The FCPA Blog

As reported Friday, one of the 22 shot-show defendants, Daniel Alvirez, is expected to plead guilty soon to charges of conspiracy to violate the Foreign Corrupt Practices Act. The government's two-count superseding information alleged that he plotted to bribe defense officials in Africa and the Republic of Georgia.

What to expect now? We asked someone familiar with the evidence, who requested anonymity. Here's what he or she told us:

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.

BAE Systems plc (BAE or BAES) pleaded guilty today in U.S. federal court in the District of Columbia to one count of conspiracy.

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.

Pride International, Inc. said this week it has set aside $56.2 million for an expected settlement with the Justice Department and the Securities and Exchange Commission of Foreign Corrupt Practices Act offenses. The Houston-based oil-rig operator first disclosed potential FCPA compliance issues in 2006.

In December last year, the SEC accused a former Pride vice president, Bobby Benton, of violating the FCPA. He allegedly bribed Mexican officials in 2004 and altered the company's accounts to hide the payments. The SEC's December 10 civil complaint, filed in federal court in Houston, seeks a civil penalty and disgorgement from Benton, as well as an injunction against future violations.

Pride earlier disclosed that its internal investigation found evidence of illegal payments from 2001 through 2006 directly or indirectly to government officials in Saudi Arabia, Kazakhstan, Brazil, India, Nigeria, Libya, Angola and the Republic of the Congo. The payments related to clearing rigs and equipment through customs, resolving customs disputes, immigration, tax, licensing and merchant marine issues.

Pride's February 16, 2010 release said:

Pride International, Inc. (NYSE: PDE) today announced that it has accrued $56.2 million in the fourth quarter of 2009 in anticipation of a possible resolution with the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) of potential liability under the U.S. Foreign Corrupt Practices Act. As described in Pride's quarterly and annual reports, the company voluntarily disclosed in 2006 to the DOJ and the SEC information relating to initial allegations of potential improper payments to foreign government officials and has continued to cooperate with the agencies' investigations. The accrual in the fourth quarter 2009 represents the company's best estimate of potential fines, penalties and disgorgement related to settlement of the matter with the DOJ and SEC. The monetary sanctions ultimately paid by the company to resolve these issues, whether imposed on the company or agreed to by settlement, may exceed the amount of the accrual.

We talked about Pride's February 2008 disclosure of its internal investigation here.

Photo by Annie MoleIs there a place where anti-corruption policy stops and international politics begins? Andy Spalding -- a lawyer and Fulbright scholar who's a familiar face around here -- thinks so. He sent this dispatch from Mumbai, India:

Dear FCPA Blog,

The BAE matter leaves many of us bewildered, struggling to grasp its greater significance. While several FCPA commentators have deemed 2009 "The Year of the Individual," I wonder if BAE points to another trend that is emerging. . . or rather, re-emerging.  Consider:

1. BAE, Saudi Arabia, and Terrorism. The UK's anti-bribery enforcement was severely obstructed by seemingly unrelated foreign policy objectives.  Since when, we may ask, did foreign policy impact FCPA enforcement? 

2. Iran and Nuclear Proliferation. Mike Jacobson of the Washington Institute recently suggested that the FCPA might be enforced selectively against companies doing business in Iran, as a form of economic sanctions. I understand that at least some FCPA insiders found Mike's core idea -- selective enforcement of the FCPA to advance foreign policy objectives -- not inconceivable.

3. China, Russia, and Political Alliances in the Developing World. Another piece ran earlier this year which demonstrated that as companies subject to the FCPA do less business in heavily bribery-prone countries, the resulting void of foreign capital will be filled by companies from countries that are not enforcing, or have not adopted, anti-bribery laws -- so-called "black knights." Economists predicted that the FCPA specifically would produce this effect, and we are indeed observing it today as China and Russia invest aggressively in Africa, Latin America, Central Asia, and the Middle East without fear of a bribery penalty. This dynamic is likely to significantly alter international politics for many years to come, though the FCPA community seems loathe to admit it.

4. History is Circular: the Forgotten Cold War Origins of the FCPA. Though we generally think of the FCPA as the product of Watergate, legislative history makes all too clear that the FCPA was also conceived, for better or for worse, as a tool of the Cold War -- punishing bribery was deemed essential to maintaining capitalism's credibility and ultimately spreading liberal democracy to politically unstable countries. This was not a partisan idea, advocated by a mere handful of arch-conservatives; to the contrary, both sides of the aisle readily endorsed it, including vociferous, high-profile critics of the Vietnam War such as George Ball. 

With the end of the Cold War, we largely stopped thinking about the FCPA's foreign policy implications, and were probably happy to do so. But alas, realpolitik has reared its ugly head once again, unlikely to return whence it came. So we're right back where we started, wrestling with the awkward convergence of anti-bribery laws and international politics. It may not be pleasant, but we should probably get used to it. 

With thanks,
Andy Spalding

 As always, other views are welcome.

John Weston: BAE's former chief executive lied to the U.S. government about the company's compliance with the FCPA.At the heart of the DOJ's one-count criminal information that BAE pleaded guilty to on Friday is the al-Yamamah contract -- an $80 billion deal signed in the mid-1980s for the sale of jet fighters to Saudi Arabia. BAE won the contract by agreeing to pay bribes and kickbacks.

The DOJ said:

BAE agreed to transfer sums totalling more than £10 million and more than $9 million to a bank account in Switzerland controlled by an intermediary. BAE was aware that there was a high probability that the intermediary would transfer part of these payments to the [Saudi] official.

And this:

BAE took steps to conceal its relationships with . . . advisers and its undisclosed payments to them. For example, BAE contracted with and paid certain of its advisers through various offshore shell entities beneficially owned by BAE. BAE also encouraged certain of its advisers to establish their own offshore shell entities to receive payments while disguising the origins and recipients of such payments.

Despite the bribes and the elaborate money-laundering operation to conceal them, John Weston, BAE's chief executive, wrote a letter on November 16, 2000 to William Cohen, the U.S. Secretary of Defense. Weston promised that BAE was not knowingly violating the  Foreign Corrupt Practices Act and other antibribery laws. The letter is Exhibit A to the DOJ's criminal information.

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If you haven't seen "Black Money," the PBS Frontline show examining al-Yamamah and the wider BAE scandal through the eyes and words of some of those involved, here it is. We think it's the best documentary about international corruption ever produced. There are great appearances by many, including David Leigh of the Guardian, who with colleague Rob Evans first reported the BAE scandal in 2003. Without their dogged work the story of BAE's corrupt practices may never have been told.