FCPA background and main provisions. UK Bribery Act background and main provisions. Philippines local laws. Violation of laws - case studies

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2 FCPA background and main provisions UK Bribery Act background and main provisions Philippines local laws Violation of laws - case studies Enforcement actions Legal and business issues Compliance considerations Q&A

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4 The FCPA was enacted in 1977 following the Watergate Scandal in the U.S. Purpose: To make it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business. Two main provisions: Anti-bribery provisions Accountancy provisions

5 In general, prohibit: offering to pay, paying, promising to pay, or authorizing the payment of money or anything of value to a foreign official in order to influence any act or decision of the foreign official in his or her official capacity or to secure any other improper advantage in order to obtain or retain business. Applicable to: ISSUERS Any company that is registered or required to file periodic reports with the SEC, including any officer, director, employees, or agents of these companies. DOMESTIC CONCERNS Any individual who is a U.S. citizen, national, or resident. Any business organization that has its principal place of business in the U.S.or which is organized in the U.S. PERSONS ACTING IN U.S. TERRITORY Foreign persons and foreign non-issuer entities that, either directly or through an agent, engage in any act in furtherance of a corrupt payment while in U.S. territory.

6 ACT WILFULLY ANYTHING OF VALUE FCPA Components FOREIGN OFFICIAL CORRUPT INTENT Must intend to induce the recipient to misuse his official position. Merely offering or authorizing a bribe triggers liability under FCPA but intent must be present ACT WILLFULLY To be criminally liable under FCPA must act willfully. Generally construed to mean an act committed voluntarily & purposefully with a bad purpose in mind ANYTHING OF VALUE No minimum threshold. May take many forms e.g. cash, travel expenses, expensive gifts. What is modest in the U.S. could be more significant in other countries FOREIGN OFFICIAL Includes not only traditional government officials, but also employees of state owned or state controlled entities. This also applies to companies that are not wholly owned by the foreign government DIRECT OR INDIRECT Benefit or promise may be made directly by company or its staff to a foreign official or indirectly if given or received by an intermediary on behalf of the relevant parties

7 Books and Records Provision Requires issuers to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer. Internal Controls Provision Issuers must devise and maintain a system of internal accounting controls sufficient to provide reasonable assurance over management s control, authority, and responsibility over the firm s assets.

8 Facilitating or Expediting payments or Grease payments Narrow exception for facilitating or expediting payments made in furtherance of routine governmental action that involves non-discretionary acts. Defenses Two affirmative defenses: Local Law defense: Payment was lawful under written laws of the foreign country Reasonable and bona fide business expenditure defense: Money was spent as part of demonstrating a product or performing a contractual obligation

9 Criminal Up to $250,000 fine or twice the gain or loss caused by the violation and/or imprisonment up to 5 years. Civil Up to $10,000 fine. ANTI-BRIBERY PROVISIONS ACCOUNTANCY PROVISIONS Criminal Fine up to $5 million or twice the gain or loss caused by the violation and/or imprisonment up to 20 years. Civil Greater of pecuniary gain to the defendant as a result of the violations or $5,000 to $100,000 fine. COMPANIES Criminal Up to $2 million fine or twice the gain or loss caused by the violation. Civil Up to $10,000 fine. ANTI-BRIBERY PROVISIONS ACCOUNTANCY PROVISIONS Criminal Up to $25 million fine or twice the gain or loss caused by the violation. Civil Greater of pecuniary gain to the defendant as a result of the violations or $50,000 to $500,000 fine.

10 No specific statute of limitations For anti-bribery provisions a 5 year limitations period applies but may be extended: In cases involving conspiracies, By a tolling agreement, By up to 3 years in order to obtain evidence from foreign countries. For civil actions for penalties a 5 year limitations period also applies but may be extended: Where SEC brings actions for equitable relief or disgorgement of ill-gotten gains By a tolling agreement, In cases involving foreign individuals, the limitations period is tolled for any period during which the individuals are not found within the U.S. Recent cases reveal that the SEC continues to try to stretch the boundaries of the statutory period.

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12 The UK Bribery Act is a new anti-corruption framework for UK and came into effect on 1 July 2011 Purpose: To replace and bring together current bribery laws dating back to Wideranging, covering both public and private sector, with extraterritorial reach.

