uk bribery act and foreign corrupt practices update · uk bribery act is broader in scope than us...

UK Bribery Act and Foreign Corrupt Practices UpdateThe First Asia Pacific Pharmaceutical Congress and Best Practices Forum

September 14, 2011

Wendy Wysong Partner

Ing Loong YangPartner

http://www.sidley.com/

Clifford ChanceThe First Asia Pacific Pharmaceutical Congress and Best Practices Forum

Today’s agenda

Introduction to the UK Bribery Act

The continued importance of the FCPA

Recent FCPA enforcement developments:– Current FCPA Enforcement

Environment– Agents and Consultants– State Ownership and Foreign Officials– Expanded jurisdictional reach– Dodd-Frank Act– Continued FCPA focus in Asia– Focus on Pharmaceuticals

Managing the risk

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Transparency International Corruption Perception Index: 2010

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Singapore 1 9.3New Zealand 1 9.3Australia 8 8.7Hong Kong 13 8.4Japan 17 7.8Taiwan 33 5.8South Korea 39 5.4Macao 46 5.0Malaysia 56 4.4China 78 3.5Thailand 78 3.5India 87 3.3Indonesia 110 2.8Vietnam 116 2.7Myanmar 176 1.4

UK 20 7.6US 22 7.1


Why do companies in Asia Pacific Region need to care about US/UK laws?

Over 1/3 of all 2010 US FCPA investigations involved Asia (China, Malaysia, Taiwan, Thailand, Indonesia, Vietnam)

7/10 highest FCPA fines arose from conduct in Asia

UK Bribery Act is broader in scope than US FCPA

Broad extraterritorial jurisdiction, like US FCPA but: – Covers bribery in commercial sector as well as government– Covers bribe recipients, not just bribe payers– Adds corporate strict liability offense for failing to prevent bribes– No exemption for facilitation payments – No explicit exceptions given for gifts & hospitality

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Introduction to UK Bribery Act

It is a criminal offence to: give, promise or offer an advantage – 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”

request, agree to receive or accept an advantage– 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

bribe foreign public officials (widely defined)– with the intention to influence the FPO and– to obtain or retain business or a business advantage– unless FPO is permitted or required by written law to be

influenced by such an advantage

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Introduction to UK Bribery Act

It does not matter if advantage is offered, promised or given via a 3rd party

Advantage can be to a third person (in case of FPO, to another at the FPO’s request, assent or acquiescence)

Covers private/commercial bribery

Territorial application:part of the offence takes place in the UK; or

committed by a person with a “close connection to the UK” (e.g. – British citizen, citizens of overseas territories, UK residents, UK incorporated businesses

committed by associated person acting on behalf of company that carries on portion of its business in the UK for New Corporate Offense

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New Corporate Offence

New corporate offence of failure to prevent bribery by persons performing services for or on behalf of the organisation

A business can avoid conviction only if it can show that it has adequate procedures in place to prevent bribery

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

Strict liability offence subject only to a defence that the company has adequate systems and controls to prevent bribery

Will target “mavericks” and “real offenders” (Vivian Robinson, QC General Counsel, SFO)

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“Associated persons”

Persons who perform services for or on behalf of the companyEmployees (assumed)

Agents and subsidiaries

Consultants, joint venture partners

Consortia members

Franchisees

Probably not investee companies, private equity funds, borrowers, purchasers and suppliers of goods & assets

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“Carrying on Business” in the UK

MoJ Guidance:“demonstrable business presence” in the UK;

listing on the Official List of the UK Listing Authority would not of itself amount to carrying on business in the UK;

having a UK subsidiary will not, in itself, mean that the parent company is carrying on business in the UK;

but, ultimately, it is for the courts to decide.

Head of SFO (responsible for prosecuting Bribery Act offences) has made it clear that the SFO will push for an expansive interpretation of the phrase (and hence jurisdiction) where foreign companies win overseas business in competition with UK companies by paying bribes.

