Mais conteúdo relacionado Semelhante a Bribery and Corruption (FCPA): What Auditors Need to Know (20) Mais de FraudBusters (10) Bribery and Corruption (FCPA): What Auditors Need to Know1. FraudResourceNet
Knowledge Center for Enhanced
Fraud Detection, Prevention, and Audit
Bribery and
Corruption (FCPA):
What Auditors
Need to Know
July 24, 2013
James Tillen
Marc Alain Bohn
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About Peter Goldmann, MSc., CFE
President and Founder of White Collar
Crime 101
Publisher of White-Collar Crime Fighter
Developer of FraudAware® Anti-Fraud Training
Monthly Columnist, The Fraud Examiner, ACFE
Newsletter
Member of Editorial Advisory Board,
ACFE
Author of “Fraud in the Markets”
Explains how fraud fueled the financial crisis.
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2. About Jim Kaplan, MSc, CIA, CFE
President and Founder of
AuditNet®, the global
resource for auditors
Auditor, Web Site Guru,
Internet for Auditors Pioneer
Recipient of the IIA’s 2007
Bradford Cadmus Memorial
Award.
Author of “The Auditor’s
Guide to Internet Resources”
2nd Edition
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James Tillen
Vice Chair of the Miller &
Chevalier’s International
Department
Practice focuses on FCPA and
money laundering matters
Experience includes FCPA
investigations, enforcement
actions, compliance programs,
training, M&A due diligence,
audits, and assessments
Vice-Chair of Anti-Corruption
Committee, International Bar
Association
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3. Marc Alain Bohn
Focuses primarily on FCPA and
anti-corruption
Advises U.S. and internal
companies on compliance and
enforcement matters
Works with companies to develop
tailored forward-looking
compliance programs and effective
systems of internal control
Publishes frequently on anticorruption matters and serves as
contributing editor to FCPA Blog
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4. Disclaimers
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6
Today’s Agenda
Introduction: The Growing Fraud Threat
Auditing for Fraud: Standards & Essentials
FCPA Basics
Enforcement Trends
Case Examples
Compliance, Prevention, Detection and Response
International Enforcement Landscape
Practical Steps to Prevent Violations and
Seek Guidance
Your Questions
Conclusion
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5. Fraud: The Big Picture
According to major accounting firms, professional fraud
examiners and law enforcement:
Fraud jumps significantly during tough economic times
Business losses due to fraud increased 20% in last 12 months,
from $1.4 million to $1.7 million per billion dollars of sales. (Kroll
2010/2011 Global Fraud Report)
Illicit financial flows, including corruption, bribery, theft and
tax evasion, cost developing countries US $1.26 trillion per
year, which is equivalent to the economies of Switzerland,
South Africa and Belgium combined. (TI)
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The Auditor’s Role
1200: Proficiency and Due
Professional Care
1220: Due Professional Care
2060: Reporting to Senior
Management and the Board
2120: Risk Management
2210: Engagement
Objectives
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6. The US Foreign Corrupt
Practices Act
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Two Primary FCPA Elements
Anti-Bribery Provisions
Accounting Provisions
Books and Records
Requirements
Internal Controls
Requirements
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7. FCPA Anti-Bribery Provisions:
Elements of a Violation
No issuer, domestic concern, person with a U.S. nexus
May corruptly
Take any action in furtherance of payment or a promise,
offer, or authorization of payment
Of a bribe or anything of value
Directly or indirectly (with “knowledge”)
To a foreign official
To obtain or retain business or improper advantage
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Why it’s a Hot Topic
Cases more frequent, penalties higher
More criminal prosecutions
More individual prosecutions
International cooperation / enforcement abroad
Industry-focused investigations
Continually evolving compliance requirements
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13
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8. Sustained Increase in FCPA
Enforcement
Total Resolved FCPA Enforcement Actions (DOJ and SEC)
1977 through 2012 © Miller & Chevalier Chartered. Please do not reprint or reuse without permission.
120
100
80
60
40
20
0
Note: The 2012-13 totals are estimated based off of the current pace of enforcement through 2012.
