The FCPA Blog

BAE's Compliance Monitor: David GoldAs of yesterday, BAE has a compliance monitor. He's David Gold, a former senior partner of Herbert Smith.

His term is three years, but BAE wants it cut short by 90 days.

A monitor was supposed to be in place by the end of June. That didn't happen. The company blamed the DOJ for rejecting qualified candidates. The DOJ said BAE proposed the wrong people.

Judge John Bates granted BAE a 90-day extension for appointing the monitor. He also changed the description of the monitor's term to make sure he or she would serve a full three years, as called for in the plea agreement, and not three years minus 90-days. But BAE objected. It said the judge could extend the appointment deadline but lacked authority to change the way the monitor's term is described. The judge called BAE's position "odd."

In March, BAE paid a $400 million fine after pleading guilty to conspiracy, including lying to the U.S. government about its FCPA compliance program. Under federal sentencing guidelines, it could have been fined $720 million.

With Gold's appointment, is BAE any happier? It doesn't look like it. As far as we can tell, it's still appealing the part of Judge Bates' order that made sure the monitor would serve three full years.

We thought the U.S. government was generous with BAE. It let the company plead guilty to a single conspiracy count instead of a substantive FCPA charge. It reduced the criminal fine by $320 million, and allowed BAE to appoint a non-U.S. compliance monitor. But as Judge Bates might say, BAE's way of showing gratitude is odd.

Dowload a copy of the judge's June 4, 2010 order in US v. BAE Systems plc here.

Download a copy of BAE's June 16, 2010 notice of appeal here.

Corporations can't be jailed for violating the FCPA. Their main punishment is financial -- criminal fines and, for issuers, civil penalties and disgorgement of profits.

Under the federal sentencing guidelines, corporate punishment depends in part on how much money was involved in the crime. For the FCPA, that means how much was paid in bribes and how much revenue and profit were generated by the bribes.

For example, the DOJ's Lanny Breuer has said Siemens got off cheap. Its $450 million criminal fine was "a far cry from the advisory range of $1.35 billion to $2.7 billion called for in the Sentencing Guidelines." Siemens, he said, received a penalty that was 67 to 84 percent less than what it otherwise could have faced had it not cooperated and taken dramatic corrective action.

Siemens also agreed to pay $350 million to the SEC in disgorgement. So the U.S. portion of its financial penalty was $800 million, still the largest FCPA settlement on record.

With so much money at stake, you'd expect FCPA units at the DOJ and SEC to be growing, and they are. Our question, though, is whether those agencies still want to prosecute individuals who violate the FCPA when they can instead deal with cooperating companies?

The DOJ says individuals are still a target. It cites the shot-show prosecutions -- 22 individuals indicted for FCPA violations -- and last year's mass FCPA indictment of eight CCI executives, six at one time.

But no one from Siemens, which Mr. Breuer himself called "arguably the most egregious example of systemic foreign corruption ever prosecuted" by the DOJ, has been indicted in the U.S. Even if that's because of jurisdictional problems, the Siemens executives walked on the FCPA violations. It's the same with the brass from U.K.-based BAE. The company paid $400 million to settle an FCPA case last year. But no one from BAE has faced U.S. charges. Again, Daimler AG paid $185 million in penalties this year, and so far no one from that company has been charged here.

The pattern is broken, but only slightly, by the biggest enforcement action of them all. From the four companies that made up the TSKJ consortium -- Technip, Saipem, KBR, and JGC -- just one U.S. executive and two Britons have been charged. Meanwhile, three of the four TSKJ companies have paid $1.28 billon to settle with the DOJ and SEC.

None of this proves that FCPA-related mega settlements are replacing individual prosecutions. But the pattern that's emerging suggests it.

Coming up: A look at individual and corporate enforcement numbers and the story they tell.

Eva Joly, a Norwegian-born former French magistrate, is running for the French presidency under the Green Party banner.

She became famous across Europe for being a fearless anti-corruption campaigner, even taking on former minister Bernard Tapie and Crédit Lyonnais bank.

Her best-known case involved French oil giant Elf Aquitaine. She uncovered fraud leading to criminal convictions of Elf’s top two executives and to the resignation of Roland Dumas, president of France’s Constitutional Court. She received death threats during the eight-year investigation.

She moved from Norway to France at 18. After working her way through night law school and then practicing law, in 1990 she became an investigating magistrate in Paris.

She's also worked for the Icelandic government, helping it uncover white collar crime that contributed to the country's financial collapse.

Last year, Joly, 66, was elected as a French member of the European Parliament. Now she wants to run for president of France in the 2012 elections.

She told the France24 news site: “I am going into politics because I recognise the limitations of voluntary action … I have a strong desire to improve relations between the developed and developing world. I want to change power structures within society. I am desperate to see a more just and more united society.

