Slide deck on FCPA enforcement risks and AML convergence

1. Anti-Corruption Enforcement and Risks:
The New Threat
The FCPA, AML and Fraud Enforcement:
Convergence Risks and Compliance
October 26, 2011
Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe-Brussels LLP both limited liability partnerships
Mayer Brown is a global legal services provider comprising a limited liability partnership incorporated in England Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayerregistered in England and Wales number OC 303359); Mayer
established in Illinois USA; Mayer Brown International LLP, legal practices that are separate entities (the "Mayer and Wales (authorized and regulated by the Solicitors Regulation Authority and Brown Europe-Brussels LLP both limited liability partnerships
established in Illinois USA; Mayer Brown International LLP, a limited liability partnershipits associated entities in Asia; Wales (authorized and regulated a Brazilian law partnership with whichand registered is associated. "Mayer Brown" and the Mayer Brown
Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and incorporated in England and and Tauil & Chequer Advogados, by the Solicitors Regulation Authority Mayer Brown in England and Wales number OC 303359); Mayer
Brown, athe trademarks of theFrance; Mayer Brown JSM, their respective jurisdictions. its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown
logo are SELAS established in Mayer Brown Practices in a Hong Kong partnership and
logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

2. Anti-Corruption
Enforcement and Risks:
The New Threat
Michael Volkov
Partner, Mayer Brown LLP
(202) 263-3288
mvolkov@mayerbrown.com
Ryan Morgan
World Compliance
rmorgan@worldcompliance.com
© Copyright Mayer Brown LLP, 2011

3. Overview I. The Current Enforcement Picture
II. The Elements of the FCPA
III. The Risks, Exceptions and Defenses
IV. Compliance Programs
3

4. The Current
Enforcement
Picture
4

5. The Current Enforcement Picture
Enforcement Trends
Aggressive FCPA enforcement
has resulted in corporate mega-fines:
 For 2010, fines total over $1.6 billion
- more than half of all federal criminal fines collected.
 Fueled by voluntary disclosures and industry-wide investigations
- oil, pharmaceuticals and medical devices, military and law
enforcement equipment, and telecommunications.
 FBI has dedicated FCPA squad which is using aggressive
investigative tactics - consensual recordings, ambush
interviews, undercover officers, informants, search warrants and
wiretaps.
 SEC Dodd-Frank whistleblower bounty program will increase
number of credible complaints, investigations and prosecutions.
5

6. The Current Enforcement Picture
Enforcement Trends
FCPA and Anti-Money Laundering Enforcement
 FCPA criminal cases are typically tied to money laundering counts
(18 USC 1956 and/or 1961).
 DOJ has launched Kleptocracy initiative to “follow” corrupt money and
prosecute money launderers, and seek criminal and/or civil forfeiture.
 DOJ’s International organized crime initiative is likely to increase
prosecutions in this area as companies and individuals cooperate
and provide information.
 DOJ and SEC has launched investigations of financial institutions,
investment banks and private equity firms.
 Increase in FCPA enforcement coincides with aggressive OFAC and
AML programs.
6

7. The Current Enforcement Picture
FCPA Enforcement at a Glance: Increase in Actions
2010 witnessed an 85% increase in FCPA enforcement actions
over 2009, which itself was a record year.
60
DOJ
50 48
SEC
40
30 26 26
20 20
20 18
13 14
10 7 7 8
5
2 3
0
2004 2005 2006 2007 2008 2009 2010
7

8. The Current Enforcement Picture
FCPA Enforcement at a Glance: Blockbusters
Eight of the top ten monetary settlements in FCPA history were reached in 2010.
$900
Siemens 2008
$800 2009
$700 2010
KBR/Halliburton 2011
$600
$500 BAE Systems
ENI/Snamprogetti
$400 $800 Technip
$300 $579 JGC Corporation
Daimler
$200 $400 Alcatel-Lucent $218.8
$365 $338
Panalpina Johnson & Johnson
$100 $185 $137
$82 $70
$0
8

