Posts Tagged ‘AntiCorruption’
Enforcement of the Foreign Corrupt Practices Act is at an all time high. The U.S. DOJ and SEC have made it clear that anti-corruption enforcement efforts will remain a high priority. In era such as this, it is critical to avoid getting caught in the regulatory crosshairs that all multi-national companies take FCPA enforcement seriously. Minimize your company’s risk exposure by ensuring that an effective anti-corruption compliance policy is in place, continuously audited and that all employees are trained and up to speed on what current corporate compliance policies are.
No industry is immune from FCPA enforcement.
Having an effective and comprehensive FCPA compliance policy in place will demonstrate to employees and, if necessary, law enforcement officials that your company considers anti-corruption compliance an important corporate goal and priority. If done properly, a comprehensive compliance program can act as a valuable corporate asset to enhance day-to-day business and legal operations and facilities compliance while also mitigating reputational and monetary damages when and if a violation should occur.
Learn what steps your company needs to take to successfully implement and monitor an effective anti-corruption compliance program under the current enforcement environment.
Attendees of this highly rated American Conference Institute FCPA Boot Camp, will walk away with a comprehensive working knowledge of the Foreign Corrupt Practices Act, as well as practical strategies for addressing high risk areas for enforcement exposure across business operations. Topics of discussion will include:
- What the latest settlements and investigations reveal about FCPA compliance priorities
- Building and managing a robust anti-corruption compliance program despite budgetary constraints
- Updating your global anti-corruption compliance program in light of the UK Bribery Act
- Auditing and monitoring third party relationships
- Ensuring appropriate contractual safeguards with Alliance and JV partners to minimize FCPA exposure
Throughout this intense, two-day course, attendees will be provided with ample opportunity to ask questions while also engaging with and comparing notes with your peers. Whether you are new to the area or just need a comprehensive refresher, this FCPA Boot Camp will provide you with the foundation you need to ensure your company’s FCPA compliance.
Based on registration trends for other programs in our boot camp series, seats can be expected to sell out. Secure your place today by calling 1-888-224-2480; faxing your registration form to 1-877-927-1563; or registering online
What is in a name? The terms agent, reseller and distributor are sometimes used interchangeably in the business world. However in the legal world they usually have distinct definitions. An agent can be generally defined as is a person who is authorized to act on behalf of another to create a legal relationship with a Third Party. An agent can also be a person who makes introductions and generally facilitates relationships between the seller of goods or services and end-using buyer. Such an agent usually receives some type of percentage of the final sale as his commission. An in-country national agent is often required in most Middle East and Far East countries. A reseller can be generally defined as a company or individual that sells goods to an end-using buyer. A reseller does not take title and thereby own the goods; the reseller is usually a conduit from the seller to the end-using buyer. A reseller usually receives a flat commission for his services, usually between 5-10% of the final purchase price. This format is often used in the software and hardware industries. A distributor can be generally defined as a company or individual which purchases a product from an original equipment manufacturer (OEM) and then independently sells that product to an end user. A distributor takes title, physical possession and owns the products. The distributor then sells the product again to an end-using purchaser. The distributor usually receives the product at some discount from the OEM and then is free to set his price at any amount above what he paid for the product. A distributor is often used by the US manufacturing industry to act as a sales force outside the US.
The landscape of the Foreign Corrupt Practices Act (FCPA) is littered with cases involving both agents and resellers are they are the most clearly acting as representatives of the companies whose goods or services they sell for in foreign countries. However many US businesses believe that the legal differences between agents/resellers and distributors insulate them from FCPA liability should the conduct of the distributor violate the Act. They believe that as the distributor takes title and physical possession of the product, the legal risk of ownership has shifted to the distributor. If the goods are damaged or destroyed, the loss will be the distributor’s not the US business which manufactured the product. Under this same analysis, many US companies believe that the FCPA risk has also shifted from the US company to the foreign distributor. However such belief is sorely miss-placed.
As almost everyone knows, the FCPA prohibits payments to foreign officials to obtain or retain business or secure an improper business advantage. But many US companies view distributors as different from other types of sales representatives such as company sales representatives, agents, resellers or even joint venture partners, for the purposes of FCPA liability. However the Department of Justice (DOJ) takes the position that a US company’s FCPA responsibilities extend to the conduct of a wide range of third parties, including the aforementioned company sales representatives, agents, resellers, joint venture partners but also distributors. No U.S. company can ignore signs that its distributors may be violating the FCPA. Company management cannot engage in conscious avoidance to the activities of a distributor that the company has put into a business position favorable to engaging in FCPA violations. Court interpretation of the FCPA has held that it is applicable where conduct violative of the Act is used to “to obtain or retain business or secure an improper business advantage” which can cover almost any kind of advantage, including indirect monetary advantage even as nebulous as reputational advantage.