*     *     *

Why say it? It's fashionable these days for critics -- we won't name them -- to say there's no evidence the FCPA has reduced bribery. But saying there's no evidence of crimes not committed isn't exactly, you know, conclusive of anything.

Then again, there's plenty of evidence of less bribery because of the FCPA at companies like Siemens, BAE, Daimler, KBR, ABB, Baker Hughes, Willbros, Chevron, and so on. For us, that's the evidence that counts.

*    *   *

In whose interests? Great post today from Kevin LaCroix at the D&O Diary -- Do Defendant Companies Financially Underperform Following Securities Lawsuit Settlements? 

We're always happy to hear from lawyer Andy Spalding, left. He recently returned from a year-long Fulbright Research Grant in Mumbai, India, and is now on the faculty at the Chicago-Kent College of Law.

He's been thinking about the extraordinary case of James Giffen, the former middleman to U.S. oil companies doing business in Kazakhstan. He writes:

Dear FCPA Blog,

With James Giffen's plea on Friday to a mere misdemeanor, the case is drawing to an anti-climatic and curious close. In an era of ever-increasing fines and penalties for FCPA violations, Giffen's modest settlement seems an aberration; even more peculiar, some have commented on how the otherwise highly-capable Southern District prosecutors fumbled through this case with atypical awkwardness.  

All of this gives rise to speculation that the case was subject to political pressures -- namely, that either the agencies that were asked to produce documents and stonewalled, or outside agencies that may have bore down on the Southern District, determined that the foreign policy implications of this case, involving delicate relations with resource-rich Kazakhstan, were so sensitive as to outweigh any public interest in Giffen's fulsome prosecution.

If political forces did indeed compromise the prosecution (and few of us can know for sure), does this scenario seem familiar to anyone?

Let's recall the similarly strange prosecution of BAE, the British defense contractor who allegedly paid more than $2 billion in bribes and kickbacks to a Saudi Arabian prince. The U.K.'s Serious Fraud Office opened an investigation, which it suddenly closed.  We would learn that pressure to terminate the investigation came from outside (or perhaps, above) the SFO: the Blair government apparently insisted on the file's closure in response to Saudi threats to cease cooperation with the UK's anti-terrorism efforts.  

The High Court in London berated the SFO for capitulating, and on appeal the House of Lords declared SFO's handling of the matter "extremely distasteful"; the SFO director resigned shortly thereafter. In apparent protest of the the SFO's decision, our DOJ opened its own investigation, and the SFO eventually reopened its file. The result? BAE settled with the DOJ for $400 million, the third-highest amount in FCPA history. But the SFO fined BAE a relative pittance -- £30 million. The parallel is unmistakable, and striking: in a case with heightened foreign policy sensitivities, allegations that seem to otherwise warrant a substantial settlement resulted in something far less.

In fairness to the DOJ, this may not be their fault: whether due to an uncooperative client, or irresistible political pressure, they may have wanted to push further but were hamstrung. Still, it raises a compelling question: Is the Giffen case America's BAE?

Thanks,
Andy Spalding

It's not hard to find reasons why the DOJ and SEC would rather prosecute corporations instead of individuals.

Here are a few:

Corporations can't defend themselves. They're strictly liable under respondeat superior for crimes committed by employees in the scope of their jobs. That's why no company has fought against FCPA charges in court for more than two decades. Individuals, on the hand, can and do fight in court and sometimes win. Recent examples of tough trials with mixed results include Frederick Bourke and William Jefferson. 

Corporations cooperate. No all companies self-disclose their FCPA offenses, but most do. They hire outsiders to conduct in-depth internal investigations and hand the results over to the government. That makes life easier for prosecutors and in theory benefits the company. Individuals can also plead guilty, of course, and many do. But they usually first try to defend themselves, which increases the government's burden.

Corporations can't run or hide. Domestic companies are all registered in their home states and can be brought to court there. Foreign corporations that are issuers under the FCPA have also submitted to the jurisdiction of U.S. courts. But individuals of any nationality can run. If they make it to another country, they have to be extradited back to the U.S. to face trial, a complicated process that can take years and may not be successful. Some examples include Viktor Kozeny and Jeffrey Tesler.

Corporate cases make headlines. For years, journalists have known that FCPA cases don't generate much buzz with the general public, and cases involving individuals hardly make a ripple (the Bourke and Jefferson cases were exceptions because of the defendants' fame). But giant penalties assessed against well-known global corporations are widely reported. Recent examples are Siemens, KBR, Daimler, and BAE. If the DOJ and SEC want to spread the word about the FCPA, chasing big companies is a good way to do it.

Corporate prosecutions are cost effective. They don't require long and expensive trials, so there's less drain on agency resources. And the payday for the U.S. government can be a quarter or even a half billion dollars per case, swamping the top fines for individuals.

How do any of the above influence prosecutorial decisions, if at all? The DOJ and SEC would say they don't. In other posts, we'll look at the recent enforcement track record, and we'll try to see things from the perspective of the prosecutors.