US FCPA and UK Bribery Act Anand Saha - Anand.Saha@CliffordChance.com Partner, Clifford Chance São Paulo Seminar hosted by
US FCPA: Overview Contains both antibribery and books & records provisions Applies to any company with SEC-registered securities, any US domestic concern or where relevant conduct takes place in the US Offense to corruptly offer or make a payment to foreign officials with the intent to obtain/retain business corruptly means an intent or desire to wrongfully influence the recipient Must keep books & records that accurately and fairly reflect transactions and maintain an adequate system of internal accounting controls February 2014 US FCPA and UK Bribery Act 2
US FCPA: Enforcement Trends Recent years have seen a general uptick in enforcement by the DOJ and the SEC: 2006: 15 enforcement actions 2007: 38 enforcement actions 2008: 33 enforcement actions 2009: 40 enforcement actions 2010: 74 enforcement actions 2011: 48 enforcement actions 2012: 23 enforcement actions 2013: 27 enforcement actions February 2014 US FCPA and UK Bribery Act 3
US FCPA: Resolution Costs Costs of resolving actions are going up: 3 of the top 10 all-time were in 2013 and 2014 1. Siemens (Germany) US$800 million in 2008 2. KBR / Halliburton (US) US$579 million in 2009 3. BAE (UK) US$400 million in 2010 4. Total S.A. (France) US$398 million in 2013 5. Alcoa (US) US$384 million in 2014 6. Snamprogetti / ENI (Holland/Italy) US$365 million in 2010 7. Technip S.A. (France) US$338 million in 2010 8. JGC Corporation (Japan) US$219 million in 2011 9. Daimler AG (Germany) US$185 million in 2010 10. Weatherford (Switzerland) US$153 million in 2013 February 2014 US FCPA and UK Bribery Act 4
US FCPA: Resolution Costs (cont.) Average cost in 2013 was US$80 million almost 4x higher than 2012 Trend is for less cases being resolved for relatively small costs in 2013, all corporate cases cost more than US$1 million to resolve it used to be the case that resolutions below US$1 million were common February 2014 US FCPA and UK Bribery Act 5
US FCPA: Enforcement Trends Increasing focus on enforcement against individuals (and not just corporations) DOJ has led the way; SEC has catch-up work to do Industry Sweeps investigations leading to follow-ups of competitors certain industries seen as high risk: defense, energy, pharma, telecoms February 2014 US FCPA and UK Bribery Act 6
US FCPA: Other Trends Strong pipeline - 150 DOJ investigations and 100 SEC investigations constant inflow of whistleblowers (email, letters and telephone hotline) DOJ has more resources than ever before for FCPA investigations Companies are doing a better job but still some massive failures SEC securities law compliance leading to investigations SEC Division of Corporate Finance training its examiners in FCPA SEC reviewing a company as part of routine investigation FCPA investigation In addition, US regulators will now begin investigations in the US if they hear about investigations in foreign countries this recently happened to a non-brazilian company doing business in Brazil February 2014 US FCPA and UK Bribery Act 7
US FCPA: Recent Cases Total S.A. (2013); 4 th biggest FCPA case in history Paid US$60 million in bribes to intermediaries of an Iranian official who exercised his influence to help Total obtain contracts to develop oil and gas fields in Iran Total tried to cover up the true nature of the illegal payments by: entering into sham consulting agreements with intermediaries of the Iranian official mischaracterizing the bribes in its books &records as business development expenses Total held a meeting with the Iranian official and agreed to enter into a purported consulting agreement with an intermediary he designated They agreed Total would make payments to the intermediary under the guise of a consulting agreement; however, the real purpose was to induce the Iranian official to use his influence to obtain NIOC s approval of the development agreement Resolution cost of US$398 million represents: US$153 million in disgorgement of profits and US$245 million in a fine pursuant to a Deferred Prosecution Agreement February 2014 US FCPA and UK Bribery Act 8
