oreign corrupt practices act developments pm

©2007 Foley & Lardner LLP

FOREIGN CORRUPT PRACTICES ACT DEVELOPMENTS 12:15 PM

Sharie Brown, Foley & Lardner LLP

Israel Floyd, Hercules Incorporated

Eric Hinton, Caterpillar, Inc.

Ivonne Mena King, Foley & Lardner LLP

Luis Ortega, Deloitte Financial Advisory Services LLP

Joe Perkins, Cummins, Inc.

Javier Robles, Western Union


SHARIE A. BROWN PARTNER FOLEY & LARDNER LLP

Sharie A. Brown is a partner and chair of the White Collar Defense & Corporate Compliance Practice at Foley & Lardner LLP. She is also a member of the Transactional & Securities and International Practices and the Automotive Industry Team. Ms. Brown represents multinationals and conducts investigations and merger due diligence worldwide in the areas of the Foreign Corrupt Practices Act (FCPA), OFAC compliance and export controls, corporate ethics and compliance, World Bank procurement frauds, Economic Espionage Act (EEA), and USA Patriot Act anti-money laundering. Ms. Brown chairs the Litigation Department’s Diversity Committee, and serves on the Litigation Program Committee and the Women’s Network Steering Committee.

Her professional memberships include: National Foreign Trade Council (NFTC); Steering Committee of USA*ENGAGE; OFAC Working Group; Iran Working Group; and advisory board of the Georgetown Corporate Counsel Institute.

Previously, as senior counsel at Mobil Oil Corporation, Ms. Brown practiced in the above practice areas, and was involved as a compliance officer and ethics officer, as well as a policy advisor in corporate planning and economics.

Prior to Mobil, as an assistant U.S. attorney in the Eastern District of Pennsylvania, she handled tax, bank fraud, and securities fraud cases. She was commended by federal law enforcement agencies, including FBI Director William Sessions, for her co-prosecution of a securities fraud RICO.

Ms. Brown received her law degree from Georgetown University Law Center in 1982 (dean's list), and her Bachelor of Arts and Master of Arts degrees in 1979 from the University of Pennsylvania (dean's list). She is a member of the bars of the District of Columbia, Pennsylvania, and the U.S. Supreme Court.


ISRAEL FLOYD CORPORATE SECRETARY &

GENERAL COUNSEL HERCULES INCORPORATED

A native of Philadelphia, Pennsylvania, Mr. Floyd received a B.A. degree in Economics/Business Administration from Lincoln University in 1969, an M.B.A. degree in Finance from Temple University in 1973, and a J.D. degree in Law from Villanova University in 1973.

©2007 Foley & Lardner LLP 2

ERIC HINTON CORPORATE ETHICS &

COMPLIANCE MANAGER CATERPILLAR, INC.

Eric F. Hinton is Corporate Ethics and Compliance Manager with Caterpillar Inc., based in Peoria, Illinois. In this position, he is part of Caterpillar’s Office of Business Practices and assists with the day-to-day operation of Caterpillar’s Ethics and Compliance Program.

Prior to assuming his current position, Mr. Hinton was an international trade attorney in the Caterpillar Legal Services Division. In addition, he spent nearly four years in Belgium as Europe, Africa, and Middle East regional counsel for Caterpillar’s subsidiary, Solar Turbines. Prior to joining Caterpillar, Mr. Hinton was an international trade attorney at the Washington, D.C. office of an international law firm.

Mr. Hinton holds an LL.M. (Master of Laws) in European Community Law from the University of Leiden, Netherlands, and received his Juris Doctor from Brigham Young University. He also holds an M.A. in European Integration from the University of Limerick, Ireland, and a B.A. in Political Science from Utah State University. Mr. Hinton has published a number of articles on international law subjects and is an adjunct professor of law at the John Marshall Law School, Center for International Business and Trade Law, in Chicago, Illinois.


IVONNE MENA KING PARTNER FOLEY & LARDNER LLP

Ivonne Mena King is a partner with Foley & Lardner LLP. Ms. King is vice chair of the firm’s White Collar Defense & Corporate Compliance Practice and a member of the Securities Litigation, Enforcement & Regulation Practice.

She represents international and domestic clients in connection with compliance, litigation, internal investigations, and government investigations. Her area of expertise includes the Foreign Corrupt Practices Act and she routinely defends clients under investigation by the Securities and Exchange Commission, Department of Justice and United States Attorney's Office. She has conducted several internal investigations, in both English and Spanish.

Ms. King has experience representing clients from a wide variety of industries, including health care, defense, oil, pharmaceutical, energy and technology.

Ms. King graduated from Emory University (B.A., political science, cum laude, 1993), with a semester at El Instituto Internacional in Madrid, and Georgetown University Law Center (J.D., 1996), where she was a member of the editorial staff of the Georgetown Journal of Legal Ethics and La Alianza del Derecho. She speaks Spanish fluently. During law school, Ms. King worked as a law clerk for the Civil Rights Division of the Department of Justice in the Office of Special Counsel for Immigration Related Unfair Employment Practices.

Ms. King is admitted to practice in California, the District of Columbia, Virginia, and before the Fourth Circuit.


LUIS ORTEGA SENIOR MANAGER, FORENSIC

& DISPUTE SERVICES DELOITTE FINANCIAL

ADVISORY SERVICES LLP

Luis Ortega is a Senior Manager in the Forensic and Investigative Services practice in Chicago. Luis assists in the management and performance of financial/fraud investigations and provides consulting services in the areas of forensic accounting, litigation support, fraud risk management and internal controls for both domestic and international companies.

Luis joined the Chicago office in 2001 after spending nearly four years in Deloitte & Touche’s audit practice in Mexico City. As an independent auditor there, he conducted financial audits for public and private companies of varying sizes and industries, control reviews and regulatory compliance audits. These audit engagements involved the preparation of financial statements and regulatory filings as well as some agreed-upon procedures projects.

Luis received his education at Universidad Iberoamericana, Campus Leon, Mexico: Bachelor of Science in Accounting.


JOSEPH PERKINS SENIOR COUNSEL CUMMINS, INC.

Joseph M. Perkins, Jr. (Joe) is a native Hoosier, graduating from Richmond High School. Perkins graduated from the University of Virginia School of Law after receiving a bachelors degree from the Department of Politics at Princeton University. Perkins entered private law practice in Indianapolis, and served in the administration of Indianapolis Mayor Stephen Goldsmith. In 1995, he joined the Law Department of Cummins Inc., where his legal practice consisted of commercial transactions on behalf of the company. During his career at Cummins, Perkins has also been appointed to the positions of Director of Government Affairs, and Director – Employee Relations. In 2000, Perkins was named Senior Counsel. In this position, he currently serves as the senior attorney for the Cummins Power Generation Business Unit, and he is the Law Department Liaison to Cummins businesses in Latin America.

Perkins is a 1997 graduate of Leadership Bartholomew County. Perkins has served on several boards of directors of not-for-profit agencies, including serving as President of both the Boards for Bartholomew County Legal Aid, and the Columbus Area Chamber of Commerce.

Perkins has also served on public boards and commissions. He served on the Marion County Board of Zoning Appeals. He served the state of Indiana as the longest serving member in Indiana history of the Indiana Election Commission. Former Secretary of State, Sue Ann Gilroy, recognized Mr. Perkins’ service on the Election Commission by awarding him the distinction of Honorary Secretary of State. He currently serves as a Trustee of Franklin College, and as a member of the Indiana Stadium and Convention Building Authority Board.


JAVIER ROBLES SENIOR COUNSEL & CHIEF

ETHICS OFFICER WESTERN UNION

Javier Robles serves as Senior Counsel and Chief Ethics Officer for The Western Union Company. He directs the company's Corporate Compliance Office and its Anti-Bribery program. Prior to Western Union's spin off in October 2006 into a separate public company, Javier directed First Data Corporation's FCPA program and coordinated its international compliance training. Javier attended Seton Hall Law School, graduating in 1994. He began his career in private practice as a litigation associate for Lowenstein Sandler, which included white collar criminal defense work. In 1998, Javier joined Hudson United Bank as Senior Vice President and Bank Counsel, a role he held until joining First Data and Western Union in 2001.


THE SIXTH ANNUAL NATIONAL DIRECTORS INSTITUTE

Trends and Issues Under the US Foreign Corrupt Practices Act

Sharie A. Brown, Foley & Lardner, LLPIsrael Floyd, Hercules Inc.Eric Hinton, CaterpillarLuis F. Ortega, DeloitteJoseph Perkins, CumminsJavier Robles, Western Union


Corporate Scandal

The U.S. Foreign Corrupt Practices Act was passed in 1977 in response to bribery of foreign government officials by U.S. companies to obtain business overseas. It has been amended twice since originally enacted


Hypothetical for Panel Discussion

Gifts and EntertainmentThe General Counsel of BeeWee, a publicly traded U.S. company must advise the marketing VP on certain travel and entertainment being proposed by the VP for Chinese public officialsThe VP proposes to fly the Chinese officials and their closest business associates on the corporate jet to Australia for plant tours, meetings, and product demonstrations

Issues and Advice?The Chinese officials have requested side-trip to the Hawaiian islands for 3 days golf and recreation

Issues and Advice?



Hypothetical for Panel Discussion(cont’d)Gifts and Entertainment

Is the trip on the corporate jet permissible and under what circumstances, if any?Should the side-trip to Hawaii be provided, and why?If the VP did not notify the General Counsel of these planned trips and took them without consultation

What is company's exposure?What discipline should result?Will competitors or disgruntled employee attract DOJ/SEC interest, if reported?


Hypothetical for Panel Discussion(cont’d)Agent

On the corporate jet, the Chinese officials tell the VP that BeeWee could acquire a local partially owned Chinese company “Company Y" that will be strategic to BeeWee'sdesired expansion of its Australian operations into ChinaThe officials tell the VP to contact local Agent M to begin negotiations for the acquisition of Company Y, a partially government-owned manufacturing companyWhen the VP mentions Agent M in a telephone call to his local business partners in Shanghai, they make comments indicating that Agent M pays kickbacks to government officials


Hypothetical for Panel Discussion(cont’d)

AgentWhat concerns/issues are raised by the Chinese officials' recommendation on Agent M?What steps should companies take to engage reputable agents?Do red flags have to be neutralized before proceeding with Agent M?What procedures could require the VP to report all information to the General Counsel?



Hypothetical for Panel Discussion(cont’d)

M&A ApprovalWhen the General Counsel briefs the board of directors on the possible deal to acquire Company Y

Should he advise board of negative comments about Agent M's activities?What is board's duty prior to giving approval for acquisition regarding Company Y and Agent M?Who should determine style and method of review (e.g., Board, General Counsel, CFO, Internal Auditors)?How and when can outside counsel and forensic accountants help?


The Fundamentals of the FCPA Antibribery and Recordkeeping/Internal Controls Provisions


Antibribery Provisions

The FCPA antibribery provisions make it a

federal criminal offense to directly or

indirectly bribe foreign officials in order to

obtain or retain business, or to secure an

improper advantage.



Persons Covered Under the FCPA Antibribery Provisions

The FCPA antibribery provisions apply to

“issuers;”

“domestic concerns;” and

“any person.”


“Issuers”

The FCPA antibribery provisions apply to issuers of certain securities regulated by the Securities and Exchange Commission (“SEC”).


