Protecting Your Business From Bribes and Kickbacks - Securitas

May 2011
Protecting Your Business From Bribes and
Kickbacks
Mary Frances Martin,VP

Why this seminar?
More and more companies are making headlines but not in a good way…
The reason is due to bribes and kickbacks that are discovered. At such a
time when there is more globalization and growth the trend does not
look like it is going to change
Bribes and kickbacks can come from businesses trying to influence the
public sector (governments and their agencies) or they can be business
to business
Some amounts are very small ($50 USD per transaction) that can add up to
a lot if you are in fleet management or they can be very large payments
(hundreds of millions)

Growing Trend
Source: PricewaterhouseCoopers' Global Economic Crime Survey 2009

Headline Makers
Penalties:
Siemens AG $1.6b
Halliburton & KBR $579m
Baker Hughes $44m
Novo Nordisk $18m
Nature’s Sunshine $600k
$25k/Officer
Lucent $2.5m
York International $22m
Titan $30m
Schering-Plough $500k

FCPA Violators
CEOs, CFOs & Board Members Are Going to Jail
Jack Stanley – KBR $180m in bribes to Nigeria
• Sentenced 7 years & pay $10m
Murphy & Williams - American Rice, Inc. Haiti taxes
• Murphy 63 months & Kay 37 months
Greens – Film Festival $1.8m bribes for $13.5m contracts
• Possible Sentences – 5-20 yrs?
W Jefferson – Nigerian Telcom business
• Acquitted of FCPA – Cash in the freezer – 150 yrs?
Bourke – Azerbaijan $8m investment lost
• Guilty - No evidence that he actually paid the bribes – 10 yrs?
Sapsizian – Alcatel $2.5m bribes to Costa Rica
• Sentenced 30 months and forfeit assets
Jury Foreman: “He should have known this was going on, it’s his job”

Problem with Bribes and Kickbacks
Part of the problem with Bribes and Kickbacks is that no one really wants to talk
about it.
Most corporate managers shrink when someone even jokes about it because it is not
funny!
It is very pervasive throughout the world but it is also not very well understood
The United States law commonly known as FCPA (Foreign Corrupt Practices Act)
seeks to address this issue in terms and ways that are real
A lot of people may have heard “FCPA” but few know its background and effect in
real terms

FCPA Background
• In 1977, the US 95 th Congress enacts the Foreign Corrupt
Practices Act (FCPA)
• Result of SEC investigations in the mid-1970's, over 400
US companies admitted making questionable or illegal
payments in excess of $300 million to foreign
government officials, politicians, and political parties
• In 1988, the Congress directed the Executive Branch to
commence negotiations in the Organization of Economic
Cooperation and Development (OECD) to obtain the
agreement of the United States' major trading partners to
enact legislation similar to the FCPA
• In 1997, the US and thirty-three other countries signed
the OECD Convention on Combatting Bribery of Foreign
Public Officials in International Business Transactions

FCPA Elements
Statute – Title 15 U.S.C. Section 78dd-1
Anti Bribery
• Any issuer, domestic concern or anyone acting within
the jurisdiction of the US with “corrupt intent” to directly
or indirectly, offer, pay or promise to pay or authorize
payment of “anything of value” to a “foreign official” for
the purpose of obtaining or retaining business or
securing any improper business advantage.
Accounting Provisions
• All transactions must be accurately and “fairly”
described in the company’s books and records
• Must have adequate controls
Who Does it Affect? All US companies and foreign public
companies reporting to the SEC that are doing business
internationally!

FCPA Elements
1-Who
Any individual, firm, officer, director, employee or agent of a firm, and
any stockholder acting on behalf of a firm
2-Corrupt Intent
If the payment is made to influence any act or decision of a foreign
official in his official capacity
3-Payment
Prohibits paying/making an offer or promise of anything of value
4-Recipient
Foreign official, foreign political party or official of such party,
candidate for political office or agent with knowledge of payment
5-Business Purpose Test
Prohibits payments made in order to assist the payor in
obtaining/retaining business with or directing business to, any person.

