Key Points to Prevention of Corruption & Gifts, Travel, and Hospitality

1. Key Points to Prevention of Corruption & Gifts, Travel, and Hospitality 27 February 2012

2. Agenda Introduction by Company CEO and President 1 Prevention of Corruption 2 Gifts, Travel, and Hospitality 3 When in Doubt 4 As a Reminder 5 Discussion/Questions 6

3. Preventing Corruption

4. Preventing Corruption:Is This Acceptable? Six months ago, Company purchased 10 seats at a sports event for $1000. The event is tomorrow, and the tickets are non-refundable. Five seats are empty. Can we invite five government customers? Five commercial customers?

5. Preventing Corruption:Is This Acceptable? A Company customer is planning to spend US $350 per day for a San Francisco hotel room. I must pay my apartment rent even if I am out of town. May I let my customer stay in my apartment for four days while I am out of town?

6. Preventing Corruption:Is This Acceptable? Company is introducing a new product and wants to organize a conference to demonstrate its use. Sales proposes paying travel, lodging, and subsistence expenses of a reseller and employees of a state-owned customer. Can we pay for the employees’ airfare and lodging? What if the conference is in Fiji? Can we pay for a day’s outing to Disney World? 1/2 day? 3 days? Can we provide a cash stipend for subsistence?

7. Preventing Corruption:Is This Acceptable? Company is introducing a new product and wants to organize a conference to demonstrate its use. Sales proposes paying travel, hotel, and related expenses of a reseller and employees of a state-owned customer. Can we pay for the employees’ airfare and hotel? What if the conference is at a beach resort? Can we pay for a 1 day scuba outing? A ½ day city tour? Can we provide a daily cash allowance for expenses? [alternative scenario to immediately previous slide]

8. Preventing Corruption:Is This Acceptable? You are about to close a big deal with Company’s governmental partner, the Ministry of the Interior. To commemorate the occasion, you give to the Minister a gold-plated plaque engraved with the closing date and the parties’ names. Your assistant characterizes the gift as a “promotional expense” and identifies the recipient and the purpose of the payment. However, your assistant inadvertently records the value of the gift as $50 when in fact it cost $500. Is this gift okay? Was the payment properly described? What should be done once the recording error is discovered?

9. Preventing Corruption:Is This Acceptable? To bid a particular government contract, Company must first get a license. The application has been pending for several months and without the license we will be technically disqualified. You have received a call from the country manager seeking your approval to pay $500 to a government clerk to “jump the licensing queue.” What is your advice? Does the size of the payment matter? What if it was $50? $5000?

10. Preventing Corruption:Key Points • Company’s Code of Conduct prohibits offering, giving, requesting, or receiving bribes, kickbacks, or payoffs, even if customary or legal within certain countries • Corruption (including bribery, kickbacks, and payoffs) is illegal in nearly every country Company does business • Engaging in corrupt behavior damages Company’s reputation and business results • You must comply with the law and Company’s standards, even if competitors are not following the rules

11. Preventing Corruption:Corruption Is Prohibited Everywhere • The US Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act apply to all Company operations worldwide • Company is a U.S. company, and is subject to the FCPA everywhere • Company has operations in the UK, and is subject to the UK Bribery law everywhere • International Treaties • OECD Convention – 38 countries • United Nations Convention Against Corruption—140 countries • Local law prohibits corruption

12. Preventing Corruption: Corruption Is Prohibited in Mexico Article 222 of the Federal Criminal Code prohibits bribery and influence peddling Other Mexican federal and state corruption laws apply Mexico has also signed United Nations Convention Against Corruption Council of Europe: Criminal Law Convention on Corruption Inter-American Convention on Corruption OECD Convention 12

13. Preventing Corruption:Aggressive Enforcement Is Growing • US • At least 130 open investigations • Recent fines in the tens of millions of dollars • Personal liability in the form of fines and jail time • UK • Increase in number of investigations • Renewed focus in the form of the UK Bribery Act • Local [see next slide as local law sample]

