Slide Deck - March 30 FINAL3.pptx - Grant Thornton LLP

Not-for-Profits and the Rapidly Changing 

Anti-Corruption Environment 

March 30, 2011 

3:00 pm – 4:30 pm ET 

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Today's Presenters 


Bill Olsen 

National Practice Leader, 

Investigations Services 

703.847.7519 

William.Olsen@us.gt.com 

Anne Eberhardt 

Senior Manager, 

Forensics, Investigations and 

Litigation Practice. 

212.542.9698 

Anne.Eberhardt@us.gt.com 

5

Learning Objectives 

• Describe the consequences of Anti-Corruption 

enforcement actions 

• Recognize the trends in the enforcement of the 

Foreign Corrupt Practices Act (FCPA) 

• Recognize high risk areas and potential red flags 

as well as understand the risks of unidentified 

FCPA violations 


6

Agenda 

• FCPA provisions (What is the FCPA anyway?) 

• Current trends (What is happening to organizations?) 

• Examples (What have others experienced?) 

• Red Flags (What to look for) 

• Understanding risks (How may you avoid problems?) 


7

What is Corruption?

Different Views of Corruption 

Short definition: 

Corruption is the misuse of entrusted 

power for personal or private gain 

Different types of corruption: 

•Bribery 

•Kickbacks 

•Bid-rigging 

•Influence peddling 


910

Business Costs of Corruption 

• Corruption may appear to be necessary, but 

actually it … 

– Carries costly fines and penalties for businesses and 

organizations 

– Results in costly fines , penalties and jail terms 

for individuals 

– Results in loss of institutional reputation 

– Disrupts operations 


Costs of corruption for 

industries, economies 

and countries 

10

Sources of Global Corruption 

• Lack of transparency and accountability in the 

private sector and/or public sector 

• Poor regulation of political 

contributions 

• Low public sector wages 

• Weak enforcement of laws and 

regulations 

• Excessive discretionary authority 

of public officials 


11 12

FCPA Background

Why Do We Have the FCPA? 

Globalization and Competitive Pressure 

• Overseas expansion into developing countries 

• Competitive pricing 

• Unique risks and experience: 

–Economic espionage 

–Government corruption 

–Terrorist financing 

• Uneven regulatory playing field 


13

FCPA Provisions and Applicability 

• Anti-Bribery Provisions: 

–Prohibits U.S. organizations and citizens, foreign companies listed 

on a U.S. stock exchange, or any person acting while in the U.S. 

from paying or offering to pay, directly or indirectly, money or anything 

of value to a foreign official to obtain or retain business. 

• Books and Records and Internal Controls Provisions: 

–Requires “issuers” (any company including foreign companies) with 

securities traded on a U.S. exchange or otherwise required to file 

periodic reports with the Securities and Exchange Commission 

(SEC) to keep books and records that accurately reflect business 

transactions and to maintain effective internal controls. 


14

FCPA Penalties 

Bribery Provisions 

Companies: 

• Up to $2,000,000 or twice the gross gain/loss derived 

Individuals: 

• Up to $250,000 or twice the gross gain/loss derived 

• Up to 5 years imprisonment 

Accounting Provisions 

Companies: 

• Up to $2,500,000 fine 

Individuals: 

• Up to $1,000,000 fine 

• Up to 10 years imprisonment 


15

Foreign Officials 

• Any officer or employee of any department, 

agency, or instrumentality of a foreign government 

• Foreign political party or official thereof 

• Candidate for political office 

• Any person acting in an official capacity for or on 

behalf of a foreign government, department, 

agency, or instrumentality 


16

Influencing Official Acts 

• Inducing foreign officials to use influence with a 

foreign government or instrumentality thereof to 

affect any act or decision 

–Acts or decisions of foreign officials in their 

official capacities 

–Inducing foreign officials to do or omit to do any 

act in violation of lawful duty of such official 


17

Types of Illegal Payments 

• Cash 

• Commissions, rebates, etc. 

