presents

Foreign Corrupt Practices Act in IndiaCompliance Strategies for India's Unique Cultural and Governmental

presents

Compliance Strategies for India s Unique Cultural and Governmental Intricacies

A Live 90-Minute Teleconference/Webinar with Interactive Q&AToday's panel features:

Anjali Chaturvedi, Partner, Nixon Peabody LLP, Washington, D.C.Jay Holtmeier, Partner, Wilmer Cutler Pickering Hale and Dorr LLP, New York

Elizabeth D Keating Vice President Legal Compliance/ Building Efficiency Johnson Controls Milwaukee Wis

A Live 90-Minute Teleconference/Webinar with Interactive Q&A

Elizabeth D. Keating, Vice President, Legal Compliance/ Building Efficiency, Johnson Controls, Milwaukee, Wis.

Thursday, July 8, 2010

The conference begins at:The conference begins at:1 pm Eastern12 pm Central

11 am Mountain10 am Pacific10 am Pacific

You can access the audio portion of the conference on the telephone or by using your computer's speakers.Please refer to the dial in/ log in instructions emailed to registrations.

For CLE purposes, please let us know how many people are listening at your location by y

• closing the notification box • and typing in the chat box your• and typing in the chat box your

company name and the number of attendeesattendees.

• Then click the blue icon beside the box to sendto send.

For live event only

• If the sound quality is not satisfactory• If the sound quality is not satisfactory and you are listening via your computer speakers please dial 1-866-873-1442speakers, please dial 1 866 873 1442 and enter your PIN when prompted. Otherwise, please send us a chat or e-, pmail sound@straffordpub.comimmediately so we can address the problem.

• If you dialed in and have any difficulties during the call, press *0 for assistance.

FCPA Compliance in India: Compliance Strategies Given India’sCompliance Strategies Given India sUnique Cultural and Governmental

Intricacies

Strafford Publications TeleconferenceJuly 8 2010July 8, 2010

Anjali ChaturvediNixon Peabody

Jay HoltmeierWilmer Cutler Pickering Hale and Dorr LLP

Elizabeth D KeatingElizabeth D. KeatingJohnson Controls, Inc.

OVERALL FCPA ENFORCEMENT TRENDSOVERALL FCPA ENFORCEMENT TRENDS“One can say without exaggeration that this past year was

probably the most dynamic single year in the more than thirtyprobably the most dynamic single year in the more than thirty years since the FCPA was enacted.“

– Assistant Attorney General Lanny Breuer (Nov. 2009)

“A primary mission of this Unit is to devise ways for us to be more proactive in our enforcement of the FCPA. Members of the FCPA Unit will gain in-depth knowledge of industries and regional practices so we can uncover corrupt practices that might otherwise go undetected. We will also conduct more targeted sweeps and sector-wide investigations, alone and with other regulatory counterparts both here and abroad.” – Cheryl J. Scarboro, Chief of the SEC Foreign Corrupt

5

Practices Act Unit (Jan. 13, 2010)

FCPA – WHO DOES IT COVER?FCPA WHO DOES IT COVER?

Anti-Bribery Provisions

• U.S. companies and citizens; foreign subsidiaries; and anyone in the world (even

non U.S. entities and people) if they take acts in furtherance of an improper

payment while within the U.S.

Accounting Provisions

• Companies that trade on U.S. exchanges (securities or debt), including public

companies and foreign companies with shares registered in the U.S.

• Places burden on parent company to ensure that all subsidiaries in which it

maintains a voting interest comply with requirements (if issuer holds 50 percent g p y q ( p

or less of a subsidiary, then it is required only to, in good faith, use its influence to

comply with the accounting provisions).

6

FCPA – WHAT DOES IT COVER?FCPA WHAT DOES IT COVER?

Anti-Bribery Provisions

U S i d iti ti ithi th t it f th U S• U.S. companies and citizens, or anyone acting within the territory of the U.S.,

cannot: (i) directly or indirectly, (ii) corruptly offer, pay, promise to pay or

authorize a payment of, (iii) “anything of value”, (iv) to a “foreign official”, (v) for

the purpose of obtaining or retaining business or securing any improper business

advantage.

Accounting ProvisionsAccounting Provisions

• Issuers must make and keep books, records, and accounts, which in reasonable

detail, accurately and fairly reflect the transactions and dispositions of assets.

Reasonable detail is the level of detail that would “satisfy prudent officials in the

conduct of their own affairs”.

7

WHAT ARE THE PENALTIES?WHAT ARE THE PENALTIES?

