U.S. Export Controls and Economic Sanctions: Overview

Transcription

1 U.S. Export Controls and Economic Sanctions: Overview Free Trade Alliance San Antonio, TX February 23, 2011

2 Agenda Overview of U.S. Trade Controls Why Comply? Compliance Process Best Practices Compliance Resources 2

3 Overview of U.S. Trade Controls Export Controls Economic Sanctions and Embargoes Anti-boycott Controls Other Controls: U.S. Customs Laws Economic Espionage Act (EEA) 3

4 Dual Use Export Controls Main regulator: U.S. Commerce Department, Bureau of Industry & Security (BIS) Regulations: Export Administration Regulations (EAR) Product Destination Controls: products listed on Commerce Control List (CCL) according to Export Control Classification Number (ECCN) End Use/End User Controls Penalties: Under the International Emergency Economic Powers Act (IEEPA) Civil fines (up to the greater of $250,000 or twice the value of the transaction) Criminal fines (up to $1 million) or if an individual, imprisonment (up to 20 years), or both Possibly greater fines if imposed under the Alternative Fines Act, which (among other things) allows fines to be imposed up to twice the pecuniary gain or loss of the transaction Seizure and forfeiture of goods Loss of export privileges Possible reputational damage 4

5 Dual Use Controls (cont d) What is covered? Dual Use Items generally, U.S.-origin items not specifically designed or modified for military use (even if the item is frequently used by the military, e.g., a water bottle) EXAMPLE 1: U.S.-origin bicycle helmet not specifically designed/modified for a military use. [Dual use item] EXAMPLE 2: U.S.-origin bicycle helmet specially configured to be compatible with military communication hardware. [ITAR item] 5

6 Dual Use Controls (cont d) General Prohibitions (exceptions may apply): Export and reexport of controlled items to listed countries Reexport and export from abroad of foreign-made items incorporating more than a de minimis amount of controlled U.S. content 25% U.S.-origin content by value for most destinations 10% U.S.-origin content by value for sanctioned countries (e.g., Iran, Syria) Reexport and export from abroad of the foreignproduced direct product of U.S. technology and software to listed destinations 6

7 Dual Use Controls (cont d) General Prohibitions (cont d): Engaging in actions prohibited by an order denying export privileges (denial order) Export or reexport to prohibited end-uses or end-users Export or reexport to embargoed destinations Support of certain proliferation activities Export or reexport through listed countries (in transit) Violating terms or conditions of a license, a License Exception or an order issued under the EAR Proceeding with transactions with knowledge that a violation has occurred or is about to occur 7

8 Dual Use Controls (cont d) Common License Exceptions: Temporary imports, exports, and re-exports (TMP) Technology and Software-Unrestricted (TSU) Baggage (BAG) Even when a license exception is available, the exporter still must fulfill all requirements of the applicable exception 8

9 Key Concept: Deemed Exports Release of technology to a foreign national is deemed to be an export to the country or countries of the foreign national Foreign national: Any person who is not a U.S. citizen or permanent resident A valid work or student visa does not change status Technology can include technical data, documentation, manufacturing know-how Release includes transmission of information to a foreign national anywhere, including in the United States 9

10 Arms Export Controls Main regulator: U.S. State Department, Directorate of Defense Trade Controls (DDTC) Regulations: International Traffic in Arms Regulations (ITAR) Penalties: Civil fines (up to $500,000) Criminal fines (up to $1 million) or if an individual, imprisonment (up to 10 years), or both Possibly greater fines if imposed under the Alternative Fines Act Loss of export privileges Possible reputational damage 10

11 Arms Export Controls (cont d) What is covered? Exports of all U.S.-origin defense articles (items listed on U.S. Munitions List) A defense article is defined as any item that has been specifically designed or modified for a military use Includes controls on transfers of technical data related to defense articles to non-u.s. persons, whether that data is transferred orally, visually, electronically, or through any other means 11

