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

Foreign Corrupt Practices Act in Latin America

Implementing FCPA Compliance Programs and Mitigating Legal Risks

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TUES DAY, FEBRUARY 14, 2012

Presenting a live 90-minute webinar with interactive Q&A

Jay Holtmeier, Partner, Wilmer Cutler Pickering Hale and Dorr, New Y

• rk

Matteson Ellis, Founder/ Principal, Matteson Ellis Law, Washington, D.C. Matthew J. Feeley, S hareholder, Buchanan Ingersoll & Rooney, Miami

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Foreign Corrupt Practices Act in Latin America: Enforcement Developments and Trends

February 14, 2012 Jay Holtmeier Wilmer Cutler Pickering Hale and Dorr LLP

WilmerHale 5

Key FCPA Trend: Increased Enforcement

– FCPA enforcement activity has been exploding over the past several years. Over 150 pending enforcement matters with DOJ and SEC. – The DOJ, FBI, and SEC have increased their FCPA resources:

• SEC formed specialized nationwide

FCPA enforcement unit in 2010

• Increased coordination among DOJ,

SEC, and foreign enforcement authorities

• FBI has doubled the number of agents

in its FCPA unit

• Use of aggressive law enforcement

techniques (informants, stings, wiretaps)

– Increased focus on charges against individuals.

10 20 30 40 50 60 70 80 90 2004 2005 2006 2007 2008 2009 2010 2011

Reported FCPA Proceedings

WilmerHale 6

Siemens (2008) $800 KBR/Halliburton (2009) $579 BAE Systems (2010) $400 Snamprogetti/ENI (2010) $365 Technip (2010) $338 JGC (2011) $219 Daimler (2010) $185 Alcatel-Lucent (2010) $137 Magyar Telekom/Deutsche Telekom (2011) $95 Panalpina (2010) $82

Top 10 FCPA Settlements (millions)

• The magnitude of penalties is increasing
• The third through tenth largest collective FCPA settlements all occurred in the

past two years (including some with Latin American components).

Key FCPA Trend: Increased Penalties

WilmerHale 7

Key Trend: Increased Focus on Individuals

– DOJ has stated that the prosecution of individuals, particularly senior executives, is an enforcement priority

• “Our focus on individuals will not change.” Deputy Chief, Fraud Section,

Head of FCPA Unit (November 8, 2011)

• “The prospect of significant prison sentences for individuals should

make clear to every corporate executive, every board member, and every sales agent that we will seek to hold you personally accountable for FCPA violations. As we focus on the prosecution of individuals, we will not shy away from tough prosecutions, and we will not shy away from trials.” Chief of the DOJ Criminal Division (2009)

• “The department has made the prosecution of individuals a critical part
• f its FCPA enforcement strategy. We understand well that it is an

important and effective deterrent.” Deputy Assistant Attorney General of the DOJ Criminal Division (2010)

– Longest FCPA-related prison sentence ever: 15 years (Oct. 2011, Haiti Telco case) – Charges brought against numerous Siemens employees and agents in connection with bribery in Argentina (Dec. 2011)

WilmerHale 8

Key Trend: Increase in Judicial Opinions -- Definition of “Foreign Official”

• Two recent court opinions, Lindsey Manufacturing and Carson, out of

C.D. Cal., clarify that key FCPA term “instrumentalities” includes state-

• wned companies.
• In Lindsey Manufacturing, prosecutors alleged that the defendants

bribed employees at the Mexican government-owned electricity utility Comisión Federal de Electricidad (“CFE”). See also, US v. O’Shea.

• In Carson, the government charged the defendants with paying bribes to

government-owned (and non-government owned) oil and power companies in China, Korea, Malaysia, and the UAE.

• Courts found sufficient government nexus to conclude that companies

were “instrumentalities,” and therefore their employees were “foreign

• fficials.”

WilmerHale 9

Definition of “Foreign Official” (cont’d)

• Opinions looked to non-exclusive factors that assess both level of

governmental ownership and control, such as: – Entity is financed, at least in large measure, through government appropriations or taxes – Entity provides services to citizens of country – Key officers/directors are or appointed by government officials – Entity is vested with and exercises exclusive or controlling power to administer its designated functions – Entity is widely perceived to be performing governmental functions

