CODES OF CONDUCT. Moderator JANICE K. HARTRICK, Houston V.P. & Associate General Counsel Apache Corporation Legal Department

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1 CODES OF CONDUCT Moderator JANICE K. HARTRICK, Houston V.P. & Associate General Counsel Apache Corporation Legal Department LORI ANN FEATHERS, Dallas Haynes and Boone LAWRENCE W. HANSON, Houston The Law Office of Lawrence W. Hanson State Bar of Texas INTERNATIONAL LAW COURSE 2004 International Transactions in an Era of Heightened Scrutiny November 12, 2004 Dallas CHAPTER 1

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3 LORI FEATHERS is a senior associate at the law firm of Haynes and Boone in Dallas and a member of the firm s International Practice Group. Ms. Feathers focuses her practice on international transactions and compliance matters, and she advises corporations on international trade and investment regulations and corporate social responsibility. Her work includes developing international compliance programs for public companies. Prior to joining Haynes and Boone, Ms. Feathers was international counsel at Atlantic Richfield Company (ARCO), and from , she worked as an attorney at the U.S. Department of Commerce in Washington, D.C.

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5 LAWRENCE W. HANSON, ESQ. PAST GOVERNMENTAL EXPERIENCE Between 1986 and 1989, Mr. Hanson served as Assistant Regional Counsel for the U.S. Customs Service, now the U.S. Customs and Border Protection. As in-house counsel for Customs, Mr. Hanson provided legal advice to Customs personnel including Port Directors and other Customs officials, Import Specialists, Inspectors, Special Agents, FP&F officers and other Customs personnel. Mr. Hanson was involved in the handling of civil and criminal investigations, audits, and other administrative actions and was cross designated as a Special Assistant U.S. Attorney representing Customs in U.S. Federal District Court. Finally, Mr. Hanson conducted internal training programs for Customs personnel including the Customs Law Course at the Federal Law Enforcement Training Center in Glynco, Georgia. PRIVATE PRACTICE Since going into private practice in 1989, Mr. Hanson has worked with the nation s three most prominent law firms specializing in international trade and import and export regulations. Associate: Barnes, Richardson and Colburn, Associate: Grunfeld, Desiderio, Lebowitz & Silverman, Partner: Sandler, Travis and Rosenberg, For each of these firms, Mr. Hanson was the attorney in residence in charge of their Houston, Texas office until he opened his own practice, The Law Office of Lawrence W. Hanson, P.C., in Mr. Hanson assists clients in the handling of penalty and liquidated damage claims, the detention, seizure and forfeiture of merchandise and other audits, civil and criminal investigations and similar actions taken by Customs and other governmental agencies that regulate imports and exports. Mr. Hanson conducts internal compliance reviews for importers, exporters and other international trade participants. These reviews are conducted under the protection of the attorney-client privilege to ensure the maximum protection for the client and the development of the optimal corrective course of action. Finally, Mr. Hanson offers his experience in the development of international trade related compliance programs designed to prevent unwanted entanglements with the governmental agencies that regulate international trade. Mr. Hanson is licensed to practice law in the States of Illinois and Texas. He is admitted to practice in the Southern District of Texas, the Northern District of Illinois, the Court of International Trade in New York, the Fifth and Seventh Circuit Courts of Appeal as well as before the Court of Appeals for the Federal Circuit. He has practiced and conducted administrative hearings before various federal agencies that regulate international trade including the Food and Drug Administration, Department of Agriculture, Drug Enforcement Administration, U.S. State Department, Treasury Department Office of Foreign Asset Control, Department of Commerce and the Bureau of Industry and Security, Department of the Interior, Fish and Wildlife Department, Environmental Protection Agency and the Federal Trade Commission. FACULTY POSITIONS Since 1993, Mr. Hanson has been a member of the faculty at the University of Houston Law School where he teaches law school courses in U.S. Import Regulation in the Fall and U.S. Export Controls in the Spring. Students in his courses have gone on to positions in government, private practice and corporations. Mr. Hanson has also lectured at the South Texas College of Law and at various colleges and universities on international trade legal issues. ADDITIONAL TEACHING EXPERIENCE Mr. Hanson has taught in the area of international trade law, import and export regulation and related law enforcement issues since serving as an attorney with Customs in He has taught within governmental organizations, academic institutions, in public seminars throughout the U.S. and privately for corporate and trade organizations. LEADERSHIP Mr. Hanson has served as the head of the Customs and International Trade Section of the State Bar of Texas and as the Secretary/Treasurer and then Vice Chair of the International Law Section. In June 2002, Mr. Hanson was elected Chair of the International Law Section. He continues to serve on the leadership council of the International Law Section and is leading the formation of a Human Rights Section of the State Bar of Texas. In 2002, Mr. Hanson founded the Center for Global Trade Education and Compliance (Center). The Center was created to increase understanding of global trade regulatory issues among trade participants through publications, public seminars and the development of specialized in-house but outsourced training programs. COMMUNITY PARTICIPATION Mr. Hanson is involved in numerous other law related organizations including the American Bar Association International Law Section, the Court of International Trade Bar Association, and the Court of Appeals for the Federal Circuit Bar Association. He is also an active participant in other professional organizations including the U.S. Mexico Chamber of Commerce, the American Petroleum Institute, and the American Institute for International Steel. MR. HANSON CAN BE REACHED AT: THE LAW OF FICE OF LAWRENCE W. HANSON, P.C. ONE RIVER WAY, STE. 1850, HOUSTON, TEXAS (713) (TELEPHONE), (713) (FAX) LWHANSON@LWHANSONASSOCIATES.COM WEB ADDRESS:

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7 BIOGRAPHY JANICE K. HARTRICK Janice K. Hartrick is currently Vice President and Associate General Counsel with Apache Corporation. She was formerly Senior Vice President and General Counsel of EEX Corporation (formerly Enserch Exploration, Inc.) from 1997 to From 1987 to 1997, she was with Seagull Energy Corporation, where she held the position of Vice President and Chief Counsel. Prior to 1987, Ms. Hartrick was a Senior Attorney with ANR Production/Pipeline Company, Colorado Interstate Gas Company/Coastal Corporation. Ms. Hartrick is an original Contributory Author of Regulation of Gas Industry, published by Matthew Bender. She is a member of the American, Texas and Louisiana Bar Associations and the Houston Bar Foundation. She is Vice Chair of the Executive Committee of the Advisory Board of the Institute for Energy Law of the Center for American and International Law (formerly the Southwestern Legal Foundation), Trustee of the Rocky Mountain Mineral Law Foundation, and past-chair of the Texas State Bar Association Oil, Gas and Mineral Law Section. She is immediate past-chair of the ABA Oil & Natural Gas Exploration and Production Committee of the Section on Environment, Energy and Resources and Vice-Chair of the IPAA Law Committee. Ms. Hartrick received her BA from Rice University in 1974 and her law degree from the University of Houston in 1976.

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9 Planning and Implementing the International Transaction Import Related Codes of Conduct by Lawrence W. Hanson, Esq. The Law Office of Lawrence W. Hanson, P.C. and The Center for Global Trade Education and Compliance Dallas, Texas November 12, 2004 Import Transaction Codes of Conduct Code of Conduct vs Code of Ethics Why have a Code of Conduct? Content of a Code of Conduct Day to day business operations with a Code of Conduct How do you know when your Code of Conduct has gone bad? Import Transaction Codes of Conduct Code of Conduct vs Code of Ethics Contents and purposes of: Code of Ethics Code of Conduct Written Compliance Functions Operating Procedures 1