14. Preventing Corruption:Mexico Enforcement—Siemens AG (2008) • Several countries including Argentina, Venezuela, and Mexico • Siemens allegedly paid $2.6 million in bribes in Mexico to business consultant • Some to senior Pemex official • Siemens agreed to • Pay criminal fines of US $450 million • Forfeit US $350 million in profits • Pay German authorities €395 million in addition to €201 million in previous penalties • Imposition of a court monitor for up to four years

15. Preventing Corruption:Mexico Enforcement—Paradigm B.V. (2007) • Countries included Mexico, Kazakhstan, China, Nigeria, and Indonesia • In Mexico, US Department of Justice said Pemex employees received wrongful things of value including • $12,000 trip to Napa Valley, California for an employee • $10,000 in business entertainment for the same employee • Hiring the employee's brother • Leasing a house from the wife of a Pemex employee • Paradigm paid US $1 million penalty and needed to do many things to prevent future corruption

16. CORRUPTION PERCEPTIONS INDEX 2011 RESULTS The darker the red, the higher the perceived level of public sector corruption

17. Preventing Corruption:What Is the Corruption Perceptions Index (CPI)? • Measures perceived public-sector corruption in 180 countries and territories around the world • A “survey of surveys,” based on 17 different expert and business surveys • The lower the score the higher the perception of corruption • Select CPI 2011 scores, scale from 0-10 - Australia 8.8 - Mexico 3.0 - Argentina 3.0 - Russia 2.4 - Brazil 3.8 - Sweden 9.3 - Chile 7.2 - United States 7.1 - China 3.6 - United Kingdom 7.8 - India 3.1 - Uruguay 7.0 - Japan 8.0 - Venezuela 1.9

18. Preventing Corruption:How Are We Most Likely to Get into Trouble? • Almost 2/3rds of the time involve gift, travel, or hospitality • If permitted must be reasonable, appropriate, and business focused • Almost 2/3rds of the time involve a 3rd party • E.g., supplier, distributor, reseller, consultant, contractor, alliance partner, community or political fund, joint venture, customs agent, or freight forwarder • Only propose and use 3rd party that meets Company’s high standards for ethics and integrity – know with whom you are doing business • The definition of “government official” is very broad

19. Preventing Corruption: Summary of Rules Applicable to Company Worldwide • Rule 1: You cannot offer or authorize anything of value to get or keep business or gain an improper advantage • Rule 2: Accurate books and records are required • Prompt and accurate recording of all expenses • Adequate accounting and controls • Rule 3: Gift, travel, and entertainment (“Hospitality”) must comply* with all applicable laws and Company’s • Global Travel and Expense Reimbursement Policy • Global Anti-Corruption Policy • Code of Conduct *Exceptions require advance written approval

20. Preventing Corruption:Summary of Rules Applicable to Company Worldwide (cont.) • Rule 4: You cannot do something indirectly that you cannot do directly • Do not use distributors, resellers, channel, consultants, or other third parties – or any funds or discounts allocated to these people – to act as a pass through to provide Hospitality that is prohibited • Rule 5: Follow up is required when a concern arises • Good intentions are not enough • Need to proceed with caution and follow up appropriately

21. Preventing Corruption:Rule 1: You Cannot Offer or Authorize “Anything of Value” to Get or Keep Business or Gain An Improper Advantage Value includes: • Cash and equivalents • Gifts or services • Charitable donations • Political contributions • Loans • Travel expenses • Sporting events • Entertainment outings • Hiring • School admission • Family benefits • Assumption of debt

22. Preventing Corruption:Rule 2: Accurate Books and Records Are Required •Prompt, accurate, and complete recording of all expenses • No false or misleading expensing • No undisclosed or unrecorded bank accounts or assets • No “slush” (cash) accounts •Adequate accounting and controls • All accounts must comply with Company policies and procedures • Employees are required to accurately and completely describe the expense • Managers are responsible for what they review and approve

