Richard L. Cassin Publisher and Editor

Andy Spalding Senior Editor

Jessica Tillipman Senior Editor

Elizabeth K. Spahn Editor Emeritus

Cody Worthington Contributing Editor

Julie DiMauro Contributing Editor

Thomas Fox Contributing Editor

Marc Alain Bohn Contributing Editor

Bill Waite Contributing Editor

Shruti J. Shah Contributing Editor

Russell A. Stamets Contributing Editor

Richard Bistrong Contributing Editor 

Eric Carlson Contributing Editor

Bill Steinman Contributing Editor

Aarti Maharaj Contributing Editor

FCPA Blog Daily News


FCPA To The World: I Want You

In its early days, the Foreign Corrupt Practices Act of 1977 stirred up a lot of angry talk from Americans because of its extra-territorial reach. Some legal scholars even questioned the constitutionality of a statute that clung to the citizens wherever they went. These days -- in a strange twist -- most of the angry talk about the FCPA is coming not from inside America but from outside.

Putting foreign companies in the cross hairs is bound to cause resentment. The FCPA, after all, is blowing away traditional concepts of borders and sovereignty. Here's a U.S. law, some would say, that's regulating what non-U.S. parties do with other non-U.S. parties when both are outside the United States. That's a tough sell, even in the age of global corporate scandals.

The change started after 1998, the year the FCPA -- in the words of the U.S. attorneys' manual -- was "expanded . . . to assert territorial jurisdiction over foreign companies and nationals." Non-U.S. companies like ABB Ltd, Vetco Gray UK Ltd, Akzo Nobel, NV and Statoil ASA started making the news with their FCPA problems. Today the foreign targets of FCPA investigations include Siemens AG, BAE Systems, Panalpina, Magyar Telekom, AstraZeneca PLC, Smartmatic Corp, Total SA, Norsk Hydro ASA, Novo Nordisk A/S, Schlumberger N.V., Alcatel SA and Petro-Canada -- and the list keeps growing.

The upset the FCPA is causing across the pond is evident in a January story by Michelle Madsen in She discusses a survey of U.K. general counsels. About a third of them are in denial about the reach of the FCPA, and two thirds just wish it would go away. Here are some excerpts from her story. We should point out that the article itself tries to be a lot more balanced than our selections would suggest. In any case, we think the story is a preview of a coming flood of debate about the application of the FCPA to non-U.S. companies.

-- Peter Kennerley, general counsel at FTSE 100 brewing group Scottish & Newcastle, dismissed the idea that laws such as the FCPA would change the way UK companies operated. "We have a small export business to the US but these acts have not really been brought to our attention," he said. "If you attempted to second-guess every law that the US Government tried to impose on extraterritorial jurisdictions you would never get anything done."

-- O2 general counsel Justine Campbell agreed and said that far-reaching US laws can prove a real obstacle to business. "Laws like this impose a layer of bureaucracy to the process of business,' said Campbell. The laws, which are rigid, prescriptive and often frustrating, are not always relevant."

-- Such trends often spark resentment. One responding corporate counsel said that it was not the US’s place to dictate anti-corruption laws to companies operating out of other jurisdictions and that cross-border anti-corruption legislation should work both ways. "The asymmetry in the US-UK extradition act should be fixed and reciprocity should be the principle in areas like this. We are now seeing these laws being enforced extraterritorially by political and commercial pressure from the US."

View the January 10, 2008 article here.


Jurisdiction Untangled

So much of the buzz about the Foreign Corrupt Practices Act right now concerns investigations of name-brand foreign companies -- Siemens, BAE and Panalpina among them. Which makes it natural to ask, how do foreign companies come under the jurisdiction of the FCPA? The best explanation, we still think, comes from the United States Attorneys' Manual. We've posted the following language before, but it's worth repeating. The lesson here is that the jurisdictional trip wires are everywhere, and foreign companies with global businesses are likely to have a tough time slipping the grip of the FCPA. Here's how the Department of Justice instructs its prosecutors to look at it:

Under the FCPA, U.S. jurisdiction over corrupt payments to foreign officials depends upon whether the violator is an "issuer," a "domestic concern," or a foreign national or business. An "issuer" is a corporation that has issued securities that have been registered in the United States or who is required to file periodic reports with the SEC. See 15 U.S.C. §§ 78c(a)(8), 78dd-1(a). A "domestic concern" is any individual who is a citizen, national, or resident of the United States, or any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship which has its principal place of business in the United States, or which is organized under the laws of a State of the United States, or a territory, possession, or commonwealth of the United States. See § 78dd-2(h)(1).

