May/June 2011
Reprinted with permission from
Well Servicing Magazine
Anti-corruption
compliance
The ever-changing landscape
By AMY L. SOMMERS; JEFFREY HOLM, Fitts Roberts & Co. PC;
LAMAR CASPARIS, Fitts Roberts & Co. PC
_________________________________________________________________________
A
lthough anti-corruption
compliance is not a new
topic, new laws are being
enacted around the world at a rapid
pace. Foreign governments, as well
as the United States, continue to
increase their investigations of
alleged wrongdoing. Furthermore,
the U.S. Department of Justice
and the Securities and Exchange
Commission are more aggressive
in enforcing the Foreign Corrupt
Practices Act (FCPA) by investigating
and prosecuting companies
and individuals for bribery and
corruption.
Are you ready to meet these
increasingly stringent requirements?
How do you know? How do you
know your people in the field are
following the rules?
In today’s changing regulatory
environment, even the most mature
and established global companies
are re-thinking “compliance,” by reevaluating their business practices
and re-enforcing the importance
of ethics. Have you noticed these
developments in your company?
During your company’s business
records provisions, and (2) the antistrategy or new market opportunity
bribery provisions. The books and
analysis are compliance risks
records provisions essentially apply
included in assessments and
only to “issuers” — companies
presentations? If yes, your company
whose securities are traded on
has embraced the realities of
U.S. stock exchanges or that are
compliance risk factors in its
required to file periodic reports with
strategy and business
development processes.
Sadly, few companies The U.S. Department of Justice
have acknowledged such and the Securities and Exchange
prudent practices.
Commission are more aggressive
In this three-part
series we will provide an in enforcing the Foreign
overview of key domestic Corrupt Practices Act (FCPA) by
and foreign legislation,
recent enforcement investigating and prosecuting
actions involving these companies and individuals for
various laws, and wrap
up with an approach to bribery and corruption.
managing compliance in
a pragmatic and integrated fashion,
the U.S. Securities and Exchange
including recommendations for an
Commission. The books and records
anti-corruption program.
provisions require companies to
“Make and keep books, records
Overview
and accounts which, in reasonable
Let’s start with a quick overview of
detail, accurately and fairly reflect
the FCPA’s requirements. The FCPA
the transactions and dispositions
has two key parts: (1) the books and
of assets” of the company.
Well Servicing May/June 2011
The anti-bribery provisions
apply to non-issuers as well as to
issuers, where “the company, its
officers, employees and agents are
prohibited from giving, offering, or
promising anything of value to any
foreign (non-U.S.) official, with the
intent to obtain or retain business
or any other advantage.”
A violation of the FCPA occurs
when a U.S. person (whether a
legal entity or a natural person)
or a foreign person while in the
United States:
• With corrupt intent, offers,
pays, promises to pay or authorizes
payment — directly or indirectly
— of anything of value.
• Giving, offering or promising
a foreign official, foreign political
party (or official), candidate for
foreign political office, or any
person defined as a “foreign official”
anything of value — directly or
indirectly.
• Influences an official act or
decision or inducing an act or
decision violating a lawful duty as
an official or securing an improper
advantage.
• In order to obtain, retain or
direct business to any person.
Exception and defense
The Act contains one exception
and two affirmative defenses.
“Facilitation payments” are
an exception to the FCPA’s
prohibitions (and we’ll discuss
in later articles what a facilitation
payment means). While facilitating
payments are acceptable under
the FCPA, they may be a violation
of other countries’ anti-corruption
rules, so reliance on them in your
overseas operations may put you
in conflict with the local country’s
anti-corruption law. In view of this
dilemma, companies are re-thinking
their policies in light of new
legislation especially in emerging
markets.
The two affirmative defenses are
where the payment or gift is (1)
permitted under the written laws
of the receiving foreign official’s
country, or (2) a reasonable
expenditure that is directly related
to promoting or demonstrating a
company’s products or services
or the execution or performance of
a contract. Travel and hospitality
expenses for foreign officials
Well Servicing May/June 2011
While facilitating payments are acceptable
under the FCPA, they may be a violation of other
countries’ anti-corruption rules, so reliance on them
in your overseas operations may put you in conflict
with the local country’s anti-corruption law.
are typically permitted under
this second affirmative defense.
