fraud academy fcpa the new uk bribery bill 15-06-2010[1]
TRANSCRIPT
FCPA and the newFCPA and the new UK Bribery Act
15 June 2010
PricewaterhouseCoopers Slide 1June 2010
AgendaAgenda
1. The US Foreign Corrupt Practices Act
2. The UK Bribery Act 2010
3. Key provisions of UK Bribery Act and FCPA comparedy p y p
4. Enforcement Trends in the US and UK
5. Anti-corruption/bribery compliance program - what is expected from Companies?p y p p g p p
6. The Siemens Case Study
• IntroductionIntroduction
• Response
• ConclusionConclusion
PricewaterhouseCoopers Slide 2June 2010
The US Foreign Corrupt Practices Act (“FCPA”)The US Foreign Corrupt Practices Act ( FCPA )
Anti-Bribery Provisions Accounting ProvisionsIt is unlawful to provide anything of value to a foreign government official to obtain or retain businessApplies to US citizens, residents, companies
Every issuer (listed on a U.S. stock exchange) must maintain accurate and detailed books and
records;FCand issuers of securities in the US, including
the employees, officers and directors of such issuer
maintain an internal control system to ensure accuracy of the books and records and execution of transactions and access to assets in accordance with required
th i ti
CPA
authorisation
Legal entities U t US$ 25 illi
Legal entitiesU t US$ 2 illi i l ti Up to US$ 25 million
Natural personsUp to US$5M or 20 years imprisonment
Up to US$ 2 million per violationNatural personsUp to US$100K and/or 5 years imprisonment per violation
FINES
CRIMINAL AND CIVIL LIABILITYCRIMINAL AND CIVIL LIABILITY
The UK Bribery Act 2010
Paying / receiving a bribe
Bribing a Foreign Public Official
Failure to Prevent bribery (absence Offence Penalties
The UK Bribery Act 2010
g(Public/Private Sector)
Relating to “improper performance” of a function or activity
To obtain or retain business advantage
y (of “adequate procedures”)
Committed Unlimited fine within the UK: any person outside the UK: British citizen / resident
Individuals Up to 10 yrs imprisonment
Incorporated elsewhere but “carries on a or part
Incorporated in the UK
Companies
Unlimited fine Debarment
from competing for government contractsp
of a business” in the UKcontracts
Anywhere in the world,even if operating through an agent / subsidiary
Location of Bribe
Given the Act, and its expected aggressive enforcement, European companies need to consider (and respond to) the increasing compliance risk of operating within the UK
Key provisions of UK Bribery ActKey provisions of UK Bribery Act and FCPA compared
• Jurisdiction under the Bribery Act appears broader than the FCPA, at least as to corporations
- Corporations can be guilty of an offense if they do business in the UK regardless of- Corporations can be guilty of an offense if they do business in the UK, regardless of where the acts or omissions which form part of the offense take place
• UK Bribery Act prohibits bribery of private citizens, wherever located
- FCPA does not cover foreign commercial bribery
- corporations now have an added incentive to monitor all payments to and from third-parties p
• Under both the FCPA and Bribery Act, payments to foreign officials made through third-parties can form the basis of an offense
PricewaterhouseCoopers Slide 5June 2010
Key provisions of UK Bribery ActKey provisions of UK Bribery Act and FCPA compared
• FCPA carves out facilitating or expediting payments made to secure performance of routine government action.
− No such carve out in Bribery Act− No such carve-out in Bribery Act
− Corporations should be careful in interactions with local regulators, e.g., customs clearance, license or visa renewal, annual inspections, etc.
