FORENSIC Foreign Corrupt Practices Act FCPA A Presentation

FORENSIC Foreign Corrupt Practices Act (FCPA) A Presentation by KPMG Forensic September 29, 2008 ADVISORY

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FCPA Background Enacted in 1977 in response to scandals l More than 400 U. S. Companies admitted to paying over $300 million in bribes l Two objectives: (1) greater transparency in financial reporting; (2) prohibit illicit payments by U. S. companies to foreign officials l In addition to anti-bribery, addresses books and records and internal controls For 20 years, U. S. was only country that criminalized bribery of foreign government officials FCPA is now receiving more attention from U. S. and foreign regulators, in part due to the PATRIOT Act, Sarbanes-Oxley and a series of international anti-corruption conventions © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 2

Aggressive FCPA Enforcement by DOJ and SEC l Substantial increase in FCPA enforcement proceedings against U. S. and foreign issuers, subsidiaries, individuals, third-party agents and intermediaries l 38 Cases Brought in 2007; Over 80 Open Investigations in 2008 l Larger Penalties Imposed – $44 Million Baker Hughes l Deferred Prosecution and Non-Prosecution Agreements l Appointment of Independent Monitors l Increase in Parallel Proceedings among U. S. and foreign law enforcement officials FCPA Enforcement continues to be “top priority” for DOJ and SEC © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 3

FCPA Enforcement Actions 2003 -2007 © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 4

FCPA Penalties Anti-Bribery Financial Reporting Fines up to $250, 000 Fines up to $5 M 5 years imprisonment 20 years imprisonment Fines up to $2 M or 2 x pecuniary gain Fines up to $25 M or 2 x pecuniary gain Individual $11, 000 per violation $6, 500 -110, 000 per violation Corporate $11, 000 per violation $60, 000 -600, 000 plus financial reporting Criminal Individual Corporate Civil © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 5

Other FCPA Remedies Criminal fraud charges, censure Civil injunctive action Administrative cease and desist proceedings (C&Ds) Disgorgement of ill-gotten gains, pre-judgment interest Other Remedial Measures l Debarment l Implementation of FCPA compliance program l Independent Monitor l Continuing reporting obligation l Deferred Prosecution (or Non-Prosecution) Agreements © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 6

Deferred and Non-Prosecution Agreements Lucent Technologies Baker Hughes * Ingersoll Rand * Aibel Group Azko Nobel Schnitzer Steel * York International * Statoil * Chevron Monsanto Paradigm BV * Invision * Textron Micrus Corporation * Omega Advisors * Independent Monitor appointed © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 7

Foreign Corrupt Practices Act (FCPA) The Anti-Bribery Provisions Section 30 A, Securities Exchange Act of 1934 The Financial Reporting Provisions Section 13, Securities Exchange Act of 1934 © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 8

FCPA – Anti-Bribery Provisions Prohibited Payments: It is unlawful to pay or offer to pay “anything of value” to a “foreign official” to influence official action or to secure any improper business advantage in order to obtain or retain business. 5 elements: l Who: Applies to any issuer, officer, director, employee or agent of such issuer l Payment: Cannot offer, pay or promise to give “anything of value” l Corrupt Intent: The payer must have a corrupt intent and the payment must be intended to induce misuse of an official position l Recipient: To any foreign official or political party l Business Purpose Test: To influence official action or to secure any improper advantage in order to “obtain or retain business” © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 9

FCPA Anti-Bribery Provisions - Who? Jurisdiction: Any “issuer, ” or any officer, director, employee or agent of an issuer l Issuer includes U. S. listed companies l Also includes foreign companies or foreign affiliates that are themselves listed on U. S. exchanges Alternative Jurisdiction: Any United States person anywhere in the world l United States person’’ means a national of the United States or any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship organized under the laws of the United States or any State, territory, possession, or commonwealth of the United States, or any political subdivision thereof. © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 10

FCPA Anti-Bribery Provisions: Payment Prohibited Payments: Cannot offer, pay or promise to give “anything of value” l Cash l Services l Payment of Travel Expenses l Excessive Entertainment Expenses l Lavish Gifts l Favorable Loans l Charitable Contributions © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 11

