Evaluating the Impact of Heightened Enforcement of Anti-Corruption Legislation Around the World on your D&O Policies; Experience to Date, What Coverages Are Available & What Insurers Are Looking For

May 28, 2013The 4th ABA Section of International Law & IBA Joint Conference

The U.S. Foreign Corrupt Practices Act (FCPA), 1977• Makes it a crime for a U.S. person to make any

corrupt payment to a foreign official for the purpose of obtaining or retaining business for or with any person or directing business to any person. A non-U.S. person is also subject to the FCPA if he, she, or it causes, directly or through agents, any act taking place in U.S. territory in furtherance of such a corrupt payment.

FCPA 15 U.S.C. ss. 78d-1 et seq.

UK Bribery Act 2010 Section 1 – Offence of Bribing Another Person

A person is guilty of bribery if such person offers, promises or give financial or other advantage, either directly or through a third party, intending the advantage to induce a person to perform improperly or to reward a person for improperly performing,

Section 6 -- Bribery of Foreign Officials A person is guilty of an offence under this section if that person

Directly or through a third party offers, promises or gives any financial or other advantage To a foreign public official

Section 7 – Failure of Commercial Organizations to Prevent Bribery

Section 12 Territorial Application of the UK Bribery Act Any act or omission which forms part of the offence takes place

in that part of the UK; If outside the UK would form part of such an offence if done or

made in the UK and such person has a close connection with the UK

The Bribery Act 2010 guide-The Ministry of Justice

Other Countries with Anti -bribery & Anticorruption Laws• Australia• Brazil• Canada• China• Colombia• Germany• Indonesia

• India• Israel• Mexico• Russia• Spain• Ukraine

“International Law News, Winter 2013, Vol42 No1.

Examples of Mega Judgments Worldwide - Cross Border

Siemens AG resolved FCPA charges with the Department of Justice, the Munich Public Prosecutor’s Office and the SEC with multiple guilty pleas and the payment of $1.6 billion in fines, penalties and disgorgement of profits, including $800 million to U.S. authorities and $800 million to German Authorities (12/15/08). This is the largest monetary sanction ever imposed in an FCPA case, according to DOJ

“SEC Action” , Dec 16, 2008

Examples of Mega Judgments In the US

Pfizer - SEC charged company with illegal payments made by its subsidiaries to foreign officials in Bulgaria, China, Croatia, Czech Republic, Italy, Kazakhstan, Russia, and Serbia to obtain regulatory approvals, - agreed to pay a combined $45 million in their settlements. (8/7/12)

Technip SA – SEC charged the Paris-based company for bribing Nigerian government officials over a 10-year period in order to win construction contracts worth more than $6 billion. Technip agreed to pay $338 million to settle SEC and criminal charges. (6/28/10)

DaimlerChrysler AG- SEC charged, Germany-based automobile manufacturer for paying bribes to foreign government officials to secure business in Asia, Africa, Eastern Europe, and the Middle East. Daimler paid $185 million to settle SEC and criminal charges. (4/1/10)

D&O Supplemental/FCPA Investigation Costs www.dosins.com

Examples of Mega Judgments Worldwide – By Non-US Regulators Canada: In 2011, Niko Resources Ltd. paid a $9.5 million fine

for violations of the CFPOA . It purportedly provided improper benefits to a foreign public official in Bangladesh to further its business objectives.

Greece:, Russia and Argentina: Siemens settled with Greece in the amount of €330 million in connection with bribery alleged to have occurred in Greece. It also paid $100 million to Russia in connection with a bribery investigation in that country and allegedly paid a similar amount to settle corruption allegations in Argentina.

England: Mr Yang Li, an overseas student and son of a Chinese government official, who had been studying for a Masters degree at the University of Bath, pleaded guilty to bribery under section 1 of the Act and possession of an imitation firearm.

Switzerland: The Alstom Group of France was ordered to pay in excess of $39 million in fines and disgorgement as a result of its failure to have proper procedures in place to prevent the bribery of foreign officials. Switzerland became the first European country to exercise extraterritorial jurisdiction against a foreign multinational.

