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Anti-Corruption Compliance Challenges –the Cost of Doing Business in High Risk Regions of the World

13th Annual

Compliance &Ethics InstituteTuesday, September 16, 2014Chicago, IL

I. IntroductionA. Speakers

• James M. Lord, Shareholder, Jackson Lewis P.C., Denver, CO (Moderator)

Jim Lord serves as the Anti-Corruption Practice Leader for Jackson Lewis P.C., is a member of the Corporate Governance & Internal Investigations and White Collar & Government Enforcement practice groups, and has a practice focused on regulatory compliance, internal investigations, and white collar corporate criminal defense. Previously Jim served as an Assistant U.S. Attorney, and as Chief of the Organized Crime Strike Force, Coordinator of the Corporate Fraud Task Force, a Computer Hacking and Intellectual Property (CHIP) prosecutor, an Asset Forfeiture & Money Laundering specialist, and as the Legal Advisor to Tanzania.

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A. Speakers (cont’d)• Winston Y. Chan, Partner, Gibson Dunn, San Francisco, CA

Winston Y. Chan is resident in Gibson, Dunn & Crutcher’s San Francisco office. He is an experienced trial and appellate attorney, and is a member of the firm’s White Collar Defense and Investigations Practice Group. He regularly represents entities and individuals in Foreign Corrupt Practices Act matters, including government enforcement actions, internal investigations, compliance reviews and transactional due diligence, both domestically and abroad. In 2014, Mr. Chan was named in Law360 as one of just five nationwide “Rising Stars” in the government enforcement defense and investigations field.

From 2003 to 2011, Mr. Chan served as an Assistant United States Attorney in the Eastern District of New York, where he investigated and prosecuted a wide range of matters as part of that office’s Business and Securities Fraud Section, including Foreign Corrupt Practices Act violations, hedge fund improprieties, insider trading, accounting fraud, market manipulation, False Claims Act matters, and fraudulent offerings of securities. Mr. Chan served in a number of supervisory roles, and received a variety of awards and commendations.

Mr. Chan earned his undergraduate degree, magna cum laude, from Yale University, and his Juris Doctor from Yale Law School. Following law school, Mr. Chan served as a law clerk for the Honorable Leonard B. Sand of the United States District Court for the Southern District of New York, and then for the Honorable Chester J. Straub of the United States Court of Appeals for the Second Circuit.

A. Speakers (cont’d)

• Harvey Woodford, VP, Chief Ethics & Compliance Officer, Avnet, Inc., Phoenix, AZ

Harvey Woodford is the Vice President and Chief Ethics & Compliance Officer of Avnet, Inc., a global distributor of electronic components and computer products. Harvey leads Avnet’s global compliance and ethics program, including its investigations and security functions, covering its business in 80+ countries. Prior to Avnet, Harvey served as Director of Corporate Compliance & Ethics at T-Mobile, where he established and oversaw its compliance and ethics program and was responsible for its corporate governance and subsidiary management functions. Harvey was also a founding member of T-Mobile’s Diversity Council.

Harvey received his law degree from the University of California, Berkeley School of Law and his undergraduate degree from the University of Washington in Seattle. He is an active member of various compliance and ethics organizations. Harvey is also a Certified Compliance and Ethics Professional (CCEP).

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B. Agenda

• A review of anti-corruption enforcement actions involvingrepresentative High Risk Regions of the World

• Conducting and managing investigations in high-risk regions

• Engaging foreign law enforcement to assist with corruptioninvestigations

C. What is a High Risk Region?

• Countries that rank high for corruption on Transparency International’s Corruption Perception Index (CPI)

• Unfamiliar regions

• Regions with a complicated legal landscape

• Regions with geo-political uncertainty/sensitivity

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II. Trends in Anti-Corruption Enforcement Actions in High Risk Regions of the World

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Asia

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Continued Focus on China by U.S. Enforcement Agencies

Since 2002, the DOJ and the SEC have brought enforcement actions against 28corporations relating to alleged business activities in China

Enforcement Actions:

• InVision Technologies, 2004• Diagnostic Products Corp., 2005• Schnitzer Steel Industries, 2006• Paradigm BV, 2007• York International, 2007• Alcatel-Lucent, 2007• AGA Medical, 2008• Faro Technologies, 2008• Siemens AG, 2008• ITT Corporation, 2009• Avery Dennison, 2009• Control Components, Inc., 2009• UTStarcom, Inc., 2009• Daimler AG, 2010• Veraz Networks, Inc., 2010

