[PPT] - Foreign Corrupt Practices Act in India Compliance Strategies for PowerPoint Presentation

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Foreign Corrupt Practices Act in India

Compliance Strategies for India's Unique Cultural and Governmental Intricacies

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Today’s faculty features: Robert C. Blume, Partner, Gibson Dunn & Crutcher, Denver Pedro A. Medrano, Counsel, Wilmer Cutler Pickering Hale and Dorr, New Y

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Foreign Corrupt Practices Act in India:

Compliance Strategies for India's Unique Cultural and Governmental Intricacies

Strafford Webinar

Robert Blume Pedro A Medrano Pedro A. Medrano May 26, 2011

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A d

Brief Overview of the Foreign Corrupt Practices Act

Agenda

g p

India: Market of the Future
India: Anti-Corruption Enforcement and Trends
How to Mitigate Corruption Risk in India

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An Overview of the Foreign Corrupt Practices Act Foreign Corrupt Practices Act (“FCPA”)

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A Brief Overview of the FCPA A Brief Overview of the FCPA

The Foreign Corrupt Practices Act was enacted in 1977 in the wake of reports that numerous U S 1977 in the wake of reports that numerous U.S. businesses were making large payments to foreign

fficials to secure business
Anti-Bribery Provisions: The FCPA prohibits giving or offering anything
f value to a foreign government official, political party, or party official

with the intent to influence that official in his or her official capacity or to p y secure an improper advantage in order to obtain or retain business

Accounting Provisions: The FCPA also requires publicly traded U.S.

i i i “b k d d ” d bl companies to maintain accurate “books and records” and reasonably effective internal controls

7

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Scope of the FCPA: Who Is Covered? Scope of the FCPA: Who Is Covered?

Issuers: any company whose securities (including ADRs and registered

debt) are registered in the United States or that is required to file periodic reports with the SEC

Domestic Concerns: any individual who is a U.S. citizen, national, or

resident of the United States (not just U.S. citizens), or any business

rganization that has its principal place of business in the United States or

which is organized in the United States

Other Persons who take any act in furtherance of a corrupt payment while

within the territory of the United States

8

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Definition of “Foreign Official” Definition of Foreign Official

The FCPA prohibits corrupt payments to “foreign officials,” which is expansively defined to include: is expansively defined to include:

Any officer or employee (including low-level

employees and officials) of a foreign government or any department agency or government or any department, agency, or instrumentality of the government, which U.S. regulators have construed to include employees

f government-owned or government-controlled

g g businesses and enterprises

Officers and employees of public international
rganizations, such as the United Nations, World

g , , Bank or other international financial institutions, the Red Cross, and others

Party officials and political candidates

9

y p (including CPC)

Members of royal families

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What Constitutes a “Thing of Value”? What Constitutes a Thing of Value ?

Liability exists from the first yuan,

rupee, or riyal – there is no p , y “de minimis” exception

It is not limited to tangible items of

economic value i l d hi i i

It can include anything a recipient

would find interesting or useful, including:

Gift T i

Gifts
Theatre Tickets
Entertainment
Mooncakes
Trips
Loans
Employment
Consulting Fees
Red Envelopes
Internships
Professional Training

g

Meals
Education
Political or Charitable Contributions

10

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Criminal Penalties Under the FCPA

Anti-Bribery Provisions

Corporations: criminal penalties

i l d $2 fi t i th

50

Number of FCPA Enforcement Actions Per Year include a $2m fine or twice the pecuniary gain or loss and possible suspension and debarment by the U.S. government

48 25 30 35 40 45

DOJ Actions

government

Individuals: criminal penalties

include up to five years’ imprisonment, and a $250,000 fine or twice the pecuniary gain

7 5 7 8 18 20 20 13 26 14 26 5 10 15 20 25

SEC Actions

p y g

r loss

Books-and-Records Provisions

Corporations: criminal penalties

India related enforcement

2 3 5 2004 2005 2006 2007 2008 2009 2010

Corporations: criminal penalties up to a $25m fine

Individuals: criminal penalties

include up to 20 years’ imprisonment, and a $5m fine India‐related enforcement actions since 2000

12 43

South and Central Asia f

11

p , $

43

enforcement actions since 2000

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Recent Blockbuster Enforcement Actions Recent Blockbuster Enforcement Actions

8 of the top 10 FCPA-related settlements are from 2010.

