CHAPTER 2 TRANSACTING BUSINESS DURING A CORRUPTION INVESTIGATION
| Jurisdiction | Derecho Internacional |
TRANSACTING BUSINESS DURING A CORRUPTION INVESTIGATION
Cynthia Urda Kassis 2
Manuel Orillac 3
Shearman & Sterling LLP 4
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DANFORTH NEWCOMB is Of Counsel with Shearman & Sterling LLP, New York. Mr. Newcomb's practice concentrates on complex investigations, regulatory proceedings and disputes, often with an international element. He was approved by the United Nations as an expert on ethics and compliance. He has served as a Department of Justice and SEC sanctioned compliance monitor. He advises on investigations and compliance with the Foreign Corrupt Practices Act, U.S. International Economic Sanctions, Money Laundering laws and the Foreign Sovereign Immunity Act. Mr. Newcomb has handled major matters for clients located in Europe, the Middle East, the Far East and Latin America in addition to North American-based clients. In 2016, Global Investigations Review awarded him its Outstanding Career Award. Mr. Newcomb founded the anti-corruption practice at Shearman & Sterling. Every year since 2011, Chambers USA has named him a Senior Statesman among the Leading FCPA Experts. Main Justice, a leading news publication on criminal defense matters, recognized him as an FCPA Master. His foreign anticorruption experience began in 1976 with an SEC mandated investigation that was a precursor for the FCP A. 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 practices. Mr. Newcomb is a member of the Board of Advisers to the Foreign Corrupt Practices Act Reporter and founding editor of the FCPA Digest. He received his J.D. from Columbia University School of Law.
CYNTHIA URDA KASSIS, is a Partner in the Project, Development & Finance group and co-head of the Mining & Metals group of Shearman & Sterling LLP, New York. She represents sponsors/borrowers and lenders in project, finance and joint venture transactions worldwide, with extensive experience in the mining, energy and infrastructure industries, including restructurings in such industries. She consistently ranks as one of the leading project finance lawyers by Chambers & Partners, IFLR 1000 and Legal 500. She has been named "Dealmaker of the Year" by The American Lawyer for her work on the historic Panama Canal expansion financing and the Quintero LNG project in Chile, "Projects/Energy Lawyer of the Year" by Chambers USA (Women In Law), "MVP in Project Finance" by Law360 and "Latin America Legal Star" by Latin Business Chronicle. In 2016, she was named "Project Finance Lawyer of the Year" by Who's Who Legal for the second year in a row. Who's Who Legal has also named her among the "most highly regarded individuals in the world" in the field of project finance (where she was named one of the top 10 lawyers in the Americas) and in the field of mining (where she was named one of the top 10 lawyers in North America and the only one among the top 10 based in New York). She received her law degree from The American University, Washington College of Law.
MANUEL A. ORILLAC is a Partner in the Capital Markets and Mergers & Acquisitions Groups of Shearman & Sterling LLP, New York. Mr. Orillac joined the firm in 1985, and has practiced 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. Mr. Orillac received his J.D. from Columbia University School of Law, and a B. A. from Georgetown University. He is a native speaker of Spanish and is fluent in English and French.
March 2017
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. 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 identify the risks, manage the impact of the investigation, and craft an effective
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mitigation plan to isolate the transaction from any prior misconduct. However, if the proper steps are not taken and the process is mismanaged, it can prove fatal to the transaction. 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.
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. Relations with 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 in the so-called "Yates Memo" on individual accountability (see infra at IV(c)), managing the company's obligations to and relationships with individual employees and the interests of authorities investigating allegations is increasingly important.
II. The Risks
a. Adverse Effects on Business and Financial Difficulties Experienced by the Company Under Investigation
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 U.K. authorities.5 In recent anti-corruption
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prosecutions, notably the proceeding against Rolls Royce, VimpelCom and Odebrecht S. A., the enforcement authorities from several countries agreed on coordinated proceedings to resolve the investigation. The risks for a target may be exacerbated if the different jurisdictions do not coordinate their investigations, as is currently the case for Odebrecht.
A corruption investigation also impacts the morale of employees. Employees at all levels may become uncertain about their own futures at the company, as well as the future of the company itself, particularly where the investigation is public and there is intense media scrutiny of the company. Moreover, investigations - which inquire into employees' work, emails and conduct, and often involve interviews of employees - have the potential to disclose not only corrupt conduct, but also non-corrupt but nevertheless problematic employee conduct. Thus, even employees who were not involved in corrupt conduct may be concerned and distracted by the investigation, particularly in jurisdictions where employees expect (and the law may provide) a level of confidentiality in their work communications. Thus, the 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 employment termination and even personal liability. Finally, corruption investigations can lead to Board level and senior management turnover, which can be especially disruptive to a company's operations.
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...
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