January 9, 2018
F. Joseph Warin Joel M. CohenKelly S. AustinBenno Schwarz Sacha I. Harber-Kelly
Webcast: FCPA Trends in the Emerging Markets of China, Russia, Latin America, Africa and India
MCLE Certificate Information
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MCLE Certificate Information
• Most participants should anticipate receiving their certificate of attendance in four weeks following the webcast.
• Virginia Bar Association members should anticipate receiving their certificate of attendance in six weeks following the webcast.
• All questions regarding MCLE Information should be directed to Jeanine McKeown (National Training Administrator) at 213–229-7140 or [email protected].
Topics to Be Discussed
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• An Overview of FCPA Enforcement• Emerging Market Trends: China, Russia, Latin America, Africa, and India
− China: Anti-Corruption Enforcement & Trends − Russia: Anti-Corruption Enforcement & Trends− Latin America: Anti-Corruption Enforcement & Trends− Africa: Anti-Corruption Enforcement & Trends− India: Anti-Corruption Enforcement & Trends
• Global Trends and Risk Mitigation Strategies• Appendix: The FCPA
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An Overview of FCPA Enforcement
FCPA Enforcement Actions Per Year (1977-2017)
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0
10
20
30
40
50
60
70
80
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
10 10
13
14
3
0
7
20 0
10 10
1 1 1
7
0 1
7 6
3 2
15
11
57
13
19
38
33
40
74
48
23
27 26
20
53
39
Combined DOJ/SEC FCPA Enforcement Actions Per Year (1977-2017)
FCPA Enforcement Actions Per Year (2008-2017)
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0
5
10
15
20
25
30
35
40
45
50
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
20
26
48
23
11
1917
10
21
29
1314
2625
12
89
10
32
10
Number of FCPA Enforcement Actions Per Year
DOJ Actions
SEC Actions
Number of FCPA Enforcement Actions by Country (1978 to Present*)
Gibson Dunn 7* Minimum eight enforcement actions.
8888
999
101010101010
1112121212
1313
141414
15151515
1618
2121
2223
2930
3535
3648
5060
7589
0 10 20 30 40 50 60 70 80 90 100
AlgeriaNicaragua
GabonNiger
BangladeshChile
TurkeyDominican Rep.
ColombiaTaiwan
EcuadorPoland
HondurasUAEIran
UzbekistanUgandaGreece
AzerbaijanDRC
GuineaHaiti
Costa RicaIvory Coast
PanamaSouth Korea
VietnamMalaysia
EgyptKazakhstan
ThailandAngola
VenezuelaRussia
IndiaBrazil
ArgentinaSaudi Arabia
IraqIndonesia
MexicoNigeria
China
Business conduct in China remains the largest source of FCPA actions in the history of the statute.
Enforcement of the FCPA: Criminal Penalties
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Anti-Bribery Provisions• Corporations: USD 2 million fine or twice the pecuniary gain or loss.• Individuals: Up to five years’ imprisonment, and a USD 250,000 fine or twice the pecuniary gain or loss.
Books and Records Provisions• Corporations: Criminal penalties up to a USD 25 million fine.• Individuals: Up to 20 years’ imprisonment, and a USD 5 million fine.
$0
$500,000,000
$1,000,000,000
$1,500,000,000
$2,000,000,000
$2,500,000,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Total Value of Corporate FCPA Monetary Resolutions (2004 – 2017)
Leading FCPA Enforcement Actions: Top Ten Monetary Settlements
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* Siemens’s U.S. FCPA resolutions were coordinated with a €395 million ($569 million) anti-corruption settlement with the Munich Public Prosecutor.** Telia agreed to pay a total of $965,603,972 in criminal penalties and disgorgement to authorities in the United States, the Netherlands, and Sweden.*** BAE pleaded guilty to non-FCPA conspiracy charges of making false statements and filing false export licenses, but the alleged false statements concerned
the existence of the company’s FCPA compliance program, and the publicly reported conduct concerned alleged corrupt payments to foreign officials.**** The total combined amount of U.S. and Dutch penalties will be $795.3 million. The U.S. is also seeking forfeiture of $850 million in corrupt proceeds.
No. Company Total Resolution DOJ Component SEC Component Date
1 Siemens AG* $800,000,000 $450,000,000 $350,000,000 12/15/2008
2 Alstom S.A. $772,290,000 $772,290,000 -- 12/22/2014
3 KBR/Halliburton $579,000,000 $402,000,000 $177,000,000 2/11/2009
4 Teva $519,000,000 $283,000,000 $236,000,000 12/22/2016
5 Telia** $483,103,972 $274,603,972 $208,500,000 9/21/2017
6 Och-Ziff $412,000,000 $213,000,000 $199,000,000 9/29/2016
7 BAE Systems*** $400,000,000 $400,000,000 -- 2/4/2010
8 Total S.A. $398,200,000 $245,200,000 $153,000,000 5/29/2013
9 VimpelCom**** $397,700,000 $230,200,000 $167,500,000 2/18/2016
10 Alcoa $384,000,000 $223,000,000 $161,000,000 1/9/2014
Leading Enforcement Actions
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In addition to record-setting monetary penalties in the U.S., several companies have also paid significant fines to non-U.S. regulators.
Company Total US Resolution Non-US Resolution
Siemens AG USD 800,000,000Siemens’s U.S. FCPA resolutions were coordinated with a €395 million ( USD 569 million) anti-corruption settlement with the Munich Public Prosecutor.
Odebrecht S.A. & Braskem S.A. USD 419,800,000
Odebrecht and Braskem agreed to pay a total of USD 3.5 billion for a global settlement with authorities in the U.S., Brazil, and Switzerland.
Telia USD 483,000,000The total combined amount of U.S., Dutch, and Swedishpenalties will be USD 965.8 million.
Keppel Offshore USD 105,600,000In addition to the U.S. settlement, Keppel agreed to payUSD 211,100,000 to Brazilian authorities and USD 105,600,000 to Singaporean authorities.
Corruption Trends: China, Russia, Latin America, Africa and India
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CHINA
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China: Market Characteristics
Sources: Worldometers: China Population 2016; General Administration of Customs: Access to Public Information - Customs Statistics; Xinhua: IMF revises up China’s growth forecast for 2017, 2018 (July 24, 2017) http://news.xinhuanet.com/english/2017-07/24/c_136468017.htm; China Working Age Population ‘to Fall 10% by 2040’, FT (Dec. 9, 2015). Economic Information Daily: 将着力打造一批具有全球竞争力的国企, (Oct 19, 2017) http://www.jjckb.cn/2017-10/19/c_136690221.htm
Estimated population of China in 2017. Median age of 37.
1.4 billion
China’s annual foreign trade surplus through November 2017.
USD 380.24 billion
China’s projected GDP growth rate for 2018.
6.4%
Total value of exports (first half of 2017).
USD 1.09 trillion
Expected reduction of working age population between 2010 and 2040, primarily due to low fertility rate.
90 million
Value of overseas assets held by China’s central state-owned enterprises.
USD 905.3billion
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China: Corruption Landscape
Five years in, a recap on Xi Jinping’s “crushing tide” anti-corruption campaign:
79th on the Corruption Perceptions Index (40).
A highly political campaign reaching from the highest levels of the PRC establishment…
Sources: Transparency International, Corruption Perceptions Index (2016); Financial Times, China anti-corruption purge hits Central Committee members (Oct 18, 2017) https://www.ft.com/content/51ea866e-b314-11e7-a398-73d59db9e399; Xinhua, Profile: Xi Jinping and his era, (Nov 17, 2017) http://news.xinhuanet.com/english/2017-11/17/c_136758372_6.htm; Xinhua, 440 Senior Officials Investigated for corruption (Oct 19, 2017) http://news.xinhuanet.com/english/2017-10/19/c_136691587.htm; Caixin: What Fallen Officials Did to Get Ahead and Avoid Getting Caught (Sept. 15, 2017) https://www.caixinglobal.com/2017-09-15/101145839.html,.
18Sitting members of the 18th
Central Committee of the CCPdetained by corruptioninvestigators.
>100PLA officers ≥ corps level ensnaredand punished. More than thenumber of generals who died on thebattlefield to establish the PRC.
…across every province in the country
227Local government organizations,agencies, and SOEs in which theCentral Commission forDisciplinary Inspection hascarried out inspections.
278,000278,000Grassroots Party members punishedfor graft. 8,900 city level officials and63,000 county level officials were alsopunished.
92.9% of Chinese people satisfied withanti-corruption efforts in 2016. Up from 75% in2012, according to the Chinese National Bureau ofStatistics.
100th on the CPI in 2014.
China: Anti-Corruption Campaign and Domestic Enforcement
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42,740By the Numbers (since January 1, 2017):
Number of officials disciplined by CCDI in China for violations of the “Eight Rules” (embezzlement, bribery, abuse of power, misappropriation, dereliction of duty, and malpractice).
43,414 Number of cases investigated by CCDI for violations of the “Eight Rules.”
60,972 Number of officials investigated by CCDI for violations of the “Eight Rules.”
Highlights of the anti-corruption campaign in 2017
Sources: 2017年11月全国查处违反中央八项规定精神问题5590起，中央纪委监察部网站; What Fallen Officials Did to Get Ahead and Avoid Getting Caught, ChinaExpels Party Official Once Seen as Potential Successor to Xi Jinping, https://www.wsj.com/articles/china-expels-party-official-once-on-track-to-succeed-xi-jinping-1506692840 ;Graft Accusations Made Against Chinese Insurance Regulator, http://www.chicagotribune.com/business/sns-bc-as--china-corruption-20170925-story.html;China’s Flashy Ex-Internet Censor Faces Corruption Investigation https://www.nytimes.com/2017/11/21/world/asia/china-internet-censorship-lu-wei-corruption.html; Chinaexpels former justice minister from party for graft https://www.reuters.com/article/us-china-congress-corruption/china-expels-former-justice-minister-from-party-for-graft-idUSKBN1CK027; Senior Chinese military officer commits suicide amid corruption probe, http://news.xinhuanet.com/english/2017-11/28/c_136784909.htm
• Former Chairman of the China Insurance RegulatoryCommission Xiang Junbo referred for prosecution afterbeing investigated for bribery and abuse of regulatorypower.
• Party Secretary of Chongqing and Politburo memberSun Zhengcai, once seen as a potential successor to XiJinping, referred for prosecution after being investigatedfor corruption and abuse of power. Sun is the first sittingmember of the Politburo to be targeted by the campaign.
• Former head of China’s Cyberspace SecurityAdministration under investigation. A clear signal thatthe campaign will continue into President Xi’s secondterm.
• Justice Minister since 2005 Wu Aiying expelled from theParty for corruption offenses.
• Central Military Commission member General Zhang Yangcommitted suicide after being put under investigation foroffering and receiving bribes and holding property fromunidentified sources.
China: FCPA Enforcement Actions
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Since 2002, the DOJ and the SEC have brought enforcement actions against 46 corporations relating to businessactivities in China.Automotive • Daimler AG, 2010Aircraft • Nordam Group, Inc., 2012Cosmetics/Personal Care • Avon Products (China) Co., Ltd, 2014• Nu Skin Enterprises, 2016Mining/Energy • Maxwell Technologies, 2011• BHP Billiton, 2015Finance JPMorgan, 2016 Gaming• Las Vegas Sands, 2016 & 2017Healthcare/Life Sciences • Diagnostic Products Corp., 2005• AGA Medical, 2008• Biomet, Inc., 2012• Pfizer/Wyeth, 2012• Eli Lilly, 2012• Bruker Corp., 2014• Mead Johnson Nutrition, 2015• Bristol-Myers Squibb, 2015
• SciClone Pharmaceuticals, 2016• Novartis AG, 2016• AstraZeneca, 2016• GlaxoSmithKline, 2016Infrastructure • Schnitzer Steel Industries, 2006• Watts Water Technologies, Inc., 2011• General Cable, 2016Manufacturing • Control Components, Inc., 2009• InVision Technologies, 2004• York International, 2007• Siemens AG, 2008• ITT Corporation, 2009• Avery Dennison, 2009• Diebold, Inc., 2013• Tyco, 2012• Keyuan Petrochemicals, Inc., 2013• Nortek Inc., 2016• Johnson Controls, 2016Technology • Paradigm BV, 2007
• Faro Technologies, 2008• RAE Systems, Inc., 2010• Rockwell Automation, 2011• IBM Corp., 2011• PTC Inc., 2016• Akamai Technologies Inc., 2016Telecommunications • Alcatel-Lucent, 2007• UTStarcom, Inc., 2009• Veraz Networks, Inc., 2010• Qualcomm Inc., 2016Tobacco • Alliance One International, 2010
No. 1: While there was onlya single enforcement actionrelating to PRC conduct in2017, China remains thesource of the largest numberof FCPA enforcement actionsin the past decade.
China: Business Risk Continues to Increase Despite Dip in U.S. Enforcement
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• U.K. Enforcement: Rolls Royce pleaded guilty in 2017 to a charge that itfailed to prevent bribery as part of the DPA it entered into with the U.K.Serious Fraud Office. Rolls-Royce’s employees provided a USD 5 millioncash credit to China Eastern Airlines, approximately USD 3 million ofwhich was used to fund airline employee attendance at a training program atColumbia University in contravention of compliance guidance.
• Third Party Lawsuits: Misonix Inc., a healthcare products company, iscurrently facing litigation following termination of an agreement with aChinese distributor due to corruption concerns. The distributor allegesbreach of contract, tortious interference, unfair competition and fraud,claiming USD 50 million in damages. The case is pending.
Corruption in China continues to drive business risk, with enforcement actions by global enforcers and follow-on litigation.
• Shareholder Litigation: Chinese issuer Sinovac Biotech, Ltd. is facing a class action suitfrom investors following its disclosure in May 2017 that it is conducting an internalinvestigation into bribery allegations in China. The disclosure followed publication ofallegations that a senior Sinovac employee had been accused of paying bribes to officials of theChinese Food and Drug Administration.
China: Enforcement Trend – Extra-Territorial Efforts
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• Since 2012, 48 out of China’s 100 most wanted economic fugitives listed on an Interpol Red Notice have been arrested and over 3,400 corruption suspects who have fled overseas have been arrested.
• China has successfully extradited its first fugitive from the US during the Trump administration. In addition, over the last year, three fugitives returned to China voluntarily and turned themselves in to authorities.
China’s efforts to obtain the return of overseas fugitives continue
Sources: Wall Street Journal, China’s Pursuit of Fugitive Businessman Guo Wengui Kicks Off Manhattan Caper Worthy of Spy Thriller (Oct 22, 2017) https://www.wsj.com/articles/chinas-hunt-for-guo-wengui-a-fugitive-businessman-kicks-off-manhattan-caper-worthy-of-spy-thriller-1508717977; The Guardian, Chinese billionaire Xiao Jianhua 'abducted' from Hong Kong hotel (Feb 1, 2017) https://www.theguardian.com/world/2017/feb/01/chinese-billionaire-xiao-jianhua-abducted-from-hong-kong-hotel-reports; Reuters, China hails first fugitive extradition from U.S. under Trump (Jun 1, 2017) https://www.reuters.com/article/us-china-usa-crime/china-hails-first-fugitive-extradition-from-u-s-under-trump-idUSKBN18S4L6; China Daily, Another Interpol Red Notice Fugitive Returns to China (Oct 12, 2017) http://www.chinadaily.com.cn/china/2017-10/12/content_33161847.htm; Reuters, Chinese graft suspect returns from U.S. to surrender (Sept 24, 2017) https://www.reuters.com/article/us-china-corruption-usa/chinese-graft-suspect-returns-from-u-s-to-surrender-idUSKCN1C0060; Xinhua, 440 Senior Officials Investigated for corruption (Oct 19, 2017) http://news.xinhuanet.com/english/2017-10/19/c_136691587.htm
• Tycoon Xiao Jianhua escorted out of the Four Seasons Hotel in Hong Kong reportedly by PRC enforcement officials. Mr. Xiao is reportedly cooperating with Chinese authorities on ongoing investigations.