$800 $579 $400

Siemens (2008) KBR/Halliburton (2009) BAE (2010)

$400 $365 $338

BAE (2010) Snamprogetti Netherlands B.V. / ENI S.p.A (2010) Technip S.A. (2010)

$185 $137.4

Daimler AG (2010) Alcatel-Lucent (2010)

$81.8 $58.3 $56.1

Panalpina (2010) ABB Ltd. (2010) Pride (2010)

12

$

( ) * Settlement amounts are in millions. * Includes the BAE Systems prosecution, which involved international bribery but did not have any FCPA charges.

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FCPA E f A i B C FCPA Enforcement Actions By Country

(January 2000 - March 2011)

(Minimum 5 Enforcement Actions)

55 60 30 35 40 45 50 10 15 20 25 30 5

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Exceptions and Affirmative Defenses Exceptions and Affirmative Defenses

The FCPA permits payments to government officials in only a

f i t few, very narrow circumstances:

1) Facilitating payments 2) Payments expressly permitted by the written laws of the host country 3) “Reasonable and bona fide expenditure[s], such as travel and lodging expenses . . . directly related to (A) the promotion, demonstration, or explanation of products or services; or (B) the execution or performance of a contract with a foreign government or agency thereof.”

These are all very narrow exceptions

y p and defenses

14

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Facilitating Payments Exception Facilitating Payments Exception

Very limited exception for payments made to expedite or secure performance of

“routine governmental action” g

Limited to payments that “merely move a particular matter toward an eventual act
r decision” – applies only when the government official has no discretion in

performing duties

Payment must be for something to which the payor was already entitled, e.g., the

y g p y y g mere receipt of an application, as opposed to approval of the application

Payment must still be nominal
Best practices counsel to prohibit

facilitation payments entirely – 80% of p y y U.S. companies have banned them

India, China, and many other countries do not

allow facilitation payments

U.K. Bribery Act does not exempt facilitation

y p payments

OECD encourages prohibition of facilitation

payments

15

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India: Market of the Future

16

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China and India: Demographics and GDP China and India: Demographics and GDP CHINA INDIA

Population: 1,331,460,000
Population:1,155,348,000
pu
: ,33 , 60,000
Est. Population in 2020: 1,421,260,000
GDP: $5.74 trillion USD
GDP Growth in 2010: 10.3%
pu
: , 55,3 8,000
Est. Population in 2020: 1,379,198,000
GDP: $1.43 trillion USD
GDP Growth in 2010: 8.3%
Despite India’s lower reported GDP growth, India’s growth may have
utpaced China’s in 2010 according to some economists.
Over the past decade, India’s population has grown by roughly the entire

17

p , p p g y g y population of Brazil.

Sources: CIA World Factbook; U.S. Census International Data Base 2010; Carnegie Endowment for International Peace, The World Order in 2050, April 2010; The Economist (Apr. 15, 2011 & Mar. 31, 2011).

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India: Market Characteristics India: Market Characteristics

Indian economy is predicted to out-

Chi b t 2009 d 2050 grow China between 2009 and 2050

Net inflow of FDI in India in 2009 was

$34.58b

Population predicted to grow at 0 88%
Population predicted to grow at 0.88%

between 2009 and 2050

GDP predicted to grow at 5.9% from

2009 to 2050 2009 to 2050

India remains highly volatile: Indian

stock market is off 7% from its record high in November 2010. Inflation and corruption remain challenges

15 Indian companies listed on NYSE or

NASDAQ

18

Sources: U.S. Census International Data Base 2010; Carnegie Endowment for International Peace, The World Order in 2050, April 2010.

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Global Corruption: Comparative Benchmarks Global Corruption: Comparative Benchmarks

Transparency International Corruption Perceptions Index 2010 Rank: 66th

Rwanda

Rank: 78th (tied) Rank: 69th (tied)

China Cuba

(tied) Rank: 87th (tied)

India

Rank: 69th (tied)

19

Source: Transparency International, Corruption Perceptions Index 2010.

Brazil

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Significance of the TI Index Significance of the TI Index

Prism through which regulators view countries.
Higher index mandates greater due diligence.

