fcpa compliance in latin america 2014 -...

FCPA Compliance in Latin America 2014 Implementing Compliance Programs and Mitigating Legal Risks

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WEDNESDAY, JANUARY 29, 2014

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

Jay Holtmeier, Partner, Wilmer Cutler Pickering Hale and Dorr, New York

Matteson Ellis, Special Counsel, Miller & Chevalier, Washington, D.C.

Matthew J. Feeley, Shareholder, Buchanan Ingersoll & Rooney, Miami

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FCPA in Latin America 2014 Recent Developments

Jay Holtmeier

Wilmer Cutler Pickering Hale and Dorr LLP

January 29, 2014

WilmerHale 5

FCPA Background Two provisions: (1) anti-bribery and (2) accounting (books and

records/internal controls)

Applies to: – “Issuers”: U.S. or foreign companies with securities listed on U.S.

exchanges Includes officers, directors, employees, agents, or stockholders acting on behalf of issuers

– “Domestic Concerns”: U.S. companies and citizens, nationals, residents

– Territorial Jurisdiction: foreign persons that engage in any act in furtherance of a corrupt payment “while in the territory of the United States”

– Anti-bribery provisions may not directly apply to Latin American entities/subsidiaries (but conspiracy, aiding and abetting, agency)

– Accounting provisions apply only to “issuers”

WilmerHale 6

FCPA Background DOJ brought 14 actions in

2013; SEC brought 10 actions

In 2013, 12 companies paid $731.1 million in penalties, compared to 12 companies in 2012 paying $259.4 million; and 15 companies in 2011 paying $508.6 million.1

Three recent, large settlements: Total S.A. ($398M); Alcoa ($384M); Weatherford ($152M)

1: See FCPABlog.Com at http://www.fcpablog.com/blog/2014/1/2/2013-fcpa-enforcement-index.html

WilmerHale 7

FCPA Key Trends

Decline in number of enforcement actions

– But 2013 saw two of the largest settlements in FCPA history (Total S.A. at $398M; Weatherford at $153M)

SEC: increased use of out-of-court settlements

Use of “hybrid” monitors

Continued focus on industry sweeps

Continued focus on prosecution of individuals

Increased number of publicly announced declinations

Continued emphasis on risks of third parties

Increased involvement of enforcement authorities in company investigations – increased burden and costs

WilmerHale 8

Region Overview

Country Rank Country / Territory 9 Canada 19 United States 19 Uruguay 22 Chile 33 Puerto Rico 49 Costa Rica 63 Cuba 72 Brazil 83 El Salvador 83 Peru 94 Colombia

102 Panama 102 Ecuador 106 Argentina 106 Bolivia 106 Mexico 123 Guatemala 123 Dominican Republic 127 Nicaragua 140 Honduras 150 Paraguay 160 Venezuela 163 Haiti

Transparency International - 2013 Index: Americas

WilmerHale 9

FCPA Cases Involving Latin America

Wide range of industries involved in Latin American FCPA settlements, including: – Telecom

– Infrastructure

– Energy

– Agriculture

– Technology

– Pharmaceuticals/medical device/healthcare

WilmerHale 10

Recent FCPA Cases in Latin America PetroTiger (Jan. 2014): BVI Gas/Oil Company in Colombia, New Jersey

DOJ unsealed charges filed in 2013 against former PetroTiger executives for alleged scheme to

pay bribes (totaling ~$333,500) to a Colombian Ecopetrol official to approve an oil services contract.

– Former GC pleaded guilty to one-count information for conspiracy to violate the FCPA and

to commit wire fraud.

– Former Co-CEOs, Joseph Sigelman and Knut Hammarskjold, charged with conspiracy to

violate FCPA and three FCPA counts.

Ecopetrol – SOE: Created by national law, 89.9% owned by government, government can elect

majority of board (which included senior government officials).

Payments made directly (not through a third party) to official and official’s wife (for purported

services she did not actually provide).

Hammarskjold was arrested in November 2013 in a New Jersey airport. Sigelman was arrested in

January 2014 in the Philippines and appeared in Guam. No charges against the company. No SEC

case.

WilmerHale 11

Recent FCPA Cases in Latin America Archer Daniels Midland (Dec. 2013): Global food processor in U.S.

