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Foreign Corrupt Practices Act

Enforcement:

2015 Year-in-Review

January 26, 2016

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Presenters

Mark Srere Partner, DC

(202) 508-6050

mark.srere@bryancave.com

Kristin Robinson Associate, DC

(202) 508-6334

kristin.robinson@bryancave.com

Connect with us on LinkedIn

Mark (https://www.linkedin.com/in/mark-srere-2585689)

Andrew (https://www.linkedin.com/in/andrew-mohraz-7b5b5656)

Kristin (https://www.linkedin.com/in/kristin-robinson-2b097a4)

Andrew Mohraz Partner, Denver

(303) 866-0254

andrew.mohraz@bryancave.com

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• 2015 Enforcement Overview

• FCPA Primer

• 2015 Enforcement Update – Anything of Value

– Foreign Officials

– Corporate Liability

– Focus on Individuals

– DOJ Update

– SEC Update

• Global Anti-Corruption Update

• Compliance Tips

Agenda

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2015 ENFORCEMENT

OVERVIEW

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FCPA Statistics: Monetary Settlements

• Monetary Settlements (DOJ / SEC) – 2015: $133 million

– 2014: $1.56 billion

– 2013: $731 million

– 2012: $259 million

– 2011: $509 million

– 2010: $1.8 billion

• No Changes to Top Ten List in 2015

– Two changes in 2014, two changes in 2013

• Largest 2015 Settlement

– BHP Billiton’s $25 million settlement to the SEC

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FCPA Statistics: Types of Settlements

• Corporate Settlements (DOJ / SEC) – 2015: 11 companies

– 2014: 10 companies

– 2013: 12 companies

– 2012: 12 companies

– 2011: 15 companies

– 2010: 23 companies

• Individuals Charged by DOJ – 2015: 8 individuals

– 2014: 10 individuals

– 2013: 12 individuals

– 2012: 2 individuals

– 2011: 10 individuals

– 2010: 33 individuals

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1. Siemens (Germany): $800 million (2008)

2. Alstom (France): $772 million (2014)

3. KBR / Halliburton (U.S.): $579 million (2009)

4. BAE (UK): $400 million (2010)

5. Total SA (France): $398 million (2013)

6. Alcoa (U.S.): $384 million (2014)

7. Snamprogetti Netherlands B.V. / ENI S.p.A (Holland/Italy): $365 million (2010)

8. Technip SA (France): $338 million (2010)

9. JGC Corporation (Japan): $218.8 million (2011)

10. Daimler AG (Germany): $185 million (2010)

FCPA Top Ten Settlements

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FCPA PRIMER

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Antibribery Provisions

• Prohibits bribery of foreign

government or political officials for

the purpose of either: – Obtaining or retaining business

– Securing any improper advantage

• Mainly enforced as criminal

violations by the Department of

Justice

Books and Records Provisions

• Requires SEC-registered or

reporting issuers to: – Make and maintain accurate books and

records and

– Implement adequate internal

accounting controls

• Mainly enforced as civil violations

by the Securities and Exchange

Commission

Structure of the FCPA

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• Any “issuer” that files reports to the SEC or trades equity or debt on a U.S. exchange – Includes any foreign company that trades, for example, American

Depository Receipts (ADRs) on a U.S. exchange

• Any “domestic concern” – Includes U.S. citizens, nationals, and residents as well as any entity

(corporation, partnership, etc.) that is organized under the laws of the U.S. or a U.S. territory or that has its principal place of business in the U.S.

• Any “person,” including an organization, wherever located, that while in a U.S. territory, does any act in furtherance of the prohibited conduct – Government argues minimum contacts include emails, telephone

calls, transfers through correspondent bank accounts in U.S. intermediary banks

Antibribery Provisions:

To Whom Do They Apply?

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• It is unlawful for

– an “issuer,” “domestic concern,” or “any person acting within the

territory of the United States”

– with “corrupt intent”

– directly or indirectly

– to offer, pay, promise to pay, or authorize payment

– of “anything of value”

– to a “foreign official”

– for the purpose of obtaining or retaining business

Antibribery Provisions:

Prohibited Acts

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• Books, records, and accounts must be kept “in reasonable detail” – Level of detail that would satisfy prudent officials in the conduct of their own

affairs

– No materiality threshold

– Bribes are often concealed as legitimate payments, such as consulting fees, marketing expenses, travel and entertainment, or discounts

• System of internal accounting controls – The processes in place to ensure accurate financial reporting

– Includes the organization’s “tone,” risk assessments, and control activities such as approvals, authorizations, segregation of duties, etc.

