Anti-Bribery/Anti-Corruption (ABAC) Compliance Webinar July 17, 2018 Staci Yablon Francesca Guerrero SYablon@Winston.com FGuerrero@Winston.com 212-294-4703 202-282-5647 New York Washington, DC
Agenda • Introduction • Overview of Anti-Bribery Laws • Hallmarks of an Effective ABAC Compliance Program • Key Compliance Flashpoints 2
Poll - Who’s Here? How much of your day-to-day work involves anti-bribery or anti-corruption compliance? Every day From time to time Very little Almost none (but I have a general interest) 3
FCPA Anti-Bribery Provisions Prohibits offering, making, or authorizing a payment of Anything of value Knowing that it will be offered or given to a foreign official (Includes willful ignorance) To obtain or retain business And made corruptly (i.e. with corrupt intent) Applies to 1) U.S. citizens, nationals, or residents 2) Entities that are either located in the U.S. or registered under U.S. law (including all employees working for these entities, regardless of the employees’ nationality) 3) Actions that involve a US nexus 4
FCPA Accounting Provisions Publicly held U.S. companies are required to: • Maintain books and records that accurately reflect transactions and dispositions of assets. • Devise and maintain reasonable internal accounting controls to prevent and detect FCPA violations. Even if the company is not a public company, best practices suggest that employees should accurately report all business transactions and information. 5
Poll - Global Concerns Which of the following is addressed by your company's compliance policy? The FCPA The FCPA and the UK Bribery Act The FCPA, UK Bribery Act, and other local anti-bribery/anti-corruption statutes No specific statute 6
UK Bribery Act Four Major Offenses 1 Promising of or giving of an advantage to another person to reward improper performance 2 Requesting, agreeing, or accepting an advantage that itself constitutes improper performance 3 Bribery of a foreign public official 4 Failure of commercial organization to prevent bribe being paid to obtain/retain business or business advantage 7
UK Bribery Act Key Differences from the FCPA Facilitation (“grease”) payments are permitted by the FCPA but not under the UK Bribery Act Both bribers and bribees may be penalized Also covers commercial bribery 8
China’s Anti-Unfair Competition Law A business operator commits an act of bribery if it provides assets or other means merely to obtain a transaction opportunity or competitive advantage. The scope of bribe recipients includes employees of counterparties as well as third parties. Employers are liable for misconduct committed by employees. 9
Hallmarks of an Effective ABAC Compliance Program 1 Commitment from senior management and a clearly articulated policy against corruption; oftentimes referred to as “Tone at the Top.” 2 Implementation of code of conduct and compliance policies and procedures. (More than a paper policy) 3 Oversight, autonomy, and resources. 4 Risk assessment. 5 Training and continuing advice. 6 Incentives and disciplinary measures. 7 Third-party due diligence and payments. 8 Confidential reporting and internal investigation. 9 Continuous improvement: periodic testing and review. 10 M&As: Pre-acquisition due diligence and post-acquisition integration. 10
Morgan Stanley (2012) SEC found that Morgan Stanley’s FCPA compliance program was adequate • Penalty limited to individual employee, Garth Peterson Key features of their compliance program: • Trained Peterson on anti-corruption policies at least seven times between 2002 and 2008 • Distributed written materials to employee • Received at least 35 FCPA compliance reminders • Multiple written certifications from employee on compliance with FCPA • Code of Conduct included a portion referencing corruption risks • Employees required to annually disclose outside business interests • Policies to conduct due diligence on foreign business partners 11
Roundtable Discussion – Risk Assessments How does your Company utilize risk assessments? Is there anything you’ve learned from doing risk assessments that you want to share? Do you typically do risk assessments internally or through the assistance of outside advisors? 12
Key Compliance Flashpoints Drawing the Line Between Reasonable and Excessive Benefits Meals & Entertainment Gratuities, Gifts, and Favors Travel/Delegation Visits Third Parties How much due diligence is enough? How to resolve red flags When they cannot be resolved Appropriate Reporting and Escalation 13
Poll - Meals & Entertainment Does your company’s compliance policy place a cap on the amount of money that is acceptable for meals and entertainment? $0-$25 $25-$50 $50-$75 $75-$100 No Specific Cap 14
Meals & Entertainment – Best Practices The level of meals & entertainment should be in accordance with generally accepted business standards. They should not be lavish. The company should retain control over entertainment events. Specific caps or approval thresholds can be useful at setting expectations and focusing compliance resources. 15
Gratuities & Gifts – Best Practices Indicators that a gift is acceptable (1) small gift or token (2) given openly and transparently (3) provided to reflect esteem or gratitude (4) permitted under local law Multiple small gifts that take on the pattern of bribes can run afoul of ABAC laws. As with hospitality, approval thresholds can set expectations and allow compliance personnel to focus resources. 16
Case Study: JP Morgan Chase (2016) JP Morgan influenced government officials in the Asia-Pacific region by giving jobs and internships to their relatives and friends. Client referral hiring program that bypassed normal hiring process Hired approximately 100 interns and full-time employees at the request of foreign-government officials Referral hires typically did not meet minimum educational or background qualifications that JP Morgan looked for in its non-referral hiring programs Paid $72 million to the Justice Department; $61.9 million to the Federal Reserve Board of Governors; and more than $130 million to settle SEC charges. 17
Roundtable Discussion – Jobs and Favors What sort of facts and circumstances would make it acceptable for your Company to hire the friend or family member of a client or government official? What steps should you take on a go-forward basis to ensure the employment relationship is legitimate? What similar favors or benefits could your Company provide that might lead to trouble like JP Morgan’s? 18
Travel/Delegation Visits Travel expenses allowed by the FCPA • “Reasonable and bona fide” expenses for foreign officials that are conducting business with the company • Primary purpose is business, not pleasure • DOJ evaluates dual purpose trips using “reasonableness standard” Department of Justice Guidance: • Do not select particular officials that will attend the trip • Pay costs directly to the travel and lodging vendors, or reimburse upon production of receipt • All stipends should be a reasonable approximation of future cost • Ensure all expenditures are transparent • Obtain written confirmation that the payment does not contradict local law 19
Scenario 1 Stillwater is a company that produces machinery used in the drilling of oil wells. They see a business opportunity to provide equipment for use in upcoming projects in Country X. Oil production in Country X is all conducted in coordination with the state oil agency (MinOil), but the actual development and production is always carried out by commercial businesses. The Stillwater international sales team wants to bring a group of MinOil officials to its headquarters in Dallas. Even though the MinOil officials will not purchase equipment from Stillwater, the sales team thinks they might be open to specifying that their commercial partners use Stillwater products. The sales team arranges for the MinOil officials to spend 3 days in Houston. • The first morning is spent at the HQ meeting Stillwater executives, while the second day is spent touring the production facility outside Houston. The remainder of the time in Houston is free time for the MinOil officials. • Stillwater pays for airfare and hotel costs for the officials. Stillwater provides lunch and dinner each of the days. • Some of the officials arrange to prolong their trip to fill out the week. Stillwater does not pay for these additional hotel days. • Stillwater’s CEO takes the officials out to the Gulf for a full day on his yacht. That evening they go out to a nice restaurant and the CEO ends up paying a bill about $200/person. 20
Scenario 1 - Discussion Are you concerned about Stillwater arranging this trip for the MinOil officials and paying airfare and hotel? Are there any steps Stillwater should take to mitigate any concerns you have? Do you have concerns or see any red flags in the 3-day Houston itinerary? Are there any steps that would mitigate those? Is the boat trip and dinner excessive? If so, what steps, if any, can the Company take to address this? 21
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