scce regional compliance & ethics conferences · – doj and sec recently brought their first...

1

Society of Corporate Compliance and Ethics

6500 Barrie Road, Suite 250, Minneapolis, MN 55435, United States

www.corporatecompliance.org | +1 952 933 4977 or 888 277 4977

SCCE Regional Compliance

& Ethics ConferencesUpper Midwest Regional

October 9, 2009 | Minneapolis, MN

Anti-Corruption Issues

Odell Guyton

Co-Chair, SCCE

Director of Compliance

Microsoft Corporation


The Global Compliance Challenge

• New worldwide markets

• Cultural and country differences

• Legal and regulatory challenges

• M&A, export control laws, trade sanctions

• Intellectual property protection

• Transparency International Corruption Perceptions Index

• US Law: Anti-money laundering (AML)

– USA PATRIOT Act

– FSG

– OFAC

– and other compliance requirements

2

2


Corruption is a Global Issue

People and governments around the world are aligning to fight corruption.

Now, in addition to the US (Foreign Corrupt Practices Act), at least 37 countries have and enforce anti-corruption laws.

The OECD (Organisation for Economic Co-operation and Development) worked with experts to develop a convention between nations to criminalize bribery by requiring its signatories to pass legislation against corruption.


30 OECD Members and 7 Additional Signatories

AUSTRALIA

AUSTRIA

BELGIUM

CANADA

CZECH REPUBLIC

DENMARK

FINLAND

FRANCE

GERMANY

GREECE

HUNGARY

ICELAND

IRELAND

ITALY

JAPAN

KOREA

LUXEMBOURG

MEXICO

NETHERLANDS

NEW ZEALAND

NORWAY

POLAND

PORTUGAL

SLOVAK REPUBLIC

SPAIN

SWEDEN

SWITZERLAND

TURKEY

UNITED KINGDOM

UNITED STATES

ARGENTINA

BRAZIL

BULGARIA

CHILE

ESTONIA

SLOVENIA

SOUTH AFRICA

3


Transparency International Corruption Index

The Transparency International Corruption Perceptions Index (CPI) ranks more than 150 locations by perceived levels of corruption

Possible Scores Range from 0 (highly corrupt) to 10 (very clean).

Review other ratings at: http://www.transparency.org/policy_research/surveys_indices/cpi


Transparency International’s Corruption Perceptions Index 2008

The Best

• Denmark (9.3)

• Finland (9.0)

• New Zealand (9.3)

• Singapore (9.2)

• Sweden (9.3)

• Iceland (8.9)

• Netherlands (8.9)

• Switzerland ((9.0)

• Canada (8.7)

• Norway (7.9)

• Germany (7.9)

The Worst

• Somalia (1.0)

• Myanmar (1.3)

• Iraq (1.3)

• Haiti (1.4)

• Uzbekistan (1.8)

• Tonga (2.4)

• Sudan (1.6)

• Chad (1.6)

• Afghanistan (1.5)

• Laos (2.0)

• Russia (2.1)

www.transparency.org6

4


U.S. View on Combating Corruption

Prosecuting corruption of all kinds is a high priority for the [U.S.] Justice Department… that includes public corruption, corruption in the procurement process and the Foreign Corrupt Practices Act

We are enforcing the FCPA to root out global corruption and preserve the integrity of the world’s markets

Corruption undercuts democracy, and law, it stifles economic growth and sustainable development, it destabilizes markets and it creates an uneven playing field

(Excerpts From the Prepared Remarks of Alice S. Fisher, Assistant Attorney General, US DOJ, (Head of the Criminal Division) ABA National Institute on FCPA, Omni Shoreham Hotel, Washington, D.C., October 16, 2006)


Current Regulatory Environment-Anti-bribery and Anti Corruption

U.S. Foreign Corrupt Practices Act (“FCPA”) FCPA/Anti-Bribery and Corruption

– Prosecutions in countries traditionally lax in prosecution of bribery and corruption, such as China and Mexico, have increased.

– Focus areas of regulators and prosecutors:

a. Mergers & Acquisitions (M”&A”) and other transactional due diligence;

b. Intermediary due diligence;

– 64% of FCPA cases have involved the activities of intermediaries such as freight forwarders, consultants, accountants, lawyers); and

c. Travel and entertainment expenses

– DOJ and SEC recently brought their first FCPA case that was premised solely on travel and entertainment expenses.

8

5


Current Regulatory Environment: AML/Terrorist Financing/OFAC

AML/Terrorist Financing/OFAC

1. Non-financial companies such as Microsoft, though not subject to USA PATRIOT Act and the Bank Secrecy Act (“BSA”), may nonetheless be investigated, sanctioned and prosecuted for violations of anti-money laundering and terrorist financing regulatory requirements.