WilmerHale 10

Recent FCPA Cases Involving Latin America

• Bridgestone (Sept. 2011): Mexico – payments to Mexican state

employees; anti-trust issues

• Ball Corporation (Mar. 2011): Argentina – payments to customs officials
• Tyson Foods, Inc. (Feb. 2011): Mexico – payments to Mexican state

employees

• Alcatel-Lucent (Dec. 2010): Costa Rica – payments through

intermediaries

• Pride Int’l./Panalpina (Nov. 2010): Mexico, Venezuela, Brazil – payments

through intermediaries

• ABB Ltd. (Sept. 2010): Mexico – payments through intermediaries

WilmerHale 11

Lessons From Recent Cases: Bridgestone (Mexico and Other Latin American Countries)

Intersection of FCPA and Anti-trust:

• In Sept. 2011, Bridgestone, a Tokyo-based manufacturer of marine hose

(used to transfer oil between tankers and oil storage facilities) and other industrial products, agreed to plead guilty to conspiring to violate the Sherman Act and the FCPA by conspiring to rig bids, fix prices, and allocate market share of marine hose, and conspiring to make corrupt payments to government officials in Latin America to obtain and keep business.

• DOJ asserted jurisdiction over the Tokyo manufacturer based on the

allegation that emails or faxes were sent to or from Japan to the United States in connection with the bribery scheme.

• DOJ agreed to a substantially-reduced fine of $28 million, in part

because of Bridgestone’s cooperation with investigations, conducting a worldwide internal investigation, analyzing and providing voluminous evidence and information to DOJ, and undertaking extensive remediation efforts and committing to enhance its compliance program and internal controls.

WilmerHale 12

Lessons From Recent Cases: Ball Corp. (Argentina)

Merger & Acquisition Risk:

• In Mar. 2011, Ball Corporation (“Ball”), a Colorado-based household

product manufacturer, settled SEC civil charges that it had violated the FCPA’s books and records and internal controls provisions.

• Ball discovered that the target had made improper payments to customs
• fficials. Despite knowledge of the improper payments, Ball neglected to

implement post-acquisition internal controls designed to detect and prevent such payments.

• Its Argentinean subsidiary continued to make over $100,000 in payments

to Argentinean customs officers and payments were disguised on the subsidiary’s books and records as legitimate customs expenses; president and vice president of subsidiary allegedly aware of improper payments and bookkeeping.

• The Ball settlement is a reminder that acquirers should conduct sufficient

due diligence prior to closing and that due diligence findings should not be ignored. Post-closing integration of the new business into the parent compliance program is also a key component of M&A process.

WilmerHale 13

Lessons From Recent Cases: Tyson Foods,

• Inc. (Mexico)

Interactions with government officials in licensing and permitting:

• In Feb. 2011, Tyson Foods, Inc. settled criminal and civil FCPA charges

related to conduct that occurred in its wholly owned Mexican subsidiary, which made $90,000 in payments to Mexican state-employed veterinarians who were involved in certifying Tyson food products for export.

• A payment scheme was established whereby the veterinarians’ wives

were included on the subsidiary’s payroll and fictitious invoices were submitted for payment by one of the veterinarians.

• Tyson agreed to disgorge to the SEC $1.2 million in illgotten gains and

prejudgment interest. It resolved criminal charges with DOJ through a two-year DPA, agreed to pay a $4 million criminal fine, and agreed to report on its compliance program twice a year. In announcing the settlement, Assistant Attorney General Breuer cited Tyson’s voluntary disclosure of the misconduct, a comprehensive internal investigation, cooperation with government regulators, and remedial measures.

WilmerHale 14

Lessons From Recent Cases: Alcatel-Lucent (Costa Rica, Honduras, Nicaragua & Ecuador)

Third-party risk (consultants):

• In Dec. 2010, Alcatel-Lucent, a French telecommunications company,

and three of its subsidiaries agreed to pay a $92 million penalty to resolve FCPA criminal charges based on the companies making improper payments to foreign officials in Costa Rica, Honduras, Malaysia, and Taiwan.

• The DOJ alleged an Alcatel subsidiary won three contracts in Costa Rica

worth more than $300 million as a result of wiring an $18 million payment to two consultants the company retained in Costa Rica, half of which was passed on to Costa Rican government officials. The DOJ alleged similar schemes in Honduras and Taiwan, and noted that the consultants involved–each of whom received significant sums of money– had no previous telecom experience before being hired as consultants.

• Parallel investigation in Costa Rica.

WilmerHale 15

Lessons From Recent Cases: Pride Int’l. and Panalpina (Brazil)

Customs, duties and imports risk:

• On November 4, 2010, Panalpina, a freight forwarding company based

in Switzerland, and Pride International, a Houston-based oil and gas service provider, both settled charges with the DOJ and SEC on the same day in matters related to Panalpina’s improper payments to government officials in Nigeria, Angola, Brazil, Russia and Kazakhstan.