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MoJ Guidance on adequate procedures - 6 Principles

1. Proportionality - the procedures should be proportionate to the risk a business faces and the size of that business.2. Top level commitment – top-level management should foster a culture within the organisation in which bribery is not acceptable. 3. Risk assessment - the requirement that a commercial organisation assesses the nature and extent of its exposure to potential external and internal risks of bribery on its behalf and in relation to associated persons.

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4. Due diligence - of associated persons who perform or will perform services on behalf of an organisation. 5. Communication (including training) - bribery prevention policies and procedures should be clear, practical and accessible.6. Monitoring and review - monitoring follows implementation and any programme must of course be dynamic in the sense that it must identify and address new risks as they emerge.

Includes case studies and further information about the Act

Status of MoJ Guidance: not binding on courts

The First Asia Pacific Pharmaceutical Congress and Best Practices Forum

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Bribery Act FCPA

Extra-territorial UK residents, corps, citizensCorporate offence applies to all companies “carrying on business in the UK”

US residents, corps, and citizens US issuersNon-US persons where US connection or affect

Private Sector Yes Separate law

Facilitation Payments Not permitted* Exception for small scale payments

Third Parties Yes, if “associated persons” Yes, if knowing disregard

Books and Records No – but separate false accounting charge

Yes for US companies and US issuers

Compliance Program Adequate procedures defence Sentencing mitigation

Penalties 10 years imprisonment, unlimited fine 5/25 years, $2/5/25 million fine

Bribery Act -v- US FCPA

11The First Asia Pacific Pharmaceutical Congress and Best Practices Forum


Are facilitation payments permitted?

Under the FCPA, facilitation payments are permitted: Small payments

To government officials

To facilitate or expedite “routine governmental action”

To which the payer is entitled

OECD position: not prohibited but discouraged

Bribery Act: no definition or exemptionMoJ guidance: prohibited, but scope for prosecutorial discretion

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What is the position on corporate hospitality?

FCPA: exemption for reasonable gifts relating to the “promotion, demonstration, or explanation of products or services”

Bribery Act: silent on the issue

MoJ Guidance: not intended to prohibit “reasonable and proportionate hospitality and promotional or other similar expenditure” for the purposes of better presenting products/services and establishing cordial relations.

“in order to proceed with a case, the prosecution would need to show that the hospitality was intended to induce [improper conduct]”

(for FPO bribery) prosecution must show that “there is a sufficient connection between the advantage and the intention to influence and secure business or a business advantage”

But Guidance states that these matters can be inferred (for example, from the lavishness of hospitality)

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Continued Importance of the FCPA

Prohibits Companies from bribing “foreign officials” (Bribery Provisions)– influence any action (or failure to act) in his or its official capacity OR– induce any violation of the recipient's lawful duty OR– induce the foreign official to affect government action to assist a Company in obtaining, retaining or

directing business

Applies to non-US Companies who sell registered securities in the US or commit any act in furtherance of the bribe in the US

Requires all Companies that issue debt or equity in the US, including bonds and ADRs, to maintain internal accounting controls sufficient to ensure that their books and records accurately reflect all transactions (Books & Records Provisions)

Applies to a Company’s subsidiaries, officers, directors, employees and agents

Enforced both by the US Department of Justice (DOJ) and by the Securities and Exchange Commission (SEC)

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FCPA Enforcement Developments

Current FCPA Enforcement Environment

Agents and Consultants

State Ownership and Foreign Officials

Expanded Jurisdictional Reach

Dodd-Frank Act

Enforcement Focus on Asia

Enforcement Focus on Pharmaceuticals

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Special enforcement units at DOJ, SEC and FBIDozens of dedicated lawyers and agentsSEC alone will have more than 40 lawyers assigned to the FCPA unitCollaboration between U.S. agencies and with foreign governments

Use of traditional law enforcement toolsSearch warrants and sting operationsJan. 2010 – 22 individuals charged in massive FBI stingElectronic surveillance Cooperators (e.g., employees, competitors, other third parties)Detention of suspects and material witnesses

2011: Year of the TrialLindsey ManufacturingShot Show StingTerra Telecom


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Increased sharing of information between U.S. law enforcement agenciesAnti-bribery, economic sanctions, boycott, export control and securities violations could be examined stemming from one investigation

