The Code of Conduct: Yours vs. Mine

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1 Why I Can t Sign Your Compliance Agreement, Even Though I m Fully Compliant! Seth Bruckner Senior Regulatory Compliance and Ethics Attorney UPS Corporate Legal Department November 1, 2013 The Code of Conduct: Yours vs. Mine Supplier has obtained a copy of Customer s Code of Business Conduct and Ethics, and commits to strict compliance with the policies contained therein. Supplier shall share the Code with all of its subcontractors, and contractually bind them to its acceptance. Supplier agrees to immediately report violations, or suspected violations, of the Code to Customer s Office of Counsel for resolution. Problem Areas: Scope Applicability Future Changes Reporting Training Obligations 2 2 1

2 The Code of Conduct: Yours vs. Mine Solution: Certification of Equivalency! Policies and Principles are Substantially Similar in Material Respects Obligation to Train and Comply 3 3 Training: Yours vs. Mine Supplier shall designate an individual within its organization to receive training from Customer on Anti- Corruption Laws. Such designated individual shall then provide such training on Anti-Corruption Laws, using applicable training materials to be provided by Customer, on at least an annual basis to all persons employed by Supplier who interact with government officials in the normal course of their responsibilities. Co-employment Issues? Implementation Issues? 4 4 2

3 Anticorruption Statement: Does it Say What You Think it Does? What s Wrong With This: Supplier will not, offer, give, promise to give or authorize the giving to any person (including but not limited to private individuals, commercial organizations, Public Officials or any political party, official of a political party, or candidate for public office) or solicit, accept or agree to accept from any Person, either directly or indirectly, anything of value including, without limitation, gifts or entertainment, in order to obtain, influence, induce or reward any business. Does this capture Public Affairs work? Normal sales? Shouldn t it be based upon contravention of the FCPA? Nominal gifts (calendars, pens, etc.)? Where s the element of corrupt intent? 5 5 Ownership: Problem? No Public Official will have a direct or indirect interest in Supplier. Should this change, Supplier shall notify Customer immediately. Should this language focus on controlling or material interests? How should it address publically-traded companies? 6 6 3

4 Employees as Government Officials: Why is this a problem? Supplier represents and warrants that, neither it nor any of its officers, employees, agents or close family members thereof i.e., spouses, children, parents and siblings, is presently (or has been within the last year) a Government Official. Should this change, Supplier shall notify Customer immediately. 7 7 Fixing the Employee as Government Official Issue: Supplier employs a large and diverse workforce. Many of Supplier s employees engage in local, civic service, or serve in other capacities which could cause them to be described as Government or Public Officials, in the broadest sense of those terms. However, Supplier represents and certifies that it complies fully with Anti-Corruption Laws, and shall do so in providing services under this Contract. Further, Supplier strictly prohibits situations which would constitute material conflicts of interest for its officers, directors, employees and representatives, and shall provide notice to Customer as soon as reasonably practicable, should such a situation arise relating directly to Services provided to Customer under this Contract

5 Subcontractor Consent: Really??? Supplier shall not retain any subcontractors, agents or representatives to provide assistance in performing the services for which the Supplier is being retained without obtaining Customer s prior written consent. Perhaps the focus should be on materiality or Supplier s Due Diligence Process 9 9 Books and Records: Lots of Room for Contractual Mischief and Unintended Consequences Audit Rights Document Retention Cooperation

6 Books and Records, Continued: Supplier shall keep proper and accurate books and records during the term of the Agreement, and shall permit Customer or Customer s duly authorized representatives to inspect and take copies of such books and records at any time. Supplier shall maintain such records for a period of at least 5 years (or longer as necessary) from the date of a transaction made pursuant to this Agreement. Supplier shall fully cooperate in any audit conducted by or on behalf of Customer. Does this create antitrust problems? Creates access to highly competitive information. Privilege Issues? Books and records is very broad. Who is the third party? NDA? Record retention periods do they apply? What is the scope of the contract requirement? What does fully cooperate mean? Duration? Who bares the cost? Books and Records, Continued: An alternative approach: Supplier shall keep proper and accurate books and records in accordance with generally accepted accounting practices during the term of the Agreement, and shall maintain its records in accordance with its applicable record retention schedule, copies of which will be provided upon written request. Supplier also agrees to, upon written request, provide Customer with reasonable access to supporting documents and records associated with Customer s bills or invoices in a manner intended to demonstrate Supplier s compliance with Anti-Corruption Laws. In addition, Customer may request access to Supplier s training and due diligence materials for employees and third-party representatives

7 Breach Language: What are Your Options? Withholding Payments Claw-back Termination Breach: Withholding Payments If Customer at any time believes that a breach of any of the representations and warranties in this Section has occurred or may occur, Customer may withhold any commission, compensation, reimbursement, or other payment until such time as Customer has received confirmation to its satisfaction that no breach has occurred or will occur. Customer shall not be liable to the Supplier for any claim, losses, or damages whatsoever related to Customer s decision to withhold any commission, compensation, reimbursement, or other payment under this provision. Good faith? Time period to conduct investigation? Opportunity to cure? Reasonableness? Penalty for incorrect allegation?

8 Breach: The Dreaded Claw-back In the event Supplier breaches any of its representations, warranties and agreements set forth in these Compliance Provisions, it shall forfeit any claim to future payments under the Agreement, and it shall additionally refund any payments made under the Agreement. Who determines? No real way to agree to this. Draconian, and not necessary Breach: Termination If Supplier fails to comply with any of the provisions of this Section, such failure shall be deemed to be a material breach of the Agreement and, upon any such failure, Customer shall have the right to terminate the Agreement with immediate effect upon written notice to Supplier without penalty or liability of any nature whatsoever. Equitable and reasonable. We would accept

9 Closing Thoughts Elements of an Effective Compliance Agreement: 1. Strong Anti-corruption/compliance certification, based upon a strong Code of Conduct and commitment to training and compliance. 2. Reasonable Audit/Review Mechanism, providing access to key documents. 3. Clear termination provisions Questions? Thank you