• The improper payments were made to obtain preferential customs,

duties, and import treatment for Panalpina’s customers in connection with international freight shipments.

• Panalpina admitted that it paid thousands of bribes totaling over $27

million to foreign officials in order to circumvent local rules and regulations relating to import of materials into foreign jurisdictions. Panalpina agreed to pay a $70.56 million penalty and to plead guilty to FCPA antibribery charges. Panalpina also paid $11.3 million in disgorgement to settle SEC civil charges.

WilmerHale 16

Lessons From Recent Cases: Pride Int’l. and Panalpina (Brazil)

Customs, duties and imports risk continued:

• Notably, Panalpina was not an issuer for FCPA purposes, but the SEC

asserted jurisdiction over the company on the basis that it had aided issuers in violating the FCPA’s accounting provisions and had acted as the agent for issuers violating those provisions.

• Pride International was a customer of Panalpina’s, as were four other

companies that settled on the same day. Pride International was charged with violations of the antibribery and books and records provisions of the FCPA, and it agreed to pay a $32.6 million criminal penalty to resolve the charges. Pride International also paid $23.5 million in disgorgement to settle SEC civil charges.

WilmerHale 17

Lessons From Recent Cases: ABB Ltd. (Mexico)

Third-party risk (sales representatives):

• In September 2010, ABB Ltd., a Swiss corporation and the world’s

largest builder of power grids, and two of its subsidiaries agreed to pay $19 million in criminal penalties to resolve FCPA charges with the DOJ based on alleged misconduct in Mexico and Jordan.

• A federal judge reduced the fine ABB was required to pay by $11.4

million and reportedly chastised the government for characterizing the company as a repeat bribe-maker. The judge noted that, although ABB had admitted to FCPA violations several years earlier, he was reluctant to view the company as recidivist based on the isolated actions of a few individuals.

• ABB also agreed to pay more than $39 million to settle parallel charges

with the SEC. The company’s US subsidiary pleaded guilty to charges under the FCPA’s antibribery provisions, admitting that one of its business units in Sugar Land, Texas paid bribes totaling $1.9 million to

• fficials at Mexico’s CFE (the same state-owned utility as in the Lindsey

case).

WilmerHale 18

Lessons From Recent Cases: ABB Ltd. (Mexico)

Third-party risk (sales representatives) continued:

• The bribe payments were made through various intermediaries, including

a Mexican company that served as ABB’s sales representative in Mexico.

• In return for the payments, the US subsidiary received contracts worth

more than $81 million. ABB voluntarily disclosed the payments to the DOJ.

• Separately, ABB’s Jordanian subsidiary was charged with conspiracy to

commit fraud and to violate the books and records provisions of the

• FCPA. The DOJ alleged that the subsidiary paid more than $300,000 in

kickbacks to the former Iraqi government under the United Nations Oil- for-Food Program in order to secure contracts with various Iraqi energy agencies, and that the subsidiary received 11 purchase orders for goods and equipment worth more than $5.9 million.

WilmerHale 19

Lessons From Recent Cases: Warwick & Jumet (Panama)

Construction & Engineering:

• On February 10, 2010, John Warwick pleaded guilty to one count of

conspiring to violate the FCPA by paying bribes to former Panamanian government officials for the purpose of securing business for Ports Engineering Consultants Corporation (PECC).

• PECC, a company incorporated under the laws of Panama, was affiliated

with Overman Associates, an engineering firm based in Virginia Beach. According to the indictment, PECC was created so that Warwick, co- conspirator Charles Jumet, the engineering firm, and others could corruptly obtain maritime contracts to maintain buoys and lighthouses from the Panamanian government.

• Warwick and Jumet were alleged to have paid bribes to Panamanian
• fficials between 1997 and 2003. Warwick agreed to forfeit $331,000

and was sentenced to 37 months in prison. Jumet was sentenced to 87 months in prison after pleading guilty to paying bribes and making false statements to the FBI.

WilmerHale 20

Notable Cases: Siemens (Argentina, Venezuela, & Mexico)

Infrastructure & Transportation:

• Separate investigations and prosecutions by U.S. and German authorities working

together to review Siemens operations in virtually all areas of its international

• business. U.S. criminal fine of $450 million and civil disgorgement of $350 million in
• profits. German criminal fine of an additional $800 million for total pay-out of $1.6
• billion. Siemens AG and various subsidiaries pleaded guilty to violations of the

anti-bribery, books and records, and internal controls provisions of the FCPA.

