Foreign Corrupt Practices Act in Latin America Implementing FCPA - - PowerPoint PPT Presentation

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Foreign Corrupt Practices Act in Latin America

Implementing FCPA Compliance Programs and Mitigating Legal Risks

T d ’ f l f

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific TUES DAY, DECEMBER 7, 2010

Today’s faculty features: James G. Tillen, Member, Miller Chevalier, Washington, D.C. Isabel Franco, Attorney, Koury Lopes Advogados, S ão Paulo, Brazil Marcus S . Quintanilla, Counsel, O'Melveny & Myers, Newport Beach, Calif.

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Foreign Corrupt Practices Act in Latin America

Strafford Publications Teleconference Strafford Publications Teleconference James G. Tillen Isabel Franco Marcus Salvato Quintanilla December 7, 2010

FCPA Risk Factors: Background

• Since passage of Act in 1977, approximately 76 FCPA

enforcement actions involving activity in Latin America enforcement actions involving activity in Latin America

• Actions involved 14 countries in the region
• Multiple cases in Mexico Brazil Venezuela Argentina
• Multiple cases in Mexico, Brazil, Venezuela, Argentina
• Wide range of industries:
• Telecom
• Telecom
• Infrastructure
• Energy

Energy

• Agriculture
• Technology

5

gy

Examples of FCPA Cases Involving Latin America

• Pride (2010): payments to PDVSA employees for contract

extensions and legitimate receivables; payments to t ffi i l i M i d B il customs officials in Mexico and Brazil.

• ABB (2010): payments through sales rep. to Mexican

electric utility company for contracts electric utility company for contracts.

• Paradigm (2007): excessive T&E for PEMEX employee and

job for his brother.

• Syncor (2007): benefits to doctors at state-owned hospitals

in exchange for use of products B llS th (2002) hi i if f Ni l i l t t

• BellSouth (2002): hiring wife of Nicaraguan legislator to

lobby legislature to pass legislation allowing increased foreign ownership; payment of fictitious invoices by

6

g p p y y Venezuelan subsidiary to off-shore entities.

Transparency International Corruption Perceptions Index 2010

Results by Region: Americas

Regional CPI Rank Rank Country/Territory 2010 Score

p p

Rank Rank Country/Territory 2010 Score

6 1 Canada 8.9 17 2 Barbados 7.8 21 3 Chile 7.2 22 4 United States 7.1 24 5 Uraguay 6.9 33 6 Puerto Rico 5.8 41 7 Costa Rica 5.3 44 8 Dominica 5.2 69 9 Brazil 3.7 69 9 Cuba 3.7 73 11 El Salvador 3.6 73 11 Panama 3.6 73 11 Trinidad and Tobago 3.6 78 14 Columbia 3.5 78 14 Peru 3.5 87 16 Jamaica 3.3 91 17 Guatemala 3.2 98 18 Mexico 3.1 101 19 Dominican Republic 3.0 105 20 Argentina 2.9 110 21 Bolivia 2.8 116 22 Guyana 2.7 127 23 Ecuador 2.5 127 23 Nicaragua 2.5 134 25 Honduras 2.4 146 26 Haiti 2.2 146 26 Paraguay 2.2 164 28 Venezuela 2.0 7

FCPA Risk Factors: TI Backgrounder

• 28 Countries in Americas included in 2010 TI Index

20 d d 5 i t (“ i ti ”)

• 20 scored under 5 points (“serious corruption”)
• 9 scored under 3 points (“rampant corruption”)
• Canada Barbados Chile ranked highest
• Canada, Barbados, Chile ranked highest
• Haiti, Paraguay, Venezuela ranked lowest

8

FCPA Risk Factors: M&C 2008 Survey

• 200 respondents in 7 countries, representing a mix of

multinationals and region based companies multinationals and region-based companies

• 48% say corruption is a significant obstacle to doing

business in the region g

• More than 80% believe local anti-corruption laws are

NOT effective

• 55% rank addressing corruption risk as a top priority
• 77% have taken steps to address corruption risk

