He was asked about transferring a majority interest in a profitable subsidiary of a (presumably) U.K. company to the family of the president of a developing country. The transfer was a condition of continuing to do business there.

Here's what he said:

While we cannot compromise overall ethical standards, there needs to be considerable sensitivity as to how those standards play out . . .

And so, what does this mean? Let me give you an example.

I was approached by the Board of a corporate that is involved in one of these [developing] countries. They had a 100% subsidiary. This was becoming very profitable and so they received an approach from the Government. They were told that if they wanted to continue to do business in the country then they would need to transfer a 51% interest in the subsidiary to the family of the President. That gave rise to all sorts of worries for them for obvious reasons. One of these was whether or not the SFO would take the view that payment in this way was a bribe. They were concerned we might investigate and prosecute.

I assured them that I would have no intention of doing that whatsoever. I said I recognised the very great difficulty of the moral and ethical position that they were in. This was something they would have to resolve. What I could do though was to give them comfort that whatever they did, we would be sensitive to the circumstances here and would not seek to take any action, even if technically the transfer of the interest in the subsidiary constituted a bribe.

They found that very helpful.

Under the Foreign Corrupt Practices Act, the transfer to the president's family would likely be illegal.

Director Alderman's full remarks can be found here.

Dear FCPA Blog,

I'm grateful for the insights this blog, and its many contributors, have provided throughout the years. This includes the admirable work of Andy Spalding, Art Carden and Lisa Verdon – academics who cast doubt upon the ultimate utility of the FCPA as a means of combating corruption and reducing poverty in the developing world. As a lawyer and a former aid worker, I don’t always agree.

While I believe anti-corruption enforcement is necessary, I am troubled by the tenor of the recent dialogue surrounding that enforcement. This has nothing to do with the quality of the analyses that Spalding, Carden and Verdon are providing, and everything to do with the fact that expectations for what the FCPA can and should accomplish have grown completely out of hand.

The works of Spalding, Carden, and Verdon are important. Poverty reduction strategies need to be evaluated, measured, and critically assessed. But the FCPA is not a poverty reduction strategy. We cannot mistake supply-side anti-corruption enforcement for the wider effort to reduce corruption in the developing world -– a project that will require significant advancements in health, education, and the rule of law, for starters. The FCPA simply aims to ensure that U.S. actors do not provide monetary lifelines to the autocrats and oligarchs who will be threatened by the advancement of their people. It will not solve the underlying problems of poverty.

Holding the FCPA up as the magic bullet for poverty reduction is unfair to those who have foregone lucrative opportunities in order to comply with the law. By framing the anti-corruption effort as a means of vanquishing poverty, we risk handing an early victory to opponents of the Act. When the FCPA is inevitably unsuccessful, the enthusiasm for anti-corruption may dissipate, the resources for FCPA enforcement may quietly disappear, and those companies that have sacrificed so much to act within the confines and spirit of the law would be left at an even greater disadvantage. 

I admire the business people and aid workers who refuse to pay bribes. They often make that choice because they realize that paying one official will lead to a torrent of other requests. The FCPA supports them. The law allows them to tell a soldier with a greedy glint in his eye that they would pay him but cannot do so without risking their company and their job. This is much easier than telling him that they could pay him but just don’t feel like it. 

A successful anti-corruption effort will take more than a few years, or even a few dozen years, of enforcement. Maintaining that effort over a prolonged period requires that we also manage our expectations. It should be enough that the FCPA reduces some high-level corruption. We need not, and should not, ask it to do more.

Best Regards,

Stephanie Connor

The views expressed in this post belong to the author and do not necessarily reflect the views of her employer.

The government's video and audio tapes are of good quality and the confidential informant, Richard Bistrong, should be an effective witness despite some baggage. Overall, the cases appear to be strong and supported by ample evidence.

There are indications of more foreign bribery involving the military-equipment industry; the allegations in the first 16 indictments (available here) and the superseding information may be the tip of the iceberg. 

The Justice Department is seeking to build bigger cases against some current defendants. It may also indict other individuals.

