Breakout – Anti-Corruption Measures in the U.S. and Abroad

BREAKOUT
ANTI-CORRUPTION MEASURES IN THE U.S. AND ABROAD
SUPPLEMENTAL MATERIALS
•
“FLIR Systems Agrees to Pay $9.5 Million to Settle SEC Charges of Violating the FCPA
by Providing Gifts and Personal Travel to Saudi Arabian Official.” Foreign Corrupt
Practices Act Alert. Sullivan & Cromwell LLP. April 9, 2015.
•
“M&A in Emerging Markets. A Fresh Look at Successor Liability Associated with the
Foreign Corrupt Practices Act (FCPA).” Deloitte Touche Tohmatsu. 2015.
•
“GSK Bribery Conviction Signals Increases Risks in China.” Jay Pomerantz, Catherine
Kevane and Alexandra Grayner. Fenwick & West LLP. Originally published in the
Law360, New York, October 21, 2014.
•
“Securities Litigation Alert: SEC Announces $30 Million Whistleblower Award to NonU.S. Resident.” Fenwick & West LLP. September 29, 2014.
•
“Boardroom Perspectives: Three Practical Steps to Managing FCPA & Anti-Corruption
Risks.” Douglas N. Greenburg, Steven B. Stokdyk, Joel H. Trotter, and Danielle M.
D’Oyley. Latham & Watkins LLP. 2014.
April 9, 2015
Foreign Corrupt Practices Act Alert
FLIR Systems Agrees to Pay $9.5 Million to Settle SEC Charges of
Violating the FCPA by Providing Gifts and Personal Travel to Saudi
Arabian Officials
SUMMARY
On April 8, 2015, the U.S. Securities and Exchange Commission issued a cease and desist order
pursuant to which FLIR Systems, Inc. agreed to pay $8.5 million in disgorgement and prejudgment
interest and a $1 million civil penalty to settle charges that the company violated the anti-bribery, books
and records, and internal control provisions of the Foreign Corrupt Practices Act. According to the SEC,
FLIR employees provided Saudi Arabia Ministry of Interior (MOI) officials with personal travel and gifts
between 2008 and 2010, in connection with business opportunities that resulted in profits of over $7
million. The SEC further alleged that FLIR falsely recorded the improper expenses in its books and
records, and that FLIR’s internal controls were insufficient to detect and prevent them.
The SEC
previously had charged two FLIR employees with FCPA violations relating to this conduct.
FLIR
consented to the SEC’s order without admitting or denying the findings.
BACKGROUND AND DISCUSSION
In November 2008, FLIR and the MOI entered into a contract for the supply of binoculars that was subject
to a requirement that the FLIR binoculars pass an MOI “Factory Acceptance Test.” Two FLIR employees
arranged to send MOI officials with decision-making authority over the testing on a “world tour,” including
stops in Casablanca, Paris, Dubai, and Beirut. These trips lacked a legitimate business purpose.
FLIR employees also arranged for MOI officials to take a weekend trip to New York City at FLIR’s
expense and paid for additional leisure activities in connection with an inspection trip to a FLIR facility in
Boston. FLIR employees also gave expensive watches to the MOI officials.
New York
Washington, D.C.
Los Angeles Palo Alto London Paris
Tokyo Hong Kong Beijing Melbourne Sydney
www.sullcrom.com
Frankfurt
The SEC also alleged that FLIR, acting through a partner, paid for nine officials from the Egyptian Ministry
of Defense to take a leisure trip to Paris in connection with a Factory Acceptance Test at FLIR’s
Stockholm facility. FLIR reimbursed the partner for the majority of the officials’ travel expenses “based
upon cursory invoices that were submitted without supporting documentation.”
FLIR personnel improperly recorded the travel expenses and gifts as “business expenses” in FLIR’s
books and records and created false documents reflecting lower costs for the travel and gifts. FLIR
employees also used a foreign travel agent to represent falsely that the MOI officials had paid their own
travel costs, and to conceal the true cost of the watches from FLIR’s finance department.