ADM entered into a NPA with the DOJ, and a subsidiary pleaded guilty; ADM also settled with SEC (SEC

settlement and subsidiary guilty plea related only to Ukraine, not Latin America).

ADM’s 50% owned joint venture in Venezuela received over-payments from customers and returned

overage into foreign bank accounts controlled by customer employees.

– This practice was apparently primarily designed to avoid local currency controls.

– These payments often were made through customer brokers and were disguised on the company’s

books as commission payments.

– ADM learned of problematic conduct when evaluating JV.

– DOJ alleged ADM instituted policy but failed to follow it and did not adequately train or monitor.

In Ukraine portion of case, ADM faulted for making charitable donations that were intended to influence

officials.

NPA alleged ADM’s failure to implement adequate internal controls. Company must self-monitor for 3 years

and report to DOJ. ADM’s cooperation included global risk assessment.

WilmerHale 12

Recent FCPA Cases in Latin America Stryker Corp. (Oct. 2013): Medical device manufacturer in U.S.

Per the SEC, Stryker subsidiaries in Argentina, Mexico, and elsewhere made approximately $2.2M in

illicit payments.

– Mexico: subsidiary made 3 payments over $76,000 to foreign officials. For example, it directed a

Mexican law firm to pay $46,000 to a Mexican government employee to secure contract. Payment

booked as “legal expenses.”

– Argentina: subsidiary made 392 “honoraria” payments to doctors in public health care, totaling

more than $966,500. Payments based on percentage of sales, not work performed.

– Greece: donation to “pet project” – payment made to public university (not individual), but

described as a quid pro quo.

Foreign subsidiaries described as de-centralized, run by local country managers; global anti-corruption

policy not adequately implemented locally.

Agreed to pay $13.2M to settle SEC’s books and records and internal controls charges in an

administrative proceeding. No DOJ case.

WilmerHale 13

Recent FCPA Cases in Latin America Ralph Lauren (Apr. 2013): Apparel/accessories designer in U.S.

Argentine subsidiary made payments to customs broker for “loading and delivery” and “stamp tax/label

tax” in connection with improperly securing importation of products. Payments totaled over $568,000

over four-year period (unclear how much of that amount was paid to customs officials).

Ralph Lauren Argentina general manager approved gifts to customs officials (perfume, dresses,

handbags).

No anti-corruption program at all at time of conduct.

Government applauded the company’s cooperation, including: voluntarily disclosing within two weeks of

discovering illegal payments; producing documents “expeditiously”; providing English translations;

summarizing witness interviews the company’s investigators conducted overseas; making overseas

witnesses available for staff interviews, and conducting a global risk assessment.

Agreed to pay $734,846 in disgorgement and prejudgment interest to the SEC in the SEC’s first NPA in

an FCPA case, and $882,000 in criminal penalties to the DOJ under a NPA.

WilmerHale 14

Recent FCPA Cases in Latin America Siemens: German technology company

In 2011, both the DOJ and SEC pursued cases against numerous employees and agents

of Siemens Argentina.

In April 2013, U.S. District Court Judge Scheindlin (SDNY) approved a $275,000

settlement between former Siemens AG Board member Uriel Sharef and the SEC.

While Sharef was a manager of an “issuer,” several other defendants in the cases were

not employed by the issuer – DOJ’s indictment nonetheless described them as

“‘officer[s], director[s], employee[s], [and] agent[s]’ of an ‘issuer’ Siemens AG, as those

terms are used in the [FCPA].”

SEC case against Herbert Steffen was dismissed on jurisdiction grounds in February of

2013. Judge Scheindlin concluded Siemens Argentina CEO, who was a Germann

citizen, was too tangential to meet the minimum contacts test required to establish

personal jurisdiction.

WilmerHale 15

Recent WilmerHale Investigations Involving Latin America Payments to hospital and pharmacy officials in Mexico regarding product sales.

Payments relating to currency issues in Venezuela.

Payments to customs officials (through freight forwarder and customs broker) in connection with

transport of products between Brazil and Argentina.

Payments to court officials (by law firms) to assist in executing court orders in Brazil.

Payments to licensing and permitting authorities in connection with building projects in Brazil.

Payments (by consultant) to police to obtain information for employee background checks in Brazil.