FCPA
Unlawful: To offer or give anything of value to a foreign
official
To influence an official act,
• induce to do or omit to do any act in violation of lawful
duty,
• to secure an improper advantage, or
• to use influence with the government to affect or influence
any act or decision of the government
• to obtain, retain or direct business to any person

FCPA Elements
Accounting Provisions:
• Required to “make or keep books, records, and accounts
which, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the
issuer.”
• Required to “devise and maintain a system of internal
accounting controls sufficient to provide reasonable
assurances that management knows what is going on in
the company.”

FCPA Enforcement Agencies
Regulatory Bodies:
Department of Justice (DOJ) & Securities Exchange
Commission (SEC)
• Dedicated to prosecuting companies and their officers - “Expansive
Enforcement”
• Reputation at stake and must bring them to trial
• Current Administration will encourage more investigations
• Governments working together (MLATs)
• Task Forces/Special Units
Actions:
• 2002 - 7 cases initiated
• 2007 - 38 cases initiated
• 2010 – 120 open investigations

FCPA Triggers
What triggers an investigation?
• Whistle-Blower
• Risk Based Investigations
• "Wildcatting" for Fraud
• Industry Wide Investigations
• Insider Trading
• Affiliation with Executives, Shareholders, or Corporations
under Investigation
• Complaints/Tips
• Referrals from civil agencies
• Civil suits
• Press (e.g., WSJ)
• Self reporting

Legal or Illegal?
It is difficult to have one standard that works in every part of the world and under
every circumstance
The question of legality usually revolves around influence and knowledge
While we are not attorneys, the common thread of legal transactions seems to be:
Influence is fair and balanced – that is, no one is unduly influenced by any
involved parties
Knowledge of the transaction is known to all vested parties
Transactions such as commissions, fees, refunds that are:
• statutorily legal
• no undue influence of anyone to do (or not do) an act
• visible to all parties are usually legal

Bribes and Kickbacks
Bribes are defined by Black’s Law Dictionary as:
The offering, giving, receiving, or soliciting of any item of value to
influence any actions of an official or other person in charge of a public
or legal duty
One definition of Kickbacks is:
An illegal, secret payment made in return for a transaction or contract
being consumated (finalized)
NOTE: Throughout the next slides we will show some case work that the
Pinkertons have done in Asia on Business to Business Bribes and
Kickbacks

Case History #1 - Bribery
Problem:
ABC Company in China found their sales of products (computer chips) had dropped tremendously. The
Marketing Manager conducted a discreet enquiry with their customers and found that a Firm X was selling the
products much cheaper than them
They managed to buy the chips from their customer and traced back their chips were from their Penang
(Malaysia) Plant. ABCCompany carried some investigation and found there was a high ratio of ‘failed’ chips by
their QC engineer (target)
The ‘failed’ chips were supposed to be sent to an outsourced company, waste recycling company to be melted
down or destroyed
Pinkerton Action:
A variety of investigative methods was used in gathering evidence. Computer forensic was also done on target’s
laptop. Surveillance conducted on the QC engineer to see who he was meeting and where he frequented
Results:
Investigation conducted found target had deposits of large amounts of monies. Operatives saw him meeting with
the boss of the waste recycle company
An interview was conducted with the target, who finally admitted he took money to make false QC failure on the
chips

Areas of Concern
While there is no aspect of a company that is immune from Bribes and
Kickbacks there are areas that tend to suffer most from these forms of
malfeasance:
• Procurement or Sourcing Departments
• Sales or Marketing Departments
• Fleet Management (cars, equipment, supplies)
• Inventory Management (company assets)
• Production facilities
• Accounting or Finance Departments

Case History #2 - Kickback
Problem:
• Pharmaceutical client experienced a suspicious increase of the sales of one of its products which it believed
to be the result of a bonus manipulation scheme by some of its sales teams
• The individuals suspected of running the scheme were 3 Area Managers with initials Mr. A, Mr. B and Mrs. C
• Evidence which may prove the scheme were believed to be located within the office computer files and
correspondence emails of/used by the suspects
• Pinkerton was enlisted to prove the above allegation and determine the method carried out by the suspects
Pinkerton Action:
• Pinkerton used Computer Forensics on laptops of area managers and their sales support team provided by
the client
• Field inquiries were conducted of the pharmacy distributors to find any relationship between area managers
and their sales support team
• Financial inquiries and general investigation was also carried out on the leads found from the Computer
Forensics work
Results:
• Forensics revealed no sign of alleged misconduct by the sales teams
• General investigations revealed that some of the contact persons of the pharmacy distributors exercise
unusual caution in communication
• Further investigation confirmed a flow of suspicious funds from members of the sales teams to staffs of
pharmacy stores and distributors