9. The Current Enforcement Picture
FCPA Enforcement at a Glance: Prison Sentences
David Kay, Vice President 37 months
American Rice, Inc. (2002)
John Warwick, President
Ports Engineering 37 months
Consultants Corporation (2009)
Robert Antoine, Director 48 months
Haiti Telco (2010)
Juan Diaz, Owner
Third party consultant 57 months
to Haiti Telco (2010)
Douglas Murphy, President 63 months
American Rice, Inc. (2002)
Albert Jack Stanley, CEO 84 months
and Chairman, KBR (2009)
Charles Paul Edward Jumet,
President, Ports Engineering 87 months
Consultants Corporation (2009)
0 10 20 30 40 50 60 70 80 90 100
9

10. The Current Enforcement Picture
FCPA: Whistleblower Bounty
 Whistleblower Bounty program offers
rewards of 10 to 30 percent of any
settlement over $1 million. SEC’s
Whistleblower Office opened on 8/12/2011.
 SEC regulations have been adopted
(pending appeal).
 SEC estimates it will receive 30,000
complaints a year; 1-2 credible complaints
each day.
 With certain exceptions, whistleblowers
must first file complaint internally with
company and wait for 120 days before filing
with SEC.
 Companies will increase self-reporting to
pre-empt whistleblowers.
10

11. The Current Enforcement Picture
Anti-Corruption Enforcement
GLOBAL enforcement is on the rise.
In the past three years, In response to international
US prosecutors have pressure, Canada its increasing
enforced the FCPA to enforcement of its
the tune of $3.6 billion. anti-corruption law.
Germany, Spain and other
The UK Bribery Act became EU countries are
effective on July 1, 2011. increasing enforcement.
China and the US are increasing
Asia and Latin American countries cooperation and beginning to establish
have been slower to enact tough, new a framework for information sharing
anti-corruption laws and begin and enforcement; China enacted
aggressive enforcement programs. its own foreign bribery law.
Risk of anti-corruption multi-jurisdictional, “piggy-back” actions is growing.
11

12. The Current Enforcement Picture
FCPA – DOJ Priority
US FOREIGN
CORRUPT
PRACTICES ACT
“As President Obama has said, ‘The struggle against
corruption is one of the great struggles of our time.’ . . .
Corruption is, simply put, a scourge on civil society. We
must vigorously enforce our own laws that prohibit
bribery of foreign officials, such as . . . the Foreign Corrupt
Practices Act. And we must work together to support our
partners in anti-corruption enforcement.”
—Eric Holder, U.S. Attorney General, Nov. 7, 2009
12

13. The Elements
Of The FCPA
13

14. The Elements Of The FCPA
Anti-Bribery Provisions, 15 U.S.C. 78dd-2 et al.
 A payment, offer, authorization, or promise to pay money or
anything of value to;
 a foreign government official;
 or to any person, while knowing that the payment or promise will
be passed on to a foreign government official;
 with a corrupt motive for the purpose of:
– influencing any act or decision of such foreign government official,
– inducing such person to do or omit any action in violation of his or her
lawful duty,
– securing an improper advantage, or
– inducing such person to influence a foreign government (or
instrumentality thereof) to affect or influence its acts or decisions,
– all in order to obtain, retain, or direct business for or to any person.
14

15. The Elements Of The FCPA
Accounting/Record-Keeping Provisions, 15 U.S.C. 78dd-1 et al.
Accounting / Recordkeeping Provisions:
Books and records must accurately and fairly reflect transactions
and dispositions of assets.
Internal Controls:
1. Transactions are executed with management’s authorizations;
2. Transactions are recorded to allow preparation of a report
that conforms with generally accepted accounting principles;
3. Access to assets is permitted only in accordance with
management’s authorization; and
4. Monitoring to ensure legitimacy of accounting.
15

16. The Elements Of The FCPA
Who is covered?
Domestic
 US “issuers”
 US citizens, nationals, or residents
 Entities organized under U.S. law
 Entities with U.S. principal place of business
Foreign
 Foreign corporations subject to SEC regulation
(e.g., via ADRs) and using instrumentalities of
interstate commerce
 Foreign persons when in US territory, whether or
not they use instrumentalities of interstate
commerce
This includes directors, officers, employees,
and agents of entities subject to the statute
16

