Presenting a live 90-minute webinar with interactive Q&A FCPA Compliance: Third-Party Due Diligence Minimizing Corruption Risks When Using Foreign Agents, Distributors and Other Intermediaries WEDNESDAY, JANUARY 16, 2013 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: James D. Slear, Partner, Thompson Coburn , Washington, D.C. J. Daniel Chapman, Chief Compliance Officer and Counsel, Parker Drilling , Houston Kathryn Cameron Atkinson, Member, Miller Chevalier , Washington, D.C. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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FCPA Compliance: Third Party Due Diligence M i t i g a t i o n o f C o r r u p t i o n R i s k s w h e n u s i n g T h i r d P a r t i e s A b r o a d J i m S l e a r , P a r t n e r T h o m p s o n C o b u r n L L P 1 9 0 9 K S t r e e t N W W a s h i n g t o n D C 2 0 0 0 6 2 0 2 . 9 5 5 . 6 9 8 1
Overview: Foreign Corrupt Practices Act 5 Anti-bribery provision Prohibits U.S. companies, issuers, and persons in the United States or agent acting on their behalf from giving (or offering, promising, or authorizing the giving of) anything of value to a foreign government official, political party, or party official with the intent to influence that official in his or her official capacity or to secure an improper business advantage Books and Records/Internal Controls provisions Require issuers (U.S. and foreign companies with securities registered in the U.S. and required to file reports with the SEC) to maintain accurate “books and records” and effective internal controls (including all owned or controlled foreign subsidiaries)
Whistle Blower Risks 6 Dodd-Frank Wall Street Reform and Consumer Protection Act added Section 21F to the Exchange Act providing incentives for whistleblowers Providing information about violations of securities laws, including FCPA. Leading to SEC enforcement with penalties > $1 million Awards range from 10-30%
Antibribery Violation Elements 7 Offer, payment, promise or authorization Anything of value To foreign official ( directly or indirectly ) Corrupt intent “Intent or desire to wrongfully influence the recipient” To obtain/retain business or direct business to any person “Business purpose test: a ny “unfair business advantage” (e.g., avoiding Customs duties, seeking confidential bidding information )
Anything of Value 8 Any tangible or intangible benefit Cash, cash equivalents (including to related parties) Travel or entertainment (DOJ example: $10,000 for dinners, drinks, and entertainment for a government official) Guarantees, discounts, free products or services Offers of employment or other benefits to a family member Charitable contributions (even to a legitimate charity) “Appropriate” gifts are permissible “Necessarily fact specific” Hallmarks: given openly and transparently, properly recorded, provided only to reflect esteem or gratitude, and permitted under local law The larger or more extravagant more likely improper purpose.
Foreign Officials 9 Any officer or employee of government department, agency or instrumentality or any public international organization (e.g., UN, EC, IMF or International Red Cross) Any political party or party official, or candidate for political office Any person acting in the capacity of a foreign official Broadly construed by the DoJ/SEC Any officer or employee (including low-level employees and officials) of government- owned or government-controlled businesses and enterprises (i.e., government instrumentalities) Example: Doctors at government-controlled hospitals Some courts have developed factors to determine as issue of fact
Court Factors for Instrumentality 10 Extent of state ownership Level of state financial support Degree of state control Provision of services to the State’s characterization of the jurisdiction’s residents entity and employees Circumstances of creation Whether governmental end or purpose is expressed in the Purpose of entity policies of the foreign Obligations and privileges government; and under foreign law General perception that the Exclusive or controlling power entity is performing official or vested in the entity to governmental functions administer its functions
Payments to Third Parties 11 FCPA expressly prohibits corrupt payments through third parties Specifically, covers payments to “any person, while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to a foreign official” DOJ Guidance: “Although [ ] foreign agents may provide entirely legitimate advice regarding local customs and procedures and may help facilitate business transactions, companies should be aware of the risks involved in engaging third-party agents or intermediaries.”
Liability for Third Party Payments 12 How much knowledge? “ Substantially certain ” corrupt payment will be made Aware of “ high probability ” corrupt payment will be made Liable if there is . . . . “Reckless disregard” “Conscious avoidance” “Deliberate Ignorance”
Head in the Sand: No Protection 13 Frederic Bourke’s year in jail and $1 million fine Investment in failed plan to privatize petroleum industry in Azerbaijan Invested in entity had reason to know intended to bribe Azerbaijan officials Aware of pervasive corruption in Azerbaijan Knew reputation of business partner as “ Pirate of Prague” known for “shady dealings” Created the American advisory companies to shield himself and other American investors from potential liability from payments made in violation of FCPA “Knowledge may be proven [if] the person suspects the fact, realized its high probability, but refrained from obtaining the final confirmation because he wanted to be able to deny knowledge”
Third Parties 14 Local agents/sales representatives Consultants/advisors Subcontractors Subsidiaries Distributors Freight forwarders Other intermediaries
Common Red Flags (DOJ Guidance) 15 Excessive commissions to third-party agents or consultants Unreasonably large discounts to third-party distributors “Consulting agreements” with vaguely described services Third-party consultant is in a different line of business than that for which it has been engaged Related to or closely associated with foreign official Third party became part of the transaction at the express request or insistence of the foreign official Third party is a shell company incorporated in offshore jurisdiction Requests for payment to offshore bank accounts
Other Red Flags for Third Parties 16 Abnormal use of cash payments Requests that commission be split or paid to another party Claims of special relationships with government officials Personal or professional ties to the government Employs retired officials from relevant government entity Employs unnamed consultants or insists on using a particular contractor Required payment in advance of contract award Pressure for payments ahead of schedule Abnormal access to “inside” information Private meetings with government officials Lack of relevant expertise expected in business area Lack of adequate resources to do work Limited or no work product Refusal to agree to audit rights Bad reputation
Agents 17 Bridgestone Corporation (2012). When subsidiary secured business for marine hoses in Latin America, it paid the local sales agent a “commission” inflated to allow for payments to employees of the state-owned customer . UTStarcom, Inc. (2009): U.S. telecom company allegedly paid $1.5m to the company’s agent in Mongolia, claiming that it was for a “ license fee .” Fee was only $50k; balance used to make improper payments to a government official United Industrial Corp. (2009): Payments through a subsidiary to a retired Egyptian Air Force (EAF) general with conscious disregard of the high probability he would pass payments to EAF officials to influence award of a contract for aircraft depot.
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