TIPs and CHIPs - the payments....

SEC Charges Seven Oil Services and Freight Forwarding Companies for Widespread Bribery of Customs Officials. The Securities and Exchange Commission announced sweeping settlements with global freight forwarding company Panalpina, Inc. and six other companies in the oil services industry that violated the Foreign Corrupt Practices Act (FCPA) by paying millions of dollars in bribes to foreign officials to receive preferential treatment and improper benefits during the customs process. http://www.sec.gov/news/press/2010/2010-214.htm

DOJ is moving beyond the FCPA. The government’s willingness to use the Travel Act to attack bribes to foreign nationals in cases where the FCPA arguably does not apply (e.g., the Nexus Technologies case) or concededly does not apply (e.g., the Carson case) seems to indicate that DOJ stands ready to prosecute private commercial bribery. Indeed, the DOJ’s own FCPA website states that DOJ “may” in the future continue to use the Travel Act to pursue “federal prosecutions of violations of state commercial bribery statutes.” Whether it will do so only in cases where it stumbles on evidence of bribes to private actors during traditional FCPA investigations or will pursue such cases where this conduct stands alone, based on whistleblower information or other leads.

For this trend, a reassessment of internal compliance programs is prudent.

The inclusion of the Travel Act charges in the Nexus Technologies indictment is not an isolated incident. DOJ has used the Travel Act to reach bribery of individuals overseas in a number of different cases. It has, in fact, done so at least sporadically for years. See, e.g., United States v. Welch, 327 F. 3d 1081 (10th Cir. 2003) (reversing District Court’s dismissal of Travel Act charges, with Utah bribery statute as predicate, in case involving bribes to private individuals overseas);United States v. Young & Rubicam, Inc.,741 F. Supp. 334 (D. Conn. 1990) (Travel Act charges with underlying predicates of FCPA and New York commercial bribery statute).

See Indictment in United States v. Nexus Technologies Inc., Counts 11 – 19, 08-cr-522 (E. D. Penn.) (Docket # 106, 10/29/09). And DOJ Press Release dated September 16, 2010 at http://www.justice.gov/opa/pr/2010/September/10-crm-1032.html

Precedents:

• United States v. Robert E. Thomson and James C. Reilly – Two executives of HealthSouth Corporation were charged with Travel Act violations, based on Alabama’s commercial bribery statute, in connection with alleged kickbacks to a Saudi Arabia customer. They were acquitted of all charges at trial in 2005. Two other executives caught up in the same investigation pled guilty to other charges.

• United States v. Steven J. Ott et al. – Three executives from ITXC Corporation, an international telecommunications company based in New Jersey, were convicted of parallel FCPA and Travel Act violations and sentenced in 2008, with the lead defendant receiving 18 months in prison. The Travel Act’s underlying predicate crime in that case was New Jersey’s commercial bribery statute (Section 2C:21-10 of the New Jersey Code) and the conduct included wire transfers of bribe money from New Jersey to Nigeria.
  SeeDOJ Press Release dated September 2, 2008; Indictment in United States v.Steven J. Ott, 07-cr-608 (D.N.J.)

• United States v. Stuart Carson et al.– Numerous employees of an energy industry equipment manufacturer were indicted for an alleged scheme to land contracts through bribery – including about $5 million in payments to employees of foreign state-owned customers and about $2 million in payments to employees of private foreign companies. The latter conduct was prosecuted under the Travel Act, using California’s commercial bribery law (Penal Code Section 641.3) as the underlying predicate. Two employees have pled guilty and await sentencing while six more await trial, currently scheduled for November 2010.
  See DOJ July 6, 2010, Press release; Docket sheet for United States v. Carson et
  al., 8:09 cr 77 (D.D. Cal. 2009).

• United States v. Frederic Bourke, Jr.– Bourke was convicted at trial of violating the FCPA and the Travel Act. Unlike in other cases discussed above, however, the underlying “unlawful activity” predicate for the Travel Act charges was not a state law commercial bribery statute – but the FCPA itself. Unsurprisingly, the jury was accordingly instructed that the government had to prove, among other things, “that the activity that the person intended to facilitate was, in fact, unlawful under the FCPA” itself. But that charging decision portends another future risk: that the government could use the Travel Act to bootstrap an FCPA charge (or a state commercial bribery charge) into a racketeering charge – as it has done in the past.

