Anti-Bribery & Corruption

Transcription

1 Anti-Bribery & Corruption Understanding the legal framework, recent enforcement trends, and the tools for an effective compliance program April 7, 2017 Hillary Rosenberg Hilary Huber 0 Something is happening in the world today; you can feel it. It is a global movement, getting stronger and stronger each day with every case we make. Countries... are all moving in the same direction, more together than ever, pursuing corruption. The Criminal Division remains committed to doing its part by vigorously investigating and prosecuting international crime when it violates U.S. laws, and by remaining committed to international collaboration in our nations shared struggle to safeguard our citizens, our markets, financial systems, and our networks. - Acting Assistant Attorney General Kenneth A. Blanco March 10, Overview, Legal Framework & Definitions 2 1

2 Overview of Bribery and Corruption The World Bank estimates that there are over $1 trillion in bribes paid every year 3% of the world economy. o Over $2.5 billion in bribes every day or over $100 million in bribes every hour. Corruption issues arise in nearly every stage of an international business: o not only when obtaining contracts, but corruption identified in every type of interaction with government officials, including tax disputes, licensing and permitting, real estate transactions and customs clearances. In a recent Transparency International Global Corruption Barometer, over one in four people (27%) acknowledged paying a bribe in the last year when interacting with key public institutions and services. Corruption issues have been found in nearly every industry and geography, but certain areas have higher risks. 3 International Anti-Corruption Framework Between 1977 (passage of the U.S. Foreign Corrupt Practices Act) and the present: o Since mid-2000s, significant enforcement actions against US and foreign companies Broad U.S. government support for anticorruption efforts o Very slow reaction in the international community with minimal enforcement actions, but significant legislation passed. Global and regional response to increased anti-corruption enforcement, such as: o United Nations Convention Against Corruption, OECD Anti-Bribery Convention, Inter-American Convention Against Corruption, Council of Europe, African Union, Asia Pacific Economic Cooperation o Increased foreign and domestic corruption enforcement in certain countries 4 U.S. Foreign Corrupt Practices Act (FCPA) FCPA 5 2

3 Defining Bribery and Corruption Bribery Corruption The offer or acceptance of anything of value in exchange for influence on a government/public official or corporate employee The abuse of public of private office to obtain an undue advantage. Often, but not always, Bribery is a vehicle for and enabler of corrupt behavior. The FCPA anti-bribery provision applies only to payments corruptly intended to induce or influence a foreign official to use his or her position in order to assist in obtaining or retaining business for or with, or directing business to, any person. 6 What is a Bribe? Any thing of value. Cash Gifts Entertainment Tickets to sporting events May be provided directly or Extra nights in a hotel indirectly and includes things given to family Side trips to vacation spots members or associates if the Internships intent is to influence. Loans at preferred rates Charitable donations or sponsorships Invitations to conference/seminars/training sessions Free use of property or goods Access and influence Use of preferred hotel rates, discounted benefits for the company 7 Who are Foreign Officials (Public Officials)? A. Any officer, employee or representative of a government, at any level of seniority, whether national, federal or local; Examples include regulators, legislators, customs officials, Central Bank governors, ministers, and Tribal Authorities; B. Any individual exercising a legislative, administrative, regulatory, judicial or other public or official function, whether appointed or elected; C. Any officer, employee or representative, at any level, of a State Owned Entity; D. Members of royal families; E. Representatives of political parties and political candidates; F. Any officer, employee or representative of a public international organisation; Examples include the EU, World Bank, IMF, UN G. Private individuals or entities contracted by a state owned entity or the government to exercise a public function; H. Politically Exposed Persons ( PEPs ); I. Any other parties determined to be a sovereign, public official, government official, or the like, under local law. 8 3

4 Who are Public Officials (continued)? Examples include : Individuals exercising a legislative, administrative, judicial or other public or official function, whether appointed or elected Any level employee working at: State-controlled natural resource companies (e.g. Aramco, Gazprom, Petrobras, Sinopec) Sovereign wealth funds (e.g. GIC, SAFE, SAMA, KIA) State-controlled utilities (e.g. Enel, EDF) State-controlled hospitals Government agencies at all levels, including: customs, immigration and transportation officials, as well as regulators, legislators, Central Bank governors, and ministers of finance, etc.; Members of royal families Representatives of political parties and political candidates Any officer, employee or representative, at any level, of a public international organization (e.g. the EU, World Bank, IMF, UN) or multi-lateral, development bank or institution. 9 FCPA Enforcement 10 FCPA Enforcement Statistics 75.58% % Defendants who Settled with the DOJ 91.64% % Defendants who Settled with the SEC $ 9,981,825,430 Total monetary sanctions imposed in all FCPA-related enforcement actions $ 4,279,568,195 Total bribery payments made in all FCPA-related enforcement actions 11 4