International Law News, Winter 2013, Vol42 No1

Examples of Mega Investigative Fees and Costs

Wal-Mart incurred "$157 million in investigative costs related to an ongoing FCPA matter" in 2012r, and it expects to incur an additional "$40 to $45 million in costs.” Walmart Feb 21, 2013 Earnings Release, p. 3)

Wheatherford International reported that The DOJ and SEC are investigating its compliance with FCPA” and other laws worldwide. They have thus far incurred $123 million in costs.(Wheatherford 2011 Annual Report, p. AR-19)

  Avon Products spent approximately $95.3 million in 2010. The

increase was primarily attributable to professional and related fees associated with the FCPA investigation and compliance reviews.(Avon Products 2011 Annual Report, p. 36)

Insurance Coverage For Governmental Investigative and Regulatory Procedures

The Cases of:

Office Depot vs. National Union Fire Insurance Company of Pittsburgh PA

and

MBIA vs. Federal Insurance

A Typical Policy Definition of Claim • (b) “Claim” means:

(1) a written demand for monetary, non-monetary or injunctive relief;

(2) a civil, criminal, administrative, regulatory or arbitration proceeding for monetary, non-monetary or injunctive relief which is commenced by; (i) service of a complaint or similar pleading; (ii) return of an indictment, information or similar document (in the case of criminal proceeding); or (iii) receipt or filing of a notice of charges (emphasis added); or

(3) a civil, criminal, administrative or regulatory investigation of an Insured Person:

(i) once such Insured Person is identified in writing by such investigating authority as a person against whom a proceeding described in Definition (b)(2) may be commenced; or

(ii) in the case of an investigation by the SEC or a similar state or foreign governmental authority, after the service of a subpoena upon such Insured Person.

The term Claim shall include any Securities Claim and any Employment Practice Claim.

American International Companies. Form No. 75011 (2/00)

Definition of Securities Claim(y) “Securities Claim” means a Claim, other than an administrative or regulatory proceeding against, or investigation of an Organization, made against any insured:

 (1) alleging a violation of any federal, state, local or foreign regulation, rule or statute regulating securities (including but not limited to the purchase or sale or offer or solicitation of an offer to purchase or sell securities) which is:

(a) brought by any person or entity alleging, arising out of, based upon or attributable to the purchase or sale or offer or solicitation of any offer to purchase or sell any securities of an Organization; or

(b) brought by a security holder of an Organization with respect to such security holder’s interest in securities of such Organization; or

(2) brought derivatively on the behalf of an Organization by a security holder of such Organization.

  Notwithstanding the foregoing, the term “Securities Claim” shall include an administrative or

regulatory proceeding against an Organization but only if and only during the time that such proceeding is also commenced and continuously maintained against an Insured Person.

American International Companies. Form No. 75011 (2/00)

Definition of Securities Claim

“Securities Claims”

…a formal or informal administrative or regulatory proceeding or inquiry commenced by the filing of a notice of charges, formal or informal investigative order or similar document.

“Defense Costs,”

…(costs) incurred in defending or investigating Securities Claims.

Federal Insurance Company,As cited in:

MBIA INC. v. FEDERAL INS. CO.652 F.3d 152 (2011), -p156

Notice/Claim Reporting Provision

7. Notice/Claim Reporting Provisionsc) If during the Policy Period or the Discovery Period (if applicable) an

Organization or an Insured shall become aware of any circumstances which may reasonably be expected to give rise to a Claim being made against an Insured and shall give written notice to the Insurer of the q circumstances, the Wrongful Act allegations anticipated and the reasons for anticipating such a Claim, with full particulars as to dates, persons and entities involved, then a Claim which is subsequently made against such Insured and reported to the Insurer alleging, arising out of, based upon or attributable to such circumstances or alleging any Wrongful Act which is the same as or related to any Wrongful Act alleged or contained in such circumstances, shall be considered made at the times such notice of such circumstances was given.

American International Companies. Form No. 75011 (2/00)

Notice/Claim Reporting Provision

If, during the Policy Period, the Insureds first become aware of facts or

circumstances which may reasonably give rise to a future Claim covered under

this Policy, and if the Insureds give written notice to the Insurer during the

Policy Period of: … then any Claim which arises out of such Wrongful Act

shall be deemed to have been first made at the time such written notice was

received by the Insurer. No coverage is provided for fees, expenses and other

costs incurred prior to the time such Wrongful Act results in a Claim.

ACE Advantage ALL-20887 (10/06)

Notice/Claim Reporting Provision 7 “Notice/Claim Reporting Provisions”

(c) Relation Back to Reported Circumstances Which may Give Rise to a Claim

With respect to any subsequent Related Pre-Claim Inquiry, this policy shall not cover Loss incurred before such subsequent Related Pre-Claim Inquiry is actually received by an Insured Person, and with respect to any subsequent Related Claim, this policy shall not cover Loss incurred before such subsequent Related Claim is actually made against an Insured (emphasis added).

Chartis’s Executive Edge D&O Policy (104123(04/10)

Thank You!