12 Arms Export Controls (cont d) With very few exceptions, licenses or other authorizations are required for exports to all destinations of defense articles Exports of defense articles are prohibited to: Embargoed destinations (including Belarus, China, Cote d Ivoire, Venezuela, and about 20 more), State Department Debarred Parties, and Prohibited parties under U.S. law 12

13 Economic Sanctions and Embargoes Main Regulator: U.S. Department of Treasury, Office of Foreign Assets Control (OFAC) Types of Programs: May be comprehensive (e.g., Cuba, Iran, Sudan) or selective (e.g., Burma, Syria, Zimbabwe) b Embargoes on Trade and Services Asset Freezes Entry Restrictions 13

14 Sanctions and Embargoes (cont d) Apply to U.S. persons: U.S. citizens, wherever located U.S. companies Any person in the United States, regardless of nationality May also cover: Non-U.S. persons directing or involved in prohibited conduct by U.S. persons Also for Cuba embargo: Covers all entities owned or controlled by certain U.S. persons 14

15 Sanctions and Embargoes (cont d) Penalties: IEEPA sanctions programs: Civil fines (up to the greater of $250,000 or twice the value of the transaction) Criminal fines (up to $1 million) or if an individual, imprisonment (up to 20 years) or both Possibly greater fines if imposed under the Alternative Fines Act Trading With the Enemy Act (TWEA) sanctions programs (e.g., Treasury s Cuban Assets Control Regulations): Civil fines (up to $65,000) Criminal fines (up to $1 million) (if an organization) or if an individual, criminal fines (up to $100,000) or imprisonment (up to 10 years), or both Possibly greater fines if imposed under the Alternative Fines Act Seizure and forfeiture of goods Possible reputational damage 15

16 Key Concept: Specially Designated National Specially Designated Nationals (SDNs) (e.g., terrorists, drug cartels, certain vessels) Unlawful for U.S. persons to conduct any transaction with an SDN Names change regularly and SDN List is updated regularly May be based in non-sanctioned countries, such as: 16 Canada Mexico UK United States

17 Key Concept: Export of Services Many economic sanctions programs prohibit U.S. persons from directly or indirectly exporting services to sanctioned parties, including sanctioned individuals, entities, and countries Example: A U.S. person cannot repair the computer of an SDN because such conduct would constitute t the provision i of a service to the SDN Sanctions also prohibit a U.S. person facilitating any transaction that a U.S. party could not conduct Example: A U.S. person cannot refer Iran business to a non- U.S. competitor because that U.S. person could not itself conduct such business as a general matter. 17

18 Key Concept: Export of Services (cont d) Prohibition on export of service covers U.S. persons, wherever located Example: U.S. citizen in Kosovo cannot facilitate a prohibited transaction simply because they are outside the United States. Severe penalties still apply despite indirect nature of these acts 18

19 Anti-Boycott Controls Main Regulators: Departments of Commerce and Treasury Regulations: Export Administration Regulations (Commerce) Internal Revenue Code (Treasury) Prohibits (Commerce) or Penalizes (Treasury): Compliance with Arab League Boycott of Israel such as: Refusing to transact with Israel or specific Israeli person or company Agreeing gto provide information about business relationships with or in Israel, or with blacklisted companies, including in shipping documents Penalties: Commerce: Civil fines (up to the greater of $250,000 or twice the value of the transaction) Criminal fines (up to $1 million) or if an individual, imprisonment (up to 20 years) or both Possibly greater fines if imposed under the Alternative Fines Act, which (among other things) allows fines to be imposed up to twice the pecuniary gain or loss of the transaction Denial of export privileges Treasury: Denial of certain tax benefits Possible reputational damage 19

20 Anti-Boycott Controls (cont d) Evasion: any action to avoid U.S. anti-boycott laws and regulations Very fact-specific Current Treasury Department boycott countries: Kuwait, Lebanon, Libya, Qatar, Saudi Arabia, Syria, United Arab Emirates, and Republic of Yemen Boycott requests also may be received from Bahrain, Bangladesh, Indonesia, Iraq, Malaysia, Oman, or others Reporting: Boycott requests generally have to be reported to Commerce and or Treasury, but reporting requirements are different Commerce, report must be made on quarterly basis Treasury, report on annual basis 20