– TI CPI commonly used as part of “a comprehensive, risk-based FCPA and anti-corruption due diligence work plan,” which was viewed favorably by p g p , y y DOJ in Opinion Procedure Release 08-02. – The U.K. Financial Services Authority’s settlement with Aon required Aon to design and implement a global anti-corruption policy that will limit the use of third parties in countries with a high risk of corrupt practices Aon defines third parties in countries with a high risk of corrupt practices. Aon defines high-risk jurisdictions by reference to the corruption perceptions index. “While it is now widely accepted that corruption is not simply a matter or fact of life and that it should be accepted of course this was not the case long ago life and that it should be accepted, of course, this was not the case long ago . . . . The change in attitude can be linked, in my view, to a number of intervening factors, including the emergence of civil society's voice against corruption [led] by organizations such as Transparency International.”

20

Lanny Breuer, Assistant Attorney General of the Criminal Division (May 4, 2010)

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India: Anti-Corruption Enforcement and Trends

21

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India: Corruption Trends India: Corruption Trends

50 55 60 3.6 3.8 4 65 70 75 80

India's CPI Ranking

2.8 3 3.2 3.4

India's CPI Score

After showing improvement until 2006‐2007, India’s TI corruption perception score

85 90 95 100

3 4 5 6 7 8 9

2 2.2 2.4 2.6

and relative rankings have declined for the last two years. Indians who believe the

2 3 2 4 2 5 2 6 2 7 2 8 2 9 2 1

“The culture of corruption is deeply h d i I di d h h d level of corruption has increased over the last three years.

74%

entrenched in India and has not changed for the better in the last few years.”

‐ Bertelsmann Transformation Index 2010 – India Country Report

22

Source: Transparency International, Corruption Perceptions Index 2003-2010.

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India: Paying Bribes India: Paying Bribes

Indian Companies

84%

Indian companies that believe bribes or facilitation payments

30%

Pay bribes to low level officials to “speed things up ”

84%

p p y are being paid “to do business.”

30%

Pay bribes to low‐level officials to speed things up.

25%

Pay bribes to high‐ranking officials or political parties. Indian Residents

25%

Use personal relationships to secure public contracts. Indians who report paying a bribe to a major government service provider in the last 12 months.

54%

23

Sources: Transparency International, Bribe Payers Index 2008; Transparency International, Corruption Perceptions Index 2010; KPMG, India Fraud Survey Report (2008).

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India: Corruption in Government India: Corruption in Government

Indians Using an Agent to Obtain Government Services 70% → Driver’s License 54% → Ration Card 47% L d Titl 47% → Land Title 15% → Passports

An Indian “RTO Consultant” openly advertises his driver’s license assistance services

Most Corrupt Government Sectors:

1. Police
2. Political Parties
3. Parliament and the Legislature
4. Registry and Permit Services

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Sources: Marianne Bertrand et al., Obtaining a Driving License in India: An Experimental Approach to Studying Corruption, Quarterly Journal of Economics, November 2007, Vol. 122, No. 4, Pages 1639-1676; National Election Watch, 2009 Lok Sabha Elections High-Level Analysis.

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India: Recent Domestic Corruption Scandals India: Recent Domestic Corruption Scandals

Telecom scandal plunges India into political crisis

“ h i i h i i lli d i h h

Bribe-for-loan scam : Tim e for m ore transparency

“Eight senior executives from various financial “The issue is how a minister allied with the party sold cellphone operators the airwaves to provide their service in 2008. . . . An independent auditor estimated that the government may have left almost $40 billion th t bl b lli th i ht t h l ” institutions were arrested by the Central Bureau of Investigation for allegedly accepting bribes for sanction of loans. The agency said loan syndicator, Money Matters, bribed lenders from Bank of India, Central Bank of India, Punjab National Bank and LIC H i Fi bi i k l i d ”

n the table by selling the rights too cheaply.”