10 Import Transaction Codes of Conduct Content of a Code of Conduct Ethical guidance vs conduct guidance Example Ethical Issue Honesty Conduct Issue Accurate reporting of information to officials Compliance Issue Attention to quantity, classification and value on import documentation Import Transaction Codes of Conduct Why have a Code of Conduct Sets the tone of compliance Provides structure to compliance efforts Guides employees Protects management (non-felon division) Caremark case analysis Protects management (felony division) Sentencing guidelines Mitigation of penalties, civil and criminal Risk management Product flow disruption Employee and resource drain Import Transaction Codes of Conduct Content of a Code of Conduct Expression of management commitment Senior executive support Compliance officer Consequence of non-compliance Condition of employment? Discipline and Due Process Stages Procedures for reporting compliance concerns Whistleblower protection Hotline 2

11 Import Transaction Codes of Conduct Content of a Code of Conduct Hierarchical Review Senior Management Middle Management Supervisors Employees Independent Review or Audit In-house vs outside review Import Transaction Codes of Conduct Content of a Code of Conduct Specific Content Honest and ethical conduct General but important Proper disclosure of information Customs entries, other documentation Compliance with legal requirements Whole other seminar Internal review and reporting Internal audit function Commitment and accountability Import Transaction Codes of Conduct Day to day business operations with a Code of Conduct Permeating compliance attitude Workable flow of information Hotline Access to supervisors Avoidance of repercussions or retaliation Training Procedures for policy improvement 3

12 Import Transaction Codes of Conduct How do you know when your Code of Conduct has gone bad? Dust on the notebook situation Code of Conduct and corporate humor The Never Used, Super Secret Code of Conduct The Overused and Abused Code of Conduct Handcuffs, prison cells, dates with Martha Stewart Import Transaction Codes of Conduct For more information Lawrence W. Hanson, Esq. The Law Office of Lawrence W. Hanson, P.C (telephone) (facsimile) 4

13 International Transactions in an Era of Heightened Scrutiny International Law Section, State Bar of Texas Dallas Bar Association, International Law Section November 12, 2004 Lori Feathers, Attorney Haynes and Boone, LLP Dallas, Texas Challenges for Multinational Companies US Regulation and Enforcement of Corporate Conduct Has Increased Due to: Corporate Misconduct Scandals 9/11 Efforts to Stop Funding to Terrorists Calls to Halt Weapons Proliferation New Requirements and Heightened Scrutiny Place Additional Burdens on Multinational Companies Need for Internal Corporate Controls to Comply with US Laws Necessitates Institution of Corporate-Wide Compliance Programs Corporate Compliance Programs US Companies Must Comply with Specific US Laws and Regulations, Including: --Foreign Corrupt Practices Act --Antiboycott Law --Economic Sanctions --Export Controls --Know Your Customer Due Diligence Why is Corporate Commitment to Compliance Important? --Violations Can Result in Criminal and/or Civil Liability --Violations Can Undermine a Company s Reputation --Sarbanes-Oxley Requires Code of Ethics --U.S. Sentencing Guidelines Incentives --Directors Liability Under Caremark --Collateral Benefits Compliance by Directors, Officers and Employees Requires Establishment and Implementation of an Effective Compliance Program Page

14 What is a Corporate Code of Ethics? Sarbanes-Oxley 406 and SEC Rules Require Registered Companies to Publicly Disclose Code of Ethics Applicable to Executive, Financial and Accounting Officers; NYSE, NASDAQ and AMEX Rules Extend Code of Ethics to All Directors, Officers and Employees SEC Rules Define Code of Ethics as: -- Written Standards Reasonably Designed to Deter Wrongdoing and to Promote: - Honest and Ethical Conduct - Full, Fair, Accurate, Timely and Understandable Disclosure in Filings and Public Communications - Compliance with Applicable Governmental Laws, Rules and Regulations - Prompt Internal Reporting of Violations to an Identified Person - Accountability for Adherence to the Code If Company Has Not Adopted a Code of Ethics, Must Publicly Disclose This Fact and Explain Why a Code of Ethics Has Not Been Adopted In re Caremark 1996 Delaware Court of Chancery Case Director s Obligation Includes a Duty to Attempt in Good Faith to Assure That a Corporate Information and Reporting System, Which the Board Concludes is Adequate, Exists Failure to do so may Render a Director Liable for Losses Caused by Non-Compliance with Applicable Legal Standards. Any Rational Person Attempting in Good Faith to Meet an Organizational Governance Responsibility Would be Bound to Take Into Account [ the Organizational Sentencing Guidelines] and the Enhanced Penalties and the Opportunities for Reduced Sanctions That it Offers. Criminal vs. Civil Penalties When does a violation result in criminal vs. civil liability for a company? Depends on the specific law or regulation but in general, criminal penalties may be applied when: --Willful violations by employees of substantive prohibitions or requirements --Corporate knowledge --Repeat offense --Company has failed to ensure lawful conduct of its business Page