Sample of Methods of Payment
Facilitating or “Grease” Payments
Use of Agents and/or Representatives
Shipping Agents
Promotional Activities
Gifts and Entertainment Events (Junkets)
Travel Expenses
Sales and Marketing Expenses
Taxes
Employment of Directed Parties

Case History #3 – Theft and Bribery
Problem:
• ABC Company, a logistic company found out that there were big shortages of their high values good, during
their inventory stock audit. An internal investigation was carried out but found nothing
Pinkerton Action:
• A variety of investigative methods were empoyed that gathered useful evidence including: surveillance, financial
checking, undercover operations and interviews
Results:
• During undercover operations, Pinkerton operative found out that the ABC Company’s supervisor (Mr X) was
very close with the security officers on duty, always buying food and drinks for them.
• Mr x and the security team would go for drinking session after work. The Mr. X would pay for everything. During
one drinking session, Mr. X passed an envelope to the security team’s head
• During the collection, operative observed that the security officer did not conduct the check on the collection
and signed off
• Surveillance on the collection process revealed that the trunk went to another warehouse instead of the
designated client’s plant and goods were offloaded. Mr X was found at the said warehouse
• An interview was conducted with the security supervisor and officers, who finally admitted they had accepted
bribe from the Mr X (ABC Company supervisor) not to check on the collection and sign off
• With the evidence gathered, Mr. X admitted that he and his team had committed systematic thefts

Safety Check
When Building Relationships with:
• Vendors
• Clients
• Channel Partners
• Joint Ventures
• Mergers & Acquisitions
• Intermediaries
• Consultants
• Employees

Safety Check
Do you know who you are conducting business with?
• Thoroughly Vetted?
• Reputation in the market?
• Ethical Standards?
• Legal Background and History?
• Financial History?
• Credit Standing?
• Trustworthy?
• Associates or affiliates of the entity?

Case History #4 – Alleged Kickback
Problem:
• A vendor of a major parts firm (Client) contacted the firm’s HQ and reported that the firm’s procurement staff
member asked the vendor for a 2% kickback for all purchases made by his firm
• The Asia Legal Counsel delegated by Client asked Pinkerton to verify and investigate the alleged kickback
scheme as reported by the vendor
Pinkerton Action:
Pinkerton conducted discreet inquires in two phases:
Phase I – Verification of the kickback allegations
• To interview the principals of the vendor that initiated the complaint in order to gain a complete understanding of
the alleged kickback solicited by Client’s employee, as well as to determine if any additional Client’s employees
/vendors were implicated
Phase II – Interview with Client’s vendors
• To conduct investigation type interviews with other vendors to determine the extent of the alleged kickback, as
well as to gain information and/or evidence regarding the kickback scheme
Results:
• Based on the information provided by the principals of the vendor, the allegation regarding Client’s suspect’s
request for a 2% kickback was confirmed.
• A total of 24 vendors were interviewed: 17 in Taiwan and 7 in China. The Client’s suspect was responsible for 10
of the interviewed vendors; however, no irregularities or abnormal activities were noted in the suspect’s
business interactions with the vendors.

Case History #4 - Continued
• A vendor from Taiwan revealed that about three (3) years ago, Client dispatched their quality assurance (QA)
teams to ten (10) selected factories in China. The QA personnel would occasionally claim to find problems
with the products produced by the vendor thus the vendor would have to give gifts. Although the QA teams
rotated to different factories after a period of one (1) year, the new team would follow the practices of the
former team
• Another vendor from Taiwan revealed that in the past Client’s QA teams had the power to permit or cease
production in the factory. As a result, some QA staff requested “female escorts” after dinner before signing
the QA product approval form
• Another vendor from China revealed that a female QA employee from Client’s China branch office requested a
3% kickback from another one of Client’s China vendors; however, the said vendor ignored the request
• Based on the given testimonies from other vendors handled by Client’s other staff members, abnormal
activities and irregularities still occur between Client’s staff with its vendors
• Pinkerton’s involvement ended after the interviews

