FCPA Enforcement Tends and Their Impact on Corporate Compliance Programs
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This presentation was delivered at the ISO 37001 & Anti-Bribery PECB Insights Conference by William Marquardt, Director at Berkeley Research Group LLC in Florida
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FCPA Enforcement Tends and Their Impact on Corporate Compliance Programs
- 1. FCPA Enforcement Tends and Their Impact on Corporate Compliance Programs November 2017 William Marquardt Berkeley Research Group, LLC
- 2. 2 Table of Contents FCPA Enforcement Tends & Corporate Compliance Programs Topic Page U.S. Foreign Corrupt Practices Act Overview 3 FCPA – Enforcement Trends 2016 & Mid- year 2017 8 International Harmonization of ABAC Regulations 16 Hot Topics – Corporate Compliance Programs 20 Corporate Compliance Programs Continuous Improvement Opportunities 23 Questions 31
- 3. U.S. Foreign Corrupt Practices Act 1977
- 4. 4 U.S. Foreign Corrupt Practices Act (FCPA) Overview – Statutory Framework The FCPA has two provisions 1. The anti-bribery provision which makes it unlawful to make a corrupt payment to a foreign official for the purpose of obtaining or retaining business; and 2. The books/records and internal controls provisions, which requires companies with securities listed on the stock exchanges in the U.S. to make and keep records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls.
- 5. 5 FCPA Compliance Policies & Procedures An organization’s policies, procedures, and controls should address the classic areas of anti-bribery and anti-corruption (ABAC) risks taking into consideration the companies business profile and operating jurisdiction(s)/state(s) (e.g. operating context). 1. General Risks/Compliance Exposure Areas: a. Third-party due diligence, compliance requirements and complian7ce monitoring b. Gifts, meals and entertainment (employee costs) c. Customer sponsored travel d. Political and charitable contributions e. Facilitation payments f. Solicitation or proffering of payments g. Mergers and acquisitions (legacy operating issues)
- 6. 6 FCPA Compliance - continued 2. Company Profile Risks a. Non-U.S. sales/bidding activities b. Interactions with foreign regulators and state owned or controlled entities c. Engaging non-us sponsors – market entry requirement and/or local business partners (e.g. MOUs, Operating Agreements & JV entities) d. Political and socioeconomic concerns
- 7. 7 FCPA Compliance - continued 3. Compliance Program Elements a. Risk Assessment b. Monitoring and Improvement c. Training & Certification d. Resources & Guidance e. Employee Hot/Help Lines and Ethics & Compliance Investigations f. Employee Incentives & Discipline
- 8. FCPA – Enforcement Trends Full Year 2016 & Mid-year 2017
- 9. 9 ABAC Enforcement Trends General Enforcement Trends – 2016 & 2017 Increased Resources – U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) More prosecutors and FBI agents Geographic focus in China and Latin America and industry focus within the healthcare/life sciences Collateral Consequences are Increasing (Non-Sanction Costs) Participation of Other Jurisdictions – cross boarder collaboration Shareholder Lawsuits Investigative Costs – Internal & External (accounting & legal fees)
- 10. 10 ABAC Enforcement Trends General Enforcement Trends – 2016 & 2017 Collateral Consequences are Increasing (Non-Sanction Costs) - continued Remediation Costs – Monitors – DPA/NPA Internal Costs – Lost Productivity Market Devaluation of Stock Price US DOJ Pilot Program – Voluntary Disclosure Incentives Continued use of Corporate Monitors – 1 to 3 year periods
- 11. 11 ABAC Enforcement Trends Monetary Impact of FPCA Enforcement - 2016 Monetary Impacts are Increasing – 27 Enforcement Actions 2016 - $6 Billion in FCPA enforcement actions and sanctions settlements (highest ever – 1977 to date) 95% of the $6 Billion relates to six enforcement actions 1. Odebrecht/Braskem - $3.55 Billion (Brazilian Construction Conglomerate) 2. VimpelCom - $795 Million (Telecommunications) 3. Teva - $518.5 Million (Pharmaceuticals) 4. Och-Ziff - $414 Million (Hedge Fund/Asset Management) 5. Embraer - $287 Million (Brazilian Based Aircraft Manufacturer) 6. JP Morgan - $264 Million (Banking & Financial Services)
- 12. 12 ABAC Enforcement Trends Monetary Impact of FPCA Enforcement - 2016 $3.6 Billion of $6 Billion – shared with foreign governments Brazil - $2.8 Billion The Netherlands - $398 Million Switzerland – $355 Million Odebretch/Braskem
- 13. 13 ABAC Enforcement Trends Individual Impact - 2016 27 Individual Defendants DOJ – 19 SEC – 8 C-suite/High Ranking Executives are Being Pursued LAN Airlines – CEO Analogic’s Danish Sub – CFO Harris Corporation (Chinese Subsidiary) – Chairman & CEO Och-Ziff – CEO and Founder