55% f i b d i 82% f lti ti l

55% of region-based companies, 82% of multinationals

• 30% of respondents whose companies are clearly

subject to the FCPA said they were not aware of it

9

subject to the FCPA said they were not aware of it

FCPA Risk Factors: Culture and Practice

• Studies suggest particular corruption risk from:

I t ti ith l l li d i i l t

• Interactions with local police and municipal government
• fficials (violations, permitting processes)
• Interactions with judiciary

Interactions with judiciary

• Interactions with customs officials
• Mixed picture for legislative and executive branches,

p g , country-by-country

• “Facilitating payments”/extortion a perennial issue

10

FCPA Risk Factors: Definition of Official

• State ownership of key infrastructure and major

industries varies across countries industries varies across countries

• Partial privatization common, creating uncertainty as to

“official” status – e g Petrobras

• fficial status

e.g., Petrobras

• Exercise of government role in companies ebbs and

flows, further complicating picture – e.g., PDVSA , p g p g ,

11

FCPA Risk Factors: Third Parties

• Many third parties have prior exposure to compliance

due diligence requirements due diligence requirements

• Generally favorable response to process, within usual

limits limits

• Local culture and in some countries local law may

restrict questions related to family members/political q y p affiliations

• Transparency challenges in joint ventures and with

some third parties; family-owned conglomerates

12

Local Laws

• OAS Inter-American Convention Against Corruption

33 t i h tifi d

• 33 countries have ratified
• Criminalizes official corruption
• Requires cooperation in investigations
• Requires cooperation in investigations
• Local law may address gifts, travel and entertainment,

for example: for example:

• Costa Rica – officials may receive courtesy gifts. Gifts
• ver approx. $300 are property of state. (Law No. 8422)

13

BRAZIL BRAZIL

14

Presentation Outline

 Cases in Brazil  Main norms  Definition of Government Official (“GO”)  Forms of Corruption  The Commission of Public Ethic (“CPE”)  Application of HFACode and Resolutions  Higher Federal Administration Code of Conduct  The participation of GOs in seminars and events  Recommendations to minimize risks  Gifts  Combat to Violations  Punishments  Red Flag  Final Recommendation

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a eco e da o

Examples of Cases in Brazil

Baker Hughes: grease payment to the Rio de Janeiro Board of Commerce Tyco: payment of bribes, through lobbyists, to workers at a water treatment company B id t t f b ib t t t d i Bridgestone: payment of bribes to state owned companies Nature’s Sunshine Products: payments to “despachantes” at customs to import products not registered in Brazil Pride: payment of bribes to resolve difficulties at customs Sitel: payment of bribes to resolve tax issues Gtech: payments to government officials as “incentive” to extend lottery contract with Caixa Econômica Federal

16

Combat to Violations

2009 CGU Report

116 Disciplinary Procedures 1471 Preliminary Investigations (after denunciations) II 1 P d i i i d b Si COR (F d l E i P II.1 Procedures initiated by SisCOR (Federal Executive Power Correction System

Acts 2006 2007 2008 2009 Total Acts 2006 2007 2008 2009 Total Procedures initiated by SisCOR 4.869 6.201 4.763 5.377 21.210

17

18

Legislation of Brazil

 Sparse legislation governing the subject of Ethics & Compliance and Corporate Hospitality  Main Brazilian legislation applicable to Government Officials (“GO”s):

19

Brazilian Criminal Code - 1940 Brazilian Criminal Code - 1940

Applicable to all citizens and foreigners in Brazil

Statute of the Federal Civil Public Servant– 1990

Applicable to all Gos

Administrative Improbity Law – 1992

Applicable to all Gos

Professional Code of Ethics for Civil Servants of the Federal E ec ti e Po er 1994 Federal Executive Power - 1994

