CFE Exam Quiz 08

Perjury is an intentionally false statement given under oath on a material point at issue. The basic elements for the crime of perjury are as follows:
 The defendant made a false statement.
 The defendant made the false statement while under oath.
 The false statement was material or relevant to the proceeding.
 The defendant made the statement with knowledge of its falsity.

Generally, to prove a violation, the government must show that the defendant:
 Knowingly and willfully (or with reckless disregard for truth or falsity)
 Made a false claim or statement (or used a false document)
 That was material (i.e., sufficiently important or relevant to influence decision making)
 Regarding a matter within the jurisdiction of a government agency
 With knowledge of its falsity

Also, the following are general rules with regard to laws criminalizing false claims and statements to government agencies:
 An individual can be found guilty for making a false claim or statement even if the claim or statement is not made directly to a governmental in the jurisdiction of a governmental department or agency.
 An individual can be found guilty for making a false claim or statement even if the government was not dual received by the falsity.
 An individual is found guilty for making a false claim or statement even if the government did not rely on the falsity. Law The Law Related to Fraud
2017 Fraud Examiners Manual (International) 2.221
 An individual can be found guilty for making a false claim or statement even if the government did not suffer a loss in reliance on the falsity.
 For an individual to be found guilty of making a false claim or statement, the claim or statement at issue must have been capable of influencing the government entity involved.

The international effort to combat corruption gained significant momentum in the 1990s. Until that time, only the United States had criminalized the bribery of foreign public officials with the passage of its Foreign Corrupt Practices Act (FCPA) in 1977. The FCPA effectively put companies operating within the United States at a competitive disadvantage, leading business groups to petition for a weakening of the FCPA’s provisions. Previous attempts to establish multinational initiatives against corruption had failed largely as a result of security concerns related to the Cold War. However, the end of that conflict and the growing trend toward economic integration created a far more receptive political climate. Simultaneously, increased media coverage of financial matters, facilitated in part by the Law Related to Fraud Law 2.222 2017 Fraud Examiners Manual (International) emergent Internet, brought greater public attention to bribery and corrupt trade practices. In addition, contemporary campaigns to promote democratic principles throughout the world had targeted corruption as an inherent obstacle to good governance. Recognizing the limited impact unilateral efforts can have on a global issue like corruption, international organizations developed strategies to combat corruption through coordinated domestic measures. Starting with the work of the Organisation for Economic Co-operation and Development (OECD), this movement has continued to grow and has produced increasingly ambitious endeavors. Despite the progress already made, however, corruption remains a serious concern. This section introduces the major international anti-corruption instruments, beginning with those concerning the OECD. An overview of the more recent UN Convention and several regional conventions follows. And because the FCPA and the UK Bribery Act 2010 have an extraterritorial effect on multinational companies, this section contains a brief discussion of each of these laws.

Formed in 1961, the Organisation for Economic Co-operation and Development (OECD) is an intergovernmental institution dedicated to democracy and the market economy. It operates as a forum for governments to cultivate and advance social and economic policies that expand world trade, promote sustainable economic development, and improve living standards. Members compare policy experiences to identify sound practices for the resolution of common problems. The OECD coordinates domestic and international policy through either soft law or legally binding agreements. Soft law refers to guidelines, resolutions, codes of conduct, and other quasi-legal instruments that are not directly enforceable. The OECD Recommendations discussed below are examples of soft law. In contrast, the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions is a legally binding agreement. At present, the OECD consists of 35 member countries: Australia, Austria, Belgium, Canada, Chile, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, South Korea, Latvia, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Slovenia, Spain,Law The Law Related to Fraud 2017 Fraud Examiners Manual (International) 2.223 Sweden, Switzerland, Turkey, the United Kingdom, and the United States. Joining the OECD in 2016, Latvia is the most recent member. The OECD suspended membership talks
with Russia in 2014 due to its role in the Crimean crisis.

The OECD formed an ad hoc working group in 1989 to explore corruption in international trade. After conducting a comparative review of member countries’ laws and regulations, the group published the Recommendation on Combating Bribery in International Business (Recommendation) in 1994. The Recommendation was designed to combat corruption in international business by urging member states to adopt effective measures to detect, prevent, and combat bribery of foreign public officials in international business. Thus, it targets only acts of bribery aimed at public-sector officials, and it is silent regarding bribery confined to the private sector. The Recommendation defines bribery as the act of offering and giving any undue benefit to obtain or retain business. As a result, the Recommendation targets the supply side of bribery—the offering side of the bribery bargain. It does not address the demand side—the solicitation and receipt of bribes. In doing so, the Recommendation avoids complicated jurisdictional issues and interference with the sovereignty of non-member countries. The Recommendation urges member states to deter and penalize the bribery of foreign public officials by taking “concrete and meaningful steps” to improve the following areas within their respective infrastructures:
1. Criminal, civil, commercial, and administrative laws
2. Tax systems and regulations
3. Banking and accounting requirements and practices
4. Laws and regulations related to public subsidies, licenses, and contract procurement

