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A BNA, INC.

WHITE COLLAR
CRIME REPORT!
VOL. 6, NO. 4 166-172 FEBRUARY 25, 2011

Reproduced with permission from White Collar Crime


Report, 6 WCR 166, 02/25/2011. Copyright 姝 2011 by
The Bureau of National Affairs, Inc. (800-372-1033)
http://www.bna.com

BRIBERY

Foreign Corrupt Practices Act Enforcement in 2010: Big, Bold, and Bizarre

BY MIKE KOEHLER n 2010, Assistant Attorney General Lanny Breuer

Mike Koehler is an assistant professor of busi-


I proclaimed ‘‘a new era of Foreign Corrupt Practices
Act enforcement; and we are here to stay.’’1 The first
year of this new era witnessed several developments.
ness law at Butler University. Koehler is the This article provides an overview of the year that was
author of the FCPA Professor Blog (http:// and describes the big, bold, and bizarre year in FCPA
fcpaprofessor.blogspot.com). His FCPA exper-
tise and views are informed by a decade of
legal practice at a leading international law 1
Department of Justice Release, ‘‘Assistant Attorney Gen-
firm. eral Lanny A. Breuer Speaks at the 24th National Conference
on the Foreign Corrupt Practices Act’’ (November 16, 2010).

COPYRIGHT 姝 2011 BY THE BUREAU OF NATIONAL AFFAIRS, INC. ISSN 1559-3185


2

enforcement; the increased scrutiny of the FCPA and Current Trend. The trend of foreign companies com-
FCPA enforcement; and events related to the FCPA as prising a large percentage of FCPA enforcement actions
well as other anti-corruption laws and initiatives. is likely to continue, albeit perhaps not at the 2010 level.
Certain of the medical device and pharmaceutical com-
Big panies that have disclosed FCPA issues are foreign
companies, and there is an increasing trend of China-
Very Profitable Year. How big was FCPA enforcement based companies issuing shares on U.S. exchanges,
in 2010? Big—$1.4 billion big, which was the amount of thus making those companies subject to the FCPA.
combined fines and penalties in FCPA enforcement ac- Not only was FCPA enforcement big in 2010, but so
tions. Both the Justice Department and the Securities too were the reported fees companies paid in connec-
and Exchange Commission brought approximately 20 tion with FCPA inquiries and investigations. Avon Prod-
corporate enforcement actions, with DOJ assessing ap- ucts has not yet settled an FCPA enforcement action,
proximately $870 million in criminal fines and the SEC yet the company has disclosed that its professional
assessing approximately $530 million in civil penalties costs in connection with its internal inquiry and investi-
and disgorgement.2 FCPA enforcement has become so gation of conduct in China and other countries is near
prominent for DOJ that 50 percent of the total amount $100 million.6 On a much smaller—yet still
of fines and penalties secured by DOJ’s Criminal Divi- meaningful—scale, in August 2009 Team Inc. disclosed
sion in 2010 were in FCPA enforcement actions.3 As that an internal investigation conducted by FCPA coun-
DOJ’s former assistant chief for FCPA enforcement sel found evidence suggesting payments totaling
candidly stated, ‘‘The government sees a profitable pro- $50,000 over a five-year period in its Trinidad branch (a
gram, and it’s going to ride that horse until it can’t ride branch representing approximately one-half of 1 per-
it anymore.’’4 cent of the company’s overall revenue) may have vio-
lated the FCPA.7 In October, the company disclosed
So big was FCPA enforcement in 2010 that eight of that its total professional costs associated with the in-
the top 10 enforcement actions of all time occurred dur- vestigation have risen to approximately $3.2 million.8
ing the year.5 In comparison, in 2000 there was one These two examples of pre-enforcement action profes-
FCPA enforcement action—by the SEC—and the total sional fees raise the question of whether FCPA inquir-