• Alliance One International, 2010• RAE Systems, Inc., 2010• IBM Corp., 2011• Maxwell Technologies, 2011• Rockwell Automation, 2011• Watts Water Technologies, Inc., 2011• Biomet, Inc., 2012• Pfizer/Wyeth, 2012• Nordam Group, Inc., 2012• Tyco, 2012• Eli Lilly, 2012• Keyuan Petrochemicals, Inc., 2013• Diebold, Inc., 2013

No. 2In the history of the FCPA, the number of enforcementactions involving conduct in China is second only tothose involving conduct in Nigeria.


Currently Nearing Settlement

• Avon disclosed that in 2008 it opened an internal investigation into allegations of improper gifts, travel, entertainment, and other expenses incurred in China

• May 2014 reports indicate Avon is nearing an agreement to pay approximately $135 million in penalties and enter a three-year DPA with an appointed compliance monitor

• Six-year probe has already cost Avon almost $400 million, before penalties

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Spike in Chinese Enforcement Activity

The anti-graft campaign launched by President Xi Jinping inNovember 2012 has lead to an explosion of enforcement activity

Recent changes to anti-bribery laws and policies include:

• A 5-year anti-corruption plan was launched in December 2013 that:• orders officials to submit reports annually on their anti-graft reform progress• expands pilot projects that require newly nominated officials to disclose their

private assets• urges anti-graft training for Party members and officials, with a focus on law

and corruption cases to warn them of the consequences• states that “commercial bribery will be handled sternly and probed, and

punishments for giving bribes will be harsher”• Cross-country “shock and awe” anti-graft inspection tours of several government

ministries, state-owned enterprises, banks, and universities.

Source: 5-Year Plan Unveiled to Fight Corruption, China.org (Dec. 26, 2013).

Communist Party Calls for Commercial Bribery Crackdown“A crackdown on commercial bribery by multinationals is deeply significant to safeguarding the order of themarket economy and protecting an environment of fair competition.”

-- People’s Daily (7/17/2013)


Local Enforcement of Anti-Corruption Laws in China

31,000By the Numbers:

Number of officials convicted for corruption in 2013

51,306 Number of officials investigated for “work-related crimes” (embezzlement, bribery,misappropriation, abuse of power, dereliction of duty, and malpractices), up by 8.4% from 2012

5,515 Number of people charged for paying bribes, an increase of 18.6% over 2012

Inter-Agency Cooperation

High-Level Officials Punished

• The Supreme People’s Procuratorate worked together with theCommunist Party of China to set up a database with 14 governmentministries to facilitate information sharing. According to local authorities,joint efforts have netted approximately 6,700 suspects in graft cases

• Deputy Governor of Shandong

• Deputy Governor of Anhui

• Deputy Governor of Sichuan

• Mayor of NanjingSources: : Hui Zhi, China Graft-Busters Deliver Annual Reports, FCPA Blog (Mar. 19, 2014); An Baijie, 32 Corrupt Officials Investigated in 5 Years: China, CHINA DAILY (Oct. 23, 2013); Several Officials Netted as Graft Crackdown Renewed in Wake of Plenum, GLOBAL TIMES (Nov. 20, 2013); Faaez Samadi, China SAIC Publicises First Abuse Case, GLOBAL

COMPETITION REVIEW (Jan. 9. 2014)

• Head of the State-Owned Assets Supervision and Administration Commission

• Vice-Minister of Public Security

SAIC Publishes First Abuse Case

In January 2014, the SAICpublished its first cases on abuseof dominance, signaling that itintends to become more active inpolicing transactions involvingstate-owned entities. The caseinvolved a state-owned watercompany that used its monopolyover the fresh water supply inHuizhou to require developers touse its sister company whenconstructing pipes. The companywas fined RMB 3.2 million(~USD 52,000)

2,871 Number of public servants above county levels investigated, in 2,581 cases of graft, bribery, andembezzlement of public funds involving more than 1 million RMB (approx. USD 163,300)

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Chinese Anti-Corruption Laws

Chinese law punishes both the giving and taking of bribes. Chinese criminal law has provisions criminalizing three types of bribery:

