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© John R. Partridge 2009 Some Rights Reserved, see http://creativecommons.org/licenses/by-nc/3.0/
Siemens Says Beware of the FCPA
Foreign Corrupt Practices Act Compliance for Sales Personnel
© John R. Partridge 2009 Some Rights Reserved, see http://creativecommons.org/licenses/by-nc/3.0/
– FCPA – Foreign Corrupt Practices Act
– Background & Purpose of the FCPA– Coverage/Definitions of the FCPA– Best Practices
• What is the FCPA?
• Why am I here? Why should I care? • What do I need to know about it?
Overview
© John R. Partridge 2009 Some Rights Reserved, see http://creativecommons.org/licenses/by-nc/3.0/
Background
• Watergate investigations illuminated payments by US firms to foreign officials
• Such payments seen as compromising US foreign policy, embarrassing, even immoral
• US was virtually alone in using its law to discourage bribery until 1997 when many countries adopted an OECD convention against bribery
© John R. Partridge 2009 Some Rights Reserved, see http://creativecommons.org/licenses/by-nc/3.0/
Purpose/Means
• Purpose—Prevent firms from gaining business by supplying items of value to foreign governmental entities
• Means– Corrupt payments—the transfers themselves– Books & records—accounting entries that
record/report the payments
© John R. Partridge 2009 Some Rights Reserved, see http://creativecommons.org/licenses/by-nc/3.0/
Enforcement
• Substantive violations of the FCPA—DoJ & SEC
• Conspiracy to violate the FCPA—DoJ• Racketeer Influenced and Corrupt
Organizations Act (RICO)—DoJ & private citizens/businesses)– RICO lawsuits can result in 3x damages
© John R. Partridge 2009 Some Rights Reserved, see http://creativecommons.org/licenses/by-nc/3.0/
Why Care?
• Department of Justice says FCPA enforcement is second only to terrorism
• 91 FCPA cases are open as of January 2009, 3 times the number open in 2005
• Violations incur stiff fines and possible jail time
© John R. Partridge 2009 Some Rights Reserved, see http://creativecommons.org/licenses/by-nc/3.0/
Why Care—Penalties
• Companies– Criminal fines up to $2
million or possibly 2x benefit sought
– Civil fines up to $10,000 AND possibly amount gained up to $50,000-$500,000
– Loss of privileges granted by US government agencies, e.g., BIS, DDTC, CFTC, OPIC
– Suspension of right to do business with US government
• Individuals*– Criminal fines up to
$100,000 or possibly 2x benefit sought
– Civil fines up to $10,000 AND possibly amount gained up to $5,000-$100,000
– Loss of privileges granted by US government agencies, e.g., BIS, DDTC, CFTC, OPIC
– Jail for up to 5 years
*Individual, not employer, pays
© John R. Partridge 2009 Some Rights Reserved, see http://creativecommons.org/licenses/by-nc/3.0/
Why Care—Recent Fines
• December 2008, Siemens agreed to pay fines totaling $800 million dollars– $450 million—DoJ lawsuit with $2.7 billion in
potential fines– $350 million—SEC enforcement action
• January 2009, Halliburton agreed to pay $559 million in fines– A former executive faces up to 7 years in
prison & $10.8 million in restitution
© John R. Partridge 2009 Some Rights Reserved, see http://creativecommons.org/licenses/by-nc/3.0/
Coverage
• Forbids ‘Subject Entities’ from engaging in prohibited conduct towards a ‘Foreign Official’ if done for a prohibited purpose.– ‘Subject Entities’
– Prohibited conduct– ‘Foreign Official’– Prohibited purpose
© John R. Partridge 2009 Some Rights Reserved, see http://creativecommons.org/licenses/by-nc/3.0/
Whose Actions are Prohibited?
• ‘Subject Entities’ are– Issuers– Domestic Concerns
– Certain Others
© John R. Partridge 2009 Some Rights Reserved, see http://creativecommons.org/licenses/by-nc/3.0/
Issuers
• Company that issues stocks in the US– Issuer of securities registered with SEC– Issuer who is required to file reports with SEC
– Directors, officers, employees and agents of the issuer
– Stockholders acting on behalf of the issuer
© John R. Partridge 2009 Some Rights Reserved, see http://creativecommons.org/licenses/by-nc/3.0/
Domestic Concerns
• US persons & businesses– People: Citizens, nationals, & residents– Businesses:
• With a principal place of business in US– What counts as a “principal place of business” is beyond
our scope, but most any office could qualify
• Organized in a US jurisdiction, i.e., state, territory, possession or commonwealth
– Extends from DC to Puerto Rico to Guam
© John R. Partridge 2009 Some Rights Reserved, see http://creativecommons.org/licenses/by-nc/3.0/
Certain Others
• Foreign People/Entities who act in a US jurisdiction– VERY broad provision, e.g., Siemens’ settled alleged
violations of the by its subsidiaries incorporated in foreign countries based on:
• Discussions about improper payments took place in the US—Siemens S.A. (Argentina); and
• Improper payments routed through US financial institutions—Siemens S.A. (Argentina), Siemens S.A. (Venezuela), & Siemens Bangladesh Limited
• Best to assume your actions are covered
© John R. Partridge 2009 Some Rights Reserved, see http://creativecommons.org/licenses/by-nc/3.0/
What is a Prohibited Act?