21 Other Relevant Laws U.S. Customs Understand how to identify an item s proper Harmonized Tariff classification, duty level, and the need for statements regarding country of origin, etc. Economic Espionage Act (EEA) Federal crime to steal or misappropriate i trade secrets: To benefit foreign powers To achieve commercial or economic purposes FBI Program: Awareness of National Security Issues and Response (ANSIR) Caution: An ANSIR outreach visit may lead to an investigation of the visited party 21

22 Why Comply Compliance protects national security Compliance is good for business Compliance empowers the workforce Compliance is the law 22

23 Why Comply (cont d) Compliance is the law. The Departments of Commerce, Justice, State, and Treasury punish violators of U.S. trade controls laws: civil fines criminal fines and imprisonment loss of export privileges prohibition of export of goods to a violator Seizure and forfeiture of goods possible reputational damage 23

24 Why Comply (cont d) Compliance is the law (cont d). No person may proceed with a transaction knowing or having reason to know that a violation has occurred, is about to occur, or is intended to occur in connection with the transaction Organization must ensure that its business activities comply with U.S. trade controls laws Organization also must take steps to ensure transaction partners comply 24

25 Recent Enforcement Activity Cases involving exporters (all information from public record): DHL $9.44 million Civil Fine Cabela s Inc. - $680,000 Civil Fine Ingersoll Machine Tools - $126,000 Civil Fine MTS Systems Corp. - $400,000 Criminal Fine; $400,000 Civil Fine Dr. John Reece Roth 4 years imprisonment Ihsan Elashi $330,000 Civil Fine; 50-year denial of export privileges; 6 years imprisonment ABN AMRO (non-u.s. company) - $500 million forfeiture Lloyds TSB (non-u.s. company) - $350 million forfeiture LPPAI, LTD. - $50,000 Criminal Fine Fiber Materials, Inc. and its top two officers - $250,000 Fine Parker Hannifin Corp. - $185,000 Civil Fine BJ Services Company USA - $142,450 Civil Fine Metric Equip. Sales - $50,000 Criminal Fine; $150,000 Civil Fine Valtex Interntl. Corp. at least $250,000 Criminal Fine; $77,000 Civil Fine 25

26 Common Issues Leading to Violations How can exporters get in trouble? Failing to screen transaction partners against lists of restricted parties Not responding appropriately to compliance concerns Failing to screen non-u.s. nationals from controlled technology or technical data Improperly classifying item as controlled by Commerce or State Not completing all license requirements, e.g., failing to get an end-user certificate when required Providing a prohibited origin statement or other information prohibited by U.S. Anti-boycott laws Submitting a false statement on an AES entry, or as part of an SED Improperly identifying a license exception as basis for export Including wrong quantity or value information on the SED Maintaining improper or incomplete records 26

27 Compliance Process Best Practices Establish and maintain a culture of compliance Demonstrate commitment: commitment to adequate, appropriate resources to protect against and detect trade controls violations Ensure all relevant Personnel understand their obligations under U.S. trade controls laws and your organization s compliance policies dealing with such controls (if applicable) 27

28 Compliance Process Best Practices (cont d) Know what trade controls rules apply to the service and article being exported Know when a technology export is likely to occur Obtain the required license or other approval and/or understand the license exemption Screen parties, locations, and end-uses for all transactions where necessary and as appropriate Be vigilant look for Red Flags and report them when they arise Keep required records 28

29 Restricted Parties Screening There may be liability for causing or assisting an export to a restricted or prohibited party Screening is a relatively easy, cost-efficient compliance step, and an important part of any compliance policy that meets best practices standards 29

30 Restricted Parties Screening (cont d) 5 Principal U.S. Government Lists of Restricted Parties: Specially Designated Nationals List: Denied Persons List: Unverified List: Entity List: Debarred Persons List: 30

