GTDC LATAM Regional Conference

Transcription

1 GTDC LATAM Regional Conference Controlling Risk. Maximizing Value. Doing Business Right with New Insight February 9, 2016 Rebekah J. Poston, Partner Squire Patton Boggs (US) LLP

2 World Wide Corruption Not one single country in the world, is corruption-free. (Transparency International) TI s CPI for 2015 was published January 27, 2016 and it ranks 168 countries in terms of the perceived levels of public sector corruption. 68% of countries worldwide have a serious corruption problem. Half of the G20 are among them. The CPI scale is of A 0 score means the country is perceived as highly corrupt. A 100 score means the country is perceived as very clean. A poor score is a sign of prevalent bribery, lack of punishment for corruption and public institutions that do not respond to citizens needs. High scorers share key characteristics of open government; high levels of press freedom; access to budget information so the public knows where money comes from and how it is spent; high levels of integrity among the people in power; and an independent judiciary that does not differentiate between rich and poor. 2

3 FCPA Broad Territorial Reach Any foreign persons or foreign non-issuer entities that, either directly or through an agent, engage in any act in furtherance of a corrupt payment (or offer, promise, or authorization to pay) while in the U.S. or a U.S. territory. Officers, directors, employees, agents, or stockholders acting on behalf of such persons or entities. If issuers or domestic concerns use the U.S. mails or any means of interstate commerce (fax, phone, , text) in furtherance of a corrupt payment to a foreign official. Interstate use of any interstate means of communication. Wire transfers from or to a U.S. bank or otherwise using the U.S. banking system. Traveling across state borders or internationally to or from the U.S. A foreign national who attends a meeting in the U.S. that furthers a foreign bribery scheme, as may any co-conspirators, even if they did not attend the meeting. 3

4 FCPA Broad Territorial Reach A foreign national or a company may be liable under the FCPA if it aids and abets, conspires with, or acts as an agent of an issuer or domestic concern, regardless of whether the foreign national or company itself takes any action in the U.S. Pinkerton theory of liability applies: Under U.S. conspiracy law, even if a foreign entity or foreign person never took any actions in violation of the FCPA while in the U.S., they can be liable for the reasonably foreseeable substantive FCPA crimes committed by a co-conspirator in the furtherance of the conspiracy. 4

5 FCPA Cases: More Rigorous and Costly As the number of cases prosecuted by the U.S. Department of Justice ( DOJ ) and the U.S. Securities and Exchange ( SEC ) increased, so did the length and cost of each. The length of time taken to complete a foreign bribery case increased from approximately 2 years, between 1999 and 2005, to an average of 7.3 years to conclude the 42 worldwide. cases in

6 FCPA Cases: More Rigorous and Costly Steven Tyrell, former chief of the DOJ s criminal-fraud section, estimates that a multinational company spends on average about $2 million to investigate its operations in only one country. Company Length of Investigation Approximate Cost of Internal Investigation ($ MM) Approximate Cost per Year ($ MM) Siemens Wal-Mart Daimler Avon

7 FCPA 2015 Enforcement Summary and Enforcement Trends Whistleblower ( WB ) activity is on the increase. Rewards from 10%-30% of the amount sanctioned over $1 million to WBs through the Dodd-Frank Act. Since the creation of the WB office in 2011, SEC has awarded over $50 million to 16 WBs who provided unique and useful information. Awards range from $150,000 to $875,000; the largest to date was $30 million. 30% of the SEC foreign bribery cases brought by the WB program. Tip-offs from Latin America doubled between 2013 and 2014, from 25 to : 14 from Argentina 16 from Brazil 4 from Colombia 6 from Mexico 7

8 FCPA 2015 Enforcement Summary and Enforcement Trends In 2015, 11 companies paid about $133 million to resolve FCPA cases. Increased individual prosecutions by DOJ in 2015: DOJ brought 10 FCPA prosecutions, 8 were against individuals. Seven received prison sentences; one received probation. The DOJ announced in its Yates Memorandum that unless a company completely discloses all relevant facts about individuals involved in its corporate misconduct, regardless of their position, status or seniority in the company, the company will receive no credit for its cooperation with the DOJ. The DOJ is beefing up for FCPA prosecutions in 2016: The DOJ added 10 new prosecutors to its FCPA unit which doubled its size. The FBI established 3 new international corruption squads to investigate FCPA violations. The FBI increased from 5 to 23 the number of FBI agents assigned to FCPA cases. The DOJ received $15 million for its FCPA budget. 8

9 FCPA Enforcement in Latin America At least 108 companies are under FCPA investigation by the DOJ. Argentina Brazil Colombia Mexico Venezuela Considerable growth in cross-border cooperation in FCPA prosecution: Mutual Legal Assistance Treaties ( MLATs ); Memoranda of Understandings ( MOUs ); Extradition Treaties; Conventions; and Criminal Information Exchange Agreements. Petrobras case FIFA cases (Wire fraud, Bribery and Money Laundering; not FCPA) 9

10 2015 FCPA Cases SEC has an increased focus on prosecutions based on the accounting provisions (books and records and internal controls provisions) of the FCPA: BHP Billiton: 5/20/15 - $25 million to SEC Failed to implement meaningful procedures for reviewing and approving invitations to foreign officials as guests at the 2008 Summer Olympics in Beijing. Failed to devise and maintain sufficient internal controls over its global hospitality program in connection with its sponsorship of the 2008 Olympic Games in Beijing. Failed to provide employees with specific training re: bribery risks connected to hospitality invitations. Adopted an insufficient check the box approach to compliance. Louis Berger: 7/20/15 - $17.1 million to DOJ; DPA Concealed bribe payments to government officials as commitment fees and per diems to third-party vendors in India, Indonesia, Vietnam and Kuwait to win contracts. 10

