Anti-Corruption:

An Overview for I.R. Professionals Presented by

Stephen Double

May 1, 2012

New York City

Pop Quiz

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True or False?

A publicly owned German company that has stock traded

on a U.S. stock exchange is subject to the Foreign

Corrupt Practices Act (“FCPA”)

A payment by a private U.S. company to an employee of

a state-controlled oil company in order to obtain

business is prohibited by the FCPA

Agreeing to make a donation to a Korean charity to

please a non-U.S. government official who regulates a

subsidiary of a U.S. company is prohibited by the FCPA

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True or False?

Turning a blind eye to corrupt payments made to a non-

U.S. government official by third parties acting on one’s

behalf is prohibited under the FCPA

Giving expensive jewelry to the wife of a non-U.S.

government official to help get a zoning permit is

prohibited under the FCPA

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Foreign Corrupt Practices Act

(FCPA)

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Who Is Subject To The FCPA? Any U.S. Citizen or Resident

Any U.S. Company

– Officers, directors, employees, agents and consultants

– U.S. parent companies may be liable for the acts of their foreign

subsidiaries if they authorized, directed, or controlled the prohibited activity,

failed to have adequate internal controls to detect improper payments, or

violated books and records provisions by failing to detect improper entries

Any Foreign Company Listed on a U.S. Exchange (“Issuer”)

– Companies with securities registered on a national securities exchange and

those required to file annual reports with the SEC

– The officers, directors, employees, and agents of those companies

Any Other Company or Person committing an act inside the

U.S. in furtherance of a bribe

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FCPA Provisions

The FCPA consists of two provisions:

Anti-Bribery Provision

Books and Records Provision

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FCPA: Anti-Bribery

The FCPA makes it unlawful for a person or entity covered by the Act to make knowingly:

1. “an offer, payment, promise to pay, or authorization of” the payment or giving of

2. money or “anything of value”

3. corruptly

4. “directly or indirectly, to any foreign official, to any foreign political party or official thereof, or to any candidate for foreign political office”

5. In order to (a) “influence any act or decision of such foreign official”, … (b) “secure any improper advantage” or (c) “induce such foreign official … to influence any act or decision of such government or instrumentality”

6. To “obtain or retain business for or with, or direct business to, any person”

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FCPA: Anti-Bribery

Knowledge Includes

Actual knowledge

Awareness or suspicion

that an event is likely to

occur

Avoiding knowledge of

corrupt acts through

willful blindness

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FCPA: Anti-Bribery

Money or “Anything of Value” Includes

Cash

In-kind gifts, services, and entertainment

Travel, food, and lodging expenses

Sponsorships or donations supported by the government

official

Promise of future employment

Anything else “of value”

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FCPA: Anti-Bribery

“Foreign Official” Includes

"…any officer or employee of a foreign government or

any department, agency or instrumentality thereof . . . or

any person acting in an official capacity for or on behalf

of any such government, department, agency, or

instrumentality ...”

Includes employees of state-owned entities and

sovereign wealth funds

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FCPA: Anti-Bribery

Bribes paid indirectly through others are also unlawful

under FCPA

Payment of a bribe through a third-party is unlawful

Payment of a bribe to a relative, spouse, or other person

intending to benefit a non-U.S. government official is

unlawful under the FCPA

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Narrow Exceptions to Liability

Facilitating payments (very narrow exception)

Local law defense (affirmative defense)

Reasonable business expense (affirmative defense)

– Connected to “promotion, demonstration, or

explanation of products or services” or the “execution

or performance of a contract”

– Expenses are “reasonable” and “bona fide” and

“directly related” to business purpose

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FCPA: Record-Keeping

The FCPA record-keeping provisions apply to

“issuers,” which include U.S. and foreign companies

whose securities are traded on a U.S. exchange and

companies required to file reports under the Securities

Exchange Act

Definition of “issuers” is sufficiently broad to cover

corporations with bonds or American Depository

Receipts traded on U.S. markets or stock exchanges

Includes entries in the books of subsidiaries that are

consolidated into parent’s books

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FCPA: Record-Keeping

To meet record-keeping requirements, companies must:

Make and keep books, records, and accounts, which, in

reasonable detail, accurately, and fairly reflect the

transactions and dispositions of corporate assets

Devise and maintain a system of internal accounting

controls sufficient to provide reasonable assurances that

transactions are properly authorized and all amounts are

recorded accurately

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Whistleblowers

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Whistleblower Provisions

Exchange Act Section 21F applies to all SEC FCPA actions, as well as DOJ FCPA actions based on the whistleblower information

Tension: Encourage publication of useful information, while not discouraging employees from internal reporting

Must be original information that leads to successful enforcement, provided voluntarily

Whistleblower may receive 10%-30% of monetary sanctions for FCPA cases resulting in over $1 million in sanctions

Whistleblower can be any member of an organization that is not a lawyer or outside auditor

No requirement to report internally first; though employees are incentivized to do so

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Implications of Whistleblower Provisions

Extends whistleblower provisions to FCPA context

Previous whistleblower provisions only allowed a

percentage of false claims recovered from a company,

not penalties

Changes companies’ calculus of self-reporting potential

FCPA violations

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The UK Bribery Act

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Key Provisions of the UK Bribery Act

Came into force in July 1, 2011

The Bribery Act includes four offenses

– Bribing another person

– Accepting or requesting a bribe

– Bribing a foreign official

– Failure of commercial organizations to prevent bribery

The Bribery Act makes it a criminal offense to bribe

government officials or private persons

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UK Bribery Act vs. the FCPA

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Bribery Act FCPA

Bribery of private

individuals Prohibited Not addressed

Accepting or requesting

a bribe Prohibited Not addressed

Bribery of foreign

officials Prohibited Prohibited

Facilitation payments Prohibited Not prohibited

Failing to keep accurate

books and records and

maintain internal

accounting controls

Not addressed Prohibited

Who Is Subject to the UK Bribery Act?

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Applies to individuals who are either UK nationals or

ordinarily resident in the UK

– Not limited to nationality

Applies to businesses that can be determined as

“carrying on a business” in the UK

– Low threshold

– If an organization is incorporated or formed in the UK, or that the

organization carries on a business or part of a business in the

UK (wherever in the world it may be incorporated or formed) then

UK courts will have jurisdiction

Impact of the UK Bribery Act

May require reassessment of business to business

interactions

May require reassessment of hosting of government

officials

May require reassessment of compliance procedures to

ensure that they are “adequate” to prevent bribes

Supports elimination of facilitation payment exception in

corporate policies

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Key Enforcement Trends

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Large criminal fines and civil penalties reaching

hundreds of millions of dollars

$190

$900

$610

$1,800

$657

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2007 2008 2009 2010 2011

Total FCPA Penalties by Year (in millions)

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Trend 1: Large Financial Penalties

Trend 2: Industry-Wide Investigations

Coordinated enforcement activity over the past few years resulting in large fines against more companies

– Technology and telecommunications (IBM, HP, Alcatel-Lucent, Haiti Teleco, Comverse Technology, Inc., Latin Node, Inc., Veraz Networks, Inc., Magyar Telekom/Deutsche Telekom)

– Pharmaceutical and medical devices (J&J, Merck & Co. Inc, Eli Lilly and Co., Smith & Nephew)

– Oil and gas (Panalpina, Bonny Island, Hercules Offshore, Inc.)

– Sovereign Wealth Funds (Citigroup, Inc., Blackstone Group, Goldman Sachs)

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Trend 3: Increased Prosecution of Non-U.S.

Companies

Top 10 FCPA Settlements (in millions)

$800

$400

$365

$338

$218,80

$185

$137

$95

$81,80

$579

Siemens (2008)

KBR/Halliburton (2009)

BAE (2010)

Snamprogetti (2010)

Technip (2010)

JGC Corporation (2011)

Daimler AG (2010)

Alcatel-Lucent (2010)

Magyar Telekom (2011)

Panalpina (2010)

Non-US Companies

US Companies

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Trend 4: Increased Prosecution of Individuals

14 16

24

35

16

0

5

10

15

20

25

30

35

40

2007 2008 2009 2010 2011

Enforcement actions against individuals by the DOJ and SEC: 2007- 2011

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Trend 5: Interpretation of “Foreign Official”

In four recent cases, the courts agreed with the DOJ’s

expansive interpretation that employees of state-owned

entities can qualify as foreign government officials

under the FCPA.

