Foreign Corrupt Practices Act
Enforcement
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Avoiding Corruption in International
Mining Projects:
Risk Management and Compliance Strategies
A Presentation For MineAfrica's 9th Annual Investing In African Mining
Seminar
Mark F. Mendelsohn
March 8, 2011
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Foreign Corrupt Practices Act
Enforcement
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Combating
Corruption Is A
Growing Priority
•
We know that countries are more likely to prosper when
governments are accountable to their people. So we are
leading a global effort to combat corruption—which in
many places is the single greatest barrier to prosperity,
and which is a profound violation of human rights. That’s
why we now require oil, gas and mining companies that
raise capital in the United States to disclose all payments
they make to foreign governments. And it’s why I urged
the G-20 to put corruption on its agenda and make it
harder for corrupt officials to steal from their people and
stifle their development.
— Remarks of President Barack Obama, September 22, 2010, Millennium
Development Goals Summit, U.N. Headquarters, New York, New York
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Foreign Corrupt Practices Act
Enforcement
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History of
the FCPA
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First 20 Years: 1977 to 1997
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Law created after Watergate scandal
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17 companies and 33 individuals named in FCPA enforcement actions
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Little foreign bribery legislation or enforcement outside the United States
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UN and World Bank decline to address corruption
Next 10 Years: 1998 to 2008
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OECD Convention implemented and tax deductibility of bribes eliminated
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1998 FCPA amendments expand its jurisdictional reach
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Increased financial improprieties lead to increased oversight of corporate conduct
(e.g. Sarbanes Oxley)
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50 companies and 70 individuals named in FCPA enforcement actions
Current FCPA Enforcement
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Enforcement has surged
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Historic increases in monetary penalties in 2009 and 2010
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Industry-wide sweeps
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Increase in multi-jurisdictional investigations and prosecutions with closer
coordination between prosecutors
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In 2009 and 2010 alone, 41 companies and 75 individuals named as defendants
in FCPA enforcement actions
Foreign Corrupt Practices Act
Enforcement
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An overview of the FCPA: Two Parts
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Key FCPA
Concepts
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Anti-Bribery Provisions – Prohibits corrupt offers or payments to foreign government officials to assist in
obtaining or retaining business
Accounting Provisions – Requires (1) accurate books and records; and (2) appropriate accounting and
controls systems
Long jurisdictional reach of the FCPA
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Anti-Bribery Provisions apply to:
•
•
•
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–
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Issuers, US companies (including subs of foreign companies) and individuals are liable if they take
improper actions using the US mails, wires or other means of interstate commerce (e.g. telephone
calls, emails, wire transfers)
Foreign companies are liable of they take improper action while within the territory of the US
US government has asserted broad jurisdiction over foreign companies and individuals, including
bringing charges for "conspiring to violate" or "aiding and abetting violations" of the FCPA
Important concepts broadly defined
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–
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(1) US persons (individuals and companies) wherever they are;
(2) anyone in the territory of the US; and
(3) non-US companies with stock listed on US exchanges (includes those that issue certain American
Depository Receipts)
"Money or anything of value" – includes cash; gifts, hospitality and entertainment; travel; scholarship or
admission to university; jobs; interest in a business; dividends
"Foreign official" – covers officers or employees of a foreign government, including government-owned
or controlled organizations (SOEs like national oil companies; state-run hospitals); officers or
employees of a public international organization; police and military officials; customs and border
officials; advisor to a government; political party or candidate for office
"Obtain or retain business" – includes sale of goods; grant or renewal of a contract/concession;
regulatory approval; reduction in taxes; avoiding customs duties
Indirect payments also prohibited – corrupt payments through a third party, such as a sales
representative, consultant, joitn venture partner, or lawyer are prohibited if authorized, directed or had
knowledge
"Knowledge" defined to include that a person believes conduct is highly probable or substantially
certain to occur; imputed knowledge of facts purposely avoided ("conscious disregard")
Foreign Corrupt Practices Act
Enforcement
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International
Framework
OECD Convention
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Came into force in February 1999, focusing strictly on supply-side official corruption
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Signed by 34 OECD member countries and 4 non-member countries
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Requires national implementing legislation, including a foreign bribery offense;
corporate liability; effective, proportionate and dissuasive sanctions
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Gold standard peer review mechanism
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In June 2010, the OECD released for the first time data on foreign bribery
enforcement efforts by the 38 Parties to the Convention.
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148 individuals and 77 entities have been criminally sanctioned for foreign bribery in 13 Parties
between the time the Convention entered into force in 1999 and the end of 2009. Of these 13
Parties, 7 have sanctioned both companies and individuals.
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At least 40 of the sanctioned individuals were sentenced to prison for foreign bribery.
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Combined fines of up to EUR 1.24 billion have been imposed on companies for foreign bribery.
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Approximately 280 investigations are ongoing in 21 Parties to the Anti-Bribery Convention, with
no activity in the other 17.
