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US forced labour import ban: challenges for compliant companies

EITI: championing transparency in extractive industries
Chinas new cybersecurity law
Are you prepared for the EU Fourth Anti-Money Laundering Directive?
Odebrecht: the full story
Issue 2. July 2017


3 nEwS rOUnD-UP Ill confess to a certain degree of

Trumps Paris pull-out apprehension when, on 26 June in
divides business London, we held our rst ever
Trade Security Journal event. Why
the anxiety? Well, what if we had
Call for Europe to put
it wrong? There was no certainty
cybersecurity at heart of that a lawyer or industry
legislation professional interested in any one
part of the trade security
Is the end nigh for US spectrum should nd relevance in
conict minerals rule? another.
But I shouldnt have worried.
Brazilian corned beef in Yes, the range of topics was
UK supermarkets linked diverse. Cybersecurity,
counterfeits in the supply chain,
to slave labour
bribery legislation, BREXIT a
certain family resemblance but
Barclays and individual each with its own outlook.
directors charged with It soon became clear that the
conspiracy to commit rippling concentric circles quickly
fraud overlap and that the crossover
The Odebrecht story: one of the largest corruption scandals of all time
is more than coincidence. Which
Uber boss steps down 15 is why a presentation on dealing
amid controversies with fake cigarettes and
medicines elicited so many
questions from sanctions lawyers
Law rm DLA among Trump administration New US forced labour
and likewise, a talk on
those hit by Petya virus highlights limitations of import ban challenges cybersecurity raised issues that
CFIUS process for compliant companies were pertinent to everyone in the
Company disgorges room.
boron prots under 10 DATA PrIVACY 23 TALkIng TrADE Theres nothing like being
FCPA deal South Korea Joins SECUrITY there. But the second issue of
APEC's Cross-Border with Eddie Rich, deputy Trade Security Journal also brings
Privacy Rules System head of the Extractive together those strands:
Industries Transparency cybersecurity, AML, forced labour,
corruption. Were condent that
USSupreme Court to Initiative (EITI)
these articles will go beyond
hear major cellphone striking a chord, but provoke
privacy case 27 CYbEr SECUrITY serious thought. Take a deep dive,
Chinas new and please do report back to us.
The future of data cybersecurity law Were keen to know how you, and
privacy in the United eective as of 1 June your organisation, are responding
Kingdom post-Brexit 2017 to what are some of the most
urgent issues attendant on
30 DOIng bUSInESS In contemporary business practice.
Tom Blass
New ISO Anti-Bribery ChInA
June 2017
Standard for Singapore The Steel Princess and
the g leaf a tale of
13 MODErn SLAVErY corporate risks in China
Alleged human
tracking victims seek 36 AnTI-MOnEY " !&
Supreme Court review of LAUnDErIng "
Alien Tort Statute Is your organisation
Standards prepared for the EU
Fourth Anti-Money
14 DATA PrIVACY Laundering Directive?
Switzerland to A Dutch perspective
modernise data
protection law

How well do you know your

customer? Screening for " ! ! "&
! & %! !# " !
restricted parties ' $ & " !& $

& " ! " ! ! & " !#
! ! " ! &

2 Trade Security Journal Issue 2


The Odebrecht contagion

It is the scandal that rocked continents. Jason Poblete examines the Odebrecht case, a story of
corruption in the $ billions and asks what lessons can be learned for business around the world.

hat began as a money-
laundering investigation by the
Brazilian state police in the
autumn of 2014, two years later become
a four-continent, 12-nation global
corruption investigation that, to this day,
continues to generate legal and political
aftershocks throughout Latin America
and the Caribbean. It was one of the
largest corruption scandals in Brazilian
history, and indeed, most of Latin
America and the world. The primary
targets of the probes the Brazilian
construction giant Odebrecht and
Brazils state-run energy company,
Petrobras have a long road ahead. In
addition to the massive debt

