Managing FCPA Issues in a Global Organization · | +1 952 933 4977 or 888 277 4977 2 FCPA Overview...

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Society of Corporate Compliance and Ethics

6500 Barrie Road, Suite 250, Minneapolis, MN 55435, United States

www.corporatecompliance.org | +1 952 933 4977 or 888 277 4977

Managing FCPA Issues in a Global Organization

Moderator

Adam Turteltaub, Vice President of Membership Development, SCCE

Panel

Marjorie Doyle, Global Practice Leader, Ethics & Compliance Solutions, LRN

Michael Horowitz, Litigation Partner, Cadwalader, Wickersham & Taft, LLP

Stacey Luck, JD, Trial Attorney, U.S. Department of Justice

SanDee Priser, Partner, Ernst & Young, LLP

www.corporatecompliance.org | +1 952 933 4977 or 888 277 4977 2

FCPA Overview

• Roots in the 1970s

– 400+ companies making questionable or illegal payments

– $300+ million

• Prohibits corrupt payments to foreign officials for the purpose of obtaining or keeping business.

– Since 1998 also applies to foreign entities who further a corrupt payment while in the US

• The Department of Justice is the chief enforcement agency

• Coordinate role played by the Securities and Exchange Commission(SEC).

– Books and record requirements

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FCPA – Five Elements

• Who: Potentially any individual, firm, officer, director, employee, or agent of a firm and any stockholder acting on behalf of a firm.

• Corrupt Intent: The person making or authorizing the payment must have a corrupt intent and the payment must be intended to inducemisuse of an official position.

• Payment: The FCPA prohibits paying, offering, promising to pay (or authorizing to pay or offer) money or anything of value.

• Recipient: The FCPA applies to payments to any public official,regardless of rank or position. Also includes candidates and party officials.

• Business Purpose: Payments made in order to assist the firm in obtaining or retaining business for or with, or directing business to, any person.

Source: www.usdoj.gov/criminal/fraud/docs/dojdocb.html


Facilitation Payments

• Permits payments for routine items: obtaining permits, licenses, or other official documents; processing governmental papers, such as visas and work orders; providing police protection, mail pick-up and delivery; providing phone service, power and water supply, loading and unloading cargo, or protecting perishable products; and scheduling inspections associated with contract performance or transit of goods across country.

Source: www.usdoj.gov/criminal/fraud/docs/dojdocb.html

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The Anti-Corruption Landscape

• Clear consensus that corruption must be avoided.

– OECD

– EU Anti-Bribery Conventions

– World Bank

– Public opinion

• Stepped up, and coordinated enforcement.

– DOJ and SEC

• Robust penalties.

– Fines

– Internal monitors


The Anti-Corruption Landscape

• Enforcement efforts affecting a wide range of industries.

– Defense

– Oil & gas

– Medical devices

– Pharmaceuticals

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Multiple Challenges

• Cultures of corruption.

– Large number of countries with widespread corruption

• Transparency International bottom scores:

– Sudan, Guinea, Iraq, Myanamar, Haiti

• China constant source of concern


Multiple Challenges

• Difficulty in controlling remote offices and agents.

– Challenges in auditing and monitoring

• Sometimes difficult to know who is a government official.

– Especially for pharma and medical devices

• Can be too tempting.

– Easy to see what you can get, hard to remember that how you get it counts

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Reputational Complication

• Damage goes beyond the fine.

– Long-term reputational consequences

• Stock price

• Recruiting

• Press mentions


What Countries Are Doing -- Communicating

Source: LRN Risk Management Practices Report

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What Companies Are Doing – Agents & Contractors



What Companies Are Doing -- Detection

• Whether domestically or internationally, companies rely on multiple reporting tools for detecting violations.


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What Companies Are Doing -- Detection

• Supervisors are generally seen as the first line of detection.