• No “adequate procedures” defence under the FCPA but relevant in prosecutorial discretion to charge and in resolution of action
• Bribery Act itself contains no books and records or internal controls provisions though• Bribery Act itself contains no books and records or internal controls provisions, though other provisions of UK law create such obligations
• No requirement under Bribery Act for a corrupt intent
PricewaterhouseCoopers Slide 6June 2010
US Enforcement TrendsUS Enforcement TrendsNumber of FCPA cases will continue to increase
• In 2009 there was an increase in the number of FCPA proceedings handled by the DoJ and SECTh li ht d i 200840
4550
• The slight decrease in 2008 may be due to the unusually large scope of certain investigations
• 6 of 30 proceedings concluded in2025303540
SEC
DoJ6 of 30 proceedings concluded in 2008/2009 were against European companies
• PwC research has identified 05
1015
2002 2003 2004 2005 2006 2007 2008 2009 details of 96 open investigations, 15 of which involving 11 European companies
2002 2003 2004 2005 2006 2007 2008 2009
PwC research: Proceedings against companies and individuals
Back log of cases continues to grow. In January 2010, Assistant Attorney General Breuer confirmed that the DOJ now has more than 140 open investigations
PricewaterhouseCoopers Slide 7June 2010
US Enforcement TrendsUS Enforcement TrendsNumber of FCPA cases will continue to increase
• There is a greater number of enforcement against individuals in recent years 25
30
• PwC research has identified details of 46 open investigations against individuals.I ll l d d di 10
15
20DoJ
SEC• In all concluded proceedings,
except one, where employees were charged, they were senior executives of the company 0
5
10
p y• Of specific note: case of Nature’s
Sunshine Products - 'control person' theory - U.S. based executives
2002 2003 2004 2005 2006 2007 2008 2009
PwC research: Proceedings against individuals
(CEO and CFO) were held responsible for alleged corrupt payments made at the foreign subsidiary-level when they did not authorise or even have knowledge of the payments
PricewaterhouseCoopers Slide 8June 2010
US Enforcement TrendsUS Enforcement Trends
Use of intermediaries• In almost all instances, intermediaries were used to
facilitate improper payments (2008: 13 out of 15 concluded proceedings and 2009: 11 out of 15
l d d di )concluded proceedings)• Different types of intermediaries were involved e.g.
agent, customs broker, distributor, subcontractor, freight forwarding agent etc
2008forwarding agent etc.
Regions where corruption occurred• In the majority of proceedings concluded in 2008/2009,
the alleged corruption occurred in regions where
Other1
BR/IC/ABthe alleged corruption occurred in regions where corruption is pervasive (South America, Asia Pacific, Africa, Middle East) – in line with Transparency International’s Corruption Perception Index.
AB2
BR/IC/AB3
Accounting and internal control principles• In most cases, companies were held accountable for
books and records and/or internal control violationsBR/IC
52009
AB = Anti-bribery violation, BR = Books & Records violation, IC = Internal Control violation
US Enforcement TrendsUS Enforcement TrendsFacilitation payments remain an issue
• Facilitation payments remain a grey area. Although facilitation payments are allowed in terms of the FCPA – there are a number of examples where companies were held accountable for violations in this area.
• 2007 Vetco Gray and 2008 Aibel Group cases are examples where companies were even held accountable for anti-bribery violations for making payments to secure preferential treatment during the customs process2008 C t t t ffi i l t i d th t (i) i l t t• 2008 Conway case - payments to customs officials to induce them to (i) violate customs regulations (ii) improperly settle disputes with the Bureau of Customs, or to reduce or not enforce otherwise legitimate fines for administrative violations. The actions were not “ordinarily and commonly performed by a foreign official” and fell outside the scope of the y y p y g pFCPA's facilitating payments exception.
• OECD recommendations dated 26 November 2009 – member states to:- periodically review their policies and approach on small facilitation payments in order p y p pp p y
to effectively combat the phenomenon - encourage companies to prohibit or discourage the use of small facilitation payments
PricewaterhouseCoopers Slide 10June 2010
US Enforcement TrendsUS Enforcement Trends
New approach to monitorships? Voluntary disclosure, remediation and
• A decline in appointment of monitors from four in 2008 to two in 2009
• New concept of self monitoring
cooperation have lead to:• Deferred or non-prosecution
agreements (avoiding debarment)• New concept of self-monitoring
imposed in two cases in 2009
• Independent consultant appointed in one case
• Charges only against subsidiary avoiding debarment of group
• Reduced finesS lf it ione case
• Indications of appointment of monitors in three settlements imminent in 2010
• Self monitoring
Imposition of large penalties will continue
Voluntary disclosure, remediation and cooperation pays off
• 8 out of the 15 proceedings concluded
• Imposition of larger fines and disgorgement e.g. in respect of US regulators alone:
Siemens US$800mln (2008)in 2008 and 3 out of the 15 concluded in 2009 were as a result of voluntary disclosure
- Siemens - US$800mln (2008)- KBR - US$579mln (2009)- BAE – US$400mln (2010)
PricewaterhouseCoopers Slide 11June 2010
UK Enforcement TrendsUK Enforcement Trends
• Aug 2008OECD reprimands for failure to uphold OECD commitments.
