Global regulators are looking beyond the usual suspects for potential violations of bribery and corruption laws.
While oil, gas, and mining companies face more charges of foreign and domestic bribery than any other industry in the world, according to a new global anti-corruption report, corruption enforcement actions are quickly piling up in other industries too, including some that haven't had much exposure in the past. Industries such as retail, technology, and entertainment are seeing more formal corruption enforcement actions.
According to the latest annual report by an anti-bribery watchdog TRACE International, companies in the entertainment and film industry, for example, were the target of 8 enforcement actions in 2013, as many as the industry saw from 1977 to 2012. Companies in the technology and software sector were on the receiving end of 7 enforcement actions last year, well up from the average of less than one company a year from 1977 to 2012.
“The high tide of FCPA enforcement, generally, is reaching into industries that traditionally have not been thought of as posing high FCPA risk,” said Laurence Urgenson, a partner with law firm Mayer Brown and a former acting deputy assistant attorney general at the Justice Department.
The financial services industry, for example, is “moving up the list as an FCPA target, and it's making up a larger percentage of FCPA enforcement actions,” says Urgenson. Since 1977, financial services companies have faced 42 foreign and domestic bribery enforcement actions, the last eight of which are ongoing in 2013, he says.
With companies in more industries doing business abroad, this trend is likely to continue. That doesn't mean, however, that regulators aren't still focused on industries that have seen a high volume of corruption and bribery charges in the past. According to the TRACE report, the extractive industry faced a total of 127 known foreign and domestic bribery enforcement actions since 1977, when the United States passed the Foreign Corrupt Practices Act and first made such bribery illegal. This figure represents the highest number of enforcement actions in comparison to all 15 industries analyzed in the report, including manufacturing, defense, and healthcare.
The extractive industry has always been vulnerable to bribery and corruption risk, because the countries that are rich in natural resources also tend to be hot bed areas for bribery and corruption. Heightening the risk of bribery is that many of these countries are dominated by state-owned entities, where interactions with foreign government officials are commonplace.
Trailing not far behind the extractive industry, manufacturing providers faced 115 foreign and domestic bribery enforcement actions, according to the TRACE report. Together, the extractive and manufacturing industries accounted for 35 percent out of 701 total known bribery and corruption enforcement actions around the world.
Other industries to encounter a high number of bribery enforcement actions include aerospace and defense, and healthcare, which faced a total of 95 and 83 such enforcement actions, respectively, from 1977 through 2013. With six total bribery enforcement actions, drug companies faced the fewest among all industries.
Every Industry Has Risks
The TRACE report serves as a stark reminder to all industries that no multinational company is immune from an FCPA investigation. “It's not as easy anymore to pinpoint what industry is going to be next,” says Jonathan Abernethy, a partner with law firm Cohen & Gresser. “We are seeing FCPA investigations in virtually every industry and every part of the world.”
The most common risk factors that typically lead to an FCPA investigation derive from relationships with third parties and joint venture partners, interactions with foreign government officials, and operation in high-risk countries. These all feed into heighted FCPA risk, says Barry Sabin, a partner in the law firm of Latham & Watkins, and they are factors that can be found at companies in most industries.
“The longer the investigation, and the greater the scope of the investigation, the more likely you're going to see these increased penalties.”
—Jonathan Abernethy,
Partner,
Cohen & Gressler
According to the TRACE report, the United States continues to dominate foreign bribery enforcement, bringing almost twice as many formal foreign bribery actions than all other countries combined from 2003 through 2013. The report defines formal enforcement actions as those that have resulted in formal charges, and, thus, excludes ongoing investigations.
The United States brought nearly seven times as many foreign bribery enforcement actions than the country with the next highest total. Whereas the United States brought 316 foreign bribery actions, the United Kingdom brought 46 since 1977. Other countries that brought foreign bribery enforcement actions include Germany, Denmark, South Korea, and the Netherlands.
While the TRACE report states that FCPA enforcement actions remained at the same level as 2012 figures, some say the figures can be deceiving. It could just be that fewer FCPA cases were made public last year, says Michael Himmel, a partner with law firm Lowenstein Sandler. There are more FCPA investigations going on than ever before, he says.
The United States also appears to be pursuing companies for violations regardless of where they are headquartered. U.S. prosecutors pursued foreign bribery enforcement actions against 82 companies based outside the United States, or an individual employed or retained by such a company. This figure represents more than 25 percent of all foreign bribery enforcement actions initiated by the U.S. enforcement agencies, including both formal charges and ongoing investigations.
For many years multinational companies only had to worry about the U.S. Justice Department and SEC bringing a bribery enforcement action. “If you could resolve a case with them, you were done,” says Urgenson. Now, multinational companies have to deal with not just U.S. prosecutors but foreign enforcement agencies as well, “including NGOs like the World Bank, which has an increasingly strong presence in FCPA enforcement,” he says.
Aside from the United States, numerous other countries are making significant strides on the anti-bribery enforcement front. According to the TRACE report, 26 countries in all and three non-government organizations—the United Nations, the European Bank for Reconstruction and Development, and the World Bank—pursued 515 foreign bribery enforcement actions, including ongoing investigations, since 1977.
Record Settlements
According to the TRACE report, even though U.S. companies settled fewer enforcement actions with federal authorities last year, total settlement amounts tripled in comparison to the year before. In 2012, U.S. companies paid a total of $283 million resulting from 13 settlements. That figured tripled to $731 million resulting from 11 settlements in 2013. “With the increase in attention on the part of U.S. prosecutors and regulators, and greater cooperation with their foreign counterparts, FCPA settlement amounts that several years ago would have been unheard of are becoming more commonplace,” says Abernethy.
ENFORCEMENT ACTIONS BY INDUSTRY
According to TRACE International, there were 701 total enforcement actions from 1977 through 2013. The chart below shows enforcement actions by industry from 1977 through 2012, and the remainder to make up the total for each industry in 2013.
Source: TRACE International.
Other factors the Justice Department considers when reaching a resolution include the company's degree of involvement and knowledge of the scheme and what remedial efforts the company took, says Sabin.
In May 2013, for example, French oil and gas company Total S.A. paid a total of $398 million to the Justice Department and Securities and Exchange Commission to resolve charges related to FCPA violations in connection with illegal payments made through third parties to a government official in Iran in exchange for the development of oil and gas fields in the country.
The good news is that multinational companies today are much more aware and responsive to their bribery and corruption risks than ever before. “We've seen a real focus on building out compliance programs, instituting tone-at-the-top from senior management, ensuring there is sophisticated training—both in person and online—in place,” says Sabin. All those proactive measures will minimize a global company's legal and regulatory risks if regulators do come knocking.
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