Focus on inadequate anti-corruption controls and compliance

M&A transactions – scrutiny of FCPA due diligence

“Voluntary” disclosures continueRepeated emphasis by U.S. governmentLocal government issue

Dramatic rise in U.S. enforcement actions

Record penalties and intrusive remedial actionsCorporate Monitors

“[W]e have become more sophisticated and aggressive in our pursuit – employing more undercover investigations and new technologies – the results have come to speak for themselves … 37 different corporations…in excess of $1.5 billion [in penalties] …80 individuals…[in last 6 years]. And the pace is accelerating.” Attorney General Holder (5-31- 10)


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More prosecutions of individuals“Let me be clear, prosecuting individuals is a cornerstone of our enforcement strategy…” Attorney General Holder (5-31-10)

Investigations targeted on particular industries and actorsCompetition disclosuresSpecialized knowledge by law enforcement as to the nature of schemes in particular industriesTargeting of multinationals that are linked to the same third party bad actor

Expansion of U.S. jurisdictionDOJ and SEC aggressively pursuing expansive jurisdictional theories



Increasingly Aggressive Assertion of Extraterritorial Jurisdiction

Siemens, KBR, Technip, Snamprogetti, Alcatel-Lucent (2008-10): USG has asserted that FCPA’s territorial provisions (corrupt use of any means of interstatecommerce while in US territory) confer jurisdiction over foreign bank transfers of US dollars that are cleared through correspondent accounts at U.S. banks.– Almost all dollar transactions are cleared through US correspondent banks.– This jurisdictional theory could apply to any foreign company wiring U.S. dollars to a foreign

individual or entity for purposes of paying a bribe.

Emails, telephone calls, and faxes.

Sharing financial information arising from bribery.

Panalpina (2010): Non-US issuer knowingly provided assistance to its issuer customers so it aided and abetted their FCPA violations

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Top Priority of DOJ and SECAttorney General Eric Holder has stated that the FCPA is “one of the highest priorities of the Department of Justice…The risk of heading to prison for bribery is real, from the boardroom to the warehouse.”– (5-31-2010)

DOJ Chief of Criminal Division, Lanny Breuer: “[T]he Department of Justice will be vigilant in holding companies and individuals who break the law accountable, not only through civil actions . . . but also by bringing criminal indictments if the facts and the law warrant.” (11-12-09)The FCPA enforcement is “Saving Lives” (referring to Pharma Sweep). FCPA DOJ Unit lawyer, Kate Hamann (5-17-10)SEC Enforcement Division Director, Robert Khuzami: Creation of the SEC “specialized unit” for FCPA will “permit us to be better investigators, because we will be more efficient and less likely to be misled by those who use complexity to conceal their misconduct. Specialization will also permit us to be more proactive…” (8-5-09)


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Agents, Sales Consultants, JV Partners

Alcotel-Lucent (12/10) $92 million finesTaiwan joint venture hired 2 consultants to pass payments and expensive gifts as well as travel to legislators to influence the award of a contract with Taiwanese Railway AdministrationMalaysia hired consultants to pass bribes to foreign officials to secure a telecommunications contract with Telekom Malaysia

Maxwell Technologies (1/11) $13.65 million finesSwiss subsidiary of US energy co. hired Chinese consultants who passed on bribes through inflated invoices to sell products in ChinaManagement response in 2002: “This is a well known issue. No more emails please”

JGC (4/11) $218.8 million finesJapanese engineering & construction firm , 1 of 4 JV partners, hired agents, including Japanese trading company, to pay bribes to Nigerian officialsNot US issuer, not US co., but aided & abetted, conspired and used correspondent bank accounts

Key PointsThird-party, separate legal entity is not a defenseDon’t ignore red flags such as high commissions, unusual payment patternsNo qualifications, no relevant market experience or knowledge, just connections



Definitions

Knowledge: Companies and Individuals can be charged based on consultants’ and agents’ acts committed within their “knowledge”– Defined very broadly, including when one knows an event is certain or likely to occur– Knowledge includes being "willfully blind" to an event, willful disregard (OSTRICH IN THE SAND)– Key issue for liability for actions of third-party agents, consultants, partners

