Foreign Firms Most Affected by a U.S. Law Barring Bribes

September 4, 2012

The New York Times on September 3, 2012 released the following:


A law intended to prohibit the payment of bribes to foreign officials by United States businesses has produced more than $3 billion in settlements. But a list of the top companies making these settlements is notable in one respect: its lack of American names.

The companies that have reached the biggest settlements under the law, known as the Foreign Corrupt Practices Act, include Siemens, the German engineering giant; Daimler, the maker of Mercedes-Benz vehicles; Alcatel-Lucent, the French telecommunications company; and the JGC Corporation, a Japanese consulting company. The lone American company in the top 10 is KBR, the former Kellogg Brown & Root, a subsidiary of Halliburton, the Texas oil services company. As a group, they have paid nearly $3.2 billion in settlements.

Since the law was enacted in 1977, the definition of “American” has expanded greatly to include foreign companies that are listed on United States stock exchanges, sell securities in the country or do business here. At the same time, foreign companies that turn to “facilitation payments” and other forms of under-the-table dealings with local officials in far-flung places have run afoul of the act, either because of cultural differences in business dealings or because of failure to recognize the breadth of the law.

“These big settlements are with sprawling, multinational companies,” said Andy Spalding, a law professor at the University of Richmond and a contributing editor to the F.C.P.A. Blog, which tracks the top settlements. “Yet they are based, in part, in the United States. A culture of compliance may be slower to take in other countries, and many are not aware of the rapid escalation of F.C.P.A. cases or its broad jurisdictional scope.”

The best-known case is that of Siemens, which paid $800 million to the United States and another $800 million to Germany to settle a corruption investigation. Even though the financial settlements took place in 2008, the criminal case against eight former executives continues. In December, they were charged with paying $100 million in bribes to Argentine officials, including former President Carlos Menem, to secure a $1 billion contract for Siemens. All eight executives live in Argentina, Germany or Switzerland, and none have been arrested or extradited — a long and complicated process.

The Siemens case is illustrative. The bribery took place in Argentina. The people offering the bribes were not American, and the people demanding them were Argentine officials. Siemens is a German company. The hook for the United States was that Siemens’s securities traded in the United States.

In the Daimler case, the company admitted that its subsidiary in Russia had bribed local officials, that a German subsidiary had made payments to Croatian officials using an American shell company and that improper payments had been made to Chinese officials in an effort to persuade the officials to buy Daimler vehicles. Some of the money flowed through United States bank accounts, and Daimler has extensive operations in the United States.

Peter Y. Solmssen, general counsel at Siemens, said European companies were only now becoming aware that the law applied to them. This is in part because of the attention given to his company’s case.

“U.S. companies have been living with this law a lot longer than European companies,” Mr. Solmssen said. “It’s been part of their awareness. Our case was a real watershed. It woke up a lot of people in Europe. There had not been a lot of headline cases before that to make people sit up and take notice.”

There is a “culture in many northern European companies that they have to do these things to get business,” he said. “Our message is that they don’t have to.”

It some ways, the foreign cases were easy pickings for the Justice Department: the behavior was obvious, and the cases fairly clear-cut. Many of the settlements involved events that took place a decade ago, before companies, especially foreign ones, were fully aware of the extent of the law or realized that it applied to them.

Given the many years it takes to develop and prosecute these cases, some of them are reaching the settlement stage only now, even if the companies have since halted the practices that landed them in trouble.

“Many of these are ‘cash cow’ cases for Justice,” said Michael Koehler, an assistant professor at the Southern Illinois University School of Law who also writes the F.C.P.A. Professor blog. “It’s a government program that is profitable to the U.S. Treasury. Even more, the U.S. feels that if the home countries are not going to prosecute, the U.S. has a moral obligation to do so.”

Moreover, in a world where businesses operate in an almost borderless fashion, it is often hard to determine what is domestic and what is foreign.