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Significant Penalties Under the
FCPA
Largest FCPA Settlements
(Combined Penalties/Disgorgement)
$900
$800
$700
Millions
$600
$500
$400
$300
$200
$100
$0
Amount
in Millions
$137 M
Alcatel‐
Lucent
(2010)
$149 M
Jeffrey
Tesler
(2011)
$185 M
Daimler
(2010)
$218.8 M
JGC (2011)
$338 M
Technip
(2010)
$365 M
Snamproget
ti / ENI
(2010)
$398 M
Total SA
(2013)
$400 M
BAE (FCPA‐
related)
(2010)
$579 M
Halliburton
/ KBR
(2009)
$137
$149
$185
$219
$338
$365
$398
$400
$579
$800 M
Siemens
(2008)
$800
© Miller & Chevalier Chartered. Please do not reprint or reuse without permission.
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9. Polling Question 1
Two primary elements of the FCPA are Bribery
provisions and Kickback provisions
A.
True
B.
False
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New FCPA Guidance
An unprecedented, substantial effort
120 pages, > 400 footnotes
General principles, case summaries, discussions of
issues, examples, hypotheticals, “practical tips”
First systematic discussion of compliance
A joint DOJ-SEC document
Clarifications and elaborations, confirmation of prior
policies, some reassurances
No surprises, no changes in law or practice
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10. Broad Coverage
U.S. companies, citizens, resident aliens –
anywhere
Foreign companies, listed on U.S. exchanges
Foreign companies and individuals with sufficient
nexus to U.S.
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Foreign Subsidiaries
Applicability to Foreign Subsidiaries
Anti-bribery provisions apply to foreign branches, but not directly
to foreign subs
Subs may nonetheless become subject to anti-bribery provisions
As agent or intermediary
As co-conspirator
By taking any action within U.S. territory (like any other foreign
company)
Subs of “issuers” are indirectly subject to accounting provisions
(parent liable if sub doesn’t meet FCPA standards)
Enforcement incentive to find jurisdictional hook
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11. Purpose
Items given with a corrupt
intent
Secretively, surreptitiously
To obtain some quid pro
quo
Contrary to local law
The “Wall Street Journal” Test
With intention to influence
improperly
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Anything of Value
Not just money:
Non-essential, lavish travel
expenses
Lavish gifts or entertainment
Up-front, lump sum per diem
Travel for family members
Complimentary services / favors
Scholarships and internships
Improper campaign contributions
Overpayment or discounts
“Psychic Benefit
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12. Promotional Expenses
FCPA allows legitimate promotional expenses, including nominal
gifts and reasonable meals, entertainment and travel, but only if
ALL these conditions are met:
The expense is directly related to a promotional activity or performance of
an existing contract
The expense is reasonable. This means that it is not lavish, extravagant, or
too frequent for the stated purpose or the spending level of the local
economy
The expense is not incurred in secret and gives no appearance of
impropriety
The expense is accurately and completely recorded in company records,
regardless of value
The expense is consistent with local law
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Gifts and Entertainment
Recent FCPA Guidance
Rejects claims that modest gifts – coffee, taxi fares –
would violate the FCPA
Violations don’t occur without corrupt intent
Incidental hospitality not inappropriate
A bit less expansive, however, than official guidance
on UK Bribery Act
No bright lines; “reasonableness” is key
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13. Foreign Official
FCPA defines “foreign official” very broadly, to
include:
Employee of any agency or instrumentality,
customs official
Judge or legislator
Officer or employee of government-controlled
company or joint venture
Private person acting officially
Official of public international organization
Tribal leader or Member of Royal Family
Political party, party official, or candidate for
public office
Relative or dependent of an official
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Foreign Official (cont’d)
This issue is about “instrumentalities”
Importance relates to gifts, hospitality (local rules)
New Guidance adopts courts’ “fact-specific,” 11-factor
test for instrumentalities
This test can be cumbersome, impractical
New Guidance does give primary weight to share
ownership
Some practical implications for compliance
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14. Liability for Bribery by Third Parties
Companies can be liable for bribery by a third party,
if they:
Authorized the payment
Paid the third party “while knowing” there is a “high probability”
that the payment will pass through to an official
Failed to investigate third party risks and ignored “red flags”
Hired a third party who was likely to pay
Important: Companies may be liable even if they did not
have actual knowledge of the payment
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Know Your Partners
Due Diligence
Business rationale
Qualifications
Ownership
Relationships with officials
Reasonableness of compensation
Safeguards
Contract terms
Certifications
Monitoring
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15. Polling Question 2
Choose from the following the items that are
ILLEGAL under FCPA
A. Up-front, lump sum per diem
B. Travel for family members
C. Complimentary services / favors
D. Scholarships and internships
E. All of the above
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Limited Exception
Facilitating Payments
Small amounts
To expedite or secure “routine governmental action”
Secure basic services (telephone, water, mail)
Schedule (but not pass!) inspections
Speed paperwork
Official action must be non-discretionary, i.e., official has no
legal basis to refuse to provide the service
ALL payments must be accurately recorded as such
But is it legal under local laws, or other international anticorruption laws?
