Director of Legal & Risk Management, Americas Wood Mackenzie, Inc. May 23, Daniel B. Pickelner

Transcription

1 Center for American and International Law Symposium: Anti-Bribery and Corruption Daniel B. Pickelner Director of Legal & Risk Management, Americas Wood Mackenzie, Inc. May 23,

2 Agenda History of the FCPA Scope of the FCPA Anti-Bribery Provision Exceptions and Affirmative Defenses Books and Records Provision Agents and Vicarious Liability Penalties Voluntary Self Disclosure Select Cases and Settlements International Treaties and the UKBA of

3 But, first... A DISCLAIMER: The views and opinions reflected in this presentation are my own and do not reflect the views, opinions, positions, or policies of Wood Mackenzie, Inc., Verisk Analytics, Inc. or any of their affiliates or clients. Thank you. 3

4 How did we get here? The Watergate Scandal Congressional investigations in determined that U.S. corporations maintained slush funds to pay or bribe public officials. Some of these slush funds were kept offshore and used to bribe foreign governments Lockheed Martin caught bribing Japanese prime minister to buy fighter jets. This wasn t just a domestic political matter anymore. Companies were undermining US foreign policy! 4

5 Scope of the FCPA 15 USC 78dd-1 et seq.

6 Two Parts to the FCPA Anti-Bribery Provision» Policed by the Department of Justice» Sole criminal authority Books and Records Provision» Policed by Securities and Exchange Commission» Applies to Issuers or publicly-traded companies 6

7 Who is covered by the FCPA? EVERYONE!!!!!!!!! Domestic concerns incorporated or not U.S. Citizens wherever located Other Persons while in the U.S. or U.S. territory Foreign subsidiaries of U.S. companies Foreign firms with a principal place of business in the U.S. You Me Mark Smith Did I mention: EVERYONE!!!!! 7

8 The Anti-Bribery Provision

9 What is covered by the FCPA? No person may: 1. Make use of the mail or interstate commerce; 2. To make an offer, promise, payment, or gift of anything of value; 3. To any Foreign Public Official; 4. To Corruptly influence the Foreign Public Official in his/her official capacity; 5. To secure an improper advantage; 6. In order to obtain or retain business. 9

10 Definitions Mail or interstate commerce Use of:» Mail» » Fax» Telephone» Bank or wire transfers» Aircraft or other modes of transportation» Includes foreign commerce of the U.S. 10

11 Definitions Anything of Value Money $ R P Job offers First class travel and accommodations Side trips/vacations (Las Vegas, Disney World, etc.) Expensive gifts Expenses for family travel Charitable donations 11

12 Definitions Foreign Public Officials Heads of State Heads of Government Presidents Prime Ministers Monarchs and Royal Family members Cabinet Ministers Department Secretaries Members of government councils Members and staff of legislative or judicial bodies Civil servants Foreign service employees political party officials Police law enforcement armed forces members Employees of international organizations (Red Cross, IOC, NATO, UN) Employees of state owned companies 12 Agents and family members of the above

13 Definitions Corruptly Influence Having improper motive or purpose» Intent to influence a foreign public official to misuse his or her position» A QUID PRO QUO Does not cover coercion, duress, or threats» Threats of force» Threat of bodily harm» Loss of liberty» Loss or destruction of company assets» No reasonable opportunity to escape harm except to pay the bribe 13

14 Definitions Obtain or Retain Business Securing and Improper Advantage» Winning bids or contracts» Reducing tax obligations» Bypassing regulatory requirements» Obtaining negotiation concessions» Preventing competition» Receiving special access or treatment 14

15 Exceptions and Affirmative Defenses

16 Facilitating Payments Made to expedite or secure performance of a routine government action.» Non-discretionary» Ordinary and common» Payment influences timing not decision» Legitimate payments are posted, visible, and traceable Examples:» Visa requirements» Access to utilities, police, other governmental services» Stamps for permits or licenses» Speed up waiting period 16

17 BEWARE! Facilitating Payments are a very narrow exception. Department of Justice does not like them. Must be legal under written laws of the country. Made to office or agency not personally to the government official. Get a receipt! Most corporate policies prohibit facilitating payments because they are too controversial and too easy to make a mistake. 17