2. Because liability does not have to be premised on the actual knowledge of money laundering, but rather a company’s “willful blindness” to the red flags of money laundering and

terrorist financing, Company’s policies must also address AML/OFAC compliance.

9


What is a Bribe?

Giving something of value

To an individual

With intent to obtain an improper benefit

Bribes can take many forms

Cash

Gifts, Entertainment, Meals

Travel and events

Preferential hiring

Donations to charity

6


FCPA Facilitating Payment

• What is a facilitating payment?

– A small payment

– To secure or expedite a routine action

– Made to a government official

• Company’s should consider a policy that prohibits facilitating payments

– If Company operates worldwide

– Must comply with the laws of many different jurisdictions

– Adoption of a single, global policy that prohibits all bribes, including facilitating payments

11


“Red Flags”

“Red Flags” are warning signs that you can use to spot possible corrupt payments or bribes

� If you spot a red flag, report your concern so it can be reviewed and appropriate action taken

Areas where red flags typically may appear include:

� Unusual or complex contracting, sourcing, accounting, payment or billing practices

� Travel and expenses and gifts and entertainment, particularly ofgovernment officials

� Government officials ask us to use a particular partner or vendor

7


Daylight Forensic & Advisory LLC

Examples of Red Flags

– Multiple single sourced contracts to the same third party rapidly increasing in value over several months / years;

– Recurring identical amounts from the same third party;

– Unusual even dollar or high value disbursement amounts for routine odd dollar or low value purchase;

– Unusual payment methods, particularly cash or numbered account payments, payments through third countries or in third country currency;

– Payments disproportionate to the services performed at the particular location; [1]

21

[1] ABB Limited, global provider of power technologies, made numerous cash payments of $120 to $200 per day to Angolan engineers for alleged company travel while the gross annual per capita income in Angola was only $710. (Prosecuted under FCPA in July 2004)



Examples of Red flags

– Payments for services not performed; [1]

– The intermediary company is owned by a government official, a related party or by an employee dealing with the government official; [2]

– Same contact information for different third parties (contact person, address, telephone and or fax number, website, e-mail address ending);

22

[1] Chiquita Brands International Inc. paid kickbacks to terrorist organization United Self-Defense Forces of Colombia. Chiquita recorded these payments in its corporate books and records as "security payments" or payments for "security" or "security services” although the company never received any actual security services in exchange for the payments. (Prosecuted under FCPA in March 2007)

[2] Leo Winston Smith of Newport Beach, Calif., conspired to make bribe payments to the U.K. Ministry of Defense official in order to obtain equipment contracts for Pacific Consolidated Industries. Mr. Smith and a relative of the government official created shell entities through which the bribe payments were made. (Prosecuted under FCPA in April 2007)

8



Examples of Red flags

– Excessive miscodings to same expense account; [1]– Lack of adequate supporting documentation or supporting documentation

is not corresponding with the actual work performed; and

– Fraudulent supporting documentation; [2]

– Payments for expenses which do not make sense from a business standpoint; [3]

– Unusually high payments / pay increases for employees working with government officials; and

– Third party has a poor reputation for integrity or has been subject to investigations regarding its ethics.

23

[1] Baker Hughes authorized multiple payments to the company‘s agents in a number of countries knowing that these funds would be used to bribe foreign government officials. Baker Hughes recorded the transactions in its books and records as routine business expenditures. (Prosecuted under FCPA in April 2007)

[2] The Dow Chemical Company’s subsidiary, DE-Nocil Crop Protection Ltd, made payments to a variety of Indian governmental officials to expedite the registration of DE-Nocil products. The payments were made through contractors, sometimes using false invoices or fictitious charges in bills. (Prosecuted under FCPA in February 2007)

[3] Lucent Technologies Inc spent over $10 million on trips for employees of Chinese State Owned Enterprises (SOEs) to to inspect Lucent's factories. At the time Lucent had outsourced most of its manufacturing and no longer had any factories to inspect. (Prosecuted under FCPA in December 2007)


Do not consciously disregard or deliberately ignore circumstances that should alert you to

violations

Company and individual employees can be held responsible

Companies and citizens of many nations have been prosecuted, heavily fined, and punished under anti-corruption laws

Employees are personally accountable if they disregard a red flag

Don’t Ignore Warning Signs

9


Gifts, Entertainment, and Travel

Gifts, business travel, entertainment, and charitable donations can be appropriate business tools

However, gifts, business travel, entertainment, and charitable donations can be bribes if given with improper intent

Specific policies apply

� Strict monetary limits, approval, and documentation are required for gifts, business travel, entertainment, and charitable donations

Understand your responsibilities

Ask questions!