31 Spot Red Flags All relevant personnel should be expected to spot compliance red flags that have to be reasonably and appropriately addressed. Which means what? Consider designating compliance personnel and encourage your personnel to get to know them. Other resources: Know your customer guidance: BIS red flags guidance: 31

32 Spot Red Flags (cont d) What are Red Flags Consignee is reluctant to offer information about the enduse of the item Delivery dates are vague, or destination is unusual Freight forwarding firm is U.S.-origin product s final destination Shipping route is abnormal for the U.S.-origin product and destination Consignee is evasive as to whether the purchased U.S.- origin product is for domestic use, for export, or for reexport Consignee is a military entity 32

33 Export Recordkeeping Records must be maintained and available for U.S. Government review for 5 years. Export control documents include: Export license Shipper s Export Declaration (SED) Automated Export System (AES) entry. Maintain those records and documents made or obtained by the exporter. 33

34 Compliance Resources Compliance Policy & Procedures: Summary of key trade controls compliance issues Processes to address and respond to issues that arise, including reporting mechanism for compliance concerns Audit function to review compliance policy and procedures as appropriate Prevent against and detect risks & potential violations Compliance Training: Individualized training and periodic refresher courses 34

35 Compliance Resources (cont d) Online Resources BIS website: (includes information about Anti-boycott controls and exports to restricted parties and destinations) DDTC website: OFAC website: Internal Resources Organization supervisors Legal Department Outside Resources Outside counsel 35

36 Thank You Fulbright & Jaworski L.L.P. Stephen M. McNabb Tel: (202) Gozie C. Onyema Tel: (202)

37 What You Need To Know About The FCPA February 23, 2011 When You Think Compliance, Think Fulbright. TM

38 Agenda Recent Enforcement Trends Foreign Corrupt Practices Act ( FCPA ) Other Potentially Relevant Laws Key Compliance Issues Risk Mitigation Strategies 38

39 Recent Enforcement Trends 39

40 Recent Enforcement Trends Top enforcement priority and increased resources Increase in industry-wide investigations and proactive enforcement techniques Large penalties Individual liability Increased international enforcement and cooperation 40

41 Recent Enforcement Trends (cont.) Top enforcement priority and increased resources Significant growth in both the number of FCPA reported enforcement actions and the size of the penalties imposed Dedicated Department of Justice ( DOJ ) and Securities and Exchange Commission ( SEC ) FCPA teams 41

42 Recent Enforcement Trends (cont.) Increased use of industry-wide investigations and growth in the number of industries under scrutiny Industries recently under review include Oil & gas Medical devices & pharmaceuticals Cosmetics Law enforcement & military products Financial services Sovereign wealth funds Insurance Construction & engineering Tobacco Computer & information technology 42

43 Recent Enforcement Trends (cont.) More proactive enforcement techniques SEC and DOJ are sending letters to industry participants following voluntary reports by suppliers or competitors (e.g., Panalpina-related cases) Traditional law enforcement techniques 43 Wiretaps and stings The Gun Sting (January 2010) 22 defendants in the military and law enforcement products industry were arrested and indicted for FCPA violations Search warrants were executed in 14 locations across the United States and in London Defendants allegedly participated in a scheme to pay a 22% commission to a sales agent who represented the minister of defense for a country in Africa in exchange for part of a $15 million contract to provide products to the country s presidential guard First large-scale use of traditional undercover law enforcement techniques in an FCPA investigation

44 Recent Enforcement Trends (cont.) Both the DOJ and SEC are seeking increasingly large penalties Nearly $2 billion in fines and penalties were levied against companies for FCPA-related offenses in 2010 Also in 2010, several individuals were sentenced to prison terms ranging from 6 months to over 7 years Both agencies are also clearly focused on prosecuting individuals 44

45 Recent Enforcement Trends (cont.) DOJ and SEC are increasingly utilizing expansive theories of liability, including aiding and abetting, agency, and conspiracy theories Anti-corruption enforcement is heating up all over the world 45 International enforcement agencies have increased the number of anti-corruption related investigations and prosecutions Cooperation is increasingly routine New anti-corruption legislation is being enacted U.S. style approaches to investigations and resolutions are being adopted by other nations enforcers

