TABLE OF CONTENTS

<Foreword - Fritz F. Heimann
The Corporate Interest in Combating Corruption - Howard Aibel
<Integrating Anti-Bribery Compliance Into Corporate Control Strategy - Jay Singh
<Blueprint for Anti-Bribery Compliance Program - E. Scott Gilbert
<Model Corporate Codes of Conduct - Donald Zarin
<Case Studies -Donald Zarin

FOREWORD

Combating corruption in international business is now widely recognized as an essential step in maintaining a sound international trading system and assuring the viability of democratic political systems and market economies. This requires a comprehensive program, directed at bribepayers as well as bribetakers. Corporate codes of conduct are a key part of such a program.

In the U.S., corporate codes of conduct have been used for many years as a way to achieve compliance with legal and ethical rules. The bribery scandals of the 1970s, and the enactment of the Foreign Corrupt Practices Act (FCPA) in 1977, resulted in the adoption of anti-bribery codes by many U.S. companies. Thus there is now almost two decades of U.S. experience with anti-bribery codes. On the international level, the International Chamber of Commerce (ICC) in Paris published Rules of Conduct to Combat Extortion and Bribery in 1977. A number of non-U.S. companies have adopted codes modelled on the ICC Rules. Many other companies were reluctant to adopt anti-bribery. codes because they believed that their competitors would continue to pay bribes.

Since the beginning of the 1990s there has been a worldwide epidemic of corruption scandals, including Japan, South Korea and India, Italy, Spain and Belgium, Brazil, Venezuela and Colombia, to mention only the most prominent cases. This has stimulated interest in controlling corruption on a previously unprecedented level.

Transparency International(TI) was organized in Berlin in May 1993, as a non-governmental organization to combat corruption in international business transactions. TI is building coalitions, including business, civic and other groups, which support the development of effective integrity systems. TI has established national chapters in over four dozen countries.

In March, 1996, following a year-long study, the ICC revised and strengthened its Rules of Conduct to Combat Extortion and Bribery. The ICC is launching a follow-up program under which its national committees in 62 countries will encourage their member companies to adopt codes based on the new ICC Rules. The important role which corporate compliance programs can play has also been recognized by the Federation of German Industry (BDI) which issued corporate guidelines in 1995, as well as by Hong Kong's Independent Commission Against Corruption.

TI's U.S. Chapter has undertaken this study of the best practices developed by American companies as a contribution to the dialogue on what companies can do to control corruption. The study was chaired by Howard Aibel, who served as general counsel of ITT for more than two decades and is now a partner in LeBoeuf, Lamb, Greene & MacRae, in New York. We hope that this study will be a useful resource to corporations and business organizations around the world.

In the first section of the study, Howard Aibel discusses the reasons why it is in the best interest of corporations around the world to adopt codes of conduct. The second section, written by Jay Singh of Coopers & Lybrand, discusses the steps required to integrate an anti-bribery policy with a company's overall risk-control strategy. The third section, written by Scott Gilbert, General Electric's Counsel-Litigation and Legal Policy, and a former federal prosecutor, describes the key elements for an effective anti-bribery compliance program. The fourth section "Model Corporate Codes of Business Conduct," consists of excerpts of key provisions from corporate policies selected by Don Zarin of Dechert Price & Rhoads, in Washington, D.C., a leading authority on the FCPA. The new ICC rules are included among the Model Codes. The final section consists of eight case studies prepared by Don Zarin, dealing with the application of the FCPA to hypothetical, but nonetheless realistic, business situations. These case studies are reprinted from Don Zarin's book, Doing Business Under the Foreign Corrupt Practices Act published by the Practising Law Institute (1995). Many of the issues presented in those case studies are likely to arise in the administration of codes of conduct of companies that are not subject to the FCPA.

Combating corruption in international business transactions is an extremely difficult undertaking. It will require private sector initiatives, as well as actions by national governments and by international agencies. While no single remedy will be decisive, different remedies reinforce each other. The experience of Hong Kong has demonstrated that the synergetic effect of interacting measures can successfully clean up an extremely corrupt system.

Corporate compliance programs are a key part of a comprehensive anticorruption strategy. They are important in influencing corporate conduct. In addition, they enhance the effectiveness of government actions. The use of corporate codes of conduct in the U.S. has clearly increased compliance with the FCPA. The threat of criminal penalties has strengthened corporate England are sufficient demonstration of this proposition. Experience with corporate compliance programs in the U.S. has demonstrated that they are effective only when there is a clear and consistent message. Mixed messages - corruption in some places is acceptable but not in others - undermine the effectiveness of the program.

Undoubtedly the most serious adverse impact on the enterprise is caused by public disclosure of corruption. Damage worldwide to a reputation for integrity and ethical behavior, developed through decades of good corporate conduct, is a serious consequence which must be anticipated. Moreover, such disclosure could result in significant risk of loss of the enterprises' property in the country involved. Public disclosure of bribes will trigger enforcement of previously rarely if ever enforced civil and penal provisions punishing corruption. This could result in penalties being imposed on individuals as well as the enterprise. Charges that bribes had been paid can put at risk the completion of projects and payment for work already performed. Experience teaches that threats to the physical security of personnel at the contract site are far from remote possibilities. Realistically, the opportunities to continue to do business in the future in the country involved would not appear to be too promising.

In the past five years, public concern over corruption has increased. There is much less toleration of bribery in the nineties than before. The major reason why toleration of corruption has decreased is the much greater freedom of the press. As political systems have opened up and democratic institutions have expanded, investigative journalists no longer regard high level corruption to be "off limits." Similarly, French judges and Italian magistrates after decades of not doing so have recently gone after even the highest and most prominent political and business leaders. The corruption scandals of the nineties are different from those of the seventies, which mainly resulted from U.S. investigations following Watergate. Importantly, the scandals of the nineties are the result of local investigations. The corporate governance movement has spread from the U.S. to Western Europe. "Whistleblowers" are no longer a species solely indigenous to America. Thus, the risk of getting caught has increased and so have the penalties.

There is probably not a reader of these materials who would not say that the making of corrupt payments is contrary to his or her personal code of ethics. What needs doing in the market place is the putting into practice of these ethical principles. The fight against corruption involves much higher stakes than whether a company gets an order or whether any particular company or government official gets caught. If corruption cannot be curbed effectively, the expansion of market economies and of democratic institutions will be-threatened. As President Henkel of the Federation of German Industry has recently put the proposition so eloquently: "The private sector has an immense interest in solving this problem, because corruption not only increases the costs and hinders competitiveness of companies, but corruption can undermine our market economy system and finally even our society."

There is now widespread recognition by international government organizations, by national governments and by civic and professional groups that major efforts to combat corruption are needed. Business organizations and corporations should work in support of such efforts. Business must be a part of the solution so as not to be considered a major cause of the problem.

Integrating Anti-Bribery Compliance into Corporate Control Strategy

by Jay Singh

Before discussing the specifics of a corporate anti-corruption compliance program, it is important to first lay out the context and environment which make such programs successful. The most effective anti-corruption compliance programs are integrated into an overall business risk management and control framework. An isolated approach, involving a separate infrastructure is likely to be both more costly and less effective than an initiative integrated into an overall business risk management structure. Within a large company, the competition for CEO and senior management attention is intense, and it is important that anti-corruption controls not be perceived as peripheral measures that can be delegated to subordinates.

The Integrated Approach

One integrated framework for business risk management which has emerged as a standard in the U.S. and as a guide to the development of similar standards in other countries is the study published by the Committee of Sponsoring Organizations of the Treadway Commission, commonly known as COSO. Entitled "Internal Control -- Integrated Framework," it offers a common business risk and control language, an integrated approach to managing and controlling risks, and a framework and standard against which organizations can measure the effectiveness of their internal controls.

The cornerstone of the new approach embodied in COSO is CEO ownership of the organization's control functions. While traditional controls focused on accounting and financial controls, with responsibility assigned to the Controller or the CFO supported by the Legal and Internal Audit Departments, COSO makes the CEO the owner of controls. In addition, risk assessment and control functions are embedded in core business processes, and all employees share responsibilities for them.

COSO identifies five interrelated components of control:

1. Control Environment: The core of any business is its people, -- their individual attributes, including integrity, ethical values and competence -- and the environment in which they operate. Unless the Board, CEO, and senior management set the 'tone at the top' and foster an environment that discourages corruption, no anti-corruption compliance program is likely to succeed. To create the proper control environment, senior management should:

• Communicate mission, purpose, shared values, and objectives of the organization. When these are not clearly communicated and reinforced, employees lose clarity and focus and may inadvertently make the wrong trade-offs and decisions. To reinforce the importance of the anti-corruption program, senior management should demonstrate its commitment by taking the steps outlined below.

• Establish clear boundaries of acceptable behavior. Employees need to feel empowered, yet organizations have to place specific boundaries and limits. Members of Senior Management need to exemplify the core values of the organization in their daily actions and interactions. In addition, the organization must issue a clear written statement of policy that articulates the corporation's anti-corruption commitment in the contexts in which the issue may arise. The components of a statement of policy are described below.
  

• Select and develop the best people. It is management's responsibility to ensure the competence of its people and organize, develop and motivate them to achieve corporate goals and objectives. Human resource policies, such as, hiring, training, performance appraisals, incentives and compensation, career path planning, etc., play an important role. Performance reporting, promotion and compensation should be specifically linked to risk management and control, including compliance objectives of control.
  

• Establish accountability at all levels of the organization for risk controls. Internal control is everyone's job; each employee must understand his/her role in the integrated process and be held accountable for it. Clearly, roles and responsibilities for an anticorruption compliance program must be built into process objectives and measurements and must be considered in developing business strategies and business risk assessment.
  

• Create an environment that encourages the free flow of information and concerns throughout the organization. There should be upward, downward, and horizontal dissemination of information about opportunities, risks, and controls throughout the organization. Airing of issues and concerns should be encouraged and vehicles provided to employees for voicing them without fear of retribution. Without such an environment, employees will be reluctant to report possible violations or concerns, so important to the success of any anti-corruption program. See page 15 below.

2. Risk Assessment: Every entity faces a variety of risks from external and internal sources that must be assessed. A precondition to risk assessment is establishment of objectives, linked at different levels and internally consistent. Risk assessment is the identification and analysis of relevant risks to the achievement of objectives, forming a basis for determining how risks should be managed. Thus, identified risks should be prioritized based on the likelihood of their occurrence and the resulting consequences in terms of economic loss, business interruption, and loss of business reputation.

Accordingly, once the objectives of an anti-corruption program have been set at the corporate level, they must be translated and linked to objectives at other levels of the organization (i.e., by business line, by organizational entity, by geography, etc.). Risks to the achievement of the program objectives at each level must be identified, sourced, measured, and prioritized.

3. Control Activities: During the risk assessment process, significant controllable compliance risks will be identified that may be unacceptable at the existing level. Steps must be taken either to strengthen controls already in place or design and implement new controls to reduce risks to acceptable levels. Control activities occur throughout the organization and include a range of activities as diverse as approvals, authorizations, verifications, reviews of operating performance, segregation of duties, etc. A critical element of an anti-corruption program is a set of detailed controls to govern the appointment of sales representatives. Examples of such controls are given below.

4. Information and Communication: Pertinent information must be identified, captured and communicated in a form and timeframe that enables people to carry out their anti-corruption responsibilities.

Education and training must be provided to teach personnel about their responsibilities.

A reporting mechanism should be available for employees to communicate concerns without fear of retribution.

Information systems are needed to produce reports containing operational, financial and compliance related information that make it possible to run and control the business. Information about the risks within the markets served by the business must be disseminated.

Finally, effective communication by external parties, such as customers, suppliers, regulators and shareholders, must occur.

5. Monitoring: Anti-corruption control systems need to be monitored -- a process that assesses the quality of the system's performance over time. This is accomplished through ongoing monitoring activities, separate evaluations or a combination of the two. Ongoing monitoring occurs in the course of operations through regular management and supervisory activities and other actions personnel take in performing their duties. The scope and frequency of separate evaluations, such as audits or internal investigation activities, will depend primarily on an assessment of risks and the effectiveness of ongoing monitoring procedures. Internal control deficiencies should be reported upstream, with serious matters reported to top management and the board. Once deficiencies are identified, remedial acts must be taken.

The Building Blocks of An Anti-Corruption Program

The specific elements of an anti-corruption compliance program, designed to be integrated into an integrated control environment, are described in the pages that follow. Examples of actual compliance programs are provided in the appendix. They all have the following common themes:

• The Board and CEO must create a control environment that places a high priority on compliance by fostering a "zero defect" mentality with respect to compliance.

• Compliance requirements must be identified and communicated to business units so that they can be included in the company's overall risk assessment process.

• Compliance activities must be integrated into business processes since the act of compliance occurs in day-to-day business operations, not in the compliance department.

• Process owners should be assigned for compliance programs with responsibility for ensuring the ongoing effectiveness of the risk management process and the performance of risk controls in reducing identified compliance risks to an acceptable level.

• Compliance should be monitored through ongoing and periodic monitoring activities that is, through management and supervisory actions and through internal and external compliance audit programs.

Blueprint for an Anti-Bribery Compliance Program
by E. Scott Gilbert

The following is an outline -- a blueprint -- for a corporate anti-corruption compliance program. While there is no single format for an effective compliance program to protect companies from unwitting involvement in corruption, this outline is a compilation of steps that many corporations have considered to be essential to a comprehensive and effective program. Samples of representative elements of compliance programs are attached in the accompany exhibits.

