fraud academy fcpa the new uk bribery bill 15-06-2010[1]

FCPA and the newFCPA and the new UK Bribery Act

15 June 2010

PricewaterhouseCoopers Slide 1June 2010

AgendaAgenda

1. The US Foreign Corrupt Practices Act

2. The UK Bribery Act 2010

3. Key provisions of UK Bribery Act and FCPA comparedy p y p

4. Enforcement Trends in the US and UK

5. Anti-corruption/bribery compliance program - what is expected from Companies?p y p p g p p

6. The Siemens Case Study

• IntroductionIntroduction

• Response

• ConclusionConclusion


The US Foreign Corrupt Practices Act (“FCPA”)The US Foreign Corrupt Practices Act ( FCPA )

Anti-Bribery Provisions Accounting ProvisionsIt is unlawful to provide anything of value to a foreign government official to obtain or retain businessApplies to US citizens, residents, companies

Every issuer (listed on a U.S. stock exchange) must maintain accurate and detailed books and

records;FCand issuers of securities in the US, including

the employees, officers and directors of such issuer

maintain an internal control system to ensure accuracy of the books and records and execution of transactions and access to assets in accordance with required

th i ti

CPA

authorisation

Legal entities U t US$ 25 illi

Legal entitiesU t US$ 2 illi i l ti Up to US$ 25 million

Natural personsUp to US$5M or 20 years imprisonment

Up to US$ 2 million per violationNatural personsUp to US$100K and/or 5 years imprisonment per violation

FINES

CRIMINAL AND CIVIL LIABILITYCRIMINAL AND CIVIL LIABILITY

The UK Bribery Act 2010

Paying / receiving a bribe

Bribing a Foreign Public Official

Failure to Prevent bribery (absence Offence Penalties

The UK Bribery Act 2010

g(Public/Private Sector)

Relating to “improper performance” of a function or activity

To obtain or retain business advantage

y (of “adequate procedures”)

Committed Unlimited fine within the UK: any person outside the UK: British citizen / resident

Individuals Up to 10 yrs imprisonment

Incorporated elsewhere but “carries on a or part

Incorporated in the UK

Companies

Unlimited fine Debarment

from competing for government contractsp

of a business” in the UKcontracts

Anywhere in the world,even if operating through an agent / subsidiary

Location of Bribe

Given the Act, and its expected aggressive enforcement, European companies need to consider (and respond to) the increasing compliance risk of operating within the UK

Key provisions of UK Bribery ActKey provisions of UK Bribery Act and FCPA compared

• Jurisdiction under the Bribery Act appears broader than the FCPA, at least as to corporations

- Corporations can be guilty of an offense if they do business in the UK regardless of- Corporations can be guilty of an offense if they do business in the UK, regardless of where the acts or omissions which form part of the offense take place

• UK Bribery Act prohibits bribery of private citizens, wherever located

- FCPA does not cover foreign commercial bribery

- corporations now have an added incentive to monitor all payments to and from third-parties p

• Under both the FCPA and Bribery Act, payments to foreign officials made through third-parties can form the basis of an offense


Key provisions of UK Bribery ActKey provisions of UK Bribery Act and FCPA compared

• FCPA carves out facilitating or expediting payments made to secure performance of routine government action.

− No such carve out in Bribery Act− No such carve-out in Bribery Act

− Corporations should be careful in interactions with local regulators, e.g., customs clearance, license or visa renewal, annual inspections, etc.

