The Long Reach of the LawWhat Your Company Needs to Know About

International Foreign Corruption Laws

May 8th, 2012Presentation to the Georgia Chapter of the

Association of Corporate Counsel

Benjamin I. BardEthics & Compliance CounselThe Coca-Cola Company

Tim LoveInternal Audit Group ManagerUnited Parcel Service, Inc.

Paul Schabas, PartnerBlake, Cassels & Graydon LLP

Introduction

• As business becomes increasingly global, companies with international operations need to ensure compliance with not just domestic but also international anti-corruption laws.

Introduction (cont’d)

• In this presentation, we will:

1. compare and contrast U.S., Canadian and U.K. anti-corruption legislation;

2. discuss recent enforcement trends in Canada and the U.S.;

3. discuss specific Canadian anti-corruption considerations which companies carrying on business in Canada should be aware of; and

4. address considerations in building a robust anti-corruption compliance program.

Anti-Corruption Legislation

1. Corruption of Foreign Public Officials Act (CFPOA)• Canadian Legislation• Dedicated RCMP units• Recent charges, raids, and several investigations pending

2. Foreign Corrupt Practices Act (FCPA)• U.S. Legislation• Very active enforcement by SEC and DOJ

3. Bribery Act 2010 (Bribery Act)• U.K. Legislation • Came into force July 1, 2011 • Very broad application• Strict liability

CFPOA

• Prohibits bribery of foreign public officials by criminal sanction

• Penalties for breach include:

• Imprisonment for up to five years for individuals• Unlimited fines• Probation for corporations, including monitoring and compliance conditions• Forfeiture of all proceeds – not just profits – of any contract obtained by corruption• Significant reputational and business losses• Potential debarment

• No limitation period

• Applies to any conduct where there is a “nexus” or “real and substantial” connection to Canada

CFPOA (cont’d)

• Applies to corporations and individuals

– Corporations can be held vicariously responsible for the acts of their employees, agents or contractors

• The bribe does not need to be cash, it can be anything of value – If it constitutes a “material or tangible gain” to the foreign official, it is a benefit– What constitutes a “material or tangible gain” may be different in Canada than for

a foreign official earning US$200/month– For example: gifts, extravagant hospitality, travel, accommodations, tickets to

events, use of company property or services, or jobs or education for family members, could be considered benefits

• Covers bribes that are given directly or indirectly– Includes bribes given by agents, joint venture partners and other third parties

CFPOA (cont’d)

• Foreign Public Officials include:– Any person who holds a legislative, judicial or administrative position in any

level of government (national to local)– Employees of wholly or partially state-owned or controlled corporations– Bribes paid to relatives or political parties are also prohibited

• 3 exceptions to the CFPOA bribery offence:1. Payments permitted under the laws of the foreign state2. Reasonable expenses incurred by or on behalf of the foreign public official

that are directly related to:– the promotion, demonstration or explanation of your products or

services, or – the execution or performance of a contract with the foreign official’s

state 3. Facilitation payments

FCPA

• Enacted in 1977 in response to the Watergate scandal and revelations that U.S. businesses frequently bribed foreign public officials

• The FCPA applies to:– U.S. Issuers– Domestic Concerns

• An individual who is a citizen, national or resident of the U.S.• A corporation, partnership or business trust organized pursuant to the laws

of the U.S., or that has its principal place of business in the U.S.• Includes officers, directors and agents

– Foreign Nationals or Businesses that take any action in furtherance of a corrupt payment in the U.S.

• DOJ position: only tenuous U.S. connection required

FCPA (cont’d)

• Similar to CFPOA, though 2 key differences:• books, records, and internal control requirements for

issuers; and• option for civil enforcement through SEC.

• FCPA anti-bribery provisions prohibit:• corruptly offering anything of value to any foreign official for

the purpose of influencing the decision of that official to do anything that assists the offeror in the obtaining or retaining of business, or gaining an improper advantage

• Similar exceptions to CFPOA

FCPA (cont’d)

• Liability for Third Parties:

– A company may be liable for a payment by an agent or third party if: (a) the company authorized such payment; or (b) if it “knew” the improper payment would be made

– A company is deemed to have knowledge of a payment if it is aware of a “high probability” that such an offer, promise, or payment will be made

• Many companies regularly contract with third parties, such as sales or marketing agents, consultants and joint venture partners