Inaccurately documented payments to third parties (ultimate recipients unknown) in connection with

transportation issues in Chile.

Payments (through distributors) in connection with public tenders for medical equipment in Mexico.

Payments to a law firm in Mexico potentially passed on to regulatory officials.

Payments (through consultants) to police and other officials in Mexico, Panama, and elsewhere.

WilmerHale 16

Publicly Acknowledged Ongoing FCPA Investigations Wal-Mart: Department store based in U.S.

SEC Filing on 12/6/2013: As of 10/31/2013, the company incurred $224M in investigatory expenses for the previous nine months.

– Walmex (Wal-Mart Mexico subsidiary) is cooperating with Mexican government agencies. Wal-mart is cooperating with the DOJ/SEC.

HP: Technology company based in U.S.

As of 12/6/2013 SEC filing: HP is cooperating with the investigating agencies, including the DOJ, SEC, German Public Prosecutor’s Office, and others. HP is in “advanced discussions with the U.S. enforcement agencies to resolve their investigations.”

– The DOJ are SEC are investigating “public-sector transactions in Russia, Poland, the Commonwealth of Independent States, and Mexico, among other countries.”

WilmerHale 17

Earlier FCPA Cases in Latin America Eli Lilly (2012): Brazilian subsidiary gave distributor unusual discount

to create a larger profit margin, which allegedly was used to bribe Brazilian health officials to purchase Lilly products.

Biomet (2012): Argentine employees paid $1.5M in bribes to publicly employed health officials and described the payments as commissions, royalties, consulting fees, etc. in exchange for buying Biomet products.

Bizjet (2012): Mexico and Panama – allegedly bribed Mexican federal police and others in connection with aircraft service and repair projects.

Orthofix (2012): recently purchased Mexican subsidiary allegedly made improper payments.

WilmerHale 18

Earlier FCPA Cases in Latin America Bridgestone (2011): Mexico and “Other Latin American Countries” –

Tire and rubber manufacturer conspired to rig bids and make payments to Mexican state employees.

Ball Corporation (2011): Argentina – US-based household product manufacturer bought company in Argentina that was making payments to customs officials, and Ball did not implement effective post-acquisition internal controls.

Tyson Foods, Inc. (2011): Mexico – Food processor made payments, including through sham jobs to relatives, to Mexican veterinarians in charge of certifying products for export.

WilmerHale 19

Earlier FCPA Cases in Latin America Alcatel-Lucent (2010): Costa Rica, Honduras, Nicaragua and

Ecuador – French telecom company made payments, through intermediaries, to government officials at state-owned telecom authorities for telecom contracts.

Panalpina (2010): Brazil – Swiss freight forwarder made improper payments to receive preferential customs treatment for its customers.

Nature’s Sunshine (2009): Brazil – Brazilian subsidiary of nutritional products company made payments to customs officials; two senior officers charged by SEC under “control person” theory.

Siemens (2008): Argentina, Venezuela and Mexico – Improper payments by Siemens subsidiaries to win infrastructure projects.

WilmerHale 20

Conclusion

Jay Holtmeier

Wilmer Cutler Pickering Hale and Dorr LLP

(212) 295-6413

[email protected]

© 2013 Miller & Chevalier Chartered

FCPA in Latin America

Strafford Publications January 29, 2014

Matteson Ellis Miller & Chevalier Chartered

22 22

General Corruption Risks in Latin American Countries

2012 Latin America Corruption Survey:

•Half of all respondents believe their company has lost business to competitors making illicit payments in the region.

•Only 28% of respondents believe anti-corruption laws are effective in the country where they work. Chile (78%) and the United States (70%) are seen as having the most effective laws.

