Transcript Document

Anti-Corruption (FCPA)
in the Banking Industry
2014 AML/Fraud Conference
November 7, 2014
Presented to:
Presented by:
PRESENTER
•Managing Partner, MDO Partners
•Boutique Global Compliance and Ethics Law Firm
•Former AVP and Assistant General Counsel, Royal Caribbean Cruises
•Responsible for Launching and Managing Global Compliance Program
•Former Senior Counsel, World Fuel Services
• Former Corporate & International Attorney, Holland & Knight
•AV Preeminent-Rated Attorney (Corporate, Contracts and International)
•University of Miami, JD, magna cum laude
•Florida International University, MBA
•University of Florida, BA, with honors
Presented by:
FCPA – History, Guidance, &
Enforcement
Presented by:
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HISTORY
1977
FCPA
Enacted in 1977 as a response
to the Watergate political
scandal
Only covers public bribery
(e.g. bribes to non-US
government officials
Only extends to active bribery
(e.g. offering, promising, or
giving bribes)
No Strict Liability, but “willful
blindness” or “deliberate
ignorance” may suffice
2010
1997
Dodd-Frank Act
Continued
Enforcements and Prosecutions
Whistleblower Bounty Provisions
Aggressive Cross-Border anticorruption enforcement.
OECD Convention
34 Signatory Countries
Industry –Wide Sweeps
Criminalizes bribery of foreign
public officials in international
business transactions
Enforcement has lead to more
than 200 convictions, with a
maximum fine of $1.6 billion.
2014
Sting Investigations
Transnational Agency
Collaboration
Increase in Government Resources (e.g.
SEC, DOJ, FBI)
4
Significant Anti-Corruption-related
legal developments including the
interpretation of the term
"instrumentality"
5 SEC FCPA Enforcement Actions
(Bio-Rad, Layne Christensen, Smith &
Wesson, Alcoa, and HP).
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GUIDANCE
Foreign Corrupt Practices Act (FCPA)
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Prohibits giving, offering or promising, either directly or indirectly, of anything of value to a government
official for the purpose of obtaining business or securing any other improper business advantage.
Requires accurate books and records that properly reflect transactions.
Exemption:
• “Facilitating or Expediting payments” part of routine governmental action.
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Affirmative Defenses:
• Local law defense,
• Reasonable and bona fide business expenditure defense
• No liability for payments made in response to extortion or threat of physical harm.
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Additional Provisions – Dodd-Frank Act:
• Whistleblower Program (2012)
• Monetary awards to individuals that present original information that leads to enforcement.
• Range from 10% - 30% of the monetary sanctions
Presented by:
GUIDANCE
Banks can be held directly liable for bribes by
officers and directors which are often
mischaracterized and recorded in accounts as:
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Commissions or royalties;
Consulting fees;
Sales and marketing expenses;
Travels and entertainment expenses;
rebates or discounts;
write-offs;
Intercompany accounts;
Supplier/vendor payments;
Miscellaneous expenses; and
• Petty cash withdrawals.
• Banks can be derivatively liable for
“third party” actions:
• brokers
• sales and marketing agents
• vendors
• suppliers
• consultants
• joint venture partners
• distributors
• resellers
• customs agents
• accountants, and
• law firms
Presented by:
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ENFORCEMENT
Department of Justice
(DOJ)
• Public and Private
Jurisdiction
• Only agency allowed to
file criminal charges
• The DOJ has 20 full-time
FCPA Prosecutors
“Anti-corruption prosecutions have been a critical component of the
mission of both the SEC and DOJ for decades.”
Securities & Exchange
Commission (SEC)
• Public Company
• Files actions in Federal
Court and
Administrative
Proceedings
• The SEC FCPA Unit has
36 Prosecutors
Office of the Comptroller
of the Currency (OCC)
• Ensures banks and agencies
of foreign banks have
necessary controls in place
and provide the requisite
notices to law enforcement
to deter and detect money
laundering, terrorist
financing and other criminal
acts
Federal Bureau of
Investigation (FBI)
• Team of special agents in the
Washington Field Office,
working all FCPA cases
• The FBI is creating an
International Contract
Corruption Task Force, based in
Washington, to help identify
violations of the law.
Presented by:
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ENFORCEMENT
“[t]oday’s announcement is a wake-up call to anyone in the financial
industry who thinks bribery is the way to get ahead . . .”
(DOJ)
• Early 2011: the SEC sent letters to 10 financial institutions, since, international banks
such as, Lloyds Bank, HSBC, and ING, have responded to inquiries relating to federal
money laundering.
• November 2010: the Chief of the SEC’s FCPA Enforcement Unit announced that the
Unit would be focused on conducting “industry-wide sweeps,” and stated that “no
industry is immune from investigations.”
