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The FCPA & Why It May Matter to You
Texas District Export Councils
State Conference
May 13, 2010
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Arcie I. Jordan
Jackson Walker L.L.P.
100 Congress, Suite 1100
Austin, Texas 78701
512.236.2209
[email protected]
Why would the FCPA Matter to You?
• Do your goals include:
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Becoming an acquisition target?
Growing & merging with another business?
Going public?
Avoiding …
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High costs of due diligence & corrective action?
Business interruption (e.g., Debarment)?
Devaluation of your business?
Damage to your reputation?
• If so, and you’re engaged in international business
transactions, the FCPA should matter to you!
Debunking the Myths
• The FCPA doesn’t apply to me because …
– I’m just a small business conducting limited
foreign operations
– My company is not publicly traded
– I don’t use foreign intermediaries; I go through a
U.S. representative for all my foreign operations
– I only make payments abroad that everyone else
doing business in the same foreign places are
paying (so I can compete)
– I’m not on the government’s radar screen
I’m not on the government’s radar screen …
• Increase in FCPA prosecutions deriving from:
– Whistleblowers & disgruntled employees
– Competitor denunciations
– M&A due diligence (& development of successor
liability concepts – even in asset acquisitions, if
purchasing entity is merely a continuation of the
selling entity)
• Whether true or false, you will spend time
defending
• Defense much harder if haven’t paid attention to
FCPA requirements
My business is small & not publicly traded …
• Whether large or small, the FCPA applies to “Covered
Persons”:
– Domestic Concerns (U.S. businesses, corps, partnerships, sole
proprietorships) (even when acting for foreigner not subject to
the FCPA)
– U.S. Persons (citizens, nationals, residents)
– Persons located in the U.S. (visitors, nonimmigrant workers)
– Foreign subsidiaries wholly owned or controlled by U.S.
companies (control > 50% ownership)
– Issuers (all companies whose securities are listed in the U.S.)
– Foreign corps/businesses with a principal place of business
in the U.S.
– Other persons if they participate in a prohibited activity as an
officer, director, employee, representative (including a
stockholder acting on behalf of the company) or agent of any
such business concern (whether in the U.S. or not).
I will deal with FCPA issues, when I need to …
• Neglected Due Diligence & Correction is
Much More Costly
– Monetary Outlays
• Attorneys Fees
• Forensic Accountant Fees
• Consultants Fees
• Investment of Company Resources & Time
• Other Costs
– Restructuring foreign distribution network
– Impact to value of business in future transactions
– Loss of alternative business opportunities
What Should You Do Now?
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Understand the FCPA
Develop Meaningful Policy & Procedures
Conduct Effective Training
Perform Necessary Audits
Understanding the Federal Corrupt
Practices Act (FCPA)
• Enforced by the Securities & Exchange
Commission & the Department of Justice
• Anti-Bribery Provisions
• Exchange Act Provisions
• Civil & Criminal Penalties, Disgorgement
of Proceeds & Monitors
Understanding the FCPA
• Criminal & Civil Penalties can be
substantial:
– On Feb. 19, 2010, Jean Fourcand of Miami, FL
pled guilty to role in remitting bribes to Robert
Antoine, a Haitian telecommunications official, on
behalf of U.S. telecommunications companies.
– Fourcand faces up to 10 years in prison & a fine
of the greater of $250,000 or 2xs the value of
the funds he helped to transfer. Antoine agreed to
forfeit $1.6M he received & faces up to 20 years
in prison, plus a fine of the greater of $250,000
or 2xs the value of the funds he received.
Penalties can be substantial …
• Another example:
– On March 16, 2010, Nexus Technologies and 3 of
its employees pled guilty to conspiring to bribe
Vietnamese officials to obtain contracts to supply
the Vietnamese government with a variety of
equipment and admitted to paying bribes over a 9year period totaling more than $250,000 that they
recorded as “commissions.”
– Nexus must cease operations & faces a fine of
up to $27M.
– The employees face prison terms of up to 30-35
years.
Penalties can be substantial …
• Another example:
– On April 20, 2010, Charles Paul Edward Jumet
was sentenced to 7 years & 3 months in prison
after pleading guilty to violating the FCPA and
making a false statement to federal agents
regarding an $18,000 “dividend” check to a
Panamanian official. In addition, he must pay a
$15,000 and serve 3 years of supervised
release after his release from prison.
– His co-conspirator, John W. Warwick, forfeited
the $331,000 he derived from the scheme and is
scheduled to be sentenced on May 14th. He faces
up to 5 years in prison and a fine of up to
$660,000.
Cases Illustrate
• Substantial civil & criminal penalties
• Explosion in FCPA enforcement actions:
– In 2009, 40 cases initiated by Dept. of Justice (DOJ)
and the Securities & Exchange Commission (SEC).
– As of the end of April, 2010, 140 FCPA matters
pending investigation at DOJ.
– Increased prosecution of individuals:
• 2009: 17 prosecutions/4 of which went to trial
• 2008: 60% of prosecutions against individuals
Understanding the FCPA
• Anti-Bribery Prohibitions
– Giving or offering anything of value
• including a promise, authorization, payment, gift
– directly or indirectly
• through agents, attorneys, consultants,
contractors, distributors, brokers, suppliers, etc.
– to any foreign official
• Foreign official broadly defined to include an
officer, employee or other person acting in an
official capacity for:
– A foreign government (including any dept.,
agency or instrumentality thereof)
– State-owned enterprises & quasigovernmental entities (e.g., Dr. employed by
govt. hosp.)