15 Criminal Conduct -- U.S. Sentencing Guidelines for Organizations Applies to organization s conviction for federal crimes Established in 1991; Amended effective November 1, Organization is a person other than an individual. Includes corporations, partnerships, associations, joint-stock companies, unions, trusts, pension funds, unincorporated organizations, governments and political subdivisions thereof, and non-profit organizations. Imposes uniformity on federal criminal sentences and penalties Mandates penalties in excess of those that were generally imposed on corporations prior to 1991 Potential Benefits to Companies with Effective Compliance Programs Potential Fines Under Sentencing Guidelines May Be Reduced Up To 95% if Company is Able to Demonstrate That it Has in Place an Effective Compliance Program 2004 Amendments to Guidelines Emphasis on culture that encourages commitment to compliance Clear guidance on required standards of conduct and internal controls systems Leadership accountability Emphasis on adequate resources for implementing Effective Program Focus on any history of violations by personnel responsible for program Training materials required Periodic evaluations necessary Ongoing risk assessment Mechanism for employees to seek guidance Required whistleblower system for reporting Page

16 Facts Assessed in Making Determination of an Effective Program Size of the Organization necessary degree of formality varies with the size of the organization, i.e. large organization (+5000), more formal Likelihood that Certain Offenses may Occur Based on the Nature of the Business nature of business may indicate a substantial risk that certain types of offenses may occur Prior History of the Organization may suggest types of offenses that the organization should have taken actions to prevent Failure to Incorporate/Follow Industry Practice or Standards Required by Applicable Government Regulations 7 Elements of an Effective Compliance Program Establish Standards and Procedures to Prevent and Detect Criminal Conduct Ensure Board Knowledgeable of Program; High-Level Personnel, Overall Responsible Communicate Policies and Procedures Periodically, in Practical Manner; Training Reasonable Steps for Compliance Monitor; Audit; Evaluate; Whistleblower Mechanism Promote, Enforce Program Consistently Through Incentives, Disciplinary Measures Respond to Offenses; Act to Prevent Further, Similar Conduct; Modify Program No Program Authority to Persons with History or Crime, Inconsistent Conduct Collateral Benefits of Having an Effective Compliance Program Culture of Compliance is Encouraged Non-Compliance is More Easily Discovered -- In the Last Several Years, Many Cases Where DOJ and US Attorney s Office Have Decided Not to Criminally Prosecute Based Upon Company s Self-Disclosure and/or Internal Investigation -- Both are Products of Company Self-Discovery of Violations Increases Likelihood of Settlement with US Government for Civil, Rather Than Criminal Penalties Page

17 Practical Tips Policy Statement Affirming Company s Commitment to Absolute Compliance Management Must Demonstrate Strong Commitment to Policy and Training Program Must be in Writing, Distributed to All Employees Obtain Certification on Program From Each Employee Identify a High-Ranking Employee as the Compliance Officer Identification of Person in Each Department to Whom Violations Should be Reported Provide a Means of Anonymity for Whistleblowers Regular, Person-Person Employee Training; Detailed Records of Training Use Appropriate Contract Language in all Contracts with Relevant Third Parties, e.g., Consultants, Foreign Sales Agents. Update/Revise Compliance Program as Necessary and Audit it Periodically, at Least Every 5 Years, Through Outside Counsel or Outside Auditors. Lori Feathers, Attorney Haynes and Boone, LLP Dallas, Texas lori.feathers@haynesboone.com Page