Doing Business In India: Anti-Corruption Best Practices

1. Doing Business In India: Anti-Corruption Best Practices Momentum Webinar May 29, 2014

2. Agenda • Introduction • Overview of FCPA • Corruption Challenges / Enforcement in India • Compliance Best Practices • Questions

3. India’s Business Potential … • Growing economy • Barriers to entry eroding • Cost-competitiveness • Talent pool • Emerging middle class • Outpacing China in Foreign Direct Investment 3

4. … and Business Challenges • Corruptioncited as second most problematic factor by World Economic Forum • Lack of infrastructure is ranked first • Others: • bureaucracy • tax regulations • restrictive labor regulations • administrative delays

5. Overview of the FCPA

6. Foreign Corrupt Practices Act (FCPA) • Prohibits briberyof non-U.S. government officials • Requires companies to maintain accurate records and robust internal controls • Regulators • Department of Justice (DOJ) • Securities and Exchange Commission (SEC) 6

7. Anti-Bribery Provisions • No covered person may make, offer, promise, or authorize, • Apayment or anything of value, • With corrupt intent, • To a government official, • To obtain or retain business or an unfair advantage. 7

8. Payment • Can be an actual payment or gift • Can also be an offer or promise to pay • May be in response to request from official • It is enough to authorize a payment ** Includes direct and indirect payments** 8

9. Thing of Value • Anything of value to the recipient • Money • Gift • Hospitality • Loan/favorable financing • Discounted/free maintenance • Donation • A job for official’s son / daughter 9

10. Foreign Official • An officer, employee, or agent of any • Indian government, whether national, state, local, etc. • Department or agency of the Indian government • Company, entity, or other instrumentality owned/controlled by the Indian government • Public international organization (e.g., the UN, the WTO) • Indian political party 10

11. Foreign Official (cont.) • Candidate for Indian political office • Anyone acting on behalf of a Foreign Official • Person holding ceremonial title (e.g., royal family member with no government position) • Rank or title is irrelevant 11

12. Obtain Business / Advantage • Obtain contract from government agency • Achieve regulatory change that benefits business • Direct award of business opportunity to family member • Receive favorable ruling on applicable customs duties 12

13. Permissible Payments • When permitted under written laws of country • Mere custom is not adequate OR • Reasonable and bona fideexpense directly related to: • Execution or performance of a contract with government party, or • Demonstration, promotion, or explanation of a product or service 13

14. Facilitating Payments • Payments to expedite non-discretionary “routine governmental actions”such as: • Loading / unloading cargo • Award of a visa • Many companies prohibit facilitation payments entirely 14

15. Third Party Risks Any party acting on your behalf, e.g., a • Subsidiary or other affiliate • Agent, sponsor, representative, distributor, consultant • Joint venture party Examples: • Your Customs broker in Mumbai • The lobbying firm you engage in Delhi • A marketing agent in Hyderabad 15

16. Recordkeeping and Internal Controls • Keep detailed and accurate transactional records • Maintain system of internal controls to ensure management has oversightover and control of transactions • Obtain authorizations prior to transactions • Collect necessary approvals before reimbursement • Record transactions fully and accurately • Take steps so partners do the same 16

17. Enforcement Related to India • Oracle (2012): Indian subsidiary involved in alleged bribery; $2 million fine to SEC • Diageo (2011): Subsidiaries in India (and elsewhere) alleged to have paid $2.7 million in bribes for sales and tax benefits; $16.4 million in penalties to SEC • Pride International (2010): Company apparently made $500,000 in improper payments to judges on India’s Customs, Excise, and Gold Appellate Tribunal; $32.6 million to DOJ and $19.3 million to SEC

18. Enforcement (cont.) • Control Components Inc. (CCI) (2009): Allegedly made $4.9 million in illicit payments to officials in various countries, including Maharashtra State Electricity Board in India; $18.2 million in fines • Wabtec (2008): Subsidiary said to have made over $170,000 in payments to Indian Railway Board employees, inspectors, and customs personnel to obtain railway contracts; $300,000 to DOJ and $87,000 to SEC • Electronic Data Systems (EDS) and Srinivasan (2007): Former president of AT Kearney India caused ATKI to make over $720,000 in payments to employees of state-owned companies to retain contracts worth $7.5 million; Srinivasan paid $70,000 fine; EDS paid $490,902 in penalties