• In May 2017, four Chinese state security officials visited the New York apartment of Chinese fugitive businessman Guo Wengui, who is seeking political asylum in the U.S. after criticizing China’s elite. Mr. Guo is being investigated by Chinese authorities in connection with at least 19 criminal allegations including bribery, kidnapping, fraud, money laundering and rape.
Wherever offenders may flee, they will be brought back and brought to justice.-Pres. Xi Jinping, Address to the 19th CPC National Congress (Oct. 18, 2017)
China: Enforcement Trend – Financial Services in the Crosshairs
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• Xiang Junbo, head of the China Insurance Regulatory Commission, is now themost senior figure in the financial services sector to be put under investigation forcorruption. Two further senior officials—Yang Jiacai, assistant chief of the ChinaBanking Regulatory Commission (“CBRC”) and Yao Gang, the former vicechairman of the China Securities Regulatory Commission—are under review byjudicial authorities.
• Media reports indicate that Wu Xiaohui, the head of Anbang Securities, has beendetained. This has not been confirmed by the Chinese authorities.
• Zhou Liang, former head of the Organization Department of the CentralCommission for Discipline Inspection, joined the CBRC as a vice chairman, thesecond former graft-buster move to the Commission.
• In August 2017, the Supreme People’s Procuratorate issued a circular directing acrackdown on financial crime, including insider dealing, market manipulation,online financial frauds, and the spread of corruption in financial markets.
Reuters, China to prosecute former senior banking regulator for graft (Aug 1,2017)https://www.reuters.com/article/us-china-corruption-banking/china-to-prosecute-former-senior-banking-regulator-for-graft-idUSKBN1AH3JW; South China Morning Post, China takes down insurance regulator, capping a year-long industry shake-out (Apr 9, 2017) http://www.scmp.com/business/companies/article/2086161/chinas-insurance-regulator-xiang-junbo-being-probed-violating; South China Morning Post, China’s former No 2 securities regulator Yao Gang expelled from Communist Party after investigation (Jul 20, 2017) http://www.scmp.com/business/banking-finance/article/2103473/chinas-former-no-2-securities-regulator-yao-gang-expelled; Reuters, Graft-buster Zhou Liang named vice chairman of China's banking regulator (Dec 7, 2017) https://www.reuters.com/article/china-regulations/graft-buster-zhou-liang-named-vice-chairman-of-chinas-banking-regulator-idUSB9N1NY01U
China: Enforcement Trend – Focus on Overseas Activity
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Recent months have seen a number of actions by Chinese regulators designed to control the overseas activities of Chinese firms and individuals:
• The State-Owned Asset Supervision and Administration Commission has reportedly instructed five SOEs—China Mobile, Dongfang Electric, China Merchants Bank, China Railway and CNPC—with operations abroad to establish compliance systems.
• Restrictions on overseas withdrawals from Chinese bank accounts have been tightened. Individuals are now subject to an annual limit of RMB 100,000 (USD 15,400) across all accounts.
• NDRC, MOFCOM, PBOC, MFA and ACFIC have jointly issued revised rules for overseas investments by private enterprises. The regulations target “irrational” investments and follow the CBRC’s move in July 2017 to cut off funding for overseas investments by Wanda.
• At present, the focus remains on financial stability and control of capital outflow. It remains to be seen whether the Chinese authorities will take action to curb alleged overseas corruption by Chinese entities and individuals. China has yet to bring an overseas corruption case.
Control of capital outflows and overseas investment continue to be a focus
Financial Times, China SOEs move to set up first institutional compliance systems (Jan 2, 2018) https://www.ft.com/content/0833413a-db2f-11e7-a039-c64b1c09b482Financial Times, China steps up capital controls with overseas withdrawal cap, (Dec 31, 2017) https://www.ft.com/content/b69166fa-ee01-11e7-b220-857e26d1aca4South China Morning Post, China puts Wanda under spotlight, closes off loan options for breaching investment rule, (Jul 21, 2017) http://www.scmp.com/business/companies/article/2102933/china-places-wanda-under-unprecedented-scrutiny-closes-most-loanFinancial Times, China’s State Council puts seal on capital controls (Aug 18, 2017) https://www.ft.com/content/3a638d1c-8405-11e7-a4ce-15b2513cb3ffNDRC, 国家发改委就宏观经济运行情况举行新闻发布会, (Dec 18, 2017) http://www.china.com.cn/zhibo/2017-12/18/content_41991368.htm
China: Focus on Revenue Recognition
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Diagnostic test maker Alere Inc. agreed to pay USD 13 million to the SEC to resolve allegations ofaccounting fraud and improper payments to government officials. Alere’s Chinese subsidiaryallegedly improperly realized revenue of USD 28 million, while subsidiaries in India and Columbiaallegedly used third parties to make illicit payments to government officials to obtain business. In itsAdministrative Order, the SEC cited Alere’s inadequate internal controls and inaccurate books andrecords.
Asia Risk Watch: Slowing economies and increasing competition in Asia Pacific may lead local staff to create complex schemes to meet revenue and growth targets. Increasing intersection of regulatory compliance concerns (FCPA, accounting fraud, AML, sanctions) in Asia investigations creates additional risk for US issuers doing business in the region.
Alere Highlights Pre-Acquisition ChallengesIn February 2016, Abbott Laboratories (“Abbott”) announced its pending purchase of Alere. Subsequently, the DOJ bribery investigation of Alere was revealed, and Aleredisclosed potential revenue recognition issues in China and Africa. Abbott argued that the developments triggered the “Material Adverse Change” clause in the merger agreement and attempted to halt the deal. The parties ultimately agreed on a purchase price of USD 5.3 billion, down from the original USD 5.8 billion price.
China: U.S. Enforcement—The Africa Nexus
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• Mahmoud Thiam, former Guinean Mining Minister, was convicted of moneylaundering and sentenced to 7 years imprisonment and 3 years supervisedrelease. He was alleged to have transferred from Hong Kong to New YorkUSD 8.5 million in bribes received from executives of two Chinese investmentcompanies.
• Chi Ping Patrick Ho, former Hong Kong Home Affairs Secretary, has beenindicted for FCPA violations, money laundering, and associated conspiracyoffences in connection with offering improper payments to the president ofChad and the Uganda foreign minister on behalf of a Chinese energy company.The former foreign minister of Senegal has been indicted in connection withthe conduct.
http://globalinvestigationsreview.com/article/1146995/us-authorities-set-sights-on-chinese-oil-and-gas-company; Ernst & Young, EY’s Attractiveness Program Africa, May 2017, Connectivity Redefined, http://www.ey.com/Publication/vwLUAssets/ey-attractiveness-program-africa-2017-connectivity-redefined/$FILE/ey-attractiveness-program-africa-2017-connectivity-redefined.pdf
• Sinopec is reportedly being investigated by the SEC and the DOJ, following allegations thatit funneled bribes to Nigerian officials through accounts in the U.S. to resolve a disputebetween one of its Swiss business units and the Nigerian National Petroleum Corporation. InJuly 2017, Addax Petroleum was ordered to pay USD 32 million in damages by Swissauthorities.
• China became the 3rd largest FDI investor in Africa in 2016. The government is activelypursuing further investment in Africa and other emerging markets through the Belt and Roadinitiative.
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• National Supervision System Pilot Program• Pilot conducted in Beijing, Shanxi Province and Zhejiang Province … Now to be rolled out
nationwide.
China: Legislative Developments
China’s new National Supervision System is a further indication that the anti-corruption campaign will continue into Xi Jinping’s second term.
• Structure of the National Supervision System• National Supervision Commission
• Expected to be set up in March 2018.• Will consolidate anti-corruption powers from the National Bureau of
Corruption Prevention, Ministry of Supervision and the anti-corruption department of the People’s Procuratorate.
• Will expand the scope of China’s existing anti-corruption agencies, which currently extend only to the executive branch. The CCDI covers Party members only. The new Commission will cover all public servants, regardless of branch of government or Party membership, including SOE executives.
• Local Supervision Commissions: To be established at the province/autonomous region-, prefecture-, and county-levels.
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• In November 2017, China released the draft NSL for public comments. It is expected that the NSL will come into force in March 2018. Supervision commissions at the province and autonomous region-, prefecture-, and county-levels will have the following characteristics:
Draft National Supervision Law (“NSL”)
Broad Application: Supervise, investigate and discipline all “public officers,” including government officials, SOE executives, judges, management personnel of state-run hospitals and universities, and anyone on China’s public payroll.
Broad Powers: Conduct interviews and interrogations, make inquiries and searches, freeze assets, obtain, seal/block and seize properties, records and evidence, conduct inquests, inspections and forensic examinations, and detain under a new mechanism referred to as “Liu Zhi”.
We will work for the adoption of national anti-corruption legislation and create a corruption reporting platform that covers both disciplinary inspection commissions and supervision agencies.
-Pres. Xi Jinping, Address to the 19th CPC National Congress (Oct. 18, 2017)
China: Legislative Developments
China: Anti-Corruption Enforcement Agencies Post-March 2018
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Offenses Involving
Party Officials at a Lower Level Than
Investigators
CCDI NSC
Offenses Involving All
“Public Officers”
Commercial Bribery
Involving Non-Public
Officials
Party Disciplinary Measures
Supervisory Suggestions /
Disciplinary Measures
Administrative Sanctions
People’s Procuratorates
PSB
AIC
Criminal Prosecution
China: Legislative Developments –Commercial Bribery
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• “Commercial bribery” is defined as providing interests, financial or otherwise, to another party inexchange for a transaction opportunity or competitive advantage.
• It is forbidden to give bribes to:• Any employee of a transaction counterparty;• Entities or individuals entrusted by transaction counterparties to handle relevant matters;• Entities or individuals that may take advantage of their authority or influential power to
exercise influence on transactions.
Amendments to Anti-Bribery Provisions of Anti-Unfair Competition Law As of January 1
• Vicarious liability for employers for the activitiesof employees. An act of bribery by an employee“shall be deemed an act of the business operator”unless there is no benefit for the company.
• Increased administrative penalties of betweenRMB 100,000 and RMB 3 million.
• Power to revoke business licenses.
Companies operating in China cannot singularly focus on bribery of public officials. Commercial bribery must be a central focus in corporate policies, programs, and compliance training.
China: Legislative Developments in Data Privacy & Cyber Security
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Cyber Security Law• Came into force on June 1, 2017.• Applies to establishment, operation and use of “networks” in China, which is defined as any system consisting
of “computers or other information terminals and related equipment” that collects, stores, transmits exchanges or processes information.
• The definition of “network” is very broad. It is not clear if the PRC authorities will interpret network to include all internal corporate IT networks, but the safest option is to assume that this will be the case.
• Restricts the transfer of un-anonymized personal information without the data subject’s consent. • Operators of “Critical Information Infrastructure Equipment” must store personal information and “important”
data onshore. This data cannot be transferred out of China without carrying out a security assessment in a form prescribed by the Cyber Space Administration and State Council.
• “Critical Information Infrastructure Equipment” includes equipment used in important industries such as communications, finance, utilities and transportation or any other equipment which, if compromised or breached, may cause serious damage to national security, government operations, civilian life or public security.
• “Important data” is not defined in the Cyber Security Law.
Sources: Reuters: US asks China not to enforce cyber security law http://uk.reuters.com/article/uk-usa-china-cyber-trade/u-s-asks-china-not-to-enforce-cyber-security-law-idUKKCN1C11J2?il=0
China’s Recent Cyber Security Law and Draft Guidelines for Cross-Border Data Transfer may impact companies conducting internal investigations, or responding to inquiries by non-Chinese authorities.
China: Legislative Developments in Data Privacy & Cyber Security
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• Released for public consultation on 25 August 2017 – unclear when or if the Guidelines will become law
• Appear to extend the restrictions on storage and cross-border transfer of personal data and important data contained in the Cyber Security Law to all network operators.
• “Important data” is data that is collected or produced in China and does not touch on state secrets, but is closely related to national security, economic development, or the public interest. Excludes data that has been disseminated through government public information channels.
• “Personal data” is information recorded electronically or through other means that on its own or in combination with other data can be used to identify natural persons.
Draft Guidelines for Cross-Border Data Transfer
Sources: Reuters: US asks China not to enforce cyber security law http://uk.reuters.com/article/uk-usa-china-cyber-trade/u-s-asks-china-not-to-enforce-cyber-security-law-idUKKCN1C11J2?il=0
Requirements for Cross-Border Data Transfer Under the Guidelines
• Must comply with the principles of legality, legitimacy and necessity.
• Subject to narrow exceptions, the principle of legitimacy requires the consent of the subject of personal data.
• Data users must undertake a security assessment. This assessment must consider, among other things, the sender’s ability to protect the data and the legal and political environment where the recipient is located.
• In some circumstances, the assessment must be provided to the relevant industry supervisory body or the National Cyberspace Administration.
Gibson Dunn 29
RUSSIA
Gibson Dunn 30
Russia: Market Characteristics
Russia’s Signs of Recovery:
Sources: World Bank 2017 Russia Economic Report; International Monetary Fund World Economic Outlook; Russian Central Bank; Russian Federal Customs Service; https://www.kommersant.ru/doc/3493917;http://www.customs.ru/index.php?option=com_content&view=article&id=26049:-2017-&catid=53:2011-01-24-16-29-43
https://data.oecd.org/price/inflation-cpi.htm
30%
40%
50%
60%
2013 2014 2015 2016 2017
Modest growth with uneven dynamics. RealGDP Growth 1.8%
The key interest rate lowered to 7.75%. Netcapital outflow for first nine months of 2017USD 28 billion compared to USD 10 billion inthe same period of 2016, mainly due to theaccumulation of foreign assets by the bankingsector
The current account surplus through Q3 2017increased to USD 26.6 billion from USD 15.3last year
0.706
-3.727
-0.805
1.8
2014 2015 2016 2017
Lower inflation. Inflation Rate 2.7% in December 2017
Average oil price USD 53/barrel in 2017. Share of Oil Revenueof Federal Budget stable at 39% in 2017
6.8%7.5%
16.4%
6.8% 3.5%3%
10%
17%2013 2014 2015 2016 2017
Gibson Dunn 31Sources: World Bank 2017 Russia Economic Report; International Monetary Fund World Economic Outlook; Russian Central Bank; Russian Federal Customs Servicehttp://www.customs.ru/index.php?option=com_content&view=article&id=26049:-2017-&catid=53:2011-01-24-16-29-43
https://data.oecd.org/price/inflation-cpi.htm
131
Russia implemented the principles of the Open DataCharter and signed the Common Reporting Standard
13 Commitments work in progress No progress on ensuring transparency of the beneficial
ownership of all companies involved in public contracting
110120130140
2012 2013 2014 2015 2016CPI Rank (2012 - 2016)
Russia: Corruption Landscape
Pledge Tracker:
New whistleblower protection proposals introduced in Duma in November 2017
Gibson Dunn 32Sources: Department of Justice; https://www.rg.ru/2017/11/25/fz327-site-dok.html; https://rkn.gov.ru/news/rsoc/news51432.htm;
Russia: Latest Regulatory and Political Trends Impacting the Compliance Landscape
Nation-wide anti-corruption protests led by opposition
leader Alexei NavalnyDOJ orders to register as
а foreign agent
Russian Ministry of Justice lists Voice of America and Radio Free Europe/Radio Liberty as foreign agents
Russian authorities oblige search engines, VPN and IP anonymizer service providers to block access
to prohibited websites
US/EU Sanctions
Russian Counter-SanctionsImport Substitution
Reduced leverage to enforce internationally accepted trade policiesDrift away from West-driven international organizations, closer to China and Asia
Increased focus to substitute Western
supplies
Special Counsel Mueller Russia Investigation
Social media campaigns alleging corruption at the
highest political levels
Gibson Dunn 33Sources: Russian Federal Customs Service; http://www.bbc.com/russian/international/2014/05/140521_russia_china_gas_contract
Russia: Special Trend—Russian-Chinese Trade
In 2017 China was the main trade partner with nearly USD 40 billion volume through Q2.