Issuers and domestic concerns may be held liable under the FCPA under either territorial or nationality jurisdiction principles. For acts taken within the territory of the United States, issuers and domestic concerns are liable if they take an act in furtherance of a corrupt payment to a foreign official using the U.S. mails or other means or instrumentalities of interstate commerce. See §§ 78dd-1(a), 78dd-2(a). For acts taken outside the United States, U.S. issuers and domestic concerns are liable if they take any act in furtherance of a corrupt payment, even if the offer, promise, or payment is accomplished without any conduct within U.S. territory. See §§ 78dd-1(g), 78dd-2(i). In addition, U.S. parent corporations may be held liable for the acts of their foreign subsidiaries where they authorized, directed, or controlled the activity in question, as can U.S. citizens or residents, themselves "domestic concerns," who were employed by or acting on behalf of such foreign-incorporated subsidiaries.

Prior to 1998, foreign companies, with the exception of those who qualified as "issuers," and most foreign nationals were not covered by the FCPA. The 1998 amendments expanded the FCPA to assert territorial jurisdiction over foreign companies and nationals. A foreign company or person is now subject to the FCPA if it takes any act in furtherance of the corrupt payment while within the territory of the United States. There is, however, no requirement that such act make use of the U.S. mails or other means or instrumentalities of interstate commerce. See § 78dd-3(a), (f)(1). Although this section has not yet been interpreted by any court, the Department interprets it as conferring jurisdiction whenever a foreign company or national causes an act to be done within the territory of the United States by any person acting as that company's or national's agent.

(emphasis in original)

From the United States Attorneys' Manual, Title 9, Criminal Resource Manual §1018 “Prohibited Foreign Corrupt Practices” (November 2000).

View CRM §1018 Here.


Siemens' Employees Come In From The Cold

German engineering giant Siemens AG said yesterday that it will extend its employee-amnesty program for another month until the end of February. The extension is no surprise. In mid-January this year, Siemens' counsel, Debevoise & Plimpton, said that "[s]ince November 28, 2007, we have obtained significant new information and developed very substantial leads from participants in Siemens' amnesty program, as well as other sources, regarding topics relevant to our investigation." The company's latest announcement said it is still pursuing the new leads.

Siemens' official statement provided these further details: "To date, 66 employees have come forward in connection with the amnesty program. In addition, a large number of employees are currently receiving information about the program. 54 cases are now under review. So far, 2 applications for amnesty have been rejected and 10 granted. 'The amnesty program has been very successful. We’re pleased that so many employees have made use of the program and are thereby expediting clarification,' said Peter Y. Solmssen, member of the Managing Board and General Counsel of Siemens AG."

In October 2007, Siemens settled global corruption charges with Munich prosecutors for €201 million. The settlement was based on questionable payments of €420 million. But since then the company has identified €1.3 billion in potentially illegal payments to public officials around the world. In the United States, the Securities and Exchange Commission and the Department of Justice are investigating whether Siemens violated the Foreign Corrupt Practices Act. The company is also facing possible charges of public corruption in Italy, China, Hungary, Indonesia, Greece and Norway.

Before the amnesty was announced in November 2007, Siemens' internal investigation reportedly had stalled because of stonewalling by managers in various countries. The amnesty -- which covers information about Siemens' involvement in public corruption -- protects employees against claims for damages or unilateral termination of their employment. But Siemens reserves the right to impose lesser workplace discipline. The company has not said why it rejected some applications for amnesty or how it intends to deal with employees whose applications are rejected.

View Siemens' January 31, 2008 News Release Here.


Who's Monitoring The Monitors?

Ellen Podgor at the indispensable White Collar Crime Prof Blog has a post about the federal compliance monitors program here. It links to an article in the Washington Post here, and sets out the text of proposed federal legislation to regulate the monitors and their appointments. (Our earlier posts on the subject are here.)

In the Washington Post article -- which deals mainly with how U.S. Attorney General Michael Mukasey almost became a monitor before his appointment as AG -- reporter Carrie Johnson nicely summarizes the monitor-program controversy this way:

"Scrutiny of the monitor arrangements and complaints about their secrecy have mounted in recent weeks after a deal worth as much as $52 million was awarded to a consulting firm led by former attorney general John D. Ashcroft. The Justice Department launched a policy review last year to determine whether national standards should be imposed to avoid the appearance of impropriety. Lawmakers and legal experts have sounded alarms about possible political patronage, raising questions about whether prosecutors have steered the sole-source contracts to people with ties to the Bush administration, the Justice Department and the Securities and Exchange Commission. In the vast majority of cases, monitors operate without a judge's oversight of their work and their bills. The agreements have risen more than sevenfold in recent years as prosecutors have settled corporate fraud cases rather than bringing them to trial, which might destroy the business and cost employees their jobs. "

The bill proposed by Rep. Frank Pallone (D-NJ) would remove most of the discretion for the appointment of monitors from the hands of individual U.S. attorneys. It would also create a mechanism to set their pay and hold them accountable for reporting back to the Justice Department and the federal courts. Part of the bill reads:


(a) In General- A Federal monitor shall oversee a deferred prosecution agreement.