1. Official Bribery: Criminalizes bribery of “statefunctionaries” or “government organs.” Harshpenalties applicable, including the death penalty.Accepting bribes of half a million yuan isconsidered a major bribery offense

2. Commercial Bribery: Criminalizes bribery of“staff of a company or enterprise” and imposesrecord-keeping obligations. Employers areliable for the acts of their employees. Less harshpenalties, no death penalty

3. Foreign Bribery: In 2011, China amended itscriminal law to criminalize bribery of “anyforeign public official or official of aninternational public organization”


Focus on Bribe-Givers, As Well As Bribe-TakersBe aware of the enhanced enforcement risk of local Chinese anti-bribery laws

Chinese authorities historically focused more on demand-side enforcement by targeting corrupt government officials. This approach is shifting towards the companies and individuals who are suspected of committing commercial or criminal bribery violations.

Foreign or Overseas-Listed Companies Targeted by Chinese Authorities (2013)

:

PRC CorruptionInvestigations

Questioned by Authorities (No Formal Charges Yet)

Individuals Detained in Connection with Corruption Investigations

• Danone

• Novartis

• Sanofi

• GlaxoSmithKline

• Bayer

• AstraZeneca

• UCB

• Eli Lilly

• Novo Nordisk

• GlaxoSmithKline executives, employees

• Petro China executives

• China Mobile executives

• 2 foreign fraud investigators of ChinaWhys, a risk advisory firm

• are not unified, but consist of PRC Criminal Law, PRC Anti-Unfair Competition Law and implementing regulations, as well as various agency policies and rules

• are broadly written and can be subject to varying interpretation by local enforcement authorities in different jurisdictions

• Companies found to have violated such laws can be blacklisted from selling products and public tenders

Chinese anti-corruption laws:

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Focus on Bribe-Givers, As Well As Bribe-Takers (cont’d)

Chinese anti-corruption enforcement is often combined with other regulatory compliance enforcement

Source: 32 Ministerial-Level Officials Under Graft Investigation since 2008, GLOBAL TIMES (Oct. 22, 2013); Patti Waldmeir et. al., China Widens Probe into Drug Pricing and Corruption, FINANCIAL TIMES (Aug. 15, 2013).

Areas and Industries Identified by Chinese Authorities for Scrutiny:

• Pharmaceutical Drugs

• Medical Services

• Automobile

• Public Infrastructure Projects

• Food and Beverage

• Energy

• Telecommunications

• Property Transactions

China’s expanding regulatory dragnet means that corruption investigations can arise in connection with investigations into product safety and “anti-competitive practices” (Danone, Sanofi) by government authorities such as:

• State Administration for Industry and Commerce (SAIC): examining business practices that can reduce competition (e.g., territorial restrictions imposed on distributors)

• National Development and Reform Commission (NDRC): responsible for policing illegal pricing activities.

• Municipal Government can coordinate with disciplinary authorities to investigate potential corrupt practices

Chinese authorities have stated their intent to expand corruption, pricing and anti-competitive probes into areas beyond healthcare


Focus on Healthcare and Pharmaceutical Companies

Some healthcare sector companies are beginning to change their sales incentives

As the Crackdown Continues…Beginning March 2014, China is creating a blacklist of drug and medical device manufacturersfound to have paid bribes. Firms on the list once will be banned for two years from selling withinthe region where they were implicated. Firms on the list twice within five years will be bannednationally for two years.

Key Lesson: Companies should be alert to evolving industry practices and assess whether it isappropriate to align their own policies and procedures with heightened compliance requirements. Theymay also want to seek to work with other stakeholders (industry associations, chambers of commerce,competitors) to engage with the government to better understand regulations, and to develop industrystandards and guidance to create a level playing field.

Source: China to Start Medical Bribery Blacklist, , SHENZHEN DAILY (Dec.. 30, 2013); Pamela Taulbee, GSK Makes Sweeping Changes to Sales Incentives, THE

DEAL (Dec. 17, 2013).

…Marketing Practices May Begin to Diverge• GlaxoSmithKline has issued a plan to end direct payments to physicians for promoting its

prescription drugs, and for physicians and other healthcare professionals to attend industryconferences

• AstraZeneca changed its code of conduct to require stricter limits on the use of physicians asmarketing tools

• Some drug companies are requiring background checks and ten-year references for mid-levelmarketing staff

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China FCPA Enforcement Trend: Life SciencesRisks when doing business in China’s life sciences sector

Key Lesson: Appropriately allocate resources if your company is involved in a high-risk industry, such as life sciences. Know the risks and red flags associated with

working with public hospital officials, and sponsored travel.

