- Overseas Bribery Prosecutions on the Upswing
- September 24, 2008 | Authors: Frank C. Razzano; Stanley R. Soya; Michael A. Hordell; Heather Kilgore Weiner
- Law Firm: Pepper Hamilton LLP - Washington Office
When the Foreign Corrupt Practices Act (FCPA) was passed more than 30 years ago, the United States stood alone in outlawing bribery payments to foreign government officials. Since that time, many nations have agreed through a series of international conventions to criminalize bribery of foreign public officials and officials of public agencies and public international organizations. Chief among these conventions is the Organization of Economic and Cooperative Development’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. In 2005, the United Nations (U.N.) Convention on Corruption took effect and required each member state to adopt legislation and other measures as needed to outlaw the bribery of foreign public officials and officials of international organizations. The Council of Europe, the European Union and the African Union have similar treaties. Approximately 150 known ongoing foreign bribery investigations are being conducted worldwide by the United States and other industrialized nations. While the United States has been the leader in these prosecutions, Germany, Italy, France, Australia and others also have prosecuted bribery of foreign government officials.
Several recent examples show not only the reach of these prosecutions, but the necessity for all businesses with overseas operations to have an effective compliance program to prevent, detect and deter bribery.
Just this month, in the United States, Albert J. Stanley (who headed Dresser Industry Inc.’s wholly-owned subsidiary, Kellog, which was merged into Halliburton in 1998 and, combined with Brown and Root, Inc. to form Kellog, Brown & Root (KBR)) pleaded guilty to one count of conspiracy to violate the FCPA and one count of conspiracy to commit mail and wire fraud related to the FCPA violation. He also consented, without admitting or denying the government charges, to the entry of an injunction from violating the FCPA, as well as the record-keeping and internal control provisions of the Securities Act of 1934. According to the court documents, Stanley and other members of four company joint ventures (including Kellog) determined that it was necessary to bribe to Nigerian government officials to allow construction of a liquefied natural gas facility at Bonnie Island, Nigeria. To conceal the illicit payments, Stanley and others approved entering into sham contracts with two agents to funnel money to Nigerian officials. The joint venture paid the agent more than $180 million. Stanley is cooperating with the government and further prosecutions are likely.
In August, the Securities and Exchange Commission (SEC) entered a cease-and-desist order against Conway Inc., an international freight transportation and logistics service company with a wholly owned subsidiary, Menlo Worldwide Freight Inc., located in the United States, which owned a 55 percent voting interest in Emery Transnational, a Philippines-based firm engaged in shipping and freight operations in the Philippines. The order enjoined Conway from committing or causing violations of Section 13B of the Securities and Exchange Act of 1934 and was based on Conway’s lack of supervision and oversight of Emery, which made improper payments to induce foreign officials to violate Customs regulations, settle Customs disputes and reduce, or not enforce, legitimate fees for administrative violations. Additionally, Emery made improper payments to foreign officials at 14 state-owned airlines that conducted business in the Philippines to induce them to improperly reserve space for Emery on the airlines, to falsely underweight shipments, and to improperly consolidate multiple shipments, resulting in lower shipping charges. This case is unique since it demonstrates the long reach of the FCPA to capture conduct of a foreign-owned subsidiary of a subsidiary, resulting in the prosecution of the parent.
In June 2008, AGA Medical Corporation entered into a Deferred Prosecution Agreement with the U.S. Department of Justice arising out of corrupt payments to Chinese government officials by the company’s Chinese distributor in violation of the FCPA. This case highlights the serious FCPA compliance risks that must be addressed when engaging in international sales, even when those sales are through independent distributors.
In March 2008, A. B. Volvo (not the automaker), a Swedish company that provides commercial transportation solutions and has American Depository Receipts registered and traded in the United States, entered into a deferred prosecution agreement with the Department of Justice, paid $7 million in fines and agreed to conduct a review of its existing internal controls, policies and procedures. Additionally, it entered into a consent decree with the SEC in which it agreed to pay civil penalties, disgorgement and interest in connection with two subsidiaries’ payments of $6 million in kickbacks and additional authorized payments of $2.4 million in connection with its sale of humanitarian goods to Iraq under the U.N. Oil for Food Program. The kickbacks were “after sale services” with no bona fide services performed. The after sale services fees were added to the cost of subcontractors that outfitted trucks to tailor them to Iraq government specifications. One subsidiary made improper payments to obtain business through a Jordanian agent.
In October 2007, a Munich court imposed a $201 million penalty, including $200 million in disgorgement of profits and a $1 million fine, on Siemens in connection with charges involving bribery by its communications group’s in Nigeria, Russia and Libya.
These investigations and actions demonstrate that every corporation that does business abroad must have an effective compliance program that is vigorously monitored, audited and enforced.