corporate compliance and enforcement trends
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Corporate Compliance and enforcement trends Anticorruption & Anti Money Laundering in Latin America. Guillermo Jorge Partner Jorge & Dassen Consulting Sao Paulo, Brazil, May 9, 2008. [email protected]. 1. Anticorruption. OAS Anticorruption Convention - PowerPoint PPT PresentationTRANSCRIPT
Corporate Compliance and enforcement trends
Anticorruption & Anti Money Laundering in Latin America
Guillermo JorgePartnerJorge & Dassen ConsultingSao Paulo, Brazil, May 9, 2008. [email protected]
1. Anticorruption
OAS Anticorruption Convention– Assets Disclosure policies for public officials
– Access to public information
– Loosely conflict of interests laws
– Financing political parties
– Anticorruption offices
– Some updates in criminal offences
• Most remain “in the books”
• Enforcement of criminal law or administrative fines has been random or “politically” exercised
The shift brought by the global anticorruption campaign
The end of the “geographic morality” rule Corruption and bribery are wrong, but inevitable / unavoidable in the South A citizen of the North can engage in acts of corruption in the South, without any moral or
legal condemnation to those acts in its jurisdiction
Market oriented version (Nye, 1967) – Corruption might help with capital formation
– Corruption might help to cut red tape
– Corruption might encourage entrepreneurship
Political version (Merton, 1968)– Corruption allows the integration of groups who
otherwise would not be able to participate in the political process
New Northem Approach to corruption
NORTH
SOUTH
The OECDGovernments
The BusinessCommunity
InternationalFinancial
Institutions
Civil society / TI chapters
1994: 5 1994: 5 chapterschapters
1997: 49 1997: 49 chapterschapters
New New DemocraciesDemocracies
Trends in FCPA Enforcement: Criminal Charges – DOJ Activity
FCPA DOJ Reported Investigations 1977-2007
0
20
40
60
80
DOJ
1977-87 1987-97 1997-2007 Ongoing
Source: Sherman & Sterling FCPA Report 2008
1. Increasing aggressive investigations
• Over Foreign subsidiaries
• Over foreign and domestic subsidiaries of a foreign parent corporation
Geographic distribution of FCPA Actions 2000-2006
Source: Kroll Global Fraud Report. FCPA, June 2007
17%
Source: Kroll Global Fraud Report. FCPA, June 2007
Trends in FCPA Enforcement -SEC Activity
0
2
4
6
8
10
12
14
16
18
1995-2000
2000-2005
2006
2007
2. Increasing Regulatory sanctions
• Against a company because of its distributors’ conduct (InVision).
• Books and records charges if the business purpose requirement is not satisfied. (Bristow Group Inc).
Source: Sherman & Sterling FCPA Report 2008
FCPA Trends
3. Increased penalties
Parallel Litigation
Securities Shareholders claiming to have purchased their shares at inflated prices
ERISA Employees whose pensions include company shares
Derivative Actions
Shareholders to recover for alleged wrongdoing by officers and directors
Competitors For having obtained business through bribes
International Arbitration (ICSID)
Foreign sovereigns against companies accused of bribing officials
Whistle blowing
Former employees for “blowing the whistle” on bribery or for refusal to violate the FCPA.
Combined penalties 2006-2007
Baker Hughes $ 44 million
Vetco (Korean subs.)
$ 26 million
Chevron $ 30 million
York Intl. $ 22 million
Statoil ASA $ 21 million
Schnitzer Steel $ 15 million
FCPA Trends
4. Parallel Litigation Risks
OECD Convention Enforcement
• Peer review mechanism
• Tour de table mechanism
G-7 CurrentInvestigations
4
12
24
5
None
16
Latin America foreign corruption investigation
Other CurrentInvestigations
8
4
2
4
2
G-7 countries
How are companies facing these new risks?
• Implementing Effective Compliance Programs
– System of internal controls –aligned with existing internal auditing controls!
– Establish ethics policy and procedures –and enforce them!
– Senior management involving –not only in the books!
– Apply the program to agents, consultants, representatives and other intermediaries –without exceptions!
– Ongoing training of personnel –aligned with HHRR incentives!
– Implement a whistle blowing system –and protect those who makes disclosures!
– Implement a “Red flag” system
– Include “termination provisions” in written agreements if other parties fail to comply
How are companies facing these risks?
• Perform specific anti-bribery due diligence– In relationships with intermediaries
– In any M & A process –avoid successor liability!
• Respond quickly to potential violations– Have an Effective crisis management plan
• Notify appropriate internal parties immediately
• Begin an internal investigation and a fact finding process
• Stop payments to suspected involved parties
– Hire independent counsel – Preserve business reputation
5. Deferred prosecution in exchange of improving compliance programs
2005-2007
M & A Due Diligence
6. Voluntary Disclosure following internal investigations
Source: Sherman & Sterling FCPA Report 2008 Source: Sherman & Sterling FCPA Report 2008
Incentives to increase compliance
2. Anti Money Laundering Risks
• Unlike anticorruption efforts, Latin American countries are more prepared to detect transactions involving proceeds of (any) crime.
– FIUs networks –Egmont Group– STR systems –Increasing compliance with reporting requirements
• In addition, USA Patriot Act Section 319– US Banks must respond DOJ, DOT and regulatory authorities including
• Foreign deposits
• Deposits at foreign branches or subsidiaries even in any currency
– Deposits into foreign banks are considered deposits into any bank account the bank may have in the US
• Freezing orders can be made in a US bank against the equivalent of funds deposited in an overseas account of a foreign bank that maintains a correspondent account in the US.
• Example: X deposit R$ 100,000 in a Brazilian bank in Sao Paulo. The Brazilian bank has a correspondent account in USD with the Brazilian branch in New York. The US Government can restrain equivalent amount in dollars from the NY branch.
Anti-money laundering risks
• OFAC programs– Blacklisted terrorists, traffickers -and all their front companies!
– US Banks main responsibility for compliance with OFAC policies
• Brazilian company A instructs its local bank to wire USD 1 million to a Thailand supplier’s bank account at “Thai First National Bank”. Local bank instructs its correspondent in NY to make the payment.
• The NY correspondent bank FREEZE the transaction because while Thailand is not a blocked country, it is believe that “Thai First National Bank” is believed by OFAC to be a front company of the Burmese Government, blacklisted under OFAC.
• The funds may remain frozen in spite of allegations nobody was involved in illicit activity.
• The US correspondent bank is prohibited from advising the Brazilian company that the transfer may face OFAC problems.
Conclusions
• In spite of Latin American modest progress in the area of anti-corruption, there are serious legal, commercial and damage-reputation risks associated with improper payments to public officials
• Anti-money laundering institutions have been growing fast and healthy in Latin America.
• Financial information is no longer secret or beyond law enforcement
• Sound compliance programs & “effective crisis management plans” have been the most effective respond to these new challenges.
Muito Obrigado!
www.jorge-dassen.com