“Domestic Concerns”

The FCPA antibribery provisions apply to “domestic concerns,” such as

any U.S. citizen, resident or national, orU.S.-incorporated company, orcompany located within the United States



“Any Person”

The FCPA antibribery provisions also apply to “any person” who commits an act in furtherance of a bribe or prohibited act while in the United States or its territories

“Any person” includes non-U.S. persons and corporations


Basic Elements of Offense

A covered person (e.g., an issuer, or domestic concern)

pays, offers, promises to pay, authorizes a payment, promise or offer

of money or anything of value


Basic Elements of Offense(cont’d)

to

(i) a foreign official,

(ii) a foreign political party or party official,

(iii) a candidate for foreign political office,

(iv) any person while knowing that the payment or thing of value will be passed on to those described in items (i) - (iii) above



Basic Elements of Offense(cont’d)

with corrupt intent

to influence an official act or decision of that official

in order to obtain or retain business, or secure an improper advantage


“Foreign Official” Includes

any person holding any legislative, administrative, or judicial office of a foreign government or any of its departments or agencies or divisionsany person acting on behalf of a foreign government, including a state agency, enterprise or organizationany official or agent of a foreign public administration or publicly funded organization


“Foreign Official” Includes (cont’d)

any official of a foreign political party

any officer or agent of a public international organization (e.g., World Bank, International Monetary Fund, World Health Organization, United Nations, World Trade Organization)

any relatives or close family/household members of any of those listed above



“Anything of Value” Includes

Cash, real estate, cars, jewelry, extravagant vacations, home improvements, stock and any other thing that provides a benefit to the foreign official, foreign political party, or foreign party official, etc.


Permissible Payments Under the FCPA

“Facilitating Payment” Exception

The FCPA permits so-called “facilitating” or “grease” payments to low-level employees to expedite or secure the performance of a routine governmental action.


Facilitating Payments

Companies should have clear procedures and policies relating to facilitating payments, and ensure that they are accurately recorded in their books and records.



Payment Permissible Under Local Law

The FCPA provides an affirmative defense where a payment made to a foreign government official is lawful under the written laws of the foreign official’s country.


Affirmative Defenses

The FCPA also includes an affirmative defense for payments that are

reasonable and bona fideand

directly related to promotion or demonstration of a company’s products or services; ordirectly related to the performance of a particular contract between a company and the foreign government


Affirmative Defenses (cont’d)

In order to ensure the availability of the affirmative defense

Never provide cash, if possible

Never provide reimbursement for the official’s family members

Never offer or provide extravagant welcoming gifts



Antibribery Enforcement

The Department of Justice

The Securities and Exchange Commission


Antibribery Penalties

Criminal penalties for individuals, including fines of up to $100,000 or imprisonment of up to five years or bothCompanies are subject to fines of up to $2,000,000Companies also are subject to fines of up to an amount that is the greater of twice the gross gain or twice the gross loss under alternative fine provisionsIndividuals and companies are also subject to civil penalties


Department of Justice Opinion Procedure

DOJ’s FCPA Opinion Procedure allows companies to obtain an opinion from the Attorney General regarding whether prospective conduct would conform with its current FCPA enforcement policy regarding the antibribery provisions of the FCPA.



Opinion Procedure

Only seek antibribery opinion after careful review of all facts and circumstances

Consult with counsel about possible outcomes of opinion process

Opinion Procedure applies to prospectiveconduct only


Recordkeeping and Accounting Provisions

The FCPA’s recordkeeping and accounting

provisions require companies whose securities

are traded on U.S. exchanges to keep accurate

books and records, and maintain an adequate

system of internal financial controls. These

“Issuers” are also subject to the antibribery

prohibitions.


Accounting Provisions

Companies must make and keep books and records “which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the issuer.”



Internal Financial Controls Provisions

Companies must “devise and maintain a system” that, among other things, “provide[s] reasonable assurances that ... transactions are executed in accordance with the management’s general or specific authorization.”


Internal Financial Controls Provision

Companies are required to have systems that provide “reasonable” assurances that internal controls are adequate, not “absolute” assurances.


Application of Recordkeepingand Internal Controls Provisions

The accounting and internal controls provision apply to the U.S. operations and also to foreign subsidiaries that are majority-owned (51%)Owners of 50% or less are only required to make “a good faith” attempt to cause the affiliate to maintain internal accounting controls, etc.



SEC Enforcement ofRecordkeeping, Accounting Provisions

SEC is increasingly active with respect to foreign subsidiary misconductEarly disclosure disciplinary action and waivers influence outcomeMore enforcement of antibriberyprovisions by SEC, as well


FCPA Compliance Programs, Audits, Monitoring

Compliance Programs and Training Reduce Enforcement Risks and LiabilityRobust Internal Investigations Build Credibility with DOJ and SECCompliance Monitoring New SEC TrendFCPA Compliance Audits Provide Early Detection


FCPAEnforcement.com

NDI FOREIGN CORRUPT PRACTICES ACT

Executive Summary of Recent Developments 2006/January 2007

RECENT NEWS Johnson & Johnson (DATE: 2/13/2007) According to a press release from Johnson & Johnson -- On February 12, 2007, Johnson & Johnson voluntarily disclosed to the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) that subsidiaries outside the United States are believed to have made improper payments in connection with the sale of medical devices in two small-market countries. The actions were contrary to the Company's policies, and the payments may fall within the jurisdiction of the Foreign Corrupt Practices Act. The Company will provide additional information to DOJ and SEC, and will cooperate with the agencies' reviews of these matters. (See news releases attached as Exhibit A.) Siemens AG (DATE: 2/3/2007) According to a press release from The Wall Street Journal -- German industrial giant Siemens AG, already weighed down by a cross-border corruption probe, faces heightened scrutiny after it disclosed that U.S. authorities also are investigating the matter. The Munich-based conglomerate said in December 2006 that it had uncovered 420 million, or about $545 million, in suspicious transactions stretching back more than seven years. German prosecutors are working with investigators in neighboring countries and said they suspect Siemens officials diverted funds through sham consulting contracts into slush funds to bribe customers abroad. Smartmatic Corp. (DATE: 12/31/2006) According to The Wall Street Journal, Smartmatic Corp., a voting-machine company whose equipment is used widely in the U.S. and abroad, said it would sell its U.S. subsidiary to end a review by the Committee on Foreign Investment in the U.S. into whether Smartmatic is partially owned by the Venezuelan government. Previously, Federal investigators were looking into whether Smartmatic Corp. paid bribes to win a Venezuela election contract in 2004. Horizon Offshore (Date: 5/5/2006) Platts Oilgram News reported on May 5, 2006 that, Horizon Offshore, a Houston-based offshore pipeline and platform builder, launched an internal probe relating to an alleged improper payment to a customs official in an undisclosed Latin American country. The payment of roughly $35,000 was in connection with the importation of construction equipment and is the subject of an investigation by outside counsel engaged by the Horizon board of directors. The authorization of the payment raises the possibility that there may have been a violation of the FCPA. (“Horizon Offshore Probes Payment,” Platts Oilgram News, May 5, 2006, Volume 84, Issue 86.)


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U.S. Civilian Translator in Iraq (Date: 3/24/2006; Updated 2/2/2007) According to a March 24, 2006 DOJ News Release, an employee of a government contractor working in Iraq has been arrested and charged under the Foreign Corrupt Practices Act for offering a bribe to an Iraqi police official. A criminal complaint filed in the District of Columbia alleges that Faheem Mousa Salam, a naturalized citizen employed by Titan Corporation, offered a senior Iraqi police official approximately $60,000 for the official’s assistance facilitating the purchase of approximately 1,000 armored vests and a sophisticated map printer for around $1 million. Allegedly, Salam later made final arrangements with an undercover agent of the Office of the Inspector General for Iraq Reconstruction who was posing as a procurement officer for the multinational Civilian Police Assistance Training Team (CPATT) in Iraq. (See news release attached as Exhibit B.)

FEBRUARY 2, 2007: According to a February 2, 2007 DOJ News Release, Faheem Mousa Salam was sentenced to three years in prison for attempting to bribe a senior Iraqi police official in violation of the Foreign Corrupt Practices Act (FCPA).

Liberian Diploma Mills (Date: 3/21/2006) In a March 21, 2006 article, the Seattle Times reported three Liberian diplomats were paid more than $43,000 to provide bogus accreditation for an online diploma mill, according to documents filed in the U.S. District Court for Eastern Washington against Richard John Novak, who pleaded guilty to conspiracy and violating the Foreign Corrupt Practices Act. Novak could face up to 10 years in prison and millions of dollars in fines. According to the article, the money came from the Spokane bank accounts of two principal operators of a diploma mill and was to be in exchange for the diplomats arranging for Liberia’s Board of Education of provide accreditation for Saint Regis University, described by investigators as a worldwide fraud scheme that received $4.7 million from sales of an estimated 6,000 phony college degrees. (“Diploma Mill Linked to Liberian Diplomats,” Seattle Times, Mar. 21, 2006.) Outback Steakhouse Inc. (Date: 3/20/2006 ) According to Nation’s Restaurant News Daily NewsFax from March 20, 2006, Outback Steakhouse Inc. alerted investors that it could be subject to fines, penalties and “modifications to our business practices,” due to improper payments that were made by employees of its South Korean affiliate to government officials there that may have been in violation of the FCPA and South Korean law. As a result, the chief executive, chief operating officer and director of treasury for the affiliate, an 82 percent Outback owned entity named Aussie Chung, subsequently resigned. The results of the internal investigation where voluntarily reported to the USDOJ and SEC. (Nation’s Restaurant News Daily NewsFax, March 20, 2006, Volume 13, Issue 54.) Faro Technologies, Inc. (Date: 3/16/2006) According to the Orlando Sentinel, on March 16, 2006 “Faro Technologies Inc. indefinitely delayed the release of its annual report and withdrew its 2006 financial estimates as it investigates possible bribe payments in China. The Lake Mary-based company said Wednesday that it voluntarily notified the Securities and Exchange Commission and Justice Department of the payments, which may have violated the Foreign Corrupt Practices Act.” On March 16, 2006, The


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Wall Street Journal noted that Faro plummeted 18% to $13.37 on the Nasdaq Stock Market after an internal review showed suspicious payments to China. The company, which develops tools for manufacturers, provided information to the SEC and DOJ and withdrew its 2006 guidance as it completes the investigation. (Andrew Lavalle, “Telecoms Mixed; Nasdaq Retreats,” Wall St. J. (Mar. 16, 2006.)) (See news release attached as Exhibit C.) United Parcel Service, Inc. (UPS) (Date: 3/15/2006) In its 2006 annual report, UPS revealed that the company is investigating possible violations of the Foreign Corrupt Practices Act within its Supply Chain Solutions subsidiary in certain locations outside the United States. UPS said the activity in questions occurred prior to UPS’s acquisition of the freight forwarding company from Fritz Companies Inc. in 2001 in a deal valued at $450 million. UPS also said it voluntarily informed the SEC and the DOJ of the investigation and that it does not believe these matters will have a material adverse effect on its business. Universal Corporation (Date: 3/13/2006) In a March 13, 2006 press release, Universal Corporation announced that it had engaged an outside law firm to conduct an investigation into payments made by the company’s tobacco subsidiaries that may have violated the U.S. Foreign Corrupt Practices Act. Universal said that the payments appeared to have approximated $1 million over a five year period. Also, the investigation uncovered certain activities in foreign jurisdictions that my have violated those jurisdictions’ competition laws. The news release also states that the company voluntarily reported these activities to the proper U.S. authorities and has begun initiating corrective actions. (See news release attached as Exhibit D.)