US FCPA: Recent Cases (cont.) Alcoa (2014); 5 th biggest FCPA case in history US$110 million in corrupt payments to Bahraini officials with influence over negotiations between Alcoa and a government aluminum plant Alcoa s subsidiaries used a London consultant with connections to Bahrain s royal family as an intermediary to negotiate with government officials and route the illicit payments to retain Alcoa s business as a supplier to the plant Alcoa lacked internal controls to detect the bribes, which were improperly recorded as legitimate commissions Resolution cost of US$384 million represents: US$175 million in disgorgement of profits US$209 million in a criminal fine February 2014 US FCPA and UK Bribery Act 9
UK Bribery Act: Introduction A consolidated, extra-territorial and far-reaching piece of legislation that came into force in July 2011 The toughest anti-corruption legislation in the world Goes beyond the FCPA in certain ways including that it applies to private sector bribery in addition to public sector bribery Applies to non-uk companies carrying on business in the UK February 2014 US FCPA and UK Bribery Act 10
UK Bribery Act: Overview Four key offenses: Bribing another person Being bribed Bribing a foreign public official Failure of a commercial organization to prevent bribery February 2014 US FCPA and UK Bribery Act 11
UK Bribery Act: The Corporate Offense Criminal offence if a company fails to prevent a person associated with it from bribing another person with the intention of obtaining or retaining business or an advantage Applies to non-uk companies if they carry on business, or part of a business, in the UK, even where the underlying conduct takes place outside the UK but having a UK subsidiary will not, in itself, mean a parent company is carrying on business in the UK, since a subsidiary may act independently Could include parties with which there was no formal relationship, such as a lead partner in a consortium February 2014 US FCPA and UK Bribery Act 12
UK Bribery Act: Liability for The Corporate Offense Strict liability with only one defense: the company proves it had "adequate procedures" in place designed to prevent persons who are associated with it from bribing 6 principles in the UK Government Guidance: 1. proportionate procedures 2. top-level commitment 3. risk assessment 4. due diligence 5. communication and training 6. monitoring and review February 2014 US FCPA and UK Bribery Act 13
UK Bribery Act vs US FCPA No public vs private sector distinction UKBA covers private sector and UK/non-UK officials FCPA only applies to foreign public officials outside the US Bribe recipient is liable FCPA only covers offering/giving a bribe No corrupt element required FCPA requires corrupt intent Strict liability for failure to prevent bribery FCPA does not have an equivalent to the Corporate Offense February 2014 US FCPA and UK Bribery Act 14
UK Bribery Act vs US FCPA (cont.) Adequate procedures defense compliance programs are not a full defense under the FCPA (merely a factor to be considered) No exception for facilitation payments FCPA permits payments to facilitate routine governmental action by a foreign official; UKBA does not No affirmative evidence for reasonable and bona fide business expenses FCPA contains a defense for reasonable, bona fide business expenses related to promotion/explanation of products or services; UKBA does not February 2014 US FCPA and UK Bribery Act 15
UK Bribery Act In Practice There have been only 3 prosecutions Some regard this as showing the UKBA had a limited effect small number likely reflects (i) UKBA only applies to offenses after July 1, 2011, and (ii) time needed to gather evidence There have been prosecutions under the previous legislation shows that regulators are focused on bribery Impact on gifts & hospitality did not have the catastrophic effect that some predicted companies have enhanced procedures in relation to giving and recording hospitality. Focus on presence of a policy, proportionate spending and recording Deferred Prosecution Agreements starting in 2014 February 2014 US FCPA and UK Bribery Act 16
UK Bribery Act Prosecutions Munir Patel case court clerk who received bribe of 500 in return for offering to seek to influence the course of criminal (road traffic) proceedings 6 year prison sentence Mawia Mushtaq case offered 200 bribe to obtain a taxi driver license 2 month prison sentence (suspended) Yang Li case offered 5,000 bribe to pass university dissertation 12 month prison sentence February 2014 US FCPA and UK Bribery Act 17
US FCPA and UK Bribery Act www.cliffordchance.com Clifford Chance, 31 West 52nd Street, New York, NY 10019-6131, USA Clifford Chance US LLP 2012 Clifford Chance US LLP SPAULO-1-40558-v1