1. Kyiv Anti-Corruption Seminar Steve Huggard and Antonio Suarez-Martinez Partners, EDWARDS WILDMANOleh Marchenko, Partner, and Andriy Guck, Senior Associate, MARCHENKO DANEVYCH 2013 Edwards Wildman Palmer LLP & Edwards Wildman Palmer UK LLP

2. Overview TheUS FCPA regime TheUK Bribery Act Ukrainian Whyanti-corruption lawsimportant to Ukrainian companies? Compliance Whatshould you do if you find a problem?2 3. The Key Provisions of the US FCPA TheForeign Corrupt Practices Act makes it illegal for any U.S. person or company or anyone acting on their behalf (whether U.S. person or not) or for any issuer (whether U.S. entity or not) to bribe a foreign official or foreign political party for the purpose of obtaining or retaining business TheFCPA also applies to foreign companies and persons if an act in furtherance of the corrupt payment took place in the U.S. TheFCPA prohibits not only direct payments, but also any payments made through any intermediary to a foreign government official 3 4. What Constitutes a Bribe? Payment, offer of payment, promise to pay, or authorization to payMoney or anything of valueCorruptly or with Improper PurposeTo a foreign official or third parties while knowing that all or a portion will be used by the third party for the prohibited activities4 5. What Does Anything of Value Mean? TheFCPA prohibits the giving (directly or indirectly) of anything of value, not just money Ittherefore applies to gifts, charitable donations, travel expenses, goods or services, loans, excessive entertainment, or other personal or financial favors for the foreign official or any member of his or her family TheFCPA also includes favors such as political or charitable donations (the favor does not have to be explicitly requested)5 6. Limited Exception - Facilitating Payments Ordinarily and commonly performed by a foreign officialNot intended to influence the exercise of discretion by the foreign officialNominal amount and is made for the sole purpose of facilitating, expediting or securing the performance of a non-discretionary routine act to which Company is entitledBe very careful before authorizing these it is a very limited exception 7. Limited Exception - Facilitating Payments (continued) These include: Obtaining permits, licenses, or other official documents; Processing papers such as visas and work orders; Providing police protection, mail pick-up and delivery, or scheduling inspections associated with contract performance or inspections related to transit of goods; Providing telephone service, power and water supply, loading and unloading cargo, or protecting perishable products from deterioration; or Actions of a similar nature May not be permitted under local law Not permitted under anti corruption laws enacted by many countries Not permitted under Ukrainian law 8. What Does Improper Purpose or Corruptly Mean? An improper purpose includes: to obtain or retain business to direct business to another person or firm to obtain any other unfair advantage, such as: tax exemption or benefit reclassification or under valuation for customs purposes issuance of license or permit government concession, franchise, or contract waiver of penalties for non-compliance with law facilitating VAT refund even if a company (exporter) is entitled to VAT refund under the law (e.g. Alfred C. Toepfer International and ADM investigations)8 9. What Does Knowledge of Improper Purpose Mean? Knowledgecan be demonstrated where a party is aware of:an improper paymentcircumstances for an improper payment existan improper payment is substantially certain to occur9 10. Who Are Government Officials? Anemployee of a government agency A legislator A member of a political party A candidate for political office A member of a royal family who has government official responsibilities An official or employee of a state-controlled or state-owned business enterprise (including doctors in government hospitals) A consultant acting for or on behalf of a government or government agent A public international organisation 10 11. Travel and Entertainment Certainexpenses including but not limited to gifts, business entertainment, payment of travel expenses, lodging, meals, charitable contributions, educational or employment opportunities and/or assumption or forgiveness of debt may be treated as "bribes" under relevant laws and the FCPA, as a thing of value, if offered or given in order to obtain an improper business advantage11 12. Permissible Payments for Travel and Entertainment Payments,gifts, offers or promises of anything of value that are reasonable and bona fide expenditures, such as travel or lodging expenses incurred by or on behalf of a foreign official, and directly related to: the promotion, demonstration or explanation of products or services; orthe execution or performance of a contract will not constitute a bribe.12 13. Permissible Payments for Travel and Entertainment? (continued) All expenses should be: moderate or reasonablecompany