Is Anti-Bribery Legislation
Keeping You Up At Night?
May 10, 2012
Carl Valenstein, Rebecca Hartley, Bingham McCutchen LLP
Claudia Gilman, International Legal Consultant
Karen Higgins Valentine, Agenus Inc.
1
Speaker Introductions
• Carl Valenstein, Partner, Corporate Practice Group,
Bingham McCutchen LLP
• Becky Hartley, Senior Counsel, Corporate Practice
Group, Bingham McCutchen LLP
• Claudia Gilman, International Legal Consultant
• Karen Higgins Valentine, Vice President, General
Counsel, Agenus, Inc.
2
Seminar Focus
• Carl Valenstein:
• Overview of Anti-Bribery Trends and Enforcement Activity
• Becky Hartley:
• Overview of Best Practices in Anti-Bribery Compliance
Policies and Procedures
• Carl Valenstein, Becky Hartley, Claudia Gilman and
Karen Higgins Valentine:
• Roundtable Discussion of Frequently Asked Questions by
Corporate Counsel
• Q&A
3
International Anti-Bribery Enforcement
Trends
• The US has pursued three times more bribery
enforcement actions than all other countries, combined,
since 2000*
• In 2010, the U.S. pursued more than twice the number of
formal enforcement actions it did in 2009, but the number
of enforcement actions in countries other than the U.S.
fell significantly in 2010*
• 2011 was second only to 2010 in terms of the number of
enforcement actions initiated.
* Source: TRACE Global Enforcement Report 2011
https://secure.traceinternational.org/Knowledge/TRACE_Publications.html
4
International Enforcement Activity by
Industry
Extractive Industries 19.4%
Aerospace/ Defense/ Security
12.3%
Manufacturing/ Service Provider
12.0%
Health Care 12.0%
Engineering/ Construction 10.5%
All Other 34.1%
* Source: TRACE Global Enforcement Report 2011
https://secure.traceinternational.org/Knowledge/TRACE_Publications.html
5
International Enforcement Activity by
Country of Bribe Payment
Top 10
1.
2.
3.
4.
5.
China - 7%
Iraq - 6.5%
Nigeria - 5.3%
India - 3.2%
Mexico - 2.7%
6. Brazil - 2.4%
7. Russia - 2.2%
8. Indonesia - 2.2%
9. Argentina - 2.1%
10. Saudi Arabia - 1.9%
6
FCPA Enforcement Trends
• Record pace of enforcement in the U.S.
• Investigations increasingly focus on companies within an
industry sector
• Health Care
• Orthopaedic and Medical Devices
• Pharmaceuticals
• Financial Services and Banking
• Telecommunications
7
FCPA Enforcement Trends
• Aggressive prosecution of individuals
• Joel Esquenazi, Terra Telecommunications Corp. (sentenced to
15 years)
• More cases going to trial
• Lindsey Manufacturing
• Shot Show cases
8
FCPA Enforcement Trends
• Increased risk for non-US companies
• 55% of 2010 FCPA enforcement actions involved non-US
companies publicly-traded in the U.S.
• Major cases involving foreign corporations in 2010-2011 include:
• BAE Systems plc ($400 million)
• JCG Corporation ($218 million)
• Alcatel-Lucent S.A. ($137 million)
• Panalpina ($81 million)
• Deutsche Telekom AG/Magyar Telekom ($31 million)
• Seven former Siemens executives charged
• Cross-border cooperation between DOJ and foreign
enforcement authorities continues, particularly between
the US, UK, and Germany
9
FCPA Enforcement Trends
Enormous corporate fines:
1.
2.
3.
4.
5.
