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TRANSCRIPT
©
2015
Mor
rison
& F
oers
ter (
UK)
LLP
| Al
l Rig
hts
Res
erve
d | m
ofo.
com
9 February 2015 Alistair Maughan and Kevin Roberts
Lunch & Learn
Anti-Corruption Compliance: Minimizing the Supply Chain Risk
2
Lunch & Learn
• 2nd Monday of each month • 45 minutes via webinar • Unaccredited CPD points • Rolling 3 month schedule
• Monday, 9 March 2015 “Drafting Effective Arbitration & Dispute Resolution Agreements” Speaker: Gemma Anderson
• Monday, 13 April 2015
“Big Data” Speaker: Sue McLean
Today
• Questions at the end. Or e-mail
us afterwards
• Phones are muted to reduce background noise
• We’ll unmute at the end
PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION; ATTORNEY WORK PRODUCT
©
2015
Mor
rison
& F
oers
ter L
LP |
All
Rig
hts
Res
erve
d | C
onfid
entia
l | m
ofo.
com
2015 by Kevin Roberts
ANTI-CORRUPTION COMPLIANCE: HOW TO MINIMISE THE RISKS
©
2015
Mor
rison
& F
oers
ter L
LP |
All R
ight
s R
eser
ved
| mof
o.co
m
A Grumpy Old Man’s Guide to
Best & Worst Practices in Contract Drafting
©
2015
Mor
rison
& F
oers
ter L
LP |
All R
ight
s R
eser
ved
| mof
o.co
m
Two Grumpy Old Men’s Guide to
Compliance and Contract Drafting
Kevin Roberts Alistair Maughan
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Unprecedented Level of Enforcement
• The last decade has seen an increased focus on anti-corruption enforcement
• New legislation enacted in the UK and elsewhere
• Increased number of investigations
• Increased number of individual convictions
• Record fines imposed
• ENFORCEMENT • OVERVIEW
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Size of Penalties Are Growing
• ENFORCEMENT • OVERVIEW
• ENFORCEMENT • OVERVIEW
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Significant Prison Sentences for Executives • WHY COMPLIANCE
MATTERS
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Bribes
• Includes cash, gifts, entertainment
• Need not be a direct benefit to the official
• No de minimis exception
• No need for bribe to be accepted
• Doesn’t matter if you don’t get the business
• BRIBERY ACT BASICS
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. . . Directly . . . • BRIBERY ACT BASICS
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. . . or Indirectly . . .
• BRIBERY ACT BASICS
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. . . or Indirectly . . .
• Payments through third parties are involved in most FCPA/Bribery Act investigations
• Third parties come in many forms, it doesn’t matter what you call them:
• BRIBERY ACT BASICS
• Consultants • Distributors • Resellers • JVs
• Partners • Suppliers • Agents
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Adequate Procedures Defence
• BRIBERY ACT BASICS • MOJ GUIDANCE (1)
• The procedures adopted by an organisation to prevent bribery by persons associated with it are proportionate to the bribery risks it faces and the nature of its business
Proportionate Procedures
• Top level management establishing a culture across the organisation in which bribery is unacceptable
Top-level Commitment
• Assessing and keeping up to date with the bribery risks faced in your sector and market
Risk Assessment
BRIBERY ACT BASICS MOJ GUIDANCE (1)
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Adequate Procedures Defence
• MOJ GUIDANCE (2)
• BRIBERY ACT BASICS • MOJ GUIDANCE (2)
• Knowing who you do business with, know why, when and to whom you are releasing funds and seeking reciprocal anti-bribery agreements and be confident of transparency
Due Diligence
• Going beyond “paper compliance” to embed anti-bribery provisions into internal controls, recruitment, remuneration policies, etc. and training on the same
Communication
• Ensuring that audit and financial controls are sensitive to bribery and are transparent and are regularly reviewed
Monitoring & Review
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Bugbears: What’s a contract for?
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Bugbears: Describing the Parties
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Bugbears: Joints (and Other Relationships)
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MINIMISING RISKS
How can I spot potential
corruption compliance issues?
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“Red Flags” Identified by Regulators
• The U.K. Serious Fraud Office and the U.S. Department of Justice have identified “red flags” that warrant concern by finance and accounting officers:
• Unusual payment patterns or financial arrangements
• Cash payments
• Abnormally high commission payments
• Lavish gifts
• Attempts to bypass normal contracting procedures
• Payments routed through countries with no connection to the transaction
• Missing documentation for payments
• MINIMISING RISKS
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Bugbears: (back)dating
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“Red Flags” Focus on Recipient
• Is the payee a foreign government official or the relative of a foreign government official?
• Does the payee provide any legitimate service?
• Has the payee completed the standard vendor set up process?
• Is the payment to a spouse or third party instead of the person providing services?
