October 6, 2015

NAVIGATING THIRD PARTY RISK ANTI-CORRUPTION & COMPLIANCE IN HIGH RISK MARKETS

SESSION 1:

The Legal Landscape – Due Diligence Drivers: Sanctions & Bribery Risk, and the Modern Slavery Act's Reporting Requirements Tom Stocker, Partner Pinsent Masons

SESSION 2: The Business Benefits of Due Diligence Rosie Garrigan Cerico and Former Compliance Counsel Charter International PLC

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INTRODUCTION AND AGENDA

SESSION 3: Practical View on the Challenges and Advantages of Open Source Due Diligence Research David Hodgson, Senior Desk Editor Dow Jones Risk & Compliance SESSION 4: Summary and Key Takeaways Marian Halasz, Sales Specialist Dow Jones Risk & Compliance NETWORKING AND Q&A

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INTRODUCTION AND AGENDA

TOM STOCKER Partner, Pinsent Masons

COMPLIANCE CHALLENGES AND DEFENCES

WHAT I WILL COVER

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Compliance Drivers and Programmes HOT TOPICS §  Bribery §  Sanctions & Export Controls §  Modern Slavery Act 2015 §  Due diligence

COMPLIANCE DRIVERS

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Increasing corporate criminal liability for criminal acts/omissions

by employees and contractors

Ethics and Corporate Social Responsibility

Increasing compliance standards and reporting requirements

Increasing fines - US

-UK Sentencing Guidelines

Remediation costs: Siemens - $1bn

COMPLIANCE DRIVERS – UK LEGAL FRAMEWORK

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HOT TOPICS

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BRIBERY  

SANCTIONS  

MODERN SLAVERY  

Review of MOJ Guidance International Standard expected in 2016 1st enforcement case under Bribery Act, s.7 – relates to a distributor

Iran – first prosecution of an exporter Russia – oil sector specific and letters of credit Increase need for 3rd party due diligence

–Customer + beneficiary + nature of trade + payment route

Section 54 – preparation of a slavery and human trafficking statement –Your own business + your supply chain

COMPLIANCE PROGRAMMES

FCPA Resource Guidance

MOJ Guidance

British Standard

10500:2011

FCA Financial

Crime Guide for

Firms

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MY EXPERIENCE OF COMPLIANCE FAILURES

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DELIBERATE CONTRAVENTION BY SENIOR MANAGEMENT NO OR INADEQUATE •  Risk assessments •  3rd party due diligence & screening •  Training (or records) •  Monitoring

COMPLIANCE SUGGESTIONS

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1.  DUE DILIGENCES DEFENCES ALLOW A RISK BASED APPROACH

•  Do NOT try to do everything at once

•  Have a programme

2. UP TO DATE AND SPECIFIC RISK ASSESSMENTS ARE ESSENTIAL •  Overarching and

transactional •  Don’t worry if you

have missed a risk or your assessment of the is later shown to be wrong – it is foreseeable risk that it is important

3. 3RD PARTY DUE DILIGENCE AND CONTRACTUAL CONTROLS •  Have a tiered approach for

low, medium and high risk •  The more 3rd parties

assessed the better •  The level of

assessment can and should vary

•  Keep it simple •  Delegate the

administrative tasks •  Utilise technology and tools

4. AUDIT TRAIL •  Eyes of the

regulator/court: •  You have not done

it, if you cannot evidence it

QUESTIONS?

THANK YOU!

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ROSIE GARRIGAN Cerico and Former Compliance

Counsel Charter International PLC

THE BUSINESS BENEFITS OF DUE DILIGENCE

•  Due Diligence - Practical issues •  What does good look like? •  The business benefits

AGENDA

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PRACTICAL ISSUES

BUDGET BUSINESS

ENGAGEMENT PRE-DISPOSITION

 RESOURCE

COMMERCIAL PRESSURES

 POLICY INTERPRETATION

CONSISTENCY

INFORMATION SHARING

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PRACTICAL ISSUES

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•  Silos •  Duplication •  Waste •  Inconsistency •  Frustration •  Failure to capitalise on a valuable business asset

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PRACTICAL ISSUES

WHAT DOES GOOD LOOK LIKE?

•  Due Diligence integral part of business risk management •  Business engagement and buy in •  Consistent and repeatable process

•  Risk-based approach •  Holistic •  User friendly •  Information that is easy to access and digest

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THE BUSINESS BENEFITS

•  Fines and penalties •  Remediation costs

•  Share price •  Reputational damage •  Business interruption •  Management time

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THE BUSINESS BENEFITS

•  The bottom line •  Reduced waste •  Reduced cost of sales

•  Improved bargaining power •  Sustainable supply chain •  Talent retention •  Creation of a competitive advantage •  Stakeholder engagement •  Customer retention

•  Improved bottom line

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QUESTIONS?

THANK YOU!