I. Commitment of Senior Management

A. Statement of senior management's commitment to the anti-corruption compliance program;

B. Measurement: the importance that the Company attaches to policy compliance should be reflected in employee and manager performance assessments and compensation reviews;

C. Involvement of senior management in the implementation and oversight of the policy

1. A senior manager should be assigned "ownership" of the policy;

2. A compliance committee or board may be established to supervise policy implementation and interpretation and to oversee disciplinary actions.

II. Written Statement of Policy

A. Key lssues

1. Prohibition of bribery: At the heart of the policy should be a clear statement that the company prohibits employees and third parties representing the company from offering anything of value, directly or indirectly, to a government official to influence or reward an action. The company may also choose to extend the same policy to commercial, as well as governmental, customers.

2. Gifts and Entertainment: The policy should permit ordinary and reasonable gifts and entertainment only if consistent with applicable laws and regulations, policies of the intended recipient, and any other applicable guidelines (such as the guidelines of a governmental institution that is funding the transaction). Detailed guidelines should be issued that provide specific guidance for different categories of customers.

3. Travel and Lodging Expenses: The policy should permit reimbursement of travel and lodging expenses of government customers only if: the expenditures are reasonable and bona fide; the travel expenses are directly related to the promotion, demonstration, exhibition of a product or service or the performance or execution of a contract; the payment of travel and lodging expenses is permitted under local law; the payment is in accordance with customer policy directives or guidelines; and the payment is not contrary to any other applicable law, contract requirement or funding agency requirement.

4. Political Contributions: Laws regulating political contributions by corporation vary from country to country. The policy should require the company to comply with applicable laws regarding political contributions and disclosure. In addition, the policy should clearly prohibit the company and any third party representing the company from making or offering, directly or indirectly a payment or anything of value (such as a bribe or kickback) to any political party, party official or any candidate for political office of a country to influence or reward any governmental act or decisions.

5. Facilitating Payments,: The policy may distinguish between bribes, which are prohibited, and "facilitating payments," a narrow category of gratuities to low level officials. Where facilitating payments are permitted, abuse must be prevented by training employees to distinguish between permissible facilitating payments and prohibited bribes and to account properly for any such payments.

6. Internal Controls and Recordkeeping: The policy should require that the company maintain a system of internal controls and recordkeeping that ensures that its books and records accurately reflect its transactions and disposition of assets. An audit committee, composed of independent outside directors, should oversee the structure of internal controls, the internal audit function, and the retention of independent auditors.

B. Procedural Issues

1. Distribution: the policy should be written in a format that is clear, concise and understandable. Distribution of the policy to every employee at every level of the organization -- sends the most powerful message. At a minimum, it should be distributed to every employee who is in a position to expose the company to potential violations of the policy (e.g., employees responsible for managing or appointing sales representative, accounting personnel, marketing and sales employees, employees who interact with political officials).

2. Translation: ideally the policy should be translated into the local language(s) spoken by company employees and third party representatives to whom the policy will be distributed.

3. Acknowledgement: Awareness of the policy, statement should be acknowledged by each employee and/or third party representative who receives it and periodically reacknowledged using either written or electronic means. The signing of acknowledgments promotes awareness of the policy and generates a useful record of the Company's commitment to implementation of the policy.

Procedures for monitoring the relationship with sales representatives and other Third Party Representatives are of critical importance.

Ill. Relationships with Third Party Representatives

A. Selection process

1. Clear allocation of responsibility for each stage of the appointment process

2. Approval process

• demonstrated commercial or legal need for the appointment;

• awareness of local laws that may apply to the approval/retention process

3. Qualification of the third party

• resources and expertise: financial resources, personnel, experience

• reputation

• location

4. Screening

A process should be implemented to ensure that the third party is qualified and can be expected to abide by the anti-bribery policy

• written recommendation from sales manager documenting commercial need for appointment; duties; goals; verification of qualifications

• written application by third party

• names under which applicant has conducted business;

• names of owners, partners; shareholders;

• principal officers;

• relationship between any owner or employee of the applicant and any government official;

• affiliated organizations;

• description of organization;

• description of people who will be working on behalf of the company;

• background information;

  • branch offices

  • qualifications of sales persons

• financial references (bank, clients, etc.);

• general references (other firms, including applicant's relationships with such firms);

• financial data (2 years' financial statements);

• litigation history;

• Reputation check from references and other sources;

• Discussion with the third party about the company's commitment to the anti-corruption policy and the necessity of complying with it.

5. Approval by senior management

6. Written agreement

A written agreement should be signed with the third party representative, before the representative undertakes any work for the company. The written agreement generally should contain the following elements:

• Explicit prohibition against illegal payments

• Provision for immediate termination in the event of breach

• Limited term to assess performance

• Explicit representations by third party that no owner; partner; officer; director or employee is or will become an official of any government of a country in which the representative is selling company products without explicit approval of the company

• Agreement to abide by the company's anti-money laundering policy.

B. Compensation

Excessive compensation is one of the principal mechanisms that can be used to fund bribery. Standards should be established that require compensation to be established in light of specific criteria such as services to be provided; past performance; competence and resources to be utilized; complexity of the transaction; prevailing rates in the relevant market. Typically, commission rate schedules should be established for given markets, and any deviations from such standards should be permitted only upon authorization of senior management. A sliding scale for commission rates is appropriate-reducing the percentage payable as the value of the order increases. For example, a 5% commission on a $1 million order may be appropriate; a 5% commission on a $1 billion order should raise red flags.

Method and place of payment. Permit only forms of payment that leave a record that the payment has been deposited into a bank account held in the name of the third party representative. Payment by cash and bearer instruments should be prohibited. Acceptable forms of payment include check payable to the third party representative and wire transfer to a bank account bearing the third party representative name. Payment should only be made in the country where the products or services were sold or in the country of the third party representative's headquarters. Exceptions to these requirements should be permitted only upon approval by senior management and counsel, together with a written statement providing a bona fide justification for the exception.

C. Monitoring: Red flags

Evidence suggesting that the third party might not adhere to the policy should be vigorously investigated at any stage. Examples of red flags include the following:

• Unusual payment requests;

• Unethical practices, e.g. preparing false documents, false answers to questions;

• Press reports suggesting unethical behavior;

• Comments that hint of bribery;

• Apparent lack of commitment to policies;

• Termination of agreement by other clients Unfavorable reference checks;

• Requests to keep relationship secret;

• Unusually favorable payment terms;

• Lack of concern about product quality, training, warranty;

• Request to split payments into small amounts;

• Request to make payments in a different currency than appropriate for the agreed upon address for such payments;

IV. Internal Controls and Recordkeeping

A. Policies and procedures for approving expenses should require:

That there was independent approval at a higher level than at which the expense was incurred

• Limits should be. established for gifts, entertainment, and business courtesies to and from clients, vendors, government officials, and former U.S. government employees

• 'High risk' expenses/payments, e.g., ambiguous situations and possible exceptions, should require prior top management approval

• Above a specified amount (say, $15), no expenses should be approved without complete back-up documentation, e.g., invoices, receipts, contracts, etc.

That the area processing the payment/reimbursement (such as the Accounting or Accounts Payable department), must verify that proper approval and documentation exists

That there is adequate segregation of duties between the authorization, approval, and payment/reimbursement processes

That there is provision in the company's general ledger to segregate facilitating payments and 'business courtesy' expenses

B. The company's Accounting Policy should have explicit prohibitions against false or 'masking' entries

Records and documentation for payments/reimbursements must be maintained in accordance with a records retention and archival policy which is consistent with IRS and other applicable laws and regulations, e.g., The Annunzio-Wylie Anti-Money Laundering Act.

Accountability for enforcing these policies and procedures must be established at various levels of the organization (departments, divisions, locations, subsidiaries, corporate, etc.)

V. Training and Education

A. Who

• New employees should receive training in the policy upon entry into the company; training should be refreshed annually.

• Third party representatives should receive training in the key elements of the policy.

B. What

The most effective teaching tools are those that confront the trainees with realistic situations, such as the case studies prepared by Don Zarin. (See Tab "Case Studies," below.)

VI. Reporting Mechanism for Concerns about Violations

A. How

The Company should encourage or require employees to report any possible violations of the Company anti-bribery policy and should provide a variety of mechanism for such concerns to be reported. Examples include:

• A "hotline" or "helpline": a toll-free number for employees to report a possible violation of policy or to get advice concerning the application of the policy to specific fact patterns. Employees should be permitted the option of reporting anonymously.

• An Ethics Office or Ombudsman to whom employees may raise their concerns.

B. Non-retribution.

The Company should prohibit retaliation against any employee who reports a violation of the policy.

VII. Audit

Periodically, auditors, either internal or external, should determine whether each element of the compliance program is functioning. Auditors will interview employees and third party representatives, examine "due diligence" files, agreements and other documents associated with third party relationships, and examine accounts pertaining to compensation paid to the third parties. Weaknesses or deficiencies noted should be corrected.

VIII. Investigations and Remedial Action

Upon the discovery of a "red flag" or possible violation of the anti-bribery policy, an investigation should be undertaken under the supervision of counsel, to determine if any violation has occurred. If a violation is discovered, appropriate remedial action, including disciplinary action and enhancement of procedures, should be undertaken. If the investigation reveals a violation of law, counsel should consult with senior management to determine whether disclosure to law enforcement authorities is warranted.

Model Corporate Codes of Business Conduct

1. FMC Corporation

2. General Electric Company

3. ITT Corporation

4. NYNEX

5. Texaco

6. International Chamber of Commerce Rules of Conduct to Combat Extortion and Bribery

Excerpts from FMC Corporation

Code of Ethics and Business Conduct Guidelines

CODE OF ETHICS

Foreword

FMC is dedicated to establishing and enforcing high mom] and ethical standards of conduct.

FMC will conduct is business with honesty, integrity and a strong commitment to high standards of ethics and in compliance with an applicable laws.

This Code of Ethics is based on FMCs commitment to meet its obligations to all who have a personal, professional or financial stake in what FMC does, including stockholders, customers, employees, suppliers, its host communities and nations, and the industries is serves. Some obligations are direct and obvious, such as striving to provide superior products and services for its customers and increasing value for its stockholders. Other obligations stem from the company's firm policy of complying with the letter and the spirit of all applicable laws.

This code discusses the ethical principles that should guide all FMC employees in their daily work- The code and FMCs Business Conduct Guidelines do not cover every possible subject or situation. They are not intended to provide final answers. If in possible doubt, consult your supervisor, the law department, Ethics committee chairman or other appropriate person. Wisdom, discretion and sound judgement should guide everyone in sensitive situations.

This code and the guidelines are important to FMC Failure to comply with them will result in disciplinary action, which may include discharge.

Employee Responsibilities

Ethics and behavior are individual responsibilities. High standards of behavior are expected of all employees, regardless of position or location. No supervisor has the authority to require conduct that is in violation of this code, the guidelines or any law.

Every employee is expected to report any violation of this code, the guidelines or any applicable law. Employees who make such reports in good faith need have no fear of reprisal. The company will ensure that any allegations will be investigated and reviewed in the strictest possible confidence consistent with the particular situation.

Management Responsibilities

All managers are accountable for the actions of their employees. They are also responsible for seeing that policies are followed. Every manager is responsible for informing his or her employees about company policies, including those dealing with legal and ethical behavior. Managers and supervisors also are responsible for maintaining a work environment where constructive, frank and open discussion is encouraged and expected, without fear of retaliation.

The chief executive officer and management at all levels throughout the company are responsible for ensuring adherence to this code and the guidelines, and for ensuring, there are appropriate ongoing employee communications and training. They are supported by the company's audit communications, human resources and law departments, which normally are responsible for handling many issues outlined in this code and the guidelines. The Public Policy Committee of the Board of Directors has a general oversight function. Significant violations will be reported to the Board's Audit Committee.

The Ethics Oversight Committee and Violation Reporting

To ensure that this code is properly implemented, FMC has an Ethics Oversight Committee, which includes senior management from both corporate headquarters and worldwide operations. This committee, subject to review by outside directors on FMCs Board, is responsible for ensuring that the code is properly implemented and monitored. It is chaired by an external adviser who reports directly to an executive officer.

Employees who know of violations of the code should report them to their supervisors, other appropriate management, the chairman of the Ethics Oversight Committee, FMC's general counsel, or any member of the law department.

The Ethics Office administers reports of code violations. Guideline violations are referred to the law department. Employees may contact the Ethics Oversight Committee as follows:

write: Chairman
FMC Ethics Oversight Committee
P.O. Box 81232
Chicago, IL 60681

or call toll free in the US.: 1-800-654-8560

The names, telephone numbers and addresses of FMCs general counsel and law department lawyers am listed in the company's directory.

It is FMCs policy and intent that except for knowingly reporting false accusations, every employee may report code or guideline violations without fear of retaliation.

Compliance and Discipline

This code and the Business Conduct Guidelines are important to FMC. Failure to comply with the standards outlined in this code or the guidelines Will result in disciplinary action, ranging from a reprimand to dismissal. Civil or criminal violations may be prosecuted. Disciplinary action will be taken against:

1. Violations of this code.

2. Any employee who deliberately withholds relevant information concerning a violation of the code or the guidelines

3. The violator's manager or supervisor to the extent that the circumstances of the violation reflect participation, poor supervision or lack of diligence.

