Julia Bailey Assistant General Counsel International Transaction & Compliance

1. International Business ConductUseful insight to international ethics and anti-corruption initiatives affecting government procurement, e.g. the WTO Agreement on Government Procurement; the UN Convention Against Corruption; the OECD Convention; and the Foreign Corrupt Practices Act; growing multi-national cooperation in the enforcement of anti-corruption laws; and ethical considerations in different cultures. Julia Bailey Assistant General Counsel International Transaction & Compliance

2. Main Points on Ethics, Compliance and Anti-Corruption • Business conduct is affected by local norms • U.S. anti-corruption laws are broad in scope • US anti-corruption law extends to foreign nationals • Anti-corruption conventions are even broader than US law • WTO and private initiatives have increased • Enforcement has increased and will continue to rise

3. Point #1: Business Conduct is Affected by Local Norms

4. Business Ethics & Compliance Internationally • Studies show that corruption is considered taboo by virtually all societies/corporations throughout the world.* • People innately WANT to be ethical. * Hofstede, G., “Problems Remain, But Theories Will Change: The Universal and the Specific in 21st-Century Global”, Organizational Dynamics, Summer 99, 28: 1, p. 34-45.

5. Views on Business Ethics & Compliance

6. Views on Business Ethics & Compliance

7. Views on Business Ethics & Compliance

8. Global View of Ethics & Compliance Cultural Value Dimensions -- The way a culture views these dimensions defines itself:* Figuring Foreigners Out by Craig Storti

9. Global View of Ethics & Compliance US UK J F R I,M A,C G S SEA ME * Figuring Foreigners Out by Craig Storti

10. Global View of Ethics & Compliance US UK J F R I,M A,C G S SEA ME Figuring Foreigners Out by Craig Storti

11. Point #2: US Law is Broad in Scope

12. FCPA Bribery Provisions The 5 basic elements of the FCPA are that . . . • Anyone subject to U.S. jurisdiction • who, with corrupt intent, • makes a payment (or does some act in furtherance of an offer, promise, gift or authorization of the giving of anything of value) • to a foreign “official” • Directly or • Indirectly to anyone while knowing that it will go to foreign official • to obtain or retain business . . . . . . is liable under the FCPA.

13. FCPA “Anyone subject to U.S. Jurisdiction” • Typical U.S. Persons (Nationality Principle) • Persons using “instrumentalities of US commerce” (Territoriality Principle)

14. FCPA With “Corrupt Intent” A U.S. person must have “corrupt intent” when making the promise or payment. This means he or she must act: • With evil motive or purpose • With intent to wrongly influence the recipient • Expecting a quid pro quoor something in return • Perhaps with no apparent evil motive but by using some sort of covert manner, such as secret payments, to make a payment.

15. Payment or Offer of Anything of Value (Directly) FCPA • Metcalf v Eddy (2002): U.S. company agreed to pay $450,000 to settle claims that it violated the FCPA in promoting travel, entertainment and per diem payments to an Egyptian government official on two trips to the United States • Schering-Plough (June 2004):Charitable contributions to charity headed by a person who was also a Polish government official. No allegation that the funds paid to the charity were funneled to the official himself. • ABB (2005):Bribes by 2 subsidiaries of Swiss-Swedish ABB discovered during M & A transaction. Gifts to Nigerian, Angolan, and Kazakstan officials (some given through agents) included cash, extravagant per diems for training and sham consulting fees, and gifts such as pedicures. ABB settled for $16.5 million, with both subs pleading guilty to 2 felony counts.

16. The FCPA on Gifts The FCPA statute itself does not mention gifts. However, an early DOJ advisory opinion stated that gifts to FGOs would be allowed only if • permitted by local law; and • the ceremonial value of the item exceeds its intrinsic value; and • the expense is commensurate with the legitimate and generally accepted local custom for such expenses in the country. All facts and circumstances will bear on whether a particular gift was made “corruptly”

17. The FCPA on Hospitality* Hospitality may be provided as long as it is • “a reasonable and bona fide expense” and • “it relates to the promotion, demonstration, or explanation of products and services or to the performance of a contract” and • “it is legal and customary in the Territory.” All facts and circumstances will bear on whether a particular gift was made “corruptly” *Meals, lodging, travel.

18. Travel Lodging and Entertainment Worrisome if: • Business purpose is, or seems, incidental to entertainment purpose • Trip could be seen as quid pro quo for award or retention of business or for improper business advantage • Official is strategically located to grant business or improper business advantage to company • Expenses are lavish and/or out of line with company guidelines and/or local customs • Spouse or children are invited • Expenses are paid to official personally • Official is unwilling or unable to get written approval for trip/expenses from his/her agency

19. FCPA • Payment or Offer of Anything of Value (Indirectly) • to Third Party While KNOWING . . . • Titan (2004):Lockheed Martin merger due diligence revealed improper payments by Titan’s overseas sales representatives and consultants in the form of gifts and payments to foreign officials. The deal fell through. • InVision (Dec 2004):InVision allowed “excessive markups” by distributor, while “knowing” that money would go to foreign officials.

