Transcript Agenda - USSABC

Global Anti-Corruption Laws:
Increasing Enforcement,
Enhancing Your
Protection
April 24, 2012
Eric A. Savage, Esq.
Shareholder in New York City of
Littler Mendelson, P.C., largest
management-side labor and
employment in the US.
Over 30 years of litigation and
employment law experience, and
core member of firm’s International
and Whistleblower/Compliance
Practice Groups.
Member American and International
Bar Associations, Vice Chair of Middle
East Law Committee, ABA
International Section.
[email protected] – 212.583.2695
Agenda
 The
Numbers
the Hot?
Story
 Why
is thisTell
Topic
 FCPA’s Anti-Bribery Basics
 Greater Enforcement by the DOL
 UK Bribery Act Basics
 Dodd-Frank & Its New
 Key Risk Areas
Regulations
 Compliance
Implications
Practical
Compliance
Solutions&
Best Practices
Training Solutions that Tangibly
Reduce
Questions
From
the a ROI.
Risk and
Deliver
Audience
GLOBAL ANTI-CORRUPTION LAWS: INCREASING ENFORCEMENT, ENHANCING YOUR PROTECTION
Why Is This Topic Hot?
The DOJ and SEC Are Actively
Enforcing the FCPA
 In 2011, the U.S. government recovered penalties
of over $500 million under the FCPA.
 23 DOJ enforcement actions and 25 SEC
enforcement actions brought in 2011.
 Including 12 FCPA-related indictments
and eight SEC complaints against individuals.
 Longest FCPA sentence in history was imposed
against an executive in 2011: 15 years in prison,
and forfeiture of over $3 million.
Top 10 Corporate Recoveries
$400m in 2010
$365m in 2010
$800m in 2008
$219m in 2011
$185m in 2010
$338m in 2010
$95m in 2011
$137M in 2010
$82m in 2010
$579m in 2009
Stepped up Anti-corruption Efforts by
UK Serious Fraud Office (SFO)
 SFO is the lead agency tasked with enforcing the UKBA
 Enforcement Priorities:
– Targeting non-UK companies which disadvantage UK interests
through the payment of bribes overseas.
– Prosecuting senior Individuals
– Targeting Proceeds of Crime
UK Serious Fraud Office
Latest Civil Recovery Orders
• January 2012 – Mabey Engineering (Holdings) Limited agreed to pay £131,201
in recognition of share dividends derived from contracts won through unlawful
conduct of a subsidiary.
• First recovery by SFO of dividends paid to an “innocent” investor.
• July 2011 - Macmillan Publishers Limited paid £11.2 m in recognition of
sums it received which were generated through unlawful conduct related
to its Education Division in East and West Africa.
• April 2011 - DePuy International Ltd, part of J & J, paid £4.8 m
• Improper payments to Greek medical professionals.
• Global resolution: DoJ: $21.4 m fine. SEC: $24.258 m disgorgement.
• February 2011 - MW Kellogg, engineering contractor wholly owned by KBR,
paid £7 m
• Improper payments to Nigerian officials to secure over $6 bn contracts to
build LNG facilities on Bonny Island.
UK Bribery Act Enforcement
 No corporate prosecutions
 One prosecution of an individual:
– Mr. Patel, an administrative clerk at a Magistrates Court, was convicted of
one count under section 2 of the Bribery Act and one count of misconduct
in public office.
– In return for a payment of 500 GBP, Mr. Patel offered to make sure that a
traffic penalty would not make its way onto the court database.
– Sentenced to 3 years imprisonment for the Bribery Act count and 6 years
imprisonment for the misconduct in public office count.
 A humble and uncontroversial beginning for the Bribery Act, but …
 UK Serious Fraud Office says it has identified “suspicions of bribery”
occurring after the UK Bribery Act came into force on 1 July.
GLOBAL ANTI-CORRUPTION LAWS: INCREASING ENFORCEMENT, ENHANCING YOUR PROTECTION
FCPA’s Anti Bribery Basics
FCPA: Anti-Bribery Provisions
Who
Payment
Directly or
Indirectly,
While
Knowing
Recipient
Corrupt
Intent
Business
Purpose
Test
The FCPA’s anti-bribery provisions prohibit:
 Covered person . . .
 Offering, paying, or promising to pay anything of value . . .
 Directly or indirectly . . .
 To a government official . . .
 Corruptly . . .
 In order to obtain or retain business
FCPA: Whose Actions Are Covered?
 The FCPA covers conduct by all of the
following:
– A company based in the U.S. or publicly traded on the U.S.
exchange
– Its officers, directors and employees
– Third parties acting on the Company’s behalf (for ex.,
outside consultants, investigators, and advisors)
– U.S. citizens and residents
– Foreign nationals or businesses who take any action in
furtherance of a corrupt payment while in the U.S.
FCPA’s Corrupt Intent Requirement
 FCPA puts focus on intent:
– Intent to get a “quid pro quo”
(this for that)
– Intent to secure an improper
advantage
– Intent to induce official to misuse
his/her position
 Intent can be inferred from
the circumstances.