Foreign official– Officers and Employees of non-US Government agencies and institutions– Persons acting in official capacity for non-US Government agencies and institutions– Political parties and political party officials– Employees of public international organizations– Trade associations?– Officers of non-US state-owned Companies– Companies substantially controlled by non-US Government

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State Ownership and Foreign Officials

FCPA prohibits corrupt payments to foreign officials, defined as:any officer, employee of a foreign government or any department, agency or instrumentality thereof, or …or any person acting in an official capacity for or on behalf of any such department, agency, or instrumentality, or for or on behalf of any such public international organization.

DOJ and US Courts say “instrumentality” includes state-owned business enterprises so employees of SOE’s regardless of rank = “foreign officials”

Key Factors:Percentage of ownership (wholly-owned v. 43% Telekom Malaysia)Entity function (public service)Key officers & directors are or are appointed by government officialsPublicly financed (taxes, license fees)Exclusive powersWebsite, publications, communications describe it as government agency

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Dodd-Frank Act New Whistleblower Provision

Enacted on July 21, 2010 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Provides financial incentives for whistleblowers to report alleged violations of the securities laws, including the FCPA.

Whistleblower can receive 10 to 30 percent of monetary sanctions collected in SEC enforcement and related actions (e.g., DOJ) resulting from the whistleblower’s “original information”.Program is intended “to motivate those with inside knowledge to come forward and assist the Government to identify and prosecute persons who have violated the securities laws and recover money for victims of financial fraud.”Contains anti-retaliation measures, including a private cause of action for alleged retaliation for disclosure of information.

Practical effect: Expected to increase the number of securities and FCPA enforcement actions and should be weighed in company’s decision whether to voluntarily disclose violations.



Continued Enforcement Focus on Asia

Publicized, precedent setting prosecutions with high fines (21)

Payments to SOE employees (8 of 9 cases since 2009)

Use of third party agents (7 cases)

Sponsored sightseeing/travel (7 cases)

Gifts (5 cases)

Currently pending disclosed cases (13)

DOJ/SEC know how companies operate in China

Past cases are a guide

Information gained in investigation of industry operations

Possible US/Asia enforcement cooperation

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DOJ Probe of the Pharmaceutical IndustryThe DOJ announced its industry-wide probe of the pharmaceutical industry in a series of speeches in late 2009 and 2010:

"The depth of government involvement in foreign health systems, combined with fierce industry competition and the closed nature of many public formularies, creates, in our view, a significant risk that corrupt payments will infect the process. Our remarkable FCPA unit and our terrific health care fraud unit will be working together to investigate FCPA violations in the pharmaceutical industry in an effort to maximize our ability to effectively enforce the law in this high-risk area."

November 2009 speech, the Assistant Attorney General of the Criminal Division of the DOJ, Lanny Breuer

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DOJ Probe of the Pharmaceutical Industry

“Our focus and resolve in the FCPA area will not abate, and we will be intensely focused on rooting out foreign bribery in [the pharmaceutical] industry. That will mean investigation and, if warranted, prosecution of corporations to be sure, but also investigation and prosecution of senior executives. Effective deterrence requires no less. Indeed, we firmly believe that for our enforcement efforts to have real deterrent effect, culpable individuals must be prosecuted and go to jail where the facts and the law warrant.”

Lanny A. Breuer, Prepared Keynote Address to the Tenth Annual Pharmaceutical Regulatory and Compliance Congress and Best Practices Forum, Nov. 12, 2009



Companies Under Investigation

The following companies (among others) have publicly stated that they have been contacted by the US Department of Justice and the Securities Exchange Commission:

GlaxoSmithKline,

Pfizer,

Bristol-Myers Squibb,

Merck ,

Astra Zeneca, and

Eli Lilly.