20. Watch Red Flags! • Excessive fee or commissions to agents • Subcontractors or consultants add little value • Cash payments requested • Payments to third parties • Payments to third countries • Multiple agents for same scope of work • Political contributions to a potential customer • Refusal to sign FCPA certification • Country has a reputation for corruption • Excessive expenses requested by customer or agent • Customer recommends the use of agent or subcontractor Compliance Red Flags are BUSINESS Red Flags! 9

21. FCPATo “Foreign Government Officials” Schering-Plough (June 2004): Charitable contributions to charity headed by a person who was also a Polish government official. Micrus Corporation (2005).Improper payments to doctors employed at publicly owned hospitals in France, Germany, Spain, and Turkey. Micrus disclosed to the government that it paid the doctors $105,000 disguised as stock options, honoraria, and commissions in order to cause the hospitals to purchase embolic coils from Micrus.

22. To Obtain or Retain Business • US v Kay (2003):Court ruled that the FCPA prohibits bribes to foreign government (customs) officials that are generally intended to improve a company's business, even if not tied to a particular government contract • Monsanto (Jan 2004):Payment to Indonesian environmental official to repeal an environmental law.

23. Point #3: U.S. Anti-Corruption Law Extends to Foreign Nationals

24. WHO’S COVERED: Typical US Persons (Nationality Principle) • U.S. citizens and nationals* • Businesses organized in the U.S. (even if act is caused by overseas branch, subsidiary or agent)* • Officers, directors, employees, agents or stockholders • acting on behalf of such businesses* *Anywhere in the world! 7

25. WHO’S COVERED Using Instrumentalities . . . (Territoriality Principle) • U.S. residents • Businesses organized outside the U.S. with principal • place of business in the U.S. • Non-U.S. issuers of U.S. securities • Any other individual or foreign company while “in the • U.S.” [or causing an act to be done in the U.S.]* • Officers, directors, employees & agents of the foregoing; • stockholders acting on their behalf *Using Instrumentalities of U.S. Commerce in Furtherance of the Impermissible Action 8

26. Application to Non-U.S. Nationals and Companies • Saybolt (1998):Paid $1.5 Million penalty and Given 5 Years Probation; President Goes to Jail; authorized a $50,000 bribe to Panamanian officials, which was paid by Saybolt’s Dutch parent company! • Syncor (2002):Taiwanese company paid commissions to doctors employed by state hospitals who helped to facilitate sales of its radiopharmaceuticals. Taiwanese sent an e-mail from California to Taiwan with budget for these commissions! • ABB Vetco Gray (2004):U.K. subsidiary of a Swiss company liable for bribes facilitated in the United States through e-mails and wire transfers. • Diagnostic Products (2005):Chinese subsidiary pleaded guilty to bribing “government officials” (state doctors) who controlled purchasing decisions. DOJ found Chinese sub criminally directly responsible on grounds it was acting as an agent for the U.S. parent. Sub paid $2M (DOJ), parent $2.8M (SEC)

27. Liability of Non-U.S. Subsidiaries of U.S. Companies • May be deemed to be agents of the U.S. parent • May be deemed to be “using instruments of US commerce” • May have U.S.-citizen employees who are subject to FCPA • May happen to be in the U.S. at the time of the offense 25

28. Kozeny et al (Oct. 2005) * • Consortium formed to purchase SOCAR (Azerbaijan state-owned oil company) • Kozeny,a foreign national, raised money for consortiumwhile in the U.S. from investors (AIG, Omega) and used money to do the following for Azeri officials: • Make cash payments to officials and family members • Promise to transfer of 2/3 profits realized from privatization • Transfer of consortium vouchers and options • Issue $300K in private shares • Purchase jewelry and luxury items in excess of $600k • Pay for medical, travel, and gift expenses • In order to persuade President to privatize SOCAR & secure controlling stake • Kozeny arrested in Bahamas; three individuals plead guilty; DOJ seeks $174M

29. Point #4: 5 Anti-Corruption Conventions are Now Even Broader

30. Anticorruption: Internationally • Over 70 other countries have adopted statutes similar to the FCPA • Nearly every country has a domestic anti-bribery statute • Many governments have their own rules on accepting gifts, travel or entertainment 3

31. OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (1998) • Requires each Party to criminalize bribery of foreign officials: “to establish that it is a criminal offense . . . for any person intentionally to offer, promise or give any undue pecuniary or other advantage, whether directly or through intermediaries, to a foreign public official, for that official or for a third party, in order that the official act or refrain from acting in relation to the performance of official duties, in order to obtain or retain business or other improper advantage in the conduct of international business” • Prohibit inaccurate or false books & records • Make bribery of a foreign official an extraditable offense • Provide mutual legal assistance to other Parties • Contains no explicit exception for facilitating payments

32. Argentina Australia Austria Belgium Brazil Bulgaria Canada Chile Czech Republic Denmark Finland France Poland Portugal Slovak Republic Slovenia Spain Sweden Switzerland Turkey United Kingdom United States Countries that have Ratified the OECD Convention on Combating Bribery of Foreign Public Officials • Germany • Greece • Hungary • Iceland • Ireland • Italy • Japan • Korea • Luxembourg • Mexico • Netherlands • New Zealand • Norway

33. Council of Europe Criminal Law Convention on Corruption (2002) Requires each Party to criminalize: • Bribery of, and receipt of bribes by, national officials • Bribery of, and receipt of bribes by, foreign public officials • Bribery in the private sector, both active (gift) and passive (receipt) • False or inaccurate books & records • Aiding or abetting in the criminal offense established in accordance with the Convention • The Convention also requiresmutual legal assistance and cooperation • Separately, a private right of action for damages suffered

34. Entry into Force of COE Criminal Law Convention • Latvia** (7/1/02) • Lithuania** (7/1/02) • Malta** (9/1/03) • Moldova (5/1/04) • Macedonia (7/1/02) • Netherlands** (8/1/02) • Norway (7/1/04) • Poland** (4/1/03) • Portugal** (9/1/02) • Romania (11/1/02) • Serbia and Montenegro (4/1/03) • Slovakia** (7/1/02) • Slovenia** (7/1/02) • Sweden** (10/1/04) • Turkey (7/1/04) • United Kingdom** (4/1/04) • Albania (7/1/02*) • Azerbaijan (6/1/04) • Belgium** (7/1/04) • Bosnia and Herzegovina (7/1/02) • Bulgaria (7/1/02) • Croatia (7/1/02) • Cyprus** (7/1/02) • Czech Republic** (7/1/02) • Denmark** (7/1/02) • Estonia** (7/1/02) • Finland** (2/1/03) • Hungary** (7/1/02) • Iceland (6/1/04) • Ireland ** (2/1/04) * (month/day/year) ** EU Member State

35. UN Convention Against Corruption • Negotiated for more than 2 years • 71 Articles – 42 pages of fine print • Covers virtually everything covered by other corruption conventions, and more • Adopted October 31, 2003 by the UN General Assembly • Entered into force December 14, 2005 • Complements the UN Convention against Transnational Organized Crime (which entered into force on September 29, 2003, dealing with money laundering, organized crime and human trafficking)

36. UN Convention Against Corruption • Covers preventive measures and criminalization • Calls for model prevention policies such as: • The establishment of independent anti-corruption bodies • Safeguards for recruitment and retention of non-elected public officials based on objective criteria such as merit and aptitude • Training and education to prevent corruption • Codes of Conduct for public officials • Calls for transparency in public procurement • Requires Parties to criminalize (among other things): • Bribery of, and receipt of bribes by, national officials • Bribery of foreign public officials • Offenses in support of corruption • Allows for private right of action for suffered damages

37. Countries that have ratified UN Convention* *As of December, 2005

38. OAS Inter-American Convention Against Corruption • The Organization of American States ("OAS") adopted the Inter-American Convention Against Corruption on March 29, 1996. Each member must: • Adopt legislation to criminalize the acceptance of corrupt payments by its government officials. • Criminalize the offer or grant of such corrupt payments to government officials, including officials of other countries. • Cooperate with respect to extradition and evidence gathering, specifically prohibiting the invocation of bank secrecy as a basis to refuse a request for information. • Ratified or acceded to by the United States and all other OAS member states except Barbados.

39. The African Union Convention • Adopted July 2003 • Requires parties to (among other things): • Criminalize the offer and acceptance of any goods of monetary value • Create preventive measures to combat acts of corruption in the private sector • Establish mechanisms to encourage participation by the private sector in the fight against unfair competition, respect of tender procedures and property rights • Adopt other measures necessary to prevent companies from paying bribes to win tenders • Countries that have adopted as of January 2006: Barundi, Comoros, Libya, Lesotho, Madagascar, Mali, Namibia, Rwanda, South Africa, Tanzania, Uganda