Speakers

• Adam Turteltaub

– Corporate Relations Executive

– LRN

– [email protected]

– 310.209.5388

• Marjorie Doyle

– Global Practice Leader

– LRN


– 484.508.8153

• Michael Horowitz

– Commissioner, US Sentencing Commission

– Partner, Cadwalader Wickersham & Taft


– (202) 862-2407

• Stacey Luck

– Trial Attorney

– US Department of Justice

– Washington, DC

• SanDee Priser

– Partner

– Ernst & Young


– 312.879.3621

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SCCE 2008 Compliance and Ethics Institute –

Managing FCPA Issues in a Global Organization

Michael E. Horowitz

Partner, Cadwalader, Wickersham & Taft

[email protected]; (202) 862-2253


General Program Guidance From The Cases

• Develop clear FCPA procedures and program elements

– Communication, regular training, and annual certifications

– Reporting systems, and appropriate discipline for violations

• Procedures must be reasonably capable of preventing violations (ie, Sentencing Guidelines factors)

– Should be a risk-based approach to controls / procedures

– Due diligence and oversight of third-party relationships

– Appropriate contractual language with third-parties on anti-corruption reps and warranties, and compliance with laws

– Controls to ensure accuracy of books and records

• Senior management reporting on FCPA status to audit committee

• Regular audits to ensure program implemented effectively

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Key Issue With Global FCPA Procedure: Local Market Implementation

• Need buy in and implementation by local markets to enforce and implement corporate procedure

– Local market identification of public officials

– Detailed procedures to cover issues specific to market (gifts and hospitality, consultants, distributorships, customs, etc)

– Appropriate oversight by Corporate Compliance of local implementation

• Local systems, processes, controls subject to periodic auditing

• Appropriate record retention

• Consider making it an “anti-corruption policy”, not an FCPA policy –remember every country has laws against bribery

• Need to directly address differing cultural views/attitudes in local markets


Basic Control Steps / Due Diligence On Third Parties

• Consider the subject market / territory

• Identify relationships with government officials

• Determine the competence / integrity of the third party (questionnaires, interviews, etc.)

• Reasonableness of compensation vs. work to be performed, fair market value, etc.

• Ensure compliance with local laws, as well as the FCPA

• Integrate FCPA safeguards into the third-party agreement

• Maintain continuing oversight of the third-party activities Maintain due diligence file

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It’s All About The Controls: Invision Technologies Prosecution

• Invision, manufacturer of explosive detection systems for airports

– Allowed agents and distributors in China, Philippines, Thailand to act on its behalf despite “high probability” that agents and distributors had bribed foreign government officials in order to obtain business

– Settled with DOJ and SEC for $1.9 million in disgorgement and civil and criminal penalties, and monitor

• SEC settled with Avid Pillor, former SVP and Board member

• SEC alleged Pillor (i) indirectly caused falsification of company’s books and records; and (ii) as head of sales, he aided and abetted violation of FCPA internal controls provision by failing to devise and maintain system of internal controls adequate to detect and prevent Invision’s FCPA violations

• SEC focused on lack of background checks on foreign agents and distributors, failure to train employees and such agents and distributors, lack of oversight over operations, etc.


Multi-Jurisdictional Law Enforcement Coordination

• Statoil - $5 million in bribes to an Iranian GO

– Norwegian Law Enforcement

– DOJ and SEC opened investigations

• Siemens – $400-500 million in payments around the world

– German Law Enforcement

– Siemens recently announced SEC and DOJ investigations

• Bristol-Myers Squibb

– German Law Enforcement

– BMS recently announced that SEC has began a formal investigation

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M&A Issues – Area of Special Interest

• Syncor International Corporation(Acquired by Cardinal Health Inc.)

