Compliance Comments and FCPA Review

Transcription

1 ALSTON&BIRD LLP Compliance Comments and FCPA Review New York January 9, 2013 Copyright 2013 Jon Fee All Rights Reserved

2 The unfortunate tension Preference programs like CAFTA are great; but they come at a compliance cost The challenge to the U.S. policymakers is to enhance trade with its partners without making compliance so difficult that it offsets the benefits

3 Noncompliance isn t fair U.S. and CAFTA companies work hard to comply and it is an expensive, time consuming enterprise When someone is reckless, or cheats, and doesn t get caught, he gets an unfair competitive advantage Worse still, the infractions of reckless companies cause CBP to become suspicious of the industry and to increase intrusive enforcement activity

4 Compliance comparison Asia Commercial invoice Bill of lading CAFTA Commercial invoice Bill of lading FTA certificate of origin Fabric affidavit Yarn affidavit Thread affidavit Pocketing affidavit Invoices and transit documents for fabric and other inputs Production records Information requests Notices of action Factory visits Etc., etc.

5 So what should we do? Have an individual or individuals, supported by senior management, whose job is compliance Establish reliable practices and procedures, including checklists and written guidelines ensuring compliance Use standardized compliance forms: certificates of origin, affidavits, invoices, etc.

6 Commercial invoice The invoice should describe the apparel with sufficient detail to classify it Type of garment (e.g., shirt, trousers, etc.) Sex and age group of intended wearer (e.g., men s, women s, boys or girls ) Whether woven or knit Fiber content (e.g., 60 percent cotton, 40 percent polyester)

7 Commercial invoice Other descriptive information, where applicable, necessary for tariff classification (e.g., water resistant, with two or more colors in the warp and/or the filling ) For short supply garments, the commercial invoice should also include the specifications of the fabric or yarn called for by the short supply designation

8 Certificate of origin This isn t an entry document It must be prepared and signed by the importer, exporter or producer and must be in the importer s possession at the time the CAFTA claim is made The importer must submit it to CBP upon request No required form as long as it contains the necessary information See 19 CFR

9 Guidance TBT (October 10, 2007) TBT (March 31, 2011) TBT (March 22, 2012) Where to find them: v/trade/priority_trade/textile s/tbts/ Hard to use, because they make cumulative changes

10 Highlights of the 3rd TBT Issued March 22, 2012 Responded to lots of complaints that CBP was interpreting the rules too rigidly TBTs are guidance, not law CBP is aware of inconsistencies in the application of the TBTs TBTs are not exhaustive and should not be interpreted rigidly

11 Highlights of the 3rd TBT Where correlation is not apparent, importers should supplement documents with information showing how they are connected to one another, possibly by numbering them If documents cover materials that weren t used to make the goods in question, the importer should include a note that explains this

12 Highlights of the 3rd TBT If there are omissions through oversight or the result of inaccurate translations, CBP import specialists should seek clarification When an affidavit doesn t provide confirming details, the importer should supply more support, like purchase orders, invoices and proofs of payment CBP denial solely on the basis of information it did not request is not appropriate

13 Highlights of the 3rd TBT Will be sold or to be sold on an affidavit is ambiguous if an affidavit says this, CBP expects records showing when the sale took place Affidavits are expected to but need not be signed, nor do they need to be originals import specialists can call issuers to verify The use of letterheads is not required a letterhead s implication that the company produces other merchandise does not preclude use of the letterhead

14 FCPA Perceptions We tend to associate the FCPA with defense contractors, oil companies and other big multinationals FCPA was passed in the Carter administration in the wake of a 1970s Lockheed scandal involving bribes for foreign defense contracts and Bananagate, where Chiquita bribed the president of Honduras to lower taxes

15 Reality In April 2012, the New York Times said the SEC asked some Hollywood studios (including 20 th Century Fox, Disney and Dreamworks) about payments to government officials in China to gain the right to film and show movies there The 2010 annual report of Kraft Foods said it had been subpoenaed by the SEC for FCPA reasons in connection with an Indian company that was part of its acquisition of Cadbury

16 Reality In a November 2012 SEC filing, Beam, Inc. said it started an investigation into whether its business in India was in compliance with the FCPA and other US laws In 2010, gunmaker Smith & Western came under FCPA investigation after a sales executive was charged with allegedly offering a bribe to an FBI agent posing as a government official of an African country

17 Reality Since 2008, Avon has conducted an internal FCPA investigation after an employee wrote to the CEO about improper spending related to travel with Chinese government officials Avon has taken certain personnel actions, including termination of employment of certain senior members of management, according to its Form 10-Q filed with the SEC in November 2012

18 Avon s problems expand The 10-Q says the case involves travel, entertainment, gifts, use of third-party vendors and consultants, joint ventures and acquisitions, and payments to third-party agents, in connection with our business dealings with foreign governments and their employees The Company believes that it is probable that the Company will incur a loss related to the government investigations [and] such loss could be material

19 And then there s Walmart In December 2011, Walmart disclosed that it might have violated the FCPA, that it started an internal investigation and that it alerted the SEC and DOJ It said, the investigation involves certain matters, including permitting, licensing and inspections and discrete incidents in specific areas

20 Walmart story grows In April 2012, the NYT reported that Walmart paid bribes of $24 to officials in Mexico to facilitate its rapid growth there (about one-fifth of all Walmart stores are in Mexico) After discovering the bribes in 2005, according to the NYT, Walmart s leaders engaged in a massive cover up until its disclosure in 2011

