Presenting a live 90-minute webinar with interactive Q&A FCPA in India 2016: Compliance Strategies for India's Unique Cultural and Governmental Intricacies TUESDAY, JANUARY 12, 2016 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Jay Holtmeier, Partner, Wilmer Cutler Pickering Hale and Dorr , New York Elizabeth D. Keating, Vice President, Global Investigations Counsel, Johnson Controls , Milwaukee, Wis. Michael Stavridis, Partner, Ernst & Young , Chicago 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 in India: Compliance Strategies Given India’s Unique Cultural and Governmental Intricacies Strafford Publications Teleconference January 12, 2016 Jay Holtmeier Wilmer Cutler Pickering Hale and Dorr LLP jay.holtmeier@wilmerhale.com Elizabeth D. Keating Johnson Controls, Inc. elizabeth.d.keating@jci.com Michael Stavridis Ernst & Young LLP Michael.Stavridis@ey.com
OVERALL FCPA ENFORCEMENT TRENDS Large pipeline of cases under investigation Large FCPA Penalties Continue: – Alstom ($774M), 2014 Largest ever criminal foreign bribery fine – Total ($398M), 2013 – Alcoa ($384M), 2014 – Weatherford ($153M), 2013 – HP ($108M), 2014 Prosecution of Individuals Is Continued Priority and Explicit DOJ Policy as of September 2015 Dodd-Frank Whistleblower Rewards Incentivize Increased Reporting Emphasis on Diligence and Third-Party Risks Travel and Entertainment in High-Risk Markets Industry- Specific Risks (e.g., probe of banks’ Asian hiring practices) Increasing Cooperation with and Enforcement by Non-US Authorities Collateral Civil Litigation 6
Enforcement by Indian Authorities Lokpal Act of 2013 created a new agency to investigate and prosecute civil servants accused of corruption. Black Money Act came into effect in July 2015 and aims to curb “black money,” i.e., undisclosed foreign assets and income, and it imposes tax and penalty on such income. Pending amendments to the Prevention of Corruption Act of 1988 include tougher prison terms for individuals convicted under the Act; liability for commercial entities that induce public servants; an expansion of the types of corruption covered under the Act; and a “speedy trial” provision aimed at reducing the trial period for cases brought under the Act from an average of eight years to two years. 7
Enforcement by Indian Authorities (cont.) Recent Supreme Court ruling expands power of Comptroller & Auditor General to audit transactions with government. Parliament recently passed a whistleblower protection bill. High-profile investigations reported publicly: – National Herald graft case continues against Sonia Gandhi, head of India’s main opposition Congress Party, and her son Rahul, for misappropriating $300M through the purchase of a non-profit newspaper company. – Bribery in helicopter procurement led to India’s suspension of $750M contract with AgustaWestland and criminal charges against former Indian Air Force Chief. – India’s Defense Ministry has suspended all contracts with Rolls - Royce pending inquiry of bribery allegations by India’s Central Bureau of Investigation. – In July 2015, the Supreme Court of India transferred the ongoing Vyapam case involving widespread corruption in a state government examination board to the Central Bureau of Investigation. By July 2015, more than 2,000 individuals had been charged in the case. 8
FCPA ENFORCEMENT ACTIONS RELATED TO INDIA Louis Berger International, Inc. (2015) – Payments to Government Officials Through Third-Party Vendors – LBI is a New Jersey-based construction management company. – The DOJ alleged that between 1998 and 2010 LBI paid $3.9M in bribes to officials in India, Indonesia, Vietnam, and Kuwait to secure construction management contracts in those countries. LBI concealed the payments by characterizing them as “commitment fees,” “counterpart per diems,” “marketing fees,” and “field operation expenses.” Third-party vendors submitted false invoices to generate payments from LBI; payments tracked on a spreadsheet. – James McClung, Senior Vice- President in charge of LBI’s India operations, pleaded guilty to violating the FCPA by participating in the scheme. – LBI entered into a deferred prosecution agreement and paid a $17.1 million criminal penalty; a compliance monitor was imposed for three years. 9
FCPA ENFORCEMENT ACTIONS RELATED TO INDIA Diageo (2011) – Payments by Distributors to Secure Business and Ease Regulatory Burden – Diageo is one of the world’s largest producers of alcoholic beverages, such as Johnnie Walker. – SEC settlement papers alleged that from 2003 to mid-2009, Diageo’s Indian subsidiary’s promoters and distributors made hundreds of illicit payments to government officials responsible for purchasing or authorizing the sale of its beverages in India. • Payments made by distributors to employees of government-owned liquor stores to increase purchases of Diageo beverages. • Payments made by distributors to regional and state officials to secure label registrations for products. – For this and other conduct, Diageo settled SEC books and records and internal controls charges for $16M. 10
FCPA ENFORCEMENT ACTIONS RELATED TO INDIA Baker Hughes (2001) – Payments by Agent to Ease Regulatory Burden – Baker Hughes’ former subsidiary Western Geophysical (WG) provided geophysical exploration services. – In order to provide these services in the Bay of Canby, India, WG needed authorization from the Director General of Shipping to use a foreign-flagged vessel. – According to the SEC’s papers, WG’s agent told a WG manager that permits could be issued for $15k. WG manager told the agent to “take care of it.” – WG later authorized a $15k reimbursement for the agent without adequate inquiry to ensure that the payment did not violate the FCPA. – WG accounting staff improperly described the payment as “Shipping Permit.” – SEC issued cease and desist order. 11
FCPA ENFORCEMENT ACTIONS RELATED TO INDIA Oracle (2012) – Side Funds Maintained by Distributors – Oracle is a California-based computer technology company. – Oracle’s Indian subsidiary sells its products through distributors that retain the margin between the amount paid by the customer and the amount paid to the subsidiary. – According to the government, the subsidiary structured transactions to create extra margins for distributors in certain instances, essentially creating off-the-books side funds. – Subsidiary employees then directed distributors to make payments from the side funds to sham entities. – No allegation of bribery. – Oracle settled SEC books and records and internal controls charges for $2 million. 12
FCPA ENFORCEMENT ACTIONS RELATED TO INDIA Dow Chemical (2007) – Payments Through Side Funds and Petty Cash to Ease Regulatory Burden – Dow’s Indian majority -owned, fifth-tier subsidiary DE-Nocil manufactures pesticides and other products. – SEC alleged that DE-Nocil structured transactions such that off-the- books funds were held by the company’s contractors. As directed by DE-Nocil, the contractors disbursed funds directly to DE- Nocil or to a third party that would bribe a Central Insecticides Board official. – Bribes resulted in expedited regulatory registration for DE – Nocil’s products. – DE-Nocil also used petty cash to make improper payments to other officials, such as state inspectors. – Dow settled SEC books and records and internal controls charges and agreed to pay a $325K civil penalty. 13
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