SEC AND DOJ ENFORCEMENT ACTIONS AND OPINIONS The Dow Chemical Company (DATE: 2/13/2007) The Securities and Exchange Commission today filed a settled civil action in the United States District Court for the District of Columbia alleging that The Dow Chemical Company (Dow) violated the books and records and internal controls provisions of the Foreign Corrupt Practices Act (FCPA) [Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 (Exchange Act)], in connection with an estimated $200,000 in improper payments made by a fifth-tier foreign subsidiary of Dow to Indian government officials from 1996 through 2001. Without admitting or denying the allegations in the Commission's complaint, Dow consented to pay a $325,000 civil penalty. (See SEC Summary attached as Exhibit E.) SEC Files Settled Books and Records and Internal Controls Charges Against El Paso Corporation for Improper Payments to Iraq Under the U.N. Oil for Food Program (DATE: 2/7/2007) The Securities and Exchange Commission filed Foreign Corrupt Practices Act books and records and internal controls charges against El Paso Corporation, alleging that the NYSE-listed Texas energy company indirectly paid nearly $5.5 million in illegal surcharges to Iraq in connection with its purchases of crude oil from third parties under the United Nations Oil for Food Program. The Commission’s complaint alleges that 25 to 30 cents per barrel purchased by El Paso was illegally kicked back to Iraq in the form of a secret oil surcharge and that El Paso knew, or was reckless in not knowing, that illegal surcharges were made. (See SEC Summary attached as Exhibit F.)


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Former Alcatel CIT Executive Indicted (DATE: 12/20/2006) Former Alcatel CIT Executive is indicted for alleged bribes to Costa Rican officials to obtain mobile telephone contract.

“A federal grand jury in Miami has indicted a former Alcatel CIT executive on charges related to making corrupt payments to Costa Rican officials in order to obtain a mobile telephone contract from the state-owned telecommunications authority, in violation of the Foreign Corrupt Practices Act (FCPA).”

Schnitzer Steel Settles Pending Bribery Investigation (Date: 10/16/2006) Schnitzer Steel Industries Inc., a provider of scrap metal, has agreed to pay $7.7 million to settle allegations that Schnitzer's South Korean subsidiary, SSI International Far East Ltd., made improper cash payments and gave gifts to managers of government-owned steel mills in China between 1999 and 2004 to encourage business with Schnitzer. The company also paid bribes to privately owned steel mills in both China and South Korea. The Securities and Exchange Commission said that the Portland, Ore., company settled without admitting or denying wrongdoing. Schnitzer will give up $6.3 million in alleged profits and pay interest of $1.4 million to resolve the allegations. (See news release attached as Exhibit G.) SEC Sanctions Statoil for Bribes to Iranian Government Official (Date: 10/13/2006) "MICHAEL J. GARCIA, the United States Attorney for the Southern District of New York, and Assistant Attorney General ALICE S. FISHER, announced today that STATOIL, ASA (Statoil), an international oil company headquartered in Norway and listed on the New York Stock Exchange, has acknowledged making bribe payments to an Iranian official in order to secure valuable oil and gas rights in Iran. In order to resolve a pending criminal investigation, STATOIL has acknowledged that its conduct violated the anti-bribery and accounting provisions of the Foreign Corrupt Practices Act (FCPA), has agreed to pay a $10.5 million penalty, and has further agreed to enter into a three-year deferred prosecution agreement." To view the full Press Release from the U.S. Attorney's Office, Southern District of New York. (See SEC Summary attached as Exhibit H.) SEC Sues Two Former ITXC Corp. Executives for Violations of the FCPA Date: 9/13/2006 On September 6, 2006, the SEC filed a civil enforcement action in the U.S. District Court for the District of New Jersey against two former executives of ITXC Corp. (ITXC): Steven J. Ott, former Vice President for Global Sales; and Roger Michael Young, former Managing Director for the Middle East and Africa were charged with violating the anti-bribery provisions of the Foreign Corrupt Practices Act of 1997 (FCPA), as amended, which is codified as Section 30A of the Securities Exchange Act of 1934 (Exchange Act). The complaint charges Ott and Young with violating the anti-bribery provisions of the FCPA and alleges that Ott and Young caused ITXC to record the bribes as legitimate business expenses on its books and records. (See SEC Summary attached as Exhibit I.)


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SEC Alleges Violations of the FCPA by Four Former Senior Employees of ABB Ltd. Subsidiaries (Date: 7/5/2006) On July 5, 2006, the Securities and Exchange Commission announced that it filed a civil injunctive action alleging violations of the anti-bribery provisions of the FCPA by four former employees of subsidiaries of ABB Ltd. The action was filed in the United States District Court for the District of Columbia. The four defendants all agreed to settle without admitting or denying wrongdoing. The four former employees were alleged to have participated in a scheme by offering, approving, and/or paying bribes to government officials in Nigeria. These alleged bribes were made in furtherance of the company’s bid to secure a $180 million contract. For more information on the action, please visit the SEC Web site. (See SEC Summary attached as Exhibit J.)


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Exhibit A: Johnson & Johnson

Johnson & Johnson Statement on Voluntary Disclosure

New Brunswick, N.J. (February 12, 2007) - Johnson & Johnson today voluntarily disclosed to the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) that subsidiaries outside the United States are believed to have made improper payments in connection with the sale of medical devices in two small-market countries. The actions were contrary to the Company's policies, and the payments may fall within the jurisdiction of the Foreign Corrupt Practices Act. The Company will provide additional information to DOJ and SEC, and will cooperate with the agencies' reviews of these matters.

Effective today, Michael J. Dormer, Worldwide Chairman, Medical Devices & Diagnostics, has retired from the Corporation. In a letter to Johnson & Johnson, Mr. Dormer cited the internal review of these matters and noted he had "ultimate responsibility by virtue of my position" for those subsidiaries that were the subject of the disclosure.

Effective immediately, all worldwide businesses within the Medical Devices & Diagnostics segment will report to Nicholas J. Valeriani, Worldwide Chairman, Medical Devices & Diagnostics, a Company executive with nearly 30 years experience. Mr. Valeriani will now have responsibility for businesses previously under the management oversight of Mr. Dormer, in addition to those for which he is already responsible.

# # #


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Exhibit B: U.S. Civilian Translator in Iraq

Department of Justice Press Release

U.S. Civilian Translator Arrested For Offering Bribe To Iraqi Police Official

WASHINGTON, D.C. – An employee of a government contractor working in Iraq has been arrested on a charge of offering to bribe an Iraqi police official, Assistant Attorney General Alice S. Fisher of the Criminal Division and U.S. Attorney Kenneth L. Wainstein of the District of Columbia announced today.

Faheem Mousa Salam, 27, of Livonia, Michigan, was arrested at Dulles International Airport Thursday upon returning from Iraq. He was charged with offering to bribe a foreign official under the Foreign Corrupt Practices Act. Salam is a naturalized U.S. citizen employed by Titan Corporation, and had been living in Baghdad, Iraq.

According to a criminal complaint filed in the District of Columbia, Salam offered a senior Iraqi police official approximately $60,000 for the official’s assistance with facilitating the purchase by a police training organization of approximately 1,000 armored vests and a sophisticated map printer for approximately $1 million. The complaint alleges that Salam later made final arrangements with an undercover agent of the Office of the Special Inspector General for Iraq Reconstruction – posing as a procurement officer for the multinational Civilian Police Assistance Training Team (CPATT) in Iraq – for the map printer and vests, along with a separate $28,000 to $35,000 “gift” to process the contracts.

The maximum sentence for a charge of violating the Foreign Corrupt Practices Act is five years in prison plus a $100,000 fine or twice the gross gain, whichever is greater.

A criminal complaint is merely and accusation and not evidence of guilt. A defendant is presumed innocent until and unless proven guilty in a court of law.

The case is being prosecuted jointly by Fraud Section Deputy Chief Mark Mendelsohn and Trial Attorney Stacy Luck of the Criminal Division, Department of Justice, and Assistant U.S. Attorneys John Roth, Chief of the Fraud and Public Corruption Section, and Jonathan Rosen of the U.S. Attorney’s Office for the District of Columbia. The case is being investigated by the Office of the Special Inspector General for Iraq Reconstruction.

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FCPAEnforcement.com

U.S. Civilian Translator Sentenced for Offering Bribes to Iraqi and U.S. Officials while Working in Adnon Palace in Baghdad

WASHINGTON – A former U.S. army civilian translator was sentenced to three years in prison for attempting to bribe a senior Iraqi police official in violation of the Foreign Corrupt Practices Act (FCPA), Assistant Attorney General Alice S. Fisher of the Criminal Division and U.S. Attorney Jeffrey A. Taylor of the District of Columbia announced today.

Faheem Mousa Salam, 29, of Livonia, Mich., a U.S. citizen, was sentenced today in U.S. District Court for the District of Columbia by the Hon. Judge Richard J. Leon.

Salam was arrested on March 23, 2006 at the Dulles International Airport upon his return from Iraq, and pleaded guilty on August 4, 2006 to violating the Foreign Corrupt Practices Act. Salam admitted that in January 2006, while working in Baghdad as a civilian translator for a U.S. army subcontractor, he offered a senior Iraqi police official $60,000 in exchange for the official’s assistance in facilitating the purchase of 1,000 armored vests and a sophisticated map printer for a sale price of approximately $1 million. Salam requested the official use his position with the Iraqi police force to coordinate the sale of the material to the multinational Civilian Police Assistance Training Team (CPATT), an organization designed to train the Iraqi police and border guard in Iraq. Salam admitted that he later made final arrangements with an undercover agent of the Office of the Special Inspector General for Iraq Reconstruction who was posing as a procurement officer for CPATT. Salam admitted that during the subsequent discussions with the undercover agent he offered a separate $28,000 to $35,000 “gift” to the agent to process the contracts.

At sentencing, the government argued that Salam was motivated by greed and the prospect of financial gain, rather than any desire to provide the Iraqi troops with equipment; in fact, Salam made no attempt to check the brand names, quality or source of the vests, demonstrating that his motives were anything but altruistic.

The case is being prosecuted jointly by the Criminal Division's Fraud Section Deputy Chief Mark F. Mendelsohn and Trial Attorney Stacey Luck and Assistant United States Attorney for the District of Columbia Bradley Weinsheimer. The case was investigated by the Office of the Special Inspector General for Iraq Reconstruction.

###


FCPAEnforcement.com

Exhibit C: Faro Technologies, Inc. Faro delays annual report amid probe (Posted March 16, 2006) Faro Technologies Inc. indefinitely delayed the release of its annual report and withdrew its 2006 financial estimates as it investigates possible bribe payments in China. The Lake Mary-based company said Wednesday that it voluntarily notified the Securities and Exchange Commission and Justice Department of the payments, which may have violated the Foreign Corrupt Practices Act. In the fourth quarter, net income fell to 1 cent a share from 34 cents a year earlier, Faro said last month. Faro shares rose 38 cents to $16.41 on the Nasdaq Stock Market before the company made its announcement. Faro makes computer-aided measurement devices.


Exhibit D: Universal Corporation

Universal Corporation Announcements Richmond, VA, March 13, 2006 / PRNEWSWIRE

Universal Corporation (NYSE:UVV), made two announcements today.

The Company announced that as part of its strategy for enhancing shareholder value, it routinely evaluates alternatives, including acquisitions, divestitures, and strategic alliances, in each of its business units. Universal has recently considered an offer for a substantial portion of its non-tobacco operations and has been in discussions on that matter. The Company will continue to consider such alternatives, which could include the continuation of those discussions. However, there can be no assurance that such discussions will ultimately result in a transaction.

In another matter, Universal also announced today that as a result of a posting to the Company’s Ethics Complaint hotline alleging improper activities that involved or related to certain of the Company’s tobacco subsidiaries, the Audit Committee of the Company’s Board of Directors engaged an outside law firm to conduct an investigation of the alleged activities. That investigation revealed that there have been payments that may have violated the U.S. Foreign Corrupt Practices Act. At this time, the payments involved appear to have approximated $1 million over a five-year period. In addition, the investigation revealed activities in foreign jurisdictions that may have violated the competition laws of such jurisdictions, but the Company believes those activities did not violate U.S. antitrust laws. The Company voluntarily reported these activities to the appropriate U.S. authorities. The Company has initiated corrective actions, and such actions are continuing.

