U.S. Anti-Corruption Compliance

1. U.S. Anti-Corruption Compliance Danforth Newcomb dnewcomb@shearman.com

2. U.S. Anti-Corruption Topics • Elements of a Violation • Enforcement Trends • Evaluating Compliance • Discussion

3. Global Anti-Corruption History

4. U.S. Anti-Corruption Topics Elements of a Violation

5. U.S. Jurisdiction • Extraterritorial for U.S. companies and nationals • Includes U.S. subsidiaries of non-U.S. companies • Includes U.S. nationals working overseas for non-U.S. companies • Territorial jurisdiction for non-U.S. companies and non-U.S. nationals • Includes non-U.S. companies and individuals who do any act within the United States • Includes non-U.S. subsidiaries of U.S. companies • Includes non-U.S. nationals working in the U.S. for either U.S. or non-U.S. companies

6. Who is Covered? U.S. Citizens Organizations under U.S. Law U.S. Residents SEC Registered Employees of Above U.S. Nationals Anywhere Agents & Stockholders Acting for Above Any Person in the U.S.

7. U.S. Territorial Jurisdiction

8. FCPA Penalties

9. U.S. Books & Records Provisions Applies to “Issuers” • U.S. public companies • Non-U.S. companies whose securities are traded over U.S. exchanges or who are otherwise registered with the U.S. Securities & Exchange Commission Two Requirements: • Maintain books and records which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets • Devise & maintain internal controls that reasonably assure • the books and records are accurate and • transactions are pursuant to specific or general management direction

10. Corrupt act in furtherance Of payment, offer, promise, or authorization of “anything of value” to “Foreign official”, political party, party official, candidate, or “any person” To induce action (quid pro quo) or obtain improper advantage To obtain or retain business U.S. Anti-Bribery Provisions

11. Affirmative Defenses Reasonable and bona fide expenditures • Promotion, demonstration, or explanation of products or services • Execution or performance of a contract with a government Lawful payments to government officials • Lawful under the written law of the official’s country

12. Anything of Value Money Monetary equivalents Stock Assumption of Debt Services Employment Travel Entertainment Gifts Family Benefits CharitableContributions Political Contributions

13. Foreign Official Employees Of Any Department Government Agency Political Party Gov.- Owned Company Public International Organization Official Capacity

14. Any Person Customers Agents Suppliers Consultants Subsidiaries Partners Subcontractors Family Members Advisors (Lawyers, Accountants, etc.)

15. Knowing Willful Blindness Circumstantial Evidence

16. Recent U.S. Case Analysis Most of the top FCPA penalties have involved the use of agents

17. U.S. Anti-Corruption Topics Enforcement Trends

18. Why More U.S. Enforcement Actions? • OECD Convention • Availability of evidence • Cooperation & coordination amongst enforcement authorities • Peer review pressure • Additional U.S. enforcement resources • FCPA unit at DOJ • FCPA FBI squad • FCPA unit at SEC HQ and field offices (32 attorneys) • U.S. foreign policy • Link corrupt regimes to terrorism and drug trafficking • Whistleblower incentives • Dodd-Frank • False Claims Act

19. OECD Enforcement Actions1999 – 2011 Japan Korea Italy Germany All Others U.S.

20. U.S. Defendants by Country of Official

21. Trends in U. S. Sanctions Company: Fines, Civil Penalties, Disgorgement & Interest • $800 million Siemens (+ € 596 M in Germany and $100 M to World Bank) (2008) • $579 million KBR/ Halliburton (2009) • $400 million BAE (2010) (+£30 M in UK) • $365 million Snamprogetti (2010) • $338 million Technip (2010) • $218 million JGC Corp (2011) • $185 million Daimler (2010) • $137 million Alcatel (2010) Individual: Jail • 15 Years Terra Telecom (2011) • 156 months Jefferson (2007) • 87 months Jumet (2009) • 84 months Stanley (2008) • 63 months Murphy (2002) • 57 months Diaz (2009) Total Criminal and Civil Fines Imposedon Corporations: 2002 – 2012 YTD Amount in Millions ($) Amounts Pertaining to Siemens 2008 and KBR 2009

22. DOJ SEC U.S. Prosecution of Individuals Individuals Charged: 2002-2012 YTD Clear Shift in DOJ & SEC Policy Aggressive Legal Theories • Control Person Liability Aggressive Investigative Tactics • International Cooperation • Wiretaps, Search Warrants • Extradition • Interdiction • Revoking Passports “To really achieve the kind of deterrent effect we’re shooting for, you have to prosecute individuals. . . . If the only sanctions out there are monetary, penalties against companies could be interpreted as the cost of doing business. But when people’s liberty is at stake, it resonates in new ways.” Mark Mendelsohn, DOJ “Prosecution of Individuals is a cornerstone of our enforcement strategy.” Lanny Breuer, DOJ