• Hidden interest 

• Loans 

-Alleged loan 

-Payments made or guaranteed 

-Interest free loan 


18

Types of Illegal Payments (cont'd.) 

• Credit card bills 

• Transfers at less than fair market 

value 

• Employment 

• Concealing illegal payments 

-Off-book schemes 


19

Foreign Corrupt Practices Act “Exceptions” 

Facilitating payments 

Examples: 

•obtaining permits, licenses, or other official 

documents to qualify a person to do business in 

a foreign country 

•processing government papers, i.e., visas, work 

orders 

•providing police protection, mail pick-up/delivery, 

inspections 


20

Prohibited Actions Involving Foreign Officials 

• Violation need not be fully consummated or 

succeed in desired outcome 

• Applies to payments made by third parties when 

the organization knows that a portion will be 

used for a proscribed purpose 


21

“Knowledge” Standards 

• Does not require proof of actual knowledge 

• Factual information indicating “high probability” of 

illegal activity 

• Must follow up on “red flag” activity 


22

Current Environment and Trends

Current Trends – Who the Bribers Are 

• The countries most likely to engage in bribery when doing business 

abroad: 

–Russia 

–China 

–Mexico 

–India 

–Brazil 


Source: Transparency International 2010 

Bribe Payers Index 

24

Current Environment and Trends 

•International bribery estimated at $1 trillion annually 

•56 total prosecutions in 2010 by SEC and DOJ 

•UK Bribery Act becomes effective this year. 

•More current matters under investigation than ever 

(140 open DOJ FCPA investigations) 


25

Previous Years' Trends – Instances and Penalties 

• More instances –DOJ and SEC initiated FCPA related matters 

–2009 –40 matters 

–2008 –33 matters 

–2007 –38 matters 

–2002-06 –46 matters 

• Larger penalties –Total criminal and civil corporate fines 

–2010 –$400+ million 

–2009 –$645+ million 

–2008 –$893.4 million 

–2007 –$155.1 million 

–2002-06 –$67.2 million 


26

Current Trends – Enforcement Approach Highlights 

• Undercover sting operation 

–22 individuals indicted 

• Control person liability 

–Executives penalized even without alleged 

knowledge of illegal acts 

• New Dodd-Frank guidelines 

• Successor liability 

–Mergers and acquisitions 


27

Foreign Corrupt Practices Act Red Flags 

• Decentralized management control 

• Substantial payments to agents, consultants, or 

others for unspecified services 

• Payments to offshore bank accounts, in cash or by 

wire transfer 

• Unduly complex legal or banking structure 

• Unusual payments for commissions, loans, legal 

fees, consulting, marketing, temporary employees 

and directors fees 


28

Foreign Corrupt Practices Act Red Flags (cont'd.) 

• Payments and wire transfers without the proper 

approval process 

• Payments to agents, etc. with unusual addresses 

• Payments in round dollar amounts 

• Unusually low or high profit margins on projects 

• Undocumented business entertainment expenses 


29

Mitigating Risks

What to Ask Yourself 

• Do you regularly deal with foreign governments? 

• Are you in an industry with a high risk for corruption? 

• Are you in a heavily regulated industry? 

• Are you finding it increasingly difficult to be effective in the 

global marketplace? 

• Do you place importance on your organizational reputation in 

the marketplace? 


31

What Should I Be Looking For? 

• The transaction is in, or involves, a country that DOJ has 

identified as being a high corruption risk 

• Your local representative or agent is requesting an 

unusually high commission or fee 

• The entertaining of government officials or their relatives 

• Unusual contract terms or payment arrangements such as 

requests for payments in cash 

• The use of shell entities and/or off shore accounts 


32

What Should I Be Looking For? (cont’d.) 