Following the equipment inspection in Boston, the MOI gave its permission for FLIR to ship the
binoculars. The MOI later placed an order for additional binoculars for an approximate price of $1.2
million. In total, FLIR earned over $7 million in profits in connection with its sales of binoculars to the
MOI.
FLIR had a code of conduct and an anti-bribery policy during the relevant period. In addition, FLIR’s
policies required employees to “accurately and honestly” record information in FLIR’s books and records.
However, FLIR had minimal internal controls governing the provision of travel or gifts by its foreign sales
office, and it had no policies or controls concerning the use of foreign travel agencies. In November
2014, the SEC issued a cease and desist order against two FLIR employees in connection with a
settlement with the two employees relating to the conduct summarized in the order’s findings.
FLIR became aware of the improper travel and gifts when its foreign travel agent submitted a complaint
letter to FLIR in November 2010.
FLIR responded by conducting an internal investigation and self-
reporting its findings to the SEC.
FLIR also undertook significant remedial measures that included
terminating employees and vendors involved in the misconduct, expanding its policies and employee
training programs, and implementing a gift policy. FLIR is in the process of enhancing its foreign travel
approval system, including by requiring Legal Department approval of all non-employee travel and
subjecting all travel agencies acting on FLIR’s behalf to FCPA due diligence and training.
The SEC’s order charges that FLIR violated the anti-bribery provisions of Section 30A of the Securities
Exchange Act of 1934 and the books and records and internal controls provisions of Sections 13(b)(2)(A)
and 13(b)(2)(B) of the Exchange Act and requires FLIR to cease and desist from any further violation of
the books and records and internal controls provisions. FLIR consented to the order without admitting or
denying the findings and agreed to pay disgorgement of $7,534,000, prejudgment interest of $970,584
and a penalty of $1 million for a total of $9,504,584. The order also requires FLIR to report to the SEC
staff periodically, at no less than nine-month intervals during a two-year term, the status of its compliance
review of its overseas operations and the status of its remediation and implementation of compliance
measures and to report promptly to the SEC staff any credible evidence of an FCPA violation discovered
during the two-year period.
-2Foreign Corrupt Practices Act Alert
April 9, 2015
IMPLICATIONS
The settlement of the FLIR action highlights the need for companies to do more than merely create
policies and procedures concerning expense reimbursement, travel, and entertainment.
Rather,
companies must also ensure that their policies and procedures are fully implemented, well-functioning,
and reasonably able to detect and prevent violations. Companies subject to the FCPA should be aware
that US authorities may find violations of the FCPA, even if a company has expressly prohibited the
conduct at issue, if the US authorities conclude that the company has not taken active steps to ensure
that its personnel in fact comply with the company’s policies, procedures, and controls.
The FLIR settlement also underscores the benefits that companies can receive when they voluntarily
report FCPA violations to the US authorities, cooperate with any investigation, and undertake remedial
measures. It is likely that the SEC’s relatively small $1 million penalty resulted from FLIR’s proactive
conduct in this regard.
*
Copyright © Sullivan & Cromwell LLP 2015
Foreign Corrupt Practices Act Alert
April 9, 2015
*
-3-
*
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-4Foreign Corrupt Practices Act Alert
April 9, 2015
DC:309535.1
M&A in emerging markets
A fresh look at successor liability associated
with the Foreign Corrupt Practices Act (FCPA)
Recent headlines have highlighted the dramatic surge in
prosecutions being brought by the U.S. government under
the Foreign Corrupt Practices Act (FCPA), which makes it
illegal to bribe foreign officials. The U.S. Department of
Justice (DOJ) and Securities and Exchange Commission
(SEC) have specifically identified FCPA compliance as an
enforcement priority, and a number of key corruption
cases have surfaced during the anti-corruption M&A due
diligence process1.
Anticorruption enforcement also appears to be on the
rise globally, with a number of countries becoming more
aggressive in rooting out cross-border bribery. Authorities
in different countries are cooperating more with U.S.
regulators, increasing the importance of understanding the
FCPA and anti-corruption related risk profile of potential
M&A targets.