5 FCPA Focus Area: Hiring Practices 12 Hiring Practices: The Bribery Risk A foreign public official grants a business benefit or some other advantage to the company in exchange for an employment the employment opportunity for their family or close associates. High risk factors include, among other things: Connection to PEPs and Public Officials Connection to existing or potential clients o Note that although the FCPA applies only to bribery of a foreign public official, the JPMorgan enforcement action noted where employment had been provided to the children of non-public official clients as well. Moreover, some anti-corruption laws (e.g., the UK Bribery Act) criminalize commercial bribery as well. Pending business mandate, RFP, etc. High Risk Jurisdictions 13 Hiring Practices: Bank of New York Mellon ( BONY ) (August 2015) BONY Pays $15 million Fine for Corrupt Hiring Practices BONY provided valuable student internships to family members of foreign government officials affiliated with a Middle Eastern sovereign wealth fund. It failed to evaluate or hire candidates who met minimum qualifications and who went through the established hiring practices. According to the SEC, The family members [hired by BONY] did not meet the rigorous criteria yet were hired with the knowledge and approval of senior BNY Mellon employees in order to corruptly influence foreign officials and win or retain contracts to manage and service the assets of the sovereign wealth fund. 14 5

6 Hiring Practices: Qualcomm (March 2016) Qualcomm Pays $7.5 million Fine for Providing Things of Value (including employment) to Relatives and Associates of Foreign Officials Qualcomm provided or offered full-time employment and paid internships to family members and other referrals of foreign officials to try to influence those officials to take actions that would assist Qualcomm in obtaining or retaining business. FCPA compliance was not considered in Qualcomm s hiring process. For years, employees who worked in Human Resources did not receive FCPA training. According to the SEC, Qualcomm offered employment to certain foreign officials family members and referrals despite concerns, in some cases, that the individuals did not satisfy Qualcomm s hiring standards. Certain hires also had previously failed to obtain employment with Qualcomm through the standard hiring process. And in some cases, new positions were created for these hires. 15 Hiring Practices: JPMorgan Securities (Asia Pacific) Limited ( JPM-APAC ) (November 2016) JPM-APAC Agrees to Pay $264 Million for Sons & Daughters Program JPM-APAC agreed to pay $264 million to settle claims of FCPA violations with three regulators, split between a $130 million payment to the Securities and Exchange Commission, a $72 million fine to the Department of Justice, and a $61.9 million fine to the Federal Reserve. Starting in 2006, JPM-APAC bankers set up and used a program ( Client Referral Program, sometimes called Sons & Daughters Program ) to hire referred candidates specifically for the purpose of influencing senior officials at clients in China (many of which were state-owned entities ( SOE )) to award business to the company. The candidates hired through the Client Referral Program did not meet JPM-APAC s regular hiring standards and could not perform the work required. 16 Hiring Practices: JPM-APAC (Continued) 17 6

7 Hiring Practices: JPM-APAC (Continued) As early as 2001, JPM-APAC had a policy that prohibited the hiring or children or relatives of clients and potential clients in order to obtain business. In mid-2006, JPM-APAC Legal and Compliance department circulated a Questionnaire for Potential Hire Under the Sons & Daughters Program that focused on FCPA and other risks and required bankers who wanted to hire referred applicants to disclose, among other things: 1. whether the applicant was qualified for the position; 2. whether the applicant had gone through the normal interviewing process; 3. whether the referring client/potential client was government-related; 4. whether the firm was actively pitching for any business from the client/potential client; and 5. whether there was an expected benefit to JPMorgan for hiring the referred candidate. Nevertheless, JPM-APAC never rejected referred candidates and in some cases, Human Resources and Compliance instructed employees to remove offending responses (e.g., the hiring of this candidate will place JPMorgan in a more favorable position for securing future business from the client. ) 18 Hiring Practices: Additional Banks Under Investigation November 2013 March 2014 February 2016 March 2016 February Hiring Practices: Mitigating the Risks Companies must have effective controls, including policies and procedures, specifically addressing this risk area. Follow established hiring practices for all hires Have clear processes and procedures for the on boarding new hires, including requiring documentation For high risk applicants, require additional approvals Require all hires to be merit-based Roles must be supported by a legitimate business need; no creation of ad hoc positions Perform documented due diligence on all candidates Identify red flags (e.g. Must Hire, VIP candidate, Lack of qualifications, connections to public officials, existing business opportunities, etc.) and require Compliance/Financial Crimes Compliance approval before proceeding if any are present. 20 7