4. Any supervisor or employee who retaliates, directly or indirectly, or encourages others to do so, against an employee who reports a code guideline, policy or law violation.

5. Any employee who knowingly falsely accuses another employee of a code, guideline, policy or law violation, or who raises any ethical or guideline issue under false pretenses.

BUSINESS CONDUCT GUIDELINES

Prohibited Payments

The following guidelines reflect the policy of FMC Corporation and its domestic and foreign subsidiaries with respect to political contributions, payments to government personnel, commission payments, proper accounting procedures and commercial bribery.

1. Compliance with laws and regulations

The use of company or subsidiary funds or assets for any unlawful purpose is strictly prohibited. The company's policy is to comply with all applicable laws and regulations. When laws and regulations are ambiguous or difficult to interpret, management must seek advice from the law department in order to assure compliance.

2. Political contributions

Corporations are not permitted by law to make contributions in support of candidates for US. federal office. The company is permitted to and does sponsor the FMC Corporation Good Government Program, a political action committee registered with the Federal Election Committee, which does make contributions. Company contributions (including purchase of tickets for political events) may be made to state and local candidates and political parties only when permitted by applicable law (many states do not permit corporate contributions) and after written approval by the company's chief executive officer, communications and law departments.

In other countries, political contributions by FMC or its subsidiaries can be authorized only when permitted by applicable law, after prior written approval by the corporate officer responsible for FMC activities in the country and the communications and law departments.

These prohibitions and approval requirements relate only to the use of corporate funds. In no way are they intended to discourage employees from making personal contributions to candidates or political parties of their choice through company programs (such as the FMC Corporation Good Government Program) or otherwise. Employees must not however, be reimbursed by expense accounts or otherwise for such personal contributions.

3. Payments to government officials or employees

Payments of corporate, subsidiary or personal funds or anything else of value may not be made to a government official or employee or political party or candidate in order to obtain or retain business for FMC or any of its subsidiaries or affiliates or to direct business to any other person. Indirect payments of this kind through a third person, such as a sales representative, distributor or consultant, must not be authorized. The US. Foreign Corrupt Practices Act as revised in 1988 provides that a payment does not violate the Act if it was lawful under the written laws and regulations of the local country. There is no country in which FMC does business, however, that officially sanctions bribery of government or political officials, and it is FMCs policy not to engage in such violations of foreign law even if local business practices seem to ignore the law. The Act as revised in 1988 also prohibits any payment to a third party if FMC or its employee knows that all or any portion of the payment will be used for any such payment to a foreign government official or employee, or political party or candidate.

In some countries where the company operates, required administrative action or procedural assistance, not involving obtaining or retaining business, can be obtained' in timely fashion only through the payment of modest gratuities to government officials or employees. Such payments may be made, but only upon the advance approval of a vice president of the parent company. The vice president must first determine that the company or its subsidiary is entitled to the governmental action or assistance requested, that such payments are sanctioned by local custom and that no reasonable alternative exists. If the payment exceeds $5,000, advance approval must also be obtained from he vice president-international, the vice president-finance and the vice president and general counsel. The vice president shall, within 30 days after any payment made pursuant to his approval, report the same to the corporate controller. Employees of the company and its subsidiaries shall make every effort to eliminate and minimise these expediting payments.

Gifts of substantial value to or entertainment of government officials or employees beyond that customarily extended in ordinary commercial transaction are viewed by the company as improper and are not permitted. Any restrictions on the receipt of gifts or entertainment to which a government official or employee is subject are to be observed (e.g., those of the US. Department of Defense).

4. Commercial bribery

In addition to the company's prohibition on payments to government officials, bribes to Persons who are not government officials or employees to obtain or retain business or direct it to any other person are also prohibited, whether made directly or through an intermediary.

5. Appointment of sales representatives, distributors and consultants

Commission or fee shall be made only with firms or persons serving as bona fide commercial sales representatives, distributors or consultants (from this point referred to as "representatives"). Such arrangements may not be entered into with any such firm in which a government official or employee is known or believed to have an interest. All commission and fee arrangements with representatives shall be covered by a written agreement. The agreement should contain, in addition to other normal terms and conditions, a clear description of the representatives' services to be rendered, a commitment by the representative to abide by applicable law, and a statement that FMC may be required to disclose the existence and terms and conditions of the contract to authorized governmental agencies. (The Company's model international Sales Representative and Distributor agreements are recommended for this purpose if the agreement could be affected by the US. Foreign Corrupt Practices Act.) Representatives in single transactions whose arrangements are not covered by a regular representative's contract should sip an appropriate agreement or memorandum describing the transaction and terms and shall also be advised that such a disclosure may be required. Any commission or fee to be paid to a representative for assistance in securing orders and for after-sales service must be reasonable as to amount and consistent with normal practice for the industry, for the line of products involved and for the commercial services to be rendered. Percentage commissions should normally be lower as sales volume increases. Payments to a representative must never be made in cash. Payments to a representative should also be made to its business office in the country where it is located unless the law department has approved otherwise.

6. Questions regarding prohibited payments policy

Any employee who has any question regarding this policy or its application should discuss the matter with his or her division manager or directly with the law department.

7. Reporting violations

Any employee who has knowledge of a prohibited payments violation should immediately report it to FMC's general counsel.

Excerpts from FMC Corporation

Corporate and Employee Responsibility Program

U.S. Foreign Corrupt Practices Act

Temptations for foreign bribery can arise in the context of a potential sale of goods or services to a foreign government of government agency. They may also arise in obtaining various business permits, customs clearances, tax rulings and other similar issues. FMC policy prohibits making any payment that violates the U.S. Foreign Corrupt Practices Act and closely monitors any substantial gift or any direct or indirect payments related to obtaining or retaining business for FMC.

The US. Foreign Corrupt Practices Act makes it illegal for a U.S. company, directly or through anyone else, to bribe any foreign government official, political party or candidate for political office in order to obtain or retain business or to direct business to any third party. This applies to the US. company and an its subsidiaries whether or not the business transaction itself is in U.S. commerce.

The language of the Foreign Corrupt Practices Act is broad an includes not merely paying money, but also providing unusual gifts, free vacations or travel, and the like. The term "official" is also broadly defined to include elected and appointed officials at all levels and in government agencies as well as the government proper.

The Foreign Corrupt Practices Act recognizes that there are countries where payments to low-level officials are necessary to obtain services to which one is entitled - telephone installation. processing of impart papers, police protection and the like - and permits such "facilitating" payments under a narrowly limited exception to the general prohibition. "Me FMC Business Conduct Guidelines, however, require that any such payment be approved in advance by the operating group manager. Further, FMC Business Conduct Guidelines require that any payment or series of payments over $5,000 must be approved in advance by the vice president, international; the vice president, finance; and the vice president, general counsel.

Finally, the Foreign Corrupt Practices Act also makes it illegal for a US. company or its subsidiaries to maintain accounts on its books that do not accurately and fairly represent the uses made of its funds and other assets - Le., no "slush funds."

Excerpts from General Electric Company

Integrity: Spirit & Letter of Our Commitment

INTRODUCTION

GE has issued one set of policies on key integrity issues. Those policies, which implement the company's Code of Conduct, are described in the following sections. information common to all policies - employee and leadership responsibilities, reporting procedures, and penalties for violations - is contained in this introduction.

Who most follow GE policies

GE policies apply to all employees of the company throughout the world. Controlled affiliates both in the United States and world-wide will adopt and follow corresponding policies. A controlled affiliate is an affiliated company in which GE owns, directly or indirectly, more than 50% of the voting shares, or in which the power of control is possessed and exercised by or on behalf of GE.

All GE businesses should require that others representing GE - such as consultants, agents, distributors and independent contractors - agree to follow applicable GE policies.

Responsibilities of all employees

Each policy gives you specific responsibilities. However, there are also basic obligations common to all policies:

• Learn the details of policies dealing with your work. No one expects you to know all policies word for word. But you should have a basic understanding of issues covered by each policy. You should have a more detailed understanding of policies that apply to your job.

• Seek assistance from your manager, company legal counsel, or other GE resources when you have questions about application of the policies.

• Promptly report:

any concerns that you may have about possible violations of a GE policy
any concerns others may have about a possible violation of a GE policy
any concerns about a possible request to violate a GE policy.

You may report your concerns to a GE manager, or, if you prefer, to a company legal counsel, GE auditor, GE ombudsperson or other designated person. Your report may be written or oral, and it may be anonymous.

• If you report a policy concern and the issue is not resolved, raise it with one of the other contacts listed above.

• Cooperate with GE investigations into concerns covered by a GE policy.

GE employees at all levels are prohibited from taking retribution against anyone for reporting or supplying information about a policy concern.

Leadership responsibilities

Leaders have additional obligations common to all policies. They must:

• Lead by example, using their own behavior as a model for all employees.

• For each policy, identify those employees whose activities may involve issues covered by that policy.

• Provide education and legal counseling to promote policy compliance

• Create a culture which promotes compliance, encourages employees to raise their policy questions and concerns, and prohibits retribution.

• Make sure employees understand that performance is never more important than compliance.

• Promptly report employee concerns of possible policy violations according to the business' reporting procedures.

• Take prompt remedial action when required.

• Gather feedback to evaluate and continually improve policy compliance.

• In evaluating and rewarding employees, consider their actions and judgments in promoting and complying with GE policies.

Annually, each officer or manager reporting to a business leader (business CEO) will review policy compliance with his or her direct reports and provide the results of those reviews to the business leader. Periodically, the business leader will report on the results of those reviews in meetings to be scheduled by the Corporate Policy Compliance Review Board (PCRB).

Application to third parties

Certain policies require GE businesses to ensure that independent third parties agree to comply with the principles of those policies. Independent third parties include consultants, agents, distributors and independent contractors.

Leaders and employees must:

• Identify those persons outside GE whose activities may involve issues covered by GE policies.

• Require those persons to agree to comply with relevant aspects of the policies.

• Take necessary action, up to and including terminating the GE contract, after learning that a third party has failed to honor its agreement to abide by the policies.

Compliance programs

It is the responsibility of each business leader (business CEO) to set up and maintain an effective compliance program to prevent and detect violations of GE policies and applicable laws. The business leader should tailor the compliance program to the specific circumstances of the business and adopt policies and procedures, in addition to the corporate policies contained in this guide, as needed. The compliance program should have the following elements:

• Set standards and Procedures that are reasonably capable of reducing the prospect of violations of GE policies and applicable laws.

• Assign overall responsibility for compliance to specific high-level personnel.

• Screen employees and agents to prevent discretionary authority from being delegated to persons who have demonstrated insensitivity to the requirements of comply policies and the laws they cover.

• Implement educational and training programs that will enable employees to understand the basic requirements of GE polices and applicable laws.

• Implement monitoring and auditing systems to detect violations of GE policies and applicable laws.

• Establish and communicate a procedure for promptly reporting possible violations and concerns that protects against fear of retribution.

• Implement appropriate disciplinary mechanism.

• Take remedial action to correct weaknesses and prevent recurrence of failures.

Corporate Policy Compliance Review Board

GE has a corporate-level Policy Compliance Review Board (PCRB) composed of senior corporate officers. The PCRB sets compliance standards for the company and oversees the process for investigating reports of violations of company policies.

Periodically, the PCRB meets with business leaders and other selected employees to review policy compliance issues. The PCRB recommends actions necessary to resolve those issues, reporting as required to the Corporate Executive Office and the Audit Committee of the Board of Directors.

Penalties for violation

Following GE policy is a must. Employees who violate the spirit or letter of these policies are subject to disciplinary action up to and including discharge. The following are examples of conduct which may result in discipline:

• Actions which violate a GE policy

• Requesting others to violate a policy

• Failure to promptly report a known or suspected policy violation

• Failure to cooperate in GE investigations of possible violations

• Retribution against another employee for reporting a policy concern

• Failure to demonstrate the leadership and diligence needed to ensure compliance with GE policies and applicable laws.

For many GE policies a violation can also mean breaking the law and subjecting yourself or the company to criminal penalties (fines or jail sentences), or civil sanctions (damage awards or fines).

Employee acknowledgment

Periodically, GE asks employees to acknowledge their commitment to the spirit and letter of GE policies. Newly hired employees must sign the acknowledgment.

Component policies and procedures

Many GE components issue their own policies and procedures. Their employees must follow those policies and procedures as well as those issued by GE Corporate.

ETHICAL BUSINESS PRACTICES

<Scope
<Requirements
<Third Parties
<Political Contributions
<Permissable Payments
<Employee Responsibilities
<Additional Responsibilities of Leaders
<Penalties for Violations

GE expects employees to use only ethical practices in selling goods and services and in representing the company to governmental authorities. This policy sets forth the ethical standards of conduct and practices which must be followed with respect to certain kinds of payments, entertainment and political contributions. GE will not authorize, involve itself in or tolerate any business practice that does not follow this policy.

Scope

• This policy applies to employees of GE.

• Controlled affiliates must adopt corresponding policies.

• We must encourage affiliated but non-controlled companies to follow practices consistent with this policy.

• We must require independent third parties to represent GE in a manner that is consistent with our commitment to integrity and the principles of this policy. Independent third parties include: consultants, agents, sales representatives, distributors, contractors and any other outside persons representing GE.

Requirements

General

• Never make or offer, directly or indirectly, anything of value (such as a bribe or kickback) to a customer or government official to influence or reward an action. A business courtesy, such as a gift, contribution or entertainment, should never be offered under circumstances that might create the appearance of an impropriety.