Applicable to all GOs of the Federal Executive Power

20

Forms of Corruption



Graft ("Concussão“) A 316 d d f hi lf h lf f hi d di l i di l if i

• Art. 316 - to demand, for himself or herself , or for a third party, directly or indirectly, even if not in

the exercise of his or her functions or prior to taking office, an undue advantage  Passive Corruption

• Art. 317 - to solicit or receive, for himself or herself, or for a third party, directly or indirectly, even if

, , p y, y y, not in the exercise of his or her functions or prior to taking office, but as a result of such a position, an undue advantage or to accept a promise for such advantage  Traffic of Influence Art 332 To solicit demand charge or obtain for himself or herself or for a third party an

• Art. 332 - To solicit, demand, charge or obtain, for himself or herself, or for a third party, an

advantage or promise of advantage under the pretext of influencing an act of a GO in the exercise of his or her functions  Active corruption (bribery)

• Art. 333 - to offer or give an undue advantage to a GO in order to induce him or her to practice, omit
• r delay an act pertaining to his or her functions or in breach of his or her duty

21

Definition of Government Official (“GO”) ( )

 Criminal Code – art. 327

 Law 8027/90 – art. 1  Law 8429/92 – art 2  Law 8429/92 – art. 2  Decree 6029/07 – art. 11, sole §

Any person who directly or indirectly even if temporarily and without Any person who directly or indirectly, even if temporarily and without compensation, holds a public position, job or duty in a state entity or works for a contracted service provider or a party to an agreement for performance of activities typically related to the public administration performance of activities typically related to the public administration

22

Higher Federal Administration Code of Conduct (“HFACode”) - g ( ) 2000

Applicable to Ministers, Executive-Secretaries, Officers of state-owned or controlled companies and regulatory entities, with decision-making power.

CEP Resolution #02 - 2000

Regulates the participation of GOs covered by the HFACode in seminars g p p y and other events

CEP Resolution #03 - 2000

R l d if li bl GO d b h HFAC d Regulates presents and gifts applicable to GOs covered by the HFACode

23

Commission of Public Ethics (“CPE”) ( )

Main duties:

 manage the application of the HFACode  settle doubts of interpretation among several rules  coordinate evaluate and supervise the Management System of  coordinate, evaluate and supervise the Management System of Public Ethics of the Federal Executive Power

Authority: Authority:

 provide recommendations and suggestions to the proper judicial

• r administrative body that may indict the violator or investigate
• r administrative body that may indict the violator or investigate

the case  no power to punish misconducts

24

Recommendations to Minimize Risk

 refrain from directly inviting the GOs  direct the invitations to the governmental entity allowing them to select the guest to the event and also informing the CPE about the invitation  forward copies of the invitations and transparency letters to the CPE  refrain from offering air tickets, lodging and meals with a value higher than that which would be offered to them by the governmental entities which would be offered to them by the governmental entities  make payments directly to the vendors  f i f i iti th GO f t t t  refrain from inviting the GOs for extravagant events  insert a clause on the agreements executed with public entities providing for an

• bligation to such entities to appoint GOs to attend events

25

g pp

Gifts

CEP Resolution #3/00 Gifts shall not:  be offered by a party (i) subject to regulatory jurisdiction of GO’s entity, (ii) have an interest in a decision that may be taken by the GO y, ( ) y y

• r his entity, (iii) have a commercial relationship with the entity to

which the GO belongs Gifts (“brindes”) may be given if they: Gifts ( brindes ) may be given if they:  are given as a courtesy, as marketing tool, in events or dates of historical or cultural character  have a commercial value or price of less than R$100 (± USD 55) p $ ( )  be offered in periods shorter than 12 months; and  are not destined to award only a particular authority

26

MEXICO

27

28

Message from Mexico’s Minister of Public Administration*

The six strategic objectives that are proposed in the Program and that contribute toward an alignment with the institutional areas defined in the 2007-2012 National Development Plan, are the following:

1. Consolidate a State policy in the areas of information, transparency and accountability. 2. Strengthen oversight of public resources and improve internal control in the Federal Public Administration, in order to contribute to institutions’ effectiveness and performance. 3. Contribute to the development of a culture characterized by adherence to the law, ethics and public responsibility. 4. Institutionalize mechanisms for citizen participation and networking in the fight against corruption and improvement in transparency and legality. 5. Establish mechanisms for coordinating actions to combat corruption in the Federal Public Administration.