FCPA exposures that are not addressed may subject a buyer
to successor liability for the seller’s prior violations, which
may create negative publicity and reputation damage, and
diminish the value of the acquired company. The purchaser
may also have to investigate and remediate corruption
issues at significant costs and sometimes under the
watchful eye of U.S. or foreign regulators.
1
http://www.sec.gov/spotlight/fcpa/fcpa-cases.shtml
Every year, a significant number of potential buyers
abandon what appear to be promising deals in emerging
markets due to hints of FCPA infractions, such as bribes or
other illegal payments to government officials. Whether
the potential buyer is a corporation or a private equity
firm, “they do not want to deal with a reputation issue,”
says Hernan Marambio, M&A Transaction Services Leader,
Americas Financial Advisory, Deloitte & Touche LLP in the
U.S. This regulatory roadblock is increasingly hard to avoid
since everyday business functions in all industries, from
building warehouses to exporting goods, typically involve
government touch points.
One recent example of this conundrum: A U.S.
multinational consumer products company planned to
acquire a prominent foreign manufacturer and distributor.
Working with an experienced forensic accounting team,
the U.S. buyer discovered over USD$100,000 in suspicious
payments to government officials at the target company,
and record-keeping deficiencies that made it impossible to
determine the actual purpose of these payments2.
When the U.S. buyer sought an opinion on its potential
FCPA liability from the DOJ, it learned that it would not be
subject to successor liability. In fact, in the DOJ Opinion
Procedure Release No. 14-02 (“DOJ Opinion 14-02”), the
DOJ concluded that the potentially improper payments
2
DOJ Opinion Procedure Release No. 14-02
were not subject to U.S. jurisdiction. The end result: the
company had to establish policies and processes to ensure
the target company’s FCPA compliance post acquisition,
but was able to purchase the target with no fear of FCPArelated repercussions resulting from the target company’s
historical activities. While FCPA violations are still a serious
issue, DOJ Opinion 14-02 indicates that FCPA successor
liability depends on the facts and circumstances and
violations may not always be as problematic as they seem.
In addition, DOJ Opinion 14-02 suggests that proactive
and forthright acquirers may be able to avoid successor
liability even when the DOJ does have jurisdiction over the
target company.
In this article, we will focus on key steps for potential
buyers to consider in their efforts to mitigate FCPA
compliance risks, including successor liability, based on DOJ
Opinion 14-02.
Situation 1: Past FCPA violations may exist, but they
do not create successor liability
DOJ Opinion 14-02 highlighted a long-standing but oftenforgotten fact: the DOJ generally does not have authority
over companies that do not operate or issue securities in
the U.S. In the particular case of the previously discussed
U.S. consumer products company target, DOJ Opinion
14-02 states that none of the payments occurred in the
U.S., and no U.S. person or securities issuer was identified
as being involved. Additionally, no bribery-tainted contracts
or assets would remain in operation post-acquisition to
potentially benefit the U.S. acquirer.
DOJ Opinion 14-02 also states that if a U.S. securities
issuer acquires a foreign company that was not previously
subject to the FCPA’s jurisdiction, “the mere acquisition of
that foreign company would not retroactively create FCPA
liability.” “Successor liability does not…create liability where
none existed before.”
Situation 2: Past FCPA violations may exist, but
they can be remediated to mitigate successor
liability risks
While DOJ Opinion 14-02 expressly states that it applied
only to the specific company that requested the opinion,
the DOJ reiterated the following proactive steps that it
encourages companies to undertake when engaging in
mergers and acquisitions:
1. Conduct thorough risk-based FCPA and anti-corruption
due diligence, taking into account all government touch
points (e.g., permits, taxes, and customs) and related
FCPA risks
2. Implement the acquiring company’s code of conduct
and anti-corruption policies as quickly as practicable
3. Conduct FCPA and other relevant training for the
acquired entity’s directors and employees, as well as
third-party agents and partners
4. Conduct an FCPA-specific audit of the acquired entity as
quickly as practicable
5. Disclose to the DOJ any corrupt payments discovered
during the due diligence process
Past DOJ & SEC settlements with large companies
that have encountered FCPA violations reinforce the
importance of taking the proactive steps outlined above.