Russian exports to China are up by nearly 40% compared to Q1 and Q2 of 2016.
In response to Western sanctions Chinese UnionPay system gains popularity with Russian banks.
July 2017 first joint Russian National Payment System MIR and UnionPay Card is issued by sanctioned Rosselkhozbank.
October 2017 Establishment of a Payment vs. Payment (PVP) system for Chinese yuan and Russian ruble transactions – further step away from the dollar.
Latest Developments:
Potential Consequences:
Reduced leverage through western-oriented trade organizations Less direct trade relationships, less interface with Western laws and regulations, such as the FCPA Less transparent relationships, e.g. details of the 30-year gas delivery contract between GAZPROM and
Chinese CNPC signed in 2014 were not disclosed to the public
Gibson Dunn 34Sources: Russian Civil Code Art 575; Russian Criminal Code Art 291; Resolution of the Supreme Court of the Russian Federation from June 9, 2013 No. 24;
Russia: Special Focus—FIFA World Cup 2018
Russian Law Primer Civil Code states restrictions on gifts:
Criminal code prohibits bribing of a public official – person with representative, management or administrative functions in the armed forces, state organs, state or municipal institutions, state corporations, companies and entities controlled by the state
Bribe – direct or indirect, personal use or disposition rights over any benefits having monetary value, e.g. cheap/free travel, offering lower interest rates, free use of property etc.
Pubic servants: Presents above 3,000 Rubles (~USD50) deemed state property
No gifts between commercial entities
International sporting events such as the World Cup raise unique compliance issues. A focus on gifts and complimentary items, coupled with government delegations in attendance can create a high-risk environment. Gifts and Other Items to Watch For• Game tickets• Hotel stays• Hospitality suite invitations and access• Alcohol and lavish meals surrounding
matches.• Access to athletes and memorabilia (such as
autographs or jerseys) • Commemorative coins and other collectiblesGovernment Officials Likely to be in Attendance• FIFA officials• Country football federation officials from
participating nations• Police and other security forces• Military officials
Gibson Dunn 35Sources: Russian Federal Law No. 67-FZ About Principal Guarantees of Election Rights Art 58, cl.6. Photo Ria Novosti Sergey Pivovarov
Russia: Special Focus—Presidential Elections 2018
Experience shows that the months before elections present particular compliance risks.
Russian law prohibits election donations from:
Russian Presidential Elections will be held on March 18, 2018. Four of six parties represented inthe Duma that can nominate candidates have endorsed the candidacy of President Putin. Themain independent candidate and opposition leader Alexei Navalny, whose campaign focus iscombating corruption within the current government, has been barred from running by theCentral Election Commission.
Foreign States and organizations Foreign citizens Stateless persons Russian entities with more than 30% foreign
participation International organizations and movements Non-profit organizations with foreign agent
status, or receiving funds from foreign states, organizations, Russian entities with more than 30% foreign participation
Gibson Dunn 36Sources:http://zakupki.gov.ru/epz/main/public/home.html; https://fas.gov.ru/news/23590;
Russia: Special Focus—Cartels in Public Procurement
Main Legal Framework: Federal Law No. FZ-44 “On the system of public
procurement contracts for products, work or services for state and municipal needs” – state agencies
Federal Law No. FZ-223 “About purchases of the goods, works, services by certain types of legal entities.” – state-controlled entities
Electronic Auction
61%
Single Supplier
25%
Open Tender
7%
Other Methods
6%
RFQ1%
The control over and prevention of cartels in public procurement has become one of themain goals of the state economic security policy. The Federal Antimonopoly Service (FAS)has stepped-up its efforts to tackle the wide-spread violations of public procurement lawsand processes that affect an estimated 38% of the Russian GDP (approx. USD 560 billion).
Purchases of State Agencies by form of Procurement in 2017:
Key Features of Public Procurement Process: All stages of the public procurement process and
more specifically selection of suppliers for state and municipal needs are regulated
Unified information system zakupki.gov.ru works as central source of information
In 2018 all open purchasing will be conducted in electronic form
Gibson Dunn 37Sources: FAS Report on the State of Competition in Russian Federation in 2016; https://fas.gov.ru/news/23437#; https://www.rbc.ru/economics/01/03/2017/58b68d5c9a7947d7434bb4c0;http://zakupki.gov.ru/epz/dishonestsupplier/quicksearch/search.html
Russia: Special Focus—Cartels in Public Procurement
The FAS is overseeing the enforcement activities to fight the improper influencing of public procurement processes and has become quite outspoken about its concerns.
Typical “Red Flags” raised by Federal Antimonopoly Service of the Russian Federation (FAS)
“We are facing a universal cartelization of Russian economy” – Head of FAS Igor Artemyev in March 2017
70% of cartel cases through Q2 2017 concern violations at public tenders
Most public tender violations relate to healthcare, construction, food and passenger transport
Tender auction starting prices are inflated up to 30% One of the largest collusions at healthcare tenders in
2017 concerned tenders valued at approx. USD 43 million
State purchasing has 30% share in pharma sector, FAS estimates that up to 80% of those tenders are corrupt
Minimal difference between bids submitted and auction starting price (0.5% to 2%)
Identical bids submitted by “competing” bidders Bidders are affiliated Tender specification tailored to specific bidder Recurring “bidding groups” around one agency Fly-by-night companies winning large tenders Unrealistic delivery schedule or payment terms Other improper coordination among participants,
e.g. use of same IP addresses for submitting bids Subcontracting by winner to the other losing bidder
Suggestions: Conduct rigid due diligence on local partners, take risk-based approach to monitor tender documentation and prices.
Gibson Dunn 38
Russia: Key Takeaways
• Russia’s economy has managed to exit recession, but has not yet picked-up the pace of a typical “emerging market economy”
• Sanctions imposed by the U.S. and EU and counter-sanctions have added a further layer of complexity to what already used to be a high-risk region for compliance purposes
• As a response to the detrimental impact of Western sanctions, the Russian economy continues to substitute Western investments and supplies, increasing the role of China
• The Presidential election will not mark any significant change in the political agenda of the country, but likely leads to a few months of heightened uncertainty and compliance risks
• The FIFA World Soccer Championship will show-case Russia and may help reshape the countries international image, with a significant downside risk exposure, if blatant public corruption becomes a dominant topic during the games
• Russia’s internal enforcement activities on the corruption side are focused on petty corruption and on an increasing enforcement of anticompetitive conduct in the course of public tenders; this trend presents a significant new risk
• The unbiased enforcement of large-scale corruption and graft and support of international initiatives to fight such improper conduct, will likely remain on the wish list
Gibson Dunn 39
LATIN AMERICA
Gibson Dunn 40
Latin America: Market Characteristics for the Latin American and Caribbean Region
Sources: Global Competitiveness Report 2017-2018, WORLD ECONOMIC FORUM, (2017); Latin America and the Caribbean Population, WORLDOMETER (Dec. 8, 2017); Latin America’s Recovery on Track but Long-Term Growth Weak, INTERNATIONAL MONETARY FUND (Oct. 13, 2017); Regional Economic Outlook, INTERNATIONALMONETARY FUND (Oct. 10, 2017).
Brazil
• Population: 206.1 million
• GDP: USD 1,798.6 billion
• Corruption is Brazil’s 3rd most problematic factor for doing business
Argentina
• Population: 43.6 million
• GDP: USD 545.1 billion
• Corruption is Argentina’s 7th most problematic factor for doing business
Mexico
• Population: 122.3 million
• GDP: USD 1,046.0 billion
• Corruption is Mexico’s most problematic factor for doing business
Colombia
• Population: 48.7 million
• GDP: USD 282.4 billion
• Corruption is Colombia’s mostproblematic factor for doing business
Population: 648 million
Median age: 29.5 years
The regional economy is expected to
grow 1.9% in 2018
The regional level of inflation is projected to decline to 4.2
percent (compared to its
peak in 2015)
Comprises 8.56% of the
world population
Gibson Dunn 41
Latin America: Local Corruption Climate
Latin America’s corruption situation has improved.
According to the World Economic Forum’s annual Global Competitiveness Report, despite some deterioration in competitiveness and growth in Latin America, there has been some improvement. For example, Mexico increased to 51st (out of 138 countries), Brazil recovered 11 positions to move up to 80th, and Argentina moved up the ranks 12 positions to 92nd.
51 80 92
However, the International Monetary Fund concluded that Latin America still faces various challenges and that improvements have been relatively modest.
Corruption in Latin America is believed to be occurring at rates similar to other emerging market economies, but is significantly worse than developed economies.
Sources: Global Competitiveness Report 2017-2018, WORLD ECONOMIC FORUM (2017); Corruption in Latin America: Taking Stock, INTERNATIONAL MONETARY FUND(Sep. 21, 2017); 2017 Latin American Business Environment Report, CENTER FOR LATIN AMERICAN STUDIES AT THE UNIVERSITY OF FLORIDA (Feb. 2017).
Numerous corruption scandals involving business leaders, politicians, sports figures, government ministers, the police, customs officers, regional governors, and business leaders have undermined the legitimacy of democratic institutions throughout Latin America.
Mexico Brazil Argentina
Gibson Dunn 42
Latin America: Significant Corruption News
Sources: Brazil’s Supreme Court Authorizes Odebrecht Plea Deal, WALL STREET J. (Jan. 30, 2017); Former Brazil house speaker Cunha sentenced to 15 years for graft, REUTERS (Mar. 30, 2017); Ex-Brazil President Lula sentenced to nearly 10 years for corruption, REUTERS (July 12, 2017); Brazil judge targets dozens of politicians for ‘corruption,’ BBC (Apr. 12, 2017); Brazil’s J&F agrees to pay record $3.2 billion fine in leniency deal, REUTERS (May 31, 2017).
Brazil
• Lava Jato Investigations Continue• January: Brazilian Supreme Court accepted guilty pleas from 77 current and former Odebrecht
employees. Information provided as part of the plea deals implicated dozens of politicians, including nearly one third of President Temer’s cabinet.
• March: Eduardo Cunha, former Speaker of the lower chamber of Brazil’s congress, convicted for accepting bribes and sentenced to over 15 years in prison. Brazilian prosecutors also accused the Progressive Party (PP) of “misconduct in political office” for bribes received by its members.
• July: Luiz Inacio Lula da Silva, former president of Brazil, sentenced to 10 years in prison on corruption charges.
• Major investigation into JBS, S.A. and the Batista family underway• May: Joesley and Wesley Batista, along with other JBS executives, entered into leniency
agreements with Brazilian authorities following revelations that JBS was involved in paying bribes to thousands of politicians.
• September: The Batistas were arrested and charged with insider trading.
Gibson Dunn 43
Latin America: Significant Corruption News
Sources: Ex-Argentina VP Boudou arrested in corruption case, REUTERS (Nov. 3, 2017); Former minister for Argentina’s Fernandez arrested, REUTERS (Oct. 25, 2017);Argentina y Brasil crean un equipo para investigar a Odebrecht, CLARIN (June 16, 2017); Odebrecht no quiere irse del pais y ofreceria cooperar con Justicia en los cases de soborno, CLARIN (Oct. 4, 2017); Guatemala prosecutors target ex-president for alleged corruption, REUTERS (Oct. 5, 2017).
Argentina• As part of the investigation into Cristina Fernández de Kirchner’s administration (the former
President of Argentina), various former government officials have been arrested, including Ms. Fernández and her children.
• In October, Julio de Vido, former planning minister, turned himself in after he was stripped of his parliamentary immunity.
• In November, Amado Boudou, former vice president and economy minister, was arrested for racketeering and money laundering.
• In June, Argentina and Brazil created a joint investigative team to look into corruption issues related to Odebrecht. In October, Odebrecht offered to cooperate with Argentinian authorities, stating that it sought to avoid being penalized twice—once in Argentina and once in Brazil—for the same conduct.
Guatemala• President Jimmy Morales and Alvaro Arzu, mayor of Guatemala City
and former president, are being investigated by the United Nations backed International Commission Against Impunity in Guatemala for illicit campaign financing and misuse of public funds respectively.
Gibson Dunn 44
Latin America: Significant Corruption News
Sources: Venezuela’s Ramirez attacks efforts to link him to corruption, REUTERS (Dec. 6, 2017); Four U.S. Citizens Are Among Those Venezuela Detained for Alleged Graft at Citgo, WALL STREET J. (Nov. 22, 2017); Venezuela Arrests 2 Former Oil Officials, Claiming Corruption, N.Y. TIMES (Nov. 30, 2017); Corruption at a Level of Audacity ‘Never Seen in Mexico,’ N.Y. TIMES (Apr.. 19, 2017); Mexico’s Government Is Blocking Its Own Anti-Corruption Drive, Commissioners Say, N.Y. TIMES (Dec. 2, 2017).
Venezuela• Venezuela arrested Nelson Martínez and Eulogio del Pino, former oil ministers
and presidents of the state oil company, Petróleos de Venezuela, S.A. (“PDVSA”), on corruption charges. Rafael Ramirez, another former PDVSA president, was also under investigation, but claimed that the corruption investigation was an excuse for a political purge.
• As part of the anti-corruption sweep, six Citgo executives, including four U.S. citizens, were charged.
Mexico• Several current and former Mexican governors are under investigation for
siphoning off public funds.• President Enrique Peña Nieto’s recently created Anti-Corruption
Commission, which was investigating embezzlement through public universities and bribery in construction contracts, claims that the Mexican government is undermining its work.
Gibson Dunn 45
Latin America: Significant Corruption News
Sources: Ecuador’s Vice President Sentenced to 6 Years in Corruption Case, N.Y. TIMES (Dec. 13, 2017); Peru makes another push for U.S. to extradite ex-leader Toledo, REUTERS (Feb. 15, 2017); Peru’s ex-President Humala jailed for up to 18 months before trial, REUTERS (July 13, 2017); Odebrecht says dealings with Peru president were legitimate, REUTERS (Dec. 16, 2017).
• The current and two former presidents are under investigation for Odebrecht-related transactions.
• President Pedro Pablo Kuczynski is under investigation and faces impeachment.• Former president Ollanta Humala and his wife surrendered to a court while
prosecutors investigated money laundering charges. Construction executives have already been arrested in connection with the investigation.
• Peru is seeking to extradite former president Alejandro Toledo from the U.S. on bribery charges.
Peru
Ecuador
• Vice President Jorge Glas was sentenced to six years in prison after he was found guilty of receiving bribes from Odebrecht for awarding it contracts. Glas had already been relieved of his duties in August following allegations of corruption.
Gibson Dunn 46
Latin America: New Legislative Developments
Sources: 2014 Mid-Year FCPA Update, GIBSON, DUNN & CRUTCHER (July 7, 2014); Brazilian Federal Prosecutors Issue Guidance on Leniency Agreements, FCPAMERICASBLOG (Oct. 18, 2017); Brazil’s new guidelines for leniency agreements in corruption investigations, LEXOLOGY (Sept. 15, 2017).
• The CCA, which came into effect on January 29, 2014, expanded corruption liability to corporations as well as individuals.