6.

Combat corruption in federal government institutions that participate in the prevention, investigation and prosecution of crimes, as well as in carrying out criminal sanctions.

Salvador Vega Casillas Minister of Public Administration

*Free translation

29

Mexico: National Program on Accountability, Transparency, and Fighting Corruption 2008-2012*

O th l t t i t t i tit ti l t h b t k i th f t bilit S t t di

Institutional Advances and Challenges

Over the last ten years, important institutional steps have been taken in the area of accountability. Some outstanding examples include: the creation of the Federal Superior Auditing Office; the publication of the Federal Law on Transparency and Access to Public Government Information; the creation of the Federal Institute for Access to Information; the establishment of Professional Career Service; the signing of conventions on combating corruption; the independence of Internal Control Entities in relation to controlled entities and offices; the implementation of citizen monitoring programs and social witnesses; and the launching of web sites to clarify transparency-related obligations. In addition, the 2001-2006 National Program for Combating Corruption and Promoting Transparency and Administrative Development was aimed at changing the focus of oversight and control, from a correction-based orientation to a focus on prevention and co-responsibility with the Federal Public Administration. As part of reforms to guarantee citizen rights related to access to information and accountability, the Program broadens the implementation of transparency as a mechanism for preventing and detecting irregularities. In 2007 and 2008 important reforms have been carried out in order to strengthen accountability. One example is constitutional reform aimed at recognizing access to information as a fundamental right, and establishing principles and criteria that must be fulfilled by public institutions at all levels of government. Other examples are reforms to public finance regulations, such as requiring the adoption of schemes for evaluating performance linked to the budget, at all levels of government; and reforms that expand the scope of the oversight of public resources used by all public and private entities; ll f i h f i d j i as well as reforms in the area of security and justice. *Free translation

30

Mexico: National Program on Accountability, Transparency, and Fighting Corruption 2008-2012* Institutional Advances and Challenges (cont’d) g g p

Even with these institutional changes, the perception of corruption in our country has not changed, and this reflects a lack

• f correlation between policies implemented and public opinion. This can be explained to a significant degree by

particularities in the way that democratic change has taken place in our country and by the unequal advancement between structural and institutional reforms, on the one hand, and social and human development, on the other. M i i t h it ti l f t It l ti i h b th d t f it hi t d it Mexican society has its own particular features. Its evolution in many areas has been the product of its own history and its adaptations to the challenges represented by globalization and our position in this context of major changes. Society has become more demanding and is keeping a closer eye on government, as evident in surveys on values and political

• culture. However, at the same time, our society maintains practices and values that are contrary to ethical and legal

principles, and these seem to be strongly rooted in individuals, groups, institutions and regulations. Administrative-institutional reforms and government reforms are facing new schemes of corruption linked not only to traditional bribery and extortion practices, but also linked to regional and global networks associated with organized crime. Therefore, the challenge of decreasing levels of corruption and implementing administrative reforms based on the values

• f transparency, accountability and public service is a shared responsibility between government and society.