• Any act in furtherance of an:– Offer,– Payment, – Promise to pay, or – Authorization of the payment
• of any money or– Offer,– Gift,– Promise to give, or – Authorization of the giving
• of anything of value to a ‘Foreign Official’
© John R. Partridge 2009 Some Rights Reserved, see http://creativecommons.org/licenses/by-nc/3.0/
Who is a ‘Foreign Official’?
• Officials-An officer or employee of, or any person acting in an official capacity for or on behalf of, a public international organization or a foreign government or any department, agency, or instrumentality of such government
• Political Parties/Candidates-Foreign political party or official thereof or any candidate for foreign political office
• Any Person While Knowing-Any person who engages in a prohibited act while knowing that such act, in whole or in part, is directed, directly or indirectly, at any official, political party or candidate
© John R. Partridge 2009 Some Rights Reserved, see http://creativecommons.org/licenses/by-nc/3.0/
‘Foreign Official’—Summary
• Employees of state-owned/controlled business, e.g., airlines
• Employees of quasi-official bodies, e.g., trade associations
• Members of a royal family, e.g., Saud
• Employees of international organizations, e.g., World Bank
© John R. Partridge 2009 Some Rights Reserved, see http://creativecommons.org/licenses/by-nc/3.0/
What is a Prohibited Purpose?
• A prohibited act done for the purposes of– influencing any act or decision of a ‘Foreign Official’ in
their official capacity,– inducing a ‘Foreign Official’ to do or omit to do an act
in violation of the lawful duty of such ‘Foreign Official’, or
– securing any improper advantage; or – inducing a ‘Foreign Official’ to use their influence with
a target entity to affect or influence any act or decision of such target entity,
• in order to assist a ‘Subject Entity’ in obtaining or retaining business for or with, or directing business to, any person
© John R. Partridge 2009 Some Rights Reserved, see http://creativecommons.org/licenses/by-nc/3.0/
Scope of Prohibited Acts
• Acts in a US jurisdiction where a ‘Subject Entity’ “make[s] use of the mails or any means or instrumentality of interstate commerce corruptly”– Mails/Means/Instrumentality of interstate commerce
covers any communication that is initiated in one state and is destined for another state
• E.g., mail, phone calls, faxes, email, IM, text messages, courier, etc.
• All acts done corruptly in a non-US jurisdiction– Extends to Issuers & Domestic Concerns ONLY
© John R. Partridge 2009 Some Rights Reserved, see http://creativecommons.org/licenses/by-nc/3.0/
When Prohibited Acts Aren’t Prohibited
• Routine governmental action– “Grease” payment to get a ‘Foreign Official’ to
do something they are supposed to do faster– Defined by nature of action, not amount of
payment
© John R. Partridge 2009 Some Rights Reserved, see http://creativecommons.org/licenses/by-nc/3.0/
Routine Actions
• Obtaining official documents (permits, licenses, etc.) required to do business in the country
• Processing governmental papers (visas, work orders, etc.)
• Providing police protection, mail pick-up and delivery, telephone service, power and water supply, loading and unloading cargo, scheduling inspections associated with contract performance or transit of goods across country, or protecting perishables from deterioration
• Actions of a similar nature
© John R. Partridge 2009 Some Rights Reserved, see http://creativecommons.org/licenses/by-nc/3.0/
Not Routine Actions
• Any of the following actions by a ‘Foreign Official’:– Decision about the terms of a new contract,– Award or renewal of such contract, or– Any action by any official involved in the
process of new or renewal business
© John R. Partridge 2009 Some Rights Reserved, see http://creativecommons.org/licenses/by-nc/3.0/
Routine Governmental Action?
– You are departing Country A and going through Departure Control. The officer wants to unload and leaf through all reading material in your baggage. You offer him $10 to x-ray the books individually instead of leafing through them. Yes/No?
– You are departing Country A and going through Departure Control. You offer the officer $10 to clear you for departure without checking your papers or belongings. Yes/No?
© John R. Partridge 2009 Some Rights Reserved, see http://creativecommons.org/licenses/by-nc/3.0/
When Prohibited Acts Are Okay
• Legal under written laws
• Reasonable & bona fide expenditures– Expenses (travel, lodging, etc.) incurred by or
on behalf of a ‘Foreign Official’ and directly related to:
• Promotion, demonstration, or explanation of products or services, or
• Execution or performance of a contract
© John R. Partridge 2009 Some Rights Reserved, see http://creativecommons.org/licenses/by-nc/3.0/
Best Practices-People
• When dealing with the following people– Government officials, employees, or
functionaries– Politicians, political organizations, or people
employed by politicians or political organizations
– “Helpful” people
Almost anyone in communist countries could be a ‘foreign official’
© John R. Partridge 2009 Some Rights Reserved, see http://creativecommons.org/licenses/by-nc/3.0/
“Helpful” People
• Use EXTREME caution when dealing with ANYONE who – offers to help navigate the government
bureaucracy
– make introductions to any government official, employee or functionary, or politician, political organization or people employed by a politician or political organization
© John R. Partridge 2009 Some Rights Reserved, see http://creativecommons.org/licenses/by-nc/3.0/
Best Practices-Subjects
• Whenever current business or future opportunities are discussed with the people above, e.g.,– Exploratory discussions, tender preparations,
tender, contract negotiations, renewal review
© John R. Partridge 2009 Some Rights Reserved, see http://creativecommons.org/licenses/by-nc/3.0/
Questions/Discussion
Thank you for your time