As we will discuss later, setting
appropriate procedures for
incurring hospitality expenses is
an important part of an effective
compliance strategy.
handle their interest and to make
sure the SEC and Department of
Justice (DOJ) pursues their claim.
It’s too early for statistics but the
law is expected to significantly
increase the number of cases
brought to the SEC and DOJ.
If your company is operating
Dodd Frank Act
in challenging and competitive
The next development on the
emerging markets with unusual
legislative front in the United
business practices, just think
States is the controversial Dodd
about how many employees
Frank Act. Embedded in the Act
are associated with or touch
is a section that will compensate
the various transactions your
SEC whistleblowers (including
company engages in. In the past,
employees, executives, etc.) up
corporations valued and relied on
the discretion and loyalty
of employees to either
If your company is operating
with the proper
in challenging and competitive comply
rules and procedures or
emerging markets with unusual not report discrepancies.
The Dodd Frank Act is a
business practices, just think
game changer because
about how many employees
your employees now
have financial incentive
are associated with or touch
to go to the SEC if they
the various transactions your
perceive wrongdoing.
Accordingly, if your
company engages in.
company may be involved
in inappropriate activity,
to 30 percent of the SEC’s imposed
the odds increase significantly
fines in excess of $1 million.
that someone internal will be a
This is not limited to Sarbanes
whistleblower. Are you ready and
Oxley violations but includes
are you prepared?
FCPA violations as well. This law
went into effect on July 21, 2010.
UK Bribery Act
While implementing regulations
In addition to United States
have yet to be adopted, woulddevelopments, the United Kingdom
be whistleblowers can already
passed a comprehensive antiapproach the SEC to report
bribery law effective April 2011,
wrongdoing and start the clock
which has an even broader scope
ticking to pursue a bounty if the
than the FCPA. The UK Bribery
SEC takes action. Some law firms
Act (UK ACT) expands beyond
are already advertising for those
bribery of government officials
whistleblowers to contact them to
to include commercial bribery
(i.e., bribery in non-governmental,
purely commercial contexts).
The Dodd Frank Act is a
game changer because
your employees now
have financial incentive
to go to the SEC if they
perceive wrongdoing.
Highlights of the UK Act
• It adds four new offenses under
UK law: bribing another person,
being bribed, bribing a foreign
official, and a corporate offense of
failing to prevent bribery.
• In terms of failing to prevent
bribery, a defense will be available
where an organization can
demonstrate that it had “adequate
procedures” in place to prevent
bribery (another reason to make
sure your company has a wellconsidered compliance plan in
place!).
• Penalties for violation of the
UK Act can include unlimited fines
and prison sentences of up to 10
years for senior management team
members found guilty of “consent
to or connivance with” certain
offenses under the UK Act.
The UK Bribery Act
expands beyond bribery
of government officials
to include commercial
bribery (i.e., bribery in
non-governmental, purely
commercial contexts).
• The geographic scope of the UK
Act is broad. The new corporate
offense of failing to prevent bribery
applies to any UK-incorporated
entity (or UK registered partnership)
and also to any corporate entities
that are not UK-registered but which
do business in the UK. Where in the
world the bribes are offered or
received, whether the act of bribery
is direct or indirect, via a subsidiary
or third party, or even whether it is
directly related to activities in the
UK are irrelevant.
The U.S. and the U.K. are not the
only countries with anti-corruption
laws. Thirty-eight countries are
parties to the Organization for
Economic Co-operation and
Development (OECD) Anti-Bribery
Convention and have adopted the
2009 Anti-Bribery Recommendation.
More importantly, emerging market
countries have also implemented
anti-corruption laws (or in various
stages of finalizing).
China
Let’s look at China as a specific
example. At the end of February,
China adopted amendments to its
Criminal Law, criminalizing bribery
of foreign government officials and
of international public organizations
in order to secure illegitimate
business benefits. Previously, the
focus of China’s anti-bribery laws
and regulations had been on bribery
involving domestic officials and
purely commercial parties, but both
in a domestic context.
As of the date of this writing,
much remains to be clarified
about the implications of these
amendments:
• How are “foreign officials and
international public organizations”
defined?
• Will offers of money and
property encompass hospitality
and if so, in what respect?
subsidiary would be subject to this
new offense.