This scenario played out in China from 1997 to 2005 through AGA Medical Corporation. The Minnesota-based firm manufactured products used to treat congenital heart defects. To boost is China sales, AGA worked through its Chinese distributor. AGA sold products at a discounted rate to its Chinese distributor. This distributor then took some of the difference between his price from the equipment manufacturer AGA and the price he sold the equipment to Chinese hospitals to and paid corrupt payments to Chinese doctors to have them direct their government-owned hospitals to purchase AGA’s products. Its sales in China for the period were about $13.5 million. The Chinese distributor was found to have paid bribes in China of at least $460,000 to doctors in government-owned hospitals and patent-office officials. In 2008, AGA agreed to pay a $2 million criminal penalty and enter into a deferred prosecution agreement with the Department of Justice to settle Foreign Corrupt Practices Act violations.
The same game was played by a Volvo subsidiary, Volvo Construction Equipment International (“VCEI”) when it used a Tunisian distributor to facilitate additional sales of its products to Iraq. VCEI reduced its prices to enable the distributor to make the illegal payments based on bogus after-sales service fees. Volvo’s 2008 settlement with the SEC included an agreement permanently enjoining it from future violations of Sections, ordering it to disgorge $7,299,208 in profits plus $1,303,441 in pre-judgment interest, and to pay a civil penalty of $4,000,000. In addition to this fine imposed by the SEC, Volvo also paid a $7,000,000 penalty pursuant to a deferred prosecution agreement with the DOJ.
So what is in a name? Do we simply look to Shakespeare and his immortal words, “”What’s in a name? That which we call a rose; By any other name would smell as sweet.” Unfortunately I do not think the answer is quite so ethereal. It is more down to earth. If it walks like a duck and quacks like a duck, it probably is a duck. If you have a distributor, it must be subjected to the same FCPA scrutiny and management as an agent, reseller or joint venture partner.This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal adviser. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The author can be reached at firstname.lastname@example.org. © Thomas R. Fox, 2010
What are the methods to assess the risks of your Supply Chain vendors? Other than perhaps financial due diligence, such as through Dun & Bradstreet or quality control through your QHSE group, the Supply Chain probably does not command your Compliance Department attention as do other types of third party business partners such as agents, distributors and joint venture partners. This may be coming to an end as most Compliance Professionals recognize that third parties which supply goods or services to a company should be scrutinized similarly to other third party business partners. In the recently released Deferred Prosecution Agreement with Panalpina and six other oil-field service companies, the Department of Justice specifically noted that regarding business partners, such as Supply Chain vendors, a company should, ”it should institute appropriate due diligence” so as to help ensure compliance with the FCPA.
However to initiate “appropriate due diligence” a company must first rate the compliance risk of any third party, such as a Supply Chain vendor. The risk rating will inform the level of due diligence required. There are several methods that could be used to assess risk in the area of supply chain and vendors. The approach suggested by the UK’s Financial Services Authority (FSA) in its settlement of the enforcement action against the insurance giant AON would refer “to an internationally accepted corruption perceptions index” such as is available through Transparency International or other recognized authority. The approach suggested by the Department of Justice, in Release Opinion 08-02 would provide categories of “High Risk, Medium Risk and Low Risk”. Finally, writing in the FCPA Blog, Scott Moritz of Daylight Forensic & Advisory LLC has suggested an approach that incorporates a variety of risk-assessment tools, including, “the strategic use of information technology, tracking and sorting the critical elements”.
This commentary proposes an approach which would incorporate all three of the above cited analogous compliance areas into one risk-based assessment program for supply chain vendors. Based upon the assessed risk, an appropriate level of due diligence would then be required. The categories suggested are as follows:
1. High Risk Suppliers;
2. Low Risk Suppliers;
3. Nominal Risk Suppliers; and
4. Suppliers of General Goods and Products
A. High-Risk Suppliers
A High-Risk Supplier is defined as a supplier which presents a higher level of compliance risk because of the presence of one or more of the following factors:
1. It is based in or supplies goods/services from a high risk country;
2. It has a reputation in the business community for questionable business practices or ethics; or
3. It has been convicted of, or is alleged to have been involved in, illegal conduct and has failed to undertake effective remedial actions.