Siemens ($800 million)
KBR ($579 million)
BAE ($400 million)
Snamprogetti ($365 million)
Technip ($338 million)
6. JCG ($218.8 million)
7. Daimler ($185 million)
8. Alcatel-Lucent ($137 million)
9. Panalpina ($82 million)
10. J & J ($70 million)
10
FCPA Enforcement Trends
Enormous investigatory expenses, regardless of the fines
• Avon
• $22.5 million through Q1 of 2011 spent on “professional and
related fees”
• $95 million in 2010
• $59 million in 2009
• Faro Technologies
• $2.95 million imposed in criminal and civil fines, penalties, and
disgorgement of profits
• Total investigation costs topped $7 million
11
FCPA Enforcement Trends
Increased Risk of Shareholder Litigation Following
Announcement of FCPA Compliance Issues
• SciClone
• $2.5 million paid to plaintiff’s counsel
• Stipulation of settlement included enhanced anti-corruption
compliance program
• Wal-Mart
• CalSTRS filed shareholder derivative action claiming that
executives failed to act amid overwhelming evidence of
corporate malfeasance and bribery, against the company’s
own ethical guidelines as well as both US and Mexican law.
12
FCPA Enforcement Trends
Increased SEC Enforcement of Books and Records and
Accounting Control Cases without Parallel Bribery Case
• Watts-Water
• Paid SEC $3.7 million to settle accounting control and books
and records case relating to “commission payments” to sales
agents of former Chinese subsidiary that were disguised
payments to Chinese SOEs
• Individual paid $25,000 civil fine
• No parallel bribery case by DOJ
13
What are the Prospects for FCPA
Reform?
• Congressional hearings held on the FCPA
• DOJ has promised to issue “guidance” in hopes of
heading off calls for legislative reform
• US Chamber of Commerce has pressed for reform in the
following areas:
•
•
•
•
•
Definition of “foreign official” and “instrumentality”
Clarification of effective compliance programs
Parent-subsidiary and successor liability
De minimis gifts and hospitality
Clarification of criminal intent
14
UK Bribery Act 2010
• Entered into force July 1, 2011
• Ministry of Justice/SFO issued Joint Prosecution
Guidelines
• Applies to persons incorporated in the UK or carrying on a
business in the UK
• Four Offenses:
• Offering, promising or giving of a bribe (active bribery)
• Requesting, agreeing to receive or accepting a bribe (passive
bribery)
• Bribing a foreign public official
• Corporate failure to prevent bribery, subject to “Adequate
Procedures” defense
15
UK Bribery Act 2010
Key Differences between UK Bribery Act 2010 and the
FCPA include:
• Covers commercial bribery in addition to bribery of public
officials
• No statutory exceptions (but possible prosecutorial discretion)
for “grease” payments
• Defense at the corporate level for having adequate procedures
16
UK Bribery Act 2010
US Companies subject to the UK Act should:
• Expand existing compliance program to cover commercial
bribery and ensure policies and procedures meet the
requirements of the “adequate procedures” defense
• Rethink any carve-outs for facilitation payments based on U.S.
statutory provisions
• Think about modifying global compliance programs to reflect
emerging enforcement practices
17
UK Bribery Act 2010
“Adequate Procedures” Defense
• Compliance policy must contain adequate procedures
designed to prevent persons associated with the
Company from undertaking prohibited conduct
• “Adequate Procedures include policies, procedures, due
diligence, payment controls, and audit/monitoring
functions
18
UK Bribery Act 2010: Enforcement?
• Most UK anti-corruption enforcement action to date not
based on Bribery Act 2010
• First case under the Act was for a minor, domestic-based
offense
• It remains to be seen what types of cases the British
authorities will bring in the future and how vigorous the
enforcement environment becomes
19
Whistleblowers
• The Dodd-Frank Act requires the SEC to pay awards to
whistleblowers who voluntarily provide the SEC with
original information regarding federal securities law
violations that:
• are successfully prosecuted by the SEC, and
• result in monetary sanctions exceeding $1 million
• Award amounts must be at least 10 percent and no more
than 30 percent of total monetary sanctions collected by
the authorities
• The SEC Office of the Whistleblower opened for business
on August 12, 2011
20
Whistleblowers
Many expressed concerns to the SEC that the
Whistleblower statute would undermine corporate selfreporting and corporate compliance programs. Only
modest changes were made to the implementing
regulations following numerous public comments
• Employees are still eligible for awards if they work through
their company’s internal compliance program for up to 120
days (However, there is no requirement that they do so.)