1. Distributors

2. Non-transparent tendering and procurement processes

3. Medical training and conferences

4. Ubiquity of foreign officials


China FCPA Enforcement Trend: Life SciencesLife Sciences companies recently targeted by U.S. authorities

• Baxter (January 2014): Double declination (DOJ and SEC); investigationinto allegedly improper expense payments by China JV

• GlaxoSmithKline (September 2013): DOJ expands its ongoinginvestigation of GSK to include allegations that the company bribed doctors

• Biomet Inc. (March 2012): $17.3 million criminal fine and $5.5 million indisgorgement of profits and prejudgment interest

• Pfizer/Wyeth (August 2012): $15 million fine and over $45 million indisgorgement of profits and prejudgment interest

• Eli Lilly (December 2012): $8.7 million fine and over $20 million indisgorgement and prejudgment interest

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Focus on Financial Sector

U.S. authorities are increasingly scrutinizing alleged corruption abuses by companiesacross diverse areas of the financial sector, including those operating in China

• Morgan Stanley: Garth Peterson, former managing director of Morgan Stanley’s real-estate armin China, was convicted for allegedly providing a Chinese official with real estate ownershipinterests in exchange for facilitating Morgan Stanley transactions

• Diebold, Inc.: The U.S. manufacturer of ATM and bank security systems allegedly gavepayments, gifts, and non-business travel to bank employees, disguising the payments throughthird parties and recording leisure trips as “training” for employees

Local enforcement also poses risk: Chinese prosecutions have been brought against bank presidents from China’s “Big Four” as well as lower-profile institutions:

• Zhou Caikang: Former head of a regional branch of the People’s Bank of China investigated in 2013 for allegedly accepting bribes from a private brokerage firm

• Zhang Enzhao: Former head of China Construction Bank sentenced to 15 years in prison in 2006 for allegedly accepting bribes

• Yang Kun: Former VP of Agricultural Bank of China expelled from the Communist Party in May 2013 for allegedly receiving bribes


Focus on Internships and Jobs as Things of ValueHiring practices are facing difficult scrutiny.

• Jobs and internships are things of value under the FCPA

• JP Morgan Chase disclosed that it is the subject of criminal and civilinvestigations by the DOJ and SEC regarding its hiring practices in HongKong, China, and throughout Asia

• “Sons and Daughters” hiring program

• Internal spreadsheet allegedly linked appointments of well-connectedemployees to specific deals pursued

• Internal investigation said to focus on more than 200 hires

• U.S. authorities are also investigating Morgan Stanley and Citigroup forsimilar activities

• Focus is on hire as interns of children and relatives of high-placedgovernment officials

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Focus on New Anti-Corruption Legislation Throughout Asia

South Korea Example

• Act on the Prohibition of Corrupt Requests and Prevention of Conflicts ofInterest of Government Officials (a.k.a., the “Kim Young-Ran Law”)

• Criminal punishment for briber givers and takers

• Sanctions even if things of value not provided are not related to official'sgovernment work

• Two others bills pending in National Assembly provide for criminalpunishment for giving and receiving bribes

• The Whistleblower Protection Act became effective in September 2011

• 2,713 cases reported cases reported to Anti-Corruption Commission in2013 – more than 2.5 times as many as in 2012, with 8 times the amountpaid to whistleblowers

• Draft amendment to Whistleblower Bill would expand the class ofpeople that qualify for protection under the Whistleblower Act


Government Limits on Internal Investigations• Protection of Personal Information

• Privacy of personal information in China is a growing concern andprotected by law

• Article 253 of China's Criminal Law makes it illegal for personnel ingovernment agencies and certain business sectors (including those atfinancial, telecom, education, and health institutions) to sell or illegallyprovide information about citizens

• State Secrets Laws

• Expansive definitions creates several compliance and investigation-related challenges for multinationals

• Limitations on Whistleblowers

• Whistleblowers in China that provide information to the DOJ, SEC, orwithin the company but outside of China may be in violation of the StateSecrets Law

• Document Productions to Other Regulators

• Requirements of two regulators can put a company between a rock andhard place

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Government Limits on Internal Investigations

• Chinese authorities arrested two private corporate investigators, Peter Humphrey (aUK citizen) and his wife and business partner Yu Yingzeng (an American citizen)

• Humphrey and Yingzeng own and lead ChinaWhys Co.

