Foreign Corrupt Practices Act Compliance Guidebook

MARTIN T. BIEGELMAN has been fighting fraud and corruption for more than thirty-five years in various roles in law enforcement, consulting, and the corporate sector. He is currently Director of Financial Integrity for Microsoft Corporation, where he built and leads a worldwide fraud prevention and anti-corruption program. DANIEL R. BIEGELMAN is an attorney with the law firm of Baker Hostetler. He is a member of the Litigation Practice Group in their New York office. Daniel is a Certified Compliance and Ethics Professional and a member of the Society of Corporate Compliance and Ethics. He is a contributing author to Building a World-Class Compliance Program: Best Practices and Strategies for Success (Wiley). He is also the author of articles on the FCPA and corporate compliance.

Foreword xix

Preface xxi

Acknowledgments xxv

1 BRIBERY, CORRUPTION, AND THE FOREIGN CORRUPT PRACTICES ACT 1

Global Crackdown 3

Devastating Cost of Corruption 4

Government’s Commitment to FCPA Enforcement 6

FBI’s Laser Focus on Anti-Corruption 7

Watergate and the Birth of the FCPA 8

Securities and Exchange Commission Enters the Fight 9

Senate Investigations 10

Kissinger’s Resistance 11

Lockheed’s Defiance 12

Questionable Corporate Payments Task Force 13

FCPA Enactment 14

Compliance Insight 1.1: First FCPA Prosecution 15

Criticism of the FCPA 17

A Culture of Compliance 18

2 OVERVIEW OF THE FOREIGN CORRUPT PRACTICES ACT 23

FCPA Provisions 23

Leveling the Playing Field 25

Antibribery Provisions 25

Jurisdiction 29

Facilitating Payments 29

Affirmative Defenses 30

FCPA Elements Summary 30

Compliance Insight 2.1: Metcalf and Eddy Civil FCPA Settlement 31

Books, Records, and Internal Controls Provision 34

Books and Records Elements Summary 35

Sarbanes-Oxley and the FCPA 35

Opinion Procedure 36

Penalties 37

Third-Party and Successor Liability 39

Compliance Insight 2.2: Self-Disclosure Follows M&A Activity 40

Why Corruption Matters 41

Compliance Insight 2.3: Afghanistan: A Case Study in Corruption 42

Increased Enforcement 45

3 GOVERNMENT GUIDANCE AND SIGNIFICANT CASES 49

Filip Memorandum 50

FCPA Compliance Programs: Case Law Guidance 52

A Lesson in Overseas Compliance 53

Compliance Insight 3.1: Rogue Employee Does the Crime, Company Does the Time 54

Cold Cash: U.S. v. Jefferson 56

Voluntary Disclosure 58

Evaluating the Seaboard Criteria in Mitigating Enforcement Actions 58

Compliance Insight 3.2: Appointment of Corporate Monitor Results in Charges of Cronyism 62

Selecting a Monitor: The Morford Memo Standards 63

Thought Leader in Corporate Compliance: George Stamboulidis 65

Government Procurement Fraud and the FCPA 68

Federal Acquisition Regulations Disclosure Requirements and the FCPA 68

Business Ethics Awareness and Compliance Program 70

4 GLOBAL ANTI-CORRUPTION EFFORTS 75

Globalization of Law Enforcement Cooperation 76

International Antibribery Efforts 77

OECD Convention on Combating Bribery 77

Inter-American Convention Against Corruption 79

European Union Convention on the Fight Against Corruption 81

African Union Convention on Preventing and Combating Corruption 81

Council of Europe Criminal Law Convention on Corruption 82

United Nations Convention Against Corruption 84

United Nations Global Compact 86

Canada’s Corruption of Foreign Public Officials Act 86

Compliance Insight 4.1: INTERPOL Fights Corruption 87

International Anti-Corruption Organizations 89

Transparency International 89

Corruption Perceptions Index 89

Compliance Insight 4.2: 2009 Corruption Perceptions Index: Top 20 Countries 90

Compliance Insight 4.3: 2009 Corruption Perceptions Index: Bottom 20 Countries 91

Other Transparency International Resources 91

Compliance Insight 4.4: Foreign Bribery Enforcement in OECD Convention Countries 92

