by Andrew Ness
The principal weapon of the U.S. government to combat corruption in international business dealings is the Foreign Corrupt Practices Act (FCPA). To say that the U.S. is now aggressively pursuing FCPA cases is an understatement. In the past year, we have seen billions of dollars of fines, sting operations, and the pursuit of individuals around the world. Here are some of the latest FCPA headlines:
Hefty penalties are the order of the day – In the past year, companies have settled with regulators to the tune of billions of dollars in penalties, fines and disgorgement.
• Halliburton/KBR paid $600 million;
• Siemens paid $1.6 billion;
• BAE paid $450 million; and
• It is reported that Daimler will pay an estimated $200 million.
Not factored in here is the cost of these investigations. Technip recently reported a charge of approximately $500 million related to government investigations into its involvement in the TSKJ joint venture in Nigeria (the Halliburton/KBR settlement). By contrast, investment in a comprehensive compliance program and FCPA due diligence on agents and consultants looks like an inexpensive way to protect a healthy bottom line.
Sting operations – In a very aggressive move, the US Dept. of Justice’s sting operation in conjunction with the UK authorities caught everyone by surprise. In tactics often reserved for crime syndicates, the DOJ and UK police arrested 22 individuals who allegedly attempted to make improper payments to FBI agents posing as representatives of procurement officers for a top minister of an African country. The improper payments were intended to obtain the award of contracts to sell military and law enforcement supplies. In an unusual twist, no actual foreign officials were involved.
Intergovernmental cooperation – On February 5, 2010, BAE settled with both the DOJ and the UK’s Serious Fraud Office. In addition to pleading guilty to one count of conspiracy to making false statements to the U.S. government, BAE also pled guilty to a charge that it failed “to keep reasonably accurate accounting records in relation to its activities in Tanzania.” BAE’s settlement included a payment of $400 million to the US and £30 million to the Crown Court (with a designated use to benefit the people of Tanzania). The Siemens settlement of $1.6 billion included a payment of approximately $560 million to the Munich Public Prosecutors Office for corporate failure to supervise officers and employees.
The February 11, 2009 Halliburton/KBR settlement only resolved issues with U.S. regulators, and investigations by French, British and Nigerian authorities remain unresolved. Additionally, as mentioned above, the FBI and City of London Police coordinated efforts in the January 19, 2010 sting operation that captured 22 individuals.
According to public reports, the US SEC made over 750 requests for assistance from foreign regulators in fiscal 2009, an increase of almost 200 requests from the prior year. Geographic and economic boundaries have all but dissolved, making it more difficult to hide corrupt payments in offshore entities and far flung subsidiaries.
Individual prosecutions and more litigation – The U.S. government has also sent a clear signal that it is willing to go after individuals and to litigate when necessary. Regulators are pursuing the middlemen and agents (as in the Siemens and Halliburton investigations) who conceal the corrupt payments to government officials. 2009 alone saw three FCPA trials against four individuals. That equals the total number of trials in the prior seven years.
Increased scrutiny on agents and consultants – Companies subject to the FCPA need to exercise due diligence to ensure that they form business relationships with responsible and qualified agents and consultants. The DOJ has provided companies with a list of “red flags” which, if present, should trigger heightened scrutiny. Red flags include unusual payment patterns, high commissions, a refusal by the agent or consultant to provide FCPA certifications, a lack of qualifications or expertise to perform the services being offered, and a referral to the agent or consultant by an official of a potential governmental customer. As highlighted in the Siemens, Halliburton and BAE settlements, failure to conduct comprehensive due diligence, or turning a blind-eye to any one of these “red flags” can be highly damaging to a company’s reputation and bottom line.
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