“The world is flat,” said Matthew T. Reinhard, a lawyer at Miller & Chevalier in Washington who represents corporations in cases brought under the law. “You could be based on Mars and Justice will come after you. There was a period before Siemens when the culture of compliance was not as prevalent in foreign-based companies as those in the U.S. But there is a cultural shift, and the U.S. is on the crest of this wave.”

In addition, the United States law is much tougher and broader in scope than anticorruption laws in many other countries. Typically, laws to root out corporate bribery elsewhere in the world apply only to top corporate officials, not to all employees, as the United States law does.

Justice Department officials argue that it is in the United States’s interest to prosecute corporate bribery wherever it takes place. American executives have long complained that they are at a disadvantage when competing for overseas business against bribe-paying foreign competitors. Department officials say that by prosecuting foreign companies, they are seeking to level the playing field — and to end the grumbling from American executives.

Lanny A. Breuer, an assistant United States attorney general who has made such cases one of his signature efforts, said he maintained an evenhanded approach in his pursuit of corporate bribe-payers. It is just that foreign companies are only now beginning to catch up to their American counterparts in altering their behavior, he said.

“Over all, we have pursued cases against American and foreign companies equally,” Mr. Breuer said in an interview. He acknowledged that the top 10 settlements were skewed toward foreign companies, but said: “I am convinced that we are calling it down the middle. Some years we are criticized for it being too much American, other years that it is too much international. It is usually from the very same critics.”

Of the 78 companies now under investigation for suspected violations of the law, most are American — among them Alcoa, Goldman Sachs, Pfizer and Wal-Mart. Avon disclosed in a regulatory filing last month that it was in talks to settle an investigation into whether it had paid bribes to foreign officials.

Jeffrey M. Kaplan, a lawyer in Princeton, N.J., who specializes in cases brought under the corruption act, said there was “something strange” about the fact that nine of the top 10 settlements involved foreign companies. But he added that when the specifics of the cases were examined, “no one would feel sorry for these companies.”

The biggest settlements on the list stemmed from the Bonny Island bribery case, one of the biggest corruption cases in American history. It accounted for four of the top 10 companies: KBR; Technip, of France; JGC; and Snamprogetti Netherlands and its parent company, Eni, of Italy. The bribery, sweeping in scope and decades in duration, involved a $6 billion plan to bribe Nigerian officials to obtain engineering, procurement and construction contracts for a liquefied natural gas facility on Bonny Island in Nigeria.

These settlements accounted for more than $1.6 billion in fines and penalties to the Justice Department and the Securities and Exchange Commission. On top of that, American and foreign executives involved in the bribery scandal faced criminal sentences. In February, Halliburton’s former chief executive, Albert J. Stanley, was sentenced to two and a half years in prison for his role in the scheme.

“There are a lot of multinational corporations that are operating in high-risk environments,” Mr. Reinhard, the Washington lawyer, said. “In many of these countries, companies that are involved in oil or telecom or pharma are more likely to encounter foreign officials on a regular basis. They are your customers. That presents an opportunity in ways that dealing with other businessmen doesn’t.””


Douglas McNabb – McNabb Associates, P.C.’s
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To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at or at one of the offices listed above.

Bribes Without Jail Time

April 30, 2012

The New York Times on April 27, 2012 released the following:


As reported in a front-page article in The New York Times this week, the Wal-Mart Mexican bribery scheme has all the makings of a gripping criminal prosecution: millions of dollars in illegal payoffs to Mexican government officials and evidence of a cover-up scheme that went all the way to Wal-Mart headquarters in Bentonville, Ark.

And the Foreign Corrupt Practices Act, which outlaws the bribery of foreign officials by American executives, carries stiff penalties for those convicted: fines of up to $5 million and up to 20 years in prison.

So who’s likely to go to jail?

No one, if past precedent is any guide.

Exhibit A for any lawyer representing potential Wal-Mart defendants would probably be last year’s bribery case against the huge poultry, pork and beef producer Tyson Foods. Like Wal-Mart, Tyson employees bribed Mexican officials. When Tyson officials learned about the scheme, they covered it up. Even worse, they tried to keep the bribes going by changing the nature of the illegal payments. The scheme ultimately reached into Tyson’s executive suite in Springdale, Ark., with the company’s president of international operations and its chief administrative officer among those involved.

