implementing a winning third party anti- corruption program and managing compliance the canadian...
TRANSCRIPT
Implementing a Winning Third Party Anti-Corruption Program and Managing
Compliance
The Canadian Institute’s Practical Guide to Anti-Corruption Compliance
June 23, 2015
John W. Boscariol
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John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca
Introduction
¬ various kinds of relationships with business partners
¬ relevant statutory provisions
¬ examples of enforcement
¬ key questions for agents and other business partners
¬ red flags
¬ key compliance measures
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John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca
Kinds of Intermediaries
¬ addressing risk arising from your relationship with business partners, including
¬ agents
¬ consultants
¬ brokers
¬ lawyers
¬ distributors
¬ contractors
¬ joint venture partners
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John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca
Key Statutory Provisions
¬ Corruption of Foreign Public Officials Act section 3:
¬ “directly or indirectly gives, offers or agrees to give or offer a loan, reward, advantage or benefit of any kind to a foreign public official or to any person for the benefit of a foreign public official”
¬ Criminal Code section 22.2:
¬ company is party to the offence if a senior officer “knowing that a representative of the organization is or is about to be a party to the offence, does not take all reasonable measures to stop them from being a party to the offence”
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John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca
Key Statutory Provisions
¬ Criminal Code section 2:
¬ “senior officer” means a representative who plays an important role in the establishment of an organization’s policies or is responsible for managing an important aspect of the organization’s activities and, in the case of a body corporate, includes a director, its chief executive officer and its chief financial officer
¬ “representative”, in respect of an organization, means a director, partner, employee, member, agent or contractor of the organization
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John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca
Key Statutory Provisions
¬ US Foreign Corrupt Practices Act
¬ prohibition includes the “authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to” a foreign official
¬ prohibits corrupt payment to any foreign official or to “any person, while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to any foreign official…”
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John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca
Relevant Excerpts from the Niko Probation Order¬ a rigorous anti-corruption compliance code designed to
detect and deter violations of CFPOA and other anti-corruption laws, which includes…
¬ compliance standards and procedures that apply to all directors, officers, employees, and outside parties acting on behalf of the company
¬ conducting risk assessment in order to develop these standards and procedures based on specific bribery risks facing the company and taking into account a number of specified factors, including the company’s geographical organization, interactions with various types and levels of government officials, industrial sectors of operation, and involvement in joint venture agreements
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John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca
Relevant Excerpts from the Niko Probation Order¬ systems for providing anti-corruption guidance
and advice within the company and to business partners, confidential reporting of possible contraventions, protection against retaliation, and responding to reports and taking appropriate action
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John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca
Relevant Excerpts from the Niko Probation Order¬ institute appropriate due diligence and compliance
requirements pertaining to the retention and oversight of all agents and business partners, including:
¬ properly documenting risk-based due diligence pertaining to the retention and appropriate and regular oversight of agents and business partners
¬ informing agents and business partners of the company’s commitment to abiding by anti-corruption laws and of the company’s ethics and compliance policies and standards, and
¬ seeking a reciprocal compliance commitment from agents and business partners
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John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca
Relevant Excerpts from the Niko Probation Order¬ include standard provisions in agreements, contracts and
renewals thereof with all agents and business partners that are reasonably calculated to prevent violations of the anti-corruption laws, which may, depending on the circumstances, include:
¬ anti-corruption representations and undertakings relating to compliance with anti-corruption laws;
¬ rights to conduct audits of the books and records of the agent or business partner to ensure compliance with the foregoing, and
¬ rights to terminate an agent or business partner as a result of any breach of anti-corruption laws or the company’s policies in that regard
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John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca
Some Enforcement Examples¬ Maxwell Technologies (2011)
¬ Swiss subsidiary alleged to have paid Chinese state-owned electric utility infrastructure manufacturers kickbacks
¬ charged inflated prices for equipment sales and paid the excess to their Chinese agent who passed amounts on to officials
¬ invoices issued to Maxwell by agent for "extra amount" or "special arrangement" fees
¬ found Maxwell had failed to maintain adequate controls over payments to the agent, conduct due diligence regarding the agent, and provide anti-corruption training to relevant employees
¬ voluntarily disclosed, negotiated a deferred prosecution agreement, and paid penalty of $14 million
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John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca
Some Enforcement Examples¬ Alcatel-Lucent (2010)
¬ use of agents and consultants in Costa Rica, Honduras, Malaysia, Taiwan, Kenya, Nigeria, Bangladesh, Ecuador, Nicaragua, Angola, Ivory Coast, Uganda, and Mali in connection with telecom contracts
¬ in Costa Rica, a subsidiary wired about $18 million to two consultants; more than half was then passed to government officials
¬ in Honduras, a subsidiary hired and made payments to a "consultant" who was a perfume distributor with no experience in telecommunications; personally selected by "the brother of a senior Honduran government official“
¬ in Taiwan, the company and its joint venture hired two consultants with no telecommunications experience; passed some of their $950,000 payments to Taiwanese legislators
¬ voluntarily disclosed, negotiated a deferred prosecution agreement, and paid fines of $137 million
¬ also agreed to cease using third-party sales and marketing agents in conducting its worldwide business
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John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca
Some Enforcement Examples¬ Panalpina (2010)
¬ Swiss freight forwarder paid bribes of $27 million for customs clearance and import permits in Angola, Azerbaijan, Brazil, Kazakhstan, Nigeria, Russia and Turkmenistan.