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16. FCPA – Accounting Provisions
Require “Issuers” (public companies) to:
Maintain books, records, and accounts that, in reasonable detail,
accurately reflect transactions and assets
Maintain a system of internal accounting controls sufficient to
reasonably assure accountability for assets
Provide far-reaching basis for liability:
Strict civil liability over parents for subsidiaries’ inaccurate books
and records, even when anti-bribery elements not present
Obligations automatically flow down to majority-owned or
controlled subsidiaries
Good-faith obligation for non-controlled subsidiaries
SEC: Any illicit payment is “material” per se
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FCPA – Accounting Provisions (cont’d)
Common books and records issues:
Mischaracterized payments (e.g., “commissions”) (Biomet)
Recording an invoice that incorporates bribes (Triton)
Misrecording “facilitating payments” (BJ Services)
Common internal controls issues:
Payments contrary to company policies (Chiquita)
Payments without adequate due diligence (Parker Drilling)
Failure to document payments (Titan)
Failure to provide FCPA training (Ralph Lauren)
Series of payments just under DOA limit (Schering-Plough)
Maintenance of off-book accounts (Allianz)
Misuse of petty cash (Willbros)
Failure to conduct audits/detect violations (Oracle)
Absence of adequate controls (Total)
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17. FCPA Guide on the Accounting
Provisions
Notes that bribes are often concealed in records as legitimate
payments, and includes long list of past mischaracterizations
Confirms that “design of a company’s operational controls must take
into account the operational realities and risks attendant to the
company’s business”
Summarizes different types of schemes resulting in internal controls
“failures” in Siemens, Daimler cases
Emphasizes key role of “targeted audits to make certain controls on
paper are working in practice”
SEC officials speaking during rollout repeatedly emphasized
important role of internal audit functions in ensuring compliance
program and controls integrity and effectiveness
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Case Examples
Bribes in Connection with Regulatory Approvals
•
•
•
•
2012
Paid nearly $5 million in
bribes in dozens of countries
to, among other things, secure
regulatory approvals
Bribes disguised as legitimate
expenses (e.g. ‘consulting
fees”)
Secured more than $10 million
in illicit gains
$26,7 million penalty
2012
• Subsidiaries (including recently
acquired Wyeth) made millions in
illegal payments to government
officials in eight countries (e.g.,
China, Kazakhstan, Italy and
Russia) to obtain regulatory
approvals and sales.
• Bribes included entertainment,
travel, gifts, and cash kickbacks
• $60.2 million penalty
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33
18. Case Examples
Bribes in Connection with Taxes and Customs
2013
• Provided $593K in improper
payments and benefits to tax
and customs officials in
Argentina (e.g., money,
perfume, dresses, handbags).
• Payments made through
customs broker to obtain
paperwork, permit clearance of
items, and/or avoid inspection
• $1.6 million in penalties
2013
• Paid an agent over $1.25
million while knowing that a
portion would be used to
corruptly influence a panel in
Nigeria reviewing company’s
adherence to Nigerian customs
and tax laws.
• Agent secured over $3 million
reduction in panel assessment
• $15.85 million in penalties
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Polling Question 3
FCPA’s accounting provisions require companies to
maintain a system of internal accounting _________
sufficient to reasonably assure accountability for assets
(Choose the word the best fills in the blank)
A. Principles
B. Standards
C. Controls
D. None of the above
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19. FraudResourceNet
Knowledge Center for Enhanced
Fraud Detection, Prevention, and Audit
Compliance, Prevention,
Detection and Response
Compliance
This extra-statutory issue gets full discussion in
new Guidance
Guidance lists 10 “hallmarks” of an effective
compliance program
Investigations will assess compliance program
Continued emphasis on compliance “culture”
Due diligence and testing listed as best practices
Compliance as an affirmative defense: rejected
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20. “Hallmarks” of Effective
Compliance Program
DOJ and SEC have “no formulaic requirements” -employ “common-sense and pragmatic approach” to
evaluating compliance programs
Agencies make inquiries related to three basic questions:
Is the company’s compliance program well designed and
tailored to “specific needs, risks, and challenges”?