21 Later Walmart disclosure The case could lead to judgments, settlements, fines, penalties, injunctions, cease and desist orders or other relief, criminal convictions and/or penalties Could impact the perception among certain audiences of its role as a corporate citizen The Company can provide no assurance that these matters will not be material to its business in the future Also mentions class action based on claims that the case affected stock value and eleven derivative suits against certain officers and directors who allegedly condoned or participated in illegal activity

22 Legal cost Walmart s company filings say that it spent $51 million in legal fees in 2012 Avon has spent $280 million in legal fees Siemens, a German conglomerate, conducted a twoyear internal investigation following its disclosure of FCPA violations in 2008 and spent more than $100 million to law firms for document review

23 Top ten FCPA settlements 1. Siemens (Germany): $800 million in KBR / Halliburton (USA): $579 million in BAE (UK): $400 million in Snamprogetti Netherlands B.V. / ENI S.p.A (Holland/Italy): $365 million in Technip S.A. (France): $338 million in JGC Corporation (Japan) $218.8 million in Daimler AG (Germany): $185 million in Alcatel-Lucent (France): $137 million in Magyar Telekom / Deutsche Telekom (Hungary /Germany): $95 million in Panalpina (Switzerland): $81.8 million in 2010

24 Who s subject to the FCPA Any issuer (US or foreign) that has securities registered, or which is required to file reports, under the Securities and Exchange Act of 1934 Any domestic concern, including any individual who is a US citizen, national or resident, and any corporation or partnership that has a US principal place of business or that is organized under the laws of a US state

25 Who s subject to the FCPA Any other person or entity, other than an issuer or domestic concern, while in the United States Each of the foregoing includes any officer, director, employee, or agent of such person or any stockholder acting on behalf of such person

26 Extraterritorial reach Notice that foreign companies can be prosecuted under the FCPA if they violate the Act anywhere in the world while in the United States Similarly, foreign companies can be prosecuted under the similar UK Bribery Act if they violate the Act anywhere in the world and carry on a business or part of a business in the United Kingdom

27 FCPA violations Corruptly (i.e., with corrupt intent) to make a payment To a foreign official or foreign political party or party official or candidate for foreign political office or any person while knowing the payment will be given to such an official, party or candidate For the purpose of obtaining or retaining business for or with, or directing business to, any person

28 Comments Foreign officials can be minor officials, officials of state-owned businesses, members of royal families and other non-obvious persons Third party payments are sensitive; the US Justice Department warns to exercise due diligence and be wary of unusually high commissions, lack of transparency in expenses, lack of qualifications of joint venturers, a history of corruption in the country where business is conducted and other red flags

29 Exception grease payments No violation for payments for routine governmental action, such as: permits, licenses or other documents to qualify a person to do business in a country visas or work orders police protection, mail delivery, scheduling of inspections phone, power or water services, loading cargo, protecting perishables similar nondiscretionary actions

30 Affirmative defenses The payment was lawful under the written laws of the foreign official s or political party s country The payment was a reasonable and bona fide expenditure, such as travel or lodging, related to (a) promotion, demonstration or explanation of a product or service, or (b) the execution or performance of a contract with a foreign government or agency

31 FCPA accounting provisions A company with listed securities must keep books and records that accurately and fairly reflect the transactions of the company and must maintain adequate internal controls Intended to complement the anti-bribery provisions

32 Penalties under the FCPA $2 million criminal penalty for corporations and other business entities $100,000 and five years imprisonment for officers, directors, employees and agents The Alternative Fines Act provides a criminal fine of twice the benefit that the defendant sought to obtain by the corrupt payment (this is the part that yields such big settlements)

33 Penalties under the FCPA Civil penalties assessed by the SEC can be as large as the greater of a specified amount or the amount of pecuniary gain to the violator as a result of the violation The specified amount is $100,000 for natural persons and $500,000 for other persons

34 Other FCPA sanctions Bar from government contracts Ineligibility for export licenses Suspension from CFTA, OPIC and other agency programs Loss of IRS tax deductions for the expense of unlawful payments Private right of action (e.g., by a competitor) under RICO

35 Opinion DOJ will issue a written opinion upon request by any US company or national as to its enforcement intentions regarding proposed business conduct DOJ will issue the opinion within 30 days Conduct for which DOJ has issued an opinion stating that conduct conforms with current enforcement policy will be entitled to a presumption of conformity with the FCPA

36 November 14, 2012 Resource Guide A Resource Guide to the U.S. Foreign Corrupt Practices Act; available at nal/fraud/fcpa/guidance/

37 Self Reporting, Cooperation, Remedial Efforts Many expected helpful commentary in the Guide on these topics; but the Guide is disappointing For criminal matters, the Guide merely makes cross references to existing, general materials in Principals of Federal Prosecution of Business Organizations and the U.S. Sentencing Guidelines No safe harbor and no special rules for cooperation or remedial effort

38 Guide on best practices Commitment from senior management Codes of conduct and policies and procedures Oversight, autonomy, resources Risk assessment Training and continuing advice

39 Guide on best practices Incentives and disciplinary measures Third party due diligence and payments Confidential reporting and internal investigation Continuous improvement: periodic testing and review Pre-acquisition due diligence and postacquisition integration

40 Jon Fee Alston & Bird LLP 950 F Street, N.W. Washington, D.C jon.fee@alston.com