• Obey the laws of the United States and other countries that relate to matters covered by this policy.

Third parties

• Require independent third parties to represent GE in accordance with this policy and to obey the laws of the U.S. and other countries related to matters covered by this policy.

• Be careful! Exercise due diligence when selecting a third party to represent GE, keeping in mind that GE and its employees may, in some circumstances, be held responsible for the actions of sales agents and other third parties. For example, if a sales agent makes an improper payment to a government official, the GE employee who works with that agent, as well as the Company, might be charged with a criminal violation of the Foreign Corrupt Practices Art if the employee a) knew about the Payment (Or consciously disregarded information that the payment likely took place); and b) authorized it, either explicitly or implicitly. When selecting a third party to represent GE, consider the following:

• Employ only reputable, qualified individuals and firms.

• Understand and obey any requirements governing the use of third parties (for example, funding agency restrictions, or customer, country or ministry prohibitions).

• Make sure that the compensation is reasonable for the services provided.

• Follow the implementing procedures or component guidelines for selecting and paying third parties.

• If you spot a "red flag" (an indication of a potential policy violation) involving a third party, make sure that it is promptly investigated and resolved.

• Seek the assistance of company legal counsel and management in exercising due diligence and resolving any red flags.

Political contributions

• Obey the laws of the US. and host countries in promoting the company position to government authorities and in making political contributions.

• Political contributions by the company to U.S. federal, state or local candidates may be prohibited or regulated under the election laws. Any contribution of company funds or other assets for political purposes in the U.S. can only be made by GE's Vice President of Corporate Government Relations or Vice President of State Government Relations.

• Never make or offer, directly or indirectly, a payment or anything of value (such as a bribe or kickback) to any political party, party Official, or any candidate for political Office of a country outside the U.S. to influence or reward any governmental act or decision.

Permissible payments

• You may provide customers with ordinary and reasonable entertainment and gifts only if they are permitted by

• the law,

• the customer's own policies and procedures, and

• your business component's procedures.

This policy does not prohibit lawful reimbursement for reasonable and bona fide expenditures - for example, travel and living expenses incurred by customers and directly related to the promotion of products or services, or the execution of a contract.

• Gifts and entertainment to officials and employees of the governments of the U.S. and other countries are highly regulated and often prohibited. Do not provide such gifts or entertainment unless you have determined that you are permitted by applicable laws and regulations, and your business component's policies and procedures to do so.

Employee responsibilities

• Understand and keep up-to-date on the laws of the U.S. and other countries, funding agency regulations and customer requirements related to your job and each requirement of this policy. These requirements can be complex, and it is not unusual to have questions related to a transaction. If you have any questions related to matters covered by this policy, consult with business leaders, their designees, company legal counsel, component guidelines, implementing procedures or the GE National Executive in the country in which you am operating.

• Take the necessary steps to make sure any party acting on GE's behalf understands and agrees to follow the principles of this policy.

• Carefully watch for "red flags" which might indicate illegal activities or violations of GE policies. These include:

• a sales representative or other person representing GE or being considered to represent GE who:

• has been accused of improper business practices

• has influence on the buying decision and a reputation for bribes

• has a family or other relationship that could improperly influence the customer's decision

• approaches you near a customer's award decision and explains that he or she has a "special arrangement" with an official

• insists on receiving a commission payment before the customer announces the award decision

• a customer who suggests that a GE bid be made through a specific representative or partner

• any request that a commission or other payment be made in a third country or to another name

• a commission that seems unusually large in relation to the services provided.

If these or any other signs of possible violation come to your attention, be sure to promptly resolve your concern before proceeding with the transaction that relates to it. Resolution should include management review and should be well documented.

• Promptly report any concerns about possible violations of this policy.

• Maintain timely, accurate and complete records of all expenditures of GE funds.

• Learn and follow your component's guidelines for travel and living expense reimbursement, business entertainment and gifts. In addition, learn and respect the policies of customers and government agencies concerning acceptance of business entertainment and gifts.

Additional responsibilities of leaders:

• Do not retain individuals or firms unless you are satisfied they will abide by the principles of this policy when representing GE. Pay them reasonably for services performed. Make sure the selection process includes a thorough consideration of the scope of activities, credentials, background, costs and compensation terms. Appropriate approvals should be obtained. Make sure that the selection and payment process is consistent with the implementing procedures or other relevant component guidelines.

• Identify those persons inside and outside GE whose activities may involve issues covered by this policy. Carefully review and discuss the requirements of this policy with them and every individual or firm considered to represent GE. Make sure a program is in place to provide them with appropriate education and legal counseling on the requirements imposed by the law and this policy.

• Closely monitor and control business entertainment and gifts.

• Consult with company legal counsel in executing your responsibilities under this policy. Keep in mind that international operations may raise issues requiring familiarity with the laws and regulations of other countries.

• If you discover that a sales representative or other third party representing GE engages in improper business practices for other firms, you should consult with company legal counsel and take necessary remedial action.

• Financial managers will make sure that accurate records are kept that show the amount and purpose of all payments.

• Each business CEO will:

• Review financial reports covered by this policy with the responsible financial manager.

• Request, as required, financial reviews of matters covered by this policy from finance managers or the Corporate Audit Staff.

• Review, as required, other matters covered by this policy with the responsible manager or with the Corporate Audit Staff.

• Review compliance concerns or possible violations of this policy with company legal counsel to determine the appropriate company response and disclosure requirements.

• Make sure this policy is part of an overall policy compliance program.

• Carefully consider the companys responsibilities under the Foreign Corrupt Practices Act in any investment decisions.

• Authorize the execution of any new international sales representative or sales consultant services agreement that is related to a government contract and involves contingent fees or retainer compensation greater than $200,000 (total contract value).

• Authorize (or designate a company officer to authorize) the execution of any international service agreement or sub-contract that is greater than $2,000,000 in value and related to a government contract.

• Clearly delegate the responsibility for the approval of all third party agreements, government or commercial.

Penalties for violations

• In addition to the penalties for employees, GE will, terminate contracts with consultants, sales representatives, distributors, independent contractors and any other third parties who are unwilling or unable to represent GE in a mariner consistent with this policy.

• GE employees must understand that the consequences of violating this policy can extend to the company as a whole and could include loss of government contracting and defense export privileges.

Excepts from ITT Corporation

Code of Corporate Conduct

RESPONSIBILITY FOR ADHERENCE To ITT CODE OF CORPORATE CONDUCT

<To ITT Employees and Agents
<To All ITT Managers
<ITT Standard of Ethics
<Political Affairs
<Conduct with Government Employees
<Sales Agents
<Compliance

To ITT Employees and Agents

Each employee and agent is responsible for adhering to M's Code of Corporate Conduct in all matters related to ITT business.

If you know or have good grounds for suspecting that any legal or unethical conduct has occurred or is planned by anyone, you are expected to report it. You may give that report either to the Director-Corporate Policy Compliance-TIT, to the Ombudsman who has been appointed for each company in the United States at the "800" telephone number provided or to the legal counsel for your company. Your report, which may be anonymous, will be treated confidentially, and you will in no way be penalized for making such report.

To All ITT Managers

It is your additional responsibility to make sure that all of the employees and agents reporting to you adhere to the Code of Corporate Conduct. While lawyers, controllers and auditors are available to assist you, the primary responsibility for compliance rests on your shoulders, and this responsibility cannot be delegated.

To achieve policy compliance, it is your assignment to ensure that copies of the Code are given to all employees under your supervision, that they are made fully aware of the importance of compliance and that they understand the procedure for reporting violations.

ITT STANDARD OF ETHICS

As an ITT employee or agent, you must perform all of your duties in accordance with the highest ethical standards and in conformity with applicable law. Under no circumstances may you directly or indirectly engage in any corrupt or illegal practice, including bribery, kickbacks or payoffs.

ITT managers must take all action necessary to ensure that no ITT entity, employee or agent engages in any conduct which does not measure up to this standard.

Political Affairs

ITT encourages you as individuals to participate actively in the political affairs of your country. This activity, however, must take place on your own time and at your own expense. In no way can the corporation or any of its affiliates become involved in political campaigns or affairs. No corporate funds may be expended in support of or in opposition to any political candidate or political party.

Conduct with Government Employees

You must ensure that every ITT system employee for whose conduct you are responsible refrains from offering gifts for personal use, gratuities, or non-business related entertainment to employees of any government agency to which ITT is seeking to sell goods or services. You may not make or approve even token gifts, or travel, food and lodging expenses for U.S. government employees transacting business with ITT, or to any non-U.S. government employees unless the government involved is aware of and concurs in this practice. Policy does not. however, prohibit offering a gratuity to an employee of a non-U.S. government to obtain timely, routine service to which the payor is entitled in countries where this practice is common.

You are strictly forbidden to authorize or make any payment or gift to or for the benefit of any government employee for the purpose of obtaining or retaining business for or directing business to any entity.

Sales Agents

Managers must ensure that every agreement with sales agents or representative is in writing, signed by the parties, and contains all terms agreed upon. The agent, its employees, and owners must be engaged in providing legitimate business services for a fee not in excess of the customary local rate for services, and be free of involvement with existing or potential customers of ITT. Any payment made to sales agents or representatives must be fully documented.

You will use reasonable vigilance to assure that no ITT system employee, and no agent, directly or indirectly makes or authorizes any payment or gift to any representative of a potential or actual government or commercial customer for the purpose of obtaining or retaining business for, or directing busies to, any entity.

Compliance

ITT system employees having knowledge of facts indicating a violation of this Policy should report the matter either to the Director-Corporate Policy Compliance-ITT, or through the Ombudsman or legal counsel for your company.

Excerpts from NYNEX
Code of Business Conduct

COMPETING WITH INTEGRITY
[Entertainment, Gifts and Gratuities]

<Dealing with Suppliers
<Dealing with Customers
<Business Courtesies
<Entertainment
<Gifts
<Gratuities

Dealing with Suppliers When we make or are involved in sourcing and purchasing decisions for NYNEX, we must make those decisions with integrity, honesty, independence and objectivity of judgment that must not be compromised. We are obliged to seek the most technically efficient, cost-effective and high quality products and services, and to evaluate them using consistent and unbiased standards. Therefore, we must not accept any gifts, entertainment or gratuities that could influence, or be perceived to influence, our sourcing and purchasing decisions.

Dealing with Customers Our customers have similar sourcing standards and responsibilites to their stakeholders. In addition to knowing and complying with responsibilities NYNEX's standards, it is important for us to acquaint ourselves with our customer's standards of business conduct so we don't put them or ourselves in compromising or questionable positions.

Business Courtesies Exchanging courtesies such as modest gifts, meals and entertainment, is a common practice meant to create goodwill and establish trust in business relationships. If we use good judgment and act with moderation, the occasional exchange of entertainment and gifts of nominal value may be appropriate, as long as such courtesies are not specifically intended to influence any procurement or sales decisions. These courtesies should be consistent with the business customs and practices of the place where they are offered or received. IT local department imposes additional restrictions on business courtesies, we are obliged to comply with them. In addition, we must accurately disclose and record such courtesies in accordance with the requirements detailed in the annual gift and entertainment reporting practice. Whenever we are involved in the exchange of business courtesies, we must comply with the following standards:

Entertainment Any entertainment offered or accepted should be a reasonable extension of a business relationship. It should also occur infrequently and be modest in nature. Whenever we accept such entertainment, we should reciprocate with similar modest hospitality. Doing so helps us avoid any obligation to our host. Before offering or accepting any invitations, we should first seek supervisory approval. The term "entertainment" includes, but is not limited to, meals, charitable and sporting events, parties, plays and concerts.

Gifts We may give and accept gifts of nominal value when they are associated with promotional activities or are simply gestures of goodwill. However, such gifts should be valued at less than twenty-five dollars, imprinted with a corporate logo and distributed widely as promotional items. Baseball caps, tee shirts and note pads are examples. When offered a gift exceeding twenty-five dollars, we must report it promptly to our supervisor and either return it to the giver or, in the case of perishable items, donate it to a charitable organization. In either situation, we should promptly inform the giver of NYNEXs gift policy.

The only exception to these standards involves business dealings in other countries and cultures where it is considered good business manners for company representatives to give or exchange expensive gifts. In such. cultures, not giving or accepting gift may be considered a serious breach of etiquette. Authorized NYNEX representatives may give and accept gifts of significant value on behalf of the company, as long as we do so in accordance with the intent of this Code and the provisions of the United States Foreign Corrupt Practices Act. Any gifts of significant value we receive are considered company property and must be reported and turned over to the Vice President of Ethics and Business Conduct for appropriate documentation and use by the company.

Gratuities We must never solicit, accept or offer, either directly of indirectly, gratuities, bribes of kickbacks of any kind. This includes money, loans, special privileges, personal favors, benefits or services. Such payments or favors may be considered bribery, which violates NYNEX policy, as well as United States law and the laws of other countries.

CONDUCTING INTERNATIONAL BUSINESS
[Global Business Practices]

Many United States and foreign laws pertaining to international business focus on eliminating corrupt business practices and serve to protect local nationals, their businesses and the environment. We have an obligation to know, understand and comply with all United States laws, as well as the foreign laws and regulations that apply to the countries and localities in which we do business. Violations of the applicable laws and regulations, even in the first instance, can have serious civil and criminal penalties for NYNEX its officers and the employees involved.