penalty amount was $300,000. The past decade has thus ies and investigations (even as to conduct limited in
witnessed a remarkable transformation—not as to the scope) legitimately result in extensive professional fees
FCPA itself (which has not changed since 1998), but as or whether, in the name of cooperation, FCPA inquiries
to FCPA enforcement and theories of prosecution. and internal investigations have turned into a boon-
Much of the magnitude of FCPA enforcement in 2010 doggle for many involved.
was a function of foreign companies (with shares listed
Big describes not only corporate FCPA enforcement
on U.S. exchanges or otherwise allegedly subject to the
in 2010 but individual FCPA enforcement as well. While
FCPA based on various jurisdictional theories) engag-
the enforcement agencies’ FCPA programs remain
ing in conduct in apparent violation of the FCPA. In
largely corporate enforcement programs, 2010 did wit-
fact, approximately 90 percent of 2010 FCPA fines and
ness the largest-ever coordinated individual enforce-
penalties were paid by foreign companies. For instance,
ment action in the FCPA’s history as 22 ‘‘executives and
the five largest FCPA enforcement actions in 2010 were
employees of companies in the military and law en-
all against foreign companies:
forcement products industry’’ were charged with en-
s Snamprogetti Netherlands BV ($365 million in gaging in a scheme to ‘‘pay bribes to the minister of de-
combined fines and penalties) (5 WCR 498, 7/16/10); fense for a country in Africa.’’9 The FCPA sting enforce-
s Technip SA ($338 million) (5 WCR 467, 7/2/10); ment action was not only big but bold and bizarre as
s Daimler AG ($185 million) (5 WCR 205, 3/26/10); well. As to bold, the enforcement action was not the
s Alcatel-Lucent SA ($137 million) (5 WCR 925, first time DOJ had used undercover tactics in an FCPA
12/31/10); and enforcement action, but the Africa sting case was cer-
s Panalpina Inc. ($81.8 million) (5 WCR 802, tainly the most dramatic, with nearly all of the defen-
11/19/10). dants being arrested while attending a trade show in
These enforcement actions were largely based on Las Vegas after months of surveillance and monitoring
conduct that occurred nearly a decade ago—a time by the FBI. As to bizarre, Richard Bistrong, a person
when compliance norms and expectations (particularly who had already pleaded guilty to separate FCPA viola-
in non-U.S. companies) were not nearly what they are tions, assisted the FBI in concocting a scheme in which
today. FBI agents posed as representatives of an imaginary
Gabonese minister of defense whom the defendants al-
2
DOJ’s figure does not include the $400 million fine paid by
legedly intended to influence with improper payments.
BAE Systems Plc (a non-FCPA enforcement action), and the The past year also witnessed a big individual sen-
SEC figure does not include the $50 million the commission as- tence, the longest in the FCPA’s history. While a clear
sessed, but waived, against Innospec based on its claimed in- trend emerged in 2010 of sentencing judges signifi-
ability to pay. cantly rejecting DOJ sentencing recommendations in
3
DOJ press release, Department of Justice Secures More
Than $2 Billion in Judgments and Settlements as a Result of
6
Enforcement Actions Led by the Criminal Division (Jan. 21, Avon Products Inc., Form 10-Q filing (Oct. 28, 2010).
7
2011). Team Inc. Form 8-K filing (Aug. 4, 2009).
4 8
See Joseph Rosenbloom, Here Come the Payoff Police, Team Inc. Form 10-Q filing (Oct. 8, 2010).
9
American Lawyer (May 17, 2010) (quoting William Jacobson). See 5 WCR 62 (1/29/10); DOJ press release, Twenty-Two
5
See FCPA Blog, Recent Cases, Foreign Companies Domi- Executives and Employees of Military and Law Enforcement
nate New Top Ten (Jan. 5, 2011). This ranking includes the Products Companies Charged in Foreign Bribery Scheme (Jan.
BAE enforcement action. 19, 2010).