• On August 29, 2017, the Anti-Corruption Unit of the Federal Prosecutor’s Office released guidelines for negotiating leniency agreements under the CCA. The rules introduce new requirements, including:
• All settlements must be validated by the Anti-Corruption Unit. • The settling company must be the first offender to disclose the misconduct.• The facts introduced in the settlement must be relevant and new to the authorities.• There must be an established protocol for disclosure of facts learned post-closing. • The company agrees to discontinue the misconduct, implement a compliance program or hire an external
auditor, and compensate all damages, among other obligations.• The new CCA guidelines facilitate coordination among Brazil’s many anti-corruption enforcement agencies and
promote transparency in the context of corporate settlements, encouraging greater confidence in enforcement processes.
Brazil: New Guidelines for the Clean Company Act (“CCA”)
Gibson Dunn 47
Latin America: New Legislative Developments
Sources: Argentina introduces corporate criminal liability laws, GLOBAL INVESTIGATIONS REVIEW (Nov. 13, 2017); Argentina congress passes law to fight corporate corruption, REUTERS (Nov. 8, 2017).
• Passed by the National Congress of Argentina on November 8, 2017.• Holds companies criminally liable for corrupt acts committed by officers and third parties acting on companies’
behalf.• Complements previously enacted anti-bribery laws in the country, which only apply to individuals. • Penalties include: fines ranging from two to five times the illegally obtained profits; suspension of a company’s
activities in the country; compulsory dissolution; and exclusion from government contracts or benefits.• As with the FCPA Pilot Program, a company may avoid prosecution by voluntarily self-disclosing,
implementing a compliance program with certain mandatory components, and disgorging illegally obtained profits.
• A company may mitigate liability under the law by entering into a cooperation agreement.
Argentina: The Law on Corporate Criminal Liability
“We are changing! This law promotes corporate ethics and harshly punishes companies that participate in corruption.”
Laura Alonso, Head of Argentina’s Anti-Corruption Office
Gibson Dunn 48
Latin America: New Legislative Developments
Sources: Ley General de Responsibilidades Administrativas, Articulos 2, 52, 66, 70 (July 18, 2016); Mexico’s New General Law of Administrative Responsibility Targets Corrupt Activities by Corporate Entities, GIBSON, DUNN & CRUTCHER (June 22, 2017).
• Effective as of July 19, 2017.• Reinforces legal reforms from 2016 that expanded the scope of Mexico’s anti-corruption laws.• Repeals and replaces the 2012 Public Contracting Anti-Corruption Law to govern a wider array of conduct, such
as bribing public officials and bid rigging in public procurement processes.• Penalties include economic sanctions, preclusion from participating in public procurements, liability for
damages, and dissolution. • Under Article 25, a company’s compliance “Integrity Program” can be a mitigating factor for corporate liability.
• There are key differences between GLAR and the FCPA regarding how a compliance program influences prosecution. For example, GLAR gives weight to a human resources policy whereas the FCPA does not.
Mexico: The General Law of Administrative Responsibility (“GLAR”)
“Corruption is a challenge of the greatest magnitude that requires action by society and institutions… The enactment of this set of laws must mark the start of a new stage which shows that things are changing and that things are being done differently.”
President Peña Nieto July 2016 Press Conference to Announce Anti-Corruption Bills
Gibson Dunn 49
Latin America: Enforcement Actions
Sources: Brazil Supreme Court approves Odebrecht graft plea deal testimony, REUTERS (Jan. 30, 2017); U.S. judge approves $2.6 billion fine for Odebrecht in corruption case, REUTERS (April 17, 2017); Brazil’s Car Wash Scandal Reveals a Country Soaked in Corruption, BLOOMBERG (May 25, 2017); Former Petrobras CEO Aldemir Bendine Arrested in Corruption Probe, WALL STREET JOURNAL (July 27, 2017); The Twilight of Brazil’s Anti-Corruption Movement, THE ATLANTIC (July 28, 2017).
• Over the last three years, Lava Jato has grown from a targeted money laundering investigation into one of the largest corruption investigations in global history.
• Throughout the course of the investigation, Brazil has embraced a new role as one of the leading anti-corruption enforcers in the world.
• Mass-scale Brazilian corruption scandal involving Brazilian and international companies overcharging Petrobras, Brazil’s state-owned oil company, along with kickbacks to Brazilian politicians.
• 2017 developments:• January 30, 2017: The Brazilian Supreme Court approved plea bargain statements from 77 current and
former employees of Odebrecht, which was the first company to enter into an FCPA resolution arising out of Lava Jato.
• April 17, 2017: Odebrecht was ordered to pay fines totaling USD 2.6 billion to authorities in Brazil, Switzerland, and the U.S.
• July 27, 2017: Former Petrobras CEO, Aldemir Bendine, was arrested for his alleged involvement in bribe payments involving Odebrecht.
Brazil: Operation Lava Jato (Operation Car Wash)
Gibson Dunn 50
Latin America: Enforcement Actions
Sources: 2017 Mid-Year FCPA Update, GIBSON, DUNN & CRUTCHER (July 10, 2017); Brazil’s Corruption Fallout, COUNCIL ON FOREIGN RELATIONS (July 13, 2017); SBM can settle Brazil bribery allegations for $340 million, LATIN LAWYER (Dec. 7, 2017); Keppel Offshore & Marine Ltd. and U.S. Based Subsidiary Agree to Pay $422 Million in Global Penalties to Resolve Foreign Bribery Case, DEP’T OF JUSTICE PRESS RELEASE (Dec. 22, 2017).
• In May 2017, seven executives of JBS S.A., the world’s largest meatpacker, entered into leniency agreements with Brazilian authorities.
• Wesley and Joesley Batista, owners of JBS, admitted to paying approximately USD 182 million to nearly 1,900 politicians, including three Brazilian presidents.
• On May 30, 2017, J&F Investimentos S.A., the controlling shareholder of JBS, agreed to pay USD 3.2 billion to resolve allegations.
• In November 2017, SBM Offshore, a Dutch oil services company, agreed to settle with Brazilian authorities for USD 340 million.
• Company executives at SBM were accused of bribing officials at Petrobras.• SBM has already agreed to a USD 238 million settlement with the DOJ and two SBM
executives have pleaded guilty to conspiring to violate the FCPA. • In December 2017, Keppel Offshore & Marine Ltd., a Singaporean shipyard company,
agreed to pay USD 211 million to Brazilian authorities.• Keppel Offshore is alleged to have paid approximately USD 55 million in bribes
to Brazilian government officials, including certain officers of Petrobras.
Implications of Lava Jato: Empowered Anti-Corruption Enforcement in Brazil
Gibson Dunn 51
Latin America: Enforcement Actions
Sources: 2017 Mid-Year FCPA Update, GIBSON, DUNN & CRUTCHER (July 10, 2017); Brazil’s ex-President Lula convicted of corruption, BBC NEWS (July 13, 2017).
• Brazilian authorities have continued to demonstrate a strong commitment to combatting corruption at all levels. • On July 12, 2017, Luiz Inacio Lula da Silva, former president of Brazil, was convicted in the first of five
corruption cases related to Lava Jato and found guilty of accepting bribes. He has appealed the verdict.
Implications of Lava Jato: Investigations into All Levels of Government
Gibson Dunn 52
Latin America: Enforcement Actions
Sources: 2017 Mid-Year FCPA Update, GIBSON, DUNN & CRUTCHER (July 10, 2017); Colombia arrests ex-senator linked to Odebrecht graft scandal, REUTERS (Jan. 15, 2017; Anti-Corruption Tide Reaches Argentina, THE FINANCIAL TIMES (May 19, 2016); Correa says he will be accused of corruption in Ecuador Odebrecht Case, PANAMPOST (Jan. 2, 2017); Ecuador’s Vice President Sentenced to 6 Years in Corruption Case, N.Y. TIMES (Dec. 13, 2017).
Implications of Lava Jato: Enforcement Activity throughout Latin America
• The effects of Lava Jato reach beyond Brazil, as prosecutors in other Latin American countries have opened a number of related investigations.
• Prosecutors in Panama have charged Mossack Fonseca, a Panama-based law firm, with transferring bribe money connected to Lava Jato to Panama and later destroying evidence.
• On February 9, 2017, Ramon Fonseca and Jurgen Mossack were arrested on money laundering charges.• Panamanian authorities have also detained Edison Teano, a Mossack Fonseca employee, and Maria Mercedes
Riano, the company’s Brazilian representative. • Colombian authorities arrested former senator Otto Bula Bula and former deputy transport minister Gabriel Garcia for
allegedly receiving bribes from Odebrecht. Colombia has also opened an investigation into allegations that illegal election donations were funneled to the 2014 campaign of President Juan Manuel Santos.
• The Vice President of Ecuador, Jorge Glas, was sentenced to six years in prison for receiving bribes from Odebrecht. The former president of Ecuador, Rafael Correa, faces related allegations of corruption.
• The former president of Argentina, Cristina Fernández de Kirchner, has been accused of accepting millions in bribes from Odebrecht.
Gibson Dunn 53
Latin America: Enforcement Actions
Sources: Colombian Anticorruption Official is Arrested in U.S. Bribery Case, NEW YORK TIMES (June 27, 2017); National Director of Anti-Corruption in Colombia Charged with Conspiracy to Launder Money in order to Promote Foreign Bribery, DEPARTMENT OF JUSTICE (June 27, 2017).
• On June 27, 2017, Luis Gustavo Moreno Rivera, the director of the anti-corruption unit of the attorney general’s office, was arrested in Colombia for accepting bribes to obstruct his own corrupt investigations.
• Drug Enforcement Administration (“DEA”) agents recorded Moreno at meetings in the U.S. asking a former Colombian governor and criminal defendant, Alejandro Lyons Muskus, to pay bribes in exchange for favorable treatment and the names of witnesses.
• U.S. prosecutors have also charged Moreno and Leonardo Luis Pinilla Gomez, a Colombian attorney, in federal court with conspiracy to commit money laundering in order to promote foreign bribery.
Colombia
Gibson Dunn 54
Latin America: FCPA Actions
Sources: Medical Device Company Charges With Accounting Failures and FCPA Violations, SEC PRESS RELEASE (Jan. 18, 2017); Rolls-Royce plc Agrees to Pay $170 Million Criminal Penalty to Resolve Foreign Corrupt Practices Act Case, DEP’T OF JUSTICE PRESS RELEASE (Jan. 17, 2017).
Brazil
• Orthofix International (January): Orthofix settled SEC charges related to improper payment to doctors at state-run hospitals in Brazil. Orthofix disgorged or paid penalties amounting to USD 6 million to settle the FCPA charges and agreed to retain an independent compliance consultant for one year. Four former executives separately paid penalties and/or were suspended from practicing before the SEC. Orthofix self-reported these actions, and the DOJ declined to take action.
• Rolls-Royce (January): Rolls-Royce agreed to pay the DOJ nearly USD 170 million, as part of an USD 800 million global resolution with U.S., U.K., and Brazilian authorities, following an investigation into the company’s bribery of officials to obtain government contracts. In Brazil, Rolls-Royce paid approximately USD 9.3 million in bribes to officials at Petrobras. In addition to the fine, Rolls-Royce entered a DPA and implemented new compliance programs. Rolls-Royce also received a dollar-for-dollar reduction in its DOJ penalty for money paid to Brazilian authorities.
Gibson Dunn 55
Latin America: FCPA Actions
Sources: SBM Offshore N.V. and United States-Based Subsidiary Resolve Foreign Corrupt Practices Act Case Involving Bribes in Five Countries, DEP’T OF JUSTICE PRESSRELEASE (Nov. 29, 2017); Keppel Offshore & Marine Ltd. and U.S. Based Subsidiary Agree to Pay $422 Million in Global Penalties to Resolve Foreign Bribery Case, DEP’TOF JUSTICE PRESS RELEASE (Dec. 22, 2017).
Brazil
• SBM Offshore (November): SBM entered into a DPA and agreed to pay a criminal penalty of USD 238 million following its U.S. subsidiary’s plea of guilty to conspiracy to violate the FCPA’s anti-bribery provisions. SBM had paid Brazilian officials at Petrobras in order to secure projects.Brazilian, Dutch, and Swiss authorities assisted DOJ with the investigation and DOJ credited SBM’s payments of penalties to Dutch and Brazilian authorities.
• Keppel Offshore & Marine Ltd. (December): Keppel Offshore entered into a DPA and agreed to pay a criminal fine of more than USD 422 million following its U.S. subsidiary’s plea of guilty to conspiracy to violate the FCPA’s anti-bribery provisions. Keppel Offshore is alleged to have paid millions in bribes to Brazilian government officials, including officers at Petrobras, in order to win contracts. DOJ credited a portion of the penalty payments to Brazil and Singapore.
Gibson Dunn 56
Latin America: FCPA Actions
Sources: Medical Manufacturer Settles Accounting Fraud Charges, SEC PRESS RELEASE (Sept. 28, 2017); Biomet Charged with Repeated FCPA Violations, SEC PRESSRELEASE (Jan. 12, 2017); Zimmer Biomet Holdings Inc. Agrees to Pay $17.4 Million to Resolve Foreign Corrupt Practices Act Charges, DEP’T OF JUSTICE PRESS RELEASE(Jan. 17, 2017); Chilean Chemicals and Mining Company Agrees to Pay More than $15 Million to Resolve Foreign Corrupt Practices Act Charges, DEP’T OF JUSTICE PRESSRELEASE (Nov. 29, 2017).
• Alere (September): Alere agreed to pay more than USD 13 million to settle charges stemming from allegations of accounting fraud and improper payments to foreign officials. Alere’s Colombian subsidiary has made improper payments to government officials or entities, failed to maintain adequate internal controls, and inaccurately recorded the payments in its books.
Colombia
• Zimmer Biomet (January): Zimmer Biomet agreed to pay USD 30 million to resolve parallel SEC/DOJ investigations. Zimmer Biomet had previously resolved FCPA charges in 2012. The SEC concluded that Zimmer Biomet continued to interact with and improperly record transactions with prohibited distributors in Brazil and paid bribes to Mexican customs officials. Zimmer Biomet agreed to disgorge USD 6.5 million and pay a USD 6.5 million penalty to the SEC, retain an independent compliance monitor, as well as entered a DPA with and paid USD 17.4 million to the DOJ.
Mexico/Brazil
• Sociedad Quimica y Minera de Chile (January): Charged with failure to implement internal controls and making donations to foundations tied to Chilean politicians, SQM paid a USD 15 million criminal penalty and entered into a DPA. SQM also reached a settlement with the SEC, paying a USD 15 million civil penalty for the improper payments and books and records violations.
Chile
Gibson Dunn 57
Latin America: Key Trends
Sources: People and Corruption: Citizens’ Voices from Around the World, Global Corruption Barometer, TRANSPARENCY INTERNATIONAL (Nov. 14, 2017); Corruption on the Rise in Latin America and the Caribbean, TRANSPARENCY INTERNATIONAL (Oct. 9, 2017); Why Latin America is Finally Getting Tough on Corruption, US NEWS(2017); Spotlight on Corruption in Latin America, ECONOMIST (June 14, 2017).
• Corruption perceptions: Despite increased enforcement in Latin America, corruption perceptions remain steady, along with some distrust of politicians among local populations.
• FCPA enforcement focus on Latin America: Of the 12 corporate enforcement resolutions that resulted in penalties in 2017, 6 involved conduct in Latin America. In 2016, 12 out of 28 resolutions involved activity in Latin America. In 2015, it was 3 out of 12.
• American agencies have also increased cooperation with local agencies, facilitating joint enforcement actions and making enforcement in Latin America easier.
• The DOJ has increasingly credited payments to the Brazilian anti-corruption authority against U.S. penalties.
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Latin America: Key Trends
Sources: People and Corruption: Citizens’ Voices from Around the World, Global Corruption Barometer, TRANSPARENCY INTERNATIONAL (Nov. 14, 2017); Corruption on the Rise in Latin America and the Caribbean, TRANSPARENCY INTERNATIONAL (Oct. 9, 2017); Why Latin America is Finally Getting Tough on Corruption, US NEWS(2017); Spotlight on Corruption in Latin America, ECONOMIST (June 14, 2017).
