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2 Global Anti-Corruption Laws The Perils of Doing Business in Asia November 20, 2014 Presenters: Michael Ramirez with Tilleke & Gibbins Alicia Ashfield with Church & Dwight Co., Inc. Charles Wilkinson with Ashland Inc. 2

3 Corruption in Asia An Overview If you want to buy a Sherman tank, a Red Cross blanket, or simply speed up the installation of a telephone line, there is probably no easier place in the world in which to do just that than in Asia if you are willing to part with some cash, that is. With pathetically few exceptions, the countries in this region are so riddled with corruption that the paying of tea money has become almost a way of life The Far Eastern Economic Review

4 Corruption in Asia An Overview Perceptions Corruption is rampant throughout Asia and particularly so in SEA and China It exists at all levels of society private and public There is little governmental commitment to eradicate or otherwise reduce corruption Enforcement is virtually non-existent It is necessary to accept some level of corruption in order to compete regionally 4

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6 Impact on Business Operators Pernicious tax on business collectively Over USD 500 billion for private sector corruption in developing countries alone Deters private investment, misallocates resources and generates social grievances Higher individual project and operating costs More than a third of international business managers estimated corruption increases international project costs by more than 10 percent, while one-sixth believed corruption inflates costs by more than 25 percent 6

7 Impact on Business Operators Massive costs for non-compliance short and long-term Beyond the bribery itself, costs can also include fees in civil and criminal prosecutions, fines, liability for shareholder derivative suits, extortion by public officials and others, investigation costs, remediation costs, and exclusion from government and international institutions The opportunity cost of corruption to business includes losing out on higher premiums More than half of the 70,000 people interviewed in 69 countries for TI s 2009 Global Corruption Barometer said they were willing to pay more to buy from corruption-free companies 7

8 The Culture of Corruption There are several reasons why corruption persists in many Asian countries Disparity in wealth low wages Increased opportunities for administrative discretion Poor enforcement Cultural influence Lack of political will Cultural influence a constant companion to business 8

9 The Culture of Corruption Asian culture and its influence on corrupt business acts Asian tradition of gift giving Prevalent in most Asian societies Ex. Sin Nam Jai - Thailand Cultural notion of respect for those in positions of influence, based on age, experience, etc. Familial gratitude Debts of gratitude based upon family contribute to nepotism and other forms of corruption Extends to relationship based expressions of gratitude Promotion of reciprocity 9

10 Regional Commitments to Anti-corruption Efforts Political/Governmental commitment Varies from non-existent to strong commitment a sampling Weak - Myanmar, Cambodia, Laos Middle tier Thailand, Vietnam, Indonesia, China Strong Hong Kong, Singapore What constitutes commitment? Regulatory infrastructure existence of laws Supportive and efficient reporting and enforcement mechanisms Philippines largest number of laws but a poor performer China robust laws and administrative bodies, but selective enforcement and poor coordination amongst enforcement bodies Singapore impartial coordination of law and enforcement 10

11 Regional Commitments to Anti-corruption Efforts Singapore Central authority Corrupt Practices Investigation Bureau Prevention of Corruption Act Penal Code Public and private application Extra-territorial effect Full implementation of international anti-corruption agreements Obligations to report 11

12 Regional Commitments to Anti-corruption Efforts Korea Central authority Anti-corruption and Civil Rights Commission and Financial Intelligence Unit Numerous substantive laws, but primary law is The Anti-corruption Act Criminal Code Extra-territorial effect through the Foreign Bribery Prevention Act Primarily public corruption focus, but private application Voluntary whistleblower provisions some reporting obligations OECD; Ratified UNCAC significant progress to full implementation 12

13 Regional Commitments to Anti-corruption Efforts China No central authority Primary Law Criminal Code Anti-unfair Competition Act Public and private corruption criminalized Most prosecutions are for public corruption Private only for large value claims Extra-territorial effect of new foreign officials provisions Implemented UNCAC Lack of effective whistleblower provisions general obligations 13

14 Regional Commitments to Anti-corruption Efforts Thailand Central authority - National Anti-corruption Commission Primary laws Constitution note on interim constitution Organic Act on Counter Corruption Penal Code Act Concerning Offenses Related to the Submission of Bids to State Agencies Concentration on public corruption No extra-territorial effect exception for submissions of bids No broad whistleblower obligations, except for certain reporting obligations for financial institutions, traders, etc. consider role of defamation law Ratified UNCAC 14

