager in the Experis Risk Advisory practice in

Denver, Colorado and has been with the firm for 12

years. He has over 20 years of progressive Internal Audit,

fraud investigation and risk management experience in

wide variety of industries. Ed has extensive experience

with FCPA compliance and Global Anti-Corruption

programs. He has assisted many companies with their

anti-corruption risk assessment, training, audit, due

diligence and investigations efforts in 15 countries across

Europe, Asia and South America.



Agenda

• The U.S. Foreign Corrupt Practices Act (CPA)

• Changing International Landscape

• Best Practices - Global Anti-Corruption Programs

• Recommended Resources



Polling Question #1

To what extent does your organization have a formal FCPA / Global

Anti-Corruption program in place?

A. We have no formalized programs or practices in place

B. We have various disconnected programs and practices in place

across the organization, but they are not fully integrated

C. We have a fully integrated and mature global anti-corruption

program in place

D. Other

Foreign Corrupt Practices Act

(FCPA)



The U.S. Foreign Corrupt Practices Act (FCPA)

• Congress enacted the U.S. Foreign Corrupt Practices Act (FCPA or

the Act) in 1977 in response to revelations of widespread bribery of

foreign officials by U.S. companies

• The FCPA was designed to prevent corrupt practices, protect

investors, and provide a fair playing field for those honest companies

trying to win business based on quality and price rather than bribes

• For violations of FCPA, all companies can be barred from federal

contracts and are subject to civil and criminal penalties

• Through determined international diplomatic and law enforcement

efforts in the time since the FCPA was enacted, laws like the FCPA

prohibiting foreign bribery and corruption have been enacted by most

of the United States’ major trading partners



The U.S. Foreign Corrupt Practices Act (FCPA)

FCPA addresses two main provisions:

The anti-bribery provision makes it illegal to make payments with a corrupt motive to foreign officials for the purpose of influencing the official in order to assist in obtaining or retaining business

The books and records provision requires companies who file reports with the Securities and Exchange Commission (SEC) to maintain records that accurately reflect transactions and the nature and quantity of corporate assets and liabilities



FCPA Enforcement

U.S. Department of Justice (DOJ)

• DOJ has criminal FCPA enforcement authority over “issuers”

(i.e., public companies) and their officers, directors, employees,

agents, or stockholders acting on the issuer’s behalf

• DOJ also has both criminal and civil enforcement responsibility for

the FCPA’s anti-bribery provisions over “domestic concerns” –

which include:

– (a) U.S. citizens, nationals, and residents and

– (b) U.S. businesses and their officers, directors, employees, agents,

or stockholders acting on the domestic concern’s behalf—and certain

foreign persons and businesses that act in furtherance of a FCPA

violation while in the territory of the United States



FCPA Enforcement

U.S. Securities and Exchange Commission (SEC)

• SEC is responsible for civil enforcement of the FCPA over issuers and their

officers, directors, employees, agents, or stockholders acting on the issuer’s

behalf

• In 2010, SEC’s Enforcement Division created a specialized FCPA Unit, with

attorneys in Washington, D.C. and in regional offices around the country,

to focus specifically on FCPA enforcement

• The FCPA Unit investigates potential FCPA violations and:

– facilitates coordination with DOJ’s FCPA program and with other federal

and international law enforcement partners

– uses its expert knowledge of the law to promote consistent enforcement

of the FCPA

– analyzes tips, complaints, and referrals regarding allegations of foreign bribery