• These relationships can greatly increase corruption risks in one of two ways:

– a third party makes improper payments to government officials, or – a third party is owned by or affiliated with a government official

FCPA (cont’d)

• Books and Records Requirements:

– Rationale is to prohibit companies from concealing bribes in accounting records

– FCPA imposes certain record-keeping requirements on issuers

– Requires every issuer to “make and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets”

– Applies to subsidiaries

• Issuers must also maintain a system of internal controls that “provides reasonable assurances that….transactions are executed in accordance” with GAAP

• Substantial cash rewards for whistleblowers (10-30% of monetary sanctions over US$1-million) – Dodd-Frank Act

U.K. Bribery Act

• Came into force July 1, 2011• Applies to:

– U.K. individuals or organizations regardless of where the conduct occurs

– Non-U.K. individuals or organizations that carry on “a business, or part of a business, in any part of the United Kingdom”

• Potentially very broad• Could apply to any company or individual that has even

a small subsidiary, affiliate or other minor presence in the U.K.

• No part of the offence need take place in the U.K.

U.K. Bribery Act (cont’d)

• Applies to both public- and private-sector bribery

• New corporate offence of failing to prevent bribery – Strict liability offence: knowledge or intent to bribe on the part of the organization is not required

• Main defense for commercial organizations is to demonstrate “adequate procedures” in place, e.g.

– measures relating to monitoring and communication within the corporation;– top-level commitment;– proportionate procedures; and– risk assessment.

• Very important to have anti-corruption compliance program

• Facilitation and hospitality payments are not permitted

Recent Enforcement Trends in Canada

Niko Resources – Guilty plea and joint submission for total fine of

$9,499,000– Followed six-year investigation– Bribes involving provision of SUV to individual in

Bangladesh– Sentence included for three years’ probation with

extensive monitoring conditions:• Broad document disclosure to RCMP• Requirement to establish a detailed compliance, record-

keeping and monitoring program subject to review by an independent auditor

Recent Enforcement Trends in Canada (cont’d)

– Niko sentence dwarfed only prior conviction under the CFPOA, a C$25,000 fine in 2005

– Sentencing precedents submitted by the prosecutor were U.S. FCPA cases

– The Probation Order was also copied from U.S. precedents

– Likely sets a benchmark for CFPOA fines in Canada

Ongoing CFPOA InvestigationsIn 2010, the RCMP announced it had 23 open investigations. • Nazir Karigar

– Former employee of Cryptometrics, a company developing facial recognition software for airports and governments

– Charges laid against him individually – Allegations of bribes paid to Indian officials concerning a security system contract

• Blackfire Exploration Ltd.– Criminal investigation underway– RCMP executed a search warrant and raided the Calgary offices – Stems from 14 payments made to the Mayor of Chicomuselo, Mexico for

protection from anti-mining protests • SNC Lavalin Group

– In September 2011, the RCMP raided its Toronto offices – Allegations of corruption in the bid process of World Bank-funded Padma Bridge

Project in Bangladesh

U.S. Enforcement Trends

• Massive Penalties: Under the FCPA, the U.S. government has assessed over US$3.4-billion in penalties since December 2008

• U.S. Enforcement Agencies continue to enforce the FCPA aggressively. There were 54 resolved actions in 2011

• 10 Largest FCPA Settlements: – Siemens (Germany): $800 million in 2008– KBR / Halliburton (U.S.): $579 million in 2009 – BAE (U.K.): $400 million in 2010– Snamprogetti Netherlands B.V. / ENI S.p.A. (Holland/Italy): $365 million in 2010– Technip S.A. (France): $338 million in 2010 – JGC Corporation (Japan): $218.8 million in 2011 – Daimler AG (Germany): $185 million in 2010– Alcatel-Lucent (France): $137 million in 2010 – Panalpina (Switzerland): $81.8 million in 2010– Johnson & Johnson (U.S.): $70 million in 2011

• Eight of the top 10 largest FCPA settlements occurred in 2010 or 2011

U.S. Enforcement Trends

• Pursuance of personal criminal liability for directors and officers is a significant aspect of the strategy of U.S. enforcement authorities

– “Let me be clear, prosecuting individuals is a cornerstone of our enforcement strategy…. the risk of heading to prison for bribery is real, from the boardroom to the warehouse.” – U.S. Attorney General, Eric Holder (Paris, May 26, 2010)

– Many individuals charged: 17 (2010), 42 (2009), 16 (2008), 17 (2007) – January 2010, DOJ arrested and indicted 22 individual defendants as a result of

a wide-ranging sting operation– 2011, Geoffrey Tesler, former agent of the TSKJ consortium, pleaded guilty to

offences carrying a maximum sentence of 10 years and agreed to forfeit $149-million held in his company’s Swiss bank accounts to the U.S. government

– October 26, 2011, Joel Esquenazi, former president of Terra Telecommunications, received 15-year sentence relating to scheme to bribe officials of Haiti Teleco. Longest jail term under the FCPA.