In 1996, the Working Group responded to tax-related concerns by releasing the Recommendation on Tax Deductibility of Bribes of Foreign Officials (Tax Recommendation). Bribery had become so entrenched in international business that some countries provided tax deductions for bribes paid to foreign officials. The Tax Recommendation calls on members to prohibit this practice. In 1995, measures to address the remaining areas of concern were presented in the Revised Recommendation on Combating Bribery in International Business (Revised Recommendation). To strengthen banking and accounting standards, the Revised Recommendation advocates that OECD members take the following steps:
1. Prohibit off-book transactions and accounts.
2. Require companies to maintain adequate records of income and expenditures and to disclose material contingent liabilities in financial statements.
3. Establish and maintain standards to ensure independence when financial statements are audited externally.
4. Encourage companies to adopt internal controls and standards of conduct that provide protection and channels for reporting violations.
5. Suspend companies that have bribed foreign officials from competing for public contracts.
6. Incorporate anti-corruption provisions into bilateral aid-funded procurements and international development institutions.
7. Cooperate fully with other countries and international bodies in the investigation and prosecution of bribery cases.

The OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Anti-Bribery Convention) is a legally binding agreement that sets a uniform, minimum standard that signatory countries must implement through national legislation. Of course, countries may adopt laws that exceed that standard; the following section provides several examples of such legislation. Signatory countries commit themselves to criminalize the bribery of foreign public officials through domestic legislation, and any differences in such laws are accepted if they produce
equivalent results (i.e., effective prosecution or sanctions). The OECD Anti-Bribery Convention defines bribery as intentionally offering, promising, or giving an undue benefit, either directly or through an intermediary, in order to obtain business or improper advantage in the course of international trade. Like the Recommendation on Combating Bribery in International Business, the OECD Anti-Bribery Convention applies only to the supply side of bribery and only to acts aimed at foreign public officials (i.e., public-sector officials). The OECD Anti-Bribery Convention defines a foreign public official as any person who:
 Holds a legislative, administrative, or judicial office in a foreign country either by election or appointment
 Exercises a public function for a foreign country, public agency, or public enterprise
 Acts as an official or agent for a public international organization

In 2009, the Working Group issued two additional recommendations for further combating bribery of foreign public officials in international business transactions. For the most part, these instruments merely reinforce the earlier Recommendations and OECD Anti-Bribery Convention. They encourage member countries to review, evaluate, and, where necessary, strengthen the laws and regulations relevant to the fight against foreign bribery. Members are
specifically advised to re-examine standards pertaining to:
1. The adequacy of accounting requirements
2. The independence of external audits
3. Corporate internal controls and compliance programs
4. The suspension of public advantages for enterprises that have engaged in foreign bribery

The OECD Guidelines for Multinational Enterprises (OECD Guidelines) are a form of soft law, and they contain principles and standards designed to engage corporations in the fight against corruption. The OECD Guidelines seek to combat corruption in a number of ways. They discourage all forms of bribery, including illegal contributions to political parties and candidates, and they recommend the adoption of self-regulatory practices and compliance programs to maintain high standards for accounting, auditing, and disclosing financial statements. Furthermore, the OECD Guidelines encourage companies’ management to enhance the transparency of their anti-corruption activities to raise greater awareness within their communities, and they propose principles to halt anti-competitive activities such as price-fixing and bid-rigging. Finally, the OECD Guidelines include provisions intended to protect consumer, employee, and environmental interests.

In general, the OECD’s Good Practice Guidance recommends that organizational management adhere to the following measures when establishing compliance programs: The Law Related to Fraud Law 2.228 2017 Fraud Examiners Manual (International)
1. Establish a clear and unambiguous policy prohibiting the bribery of foreign officials.
2. Create an ethical environment, and ensure that the anti-corruption policy has strong, explicit support from senior management.
3. Provide that compliance with the anti-bribery program is the duty of every employee.
4. Make senior management responsible for the implementation and oversight of the anti-corruption policies, standards, and procedures.
5. Design the compliance program to detect and prevent corruption, and it should include policies covering gifts; hospitality, entertainment, and expenses; customer travel; political contributions; charitable donations and sponsorships; facilitation payments; and solicitation and extortion.