Last year, the Justice Department charged Tyson with conspiracy and with violating the Foreign Corrupt Practices Act. Tyson didn’t contest the facts, agreed to resolve the charges with a deferred prosecution and paid a $4 million criminal penalty. The company paid an additional $1.2 million and settled related regulatory complaints that it had maintained false books and records and lacked the controls to prevent payments to phantom employees and government officials.

It’s axiomatic that people, not corporations, commit crimes. So what happened to the Tyson executives involved? Not only did the Justice Department and the Securities and Exchange Commission take no action against them, but the executives involved weren’t even named.

As I reported in a column last year, the highest-ranking Tyson executive involved was Greg Lee, then its chief administrative officer. Tyson announced in April 2007, the same month it disclosed its conduct to the government, that Mr. Lee would retire early. There was no mention of any bribery investigation. John Tyson, the company’s chairman, praised his “dedicated service to the company over the last three decades,” and the company paid Mr. Lee nearly $1 million and awarded him a 10-year consulting contract worth an additional $3.6 million. Mr. Lee was entitled to be reimbursed for his country club dues, to the use of a car and to “personal use of the company-owned aircraft for up to 100 hours per year,” according to his employment agreement. (Mr. Lee didn’t respond to my messages seeking comment.)

Wal-Mart’s Mexican bribery scandal, and the question of what to do about it, reached company headquarters in September 2005, according to the account by David Barstow of The Times. This was little more than a year after Tyson executives covered up their scandal. Given the subsequent outcome of the Tyson case, is it any wonder that Wal-Mart executives’ first reaction would have been to sweep the matter under the rug? Only after Mr. Barstow started asking questions did the company turn itself in to the Justice Department, no doubt hoping for something like the resolution its Arkansas neighbor received.

Neither the Justice Department nor the S.E.C. would comment on the Tyson case, now closed, or the continuing Wal-Mart investigation.

Both agencies have stepped up their investigations and prosecutions of Foreign Corrupt Practices Act violations in recent years, and they now have units dedicated to foreign bribery cases. Last year, the S.E.C. brought cases against 14 companies and 12 people. Major companies caught up in recent bribery investigations include Johnson & Johnson, Halliburton and Siemens. Just this week, the former Morgan Stanley executive Garth Peterson pleaded guilty to violating the act while based in Shanghai. Morgan Stanley wasn’t charged, and it appears to have been a model corporate citizen. It fired Mr. Peterson and didn’t mince words. It turned over evidence to the government and disclosed the inquiry in an S.E.C. filing.

Despite this laudable effort, an outcome like that in the Tyson case — in which a company admits the facts and pays a fine but no individuals are charged — hardly seems isolated. According to research by Qi Chen, working with Prof. Andrew Spalding at the Chicago-Kent College of Law at the Illinois Institute of Technology, 37 of the 57 companies involved in bribery enforcement actions from 2005 to 2010 settled bribery accusations and had no related individuals charged.

One of the most vocal critics of the failure to charge individuals has been the former Republican-turned-Democratic Senator Arlen Specter, who held hearings on the issue in 2010 while chairman of the Senate Judiciary Committee. “Criminal fines are added to the costs of doing business,” Mr. Specter said then. “Going to jail is what works to deter crime.”

This week he told me: “I’ve been speaking out on this issue everywhere I can. The Justice Department takes the view that deferred prosecutions are sufficient to deter bribery. But it obviously hasn’t worked. Maybe the Wal-Mart case will finally impel them to take a different view.”