We recognize that in some international markets we will encounter laws, customs and cultural practices that differ from those in our home markets. However, the values, principles and standards set forth in this Code apply wherever we conduct business. This means:

• We provide our employees with a safe and healthy workplace.

• We treat people with respect and dignity, supporting and complying with all applicable human rights and employment equity laws.

• We act in an environmentally responsible manner.

• We ensure that the company's assets are used in a legal and responsible manner.

• We do not engage in illegal and unfair competitive practices.

• We do not offer, give or accept bribes.

• We are accountable for all our actions and thus maintain accurate and honest records of all our transactions.

U.S. Foreign Corrupt Practices Act. NYNEX and its employees, agents, distributors and representatives, will comply strictly with the United States Foreign Corrupt Practices Act of 1977. This law prohibits payments or offers of payments of anything of value to foreign officials, political parties or candidates for foreign political office in order to secure, retain or direct business. Payments made indirectly through an intermediary, under circumstances indicating that such payments might be passed along for prohibited purposes, are also illegal.

This law also contains significant internal accounting control and recordkeeping requirements that apply to our foreign operations. The Act's intent, in requiring these records, is to ensure that a corporation maintain reasonable control over its assets and all transactions involving those assets. All employees are responsible for following corporate procedures, including appropriate schedules of authorization and internal auditing controls, for carrying out and reporting business transactions.

PUTTING THE CODE TO WORK
[Our Shared Obligations]

Each of us at NYNEX is responsible for knowing, understanding and complying with the policies and guidelines contained in the preceding pages. But that is merely the first step. We also have an obligation to act. That means complying with the letter and spirit of the Code, reporting improper conduct and knowing how to make the "right" decisions whenever we encounter ethical questions and dilemmas.

As Supervisors and Managers. Every NYNEX manager has a special responsibility to create and uphold NYNEX's reputation for integrity and trust. In part, that means ensuring all employees understand and comply with the Code. But beyond that, managers also have an obligation to foster an environment that encourages ethical behavior. All NYNEX managers must:

• Lead by example, complying with the Code and always doing what is right, even when the alternatives seem easier or more expedient.

• Provide copies of the Code to employees, as well as the training, coaching and guidance necessary to ensure understanding and compliance.

• Create a work environment that encourages frank, open and constructive communication on all business matters. This means allowing and encouraging employees to ask questions, make suggestions, and report errors or wrongdoing without few of reprisal.

• Immediately report any suspected violations of the Code or company policies to the appropriate person or department.

• Take prompt corrective and, when necessary, disciplinary action when an allegation of wrongdoing is substantiated.

As Employees. As employees of the NYNEX family of companies we are required to comply with the Code of Business Conduct and its underlying policies and practices. Violations, even in the first instance, may result in disciplinary action up to, and including, dismissal and civil and criminal prosecution. We may not justify any improper or illegal behavior by claiming it was ordered by someone in higher authority. No one, regardless of position, has the authority to direct us to commit a wrongful act.

In addition, we are responsible for:

• Understanding and making a personal commitment to NYNEX's Code of Business Conduct.

• Ensuring that all work and business affairs are conducted lawfully and with integrity.

• Ensuring that we do not put our own interests ahead of the corporation's when performing our jobs, or use our position in NYNEX or information acquired through that position, for any non-corporate purpose.

• Reporting incidents of unethical or unlawful conduct to our supervisors, other manager or the appropriate NYNEX support organization.

• Seeking assistance, guidance or interpretation on difficult ethical issues.

Reporting Violations. If employees have knowledge or suspicion of any illegal, unethical or fraudulent acts anywhere within the NYNEX companies, they should discuss the matter immediately with their supervisor or notify any other manager, the Legal, Security or Internal Auditing departments, or the NYNEX Office of Ethics and Business Conduct.

NYNEX assures protection against any form of reprisal for reporting actual or suspected violations of our Code of Business Conduct and, to the extent possible under the law, makes every effort to protect the confidentiality of anyone reporting this information.

Excerpts from Texaco

Corporate Conduct Guidelines

GENERAL BUSINESS CONDUCT GUIDELINES

Improper Payments and Gifts

Commercial Bribery

The giving or receiving of any bribes, kickbacks, or similar payments of any sort, to or from any entity doing or seeking to do business with the company is strictly prohibited.

The company, therefore, prohibits the payment or giving of a gift, gratuity, or entertainment of more than token or nominal value to suppliers or customers or their agents, employees or fiduciaries. The company also strictly forbids the acceptance or receipt by any employee, agent or consultant of Texaco of any gift, gratuity, entertainment or other item of monetary value of more than token or nominal value from the company's suppliers or. customers, or their agents, employees or fiduciaries. Prior approval must be obtained form the Corporate Compliance Officer for all gifts having more than nominal value.

No payment on behalf of the company may be approved or made with the intention, understanding, or awareness that any part of the payment is to be used for any purpose other than that described by the documents supporting the payments. All receipts and disbursements must be fully and accurately described in the books and records of the company and must be supported by the appropriate documentation properly describing the purposes thereof.

Payments and Gifts to Government Officials

It is absolutely prohibited to give, offer, or promise anything of value in the form of a bribe, gratuity, or kickback to any public official. Federal law also prohibits giving anything of value to foreign government officials to obtain or retain business or affect any act or decision. Personal funds may not be used to do what is otherwise prohibited with company funds.

International Business

All employees are expected to comply with the laws of the country in which they operate. The fact that in some countries certain laws prohibiting particular conduct are not enforced in practice, or that violation is not subject to public criticism or censure, will not excuse non-compliance. If you have a question as to whether certain activities are prohibited, contact the Corporate Compliance Officer or the Legal Department. You must abstain from the activity in question until you have been informed that the activity is not prohibited. All employees also must comply strictly with US. laws and regulations applicable to the conduct of business outside the United States.

Foreign Corrupt Practices Act

The Foreign Corrupt Practices Act makes it a crime for companies, as well as their Officers, directors, employees, and agents, to bribe a foreign official, political party, party official, or candidate for the purpose of obtaining or retaining business. The Act also requires covered companies to maintain accurate books, records, and accounts, and to devise a system of internal accounting controls sufficient to provide reasonable assurance that, among other things, the company's books and records fairly reflect, in reasonable detail, its transactions and dispositions of its assets.

Texaco's long-standing policies are fully consistent with the Act. The company conducts its business activities in accordance with all applicable laws, and its long-established and well-defined internal procedures and controls are in fall accord with the expressed intent and effect of the Act.

Facilitating Payments

There may be instances in which the customs of an area dictate, and local legal interpretations allow, incidental payments or gratuities to ministerial or clerical officials to expedite the proper performance of their ordinary duties. Payments of this nature do not fall within the prohibition of the Act. Nevertheless, even though such payments may possibly be expected in accordance with area customs and legal interpretations, and possibly would confer no improper business advantage on the company, every effort should be made to avoid them, consistent with the normal and competitive functioning of the company's business, the provisions of the Act as described above, and other laws and company directives. In the event any such payments are considered necessary, it is imperative that they be correctly recorded and accounted for on the company's books. In any case, the approval of the Legal Department must be obtained before any facilitating payment is made.

Recordkeeping Requirements

Texaco's policies and the recordkeeping requirements of the Act require that all transactions appear accurately and properly on the books and records of the company and that they be carried out pursuant to existing monetary and approval authorities, and to other internal control requirements. Strict adherence to established procedures for opening and closing bank accounts is also necessary to ensure proper control over of funds.

Should any employee have questions regarding the Foreign Corrupt Practices Act or compliance with any other law, the complete facts should be submitted to his or her supervisor or the head of the respective department, division or subsidiary, and, if considered necessary, the situation will be referred to the Legal Department for guidance.

Doing Business With the Government

All company employees engaged in government contracting activities are required to comply with all applicable laws, rules, and regulations for doing business with the government.

Improper Payments and Gifts

In particular, employees and agents of the company are prohibited from offering, giving, receiving, or soliciting any form of bribe, rebate, gratuity, honorarium or kickback to or from a government employee or agent. Nor may company employees, without prior approval of the Corporate Compliance Officer or the Legal Department, pay, in whole or in part, for business meals, entertainment, travel, or other similar expenses for government employees and officials, regardless of whether the employee uses corporate or personal funds. In countries where local customs call for giving gifts on special occasions, you may, with prior approval, present gifts that are lawful, appropriate, and of nominal value in the context of the recipient's position and in circumstances which would not be construed as seeking special favor.

Obtaining Government Business

In obtaining government business, the company must use only legitimate methods. Employees are strictly prohibited from seeking or receiving information which the company is not authorized to possess concerning potential government business. This would include, but is not limited to, proprietary data, pricing information of other competitors for government contracts, and non-public documents relating to government purchasing. Any questions concerning appropriate conduct with respect to government contacting should be directed to the Legal Department.

False Statements to Government Officials

It is a violation of company policy as well as criminal statutes for employees to make false statements or false claims for payment to the government. A false statement to a government official may be made orally or in writing, and may be made by making an affirmatively misleading statement, or by concealing a material fact from a government official. Moreover, an employee may violate this policy even if he or she does not make the statement directly, but only provides false information to another employee or a third party, knowing that it will later be provided to the government. This policy applies in particular to any and all certifications, and forms provided to the government.

Employing Government Employees

Employees should also note that strict laws govern recruiting and/or negotiating with government employees for future employment at the company, particularly if the government employee had any role in awarding or managing contracts with the company. Prior written approval of the Legal Department must be obtained before communicating with any current or former government employee about working for the company as an employee, agent or consultant.

Reporting of Irregularities

Employees who become aware of known or suspected irregularities must report them promptly to their supervisor or other appropriate individual.

International Chamber of, Commerce
Chambre de Commerce Internationale
38, Cours Albert 1er, 75008 PARIS
Telephone: (1) 49 53 28 28
Cables: lncomerc-Paris
Telex: 650770
Telefax: (1) 49 53 28 59

EXTORTION AND BRIBERY IN INTERNATIONAL BUSINESS TRANSACTIONS

(REVISIONS TO THE 1977 REPORT AND RULES OF CONDUCT TO COMBAT EXTORTION AND BRIBERY)

<Foreword
Part I - Recommendations to Governments
Part II - Rules of Conduct to Combat Extortion and Bribery
Part III - ICC Follow-up and Promotion of the Rules

FOREWORD

In 1977, the ICC issued a Report on Extortion and Bribery in business transactions. This broke new ground in calling for complementary and mutually Supportive action by governments, intergovernmental bodies, and the business community to combat extortion and bribery in international trade.

The Report aroused interest in intergovernmental fora, such as the OECD and the UN Commission on Transnational Corporations. Moreover, corporations in a number of countries were prompted to establish or strengthen their internal rules of fair practices, taking as a model the Rules of Conduct for enterprises which were set forth in Part III of the 1977 Report.

Today, the importance of effectively combating extortion and bribery is greater than ever. In the early 1990s, scandals involving extortion and bribery were a significant factor in toppling governments in many parts of the world. This situation, if allowed to continue, could undermine the most promising development of the post Cold-war era, i.e., the spread of democratic governments and of market economies worldwide. It is all the more unacceptable in view of the liberalisation of world trade in goods and services achieved through the Uruguay Round: freer trade must be matched by fair competition, failing which trading relations will be increasingly strained to the common detriment of governments and enterprises. In addition to being a crime, offering or giving bribes may constitute acts of unfair competition, which could give rise to actions for damages.

Against this background, the ICC, as the leading world business organisation, decided in 1994 to review its 1977 Report and set up for this purpose an Ad Hoc Committee under the chairmanship of Mr. Francois Vincke (Belgium), Secretary General of Petrofina.

The updated Report, which the ICC now presents, confirms the basic approach recommended initially, i.e., the need for action by international organisations, governments and by enterprises, nationally and internationally, to meet the challenging goal of greater transparency in international trade.

Major responsibility in this area undoubtedly rests with governments, as has been recognised by the OECD, the Council of Europe, the Organisation of American States and UNCTAD. Part II of the Report accordingly urges all governments to demonstrate their political will to implement promptly the May 1994 OECD Recommendation on Bribery in International Business Transactions. The ICC considers it particularly important that the OECD Recommendation be implemented by all countries, including the developing countries. To that effect, the ICC recommends that the OECD establish close liaison with the World Trade Organisation (WTO). in order to further the understanding of problems associated with extortion and bribery and encourage of the principles of the 1994 OECD Recommendation by countries that are OECD members.

For its part the international business community has the corresponding responsibility to strengthen its own efforts to combat extortion and bribery. Part II of the Report thus sets forth the Rules of Conduct recommended by ICC for voluntary application by enterprises. These are in many respects more stringent than those issued in 1977. The 1977 Rules only prohibited extortion and bribery in connection with obtaining or retaining business; the now Rules prohibit extortion and bribery for any purpose. Thus, extortion and bribery in judicial proceedings, in tax matters, in environmental and other regulatory cases or in legislative proceedings are now covered by the Rules. Governments are urged to regulate political contributions by enterprises and to ensure that they are publicly recorded. New emphasis is placed on implementing mechanisms within companies to enforce corporate codes of conduct.

Finally, the ICC itself is alive to its own responsibility to promote and monitor the acceptance and application of the Rules of Conduct. Part III of the Report therefore sets out the priorities of the Standing Committee which the ICC is establishing. its principal purpose will be to stimulate action by enterprises and business organisations in support of self-regulation, as an important factor in effectively combating extortion and bribery. This approach is more promising and more in line with the responsibilities of a non-governmental organisation than the establishment of a Panel to investigate alleged infringements of the Rules, as envisaged in 1977.

