1 / 18

Managing Compliance Risk in International Transactions

Learn about the heightened compliance risk in the current market and practical steps to manage and control this risk in international transactions. Understand the Foreign Corrupt Practices Act (FCPA) and legislation surrounding it, as well as key red flags and practical lessons from recent penalty cases. Discover how to protect your company through effective compliance management, engaging agents and distributors, and conducting audits and reviews.

louie
Download Presentation

Managing Compliance Risk in International Transactions

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Managing Compliance Risk in International Transactions Michael X. Marinelli Washington, D.C. marinellimx@gtlaw.com  202.530.8503

  2. Heightened Compliance Risk in Current Market • Foreign Corrupt Practices Act (FCPA) • Aggressive national prosecution strategy • Export controls and trade sanctions • Legislation dramatically increased penalties • Practical steps to manage compliance and control risk

  3. Transparency International Corruption Perceptions Index

  4. FCPA Prohibitions • Paying bribes to foreign officials to obtain business or other “improper advantage” • Paying money to a third party knowing that the third party will use it to pay bribes to foreign officials • Offering, authorizing or agreeing to pay bribes

  5. Proving Knowledge • Knowledge • Positive information that a bribe will be paid • Awareness of a high probability that a bribe will be paid • Willful blindness • Knowledge is most often established by showing the company ignored “Red Flags”

  6. Red Flags • Unusual payment patterns or financial arrangements • Payments to third countries • Payments to parties not involved in the deal • Agents or representatives that do nothing • Late-arriving agents • Backdated agreements • A history of corruption in the country • Unusually high commissions

  7. Red Flags • Business partner lacks qualifications or resources • Agent is recommended or selected by the government customer • Refusal by the foreign business partner to provide an FCPA certification • Lack of transparency in expenses and accounting records • Representative’s records • Company’s records

  8. FCPA Basics:Exceptions and Defenses • Payments that are lawful under the “written laws and regulations” of the official’s country • Bona fide and reasonable expenses • Payments to facilitate routine government actions – “grease payments” • “Everyone does it” (customary payments) is not a defense • There is no de minimis exception to the FCPA

  9. Recent Penalty Cases • Siemens: $1.6 billion • $450 million in U.S. criminal fines • $350 million in profits disgorged to the U.S. government • Halliburton/KBR: $402 million • Baker Hughes: $44 million • ABB Vetco: $26 million • Willbros: $22 million

  10. Faro Technologies • Paid bribes of $430,000 secure contracts worth $4.54 million • Internal investigation cost $3.6 million during the first nine months • Net Income for the same nine months was $4.5 million • Ultimately paid $1 million criminal fine

  11. Practical LessonsFrom the Cases • Most violations are obvious when they are happening; don’t ignore red flags. • Demands for bribes are common and do not provide a defense. • Be prepared to give up the deal. • Make sure employees understand the rules. • Conduct and document due diligence on business partners before you sign the deal.

  12. Practical LessonsFrom the Cases • Having a compliance program is not enough. • Audit compliance on a regular basis. • It is the purpose, not the size, of the payment that matters. • The collateral damage can be worse than the formal penalty.

  13. Export Controls andSanctions Regimes • Export Controls • Product Based Controls • Classification is the key • Controls apply to goods, software and technology • Controls capture items that we would consider low-tech • End-Use Controls • Depend on what the customer will do with the product • Apply to virtually all U.S. products

  14. Export Controls and Sanctions Regimes • Trade Sanctions • Restricted Countries • Cuba • Iran • North Korea • Sudan • Syria • Restricted Party Lists • Specially Designated Nationals (Treasury) • Denied Persons (Commerce) • Entity List (Commerce)

  15. Recent Export Cases • ITT: $100 million • Balli: $17 million • Sirchie: $2.5 million • EMD Biosciences: $904,500 • Wilden Pump: $700,000 • Cryostar: $500,000

  16. Protecting the Company:Effective Compliance • Management involvement and support • Clearly communicated standards and procedures • General policy statements are not enough • Procedures tailored to fit the company’s business • Train employees and managers • On substance • On process

  17. Protecting the Company:Effective Compliance • Diligence in Engaging Agents and Distributors • Establish objective criteria to be met • Document the selection process • Document due diligence regarding agent • Include compliance language in agreements • Procedures for assessing business information from the compliance perspective • Who is the customer? • Is it a government entity? Military entity?

  18. Protecting the Company:Effective Compliance • Audit and review operations • Sales and marketing operations • Expense reports • Finance operations • Procedures for reporting and investigating possible wrong-doing • Internal reporting mechanism • Clear chain of command for response • Include legal and finance teams

More Related