– Public International Organizations (e.g., the
U.N., World Bank, etc.)
– Foreign political party
– Foreign political candidate
– With knowledge of or intent that some or all of
same
– Is for the purpose of influencing such foreign
official to act or refrain from acting
• Inducing foreign official to do or omit from any act in
violation of his or her lawful duty
• Inducing foreign official to influence or affect any act
or decision of government
– In order to assist the company in obtaining or
retaining or directing business to any covered
person or allowing such person to obtain an
improper advantage.
Knowledge Requirement
• U.S. vs. Kay (5th Cir. 2007) rejected
defendant’s contention that specific intent to
violate the FCPA is required. The App. Ct.
held that the FCPA does not require that the
actor have actual knowledge that the FCPA
prohibits his conduct, but only that his
conduct is generally unlawful.
– Government doesn’t have to prove that the
defendant knowingly and specifically sought to
violate the FCPA. (The U.S. Supreme Ct.
denied to hear the Kay petition, so the App.
Ct’s reasoning stands.)
Knowledge Requirement
• U.S. vs. Bourke & Kozeny (NY D. Ct.,
Southern Dist. Oct. 2009) found that the
FCPA’s knowledge requirement was satisfied
because Bourke took affirmative steps to
avoid learning of bribery payments.
– Confirmed knowledge may be proved if the
defendant “suspects the fact, realized its
high probability, but refrained from
obtaining the final confirmation because he
wanted to be able to deny knowledge.”
– Important lesson: Cannot self-blind.
Understanding the FCPA
• Exchange Act Provisions
– Accurate Books & Records Requirement
– Internal Accounting Controls Requirements
• Easier for government to establish
violation – ex:
– NATCO Group, Inc., provider of oil & gas equipment,
whose subsidiary’s employees paid “extorted fines” to
obtain work visas for workers. Govt alleged violation of
books & records requirements since booked
reimbursement to workers as “bonus payments” and
“visa fines.” NATCO settled though may have had a
defense to an anti-bribery charge.
Additional SEC guidance re: Knowledge
Requirement
– Case against United Industrial Corp. for alleged
violations of the FCPA’s anti-bribery, books & records,
and internal control provisions, the SEC alleged UIC’s
violations stemmed from its subsidiary’s payments to
a third-party agent’s payments to Egyptian Air Force
officials. Based on emails between the subsidiary’s
former president and the agent, SEC established the
former president “knew or consciously disregarded
the high probability the agent would offer, provide or
promise at least a portion of [his] payments to Egyptian
air officials” in order to influence the award of contracts
to the subsidiary. UIC settled on 05/29/2009.
– Important lessons: Direct knowledge unnecessary;
direct involvement unnecessary; the sub’s
involvement & first-hand knowledge sufficient.
Understanding the FCPA
• Allows
– Certain Facilitating or Expediting Payments
• Obtaining permits, licenses to qualify an entity to do
business in a foreign country
• Processing papers, such as visas
• Providing police protection, mail service, certain
inspections
• Providing utility services, loading or unloading cargo
 As long as they do not violate the foreign
country’s domestic laws.
 Ex: UK’s Bribery Act 2010 doesn’t contain
exception for facilitation payments.
Understanding the FCPA
• Allows
– Travel & Promotional Expenses
• Must be reasonable and bona fide expenses
• Travel and lodging expenses must be directly
related to promotion, demonstration,
explanation of products, technology.
 Provided payments are lawful under the
written laws and regulations of the
recipient’s country.
Developing the Policy & Procedures
• Understand your own risks
• Make the Policy meaningful
– Adapt it to your operations
– Address your risks
– Don’t just rely on cookie cutter templates
• Implement meaningful procedures
– Vet up front; obtain references; interview in person
– Establish controls at various levels
(manual/computerized)
– Require appropriate contractual commitments &
certifications
– Push requirements down to third party providers, if you
can
Meaningful Policy & Procedures
Required
• BAE Systems plc pled guilty on March 1, 2010 to
providing false statements about its
implementation of policies & procedures to
ensure it complied with the anti-bribery provisions
of the FCPA and the OECD Anti-Bribery
Convention. Government alleged BAE willfully
failed to adopt the kinds of measures necessary
to ensure compliance and profited thereby.
• BAE agreed to pay $400M criminal fine. It must
obtain & retain an independent monitor for 3
years.
Conducting Effective Training
• Initial Training
– Who?
– What?
– How?
• Recurrent Training
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Who?
What?
How?
How often?
Keep ’em Honest: Perform Audits
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What type?
Of what?
Of whom?
How often?
What should you do if a problem is
detected?
• Consult with an attorney
• Implement disciplinary measures
• Identify necessary corrective measures in
policy, procedures, training & auditing
protocols
• Implement corrective measures
• Consider voluntary disclosure
Final Thoughts
• Other countries have or are adopting antibribery legislation, ex:
– UK’s Bribery Act of 2010
– OECD Convention on Bribery of Foreign Public
Officials
• The U.S. and non-U.S. enforcement
agencies are increasingly coordinating &
pursuing companies outside of the U.S.
• Federal Sentencing Guidelines
– Establish some guidance regarding the adequacy
of compliance programs
Questions?
Jackson Walker possesses a team of FCPA professionals,
including litigators & counselors.
For additional information contact:
Arcie I. Jordan
Jackson Walker LLP
100 Congress, Suite 1100
Austin, Texas 78701
512.236.2209
[email protected]