Corporate Corruption & Bribery (FCPA). Tomas Guerrero Dominique A. Gilormini Reza Karimi

1. Corporate Corruption & Bribery (FCPA).Tomas Guerrero Dominique A. Gilormini Reza Karimi

2. What is a bribe? • A payment made with an intention to corrupt. • Or payment made with the intention of causing a person to be dishonest or disloyal or to betray a trust in the performance of Bribery is one the most common and controversial issue that MNC face

3. Characteristics • Bribery is universally condemned • No government in the world legally permits bribery • However, corruption exists to some extent in EVERY country in the world.

4. Characteristics cont… Bribery is very vague: • Bribery applies to many different kind of payments with different interoperation, ranging form gift giving, influence peddling to kickbacks or extortion Bribery and MNC

5. Advocacy for bribery “We don’t agree with Romans, but find it necessary to do things their way” The demand for bribe may be unethical, is it unethical to give in to a demand?

6. The Foreign Corrupt Practices Act of 1977 • In the mid-1970s, Congress held a number of public hearings which brought to light that millions of dollars in bribes had been paid to high government officials of other countries by United States-based companies seeking to win defense or consumer product contracts. • Alarmed by the size and scope of these activities, Congress passed the Foreign Corrupt Practices Act of 1977 (FCPA) as a major amendment to the Securities Exchange Act of 1934.

7. The Foreign Corrupt Practices Act of 1977 • The FCPA has two major sections: • Part I prohibits foreign bribes. • Part II requires publicly held companies to maintain an adequate system of internal controls and accurate records. • The FCPA also had significant effect on independent auditors by requiring them to evaluate a company’s internal controls and to communicate any material weaknesses n those controls to the company’s top management and board of directors. Apply to worldwide operations.

8. The Foreign Corrupt Practices Act of 1977 • It is counter to the moral expectations and values of the American public • Bribery not only is it unethical, it is bad business as well. • It short-circuits the marketplace, hurts competition. • Bribery also creates severe foreign policy problems for the United States

9. Other legislation outside the US • The Organization for Economic Cooperation and Development (OECD) adopted its Anti-Bribery Convention in November 1997 • The OECD Convention is the first major international treaty specifically to address 'supply-side bribery' by sanctioning the briber. The OECD Convention establishes an international standard for compliance with anti-corruption rules by 36 countries

10. Amendment • FCPA was amended in 1998 by the International Anti-Bribery Act of 1998 To implement the anti-bribery conventions of OECD Until now, the FCPA has essentially applied only to U.S. companies, foreign employees or agents of U.S. companies, and U.S. nationals

11. The 1998 amendments, however, extend FCPA liability to foreign nationals and foreign businesses that, while in U.S. territory, do any act in furtherance of a prohibited payment. Foreign businesses, including foreign subsidiaries of U.S. companies, must now ensure that employees acting within the United States adhere to the FCPA.

12. Permitted payments • In 1988 the FCPA was amended to allow for "facilitating payments" for expediting routine governmental action. • Promotional or Marketing Expenses Affirmative Defense (e.g., Entertainment) • Payments Lawful Under Foreign Laws Affirmative Defense

13. A Major Issue? • Are anti-corruption and bribery laws (FCPA, etc) too vague and difficult effectively enforce?

14. USA vs King (Final appeal, 2003) • Case “involves an FBI investigation into the dealings between certain individuals who hoped to develop a port in Limon, Costa Rica.” • “The focus of the investigation concerned the planned payment of a $1 million bribe to senior Costa Rican officials and political parties to obtain concessions for the land on which the new development was to be built.”

15. Ruling and Appeal • King was indicted under FCPA laws and convicted of 1 count conspiracy and 4 counts of FCPA violations. The sentence included 30 months imprisonment and a fine. • King appealed, claiming lack of evidence, hearsay, procedural issues, and gross misconduct and overreach of the US government.

16. Outcome • Conviction upheld in court of appeals • Evidence ruled as sufficient, taped recordings discussing bribes not hearsay, government’s use of informants legal and justified.

