FOREIGN CORRUPT PRACTICES ACT

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1 (continued from front flap) MARTIN T. BIEGELMAN has been fighting fraud and corruption for more than thirty-five years in various roles in law enforcement, consulting, and the corporate sector. He is currently Director of Financial Integrity for Microsoft Corporation, where he built and leads a worldwide fraud prevention and anti-corruption program. He is the author or coauthor of several books including Building a World-Class Compliance Program, Executive Roadmap to Fraud Prevention and Internal Control, and Identity Theft Handbook, all from Wiley. DANIEL R. BIEGELMAN is an attorney with the law firm of Baker Hostetler. He is a member of the Litigation Practice Group in their New York office. Daniel is a Certified Compliance and Ethics Professional and a member of the Society of Corporate Compliance and Ethics. He is a contributing author to Building a World-Class Compliance Program: Best Practices and Strategies for Success (Wiley). He is also the author of articles on the FCPA and corporate compliance. This book is a must for lawyers and any corporation that deals with global commerce. The chapter on Siemens shows how a large multinational can respond and reform under intense scrutiny. The Siemens chapter also represents reform and transparency and will be seen as a model for a very long time. Michael G. Oxley, Of Counsel, Baker and Hostetler LLP An excellent FCPA guidebook! The Biegelmans book makes it easy to understand the FCPA and includes fascinating case studies and interviews with compliance thought leaders. It should be required reading and a desktop reference for anyone committed to the fight against worldwide corruption or interested in creating a best practice anti-corruption compliance program. Cynthia Cooper, CEO, The CooperGroup LLC, and one of Time magazine s Persons of the Year Foreign Corrupt Practices Act Compliance Guidebook is an excellent and easy-to-use resource for companies doing business abroad. The book is full of practical guidance and compiles in one place an overview of the many issues a company and its counsel may face in effecting compliance and dealing with investigations. A must-read! Karen A. Popp, Partner at Sidley Austin LLP, former federal prosecutor, and Associate White House Counsel to President Clinton This book provides a highly relevant and invaluable guide for companies wishing to protect their assets and reputations from the menace of corruption. In addition to presenting a comprehensive discussion of the history, requirements, and importance of the FCPA, Martin and Daniel Biegelman offer insightful, in-depth examples and clear, practical guidance on compliance. James D. Ratley, CFE, President, Association of Certified Fraud Examiners Everyone in the compliance community will find what they need in this great new resource. It demystifies the FCPA and what it requires. The writing is crisp and lively, the examples and case studies are vivid and succinct, and the advice is rock solid. This is the best overall presentation of the FCPA between two covers that I have ever seen. Richard L. Cassin, Founding Partner, Cassin Law LLC, and creator of the widely read FCPA Blog Foreign Corrupt Practices Act Compliance Guidebook is a brilliant and crucial addition to FCPA literature. Any American company doing business overseas needs a copy. This will be a standard reference for many years. Mark A. Kirsch, Co-Chair of Litigation, Gibson, Dunn & Crutcher LLP COMPLIANCE GUIDEBOOK Detailing the FCPA from its birth as a result of the Watergate scandal to its current worldwide impact, Foreign Corrupt Practices Act Compliance Guidebook is your complete resource on this increasingly important law and compliance issue. Praise for Foreign Corrupt Practices Act Compliance Guidebook: Protecting Your Organization from Bribery and Corruption FOREIGN CORRUPT PRACTICES ACT Includes numerous practical tips and realworld FCPA cases including profiles of Siemens, Monsanto, and BAE Systems Features interviews with thought leaders in FCPA and anti-corruption compliance Provides an overview of key Department of Justice Opinion Procedure Releases for further FCPA guidance. BIEGELMAN BIEGELMAN FOREIGN CORRUPT PRACTICES ACT FOREIGN CORRUPT PRACTICES ACT COMPLIANCE GUIDEBOOK COMPLIANCE GUIDEBOOK: PROTECTING YOUR ORGANIZATION FROM BRIBERY AND CORRUPTION O ne of the fastest growing areas of law and corporate compliance, the Foreign Corrupt Practices Act (FCPA) which makes it a crime for U.S.-listed companies to obtain business by bribery of a government official of another country is now a major concern, due to the globalization of business and the United States government s vigorous commitment to enforcement. If you want to learn about the past, present, and future of the FCPA, the constant threat of bribery, and how to design and manage an anti-corruption compliance program, this book is a must-read. Foreign Corrupt Practices Act Compliance Guidebook provides invaluable compliance guidance on the business risks associated with bribery, corruption, and the FCPA. Included is rich content and practical information for both U.S. and foreign companies. Authoritative, comprehensive, and insightful, Foreign Corrupt Practices Act Compliance Guidebook: Protecting Your Organization from Bribery and Corruption MARTIN T. BIEGELMAN DANIEL R. BIEGELMAN PMS 374 PMS 3165 GLOSSY Helps you understand the critical importance of the FCPA in today s global environment Provides useful guidance on the business, financial, legal, and reputational risks associated with bribery and corruption Explores the role of the U.S. Department of Justice and the SEC in both enforcement and compliance enhancement including history, current issues, and trends Shows you how to recognize bribery red flags and worldwide hotspots of corruption Offers step-by-step implementation guidance on creating and maintaining an effective FCPA compliance program (continued on back flap)