- 14. 14 ABAC Enforcement Trends 2017 Mid-Year Update 18 FCPA enforcement actions initiated by DOJ (12) and the SEC (6) during the first half of 2017 (caveat – all were before Trump Administration was effectively in place – 15 of 18 actions were filed in January) Most Interesting – SQM (Sociedad Química y Minera de Chile) No quid pro quo identified and NO allegations of bribery Books and records liability without a bribe – improperly documented payments (no observed bribe payment) No third party due diligence Involvement of charitable contributions Paid a $30.5 million and accepted a two-year corporate compliance monitor.
- 15. 15 ABAC Enforcement Trends ABAC Enforcement Trends Pilot Program Declinations – two to date: Program has been extended February 2017: DOJ's Fraud Section released a new guidance document "Evaluation of Corporate Compliance Programs“ – comprehensive set of topics and sample questions related to corporate compliance programs but largely reinforces the same core standards by which corporate compliance programs have traditionally been evaluated. 11 "sample" topics for evaluating a compliance program Common questions the DOJ may ask during an evaluation (119 questions)
- 16. International Harmonization of ABAC Regulations
- 17. 17 International ABAC Regulations International Cooperation & Other ABAC Regulations (Voluntary & Mandatory) OCED Anti-bribery Convention UK Bribery Act – 2010 Brazil Clean Company Act – 2014 Peru – Administrative Liability of Legal Entities for the Commission of Active Transnational Bribery – July 2017 Mexico – General Law of Administrative Accountability – July 2017 Argentina – Considering a bill that penalize corrupt business practices
- 18. 18 International ABAC Regulations International Cooperation & Other ABAC Regulations (Voluntary & Mandatory) China – The multi-year effort underway to update the Anti- Unfair Competition Law, the country's primary civil statute that regulates commercial bribery is continuing in 2017. India – In January 2017, the Indian government launched "Operation Clean Money" to investigate large cash deposits made into banks in India after the demonetization announcement (e.g. termination of the 500 and 1000 rupee bank notes). It is reported that it has detected over 54 billion Indian Rupees (more than $830 million) in undisclosed income, which may well lead to corruption investigations in the year(s) to come.
- 19. 19 International ABAC Regulations International Cooperation & Other ABAC Regulations (Voluntary & Mandatory) France – Loi Sapin II anti-corruption legislation South Korea - President Geun-Hye Park was impeached in December 2016 amid allegations of influence peddling and corruption
- 20. Hot Topics – Corporate Compliance Programs
- 21. 21 Hot Topics – Corporate Compliance Programs Focus on Specific Compliance Program Elements Specific ABAC Compliance Program Issues Hiring Practices – Enhanced Due Diligence Travel & Entertainment Third-party Due Diligence & Monitoring Risk Management ABAC Program Monitoring & Improvement
- 22. 22 Hot Topics – Corporate Compliance Programs Enforcement Learnings – HOT Topics DOJ Pilot Program is Continuing Individual Mandate Continues (Yates memo) Jurisdiction – continued broad interpretation Successor Liability – acquisition (Mondelez-Cadbury) Whistleblower Activities – Monetary Rewards Foreign Officials – State Owned Entities (SOEs) and related entities
- 23. Corporate Compliance Programs Continuous Improvement Opportunities
- 24. 24 ABAC Programs – Continuous Improvement Compliance Program Essentials Necessary to Explain/Demonstrate a Functioning Compliance Program (Matrix) Mapping Regulatory Requirements Corporate Culture Compliance as an Integrated Function Culture of Compliance Independent Compliance Function w/ Appropriate Reporting Structure Incentives and Discipline Continuous Improvement & Adequate Monitoring
- 25. 25 ABAC Programs – Continuous Improvement Compliance Program Essentials Risk Assessments w/ Data Analytics Qualitative – leveraging existing institutional knowledge Quantitative – data analytics Resources & Experience Adequate resources Experienced Personnel Adequate Training & Systems Investments
- 26. 26 ABAC Programs – Continuous Improvement Compliance Program Essentials Use of Available Regulatory Guidance 1. FCPA Guidance 2. DOJ Evaluation Guidance 3. Case Studies & Industry Guidance Voluntary Standards – ISO 37001 Critical Compliance Program Areas Sales Activities 1. Employees – Incentive Programs 2. Travel, Gifts & Entertainment Third Party Intermediaries – 75% of all ABAC actions involved third parties & 96% of FCPA cases between 2005 and 2015.
