Anti-Corruption Compliance for the Legal Profession Risks and Threats of Corruption for Lawyers in International Business Transactions James Parkinson BuckleySandler International LLP London 18 March 2015 1
Overview of Session • Introduction • Foreign Corrupt Practices Act – Extraterritorial application • Review of Specific Risk Scenarios • Case Study 2
U.S. Foreign Corrupt Practices Act 3
U.S. Foreign Corrupt Practices Act Purpose of this segment: • Describe one transnational anti-bribery law, the FCPA • Focus on extraterritorial application – Including for lawyers representing MNCs • Use this as a starting point for describing the risks lawyers face 4
U.S. Foreign Corrupt Practices Act • Passed in 1977, FCPA was the first transnational anti- bribery law • Passed following investigations in the U.S. by Congress and the U.S. Securities and Exchange Commission • Findings: – Hundreds of U.S. companies had been bribing non-U.S. officials for business – Funds used to pay bribes were developed by non- transparent accounting and enabled by poor internal controls 5
U.S. Foreign Corrupt Practices Act • Result: FCPA contains two components – Anti-bribery provisions – Accounting provisions • Books & records / internal controls • Enforced by two U.S. agencies: – Department of Justice (criminal enforcement) – Securities and Exchange Commission (civil enforcement against issuers or individuals associated with issuers) 6
U.S. Foreign Corrupt Practices Act Extraterritorial Application Subject to US FCPA jurisdiction are: • “Issuers” – US companies that list shares on US exchanges • Conduct occurring anywhere globally – Non-US companies that list shares on US exchanges • Conduct requires use of US interstate commerce • US “domestic concerns” – US-organized private companies • Conduct occurring anywhere globally – US citizens, nationals, residents • Conduct occurring anywhere globally 7
U.S. Foreign Corrupt Practices Act Extraterritorial Application (cont’d) Subject to US FCPA jurisdiction are: • Employees, officers, directors of the above • Agents of the above, such as: – Lawyers – Accountants • Other persons when there is conduct in furtherance of the improper payment that occurs while in the territory of the US 8
U.S. Foreign Corrupt Practices Act Anti-Bribery Provisions: Elements • The offer, payment, promise to pay, or authorization of payment of • Money or anything of value • To any foreign official • Directly or indirectly • Corruptly in furtherance of a payment • For the purposes of: – Influencing any act or decision of a foreign official in his official capacity; inducing such foreign official to do or omit to do any act in violation of the lawful duty of the foreign official; securing any improper advantage; inducing the foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality • In order to assist in obtaining or retaining business 9
U.S. Foreign Corrupt Practices Act: Accounting Provisions Books and Records • Purpose: Ensure that public companies do not hide improper payments • Issuers must “make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer.” • The question is accuracy, not materiality 10
U.S. Foreign Corrupt Practices Act: Accounting Provisions Internal Controls • Purpose: Ensure that the internal financial and compliance controls at public companies are sound. • Issuers are required to “devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that — – transactions are executed in accordance with management’s general or specific authorization; – transactions are recorded as necessary (I) to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and (II) to maintain accountability for assets; – access to assets is permitted only in accordance with management’s general or specific authorization; and – the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.” 11
U.S. Foreign Corrupt Practices Act: Summary • Expansive jurisdiction: – Any “issuer,” whether based in the U.S. or not – Any employee, officer, director or agent of an “issuer” – All US companies, citizens, nationals, or residents – Anyone else, if an act in furtherance of a bribe occurs while in the territory of the U.S. (Including U.S. Interstate Commerce) • Active enforcement – Many recent enforcement actions against non-U.S. companies – Very significant fines and disgorgement – Individuals are going to prison – U.S. seeking (and obtaining) extradition for individuals, including non-U.S. citizens 12
Risk Scenarios for Legal Professionals 13
Risk Scenarios for Legal Professionals 14
Risk Scenarios for Legal Professionals Purpose of segment • Describe with specificity how legal professionals may be presented with corruption risks – Use enforcement action / public reports • Sensitize you to the many possible avenues by which you may experience a corruption risk • Assist you in engaging with your peers to identify corruption risks you may encounter 15
Risk Scenarios for Legal Professionals: Direct Interactions On behalf of you or your firm • Permission to practice law – Examination / licensure • Business license for your firm • Establishing and maintaining an office – Occupancy permits – Taxation – Visas / immigration – Power / water / phone / networking • Offices in multiple jurisdictions 16
Risk Scenarios for Legal Professionals: Direct Interactions On behalf of your clients • Judiciary – Judges – Supporting staff: Clerks, bailiffs, service of process • Filing pleadings, access to files, scheduling • Taxation – Assessments / audits • Immigration – Visas / work permits 17
Risk Scenarios for Legal Professionals: Direct Interactions On behalf of your clients (cont’d) • Labor • Corporate registrations • Intellectual property • Trade disputes • Lobbying • Licenses and registrations • Procurement / contracting 18
Risk Scenarios for Legal Professionals: Indirect Risks Role in transactions / business activity • M&A activity – Acquisition target’s activities • Joint ventures • Commercial agreements with third parties – Agents – Consultants – Distributors – Local counsel – Accountants – Others 19
Case Study for Discussion 20
Case Study Purpose of the segment • Present a detailed corruption risk case study • Evaluate variations on the facts to foster discussion about the implications for legal professionals 21
Case Study – Background • You have been retained by a major investment company to assist in setting up a subsidiary in Country A, so that the client can participate in an infrastructure project in Country A. • Your client is headquartered in the U.S. and it carries out business around the world. • The unit that has retained you is located here locally. 22
Case Study 1: Local Law Firm for Business License • Applications for business licenses in Country A take a long time and can be difficult to obtain. It is well known that the government authorities in Country A are slow and inefficient, and they always raise questions on applications. • You have engaged a local law firm to assist you with the process because they are well-established and have a good reputation. • The law firm reports success after a few weeks, and your client obtains a business license. • The law firm partner later tells you that he made a small cash payment to a low- level government official to speed up the process and avoid any unnecessary questions or clarifications from the authorities. – The law firm partner reports that payments like this are so common in Country A that they are considered standard practice in the business community. Although such payments are prohibited by the law of Country A, people seldom get caught and / or – prosecuted. 23 23
Case Study 2: Client Retains Consultant • Since you did such a great job setting up the new local company, the client asks you to stay on and assist in bidding on the contract for the infrastructure project in Country A. • Without your involvement, the client engaged a local consultant to help with the process, who does not appear to have relevant qualifications for this type of work. • The consultant requests a substantial payment, half of which is to be paid in advance, which he claims is necessary for him to carry out his duties. • Consultant does not describe what the duties will be, except to assist with the bid. 24 24
Case Study 3: Your Personal Contacts • By coincidence, a good friend of yours is a government official in the same department that will be evaluating the bid. • You have never mentioned this relationship to the client. • Your client indicates that he has knowledge of this relationship, and tells you he is willing to offer your friend cash payments or a lucrative job in the company if he is able to help your client win the infrastructure project. 25 25
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