• 44% of respondents consider corruption to be a “significant obstacle” to doing business in the region


23 23

General Corruption Risks in Latin American Countries

2012 Latin America Corruption Survey:

• Most significant corruption challenges: Venezuela, Argentina, Mexico, Bolivia

• Lowest overall government corruption: Chile, Uruguay, and the United States

• Risks by area of government Mexico (Police, Municipal/Local) Venezuela (Judicial, Customs) Argentina (Executive Branch, Customs) Brazil (Legislative Branch, Police, Municipal/Local, Customs) Colombia (Legislative Branch, Municipal/Local)


24 24

Three Prominent Corruption Risks throughout Latin America

• The Police Highest consistent bribery risk of any government institution no

matter the country Personal security concerns Extortion

• Regulatory Quality Byzantine and costly regulatory regimes Ranked by World Bank in bottom half worldwide Implications on corruption

• Family Owned Businesses Common to partner with companies that lack common accounting

standards, corporate governance transparency, basic internal controls


25 25

Brazil – Common Corruption Risks

• M&A: Vetting acquirees when they are family-owned • Customs: Using despachantes • Tax Regimes: How complex rules create risk • Distributors: Risks associated with selling goods • Sophisticated Schemes in Public Procurements: How

public contracting can be manipulated in a sophisticated economy


26 26

Brazil – Local Law Developments

Brazil’s Anti-Bribery Law (comes into force today) Corporate administrative and civil liability Prohibited acts: domestic & foreign bribery, public

procurement-related violations Strict liability – no need to show intent Significant sanctions (ie., up to 20% of the gross revenue

of the legal entity) Explicit credit for compliance programs, self-disclosure,

and cooperation


27 27

Brazil – Local Law Developments


Brazil’s Anti-Bribery Law – Key topics What to expect from enforcement officials

(Embraer investigation) The extraordinary number of enforcement authorities Impending regulations The problem with leniency agreements

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Mexico – Common Corruption Risks

Police: How petty corruption affects Mexican business Security and Extortion: When duress and bribe

requests meet Large-Scale Procurements: How corruption arises in

expensive public contracting Gifts and Hospitality: The expectation of meals and

entertainment from government clients Politically-Linked Companies: When the powerful elite

engage in business and politics


29 29

Mexico – Local Law Developments


• New Anti-Money Laundering Law (July 2013) Regulates 15 activities that are vulnerable to money laundering but not

covered by AML rules applicable to financial institutions For example: donations, construction/property development,

professional services • Federal Anti-Corruption Law in Public Procurement (June 2012) Applies to Mexican and foreign persons, natural and legal Prohibits bribery of non-Mexican officials and officials of public

international organizations Requires Mexican law enforcement to cooperate with other countries’

investigations Penalties up to the higher of USD $9.2M or 35% of value of public

contract, and up to a 10-year bar from participating in procurement processes

30 30

Other Local Law Developments in the Region

• Chile: Corporate criminal liability in a region where it is

uncommon Corporate compliance certifications Leniency agreements in practice

• Peru: Steps toward joining the OECD Anti-Bribery Convention Advancements in corporate liability Participation of civil society


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Matteson Ellis Miller & Chevalier Chartered

[email protected] (202) 626-1477


Mitigating FCPA Risk in Latin America • Compliance Programs • Due Diligence • Identified FCPA Violations Matthew J. Feeley Miami [email protected] 305-347-5794 January 29, 2014

33

Compliance Program Why?

– Prevent FCPA violations – Evidence of commitment to ethics may

help avoid prosecution or reduce penalty

34

Compliance Program Begin With Baseline Risk Assessment

of Your Business – Contact with potential “government officials” &

“SOEs” – Use of consultants, agents, and distributors – Licensing, permitting – Past or ongoing noncompliance

35

Compliance Program

36

Compliance Program Local Culture

– Brazil: sophisticated bribery and kick-back schemes; high level of government regulation allows for corruption opportunities

– Venezuela: traditionally high corruption, in part, due to petroleum industry and centralization of government

– Chile: relatively low corruption; confidence in government and transparency

37

Compliance Program Local Culture

– Engage local agent/attorney or U.S. attorney with particular knowledge of the country/region/events

– Example: Brazil in preparation for World Cup and Olympics (see “Brazil’s Olympics and World Cup Projects Highlight FCPA Risk,” by Raymond Barrett, POLICY & REGULATORY REPORT, included materials)

38

Compliance Program Industry Reputation – Examples of

High Risk – Public works contracts and construction – Utilities – Real estate – Mining – Power generation and transmission – Pharmaceutical and healthcare

39

Compliance Program Additional FCPA Risks in Latin America

– Minimal local enforcement of anti-corruption laws

– Custom officials/visa officials – Family members of government officials – Legal and judicial – Government monopolies – State and municipal public works – Public bidding issues

