Introduction to the Foreign Corrupt Practices Act 1
Introduction Mallory Alexander is committed to maintaining the highest level of ethical and legal standards in the conduct of our business activities, and our compliance with the FCPA is an important part of this program. If you as an employee of Mallory Alexander violate the FCPA, you could subject Mallory Alexander and yourself personally to potentially enormous monetary penalties and even imprisonment. This content following is not intended to make you an expert on the FCPA, but it will help you recognize red flags situations presenting a risk of FCPA violations and deal with them properly. 2
Foreign Corrupt Practices Act FCPA prohibits U S companies, their subsidiaries, employees, and agents from paying or offering to pay anything of value: To a foreign official, political party, candidate in his or her official capacity To any person, directly or indirectly, knowing that any part of the payment is destined for a foreign official In order to corruptly influence the recipient to act, fail to act, or to secure an improper advantage In order to cause the recipient to use his or her influence to assist the company in obtaining, retaining, or directing business In order to cause the recipient to do or omit to do any act in violation of his or her lawful duty 3
Two Main Components of FCPA Anti-bribery Provisions Prohibits bribes(or offers to bribe) made to foreign officials, political parties, candidates for public office whether made directly or through a third party. Accounting Provisions Requires accurate books and records and adequate accounting and financial controls. 4
Who is a Foreign Government Official?. A foreign government official is any one of the following (including low ranking officials): An officer or employee of a government or a governmental department of agency A political party, party official, or candidate for political office An officer or employee of a government owned or controlled entity or company (e.g. state-owned bank, hospital or telecommunications company) A member of the military An officer or employee of a public international organization (such as the United Nations or the World Bank) Any person acting in an official capacity for or on behalf of any of the above. 5
Who is a U.S. Person or Company?. A U.S. person or company includes but not limited to: Mallory Alexander and all of its U.S. and international employees, regardless of where they are doing business. Entities organized under U.S. law Entities that have their principal place of business in the U.S. Issuers of securities in the U.S. Including foreign companies Employees, officers, directors, and agents of U.S. issuers and entities. Regardless of their nationality or location. U.S. nationals or residents Any person while located in the U.S. Subsidiaries of U.S. entities 6
Acting with Knowledge. Under FCPA, it is illegal to pay anyone (including third party agents) when knowing that all or part of the payment will be passed to a covered official. Knowing means: Actual knowledge of a violation Awareness of high probability that prohibited payment will occur Acting with knowledge can be proved by circumstantial evidence such as: Ignoring obvious warning signs Conscious disregard Willful blindness 7
What is a Bribe A bribe can be (but not limited to) money or anything of value when used for obtaining or retaining business.. Anything of Value is not only cash. It can include (but not limited to): Entertainment or travel (e.g. hotel stays, gambling, dinners) Gifts (watches, rugs, anything material) Property, investments, or discounts Contributions to an official s charity Job offers for the official s relatives Company and employee violations include (but not limited to): Promises or attempts to bribe, even if the bribe is not accepted or the bribe never actually occurs Authorization or ratification of payments made by others Failure to report a potential violation when made known Violations can result in both criminal and civil penalties including imprisonment, fines, loss of export licenses and suspension from competing on government contracts. 8
How does Directly or Indirectly affect you with agents actions?. Mallory Alexander and its employees may be liable under the FCPA not only for their own actions, but also for actions of external sales agents, distributors, joint venture partners, consultants or other business associates. 9
How does Directly or Indirectly affect you with agents actions? (Cont). Prior to doing business with third parties due diligence screening and background check as well as post retention of the oversight must be reasonably documented. There should be no cash payments when dealing with third parties. There shall be no reasonable commissions and no reimbursements without supporting documentation. There shall always be a written agreement FCPA representation, right to terminate, audit rights etc. 10
Exceptions and Affirmative Defenses. Payments authorized under written laws of the foreign country. Reasonable and bona fide expenses directly related to the promotion or demonstration of products and services. Reasonable and bona fide expenses as it relates to the execution and performance of a contract with a foreign government and instrumentality. 11
It is NOT a Defense that EVERYONE ELSE IS DOING IT! 12
How do we as Mallory Alexander protect the Company and Ourselves as Individuals? 13
Protection Third Parties Review the third party s qualifications, expertise, and relationships to government officials Conduct searches on available public records Check as many references available along with internet searches Have the third party sign agreement not to violate anti-bribery laws Mallory Corporate Accountable Persons must sign off before you hire a third party. 14
Protection Meals and Entertainment Meals and Entertainment for government officials must be: Modest, appropriate under the circumstances, and customary in the country in which it is given (e.g. dinner while negotiating a business contract is fine. A representative of Mallory Alexander must be present. No meal or entertainment for the same company or persons more than 4 times in any 12 month period. Never give if recipient has hinted that the meal/entertainment will make them more likely to favor Mallory Alexander. 15
Protection Travel Travel for government officials must be: Directly related to promoting Mallory Alexander services or performing a contract Of a reasonable amount in light of the business purpose (e.g. airfare and hotel, but not also a daily per diem) Amount of reimbursement must equal the actual expense Whenever possible, pay actual expenses for the travel rather than reimbursing the government official in cash 16
Protection Gifts Gifts for government officials must be: Approved in advance by Mallory Alexander s COO and/or CFO; Of modest value Mallory Alexander shall not give a gift beyond $80 unless approved by COO and/or CFO; Never in Cash; Permitted under local laws of the host country; Customary, in type or value, in that country; Given openly and not secretly; Accurately reflected in Mallory Alexander s books, records, and accounts; Not offered at the request or suggestion from the government official. 17
Use Your Judgement If the gift is embarrassing to admit that you gave the gift, then DO NOT give it. 18
Four Questions in Assessing Liabilities under the FCPA? WHO is potentially liable???? Was an IMPROPER PAYMENT made? Who was the RECIPIENT of the payment? Did the parties involved have CORRUPT INTENT? 19
Why Should I Care? The U S Department of Justice(DoJ) and the SEC are stepping up enforcement. Penalties for violations are very stiff 20
Corporate Impact $2 million criminal fine per violation or twice the gain(in reality, fines can be tens of million of dollars Debarment (company cannot do business with the government) Forfeiture of profits from unlawful business Expensive investigation and legal fees Terrible press coverage Possible loss of cliental and business 21
Individual Impact Up to 5 years in prison per violation (In some recent cases, jail terms have been even higher due to multiple violations) $100,000 criminal fine per violation $10,000 civil penalty or gross gain Payment of the fines is the responsibility of the individual and may not be paid, directly or indirectly, by the company. Loss of Job 22
Any Questions or Concerns? Contact: Chief Operating Officer, Tom Kaden Chief Commercial Officer, Tinamaire Newman Chief Financial Officer, Geoff Collins Vice President Compliance, Melzie Wilson 23