Is it being “implemented earnestly and enforced fairly”?
Does it detect violations and “remediate them promptly and
appropriately”?
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“Hallmarks” of Effective
Compliance Program (cont’d)
Key elements:
Commitment from senior management and strong ethical
culture of compliance
Clearly articulated policy against corruption
Code of Conduct and compliance policies and procedures
(including internal controls)
Senior-level oversight, adequate autonomy, and appropriate
resources for compliance and internal controls functions
Regular risk assessments that underlie compliance program
design and implementation
Training of applicable employees and mechanisms for
continuing and timely compliance advice
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21. “Hallmarks” of Effective
Compliance Program (cont’d)
Key elements (cont’d):
Positive incentives (financial and otherwise) and appropriate
disciplinary measures
Third-party due diligence and monitoring
Mechanism for confidential reporting of issues and violations
and “efficient, reliable and properly funded process” for
documenting and investigating such reports
Processes for pre-acquisition due diligence and postacquisition integration of new entities into compliance
program and internal controls
“Continuous improvement – periodic testing and review” of
program in light of changing business risks and identified
weaknesses
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Prevention
Early issue identification
Risk assessments
Convincing tone at the top
Business decisions that reflect compliance commitment
Believers: tone at the middle
Policies, user-friendly guidelines
Due diligence – pre-acquisition; third parties
Accountability of business managers for compliance failures
Practical training (including individual liability risks)
Expertise in red flags
Anticipation of certain discipline
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22. Detection
Frequent discussions of risks and
compliance
Feedback from in-person training
Knowledgeable financial audits
Compliance audits
Hotlines, whistleblower protections,
reporting channels
Due diligence, especially post-closing
(M&A)
Field visits
Surveys, questionnaires, certifications
Monitoring third parties, third-party audits
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Detection: Agencies’ Expectations for
Financial Audits
Review of books and records for detail and
accuracy (no materiality test)
Review system of internal accounting controls
Recorded assets are compared with existing
assets at reasonable intervals
Audit sites chosen based on objective, riskbased factors (including corruption)
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23. Polling Question 4
DOJ and SEC have “no formulaic requirements”
to evaluating compliance programs. Instead,
they employ a “common-sense and pragmatic
approach”
A. True
B. False
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Detection: Modus Operandi of
Corrupt Official
Direct cash payments
Gifts, travel, and entertainment
Payments through agents/consultants/reps
Payments through contractors
Payments by partners
Doing business w/companies owned by officials
Charitable contributions, social bonuses
Family members: hiring, tuition, indirect payments
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24. Detection: Spotting FCPA Issues in
Transactions
Compliance with Policies and Procedures
Failures to comply with Code of Conduct or other policies
Failures to abide by notification and approval procedures
Consolidated responsibility for authorizing, recording, controlling,
and reviewing of payments
Failure of an affiliate to obtain sign-offs or auditor opinions
General Ledger
Off-book accounts or multiple accounting records
Failure of general ledger account reconciliations
References to facilitating payments
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Detection: Spotting FCPA Issues in
Transactions (cont’d)
Accounts Payable – Vendors
Improper recording of A/P liabilities or purchases
Incorrect amounts recorded for A/P liabilities or purchases
Cash Disbursements
Inadequate controls over cash disbursements or manual checks
Consolidated responsibility for cash, checks or bank reconciliation
Cash payments from other than imprest petty cash
Suspicious petty cash activity (e.g., excessive use; lack of
documentation; unusually large payments)
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25. Detection: Spotting FCPA Issues in
Transactions (cont’d)
Travel and Expense Reports
Red flags related to employee expenses/reimbursements (e.g., inadequate
supporting documentation or recordkeeping; suspicious expenses; lack of
proper approval)
Excessive per diem for officials or expenses for family members
Third Party Contracts (consultants, sales agents)
Inadequate due diligence on third party
Written contract is missing or payments do not match terms
Unusually high commissions or compensation
Otherwise suspicious payments (e.g., off-shore payments; payments to 3rd
parties; invoices lacking support)
Requests for payment in cash
Noncompliance with required contract compliance terms
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Response
Assess potential issues promptly
Independent investigations of potentially serious issues
Preserving documents and evidence (e.g., document holds)
Establish privilege, as appropriate
Discussing issues and potential issues in audit reports
Informing audit committee or outside auditors
Strong, prompt remediation
Certain discipline when warranted
Negative feedback
Accountability affecting promotions and compensation
Rewards for compliance-strengthening actions
Voluntary disclosure?
