EXECUTIVE COMPENSATION GROUP ADVISORY DISCLOSURE DEVELOPMENTS: EXECUTIVE COMPENSATION. Ernest W. Torain, Jr. Vedder Price P.C.

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1 From PLI s Online Program FCPA Compliance in High Risk Jurisdictions # EXECUTIVE COMPENSATION GROUP ADVISORY DISCLOSURE DEVELOPMENTS: EXECUTIVE COMPENSATION Ernest W. Torain, Jr. Vedder Price P.C. Disclaimers and Suggested References: The outline that follows provides a general overview of retiree medical benefit VEBAs, with specific focus on the VEBAs recently proposed by the Big Three U.S. automakers. The author is by no means an expert on

2 PLI FCPA COMPLIANCE SERIES FCPA Compliance In High Risk Jurisdictions December 2, 2008 Richard W. Oehler Lee Stein Pravin Rao

3 Overview of Presentation We assume a basic understanding of the FCPA, but will provide a quick review of the elements The characteristics of a high risk jurisdiction Best practices for businesses operating in highrisk jurisdictions Practical strategies for mitigating FCPA risks in high risk jurisdictions 2

4 Giving i or offering Anything of value Elements of an FCPA Anti-Bribery Bib Violation To a foreign (non-us) government official Directly or indirectly Corruptly (i.e. quid pro quo) To advance a business objective 3

5 What Does "High Risk" Mean They are all high risk it is like asking what is "minor surgery" But there are some relevant factors to consider The part of the world The type of business The corporate culture 4

6 Risk Factor: Geography Obviously, some parts of the world experience more corruption than others A convenient (but far from perfect) guide to the relative levels of corruption in various countries all over the world is Transparency Intl's Annual Corruption Perception Index [ The World Bank also provides guides and analysis [ ] News Reports Personal experiences of employees and others in the country 5

7 Example: China 42,000 officials investigated for corruption every year from 2002 to 2005, with more than 30,000 per year facing criminal charges From August 2005 to June ,972 cases involving 416 officials World Bank ranked China 142 out of 204 countries on the 2005 Control of Corruption index Estimated corruption costs: China 0.5% % of GDP 6

8 Transparency International Corruption Perceptions Index 2007 Country Rank (of 179) Denmark, Finland, New Zealand, Singapore, Sweden 1-4 Australia, Canada, France, Hong Kong, Japan, Germany, UK 9-19 USA 20 Israel 30 Czech Republic, Hungary, Italy, Malaysia, S. Korea, Taiwan Brazil, China, India, Mexico, Saudi Arabia Argentina, Egypt, Ukraine Pakistan, Indonesia, Russia, Nigeria Iraq, Myanmar, Somalia Source: 7

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10 Risk Factor: Geography Other factors to consider when trying to determine the risks associated with conducting business in a particular country: Political Stability Emerging Economy Importance of Government relationships in achieving business objectives Respect for Human Rights and Freedoms 9

11 Risk Factor: Type of Business Certain industries historically have experienced a greater incidence id of corruption than others. Pay closer attention if products or services at issue: Are subject to heavy government regulation Are largely purchased by the government If the business does not regularly come into contact with the government, opportunities for corruption are reduced and the risk is diminished (but not eliminated, e.g., zoning, taxes) 10

12 Some High-Risk Business Sectors Healthcare Aviation Medical devices Land transfer Energy Construction Government Procurement Businesses Relying on Imports 11

13 Risk Factor: Type of Business Consider the Business Model Reliance on agents/third parties to conduct business Importance of government relationships in achieving business objectives Reliance on a local workforce versus ex-pats The way in which transactions occur (many small transactions versus large transactions) 12

14 Risk Factor: Corporate Culture Tone at the top of the company Integrity Emphasis on compliance Historical issues with the company (or the acquired company) including maturity of program Quality of training and internal controls Degree to which persons familiar with the FCPA are in positions of leadership Autonomy/control by parent or US leadership 13

15 Best Practices Conduct due diligence on: Prospective business combinations (e.g., merger, joint venture, partnership) Prospective agents and key employees No affirmative obligation to perform due diligence but it is expected by DOJ and a Board of Directors, and it is prudent Objective: determine whether the proposed "partner" is or has engaged in practices that suggest the use of corruption as a means to further business objectives 14

16 Best Practices (cont'd.) Not all proposed business relationships are the same In deciding how much and what kind of due diligence inquiry to perform, consider the risk factors of geography, business type and corporate culture A proposed merger in Russia should be treated differently from hiring a sales agent in Luxembourg However, you will never be criticized i by DOJ or a Board of Directors for doing too much due diligence 15

17 Best Practices (cont'd.) Resources for Evaluating the Suitability of a Proposed Partner Engage a third party to conduct background checks and perform in-country research Obtain a Company Profile from the U.S. Department of Commerce Review the company's books and records or, if an individual, review contracts and agreements Consult with the U.S. Embassy Internet research Retain local counsel to advise on the political structure and norms Conduct interviews of key personnel and references 16

18 Mitigating g FCPA Risks in High Risk Jurisdictions Develop a comprehensive FCPA compliance program which provides clear direction to employees. Key components: Written policy/code of conduct Board oversight/designated responsibility Communications and training Encourage reporting Evaluation of allegations/assessment of risks Consistent, appropriate treatment 17

19 Mitigating FCPA Risks in High Risk Jurisdictions Training that addresses: FCPA basics Prohibited recipients and payments Intent and "knowing" standard Due diligence and recognizing red flags The "books and records" provisions Institute an approval process Help line and other reporting tools Audit for anti-corruption compliance Refresh due diligence on a regular basis Include FCPA compliance terms in any agreement (consulting agreement, sales representative agreement, JV operating agreement) 18

20 Dealing with Government Customers in High-Risk Jurisdictions When doing business with government agency or state-owned enterprises (SOE's) Request est a certification that contracts are permitted under local law. Conduct analysis to confirm that the transaction and related compensation are at fair market value Seek out local counsel for opinion letter and advice on legality lit of contracts t under local l law 19

21 Our Speakers Rick Oehler is a Perkins Coie LLP Litigation partner who handles internal and government investigations in the FCPA, U.S. export control and government procurement areas. He also conducts related counseling. A former U.S. Department of Justice attorney, Rick has handled numerous FCPA investigations, established FCPA compliance programs and conducted FCPA compliance audits and training. 20

22 Our Speakers (cont) Lee Stein is Co-chair of Perkins Coie's Investigations and White Collar Criminal Defense Practice Group. Lee's practice is focused on advising clients on FCPA matters, conducting investigations and criminal defense. Lee is a frequent lecturer on the FCPA and related matters. Lee spent a number of years at the U.S. Attorney's Office and the Arizona Attorney General's office prosecuting primarily fraud and public corruption cases. 21

23 Our Speakers (cont) Pravin Rao is a Perkins Coie Litigation partner who focuses his practice on Investigations and White Collar Criminal Defense, Securities, and Corporate Governance. Pravin uses his prior experience both as a prosecutor with the U.S. Attorney's Office and an enforcement attorney with the SEC to advise clients on the FCPA and a variety of related matters, including exposure to possible criminal and civil (i.e., "books and records") violations. 22