Anti-Corruption & Compliance Forum 2016 Fragile Compliance systems - Possible risks and liabilities Ario Dehghani Counsel Redcliffe Partners 27 September 2016

Redcliffe Partners Поднятие пороговых показателей для целей получения разрешения АМКУ (тест 1) 2 1.Possible liability risks according to Ukrainian law 2.Possible liability risks according to FCPA (U.S. Foreign Corrupt Practices Act) 3.Possible liability risks according to UKBA (UK Bribery Act) 4.Hot topic 2016 Agenda

Redcliffe Partners3 1. Possible liability risks according to Ukrainian law

Redcliffe Partners Поднятие пороговых показателей для целей получения разрешения АМКУ (тест 1) 4 Compliance obligations by law (1)  Art. 92, Part 3: general requirement for directors “to act in the interests of the company, in good faith and reasonably, and within the limits of their powers“:  possible full civil liability based on tort law (Art et seq. of the Civil Code), contractual law (Art. 653(5) of the Civil Code) including loss of profits (Art. 132 of the Code of Labour Laws);  possible derivative suit from the shareholders (Art. 28, para. 8, of the Commercial Procedure Code, as effective since 01/05/2016).  Art. 63, Part 1: officers of public company bodies shall: -act in the company's interest; and -comply with requirements of the legislation, provisions of the charter and other documents of the company.  Art. 63, Part 2: officers of public company bodies shall be liable to the company for the losses caused to the company by their actions (omission), in conformity with the law:  possible full civil liability towards company. 1. Civil, Commercial and Employment Law 2. Law of Ukraine On Joint Stock Companies

Redcliffe Partners5 3. Law on Preventing Corruption 4. Criminal Code 3.1. Company’s obligations  Art. 61, Part 1: the legal entity ensures the development and adoption of measures that are necessary and reasonable for preventing and combating corruption in its activities.  Artt with further rules and requirements, inter alia: -companies participating in a tender for more than UAH 20 million or companies with a shareholding of more than 50 per cent owned by the state or municipality must have a compliance programme in place and a compliance officer appointed;  possible full civil liability towards company and third parties (based on Civil Code) Officer’s and founder’s obligations  Art. 61, Part 2: Officers and founders of legal entity to provide regular evaluation of corruption risks and to implement appropriate anti-corruption measures:  possible full civil liability towards company and third parties (based on Civil Code);  additional possible liability under the Code of Administrative Offences (fine up to UAH 6,800). Compliance obligations by law (2)

Redcliffe Partners6 4. Law on Public Procurement Compliance obligations by law (3)  Art. 17, Part 1, para. 10: Ukrainian companies participating in large public tenders: -to put in place an anti-corruption policy consisting of rules, standards and measures for detecting, fighting and preventing corruption; and -to designate a person to be responsible for the implementation of that policy;  possible exclusion from tender;  possible damage claims connected to the violation (based on Civil Code).

Redcliffe Partners7 5. Possible criminal and administrative liability for individuals Individuals can commit criminal offences arising from their actions for the company and violating criminal law, inter alia including violations within the following areas:  Bribery: Artt of the Criminal Code:  average risk: fine in the amount between UAH 17, ,500 (app. EUR ) or imprisonment for years;  maximum risk: fine in the amount of UAH 34,000 or imprisonment for 12 years.  Fraud: Art. 190 of the Criminal Code:  average risk: fine up to UAH 850 or imprisonment up to 3 years;  maximum risk: imprisonment for 12 years.  Embezzlement: Art. 191 of the Criminal Code:  average risk: fine up to UAH 850 or imprisonment up to 4 years;  maximum risk: imprisonment for 12 years.  Anti-competitive actions: Art , 166 2, of the Code of Administrative Offences:  risk: fine up to UAH 510 (e.g., procedural violations in AMC proceedings or imposition of unfair terms of contract). Further liability risks for individuals (1)

Redcliffe Partners8 5. Possible criminal and administrative liability for individuals  Data privacy and data protection: Artt of the Criminal Code; Art of the Code of Administrative Offences:  risks: fine up to UAH 136,000 (app. EUR 4,700) – disclosure of a trade/banking secret (criminal offence); UAH 34,000 (app. EUR 1,175) – disclosure of personal data (administrative offence).  Money laundering: Art of the Criminal Code:  average risk: imprisonment for years;  maximum risk: imprisonment for 15 years.  Tax evasion: Art of the Criminal Code:  average risk: fine in the amount up to UAH 51,000 (app. EUR 1,760);  maximum risk: fine in the amount of UAH 425,000 (app. EUR 14,690).  Environmental non-compliance: Art. 236 of the Criminal Code:  risks: imprisonment for 5 to 10 years. Further liability risks for individuals (2)

Redcliffe Partners9 Further liability risks for individuals (3) 6. Other possible liability risks for individuals Individuals can suffer liability arising from actions for the company, violating several regulations, inter alia covering the following areas:  Product safety (foodstuffs): Art. 64 of the Law on Principles of and Requirements to Safety and Quality of Food Products:  average risk: fine in the amount between UAH 7,250 to 43,500 (app. EUR 250 to 1,500);  maximum risk: fine in the amount of UAH 108,750 (app. EUR 3,760).  Product safety (non-food products): Art. 15 of the Law on General Safety of Non-Food Products:  average risk: fine in the amount between UAH 25,500 to 51,000 (app. EUR 880 to 1,760);  maximum risk: fine in the amount of UAH 85,000 (app. EUR 2,940).  Product liability: Art. 23 of the Law on Protection of Consumers’ Rights:  average risk: fine in amount between UAH 85 to 850;  maximum risk: fine in the amount of tenfold price of the product at issue or UAH 1,700.

