FSG Amendments and More

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2 Νοε 2013 (πριν από 3 χρόνια και 9 μήνες)

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Hot Topics in Ethics and Compliance:

FCPA, UK Bribery Act, Conflict Minerals,

FSG Amendments and More


Association of Corporate Counsel


Austin Chapter

Road Show: April 21 and 28, 2011

Larry Parsons




Vice President, Business Conduct and Ethics

Freescale Semiconductor, Inc.




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1

1

Today’s Focus


“Headlines”



Recent amendments to the Federal Sentencing Guidelines



Developments relating to the Foreign Corrupt Practices Act



The whistleblower program under the Dodd
-
Frank Wall Street Reform and
Consumer Protection Act



The U.K. Bribery Act of 2010 and its pending implementation



Compliance efforts around the Conflict Minerals provision of the Dodd
Frank Act



Developments under the Deemed Export Rule









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Be the

leader

of

embedded

processing
solutions

in every major market
segment

where
we compete

Freescale’s

Vision

2

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Freescale

Company Overview

In
operation since
1953


Engaged with
10,000+

customers globally; over

100

of the top electronic manufacturers


$4.46 billion
in sales in 2010


Headquartered in Austin, Texas

More than
20,000

employees
in over
24

countries


Separated from Motorola in
2004

(IPO/Spin)


Leveraged buyout by consortium of private equity
funds completed
December 1, 2006

3

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Freescale™ and the Freescale logo are

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of Freescale Semiconductor, Inc. All other product or service names are
the property of their respective owners. © Freescale Semiconductor, Inc. 2006.

Business Conduct & Ethics Organization

Larry Parsons

Vice President , Business

Conduct and
Ethics



Labor and

Employment

Law
and Litigation





Ethics and

Compliance

Training

Code of Business

Conduct
and

Ethics


Code of
Business
Conduct and
Ethics


ETHICSline


BCE
Committees





Investigations

Human Resources

Compliance

Issues


EEO


Immigration


OFCCP



Regulatory

Compliance


Regulatory
Compliance


Trade
Compliance


EPP Function


FCC/CE


Risk
Assessment



Compliance

Special
Projects


Records
Management


Data
Privacy


Corporate
Social
Responsibility


Supplier
Certifications

4

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5


United States Federal Sentencing Guidelines


Chapter 8


Sentencing of Organizations



Implemented 1991; major amendments November 1, 2004


FSG
§
8B2.1 elements of “an effective compliance & ethics program”


Reduction of culpability score



Department of Justice guidance (pre
-
prosecution)


“Letters”


Holder (1999), Thompson (2003), McNulty (2006)



U.S. Attorneys’ Manual, Ch. 9


Principles of Federal

Prosecution of Business Organizations (“
Filip

Memo”) (2008)










Headline 1

Federal Sentencing Guidelines Amendments November 1, 2010

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the property of their respective owners. © Freescale Semiconductor, Inc. 2006.

The Federal Sentencing Guidelines:

Seven Elements of an Effective Ethics and Compliance Program

1

2

3

4

5

6

7

Management Support

& Resources

Standards & Controls

To Detect and Prevent

Misconduct

Effective Training

& Communication

Monitoring,

Evaluation & Reporting

Consistent

Enforcement

Due Care in

Delegating Authority

Response &
Continuous


Improvement


VP, Ethics & Compliance


Funded
and Resourced


Freescale
Business Conduct &
Ethics Leadership Team
(“FBCELT”)


Board Knowledge and Oversight


FSL Code of Business

Conduct
& Ethics


Ethics
& Compliance policies


Corporate Assurance


SOX Disclosure Committee


Initial & Ongoing


All
Employee Training


Senior
Leadership,

including
Board


Regular
Communications Variety
of Vehicles


FSL
ETHICSline


FBCELT


Audit
& Legal Committee


SOX Disclosure Committee


ERM Process; Periodic Risk
Assessment


Business Integrity Questionnaires


FSL Leadership Expectations


Performance
Mgt. & incentives
aligned


Disciplinary
Actions


Track record of integrity prior to
delegation


Screening
of new hires


Review & amend program after
problems occur


Senior
Leader Meetings


Lessons Learned

Communications

6

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7


Key Substance of November 1, 2010 Amendments

Companies can benefit from a culpability score reduction (even if high
-
level personnel participated or had
knowledge) if:


A.
Demonstrate the existence of an effective compliance and ethics program at the time of the offense,
and


B.
Meet the following four conditions:


1. Individual(s) with operational responsibility for the EC program (generally the corporate compliance officer)
had “direct reporting obligations” to the organization’s governing authority or sub
-
group thereof (generally the
Board of Directors or Audit Committee);


2. EC program detected the criminal conduct before it was discovered outside the company;


3. Company “promptly” reported the criminal conduct to the appropriate governmental authorities; and


4. No individual with operational responsibility for the compliance program participated in, condoned, or was
willfully ignorant of the misconduct.


Application Note 11 to

Section 8C2.5

defines “direct reporting obligations” as having the “express authority to
communicate personally to the governing authority








Headline 1

Federal Sentencing Guidelines Amendments November 1, 2010 (cont.)

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8

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Headline 2

FCPA Developments


FCPA enforcement more rigorous each year


Passed in 1977


but remained largely unused until last few years


In 2004, only 5 enforcement actions


In 2006, 15 enforcement actions


In 2009, 45 enforcement actions


In 2010,
over 76
enforcement actions


Currently over 150 matters under investigation


In 2010, DOJ and SEC collected over $1.1 billion in fines, penalties and
disgorgement



Developments in investigations and targets


January 2010


“Proactive investigation”
-

Sting operation resulting in 22 indictments


FBI agent posed as sales agent representing minister of defense of African country


For 20% commission, guaranteed that would get a $15 million contract to supply
presidential guard


See http://www.justice.gov/opa/pr/2010/January/10
-
crm
-
048.html








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9

Headline 2

FCPA Developments


OECD Guidance



Recommendation of the Council for Further Combating Bribery of Foreign
Public Officials in International Business Transactions” (November
2009/Amended February 2010)


Found at http://www.oecd.org/dataoecd/11/40/44176910.pdf




Deferred Prosecution Agreements


Panalpina

(and five of its oil and gas services customers) FCPA resolution
November 17, 2010
-

$236 million


Each DPA contained an Attachment C


Corporate Compliance Program
(see, e.g.,
http://www.justice.gov/opa/documents/panalpina
-
world
-
transport
-
dpa.pdf at p. 67
)


Elements seem to come from the OECD Guidance and FSG elements









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10

10

Headline 2

FCPA Developments


IBM $10 Million Settlement in SEC FCPA Enforcement Action


March 18, 2011


Alleged violations of Books and Records provision


Improper cash payments, gifts, travel and entertainment to government
officials in South Korea

and China from 1998 to 2003



Johnson & Johnson $70 Million Settlement in FCPA Enforcement
Action


April 7, 2011


Alleged bribes to doctors in Europe and Iraq


Action by both DOJ and SEC









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11

Headline 3

Dodd
-
Frank Whistleblower Provision


Dodd
-

Frank Wall Street Reform and Consumer Protection Act


Whistleblower provision
§

922

(July 21, 2010)


Provides that whistleblowers who provide original information leading to a successful
enforcement action by the SEC under the securities laws will be able to receive 10%
to 30% of a total recovery that’s greater than $1 million.



Will apply to SEC enforcement of books and records provisions of the FCPA


Remedies for retaliation
-

including reinstatement if they were fired, two times base
pay, and recovery of attorney’s fees and costs



Criticism of the Whistleblower Provision


Employees will bypass existing hotlines/reporting mechanisms


Employees will wait to report so that value of claim reaches minimum/increases



Recent developments at SEC


Offered language in proposed rules in response to criticism: discretion to give higher
awards to those who use internal reporting first


SEC created a Whistleblower Office and created a Whistleblower Coordinator


Enforcement reviewing and tracking Whistleblower complaints






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12

Headline 3

Dodd
-
Frank Whistleblower Provision (cont.)