In one deferred prosecution agreement with the DOJ,
the company involved agreed to the steps above, as well
as other specific terms regarding M&A, in addition to a
much broader set of requirements, such as appointing
compliance officers in each business unit. The company
further agreed that it would ensure its own code of
conduct is implemented “no less than one year postclosing” by the acquired entity and agreed to conduct an
FCPA-specific audit of all newly-acquired businesses within
18 months of acquisition.
In these circumstances, it’s important to perform due
diligence with an eye toward the future. Although a
buyer may be free from FCPA successor liability, buyers
should assess the potential impact of any benefits (such as
customer contracts) that could be impacted or lost as the
company modifies operating activities to be in compliance
with the FCPA post-acquisition.
M&A in emerging markets A fresh look at successor liability associated with the Foreign Corrupt Practices Act (FCPA)
2
Need for help from specialists in assessing potential
liabilities and related mitigation activities
While there’s support for potential buyers and investors
to be more optimistic about potential FCPA liabilities
related to foreign acquisitions, mitigating liabilities and
reputational damage risk still requires robust analysis
and experience. The DOJ encourages potential buyers to
conduct thorough anti-corruption due diligence and has
prosecuted companies that only conducted cursory due
diligence and subsequently identified on-going payments
made to government officials by the seller post acquisition.
This underscores the importance of utilizing experienced
internal and external resources with appropriate
knowledge of industry and local market bribery schemes.
Often this entails engaging professionals who speak the
local language, understand the local culture, and have
access to in-country information that is often required to
identify and evaluate the FCPA risks associated with the
proposed transaction.
If a potential buyer still feels there is significant FCPA and
anti-bribery risk related to the transaction after completing
its due diligence, the potential buyer may want to request
an opinion from the DOJ (similar to the opinion requested
by the consumer products company in DOJ Opinion
14-02).
Conclusion
DOJ Opinion 14-02 provides a good example of why FCPA
risks do not automatically translate into deal-breakers.
However, potential buyers still need to exercise caution
when it comes to foreign acquisitions, perform thorough
due diligence, and make careful decisions regarding
disclosures to the DOJ.
M&A in emerging markets A fresh look at successor liability associated with the Foreign Corrupt Practices Act (FCPA)
3
Contacts
For more information, please contact:
Matt Birk
Partner
Deloitte Forensic
Deloitte Financial Advisory Services LLP
+1 314 641 4393
[email protected]
Hernan Marambio
Partner
M&A Transaction Services Leader, Americas Financial Advisory
Deloitte & Touche LLP
+1 212 436 3972
[email protected]
Jose Velaz
Senior Manager
M&A Transaction Services
Deloitte & Touche LLP
+1 404 220 1749
[email protected]
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© 2015. For more information, contact Deloitte Touche Tohmatsu Limited.
GSK Bribery Conviction Signals
Increased Risks in China
jay pomerantz, catherine kevane and alexandra grayner
On September 19, 2014, a Chinese court found
pharmaceutical giant GlaxoSmithKline PLC (GSK)
guilty of bribing doctors and hospitals in order to
increase sales of the company’s products in China.
Among other things, the company was charged with
using travel agencies and pharmaceutical industry
groups to channel bribes to recipients. Chinese
officials announced an investigation of GSK executives
in late June 20131 and announced the conviction 15
months later.
The company was fined 3 billion yuan ($489 million)
— the largest corporate penalty ever imposed by
Chinese authorities. For comparison, the three largest
settlements under the U.S. Foreign Corrupt Practices
Act (FCPA) are Siemens AG ($800 million), KBR Inc./
Halliburton Co. ($579 million) and BAE Systems ($400
million).
