Overview of the U.S. Foreign Corrupt Practices Act

Transcription

1 Presentation for the Swiss- American Chamber of Commerce: Overview of the U.S. Foreign Corrupt Practices Act Kevin M. King November 16, Cooley LLP, Five Palo Alto Square, 3000 El Camino Real, Palo Alto, CA The content of this packet is an introduction to Cooley LLP s capabilities and is not intended, by itself, to provide legal advice or create an attorney-client relationship. Prior results do not guarantee future outcome.

2 Firm Overview Premier national U.S. law firm that excels in complex business and litigation matters. 650 attorneys with offices in Palo Alto, CA; New York, NY; Boston, MA; San Diego, CA; San Francisco, CA; Reston, VA; Broomfield, CO; Washington, DC; and Seattle, WA. New office in Shanghai pending. We represent public and private companies of all sizes, across a broad industry spectrum with a special focus in the life sciences and technology areas. Our clients include both high growth and mature companies as well as entrepreneurs, venture capitalists and financial institutions. Deep substantive expertise across a range of legal specialties. Represent companies in all aspects of FCPA matters, including due diligence, compliance counseling, internal investigations, and criminal defense matters.. Client-oriented, team-based approach. 2

3 Presentation Contents FCPA Overview Anti-bribery Provisions Accounting Standards and Internal Control Provisions Elements of Effective FCPA Compliance

4 FCPA Enforcement Trends FCPA Enforcement DOJ 35 SEC Through 3Q 2011 With over 70 enforcement cases brought by the DOJ and SEC, 2010 was the most active year in the FCPA s 30-year history Although 2011 has seen fewer cases brought, the DOJ has announced that the FCPA remains an enforcement priority Aggressive FCPA enforcement is expected for the foreseeable future. As of October 2011, 70 public companies have disclosed that they are involved in active FCPA-related investigations. Moreover, U.S. authorities reportedly have more than 150 open FCPA investigations

5 Largest FCPA Settlements 1. Siemens AG (Germany): $800m (2008) 2. KBR / Halliburton (U.S.): $579m in (2009) 3. BAE Systems PLC (U.K.): $400m (2010) 4. Snamprogetti Netherlands BV / ENI SpA (Holland/Italy): $365m (2010) 5. Technip SA (France): $338m (2010) 6. JGC Corp. (Japan): $218.8 m (2011) 7. Daimler AG (Germany): $185m (2010) 8. Jeffrey Tessler (U.K.): $148m (2011) 9. Alcatel-Lucent SA (France): $137m (2010) 10.Panalpina Group (Switzerland): $81.8 m (2010) 11. Johnson & Johnson (U.S.): $70m (2011) 12. ABB Ltd. (Switzerland): $58.3 m (2010)

6 Overview of FCPA Anti-Bribery Provisions

7 Overview: Anti-Bribery Provisions It is unlawful for: a U.S. domestic concern (i.e. U.S. person or U.S. company) issuer or any other person in the United States with corrupt intent to offer pay promise to pay or authorize payment directly or indirectly of anything of value to a foreign official foreign political party (or official thereof) or any candidate for foreign political office or any person while knowing that all or a portion of the payment or thing of value will be offered given or promised directly or indirectly to a foreign official foreign political party (or official thereof) or any candidate for foreign political office

8 Overview: Anti-Bribery Provisions (cont d) for the purpose of influencing any official act or decision inducing any act or omission in violation of a lawful official duty or securing an improper advantage in order to assist in obtaining retaining or directing business to any person

9 Prohibited Activity Paying bribes to foreign officials to obtain an improper advantage Making a contribution to a political party or candidate for political office in return for an improper advantage Paying money or anything of value to a third party while knowing that the third party will use some or all of it to pay bribes to foreign officials Offering, agreeing, or authorizing a bribe

10 Who Must Comply The anti-bribery provisions apply to: individuals who are citizens nationals or residents of the United States; any entity which is registered or organized under the laws of a state territory or possession of the United States; public companies with registered securities traded in the United States or companies required to file reports under the Securities Exchange Act; and individuals entities or businesses that engage in an act in furtherance of a bribe while in the United States by using the mails or any other means or instrumentality of interstate commerce

11 Prohibited Recipients of Payments The anti-bribery provisions of the FCPA prohibit corrupt payments to A foreign official which means: any officer or employee of a foreign government or any department agency or instrumentality of a foreign government (including foreign militaries and government-owned companies); any officer or employee of a public international organization (including the United Nations or the World Bank); or any person acting in an official capacity for or on behalf of any foreign government or public international organization any foreign political party or official thereof or any candidate for foreign political office; or any person while knowing that all or a portion of such money or thing of value will be offered given or promised directly or indirectly to any of the above persons

12 Knowledge Under the FCPA it is illegal to pay anyone (including third-party agents) when knowing that all or part of the payment will be passed to a covered official for purposes of obtaining or retaining business Knowledge is defined broadly and includes: Actual knowledge Awareness of a high probability of the existence of the circumstance Willful blindness (consciously disregarding facts) Know your agents and sales representatives it is sound compliance practice to determine the reputation of agents commissioned sales representatives and certain other third-party intermediaries or contractors that have any interaction with foreign officials

