FCPA background and main provisions

UK Bribery Act background and main provisions

Philippines local laws

Violation of laws - case studies

Enforcement actions

Legal and business issues

Compliance considerations

Q&A

The FCPA was enacted in 1977 following the Watergate Scandal in the U.S.

Purpose: To make it unlawful for certain classes of persons and entities to make

payments to foreign government officials to assist in obtaining or retaining business.

Two main provisions:

Anti-bribery provisions

Accountancy provisions

In general, prohibit: offering to pay, paying, promising to pay, or authorizing the payment

of money or anything of value to a foreign official in order to influence any act or decision

of the foreign official in his or her official capacity or to secure any other improper

advantage in order to obtain or retain business.

Applicable to:

ISSUERS Any company that is registered or required to file periodic reports with the

SEC, including any officer, director, employees, or agents of these

companies.

DOMESTIC

CONCERNS

PERSONS

ACTING IN U.S.

TERRITORY

Any individual who is a U.S. citizen, national, or resident.

Any business organization that has its principal place of business in the

U.S .or which is organized in the U.S.

Foreign persons and foreign non-issuer entities that, either directly or

through an agent, engage in any act in furtherance of a corrupt payment

while in U.S. territory.

CORRUPT INTENT Must intend to induce the recipient to misuse his

official position. Merely offering or authorizing a bribe

triggers liability under FCPA but intent must be

present

ANYTHING OF VALUE No minimum threshold. May take many forms e.g.

cash, travel expenses, expensive gifts. What is

modest in the U.S. could be more significant in other

countries

FOREIGN OFFICIAL Includes not only traditional government officials, but

also employees of state owned or state controlled

entities. This also applies to companies that are not

wholly owned by the foreign government

ACT WILLFULLY To be criminally liable under FCPA must act “willfully”.

Generally construed to mean an act committed

voluntarily & purposefully with a bad purpose in mind

DIRECT OR INDIRECT Benefit or promise may be made directly by company

or its staff to a foreign official or indirectly if given or

received by an intermediary on behalf of the relevant

parties

FCPA

Components

ACT WILFULLY

ANYTHING

OF VALUE

FOREIGN OFFICIAL

Books and Records Provision

Requires issuers to “make and keep books, records, and accounts,

which, in reasonable detail, accurately and fairly reflect the

transactions and dispositions of the assets of the issuer.

Internal Controls Provision

Issuers must devise and maintain a system of internal accounting

controls sufficient to provide reasonable assurance over

management’s control, authority, and responsibility over the firm’s

assets.

Facilitating or Expediting payments or “Grease payments”

Narrow exception for “facilitating or expediting payments” made in furtherance of routine

governmental action that involves non-discretionary acts.

Defenses

Two affirmative defenses:

“Local Law” defense: Payment was lawful under written laws of the foreign

country

“Reasonable and bona fide business expenditure” defense: Money was

spent as part of demonstrating a product or performing a contractual obligation

ACCOUNTANCY

PROVISIONS

Criminal

Fine up to $5 million or twice the gain

or loss caused by the violation and/or

imprisonment up to 20 years.

Civil

Greater of pecuniary gain to the

defendant as a result of the violations

or $5,000 to $100,000 fine.

ANTI-BRIBERY

PROVISIONS

Criminal

Up to $2 million fine or twice the gain or

loss caused by the violation.

Civil

Up to $10,000 fine.

COMPANIES

ANTI-BRIBERY

PROVISIONS

Criminal

Up to $250,000 fine

or twice the gain or loss caused by

the violation and/or imprisonment

up to 5 years.

Civil

Up to $10,000 fine.

ACCOUNTANCY

PROVISIONS

Criminal

Up to $25 million fine or twice

the gain or loss caused by the

violation.

Civil

Greater of pecuniary gain to

the defendant as a result of

the violations or $50,000 to

$500,000 fine.

No specific statute of limitations

For anti-bribery provisions a 5 year limitations period applies but may be extended:

− In cases involving conspiracies,

− By a tolling agreement,

− By up to 3 years in order to obtain evidence from foreign countries.

For civil actions for penalties a 5 year limitations period also applies but may be

extended:

− Where SEC brings actions for equitable relief or disgorgement of ill-gotten gains

− By a tolling agreement,

− In cases involving foreign individuals, the limitations period is tolled for any period

during which the individuals are not found within the U.S.

Recent cases reveal that the SEC continues to try to stretch the boundaries of the

statutory period.

The UK Bribery Act is a new anti-corruption framework for UK and came into effect on 1

July 2011

Purpose: To replace and bring together current bribery laws dating back to 1889. Wide-

ranging, covering both public and private sector, with extraterritorial reach.