2-25-11 COPYRIGHT 姝 2011 BY THE BUREAU OF NATIONAL AFFAIRS, INC. WCR ISSN 1559-3185
3

individual prosecutions and sentencing individual gence, the enforcement agencies continue to take an
FCPA defendants to approximately one year in prison, expansive view of the ‘‘obtain or retain business’’ ele-
Charles Jumet’s sentence was an outlier. In April, Ju- ment of the FCPA and seemingly ignore the act’s ex-
met was sentenced to 87 months, which included 60 press exception for so-called facilitating or expediting
months on a conspiracy to violate the FCPA charge and payments.
27 months on a false statements charge in connection When a group of large multinational companies col-
with $200,000 in improper payments to Panamanian of- lectively settle FCPA enforcement actions for approxi-
ficials to receive a lighthouse and buoy contract.10 mately $236 million, it seems odd to ask whether the
conduct at issue even violated the FCPA. Yet this ques-
tion is warranted in the November Panalpina-related
Bold enforcement actions, where the conduct at issue largely
involved obtaining permits and licenses from the noto-
FCPA enforcement in 2010 was also bold as the en- riously corrupt Nigerian Customs Service and other
forcement agencies, largely enforcing the statute conduct, such as expedited delivery services and pay-
against cooperating defendants and without any mean- ments to customs, tax, and other ministerial officials in
ingful judicial scrutiny, continued to push the envelope several countries.14
in terms of enforcement theories. While some find facilitating payments to be a corrupt
For instance, a key element of an FCPA anti-bribery payment under a different name and while a compli-
violation is the involvement of a ‘‘foreign official,’’ de- ance trend is to prohibit such payments, the fact re-
fined as ‘‘any officer or employee of a foreign govern- mains that the FCPA contains an express exception for
ment or any department, agency, or instrumentality such payments, and it is this statute that the enforce-
thereof.’’ The enforcement agencies continue to inter- ment agencies are obligated to enforce. Should the
pret this key element, contrary to congressional intent United States seek to prohibit facilitating payments (as
in enacting the FCPA, to include employees of alleged does the recently enacted U.K. Bribery Act), this is a de-
state-owned or state-controlled enterprises (often enter- cision for Congress, not for the enforcement agencies
prises with publicly traded stock, doing business all through charging decisions that corporate defendants
over the world, and possessing other attributes of pri- are, for all practical reasons, unable to challenge.
vate business) on the theory that the enterprise is an The past year witnessed several other bold enforce-
‘‘instrumentality’’ of a foreign government. In 2010, ap- ment theories, beginning with the first enforcement ac-
proximately 60 percent of corporate FCPA enforcement tion of the year, against NATCO Group.15 In that case,
actions involved (in whole or in part) employees of the SEC alleged that the company’s wholly owned sub-
SOEs—an enforcement theory that also impacted sev- sidiary in Kazakhstan was on the receiving end of ex-
eral related individual prosecutions in 2010. tortionate demands by immigration officials. The com-
The ownership threshold for what constitutes an SOE pany complied with the demands and made approxi-
in the enforcement agencies’ view dropped as well in mately $45,000 in payments to the officials. However,
2010. In the Alcatel-Lucent enforcement action, the the SEC alleged that the payments were not properly
SEC and DOJ charged that Telekom Malaysia Berhad recorded in the subsidiary’s books and records and,
(TM) was a state-owned and controlled telecommunica- without alleging a single fact to suggest that NATCO
tions provider because the Malaysian Ministry of Fi- was involved or had knowledge of the conduct at issue,
nance owned approximately 43 percent of TM’s shares, charged NATCO with FCPA books-and-records and
had veto power over all major expenditures, and made internal-control violations.
important operational decisions.11 Yet TM is one of Similarly bold were certain of the SEC’s allegations
Asia’s leading communications companies, has ap- against Joe Summers, a nominal employee of Pride In-
proximately 25,000 employees, describes itself as pri- ternational in Venezuela.16 Among other allegations
vatized, and reports a shareholder base of approxi- supporting the SEC’s FCPA anti-bribery charges
mately 35,000 institutional and private/retail inves- against Summers was that Pride was having difficulty
tors.12 collecting certain bona fide receivables from Venezu-
The enforcement agencies’ dubious legal interpreta- ela’s alleged state-owned or state-controlled oil com-
tion did receive a greenhorn challenge13 in 2010, yet pany. According to the SEC, a mid-level employee at
this interpretation remains ripe for a sophisticated chal- the oil company refused to release the funds owed to
lenge, and a meaningful, merits-based judicial review is Pride unless a $30,000 payment was made to him, and
warranted. Summers authorized the payment.
Other bold enforcement theories from 2010 included
Agencies Continue to Stretch Boundaries. The ‘‘foreign the SEC charging a non-issuer and a company settling
official’’ element is not the only key FCPA element that an FCPA enforcement action even though the company
was often stretched beyond congressional intent by the
enforcement agencies in 2010. Keeping with a trend
14
that has developed during this era of the FCPA’s resur- See 5 WCR 802 (11/19/10); DOJ press release, Oil Ser-
vices Company and Freight Forwarding Company Agree to
Resolve Foreign Bribery Investigations and Pay More Than
10
See 5 WCR 289 (4/23/10); DOJ press release, Virginia $156 Million in Criminal Penalties—SEC and Companies
Resident Sentenced to 87 Months in Prison for Bribing Foreign Agree to Civil Disgorgement and Penalties of Approximately
Government Officials (April 19, 2010). $80 Million (Nov. 4, 2010).
11 15
United States v. Alcatel-Lucent SA, No. 1:10-cr-20906 SEC press release, SEC Files Settled Civil Action Charg-
(S.D. Fla. Dec. 27, 2010) (5 WCR 925, 12/31/10). ing NATCO Group Inc. with Violations of the Foreign Corrupt
12
FCPA Professor, Foreign Official Limbo . . . How Low Practices Act (Jan. 11, 2010).
16
Can it Go? (Jan. 10, 2011). SEC press release, SEC Charges Former Employee of
13
FCPA Professor, Judge Denies Esquenazi’s Foreign Offi- Pride International with Violating the Foreign Corrupt Prac-
cial Challenge (Nov. 23, 2010). tices Act (Aug. 5, 2010).