(b) Appointment of Federal Monitors- A Federal monitor shall be appointed by an independent third party (a United States district court judge or a United States magistrate judge) from a pool of pre-qualified firms or individuals (or both).

(c) Qualifications of Federal Monitors- A Federal monitor shall have experience in criminal and civil litigation.

(d) Payment of Federal Monitors- A Federal monitor shall be paid according to a pre-determined fee schedule set by the United States district court.

(e) Report Requirement in Deferred Prosecution Agreement-

(1) A deferred prosecution agreement shall include a requirement that a Federal monitor submit reports to the United States attorney and to the United States district court.

(2) A deferred prosecution agreement shall include the number and frequency of reports required by a Federal monitor.


Another Look At China

Yesterday we talked about a recent story in the Chinese press blaming foreign companies for more than half of the PRC's corruption, and singling out U.S. companies that violated the Foreign Corrupt Practices Act in China. On reflection, we may have been unduly skeptical about China's motives for publishing the story. So today we want to set the record straight.

To be clear, the PRC's economic policies and the results they've produced are phenomenal. Last year the country attracted nearly $75 billion in foreign direct investment. Total FDI has topped $700 billion. There are now some 120,000 foreign-invested enterprises in the PRC, double the number from just 2002. The economy is still growing at over 11% a year, and in a country of more than 1.3 billion people, per capita income has reached around $5,500. Foreign businesses in China are getting bigger. McDonald's this week said it plans to open 125 more outlets there in 2008, and Dunkin' Donuts wants 100 new locations in Shanghai alone over the next 10 years. What's the growth look like at street level? Our first visit to China was in 1993. Crossing main roads in Beijing was nearly impossible because of the streaming bicycles pedaled by factory workers wearing black Mao suits. The same blocks now make up some of the world's fanciest neighborhoods -- upscale condos and cafes filled with world-class fashionistas, and streets flowing with BMWs and Audis, Lamborghinis and more.

With such a staggering level of foreign activity in the economy, it's logical that a lot of the corruption over the past ten years can be traced to foreign companies. We thought 64% -- the amount noted in the aforementioned story -- sounded too high. But it could be close to the mark after all. For sure, the number of Foreign Corrupt Practices Act enforcement actions and investigations related to China has ballooned over the past few years. Among the companies involved are Lucent Technologies Inc., Faro Technologies, Inc., York International Corporation, Paradigm B.V., Schnitzer Steel Industries Inc., InVision Technologies, Inc., Diagnostics Products Corporation, Alltel Corporation, BearingPoint Inc. and UTStarcom Inc. Siemens may have FCPA issues in China, and there could be others. That's a long list in the rather limited FCPA universe. So what gives?

We've wondered before if some companies go into certain countries -- China, Nigeria and Indonesia come to mind -- expecting to find a corrupt environment. And once there -- no matter what they find -- they lower their compliance standards instead of raising them. Some pundits in Nigeria have talked about this syndrome and how it victimizes the local economy and the people in it. Perhaps the Chinese press is now sensitive to the same thing.

So in the spirit of the approaching Lunar New Year -- the beautiful character above means "rat," the sign next up on the Chinese calendar -- we acknowledge that ten years ago China put out the welcome mat to the world's entrepreneurs on a scale never seen before. Since then people by the billions have enjoyed the fruits, both in China and around the globe. At the same time, the Chinese government has struggled with public corruption -- as most developing economies do. It has fought against it using all available weapons. [Sometimes we cringe to read about executions for bribe-taking there.] Now China is telling the international community that a big part of its corruption problem is imported from overseas -- even from the United States. It's a good reminder to foreign companies -- especially those required to comply with the FCPA -- that instead of being part of the problem they should be part of the solution.


Most Corruption Comes From Abroad, Says China

A Special Warning For U.S. Companies

As China battles indigenous corruption, it's also spotlighting foreign and especially U.S. companies that are importing illegal practices into the PRC. A story in the Chinese press in December 2007 said, "According to a report by local consulting company Anbound, of the 500,000 bribery cases investigated in China over the last 10 years, 64 percent involved foreign companies." It mentioned allegations involving Lucent Technologies Inc., IBM, Cisco and NCR. Four of Lucent's employees in China, the story reported, were apparently fired in 2004 for violating the Foreign Corrupt Practices Act. The story quotes a Beijinger as saying: "I cannot understand after many foreign companies complain about corruption and bribery in China, then why are they doing similar things?"

