Hot Topics in Ethics and Compliance:
FCPA, UK Bribery Act, Conflict Minerals,
FSG Amendments and More
Association of Corporate Counsel – Austin Chapter
Road Show: April 21 and 28, 2011
Larry Parsons
Vice President, Business Conduct and Ethics
Freescale Semiconductor, Inc.
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Freescale™ and the Freescale logo are trademarks of Freescale Semiconductor, Inc. All other product or service names are
the property of their respective owners. © Freescale Semiconductor, Inc. 2006.
Today’s Focus – “Headlines”
Recent
amendments to the Federal Sentencing Guidelines
Developments
relating to the Foreign Corrupt Practices Act
The
whistleblower program under the Dodd-Frank Wall Street Reform and
Consumer Protection Act
The
U.K. Bribery Act of 2010 and its pending implementation
Compliance
efforts around the Conflict Minerals provision of the Dodd
Frank Act
Developments
under the Deemed Export Rule
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Freescale’s Vision
Be the leader of
embedded
processing solutions
in every major market segment
where we compete
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the property of their respective owners. © Freescale Semiconductor, Inc. 2006.
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Freescale Company Overview
In operation since 1953
Engaged with 10,000+ customers globally; over
100 of the top electronic manufacturers
$4.46 billion in sales in 2010
Headquartered in Austin, Texas
More than 20,000 employees in over 24 countries
Separated from Motorola in 2004 (IPO/Spin)
Leveraged buyout by consortium of private equity
funds completed December 1, 2006
Freescale™ and the Freescale logo are trademarks of Freescale Semiconductor, Inc. All other product or service names are
the property of their respective owners. © Freescale Semiconductor, Inc. 2006.
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Business Conduct & Ethics Organization
Larry Parsons
Vice President , Business
Conduct and Ethics
Code of Business
Conduct and
Ethics
Human Resources
Compliance
Issues
• Code of
Business
Conduct and
Ethics
• EEO
• Immigration
• OFCCP
• ETHICSline
Regulatory
Compliance
• Regulatory
Compliance
• Records
Management
• Trade
Compliance
• Data Privacy
• EPP Function
• BCE Committees
• FCC/CE
• Risk Assessment
Ethics and
Compliance
Training
Compliance
Special Projects
Labor and
Employment
Law and Litigation
• Corporate Social
Responsibility
• Supplier
Certifications
Investigations
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the property of their respective owners. © Freescale Semiconductor, Inc. 2006.
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Headline 1
Federal Sentencing Guidelines Amendments November 1, 2010
United
States Federal Sentencing Guidelines
Chapter 8 – Sentencing of Organizations
 Implemented 1991; major amendments November 1, 2004
 FSG §8B2.1 elements of “an effective compliance & ethics program”
 Reduction of culpability score

Department
of Justice guidance (pre-prosecution)
“Letters” – Holder (1999), Thompson (2003), McNulty (2006)
 U.S. Attorneys’ Manual, Ch. 9 – Principles of Federal
Prosecution of Business Organizations (“Filip Memo”) (2008)