While the FCPA is not an enumerated predicate under the Racketeer Influenced and Corrupt Organizations Act, and hence cannot form the basis for RICO charges, the Travel Act does constitute such a predicate and thus can be the basis for a RICO indictment.

See Young & Rubicam, 741 F. Supp. at 338 (rejecting defense argument that it was improper to charge criminal RICO violation based on Travel Act predicates, which were in turn based on FCPA and New York commercial bribery predicates); cf. Dooley v. United Technologies Corp., 1992 WL 167053 at *9 (D. D. C. 1992) (refusing to dismiss a civil RICO action, finding specifically that Travel Act violation relating to bribery of Saudi Arabian officials was a sufficiently pled predicate act of racketeering).And see Jury Instructions, United States v. Bourke, S2 05 Cr. 518 (S.D.N.Y. 2009) at 32.

The government’s willingness to use the Travel Act to attack bribes to foreign nationals in cases where the FCPA arguably does not apply (e.g., the Nexus Technologies case) or concededly does not apply (e.g., the Carson case) seems to indicate that DOJ stands ready to prosecute private commercial bribery.

Indeed, the DOJ’s own FCPA website states that DOJ “may” in the future continue to use the Travel Act to pursue “federal prosecutions of violations of state commercial bribery statutes.” Whether it will do so only in cases where it stumbles on evidence of bribes to private actors during traditional FCPA investigations or will pursue such cases where this conduct stands alone, based on whistleblower information or other leads.

The trend raises the need of a reassessment of internal compliance programs and an anti-corruption compliance program that covers the waterfront of traditional FCPA concerns and commercial bribery and US state commercial bribery laws which sets a very low bar for bribery, outlawing the provision of “any benefit upon any employee, agent or fiduciary … with intent to influence his conduct”, as well that covers the UK Bribery Act.

The conduct US prosecutors can now only reach through the artful use of the Travel Act (necessarily tethered by some nexus to the individual state at issue), the UK Act targets directly and more broadly: it directly criminalizes commercial bribery of private individuals, imposes criminal liability for the new strict liability corporate offense of “failing to prevent bribery” with a long-arms beyond territory (and no prong on corrupt intent).

FCPA - U.S. COMPANIES DOING BUSINESS ABROAD - THIRD PARTIES - FCPA COMPLIANCE PROGRAM – RISK-BASED APPROACH

1. U.S. Companies doing business abroad directing third parties’ FCPA compliance program – risk-based approach.

Settlements announced by DOJ and SEC show us not only how misconduct and violation can be costly and harm a company’s reputation, but also how the globalization of anti-corruption efforts are increasingly more effective and more aggressive.

The program should direct US and foreign companies to follow DOJ guidance in FCPA and other analogous compliance areas, including third parties compliance.

The high risk-based approach was commented by the DOJ in the Opinion Procedure Release 08-02, which released and approved Halliburton’s proposed acquisition of the UK entity Target with the provision that Halliburton undertakes certain actions, such as comprehensive risk-based FCPA and anti-corruption due diligence work plan. The plan would address the use of agents and other third parties, commercial dealings with state-owned customers; any joint venture, teaming or consortium arrangement; customs and immigration matters; tax matters; and any government licenses and permits.

The risk-based approach was also adopted by UK’s Financial Services Authority on AON case last year, enforcing local and global anti-corruption protocols.

The DOJ Opinion Procedure Release 08-02 system, therefore affects international acquisitions and transactions. The risk-based system can also be used to assist in the evaluation of foreign business partners or suppliers, functioning as a radar detector which tracks and identifies risks on third parties.

A well established Foreign Business Partner Committee at a US company can oversee activities towards the results of investigative due diligence. The committee should format a program including the business unit’s rationale for partnering with a person or entity.

Foreign business partner’s ethics and FCPA compliance program can direct issues and restrictions on facilitation of payments, gifts, entertainment and travels; establish proper accounting and invoicing; and enforce policies that flow down to any sub-vendor or supplier of the foreign business partners.


