Transcript law.uii.ac.id

U.S. Anti-Corruption Compliance
Danforth Newcomb
[email protected]
1
U.S. Anti-Corruption Topics
•
•
•
•
Elements of a Violation
Enforcement Trends
Evaluating Compliance
Discussion
2
Global Anti-Corruption History
3
U.S. Anti-Corruption Topics
Elements of a Violation
4
U.S. Jurisdiction
– Extraterritorial for U.S. companies and nationals
• Includes U.S. subsidiaries of non-U.S. companies
• Includes U.S. nationals working overseas for non-U.S.
companies
– Territorial jurisdiction for non-U.S. companies and
non-U.S. nationals
• Includes non-U.S. companies and individuals who do any act
within the United States
• Includes non-U.S. subsidiaries of U.S. companies
• Includes non-U.S. nationals working in the U.S. for either
U.S. or non-U.S. companies
5
Who is Covered?
U.S. Citizens
Organizations under U.S. Law
U.S. Residents
SEC Registered
U.S. Nationals Anywhere
Employees of Above
Any Person in the U.S.
Agents & Stockholders Acting
for Above
6
U.S. Territorial Jurisdiction
Traditional
Physical presence in
the U.S.
Expansive
Transmitting or transiting
into or through the U.S. (fax,
email, travel, bank transfers,
etc.)
Aggressive
Foreign U.S.$
denominated transactions
(via correspondent
accounts)
U.S.-based email
servers
7
FCPA Penalties
Criminal
DOJ & FBI
Civil
SEC
Corporations
Individuals
Fines - $2 mil./ Twice Gain
No Gov. Contacts
Monitor
Prison
Fines - same
Probation
Fines $25 mil
Disgourgement
Injunctions
Monitor
Fines $5 mil
Injunctions
Employment Bar
8
U.S. Books & Records Provisions
Applies to “Issuers”
– U.S. public companies
– Non-U.S. companies whose securities are traded over U.S. exchanges or who are
otherwise registered with the U.S. Securities & Exchange Commission
Two Requirements:
– Maintain books and records which, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets
– Devise & maintain internal controls that reasonably assure
• the books and records are accurate and
• transactions are pursuant to specific or general management direction
9
U.S. Anti-Bribery Provisions
– Corrupt act in furtherance
– Of payment, offer, promise, or authorization of
“anything of value” to
– “Foreign official”, political party, party official,
candidate, or “any person”
– To induce action (quid pro quo) or obtain
improper advantage
– To obtain or retain business
10
Affirmative Defenses
Reasonable and bona fide expenditures
– Promotion, demonstration, or explanation of
products or services
– Execution or performance of a contract with a
government
Lawful payments to government officials
– Lawful under the written law of the official’s
country
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Anything of Value
Money
Monetary
equivalents
Stock
Assumption of Debt
Services
Employment
Travel
Entertainment
Gifts
Family Benefits
Political
Contributions
Charitable
Contributions
12
Foreign Official
Employees
Of
Any
Government
Agency
Department
Gov.- Owned Company
Political Party
Public International
Organization
Official Capacity
13
Any Person
Agents
Consultants
Partners
Family Members
Customers
Suppliers
Subsidiaries
Subcontractors
Advisors (Lawyers,
Accountants, etc.)
14
Knowing
Willful Blindness
Circumstantial Evidence
15
Recent U.S. Case Analysis
Top Criminal and Civil Penalties
Matter
Most of the
top FCPA
penalties
have involved
the use of
agents
Description
Fine and Civil Penalties
Siemens
Payments through business consultant, payment
intermediary, and other third parties
$800 million (+ € 596 in
Germany)
Halliburton/
KBR
Payments through business consultant
$579 million
Magyar Telekom
Payment through business consultants and
intermediaries
$95.8 million
Baker Hughes
Payments through business consultant
$44 million
Willbros
Payments through business consultant
$32 million
Chevron
Payments through sales intermediary
$30 million
Titan
Payments through business consultant
$28 million
Vetco Grey II
Payments through customs broker
$26 million
Biomet, Inc.
Payments through distributor
$22.9 million
Lockheed II
Payment to official’s spouse
$22 million
Volvo
Payments through distributor
$19 million
CCI
Travel and entertainment and education expenses
paid directly to government officials, other direct
payments
$18.2 million
Lucent
Travel and entertainment expenses paid directly to
government officials
$2.5 million
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U.S. Anti-Corruption Topics
Enforcement Trends
17
Why More U.S. Enforcement Actions?
• OECD Convention
– Availability of evidence
– Cooperation & coordination amongst enforcement authorities
– Peer review pressure
• Additional U.S. enforcement resources
– FCPA unit at DOJ
– FCPA FBI squad
– FCPA unit at SEC HQ and field offices (32 attorneys)
• U.S. foreign policy
– Link corrupt regimes to terrorism and drug trafficking
• Whistleblower incentives
– Dodd-Frank
– False Claims Act
18
OECD Enforcement Actions
1999 – 2011
140
120
100
80
Criminal
Civil/Adm
60
40
20
0
Japan
Korea
Italy
Germany
All
Others
U.S.