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26. Polling Question 5
Detecting violations of FCPA requires use of
numerous techniques. Choose all of the
following that would qualify…
A. Frequent discussions of risks and compliance
B. Feedback from in-person training
C. Compliance audits
D. Field visits
E. All of the above
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FraudResourceNet
Knowledge Center for Enhanced
Fraud Detection, Prevention, and Audit
Practical Steps to Prevent
Violations and Seek
Guidance
27. The Proposal
SCENARIO:
PLAYERS:
Saskia
Acme Co. VP
Acme Co. is pursuing a large project in RoX, where it hopes to
establish a subsidiary. Mary arranges a lunch meeting at the Four
Seasons for Saskia with Daniel to discuss. Daniel is very happy
about the project's potential, but he sees some obstacles:
“Our procurement process takes forever,
and you know they just look at the bottom
line. We need to be creative to get you in."
Daniel
Minister of Finance,
Republic of X
Mary
Saskia’s former
colleague, now
advising the
Republic of X on
trade matters
After a long, complex discussion about local content and existing
contracts between the Ministry and Mary's local consulting firm,
Daniel proposes that Acme Co. partner with Mary's firm, which would
receive a share of revenues, but not interfere with Acme Co.’s work.
Mary's firm would help satisfy local content requirements and make
sure things go smoothly with government relations.
Maybe it's the jet
lag, but this plan
sounds sketchy.
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How Can I Help Prevent a Violation?
Remember FCPA’s broad definition of official:
Any employee of a government controlled company, including public
companies controlled by local or national government, is an official
Any employee of a government owned university, hospital, or research
institute is an official
Gifts, travel and entertainment, which must be:
directly related to a valid purpose (e.g., building relationships or contract
negotiation, but NOT in in exchange for a benefit)
reasonable under the circumstances (customary and modest in value)
accurately recorded
permitted under local law
Vet and monitor third parties
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28. How Can I Help Prevent a Violation?
If you hear rumors of improper payments or see other warning
signs (“red flags”), don’t ignore them:
Suggestion that gifts, travel, entertainment or something else of value
could secure an improper benefit for your company
An official offering inappropriate assistance
An official directing you to retain a particular company
An official directing payments to accounts not in government’s name
Entertainment that is extravagant (luxury bars or golf resorts) or
impropriate (adult or illegal), or travel that is unrelated to an
engagement (leisure or family travel)
Lack of accuracy or detail in expenses (e.g., misreporting purpose)
Using personal accounts or third party accounts (rather than co.
accounts)
Payment patterns or fin. arrangements that prevent expense tracking
or accounting, such as cash, gift or debit cards, fake receipts, etc.
Suspicion that a client is making improper payments
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How Can I Help Prevent a Violation?
If an official requests an improper payment, you should:
Refuse to make the payment; explain that your
company does not make such payments
If a business partner or third party is involved, explain
that they are not authorized to make the payment on
your company’s behalf, instruct them not to do so and
explain that the company cannot continue to work with
them if they make the payment
Be clear that refusals are absolute and do not come
with a “wink and a nod”
Immediately report the request to the legal or
compliance function at your company
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29. The Proposal: Revisited
SCENARIO:
Risks presented by partnering with Mary's local firm
Mary could use her share of revenues to pay bribes
Daniel may have an interest in Mary's firm
Mary may be related to Daniel, so payments to her
could be viewed as benefitting Daniel
Beyond anti-corruption compliance, your company may
face reputational risk if perceived to have dodged
procurement process
How should Saskia respond to Daniel's proposal?
Explain that these types of arrangements need to be
syndicated by a broad group of stakeholders, including
your company’s Legal department
Immediately contact your company’s Legal department
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Copyright
Coming Up….
”Fraud Risk Assessment: Key to Effective
Internal Controls” July 26,, 2013
"Quick Response Fraud Detection using
Data Analytics: Hitting the Ground Running
using Technology in a Suspected Fraud
Case”, July 31
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30. Questions?
Any Questions?
Don’t be Shy!
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Contact Information
Marc Alain Bohn
James G. Tillen
Miller & Chevalier
655 Fifteenth Street, N.W.
Suite 900
Washington, D.C. 20005
Miller & Chevalier
655 Fifteenth Street, N.W.
Suite 900
Washington, D.C. 20005
(202) 626-5559
mbohn@milchev.com
(202) 626-6068
jtillen@milchev.com
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