Anti-Bribery Provisions

Corporation Corporation

• Up to $2 million criminal fine (or higher under alternative penalty provisions,

including twice the amount of gain to the violator or loss to the victim)

• Debarment from government contracts

• $10,000 civil penalty

• Compliance Monitor

Individual

• Prison (up to five years)

• Up to $100,000 criminal fine (or higher under alternative penalty provisions,

including twice the amount of gain to the violator or loss to the victim) (cannot be

8

indemnified by company)

WHAT ARE THE PENALTIES?WHAT ARE THE PENALTIES?Accounting Provisions

• Range of civil penalties• Range of civil penalties

• Criminal liability can only be imposed for knowingly circumventing or knowingly

failing to implement a system of internal controls or knowingly falsifying any book,

record, or account

• Criminal penalty of up to $5 million and/or imprisoned for 20 years (individuals)

• Criminal penalty of up to $25 million (entities)

• Fines could be higher under alternative penalty provisions, including twice the

amount of gain to the violator or loss to the victimg

9

OVERALL FCPA ENFORCEMENT TRENDSOVERALL FCPA ENFORCEMENT TRENDS

Prosecutions/settlements continue at a rapid pace Reported FCPA Proceedingsp p

– Prosecutions have risen

steadily since 2005

Reported FCPA Proceedings

– Over 130 pending

enforcement matters

40 cases brought by DOJ– 40 cases brought by DOJ

and/or SEC in 2009,

another record year

– Continued coordination

between DOJ/SEC

10

– Dedicated units at DOJ,

SEC and FBI

OVERALL FCPA ENFORCEMENT TRENDSOVERALL FCPA ENFORCEMENT TRENDS

Focus on individuals

U f d t /i f t (L V ti )– Use of undercover agents/informants (Las Vegas sting)– Broad interpretation of “knowledge” (Bourke)– SEC “control person” liability (Nature’s Sunshine)

Heightened focus on the due diligence (or lack thereof) on business partners -- agents, JV partners, acquisition targets

Increase in multi jurisdiction investigations and cooperation Increase in multi-jurisdiction investigations and cooperation among government authorities in different countries

Major increase in penalties Companies also subject to internal compliance enforcement

through the use of independent monitors at the company’s expense

11

PERCEIVED LEVEL OF CORRUPTION IN INDIA

Transparency International – 2009 Corruption Perceptions Index

– India ranks 84 out of 180 countries with a score of 3.4

• United States (19)

• Pakistan (130)• Pakistan (130)

• Mayanmar (178)

Transparency International – 2009 Global Corruption Barometer p y p

– Indian political parties are perceived to be most affected by

corruption, followed by public officials/civil servants

– 9% of respondents in India reported paying a bribe in last 12 months

– 42% of respondents reported that the Indian government is “effective”

in the fight against corruption up from 25% in 2007

12

in the fight against corruption – up from 25% in 2007

REGULATORY ENVIRONMENT IN INDIA

Despite the end of the License Raj, bureaucracy remains a key impediment to India’s economic growthkey impediment to India s economic growth

The World Bank – Doing Business 2010

– Out of 183 countries India is ranked:Out of 183 countries, India is ranked:

• 133 in “Ease of Doing Business”

• 169 in “Starting a Business” g

• 175 in “Dealing in Construction Permits”

• 182 in “Enforcing Contracts”

• 138 in “Closing a Business”

• 169 in “Paying Taxes”

13

INDIAN ANTI-CORRUPTION LEGISLATIONINDIAN ANTI CORRUPTION LEGISLATION

1947 Prevention of Corruption Act (“PCA”) (amended in 1988)

– Imposes criminal liability on public and private corruption

– Section 7 makes it a crime for public officials to accept (or

agree/attempt to accept) “gratification” as a “motive or reward” foragree/attempt to accept) gratification as a motive or reward for

doing or from refraining from doing anything in their official

capacity

– Section 8 imposes criminal liability on the perpetrators of bribery

– Section 11 makes it illegal to aid and abet a violation of section 7

– No exception for facilitation payments

14

INDIAN ANTI-CORRUPTION LEGISLATIONINDIAN ANTI CORRUPTION LEGISLATION

Criticisms of the PCANot enforced regularly by Indian authorities– Not enforced regularly by Indian authorities

– The politics of prosecutions

India has not signed the OECD Anti-Bribery India has not signed the OECD Anti Bribery Convention India signed the UN Convention Against Corruption and the UN Convention Against Transnational Organised Crime, but has yet to ratify the treatiesratify the treaties India has no law punishing bribery of foreign public officials