PART I RECOMMENDATIONS TO GOVERNMENTS AND INTERNATIONAL ORGANISATIONS

Recommendations for international cooperation

Basic criminal statutes of virtually all countries clearly prohibit extortion and bribery. In the interest of developing consistent standards of criminal legislation in this field, each government should review its statutes to ensure that they effectively prohibit, in conformity with its jurisdictional and other basic legal principles, all aspects of both the giving and the taking of bribes including promises and solicitation of bribes. Where no such legislation exists, the governments concerned should introduce it, in those counties where extortion and bribery are already clearly prohibited, the relevant legislation should be perfected.

Each government should take concrete and meaningful steps to enforce vigorously its legislation in this area. The ICC also notes with approval that the OECD has urged governments to re-examine their legislation against extortion and bribery, action' relating to the tax deductibility of bribes is of particular urgency. The WTO should involve itself with these issues to support the OECD in the implementation of its Recommendations.

NATIONAL MEASURES

In order to deal with the problem of extortion and bribery, governments should, in conformity with their jurisdictional and other basic legal principles, take the following measures, if they have not already done so.

Preventive measures

• Disclosure procedures

For the sake of transparency, procedures should be established providing for periodic reports to an authorised government body of Measures taken to supervise government officials involved directly or indirectly in commercial transactions. Such reports should be open to public scrutiny.

For enterprises engaged in transactions with any government or with any enterprise owned or controlled by government, disclosure procedures- should provide for access, upon specific request, by the appropriate government authorities to information as to agents dealing directly with public bodies or officials in connection with any particular transaction, and as to the payments to which such agents are entitled. Governments should ensure the confidentiality of any such information received from enterprises and safeguard the trade secrets incorporated therein.

• Economic regulations

When laying down any economic regulations or legislation, governments should, as far as possible, minimise the use of systems under which the carrying out of business requires the issuance of individual authorisations, permits, etc. Experience shows that such systems offer scope for extortion and bribery. This is because decisions involving the issue of permits or authorisations are frequently taken in ways which make it almost impossible to ensure effective control and supervision. Where individual permits and authorisations; remain in place, governments should take appropriate measures to prevent their abuse.

• Transactions with governments and international organisations

Such transactions should be subject to special safeguards to minimise the opportunities for their being influenced by extortion and bribery. The system for awarding government contracts might include disclosure, to an appropriate government entity independent of the one directly concerned in the transaction, as well as increased public disclosure, whenever feasible, of the criteria and conclusions upon which the award is based. The ICC supports the growing practice of making government contracts dependent on undertakings to retain from bribery, and recommends that such contracts should include appropriate provisions to ensure compliance with international, national or enterprise codes against extortion and bribery.

• Political contributions

Undisclosed political contributions can be a source of abuse. Governments should regulate the conditions under which political contributions can be made. Where payments by enterprises to political parties, political committees or individual politicians are permitted by the applicable legislation, governments should enact legislation which ensures that such payments are publicly recorded by the payors and accounted for by the recipients.

Enforcement measures

Governments, in conformity with their jurisdictional and other basic legal principles, should ensure:

i) that adequate mechanisms exist for surveillance and investigation, and

ii) that those who offer, demand, solicit or receive bribes in violation of their laws are subject to prosecution with appropriate penalties

Governments should periodically publish statistical or other information in respect of such prosecutions.

Auditing

Governments, if they have not already done so, should enact appropriate legislation providing for auditing by independent professional auditors of the accounts of economically significant enterprises.

INTERNATIONAL COOPERATION AND JUDICIAL ASSISTANCE

Implementation of the OECD Recommendation

The ICC believes that the May 1994 OECD Recommendation on Extortion and Bribery in International Business Transactions is essentially sound and that it provides a useful framework for government action. All governments, including non-OECD governments, should promptly take action to implement the steps set forth in the Recommendation.

Cooperation in Law Enforcement

Governments should agree, under appropriate provisions for confidentiality, and in conformity with the May 1994 OECD Recommendation, to exchange through law enforcement agencies relevant and material information for the purpose of criminal investigation and prosecution of cases of extortion and bribery. They should also continue to cooperate bilaterally on matters involving extortion and bribery, on the basis of treaties providing for assistance in judicial and penal prosecution matters.

Role of international financial Institutions

International financial institutions, e.g., the World Bank, the European Bank for Reconstruction and Development, should aim to make a significant contribution to the reduction of extortion and bribery in international business transactions. They should take all reasonable steps to ensure that corrupt practices do not occur in connection with projects which they are financing. Similarly, in negotiating cooperation agreements with non-member countries, whether counties with economies in transition or developing nations, the governing or coordinating bodies of the European Union, NAFTA, ASEAN and other regional institutions, should seek to satisfy themselves that appropriate legislation and administrative machinery to combat extortion and bribery exists in the countries concerned.

PART II RULES OF CONDUCT TO COMBAT EXTORTION AND BRIBERY

INTRODUCTION

These Rules of Conduct are intended as a method of self-regulation by international business, and they should also be supported by governments. Their voluntary acceptance by business enterprises will not only promote high standards of integrity in business transactions, whether between enterprises and public bodies or between enterprises themselves, but will also form a valuable defensive protection to those enterprises which are subjected to attempts at extortion.

These Rules of Conduct are of a general nature constituting what is considered good commercial practice in the matters to which they relate but are without direct legal effect. They do not derogate from applicable local laws, and since national legal systems are by no means uniform, they must be read mutatis mutandis subject to such systems.

The business community objects to all forms of extortion and bribery. It is recognised, however, that under current conditions in some parts of the world, an effective programme against extortion and bribery may have to be implemented in stages. The highest priority should be directed to ending large-scale extortion and bribery involving politicians and senior officials. These represent the greatest threat to democratic institutions and cause the gravest economic distortions. Small payments to low-level officials to expedite routine approvals are not condoned. However, they represent a lesser problem. When extortion and bribery at the top levels is curbed, government leaders can be expected to take steps to clean up petty corruption.

BASIC PRINCIPLE

All enterprises should conform to the relevant laws and regulations of the countries in which they are established and in which they operate, and should observe both the letter and the spirit of these Rules of Conduct.

For the purposes of these Rules of Conduct, the term "enterprise" refers to any person or entity engaged in business, whether or not organised for profit, including any entity controlled by a State or a territorial subdivision thereof, it includes, where the context so indicates, a parent or a subsidiary.

BASIC RULES
<Article 1 - Extortion
<Article 2 - Bribery and " Kickbacks"
<Article 3 - Agents
<Article 4 - Financial Recording and Auditing
<Artical 5 - Responsibilities of Enterprises
<Article 6 - Political Contributions
<Article 7 - Company Codes

Article 1 - Extortion

No one may, directly or indirectly, demand or accept a bribe.

Article 2 - Bribery and "Kickbacks"

a. No enterprise may, directly or indirectly, offer or give a bribe and any demands for such a bribe must be rejected.

b. Enterprises should not (i) kick back any portion of a contract payment to employees of the other contracting party, or (ii) utilise other techniques, such as subcontracts, purchase orders or consulting agreements, to channel payments to government officials, to employees of the other contracting party, their relatives or business associates.

Article 3 - Agents

Enterprises should take measures reasonably within their power to ensure:

a) that any payment made to any agent represents no more than an appropriate remuneration for legitimate services rendered by such agent;

b) that no part of any such payment is passed on by the agent as a bribe or otherwise in contravention of these Rules of Conduct; and

c) that they maintain a record of the names and terms of employment of all agents who are retained by them in connection with transactions with public bodies or State enterprises. This record should be available for inspection by auditors and, upon specific request, by appropriate, duly authorised governmental authorities under conditions of confidentiality.

Article 4 - Financial Recording and Auditing

a) All financial transactions must be properly and fairly recorded in appropriate books of account available for inspection by boards of directors, if applicable, or a corresponding body, as web as auditors.

b) There must be no "off the books' or secret accounts, nor may any documents be issued which do not properly and fairly record the transactions to which they relate.

c) Enterprises should take all necessary measures to establish independent systems Of auditing in order to bring to light any transactions which contravene the present Rules Of Conduct. Appropriate corrective action must then be taken.

Article 5 - Responsibilities of Enterprises

The board of directors or other body with ultimate responsibility for the enterprise should:

a) take reasonable steps, including the establishment and maintenance of proper system of control aimed at preventing any payments being made by or on behalf of the enterprise which contravene these Rules of Conduct;

b) periodically review compliance with these Rules of Conduct and establish procedures for obtaining appropriate reports for the purposes of such review; and

c) take appropriate action against any director or employee contravening these Rules of Conduct.

Article 6 - Political Contributions

Contributions to political parties or committees or to individual politicians may only be made in accordance with the applicable law, and all requirements for public disclosure of such contributions shall be fully complied with. All such contributions must be reported to senior corporate management.

Article 7 - Company Codes

These Rules of Conduct being of a general nature, enterprises should, where appropriate, draw up their own codes consistent with the ICC Rules and apply them to the particular circumstances in which their business is carried out. Such codes may usefully include examples and should enjoin employees or agents who find themselves subjected to any form of extortion or bribery immediately to report the same to senior corporate management. Companies should develop clear policies, guidelines, and training programmes for implementing and enforcing the provisions of their codes.

PART III ICC FOLLOW-UP AND PROMOTION OF THE RULES

To promote the widest possible use of the Rules set forth in Part II and to stimulate cooperation between governments and world business, the ICC is establishing a Standing Committee on Extortion and Bribery. The Chairman of that body shall be nominated by the President of the ICC and the Secretary General shall be responsible for ensuring, in conjunction with ICC National Committees, that members of the Committee are representative of both developed and developing countries and that businessmen are adequately represented in the membership.

Among its primary tasks, the Standing Committee shall:

1. Urge ICC National Committees promptly to take all appropriate measures to ensure that enterprises and business organisations in their country - whether multidisciplinary or sectoral - give strong support to these Rules of Conduct. In particular, international business groups shall be encouraged to ensure that their subsidiaries endorse the Rules, or other corporate rules having similar effect, and publicise them in their local environment;

2. Collect through National Committees a wide range of company codes of conduct on ethical issues, including extortion and bribery, and serve as an information clearing house for businesses seeking to develop their own codes and requiring advice on the problems involved;

3. Promote the organisation, both by ICC International Headquarters and by National Committees, of seminars designed to stimulate interest in, and discussion of, the Rules among the business community;

4. Encourage National Committees to impress upon their governments the need to include, from the initial stages, the business community - through its representative organisations - in discussions aimed at enacting or strengthening legislation against extortion and bribery.

5. Ensure liaison with the OECD, the WTO and other international organisations to provide the ICC point of view concerning progress at the international level in combating extortion and bribery;

6. Conduct a study within two years on the most appropriate policies and procedures practiced by top management of companies to minimise risks of exposure to extortion of, and bribery by, personnel dealing with sensitive issues (participation in public tenders, privatisations, etc.);

7. Issue at least every two years a report to the ICCs Executive Board and Council on results achieved concerning worldwide recognition of the Rules of Conduct and of progress otherwise made by business in combating extortion and bribery. Decisions concerning the dissemination of the Report shall rest with the Executive Board and the Council;

8. Review these Rules in the light of experience and recommend amendments, as necessary, to the Executive Board and the Council.

CHAPTER SEVEN

Hypothetical Case Studies

This chapter presents some hypothetical factual situations which U.S. companies may confront in doing business abroad and discusses some of the issues raised by these cases. These cases focus primarily on the foreign payments provisions of the FCPA.

<7.1 The Desalination Project
<7.2 The Malalous
<7.3 The Customs Broker
<7.4 The TUK Venture
<7.5 The Gift
<7.6 The Nuclear Case
<7.7 The Turkmed Matter
<7.8 The Nidol Agreement

7.1 The Desalination Project
<7.1[A] Facts
<7.1[B] Discussion

7.1[A] Facts

The Ministry of Interior of the country of Saudi Arabia seeks to install a desalination plant in Saudi Arabia. The project is estimated to be worth $60 million. As a condition to do business in Saudi Arabia, as well as to submit a tender offer, every foreign company must have a registered Saudi agent. A U.S. corporation (USCo) intends to submit a tender. USCo is a multinational corporation engaged in the manufacture and sale of a wide range of products and services. it has recently developed desalination technology which enables it to install cost-effective desalination equipment. USCo has already built several turnkey desalination plants in several other countries.

USCo has never done business in Saudi Arabia. Through its branch office in London, USCo has been put in touch with a local Saudi company called Saudar. The sales manager of USCo is advised by Hulil Toran, the general manager of Saudar, that Saudar is owned 60 percent by the Under Secretary of Defense. According to the sales manager, this investor is not actively involved in the operations of the company. The general manager of Saudar, Mr. Toran, also a Saudi national, is responsible for the day-to-day operations of the company. He owns the remaining 40 percent.

The major competitors for the tender, a French and U.K. consortium and a Japanese and German consortium, have been reputed to have questionable relationships with various members of the government. USCo signs an agency agreement with Sauclar without any reference check and business practices review.