– conducts public outreach to raise awareness of anti-corruption efforts

and good corporate governance programs



Notable Recent FCPA Settlements

1. Allianz SE (Indonesia), SEC, $12.4 million

2. Biomet Inc. (Argentina, Brazil, and China), DOJ / SEC, $22.8

million and deferred prosecution agreement with a compliance

monitor for 18 months

3. BizJet International Sales and Support Inc. and its owner

Lufthansa Technik AG (Latin America), DOJ / $11.8 million

criminal fine and three-year deferred prosecution agreement

4. Data Systems & Solutions LLC (Lithuania), DOJ, $8.8 million and

a two-year deferred prosecution agreement

5. Eli Lilly (Russia, China, Brazil, Poland), SEC, $29.4 million

6. Marubeni Corporation (Nigeria), DOJ, $54.6 million criminal

penalty with a two-year deferred prosecution agreement



Notable Recent FCPA Settlements

7. Nordam Group Inc. (China), DOJ, $2 million and a three-year

non-prosecution agreement

8. Oracle Corporation (India), SEC, $2 million

9. Orthofix International N.V. (Mexico), DOJ / SEC, $7.4 million

and a three-year deferred prosecution agreement

10. Pfizer Inc. and its subsidiary Wyeth (Bulgaria, Croatia,

Kazakhstan, and Russia) DOJ / SEC, $60 million and a two-year

deferred prosecution agreement

11. Smith & Nephew (Greece), DOJ / SEC, $22.2 million with a

compliance monitor for 18 months under a deferred prosecution

agreement

12. Tyco International Ltd. (Saudi Arabia, Germany, China, Thailand,

and Turkey), DOJ / SEC, $26 million



Smith & Nephew (Greece), DOJ / SEC, $22.2 million with a compliance monitor for 18 months under a

deferred prosecution agreement

• Payments to doctors of state-owned hospitals in Greece.

• S&N is an issuer covered by the U.S. FCPA, because its American Depositary Receipts (“ADRs”) trade on the New

York Stock Exchange.

• The enforcement action is noteworthy because it related to S&N US’s use of a distributor. While in some

circumstances distributors may pose different risk profiles than consultants or representatives, this enforcement

action demonstrates that the use of distributors is not without compliance risks.

• Until around late 1997, S&N US had a standard distributorship relationship with a Greek distributor, through which it

sold products at a discount from its list prices to the distributor’s entities, who would then resell the products at profit

to Greek healthcare providers. But beginning in or around 1998, and continuing until in or around December 2007,

S&N US and a German subsidiary of S&N entered into various “marketing” relationships with two offshore shell

companies controlled by the Greek distributor, by which a percentage of the sales made by the Greek distributor

would be paid to the shell companies.

• Further arrangements with a third offshore shell company provided for increased discounts to generate a pool of cash

that could be used for improper purposes. No “true services” were provided by any of the shell companies.

• Despite several questions raised by S&N US’s internal legal and audit personnel about the propriety of the payments,

including discussions of the fact that surgeons in Greece were being paid to use S&N US’s medical devices products,

the relationships continued.



Biomet Inc.

(Argentina, Brazil, and China), DOJ / SEC, $22.8 million and deferred prosecution

agreement with a compliance monitor for 18 months

• Bribes to healthcare providers.

• A medical device maker based in Indiana. For most of the period of the misconduct, Biomet was listed on NASDAQ;

it was acquired in 2007 by a consortium of private equity firms but, while no longer publicly traded, it continues to file

reports with the SEC and thus remains an “issuer” under the FCPA.

• Biomet was targeted as part of the government’s ongoing investigation into medical device companies for bribes paid

to health care providers and administrators employed by government institutions.

• The SEC complaint alleged violations of the FCPA anti-bribery, books and records, and internal control provisions,

while the DOJ charged Biomet with one count of conspiracy to violate the FCPA’s anti-bribery and books and records

provisions and four counts of violations of the anti-bribery provisions.

• According to DOJ and SEC charging documents, between 2000 and 2008, Biomet and four subsidiaries located in

Argentina, China, Sweden, and Delaware, paid more than $1.5 million in bribes to health care providers in China,

Argentina, and Brazil in order to secure business with hospitals. These payments were disguised in the company’s

books and records as “commissions,” “royalties,” “consulting fees,” and “scientific incentives.”

• According to the government, bribes involved employees and managers at all levels of Biomet, its subsidiaries, and

its distributors. The payments were not stopped by Biomet’s compliance and internal audit functions even after they

became known.