Final Rules to be published April 21, 2011
-

expected to address the
following issues:


The effect an internal complaint or lack thereof will have on the percentage of recovery
for which a whistleblower may be eligible;


The “grace period” following an internal complaint that allows a whistleblower to keep
his or her “place in line”;


Whether a whistleblower has “independent knowledge”;


What constitutes a “voluntary submission”;


What constitutes “original information”;


Limits on recovery by a whistleblower who engaged in misconduct;


Requirements for anonymous submissions; and


Protections against whistleblower retaliation.



Final Note


Recent Boston Consulting Group draft report indicates that SEC is understaffed by
400 employees


“Without sufficient human resources, the agency will be unable to complete the
requirements of Dodd
-
Frank while maintaining its current activities,” the draft report
said.







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Freescale™ and the Freescale logo are

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of Freescale Semiconductor, Inc. All other product or service names are
the property of their respective owners. © Freescale Semiconductor, Inc. 2006.

13

Headline 4

U.K. Bribery Act 2010



U.K. Bribery Act


After 10 years of regular criticism from the OECD Working Group on Bribery



Effective April 2011
-

BUT WAIT



Ministry of Justice to issue guidance


deadline January 2011
-

BUT WAIT


Similar to FCPA, but with a couple of significant differences


Applies to both bribery of foreign officials
and
commercial bribery (FCPA
applies only to bribery of foreign officials)


Prohibits facilitation payments (allowed under the FCPA)


BUT WAIT


Strict liability for failure to prevent bribery by a third party acting on behalf of
the company


Evidence of adequate procedures to prevent bribery is an affirmative
defense (under the FCPA, only used to reduce penalty)


Penalties include imprisonment and unlimited fines









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Headline 4

U.K. Bribery Act 2010 (cont.)



U.K. Bribery Act


recent developments on this recent development


U.K. business leaders expressed concern about the impact of the legislation


Lacks clarity; will harm British firms


Specific concerns about corporate promotional activities and hospitality
being prosecuted as bribes


Effective April 2011
-

BUT WAIT



January 31, 2011: Justice Secretary Ken Clarke delayed implementation to at
least 3 months after promulgation of further guidance


Earliest effect date now July 2011


Prohibits facilitation payments (allowed under the FCPA)


BUT WAIT


February 26, 2011 news report indicates guidance is being modified to allow
facilitation payments


Director of Serious Fraud Office (DOJ equivalent) Richard Alderman
answering questions on the Act
-

Case by case basis








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15

Headline 4

U.K. Bribery Act 2010 (cont.)

U.K. Bribery Act


Guidance Issued March 30, 2011 (Key Points)



The Bribery Act 2010 will come into force on 1 July 2011. It is expected that the
Serious Fraud Office will seek to bring prosecutions fairly early in the Act’s life


looking for early wins.


The guidance retains a principles
-
based, non
-
prescriptive approach towards
compliance. The six principles are (
i
) proportionate procedures, (ii) top
-
level
commitment, (ii) risk assessment, (iv) due diligence (v) communication and
training and (vi) monitoring and review.


Having securities listed in the UK or a UK subsidiary may not, in itself, mean a
foreign company is carrying on a business in the UK. It is not presumed.
However, the guidance defers to the UK Courts as the “final arbiter” on the
interpretation of the legislation on this point.



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Headline 4

U.K. Bribery Act 2010 (cont.)

U.K. Bribery Act


Guidance Issued March 30, 2011 (Key Points)


Facilitation payments remain illegal; there is no
de minimis
exception. Prosecution
guidance does set out factors that will make prosecution less likely, e.g., single small
payments likely to result in a nominal penalty.


Corporate hospitality and gifts are not prohibited. More clarity on this topic is offered; for
instance the Quick Start Guide states “
you can continue to provide tickets to sporting
events, take clients to dinner, offer gifts to clients as a reflection of your good relations,
or pay for reasonable travel expenses in order to demonstrate your goods or services to
clients if that is reasonable and proportionate for your business”.


A bribe by a subsidiary, its employee or agent may not automatically result in the parent’s
liability. The guidance says an offense is only committed if they intended to obtain or
retain business or an advantage for the parent.


The guidance appears to suggest businesses take a commonsense view on what is and is
not acceptable in many areas.







