Reproduced with permission from White Collar CrimeReport, 6 WCR 166, 02/25/2011. Copyright
2011 byThe Bureau of National Affairs, Inc. (800-372-1033)http://www.bna.com
BRIBERY
Foreign Corrupt Practices Act Enforcement in 2010: Big, Bold, and Bizarre
B
Y
M
IKE
K
OEHLER
I
n 2010, Assistant Attorney General Lanny Breuerproclaimed ‘‘a new era of Foreign Corrupt PracticesAct enforcement; and we are here to stay.’’
1
The firstyear of this new era witnessed several developments.This article provides an overview of the year that wasand describes the big, bold, and bizarre year in FCPA
1
Department of Justice Release, ‘‘Assistant Attorney Gen-eral Lanny A. Breuer Speaks at the 24th National Conferenceon the Foreign Corrupt Practices Act’’ (November 16, 2010).
Mike Koehler is an assistant professor of busi-ness law at Butler University. Koehler is theauthor of the FCPA Professor Blog (http:// fcpaprofessor.blogspot.com). His FCPA exper-tise and views are informed by a decade of legal practice at a leading international lawfirm.
VOL. 6, NO. 4
166-172
FEBRUARY 25, 2011
COPYRIGHT
2011 BY THE BUREAU OF NATIONAL AFFAIRS, INC. ISSN 1559-3185
A
BNA,
INC.
WHITE COLLARCRIME REPORT
!
enforcement; the increased scrutiny of the FCPA andFCPA enforcement; and events related to the FCPA aswell as other anti-corruption laws and initiatives.
Big
Very Profitable Year.
How big was FCPA enforcementin 2010? Big$1.4 billion big, which was the amount of combined fines and penalties in FCPA enforcement ac-tions. Both the Justice Department and the Securitiesand Exchange Commission brought approximately 20corporate enforcement actions, with DOJ assessing ap-proximately $870 million in criminal fines and the SECassessing approximately $530 million in civil penaltiesand disgorgement.
2
FCPA enforcement has become soprominent for DOJ that 50 percent of the total amountof fines and penalties secured by DOJ’s Criminal Divi-sion in 2010 were in FCPA enforcement actions.
3
AsDOJ’s former assistant chief for FCPA enforcementcandidly stated, ‘‘The government sees a profitable pro-gram, and it’s going to ride that horse until it can’t rideit anymore.’’
4
So big was FCPA enforcement in 2010 that eight of the top 10 enforcement actions of all time occurred dur-ing the year.
5
In comparison, in 2000 there was oneFCPA enforcement actionby the SECand the totalpenalty amount was $300,000. The past decade has thuswitnessed a remarkable transformationnot as to theFCPA itself (which has not changed since 1998), but asto FCPA enforcement and theories of prosecution.Much of the magnitude of FCPA enforcement in 2010was a function of foreign companies (with shares listedon U.S. exchanges or otherwise allegedly subject to theFCPA based on various jurisdictional theories) engag-ing in conduct in apparent violation of the FCPA. Infact, approximately 90 percent of 2010 FCPA fines andpenalties were paid by foreign companies. For instance,the five largest FCPA enforcement actions in 2010 wereall against foreign companies:
s
Snamprogetti Netherlands BV ($365 million incombined fines and penalties) (5 WCR 498, 7/16/10);
s
Technip SA ($338 million) (5 WCR 467, 7/2/10);
s
Daimler AG ($185 million) (5 WCR 205, 3/26/10);
s
Alcatel-Lucent SA ($137 million) (5 WCR 925,12/31/10); and
s
Panalpina Inc. ($81.8 million) (5 WCR 802,11/19/10).These enforcement actions were largely based onconduct that occurred nearly a decade agoa timewhen compliance norms and expectations (particularlyin non-U.S. companies) were not nearly what they aretoday.
Current Trend.
The trend of foreign companies com-prising a large percentage of FCPA enforcement actionsis likely to continue, albeit perhaps not at the 2010 level.Certain of the medical device and pharmaceutical com-panies that have disclosed FCPA issues are foreigncompanies, and there is an increasing trend of China-based companies issuing shares on U.S. exchanges,thus making those companies subject to the FCPA.Not only was FCPA enforcement big in 2010, but sotoo were the reported fees companies paid in connec-tion with FCPA inquiries and investigations. Avon Prod-ucts has not yet settled an FCPA enforcement action,yet the company has disclosed that its professionalcosts in connection with its internal inquiry and investi-gation of conduct in China and other countries is near$100 million.
6
On a much smalleryet stillmeaningfulscale, in August 2009 Team Inc. disclosedthat an internal investigation conducted by FCPA coun-sel found evidence suggesting payments totaling$50,000 over a five-year period in its Trinidad branch (abranch representing approximately one-half of 1 per-cent of the company’s overall revenue) may have vio-lated the FCPA.
