fcpa and anti-corruption compliance in malaysia,...

FCPA and Anti-Corruption Compliance in Malaysia,

Thailand, Burma and Other ASEAN Countries Mitigating Risks, Navigating Trade Sanctions, and Overcoming the

Unique Challenges When Doing Business in This Emerging Mark

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WEDNESDAY, JUNE 18, 2014

Presenting a live 90-minute webinar with interactive Q&A

Edward J. Fishman, Partner, K&L Gates, Washington, D.C.

Matthew T. Reinhard, Member, Miller & Chevalier, Washington, D.C.

Neil McInnes, Partner, Pinsent Masons, London, England

Barry Vitou, Partner, Pinsent Masons, London, England

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© Copyright 2013 by K&L Gates LLP. All rights reserved.

FCPA and Anti-Corruption Compliance in Malaysia,

Thailand, Burma and Other ASEAN Countries

June 18, 2014 Strafford Webinar

Ed Fishman

K&L Gates LLP

Washington, DC

PROGRAM AGENDA

Overview of Anti-Corruption Risks in ASEAN

Countries

Local Anti-Corruption Laws in ASEAN Countries

and Interplay with Global Anti-Corruption and

Trade Sanction Laws

Best Practices for Mitigating Corruption Risks in

ASEAN Countries

klgates.com 6

I. OVERVIEW OF ASEAN REGION

The Association of Southeast Asian Nations

(ASEAN) is a political organization formed in

1967 which promotes economic, political and

social integration in Southeast Asia

The 10 member countries of ASEAN are:

Indonesia, Malaysia, Singapore, Thailand,

Vietnam, Philippines, Myanmar (Burma),

Cambodia, Brunei and Laos

klgates.com 7

ECONOMIC GROWTH IN ASEAN REGION

The ASEAN region includes some of the fastest-

growing economies in the world

The ASEAN countries would constitute the 8th

largest economy in the world if combined

The region includes the third most populous

country in the world (Indonesia), countries with

significant natural resources (e.g. Malaysia and

Indonesia) and an attractive destination for

foreign direct investment in natural resources,

manufacturing and other sectors

klgates.com 8

PERCEIVED CORRUPTION IN REGION

With the exception of Singapore, many of the

ASEAN countries rank in the bottom half of

Transparency International’s Corruption

Perceptions Index (“CPI”)

For example:

Indonesia (114)

Myanmar (157)

Cambodia (160)

Note: 2013 results based on 177 countries

klgates.com 9

CORRUPTION-RELATED TRENDS

Payments to low-level government officials are

often perceived as necessary and even

acceptable to supplement their meager incomes

The relative lack of political transparency and

regulatory consistency contributes to higher

degrees of corruption risk

Corruption risks are generally higher at the

regional and local levels and with SOEs

Sectors most vulnerable to corruption include

public infrastructure projects, natural resource

concessions and the regulatory process

klgates.com 10

REGIONAL ANTI-CORRUPTION EFFORTS

An ASEAN-level anti-corruption network was

established with execution of MOU in 2004 by

anti-corruption agencies in Singapore, Malaysia,

Indonesia and Brunei

Most ASEAN members have joined this regional

anti-corruption pact and have pledged to share

information and resources in fight against

corruption

The lack of meaningful cooperation to date

reflects larger problems with political

enforceability within ASEAN system given

divergent political interests

klgates.com 11

ANTI-CORRUPTION RISK IN INDONESIA

A significant regional economic presence with

the third-largest population in the world and

substantial natural gas and other resources

controlled by state-owned enterprises such as

Pertamina

Numerous politicians and political parties have

been ensnared in bribery and corruption

scandals

The local anti-corruption agency (the “KPK”) is

very active, particularly against bribe recipients

Recent FCPA cases include Allianz, Pfizer and

Tyco

klgates.com 12

ANTI-CORRUPTION RISK IN THAILAND

A country with significant foreign direct

investment in the manufacturing sector

(particularly by Japanese companies)

Political instability contributes to corruption in the

judicial and law enforcement sectors

Relatively weak enforcement of domestic anti-

corruption laws

Recent FCPA cases include Alliance One, Tyco

and Diageo

klgates.com 13

ANTI-CORRUPTION RISK IN VIETNAM

Relative lack of transparency in government

decision-making process leads to significant

corruption risk in both procurement and

regulatory sectors

The economy is still dominated by state-owned

enterprises (e.g. VietSovPetrol)

No dedicated local anti-corruption agency

Recent FCPA cases include Nexus Technologies

(including the individual owners and managers)

and Aon

klgates.com 14

II. The FCPA, UKBA and Local Law

Matthew T. Reinhard

Miller & Chevalier

Washington, D.C.

