Best Practices for Addressing Corruption- Related Risks Presented by. International 3 rd Party Intermediaries. Agenda

Transcription

1 Best Practices for Addressing Corruption- Related Risks Presented by International 3 rd Party Intermediaries Society of Corporate Compliance & Ethics 2015 Annual Compliance & Ethics Institute October 6, 2015 Randi J. Roberts Vice President, Compliance NBCUniversal Agenda Introduction: Corruption Risks Presented by International 3 rd Party Intermediaries Conducting Anti-Corruption Risk Assessments of International 3 rd Party Intermediaries Step 1: Identify/Categorize Third Parties Based on Nature of Work To Be Performed & Associated Risk Level Step 2: Implement Compliance Processes Based on Risk Category Risk-based Screening & Background Checks Training Contractual Safeguards Establish Internal Approval Processes Based on Risk Step 3: Monitoring & Auditing Conclusion: 6 Things To Remember 1 Introduction: Corruption Risks Presented by International 3 rd Party Intermediaries 2 1

2 Companies Entering New Markets Commonly Use Third Parties Many companies doing business in foreign countries rely on local individuals or companies to help navigate market structures, address cultural issues Difficulty entering into foreign market without partnering with a local third party Consultants, agents, brokers, distributors or JVs frequently used Third party relationships often critical for business success in new foreign markets, but expose companies to FCPA risk Majority of reported FCPA cases involved third party intermediaries 3 U.S. Foreign Corrupt Practices Act (FCPA) Broadly applicable to U.S. companies, as well as foreign companies or persons with a nexus to the U.S. and their affiliates Two primary objectives: Anti Bribery Provisions: Prevent bribery and corruption involving foreign government officials (broadly interpreted) in order to secure improper influence over official actions that affect the Company. Books & Records and Internal Control Provisions: Companies must maintain accurate books and records so bribes can t be hidden. Also requires organizations to devise and implement a system of adequate internal controls. FCPA expressly prohibits corrupt payments to foreign officials for the purpose of obtaining or retaining business 4 Elements of the FCPA Offer or payment Directly OR indirectly Anything of value To a foreign official, political party, or candidate Made with corrupt intent To assist in obtaining or retaining business OR gaining an improper business advantage The fact that a bribe is paid by a third party does not eliminate the potential for criminal or civil FCPA liability. A Resource Guide to the U.S. Foreign Corrupt Practices Act, p. 22 (Nov. 2012) 5 2

3 Who is Covered by the FCPA s Anti Bribery Provisions? Companies U.S. companies, public and private Foreign subsidiaries of U.S. companies Foreign cos. with U.S. headquarters Foreign cos. listed on U.S. exchanges Foreign cos. with U.S. investors that have representation on board of directors Even companies in which U.S. investors hold only a minority of shares have been the subject of FCPA enforcement actions Third party agents acting on behalf of those companies Individuals Officers, directors, agents, and employees of those companies U.S. citizens, nationals, and residents Foreign nationals acting for a U.S. company Foreign nationals who commit an act in furtherance of a bribe while in U.S. 6 Majority of Reported FCPA Cases Involved Third Parties Third Party Company Allegations Distributors Biomet Distributors paid bribes on Biomet s behalf to doctors in China & Brazil Subcontractor made payments to Argentinian Subcontractors IBM Argentina bank owned by Argentine gov t on behalf of IBM Singapore reseller paid bribes to reps of statecontrolled Vietnamese company on behalf of Resellers Veraz Networks company Sales agents paid exorbitant commissions Sales Agents Invision Technologies with knowledge that money would be used to pay officials in China and the Philippines Charitable Small charitable foundation used as Organizations Eli Lilly intermediary for payments to Polish gov t official Consultant with close ties to to Mexican stateowned petroleum co. Pemex paid bribe to Consultants HP Pemex employee Panalpina World Freight-forwarding co. paid bribes to local Freight Forwarders Transport Customs officials on behalf of several oil & gas cos. in order to circumvent local import rules and regulations Companies Cannot Assume That Using Third Parties Will Enable Them To Avoid Liability 7 7 The Conscious Avoidance Issue a/k/a Sticking Your Head in the Sand Knowledge under FCPA can be established if you are aware of a high probability of the existence of a fact and you consciously avoid confirming it Example: U.S. v. Kozeny, et al., 667 F. 3 rd 122 (2 nd Cir. 2011) Dooney & Bourke co founder Frederic Bourke convicted on FCPA charges in connection with investment in Azerbaijan Group of investors led by Viktor Kozeny, an int l businessman also known as the Pirate of Prague Gov t alleged Kozeny arranged for tens of millions in bribes to Azeri officials Gov t argued both actual knowledge and willful blindness 2 nd Cir. found ample evidence to support conviction on willful blindness theory: Bourke knew of corruption in Azerbaijan and Kozeny s poor reputation Bourke voiced serious concerns to others that Kozeny was bribing gov t officials Another investor declined to invest after conducting diligence on Kozeny Management cannot take refuge from the Act s prohibitions by their unwarranted obliviousness to any any action (or inaction), language or other signaling device that should reasonably alert them of the high probability of an FCPA violation H.R. REP. No , at 920 (1988) 8 3