• Legislative developments: Recent anti-corruption statutory reforms encourage preventative action and offer incentives to disclose, remediate and settle.
• Recent examples of this are Mexico’s GLAR, which treats a company’s compliance program as a mitigating factor for corporate liability, and Argentina’s Law on Corporate Criminal Liability, which offers incentives for companies to enter into cooperation agreements with authorities.
• Multi-jurisdictional anti-corruption enforcement: U.S. enforcement agencies and local authorities in Latin America continue to demonstrate remarkable cooperation in pursuing cross-border violations.
• Increased information-sharing across enforcement agencies has led to more efficient investigations and harder-hitting resolutions.
• In the context of Lava Jato, there were 176 known outbound requests from Brazil for international assistance and 103 inbound requests from other countries for Brazil’s assistance.
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AFRICA
Africa: Market Characteristics
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Population: 1.2 billion
Expected economic growth of 4.2% in 2018
Inflation projected to
increase to 8.3%
16% of global population
Sources: African Economic Outlook, OECD 2017; EY’ Attractiveness Program: Africa May 2017.
54 countries
• Foreign direct investment into Africa in 2017 is expected to be USD 57.5 billion: South Africa, Nigeria, Kenya, Egypt and Morocco are top recipients.
• Investments are diversifying into consumer goods and services, including financial services, IT and telecoms.
• Commodities (coal, oil, mining) collectively accounted for just 6.2% of foreign direct investment projects, compared with tech, media and telecoms: 19.5%; consumer products and retail: 15.2%.
• The volume of intra-Africa trade remains low. But over the past two decades, the value of trade between Africa and RotW has quadrupled.
• In 2018 Africa faces a strong growth outlook driven by strong domestic demand, aided by diversification in both services and other industries.
• Most African countries’ economic health is heavily influenced by commodity prices (notably metal, minerals, and crude oil).
• The rate of public infrastructure investment is increasing.
Africa: Local Corruption Climate
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Corruption remains a key economic challenge
OECD has concluded that African political institutions and agencies enjoy limited trust and demonstrate insufficient ambition to tackle the scale of the challenge they face.
Sources: African Economic Outlook, OECD 2017; Global Corruption Barometer, Transparency International, 2015; Afrobarometer: Efficacy for fighting corruption: Evidence from 36 African countries July 2017.
• According to a 2015 survey, 75 million Africans paid a bribe during the preceding year.
• Corruption is a major challenge for 40% of businesses in Africa.
• Despite sustained efforts, public procurement standards remain a concern.
Legal frameworks to increase transparency and accountability exist across most of Africa, but the results have been mixed.
countries have ratified or acceded to the African Union Convention on Preventing and Combating Corruption (adopted 2003).
38
55 percent of Africans surveyed in 2017 say corruption increased “somewhat” or “a lot” in past year.
As of 3 October 2017, UN Convention Against Corruption has been signed and ratified by all Africancountries except Equatorial Guinea, Chad, Eritrea and Somalia.
Africa: Challenging Corruption Environment
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Transparency International Corruption Perception Index 2016
• 41 out of 46 African countries surveyed pose high corruption risk.
• Some African countries maintain stronger rankings (egs. Botswana (35); Cape Verde (38))
• South Africa (61) and Nigeria (136), the two largest economies in Africa, have shown no significant change in their rankings since 2012.
• 5 of the 10 lowest-ranked countries are in Africa (Somalia, South Sudan, Sudan, Libya and Guinea-Bissau).
Sources: Transparency International Corruption Perception Index 2016.
Africa: Regional Anti-Corruption Efforts
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The African Union• The Executive Council of the African Union will
commemorate July 11 of every year as the “African Anti-Corruption Day”; to commemorate the adoption of the African Union Convention on Preventing and Combating Corruption.
• The African Union also declared that 2018 will be the African Anti-Corruption Year, with the theme “Winning the Fight Against Corruption: A Sustainable Path to Africa’s Transformation.”
Sources: Statement by the Chairperson of the African Union Commission on the Occasion of the Inaugural African Anti-Corruption Day 11 July 2017; Statement by the Chairperson of the African Union Commission on the Occasion of the International Anti-Corruption Day 9 December 2017.
“Corruption is undoubtedly the most pressing governance and development challenge that Africa is confronted with today as its debilitating and corrosive effects reverse hard-won developmental gains and threaten progress, stability and development of the Continent.” –Statement by the Chairperson of the African Union Commission on Corruption (11 July 2017)
Africa: National Legislative Developments
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Kenya: The Kenyan Bribery Act 2016 came into force on 13 January 2017: the Act requires private entities to put in place certain measures to prevent bribery, and imposes a reporting requirement on persons holding authority in private entities who become aware of an act of bribery to report the matter to the Ethics and Anti-Corruption Commission within 24 hours. It also provides protection for whistleblowers and witnesses, and penalties for retaliation by employers against whistleblowers.Nigeria: In May 2017 the Nigerian Senate passed legislation to enlist international assistance in the country’s efforts to tackle criminal matters, including money laundering, asset acquisition from proceeds of corruption and other forms of illicit financial flows. Nigeria has conspicuously increased its efforts to fight corruption since President Buhari took office in 2015.In September 2017, Nigeria’s minister of information announced that special courts are being established in each of Nigeria’s 36 states to expedite corruption trials.At the end of 2016, Nigeria established a national whistleblowing policy under which individuals can anonymously report via a secure online portal and are entitled to 2.5-5% of proceeds if the report leads to a successful recovery of funds.
Sources: Bribery Act No. 47 of 2016 published by Kenyan National Council for Law Reporting, sections 9, 14 and 21; “Senate finally passes Buhari’s anti-corruption bill,” The Premium Times Nigeria, 30 May 2017; “Nigeria to set up designated anti-corruption courts,” Global Investigations Review, 29 September 2017; “FMF Whistleblowing – FAQ, Federal Government of Nigeria, Federal Ministry of Finance, undated; “UK to lead global partnerships to tackle corruption” United Kingdom Press Release, 12 May 2016.
UK’s 2016 “GREAT for Partnership” initiative: Anti-Corruption Practitioner Partnerships.In 2016 the UK announced that the National Crime Agency (NCA) would launch practitioner partnershipswith anti-corruption institutions in Nigeria, Tanzania, Kenya.
Africa: National Enforcement Trends
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Ethiopia: In August 2017 Ethiopia arrested Alemayehu Gujo, the state minister for finance, on suspicion of corruption. The arrest was part of dozens of arrests by the government in an anti-corruption effort. More than 40 officials from the Ministry of Finance and Economic Cooperation, the capital’s housing development agency, the Ethiopian Sugar Corporation, and the Ethiopian Roads Authority had already been arrested and detained.
Sources: “Ethiopia arrests state minister for finance on suspicion of corruption,” Reuters, 4 August 2017; “Malawi Police Issue Arrest Warrant for Former President Banda” Bloomberg, 1 August 2017; “UPDATE 2-Nigerian ex-oil minister charged with money laundering - crimes agency” Reuters, 5 April 2017; “Nigerian court seizes 56 houses linked to ex-oil minister Diezani Alison-Madueke” Sky News, 12 October 2017; “Nigeria to permanently seize ex-oil minister's $37.5 million property” Reuters, 7 August 2017; “Department of Justice Seeks to Recover Over $100 Million Obtained From Corruption in the Nigerian Oil Industry” Department of Justice Press Release, 14 July 2017; “Tanzania offers reward for arrest of anti-graft official who fled” Reuters, 14 November 2017. ;
Malawi: In July 2017, an arrest warrant was issued for Malawi’s former president, Joyce Banda, on charges of abuse of office and money laundering during her tenure in office. The charges are part of a continuing investigation into a corruption scandal referred to as “cashgate” in which Malawian officials are alleged to have embezzled millions in government funds between 2012 and 2014.
Tanzania: In November 2017, the Prevention and Combating of Corruption Bureau, offered a reward for the arrest of its former chief-accountant, who is being investigated for his own conduct in the course of an anti-graft investigation. Its prosecution of public officials and bank employees connected with the SFO DPA with Standard Bank Plc continues.
Nigeria: In April 2017, the Nigeria EFCC laid corruption charges against Diezani Alison-Madueke, the country’s Oil Minister between 2011 and 2015 and sought her extradition from the UK. Nigerian and U.S. Authorities have taken steps to recover funds and assets from Alison-Madueke. In July 2017 the DOJ filed a civil complaint seeking forfeiture and recovery of approx. USD 144 million in assets.
Africa: U.S. Enforcement Actions
Gibson Dunn 66Sources: “Halliburton Paying $29.2 Million to Settle FCPA Violations” Securities and Exchange Commission Press Release, 27 July 2017; “SEC Charges Two Former Och-Ziff Executives with FCPA Violations”, Securities and Exchange Commission Press Release, Litigation Release No. 23728 / January 26, 2017; “Former Executive Managing Director of Och-Ziff Capital Management Indicted for Defrauding Client and Obstruction of Justice” Department of Justice Press Release, 3 January 2018; “Gabonese-French Dual Citizen Sentenced To 24 Months Imprisonment For Bribing African Officials” Department of Justice Press Release, 31 May 2017.
Halliburton – on 27 July 2017 Halliburton agreed to pay USD 29.2 million and a former vice president agreed to pay a USD 75,000 penalty to the SEC to settle charges related to payments made to a local company in Angola in the course of winning lucrative oil field service contracts.
Michael L. Cohen and Vanja Baros – on 26 January 2017 two former executives of Och-Ziff were charged in SEC civil complaints with violating the FCPA and aiding and abetting Och-Ziff’s violations. It was alleged that they were central actors in a scheme to pay bribes to government officials in Libya, Chad, Niger, Guinea and the Democratic Republic of Congo. In January 2018, Cohen was criminally charged by the DOJ with obstruction of justice and investment fraud related to his personal participation in those events.
Samuel Mebiame – in May 2017 the son of a former Prime Minister of Gabon and former consultant to Och-Ziff was sentenced to two years in prison for conspiring to violate the FCPA by bribing government officials in Africa.
Africa: U.S. Enforcement Actions (cont’d)
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Chi Ping Patrick Ho and Cheikh Gadio – On November 20, 2017 these individuals were arrested and indictments unsealed revealing FCPA charges alleging a multi-year, multi-million dollar scheme to bribe high level public officials in Chad and Uganda in return for business advantages in the oil and gas sector on behalf of an unnamed Chinese energy conglomerate.
Dan Gertler and associated entities – On December 21, 2017 OFAC imposed sanctions in respect of allegations of alleged corrupt mining deals in the Democratic Republic of Congo involving President Kabila.
Mahmoud Thiam – on August 25, 2017 the DOJ announced that Mahmoud Thiam, the former Minister of Mines and Geology of the Republic of Guinea, was sentenced to seven years’ imprisonment, following his conviction earlier in the year for laundering USD 8.5 million in bribes he allegedly received from a Chinese conglomerate in exchange for awarding mining rights in Guinea.
Sources:” Former Guinean Minister of Mines Sentenced to Seven Years in Prison for Receiving and Laundering $8.5 Million in Bribes From China International Fund and China Sonangol” Department of Justice Press Release, 25 August 2017; “Head Of Organization Backed By Chinese Energy Conglomerate, And Former Foreign Minister Of Senegal, Charged With Bribing High-Level African Officials” Department of Justice Press Release, 20 November 2017; “United States Sanctions Human Rights Abusers and Corrupt Actors Across the Globe” Department of Treasury Press Release, 21 December 2017.
Africa: SFO Enforcement Actions
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Rolls-Royce Deferred Prosecution Agreement• The SFO entered into a DPA with Rolls-Royce PLC (“RR”) on
January 17, 2017, relating to 12 counts of conspiracy to corrupt, false accounting and failure to prevent bribery (section 7, Bribery Act 2010).
• The resolution was coordinated with the DOJ and Brazil’s Ministério Público Federal.
• The conduct spans three decades and occurred in seven jurisdictions: Nigeria, Indonesia, Thailand, India, Russia, China, and Malaysia.
• The investigations into individuals continues, and are unaffected by the DPA with the company.
• One count related to Nigeria: a failure by Rolls Royce employees to prevent the payment of bribes by a Nigerian company to Nigerian public officials between July 2011 and May 2013 in relation to two tenders in Nigeria.
USD 674 million settlement Comprising disgorgement of profits of USD 350 million and financial penalty of USD 324 million plus interest and SFO’s costs of USD 18 million Highest ever enforcement action against a company in the UK for criminal conduct
Sources: “SFO completes £497.25m Deferred Prosecution Agreement with Rolls-Royce PLC,” Serious Fraud Office News Release, 17 January 2017; “Rolls-Royce – Opened investigation,” Serious Fraud Office News Release, 23 December 2013; Agreed Statement of Facts in relation to Deferred Prosecution Agreement in R v. Rolls-Royce plc and Rolls-Royce Energy Systems Inc., 17 January 2017.
Africa: SFO Enforcement Actions (cont’d)
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F.H. Bertling• In 2017, F.H. Bertling Ltd and six current and former employees
were convicted of conspiracy to make corrupt payments to an agent of the Angolan state oil company, Sonangol. This related to F.H. Bertling’s freight forwarding business in Angola and a contract worth approximately USD 20 million.
“F.H. Bertling sought to obtain contracts through bribery. Corrupt practice by British companies such as this undermines the UK’s reputation as a safe place to do business and distorts the market, not to mention the damage it causes in the countries where the bribes are paid.This is a clear example of the SFO holding a company and its senior executives to account for corrupt behaviour, following an investigation that required skill, energy and determination to detect the extent and reach of this criminality.”
- SFO Director, David Green CB QC
• A facilitation payment case—the company claims it made the payment in exchange for the release of funds it was contractually due.
• One defendant was acquitted of the charges.
• The corrupt activities took place between 2004 and 2006.
Sources: “SFO secures seven convictions in $20m F.H. Bertling corruption case” Serious Fraud Office News Release, 26 September 2017.
Africa: SFO Enforcement Actions (cont’d)
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ENRC: In April 2013 the SFO opened an investigation into ENRC for its activities in Kazakhstan and the Democratic Republic of Congo relating to the acquisition of mining rights.
Sources: “ENRC Ltd,” Serious Fraud Office News Release, 28 April 2016; “ENRC wins right of appeal in bid to keep corruption investigation secret,” The Telegraph, 11 October 2017; “SFO opens investigation into the Rio Tinto group,” Serious Fraud Office News Release, 24 July 2017; “SFO says it is investigation Rio Tinto over Guinea operations,” The Guardian, 25 July 2017; “SFO investigation British American Tobacco p.l.c.,” Serious Fraud Office News Release, 1 August 2017; “Serious Fraud Office opens investigation into BAT bribery claims,” The Guardian, 1 August 2017; “British American Tobacco investigated by Serious Fraud Office,” BBC News, 1 August 2017; “SFO wins Property Freezing Order appeal in Chad oil corruption case” Serious Fraud Office News Release, 23 January 2017.
Rio Tinto: In July 2017 the SFO announced it had opened an investigation into suspected corruption in the Rio Tinto group, its employees and associated persons in the Republic of Guinea.
British American Tobacco: In August 2017, the SFO confirmed that it is investigating BAT, following reports that a former BAT employee handed over documents to the SFO in 2015, detailing conduct in East Africa.
Chad Oil: In January 2017, the English Court of Appeal rejected an appeal brought by Mrs. Ikram Mahamet Saleh to overturn a property freezing order of over GBP 4.4 million, relating to shares in a Canadian oil and gas company.