8 Hiring Practices: JPM-APAC, Mitigating the Risks 21 U.S. Department of Justice (DOJ) FCPA Pilot Program 22 FCPA Pilot Program: Preliminary Remarks It is NOT: anything groundbreaking or novel; timely and voluntary self-disclosure, full cooperation, and remediation have historically led to declinations and/or reduced fines. It is: a response to ongoing criticisms about the lack of transparency and predictability in FCPA fines and decisions on whether to impose an outside monitor, decline to prosecute, etc. an apparent commitment to specific fine reductions when companies take the steps encouraged by DOJ (although the fine reduction guidelines are just guidelines, and the company must show it has satisfied the DOJ s requirements). 23 8

9 FCPA Pilot Program: Requirements Voluntary Self-Disclosure. The company must self-disclose the issue. The additional mitigation credit will not be available where the disclosure is required by law, agreement, or contract. Disclosure must be (a) prior to an imminent threat of disclosure or government investigation; (b) within a reasonably prompt time after the company becomes aware of the offense; and (c) inclusive of all relevant facts known to the company, including individuals involved. Full Cooperation. The Pilot Program guidance sets forth a number of requirements that must be met, in addition to the principles noted above, that focus on the company s timely and robust disclosure of all relevant facts, documents, and people involved (e.g., making available interviews of company officers and employees who possess relevant information). Disgorgement of Profits. The company must disgorge all profits from the FCPA violation in order to qualify for any mitigation credit under the program. 24 FCPA Pilot Program: Requirements Timely and Appropriate Remediation. If a company cooperates, it may also be eligible for credit for timely and appropriate remediation based on three factors, listed below. The Guidance provides criteria for an effective compliance and ethics program, which include: o Established a culture of compliance o Dedicated resources to the compliance function o Qualified, experienced, and independent compliance personnel o Performed an effective risk assessment o Compensated and promoted compliance personnel o Audited to ensure effectiveness; and o Developed an appropriate reporting structure. Appropriate discipline of employees, and a system that provides for the possibility of disciplining others with oversight of the responsible individuals, and considers how compensation is affected by both disciplinary infractions and failure to supervise. Any additional steps that demonstrate recognition of the seriousness of the misconduct and acceptance of responsibility for it, and the implementation of measures to reduce the risk of repetition of such misconduct, including measures to identify future risks. 25 FCPA Pilot Program: Declinations 1. In re: Nortek, Inc. 2. In re: Akamai Technologies, Inc. 3. In re: Johnson Controls, Inc. 4. In re: HMT LLC 5. In re: NCH Corporation 26 9

10 FCPA Pilot Program: Example Declination Letter 27 FCPA Pilot Program: Extension On March 10, 2017, the Acting Assistant Attorney General, Kenneth A. Blanco, made the following statement about the FCPA Pilot Program: The Pilot Program provides our prosecutors, companies and the public clear metrics for what constitutes voluntary self-disclosure, full cooperation and full remediation. It also outlines the benefits that are accorded a voluntary selfdisclosure of wrongdoing, full cooperation and remediation. The one-year pilot period ends on April 5. At that time, we will begin the process of evaluating the utility and efficacy of the Pilot Program, whether to extend it, and what revisions, if any, we should make to it. The program will continue in full force until we reach a final decision on those issues. 28 Building an Effective ABC Compliance Program 29 10