– New York Times, 12/ 13/ 2010 Housing Finance to get big-ticket loans sanctioned.” – Economic Times, Times of India, 12/ 8/ 2010

CVC X-rays 16 Com m onwealth Adarsh housing scam : Three ex- service chiefs likely to return flats

“A controversy has erupted over how the Adarsh society in upscale Colaba, originally meant to be a six storey structure to house Kargil war heroes and

CVC X-rays 16 Com m onwealth Gam es projects, detects brazen corruption

“The Commonwealth Games edifice is crumbling under thickening suspicions of six-storey structure to house Kargil war heroes and widows, got converted into a 31-storey building. The highrise . . . was cleared on the condition of housing war veterans but now has 104 members including senior army commanders, a former environment minister legislators and state crumbling under thickening suspicions of corruption and inefficiency, with the CVC referring one of the several cases of corruption bedeviling the event to the CBI.” – Economic Times, Times of India, 7/ 30/ 2010 25 environment minister, legislators and state

bureaucrats. – Times of India, 10/ 29/ 2010

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India: Recent Domestic Corruption Scandals India: Recent Domestic Corruption Scandals

Palm olein im port case im plicates the CVC

“ h ll d l

Bellary m ining controversy

“The latest challenge before h dd “The Supreme Court . . . allowed a Kerala court to go ahead with the trial in the multi-crore palmolein oil import case involving Chief Vigilance Commissioner P.J. Thomas. . . . The case pertains to the import of palm oil from a Singapore firm which was allegedly done at the Yeddyurappa government is the illegal extraction and transportation of iron ore contravening forest rules, and its export. . . . That the Bellary mining lobby has in

Cash-for- Questions scam

“Th j li t titi Singapore firm, which was allegedly done at prices higher than the international rate. . . . Thomas had issued the government order for the import which caused a loss of Rs. 2.32 crore to the state exchequer.” – The Hindu, 1/ 11/ 2011 Bellary mining lobby has in recent years been dictating the direction of politics in Karnataka is obvious, but under the BJP government its power and reach has “The journalist petitioners had conducted. . . an infamous sting operation where members of Parliament were allegedly caught on camera / / p become more overt.” – Frontline Magazine, 8/ 13/ 2010 caught on camera accepting money to ask questions in the House. . . . [E]ven a year and a half after the tapes were aired . . . the police had still not

Niira Radia tapes controversy

“The publication of taped conversations between Niira Radia – a lobbyist for Mukesh Ambani and i h k i i h ll i registered a single FIR against the . . .

Parliamentarians. Instead,

the police chose to go after the journalists . . . .” – The Hi d 11/ 3/ 2010 Ratan Tata with a keen interest in the allocation

f ministerial portfolios – and editors, reporters,

industrialists and politicians has shone a harsh and even unwelcome light on the web of connections which exist between the worlds of business politics and journalism ” – The Hindu 26 Hindu, 11/ 3/ 2010 business, politics, and journalism. – The Hindu, 11/ 24/ 2010

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A S f C i A Spectrum of Corruption

Pride Forasol, a subsidiary of
Sale of India’s 2G
500 rupees to

, y Pride International, paid $500,000 to judges of the Indian Customs, Excise and Gold Appellate Tribunal for a mobile-telephone spectrum, which allegedly cost India $39 billion in revenues. p

btain a marriage

certificate

100 rupees to

pass a driving test pp favorable determination in a customs duties and penalties dispute.

Pioneer Friction Ltd a
Norwegian authorities

charged Yara, the world’s largest nitrogen fertilizer maker for pass a driving test Pioneer Friction Ltd., a subsidiary of Westinghouse Air Brake Technologies, paid $130,000 to employees of the Indian Railway Board to obtain fertilizer maker, for bribery in connection with $1 million improper payment paid in efforts to create an Indian Railway Board to obtain contracts.

Small Small-

scale bribery

scale bribery Massive corruption Massive corruption

in efforts to create an Indian joint venture.

27

Sources: The Economist (May 5, 2011 & Mar. 10, 2011); Reuters (May 12, 2011)

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India: Business Challenges of Corruption India: Business Challenges of Corruption

Corruption Rank of corruption on World Li it d A ti C ti C li Economic Forum’s survey of most problematic factors for doing business in India.

2nd

Limited Anti‐Corruption Compliance Efforts by Indian Companies Indian companies with a it i ti Indian Companies’ Lack of Knowledge of Anti‐Corruption Laws d d l monitoring or reporting system to assess the FCPA

r U.K. Bribery Act risks.