• MINIMISING RISKS
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Case Study: IBM
• Local subsidiaries and joint ventures provided cash payments, entertainment, travel, and gave gifts to Chinese and Korean government officials
• IBM-China operated a slush fund for the purpose of providing travel and gifts to officials
• IBM-China personnel worked through its official travel agency – which it had designated as an “authorized training provider” – to funnel money approved for legitimate business trips to fund unapproved trips
• The SEC identified at least 114 instances of fabricated invoices, improper documentation, unapproved sightseeing, and per diem payments for Chinese government officials
• Robust training and policies, but controls failed. IBM paid $10 million to settle claims
• MINIMISING RISKS
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Bugbears: Non-parties
“The Customer Representative shall co-operate with the Project Manager and shall attend meetings scheduled by the Project Manager at reasonable intervals.” “The Project Manager shall deliver a notice to ….”
“The Subcontractor shall invoice the Principal Contractor for the goods and services supplied pursuant to the Orders according to the agreed schedule of payment.”
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What is payment actually for (1)?
Does the payment have a genuine business purpose?
• Look out for large, unexpected expenses characterised as “marketing,” “consulting,” or in an otherwise generic manner
• Look out for generic descriptions of vendors (i.e. “vendor other”)
• Look out for large expenditures on conferences, PR or marketing research firms, or travel expenses
• Look out for unusual patterns in payments: i.e. a significant rise in expenses in a certain category, an abrupt end to certain routine payments, or a changed description for routine payments
• MINIMISING RISKS
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What is payment actually for (2)?
Focus on Third Party Payments
• Are third parties providing itemised invoices with sufficient detail?
• Are third parties organising conferences, inviting government officials or media to attend on MHE’s behalf?
• Can third parties request reimbursement for expenses without providing documentation?
• Are third parties being paid amounts out of line with services performed or expectations, or being paid large round dollar values?
• Do employees have sufficient oversight over third parties?
• MINIMISING RISKS
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Bugbears: Category Errors
“Intellectual Property Rights” means all worldwide intellectual property rights, including without limitation, copyrights, trademarks, service marks, trade secrets, know how, inventions, patents, patent applications, moral rights, domain names and all other proprietary rights, whether registered or unregistered.
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Bugbears: Category Lunacy
“IPR”, all copyright and other intellectual property rights, howsoever arising and in whatever media, whether or not registered, including (without limitation) Ideas, logos, patents, trademarks, service marks, trade names, domain names, database rights, registered designs and any applications for the protection or registration of these rights and all renewals and extensions thereof throughout the world “Ideas”, forms (such as a thought) formed by the consciousness (including mind) by the process of ideation. Ideas give rise to actual concepts, or mind generalizations, which are the basis for any kind of knowledge whether science or philosophy;
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Case Study: BAE Systems
• BAE sold radar and air traffic control to the government of Tanzania
• $12.4m was paid to a "marketing agent" in Tanzania, Shailesh Vithlani, to facilitate the air traffic control deal
• Payments to Mr Vithlani were made via offshore companies. Roughly 97% of the $12.4m fee was paid to a British Virgin Islands company described by BAE as a "covert" company
• The balance was paid to a company called Merlin registered in Tanzania and described by BAE as "overt"
• Both companies were controlled by Mr Vithlani
• MINIMISING RISKS
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Case Study: BAE Systems
• The court heard covert agents were hired by BAE in a number of circumstances
• when it was illegal to employ them overtly • because of tax implications arising from the agent
making undeclared payments to third parties • or to avoid "embarrassment and press interest" due
to large fees being paid • The SFO settled with BAE. BAE paid a £30m fine after
pleading guilty to failing to keep proper accounting records • There were no corruption or bribery allegations made out
against BAE in the UK • BAE also agreed to pay a $400m fine in the US after
admitting to "defrauding the US" over the sale of fighter planes to Saudi Arabia and Eastern Europe
• MINIMISING RISKS
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Bugbears: post-signature confusion
• Not updating the main agreement to include CCNs
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MITIGATING THIRD-PARTY RISKS
• MINIMISING RISKS Identify
Risk Assessment
Verify Written Contract
Monitor
Assess Relationship
Due Diligence
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Compliance and Contracts: Three Key Questions
• Who are these guys?
• What are they doing?
• Why are they getting paid so much money?
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Lunch & Learn Alistair Maughan Partner, European Technology Practice T: (+44) 20 7920 4066 E: [email protected] @ictoutsourcelaw
Kevin Roberts Partner, Litigation Practice T: (+44) 20 7920 4160 E: [email protected]
• Monday, 9 March 2015 “Drafting Effective Arbitration & Dispute Resolution Agreements” Speaker: Gemma Anderson
• Monday, 13 April 2015
“Big Data” Speaker: Sue McLean