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The Sting in the Deal: What Every Buyer & Seller Must Know About the FCPA. April 15, 2010. Sponsored by:. The Sting in the Deal – What Every Buyer and Seller Must Know About the Foreign Corrupt Practices Act . Discussion Leader Jonathan Marks, CPA, CFF, CFE

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the sting in the deal what every buyer seller must know about the fcpa

The Sting in the Deal: What Every Buyer & Seller Must Know About the FCPA

April 15, 2010

Sponsored by:


The Sting in the Deal –

What Every Buyer and Seller Must

Know About the Foreign Corrupt Practices Act

Discussion Leader

Jonathan Marks, CPA, CFF, CFE

Partner In-Charge of Fraud & Ethics

212.572.5576 or


Jonathan Marks, CPA, CFE, CFF

Partner In-Charge of Fraud & Ethics at Crowe Horwath LLP

Gregory Paw

Attorney engaged in Foreign Corrupt Practices Act matters at Pepper Hamilton LLP

Matthew Tanzer

VP and Chief Compliance Counsel, Tyco International

Kathleen Hamann

Trial Attorney, U.S. Department of Justice, Criminal Division, Fraud Section

why anti corruption compliance is important
Why Anti-Corruption Compliance Is Important

Increased Enforcement

Number of investigations is on the rise!

Increased Penalties

Penalties are up significantly from prior years

Individual Enforcement

DOJ and SEC are increasingly targeting executives; sentences include jail time

Increasing cooperation and coordination internationally

38 countries have adopted OECD Convention on Combating Bribery of Foreign Public Officials in International Business

Some countries aggressively enforcing

why anti corruption compliance is important8
Why Anti-Corruption Compliance Is Important

Voluntary disclosure is increasing

DOJ and SEC are encouraging companies to voluntarily disclose issues

Almost 2/3 of the disclosed FCPA investigations in 2005-2007 were voluntarily disclosed to the SEC

Government settlements are also requiring external monitors to ensure compliance

2- and 3-year monitors are becoming a standard part of settlements

The annual cost of external monitors can range from $1 to $3+ million per year

why anti corruption compliance is important9
Why Anti-Corruption Compliance Is Important

Increase in M&A

FCPA-related due diligence is leading to voluntary disclosures

SOX certification and internal controls

Increased expectations of Board of Directors and Audit Committees – possibility of personal liability

World governmental attitudes changing

Many other countries are cracking down on bribery

Cross country cooperation

and one more reason
And One More Reason…
  • Target Industries
  • Technology
  • Oil and Gas
  • Manufacturing
  • Engineering and Construction
  • Pharmaceutical
  • Medical Devices
  • Mining
  • Transportation

Source: Transparency International

fcpa fundamentals
FCPA Fundamentals

Anti-Bribery Provision

Makes it illegal to make payments with a corrupt motive directly or indirectly, to foreign officials, officials of foreign political parties, or any other person acting as a conduit for payments to foreign officials or political parties for the purpose of influencing the official, in order to assist in obtaining/retaining business

Books and Records Provision

Requires companies who file reports with the SEC to maintain records that accurately reflect transactions and the nature and quantity of corporate assets and liabilities

Other Key Facts

Ignorance of the law is not a valid defense

Source of the alleged bribe does not have to be in the U.S.

Actions of an agent acting “on behalf” of a company are attributed to company

Actions of the foreign sub will be attributed to the U.S. parent

m a anti corruption issues
M&A Anti-Corruption Issues

Pre-acquisition due diligence

Successor liability

Vicarious liability

Controlling Interest

Compliance programs

m a pre acquisition due diligence
M&A: Pre-Acquisition Due Diligence

Private firm Latin Node, Inc. had a number of contracts with state-run telephone companies in Honduras and Yemen

In 2007, eLandia International, Inc. acquired Latin Node for over $26 million

m a the other shoe drops
M&A: The Other Shoe Drops

Shortly after purchase, eLandia discovered bribery scheme to obtain contracts, and reported to the SEC

Latin Node entered guilty plea to FCPA offenses, paid $2 million fine

eLandia reported it overpaid by $20.6 million for the true value of Latin Node

private equity the impact of corruption
Private Equity: The Impact of Corruption

“Pirate of Prague” Viktor Kozeny led an effort in late 1990s to invest in and privatize SOCAR, the state oil company of Azerbaijan

Handbag magnate Frederic Bourke was part of a group of private equity investors that included Omega Advisors, Inc. and AIG

Prosecutors charge that Kozeny led his bid with offers of bribes to Azerbaijani officials

private equity criminal liability
Private Equity: Criminal Liability?

Clayton Lewis, Omega employee, allegedly was told by Kozeny about bribes to secure SOCAR bid

Pled guilty to FCPA offenses, awaiting sentencing

Omega Advisors

Agreed to cooperation agreement and $500,000 civil forfeiture

Frederic Bourke allegedly turned “blind eye” and kept “head in the sand” about Kozeny’s actions

Convicted at trial, sentenced to 1 year and 1 day imprisonment, on appeal

David Pinkerton, AIG

Indicted but charges dropped

private equity abb vetco aibel
Private Equity: ABB/Vetco/Aibel

In 2004, private equity group led by JP Morgan sought to purchase ABB/Vetco. Two Vetco units had pending FCPA charges.