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Trend 6: Aggressive Enforcement Tactics

“African Sting” case (2010)

– 22 defendants in military products industry arrested in massive sting

operation, using 150 FBI agents, wiretaps, a cooperating witness,

and undercover agents posing as agents of foreign government

officials

DOJ seeks prison sentences for persons convicted of

FCPA offenses

– Joel Esquenazi, former president of Terra Telecommunications

Corporation, sentenced to the longest prison term in an FCPA case:

15 years imprisonment (2011)

– Lindsey Manufacturing, Inc., executives, and agent, Angela Aguilar,

found guilty after jury trial in California (2011)

Lindsey was the first company to be tried and convicted on FCPA

violations

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Trend 7: Expansive Legal Theories

Tenaris S.A. (2011)

– SEC and DOJ alleged jurisdiction under the FCPA based on a

single wire transfer through an intermediary bank in the US

Panalpina Word Transport (Holding) Ltd. (2010)

– Panalpina was charged as an “agent” of its US-listed customers,

Shell Nigeria Exploration and Production Co. Ltd., Tidewater

Marine International, Inc., Transocean, Inc., Pride International,

Inc., Global SanteFe Corp., and Noble Corp

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Trend 8: Increased International Cooperation

Anti-corruption enforcement is increasingly global in nature, as prosecutors advance a global effort to combat corruption

– Johnson & Johnson (2011) Entered into a US$77 million global settlement with US and UK

enforcement agencies

J&J cooperated with the US government’s investigation and provided information about other companies in the pharmaceutical industry

– Innospec Inc. (2010) Settled corruption charges with US and UK enforcement

agencies, committing to retain a compliance monitor jointly approved by US and UK authorities

DOJ, the SEC, the US Treasury Department’s Office of Foreign Assets Control (“OFAC”), and the UK Serious Fraud Office (“SFO”) worked together to reach a US$40.2 million global settlement

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Trend 8: Increased International Cooperation

(Continued)

Corruption investigations can begin in non-US jurisdictions

or expand beyond the US

– Siemens AG (2008)

The blockbuster Siemens investigation began in Germany, with

Siemens eventually entering into large settlements with the US

and German governments

– BAE Systems (2010)

The BAE investigation began in the UK, with BAE ultimately

agreeing to settle with DOJ and the SFO

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Trend 9: Continuing Scrutiny of Business

Combinations

Recent settlements continue to emphasize the importance of due diligence in joint ventures, mergers, and other business combinations

– Ball Corporation (2011) Settled allegations with SEC that it failed to discover and

prevent bribes paid by its recently acquired subsidiary in Argentina to employees of the Argentine government

– Kraft Foods (2010) Kraft had noted that its preliminary due diligence had found

Cadbury’s overall state of compliance to be sound

However, in certain jurisdictions, there appeared to be facts and circumstances warranting further investigation

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Trend 10: Voluntary Self-Disclosure

and Cooperation

Disclosures about possible FCPA violations are voluntary but may foster positive relations with enforcement agencies

Prosecutors in FCPA cases may take into account positively a company's

– disclosure of wrongdoing,

– willingness to cooperate, and

– pre-existing compliance program

DOJ and SEC encourage voluntary disclosure, including through published guidelines

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Key Takeaways

For I.R. Professionals

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Key Takeaways

For public companies, strong internal compliance goes hand in hand with appropriate disclosure

Greater emphasis on self-reporting and timely disclosure of possible FCPA violations

– Greater whistleblower “risks” for companies

– SEC tends to look favorably on companies with strong internal

controls and forthright public disclosure

Increased focus on non-U.S. companies

Don’t forget about foreign consolidated subsidiaries

Be alert for potential disclosures arising from M&A transactions

If you work in the financial services industry, keep in mind the SEC’s increasing focus on this sector

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Questions?

Thank you

Stephen Double Counsel

Stephen.Double@aporter.com

New York, NY

399 Park Avenue

New York, New York 10022

+1 212.715-1378

+1 212..715-1399 (fax)

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