• Oct 2008Balfour Beatty, £2.25m settlement with the SFO relating to entries in a subsidiary
' d i t f t i l iti i t f th ti fcompany's records in respect of payment irregularities, in respect of the execution of a contract in Egypt
• Jan 2009FSA imposes a record fine of £5 25m on Aon Ltd for failure to have effective systems andFSA imposes a record fine of £5.25m on Aon Ltd, for failure to have effective systems and controls in place to counter the risk of bribery and corruption associated with making payments to overseas firms and individuals
• July 2009ySFO issues “Approach to dealing with overseas corruption” including guidance for companies to self-report and on expectation of “adequate procedures” to prevent bribery
• Sept 2009Mabey & Johnson Limited finalises a criminal plea agreement with the SFO on matters that were self-reported. Taken together with the SFO costs of £350,000 and monitor costs, takes the penalty to £6.6m. Mandatory debarment from all government contracts
PricewaterhouseCoopers Slide 12June 2010
UK Enforcement TrendsUK Enforcement Trends
• Nov 2009AMEC agrees to a civil penalty of £4.9 m plus costs. The SFO reported that AMEC acted promptly and self-reported the case to the SFO, and has worked on remediation
• Dec 2009SFO h f VP f D P I t ti l Ltd ll i th t D l i d t kSFO charges former VP of DePuy International Ltd alleging that Dougal conspired to make corrupt payments and /or gave inducements to medical professionals working in the Greek public healthcare system
• Feb 2010Feb 2010BAE reaches settlement with the SFO and agrees to a fine of £ 30m in respect of failure to keep accounting records (also settled with US DoJ and agreed to pay $400m fine and imposition of compliance monitor)
• March 2010Innospec Ltd pleads guilty to bribery charges brought by the SFO and fined $12.7m
• April 2010E t t f B ib A t 2010Enactment of Bribery Act 2010
• July 2010Expected circulation of guidance on “adequate procedures” and offence will subsequently become operational
PricewaterhouseCoopers Slide 13June 2010
become operational
Anti-corruption/bribery compliance programme –Anti corruption/bribery compliance programme what is expected from companies?
• Senior Management to take ownership and provide governance
• Corporate policy against violation of bribery laws
• HR – incentives and disciplinary measures
• Monitoring by Internal Audit that • Senior manager (compliance officer)
responsible for implementation and oversight of compliance programB ib i k t i t
g ythe compliance program is operating effectively
• Areas requiring further • Bribery risk assessment - appropriate response
to mitigate the identified risks• Compliance policies, financial and accounting
procedures and internal controls
q gconsideration:− Gifts / promotional expenses− Travel & entertainmentprocedures and internal controls
• Training, consultation and communication• Whistleblower function and case tracking• Control over business partners including
− Facilitation payments− Charitable donations / political
contributionsControl over business partners, including requirements for:− Due diligence− Standard contract terms, including audit rights
− Lobbying
PricewaterhouseCoopers Slide 14June 2010
g g
Anti-corruption/bribery compliance programme –Anti corruption/bribery compliance programme what is expected from companies?
