Be My Guest

Be My Guest — Bylined Posts from the FCPA Blog

Cassin Law Publishing

Be My Guest: Bylined Posts from the FCPA Blog

Cassin Law Publishing

Copyright Š 2011 Cassin Law Publishing

All rights reserved. No part of this book may be reproduced or transmitted is any form or by any means without written permission of the publisher.

Information in this book is intended for public discussion and educational purposes only. It does not constitute legal advice and its use does not create an attorney-client relationship.

ISBN 978-981-08-9147-3

Introduction — Richard L. Cassin

—

June 2011

I created the FCPA Blog (www.fcpablog.com) about four years ago. From the start, it was intended to be a community bulletin board, a place to meet and swap stories about the Foreign Corrupt Practices Act and the global fight against international public corruption.

I never wanted to work alone at the blog. It’s always more fun to have company. And besides, I knew the topics were too big for me to handle. It had to be a team effort.

So I put out the welcome mat and invited anyone to contribute. The rules were simple: keep the posts fairly short – around 300 words or so – use a less academic and more informal tone, avoid footnotes, and don’t worry about deadlines, we don’t have any.

It took awhile to break the ice but eventually the guest posts started coming in. From practicing lawyers, auditors, investigators, academics, students, NGO leaders, even an earthquake expert. There have been guest posts from China, India, Thailand, the Middle East, Central Asia, Britain, Australia, New Zealand, North America, and one

from the High Seas.

The variety has been astounding. But more striking has been the quality of the thought and depth of knowledge.

Without doubt, over the past couple of years the guest posts have become the best part of the blog. *** In December 2007, a few days before Christmas, I heard from one of the biggest supporters of the FCPA Blog, Andy Spalding. In this book, you’ll find a number of his guest posts.

Andy’s note to me that Christmas became (with his consent) a guest post. It was called “Wonderful Things Happened.” It’s fitting to reprint some of it here. It helps explain something about the FCPA Blog, the compliance community, and the people who are part of it.

Using the first-person plural of blogspeak, I wrote:

We’re warmed by the generosity of those who support the FCPA Blog. Our readers let us know what they like, our sponsors provide you send hints, tips and ideas that eventually We just heard from Andy Spalding. Writing from India, he said: Dear FCPA Blog,

Andy Spalding

*** And finally, it’s my turn to thank each of the bylined contributors to the FCPA Blog who appear in the pages that follow. Without exception, these guests were enjoyable to work with — cheerful, enthusiastic, encouraging, and responsive.

I hope all of them will come back to the FCPA Blog— soon and often.

Be My Guest — Bylined Posts from the FCPA Blog

Contents Introduction.................................................................v Richard L. Cassin Risk-Based Compliance .............................................19 Scott Moritz Understanding the KBR, Halliburton Charges ............21 David P. Burns Opening Our Eyes To ‘Associative Liability’ ...............25 Rebecca Walker Those Are Fighting Words ..........................................29 Andy Spalding People Without Laws .................................................33 U.S. Military Active-Duty Officer The FCPA’s Thwarted Intent ........................................35 Andy Spalding The Good Bribes........................................................39 Andy Spalding BAE: Bribery, Bombs And Black Knights.....................43 Andy Spalding Risk-Based Compliance: First Steps............................47 Scott Moritz Britain’s FCPA Plus ....................................................51 Thomas Fox Letter From Central Asia ............................................53 Andy Spalding HP’s Disclosure Mystery ............................................57 Thomas Fox Here Come The Global Guidelines ............................61 Jeffrey M. Kaplan

Sentencing Guidelines: What’s Changed? ..................63 Jeffrey M. Kaplan and Rebecca Walker Why Boards Should Listen .........................................65 Jeffrey M. Kaplan and Rebecca Walker What Boards Should Ask ...........................................67 Jeffrey M. Kaplan and Rebecca Walker Who Does Your Chief Compliance Officer Report To?..................................................................71 Thomas Fox Asian Values, FCPA Risks ...........................................75 Michael S. Diamant A Failure To Escalate ..................................................77 Thomas Fox No Good Deed Goes Unpunished.............................79 Bruce Hinchey The Enforcement Gap ................................................83 Nancy Z. Boswell and Robert N. Walton The Hinchey Hypothesis, Part Two .............................85 Bruce Hinchey Is The Giffen Case America’s BAE? .............................89 Andy Spalding ‘I’m Not Going To Disney Land’ ................................93 Kyle Sheahen The Law Ain’t Broke ..................................................95 Compliance Officer and Federal Prosecutor Defending The Defense .............................................99 Thomas Fox Promotional Expenses:Corrupt But Reasonable? ......101 Kyle Sheahen Bribery Act Guidance Released ...............................103 Thomas Fox