23. Preventing Corruption:Rule 3: Hospitality Must Comply with All Applicable Laws and Be Reasonable • Needs to be: • Reasonable and customary • Consistent with Company standards • Appropriate to the circumstances in which given (e.g., gift-giving holiday) • Given openly and transparently • Of modest or nominal value – not lavish or excessive • Permissible under all applicable laws, including local law • Should not be provided in a way or with such frequency as to create appearance of impropriety • When in doubt, ask before invitation made or expense incurred

24. Preventing Corruption:Rule 3: Hospitality Must Comply with All Applicable Laws and Be Reasonable (cont.) • Travel and lodging expenses must be for legitimate and reasonable business purposes and • Paid directly to vendors providing services by Company • No side trips • No family member or significant others • Preapproved • Refer to Code, Global Anti-Corruption Policy, and Global Expense Reimbursement Policy for additional guidance

25. Preventing Corruption:Rule 4: If You Cannot Do Something Directly, You Cannot Do It Indirectly • Many prosecutions include a “middleman“ • Most significant cases in recent years involved payments made by 3rd parties, including foreign charitable organizations • 3rd party can create liability even if there was no actual authority to bind company under traditional agency principles • Company must ensure payments are not inappropriately passed along to employees, suppliers, or customers • Know Who You Are Doing Business With

26. Preventing Corruption:Rule 5: Follow Up Is Required When Concerns Arise • Claims of ignorance not allowed— we are all responsible for what we knew or should have known • Duty to inquire and act diligently • Obligation to review depends upon facts including • Context • Level of risk or concern • Documentation necessary and crucial

27. Gifts, Travel, and Hospitality

28. Gifts, Travel, and Hospitality:Is This Acceptable? • Sales is inviting government customers to watch a World Cup game at a restaurant on a big screen TV. Tacos, juice, and beer will be served. Is this okay?

29. Gifts, Travel, and Hospitality:Is This Acceptable? • John from the purchasing department is late to a meeting with his favorite vendor because his cell phone clock is broken. A week later, he receives a cell phone or iPhone from the vendor as a “thank you.” What should John do?

30. Gifts, Travel, and Hospitality:Is This Acceptable? • Kathy is a sales manager who attends an industry seminar. Each delegate receives a wireless mouse as a gift for attending. She wins the “lucky drawing” prize at the seminar’s lunch – a session with a famous corporate coach worth $500. What should Kathy do?

31. Gifts, Travel, and Hospitality:Is This Acceptable? • Ron hears that the CEO of a major customer is a big opera fan. He treats the CEO to the opera, for which he dons a tuxedo and tries to not fall asleep. The customer’s contract is coming up for renewal. Ron presents the CEO with season opera tickets. Ron feels that paying a thousand dollars is worth keeping the customer in competitive times.

32. Gifts, Travel, and Hospitality:Is This Acceptable? • Nick has signed a leading EMC distributor as a Company partner. After the contract signing, he treats the partner’s president and lawyer to dinner. Being a fan of Pizza Hut, Nick is excited about the $125 per head dinner in a top city restaurant. This dinner is • Okay because no government customer is involved • Okay because the distributor does very little other government customer business • Not okay • Both a) and b) are correct

33. Gifts, Travel, and Hospitality:Key Points • There are strict rules on Company employees receiving and giving gifts, travel, and entertainment (“Hospitality”). • Certain suppliers and customers may prohibit all Hospitality • We must comply with Company’s standards and the law, regardless of local custom or what competitors are doing • It’s crucial to avoid even the appearance of impropriety • Any exceptions must be approved by appropriate Company management; if in doubt, check before offering anything • Management oversight of expenses and expense reports is required • We cannot use a 3rd party to do what we ourselves cannot do