Alf Ribeiro /

restructuring needed to save Odebrecht,
there are years of legal and compliance
issues that need to be sorted out.
Then there are the aftershocks that, I
believe, will likely spell more trouble for
Odebrecht. As of this writing, there touched by this corruption contagion. instability is possible. This, in turn, will
seems to be no end in sight to the legal, Companies that do business with the likely result in increased scrutiny on
economic, and political challenges that public sector in these countries will have companies in other sectors. In Brazil, this
await anyone that can be connected to to contend with this political uncertainty is already happening.
the matter. Former and current that, in turn, should empower legal and
presidents, governors, members of compliance departments of companies Time to change
Congress, mayors, and other political that engage in the region. While the region works its way through
gures in various nations are under Bear in mind that these were not this legal and political morass, there will
investigation; under some sort of media insignicant sums of money or, as we say be many opportunities for long-term
or public scrutiny by political foes; or in reform. For the United States, the election
some cases, are already in prison.
This was a line item, off-book of a populist Republican for president
Furthermore, as if this case needed any probably the rst since Teddy Roosevelt
more intrigue, on 19 January 2017, the budget of approximately in 1904 aords US policymakers an
Brazilian legal team in charge of the $750 million per year in bribes opportunity to revitalise engagement in
ongoing corruption probe was killed in a the region, stemming decades of curious
plane crash, setting o a new and intended to sway politicians to ambivalence by US policymakers under
unwelcome thread of stories about a case award very lucrative contracts both Republican and Democratic
that most Brazilians would prefer would administrations. And there are
simply go away. to Odebrecht. indications that this may already be
Close to one-third of the cabinet of happening. For example, in June the
Brazils current president is under in America, chump change. Close to $3.5 former president of Panama, Ricardo
investigation, as are many members of billion in bribes is a signicant amount of Martinelli, a well-connected politician
the Brazilian Congress. In the Dominican cash in these cash-strapped nations, and with powerful political contacts in the
Republic, opposition leaders are much of it was taken from taxpayers. United States, was extradited from
stressing that the system must be cleaned This was a line item, o-book budget of Miami to face corruption charges.
up, while citizens stage protests in front approximately $750 million per year in Eectively tackling the corruption
of Odebrecht corporate oces. bribes intended to sway politicians to problem will take a long time, but it may
Meanwhile, in Argentina, the head of award very lucrative contracts to form part of the Trump administrations
intelligence services is under Odebrecht. It was not a one-o event that new vision for the Americas in a region
investigation [again] and the relatively voters will soon forget. Public condence of the world that truly needs
new centre-right president is reportedly in governments in the region was low transparency, rule of law, and much
considering cancelling all Odebrecht before this happened and, unless the more trade. Meanwhile, anti-corruption
contracts. As discussed herein, similar clean-up is undertaken in a proper and eorts are under review in the US
stories are unfolding in other nations transparent manner, additional political Congress. For example, the US Congress

