The FCPA Blog

This week's news that the newly elected U.K. government cracked under pressure from the business lobby and delayed implementing the Bribery Act until April 2011 was a setback for lots of reasons.

Opponents claimed they needed more guidance to help them comply with the new scheme. What will happen to the Bribery Act between now and next April is anyone's guess. Many think the government is likely to water down its provisions if not kill the act altogether.

The new law was supposed to clarify a century-old patchwork of statutes and common law and extend compliance obligations in a way similar to the Foreign Corrupt Practices Act.

All new laws raise questions. "Don't spit on the sidewalk" can induce the same sort of panic as the Bribery Act. What's the definition of spit, do both feet need to be on the sidewalk, what about medically induced spitting, how about unconscious drooling? But very quickly judges, defendents, and lawyers figure out what laws mean, as happened with the FCPA and countless other decrees through the ages, and life and business go on.

The U.K. knee buckling means that 33 years after enactment of the FCPA, the U.S. is still nearly alone in the battle against global graft. But for the battle to be won, and for American companies to ever enjoy a level playing field, the U.S. needs allies. The U.K. was about to become the first full-fledged partner.

Meanwhile, the U.K.'s Serious Fraud Office -- the agency responsible for prosecuting major cases of overseas corruption -- is struggling against its own domestic opposition. The SFO's ability to join the U.S. Justice Department in forging global settlements with global defendants in global anti-corruption prosecutions is up in the air.

In March this year, Britain's second-ranking criminal judge said the $12.7 million fine the SFO agreed with a U.K. division of Innospec Inc. went beyond the SFO's authority. Delaware-based Innospec had reached what it believed was a $40 million global settlement with U.S. prosecutors and the SFO. At Innospec's hearing, however, Lord Justice Thomas, the deputy head of criminal justice in the U.K. courts, said: “I have concluded that the director of the SFO had no power to enter into the arrangements made and no such arrangements should be made again.” 

A few weeks ago, the SFO's director, Richard Alderman, tried to reassure the world that global settlements are still on the table. But he didn't sound too sure himself. He said:

The question here is whether the SFO remains committed to taking part in global resolutions in cases where a corporate is subject to the jurisdiction of the authorities in a number of different countries. The answer to that emphatically is yes. We are very committed to this. Clearly we are feeling our way. Global resolutions in cases of concurrent jurisdiction are new and, until recently, our Judges have not had to consider the issues that arise in these cases. Innospec was our first global resolution and we obtained guidance on some of the issues from the Judge in that case.

As Trace has reported, of 515 outbound, or foreign enforcement actions, more than 75 percent are U.S. matters. The remaining 25 percent are the result of the combined efforts of 21 other nations. The United Kingdom ranks a distant second in the number of outbound bribery cases with 4.3 percent of the total.

Some help is better than none. But without real partners, America's anti-corruption effort won't be effective and over time will look more and more like legal bullying. It's not a one-country fight but a global fight. Whether the U.K. is really part of that fight is now an open question.

Something big, very big, is happening in FCPA enforcement. The top ten FCPA settlements of all time involve penalties of $2.8 billion. The top six happened in just the past 20 months and account for 95% of that, or $2.67 billion.

So far this summer, Snamprogetti / ENI of Italy and Technip of France each paid more than a third of a billion dollars to resolve FCPA offenses. Just three years ago, the biggest settlement on record was Baker Hughes' $44.1 million payment, and that amount electrified the FCPA world. Who could have guessed that only a few years later, settlements that size would hardly get a glance, and payouts eight times bigger would become the norm.

As we ride this hockey stick toward heaven, we need to ask some questions. Like, are mega-settlements good for compliance or do they simply put a price tag on non-compliance? What about shareholders? They're innocent of the corruption but ultimately pay the tab. Why do five of the top six settlements involve non-U.S. corporations? Do giant penalties punish wrongdoers or shield top executives from criminal prosecution? And do they distort enforcement decisions in ways we don't yet understand?

Those are some of the questions. Ruminations to follow.

