Is Anti-Bribery Legislation Keeping You Up At Night? May 10, 2012 Carl Valenstein, Rebecca Hartley, Bingham Mc. Cutchen LLP Claudia Gilman, International Legal Consultant Karen Higgins Valentine, Agenus Inc. 1
Speaker Introductions • Carl Valenstein, Partner, Corporate Practice Group, Bingham Mc. Cutchen LLP • Becky Hartley, Senior Counsel, Corporate Practice Group, Bingham Mc. Cutchen LLP • Claudia Gilman, International Legal Consultant • Karen Higgins Valentine, Vice President, General Counsel, Agenus, Inc. 2
Seminar Focus • Carl Valenstein: • Overview of Anti-Bribery Trends and Enforcement Activity • Becky Hartley: • Overview of Best Practices in Anti-Bribery Compliance Policies and Procedures • Carl Valenstein, Becky Hartley, Claudia Gilman and Karen Higgins Valentine: • Roundtable Discussion of Frequently Asked Questions by Corporate Counsel • Q&A 3
International Anti-Bribery Enforcement Trends • The US has pursued three times more bribery enforcement actions than all other countries, combined, since 2000* • In 2010, the U. S. pursued more than twice the number of formal enforcement actions it did in 2009, but the number of enforcement actions in countries other than the U. S. fell significantly in 2010* • 2011 was second only to 2010 in terms of the number of enforcement actions initiated. * Source: TRACE Global Enforcement Report 2011 https: //secure. traceinternational. org/Knowledge/TRACE_Publications. html 4
International Enforcement Activity by Industry * Source: TRACE Global Enforcement Report 2011 https: //secure. traceinternational. org/Knowledge/TRACE_Publications. html 5
International Enforcement Activity by Country of Bribe Payment Top 10 1. 2. 3. 4. 5. China - 7% Iraq - 6. 5% Nigeria - 5. 3% India - 3. 2% Mexico - 2. 7% 6. Brazil - 2. 4% 7. Russia - 2. 2% 8. Indonesia - 2. 2% 9. Argentina - 2. 1% 10. Saudi Arabia - 1. 9% 6
FCPA Enforcement Trends • Record pace of enforcement in the U. S. • Investigations increasingly focus on companies within an industry sector • Health Care • Orthopaedic and Medical Devices • Pharmaceuticals • Financial Services and Banking • Telecommunications 7
FCPA Enforcement Trends • Aggressive prosecution of individuals • Joel Esquenazi, Terra Telecommunications Corp. (sentenced to 15 years) • More cases going to trial • Lindsey Manufacturing • Shot Show cases 8
FCPA Enforcement Trends • Increased risk for non-US companies • 55% of 2010 FCPA enforcement actions involved non-US companies publicly-traded in the U. S. • Major cases involving foreign corporations in 2010 -2011 include: • BAE Systems plc ($400 million) • JCG Corporation ($218 million) • Alcatel-Lucent S. A. ($137 million) • Panalpina ($81 million) • Deutsche Telekom AG/Magyar Telekom ($31 million) • Seven former Siemens executives charged • Cross-border cooperation between DOJ and foreign enforcement authorities continues, particularly between the US, UK, and Germany 9
FCPA Enforcement Trends Enormous corporate fines: 1. 2. 3. 4. 5. Siemens ($800 million) KBR ($579 million) BAE ($400 million) Snamprogetti ($365 million) Technip ($338 million) 6. JCG ($218. 8 million) 7. Daimler ($185 million) 8. Alcatel-Lucent ($137 million) 9. Panalpina ($82 million) 10. J & J ($70 million) 10
FCPA Enforcement Trends Enormous investigatory expenses, regardless of the fines • Avon • $22. 5 million through Q 1 of 2011 spent on “professional and related fees” • $95 million in 2010 • $59 million in 2009 • Faro Technologies • $2. 95 million imposed in criminal and civil fines, penalties, and disgorgement of profits • Total investigation costs topped $7 million 11
FCPA Enforcement Trends Increased Risk of Shareholder Litigation Following Announcement of FCPA Compliance Issues • Sci. Clone • $2. 5 million paid to plaintiff’s counsel • Stipulation of settlement included enhanced anti-corruption compliance program • Wal-Mart • Cal. STRS filed shareholder derivative action claiming that executives failed to act amid overwhelming evidence of corporate malfeasance and bribery, against the company’s own ethical guidelines as well as both US and Mexican law. 12
FCPA Enforcement Trends Increased SEC Enforcement of Books and Records and Accounting Control Cases without Parallel Bribery Case • Watts-Water • Paid SEC $3. 7 million to settle accounting control and books and records case relating to “commission payments” to sales agents of former Chinese subsidiary that were disguised payments to Chinese SOEs • Individual paid $25, 000 civil fine • No parallel bribery case by DOJ 13
What are the Prospects for FCPA Reform? • Congressional hearings held on the FCPA • DOJ has promised to issue “guidance” in hopes of heading off calls for legislative reform • US Chamber of Commerce has pressed for reform in the following areas: • • • Definition of “foreign official” and “instrumentality” Clarification of effective compliance programs Parent-subsidiary and successor liability De minimis gifts and hospitality Clarification of criminal intent 14
UK Bribery Act 2010 • Entered into force July 1, 2011 • Ministry of Justice/SFO issued Joint Prosecution Guidelines • Applies to persons incorporated in the UK or carrying on a business in the UK • Four Offenses: • Offering, promising or giving of a bribe (active bribery) • Requesting, agreeing to receive or accepting a bribe (passive bribery) • Bribing a foreign public official • Corporate failure to prevent bribery, subject to “Adequate Procedures” defense 15
