Trade

Security
Journal

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
IN THIS ISSUE
3 nEwS rOUnD-UP
Trumps Paris pull-out
divides business
Call for Europe to put
cybersecurity at heart of
legislation
Is the end nigh for US
conict minerals rule?
Brazilian corned beef in
UK supermarkets linked
to slave labour
Barclays and individual
directors charged with
conspiracy to commit
fraud
Uber boss steps down
amid controversies
Law rm DLA among
those hit by Petya virus
Company disgorges
boron prots under
FCPA deal
How well do you know your
customer? Screening for
restricted parties
34
2 Trade Security Journal Issue 2
ISSUE 2, JULY 2017
The Odebrecht story: one of the largest corruption scandals of all time
9 nATIOnAL SECUrITY
Trump administration
highlights limitations of
CFIUS process
10 DATA PrIVACY
South Korea Joins
APEC's Cross-Border
Privacy Rules System
USSupreme Court to
hear major cellphone
privacy case
The future of data
privacy in the United
Kingdom post-Brexit
12 AnTI COrrUPTIOn
New ISO Anti-Bribery
Standard for Singapore
13 MODErn SLAVErY
Alleged human
tracking victims seek
Supreme Court review of
Alien Tort Statute
Standards
14 DATA PrIVACY
Switzerland to
modernise data
protection law
15
19 FOrCED LAbOUr
New US forced labour
import ban challenges
for compliant companies
23 TALkIng TrADE
SECUrITY
with Eddie Rich, deputy
head of the Extractive
Industries Transparency
Initiative (EITI)
27 CYbEr SECUrITY
Chinas new
cybersecurity law
eective as of 1 June
2017
30 DOIng bUSInESS In
ChInA
The Steel Princess and
the g leaf a tale of
corporate risks in China
36 AnTI-MOnEY
LAUnDErIng
Is your organisation
prepared for the EU
Fourth Anti-Money
Laundering Directive?
A Dutch perspective
FrOM ThE EDITOr
Ill confess to a certain degree of
apprehension when, on 26 June in
London, we held our rst ever
Trade Security Journal event. Why
the anxiety? Well, what if we had
it wrong? There was no certainty
that a lawyer or industry
professional interested in any one
part of the trade security
spectrum should nd relevance in
another.
But I shouldnt have worried.
Yes, the range of topics was
diverse. Cybersecurity,
counterfeits in the supply chain,
bribery legislation, BREXIT a
certain family resemblance but
each with its own outlook.
It soon became clear that the
rippling concentric circles quickly
overlap and that the crossover
is more than coincidence. Which
is why a presentation on dealing
with fake cigarettes and
medicines elicited so many
questions from sanctions lawyers
and likewise, a talk on
cybersecurity raised issues that
were pertinent to everyone in the
room.
Theres nothing like being
there. But the second issue of
Trade Security Journal also brings
together those strands:
cybersecurity, AML, forced labour,
corruption. Were condent that
these articles will go beyond
striking a chord, but provoke
serious thought. Take a deep dive,
and please do report back to us.
Were keen to know how you, and
your organisation, are responding
to what are some of the most
urgent issues attendant on
contemporary business practice.
Tom Blass
June 2017
" !&
"
" ! ! "&
! & %! !# " !
' $ & " !& $
& " ! " ! ! & " !#
! ! " ! &
CORRUPTION

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.

