Anti-Corruption Compliance: Minimizing the Supply Chain ... · Anti-Corruption Compliance:...

transcript

9 February 2015 Alistair Maughan and Kevin Roberts

Lunch & Learn

Anti-Corruption Compliance: Minimizing the Supply Chain Risk

Lunch & Learn

• 2nd Monday of each month • 45 minutes via webinar • Unaccredited CPD points • Rolling 3 month schedule

• Monday, 9 March 2015 “Drafting Effective Arbitration & Dispute Resolution Agreements” Speaker: Gemma Anderson

• Monday, 13 April 2015

“Big Data” Speaker: Sue McLean

• Questions at the end. Or e-mail

us afterwards

• Phones are muted to reduce background noise

• We’ll unmute at the end

PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION; ATTORNEY WORK PRODUCT

2015 by Kevin Roberts

ANTI-CORRUPTION COMPLIANCE: HOW TO MINIMISE THE RISKS

A Grumpy Old Man’s Guide to

Best & Worst Practices in Contract Drafting

Two Grumpy Old Men’s Guide to

Compliance and Contract Drafting

Kevin Roberts Alistair Maughan

Unprecedented Level of Enforcement

• The last decade has seen an increased focus on anti-corruption enforcement

• New legislation enacted in the UK and elsewhere

• Increased number of investigations

• Increased number of individual convictions

• Record fines imposed

• ENFORCEMENT • OVERVIEW

Size of Penalties Are Growing

• ENFORCEMENT • OVERVIEW

Significant Prison Sentences for Executives • WHY COMPLIANCE

MATTERS

Bribes

• Includes cash, gifts, entertainment

• Need not be a direct benefit to the official

• No de minimis exception

• No need for bribe to be accepted

• Doesn’t matter if you don’t get the business

• BRIBERY ACT BASICS

. . . Directly . . . • BRIBERY ACT BASICS

. . . or Indirectly . . .

• Payments through third parties are involved in most FCPA/Bribery Act investigations

• Third parties come in many forms, it doesn’t matter what you call them:

• Consultants • Distributors • Resellers • JVs

• Partners • Suppliers • Agents

Adequate Procedures Defence

• BRIBERY ACT BASICS • MOJ GUIDANCE (1)

• The procedures adopted by an organisation to prevent bribery by persons associated with it are proportionate to the bribery risks it faces and the nature of its business

Proportionate Procedures

• Top level management establishing a culture across the organisation in which bribery is unacceptable

Top-level Commitment

• Assessing and keeping up to date with the bribery risks faced in your sector and market

Risk Assessment

BRIBERY ACT BASICS MOJ GUIDANCE (1)

Adequate Procedures Defence

• MOJ GUIDANCE (2)

• BRIBERY ACT BASICS • MOJ GUIDANCE (2)

• Knowing who you do business with, know why, when and to whom you are releasing funds and seeking reciprocal anti-bribery agreements and be confident of transparency

Due Diligence

• Going beyond “paper compliance” to embed anti-bribery provisions into internal controls, recruitment, remuneration policies, etc. and training on the same

Communication

• Ensuring that audit and financial controls are sensitive to bribery and are transparent and are regularly reviewed

Monitoring & Review

Bugbears: What’s a contract for?

Bugbears: Describing the Parties

Bugbears: Joints (and Other Relationships)

MINIMISING RISKS

How can I spot potential

corruption compliance issues?

“Red Flags” Identified by Regulators

• The U.K. Serious Fraud Office and the U.S. Department of Justice have identified “red flags” that warrant concern by finance and accounting officers:

• Unusual payment patterns or financial arrangements

• Cash payments

• Abnormally high commission payments

• Lavish gifts

• Attempts to bypass normal contracting procedures

• Payments routed through countries with no connection to the transaction

• Missing documentation for payments

• MINIMISING RISKS

Bugbears: (back)dating

“Red Flags” Focus on Recipient

• Is the payee a foreign government official or the relative of a foreign government official?

• Does the payee provide any legitimate service?

• Has the payee completed the standard vendor set up process?

• Is the payment to a spouse or third party instead of the person providing services?