17. USA vs Kay and Murphy2002-2007 • American Rice, Inc. sets up a subsidiary for business in Haiti: Rice Corporation of Haiti. • Indicted for violations of the FCPA with regard to the bribery of customs officials to intentionally understate figures of rice shipments so as to avoid high customs fees.

18. Conviction…Appeal…Victory? • Kay and Murphy are charged with 12 counts of FCPA violations. • The defendants appeal for a dismissal of the charges based of the ambiguity of the wording of the document. • A US federal court in Houston agreed and dismissed all of the charges.

19. The US appeals to the district court. The charges are restored after further review of the language of the FCPA rules. Kay and Murphy are sentenced to 37 and 63 months in prison, respectively. “The FCPA makes it a crime to (1) ‘willfully;’ (2) ‘make use of the mails or any means or instrumentality of interstate commerce;’ (3) ‘corruptly;’ (4) ‘in furtherance of an offer, payment, promise to pay, or authorization of the giving of anything of value to;’ (5) ‘any foreign official;’ (6) ‘for purposes of [either] influencing any act or decision of such foreign official in his official capacity [or] inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official [or] securing any improper advantage,’ (7) ‘in order to assist such [corporation] in obtaining or retaining business for or with, or directing business to, any person.” Reversal

20. The New Issue • Business Law Today (May/June 2007): Unique Problems with FCPA Compliance in the Peoples’ Republic of China

21. The Rules • “The FCPA prohibits corrupt payments to any foreign official, regardless of rank or position. The term "foreign official" includes officers or employees of foreign governments as well as any department, agency or instrumentality thereof. It also includes any person acting in an official capacity for or on behalf of any government, department, agency or instrumentality. Employees of state-owned or controlled entities should be presumed to be foreign officials under the FCPA.” (ABA)

22. The Risks • “First, many major businesses in the PRC are state-owned or state-controlled even if some portion of their shares are owned by other entities or publicly traded. In the PRC, many PRC-based businesses are operated under the supervision of the State-owned Assets Supervision and Administration Commission of the State Council (SASAC). The SASAC performs the function of a state owner, representing the state as shareholder in a company. Thus, employees of many PRC businesses and industries may be considered foreign officials for purposes of the FCPA.” (ABA) • “Second, local agents or partners are often critical to successfully obtaining business in the PRC and may be necessary, if not mandated, conduits to the PRC government. Such "relationship" companies pose significant FCPA risks because their primary purpose is often to do nothing but favorably influence the government entity from which business is being sought, and because their fees are frequently based on a percentage of the contract price rather than on any work they have actually done.” (ABA)

23. ABA Recommendations • “Identify state-owned enterprises.” • “Provide written FCPA guidance in Chinese.” • “Avoid commission-based contracts for agents seeking to obtain business for subsidiaries of U.S. companies in the PRC.” • “Develop guidelines and require legal review of all client travel.” • “Ensure thorough review of all travel and entertainment expenses; require credit card use if possible.”

24. Policy Proposal • In order to prevent corruption and bribery we should understand: • What is corruption and bribery? • What are the consequences (social, economic, and legal) of committing this acts? • Who are the frequent characters that practice this illegal actions.

25. Policy Proposal (Legislation) • Step to prevent and eradicate corruption and bribery: • Formulation of a Law that sanction corrupt and bribery acts by nationals in its country of residence and a foreign country. • Make ethics education compulsory in academic programs for graduation • Make ethics education obligatory for private and public employees.

26. Policy Proposal (Legislation) • Promoting organizational change • Reward and promote good practices • Offering tools and training • Promote the formulation of anti- corruption and anti- bribery legislation in other countries • Prohibit the participation of nationals in the market of countries that have no anti-corruption legislation

27. Policy Proposal

28. Policy Proposal • Example of anti-corruption policy: • The government of Colombia signed a compromise with 11 companies to make them fulfill the “Enterprise Principles to eradicate Bribery”.

29. Policy Proposal • The companies that signed this agreement will comply with the following rules: • Direct and indirect bribes are prohibited • It is prohibited to offer/accept monetary or in spice proposals to sale or purchase products • Payments to influencers is prohibited • Employees, representatives, providers and distributors are prohibited to accept or offer payments (monetary or in spice) to move forward any process. • Corporation contribution to political campaigns are prohibited