representative presentcontemporaneous with event (directly related to promotion of product or execution of contract) and appropriate balance between business purpose and the entertainment and leisure activitiesdecision-Maker alone; no spouses, children etc.transparentexpenses supported by appropriate receipts13 14. Bribes Paid with Employee Funds Are Still Bribes It is not okay to pay the bribe out of your own pocket (the Company will still get in trouble, and so will you).Dont be the reason the Company gets in trouble 14 15. Accounting Provisions (US) You are required to: keep books and detailed records that accurately reflect the transaction and disposition of corporate assets devise and maintain an adequate system of internal accounting controls: ensure transactions are executed in accordance with managements general or specific authorization ensure transactions are recorded to permit preparation of financial statements in conformity with generally accepted accounting principles, and to maintain accountability for assets Applies only to issuers15 16. What Anti-Corruption Due Diligence is Required for Mergers and Acquisitions? Aims of due diligence = proportionality ensure target business is sound and value not distorted by bribery identify early whether any bribery exposure ensure no successor liability provide basis for negotiating future penalties if wrongdoing uncovered provide basis for monitoring target to ensure quality of anti-bribery programmeConducting due diligence initiating the processappoint manager to lead anti-bribery component initial assessment of target and scoping of exercise develop timetable initial screening identify anti-bribery programme first discussion with target identify immediate risks and red flags 16 17. What Anti-Corruption Due Diligence is Required for Mergers and Acquisitions? (continued) Detailedanalysis review of targets markets and competitors corporate intelligence and background checks examine targets anti-bribery programme interview management and key personnel and assess tone from the top external interviews and site visits review data room detailed financial review Report and Decision Post-acquisition Due Diligence17 18. Public Tenders Good practice review procurement laws and comply carefully review tender documents, award criteria and ensure reasonable and level playing field check for any conflicts of interest Pitfalls how do you respond to requests for civic improvements? identify and clarify decision-maker query if sole individual gifts and hospitality check for any conflicts of interests use of middlemen 18 19. Training and Compliance Are Essential Thegovernments of the US and UK are looking for companies that have a culture of compliance. USgovernment says training should occur from the board room to the supply room. Employeesneed to be trained and counseled and encouraged to ask questions.19 20. Who Enforces These Laws in the US, UK and Ukraine? The UK Serious Fraud Office SFO attitude to self-reporting changed in October 2012 more pressure to self-report quickly advantages to full investigation and self-reporting Future Deferred Prosecution Agreements prosecutions inevitable; SFO under pressure to deliver20 21. Who Enforces These Laws in the UK, US and Ukraine? (continued) The USDepartment of Justice/Securities & Exchange Commission they work both parallel and in tandem US Govt believes that you should self report at the first hint of trouble Most companies prefer to know something about the facts first Very interested in patterns, large cases, and cases where management ignored red flags Also very interested in books and record cases US21 22. Who Enforces These Laws in the UK, US and Ukraine? (continued) Ukraine Public Prosecution Office, including coordination of efforts of all enforcement agenciesOrganized Crimes Department of Interior MinistryCorruption and Organized Crimes Department of State Security ServiceMinistry of Justice responsible for coordination of anticorruption strategies 22 23. UK Bribery Law? Consolidated scheme of offencesCovers private and public sector briberyIntroduced five criminal offences on July 1, 2011 requesting, agreeing to receive or accepting a bribebribing a foreign public officialnew offence of the failure of a commercial organisation to prevent bribery offering, promising or giving a bribedirectors and managers: ignoring or consenting to a bribeOrganisation must implement, maintain and enforce effective anti-bribery policies, systems and controls23 24. Who is Covered? Worldwide reach will apply wherever the bribe is paidLiability for bribe paid anywhere in worldLiability (failing to prevent bribery) for bribe paid anywhere in world by entity or individual performing services on its behalfApplies to: UK individuals (e.g. including all UK passport holders, including OTs etc) UK companies residents in the UK foreign companies carrying on business in the UK24 25. How is it Different from the FCPA? FCPA public FCPA