The OECD’s Good Practice Guidance identifies key features for effective compliance programs to detect and prevent the bribery of foreign officials. Businesses are encouraged to adopt such features to suit their unique circumstances and incorporate the identified practices to complement their overall compliance framework. In addition, professional organizations and associations may be consulted for further information and resources.
In general, the OECD’s Good Practice Guidance recommends that organizational management adhere to the following measures when establishing compliance programs
1. Establish a clear and unambiguous policy prohibiting the bribery of foreign officials.
2. Create an ethical environment, and ensure that the anti-corruption policy has strong, explicit support from senior management.
3. Provide that compliance with the anti-bribery program is the duty of every employee.
4. Make senior management responsible for the implementation and oversight of the anti-corruption policies, standards, and procedures.
5. Design the compliance program to detect and prevent corruption, and it should include policies covering gifts; hospitality, entertainment, and expenses; customer travel; political contributions; charitable donations and sponsorships; facilitation payments; and solicitation and extortion.
6. Make the program applicable to third party business partners (e.g., agents and other intermediaries, consultants, representatives, distributors, contractors, suppliers, consortia, and joint venture partners).
7. Create an internal controls system designed to ensure compliance with the prohibition of bribing foreign officials.
8. Implement mechanisms to ensure that anti-corruption policies, standards, and procedures are communicated effectively to all employees and, where appropriate, agents and business partners.
9. Implement appropriate measures to encourage and provide support for employees to comply with the compliance program.
10. Institute appropriate disciplinary measures for violations of anti-corruption laws,
policies, and procedures, as well as remedial actions to prevent recurrences of such
misconduct.
11. Install a system that provides guidance and advice to employees regarding anti-corruption issues.
12. Conduct periodic testing of the anti-corruption program to evaluate and improve its
effectiveness.

The UN Convention is considerably broader in scope than the OECD Convention. It establishes a framework to combat all forms of corruption, including bribery, extortion, embezzlement, trading in official influence, and general abuses of power. The UN Convention introduces standards for member states to incorporate into national legislation to address corruption in both the private and public sectors. The measures and provisions contained therein are intended to respect the fundamental principles of members’ respective legal systems while focusing on four specific areas of concern:
1. Prevention
2. Criminalization
3. Asset recovery
4. International cooperation

The UN Convention devotes its first chapter to preventive measures aimed at both the public and private sectors. Member states must ensure the existence of independent anticorruption bodies that oversee implementation of the UN Convention policies and disseminate relevant information. Such policies include the development of safeguards to ensure civil servants are hired, retained, and promoted based on objective criteria. Once recruited, civil servants must be subject to codes of conduct and reporting requirements to enhance transparency and accountability in the management of public finances. Member states must also take the necessary steps to ensure the independence of the judiciary and prosecution services. Regarding the private sector, member states must improve accounting and auditing standards to require the maintenance of books and records and the disclosure of financial statements. The UN Convention also mandates regulations to deter and detect all forms of money laundering by any bank or financial institution. Additional measures call for professional codes of conduct, rules to prevent conflicts of interest, and greater cooperation between law enforcement agencies and private entities. Finally, member states are encouraged to engage civil society, including community groups and non-governmental the organization, in the fight against corruption.

As noted above, the UN Convention addresses all forms of corruption, not bribery alone. The UN Convention lists specific acts of corruption, but it does not require member states to criminalize every one of them. Instead, it requires member states to criminalize only certain acts of corruption and to merely consider criminalizing others. Specifically, members to the UN Convention must establish a criminal offense for the following acts of corruption:
1. The supply and demand of bribes to domestic public officials
2. The supply of bribes to foreign public officials
3. Money laundering
4. The embezzlement, misappropriation, or diversion of public property by domestic officials.

Member states are encouraged, but not obligated, to criminalize the following acts of corruption:
1. The demand for bribes by foreign public officials
2. The supply and demand of bribes by private sector actors
3. Trading in influence
4. The abuse of official functions or position
5. Illicit enrichment
6. Embezzlement by private sector actors
7. The concealment or retention of proceeds of a crime
8. The obstruction of justice

Perhaps the most significant achievement of the UN Convention and a major influence in many countries’ decision to ratify is the agreement on asset recovery. Stated as a fundamental principle, asset recovery is particularly important to develop countries, which are vulnerable to corruption and in need of resources for reconstruction and rehabilitation programs. Reaching consensus on the issue required intensive negotiations to balance the needs of countries seeking recovery against the legal and procedural safeguards of countries providing assistance. Effective implementation of the asset recovery provisions will both remedy one of the worst effects of corruption and send a message that illegal assets cannot be hidden anywhere. Member states must implement the necessary mechanisms to detect and prevent the transfer of assets obtained through illicit activities. Authorities must have the competence to confiscate, seize, or freeze any such assets. All parties to the UN Convention must permit one another to initiate legal action in their respective courts. Generally, a requesting state will recover the contested assets if it is able to prove ownership, and in certain circumstances, the assets will
be returned directly to the victims.

