FCPA Compliance Program Presentation

Compliance with the
Foreign Corrupt Practices Act
& International Anti-Corruption Laws
in the Era of Enforcement
Presentation to the British-American Chamber of Commerce,
Ohio Chapter

▪ Friday, January 25, 2013 ▪

Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com

Today’s Objectives
Gain a fundamental understanding of:

• What constitutes a violation of the FCPA and related
international anti-corruption laws

• The current enforcement environment and the likely
future enforcement environment

• The elements of an effective risk-based anti-corruption
compliance program

• How FCPA violations are typically resolved

2 Cincinnati / Cleveland / Columbus / Dayton / Indianapolis / N. Kentucky / Phoenix / www.taftlaw.com

Overview of the FCPA
& Related International
Anti-Corruption Laws


FCPA Overview

• Passed in 1977; Amended in 1988 and 1998
• Prohibits corrupt payments to foreign officials to obtain
or retain business
• Two Parts:
1. Anti-bribery provision, enforced by the DOJ
2. Books and records and internal controls provisions,
enforced by the SEC and the DOJ


Anti-Bribery Provision
It is unlawful for:

1. A covered person or company
2. To offer, pay, promise to pay, or authorize payment
3. Directly or indirectly
4. Of anything of value
5. To a “foreign official”
6. Corruptly/willfully
7. To obtain or retain business


Books & Records & Internal Controls Provisions

• Issuers must:
– Make and keep books,
records, and accounts
• Which, in reasonable
detail accurately and
fairly reflect the
transactions and
dispositions of their
assets


Books & Records & Internal Controls Provisions

• Issuers must:
– Have a system of internal
accounting controls that
provides reasonable
assurances that:
• Transactions are authorized
• Access to assets is
authorized
• Accurate financial statements
are able to be prepared
(GAAP standards)


Exception & Affirmative Defenses

• Exception
– Facilitation Payments

• Affirmative Defenses
– Payments that are lawful under local law
– Expenses related to promotion, demonstration, or
explanation of products or services or the execution of
contract


UK Bribery Act vs. the FCPA

• Broader jurisdictional reach

• Prohibits commercial bribery

• Prohibits receipt of a bribe

• No facilitation payments exception

• Offense of failure to prevent bribery
– But includes an “adequate procedures” defense with
civil balance of probabilities standard


International Proliferation

• Other statutes • Voluntary initiatives

• Conventions • Increased law
enforcement cooperation
• IGOs and NGOs


The Current
Enforcement Environment


“Vast Mexico Bribery Case Hushed Up by
Wal-Mart After Top-Level Struggle”

• 8.2% decline in stock value

• $19 billion loss in market value

• Derivative lawsuits

• Reconsideration of global
expansion plans


Welcome to the Era of Enforcement
Reported FCPA Proceedings

90

80

70

60

50

40

30

20

10

0
2004 2005 2006 2007 2008 2009 2010 2011
Ye ars


The Enforcement Era: Corporations & Companies

$800 Million $579 Million

$365 Million $338 Million


The Enforcement Era: Corporations & Companies

• Some commentators have asserted
that smaller companies are more
likely to be criminally indicted than
large ones
– For example, Nexus Technologies was
found to be a “criminal purpose
organization” under Section 8C1.1
of the U.S. Sentencing Guidelines
– Judge ordered dissolution of Nexus and
turnover of all assets to court


The Enforcement Era: Individuals

“The number of individual prosecutions [under the
FCPA] has risen – and that’s not an accident.
That is quite intentional on the part of the Department.
It is our view that to have a credible deterrent effect,
people have to go to jail.”

–Mark Mendelsohn
Former Deputy Chief
DOJ Fraud Section


The Future of Enforcement

• SEC formed specialized nationwide FCPA enforcement
unit in 2010
• FBI has doubled the number of agents in its FCPA unit
• Use of aggressive law enforcement techniques
(informants, stings, wiretaps)
• Proliferation of similar laws in other countries


The Future of Enforcement

“I would not say that our vision, the U.S. Department
of Justice’s vision, is short. I would say it’s long-term.
This is not a project which is going to be five years.
It is not a project that’s ten years. This is a project
which is thirty years.”