B. Low-Risk Suppliers
A Low-Risk Supplier is defined as an individual or private entity located in a Low-Risk Country which:
1. Supplies goods or services in a Low-Risk Country;
2. Is based in a low risk country where the goods or services are delivered, it has no involvement with any foreign government, government entity, or Government Official; or
3. Is subject to the US FCPA and/or Sarbanes-Oxley compliance
C. Minimal-Risk Suppliers
A Minimal-Risk Supplier is an individual or entity which provides goods or services that are non-specific to a particular job or assignment and the value of each transaction is USD $10,000 or less. These types of vendors include office and industrial suppliers, equipment leasing companies and such entities which supply such routinely used services.
D. Suppliers of General Goods and Products
A Supplier of General Goods and Products is an individual or entity which provides goods or services that are widely available to the general public and do not fall under the definition of Minimal-Risk Supplier. These types of vendors include transportation, food services and educational services providers.
This proposed rating is but one method to allow a company to assess its risks involving its Supply Chain vendors. As has been noted in both the Consultative Guidance to the United Kingdom Bribery Act and in the Panalpina settlements, both documents list the risk rating as a key component of a best practices anti-corruption and anti-bribery compliance program. A company need not engage in full due diligence for all Supply Chain vendors. However it must implement and follow a system to rate each vendor for that vendor’s FCPA compliance risk and evaluate and manage that relationship accordinglyThis publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at email@example.com.
© Thomas R. Fox, 2010
The Six Principles of a Best Practices Anti-Corruption Program Under the UK Bribery Act Guidance-Part IIIUK Bribery Act part 1 and UK Bribery Act part 2 are available.
By: Thomas Fox
Last week the United Kingdom’s Ministry of Justice released its “Consultation on guidance about commercial organisations preventing bribery (section 9 of the Bribery Act 2010)”. The stated purpose of this document is to provide guidance, as required under section 9 of the Act, to “support businesses in determining the sorts of bribery prevention measures they can put in place.” Businesses covered by the UK Bribery Act can be convicted of a criminal offence if they fail to prevent bribery on their behalf. However, the Act provides that if the organization can show that it has adequate bribery prevention procedures in place, such “adequate procedures” are a defense to a prosecution.
The Consultation lists “Six Principles for Bribery Prevention” which the Ministry of Justice believes are good international practices for such adequate procedures and is designed to assist businesses in determining what bribery prevention procedures they can put in place. In prior postings, we reviewed Principles 1 through 4. In this final posting, we will provide a review of Principles 5 and 6.
Initially it should be noted that the Six Principles are designed to be result oriented and to allow a flexible approach to ethics and compliance. US practitioners will observe this is in contrast to the US approach, which is much more rules based. The UK approach is to allow each company to tailor its policies and procedures so that they are proportionate to the nature, scale and complexity of its activities. Clearly there is a huge variety of circumstances; small and medium sized organizations will, for example, face different challenges compared to large multi-national enterprises. As a result, the detail of how each company addresses these principles will vary, but the outcome should always be robust with effective anti-bribery systems and controls.
PRINCIPLE 5: Effective implementation
The commercial organisation effectively implements its anti-bribery policies and procedures and ensures they are embedded throughout the organisation. This process ensures that the development of polices and procedures reflects the practical business issues that an organisation’s management and workforce face when seeking to conduct business without bribery.
The Consultation makes clear that appropriate anti-bribery and anti-corruption policies and procedures will vary enormously depending on the nature of the business, the assessment of risk and the nature of its operational and support functions. However, there must be effective implementation if these anti-bribery and anti-corruption policies and procedures are to be successful. The Consultation provides specific steps implementation strategies that companies should consider when bringing their anti-bribery and anti-corruption commitments “to life.”
As with other corporate programs, anti-bribery and anti-corruption policies and procedures cannot manage the risks if left in a file or on a shelf, they need to be implemented through the allocation of roles and responsibilities and by setting milestones for delivery and review. Put another way, companies are required to do more than just passively “have” anti-bribery and anti-corruption policies and procedures; they must actively “do” anti-bribery and anti-corruption.
To accomplish this Principle, companies should establish an execution strategy that clearly sets out how anti-bribery and anti-corruption policies and procedures are to be implemented across the company’s various groups and functions. Such detail would include some or all of the following steps.
- Designation of who will be responsible for the anti-bribery and anti-corruption policies and procedures implementation;
- A determination of how the anti-bribery and anti-corruption policies and procedures will be communicated internally and externally;
- Provisions for the nature of training, whether live, online or a combination of both and how it will be rolled out;
- Who will report to top management and the quantity and quality of information which should be presented to a company’s Board of Directors.
- The extent to which external auditing processes will be engaged;
- The specific arrangements for monitoring compliance;
- The timescale of implementation;
- A clear articulation of the penalties for breaches of agreed policies and procedures; and
- An established time table for reviews and assessments, suggested at no less than biennially.