This discussion provides an overview of several regional anti-corruption conventions, including the:
1. Inter-American Convention Against Corruption
2. European Union Convention on the Fight Against Corruption Involving Officials of the European Communities or Officials of Member States
3. Council of Europe Criminal Law Convention on Corruption
4. African Union Convention on Preventing and Combating Corruption

While the OECD is generally credited with setting the international trend against corruption, the Inter-American Convention Against Corruption (IACAC) was actually the first legally binding convention to address the issue. It went into effect in March 1997 and has been ratified by all 35 members of the Organization of American States. The stated purpose of the Inter-American Convention Against Corruption (IACAC) is to promote and regulate cooperation among members to prevent, detect, punish, and eradicate corruption. The IACAC requires signatories to:
1. Consider preventive measures, such as codes of conduct, transparent systems for the hiring of public servants and expenditure of public funds, and the encouragement of active participation by civil society in the fight against corruption.
2. Establish a criminal offense for both the supply and demand of bribes aimed at domestic and foreign officials.
3. Provide legal and technical assistance to one another for the effective prosecution of acts of bribery, including the extradition of nationals and the freezing, seizure, and forfeiture of identified property and assets.

The Council of Europe Convention was concluded in January 1999 and contains measures to address a wide range of corrupt behavior and encourage mutual assistance. Signatory countries must establish a criminal offense for:
1. The supply and demand of bribes involving domestic and foreign public officials, members of domestic and foreign public assemblies, officials of international organizations, and judges and officials of international courts.
2. The supply and demand of bribes within the private sector
3. Trading in influences or influence peddling (i.e., using one’s influence in government or connections with people in authority to obtain preferential treatment)
4. Money laundering and fraudulent recordkeeping and accounting practices.

Under the FCPA, anything of value is broadly defined and can include any of the following:
1. Money, cash, and cash equivalent
2. Travel expenses and non-monetary gifts
3. Charitable contributions or donations
4. In-kind service
5. The benefit to third persons with a connection to government officials (e.g., scholarship to foreign official’s relative)
6. Overpayments for shares
7. Loans at a favorable interest rate

Third, the prohibition extends only to corrupt payments to foreign officials. The term foreign official means any officer or employee of a foreign government, a public international organization or any department or agency thereof, nor any person acting in an official capacity. Foreign officials include:
• Members of any branch of a foreign government
• Employees of any entity substantially owned or controlled by a foreign government
• Consultants who hold government positions
• Any official or candidate of a foreign political party
• Officials of public international organizations

The FCPA does not prohibit all payments to foreign officials; it contains an explicit exception for certain types of payments, known as facilitating payments, or grease payments, made to expedite or secure the performance of a routine governmental action by a foreign official, political party, or
party official that relates to the performance of their ordinary and functions. This exception is designed to allow companies to avoid liability where small amounts are paid to expedite certain routine, non-discretionary government acts. According to the DOJ and SEC’s A Resource Guide to the U.S. Foreign Corrupt Practices Act, examples of facilitating payments include actions that are ordinarily and commonly performed by a foreign official in:
• Obtaining permits, licenses, or other official documents to qualify a person to do business in a foreign country
• Processing governmental papers, such as visas and work orders
• Providing police protection, mail pickup, and delivery, or scheduling inspections associated with contract performance or inspections related to transit of goods across the country
• Providing phone service, power and water supply, loading and unloading cargo, or protecting perishable products or commodities from deterioration

The first major requirement of the accounting provisions is that all issuers must accurately record all transactions, keep receipts and other support for transactions, and keep records in a manner consistent with overall document retention and recordkeeping policies. In practice, the books and records provisions are used to prevent three types of improprieties:
1. The failure to record improper transactions.
2. The falsification of records to conceal improper transactions.
3. The creation of records that are quantitatively correct, but fail to specify the qualitative aspects of a transaction that might reveal the true purpose of a particular payment.