w
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 / Shutterstock.com

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

15 Trade Security Journal Issue 2

CORRUPTION
seems to be fast-tracking an anti-
corruption law aimed at Nicaragua that,
under certain conditions, would require
US representatives at international
nancial institutions (IFIs) to veto loans
and other guarantees to Nicaragua if,
among other things, Nicaragua fails to
take steps to deal with rampant public
corruption. Similar legislation is under
consideration for other countries,
including Venezuela and Cuba.
Latin America and the Caribbean
possess fantastic growth potential. But
the extremely high rates of poverty
prevalent in most of them are a breeding
ground for corruption. This creates
particular development challenges
commonly seen throughout the world in
emerging economies. Amongst the best
antidotes, of course, are greater economic
activity and better education. There
remain plenty of people looking to
improve matters and support the
democratic institutions, but most
importantly free markets, that help foster
the right sort of investment climate to
make corruption less tempting.
Policymakers and companies need to
nd and empower these agents of
change.
A corruption scheme unlike
any other
It was one remarkable Christmas present
that ultimately led to the Odebrecht CEO,
Mr. Marcelo Odebrecht, being sentenced
to close to 20 years in prison. On 21
December 2016, the US Justice
Department announced a nearly $3.5
global billion (gross) settlement with
Odebrecht and a company it controls,
Braskem, which trades on the NYSE. In
the US portion of the case, $159 million
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
DOJ.
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
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
which US attorney Sung-Hee Suh aptly
called the Department of Bribery
through which it vetted potential
transactions, such as large public works
projects. The department targeted
politicians that it needed to buy o in
order to secure the work.
Unlike in the United States and
Europe, in many of these countries there
are weak or non-existent mandatory
public disclosure and lobbying laws, so
there is no way to know who is talking to
whom or about what. The US Justice
Department has described how, using at
least three unaliated shell companies in
As a means of securing
projects on at least two
continents, Odebrecht
developed a bid-rigging
scheme with cartel
companies other
construction firms.
the British Virgin Islands and Belize,
Odebrecht ocials carried out the
bribery scheme to conceal and disguise
improper payments to foreign political
and government ocials in at least 12
countries. US residents in New York and
Florida were used to facilitate the
payments using, among other things, a
bank account in the United States.
This is the largest ever resolution of a
global foreign bribery case: for at least 15
years, and likely more, senior Odebrecht
ocials, employees, and other third
parties, including ocials from Brazils
state-owned energy company, Petrobras,
engaged in a corruption scheme unlike
any other recently uncovered by the
Justice Department. It stretched across 12
nations in Africa and Latin America,
including Angola, Argentina, Brazil,
Colombia, Dominican Republic, Ecuador,
Guatemala, Mexico, Mozambique,
Panama, Peru, and Venezuela.
Using what the US authorities call an
elaborate, secret nancial structure, the
department funneled approximately $788
million in illegal payments or gifts to
obtain and retain business. They even
created an o-book communications
system called Drousys to communicate
outside ocial company channels, using
email, instant messages, codenames, and
passwords. They had another system for
payment called MyWebDay. The $788
million bribery scheme led by the
department helped companies secure
$3.3 billion in new projects. In other
words, about 23% of the new work
amounted to money that had been used
or oset to fund an illegal scheme
targeting government ocials,
politicians, and political parties.
Margin of error
As a means of securing projects on at
least two continents, Odebrecht
developed a bid-rigging scheme with
cartel companies other construction
rms. The scheme resulted in about 30%
of all new business coming to the
company, and in some countries,
especially the poorest, the corruption
margin appears to have been as high as
60%. In addition to bribing members of
the Brazilian Congress for lucrative
infrastructure projects in Brazil, the
department paid almost $10 million in
bribes in Angola, $35 million in
Argentina, $11 million in Colombia, and
a katz / Shutterstock.com
CORRUPTION
$92 million in the Dominican Republic
for just $163 million of new business.
In Guatemala, one of the poorer
nations in Central America, $18 million
worth of bribes is a mind-boggling gure,
considering that annual gross income per
capita is barely $3,000. Also, as was the
case with the Dominican Republic, the
bribes paid in Guatemala added up to
about half the value of the awarded
contracts, approximately $34 million of
new work. The bribes paid in some of the
other nations include Ecuador ($33.5
million), Mexico ($10.5 million),
Mozambique (nearly $1 million), Panama
($59 million), Peru ($29 million), and
Venezuela ($98 million).
Practical takeaways from the
enforcement action
One of the many lessons that compliance
ocials and lawyers can draw from this
enforcement action is separation. Even
though Odebrecht was a majority
shareholder in Braskem, rather than
treating this as one enforcement action,
there were two. There were separate
pleas and judgments. Prosecutors also
used dierent formulas for calculating
penalties. Finally, rather than installing
one independent compliance monitor,
there will be two monitors one at
Odebrecht and the other at Braskem.
There were also various relevant
considerations1 listed in the plea
agreements that are worth mentioning.
The rst is no surprise: the alleged
violations were not voluntarily disclosed.
Frankly, Im surprised it took so many
years for a scheme of this magnitude to
be uncovered, which signals either that
the department was very good at its job
or the compliance culture at these
companies was decidedly sub-par. This is
supported by the fact that, apparently,
neither company had any legitimate
compliance programme to speak of
before the investigations commenced.
Another factor that most certainly
impacted the settlement, and resulted in
17 Trade Security Journal Issue 2
Compliance plans only get you so far
This is a familiar theme in most FCPA cases: compliance programmes only
get you so far. While it does not appear that either company had a viable
compliance programme to speak of, it is the human factor that causes the
problems every time. In Latin America, for example, it is sad but true
to say that the culture of corruption is pervasive and widely regarded as a
norm and an expected business cost. After a few years of working on
Congressional oversight investigations unrelated to FCPA matters, but
rather for activities that closely resemble anti-corruption matters, it
became clear to me that people who are determined to do bad things will
find a way to do so, even if you think you have taken every possible
precaution against it. And Ive seen this repeatedly in private practice.
Even with a compliance programme, it is the people hired that can make
or break a company. Management, of course, also helps set the right
tone.
As is the case in other anti-corruption cases, you must build a
compliance plan that is not only suitable for the organisation in question,
but also one that can be enforced. It is not an extraordinary lesson, but it
is one that is worth repeating.
Lawyers advising companies engaging in transactions in Latin America
must factor in (and learn from) the Odebrecht case. The Panama Papers
case also provides valuable nuggets about Latin America corruption.
With regard to due diligence, it is worth noting that it would have been
very difficult to catch some of this activity by focusing merely on certain
political leaders or using publicly-available risk assessments reports and
tools created by private corporations or non-profit NGOs. You need to be
prepared to ask tough questions of potential business partners and also to
walk away.
such high nes, is that the violations were paying hundreds of millions of dollars in
spread over a large period of time and bribes to a large number of high-level
involved very senior business and government ocials over the course of 16
political leaders. This also indicates that years (Operation Car Wash was
the compliance culture within both nicknamed after the building where the
companies was non-existent or was a ringleaders allegedly met to scheme and
compliance programme in name only. It plot the illegal money transfers). This
even infected the boardroom. In fact, the investigation would not have been
reforms proposed earlier this year possible without international
include having at least 20% of the board cooperation from law enforcement and
comprised of independent individuals judicial authorities in several nations.
with no ties whatsoever to the company. There must have been many lessons; and
The nature of the oences included, of I suspect the tools and experiences of this
course, the scheme uncovered initially by multinational investigation will be
the Brazilian Car Wash investigation that studied by law enforcement for some
nabbed scores of high-level executives time to come as well as deployed once
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
enormous.
CORRUPTION