• ABB Vetco Gray(Acquired by JP Morgan Partners, Candover Partners Limited and 3i Group)

• InVision Technologies, Inc.(Acquired by General Electric Company)

• Titan Corporation(Proposed acquisition by Lockheed Martin Corporation)


Issues for M&A Transactions

• Need to conduct rigorous due diligence on activities of foreign agents, consultants, representatives, distributors, suppliers and joint venture partners

• After acquiring new company, need to address:

– System of internal controls

– Compliance program and due diligence procedures

– Disciplinary actions

– Change in business culture

• Government investigation can slow closing

• FCPA liability/exposure can have an impact on pricing

• If improper payments, then likely US and foreign tax exposure

• Be careful or you will own liability

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Syncor - Allegations

• Acquisition by Cardinal Health of Syncor Int’l Corp, a US company

• Syncor Taiwan made improper payments to gov’t physicians:

– Paid at least $400,000 in improper commissions to influence purchasing decisions; cash payments improperly recorded as promotional and advertising expenses

– Paid at least $113,000 in referral fees (much in cash) to influence doctors

– Other payments included loans never repaid, personal expenses not incurred, “over invoicing” arrangements to generate cash gifts

– Paid at least $245,000 in connection with general practice of “support,”including sponsorship at educational seminars (registration fees, travel, lodging, meals), gifts of computer equipment, digital cameras, expensive wines, wristwatches, software and office furniture, sponsorship of social functions and hospital fundraisers, etc.


Syncor – Enforcement Actions

• Syncor Taiwan pleaded guilty to substantive violations of the FCPA’s anti-bribery and books & records provisions; Sentenced to 3 years of supervised probation and $2 million fine

• Syncor International charged by SEC with violations of FCPA’s anti-bribery, books & records, and internal controls provisions; Syncoragreed to pay a $500,000 civil penalty & cease and desist in future violations; required to retain Independent Consultant to review and make recommendations concerning company’s FCPA compliance policies and procedures

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Syncor – Lessons Learned

• Enforcement action can slow closing – Cardinal Health acquisition was delayed until investigation concluded and agreements reachedwith DOJ and SEC

• FCPA exposure can have impact on pricing – Cardinal Health purchased for lower price than originally negotiated

• Parent liability established through the foreign subsidiary’s books and records

• First healthcare industry FCPA prosecution - established US government position that state-employed doctors are government officials for purposes of the FCPA

• First DOJ prosecution of foreign subsidiary of US company


ABB Vetco Gray - Allegations

• Acquisition by “Equity Club” (JP Morgan Partners, CandoverPartners Limited and 3i Group) of Upstream Oil and Gas businessof ABB Limited, a Swiss company with ADR’s listed on NYSE

• Problem: ABB Vetco Gray of Houston, Texas and ABB Vetco Gray of UK paid more than $1 million to officials of NAPIMS (Nigeriangov’t agency) to obtain confidential bid information and favorable recommendations from Nigerian gov’t agencies in connection with 7 oil & gas construction contracts in Nigeria for which companies expected to realize profits greater than $12 million

• Payments also made to government officials in Angola and Kazakhstan for similar reasons

• Payments included cash and gifts to NAPIMS officials, travel andentertainment, per diem payments

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ABB Vetco Gray – Enforcement Actions

• DOJ charged ABB Vetco Gray Inc. as a “domestic concern,” and ABB Vetco Gray UK Ltd. under 1998 law expanding jurisdiction to foreign companies that take acts in US in furtherance of a bribe

– Both companies pleaded guilty to violations of FCPA’s anti-bribery and books & records provisions; each fined $5.25 mm

• SEC alleged violations of FCPA’s anti-bribery, books & records, and internal controls provisions by Swiss parent; agreed to pay $5.9million in disgorgement and prejudgment interest, and $10.5 million penalty (penalty satisfied by payment of criminal fines by subsidiaries)

– Parent required to retain independent consultant to review FCPA compliance procedures even though it sold Vetco Gray


ABB Vetco Gray – Lessons Learned

• Necessity to conduct rigorous due diligence and monitor activities of foreign agents, consultants, representatives, distributors, suppliers and joint venture partners

• Upon acquiring company, FCPA risk areas to be addressed:

– System of internal controls

– Compliance program and due diligence procedures

– Disciplinary actions

– Change in business culture

• Government investigation can slow closing -- acquisition by Equity Club delayed until agreements struck with DOJ and SEC

• FCPA liability/exposure can have an impact on pricing – Equity Club purchased for lower price than originally negotiated

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InVision Technologies, Inc. - Allegations

• GE acquisition of InVision Technologies, manufacturer of airport security/explosive detection systems

• InVision sold equipment via local agents and distributors

• InVision aware of high probability that agents/distributors in Thailand, China and Philippines paid or offered to pay money (travel expenses and/or gifts) to foreign officials or political parties in connection with sale of machines

• SEC alleged InVision improperly accounted for certain payments as “cost of goods sold,” realizing profits of approximately $589,000 from sale of two machines in China

• SEC alleged InVision failed to develop adequate process to select and train its foreign sales agents and distributors


InVision Technologies, Inc. – Enforcement Actions

• DOJ Deferred Prosecution Agreement -- $800,000 penalty, accepted responsibility for misconduct, and agreed to statement of facts summarizing improper transactions

– Required to integrate InVision business into GE’s FCPA compliance program and retain Independent Consultant to evaluate GE’s efforts

• SEC – Disgorged $589,000 in profits, an additional $28,700 in interest, and penalty of $500,000; SEC alleged violations of theFCPA’s anti-bribery, books & records, and internal controls provisions (failure to have system of internal controls to detect and prevent FCPA violations)

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InVision Technologies, Inc. – Lessons Learned

• Government investigation slowed closing – GE announced acquisition in March 2004, but transaction did not close until December 2004, after company agreed to deferred prosecution

• Voluntary disclosure allowed the transaction to close – Credibility of GE’s compliance program was an important factor


Titan Corporation - Allegations

• Proposed acquisition by Lockheed Martin of Titan Corp.

• Titan employed consultant and paid $3.5 million to business advisor of Benin’s President

– $2 million in indirect contributions to President’s re-election campaign; at least two wires of $500,000 from Titan’s US account to agent’s Monaco account; remaining payments in cash

– Payments characterized on Titan’s books as “social program payments”required by contract with Benin government

• Titan gave a $1,850 pair of earrings to Benin President’s wife

• Titan falsified documents to enable agents to under-report commission payments in Nepal, Bangladesh, and Sri Lanka

– SEC alleges Titan falsely reported to U.S. government commissionpayments on equipment exported to Sri Lanka, France and Japan

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Titan Corporation – Enforcement Actions

• Titan pleaded guilty to violating FCPA’s anti-bribery and books & records provisions, as well as tax violation; sentenced to 3 years supervised probation and $13 million fine; ordered to institute FCPA compliance program and internal controls

• SEC alleged violation of FCPA anti-bribery, books & records, and internal controls provisions; paid $15.5 mm in disgorgement and prejudgment interest, and $13 million penalty (satisfied DOJ fine)

– Titan required to retain independent consultant to review its FCPA compliance procedures and to adopt consultant’s recommendations

– SEC issued 21(a) Report criticizing Titan proxy for including false FCPA representations and warranties


Titan Corporation – Lessons Learned

• Reps & Warranties in merger agreement must be accurate (or qualified) when included in proxy statement

• Internal controls must be designed to detect “red flags,” such as offshore payments and inconsistent invoices

• Must conduct meaningful due diligence on foreign agents and consultants

• Must ensure services alleged to be performed are actually provided

• Risk of additional prosecution under International Traffic in Arms Regulations (“ITAR”) and possible suspension of export privileges

• Potential U.S. and foreign tax exposure

• Possible contractor debarment issues

• Deal failed when Titan was unable to meet contractual agreement to settle with U.S. Government by certain time

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Increasing Penalties: ABB, Titan, Statoil, Vetco, and Baker Hughes

• 2004: ABB pays a $16.4 million civil penalty and profit disgorgement

• 2005: Titan Corporation pays largest FCPA penalty in history (at the time) - $28.5 million

• 2006: Statoil pays over $20 million in fines and penalties

• 2007: Vetco entities pay combined $26 million in penalties; Baker Hughes pays largest FCPA penalty in history -- $44 million combined penalties




FCPA Compliance Perspectives from Forensic Accounting and Investigations

SanDee Priser

Partner – Fraud Investigations & Dispute Services

Ernst & Young LLP

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Questions to Consider in an Investigation

• What happened?

