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ACFE
Anti-Corruption/FCPA: Industry-Wide Issues June 18, 2012
www.pwc.com
PwC 2 June 18, 2012 ACFE – Anti-Corruption/FCPA – Industry-wide issues
Agenda
• Fundamentals of FCPA and Other Anti-Corruption Statutes
• Anti-Corruption Risks Associated with Various Industries
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Fundamentals of FCPA and Other Anti-Corruption Statutes
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FCPA History
The Foreign Corrupt Practices Act (FCPA) was created in 1977 as a result of over 400 U.S. companies admitting to making questionable or illegal payments to foreign government officials, politicians, and political parties. Congress enacted the FCPA in an attempt to stop bribery of foreign officials and restore the integrity of American businesses.
The FCPA’s scope was expanded in 1998. It was amended to mirror language included in the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
• Any “improper advantage” vs. “business”
• Expanded jurisdictional reach
• Expanded definition of foreign official
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The FCPA Is Violated When
An issuer or any of its officers, directors, employees, agents or shareholders; a domestic concern; or a foreign national pays, offers, promises to pay, or authorizes/approves the payment of money or anything of value:
• To a foreign official, foreign political party, candidate for political office, or official of a public international organization
• In a corrupt effort to obtain, retain, or direct business to any person or obtain an improper advantage
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Key Elements of the FCPA
Anti-bribery provisions
• It is a crime for any U.S. person or company to directly or indirectly pay or promise anything of value to any foreign official to obtain or retain any improper advantage.
Accounting requirements
• Section 13(b)(2)(A) of the Exchange Act
• “Make and keep books, records and accounts, which in reasonable detail, accurately reflect the transactions and dispositions of assets.”
• Reasonable—such level of detail that would satisfy prudent officials in the conduct of their affairs
Internal controls
• Section 13(b)(2)(B) of the Exchange Act
• “Devise and maintain a system of internal accounting controls sufficient to provide reasonable assurance that” transactions are recorded appropriately and in accordance with rules and regulations.
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Heightened Enforcement
Source: Miller Chevalier FCPA Winter Review 2012
Resolved FCPA Enforcement Actions by Year
19 18 21
40
22 21
16 14
31
17
0
5
10
15
20
25
30
35
40
2007 2008 2009 2010 2011
DOJ Actions SEC Actions
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Heightened Enforcement
Source: Miller Chevalier FCPA Winter Review 2012
Individuals Standing Trial on FCPA-Related Counts
0
4
0
14
19
22
0
5
10
15
20
25
2008 2009 2010 2011 Scheduled for 2012 No Date Set
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FCPA-Related Individual Sentences (1 of 2)
Industry Nationality Sentence Title/Position Penalty
Telecommunications American 15 years President $1.545 million
Consulting American 87 months President $500,000
Telecommunications American 84 months Executive vice president $1.545 million
Oil and Gas American 30 months and 3 years probation
Chairman and CEO $10.8 million
Food American 63 months CEO $198,000
Defense American and Chinese
51 months President, secretary , and treasurer
$250,000
Telecommunications American 46 months CEO $500,000
Consulting American 37 months President $331,000
Food American 37 months Vice president $187,000
Consulting American 37 months President $331,000
Food American 37 months Vice president $187,000
Consulting American 37 months President $331,000
Food American 37 months Vice president $187,000
Tobacco American 3 years probation Country manager $250,000
Education American 3 years probation Member $200
Chemicals Canadian 30 months Agent $250,000
Telecommunications French 30 months Deputy vice president $261,500
Chemicals Canadian 30 months Agent $250,000
Source: FCPA blog
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FCPA-Related Individual Sentences (2 of 2)
Industry Nationality Sentence Title/ Position Penalty
Telecommunications French 30 months Deputy vice president $261,500
Oil and Gas British and Israeli 21 months Agent/Lawyer $ 149 million
Technology American and Vietnam
16 months President and owner $20,000
Telecommunications American 2 years Controller $36,375
Technology American 2 years probation Partner $1,000
Financial Services Indian 15 months Employee $6,000
Oil and Gas American 15 months General manager $2,000
Oil and Gas American 1 year Managing director of subsidiary $317,500
Retail American 1 year Entrepreneur $1 million
Oil and Gas UK and Polish 1 year probation Manager $726,885
Entertainment American 6 months Producer $250,000
Manufacturing American 6 months Salesmen $7,500
Oil and Gas American 1 year Managing director of subsidiary $317,500
Retail American 1 year Entrepreneur $1 million
Oil and Gas UK and Polish 1 year probation Manager $726,885
Entertainment American 6 months Producer $250,000
Manufacturing American 6 months Salesmen $7,500
Source: FCPA blog
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Section 1—Fundamentals of FCPA and Other Anti-Corruption Statutes
Anti-corruption actions by multilateral banks
World Bank • Between 2006–2010, the Bank conducted 790 anti-corruption investigations. • In 2010, the Bank peaked its five-year high at 194 investigations. • 215 firms have been debarred. Inter-American Development Bank • Between 2006–2010, the Bank conducted 709 anti-corruption investigations. • 119 individuals and firms (collectively) have been debarred.
Asian Development Bank • Between 2006–2010, the Bank conducted 465 anti-corruption investigations. • 652 individuals and firms (collectively) have been debarred.
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Defining Foreign Officials
Judge’s guidance regarding SOE in a recent FCPA case:
The entity provides a service to the citizens—indeed, in many cases to all the inhabitants—of the jurisdiction.
The key officers and directors of the entity are, or are appointed by, government officials.
The entity is financed, at least in large measure, through governmental appropriations or through revenues obtained as a result of government-mandated taxes, licenses, fees, or royalties, such as entrance fees to a national park.