FCPA: Anti-Bribery Provisions – Recipient l Definition of “Foreign official” - Foreign government, including officers and employees - Political parties, officials or candidates - Public international organizations (e. g. Red Cross, the World Bank) l Also includes other persons who intend to pass on the payments or a portion of the payments to foreign officials or political parties © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 12

FCPA Anti-Bribery Provisions: Business Test Business Purpose Test / Prohibited Activities: l Influencing any act or decision of a foreign official in his official capacity, inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official, or securing any improper advantage; or l Inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in order to assist such issuer in obtaining or retaining business for or with, or directing business to, any person. © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 13

Financial Reporting Provisions Applicable to SEC-registered “Issuers” l U. S. public companies l Foreign companies listed on U. S. stock exchanges Books and Records l Issuers must maintain books, records and accounts, which in reasonable detail, accurately reflect the transactions and dispositions of its assets Internal Controls l Issuers must devise and maintain a system of internal accounting controls to provide reasonable assurance that transactions are authorized by management and financial statements are in conformity with GAAP © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 14

Exceptions and Affirmative Defenses Exception for Facilitating Payments in order to secure Routine Governmental Action Affirmative Defenses (1) Payment lawful under foreign law (2) “Reasonable expenditure” for promotional activities © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 15

FCPA – Exception “Facilitation Payments” for Routine Governmental Action l Obtaining licenses or permits to do business l Processing government papers (visas, work orders) l Providing police protection, mail or cargo service l Providing telephone service l “Actions of a similar nature” Caveats l Must be ministerial – no discretionary authority l Cannot affect decision to award new business or to continue existing business © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 16

FCPA – Affirmative Defenses Payment Lawful Under Foreign Law l There must be something in the written law or regulations of the foreign country l Traditional, customary, not enforced does not qualify Reasonable Business Expenditure l To promote a business or product l Includes trip expenses, tours of company facilities, product demonstrations and training l Must be reasonable and bona fide © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 17

FCPA - Materiality Irrelevant l There is no materiality threshold for FCPA l Any prohibited payment is actionable l Impact of FCPA non-compliance can have material negative impact on financial statements, operations and reputation l Criminal and civil penalties may be substantial, and may include disgorgement, restrictions on business with the federal government, adverse publicity, impact on stock price, and potential private securities litigation © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 18

FCPA “Red Flags” l Companies with significant overseas operations l Operations in countries with high risk for bribery (i. e. Southeast Asia, Middle East) l Operations in high risk industries (i. e. defense, aircraft, oil, engineering, construction) l Acquisitions of foreign subsidiaries l Joint ventures with foreign government entities l Foreign consulting/agency relationships l Large payments to foreign agents relative to local prevailing rates for services provided © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 19

FCPA “Red Flags” (cont. ) l Agent refuses to provide FCPA representations l Unusual bonuses paid to foreign operational managers l Unusual payment arrangements to vendors l Commissions inconsistent with the going rate l “Public red flags” such as political contributions, payoffs, bribes, kickbacks or excessive rebates © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 20

Transparency International 2007 World Map © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 21

Global Corruption Indices: CPI and BPI l 2007 Transparency International – Corruption Perceptions Index (CPI) - Reflects perceived levels of corruption on the “demand” side by government officials - Ranks countries on scale of 10 (squeaky clean) to 1 (highly corrupt) - TI deems 5. 0 the borderline figure distinguishing companies that have a serious corruption problem l 2006 Bribe Payers Index (BPI) - Reflects perceived levels of corruption on the “supply” side - Includes 30 top exporting countries © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 22

U. S. Enforcement Trends l Scrutiny of foreign issuers and subsidiaries l Actions against individuals and third parties agents l Compliance monitors l Transactional due diligence © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 23

Scrutiny of foreign issuers and subsidiaries There has been increased scrutiny of foreign issuers by US regulatory authorities as well as increased enforcement activity by foreign regulatory authorities Statoil l U. S. v. Statoil ASA, Case No. 06 -CR-00960 -RJH-1 (S. D. N. Y. October 2006) Dow Chemical Company l SEC v. Dow Chemical Company, Lit. Rel No. 20000 (February 13, 2007) Siemens AG © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 24