17. The Elements Of The FCPA
Criminal Penalties
 Criminal Penalties for companies:
– $2mm fine for an anti-bribery violation
– $25mm fine for a books and records
violation
 Criminal Penalties for individuals:
– 5 years in jail with a maximum $250,000
fine for an anti-bribery violation
– up to 20 years in jail with a maximum $5mm
fine for a books and records violation
Under a federal alternative fine
provision, companies and individuals
may be fined up to TWICE the benefit
sought or received.
17

18. The Elements Of The FCPA
Civil Penalties
 SEC and DOJ can impose a $10,000
fine per violation upon individuals and
companies.
 SEC may also impose further civil
penalties ranging between $7,500 to
$150,000 upon individuals and
$75,000 to $725,000 upon companies.
Alternatively, the SEC may impose a
civil penalty equal to the gross
pecuniary gain to an individual or
company and equitable relief, such as
disgorgement of profits.
18

19. The Elements Of The FCPA
What is Prohibited?
 A covered entity may not pay, promise to pay or authorize the
payment of money or anything of value.
– This covers direct bribery or kickback payment but also includes, gifts,
travel, meals or other lavish entertainment.
 With a corrupt intent to obtain or retain business or to secure
a business advantage including:
– Government contracts
– Government-issued operating permits and licenses
– avoiding or reducing inspection reports and certifications
– tax refunds and reductions
– customs clearance
– health inspections
– beneficial changes to laws and regulations
19

20. The Elements Of The FCPA
Intent to Obtain / Retain
Contracts or Any Other Business Advantage
Clearly making a payment to obtain or retain a contract violates
the law but securing a business advantage qualifies too.
This includes:
 Government-issued operating permits and licenses
 avoiding or reducing inspection reports and certifications
 tax refunds and reductions
 customs clearance
 health inspections
 beneficial changes to laws and regulations
20

21. The Elements Of The FCPA
Giving or Promising Anything of Value
 No cash bribes or kickback payments.
 Laws also forbid gifts, meals, travel, entertainment, or even
charitable donations under certain circumstances.
 CCI, a components manufacturer, gave a Ferrari, among other
items, to a Mexican utility company official. $18.2 million
FCPA fine.
 Veraz Networks, a telecom company, paid a $300,000 FCPA
fine and incurred $2.5 million in legal fees to resolve FCPA
charges. In the charging documents, the US government
specifically mentioned giving $4,500 worth of flowers to a
Chinese official’s wife.
21

22. The Elements Of The FCPA
Foreign Government Official
 Under the FCPA: Any officer, employee,
or agent of a foreign government or
any department, agency, or any
instrumentality thereof.
 This includes any entity that is owned
or controlled by a Foreign Government.
– i.e. all employees of a JV where a state owned
or controlled entity is a party to the JV.
– Factors: percentage of financial ownership,
designation under local law, appointment of
management, membership on Board, even
the company’s representations.
22

23. The Elements Of The FCPA
Interactions with Foreign Officials
Dealings with foreign representatives can violate FCPA, UK
Bribery Act and other anti-corruption laws.
 In 2008, DOJ warned banks, investment banks, private equity
and hedge funds to conduct due diligence of overseas
investments to determine foreign government ties.
 Two district court decisions (Noriega and Carson) have upheld
Justice Department position that officials at private companies
which is “controlled ” by government entity are “foreign
officials”.
23

24. The Elements Of The FCPA
Interactions with Foreign Officials
Representatives of Sovereign Wealth Funds and Foreign Public
Institutional Investors are “foreign officials” under the FCPA
and “public officials” under the UK Bribery Act.
 In late 2010 and early 2011, SEC initiated industry inquiry into
anti-corruption compliance by banks, investment banks,
private equity and hedge funds and focused on dealings with
Sovereign Wealth Funds.
– SEC inquiry letters issued to at least 10 entities.
– Investigation later expanded to dealings with foreign public
institutional investment funds.
24

25. The Elements Of The FCPA
Case Study:
Goldman Sachs and Libyan Sovereign Wealth Fund
 In August 2011, SEC launched investigation of Goldman Sachs and its
dealings with Libyan Sovereign Wealth Fund.
 SEC officials are interested in a $50 million fee Goldman initially
agreed to pay the Libyan sovereign-wealth fund as part of a proposal
by the bank to help the fund recoup losses.
 The Libyan Investment Authority would have passed the $50 million
payment to an outside adviser, Palladyne International Asset
Management, which was run at the time by the son-in-law of the
head of Libya’s state-owned oil company.
 The $50 million payment was never made, but could still have
violated FCPA since it was an “offer” to pay.
2
5