*Free translation *Free translation

31

Mexico: National Program on Accountability, Transparency, and Fighting Corruption 2008-2012* Priorities and Arguments g g p

Through accountability and transparency, and by deliberately opening up access to information, it is possible to limit opportunities for irregularities and corruption. However, although significant progress has been made, some areas are not yet completely transparent, specifically operational regulations and the use of federal program expenditures, such as subsidies, donations, trusts, and public contracting processes. With regard to public contracting, we need only to consider that 22% of the annual expenditures budget is designated to this area in order to see the significant impact on the country’s economic activity. A study conducted by the Monterrey Technological Institute of Higher Education indicated that for each public contract granted in Mexico, there are extra-official payments of 8.5%, and an additional 5% must be added for administrative bureaucracy. *Free translation

32

Selected Anti-Corruption Legislation in Mexico g

Federal Penal Code Chapter X – Bribery* Article 222. – The following are guilty of the crime of bribery: p y (Amended 5 January 1983)

I. Any public servant who directly or indirectly requests or improperly receives, for himself or for some third party, money or any other gift, or accepts a promise in order to do or not do something just or unjust

g g y y

accepts a promise, in order to do or not do something just or unjust related to his official functions, and II. Whoever freely gives or offers money or any other gift to any of the persons mentioned in the preceding subsection in order for any public persons mentioned in the preceding subsection, in order for any public servant to do or not do a just act or an unjust act related to his official functions.

*Free translation

33

Free translation

Selected Anti-Corruption Legislation in Mexico

The following sanctions shall be imposed on whoever commits the crime of bribery:

g

Article 222. – (Cont’d)*

g p y (Amended 23 August 2005) When the amount or value of the gift or promise does not exceed the equivalent of 500 times the minimum daily wage prevailing in the Distrito Federal at the time of the crime, or when the value is not quantifiable [the sanction shall be]: between three months and two years of prison; between 30 and 300 days' fine; and between three th d t f di lifi ti f f i th bli j b ibilit ffi months and two years of disqualification from performing any other public job, responsibility or office. When the amount or value of the gift, promise, or consideration exceeds 500 times the minimum daily wage prevailing in the Distrito Federal at the time of the crime, [the sanction shall be]: between two and 14 years of prison; between 300 and 1000 days' fine, and between two and 14 years of disqualification from performing any

• ther public job responsibility or office
• ther public job, responsibility or office.

In no case shall the money or gifts paid be returned to those responsible for the crime of bribery. Rather, said money or gifts shall be applied for the benefit of the State. *F t l ti *Free translation

34

Selected Anti-Corruption Legislation in Mexico

Federal Penal Code – Chapter XI* (Added 17 May 1999) Bribery of Foreign Public Servants

Article 222 bis - The penalties provided in the preceding article shall be imposed on whomever, with the intention of obtaining or retaining by himself or for other persons improper advantages in the obtaining or conducting international commercial transactions, offers, promises, or gives, either directly or indirectly, money or any other gift, whether in goods or in services: I. To a foreign public servant or such public servant's designee, in order that the said public servant perform or not perform the processing

• r resolution of matters related to functions inherent in his job, responsibility or office;

II. A foreign public servant or such public servant's designee, in order that the said public servant carry out the processing or resolution of any matter beyond the scope of the functions inherent in his job, responsibility or office; or

• III. Any person in order that that person appear before a foreign public servant and require or propose that the latter carry out the processing
• r resolution of any matter related to the functions inherent in his job, responsibilities, or office.

For purposes of this article, a foreign or public servant is defined as any person who performs a job, charge, or office, in the legislative, executive, or judicial branches of government or in an autonomous public instrumentality at any level of government, of a foreign state, whether appointed or elected; any person who exercises functions for any authority, instrumentality, or enterprise of a foreign country pp ; y p y y, y, p g y that is public or involves state participation; and any official or agent of an international body or public organization. *Free translation

35

Secretaría de la Función Pública (Ministry of Public Administration) Press Release*

• No. 56/2010

12 November 2010

SFP Highlights to Multilateral Organization the Exponential Increase in Number of Corruption Prosecutions

The change of strategy within the SFP for combating corruption has resulted in administrative sanctions and criminal prosecutions of more than 1,700 public servants this year.This statistic implies that, in the first 11 months