Actions against 3 rd parties and individuals There have been a number of recent cases against not only corporate entities, but also against individuals and third-party agents - eg. U. S. v. Sapsizian, Case No. 06 -CR-20797 (S. D. Fla. 2006) DOJ Guidance regarding Payments to Third-Parties - The FCPA prohibits corrupt payments through intermediaries. It is unlawful to make a payment to a third party, while knowing that all or a portion of the payment will go directly or indirectly to a foreign official. The term "knowing" includes conscious disregard and deliberate ignorance. © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 25

Recent Cases Involving “Agents” Company by industry Country Oil and gas UK Intermediary Amount of payout (USD) Fines Nigerian customs official 2. 1 M 24 M Offshore international consultant Iranian national oil company subsidiary 5 M Costa Rican Consulting firm Wife of State telecom board member 2. 56 M Indonesian consultant Indonesian government official 50 k Foreign distributors (Thai, China, Philippines) Foreign government officials 95 K Contractors and unrelated companies Indian government official / Central Insecticides board member 200 K /Location Nigerian agent (Foreign Subsidiary) Oil and gas Norway (Foreign issuer) Telecom France (Foreign Issuer) Agriculture Defense Chemicals Recipient USA USA (USD) Additional Remedies DPA Monitor 26 M DPA – 3 yr Monitor TBD Complaint filed 5 M NPA Independent Consultant 1. 1 M NPA – 2 yrs FCPA Compliance Program 325 K NPA – 3 yr Independent Consultant Employees terminated © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 26

Compliance monitors There has been a trend toward appointing compliance monitors to review FCPA policies, procedures and internal controls Baker Hughes Inc. l SEC v. Baker Hughes Incorporated and Roy Fearnley, Civil Action No. H-071408 l United States District Court for the Southern District of Texas, LR-20094; AAE Rel 2602 Vetco Gray Controls, Inc. l U. S. v. Vetco Gray Controls Inc. , Vetco Gray Controls Ltd. , Vetco Gray UK Ltd. , and Aibel Group Ltd. , Case No. 07 -CR-004 (S. D. Tex. 2007) © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 27

Transactional due diligence FCPA due diligence is expected in joint ventures, mergers and acquisitions involving foreign counterparts GE merger with In. Vision l In Vision Technologies, Inc. Lit. Release No. 19078 (February 14, 2005) l DOJ Settlement; GE avoided successor liability for In. Vision’s conduct Titan Corporation l SEC v. The Titan Corporation, Civil Action No. 05 -0411 (D. DC), Lit. Rel. No. 19107 (March 1, 2005) l US v. Titan Corporation, Case No. 05 cr 0314 -BEN (S. D. Cal. ) © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 28

Key Elements – FCPA Compliance Program © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 29

Prevention • Audit / Compliance Committee Oversight on FCPA Compliance • Executive and Line Management Responsibilities • Communication and Training • Written FCPA Policies and Procedures - Specific reference in Code of Conduct - Employee and Third Party Due Diligence - Transactional Due Diligence - Political and Charitable Contributions - Gifts and Entertainment of Foreign Officials - Facilitating Payments • Internal Audit, Compliance and Monitoring Functions © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 30

Detection • Hotlines and Whistleblower Mechanisms • Substantive Testing • Ongoing Monitoring © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 31

Response • Internal Investigations Protocols • Remediation Protocols • Enforcement and Accountability Protocols • Disclosure Protocols © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 32

FCPA Services © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 33

FCPA Services Compliance Services Global Investigations Global Risk Assessment Bribery Investigations Development of FCPA Policies and Procedures Forensic Accounting Computer Forensics Internal Controls Review and Testing Communication and Training FCPA Compliance Monitoring FCPA Due Diligence M&A Transactions Third-Party Agents © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 34

Presenters Details Pamela J. Parizek, Partner 202 -533 -5362 pparizek@kpmg. com Tim Hedley, Partner 212 -872 -3496 thedley@kpmg. com © 2008 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 35