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Title: Mark F. Mendelsohn


1
Avoiding Corruption in InternationalMining
Projects Risk Management and Compliance
Strategies A Presentation For MineAfrica's
9th Annual Investing In African Mining Seminar
  • Mark F. Mendelsohn
  • March 8, 2011

2
Combating Corruption Is A Growing Priority
  • We know that countries are more likely to prosper
    when governments are accountable to their people.
    So we are leading a global effort to combat
    corruptionwhich in many places is the single
    greatest barrier to prosperity, and which is a
    profound violation of human rights. Thats why
    we now require oil, gas and mining companies that
    raise capital in the United States to disclose
    all payments they make to foreign governments.
    And its why I urged the G-20 to put corruption
    on its agenda and make it harder for corrupt
    officials to steal from their people and stifle
    their development.
  • Remarks of President Barack Obama, September
    22, 2010, Millennium Development Goals Summit,
    U.N. Headquarters, New York, New York

3
History of the FCPA
  • First 20 Years 1977 to 1997
  • Law created after Watergate scandal
  • 17 companies and 33 individuals named in FCPA
    enforcement actions
  • Little foreign bribery legislation or enforcement
    outside the United States
  • UN and World Bank decline to address corruption
  • Next 10 Years 1998 to 2008
  • OECD Convention implemented and tax deductibility
    of bribes eliminated
  • 1998 FCPA amendments expand its jurisdictional
    reach
  • Increased financial improprieties lead to
    increased oversight of corporate conduct (e.g.
    Sarbanes Oxley)
  • 50 companies and 70 individuals named in FCPA
    enforcement actions
  • Current FCPA Enforcement
  • Enforcement has surged
  • Historic increases in monetary penalties in 2009
    and 2010
  • Industry-wide sweeps
  • Increase in multi-jurisdictional investigations
    and prosecutions with closer coordination between
    prosecutors
  • In 2009 and 2010 alone, 41 companies and 75
    individuals named as defendants in FCPA
    enforcement actions

3
4
Key FCPA Concepts
  • An overview of the FCPA Two Parts
  • Anti-Bribery Provisions Prohibits corrupt
    offers or payments to foreign government
    officials to assist in obtaining or retaining
    business
  • Accounting Provisions Requires (1) accurate
    books and records and (2) appropriate accounting
    and controls systems
  • Long jurisdictional reach of the FCPA
  • Anti-Bribery Provisions apply to
  • (1) US persons (individuals and companies)
    wherever they are
  • (2) anyone in the territory of the US and
  • (3) non-US companies with stock listed on US
    exchanges (includes those that issue certain
    American Depository Receipts)
  • Issuers, US companies (including subs of foreign
    companies) and individuals are liable if they
    take improper actions using the US mails, wires
    or other means of interstate commerce (e.g.
    telephone calls, emails, wire transfers)
  • Foreign companies are liable of they take
    improper action while within the territory of the
    US
  • US government has asserted broad jurisdiction
    over foreign companies and individuals, including
    bringing charges for "conspiring to violate" or
    "aiding and abetting violations" of the FCPA
  • Important concepts broadly defined
  • "Money or anything of value" includes cash
    gifts, hospitality and entertainment travel
    scholarship or admission to university jobs
    interest in a business dividends
  • "Foreign official" covers officers or employees
    of a foreign government, including
    government-owned or controlled organizations
    (SOEs like national oil companies state-run
    hospitals) officers or employees of a public
    international organization police and military
    officials customs and border officials advisor
    to a government political party or candidate for
    office
  • "Obtain or retain business" includes sale of
    goods grant or renewal of a contract/concession
    regulatory approval reduction in taxes avoiding
    customs duties
  • Indirect payments also prohibited corrupt
    payments through a third party, such as a sales
    representative, consultant, joitn venture
    partner, or lawyer are prohibited if authorized,
    directed or had knowledge
  • "Knowledge" defined to include that a person
    believes conduct is highly probable or
    substantially certain to occur imputed knowledge
    of facts purposely avoided ("conscious
    disregard")