The court also convicted GSK’s former country
manager and four other executives who “actively
organized, pushed forward and implemented
sales with bribery.”2 The individuals each received
suspended sentences of between two to three years in
prison; these reduced sentences reflected the court’s
conclusion that they “confessed the facts truthfully
and were considered to have given themselves up.”3
The GSK case highlights China’s increased emphasis
on enforcing its anti-corruption laws against nonChinese companies and individuals who offer or pay
bribes. China’s anti-corruption efforts have historically
focused on the Chinese government officials who
solicit or receive bribes. For example, in January
2013, China’s president, Xi Jinping, announced a
1
Louise Armitstead, “Chinese police probe GSK managers for
new campaign to crack down on corruption by both
“tigers” (i.e., powerful officials) and “flies” (i.e., lowlevel bureaucrats). The GlaxoSmithKline convictions
demonstrate that China has moved beyond its
historical focus, and that foreign companies doing
business in China must be mindful of China’s own
anti-corruption laws in addition to the FCPA.
Commercial bribery between private parties, such
as kickbacks paid by pharmaceutical companies to
doctors dispensing their drugs, is reported to be
widespread in China and deeply engrained in business
culture. Although commercial bribery is illegal in
China, companies have not historically perceived
this type of corruption as a serious compliance
risk, especially when compared to a potential FCPA
violation.4
This perception is changing. A survey conducted by
the American Chamber of Commerce in Shanghai of
400 U.S.-based companies with operations in China
reveals an increased emphasis on compliance with
China’s laws and regulations.5 In 2013, 46 percent
of companies indicated that compliance with China’s
domestic laws was more important than compliance
with international anti-bribery laws such as the FCPA,
up from 31 percent in 2012.6
Failing to comply with China’s laws prohibiting
commercial bribery may also increase the risk
of an FCPA investigation by the U.S. Securities
Exchange Commission (SEC) and U.S. Department
of Justice (DOJ). U.S. regulators have adopted the
position, largely untested in courts, that state-owned
enterprises (SOEs) and state-controlled enterprises
in China are instrumentalities of the government and
that any employee of an SOE qualifies as a “foreign
‘economic crimes,” The Telegraph, June 30, 2013, http://www.telegraph.
co.uk/finance/newsbysector/pharmaceuticalsandchemicals/10151412/
Chinese-police-probe-GSK-managers-for-economic-crimes.html.
2
“GSK China hit with record fine,” Xinhua, Sept. 19, 2014, http://
news.xinhuanet.com/english/china/2014-09/19/c_133656449.htm.
3 Id.
4
Daniel Chow, The Interplay Between China’s Anti-Bribery Laws
and the Foreign Corrupt Practices Act, 73 Ohio St. L.J. 1015, 1017 (2012).
5
The American Chamber of Commerce in Shanghai, China
Business Report (2013-2014).
6 Id.
www.fenwick.com
official” within the meaning of the FCPA.7 Under
this broad interpretation of the FCPA, bribes paid to
individuals in violation of China’s commercial bribery
laws may also violate the FCPA. Proving the point, GSK
remains under investigation by the DOJ, SEC and the
U.K. Serious Fraud Office.
As a practical matter, this means that companies
doing business in China should take proactive
measures to prevent and detect bribery, which include
the following:
§§ Understand your exposure. Where does your
business intersect with a foreign government or
with companies that are government-owned? What
are your higher-risk areas? Who are the employees
“on the front lines” in those areas?
§§ If possible, determine the types of schemes for
making improper payments that are routinely
used in a certain region, industry sector or with a
particular type of government agency. Remember,
the fact that “everyone is doing it” is a red flag, not
an endorsement.
§§ Adopt policies that prohibit bribes not only to
government officials (including employees of
government-owned businesses), but also to parties
in the private sector. In the GSK matter, the Chinese
regulators viewed the hospital employees to whom
bribes were allegedly paid as private parties.
§§ Create a game plan for how the company will
respond to issues before they arise. The first
interactions with regulators in any country are often
critical to how the regulators view the company.