13 Red Flags (cont d) Examples of red flags include: Unusually high commission rate or demands for excessive compensation (obtain comparables) Agent requests for cash payment payment to offshore accounts or payment to an account in a different name Agent has undisclosed owners Agent has undisclosed subagents or subcontractors that assist with the representation Agent requests cooperation in tax avoidance or other illegal conduct Agent lacks the organizational resources to undertake the proposed activities Country has a reputation for government corruption

14 Exceptions and Affirmative Defenses Exception for facilitating routine government action The anti-bribery provisions of the FCPA do not apply to facilitating or expediting payments Such payments may nevertheless violate (i) the accounting provisions of the FCPA if not accurately reported and (ii) local law Anti-corruption laws in many countries (e.g. the UK Germany and Italy) do not have this exemption Affirmative defenses A payment is lawful under the WRITTEN foreign law Reasonable and bona fide expenditures for promotion/demonstration or contract performance

15 Penalties for Violating Anti-Bribery Provisions Criminal penalties (knowing/willful) $2 million per violation for business entities Individuals may face criminal fines of up to $ and/or receive sentences of up to five years imprisonment To the extent a criminal offense causes a pecuniary gain or loss U.S. law authorizes alternative maximum fines equal to the greater of twice the gross gain or twice the gross loss Civil penalties The FCPA authorizes civil penalties of up to $ against enterprises and individuals for civil violations of the anti-bribery provisions

16 Overview of FCPA Books and Records and Internal Control Provisions

17 Overview: Accounting and Internal Control Provisions FCPA accounting and internal control provisions only apply to Issuers as well as individual officers directors and employees of Issuers Issuers are public companies with registered securities in the United States or companies required to file reports under the Securities Exchange Act FCPA accounting and internal control provisions apply not only to the Issuer itself but also subsidiaries joint ventures and affiliates owned and controlled (i.e. more than 50% of the voting power) by the Issuer

18 Overview: Accounting and Internal Control Provisions (cont d) Maintain accurate books and records that reflect in reasonable detail accurately and completely transactions and asset dispositions Establish effective systems of internal accounting controls With respect to non-u.s. affiliates in which a U.S. Issuer owns 50% or less of the voting power the Issuer is required to make a good-faith effort to cause such affiliates to maintain internal accounting controls

19 Overview: Accounting and Internal Control Provisions (cont d) Effective internal accounting controls must provide reasonable assurances that: Transactions are carried out as authorized Transactions are accurately recorded Preparation of GAAP-based financial statements is possible Only authorized access to assets is allowed There are periodic audits

20 Overview: Accounting and Internal Control Provisions (cont d) Failing to record transactions including facilitation payments (e.g. using off-the-books slush funds) Falsifying an aspect of a transaction to conceal its real purpose or nature (e.g. recording a payment to X that was actually made to Y) Making a qualitative misrepresentation as to a transaction (e.g. recording payment of $ to agent X but failing to record that $ of it would be used to bribe a foreign official)

21 Penalties for Accounting and Internal Control Violations Criminal penalties (knowing/willful) Fines of up to $25 million per willful violation for business entities Individuals may face criminal fines of up to $5 million and/or receive sentences of up to 20 years imprisonment for willful violations Civil penalties The FCPA authorizes civil penalties of up to $ against business entities and $ for individuals for civil violations of the FCPA books and records provisions

22 Elements of Effective FCPA Compliance

23 Elements of Effective Compliance An effective compliance program will include the following elements: Communication from upper management setting tone from top Clearly written company-wide anti-corruption compliance code and policies (in the case of issuers they must create and maintain a system of internal controls) Interactions with government-owned businesses Grease/facilitation payments Agent interactions and due diligence Meals and entertainment Gifts and hospitalities Foreign charitable contributions Due diligence of business partners and acquisition targets Consequences for noncompliance (company-specific sanctions as well as legal sanctions) 23

24 Elements of Effective Compliance (cont d) Identification of responsible compliance personnel Inclusion of anti-corruption compliance provisions in international contracts Procedures for conducting risk assessments and internal audits/assessments of compliance procedures Regular employee training especially for those individuals involved with international agents and customers Compliance programs should include procedures for reporting and responding to problems or possible violations including: Notification of appropriate compliance personnel and members of management Transaction holds Document preservation 24

25 Elements of Effective Compliance (cont d) U.S. law (FCPA) Domestic/local laws (law of the jurisdiction where activity is undertaken) Other applicable laws (based on nationality of individuals the jurisdictions where companies and other business entities are organized transnational contacts/communications) International anti-corruption standards, including United Nations Convention Against Corruption OECD International Anti-Bribery Convention 25

26 Contacts Cooley LLP Kevin King 777 6th Street, NW, Suite 1100 Washington, DC Tel: (202)