greenberg traurig, llp attorneys at law ©2010. all rights reserved. managing compliance risk in...

GREENBERG TRAURIG, LLP ATTORNEYS AT LAW WWW.GTLAW.COM ©2010. All rights reserved.

Managing Compliance Risk in International Transactions

Michael X. Marinelli

Washington, D.C.

marinellimx@gtlaw.com 202.530.8503

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Heightened Compliance Risk in Current Market

Foreign Corrupt Practices Act (FCPA)□ Aggressive national prosecution strategy

Export controls and trade sanctions□ Legislation dramatically increased penalties

Practical steps to manage compliance and control risk

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Transparency International Corruption Perceptions Index

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FCPA Prohibitions

Paying bribes to foreign officials to obtain business or other “improper advantage”

Paying money to a third party knowing that the third party will use it to pay bribes to foreign officials

Offering, authorizing or agreeing to pay bribes

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Proving Knowledge

Knowledge

□ Positive information that a bribe will be paid

□ Awareness of a high probability that a bribe will be paid

□ Willful blindness

□ Knowledge is most often established by showing the company ignored “Red Flags”

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Red Flags

Unusual payment patterns or financial arrangements

□ Payments to third countries

□ Payments to parties not involved in the deal

Agents or representatives that do nothing

□ Late-arriving agents

□ Backdated agreements

A history of corruption in the country

Unusually high commissions

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Red Flags

Business partner lacks qualifications or resources

Agent is recommended or selected by the government customer

Refusal by the foreign business partner to provide an FCPA certification

Lack of transparency in expenses and accounting records

□ Representative’s records

□ Company’s records

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FCPA Basics:Exceptions and Defenses

Payments that are lawful under the “written laws and regulations” of the official’s country

Bona fide and reasonable expenses

Payments to facilitate routine government actions – “grease payments”

“Everyone does it” (customary payments) is not a defense

There is no de minimis exception to the FCPA

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Recent Penalty Cases

Siemens: $1.6 billion□ $450 million in U.S. criminal fines

□ $350 million in profits disgorged to the U.S. government

Halliburton/KBR: $402 million

Baker Hughes: $44 million

ABB Vetco: $26 million

Willbros: $22 million

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Faro Technologies

Paid bribes of $430,000 secure contracts worth $4.54 million

Internal investigation cost $3.6 million during the first nine months

Net Income for the same nine months was $4.5 million

Ultimately paid $1 million criminal fine

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Practical LessonsFrom the Cases

1. Most violations are obvious when they are happening; don’t ignore red flags.

2. Demands for bribes are common and do not provide a defense.

3. Be prepared to give up the deal.

4. Make sure employees understand the rules.

5. Conduct and document due diligence on business partners before you sign the deal.

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Practical LessonsFrom the Cases

6. Having a compliance program is not enough.

7. Audit compliance on a regular basis.

8. It is the purpose, not the size, of the payment that matters.

9. The collateral damage can be worse than the formal penalty.

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Export Controls andSanctions Regimes Export Controls

□ Product Based Controls

Classification is the key

Controls apply to goods, software and technology

Controls capture items that we would consider low-tech

□ End-Use Controls

Depend on what the customer will do with the product

Apply to virtually all U.S. products

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Export Controls and Sanctions Regimes Trade Sanctions

□ Restricted Countries

Cuba

Iran

North Korea

Sudan

Syria

□ Restricted Party Lists

Specially Designated Nationals (Treasury)

Denied Persons (Commerce)

Entity List (Commerce)

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Recent Export Cases

ITT: $100 million

Balli: $17 million

Sirchie: $2.5 million

EMD Biosciences: $904,500

Wilden Pump: $700,000

Cryostar: $500,000

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Protecting the Company:Effective Compliance

Management involvement and support

Clearly communicated standards and procedures□ General policy statements are not enough

□ Procedures tailored to fit the company’s business

□ Train employees and managers

On substance

On process

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Protecting the Company:Effective Compliance

Diligence in Engaging Agents and Distributors□ Establish objective criteria to be met

□ Document the selection process

□ Document due diligence regarding agent

□ Include compliance language in agreements

Procedures for assessing business information from the compliance perspective□ Who is the customer?

□ Is it a government entity? Military entity?

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Protecting the Company:Effective Compliance

Audit and review operations□ Sales and marketing operations

□ Expense reports

□ Finance operations

Procedures for reporting and investigating possible wrong-doing□ Internal reporting mechanism

□ Clear chain of command for response

□ Include legal and finance teams