46 FCPA 46

47 FCPA Enacted in 1977 following a SEC investigation that uncovered hundreds of U.S. companies made improper payments to foreign officials Two components Anti-bribery provisions that prohibit payments or offers or authorizations of payments of anything of value to foreign officials to obtain business or business advantages Accounting and internal controls provisions that require U.S. public companies to maintain good records and internal controls Civil and criminal liability for companies and individuals Enforced by SEC and DOJ 47

48 48 FCPA (cont.) Anti-bribery provisions apply to All U.S. companies, citizens, or residents, whether or not they act within or outside of the United States Any non-u.s. company listed on the U.S. stock exchanges Any non-u.s. company or individual who executes any part of a bribery scheme within the United States, and All officers, directors, employees, or agents of the above U.S. parent companies may also be liable for the acts of non-u.s. subsidiaries where the parent authorized, directed, or controlled the activity in question

49 FCPA (cont.) Accounting provisions apply to Issuers, which are companies with securities registered in the United States or that file periodic reports with the SEC Foreign subsidiaries i of fissuers are not bound directly by these provisions, but a parent company must generally in good faith use its influence to cause its subsidiary to devise and maintain efficient accounting controls 49

50 50 FCPA (cont.) Facilitating payments exception Made to secure routine governmental action Must be small, reasonable, and welldocumented Most local laws prohibit them Examples include Obtaining copies of or speeding the processing of permits, licenses, official documents Expediting the processing of governmental papers (e.g., visas) Providing police protection Delivering mail Providing utilities (phones, power, water)

51 FCPA (cont.) Two limited affirmative defenses Payment is lawful under foreign country s written laws Payment is a reasonable and bona fide expenditure to demonstrate or promote a product or execute a contract Must be directly related to demonstration/promotion of goods/services or execution/performance of a contract and may include Travel and meal expenses related to tours of a company s facilities and Sponsorship of attendance at company training programs Reasonableness is highly fact-dependent and turns on considerations such as the amount of the expenditure, its lavishness, the timing, etc. 51

52 FCPA (cont.) Criminal Penalties Anti-Bribery Provisions Up to a $2 million fine per violation for companies Up to 5 years in jail and up to $250,000 fine for individuals Criminal Penalties Accounting and Internal Controls Provisions Up to a $25 million fine per violation for companies Up to 20 years in jail and up to a $5 million fine for individuals Fines for both companies and individuals may be even higher than the ones included in the FCPA statute (up to 2x the benefit sought or received) under a federal alternative fine provision 52

53 Civil Penalties FCPA (cont.) FCPA statute permits both the DOJ and SEC to impose a basic $10,000 per violation civil fine upon individuals and companies The SEC may also impose additional civil penalties ranging between $5,000 to $100,000 upon individuals and $50,000 to $500,000 upon companies These additional penalties, and the SEC basic FCPA civil fine, are adjusted for inflation Alternatively, the SEC may impose a civil penalty equal to the gross pecuniary gain to an individual or company 53

54 54 FCPA (cont.) FCPA violations may result in Debarment from government contracts Corporate monitor De-listing from stock exchanges Reputation damages Employee litigation Private cause of action brought by civil plaintiffs for damages under RICO, or under other federal and state securities and fraud laws Lawsuits brought by customers and/or competitors for unfair competition or fraud

55 Other Potentially Relevant Laws 55

56 Other Potentially Relevant Laws Financial Reporting Laws Accuracy of financial statements and conformity with GAAP Section 304 of Sarbanes Oxley allows the SEC to claw back compensation from CEOs and CFOs of companies that restate their financials even if the individuals are not alleged to have engaged in any wrongdoing Dodd-Frank kact 56 Signed on July 21, 2010 Imposes substantial new requirements affecting executive compensation that apply to almost all publicly traded companies, along with additional requirements for financial institutions Section 1504 Disclosure of Payments by Resource Extraction Issuers