According to public information, the DOJ is particularly interested in corrupt payments that may have had the effect of influencing the reliability or integrity of data from clinical trial conducted outside of the United States

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Joint Commitment to Cooperation between the US DOJ and UK SFO

The pharmaceutical industry in UK has been warned not to “underestimate the amount of information sharing that goes on between us [SFO] and the DOJ and the SEC about all of these issues” – SFO Director Richard Alderman, November 2011

The SFO will be going after “big companies, with big pockets that are capable of engaging in big acts of bribery” – Richard Alderman, in an interview with The Telegraph

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Medical Suppliers in China: AGA Medical Corporation

June 2008: US Department of Justice entered into a deferred prosecution agreement with AGA

Allegations: AGA paid money through its Chinese distributor to doctors employed by government-run hospitals to induce them to purchase AGA’sproducts. These payments ranged from $300 to $1,000 per product. AGA also paid money to officials in the patent office to speed review of AGA’spatent application (over $20,000).

Alleged FCPA violations:– Conspiracy to violate the FCPA by making illegal payments to foreign officials.– Willful use of the means and instrumentalities of interstate commerce corruptly in furtherance of an

offer, payment, promise to pay, and the authorization of the payment of money to foreign officials.

Penalty:– AGA paid a penalty of $2,000,000 and agreed to undertake a review of its compliance policies by

an independent monitor.

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Medical Suppliers in China: DPC (Tianjin)

May 2005: Diagnostic Products Corporation (DPC) (Tianjin) entered into a plea agreement with the US Department of Justice

Allegations: DPC violated the FCPA by paying approximately $1.6 million in illegal “commissions” to physicians and laboratory personnel employed by government-owned hospitals in China to obtain or retain business in violation of the FCPA. DPC sold immunodiagnostic systems and immunochemistry kits.

Alleged FCPA violations:– Payment of improper commissions– Books and records provisions– Internal controls

SEC enforcement:– DPC was ordered by the SEC to cease and desist from violating the FCPA and to disgorge

approximately $2.8 million in ill-gotten gains.

Penalty: DPC was assessed a criminal penalty of $2,000,400, and must maintain a compliance program administered by an independent monitor.

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Control Person Liability: Nature’s Sunshine Products

August 2009: SEC settled enforcement action against Nature’s Sunshine Products (NSP), its CEO, and a former CFO.

Allegations: A Brazilian subsidiary made cash payments to customs brokers, some of which were later paid to customs officials, to import unregistered products into Brazil.

Alleged FCPA violations:– Books and records provisions of the FCPA

Alleged violations of other laws:– False filings with the SEC– Fraud in the sale of securities

First time SEC charged individuals (in this case the CEO and former CFO of the company) with control person liability as a result of the company's FCPA violations.

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Tips for ComplianceAnti-bribery program should address public and private sector corruption.

Assess the bribery risks of the relevant jurisdictions and markets

Policies should prohibit facilitation payments

Companies should be able to demonstrate they have carried out adequate due diligence on third-party business partners

Consider what further action may be necessary in relation to third parties (reps & warranties, review of compliance)

Review corporate hospitality and gifts policies

Review existing contractual provisions relating to dealings with FPOs, foreign governments and intermediaries

Ensure employees, particularly those at most risk, are fully aware of the relevant anti-bribery laws, and corporate compliance program

Review policies on charitable and political donations

Monitor compliance with their anti-bribery program and regularly revise as appropriate.


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Contact details

Wendy L. Wendy L. WysongWysong

Clifford Chance

28th Floor, Jardine House One Connaught Place, Hong Kong

Office: +852 2826 3460 Mobile: +852 9280 3612

And Clifford Chance US LLP 2001 K Street, NW Washington, DC 20006 Office: +1 202 912 5030 Mobile: +1 202 290 7634

[email protected]

IngIng LoongLoong YangYang

Sidley Austin

Level 39, Two Int’l Finance Centre, 8 Finance Street Central, Hong Kong

Office: + 852 2901 3819 Mobile:

And 6 Battery Road Suite 40-01 Singapore 049909 Office:+ 65.6230.3938 Mobile:

[email protected]


uk bribery act and foreign corrupt practices update · uk bribery act is broader in scope than us...

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