Top Stories Of 2011

Some picks for the year's hottest FCPA headlines are these:

#1: Drop in corporate enforcement actions. In 2010, 23 companies settled FCPA cases for $1.8 billion; in 2011, just 15 companies settled for $508.6 million. Reason? The DOJ was distracted by an unprecedented number of FCPA-related trials. But there's no shortage of corporate investigations in the pipeline so look for enforcement to pick up next year. (We'll post our 2011 enforcement index right after the New Year holiday.)

#2: Mistrial in the first Africa sting case. A hung jury in July showed that the DOJ's FCPA unit isn't invincible after all. And in December, the judge dismissed the conspiracy counts against six other defendants in the case, resulting in one defendant's outright acquittal.

#3: Lindsey and Lee dismissals. Why would the government cheat in an FCPA prosecution when it usually wins without breaking a sweat? The judge found the DOJ's tactics so outrageous he dismissed the indictments after the jury heard the case and decided to convict the defendants on all counts. The DOJ is appealing the dismissals. If it loses, will it clean its own house?

#4: Putting the 'foreign' in Foreign Corrupt Practices Act. With the Magyar / Duetsche Telekom settlement this week, nine of the top ten FCPA cases involve non-U.S. companies. We think there's a message there from Washington to the rest of the world.

 #5: The DOJ - SFO partnership is in full bloom. The U.K.'s Serious Fraud Office is prosecuting three former Innospec execs. It charged Alcoa's super agent, Victor Dahdaleh, with corruption and proceeds-of-crimes offenses. And the SFO is leading the global investigation into Paris-based Alstom, a Siemens-sized scandal in the making.

#6: Enforcement actions are getting bigger. The top ten cases now account for criminal and civil penalties and disgorgement of $3.28 billion. Eight were settled in the past two years.

#7: An attitude adjustment at the DOJ? Associate AG Lanny Breuer promised to release detailed FCPA guidance next year, after a thirty-year wait. This month, the DOJ indicted eight former Siemens execs and agents, answering criticism that big companies plead and pay while their people walk.

#8: Fifteen-year prison term. Joel Esquenazi, one of the Haiti telco defendants, took his chances at trial and lost big. His sentence is the longest in FCPA history. Despite the DOJ's missteps in the Africa sting and Lindsey trials, Esquenazi's sentence shows how dangerous and devastating FCPA prosecutions can be.

#9: 'Foreign officials' galore. Motions by FCPA defendants to dismiss based on who's a foreign official failed in the Carson, Lindsey, and Esquenazi cases. The DOJ's view that foreign state-owned enterprises are 'instrumentalities' under the FCPA and their people are therefore 'foreign officials' is the law. Really.

#10: TSKJ keeps on giving. With a mega-settlement this year by JGC and a humongous forfeiture by Jeffrey Tesler, the feds' take on the case climbed to $1.65 billion. No wonder a dozen or so other countries want their own version of the FCPA. There's a fortune to be made in anti-corruption enforcement.

Breaking: Alstom, SFO In Talks

Alex Spence of The Times of London reported today that 'a senior figure' from Alstom met with Richard Alderman, director of the U.K.'s Serious Fraud Office.

Alstom initiated the contact, Spence's story said.

"The SFO is investigating allegations that Alstom's British arm was part of a 'widescale' international plot to bribe officials to win contracts in overseas markets. Alstom denies paying bribes," according to the story.

Sources told The Times settlement wasn't discussed but "that the meeting could ease the way to the two sides eventually reaching an agreement that would end the investigation."

Paris-based Alstom provides equipment and services for power generation and high-speed rail transport. It operates in more than 70 countries with 93,000 employees. Revenue last year was about €23 billion. Its ADRs trade in the pink sheets under the symbol ALSMY.PK.

The story said the SFO thinks Alstom may have used a U.K.-based shell company to pay 'at least £81 million in corrupt payments to foreign officials between 2004 and 2010' in Africa and the Middle East, among other places.