52%

Indian companies reporting that senior managers are “thoroughly familiar” with the FCPA or U.K. Bribery

45%

Indian companies claiming to have “adequate procedures to prevent bribery.”

55%

y Act. y

28

Sources: World Economic Forum, The Global Competitiveness Report 2010- 2011; Economic Intelligence Unit & Kroll, Global Fraud Report (2010-2011 annual edition).

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India: Domestic Anti-Corruption Regime p g

Prevention of Corruption Act, 1988

§ 7 Prohibits Indian public servants from accepting “any gratification” for doing or forbearing an official act §§ 8‐9 Prohibits any person from receiving “gratification” for illegally influencing an Indian public servant to do or forbear an official act §§ 10‐11 Prohibits abetting any person to violate the PCA § 19 Government permission required to prosecute a public servant

PCA Enforcement Actions (20072009)

4 95

800 900

“Despite the fact that the PCA has established a legal framework to punish the

688 744 79

400 500 600 700

framework to punish the corruption of public servants with fines and up to three years in prison, actual punishment

238 216 230

100 200 300

for these offenses rarely

ccurs.”

‐ UICIFD Briefing Paper No. 7: The Current 29

2007 2008 2009 Cases Registered Convictions

g p State of India's Anti‐Corruption Reform: The RTI and PC (2010)

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India: Domestic Anti Corruption Regime India: Domestic Anti-Corruption Regime

Indian Companies Act, 1956 § 211(1)‐(2) Requires that every balance sheet or profit and loss statement present “a d f ” f h ’ ff true and fair view” of the company’s affairs. § 211(7) Officers and directors can face imprisonment and/or fines if they fail to “take all reasonable steps to secure compliance by the company.”

Note the similarities to the FCPA’s requirement to “make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer.”

“Greasing the palm of the R.T.O. staff . . . would not only be an illegal act, but amounts to illegal gratification. Such

Income-Tax Act, 1961 § 37(1) Allows deductions for business expenses, although the Finance Act (1998) amended the I‐T Act to l if th t t f “ hi h i

g g f illegal gratification cannot be allowed to be deducted.” ‐ Gwalior Road Lines v. Commissioner of Income Tax [1998] 234 ITR 230 (MP).

clarify that payments for “any purpose which is an

ffence or which is prohibited by law” are not

deductible.

Consequently deducting bribes, “secret commissions,”

30

q y g , ,

r other illegal expenses can amount to tax fraud.

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India: Anti Corruption Enforcement Agencies India: Anti-Corruption Enforcement Agencies

Central Bureau of Investigation (CBI)

Primary agency for investigating and prosecuting PCA violations in Central

Central Vigilance Commission

Primary agency for investigating and prosecuting PCA violations in Central Government

Central Vigilance Commission

Oversees CBI investigations and Chief Vigilance Officers in government organizations

Lok Ayukta Lok Ayukta

State‐level ombudsmen created to independently investigate allegations of corruption
Granted investigative authority, but do not have the ability to enforce laws or impose

punishment

Enforcement Directorate

Under the administrative control of the Department of Revenue, Ministry of Finance,

the Enforcement Directorate has its headquarters in New Delhi, and is responsible for

31

enforcing the various provisions of the Foreign Exchange Management Act, 1999

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India: Domestic Anti Corruption Initiatives India: Domestic Anti-Corruption Initiatives

Integrity Pacts Integrity Pacts

Introduced by Transparency International (India)

in 2006

Publicly supported by the Central Vigilance

Commission and Prime Minister Singh

Agreed to as part of 39 public sector projects in

India since 2006, including projects by the Steel Authority of India, Ltd. (SAIL), Oil India, Ltd., Authority of India, Ltd. (SAIL), Oil India, Ltd., and the Oil and Natural Gas Corporation Ltd. of India (ONGC)

. . .