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3 Praise for Foreign Corrupt Practices Act Compliance Guidebook This book is a must for lawyers and any corporation that deals with global commerce. The chapter on Siemens shows how a large multinational can respond and reform under intense scrutiny. The Siemens chapter represents reform and transparency and will be seen as a model for a very long time. Michael G. Oxley, Of Counsel, Baker & Hostetler LLP An excellent FCPA guidebook! The Biegelmans book makes it easy to understand the FCPA and includes fascinating case studies and interviews with compliance thought leaders. It should be required reading and a desktop reference for anyone committed to the fight against worldwide corruption or interested in creating a best practice anti-corruption compliance program within their organization. Cynthia Cooper, CEO of The CooperGroup LLC and one of Time magazine s Persons of the Year The FCPA Compliance Guidebook is an excellent and easy to use resource for companies doing business abroad and their lawyers. The book is full of practical guidance and compiles in one place an overview of the many issues a company and its counsel may face in effecting compliance and dealing with investigations. The book also provides a good overview of the law and lessons learned from many of the significant cases. A must read! Karen A. Popp, Partner at Sidley Austin LLP, former federal prosecutor, and Associate White House Counsel to President Clinton As more organizations go global and the international lines of business blur, companies must understand their obligations under the Foreign Corrupt Practices Act. This book provides a highly relevant and invaluable guide for companies wishing to protect their assets and reputations from the menace of corruption. In addition to presenting a comprehensive discussion of the history, requirements, and importance of the FCPA, Martin and Daniel Biegelman offer insightful, in-depth examples and clear, practical guidance on compliance. James D. Ratley, CFE, President, Association of Certified Fraud Examiners Everyone in the compliance community will find what they need in this great new resource. It demystifies the FCPA and what it requires. The writing is crisp and lively, the examples and case studies are vivid

4 and succinct, and the advice is rock solid. This is the best overall presentation of the FCPA between two covers that I have ever seen. Richard L. Cassin, Founding Partner, Cassin Law LLC and creator of the widely read FCPA Blog The Biegelmans FCPA Compliance Guidebook is a brilliant and crucial addition to FCPA literature. Any American company doing business overseas needs a copy. This will be a standard reference for many years. Mark A. Kirsch, Co-Chair of Litigation, Gibson, Dunn & Crutcher LLP Martin and Daniel Biegelman have done it again. While the FCPA has been an issue for decades, it has taken center stage over the past few years and all signs point to it having an even greater impact on businesses going forward. The Biegelmans have built a comprehensive tool for all levels of interest from the practitioner to the CEO, this is a book that should be mandatory reading for those touching international business. Dan Wachtler, CEO, IPSA International, Inc. As the FCPA quickly becomes one of the world s true International Laws, compliance is essential for corporate accountability and integrity. The FCPA is a critical component of a free market system that rewards hard-working, honest individuals and companies, and strongly pursues violators. The Biegelmans FCPA Compliance Guidebook isn t just about a regulation; it s about building a successful and compliant global economy. Roy Snell, CEO, Society of Corporate Compliance and Ethics Martin, along with his son Daniel, have written the authoritative standard on the Foreign Corrupt Practices Act. It is a must read for Compliance or Ethics personnel looking to better understand this complex issue. John E. McDermott, VP, Corporate Compliance Investigator, CA Inc. Foreign Corrupt Practices Act violations are the current focus of regulators, investigators, and prosecutors, here and abroad. This exhaustive text explores the legal nooks and crannies with exacting precision, but it s most important contribution is the emphasis on compliance and