4 Conducting Anti-Corruption Risk Assessments of International Third Party Intermediaries 9 Federal Sentencing Guidelines Provide Baseline For Conducting Third Party Due Diligence Federal Sentencing Guidelines: Encourage establishment of compliance/ethics programs to help prevent and detect organizational wrongdoing; should be reasonably capable of reducing likelihood of misconduct Established that an effective compliance and ethics program requires (1) creating policies, procedures and controls; (2) exercising oversight; (3) due diligence; (4) training; (5) monitoring and auditing; (6) enforcement and discipline; and (7) appropriate response and future prevention Require organizations to exercise due diligence to avoid delegation of authority to unethical individuals Organizations must use appropriate safeguards to ensure they re dealing with reputable and ethical organizations and individuals Organization must establish compliance and ethics programs rooted in the Guidelines in order to be eligible to receive benefits, e.g., reduced fines, sentences, deferred prosecution other remedies No One Size Fits All Solution: Best Practice Requires Diligence Tailored to Third Party Risk 10 Step 1: Identify/Categorize Third Parties Based on Nature of Work To Be Performed & Associated Risk Level Type of Engagement: Third party intermediary long or short-term engagement Service Provider limited assignment Relevant Jurisdiction(s) Transparency International Corruption Perception Index Interaction with Government Officials Proximity Test Payment Method: flat fee vs. commission-based or some combination Ongoing relationship post-signature (e.g., product reviews, marketing cooperation, financial reviews)? Does agent represent other clients? How much does Company s business represent as % of agent s overall business? Authority to negotiate or enter into contracts on behalf of Company? Right to use Company s logos and trademarks? Access to Company s internal financial systems? Authority to collect receivables due Company? Expenses paid or reimbursed? Use Data Collected To Assess Whether Proposed Third Party Falls Into Low, Medium, High Risk or Exceptional Territory Category 11 4

5 Step 2: Implement Compliance Processes Based on Risk Category Risk-based Screening & Background Checks Training Contractual Safeguards Background checks, incl. public records checks, based on level of risk (e.g. high-risk country, interaction w/government officials, compensation terms) Close review of intermediary s qualifications, expertise, relationship to government officials Reference checks Affirmative recommendation from business High-level corporate approvals Anti corruption training prior to any business activity on your behalf Provide copy of Code of Conduct Signed anti corruption acknowledgment post training Anti corruption provisions Periodic certification of anti corruption compliance Contract contains: 1) certifications of past compliance with anti corruption laws, 2) forward looking compliance covenants, 3) audit rights Anti corruption training and acknowledgement Oversight/ Monitoring Periodic audits to identify warning signs of illegal activity Invoice Review: Periodic review of invoices to detect inflation of fees, unusual expenses; ensure sufficient detail provided along with backup documentation (quarterly) Business Finance teams trained to be vigilant for red flags throughout performance 12 Risk Based Screening & Background Checks Due Diligence: Different Levels of Background Checks Depending on Risk Internet search, D& B Reports, U.S. Commerce Dept ICPs, US Embassy Check Licensing/Registrations Restricted party/denied persons lists, terrorist watchlists Legal/regulatory history of agent and its officers, incl. pending lawsuits, gov t investigations, judgments,/liens, criminal proceedings, fines/penalties Government affiliations Local language media reviews Contact and interview references Affirmative Recommendation From Business Unit Executive Conduct Site Visit/Interview Key Players 13 Risk Based Screening & Background Checks (cont.) Proposed Agent Should Complete Questionnaire: Nature of business and proposed relationship Sales rep, distributor, customs broker, other service provider Basic Information about Proposed Agent s Organization: Address, phone, website, office locations Type of business, date/place of incorporation No. of employees, office locations Licenses, registrations, tax ID #s Prior names under which agent did business Ownership structure, incl. basic info re principals, officers, employees Government//political party affiliations Financials: bank account information, balance sheets, income statements References: Prior representations w/contact info Self-disclosures: Legal Proceedings, Gov t investigations (past & present) Judgments, Liens History of suspensions, debarments 14 5