The ENRC case resulted in a significant judgment regarding the privileged status of documents created during the internal investigation. The judgment is being appealed and will be heard in 2018.
Africa: European Enforcement
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France: In October 2017, a French Court gave Teodorin Obiang, the son of Equatorial Guinea’s president, a three-year suspended jail term for embezzlement, money-laundering, corruption and abuse of trust. He was tried in absentia and ordered to surrender more than EUR 100 million’s worth of his French assets. He also received a suspended EUR 30 million fine.
Italy: In December 2017 an Italian judge ruled that Royal Dutch Shell Plc, Eni SpA, and senior executives will be tried over a USD 1 billion payment made in connection with the acquisition of a deep-water oil-prospecting license by Shell and Eni in the Gulf of Guinea in 2011. Nigeria also appears to be taking (parallel?) action against the companies.
Switzerland: Following the release of papers as part of Paradise Papers, a Swiss human rights organization has asked the Attorney General of Switzerland to look into potential embezzlement and other crimes relating to Glencore Plc’s interests in a copper mine in the Democratic Republic of Congo. According to Glencore it first invested in the DRC in 2008. The company has not commented on the matter.
Sources: “Equatorial Guinea VP Teodorin Obiang sentenced in France” BBC 27 October 2017; “Eni and Shell on trial in Italy over Nigeria 'corruption‘ BBC 20 December 2017; “Paradise Papers prompt criminal complaint against Glencore” The Guardian 21 December 2017
Africa: Enforcement Trends 2017
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• There has been significant international and domestic enforcement in or relating to Africa during 2017.
• However, a number of new and ongoing investigations by foreign enforcement authorities show that conduct in the region continues to be subject to scrutiny.
• Local enforcement efforts continue, although the experience in different countries differ greatly. Two of the largest African economies, South Africa and Nigeria have different enforcement profiles.
• Enforcement efforts remain heavily focused on activities in the commodities industry:• Diezani Alison-Madueke; ENRC; Rio Tinto; Och Ziff; Dan Gertler; Patrick Ho & Cheikh Gaido
• However, greater investment in other industries may result in enforcers shifting focus to other industries:• Recent reports have questioned how deals done by foreign companies in the African telecoms sector
benefited politically connected individuals in East Africa.• The SFO took action against Standard Bank Plc / Stanbic Bank Tanzania Limited for activities in the
financial services sector. • In previous years we have identified enforcements in construction, publishing, print services, and
manufacturing.
Africa: Key Lessons – Diligence Remains Key
Gibson Dunn 73
• Although legislative change continues and regional efforts are focused on highlighting the perils of corruption for the region, the risk of doing business in many African countries remains particularly high.
• That said, the nature of the risks can differ greatly from country to country. Engaging with sophisticated advisors with knowledge of local market conditions, as well as enforcement risks, can help companies understand where issues may arise in a future business relationship.
• Companies who are planning on doing new business in Africa must carry out extensive due diligence, not only on potential business partners but also on domestic legal and political considerations that could have an impact on future business prospects. Due diligence must take place on an ongoing basis.
• At a minimum, any company doing business in Africa should conduct a risk assessment of its business. This should be repeated on a regular basis to ensure that new risks are addressed and properly controlled.
Africa: Key Lessons
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• The introduction of new legislation gives rise to new risks of misdemeanor or exposure:
− Kenya requires anti-bribery prevention methods to be put in place and new reporting requirements.
− Nigeria has incentivised whistleblowing.
• Enforcement authorities are working in an increasingly joined up and co-operative manner making the prospect of the discovery of misconduct by both companies and individuals and its successful enforcement more likely, for example:
− US, UK and French enforcers have demonstrated a capacity and willingness to work with African states to freeze and seize assets.
− The DOJ, SFO and Italian authorities have all taken investigative or prosecutorial action this year.
• Investigations and enforcement actions have continued or been commenced on the basis of a combination of leaked documents and investigative journalism. The increasing risk of data leaks poses the risk of material unknown to companies but implicating it entering the public domain and being acquired by prosecutors in an uncontrolled manner.
Gibson Dunn 75
INDIA
Gibson Dunn 76
India: Market Characteristics
Sources: International Monetary Fund, “World Economic Outlook” (October 2017); CARE Ratings, Indian Economy Prognosis 2017-18; Department of Industrial Policy & Promotion (May 2017); LiveMint, “New direct taxes code aims for lower rates, wider base” (December 2017); Global Infrastructure Hub, Infrastructure Outlook (July 2017); Boston Consulting Group, “The New Indian: The Many Facets of a Changing Consumer” (March 2017).
Estimated population of India in 2016— 64% expected to be in the 15- to 59-year-old age group by 2026.
1.316 billion
Tax payers in India as a percentage of India’s total population.
4.5%
Expected consumer spending in India by 2025. USD 4 Trillion
India’s projected real GDP growth rate for 2017. One of the fastest growing global economies.
6.7%
Increase in FDI (April to September 2017 versus 2016)
+17%
Expected investment in infrastructure between 2007 and 2040.
USD 3.9 Trillion
70%76
India: Are Anti-Corruption Efforts Working?
Gibson Dunn 77
According to prominent studies, India’s corruption situation has improved marginally:
111
According to the World Bank’s Global Governance Indicators, India managed to improve its ranking in relation to the control of corruption by 13 (from 124) positions between 2006 and 2016.
India saw a modest fall in the latest CPI results, claiming the 79th spot (down from 76th), ranking alongside China and Brazil.
32%Almost seven out of every ten persons surveyed in India had to pay a bribe to access key public services, indicating a very high bribery rate, at least for petty corruption.
One survey reported that 78% of Indian respondents feel that bribery and corruption are widespread, and 32% of Indian respondents stated that it would be justified to offer cash payments to win or retain business.
78%69%
Control of Corruption (2006-2016)
One study has estimated that the total amount of bribes paid in order to avail key public services has fallen by about 70% between 2005 and 2017.
However, corruption and bribery continue to present significant risks in India:
Sources: Transparency International, Corruption Perceptions Index (2015, 2016); World Economic Forum, Global Competitiveness Report (2016, 2017); Transparency International, “People and Corruption: Asia Pacific – Global Corruption Barometer” (March 2017); Ernst & Young, “EMEIA Fraud Survey 2017 Interactive Results Comparison Tool” (April 2017); CMS-India, “CMS-India Corruption Study 2017” (April 2017).
India: High-Profile Anti-Corruption Activities and Mixed Results
Gibson Dunn 78
Recent high-profile measures undertaken by the Indian Government are yet to bear fruit.
• Enforcement differs from state to state in India. In some Indian states, conviction rate in anti-corruption cases is close to zero.
• The Indian Government has sought to amend the Whistleblowers Protection Act, 2014 (“WBPA”), and many commentators believe the proposed amendments willimpede reporting of corruption by public servants in India. That apart, the WBPA has not yet been brought into force.
• The 2013 amendments to the Prevention of Corruption Act not yet in effect.
• “Demonetization”: Withdrawing INR 500 and INR 1000 currency notes as legal tender and replacing them with new high-security notes. This measure was, in part, intended to tackle the issue of “black money” in India that fuels corrupt practices amongst public institutions and businesses. Almost all of the withdrawn notes have been returned to Indian banks, raising questions about the impact of this move.
• Shell Companies: The Indian Government has initiated action against shell companies, including: • deregistering over 200,000 shell companies and freezing their bank accounts;• probing cash deposits of over USD 1 billion made by 20,000 Indian companies after the move to withdraw currency
notes; and• commencing investigations of over 1,500 companies for violations of the Companies Act, 2013.
Recent Anti-Corruption Measures and Cases
Challenges Going Forward
Sources: Income Tax Department, Government of India; Reserve Bank of India; PRS Legislative Research; NCAER, The NCAER State Investment Potential Index (2017); Economic Times, “Crackdown on Indian shell companies unearths $1 billion cash” (October, 2017); Commonwealth Human Rights Initiative, “Fact and Fiction: Governments’ Efforts to Combat Corruption ” (December, 2016).
India: A Primer of the Prevention of Corruption Act
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Key Provisions of the Prevention of Corruption Act, 1988 (“PCA”)§ 7 Prohibits Indian public servants from accepting “any gratification” for doing or
forbearing an official act.§ 11 Prohibits Indian public servants from accepting “any valuable thing” without consideration or
inadequate consideration.§§ 8–9 Prohibits any person from receiving “gratification” for illegally influencing an Indian public
servant to do or forbear an official act.§§ 10 & 12 Prohibits abetting any person to violate the PCA.§ 19 Government permission required to prosecute a public servant. (Defense personnel cannot be tried
by ordinary criminal court.)Pointers on the PCA:• Facilitation Payments: There are no de minimis payments or exceptions under the PCA provided for facilitation
payments. Speed money (for routine, legal actions) constitutes a bribe (Som Prakash v. State of Delhi AIR 1974 SC 989)
• Demand is Essential: The Supreme Court of India reiterated (in early 2016) that in order to prove the commission of an offence under Section 7 the prosecution must prove that the public servant had made a demand for the bribe. (Krishan Chander v. State of Delhi, (2016) 3 SCC 108)
• While this doesn’t signify a change in the interpretation of the PCA, it reiterates that the demand element—not borne out by a bare reading of Section 7—is critical.
• This, of course, means that enforcement and successful prosecution of corruption offences will continue to be a challenge for enforcement authorities in India.
Gibson Dunn 80
India: Pending Changes to the PCA Target the Supply-Side of Bribery
Prevention of Corruption Act (“PCA”), 1988India’s key anti-corruption law generally prohibits Indian public servants from accepting “any gratification” for doing or forbearing an official act, and prohibits Indian public servants from accepting “any valuable thing” without consideration or inadequate consideration. The law also prohibits abetting any person to violate the PCA.
Prevention of Corruption (Amendment) Bill, 2013 Parliament is considering a bill that has been pending for several years. If passed by Parliament and enforced by authorities, the amendments will have a significant impact on the supply side of bribery in India. Key amendments include:• Specific offenses and fines for commercial organizations engaging in bribery in
India.
• Creates a specific offense for giving or offering a bribe (with certain safeguards), whereas the PCA only created liability for aiding and abetting.
• Directors, managers, secretaries, or other officers of the commercial organization will be liable for punishment (3-7 years imprisonment) and fines if the offense is committed with the consent or connivance of any director, manager, secretary, or other officer of the commercial organization.
• Potential liability of parent companies for acts committed by subsidiaries.
The Bill was tabled in the upper house of the Indian Parliament in November 2016 but is yet to be enacted into law.
Spotlight on Compliance Programs
The proposed amendments will provide a defense if a company can demonstrate that it had in place adequate procedures designed to prevent the giving of bribes by persons associated with it.
The Indian Government is expected to prescribe the standards for such adequate procedures.
Gibson Dunn 81
India: Corruption Trends – The Expansion of the Term “Public Servants”
Sources: Criminal Appeal Nos. 1077-1081 of 2013 and Writ Petition (Crl.) no. 167 of 2015; Criminal Appeal No. 1140 of 2016.
Most offenses under the PCA only apply to public servants, aimed at dealing with the demand side of corruption in India. The general interpretation of the term “public servant” under the PCA was that it referred to employees of the different branches of the state (executive, legislature, judiciary) or employees of Public Sector Undertakings (SOEs). Recent decisions of the Supreme Court of India a broader definition of the term.• Private Bankers: In Central Bureau of Investigation v. Ramesh Gelli and others (“Gelli”), the directors
and founder shareholders of Global Trust Bank (“GTB”) (a private bank in India until 2004), were accused of sanctioning credit lines to certain companies in a fraudulent manner. The directors (among others) were accused of causing GTB and its public depositors to incur wrongful losses for the benefit of private borrowers. The CBI sought to prosecute the officers of GTB under the PCA by arguing that officers of private banks in India are “public servants.” The Supreme Court of India determined that officers of private banks in India are “public servants” for the purposes of the PCA and thereby authorized the CBI to prosecute officers of GTB.
• Licensed Surveyors: In State Through Lokayukta Police, Raichur v. C.N. Manjunath, the Supreme Court determined that land surveyors licensed by the State of Karnataka are “public servants” and therefore covered by the provisions of the PCA. The Supreme Court noted that a licensed surveyor is a public servant for the purposes of the PCA since he is authorized and required to perform a public duty.
Gibson Dunn 82
India: Compliance Under the Companies Act
India’s Companies Act places additional obligations on companies and their management.Key Provisions§ 128(1) Requires that every balance sheet or profit and loss statement present “a true and fair view”
of the company’s affairs.
§ 134(5) Requires directors of listed companies to certify annually that their company has implemented internal financial controls and “proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.”
§§ 134(8), 447 Significant penalties for fraud and noncompliance, which include fines and prison for “officers of the company.”
§ 177(9)-(10) Directs listed companies to establish a “vigil mechanism” for directors and employees to report “genuine concerns.” The Act also protects against “victimization” of whistleblowers.
§ 245 Allows, for the first time, class action lawsuits against a company.Other LegislationThe [Indian] Income-tax Act, 1961 also contains provisions dealing with investment, expenditures, and amounts that cannot be adequately justified by the income-tax assesse. These amounts are deemed to be the income.
Gibson Dunn 83
India: Understand Your Disclosure Obligations
The disclosure clauses of the Companies Act have caused considerable confusion. Understanding your disclosure obligations is critical.WHO Must Disclose?• Neither the Companies Act nor the PCA places a specific obligation on companies to report confirmed
violations to the government.• However, the Companies Act does impose an obligation on statutory auditors to report to the government
instances of fraud committed by the employees and officers of a company “within such time and in such manner as may be prescribed.”
WHAT Must be Disclosed?
• The Companies Act defines “fraud” to include “any act, omission, concealment of any fact or abuse of position” committed by any person “with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders . . .”
• Recent guidance published by the Institute of Chartered Accountants in India urges auditors to consider reporting instances of bribery and corruption to the government under this clause.
• In December 2015, Parliament notified an amendment to the disclosure provisions of the Act. Broadly speaking, for frauds involving INR 10M (~USD 150,000) or more, auditors must report the alleged fraud to the company, which is given 45 days to respond before the report and response are forwarded to the government. For frauds below INR 10M, the auditors are required to notify the company’s board of directors. The board is then required to disclose details of the fraud, and the remedial action taken by the company in relation to fraud, in its annual report, which is filed with the Registrar of Companies.
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India: Compliance Requirements for the Private Sector
Sources: SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015; Reserve Bank of India, “Guidelines on Internal Vigilance Setup in Private Sector and Foreign Banks” (May 2011); Deloitte, “India Fraud Survey (Edition II)” (December 2016); Department of Investment and Public Asset Management (October, 2017).
• Higher Standards for Listed Private Entities: The CEO and the CFO of listed entities are required to certify to the Board of the listed entity that “there are, to the best of their knowledge and belief, no transactions entered into by the company during the year which are fraudulent, illegal or violative of the company’s code of conduct” (including bribery).
Recent legislative and regulatory initiatives over the last few years highlight India’s shift in focus to the private sector
• Higher Standards in Certain Regulated Sectors: Private entities in certain sectors are already subject to more stringent standards. For example, the Reserve Bank of India requires that every private sector bank and foreign bank operating in India designate a “Chief of Internal Vigilance,” to prevent and address issues of corruption. Starting in 2017, the Reserve Bank of India permitted the Central Vigilance Commission to probe allegations of corruption in private sector banks in India.
• Integrity Pacts: Companies must also be mindful of the increasing use of “Integrity Pacts”—binding commitments by bidders and purchasers not to engage in any corrupt conduct during the course of a transaction. Compliance with these pacts is monitored by independent external organizations approved by the CVC. Many integrity pacts strictly forbid the use of tendering agents, resellers or other third parties.