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The Federal Sentencing Guidelines:
Seven Elements of an Effective Ethics and Compliance Program
1
2
Management Support
& Resources
• VP, Ethics & Compliance
• Funded and Resourced
• Freescale Business Conduct &
Ethics Leadership Team
(“FBCELT”)
• Board Knowledge and Oversight
3
Standards & Controls
To Detect and Prevent
Misconduct
• FSL Code of Business
Conduct & Ethics
• Ethics & Compliance policies
• Corporate Assurance
• SOX Disclosure Committee
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4
Effective Training
& Communication
Monitoring,
Evaluation & Reporting
• Initial & Ongoing
• All Employee Training
• Senior Leadership,
including Board
• Regular Communications Variety
of Vehicles
6
FSL ETHICSline
FBCELT
Audit & Legal Committee
SOX Disclosure Committee
ERM Process; Periodic Risk
Assessment
• Business Integrity Questionnaires
•
•
•
•
•
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Consistent
Enforcement
Due Care in
Delegating Authority
• FSL Leadership Expectations
• Performance Mgt. & incentives
aligned
• Disciplinary Actions
• Track record of integrity prior to
delegation
• Screening of new hires
Freescale™ and the Freescale logo are trademarks of Freescale Semiconductor, Inc. All other product or service names are
the property of their respective owners. © Freescale Semiconductor, Inc. 2006.
Response &
Continuous
Improvement
• Review & amend program after
problems occur
• Senior Leader Meetings
• Lessons Learned
Communications
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Headline 1
Federal Sentencing Guidelines Amendments November 1, 2010 (cont.)
Key
Substance of November 1, 2010 Amendments
Companies can benefit from a culpability score reduction (even if high-level personnel participated or had
knowledge) if:
A.
B.
Demonstrate the existence of an effective compliance and ethics program at the time of the offense, and
Meet the following four conditions:
1. Individual(s) with operational responsibility for the EC program (generally the corporate compliance officer)
had “direct reporting obligations” to the organization’s governing authority or sub-group thereof (generally the
Board of Directors or Audit Committee);
2. EC program detected the criminal conduct before it was discovered outside the company;
3. Company “promptly” reported the criminal conduct to the appropriate governmental authorities; and
4. No individual with operational responsibility for the compliance program participated in, condoned, or was
willfully ignorant of the misconduct.
Application Note 11 to Section 8C2.5 defines “direct reporting obligations” as having the “express authority to
communicate personally to the governing authority
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Headline 2
FCPA Developments
FCPA enforcement more rigorous each year
Passed in 1977 – but remained largely unused until last few years
In 2004, only 5 enforcement actions
In 2006, 15 enforcement actions
In 2009, 45 enforcement actions
In 2010, over 76 enforcement actions
Currently over 150 matters under investigation
In 2010, DOJ and SEC collected over $1.1 billion in fines, penalties and
disgorgement
Developments in investigations and targets
January 2010 – “Proactive investigation” - Sting operation resulting in 22 indictments
FBI agent posed as sales agent representing minister of defense of African country
For 20% commission, guaranteed that would get a $15 million contract to supply
presidential guard
See http://www.justice.gov/opa/pr/2010/January/10-crm-048.html
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Headline 2
FCPA Developments
OECD Guidance
“Recommendation of the Council for Further Combating Bribery of Foreign
Public Officials in International Business Transactions” (November
2009/Amended February 2010)
Found at http://www.oecd.org/dataoecd/11/40/44176910.pdf
Deferred Prosecution Agreements
Panalpina (and five of its oil and gas services customers) FCPA resolution
November 17, 2010 - $236 million
Each DPA contained an Attachment C – Corporate Compliance Program
(see, e.g., http://www.justice.gov/opa/documents/panalpina-world-transportdpa.pdf at p. 67)
Elements seem to come from the OECD Guidance and FSG elements
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Headline 2
FCPA Developments
IBM $10 Million Settlement in SEC FCPA Enforcement Action
March 18, 2011
Alleged violations of Books and Records provision
Improper cash payments, gifts, travel and entertainment to government
officials in South Korea and China from 1998 to 2003
Johnson & Johnson $70 Million Settlement in FCPA Enforcement
Action
April 7, 2011
Alleged bribes to doctors in Europe and Iraq
Action by both DOJ and SEC
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the property of their respective owners. © Freescale Semiconductor, Inc. 2006.
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Headline 3
Dodd-Frank Whistleblower Provision

Dodd- Frank Wall Street Reform and Consumer Protection Act –
Whistleblower provision § 922 (July 21, 2010)

Provides that whistleblowers who provide original information leading to a successful
enforcement action by the SEC under the securities laws will be able to receive 10%
to 30% of a total recovery that’s greater than $1 million.
 Will apply to SEC enforcement of books and records provisions of the FCPA
 Remedies for retaliation - including reinstatement if they were fired, two times base
pay, and recovery of attorney’s fees and costs

Criticism of the Whistleblower Provision

Employees will bypass existing hotlines/reporting mechanisms
 Employees will wait to report so that value of claim reaches minimum/increases

Recent developments at SEC

Offered language in proposed rules in response to criticism: discretion to give higher
awards to those who use internal reporting first
 SEC created a Whistleblower Office and created a Whistleblower Coordinator
 Enforcement reviewing and tracking Whistleblower complaints
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Headline 3
Dodd-Frank Whistleblower Provision (cont.)
 Final Rules to be published April 21, 2011 - expected to address the
following issues:









The effect an internal complaint or lack thereof will have on the percentage of recovery
for which a whistleblower may be eligible;
The “grace period” following an internal complaint that allows a whistleblower to keep
his or her “place in line”;
Whether a whistleblower has “independent knowledge”;
What constitutes a “voluntary submission”;
What constitutes “original information”;
Limits on recovery by a whistleblower who engaged in misconduct;
Requirements for anonymous submissions; and
Protections against whistleblower retaliation.
Final Note

Recent Boston Consulting Group draft report indicates that SEC is understaffed by
400 employees
 “Without sufficient human resources, the agency will be unable to complete the
requirements of Dodd-Frank while maintaining its current activities,” the draft report
said.
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the property of their respective owners. © Freescale Semiconductor, Inc. 2006.
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Headline 4
U.K. Bribery Act 2010

U.K. Bribery Act









After 10 years of regular criticism from the OECD Working Group on Bribery
Effective April 2011 - BUT WAIT
Ministry of Justice to issue guidance – deadline January 2011 - BUT WAIT
Similar to FCPA, but with a couple of significant differences
Applies to both bribery of foreign officials and commercial bribery (FCPA
applies only to bribery of foreign officials)
Prohibits facilitation payments (allowed under the FCPA) – BUT WAIT
Strict liability for failure to prevent bribery by a third party acting on behalf of
the company
Evidence of adequate procedures to prevent bribery is an affirmative
defense (under the FCPA, only used to reduce penalty)
Penalties include imprisonment and unlimited fines
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Headline 4
U.K. Bribery Act 2010 (cont.)

U.K. Bribery Act – recent developments on this recent development

U.K. business leaders expressed concern about the impact of the legislation

Lacks clarity; will harm British firms

Specific concerns about corporate promotional activities and hospitality
being prosecuted as bribes
 Effective April 2011 - BUT WAIT

January 31, 2011: Justice Secretary Ken Clarke delayed implementation to at
least 3 months after promulgation of further guidance
 Earliest effect date now July 2011

Prohibits facilitation payments (allowed under the FCPA) – BUT WAIT


February 26, 2011 news report indicates guidance is being modified to allow
facilitation payments
Director of Serious Fraud Office (DOJ equivalent) Richard Alderman
answering questions on the Act - Case by case basis
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Headline 4
U.K. Bribery Act 2010 (cont.)
U.K. Bribery Act – Guidance Issued March 30, 2011 (Key Points)
The Bribery Act 2010 will come into force on 1 July 2011. It is expected that the
Serious Fraud Office will seek to bring prosecutions fairly early in the Act’s life
– looking for early wins.
The guidance retains a principles-based, non-prescriptive approach towards
compliance. The six principles are (i) proportionate procedures, (ii) top-level
commitment, (ii) risk assessment, (iv) due diligence (v) communication and
training and (vi) monitoring and review.
Having securities listed in the UK or a UK subsidiary may not, in itself, mean a
foreign company is carrying on a business in the UK. It is not presumed.
However, the guidance defers to the UK Courts as the “final arbiter” on the
interpretation of the legislation on this point.
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Headline 4
U.K. Bribery Act 2010 (cont.)
U.K. Bribery Act – Guidance Issued March 30, 2011 (Key Points)
Facilitation payments remain illegal; there is no de minimis exception. Prosecution
guidance does set out factors that will make prosecution less likely, e.g., single small
payments likely to result in a nominal penalty.
Corporate hospitality and gifts are not prohibited. More clarity on this topic is offered; for
instance the Quick Start Guide states “you can continue to provide tickets to sporting
events, take clients to dinner, offer gifts to clients as a reflection of your good relations,
or pay for reasonable travel expenses in order to demonstrate your goods or services to
clients if that is reasonable and proportionate for your business”.
A bribe by a subsidiary, its employee or agent may not automatically result in the parent’s
liability. The guidance says an offense is only committed if they intended to obtain or
retain business or an advantage for the parent.
The guidance appears to suggest businesses take a commonsense view on what is and is
not acceptable in many areas.
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Headline 5
Conflict Minerals
Buried
deep within the Dodd-Frank Wall Street Reform and Consumer
Protection Act (§1502)