40. Point #5: Trade Agreements and Private Initiatives are Significant

41. Trade Agreements • Why needed: Corruption and a lack of transparency distort the potential benefits of trade. • Beyond the questions of market access, trade treaties are starting to set up rules to tackle transparency, accountability and regulatory standards.* (*Transparency International, http://www.transparency.org/global_priorities/public_contracting/instruments/trade_agreements • WTO • Agreement on Government Procurement negotiated during the Tokyo Round on 1 January 1981. • Plurilateral: only some members have signed so far. • Covers transparency and non-discrimination. • Working Group was set up at the 1996 Singapore Conference – it was multinational and included all WTO members to focus on transparency in government procurement practices\ • GATT Rules for Services established January 2000

42. Private Initiatives • Business Associations • American Bar Association • Ethics Officer Association • US Chamber of Commerce • International Chamber of Commerce • Federation of Thai Industries • NGOs • Transparency International • Publish What You Pay • International Lending Institutions • The World Bank • International Monetary Fund • African Development Bank • Regional groups • Hong Kong based Independent Commission Against Corruption (ICAC) • Ethics centers supported by Merck and the Ethics Resource Center have opened in Colombia, South Africa, Russia, Turkey, and the United Arab Emirates.

43. Point #6: Enforcement Actions Are Increasing

44. Enforcement is on the rise: • More multinational collaboration (UN, OECD, EU, OAS, African conventions, etc.) • More private initiatives • SOX reporting requirements • Public pressure after Enron, Worldcom, Tyco, etc.

45. Enforcement is on the Rise • Sources of Allegations • Competitors either in US or abroad • Whistleblowers and former employees (US or abroad) • Internal Audits and SEC disclosure • Foreign governments or officials or party representatives • FBI agents overseas, newspapers, journalists • Joint venture partners, subcontractors • Agents • Anonymous complaints • DaimlerChrysler (2005).The investigations by the SEC and the DOJ allegedly stemmed from a civil lawsuit in which a fired Chrysler accountant accused the company’s Mercedes unit of maintaining dozens of secret bank accounts in order to bribe foreign officials.

46. Investigations Pending or Completed 2004 - 2005 • France Halliburton (Kellogg Brown & Root) and Technip. Alleged bribes to Nigerians for $3.8 billion construction contract. • Germany ABB -- In Feb. 2000, ABB’s German subsidiary came under investigation by German authorities on suspicion of operating secret accounts w/ 11 Swiss banks containing DM 300 million to handle bribery payments. ABB suspected of offering bribes in connection with waste treatment and energy projects in 4 cities. A prosecutor in 2002 Bonn was pursuing a bribery case allegedly connecting ABB to a late 90’s municipal power project. • Italy ENI SpA – Milan prosecutors are investigating fired Enipower manager Lorenzino Marzocchi and two company consultants for taking bribes from suppliers.

47. Investigations Pending or Completed 2004 - 2005 • Norway Statoil (2004) – (82% owned by government) investigated by Norwegian police for alleged $15 million, 11-year consulting contract with consulting firm alleged to be linked to son of former Iranian President to gain access to South Pars. • Switzerland Giffen -- Started investigation of James Giffen by revealing suspicious activity to the Justice Dept in connection with certain Swiss bank accounts. • Brazil GTech – Brazilian government filed a suit to recover money paid to the lottery company in connection with two contracts it claims are illegal because officials were bribed by former GTech employees.

48. Investigations Pending or Completed 2004 - 2005 • United Nations The United Nations Oil-for-Food Programme (2005). An independent inquiry committee of the United Nations chaired by former Federal Reserve Chairman Paul Volcker issued two lengthy reports detailing its findings that corporations and individuals paid millions of dollars in bribes to officials of the Iraqi regime of Saddam Hussein in exchange for the right to purchase oil under the United Nations Oil-for-Food Programme. • Indonesia Monsanto –Investigated by the Indonesian KPK (newly-formed anti-corruption unit) for a possible illegal $50k payment by its consultant to a gov’t official to cause the official to reverse a government decree requiring an environmental study.

49. Investigations Pending or Completed 2004 - 2005 • South Korea IBM Koreaand JVs have been accused by the SK gov’t of bribing government officials and rigging bids to win $55 million in contracts. • Lesotho World Bankgave money to Lesotho government to investigate possible bribes to Chief Executive of $8 Billion Highlands Water Project by ABB, Spie, Acres and others. First time multinationals have been tried and convicted for bribery in the 3rd world. • Nigeria Halliburton (Kellogg Brown & Root) –for paying tax official $2.4 million to avoid taxes. Allegations that U.S. company is reported to be a member of the consortium that channeled $40 million in unlawful payments to Nigeria’s dictator through a British lawyer who was retained to obtain government permits and maintain good relations with government officials.

50. Anti-corruption: Non-compliance is costly Violations of the anti-bribery provisions (per violation) • Maximum criminal fine for a business entity is $2,000,000 • Maximum criminal fine for individuals is $100,000 and maximum imprisonment term is 5 years • Civil penalty of $10,000 also may be imposed Loss of Reputation