Release 2004-02: Justice approves procedures before sale, emphasizing importance of compliance program.

Vetco/Aibel sold again to private equity, and more FCPA issues emerge.

Early 2007, 3 years later, three Vetco units pled to FCPA offenses and paid $26 million fine. Aibel also agreed to compliance reforms

Agreement took into account compliance failures, as well as new sale, new compliance efforts and self-disclosure

Late 2008, Aibel enters plea to FCPA offenses and pays $4.2 million fine

lessons learned
Lessons Learned

Pre-acquisition due diligence

Vibrant compliance program

Timely post-acquisition review / compliance

Self audits

Periodic reevaluations

Remedial steps

Self reporting of violations

what is effective due diligence
What is Effective Due Diligence?

Tailor due diligence based on risk of business being acquired

What is the nature of the business

Where are they conducting business

Who are the key players and with whom are they conducting business

Due diligence should address

Use of agents and other third parties

Commercial dealings with state-owned customers

Joint venture, teaming or consortium arrangements

Customs and immigration matters

Tax matters

Any government licenses and permits

what is effective due diligence22
What is Effective Due Diligence?

Consider external counsel and consultants, including forensic accountants, to conduct the due diligence

Obtain representations and warrantees from seller

Implement contractual protections

Covenants, representations and warranties

Audit rights

Suspension/termination rights

Confidentiality provision allowing pre-acquisition disclosure

Document due diligence steps

10 steps to minimizing fcpa risk
10 Steps to Minimizing FCPA Risk

Ensure commitment and accountability of senior management

Include FCPA in corporate code of conduct

Establish FCPA policy guidelines including clear approval guidelines for disbursements

Review FCPA-related internal controls to ensure you are properly flagging high-risk areas of your business

Use all available tools to conduct internal audits of FCPA controls, records and payments made by foreign affiliates

10 steps to minimizing fcpa risk continued
Investigate when red flags or bribery allegations arise

Understand corruption risk in countries where business is being done (see Transparency International’s CPI)

Include FCPA language in contracts and agreements including right to audit

Ensure periodic training of relevant employees

Perform proper due diligence on foreign business partners

10 Steps to Minimizing FCPA Risk (continued)
intangible benefits of anti corruption efforts
Intangible Benefits of Anti-Corruption Efforts

For example, in Iraq, the United Nations Oil-for-Food Program became corrupted

Massive surcharge and kickback scheme

139 companies pay oil surcharge

2,250 companies pay kickbacks

Over $1.4 billion diverted to Iraq government through payment of “Inland Transportation Fees” and “After-Sales Service Fees”

follow the money
Follow the Money

Over $1.4 billion diverted from “humanitarian” purposes

Diverted to Ministries of Defense and Military Industrialization, as well as intelligence services

Used to buy trucks, tires, batteries, even date palm excavators

acg philadelphia cup judges

ACG Philadelphia Cup Judges


  • Michael Bailey, Argosy Private Equity
  •  Barbara Shander, Morgan Lewis & Bockius
  • Judges Committee
  •  Scott Heery, KPMG
  •  Mitchell Hollin, LLR Partners
  • Ken Jones, Boathouse Capital
  •  Mike McAleer, KPMG
  •  Joe McGinley, Comcast Corporation
  • Andrew Panzo, NewSpring Capital Partners

Sponsored by:

acg philadelphia cup finalists

ACG Philadelphia Cup Finalists

Temple University, Fox School of Business

Qiyi Bao

Michael Ettinger

Vijay Iyer

Shao Zhang

The Wharton School of the University of Pennsylvania

Deb Bardham

Uttam Jain

Aditya Joshi

Nikhil Kirtane

TzerHan Lim

Fabio Salvagni

Drexel University, LeBow College of Business

Ryan Baker

Paul Green

Robert Lodge

Scott Freeman

La Salle University School of Business

Birad Bhatt

Justin Solomon

Mikael Vincke

Penn State University, Smeal College of Business

Jonathan Wesner

Xiaoyu Zhang

Howard Ho

Tieming Lang

Sponsored by:

acg philadelphia cup 2 nd place team

ACG Philadelphia Cup 2nd Place Team

Villanova University School of Business

Meet Doshi

Patrick Doherty

Olivia Pietrunti

Sumedha Verma

Sponsored by:

acg philadelphia cup 1 st place team

ACG Philadelphia Cup 1st Place Team

St. Joseph’s University, Haub School of Business

Chris FrystockJan Bartczak

Sponsored by:

mark your calendar for 2010 events
Mark Your Calendar for 2010 Events

Upcoming Events

May 5 - 6, 2010

ACG InterGrowth Miami, FL

May 20, 2010

Lenders’ Panel Discussion: Joint Program with TMA Philadelphia

June 3, 2010

Corporate Buyers Dinner Discussion (Invitation Only to Strategic Buyers)

June 17, 2010The Honorable David M. Walker, Former US Controller

July 12, 2010

Annual ACG Member Guest Golf Outing Huntingdon Valley Country Club