19
U.S. Defendants by Country of Official
Africa
Asia
Europe
Middle East
North America
Nigeria
Rwanda
Senegal
Angola
69
6
6
5
China
Indonesia
South Korea
Thailand
43
27
16
16
Greece
Russia
Turkey
Croatia
10
9
7
5
Iraq
Egypt
Saudi Arabia
UAE
50
11
8
7
Cote D’Ivoire
Benin
Kenya
Liberia
Malawi
Mozambique
Uganda
4
3
3
1
1
1
1
India
Kazakhstan
Azerbaijan
Vietnam
Kyrgyzstan
Malaysia
Taiwan
Bangladesh
13
12
10
10
6
6
6
6
Italy
Germany
Hungary
Latvia
Poland
Romania
Serbia
UK
5
5
4
3
3
3
3
3
Bahrain
Iran
Israel
Oman
Libya
Yemen
2
2
4
2
1
1
Turkmenistan
Philippines
Uzbekistan
Mali
Mongolia
Japan
5
4
4
1
1
1
France
Luxemburg
Czech Republic
Belgium
Georgia
Montenegro
2
1
1
1
1
1
Netherlands
Spain
1
1
100
187
69
88
Mexico
Canada
19
6
25
South America
Costa Rica
Brazil
Haiti
Venezuela
11
13
13
12
Argentina
Ecuador
Honduras
Panama
Colombia
Bolivia
Dom. Rep.
Jamaica
10
9
9
6
4
3
3
3
Nicaragua
Guatemala
Peru
2
1
1
100
20
Trends in U. S. Sanctions
Company: Fines, Civil Penalties, Disgorgement
& Interest
803
579
508.80
td
111.48
20
12
y
28.2
155.1
20
10
0.0
87.20
20
08
2.7
36.3
20
06
– 15 Years Terra Telecom (2011)
– 156 months Jefferson (2007)
–
87 months Jumet (2009)
–
84 months Stanley (2008)
–
63 months Murphy (2002)
–
57 months Diaz (2009)
Amounts Pertaining to
Siemens 2008 and KBR 2009
20
04
Individual: Jail
1600
1400
1200
1000
800
600
400
200
0
20
02
– $137 million Alcatel (2010)
1782
Amount in Millions ($)
– $800 million Siemens (+ € 596 M
in Germany and $100 M to
World Bank) (2008)
– $579 million KBR/ Halliburton
(2009)
– $400 million BAE (2010) (+£30
M in UK)
– $365 million Snamprogetti
(2010)
– $338 million Technip (2010)
– $218 million JGC Corp (2011)
– $185 million Daimler (2010)
Total Criminal and Civil Fines Imposed
on Corporations: 2002 – 2012 YTD
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U.S. Prosecution of Individuals
Individuals Charged: 2002-2012 YTD
SEC
38
12
10
6
7
5
4
7
12
2
4
td
3
3
20
12
y
2
11
11
20
10
5
5
20
08
3
3
20
06
Aggressive Investigative Tactics
– International Cooperation
– Wiretaps, Search Warrants
– Extradition
– Interdiction
– Revoking Passports
DOJ
20
04
Aggressive Legal Theories
– Control Person Liability
45
40
35
30
25
20
15
10
5
0
20
02
Clear Shift in DOJ & SEC Policy
“To really achieve the kind of deterrent effect we’re shooting for, you have
to prosecute individuals. . . . If the only sanctions out there are monetary,
penalties against companies could be interpreted as the cost of doing
business. But when people’s liberty is at stake, it resonates in new ways.”
Mark Mendelsohn, DOJ
“Prosecution of Individuals is a cornerstone of our enforcement strategy.”
Lanny Breuer, DOJ
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U.S. Prosecution of Corporations
Mergers & Acquisitions
–
Due Diligence Discoveries
3
4
9
3
7
15
17
10
4
3
2012 ytd
5
3
2011
19
2010
Antitrust
EPA
National Security
Medicare / Medicaid / Insurance Fraud
18
9
2
2009
–
–
–
–
19
21
2008
Collateral Investigations
12
2007
Customs Agents / Freight Forwarders (Oil & Gas)
Pharmaceutical / Medical Device Industry
9
2006
–
–
foreign
2005
Industry Sector Initiatives
U.S.
2004
–
40
35
30
25
20
15
10
5
0
Sarbanes-Oxley
Auditors
Principles of Federal Prosecution of Business
Organizations
U.S. Sentencing Guidelines
2003
–
–
–
2002
Voluntary Disclosures
Total Corporate Matters Initiated: 2002-2012 YTD
“The prosecution of corporate crime is a high priority for
the Department of Justice. . . . Indicting corporations
for wrongdoing enables the government to be a force
for positive change of corporate culture, and a force to
prevent, discover, and punish serious crimes.”