• No legal regime “permits” bribery, but uncertainty surrounding law in developing nations creates risk

• “Facilitating Payments” exception in FCPA can create tension with local law

• As in other countries, be aware of:

• Creation and maintenance of the attorney client privilege

• Personal data collection

• Laws may often be unclear or non-existent

• Rely on local counsel where necessary

16

II. The FCPA, UKBA and Local Law

• Country Specific Risks

• Burma/Myanmar: Developing rule of law

• Immigration issues

• Work Permit regime is in place but seldom used

• Customs/Import

• Interplay with sanctions regime (U.S.

• Local partners

• Cultural due diligence challenges (no surnames)

17

The FCPA, UKBA and Local Law Cont’d

• Philippines

• Local customs and practices directly contradict written laws/regulations

• “Overtime” payments to customs officials

18


II. FCPA, UKBA, and Local Law

(Continued)

Neil McInnes

Pinsent Masons LLP

• Overview of UKBA extra-territorial effect:

– Bribery by ‘associated persons’ outside of UK triggers

corporate offence of failure to prevent bribery

– Other offences carry worldwide liabilities for

individuals/companies with a “close connection to UK”

– Separate offence of bribery of FPO • Intention to influence test – lower bar to prosecute

• Wide definition of FPOs to include those at overseas public agencies

and enterprises

– Local custom and practice no defence • Narrow exclusions for overseas written laws


20


– Cambodia

• Understanding 3rd party supply chain risks e.g.

export tariffs

• UKBA “written laws” exception and difficulties

establishing whether payment official or not in

certain ASEAN countries

• Practical solutions?

21


– Malaysia

• Example of complexities of local laws e.g. Malaysian

Anti-Corruption Commission Act 2009

• Definition of “corruptly”

• Local reporting obligations

• Local partner – “Bumiputera” – requirements

22


– Vietnam

• Laws relating to data collection

• Reporting duties in corruption cases

• Understanding practical risk issues – e.g. invoices,

employee moonlighting, permits and approvals

• Local sector risks – e.g. pharma

– Indonesia

• A few words about disguised bribes… and how to

investigate these effectively

23


• Risk perception surveys involving ASEAN

– E.g. 2011 “Bribe Payers Survey” (Transparency International)

• Conducted on 3,000 company executives in 30 countries who were asked:

“During the last 12 months, do you think that your company has failed to win a contract or gain new business in this country because a competitor paid a bribe?”

• Malaysia topped the survey with 50% of executives agreeing with the question. Indonesia ranked second with 47%, and Singapore scored only 9%.

24


– A final word on local law: Singapore

• Compliance hub and regional HQ for US/European

businesses in ASEAN

• TI score reflecting high levels of anti-corruption

compliance and active enforcement of local authorities

• Note extensive local law reporting obligations

– E.g. Corruption offences and other ‘serious offences’

as well as money laundering obligations

• Co-operation with regulators/ law enforcement

internationally

• Therefore ASEAN ABC issues regularly have a direct or

indirect Singapore element

25

III. Trade Sanctions Matthew T. Reinhard

Miller & Chevalier

Washington, D.C.

• Limited sanctions program • U.S. Persons

• General prohibitions • Dealings in the property and property interests of Specially

Designated Nationals (“SDNs”) and blocked persons; • “Blocked Persons” = entities in which SDNs have a 50 percent or more interest

• Exportation of financial services, including funds transfers, to Burma;

• New investment, defined as the “economic development of resources”;

• Importation of jadeite or rubies mined or extracted from Burma;

• Facilitation of prohibited activities conducted by U.S. persons;

• Evasion.

27

III. Trade Sanctions

General Licenses overcome many of the prohibitions • General License 16

• Authorizes the exportation and reexportation of financial services, directly or indirectly, from the United States or by a U.S. person to Burma.

• General License 17

• Authorizes new investment in Burma.

• Requires compliance with Department of State’s “Reporting Requirements on Responsible Investment in Burma.”

• General License 19

• Authorizes U.S. persons to engage in all transactions with certain SDN banks

Nb. OFAC may revoke general licenses at any time without notice.

28

III. Trade Sanctions Cont’d

• State Department Reporting requirements

• MOGE Investment Notification Requirement

• Requires notification to the State Department of investment made pursuant to an agreement, or pursuant to the exercise of rights under such an agreement, with the Myanma Oil and Gas Enterprise (MOGE)

• Requires report to be made within 60 days after the new investment

• Annual Reporting Requirement

• Requires report on investment activities exceeding $500,000

• Requires report to be made 180 days after the investment has met the $500,000 threshold, and annually on July 1 thereafter

• Requires two versions of the report, one public and one State only

29

III. Trade Sanctions Cont’d

IV. Best practices for mitigating risk

Barry Vitou

Neil McInnes

Pinsent Masons LLP

IV. - Best practices for mitigating risk

– A. Compliance program

– B. Monitoring

– C. Internal controls

– D. Education/training

– E. Due diligence

31

IV.A Best Practices, Compliance Program

FCPA 10 Hallmarks compared with UKBA 6

Principles of ‘adequate procedures’:

Proportionate Procedures

Top level commitment

Risk Assessment

Due Diligence

Communication (Including Training)

Monitoring

and Review

32

IV.A Best Practices, Compliance Program

• Convergence of compliance approaches

– US FCPA Guidance

“ One-size-fits-all compliance programs are generally ill-conceived and ineffective because resources inevitably are spread too thin, with too much focus on low-risk markets and transactions to the detriment of high-risk areas. Devoting a disproportionate amount of time policing modest entertainment and gift-giving instead of focusing on large government bids, questionable payments to third-party consultants, or excessive discounts to resellers and distributors may indicate that a company’s compliance program is ineffective.”