• No “adequate procedures” defence under the FCPA but relevant in prosecutorial discretion to charge and in resolution of action

• Bribery Act itself contains no books and records or internal controls provisions though• Bribery Act itself contains no books and records or internal controls provisions, though other provisions of UK law create such obligations

• No requirement under Bribery Act for a corrupt intent


US Enforcement TrendsUS Enforcement TrendsNumber of FCPA cases will continue to increase

• In 2009 there was an increase in the number of FCPA proceedings handled by the DoJ and SECTh li ht d i 200840

4550

• The slight decrease in 2008 may be due to the unusually large scope of certain investigations

• 6 of 30 proceedings concluded in2025303540

SEC

DoJ6 of 30 proceedings concluded in 2008/2009 were against European companies

• PwC research has identified 05

1015

2002 2003 2004 2005 2006 2007 2008 2009 details of 96 open investigations, 15 of which involving 11 European companies

2002 2003 2004 2005 2006 2007 2008 2009

PwC research: Proceedings against companies and individuals

Back log of cases continues to grow. In January 2010, Assistant Attorney General Breuer confirmed that the DOJ now has more than 140 open investigations


US Enforcement TrendsUS Enforcement TrendsNumber of FCPA cases will continue to increase

• There is a greater number of enforcement against individuals in recent years 25

30

• PwC research has identified details of 46 open investigations against individuals.I ll l d d di 10

15

20DoJ

SEC• In all concluded proceedings,

except one, where employees were charged, they were senior executives of the company 0

5

10

p y• Of specific note: case of Nature’s

Sunshine Products - 'control person' theory - U.S. based executives

2002 2003 2004 2005 2006 2007 2008 2009

PwC research: Proceedings against individuals

(CEO and CFO) were held responsible for alleged corrupt payments made at the foreign subsidiary-level when they did not authorise or even have knowledge of the payments


US Enforcement TrendsUS Enforcement Trends

Use of intermediaries• In almost all instances, intermediaries were used to

facilitate improper payments (2008: 13 out of 15 concluded proceedings and 2009: 11 out of 15

l d d di )concluded proceedings)• Different types of intermediaries were involved e.g.

agent, customs broker, distributor, subcontractor, freight forwarding agent etc

2008forwarding agent etc.

Regions where corruption occurred• In the majority of proceedings concluded in 2008/2009,

the alleged corruption occurred in regions where

Other1

BR/IC/ABthe alleged corruption occurred in regions where corruption is pervasive (South America, Asia Pacific, Africa, Middle East) – in line with Transparency International’s Corruption Perception Index.

AB2

BR/IC/AB3

Accounting and internal control principles• In most cases, companies were held accountable for

books and records and/or internal control violationsBR/IC

52009

AB = Anti-bribery violation, BR = Books & Records violation, IC = Internal Control violation

US Enforcement TrendsUS Enforcement TrendsFacilitation payments remain an issue

• Facilitation payments remain a grey area. Although facilitation payments are allowed in terms of the FCPA – there are a number of examples where companies were held accountable for violations in this area.

• 2007 Vetco Gray and 2008 Aibel Group cases are examples where companies were even held accountable for anti-bribery violations for making payments to secure preferential treatment during the customs process2008 C t t t ffi i l t i d th t (i) i l t t• 2008 Conway case - payments to customs officials to induce them to (i) violate customs regulations (ii) improperly settle disputes with the Bureau of Customs, or to reduce or not enforce otherwise legitimate fines for administrative violations. The actions were not “ordinarily and commonly performed by a foreign official” and fell outside the scope of the y y p y g pFCPA's facilitating payments exception.

• OECD recommendations dated 26 November 2009 – member states to:- periodically review their policies and approach on small facilitation payments in order p y p pp p y

to effectively combat the phenomenon - encourage companies to prohibit or discourage the use of small facilitation payments


US Enforcement TrendsUS Enforcement Trends

New approach to monitorships? Voluntary disclosure, remediation and

• A decline in appointment of monitors from four in 2008 to two in 2009

• New concept of self monitoring

cooperation have lead to:• Deferred or non-prosecution

agreements (avoiding debarment)• New concept of self-monitoring

imposed in two cases in 2009

• Independent consultant appointed in one case

• Charges only against subsidiary avoiding debarment of group

• Reduced finesS lf it ione case

• Indications of appointment of monitors in three settlements imminent in 2010

• Self monitoring

Imposition of large penalties will continue

Voluntary disclosure, remediation and cooperation pays off

• 8 out of the 15 proceedings concluded

• Imposition of larger fines and disgorgement e.g. in respect of US regulators alone:

Siemens US$800mln (2008)in 2008 and 3 out of the 15 concluded in 2009 were as a result of voluntary disclosure

- Siemens - US$800mln (2008)- KBR - US$579mln (2009)- BAE – US$400mln (2010)


UK Enforcement TrendsUK Enforcement Trends

• Aug 2008OECD reprimands for failure to uphold OECD commitments.

