Last Year’s Highlights
2009 was another record-setting year in the enforcement of the Foreign Corrupt Practices Act (FCPA or the Act). The year began with the announcement of the second-highest sanction levied in the 32-year history of the Act, with KBR, Inc. and Halliburton agreeing to pay $579 million in sanctions to U.S. regulators for various FCPA violations in Nigeria.
Another highlight of 2009 was the Department of Justice’s (“DOJ” or the “Department”) indictment of more individuals than ever before for violations of the FCPA. Part and parcel of the government’s recent focus on individual prosecutions is that FCPA cases, which are generally resolved outside the courtroom, are now going to trial. In 2009, the DOJ tried three cases involving FCPA-related charges and obtained convictions in all three of those cases.
In addition, U.S. government officials have promised—and delivered on—aggressive tactics in combating FCPA violations during the course of last year, such as zeroing in on "high-risk" industries for stepped-up enforcement and pursuing FCPA violations in conjunction with other regulatory deficiencies. In sum, 2009 continued the upward trend of the last few years of aggressive FCPA enforcement and indicates that more of the same will follow.
Landmark Enforcement Actions
KBR / Halliburton
The first reported enforcement action of 2009 was also the year’s largest. On February 11, 2009, KBR, Inc., its subsidiary, and KBR, Inc.’s former parent company, Halliburton Co., together agreed to pay a total of $579 million to settle FCPA charges with the Securities and Exchange Commission (SEC) and the DOJ. The charges centered around KBR’s participation between 1995 and 2004 in a joint venture that funneled $182 million in bribes to Nigerian government officials to obtain lucrative construction contracts worth $6 billion.
In its settlement with the DOJ, the KBR subsidiary pleaded guilty to five FCPA counts. It agreed to pay a $402 million criminal fine and to engage a compliance monitor for a period of three years. The SEC pursued both KBR and Halliburton for violations of the Act’s anti-bribery and books and records provisions, and KBR and Halliburton jointly agreed to disgorge profits of $177 million. The total $579 million in fines and penalties represents the largest settlement against U.S. companies since the inception of the Act. It also is the second-largest total assessment in history in an FCPA case, second only to December 2008’s Siemens case.1
The staggering $579 million settlement in the KBR case represents 90 percent of the government’s total $644 million bounty in 2009 from FCPA cases and makes last year the second-highest yearly total in the history of enforcement of the Act. Of course, KBR skews the average assessment on a case-by-case basis, but excluding it, the average fine in 2009 amounted to just over $7 million, split relatively evenly between the DOJ and the SEC. Control Components Inc.
On July 31, the DOJ announced a settlement with Control Components Inc. (CCI) of FCPA charges that CCI bribed officials and employees of state-owned companies in approximately 36 countries in an effort to secure contracts. According to the Department, CCI admitted to having made approximately 236 corrupt payments and, as a result, profited by approximately $46.5 million.
In the settlement agreement, CCI agreed to pay a criminal fine of $18.2 million. CCI obtained a substantial downward departure from the fine range calculated under the Federal Sentencing Guidelines Manual (the Guidelines), which was between $27.9 million and $55.8 million. CCI obtained full credit under the Guidelines for its self-reporting, cooperation and acceptance of responsibility. In addition, the DOJ agreed that CCI’s recognition and acceptance of responsibility, voluntary disclosure of evidence obtained during CCI’s internal investigation and cooperation in the DOJ’s investigation and prosecution, and substantial compliance and remediation efforts were mitigating circumstances of a degree not adequately taken into account in the Guidelines range.2
The DOJ currently is investigating some of CCI’s former executives for violations of the Act and has charged one CCI former executive in 2008 and an additional seven in 2009, six of whom were charged last April in the biggest multi-party indictment of individuals under the FCPA. To date, two of the former executives have pleaded guilty and are cooperating with authorities. Four are scheduled to go to trial in November 2010.
Last year the government continued its focus on investigating and prosecuting individuals for violations of the FCPA. Indeed, the DOJ indicted more individuals for FCPA violations in 2009 than ever before, with 20 individuals indicted, including, as noted above, seven former CCI executives.
The government’s focus on individual prosecutions has also resulted in more FCPA cases going to trial last year than in any prior year. Before 2009, the last time the DOJ took an FCPA case to trial was in 2004. In stark contrast, in the last 12 months, the Department took three cases to juries, all of which resulted in guilty verdicts.