Relationships With Third-Party Representatives

Channel Partners, Consultants and Others

Vital to product distribution

Can interface directly with large customers, including government purchasers

Misconduct could subject company to civil, criminal and reputational liability

Must conduct themselves in accordance with the company’s standards and in compliance with all applicable laws

10


Due Diligence Overview

Before hiring someone to act on company’s behalf -- must conduct due diligence to ensure the representative is qualified and has a reputation for integrity

Before engaging in business with a third-party representative such as a channel partner, consultant, subcontractor, joint venture partner, supplier, or service provider

must ensure that the third party is not making corrupt payments by conducting due diligence

Due diligence procedures may include asking the third party to fill out a questionnaire, verifying this information through public sources and in many cases, conducting in-person interviews


Penalties and Consequences

Bribery is always treated as a crime under the laws of every country

US Law

Companies – criminal fines up to $2 million per violation

Individuals – up to 5 years in prison and criminal fines up to $100,000 per violation

Recordkeeping Violations for Companies - fines up to $2.5 million; individuals: fines up to $1 million and up to 10 years in prison;

Can be barred from US Federal contracts, unable to obtain financing, increasing corruption investigations, monitor imposed, individual careers impacted

11


System of Internal Controls

Designation of a Compliance Officer

Employee Training Program

Independent Testing of the Overall

Compliance Program

1

2

3

4

Designed to Limit and Control Risks

Charged with Managing FCPA/BSA/AML/OFAC Compliance Programs

Tailored to the Responsibilities of the Employee

Designed to Evaluate the Integrity and Effectiveness of the Program

How Can Your Company Protect Itself?

Development and implementation of a robust effective compliance program


FCPA Policy

• Identify where policy should be housed (within Code of Conduct or a

stand-alone document)

• Choose employees to create policy (combination of lawyers, compliance officers, regional office heads, and non-managerial level employees)

• Determine appropriate level of detail and specificity for policy.

• Build a strategy for releasing new or updated policy to managers, general employee and third-party base (communication from senior leadership or individual managers; available on corporate intranet or distributed in hard copy to employee desks)

• Create and distribute form for employees to certify that they have read policy and understand its requirements

12


Violation Reporting System

• Determine appropriate channel for reporting violations

• or potential violations (i.e., through manager, company

intranet, whistleblower hotline).

• Choose individuals to categorize and respond to all

violations.

• Create triage and escalation protocols for all reported

violations


Employee Training

• Identify segments of the employee population that

requires FCPA/anti-bribery training;

• Determine which delivery methods are appropriate for

various employee segments. Format and frequency can

usually be determined by employee’s risk exposure;

• Deliver ongoing communication to reinforce

expectations

13


Risk Assessments

• Determine which corporate function is best positioned to conduct a comprehensive FCPA risk assessment.

• Decide if FCPA risk assessment should be conducted in conjunction with other risk assessments or as a stand alone review.

• Create list of business segments, employees and third parties that should be targeted during the assessment, as well as the specific questions that will best gauge their risk exposure.


Monitoring and Internal Controls

• Monitor third-party sources on emerging corruption risk trends.

• Develop a good understanding of the procedures and controls that relate directly to FCPA.

• Consider using computer assisted audited techniques for sample selection and testing (i.e. samples with duplicate payments, rounded amounts and unusual payment patterns).

14


Auditing Procedures

• Conduct an FCPA risk assessment as part of audit planning to identify areas most vulnerable to the risk

• Prioritize high-profile or new jurisdictions for in-person audits

• Evaluate the countries in which you operate, particularly entries into new jurisdictions.

• Train senior people throughout the company about FCPA and how to spot hidden ways in which money can be passed through third parties.


Third-Party Screening

• Identify existing third-party relationships across regions and businesses of the organization.

• Develop standardized due diligence screening for new third-parties.

• Ensure local application of due diligence screening processes.

• Establish an ongoing monitoring and training process for existing third-party relationships.

15


Contractual Safeguard

• Identify parties and transactions requiring contractual protections;

• Develop standard contract and document language for use across the organization;

• Implement standard language as applicable and with local counsel approval;


FCPA Controls in Mergers & Acquisitions

• Determine what documents you can request during due diligence process and what will be helpful in demonstrating compliance with the FCPA;

• Solicit legal department advice on what contract clauses to include minimizing liability for acquired company’s failure to meet FCPA requirements;

16


How Internal Audit Can Recognize Red FlagsA. Review and testing of processes and controls relating to on boarding and

engagement of intermediaries and other third parties to ensure that the due diligence and vetting process has been complied with.

B. Review and testing of processes relating to travel and entertainment of foreign government officials

1. Is there a legitimate business purpose for the expense?

2. Does the expense appear reasonable?

3. Was the approval for the expense and the expense itself documented?

4. Are there any “pleasure activities”?

5. How were the expenses funded and documented?

6. What about spousal travel?

19


Questions

scce regional compliance & ethics conferences · – doj and sec recently brought their first...

Documents