Official statistics about corruption from the PRC can be dodgy. But any discussion about foreign companies involved or suspected of being involved in corrupt payments, and the naming of some U.S.-based headliners, may mark an important new strategy. Presumably, China will use the foreign companies' names to defend itself against charges from the U.S. and OECD that its anti-corruption enforcement is lax. Most of our corruption, China will argue, actually came from you first. We're the victim here.

One result is that foreign companies -- particularly those subject to the FCPA -- will be very attractive targets during the PRC's Olympic-year anti-corruption campaign. That means it's a good time to put China-related compliance programs on high alert.

Meanwhile, Chinese President Hu Jintao told leaders of the Communist Party that the country's anti-corruption drive remains a top priority. President Hu -- who also serves as general secretary of the Communist Party of China Central Committee -- spoke at the organization's important three-day plenary session in mid-January. "Anti-corruption measures and the upholding of integrity should run thoroughly through the nation's economic, political and cultural makeup and the Party's ideological, organizational, work style and institutional building," he said. In typical PRC practice, President Hu's speech became a "guideline document to enhance the work of anti-corruption and upholding of integrity," the communique said.

By June 2007, some 24,879 cases of official corruption had been investigated in the PRC, the communique said. The cases involved bribes totaling more than 6.156 billion yuan (US$860 million). Government employees were involved in 5,523 bribery cases, accounting for 22.2 percent of those caught, the communique said. For example, He Minxu, former vice-governor of eastern Anhui Province, was sentenced to death with a two-year reprieve for taking bribes of 8.41 million yuan (US$1.12 million) from 27 organizations and individuals, the latest senior official to be brought down in a corruption scandal. Another case cited was that of Zheng Xiaoyu, former director of China's State Food and Drug Administration. He was executed in July 2007 and was the fourth senior official to be sentenced to death since 2000. Zheng was found guilty of taking 6.49 million yuan (US$910,000) in bribes. When he was sentenced, the Supreme People's Court said his dereliction of duty undermined China's drug monitoring and supervision, endangered public life and health and had a very negative social impact. Speculation in China and elsewhere is that some of the bribes Zheng took came from foreign companies.

View articles from the December 12, 2007 edition of China Daily Here and January 17, 2008 edition Here.


Politics Is Still A Risky Business

A note to our readers: Former Indonesian President Suharto, 86, died on Sunday, January 27, 2008. He led Indonesia from 1965 until 1998, when he was driven from office after months of street protests. During his one-man rule, Indonesia had an average annual growth rate of 6.5%, helping to raise millions of its citizens from poverty to the middle class. But the Suharto regime also made Indonesia one of the world's most challenging countries for Foreign Corrupt Practices Act compliance. The following article -- which appeared under our byline in a slightly different form in the Wall Street Journal Asia in June 1998 -- discusses corruption in Suharto's Indonesia and the frequent links among entrenched regimes, corruption and political risk. -- The Editors

As the recent troubles in Indonesia, not to mention South Asia, the Balkans and much of Africa, keep showing, the world is still a very dangerous place. Anyone involved in decisions to deploy capital or people overseas should have some idea of the risks involved, if only to appreciate the need for a good exit strategy. So why has the field of political-risk analysis become almost extinct? To answer that question one must delve a little into the early days of the discipline and its past mistakes. Then it becomes apparent that there’s no reason why it shouldn’t re-emerge, albeit in a more user-friendly form.

This field of study had its heyday back in the early 1980s, when academicians began publishing serious works about political-risk analysis, which became known as PRA. These weighty tomes often bore pretentious titles like "Introduction to Political Risk Analysis" and "A Survey of the Quantitative Approaches to Country Risk Analysis." A lot of us back then thought PRA was hot and here to stay.

The best time for PRA practitioners was probably marked by the publication of Don DeLillo’s quirky book, "The Names," in 1983. The narrator-hero was an American expatriate political-risk analyst working in and around the Middle East. I was then a young lawyer at the Arabian American Oil Company in Dhahran, Saudi Arabia, and the copy I snuck in was passed from hand to hand. Typically, around the same time, a few PRA practitioners even started a professional group known, I think, as the American Association of Political Risk Analysts. I joined and heard nothing for almost a year. Then a photocopied half-page notice came in the mail, explaining that the group had dissolved because there didn’t seem to be much demand for the association after all.

In truth, Political-Risk Analysis never really got off the ground. The discipline had problems from the start because it pretended to be quantitative but never really was. In the number-crunching 1980s, that was an unforgivable sin. On top of that, the serious PRA practitioners -- mainly ex-university professors from the broad and vague field of political science -- blended in with corporate MBA types about as well as Indonesian businessmen with Arkansas politicians.