15

ANTI-CORRUPTION GOVERNMENT AGENCIES

Various federal and state agencies enforce India’s anti-corruption lawscorruption laws

Federal

The Supreme Court of India– The Supreme Court of India

– The Central Vigilance Commission

– The Central Bureau of Investigationg

– The Office of the Controller & Auditor General

– The Chief Information Commission

State

– Anti-corruption bureaus established in certain states, e.g., the

16

Anti-Corruption Bureau of Maharashtra

RECENT CASES INVOLVING INDIARECENT CASES INVOLVING INDIA

Settled Enforcement Actions: Westinghouse Air Brake Technologies Corp. (2008) –

payments to officials of the Indian Railway Board to obtain business, schedule inspections, curb tax audits

Mario Covino (2008) – payments to officials at the Maharashtra State Electricity Board

Dow Chemical Co (2007) payments to officials from Dow Chemical Co. (2007) – payments to officials from various government agencies

17

RECENT CASES INVOLVING INDIA

Settled Enforcement Actions (cont’d):Settled Enforcement Actions (cont d): Electronic Data Systems Corporation (2007) –inaccurate books and records arising from gimproper payments made by Indian subsidiary, A.T. Kearney, Inc., to obtain business

Ch d li S i i (2007) f Chandramowli Srinivasan (2007) – former president of A.T. Kearney involved in making payments to senior employees of two state-p y p yowned energy companies Textron Inc. (2007) – payments to officials of

18

state-owned companies in India

RECENT CASES INVOLVING INDIARECENT CASES INVOLVING INDIA

Publicly Announced US Investigations:y g

– STR Holdings, Inc (2009) – payments and entertainment provided to Indian government officials

– Pride International Inc. (2008) – indirect payments to officials to resolve a customs-related dispute

– Millipore Corp. (2006) – investigated unspecified payment and po e Co p ( 006) est gated u spec ed pay e t a dcommission practices; SEC decided not to take enforcement action (2009)X C (2003) t t ffi i l i ti ith– Xerox Corp (2003) – payments to officials in connection with

sales to government customers

19

FCPA RISK FACTORS IN INDIA

History of corruption in all levels of government

E i b d l ti dExcessive bureaucracy and regulation – procedures are complicated and not transparent

Approvals from several government officials required to Approvals from several government officials required to obtain one permit/license

Underpaid civil servants yield broad discretionary power; some deliberately stall administrative procedures to induce improper payments

Rules and regulations governing public procurement Rules and regulations governing public procurement rarely enforced

Need for agents to assist in processing

20

g p g

FCPA RISK FACTORS IN INDIA

Customary in India to give gifts to business contacts and government officials during Diwali (religious festival)

Indian government officials solicit (pressure) donations from businesses for charitable organizationsfrom businesses for charitable organizations

21

VULNERABLE SECTORS AND INSTITUTIONSVULNERABLE SECTORS AND INSTITUTIONS

Public Procurement Public Procurement Customs Clearance / Importation Tax Administration (Excise Sales) Tax Administration (Excise, Sales) Construction Industry Police Police Judiciary

22

MONITORING: FORENSIC TESTING - INDIAMONITORING: FORENSIC TESTING INDIA

Public Procurement: Review all government customer projects and govt end usersReview all government customer projects and govt end-users

Customs Clearance / Importation: Review due diligence investigations of all Custom Brokers & FreightReview due diligence investigations of all Custom Brokers & Freight

Forwarders

Tax Administration (Excise, Sales):Review due diligence investigations of government-facing tax consultants

Construction IndustryReview payments to major subcontractors

23

MONITORING: Red Flag IndicatorsMONITORING: Red Flag Indicators Rumors regarding unethical or suspicious conduct by an employee, marketing

representative, consultant or other business partner, or a government official Unnecessary third-parties or multiple intermediariesU ecessa y d pa es o u p e e ed a es Requests for payments to a third-party rather than the consultant Requests for payments in a third country Business in a country with bribery problems Requests for payment in cash Requests for payment in cash Requests for unusually large commissions or other payments, or payments that

appear excessive for the service rendered Non-government organizations, lobbying costs, public relations expenditure,

political contributions etcpolitical contributions etc. Requests for reimbursement of expenses that are poorly documented Incomplete or inaccurate information in required disclosures Refusal to certify compliance Government end-users Government touch points such as customs, taxes, licenses, etc. Previous issues, incidents

Johnson Controls24

Red Flag: High-Risk VendorsRed Flag: High Risk Vendors

Sales Representatives / facilitators /Sales Representatives / facilitators / contractors / sub-contractors Distributors

E i i / th t h i l lt t Engineering/other technical consultants Customs agents and freight forwarders Law firms/accounting firms/tax g

consultants/other professional services firms Other third-party agents/consultants Government-facing business consultants Government-facing business consultants

Johnson Controls25

Red Flag: Supplier Due DiligenceRed Flag: Supplier Due DiligenceKey Questions to Ask: What services are being provided? What is the status and type of the supplier? What does the supporting documentation look like?