Having a plan in place before an issue arises can be
invaluable in setting the right tone, driving toward
an optimal outcome, protecting the company’s
privileged materials and avoiding collateral
damage.
For more information please contact:
Jay L. Pomerantz, 650.335.7697; [email protected]
Catherine Kevane, 415.875.2392; [email protected]
Alexandra P. Grayner, 415.875.2319; [email protected]
Originally published in the Law360, New York on
October 21, 2014.
©2014 Fenwick & West LLP. All Rights Reserved.
the views expressed in this publication are solely those
of the author, and do not necessarily reflect the views
of fenwick & west llp or its clients. the content of the
publication (“content”) should not be regarded as
advertising, solicitation, legal advice or any other advice on
any particular matter. the publication of any content is not
intended to create and does not constitute an attorney-client
relationship between you and fenwick & west llp. you should
not act or refrain from acting on the basis of any content
included in the publication without seeking the appropriate
legal or professional advice on the particular facts and
circumstances at issue.
§§ Ensure that your internal compliance program
addresses the risks under both Chinese and
international anti-bribery laws.
§§ Educate, educate, educate. Make sure employees
understand your policies and what you expect for
ethical and legal behavior. While the conduct in
GSK was far from the “gray area,” local cultures
may embrace practices within a gray area under the
FCPA or other anti-bribery laws. Train your finance
team and supervisors to spot issues and raise them
quickly with in-house counsel or other compliance
personnel.
7 Id.; Mike Koehler, The Façade of FCPA Enforcement, 41 Geo. J. Int’l
L. 907, 916-17 (2010).
2 gsk bribery conviction signals increased risks in china
fenwick & west
Securities Litigation Alert:
SEC Announces $30 Million Whistleblower
Award to Non-U.S. Resident
september 29, 2014
On Monday, September 22, 2014, the SEC announced
that it expected to award between $30 and $35 million
to a non-U.S. whistleblower who provided the SEC with
information about “an ongoing fraud that would have
been very difficult to detect.” The SEC’s whistleblower
program was established by the Dodd-Frank Wall
Street Reform and Consumer Protection Act of 2010.
Individuals who voluntarily provide the SEC with
original information regarding a possible violation
of federal securities laws are eligible for awards of
between 10 to 30 percent of recoveries exceeding $1
million.
The award announced last week is the largest
announced by the SEC’s whistleblower program to
date and is more than twice as much as the highest
previous award. The award would have been even
higher but for the whistleblower’s “unreasonable”
delay in reporting the misconduct; while declining to
specify the time period, the Commission noted that
the “lengthy” delay after the whistleblower learned
of the violations was not justified “where investors
continued to suffer significant monetary injury that
otherwise might have been avoided.”
Very few concrete facts have been made public about
the underlying case. The SEC is required by law to
protect the confidentiality of whistleblowers and does
not disclose information that may directly or indirectly
reveal a whistleblower’s identity. Nevertheless, the
award has implications for any company subject to
U.S. securities laws.
First, the magnitude of the award highlights the
overwhelming financial incentive for potential
whistleblowers to report actual or suspected
misconduct directly to the SEC. And because
whistleblower awards are calculated as a percentage
of the total amount recovered by the SEC, the cases
that are most important to the company – i.e., those
with the highest potential financial exposure – are
also the ones that are most likely to be reported by
whistleblowers.
Second, the award demonstrates the SEC’s intent
to rely on whistleblower tips from sources outside
the U.S. The whistleblower at issue in this case
is a foreign resident, and four of the fourteen
whistleblower awards announced to date have
gone to foreign residents. Sean McKessy, Chief of
the SEC’s Office of the Whistleblower, emphasized
that the award “shows the international breadth
of our whistleblower program as we effectively
utilize valuable tips from anyone, anywhere to bring
wrongdoers to justice” and that “[w]histleblowers
from all over the world should feel similarly
incentivized to come forward with credible information
about potential violations of the U.S. securities laws.”