Today the field is nearly extinct. A few stalwarts hang on like the middle-aged guys who recreate American Civil War battles. But for the most part, to quote from a lonely but comprehensive PRA web site, (, “in the 1980s various MNCs disbanded their political risk functions or incorporated these functions into other staff activities.” Why did the field of Political-Risk Analysis go the way of the buggy whip and Nehru jacket? A book review on the above-named web site laments “three fairly familiar reasons”: (1) failure of companies to formally integrate PRA into corporate decision making, (2) the desensitizing of business people to political risk by its very prevalence, and (3) corporate downsizing of staff groups that would never be profit centers.

But all this is not to say the rest of us should forget about PRA. To be useful, political-risk analysis needs to be simple, that’s all. So I've created the “Three Strikes, You’re Out” test of political risk. If a country has all three Strikes, it's already a political-risk basket case, beyond help or hope. A country with one or two Strikes is sick but ambulatory, and should be treated for business purposes like a fragile aunt. Here are the Strikes. By the way, I strongly recommend against exploring the 3S Test in a dissertation or through other less lethal means.

Strike One: Excessive Love for the Long-Time Leader. It's a sure sign of coming disaster when the citizenry dearly love their despot. It means he's been on the throne too long and gone from strong father to cranky granddad. I was in Jakarta last year the day then-President Suharto, or Pak Harto, as he was lovingly called, flew off to Germany for a mysterious medical check up. Everyone was depressed. A man at the airport who wheeled my luggage cart from the curb to the counter was near tears, barely able to shuffle his feet. I thought I saw him on the TV news last month throwing rocks through windows in downtown Jakarta. A leader is over ripe when his country is referred to as his possession. I'm thinking how many times during the past couple of years I read or heard of “Mr. Suharto’s Indonesia.” “Tito’s Yugoslavia,” incidentally, is still falling apart. “Marcos’s Philippines,” like the “Medici’s Florence,” also did not end well. Even “Daley’s Chicago” looked pretty sick in 1968.

Strike Two: The Same Faces in Every Deal. As soon as Mr. Suharto abdicated, the students aptly coined the phrase “nepotism, collusion and corruption” to mean all the evils of his 32-year rule. An American executive working in Jakarta complained to me in 1992 that every time he tried to do anything, one of Mr. Suharto’s kids or cronies would show up and demand a piece of the action. He said it happened on everything, from a $100 million project to routine purchase orders. It was easy to do business in the Philippines during Marcos’s time, likewise in Iran during the Shah’s or Nicaragua during Somoza’s. Foreign investors cut through the red tape by working with one of the few wired local partners. Well-greased insider deals always look good at the time, but are usually too good to be true.

Strike Three: Abnormal Banker Behavior. When expatriate bankers (especially Americans, Germans and Japanese) start acting less like morticians and looking more like game-show hosts, head for cover. My experiences in Indonesia again come to mind. I watched foreign bankers in Jakarta transmogrify from the men-or-women in gray flannel suits to batik-shirted glad handers. I should also have sensed real danger when male bankers showed up at meetings to woo potential borrowers and brought along very attractive young ladies in flowery outfits.

So there is the 3S Test if you want to pursue "PRA," which, as I said, still has a role to play. There's also a final warning: You may hear each of the Strikes used separately or in combination to compliment a country's business climate. Here’s an overheard hotel-lobby remark, and it includes everything you need to know: “Jakarta's a great place to do business. The people love Suharto. I always see my old friends here. And the foreign bankers are so much fun.”


Handicapping The FCPA

We heard a few days ago (here) that some Siemens insiders are trying to calculate the company's potential financial penalties for alleged Foreign Corrupt Practices Act offenses. Apparently the insiders think that past FCPA settlements reveal a correlation between the amount of bribes paid and the financial penalties imposed on the organizations. We don't think the correlation exists, but we're never going to be mistaken for mathematicians. So we're providing the raw data below in case any real mathematicians are paying attention.

Who knows? Maybe there is a pattern after all. Even so, we don't advise anyone to decide about FCPA compliance after a cost - benefit analysis. For individuals, there is a 100% chance that an FCPA offense can result in five years behind bars. No matter how you figured it beforehand, ending up in prison will always turn out to be an enormous tragedy. And no, we're not suggesting that organizations should compute their odds. The only bet that makes any sense is to comply.

So for purely academic purposes, here are the numbers. They're for FCPA matters that companies resolved with the SEC, DOJ or both during 2007. As a caveat, most of the companies also agreed to appoint monitors or compliance consultants. The cost of doing that is not included in the amounts shown. As we've learned from John Ashcroft's recent appointment by Zimmer Holdings in a domestic bribery case, monitors can cost millions or even tens of millions of dollars a year. Nor do the numbers reveal the damage done to the fabric of organizations by FCPA problems, and the ruined lives of men and women who lost their jobs and perhaps a lot more because of non-compliance.