Here are the top ten FCPA settlements of all time. If our math is right, the financial penalties (criminal fines, civil disgorgement, and prejudgment interest) add up to $2.8 billion, with almost 50% of that coming from the top two settlements. Five of the top six involve non-U.S. companies. The oldest case on the list is Titan Corporation's from 2005; the newest is Snamprogetti / ENI's from July 7, 2010.

They are:

1. Siemens: $800 million in 2008.

2. KBR / Halliburton: $579 million in 2009.

3. BAE: $400 million in 2010.

4. Snamprogetti Netherlands B.V. / ENI S.p.A: $365 million in 2010.

5. Technip S.A.: $338 million in 2010.

6. Daimler AG: $185 million in 2010.

7. Baker Hughes: $44.1 million in 2007.

8. Willbros: $32.3 million in 2008.

9. Chevron: $30 million in 2007.

10. Titan Corporation: $28.5 million in 2005.

Two parts of the Financial Reform Bill passed last week by the Senate and which the President has said he'll sign concern us. The first is the whistleblower bounty for securities-law recoveries, including FCPA-related settlements, that exceed $1 million.

The bounty program will result in more FCPA cases against corporations. It won't matter if they have robust compliance programs. Organizations are strictly liable for crimes committed by employees who are doing their jobs. So even if a company has an effective compliance program and has done everything possible to prevent violations, that's no defense under respondeat superior.

When the DOJ and SEC find an employee's FCPA violation, the company is presumed guilty and forced to settle the case, usually by paying a big penalty.

Companies trying to settle are also forced to help the government make cases against employees and other individuals. The companies might have to disclose information to prosecutors that the employees thought was privileged. So the rules of privilege and the right against self incrimination are short-circuited.

Before so-called financial reform creates whistleblower bounties for FCPA-related recoveries, the law of respondeat superior needs to be reformed. Corporations should be given the chance to defend themselves by showing good-faith efforts at compliance. 

The second part of the financial reform bill that concerns us is Section 1504, "Disclosure of Payments by Resource Extraction Issuers." It requires public companies involved in oil and gas and mineral development to disclose in their annual reports all extraction-related payments they or their controlled subsidiaries make to foreign governments.

The FCPA already covers illegal payments to foreign government officials. This new law covers legal payments to governments themselves.

We'll stipulate that some natural resource companies do business with corrupt overseas governments. That's because not all hydrocarbons and minerals are found under land controlled by saintly regimes. But what will happen when the payments are disclosed? Will governments and private groups mount PR campaigns against companies doing business with unpopular overseas governments? Will "extraction issuers" lose their freedom to go where the natural resources are? Will doing business with regimes that can't pass someone's smell test trigger political attacks that punish companies for legal activities that bring needed products to the rest of the world?

There's always tension between big oil and the U.S government. That's natural. They both control vast resources that can be used to influence domestic and foreign policy. But the government shouldn't impose disclosure requirements on businesses that the government itself isn't willing or able to meet.

For more on Section 1504, see Mike Koehler's excellent discussion here. 

Responding to our post The Billion Dollar Man, a reader sent this intriguing comment:

Dear FCPA Blog,

There’s another important fact not mentioned in today’s post. In addition to the revenue generated from TSKJ (which is 3/4ths complete), there may be yet more to come.

You’ll recall that Jack Stanley apparently received at least $10.8 million in kickbacks for his efforts to win work for KBR. This $10.8 million is now officially part of his “restitution” with the DOJ. What is interesting to note is the apparent breakdown of the $10.8 million.

Stanley allegedly received $1.95 million for Bonny Island Trains 1 and 2, $4.75 million from a Lebanese Consulting Company controlled by Jeffrey Tesler for the Malaysia Dua LNG project, and $4.1 million from a BVI Consulting Company controlled by Tesler for the Malaysia Tiga LNG project.

This speaks of corruption not just in the TSKJ consortium, but of a sophisticated web of corruption in other consortia as well.

So while he may already be worth a billion plus dollars to U.S. enforcement agencies, based on the origin of the $10.8 million, the overall penalties may be just getting started.

The citation for the above is Paragraph 22, Sections M, N, and O of Stanley's September 3, 2008 plea agreement.