40

Compliance Program Identify Control Function

– Tone at the top is imperative – Senior management – Depending on scope, consider compliance

officer that directly reports to Board’s audit committee

41

Compliance Program Consult “Guidance” issued in

November, 2012 – http://www.justice.gov/criminal/fraud/fcpa/guide.pdf

http://www.justice.gov/criminal/fraud/fcpa/guide.pdf

42

Compliance Program Integral Components

– Education and training – Due diligence in relation to pertinent business

function (consultants/distributors/agents) – Monitoring – Accurate financial record keeping (books and

records) Particularly in regard to travel and entertainment expenses Train finance staff Precise entries Retain documents Perform periodic audits in high-risk markets

43

Compliance Program Integral Components (cont.)

– Mechanism for reporting violations (e.g. whistleblower hotline)

– Facilitation payments – Integration with local laws – Documentation

44

Compliance Program Written Policy

– Describe law and manner in which company will comply

– How relationships with third parties will be structured

– Clearly worded and translated into local language

45

Compliance Program Education and Training

– Integral component of any compliance program – Draw on initial risk assessment information on local

culture; craft training to be culturally sensitive and to directly reference local anti-corruption laws

– Written documentation in local language Summary of FCPA FAQ Other guides (permissible foreign payments, dealing with

minor foreign officials, etc.)

– Provision of a “helpline”

46

Compliance Program Education and Training (cont.)

– Presentations/Seminars Live or video/computer based “Real world” hypotheticals to fit business model Written certifications from employees

– Specific guidelines for gifts, travel end entertainment

– Training of business partners – Definition of “foreign official” & SOE

47

Compliance Program

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Compliance Program Monitoring

– Regularly scheduled – Review of policies and procedures – Identification of sensitive individuals/functions – Interviewing and spot audits – Review of education and training

49

Due Diligence Third Party Relationships

– Charles E. Duross, Deputy Chief, Fraud Section, Criminal Division, U.S. Department of Justice: “Third party risk still remains most significant FCPA risk.”

– Kara Brockmeyer, Chief of SEC FCPA Unit: “60-70% of SEC cases involve intermediaries.”

50

Due Diligence Third Party Relationships (cont.)

– Agents, consultants & distributors – Local reputation/background check – FCPA certification – Provision of sample contracts/contract

language

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Due Diligence Third Party Relationships (cont.)

– Red Flags: 1. No business purpose/vague business purpose 2. Duplicative services 3. No infrastructure or support 4. No historical data

52

Due Diligence Merger & Acquisition Context

– Protect against “Successor Liability” (see Guidance)

– Inform valuation – How?

Evaluate target’s existing systems and controls Analyze target’s risk Specific audit

– Risk can be managed by Adjusting deal price Allocating responsibility for potential fines Indemnification agreements

53

Identified FCPA Violations Self-Assessment

– Internal investigation (in-house and/or outside counsel)

– Knowledge – Scope/depth

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Identified FCPA Violations Management of Potential

Whistleblowers – Increased importance due to Dodd-Frank and

SEC Whistleblower Office http://www.sec.gov/whistleblower

– Monetary payment of 10%-30% of any sanction greater than $1,000,000

– If you determine you want self-reporting credit, it may be a race to report between you and whistleblower

http://www.sec.gov/whistleblower

55

Identified FCPA Violations Decide Whether to Self-report

– Fact specific determination – Enforcement authorities encourage self-reporting

Attempting to find a way to publicize declinations Increased use of NPAs and DPAs Increasing amount of enforcement actions that are not fruit of

self-reporting

– Expect to be asked: “What have you done to prevent the issue that brought you here today?”

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Identified FCPA Violations Always

– Consistently follow discipline protocol in compliance program

– Remediate compliance program at the same time you investigate

– Documentation – particularly important if you decline to self-report. If you are ever “called to the carpet” by enforcement authorities, you will want to be able to demonstrate your investigation and remediation

– If you do self-report, engage with enforcement authorities

57

Conclusion Minimize FCPA Risk

– Compliance – Due diligence – Address violations and modify compliance

program

58

Matthew J. Feeley Buchanan Ingersoll & Rooney PC

(305)347-5794 [email protected]

Miami, Florida, USA

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