China: a Market Too Big to Ignore

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China: a Market Too Big to Ignore ACC’S 2007 ANNUAL MEETING ENJOYING THE RIDE ON THE TRACK TO SUCCESS 303 - China: A Market Too Big to Ignore Evan Chuck Partner Bryan Cave LLP Susan Frank Deputy General Counsel Science Applications International Corporation Maureen Pearson Global Customs Counsel Delphi Corporation James E. Schobel Senior Vice President, Legal Affairs, ABII Anheuser-Busch Companies, Inc. Brian Walsh Vice President and Associate General Counsel Emerson This material is protected by copyright. Copyright © 2007 various authors and the Association of Corporate Counsel (ACC). Materials may not be reproduced without the consent of ACC. Reproduction permission requests should be directed to the Legal Resources Department at ACC: 202/293-4103, ext. 342; [email protected] ACC's 2007 ANNUAL MEETING Enjoying the Ride on the Track to Success Faculty Biographies Evan Chuck Partner Bryan Cave LLP Susan Frank Susan Frank is SAIC’s deputy general counsel and senior lawyer for international activities. SAIC is located in McLean, Virginia. Her responsibilities include export control, FCPA, OFAC and anti-boycott compliance, international contracts, foreign subsidiaries and joint ventures and support for all of SAIC’s international business and supervision of three lawyers assisting in this area. She also heads SAIC’s export/FCPA staff of five professionals. Ms. Frank has served as a mentor in SAIC’s Mentor Protégé Program and is a board member of the American Institute for Practical Training. Ms. Frank’s background includes more than twenty years’ experience practicing law in these areas. Before joining SAIC ten years ago, she was a partner with the DC office of Sonnenschein, Nath & Rosenthal. Prior to that, Ms. Frank spent four years in London and Risky Business and the PRC: qualified as a Solicitor to the High Court of England and Wales, practicing in the international area with the law firms of Theodore Goddard & Co. and Herbert Smith & Co. She also served as an attorney in the Office of the Legal Advisor at the Department of State and was a member of the U.S. delegation to the UN working on the first anti-corruption FCPA & Export Compliance multilateral treaty initiative. Ms. Frank is a graduate of Trinity College, Washington D.C. and of the National Law Center of George Washington University. Susan M. Frank Deputy General Counsel Maureen Pearson Science Applications International Corporation Global Customs Counsel Delphi Corporation James Schobel Senior Vice President, Legal Affairs, ABII Anheuser-Busch Companies, Inc. Brian Walsh Vice President and Associate General Counsel Emerson 2 of 37 ACC's 2007 ANNUAL MEETING Enjoying the Ride on the Track to Success The PRC Is Particularly Challenging from a The Foreign Corrupt Compliance Perspective Practices Act The US Foreign Corrupt Practices Act (FCPA) Criminalizes bribery as a means of getting applies to dealings with state-owned entities. business overseas; Employees of state-owned or controlled entities No payments or promises to pay directly or are “public officials” within the meaning of the indirectly to government officials; Act. Many PRC entities and individuals will fall Puts the burden on US companies and citizens into this category. to hire only reputable foreign agents/ The PRC is under an arms embargo, so no U.S. consultants/subcontractors; military or military related goods or technology PERSONAL liability for those who participate in can be exported. misfeasance or conduct sham transactions. In addition, the USG has substantially expanded Failure to follow company procedures can be the risks via export controls on commercial evidence of bad faith in the eyes of DOJ. items/technology with the recent “China rule.” 3 of 37 ACC's 2007 ANNUAL MEETING Enjoying the Ride on the Track to Success FCPA Prohibited Acts of Bribery PRC & FCPA: Schnitzer Steel Payments by companies or their employees or agents to any foreign official, foreign political party, or party official or Schnitzer Steel and its Korean subsidiary, SSI Int’l Far East, fined a candidate for the purpose of corruptly influencing decisions by combined total of $15.2 million dollars for improper payments to such official or inducing him to use his influence to affect managers of wholly and partially-government owned companies in China, and improper payments to managers of private companies, decisions by a foreign government to obtain or retain business i.e., commercial bribery, in order to induce purchases of scrap steel. or obtain “any improper advantage.” In both instances, books and records falsely described payments. A foreign official includes anyone acting in an official capacity for a foreign government or one of its departments agencies Many payments were in the