CHAPTER 16 PERSEVERE AND PROTECT: TRANSACTING BUSINESS DURING A CORRUPTION INVESTIGATION
| Jurisdiction | United States |
(Feb 2016)
PERSEVERE AND PROTECT: TRANSACTING BUSINESS DURING A CORRUPTION INVESTIGATION
Partner
Shearman & Sterling LLP 1
New York, NY
Danforth Newcomb 2
Of Counsel
Shearman & Sterling LLP
New York, NY
Manuel A. Orillac 3
Partner
Shearman & Sterling LLP
New York, NY
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CYNTHIA URDA KASSIS is a senior partner in the Project Development & Finance practice of Shearman & Sterling. She acted as Trustee-at-Large of the Rocky Mountain Mineral Law Foundation from 2011-2014 and was a Member of the Steering Committee of RMMLF's 2015 Special Institute on International Mining and Oil & Gas Law, Development, and Investment conference. Cynthia's depth of experience includes representing both lenders and sponsors on project, corporate, and acquisition financings with respect to precious, base, and specialty metal and energy mineral projects in Argentina, Brazil, Canada, Chile, Colombia, Mexico, Pakistan, Peru, Venezuela, Vietnam, and the United States, including in Arizona, California, Idaho, Illinois, Indiana, Kentucky, Minnesota, Nevada, South Carolina, Utah, and West Virginia. In the oil & gas sector, Cynthia's breadth of experience ranges from high profile pipeline projects in Peru and Colombia to notable LNG projects in Uruguay, Chile, and Canada and from gas compression and storage projects in Mexico and the United States to offshore drill ships in Brazil. She has also worked on large scale petrochemical projects in the United States. Cynthia is ranked as a leading project finance lawyer by Chambers Global, Latin America and USA, IFLR 1000, legal 500, Guide to the World's Leading Lawyers in Project Finance, and The International Who's Who of Project Finance Lawyers, of Banking Lawyers, and of Mining Lawyers. She has also been named "Dealmaker of the Year" by The American Lawyer, "Projects/Energy Lawyer of the Year" by Chambers & Partners, and "Project Finance MVP" by Law360.
DAN NEWCOMB founded the anti-corruption practice at Shearman & Sterling. Chambers USA named him a Senior Statesman among the Leading FCPA Experts, and Main Justice, a leading news publication on criminal defense matters, recognized him as an FCPA Master. He was approved by the United Nations as an expert on ethics and compliance and served as a Department of Justice and SEC sanctioned FCPA compliance monitor. He has served as a U.S. Department of Justice and SEC sanctioned compliance monitor and has been a U.S. State Department Speaker and Specialist in Indonesia, Laos, and Vietnam. His recent FCPA engagements include: various financial institutions in relation to the Petrobras investigation; Nokia in a multi-jurisdictional anti-corruption review arising out of the Siemens AG matter; AB Volvo in DOJ and SEC proceedings arising out of the Oil For Food Program; ABB in SEC and DOJ cases; and various parties in SEC/DOJ investigations related to Norsk Hydro/Statoil, Titan Corporation, Daimler Chrysler AG, the Bonny Island Nigeria matter, Faro Technologies, Inc., and Oil States International, Inc. His foreign anti-corruption experience began in 1976 with an SEC mandated investigation that was a precursor for the FCPA. He also obtained an early (81-1) FCPA Review Procedure Release from the DOJ that is a foundation for present-day third-party due diligence. Mr. Newcomb is a member of the Board of Advisers of the FCPA Reporter and founding editor of the FCPA Digest. He also represents financial institutions in disputes and regulatory proceedings and advises clients on anti-money laundering, economic sanctions, and sovereign immunity matters. Mr. Newcomb received his BA from the University of Vermont, and his J D from Columbia University School of Law. Upon graduation from law school, he joined Shearman & Sterling, became a partner in 1979, and is currently Of Counsel at the firm.