WHITE COLLAR CRIME REPORT ISSN 1559-3185 BNA 2-25-11


4

did nothing wrong. In November, the SEC charged Pan- charged with FCPA violations and other offenses on the
alpina, a non-issuer, with FCPA violations and collected basis of allegations that he made more than $78 million
approximately $11.3 million in disgorgement on the ju- in unlawful payments to two senior Kazakhstan offi-
risdictional theory that Panalpina acted as an agent for cials in connection with oil transactions for major
certain of its issuer-customers and violated the FCPA by American oil companies. The case proceeded slowly,
masking the true nature of bribe payments in invoices largely due to Giffen’s defense that his actions were
submitted to its issuer customers that allowed the cus- taken with the knowledge and support of the Central In-
tomers to then violate the FCPA.17 In August, tobacco telligence Agency, the National Security Council, the
company Alliance One agreed to pay approximately Department of State, and the White House. In August,
$9.5 million based entirely on a successor-liability the case came to an abrupt and mysterious conclusion
theory that it was legally responsible for the conduct of as Giffen pleaded guilty to a one-paragraph supersed-
companies it acquired.18 ing criminal information charging a misdemeanor tax
violation.22 In November, the presiding judge stated
that Giffen was a Cold War hero and commented that
Bizarre the case should have never been brought in the first
FCPA enforcement in 2010 was more than just big place.
and bold, it was also bizarre.
In February, DOJ alleged that BAE Systems, one of Increased Scrutiny
the largest defense contractors in the world, provided
‘‘substantial benefits’’ to a Saudi public official in a po- Against the backdrop of a big, bold, and bizarre year
sition of influence regarding lucrative fighter jet con- in FCPA enforcement, 2010 also witnessed increased
tracts secured by the company.19 According to DOJ, scrutiny of the FCPA and its enforcement from all direc-
BAE provided million in benefits, such as the purchase tions, including judges, Congress, and other interested
of travel and accommodations, security services, real individuals and organizations.
estate, automobiles, and personal items, through vari- Judicial Scrutiny. While FCPA enforcement is largely
ous payment mechanisms both in the territorial juris- devoid of judicial scrutiny, 2010 did provide certain op-
diction of the United States and elsewhere. Despite portunities for someone other than the enforcement
these allegations, DOJ did not charge BAE with violat- agencies to make judgments about some aspect of
ing the FCPA, even though the company did agree to FCPA enforcement—even if not as to the FCPA’s core
pay a $400 million criminal fine based on a non-FCPA elements. Most notably, in October, Judge Jackson L.
charge. Kiser, of the U.S. District Court for the Western District
The lack of FCPA charges against BAE was bizarre, of Virginia, rejected DOJ’s 38-month sentencing recom-
but the strangeness continued even after the enforce- mendation for FCPA defendant Bobby Elkin, a tobacco
ment action. In September, BAE, after already securing company executive who previously pleaded guilty to
numerous multimillion-dollar U.S. government con- conspiracy to violate the FCPA for paying and authoriz-
tracts in the months after the enforcement action, an- ing payments to various Kyrgyzstan officials. In sen-
nounced that the FBI (the same government agency tencing Elkin to three years’ probation and allowing
that assisted in the BAE investigation giving rise to the him to return to Kyrgyzstan to start anew in the tobacco
$400 million enforcement action) awarded the company industry, Kiser invoked accounts of the CIA bribing
a $40 million information security contract.20 The final warlords in Afghanistan as a parallel that ‘‘sort of goes
bizarre twist in the BAE case concerned the indepen- to the morality’’ of the situations commonly found in
dent compliance required per the plea agreement, FCPA enforcement actions.23 Kiser’s rejection of DOJ’s
which stated that the monitor shall have ‘‘sufficient in- sentencing recommendation was part of a noticeable
dependence from [BAE] to ensure effective and impar- trend in 2010 in which judges significantly rejected DOJ
tial performance of the monitor’s duties.’’ However, the sentencing recommendations as to other FCPA defen-
monitor blessed by the Justice Department is a lawyer dants as well.24 Sentencing issues are one of the few ar-
with a U.K. law firm that has previously represented eas of FCPA enforcement in which the judiciary plays
BAE and a law firm that represented the Saudi official an active role and in which an adversarial process is on
who was the alleged recipient of the improper pay- display. Thus, this sentencing trend is meaningful and
ments giving rise to the enforcement action that re- perhaps foreshadows future judicial concerns regard-
quired the monitor in the first place.21
Bizarre also best describes the individual enforce-
22
ment against James Giffen—an action that mysteriously See 5 WCR 561 (8/13/10); DOJ press release, New York
concluded in 2010. In 2003, Giffen was criminally Merchant Bank Pleads Guilty to FCPA Violation; Bank Chair-
man Pleads Guilty to Failing to Disclose Control of Foreign
Bank Account (Aug. 6, 2010).
17 23
SEC press release, SEC Charges Panalpina with Violat- See 5 WCR 561 (8/13/10); Mike Ganglof, Judge Gives To-
ing the Foreign Corrupt Practices Act (Nov. 4, 2010). bacco Exec Probation, Fine for Bribery, ROANOKE TIMES (Oct. 22,
18
See 5 WCR 562 (8/13/10); DOJ press release, Alliance 2010).
24
One International and Universal Corporation Resolve Related In December, a federal district judge in California sen-
FCPA Matters Involving Bribes Paid to Foreign Officials (Aug. tenced Leo Winston Smith to six months’ imprisonment, re-
6, 2010). jecting DOJ’s 37-month sentencing recommendation; in Sep-
19
See 5 WCR 178 (3/12/10); DOJ press release, BAE Sys- tember, a federal district judge in Pennsylvania sentenced
tems Plc Pleads Guilty and Ordered to Pay $400 Million Crimi- Nam Nguyen to 16 months’ imprisonment, rejecting DOJ’s
nal Fine (March 1, 2010). 14-17 year sentencing recommendation and also rejecting
20
BAE press release, BAE Systems to Provide Cyber Secu- DOJ’s recommendations as to other related defendants; and in
rity to FBI in $40 Million Order (Sept. 21, 2010). August, a federal district judge in California sentenced Gerald
21
FCPA Professor, Is BAE’s Monitor Independent? (Sept. 2, and Patricia Green to six months’ imprisonment, rejecting
2010). DOJ’s 10-year sentencing recommendation.