OECD Good Practice Guidance establishes global anti-corruption compliance
standards.
UN Convention Against Corruption
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First global, comprehensive anti-corruption treaty
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140 signatories as of March 1, 2011
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Addresses demand and supply side corruption; international and domestic
corruption; asset seizure, forfeiture and repatriation; technical assistance
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Peer review mechanism under development
Foreign Corrupt Practices Act
Enforcement
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•
Canada
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Corruption of Foreign Public Officials Act (CFPOA)
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Canada ratified the OECD Convention and adopted national
implementing legislation effective February 1999.
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CFPOA modeled very closely on the US FCPA
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Key differences:
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CFPOA has no accounting provisions or civil enforcement or sanctions
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CFPOA has narrower jurisdiction, requiring "real and substantial link" to
Canada
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CFPOA has no nationality jurisdiction, resulting in OECD criticism for failure to
implement the Convention in this respect
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CFPOA does have a "facilitation payments" exception, like the FCPA
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RCMP has established special units in Calgary and Ottawa to
investigate overseas corruption
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One corporation and, in July 2010, one individual charged under the
CFPOA.
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A major, listed Canadian oil and gas exploration and production
company is reportedly under investigation
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International peer pressure on Canada to improve its enforcement
record is likely.
Foreign Corrupt Practices Act
Enforcement
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•
United Kingdom
& The Bribery Act
The United Kingdom: A new legislative and institutional framework
is coming.
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The UK Bribery Act of 2010
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Expected to come into force three months after guidance is finalized – probably
by end of 2011.
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Active and passive bribery offenses covering public official and private sector
bribery.
•
New offense of foreign official bribery.
– No facilitation payments exception; prosecutorial discretion
– No safe harbor or provision for promotional and marketing expenses,
although this is likely to be addressed in guidance.
•
New strict liability corporate offense of failure to prevent foreign official bribery.
– Affirmative defense of “adequate procedures;” draft guidelines suggest
that standards will be in line with USSG and OECD Good Practice
Guidance
– Affirmative defense is not available where senior management is
involved in the crime.
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Jurisdictional reach: covers commercial organizations which "carry on a
business, or any part of a business, in any part of the United Kingdom"
Prosecution of cases
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A new, unified economic crime agency may be formed, merging parts of the
Financial Services Authority (FSA), the Serious Fraud Office (SFO), and the
Office of Fair Trading .
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Unclear whether the new agency will have enhanced powers.
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In the meantime, the SFO is prosecuting & settling cases under the old laws.
Foreign Corrupt Practices Act
Enforcement
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Dodd-Frank
Act: Disclosure
of Payments by
Resource
Extraction
Issuers
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•
Proposed rules under the Dodd-Frank Act require extraction
issuers to include in their annual reports disclosure of payments
by the issuer, a subsidiary or other controlled entity to a non-U.S.
government or the U.S. federal government for the purpose of the
commercial development of oil, natural gas or minerals.
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Covered payments include production entitlements; corporate taxes
on income, profits and production; royalties; bonuses; license and
concession fees; etc.
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Disclosure obligation has no exception for local law restrictions or
contractual confidentiality obligations.
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Rules prescribe specific format and content of disclosure.
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Disclosure will be “furnished” rather than “filed,” resulting in no liability
for material misstatements or omissions
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Final rules to be adopted by April 15, 2011, with first annual
disclosures likely due in annual reports for FY ending on or after April
15, 2012.
Foreign
Corrupt
Practices
Act
Foreign
Corrupt
Practices
Act (FCPA):
Current Anti-corruption
Enforcement
Compliance Best Practices
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Mining Sector
Corruption
Risks
1. Mineral resources are often in markets suffering from weak
rule of law and high levels of corruption: Congo, Sierra Leone,
Afghanistan, Mongola, Papua New Guinea, etc.
2. Common use of finders, commissioned agents, local partners,
and other third parties in the acquisition of mining rights and
concessions
3. Importance of relationships with and support of local and tribal
communities and leaders
4. Heavy dependence on local police and military for security
and protection
5. Prevalence of joint venture and other teaming and coinvestment relationships
6. Mergers and acquisitions are a regular feature of the industry
Foreign
Corrupt
Practices
Act
Foreign
Corrupt
Practices
Act (FCPA):
Current Anti-corruption
Enforcement
Compliance Best Practices
P A U L, W E I S S, R I F K I N D, W H A R T O N & G A R R I S O N L L P
Mining Sector
Corruption
Risks
7. Use of cash and lack of sophisticated banking system in
certain countries of operation
8. Need for approvals, permits, water, power and labor result in
frequent interactions with government bureacracies
9. Must deal with tax, finance and mining authorities
10. Customs issues with the importation of equipment, tools and
personnel and the export of minerals
11. Intersection of the mining sector and national security and
state secrets issues
Corrupt
Practices
Act on the Executive Suite and
Foreign CorruptForeign
Practices
Act (FCPA):
Focus
Enforcement
the General Counsel
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Compliance as
the Best Defense
There will always be rogue employees who decide to take matters into
their own hands. They are a fact of life. But when the right tone is
set at the top – in the executive suite and in the general counsel’s
office – you significantly reduce the risk of criminal conduct. And
your jobs become easier. We are not interested in prosecuting
corporations or executives or lawyers who are working hard to do the
right thing. We are not interested in making cases for their own sake.
