Implementing a Winning Third Party Anti- Corruption Program and Managing Compliance The Canadian Institute’s Practical Guide to Anti-Corruption Compliance June 23, 2015 John W. Boscariol

1 John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca Introduction ¬various kinds of relationships with business partners ¬relevant statutory provisions ¬examples of enforcement ¬key questions for agents and other business partners ¬red flags ¬key compliance measures

2 John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca Kinds of Intermediaries ¬addressing risk arising from your relationship with business partners, including ¬agents ¬consultants ¬brokers ¬lawyers ¬distributors ¬contractors ¬joint venture partners

3 John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca Key Statutory Provisions ¬Corruption of Foreign Public Officials Act section 3: ¬“directly or indirectly gives, offers or agrees to give or offer a loan, reward, advantage or benefit of any kind to a foreign public official or to any person for the benefit of a foreign public official” ¬Criminal Code section 22.2: ¬company is party to the offence if a senior officer “knowing that a representative of the organization is or is about to be a party to the offence, does not take all reasonable measures to stop them from being a party to the offence”

4 John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca Key Statutory Provisions ¬Criminal Code section 2: ¬“senior officer” means a representative who plays an important role in the establishment of an organization’s policies or is responsible for managing an important aspect of the organization’s activities and, in the case of a body corporate, includes a director, its chief executive officer and its chief financial officer ¬“representative”, in respect of an organization, means a director, partner, employee, member, agent or contractor of the organization

5 John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca Key Statutory Provisions ¬US Foreign Corrupt Practices Act ¬prohibition includes the “authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to” a foreign official ¬prohibits corrupt payment to any foreign official or to “any person, while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to any foreign official…”

6 John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca Relevant Excerpts from the Niko Probation Order ¬a rigorous anti-corruption compliance code designed to detect and deter violations of CFPOA and other anti-corruption laws, which includes… ¬compliance standards and procedures that apply to all directors, officers, employees, and outside parties acting on behalf of the company ¬conducting risk assessment in order to develop these standards and procedures based on specific bribery risks facing the company and taking into account a number of specified factors, including the company’s geographical organization, interactions with various types and levels of government officials, industrial sectors of operation, and involvement in joint venture agreements

7 John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca Relevant Excerpts from the Niko Probation Order ¬systems for providing anti-corruption guidance and advice within the company and to business partners, confidential reporting of possible contraventions, protection against retaliation, and responding to reports and taking appropriate action

8 John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca Relevant Excerpts from the Niko Probation Order ¬institute appropriate due diligence and compliance requirements pertaining to the retention and oversight of all agents and business partners, including: ¬properly documenting risk-based due diligence pertaining to the retention and appropriate and regular oversight of agents and business partners ¬informing agents and business partners of the company’s commitment to abiding by anti- corruption laws and of the company’s ethics and compliance policies and standards, and ¬seeking a reciprocal compliance commitment from agents and business partners

9 John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca Relevant Excerpts from the Niko Probation Order ¬include standard provisions in agreements, contracts and renewals thereof with all agents and business partners that are reasonably calculated to prevent violations of the anti-corruption laws, which may, depending on the circumstances, include: ¬anti-corruption representations and undertakings relating to compliance with anti-corruption laws; ¬rights to conduct audits of the books and records of the agent or business partner to ensure compliance with the foregoing, and ¬rights to terminate an agent or business partner as a result of any breach of anti-corruption laws or the company’s policies in that regard

10 John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca Some Enforcement Examples ¬Maxwell Technologies (2011) ¬Swiss subsidiary alleged to have paid Chinese state-owned electric utility infrastructure manufacturers kickbacks ¬charged inflated prices for equipment sales and paid the excess to their Chinese agent who passed amounts on to officials ¬invoices issued to Maxwell by agent for "extra amount" or "special arrangement" fees ¬found Maxwell had failed to maintain adequate controls over payments to the agent, conduct due diligence regarding the agent, and provide anti-corruption training to relevant employees ¬voluntarily disclosed, negotiated a deferred prosecution agreement, and paid penalty of $14 million

11 John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca Some Enforcement Examples ¬Alcatel-Lucent (2010) ¬use of agents and consultants in Costa Rica, Honduras, Malaysia, Taiwan, Kenya, Nigeria, Bangladesh, Ecuador, Nicaragua, Angola, Ivory Coast, Uganda, and Mali in connection with telecom contracts ¬in Costa Rica, a subsidiary wired about $18 million to two consultants; more than half was then passed to government officials ¬in Honduras, a subsidiary hired and made payments to a "consultant" who was a perfume distributor with no experience in telecommunications; personally selected by "the brother of a senior Honduran government official“ ¬in Taiwan, the company and its joint venture hired two consultants with no telecommunications experience; passed some of their $950,000 payments to Taiwanese legislators ¬voluntarily disclosed, negotiated a deferred prosecution agreement, and paid fines of $137 million ¬also agreed to cease using third-party sales and marketing agents in conducting its worldwide business

