morgan stanley’s fcpa declination and the benefits of effective compliance€¦ · ·...

Davis Polk & Wardwell LLP

Morgan Stanley’s FCPA Declination and The Benefits of Effective Compliance

CLE CREDIT WILL BE AVAILABLE FOR THIS PROGRAM – 1.0 FOR NEW YORK AND CALIFORNIA

Presented by

Scott W. Muller Raja Chatterjee Greg D. Andres

October 9, 2012

1 1

Panel

Scott W. Muller – Davis Polk, Partner:

A partner at Davis Polk for more than twenty-five years and the head of the White Collar Criminal Defense and Investigations Group, Scott has served as lead counsel in many of the most significant FCPA investigations over the past decade, including the Siemens matter, the largest FCPA investigation in U.S. history. More recently, Scott served as lead counsel in the Morgan Stanley FCPA investigation relating to Garth Peterson, which resulted in the first-ever public declination in an FCPA matter. Scott previously served in various positions in the government, including as the General Counsel at the CIA.

Raja Chatterjee – Morgan Stanley, Executive Director:

As the Global Head of the Anti-Corruption Group in the Legal and Compliance Division at Morgan Stanley, Raja has successfully implemented policies and procedures to ensure compliance with the FCPA and relevant anti-corruption laws worldwide. His efforts were crucial to the resolution in the recent FCPA investigation. Raja previously served as a prosecutor in both the Manhattan District Attorney’s Office and the Criminal Division at the Department of Justice.

2 2

Panel (cont.)

Greg D. Andres – Davis Polk, Counsel:

Greg recently returned to Davis Polk after more than a decade in the Justice Department, most recently as Deputy Assistant Attorney General in the Criminal Division, where he supervised the Department’s FCPA practice, among other responsibilities. He previously served as the Chief of the Criminal Division in the Eastern District of New York.

3 3

Agenda

Investigation, Strategy and Advocacy Timeline: From Discovery and Disclosure to Declination Overview of Declination and Charges Against Peterson – “Rogue Employee” Pre-Investigation FCPA Compliance Evidence Specific to Peterson Morgan Stanley’s Post-Discovery Compliance Enhancements

Model Compliance Features Overview of Key Elements of FCPA Compliance Programs Model Compliance Features Specifically Cited in DOJ Papers Training Enhanced Training Dedicated Compliance Officers & Anti-Corruption Specialists Anti-Corruption/FCPA Notices & Reminders Annual Certifications Payment Approval Process Transactional Due Diligence Efforts

Conclusions

4

Investigation, Strategy and Advocacy

Presenter

Presentation Notes

SKIP

5 5

Timeline: From Discovery and Disclosure to Declination

Prior to December 2008: Development and enhancement of Morgan Stanley’s FCPA compliance program. December 2008: FCPA issues identified and Davis Polk engaged.

January 2009: DOJ and SEC advised of issues.

January 2009 – December 2009: Investigation, ongoing training and continued enhancements to Morgan Stanley’s compliance program continued.

February 2009 – April 2010: Factual presentations to DOJ/SEC.

July 2010: Advocacy presentations to DOJ (commenced only after completion of the factual presentations).

April 2012: Public declination.

Presenter

Presentation Notes

6 6

Overview of Declination

Public Declination of Company & Charging of Employee In April 2012, the DOJ and SEC publicly announced their decision not to

charge Morgan Stanley. Former Morgan Stanley executive Garth Peterson was charged with FCPA violations.

First Ever Publically Announced Declination The decision not to charge Morgan Stanley was the first-ever publicly

announced decision not to prosecute a company after an FCPA investigation.

Morgan Stanley Compliance Program In its charging decision and press release, the DOJ specifically cited as

relevant Morgan Stanley’s robust anti-corruption compliance program and its cooperation in the investigation.

7 7

Charges Against Peterson – “Rogue Employee”

Defendant & Charges Garth Peterson, former Morgan Stanley Managing Director in charge of Real

Estate Group’s Shanghai office in China. He was charged criminally pursuant to the FCPA’s Internal Controls Provisions for knowingly circumventing Morgan Stanley’s FCPA controls and by the SEC for bribery and internal controls violations.

Scheme Peterson was charged with evading internal controls by transmitting a

multimillion-dollar ownership interest in a Shanghai building to himself, a Canadian lawyer, and a Chinese public official.