32

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i i i Integrity Pacts: Key Provisions

The contracting agency agrees that its officials will not demand or accept

bribes, gifts, or other forms of illicit payment

Bidders agree that they have not paid, and will not pay, any bribes, gifts, or
ther forms of illicit payment; any permissible payments in connection

with the contract must be disclosed

Bidders are encouraged to have a Code of Conduct for their employees

and a Compliance Program to ensure that the Code is implemented

Violations may be reported to Independent External Monitors, who are

charged with overseeing the execution of the Integrity Pact’s terms

Violations can subject bidders to cancellation of the contract, forfeiture of

their bond, liquidated damages, and bans on future government procurement opportunities

33

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Addi i l di A i C i i i i Additional Indian Anti-Corruption Initiatives

The “Zero Rupee Note”: The NGO 5th Pillar

has printed and distributed more than 1 million such notes and encouraged Indians to give them to officials who solicit bribes.

Auctions for State Contracts: Indian states

such as Gujarat run online auctions for contracts.

www.ipaidabribe.com: Indian website on

p which individuals may post details of how (and whom) they were forced to bribe.

34

Sources: The Economist (Mar. 10, 2011 & Jan. 28, 2010); .

SLIDE 35

India: International Anti-Corruption Agreements

U N Con ention Against Corr ption (UNCAC) U.N. Convention Against Corruption (UNCAC)

Signed in December 2005, but has yet to ratify, although India is reportedly in the

process of ratifying the convention

A bill to control corporate lobbying within the country and abroad, drafted in

conformity with the UNCAC may soon be introduced in Parliament conformity with the UNCAC, may soon be introduced in Parliament

Ratified by 148 other nations, including China and Russia
Key Components: Criminalizes bribery of foreign officials and in the private sector;

global law enforcement cooperation, including extradition, investigations, and confiscation seizure and repatriation of corruption proceeds confiscation, seizure, and repatriation of corruption proceeds Asian Development Bank & OECD Anti‐Corruption Action Plan for Asia and the Pacific

Signed in November 2001

g

Key Components: Increases regional law enforcement

cooperation, including extradition, investigations, and asset recovery mechanisms G20 Anti‐Corruption Action Plan

Signed at the Seoul Summit in November 2010
Key Components: Commitment to implement UNCAC; anti‐money

laundering; whistleblower protections; visa denials to corrupt officials;

35

laundering; whistleblower protections; visa denials to corrupt officials; asset recovery; increased law enforcement cooperation

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FCPA Enforcement Actions Relating to India FCPA Enforcement Actions Relating to India

Baker Hughes (2001)
Dow Chemical (2007)
Textron (2007)
Electronic Data Systems (2007)
York International (2007)
Westinghouse Air Brake Technologies (2008)
Control Components Inc (2008)

Control Components, Inc. (2008)

Pride International (2010)

O i G t l d/ I t l I ti ti

Ongoing Governmental and/or Internal Investigations:
Avon Products
Kraft Foods

36

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Mitigating Corruption Risk Mitigating Corruption Risk

37

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India: Key Lessons

Growing demands, such as the recent letter from Indian

Lesson #1: Indian authorities are likely to be more proactive in launching their

wn investigations following FCPA‐related U.S. settlements.

Growing demands, such as the recent letter from Indian Ambassador to the U.S. Meera Shankar, to pursue domestic enforcement actions against those held responsible under foreign anti‐corruption laws.

Expanding cooperation with foreign jurisdictions under newly

signed and ratified international agreements.

By trailing a U.S.‐led FCPA investigation, the Indian government

y g g , g can initiate domestic enforcement actions without a large investigative resource commitment from the overburdened CBI.

“I am writing to draw your attention to the U S report on the Foreign Corrupt Practices Act (FCPA)

Meera Shankar

I am writing to draw your attention to the U.S. report on the Foreign Corrupt Practices Act (FCPA) and Anticorruption Enforcement for the second half of 2008 and early part of 2009 . . . . You may like to take appropriate action to have these investigated on our end.”

‐Letter from Indian Ambassador to the U S Meera Shankar to the Prime Minister’s Office

38

‐Letter from Indian Ambassador to the U.S. Meera Shankar to the Prime Minister s Office, May 12, 2009, discussing seven recent FCPA enforcement actions related to India.

SLIDE 39

India: Key Lessons y

Lesson #2: Be particularly vigilant in monitoring government touch‐points and controlling petty cash disbursements.