6 Risk Based Screening & Background Checks (cont.) Request & Review 3 rd Party s Key Documents for High-Risk Third Parties Examine compliance program documentation Clear, documented anti-corruption policies and procedures? Senior management engagement in, oversight of compliance efforts? Third party due diligence & certifications? Regular training? Hotline reporting mechanisms? Review 3 rd party s litigation/claims history Critical to Follow Up on Any Red Flags Identified During Screening Process 15 Training Copy of Code of Conduct Signed Code Acknowledgment Training Session Include all staff working on account or project Consider need for in-person vs. online or phone training Tailor to type of third party and risk level Speak the language, understand the culture Broad coverage of relevant laws, policies Company s Code of Conduct, key policies Specific guidance re FCPA, UK Bribery Act, local anti-corruption laws Make it meaningful case studies, news stories Make it interactive solicit questions, discussion Tailor periodic refreshers to risk level (e.g., if relationship is longterm consider annual) 16 Affirmative Reps & Warranties Contractual Safeguards Agent will comply w/ all applicable laws, regulations and Company policies Include specific reference to FCPA, UK Bribery Act and other laws as necessary No corrupt payments, improper payments to secure gov t approvals, improper advantage Books & records will be accurate, complete, to be maintained for a period of years Covenants Agent has not, within the last X years: Violated applicable laws, judgments, orders or decrees Committed acts that could give rise to criminal prosecution or civil enforcement Received notice of possible charges, inquiry or investigation by gov t agency No gov t officials as owners or in other relevant positions Agent will make appropriate disclosures to Company re any failure to comply with law Indemnification for any damages caused by material breach Audit & Termination Rights Right to audit books/records Right to terminate relationship if reps are materially untrue, other covenants breached Material Adverse Effect clause carve-out for serious reputational harm, criminal prosecution, material civil enforcement penalties 17 6

7 Establish Internal Approval Processes Based on Risk Approval Process - Business Involvement & Accountability Manager requesting approval presents: Summary of all due diligence performed Affirmative recommendation attesting to integrity of proposed representative Plan for ongoing monitoring/oversight, including commitments to conduct regular audits, red flag reviews, etc Senior Exec Engagement critical component Senior Management (e.g., GC, CFO, CCO) reviews & approves appointments in high-risk jurisdictions Asks questions, establishes accountability Sends message that this is important, not just a check the box exercise Not solely responsibility of legal/compliance function 18 Step 3: Monitoring & Auditing Establish Oversight Plan Based on Risk Level: Regular due diligence updates Watchlists, sanctioned countries lists (at least quarterly) Internet/media searches (quarterly) External reports (e.g., D&B) Litigation/regulatory databases Training and certification (annually if high-risk) Close Review of Invoices Accurate, timely, transparent Fees in line with market rates, no discounts or high fees that could be used to hide possible improper payments Receipts and other backup documentation included, matches services provided Periodic Compliance Calls Periodic financial audits, red flag reviews Unusual or excessive payment requests, e.g., requests for over-invoicing, up-front payments, ill-defined or last-minute payments, success fees, cash payments, unusual commissions Requests for payment to another 3 rd party or to bank in tax haven No change in relationships with government entities No comments giving rise to an inference of bribery No allegations of bribery or unethical practices 19 Conclusion: 6 Things To Remember Understand exactly what your third party will be doing Tailor processes based on risk level no one size fits all Do your research... know their history/background, check their references Get it in writing... include appropriate compliance reps & warranties in contract Train and communicate... speak their language, senior-level approvals and manager involvement ensure operational accountability Compliance efforts don t end once contract signed... keep a watchful eye, if red flags arise, take immediate action to address issue 20 7