7
In October, the company disclosedthat its total professional costs associated with the in-vestigation have risen to approximately $3.2 million.
8
These two examples of pre-enforcement action profes-sional fees raise the question of whether FCPA inquir-ies and investigations (even as to conduct limited inscope) legitimately result in extensive professional feesor whether, in the name of cooperation, FCPA inquiriesand internal investigations have turned into a boon-doggle for many involved.Big describes not only corporate FCPA enforcementin 2010 but individual FCPA enforcement as well. Whilethe enforcement agencies’ FCPA programs remainlargely corporate enforcement programs, 2010 did wit-ness the largest-ever coordinated individual enforce-ment action in the FCPA’s history as 22 ‘‘executives andemployees of companies in the military and law en-forcement products industry’’ were charged with en-gaging in a scheme to ‘‘pay bribes to the minister of de-fense for a country in Africa.’’
9
The FCPA sting enforce-ment action was not only big but bold and bizarre aswell. As to bold, the enforcement action was not thefirst time DOJ had used undercover tactics in an FCPA enforcement action, but the Africa sting case was cer-tainly the most dramatic, with nearly all of the defen-dants being arrested while attending a trade show inLas Vegas after months of surveillance and monitoringby the FBI. As to bizarre, Richard Bistrong, a personwho had already pleaded guilty to separate FCPA viola-tions, assisted the FBI in concocting a scheme in whichFBI agents posed as representatives of an imaginaryGabonese minister of defense whom the defendants al-legedly intended to influence with improper payments.The past year also witnessed a big individual sen-tence, the longest in the FCPA’s history. While a cleartrend emerged in 2010 of sentencing judges signifi-cantly rejecting DOJ sentencing recommendations in
2
DOJ’s figure does not include the $400 million fine paid byBAE Systems Plc (a non-FCPA enforcement action), and theSEC figure does not include the $50 million the commission as-sessed, but waived, against Innospec based on its claimed in-ability to pay.
3
DOJ press release,
Department of Justice Secures MoreThan $2 Billion in Judgments and Settlements as a Result of Enforcement Actions Led by the Criminal Division
(Jan. 21,2011).
4
See
Joseph Rosenbloom,
Here Come the Payoff Police
,American Lawyer (May 17, 2010) (quoting William Jacobson).
5
See
FCPA Blog,
Recent Cases, Foreign Companies Domi-nate New Top Ten
(Jan. 5, 2011). This ranking includes theBAE enforcement action.
6
Avon Products Inc., Form 10-Q filing (Oct. 28, 2010).
7
Team Inc. Form 8-K filing (Aug. 4, 2009).
8
Team Inc. Form 10-Q filing (Oct. 8, 2010).
9
See
5 WCR 62 (1/29/10); DOJ press release,
Twenty-TwoExecutives and Employees of Military and Law EnforcementProducts Companies Charged in Foreign Bribery Scheme
(Jan.19, 2010).
2
2-25-11 COPYRIGHT
2011 BY THE BUREAU OF NATIONAL AFFAIRS, INC. WCR ISSN 1559-3185
individual prosecutions and sentencing individualFCPA defendants to approximately one year in prison,Charles Jumet’s sentence was an outlier. In April, Ju-met was sentenced to 87 months, which included 60months on a conspiracy to violate the FCPA charge and27 months on a false statements charge in connectionwith $200,000 in improper payments to Panamanian of-ficials to receive a lighthouse and buoy contract.
10
Bold
FCPA enforcement in 2010 was also bold as the en-forcement agencies, largely enforcing the statuteagainst cooperating defendants and without any mean-ingful judicial scrutiny, continued to push the envelopein terms of enforcement theories.For instance, a key element of an FCPA anti-briberyviolation is the involvement of a ‘‘foreign official,’’ de-fined as ‘‘any officer or employee of a foreign govern-ment or any department, agency, or instrumentalitythereof.’’ The enforcement agencies continue to inter-pret this key element, contrary to congressional intentin enacting the FCPA, to include employees of allegedstate-owned or state-controlled enterprises (often enter-prises with publicly traded stock, doing business allover the world, and possessing other attributes of pri-vate business) on the theory that the enterprise is an‘‘instrumentality’’ of a foreign government. In 2010, ap-proximately 60 percent of corporate FCPA enforcementactions involved (in whole or in part) employees of SOEsan enforcement theory that also impacted sev-eral related individual prosecutions in 2010.The ownership threshold for what constitutes an SOEin the enforcement agencies’ view dropped as well in2010. In the Alcatel-Lucent enforcement action, theSEC and DOJ charged that Telekom Malaysia Berhad(TM) was a state-owned and controlled telecommunica-tions provider because the Malaysian Ministry of Fi-nance owned approximately 43 percent of TM’s shares,had veto power over all major expenditures, and madeimportant operational decisions.