4
5
International Framework
  • OECD Convention
  • Came into force in February 1999, focusing
    strictly on supply-side official corruption
  • Signed by 34 OECD member countries and 4
    non-member countries
  • Requires national implementing legislation,
    including a foreign bribery offense corporate
    liability effective, proportionate and
    dissuasive sanctions
  • Gold standard peer review mechanism
  • In June 2010, the OECD released for the first
    time data on foreign bribery enforcement efforts
    by the 38 Parties to the Convention.
  • 148 individuals and 77 entities have been
    criminally sanctioned for foreign bribery in 13
    Parties between the time the Convention entered
    into force in 1999 and the end of 2009. Of these
    13 Parties, 7 have sanctioned both companies and
    individuals.
  • At least 40 of the sanctioned individuals were
    sentenced to prison for foreign bribery.
  • Combined fines of up to EUR 1.24 billion have
    been imposed on companies for foreign bribery.
  • Approximately 280 investigations are ongoing in
    21 Parties to the Anti-Bribery Convention, with
    no activity in the other 17.
  • OECD Good Practice Guidance establishes global
    anti-corruption compliance standards.
  • UN Convention Against Corruption
  • First global, comprehensive anti-corruption
    treaty
  • 140 signatories as of March 1, 2011
  • Addresses demand and supply side corruption
    international and domestic corruption asset
    seizure, forfeiture and repatriation technical
    assistance
  • Peer review mechanism under development

5
6
Canada
  • Corruption of Foreign Public Officials Act
    (CFPOA)
  • Canada ratified the OECD Convention and adopted
    national implementing legislation effective
    February 1999.
  • CFPOA modeled very closely on the US FCPA
  • Key differences
  • CFPOA has no accounting provisions or civil
    enforcement or sanctions
  • CFPOA has narrower jurisdiction, requiring "real
    and substantial link" to Canada
  • CFPOA has no nationality jurisdiction, resulting
    in OECD criticism for failure to implement the
    Convention in this respect
  • CFPOA does have a "facilitation payments"
    exception, like the FCPA
  • RCMP has established special units in Calgary and
    Ottawa to investigate overseas corruption
  • One corporation and, in July 2010, one individual
    charged under the CFPOA.
  • A major, listed Canadian oil and gas exploration
    and production company is reportedly under
    investigation
  • International peer pressure on Canada to improve
    its enforcement record is likely.

6
7
United Kingdom The Bribery Act
  • The United Kingdom A new legislative and
    institutional framework is coming.
  • The UK Bribery Act of 2010
  • Expected to come into force three months after
    guidance is finalized probably by end of 2011.
  • Active and passive bribery offenses covering
    public official and private sector bribery.
  • New offense of foreign official bribery.
  • No facilitation payments exception prosecutorial
    discretion
  • No safe harbor or provision for promotional and
    marketing expenses, although this is likely to be
    addressed in guidance.
  • New strict liability corporate offense of failure
    to prevent foreign official bribery.
  • Affirmative defense of adequate procedures
    draft guidelines suggest that standards will be
    in line with USSG and OECD Good Practice Guidance
  • Affirmative defense is not available where senior
    management is involved in the crime.
  • Jurisdictional reach covers commercial
    organizations which "carry on a business, or any
    part of a business, in any part of the United
    Kingdom"
  • Prosecution of cases
  • A new, unified economic crime agency may be
    formed, merging parts of the Financial Services
    Authority (FSA), the Serious Fraud Office (SFO),
    and the Office of Fair Trading .
  • Unclear whether the new agency will have enhanced
    powers.
  • In the meantime, the SFO is prosecuting
    settling cases under the old laws.

7
8
Dodd-Frank Act Disclosure of Payments by
Resource Extraction Issuers
  • Proposed rules under the Dodd-Frank Act require
    extraction issuers to include in their annual
    reports disclosure of payments by the issuer, a
    subsidiary or other controlled entity to a
    non-U.S. government or the U.S. federal
    government for the purpose of the commercial
    development of oil, natural gas or minerals.
  • Covered payments include production entitlements
    corporate taxes on income, profits and
    production royalties bonuses license and
    concession fees etc.
  • Disclosure obligation has no exception for local
    law restrictions or contractual confidentiality
    obligations.
  • Rules prescribe specific format and content of
    disclosure.
  • Disclosure will be furnished rather than
    filed, resulting in no liability for material
    misstatements or omissions
  • Final rules to be adopted by April 15, 2011, with
    first annual disclosures likely due in annual
    reports for FY ending on or after April 15, 2012.

8
9
Foreign Corrupt Practices Act (FCPA) Current
Anti-corruption Compliance Best Practices
  1. Mineral resources are often in markets suffering
    from weak rule of law and high levels of
    corruption Congo, Sierra Leone, Afghanistan,
    Mongola, Papua New Guinea, etc.
  2. Common use of finders, commissioned agents, local
    partners, and other third parties in the
    acquisition of mining rights and concessions
  3. Importance of relationships with and support of
    local and tribal communities and leaders
  4. Heavy dependence on local police and military for
    security and protection
  5. Prevalence of joint venture and other teaming and
    co-investment relationships
  6. Mergers and acquisitions are a regular feature of
    the industry