– An effective compliance program is a critical component of internal controls

• SEC will look to see if there are any potential reporting and anti-fraud violations that accompany the FCPA violation

• There can be criminal liability for accounting violations

Books and Records Provisions

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2015 ENFORCEMENT UPDATE

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Anything of Value

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• $14.8 million SEC settlement with BNY Mellon

(August 2015)

• Involved hiring of 3 interns who were family members of

foreign officials at Middle East sovereign wealth fund

– Interns had weak qualifications

– Below average performance evaluation

• SEC cited evidence of explicit intent that hiring decisions

were intended to obtain or retain business

Hiring of Interns

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• $9.5 million SEC settlement with Flir Systems Inc.

(April 2015)

• Allegations of improper gifts and travel expenditures for

Saudi officials

– 20-night “world tour” to Casablanca, Paris, Dubai, Beirut, New

York City

– Multiple New Year’s Eve trips to Dubai

– Expensive watches

• SEC previously settled with two former FLIR sales

employees (November 2014)

Hospitality: Gifts & Travel

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• $3.4 million SEC settlement with PBSJ Corp.

(January 2015)

• Authorized and offered bribes to secure government

contracts

• Former PBSJ subsidiary’s president also agreed to settle

for $50,000

– From 1986 to 1990, worked for PBSJ as engineer, marked as

“ineligible for rehire”

– In 2009, hired again as Director of International Marketing

Actual Payments Not Required

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Foreign Officials

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• $17.1 million DOJ settlement with Louis Berger Int’l

(July 2015)

• Allegations of $3.9 million in cash payments to

government officials in Indonesia, Vietnam, India, Kuwait

– Bribe payments disguised as “counterpart per diem,” “marketing

fee,” and “field operation expenses”

• Company agreed to retain independent compliance

monitor for 3 years

• Two former executives also pleaded guilty and awaiting

sentencing

Government Officials

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• $25 million SEC settlement with BHP Billiton

(May 2015)

• Sponsored attendance of government officials at 2008

Beijing Summer Olympics

– Invited 650 people to attend (98 were representatives of state-

owned enterprises and were BHP customers)

– 60 government officials and some spouses attended

– Paid for 3 or 4-day hospitality packages (tickets, hotel,

sightseeing)

• Allegation that risk existed that bribery might take place,

not that any bribes were paid

State-Owned or Controlled Entities

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• $19 million SEC settlement with Hitachi Ltd.

(September 2015)

• Allegation of profit-sharing scheme with company

serving as front for African National Congress

– Hitachi awarded $5.6 billion in government contracts in South

Africa

– Front company paid $5 million in “dividends”

– Additional $1 million success fees paid to front company

• Hitachi sold stake to front company for less than

$200,000 in 2005 and repurchased shares for $4.4

million in 2014

Political Parties

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• Dimitrij Harder indicted in January 2015 for scheme to

pay bribes to senior official at European Bank for

Reconstruction and Development (EBRD)

– London-based EBRD is owned by more than 60 nations

– EBRD provides financing for development projects in emerging

economies

• Allegations:

– $3.5 million paid to sister of EBRD official in exchange for

influencing EBRD financing applications for Harder’s clients

– $8 million in success fees for Harder’s consulting group

Public International Organizations

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Corporate Liability

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• $12 million SEC settlement with Mead Johnson Nutrition

(July 2015)

• Involved conduct by Mead Johnson’s Chinese subsidiary

– Alleged $2 million in improper payments paid to state-owned

hospitals to market products

– Failed to accurately record third-party funds used in connection

with product marketing

• Subsidiary’s financial results were consolidated into

Mead Johnson’s financial statements

– Criticized for “lax internal control environment”

Subsidiary Liability

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• $16.2 million SEC settlement with Goodyear Tire & Rubber (February 2015)

• Kenyan and Angolan subsidiaries paid bribes to foreign officials to obtain business

• SEC alleged failures: – To conduct “adequate due diligence” when it acquired the