19. FCPA Enforcement (cont.) • Wal-Mart: Company investigating wide-ranging bribery allegations • Company’s agents in India allegedly procured numerous licenses required for setting up stores • Partnered with Indian company to expand India operations; ended partnership amidst FCPA probe

20. Corruption Challenges / Enforcement in India

21. Corruption in India • Ranked 94 of 177 countries in TI’s 2013 Corruption Perceptions Index • Indian economists estimate government officials earn as much as 1.26% of GDPthrough corruption • Evidence of some companies halting business in India because of corruption

22. Factors Contributing to Corruption • Government officials are poorly paid • General attitude toward bribery more relaxed • Bribery viewed as an accepted part of doing business • Cumbersome procedures/red tape • Officials have substantial discretion

23. Highest Corruption Risks • Sales to government customers • Obtaining licenses, permits, and registrations • Clearing customs– paying duties and taxes; logistics (using freight-forwarders) • Navigating bureaucracy / complex laws

24. Where Corruption is Pervasive • Vulnerable sectors • metals & mining • $194 billion lost in government sale of coalfields to companies without competitive bidding • aviation • Air India reportedly losing millions due to corruption and mismanagement of aircraft repairs • power & utilities • aerospace & defense • infrastructure & construction • telecoms

25. Common Schemes and Themes • Small sums • Services already due: customs clearance, taxation, water and land records issuance • Use of agents and/or consultants • Slush funds or petty cash funds • Fictitious invoices • Indirect benefits – hiring third parties at official suggestion • Lavish gifts and entertainment • Donations to organizations owned/recommended by officials

26. Potential Compliance Gaps • Improper gift-giving (cash, computers, large dollar travel) • “Check the box due” diligence – consider specific local factors to take risk-based approach • Improper use/oversight of third parties • Customer relationships built on trust – resistance to memorializing business agreements in formal contracts

27. Indian Anti-Corruption Law • Limited in scope and enforcement • Prevention of Corruption Act (PCA) 1988 • India ratified United Nations Convention Against Corruption (UNCAC) in 2011 • Lokpal Bill passed in December 2013; new agency established to investigate and prosecute

28. Recent Events • In recent years, public has taken to streets to voice outrage after corruption scandals • January 2014 - $670 million helicopter deal with British-Italian company terminated due to corruption allegations • April 2014 – DOJ asked India to arrest member of Indian parliament who granted mining rights for $18 million in bribes • Modi’s election and pro-business platform

29. Indian Government Investigations • 2010: Investigation of Commonwealth games in New Delhi • 2011: CBI arrested Chief and aides of organizing committee for awarding illegal contracts to Swiss manufacturer • Officials being tried for illegalities in issuing 2G telecom licenses – revenue losses reportedly $40 billion

30. Compliance Best Practices

31. Compliance Best Practices • Establish transparent tone at top • Prioritize / address risks • Tailor policies and procedures to risks • Keep good records

32. Tone at the Top • Establish top-down culture of compliance • Regularly assert importance of compliance • Commit resources to compliance infrastructure • Dedicated compliance personnel • Regular training • Helpline / reporting mechanism

33. Prioritize Risk • Expressly contemplated by DOJ and SEC Guidelines • Focus compliance resources on most significant risk areas such as: • Industry • Use / non-use of agents • Amount of interaction with government • Past compliance issues • Importance of cash to operation • Other factors

34. Policies and Procedures • Establish processes for: • Vetting business partners • Providing hospitality and gifts • Monitoring and auditing compliance • Internal reporting mechanisms • Opportunity for anonymousreporting • Promptreview and investigation as needed • Protect personnel from retaliation when report is in good faith

35. Questions?

36. THANK YOU! Jennifer GormanAECOM Jennifer.Gorman@aecom.com Thad McBride Sheppard Mullin tmcbride@smrh.com Fatema Merchant Sheppard Mullin fmerchant@smrh.com