2. PROACTIVE COMPLIANCE PROGRAM, DUE DILIGENCE AND RISK ASSESSMENT

If the foreign business partner does not meet the US company policies or the FCPA’s standards, the company should consider requiring the partner to implement one according to the US Sentencing Guidelines and the DOJ guidance.

Smaller foreign business partners are more likely to lack those policies, but the leading company still has the liability for their actions. Therefore, sometimes the solution is to acquire the smaller foreign company and integrate it to the leading company’s FCPA policies.

Generally, the interaction and supervision of FCPA compliance is made by contractual provisions and clauses in which the FCPA guidance is integrated. Examples are: no payments of money, or anything of value, such offer, promise, or paid, directly or indirectly, to any foreign officials, political parties, party officials, or candidates for public or political role, to influence the acts of such officials in their capacity to induce them to use their influence with a government to obtain or retain business or gain an improper advantage in connection with any business venture or contract in which the US company is a participant.

Regardless, conducting an overall program and adding contractual terms with foreign business partner may address US Company’s compliance with the FCPA policies:

· Indemnification – the foreign business partner must provide full indemnification for any FCPA violation, including all cost of the underlying investigation;

· Cooperation - the foreign business partner must cooperate with any ethics and compliance investigation;

· Material breach of contract – clause provision that FCPA violations, with no notice or opportunity to cure will be enough grounds for immediate cessation of all payments;

· No sub-vendors or suppliers without approval and scrutiny from the US company;

· Audit rights – for FCPA related compliance procedures;

· Acknowledgment of the applicability of the FCPA to the business relationship;
· Ongoing training for top management of foreign business partner and all persons performing services on a company’s behalf;

· Annual certification of conduct that complies with FCPA or any applicable law;

· Re-qualification - the foreign business partner must be required to re-qualify as a provider at regular interval, using due diligence like the one prior to contractual approval, in an effort to mitigate FCPA future violations;

· Internal review of the compliance program and the ongoing relationship to prevent future liability.


3. Conclusion – prevent v. cure

The use of a standardized process, record-keeping management and record retention schedules combined with ethics compliance does not guarantee compliance anymore. Additional focus is required on process knowledge and risk assessment for higher effectiveness. The foreigners typically are not familiar with the aggressiveness and effectiveness of a SEC investigation.

For its overseas compliance and ethics program to be effective, US Companies have to focus on relevant expertise of the laws abiding, knowledge of the market, business and culture of the region, general understanding of the local regulations, judicial system and processes. The General Counsel has to oversee the different scenarios and coordinate with the overall enterprise risk management –e.g. SOX 404 assessment, organizational corporate social responsibility or reputation, impact on ethic and compliance issues.

US Companies doing business abroad have to coordinate this process by risk assessing not only globally, but also locally; most probably a task for lawyers with background in US, and local Laws.

Also it is appropriate to start, from the top management, efforts to ensure compliance transparency in the process throughout their acts and company’s code of conduct, which should encourage internal dialogue and prompt reporting of questions and concerns.

The DOJ Deferred Prosecution Agreement with Monsanto for FCPA violations provides guidance in the continuing obligation to monitor foreign business partners.

The oversight program must involve its legal, compliance, accounting, internal audit, and information technology departments from the initial due diligence, including an ongoing risk-based compliance monitoring process.

For Brazil, It's Finally Tomorrow

Brazil is already the biggest economy in Latin America and the 10th-biggest in the world. By 2050, it will likely move into fourth place, leapfrogging countries including Germany, Japan and the U.K., according to a study by Goldman Sachs.
Clearly, Brazil has turned a corner—and is now a nation with the heft, ambition and economic fundamentals to become a world power. But the country has enormous challenges it must overcome before it can fully live up to its potential.

Enjoy this The Wall Street Journal's article at
http://online.wsj.com/public/page/brazil-032910.html

Rebalancing Act II

Brazil will host a second summitt of BRIC countries
Brazil, Russia, India, and China are countries considered the most prominent economies in the world.
http://www.theinformationcompany.net/bric-countries-will-hold-a-second-summit-in-brazil/