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17

Headline 5

Conflict Minerals


Buried deep within the
Dodd
-
Frank Wall Street Reform and Consumer
Protection Act (
§
1502)


Focused on minerals mined in the Democratic Republic of Congo and neighboring
countries


NGO campaign to use consumer pressure on OEMs


Gold, tin, tantalum and tungsten



Requirements


Annual SEC Disclosure


If products contain conflict minerals


Report


on diligence of source and chain of custody of minerals and on efforts to
determine mine of origin and smelter (as applicable) of the minerals


Identify


Any products that are not DRC conflict free


Disclosure


Reports audited by independent auditor and posted on company website
either demonstrating conflict free or identifying use of conflict minerals



Final Regulations originally due April 15, 2011 (State Department)


previously
announced they would not meet that deadline and gave no projected date.
Disclosure/Report due first fiscal year after promulgation of rules




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Headline 5

Conflict Minerals (cont.)


Proponents of legislation argue:


Mining in these countries violates human rights



Funds rebel organizations



Damages the environment



Opponents argue:


Costly to implement


Difficult to identify original source of minerals


moving target


Will harm the economies of these countries


Ambiguities in the legislation (definitions of person, product, manufacture, due diligence)



Immediate Implications/Issues


Downstream customers already demanding disclosure of source of minerals; some will
demand only “conflict free” products


Need to engage with suppliers to trace source of minerals and smelter facilities



Some Help: OECD Guidance

Due Diligence Guidance for responsible supply chains of
minerals from conflict
-
affected and high
-
risk areas


December 15, 2010


http://www.oecd.org/dataoecd/62/30/46740847.pdf



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19

Headline 6

Deemed Export Rule Developments


Export Administration Regulations


Found in the C.F.R., Title 15 (
http://www.access.gpo.gov/bis/ear/ear_data.html
)


Key concepts include:


Controlled Technology (e.g., controlled for National Security or Anti
-
Terrorism
reasons)


Country Chart (countries where specific controls are applicable)


Can only export controlled technology to a country on the chart by identifying a license
exception or obtaining an export license



International Traffic in Arms Regulations


Found in the C.F.R., Title 22
(
http://www.pmddtc.state.gov/regulations_laws/itar_official.html
)


Similar concepts as in the EAR applied to Munitions (“Arms”) and technical data
about munitions: controlled items and limitations on exports to specific countries








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20

Headline 6

Deemed Export Rule (cont.)


Deemed Export Rule


Access to controlled technology/technical data


by a foreign national anywhere is deemed export


to the foreign national’s home country


Example


Chinese national working in your


U.S. facility on an H1
-
B visa


Cannot permit access to controlled technology to


this employee without an export license (or license


exception)


Issue


having processes in place to prevent the


inadvertent disclosure of controlled technology



New Form I
-
129 (U.S. Citizenship and Immigration Services)


Form I
-
129 “Petition for a Non
-
Immigrant Worker” has been used for many years


Form is used when an employer in the U.S. applies to have a foreign national
work in the U.S. on an H1
-
B or L
-
1 (and some other) visas


USCIS issued a new version of Form I
-
129 effective February 20, 2011


Section 6 of the new form requires a certification regarding the foreign national’s
access to controlled technology/technical data










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Headline 6

Deemed Export Rule (cont.)


New Form I
-
129 (Section 6 certification)

With respect to the technology or technical data the petitioner will release or otherwise provide access
to the beneficiary, the petitioner certifies that it has reviewed the Export Administration Regulations
(EAR) and the International Traffic in Arms Regulations (ITAR) and has determined that:


1.

A license is not required from either the U.S. Department of Commerce or the U.S. Department of
State to release such technology or technical data to the foreign person; or,


2.

A license is required from either U.S. Department of Commerce or the U.S. Department of State to
release such technology or technical data to the beneficiary and the petitioner will prevent access to
the controlled technology or technical data by the beneficiary until and unless the petitioner has
received the required license or other authorization to release it to the beneficiary.



What this means for Employers


Must understand export control and ITAR requirements


Must understand the technology necessary for the foreign national to do his or her job


Must have controls in place to segregate and limit access to controlled technology/technical
data (i.e., to avoid inadvertent disclosure or access)


Person certifying the I
-
129 form must have appropriate level of information to make an accurate
certification (generally completed by Human Resources)












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