Spence covers litigation and financial crime for The Times. He can be contacted here.

The story is here (subscription required).

Who'll Make The Next Top Ten?

Our list of the ten biggest corporate FCPA cases of all time hasn't changed since April, when Johnson & Johnson's $70 million settlement came on as number 10.

Since then we've been considering the seventy or so ongoing investigations, wondering which names from that list might appear among the top ten FCPA settlements a year from now.

Could they include Alcoa, Avon, Hewlett Packard, and Weatherford? All have disclosed investigations that potentially involve multiple countries and practices over several years.

Or maybe Aon? It's U.K. subsidiary was already fined £5.25 million by the SFO in 2009 for failing to recognize and control the risks of overseas payments being used as bribes.

CB Richard Ellis self-disclosed to the DOJ and SEC potentially improper payments by employees for entertainment and gifts to Chinese government officials. And China Northeast Petroleum Corporation's American director who chaired the board's audit committee made a loud exit after the board refused to investigate alleged improper practices in China.

The drug companies are under scrutiny, as are medical device makers Biomet Inc., Stryker Corp., Zimmer Holdings Inc., Smith & Nephew plc, Medtronic Inc., and Wright Medical.

Then there's Paris-based Alstom. It hasn't disclosed a DOJ or SEC investigation but may be the best candidate for a top-ten spot.

Two years ago, Swiss police arrested an Alstom executive as part of a corruption and money-laundering investigation. Offices near Zurich and in Baden were raided, as were homes in several cantons.

Last year, the U.K.'s Serious Fraud Office staged the dramatic arrests of three directors of Alstom's British unit. They were suspected of paying bribes overseas to win contracts.

The SFO last week beat back a challenge against the U.K. arrests. An Administrative Court at the Queen's Bench Division ruled against Robert Purcell and Stephen Burgin, who argued that the search warrants for their homes weren't legal. They claimed a lack of reasonable grounds for the searches, "omission of relevant information, inclusion of irrelevant information, [and] overbroad and non-specific warrant." 

The investigations of Alstom may involve suspected corrupt payments in Asia and South America between 1995 and 2003. Reports in May 2008 said Swiss authorities found evidence Alstom paid around €20 million via shell companies to agents and others in Singapore, Indonesia, Venezuela and Brazil. Also mentioned were payments of $6.8 million in connection with a $45 million contract for the Sao Paolo subway and a Brazilian energy plant.

Alstom develops transport infrastructure and power plants and lines. It operates in about 100 countries with 93,500 employees. Last year it had sales of €20.9 billion.

In the United States, Alstom SA trades over the counter in the pink sheets under the symbol ALSMY.PK.

The company has been working on compliance (often a sign of a coming settlement). It's new-look code of ethics page is here.

Alstom's Swiss Banker Acquitted

A Swiss federal criminal court last week acquitted a private banker in Zurich of bribery and money laundering charges growing out of his relationship with French firm Alstom SA.

According to a report Thursday by Gabriella Broggi in BusinessWeek, Oskar Holenweger was charged with taking bribes of CHF1 million ($1.1 million) to open 163 anonymous bank accounts that Alstom used to bribe foreign officials.

After acquitting Holenweger, the Swiss court awarded him damages of more than CHF400,000 Swiss francs ($451,000).

The president of the Swiss court, Peter Popp, said none of the charges in the seven-year prosecution were supported by adequate evidence. "The question whether he knew that the money would be used for bribery remains unanswered," Popp told BusinessWeek.

Prosecutors said Alstom used the Swiss accounts to pay CFH80 million ($90 million) in bribes to officials in South America and Asia to win work.

Paris-based Alstom provides equipment and services for power generation and high-speed rail transport. It operates in more than 70 countries with 93,000 employees. Revenue last year was about €23 billion. Its ADRs trade in the pink sheets under the symbol ALSMY.PK.

In March last year, the U.K.'s Serious Fraud Office reported the dramatic arrest of three top Alstom executives from its British unit. They were suspected of paying bribes overseas to win contracts.