Reality Check
Pinkertons realize that corruption is very hard to
detect much less stop however there are some
things that companies (entities) can do to
severely limit their occurrence within your
organization
One form is Preventive and the other is Interdictive
The best is to Prevent (of course) but there are also
ways to stop it upon detection

Preventive – Six Ways to Protect
1. Make a bold policy statement that you will NOT TOLERATE
corruption of any kind (bribery, fraud, kickbacks, etc)
2. Create team from business units, functional groups to work
together to address all allegations of corruption under
Compliance Department – see next slide
3. Install a hotline or reporting service that will be a conduit for
anonymous information
4. Training program – teach people what to look for
5. Financial and Administrative Audits (DOJ recommends external
every five years)
6. Periodic review/audit of all contracts and partners (vendors,
channel and JV partners, clients)

Preventive - Implementation
Compliance Department
• Above CEO reporting
Directly to Board
• Dictate Policy of Anti-
Corruption to Company
• Controls/Approves All
Transactions
• Training for Employees
• Not Just a Paper Program
• Know Your Business
Partners
Compliance
Board
CEO Legal CFO

Preventive – Due Diligence
Things you can find out about entities through Pinkerton:
• Name(s) – DBA’s (doing business as)
• Contact information (phones,websites, addresses)
• Type of business registration (industry, company)
• Type of business (partnership, JV, sole owner, corp.)
• Ownership interests
• Upper management composition
• Locations
• Divisions/Departments/Subsidiaries
• Financial data: Revenue, costs, profit/loss, etc
• Credit standing
• Company affiiations
• Media searches
• Database searches
• Civil Litigations
• Public company information – access to annual reports
• Reference checking
• Relationship checking – surveillance
• Reputation in the market

Preventive - Background Investigation
Things you can find out about individuals through Pinkerton:
• Criminal
• Civil Litigation
• Credit standing
• Media Searches
• Database searches
• Employment History
• Education History
• Professional Credentials
• Reference Checking
• Relationship Checking (surveillance)
• Reputation in the market or industry
• Affiliations or associations with individuals and/or firms
• Ownership positions in firms

Interdictive – Stopping Corruption
Follow up on allegations (especially ones that seem very credible or have
multiple citings from various sources)
Best to coordinate efforts of investigation with third party source
(impartial) that are professionals in investigating such matters
Various ways of information gathering through Pinkerton:
Surveillance Market Surveys
Interviews Forensic Accounting
Investigative Cover Database research
Undercover work Media Searches
Computer Forensics Relationship Mapping and Analysis
Electronic Discovery “Sting” operations

Downside of Corruption
FCPA-Penalties
• Businesses – Maximum fine of $2,000,000 per violation or twice the
gross loss or gain
• Individuals – Maximum fine of $250,000 or twice the gross loss or
gross gain and/or imprisonment of not more than five years
Other “realities”:
• Loss of reputation
• Prohibited from future participation in government or business bid
tenders
• Punitive legal fines – massive payments of damages in criminal or
civil suits that could amount to hundreds of millions (USD)
• Cost of compliance

Level Set
You cannot get rid of Bribery, Kickbacks, and other forms of corruption
however…..
• You can severely reduce the likelihood by starting a program TODAY in
which you take control of the situation
• You can work with legal counsel and outside firms (such as Pinkerton)
to implement a program of prevention and/or interdiction
• You can begin to raise the threshold of pain for would-be bribery or
kickback givers and takers that it is NOT WORTH IT!!
• You can make your company’s culture one of integrity and
wholesomeness by taking ACTIVE MEASURES to stop corruption
before it happens

Remember
The act of sticking your head in the sand (Ostrich Syndrome) of statements
like “It cannot happen to my company or department” is what we
Pinkertons hear all the time… when we are called in to stop corruption.
Our experience is always that it is so much more painful and expensive to
stop detected corruption than to prevent it!

END
QUESTIONS?

We Never Sleep
www.ci-pinkerton.com
Name Surname | Title of presentation | Date 36