• How did it happen (e.g. failure of controls, collusion)

• Who was involved?

• What disciplinary actions, if any, have been taken?

• What is the approximate value of corrupt payments or corresponding ill gotten gains?

• What procedures did you perform to determine what happened?

• How do you know this behavior is limited to specific countries or divisions?

• How will the company ensure that this will not happen again?


Investigation Overview

• Project planning and scope setting

• Pre-deployment team meeting

• Site visit and data collection

• Document review and analysis, interviews

• Discussion of investigative findings and reporting

• Wrap-up and remediation

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Background Considerations – Jurisdiction

• What is the organizational structure of the legal or operationalentities to which the FCPA allegations apply?

• Are third parties used to effect transactions?

• Are the entities involved controlled by an issuer or U.S.-based entity?

• Are transactions ordered or authorized by a U.S-based entity or issuer?

• Are key individuals citizens or residents of the United States?

• Do transactions with the local country make use of U.S. commercevehicles?

• Do transactions related to other countries take place in the United States?


Background Considerations – Government Interaction

• How are government contracts or other government business arrangements awarded in the local country?

• Business permits

• Government or state-owned customers

– Approval, tracking and management

– Do government sales represent a large portion of overall sales?

– Who manages the relationships?

• Government or state-owned vendors

– Approval, tracking and management

– Are payments to government vendors reviewed periodically?

– How is business awarded to vendors?

• Are contracts maintained centrally?

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Background Considerations – Government Officials

• Structures of the government, political parties, and government agencies in the local country

• Company policy on government interactions

• Procedures and tools to identify government officials

• Local coordinators for government relations or regulatory affairs

• Day-to-day interaction of employees or agents with government officials

• Government official involvement in local or municipal organizations (e.g. schools, hospitals)


Background Considerations – Things of value

• Direct disbursements

– Is there a clearly defined process for approval of payments thatestablishes accountability?

– Is payment approval always documented within the accounting system or in supporting documentation?

• Company sponsorship of large or prestigious events

• Charitable contributions

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Background Considerations – Things of value (cont.)

• Does the company have policies regarding gift-giving or donations?

– Is training provided?

– Are compliance audits performed?

• Gift-giving

– What is reasonable and customary?

– Amount

– Frequency

– Form/type of gifts

– Tracking

– Authorization and approval

• Can gifts or donations be processed through employee expense reports?


Industry Considerations

• Defense

• Construction

• Energy

• Logistics

• Life Sciences

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Cash Management/Treasury Considerations

• Number of bank accounts and their reconciliation

• Cash management – local versus regional funding

• Primary means of payment in the country

• Petty cash

• Cash advances to employees

• Local country banking regulations

• Disbursement approval levels

• Disbursement destination

• Monitoring of payments to tax havens


Background Considerations – Third Parties

• Types of third parties used, if any

• Authority to engage third parties

• Due diligence policy or procedures

• Limits to the duration of contracts with third parties

• Formal contracts

– FCPA compliance requirement

– Right to audit

• Provision of FCPA training to third parties

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Third Party Red Flags

• Country has historical bribery problem or current political unrest

• Excessive commissions awarded or requested

• Government customer recommends or requires use of an agent

• Partner or agent related to foreign official

• Suggestions that money is needed to “get the business”