– Excerpt from government argument at U.S. v. Naaman
(2011) sentencing hearing


Trends
• Increase in individual prosecutions
– More trials and case law

• More whistleblowers
(Dodd-Frank bounty provision)

• More legal scholarship

• Greater international efforts and
cooperation (but also raises multi-
jurisdictional issues)


Risk-Based Anti-Corruption
Compliance Programs


Risk-Based Program in a Multi-Jurisdictional Environment

• US Sentencing • World Bank Integrity
Guidelines (§8B2.1.c) Compliance Guidelines
(Guideline 3)
• UK Ministry of Justice
guidance on “Adequate • SEC
Procedures” (Principle 3)


Taft’s Anti-Corruption Risk Management Process


Identify
Anti-Corruption Hazards


Risks - External

Transaction
Country Risk Sector Risk
Risk

Business Business
Opportunity Partnership
Risk Risk


Transparency International


Risks - Internal

Deficient Bonus Unclear Policies
Personnel Culture & Procedures

Deficient Financial Leadership Tone
Controls and Culture


Assess Anti-Corruption
Hazards to Determine
Anti-Corruption Risks


Develop Anti-Corruption
Controls & Make
Anti-Corruption Risk Decisions


Control Requirements

• Control must remove the hazard or reduce the residual
risk to an acceptable level
• Feasible
– The business unit must have the capability to implement the
control
• Acceptable
– The benefit gained by implementing the control must justify the
cost in resources and time (largely subjective)


Overarching Controls

Tone/Culture at the Top

Supervision & Evaluation

Documentation


Prevention Controls - Educational

Anti-Corruption
Broad Code
Policies &
of Conduct
Standards

Anti-Corruption Financial &
Compliance Guide Accounting Policies


Prevention Controls – Educational (continued)

Anti-Corruption Anti-Corruption
Compliance Training Compliance
& Certifications Communication

Compliance
Helpline


Prevention Controls - Physical

Anti-Corruption Anti-Corruption
Third Party/M&A
Compliance Compliance
Due Diligence
Structure Procedures

Financial & Anti-Corruption
Standard Contract
Accounting Compliance
Provisions Procedures Incentives


Detection Controls

Routine
Testing Investigations
& Audits

Reporting
Incentives Whistleblower
& Outlets Protections


Reassess Risk

• With controls applied, determine:
– Residual risk associated with each hazard, and
– Overall residual risk for the business operation

• Continue to develop and apply controls and reassess
risk until:
– Acceptable level of risk is achieved, or
– All risks are reduced to a level where benefits outweigh
potential cost


Implement
Anti-Corruption Controls


No “Paper Programs”

• Controls are
meaningless, and a
potential source of
liability, if not properly
implemented


Integration into the Business

MISSION
Core purpose of the
organization

VALUES
Timeless guiding principles

VISION
Word picture of the ideal future

STRATEGY
Your “game plan” for success

STRATEGY MAP
Graphical presentation of key objectives

BALANCED SCORECARD
Performance measures, targets and initiatives

CASCADING MEASURES
Performance measures for all departments/individuals that align with overall goals

STRATEGIC MANAGEMENT SYSTEM
Linking the Balanced Scorecard to processes such as budgeting, reporting and compensation

(http://www.finbrain-itc.be/en/services/balance-scorecard)


Supervise Execution
of Anti-Corruption Controls
& Evaluate their Effectiveness


Supervision

• Effective supervision ensures:
– Controls are implemented, monitored, and remain in place
(be mindful of control person liability)
– Personnel understand how, when, and where controls are
implemented
– Complacency, deviation from standards, or violations of policies
and other controls are not allowed to threaten success

• Provides compliance team and management the
situational awareness necessary to anticipate, identify,
and assess any new hazards and to develop or modify
controls as necessary


Evaluation

• Evaluation process occurs during all phases of business
operations

• Identify any hazards that were not identified as part of
the initial assessment, or identify new hazards that
evolved during the operation or activity
– Any time that personnel, operations, new locations, etc. change
the initial risk management analysis, the control measures
should be reevaluated


Evaluation

• Assess effectiveness in supporting
business operational goals and
objectives

• Assess the implementation, execution,
and communication of the controls

• Assess accuracy of residual risk and
effectiveness of controls in eliminating
hazards and controlling risks


Disclosure
& Resolution


Disclosure Decision

Receive
Do Not
Disclose Notice
Disclose
from Gov’t


Possible Outcomes

Gov’t
Gov’t Gov’t
Never Discovers
Declination NPA/DPA
Violation

Guilty Plea/
Ancillary
Settlement
Issues
or Trial


Questions?

Michael Wager
mwager@taftlaw.com
(216) 706-3940


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