Following the submission of the tender, Mr. Toran introduces USCo personnel to the Minister of Interior and his Deputy, Mr. Nuprin. USCo invites the Minister and Deputy to visit, at USCo's expense, its existing desalination plant in Sierra Leone and USCo's facilities in Portland, Oregon. Prior to the trip, Mr. Toran advises USCo that the wives of the two men will accompany them to the United States. USCo arranges a trip for the wives to visit Disneyland while the Minister and Deputy are reviewing the facilities in Oregon.

7.1[B] Discussion

1. As counsel to USCo, bow would you advise the General Manager of USCo about the advisability of having entered into the agency agreement? What steps would you now advise the USCo to take?

USCo should have undertaken a reference check and due diligence review of the business practices of Saudar prior to entering into an agency agreement. In particular, since Saudar is owned in part by a government official, USCo will have to undertake a due diligence investigation of this relationship. If, for example, the Under Secretary of Defense is in a position to influence official decisions on the tender, a payment to Saudar could be considered an indirect payment to a foreign official to use his influence to effect the decision on the tender.

USCo will need to determine if the Under Secretary is in any position of authority to make recommendations on the tender or otherwise has the capability to influence the decision. USCO's inquiry should also determine whether the ownership interest by the Under Secretary is permissible under local law.

If, upon review, it is unrealistic to expect that the Under Secretary would not be involved or influential in some manner in the tender, then payments to Saudar could be considered an indirect payment to a foreign official to induce the official to use his influence in the tender. Accordingly, USCo may not be able to continue the agency relationship as presently structured. The Under Secretary may be required to disassociate himself from Saudar by giving up his ownership interest, relinquish any profits received in the transaction, or take some other action that definitively demonstrates a disassociation from USCo. If this can not be attained, then USCo may have to terminate the agency relationship with Saudar.

Even if the review of the matter indicates that the Under Secretary has no influence in this project (or other matters that are likely to be handled by Saudar as agent for USCo), USCo should amend the agreement to include precautionary requirements. For example, the potential customer should be made aware of the relationship through full disclosure by the Under Secretary of his interest in Saudar. The Under Secretary should provide a written certification, which is incorporated into the agency agreement, that he will not take any action or use his influence in any way to effect any act or decision of the government regarding the award or implementation of the contract. If these representations are breached, the agency agreement should automatically be rendered void and Saudar would thereupon surrender any claim for any payment under the agreement, even for sales previously concluded, and refund any commissions previously paid.

USCo should also obtain an opinion from local counsel that the ownership interest of the Under Secretary is consistent with local law. Finally, to show continuing oversight, USCo should seek to include, if commercially practical, the right by it or an independent third party to conduct an audit of Saudar's representation of USCo.

2. How would you advise the project manager about paying for the travel and entertainment expenses?

The FCPA permits a U.S. company to pay the reasonable and bona fide expenditures of a foreign official, such as travel and lodging expenses, which are directly related to (1) the promotion, demonstration or explanation of products or services; or (2) the execution or performance of a contract with the foreign government. However, even these payments are not permissible if intended as a quid pro quo.

The payment of reasonable travel expenses for the visit by the Minister and Deputy Minister to the existing desalination plant in Sierra Leone, if intended as a bona fide demonstration of the proposed desalination plant to be sold to Saudi Arabia, would be permissible under the FCPA. Similarly, the payment of reasonable travel and entertainment expenses for the Minister and Deputy Minister to visit the USCo facilities in Portland, Oregon would also be permissible. Any payments for the trip should, however, -be paiddirectly to the service providers. Where payment to service providers is not practical, USCo may also reimburse a foreign official for bona fide expenses for which appropriate receipts have been provided.

The trip to the United States by the wives of the government officials would not be directly related to the promotion, demonstration, or explanation of the desalination plants. Accordingly, the payment for the travel expenses of the wives would not be permissible. Similarly, the payment for their side trip to Disneyland would also appear to go beyond the limits of permissible travel expenses.

7.2 The Malabus Case
<7.2[A] Facts
<7.2[B] Discussion

7.2[A] Facts

A U.S. corporation (USCo) has been successfully selling buses to the Malaysian Government for public transport for over five years. USCo's agent, a company called Malabus, has been effective in representing USCo during this time. The company is 100 percent owned by Mr. Madurai, a wealthy businessman. Before retaining Malabus, USCo conducted a business practices review. Although some rumors were raised regarding Mr. Madurai's business practices with another company, this information was never confirmed and his business review was otherwise favorable.

USCo has submitted a bid to the Malaysian government on a tender sale of sixty new buses and the refurbishing of sixty buses, valued at $25,000,000. Shortly prior to the award of the tender, one of Mr. Madurai's competitors visits the USCo head office in the United States. During the visit, he advises USCo that Mr. Madurai is engaged in a range of illicit payments to the Ministry of Transportation and that these officials are reputed to be "in his pocket." The competitor advises USCo that these activities and rumors are severely damaging its reputation in the country.

7.2[B] Discussion

1. What action, if any, should USCo take regarding this information?

Under the FCPA, USCo would not be liable for illicit payments made by its foreign sales agent unless (1) USCo had knowledge of and authorized the illicit payments; or (2) USCo made payments (i.e., commission payments) to its sales agent knowing that all or a portion of such payments would be passed on, directly or indirectly, to Malaysian officials. Accordingly, if Mr. Madurai has in fact made illicit payments to officials in the Ministry of Transportation, USCo would not be liable under the FCPA. However, once USCo becomes aware of any illicit payments, it must take immediate action to repudiate and disassociate itself from any such improper payments, if it is to avoid FCPA exposure.

The knowledge standard under the FCPA encompasses more than actual knowledge. The FCPA infers knowledge where there is an awareness or belief that prohibited conduct is substantially likely to occur. Most importantly, the knowledge standard also includes a conscious disregard of information that should alert one to a high probability that improper payments are or will be made. Accordingly, the allegations made regarding Malabus, if at all credible, cannot be ignored by USCo. USCo will need to investigate the matter to determine whether, in fact, there is any. basis for the allegations. The credibility of the party making the allegations should be part of any evaluation. Any investigation should be conducted with the guidance of counsel.

If the investigation reveals that Malabus is in fact engaging in illicit payments, then USCo will have to take immediate action to demonstrate its repudiation of and disassociation from that conduct. Such actions may include termination of its agency relationship and the withholding of any payments to the agent. Since the tender is about to be awarded, USCo will have to evaluate carefully whether and on what basis it is able to go forward with the contract if USCo is awarded the contract.

If the investigation is inconclusive, the determination of the course of action needed to be taken can be a difficult decision, and must be decided on a case-by-case basis. USCo should carefully document the facts and the actions proposed to be taken. Having been unable to refute the allegations effectively, USCo should consider imposing more stringent restrictions and oversight on the activities of Malabus. At a minimum, USCo should not simply maintain the status quo.

2. Would it make a difference if Malabus were a USCo distributor rather than an agent?

Under the present facts, USCO may be subject to FCPA exposure, whether Malabus was an agent or a distributor. Under the FCPA, if USCo gives "anything of value" to "any person" with knowledge that all or a portion of said value will be used directly or indirectly to make illicit payments, a violation of the FCPA occurs. "Any person" can be an agent, distributor, or any other legal entity.

In an agency relationship, the payment of a commission to the agent is the most obvious form of "value." If USCo makes such a payment with knowledge that the agent is engaging in illicit conduct with regard to the tender, USCo may be in violation of the FCPA.

While the "giving of value" is less obvious in a distributor relationship, the distinction is not necessarily determinative. In a technical sense, the shipment of the goods to the distributor constitutes the "giving of value." In a commercial sense, it is the opportunity for a profit through the resale of the goods that is the real value. The profit the distributor makes from the mark-up is analogous to the commission paid to the agent on the transaction.

Moreover, USCo is likely to be actively involved with the distributor in the negotiations for the award of the tender, and can be expected to work in close cooperation with the distributor for the refurbishing of the buses, and any servicing of the buses to be provided. Any reductions in the contract price will likely be reflected in price discounts to the distributor. Accordingly, if USCo has knowledge of illicit payments being made by Malabus, it could be subject to potential liability under the FCPA.

Finally, if USCo continues to participate with Malabus; (either as agent or distributor) in the transaction with knowledge that. Malabus; has made illicit payments, it may be subject to charges of conspiracy to violate the FCPA.

7.3 The Customs Broker
<7.3[A] Facts
<7.3[B] Discussion

7.3[A] Facts

The customs broker in Greece for the wholly-owned British subsidiary (BritCo) of a U.S. computer manufacturer (USCo), in an effort to obtain a more favorable tariff classification and a lower duty rate on the importation of certain computer equipmentt, paid a customs officer $5,000. While the customs broker acted without specific authorization from BritCo, he believed he was acting with authority to assist BritCo in lowering its costs. In addition, the customs broker paid $300 to another customs officer and a secretary in the customs office to work overtime to speed-up the processing of the entry documents. The broker submits invoices to BritCo for each of these payments, requesting reimbursement.

7.3[B] Discussion

1. What FCPA-related problems, if any, might BritCo have for reimbursement of either or both of these invoices?

The FCPA does not apply to so-called "facilitating payments" (i.e., payments made to foreign officials to procure routine governmental actions). To be permissible, such payments must be limited to actions of an essentially clerical nature which must be performed anyway. Specific examples of routine governmental action include obtaining permits or licenses, processing government papers, providing police protection, scheduling inspections, providing phone services, loading and unloading cargo, and similar actions. Actions which involve the exercise of discretion would fall outside the ambit of this exemption.

Under this standard, the payment by the customs broker to the customs official of $5,000 to obtain a more favorable tariff classification and lower duty rate would not come within the scope of permissible grease payments. The payment of $300 to speed up processing would come within the ambit of a permissible grease payment.

The FCPA would not generally apply to a foreign company, even a wholly-owned subsidiary such as BritCo. The reimbursement of the customs broker by BritCo would therefore not be violative of the bribery provisions of the FCPA. The FCPA would, however, apply to USCo if it authorizes the reimbursement. In addition, under the FCPA accounting provisions, USCo could be held responsible if BritCo, a wholly-owned subsidiary, did not properly account for such payments in its books and records.

While the amount of money involved ($5,000) is relatively modest, there is no de minimis, standard under the FCPA. Moreover, while Justice Department officials have indicated that there is a minimum threshold amount for an enforcement action, the amount of $5,000 would likely be above this amount.

2. Would it make any difference if the customs broker represented USCo?

If the customs broker had represented USCo, then the nexus between the actions of the U.S. company and the customs broker would have been clear and direct. Under the FCPA, if USCo pays or authorizes the payment of $5,000 by the customs broker to the foreign official, it would be subject to potential FCPA liability.

If the broker acted in the apparent belief that it had implicit authorization from USCo, and USCo reimburses the broker, it could be an affirmation of such authorization. The reimbursement could therefore subject USCo to potential FCPA exposure.

7.4 The TUK Venture
<7.4[A] Facts
<7.4[B] Discussion

7.4[A] Facts

Turbine U.K. (TUK), a wholly owned U.K. subsidiary of a U.S. corporation (USCo), is involved in the sale and service of gas turbines and related equipment in Europe, the Middle East, and South Asia. TUK enters into a consortium arrangement with Hoffberg, a German company, to bid jointly on a tender for gas turbines in India and to collaborate in fulfilling the tender.

Most of the employees in TUK are foreign nationals. The President and the Chief Executive Officer of TUK however, are U.S. citizens. The President reports directly to the Vice President for European Operations of USCo.

TUK has never worked directly with Hoffberg before. Nevertheless, there is a general unease that Hoffberg's business practices may not be the same as USCo's. A Management Committee is established with representatives from both companies to oversee the preparation of the tender, the bid negotiations and the implementation of the contract, if awarded.

Hoffberg has an agent in India that it has used in the past and wishes to use in this transaction. Hoffberg speaks very highly of the agent, and gives examples of its successful prior representation. The agent is requesting a 9 percent commission, which has a value of approximately $6 million. The normal commission paid by USCo for such representation is 3-5 percent., However, Hoffberg advises that the services of the agent would include permiting Hoffberg and TUK personnel to use the agent's offices during the bid process and in the implementation of the contract.

7.4 [B] Discussion

1. What issues and concerns might this arrangement raise for USCo under the FCPA? Is it necessary to subject the agent to a business practices review?

The FCPA does not generally apply to foreign corporations, including foreign subsidiaries of U.S. corporations. Accordingly, the activities of the TUK/Hoffberg consortium would not appear to be subject to the FCPA. However, the President and CFO of TUK are U.S. citizens, and they would therefore be subject to the FCPA. Moreover, the President of TUK reports directly to USCo. If USCo, through its close involvement and interaction with its subsidiary, has knowledge of and implicitly approves of any improper conduct engaged in by the consortium, then USCo would be subject to liability under the FCPA.

Accordingly, USCo should have the consortium agreement require adherence to proper business practices by its members with regard to the tender. USCo should also require that no sales representative of the consortium be retained without the approval of TUK.

TUK and USCo have some unease regarding the general business practices of Hoffberg. This unease is heightened by the red flag represented by the high sales commission (9 percent) which Hoffberg's proposed agent in India is requesting. TUK will want to undertake a due diligence review of Hoffberg's agent, including the rationale for the high commission, prior to agreeing to the appointment of the agent.