The SEC’s Tricky Balancing Act ................................107 Shruti Shah and Robert N. Walton Don’t Get POCA’d ...................................................111 Barry Vitou and Richard Kovalevsky QC Is The Government Listening? ..................................113 T. Markus Funk and Caryn Lara Trombino The DOJ: Your Unwanted Partner .............................115 James J. McGrath Credit For Compliance: The DOJ Gets Specific ........119 Jeffrey M. Kaplan Doing Better For The World .....................................123 Andy Spalding U.S. Corruption On The Rise ...................................127 Nancy Z. Boswell and Shruti Shah The Nobel Prize For Graft ........................................131 Andy Spalding EU/US Cross Border Data Discovery– Mission Impossible?.................................................133 Joe Looby Compliance ‘Half Measures’ and the Ghost of Christmas Yet to Come ...............................135 Jeffrey M. Kaplan Remedial Compliance Programs: A Key Ingredient in the Enforcement Recipe ......................139 Ryan McConnell and Charlotte Simon The UK Anti-Bribery Act: Let’s Cool Down the Hysteria ..................................................143 Michael Volkov The First Word On Compliance Incentives ...............147 Jeffrey M. Kaplan BP and Deepwater Horizon: Lessons Learned for the Compliance Department ..............................151 Thomas Fox

Fool me once, shame on . . . Who? ..........................153 Aaron G. Murphy SFO To Foreign Companies: Watch Out ...................157 Barry Vitou and Richard Kovalevsky QC To Disclose or Not Disclose: That is the Question ....161 Michael Volkov At Risk For Recommending Foreign Lawyers............165 William Nelson Letter From Christchurch .........................................167 Bobby Vassallo After They’re Gone...................................................169 Bill Waite and Martin Stone What Is An ‘Instrumentality Thereof’?

Let’s Keep It Real .....................................................171 Michael Volkov Letter From Beijing ..................................................175 Eric Carlson ‘Majority’ Report .....................................................177 Ryan Morgan What Exactly is Disgorgement? ................................181 Marc Alain Bohn Internal Auditors Can Ease Compliance Pain ............183 Steve Biskie Respecting Human Rights: The Role Of Compliance And Ethics Officers ..............................185 Jeffrey M. Kaplan ‘Questionable Guidance’ From Justice Secretary......189 Bill Waite Life After Guidance: No Change ..............................191 Michael Volkov Was BAE Too Big To Debar? .....................................195 Nick Wagoner

Respecting Human Rights Through Due Diligence... 197 John Ruggie American Values Or Chinese Profits? .......................201 Andy Spalding New Human Rights Chapter Added To OECD Guidelines ....................................................205 John F. Sherman, III Biographies .............................................................209

Risk-Based Compliance — Scott Moritz

—

December 9, 2008

In response to Halliburton’s proposed acquisition of Expro, the U.S. Department of Justice recently thrust the concept of “a risk-based approach” to the forefront of antibribery compliance with Opinion Procedure Release 08-02.

A risk-based approach has been a regulatory expectation in anti-money laundering (AML) for years. Now, with Release 08-02, it’s moving to the FCPA as well.

The concept is simple: certain customers, vendors, and intermediaries represent a higher compliance risk than others. Geography, nexus to government officials, business type, method of payment, dollar volume -- all are risk indicators. A Kazakhstan-based customs broker owned by the brother of the country’s oil minister, with million-dollar payments directed to an account in Cyprus, represents a high risk of corruption. That’s clear. The hard part is making appropriate distinctions and parsing them across a global, decentralized vendor system. It’s that aspect that often requires the use of sophisticated technology.

Companies looking to strengthen their FCPA compliance can learn from successful AML programs.

In fact, proven AML techniques are already part of some of the more progressive FCPA programs. The key to any risk-based approach? It’s the strategic use of information technology, tracking and sorting the critical elements -including risk-ranking, as well as enhanced due diligence and ongoing monitoring of high-risk parties proportionate to their risk profiles.

To mitigate risk, the first step is knowing where it comes from. That’s why the DOJ instructed Halliburton in its Opinion Procedure Release to apply a risk-based approach to due diligence. As the financial institutions have learned, deploying the right technology can be the key to making that happen.