Canadian Domestic Anti-Corruption Laws

• Aside from compliance with international anti-corruption legislation, companies with operations in Canada need to ensure compliance with Canadian domestic anti-corruption legislation.

• The Canadian Criminal Code contains provisions which go beyond the FCPA, CFPOA or Bribery Act.

Practical Strategies for Compliance with Anti-Corruption Legislation

• An anti-corruption risk mitigation strategy should be part of an overall compliance program for all companies that do business internationally

• Three main components to an anti-corruption risk mitigation strategy:

1. risk assessment – spotting the “red flags”;2. implementing an appropriate compliance program; and3. if a potential incident occurs, respond appropriately.

Spotting the “Red Flags”• The following are “red flags” that indicate your organization is

potentially at risk:

– Employee, agent or partner is a foreign official, related to a foreign official, or has a close relationship with a foreign official

– Payments are made to accounts outside the country you are doing business in, or made to “cash” or “bearer”

– Employee, agent or partner is requesting payment of unusually large commissions

– Employee, agent or partner has undisclosed sub-agents or associates– Employee, agent or partner is making payments to, or incurring expenses in

respect of, undisclosed persons– Partner or agent appears to lack necessary qualifications– Employee, partner or agent is submitting expenses that are unusual or

unaccounted for, or lack transparency – Agent or partner resides outside the country

Spotting the “Red Flags” (cont’d)

• Other red flags:– An industry that has been the subject of recent anti-bribery investigations, for example, oil

and energy sector, mining, telecommunications, pharmaceuticals, defence– Significant use of third-party agents, for example, sales representatives, consultants,

distributors, subcontractors, or logistics personnel (customs, visas, freight forwarders)– Significant contracts with a foreign government or state owned or controlled corporation– Substantial revenue from a foreign government or state owned or controlled corporation– Substantial system of regulatory approval, for example, for licenses and permits, in the

foreign country– History of prior government bribery or investigations or prosecutions– Poor or no anti-bribery policy and training– Weak corporate compliance program and culture– Significant issues in past anti-corruption audits– Weak internal controls at the parent or in foreign country operations

Is the company in the red?

Compliance Program

An appropriate compliance program includes the following components:

1. communication of a top-down commitment to anti-corruption compliance

2. implementation of an appropriate anti-corruption policy

3. train officers and employees on your anti-corruption policy and enforce the policy

4. use appropriate contractual terms with agents and partners

5. conduct periodic due diligence

Train and Enforce the Policy

• Policy needs to send a strong message that corruption and bribery will not be tolerated

• Senior member(s) of the company should be appointed to oversee compliance and to act as Compliance Officer

• Do not delegate substantial discretionary authority to foreign agents or other high-risk individuals

• Should include a mechanism for reporting potential violations• Any Facilitation Payment or payment for the expenses of a foreign

official should be pre-approved by a Compliance Officer • Foreign agents and joint venture partners should only be used with

pre-approval of the Compliance Officer• Compliance Officer should have authority to retain counsel and

investigate

Anti-Corruption Policy

• Even the best written policy is of little use if it is not implemented and enforced

• Periodic training should be provided to employees and officers on your company’s policy and CFPOA compliance

• Be sure to document all training

• A system of discipline for violations of your company’s policy is also required

Conclusion• Increased enforcement and penalties have resulted in corporations

coming under greater scrutiny to ensure that foreign operations comply with anti-corruption legislation

• As a result, to avoid future liability, companies should implement a robust compliance program that includes an effective anti-corruption policy, training of officers and employees, the use of appropriate contractual terms with agents and partners, and due diligence

• It is increasingly important that companies conduct appropriate and thorough due diligence in transactions in which a business with foreign operations is acquired

Questions?