2-25-11 COPYRIGHT 姝 2011 BY THE BUREAU OF NATIONAL AFFAIRS, INC. WCR ISSN 1559-3185
5

ing DOJ’s substantive positions in FCPA enforcement char asked whether DOJ had planned on increasing
actions—should more FCPA defendants actively mount FCPA guidance to the business community, and Andres
a legal defense. responded that the department is open to having such
discussions.
Congressional Scrutiny. Even before the Senate’s No- Sen. Christopher Coons (D-Del.) stated that he
vember hearing, described below, members of Con-
‘‘would welcome the opportunity’’ to work on ‘‘potential
gress were already asking pointed questions as to cer-
amendments to the [FCPA] that would allow clarifica-
tain features of FCPA enforcement. In May, Sen. Arlen
tion on the definition of foreign official and the creation
Specter (D-Pa.) of the Senate Judiciary Committee
of a compliance defense.’’
grilled Breuer about the lack of individual prosecutions
in the record-setting Siemens enforcement action—an Other Scrutiny. Scrutiny of the FCPA and its enforce-
enforcement action in which the enforcement agencies ment in 2010 was not confined just to the judiciary and
alleged that Siemens was engaged in a pattern of brib- Congress.
ery unprecedented in scale and geographic reach.25 In July, Transparency International (TI) released its
Also in May, Rep. Edolphus Towns (D-N.Y.) released a annual Progress Report on Enforcement of the Organi-
letter to Attorney General Eric Holder expressing the sation for Economic Cooperation and Development
concern of the House Committee on Oversight and Gov- Convention.28 Without specifically mentioning the
ernment Reform that settlements of certain civil and United States, TI nevertheless called for a study ‘‘on the
criminal cases by DOJ, including certain FCPA enforce- use of negotiated settlements to resolve foreign bribery
ment actions, ‘‘are being used as a shield to foreclose cases’’ given that these agreements ‘‘could be question-
other appropriate remedies, such as suspension and de- able deals between prosecutors and politically influen-
barment, that protect the government from continuing tial companies.’’ TI also called for all settlements to be
to do business with contractors who do not have satis- ‘‘submitted to judicial review independent from the
factory records of quality performance and business Prosecutor’s Office.’’ In addition, TI questioned
ethics.’’26 whether the marked increase in global enforcement of
Congressional scrutiny of the FCPA reached an apex anti-bribery laws is actually making a difference, and it
in November when Specter (then chairman of the Sen- stated that ‘‘while the amounts paid by companies are
ate Judiciary Committee’s Subcommittee on Crime and rising steadily in some jurisdictions, the question re-
Drugs) called an oversight hearing to examine enforce- mains whether there is adequate deterrence.’’
ment of the FCPA. In opening the hearing, Specter
stated that his concerns regarding certain features of In October, the OECD released its much-anticipated
FCPA enforcement were heightened by the November ‘‘Phase 3’’ report on U.S. implementation and enforce-
Panalpina-related enforcement actions.27 During the ment of the OECD Convention—in other words, its re-
hearing, several witnesses, including this author, testi- view of U.S. FCPA enforcement efforts and policies.29