34. Gifts, Travel, and Hospitality:Public Sector Rules • Interactions are covered by statute, including local laws, and are a growing government priority worldwide • Examples of what might be allowed • Pens, t-shirts, mugs, or other modest value logo items • Donuts and coffee at meeting* • Sandwiches for a meeting* • Calendars • Gifts/hospitality/travel for anyone in the government must be nominal or of a value not greater than US $25 per occasion or US $50 total per customer per year • Outside the U.S., possible local law exception for advertising or historical/cultural celebration – consult Legal first * Must offer clear opportunity for U.S. government employees to pay

35. Gifts, Travel, and Hospitality:Commercial (Non-Government) Rules • Employees are not permitted to give or receive valuable gifts, meals, favors, or entertainment • Employees may accept or provide occasional meals, refreshments, gifts, and entertainment subject to certain restrictions • In addition, the total value of gifts and entertainment per year and per customer must be no more than US $250—Company recently considered reducing to US $100

36. Gifts, Travel, and Hospitality: Commercial Rules—Questions to Ask • Is the Hospitality • For legitimate business purpose? • Reasonable and customary? • Proportionate? • Consistent with Company standards? • Appropriate to the circumstances (e.g., gift-giving holiday)? • Given openly and transparently? • Of modest or nominal value—not lavish or excessive? • Provided in a way or with such frequency as to create appearance of impropriety?

37. Gifts, Travel, and Hospitality: Commercial Rules—Questions to Ask (cont.) • Is the Hospitality • Consistent with • The law? • Our Code of Conduct (“Code”)? • Global Anti-Corruption Policy? • Global Travel and Expense Reimbursement Policy? • For travel and lodging • Was it preapproved? • Paid directly to vendor (e.g., hotel paid by Company)? • Without side trips? • Without family member or significant others? • Detailed records created and receipts retained?

38. Gifts, Travel, and Hospitality: Commercial: Examples of What Might Be Allowed • Domestic economy airfare for customer to watch a product demonstration, or negotiate and execute contract • Business lodging associated with such travel • Local transportation to the office and airport • Reasonable meals at meeting • Small value souvenirs with company logo • Modest cultural or holiday gifts • Modest entertainment (2 hour city sightseeing tour)

39. Gifts, Travel, and Hospitality:Red Flags • Frequent meals or entertainment of modest value • Purpose of trip could be accomplished in customer’s home location • Individual focused—e.g., iPhone for executive or her child • Cash or cash equivalent coupon, even if amount is small • State owned company, political or charitable organization, official • Weekend getaway at resort with little substance, no clear business agenda, or “extra troops” (i.e., friends and relatives) • Excessive meal or banquet with unlimited beer, wine, and/or liquor • Club, casino, or other inappropriate venue • Raffle with very generous prizes • Expensive membership

40. When in Doubt …

41. When in Doubt:Tell Someone Report concerns or ask questions to any of the following: • Your manager • Local management team • Human Resources • Office of Ethics and Compliance • Legal and Public Affairs • Company leadership team, including our EVP Human Resources, EVP General Counsel, and/or Chief Financial Officer • Company’s anonymous helpline

42. When in Doubt:Some Ways to Contact Ethics and Compliance • Office website and self help tools [link] • Company’s EthicsLine and web-based ask a question or report a concern [link] • Anonymous • In 12 languages • Global dialing—[number for country] • If you need an interpreter to assist you during your call, please inform the specialist • Confidential, global, 24-hours a day

43. When in Doubt: [insert company website tools here]Ethics and Compliance Internal website

44. When in Doubt: [screen shot with circled language bar] Company’s EthicsLine—in Many Languages

45. When in Doubt: [screen shot with FAQs circled] Company’s EthicsLine—Easy to Use

46. As a Reminder

47. As a Reminder:We Encourage Employees to Do the Right Thing • Company’s policy is anyone can report suspected violations, anonymously or non-anonymously • Any retaliation or negative repercussions for reporting are strictly prohibited • We encourage and protect those who, in good faith, provide information or assist in an investigation, hearing, or trial • Refer to the Code of Conduct and Policies • Ask for help • Do the right thing!

48. Discussion/Questions