INTERNATIONAL COMPLIANCE October 21, 2014 Washington, DC

1. INTERNATIONAL COMPLIANCEOctober 21, 2014Washington, DC WILLIAM J. YONGE Morgan, Lewis & BockiusCondor House, 5-10 St. Paul's Churchyard | London EC4M 8AL United KingdomDirect: +44.20.3201.5646 | wyonge@morganlewis.com MARTHA MATTHEWS Hudson Advisors LLC Direct 214.515.6831 | mmatthews@hudson-advisors.com 80815238.2

2. Topics • ANTI-CORRUPTION • The U.S. Foreign Corrupt Practices Act (“FCPA”) • The UK Bribery Act (“Bribery Act”) • Anti-Corruption Compliance Best Practice • REGULATORY FRAMEWORK • UK Financial Services Regulatory Architecture • UK Authorised Businesses and Approved Individuals • EU DIRECTIVE – AIFMD • EU AIFMD – Impact on U.S. AIFMs Marketing AIFs in the EU • Some other European Developments 80815238.2

3. The Foreign Corrupt Practices Act of 1977(FCPA)

4. Where is bribery a problem? Transparencyinternational.org/corruptionindexmap

5. Anti-Corruption Trends Harmonization of global anti-corruption standards and common investigative practices Information sharing and cross-debarment (particularly in banking) Increased Global Enforcement Trends Increased Cooperation Between Countries Increased Enforcement – the U.S. is the most active regulator

6. RISKS • Key Risk Categories: • Country Risk • Sector Risk • Transactional Risk • Business Opportunity Risk • Business Partnership Risk • High Risk Considerations: • Gifts and hospitality • Use of Company Assets • Charitable and Political donations • Sponsorships

7. What is the FCPA? The Foreign Corrupt Practices Act of 1977 as amended, makes it unlawful for certain persons and entities to make payments to influence foreign government officials for the purposes of obtaining, retaining or directing business to any person. The FCPA applies to all U.S. persons and certain foreign issuers of securities. In 1998 the FCPA was amended to apply to foreign firms and persons who cause, directly or through agents, an act in furtherance of such a corrupt payment to take place within the U.S. territories. Applies to public and private companies.

8. Critical Elements of the FCPA Key elements: • Anti-bribery prohibitions prohibiting the giving or offering money, gifts or anything of value to a foreign government official to obtain or retain business. Enforced by the Securities and Exchange Commission (civil) and Department of Justice (criminal). The SEC has a specialized unit for enforcement of the FCPA. • The FCPA also requires companies whose securities are listed in the U.S. to meet its accounting provisions requiring covered corporations to maintain adequate internal accounting controls and to keep accurate books and records reflecting transactions of the corporation. These controls seek to prevent accounting practices designed to hide corrupt payments.

9. How can I or my company be held liable under the FCPA? • Extraterritorial reach • The following are subject to the FCPA: • US individuals, wherever located • US companies • Foreign subsidiaries of US companies • Foreign companies registered with the Securities & Exchange Commission (“SEC”), and the companies’ officers, directors, employees and agents • Foreign individuals committing any act in furtherance of a violation in the US or aiding and abetting a violation

10. What are the consequences of an FCPA conviction for businesses? • Anti-Bribery: • Civil penalties: disgorgement of profits and fines of up to $500,000 • Criminal penalties: $2 million fine per violation or twice the gain/loss, or disgorgement of profits • Accounting Provisions: • Civil penalties: $10,000 or disgorgement of gross gain • Criminal penalties: $25 million fine per violation or twice the gain/loss

11. What are the consequences of an FCPA conviction for individuals? • Anti-bribery: • Civil penalties: Up to $100,000 • Criminal penalties: Up to 5 years imprisonment and $250,000 fine • Accounting Provisions: • Civil penalties: Up to $10,000 or gross gain • Criminal penalties: 20 years imprisonment and/or $5 million fine • Employers cannot indemnify employees • Recent Trends: • Senior management, General Counsel, VPs and CEOs (financial services in the top 3)

12. Collateral Consequences • Debarment • Civil lawsuits • Expense intense, legal fees • Business disruption, possible loss of D&O • Negative press, loss of investors • Violation of ethics and other policies, breach of side letter arrangements

13. What are the elements of an Anti-Bribery violation? • It is unlawful for • an issuer, domestic concern or anyone acting within the jurisdiction of the United States • with “corrupt intent” • directly or indirectly • to offer, pay, promise to pay, or authorize payment • of “anything of value”1 1 Cash; Cash equivalents; Employment; Meals; Gifts; Entertainment; Forgiveness of debt; Discounts; Golf; Travel; Free product