15 Trade Security Journal Issue 2


seems to be fast-tracking an anti- which US attorney Sung-Hee Suh aptly any other recently uncovered by the
corruption law aimed at Nicaragua that, called the Department of Bribery Justice Department. It stretched across 12
under certain conditions, would require through which it vetted potential nations in Africa and Latin America,
US representatives at international transactions, such as large public works including Angola, Argentina, Brazil,
nancial institutions (IFIs) to veto loans projects. The department targeted Colombia, Dominican Republic, Ecuador,
and other guarantees to Nicaragua if, politicians that it needed to buy o in Guatemala, Mexico, Mozambique,
among other things, Nicaragua fails to order to secure the work. Panama, Peru, and Venezuela.
take steps to deal with rampant public Unlike in the United States and Using what the US authorities call an
corruption. Similar legislation is under Europe, in many of these countries there elaborate, secret nancial structure, the
consideration for other countries, are weak or non-existent mandatory department funneled approximately $788
including Venezuela and Cuba. public disclosure and lobbying laws, so million in illegal payments or gifts to
Latin America and the Caribbean there is no way to know who is talking to obtain and retain business. They even
possess fantastic growth potential. But whom or about what. The US Justice created an o-book communications
the extremely high rates of poverty Department has described how, using at system called Drousys to communicate
prevalent in most of them are a breeding least three unaliated shell companies in outside ocial company channels, using
ground for corruption. This creates email, instant messages, codenames, and
particular development challenges As a means of securing passwords. They had another system for
commonly seen throughout the world in payment called MyWebDay. The $788
emerging economies. Amongst the best projects on at least two million bribery scheme led by the
antidotes, of course, are greater economic continents, Odebrecht department helped companies secure
activity and better education. There $3.3 billion in new projects. In other
remain plenty of people looking to
developed a bid-rigging words, about 23% of the new work
improve matters and support the scheme with cartel amounted to money that had been used
democratic institutions, but most
companies other or oset to fund an illegal scheme
importantly free markets, that help foster targeting government ocials,
the right sort of investment climate to construction firms. politicians, and political parties.
make corruption less tempting.
Policymakers and companies need to the British Virgin Islands and Belize, Margin of error
nd and empower these agents of Odebrecht ocials carried out the As a means of securing projects on at
change. bribery scheme to conceal and disguise least two continents, Odebrecht
improper payments to foreign political developed a bid-rigging scheme with
A corruption scheme unlike and government ocials in at least 12 cartel companies other construction
any other countries. US residents in New York and rms. The scheme resulted in about 30%
It was one remarkable Christmas present Florida were used to facilitate the of all new business coming to the
that ultimately led to the Odebrecht CEO, payments using, among other things, a company, and in some countries,
Mr. Marcelo Odebrecht, being sentenced bank account in the United States. especially the poorest, the corruption
to close to 20 years in prison. On 21 This is the largest ever resolution of a margin appears to have been as high as
December 2016, the US Justice global foreign bribery case: for at least 15 60%. In addition to bribing members of
Department announced a nearly $3.5 years, and likely more, senior Odebrecht the Brazilian Congress for lucrative
global billion (gross) settlement with ocials, employees, and other third infrastructure projects in Brazil, the
Odebrecht and a company it controls, parties, including ocials from Brazils department paid almost $10 million in
Braskem, which trades on the NYSE. In state-owned energy company, Petrobras, bribes in Angola, $35 million in
the US portion of the case, $159 million engaged in a corruption scheme unlike Argentina, $11 million in Colombia, and
was to be paid to the Department of
Justice (DOJ) and the Securities and
Exchange Commission (SEC) on top of
a criminal penalty of $94.8 million to the
Odebrecht must also disgorge $65
million in prot to the SEC.
Approximately 10% of the criminal ne
will be paid to Brazil, and 80% to
Switzerland. The SEC charged Braskem
with creating false books and records to
conceal the bribes. Braskem was slapped
with a criminal penalty of $630 million,
with 70% going to Brazil, 15% to
Switzerland, and 15% to the United
States. An independent compliance
manager will be stationed in both
a katz /

companies for three years. The violations

were not voluntarily disclosed. In
essence, the company had established a
bribery unit a secret, o-book unit