15 Vietnam Regional Commitments to Anti-corruption Efforts Numerous State bodies responsible for combating corruption Primary Law Law on Anti-corruption Penal Code Public corruption emphasis Extra-territorial effect in theory Whistleblower obligations Ratified UNCAC implementation incomplete 15

16 Regional Commitments to Anti-corruption Efforts Philippines Central Authority no primary authority Office of Ombudsman, Philippine National Police, National Bureau of Investigation, etc. Numerous sources of substantive law Public and private application Generally no extra-territorial effect No whistleblower obligations Ratified UNCAC long road to compliance 16

17 Corruption in Asia Reporting and Enforcement Sample case studies Singapore IKEA case China GlaxoSmithKline Thailand Bangkok Film Festival Case Consider role of both domestic and extra-territorial law Ex. Pharma The Thai procurement dilemma 17

18 Examples of Extra-territorial Laws UK Bribery Act (The Bribery Act 2010 (c23)): pertains to bribery of government officials and private parties wherever located. Applicable to British citizens of all classes and individuals ordinarily resident in the UK. Enforced by the Serious Fraud Office (SFO). Civil and criminal penalties. US Foreign Corrupt Practices Act (15 USC 78dd-1): pertains to bribery of a foreign official as defined in the act. Enforced by the US Department of Justice and the US Securities Exchange Commission (SEC) (with respect to issuers of securities which includes ADRs). SEC actions often referred to as books and records enforcement. Criminal and civil penalties. US Travel Act (18 USC 1952): criminal statute prohibiting the use of the US Mail or interstate or foreign travel to promote, manage, establish or carry out an unlawful activity. Often part of an FCPA prosecution. 18

19 Recent Enforcement Activities UK Bribery Act December SFO announces a criminal investigation into allegations that Rolls-Royce. May SFO announces an investigation into allegations of bribery against GSK in China. July Alstom Network UK is charged by the SFO with offences under the bribery laws predating the UK Bribery Act. July SFO arrests former/current Airbus staff in an investigation of alleged corruption by a Saudi Arabia subsidiary. July SFO announces an investigation of allegations concerning a Dubai-based former employee of Sweett Group. 19

20 Recent Enforcement Activities FCPA April HP and related entities agree to pay $108M to resolve FCPA enforcement action. October Layne Christensen agrees to pay $5.1M to settle SEC action. November DOJ and SEC announce enforcement action against Bio-Rad Labs resulting in $55M settlement. 104 companies currently under FCPA investigations involving 50 countries. 20

21 Challenges for Businesses Indicators of Potential Corruption Problems - Unusual high value charges for services for customs entry. - Off books cash fund for unsupervised discretionary spending. - Substitute documents (i.e. B/L, invoices) created by local office. - High value gifts to customers or government employees. - Retention of a consultant to act as facilitator or middle man. - Conflict of interest (i.e. employee buys material from a relative). - Allocation of expenses to accounts not related to actual spend. - Multiple bank accounts with only local office control. - Payment for government services usually provided at no charge. 21

22 Protecting the Company An ounce of prevention is worth a pound of cure Due diligence before retaining a distributor, sales agent, consultant, joint venture partner, etc. Examples of Due Diligence Resources: Dow Jones Risk & Compliance, Dun & Bradstreet (subscription services) Private investigative firms Bribery indices: Transparency International, Trace International (new November 2014) 22

23 Challenges for Business Variances in Laws US FCPA does not have a specific dollar threshold. China anticorruption law has concepts like bribe, serious bribe and very serious bribe resulting in different penalties. Thailand has concepts of active and passive corruption not found in the US FCPA. Compliance or non-compliance with one set of laws may not be compliance or non-compliance with another set of laws. 23

24 Challenges for Business Interest in Anti-Corruption Laws Countries have seen success of US FCPA enforcement. Efforts to meet OECD model. Currently, only Korea and Japan are Asian countries that have signed the OECD Anti-Bribery Convention. 24

25 Questions? 25

26 Speaker Contact Information Michael Ramirez Consultant Tilleke & Gibbins (Lex Mundi Member Firm for Thailand) No. 1608, 16th Floor, Sakura Tower 339 Bogyoke Aung San Road Kyauktada Township, Yangon Myanmar Tel:

27 Speaker Contact Information Alicia Ashfield Assistant General Counsel/ International Counsel Church & Dwight Co., Inc. Princeton South Corporate Park 500 Charles Ewing Blvd. Ewing, New Jersey

28 Speaker Contact Information Charles Wilkinson Senior Corporate Counsel Ashland Inc. Blazer Parkway Lexington, Kentucky

29 Thank You Lex Mundi the law firms that know your markets. 29

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