We bring cases only when the facts and the law convince us that we
can prove guilt beyond a reasonable doubt. Indeed, just as we will not
shy away from bringing any case when the circumstances warrant, we
also aim to reward responsible corporations – corporations that
maintain strong compliance programs and remedy and disclose
wrongdoing when they discover it.
Assistant Attorney General Lanny A. Breuer of the Criminal
DivisionSpeaks at the Annual Meeting of the Washington
Metropolitan Area Corporate Counsel Association
McLean, VA ~ Wednesday, January 26, 2011
Foreign
Corrupt
Practices
Act
Foreign
Corrupt
Practices
Act (FCPA):
Current Anti-corruption
Enforcement
Compliance Best Practices
P A U L, W E I S S, R I F K I N D, W H A R T O N & G A R R I S O N L L P
1. Written, corporate anti-corruption policy
AntiCorruption
Compliance
Standards
2. Strong, visible senior management commitment to anticorruption policy
3. Well-designed compliance standards and procedures,
applicable to all directors, officers and employees, and
extended to third-parties and business partners, which
address:
– Gifts
– Charitable donations and sponsorships
– Hospitality, entertainment and expenses
– Facilitation payments
– Customer travel
– Solicitation and extortion
– Political contributions
Foreign
Corrupt
Practices
Act
Foreign
Corrupt
Practices
Act (FCPA):
Current Anti-corruption
Enforcement
Compliance Best Practices (continued)
P A U L, W E I S S, R I F K I N D, W H A R T O N & G A R R I S O N L L P
AntiCorruption
Compliance
Standards
4. Tailor compliance policy, standards and procedures
based on assessment of risks facing your company
5. Review anti-corruption compliance policy, standards and
procedures no less than annually and update
6. Assign responsibility for implementation and oversight of
anti-corruption compliance system to a senior corporate
executive, with sufficient resources, independence and
authority, and with a direct report to independent
monitoring bodies, e.g. the Board of Directors, an
appropriate committee of the Board, and internal audit
7. Maintain a system of financial and accounting procedures
and internal controls reasonably designed to ensure
accurate recordkeeping and to prevent corporate assets,
records and accounts from being used to carry out or
conceal foreign bribery
Foreign
Corrupt
Practices
Act
Foreign
Corrupt
Practices
Act (FCPA):
Current Anti-corruption
Enforcement
Compliance Best Practices (continued)
P A U L, W E I S S, R I F K I N D, W H A R T O N & G A R R I S O N L L P
AntiCorruption
Compliance
Standards
8. Effectively communicate anti-corruption compliance
policy, standards and procedures, including:
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Periodic training for directors, officers, employees, agents
and business partners
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Annual training and compliance certifications for directors,
officers, employees, agents and business partners
9. Maintain compliance advice, hotline, and whistleblower
mechanisms which:
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are readily available on an urgent basis and throughout
global operations
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provide for confidential reporting by and protection for
whistleblowers, both internal and external
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respond promptly to complaints and undertake appropriate
action
Foreign
Corrupt
Practices
Act
Foreign
Corrupt
Practices
Act (FCPA):
Current Anti-corruption
Enforcement
Compliance Best Practices (continued)
P A U L, W E I S S, R I F K I N D, W H A R T O N & G A R R I S O N L L P
10. Maintain remediation policies and procedures which:
AntiCorruption
Compliance
Standards
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discipline those who violate anti-corruption laws and policies
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address the harm resulting from violations
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take steps to prevent further, similar misconduct
11. Institute due diligence and compliance requirements
pertaining to agents and business partners including:
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conduct risk-based due diligence
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exercise oversight of agents and business partners
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inform agents and business partners of your commitment to
integrity and anti-corruption compliance policy and
procedures
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obtain a reciprocal commitment from your agents and
business partners
Foreign
Corrupt
Practices
Act
Foreign
Corrupt
Practices
Act (FCPA):
Current Anti-corruption
Enforcement
Compliance Best Practices (continued)
P A U L, W E I S S, R I F K I N D, W H A R T O N & G A R R I S O N L L P
AntiCorruption
Compliance
Standards
12. Include the following contractual provisions in agreements
with agents and business partners:
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anti-corruption representations and warranties
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audit rights
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termination rights upon violation of law or representations
and warranties
13. Periodic review and testing of anti-corruption compliance
policy and procedures
‐
corruption audits
14. Conduct anti-corruption diligence in connection with
mergers, acquisitions and investments