• One of many China-based firms hired by multinational companies to investigatepossible kickbacks, embezzlement, counterfeiting or other malfeasance

• Humphrey is one of the best known corporate investigators in China

• Possibility that Humphrey appeared to have been arrested in connection with hiswork for GlaxoSmithKline, the British pharmaceutical group currently underhigh profile bribery investigation in China

• Following one-day trial, Shanghai court found Humphrey and Yingzeng guilty ofviolating privacy laws by illegally accessing and selling the personal information ofChinese citizens as part of their investigations

• Humphrey received 2.5 years in prison, followed by deportation

• Yingzeng received a 2-year prison sentence

• Both were fined as well

Humphrey Case Study


India

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The Indian Anti-Corruption Movement Marches OnThe long-running Indian anti-corruption movement matured in 2013 as protestors and activists saw many demands materialize in the form of elected leaders and legislation

June 2004 general elections were overwhelmingly won by the anti-corruption focused Bharatiay Janata Party (“BJP”), led by current Prime Minister Nardenra Modi.

Anna Hazare, the early leader of the anti-corruptionmovement, remains a significant force in the fight for thecreation of an independent corruption investigation agency (theLokpal). Hazare’s efforts were rewarded when the Lokpal andLokayuktas Bill passed the lower house of Parliament.

Former Prime Minister ManmohanSingh, under relentless attack frompolitical opponents after a series of high-profile corruption scandals, announcesthat he will not seek a third term in the2014 General Elections.


Indian Anti-Corruption Laws: The LokpalThe historic Lokpal and Lokayuktas Bill passed in December 2013, after eight failed attemptsover 40 years. Among other things, the law will:

• Create an independent body (the “Lokpal”) with broad powers to investigate corruption complaints against the highest political authorities, including the Prime Minister and his cabinet

• Enhance maximum punishment for corruption from 7 years to 10 years imprisonment

• Mandate that every state create a local anti-corruption investigation agency (“Lokayuktas”)

• Allow the Lokpal to investigate any person (which includes legal entities) involved in aiding violations of the 1988 Prevention of Corruption Act, bribe giving or taking, or conspiracyrelated to any violation of the PCA

“The bill has been passed by both houses of parliament. But we cannot be complacent. The real work will begin now. We must remain ever vigilant.”

-Anna Hazare

Sources: Anna Hazare ends Fast with Call for Vigil, Gulf Times (Dec. 18, 2013)

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PCA Amendments: Shift to Private Sector Enforcement

After years of promises, legislators have introduced a bill into the lower house of the IndianParliament that would substantially alter the country’s 25-year-old anti-corruption law. Twokey proposed amendments may have far-reaching effects on how multinational corporationsconduct business:

The amendments mandate fines for commercial organizations where any person associated withthe organization “offers, promises or gives a financial or other advantage to a public servantintending to obtain or retain business or some advantage in the conduct of business of thecommercial organization.” The definition of “commercial organization” is expansive, includingany organization, wherever incorporated, that “carries on a business, or part of a business” insideof India.

The bill also provides that, where a commercial organization is guilty of an offense, every personwho, at the time of the offense, “was in charge of” the conduct of the business shall be deemedguilty unless that person proves he or she did not know (or should not have known) about theconduct at issue. Notably, the bill provides a defense where a commercial organization can showthat it “had in place adequate procedures designed to prevent persons associated with it fromundertaking such conduct.”

“[The PCA has] no direct provision prohibiting a private person from offering a bribe or engaging in other corrupt practices. Such a provision is required to ensure that all parties to a corrupt [act] are dealt with adequately . . .”

-CVC, National Anti-Corruption Strategy, page 9


Indian Anti-Corruption Laws: The Companies Act

Key Provisions

§ 128(1) Requires that every balance sheet or profit and loss statement present “a trueand fair view” of the company’s affairs.

§ 134(5) Requires directors to certify annually that their company has implementedinternal financial controls and “proper systems to ensure compliance with theprovisions of all applicable laws and that such systems were adequate andoperating effectively.”

