FCPA Compliance for Sales Representatives

© John R. Partridge 2009 Some Rights Reserved, see http://creativecommons.org/licenses/by-nc/3.0/

Siemens Says Beware of the FCPA

Foreign Corrupt Practices Act Compliance for Sales Personnel


– FCPA – Foreign Corrupt Practices Act

– Background & Purpose of the FCPA– Coverage/Definitions of the FCPA– Best Practices

• What is the FCPA?

• Why am I here? Why should I care? • What do I need to know about it?

Overview


Background

• Watergate investigations illuminated payments by US firms to foreign officials

• Such payments seen as compromising US foreign policy, embarrassing, even immoral

• US was virtually alone in using its law to discourage bribery until 1997 when many countries adopted an OECD convention against bribery


Purpose/Means

• Purpose—Prevent firms from gaining business by supplying items of value to foreign governmental entities

• Means– Corrupt payments—the transfers themselves– Books & records—accounting entries that

record/report the payments


Enforcement

• Substantive violations of the FCPA—DoJ & SEC

• Conspiracy to violate the FCPA—DoJ• Racketeer Influenced and Corrupt

Organizations Act (RICO)—DoJ & private citizens/businesses)– RICO lawsuits can result in 3x damages


Why Care?

• Department of Justice says FCPA enforcement is second only to terrorism

• 91 FCPA cases are open as of January 2009, 3 times the number open in 2005

• Violations incur stiff fines and possible jail time


Why Care—Penalties

• Companies– Criminal fines up to $2

million or possibly 2x benefit sought

– Civil fines up to $10,000 AND possibly amount gained up to $50,000-$500,000

– Loss of privileges granted by US government agencies, e.g., BIS, DDTC, CFTC, OPIC

– Suspension of right to do business with US government

• Individuals*– Criminal fines up to

$100,000 or possibly 2x benefit sought

– Civil fines up to $10,000 AND possibly amount gained up to $5,000-$100,000

– Loss of privileges granted by US government agencies, e.g., BIS, DDTC, CFTC, OPIC

– Jail for up to 5 years

*Individual, not employer, pays


Why Care—Recent Fines

• December 2008, Siemens agreed to pay fines totaling $800 million dollars– $450 million—DoJ lawsuit with $2.7 billion in

potential fines– $350 million—SEC enforcement action

• January 2009, Halliburton agreed to pay $559 million in fines– A former executive faces up to 7 years in

prison & $10.8 million in restitution


Coverage

• Forbids ‘Subject Entities’ from engaging in prohibited conduct towards a ‘Foreign Official’ if done for a prohibited purpose.– ‘Subject Entities’

– Prohibited conduct– ‘Foreign Official’– Prohibited purpose


Whose Actions are Prohibited?

• ‘Subject Entities’ are– Issuers– Domestic Concerns

– Certain Others


Issuers

• Company that issues stocks in the US– Issuer of securities registered with SEC– Issuer who is required to file reports with SEC

– Directors, officers, employees and agents of the issuer

– Stockholders acting on behalf of the issuer


Domestic Concerns

• US persons & businesses– People: Citizens, nationals, & residents– Businesses:

• With a principal place of business in US– What counts as a “principal place of business” is beyond

our scope, but most any office could qualify

• Organized in a US jurisdiction, i.e., state, territory, possession or commonwealth

– Extends from DC to Puerto Rico to Guam


Certain Others

• Foreign People/Entities who act in a US jurisdiction– VERY broad provision, e.g., Siemens’ settled alleged

violations of the by its subsidiaries incorporated in foreign countries based on:

• Discussions about improper payments took place in the US—Siemens S.A. (Argentina); and

• Improper payments routed through US financial institutions—Siemens S.A. (Argentina), Siemens S.A. (Venezuela), & Siemens Bangladesh Limited

• Best to assume your actions are covered


What is a Prohibited Act?