Case Study: IBM

• Local subsidiaries and joint ventures provided cash payments, entertainment, travel, and gave gifts to Chinese and Korean government officials

• IBM-China operated a slush fund for the purpose of providing travel and gifts to officials

• IBM-China personnel worked through its official travel agency – which it had designated as an “authorized training provider” – to funnel money approved for legitimate business trips to fund unapproved trips

• The SEC identified at least 114 instances of fabricated invoices, improper documentation, unapproved sightseeing, and per diem payments for Chinese government officials

• Robust training and policies, but controls failed. IBM paid $10 million to settle claims

Bugbears: Non-parties

“The Customer Representative shall co-operate with the Project Manager and shall attend meetings scheduled by the Project Manager at reasonable intervals.” “The Project Manager shall deliver a notice to ….”

“The Subcontractor shall invoice the Principal Contractor for the goods and services supplied pursuant to the Orders according to the agreed schedule of payment.”

What is payment actually for (1)?

Does the payment have a genuine business purpose?

• Look out for large, unexpected expenses characterised as “marketing,” “consulting,” or in an otherwise generic manner

• Look out for generic descriptions of vendors (i.e. “vendor other”)

• Look out for large expenditures on conferences, PR or marketing research firms, or travel expenses

• Look out for unusual patterns in payments: i.e. a significant rise in expenses in a certain category, an abrupt end to certain routine payments, or a changed description for routine payments

What is payment actually for (2)?

Focus on Third Party Payments

• Are third parties providing itemised invoices with sufficient detail?

• Are third parties organising conferences, inviting government officials or media to attend on MHE’s behalf?

• Can third parties request reimbursement for expenses without providing documentation?

• Are third parties being paid amounts out of line with services performed or expectations, or being paid large round dollar values?

• Do employees have sufficient oversight over third parties?

Bugbears: Category Errors

“Intellectual Property Rights” means all worldwide intellectual property rights, including without limitation, copyrights, trademarks, service marks, trade secrets, know how, inventions, patents, patent applications, moral rights, domain names and all other proprietary rights, whether registered or unregistered.

Bugbears: Category Lunacy

“IPR”, all copyright and other intellectual property rights, howsoever arising and in whatever media, whether or not registered, including (without limitation) Ideas, logos, patents, trademarks, service marks, trade names, domain names, database rights, registered designs and any applications for the protection or registration of these rights and all renewals and extensions thereof throughout the world “Ideas”, forms (such as a thought) formed by the consciousness (including mind) by the process of ideation. Ideas give rise to actual concepts, or mind generalizations, which are the basis for any kind of knowledge whether science or philosophy;

Case Study: BAE Systems

• BAE sold radar and air traffic control to the government of Tanzania

• $12.4m was paid to a "marketing agent" in Tanzania, Shailesh Vithlani, to facilitate the air traffic control deal

• Payments to Mr Vithlani were made via offshore companies. Roughly 97% of the $12.4m fee was paid to a British Virgin Islands company described by BAE as a "covert" company

• The balance was paid to a company called Merlin registered in Tanzania and described by BAE as "overt"

• Both companies were controlled by Mr Vithlani

Case Study: BAE Systems

• The court heard covert agents were hired by BAE in a number of circumstances

• when it was illegal to employ them overtly • because of tax implications arising from the agent

making undeclared payments to third parties • or to avoid "embarrassment and press interest" due

to large fees being paid • The SFO settled with BAE. BAE paid a £30m fine after

pleading guilty to failing to keep proper accounting records • There were no corruption or bribery allegations made out

against BAE in the UK • BAE also agreed to pay a $400m fine in the US after

admitting to "defrauding the US" over the sale of fighter planes to Saudi Arabia and Eastern Europe

Bugbears: post-signature confusion

• Not updating the main agreement to include CCNs

MITIGATING THIRD-PARTY RISKS

• MINIMISING RISKS Identify

Risk Assessment

Verify Written Contract

Monitor

Assess Relationship

Due Diligence

Compliance and Contracts: Three Key Questions

• Who are these guys?

• What are they doing?

• Why are they getting paid so much money?

Lunch & Learn Alistair Maughan Partner, European Technology Practice T: (+44) 20 7920 4066 E: amaughan@mofo.com @ictoutsourcelaw

Kevin Roberts Partner, Litigation Practice T: (+44) 20 7920 4160 E: kroberts@mofo.com

• Monday, 9 March 2015 “Drafting Effective Arbitration & Dispute Resolution Agreements” Speaker: Gemma Anderson

• Monday, 13 April 2015

“Big Data” Speaker: Sue McLean

Anti-Corruption Compliance: Minimizing the Supply Chain ... · Anti-Corruption Compliance:...

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