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Foreign Corrupt Practices Act A Practical Guide to FCPA Compliance: What Corporate Counsel Needs to Know Aaron R. Marcu Freshfields Bruckhaus Deringer US LLP Brian Loughman Ernst & Young LLP Kerry Schalders R.H. Donnelley Corporation ACC Webcast February 24, 2009 Association of Corporate Counsel www.acc.com
Who We Are Page 3 Aaron R. Marcu is a partner with Freshfields Bruckhaus Deringer US LLP, based in New York, and heads the firm s litigation practice in the United States. He focuses on the defense of white collar criminal and SEC enforcement investigations and related civil litigation. He also conducts internal corporate investigations and advises boards and board committees. Aaron has represented clients in investigations and litigation involving allegations of financial accounting and other securities fraud, insider trading, stock options backdating, cartel and other anti-competitive activity, and FCPA violations. He also advises on compliance programs, disclosure matters and issues of corporate governance. Email: aaron.marcu@freshfields.com Brian Loughman leads the Financial Reporting Investigations team within Ernst & Young s Fraud Investigation & Dispute Services practice. He has extensive experience in the investigation and remediation of FCPA and accounting fraud, corporate internal investigations, money laundering investigations and litigation consulting services. He frequently presents investigative findings to regulators including the Securities and Exchange Commission and the Department of Justice. Email: brian.loughman@ey.com Kerry Schalders is a Corporate Attorney with media publishers R.H. Donnelley Corporation. Her practice focuses on litigation management, dispute resolution, and commercial transactions. Ms. Schalders serves as the webcasts co-chair of the ACC Litigation Committee and is active in the Colorado Bar Association Legal Fee Arbitration Committee. Ms. Schalders received her J.D. from Georgetown University Law Center in 2003 and graduated from John Hopkins University with a B.A. in 1995. Email: kerry.schalders@rhd.com
Page 4 Agenda FCPA recap Recent cases Enforcement trends Foreign (non-us) enforcement What this means for a GC Compliance: challenges and best practices
Page 5 Instant Survey How would you best describe your FCPA experience/expertise? A. Direct experience of an FCPA investigation B. Involved in implementation of FCPA policy or compliance program C. No direct experience but some training in the area D. No direct experience or training
Page 6 FCPA recap Enacted 1977, amended in 1988 and 1998 Securities Exchange Act of 1934 Anti-bribery Accounting False Statements (18 U.S.C. 1001) RICO
Page 7 Anti-Bribery Provisions Any corrupt act, in furtherance of An offer, payment or gift of any money or thing of value To any foreign official or other person for a foreign official To obtain or retain business or gain improper advantage
Page 8 Anti-Bribery Provisions (cont d) Acts within and without the US Issuers and Domestic concerns any act anywhere in furtherance Any enterprise or individual for an act in the US in furtherance of corrupt scheme
Page 9 Accounting Provisions FCPA amended 34 Act to require issuers or filers to: Keep accurate books and records Establish and maintain a system of internal accounting controls Accurate books and records Issuers and subsidiaries Improper payments must be recorded accurately Adequate system of internal accounting controls Issuers and subsidiaries Important focus of SEC
Page 10 Criminal Consequences Lengthy and disruptive criminal investigation Criminal penalties Individuals: $100,000 and 5 years in prison Corporations: $2 million fine or twice the gain: disgorgement Debarment for government contractors External monitor Expansion of compliance program Private securities litigation Reputational injury
Page 11 Instant Survey What s your key FCPA risk factor? A. Due diligence/acquisition risks B. Doing business in a high risk country (e.g., Brazil, Russia, India, China) C. High risk sector (e.g., natural resources, healthcare, chemicals, construction, heavy manufacturing or defense contracting) D. Books and records issues (e.g., weak internal controls, outside payments to third parties) E. All of the above
EY Global Fraud Survey Page 12 Question: Has your company had an incident of bribery or corruption in the last two years? Do you know if anyone in your company has ever been asked for a bribe to retain or win business? Has your company ever lost business to a competitor as a result of them paying a bribe? Shown: Percentage of all respondents (1186)
Page 13 Recent Cases Willbros (May 2008) Siemens (Dec. 2008) AON (Jan. 2009) KBR/Halliburton (Feb. 2009)
Page 14 Cases to Keep in Mind Schering-Plough June 2004: $500k to settle SEC civil books and records action Payments to bona fide charity associated with gov t official Christian Sapsizian Sept. 2008: 30 months in prison Non-US citizen, employed by non-u.s. entity, conduct occurred outside US
Page 15 Enforcement Trends [T]here is no question that the Department has in recent years significantly increased its FCPA enforcement. From 2001 to 2004, the Department resolved or charged 17 FCPA cases. For the period of 2005 to 2008, that number is 42 resolutions, representing an increase of more than 200 percent within these four years as compared to the prior fouryear period. Acting Assistant Attorney General Friedrich at the Siemens press conference, December 15, 2008.
EY Global Fraud Survey Page 16 Question: How strongly are anti-bribery and corruption laws and regulations enforced against companies headquartered in your country? Has the level of regulatory enforcement changed compared to 5 years ago? How strongly is bribery & corruption regulation enforced? Change in regulatory enforcement over last five years Shown: Percentage of all respondents (1186)
Enforcement Trends (cont d) Heightened enforcement: Continuing joint SEC/DOJ Increased staffing enforcement agencies Focus on specific industries Major fines Cases against individuals Self-reporting expected Robust and verified compliance expected Focus on consultants, distributors, JVs, agents More whistleblowers DPAs, monitors and major disgorgement Page 17
Page 18 Enforcement Outside US OECD Convention on bribery Effective February 15, 1999 37 states have ratified and adopted legislation similar to FCPA FCPA compared to law of other developed countries: Similar scope Enforced more aggressively Broader extraterritorial reach
Page 19 Instant Survey How often do you review the operating effectiveness of your FCPA compliance program? A. Regularly in accordance with written policy B. Regularly in accordance with informal policy C. On a transactional or ad hoc basis only D. No FCPA compliance program in place
What Does It Mean for the GC? Know and address challenges More internal investigations and reviews Work closely with internal audit/compliance Demonstrate rapid and effective response Appropriate use of external counsel Large-scale or rapid investigations Stronger privilege claims Preserves choice on self-reporting Page 20
Compliance: Key Challenges Establish ownership of FCPA compliance Embed FCPA into overall compliance program Avoid cookie-cutter approach Identify high risk locations/businesses Regular training of employees and agents Audit compliance for effectiveness Acquisition and agent due diligence Investigate and remediate red flags Page 21
Page 22 Compliance: Best Practices Tone at the top Robust reporting Aligned with corporate strategy (including local legal requirements) Tailored risk assessment to optimize scarce resource Clear policies and procedures Customized training programs (in-person and computerized) Compliance results reflected in performance ratings
Page 23 Compliance: Best Practices (cont d) Internal compliance audits, internal/external investigative capability Annual compliance certifications Special approval for facilitation payments (or ban) Policy for non-us agents, consultants, brokers, distributors Policy for gifts, travel and entertainment, charitable giving Robust M&A and JV due diligence Involvement of financial reporting personnel
Foreign Corrupt Practices Act A Practical Guide to FCPA Compliance: What Corporate Counsel Needs to Know Aaron R. Marcu Freshfields Bruckhaus Deringer US LLP Brian Loughman Ernst & Young LLP Kerry Schalders R.H. Donnelley Corporation ACC Webcast February 24, 2009
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