Internal Investigations By Outside Counsel: Implications for Anti-Corruption Enforcement

1. Internal Investigations By Outside Counsel:Implications for Anti-Corruption Enforcement JAMES E. HOUGH February 19, 2007 American Bar Association’s “The Role of Lawyers, the Bar, and the Bench in Preventing and Combating Corruption within the Justice System”

2. Internal Investigations By Outside Counsel WH0conducts corruption-related investigations? WHATis investigated? WHENare investigations performed? WHYare investigations conducted?

3. Internal Investigations: WHO? • Global companies whose home jurisdictions prohibit foreign corrupt payments. • Thirty-six “supply-side” countries now prohibit use of corporate funds to pay bribes to foreign officials.

5. Examples of Companies Subject to Prohibitions on Foreign Bribery France USA Netherlands South Korea Switzerland UK Germany USA Japan USA

6. EXAMPLES OF APPLICABLE SANCTIONS

7. Internal Investigations: WHAT U.S. FOREIGN CORRUPT PRACTICES ACT • Anti-Bribery Provisions • Apply to all U.S. companies (including officers, directors, employee, agents and shareholders) and all U.S. nationals • Apply to non-U.S. companies and nationals who act in U.S. • Accounting/Books and Records Provision • Applies only to U.S. “issuers” • Affect foreign subsidiaries and affiliates of issuers

8. Internal Investigations: WHAT • PrimarilyFact Investigation • Collecting, reviewing and preserving evidence • E-mail and electronic data • Hard copy documents • Conducting interviews • Key executives • Staff • Consultants, agents and/or customers

9. Internal Investigations: WHEN • Whistleblower allegations • SOX provides protections and incentives • M&A due diligence • Auditor questions • Investigations already underway by authorities

10. Internal Investigations: WHY? “. . . Foreign bribery is a difficult offense to detect, since it is committed in secret and involves two satisfied parties . . . .” OECD Mid-Term Study of Phase 2 Reports, p. 92 (available at: http://www.oecd.org/dataoecd/19/39/36872226.pdf)

11. Internal Investigations: WHY • Reduces exposure to government action • Puts company in better position to respond to charges/lawsuits • Prevents future wrongdoing • Provides information that management needs to fulfill responsibilities

12. Internal Investigations: WHY Advantages of outside counsel: • Increased control over information discovered • U.S. law: Attorney-Client Privilege; Work Product Protection • Independence from management • Ethical obligations • Avoids conflicting interests • Credibility if company decides to self-report

13. Internal Investigations: WHY • Voluntary disclosure to government over improper conduct discovered by internal investigation • U.S. reporting FCPA violations made both to DOJ and SEC • Criminal case against company by DOJ less likely • Lowers or eliminates SEC penalty

14. Self-Reporting Example: Schnitzer Steel • Korean subsidiary made over $1.8M in improper payments to customers, many of whom were Chinese state-owned entities • Self-reported to DOJ and SEC • Reported both bribery of foreign government officials, and books and records violations • Korean subsidiary entered guilty plea; Schnitzer Steel entered deferred prosecution agreement with DOJ • Schnitzer Steel and Korean subsidiary paid over $15M to settle matter

15. Self-Reporting Example: Baker Hughes • Paid $75,000 through an agent to Indonesian tax official to reduce assessed tax • Self-reported • Company, CFO, Controller charged by SEC • $30 million estimated cost of remediation required by government

16. RECENT FCPA ENFORCEMENT ACTIONS

17. RECENT FCPA ENFORCEMENT ACTIONS

18. Internal Investigations: WHY • U.S. Law: incentives to disclose if find problems • Governments increasingly likely to share information with authorities where corrupt activity took place • OECD Convention incorporates “Mutual Legal Assistance” • UN Declaration Against Corruption and Bribery in International Business Transactions

19. THANK YOU James E. Hough Morrison & Foerster LLP