Penalty & Sentence Peterson faced five years in prison and a maximum fine of $250,000 or twice

the gross gain from the offense. He was sentenced to principally nine months imprisonment.

8

Pre-Investigation FCPA Compliance Evidence Specific to Peterson

Peterson Training & Certifications Peterson received no fewer than 35 notices and reminders of Morgan

Stanley’s anti-corruption policies and expectations.

Peterson was trained on the FCPA when he was first hired – day one.

Peterson received at least 32 compliance trainings, no fewer than 8 of which specifically addressed FCPA issues.

Peterson regularly certified that he read, understood and agreed to comply with Morgan Stanley’s Code of Conduct, which included an FCPA policy.

8

9

Morgan Stanley’s Post-Discovery Compliance Enhancements

January 2008: Morgan Stanley had a robust compliance program As of 2008, Morgan Stanley had a mature and developed – and fully

centralized – FCPA compliance program. January 2009: Morgan Stanley reevaluates and enhances

compliance program Nonetheless, in January 2009, Morgan Stanley decided to reevaluate and

further upgrade its compliance program as necessary in light of the lessons learned in the Peterson matter. Some of those enhancements included: Took immediate steps in affected offices Increased training, specifically targeting FCPA compliance Additional anti-corruption compliance resources Enhanced transactional due diligence Enhanced FCPA approval procedures in the Merchant Banking and

Real Estate businesses (based on risk assessment)

9

10

Model Compliance Features

Presenter

Presentation Notes

SKIP

11

Overview of Key Elements of FCPA Compliance Programs (Based on DOJ Requirements for Corporate Compliance Program)

Independent, Adequately-Resourced Compliance Function Approval Policies and Implementing Approval Procedures for Corruption

Sensitive Transactions: Interactions with Government Officials Third parties who interact with Government Officials Acquisitions and business formation

Communication Training Risk Assessment Monitoring and Reporting Retrospective Auditing Investigations and Discipline Internal Financial Controls and Record Keeping

11

12

Model Compliance Features Specifically Cited in DOJ Papers

Training Dedicated Compliance Officers & Anti-Corruption Specialists Anti-Corruption/FCPA Notices and Reminders Annual Certifications Payment Approval Process Transactional Due Diligence Efforts

* Morgan Stanley documented these policies and efforts.

12

13

Training

Varied Programs: “Morgan Stanley’s FCPA compliance program included live training presentations, web-based training, and additional FCPA reminders.”

Frequent Training: Between 2000 and 2008, no fewer than 54 trainings were held for various groups of Asia-based employees on anti-corruption policies and the FCPA.

13

14

Enhanced Training

February – March 2009: Conducted FCPA training in late February/early March 2009 in various cities including Shanghai, Hong Kong, Singapore, Beijing, Hangzhou, Shenzhen and New York.

March 2009: “Tone from the Top” memoranda from Senior Management emphasizing commitment to anti-corruption policies and procedures.

October 2009: Conducted targeted follow-up FCPA training in October 2009, including live, half-day, “deep dive” training in Shanghai for all China Real Estate employees.

14

15

Dedicated Compliance Officers & Anti-Corruption Specialists

Compliance Personnel: “Between 2002 and 2008, Morgan Stanley employed over 500 dedicated compliance officers.”

Reporting: “Compliance Department had direct lines to Morgan Stanley’s Board of Directors and reported through the Chief Legal Officer to the Chief Executive Officer and other senior management committees.”

Specialists: Employed dedicated anti-corruption specialists responsible for policies and procedures, training, and coordinating with business units, among other functions.

Regional Officers: Employed “regional compliance officers who specialized in particular regions . . . to evaluate region specific risks.”

15

16 16

Anti-Corruption/FCPA Notices & Reminders

Multiple & Routine Reminders Region Specific: The Asia Pacific Region and the China Real Estate

group were instructed, trained and reminded of Morgan Stanley’s expectations and their obligations on literally dozens of occasions.

Morgan Stanley documented notices and reminders October 7, 2002 – Foreign Corrupt Practices Act Compliance Notice

December 31, 2002 – Gift Giving & Receiving Compliance Notice

January 1, 2003 – Gift Giving & Receiving Compliance Notice

March 10, 2003 – Morgan Stanley Asia Pacific Investment Banking Division (“IBD”) Expense Policy

17 17

Anti-Corruption/FCPA Notices & Reminders (cont.)