• Oct 2008Balfour Beatty, £2.25m settlement with the SFO relating to entries in a subsidiary

' d i t f t i l iti i t f th ti fcompany's records in respect of payment irregularities, in respect of the execution of a contract in Egypt

• Jan 2009FSA imposes a record fine of £5 25m on Aon Ltd for failure to have effective systems andFSA imposes a record fine of £5.25m on Aon Ltd, for failure to have effective systems and controls in place to counter the risk of bribery and corruption associated with making payments to overseas firms and individuals

• July 2009ySFO issues “Approach to dealing with overseas corruption” including guidance for companies to self-report and on expectation of “adequate procedures” to prevent bribery

• Sept 2009Mabey & Johnson Limited finalises a criminal plea agreement with the SFO on matters that were self-reported. Taken together with the SFO costs of £350,000 and monitor costs, takes the penalty to £6.6m. Mandatory debarment from all government contracts


UK Enforcement TrendsUK Enforcement Trends

• Nov 2009AMEC agrees to a civil penalty of £4.9 m plus costs. The SFO reported that AMEC acted promptly and self-reported the case to the SFO, and has worked on remediation

• Dec 2009SFO h f VP f D P I t ti l Ltd ll i th t D l i d t kSFO charges former VP of DePuy International Ltd alleging that Dougal conspired to make corrupt payments and /or gave inducements to medical professionals working in the Greek public healthcare system

• Feb 2010Feb 2010BAE reaches settlement with the SFO and agrees to a fine of £ 30m in respect of failure to keep accounting records (also settled with US DoJ and agreed to pay $400m fine and imposition of compliance monitor)

• March 2010Innospec Ltd pleads guilty to bribery charges brought by the SFO and fined $12.7m

• April 2010E t t f B ib A t 2010Enactment of Bribery Act 2010

• July 2010Expected circulation of guidance on “adequate procedures” and offence will subsequently become operational


become operational

Anti-corruption/bribery compliance programme –Anti corruption/bribery compliance programme what is expected from companies?

• Senior Management to take ownership and provide governance

• Corporate policy against violation of bribery laws

• HR – incentives and disciplinary measures

• Monitoring by Internal Audit that • Senior manager (compliance officer)

responsible for implementation and oversight of compliance programB ib i k t i t

g ythe compliance program is operating effectively

• Areas requiring further • Bribery risk assessment - appropriate response

to mitigate the identified risks• Compliance policies, financial and accounting

procedures and internal controls

q gconsideration:− Gifts / promotional expenses− Travel & entertainmentprocedures and internal controls

• Training, consultation and communication• Whistleblower function and case tracking• Control over business partners including

− Facilitation payments− Charitable donations / political

contributionsControl over business partners, including requirements for:− Due diligence− Standard contract terms, including audit rights

− Lobbying


g g

Anti-corruption/bribery compliance programme –Anti corruption/bribery compliance programme what is expected from companies?

Lessons:

• Not a ‘tick the box’ exercise

A id “P ti ” li• Avoid “Paper tiger” compliance

• “Siemens had policies in place, but they were not lived, the corporate values were not incorporated, leadership has failed” Andreas Pohlman, CCO, May 2008 TI Conference in ZagrebZagreb

• Needs to be tailored to mitigate the risks of the corporation

Available guidance:

• SFO - “Approach of the Serious Fraud Office to dealing with Overseas Corruption”

• US - “Chapter 8 - Sentencing of Organisations”

• DOJ’s Opinion Procedure Release 04-02

• OECD - “Good Practice Guidance on Internal Controls, Ethics and Compliance”