2. Do USCo's risks change if it is the consortium partner instead of TUK, a foreign subsidiary corporation?

USCo's FCPA risks are greater if it is the consortium partner instead of TUK. Under this arrangement, USCo will be in violation of the FCPA if it pays or authorizes any payment to the sales agent, with knowledge that the agent is engaged in improper conduct. USCo may be in a position under the consortium arrangement to approve, implicitly or otherwise, the selection of the agent and any payments made to the agent. USCo would therefore be subject to potential FCPA exposure if it has knowledge that the agent is engaged in improper conduct on behalf of the joint venture. Accordingly, if USCo becomes aware of any improper conduct engaged in by the agent, it must take immediate steps to demonstrate that it does not approve of or authorize such conduct.

7.5 The Gift
<7.5[A] Facts
<7.5[B] Discussion

7.5[A] Facts

The Chairman of a U.S. corporation (USCo) which manufactures military helicopters is visiting several countries for which there has been ongoing government procurement, or for which there is significant potential for future government projects. Each year the Chairman of USCo visits key government officials as a way to bolster USCo's relationships in these countries. In each country, meetings are arranged between the USCo official and high level government officials. This usually includes a meeting with the Defense Minister. As a courtesy and token, the USCo official would like to provide the officials with a gift that will be valued and appreciated.

Consideration is being given to providing the officials with one of the following items: a gold-plated watch (value, $1,400); a replica of USCo's military helicopter currently under construction (value, $450); and a cellular telephone (value, $450). For the Minister of Defense, a somewhat more substantial gift, commensurate with his status, is being considered. The gifts under consideration include airplane tickets for the Minister and his wife to visit Cape Canaveral in Florida (value, $6,700) or a painting by a well-known artist of a military helicopter built by USCo (value, $6,500).

7.5 [B] Discussion

1. What issues and concerns might this arrangement raise for USCo under the FCPA?

The giving of "anything of value" by a U.S. corporation to a foreign official, with corrupt intent, to obtain or retain business is a violation of the FCPA. Therefore, a gift of whatever value can violate the FCPA if it is intended as a quid pro quo to obtain or retain business.

In most instances, gifts to officials as a token or courtesy are quite appropriate and do not raise any FCPA concerns. Nevertheless, the gift must be carefully considered. If the gift appears excessive, it will raise questions about whether it was intended to influence the recipient. If a tender is pending, and the recipient of the gift is a decision-maker in the tender, the gift might appear to be intended to induce the official to use his influence in the contract award. At a minimum, such a gift could result in negative publicity, leading to the possibility of an investigation and consequent harm to the company's reputation.

Some of the proposed gifts in the present case would appear to go beyond those typically considered as a token or courtesy. The gold watch and the painting would appear to be excessive. The cellular telephone, while more modest in cost, is unlikely to be customarily provided as a token or courtesy, and appears to be more for the personal use and benefit of the official.

The replica of the military helicopter plane currently under construction, while of more than nominal value, is most closely related to the promotion of the company's product, and would be most appropriate. The airplane tickets to Cape Canaveral perhaps raise the most troubling concern. While the FCPA permits the payment of travel expenses of a foreign official directly related to the promotion, demonstration or explanation of products or services, the trip to Cape Canaveral does not come within this exception.

7.6 The Nuclear Case
<7.6[A] Facts
<7.6[B] Discussion

7.6 [A]. Facts

The Nuclear Energy Division of a U.S. corporation (USCo) is a joint venture partner with a U.K. company (UKCo) for the development and sale of a nuclear energy facility. USCo and its joint venture partner have worked for over fifteen months to prepare for an upcoming tender in the Philippines by the Ministry of Energy and to develop close relationships in-country. The joint venture bid was selected by the government, and the parties are now in intensive negotiations to finalize the contract.

During lunch, the international sales manager from UKCo advises the USCo sales manager that the Under Secretary of the Ministry of Energy, a key decision maker in the bid award, is making unusually high demands. UKCo is unable to create enough cushion in its portion of the tender to cover the extra costs, and the UKCo representative wonders aloud whether they could look to USCo to share this additional cost.

The USCo representative responds that USCo would most certainly not make such payment and that UKCo should not do so either. The UKCo official indicates that he was only speaking hypothetically and that he didn't think any such thing was likely to occur.

7.6[B] Discussion

1. What issues and problems might this conversation raise under The FCPA;

The conversation with the UKCo sales manager brings to the attention of USCo the possibility that its joint venture partner has engaged or may engage in illicit payments with regard to the joint venture project. This information presents USCo with FCPA concerns. Under the FCPA, if USCo has knowledge of and authorizes any improper payments made by its joint venture partner, it would be liable under the FCPA.

2. Is the response by the USCo official sufficient to allay any FCPA risks? If not, what other actions should USCo take?

The response by the USCo official, to refuse to participate in any improper payments, while certainly appropriate, is not adequate to allay any FCPA risks. By this conversation, USCo has now been alerted to the very real possibility that illicit payments have been or will be made. The UKCo official's comment that he was only speaking hypothetically is not an adequate assurance.

Under the FCPA, the knowledge standard includes a conscious disregard of information that should alert one to a high probability of a violation. Moreover, authorization includes implicit authorization. Accordingly, USCo needs to take steps to refute any inference of knowledge or authorization in any illicit payments. USCo should therefore request clarification from officers of UKCo, and written assurances that in fact such payments have not and will not be made. USCo should also express its strong disapproval of any such conduct, including a warning that, if such payments are being made by UKCo, USCo would not be able to proceed with the transaction.

If adequate assurances are forthcoming, USCo should nevertheless consider amending its joint venture agreement to obtain additional representations and assurances from UKCo that such payments have not and will not be made; and to include a provision whereby, in the event of a breach of these representations, USCo can withdraw from the joint venture and be indemnified for any losses by UKCo. If adequate assurances are not forthcoming, USCo should consult with counsel regarding the appropriate course of action.

7.7 The Turkmed Matter
<7.7[A] Facts
<7.7[B] Discussion

7.7[A] Facts

A U.S. corporation (USCo) has been successfully selling medical equipment in Eastern Europe and the Near East for many years. USCo's general practice is to identify an agent in each country with a good reputation and the financial resources sufficient to develop a market for USCo's medical products. its agent in Turkey, the Turkmed Company, has been successfully expanding USCo's market share of medical equipment sales.

The USCo sales manager for the Near East, through informal contacts, learns that the managing director of the Turkmed Company has set up a trading company with the Deputy Under Secretary of the Ministry of Health. The exact operations of the company and information about its formation and establishment are otherwise unknown.

7.7[B] Discussion

1. Does this information raise any concerns under the FCPA?

The business relationship between the Managing Director of Turkmed and the Deputy Under Secretary of the Ministry of Health raises significant FCPA concerns. if, for example, the Deputy Under Secretary has not paid full value for its interest in the trading company, its ownership interest may itself constitute an illicit payment. If each party is not contributing to the operations of the company according to its proportionate ownership interest, this may also, be construed as- an illicit payment. The distribution of profits in a manner inconsistent with the proportionate ownership interest may also constitute an illicit payment. In addition, the trading company may serve as a potential conduit for future improper payments to the Deputy Under Secretary. All of these issues must be properly investigated and satisfactorily resolved.

2. Are there any actions or steps that USCo should take as a resub of this information?

Having learned of the possible business relationship between the managing director and the Deputy Under Secretary, USCo must fully investigate the formation and operation of the trading company and the nature of the services being provided. The investigation will need to address all of the concerns described above. The investigation should also determine whether it is lawful under local law for a government official to have an equity interest in a private company whose partners may be selling equipment to the Ministry of Health.

Even if the investigation indicates that the existing trading company relationship is bona fide and lawful, FCPA concerns would remain. In particular, the trading company can serve as an easy conduit for disguising future illicit payments. Therefore, in order to be able to maintain an agency relationship with Turkmed, USCo must take appropriate steps to ensure against any possible future improper conduct, and it will have to maintain continuing oversight over the actions of the trading company. Specifically, USCo should obtain representations from both the Managing Director of Turkmed and the Deputy Under Secretary that no improper payments have been or will be made; require the disclosure of the relationship to the Ministry of Health; obtain written assurances that the Deputy Under Secretary would excuse himself from any decisions which involve the sale of medical equipment to the Ministry by Turkmed; and obtain fun audit rights to the operations of Turkmed to maintain continuing oversight.

If obtaining these assurances is not practical, then USCo may have no choice but to require the Managing Director of Turkmed to relinquish its interest in the trading company or cease to be the representative for USCo.

3. Would the FCPA concerns be any different if, instead of being an agent, Turkmed was a distributor of USCo?

No. The FCPA concerns in this case would not be any different if Turkmed was USCo's distributor rather than its agent. If USCo has knowledge that its agent or distributor is engaged in illicit payments with regard to the sale of USCo's medical equipment, the continuing retention of the agent or distributor could subject USCo to a potential FCPA violation.

7.8 The Nidol Agreement
<7.8[A] Facts
<7.8[B] Discussion

7.8[A] Facts

A U.S. corporation (USCo) produces and sells military marine engines. In the wake of recent contract cancellations by the U.S. Department of Defense, USCo is desperate for sales. its marketing vice president called on the Nigerian Defense Minister, General Amani, about the possibility of submitting a bid for a potential $90 million tender request for patrol boats and gun ships.

The General was interested in the performance and reputation for reliability of USCo's equipment and suggested that USCo should join with a military patrol boat manufacturer, Vernon, Ltd., to submit a proposal.

Vernon is a Bermuda company wholly owned by a Nigerian national, R. M. Aanuman. Mr. Aanuman proposed a 60/40 (Vernon/USCo) JV with Vernon handling all the negotiations for the sale through its sales agent based in Nigeria, Nidol Company. Technical representatives of USCo would provide operational and maintenance information to the Nigerian officials.

After the contract was signed and the bid submitted, the General Counsel of USCo asked to review the contract with the Nidol Company. The material was received with a letter from Mr. Aanuman stating that the award was to be announced within the next thirty days, and that the Vernon/USCo proposal had a 95 percent chance of success.

In reviewing Nidol's agreement with Vernon, the General Counsel noted that Nidol's commission rate was 10 percent and commission checks were to be deposited by Vernon in Nidol's U.K. bank account. USCo generally pays a 3-5 percent commission to agents it has used in other projects.

7.8[B] Discussion

1. What red flags does 60 case present for USCo?

This case presents several red flags which raise possible FCPA concerns:

• Customer directs bidder to a specific company, Vernon Ltd., with which USCo should jointly submit a proposal (e.g., a possible conduit for an illicit payment).

• The commission rate for the agent, 10 percent or approximately $9 million, appears high on its face, at least without additional justification.

• The payment's off-shore situs raises questions about the reason for an offshore payment (e.g., possible source of illicit payment).

Under the knowledge standard of the FCPA, USCo cannot consciously ignore information that comes to its attention that could alert it to a substantial likelihood that prohibited payments have been or will be made. If it does so, it could be imputed with such knowledge. The above-described red flags, by themselves, do not necessarily mean that anything improper is being done by Vernon or Nidol. Yet they are sufficient indicia to warrant at least a further review of the matter by USCo.

USCo should make appropriate inquiries to ascertain the bona fides of these issues. For example, USCo should determine the extent and scope of services to be provided by Nidol and whether the 10 percent commission is consistent with standard commissions for such services. USCo should check the reputation and references of Nidol and whether any government officials have an ownership interest in Nidol. USCo should also seek an explanation from Nidol of why the checks are to be deposited in its UK account, rather than in Nigeria.

If, upon review, USCo determines that the commission rate and the situs of payment are reasonable and bona fide, then USCo should be able to proceed with the transaction without any imputation to it of knowledge of any improper conduct.

If, however, the information obtained from the inquiry indicates a substantial likelihood. that in fact improper payments have been or will be made by Nidol, then USCo faces significant problems in proceeding with the transaction. Under the FCPA, USCo need not have actual explicit knowledge. Rather, an awareness of a substantial likelihood that improper conduct has taken place or is taking place would meet the requisite knowledge standard under the FCPA.

Even though USCo is a minority (40 percent) partner in the joint venture, its continued participation in the joint venture with knowledge that the sales representative for the joint venture may be engaging in improper conduct raises significant FCPA problems. The payment of any commission to Nidol by the joint venture could arguably constitute the authorization by USCo to pay a third party (i.e., Nidol) knowing that all or a portion of such monies would be used directly or indirectly to make illicit payments to foreign officials.

2. What steps might USCo have taken earlier in the relationship, and bow should the deal have been structured?

Even though USCo only owns 40 percent of the joint venture, its involvement in the operations of the company is nevertheless substantial. If Nidol, as the sales representative for this joint venture, engages in prohibited payments and USCo knows of such payments, its continued involvement in the joint venture project would present substantial FCPA problems.

To minimize potential problems, USCo should have undertaken a review of the reputation, references, and business practices of Vernon prior to joining the joint venture.

The joint venture agreement should have contained a provision which required the joint venture to adopt and implement a business practices policy, and a prohibition on payments to foreign officials to obtain business by the officers, directors, employees, or agents of each party. If Vernon breached these obligations, the agreement should have provided USCo with the right to terminate the agreement and to be indemnified by Vernon for any losses or damages. With this provision, USCo would have been in a better position to avoid problems or to disassociate itself from any improper practices, if necessary. This provision would also convey to Vernon the importance of adhering to USCo's business practices policy.

In addition, USCo should have reviewed the Nidol sales representative agreement, and it should have made inquiries regarding the reputation and references of Nidol prior to the appointment of Nidol. The sales representative agreement should contain explicit language prohibiting any improper payments.