– UKBA Guidance (UKBA Adequate Procedures)

“ … commercial organisations should adopt a risk-based approach to managing bribery risks … [this] recognises that the bribery threat to organisations varies across jurisdictions, business sectors, business partners and transactions”.

33

IV.B – Best Practices, Monitoring

• Internal procedures to monitor :

“Systems set up to deter, detect and investigate bribery, and monitor the

ethical quality of transactions, such as internal financial control mechanisms, will help provide insight into the effectiveness of procedures designed to prevent bribery. Staff surveys, questionnaires and feedback from training can also provide an important source of information on effectiveness and a means by which employees and other associated persons can inform continuing improvement of anti-bribery policies.” UKBA Guidance

• Practical challenges in ASEAN countries

• Effective external monitoring ▫ Lessons from some recent UK enforcement

34

IV.B – Best Practices, Monitoring

• The role of Internal Audit

• The role of external forensic accountants

35

IV.C – SEC ENFORCEMENT CONSIDERATIONS

Accounting provisions are applicable only to

public companies

• Company liable for acts of subsidiary if subsidiary’s

financials are incorporated into parent’s

No materiality requirement

Possible liability under accounting provisions

even if improper payments do not result in

violation of anti-bribery provisions (e.g., where

element is not met)

• Most cases have involved anti-bribery violation

36

SEC FOCUS ON BOOKS AND RECORDS

Books and records must accurately reflect the

payments made and the reasons for those

payments

• For example, contracts and invoices must accurately

reflect services provided

• Similarly, documentation supporting payments to

consultants, agents, resellers, etc. must be accurate

SEC will examine books and records to see if

bribes have been hidden or falsely described as

something else

37

COMPONENTS OF INTERNAL CONTROL PROGRAM

(FCPA RESOURCE GUIDE)

Control environment that covers tone set by

company regarding integrity and ethics

Risk assessments

Control activities that cover policies and

procedures designed to ensure that

management directives are carried out

Information and communication

Monitoring

38

KEY CONSIDERATIONS FOR INTERNAL CONTROL DESIGN

(FCPA RESOURCE GUIDE)

Compliance program must be tailored to the

operational realities and risks attendant to the

company’s business:

• Nature of products and services

• How products or services get to market

• Nature of work force

• Degree of regulation

• Extent of government interaction

• Degree to which company has operations in

countries with high risk of corruption

39

IV.D – Best Practices, Education/Training

• Who to train, how to train, and how often

• Taking a risk-based approach

– Considering and refreshing content

• Induction programmes

• Online and face-to-face (in person) training in ASEAN

countries

• Testing awareness

• Third parties and training – do’s and don’ts

• Documenting your training programme

– The pitfalls of certifications

40

• Corruption risks in most ASEAN countries require substantial due diligence of third party service providers and potential business partners

• Local content laws may often require minimum local involvement/equity in operations

• Such partners must be thoroughly vetted

41

IV.E – Best Practices, Due Diligence

• Processes of due diligence in ASEAN countries are no different than d/d processes elsewhere

• Written questionnaire and business justification

• Speak with references

• In-person interviews

• Document the process

• Contract for compliance

• Follow-up and monitor relationships

• Training

42

IV.E – Best Practices, Due Diligence Cont’d

• Challenges in ASEAN often relate to lack of familiarity with process/cultural impediments

• Developing economies often controlled by small ruling/economic class

43


• Myanmar/Burma

• Most Burmese do not have a surname

• 50% rule under sanctions

• “Dig deep enough and you will find a problem”

• Consider State Department reporting requirements

• Banking issues

• Contract for changes in sanctions regime

• In person due diligence is almost always required

• Philippines

• Challenges surrounding gift-giving and hospitality

44


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For a full list of our locations around the globe please visit our websites:

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Contacts

Pinsent Masons LLP

Neil McInnes

+44 (0) 20 7490 6407

[email protected]

Barry Vitou

+44 (0) 20 7490 6501

[email protected]

46

Matthew T. Reinhard

Miller & Chevalier

202-626-5894

[email protected]

47

Ed Fishman

K&L Gates LLP (Washington, DC)

202.778.9456

[email protected]

klgates.com 48

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