The Foreign Corrupt Practices Act may have been in the government’s deep freezer for most of its 30-year history, but regulators are heating up fresh new helpings of it these days.
Enforcement actions under the anti-bribery statute are bustling, both in sheer numbers and in innovative new applications of the law. According to an analysis by the law firm Gibson, Dunn & Crutcher, actions brought by the Justice Department and Securities and Exchange Commission went from two in 2003 to at least 20 filed in the last 18 months. Nine actions have been filed so far this year, on pace to exceed the 15 actions in all of 2006.
Wall
“It’s not just an incremental increase; it’s a significant increase,” says Christopher Wall, of the law firm Pillsbury Winthrop Shaw Pittman. “There are more actions now pending and cases that have recently been resolved than in past years.”
The FCPA bans U.S. companies from bribing foreign officials to win business and requires companies to have effective internal controls to ensure no such bribes are happening. In recent years, prosecutors have broadened the law to include U.S. citizens working anywhere in the world, foreign citizens working for U.S. companies, and even foreign citizens working for foreign companies if they trade on U.S. exchanges.
In July 2007, two former executives of global telecommunications company ITXC Corp., Steven Ott and Roger Young, pleaded guilty to violating the FCPA over allegations that they approved and negotiated bribes to employees of foreign state-owned telecommunications carriers in various African countries. In a related case, a federal court in New Jersey also sentenced former ITXC employee Yaw Osei Amoako to 18 months in prison for similar charges.
Just weeks earlier, in another FCPA case, the U.S. government decided against prosecuting $6 billion hedge fund Omega Advisers over its role in bribing government officials in Azerbaijan to gain control of its state-owned oil company. The decision came on the heels of a federal court ruling in New York in June to dismiss charges against two other men involved in the massive scheme, because the statute of limitations against them had expired.
Experts note that the recent FCPA actions highlight a number of growing trends in 2007. Among them:
More Individual Actions
Warin
Cases like ITXC and Omega Advisers draw attention to how the Justice Department “very often will simultaneously bring an action against a corporation and an individual,” says Joe Warin, a partner at Gibson, Dunn & Crutcher.
A similar case occurred in June, when Si Chan Wooh, a former senior officer of SSI International, a subsidiary of Schnitzer Steel Industries until 2006, pleaded guilty to conspiracy to violate the FCPA in connection with bribes paid over 10 years to government officials in China. Wooh also consented to a $41,000 civil penalty with the SEC for violating the anti-bribery and books-and-records provisions of the FCPA. The actions against Wooh came eight months after Schnitzer Steel was found guilty for the same underlying activity and ordered to pay more than $15 million in fines and penalties.
In some instances, individual actions are not brought until well after a company has settled an FCPA action. In March, for example, Charles Martin, Monsanto’s former director of government affairs for Asia, reached a settlement with the SEC for aiding and abetting violations of the FCPA in an attempted bribery scheme with an Indonesian government official. Martin agreed to the entry of a final judgment permanently enjoining him from future FCPA violations, as well as to pay a $30,000 civil penalty.
The settlement came nearly two years after Monsanto entered into a deferred prosecution agreement with the Justice Department for similar violations. “That would suggest that they’re still working these cases, but they just didn’t complete the investigation at the same time this corporation resolved the matter,” Warin says.
And individual enforcement actions do not necessarily follow the prosecution of a company. In July, a federal grand jury indicted Jason Steph, a former executive of a subsidiary of energy services firm Willbros Group, for his role in allegedly bribing Nigerian officials to obtain a major gas pipeline project. No charges have been brought against Willbros so far.
Anti-Bribery Tactics
Preventing Corruption Within Your Company
The increasing trends in enforcement actions and penalties highlight the need to establish greater internal controls, experts say. The rule suggested by Joe Warin, of the law firm Gibson, Dunn & Crutcher: “Follow the money. Know where your corporate funds are being expended and how they’re being expended.” This includes knowing who is spending the company money, in what context, and what you’re getting for it.
Before a company can prevent any problems from happening, it must first ensure that policies are adopted “from senior level all the way down that prohibit these kinds of payments,” says Christopher Wall of the law firm Pillsbury Winthrop Shaw Pittman. “The policies need to be tailored to the particular circumstances of the company’s business, focusing on areas where the risks are the greatest.”