12 John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca Some Enforcement Examples ¬Panalpina (2010) ¬Swiss freight forwarder paid bribes of $27 million for customs clearance and import permits in Angola, Azerbaijan, Brazil, Kazakhstan, Nigeria, Russia and Turkmenistan. ¬for Panalpina’s oil field services customers, including Pride International, Royal Dutch Shell, Tidewater, Transocean, Global Santa Fe and Noble ¬in order “to circumvent local rules and regulations relating to the import of goods and materials” ¬the oil field services companies were also investigated and admitted to making payments through freight forwarder ¬voluntarily disclosed, negotiated deferred and non-prosecution agreements, and paid fines totalling $237 million

13 John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca Dealings with Agents and Other Business Partners ¬recognition that what your agent or business partner does can have a significant impact on your company ¬CFPOA applies to direct and indirect offers or payments ¬captures your knowledge of or wilful blindness to your agent’s corrupt activities

14 John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca Dealings with Agents and Other Business Partners ¬must exercise due diligence to ensure that agents and other partners are aware and comply with anti-corruption obligations ¬in addition to agents, includes other third parties such as ¬consultants, distributors, suppliers, jv partners, legal counsel, other services providers

15 John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca Key Questions to Ask About Your Agents and Other Business Partners ¬what is the service they will provide? ¬is it legitimate and necessary? ¬what are their qualifications, experience, expertise for providing the legitimate services required in the circumstances? ¬what is their reputation? in the industry and country? with banks, customers, suppliers and others? ¬do a criminal record check ¬how did you come to know about them?

16 John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca Key Questions to Ask About Your Agents and Other Business Partners ¬what are their anti-corruption compliance policies? ¬review evidence and materials ¬are their fees reasonable for legitimate services of this kind and given the location? ¬is it consistent with others in the jurisdiction? ¬what are their personal and professional relationships with government officials?

17 John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca Agent and Business Partner “Red Flags” ¬reasons for further investigation and extra vigilance ¬country has poor history or reputation for corruption ¬unusual payment patterns or financial arrangements ¬dealings in cash or with offshore accounts ¬agent reluctant to readily cooperate in due diligence

18 John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca Agent and Business Partner “Red Flags” ¬reasons for further investigation and extra vigilance (cont’d) ¬unusually high commissions ¬success-based fees ¬upfront payment ¬lack of transparency in its expenses and accounting records ¬lack of qualifications or resources ¬recommendation from an official of the government customer

19 John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca How Do We Implement? ¬key compliance measures for dealings with agents and other business partners ¬due diligence is fluid and must be conducted ¬before entering the relationship ¬during negotiations ¬and on ongoing basis (monitoring) ¬and it must be risk-based

20 John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca How Do We Implement? ¬key compliance measures for dealings with agents and other business partners ¬fully document in writing all due diligence ¬do not proceed unless senior compliance or legal approve ¬establish procedure for referring “red flags” or problematic cases to outside legal counsel

21 John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca How Do We Implement? ¬screening and pre-approval of agents and business partners ¬internal questionnaires ¬agent completion of questionnaires ¬personal interviews ¬third party investigation – boots on the ground ¬visit to office / facility ¬discussions with others ¬in host country ¬trade and industry associations ¬government sources

22 John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca How Do We Implement? ¬negotiating the contract with the agent or other business partner ¬incorporate anti-bribery compliance into agency contracts and JV and other agreements ¬acknowledgment and awareness ¬disclosure of government relationships ¬disclosure of past corruption and fraud-related charges, convictions ¬notification of any changes

23 John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca How Do We Implement? ¬incorporate anti-bribery compliance into agency contracts and JV and other agreements ¬representations and warranties on compliance ¬periodic certification of compliance ¬notification of non-compliance ¬notification of knowledge of pending or initiated investigation ¬right to terminate ¬indemnification for breach of anti-corruption obligations

24 John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca How Do We Implement? ¬incorporate anti-bribery compliance into agency contracts and JV and other agreements ¬description of services, expertise ¬use of subcontractors/agents ¬compensation and reimbursement of agent expenses ¬accounting and recordkeeping ¬right to audit

25 John W. Boscariol, International Trade and Investment Law, McCarthy Tétrault LLP / mccarthy.ca How Do We Implement? ¬once retained, ongoing monitoring of agents and other third parties ¬provide training at the outset and on ongoing basis ¬periodic certification of compliance ¬regular reporting on agent’s activities ¬supervision - identifying and resolving red flags ¬involvement in agent interactions with government ¬robust process for expense reimbursement ¬exercising audit rights

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