Prohibited Payments Under the FCPA
 FCPA prohibits offering, paying, promising to pay, or
authorizing giving money or “anything of value.”
 “Anything of value” includes:
– Cash
– Goods (a laptop, a cell phone, a bottle of wine)
– Services (transportation, lodging)
– Non-cash benefits (contribution to favored charity)
 Includes an “offer” or “promise”
of a payment, even if the payment
is never actually made.
FCPA Bars Prohibited Payments Made to…
 A “foreign” (non-U.S.) official, including:
– Regulators and other government / public employees (for
example, prosecutors, police, customs officials, judges)
– A private person acting temporarily in an official capacity
– Employees of government-owned or -controlled
companies
– Political parties, party officials,
and candidates for political office
– Employees of public international
organizations (e.g., UN, OECD)
FCPA Prohibits Direct or Indirect Payments
 Key risk: Dealing with third parties (consultants,
outside counsel in challenging markets, etc.)
 “While knowing that the payment or promise to
pay will be passed on to a foreign official”
– Knowledge could be imputed to
company if a third party made an
improper payment and company
had avoided making reasonable
inquiries
– “Aware of a high probability” (SEC)
FCPA’s Business Purpose Test
Payment made for purpose of…
 “Obtaining or retaining business”
– Could include a payment
intended to help “improv[e]
the business opportunities of
the payor”
FCPA Exceptions
 Facilitation payments for routine government
actions.
 Payments permitted by law of the foreign official’s
country.
 Payment of foreign official’s
“reasonable and bona fide
expenditures” (not made to
obtain or retain business.)
FCPA Potential Anti-Bribery Penalties
 Against an Organization:
– Up to $2M in criminal fines
– Up to $10,000 in civil fines
– Disgorgement of improper
profits
FCPA Potential Anti-Bribery Penalties (con’t)
 Against an Individual:
– Up to $10,000 in civil fines
– Up to $250,000 in criminal fines
– Up to 5 years imprisonment
• The U.S. government often pursues penalties
against companies and involved individuals
• The U.S. government considers who was involved in the conduct,
its pervasiveness and the credibility of the company’s remedial
efforts in deciding how to resolve FCPA cases
• The U.S. government often requires extensive follow-up reporting
by companies as a condition of settlement
Case Study: Donations
A foreign official with whom your organization is
working asks your organization to make a sizeable
donation to a charity in his home country; to make
things “easier” for your organization, he says to pay
him and he’ll handle forwarding the money to the
charity.
Case study (con’t)
Factors to consider when making donations:
 Ensure no disguised personal benefits for officials
 Any donation to a government entity should be
made directly to the entity and not to any
government official personally
 Donation must be transparent within the
government entity
– Memoranda of understanding or other
written agreements are a good idea
 Be alert to signs of possible diversion
GLOBAL ANTI-CORRUPTION LAWS: INCREASING ENFORCEMENT, ENHANCING YOUR PROTECTION
UK Bribery Act Basics
UK Bribery Act’s Broad Reach
 Effective July 1, 2011
 Broad jurisdictional reach:
– UK citizens and individuals based in the UK
– UK commercial entities
– Non-UK commercial entities that “carry on a business or
part of a business in the UK”
– Non-UK commercial entities and individuals when an act
or omission forming part of the bribery takes place in the
UK
UK Bribery Act’s Key Provisions
 The UK Bribery Act prohibits three primary forms of
bribery:
1) Bribing another person (public and private sector)
2) Being bribed (public and private sector), and
3) Bribing Foreign Public Officials.
 The Act also makes Failing
to Prevent Bribery a separate
corporate offense.
Failure to Prevent Bribery
 A company that carries on a business or part of a business in
the UK commits an offence if an “associated person” pays a
bribe intending to secure business or a business advantage
for the company
– irrespective of whether the bribe was paid in UK or
elsewhere (s 12(5))
– irrespective of the nationality of the perpetrator (s 7(3)(b))
– no need for perpetrator to have been convicted - just that
he would be guilty of s 1 or s 6 offence
– no need for board room knowledge or involvement
 It is a defense to prove that the company had “adequate
procedures” to prevent bribes being paid on its behalf
26
Adequate Procedures: Six Principles
1) Top level commitment to the prevention of bribery
Establishing a culture in which bribery is never acceptable is
the responsibility of boards of directors and/or owners
2) Proportionate procedures
Procedures should be proportionate to the bribery risks
that the entity faces as well as to the nature, scale and
complexity of its activities. Must be clear, practical,
accessible and effectively implemented and enforced.
3) Risk assessment
Regular and comprehensive risk analyses should be
performed that monitor any alterations in an entity’s
corruption risk profile over time. Should be “informed”,
“documented” and conducted “periodically.”
Adequate Procedures: Six Principles
4) Due Diligence
Mitigate identified bribery risks by carrying out
“proportionate and “risk based” due diligence on those
who are to act for or on the entity’s behalf.
5) Communication
Policies and procedures should be embedded throughout
the organization through, among other things, regular
training of employees and non-employees acting for or on
an entity’s behalf.
6) Monitoring and review
Regular monitoring and auditing of the anti-corruption
program to continually improve effectiveness.