El Paso Corp.
, Feb. 7, 2007 Amount of alleged bribes: approximately $5.5 million. Financial penalties: $7.65 million ($5.4 million in disgorgement and a $2.25 million civil penalty).

The Dow Chemical Co., Feb. 13, 2007 Amount of alleged bribes: about $200,000. Financial penalties: $325,000 civil penalty.

Baker Hughes Inc., Apr. 26, 2007 Amount of alleged bribes: $15.4 million. Financial penalties: $44 million (about $22 million in disgorgement and pre-judgment interest, a $10 million civil penalty for violating a prior cease-and-desist order, and an $11 million criminal fine).

Delta & Pine Land Co., July 26, 2007 Amount of alleged bribes: $43,000. Financial penalties: $300,000 civil penalty.

Textron Inc., Aug. 23, 2007 Amount of alleged bribes: about $650,000. Financial penalties: about $4.5 million (over $3 million in disgorgement and pre-judgment interest, an $800,000 civil penalty, and a $1.15 million fine).

Bristow Group, Inc., Sept. 26, 2007 Amount of alleged bribes: over $423,000. Financial penalties: Nil.

York International Corp., Oct. 1, 2007 Amount of alleged bribes: about $7.5 million. Financial penalties: $22 million (over $10 million in disgorgement and pre-judgment interest, a civil penalty of $2 million, and a $10 million fine).

Ingersoll-Rand Co. Ltd., Oct. 31, 2007 Amount of alleged bribes: over $1.5 million. Financial penalties: $6.7 million (over $2.2 million in disgorgement and pre-judgment interest, a $1.95 million civil penalty, and a $2.5 million fine).

Chevron Corp., Nov. 14, 2007 Amount of alleged bribes: over $20 million. Financial penalties: $30 million ($25 million in disgorgement, a $3 million civil penalty and a $2 million penalty to the Office of Foreign Asset Controls of the U.S. Department of the Treasury).

Akzo Nobel NV, Dec. 20, 2007 Amount of alleged bribes: $280,000. Financial penalties: $2.9 million (over $2.2 million in disgorgement and a $750,000 civil penalty).

Lucent Technologies, Inc., Dec. 21, 2007 Amount of alleged bribes: at least $1.3 million. Financial penalties: $2.5 million ($1.5 million civil penalty and a $1 million fine).


View more information by clicking on the subject headings to the right.


Heading For Trial In Tinseltown

Our favorite news source here at the FCPA Blog -- Variety -- reports that the Hollywood film producers arrested for violating the Foreign Corrupt Practices Act have pleaded not guilty and will go to trial on February 26, 2008. Gerald Green, 75, and his wife Patricia Green, 52, both of Los Angeles, were arrested on a criminal complaint filed in December 2007 in federal court in Los Angeles. The complaint alleges that the Greens conspired to pay more than $1.7 million in bribes to a government official with the Tourism Authority of Thailand in order to obtain a film festival contract worth more than $10 million. The Greens are out on $500,000 bail.

The trial could be a major embarrassment for at least one Thai government official. The FBI affidavit doesn't name names. But the Feds describe then-governor of the Tourism Authority of Thailand and president of the Bangkok International Film Festival, Juthamas Siriwan. Variety says, "Siriwan, who has neither been charged in the U.S. nor in Thailand, has denied any suggestion of corruption. But the day after the charges against the Greens were made public, her political career took a dive and she resigned from the deputy chairmanship of the People's Power Party."

The Greens owned and operated Film Festival Management, a Los Angeles-based business formed in 2003 specifically to bid for the management contract for the Bangkok film festival. They also produced the movie "Rescue Dawn" last year. The bio-pic stars Christian Bale as a U.S. air force pilot shot down and captured by the Viet Cong in 1966. Bale's a terrific actor so we flipped to the movie on a recent transpacific flight. It looked good -- but too intense to watch at 40,000 feet. So we switched to an episode of "House," followed by the "Office," and then another confusing golf lesson.

FCPA-related trials are rare events -- only individuals, not corporations, take their chances in court. So we'll keep an eye on what happens with the Greens.

View Variety's January 23, 2008 report Here.

View our prior post about the Greens Here.


How Much Will Siemens Pay?

A January 19, 2008 report in the German business magazine WirtschaftsWoche (here) says unnamed members of Siemens' supervisory board (equivalent to U.S. directors) think the company may be fined as much as €4 billion by United States regulators for alleged violations of the Foreign Corrupt Practices Act. The magazine reports that the supervisors are basing the figure on three times the €1.3 billion in illegal payments identified by the company. The article says Siemens insiders had hoped the U.S. Justice Department and Securities and Exchange Commission would be satisfied with penalties of not more than €1 billion. But their new worst-case scenario reflects FCPA-related penalties imposed on Titan Corporation in 2005 and ABB Ltd. in 2004. The article says the Siemens insiders have calculated that Titan's penalties amounted to almost ten times the bribes it paid, and ABB's penalties were about eight times the amount of the bribes in question. The unattributed story doesn't carry any comments or reaction from official sources in Siemens or from U.S. authorities.