11
Yet TM is one of Asia’s leading communications companies, has ap-proximately 25,000 employees, describes itself as pri-vatized, and reports a shareholder base of approxi-mately 35,000 institutional and private/retail inves-tors.
12
The enforcement agencies’ dubious legal interpreta-tion did receive a greenhorn challenge
13
in 2010, yetthis interpretation remains ripe for a sophisticated chal-lenge, and a meaningful, merits-based judicial review iswarranted.
Agencies Continue to Stretch Boundaries.
The ‘‘foreignofficial’’ element is not the only key FCPA element thatwas often stretched beyond congressional intent by theenforcement agencies in 2010. Keeping with a trendthat has developed during this era of the FCPA’s resur-gence, the enforcement agencies continue to take anexpansive view of the ‘‘obtain or retain business’’ ele-ment of the FCPA and seemingly ignore the act’s ex-press exception for so-called facilitating or expeditingpayments.When a group of large multinational companies col-lectively settle FCPA enforcement actions for approxi-mately $236 million, it seems odd to ask whether theconduct at issue even violated the FCPA. Yet this ques-tion is warranted in the November Panalpina-relatedenforcement actions, where the conduct at issue largelyinvolved obtaining permits and licenses from the noto-riously corrupt Nigerian Customs Service and otherconduct, such as expedited delivery services and pay-ments to customs, tax, and other ministerial officials inseveral countries.
14
While some find facilitating payments to be a corruptpayment under a different name and while a compli-ance trend is to prohibit such payments, the fact re-mains that the FCPA contains an express exception forsuch payments, and it is this statute that the enforce-ment agencies are obligated to enforce. Should theUnited States seek to prohibit facilitating payments (asdoes the recently enacted U.K. Bribery Act), this is a de-cision for Congress, not for the enforcement agenciesthrough charging decisions that corporate defendantsare, for all practical reasons, unable to challenge.The past year witnessed several other bold enforce-ment theories, beginning with the first enforcement ac-tion of the year, against NATCO Group.
15
In that case,the SEC alleged that the company’s wholly owned sub-sidiary in Kazakhstan was on the receiving end of ex-tortionate demands by immigration officials. The com-pany complied with the demands and made approxi-mately $45,000 in payments to the officials. However,the SEC alleged that the payments were not properlyrecorded in the subsidiary’s books and records and,without alleging a single fact to suggest that NATCOwas involved or had knowledge of the conduct at issue,charged NATCO with FCPA books-and-records andinternal-control violations.Similarly bold were certain of the SEC’s allegationsagainst Joe Summers, a nominal employee of Pride In-ternational in Venezuela.
16
Among other allegationssupporting the SEC’s FCPA anti-bribery chargesagainst Summers was that Pride was having difficultycollecting certain bona fide receivables from Venezu-ela’s alleged state-owned or state-controlled oil com-pany. According to the SEC, a mid-level employee atthe oil company refused to release the funds owed toPride unless a $30,000 payment was made to him, andSummers authorized the payment.Other bold enforcement theories from 2010 includedthe SEC charging a non-issuer and a company settlingan FCPA enforcement action even though the company
10
See
5 WCR 289 (4/23/10); DOJ press release,
VirginiaResident Sentenced to 87 Months in Prison for Bribing ForeignGovernment Officials
(April 19, 2010).
11
United States v. Alcatel-Lucent SA
, No. 1:10-cr-20906(S.D. Fla. Dec. 27, 2010) (5 WCR 925, 12/31/10).
12
FCPA Professor,
Foreign Official Limbo . . . How LowCan it Go?
(Jan. 10, 2011).
13
FCPA Professor,
Judge Denies Esquenazi’s Foreign Offi-cial Challenge
(Nov. 23, 2010).
14
See
5 WCR 802 (11/19/10); DOJ press release,
Oil Ser-vices Company and Freight Forwarding Company Agree toResolve Foreign Bribery Investigations and Pay More Than$156 Million in Criminal PenaltiesSEC and CompaniesAgree to Civil Disgorgement and Penalties of Approximately$80 Million
(Nov. 4, 2010).
15
SEC press release,
SEC Files Settled Civil Action Charg-ing NATCO Group Inc. with Violations of the Foreign CorruptPractices Act
(Jan. 11, 2010).
16
SEC press release,
SEC Charges Former Employee of Pride International with Violating the Foreign Corrupt Prac-tices Act
(Aug. 5, 2010).
3
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