• Partner or agent refuses to promise not to violate FCPA

• Requests for false invoices or other documents

• Invoice or request for payment that is unusual or departs from normal practice

• Offshore payment requests

• Agent cannot describe the specific services performed


Third Party Due Diligence

• Types of procedures are performed

• Use of standard documentation or checklists of procedures to perform

• Role responsibility for performing due diligence

• Role responsibility for reviewing due diligence results

• Periodic re-performance of due diligence

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Third Party Due Diligence – Sample procedures

• Internal approval process

• Questionnaires for basic information

• Verification of information provided

• Review of ownership structure

• Reference checks with external entities

• Search for government affiliations, political party affiliations and any other relationships with government officials or government affiliated agencies

• Press/public information searches

• Local law check

• Documenting benchmarking of compensation

• Investigation of specific “red flags”

• Interviews/awareness training

• Review of the entity’s FCPA compliance program and controls


Other Due Diligence Events

• Pre- and post-acquisition

• Joint ventures

• May involve similar steps for general third party due diligence, as well as:

– Assess corruption levels of the countries in which the target entity does business, either directly or through agents

– Investigate the identify of the target entity and key individuals

– Review the target’s existing FCPA compliance program and controls

– Test adequacy of the target entity’s books and records and internal controls

– Evaluate the target’s risk profile (e.g. use of agents, frequent interactions with government officials)

– Identify prior instances of FCPA issues or violations

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Accounting and Record Keeping Issues

• Understand the financial statement close process and consolidation

• Identification of general ledger accounts for potential FCPA-related transactions

• Potential impact of system conversions

• Understand who can enter and approve transactions in the accounting records

• Requirement documentation or other substantiation of services

• Existence of accounting policies related to recording facilitating payments or other payments

• Training of accounting personnel on FCPA

• No materiality threshold!


Improper Record Keeping Examples

• Paying knowingly false invoices, but booking them based on the description provided on the invoice anyway.

• Reimbursing employee expense reimbursement requests for expenses that are knowingly falsely described.

• Booking a bribe as a facilitating payment

• Booking a freight forwarder’s bribe payment to a customs official as “freight expense”

• Making an improper payment out of subsidiary A on behalf of Subsidiary B and then recording it on the books of subsidiary A

• Failing to record improper transactions at all

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Employee Expense Reports

• Understand whether/how expense categories are mapped to general ledger accounts

• Approval of expense reports

• Documentation requirements (e.g. original receipts, attendees atevents, business purpose)

• Archival of reports and supporting documentation

• Audits of expense reports


Travel and Entertainment Red Flags

• Business purpose seems incidental to entertainment purpose

• Official is strategically located to grant business or improper business advantage to company

• Expenses are lavish or out of line with company guidelines and local customs

• Spouse or children are invited

• Reimbursement directly to government officials

• Official is unwilling or unable to get written approval for the trip from the employing agency

• Altered receipts or lack of original receipts

• Numerous expenses incurred relating to the same government official

• Payments of large expenses in cash in countries where cash is not the primary means of payment for such expenses

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Sarbanes-Oxley Considerations

• Sarbanes-Oxley section 302 and 906 responsibilities

• Internal certification processes

• Disclosure committee

• Whistleblower hotline monitoring and reporting


Creating a Healthy Internal Control Environment

• Creating a culture of compliance

• Training employees to recognize and report red flags

• Policies, procedures and financial controls around high risk areas

• Due diligence and financial controls over agents, consultants and other high risk vendors, including conteracting controls and payment review processes

• Accounting and financial controls surrounding cash, petty cash, expense authorization and reimbursement

• Controls around gift giving, travel and entertainment of government officials and charitable contributions including pre-approval process and transparency for transactions

• Robust FCPA compliance program including clear company policies,communication of policies, helpin, training and education, investigative function, discipline and zero tolerance for violations

• Robust FCPA auditing process for compliance

• Documentation of FCPA internal control processes

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Implementing an FCPA/Anti-Corruption Program-a Practitioner’s Viewpoint