Incentives for foreign whistleblowers are particularly
significant with respect to alleged violations of the
U.S. Foreign Corrupt Practices Act (FCPA) – matters
that, if proven, can result in hundreds of millions
of dollars in penalties – and correspondingly large
whistleblower awards. In fiscal year 2013, the
SEC received whistleblower tips from 55 countries,
including Brazil, Russia, India, China and other
countries where there are higher risks of corruption.
Approximately 5% of all whistleblower tips received
concern alleged violations of the FCPA.1
Finally, the advent of lottery-sized whistleblower
awards makes it all the more important for companies
to establish robust and effective compliance programs
to prevent, detect and resolve problems early, before
they escalate into serious violations of the federal
securities laws. Among other things, companies
should:
§§ Reinforce to employees the importance of reporting
compliance concerns;
§§ Train employees on how to report compliance
concerns internally and how to respond to those
concerns;
1
SEC, 2013 Annual Report to Congress on the Dodd-Frank Whistleblower
Program, http://www.sec.gov/about/offices/owb/annual-report-2013.pdf.
www.fenwick.com
§§ Provide incentives for reporting concerns internally,
for example, announcements thanking employees
for bringing issues to management’s attention;
§§ Review compliance programs to ensure they include
readily accessible internal reporting mechanisms;
§§ Emphasize in writing and during training programs
the company’s commitment to addressing
compliance concerns respectfully, with discretion,
and without retaliation;
§§ Investigate and resolve compliance concerns
promptly and efficiently;
§§ Develop procedures for identifying, escalating
and investigating allegations that raise potential
securities law violations or might otherwise involve
self-reporting to the SEC; and
§§ Be prepared for calls from regulators.
For the moment, financial incentives to report
misconduct are somewhat tempered by the lack
of widespread knowledge regarding the SEC’s
whistleblower program. However, the SEC is actively
publicizing the program and encouraging non-U.S.
whistleblowers in particular to report securities law
violations. The recent blockbuster award is likely
to generate an increased number of whistleblower
reports to the SEC. As a result, directors and
officers of public companies must be prepared for
this new reality when determining how to mitigate
compliance risks and respond to allegations of serious
misconduct.
For more information please contact:
Susan S. Muck, 415.875.2325; [email protected]
Catherine Kevane, 415.875.2392; [email protected]
Jennifer C. Bretan, 415.875.2412; [email protected]
Alexis I. Caloza, 415.875.2339; [email protected]
©2014 Fenwick & West LLP. All Rights Reserved.
the views expressed in this publication are solely those
of the author, and do not necessarily reflect the views
of fenwick & west llp or its clients. the content of the
publication (“content”) should not be regarded as
advertising, solicitation, legal advice or any other advice
on any particular matter. the publication of any content
is not intended to create and does not constitute an
attorney-client relationship between you and fenwick &
west llp. you should not act or refrain from acting on the
basis of any content included in the publication without
seeking the appropriate legal or professional advice on
the particular facts and circumstances at issue.
__________
SEC Press Release: http://www.sec.gov/News/
PressRelease/Detail/PressRelease/1370543011290.
SEC Whistleblower Order: http://www.sec.gov/rules/
other/2014/34-73174.pdf.
2securities litigation alert
fenwick & west
Boardroom Perspectives: Three Practical Steps to Managing
FCPA & Anti-Corruption Risks
by Douglas N. Greenburg, Steven B. Stokdyk, Joel H. Trotter & Danielle M. D’Oyley
Foreign Corrupt Practices Act (FCPA) enforcement continues to be a priority for the United States
Department of Justice (DOJ) and Securities and Exchange Commission (SEC). In recent years, U.S.
authorities have aggressively investigated and charged corporations and individuals for foreign
bribery and related conduct. FCPA investigations can be extremely expensive, and resolving
enforcement actions is often very costly in terms of direct fines and penalties, as well as collateral
consequences.