If the U.S. authorities determine that there have been violations of the Foreign Corrupt Practices Act, or if the U.S. authorities or the authorities in foreign jurisdictions determine there have been violations of other laws, they may seek to impose sanctions on the Company or its subsidiaries that may include injunctive relief, disgorgement, fines, penalties and modifications to business practices. It is not possible to predict at this time whether the authorities will determine that violations have occurred, and if they do, what sanctions they might seek to impose. It is also not possible to predict how the government’s investigation or any resulting sanctions may impact the Company’s business, financial condition, results of operations or financial performance, although such sanctions, if imposed, could be material to its results of operations in any quarter. The Company will continue to cooperate with the authorities in these matters.

Universal Corporation is a diversified company with operations in tobacco, lumber, and agri-products. Universal Corporation’s revenues for the fiscal year that ended on March 31, 2005, were approximately $3.3 billion. For more information on Universal Corporation, visit its web site at www.universalcorp.com.

# # #


11

Exhibit E: Dow Chemical Company

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 20000 / February 13, 2007

Accounting and Auditing Enforcement Release No. 2554 / February 13, 2007

Securities and Exchange Commission v. The Dow Chemical Company, Civil Action No. 07CV00336 (D.D.C.)

SEC Files Settled Enforcement Action Against The Dow Chemical Company for Foreign Corrupt Practices Act Violations

The Securities and Exchange Commission today filed a settled civil action in the United States District Court for the District of Columbia alleging that The Dow Chemical Company (Dow) violated the books and records and internal controls provisions of the Foreign Corrupt Practices Act (FCPA) [Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 (Exchange Act)], in connection with an estimated $200,000 in improper payments made by a fifth-tier foreign subsidiary of Dow to Indian government officials from 1996 through 2001. Without admitting or denying the allegations in the Commission's complaint, Dow consented to pay a $325,000 civil penalty.

The complaint alleges that the Dow subsidiary, DE-Nocil Crop Protection Ltd. ("DE-Nocil"), headquartered in Mumbai, India, manufactured and marketed pesticides and other products primarily for use in the Indian agriculture industry. According to the complaint, beginning in 1996, DE-Nocil made approximately $39,700 in improper payments to an official in India's Central Insecticides Board to expedite the registration of three DE-Nocil products. Most of these payments were made through agreements with contractors which added fictitious charges on its bills, or issued false invoices, to DE-Nocil. The contractors then disbursed these extra funds, at DE-Nocil's direction, to the CIB official. The complaint also alleges that from 1996 and to 2001, DE-Nocil made $87,400 in improper payments to state officials in order to distribute and sell its products.

The complaint alleges that, in addition to these payments, DE-Nocil also made improper payments to Indian government officials consisting of an estimated $37,600 for gifts, travel, entertainment and other items; $19,000 to government business officials; $11,800 to sales tax officials; $3,700 to excise tax officials; and $1,500 to customs officials. In sum, over a six-year period, DE-Nocil distributed an estimated total of $200,000 in improper payments through federal and state channels. According to the complaint, none of these payments were accurately reflected in Dow's books and records, and Dow's system of internal accounting controls failed to prevent the payments.


12

In a related proceeding, the Commission today issued a settled cease-and-desist order against Dow finding that that Dow violated the books and records provisions and internal controls provisions of the Exchange Act in connection with the improper payments made by DE-Nocil. Without admitting or denying the Commission's findings, Dow consented to the entry of the order that requires Dow to cease and desist from violating those provisions.


EXHIBIT F: El Paso Corporation

Litigation Release No. 19991 / February 7, 2007

Securities and Exchange Commission v. El Paso Corporation, Civil Action No. 07CV00899 (S.D.N.Y.)

SEC Files Settled Books and Records and Internal Controls Charges Against El Paso Corporation For Improper Payments to Iraq Under the U.N. Oil for Food Program - - Company Agrees to Pay $7.7 Million

The Securities and Exchange Commission today filed Foreign Corrupt Practices Act books and records and internal controls charges against El Paso Corporation (“El Paso”), a Texas-based energy company, in the U.S. District Court for the Southern District of New York. The Commission’s complaint alleges that from approximately June 2001 through June 2002, El Paso, and its predecessor in-interest The Coastal Corporation, indirectly made approximately $5.5 million in illegal surcharge payments to Iraq in connection with its purchases of crude oil from third parties under the U.N. Oil for Food Program. The Program was intended to provide humanitarian relief for the Iraqi population, which faced severe hardship under international trade sanctions. However, beginning in August 2000, officials of Iraq’s State Oil Marketing Organization (“SOMO”), began demanding illegal kickbacks. The kickbacks were made in the form of surcharges, and were sent to Iraqi-controlled accounts at banks in Jordan and Lebanon.

According to the Commission’s Complaint:

In September 2000, The Coastal Corporation – which merged with an El Paso subsidiary in January 2001 - received its first surcharge demand from a SOMO official. An El Paso consultant and former Coastal official arranged a $201,877 surcharge payment on the company’s behalf, which was made to an Iraqi-controlled account at Ahli Bank in Jordan. After receiving notice from SOMO that all oil contracts would include surcharges, El Paso ceased direct purchases from SOMO. Instead, it continued its purchases through third parties. Beginning in June 2001, El Paso entered into fourteen additional third-party transactions involving fifteen contracts to purchase some 21.4 million barrels of oil. Approximately 25 to 30 cents of every barrel was illegally kicked back to Iraq by third parties. El Paso’s oil traders had to factor the surcharge into their oil price, and there are recorded conversations of the company’s officials and traders discussing the surcharges. El Paso knew, or was reckless in not knowing, that $5.5 million in illegal surcharges were made on those contracts, and passed back to El Paso in premiums.

El Paso failed to maintain an adequate system of internal controls to detect and prevent the payments. Although El Paso inserted a provision in some contracts requiring the third party to represent that it had not paid surcharges, El Paso failed to conduct due diligence to ensure that surcharges were not paid. Recorded conversations reveal El Paso’s knowledge that the provision was entirely ineffective. In one conversation, a third party that indicated he was willing to pay illegal surcharges to Iraq indicated that he would be equally willing to sign a false certification denying the payment. El Paso’s accounting for its Oil for Food transactions failed properly to


14

record the nature of the company’s payments. In at least fifteen transactions, a portion of the company’s price for oil constituted kickbacks to Iraq. The company failed to so designate those payments, characterizing them instead simply as part of the cost of goods sold. El Paso ceased its oil trading and refinery business entirely by March 2004.

El Paso, without admitting or denying the allegations in the Commission’s complaint, consented to the entry of a final judgment permanently enjoining it from future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934, ordering it to disgorge $5,482,363 in profits, and to pay a civil penalty of $2,250,000. El Paso will satisfy its disgorgement obligation by forfeiting $5,482,363 pursuant to a non-prosecution agreement with the U.S. Attorney’s Office for the Southern District of New York.

Since being approached by the Commission’s staff, El Paso has cooperated with the Commission’s investigation, which is continuing. The Commission acknowledges the assistance of the United States Attorney’s Office for the Southern District of New York and the United Nations Independent Inquiry Committee.


EXHIBIT G: Schnitzer 1. BUSINESS WIRE RELEASE: SCHNITZER SETTLES PENDING INVESTIGATION

Payments Of $15.2 Million are In Line with Previously Announced Reserve

PORTLAND, Ore.--(BUSINESS WIRE)--Oct. 16, 2006--Schnitzer Steel Industries, Inc. (NASDAQ:SCHN) today announced that it has finalized settlements with the United States Department of Justice and the U. S. Securities and Exchange Commission resolving the investigation that commenced with the self-reporting by the Company of its past practice of improper payments to purchasing managers of nearly all of the Company's customers in Asia for export sales of recycled ferrous metals.

The aggregate payments of $15.2 million (including interest charges) under the settlement are consistent with the $15 million reserve that Schnitzer Steel announced in its quarterly financial reports for the first and third quarters of fiscal 2006. Under the settlement:

-- The Company's Korean subsidiary pled guilty to Foreign Corrupt Practices Act anti-bribery and books and records provisions, conspiracy and wire fraud charges and will pay a fine of $7.5 million. -- The Company agreed to an order, issued by the Securities and Exchange Commission, to cease and desist from the past practices that were the subject of the investigation and to disgorge $7.7 million of profits and prejudgment interest. -- Schnitzer Steel and the government agreed to a deferred prosecution agreement, under which the government will not prosecute the Company if the Company meets the conditions of the agreement for three years.

The settlement has been approved by the Company's Board of Directors and Audit Committee and concludes the independent investigation commenced in August, 2004 by the Board's Audit Committee and an outside law firm that was retained by the Audit Committee to assist in the previously announced investigation of these matters.

Kenneth M. Novack, who has been Chairman of Schnitzer Steel's Board since May 19, 2005, said, "These past payments in Asia were - and are - contrary to the policies and standards of Schnitzer Steel and its subsidiaries. When our Board's Audit Committee learned of these payments, it launched a rigorous investigation. Then, with the unanimous support of the Board, the Company promptly reported these payments to federal authorities and directed that further steps be taken to strengthen the Company's culture of ethical and legal compliance so that this would not happen again. The Company fully cooperated with federal authorities at each step of the investigation, and we are pleased to put this behind us. As a result of discovering these practices in Asia, we changed the senior management of the Company. We were delighted that John Carter


16

agreed to join us as CEO in May, 2005. He has helped us to resolve this investigation, has brought in a strong new senior management team, and has led the Company through a major transformation in our business during the past 16 months."

"I am very pleased that this matter has been concluded, so that we can now turn our full attention and energies to pursuing our strategy of growth. The Company enters its second 100 years with a strong balance sheet, a successful integration of our major acquisitions over the past year, and a talented, committed leadership team. We will continue to build on our achievements, and add to the scale and profitability of the Company's operations," said CEO John Carter.

Under the terms of the settlement, Schnitzer Steel has employed a compliance officer and designed and implemented a comprehensive compliance program, which will be overseen by the Audit Committee of the Company's Board, and will engage a compliance consultant to advise the compliance officer and the Board on the compliance program. The compliance program includes enhanced training of the Company's employees and commercial representatives, expansion of existing programs such as the whistleblower hotline, and due diligence reviews of business practices, commercial relationships and partners.

Schnitzer Steel Industries, Inc. is one of the largest manufacturers and exporters of recycled ferrous metals products in the United States with 28 operating facilities located in 11 states throughout the country, including six export facilities located on both the East and West Coasts and in Hawaii. The Company's vertically integrated operating platform also includes its auto parts and steel manufacturing businesses. The Company's auto parts business sells used auto parts through its 35 Pick-N-Pull self service facilities and 18 GreenLeaf full service facilities located in 14 states and western Canada. With an annual production capacity of 700,000 tons, the Company's steel manufacturing business produces finished steel products, including rebar, wire rod and other specialty products. The Company commenced its 100th year of operations in 2006.

* * *

2: CORPORATE CRIME REPORTER

Foreign Bribery Moves Front and Center as Justice Department Moves Against Statoil and Schnitzer Steel 20 Corporate Crime Reporter 41(3), October 16, 2006

Mark your calendar: October 13 and 16, 2006

Those are the days that mark the opening of a new front in the battle against corporate crime.

The unit at the Justice Department that prosecutes foreign bribery has awoken.


17

The average year sees the bribery unit at the Fraud Section bringing six – maybe seven – corporate bribery cases a year – if that.

But in the last two work days, we’ve seen two.

Last Friday, the Justice Department announced a deferred prosecution agreement with the Norwegian oil company Statoil. And early this evening, they’ve announced a second.

In Portland, SSI International Far East Ltd. (SSI Korea), a subsidiary of Schnitzer Steel Industries, pled guilty to violating the Foreign Corrupt Practices Act (FCPA).

SSI Korea will pay a $7.5 million criminal fine.

Schnitzer Steel, the parent company, entered into a deferred prosecution agreement.