UK Bribery Act 2010 Key Differences between UK Bribery Act 2010 and the FCPA include: • Covers commercial bribery in addition to bribery of public officials • No statutory exceptions (but possible prosecutorial discretion) for “grease” payments • Defense at the corporate level for having adequate procedures 16
UK Bribery Act 2010 US Companies subject to the UK Act should: • Expand existing compliance program to cover commercial bribery and ensure policies and procedures meet the requirements of the “adequate procedures” defense • Rethink any carve-outs for facilitation payments based on U. S. statutory provisions • Think about modifying global compliance programs to reflect emerging enforcement practices 17
UK Bribery Act 2010 “Adequate Procedures” Defense • Compliance policy must contain adequate procedures designed to prevent persons associated with the Company from undertaking prohibited conduct • “Adequate Procedures include policies, procedures, due diligence, payment controls, and audit/monitoring functions 18
UK Bribery Act 2010: Enforcement? • Most UK anti-corruption enforcement action to date not based on Bribery Act 2010 • First case under the Act was for a minor, domestic-based offense • It remains to be seen what types of cases the British authorities will bring in the future and how vigorous the enforcement environment becomes 19
Whistleblowers • The Dodd-Frank Act requires the SEC to pay awards to whistleblowers who voluntarily provide the SEC with original information regarding federal securities law violations that: • are successfully prosecuted by the SEC, and • result in monetary sanctions exceeding $1 million • Award amounts must be at least 10 percent and no more than 30 percent of total monetary sanctions collected by the authorities • The SEC Office of the Whistleblower opened for business on August 12, 2011 20
Whistleblowers Many expressed concerns to the SEC that the Whistleblower statute would undermine corporate selfreporting and corporate compliance programs. Only modest changes were made to the implementing regulations following numerous public comments • Employees are still eligible for awards if they work through their company’s internal compliance program for up to 120 days (However, there is no requirement that they do so. ) • The SEC will consider the degree to which a reporting individual has participated in internal compliance activities in considering whether an individual’s award would be closer to the 10% or 30% limits 21
Whistleblowers What should companies do? • Review existing policies and procedures designed to promote internal confidential reporting to ensure they maximize the potential for stimulating disclosure of possible violations • Supplement ethics procedures with a robust annual certification process • Include ethics compliance as part of employees’ job descriptions • Publicise avenues for reporting possible violations • Be creative in designing internal PR campaigns to encourage a culture of integrity • Ensure corporate culture respects and rewards those who identify compliance risks • Conduct thorough and meaningful exit interviews 22
Whistleblowers • If a report is filed that is covered by the statute, companies should plan to complete their investigation quickly, to determine whether they should report to the government during the 120 day period • Consider whether privacy issues (such as EU data protection issues or similar statutes) that will affect the collection of data or the company’s actions that are taken based on that data 23
Key Elements of a Compliance Program • • Risk Assessment Leadership Policies and Procedures Staffing Training Testing/Auditing Special Diligence: Joint Ventures and Acquisitions 24
Key Elements of a Compliance Program: 1. Risk Assessment The compliance program must be tailored to the risks of your organisation — not just copied from another organisation 25
Key Elements of a Compliance Program 2. Leadership Support of top management — “tone at the top” — is essential. Letters from senior management endorsing the compliance program are only a start. Business decisions, and adequate funding for compliance efforts speak louder than words 26
Key Elements of a Compliance Program: 3. Policies and Procedures General policies against corruption need to be supplemented by specific policies addressing key risk areas such as hospitality, facilitating payments, political or charitable contributions and use of intermediaries 27
Key Elements of a Compliance Program: 4. Staffing A compliance officer or committee needs to be appointed to implement policies and procedures and to respond to questions — confidential internal reporting procedures are essential for public companies, particularly in light of new SEC whistle-blower rules. Many private companies are moving to implement these types of reporting procedures 28
Key Elements of a Compliance Program: 5. Training of personnel and associated persons, such as agents, in applying the policies and procedures and identifying warning signs is critical. Training should be customized to the group of individuals being trained (e. g. sales & marketing; internal auditors; finance department) 29
Key Elements of a Compliance Program: 6. Testing/Auditing The compliance program needs to be tested periodically (either by internal audit and compliance personnel or by external consultants) and adapted to address actual or potential issues — persons who violate policies and procedures must be appropriately disciplined or terminated 30
