Bank of America is paying $16.65 billion to settle fraud claims by federal and state enforcement agencies and regulators that relate back to the financial crisis of 2008. It's "the largest civil settlement with a single entity in American history," the DOJ said Thursday.
Entries in California (5)
One of California state Sen. Ron Calderon's own aides helped the FBI run the sting that led to the politician's arrest in February.
An American working for Allison Transmission in Shanghai said he was fired after complaining about cash payments, gifts of jewelry, and lavish parties for customers.
Hold on. When did the United States criminalize commercial overseas bribery? We're not talking about bribes to foreign officials under the Foreign Corrupt Practices Act.* But bribes overseas to private parties. When did that become a federal offense? Well, it happened this year when the Justice Department indicted California valve-maker Control Components Inc. (CCI) and six of its former employees. Here's how.
They were all charged under both the FCPA and the Travel Act (18 U.S. C. §1952). The latter prohibits traveling between states or countries or using an interstate facility in aid of any crime, and carries a 5-year jail sentence for most offenses. Here's the thing. The underlying crime doesn't have to be a federal offense. Traveling around or using the mails to violate a state law can also trigger a Travel Act violation.
In the cases of CCI and the six ex-employees, the federal government alleged they violated or conspired to violate California's anti-bribery law (California Penal Code section 641.3). It bans corrupt payments anywhere of more than $1,000 between any two persons, including private commercial parties. In the federal indictments, the Travel Act charges relied on alleged violations of California's anti-corruption law. CCI pleaded guilty to its three-count indictment; the six ex-employees have pleaded not guilty and are presumed innocent unless convicted at trial.
When it announced CCI's guilty plea, the DOJ talked about the company's private overseas bribery. It said:
According to the information and plea agreement, from 1998 through 2007, CCI violated the FCPA and the Travel Act by making corrupt payments to numerous officers and employees of state-owned and privately-owned customers around the world, including in China, Korea, Malaysia and the United Arab Emirates, for the purpose of obtaining or retaining business for CCI. Specifically, from 2003 through 2007, CCI paid approximately $4.9 million in bribes, in violation of the FCPA, to officials of various foreign state-owned companies and approximately $1.95 million in bribes, in violation of the Travel Act, to officers and employees of foreign and domestic privately-owned companies.We've seen references to private bribery in other FCPA enforcement actions. Schnitzer Steel is one example. The DOJ said its employees had bribed people not only at government-owned enterprises but also at private companies abroad. But Schnitzer was charged only under the books and records and internal controls provisions of the FCPA and not the Travel Act, so specific allegations about private bribery weren't part of the actual charges.
In CCI's case, however, its private overseas bribery violated California law. That's what formed the basis of the Travel Act charge in the indictment. And in its plea agreement, one of CCI's undertakings was directed specifically at private bribery that fell outside the scope of the FCPA. The plea agreement said:
CCI shall truthfully disclose . . . all matters relating to corrupt payments to foreign public officials or to employees of private customers . . . about which CCI has any knowledge . . . .What does it all mean? That the DOJ is now prosecuting (and monitoring) not just bribes to foreign officials that violate the Foreign Corrupt Practices Act but also corrupt payments to private overseas parties that violate state law. Is this a massive expansion of the DOJ's battle against foreign corruption by U.S. companies and their employees? Oh yes.
What's next? All of a sudden, it seems like a very good time to re-evaluate compliance programs -- and make sure they cover both public and private overseas bribery.
We're grateful to an extremely astute reader in Asia for helping us understand the importance of the Travel Act charges in the CCI-related indictments.
* Foreign official is defined in the FCPA at 15 U.S.C. §78dd-1(f)(1)(A), §78dd-2(h)(2)(A) and §78dd-3(f)(2)(A). "The term 'foreign official' means any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization."
Download the DOJ's July 31, 2009 release about CCI's guilty plea here.
Download a copy of CCI's July 22, 2009 plea agreement here.
Download the July 22, 2009 criminal information against CCI here.
Download the indictment of the six former executives of CCI here.
We've said before (here and here) that there's no private right of action under the FCPA. Which means offenses can be prosecuted only by the U.S. Department of Justice or the Securities and Exchange Commission. The DOJ's Lay Person's Guide to the FCPA notes, however, that "[c]onduct that violates the antibribery provisions of the FCPA may also give rise to a private cause of action for treble damages under the Racketeer Influenced and Corrupt Organizations Act (RICO), or to actions under other federal or state laws." State laws? Those two words can be easy to miss. But they might be important.
The UCL. California, for example, has an Unfair Competition Law. See Bus. & Prof. Code, § 17200 et seq. It prohibits unfair competition, including unlawful, unfair, and fraudulent business acts, and it protects both consumers and competitors. Relevant to this discussion, the UCL "borrows" violations from other laws by making them independently actionable as unfair competitive practices.
Enter the FCPA. California's UCL was the basis for the suit in Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134. The plaintiff, a Korean company acting as a sales agent of Loral Corporation, alleged that Lockheed Martin submitted competing bids to sell military equipment to the Republic of Korea that were tainted by bribery and sexual favors. So in its complaint, the plaintiff "borrowed" a cause of action from the Foreign Corrupt Practices Act. The FCPA prohibits, among other things, the bribing of a foreign government official for the purpose of influencing any act or decision in his official capacity and in violation of a lawful duty, or for the purpose of inducing him to use his official influence to obtain or retain business. See 15 U.S.C. 78dd-2(a)(1)(A), (B).
Lockheed Martin argued in defense that the FCPA "impliedly bars a private action for unfair competition predicated on its violation, because the federal statute does not expressly provide for private enforcement." But the California court said the "UCL may be predicated on a violation of a statute for which there is no private right of action, unless the predicate statute or the UCL expressly provides otherwise. . . . There is no language in the UCL barring 15 United States Code section 78dd-2 as a predicate for an unfair competition action." Therefore, the court concluded, a suit under the UCL for violations of the FCPA could proceed. If that reasoning works for California, it might work for other states as well.
Limited but useful remedies. California's UCL doesn't get much attention as an FCPA-related cause of action. That's probably because the remedies available under it exclude compensatory damages. As the court explained in Korea Supply Co. v. Lockheed Martin Corp., "Suits asserting statutory UCL claims are equitable actions. . . . For that reason, compensatory damages are not available in such suits. . . . Instead, successful private UCL plaintiffs are generally limited to injunctive relief and restitution." But the UCL can still be a potent weapon. Companies can enjoin competitors that obtain contracts or bid for new work using corrupt means.
More state laws? The DOJ's advice to check state laws for private causes of action for FCPA offenses is prudent after all. But there aren't many reported cases on this point. If our readers have had any relevant experiences under state laws, we'd like to hear your stories. You can leave anonymous comments by clicking here. Or you can email comments to us here.