Known Current FCPA Actions The companies listed below are known to be the subject of an ongoing and unresolved FCPA-related inquiries

or investigations. The names are current through September 30, 2013. The entries are based on disclosures in

SEC filings or news reports or both. (Source: www.ethixsbase.com)

1) ABM Industries Inc

2) Accenture plc

3) Agilent Technologies Inc

4) Alcoa Inc

5) Alstom SA

6) Analogic Corporation

7) Anheuser-Busch InBev SA/NV

8) Archer-Daniels-Midland Company

9) AstraZeneca plc

10) Avon Products Inc

11) Baker Hughes Incorporated (BJ Services)

12) Barclays plc

13) Baxter International Inc

14) Beam Inc

15) BHP Billiton Ltd

16) Bio-Rad Laboratories Inc

17) Bristol-Myers Squibb Company

18) Brookfield Asset Management Inc

19) Bruker Corporation

20) BSG Resources Ltd

21) Central European Distribution Corporation

22) Cobalt International Energy Inc

23) Dialogic Inc

24) Diebold Incorporated

25) Deutsche Post AG (DHL)

26) DreamWorks Animation SKG Inc

27) Dun & Bradstreet Corporation

28) Eli Lilly and Company

29) Embraer SA

30) Ericsson

31) Expro International Group plc

32) ExxonMobil Corporation

33) Fresenius Medical Care AG & Co. KGaA

34) Furmanite Corporation

35) GlaxoSmithKline plc

36) Fields Limited

37) Goldman Sachs Group Inc

38) Goodyear Tire and Rubber Company

39) Halliburton Company

40) Harris Corporation

41) Hess

42) Hewlett-Packard Company

43) Image Sensing Systems

44) Ingersoll-Rand plc

45) International Business Machines Corporation

46) JPMorgan Chase

47) Juniper Networks

48) Kimco Realty Corporation+D69



Known Current FCPA Actions The companies listed below are known to be the subject of an ongoing and unresolved FCPA-related inquiries

or investigations. The names are current through September 30, 2013. The entries are based on disclosures in

SEC filings or news reports or both. (Source: www.ethixsbase.com)

49) KKR & Company LP

50) Kraft Foods Inc

51) Las Vegas Sands Corp

52) Layne Christensen Company

53) LyondellBasell Industries

54) Merck & Co Inc

55) Microsoft Corporation

56) Motorola Solutions Inc

57) MTS Systems Corporation

58) Comcast (NBCUniversal Inc)

59) NCR Corporation

60) Net 1 UEPS Technologies Inc

61) News Corporation

62) Nordion Inc

63) Novartis AG

64) Olympus Corp

65) Optimer Pharmaceuticals Inc

66) Oracle Corporation

67) Owens-Illinois Group Inc

68) Panasonic Corporation

69) Parametric Technology Corporation

70) Protective Products of America Inc

71) Qualcomm Incorporated

72) Sanofi SA

73) SBM Offshore NV

74) Sciclone Pharmaceuticals Inc

75) Sensata Technologies Holding NV

76) Siemens AG

77) SL Industries Inc

78) Smith & Wesson Holding Corporation

79) Sojitz Corp

80) Sony Corporation

81) STR Holdings Inc

82) Stryker Corporation

83) Tata Communications Limited

84) Tesco Corporation

85) Teva Pharmaceutical Industries Limited

86) Time Warner Inc

87) Universal Entertainment Corp.

88) Universal Music Group (Vivendi)

89) Viacom (Paramount Pictures)

90) Wal-Mart Stores Inc

91) Walt Disney Company

92) Walters Power International LLC

93) Weatherford International Ltd

94) WS Atkins plc (PBSJ Corp)

95) WW Grainger Inc



Top 10 FCPA Settlements 1. Siemens (Germany): $800 million in 2008.