26. The
Risks, Exception
s
and Defenses
26

27. Risks, Exemptions and Defenses
FCPA Risk: Third Parties
 A covered entity may not make payments
to any other person, knowing that the
payment or promise will be passed
on to a foreign official.
 Knowledge means…
– Actual knowledge
– Awareness or suspicion that an
event is likely to occur
– Avoiding knowledge of corrupt acts through willful blindness
A company must investigate all red flags involving agents, joint
venture partners, brokers, consultants, distributors,
professional service firms, etc.
27

28. Risks, Exemptions and Defenses
FCPA Risk: Third Parties; RED FLAGS
Red flags are facts and circumstances that raise serious
questions about the possibility of an FCPA violation and which
require further investigation.
Red flags include (but are not limited to):
 Transactions in high risk countries
 Objection to anti-compliance contractual provisions
 Unusual payment arrangements: request for cash payments,
excessive commission rates, payment to offshore accounts
 Known affiliation with corrupt officials
 No significant experience relevant to the business
28

29. Risks, Exemptions and Defenses
FCPA Risk: Mergers & Acquisitions
“Buying an FCPA violation”
Acquiring company can be held liable
for FCPA violations which occurred
prior to the acquisition.
 Corruption risk will also impact M&A
considerations:
– value of a target company;
– acquisition structure;
– warranties and indemnification; or
– in some cases, withdrawal from the
deal.
29

30. Risks, Exemptions and Defenses
FCPA Risk: Mergers & Acquisitions
To limit exposure,
the acquiring company must:
conduct a due diligence review
AND
adequately respond to red flags.
 Due diligence is not a legal defense but it
can minimize risk of liability when
coupled with compliance commitment.
30

31. Risks, Exemptions and Defenses
FCPA Exception: Facilitation Payments
 Anti-bribery provisions do not apply to payments made to low level
foreign government officials to expedite or secure performance of
routine governmental action.
– Examples: obtaining permits or licenses; processing governmental papers
(visas and work orders); scheduling inspections; providing phone service,
power, and water supply; loading or unloading cargo; protecting perishable
products from deterioration; or actions of a similar nature.
 Applies only when the foreign government official has no discretion
in performing duties. Payment must be for something to which the
payor was already entitled.
 UKBA bars facilitation payments.
Best Practices: Prohibit facilitation payments entirely
– 80% of U.S. companies have banned them.
31

32. Risks, Exemptions and Defenses
FCPA Affirmative Defense
Reasonable and Bona Fide Expenditures
Reasonable and bona fide expenditures, such as travel and lodging
expenses that are legal under local law and are directly related to:
 the promotion, demonstration, or explanation of products or
services, or
 the execution or performance of a contract with a foreign
government or performances of a contract with a foreign
government or agency thereof.
32

33. Compliance
Programs
33

34. Compliance Programs
Principles for a Successful Compliance Program
The key elements of a successful program require:
 A commitment to compliance from top management and a consistent
message throughout the company.
 A careful weighing of risk, commitment to compliance and business
needs so that there is “buy-in” at every level of the company.
 A business-practical approach which is flexible to respond to risks, local
business operations, and effective compliance needs.
 Create positive compliance structure which emphasizes common sense,
communication and issue identification; solutions to common problems;
and recognizes importance of business operations and new opportunities.
 AML Compliance programs and controls can be leveraged into Anti-
Corruption Compliance programs.
34

35. Compliance Programs
AML Convergence and Compliance
AML compliance program can be leveraged
into anti-corruption compliance:
 Risk Assessment: AML risk assessment can be expanded to include FCPA
issues to create a broader risk profile.
 Training: AML training programs (including record-keeping) for employees
and officers can be expanded to include anti-corruption issues.
 Compliance Officer: Companies have a designated AML compliance officer,
as required by the USA Patriot Act, and this same person could be
appointed to lead anti-corruption compliance programs.
 Corporate Governance: The core compliance functions in an anti-
corruption compliance program, including policies, procedures and
investigation, have significant overlap with AML, and governance and
internal reporting and review issues should be handled in a similar way.
35