23. U.S. foreign U.S. Prosecution of Corporations Total Corporate Matters Initiated: 2002-2012 YTD Voluntary Disclosures • Sarbanes-Oxley • Auditors • Principles of Federal Prosecution of Business Organizations • U.S. Sentencing Guidelines Industry Sector Initiatives • Customs Agents / Freight Forwarders (Oil & Gas) • Pharmaceutical / Medical Device Industry Collateral Investigations • Antitrust • EPA • National Security • Medicare / Medicaid / Insurance Fraud Mergers & Acquisitions • Due Diligence Discoveries • “The prosecution of corporate crime is a high priority for the Department of Justice. . . . Indicting corporations for wrongdoing enables the government to be a force for positive change of corporate culture, and a force to prevent, discover, and punish serious crimes.” Principles of Federal Prosecution of Business Organizations

24. U.S. Corporate Enforcement Actions are Negotiated Criminal Civil Data Source; 1999 – 2011 OECD

25. U.S. Criminal Negotiations Data 2004 -2009

26. U.S. Criminal Disposition by Bribe AmountData 2004 - 2009 $3.2 mil - $805 mil $.28 mil - $1.9 mil $.02 mil - $.2 mil Plea DPA Decl NPA

27. U.S. Anti-Corruption Trends Evaluating Compliance

28. Criminal DOJ Decision Whether to Prosecute Voluntary Disclosure Cooperation in Investigation Effective Compliance Program Penalty Mitigation Voluntary Disclosure Cooperation in Investigation Acceptance of Responsibility Remediation Civil SEC Decision Whether to Charge & Penalty Mitigation Voluntary Disclosure Cooperation in Investigation Effective Compliance Program Remediation Avoid Shareholder Claims Avoid Debarment Proceedings U.S. Incentives for Corporate Compliance Prevent & Detect Corruption and Related Reputation Risks and Investigations

29. Evaluating Compliance Programs Seven elements of an effective anti-corruption compliance program: • Establish compliance and ethics standards and procedures to be followed by employees and other agents • Board of directors must exercise reasonable oversight and assignment of overall responsibility • Due diligence in delegation of substantial authority • Implement training programs and information dissemination • Implement monitoring and auditing systems, including use of a reporting system • Implement and consistently enforce appropriate disciplinary mechanisms • Respond appropriately to misconduct and take all reasonable steps to prevent similar offenses

30. Evaluating Policy & Procedures • High level statement of principle only • e.g. “We only do business through third parties who we know and can trust to follow our anti-corruption policy” Establishes risk categories, procedures, and approval levels and identifies red flags FAQs and Summaries • Concise, easy-to-read guidance without jargon • Translated into multiple languages Implementing Protocols • More technical and comprehensive • Reference for sponsors and others directly involved in process • May vary by region

31. Evaluating Responsibilities Sales&Marketing Finance&Controls Legal&Compliance • Identify need for partner • Conduct due diligence • Make initial decision as to whether to use partner • Provide periodic certification of continued compliance • Secondary approval for higher risk partners • Review and analyze commissions and other partner payments • Maintain “authorized agent” and “do not use” lists • Develop third party policy • Oversee training program • Ensure proper enforcement • Provide legal advice • Supplemental approval for higher risk partners • Periodic compliance audits • Everyone Checks for Red Flags

32. Evaluating Third Party Diligence • Recognize and Assess Risk Involving All Third Parties – whenever money or value leaves the company • Agents, Consultants, and Sales Representatives • Wholesalers and Distributors • Vendors, Suppliers, and Service Providers • Partners and Joint Venture Parties • Positive and Negative Due Diligence • Document and Retain Findings • Independent Review and Approval • Periodically Update Due Diligence for Long-term Relationships

33. Project Red Flags Government Sales Low government involvement Customer desires certain third party Low-risk country High-risk country Project Long relationship between UVV and project Transparent bidding process Proposal matches vendor capability Customer suggests charitable or political contribution Large and infrequent sales

34. Operations Red Flags Becomes subject to investigation Performanceconsistent withproposals Accurate documentation Requests backdatingor fraudulent documentation Suspicious documentation Anti-corruptionprogram Operations Well-trainedemployees Connection with government or customer emerges Refuses to certify compliance Suspicious expenses or travel

35. PaymentsRed Flags Third countries or parties Commercially reasonable terms Regular channels Shell companies Third-country banks Matches commercial capability Payments Established banks Post office boxes Larger payments during bid process Payment in country Reasonable compensation Unexpected bonuses or loans Invoices paid too quickly Requests negotiable currency

36. U.S. Anti-Corruption Compliance • Long History • Broad Application • Active Enforcement • Substantial Penalties • Incentives for Compliance • A Public – Private Partnership

37. Discussion