Understanding the KBR, Halliburton Charges — David P. Burns

—

February 24, 2009

With the Halliburton / KBR settlement in mind, we asked readers to help us understand how decisions are made to charge companies or individuals under the Foreign Corrupt Practices Act with violations of the antibribery provisions -- criminally or civilly. The best responses, we said, would earn both our gratitude and a copy of Bribery Abroad. We’re sending a copy today to David P. Burns. His comments are below, and they’re great.

Here’s what he told us: Dear FCPA Blog, In your Waters So Deep post, you raised two separate questions regarding the distinction between civil and criminal charges under the FCPA’s anti-bribery provisions: (1) Is there any difference in the elements required for a civil versus a criminal violation of the anti-bribery provisions; and (2) In the KBR / Halliburton case, why did

the SEC charge Halliburton and KBR Inc. with civil antibribery violations, while the DOJ charged only Kellogg Brown and Root LLC? 1. Civil versus Criminal Anti-bribery Violation.

According to the statute, the elements necessary for a criminal violation of the anti-bribery provisions are identical to those required for a civil violation, except where the defendant is a natural person. Where the defendant is a natural person, in order for criminal liability to attach, the government must additionally prove that the defendant acted “willfully.” See 15 U.S.C. § 78ff(c); 15 U.S.C. § 78dd-2(g). Of course, the level of proof required to establish a criminal violation (beyond a reasonable doubt) versus a civil violation (by a preponderance of the evidence) also is different.

2. Why DOJ Charged Kellogg Brown & Root but not Halliburton.

The SEC did not charge Halliburton with civil antibribery violations. Rather, the SEC charged only KBR Inc. with anti-bribery violations; it charged Halliburton solely with books-and-records and internal controls violations.

The DOJ charged Kellogg Brown & Root LLC with antibribery violations and made no books-and-records or internal controls charges.

Why did neither the SEC nor the DOJ charge Halliburton with anti-bribery violations? There are at least two possible answers. First, the charges likely were the result of intense negotiations between the companies and the SEC and DOJ, and the result may have been something that all parties agreed to live with. The DOJ, for example, frequently exercises its prosecutorial discretion to charge only those entities most directly responsible for the FCPA violation at issue. See, for example, Schnitzer Steel (SSI Korea charged), Flowserve Corporation (Flowserve Pompes charged), and Fiat S.p.A. (Iveco, CNH Italia, and

CNH France charged).

Second, it is possible that the SEC and DOJ did not believe they had evidence that Halliburton acted “corruptly,” an element required for both civil and criminal applications of the anti-bribery provisions. (Note that “corruptly” is a separate element from “willfully” which, as described above, applies only to criminal violations of the anti-bribery provisions by natural persons.) The SEC’s complaint states that although Halliburton was aware of KBR’s use of United Kingdom and Japanese “agents” in relation to the Nigerian joint venture, KBR officials “did not tell the Halliburton officials that the UK Agent would use the money to pay bribes” (SEC Complaint at 10).

With regard to the Japanese agent, the SEC alleged that “senior KBR officials…effectively hid the true nature of the relationship” (SEC Complaint at 11).

FCPA legislative history and courts have defined “corruptly” to mean acting with an evil purpose and with an intent to influence a foreign official to misuse his official position. See, e.g., Stichting v. Schreiber, 327 F.3d 173 (2d Cir. 2003); United States v. Kay, 513 F.3d 432 (5th Cir. 2007). Without knowledge that bribes were being paid by its subsidiary, Halliburton could not have “corruptly” authorized the payments.

Best, David P. Burns

Opening Our Eyes To ‘Associative Liability’ — Rebecca Walker

—

March 1, 2009

When the student is ready, the proverb says, the teacher will appear. We must have been ready last week because two great teachers appeared. First, David P. Burns, who helped us understand the charging decisions in the Halliburton / KBR enforcement actions. Then came Rebecca Walker.

We mentioned her concept of “associative liability” in a discussion about extending codes of conduct to third parties. She noticed that our perspective was limited to the Foreign Corrupt Practices Act (guilty as charged). And she generously helped by sending the primer on the broader application of her ideas. We’ve read it a half dozen times and it keeps getting better. Here’s what she said: Dear FCPA Blog, I took a look at the discussion in your post Extending Compliance To Third Parties, and I would like to point out that the survey and my article were not actually limited