2. KBR / Halliburton (USA): $579 million in 2009.

3. BAE (UK): $400 million in 2010.

4. Total S.A. (France) $398 million in 2013.

5. Snamprogetti Netherlands B.V. / ENI S.p.A (Holland/Italy): $365 million in 2010.

6. Technip S.A. (France): $338 million in 2010.

7. JGC Corporation (Japan) $218.8 million in 2011.

8. Daimler AG (Germany): $185 million in 2010.

9. Alcatel-Lucent (France): $137 million in 2010.

10. Magyar Telekom / Deutsche Telekom (Hungary /Germany): $95 million in 2011.

http://www.fcpablog.com/blog/2010/3/1/bae-pleads-guilty.html

Changing International

Landscape



Changing International Landscape

• The FCPA remains the most notable and publicized anti-bribery and corruption legislation in the world

• However, the global landscape has changed dramatically with most developed nations around the world enacting local bribery, gift-giving and corruption legislation, enforcement actions and penalties

• In addition to the FCPA, U.S. companies operating abroad must know and understand risks related to local bribery and anti-corruption laws

• As of 2012, there were 39 member countries to the OECD (Organization for Economic Cooperation and Development) Anti-Bribery Convention. Membership requires parties to criminalize the bribery of foreign public officials in international business transactions




April 2013

• The European Commission announced proposals that would require

approximately 18,000 European companies to be more transparent

about their efforts to combat corruption and bribery

• The proposed amendment to the Accounting Directives means that

companies with more than 500 employees would need to publicly

disclose their anti-bribery and anti-corruption policies, as well as

the results of these policies

• The proposals will need the approval of the European Parliament

and EU member states before becoming law




UK Bribery Act - Effective 2011

• The purpose of the Act is to reform the criminal law of bribery to

provide for a new consolidated scheme of bribery offenses to cover

bribery both in the UK and abroad

• There are two general bribery offenses created under the Act:

– Active bribery (i.e., bribing someone): It will be an offense to offer or give

a financial or other advantage to another person with the intention of

inducing that person to perform a “relevant function or activity improperly”,

or to reward that person for doing so

– Passive bribery (i.e., being bribed): It will be an offense to receive or

request a financial or other advantage with the intention that a “relevant

function or activity” should be performed “improperly” as a result




UK Bribery Act - Effective 2011

• The Act creates a new strict liability offense for commercial organizations

(companies and partnerships) of failing to prevent bribery within their

organizations

• This offense is absolute; all payments (no matter how small) if made with the

intention to bribe will be classified as a bribe, and the organization will be liable for

failure to prevent the payments being made on its behalf

• The company’s only defense to such charges is to show that it had adequate

procedures in place to prevent bribes being paid

• The Act further states that a corporate organization can be guilty of failing to

prevent bribery if an “associated person” carries out an act of bribery on its behalf

• An “associated person” is defined as a person who performs services on behalf of

the principal, a definition designed to catch anyone who performs functions on a

company’s behalf




Russia – Article 13.3 in Federal Law No. 273 “On Combatting

Corruption” (effective January 2013)

• First of its kind

• Before Article 13.3, Russian law provided that organizations could be held liable for

“failing to take all measures within their powers” to prevent bribery. (like the FCPA

and UKBA)

• Before Article 13.3 ,organizations could point to compliance programs as evidence of

its efforts to take measures to prevent bribery. However, there was no affirmative duty

to create a compliance program (like the FCPA and UKBA)

• With Article 13.3, this has changed and companies are now legally required to create

compliance programs which meet the standards of this Article

• Also, dealing with agents and third parties lacking compliance programs within their

organizations may also be viewed as failure to take all possible measures to prevent

corruption. The Act creates a new strict liability offense for commercial organizations

(companies and partnerships) of failing to prevent bribery within their organizations

What Should Companies

Be Doing?