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India: A Federal System with Multiple, Intersecting Enforcement Agencies
An array of Central- and State-level enforcement agencies increase the risk of dual enforcement. Understanding the agencies under which your organization is regulated is key.
Central Bureau of Investigation (“CBI”)
Central Vigilance Commission
Serious Fraud Investigation Office
(Companies Act)
Central Lokpal (Yet to be Appointed)
State-Level Anti-Corruption Bureaux
State-Level Lokayuktas/Vigilance
CommissionsEnforcement Directorate
Financial Intelligence Unit – Ministry of
Finance
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India: Local Enforcement Statistics
The latest available statistics show a large volume of cases, shortage of personnel, and an overburdened judiciary adversely affect the enforcement of anti-corruption laws in India.
- By the end of 2016, various anti-corruption agencies in India had initiated 12,285 cases (including those reported in 2016).
- 66% of all such cases were pending at the end of 2016.
- Disciplinary proceedings within government departments take an average of 92 months.
Acquittal/ Discharge63%
Conviction37%
Trial Disposal of PCA Cases (2016)
727476788082848688909294
Pendency Rates of Corruption Cases in Key States (End 2016)
Percentage
Sources: National Crimes Records Bureau, “Crime in India 2016” (October, 2017); Central Vigilance Commission, Annual Report (2016); CBI v. A. Raja & Ors, CC No. 01/11 (December, 2017).
2G Scam Case: The recently concluded trial took over 6 years to complete and ultimately ended in the acquittal of all 17 individuals accused. The prosecution of those accused in the 2G scam, considered by many to be the largest-ever corruptioncase in India, was marred by several prosecutorial lapses.
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India: An Active Year for FCPA Enforcement Actions Involving India
Sources: Securities and Exchange Commission (January, 2017; September, 2017); Economic Times, “CVC refers Cadbury tax evasion case to CBI” (September, 2017); U.S. Department of Justice (June, 2017); Business Standard, “NHAI bribe case: US firm that paid Rs 6.7 cr was blacklisted in 2015” (July, 2017).
Mondelez (2017)According to the SEC, in early 2010 Cadbury’s Indian subsidiary hired an agent to assist the company with obtaining licenses and approvals for a planned factory expansion. In total, the subsidiary paid the agent just over USD 90,000 for consultation services associated with the necessary licenses (allegedly without adequate diligence or monitoring). This purportedly caused the Indian subsidiary’s books and records to be inaccurate and reflected a lack of internal controls by Cadbury.
CDM Smith (2017)DOJ issued a declination letter agreement to Boston-based engineering and construction firm CDM Smith Inc. According to the agreement, employees of CDM Smith’s division responsible for Indian operations and a subsidiary of CDM Smith in India paid USD 1.18 million in bribes to Indian government officials in exchange for infrastructure services contract. CDM Smith voluntarily disclosed the payments to DOJ. The firm had been blacklisted by the National Highway Authority of India in 2015.
Alere (2017)In September 2017, Alere Inc., paid USD 13 million to settle charges including allegations that it failed to maintain internal controls against improper payments to Indian local government officials. In 2011, Alere’s Indian subsidiary won a government contract to supply malaria testing kits. The SEC found that the Vice President of Marketing and Sales of Alere’s Indian subsidiary approved a four percent commission payable to local government officials in return for an increase in the tender quantities from 200,000 to 1 million kits.
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India: Enforcement Trends – Multilateral Organizations
Sources: World Bank Group, “World Bank Debars Feedback Infra Pvt.” (July, 2017); World Bank Group, “World Bank Debars Three Companies for Sanctionable Misconduct” (October, 2017).
UPL Environmental Engineers and Tatva Global Environment (2017)
In October 2017, the World Bank debarred UPL Environmental Engineers Limited and its parent company, Tatva Global Environment Pvt. Ltd. for 18 months and 11 months respectively. This followed a World Bank investigation that revealed evidence of these companies misrepresenting their intended role in a World Bank-financed project in Vietnam. The debarment by the World Bank led to cross-debarment by other multilateral development banks including the Asian Development Bank.
Feedback Infra (2017)
Recently, the World Bank debarred Feedback Infra Private Limited (an Indian company) and five of its affiliates for one year, followed by an additional one-year conditional non-debarment period. Feedback had been awarded a construction supervision contract for a highway project in India. The debarment followed an investigation by the World Bank which found that Feedback’s staff “recklessly verified, and certified for payment, three invoices submitted by a contractor that made false materials advance claims, based upon fictitious steel purchases.”
Multilateral organisations such as the World Bank and the Asian Development Bank are focused on projects they fund in India.
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GLOBAL TRENDS AND RISK MITIGATION STRATEGIES
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Trend: Anti-Corruption Continues to be a U.S. Enforcement Priority
Anti-corruption enforcement remained steady in 2017 and is expected to continue to be apriority for the United States.
• December 2017 National Security Strategy (“NSS”): The latest NSS lists fighting corruption as one of the five priority actions and notes that the United States will “continue to target corrupt foreign officials and work with countries to improve their ability to fight corruption so U.S. companies can compete fairly in transparent business climates.”
“It is not for the Department of Justice to say whether the FCPA reflects sound policymaking. The United States Congress made that judgment. Our mission is to detect, deter, and punish violations of the laws of the United States… The FCPA is the law of the land. We will enforce it against both foreign and domestic companies that avail themselves of the privileges of the American marketplace.”
-Deputy Attorney General Rob Rosenstein, at the 34th International Conference on the Foreign Corrupt Practices Act
• New Executive Order: On December 20, 2017 President Trump promulgated a new Executive Order implementing the Global Magnitsky Human Rights Accountability Act. The Executive Order allows for the sanctioning of any “current or former government official, or…person acting for on behalf of such an official…responsible for or complicit in…corruption…or bribery; or the transfer or the facilitation of the transfer of the proceeds of corruption; or…to be or have been a leader or official of an entity…that has engaged in, or whose members have engaged in” human rights abuses or corruption.
Trend: Focus on Compliance Programs in Enforcement Actions and New Laws
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Enforcement authorities and lawmakers across the globe increasingly require companiesto implement effective compliance programs and internal controls.
Examples of Increased Scrutiny by Lawmakers:
India: The Companies Act and the proposed PCA amendments both require companies to implement robust internal controls designed to detect improper conduct.
Russia: The Russian Federal Anti-Corruption Law No. 273 requires domestic and foreign companies operating in Russia to implement extensive compliance programs; it also describes areas where companies should focus on (e.g., due diligence and corruption risk assessments of business partners).
Brazil: The country’s Clean Company Act gives credit to companies that self-report violations and have strong compliance programs.
Examples of Increased Scrutiny by Enforcement Authorities:
Halliburton: The SEC noted that Halliburton violated its internal controls measures by failing to conduct competitive bidding or substantiating the need for a single source supply when hiring an Angolan company as a third party. The Director of SEC’s Enforcement Division noted that “[c]ompanies and their executives must comply with [their] internal accounting controls that help ensure the integrity of corporate transactions.”
Zimmer Biomet: The company agreed to pay USD 17.4 million for alleged improper payments to Mexican officials while under a DPA. The DOJ noted that the company failed to require appropriate due diligence and documentation for contracts with third parties and allowed its Mexican subsidiary to pay bribes to Mexican customs officials. The DOJ also imposed an independent corporate compliance monitor for 3 years.
Mitigation: Establishing an Effective Compliance Program
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Effective compliance programs are increasingly necessary in an age where U.S. and local enforcement agencies are scrutinizing internal controls when making enforcement decisions.
• Tailored to Risks Faced by the Company• Clear Compliance Policies• Targeted Compliance Training• Culture of Compliance – Tone and Messaging• Third-Party Due Diligence• Confidential Reporting of Misconduct
Source: DOJ & SEC, A Resource Guide to the U.S. Foreign Corrupt Practices Act, 56-57 (2013).
Zimmer Biomet: USD 17 million in fines and continued corporate compliance monitorship
Zimmer failed to implement an adequate system of internal accounting controls at its subsidiary in Mexico,
despite employees and executives having been made aware of red flags suggesting that bribes were being paid. In 2017, the DOJ extended the monitorship for
another three years, noting that “Zimmer Biomet failed to implement an effective compliance program and committed additional crimes while under a DPA.”
Morgan Stanley: No Fines or Penalties“After considering all the available facts and
circumstances, including that Morgan Stanley constructed and maintained a system of internal
controls, which provided reasonable assurances that its employees were not bribing government officials,
the Department of Justice declined to bring any enforcement action against Morgan Stanley related to
Peterson’s conduct.” -DOJ Press Release (Apr. 25, 2012)
• Evolves with the Business and Market Risks• Stern Consequences For Violations• Sufficient Compliance Resources• Independence of Compliance Function• Financial Controls and Monitoring
“Basic elements” the DOJ and the SEC consider when evaluating compliance programs:
Keppel Offshore & Marine Ltd.Agreed to pay combined financial penalties of more than USD 422 million to the U.S., Brazilian, and Singaporean authorities for alleged improper payments to Petrobras officials. Singaporean officials have announced that Keppel employees are the subjects of ongoing criminal investigations.
Trend: Increasing Cross-Border Cooperation and Multinational Involvement
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As countries increasingly share information, companies must be aware of the risks of concurrent investigations in the U.S. and other jurisdictions.
Telia Company AB. and Coscom LLCFifth largest monetary settlement in FCPA history, with authorities in the Netherlands, Sweden, and the United States imposing penalties and disgorgement of more than USD 965 million. The DOJ recognized several other countries that helped with the investigation, including Austria, Belgium, Cyprus, France, Ireland, the Isle of Man, Latvia, Luxembourg, Norway, and the United Kingdom.Rolls-Royce plcAgreed to pay the U.S. nearly USD 170 million as part of an USD 800 million global resolution to investigations by the U.S., U.K., and Brazilian authorities in connection with long-running schemes to bribe officials in Angola, Azerbaijan, Brazil, Iraq, Kazakhstan, and Thailand. The DOJ noted that law enforcement authorities in Austria, Germany, the Netherlands, Singapore, and Turkey also provided assistance to the investigation.SBM Offshore N.VUSD 238 million in criminal penalty to the DOJ, in connection with alleged improper payments in Angola, Brazil, Equatorial Guinea, Iraq, and Kazakhstan. The DOJ took into account SBM’s prior payment to Dutch authorities and its anticipated payments in Brazil with regards to the investigation, respectively USD 240 million and USD 342 million, bringing the total penalty to nearly USD 820 million.
Mitigation: Take Practical Steps to Account for Multinational Enforcement
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• Hire and designate compliance employees in local markets.• Tailor compliance policies and investigation protocols to local
realities and regulations.• Remember local data privacy and state secrets laws.• Never assume compliance issues are limited to a single market.• Ensure local operations are prepared for local government
inspections, audits, and raids. Conduct “dawn raid” training andhave local guidelines in place.
• Be sure your legal teams are up-to-speed on local laws regardingdisclosure of compliance issues to local regulators or statutoryauditors.− Relevant personnel should have a keen sense of the risks and
potential benefits of disclosure.
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Trend: Changes to the FCPA Corporate Enforcement Policy - Presumption of DeclinationDOJ’s revised enforcement policy solidifies the Pilot Program previously in place andcreates clear incentives for self-reporting, full cooperation, and timely remediation.
To Qualify for Presumption of Declination:
Voluntary Self-Disclosure: Companies must voluntarily disclose all relevant facts it has regarding its misconduct “prior to an imminent threat of disclosure or government investigation,” and do so “within a reasonably prompt time.”
Full Cooperation: Cooperation includes proactive cooperation, timely preservation, collection, and disclosure of relevant information, and making witnesses available. In addition, companies bear the burden of establishing that certain documents cannot be produced where there are data privacy concerns or other restrictions by foreign law.
Timely & Appropriate Remediation: Includes an effective compliance and ethics program, discipline for employees responsible for the misconduct, appropriate retention of business records, and other steps to reduce the risk of further misconduct.
No Declination If:
No Self-Disclosure: Companies that did not self-disclose but fully cooperated and timely and appropriately remediated will receive up to 25% reduction off of the low end of the Sentencing Guidelines fine range.
Aggravating Circumstances: Involvement by executive management of the company in the misconduct, significant profits to the company from the misconduct, pervasiveness of the misconduct, and criminal recidivism may result in a criminal resolution of the case.
• However, the company may receive a 50% reduction off of the low end of the Sentencing Guidelines fine range (except in case of recidivism) OR
• Avoid the requirement of a monitor, IF the company has self-disclosed, fully cooperated, and timely & appropriately remediated.
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Mitigation: Ensuring Effective Response to FCPA Matters
More so than ever before, developing a comprehensive strategy before problems arise can reduce the risk of hasty decisions and help companies take full advantage of the new policy.
• Promptly and thoroughly addressing and investigating internal reports or suspicions of misconduct, so as to allow the company to have sufficient information to make self-disclosures;
• Preserve and collect documents from relevant individuals in a timely manner;
• Produce and identify key documents helpful to the government’s understanding of the case;
Telia: Reduction in Fine and No MonitorshipTelia’s criminal penalty reflects a 25% reduction off the bottom of the U.S. Sentencing Guidelines range even
though it did not self-disclose. DOJ/SEC noted that Telia “received significant credit for [its] extensive remedial measures and cooperation,” including replacing all relevant board members and senior management
involved in the misconduct and implementing a comprehensive compliance program.- DOJ Press Release (Sept. 21, 2017) / SEC Order (Sept. 21, 2017)
• Identify key individuals who the government may consider interviewing;
• Assist the government in interviewing key individuals by de-conflicting witnesses, and making witnesses not in the United States available for interviews;
• Hire external counsel with the expertise and experience to help the company navigate the process and evaluate what actions should be taken.
Practical measures a company may consider taking to benefit from the revised FCPA enforcement policy:
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Mitigation: Keep Record-Keeping Policies in Line with DOJ/SEC Expectations and Technological Developments
• The DOJ/SEC has pursued several text messaging and messaging app cases recently.
• Under the new DOJ policy, companies cannot receive full cooperation credit in FCPA cases if it does not “prohibit[] employees from using software that generates but does not appropriately retain business records or communications.” USAM 9-47.120(3).
Adopt a corporate communication policy which strictly prohibits using personal email accounts, unauthorized messaging apps and text messages, and personal mobile devices.Implement business records retention procedures which specifies when and what data is preserved and destroyed.
Understand the patterns of communication of employees in different functions and countries.
• It may be more common in certain countries and/or industries to use instant messaging apps or text messaging to communicate with other employees, customers, or vendors.
• Determine whether the company’s existing communication tools are sufficient and effective. Employees are more likely to use personal email or instant messaging if the company email is slow or the company does not have one.
Mitigation:
Trends:
Mitigation: Develop a Disclosure Strategy
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Developing a comprehensive strategy before problems arise can reduce the risk of hasty decisions and help companies take full advantage of disclosure benefits where appropriate.
Disclosure should not be automatic. Key considerations when contemplating disclosure include:
Potential Benefits of Disclosure:• Shorter Investigations: The length of investigations (initiation to resolution) has been, on average,
shorter when accompanied by a voluntary disclosure.• Leniency in Charging Decisions: Self-disclosure can lead to potential leniency in charging decisions,
including a lower rate of mandatory guilty pleas, a higher likelihood of criminal NPAs, and a higherlikelihood of SEC-only resolutions, particularly in light of the new FCPA Pilot Program.
• Whether the conduct is systemic or isolated• U.S. contacts; strength of jurisdictional
arguments• Amount/frequency of improper conduct• Clarity of violation; strength of evidence
“Let me reiterate: there is no requirement that a company self-disclose, fully cooperate or remediate FCPA offenses . . . But when it comes to serious, readily-provable offenses, companies seeking leniency on the basis that they took steps to mitigate the offense after it was discovered are on notice of what the Criminal Division looks for when we consider these mitigating factors.”