For example what information was–For example, what information was submitted as proof of the vendor’s existence?

Does a third-party agent have a contract directly with the Company or is a temporary employee agency involved?

Were all due diligence steps followed and approved per the Company’s policy?

Is the supplier on a “Do Not Use” or “Do Not Pay”

Johnson Controls26

Is the supplier on a Do Not Use or Do Not Pay list?

Red Flag: Agents and ConsultantsRed Flag: Agents and Consultants

Bribes are often paid indirectly through agents. Red flags include: Country has historical bribery problem (see Appendix B for CPI) An excessive commission Government customer recommends or requires use of an agentGovernment customer recommends or requires use of an agent Partner or agent related to foreign official Suggestions that money needed to “win the business”

f f Requests for false invoices or other documents Invoice or request for payment that is unusual or departs from normal

practice Offshore payment requests No one can describe services rendered by agent

Johnson Controls27

Red Flag: Travel Entertainment andRed Flag: Travel, Entertainment, and Gifts

Travel Entertainment and Gifts

When legitimate expenses become illegitimate benefits

Custom, local law, and common sense

2007 Department of Justice (DOJ) opinions allow for reasonable travel and 00 epa t e t o Just ce ( OJ) op o s a o o easo ab e t a e a dentertainment of foreign officials in US promotional tours

Warning signs:

Business purpose is, or appears, incidental to entertainment purpose

Official is strategically placed to grant business or improper business advantage to company

Expenses are lavish or out of line with company guidelines and local customs

Spouse or children are invited

Expenses are paid to official personally

Johnson Controls28

p p p y

Red Flag: Gifts to Foreign GovernmentRed Flag: Gifts to Foreign Government Officials

Gifts to Foreign Government OfficialsGifts to Foreign Government Officials Prevalent in countries where gift giving is ingrained in the business culture Appears to have been given in connection with processing business Excessive in amount, especially if given cash Promotional items without corporate logos Potential “foreign officials”

– Ministry, agency employeeJ d l i l t– Judge or legislator

– Local officials– Employee of government-controlled company

Employees of state owned universities– Employees of state-owned universities– Private person acting officially– Official of public international organization– Candidates for office, political parties, or party officials

Johnson Controls29

Candidates for office, political parties, or party officials– Spouse/dependent/sibling of an official

Red Flag: Charitable Political andRed Flag: Charitable, Political, and Social Contributions

Donations can be considered “anything of value” Donations can be considered anything of value If other elements of an FCPA violation are present, it is not a defense

that the charity is legitimate

Johnson Controls30

MITIGATING FCPA RISKS IN INDIAMITIGATING FCPA RISKS IN INDIA

Effective due diligence procedures

Warranties/certifications/integrity pacts

Clear anti-corruption policies and procedures

St i t l dit d t t Strong internal audit department

Willingness to terminate relationship(s)

Regular training on the FCPA and local anti corruption laws Regular training on the FCPA and local anti-corruption laws

Use electronic filing whenever possible, e.g., registrations

Initiate the customs clearance process electronically through Initiate the customs clearance process electronically through ICEGATE (Indian Customs and Excise Gateway)

Request “information” from a “public authority” pursuant to the

31

2005 Right to Information Act

Steps to Take if Misconduct is SuspectedSteps to Take if Misconduct is Suspected

Investigate investigate investigateInvestigate, investigate, investigateUse of 3rd party consulting firms - objectivityRemediate & terminateRemediate & terminateSelf report?

32

CONCLUSION

Anjali Chaturvedi

CONCLUSION

Nixon Peabody(202) 585-8270achaturvedi@nixonpeabody.com

Jay HoltmeierJay HoltmeierWilmer Cutler Pickering Hale and Dorr LLP(212) 295-6413Jay.Holtmeier@wilmerhale.com

Elizabeth D. KeatingJohnson Controls, Inc.(414) 524-5590Eli b th D K ti @j iElizabeth.D.Keating@jci.com

33