13 SECTION 1 OFFENCE OF BRIBING To induce improper performance of a relevant function; or Knowing or believing that the acceptance of the advantage would itself constitute the improper performance of a relevant function or activity (i.e. that the person was not allowed to accept the bribe) SECTION 2 OFFENCE OF BEING BRIBED With the intention of performing a relevant function improperly where that conduct in itself constitutes improper performance of a relevant function As a reward for improper performance of a relevant function SECTION 6 OFFENCE OF BRIBERY OF FOREIGN PUBLIC OFFICIALS With the intention to influence the Foreign Public Official to obtain or retain business or a business advantage Unless Foreign Public Official is permitted or required by written law to be influenced by such an advantage SECTION 7 CORPORATE OFFENCE OF FAILING TO PREVENT BRIBE A company can be prosecuted if: A portion of the company s business is carried on in the UK; and An employee or an associated person bribes in connection with the company s business

14 Applicability Applicable where: part of the offence takes place in the UK; or committed by a person with a close connection to the UK (e.g. A British citizen, citizens of overseas British territories, UK residents, UK incorporated businesses); or committed by associated person acting on behalf of company that carries on portion of its business in the UK. Penalties Individuals: On summary conviction imprisonment up to 12 months and capped fine. On indictment imprisonment up to 10 years and unlimited fine. Companies: Unlimited fine.

15 Companies who put in place Adequate Procedures to prevent bribery will have an absolute defence to liability under the new law. Proportionality The procedures should be proportionate to the risk a business faces and the size of that business. 1 2 Top level commitment Top-level management should foster a culture within the organisation in which bribery is not acceptable. Risk assessment The requirement that a commercial organisation assesses the nature and extent of its exposure to potential external and internal risks of bribery. 3 4 Due diligence Of associated persons who perform or will perform services on behalf of an organisation. Communication (including training) Bribery prevention policies and procedures should be clear, practical and accessible. 5 6 Monitoring and review Monitoring follows implementation; be dynamic identify and address new risks as they emerge.

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17 Principal anti-bribery laws Revised Penal Code (Act No 3815) (RPC) Bribery may be direct (Article 210), indirect (Article 211), or qualified (Article 211-A) Anti-Graft and Corrupt Practices Act (Republic Act No 3019) (ACPA). Lists specific corrupt practices punishable. Include, but are not limited to a public officer: Directly or indirectly requesting or receiving any gift, present, share, percentage, or benefit, for himself or for any other person, in connection with any contract or transaction between the Government and any other party, wherein the public officer in his official capacity has to intervene under the law (Section 3(b)) Directly or indirectly requesting or receiving any gift, present, or other pecuniary or material benefit, for himself or for another, from any person for whom the public officer, in any manner or capacity, has secured or obtained, or will secure or obtain, any Government permit or licence, in consideration for the help given or to be given... (Section 3(c)) Accepting or having any member of his family accept employment in a private enterprise which has pending official business with him during the pendency thereof or within one year after its termination (Section 3(d)) Other anti-bribery statutes Code of Conduct and Ethical Standards for Public Officials and Employees (COCES) Imposes a criminal liability for solicitation or acceptance of gifts by public officers in the course of their official duties or in connection with any operation being regulated by or any transaction which may be affected by the functions of their office (Section 6(d) in relation to Section 11) Republic Act No 6713

18 Penalties Violations of anti-bribery laws in Philippines are criminal offences RPC can impose penalties of 2-8 years imprisonment (and fine of not less than value of the gift for direct bribery) Penalty for a law enforcer who refrains from arresting/prosecuting an offender who has committed a crime is punishable by years imprisonment (i.e. the penalty which would have been imposed on the offender themselves) ACPA penalty for public officers is imprisonment for not less than 6 years and 1 month nor more than 15 years, perpetual disqualification from public office and confiscation of wealth gained from corrupt practices COCES punishes solicitation or acceptance of gifts by public officers with up to 5 years imprisonment and/or fine of PhP5,000.

19 Defenses Subject to general defenses and mitigation measures under Philippine law such as burden of proof, justifying and mitigating circumstances Gifts and value of service No de minimis exceptions in terms of gifts or value of services Presidential Decree No 46 makes it an offence for public officials and employees to receive, and for private persons to give, gifts on any occasion, including Christmas Plaques of appreciation and simple tokens of gratitude or friendship without the intention to corrupt public officials/employees are excluded Exception also applies for unsolicited gifts or presents of small or insignificant value are offered or given as mere ordinary tokens of gratitude or friendship, according to local customs or usage.