February 11, 2004 – Foreign Corrupt Practices Act Compliance Notice

March 13, 2004 – Code of Ethics and Business Conduct

September 23, 2004 – Gift Giving & Receiving Compliance Notice

November 26, 2004 – Gift Giving & Receiving Compliance Notice


March 4, 2005 – Foreign Corrupt Practices Act Compliance Notice

March 15, 2005 – Foreign Corrupt Practices Act Compliance Notice

August 1, 2005 – Asia Pacific IBD Record-Keeping Requirements Compliance Notice

18 18


November 21, 2005 – Gift Giving & Receiving Compliance Notice December 1, 2005 – Contacts with Regulators and Government

Officials Compliance Notice February 13, 2006 – Global Franchise Risk Policy March 9, 2006 – Guidelines for Engaging Consultants Compliance

Notice March 15, 2006 – Code of Conduct September 7, 2006 – Global Anti-Bribery Policy April 18, 2007 – Guidelines for Engaging Consultants Compliance

Notice April 27, 2007 – Code of Conduct

19 19


May 16, 2007 – Foreign Corrupt Practices Act Pre-Clearance Policy

August 8, 2007 – Morgan Stanley Asia Pacific IBD Expense Policy

November 21, 2007 – Supplement to Firm’s Gifts & Entertainment Policy

December 10, 2007 – Travel & Expense Policy

April 10, 2008 – Memorandum from John Mack regarding Code of Conduct

April 16, 2008 – Supplement to the Firm’s Gifts & Entertainment Policy

April 15, 2008 – Memorandum from Gary Lynch accompanying Firm-wide notification of revised Global Franchise Risk Policy

20 20


April 16, 2008 – Travel & Expense Policy

April 23, 2008 – Gifts & Entertainment in Relation to the Beijing and Hong Kong Olympic Games

May 21, 2008 – Travel & Expense Policy

June 17, 2008 – Escalation of Regulatory Issues and Concerns

July 8, 2008 – Code of Conduct

July 16, 2008 – Morgan Stanley Real Estate Investing – Due Diligence Guidelines

July 16, 2008 – Gifts and Entertainment Compliance Notice

21

Annual Certifications

Code of Conduct “Morgan Stanley required each of its employees to certify adherence to

[the company’s] Code of Conduct.”

Annual Certification Beginning in 2006, all employees were required to annually certify that

they had read and understood the Code of Conduct.

100% Compliance The Compliance Department ensured 100% compliance with the

certification requirement.

* Morgan Stanley documented these policies and efforts.

21

22

Payment Approval Process

“Morgan Stanley also maintained a substantial system of controls to detect and prevent improper payments.” Multiple Levels of Review: Payments above certain amounts required

several levels of approval by multiple employees.

22

23

Transactional Due Diligence Efforts Morgan Stanley maintained “established due diligence practices,”

which included, as appropriate: Reviewing foreign public records;

Speaking with sources familiar with the industry;

Checking third-party’s references;

Site visit to third-party’s office;

Searching media sources re: third-party; and

Running background on third-parties and their principals.

23

24 24

Conclusions

Investigation, Cooperation and Advocacy: Morgan Stanley’s cooperation, together with its fulsome self-disclosure, pre-existing compliance program and various enhancements, positioned the firm to advocate for, and ultimately earn a declination. Compliance Program in Place that Is Alive and Breathing: Morgan

Stanley’s existing compliance program evolved and responded to the issues uncovered, demonstrating that it was alive and not a “paper program.” Document Training Efforts: Documentation is an internal metric of your

program and becomes important evidence to provide to the government. Here, evidence that the rogue employee was trained and aware of the FCPA allowed Morgan Stanley to ultimately establish that he was engaged in self-dealing. Value of Immediate Compliance Review: The time between identification of

a violation and final negotiations with the government is often significant and must be used to repair and enhance a company’s compliance program; doing so can dramatically alter the ultimate resolution.

25

Appendix A

25

Appendix B

46

Appendix C

49

morgan stanley’s fcpa declination and the benefits of effective compliance€¦ · ·...

Documents