With regards to internal communications, the Consultation provides procedures for the best practices on how businesses should communicate anti-bribery policies and procedures to relevant staff, and the need for bribery prevention training. If training is necessary, it could cover the bribery risks the organization is exposed to as well as the organization’s anti-bribery policies and procedures. It should also be tailored for different functions within the organization. Interestingly, noted within the internal communication section, the Consultation remarks that companies should consider offering, or even requiring, the participation of business partners in anti-bribery training courses.
Companies should use external communication to promote better implementation of policies and procedures as well as providing support for business partners and employees seeking to implement the said polices and procedures. External communication can range from the provision of information on the organization’s web-site to direct face-to-face communication with key players at meetings. Messages could include an indication that employees will be subject to robust internal sanctions (in addition to any criminal justice outcome if criminal offences are committed) if they accept bribes and that corrupt vendors risk being removed from the list of approved suppliers.
PRINCIPLE 6 - Monitoring and review
The commercial organisation institutes monitoring and review mechanisms to ensure compliance with relevant policies and procedures and identifies any issues as they arise. The organisation implements improvements where appropriate.
Anti-bribery and anti-corruption policies must be viewed as dynamic and not static. This concern will require companies to perform ongoing monitoring of their compliance programs and adapting to changing circumstances, possibly in response to any incidents involving bribery and corruption, in order to remain effective. Although the time period for such ongoing monitoring and review is (or is not?) presented in the Consultation; it does provides several examples which companies may wish to consider when following this Principle of ongoing monitoring and review of procedures.
Internal monitoring and review mechanisms
The guiding tenet of this Principle would appear to be a determination of the internal checks and balances needed to monitor and review anti-bribery policies.
In smaller organizations, this might include effective financial and auditing controls that identify potential and actual irregularities, combined perhaps with a means by which the views and comments of employees and key business partners are incorporated into the continuing improvement of anti-bribery policies.
However for larger businesses this might include financial monitoring, bribery reporting and incident investigations. There should also be a requirement to report the results of such reviews to the Audit Committee, the Board of Directors or equivalent body. In turn, the Audit Committee, Board, or equivalent body, may wish to make an independent assessment of the adequacy of anti-bribery policies and disclose their findings and recommendations for improvement in the company’s Annual Report to shareholders.
Companies should also determine appropriate ways of identifying when a review of bribery risk, and the corresponding policies and procedures, is necessary; ensuring that if, for example, external events like government changes, corruption convictions, or negative press reports occur, an appropriate compliance response is triggered. It would be prudent for Companies to consult the publications of relevant trade bodies or regulators that could highlight examples of good or bad practice. Organizations should also ensure that their procedures take account of external methods of issue identification and reporting as a result of the statutory requirements applying to their supporting institutions, for example money laundering regulations reporting by accountants and solicitors.
Transparency is an important anti-bribery tool. Secrecy within a business and the failure to disclose important information about specific projects can facilitate the payment, receipt and concealment of bribes. Given the challenges posed by distance and unfamiliarity with overseas customs and regulations, businesses may wish to consider how to monitor the implementation of anti-bribery procedures in overseas offices and business partners.
The senior management of higher risk and larger organizations may wish to consider whether to commission external verification or assurance of the effectiveness of anti-bribery and anti-corruption policies, or to seek membership of one of the independently-verified anti-bribery code group or organization monitored by industrial sector associations or multilateral bodies. An independent review can be helpful in providing companies undergoing structural change, or entering new markets, with an insight into the strengths and weaknesses of its anti-bribery policies and procedures and in identifying areas for improvement. Such independent analysis would also enhance a company’s credibility with business partners or restore market confidence following the discovery of a bribery incident, help meet the requirements of both voluntary or industry initiatives and any future pre-qualification requirements.
Although the recently published UK guidance only deals with the UK Bribery Act requirements it is important to note that because of the long arm jurisdiction of the act many companies subject to the Foreign Corrupt Practices Act (FCPA) will also be subject to the UK Bribery Act. So it may be necessary to build on top of existing FCPA policies to ensure they are compliant with the new UK Bribery Act.
All organizations will need to trigger the requirement to comply with the UK law if they wish to “carry on business” in the UK. The UK Government has provided a very useful tool for any company which desires to measure its current compliance and ethics program. This type of guidance is quite welcome. It should be studied closely by any Compliance Professional or Law Department employee to assist in setting up a best practice anti-bribery and anti-corruption program.This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at firstname.lastname@example.org © Thomas R. Fox, 2010
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