Global Anti-Corruption Compliance: Creating a Coordinated Framework for Multiple Jurisdictions

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THURSDAY, DECEMBER 19, 2013

Presenting a live 90-minute webinar with interactive Q&A

Kim Chainey, The Hershey Company, Hershey, PA

Amy L. Sommers, Partner, K&L Gates, Shanghai, China

Edward J. Fishman, Partner, K&L Gates, Washington, D.C.

Elizabeth Robertson, Partner, K&L Gates, London, England

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© Copyright 2013 by K&L Gates LLP. All rights reserved.

MODERATOR: Kim Chainey, The Hershey Company

PANELISTS: Amy L. Sommers, K&L Gates Shanghai

Edward J. Fishman, K&L Gates Washington, D.C.

Elizabeth Robertson, K&L Gates London

Strafford Publishing December 19, 2013

How Can Global Companies Meet the Challenges of Different

Enforcement Approaches?

Spanning the Globe With Anti-Corruption and Anti-Bribery Government Actions

OVERVIEW

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Battle against corruption and bribery at center-

stage as global financial crisis showcased

economic and social costs of corruption

Significant evolution of laws around the globe

since 1977 enactment of FCPA in the US

2010 UK Bribery Act;

2011 China criminalizes bribery of foreign officials;

2013 Russian Anti-Corruption Law Amendments;

2013 Brazilian Anti-Corruption Law.

Laws mirror each other more than they differ

Social, cultural and political differences affect

global development of anti-corruption and anti-

bribery laws

Wide prosecutorial discretion

Execution is the key – how aggressively

governments enforce their laws makes a

difference

Execution may vary and depends on political

circumstances in each country/region

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Global companies can take comfort that

approaches to having effective compliance

program are similar country-by-country and region-

by-region

Importance of on-the-ground information, local

support and relationships in structuring global

compliance programs and in responding to

enforcers who knock on your door

Our panelists will share insight on latest

developments in the laws and enforcement in key

regions, and impact on anti-corruption programs

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CHINA

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AMY SOMMERS

K&L GATES, SHANGHAI OFFICE + 86 21 221 2085

amy.sommers@klgates.com

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Brief summary of the anticorruption

legal framework

Recent trends in enforcement

Suggested preventative measures

PRC LEGAL FRAMEWORK - ANTIBRIBERY

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Bribes to/from officials

The Criminal Law of the People’s Republic of China (“Criminal Law”)

Bribes given/paid Commercially

Anti-Unfair Competition Law & associated regulations (civil offense)

+

Criminal Law (criminal offense)

Bribes to Foreign Officials

Criminal Law (as of 2011)

TWO TYPES OF ANTI-BRIBERY ENFORCEMENT

CURRENTLY UNDERWAY IN CHINA

Official Commercial

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OFFICIAL BRIBERY ENFORCEMENT – WHAT ARE

DRIVERS?

Internal Party power

struggles

Consolida-tion

Power

Targeted enforcement against key officials (e.g., Bo Xilai, Zhou Yongkan)

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COMMERCIAL BRIBERY ENFORCEMENT – PRICE-

DRIVEN?

…. WHAT COMES NEXT?

Retail price maint.

• Spring 2013:

• Baby formula

Anticorruption

• Summer 2013:

• Pharma co’s + doctors/hospital personnel

Anticorruption? AML?

• Autumn 2013/Winter 2014: Medical devices? Eyeglasses?

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WHAT DO RECENT DEVELOPMENTS MEAN FOR

COMPANIES OPERATING IN CHINA?

Good news (sort of): If your company gives a bribe to a PRC official and it comes to light, the PRC gov’t probably isn’t going to prosecute your company

Bad news: If your company is giving commercial bribes, you’re facing a real enforcement risk in from Chinese regulators that could implicate the FCPA even tho’ the behavior appears not to involve ‘officials’ from a China law perspective

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IMPLICATIONS (CONT’D): CHINAWHYS

Peter Humphrey, respected China-hand and founding

director of ChinaWhys consultancy – arrested:

Global Times: “Paying from 800 ($131) to 2,000 yuan per piece,

the couple started purchasing and collecting Chinese citizens'

personal information, including names of family members,

household property, addresses, overseas travel records and

vehicle ownership.”

Humphrey and his partner/wife were arrested on criminal charges

of trafficking personal information of Chinese citizens

Characterized as part of a nationwide sweep:

“The case is part of a nationwide campaign launched by the Ministry

of Public Security aimed at cracking down on infringement upon

citizens' personal information. Since August 7, police in Shanghai

have captured 126 suspects for illegal trading of personal

information, of them 35 have been detained under criminal charges.

Some 100 million pieces of personal information waiting to be sold

have also been found.” klgates.com 15

IMPLICATIONS (CONT.):

EMPLOYMENT HISTORY - REVIEW

Unhappy recent exits?

Likely whistleblowers?

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IMPLICATIONS (CONT.):

INTERNAL AUDIT HISTORY - REVIEW

Red flags ?

Have they been

resolved?

If not, is that a smoldering

fire?

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UNITED STATES AND THE FCPA

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Ed Fishman

K&L GATES, WASHINGTON, DC OFFICE (202) 778-9456 ed.fishman@klgates.com

US: AGGRESSIVE PROSECUTION

US authorities say FCPA prosecutions “a top priority”

Recoveries of enormous amounts of fines and penalties

Disgorgement of profits from tainted contracts, in addition to

fines

Ability to charge multiple offenses on the same set of facts

Exceptionally broad assertion of extraterritorial jurisdiction

Most cases resolved by settlement rather than litigation

Limited case law

Facilitates ability of prosecutors to take increasingly aggressive positions unchecked by judicial authority

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US: ELEMENTS OF EFFECTIVE COMPLIANCE

No program can prevent all violations

Three key questions:

Is the company’s compliance program well designed?