- 27. 27 ABAC Programs – Continuous Improvement Compliance Program Essentials Third Parties – DOJ/SEC “Three Rules” 1. Qualifications 2. Business Rationale 3. Ongoing Monitoring Focus on the Money – Modes of Payment Fake Invoices Charitable Contributions Employee Expenses Measurement – Use of KPI’s and Data Analytics Activity v. Impact KPIs Data Analytics/Data Driven Remediation/Monitoring Activities Incorporate Market Specific Information
- 28. 28 ABAC Programs – Continuous Improvement Compliance Program Essentials PPB’s with flexibility to manage individual/jurisdiction specific issues with the appropriate guidance Focus on reasonable assurance and the results of the risk assessment and risk mitigation activities (e.g. policies, processes, and controls) Continuous Improvement
- 29. 29 ISO 37001 Value of Certification Hui Chen, Former DOJ Compliance Counsel, recently noted that the DOJ will not outsource its investigative responsibilities when an issue arises. No statistical evidence that a management system works Measurement, analytics and improvement are critical to a compliance programs operating effectiveness The ISO certification does not provide an affirmative defense to an ABAC investigation
- 30. 30 ISO 37001 Value of Certification Why Implement? Independent Review Process (audit/monitoring) Best Practices Opportunity (comparative analysis) Another tool that promotes a systemic review – holistic review of the ABAC Management System Third Parties – Independent evaluation opportunity that is significantly stronger than contractual language and/or a periodic review by the contracting organization.
Notas do Editor
- Commentary: 1a – Contractual Terms and Conditions including anti-bribery/anti-corruption language 1c – Tradeshows, conventions, conferences, etc… 1e – Jurisdictions vary in their treatment of facilitation payments (e.g. UK Bribery Act) – most organizations simply prohibit for global consistency and the “fear” of creating an opportunity or justification for other types of payments that may lead to bribery/corruption
- Commentary: Fines include interest charges Odebrecht/Braskem Angola Argentina Brazil Colombia Dominican Republic Ecuador Guatemala Mexico Mozambique Panama Peru Venezuela VimpelCom Limited and Unitel LLC Dutch Authorities
- Commentary: DOJ Question Topics Analysis and Remediation of Underlying Misconduct Senior and Middle Management Autonomy and Resources Policies and Procedures Risk Assessment Training and Communications Confidential Reporting & Investigation Incentives and Disciplinary Measures Continuous Improvement, Periodic Testing and Review Third Party Management Mergers and Acquisitions
- Commentary: OECD 43 Countries are participants 8 non-OECD countries A-B Argentina Australia Austria Belgium Brazil Bulgaria C-F Canada Chile Colombia Costa Rica Czech Republic Denmark Estonia Finland France G-K Germany Greece Hungary Iceland Ireland Israel Italy Japan Korea L-R Latvia Lithuania Luxembourg Mexico Netherlands New Zealand Norway Poland Portugal Russia S-Z Slovak Republic Slovenia South Africa Spain Sweden Switzerland Turkey United Kingdom United States
- Commentary: France: Implementing a compliance program is a legally binding for in-scope organizations. On 8 November 2016, the French Parliament passed a law targeting transparency, anti-corruption and the modernization of the economy, known as the Sapin II Law. This law entered into force on 11 December 2016. Consequently, implementation of compliance programs within companies will have to be effective by mid-2017. The provisions related to the implementation of compliance programs are applicable to any company (i) having at least 500 employees, or belonging to any group whose parent company's headquarters is located in France and which has at least 500 employees, and (ii) whose annual turnover is more than €100 million. Presidents and directors of such companies may be held liable for failure to implement compliance programs. Similarly, these provisions are also applicable to limited liability companies (i) having at least 500 employees or belonging to a group of companies having at least 500 employees and (ii) whose annual turnover is more €100 million. Members of the executive board of such companies may be held liable for failure to implement compliance programs. These