The entity is vested with and exercises exclusive or controlling power to administer its designated functions.
The entity is widely perceived and understood to be performing official (i.e., governmental) functions.
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FCPA vs. UK Bribery Act 2010 (Highlights)
U.S. Foreign Corrupt Practices Act
• Civil and criminal consequences
• Public bribery
• Bribe payers
• Corrupt intent requirement
• Books and records and internal controls
• Issuers, U.S. persons, foreign nationals, and agents
• Facilitation Payments Exception
• Bona-Fide Marketing Costs Exception
• Supply chain responsibility
• Entity size not relevant
UK Bribery Act 2010
• Only criminal consequences
• Commercial and public bribery
• Bribe takers and bribe payers
• No such requirement
• No such requirement
• UK entities or carrying on business or part of a business in the UK
• No similar exception; however, “public interest” exception
• No similar exception
• Supply chain control responsibility “associated person”
• Adequate procedures = full defense
• Proportionality
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UK Bribery Act 2010 (Highlights)
• UK Bribery Act 2010 came into force only on July 1, 2011
• On November 18, 2011, Munir Patel was sentenced to three-years imprisonment for receiving a bribe. Patel was a court clerk in London who was caught in a sting by The Sun newspaper, accepting £500 to not record penalties on a person’s driving license.
• At sentencing, the judge remarked that the prosecutors had identified 53 instances where Patel had tampered with records.
• Other UK Anti-Corruption Enforcement (non-UKBA):
- International publishing house debarred by World Bank after scandal
- Insurance company settlement
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Section 1—Fundamentals of FCPA and Other Anti-Corruption Statutes
Tone of regulators―outside of the United States
India
Russia United Kingdom
Nigeria
The United States
China
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Global Anti-Corruption Efforts
Country UNCAC OECD Foreign Bribery Law
Brazil Ratified
Russia Signed
India Ratified Introduced in Parliament
China Yes
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Anti-Corruption Risks Associated with Various Industries
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Examples of Anti-Corruption Risks in the Oil and Gas Industry
Source: FCPA map–James Mintz Group Inc.
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Examples of Anti-Corruption Risks in the Oil and Gas Industry
• Aggressive anti-corruption enforcement
• Use of agents, consultants, and other third-party intermediaries
• High involvement of state-owned companies
• Joint ventures with the state
• Offshore accounts (Gibraltar, Switzerland, etc.)
• Emphasis on nationalization/local content
• Student scholarship programs
• Freight forwarders and logistic service provider might be involved
• High profile entertainment (especially overseas)
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Examples of Anti-Corruption Risks in the Pharmaceutical and Medical Devices Industry
Source: FCPA map–James Mintz Group Inc.
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Examples of Anti-Corruption Risks in the Pharmaceutical and Medical Devices Industry
• Most HCPs are publicly owned and operated in developing countries
• Highly regulated business—drug trials and approvals
• Procurement process and potential tender rigging with foreign ministries
• Gifts, gratuities, travel, and entertainment
• Donations to NGOs sponsored or represented by a government official
• Clinical research, R&D, physician sponsorships
• Frequent-flyer programs
• Rebates, promotions, spiffs
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Examples of Anti-Corruption Risks in the Telecommunications Industry
Source: FCPA map–James Mintz Group Inc.
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Examples of Anti-Corruption Risks in the Telecommunications Industry
• Highly regulated industry makes licenses hard to obtain (e.g., 2G scam in India)
• Monopoly/oligopoly in certain countries
• Privatization of state-owned companies
• Bogus consulting, sham contracts, and fictitious invoices and marketing contracts
• Gifts, trips to Disneyland and the Grand Canyon, and cash incentives offered to foreign officials
• Discounted rates for international interconnection
• Sponsorship of political campaigns
• Lobbyists hired to make improper payments
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Examples of Anti-Corruption Risks in the Manufacturing Industry
Source: FCPA map–James Mintz Group Inc.
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Examples of Anti-Corruption Risks in the Manufacturing Industry
• Distinguish light manufacturing and heavy manufacturing (more susceptible)
• Joint-ventures with state-owned companies common
• China, India, and Russia—top offshoring destinations
• Environmental and competition authorities are public officials
• Work permits and visas
• Supply chain and logistics
• Trade restrictions and government subsidies
• Obtaining licenses/permits
• Sales to state-owned entities
• Design institutes and other such quasi-state-owned entities
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Examples of Anti-Corruption Risks in Other Industries
Source: FCPA map–James Mintz Group Inc.
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Examples of Anti-Corruption Risks in the Financial Services Industry
• Sovereign wealth funds
• Pay-to-play schemes
• State-owned banks
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Anti-Corruption: What’s in Store for 2012?
• Upcoming FCPA compliance guidance from DOJ
• More individual prosecution
• More litigation
• More FBI involvement
• U.S. Chamber of Commerce—proposed amendments to the FCPA:
- Adding a compliance defense
- Clarifying the meaning of “foreign official”
- Improving the procedures for guidance and advisory opinions from the DOJ
- Limiting a company’s criminal liability for the prior actions of a company it has acquired
- Adding a “willfulness” requirement for corporate criminal liability
- Limiting a company’s liability for acts of a subsidiary not known to the parent
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Anti-Corruption: What’s in Store for 2012?
• Overseas Contractor Reform Act
• Right of Civil Action under FCPA
• Impact of Dodd-Frank Act
- Whistleblower bounty program
- Control person theory
- Aiding and abetting
• Compliance as part of derivative action settlements
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Thank you! Questions?
Sulaksh Shah, Director
FCPA Services PwC
Email: [email protected]
Tel: 703-918-4477
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