§ 447; 134(8) Significant penalties for fraud and non-compliance, which include fines andprison for “officers of the company.”

§ 177(9)-(10) Directs 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.

India’s new Companies Act, which received presidential assent on August 29, 2013, places additional obligations on companies and their management.

The Act is fully operational as of April 1, 2014

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Other Proposed Anti-Corruption Laws and Initiatives• Foreign Bribery: The Prevention of Bribery of Foreign Public Officials and Officials of Public

International Organizations Bill (2011) would punish any person who gives or promises to give“any undue advantage” to a foreign public official. The OECD has signaled that passage of thislaw is critical if India wishes to join the anti-bribery convention.

• Whistleblower Protection: The Public Interest Disclosure and Protection of Persons Making theDisclosures Bill has been introduced in Parliament to facilitate complaints against corrupt publicservants and the creation of safeguards for persons making such complaints. The bill is currentlyunder debate in Parliament’s upper house.

• Public Procurement: The Public Procurement Bill, 2012 seeks to enhance transparency in thepublic project bidding process. Among other things, the proposed legislation calls for thegovernment to draft a code of ethics for both officials and bidders. The bill also empowers thegovernment to de-bar a bidder under certain circumstances and penalizes both the acceptance andoffering of a bribe in connection with the procurement process.

• Integrity Pacts: The Indian Government is increasingly using integrity pacts to bind businessesworking on public projects. Investment banks, for example, must sign a pact when they work onstake sales of government companies. Among other things, the pact involves an undertaking fromthe banks that they are not engaging in any “unhealthy practices.”

• Wealth Transparency: The Central Vigilance Commission is pushing to amend the Tax Code andenter into new agreements with other countries to facilitate the exchange of tax information.According to the CVC, these amendments are necessary to eliminate opportunities for investmentof wealth earned through corruption.


Recent Examples of FCPA Enforcement Actions Relating to IndiaDiageo (2011) involving allegedly improper payments to government officialsthrough its Indian subsidiaries for improving product placement in government-ownedliquor stores and army canteens. Diageo paid $11.3 million in disgorgement, pre-judgment interest of $2 million, and a $3 million civil penalty.

Oracle (2012) involving the alleged creation of slush funds by the company’s Indiansubsidiary. The off-book funds allegedly were used to make payments to phonyservice vendors in violation of the FCPA’s accounting provisions. Oracle paid a $2million civil penalty to settle the charges.

Tyco (2012) involving the company’s German subsidiary using sales agents in Indiaallegedly to make payments to Indian government officials in order to secure sales ofits industrial valves. The improper payments allegedly were recorded as agent“commissions” in the company’s books and records. Tyco paid approximately $26.8million to settle charges with the DOJ and the SEC.

Conduct in India Leads to First Foreign Bribery Conviction in Canada

In August 2013, Canadian prosecutors secured their first conviction of an individual and reporteddecision under the Corruption of Foreign Public Officials Act. The case involved an agent oftechnology company Cryptometrics Canada, who was convicted of allegedly conspiring to bribeofficials of Air India and India’s Minister of Civil Aviation in an effort to win a biometric securitysystems tender.

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Local Enforcement: By the Numbers

Sources: CENTRAL BUREAU OF INVESTIGATION, ANNUAL REPORT (2012); CENTRAL BUREAU OF INVESTIGATION, ANNUAL REPORT (2011); CENTRALVIGILANCE COMMISSION, ANNUAL REPORT (2012), CENTRAL VIGILANCECOMMISSION, ANNUAL REPORT (2012).

CBI Cases Registered (2012)

ACD

OtherDivisions

The Anti-Corruption Division handled 75% of all cases registered by the CBI in 2012. This is an increase from 70% in 2011.

Category 2011 2012

Total Complaints (Commission)

16,929 37,039

Total Complaints(Vigilance Officers)

51,367 48,533

Complaints Disposed 17,238 33,308

CBI Cases Registered 1003 1048

The latest CVC enforcement statistics show that, whilefield complaints made to Chief Vigilance Officersstationed at various government agencies decreased in2012, the number of complaints relayed to, and processedby, the CVC increased dramatically.

24.2 millionAmount (in USD) recovered by the CVC afterinspecting government projects in 2012. Thisis up from $14.4 million in 2011.