SSI Korea admitted that it violated the FCPA when it arranged for over $1.8 million in corrupt payments to be paid over a five-year period to officers and employees of nearly all of Schnitzer Steel's government-owned customers in China and private customers in China and South Korea to induce them to purchase scrap metal from Schnitzer Steel.

The bribery paid off big time for the steel company.

Federal officials alleged that over a five year period, the company paid $1,683,672 to managers of private customers in China and South Korea, and corrupt payments of approximately $204,537 were paid to managers of government-owned customers in China.

In return, Schnitzer Steel realized gross revenue of approximately $602,139,470 and profits of approximately $54,927,319 on scrap metal sold to private sector Chinese and South Korean customers, and gross revenue of approximately $96,396,740 and profits of approximately $6,259,104, on scrap metal sold to government instrumentalities in China.

Simultaneously, Schnitzer Steel settled a lawsuit brought by the Securities and Exchange Commission by agreeing to pay a $7.7 million civil penalty.


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EXHIBIT H: SEC Sanctions Statoil for Bribes to Iranian Government Official

Washington, D.C., Oct. 13, 2006 - The Securities and Exchange Commission today announced the institution of a settled enforcement action against Statoil, ASA, a Norway-based and New York Stock Exchange listed multinational oil company, for violations of the Foreign Corrupt Practices Act (FCPA), which prohibits bribery of foreign government officials. The Commission's Order finds that Statoil paid bribes to an Iranian government official in return for his influence to assist Statoil in obtaining a contract to develop a significant oil and gas field in Iran and to open doors to additional projects in the Iranian oil and gas industry.

Without admitting or denying the Commission's allegations, Statoil consented to entry of an administrative Order that requires Statoil to pay disgorgement of $10.5 million. The Order also requires Statoil to cease and desist from committing violations of the antibribery, internal controls and books and records provisions of the FCPA and to retain an independent compliance consultant to review and report on Statoil's compliance with the FCPA. In a related criminal proceeding announced today, Statoil has agreed to pay a criminal penalty of $10.5 million pursuant to a deferred prosecution agreement with the United States Department of Justice and the United States Attorney's Office for the Southern District of New York. Three million of the $10.5 million penalty is deemed satisfied by a penalty previously paid to the Norwegian criminal authorities.

"The Foreign Corrupt Practices Act makes it unlawful for public companies to pay bribes to a foreign government official," said Mark K. Schonfeld, Director of the Commission's Northeast Regional Office. "The Commission is charged with enforcing this anti-corruption law against public companies in order to maintain a level playing field and encourage fair play and competition."

The Order finds that:

• In June 2002 and January 2003, Statoil paid bribes to an Iranian government official intending to (i) induce the Iranian Official to use his influence with the Iranian state-run oil company; (ii) influence the Iranian state-run oil company's decision about whether to award Statoil a development contract; and (iii) secure improper advantage for Statoil by positioning it to obtain future business in Iran, potentially worth hundreds of millions of dollars.

• Statoil agreed to pay the Iranian official through a vaguely defined consulting contract with an offshore intermediary company organized in Turks and Caicos and owned by a third party located in London, England. The consulting contract obligated Statoil to make initial payments of $200,000 and $5 million, and ten subsequent annual payments of $1 million each. Statoil made the initial payments of $5.2 million to the Iranian official, but in June 2003, Statoil suspended further payments.

• In return for the payments, the Iranian official used his influence to assist Statoil in obtaining business in Iran by, for example, providing Statoil employees in Iran nonpublic information concerning oil and gas projects in Iran and showing Statoil copies of bid


19

documents of competing companies that were otherwise not available to Statoil. In October 2002, Statoil obtained the contract to develop a significant oil and gas field.

• During the relevant time period, Statoil employees circumvented Statoil's internal controls and procedures that were in place to prevent illegal payments, and Statoil lacked sufficient internal controls. In addition, by mischaracterizing the payments as legitimate consulting fees, Statoil violated the books and records provisions of the federal securities laws.

Statoil cooperated with the Commission's investigation and took a number of remedial steps as outlined in the Commission's Order. The Commission appreciates the assistance in this investigation of the United States Department of Justice, Fraud Division, and the United States Attorney's Office for the Southern District of New York.

# # #


20

EXHIBIT I: ITXC Corp.


Litigation Release No. 19821 / September 6, 2006

SEC v. Steven J. Ott and Roger Michael Young, Civil Action No. 06-4195 (GEB) (D.N.J.)

SEC Sues Two Former Executives of ITXC Corp. for Violations of the Anti-Bribery Provisions of the Foreign Corrupt Practices Act

On September 6, 2006, the Securities and Exchange Commission filed a civil enforcement action in the U.S. District Court for the District of New Jersey against two former executives of ITXC Corp. (ITXC). Steven J. Ott, the former Vice President for Global Sales, and Roger Michael Young, the former Managing Director for the Middle East and Africa, were charged with violating the anti-bribery provisions of the Foreign Corrupt Practices Act of 1997 (FCPA), as amended, which is codified as Section 30A of the Securities Exchange Act of 1934 (Exchange Act). The complaint also alleges that Ott and Young caused ITXC to record the bribes as legitimate business expenses on its books and records, which violated Exchange Act Section 13(b)(5) and Exchange Act Rule 13b2-1 and aided and abetted ITXC's violations of Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B).

ITXC was a publicly-held international telecommunications carrier based in Princeton, New Jersey that sought to do business in Africa. According to the complaint, Ott and Young approved, and in some cases negotiated, bribes that ITXC paid to senior officials of government-owned telephone companies in Nigeria, Rwanda and Senegal, in order to obtain contracts that were necessary for ITXC to be able to transmit telephone calls to individuals and businesses in those countries. The complaint alleges that Ott and Young were responsible for $267,468.95 in bribes that ITXC paid between August 2001 and May 2004. The complaint further alleges that ITXC made $11,509,733 in net profits from the contracts. In 2004, ITXC merged with Teleglobe International Holdings Ltd., which was subsequently acquired by Videsh Sanchar Nigam Ltd. in 2006.

The Commission is seeking injunctions, disgorgement of all ill-gotten gains derived from the alleged misconduct (with prejudgment interest thereon) and civil penalties against Ott and Young.

The Commission's complaint is related to the previously filed case SEC v. Yaw Osei Amoako, Civ. No. 05-4284 (GEB) (D.N.J.). See Litigation Release No. 19356.

The Commission's investigation is continuing.


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EXHIBIT J: Four Former Senior Employees of ABB Ltd. Subsidiaries


Litigation Release No. 19754 / July 5, 2006

Accounting and Auditing Enforcement Release No. 2456 / July 5, 2006

SEC v. John Samson, John G. A. Munro, Ian N. Campbell, and John H. Whelan, Civil Action No. 06 CV 01217(D.D.C.)

SEC Files FCPA Charges Against Four Former Senior Employees of ABB Ltd. Subsidiaries

The Securities and Exchange Commission announced today that it filed a civil injunctive action in the United States District Court for the District of Columbia charging four former employees of subsidiaries of ABB Ltd., with violating the anti-bribery provisions of the Foreign Corrupt Practices Act of 1977 ("FCPA"). ABB is a global provider of power and automation technologies headquartered in Zurich, Switzerland, and its American Depository Receipts are registered with the Commission and trade on the New York Stock Exchange. All four defendants agreed to settle the charges against them, without admitting or denying the allegations in the Commission's complaint.

The Commission's complaint alleges that the four former employees -- John Samson, a former regional sales manager for West Africa, John G. A. Munro, a former senior vice president of operations, Ian N. Campbell, a former vice president of finance, and John H. Whelan, a former vice president of sales -- participated in a scheme by offering, approving, and/or paying bribes to Nigerian government officials in furtherance of ABB's bid to obtain a $180 million contract to provide equipment for an oil drilling project in Nigeria's offshore Bonga Oil Field. According to the complaint, as a result of the defendants' actions, during the period 1999 through 2001, ABB paid approximately $1 million in bribes to officials of National Petroleum Investment Management Services ("NAPIMS"), the Nigerian state-owned agency responsible for overseeing oil exploration and production in Nigeria. The Commission alleges that these illicit payments -- which took the form of both cash and gifts -- were intended to induce and reward NAPIMS officials for providing ABB with confidential competitor bid information, and securing favorable consideration of ABB's bid on the Bonga contract, which ultimately was awarded to ABB in early 2001.

The Commission alleges that during the tender process for the Bonga contract in 2000, Samson, the regional sales manager for West Africa, negotiated to pay six NAPIMS officials a total of $800,000 in bribes. The Commission further alleges that Samson subsequently informed Munro and Campbell of the payments promised to the NAPIMS officials. According to the complaint, at the direction of a senior officer (now deceased) of ABB's Vetco Gray U.S. subsidiary, Munro instructed Campbell and Samson to arrange payment to the NAPIMS officials using a local consultant as a conduit. The complaint alleges that Campbell arranged to funnel $800,000 in bribes to the consultant under the cover of false invoices for consulting work. The complaint also


22

alleges that Samson personally profited from this bribery scheme by obtaining $50,000 in kickbacks from one the NAPIMS officials who received illicit payments.

In addition, the complaint alleges that between 1999 and 2001, Samson arranged for Whelan to provide cash and other gifts -- including lodging and meals -- to NAPIMS officials when they visited the United States. According to the complaint, these payments totaled more than $176,000.

The Commission's complaint alleges that Samson, Munro, Campbell and Whelan each violated the anti-bribery provisions of the FCPA, codified as Section 30A of the Securities and Exchange Act of 1934 ("Exchange Act"), and the books and records and internal accounting control provisions of Exchange Act Section 13(b)(5) and Rule 13b2-1 thereunder. The complaint further alleges that each defendant aided and abetted ABB's books and records and internal accounting control violations of Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B). Without admitting or denying the allegations in the complaint, Samson, Munro, Campbell and Whelan consented to the entry of final judgments that (1) permanently enjoin each of them from future violations of these provisions, (2) order each to pay a civil monetary penalty ($50,000 as to Samson, and $40,000 each as to Munro, Campbell and Whelan), and (3) orders Samson to pay $64,675 in disgorgement and prejudgment interest.

The Commission previously filed a settled enforcement action against ABB in connection with these and other illicit payments. See SEC v. ABB Ltd., Case No. 1:04CV1141 (D.D.C.)/Lit. Rel. 18775 (July 6, 2004). In that matter, without admitting or denying the allegations in the Commission's complaint, ABB consented to entry of a final judgment that provided for permanent injunctive relief, ordered ABB to pay $5.9 million in disgorgement and prejudgment interest, and ordered ABB to pay a $10.5 million civil penalty.

1 • Published in Committee on Corporate Counsel Newsletter, Volume 20, No.4, Summer 2006 © 2006 by the American Bar Association. Reproduced by permission. All rights reserved. This infor-mation or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of theAmerican Bar Association.