Investigators could also be looking at involvement by some well-known industry leaders -- an Indian military-equipment supplier, three U.S. public companies, and two large private security contractors among them.

Countries and governments involved may include not just Georgia (mentioned in the superseding information) but also Peru, Mexico, Saudi Arabia, Guatemala, the Philippines, Colombia, and others. Representatives from some of the countries could be targeted by the Justice Department.

Prosecutors on Friday filed a two-count superseding information against Daniel Alvirez, the former president of Arkansas-based ALS Technologies Inc. It manufacturers ammunition and other military equipment.

Washington, D.C. lawyer Michael Volkov said his client Alvirez will plead guilty soon. "I can confirm that," he told Reuters.

The superseding information alleges that Alvirez, 32, conspired with Lee Allen Tolleson and others to bribe Georgian defense officials to win contracts to sell ammunition and rations. Tolleson, 25, was the director of acquisitions and logistics at ALS Technologies.

Alvirez and the other shot-show defendants were originally charged with conspiracy to violate the FCPA, conspiracy to engage in money laundering, and committing substantive FCPA violations. The 16 indictments covering the 22 defendants alleged that they plotted with an undercover FBI agent to bribe the minister of defense of an African country. The superseding information also alleges that Alvirez and others plotted to bribe Georgian officials through an Israeli sales agent.

One of the shot-show defendants is Ofer Paz, 50, the president and chief executive officer of Paz Logistics, an Israeli company that acts as sales agent for companies in the law enforcement and military products industries

Alvirez may face up to five years in prison for each of the two conspiracy counts. He could have faced up to 20 years in jail on the money-laundering charge that was dropped in the superseding information, and five years in prison for each substantive FCPA offense he originally faced.

As we've said, when the government indicts en masse as in this case, defendants who offer early cooperation usually make out best. They often receive lighter sentences, depending in part on their level of cooperation with prosecutors. See our post here.

Download a copy of the March 5, 2010 superseding information in U.S. v. Daniel Alvirez here.

The original 16 indictments in the case can be downloaded from our post here.

Georgetown Law: Eric E. Hotung International Law Building

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We also want to thank the folks at the Georgetown Journal of International Law for the invitation to their 2010 Symposium: Combating Global Corruption. It's happening March 22nd from 8am to 5pm at the Hart Auditorium at Georgetown Law (600 New Jersey Avenue, NW, Washington, D.C. 20001). Admission is free. Panel topics include Origins of International Anticorruption: Policy Formation, Enforcement by U.S. Government Agencies, Quasi-Enforcement Agencies and Alternative Enforcement Channels, and East Asia: A Case Study. Mike Koehler (the FCPA Professor) and Elizabeth Spahn are among the panelists. Download the brochure here.

*     *     *

And finally, we're grateful to our hosts this week who arranged the visit to the National Museum of the Marine Corps at Quantico, Virginia (here). There wasn't much discussion inside; it's hard to talk with that lump in your throat. The museum is unforgettable and the sacrifice it represents is beyond description.

BAE pleaded guilty Monday to conspiring to defraud the United States by impairing and impeding its lawful functions, to make false statements about its Foreign Corrupt Practices Act compliance program, and to violate the Arms Export Control Act and International Traffic in Arms Regulations. It was sentenced to pay a $400 million criminal fine.

U.S. law permits the federal government to ban exports by companies convicted of FCPA and related offenses.

The first debarment notice posted on the State Department's website Monday was withdrawn and a second notice was changed at least once and then also withdrawn. Defense News quoted a Washington trade lawyer as saying:

One notice Monday, another one Tuesday, and now they're both down. Which is it, guys? What State has done sends a terrible message. It makes it seem like State does not have a handle on what it wants to do - or that it's being manipulated by outside interests.

On Wednesday, the State Department said it was "still determining whether to debar BAE Systems, which would limit the company's ability to export products with U.S.-made content." But a BAE spokesperson told Defense News the company is "interpreting the current absence of a State Department notice about the hold to indicate that there is none in place."

In December 2008, the Swiss engineering company said it reserved about $850 million for possible resolution of U.S. and European corruption charges.