• The foreign government's insistence that a particular 

agent be used 

• The role or function of an agent or middleman is not clear 

• Decentralized management control 

• Substantial payments to agents, consultants, or others for 

unspecified services 

• Unduly complex legal or banking structures 

• Unusual payments for commissions, loans, consulting, 

marketing, temporary employees and directors fees 


33

What Are Proper Controls? 

• Recent DOJ cases indicate that it is not enough just to 

establish an anti-corruption program 

–Assess the operating effectiveness 

–Examine key risk factors 

–Key questions to ask 

1. Where are you conducting operations? 

2. Who are you doing business with? 

3. How are you performing your operations? 


34

Where Are You Conducting Operations? 

• Controls need to take into account the 

countries where you are conducting the 

operations of your organization: 

–Perform Risk Assessment 

–Proper training for employees 

–Are you monitoring properly? 


35

Who Are You Doing Business With? 

• Controls should include identifying 

government officials and monitoring 

all entertainment expenses 

–Document who you are meeting 

with 

–Document the purpose of the 

meeting 

–Document the type of 

entertainment and the dollar 

amount 


36

Anti-corruption and Governance 

• To deal with corruption risks, an organization 

needs to establish an ethical culture and 

implement a strong anti-corruption policy 


37 42

Examples

Grant Thornton in Arbil, KRG, Iraq 

In 2007-08, we worked with the Kurdish Regional 

Government to help them develop a procurement policy that 

would meet international standards of transparency and 

accountability. 

Issues: 

•Underdeveloped economy 

•Wartime environment 

•Lack of infrastructure, both physical and institutional 

•Culture of corruption 


39

International Trade Association 

An international trade association that receives U.S. 

government funding had discovered evidence of FCPA 

violations in one of its field offices located in S. Korea. We 

performed a follow-up investigation of all of its field offices in 

Europe and Asia. 

Issues: 

•Loose controls 

•Lack of home office oversight 

•Culture of corruption 


40

University-based Research Programs 

We conducted several investigations of federally funded 

research programs hosted in universities across the country. 

In one case, the program director used grant funds for 

personal travel, and the program faced the loss of its funding 

as a result of the fraud. 

Issues: 

•Loose controls 

•Understanding the risks 

•Tone at the top 


41

Pakistan Earthquake Zone 

In the summer of 2006 we travelled to Kashmir in the 

northwestern part of Pakistan to investigate allegations of 

fraud at an international NGO, which had received U.S. 

Government funding for its relief programs following the 

earthquake of 2005. 

Issues: 

•Chaotic environment 

•Terrorist financing 

•Corrupt field office management 


42

Other Examples 

National Relief Organization 

•Disaster situations 

•Ineffective controls 

•Tone at the top 

International NGOs 

•Political opposition 

•Corrupt environments 

•Inadequate funding 

•Compliance requirements to retain funding 


43

Key Elements of an Effective Anti-corruption 

Program 

• Code of conduct 

• Proper oversight 

• Proper due diligence 

• Effective communication of policies 

• Appropriate internal controls 

• Effective mechanism for reporting suspicious activity 

• Compliance monitoring 

• Appropriate response 


44

Benefits of a Proactive Anti-Corruption Plan 

• Supports compliance with laws, 

statutes and regulations 

• Reduces risk of criminal prosecution 

and/or imposition of civil sanctions 

• Assists directors and officers in 

meeting their fiduciary duties 

• Promotes integrity of business 

dealings 

• Reduces exposure to financial losses 

and organizational disruption 


45


Questions? 

46

Contact Grant Thornton 

Presenters: 

Bill Olsen 

National Practice Leader, Investigations Services 

703.847.7519 

William.Olsen@us.gt.com 

Anne Eberhardt 

Senior Manager, 

Forensics, Investigations and Litigation Practice. 

212.542.9698 

Anne.Eberhardt@us.gt.com 


47

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© Grant Thornton LLP. All rights reserved.

Slide Deck - March 30 FINAL3.pptx - Grant Thornton LLP

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