11 2015 FCPA Cases Mead Johnson: 7/28/15 - $12 million to SEC China unit paid $2 million in bribes to healthcare professionals at state-owned hospitals. Improper payments to third-party distributors through a distributor allowance fund. Inaccurately reflected these payments on its books and records. Inadequate internal accounting controls. Hitachi: 9/28/15 - $19 million to SEC Success fees improperly recorded as consulting fees to South Africa s ruling political party in connection with contracts to build two multi-billion dollar power plants. Ignored fact front company was paying a political party to win power station contracts. Bristol-Myers Squibb: 10/5/15 - $14 million to SEC Joint venture in China made cash payments and provided other benefits to healthcare providers at state-owned and controlled hospitals in exchange for prescription sales. Inaccurately recorded cash, jewelry gifts, meals, travel and entertainment, and sponsorships as legitimate business expenses. Did not investigate claims of fake invoices and receipts. Slow to remediate holes in their internal controls. 11

12 2015 FCPA Cases SAP SE ( SAP ): 2/1/16 $3.7 million to SEC SAP executive paid $145,000 in bribes to a senior Panamanian government official and offered bribes to others in order to secure sales contracts. SAP executive, Vicente E. Garcia, was charged separately in parallel criminal action sentenced to 22 months in prison. Bribery scheme involved the provision of large discounts up to 82% to SAP s Panamanian partner. Panamanian partner used the excessive discounts to create a slush fund from which to pay bribes and kick-backs to Panamanian officials on Garcia s behalf. Garcia concealed his scheme from others at SAP, circumvented SAP s internal controls, and justified the excessive discounts by falsifying SAP s internal approval forms. 12

13 2015 FCPA Cases SAP SE ( SAP ): 2/1/16 $3.7 million to SEC SAP had no requirements for heightened anti-corruption scrutiny for large discounts. SAP falsely recorded the slush fund as legitimate discounts on the books of SAP s Mexican subsidiary, and the figures were subsequently consolidated into SAP s financial statements. Anti-corruption compliance programs need to include strict management oversight of overseas operations and a readiness to conduct thorough investigations if there is any indication of wrongdoing. 13

14 FOCUS ON YOUR INTERNAL CONTROLS Corruption risks follow the money. Bribery requires fraud in securing money. Materiality is not required under the FCPA. This is why we have bribery cases that revolve around petty cash funds and gifts, meals, entertainment and travel. The manipulation of invoices and third-party interactions can fund bribery schemes. Inflating invoices is a very common scenario and one that is difficult to catch. Manipulating marketing funds or other third-party support systems is another common funding technique, especially in the high-tech industry. Design the internal controls around these types of risks requires. Be sure your processes involve coordination between the compliance and financial departments. Implement some monitoring function over these expenditures. 14

15 Oracle Case: FCPA Violations Without Bribery SEC filed charges against Oracle for its Indian subsidiary s violations of the FCPA s internal controls provisions. No bribery of a foreign official was involved. Facts of the Case: Oracle India secured a $3.9 million deal with India s Ministry of Information Technology and Communications in May As instructed by Oracle India s then-sales director, only $2.1 million was sent to Oracle to record as revenue on the transaction, and the distributor kept $151,000 for services rendered. Other Oracle India employees further instructed the distributor to park the remaining $1.7 million for marketing development purposes. Two months later, one of those same Oracle India employees created and provided to the distributor eight invoices for payments to purported third-party vendors ranging from $110,000 to $396,000. None of these storefront-only third parties provided any services or were included on Oracle s approved vendor list. The third-party payments created the risk that the funds could be used for illicit purposes such as bribery or embezzlement. 15

16 Oracle Case: FCPA Violations Without Bribery Findings of the Case: Oracle violated the FCPA s books and records provisions and internal controls provisions by failing to accurately record the side funds that Oracle India maintained with its distributors. Oracle failed to devise and maintain a system of effective internal controls that would have prevented the improper use of company funds. Oracle s Remediation: Oracle voluntarily disclosed this conduct to the SEC that occurred from Oracle cooperated with the SEC s investigation. Oracle fired all employees involved and made significant enhancements to its FCPA compliance program. Oracle s Penalty: Final Judgment Order for $2 million. 16

17 Oracle Case: FCPA Violations Without Bribery The SEC said this practice created the risk that the funds could be used for illegal purposes such as bribery or embezzlement. It is important for U.S. companies to proactively establish polices and procedures to minimize the potential for payments to foreign officials or other unauthorized uses of company funds. Director of San Francisco s SEC Regional Office, Marc J. Fagel 17

18 Best Practices Compliance Programs Require the third party to annually certify its FCPA and local anti-corruption laws compliance. Periodically conduct global risk assessments. Identify government touch points specific to your business model. Design and implement appropriate policies, procedures and controls to mitigate company-specific corruption risks. Benchmark your company s compliance program against current recognized best practices in your industry. Effectively allocate compliance dollars. 18

19 Best Practices Compliance Programs Have Compliance Officer report to the Board of Directors or the Board s Audit Committee or company s General Counsel. Be certain the compliance policy has the support of top management. Be certain accounting personnel are properly trained on the FCPA. Be certain sales and marketing personnel do not negotiate third party contracts without legal s oversight. 19

20 GTDC ABAC Platform Advantages Provides processes and best practices through the GTDC s partnerships with Hiperos and Thompson Reuters. Provides a platform to ensure ABAC compliance standards for its members, as well as members suppliers and partners. Reduces costs and increases efficiencies by eliminating the need to vet and monitor the same third party multiple times, thus reducing the risk of ABAC violations by third parties, the greatest risk area under the FCPA /1/AMERICAS 20