Corporate in-house counsel are chal-lenged to do more with less in thishighly regulated post-Enron, post-

9/11 period. They have put in place legalcompliance procedures and processes thatsatisfy the requirements of Sarbanes-Oxley,1 the New York Stock Exchange,2

the NASDAQ,3 the compliance programrequirements of the U.S. Department ofJustice Guidelines for Criminal Prosecutionof Corporations,4 Caremark5 and its prog-eny, as well as the U.S. SentencingGuidelines for Organizations,6 to the ex-tent that these rules and standards apply totheir companies. They have sought to un-derstand if their companies are covered bythe compliance program requirements ofthe USA PATRIOT Act7 and BankSecrecy Act8 antimoney laundering rulesand regulations. Some have had to devel-op procedures for complying with thecomplex antiterrorism/antimoney laun-dering regulatory schemes promulgatedand administered by the U.S. TreasuryDepartment’s Financial CrimesEnforcement Network (FinCEN),9 as well as Treasury’s Office of ForeignAssets Control (OFAC).10 Many compa-nies, however, have still not focused ade-quate compliance attention on the U.S.Foreign Corrupt Practices Act of 1977(FCPA, the Act), as amended,11 and its an-tibribery provisions,12 as well as theFCPA’s record keeping and internal con-trol provisions.13

Yet, the two basic provisions of theFCPA are fairly familiar to companieswith long-standing overseas operations.First, the FCPA antibribery provisionmakes it a federal criminal offense to di-rectly or indirectly promise, offer, or au-thorize bribes to foreign officials in orderto obtain or retain business or secure anyimproper advantage.14 Second, the

FCPA’s record keeping and accountingprovisions require companies whosestock is traded on U.S. exchanges tokeep accurate books and records, andmaintain an adequate system of internalfinancial controls.15

The apparent lack of FCPA compli-ance attention and employee awarenesscan be exceptionally costly to companieswith respect to officer, director, and em-ployee time and resources, financial andaccounting personnel time and resources,and negative press. More importantly,companies that have serious FCPA issueswill likely expend substantial resourcesfor legal counsel and representation inconnection with FCPA enforcement ac-tions brought by the U.S. Department ofJustice (DOJ) and the U.S. Securities andExchange Commission (SEC), and facesubstantial fines and penalties (with indi-viduals also facing imprisonment) for vio-lations. Other multilateral antibribery ini-tiatives also have increased enforcementrisks under local law for com-panies operating overseas, and their subsidiaries.16

This article provides some practicalguidance on the importance of certain ini-tial steps that can lead to an effectiveFCPA compliance program. Because thecomplete set of steps leading to an effec-tive FCPA compliance program is toolengthy to discuss in this space, this arti-cle focuses on a few key components for“getting started”: training, risk assess-ment, appropriate due diligence, and up-dated written procedures. We begin with abrief summary of the Act.

FCPA Antibribery and Record Keeping/Internal Control ProvisionsPersons Covered Under the FCPAAntibribery Provisions

Steps to an Effective Foreign Corrupt Practices ActCompliance ProgramBy Sharie A. Brown

Vol. 20 No. 4 Summer 2006

The FCPA antibribery provisions apply to“issuers,” “domestic concerns,” and “anyperson,” as described below.

a. Issuers. The FCPA antibribery provi-sions apply to issuers of certainsecurities regulated by the Securitiesand Exchange Commission (SEC).17

b. Domestic concerns. The FCPAantibribery provisions apply to“domestic concerns,” such as anyU.S. citizen, resident, or national, orU.S.-incorporated company, wherev-er located, or any company locatedwithin the United States.18

c. Any person. The FCPA antibriberyprovisions also apply to “any per-son” who commits an act in further-ance of a bribe or prohibited actwhile in the United States or its ter-ritories.19 “Any person” alsoincludes non-U.S. persons and cor-porations when they perform an actin furtherance of a bribe while in aU.S. territory.

Basic Elements of the OffenseThe FCPA generally prohibits companiesand individuals from knowingly making,promising, offering, or authorizing a pay-ment or something of value, either directlyor indirectly, to a foreign official with thecorrupt intent to influence an official actor decision by the foreign official for abusiness purpose. The specific elements ofan FCPA antibribery offense are set outbelow:

a. A covered person (e.g., an issuer, ordomestic concern)

b. pays, offers, promises to pay, orauthorizes payment

c. of money or anything of value

d. to(i) a foreign official,

2 • Published in Committee on Corporate Counsel Newsletter, Volume 20, No.4, Summer 2006 © 2006 by the American Bar Association. Reproduced by permission. All rights reserved. This infor-mation or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the

American Bar Association.

(ii) a foreign political party or partyofficial,

(iii) a candidate for foreign politicaloffice, or

(iv) “any person” while knowing20

that the payment or thing ofvalue will be passed on to thosedescribed in items (i)–(iii)above

e. with corrupt intent

f. to influence an official act or deci-sion of that official

g. in order to obtain or retain business,or secure an improper advantage.21

Under the antibribery provisions of theFCPA, a “foreign official” includes anyperson holding any level of legislative, ad-ministrative, or judicial office of a foreigngovernment or any of its departments oragencies or divisions; any person actingon behalf of a foreign government, includ-ing a state agency, enterprise, or organiza-tion; any official or agent of a foreignpublic administration or publicly fundedorganization; any official of a foreign po-litical party; any officer or agent of a pub-lic international organization (e.g., WorldBank, International Monetary Fund,World Health Organization, UnitedNations, World Trade Organization); orany relatives or close family/householdmembers of any of those listed above.22

The promise or offer to pay money or“anything of value” includes not onlycash, but real estate, cars, jewelry, extrava-gant vacations, home improvements,stock, and any other thing that provides abenefit to the foreign official, foreign po-litical party, or foreign party official, etc.23

Permissible Payments Under the FCPA“Facilitating Payment” Exception.

The FCPA permits so-called facilitating orexpediting payments to low-level employ-ees to expedite or secure the performanceof a routine governmental action.24

However, a facilitating payment should bea relatively small or nominal payment to agovernment employee to perform a rou-tine service to which the payee is lawfullyentitled. Facilitating payments may bemade for services such as mail delivery,water service, trash collection or phone

service. Companies should have clearprocedures and policies relating to facili-tating payments and their documentationin the company’s books and records.25

Payment Permissible Under LocalLaw. The FCPA provides an affirmativedefense where a payment made to a for-eign government official is lawful underthe written laws of the foreign official’scountry.26

Certain Reasonable and Bona FideExpenses. The FCPA also provides an af-firmative defense for payments made bycompanies or individuals to foreign offi-cials where the payments are

• reasonable and bona fide

• directly related to promotion ordemonstration of a company’sproducts or services

• directly related to the performance ofa particular contract between a com-pany and the foreign government27

The payments also should be accurate-ly and properly recorded in the compa-ny’s books and records. The companyshould avoid cash payments to foreign of-ficials, and never reimburse the expensesfor the foreign official’s family membersand friends. Extravagant entertainmentand gifts during business trips should notbe provided. The payments of expensescovered must be reasonable and bonafide.28

Record Keeping and Internal ControlsThe record keeping provisions of theFCPA require companies to make andkeep accurate books, records, and ac-counts, and to accurately and fairly reflectissuer transactions and asset dispositionsin reasonable detail.29 Issuers are requiredto devise and maintain a system of inter-nal accounting controls sufficient to pro-vide reasonable assurances that

(i) transactions are executed inaccordance with management’sgeneral or specific authorization;

(ii) transactions are recorded as nec-essary (I) to permit preparationof financial statements in confor-mity with generally acceptedaccounting principles or anyother criteria applicable to suchstatements, and (II) to maintain

accountability for assets;

(iii) access to assets is permitted onlyin accordance with manage-ment’s general or specific autho-rization; and

(iv) the recorded accountability for assets is compared with the existing assets at reasonableintervals and appropriate actionis taken regarding differences . . . .30

Of particular interest in today’s worldof joint ventures, partial ownership, andcollaborative arrangements, under theFCPA issuers (U.S. or non-U.S.) with lessthan 50 percent ownership or votingpower must still make good-faith effortsto influence the other (controlling) entityto have a system of internal controls thatis consistent with the requirements of theFCPA for controlling issuers.

Specifically, the FCPA requires the is-suer with less than 50 percent ownershipor voting power to

proceed in good faith to use its influence,to the extent reasonable under the issuer’scircumstances, to cause such domestic orforeign firm to devise and maintain a sys-tem of internal accounting controls con-sistent with [the requirements mentionedabove for controlling issuers]. Such cir-cumstances include the relative degree ofthe issuer’s ownership of the domestic orforeign firm and the laws and practicesgoverning the business operations of thecountry in which such firm is located. Anissuer which demonstrates good faith ef-forts to use such influence shall be con-clusively presumed to have complied withthe [books and records and internal con-trols requirements] of the FCPA.31

An effective system of internal con-trols is one that detects and corrects mis-takes and circumventions.32

FCPA Enforcement AgenciesThe Department of Justice (DOJ) and theSecurities and Exchange Commission(SEC) enforce the FCPA.33 DOJ has tradi-tionally had primary responsibility for en-forcing the antibribery provisions of theFCPA. The SEC also has begun enforcingthe antibribery provisions, while bringing


true operational FCPA risk areas thatshould be a priority for written compli-ance procedure development.

When planning for the company’straining on FCPA fundamentals, in-housecounsel also should plan to conduct a riskassessment of the high-risk areas or oper-ations within the business units that canexpose the company to serious FCPA lia-bility and enforcement action. This riskassessment can occur separately, with asmall cadre of managers, during the peri-od that counsel is on location conductingtraining. After completing the scheduledFCPA training for affected employees in

a particular location, it would be cost-ef-ficient for counsel also to arrange to meetwith area managers and the marketingmanager, as well as accounting and audit-ing personnel, to discuss the businessunit’s operations, activities, or dealingsthat might give rise to FCPA risks. Theresulting information from those meet-ings will help provide a more accuratedetermination of the most effective poli-cies and procedures needed to address theparticular risks uncovered. Conductingreasonable risk assessment with key busi-ness and staff personnel (after raisingFCPA awareness) also will likely gener-ate questions and business unit input thatwill help “invest” the business unit and itspersonnel in fully cooperating with theantibribery policies and procedures oncethey are developed and implemented.

Prior to conducting these smaller riskassessment sessions with key personnel,counsel should have prepared a risk as-sessment template with major categoriesof inquiry (based on the nature and typeof business) that conform across businessunits so that data or information receivedby counsel can later be interpreted andevaluated in a systemic and consistentmanner. As a result of this practice, coun-sel will likely find that the line managersand financial managers who participate inthe FCPA risk assessment will appreciatea focused discussion of risk areas versusa veritable attorney “fishing expedition.”

Raising Key U.S. and Non-U.S.Employee FCPA AwarenessThe proposed initial training shouldcover, at a minimum, those employeeswith international responsibility, officers,and directors, as well as existing (andprospective) overseas agents and consul-tants. The training also should cover em-ployees before they travel from theUnited States on overseas business, or be-fore employees are posted to an overseasassignment. It should include those man-agers and executives who supervise them,and the team that supports those man-agers and executives. For training purpos-es, in certain industries (e.g., telecom, en-ergy, technology, engineering) and mostdeveloping countries, it should be pre-sumed that the company employee or of-ficer will be dealing with foreign govern-ment officials while overseas, even if thecompany employee or officer is notspecifically aware that the overseas partyinvolved is a government official. Thiscomprehensive approach regarding deal-ings with non-U.S. parties overseas willhelp prevent a company employee fromincorrectly believing that it is acceptableto bribe or pay a kickback to another for-eign company executive because that for-eign company executive is not believed tobe a foreign government official (when infact the foreign company executive is atype of foreign government official underthe FCPA). Affected employees, officers,and directors also should receive trainingon the FCPA’s record keeping and inter-nal controls provisions for reasons dis-cussed in more detail later in this article.

even greater scrutiny on internal controlsand record keeping violations, as dis-cussed later in this article.

Raising FCPA Awareness To detect and prevent violations of theFCPA, companies must be more vigilantand persistent in their compliance pro-gram efforts and activities. Some compa-nies, however, do not have a complianceprogram; others have allowed their FCPAcompliance activities and procedures tostall. In another scenario, it has been myexperience that newer public companiesthat expand overseas, as well as compa-nies without in-house counsel, are espe-cially vulnerable to FCPA antibribery andinternal controls violations involving theiroverseas business units.

For larger companies with vast re-sources for developing compliance pro-grams and detailed written policies andprocedures, preparation of written FCPApolicies and procedures (by outside coun-sel) for company personnel, directors, andintermediaries will timely precede otherFCPA compliance program activities.However, for smaller companies withmore limited compliance budgets, con-ducting timely training and education canquickly increase a company’s FCPA com-pany awareness and help prevent other-wise imminent misconduct while thepreparation of detailed, written companycompliance procedures goes forward.This training should include informationabout the company’s ethical values, thevarious types of offending FCPA conduct,and the serious corporate and individualliabilities related to such misconduct.