A story from Dow Jones Deutschland said:

The provisions are for potential costs related to the previously disclosed investigations by the U.S. and European authorities into suspect payments and alleged anti-competitive practices, respectively. The provisions also include an amount for the anticipated impact of a pending tax dispute, asset write downs and restructuring charges relating to the weaker business environment.

The announcement of the $850 million reserve followed ABB's disclosure in an earnings release of this item:

On July 13, 2007, ABB disclosed to the U.S. Department of Justice and the U.S. Securities and Exchange Commission suspect payments made by employees of company subsidiaries in Asia, South America and Europe, in particular Italy. These suspect payments were discovered as a result of ABB's internal audit and compliance program. The payments may be in violation of the Foreign Companies (sic) Practices Act or other applicable laws. If ABB is found to have violated any of these laws, the company could be liable for penalties and other costs and the violations could otherwise negatively impact its business. ABB is cooperating on these issues with the relevant authorities and is continuing its internal investigations and compliance reviews.

ABB had a prior FCPA settlement with the DOJ and SEC that made our big-money list. In July 2004, the company and two subsidiaries disgorged $5.9 million and paid a $10.5 million criminal penalty for violations involving Nigeria, Angola and Kazakhstan. The SEC's July 6, 2005 litigation release is here.

ABB Ltd's shares trade on the New York Stock Exchange under the symbol ABB.

Here, by our reckoning, are the other big payouts:

Siemens' $800 million resolution with the DOJ and SEC in December 2008 is the most expensive so far.

Kellogg Brown & Root and Halliburton settled their case last year for $579 million.

Then comes BAE's $400 million payment.

Followed by Baker Hughes' 2007 price tag of $44.1 million.

Willbros paid $32.3 million last year.

Chevron's violations related to the U.N.'s oil-for-food program cost it $30 million, also last year.

Titan Corporation held the record after it paid $28.5 million in 2005 for its FCPA settlement.

Vetco's resolution cost it $26 million in 2007.

Lockheed paid $24.8 million in 1994, the biggest case of its time.

York International spent $22 million last year to end its enforcement action.

Statoil paid $21 million in 2006.

AGCO Corporation paid $19.9 million in 2009 to settle oil-for-food offenses.

AB Volvo's 2008 case settled for $19.6 million.

Novo Nordisk A/S paid $18 million in 2009 to settle oil-for-food offenses.

ABB's violations cost it $16.4 million in 2004.

Schnitzer Steel agreed to pay $15.2 million in 2006.

And Flowserve paid $10.5 million in 2009.

Several cases in the settlement pipeline, if they go as expected, will rank high on the list:

Technip said recently it has reserved €245 million (about $330 million) for a potential settlement of FCPA offenses with the DOJ and SEC for its role in the TSKJ Nigeria joint venture (see KRB / Halliburton above).

Daimler AG reportedly will pay around $200 million for its FCPA settlement.

Alcatel-Lucent said last month it will pay $137.4 million in a settlement that's agreed in principle with the DOJ and SEC.

Pride International, Inc. said it has set aside $56.2 million for an expected settlement with both U.S. agencies.

And Innospec Inc. disclosed last month that it hopes to settle bribery charges related to the U.N.'s oil-for-food program with the DOJ, SEC and the U.K.'s Serious Fraud Office for between $28.8 million and $40.2 million.

Comments about this list and corrections to it are welcome.

It admitted conspiring to defraud the United States by impairing and impeding its lawful functions, to make false statements about its Foreign Corrupt Practices Act compliance program, and to violate the Arms Export Control Act and International Traffic in Arms Regulations. It was sentenced to pay a $400 million criminal fine.

BAE had announced the settlement with the DOJ and the U.K.'s Serious Fraud Office on February 5. The U.S. settlement was subject to today's court approval. See our post here.