16 Trade Security Journal Issue 2


$92 million in the Dominican Republic

for just $163 million of new business. Compliance plans only get you so far
In Guatemala, one of the poorer
nations in Central America, $18 million This is a familiar theme in most FCPA cases: compliance programmes only
worth of bribes is a mind-boggling gure, get you so far. While it does not appear that either company had a viable
considering that annual gross income per compliance programme to speak of, it is the human factor that causes the
capita is barely $3,000. Also, as was the problems every time. In Latin America, for example, it is sad but true
case with the Dominican Republic, the to say that the culture of corruption is pervasive and widely regarded as a
bribes paid in Guatemala added up to norm and an expected business cost. After a few years of working on
about half the value of the awarded Congressional oversight investigations unrelated to FCPA matters, but
contracts, approximately $34 million of rather for activities that closely resemble anti-corruption matters, it
new work. The bribes paid in some of the became clear to me that people who are determined to do bad things will
other nations include Ecuador ($33.5 find a way to do so, even if you think you have taken every possible
million), Mexico ($10.5 million), precaution against it. And Ive seen this repeatedly in private practice.
Mozambique (nearly $1 million), Panama Even with a compliance programme, it is the people hired that can make
($59 million), Peru ($29 million), and or break a company. Management, of course, also helps set the right
Venezuela ($98 million). tone.
As is the case in other anti-corruption cases, you must build a
Practical takeaways from the compliance plan that is not only suitable for the organisation in question,
enforcement action but also one that can be enforced. It is not an extraordinary lesson, but it
One of the many lessons that compliance is one that is worth repeating.
ocials and lawyers can draw from this Lawyers advising companies engaging in transactions in Latin America
enforcement action is separation. Even must factor in (and learn from) the Odebrecht case. The Panama Papers
though Odebrecht was a majority case also provides valuable nuggets about Latin America corruption.
shareholder in Braskem, rather than With regard to due diligence, it is worth noting that it would have been
treating this as one enforcement action, very difficult to catch some of this activity by focusing merely on certain
there were two. There were separate political leaders or using publicly-available risk assessments reports and
pleas and judgments. Prosecutors also tools created by private corporations or non-profit NGOs. You need to be
used dierent formulas for calculating prepared to ask tough questions of potential business partners and also to
penalties. Finally, rather than installing walk away.
one independent compliance monitor,
there will be two monitors one at
Odebrecht and the other at Braskem.
There were also various relevant such high nes, is that the violations were paying hundreds of millions of dollars in
considerations1 listed in the plea spread over a large period of time and bribes to a large number of high-level
agreements that are worth mentioning. involved very senior business and government ocials over the course of 16
The rst is no surprise: the alleged political leaders. This also indicates that years (Operation Car Wash was
violations were not voluntarily disclosed. the compliance culture within both nicknamed after the building where the
Frankly, Im surprised it took so many companies was non-existent or was a ringleaders allegedly met to scheme and
years for a scheme of this magnitude to compliance programme in name only. It plot the illegal money transfers). This
be uncovered, which signals either that even infected the boardroom. In fact, the investigation would not have been
the department was very good at its job reforms proposed earlier this year possible without international
or the compliance culture at these include having at least 20% of the board cooperation from law enforcement and
companies was decidedly sub-par. This is comprised of independent individuals judicial authorities in several nations.
supported by the fact that, apparently, with no ties whatsoever to the company. There must have been many lessons; and
neither company had any legitimate The nature of the oences included, of I suspect the tools and experiences of this
compliance programme to speak of course, the scheme uncovered initially by multinational investigation will be
before the investigations commenced. the Brazilian Car Wash investigation that studied by law enforcement for some
Another factor that most certainly nabbed scores of high-level executives time to come as well as deployed once
impacted the settlement, and resulted in and directors of the company who were again.
The companies received full
cooperation credit for a variety of
activities, including assistance in
gathering evidence and performing
forensic data collection in multiple
jurisdictions, as well as producing
documents, including translations from
foreign countries, in ways that did not
violate foreign data privacy laws.
Remember that investigators were
dealing with three languages English,
Spanish, and Portuguese. The legal and
translation fees must have been

17 Trade Security Journal Issue 2


The government further noted that the more than tripling the budget for
parties also helped to collect, analyse, 2017. Links and notes
produce, and organise voluminous 1
Plea agreement available at
evidence and information; provided non- Opportunity for reform or more release/le/919916/download (last accessed Apr. 15,
privileged facts relating to projects political contagion? 2017).