Lessons:
• Not a ‘tick the box’ exercise
A id “P ti ” li• Avoid “Paper tiger” compliance
• “Siemens had policies in place, but they were not lived, the corporate values were not incorporated, leadership has failed” Andreas Pohlman, CCO, May 2008 TI Conference in ZagrebZagreb
• Needs to be tailored to mitigate the risks of the corporation
Available guidance:
• SFO - “Approach of the Serious Fraud Office to dealing with Overseas Corruption”
• US - “Chapter 8 - Sentencing of Organisations”
• DOJ’s Opinion Procedure Release 04-02
• OECD - “Good Practice Guidance on Internal Controls, Ethics and Compliance”
PricewaterhouseCoopers Slide 15June 2010
The Siemens Case StudyThe Siemens Case Study
PricewaterhouseCoopers Slide 16June 2010
BackgroundIntroduction
Background
• Diversified global company• >160 years of history• > $100 billion revenues & > 400,000
employees*• > 190 countries with business activities +
> 1000+ subsidiaries *• #30 on the global Fortune 500 (2009)*• Listed on NYSE and DAX • Investigation started in 2006 as result of
anonymous tip• As a result reported ‘material weakness’ in
FY06/07• Disclosed €1.3bn in questionable payments
(2000 2006)(2000-2006)
*Source: Siemens 2010 – The Company
PricewaterhouseCoopers Slide 17June 2010
Historic finesIntroduction
Historic fines
• US and German regulators fine US$1.6bn
− US$ 569 mln (€395mln) by German authorities
− US$ 450mln (~ €350 mln) by DOJ
− US$ 350mln (~ €270 mln) by SEC
• German tax authority fine ~US$ 250mln (€179mln)
• World Bank fine $100 mln (~€75 mln)
− 4-year debarment for Siemens Russia
2 ear sh t o t from World Bank financed projects for all Siemens entities− 2-year shut-out from World Bank-financed projects for all Siemens entities
• Siemens claims damages from eleven former bosses, accusing them of neglecting their supervisory duties and failing to stop illegal practices
• Ex-chairman Heinrich von Pierer fined by Munich prosecutor
PricewaterhouseCoopers Slide 18June 2010
Additional costsIntroduction
Additional costs
Investigation• > 300 lawyers, forensic analysts and staff had to
untangle thousands of payments across the globe• > 1,700 interviews in 34 countries• Collected > 100 million documents (created special
facilities in China and Germany to house records)• > 1.5 million billable hours
Remediation• > 150 people, including 75 PwC professionals
developed a step by step guide known as thedeveloped a step-by-step guide known as the "Anti-Corruption Toolkit"
• implemented the Anti-Corruption Toolkit at 162 Siemens entitiesdedicated support teams spent 6 weeks at 56 “high risk” entities• dedicated support teams spent 6 weeks at 56 “high risk” entities
• Ultimately implementation at remaining 1000+ entities• > 300,000 billable hours
PricewaterhouseCoopers Slide 19June 2010
How did Siemens respond?Response
How did Siemens respond?
Independent investigation Short-term remedial actions
• Audit Committee retained the US law firm Debevoise to conduct an independent and comprehensive investigation
• Re-established ‘tone-at-the-top’: zero tolerance• Amnesty and leniency programs, including a
leadership change• Preservation, collection, testing and analysis of
evidence• Substantial assistance and cooperation with the
regulators
p g• Reorganise compliance organisation• Books and records, tax and internal controls
remediationregulators
• Assistance via external advisors
Long-term remedial actions
• Continued update and improvement of the compliance program
• Comprehensive policies, procedures and controls to effectively address risks
Alignment with US regulatory requirements of the Department of Justice US Federal Sentencing Guidelines for Companies
PricewaterhouseCoopers Slide 20June 2010
How did it work in practice?Response
How did it work in practice?
PricewaterhouseCoopers Slide 21June 2010
The remediation processResponse
The remediation process
Step 1
Whistle-blower
Past− People− Financial Statements− Tax
Future− Controls
InvestigationCompliance
reviews
Results /Exceptions
Compliance Riskassessment
Controls− Procedures
VerificationStep 2Exceptions
Remediation
Implementation
t Verification meetings
Continous Improvement
Step 3
Implementation of Compliance Initiatives and
Controls
TestingDesign &Continous Improvement
Continous Improvement
Design & Operational
effectiveness
PricewaterhouseCoopers Slide 22June 2010
Implementation of a new compliance frameworkResponse
Prevent Detect Respond
Implementation of a new compliance framework
"Tone from the Top“ – Leadership Commitment and Follow-through1
Compliance Organisation & Internal Audit2 p g
Consultation & Whistle blowing – “Case Tracking”
HR: Rewards and Sanctions
3
4
Third Parties (Business Partners)
Training & Communications
e a ds a d Sa ct o s
5
6Continuous
improvementThird Parties (Business Partners)