fied: While the OECD did generally commend U.S. enforce-
ment efforts, the report contained some peculiar contra-
s Greg Andres, acting deputy assistant attorney
dictions. For instance, while loudly praising the United
general for DOJ’s Criminal Division, provided an over-
States for its ‘‘high level’’ of enforcement, the OECD
view of the Justice Department’s FCPA enforcement
quietly criticized and questioned many of the policies
program.
and enforcement theories that yield the ‘‘high level’’ of
s I provided a critique of DOJ’s charging decisions
enforcement. The OECD noted that the FCPA’s lan-
in the most egregious cases of corporate bribery as well
guage ‘‘does not specifically convey’’ that cases con-
as DOJ’s prosecution of individuals.
cerning ‘‘an operating license or permit to operate a
s Andrew Weissmann, of Jenner & Block LLP, New
business, or a reduction in tax or import duty’’ are in
York, who appeared on behalf of the U.S. Chamber of
violation of the statute. Yet the previously mentioned
Commerce, suggested potential reforms to the FCPA,
Panalpina-related enforcement actions were principally
including an affirmative compliance defense and clari-
based on this theory. Further, the OECD noted that
fication of the ‘‘foreign official’’ element.
‘‘due to an absence of explicit language in the definition
s Michael Volkov, of Mayer Brown, Washington, of foreign official’’ it is an open question whether em-
D.C., proposed a more balanced enforcement approach ployees of so-called state-owned or state-controlled en-
and suggested a corporate self-compliance limited am- terprises are ‘‘foreign officials’’ under the FCPA. How-
nesty program. ever, approximately 60 percent of corporate FCPA en-
Also during the hearing, Sen. Amy Klobuchar (D- forcement actions in 2010 were based, in whole or in
Minn.) noted that ‘‘one of the basic principles of due part, on this theory. The OECD also noted that the in-
process is that people in companies have to be able to crease in deferred prosecution and nonprosecution
know what the law is in order to comply with it.’’ She agreements ‘‘are one of the reasons for the impressive
stated that ‘‘many very good standing companies [in FCPA enforcement record in the U.S.’’ Yet the OECD
her state of Minnesota] . . . do not always know what noted that these agreements are subject to little or no
behavior will trigger an enforcement action.’’ Klobu- judicial scrutiny.
Finally, no discussion of FCPA scrutiny in 2010
25
FCPA Professor, Breuer—Siemens Investigation (As to would be complete without mentioning Forbes’s pro-
Individuals) Remains Open (May 10, 2010). See also 5 WCR vocative article, The Bribery Racket—How Federal
860 (Senate hearing), and 3 WCR 858 (Siemens case).
26
FCPA Professor, Congressman Towns is Asking the
28
Right Questions (May 24, 2010). See also 5 WCR 400 (6/4/10). FCPA Professor, Report Cards (Aug. 12, 2010).
27 29
FCPA Professor, Examining Enforcement of the FCPA FCPA Professor, The OECD Report—Initial Observations
(Dec. 1, 2010) (containing a link to C-SPAN coverage of the (Oct. 21, 2010), available at http://fcpaprofessor.blogspot.com/
hearing and the prepared statements of witnesses). See also 5 2010/10/oecd-report-initial-observations.html. See also 5 WCR
WCR 860 (12/3/10). 734 (10/22/10).