Compliance Insight 4.5: Foreign Bribery Cases and Investigations 93

Compliance Insight 4.6: Status of Foreign Bribery Cases 94 World Bank 95

International Monetary Fund 97

Asian Development Bank 97

World Trade Organization 98

Partnering Against Corruption Initiative 99

Thought Leader in Corporate Compliance: Alan Boeckmann 100

Global Anti-Corruption Enforcement Trends 102

The Good Fight Against Corruption 103

5 SIEMENS: A NEW COMMITMENT TO A CULTURE OF COMPLIANCE 107

Company Overview and History 108

The Road to Corruption 108

Munich Public Prosecutor’s Office Investigation 110

Self-Disclosure and Subsequent Internal Investigation 111

Legal and Fair Internal Investigation 112

Project Office Compliance Investigation 113

Amnesty and Leniency Programs 113

Cooperation with Law Enforcement 114

Compliance Comeback 114

Criminal Charges, Plea Agreements, and Fines 115

Compliance Insight 5.1: Key Elements of Siemens’ Compliance Program: Prevent–Detect–Respond 116

New Corporate Compliance Program 119

Corporate Compliance Monitor 121

Siemens’ Remedial Efforts 122

Replacement of Top Management 122

Comparison of Old and New Compliance Programs 123

Clear Reporting Lines 124

Training and Communication 125

Anti-Corruption Training Program 125

Anti-Corruption Handbook 126

Ombudsman Program 126

Strengthened Internal Audit Function 126

Enhancing Internal Controls 127

Enhanced Policies and Procedures 128

Compliance Insight 5.2: Enhancement of Policies and Procedures 128

Compliance Helpdesk 129

Anti-Corruption Toolkit 129

Compliance Insight 5.3: Siemens’ Anti-Corruption Toolkit Focus Areas 130

Business Partner Review and Approval 131

Supplier Code of Conduct 132

Compliance Insight 5.4: Business Partner Review and Approval Process 133

Corporate Disciplinary Committee 134

Compliance Element of Senior Management Compensation 134

Compliance Progress Report 134

Compliance Insight 5.5: Siemens’ Compliance Progress Report from Q2 FY 2009 135

Becoming a Recognized Leader in Compliance 136

Compliance Insight 5.6: Siemens’ Compliance Objectives for 2009 136

Partnering with the World’s Anti-Corruption Community 136

Partnering Against Corruption Initiative 137

Business Guide on Fighting Corruption 137

The Road Forward 138

6 WORLDWIDE HOTSPOTS FOR CORRUPTION: UK, RUSSIA, AFRICA, THE MIDDLE EAST, AND LATIN AMERICA 143

Overview 144

Thought Leader in FCPA Compliance: Scott Moritz 145

The Natural Resource-Corruption Link 147

UK Tackles International Corruption 148

Compliance Insight 6.1: Weak Internal Controls Leads to Fine for Insurance Giant 149

UK Bribery Bill 151

Mabey & Johnson Prosecution 152

Strong Message from the SFO 153

Russia 154

Doing Business in Russia 156

Africa 157

Nigeria 158

Middle East 160

The Oil-for-Food Scandal 161

Compliance Insight 6.2: Companies Implicated in Oil-for-Food Scandal 162

Iraq Today 163

Latin America 163

Cases of Corruption 164

Multinational Company As Victim 165

7 WORLDWIDE HOTSPOTS FOR CORRUPTION AND BRIBERY: CHINA, CENTRAL ASIA, INDIA, AND ASIA PACIFIC 171

China 172

The Dangers of Agents: Avery Dennison 172

Heightened Anti-Corruption Enforcement Efforts in China 174

Corruption and Societal Discontent 176

Criminal Law of the People’s Republic of China 176

Company Law of the People’s Republic of China 177

Anti-Unfair Competition Law of the People’s Republic of China 177

Invitation and Submission of Bids Law of the People’s Republic of China 178

Interim Provisions on the Prohibition Against Commercial Bribery Acts 179

China Enforcement Agencies 179

Commission for Discipline Inspection of the Communist Party 179

Supreme People’s Procuratorate of the People’s Republic of China 179

Ministry of Public Security of the People’s Republic of China 180

State Administration for Industry and Commerce of the People’s Republic of China 180