In its release, the Justice Department said from 2000 to 2002, BAE "represented to various U.S. government agencies, including the Departments of Defense and Justice, that it would create and implement policies and procedures to ensure its compliance with the anti-bribery provisions of the FCPA, as well as similar, foreign laws implementing the Organization for Economic Cooperation and Development (OECD) Anti-bribery Convention. According to court documents, BAES knowingly and willfully failed to create mechanisms to ensure compliance with these legal prohibitions on foreign bribery. According to court documents, the gain to BAE from the various false statements and failures to make required disclosures to the U.S. government was more than $200 million."

See our post here for a copy of the criminal information against BAE. Exhibit A is a letter John Weston, BAE's chief executive, wrote on November 16, 2000 to U.S. Secretary of Defense William Cohen promising that BAE was not knowingly violating the  Foreign Corrupt Practices Act and other antibribery laws. 

Despite its assurances, BAE "made a series of substantial payments to shell companies and third party intermediaries" without due diligence or proper corporate controls. Some of the payments were to "marketing advisors" whose identity BAE actively concealed from the U.S. government. It also did not disclose some of the payments.

The DOJ said,

For example, after May 2001, BAES contracted with and paid certain advisors through various offshore shell companies beneficially owned by BAES. BAES also encouraged certain advisors to establish their own offshore shell companies to receive payments from BAES while disguising the origins and recipients of these payments. BAES admitted that it established one company in the British Virgin Islands (BVI) to conceal its marketing advisor relationships, including who the advisor was and how much it was paid; to create obstacles for investigating authorities to penetrate the arrangements; to circumvent laws in countries that did not allow such relationships; and to assist advisors in avoiding tax liability for payments from BAES.

Unlike the SFO's early February release and charging documents, the DOJ referred to BAE's bribery of Saudi Arabian officials for the al-Yamamah contract -- an $80 billion deal signed in the mid-1980s for the sale of jet fighters.

In today's release, the DOJ thanked the SFO for "the significant assistance provided by the U.K.’s Serious Fraud Office, and further expresses its gratitude to that office for its ongoing partnership in the fight against overseas corruption."

A copy of the U.S. criminal information and the government's sentencing memorandum in U.S. v. BAE Systems plc can be downloaded here and here.

Defense lawyer George Terwilliger: The DOJ will put indirect pressure on corporations to encourage compliance.

Braeuer told his Miami Beach audience that recent DOJ enforcement actions "should make clear to every corporate executive, every board member, and every sales agent that we will seek to hold you personally accountable for fraud violations. We will not shy away from tough prosecutions and trials." His full remarks are here.

How to interpret AAG Breuer's remarks and recent DOJ enforcement practices?

We asked George Terwilliger, above, a Washington, D.C. lawyer in private practice who previously served in the DOJ for 15 years, including a stint as deputy attorney general. (We talked about his NLJ comment, "FCPA Internal Investigations -- Are They Worth It?" here.)

He said:

Dear FCPA Blog,

The Department’s enforcement policy on the FCPA continues to evolve, with a focus on bringing cases that hit “pressure points” designed to influence corporations to take actions that promote FCPA compliance. The Department’s increased attention to prosecuting individuals is in recognition of the fact that corporations don’t think and decide, the people who operate and lead them do. Punishing individual wrongdoers is designed to affect the course of corporate actions.

Of course, prosecuting corporations themselves remains important, as Assistant Attorney General Breuer noted, because corporations’ shareholders and directors—particularly independent board members—constitute another compliance pressure point. Corporate prosecutions negatively impact the value of the corporation’s stock, thereby adversely affecting shareholders, and expose directors to allegations that they failed to implement adequate compliance measures.

The Department’s focus on the quality of FCPA due diligence in mergers and acquisitions hits yet another pressure point, where companies have both the power to look into an acquisition target and an opportunity to address any FCPA issues they discover.

It remains to be seen whether, or to what extent, those persons or organizations financing foreign acquisitions and other transactions involving companies subject to the FCPA may themselves get scrutiny for their level of FCPA due diligence, especially when such investors take an equity position in a company or joint venture, but do not exercise any operational control.

Finally, Assistant Attorney General Breuer’s emphasis on the benefits of voluntary disclosure is a restatement of existing Department policy, but questions still remain about how to measure and quantify those benefits.  Such quantification is necessary for informed decision-making.