Kenyan subsidiary

– To implement “adequate FCPA compliance training and controls after the acquisition”

• Goodyear had minority stake in Kenyan subsidiary since 2002, acquired majority stake in 2006, and divested ownership stake in 2013

Successor Liability

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• $14 million SEC settlement with Bristol-Myers Squibb

(October 2015)

• Bristol-Myers Squibb owned majority stake in Chinese

joint venture

• Allegations that JV’s sales representatives gave bribes

to state-owned and controlled hospitals

– Cash, gifts, meals, travel, entertainment, conference

sponsorships

• JV recorded bribes as legitimate business expenses,

which were consolidated into Bristol-Myers Squibb books

and records

Joint Venture Liability

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Focus on Individuals

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The Yates Memo: Select Provisions

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FCPA & Individuals

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• Broker-Dealer Direct Access Partners closed in May 2013 after SEC investigation

• Alleged $60 million in bribes paid to senior Venezuelan bank official in exchange for directing bond-trading work to DAP

• Executives charged and sentenced: – CEO Benito Chinea – 4 years prison, $3.6 million forfeited

– Managing Director Joseph DeMeneses – 4 years, $2.7 million

– Managing Partner Ernesto Lujan – 2 years, $18.5 million

– Senior VP Tomas Clarke – 2 years, $5.8 million

– Broker Jose Alejandro Hurtado – 3 years, $11.9 million

• Venezuelan banking official Maria De Los Angeles Gonzalez De Hernandez served 17 months in prison, forfeited $8 million

Significant Prison Sentences for Broker-

Dealer Executives

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• Vincente Garcia, former VP of Global and Strategic

Accounts for SAP

– Florida resident

– Sentenced to 22 months in prison

– Agreed to pay $92,000 to SEC

• Paid bribes of $145,000 to Panamanian government

officials to secure $3.7 million in software license sales

• Circumvented SAP internal controls by creating sham

contracts and false invoices

• No charges or settlements to date involving SAP

DOJ & SEC Jointly Target Executive

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• $7.1 DOJ settlement with IAP Worldwide Services

(June 2015)

– Company received Non Prosecution Agreement and promised

continued cooperation

• Allegation that former IAP Vice President James Rama

and other executives orchestrated scheme to bribe

Kuwait officials in exchange for contracts

– Involved setting up shell company to write specifications for

government project that only IAP could satisfy

• Rama pleaded guilty and received 120 days in prison

Company Receives NPA; Executive Indicted

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DOJ Update

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• DOJ Fraud Section’s newly-created compliance counsel

position

• Attorney Hui Chen

– Experience: in-house legal and compliance positions at

Microsoft, Pfizer, and Standard Chartered Bank

• Purpose:

– Not recognizing or instituting a “compliance defense”

– Assess company’s compliance program and test validity of

claims about program

– Guide prosecutors seeking remedial compliance measures

(effectively tailor requirements for companies)

New DOJ Compliance Counsel

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• Staffing

– DOJ’s FCPA Unit adding 10 new prosecutors

– FBI has established three squads devoted to

international corruption investigations and

prosecutions

• Five Reported DOJ Declinations

– Notable: Bristol-Myers Squibb, Hyperdynamics Corp.

• Guidance

– No Opinion Releases

Additional DOJ Developments

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• Federal court rejected DOJ’s theory to extend FCPA’s

jurisdictional reach

– United States v. Hoskins (August 13, 2015)

• Defendant:

– Non-resident foreign national

– Not an agent of domestic concern or issuer (worked for UK

company and assigned to French company)

– Committed no acts while physically present in U.S.

• Government’s Theory:

– Defendant could be convicted as an “accomplice”

– Rejected by court

Limitation on FCPA Jurisdictional Reach

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• Mid-trial settlement between DOJ and former PetroTiger Ltd. CEO Joseph Sigelman (June 2015) – DOJ publicly declined to prosecute PetroTiger based on

company’s voluntary disclosure, cooperation, and remediation

• Indictment: scheme to bribe Colombian oil company in exchange for $40 million oil services contract

• Key Witness: Former GC Gregory Weisman – Secretly recorded conversation with Sigelman in 2012

– Admitted prior trial testimony was misleading

• Sigelman pleaded guilty, received probation and $100,000 fine – Originally faced prison time of over 20 years

