Emily Post for FCPA Prosecutions: How the Prosecution and Defense May
Conduct Themselves to the Best Advantage
Michael King, U.S. Securities & Exchange CommissionWes Loegering, Jones Day
Todd Ranta, PwC Forensic ServicesPravin Rao, Perkins Coie LLP
Bill Mateja, Fish & Richardson P.C. (Moderator)
What To Expect Today:
Presentation Topics: Brief FCPA Primer Interpretations on Recent FCPA Guidance FCPA Compliance Programs/Internal Controls FCPA Enforcement Update FCPA Trends from 2012 FCPA Legal Developments Recent and Notable FCPA Cases Collateral Consequences of FCPA Actions International Anti-Corruption Enforcement How To Survive an FCPA Investigation
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FCPA Primer The FCPA is composed of two parts:
1) The Anti-Bribery Provision prohibits the offer, authorization, promise or payment of anything of value to a foreign official, international organization official, political party, party official, or candidate for public office in order to obtain or retain business. It applies to issuers, domestic concerns, or persons acting within the U.S.
2) The Accounting Provision only applies to companies issuing securities registered on U.S. stock exchanges and includes the following two provisions: • The Books and Records Provision requires issuers to accurately record transactions
in reasonable detail. • The Internal Controls Provision requires public companies to maintain a system of
internal policies and procedures sufficient to provide reasonable assurances that transactions are executed and recorded according to appropriate standards and under management’s specific or general authorization.
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FCPA Primer – Three Kinds of Defenses Exception under the FCPA includes:
1) Facilitating Payments: FCPA explicitly provides an exception for “grease payments” that “expedite or secure the performance of routine governmental action” or merely move a particular matter toward an eventual act or decision. In theory, these types of facilitating payments relate to actions on the part of foreign officials that are nondiscretionary.
Affirmative defenses under the FCPA include: 1) Bona Fide Business Expenditures: “[T]he payment, gift, offer, or promise of anything
of value that was made, was a reasonable and bona fide expenditure, such as travel and lodging expenses … and was directly related to: (a) the promotion, demonstration, or explanation of products or services; or (b) the execution or performance of a contract with a foreign government or agency ….”
2) Payments Permitted by Local Law: Payments that are lawful under the written laws and regulations of the foreign official’s country (a narrow exception given that no country authorizes corrupt payments to its public officials).
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Interpretations on FCPA GuidanceSEC and DOJ jointly released FCPA Guide in November 2012
Purpose• To compile helpful information – some previously known and some newly
interpreted – into one resource for companies of any size Adequacy of corporate compliance programs
• Program should change as business and risks change Clarification of a “foreign official”
• Ownership threshold – An entity is unlikely to qualify as an instrumentality if a foreign government does not own or control a majority of its shares, unless other indices of substantial control are present.
Intent of Gifts, Travel and Entertainment• Helpful hypothetical scenarios clarify corrupt intent
Third party due diligence• Especially as it relates to mergers and acquisitions activity
Reaffirming the value of self-reporting, cooperation and remedial efforts• Factors for declinations by SEC and DOJ include good faith, reasonable inquiry,
cooperation, and effective remediation.
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Additional Thoughts re: FCPA Guidance Self-Reporting and Cooperation with the SEC and DOJ Penalties, Sanctions and Remedies FCPA Compliance Monitoring Programs Strong compliance emphasis
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FCPA Compliance Program Hallmarks of an effective program:
– Management commitment and a clearly articulated policy against corruption
– Code of conduct– Compliance policies and procedures– Oversight, autonomy and resources– Risk-based assessment (not “one-size-fits-all”)– Training and continuing advice– Incentives and disciplinary measures– Third party due diligence – Confidential reporting and internal investigation– Continuous improvement through periodic testing and review
Due Diligence of Third Parties and Intermediaries
80-90% of recent FCPA actions involve payments made by third parties and intermediaries
– Consultants – Sales Agents – Distributers and resellers
Documentation of vendor due diligence Risk-based approach
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FCPA Concerns in the Merger and Acquisition Context Traditional due diligence and data rooms not enough. Need to actively investigate FCPA issues before sale because
if you buy it – you own it. Deals can and do fall apart over FCPA issues. Questions to ask:
– Country, region, industry with history of corruption?– Agent’s reputation? Ties to the local government?– Incomplete statements – statements that indicate non-disclosure?– Payments that are disproportionate to the services provided?– Vague invoices, up-front payments, and/or cash payments?– Payments to an unrelated third party?