• Criminal information alleged systematic efforts to falsify books and records and

knowing failure to implement internal controls allowed for over $800 million in corrupt payments (and a total of $1.4 billion in fraudulently recorded transactions) to foreign officials through various payment mechanisms including “cash desks” and “slush funds.”

• Siemens Argentina and Siemens Venezuela separately pleaded guilty to corrupt

payments to government officials in connection with large government projects and

• licenses. Siemens Mexico was named in the SEC complaint for making payments

to a highly politically connected business consultant knowing that some portion of the payment would be passed on to employees of a government-owned natural gas corporation.

WilmerHale 21

Notable Cases: Willbros (Ecuador & Bolivia)

Petro-chemical:

• In May 2008, the DOJ and SEC alleged that Willbros Group Inc., a

construction and engineering company, paid $300,000 to Ecuadoran government officials of the state-owned oil company, PetroEcuador, and its subsidiary, PetroComercial. In return, Willbros received a $3 million contract for the Santo Domingo Project, a rehabilitation of a major gas pipeline.

• Willbros was also charged with tax fraud in Bolivia and paying bribes to

employees of a joint venture majority-owned by the Nigerian government.

• As part of the settlement, Willbros paid $32 million in penalties.
• Guilty plea by one individual; SEC settlements with others.

WilmerHale 22

Notable Cases: Nature’s Sunshine (Brazil)

Pharmaceutical and Nutrition Industry:

• On July 31, 2009, Nature's Sunshine Products Inc. (“NSP”), a

manufacturer of nutritional and personal care items, reached a settlement with the SEC in connection with charges involving alleged cash payments made by NSP's Brazilian subsidiary to Brazilian customs

• fficials in 2000 and 2001. NSP agreed to pay a civil penalty of

$600,000.

• Two NSP officers reached individual settlements with the SEC, under

which they were charged with “control person” liability, despite no allegations in the SEC charging papers that the officers had personal knowledge of the improper conduct.

WilmerHale 23

FCPA Cases in Latin America

Argentina Haiti Bolivia Honduras Brazil Jamaica Chile Mexico Colombia Nicaragua Costa Rica Panama Dominican Republic Venezuela Ecuador

WilmerHale 24

Jay Holtmeier Wilmer Cutler Pickering Hale and Dorr LLP (212) 295-6413 jay.holtmeier@wilmerhale.com

DOING BUSINESS IN LATIN AMERICA

Common Bribery Risk Factors

Matteson Ellis International Anti-Corruption Attorney Founder & Principal, Matteson Ellis Law PLLC Washington, DC

Editor, FCPAméricas Blog Strafford Publications FCPA in Latin America Webinar February 14, 2012

25

UNDERSTANDING LOCAL BRIBERY RISK VARIATIONS

IN LATIN AMERICA

26

• Risk factors can vary by country (and region)
• Concentration of Wealth / Power
• Urban / Rural Divide
• Sector -Specific Divide
• Importance of Risk Assessments and Local Expertise

LEGAL REGIMES

27

• Civil law / code system
• Opaque, multi-layered regulatory frameworks
• World Bank Doing Business 2012 Report ranks

Latin American countries, on average, in bottom half worldwide for regulatory quality.

• Implications for FCPA compliance programs
• Example

FAMILY-OWNED BUSINESSES

28

• Common occurrence in Latin American countries
• Structural reasons
• Implications for FCPA compliance
• Acquisition due diligence
• Third party due diligence
• Example

BROAD CULTURAL ISSUES & FCPA RISK

29

• Business investment in personal relationships and

its boundaries

• Legal drafting styles and effective translations of

compliance documents

• “Radio Pasillo”: what you do not know
• Example

PETTY CORRUPTION

30

• Transparency International:
• Almost 1 in every 4 Latin Americans reports having paid a bribe

to a low-level official over a one-year period.

• Out of 26 countries, Mexico is 3rd highest on Bribe Payers Index,

Brazil is tied for 5th.

• Implications for business: police, visas, low-level registrations, etc.
• Tip of the iceberg
• Example

THANK YOU

Matteson Ellis Founder/Principal matt@MattesonEllisLaw.com 1.855.FCPA.LAW www.MattesonEllisLaw.com

31

Best Practices for Mitigating FCPA Risk

• Compliance Program
• Due Diligence
• Identified FCPA Violations

Matthew J. Feeley Miami

33

Compliance Program

• Why?