The Siemens Case StudyThe Siemens Case Study


BackgroundIntroduction

Background

• Diversified global company• >160 years of history• > $100 billion revenues & > 400,000

employees*• > 190 countries with business activities +

> 1000+ subsidiaries *• #30 on the global Fortune 500 (2009)*• Listed on NYSE and DAX • Investigation started in 2006 as result of

anonymous tip• As a result reported ‘material weakness’ in

FY06/07• Disclosed €1.3bn in questionable payments

(2000 2006)(2000-2006)

*Source: Siemens 2010 – The Company


Historic finesIntroduction

Historic fines

• US and German regulators fine US$1.6bn

− US$ 569 mln (€395mln) by German authorities

− US$ 450mln (~ €350 mln) by DOJ

− US$ 350mln (~ €270 mln) by SEC

• German tax authority fine ~US$ 250mln (€179mln)

• World Bank fine $100 mln (~€75 mln)

− 4-year debarment for Siemens Russia

2 ear sh t o t from World Bank financed projects for all Siemens entities− 2-year shut-out from World Bank-financed projects for all Siemens entities

• Siemens claims damages from eleven former bosses, accusing them of neglecting their supervisory duties and failing to stop illegal practices

• Ex-chairman Heinrich von Pierer fined by Munich prosecutor


Additional costsIntroduction

Additional costs

Investigation• > 300 lawyers, forensic analysts and staff had to

untangle thousands of payments across the globe• > 1,700 interviews in 34 countries• Collected > 100 million documents (created special

facilities in China and Germany to house records)• > 1.5 million billable hours

Remediation• > 150 people, including 75 PwC professionals

developed a step by step guide known as thedeveloped a step-by-step guide known as the "Anti-Corruption Toolkit"

• implemented the Anti-Corruption Toolkit at 162 Siemens entitiesdedicated support teams spent 6 weeks at 56 “high risk” entities• dedicated support teams spent 6 weeks at 56 “high risk” entities

• Ultimately implementation at remaining 1000+ entities• > 300,000 billable hours


How did Siemens respond?Response

How did Siemens respond?

Independent investigation Short-term remedial actions

• Audit Committee retained the US law firm Debevoise to conduct an independent and comprehensive investigation

• Re-established ‘tone-at-the-top’: zero tolerance• Amnesty and leniency programs, including a

leadership change• Preservation, collection, testing and analysis of

evidence• Substantial assistance and cooperation with the

regulators

p g• Reorganise compliance organisation• Books and records, tax and internal controls

remediationregulators

• Assistance via external advisors

Long-term remedial actions

• Continued update and improvement of the compliance program

• Comprehensive policies, procedures and controls to effectively address risks

Alignment with US regulatory requirements of the Department of Justice US Federal Sentencing Guidelines for Companies


How did it work in practice?Response

How did it work in practice?


The remediation processResponse

The remediation process

Step 1

Whistle-blower

Past− People− Financial Statements− Tax

Future− Controls

InvestigationCompliance

reviews

Results /Exceptions

Compliance Riskassessment

Controls− Procedures

VerificationStep 2Exceptions

Remediation

Implementation

t Verification meetings

Continous Improvement

Step 3

Implementation of Compliance Initiatives and

Controls

TestingDesign &Continous Improvement

Continous Improvement

Design & Operational

effectiveness


Implementation of a new compliance frameworkResponse

Prevent Detect Respond

Implementation of a new compliance framework

"Tone from the Top“ – Leadership Commitment and Follow-through1

Compliance Organisation & Internal Audit2 p g

Consultation & Whistle blowing – “Case Tracking”

HR: Rewards and Sanctions

3

4

Third Parties (Business Partners)

Training & Communications

e a ds a d Sa ct o s

5

6Continuous

improvementThird Parties (Business Partners)

Tenders & Contracts (Government Business)7

Gifts, hospitality, sponsorships & donations8

6 p

Gifts, hospitality, sponsorships & donations8

Finance & Accounting9

HQ Monitoring10


HQ Monitoring10

Zero tolerance …Tone from the Top1

Zero tolerance …

• “Only clean business is Siemens business.” • “Compliance as part of Corporate Responsibility

is priority #1”• Frequent Communications:

- Town hall meetings- Employee Attitude Surveys

... and accountability

• Management of each business unit: • performs a corruption exposure risk assessment• must actively promote key policies & codes• is responsible for the remediation of internal controls• certifies quarterly that controls are operating effectively


Compliance Organisation & Internal Audit

Reorganisation of “Internal Gatekeepers”2

Reorganisation of Internal Gatekeepers

New organisation in which Compliance Similar process for Internal Officers have:• Clear roles and responsibilities that are

communicated to all employees

Audit:• Clear roles and responsibilities

defined (“Back to Basics”)• New reporting lines to Global Compliance• Appropriate seniority and skills• Responsibilities embedded further in

• New reporting lines to Global Head of Audit

• Appropriate experience and skills divided in 5 basic areas:business transactions

• Increased resources: From 170 (FY 07) to > 600 employees world wide

skills divided in 5 basic areas: Financial, Operational & Compliance, IT, Transactions & Forensic Investigation

• A Professional Development Program• Global and regional compliance

conferences for networking and sharing

g• Increased resources: To > 400

employees world wide• A Professional Development

• Compliance best practice platform “Find it" Program


Consultation & Whistleblowing

New channels for an open dialogue3

New channels for an open dialogue

Consultation (“Ask Me”)

• Helpdesk for questions• Reporting of compliance breaches

Whistleblower (“Tell Me”)

• All incidents tracked• Reviewed by compliance

• Search for compliance information• Approval of gifts & hospitality• Submit suggestions and ideas

• Active case tracking

gg

Accessible: worldwide 24/7150 languagesg g

Actively promoted: Communications

Basis for continuous improvement / development of policies, procedures, controls and training

Source: Siemens Sustainability Report 2008

controls and training


Human Resource Processes

Compliance-based incentives system4

Compliance based incentives system

Metrics Assessment

Corporate Audit Tone from the top & training Policies implementationMaintaining

C

Evaluation

Compliance Legal

Compliance organisation and transparency

1 the Control Environment

Incidence of new serious Compliance LegalCase tracking evaluationDisciplinary sanctions

Incidence of new serious cases (systematic failure)

Adequate sanctions taken On time reporting

2 Incidents Evaluation of each

division/ country Proposal for

multipliers prepared i li

Survey team:Compliance index B h k

Employee perception3Compliance perceptionsurvey

in compliance round table

Impact to FY08 bonus approximately 17%Benchmarksurvey approximately 17%

Source: Dr. Klaus Moosmayer, Compliance Operating Officer & Chief Counsel Compliance & InvestigationsACI 21st National Conference: Foreign Corrupt Practices Act, New York, March 25, 2009


0.75g p , , ,

Training & Communications

Training – everyone has a role to play5

Definition of Target Group Type of Training

Training everyone has a role to play

Definition of Target Group Type of Training

• Supervisory Board, Board of Management• CEOs / CFOs of Divisions, sub-divisions, regional companies

In-person 4h training

• Members of Group Boards

• Manager / staff who interact with govt. officials• Key functions: sales, procurement & project management

In-person 4h-8h training

• Regular interactions with government (e.g. Tax, Customs)• Boards of legal entities (if applicable)

• Employees with signing authority ~1h Web-based training • Employees in management positions• All customer-facing and controller functions (e.g., sales, sales

commercials)

available in 15 languages

• New Compliance Officers• From Regions, Sectors / Divisions / Business Units

4 day Introduction Program


Business Partner (BP) -Third Parties6

Business Partner (BP) Risk-based due diligence procedures

Pre-work Due Diligence QuestionnaireFront-end Risk Assessment1 2 3

LowerRisk – Least

Integrity Check (Internet Search)

Doubtfuli t it

Positiveintegritya

Medium RiskLess Review

Business Partner key data collection

integrity

Higher

b

Higher Risk –More Review

Risk classifiers Medium

Lower

b

Lower

Source: Dr. Klaus Moosmayer, Compliance Operating Officer & Chief Counsel Compliance & InvestigationsC5 Anti-Corruption Conference, Paris September 2009