does FCPA only UKsector onlynot prohibit facilitation paymentscriminalises active not passive briberyhas statutory defence of adequate procedures25 26. Ingredients of General Offences of Paying or Receiving a Bribe require improper performance of (widely-defined) function or activity Offences What is improper performance? breach of an obligation of good faith, impartiality or trust Improper performance judged by UK standards local custom or practice to be disregarded unless permitted by written law26 27. How Should You Respond to Requests for Facilitation Payments? Facilitationpayments are unlawful in the UK However,it is recognised that there is a defence of duress if payment is made to protect against loss to life, limb or liberty Bemindful of what payment is for and whether the amount requested is proportionate Askfor a receipt detailing the reason for payment27 28. UKBA: Failing to Prevent Bribery Adequate Procedures (Section 7 Corporate Offence) Government Guidance on adequate procedures: top-level commitment to prevent bribery risk assessment proportionate policies and procedures to deter and detect bribery due diligence on those performing services on behalf of an organisation (e.g. agents/intermediaries) communication and training of policies and procedures regular monitoring and review of policies/procedures28 29. Accounting Provisions (UK) 386-387 Companies Act failure to keep adequate accounting records Section Section17 Theft Act 1968 false accounting29 30. Deferred Prosecution Agreements DPAsintroduced on 25 April 2013 by Crime and Courts Act 2013 but not expected to be in force until early 2014 DPAs apply to corporates, partnerships or unincorporated association; not individuals DPAs apply to economic crimes including accounting fraud and bribery DPP and SFO joint Code for Prosecutors to be published in late 2013: guidance on principles to be applied in deciding whether DPA appropriate High level of judicial involvement increases risk of non-approval of DPA30 31. Ukrainian anti-corruption law (UACL) UACL, dated April 7, 2011 # 3206-VI Covers public and private sector briberyOffences under UACL offering, promising or giving a bribeaccepting a bribe or agreeing to a bribe (its offering or promise)bribing a foreign public official (including international organizations and foreign state-owned enterprises)31 32. Ukrainian anti-corruption law (UACL) Bribes Money or any other property, including services, any favours or benefitsGiven or accepted (including promises or offers and their acceptance) illegally, including any indirect dealings (e.g. through agents, vendors, resellers, legal representatives or any other related or unrelated intermediaries)32 33. Ukrainian anti-corruption law Who are public officials? an officer in any governmental agency (national or local) a legislator (national or local) a judge an officer of governmental enforcement agencies a tax officer an officer in any state owned entity or enterprise any person offering public services, including auditors, experts, arbitrators an officer in any foreign governmental agency, international organization, or foreign state-owned enterprise33 34. Ukrainian anti-corruption law Private Sector Offences Private sector offences under UACL offering, promising or giving a bribe to an officer or an employer of any company or any legal entity in Ukraineaccepting a bribe or agreeing to a bribe (its offering or promise) by an officer or an employee of any company or any legal entity in Ukraine34 35. Ukrainian anti-corruption law Exceptions UACL provide for very limited actions for giftsNo exception for facilitation payments, e.g.: to obtain licenses and permits to obtain timely VAT refunds to enforce a court decision35 36. Ukrainian anti-corruption law Liability Any money or property obtained as a result of a bribery are subject to confiscation by the state based on decision of a courtAny transaction entered into as a result of a bribery is void36 37. Ukrainian anti-corruption law Criminal Liability Bribing a public official, including officers of state-owned or municipally-owned enterprise, could result in jail of maximum 10 years and confiscation of personal propertyfrom September 1, 2014, a private legal entity would become criminally liable for bribes: maximum fine of UAH 1,275,00037 38. Ukrainian anti-corruption law Anti-Trust (Unfair Competition) Bribing public or private officials to obtain any commercial benefit in Ukraine, e.g. to win a public tender for lucrative contracts, could be treated as unfair competition violationUnfair competition violations are subject to a fine in Ukraine up to 5% of worldwide salesUnfair competition violations are enforced by the Anti-Monopoly Committee of Ukraine38 39. Why US FCPA and UKBA Important for Ukrainian Companies? Ukrainian company considers dealing with US or UK companies considers a joint venture with US or UK companies considers a future merger with US or UK companies considers listing its