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

obtained or retained through bribery; Despite its regional impact, the case has
and provided non-privileged facts yet to reach US Congressional oversight
relating to individuals and companies committees in a way that would be of
involved in various illegal schemes, along concern to involved parties. But, based on
with facilitating and encouraging the conversations Ive had with several
cooperation and voluntary disclosure of Congressional aides, I think its safe to
information and documents by current say that may change if the ripple eect of
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
measures, including ring 51 individuals now on the defensive or, depending on
who participated in the misconduct, as which side of the matter they were on,
well as disciplining an additional 26 have launched or even restarted long-
individuals. dead political careers, as a result of the
The suspensions are lengthy, some up
to 18 months, and include signicant In Argentina, a federal
nancial penalties and demotions to non-
managerial, non-supervisory, and prosecutor said that the case is
non-decision-making roles. The parties the most important and
are requiring individualised anti-
corruption compliance and business momentous investigation into
ethics training for each of the 26 corruption crimes in the history
suspended employees and are requiring
that each be subject to heightened
of the region, but calls for
oversight and day-to-day supervision, legal reform have been few and
including ensuring that the independent
compliance monitor has full access and
far between.
authority to evaluate the business
activities and ongoing compliance of scandal. Will this new crop of political
those individuals. leaders take the necessary steps to create
Other remedial measures include: the legal and regulatory infrastructure
needed across Latin America?
l the creation of a chief compliance As part of the settlement process,
ocer position that reports directly to Odebrecht is to pay close to $200 million
the audit committee of the board of to the Dominican Republic, but
directors; opposition party leaders have urged their
l adopting heightened controls and Ministry of Justice towards more
anti-corruption compliance protocols, investigations and prison time for
including hospitality and gift politicians who broke the law. If the past
approval procedures; is any indication, I expect huge political
l incorporating adherence to struggles not only regarding how the
compliance principles into employee $200 million will be spent but also how
performance evaluation and government procurement will work,
compensation; moving forward. In Argentina, a federal
l increasing the number of employees prosecutor said that the case is the most
dedicated to compliance by 50%; and important and momentous investigation
nally, into corruption crimes in the history of
l more than doubling the resources the region,2 but calls for legal reform
devoted to compliance in 2016 and have been few and far between.
Jason I. Poblete is a partner of PobleteTamargo LLP, a law and
public policy practice located in Washington, D.C. He advises on
cross-border transactions, international trade regulation, as
well as U.S. policy-making on matters related to national
security law and international claims law.
jpoblete@pobletetamargo.com
2
This company created the worlds biggest bribery
ring, CNNMoney, available at
http://money.cnn.com/2017/04/05/news/economy/ode
brecht-latin-america-corruption/ (last accessed 11
April 2017).
3
Odebrecht Mess Leaves Devastation Trial from Andes
to Caribbean, Bloomberg, 13 March 2017, available at
https://www.bloomberg.com/news/articles/2017-03-
13/odebrecht-mess-leaves-devastation-trail-from-and
es-to-caribbean (last accessed 11 April 2017).
Brazils Lula da Silva, the popular
former left-wing president, faces prison
time, and his successor, Dilma Rousse,
has been impeached. The former Speaker
of the Brazilian Parliament is in jail, and
other investigations are underway that
may result in more political gures going
to prison or paying nes. In Peru,
Odebrecht has failed to complete work
on a major infrastructure project that is
causing political headaches for ocials in
that Andean nation, and one of their
former presidents, Angel Toledo, is
supposedly wanted for questioning for
taking bribes.3 There are also
investigations expected in other nations,
but it appears these are being structured
for political purposes, and not advancing
much-needed rule of law and anti-
corruption eorts.
One measure legislators should be
seriously pursuing is the drafting of
legislation requiring the disclosure of
lobbying activities along the lines of The
Lobbying Disclosure Act of 1995 (2 U.S.C.
1601) and the Honest Leadership and
Open Government Act of 2007 (2 U.S.C.
ch. 26 1601 et seq.) in the United States.
Lobbyists would register with the
appropriate government agency, and the
information would be posted on the
internet.
Colleagues who have done business in
Latin America describe procurement
laws and regulations in several nations as
antiquated. Greater transparency could
help create the right climate needed to
boost condence in the public sector.
Other recommendations, of a more long-
term viewpoint would involve
improving the rule of law.
In the long run, it is business which
should set the right tone for long-term
economic development in these rough
markets. While companies are not and
should not be social engineers, they are
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