WHITE COLLAR CRIME REPORT ISSN 1559-3185 BNA 2-25-11


6

Crackdown on Bribery Hurts Business And Enriches In- court. Yet all FCPA enforcement actions are routinely
siders. The article took issue with several features of ‘‘a settled by companies via a resolution vehicle that does
thriving and lucrative anti-bribery complex’’ and noted, not require the company to admit or deny the SEC’s al-
on the basis of comments from DOJ’s former head of legations. Thus, a settled Commission FCPA enforce-
FCPA enforcement in the mid-1980s, that the increase ment action does not necessarily represent the triumph
in FCPA enforcement is ‘‘good business for law firms of the SEC’s legal position over the company’s; rather,
. . . good business for accounting firms, it’s good busi- it reflects a risk-based decision primarily grounded in
ness for consulting firms, the media—and Justice De- issues other than facts and the law. Against this back-
partment lawyers who create the marketplace and then drop, the wisdom of rewarding a whistleblower when
get [themselves] a job.’’30 the contours of the FCPA largely remain undefined by
the courts and when companies, for reasons other than
law or fact, do not even mount a legal defense is debat-
Related Developments able. In November, the SEC issued proposed rules to
govern various aspects of the whistleblower program,
This past year also witnessed several significant de-
and the rules are expected to be finalized in the first
velopments related, albeit indirectly, to the FCPA and
quarter of 2011.31
FCPA enforcement.
Another Dodd-Frank provision that could affect
Debarment. One interesting, surprising, and contro- FCPA enforcement is Section 1504, Disclosure of Pay-
versial aspect of FCPA enforcement is that the U.S. gov- ments by Resource Extraction Issuers. This miscella-
ernment remains a lucrative customer for many FCPA neous provision was inserted into the act during final
violators, including some of the most egregious viola- congressional negotiations. Written in broad terms, the
tors. In September, the House unanimously passed H.R. provision would generally require ‘‘resource extraction
5366, the Overseas Contractor Reform Act. The act gen- issuers’’ to include in their annual report information
erally provides that a corporation ‘‘found to be in viola- relating to any payment made by the issuer or related
tion of the [FCPA’s anti-bribery provisions] shall be entities to a ‘‘foreign government’’ for ‘‘the purpose of
proposed for debarment from any contract or grant the commercial development of oil, natural gas, or min-
awarded by the Federal Government within 30 days af- erals.’’ Like Dodd-Frank’s whistleblower provisions, the
ter a final judgment of such a violation.’’ However, be- SEC issued proposed rules regarding the disclosure re-
cause of the frequent use of nonprosecution agree- quirements, and the rules are expected to be finalized
ments and deferred-prosecution agreements in the in the first quarter of 2011.
FCPA context, very few companies are actually ‘‘found
to be in violation’’ of the FCPA’s anti-bribery provi-
sions. The act’s sponsor, Rep. Peter Welch (D-Vt.), re- International Developments
mains in Congress, and it is likely that the bill will be The United States is not the only country with an
re-introduced in the 112th Congress. If Congress con- anti-bribery law on its books, and 2010 saw certain
cludes that imposing a debarment penalty on compa- countries continue an escalation in enforcement while
nies that commit FCPA anti-bribery violations repre- other countries enforced their law for the first time.
sents sound public policy, which it does in egregious in- The United Kingdom received much of the attention
stances of corporate bribery that satisfy the elements of in the past year—both in terms of enforcement of its ex-
an FCPA anti-bribery violation involving high-level ex- isting law and its passage and preparation of the new
ecutives and/or board participation, the challenge will Bribery Act.32
be to draft a law that can be effective in the face of In March, the U.K. Serious Fraud Office (SFO) (an
largely unreviewable enforcement agency discretion. agency similar to DOJ) and DOJ announced a first-ever
Dodd-Frank. In July, President Obama signed the joint enforcement action against Innospec for bribery
Dodd–Frank Wall Street Reform and Consumer Protec- and corruption in Iraq and Indonesia.33 However, the
tion Act. The wide-ranging act contains at least two pro- SFO’s use of a DOJ-style negotiated plea was harshly
visions that could affect FCPA enforcement. criticized by one of the highest-ranking U.K. criminal
Section 922 of Dodd-Frank amended the Securities judges. Among other things, the justice noted that it is
Exchange Act of 1934 by creating a new section, Secu- for the court, not the prosecuting agency, to determine
rities Whistleblower Incentives and Protection. The new the sanction for criminal conduct and concluded that
section applies to all securities law violations, and the the ‘‘the Director of the SFO had no power to enter into
FCPA is part of the Exchange Act. Under the provi- the arrangements made and no such arrangements
sions, a qualifying whistleblower who voluntarily pro- should be made again.’’34
vides original information to the SEC that leads to the The United Kingdom has long had a hodgepodge of
successful enforcement of a covered judicial or admin- antiquated bribery and corruption laws. However, the
istration action shall be entitled to an award between 10 ineffectiveness of these laws has long been an issue and
percent and 30 percent of the recovered amount. was most dramatically highlighted in 2010 in relation to
While the whistleblower provisions may represent the SFO’s BAE prosecution. In addition to the U.S. pros-
sound policy as to other securities law violations, it is ecution of BAE described above, the SFO also reached
questionable whether the provisions are sound policy as
applied to FCPA enforcement. Against the backdrop of 31
5 WCR 769 (11/5/10).
little substantive FCPA caselaw, the FCPA is enforced 32
See 5 WCR 609 (8/27/10).
33
largely on dubious government enforcement agency in- SFO press release, Innospec Limited Prosecuted for Cor-
terpretations that have never been fully examined by a ruption by SFO (March 18, 2010). See also 5 WCR 211
(3/26/10).
34
FCPA Professor, Lord Justice Thomas’s Innospec Sen-
30
FCPA Professor, The Bribery Racket (May 6, 2010). tencing Remarks (April 6, 2010).