36. Compliance Programs
AML Convergence and Compliance
AML compliance program can be leveraged
into anti-corruption compliance:
 Financial Investigations Units (FIUs) can be expanded to include:
– Anti-corruption flags for existing alerts;
– Transaction monitoring systems can be modified to add new data and new
scenarios of concern (e.g. accounts payable and general ledger entries, and
gifts, meals and entertainment expenses can be monitored since they are a
significant bribery risk);
– Politically Exposed Persons who are already identified but can be expanded to
include government officials who are vendors, agents and third party
intermediaries.
 Internal Audits: Both AML and anti-corruption compliance programs need
to be tested and audited. Existing internal auditors can be trained to
examine anti-corruption issues, or develop new procedures to ensure
adequate auditing and monitoring.
36

37. Compliance Programs
Designing and Implementing
 Tone at the Top -- The Company should
develop and promulgate a clearly
articulated and visible corporate policy
against violations of the FCPA and a strong
commitment from senior management.
 Risk Assessment -- The Company should
develop its compliance standards and
procedures using a risk assessment. The
risk assessment should be a formal and
documented review.
37

38. Compliance Programs
Designing and Implementing
 Senior Management Oversight and
Reporting -- The Company should assign
responsibility to one or more senior
corporate executives of the Company for the
implementation and oversight of its
Company's anti-corruption policies.
Company should designate a compliance
officer in senior management and provide
adequate resources to compliance office.
 FCPA Training -- (a) training for all directors
and officers, and, where necessary and
appropriate, employees, agents, and
business partners; and (b) annual
certifications, certifying compliance with the
training requirements.
38

39. Compliance Programs
Designing and Implementing
 Anti-Corruption Policies and Procedures --
The Company should develop and
promulgate compliance standards and
procedures for gifts; hospitality, meals,
entertainment; customer travel; political
contributions; charitable donations and
sponsorships; facilitation payments; and
solicitation and extortion.
 Annual Review -- The Company should
review its anti-corruption compliance
standards and procedures, on no less than
an annual basis to ensure they are
working.
39

40. Compliance Programs
Designing and Implementing
 Internal Guidance and Reporting – The
company should establish or maintain an
effective system for providing guidance,
inetrnal reporting of potential violations
and responding to internal complaints.
Most companies provide an internet-based
guidance and reporting system, including
hot lines and anonymous reporting.
 Internal Controls -- The Company should
ensure that it has a system of internal
controls for the purpose of foreign bribery
or concealing bribery.
40

41. Compliance Programs
Designing and Implementing
 Due Diligence Screening for Third Party
Agents –Screen the initial terms of
relationship with Third Party: Review the
creation of relationship; establish
procedure for centralized review of
contracts to ensure consistent standards;
and Develop a Different Screening
Procedures for Review of Individual
Transactions.
 Ongoing Assessment -- The Company
should conduct ongoing assessments of its
FCPA compliance program.
41

42. Compliance Programs
Guidelines for Due Diligence Process
 Do not over-standardize procedure:
− Need to tailor to individual circumstances in
each country based on risk.
 Need to conduct background check to
determine (5-10 year history):
− Existence of ties to foreign government
officials and employees;
− Existence of any pending or prior
investigations of bribery or other criminal
conduct or civil violations.
 Create written package and record of
review and approval process to
demonstrate compliance.
42

43. Compliance Programs
Guidelines for Due Diligence Process
 Existence of relationships with foreign
government officials:
− Purchasing authority;
− Licensing or other regulatory authorities.
 Prior history of bribery and other crimes.
 Nature of services, compensation and
payment method.
 Written contract:
− Representations and warranties on
compliance;
− Right to inspect and audit third-party books;
− Right to terminate contract if believe
violation has or will occur.
43

44. Contact Information
Michael Volkov
Partner, Mayer Brown LLP
(202) 263-3288
mvolkov@mayerbrown.com
Ryan Morgan
World Compliance
rmorgan@worldcompliance.com
44