Tenders & Contracts (Government Business)7
Gifts, hospitality, sponsorships & donations8
6 p
Gifts, hospitality, sponsorships & donations8
Finance & Accounting9
HQ Monitoring10
PricewaterhouseCoopers Slide 23June 2010
HQ Monitoring10
Zero tolerance …Tone from the Top1
Zero tolerance …
• “Only clean business is Siemens business.” • “Compliance as part of Corporate Responsibility
is priority #1”• Frequent Communications:
- Town hall meetings- Employee Attitude Surveys
... and accountability
• Management of each business unit: • performs a corruption exposure risk assessment• must actively promote key policies & codes• is responsible for the remediation of internal controls• certifies quarterly that controls are operating effectively
PricewaterhouseCoopers Slide 24June 2010
Compliance Organisation & Internal Audit
Reorganisation of “Internal Gatekeepers”2
Reorganisation of Internal Gatekeepers
New organisation in which Compliance Similar process for Internal Officers have:• Clear roles and responsibilities that are
communicated to all employees
Audit:• Clear roles and responsibilities
defined (“Back to Basics”)• New reporting lines to Global Compliance• Appropriate seniority and skills• Responsibilities embedded further in
• New reporting lines to Global Head of Audit
• Appropriate experience and skills divided in 5 basic areas:business transactions
• Increased resources: From 170 (FY 07) to > 600 employees world wide
skills divided in 5 basic areas: Financial, Operational & Compliance, IT, Transactions & Forensic Investigation
• A Professional Development Program• Global and regional compliance
conferences for networking and sharing
g• Increased resources: To > 400
employees world wide• A Professional Development
• Compliance best practice platform “Find it" Program
PricewaterhouseCoopers Slide 25June 2010
Consultation & Whistleblowing
New channels for an open dialogue3
New channels for an open dialogue
Consultation (“Ask Me”)
• Helpdesk for questions• Reporting of compliance breaches
Whistleblower (“Tell Me”)
• All incidents tracked• Reviewed by compliance
• Search for compliance information• Approval of gifts & hospitality• Submit suggestions and ideas
• Active case tracking
gg
Accessible: worldwide 24/7150 languagesg g
Actively promoted: Communications
Basis for continuous improvement / development of policies, procedures, controls and training
Source: Siemens Sustainability Report 2008
controls and training
PricewaterhouseCoopers Slide 26June 2010
Human Resource Processes
Compliance-based incentives system4
Compliance based incentives system
Metrics Assessment
Corporate Audit Tone from the top & training Policies implementationMaintaining
C
Evaluation
Compliance Legal
Compliance organisation and transparency
1 the Control Environment
Incidence of new serious Compliance LegalCase tracking evaluationDisciplinary sanctions
Incidence of new serious cases (systematic failure)
Adequate sanctions taken On time reporting
2 Incidents Evaluation of each
division/ country Proposal for
multipliers prepared i li
Survey team:Compliance index B h k
Employee perception3Compliance perceptionsurvey
in compliance round table
Impact to FY08 bonus approximately 17%Benchmarksurvey approximately 17%
Source: Dr. Klaus Moosmayer, Compliance Operating Officer & Chief Counsel Compliance & InvestigationsACI 21st National Conference: Foreign Corrupt Practices Act, New York, March 25, 2009
PricewaterhouseCoopers Slide 27June 2010
0.75g p , , ,
Training & Communications
Training – everyone has a role to play5
Definition of Target Group Type of Training
Training everyone has a role to play
Definition of Target Group Type of Training
• Supervisory Board, Board of Management• CEOs / CFOs of Divisions, sub-divisions, regional companies
In-person 4h training
• Members of Group Boards
• Manager / staff who interact with govt. officials• Key functions: sales, procurement & project management
In-person 4h-8h training
• Regular interactions with government (e.g. Tax, Customs)• Boards of legal entities (if applicable)
• Employees with signing authority ~1h Web-based training • Employees in management positions• All customer-facing and controller functions (e.g., sales, sales
commercials)
available in 15 languages
• New Compliance Officers• From Regions, Sectors / Divisions / Business Units
4 day Introduction Program
PricewaterhouseCoopers Slide 28June 2010
Business Partner (BP) -Third Parties6
Business Partner (BP) Risk-based due diligence procedures
Pre-work Due Diligence QuestionnaireFront-end Risk Assessment1 2 3
LowerRisk – Least
Integrity Check (Internet Search)
Doubtfuli t it
Positiveintegritya
Medium RiskLess Review
Business Partner key data collection
integrity
Higher
b
Higher Risk –More Review
Risk classifiers Medium
Lower
b
Lower