57 Other Potentially Relevant Laws (cont.) Dodd-Frank Act Whistleblower Provisions Permit awards of between 10 and 30% of monetary sanctions the SEC imposes upon a company > $1 million to those who assist the SEC with information about a securities violation (including FCPA violations) This information must be independently gained (i.e., not from an internal investigation, audit, annual report, court filing, or news article) Create a private right of action for whistleblowers who are discharged, threatened, suspended, harassed, or discriminated against for reporting securities violations 57

58 Other Potentially Relevant Laws (cont.) Travel Act (18 U.S.C. 1952) Prohibits domestic or international travel or use of facilities to commit, attempt to commit, or help commit certain crimes (either state or federal) Facilities is defined to include the mails, the wires, s, advertising, telephones, etc. Penalties (non-violent violations) Up to a $500,000 per violation fine (or 2x the benefit sought/received) for companies Up to a $250,000 per violation fine (or 2x the benefit sought/received) and 5 years imprisonment for individuals 58

59 Other Potentially Relevant Laws (cont.) Wire & Mail Fraud (18 U.S.C ) Prohibits use of the U.S. wires/mails in connection with any scheme to deprive anyone of a thing of value (i.e., submitting inflated bids/false invoices) May also apply to non-u.s. companies and individuals Penalties (non-violent violations) Up to a $500,000 per violation fine (or 2x the benefit sought/received) for companies Up to a $250,000 per violation fine (or 2x the benefit sought/received) and 20 years imprisonment for individuals Wire fraud affecting a financial institution has additional penalties ($1,000,000 or 30 years imprisonment) 59

60 Other Potentially Relevant Laws (cont.) Bribery of U.S. government officials Federal law prohibits directly or indirectly providing anything of value to U.S. government officials in exchange for an official act (this includes procurement fraud) Government officials include Members of Congress, Commissioners, and all federal government employees and agents Government officials may also include certain state government employees, and employees of Native American tribal and city/county governments Recipients of bribes are also covered 60

61 Other Potentially Relevant Laws (cont.) Many states have anti-bribery laws Many of these laws apply to bribery of both public officials and private persons E.g., Texas Penal Code (public officials) and (commercial bribery) Like FCPA and other anti-corruption laws, these laws often prohibit certain core behaviors (i.e., payments to influence improper actions) Generally apply to persons and businesses living or operating within a state, though acts occurring within a state may also be the basis of jurisdiction 61

62 62 Other Potentially Relevant Laws (cont.) Bribery is not legal anywhere Several countries, such as the United Kingdom, China, Russia, and the Ukraine, are in the process of updating their anti- corruption laws Many of these updated laws prohibit both public official and commercial bribery Corporate offenses are often included Knowing the applicable laws is essential to compliance

63 Key Compliance Issues 63

64 Key Compliance Issues Business Courtesies Facilitating Payments Third Parties (Vendors, Agents, Consultants & Lobbyists) Joint Ventures Mergers & Acquisitions Red Flags 64

65 65 Business Courtesies Effective anti-corruption compliance policies should require that business courtesies (i.e., gifts, entertainment, and travel-related expenses) be pre-approved by an appropriate p supervisor or the company s compliance officer Permissible expenditures should not be lavish or frequent and must be compliant with local laws Transparency is the best way to avoid any appearance of corrupt intent

66 Facilitating Payments Effective anti-corruption policies generally prohibit or place strict limits on facilitating payments, including Pre-approval procedures Procedures to ensure such payments are accurately recorded on the company s books and records 66

67 Third Parties The FCPA and other anti-corruption laws prohibit direct and indirect corrupt payments Enforcement activity routinely involves third parties Often the relevant question is whether you know the payment will go to a government official Knowing as defined by the FCPA includes conscious disregard and deliberate ignorance of issues that a reasonable person would review before proceeding 67 with a particular transaction Many other criminal statutes incorporate a similar willful blindness theory Many types of third parties can put you at risk Subsidiaries or other affiliates Agents, sponsors, representatives, distributors, consultants (e.g. anyone acting on your behalf) Freight forwarders and customs brokers Relatives and friends of government officials Companies owned by government officials Joint venture and merger partners