Despite a lack of FCPA cases in 2013, the latest statistics show that local enforcement has surged in recent years.


Latin America

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Some Increased Domestic Focus on Anti-Corruption Efforts

• Brazil’s Clean Companies Act became effective in January 2014

• Strict liability on companies for the acts of their directors, officers, employees, and agents--knowledge and corrupt intent are not required

• The criteria for calculating fines and penalties are set out in the statute, including a baseline requirement that the amount of penalties may never be lower than the benefit incurred by a company as a result of its corrupt or fraudulent practices

• Fines are capped at 20% of the company’s gross revenue in the previous year

• Non-monetary penalties also may be imposed, up to and including dissolution for habitual misconduct

• Mexico is attempting to tackle corruption on multiple fronts

• Mexico amended its constitution to create the Federal Institute on Access to Information, a new autonomous government organization

• Mexico's attorney general announced that he has acquired arrest warrants for three unnamed employees of Banamex, a Mexican subsidiary of Citigroup

• Federal Law Against Corruption in Public Procurement (2012)

Despite generally weak and sporadic enforcement of anti-corruption laws


Significant FCPA Cases Brought Regarding Conduct in Mexico• Tremendous amount of cross-border U.S.-Mexico business, coupled

with historical embedded corruption, presents ample opportunities for bribe-takers and bribe-makers

• Nationalized industries present increased risks for corruption

• Hewlett-Packard paid approximately $108 million in April 2014 to settle charges related to activities in Mexico, Poland, and Russia

• According to DOJ, as part of its bid to win a software sale to Mexico’s state-owned petroleum company, Hewlett-Packard’s subsidiary in Mexico allegedly paid more than $1 million in inflated commissions to a consultant with close ties to company officials, and money was funneled to one of those officials

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Significant FCPA Cases Brought Regarding Conduct in Mexico (cont’d)• DOJ alleged that BizJet executives bribed government officials in

Mexico, Panama, and Brazil

• March 2012 deferred prosecution agreement with BizJet included $11.8 million monetary penalty and placed three-year compliance requirements on indirect parent company Lufthansa Technik AG

• In April 2013, DOJ announced two individuals pled guilty and were sentenced to probation and 8 months home detention

• In July 2014, former President and CEO of BizJet waived extradition, turned himself in, and pled guilty

• Fourth indicted individual living abroad

• Other recent cases

• Orthofix - $5 million settlement in 2012

• Tyson Foods - $5 million settlement in 2011

• ABB Ltd. - $39 million settlement in 2010


Russia

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Russia is A Continued Focus of U.S. Anti-Bribery Regulators

• Since 2001, DOJ and SEC have brought 13 enforcement actions involving conduct in Russia

• 10 were filed between 2010 and 2013

• Hewlett-Packard paid approximately $108 million in April 2014 to settle charges related to activities in Mexico, Poland, and Russia

• The DOJ and SEC alleged that Hewlett-Packard’s Russian subsidiary paid more than $2 million through agents and various shell companies to a Russian government official to retain a multi-million dollar contract with the federal prosecutor’s office

• Guilty plea by HP Russia subsidiary


Russia is A Continued Focus of U.S. Regulators (cont’d)

• Diebold Inc. the Ohio-based provider of integrated self-service delivery and security systems, including automated teller machines (ATMs), has agreed to pay more than $48 million to settle the SEC’s charges and resolve a parallel criminal matter

• From 2005 to 2009, Diebold allegedly created and entered into false contracts with a distributor in Russia for services that the distributor was not performing

• The distributor, in turn, supposedly used the money in part, to pay bribes to employees of Diebold’s privately-owned bank customers in Russia in order to obtain and retain ATM-related contracts with those customers

• In December 2012, Eli Lilly entered into a $29 million settlement with theSEC on the basis of foreign bribery allegations against Eli Lilly subsidiaries inChina, Brazil, Poland, and Russia

• From 1994 to 2005, Eli Lilly’s Russian subsidiary allegedly paid millionsof dollars to offshore entities for “marketing services”

• The SEC alleged that the funds were used to induce pharmaceuticaldistributors and government entities to purchase Lilly’s drugs

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Russia’s Expanding Anti-Corruption Efforts