In fact, the Titan and ABB cases, among others, demonstrate that there's no simple or consistent formula for determining financial penalties in FCPA matters. In March 2005, Titan paid $28.5 million -- at the time the largest FCPA penalty ever imposed. For bribes of $3.5 million, it paid a criminal fine of $13 million and a civil penalty and disgorgement of $15.5 million. ABB resolved an FCPA matter in July 2004. For questionable payments of around $1 million to secure a $180 million contract, it agreed to pay a $10.5 million penalty and $5.9 million in disgorgement. Baker Hughes currently holds the record for penalties paid in an FCPA case -- $44 million. The company's illegal payments amounted to about $5.2 million. To settle the case in April 2007, it disgorged about $20 million, paid prejudgment interest of $3.1 million, a civil penalty of $10 million for violating a prior SEC cease-and-desist order, and a criminal fine of $11 million.

Some factors the SEC and DOJ have considered when assessing FCPA-related penalties in negotiated settlements are these:

-- the presence or absence of an effective compliance program;

-- the role played by the company itself in discovering and investigating potential violations, whether and when it self-reported to U.S. authorities, and the corrective action already taken to prevent future violations;

-- the company's history of prior violations;

-- the role and culpability of current members of senior management and directors in the alleged violations; and

-- the duration and extent of the alleged illegal behavior.

Under the statute itself, criminal penalties for organizations can include a fine of up to $2 million. But under the Alternative Fines Act, the actual criminal fine may be up to twice the benefit that the defendant sought to obtain by making the corrupt payment. Civil fines for an organization can be the greater of (i) the gross amount of the pecuniary gain to the defendant as a result of the violation or (ii) $50,000 to $500,000. When negotiating the financial aspects of FCPA settlements, however, the DOJ and SEC are not limited by the types or amounts of penalties specified in the statutes.

View Prior Posts About Siemens Here.


Scandal Hits The Compliance Monitors

The problems started for the Justice Department's corporate monitoring program late last year. Five leading orthopedic device makers had been charged with bribing doctors in the U.S. to get their business. (Now they're being investigated for bribing doctors overseas in violation of the Foreign Corrupt Practices Act.) In September, New Jersey's U.S. Attorney Chris Christie used deferred prosecution agreements to settle the domestic cases. The terms required the appointment of compliance monitors -- private parties who police the corporations from the inside, report directly to the DOJ, and send their bills for doing so to the companies themselves.

For the orthopedic device makers, Mr. Christie's corporate monitors were ex-U.S. Attorney General John Ashcroft (his former boss), former U.S. Attorney for the Central District of California Debra Yang, former New Jersey Attorney General David Samson, former U.S. Attorney for the Southern District of New York in Manhattan David N. Kelly, and former counsel to the Federal Trade Commission during the Reagan Administration John Carley. In other words, the monitors were people close to Mr. Christie.

No matter how you spin it -- and Messrs. Christie and Ashcroft have been doing plenty of that -- the appointments have the appearance of impropriety. Peel away the PR and the best you can say is that there was some obvious cronyism going on. The worst you can say is that the DOJ created a scheme by which U.S. Attorneys can extract millions of dollars from wrongdoers and funnel the money to former bosses, friends and political allies. We don't buy the sinister version for a second, but lots of people will take it as gospel.

At this point, we might ask whether we need corporate monitors at all? Was there something terribly wrong with the old fashioned approach? Our experience with companies involved in the FCPA forerunner cases -- companies that were required to operate under pre-FCPA consent decrees with the DOJ and SEC because of bribe-paying overseas -- taught that the threat of expedited enforcement and enhanced penalties really worked. With the stakes always high -- including potential jail time for executives -- the companies changed their culture. Compliance became real, not cynical, and recidivism wasn't an issue. Many of those monitorless companies are today's model citizens of FCPA compliance.

Wherever the debate about corporate monitors ends up, the reality is that the program is badly wounded. And the people responsible for the bloodletting -- with Messrs. Christie and Ashcroft at the top of the list -- should have known better. This scandal is just beginning, but here's a sample of what some others are already saying about it. By the sound of things, this is another problem for the Justice Department that isn't going away any time soon.