18 Affirmative Defense #1 Bona Fide & Reasonable Business Expense Expense is directly related to:» Promotion, demonstration, or explanation of product or service; or» Negotiation and execution of a contract Are permitted by foreign government s written laws. Are reasonable. Always vet these types of payments. 18

19 Gifts Reasonable Transparent Related to business Nothing extravagant Follow corporate policies Should be able to reciprocate 19

20 Defense #2 Local Laws Permit Payment Written laws! Rarely used defense and rarely successful Who legalizes bribery?» Have you checked out the U.S. Campaign Finance Regulations? 20

21 FCPA Opinion Procedure Get a written opinion from the Department of Justice on the legality of your proposed transaction and expenses. Creates rebuttable presumption that transaction or expense does not violate the FCPA. SEC will abide by DOJ decision. Really tricky: Very fact specific.» Must include all facts and must be correct» Government can revoke opinion» Not binding» Does not apply to record-keeping violations» Redacted opinion available on-line. 21

22 Accounting and Record-Keeping Provisions

23 Scope Applies to Issuers» Regulated under the Securities and Exchange Act» Publicly-traded companies (NASDAQ, NYSE)» Other equity or securities issuers Applies to individual employees:» Officers» Directors» Managers» Employees» Agents Applies to all payments, not just material amounts 23

24 Record Keeping No falsification of records; Books and records should conform to acceptable methods of recording economic events; Comply with regulatory requirements (Sarbanes Oxley, Frank Dodd, Tax Code, etc.) Transactions should be recorded in a manner that permits Issuer to prepare financial statements in accordance with accounting rules. 24

25 Accounting Provisions Need strong, documented internal controls to protect assets, access, and authorities. Independent auditors, Audit Committee, and internal auditors to test controls and review activities. Compliance Programs and Hotlines. Reasonable assurance that internal controls detect and prevent abuse. 25

26 Strict Liability Catch-22! STRICT LIABILITY Negligence is punished the same as intentional conduct. If foreign subsidiary makes a payment to a foreign public official:» And, you did not know about it = poor internal accounting controls = violation of the FCPA.» And, you knew about it = corrupt behavior = violation of the FCPA. 26

27 Agents and Vicarious Liability

28 Willful Blindness is No Excuse Duty to Investigate Agents must be thoroughly vetted» Background checks» Verify experience, education, skills» Verify relationships with governmental officials Written agreements» Audit rights» Representations and warranties» Abide by all laws» No bribes» Maintain books and records» Itemized receipts» Termination rights FCPA Certificates and Training 28

29 Red Flags Agent related to foreign public officials Requires cash payments Recent former employee of government or military Requests use of offshore banks or funds Complicated payment method Refusal to answer questions Barred from doing business in other jurisdictions Lacks basic experience Insists on flat fee or percentage; no hourly rate Bad attitude ( Don t ask/don t worry ) 29

30 Penalties

31 Criminal Penalties $2 million per violation for Issuers or domestic concerns $100,000 per violation for individuals Up to 5 years in prison OR: the greater of twice the gross gain or loss. Compliance Monitors 5 year statute of limitations usually tolled. 31

32 Civil Penalties $10,000 per violation Injunctions Compliance Monitors Forfeiture Disgorgement of Profits 32

33 Other Penalties/Consequences Loss of Export Privileges Debarment Shareholder lawsuits Civil claims Tax penalties Violations of other laws:» Money Laundering» Mail and Wire Fraud» Currency Transfers» Sarbanes Oxley» Frank Dodd» Sanction Regulations 33

34 Voluntary Self-Disclosures

35 Benefits Mitigate penalties by confessing Provide all relevant facts and documentation Cooperate with subsequent investigation. Avoid criminal penalties and might avoid compliance monitors Need to confess before government learns of violation.» Beware of whistleblowers 35

36 Costs You will pay millions $ in accounting and legal fees Investigation will be lengthy and consume valuable internal resources. Still will get penalized» $55 million penalty v. $52 million is it worth it? Still will get bad publicity and harm reputation Must invest in robust compliance program to prove that you are serious about remedy. Make a cost benefit analysis 36

