Peixoto e Cury Advogados

presented by Luis Alcalde

Kegler, Brown, Hill & RitterApril 12, 2012Sao Paulo, Brazil

• The FCPA is a USA law known primarily for two of its main provisions, namely:

– Prevention of bribery of (foreign) governmental officials.

– Duty to keep accurate financial books and records and have adequate internal controls to accurately reflect the transactions of the business

• Scope and operation of FCPA is not restricted to USA territorial boundaries.

Foreign Corrupt Practices Act of 1977 – (FCPA)

Why Should FCPA Be Of Concern?

1. Siemens (Germany): $800 million in 2008.

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

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

4. Snamprogetti

Netherlands B.V. /

ENI S.p.A

(Holland/Italy): $365

million in 2010.

5. Technip S.A.

(France): $338

million in 2010.

Siemens Case

• USA and German

Joint Prosecution

• 1.8 billion in total fines

and forfeitures

• Guilty Pleas by

Siemen companies in

Germany, Argentina,

Bangladesh &

Venezuela

• Siemens made

millions in corrupt

payments in Latin

America and the

Middle East to obtain

business and obtain

favorable treatment

from governments

Focus on Prosecution of Individuals

• US Justice Continues to Focus on Individuals

• Companies settle, pay fines and forfeit profits

• Guilty Employees go to jail, pay fines and must

make restitution.

• Average jail term is two years in federal prison

but range is very broad with one sentence up to

15 years.

FCPA

• Basic Prohibition: The FCPA makes it unlawful

for companies/persons subject to USA

jurisdiction to bribe foreign government officials

to obtain or retain business, including through

intermediary.

• For the basic prohibition, five elements must be

met for a violation of the Act:

1. Who – Persons subject to the FCPA.

FCPA potentially applies to US companies, citizens,

foreign subsidiary, officer, director, employee, or

agent of a US company or its foreign subsidiary

and

any stockholder acting on behalf of the company.

FCPA

FCPA

• Companies and Individuals may be held liable

under the FCPA under two principles, namely:

(i) Territorial Jurisdiction; and

(ii) Nationality Jurisdiction.

• Territorial – For acts taken within the territory of the US,

Issuers and Domestic Concerns are liable, if the Act is

undertaken in furtherance of a corrupt payment to a foreign

official using US mails or other means or instrumentalities of

interstate commerce.

• Nationality – Issuers and Domestic Concerns are liable for

any act in furtherance of a corrupt payment undertaken

outside the US. Thus, a US company or national may be held

liable for payment authorized by employees or agents

operating entirely outside the US, using money from foreign

bank accounts, and without any involvement by personnel

located within the US.

FCPA

• US parent corporations may also be held liable for the

acts of wholly owned foreign subsidiaries where they

authorized, directed, or controlled the activity in question,

as can US citizens or residents, who were employed by

or acting on behalf of such foreign-incorporated

subsidiaries.

FCPA

2.Corrupt Intent – The person making or

authorizing the payment must have a corrupt

intent, and the payment must be intended to

induce the recipient to misuse his official position

to direct business wrongfully to the payer or to

any other person.

FCPA

• FCPA does not require that a corrupt act

succeed in its purpose. A mere offer or

promise can constitute a violation of the

statute.

FCPA

3.Payment – FCPA prohibits paying, offering,

promising to pay (or authorizing to pay or offer)

money or anything of value (i.e. No minimum

value).

FCPA

FCPA

4. Recipient – The prohibition extends only to

corrupt payments to a foreign official, a foreign

political party or party official, or any candidate

for foreign political office. A “foreign official”means any officer or employee of a foreign

government, a public international organization,

or any department or agency thereof, or any

person acting in an official capacity.

* Could include an employee of a state owned

enterprise.

5. Business Purpose Test – The FCPA prohibits

payments in order to assist the company in

obtaining or retaining business for or with, or

directing business to, any person.

The term “obtaining or retaining” business is

broadly defined and encompasses more than

mere award or renewal of a contract.