For example, if a company’s marketing employees routinely take sales prospects who are government officials out to dinner, an approval process should ensure that expenditures on those officials are within reason.
Those policies should be enforced with a “robust compliance program,” Sturc says. That way, if your company does run afoul with the Securities and Exchange Commission or Justice Department, “the company is in a better position to protect itself and its senior management.”
This cannot be achieved with training, Wall says. “People have to be aware of what the requirements are, what the rules are,” he says. “The training has to be targeted to the individuals involved who are likely to encounter risk.” Wall adds that whistleblowers procedures should also be established so internal investigations can be addressed promptly.
Putting these controls in place is especially important, to catch matters before they are reported externally. “It’s always better to address these things internally and to fix the problem than it is to have to deal with it in the context of a lawsuit,” Wall says.
—Jaclyn Jaeger
Similarly, former Alcatel CIT executive Christian Sapsizian pleaded guilty to participating in the payment of more than $2.5 million in bribes to senior Costa Rican government officials to obtain a mobile telephone contract from the country’s state-owned telecommunications authority. Like the Steph case, no charges have been brought against Alcatel CIT.
Higher Penalties
Meanwhile, the fines being levied by the DoJ and SEC are “going through the roof,” according to Warin. In April, for example, oil and gas giant Baker Hughes agreed to pay the SEC and the DoJ a combined $44 million in fines and penalties for its role in an alleged bribery scheme in Kazakhstan. To date, the settlement represents the largest combined sanction imposed in an FCPA case, nearly triple the combined $15.2 million that Schnitzer Steel and SSI International agreed to pay in October 2006 for similar charges.
Another telling case that rendered the largest criminal penalty ever sought by the DoJ in an FCPA case occurred in February, against subsidiaries of Vetco International. In that case, Vetco agreed to pay a total of $26 million in criminal fines for its role in a bribery scheme with officials in the Nigerian Customs Service. Says Wall: “The Department really threw the book at them.”
International Enforcement
Despite hefty penalties, Warin says companies still try to get away with these schemes partly because getting through customs of many foreign governments is “a nightmare” of corruption. As a result, “doing business internationally in an ethical way becomes more challenging as U.S multinationals are doing business across the globe,” he says.
Sturc
That said, anticorruption practices do appear to be increasing outside the United States, most significantly in Europe, says John Sturc, a partner with Gibson, Dunn & Crutcher. Notable investigations include those against Siemens and British defense giant BAE Systems for their roles in bribery schemes in Italy and Saudi Arabia, respectively.
Another prominent international case came against Norwegian oil giant Statoil, which trades on the New York Stock Exchange. It confessed in October 2006 to bribing an Iranian for valuable oil and gas rights in Iran—the first instance of the Justice Department taking action against a foreign issuer over FCPA violations. Statoil agreed to pay a $10.5 million fine and enter into a three-year deferred-prosecution agreement with the DoJ, and also disgorged $10.5 million to the SEC. Statoil also paid $3 million to Norwegian prosecutors.
Behind It All
Chesley
The increasing enforcement actions and penalties can be linked to several factors. For one, Wall and Sturc say, the DoJ is more focused on public corruption initiatives than ever before. The FBI has also recently announced their commitment to devoting more resources and agents to FCPA-related cases, says John Chesley, an associate with Gibson, Dunn & Crutcher.
FCPA-related actions often can pack a one-two punch as well. While the SEC focuses on the statute’s accounting provisions and the Justice Department on anti-bribery aspects of the law, it is not uncommon for the two agencies to share documents and legal strategies in these cases, Warin says. “Both the SEC and the DoJ work hand-in-glove.”
A second factor is the increasing number of voluntary disclosures by corporations themselves. Wall, however, says not everybody is convinced that self-reporting an FCPA offense is worth it. “What you see in voluntary disclosures is that companies are still getting penalized,” he says. “Nobody gets a free pass … It does certainly raise the question about what the value of disclosure is, if you’re not going to be treated any more leniently by doing that.”
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