68 Third Parties (cont.) Including robust anti-corruption provisions in all contract agreements with third parties is one way of mitigating potential anticorruption risks presented by those relationships It is not always easy to predict when a third party might interact with foreign officials Many jurisdictions have laws prohibiting both commercial and public official bribery 68

69 Joint Ventures Joint venture partners, and the joint venture itself, can raise substantial compliance issues For example, several recent FCPA resolutions all arose out of a single Nigerian joint venture That joint venture was with a Nigerian government agency and some joint venture employees were employees of that agency The DOJ/SEC alleged that bribes were paid through the joint venture and have imposed nearly $1.3 billion in penalties against companies involved in the joint venture As with third parties, keys to joint venture compliance involve careful due diligence and the incorporation of robust anti-corruption provisions into the joint venture agreement 69

70 Mergers & Acquisitions Anti-corruption liability has often arisen in connection with mergers and acquisitions A U.S. company may acquire FCPA liability even if the target was not subject to the FCPA when it made an improper payment Avoiding liability in the merger and acquisition context requires robust due diligence 70

71 Red Flags Red flags are indications of potential compliance issues that must be addressed before proceeding with a transaction they are not necessarily violations Very fact-specific Reputation for unethical or suspicious business practices or evidence of past violations of local law or policy Transaction partner is unwilling to enter into written agreement or demands fees in cash Transaction partner suggests multiple agents for same scope of work Transaction partner is politically active or has a close relationship with a foreign official Transaction partner provides incomplete or inaccurate information Transaction partner requests payment be made to third party or in a different country 71

72 Risk Mitigation Strategies 72

73 Risk Mitigation Strategies Robust Compliance Programs Internal Investigations Voluntary Reporting 73

74 Robust Compliance Programs May result in the limitation of criminal, regulatory, and civil liability Key features include 74 Periodic compliance assessments and changes based on location and industry exposure In-person training (and ongoing training) to help employees identify and resolve red flags Open line of communication to GC or CCO and management buy-in Compliance hotline Due diligence of transaction partners In other words, not a paper program

75 75 Robust Compliance Programs (cont.) The U.S. Sentencing Guidelines for Organizations outline seven aspects of effective compliance Compliance standards and procedures Organizational leadership and a culture of compliance Reasonable efforts to exclude prohibited persons Training and communication of standards and procedures Monitoring, auditing, and evaluating program effectiveness Performance incentives and disciplinary actions Response to criminal conduct and remedial action

76 Independent Internal Investigations Allow company to determine the scope of potential problem and proactively demonstrate compliance/remediation Initiated as soon as the company has reason to believe a problem may exist and typically includes Retention of experienced outside counsel, and if needed, outside forensic accountants, who report directly to Board of Directors or Audit Committee Cessation of the potentially problematic conduct and evidence preservation Formulation of a properly scoped investigative plan Consideration of voluntary disclosure to DOJ/SEC and applicable securities laws disclosure obligations Consideration of modifications to compliance program Documentation of all investigative steps and privilege preservation 76

77 Voluntary Reporting Advantages Allows company to present its own internal findings at a time it chooses Permits company to present evidence of misconduct and evidence of its overall compliance commitment at the same time May translate, in turn, to a reduction in penalties and the DOJ/SEC s pursuit of civil il rather than criminal i penalties Disadvantages May still lead to DOJ/SEC enforcement actions Other countries may decide to investigate the corruption allegations Companies that make filings with the SEC may have to disclose the internal investigation in their filings May result in the waiver of privilege in follow-on civil litigation 77

78 Questions? 78

79 Marsha Gerber or Kimberly Walker or 79 AUSTIN BEIJING DALLAS DENVER DUBAI HONG KONG HOUSTON LONDON LOS ANGELES MINNEAPOLIS MUNICH NEW YORK RIYADH SAN ANTONIO ST. LOUIS WASHINGTON, D.C FULBRIGHT [ ]