obtained or retained through bribery; Despite its regional impact, the case has
This company created the worlds biggest bribery
ring, CNNMoney, available at
and provided non-privileged facts yet to reach US Congressional oversight
relating to individuals and companies committees in a way that would be of brecht-latin-america-corruption/ (last accessed 11
April 2017).
involved in various illegal schemes, along concern to involved parties. But, based on 3
Odebrecht Mess Leaves Devastation Trial from Andes
with facilitating and encouraging the conversations Ive had with several to Caribbean, Bloomberg, 13 March 2017, available at
cooperation and voluntary disclosure of Congressional aides, I think its safe to 13/odebrecht-mess-leaves-devastation-trail-from-and
information and documents by current say that may change if the ripple eect of es-to-caribbean (last accessed 11 April 2017).
and former company personnel. the case continues. In Latin America, a
The government also noted that the signicant number of politicians,
companies engaged in extensive remedial lawyers, and others in public oce are Brazils Lula da Silva, the popular
measures, including ring 51 individuals now on the defensive or, depending on former left-wing president, faces prison
who participated in the misconduct, as which side of the matter they were on, time, and his successor, Dilma Rousse,
well as disciplining an additional 26 have launched or even restarted long- has been impeached. The former Speaker
individuals. dead political careers, as a result of the of the Brazilian Parliament is in jail, and
The suspensions are lengthy, some up other investigations are underway that
to 18 months, and include signicant In Argentina, a federal may result in more political gures going
nancial penalties and demotions to non- to prison or paying nes. In Peru,
managerial, non-supervisory, and prosecutor said that the case is Odebrecht has failed to complete work
non-decision-making roles. The parties the most important and on a major infrastructure project that is
are requiring individualised anti- causing political headaches for ocials in
corruption compliance and business momentous investigation into that Andean nation, and one of their
ethics training for each of the 26 corruption crimes in the history former presidents, Angel Toledo, is
suspended employees and are requiring supposedly wanted for questioning for
that each be subject to heightened
of the region, but calls for taking bribes.3 There are also
oversight and day-to-day supervision, legal reform have been few and investigations expected in other nations,
including ensuring that the independent
compliance monitor has full access and
far between. but it appears these are being structured
for political purposes, and not advancing
authority to evaluate the business much-needed rule of law and anti-
activities and ongoing compliance of scandal. Will this new crop of political corruption eorts.
those individuals. leaders take the necessary steps to create One measure legislators should be
Other remedial measures include: the legal and regulatory infrastructure seriously pursuing is the drafting of
needed across Latin America? legislation requiring the disclosure of
l the creation of a chief compliance As part of the settlement process, lobbying activities along the lines of The
ocer position that reports directly to Odebrecht is to pay close to $200 million Lobbying Disclosure Act of 1995 (2 U.S.C.
the audit committee of the board of to the Dominican Republic, but 1601) and the Honest Leadership and
directors; opposition party leaders have urged their Open Government Act of 2007 (2 U.S.C.
l adopting heightened controls and Ministry of Justice towards more ch. 26 1601 et seq.) in the United States.
anti-corruption compliance protocols, investigations and prison time for Lobbyists would register with the
including hospitality and gift politicians who broke the law. If the past appropriate government agency, and the
approval procedures; is any indication, I expect huge political information would be posted on the
l incorporating adherence to struggles not only regarding how the internet.
compliance principles into employee $200 million will be spent but also how Colleagues who have done business in
performance evaluation and government procurement will work, Latin America describe procurement
compensation; moving forward. In Argentina, a federal laws and regulations in several nations as
l increasing the number of employees prosecutor said that the case is the most antiquated. Greater transparency could
dedicated to compliance by 50%; and important and momentous investigation help create the right climate needed to
nally, into corruption crimes in the history of boost condence in the public sector.
l more than doubling the resources the region,2 but calls for legal reform Other recommendations, of a more long-
devoted to compliance in 2016 and have been few and far between. term viewpoint would involve
improving the rule of law.
In the long run, it is business which
Jason I. Poblete is a partner of PobleteTamargo LLP, a law and should set the right tone for long-term
public policy practice located in Washington, D.C. He advises on economic development in these rough
cross-border transactions, international trade regulation, as markets. While companies are not and
well as U.S. policy-making on matters related to national should not be social engineers, they are
security law and international claims law. nonetheless in a position to make a lasting, positive impact in nations
struggling to emerge from political or
economic ruts. n

18 Trade Security Journal Issue 2


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41 Trade Security Journal Issue 2