Foreign Corrupt Practices Act: Unexpected Liabilities For D&O Insurers

1. Foreign Corrupt Practices Act: Unexpected Liabilities For D&O Insurers

2. The Round-Up… MODERATOR: • Joseph P. Monteleone, Esq., Partner, Tressler, LLP PANELISTS: • Robert Axelrod, JD, Director, Deloitte Financial Advisor Services, LLP • Charles “Trey” W. Branham, III, Esq., Founder, Goldfard Branham LLP • Kevin LaCroix, JD, RPLU, Partner, Oakbridge Insurance Services, L.L.C. • Lisa A. Prager, Esq., Partner, Wilson Sonsini Goodrich & Rosati

3. What’s on Tap… • Overview • Plaintiff’s Perspective • Compliance and Risk Management Issues • Defendant’s Perspective • D&O Insurance Implications • Conclusion and Forecast • Q&A

4. Overview • Foreign Corrupt Practices Act Defined • Anti-Bribery Component • Accounting Controls • Who Can Bring an Active Pursuant • Relief Granted and How Measured • Bribe-to-Fine Ratios

5. Plaintiff’s Perspective • Impact on Securities Fraud Class Actions • Impact on Shareholder Derivative Litigation • Other Impacts on Civil Litigation

6. Plaintiff’s Perspective “The failure of a board of directors to ensure that its company had an adequate corporate compliance information and reporting system in place can “render a director liable for losses caused by non-compliance with applicable legal standards.” In Re Caremark Int’l Derivative Litigation, 698 A.2d 959, 970 (Del. 1996)

7. Plaintiff’s Perspective FCPA requires every issuer to “make and keep books, records, and accounts which in reasonable detail accurately and fairly reflect the transactions and dispositions of assets” 15 U.S.C. §§78m(b)(4)-(5).

8. Plaintiff’s Perspective Three Types of Record Keeping Offenses • Records that fail to record improper transactions at all (e.g. bribes and kickbacks) • Records that are falsified to disguise aspects of improper transactions otherwise recorded correctly • Records that correctly set forth the amounts paid, but that fail to record aspects which would reveal their illegality Complying with the Foreign Corrupt Practices Act, Cruwer, Donald, 1999

9. Plaintiff’s Perspective Types of Transactions Implicated • Payments to mid- or high-level foreign government officials • “Facilitating payments” to low-level foreign governments • Commercial bribes or kickbacks • Political Contributions • Charitable Contributions • Smuggling Activities • Income Tax Violations • Customs Violations • Extraordinary Gifts Foreign Corrupt Practices Handbook, Tarun, Robert W., p.20

10. Plaintiff’s Perspective Damage Theory • Investigation Costs • Lost Earnings • Lost Revenue • Civil Fines

11. Plaintiff’s Perspective White v. Avon Products, Inc. Initial Damage Model • Investigation Costs - $130,000,000 • Lost Earnings - $74,800,000 • Lost Revenue - $10,000,000 • Civil Fines - ???? Total Damages to Date: $214,000,000 +

12. Compliance and Risk Management Issues • Department of Justice Enforcement • Securities & Exchange Commission Role • Recent Activity • Small Cases • Big Cases • Does It Pay to Self Disclose • Foreign Equivalents

13. Defendant’s Perspective • Coordination • Differing Impacts • Impact on Loss Causation, Liability and Damages

14. D&O Insurance Implications • Coverage Implications • Conduct Exclusions • FCPA-Specific Policy Provisions • Insurability and Public Policy Concerns • Claim Definition • Policy Enhancements

15. Conclusion and Forecast • Likelihood of Enhanced FCPA Activity • New Legislative Developments

16. Questions&Answers

17. Many Thanks To… • Joseph P. Monteleone • Robert Axelrod • Charles “Trey” W. Branham • Kevin LaCroix • Lisa A. Prager