SECTION 1

OFFENCE OF “BRIBING”

SECTION 2

OFFENCE OF BEING “BRIBED”

SECTION 6

OFFENCE OF BRIBERY OF

FOREIGN PUBLIC OFFICIALS

SECTION 7 CORPORATE OFFENCE OF FAILING TO

PREVENT BRIBE

• To induce improper performance of a relevant function; or

• Knowing or believing that the acceptance of the advantage

would itself “constitute the improper performance of a

relevant function or activity” (i.e. that the person was not

allowed to accept the bribe)

• With the intention of performing a relevant function

improperly where that conduct in itself constitutes improper

performance of a relevant function

• As a reward for improper performance of a relevant function

• With the intention to influence the Foreign Public Official to

obtain or retain business or a business advantage

• Unless Foreign Public Official is permitted or required by

written law to be influenced by such an advantage

A company can be prosecuted if:

• A portion of the company’s business is “carried on” in the UK;

and

• An employee or an “associated person” bribes in connection

with the company’s business

Applicability

Applicable where:

• part of the offence takes place in the UK; or

• committed by a person with a “close connection to the UK” (e.g. A British citizen,

citizens of overseas British territories, UK residents, UK incorporated businesses); or

• committed by associated person acting on behalf of company that carries on portion

of its business in the UK.

Penalties

Individuals:

• On summary conviction – imprisonment up to 12 months and capped fine.

• On indictment – imprisonment up to 10 years and unlimited fine.

Companies: Unlimited fine.

Companies who put in place Adequate Procedures to prevent bribery will have an

absolute defence to liability under the new law.

Proportionality The procedures should be proportionate to

the risk a business faces and the size of that

business.

Risk assessment The requirement that a commercial

organisation assesses the nature and

extent of its exposure to potential external

and internal risks of bribery.

Communication (including training) Bribery prevention policies and procedures

should be clear, practical and accessible.

Monitoring and review Monitoring follows implementation; be

dynamic – identify and address new risks as

they emerge.

Due diligence Of associated persons who perform or will

perform services on behalf of an

organisation.

Top level commitment Top-level management should foster a

culture within the organisation in which

bribery is not acceptable.

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Principal anti-bribery laws

• Revised Penal Code (Act No 3815) (RPC) − Bribery may be direct (Article 210), indirect (Article 211), or qualified (Article 211-A)

• Anti-Graft and Corrupt Practices Act (Republic Act No 3019) (ACPA). Lists specific

corrupt practices punishable. Include, but are not limited to a public officer: − Directly or indirectly requesting or receiving any gift, present, share, percentage, or benefit, for himself or for

any other person, in connection with any contract or transaction between the Government and any other

party, wherein the public officer in his official capacity has to intervene under the law (Section 3(b))

− Directly or indirectly requesting or receiving any gift, present, or other pecuniary or material benefit, for

himself or for another, from any person for whom the public officer, in any manner or capacity, has secured or

obtained, or will secure or obtain, any Government permit or licence, in consideration for the help given or to

be given... (Section 3(c))

− Accepting or having any member of his family accept employment in a private enterprise which has pending

official business with him during the pendency thereof or within one year after its termination (Section 3(d))

Other anti-bribery statutes

• Code of Conduct and Ethical Standards for Public Officials and Employees (COCES) − Imposes a criminal liability for solicitation or acceptance of gifts by public officers “in the course of their official

duties or in connection with any operation being regulated by or any transaction which may be affected by the

functions of their office” (Section 6(d) in relation to Section 11)

• Republic Act No 6713

Penalties

• Violations of anti-bribery laws in Philippines are criminal offences

• RPC can impose penalties of 2-8 years imprisonment (and fine of not less than value

of the gift for direct bribery)

− Penalty for a law enforcer who refrains from arresting/prosecuting an offender

who has committed a crime is punishable by 20 – 40 years imprisonment (i.e. the

penalty which would have been imposed on the offender themselves)

• ACPA penalty for public officers is imprisonment for not less than 6 years and 1 month

nor more than 15 years, perpetual disqualification from public office and confiscation

of wealth gained from corrupt practices

• COCES punishes solicitation or acceptance of gifts by public officers with up to 5

years imprisonment and/or fine of PhP5,000.

Defenses

• Subject to general defenses and mitigation measures under Philippine law such as

burden of proof, justifying and mitigating circumstances

Gifts and value of service

• No de minimis exceptions in terms of gifts or value of services

• Presidential Decree No 46 makes it an offence for “public officials and employees to

receive, and for private persons to give, gifts on any occasion, including Christmas”

• Plaques of appreciation and simple tokens of gratitude or friendship without the

intention to corrupt public officials/employees are excluded

• Exception also applies for unsolicited gifts or presents of small or insignificant value

are offered or given as mere ordinary tokens of gratitude or friendship, according to

local customs or usage.

Smith & Wesson (July 2014) – Fine of $1.9 million

• Authorized and made improper payments to foreign officials while trying to win contracts to supply

firearm products to military and law enforcement overseas.

• Attracted new business by offering, authorizing, or making illegal payments or providing gifts for

foreign government officials in Pakistan, Indonesia and other countries.

