Title: Mark F. Mendelsohn
1Avoiding 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
2Combating 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
3History 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
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4Key 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")
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5International 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
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6Canada
- 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.
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7United 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.
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8Dodd-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.
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9Foreign Corrupt Practices Act (FCPA) Current
Anti-corruption Compliance Best Practices
- 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. - Common use of finders, commissioned agents, local
partners, and other third parties in the
acquisition of mining rights and concessions - Importance of relationships with and support of
local and tribal communities and leaders - Heavy dependence on local police and military for
security and protection - Prevalence of joint venture and other teaming and
co-investment relationships - Mergers and acquisitions are a regular feature of
the industry
Mining Sector Corruption Risks
10Foreign Corrupt Practices Act (FCPA) Current
Anti-corruption Compliance Best Practices
- Use of cash and lack of sophisticated banking
system in certain countries of operation - Need for approvals, permits, water, power and
labor result in frequent interactions with
government bureacracies - Must deal with tax, finance and mining
authorities - Customs issues with the importation of
equipment, tools and personnel and the export of
minerals - Intersection of the mining sector and national
security and state secrets issues
Mining Sector Corruption Risks
11Foreign 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
12Foreign 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
13Foreign 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
14Foreign 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
15Foreign 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
16Foreign 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