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ACFE

Anti-Corruption/FCPA: Industry-Wide Issues June 18, 2012

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PwC 2 June 18, 2012 ACFE – Anti-Corruption/FCPA – Industry-wide issues

Agenda

• Fundamentals of FCPA and Other Anti-Corruption Statutes

• Anti-Corruption Risks Associated with Various Industries

PwC 3 June 18, 2012 ACFE – Anti-corruption/FCPA - Industry wide issues

Fundamentals of FCPA and Other Anti-Corruption Statutes


FCPA History

The Foreign Corrupt Practices Act (FCPA) was created in 1977 as a result of over 400 U.S. companies admitting to making questionable or illegal payments to foreign government officials, politicians, and political parties. Congress enacted the FCPA in an attempt to stop bribery of foreign officials and restore the integrity of American businesses.

The FCPA’s scope was expanded in 1998. It was amended to mirror language included in the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

• Any “improper advantage” vs. “business”

• Expanded jurisdictional reach

• Expanded definition of foreign official


The FCPA Is Violated When

An issuer or any of its officers, directors, employees, agents or shareholders; a domestic concern; or a foreign national pays, offers, promises to pay, or authorizes/approves the payment of money or anything of value:

• To a foreign official, foreign political party, candidate for political office, or official of a public international organization

• In a corrupt effort to obtain, retain, or direct business to any person or obtain an improper advantage


Key Elements of the FCPA

Anti-bribery provisions

• It is a crime for any U.S. person or company to directly or indirectly pay or promise anything of value to any foreign official to obtain or retain any improper advantage.

Accounting requirements

• Section 13(b)(2)(A) of the Exchange Act

• “Make and keep books, records and accounts, which in reasonable detail, accurately reflect the transactions and dispositions of assets.”

• Reasonable—such level of detail that would satisfy prudent officials in the conduct of their affairs

Internal controls

• Section 13(b)(2)(B) of the Exchange Act

• “Devise and maintain a system of internal accounting controls sufficient to provide reasonable assurance that” transactions are recorded appropriately and in accordance with rules and regulations.


Heightened Enforcement

Source: Miller Chevalier FCPA Winter Review 2012

Resolved FCPA Enforcement Actions by Year

19 18 21

40

22 21

16 14

31

17

0

5

10

15

20

25

30

35

40

2007 2008 2009 2010 2011

DOJ Actions SEC Actions


Heightened Enforcement

Source: Miller Chevalier FCPA Winter Review 2012

Individuals Standing Trial on FCPA-Related Counts

0

4

0

14

19

22

0

5

10

15

20

25

2008 2009 2010 2011 Scheduled for 2012 No Date Set


FCPA-Related Individual Sentences (1 of 2)

Industry Nationality Sentence Title/Position Penalty

Telecommunications American 15 years President $1.545 million

Consulting American 87 months President $500,000

Telecommunications American 84 months Executive vice president $1.545 million

Oil and Gas American 30 months and 3 years probation

Chairman and CEO $10.8 million

Food American 63 months CEO $198,000

Defense American and Chinese

51 months President, secretary , and treasurer

$250,000

Telecommunications American 46 months CEO $500,000


Food American 37 months Vice president $187,000





Tobacco American 3 years probation Country manager $250,000

Education American 3 years probation Member $200

Chemicals Canadian 30 months Agent $250,000

Telecommunications French 30 months Deputy vice president $261,500

Chemicals Canadian 30 months Agent $250,000

Source: FCPA blog


FCPA-Related Individual Sentences (2 of 2)

Industry Nationality Sentence Title/ Position Penalty

Telecommunications French 30 months Deputy vice president $261,500

Oil and Gas British and Israeli 21 months Agent/Lawyer $ 149 million

Technology American and Vietnam

16 months President and owner $20,000

Telecommunications American 2 years Controller $36,375

Technology American 2 years probation Partner $1,000

Financial Services Indian 15 months Employee $6,000

Oil and Gas American 15 months General manager $2,000

Oil and Gas American 1 year Managing director of subsidiary $317,500

Retail American 1 year Entrepreneur $1 million

Oil and Gas UK and Polish 1 year probation Manager $726,885

Entertainment American 6 months Producer $250,000

Manufacturing American 6 months Salesmen $7,500

Oil and Gas American 1 year Managing director of subsidiary $317,500

Retail American 1 year Entrepreneur $1 million

Oil and Gas UK and Polish 1 year probation Manager $726,885

Entertainment American 6 months Producer $250,000

Manufacturing American 6 months Salesmen $7,500

Source: FCPA blog


Section 1—Fundamentals of FCPA and Other Anti-Corruption Statutes

Anti-corruption actions by multilateral banks

World Bank • Between 2006–2010, the Bank conducted 790 anti-corruption investigations. • In 2010, the Bank peaked its five-year high at 194 investigations. • 215 firms have been debarred. Inter-American Development Bank • Between 2006–2010, the Bank conducted 709 anti-corruption investigations. • 119 individuals and firms (collectively) have been debarred.

Asian Development Bank • Between 2006–2010, the Bank conducted 465 anti-corruption investigations. • 652 individuals and firms (collectively) have been debarred.


Defining Foreign Officials

Judge’s guidance regarding SOE in a recent FCPA case:

The entity provides a service to the citizens—indeed, in many cases to all the inhabitants—of the jurisdiction.

The key officers and directors of the entity are, or are appointed by, government officials.

The entity is financed, at least in large measure, through governmental appropriations or through revenues obtained as a result of government-mandated taxes, licenses, fees, or royalties, such as entrance fees to a national park.