5 prevention, areas that the authors know well. Through numerous illustrations of extraordinary crimes and splendid compliance and prevention techniques, the authors establish FCPA awareness and compliance as a sine qua non for doing business globally. A must-read for businesses wishing to avoid massive fines and/or imprisonment. George E. Curtis, J.D., Executive Director of the Economic Crime Institute, Utica College Martin and Daniel Biegelmans work will go down in American corporate and financial lore as a comprehensive history of the series of train wrecks that have yielded the FCPA and its various progeny. It tells the fascinating story of how we got from the Lockheed disclosures of the mid-1970s to the hottest area of white collar practice today. It is required reading for those of us struggling to implement global compliance programs. Those unenlightened ones who remain committed to the dark side would also do well to read it, and take warning. Keith Hennessee, Associate General Counsel, Halliburton Company This book is a great compilation of information about the FCPA and practical guide that would have been incredibly useful to me when I was asked to be responsible for FCPA Compliance related matters. It is a much needed resource and it will be extremely valuable as a desk reference for anyone involved in business and who is accountable for FCPA compliance. Flora A. Francis, Counsel, Litigation, GE Oil & Gas Tackling corruption and insuring compliance with the Foreign Corrupt Practices Act makes this book a must read for both current and future managers of today s global corporations. Increased global anti-corruption laws and efforts demand that corporate compliance and training programs are in place this guidebook provides the how and the why! This book provides the wake-up call and consequences of failure to act that organizations can no longer ignore! Joyce Barden, CPA, CBM, Senior Professor, DeVry University/Keller Graduate School of Management

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7 Foreign Corrupt Practices Act Compliance Guidebook Protecting Your Organization from Bribery and Corruption Martin T. Biegelman Daniel R. Biegelman JOHN WILEY & SONS, INC.

8 Copyright # 2010 by John Wiley & Sons. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) , fax (978) , or on the web at Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) , fax (201) , or online at Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) , outside the United States at (317) or fax (317) Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our web site at Library of Congress Cataloging-in-Publication Data Biegelman, Martin T. Foreign corrupt practices act compliance guidebook : protecting your organization from bribery and corruption / Martin T. Biegelman, Daniel R. Biegelman. p. cm. Includes index. ISBN (cloth) 1. Fraud Prevention. 2. Bribery Prevention. 3. International trade Corrupt practices Prevention. 4. Corporations Corrupt practices Prevention. 5. Compliance auditing. I. Biegelman, Daniel R. II. Title. HV6691.B dc Printed in the United States of America

9 For Leonard Biegelman Husband, father, grandfather, Navy veteran, and a very special and good man. His love and devotion, as well as his integrity and character, left an indelible mark on us.

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11 Contents Foreword Preface Acknowledgments xix xxi xxv 1 BRIBERY, CORRUPTION, AND THE FOREIGN CORRUPT PRACTICES ACT 1 Global Crackdown 3 Devastating Cost of Corruption 4 Government s Commitment to FCPA Enforcement 6 FBI s Laser Focus on Anti-Corruption 7 Watergate and the Birth of the FCPA 8 Securities and Exchange Commission Enters the Fight 9 Senate Investigations 10 Kissinger s Resistance 11 Lockheed s Defiance 12 Questionable Corporate Payments Task Force 13 FCPA Enactment 14 Compliance Insight 1.1: First FCPA Prosecution 15 Criticism of the FCPA 17 A Culture of Compliance 18 2 OVERVIEW OF THE FOREIGN CORRUPT PRACTICES ACT 23 FCPA Provisions 23 Leveling the Playing Field 25 Antibribery Provisions 25 ix

12 CONTENTS Jurisdiction 29 Facilitating Payments 29 Affirmative Defenses 30 FCPA Elements Summary 30 Compliance Insight 2.1: Metcalf and Eddy Civil FCPA Settlement 31 Books, Records, and Internal Controls Provision 34 Books and Records Elements Summary 35 Sarbanes-Oxley and the FCPA 35 Opinion Procedure 36 Penalties 37 Third-Party and Successor Liability 39 Compliance Insight 2.2: Self-Disclosure Follows M&A Activity 40 Why Corruption Matters 41 Compliance Insight 2.3: Afghanistan: A Case Study in Corruption 42 Increased Enforcement 45 3 GOVERNMENT GUIDANCE AND SIGNIFICANT CASES 49 Filip Memorandum 50 FCPA Compliance Programs: Case Law Guidance 52 A Lesson in Overseas Compliance 53 Compliance Insight 3.1: Rogue Employee Does the Crime, Company Does the Time 54 Cold Cash: U.S. v. Jefferson 56 Voluntary Disclosure 58 Evaluating the Seaboard Criteria in Mitigating Enforcement Actions 58 Compliance Insight 3.2: Appointment of Corporate Monitor Results in Charges of Cronyism 62 Selecting a Monitor: The Morford Memo Standards 63 Thought Leader in Corporate Compliance: George Stamboulidis 65 Government Procurement Fraud and the FCPA 68 Federal Acquisition Regulations Disclosure Requirements and the FCPA 68 Business Ethics Awareness and Compliance Program 70 4 GLOBAL ANTI-CORRUPTION EFFORTS 75 Globalization of Law Enforcement Cooperation 76 International Antibribery Efforts 77 OECD Convention on Combating Bribery 77 x