  • Federal prosecutors are steering no-bid contracts to former government officials who earn millions of dollars by monitoring companies accused of cheating investors and other schemes. . . . In the past few years, U.S. attorneys in Alabama, New York and Virginia have turned to corporate monitors to keep companies clean, hiring various former prosecutors and SEC officials with ties to President Bush, his father and other Republican luminaries. Some prosecutors hammer out with companies a short list of candidates from which to choose, while others have retained veto power over a business's choice. A smaller group has given corporate executives little input on the selection.-- The Washington Post
  • In a letter to the Government Accountability Office, Sen. Patrick Leahy (D-Vt.) and U.S. Rep. John Conyers (D-Mich.) asked for that office to investigate "if political or personal favoritism played a role" in the appointment of dozens of monitors to potentially lucrative but secretive contracts. -- The (New Jersey) Star Ledger
  • When the top federal prosecutor in New Jersey needed to find an outside lawyer to monitor a large corporation willing to settle criminal charges out of court last fall, he turned to former Attorney General John Ashcroft, his onetime boss. With no public notice and no bidding, the company awarded Mr. Ashcroft an 18-month contract worth $28 million to $52 million. -- The New York Times
  • . . . much has been made of the estimated cost of former Attorney General John Ashcroft's monitorship for Zimmer Holdings that will cost the company between $28 million and $52 million. That case is fairly straightforward, involving illicit payments to doctors to use the company's devices in replacement surgeries. Indeed, it's not clear how Ashcroft can charge that much for a fairly simple monitorship . . . . -- The White Collar Crime Prof Blog
  • In November the Law Blog took interest in an eye-poppingly lucrative contract that the U.S. Attorney in New Jersey awarded to John Ashcroft, the former attorney general-turned-confidential strategic consultant. Now it seems that Ashcroft’s former employer — i.e., the Justice Department — has taken an interest too . . . Now, the DOJ has begun an internal inquiry into its procedures for selecting outside monitors to police settlements with large companies. Apparently, aides to [U.S. Attorney General] Mukasey were concerned about the appearance of favoritism. -- The Wall Street Journal's Law Blog


Siemens' Investigation Steams Ahead

Siemens AG -- the German industrial giant enmeshed in a global corruption scandal -- said this week that for fiscal 2007 it will delay ratifying acts of individuals who have served on its managing board at any time since 1999. President and CEO Peter Löscher, who joined Siemens after the events under investigation occurred, and who's leading the effort to clean up the company, is exempt from the ratification's postponement.

The move may preserve Siemens' ability to act against managers who knowingly participated in the fraud, which allegedly involves illegal payments amounting to €1.3 billion. In the United States, the Securities and Exchange Commission and the Department of Justice are investigating whether Siemens violated the Foreign Corrupt Practices Act. The company is also facing possible charges of public corruption in Italy, China, Hungary, Indonesia and Norway. Before settling any eventual charges against Siemens, U.S. prosecutors will want assurances that the company has taken proportionate corrective action, including identifying those responsible for the illegal payments and imposing on them some level of work-place discipline.

In September 2007, there were reports that Siemens' internal investigation was stalling, hampered by the stonewalling of its managers in various countries. A dead-end internal investigation would have jeopardized Siemens' ability to work out a deal with U.S. prosecutors. The company then announced an internal amnesty for most employees. Last month, President and CEO Löscher said: "We have implemented an internal amnesty program that runs until the end of January. In addition, any employee can anonymously report confidential information. This could raise new suspicions that haven't even been part of the discussion until now. I want a comprehensive inquiry and the complete truth."

It appears the amnesty has worked as intended. Siemens' counsel, Debevoise & Plimpton, says the investigation is on track. In a January 16, 2008 letter to the chairman of Siemens' supervisory board's compliance committee, Debevoise said this:

"Since November 28, 2007, we have obtained significant new information and developed very substantial leads from participants in Siemens' amnesty program, as well as other sources, regarding topics relevant to our investigation. In particular, certain of this new information pertains to the conduct and knowledge of a number of individuals who have served on the Managing Board during the past several years. We do not consider it necessary or appropriate to identify these individuals at this time for several reasons. First, significant new information continues to be developed on virtually a daily basis and disclosure could impede the flow of information to us. Second, the investigation is ongoing and we are following up on the new information recently received. Third, in order to protect the reputations of individuals (and not to expose Siemens to any claims from such individuals), we do not believe it appropriate to identify anyone prior to conclusions being reached by us and the Compliance Committee. And fourth, information developed in the investigation may be relevant for governmental or judicial proceedings relating to these or other individuals or to Siemens, and for this reason, consistent with Siemens' commitment to cooperate with public officials, should not be made public at this time."

These latest revelations raise expectations that Siemens' internal report -- when it's finally produced -- will be comprehensive enough to help the company clean up its internal mess and reach a final resolution with prosecutors in the U.S. and elsewhere.

View Siemens' January 16, 2008 News Release Here.

View Debevoise & Plimpton's January 16, 2008 Letter Here.

View Prior Posts About Siemens Here.