¬ for Panalpina’s oil field services customers, including Pride International, Royal Dutch Shell, Tidewater, Transocean, Global Santa Fe and Noble
¬ in order “to circumvent local rules and regulations relating to the import of goods and materials”
¬ the oil field services companies were also investigated and admitted to making payments through freight forwarder
¬ voluntarily disclosed, negotiated deferred and non-prosecution agreements, and paid fines totalling $237 million
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John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca
Dealings with Agents and Other Business Partners
¬ recognition that what your agent or business partner does can have a significant impact on your company
¬ CFPOA applies to direct and indirect offers or payments
¬ captures your knowledge of or wilful blindness to your agent’s corrupt activities
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John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca
Dealings with Agents and Other Business Partners
¬ must exercise due diligence to ensure that agents and other partners are aware and comply with anti-corruption obligations
¬ in addition to agents, includes other third parties such as
¬ consultants, distributors, suppliers, jv partners, legal counsel, other services providers
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John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca
Key Questions to Ask About Your Agents and Other Business Partners
¬ what is the service they will provide?
¬ is it legitimate and necessary?
¬ what are their qualifications, experience, expertise for providing the legitimate services required in the circumstances?
¬ what is their reputation? in the industry and country? with banks, customers, suppliers and others?
¬ do a criminal record check
¬ how did you come to know about them?
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John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca
Key Questions to Ask About Your Agents and Other Business Partners
¬ what are their anti-corruption compliance policies?
¬ review evidence and materials
¬ are their fees reasonable for legitimate services of this kind and given the location?
¬ is it consistent with others in the jurisdiction?
¬ what are their personal and professional relationships with government officials?
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John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca
Agent and Business Partner “Red Flags”
¬ reasons for further investigation and extra vigilance
¬ country has poor history or reputation for corruption
¬ unusual payment patterns or financial arrangements
¬ dealings in cash or with offshore accounts
¬ agent reluctant to readily cooperate in due diligence
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John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca
Agent and Business Partner “Red Flags”
¬ reasons for further investigation and extra vigilance (cont’d)¬ unusually high commissions
¬ success-based fees
¬ upfront payment
¬ lack of transparency in its expenses and accounting records
¬ lack of qualifications or resources
¬ recommendation from an official of the government customer
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John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca
How Do We Implement?
¬ key compliance measures for dealings with agents and other business partners
¬ due diligence is fluid and must be conducted
¬ before entering the relationship
¬ during negotiations
¬ and on ongoing basis (monitoring)
¬ and it must be risk-based
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John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca
How Do We Implement?
¬ key compliance measures for dealings with agents and other business partners
¬ fully document in writing all due diligence
¬ do not proceed unless senior compliance or legal approve
¬ establish procedure for referring “red flags” or problematic cases to outside legal counsel
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John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca
How Do We Implement?
¬ screening and pre-approval of agents and business partners¬ internal questionnaires
¬ agent completion of questionnaires
¬ personal interviews
¬ third party investigation – boots on the ground
¬ visit to office / facility
¬ discussions with others¬ in host country
¬ trade and industry associations
¬ government sources
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John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca
How Do We Implement?
¬ negotiating the contract with the agent or other business partner
¬ incorporate anti-bribery compliance into agency contracts and JV
and other agreements
¬ acknowledgment and awareness
¬ disclosure of government relationships
¬ disclosure of past corruption and fraud-related charges, convictions
¬ notification of any changes
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John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca
How Do We Implement?
¬ incorporate anti-bribery compliance into agency contracts and JV and other
agreements
¬ representations and warranties on compliance
¬ periodic certification of compliance
¬ notification of non-compliance
¬ notification of knowledge of pending or initiated investigation
¬ right to terminate
¬ indemnification for breach of anti-corruption obligations
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John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca
How Do We Implement?
¬ incorporate anti-bribery compliance into agency contracts and JV and other agreements
¬ description of services, expertise
¬ use of subcontractors/agents
¬ compensation and reimbursement of agent expenses
¬ accounting and recordkeeping
¬ right to audit
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John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca
How Do We Implement?
¬ once retained, ongoing monitoring of agents and other third parties
¬ provide training at the outset and on ongoing basis
¬ periodic certification of compliance
¬ regular reporting on agent’s activities
¬ supervision - identifying and resolving red flags
¬ involvement in agent interactions with government
¬ robust process for expense reimbursement
¬ exercising audit rights
John W. BoscariolMcCarthy Tétrault LLPInternational Trade and Investment Lawwww.mccarthy.caDirect Line: 416-601-7835
E-mail: [email protected]: www.linkedin.com/in/johnboscarioltradelaw Twitter: www.twitter.com/tradelawyer