After those arrests, the company said:

Several Alstom offices in the United Kingdom have been raided on Wednesday 24 March [2010] by police officers and some of its local managers are being questioned. The police apparently executed search warrants upon the request of the Swiss Federal justice. Alstom has been investigated by the Swiss justice for more than 3 years on the motive of alleged bribery issues. Within this frame, Alstom’s offices in Switzerland and France have already been searched in the past years. Alstom is cooperating with the British authorities.

In August 2008, we reported that Swiss police had arrested a former Alstom manager and searched for evidence as part of a corruption and money-laundering investigation. Offices near Zurich and in Baden were raided, as were homes in several cantons.

Reports in May 2008 said Swiss authorities found evidence Alstom paid around €20 million via shell companies to agents and others in Singapore, Indonesia, Venezuela and Brazil. Reports also mentioned payments of $6.8 million in connection with a $45 million contract for the Sao Paolo subway and a Brazilian energy plant.

The DOJ and SEC haven't commented on the Alstom case.

Fox's Favorite Investigations

By Thomas Fox

Last week I picked my favorite FCPA enforcement actions for 2010. Here are my choices for the top ten investigations disclosed or making news this year:

1. Avon-What's the cost of non-compliance?

Investigative Cost, Revenue or Earnings Loss in 2009/2010
Investigative Cost (2009)	$35 Million
Investigative Cost (anticipated-2010)	$95 Million
Drop in Q1 Earnings	$74.8 Million
Loss in Revenue from China Operations	$10 Million
Total	$214.8 Million

2. Gun Sting Case-Organized Crime Fighting Techniques Come to FCPA Enforcement-Undercover criminal enforcement techniques such as wire taps, video tapes of the defendants and a cooperating defendant were used in a sting operation resulting in the arrest of 22 persons. An undercover FBI Agent posed as a corrupt official from a country later identified as Gabon seeking to purchase a wide array of arms.

3. HP-To Report or Not to Report-allegations of a payment of an approximately $10.9 million bribe to obtain a $47.3 million computer hardware contract in Russia. HP did not self-report and the DOJ/SEC announced investigations after the WSJ reported German authorities were investigating the transaction.

4. Team Inc.-No de minimis exception in the FCPA-Team disclosed that an internal investigation that it made improper payments over the past five years that did not exceed $50,000. Its 2009 and 2010 investigation costs-reportedly at $6.2 million.

5. ALSTOM-Arrests in the Board Room-Three members of the Board of ALSTOM in the UK were arrested on suspicion of bribery and corruption, conspiracy to pay bribes, money laundering and false accounting.

6. PBSJ- The Effect of an Ongoing FCPA Investigation in a Merger and Acquisition-PBSJ was required to accept a takeover offer of lease money rather than allow the purchaser to back out of the deal if the FCPA investigation goes south.

7. Schlumberger-Red Flags, Red Flags and More Red Flags-Investigation of allegations of possible bribery in Yemen by Schlumberger Ltd. regarding a contract with the government. The reported allegations stand out as classic Red Flags. (1) Agent proposed by customer at or near the time the contractual negotiations were nearing conclusion. (2) Agreed to pay the agent before contract was signed. (3) No written contract was executed for these services.

8. CB Richard Ellis-No business or industry is immune from the FCPA-CB Richard Ellis, global real estate firm, disclosed possible FCPA violations in China. Any company which does business overseas needs to have a full FCPA compliance program in place. 

9. Rino-Welcome to the (FCPA) Club. The first FCPA inquiry on a China-based issuer. 

10. SciClone-Hell hath no fury like an SEC Notice-SciClone received notice of a SEC investigation. Within one week, its stock dropped over 31% and five law firms announced that they were investigating the company for potential securities laws investigation. Within two weeks, seven different law firms had filed class actions suits against the company for securities violations.

Thomas Fox is an attorney in Houston, Texas, specializing in FCPA compliance, risk management and international transactions. His blog can be found here and he can be reached at tfox@tfoxlaw.com.