Focused on minerals mined in the Democratic Republic of Congo and neighboring
countries
 NGO campaign to use consumer pressure on OEMs
 Gold, tin, tantalum and tungsten
Requirements
 Annual SEC Disclosure – If products contain conflict minerals
 Report – on diligence of source and chain of custody of minerals and on efforts to
determine mine of origin and smelter (as applicable) of the minerals
 Identify – Any products that are not DRC conflict free
 Disclosure – Reports audited by independent auditor and posted on company website
either demonstrating conflict free or identifying use of conflict minerals
Regulations originally due April 15, 2011 (State Department) – previously
announced they would not meet that deadline and gave no projected date.
Disclosure/Report due first fiscal year after promulgation of rules
Final
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Headline 5
Conflict Minerals (cont.)
Proponents of legislation argue:
Mining in these countries violates
 Funds rebel organizations
 Damages the environment
human rights
Opponents




argue:
Costly to implement
Difficult to identify original source of minerals – moving target
Will harm the economies of these countries
Ambiguities in the legislation (definitions of person, product, manufacture, due diligence)
Immediate Implications/Issues
Downstream customers already
demanding disclosure of source of minerals; some will
demand only “conflict free” products
Need to engage with suppliers to trace source of minerals and smelter facilities
Some
Help: OECD Guidance Due Diligence Guidance for responsible supply chains of
minerals from conflict-affected and high-risk areas – December 15, 2010

http://www.oecd.org/dataoecd/62/30/46740847.pdf
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Headline 6
Deemed Export Rule Developments
Export Administration Regulations
 Found in the C.F.R., Title 15 (http://www.access.gpo.gov/bis/ear/ear_data.html)
 Key concepts include:

Controlled Technology (e.g., controlled for National Security or Anti-Terrorism
reasons)
 Country Chart (countries where specific controls are applicable)
 Can only export controlled technology to a country on the chart by identifying a license
exception or obtaining an export license
International Traffic in Arms Regulations
 Found in the C.F.R., Title 22
(http://www.pmddtc.state.gov/regulations_laws/itar_official.html)
 Similar concepts as in the EAR applied to Munitions (“Arms”) and technical data
about munitions: controlled items and limitations on exports to specific countries
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Headline 6
Deemed Export Rule (cont.)
Deemed Export Rule
 Access to controlled technology/technical data
by a foreign national anywhere is deemed export
to the foreign national’s home country
 Example – Chinese national working in your
U.S. facility on an H1-B visa

Cannot permit access to controlled technology to
this employee without an export license (or license
exception)
 Issue – having processes in place to prevent the
inadvertent disclosure of controlled technology
New Form I-129 (U.S. Citizenship and Immigration Services)
 Form I-129 “Petition for a Non-Immigrant Worker” has been used for many years
 Form is used when an employer in the U.S. applies to have a foreign national
work in the U.S. on an H1-B or L-1 (and some other) visas
 USCIS issued a new version of Form I-129 effective February 20, 2011
 Section 6 of the new form requires a certification regarding the foreign national’s
access to controlled technology/technical data
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Headline 6
Deemed Export Rule (cont.)
New
Form I-129 (Section 6 certification)
With respect to the technology or technical data the petitioner will release or otherwise provide access
to the beneficiary, the petitioner certifies that it has reviewed the Export Administration Regulations
(EAR) and the International Traffic in Arms Regulations (ITAR) and has determined that:
1. A license is not required from either the U.S. Department of Commerce or the U.S. Department of
State to release such technology or technical data to the foreign person; or,
2. A license is required from either U.S. Department of Commerce or the U.S. Department of State to
release such technology or technical data to the beneficiary and the petitioner will prevent access to
the controlled technology or technical data by the beneficiary until and unless the petitioner has
received the required license or other authorization to release it to the beneficiary.
What




this means for Employers
Must understand export control and ITAR requirements
Must understand the technology necessary for the foreign national to do his or her job
Must have controls in place to segregate and limit access to controlled technology/technical
data (i.e., to avoid inadvertent disclosure or access)
Person certifying the I-129 form must have appropriate level of information to make an accurate
certification (generally completed by Human Resources)
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