Marjorie W. Doyle

Global Practice Leader, Ethics & Compliance Solutions

LRN


Program

1. Address specific corruption RISKS based on type

and location of business

2. Implement effectively –

not just “check the box”

3. Address regional differences –

culture, language, specific risks

4. Provide strong oversight with appropriate staff, resources,

reporting

5. Exhibit management support with tone and action –

top and middle

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Policy and Procedures

• Create clear anti bribery prohibition statement

• Create stand alone anti-retaliation statement

• Address issue of facilitation payments –

• i.e. one global standard or many

• Provide clear definition of important terms

– government officials

– Suppliers

– business partners

– joint ventures

– agent

• Have processes that support policies


Policy and Procedures (continued)

• Gifts and Entertainment

– presumption in field against gifts, travel or

– valuable items to government officials

– counsel to decide whether items to government

– officials are allowable

– the field should not have discretion in this area:

– create tool or guidelines

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Training and Education

• Content includes FCPA prohibitions and Company policiesand procedures

• Interactive, effective

– involves employee participation

• Use business/risk relevant scenarios, test:

– show ability to apply information/policies

• Involve all employees doing business outside USA (even if located in USA)

– target audience based on risk and job duties

– live, online, spot messaging

• Keep record of training

– materials uses, attendance, certification, tests, feedback

• Uniform global message but local emphasis

– language, cultural context for understanding and application


Reporting Mechanisms

• Provide Employees secure and accessible channels for

– reporting violations and raising concerns

• Have clear policy against retaliation for everyone, i.e. whistleblowers

• Create culture of prevention

• Provide proactive advice and encourage discussion and inquiry

• Encourage employee feedback

• Encourage group responsibility to report

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Investigation and Remedial Measures

• Create investigation process, implementation responsibility, andconsistent adherence to process

• Publicize and explain process in order to engender trust

• Use investigation results to educate and prevent futureviolations

• Discipline consistently

• Examine lessons learned after investigation and improveprogram (i.e. clearer policy, more education)


Due Diligence on Agents

• Perform diligence BEFORE hiring

• Includes personal interviews, site visits, questionnaires, research, references

• Assess qualification to perform job as described

• Check reputation for integrity and honesty

• Document entire diligence process

• Appropriate management oversight and approvals

• Match internal policy and procedures with implementation

• Appropriate management approval to ensure compliance with policyand banking practices

• Resolution of “red flags”

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Due Diligence on Other Third Parties

• Include: business partners, joint ventures, suppliers, resellers, subcontractors

• Identify owners, officers, managers:

– verify information

• Determine any government relationships

• Uncover improper payments or corruption risks

• Questionnaires, in person interviews, public information

• Verify all information

• Degree of diligence related to risk of corruption by responsibility required of third party


Contracts with Agents and Other Third Parties

• Include anti-corruption clause

• Identify all relevant anti-corruption and related laws

• Prohibit unlawful payments

• Right to terminate for unlawful payments and othercompliance violations

• Provide for right to audit contract for compliance with terms

• Require proper recordkeeping /documentation

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Books and Records

• Establish business record protocol that is auditable

• Accounting records that clearly follow all monies

• Areas of DOJ/SEC and other enforcement focus:

– “off book” transactions

– political contributions

– payments to government officials

– commercial bribes or kickbacks

– customs violations

– payments in one country for work done in another

– cash payments

– unusually high commissions


Internal Controls

• System of internal accounting controls

– transactions executed according to management

– authorization policy

– transactions recorded to permit preparation of

– statements according to GAAP

– implementation of reasonable interval comparison of recorded accountability AND existing assets

– practical controls on spending - i.e., no “slush funds” or “petty

– cash funds” without clear protocols

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Audits

• To test compliance program effectiveness

• Policy and procedure compliance in the business

• FCPA risk profile update

• Financial controls

• Third parties per contracts

Managing FCPA Issues in a Global Organization · | +1 952 933 4977 or 888 277 4977 2 FCPA Overview...

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