11 Bribery and Corruption Risk Areas Procurement: Engaging a vendor to perform services and that vendor engages in bribery. Heightened risk for Intermediaries, who are engaged to obtain clients or government approvals, licenses, etc. Hiring Practices: Hiring a candidate for employment (as staff, intern, etc.) as a way of making a bribe. Client-Business Deals: Corporate Finance Proprietary Business Deals Joint Ventures, Equity Investments, Acquisitions Gifts & Entertainment: Business hospitality including meals, travel, gifts conferences, training, will be used to, or create the appearance it is being used to, make a bribe. Sponsorships & Donations: The giving of a sponsorship or donation is used to disguise a bribe or it creates the appearance that it is being used as a bribe. Other Payments: Facilitation Payments, Lobbying Payments, or other payments constitute a bribe or may be perceived to be a bribe. 30 ABC Compliance Program - Overview 31 ABC Program Framework Resources ABC Policy & Procedures (and other policies and procedures relevant to ABC controls) Training & Awareness Risk Assessment & Operational Risk Framework Violation and Consequence Management 32 11

12 Presenter Information Hillary Rosenberg Regional ABC Head, Americas Phone: Mobile Hilary Huber Regional ABC Manager, Americas Phone: Mobile Appendix Additional FCPA Enforcement Trends & Highlights 34 Ten Largest Internationally-Coordinated Resolutions Involving the FCPA $4,000,000,000 $3,500,000,000 $3,000,000,000 $2,500,000,000 $2,000,000,000 $1,500,000,000 $1,000,000,000 $500,000,000 $

13 Ten Largest Corporate FCPA Settlements (Combined Penalties, Disgorgements and Interest) $800,000,000 $772,000,000 $579,000,000 $519,000,000 $420,000,000 $412,000,000 $400,000,000 $398,000,000 $398,000,000 $384,000, Investigation/Enforcement Action Highlights United States: Nu Skin Relevant Laws: Foreign Corrupt Practices Act ( FCPA ), Books & Records Form of bribe: $154,000 in charitable donation to the charity of a government official s choosing Fine: $765,688 Note: This was only the second time in the history of the FCPA, the government based its enforcement action solely on contributions made to a charity linked to or favored by a foreign official. GlaxosmithKline Relevant Laws: FCPA, Books & Records Form of bribe: Gifts, electronics, travel expenses, speaking fees that were not properly recorded and therefore could not be verified as legitimate Fine: $20,000,000 Och-Ziff Relevant Laws: FCPA, Anti-Bribery, Books & Records, and Internal Controls Form of Bribe: $100m loan to joint venture partner used to pay bribes in DRC; $3.75m paid via an intermediary to secure investments from the LIA Fine: $412m Note: This was the first time a hedge fund prosecuted for FCPA violations; wilful blindness to red flags and lack of ABC-specific due diligence associated with joint venture partner and intermediary Investigation/Enforcement Action Highlights Global: VimpelCom Relevant Laws: FCPA,Anti-Bribery and Books & Records; Dutch anti-corruption laws Form of bribe: $114,000,000 primarily made through sham contracts, but were also, in certain instances, made under the guise of legitimate charitable contributions or sponsorships Fine: $795,000,000 in Global Settlement Note: This case expanded the scope of what constitutes anything of value in FCPA bribery cases, and this was the second largest fine in history for an FCPA matter. The SEC s theory in VimpelCom was the first instance in which the SEC (or DOJ) has alleged that the intangible benefit of donating money to a bona fide charity is sufficient to satisfy the anything of value element of the FCPA. Odebrecht/Braskem Relevant Laws: FCPA, Conspiracy to violate, Books & Records, and Internal Controls; Brazil Clean Company Act, Swiss anti-corruption laws Form of Bribe: As part of an elaborate bribery and bid-rigging scheme that lasted over a decade, Odebrecht created a hidden business unit called the Division of Structured Operations which managed a shadow budget used by senior executives to pay bribes to governmental officials worldwide; approximately $788 million in bribes were paid Fine: Combined total of least $3.5bn (subject to an inability to pay analysis on the remaining $1.9bn of the $4.5bn criminal penalty assessed against Odebrecht); Braskem s portion is approx. $957 million; fines are payable to Brazilian, Swiss and US authorities Note: The combined Odebrecht / Braskem settlement represents the largest global FCPA resolution in history, and the fifth largest resolution with SEC and DOJ; also notable is the lead role played by the Brazilian authorities