-Assistant Attorney General Leslie R. Caldwell (Nov. 15, 2015)
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Trend: Regulators Continue to Ramp Up Individual Enforcement
“Effective deterrence of corporate corruption requires prosecution of culpable individuals… We expect the new policy to reassure corporations that want to do the right thing. It will increase the volume of voluntary disclosures, and enhance our ability to identify and punish culpable individuals.” – Deputy Attorney General Rob Rosenstein, at the 34th International Conference on the Foreign Corrupt Practices Act
Rolls-Royce DefendantsIn November 2017, the DOJ charged three former Rolls-Royce employees (James Finley, Keith Barnett, and AloysiusJohannes Jozef Zuurhout), a former Kazakhstan intermediary (Petros Contoguris), and an executive at an internationalengineering and consulting firm (Andreas Kohler), relating to a bribery scheme intended to direct business to Rolls-Royce’sU.S.-based indirect subsidiary. The defendants allegedly disguised payments as commissions to Contoguris’s company, whothen passed some of them to employees of the consulting firm to use as bribes. Finley, Zuurhout, Kohler, and Barnett eachpleaded guilty to conspiracy to violate the FCPA, with Finley additionally pleading guilty to a substantive FCPA violation.Contoguris was charged with conspiracy to violate the FCPA, conspiracy to launder money, seven counts of violating FCPA,and ten counts of money laundering.
Fernando Ardila Rueda and Karina Del Carman Nunez-Arias (PDVSA Defendants)The DOJ charged Fernando Ardila Rueda in the alleged “pay to play” corruption scheme involving Venezuelan state-ownedoil company Petroleos de Venezuela S.A. (“PDVSA”). Ardila Rueda allegedly conspired to pay PDVSA officials a percentageof any contracts the officials helped to award to Abraham Jose Shiera Bastidas’s companies. Karina Del Carman Nunez-Arias, a purchasing employee at PDVSA, was charged with conspiracy to violate the FCPA for accepting bribes in exchangefor placing companies on bidding panels for PDVSA projects. Rueda and Nunez-Arias are the ninth and tenth individuals toplead guilty in connection with the investigation.
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Mitigation: Understand the Strategy Behind Enforcement Against Individuals
The memo outlines six principles that should guide prosecutors:1) To be eligible for any cooperation credit, corporations must provide all relevant facts about the
individuals involved in corporate misconduct.2) Both criminal and civil corporate investigations should focus on individuals from the inception of the
investigation.3) Criminal and civil attorneys handling corporate investigations should be in routine communication
with one another.4) In general, corporate resolutions will not provide protection from liability for any individuals.5) Corporate cases should not be concluded without a clear plan to resolve related individual cases
before the statute of limitations expires.6) Civil attorneys should focus on individuals based on considerations beyond that individual’s ability to
pay.
The Yates Memorandum (Sept. 9, 2015)A memorandum titled “Individual Accountability for Corporate Wrongdoing” issued by DeputyAttorney General Sally Yates outlines the DOJ’s strategy in criminal actions against individuals in acorporate setting. Over two years after the Yates Memo, the number of individual enforcementactions in the FCPA space remains relatively consistent with actions brought in previous years.
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Trend: Dodd-Frank Whistleblower Protection Case May Encourage External Reporting SCOTUS’ pending decision in Digital Realty Trust v. Somers may require whistleblowers to have reported potential violations to the SEC in order to be protected by Dodd-Frank’s anti-retaliation provision.
Statistics: • Of the 4,484 tips received by the SEC Office of the
Whistleblower in FY 2017, 210 pertained to FCPA allegations (down from 238 in FY 2016).
• Whistleblower tips have increased 67% since FY 2012.• In 2017, the government paid USD 50 million in awards. • The ten highest awards issued by the SEC each totaled more
than USD 1 million, with the largest exceeding USD 30 million.
• Nine of the award recipients were foreign nationals.
Dodd-Frank Goes GlobalIn FY 2017, the SEC Office of the Whistleblower received tips from 72 non-U.S. countries:
• U.K.: 84 complaints
• Canada: 73 complaints
• Australia: 48 complaints
• China: 39 complaints
• Mexico: 26 complaints
• Russia: 26 complaints
• Hong Kong: 23 complaints
Legislation: According to the whistleblower provisions of the Dodd-Frank Act (15 U.S.C. §78u-6), the SEC will make a financial award (pay a bounty) to whistleblowers who (1) voluntarily (2) provide original information (3) to the Commission (4) that leads to (5) a “successful enforcement [action].” The provisions also provide protections from retaliation against whistleblowers, although courts have declared that the anti-retaliation provisions do not apply to foreign whistleblowers in some situations.
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Trend: Dodd-Frank Whistleblower Protection Case May Encourage External Reporting (cont’d)The question whether Dodd-Frank’s anti-retaliation protection extends to foreign employees has not been clearly settled. However, the pending outcome of Digital Realty Trust v. Somers may incentivize employees to report to the SEC as a safety net.
Digital Realty Trust v. Somers Case Background
• Supreme Court granted cert to resolve circuit split in Digital Realty Trust v. Somers.
• Somers was a Vice President of Portfolio Management for REIT Digital Realty Trust from 2010-14.
• Somers reported alleged securities law violations to management and was thereafter terminated.
• Somers filed a DFA anti-retaliation lawsuit against Digital Realty in the U.S. District Court for the Northern District of California alleging retaliatory discrimination.
• Digital moved to dismiss on grounds Somers did not report to the SEC and was thus not a “whistleblower” under the statutory definition of Dodd-Frank.
Are foreign employees protected by Dodd-Frank?• The Second Circuit has held that Dodd-Frank does not protect
whistleblowers who report foreign misconduct while on foreign soil because the act does not expressly provide for extraterritorial coverage.
• Liu was an internal reporting case; however, the court’s decision was not based on whether Liu was a whistleblower under Dodd-Frank.
• The Liu court held that “is no explicit statutory evidence that Congress meant for the antiretaliation provision to apply extraterritorially,” and the mere fact that Siemens is publicly traded in the United States was not sufficient to overcome the presumption against extraterritoriality.
• No other courts have addressed the question since Liu, and the Second Circuit did not further explain what conduct would suffice as “meaningful relationship between the harm and [the] domestically listed securities.”
• SCOTUS’ pending decision in Digital Realty Trust has the potential to encourage more external reporting in general.
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Mitigation: Implement an Effective Whistleblower Response Protocol
Before reports are made, companies should ensure that they have a system in place to respond to whistleblowers and investigate allegations.
BEST PRACTICES• Review compliance & HR policies and procedures to ensure internal reporting is easy, accessible, and perceived
as a corporate priority. Implement a comprehensive and organized system to catalogue and track complaints.
• Ensure that there are robust, comprehensive investigative protocols pursuant to which investigations are handled by appropriate personnel.
• Make clear that all employees, including foreign employees, who report will be treated with respect. Adopt a strict “no-retaliation policy” and communicate the results of investigations to whistleblowers to the extent possible.
• The SEC has chosen 120 days as a key milestone for investigations: the Commission will not consider information for award-eligibility unless the reporter waited at least 120 days after making an internal report. Internal investigations that place a company in a position to make a disclosure decision within 120 days should be deemed presumptively reasonable.
• Consider retaining counsel. Non-lawyer personnel conducting internal investigations (e.g., compliance or internal audit personnel or external investigators) are permitted to claim awards for information gleaned from investigations in certain circumstances.
• Go beyond Dodd-Frank: In recent years, key markets such as India, China, and Canada have implemented or considered implementing new whistleblower protection laws.
The SEC has made clear that the fact that a whistleblower is a foreign national does not prevent an award. Indeed, the largest whistleblower award to date (USD 30 million) went to a foreign whistleblower who provided the SEC with key, original information about an ongoing fraud.
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Trend: Third Parties Remain the Single Greatest Area of Corruption Risk Issues involving third parties have been at the core of recent enforcement actions conducted by the SEC, the DOJ, and local enforcement agencies. High-risk third parties may include:
China: Consultants, Design Institutes, PR/Marketing Firms, Event Organizers, Travel Agents, or Distributors
India: Sales Agents, Distributors, Tendering/Procurement Agents, Government Liaison Agents, Logistics Providers, Joint Venture Partners, or Fictitious Vendors
Russia: Distributors, State-Owned Customers, Fictitious Service Providers, Vendors, or Private Customers
Latin America: Sales and Marketing Agents, Customs Brokers, Lobbyists, or Tendering Agents
Africa: Joint Venture Partners and Consultants
SBM Offshores Uses Sales Agents to Secure Winning Bids
According to the DOJ, SBM Offshores pleaded guilty to conspiracy to violate the FCPA in a scheme to bribe officials in Brazil, Angola, and Equatorial Guinea to secure oil drilling bids and agreed to pay a criminal penalty of $238 million.
Anthony Mace, the CEO of SBM Offshores, admitted that he authorized payments to individuals who he knew had a high risk of being Equatorial Guinean officials or their agents, and that he paid a portion of the intermediary’s commission to an account in Brazil and another portion to accounts in Switzerland held in the name of shell companies, while deliberately avoiding learning that the payments to shell companies were ultimately received by Brazilian officials.
Robert Zubiate, the sales and marketing executive of SBM Offshores, admitted that he engaged in a conspiracy to use a third-party sales agent to pay bribes to foreign officials at Petrobras in exchange for their help in securing winning bids.
Mace and Zubiate are scheduled to be sentenced in January and February 2018.
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Mitigation: Carefully Monitor High-Risk Third Parties
BEST PRACTICES• Identify the specific functions that are prone to corruption and handled by third parties.• Involve legal and compliance in contract negotiations/drafting to ensure that services are specifically and
accurately described and allow for an efficient control (e.g., finance) to assess whether the services have actually been rendered and whether prices are reasonable in light of those services and are in line with market rates.
• Include audit rights with a trigger in third-party agreements to allow for audits when indicated.• Conduct specific training for employees working with third parties and with end customers.• Use a risk-based approach to periodically select third parties for an audit review.• Ensure that rebates, credit notes, and other payments provided to the third party are made to the
contracting entity, including identifying any offshore arrangements.• Understand interaction between sales force in emerging markets, involved third parties (e.g., distributors,
agents) and end-customers, and conduct function-specific compliance training with these employees.• Understand whether margins of intermediaries are passed on to end-customers by reviewing publically
available tender materials or conducting audit reviews.
Third parties are often an inevitable part of doing business in an emerging market. Pre-engagement screening, as well as close monitoring, can help offset the decreased transparency and control that comes with agents and intermediaries.
Upcoming Gibson Dunn Webcast
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January 24, 2018, 12:00 pm – 2:30 pm EST 14th Annual Challenges in Compliance and Corporate Governance Panelists:Joe Warin, Stuart Delery, Caroline Krass, Lori Zyskowski, Adam SmithTopics to be discussed include:– Global Enforcement and Regulatory Developments – Change and Continuity in the New Administration– Key Tips for Identifying and Addressing Top Areas of Compliance Risk – Practical Recommendations for Improving Corporate Compliance – DOJ and SEC Priorities, Policies, and Penalties– Update on Key Governance Issues and Regulatory Requirements
Click Here to Register
F. Joseph Warin
PartnerWashington, D.C. OfficeTel: +1.202.887.3609Fax: [email protected]
Joel M. Cohen
PartnerNew York OfficeTel: +1.212.351.2664Fax: [email protected]
Kelly S. Austin
PartnerHong Kong OfficeTel: +852.2214.3788Fax: [email protected]
F. Josep
Benno Schwarz
PartnerMunich OfficeTel: +49.89.1893.3210Fax: [email protected]
Sacha I. Harber-Kelly
PartnerLondon OfficeTel: +44.20.7071.4205Fax: [email protected]
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Our Offices
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APPENDIX: THE FCPA
Overview: FCPA
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• Anti-Bribery Provisions: The FCPA prohibits corruptly giving, promising, or offering anything of value to a foreign government official, political party, or party official with the intent to influence that official in his or her official capacity or to secure an improper advantage in order to obtain or retain business.
• Accounting Provisions: The FCPA also requires issuers to maintain accurate “books and records” and reasonably effective internal controls.
What is the Foreign Corrupt Practices Act?
The FCPA was enacted in 1977 in the wake of reports that numerous U.S. businesses were making large payments to foreign officials to secure business.
FCPA: Who is Covered by the FCPA?
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• Issuers: Any company whose securities (including American Depository Receipts and registered debt) are registered in the United States or that is required to file periodic reports with the SEC. • The FCPA also applies to stockholders, officers, directors, employees, and agents acting on
behalf of the issuer.• Issuers must adhere to both the FCPA’s Anti-Bribery and Accounting Provisions.
• Domestic Concerns: Any individual who is a U.S. citizen, national, or resident of the United States (not just U.S. citizens), or any business organization that has its principal place of business in the United States or which is organized in the United States.• The FCPA also applies to stockholders, officers, directors, employees, and agents acting on
behalf of the domestic concern.• Domestic Concerns must adhere to the FCPA’s Anti-Bribery Provisions.
• Other Persons: Anyone who takes any act in furtherance of a corrupt payment while within the territory of the United States.• “Other Persons” must adhere to the FCPA’s Anti-Bribery Provisions.
Definition of “Foreign Official”
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• Any officer or employee (including low-level personnel) of a foreign government department or agency;
• Personnel of an “instrumentality” of a foreign government, which has been construed to include employees of government-owned or government-controlled businesses and enterprises;
• Personnel of public international organizations, such as the United Nations, World Bank or other international financial institutions, the Red Cross, and others;
• Political party officials and candidates; and
• Members of royal families.
The FCPA prohibits corrupt payments to “foreign officials,” which is definedexpansively to include:
*752 F.3d 912 (11th Cir. 2014); see also U.S. v. Duperval, 777 F.3d 1324 (11th Cir. 2015).
Eleventh Circuit Adopts Broad Definitionof “Instrumentality”
In U.S. v. Esquenazi,* the 11th Circuit defined an “instrumentality” as an entity that 1) is controlled by the foreign government and 2) performs a function the government treats as its own.
According to the court, characteristics of a “controlled” entity may include:• Government’s formal designation; • Government ownership stake;• Government’s ability to hire and fire the entity’s principals;• Extent to which the entity’s profits go to the government; and• Extent to which government funds the entity.
Characteristics of an entity that performs a government function may include: • Whether the entity has a monopoly over the function;• Whether the entity receives government subsidies;• Whether the entity provides services to the public at large; and• Whether the public and the government perceive the entity to be
performing a public function.
FCPA: What Types of Payments are Prohibited?
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• The FCPA prohibits not only actual payments, but also any offer, promise, or authorization of the provision of anything of value.
— No payment needs to be made nor benefit bestowed for liability to attach.— An offer to make a prohibited payment or gift, even if rejected, is a violation of the
FCPA.
• The FCPA also prohibits indirect corrupt payments.— The FCPA imposes liability if a U.S. company authorizes a payment to a third party
while “knowing” that the third party will make a corrupt payment.— Third parties include local agents, consultants, attorneys, subsidiaries, etc.
• Political or charitable contributions can violate the FCPA.
FCPA: What Constitutes a “Thing of Value”?
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• There is no “de minimis” exception.
• It is not limited to tangible items of economic value.
• It can include anything a recipient would find interesting or useful, including:
• Gifts• Sporting Event Tickets• Entertainment• Food and Wine• Meals• Internships• Professional Training
• Trips• Loans• Employment• Consulting Fees• Mobile phones and electronic devices• Education• Political or Charitable Contributions
“As part of an effective compliance program, a company should have clear and easily accessible guidelines and processes in place for gift-giving by the company’s directors, officers, employees, and agents.” -A Resource Guide to the U.S. Foreign Corrupt Practices Act (p.16).