14. What are the elements of an Anti-Bribery violation? (2) • to a “foreign official”2 for the purpose of obtaining or retaining business or securing any improper business advantage • workers at state-owned or state controlled businesses considered to be a foreign official • do not have to be an owner, applies if the government is deemed to exercise control over the state controlled entity 2 Non-US government official or employee; Non-US political candidate; Member of a public international organization (e.g., United Nations, World Bank); Title is irrelevant; Includes low-level employees of government agencies and state-owned entities

15. What is “corrupt intent”? • The element that turns “anything of value” into a bribe • Intent to induce the recipient to misuse his/her official position • Conscious avoidance, i.e., knowledge of the high probability of a violation and steps taken to ensure that actual knowledge is not acquired • Failure to investigate red flags

16. What does “directlyor indirectly” mean? • No protection from liability for your agents’ violations if red flags existed. • Agents include: distributors, consultants, attorneys, business partners, joint venture partners, etc.

17. What is considered a “business advantage”? • To gain or retain a business advantage, e.g.: • To influence a license or permit determination • To influence a public tender • To influence a customs clearance decision • To gain a tax advantage • To influence a sale • Result is irrelevant • Existence of payment is irrelevant – an offer alone confers liability

18. What are Red Flags? For example, Red Flags exist where your agent: • Performs services in a high-risk country • Demands to be paid in cash • Cannot provide documentation to substantiate services and expenses • Can “get things done” that others cannot, or in a way that cannot be explained • Has a close relationship with a government official with whom you do business

19. What are Risk Flags? • Third party risk can arise from the use of intermediaries • Lack of transparency in business dealings • Lack of effective democratic institutions • Lack of independent media • A culture that tends to encourage circumvention of rules, nepotism and similar distortions to an open market • Pressure to conform to cultural norms • The prevalence of requests to make facilitation payments to expedite processes

20. What are the FCPA Accounting Provisions? • Require: • the maintenance of complete accurate books and records • the establishment and maintenance of a system of internal controls sufficient to provide reasonable assurance that: • Transactions are executed in accordance with management’s general/specific authorization; • Transactions are recorded as necessary to permit preparation of financial statements that conform with generally accepted accounting principles and to maintain accountability for assets;

21. What are the FCPA Accounting Provisions? (2) • Access to assets is permitted only in accordance with management’s general/specific authorization; and d. Recorded accountability for assets is compared with existing assets at reasonable intervals, and appropriate action is taken to address differences.

22. Are there any defenses to the FCPA? • Bona fide promotional expenditures • Payments directly related to product demonstration or promotion • Must be reasonable • Written local law

23. Are there any exceptions to the FCPA? • Facilitating payments – intended to expedite routine, non-discretionary actions • Extremely narrow defense • Facilitating payments are illegal under other laws

24. Facilitation Payments Australia The Criminal Code defines a facilitation payment to be a payment which isof nominal value (the term is not defined in the Code); paid to a foreign official for the sole purpose of expediting a routine action; documented as soon as possible. Canada Toughened laws in 2013. Similar to the UK, facilitation payments are considered small bribes and are on the same footing as other unlawful payments.

25. Facilitation Payments (2) United States As defined by the FCPA of 1977 and clarified in amendments, only payments to a foreign official, political party or party official for routine government action such as processing payments, papers, permits, or to expedite performance of non- discretionary duties performed in a normal course of business. United Kingdom The United Kingdom’s Bribery Act 2010 provides in clear terms that it is a crime for any individual or company with a UK presence to bribe a public official. This includes “facilitation payments” – money or goods given to a public official to perform, or speed up the performance of, an existing duty.

26. RELATED LAWS • Conspiracy • Racketeering • Mail and Wire Fraud • Travel Act • Money Laundering • Certification and Reporting Violations • Tax Violations

27. The UK Bribery Act

28. What is the Bribery Act? UK law became effective in 2011 that criminalizes: • Public official bribery • Commercial bribery • Failing to prevent bribery on your organization’s behalf

29. Why is Bribery Act compliance important? • Bribery requests are common in many countries • The consequences of Bribery Act violations can be severe • The Bribery Act has strict liability provisions • Applies to broad array of corrupt conduct • Applies to bribery in and outside of the UK, and in some cases, to activity with no connection to the UK

30. What are the consequences of a Bribery Act violation? • Corporate Penalties: Unlimited fines • Individual Penalties: Up to 10 years imprisonment • Potential confiscation of the proceeds of the crime • Potential public procurement ban

31. How can I or my company be held liable under the Bribery Act? • Extremely broad jurisdiction • UK companies (wherever they do business) • Non-UK companies that “carry on” business in the UK • Liability for “associated persons” (e.g., employees, agents, subsidiaries), even where the acts occur outside of the UK • No facilitating payments exception

32. Can my corporation be held liable? • YES – if it carries on business in the UK, for failing to prevent bribes that are made on its behalf by associated persons, even if the conduct occurs outside of the UK • Strict Liability Offense • Example: • Russian company sells widgets in the UK, Russia & Kazakhstan. Company’s attorney in Kazakhstan bribes a Kazakh official to obtain a business license for the Company’s Kazakh operations. Company can be held liable for a Bribery Act violation for failing to prevent the bribery, even if it did not know or approve of it

33. Are there any defenses? • Yes • Full defense if the organization can provide it had adequate proceduresdesigned to prevent associated persons from engaging in bribery.