Settlement During High-Profile Trial

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• Biomet Inc. reported that DOJ extended its DPA

• Settlement (March 2012)

– Allegations: bribes to doctors at state-owned hospitals in

Argentina, Brazil, and China

– $22.7 million to DOJ and SEC

• In October 2013, Biomet learned of new possible

violations involving Mexico and Brazil

• Compliance monitor extended to a fourth year

Deferred Prosecution Agreement Extended

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SEC Update

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• In its 2015 fiscal year, the SEC received nearly 4,000

whistleblower tips

– FCPA-related allegations accounted for 4.7% of whistleblower

tips

• FCPA-related tips continue to increase:

– 2015: 186 allegations (4.7%)

– 2014: 159 allegations (4.4%)

– 2013: 149 allegations (4.6%)

– 2012: 115 allegations (3.8%)

• No whistleblower award in connection with FCPA

enforcement action to date

Dodd-Frank Whistleblower Provisions

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• In 2015, 8 of the 9 SEC settlements were

resolved by administrative proceedings,

not in federal court

• Dodd-Frank Amendment (2010) empowered

SEC to collect civil penalties through administrative

proceedings

• SEC administrative proceedings do not require judicial

approval and afford no right to jury trial

• Administrative Law Judges are full-time SEC employees

Administrative Proceedings

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“[T]he Enforcement Division has determined that going

forward, a company must self-report misconduct in

order to be eligible for the Division to recommend a DPA

or NPA to the Commission in an FCPA case.”

Director, SEC Division of Enforcement

Andrew Ceresney

November 2015

Incentivizing Voluntary Disclosure

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GLOBAL ANTI-CORRUPTION

UPDATE

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• August 2015: UK announced new International

Corruption Unit (ICU) to centralize investigation of

bribery of foreign officials

• November 2015: Serious Fraud Office announced

approval of first deferred prosecution agreement

– ICBC Standard Bank agreed to pay $33 million for violation of

UK Bribery Act

• December 2015: Sweett Group agreed to plead guilty

related to alleged bribery of UAE official

United Kingdom: Enforcement Update

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• Global investigations involving Petrobras, Brazil’s state-

owned oil company

• Allegations:

– Price fixing by engineering firm executives, inflation of Petrobras

contracts, and payment of bribes to Brazilian officials

• February 2015: Petrobras CEO and five executive

directors resigned

• December 2015: Brazilian prosecutors charge Petrobras

and SBM Offshore (Dutch company, leaser of oil

production ships) executives with bribery scheme

Brazil: Petrobras Investigations

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• Significant anti-corruption campaign by Chinese

President Xi Jinping

• Since 2012, 120 provincial/ministerial level officials

investigated for corruption

• October 2015: Former China National Petroleum Corp.

chairman Jiang Jiemin pleaded guilty to receiving bribes,

sentenced to 16 years in prison

China: Corruption Crackdown

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COMPLIANCE TIPS

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• Tone at the top – commitment from senior management

and clearly articulated policy against corruption

• Code of conduct, compliance policies & procedures

• Oversight, autonomy, and resources

• Risk assessment

• Training and continuing advice

• Incentives and disciplinary measures

• Third-party due diligence

• Confidential reporting and internal investigation

Essential Elements to Compliance Program

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• DOJ’s new compliance counsel recently identified four

criteria for evaluating the effectiveness of a compliance

program:

– Addressing Risk – Does the compliance program demonstrate

thoughtful design to address current risks?

– Active Compliance – How operational is the program (not a

paper program)?

– Coordination – How well are stakeholders working with each

other?

– Resources – How well is the program resourced?

Criteria to Evaluate Compliance Program

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• Third parties remain one of the top risk areas for

companies conducting business abroad

• Best practices include:

– Due diligence on potential third parties

– FCPA compliance certification

– Continuous monitoring of third party transactions

– Auditing third party for compliance

Third Parties

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• DOJ continues to emphasize importance of effective

anti-corruption due diligence in deal context

• DOJ/SEC urge the following:

– Pre-Acquisition Due Diligence

– Post-Acquisition Compliance Integration

– Anti-Corruption Training

– FCPA Audit

– Disclosure to Government

Mergers & Acquisitions

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CONCLUSION

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You See…

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Prosecutors See…

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QUESTIONS & ANSWERS

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