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FCPA:RECENT DEVELOPMENTS AND
COMPLIANCE RECOMMENDATIONS
A Presentation to the Securities RegulationSection of the Oregon State Bar
June 19, 2013
1
Jamie S. Kilberg
Presentation Roadmap
Topics Covered
Recent FCPA Issues
FCPA and U.K. Bribery Act Overview
DOJ / SEC Resource Guide
Hallmarks of Effective Compliance Programs
Recent FCPA Issues
2
The Importance of Due Diligence in Compliance Programs
Prohibits bribery of foreign government officials by:
• Issuers registered on U.S. exchanges
• All other U.S. companiesCompanies
Foreign Corrupt Practices ActAnti-Bribery Overview
• All other U.S. companies
• Foreign companies acting while in U.S.
• U.S. citizens, nationals, and residents
• Officers, directors, employees, agentsof issuers and U.S. companies
• Any person acting in the U.S.
Individuals
3
Passed in 1977
Foreign Corrupt Practices ActAnti-Bribery Overview
More cases and investigations brought in the last 5years than first 30 years
• “We are in a new era of FCPAenforcement; and we are here tostay.” (Lanny Breuer, 11/16/2010)
• “We are not going away—indeed,our efforts to fight foreign briberyare more robust than ever” (MythiliRaman, 6/18/2013)
Not going away
4
years than first 30 years
Rise of the FCPA
40
50
60
70
80
3833
40
74
48
0
10
20
30
40
2004 2005 2006 2007 2008 2009 2010 2011 2012
5
1215
33
23
Source: Gibson Dunn & Crutcher 2012 Year-End FCPA Update
U.K. Bribery Act of 2010
Like FCPA, prohibits bribery of foreign officials
• Applies to any entity which carries on a business orpart of a business in the UK and whose employee
New corporate offense of failure to prevent bribery
6
part of a business in the UK and whose employeeor agent engages in bribery anywhere in the world
• Bribe can be wholly unconnected to UK activity
• Defense: Adequate procedures to prevent bribery
Largely untested so far
Recent FCPA Issues
DOJ trial failures
Who is a “foreign official”?
Liability of parent for conduct of subsidiaryLiability of parent for conduct of subsidiary
7
SEC use of DPAs/NPAs
DOJ / SEC Resource Guide
No new revelations or bright-line tests
Excellent resource: puts DOJ/SEC’s interpretations andenforcement positions in one place
Issued November 2012, about a year after announced
Uses hypotheticals and examples
enforcement positions in one place
Cites cases, statutes, prior charging instruments
One very useful portion: Ten Hallmarks of EffectiveCompliance Programs
8
DOJ / SEC Resource Guide
1. Commitment from senior management and clearlyarticulated policy
2. Code of conduct/compliance policy and procedures
3. Oversight, autonomy, and resources
4. Risk assessment
Ten Hallmarks of Effective Compliance
9
4. Risk assessment
5. Training and continuing advice
6. Incentives and disciplinary measures
7. Third-party due diligence
8. Confidential reporting and internal investigations
9. Periodic testing and review
10. Pre-merger due diligence/post-merger integration
• Strong, explicit commitment from management tointernal controls and compliance programs
DOJ / SEC Resource Guide
1. Top-Level Commitment
Hallmarks of Effective Compliance
internal controls and compliance programs
• Acknowledgment that compliance is duty ofindividuals at all levels of the company
• Communication of consequences for violating policies
• Personal involvement in developing conduct code
• Refusal to do business with business partners who donot commit to compliance
10
• Clear, written prohibition of all forms of bribery
• Guidance on gifts, hospitality, entertainment, travel,
DOJ / SEC Resource Guide
2. Code of Conduct/Compliance Policies and Procedures
Hallmarks of Effective Compliance
• Guidance on gifts, hospitality, entertainment, travel,political/charitable contributions, facilitating payments
• Procedures for confidential, internal reporting ofsolicitation, acts of bribery, and violations of policies
• Clear disciplinary procedures to address violations
• Procedures for annually updating policy
• Tailored to industry and geographic risks
11
• Assign oversight and implementation to specificsenior executive
DOJ / SEC Resource Guide
3. Oversight, Autonomy, and Resources
Hallmarks of Effective Compliance
senior executive
• Must have authority, autonomy from management(including direct access to governing authority), andsufficient resources
• Reporting structure will depend on size andcomplexity of the company
12
DOJ / SEC Resource Guide
• “One-size-fits-all compliance programs are generallyill-conceived and ineffective”
4. Risk Assessment
Hallmarks of Effective Compliance
ill-conceived and ineffective”
• Regular, comprehensive, and ongoing assessmentof nature and extent of risks relating to bribery
• Include internal risk factors (deficiencies incorporate policy, controls, communication, training)
• Include external risk factors (countries wherebusiness conducted, vulnerable transactions,location and association of business partners)
13
• Ensure policies and procedures communicatedthroughout organization
DOJ / SEC Resource Guide
5. Training and Continuing Advice
Hallmarks of Effective Compliance
throughout organization
• Periodic training and certification for all directors,officers, relevant employees, and, where appropriate,business partners
• Use local language
• Hypotheticals geared toward situations particularaudience may encounter
14
• Appropriate and clear disciplinary procedures forviolations of policy
DOJ / SEC Resource Guide
6. Incentives and Disciplinary Measures
Hallmarks of Effective Compliance
violations of policy
• Apply reliably and promptly
• Publicize internally if appropriate under local law
• Positive incentives such as tying bonuses toadherence to compliance
15
• Understand qualifications and associations ofpartners
DOJ / SEC Resource Guide
7. Third-Party Due Diligence
Hallmarks of Effective Compliance
• Understand qualifications and associations ofpartners
• Understand business rationale for including them
• Undertake some form of ongoing monitoring
• Inform them of compliance program
• Seek assurances from them, where appropriate,regarding reciprocal commitments
16
• Mechanism to report suspected or actual violationswithout fear of retaliation
DOJ / SEC Resource Guide
8. Confidential Reporting and Internal Investigations
Hallmarks of Effective Compliance
without fear of retaliation
• Anonymous hotlines, ombudsmen, etc.