• f the year, the SFP prosecuted more than twice the number of public servants as were prosecuted in the entire 25-

year history of the agency. . . . [Subsecretary of the SFP, Rogelio Carbajal Tejada], explained that, in addition to the change in strategy, this result stems from the legal reforms that have been undertaken with respect to the Federal Law on Administrative Liabilities of Public Servants; from the Penal Code, with regard to crimes committed by members of the public service; and from the creation of investigative proceedings within the SFP. He explained that these results do not necessarily imply an increase in corruption, but rather, that practices to combat corruption are improving. Similarly, he maintained that the statistics were also due to the increased collaboration between private citizens and the agency, which translates into an increase in the number of charges of corruption. *Free translation

36

The FCPA in Mexico: Lindsey Manufacturing’s Alleged Dealings with the CFA g g

• CFE is Mexico’s state-owned electrical power monopoly.

I O t b 2010 Li d M f t i C (A C lif i ) d t ti i di t d f

• In October 2010, Lindsey Manufacturing Co. (Azusa, California) and two executives were indicted for

alleged roles in conspiring to pay bribes to CFE officials – in connection with sales of the Company’s emergency restoration systems and other equipment.

• Lindsey allegedly paid the bribes through agents in Mexico.
• Lindsey allegedly paid agent a 30 percent commission on all the goods and services Lindsey sold to
• CFE. Lindsey allegedly understood that all or part of the 30 percent commission would be used to pay

bribes to Mexican officials in exchange for CFE awarding contracts. The costs of goods and services sold to CFE allegedly were increased by 30 percent to ensure that the added cost of paying the agent was absorbed by CFE was absorbed by CFE.

• The agent allegedly caused fraudulent invoices to be submitted to Lindsey Manufacturing for 30 percent
• f the contract price. Lindsey then allegedly caused the money requested in the fraudulent invoices to

be wired into the agent’s brokerage account, knowing the funds were being used as bribes.

• Agent allegedly laundered the money in its brokerage account to make concealed payments for the

benefit of CFE officials: a yacht for approximately $1.8 million, a Ferrari for $297,500, $170,000 worth of American Express bills, and approximately $600,000 allegedly sent to relatives of a CFE official.

37

PERU

38

Bertelsmann Transformation Index 2010 – Peru Country Report Peru Country Report

While corrupt officeholders are increasingly prosecuted under established laws, they can still slip through political legal or procedural loopholes Impartial prosecution and can still slip through political, legal or procedural loopholes. Impartial prosecution and penalties for abuse of office are not generally practiced in Peruvian politics. These problems are even more pronounced at the subnational levels of administration. Nevertheless, since the Fujimori and Montesinos era, political society, civic actors and the public have become highly sensitized to corruption in politics Hundreds of people the public have become highly sensitized to corruption in politics. Hundreds of people have been prosecuted for corruption, including many former government officials, businessmen, mass media owners and high-ranking officers. The public considers the fight against corruption to be the most crucial aspect of good governance. Survey d t f LAPOP l th t b t 76% f P i i t i d i ti data from LAPOP reveal that about 76% of Peruvians interviewed conceive corruption as high, while 27% report to have been a victim of corruption.

39

Bertelsmann Transformation Index 2010 – Peru Country Report (cont’d) Peru Country Report (cont d)

The 5th National Survey on Corruption [was] presented by the National Council for Public Ethics (Proética) in December 2008, which is approvingly cited in the government’s National Plan to Fight C ti f l t D b 2008 A di t th 57% f th i t i d i Li Corruption from late December 2008. According to the survey, 57% of those interviewed in Lima and 52% in the provinces consider corruption to be the principal hurdle to development in the

• country. The primary forms of corruption are: bribery (39%), theft (13%), illicit acts in general (10%),

acting for own profit (6%), embezzlement (6%), and the misuse of power and authority (5%). Respondents view the most corrupt institutions to be the judiciary (61%) the national police (53%) Respondents view the most corrupt institutions to be the judiciary (61%), the national police (53%), and Congress (47%) – only 8% consider the armed forces to be the most corrupt. When asked to evaluate the effectiveness of the state’s anti-corruption system, 49% of respondents deemed it ineffective, 38% sparsely effective, and only 11% stated it is somewhat or very effective. An

• verwhelming majority of respondents (92%) claim that they do not file charges in cases of
• verwhelming majority of respondents (92%) claim that they do not file charges in cases of
• corruption. The reasons stated include fear of retribution (24%), belief that doing so is pointless

(20%), or an inability to prove the case (15%). Peruvians also see a general lack of respect for the law as a factor fostering corruption: 79% believe that laws are not obeyed in Peru, while only 16% believe that they are followed.