• Any act in furtherance of an:– Offer,– Payment, – Promise to pay, or – Authorization of the payment

• of any money or– Offer,– Gift,– Promise to give, or – Authorization of the giving

• of anything of value to a ‘Foreign Official’


Who is a ‘Foreign Official’?

• Officials-An officer or employee of, or any person acting in an official capacity for or on behalf of, a public international organization or a foreign government or any department, agency, or instrumentality of such government

• Political Parties/Candidates-Foreign political party or official thereof or any candidate for foreign political office

• Any Person While Knowing-Any person who engages in a prohibited act while knowing that such act, in whole or in part, is directed, directly or indirectly, at any official, political party or candidate


‘Foreign Official’—Summary

• Employees of state-owned/controlled business, e.g., airlines

• Employees of quasi-official bodies, e.g., trade associations

• Members of a royal family, e.g., Saud

• Employees of international organizations, e.g., World Bank


What is a Prohibited Purpose?

• A prohibited act done for the purposes of– influencing any act or decision of a ‘Foreign Official’ in

their official capacity,– inducing a ‘Foreign Official’ to do or omit to do an act

in violation of the lawful duty of such ‘Foreign Official’, or

– securing any improper advantage; or – inducing a ‘Foreign Official’ to use their influence with

a target entity to affect or influence any act or decision of such target entity,

• in order to assist a ‘Subject Entity’ in obtaining or retaining business for or with, or directing business to, any person


Scope of Prohibited Acts

• Acts in a US jurisdiction where a ‘Subject Entity’ “make[s] use of the mails or any means or instrumentality of interstate commerce corruptly”– Mails/Means/Instrumentality of interstate commerce

covers any communication that is initiated in one state and is destined for another state

• E.g., mail, phone calls, faxes, email, IM, text messages, courier, etc.

• All acts done corruptly in a non-US jurisdiction– Extends to Issuers & Domestic Concerns ONLY


When Prohibited Acts Aren’t Prohibited

• Routine governmental action– “Grease” payment to get a ‘Foreign Official’ to

do something they are supposed to do faster– Defined by nature of action, not amount of

payment


Routine Actions

• Obtaining official documents (permits, licenses, etc.) required to do business in the country

• Processing governmental papers (visas, work orders, etc.)

• Providing police protection, mail pick-up and delivery, telephone service, power and water supply, loading and unloading cargo, scheduling inspections associated with contract performance or transit of goods across country, or protecting perishables from deterioration

• Actions of a similar nature


Not Routine Actions

• Any of the following actions by a ‘Foreign Official’:– Decision about the terms of a new contract,– Award or renewal of such contract, or– Any action by any official involved in the

process of new or renewal business


Routine Governmental Action?

– You are departing Country A and going through Departure Control. The officer wants to unload and leaf through all reading material in your baggage. You offer him $10 to x-ray the books individually instead of leafing through them. Yes/No?

– You are departing Country A and going through Departure Control. You offer the officer $10 to clear you for departure without checking your papers or belongings. Yes/No?


When Prohibited Acts Are Okay

• Legal under written laws

• Reasonable & bona fide expenditures– Expenses (travel, lodging, etc.) incurred by or

on behalf of a ‘Foreign Official’ and directly related to:

• Promotion, demonstration, or explanation of products or services, or

• Execution or performance of a contract


Best Practices-People

• When dealing with the following people– Government officials, employees, or

functionaries– Politicians, political organizations, or people

employed by politicians or political organizations

– “Helpful” people

Almost anyone in communist countries could be a ‘foreign official’


“Helpful” People

• Use EXTREME caution when dealing with ANYONE who – offers to help navigate the government

bureaucracy

– make introductions to any government official, employee or functionary, or politician, political organization or people employed by a politician or political organization


Best Practices-Subjects

• Whenever current business or future opportunities are discussed with the people above, e.g.,– Exploratory discussions, tender preparations,

tender, contract negotiations, renewal review


Questions/Discussion

Thank you for your time

Education

FCPA Compliance for Sales Representatives