The Dangers of Doing Business in China 180

Central Asia 182

‘‘Mr. Kazakhstan’’ 182

Head in the Azeri Sand 184

Baker Hughes 185

India 186

Asia Pacific 187

Indonesia 188

Vietnam 188

South Korea 189

Taiwan 190

8 BAE SYSTEMS: PAST BEHAVIOR HAUNTS THE COMPANY 197

Al Yamamah Deal 198

Compliance Insight 8.1: Suspicious Activity Report, January 30, 2004 199

FBI Scrutiny 200

BAE’s Denial 200

Serious Fraud Office Inquiry 201

Tony Blair Quashes the Investigation 201

DOJ’s Hard-Line Approach 204

BAE Response 204

Compliance Insight 8.2: Types and Numbers of Calls to BAE’s Ethics Helpline 205

Woolf Committee 206

BAE Follows a Different Path 207

9 DESIGNING AN EFFECTIVE ANTI-CORRUPTION COMPLIANCE PROGRAM 211

Federal Sentencing Guidelines for Organizations 213

The Seven Steps to an Effective Compliance Program 214

DOJ Guidance on Anti-Corruption Compliance Programs 217

Compliance Program Design 219

Red Flags and Risk Areas 221

Department of Justice’s FCPA Red Flags 221

Red Flags When Doing Business With Third Parties 222

Travel and Entertainment 223

Gifts 225

Mergers and Acquisitions 225

Compliance Insight 9.1: Inherent Compliance Risk in Acquisitions and New Business Lines 226

Autonomous International Business Units 227

Don’t Ignore Small Payments 228

Facilitation Payments 228

Corrupt Payments 229

Anti-Corruption Design Never Ends 229

Thought Leaders in FCPA Compliance: Joseph Spinelli, Scott Moritz, and Jay Perlman 230

10 IMPLEMENTING AN EFFECTIVE ANTI-CORRUPTION COMPLIANCE PROGRAM 237

Anti-Corruption Standards and Procedures 238

Training and Communication 241

Red Flags Training 243

Anti-Corruption Training Best Practices 244

Compliance Insight 10.1: Driving Home the Impact of Corruption 245

Delivery Methods for Training 246

Specific Anti-Corruption Reporting Mechanism 246

Communicating the Compliance Program 247

Evaluating Your Anti-Corruption Training Program 248

M&A Due Diligence 250

Risk Assessments 251

Thought Leader in FCPA Compliance: Leslie McCarthy 252

Internal Accounting Controls 256

Role of Internal Audit 256

Anti-Corruption Audit Program 257

Other Compliance Program Best Practices 260

Field-Based Compliance Officers 260

FCPA Enforcement Database 261

Benchmarking 261

Commitment to Anti-Corruption Compliance Programs 261

Compliance Insight 10.2: Sample Compliance Activities Checklist 262

11 MONSANTO: FIGHTING CORRUPTION FOR A BETTERWORLD 265

A Commitment to Agriculture 266

DOJ and SEC FCPA Investigation 266

Acceptance of Responsibility and Remedial Actions 268

Compliance Insight 11.1: Monsanto Compliance Program Overview 269

Tone at the Top and a Revamped Code of Conduct 269

Messages from Senior Leaders 271

Business Conduct Office 272

Training 273

Regional Working Groups 274

FCPA Working Group Guidelines 275

Compliance Insight 11.2: Monsanto Business Conduct Policy Employee Guidelines 276

Gifts, Entertainment, and Other Promotional Expenditures 278

Per Diem Payments 280

Facilitating Payments 280

Political Donations 281

Charitable Donations and Donations to Governments 281

Trade Associations 282

Doing Business with Foreign Officials and Their Relatives 283

Dealing with Third Parties 283

Training Third Parties 285

Joint Ventures 286

Contractual Safeguards and Oversight 287

Audit 288

Opinion from Outside Counsel 289

Local Law Advice 290

Response to Possible Violations 291

Internal and Independent Investigations 291

Internal Coordination and Training 291

The Monsanto Pledge 292

12 INTERNAL INVESTIGATIONS 293

Consequences of Failing to Act 294

Preparing for the Investigation 296

Preserving Documentary and Electronic Information 297

Assembling the Investigative Team 298

Investigations Code of Conduct 299

Investigative Plan 301

Conducting Interviews 303

Thought Leader in Internal Investigations: David Z. Seide 304

Employee Legal Representation 307

Interviewing and Reporting 308

Employee Cooperation with Company Investigations 309

International Investigations 310

Anti-Corruption Enforcement Trends 310

Siemens Internal Investigation Approach 311

Determining Systemic Corruption and FCPA Violations 312

Self-Disclosure of FCPA Violations 313

Compliance Emergency Preparedness Kit 315

13 PAST, PRESENT, AND FUTURE OF THE FCPA 319

The Past 320

The Present 321

Thought Leader in FCPA Compliance: Marjorie Doyle 323

Corporate Ignorance Is Not Bliss 328

It’s Not Rocket Science 329

On the Horizon 330

The Future 330

Battling the Disease of Corruption 331

Appendix Opinion Procedure Releases 335

About the Authors 347

Index 351