40

U.S. Department of State 2010 Investment Climate Statement - Peru 2010 Investment Climate Statement Peru

U.S. firms have reported problems directly resulting from corruption, usually in government procurement processes and in the judicial sector, but the revelation in late 2000 of abroad and deep corruption ring organized by former presidential advisor Vladimiro Montesinos heightened f th bl T I t ti l k d P b 75 ( t f 180 awareness of the problem. Transparency International ranked Peru number 75 (out of 180 countries) in its 2009 Corruption Perception Index. While anti-corruption efforts have been a stated priority of both the Toledo and Garcia Governments, in practice most resources are directed at investigating Fujimori-era corruption. In 2001, President Toledo appointed an anti- corruption “czar” to lead government efforts but this official resigned in 2002 The Judge corruption czar to lead government efforts, but this official resigned in 2002. The Judge Carolina Lizarraga was appointed in October 2007 as the head of the newly created National Office for Anti-Corruption, but she resigned in July 2008. Private sector groups have increased efforts to combat corruption through an NGO called “ProEtica,” which represents Transparency International in Peru. In October 2008, a kickback scandal involving a member of the ruling party d f i il l d t th l t f P id t G i ’ P i Mi i t d th and a foreign oil company led to the replacement of President Garcia’s Prime Minister and the changing of five other cabinet members, although investigators have not established that the Prime Minister was involved in the scandal.

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Peruvian Penal Code*

Section IV: Corruption of Officials

An official or public servant who requests or accepts a gift, promise, or any other advantage to perform or to omit an act in violation of his obligations or who accepts them in exchange for dereliction of his duty shall be sanctioned with incarceration for not less than three nor more than six

Article 393 – Cohecho propio

y years.

Article 394 – Cohecho impropio

An official or public servant who requests or accepts a gift, promise, or any other advantage in p q p g , p , y g exchange for performing one of his official functions, without dereliction of duty, shall be sanctioned with incarceration for not less than two years nor more than four years.

Article 395 – Passive Corruption

A magistrate, arbitrator, prosecutor, expert, or member of an administrative tribunal or any analogous official that requests and/or accepts a gift, promise, or other advantage, knowing that it is given for the purpose of influencing the decision in a matter that is within his cognizance, shall be sanctioned with incarceration for not less than six nor more than 15 years, and disqualification [from public service] in accordance with sections 1, 2, and 4 of Article 36 of the Penal Code and with from 180 days to 360 days’ fine . . . .

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*Free translation

Peruvian Penal Code*

Article 397 – Improper Exploitation of Office

Section IV: Corruption of Officials – (Cont’d)

p p p

The official or public servant who improperly, either directly or indirectly, or by any contrivance obtains a personal interest in any contract or operation in which he is involved by virtue of his office, shall be sanctioned with incarceration for not less than two nor more than five years..

Article 398 – Active Corruption Article 398 Active Corruption

Whoever gives a gift, promise, or other advantage to a magistrate, arbitrator, prosecutor, member of an administrative tribunal, or any analogous official, with the object of influencing the decision in a pending suit, shall be sanctioned with incarceration for not less than three nor more than eight years. When the gift, promise, or other advantage is made to a witness, expert, translator, or interpreter, the penalty shall be not less than two nor more than four years.

