Presenting a live 90‐minute webinar with interactive Q&A Foreign Corrupt Practices Act in India Compliance Strategies for India's Unique Cultural and Governmental Intricacies THURSDAY, MAY 26, 2011 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific TdToday’ s facul ty features: Robert C. Blume, Partner, Gibson Dunn & Crutcher, Denver Pedro A. Medrano, Counsel, Wilmer Cutler Pickering Hale and Dorr, New York The audio ppypygypportion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10. 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To exit full screen, press the F11 key again. Foreign Corrupt Practices Act in India: Compliance Strategies for India's Unique Cultural and Governmental Intricacies Strafford Webinar Robert Blume Pedro A . Medrano May 26, 2011 <Presentation Title/Client Name> AdAgenda • Brief Overview of the Foreiggpn Corrupt Practices Act • India: Market of the Future • India: Anti-Corruption Enforcement and Trends • How to Mitigate Corruption Risk in India 5 <Presentation Title/Client Name> An Overview of the Foreign Corrupt Practices Act (“FCPA”) 6 <Presentation Title/Client Name> A Brief Overview of the FCPA The Foreign Corrupt Practices Act was enacted in 1977 in the wake of reports that numerous U .S . businesses were making large payments to foreign officials to secure business • Anti-Bribery Provisions: The FCPA prohibits giving or offering anything of value to a foreign government official, political party, or party official with the intent to influence that official in his or her official cappyacity or to secure an improper advantage in order to obtain or retain business • Accounting Provisions: The FCPA also requires publicly traded U.S. companiii“bkdd”dblies to maintain accurate “books and records” and reasonably effective internal controls 7 <Presentation Title/Client Name> Scope of the FCPA: Who Is Covered? • Issuers: any company whose securities (including ADRs and registered debt) are registered in the United States or that is required to file periodic reports with the SEC • Domestic Concerns: any individual who is a U.S. citizen, national, or resident of the United States (not just U.S. citizens), or any business organization that has its principal place of business in the United States or which is organized in the United States • Other Persons who take any act in furtherance of a corrupt payment while within the territory of the United States 8 <Presentation Title/Client Name> Definition of “Foreign Official” The FCPA prohibits corrupt payments to “foreign officials,” which is expansively defined to include: • Any officer or employee (including low-level employees and officials) of a foreign government or any department, agency , or instrumentality of the government, which U.S. regulators have construed to include employees of government-owned or government-controlled businesses and enterprises • Officers and employees of public international orgg,anizations, such as the United Nations , World Bank or other international financial institutions, the Red Cross, and others • Partyyp officials and political candidates (including CPC) • Members of royal families 9 <Presentation Title/Client Name> What Constitutes a “Thing of Value ”? • Liability exists from the first yuan, rupp,ee, or riy al – there is no “de minimis” exception • It is not limited to tangible items of economic value • It can ildinclude anythi ng a reci iipient would find interesting or useful, including: • Gifts • TiTrips • Theatre Tickets • Loans • Entertainment • Employment • Mooncakes • Consulting Fees • Red Envelopes • Meals • Internships • Education • Professional Training • Political or Charitable Contributions 10 <Presentation Title/Client Name> Criminal Penalties Under the FCPA Number of FCPA Enforcement Actions Per Year Anti-Bribery Provisions • Corporations: criminal penalties 50 ild$2fiinclude a $2m fine or titwice th e 45 48 pecuniary gain or loss and 40 possible suspension and 35 30 debarment by the U.S. DOJ government 25 Actions 26 26 SEC 20 Actions • Individuals: criminal penalties 20 20 include up to five years’ 15 18 14 imprisonment, and a $250,000 10 13 8 fine or twice the ppygecuniary gain 5 7 7 5 0 2 3 or loss 2004 2005 2006 2007 2008 2009 2010 Books-and-Records Provisions • Corporations: criminal penalties India‐related enforcement up to a $25m fine 12 actions since 2000 • Individuals: criminal penalties include up to 20 years’ impp,risonment, and a $5m fine South and Central Asia 43 enforcement actions since 2000 11 <Presentation Title/Client Name> Recent Blockbuster Enforcement Actions 8 of the top 10 FCPA-related settlements are from 2010. Siemens (2008) $800 KBR/Halliburton (2009) $579 BAE (2010) $400 Snamprogetti Netherlands $365 B.V. / ENI S.p.A (2010) Technip S.A. (2010) $338 Daimler AG (2010) $185 Alcatel-Lucent (2010) $137.4 Panalpina (2010) $81.8 ABB Ltd. (2010) $58.3 Pride (()2010) $56.1 * Includes the BAE Systems prosecution, which involved international bribery but did not have any FCPA charges. * Settlement amounts are in millions. 