What should companies be doing? Develop, maintain and publicize an effective Global Anti-Corruption Program

Tone at the Top / Leadership

Risk Assessment

Policies, Standards and

Controls

Training and Communication

Due Diligence of Third Parties

Monitoring, Auditing and Response




• Designated accountability and

ownership of corruption risks and

compliance programs

• Demonstrated governance and

support at the executive and

Board level

• Management leading by example

• Publicized ethics and business

conduct guidelines


Risk Assessment


Controls






Risk Assessment

• Regularly identify, assess and

prioritize global corruption risks

• Risk assessment attributes and

considerations:

– Country risk factors

– Org structure

– Customer demographics

– Product and services risk

– Industry and segment risk

– Third-party relationships

– Financial transactions

• Results serve as a basis for

policies, training, due diligence

and auditing


Risk Assessment


Controls




Links/JBRICK 3year Plan.pptx



Policies, Standards and Controls

• Clear, practical and accessible

policies and procedures

– Code of Ethics

– Fraud Policy

– Bribery and Anti-Corruption

Policies

– Facilitation Payments

– Financial Transactions/Payments

– Third Parties / Due Diligence

– Travel and Entertainment

• Internal controls over financial

reporting

• Transparent financial reporting


Risk Assessment


Controls







• Risk-based training curriculums

• Customized training based on

roles and responsibilities

• Case studies examples

• Effective delivery methods

(in-person, web-based, etc.)

• Annual re-certification for

high risk personnel

• Vendor and third-party training

and education

• Communication of whistleblower

procedures


Risk Assessment


Controls







• Identification of all relevant third-

party agents; risk assessment

• Defined and comprehensive due

diligence practices

• Third-party training and compliance

certifications

• Consistent contracts; terms and

conditions; compliance

requirements; right to audit clauses

• Regular compliance monitoring

• Distributors

• Consultants


Risk Assessment


Controls




• Freight Forwarders

• Registration Agents

• Lobbyists

• Customs

• JV’s

• Licensees

• Brokers

• Wholesalers

• Resellers

• Contractors

• Suppliers

• Sales Reps



Monitoring, Auditing and Incident Response

• Risk-based audit programs and schedule

• High-risk transactions – Import/export

– Licenses/permits

– Construction

– Travel and entertainment

– Cash transactions

– Donations/contributions

– Consulting

– Facilitating payments

• Defined incident response procedures and disciplinary action

• Defined self reporting protocols


Risk Assessment


Controls






Is all this effort worth it?

Morgan Stanley (2012)

• First of its kind case – DOJ and SEC opted not to bring an enforcement action against Morgan Stanley over violations of the FCPA, citing the company's robust compliance program as the reason for declining to prosecute

• Sharp contrasts to the events unfolding at Walmart, where management is accused of burying the findings of an internal FCPA investigation

• Both agencies specifically cited the following compliance practices as reasons not to bring an enforcement action:

– Maintaining strong internal controls

– Frequent training on internal policies

– Written compliance certifications

– Frequent FCPA-related compliance reminders

– Continuous monitoring

– Due diligence on new business partners



Suggested Resources

• Transparency International http://www.transparency.org

• OCED http://www.oecd.org/corruption

• FCPA Blog http://www.fcpablog.com

• EthiXBase https://ethixbase.com

• Global Integrity http://www.globalintegrity.org

• FCPA Resource Guide DOJ and SEC Publication

• Business Anti-Corruption Portal http://www.business-anti-corruption.com

• “FCPA Map” by The Mintz Group http://fcpamap.com

• Corruption Currents by The Wall Street Journal On-Line

http://www.transparency.org/



http://www.oecd.org/corruption



http://www.fcpablog.com/



https://ethixbase.com/



http://www.globalintegrity.org/



Links/2012 DOJ-SEC FCPA Resource Guide.pdf

http://www.business-anti-corruption.com/







http://fcpamap.com/

http://fcpamap.com/

http://fcpamap.com/

Links/2012_CPI_brochure_EN.pdf



For more information

Ed Williams

Manager, Risk Advisory Services

[email protected]

Documents

Emerging Issues, Trends and Best Practices - … FCPA...Emerging Issues, Trends and Best Practices 2013 Experis Education Series . ... Agilent Technologies Inc 4) Alcoa Inc 5) Alstom