Presented by:
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PENALTIES
Anti-Bribery
Provisions
US INDIVIDUALS AND
COMPANIES
Accounting Provisions
SUBJECT TO THE
PROVISIONS OF THE FCPA
It is unlawful to bribe foreign public
officials
Criminal Penalties
Individuals: up to $250,000 fine and
imprisonment for up to 5 years. Fines cannot
be paid by the employer or principle
Entities: up to $2 million under the
Alternative Fines Act, may be increased to
twice the gain or loss resulting from the
corrupt paymentCivil Penalties
Individuals: up to $16,000. Fines cannot be
paid by the employer or principle
Entities: up to $16,000.
Companies must keep accurate books and
records that properly reflect transactions
Criminal Penalties
Individuals: up to $5 million or twice the fain or loss
caused by the accounting violation and imprisonment up
to 20 years. Fines cannot be paid by the employer or
principle
Entities: up to $2 million under the Alternative Fines Act,
may be increased to twice the gain or loss resulting from
the corrupt payment
Civil Penalties
cannot exceed the greater of (a) the gross amount of the
pecuniary gain to the defendant as a result of the
violations or (b) a specified dollar limitation that is based
on the egregiousness of the violation for:
• Individuals: range between $7,500 to $150,000.
• Entities: range between $75,000 to $725,000
TOP 10 FCPA FINES
1. Siemens (Germany): $800 million in 2008.
2. KBR / Halliburton (USA): $579 million in 2009.
3. BAE (UK): $400 million in 2010.
4. Total S.A. (France) $398 million in 2013.
5. Alcoa (U.S.) $384 million in 2014.
6. Snamprogetti Netherlands B.V. / ENI S.p.A (Holland/Italy): $365 million in 2010.
7. Technip S.A. (France): $338 million in 2010.
8. JGC Corporation (Japan) $218.8 million in 2011.
9. Daimler AG (Germany): $185 million in 2010.
10. Weatherford International (Switzerland): $152.6 million in 2013.
Source: http://www.fcpablog.com/blog/2014/1/10/alcoa-lands-5th-on-our-top-ten-list.html#sthash.Er6qRfwe.dpuf
Presented by:
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INTERNATIONAL
LAWS
UNITED KINGDOM
COLOMBIA
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2010 - Bribery Act
• 2011 - Anti-Corruption Act
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Applies to bribes that: (i) occur in the
UK; (ii) occur anywhere in the world if
committed by a UK citizen, resident or
company; and (iii) occur anywhere in
the world if committed by a non-UK
company that conducts any part of its
business in the UK.
• Criminalizes extortion,
active/passive bribery,
foreign bribery, political
corruption, trading, money
laundering
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Prohibits public and commercial
bribery
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Prohibits active and passive bribery
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Penalties:
• Maximum of 10 years
imprisonment
• unlimited fines;
• Administrative, criminal,
fiscal sanctions
• Imprisonment: 9-15 Years;
Fines: $15k - $30k
• Whistleblower protection,
Prohibits Commercial Bribery
• Presidential Anti-Corruption
Program
• Online Anti-Corruption
Website
MEXICO
• 2012 - Federal Law
Against Corruption in
Public Procurement
• Domestic & Foreign
Officials
• Whistleblower Website
• Related to Government
Contracting
• Fines & Sanctions
• Individuals: $5k$250k
• Companies: $50k $10M
BRAZIL
•2013 – Clean Company Act (Law
No. 12,846/2013)
•Law extends liability to parent
companies, controlled entities,
and affiliates
•Extraterritorial reach for
Brazilian companies
•In October 2014, the OECD
Working Group on Bribery
completed its report on Brazil’s
implementation of the
Convention on Combating
Bribery of Foreign Public Officials
in International Business
Transactions,
• Debarred: 8-10 Years
Presented by:
Adopting an Effective
Anti-Corruption Compliance Program
Presented by:
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COMPLIANCE PROGRAM
FRAMEWORK
A one-size-fits-all compliance program or a mere “paper
program” is ineffective and insufficient.
Ethical
Culture
Monitoring
and
Auditing
Risk
Assessments
Anti-Corruption
Compliance
Program
Reporting
and
Investigations
Policies
and
Procedures
Training
and
Communication
Presented By:
WORLD MAP
CPI
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COMPLIANCE
PROGRAM
Element 1: Ethical Culture
Promote an organizational culture that encourages ethical conduct and compliance with the law.
• Tone at the Top – Board, committees and senior management must establish a culture in which
corruption is unacceptable.
• Appoint a senior manager (e.g. CCO) and devote adequate resources to develop and oversee the
corruption program.
Element 2: Risk Assessment
Thoroughly and regularly assess the nature and extent of the risks relating to bribery.
• Understand and stay informed about the bribery risks affecting the banking industry (e.g. Transparency
Int’l CPI, compliance publications, trade associations, office visits)
• Actions by Employees, Third Parties, Portfolio Companies
• Tap into existing resources (e.g. internal audit, ERM and investigation reports).
Presented By:
PORTFOLIO
COMPANIES
Parent companies could be held liable for FCPA violations committed by its
subsidiary, through traditional principles of agency relationships.