Mining Sector Corruption Risks
10
Foreign Corrupt Practices Act (FCPA) Current
Anti-corruption Compliance Best Practices
  1. Use of cash and lack of sophisticated banking
    system in certain countries of operation
  2. Need for approvals, permits, water, power and
    labor result in frequent interactions with
    government bureacracies
  3. Must deal with tax, finance and mining
    authorities
  4. Customs issues with the importation of
    equipment, tools and personnel and the export of
    minerals
  5. Intersection of the mining sector and national
    security and state secrets issues

Mining Sector Corruption Risks
11
Foreign Corrupt Practices Act (FCPA) Focus on
the Executive Suite and the General Counsel
  • There will always be rogue employees who decide
    to take matters into their own hands. They are a
    fact of life. But when the right tone is set at
    the top in the executive suite and in the
    general counsels office you significantly
    reduce the risk of criminal conduct. And your
    jobs become easier. We are not interested in
    prosecuting corporations or executives or lawyers
    who are working hard to do the right thing. We
    are not interested in making cases for their own
    sake. We bring cases only when the facts and the
    law convince us that we can prove guilt beyond a
    reasonable doubt. Indeed, just as we will not shy
    away from bringing any case when the
    circumstances warrant, we also aim to reward
    responsible corporations corporations that
    maintain strong compliance programs and remedy
    and disclose wrongdoing when they discover it.

Compliance as the Best Defense
Assistant Attorney General Lanny A. Breuer of the
Criminal DivisionSpeaks at the Annual Meeting of
the Washington Metropolitan Area Corporate
Counsel Association McLean, VA Wednesday,
January 26, 2011
12
Foreign Corrupt Practices Act (FCPA) Current
Anti-corruption Compliance Best Practices
  • Written, corporate anti-corruption policy
  • Strong, visible senior management commitment to
    anti-corruption policy
  • Well-designed compliance standards and
    procedures, applicable to all directors, officers
    and employees, and extended to third-parties and
    business partners, which address
  • Gifts
  • Charitable donations and sponsorships
  • Hospitality, entertainment and expenses
  • Facilitation payments
  • Customer travel
  • Solicitation and extortion
  • Political contributions

Anti-Corruption Compliance Standards
13
Foreign Corrupt Practices Act (FCPA) Current
Anti-corruption Compliance Best Practices
(continued)
  • Tailor compliance policy, standards and
    procedures based on assessment of risks facing
    your company
  • Review anti-corruption compliance policy,
    standards and procedures no less than annually
    and update
  • Assign responsibility for implementation and
    oversight of anti-corruption compliance system to
    a senior corporate executive, with sufficient
    resources, independence and authority, and with a
    direct report to independent monitoring bodies,
    e.g. the Board of Directors, an appropriate
    committee of the Board, and internal audit
  • Maintain a system of financial and accounting
    procedures and internal controls reasonably
    designed to ensure accurate recordkeeping and to
    prevent corporate assets, records and accounts
    from being used to carry out or conceal foreign
    bribery

Anti-Corruption Compliance Standards
14
Foreign Corrupt Practices Act (FCPA) Current
Anti-corruption Compliance Best Practices
(continued)
  • Effectively communicate anti-corruption
    compliance policy, standards and procedures,
    including
  • Periodic training for directors, officers,
    employees, agents and business partners
  • Annual training and compliance certifications for
    directors, officers, employees, agents and
    business partners
  • Maintain compliance advice, hotline, and
    whistleblower mechanisms which
  • are readily available on an urgent basis and
    throughout global operations
  • provide for confidential reporting by and
    protection for whistleblowers, both internal and
    external
  • respond promptly to complaints and undertake
    appropriate action

Anti-Corruption Compliance Standards
15
Foreign Corrupt Practices Act (FCPA) Current
Anti-corruption Compliance Best Practices
(continued)
  • Maintain remediation policies and procedures
    which
  • discipline those who violate anti-corruption laws
    and policies
  • address the harm resulting from violations
  • take steps to prevent further, similar misconduct
  • Institute due diligence and compliance
    requirements pertaining to agents and business
    partners including
  • conduct risk-based due diligence
  • exercise oversight of agents and business
    partners
  • inform agents and business partners of your
    commitment to integrity and anti-corruption
    compliance policy and procedures
  • obtain a reciprocal commitment from your agents
    and business partners

Anti-Corruption Compliance Standards
16
Foreign Corrupt Practices Act (FCPA) Current
Anti-corruption Compliance Best Practices
(continued)
  • Include the following contractual provisions in
    agreements with agents and business partners
  • anti-corruption representations and warranties
  • audit rights
  • termination rights upon violation of law or
    representations and warranties
  • Periodic review and testing of anti-corruption
    compliance policy and procedures
  • corruption audits
  • Conduct anti-corruption diligence in connection
    with mergers, acquisitions and investments

Anti-Corruption Compliance Standards
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