WORLD TRADE ASSOCIATION. Foreign Corrupt Practices Act: Fundamentals of the. But That s Just the Way They Do Business Over There

Transcription

1 Metropolitan Milwaukee Association of Commerce s WORLD TRADE ASSOCIATION Fundamentals of the Foreign Corrupt Practices Act: But That s Just the Way They Do Business Over There (and other things the government doesn t want to hear) July 20, 2016 Eric Wilson & Wendy Arends Godfrey & Kahn, S.C. The following is a summary of legal and public policy principles. Individuals should consult with legal counsel before taking any action based on these materials to ensure their applicability to a given situation.

2 Foreign Corrupt Practices Act Why Should You Care? 2

3 Why should you care? If you conduct business outside the U.S. or work with international distributors Studies have estimated that more than $1 trillion in bribes paid each year Bribery enforcement has increased dramatically Increased emphasis on prosecutions of individuals Defenses are difficult to prove Violations carry significant consequences 3

4 Consequences of Violation Prison Multi-million dollar fines Disgorgement of ill-gotten gains Multi-jurisdictional prosecution Collateral consequences Compliance monitor Loss of export privileges Debarment Damage to reputation Private lawsuits 4

5 History of the FCPA Enacted in 1977 Enforced by both DOJ and SEC Very few cases until last 8 years 5

6 FCPA Enforcement Actions Filed 6

7 The FCPA Does Not Stand Alone Other countries also have anti-bribery laws UK Bribery Act (2010) Brazil Clean Company Act (2014) Many other examples Generally must have some nexus to the country to be subject to the statute 7

8 FCPA Provisions Two basic parts: Bribery provision Accounting provisions 8

9 Bribery Provision It is illegal... (1) to promise, offer, or to give anything of value (2) to a foreign official (3) with intent to obtain or to retain business Prohibits both direct and indirect payments Applies to any U.S. company, whether publiclytraded or not Beware of acts in U.S. in furtherance of payments by foreign subs and agents 9

10 Scope of FCPA Terms DOJ and SEC interpret the elements broadly Anything of value Charitable giving, political contributions, travel and entertainment expenses, hiring practices Foreign official All levels of government; employees of stateowned enterprises Obtain or retain business Procuring contracts, influencing bidding process, avoiding taxes and penalties, obtaining exceptions to regulations 10

11 It s Not Just a Suitcase Full of Cash Smaller amounts have started to spark enforcement interest Enforcement not limited to large, multinational companies Enforcement encompasses all sorts of conduct beyond outright bribes Charitable giving Political contributions Travel and entertainment expenses Hiring practices 11

12 Travel and Entertainment Many FCPA cases stem from the payment of travel and entertainment expenses Examples of recent cases PTC Inc. SciClone Pharmaceuticals (e.g., golf in the morning and beer drinking in the evening ) Diebold Avon Bruker 12

13 Aren t There Any Defenses? Reasonable and bona fide marketing expenses Limited exception Must be directly related to the promotion, demonstration, or explanation of products or services Must be closely tailored to business goals Local law defense Facilitating payments (aka grease payments ) 13

14 Accounting Provisions Only applies to issuers Must keep accurate books and records, and maintain reasonable internal controls, to prevent and to detect FCPA violations Willful violations also prosecuted by DOJ 14

15 So How Could This Affect You? 15

16 Impact of Increased Enforcement In recent years, many significant fines have resulted from: Acquisitions of foreign operations Use of consultants or agents Increased focus on individuals Take steps to foster transparency Place a premium on due diligence 16

17 What do prosecutors not want to hear? That s just the way they do business over there. It wasn t our fault! Our consultant is responsible. We didn t have a choice! We either had to pay up or lose the contract. That s extortion, not bribery. We can t control what our distributor does on her own time with her own money. But I didn t know that his brother-in-law works for the prime minister! That s not fair! 17

18 Due Diligence Considerations Must tailor due diligence to circumstances of transaction and risk profile of business Risk profile determined by: Type of business Countries involved Red flags Document everything 18

19 Risk Varies by Location Different countries require different levels of compliance If acquiring a company, don t forget the countries where the target used to do business If using distributor, consider to which countries they are selling Do you know the CPI of the countries where you do business? Corruption Perceptions Index Oft-cited metric for measuring corruption 19

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21 Don t Ignore Red Flags What is the compliance history of the company or consultant/agent? What sort of controls does the company or consultant/agent have in place? Will they certify past and future compliance with anti-bribery laws? How well-documented are relationships with agents and consultants? 21

22 Red Flags with Consultants or Distributors No written agreement Recommended by a government official Payment disproportionate to the expertise or serviced delivered Unusually vague invoice Demand anonymity Substantial up-front payment Payment requested in cash or bearer instrument Payment by convoluted means 22

23 What Can You Do? Implement an effective compliance program Tone at the top is critical Be smart when making payments Representations and warranties in contracts Nothing is a substitute for good due diligence 23

24 Questions? Eric Wilson (608) Wendy Arends (608)