MANUEL A. ORILLAC is a partner in the Capital Markets and Mergers & Acquisitions Groups of Shearman & Sterling, in New York City. Mr. Orillac joined the firm in 1985, and has practised in the firm's New York, Paris, and Abu Dhabi offices. He has extensive experience in transactions in the Americas, Europe and the Middle East, including advising on complicated cross-border mergers and acquisition transactions, joint ventures, debt and equity offerings, and equipment and project financings. His recent experience includes representing the Panama Canal Authority with respect to the financing aspects of its $5.2 billion expansion program. Mr. Orillac is a native speaker of Spanish and is fluent in English and French.
I. Introduction
In recent years, government authorities have ever more rigorously pursued corruption. The number and magnitude of recent corruption investigations, particularly in Latin America, have raised questions about the implications for those doing business with entities ensnared in these investigations. Although each investigation is unique, the risks commonly associated with corruption investigations can be grouped into a few categories and each can be managed through a mitigation program. Companies considering a transaction with a subject of a corruption investigation, as well as subjects of such investigations, should consider how these risks apply to the proposed transaction. The risks include: (1) adverse effects on ongoing business and financial challenges; (2) investigations or actions by authorities of other jurisdictions, including additional inquiries into currently uninvolved business divisions and transaction parties; and (3) potential prosecution, penalties, and adverse consequences for transaction parties and on certain of their assets. Unless the transaction can wait until the investigation is resolved, parties must address these risks regardless of whether the allegations are ultimately proven to be true or false. The fact that authorities have commenced an investigation means that the allegations must be addressed. The appropriate approach to each risk is driven by the particular facts.
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Corporate counsel must also anticipate often unforeseen challenges of corruption investigations. One challenge relates to document management. Legal counsel should take steps to ensure that employees understand that all documents and records related to the allegations must be preserved to avoid liability under the doctrine of spoliation and under the Sarbanes Oxley "Anti-Shredding" provision. Management of individual employees who are potential and actual witnesses in the investigation is a separate but equally important challenge. Corporate counsel must inform each individual that corporate counsel represents the company and that the individual must consider separate legal counsel. In light of the U.S. Department of Justice's ("DOJ") recent focus on individual accountability, managing the company's obligations to and relationships with individual employees and the interests of authorities investigating allegations is increasingly important.
Notwithstanding the above, the existence of a government investigation should not automatically halt a transaction. History shows that transactions can be executed successfully if the proper steps are taken to manage the impact of the investigation and to craft an effective mitigation plan to isolate the transaction from any prior misconduct.
II. Consideration of Each Risk
a. Adverse effects on business and financial difficulties
A corruption investigation usually adversely impacts ongoing business at the target, including disruption to daily operations. Throughout the investigation, company leadership and relevant employees have to devote significant attention to responding to investigative inquiries and developing the company's defense, which diverts resources and detracts attention from day-to-day management of the business. Investigations that involve authorities from multiple countries often can stretch a company's management and resources, because management must deal with varying demands and interests of multiple jurisdictions. In recent years, investigations have increasingly involved authorities from several countries. For example, the investigation into corruption at Alstom S.A., a French power and transportation company, which concluded in 2014, involved investigations by U.S., Swiss, and United Kingdom authorities.4
A corruption investigation also impacts the morale of employees. Employees at all levels may become uncertain about their futures at the company, as well as the future of the company. Investigations inquire into employees' work, emails, and conduct, often involving interviews of employees. This data collection and interview process in and of itself can give rise to anxiety among the employees. As the findings are reported, employees may become increasingly uncertain about possible termination.
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A corruption investigation also can disrupt business relationships and future opportunities. Because under the laws of many jurisdictions permits, licenses, concessions, and contracts obtained through fraud or corruption are either void per se or voidable, the value of any company is at risk if voided permits, concessions, licenses, or contracts are key to its business. In addition, payment and other performance under contractual arrangements implicated in the investigation may be disrupted. Counterparties also may be reluctant to enter into new business arrangements pending further clarity regarding the implications of the investigation. Finally, the corruption investigation's impact on the company's business is further complicated if investigating authorities lack experience calculating fines in corruption investigations. Challenging business prospects and the threat of fines due to the investigation can create liquidity constraints and even lead companies to become unable to pay debts as they are due, obtain new credit when needed, or assure shareholders of...
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