• President Putin approved a national anti-corruption plan for 2014-2015

• Anti-corruption department in the presidential administration

• The new department will oversee the work of verifying officials’ income and expense declarations; uncovering and eliminating any potential conflicts of interest for government officials; and alerting law enforcement authorities to possible corruption schemes in state organs,

• Guidance from the Supreme Court of the Russian Federation regarding what constitutes bribery

• Government regulation requiring state officials to declare and surrender gifts exceeding about $88 USD

• Changes to Code of Administrative Offenses that strengthens state procurement laws

• 28,000 corruption cases in 2013 compared to 18,000 in 2012

• In May 2011, Russia revamped its anti-bribery laws by adding a tiered system of fines and prison time, and criminalizing the bribery of foreign officials.

III. Conducting & Managing Investigations in High Risk Regions

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Investigations under Scrutiny

“In the end, people involved in the investigation said, Wal-Mart’s leaders found a bloodlessly bureaucratic way to bury the matter. But in handing the investigation off to one of its main targets, they disregarded the advice of one of Wal-Mart’s top lawyers….[who said] ‘The wisdom of assigning any investigative role to management of the business unit being investigated escapes me.’”

NY Times, April 21, 2012

Investigations under Scrutiny

“…a professional-services consultancy that specializes in discreet risk mitigation solutions, consulting and investigation services…in matters of high sensitivity across Greater China and the Asia Pacific.”

ChinaWhys website, www.chinawhys.com

Headline: China charges GSK foreign consultants with illegal investigation

The Guardian, July 14, 2014

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Integrity of the Investigation

Effectiveness• Finding the truth• Implementing remedial measures• Avoiding unnecessary business disruptions

Defensibility•Per company values•Per applicable law•To the government

A Different Ball Game• Language, Laws & Liberties

• Culture, Values & Norms

• Loyalties & Perspective

• Compliance & Ethics

• Incentives

• Access to Information

• Levels of Enforcement

• Influence & Control

Know the Rules to Avoid the Traps

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Trap #1: Employee Rights

• Workers council/union processes to navigate

• Legal/administrative review rights

• Employee rights to representation

• Employment contract rights

• Non-retaliation protections

• Rights to know your accuser

• Non-obligation to cooperate

• Limits on terminations without cause

• Limited periods to take disciplinary action

Trap #2: Data Privacy & Protection

• Protection of “personal data”

• Limits on data collection

• Limits on data preservation

• Limits on use of employee data

• Limits on data transfers cross-borders

• Limits on collection and transfer of data regarding senior government officials

• Limits on transfer of investigative data to foreign governments

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Trap #3: Whistleblower Rules

• Mandatory whistleblower hotlines

• Whistleblower incentives

• Restrictions on anonymous reporting

• Employee notice/consent requirements

• Workers council review and/or approvals

• Limits on transmitting workplace accusations cross-border

• Compliance readiness of hotline providers

Trap #4: Special Government Restrictions

• State secrecy laws• China

• Investigation blocking statutes• Switzerland, France

• Criminalization of selling information on citizens• China

• Lawful intercept & government surveillance

• Limits on cooperation with foreign governments• China

• Limits on who can perform an investigation• France

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Trap #5: Legal Privilege

• Recognition of the legal privilege• In-house v. external counsel (US v. EU)

• Japan patent agents and legal specialists

• Who is considered to be an attorney?

• Losing the privilege in cross-border communications

Leveling the Playing FieldActions to Take Before Initiating an Investigation• Engage local counsel and expertise• Know data privacy and employment law restrictions before

investigating• Train investigators in advance

Actions to Take Now• Provide employee notices and obtain consents as required• Develop investigation policies and protocols• Establish approval process for data access requests• Review hotline provider compliance readiness• Build channels for cross-border data transfers• Develop scalable resource contingency plans for global

investigations

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IV. Engaging Foreign Law Enforcement

• When to consider doing soo Evidence is located in foreign country o Seeking prosecution of foreign national in foreign countryo Seeking restitution where assets in foreign county

• How to increase likelihood of successo Identify appropriate agency to approacho Use pre-existing relationships to open doorso Offer full cooperation and “capacity building”

• Potential Riskso Officials you approach are themselves corrupto Targets or suspects learn of the investigationo Lose control of the investigation

• Potential benefits o Example: Successes on behalf of global not-for-profit in East Africa

V. Questions

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Thank You!

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