Principles of Federal Prosecution of Business
Organizations

23
U.S. Corporate Enforcement Actions are
Negotiated
Criminal
Civil
Trials
Pleas
Settlements
Data Source; 1999 – 2011 OECD
DPA/NPA
U.S. Criminal Negotiations
Plea
DPA
NPA
Declination
Criminal
Charge
Conviction
Monitor
Fine
Cooperation
Required
Enhanced
Compliance
Press
Yes
Yes
5/7
71%
Yes
Yes
Yes
Yes
Yes
No
7/12
58%
Yes
Yes
Yes
Yes
No
No
4/11
36%
Yes
Yes
Yes
Maybe
No
No
No
No
No
No
No
Data 2004 -2009
U.S. Criminal Disposition by Bribe Amount
Data 2004 - 2009
$3.2 mil - $805 mil
Plea
$.28 mil - $1.9 mil
DPA
$.02 mil - $.2 mil
Decl
Mean Bribe
Median Bribe
Plea
$142 mil
$4.1 mil
DPA
NPA
Declination*
$2.8 mil
$2.8 mil
$.16 mil
$1.2 mil
$ .28 mil
$.08 mill
NPA
26
U.S. Anti-Corruption Trends
Evaluating Compliance
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U.S. Incentives for Corporate Compliance
Prevent & Detect Corruption and Related Reputation Risks and Investigations
•
•
Criminal
– DOJ Decision Whether to Prosecute
• Voluntary Disclosure
• Cooperation in Investigation
• Effective Compliance
Program
– Penalty Mitigation
•
•
•
•
Voluntary Disclosure
Cooperation in Investigation
Acceptance of Responsibility
Remediation
Civil
– SEC Decision Whether to Charge &
Penalty Mitigation
• Voluntary Disclosure
• Cooperation in Investigation
• Effective Compliance
Program
• Remediation
– Avoid Shareholder Claims
– Avoid Debarment Proceedings
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Evaluating Compliance Programs
Seven elements of an effective anti-corruption compliance program:
1)
2)
3)
4)
5)
6)
7)
Establish compliance and ethics standards and procedures to be followed by
employees and other agents
Board of directors must exercise reasonable oversight and assignment of overall
responsibility
Due diligence in delegation of substantial authority
Implement training programs and information dissemination
Implement monitoring and auditing systems, including use of a reporting system
Implement and consistently enforce appropriate disciplinary mechanisms
Respond appropriately to misconduct and take all reasonable steps to prevent similar
offenses
29
Evaluating Policy & Procedures
High level statement of principle only
•e.g. “We only do business through third
parties who we know and can trust to follow
our anti-corruption policy”
Code of
Conduct
Policy
Policy
FAQs and Summaries
Implementing Protocols
Policy
Establishes risk categories, procedures, and
approval levels and identifies red flags
Concise, easy-to-read guidance without jargon
•Translated into multiple languages
More technical and comprehensive
•Reference for sponsors and others directly
involved in process
•May vary by region
30
Evaluating Responsibilities
Sales
&
Marketing
•
•
•
•
Identify need for partner
Conduct due diligence
Make initial decision as to
whether to use partner
Provide periodic certification of
continued compliance
Finance
&
Controls
•
•
•
Secondary approval for higher
risk partners
Review and analyze commissions
and other partner payments
Maintain “authorized agent” and
“do not use” lists
Legal
&
Compliance
•
•
•
•
•
•
Develop third party policy
Oversee training program
Ensure proper enforcement
Provide legal advice
Supplemental approval for higher
risk partners
Periodic compliance audits
• Everyone Checks for Red Flags
31
Evaluating Third Party Diligence
– Recognize and Assess Risk Involving All Third Parties – whenever money or value
leaves the company
• Agents, Consultants, and Sales Representatives
• Wholesalers and Distributors
• Vendors, Suppliers, and Service Providers
• Partners and Joint Venture Parties
– Positive and Negative Due Diligence
– Document and Retain Findings
– Independent Review and Approval
– Periodically Update Due Diligence for Long-term Relationships
32
Project Red Flags
Government
Sales
Low government
involvement
Low-risk country
High-risk country
Transparent
bidding process
Customer desires
certain third party
Long relationship
between UVV
and project
Project
Proposal matches
vendor capability
Customer suggests
charitable or political
contribution
Large and
infrequent sales
33
Operations Red Flags
Becomes subject to
investigation
Requests backdating
or fraudulent
documentation
Performance
consistent with
proposals
Anti-corruption
program
Accurate
documentation
Suspicious
documentation
Operations
Well-trained
employees
Connection with
government or customer
emerges
Refuses to certify
compliance
Suspicious expenses or
travel
34
Payments Red Flags
Third
countries or
parties
Shell
companies
Commercially
reasonable
terms
Regular
channels
Matches
commercial
capability
Established
banks
Payments
Post office
boxes
Unexpected
bonuses or
loans
Third-country
banks
Larger payments
during bid
process
Payment in
country
Reasonable
compensation
Invoices paid
too quickly
Requests
negotiable
currency
35
U.S. Anti-Corruption Compliance
•
•
•
•
•
•
Long History
Broad Application
Active Enforcement
Substantial Penalties
Incentives for Compliance
A Public – Private Partnership
36
Discussion
37