Many cases in India involve payments of relatively modest sums:

Dow Chemical: Agricultural inspectors were paid less than $100 each to distribute and sell products distribute and sell products. Westinghouse: Subsidiary made $67 payments to officials at various railway regulatory boards to schedule pre‐shipping product inspections and obtain issuance of product delivery certificates and $32 payments to the Central issuance of product delivery certificates, and $32 payments to the Central Board of Excise and Customs to curb frequency of tax audits.

The Indian “License Raj” persists (official documentation ranging from merger

and amalgamation approvals to construction permits can take years) and amalgamation approvals to construction permits can take years)

“[In India] more than half of the reported bribe demands were for $100 or less, and approximately 84% of the reported demands were for $5,000 or less.”

B i R i F I i l B ib d E i (BRIBELi ) I di R 2009

39

‐ Business Registry For International Bribery and Extortion (BRIBELine) India Report, 2009

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India: Key Lessons y

Lesson #3: Exercise caution and undertake due diligence before entering joint ventures or retaining agents, consultants, or distributors.

A common theme in India‐related FCPA cases is the use of agents or

consultants to mask the true destination of improper payments: Control Components, Inc.: Alleged to have retained agents and consultants to further a scheme to pay $6.85m to employees and officers

f private and public sector customers between 2003 and 2007.

York International: York’s Indian subsidiary retained an Indian agent who allegedly made improper payments or provided gifts to Indian Navy

fficials to secure business for York India.

Westinghouse: Agents allegedly were used to submit false invoices to conceal payments being made to railway and tax officials. Pride International: A customs consultant was allegedly involved in

40

Pride International: A customs consultant was allegedly involved in payments to judges of the Customs, Excise, and Gold Appellate Tribunal

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India: Key Lessons y

Lesson #4: Closely scrutinize invoices without sufficient documentation or

justification. Be particularly careful of “liaisoning services.”
Several FCPA cases in India focus on the books‐and‐records violations

resulting from improper accounting methods that falsely document corrupt payments: Textron: Allegedly made improper payments to government officials in India between 2001 and 2005 to secure contracts, and recorded them as consultation fees or commissions. Electronic Data Systems: Paid $720,000 in cash and gifts to Indian

fficials that were funded with fabricated invoices and improperly

recorded in EDS’s accounting books and records. g Westinghouse: Wholly owned subsidiary made payments to railway and tax officials. Payments were concealed through a scheme whereby agents submitted invoices for materials or services that were not

41

agents submitted invoices for materials or services that were not provided.

SLIDE 42

How To Mitigate Corruption Risk In India

In light of FCPA exposure for companies doing business in India, recommended risk mitigation measures include:

g p

Automated bidding and customs processes (e.g., Gujarat’s

public works online auction portal and the Indian Customs EDI Gateway (“ICEGATE”)) P l d d f f ift t l d

Pre-approval procedures and forms for gift, travel, and

entertainment expenditures

Pre-approval of gifts is especially important during the

festival of Diwali (mid-October to mid November).

Pre-approval procedures and forms for political and charitable

contributions

Third-party due diligence procedures and questionnaires
Cultural sensitivity trainings in conjunction with anti-

Cultural sensitivity trainings in conjunction with anti- corruption trainings

Periodic evaluation and audit procedures designed to ensure

that compliance policies are working as intended

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SLIDE 43

How To Mitigate Corruption Risk In India

Enhance Risk Factor Disclosures

Some disclosures to consider making:

g p

Some disclosures to consider making:

Risks associated with working in countries with high perceived level of

corruption Ri k i t d ith i l ti ti ti l

Risks associated with violating anti-corruption laws
Risks associated with potential failures in the compliance program, no

matter how well designed

Risks associated with corruption-related criminal and civil liability

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SLIDE 44

How To Mitigate Corruption Risk In India

Enhance Risk Factor Disclosures (cont.) Sample language: Sample language:

Compliance with international and U.S. laws and regulations that apply to our

international operations increases our cost of doing business in foreign jurisdictions. Th l d l ti i l d U S l h th F i C t Th l d l ti i l d U S l h th F i C t These laws and regulations include U.S. laws such as the Foreign Corrupt These laws and regulations include U.S. laws such as the Foreign Corrupt Practices Act, and local laws which also prohibit corrupt payments to Practices Act, and local laws which also prohibit corrupt payments to governmental officials governmental officials. . . . Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or our employees, and prohibitions , g , p y , p

n the conduct of our business. . . . Our success depends, in part, on our ability to

anticipate these risks and manage these difficulties. We monitor our international We monitor our international

perations and investigate allegations of improprieties relating to transactions
perations and investigate allegations of improprieties relating to transactions

and the a in hich s ch transactions are recorded and the a in hich s ch transactions are recorded Where circ mstances and the way in which such transactions are recorded. and the way in which such transactions are recorded. Where circumstances warrant, we provide information and report our findings to government authorities, but no assurance can be given that action will not be taken by such authorities.