That is not to say that no one has gone to jail for violating the Foreign Corrupt Practices Act. Albert J. Stanley, former chairman and chief executive of KBR, the global contracting concern that was once a subsidiary of Halliburton, was sentenced in February to 30 months in prison for a scheme to bribe Nigerian authorities in return for contracts to build liquefied natural gas facilities. Frederic Bourke, co-founder of the handbag maker Dooney & Bourke, was sentenced to one year and a day for his involvement in a scheme to bribe officials in Azerbaijan in a failed effort to take over the state-owned oil company. Last year, eight former executives of the German technology giant Siemens were charged with bribing Argentine officials in what the Justice Department characterized as “a stunning level of deception and corruption.” But the defendants live abroad and may never be successfully prosecuted in the United States.

I couldn’t find a case of an executive at a major American-based, publicly traded company who was successfully prosecuted and sent to jail. A majority of individual prosecutions appear to involve people of relatively limited means who are in smaller or privately held companies or who are officials in foreign companies based outside the United States, where there is little likelihood of a conviction. A typical case seems more like that of Gerald and Patricia Green, two Hollywood producers who were convicted of bribing the head of the Bangkok film festival. The couple was sentenced to six months in prison followed by six months of home confinement in 2010. At the time, Mr. Green was 83 years old and suffered from emphysema.

“It does appear that executives from U.S. public companies are not being pursued with the same vigor as individuals at private companies or who work on their own,” said Richard L. Cassin, founder of the firm CassinLaw and author of “Bribery Abroad” and “Bribery Everywhere.” “There are still a lot of enforcement actions against corporations where there are no indictments against individuals. The percentage of criminal cases against individuals is still very tiny.”

He suggests this may be partly because corporate executives, especially those with prominent lawyers whose fees are paid by their employers, are less likely to settle. And the Justice Department has suffered some embarrassing setbacks in a few recent litigated cases against individual defendants.

Asked for comment, the department provided this statement: “Prosecuting individuals who violate the law is an important part of our F.C.P.A. enforcement efforts. Since 2009, the Justice Department has secured convictions against 36 individuals for F.C.P.A.-related offenses. In all cases, we thoroughly review the facts and the law to determine whether criminal charges against individuals can be brought.”

An S.E.C. spokeswoman said: “We’re committed to holding individuals accountable. Where we have the evidence to bring cases against individuals, we do so, and we view that as a high priority.”

According to both the Justice Department and the commission, an important aspect of assessing a company’s cooperation is how it disciplines any executives found to be involved in a bribery scheme. Wal-Mart issued a statement this week saying: “We will not tolerate noncompliance with F.C.P.A. anywhere or at any level of the company. We are confident we are conducting a comprehensive investigation, and if violations of our policies occurred, we will take appropriate action.”

I asked Wal-Mart who, if anyone, involved in the bribery allegations had been disciplined, but I didn’t get a response. Eduardo Castro-Wright, who was described in The Times’s article as the driving force in the bribery conspiracy, is the former head of the company’s Mexican operations and remains at Wal-Mart, where he became vice chairman in 2008. Wal-Mart announced last September that Mr. Castro-Wright would retire on July 1, and he has since emphasized that his decision to retire had nothing to do with any bribery allegations.

In a send-off that echoes Tyson’s praise for Mr. Lee, Wal-Mart’s chief executive, Mike Duke, said: “Eduardo has made many contributions at Wal-Mart, beginning in Mexico and continuing until today. He has been a strong advocate for our customers and in every assignment has brought passion and commitment to the job.”

Mr. Castro-Wright isn’t a member of Wal-Mart’s board, but this week he resigned from the board of the insurer MetLife. “I now must focus my energy in spending personal time with my family and in protecting my good name,” he said, and confidently predicted that “these outside distractions will be resolved favorably within the next several months.”

But Wal-Mart may not turn out to be another Tyson. Professor Spalding told me “a lot has happened” since 2010, which is when he compiled the statistics on individual prosecutions. “The Department of Justice is making a strong push to hold individuals liable,” he said.

“Despite some recent embarrassing losses, the department must be looking for some high-profile prosecutions. Wal-Mart is about as high profile as you can get. This case could turn out to be a poster child for individual liability.””


Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment


To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at or at one of the offices listed above.