Article 399 – Active Corruption of an Official

Whoever attempts to corrupt an official or public servant with gifts, promises, or advantages of any kind so that he acts or refrains from taking some action, in violation of his duties, shall be sanctioned with incarceration for not less than three nor more than five g , , years. If the actor attempts to corrupt the official or public servant so as to induce him to act or refrain from taking some action, not in dereliction of his duty, the penalty shall be not less than two nor more than four years. *Free translation

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Free translation

ECUADOR

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Bertelsmann Transformation Index 2010 – Ecuador Country Report Ecuador Country Report

Ecuador is in the midst of a historically unprecedented process. Over the last two years a series of institutional changes have Over the last two years, a series of institutional changes have

• ccurred and the governing elites have practically been replaced.

This is all part of a model that questions liberal democracy and market economics proposing “socialism of the 21st century” as an market economics, proposing socialism of the 21 century as an

• alternative. At the head of this process is President Rafael Correa,

who until less than three years ago was virtually unknown. Yet, in the course of becoming a well known figure in Ecuador he has the course of becoming a well-known figure in Ecuador, he has been able to connect with the majority of the electorate. Correa’s style is very similar to that of classic Latin American populists; he is an individualistic and charismatic leader with a black and white is an individualistic and charismatic leader with a black-and-white, deeply moral vision of politics (which he reduces to a struggle between good and bad). He enjoys relatively high levels of support (about 70%)

45

support (about 70%)

Bertelsmann Transformation Index 2010 – Ecuador Country Report – (Cont’d)

Fulfilling on of his campaign promises, President Correa has made efforts to combat corruption, including the creation of a secretariat for this purpose. An oversight function was included in the 2008 constitution with the creation of the Council for Citizen

• Participation. However, in the last two years, a series of acts of corruption have been

denounced involving members of the government. Those implicated have not been tried with the necessary speed, despite the number of complaints against them, which in some cases even include various documents as evidence. The government has made great g g efforts to combat what it calls the “corruption of businessmen” and has accelerated embargo procedures (without always respecting due process) against bankers responsible for the bankruptcy of the financial system that occurred at the beginning of the decade. Multinational companies operating in Ecuador have also been challenged. The most p p g g famous case involved a Brazilian construction company in charge of constructing a hydroelectric powers plant. The unilateral cessation of the contract and the government’s unwillingness to negotiate led to the withdrawal of Brazil’s ambassador from Ecuador. As a result of his style of government, President Correa does not respect the processes of y g , p p public contracts.

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The FCPA in Ecuador: Willbros International

• Willbros, a publicly-traded company, provides construction, engineering and
• ther services in the oil and gas industry, and conducts international
• perations through WII
• perations through WII.
• On May 14, 2008, Willbros and WII entered into a deferred prosecution

agreement with the Department of Justice and agreed to pay a $22 million criminal penalty in connection with corrupt payments to Nigerian and criminal penalty in connection with corrupt payments to Nigerian and Ecuadorian government officials in violation of the FCPA.

• As part of the agreement, Willbros and WII agreed to cooperate with the

Department in its ongoing investigation Department in its ongoing investigation.

• Several WII executives were prosecuted, and ultimately pleaded guilty, to

violations of the FCPA including making at least $300,000 in corrupt payments to Ecuadorian government officials affiliated with PetroEcuador payments to Ecuadorian government officials affiliated with PetroEcuador and PetroCommercial, for the purpose of obtaining and retaining business for Willbros, WII and others, including a pipeline rehabilitation project in Santo Domingo.

47 NB1:808409 v2

Questions?

• Ms. Isabel Galvao Bueno C. Franco

Koury Lopes Advogados y p g Phone: +55 11 3799 8189 ifranco@klalaw.com.br Marcus Salvato Quintanilla O'Melveny & Myers LLP Office: (949) 823-6986 MQ i t ill @OMM MQuintanilla@OMM.com James G. Tillen Miller & Chevalier Chartered Miller & Chevalier Chartered Phone: 202-626-6068 jtillen@milchev.com

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