• The SEC will consider the degree to which a reporting
individual has participated in internal compliance activities in
considering whether an individual’s award would be closer
to the 10% or 30% limits
21
Whistleblowers
What should companies do?
• Review existing policies and procedures designed to
promote internal confidential reporting to ensure they
maximize the potential for stimulating disclosure of possible
violations
• Supplement ethics procedures with a robust annual certification
process
• Include ethics compliance as part of employees’ job descriptions
• Publicise avenues for reporting possible violations
• Be creative in designing internal PR campaigns to encourage a
culture of integrity
• Ensure corporate culture respects and rewards those who identify
compliance risks
• Conduct thorough and meaningful exit interviews
22
Whistleblowers
• If a report is filed that is covered by the statute,
companies should plan to complete their investigation
quickly, to determine whether they should report to the
government during the 120 day period
• Consider whether privacy issues (such as EU data
protection issues or similar statutes) that will affect the
collection of data or the company’s actions that are taken
based on that data
23
Key Elements of a Compliance
Program
•
•
•
•
•
•
•
Risk Assessment
Leadership
Policies and Procedures
Staffing
Training
Testing/Auditing
Special Diligence: Joint Ventures and Acquisitions
24
Key Elements of a Compliance
Program:
1.
Risk Assessment
The compliance program must be tailored to the risks of
your organisation — not just copied from another
organisation
25
Key Elements of a Compliance
Program
2.
Leadership
Support of top management — “tone at the top” — is
essential. Letters from senior management endorsing the
compliance program are only a start. Business
decisions, and adequate funding for compliance efforts
speak louder than words
26
Key Elements of a Compliance
Program:
3.
Policies and Procedures
General policies against corruption need to be
supplemented by specific policies addressing key risk
areas such as hospitality, facilitating payments, political
or charitable contributions and use of intermediaries
27
Key Elements of a Compliance
Program:
4.
Staffing
A compliance officer or committee needs to be appointed
to implement policies and procedures and to respond to
questions — confidential internal reporting procedures
are essential for public companies, particularly in light of
new SEC whistle-blower rules. Many private companies
are moving to implement these types of reporting
procedures
28
Key Elements of a Compliance
Program:
5.
Training
Training of personnel and associated persons, such as
agents, in applying the policies and procedures and
identifying warning signs is critical. Training should be
customized to the group of individuals being trained (e.g.
sales & marketing; internal auditors; finance department)
29
Key Elements of a Compliance
Program:
6.
Testing/Auditing
The compliance program needs to be tested periodically
(either by internal audit and compliance personnel or by
external consultants) and adapted to address actual or
potential issues — persons who violate policies and
procedures must be appropriately disciplined or
terminated
30
Key Elements of a Compliance
Program:
7.
Special Diligence
Special due diligence to assess corruption risks is
necessary for mergers and acquisitions, joint ventures
and use of intermediaries
31
Design Considerations for Policies and
Procedures
Business Hospitality / Gifts and Entertainment
• Policies must reflect that violations turn on facts and
circumstances
• Establish clearance procedure within the organization to
judge such issues of context
• Limit self-policing by front-line business personnel
• Pros and cons of permitting de minimis monetary exceptions
from clearance procedures
• Consider whether the same rules should apply to
government officials and commercial counterparties
32
Design Considerations for Policies and
Procedures
Facilitation Payments - Practical Considerations
• Policies must reflect that violations turn on facts and
circumstances, as well as applicable law
• Problems associated with having a zero-tolerance rule:
• books and records violations
• fosters a culture of non-compliance with company rules
• Health and safety considerations in emergency situations
33
Design Considerations for Policies and
Procedures
Political and Charitable Contributions
• Given recent scandals over pay-to-play, if companies permit
such payments, using company resources, they should
implement a screening procedure
• Legal and appropriate under applicable law?
