the fcpa guidance: how to ensure an “effective” … guidance...the fcpa guidance: how to ensure...
TRANSCRIPT
The FCPA Guidance: How to Ensure an “Effective” Compliance Program
Michael Volkov, Esq.
January 2013
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Today’s presenter and some notes...
Welcome. With the high number of attendees, please note all lines have been muted for the event. Q&A can be posted at the right ofyour screen, but any questions (time permitting) will be addressed at the end of the event. If using Q&A – please send to both the host and the presenter. You can send direct questions (including request for copy of slides) to [email protected] with FCPA Guidance in the subject for reply after the event.
Michael Volkov Washington, D.C.
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Overview
The FCPA Guidance
Importance of “Effective” Anti-Corruption Compliance
Building and maintaining an “Effective”Anti-Corruption Program
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The FCPA Guidance
Most important event of 2012 FCPA Guidance outlines DOJ/SEC
policies and approach to enforcement Important discussion of FCPA
compliance programs Compliance is now more than
Schedule C program elements Provides some “safe harbors” for anti-
corruption policies and activities
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FCPA Compliance Programs Guidance is keyed to “effective” compliance program definition
from US Sentencing Guidelines
Guidance reiterates significant incentives to design and implement “effective” compliance program – amount of fine, declination, DPA or NPA, monitorship or self-reporting
“In appropriate circumstances, DOJ and SEC may decline to pursue charges against a company based on the company’s effective compliance program, or may otherwise seek to reward a company for its program, even when that program did not prevent the particular underlying FCPA violation that gave rise to the investigation.”
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FCPA Compliance Program Assessment
Three simple questions
• Is the company’s compliance program well designed?
• Is it being applied in good faith?
• Does it work?
DOJ/SEC do not expect “perfection” but “good faith” implementation
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“Hallmarks” of an “Effective” FCPA Compliance Program
No check the box list
No one-size-fits-all
Mid-size and small company programs will differ from large company programs
Compliance program should reflect company’s unique risks
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Tone at the Top andPolicy Against Corruption
Commitment of corporate leaders to a “culture of compliance”
Communicated throughout the organization Translated this culture to middle and lower
level employees Adhered to these standards in business
operations
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Code of Conduct and Compliance Policies and Procedures
“Clear and concise” code of conduct which is available in foreign languages
Policies and procedures will depend on specific risks but commonly include:• interactions with foreign officials; • use of third party agents; • gifts, travel, entertainment; • charitable contributions; • and facilitation payments.
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Oversight of Compliance Program
Senior official or senior managers must oversee compliance program
“Appropriate authority” within the organization• Delegation of specific authorities may occur if justified by size
of company
“Adequate autonomy” from management• Direct access to Board and Committees
“Sufficient resources” to implement the compliance program• Has the company devoted adequate staffing and resources
given the size, structure and risk profile of the company?
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Compliance Program Warning
“DOJ and SEC have often encountered companies with compliance programs that are strong on paper but that nevertheless have significant FCPA violations because management has failed to effectively implement the program even in the face of obvious signs of corruption.”