12 <Presentation Title/Client Name> FCPA En forcement Act ions By Country (January 2000 - March 2011) (Minimum 5 Enforcement Actions) 60 55 50 45 40 35 30 25 20 15 10 5 0 13 <Presentation Title/Client Name> Exceptions and Affirmative Defenses • The FCPA permits payments to government officials in only a fitfew, very narrow circumstances: 1) Facilitating payments 2) Payments expressly permitted by the written laws of the host country 3) “Reasonable and bona fide expenditure[s], such as travel and lodging expenses . directly related to (A) the promotion, demonstration, or explanation of products or services; or (B) the execution or performance of a contract with a foreign government or agency thereof.” • These are all very narrow exceptions and defenses 14 <Presentation Title/Client Name> Facilitating Payments Exception • Very limited exception for payments made to expedite or secure performance of “routine governmental action” • Limited to payments that “merely move a particular matter toward an eventual act or decision” – applies only when the government official has no discretion in performing duties • Payygpyygment must be for something to which the payor was already entitled, e.g., the mere receipt of an application, as opposed to approval of the application • Payment must still be nominal • Best practices counsel to prohibit facilitation ppyayments entirely – 80% of U.S. companies have banned them • India, China, and many other countries do not allow facilitation payments • U.K. Briberyyp Act does not exempt facilitation payments • OECD encourages prohibition of facilitation payments 15 <Presentation Title/Client Name> India: Market of the Future 16 <Presentation Title/Client Name> China and India: Demographics and GDP CHINA INDIA • Populatio o:n: 1,33 ,33,60,0001,460,000 • Populati on :1 ,1 55,34 8,000 • Est. Population in 2020: 1,421,260,000 • Est. Population in 2020: 1,379,198,000 • GDP: $5.74 trillion USD • GDP: $1.43 trillion USD • GDP Growth in 2010: 10.3% • GDP Growth in 2010: 8.3% • Despite India’s lower reported GDP growth, India’s growth may have outpaced China’s in 2010 according to some economists. • Over the pp,ast decade, India’s pppopulation has grown b y rou ghl y the entire population of Brazil. Sources: CIA World Factbook; U.S. Census International Data Base 2010; Carnegie Endowment for International Peace, The World Order in 2050, April 2010; The Economist (Apr. 15, 2011 & Mar. 31, 2011). 17 <Presentation Title/Client Name> India: Market Characteristics • Indian economy is predicted to out- grow China b et ween 2009 and 2050 • Net inflow of FDI in India in 2009 was $34.58b • Population predicted to grow at 0 .88% between 2009 and 2050 • GDP predicted to grow at 5.9% from 2009 to 2050 • India remains highly volatile: Indian stock market is off 7% from its record high in November 2010. Inflation and corruption remain challenges • 15 Indian companies listed on NYSE or NASDAQ Sources: U.S. Census International Data Base 2010; Carnegie Endowment for International Peace, The World Order in 2050, April 2010. 18 <Presentation Title/Client Name> Global Corruption: Comparative Benchmarks Transparency International Corruption Perceptions Index 2010 Rank: 66th Rank: 78th (tied) Rwanda China Rank: 69th (tied) th Cuba Rank: 87 (tied) Rank: 69th India (tied) Brazil Source: Transparency International, Corruption Perceptions Index 2010. 19 <Presentation Title/Client Name> Significance of the TI Index • Prism through which regulators view countries. • Higher index mandates greater due diligence. – TI CPI commonly used as part of “a comprehensive, risk-based FCPA and anti-corruppgp,tion due diligence work plan,” which was viewed favorabl yyy by DOJ in Opinion Procedure Release 08-02. – The U.K. Financial Services Authority’s settlement with Aon required Aon to design and implement a global anti-corruption policy that will limit the use of third parties in countries with a high risk of corrupt practices .