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7

an agreement with BAE in which the company pleaded more narrow than the FCPA (given its adequate-
guilty to the offense of ‘‘failing to keep reasonably ac- procedures defense)—was scheduled to go live in the
curate accounting records in relation to its activities in fall. However, in July the U.K. Ministry of Justice an-
Tanzania.’’35 This narrow prosecution of BAE sparked nounced that implementation of the Bribery Act would
much controversy, as U.K. agencies were investigating be delayed until April 2011. Recently, the Ministry of
BAE for several years for conduct all over the world, in- Justice announced that the Bribery Act will be delayed
cluding in Saudi Arabia—a prong of the investigation further and will not enter intor force until three months
halted after pressure from the U.K. government and its after the Ministry of Justice publishes guidance as to
national security concerns should the investigation go certain of the Act’s provisions.38 Whenever the Bribery
forward. In responding to judicial challenges to the BAE Act goes live, it is likely that its enforcement will be dis-
plea agreement, the SFO explained, among other ciplined and measured, notwithstanding the numerous
things, that under existing U.K. law it encountered dif- doomsday predictions.
ficulty in proving the involvement of a ‘‘controlling
mind’’ (i.e., a board member or executive officer) in the The Road Ahead
conduct at issue.36 As in the Innospec matter, the SFO
also received a stern rebuke from the presiding justice, With a ‘‘new era of FCPA enforcement’’ declared, the
who noted that, despite the accounting-only charges, an year ahead will likely see many of the same big, bold,
‘‘obvious inference’’ from the allegations was that a and bizarre developments of 2010. Among other inquir-
‘‘bribe’’ was paid to win a lucrative contract.37 The jus- ies that may turn into enforcement actions this year are
tice called the BAE-SFO plea agreement ‘‘loosely and the pharmaceutical industry sweep and further scrutiny
hastily drafted’’ but said he could not ‘‘sentence for an of the financial services industry and sovereign wealth
offense which the prosecution failed to charge.’’ The funds—both inquiries largely dependent on the enforce-
SFO’s prosecution of BAE ended with BAE being fined ment agencies’ ‘‘foreign official’’ interpretation de-
£500,000 ($810,850) and agreeing to pay a charitable scribed above.39
payment of approximately £30 million ($48.6 million) At the same time, increased scrutiny of the FCPA and
for the benefit of Tanzania. FCPA enforcement is also expected to escalate in the
The past year also saw much coverage of the U.K.’s coming year. It is likely that additional congressional
passage and preparation of a new Bribery Act. Enacted hearings will be held on the FCPA and that FCPA re-
in April, the act—a law both more expansive than the form bills will be introduced in Congress. This year also
FCPA (given its application to commercial transactions presents the opportunity for much-needed judicial scru-
and its lack of a facilitating-payment exception) and tiny of FCPA enforcement actions, such as the appeal
by Frederic Bourke, and the potential for certain devel-
opments that may significantly change the FCPA en-
35
SFO press release, BAE Systems Plc (Feb. 5, 2010). forcement landscape.
36
FCPA Professor, BAE . . . Inside the SFO (April 30, 2010).
37
FCPA Professor, U.K. Judge Reluctantly Accepts the
38
Loosely and Hastily Drafted SFO-BAE Plea Agreement (Dec. See 6 WCR 113 (2/11/11).
39
22, 2010). See 6 WCR 70 (1/28/11).

WHITE COLLAR CRIME REPORT ISSN 1559-3185 BNA 2-25-11