Allianz SE (Dec 2012) – Fine of $12.3 million

• Allianz subsidiary in Indonesia used “special purpose accounts’” to make illegal payments to

foreign officials to win insurance contracts.

• Improper payments were disguised in invoices as “overriding commission” for an agent that was

not associated with the government insurance contracts or structured as overpayments which were

subsequently “reimbursed”.

Diageo (July 2011) – Fine of $16 million

• Made hundreds of illicit payments to foreign government officials to obtain lucrative sales and tax

benefits relating to whiskeys, including in India, Thailand and South Korea.

Sustainable Agroenergy Plc

• August 2013 UK’s SFO bought first prosecution under UK Bribery Act. Trial due to commence 6

October 2014

• 3 former directors of Sustainable Agro Energy, and an affiliated financial advisor charged in

connection with an alleged ponzi scheme in which the defendants allegedly tricked UK investors

into purchasing shares in biofuel-related investments in Cambodia.

• 3 of them are also charged with making and accepting a financial advantage contrary to section

1(1) and 2(1) of the Act.

GlaxoSmithKline

• The UK’s SFO has launched a formal criminal investigation into GSK and its “commercial

practices”, understood to mean allegations of foreign bribery. GSK is also being investigated in a

number of other countries.

Match fixing case

• Two Singaporean nationals were charged under sections 1 and 2 of the Act (regarding the giving

and receiving of bribes) as well as conspiracy to commit bribery. Two other individuals were

charged under section 1 for giving bribes, and with conspiracy to commit bribery. One was charged

solely for giving a bribe.

• No details are publically available as to the scale of the payments, nor exactly when the events in

question took place.

KNOW YOUR

BUSINESS

PARTNERS &

VENDORS

STRONG

COMPLIANCE

PROGRAM

THIRD

PARTIES

RISK

EXPOSURE MERGERS &

ACQUISITIONS

• Due diligence

• Periodic compliance audits

• Code of Conduct buy-in

• Jurisdictional

• Internal – sales, logistics,

marketing department etc.

• Competitors

• Compliance culture

• Successor liability

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RISK-TAILORED & RISK-BASED PRE-EXISTING COMPLIANCE PROGRAM

Designed and tailored to specific business operations, geographies and corruption risk. Include mechanisms to

prevent & detect violations, adequate financial & accounting processes and adequate system of internal controls.

Pre-acquisition FCPA due diligence and post-closing compliance integration procedures.

TONE AT THE MIDDLE AND BOTTOM DEFINES EFFECTIVENESS OF TONE AT THE TOP

Companies and management must “walk the talk” and ensure that the high-level commitment of management is

reinforced and implemented by middle managers and employees at all levels of the enterprise.

SENIOR EXECUTIVE RESPONSIBILITY FOR COMPLIANCE

Responsibility should be assigned to someone with appropriate authority in the enterprise, adequate autonomy

and independence from management and sufficient resources – people and money –to get the job done.

THIRD PARTY COMPLIANCE IS ESSENTIAL

Risk-based, include purposeful and intelligently designed auditing and monitoring. Should include proactive testing

on economically significant and higher risk transactions, periodic right-to-audit clauses, reinforcement training and

communications tailored to different countries’ needs and periodic certifications from relevant business partners.

CONTROLLED SUBSIDIARIES, AFFILIATES AND JVs MUST BE TAKEN INTO ACCOUNT

Companies are responsible and will be held accountable for improper activity by or on behalf of controlled

subsidiaries, affiliates and joint ventures.

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NON-CONTROLLED AFFILIATES, JVs, DISTRIBUTORS AND DEALERS SHOULD BE CONSIDERED

Non-controlled affiliates, joint ventures, distributors and dealers should be included in the risk assessment and

compliance plan. Companies must use “best efforts” to influence these entities to adopt internal controls and other

compliance program elements.

FINANCIALLY IMMATERIAL TRANSACTIONS AND PAYMENTS MAY GIVE RISE TO MATERIAL LIABILITY

Seemingly inconsequential amounts paid by or on a company’s behalf may give rise to exposure. Companies

must think carefully about potential touch points and where any form of value may be transferred i.e. gifts,

entertainment, charitable contributions, licenses, permits, customs.

DOES COMPLIANCE PROGRAM WORK?

The ultimate test for an FCPA compliance program is “Does it work?” and companies must be prepared to prove

this. Companies should take a common-sense and pragmatic approach to evaluating the adequacy of pre-

existing compliance program.

PRIVATE COMPANIES ALSO HAVE RISK EXPOSURE

Private companies need to adopt and maintain the same level of strong internal controls and other compliance

program elements in the area of anti-corruption.

EXPANSIVE JURISDICTIONAL CONCEPTS

Foreign nationals and companies need to ensure they are aware of the increasingly expansive jurisdictional

concepts of anti-corruption laws and that they are in compliance.