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Bryan Daly Bethany Hengsbach Sheppard, Mullin, Richter & Hampton

Evaluating Recent FCPA and Anti-Corruption Enforcement Actions to Identify Red Flags and Target Potential Risks. Bryan Daly Bethany Hengsbach Sheppard, Mullin, Richter & Hampton. Enforcement Trends. Increased enforcement Penalties Number of prosecutions/investigations

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Bryan Daly Bethany Hengsbach Sheppard, Mullin, Richter & Hampton

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  1. Evaluating Recent FCPA and Anti-Corruption Enforcement Actions to Identify Red Flags and Target Potential Risks Bryan Daly Bethany Hengsbach Sheppard, Mullin, Richter & Hampton

  2. Enforcement Trends • Increased enforcement • Penalties • Number of prosecutions/investigations • Increased government resources • Focus on individuals • International cooperation • Industry-wide probes • Technology Sector

  3. Increased Enforcement FCPA Fines Imposed on Corporations $1,825.3 B $1,600 $1,400 $1,200 $893.4 $1,000 $800 $621.9 $600 $400 $155.1 $87.2 $200 $36.3 $28.2 $0 In Millions 2004 2005 2006 2007 2008 2009 2010

  4. Increased Government Resources More government resources on the ground: SEC now has FCPA-dedicated unit in San Francisco FBI agents dedicated to the FCPA Whistleblower provisions of the Dodd-Frank Act Trials

  5. Focus on Individuals – Latin Node CEO and Board Chairman sentenced to 46 months in prison, plus 2 years supervised release 3rd longest FCPA prison sentence in history 87 months (#1) 57 months (#2) Improper payments to state-owned telecommunications company in Honduras

  6. Focus on Individuals - Lindsey Manufacturing CEO and CFO convicted after 6 week trial 30% commission to agents in Mexico No "smoking gun" evidence of actual knowledge Face jail time and fines that cannot be paid by the company

  7. International Cooperation Global anti-corruption settlements BAE Systems Innospec Ongoing investigations Allianz Hewlett-Packard

  8. Industry-wide Probes: Technology Sector • Recent settlements by IBM, Maxwell Technologies, Comverse Technology • Business model involves regular interaction with government officials • Rapid expansion into emerging markets • Heavy use of intermediaries

  9. IBM (2011) $10 million to settle SEC charges of books and records and internal controls violations Improper cash payments to government officials in South Korea and China Giving gifts and paying travel and entertainment expenses that violated the FCPA

  10. Maxwell Technologies (2011) $14 million to settle DOJ and SEC charges COO reported that the issue was known and was being dealt with while at the same time requesting that there be "[n]o more emails" about the issue SEC described Maxwell's internal controls as "wholly inadequate"

  11. JGC Corporation (2011) JGC paid $220 million to settle DOJ charges DPA Independent compliance consultant for 2 years Agent forfeited $149 million to the DOJ, the largest individual forfeiture in FCPA history “Commissions” paid to intermediaries to secure contracts on Bonny Island in Nigeria The “Bonny Island” settlements now total $1.5 BILLION

  12. Johnson & Johnson (2011) J&J subsidiaries paid public health workers in Greece, Poland and Romania to induce the purchase of J&J medical devices Paid kickbacks in Iraq to obtain Oil for Food contracts $70 million settlement with the DOJ and SEC, and entered into DPA with the DOJ

  13. What does this mean for compliance? What does this mean for compliance? • Streamline • Common sense • No “one size fits all”

  14. What does this mean for compliance? • Risk and Resources driven • Third parties • Biggest producers • Follow the money

  15. What does this mean for compliance? • Ongoing feedback and monitoring • Risk Assessments • Audits • Best Practices Reviews

  16. What does this mean for compliance? Tone at the Top Keep management informed Keep Board and Audit Committee informed Document everything!

  17. Contact Information Bryan D. Daly(213) 617-5466bdaly@sheppardmullin.com Bethany Hengsbach(213) 617-4125bhengsbach@sheppardmullin.com

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