• Must have process in place to investigate allegations anddocument company’s response
• Update compliance program following investigations
17
• Regularly review and improve compliance programs
• Employee surveys to measure compliance culture and
DOJ / SEC Resource Guide
9. Periodic Testing and Review
Hallmarks of Effective Compliance
• Employee surveys to measure compliance culture anddetect new risk areas
• Conduct periodic audits to improve effectiveness, inview of evolving standards
• Proactive evaluations, as appropriate given size andcomplexity of organization
18
• Due diligence on target to stop bribery from continuing
DOJ / SEC Resource Guide
10. Pre-merger Due Diligence/Post-merger Integration
Hallmarks of Effective Compliance
• Due diligence on target to stop bribery from continuing
• Negotiate costs of bribery to be borne by target
• Incorporate acquired company into compliance programand internal controls
• Train new employees, re-evaluate third parties underacquiring company standards
• Conduct audits on new business units, whereappropriate
19
Third Party Due Diligence
Best Compliance Practices
InquiriesContract Provisions
One of the most important steps ineffective bribery prevention
InquiriesContract Provisions
to Consider
Communication andTraining
ComplianceMonitoring
20
InquiriesContract Provisions
Due Diligence of Business Partners
Best Compliance Practices
Inquiries
• Examine links to foreign government, includingofficers, employees, customers, and subsidiariesInquiries
Contract Provisionsto Consider
Communication andTraining
ComplianceMonitoring
One of the most important steps ineffective bribery prevention
officers, employees, customers, and subsidiaries
• Competence – skill set v. government contacts
• Reputation in community; status as a local business
• Whether anyone under investigation or indictment,or has been convicted or debarred
• Existence of internal anti-bribery policies
• Interviews and extensive background checks
• Anti-bribery questionnaire
21
InquiriesContract Provisions
Due Diligence of Business Partners
Best Compliance Practices
Inquiries
• Representations as to relationship withgovernment and absence of past violations
Contract Provisionsto Consider
InquiriesContract Provisions
to Consider
Communication andTraining
ComplianceMonitoring
One of the most important steps ineffective bribery prevention
government and absence of past violations
• Require reciprocal anti-bribery commitment
• Require annual anti-bribery certifications
• Contractual rights to approve hiring, conduct audits
• Include right to terminate contract upon violation
• Structure remuneration based on market rates
• Avoid success fees and expense accounts
• Require receipts and explanation of expenses
22
InquiriesContract Provisions
Due Diligence of Business Partners
Best Compliance Practices
• Communicate clearly management’s commitmentto anti-bribery measures
Communicationand Training
InquiriesContract Provisions
to Consider
Communication andTraining
ComplianceMonitoring
One of the most important steps ineffective bribery prevention
• Communicate clearly management’s commitmentto anti-bribery measures
• Communicate clearly management’s expectationthat business partners will adhere to all applicableanti-bribery laws
• Provide copies of written policies to businesspartners
• Consider including business partners in all anti-bribery training
23
InquiriesContract Provisions
Due Diligence of Business Partners
Best Compliance Practices
Communicationand TrainingComplianceMonitoring
• Require certificationsInquiriesContract Provisions
to Consider
Communication andTraining
ComplianceMonitoring
One of the most important steps ineffective bribery prevention
• Require certifications
• Provide whistle-blower protections and insistbusiness partners do the same to encouragereporting
• Conduct regular audits of business partners’conduct and, when appropriate, their books
• Watch out for red flags
24
InquiriesContract Provisions
Due Diligence of Business Partners
Best Compliance Practices
• Require certifications
ComplianceMonitoringRed Flags
• Country or industry corruptionInquiries
Contract Provisionsto Consider
Communication andTraining
ComplianceMonitoring
One of the most important steps ineffective bribery prevention
• Require certifications
• Provide whistle-blower protections and insistbusiness partners do the same to encouragereporting
• Conduct regular audits of business partners’conduct and, when appropriate, their books
• Watch out for red flags
• Country or industry corruption
• Refusal to complete questionnaire
• Refusal to certify anti-bribery compliance
• Close ties or related to government official
• Heavy reliance on government contacts
• Requests for strange payment patterns
• Over-invoicing or false invoicing
• Unrecorded accounts or transactions
25