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Importance of Risk Assessments
“Fundamental” to a compliance program
Staff and resources are allocated in response to risk factors
Prevents one-size-fits-all policies
“Meaningful” credit awarded to company which implements risk-based approach
As risk increases, company should devote more compliance resources, including due diligence and periodic audits
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Training and Advice
Compliance policies must be communicated throughout organization• Periodic training and certification by directors, officers
and employees, and agents and business partners
Materials should be drafted for targeted audience and in foreign languages • Different for sales and accounting personnel
Make available advice and guidance on compliance
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Incentives and Discipline
Enforcement of program to everyone in the organization is “fundamental”
Appropriate and clear disciplinary procedures• Applied reliably and promptly• Commensurate with the violation
Positive incentives for compliance• Personnel evaluations and promotions• Rewards for ethical conduct (e.g. bonuses)
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Risk Assessment and Due Diligence
Risk-based due diligence• Industry sector• Country• Size and nature of transaction• Identity of business partners• Level of government regulation• Exposure to customs and immigration• Method and amount of compensation to third
party
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Third Party Due DiligenceGuiding Principles
Qualifications, business reputation and associations with foreign officials• Business rationale for hiring• Role and need for third party and contract terms of services• Payment terms in comparison to market• Confirm nature of services• Secure commitments to compliance
Monitor third party• Update due diligence• Conduct audit• Request new certification• Provide training
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Third Party Due Diligence Reiterated FCPA third-party liability extends to distributors
(rebates, discounts)
Third Party Common Red Flags• Excessive commissions• Large discounts to distributors• Consulting agreements with vague services• Consultant in different line of business• Related to (or closely associated with) government official• Foreign official recommended third party• Shell company• Payments to offshore accounts
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Confidential Reporting and Internal Investigations
Confidential mechanism for reporting suspected violations (hotlines or ombudsman)• Policies to prevent retaliation
Reliable and prompt process to investigate complaints and document response
Apply lessons learned to update compliance program
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Periodic Testing and Review
“Meaningful” credit for continuous improvement
Compliance program should uncover weaknesses which require modifications• Targeted audits• Employee surveys• Transaction testing
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Mergers and Acquisitions
Pre-acquisition due diligence demonstrates “commitment” to compliance
Prompt integration of acquired company into acquiring company’s compliance program• Internal controls• Training
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Important Compliance Principles
Importance of “corrupt” intent• Acting in good faith and transparently is
inconsistent with corrupt intent• Compliance program should build in policies and
procedures which are designed to negate potential inference of “corrupt” intent
Documentation, explanation of decisions and legal analysis
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Gifts, Entertainment, Travel/Lodging “DOJ’s and SEC’s anti-bribery enforcement actions have
focused on small payments and gifts only when they comprise part of a systemic or long-standing course of conduct that evidences a scheme to corruptly pay foreign officials to obtain or retain business.”
FCPA Guidance provides principles for appropriate gifts:• Transparency• Properly recorded in books• Intent to express esteem or gratitude• Permitted under local law
Travel and lodging focus is on systemic violations not individual expenditures which may potentially violate the law
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FCPA Guidance Safe Harbors
Ten thousand dollars paid for dinners, drinks and entertainment for a government official would be improper.
Paying for a trip for government officials which consisted “primarily” of sightseeing would be improper.
Inviting and paying for prospective customers bar tab at a trade show would be permissible.
Giving a “moderately priced” gift to a government official for a wedding or a family event would be permissible.
Paying for travel, entertainment and accommodations for government officials to come to a US-located factory for inspection or training purposes, which included business class tickets, moderately priced dinners, a baseball game and a play, would be permissible.
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Best Practices Checklist Do not select the foreign officials to participate in the event
Pay all costs directly to vendors and do not put “cash” in the pockets of any foreign officials attending an event
Stipends should reflect reasonable estimate of expected costs
Payments should be transparent and accurately entered in company books and records
Do not condition payments on any specific action by foreign official
Obtain written confirmation payments do not violate local law
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Real-Life Compliance Implications
Should companies devote so much attention and hand-wringing to individual expenditures?
In absence of systemic violations, are companies devoting too much time to controlling these expenditures?
If ignored, expense controls could create “culture” of non-compliance.
Distinction between legal violations and “compliance” with company policies
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“Foreign Official” Definition Foreign Official definition includes “instrumentality” for foreign
government
Focus is on ownership or voting control of company
District judges have adopted multi-factor test to decide issue
Guidance recognizes importance of a clear standard: “an entity is unlikely to qualify as an instrumentality if the government does not own or control a majority of its shares.”
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Safe Harbors: Third Party Due Diligence
FCPA Guidance hypotheticals are instructive
Company A, a US issuer, hires a local distributor to sell Company A’s products to a government agency in a high-risk country.
Red flags:• Distributor requires a significant discount or rebate to cover its costs of support
services.• Distributor requests use of a local partner which includes a foreign official from another
part of the foreign government.
“While there is nothing inherently illegal about contracting with a third party that is recommended by the end-user, or even hiring a government official to perform legitimate services on a transaction unrelated to his or her government job, these facts raise additional red flags that warrant significant scrutiny.”
Further diligence to examine the relationship among the three parties and written representations and warranties from the foreign official concerning his or her role in the transaction.
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QUESTIONS?
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Disclaimer This presentation provides general information and is not
legal advice and should not be used or taken as legal advice for specific situations. You should consult legal counsel before taking any action or making any decisions concerning the matters in this presentation.
This communication does not create an attorney-client relationship between LeClairRyan, A Professional Corporation, and the recipient.
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