form of gifts, including a $2,400 watch in or instrumentalities or state-owned enterprises and officials of one instance. international organizations. SSI Int’l plead guilty to criminal charges and Schnitzer Steel agreed Employee of foreign government “agency or instrumentality” to deferred criminal prosecution pending annual reviews by a Local law not determinative on this point compliance consultant who would review not only FCPA compliance, but also compliance with U.S. commercial bribery laws State ownership and control are factors and foreign anti-corruption laws. Department of Justice’s functional analysis: Does employee play governmental role? Does employee have rights and privileges of government position? Is employee capable of influencing public policy? 4 of 37 ACC's 2007 ANNUAL MEETING Enjoying the Ride on the Track to Success Foreign Companies are Affected: Beware of Agents, Subcontractors, Sapsizian/Alcatel Freight Forwarders: Baker Hughes June 7, 2007 - Sapsizian, former Alcatel executive (and Baker Hughes Services International Inc (April 2007) French citizen) pleaded guilty to participating in the payment of more than $2.5 million in bribes to senior Allegations: Costa Rican government officials in order to obtain a Paying approximately $5.2 million to agents knowing that they would be used to bribe Kazakh officials. mobile telephone contract í worth $149 million í from Costa Rica’s state-owned telecom authority. Payments to Angolan agents (>$11 mil), Payments to Nigerian customs brokers and tax accountants (>$2.5 Payments were funneled through consulting firm. mil), Payments to an agent for sales of products in Kazakhstan, Russia & Sapsizian faces max of 10 years in prison, a Uzbekistan ($5.3 million) & US$250,000 fine and US$330,000 in forfeiture. Payments to freight forwarders for “door-to-door” services that avoided Indonesian customs clearance procedures. Sapsizian is cooperating – stay tuned for Alcatel Moral: it’s all about those intermediaries! settlement details! Alcatel was traded through ADRs on US Stock exchange The combined $44 million penalty is the largest monetary sanction through 2006. ever imposed in an FCPA case despite a voluntary disclosure. 5 of 37 ACC's 2007 ANNUAL MEETING Enjoying the Ride on the Track to Success Vet Your Freight Forwarder: Vetco-Gray Fall-Out from Vetco Three subsidiaries of Vetco International, Inc. criminally According to Dow Jones, 11 oil and oil service firms received a letter on fined in total $26 million for violations of the anti-bribery July 2nd from DOJ asking about their relationship with Panalpina World provisions of the FCPA. Transport Holding Ltd. (PWTN), a Swiss-based shipping and logistics- management company. Largest criminal penalty ever sought by DOJ Also required to hire independent compliance monitor, undertake a complete investigation of all company conduct, and requires any “The oil and oil-service firms were asked to list the countries where Panalpina provided it with services in the past five years, and to specify future purchaser of the companies to be bound by the compliance what it paid for those services. Each firm also was asked to meet separately and investigation requirements. with federal prosecutors in Washington, D.C.” The Vetco subsidiaries pled guilty to paying approximately $2.1 million on 387 occasions to Nigerian Customs Service “Panalpina announced Tuesday that it is conducting an internal investigation and has been asked to provide documents to the Justice officials – using an international shipping and logistics Department relating to services in Nigeria, Kazakhstan and Saudi Arabia for company -- to induce the officials to provide the companies "a limited number of customers." with preferential treatment during the customs process. "Obviously, we are cooperating with the investigation," Panalpina The shipping co’s services were called “express courier spokesman Martin Spohn told Dow Jones.” payments,” “evacuations” and “interventions”—B & R violation. http://www.marketwatch.com/news/story/us-justice-department-probing- They were recorded as “local processing fees” and oil/story.aspx?guid=%7B1B210CAC-BB35-4929-99D9-006720B92189%7D “administrative/transport fee—B &R violation. 6 of 37 ACC's 2007 ANNUAL MEETING Enjoying the Ride on the Track to Success Red Flags Ignored: Statoil This can get personal: Statoil, a Norwegian company traded on the NYSE, fined a total of $21 million by SEC, DOJ and Norwegian authorities in connection with a series At the March 28, 2007 FCPA Conference, the DOJ Fraud Section Chief of improper payments to the head of a subsidiary of the National Iranian Oil cited prosecution of responsible individuals in corporations as a priority. He Company. Also required to hire an independent compliance monitor.
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