© Sheppard Mullin Richter & Hampton LLP 2011

 Evaluating Recent FCPA and Anti-Corruption Enforcement Actions to Identify Red Flags and

Target Potential Risks

Bryan DalyBethany HengsbachSheppard, Mullin, Richter & Hampton

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Enforcement Trends

Increased enforcement– Penalties– Number of prosecutions/investigations

Increased government resources

Focus on individuals

International cooperation

Industry-wide probes– Technology Sector

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FCPA Fines Imposed on Corporations

$28.2 $36.3$87.2 $155.1

$893.4

$621.9

In Millions$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

2004 2005 2006 2007 2008 2009 2010

$1,825.3 B

Increased Enforcement

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Increased Government Resources

More government resources on the ground:

– SEC now has FCPA-dedicated unit in San Francisco– FBI agents dedicated to the FCPA

Whistleblower provisions of the Dodd-Frank Act

Trials

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Focus on Individuals – Latin Node

CEO and Board Chairman sentenced to 46 months in prison, plus 2 years supervised release

3rd longest FCPA prison sentence in history – 87 months (#1)– 57 months (#2)

Improper payments to state-owned telecommunications company in Honduras

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Focus on Individuals - Lindsey Manufacturing

– CEO and CFO convicted after 6 week trial

– 30% commission to agents in Mexico

– No "smoking gun" evidence of actual knowledge

– Face jail time and fines that cannot be paid by the company

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International Cooperation

Global anti-corruption settlements

– BAE Systems

– Innospec

Ongoing investigations

– Allianz

– Hewlett-Packard

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Industry-wide Probes: Technology Sector

Recent settlements by IBM, Maxwell Technologies, Comverse Technology

Business model involves regular interaction with government officials

Rapid expansion into emerging markets

Heavy use of intermediaries

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IBM (2011)

$10 million to settle SEC charges of books and records and internal controls violations

Improper cash payments to government officials in South Korea and China

Giving gifts and paying travel and entertainment expenses that violated the FCPA

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Maxwell Technologies (2011)

$14 million to settle DOJ and SEC charges

COO reported that the issue was known and was being dealt with while at the same time requesting that there be "[n]o more emails" about the issue

SEC described Maxwell's internal controls as "wholly inadequate"

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JGC Corporation (2011)

JGC paid $220 million to settle DOJ charges– DPA– Independent compliance consultant for 2 years

Agent forfeited $149 million to the DOJ, the largest individual forfeiture in FCPA history

“Commissions” paid to intermediaries to secure contracts on Bonny Island in Nigeria

The “Bonny Island” settlements now total $1.5 BILLION

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Johnson & Johnson (2011)

J&J subsidiaries paid public health workers in Greece, Poland and Romania to induce the purchase of J&J medical devices

Paid kickbacks in Iraq to obtain Oil for Food contracts

$70 million settlement with the DOJ and SEC,

and entered into DPA with the DOJ

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What does this mean for compliance? Streamline

Common sense

No “one size fits all”

What does this mean for compliance?

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What does this mean for compliance? Risk and Resources driven

– Third parties– Biggest producers

Follow the money

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What does this mean for compliance? Ongoing feedback and monitoring

– Risk Assessments– Audits– Best Practices Reviews

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What does this mean for compliance?

Tone at the Top Keep management informed Keep Board and Audit Committee informed Document everything!

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Contact Information

Bryan D. Daly(213) 617-5466

bdaly@sheppardmullin.com

Bethany Hengsbach(213) 617-4125

bhengsbach@sheppardmullin.com