How Siemens (ab)used business consultantsThird Parties6

How Siemens (ab)used business consultants

• Entering into purported business consulting agreements with no legitimate business purpose, sometimes after Siemens had won the relevant project

• Engaging former employees as purported business consultants to act as conduits for corrupt payments to government officials

• Justifying payments to purported business consultants based on false invoices• Mischaracterising corrupt payments in the corporate books and records as "consulting

fees“, payments for "studies“ and other seemingly legitimate expenses• Limiting the quantity and scope of audits of payments to purported business consultants• Accumulating profit reserves as liabilities in internal balance sheet accounts and then

using them to make corrupt payments through business consultants as neededg p p y g• Drafting and backdating sham business consulting agreements to justify third party

payments; • Changing the name of purported business consulting agreements to "agencyChanging the name of purported business consulting agreements to agency

agreements" or similar titles to avoid detection

Source: DoJ’s Sentencing Memorandum in the matter against Siemens AG and others


Source: DoJ s Sentencing Memorandum in the matter against Siemens AG and others

Warning signsThird Parties6

Warning signs

appears to be no longer qualified or to be understaffed

has expired or missing business licenses

refuses to disclose business practices or communications refuses to disclose business practices or communications

requests for upfront cash or offshore payments

unusually large compensation in relation to the value of the services

unusually high or undocumented expenses

false documents or invoices


Government business controlsTenders & Contracts – Government Business 7

Government business controls

Adopted Changes

• Global implementation of a formal process supported by a web-based tool

• Integrated risk assessments to determine whether additional anti-corruption assessment h d t b f dhad to be performed

• If so, compliance officer to be involved in the acquisition phase

• Re-assessment of risk at all quality gatesRe assessment of risk at all quality gates

• Standardised set of criteria & thresholds for risks

• Periodic review to ensure that process was properly followedp p p y

• Tracking log maintained of all government related contracts

• Standardised language and application risk assessment

• Clear roles and responsibilities for decisions


Gifts & hospitality, sponsorships & donationsGifts & Hospitality 8

Gifts & hospitality, sponsorships & donations

Adopted Changes

• Policies with clear thresholds amounts and frequency

• Process for review & “pre approval”• Process for review & pre-approval

• Corporate policies adapted to conform with local laws

• Compliance Officer review


Closing the tap:Finance & Accounting9

Closing the tap: Controls around bank accounts & cash

Central Approval Restricted Signatories Included in G/L

All Bank Accounts registered with Corporate Treasury1

No cash payments Track high-risk payments Segregation of duties

All payments executed via central payment system or pre-approved2

Cash recording controls Regular reconciliations Limits on cash balances

Regular review of cash balances3

Data enter/ edit controls Independent data review Segregation of duties

Master data centrally maintained4

Integrated systems?Local payment methods?

Size of operations (Segregation of Duties)?Efficiency and cost?

Key Challenges:


Efficiency and cost?

Monitoring & (internal & external) reportingHQ Monitoring10

Monitoring & (internal & external) reporting

Benefits and key to successConclusion

Benefits and key to success

Benefits Key to success

• Reduced fine

• Settlement

• Management responsibility

• Linked to bonus scheme/incentives• Settlement

• Restored reputation

• Linked to bonus scheme/incentives

• Strict timeline

• Role model/benchmark

• New organisation

• Monitoring

• Quality control


Contact DetailsContact Details

B tti D lP t C h t Bettina DolanPrincipal ManagerMobile: +31 612 221 906Email: [email protected]

Peter CromhoutPartnerMobile: +31 653 980 980Email: [email protected] @ pp @ p

Rudy HoskensRudy HoskensPartner Dispute Analysis & InvestigationsTel: +32 2 710 4307Email: [email protected]

© 2010 PricewaterhouseCoopers. All rights reserved.“PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

fraud academy fcpa the new uk bribery bill 15-06-2010[1]

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