Key Elements of a Compliance Program: 7. Special Diligence Special due diligence to assess corruption risks is necessary for mergers and acquisitions, joint ventures and use of intermediaries 31
Design Considerations for Policies and Procedures Business Hospitality / Gifts and Entertainment • Policies must reflect that violations turn on facts and circumstances • Establish clearance procedure within the organization to judge such issues of context • Limit self-policing by front-line business personnel • Pros and cons of permitting de minimis monetary exceptions from clearance procedures • Consider whether the same rules should apply to government officials and commercial counterparties 32
Design Considerations for Policies and Procedures Facilitation Payments - Practical Considerations • Policies must reflect that violations turn on facts and circumstances, as well as applicable law • Problems associated with having a zero-tolerance rule: • books and records violations • fosters a culture of non-compliance with company rules • Health and safety considerations in emergency situations 33
Design Considerations for Policies and Procedures Political and Charitable Contributions • Given recent scandals over pay-to-play, if companies permit such payments, using company resources, they should implement a screening procedure • Legal and appropriate under applicable law? • Recipients are a bona-fide political party or charity? • Recipients are not a pet-project of a business leader the company seeks to influence 34
Design Considerations for Policies and Procedures Use of Intermediaries • Thorough background check essential • Ensure intermediaries are allowed to provide the relevant services under local law, including revolving door requirements • Create a record that the agent understands and has been trained in the company’s compliance policies and procedures • Payments must be commensurate with the services provided. Pay particular attention to up-front payments and success fees • Monitor deliverables and the on-going relationship 35
Frequently Asked Questions for Discussion • How I do I make an assessment of the key bribery risk areas for my company? 36
Frequently Asked Questions for Discussion • The Chairman of the Board has asked me what the duties of the Board are with respect to ensuring that the company has adequate anti-bribery policies and procedures? My CEO has asked me what he and the other senior executives need to do to set the right “tone at the top”? 37
Frequently Asked Questions for Discussion • My CEO wants to have a anti-bribery compliance program that complies with best practices but does not cost a fortune. What are the minimum necessary elements of such a program? 38
Frequently Asked Questions for Discussion • We have a small subsidiary in England that is not material from a financial perspective. We have a five-year old FCPA compliance program that is focused on bribes to foreign government officials and allows for expediting payments authorized under the FCPA and no prior approval of gifts or entertainment with a value of under $1, 000. What do I need to do to update the anti-bribery program to avoid potential exposure under the UK Bribery Act? I am concerned that a no-facilitating payments policy will lead to books and records problems. I am also concerned about the volume of transactions that will have to be reviewed if approval of all gifts or entertainment above $100 is required. 39
Frequently Asked Questions for Discussion • Does my company need a full-time compliance officer or can a member of the legal department serve in this capacity part -time? 40
Frequently Asked Questions for Discussion • What is the appropriate level of due diligence on agents, vendors and distributors? Do I need to train all of them in our anti-bribery policies and procedures? Do I need to audit them to determine if they are in compliance or is it sufficient to rely on annual certificates of compliance? 41
Frequently Asked Questions for Discussion • With respect to training company personnel, do I need to train everyone? Is on-line training as effective as in-person training and will it comply with best practices? How often do company personnel need to be trained? Are annual certificates of compliance from company personnel required? 42
Frequently Asked Questions for Discussion • Do I need to have an ethics hot-line for all foreign affiliates? If not, how can I assure that there is confidential reporting system in place that avoids placing an employee at risk of retaliation? Are there privacy concerns with self-reporting systems? I am told that self-reporting systems don’t work outside of the United States because foreign employees do not believe it is appropriate to self-report. Is this correct? 43
Frequently Asked Questions for Discussion • What kind of testing/auditing procedures are appropriate for our anti-corruption compliance program and how often does there need to be testing/auditing? 44
Frequently Asked Questions for Discussion • Should all violations of our anti-bribery policy result in termination of the violators? How would the enforcement officials view our keeping them on the payroll during and after an investigation? 45
Thank you for your attention Questions & Answers Carl Valenstein Email: carl. valenstein@bingham. com Tel: . 202. 373. 6273 Rebecca Hartley Email: rebecca. hartley@bingham. com Tel: 202. 508. 4266 Claudia Gilman Email: claudia. j. gilman@gmail. com Tel: 617. 312. 2003 Karen H. Valentine Email: karen. valentine@agenusbio. com Tel: 781. 674. 4678 46
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