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Cover your directors and officers against the high costs of government investigations
*2013 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
Anticorruption Compliance and Insurance Coverage: Offsetting the High Costs of Investigations
by Aaron Schildhaus
Government investigations into alleged violations of anticorruption laws don’t always result in trials, convictions, pleas, fines, or settlements—but they always end up costing clients a lot of money.
The legal and administrative costs of having to act after the fact to defend oneself once an investigation has been launched, irrespective of any fines, penalties, disgorgements, or other assessments, can run easily into the tens and hundreds of millions of dollars. For example, “Avon says it spent $96 million on the [Foreign Corrupt Practices Act] investigation in 2010 and $35 million the year before,” and it anticipated its 2011 costs would be “similar to the costs in 2010.” Wall St. J., May 25, 2011. Read more...
Published in International Law News, Volume 42, Number 2, 2013*
FCPA Investigation Costs
Wal-Mart incurred "$157 million of professional fees and expenses related to the ongoing Foreign Corrupt Practices Act (FCPA) matter" in its last fiscal year, and it expects to incur an additional "$40 to $45 million for the first quarter of fiscal 2014." (Walmart Feb 21, 2013 Earnings Release, p. 3)
Oilfield services company Wheatherford International states in its annual report: "The DOJ and SEC are investigating our compliance with the Foreign Corrupt Practices Act (“FCPA”) and other laws worldwide… To date, we have... incurred $123 million for legal and professional fees in connection with complying with and conducting these on-going investigations." (Wheatherford 2011 Annual Report, p. AR-19)
Avon Products disclosed that it spent "approximately $93.3 million in 2011. The increase in Net Global expenses for 2010 as compared to 2009, was primarily attributable to significant professional and related fees associated with the FCPA investigation and compliance reviews of approximately $95.3 (up approximately $59.0 from 2009)." (Avon Products 2011 Annual Report, p. 36)
A Look at Insurance Coverage for FCPA Investigations and Enforcement Actions
It’s no secret that investigations under the Foreign Corrupt Practices Act (“FCPA”) don’t come cheap. The latest reports are that Walmart’s FCPA probe has already hit the $230 million mark; looking ahead, the company will still likely have to pay DOJ penalties, SEC fines and may end up settling several related shareholder suits. That costs keep getting higher has spurred some to suggest that companies consider using insurance coverage to offset the high price of an FCPA investigation.
Aaron Schildhaus, President and CEO of D & O Supplemental International Insurance LLC , recently published an article in the American Bar Association’s International Law News entitled Anticorruption Compliance and Insurance Coverage: Offsetting the High Costs of Investigations, explaining why companies, managers and directors may need to pay closer attention to this issue. Read more...
D & O Supplemental gives you the protection you are missing at the pricing you can afford.
If the Government decides to investigate your company, even the best compliance programs won’t prevent the high legal defense and related costs you will face.
Unless you have specialized insurance coverage for directors, officers, managers, agents, contractors and employees, the huge costs associated with government investigations are likely to be crippling.
The company and those associated with it need protection.
US corporations generally provide indemnification for their officers and directors pursuant to provisions in their bylaws, when authorized and statutorily available. They also provide Directors and Officers (D&O) Insurance in the event of attacks upon them resulting from their duties on behalf of the corporation. Non-US corporations, where permitted by law, often provide indemnification through contractual arrangements. In jurisdictions whose laws are unclear as to whether or not indemnification is permitted, insurance would be the only protection available for directors and officers.
Such coverage has historically been available to protect these individuals from the personal liability and legal expenses that may result from shareholder derivative suits naming them as parties, from class action suits and from governmental proceedings. In recent years, D&O coverage has been crafted increasingly to cover defense costs of other civil and criminal challenges. By extension, those could include the cost of FCPA, other anti-bribery legislation, and criminal investigations world-wide. To date, however, the availability of such coverage by insurers is limited.
Coverage for the costs of investigations and protection for directors and officers must be agreed upon between the insurer and the corporation and/or its directors and officers; and the coverage must be scrutinized carefully to assure that the protection that is desired is in place.
D & O Supplemental helps you identify the best insurance companies and find and negotiate the best policies and the best payment terms for these types of insurance products. D & O Supplemental works with the key providers of such insurance and is your best resource in this field.
D & O Supplemental has identified a critical need in the market that corporations are only now beginning to recognize: additional, supplemental, effective insurance coverage that will pay the legal, accounting and related costs incurred by a company and by its directors and officers when the Government launches an investigation into possible violations of the FCPA or other Federal statutes in the US and government investigations by other governments for criminal violations anywhere in the world. Current policy limits and practices mean that directors and officers may not be covered at all in some cases. In others, the policy limits are quickly reached, and in still others, the insurance carrier may deny coverage because the insuring agreements of the policy may preclude coverage for investigations, whether or not they are formal or official.
The need to provide added cover is obvious; the policy limits, the conditions and the exclusions that apply in most cases require specific negotiation and assistance. D & O Supplemental helps you identify the best insurance companies and find and negotiate the best policies and the best payment terms for these types of insurance products. D & O Supplemental works with the key providers of such insurance and is your best resource in this field
D & O Supplemental gives you the protection you are missing
Why your current insurance policies need review
Why D & O Supplemental
Compliance is essential - backstop it with D & O Supplemental
D & O Supplemental International Insurance LLC is a Washington, DC limited liability corporation and a licensed casualty insurance producer. It was created to provide the insurance coverage that is missing or inadequate to protect directors and officers from the high costs of government investigations into violations of the Foreign Corrupt Practices Act (FCPA) and other criminal acts attributable to senior managers and corporate directors and others linked by contracts or relationships with the corporation. D & O Supplemental works with the leading providers of D&O insurance world-wide to offer its clients with optimal and tailored protection and helps with innovative pricing and payment terms to fund the necessary insurance.
The President/CEO of the company is an experienced international attorney and well-known expert in the field of international anti-corruption law (including due diligence and compliance) for over twenty years. For the past five years, Aaron Schildhaus has served as the Senior Advisor to the American Bar Association’s (ABA) International Anti-Corruption Committee. Mr. Schildhaus was Chair of the 25,000 + member, Section of International Law of the ABA in 2008-2009.
Directors and Officers Supplemental International Insurance, LLC
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