Redcliffe Partners10 Further liability risk for companies 1. Civil Code  Art. 1172, Part 1: damages caused by employees are to be reimbursed by the company that employs them.  possible full civil liability. 2. Criminal Code  Art. 96-7, Part 1: fine in the amount up to double the amount of the undue advantage.  Art. 96-7, Part 2: fine in the amount up to UAH 850,000 (app. EUR 29,100) if a company does not receive any undue advantage or if the amount of the undue advantage cannot be calculated.  Art. 96-6, Part 1: mandatory liquidation (in limited cases, e.g., crimes against state safety, financing of and terrorism, propaganda of war, etc.).  Art. 96-6, Part 1: confiscation of property (only in the event of mandatory liquidation). 3. Law on Protection of Economic Competition  Art. 52, Part 2: fines up to 10% of the yearly worldwide turnover of the infringer’s group of companies (cartel, bid-rigging, abuse of dominance), or, if the amount of undue advantage exceeds 10% turnover, up to threefold amount of the undue advantage.  Art. 52, Part 2: fines up to 5% or 1% of the yearly worldwide turnover (for less severe infringements).

Redcliffe Partners11 2. Possible liability according to FCPA

Redcliffe Partners12 Enforcement of FCPA Penalties Criminal  Corporations and other business entities: ‒ up to USD 2,000,000 or twice the benefit received from the payment.  Officers, directors, stockholders, employees, and agents: ‒ up to USD 100,000 or twice the benefit received; ‒ imprisonment up to 5 years. Civil  The Attorney General or the SEC may bring civil claims, civil actions for injunctive relief, including: ‒ claims under False Claims Act; and ‒ claims against any firm or any officer, director, employee, or agent of a firm, or stockholder acting on behalf of the firm, who violates the anti-bribery provisions.  Shareholder and derivative actions claiming loss to the corporation.

Redcliffe Partners Enforcement of FCPA penalties in Ukraine International treaty between Ukraine and the U.S. regarding criminal matters  Treaty between the United States of America and Ukraine on Mutual Legal Assistance in Criminal Matters:  entered into force: 27/02/2001;  possible immobilisation and forfeiture of assets connected to a crime enforced by Ukrainian authorities;  possible restitution of advantages received by a crime enforced by Ukrainian authorities;  possible collection of fines enforced by Ukrainian authorities;  any other form of assistance not prohibited by the laws of Ukraine, including assistance for U.S. authorities to imprison persons based on U.S. law in Ukraine;  Ukrainian nationals cannot be extradited to the U.S. (Art. 22 of the Constitution; Art. 589(1).1 of the Criminal Procedure Code). 13

Redcliffe Partners14 Recent cases with focus on ex-US companies Some FCPA Penalties USD 1,6 billion 2008 Siemens, Germany USD 108 million 2009 HP Russia USD 772 million 2014 Alstom, France BAE Systems, UK USD 400 million 2010 Total S. A., France USD 398 million 2013 Technip S. A., France USD 338 million 2010 JGC Corporation, Japan USD 218,8 million 2011 Daimler AG, Germany USD 185 million 2010 Archer-Daniels-Midland, USA, Germany and Ukraine USD 53,8 million 2013 VimpelCom, The Netherlands USD 795 million 2016

Redcliffe Partners15 3. Possible liability risks based on UKBA

Redcliffe Partners16 UK Bribery Act Penalties  General offences:  offering, promising or giving a bribe;  requesting, agreeing to receive or accepting a bribe;  bribing a foreign public official.  Specific offence:  corporate offence – failure to prevent bribery. Offences  Individuals:  up to 10 years imprisonment; and/or  unlimited penalty fine.  Corporations:  unlimited penalty fine.  Debarment from public contracting. Penalties

Redcliffe Partners Enforcement of UKBA penalties in Ukraine International treaty between Ukraine and UK  Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Ukraine concerning the Restraint and Confiscation of the Proceeds and Instruments of Criminal Activity other than Drug Trafficking:  entered into force: 01/04/1997;  possible restraint or confiscation of assets and instruments related to a crime and placed in Ukraine and, if requested, transfer to the UK;  enforcement by Ukrainian authorities;  imprisonment is outside the scope of this Agreement.  European Convention on Mutual Assistance in Criminal Matters:  entered into force for Ukraine 09/06/1998;  mutual assistance between Ukraine and UK authorities in execution of letters rogatory, provision of evidence, service of process, etc., besides, inter alia, imprisonment;  assistance by Ukrainian authorities. 17

Redcliffe Partners18 4. Hot topic 2016

Redcliffe Partners19 What’s next? ISO/DIS  Standard for anti-bribery management systems.  A series of measures to prevent, detect and address bribery, inter alia:  adopting anti-bribery policy;  appointing a person to oversee anti-bribery compliance;  appropriate training;  risk assessments;  due diligence on projects and business associates;  implementation of financial and commercial controls; and  reporting and investigation procedures.  Publication expected to be published in September, October or “late”  ISO certification by independent third parties will be possible.

Redcliffe Partners, 75 Zhylyanska Street, Kyiv, Ukraine Redcliffe Partners LLC is a Ukrainian limited liability company (with identification code No ) and a law firm. Registered office is at 75 Zhylyanska street, Kyiv, Ukraine Thank you for attention! Ario Dehghani Counsel, Head of Compliance, Redcliffe Partners