Anti-corruption enforcement is increasingly global in scope. A number of countries outside the U.S.
have recently passed their own international anti-corruption laws, and more nations are aggressively
enforcing their domestic anti-corruption legislation, leading to vigorous multinational anti-corruption
enforcement often targeting Western companies. Employees around the world are potential sources
of corruption allegations, particularly after the advent of the SEC whistleblower program in 2011.
Shareholder derivative litigation has similarly proliferated in the wake of FCPA investigations and
settlements. In addition to government enforcement, companies increasingly face derivative suits
alleging that directors have breached their fiduciary duties by failing to implement and maintain
FCPA-compliant internal controls.
With adequate preparation and resources, companies can effectively avoid costly risks – both
financial and reputational – associated with FCPA and anti-corruption enforcement. We recommend
three measures:
•
•
•
Prevention: maintaining an effective compliance program;
Investigation: responding quickly and adequately to corruption allegations; and
Remediation: implementing appropriate remedial measures.
Prevention: maintaining an effective compliance program
Companies must implement and maintain a robust compliance program that should be continuously
improved through periodic testing and review:
•
•
Clearly articulate a corporate policy against corruption, consistent with a strong tone at the
top from the board of directors and senior management.
Augment the company’s code of conduct with anti-corruption policies and procedures that
are periodically updated.
•
•
•
•
•
•
•
Establish an oversight/audit function that has appropriate authority, autonomy from
management, and sufficient resources to ensure effective implementation of the compliance
program.
Perform a risk assessment and tailor the company’s compliance program to risks identified
by the assessment.
Require anti-corruption training for all directors, officers, relevant employees, and, where
appropriate, agents and business partners.
Adopt positive incentives to drive compliant behavior and clear disciplinary procedures to
deter unlawful conduct.
Implement adequate due diligence policies for engaging third party representatives and
business partners.
Establish procedures for confidential reporting and internal investigations.
Ensure appropriate oversight by the board or a committee thereof through regular reporting
on the compliance program, any allegations, and any internal investigations conducted and
their resolution.
Investigation: responding quickly and adequately to corruption allegations
Companies must be prepared to internally investigate corruption allegations, whether from U.S. or
foreign regulators, the media, or whistleblowers:
•
•
•
•
•
•
Assess who should be conducting the investigation. While many internal investigations may
be conducted at the direction of the general counsel or management, if the allegations are
pervasive or implicate senior management, companies should consider an independent
investigation directed by the Audit Committee or another committee of the board of directors.
Conduct the investigation with internal or external resources commensurate with the scope of
the allegations.
Use investigators experienced with the relevant issues and jurisdictions. Companies should
also ensure that investigators are equipped with the appropriate language skills and
resources.
Maintain attorney-client privilege over the investigation to the fullest extent possible to avoid
subsequent involuntary disclosure of investigation findings.
Consider relevant local laws, including local data privacy laws and other laws affecting the
conduct of investigations.
Employ forensic accountants and other experts working at the direction of counsel if
necessary to address the allegations.
Remediation: implementing appropriate remedial measures
If an internal investigation corroborates corruption allegations, companies must implement adequate
remedial measures with appropriate oversight by the board of directors:
•
•
•
Remedy any improper conduct and practices identified. Companies should also examine
and correct gaps identified in corporate policies or the existing compliance program.
Assess whether the identified problems affect the company’s internal controls over financial
reporting. Management should determine whether problems constitute a significant
deficiency or material weakness under the federal securities laws.
Consider disclosing any potential violations to U.S. or non-U.S. authorities. Determining
whether to self-disclose is often a complex decision involving an assessment of the
company’s conduct, legal obligations, and disclosure obligations under federal securities
laws.
To effectively manage today’s FCPA and anti-corruption risks, companies must make considerable
effort to prevent – and, when necessary, investigate and remedy – improper conduct and
practices.
Douglas N. Greenburg
[email protected]
+1.202.637.1093
Steven B. Stokdyk
[email protected]
+1.213.891.7421
Joel H. Trotter
[email protected]
+1.202.637.2165
Danielle D’Oyley
danielle.d'[email protected]
+1.202.637.2321
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