34. Anti-corruption compliance – best practices

35. What can I do to mitigate FCPA and Bribery Act liability? • Establish and maintain an effective anti-corruption compliance program • Compliance programs: • Can prevent bribery • Can detect bribery • Are expected by US and UK authorities • Can provide a defense to violations

36. What are the components of an effective anti-corruption compliance program? • Senior management commitment • Business model review • Due diligence, evaluation and impact assessments • Proportionate policies and procedures • Communication / Training • Monitoring and review

37. What should the policies and procedures do? • Establish a clear message that the company has a zero tolerance policy for bribery • Establish guidelines for promotional expenditures and expense reimbursements • Set forth steps for performing due diligence of and contracting with business partners

38. Cultivate a Culture of Compliance Amongst Employees • Train all employees • Special focus on employees with contacts with government officials • Consider training business partners

39. What is oversight and monitoring? • Written contracts with all business partners • Contracts with anti-corruption certifications • Contracts with audit rights • Due diligence: • Do research on your employees and business partners • Understand how your business partners were identified or recommended • Understand the services to be provided and how the payment will be made • Conduct a red flags analysis • Know your exposure to, or contacts with, government officials

40. Why do I need financial controls? • They detect bribery and mitigate bribery risk • FCPA has Accounting provisions that require issuers to maintain a system of financial controls designed to prevent bribery and the falsification of books and records • Bribery Act guidance encourages the adoption and maintenance of financial and commercial controls to mitigate bribery risk

41. Do I have to audit all of my business units and all of my business expenditures and partners? • Consider a risk-based approach • Periodic audit of expenses involving government officials • Periodic visits to/meetings with business partners in high risk regions • Assessment of select high risk transactions • Document all audits and reviews

42. How do I respond to alleged violations? • Conduct a prompt and effective internal investigation effectively using internal and external resources • Remediate • Ensure the misconduct is stopped • Address lapses, if any, in controls and implement improvements • Consider appropriate disciplinary measures

43. How do I respond to alleged violations? (2) • Terminate business relationships with relevant agents • Conduct corrective training • Consider disclosure to appropriate authorities • Outside auditors • Financial statements/regulatory filings • US or foreign authorities

44. Overview Europe-wide vs US EU features mainly civil law, codified jurisdictions save for UK common law National legal codes and processes differ across EU • Italy: it is a defence that a bribe was paid in response to extortion • Parts of Spain do not prohibit deduction of bribes for computing tax liabilities • France forbids French companies from giving information to foreign enforcement agencies

45. Overview Europe-wide vs US (2) • No private sector whistle-blowing protections in Germany, France, Italy and Spain • Since 2002 US has pursued twice as many formal bribery actions as rest of world. 1997-2013 – number of formal foreign bribery actions: US – 316 Denmark – 15 UK – 46 Netherlands – 11 Germany – 20 France – 10

46. Overview Europe-wide vs US (3) Extractive industries sector has been subject to more foreign and domestic bribery enforcement actions than any other sector followed by manufacturing/service provider; aerospace/defence/security; and health care sectors.

47. US themes • Prosecutions of and enforcement against individuals a top priority • DoJ and SEC continue to examine closely travel and entertainment expense claims • Use of bargaining tools, NPAs, to reward companies/individuals for self-reporting cooperating and remedial actions

48. Recent Cases • JP Morgan Chase hiring practices - “the sons and daughters case”. Exchange of investment banking business in exchange for hiring government official’s relatives through “fast tracking”. This was a whistleblower case. Parallel investigation SEC/DOJ. Public disclosure required. Spreadsheets include about 30 employees with ties to state-owned companies or party officials. The U.S. authorities now investigating at least 5 other Wall Street banks that have business ties in China. • Morgan Stanley - exchange of investment management business and acquiring real estate for self and official. Morgan Stanley received declination to prosecute because its compliance policies and monitoring uncovered the actions. The individuals relinquished $3.4 million in real estate, a personal fine of $250K and permanently barred from securities industry (bad actor label).

49. UK themes DPAs are deals entered into between corporations (not individuals) and prosecutors where prosecution can be avoided by fulfillment of conditions. The power to use DPAs came into force in UK in 2014. Conditions will generally include a combination of financial penalty reparation to victims and obligation to implement a compliance program

50. UK themes (2) FCA reviews have found: • inadequate systems and controls for assessing bribery/corruption risk re monitoring third-party relationships, such as those with agents or introducers • anti-bribery training programs often fail to identify and then focus on risks specific to their business