The entity is vested with and exercises exclusive or controlling power to administer its designated functions.

The entity is widely perceived and understood to be performing official (i.e., governmental) functions.


FCPA vs. UK Bribery Act 2010 (Highlights)

U.S. Foreign Corrupt Practices Act

• Civil and criminal consequences

• Public bribery

• Bribe payers

• Corrupt intent requirement

• Books and records and internal controls

• Issuers, U.S. persons, foreign nationals, and agents

• Facilitation Payments Exception

• Bona-Fide Marketing Costs Exception

• Supply chain responsibility

• Entity size not relevant

UK Bribery Act 2010

• Only criminal consequences

• Commercial and public bribery

• Bribe takers and bribe payers

• No such requirement

• No such requirement

• UK entities or carrying on business or part of a business in the UK

• No similar exception; however, “public interest” exception

• No similar exception

• Supply chain control responsibility “associated person”

• Adequate procedures = full defense

• Proportionality


UK Bribery Act 2010 (Highlights)

• UK Bribery Act 2010 came into force only on July 1, 2011

• On November 18, 2011, Munir Patel was sentenced to three-years imprisonment for receiving a bribe. Patel was a court clerk in London who was caught in a sting by The Sun newspaper, accepting £500 to not record penalties on a person’s driving license.

• At sentencing, the judge remarked that the prosecutors had identified 53 instances where Patel had tampered with records.

• Other UK Anti-Corruption Enforcement (non-UKBA):

- International publishing house debarred by World Bank after scandal

- Insurance company settlement


Section 1—Fundamentals of FCPA and Other Anti-Corruption Statutes

Tone of regulators―outside of the United States

India

Russia United Kingdom

Nigeria

The United States

China


Global Anti-Corruption Efforts

Country UNCAC OECD Foreign Bribery Law

Brazil Ratified

Russia Signed

India Ratified Introduced in Parliament

China Yes

PwC 17 June 18, 2012 ACFE – Anti-corruption/FCPA - Industry wide issues

Anti-Corruption Risks Associated with Various Industries


Examples of Anti-Corruption Risks in the Oil and Gas Industry

Source: FCPA map–James Mintz Group Inc.


Examples of Anti-Corruption Risks in the Oil and Gas Industry

• Aggressive anti-corruption enforcement

• Use of agents, consultants, and other third-party intermediaries

• High involvement of state-owned companies

• Joint ventures with the state

• Offshore accounts (Gibraltar, Switzerland, etc.)

• Emphasis on nationalization/local content

• Student scholarship programs

• Freight forwarders and logistic service provider might be involved

• High profile entertainment (especially overseas)


Examples of Anti-Corruption Risks in the Pharmaceutical and Medical Devices Industry



Examples of Anti-Corruption Risks in the Pharmaceutical and Medical Devices Industry

• Most HCPs are publicly owned and operated in developing countries

• Highly regulated business—drug trials and approvals

• Procurement process and potential tender rigging with foreign ministries

• Gifts, gratuities, travel, and entertainment

• Donations to NGOs sponsored or represented by a government official

• Clinical research, R&D, physician sponsorships

• Frequent-flyer programs

• Rebates, promotions, spiffs


Examples of Anti-Corruption Risks in the Telecommunications Industry



Examples of Anti-Corruption Risks in the Telecommunications Industry

• Highly regulated industry makes licenses hard to obtain (e.g., 2G scam in India)

• Monopoly/oligopoly in certain countries

• Privatization of state-owned companies

• Bogus consulting, sham contracts, and fictitious invoices and marketing contracts

• Gifts, trips to Disneyland and the Grand Canyon, and cash incentives offered to foreign officials

• Discounted rates for international interconnection

• Sponsorship of political campaigns

• Lobbyists hired to make improper payments


Examples of Anti-Corruption Risks in the Manufacturing Industry



Examples of Anti-Corruption Risks in the Manufacturing Industry

• Distinguish light manufacturing and heavy manufacturing (more susceptible)

• Joint-ventures with state-owned companies common

• China, India, and Russia—top offshoring destinations

• Environmental and competition authorities are public officials

• Work permits and visas

• Supply chain and logistics

• Trade restrictions and government subsidies

• Obtaining licenses/permits

• Sales to state-owned entities

• Design institutes and other such quasi-state-owned entities


Examples of Anti-Corruption Risks in Other Industries



Examples of Anti-Corruption Risks in the Financial Services Industry

• Sovereign wealth funds

• Pay-to-play schemes

• State-owned banks


Anti-Corruption: What’s in Store for 2012?

• Upcoming FCPA compliance guidance from DOJ

• More individual prosecution

• More litigation

• More FBI involvement

• U.S. Chamber of Commerce—proposed amendments to the FCPA:

- Adding a compliance defense

- Clarifying the meaning of “foreign official”

- Improving the procedures for guidance and advisory opinions from the DOJ

- Limiting a company’s criminal liability for the prior actions of a company it has acquired

- Adding a “willfulness” requirement for corporate criminal liability

- Limiting a company’s liability for acts of a subsidiary not known to the parent


Anti-Corruption: What’s in Store for 2012?

• Overseas Contractor Reform Act

• Right of Civil Action under FCPA

• Impact of Dodd-Frank Act

- Whistleblower bounty program

- Control person theory

- Aiding and abetting

• Compliance as part of derivative action settlements


Thank you! Questions?

Sulaksh Shah, Director

FCPA Services PwC

Email: [email protected]

Tel: 703-918-4477

© 2012 PricewaterhouseCoopers LLP. All rights reserved. PwC refers to the United States member firm, and may sometimes refer to the PwC network. Each

member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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