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SLIDE 45

How To Mitigate Corruption Risk In India

Sample language:

g p

Enhance Risk Factor Disclosures (cont.)

Sample language:

[C]ompliance with complex foreign and U.S. laws and regulations that apply to our

international operations increases our cost of doing business in international p g jurisdictions and could . . . expose us or our employees to fines and penalties. These These numerous and sometimes conflicting laws and regulations include . . . U.S. laws numerous and sometimes conflicting laws and regulations include . . . U.S. laws such as the Foreign Corrupt Practices Act, and local laws prohibiting corrupt such as the Foreign Corrupt Practices Act, and local laws prohibiting corrupt payments to governmental officials payments to governmental officials Violations of these laws and regulations payments to governmental officials. payments to governmental officials. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers, or our employees, prohibitions on the conduct of our business, and damage to our reputation. Internal Internal controls, policies, and procedures and employee training and compliance controls, policies, and procedures and employee training and compliance programs that we have implemented to deter prohibited practices may not be programs that we have implemented to deter prohibited practices may not be effective in prohibiting our employees, contractors, or agents from violating or effective in prohibiting our employees, contractors, or agents from violating or circumventing our policies and the law. circumventing our policies and the law.

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SLIDE 46

Contact Information Contact Information

Robert C. Blume

Partner

Pedro A. Medrano

Counsel Partner Denver Office T: +1 303.298.5758 F: +1 303.313.2870 Counsel New York T +1 212.295.6410 F +1 212.230.8888 rblume@gibsondunn.com pedro.medrano@wilmerhale.com

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SLIDE 47

Our Offices Our Offices

Brussels Avenue Louise 480 Dubai The Exchange Building 5, Level 4 Munich Widenmayerstraße 10 São Paulo Rua Funchal, 418, 35° andar 1050 Brussels Belgium +32 (0)2 554 70 00 Century City 2029 Century Park East Los Angeles CA 90067 3026 Dubai International Finance Centre P.O. Box 506654 Dubai, United Arab Emirates +971 (0)4 370 0311 Hong Kong 33/F Gloucester Tower D-80538 München Germany +49 89 189 33-0 New York 200 Park Avenue New York NY 10166 0193 Sao Paulo 04551-060 Brazil +55 (11)3521.7160 San Francisco 555 Mission Street San Francisco CA 94105 2933 Los Angeles, CA 90067-3026 +1 310.552.8500 Dallas 2100 McKinney Avenue Suite 1100 Dallas, TX 75201-6912 33/F, Gloucester Tower The Landmark 15 Queen’s Road Central Hong Kong +852 2214 3700 London New York, NY 10166-0193 +1 212.351.4000 Orange County 3161 Michelson Drive Irvine, CA 92612-4412 +1 949.451.3800 San Francisco, CA 94105-2933 +1 415.393.8200 Singapore One Raffles Quay Level #37-01, North Tower Singapore 048583 , +1 214.698.3100 Denver 1801 California Street Suite 4200 Denver, CO 80202-2642 +1 303 298 5700 Telephone House 2-4 Temple Avenue London EC4Y 0HB England +44 (0)20 7071 4000 L A l Palo Alto 1881 Page Mill Road Palo Alto, CA 94304-1125 +1 650.849.5300 P i g p +65.6507.3600 Washington, D.C. 1050 Connecticut Avenue, N. W. Washington, D.C. 20036-5306 +1 202.955.8500 +1 303.298.5700 Los Angeles 333 South Grand Avenue Los Angeles, CA 90071-3197 +1 213.229.7000 Paris 166, rue du faubourg Saint Honoré 75008 Paris France +33 (0)1 56 43 13 00

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