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Number of FCPA Enforcement Actions
DOJ Actions 2004 – 2 actions 2005 – 7 actions 2006 – 7 actions 2007 – 18 actions 2008 – 20 actions 2009 – 26 actions 2010 – 48 actions 2011 – 23 actions 2012 – 11 actions
SEC Actions 2004 – 3 actions 2005 – 5 actions 2006 – 8 actions 2007 – 20 actions 2008 – 13 actions 2009 – 14 actions 2010 – 26 actions 2011 – 25 actions 2012 – 12 actions
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Monetary Amount of FCPA SettlementsYear Company/Individual FCPA Settlement to DOJ and SEC2008 Siemens $800M2009 KBR/Halliburton $579M2010 Panalpina $82M
Alcatel-Lucent $137MDaimler AG $185MTechnip $338MSnamprogetti Netherlands/ENI $365MBAE $400M
2011 JGC Corp $219MMagyar Telekom/Deutsch Telecom $95M
2012 Smith & Nephew PLC $22.2MOrthofix $7.42MPfizer/Wyeth LLC $45MBizJet International Sales and Support, Inc. $11.8MData Systems and Solutions LLC $8.82MNORDAM Group Inc. $2MBiomet $22.85MOracle $2MTyco International, Inc. $26.81MEli Lilly and Company $29.40MAllianz SE $12.40MMarubeni Corporation $54.6MGarth Peterson of Morgan Stanley $3.6MThomas O'Rourke of Noble Corporation $35K
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FCPA Enforcement Actions Against Companies and Individuals
Individuals 2006 – 6 individuals 2007 – 7 individuals 2008 – 18 individuals 2009 – 21 individuals 2010 – 36 individuals 2011 – 18 individuals 2012 – 4 individuals
Companies 2006 – 4 companies 2007 – 16 companies 2008 – 10 companies 2009 – 11 companies 2010 – 21 companies 2011 – 16 companies 2012 – 12 companies
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FCPA Trends from 2012
Focus on specific industries:– Healthcare, medical devices, and pharmaceuticals
• Fully half of the 12 corporate enforcement actions of 2012 involved allegations against healthcare companies.
• The two notable healthcare cases of 2012 were Orthofix International N.V. and Pfizer, Inc.
– Financial services and insurance firms– Telecom and technology– Military and law enforcement– Energy, oil, and gas– Aircraft maintenance, repair, and overhaul services
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FCPA Trends from 2012 Corporate FCPA settlements encompass a broad range of
conduct:– Anti-bribery– Books and records– Internal control violations
Other criminal statutes include:– Money Laundering (e.g., Siriwan and Haiti Teleco cases).
• Permits DOJ to prosecute foreign officials and others otherwise outside the reach of the FCPA.
– Travel Act (e.g., Control Components, Nexus/Nguyen).• The government must prove (1) interstate travel or use of an interstate facility; (2) with
the intent to . . . promote . . . an unlawful activity; and (3) followed by performance or attempted performance of acts in furtherance of the unlawful activity.
– OFAC Enforcement (e.g., Innospec).– Antitrust (e.g., Bridgestone). 13
FCPA Trends from 2012 External monitors are giving way to self-assessments:
– Only 4 of 12 company settlements in 2012 vs. 40% of all company settlements in 2004 to 2010 were assigned an external monitor.
– Since 2009, self-monitoring and reporting requirement has quickly grown to be the norm in corporate FCPA resolutions.
– Half of the 12 settlements in 2012 called for self-assessments rather than external monitors.
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FCPA Legal Developments Interpreting the Term “Foreign Official”
– Two courts ruled that employees of foreign state-owned enterprises could qualify as foreign officials (i.e., Lindsey Mfg. and Control Components).
“Willful Blindness”– In Bourke, Second Circuit upheld willful blindness instruction:
“knowledge may be established when a person is aware of a high probability of its existence, and consciously and intentionally avoided confirming that fact.”
– UK Bribery Act: “Consented or connived” in violations can result in personal liability.
• SFO Director stated that if corporate officers “turn a blind eye [to bribery], that is connivance.”
Dodd-Frank and its Impact on the FCPA 15
FCPA Legal Developments
Potential FCPA Legislation/Amendments– Private Right of Action – Automatic/Mandatory Debarment– Possible New Executive Branch Auditing Agency– FCPA Reform – A Good Faith Compliance Defense– Define “foreign official” and “instrumentality.”– Limit parent/successor liability.– Adopt formal corporate leniency program.– RICO predicate.
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Recent and Notable FCPA Cases
Lindsey Manufacturing reversal (2011) Haiti Teleco conviction (2011) Bourke appeal (2011) O’Shea acquittal and dismissal (2012) ShotShow acquittals and dismissals (2012) Morgan Stanley (2012) WalMart investigation (2012) Pfizer (2012) Marubeni Corporation (2012) Eli Lilly and Company (2012)
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Collateral Consequences of FCPA Actions
Collateral Civil Litigation– Shareholder class actions alleging inadequate disclosure of FCPA
risks.– Derivative actions alleging company’s officers and directors failed
to prevent bribery.– Civil settlements can cost much more than DOJ/SEC resolutions.– Minor solutions:
• Courts recognize compliance programs as a defense to civil suits (Dow Chem. Co. Deriv. Litig., No. 4349-CC (Del. Ch., Jan 11, 2010)).
• FCPA investigation insurance available.
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International Anti-Corruption Enforcement
Globally The UK and the UK Bribery Act Europe and the EU China Russia
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What to do in the first day, week, and month. The implications of data privacy. Preserving the cooperative image of the company. When is self-disclosure advisable in the U.S.? Overseas? When should the company take immediate corrective action? What the authorities will expect in your due diligence file. How to make employment decisions regarding termination.
How to Survive an FCPA Investigation: What to Expect and How to Respond
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How to Survive an FCPA Investigation: What to Expect and How to Respond
Organizing your response. Ensuring compliance while working under a DPA. The true impact of voluntary disclosure; how it affects
investigations. Addressing disclosure to sensitive customers. Living with a compliance monitor: How to select one and
establish a working relationship. Restoring your reputation in the industry and with the
government.21