FCPA

FCPA Books & Records

Requirements

• Pursuant to FCPA companies must make and

keep books, records, and accounts, which, in

reasonable detail, accurately and fairly reflect

the transactions and dispositions of the assets of

the company

• Company can be guilty of this independently of

anti-bribery provisions

Permissible Payments and Affirmative Actions under FCPA.

• Facilitating payments for routine governmental actions (“grease payments”) – An exception to the antibribery prohibition are payments to facilitate or expedite performance of a “routine governmental action”.

• However, “routine governmental action” does not include any decision by a foreign official to award new business or to continue business with a particular party.

FCPA

FCPA

• Examples of “grease payments”:

– Obtaining permits, licenses or other official documents;

– Processing governmental papers, such as visas and work

orders;

– Providing police protection, mail pick-up, trash collection and

delivery;

– Providing phone service, power and water supply; and

– Scheduling inspections associated with contract performance or

transit of goods across country.

• Note that these exceptions are extremely narrow and difficult

to apply. Therefore all exceptions must be approved by the

OMNOVA Law Department, and if approved only applies to

the particular circumstances.

Affirmative Defenses

• A person charged with a violation of the FCPA may assert as a defense that the payment was lawful under the laws of the foreign country (i.e. Brazil) or that the money was spent as part of demonstrating a product or performing an otherwise lawful contractual obligation.

• Whether a payment was lawful under the laws of a country can be difficult to determine. Therefore, seek advice of counsel experienced in these issues.

• Most importantly, as these are “affirmative defenses” the burden of proof is on the defendant to demonstrate that the payments did not constitute a violation of FCPA.

FCPA

FCPA

Sanctions

• Civil and criminal penalties (including high fines and imprisonment).

• Other government actions (e.g., barred from doing business with the Federal Government, ineligible to receive export licenses, suspension from securities business, disallowance as deduction of business expenditures).

• Private cause of action (treble damages under the Racketeer Influence and Corrupt Organization ACT (RICO). For example, an action might be brought under RICO by a competitor who alleges that the bribery caused the defendant to win a foreign contract.

FCPA Internal Control Requirements

Pursuant to FCPA, companies must have a system

of internal controls to provide reasonable

assurances that:

1. transactions are done as management has authorized

2. transactions are recorded accurately and there is

proper accountability for company assets

FCPA Definition of Due Diligence

The terms "reasonable assurances" and

"reasonable detail" mean such level of detail and

degree of assurance as would satisfy prudent

officials in the conduct of their own affairs.

Dilemma of Due Diligence

• Due diligence must be done as part of a

compliance program to maintain a system of

internal controls to reasonably assure accurate

books and records and that transactions are

executed in accordance with management

directives.

• Not doing due diligence is a violation of the law.

• Doing due diligence, however, is not a defense

to bribery.

Due Diligence a Practical Defense to Corrupt Intent

• If one does everything that is reasonably

possible, then it is difficult to prove a corrupt

intent.

• The terms "reasonable assurances" and

"reasonable detail" mean such level of detail and

degree of assurance as would satisfy prudent

officials in the conduct of their own affairs.

Due Diligence- What is Reasonable Under the Circumstances

The degree of due diligence we should do on a

consultant will depend on the circumstances

• Has risk analysis identified any general and/or

specific risks of corruption?

Due Diligence-Risk Analysis

• In what market is the consultant working? Is it a

market with a reputation for corruption or is it a

transparent market? India has high incidence of

corruption, so we know there is high risk.

• Is the consultant going to have to interact with

government officials?

FCPA Sanctions

• Civil and criminal penalties

• Barred from government contracts, denial of

licenses, suspension from selling securities, tax

problems for improper deductions in tax filings,

disgorgement of profits

• Employees prosecuted and jailed

Thank You

Luis M. Alcalde

Kegler, Brown Hill & Ritter Co., L.P.A.

Ste. 1800, 65 E. State St.

Columbus, OH 43215

Direct Dial: 614-462-5480

Fax: 614-464-2634

Email: lalcalde@keglerbrown.com

www.keglerbrown.com

www.keglerbrown.com/people/luis-alcalde