The internal controls provision is designed to prevent unauthorized or unrecorded transactions. Under the internal controls provision, a company must maintain robust compliance policies and must take reasonable steps to ensure that its affiliates maintain suitable internal controls. The SEC has considered several factors to determine the adequacy of a system of internal controls. The factors include:
• The role of the board of directors
• Communication of corporate procedures and policies
• Assignment of authority and responsibility
• Competence and integrity of personnel
• Accountability for performance and compliance with policies and procedures
• Objectivity and effectiveness of the internal audit function

The FCPA’s accounting provisions are enforced by both the SEC and the DOJ. The SEC has the authority to initiate civil enforcement actions and can impose civil fines and disgorgement on the company and individuals. The SEC has brought enforcement actions of the accounting provisions both in cases involving actual foreign bribes and in domestic transactions. The SEC can seek civil penalties of up to $500,000 for covered entities and$100,000 for individuals. The DOJ is responsible for criminal prosecution of “willful” violations of the accounting provisions, and criminal penalties can include large fines and imprisonment. A willful violation of the accounting and controls provision is punishable by a fine up to $25 million against entities, and a fine up to $5 million and imprisonment up to 20 years against individuals. Also, the FCPA provides that an individual may be held criminally liable for “knowingly” falsifying any book, records, or account, or circumventing or failing to implement a system of internal accounting controls. Knowing may include willful blindness or conscious attempts not to know. But no criminal liability is imposed for technical or insignificant accounting errors. In addition, administrative and civil relief also is available for violations of the accounting provisions. A corporation or individual found in violation of the FCPA may be subject to debarment before many government agencies, and an indictment under the FCPA can also lead to the suspension of one’s right to do business with the government or the immediate suspension of export licenses for military defense equipment. It is common for FCPA enforcement actions to involve a series of prohibited payments, making the total amount of penalties very large. For example, the DOJ’s enforcement action against the German conglomerate Siemens for violating the FCPA’s accounting provisions led to a settlement of $800 million—$450 million in penalties and $350 million in profit disgorgement.

Like the FCPA, the Bribery Act exercises broad jurisdiction over all individuals and corporate entities for acts of corruption when any part of the offense occurs in the UK. Furthermore, liability exists for acts committed outside the UK by individuals and entities with a close connection to the UK, including:
1. British citizens, overseas citizens, overseas territories’ citizens, and any person declared a British subject under the 1981 British Nationality Act.
2. Individuals who normally reside in the UK.
3. An entity incorporated under the law of any part of the UK More specifically, foreign companies that have offices in the UK, employ UK citizens, or
provide any services to a UK organization are responsible for complying with the UK Bribery Act. A listing on the London Stock Exchange will not, in itself, subject a company to the Act.

Like the FCPA, the UK Bribery Act makes it an offense to bribe a foreign public official for the purpose of obtaining or retaining business or an advantage in the course of business. A foreign public official, as defined by the Act, is anyone who:
1. Holds a legislative, administrative, or judicial position, either by election or appointment, in a country or territory outside the UK.
2. Exercises a public function for a country or territory outside the UK.
3. Acts as an official or agent for a public international organization.

The UK Bribery Act also creates an offense for the failure of a corporate entity to prevent bribery committed by associated persons. The term associated persons refer to any individual who performs services for or on behalf of the company, such as an employee, agent, or subsidiary. A company can be liable for failing to prevent bribery offenses committed by associated persons if the corrupt act was for the purpose of securing or retaining business or some advantage for the company. This is a strict liability offense, which means that no criminal intent is required (the government must prove only that the defendant performed the act; it does not have to prove that the defendant performed the conduct with any particular mental state). The failure to prevent bribery is subject to a defense of having adequate procedures in place to prevent acts of bribery by associated persons. Unfortunately, the Bribery Act does not define adequate procedures, but the UK government provided guidance on what constitutes adequate procedures.

The UK’s Ministry of Justice published final guidance for consultation as to what might constitute adequate procedures. In short, to be adequate, the procedures should be reasonably designed, implemented, and enforced so that they will generally be effective in preventing and detecting criminal conduct. Specifically, the Ministry of Justice provided six principles to guide organizations to access the defense:
1. Proportionality: Procedures in place should be proportional to the risk and size of the business; large businesses in industries with high risks of corruption need relatively higher measures than small companies with lower risks.
2. Top-level commitment: High-level management should take an active role in demonstrating that the organization does not tolerate bribery.
3. Risk assessment: Management accessed research in the organization’s industry and places of business to determine the level of risk for bribery.
4.Due diligence: The organization’s management should know who it does business with, which might require gathering background information on trade partners (the focus is on trade partners that perform services on behalf of the organization).
5. Communication: This includes communicating policies not only to employees but to others who perform services for the organization; it also includes continued training.
6. Monitoring and review: There should be periodic reviews of anti-bribery measures to keep them modern and reviews when entering new markets or other new forms of risk.