(DOJ and the SEC)
• The same theory may be used in circumstances
when financial institutions’ proprietary trading
or private equity arms expose themselves to
liability by the actions of portfolio companies,
which they exercise a sufficient degree of
control over.
• Control – bank owns more than 50% control of
the majority vote on the board of directors
Presented by:
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COMPLIANCE
PROGRAM
Element 3: Policies and Procedures
Establish and distribute standards and procedures to prevent and detect criminal and unethical conduct.
• Adopt and Refine the bank’s anti-bribery policy in its Code of Conduct.
• Due diligence policies and procedures must cover all parties to a business relationship.
• Banks must properly establish third party due diligence practices:
• Reviewing foreign public records;
• Speaking with sources familiar with the banking industry;
• Checking third-party’s references
• Site visit to third-party’s office
• Searching media sources regarding third-party; and
• Running background on third parties and their principals
• FCPA Contract Clause
Presented by:
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COMPLIANCE
PROGRAM
“Around 60%-70% of the SEC’s FCPA actions in 2013 involved
third-party intermediaries.”
(SEC)
• Procedures must be in place to identify red flags involving Third Parties, such as
• large and frequent political contributions or requests;
• unusual advance or methods of payments;
• donations to local charities;
• requests for improper or manipulated invoices;
• refusal to execute written contracts, or refusals to comply with regulations;
• terminations by other companies due to improper conduct;
• allegations of improper payments;
• requests for commissions greater than the range that is customary or typical within the industry
and region
• requests involvement of other third parties who bring no apparent value or whole role the agent
cannot adequately explain
Presented by:
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COMPLIANCE
PROGRAM
Element 4: Training and Communication
Continuously train and communicate on standards and procedures to ensure comprehension,
endorsement, and adherence.
• Develop and implement an action plan to ensure compliance with the FCPA.
• Conduct training to all employees on the Code of Ethics and general policies, and provide
specialized FCPA training for relevant employees.
Review,
communicate and train on policies and
procedures regularly.
Incorporate anti-corruption controls into operations.
Encourage
and reward employees for reporting.
Visit local offices to increase compliance awareness, understand
operations and assess controls
Require employee certifications.
Element 5: Reporting and Investigations
Maintain a mechanism whereby allegations of criminal and unethical conduct may be reported on a
confidential and anonymous basis without fear of retaliation.
• When a violation of law or policy is reported, it is important to promptly and thoroughly
investigate such reports.
• Investigations procedures should be adopted and followed during internal investigations
• Conduct prompt and thorough investigations
COMPLIANCE
PROGRAM
Element 6: Monitoring and Auditing
Establish monitoring and review mechanisms to ensure compliance and identify any issues.
• Develop a risk-based employee vendor and agent screening process.
• Establish, promote and monitor internal compliance hotline (e.g. website, posters, surveys, etc.)
• Maintain a mechanism whereby allegations of criminal and unethical conduct may be reported on a
confidential and anonymous basis without fear of retaliation.
• Collaborate with relevant departments (e.g. HR, Supply Chain, Internal Audit, etc.)
• Consider external verification or assurance of the compliance program(e.g. Open Compliance and Ethics Group
(OCEG), Ethisphere, public auditing firms, etc.)
• Although, many financial institutions already have internal controls anti-money laundering policies in
place these existing policies should be reviewed and reexamined, alongside the bank’s FCPA policies.
MORGAN STANLEY
Morgan Stanley’s Managing Director in
charge of Real Estate Group’s Shanghai office in
China:
• charged with evading internal controls by
transmitting a multimillion-dollar
ownership interest in a Shanghai building
to himself, a Canadian lawyer, and a
Chinese public official.
• faced five years in prison and maximum
fine of $250,000 or twice the gross gain
from the offense. He was sentenced to
principally nine months imprisonment.
The DOJ cited Morgan Stanley’s robust
Anti-Corruption Compliance Program, which
included:
• Training Policies and Procedures
• Dedicated Compliance Officers & AntiCorruption Specialists
• Anti-Corruption/FCPA Notices and Reminders
• Annual Certifications
• Payment Approval Process
• Transactional Due Diligence Efforts
Presented by:
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RESOURCES
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FCPA and Legislative History
DOJ & SEC Resource Guide to the FCPA (2012)
Very Limited Case Law
Settlements, Non-Prosecution Agreements, and
Deferred Prosecution Agreements
DOJ Advisory Opinions
US Federal Sentencing Guidelines
UK Bribery Act
OECD’s 2009 Anti-Bribery Recommendation and its
Annex II, Good Practice Guidance on Internal Controls,
Ethics, and Compliance
Asia-Pacific Economic Cooperation—Anti-Corruption
Code of Conduct for Business;335
International Chamber of Commerce—ICC Rules on
Combating Corruption;336
• Transparency International—Business
Principles for Countering Bribery
• United Nations Global Compact—The Ten
Principles
• World Bank—Integrity Compliance
Guidelines; and
• World Economic Forum—Partnering
Against Corruption–Principles for
Countering Briber
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