DAVID HODGSON Senior Desk Editor

Dow Jones Risk & Compliance

PRACTICAL VIEW ON THE CHALLENGES AND ADVANTAGES OF OPEN SOURCE DUE DILIGENCE RESEARCH

STATE OWNED COMPANIES

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STATE OWNED COMPANIES “34 (OECD) member countries had 2,111 fully or majority-owned SOEs, with 5.9m employees, at the end of 2012. Their combined value (allowing for some but not all pension-fund liabilities) is estimated at $2.2 trillion, roughly the same size as the global hedge-fund industry.”

“If all assets held at sub-national level, such as local water companies, were included, the total value could be more than $4 trillion…”

–The Economist, Jan 11, 2014 2014 GDP figures from World Bank

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United States 17.41

China 10.36

Japan 4.60

State Owned Companies 4.00

United Kingdom 2.94

SOCS RIPE FOR BRIBERY

SOE officials were bribed in 27% of cases but received 80.11% of total bribes.

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FIGURE 12. Ninety-five percent of bribes were paid to officials in 5 categories

SOURCE: OECD analysis of foreign bribery cases concluded between 15/02/1999 and 01/06/2014

GOVERNMENT OWNERSHIP NOTES – IT MAKES THE DIFFERENCE!

SHENZHEN PINGNAN RAILWAY COMPANY LIMITED •  52% of this company is owned by fully state-run China Merchants

Group Limited through three subsidiaries: China Merchants Shekou Industrial Zone Company Limited (18.5%); China Merchants Development Company Limited (25%); and Shenzhen Nanyou (Holdings) Limited (8.5%).

•  25% of this company is owned by fully state-run Guangzhou Railway (Group) Corporation.

•  20.6% of this company is owned by 79.336% state-run China Nanshan Development (Group) Corporation.

•  2.4% of this company is owned by fully state-run Shenzhen Shekou Dongdi Industrial Development Company Limited.

Known Majority - 95.743 %

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ADVERSE MEDIA ENTITIES

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750,000+ NEWS ITEMS AGGREGATED DAILY

 

35,000+ SOURCES

200+ COUNTRIES

28 LANGUAGES

ACCESS TO PROPRIETARY RESEARCH TOOL

50% Not Freely Available Via The Internet

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ADVERSE MEDIA ENTITIES

Giant Ocean International Fishery Co. Ltd. Taiwan licensed recruitment agency Recruited hundreds of Cambodians to work in the fishing industry off the coasts of South Africa, Mauritius, Senegal, Japan, Fiji, Qatar, Malaysia and Singapore Owner sentenced to 10 years for human trafficking Husband fled Cambodia when wife arrested

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UKRAINE RELATED SANCTIONS RESEARCH

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ASSOCIATED ENTITIES 5,300

Subjects with 21 or more associated entities 35

Total entities for subjects with 21 or more associated entities 4,997

Subjects with 1-20 associated entities 72

Total entities with 1-20 associated entities 303

Researched subjects with no associated entities 101

ASSOCIATED ENTITIES 2,461

Subject with 21 or more associated entities 19

Total entities for subjects with 21 or more associated entities 2,270

Subject with 1-20 associated entities 49

Total entities with 1-20 associated entities 191

Researched subjects with no associated entities 161

UKRAINE-RELATED SANCTIONS STATUS AS OF 25 SEPT 2015

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BANK ROSSIYA OWNERSHIP STRUCTURE

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QUESTIONS?

THANK YOU!

MARIAN HALASZ Sales Specialist

Dow Jones Risk & Compliance

SUMMARY AND KEY TAKEAWAYS

A VERY DYNAMIC ENVIRONMENT

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Hitachi pays $19 million in FCPA settlement for South Africa bribes

Canada gold miner under DOJ and SEC investigation for West Africa payments

A VERY DYNAMIC ENVIRONMENT

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COMPANIES CALLING OFF BUSINESS ENDEAVOURS DUE TO RISKS

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FACTORS TRIGGERING REVIEW OF BUSINESS PARTNERS

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LOOKING AHEAD

-  Sanction to remain top of risk agenda

-  Compliance systems to be both cost effective and operational efficient

-  Corruption is will continue to be driver for due diligence

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-  Convergence of risks -  Broader, expanded scope

for prosecutions

-  Greater regulatory scrutiny & enforcement

-  Higher cost of failure

DOW JONES DUE DILIGENCE

•  Detailed reports on companies or individuals compiled from open-source, legally obtained information

•  A range of report types offer flexibility to suit different information requirements and varying budgets

•  Secure online report ordering and delivery •  A dedicated team of skilled, multi-lingual researchers uncover hard-to-find facts

from open source information and local media in over 60 languages

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RISK AND COMPLIANCE JOURNAL – WSJ.COM/NEWS/RISK-COMPLIANCE-JOURNAL

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QUESTIONS?

THANK YOU!