Implementation of the Six Principles
Culture
Top Level
Commitment
Policies
& Procedures
Monitoring
& Review
Risk
Assessment
Communication
Action
Due Diligence
Knowledge
UK Bribery Act More Comprehensive
Than the FCPA?
 Not limited to bribes to
foreign officials – covers
business to business bribery
 Covers receipt of bribes
 No facilitating payments
exception
 Creates a corporate offence
of failure to prevent bribery
GLOBAL ANTI-CORRUPTION LAWS: INCREASING ENFORCEMENT, ENHANCING YOUR PROTECTION
Dodd-Frank & Its New
Regulations: Gasoline on the Fire?
Whistleblower Basics
 Under Dodd Frank, the SEC must pay cash awards to:
– “Whistleblowers” who
– “Voluntarily” provide
– “Original information” that
– “Leads to successful enforcement”
– Of the US securities laws
– Resulting in monetary sanctions of more than $1 million
 Awards must = 10% to 30% of recovery in SEC
enforcement action and “related actions” (e.g., DOJ
prosecution).
 Statute prohibits adverse employment action taken
“because of” whistleblowing activity.
No Internal Reporting Requirement
 SEC declined to require internal reporting
 Adopted three “incentives” instead:
– Mandatory consideration of whistleblower’s involvement
with an internal reporting program in determining the
amount of the award
– 120-day “look-back” period
– Potential credit to whistleblower for company’s self-report
 Open question whether incentives
will be effective.
Protections Against Retaliation
 Dodd Frank prohibits adverse action taken
“because of” whistleblowing activity
– Determination will be made on case-by-case basis
 Employee can file claim directly in federal court
– Rules also provide SEC with power to
enforce
 Statute of limitations: 6 -10 years
after violation
Protections Against Retaliation
 To be protected, whistleblower must:
– Possess a “reasonable belief…”
– Both subjectively genuine and objectively reasonable
– That the information relates to a possible
securities law violation…
– That has occurred, is ongoing,
or is about to occur…
 Anti-retaliation protections apply
whether or not the whistleblower is
eligible for an award.
Dodd-Frank’s Connections to Bribery
Dodd-Frank is likely to increase
not only reporting of traditional
“securities” violations (such as
alleged fraud in SEC filings) ,but
also FCPA reporting.
GLOBAL ANTI-CORRUPTION LAWS: INCREASING ENFORCEMENT, ENHANCING YOUR PROTECTION
Compliance Implications &
Best Practices
Policies
 Your organization’s Code of Conduct should clearly
prohibit the use of bribery to obtain business or
business advantage.
 Must re-examine your Code and
related policies in light of the FCPA and UKBA’s
stricter standards!
CODE OF
CONDUCT
Procedures
 Detailed procedures, standards, and guidance that
makes sense given the nature and extent of your
organization’s operations.
 Key: Create clear reporting channels so that your
employees know how to seek guidance and report
potential issues internally to your organization.
– Having an effective compliance program is a factor the
government considers when deciding whether to charge a
company in the first place!
Anti-Bribery & Corruption Training Survey
 According to a 2011 KPMG Anti-Bribery &
Corruption Survey, majority of respondents
were making anti-bribery and corruption
training mandatory for all employees:
– 2010 UK: 65%
– 2010 US: 49%
– 2008 US: 25%
Training Can Limit FCPA Liability
Under Federal Sentencing
Guidelines, sentences and fines
for FCPA violations can be
reduced by as much as 95% if
organization has an effective
compliance and ethics program,
including training.
(For more details, see: http://elt-inc.com/oursolutions/ethics/understanding-the-laws-thatmandate-ethics-code-of-conduct-training.)
Training Can Help Provide Complete
Defense to UKBA Claim
 Organizations that have in place “adequate
procedures” to prevent bribery enjoy a complete
affirmative defense. (UKBA sec. 7(1) and (2))
 “Adequate procedures” not defined, but UKBA
Guidelines specify communication (including
training) as one of the key principles to establish
this defense.
Training Best Practices
 Design training to provide the appropriate
education to employees based on job
responsibilities, geographic location, and line of
business.
– Include not just employees “wheeling and dealing” around
the globe, but all employees engaged in global business
(those who could either engage in or observe corruption.)
 Communicate organization’s anti-corruption
commitment, and provide clear guidance on where
to go to ask questions or report issues.
– Ensure third parties are trained!
Be Committed to Detecting,
Investigating, & Remedying
 Implement systems to deter and/or detect
corruption.
 Most importantly, make sure your organization has
procedures in place to address questions AND
investigate issues detected or reported.
– Key area where HR’s
investigations expertise
can be utilized!
A Special Note About Dodd-Frank
Before a Whistleblower Report is Made:
1) Maintain effective compliance program, and train on it
2) Coordinate across departments
3) Document personnel decisions
After a Whistleblower Report Comes In:
4) Conduct targeted investigation and
consider whether to self-report
5) Consider the whistleblower
6) Consider other disclosures
7) Consider remedial measures
Questions & Answers
THANK YOU
Eric A. Savage, Esq.
[email protected]
212.583.2695, www.littler.com