37 Selected Cases and Settlements

38 American Rice (2005) David Kay and Douglas Murphy officers of American Rice bribed Haitian Customs officials to get lower tariff on rice imports. Indicted on 12 counts of violating the FCPA. Argued that bribe to lower tariffs was not a bribe to obtain or retain business. District court in Houston agreed and dismissed the case. 5 th Circuit Court of Appeals reversed. Government argued that interpretation conformed to US foreign treaty obligations. Kay 37 months and Murphy 63 months imprisonment. 38

39 Titan Corp. (2005) Titan had contract with Benin to build a satellite phone network. Hired personal friend of President and donated $2 million to Presidential re-election campaign. Fee increased from 5% to 20%. Lockheed Martin entered into acquisition agreement with Titan and required VSD. Fined $13 million criminal penalty and $15.5 million in disgorgement and interest. Lockheed terminated acquisition. Titan faced shareholder lawsuit. 39

40 Siemens (2008) Siemens made billions of dollars in improper payments in over 10 countries as part of the UN Oil for Food Program in Iraq from 1999 to Siemens lacked proper internal controls. First time, ever, US government cooperated with foreign governments in investigation. Record fine of $800 million in criminal and civil penalties» $350 million in disgorgement» $825 million in civil and criminal penalties to German government» $108 million in disgorgement and $256 million in penalties to Greek government in connection with bribes paid during the 2000 Greek Olympics. 40

41 Halliburton (2009) $180 million of improper payments to Nigerian officials for contracts involving the Bonny Island LNG project. $579 million civil and criminal penalty. Albert Stanley (CEO KBR) sentenced to 7 years in prison and $10.8 million fine. Nigerian government indicted U.S. Vice President Dick Cheney until Halliburton paid an additional $35 million fine. 41

42 Daimler Benz (2010) Improper payments to government officials in 22 countries over 10 years for government contracts to buy trucks and cars. Valuable contracts in Russia, Croatia, Serbia, Montenegro, Hungary, Uzbekistan (plus others). Accepted deferred prosecution agreement and compliance monitors. $93.6 million criminal penalty and $91.4 million civil penalty. Shareholder lawsuit after stock price fell. Whistleblower employee terminated. Wrongful termination/retaliation lawsuit. 42

43 Petrobras (2016) Operation Lava Jato (Car Wash) biggest scandal in Brazil s history. Casualties include President Dilma Rousseff and members of the Brazilian government, officers and executives of Odebrecht and Petrobras. Petrobras engaged in a decade old bid-rigging scheme with Odebrecht and others to inflate costs of contracts for construction projects. Petrobras officials received bribes to ignore inflated costs. Petrobras lost over half of its value. $2.5 billion global record fine split between Brazil and US. (This record already broken.) 43 Shareholders lawsuit in US is proceeding

44 Odebrecht (2016) In connection with Operation Car Wash, Odebrecht agreed to a criminal penalty of $4.5 billion. New world record. Really. All of Odebrecht s former officers are in Brazilian prison. All have signed plea bargains and all are cooperating with investigation. Triggered investigations in Ecuador, Peru, Bolivia, Argentina, Colombia. US government is assisting with investigations. How long will this fine be the record? Next: investigations into World Cup and Olympic construction contracts. 44

45 International Treaties

46 Not just the US anymore OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions* Inter-American Convention Against Bribery* Council of Europe Criminal Law Convention on Corruption UN Convention Against Corruption* Africa Union Convention on Preventing and Combating Corruption * Ratified by U.S. 46

47 A few words on the UK Bribery Act of 2010 Broader than FCPA» Covers private bribes as well as public officials.» Punishes both payer and payee.» Unlimited criminal fines» Creates civil cause of action for loss of contracts/business Applies to British nationals and businesses and anyone with a connection to the UK (bank accounts, office, travel, etc.) UKBA does NOT permit facilitating payments. Does provide credit for a strong compliance program and spares companies if they can show that failure was not result of an issue with program but was due to behavior of a lone actor. 47

48 QUESTIONS? Thank you. And now, it s time for your law firm problem and assignments. 48

49 Europe Americas Asia Pacific Website Wood Mackenzie* is a global leader in commercial intelligence for the energy, metals and mining industries. We provide objective analysis and advice on assets, companies and markets, giving clients the insight they need to make better strategic decisions. For more information visit: *WOOD MACKENZIE is a Registered Trade Mark of Wood Mackenzie Limited