Is it being applied in good faith?

Does it work?

US DOJ/SEC Guide: “hallmarks of effective compliance”

Senior management commitment

Policies and procedures

Oversight, autonomy and resources

Risk assessment

Training

Incentives and disciplinary measures.

Due diligence

Confidential reporting and internal investigation.

Periodic testing and review.

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US: SOURCES OF PROSECUTIONS

Most significant source cases is corporate self-reporting

Leveraging of limited enforcement resources by offering

leniency in exchange for self-reporting

Other sources may become increasingly important

Dodd-Frank whistleblower bounties

10 to 30 percent share of recovery

Tips from employees, former employees, competitors, ex-

spouses

Increased likelihood that authorities will learn of violations

Significant pressure for company to self-report

Increasing international cooperation

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OECD Convention on Bribery (1997 vs. 2013)

US: INTERNATIONALIZATION OF ANTICORRUPTION EFFORTS

OECD Convention was largely a US initiative

According to Transparency International, of 39 signatories,

only seven were “actively” enforcing their laws implementing

the OECD Convention

Many nations do not make it a priority to devote resources

to expensive prosecutions that may harm domestic

companies

Suggestions that these laws may be used as a competitive weapon against other nations

9 of the 10 largest FCPA cases involved non-US companies.

UK authorities have said that they will prioritize Bribery Act

prosecutions where a UK company was disadvantaged.

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CORRUPTION RISK IN LATIN AMERICA AND AFRICA

Many countries in these regions are in the bottom

half of Transparency International’s 2012 Corruption

Perceptions Index e.g. Angola (157 of 174); Nigeria (139 of 174); Brazil (69 of

174); Venezuela (165 of 174)

Many of these same countries offer significant business opportunities for global companies

The historical levels of corruption, the size of government contract opportunities and the relative lack of transparency and consistency in regulatory processes creates enormous corruption risk

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ANTI-CORRUPTION ENFORCEMENT IN BRAZIL

Recent scandals involving public corruption and

infrastructure development for the World Cup and

Olympics prompted Brazilian legislature to enact

robust anti-corruption legislation

The legislation becomes effective in January 2014

and imposes civil (not criminal) penalties on

companies that bribe Brazilian or foreign public

officials; effective compliance is a mitigating factor but

not a full defense

Recent internal investigations or settled U.S.

enforcement proceedings involving Brazil include

Embraer, Eli Lilly and Nature’s Sunshine

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ANTI-CORRUPTION ENFORCEMENT IN NIGERIA

Several of the largest FCPA settlements involved Nigeria, including the TSKJ Consortium (Bonny Island), Noble Corporation and Panalpina

Nigerian authorities prosecuted and reached

settlements with KBR over the Bonny Island scandal

Nigerian government continues to focus on domestic

public corruption, including ongoing scandal involving

petroleum sales and continuing allegations that

former government officials amassed overseas

fortunes through hidden ownership of companies

involved in oil and gas business

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KEY LESSONS IN THESE MARKETS

Importance of Due Diligence

Third Party Agents and Local Partners – focus on their

beneficial ownership and shareholders, reputation,

experience/value and compliance culture

Projects and Transactions – ensure the proposed business

makes economic and logical sense; look for “traps” that may

be potential evidence of bribery scheme

M&A Due Diligence – thoroughly vet any target company

operations in high-risk markets

Implementation of Robust Compliance Programs

Training of Local Employees, JV Partners and Agents

Continuous Monitoring and Oversight

Increasing Local Awareness of Anti-Corruption Risks and

Compliance Best Practices

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UNITED KINGDOM

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ELIZABETH ROBERTSON

K&L GATES, LONDON OFFICE Head, Corporate Crime Practice Group

+44 (0) 20 7360 8255 elizabeth.robertson@klgates.com

BRIBERY ACT 2010

Four Offences

“Bribing” (s1)

“Being bribed” (s2)

“Bribery of a foreign public official” (s6)

UK Public Officials?

“Failure [by a company] to prevent bribery” (s7)

Also consent or connivance by senior officer (s14)

ANYWHERE

And anyone not just public officials

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DEFERRED PROSECUTION AGREEMENTS

To become Law in the UK 2014

The power to negotiate deferred prosecutions will be

available to SFO, CPS, FSA and OFT

The onus and the financial burden will be on potential

corporate defendants to make sure they comply with the law

Middle and senior management “go under a bus”?

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UK BRIBERY ACT – ADEQUATE PROCEDURES

THE SIX GUIDANCE PRINCIPLES FOR PREVENTION

OF BRIBERY

What do we need to demonstrate to show we take this seriously?

Proportionate procedures – anti-bribery procedures that are proportionate to the

specific risks we face and to the nature, scale and complexity of our operations

Top level commitment – senior management demonstrate commitment to

preventing bribery, establish a culture that supports this commitment and

communicate our anti-bribery policy throughout the group

Risk assessment – assess, know and respond to the nature and extent of our

corruption risks

Due diligence – understand the background and reputation of the parties with whom

we do business

Communication (including training) – communicate and effectively embed our

policy controls in our day to day business processes

Monitoring and review – appropriate monitoring and review mechanisms to ensure

compliance with our policy and controls

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UK DPA V US DPA: A COMPARISON (TAKEN FROM

THE LEGISLATION AND THE DRAFT CODE)

Level of Judicial Oversight

Availability to individual defendants

Selection of the Monitor

Controls on the Monitor

Required Disclosure

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MODERATOR

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Kim Chainey

THE HERSHEY COMPANY, HERSHEY, PA kchainey@hersheys.com

Discussion

Key Issues and Themes for General Counsel

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