• Recipients are a bona-fide political party or charity?
• Recipients are not a pet-project of a business leader the
company seeks to influence
34
Design Considerations for Policies and
Procedures
Use of Intermediaries
• Thorough background check essential
• Ensure intermediaries are allowed to provide the relevant
services under local law, including revolving door
requirements
• Create a record that the agent understands and has been
trained in the company’s compliance policies and
procedures
• Payments must be commensurate with the services
provided. Pay particular attention to up-front payments and
success fees
• Monitor deliverables and the on-going relationship
35
Frequently Asked Questions for
Discussion
• How I do I make an assessment of the key bribery risk areas
for my company?
36
Frequently Asked Questions for
Discussion
• The Chairman of the Board has asked me what the duties of
the Board are with respect to ensuring that the company has
adequate anti-bribery policies and procedures? My CEO has
asked me what he and the other senior executives need to
do to set the right “tone at the top”?
37
Frequently Asked Questions for
Discussion
• My CEO wants to have a anti-bribery compliance program
that complies with best practices but does not cost a fortune.
What are the minimum necessary elements of such a
program?
38
Frequently Asked Questions for
Discussion
• We have a small subsidiary in England that is not material
from a financial perspective. We have a five-year old FCPA
compliance program that is focused on bribes to foreign
government officials and allows for expediting payments
authorized under the FCPA and no prior approval of gifts or
entertainment with a value of under $1,000. What do I need
to do to update the anti-bribery program to avoid potential
exposure under the UK Bribery Act? I am concerned that a
no-facilitating payments policy will lead to books and records
problems. I am also concerned about the volume of
transactions that will have to be reviewed if approval of all
gifts or entertainment above $100 is required.
39
Frequently Asked Questions for
Discussion
• Does my company need a full-time compliance officer or can
a member of the legal department serve in this capacity
part-time?
40
Frequently Asked Questions for
Discussion
• What is the appropriate level of due diligence on agents,
vendors and distributors? Do I need to train all of them in
our anti-bribery policies and procedures? Do I need to audit
them to determine if they are in compliance or is it sufficient
to rely on annual certificates of compliance?
41
Frequently Asked Questions for
Discussion
• With respect to training company personnel, do I need to
train everyone? Is on-line training as effective as in-person
training and will it comply with best practices? How often do
company personnel need to be trained? Are annual
certificates of compliance from company personnel
required?
42
Frequently Asked Questions for
Discussion
• Do I need to have an ethics hot-line for all foreign affiliates?
If not, how can I assure that there is confidential reporting
system in place that avoids placing an employee at risk of
retaliation? Are there privacy concerns with self-reporting
systems? I am told that self-reporting systems don’t work
outside of the United States because foreign employees do
not believe it is appropriate to self-report. Is this correct?
43
Frequently Asked Questions for
Discussion
• What kind of testing/auditing procedures are appropriate for
our anti-corruption compliance program and how often does
there need to be testing/auditing?
44
Frequently Asked Questions for
Discussion
• Should all violations of our anti-bribery policy result in
termination of the violators? How would the enforcement
officials view our keeping them on the payroll during and
after an investigation?
45
Thank you for your attention
Questions & Answers
Carl Valenstein
Email: carl.valenstein@bingham.com
Tel: .202.373.6273
Rebecca Hartley
Email: rebecca.hartley@bingham.com
Tel: 202.508.4266
Claudia Gilman
Email: claudia.j.gilman@gmail.com
Tel: 617.312.2003
Karen H. Valentine
Email: karen.valentine@agenusbio.com
Tel: 781.674.4678
46
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