Source: Dr. Klaus Moosmayer, Compliance Operating Officer & Chief Counsel Compliance & InvestigationsC5 Anti-Corruption Conference, Paris September 2009
PricewaterhouseCoopers Slide 29June 2010
How Siemens (ab)used business consultantsThird Parties6
How Siemens (ab)used business consultants
• Entering into purported business consulting agreements with no legitimate business purpose, sometimes after Siemens had won the relevant project
• Engaging former employees as purported business consultants to act as conduits for corrupt payments to government officials
• Justifying payments to purported business consultants based on false invoices• Mischaracterising corrupt payments in the corporate books and records as "consulting
fees“, payments for "studies“ and other seemingly legitimate expenses• Limiting the quantity and scope of audits of payments to purported business consultants• Accumulating profit reserves as liabilities in internal balance sheet accounts and then
using them to make corrupt payments through business consultants as neededg p p y g• Drafting and backdating sham business consulting agreements to justify third party
payments; • Changing the name of purported business consulting agreements to "agencyChanging the name of purported business consulting agreements to agency
agreements" or similar titles to avoid detection
Source: DoJ’s Sentencing Memorandum in the matter against Siemens AG and others
PricewaterhouseCoopers Slide 30June 2010
Source: DoJ s Sentencing Memorandum in the matter against Siemens AG and others
Warning signsThird Parties6
Warning signs
appears to be no longer qualified or to be understaffed
has expired or missing business licenses
refuses to disclose business practices or communications refuses to disclose business practices or communications
requests for upfront cash or offshore payments
unusually large compensation in relation to the value of the services
unusually high or undocumented expenses
false documents or invoices
PricewaterhouseCoopers Slide 31June 2010
Government business controlsTenders & Contracts – Government Business 7
Government business controls
Adopted Changes
• Global implementation of a formal process supported by a web-based tool
• Integrated risk assessments to determine whether additional anti-corruption assessment h d t b f dhad to be performed
• If so, compliance officer to be involved in the acquisition phase
• Re-assessment of risk at all quality gatesRe assessment of risk at all quality gates
• Standardised set of criteria & thresholds for risks
• Periodic review to ensure that process was properly followedp p p y
• Tracking log maintained of all government related contracts
• Standardised language and application risk assessment
• Clear roles and responsibilities for decisions
PricewaterhouseCoopers Slide 32June 2010
Gifts & hospitality, sponsorships & donationsGifts & Hospitality 8
Gifts & hospitality, sponsorships & donations
Adopted Changes
• Policies with clear thresholds amounts and frequency
• Process for review & “pre approval”• Process for review & pre-approval
• Corporate policies adapted to conform with local laws
• Compliance Officer review
PricewaterhouseCoopers Slide 33June 2010
Closing the tap:Finance & Accounting9
Closing the tap: Controls around bank accounts & cash
Central Approval Restricted Signatories Included in G/L
All Bank Accounts registered with Corporate Treasury1
No cash payments Track high-risk payments Segregation of duties
All payments executed via central payment system or pre-approved2
Cash recording controls Regular reconciliations Limits on cash balances
Regular review of cash balances3
Data enter/ edit controls Independent data review Segregation of duties
Master data centrally maintained4
Integrated systems?Local payment methods?
Size of operations (Segregation of Duties)?Efficiency and cost?
Key Challenges:
PricewaterhouseCoopers Slide 34June 2010
Efficiency and cost?
Monitoring & (internal & external) reportingHQ Monitoring10
Monitoring & (internal & external) reporting
Benefits and key to successConclusion
Benefits and key to success
Benefits Key to success
• Reduced fine
• Settlement
• Management responsibility
• Linked to bonus scheme/incentives• Settlement
• Restored reputation
• Linked to bonus scheme/incentives
• Strict timeline
• Role model/benchmark
• New organisation
• Monitoring
• Quality control
PricewaterhouseCoopers Slide 36June 2010
Contact DetailsContact Details
B tti D lP t C h t Bettina DolanPrincipal ManagerMobile: +31 612 221 906Email: [email protected]
Peter CromhoutPartnerMobile: +31 653 980 980Email: [email protected] @ pp @ p
Rudy HoskensRudy HoskensPartner Dispute Analysis & InvestigationsTel: +32 2 710 4307Email: [email protected]
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