13 Contents Inter-American Convention Against Corruption 79 European Union Convention on the Fight Against Corruption 81 African Union Convention on Preventing and Combating Corruption 81 Council of Europe Criminal Law Convention on Corruption 82 United Nations Convention Against Corruption 84 United Nations Global Compact 86 Canada s Corruption of Foreign Public Officials Act 86 Compliance Insight 4.1: INTERPOL Fights Corruption 87 International Anti-Corruption Organizations 89 Transparency International 89 Corruption Perceptions Index 89 Compliance Insight 4.2: 2009 Corruption Perceptions Index: Top 20 Countries 90 Compliance Insight 4.3: 2009 Corruption Perceptions Index: Bottom 20 Countries 91 Other Transparency International Resources 91 Compliance Insight 4.4: Foreign Bribery Enforcement in OECD Convention Countries 92 Compliance Insight 4.5: Foreign Bribery Cases and Investigations 93 Compliance Insight 4.6: Status of Foreign Bribery Cases 94 World Bank 95 International Monetary Fund 97 Asian Development Bank 97 World Trade Organization 98 Partnering Against Corruption Initiative 99 Thought Leader in Corporate Compliance: Alan Boeckmann 100 Global Anti-Corruption Enforcement Trends 102 The Good Fight Against Corruption SIEMENS: A NEW COMMITMENT TO A CULTURE OF COMPLIANCE 107 Company Overview and History 108 The Road to Corruption 108 Munich Public Prosecutor s Office Investigation 110 xi

14 CONTENTS Self-Disclosure and Subsequent Internal Investigation 111 Legal and Fair Internal Investigation 112 Project Office Compliance Investigation 113 Amnesty and Leniency Programs 113 Cooperation with Law Enforcement 114 Compliance Comeback 114 Criminal Charges, Plea Agreements, and Fines 115 Compliance Insight 5.1: Key Elements of Siemens Compliance Program: Prevent Detect Respond 116 New Corporate Compliance Program 119 Corporate Compliance Monitor 121 Siemens Remedial Efforts 122 Replacement of Top Management 122 Comparison of Old and New Compliance Programs 123 Clear Reporting Lines 124 Training and Communication 125 Anti-Corruption Training Program 125 Anti-Corruption Handbook 126 Ombudsman Program 126 Strengthened Internal Audit Function 126 Enhancing Internal Controls 127 Enhanced Policies and Procedures 128 Compliance Insight 5.2: Enhancement of Policies and Procedures 128 Compliance Helpdesk 129 Anti-Corruption Toolkit 129 Compliance Insight 5.3: Siemens Anti-Corruption Toolkit Focus Areas 130 Business Partner Review and Approval 131 Supplier Code of Conduct 132 Compliance Insight 5.4: Business Partner Review and Approval Process 133 Corporate Disciplinary Committee 134 Compliance Element of Senior Management Compensation 134 Compliance Progress Report 134 Compliance Insight 5.5: Siemens Compliance Progress Report from Q2 FY Becoming a Recognized Leader in Compliance 136 xii

15 Contents Compliance Insight 5.6: Siemens Compliance Objectives for Partnering with the World s Anti-Corruption Community 136 Partnering Against Corruption Initiative 137 Business Guide on Fighting Corruption 137 The Road Forward WORLDWIDE HOTSPOTS FOR CORRUPTION: UK, RUSSIA, AFRICA, THE MIDDLE EAST, AND LATIN AMERICA 143 Overview 144 Thought Leader in FCPA Compliance: Scott Moritz 145 The Natural Resource-Corruption Link 147 UK Tackles International Corruption 148 Compliance Insight 6.1: Weak Internal Controls Leads to Fine for Insurance Giant 149 UK Bribery Bill 151 Mabey & Johnson Prosecution 152 Strong Message from the SFO 153 Russia 154 Doing Business in Russia 156 Africa 157 Nigeria 158 Middle East 160 The Oil-for-Food Scandal 161 Compliance Insight 6.2: Companies Implicated in Oil-for-Food Scandal 162 Iraq Today 163 Latin America 163 Cases of Corruption 164 Multinational Company As Victim WORLDWIDE HOTSPOTS FOR CORRUPTION AND BRIBERY: CHINA, CENTRAL ASIA, INDIA, AND ASIA PACIFIC 171 China 172 The Dangers of Agents: Avery Dennison 172 Heightened Anti-Corruption Enforcement Efforts in China 174 xiii