 Trade
Security
Journal
TSJ Editorial board
Barbara Linney, Miller & Chevalier, Washington, DC
blinney@milchev.com
Richard Tauwhare, Dechert, London
Richard.Tauwhare@dechert.com
Roger Matthews, Dechert, London
Roger.Matthews@dechert.com
Glen Kelley, Jacobson Burton Kelley PLLC, New York
gkelley@jacobsonburton.com
Trade Security Journal is published by D.C. Houghton Ltd.
D.C. Houghton Ltd 2017. All rights reserved. Reproduction in whole or
in part of any text, photograph, or illustration without express written
permission of the publisher is strictly prohibited.
ISSN 2514-2453. Refer to this issue as: Trade Security Journal [002]
D.C. Houghton Ltd is registered in England and Wales (registered number
7490482)
with its registered oce at 20-22 Wenlock Road, London, UK
Information in Trade Security Journal is not to be considered legal advice.
Opinions expressed within Trade Security Journal are not to be considered
ocial expressions of the publisher. The publisher assumes no
responsibility for errors and omissions appearing within. The publisher
reserves the right to accept or reject all editorial and advertising matter.
The publisher does not assume any liability for unsolicited manuscripts,
photographs, or artwork.
41 Trade Security Journal Issue 2
TSJ Contact Details
General enquiries, advertising enquiries, press releases,
subscriptions: info@tradesecurityjournal.com
Editor, Tom Blass: tom@tradesecurityjournal.com
tel +44 (0)7930405003
Publisher, Mark Cusick: mark@tradesecurityjournal.com
tel: +44 (0)7702289830
Correspondence address:
D.C. Houghton Ltd, Suite 17271, 20-22 Wenlock Road,
London N1 7GU, England
*Single or multi-site: Do you have the correct subscription? A single-site
subscription provides Trade Security Journal to employees of the
subscribing organisation within one geographic location or oce. A multi-
site subscription provides Trade Security Journal to employees of the
subscribing organisation within more than one geographic location or
oce. Please note: both subscription options provide multiple copies of
Trade Security Journal for employees of the subscriber organisation (in one
or more oce as appropriate) but do not permit copying or distribution of
the publication to non-employees of the subscribing organisation without
the permission of the publisher. For full subscription terms and conditions,
visit http://www.tradesecurityjournal/terms-conditions
For further information or to change your subscription type, please contact
Mark Cusick - mark@tradesecurityjournal.com
www.tradesecurityjournal.com