shares on US stock exchange considers business in the US or UKsame applies to dealings, joint venture or prospective mergers with any non-US or non-UK companies, which are subject to US FCPA or UKBA rules, including US listed companies same applies to affiliate of UK or UK companies39 40. Risk Areas Risk areas: uncontrolled use of cash inadequate control procedures payments to charities and public bodies payments to intermediaries, including distributors, vendors, resellers, legal representatives, especially if not commercially justified or close to any illegally obtained benefit (e.g. award of a public tender, VAT refund, etc.) payments to intermediaries in the US or US bank accounts of foreign intermediaries public tenders40 41. FCPA Investigations Alfred C. Toepfer International (Germany) / ADM (US) December 20, 2013, US DOJ Press-ReleaseACTI, German subsidiary of ADM, pleaded guilty ACTI agreed to pay USD 17 M in criminal fines to resolve charges that it paid bribes through vendors to Ukrainian government officials to obtain VAT refunds ADM failed to implement sufficient policies and procedures to prevent the bribe payments, although ultimately ADM disclosed the conduct, cooperated with the US government, and instituted extensive remedial efforts. DOJ entered into NPA with ADM ADM agreed to pay USD 36.5 M to the US SEC ADM and ACTI also agreed to cooperate with DOJ, to periodically report the companies compliance efforts, and to continue implementing enhanced compliance programs and internal controls designed to prevent and detect FCPA violations 41 42. FCPA Investigations Daimler AG and DaimlerChrysler Automotive Russia SAO (DCAR) April 1, 2010, the DOJ Press-ReleaseDaimler AG (Germany), and 3 of its subsidiaries, including DCAR, have resolved charges related to FCPA investigation by the US DOJ into the companys worldwide sales practices, and agreed to pay USD 93.6 M in criminal penalties DCAR admitted that it made improper payments to Russian federal and municipal government officials to secure contracts to sell vehicles by over-invoicing the customer and paying the excess amount back to the government officials, or to other designated third parties that provided no legitimate services to DCAR or Daimler AG. When requested, DCAR or Daimler AG employees caused the wire transfer of payments from Daimler AGs bank accounts in Germany to, among other destinations, U.S. and Latvian bank accounts held by shell companies with the understanding that the money, in whole or in part, was for the benefit of Russian government officials.42 43. Compliance How Do You Assess and Respond to Risk? Periodicassessment A risk assessment should consider risks that arise from: countriesbusiness sectorstypes of transaction involved inrelationships business conducted Appropriately resourced, identifying internal and external information sources allowing risk to be assessed Overseen by top level management Anti-Corruption and Bribery Policy 43 44. Compliance Who Should Run It? Commitmentfrom board of directors to preventing bribery and establishing correct culture Top-levelmanagement involved in development of bribery prevention procedures, risk assessment approval and communication of the organisations stance IndependentCompliance team to manage and report to theBoard? Awarenessfrom all levels of management and workforce44 45. Compliance: Third Parties, Agents, and the Need for Due Diligence FCPA/UKBAprohibit corrupt payments through intermediaries, including distributors, joint venture and agents Prior to using any third party agent, companies should: establish that the third party is not a foreign official establish that the third party is qualifiedevaluate the proposed compensationevaluate the reputation of the third partyinvestigate red flagsensure that any third party signs agreements that include antibribery provisions, and is aware of the FCPA and corporate policy45 46. Compliance Level of Training Proportionateprocedures Procedures embedded and understood in organisation Effective communication in high risk areas e.g. hospitality and charitable donations Tailored training to identified risks associated with specific positions and countries Policies and procedures should be monitored and reviewed Encouragement regarding raising concerns46 47. Whistleblowers? US perspective incentivised whistle-blowing Dodd-Frank law encourages whistleblowers. Very large rewards UK perspective no incentivised whistle-blowing yet adequate procedures protection of whistleblowers Public Interest Disclosure Act 1998 Ukraine perspective Criminal liability for failure to report bribery An individual failing to report could be treated as an accomplice47 48. Dodd-Frank Act Whistleblower Provisions: Section 922 Act amends the Securities Exchange Act and establishes a new whistleblower incentive program that provides monetary rewards between 10 and 30% to whistleblowers who report securities violations that lead to the recovery of sanctions exceeding $1 million in criminal and civil proceedings Amount received includes not only monies collected by the SEC, but also fines and penalties assessed by the DOJ, self-regulatory organizations and state Attorneys General Whistleblower provisions previously only covered insider trading violations and applied solely to civil penalties recovered and did not provide guaranteed minimum reward Dodd-Frank expands scope of conduct to include violations of Foreign Corrupt Practices Act (worldwide reach) 49. Whistleblower Provisions: Section 922 Original Information Original Information: Derived from independent knowledge or analysis Not previously know to the Commission Not derived from material uncovered in existing investigations, attorney or client communications, but there is a significant issue here over what the SEC can use with respect to a companys internal personnel and its communications with company personnel Cannot be obtained from publicly available sources, but question remains what about analysis of public information Does not have to be first hand account of information 50. Whistleblower Provisions: Section 922 Representation Whistleblowermay be represented by counsel through whom they can provide information anonymously Identityof whistleblower must be disclosed prior to payment of anyaward Claimsto the SEC must be filed under oath and subject to perjury charges (the SEC provides claim forms in the proposed rules) 51. What Should You Do if You Find a Problem? INVESTIGATION The three Cs:Confidence know the facts well enough to make an appropriate decision (2) Credibility vigorous investigation in good faith well documented (3) Cost balancing costs with need for confidence and credibility (1)51 52. Red Flags to Possible Violations Money passing through an agent or consultant to a foreign official or political leader to obtain certain actions Use of a consultant who is connected or affiliated with a foreign official or political leader Prior accusations involving the agent or consultant alleging improper business practices Requests that commissions or other payments be made in a third country or to another entity Requests that commission payments be made before public tender award decision Payments that appear to be higher than customary or standard rates Payments to persons outside the scope of a transaction Insistence by the foreign customer that a particular person be used as an intermediary 52 53. Conducting an Effective Investigation Initialchecklist terms of reference identify witnesses identify documents resources suspend potential wrongdoers costs insurer engage external/local lawyers or forensic accountants keep detailed record legal privilege Resources 53 54. Conducting an Effective Investigation (continued) Documents record of collation and review exercise types of documents and locations key custodians collation exercise storage review report People Issues tipping off interviewer what to tell the interviewee preparation record of interviews suspension of employee disciplinary process/termination of employment 54 55. Conducting an Effective Investigation (continued) Conclusionsrecording conclusions reporting to the Board Self-reporting Civil Litigation Follow-up compliance programme dismissal of employees PR (internal and external) 55 56. Who Should Run the Investigation? of investigators must be credible for management to have confidence in the results Senior Managers Non-Executive directors In-house Counsel/Compliance/Audit External lawyers External auditors Independence56 57. Data Protection Concerns Canbe problematic Data protection and privacy laws in each country need to be considered and obeyed Data may not be able to be removed from country Some countries, e.g. France, Germany and China, have markedly different laws when it comes to interviewing employees, reviewing documents and data, and removing investigation related materials from the country. Data may need to be reviewed in-country57 58. Self-Reporting UK New SFO guidance More pressure to self-report quickly Advantages to full investigation and self-reporting Will prospect of DPA incentivise self-reporting? US Encouraged to self-report as soon as become aware Usually, at least some investigation takes place first Whistleblower considerations Penalty considerations58 59. Conclusion Concludingremarks Questions59 60. Attorney Contact Information EDWARDS WILDMAN Stephen G. Huggard Partner +1 617 239 0769 shuggard@edwardswildman.com 111 Huntington Avenue Boston, MA 02199 United States Antonio Suarez-Martinez Partner +44 (0) 20 7556 4526 asuarez-martinez@edwardswildman.com Dashwood, 69 Old Broad Street London EC2M 1QS United Kingdom60 61. Attorney Contact Information MARCHENKO DANEVYCH Oleh Marchenko Partner +380 44 220 0711 oleh.marchenko@marchenkodanevych.com Office 49, 4-B, Ivana Franka Str. Kyiv, UkraineAndriy Guck Senior Associate +380 44 220 0711 andriy.guck@marchenkodanevych.com Office 49, 4-B, Ivana Franka Str. Kyiv, Ukraine61