My view on this is influenced by thepractical reality that effective FCPA poli-cy and compliance program development(or program assessment and revision/up-dates) can take a company from threemonths to one year (or more) from incep-tion to completion of a full updated pro-gram with new procedure implementa-tion. Yet, a company can begin (or re-sume) FCPA education and awarenesstraining quickly (within one month). Thistraining period usually also presents a ve-hicle for in-house counsel to more accu-rately identify (from employee questionsand disclosures during the training) the

In-house counsel shouldconduct a risk assessmentof the high-risk areas or

operations within thebusiness units that can expose the company to

serious FCPA liability andenforcement action.



Due to the sensitivity of antibriberyand corruption discussions, this training ismost effective if conducted in person (onlocation) by the in-house counsel or theiroutside counsel. (If it is necessary to re-duce costs, video conference training willbe more effective than interactive intranettraining.) Counsel should anticipate thatthorny legal questions will be raised dur-ing the training and competent guidancewill need to be offered. (However, moredetailed follow-up can be done after thetraining or offline with a concerned em-ployee, as appropriate.) Counsel shouldnot be surprised that some employees inoverseas locations who have a reputationfor corruption, or payment of kickbacksand improper fees to officials,34 may vol-unteer information that raises issues underthe FCPA. Counsel should apprise alltraining attendees that counsel is availableto review a specific troubling situation oractivity with that employee after the train-ing. However, because the company is inthe process of developing its antibriberyprocedures and controls, the content ofthis initial training should focus on antib-ribery and record keeping prohibitionsand internal controls requirements, aswell as examples (customized scenariosare good) regarding the prohibited con-duct. The initial training sessions shouldalways identify a contact within the legaldepartment for reports or questions re-garding suspected FCPA misconduct.

The need to educate and train bothU.S. and non-U.S. employees on FCPAprohibitions can be seen in recent en-forcement actions that were broughtagainst both domestic concerns and is-suers for misconduct that occurred over-seas, or by non-U.S. employees in a for-eign subsidiary or affiliate. It will be im-portant for in-house counsel to demon-strate the relevance of the FCPA to thenon-U.S. subsidiaries and affiliates, andto those employees working at those sub-sidiaries and affiliates who believe thattheir actions in this area have no enforce-ment effect on the U.S. parent or the non-U.S. issuer, as applicable. Thus, manycounsel may wish to discuss the follow-ing cases during the training to illustratethe scope of the FCPA’s application.

For example, in 1997, in SEC v. TritonEnergy Corp., et al., an action involvingTriton Energy Corporation,35 the SEC al-leged that former officers of Triton’sIndonesian subsidiary, Triton Indonesia,made payments to Indonesian tax authori-ties, through an intermediary, in order toobtain favorable treatment of a royaltyagreement. The SEC alleged that the pay-ments were falsely recorded on the sub-sidiary’s books and records and that theparent company failed to take adequatesteps to prevent the unlawful paymentswhen management became aware of cer-tain warning signs. Triton was fined$300,000 and enjoined from violating therecord keeping and internal controls pro-visions of the FCPA, while individualemployees also faced fines and penal-

ties.36

Similarly, in December 2000, in In reIBM, Inc.,37 IBM entered a settlementagreement with the SEC related to al-leged payments of approximately $4.5million to Banco de la Nacion Argentinaofficials by IBM-Argentina (an IBMwholly owned subsidiary). The $22 mil-lion subcontract amount was inaccuratelyrecorded in IBM’s books and records aslegitimate contract expenses. The casewas under investigation by both the SECand DOJ, as well as local authorities (andreceived a fair amount of media attentionat the time). The SEC ordered IBM topay a $300,000 penalty for violating the

FCPA’s books and records provisions.38

Raising Officer, Director, and AuditCommittee FCPA AwarenessWhile the FCPA training should includeall employees (U.S. and non-U.S.) whohave any involvement with internationaloperations, including those located in theUnited States and in overseas businessunits, I observe that directors and finan-cial officers are increasingly in situationswhere they are confronted by FCPA is-sues. Specifically, financial officers,CEOs, and audit committee membershave internal controls and financial ac-counting oversight responsibilities underSarbanes-Oxley39 that make it very im-portant for them to have a detailed under-standing of the implications of an anti-bribery or FCPA record keeping and in-ternal controls violation. Financial offi-cers, CEOs, and audit committees, respec-tively, will have a duty to investigate, takeremedial action, and address or considerdisclosure of FCPA violations to govern-ment enforcement and regulatory agen-cies.

Currently, audit committee membersmay not realize the extent to which theyshould be familiar with FCPA require-ments. However, a more detailed under-standing of the FCPA will enable auditcommittees to better fulfill their responsi-bility to investigate FCPA violations, eval-uate whether to approve an acquisitionthat has potential successor FCPA liabili-ty, and assess the impact of internal con-trols inadequacies on the company’s fi-nancial statements. Audit committees willneed to be able to investigate and act onthe above matters to the same extent thatthey are currently investigating account-ing and financial misconduct that may im-pact the integrity of a company’s financialstatements,40 or reflect material inadequa-cies of senior management from an inter-nal controls perspective. Moreover, recentpublic and nonpublic enforcement actionsreveal the growing need for directors andsenior officers to become aware of theirresponsibilities under the FCPA in merg-ers and acquisitions.

For example, in In re GE InVision (for-merly known as InVision Technologies,

It will be important for in-house counsel to

demonstrate the relevanceof the FCPA to the non-U.S.

subsidiaries and affiliates, and to the employees working

with them.


Inc.) during General Electric Company(GE) negotiations to acquire InVisionTechnologies, Inc., a bomb equipment de-tection maker, GE reportedly learnedfrom InVision that there were allegationsthat improper payments to government of-ficials were made by InVision’s distribu-tors, sales agents, and employees inChina, Philippines, and Thailand. In anapparent bid to avoid successor liabilityfor the proposed acquisition of InVision,GE delayed the acquisition and soughtDOJ and SEC clearance before proceed-ing with the acquisition of InVision inlight of the issues relating to improperpayments. GE ultimately obtained thenecessary enforcement agency clearances.In December 2004, InVision, however,entered into an agreement with DOJ re-quiring it to pay in excess of $800,000for violating the FCPA antibribery provi-sions.41 On February 14, 2005, the SECand InVision settled SEC claims, withInVision paying a fine of $500,000, andturning over $590,000 in illicit profits.42

Raising Agent, Intermediary, andConsultant FCPA AwarenessCompanies that use agents, consultants,and third-party intermediaries in theiroverseas business should strongly consid-er including these parties in the FCPAawareness training. It is well known thatin many developing countries, third-partyintermediaries often help companies ob-tain business in certain countries by pass-ing through improper fees, commissions,and other payments to corrupt foreign of-ficials. Such payments would be prohibit-ed by the FCPA if made on behalf of adomestic concern, or issuer, as well as thesubsidiary of such entities. These indirectcorrupt payments also would likely vio-late local antibribery or anticorruptionlaws. Thus, the criminal enforcementrisks associated with the actions of over-seas agents, third-party intermediaries,and consultants are great and the focus ofnumerous public cases.43 For these rea-sons, I strongly recommend that compa-nies include agents, third-party intermedi-aries, and consultants in the initial em-ployee training on the FCPA.

I am aware of at least one local com-pany in Nigeria that has contractually

mandated that its local vendors, consul-tants, and agents attend training on thecompany’s ethics, antibribery, and giftsand kickback policies, among other areas.While recognizing that proposing or man-dating such training might offend someparties, the risks in certain countries witha well-known reputation for public cor-ruption may outweigh the concern forcausing such an offense. Cultural proto-cols and practices also may influence acompany’s decision on whether to include(or require) agent/intermediary participa-

tion in the FCPA training sessions.However, in countries that are at high riskfor corruption, I recommend such train-ing, to the extent practicable.

Conducting Appropriate FCPADue DiligenceBusiness operations are ongoing and dy-namic, and companies will not stop doingdeals or transactions just because theirFCPA procedures and policies are not yetfinalized. A company that is about toenter a new market, or form a joint ven-ture with an overseas partner, or acquirean overseas company should conduct ap-propriate and reasonable FCPA due dili-gence on the company’s partners, agents,and third-party intermediaries, as rele-vant, even though the company’s compli-ance program is not completed or fullyimplemented. Failure to conduct appro-priate due diligence on these parties couldresult in serious FCPA exposure for thecompany once the transaction is completed.

The degree of due diligence conductedon the overseas party or agent can dependon several factors, including but not limit-ed to (1) the reputation of the party oragent for corruption in the industry;(2) the affected local country’s reported

reputation for public corruption;(3) whether the party is currently the sub-ject of local enforcement actions or mediascandal, or on any international terroristlists; (4) whether your company has con-tacts in the industry who have had deal-ings with the party or who have sensitiveinformation about the party’s reputationand activities that can be shared with you;(5) whether the party is obviously and ap-parently competent or qualified for thefunction that your company wishes him orher to perform; (6) whether the party wasrecommended or referred by a foreigngovernment official; (7) the complianceposture/reputation of the interested do-mestic concern or issuer with U.S. FCPAenforcement officials; (8) the availabilityof information about the party in publicdatabases, websites, and business report-ing services; (9) whether that party is aforeign government official within themeaning of the FCPA, and whether theparty’s employees, directors, or sharehold-ers include foreign government officials;and (10) whether the party or agent is arelative or close associate of a governmentofficial, among other factors.

Depending on your initial findingswith respect to the above issues, your duediligence should include, at a minimum,database searches, industry references,Department of Commerce business liaisonand State Department desk officer in-quiries, as well as public record reviews.It also may have to include a more com-prehensive in-country due diligence re-view. This type of review would involvean in-country investigation of the partner,agent, or intermediary, including in-per-son interviews of associates and col-leagues (as necessary), document and ac-count reviews, and reviews of detailedwritten reports of the in-country findings.However, the topic of FCPA due diligenceis worthy of a separate article and cannotbe properly expanded on here.44 The pointis that FCPA due diligence should be apart of the process that your company uti-lizes at all times, and also incorporatesinto the written FCPA procedures andcompliance program under development.45

The FCPA compliance program should include

senior management leveloversight and involvement.



Effective Written Policies andProcedures46

While the FCPA training is being under-taken and the company’s due diligence ac-tivities go forward, counsel must ensurethat the written policies and procedures arebeing carefully crafted to address the risksassociated with the company’s business orbusiness unit operations. Specifically, thewritten FCPA policies and proceduresshould be reasonably capable of reducingthe prospect of criminal activity in the pri-mary areas of risk for the company,demonstrate the company’s compliancecommitment, and have the necessary com-ponents of an adequate compliance pro-gram. The procedures should specificallyaddress the requirements and prohibitionsof the antibribery provisions of the FCPA,as well as the record keeping and internalcontrols provisions.

Once developed, the FCPA complianceprogram should include senior manage-ment level oversight and involvement. Theprocedures should ensure that the compa-ny exercises due care in delegating sub-stantial authority; managers who posedemonstrated risks for antibribery miscon-duct should not be allowed to remain inpositions of authority. Once established,the FCPA policies and procedures shouldbe properly communicated to all levels ofemployees and include translations foroverseas employees, as warranted. Detailedtraining on the company’s FCPA policiesand procedures should be provided to allkey employees, officers, directors, andthird-party intermediaries, over time, aspracticable. High-risk locations should re-ceive such policy and procedure trainingon a priority basis. The procedures shouldinclude viable systems to achieve compli-ance, including systems for the monitor-ing, auditing, and reporting of suspectedFCPA misconduct without fear of reprisal.(Some companies create a confidentialhotline; others have an online reportingsystem and mailbox.) Compliance proce-dures also should require enforcement ofFCPA compliance standards at all levels,with appropriate disciplinary and remedialmeasures required to be undertaken to pre-vent future FCPA misconduct.

