After conducting statistical analysis on Foreign Corrupt Practices Act penalties, it's clear that foreign firms are paying nearly four times higher FCPA penalties as domestic U.S. firms.
Entries in Foreign Companies (34)
Listing shares internationally often carries unwelcome regulatory and compliance risks. This was recently highlighted by the SFO’s corruption probe into the London-listed Kazakh miner ENRC, shortly to be delisted, as well as probes into Indonesia miner and London-listed Bumi plc, and most recently by the SEC’s investigation of South Africa’s Gold Fields, which has a secondary New York listing.
Hobbies are important and we try to make time for ours -- staring at the list of the biggest FCPA cases of all time.
Building services company ABM Industries Incorporated said it has spent '$3.3 million of legal fees and other costs associated with an internal investigation into a foreign entity previously affiliated with a joint venture.'
Thanks to the DOJ's hyper-enforcement since 2007, the FCPA is on its way to becoming one of the most famous laws in the world.
Foreign corporate prosecutions can involve headline-grabbing multimillion dollar fines, international corporate scandals, and even diplomatic intrigue. Over the past two decades, federal prosecutors have focused their attention on international antitrust cartels, bribery of foreign governments, ocean dumping, and other crimes that involve corporate conduct abroad.
Last year, according to the Deal Journal, about 40 Chinese companies listed on U.S. stock exchanges. If recent history is a guide, lots of them will end up in trouble with shareholders and U.S. regulators.
With the DOJ’s brief in the Lindsey Manufacturing case as a guide, defining who is or is not a foreign official in the eyes of the DOJ just became clearer.
The SFO have said unequivocally that they intend to use the long arm jurisdiction under the Bribery Act.
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.
Something big, very big, is happening in FCPA enforcement. The top ten FCPA settlements of all time involve penalties of $2.8 billion. The top six happened in just the past 20 months and account for 95% of that, or $2.67 billion.
So far this summer, Snamprogetti / ENI of Italy and Technip of France each paid more than a third of a billion dollars to resolve FCPA offenses. Just three years ago, the biggest settlement on record was Baker Hughes' $44.1 million payment, and that amount electrified the FCPA world. Who could have guessed that only a few years later, settlements that size would hardly get a glance, and payouts eight times bigger would become the norm.
As we ride this hockey stick toward heaven, we need to ask some questions. Like, are mega-settlements good for compliance or do they simply put a price tag on non-compliance? What about shareholders? They're innocent of the corruption but ultimately pay the tab. Why do five of the top six settlements involve non-U.S. corporations? Do giant penalties punish wrongdoers or shield top executives from criminal prosecution? And do they distort enforcement decisions in ways we don't yet understand?
Those are some of the questions. Ruminations to follow.
There hasn't been a new FCPA enforcement action from the DOJ since Daimler's on April 1 and only Dimon's from the SEC. That's strange. The first three months of this year were the busiest in FCPA history. But since then, hardly a peep.
With around 150 cases pending and pressure building to resolve long-standing actions involving Panalpina, Technip, ENI, ABB, Alcatel-Lucent, Pride International, Inc., Alcoa, the medical device makers, and pharmas, you have to ask: Where are the enforcement actions for April and May?
In a typical year, we'd expect a couple of actions a month; this year, we'd expect more. So what's happening?
Here are a few guesses:
- Changing horses. Mark Mendelsohn, head of the DOJ's FCPA unit, left government service in mid-April. His departure would be a natural time for those still there or newly arrived to take inventory -- to use the white board to plot their present location and itinerary for the coming year.
- Resources are stretched. With all the pending prosecutions, including the 22-defendant shot-show case, the DOJ's FCPA group has to be stretched. Maybe they're taking a couple of months to catch their breath, bring in reinforcements, and lift their eyes above the trenches to make sure they aren't about to make any big mistakes.
- A new strategy. Could the DOJ be assessing its overall enforcement approach? Looking, perhaps, at how decisions are made to prosecute corporations (which are defenseless because of respondeat superior)? Or whether financial penalties that punish innocent stakeholders make sense? Or if enforcement should zero in on individuals, or find new ways to spotlight foreign officials who demand bribes . . . ?
There's precedent for the current FCPA moratorium. In February and March 2008, the DOJ also came to a dead stop. The reason was never announced but it could have been the controversy over the unregulated appointment of compliance monitors. Former Attorney General John Ashcroft's $52 million gig with Zimmer in a domestic kickback case threw Washington into a spin. The storm blew over and the DOJ was back in the FCPA business after about two months.