It’s Not Worth the Risk: Understanding Bribery and the U.S. Laws that Apply to YouJanuary 29, 2015

Courtney Gould MillerO’Melveny & Myers LLP

This presentation does not constitute legal advice. If you have questions regarding any transaction, please consult with inside counsel, who may confer with outside counsel depending on the facts.

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As a U.S. company, you must abide by all U.S. laws….even when engaging in business abroad.

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As a U.S. company, you must abide by all U.S. laws….even when engaging in business abroad.

One of the most important laws governing international trade is theForeign Corrupt Practices Act (FCPA).

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What is the FCPA?• The anti-bribery provision of the FCPA prohibits direct or indirect

payments or offers of anything of value to any foreign official to win or retain business, or secure an improper advantage

• In effect, it governs what you offer, give, and/or receive from foreign officials and state-owned entities and their employees, either directly or through a third party

• It is both a criminal and civil statute with severe penalties applicable to your company and employees

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Who is Subject to the FCPA?• As a U.S. company –

– the company,– its officers, directors, and employees (both U.S. citizens and foreign citizens),– any U.S. and foreign subsidiaries,– its representatives, agents, and distributors, and– its JV partners

are all potentially subject to the FCPA. • In addition to being individually liable for violations of the FCPA,

each of these entities and individuals could cause your company to be liable for a violation of the FCPA.

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Who is Subject to the FCPA?• As a U.S. company –

– the company,– its officers, directors, and employees (both U.S. citizens and foreign citizens),– any U.S. and foreign subsidiaries,– its representatives, agents, and distributors, and– its JV partners

are all potentially subject to the FCPA. • In addition to being individually liable for violations of the FCPA,

each of these entities and individuals could cause your company to be liable for a violation of the FCPA.

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The Elements of an FCPA Violation1. Giving OR offering OR promising2. Directly OR indirectly 3. Anything of value4. To any foreign official, political party, or candidate5. Corruptly6. In order to obtain OR retain business OR gain an

improper business advantage

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Element 1: Giving, Offering, Promising

• No payment need be made • No benefit need be provided• Crime is complete with the corrupt

offer• Conspiring or agreeing to make the

offer is also a crime

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Element 2: Directly OR Indirectly• Prohibits direct payments to government officials• Prohibits indirect corrupt payments through

intermediaries (i.e., the “bag man”)– Sales or purchasing representatives, consultants,

independent contractors, agents• You and your company can be liable if you:

– Authorized the payment by the third party; or– “Knew” the third party would make the illicit payment

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Broad Definition of “Knowing”

• “Head in the sand” defense will not work

• Actual knowledge of the corrupt payment is not necessary

• Knowledge includes awareness of “high probability” that a corrupt payment or offer will be made

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Element 3: Anything of Value • Covers cash, gifts, or other valuable benefits• Includes intangibles:

– Travel– Education– Entertainment– Employment (including relatives)

• No de minimis exception — potential liability even for very small payments

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Element 4: To a “Foreign Official”• Very Broadly Defined: Any officer or employee (includes

low-level employees and officials) of a foreign government or any department or agency or instrumentality of the government. Includes:– State-owned entities (including businesses owned by other

state-owned businesses);– State-controlled entities;– Police and border officials;– Officers and employees of public international

organizations; and– Foreign political parties and their officials and candidates

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Element 5: Corruptly

• Must have corrupt intent to influence official’s conduct or decisions in his/her official capacity

• Assume that the government will suspect there was a corrupt intent if a payment is made, without a valid reason, to an official who controls the award of government business or benefits

• Potential liability exists if cannot show affirmative reasons why a payment is not corrupt

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• Not limited to payments designed to directly secure a contract or other business from the government

• Includes any payment designed to gain an improper advantage – Such as favorable tax treatment, more favorable reviews

from an inspector, faster licenses, approval for permits that aren’t deserved, etc.

Element 6: Business Nexus/Improper Advantage

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Exceptions• Legitimate Business Expenses

– Reasonable and legitimate business expenditures provided to a foreign official to promote or demonstrate a product, or to perform a contract

• Facilitating Payments– Payments to secure performance of a routine

governmental action that should be performed by the official

– This is not recommended

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Local Anti-Corruption Laws• Most countries have their own anti-corruption laws

prohibiting both bribery of public officials and commercial bribery

• For example, China has both criminal and civil laws prohibiting bribery of public officials and commercial bribery– Penalties range from fines to life imprisonment and even the

death penalty in extremely serious cases

• Many countries have recently initiated criminal prosecutions based on facts learned from FCPA settlements involving activity in those countries

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Penalties/Consequences• Up to a $5 million fine and 20 years in prison, or both, for individuals• Up to a $25 million fine for entities• Alternative fines equal to twice the total gain or loss • Disgorgement of net profits • Loss of government contracts• Busted deals• Damaged reputation (and credit ratings)• Continued supervision by government/independent monitors• Very high legal fees• Civil litigation

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Top 10 Corporate Penalties1. Siemens (Germany): $800 million in 20082. KBR/Halliburton (USA): $579 million in 20093. BAE (UK): $400 million in 20104. Total S.A. (France): $398 million in 20135. Alcoa (USA): $384 million in 20146. Snamprogetti Netherlands B.V./ENI S.p.A (Holland/Italy): $365

million in 20107. Technip S.A. (France): $338 million in 20108. JGC Corporation (Japan): $218.8 million in 20119. Daimler AG (Germany): $185 million in 201010. Weatherford Int’l (Switzerland): $152.6 million in 2013

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Examples of Fines Paid By Private Companies• LatiNode - privately held Florida corporation paid $2,250,543 to third-

party consultants knowing some or all of the money would be paid to Yemeni officials in exchange for favorable treatment; fined $2,000,400 in 2009.

• Paradigm B.V. - $1 million fine, monitor, non-prosecution agreement in 2007 for payment of $22,250 in commissions to British West Indies company at recommendation of Kazakhstan official.

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Enforcement for Small Payments• Veraz Networks- $300,000 settlement

– involved $4,500 in “questionable gifts,” like “flowers for the wife of the CEO,” and one offer of a $35,000 “consultant fee” to an employee of an SOE

• Noble Corporation- $8 million settlement– involved five payments of $13,000 to $17,000 each to customs officials

• Orthofix - $7.4 million settlement– involved gifts (vacations, televisions, laptops, and appliances) and cash

payments worth a total of $317,000 spread out over seven years

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Enforcement Resources• Dedicated FCPA Unit at DOJ

– Increased resources at FBI– Wire taps, search warrants, subpoenas– Undercover sting operations

• Overseas reporting from embassies• Whistleblowers• Cooperation with foreign law enforcement

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EnforcementEnforcement Actions by Country (1977-2013)

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Government Expectations

• Understand and accept obligations under the law• Clear commitment from senior leadership, including a

clear policy against corruption• Policies outlining compliance responsibilities for any

risk areas, such as clear guidelines on business courtesies

• Combination of disciplinary and incentive measures• Compliance approach tailored to company’s risk

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Government Expectations

• Risk-based third-party due diligence regarding: – Third party’s qualifications and associations– Business rationale for engaging– Payment terms– Contract terms– Effective monitoring

• Contractual commitments related to FCPA compliance for third parties