Other areas for coverage in the writtenFCPA procedures and compliance pro-gram include a requirement for the com-pany to have a process for determinationson voluntary disclosure, as well as a doc-umented requirement for adequate FCPAcompliance resources and funding. FCPAcompliance programs that require period-ic testing of the FCPA compliance sys-tems and controls are useful for revealingdeficiencies or new areas of vulnerability.However, because this article is focusedon those companies that have no FCPA

compliance program, or those counselwho are new to FCPA compliance, theabove information will serve as a prelimi-nary guide to commence (or modify anoutdated) FCPA compliance program fora company.

Experienced Outside FCPACompliance AssistanceGiven the recent severe penalties andfines imposed on companies for FCPA vi-olations,47 as well as the complexity ofthe issues in this practice, in-house coun-sel should begin the work on the compa-ny’s FCPA compliance program and pro-cedures in collaboration with experiencedoutside counsel. Many FCPA issues arenot publicly reported, and successful res-olutions (resulting in no enforcement ac-tions, fines, penalties, or consent orders)are not always publicly known. TheFCPA in-house novice may not be awareof these nonpublic developments.Companies that undertake to develop

their own program can do it cost-effec-tively by collaborating with outside coun-sel. In some instances it might be appro-priate for certain companies to engageoutside counsel at the outset to help withtraining, risk assessment, and policy/pro-cedure development. However, it is moreimportant for prevention and compliancepurposes to get started with the steps out-lined in this article than to try to beginsuch a compliance program project asthough it can be accomplished completelyand perfectly during the program develop-ment process.

The above initial steps (training, riskassessment, due diligence, and writtenpolicy development) should set counseland the companies they represent on apositive path toward effective FCPAcompliance. There is more to cover thanis discussed here, but the path to effec-tive FCPA compliance will become evenclearer if these steps are undertaken,even if the company’s culture may re-quire a change in the order of steps oractivities. The proliferation of enforce-ment actions involving the antibriberyprovision and the record keeping/internalcontrols provisions make compliancewith this nearly thirty-year-old FCPAlaw a renewed priority.48

Sharie A. Brown is a partner with Foley &Lardner in its Washington, D.C., office and ischair of the firm’s White Collar Defense &Corporate Compliance Department. She was for-merly Senior Counsel at Mobil Oil Corporation.She can be contacted at (202) 672-5494 or byemail at [email protected].

Endnotes1. Sarbanes-Oxley Act of 2002, Pub. L. No.

107-204, 116 Stat. 745 (codified as amendedin scattered sections of 15 U.S.C.).

2. See, e.g., NYSE Corporate GovernanceRule 303A.

3. See, e.g., NASD Rule 3011.4. Principles of Federal Prosecution of

Business Organizations, Memorandum fromLarry D. Thompson, Deputy AttorneyGeneral, U.S. Department of Justice, toHeads of Department Components andUnited States Attorneys, at 9–10 (Jan. 20,2003).

5. In re Caremark Int’l Inc. DerivativeLitigation, 798 A.2d 959 (Del. Cl. 1996);McCall v. Scott, 250 F.2d 997 (6th Cir.2001).

6. The U.S. Sentencing Guidelines forOrganizations establishes criteria for an ef-

In-house counsel shouldbegin the work on the

company’s FCPA complianceprogram and procedures

in collaboration with experienced outside

counsel.


fective corporate compliance program. SeeU.S. SENTENCING GUIDELINES MANUAL § 8(2004).

7. The USA PATRIOT Act refers to “TheUniting and Strengthening of America byProviding Appropriate Tools Required toIntercept and Obstruct Terrorism Act of2001.” Pub. L. No. 107-56, 115 Stat. 272(2001).

8. The Bank Secrecy Act is formallyknown as “The Currency and ForeignTransaction Reporting Act,” 31 U.S.C.§§ 5311–5330 and 12 U.S.C. §§ 1818(a),1829(b), and 1951–1959. Its implementingregulations are at 31 C.F.R. § 103.

9. FinCen’s website address ishttp://www.fincen.gov/wn_main.html.

10. OFAC’s website address is http://www.treas.gov/offices/enforcement/ofac.

11. 15 U.S.C. §§ 78m, 78dd-1, et seq.12. Id. §§ 78dd-1(a), 78dd-2(a), et seq.13. Id. §§ 78m(b)(2) et seq.14. Id. §§ 78dd-1 et seq.15. Id. §§ 78m(b)(2) et seq.16. Examples of multilateral initiatives

that have resulted in increased anticorruptioncooperation with the United States, as wellas global anticorruption enforcement scruti-ny, include the OECD Convention onCombating Bribery of Foreign PublicOfficials, the United Nations DeclarationAgainst Corruption and Bribery inInternational Commercial Transactions, andthe Inter-American Convention AgainstCorruption. See OECD Convention onCombating Bribery of Foreign PublicOfficials, Nov. 21, 1997, 36 I.L.M. 1016;United Nations Declaration AgainstCorruption and Bribery in InternationalCommercial Transactions, Dec. 16, 1996, 36I.L.M. 1044; Inter-American ConventionAgainst Corruption, Mar. 26, 1996, 35I.L.M. 727.

17. See 15 U.S.C. § 78dd-1(a). The ac-counting and record keeping provisions onlyapply to issuers (U.S. and foreign issuers)with a class of securities registered pursuantto the Exchange Act.

18. Id. § 78dd-2(a).19. Id. § 78dd-3.20. The 1988 amendments to the FCPA

clarified that “knowing” meant that the per-son was aware that he or she was engagingin misconduct, or that the person has a “firmbelief” that an unlawful result is “substan-tially certain to occur.” 15 U.S.C. § 78dd-1(f)(2)(A)–(B). Moreover, Congress intendedthat the 1988 amendments make a person’s“conscious disregard” or “willful blindness”of unlawful conduct constitute “knowledge”for purposes of the FCPA. H.R. CONF. REP.NO. 100-576, at 920 (1988). So, it is nolonger possible to escape liability by“putting one’s head in the sand” after receiv-ing information indicating that FCPA mis-

conduct is substantially certain to occur oryou have a firm belief that it may have occurred.

21. 15 U.S.C. §§ 78dd-1(a), 78dd-2(a),78dd-3(a).

22. Id. § 78dd-1(f)(1).23. See, e.g., U.S. v. Metcalf & Eddy,

Civil Action No. 99-12566 (D. Mass. 1999);SEC v. Schering Plough, Exchange ActRelease 49838 (June 9, 2004).

24. 15 U.S.C. §§ 78dd-1(b), 78dd-2(b),78dd-3(b).

25. Companies also will want to ensurethat the “facilitating payment” that may bepermissible under the FCPA does not violatethe local laws of the country in which thepayment was made.

26. 15 U.S.C. §§ 78dd-1(c)(1), 78dd-2(c)(1), 78dd-3(c)(1).

27. Id. §§ 78dd-1(c)(2)(B), 78dd-2(c)(2)(B), 78dd-3(c)(2)(B).

28. Id. §§ 78dd-1(c)(2), 78dd-2(c)(2),78dd-3(c)(2).

29. Id. §§ 78c(37), 78m(b)(2)(A).“Reasonable detail” under the FCPA means“such level of . . . detail as would satisfy rea-sonably prudent officials in the conduct oftheir own affairs.” Id. § 78m(b)(7). The SECalso prohibits persons from directly or indi-rectly falsifying or causing to be falsified anybooks, records or accounts subject to theFCPA’s books and records provisions. 17C.F.R. § 240, 1362-1.

30. See 15 U.S.C. § 78m(b)(2)(B)(i)–(iv).31. Id. § 78m(b)(6).32. SEC Release No. 34-17,500, 1981 WL

36385, *7–8 (Jan. 29, 1981).33. For more information on recent cases

or enforcement actions brought by theDepartment of Justice or the Securities andExchange Commission, visit Foley &Lardner’s FCPA Enforcement website, avail-able at http://www.FCPAEnforcement.com.

34. See Transparency InternationalCorruption Perceptions Index, available athttp://www.transparency.org/policy_re-search/surveys_indices/cpi/2005.

35. See SEC v. Triton Energy Corp., et al.,Civil Action No. 1:97CV 00401 (RMU)(D.D.C. Feb. 29, 1997).

36. Id.37. SEC v. International Business

Machines Corp., Litigation Release 16839(Dec. 21, 2000).

38. Id.39. Sarbanes-Oxley Act of 2002, Pub. L.

No. 107-204, 116 Stat. 745, section 302(codified as amended in 15 U.S.C. § 78m).

40. Sarbanes-Oxley requires audit commit-tees to conduct independent investigations offinancial and accounting misconduct, or in-ternal controls inadequacies. Id., at section301 (codified as amended in 15 U.S.C.§ 78m).

41. See Press Release, U.S. Department of

Justice (Dec. 6, 2004), available at http://www.usdoj.gov/opa/pr/2004/December/04_crm_ 780.htm.

42. See In the Matter of GE InVision, Inc.(formerly known as InVision Technologies,Inc.), Exchange Act Release No. 51,199 (Feb.14, 2005).

43. Agents, intermediaries, and consultantstransferred payments to government officialsin these FCPA cases, among several others:see U.S. v. Lockheed Corp., Suleiman A.Nassar and Allen R. Love, Cr. No. 1:94-Cr-22-016 (N.D. Ga. June 1994); U.S. v.Pitchford, Cr. No. 1:02-CR-00365-RCL-1(S.D.N.Y. Sept. 2002); SEC v. The TitanCorp., Litigation Release No. 19107 (Mar. 1,2005); SEC v. Katy Indus., Inc., LitigationRelease No. 8519 (Aug. 30, 1978); In theMatter of Monsanto Co., Exchange ActRelease No. 50978 (Jan. 6, 2005); U.S. v.Syncor Taiwan, Inc., Cr. No. 02-1244 (C.D.Cal. Dec. 2002).

44. See generally In the Matter of OilStates Int’l Inc., Exchange Act Release No.53732 (Apr. 27, 2006); U.S. v. ABB VetcoGray Inc. and ABB Vetco Gray U.K. Ltd.,Case No. CR H-04-279 (S.D. Tex. June 22,2004); In the Matter of BellSouth Corp.,Exchange Act Release No. 45279 (Jan. 15,2002); U.S. v. Kay, Cr. No. 4-01-914 (S.D.Tex. Dec. 12, 2001); U.S. v. Saybolt N. Am.and Saybolt Inc., Cr. No. 98CR102 66WGY(D. Mass. Aug. 18, 1998).

45. It will also be important to obtainFCPA agent/partner/intermediary certifica-tions, partner contract representations andwarranties, FCPA audit rights, and certain ter-mination rights as part of the transactionFCPA documentation. The details on the con-tent of those certifications, contract terms,and representations and warranties will de-pend, in part, on the nature of the transactionand the FCPA risks posed by the proposedbusiness activity, and warrant thoughtful, de-tailed consideration with outside counsel.

46. Most companies follow the complianceprogram standards in the U.S. SentencingGuidelines for Organizations, Caremark,supra, and Sarbanes-Oxley, as well as thecompliance program criteria in theDepartment of Justice’s Guidelines forProsecution of Corporations, as well as thecompliance program guidelines issued by theNew York Stock Exchange, among others, asapplicable.

47. See, e.g., U.S. v. ABB Vetco Gray Inc.and ABB Vetco Gray U.K. Ltd., Case No. CRH-04-279 (S.D. Tex. June 22, 2004); SEC v.The Titan Corp., Litigation Release No.19107 (Mar. 1, 2005).

48. For more information on FCPA en-forcement actions, please visit http://www.FCPAEnforcement.com.

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