provisions apply to French subsidiaries of any foreign company having at least 500 employees whose annual turnover is more €100 million. The Sapin II Law will compel companies to set up the following eight measures and procedures as part of their compliance programs: A code of conduct defining and illustrating the different types of prohibited behaviours, notably bribery or influence peddling. An internal system of alerts designed to enable employees to report any violations of the above code of conduct. Risk mapping, which will be regularly updated and is designed to identify, analyse and rank the company's exposure to any risk related to bribery. An assessment of clients, providers and intermediaries in light of the risk mapping. Accounting controls designed to ensure that the company's books and accounts are not used to conceal bribery acts or influence peddling. Training for managers and employees exposed to the risks of bribery and influence peddling. Disciplinary sanctions against employees in case of violation of the code of conduct. Internal control procedures to assess the efficiency of the compliance programme.
- Commentary: Case Example (Employee Theft) - $1MUSD improper employee due diligence Need to add multi-jurisdictional employee reviews (global economy & workforce)
- Commentary: Mondelez-Cadbury: According to the SEC, in early 2010 Cadbury's Indian subsidiary hired an agent to assist the company with obtaining licenses and approvals for a planned factory expansion. In total, the subsidiary paid the agent just over $90,000 for consultation services associated with the necessary licenses. There appears to have been no direct evidence of corruption, but based on allegations that the company failed to conduct due diligence on the agent, failed to monitor or require written documentation of his activities, and the agent's withdrawal of his payments from the bank in cash, the SEC asserted that there was a "risk that funds paid to [the agent] could be used for improper or unauthorized purposes." This purportedly caused the Indian subsidiary's books and records to be inaccurate and reflected a lack of internal controls by Cadbury. Further, because Mondelēz acquired Cadbury during 2010 while the agency relationship was ongoing, the SEC asserted that "Mondelēz is also responsible for Cadbury's violations.“ Whistleblower ABAC Awards: The SEC has awarded more than $85 million to 32 whistleblowers since the whistleblower program started in 2011 (through August 2016) None of the awards had previously been linked to an FCPA enforcement action. Whistleblowers can be eligible for awards when they voluntarily provide the SEC with "unique and useful information that leads to a successful enforcement action." Awards can range from 10 percent to 30 percent of recoveries when amounts collected are more than $1 million
- Commentary: Matrix – mapping exercise that includes mandatory and voluntary compliance obligations Example: Mining company undertook a 3 month review to create a comprehensive regulatory matrix. Surprised at the level of the related reporting efforts as well as the level of duplicative efforts in both documentation and control – “siloed” compliance activities. Offered a significant cost savings opportunity. Corporate Culture – Extremely hard to create and maintain, but very easy to destroy. Elements of “fair play” are critical – worst fear is employee “disengagement” (not my problem and/or risk of retaliation is deemed to be too high. “Culture eats strategy for breakfast” - Phrase originated by Peter Drucker and made famous by Mark Fields, President at Ford, is an absolute reality! Any company disconnecting the two are putting their success at risk. Continuous Improvement – focus on “paper programs” or check the box compliance efforts with little attention given to testing how the program is operating
- Commentary: A company using and understanding its own data is critical to preventing and detecting ABAC activities -- VMF/payment data -- Sales Data -- Employee Expenses -- MARKET DATA – variance analysis (sales volumes and types of transactions – black/grey markets)
- Commentary: Activity – training completion Impact – employee surveys, external reviews, regulatory inquiries
- Commentary: Value for money – may be a focus on 3rd Parties