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24 Smith & Wesson (July 2014) Fine of $1.9 million Authorized and made improper payments to foreign officials while trying to win contracts to supply firearm products to military and law enforcement overseas. Attracted new business by offering, authorizing, or making illegal payments or providing gifts for foreign government officials in Pakistan, Indonesia and other countries. Allianz SE (Dec 2012) Fine of $12.3 million Allianz subsidiary in Indonesia used special purpose accounts to make illegal payments to foreign officials to win insurance contracts. Improper payments were disguised in invoices as overriding commission for an agent that was not associated with the government insurance contracts or structured as overpayments which were subsequently reimbursed. Diageo (July 2011) Fine of $16 million Made hundreds of illicit payments to foreign government officials to obtain lucrative sales and tax benefits relating to whiskeys, including in India, Thailand and South Korea.

25 Sustainable Agroenergy Plc August 2013 UK s SFO bought first prosecution under UK Bribery Act. Trial due to commence 6 October former directors of Sustainable Agro Energy, and an affiliated financial advisor charged in connection with an alleged ponzi scheme in which the defendants allegedly tricked UK investors into purchasing shares in biofuel-related investments in Cambodia. 3 of them are also charged with making and accepting a financial advantage contrary to section 1(1) and 2(1) of the Act. GlaxoSmithKline The UK s SFO has launched a formal criminal investigation into GSK and its commercial practices, understood to mean allegations of foreign bribery. GSK is also being investigated in a number of other countries. Match fixing case Two Singaporean nationals were charged under sections 1 and 2 of the Act (regarding the giving and receiving of bribes) as well as conspiracy to commit bribery. Two other individuals were charged under section 1 for giving bribes, and with conspiracy to commit bribery. One was charged solely for giving a bribe. No details are publically available as to the scale of the payments, nor exactly when the events in question took place.

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27 STRONG COMPLIANCE PROGRAM KNOW YOUR BUSINESS PARTNERS & VENDORS THIRD PARTIES Due diligence Periodic compliance audits Code of Conduct buy-in Compliance culture Successor liability MERGERS & ACQUISITIONS RISK EXPOSURE Jurisdictional Internal sales, logistics, marketing department etc. Competitors

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29 RISK-TAILORED & RISK-BASED PRE-EXISTING COMPLIANCE PROGRAM Designed and tailored to specific business operations, geographies and corruption risk. Include mechanisms to prevent & detect violations, adequate financial & accounting processes and adequate system of internal controls. Pre-acquisition FCPA due diligence and post-closing compliance integration procedures. TONE AT THE MIDDLE AND BOTTOM DEFINES EFFECTIVENESS OF TONE AT THE TOP Companies and management must walk the talk and ensure that the high-level commitment of management is reinforced and implemented by middle managers and employees at all levels of the enterprise. SENIOR EXECUTIVE RESPONSIBILITY FOR COMPLIANCE Responsibility should be assigned to someone with appropriate authority in the enterprise, adequate autonomy and independence from management and sufficient resources people and money to get the job done. THIRD PARTY COMPLIANCE IS ESSENTIAL Risk-based, include purposeful and intelligently designed auditing and monitoring. Should include proactive testing on economically significant and higher risk transactions, periodic right-to-audit clauses, reinforcement training and communications tailored to different countries needs and periodic certifications from relevant business partners. CONTROLLED SUBSIDIARIES, AFFILIATES AND JVs MUST BE TAKEN INTO ACCOUNT Companies are responsible and will be held accountable for improper activity by or on behalf of controlled subsidiaries, affiliates and joint ventures.

30 NON-CONTROLLED AFFILIATES, JVs, DISTRIBUTORS AND DEALERS SHOULD BE CONSIDERED Non-controlled affiliates, joint ventures, distributors and dealers should be included in the risk assessment and compliance plan. Companies must use best efforts to influence these entities to adopt internal controls and other compliance program elements. FINANCIALLY IMMATERIAL TRANSACTIONS AND PAYMENTS MAY GIVE RISE TO MATERIAL LIABILITY Seemingly inconsequential amounts paid by or on a company s behalf may give rise to exposure. Companies must think carefully about potential touch points and where any form of value may be transferred i.e. gifts, entertainment, charitable contributions, licenses, permits, customs. DOES COMPLIANCE PROGRAM WORK? The ultimate test for an FCPA compliance program is Does it work? and companies must be prepared to prove this. Companies should take a common-sense and pragmatic approach to evaluating the adequacy of preexisting compliance program. PRIVATE COMPANIES ALSO HAVE RISK EXPOSURE Private companies need to adopt and maintain the same level of strong internal controls and other compliance program elements in the area of anti-corruption. EXPANSIVE JURISDICTIONAL CONCEPTS Foreign nationals and companies need to ensure they are aware of the increasingly expansive jurisdictional concepts of anti-corruption laws and that they are in compliance.

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