Government Enforcement Alert
April 2009
Authors:
Matt T. Morley
matt.morley@klgates.com
+1.202.778.9850
Jeffrey B. Maletta
jeffrey.maletta@klgates.com
+1.202.778.9062
Michael J. King
michael.king@klgates.com
+1.202.778.9214
Robert V. Hadley
robert.hadley@klgates.com
+44.(0)20.7360.8166
Financial Services Firms Face Increased
Pressures on Anti-corruption Compliance
At a time when financial services firms face increasing compliance pressures on
multiple fronts, yet another subject may demand attention: compliance with the
Foreign Corrupt Practices Act (FCPA) and similar anti-corruption laws in force in
other countries. The FCPA prohibits bribery of foreign government officials and
requires U.S. public companies and their affiliates to maintain accurate books and
records and effective internal controls. Over the past decade, most other developed
nations have adopted similar or even broader anti-bribery laws, and many of them
have recently initiated more vigorous efforts to enforce those laws. Accordingly,
even though government corruption risks have been seen historically as issues for
defense contractors and oil companies, the fact is that every firm doing business
internationally faces the risk of violating these anti-bribery laws – whether by
intentionally making an improper gift or payment, or by having an employee, sales
agent or joint venture partner do so.
Matthew J. Fader
matthew.fader@klgates.com
+1.412.355.6358
The new pressures to address corruption risks come from at least four
potential sources:
Brian F. Saulnier
brian.saulnier@klgates.com
•
FINRA has identified FCPA compliance as an examination priority for 2009,
and FINRA members engaged in significant business outside the U.S. should be
prepared for FINRA review of their FCPA compliance efforts. See FINRA letter
to member firms dated March 9, 2009:
www.finra.org/web/groups/industry/@ip/@reg/@guide/documents/industry/p11
8113.pdf - 2009-03-11.
•
Firms regulated by the U.K.’s Financial Services Authority (FSA) will have
noted a recent disciplinary action taken against Aon Limited, fining the
insurance brokerage firm £5.25 million for failing to train relevant personnel as
to bribery and corruption risks, and failing to conduct adequate due diligence
before retaining third party representatives. See
http://www.fsa.gov.uk/pubs/final/aon.pdf (and related K&L Gates analysis at:
http://www.klgates.com/newsstand/detail.aspx?publication=5257#FSA).
•
Accounting firms are more frequently asking their audit clients for information
about anti-corruption compliance programs.
•
Similarly, potential business partners are increasingly seeking information about
anti-corruption compliance efforts as part of their request for proposal process.
+1.412.355.6504
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Government Enforcement Alert
These developments reflect the fact that FCPA
enforcement continues to be a priority for the U.S.
Securities and Exchange Commission and the U.S.
Department of Justice, with 33 actions brought in
2008, and 38 in 2007, capped in recent months by
settlements with Siemens, A.G. (which paid over
$1.6 billion in fines, penalties and disgorgement in
December 2008) and KBR, Inc. and Halliburton Co.
($579 million in February 2009). FCPA
enforcement is expected to remain a priority under
the Obama Administration. The Department of
Justice has brought at least one case involving
activities of international investment bankers, and
has expressed an interest in the financial services
area. With broad respondeat superior provisions
applied in cases of this type, companies face the
prospect of civil and criminal liability for the
activities of their employees and agents, regardless
of their level of seniority.
Outside the U.S., laws prohibiting the bribery of
foreign officials are being more vigorously enforced
and, in some cases, broadened. For example, the
Siemens case involved not only U.S. authorities, but
vigorous efforts by German prosecutors as well.
The U.K. Government has published a bill to reform
existing bribery laws, including the creation of a
new offense for the failure to prevent bribery by a
company, where the company has been negligent in
its efforts to stop people working on its behalf from
paying or promising or offering a bribe in
connection with its business. Under the bill,
adequate compliance procedures would provide a
defense for the company, except in the case of
misconduct by senior management.
Although U.S. law does not require companies to
have an FCPA compliance program, in practice U.S.
law enforcement officials now expect that every
company involved in international commerce will
have taken meaningful steps to prevent improper
payments, and if they find a violation by a company
that has failed to do so, the consequences of any
violation are sure to be more severe.
How then should companies address these risks?
Even though no firm can prevent every unauthorized
action by its personnel or by third parties acting on
the company’s behalf, a firm can significantly
reduce the risk of legal liability through effective
compliance efforts to assure compliance with the
law. There are several steps, which are relatively
simple and inexpensive, that any company operating
internationally should consider.
•
Identify the points of contact between your
company and foreign government officials.
Each company has a unique set of
circumstances in which it deals with
government officials. Understanding when and
where these interactions occur – and precisely
who is a government official – is the starting
point for assessing the company’s corruption
risks.
o
•
Contacts with state-owned or statecontrolled companies should be included in
this review, even where those companies
are engaged in ordinary commercial
activities. This category includes, among
other things, sovereign wealth funds and
government-owned banks. Under the
FCPA, employees of such entities are
considered to be “government officials,”
and gifts, entertainment or payments to
them may violate the law. See, for
example, Securities and Exchange
Commission v. ITT Corporation, C.A.
No. 1:09-cv-00272 (RJL) (D.D.C. filed
Feb. 11, 2009),
http://www.sec.gov/litigation/litreleases/20
09/lr20896.htm
Consider whether your existing policies and
procedures are sufficient to mitigate the risks
identified. Effective compliance programs
often include:
o
A prohibition of improper payments.
o
Controls over gifts and entertainment.
o
Due diligence procedures for third parties
that may act on the company’s behalf, such
as agents, other intermediaries, and joint
venture partners.
o
Due diligence requirements in the M&A
context, to assure that potential anticorruption problems are identified and
evaluated prior to any transaction.
April 2009
2
Government Enforcement Alert
•
Provide training to relevant company personnel.
A written policy alone is unlikely to be effective
unless it is effectively communicated to
employees and reinforced with periodic training
that assures their understanding.
•
Monitor and audit compliance with policies and
procedures. This often includes mechanisms for
reporting certain types of payments and
expenditures, such as gifts, entertainment
expenses, and payments to consultants; annual
certifications of compliance by relevant
personnel; and internal auditing of selected
accounts, such as employee reimbursements,
and promotional and marketing expenses.
•
With regulators, auditors and business partners all
directing more attention to the anti-corruption
compliance efforts of financial services firms, there
is an opportunity to stay ahead of the curve by reassessing those programs now in order to assure that
corruption risks are being appropriately mitigated,
and that third parties inquiring about those programs
do not find them to be deficient.
This is necessarily an overview; companies must
address these risks in the context of their own
operations. Please feel free to contact any of us
if you would like to discuss a particular issue in
more detail.
Follow up on “red flags” and take remedial
steps as needed. If potential corrupt payment
issues arise, companies must be prepared to take
prompt action and make an appropriate inquiry
into the situation. If a problem is found to exist,
companies are expected to take steps both to
correct it and to prevent a similar recurrence.
Indeed, of the many problems targeted in the
Siemens case, noted above, the most significant
may have been the company’s failure to respond
to repeated indications that improper payments
were being made.
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©2009 K&L Gates LLP. All Rights Reserved.
April 2009
3