Another area of potential
exposure for foreign companies may
be through their use of branches
of the parent company (such as
a representative office). If the
personnel of a representative office
were involved in bribing a foreign
official, the branch (and likely the
U.S. parent) could be subject to
an enforcement action brought by
PRC officials.
China often uses administrative
notices or judicial interpretations
as a tool for putting
Thirty-eight countries are parties meat on the statutory
bones. We will wait
to the Organization for Economic with interest to see
whether the Supreme
Co-operation and Development
People’s Court will
(OECD) Anti-Bribery Convention
release an interpretation
and have adopted the 2009 Anti- on the implications
of these amendments to
Bribery Recommendation.
the Criminal Law.
• The crime of official bribery had
previously focused on “illegitimate
benefits.” Is there significance to the
addition of the term “business” (i.e.,
illegitimate “business” benefits)?
• Will there be an uptick in
enforcement actions involving
Chinese companies operating
abroad (such as in the Middle East
and Africa)?
• Most critically, from the
perspective of foreign investors,
what is their exposure?
Presumably, foreign-invested
China-formed companies would
be covered by the new offense. So,
if your company has established
a WFOE or a JV in China, that
Final thoughts
U.S. regulators are keenly aware
that while companies may be willing
to enter “guilty” pleas and pay
significant fines, the prospect of
jail time and a criminal record are
daunting prospects for individual
defendants. Accordingly, the DOJ
is actively pursuing a strategy
of prosecuting individuals as a
means of heightening awareness
of the need for anti-corruption
compliance.
Although practice may vary
by country, the legal norms are
becoming more and more aligned.
Recent cases involving the U.S.,
the UK and other jurisdictions
Well Servicing May/June 2011
countries are tired
of corruption. For
those of us who have
lived and worked
internationally for
the past few decades,
you know the realities
of how conducting
business is changing. Yes, back
room and closed-door deals are still
being done but are you willing to
risk everything to get the deal?
Another area of potential exposure
for foreign companies may be
through their use of branches of
the parent company (such as a
representative office).
show that cross-border cooperation
among enforcement personnel is
increasing. This means the gaps
between what the laws say and
what is expected on the ground
are narrowing and your company
faces increased risk of being caught
in the tightening space for noncompliance.
As we write this article, significant
changes are taking place across the
Middle East. In part, it appears
that the public in these various
Recent cases involving
the U.S., the UK and
other jurisdictions
show that cross-border
cooperation among
enforcement personnel
is increasing.
Well Servicing May/June 2011
ABOUT THE AUTHORS: Amy L.
Sommers is a former co-chair of the
China Committee of the American Bar
Association’s Section of International
Law (ABA). She is a frequent speaker
and commentator on China issues. Her
involvement in China goes back over 25
years. Ms. Sommers is the recipient of the
2007 award for Professional Excellence
from the Expatriate Professional Women’s
Society of Shanghai. She is a vice chair
of the ABA’s International Anti-Corruption
Committee and co-author of the China
chapter of Getting the Deal Through Anti-Corruption Regulation 2011.
Jeffrey Holm has over 25 years
of experience working for major
public companies including extensive
international experience, especially in
emerging markets. He has worked on
projects in over 40 countries and lived
in emerging markets for approximately
10 years. During Jeff’s expatriate
assignments he held senior finance
roles in Myanmar and Republic du
Congo before becoming the CFO. After
China he then returned stateside and was
instrumental in developing a rational
strategy for pursuing deals in the former
Soviet Union (FSU) and then became
the CFO of a major energy company’s
business development entity in Russia.
He has also established global internal
audit and compliance functions. He can
be e-mailed at jbh@fittsroberts.com.
Lamar Casparis is a shareholder
with Fitts Roberts & Co., PC in charge
of delivering forensic, litigation and
valuation services. Before moving into
the consulting services industry, he spent
20 years as a controller and corporate
controller for several businesses. His
20-year consulting practice continues
in matters of internal investigations,
litigation, damages and valuation.
His FCPA practice currently provides
confidential and client focused domestic
support for international investigations.
He is a Certified Forensic Accountant
and Chairman of the American Board of
Forensic Accountants. He can be e-mailed
at alc@fittsroberts.com.
EDITOR’S NOTE: For concerns
or questions regarding this article,
please contact Lamar Casparis at alc@
fittsroberts.com
Reprinted with permission