▫ Prevent FCPA violations ▫ Evidence of commitment to ethics may help avoid prosecution or reduce penalty

34

Compliance Program

• Begin With Baseline Risk Assessment

▫ Contact with potential “government officials” & “SOEs” ▫ Use of consultants, agents, and distributors ▫ licensing, permitting ▫ Past or ongoing noncompliance ▫ Local culture ▫ Industry reputation

35

Compliance Program

36

Compliance Program

37

Compliance Program

• Local Culture

▫ Brazil: sophisticated bribery and kick-back schemes; high level of government regulation allows for corruption opportunities ▫ Venezuela: traditionally high corruption, in part, due to petroleum industry and centralization of government ▫ Chile: relatively low corruption; confidence in government and transparency

38

Compliance Program

• Industry Reputation – Examples of High

Risk

▫ Public works contracts and construction ▫ Utilities ▫ Real estate ▫ Mining ▫ Power generation and transmission ▫ Pharmaceutical and healthcare

39

Compliance Program

• Identify Control Function

▫ Tone at the top is imperative ▫ Senior management ▫ Depending on scope, consider compliance

• fficer that directly reports to Board’s audit

committee

40

Compliance Program

• Integral Components

▫ Education and training ▫ Due diligence in relation to pertinent business function (consultants/distributors/agents) ▫ Monitoring ▫ Accurate financial record keeping (books and records)

– Particularly in regard to travel and entertainment expenses – Train finance staff – Precise entries – Retain documents – Perform periodic audits in high-risk markets

41

Compliance Program

• Integral Components (Cont.)

▫ Mechanism for reporting violations (e.g. whistleblower hotline)

– Must consult local laws

▫ Facilitation payments ▫ Integration with local laws ▫ Documentation

42

Compliance Program

• Written Policy

▫ Describe law and manner in which company will comply ▫ How relationships with third parties will be structured ▫ Clearly worded and translated into local language

43

Compliance Program

• Education and Training

▫ Integral component of any compliance program ▫ Draw on initial risk assessment information on local culture; craft training to be culturally sensitive and to directly reference local anti-corruption laws ▫ Written documentation in local language

– Summary of FCPA – FAQ – Other guides (permissible foreign payments, dealing with minor foreign officials, etc.)

▫ Provision of a “helpline”

44

Compliance Program

• Education and Training (Cont.)

▫ Presentations/Seminars

– Live or video/computer based – “Real world” hypotheticals to fit business model – Written certifications from employees

▫ Specific guidelines for gifts, travel end entertainment ▫ Training of business partners ▫ Definition of “foreign official” & SOE

45

Compliance Program

46

Compliance Program

• Monitoring

▫ Regularly scheduled ▫ Review of policies and procedures ▫ Identification of sensitive individuals/functions ▫ Interviewing and spot audits ▫ Review of education and training

47

Due Diligence

• Third Party Relationships

▫ Charles E. Duross, Deputy Chief, Fraud Section, Criminal Division, U.S. Department of Justice, November 8, 2011: “Third party risk still remains most significant FCPA risk.”

48

Due Diligence

• Third Party Relationships (Cont.)

▫ Agents, consultants & distributors ▫ Local reputation/background check ▫ FCPA certification ▫ Provision of sample contracts/contract language

49

Due Diligence

• Merger & Acquisition Context

▫ Protect against “Successor Liability” ▫ Inform valuation ▫ How

– Evaluate targets’ existing systems and controls – Analyze target’s environmental risk – Specific audit

▫ Risk can be managed by

– adjusting deal price – allocating responsibility for potential fines – indemnification agreements

50

Identified FCPA Violations

• Self-Assessment

▫ Internal investigation (in-house and/or outside counsel) ▫ Knowledge ▫ Scope/depth

51

Identified FCPA Violations

• Management of Potential

Whistleblowers

▫ Increased importance due to Dodd-Frank and SEC Whistleblower Office ▫ (http://www.sec.gov/whistleblower) ▫ Monetary payment of 10%-30% of any sanction greater than $1,000,000 ▫ If you determine you want self-reporting credit, it may be a race to report between you and whistleblower

52

Identified FCPA Violations

• Decide Whether to Self-report

▫ Fact specific determination ▫ Enforcement authorities encourage self- reporting

– Attempting to find a way to publicize declinations; – Increased use of NPAs and DPAs – Increasing amount of enforcement actions that are not fruit of self-reporting

53

Identified FCPA Violations

• Always

▫ Consistently follow discipline protocol in compliance program ▫ Remediate ▫ Documentation – particularly important if you decline to self-report. If you are ever “called to the carpet” by enforcement authorities, you will want to be able to demonstrate your investigation and remediation ▫ If you do self-report, engage with enforcement authorities

Matthew J. Feeley Miami Matthew.feeley@bipc.com 305-347-5794 http://www.bipc.com/matthew-j-feeley/