United States v. Bourke
The first trial of 2009 was the prosecution of Frederic Bourke, an investor in a venture that sought to purchase the government-owned oil company of Azerbaijan in the late 1990s. In the end, the oil company was not privatized. However, the bribes paid to state officials by the venture landed Bourke in a Manhattan courtroom in June, defending himself against charges of, among other things, conspiracy to violate the FCPA and the Travel Act. The DOJ pursued a novel “conscious avoidance of the facts” theory to try to prove knowledge and succeeded in obtaining a jury instruction that “knowledge may be established if a person is aware of a high probability of its existence and consciously and intentionally avoided confirming that fact.” Ultimately, a jury convicted Bourke of both counts. In November, Bourke was sentenced to one year and one day in prison and was ordered to pay a $1 million criminal fine. The judgment has been appealed to the Second Circuit.
United States v. Jefferson
The second trial was the widely-publicized prosecution of former Congressman William Jefferson, who faced, among other things, charges for violating the FCPA and conspiring to violate the FCPA. The jury acquitted Jefferson of the substantive FCPA count, but the verdict form left ambiguity as to whether Jefferson was actually convicted of conspiracy to violate the FCPA. Although Jefferson was charged with a single count of conspiracy, the government alleged three separate conspiracies, which included violating the FCPA. The judge instructed the jury that it should find Jefferson guilty of this count if he conspired to commit any two of the three crimes. Since the guilty verdict did not reveal which of these crimes the jury believed Jefferson to have committed, there is no way to determine whether he was in fact found guilty of conspiracy to violate the FCPA. Ultimately, Jefferson was found guilty of multiple bribery, racketeering, and money laundering charges and sentenced to 13 years in prison. His conviction is currently on appeal to the Fourth Circuit.
United States v. Green
Most recently, in California, federal prosecutors won convictions of Patricia and Gerald Green for their role in bribing Thai officials to win lucrative contracts, including one to manage and operate Thailand’s annual film festival. The jury convicted the Greens for FCPA violations and money laundering.3 The Greens are scheduled to be sentenced on January 21, 2010, and the government is seeking life imprisonment for Gerald Green.
Additional Enforcement Trends
In 2009, U.S. government officials announced a number of new areas of emphasis in their FCPA enforcement efforts. First, Assistant Attorney General Lanny A. Breuer announced that the Department will continue to focus its FCPA enforcement resources “on areas and on industries where we can have the biggest impact in reducing foreign corruption.”4 During the last couple of years, the most demonstrable example of this was the Department’s probe of companies participating in the now-defunct Oil-For-Food Programme, which culminated in 2009 with settlements in the AGCO and Novo Nordisk cases. In addition, Mark Mendelsohn, the Deputy Chief of the Fraud Section of the DOJ’s Criminal Division, in September 2009 at the ABA Criminal Justice Section’s 2nd Annual FCPA Update, cited the freight-forwarding, customs handling, and medical devices industries as current examples of industries receiving close scrutiny for potential FCPA violations.
Going forward, one area the Department unquestionably intends to pursue is the pharmaceutical industry. In particular, in two major speeches in November 2009—one at the 10th Annual Pharmaceutical Regulatory & Compliance Congress5 and the other at the American Conference Institute’s 22nd Annual Conference on the FCPA6 —Breuer noted that the Department’s oversight was focused on the overseas sales of pharmaceuticals. Breuer explained: “The depth of government involvement in foreign health systems, combined with fierce industry competition and the closed nature of many public formularies, creates a significant risk that corrupt payments will infect the process.”7
Another significant trend from last year is increased cross-regulatory enforcement in FCPA cases and, correspondingly, cooperation between various government divisions and agencies. Indeed, Breuer announced that the Department’s probe of the pharmaceutical sector will involve coordination between the FCPA unit and the health care fraud unit within DOJ. Finally, Mendelsohn stated that, in ongoing investigations, there is overlap between FCPA violations and other regulatory abuses. He expressly mentioned economic sanctions violations, commercial bribery, procurement fraud, antitrust violations and accounting fraud as other regulatory areas of interest.
Perhaps the most critical lesson of 2009 is the vital importance of a robust and comprehensive anti-corruption compliance program to prevent violations of the FCPA, particularly given the government’s increased success in obtaining hefty penalties against both corporations and their officers and directors. With the government’s promised focus on “high risk” industries, corporations operating in these industries should be particularly keen to monitor, audit, and self-police their international activities. These cautions, of course, are broadly applicable regardless of industry. Indeed, the last 12 months have shown that prosecutors are prepared to pursue companies in any industry and on any number of fronts. Therefore, all corporations would be well-served by ensuring that their FCPA compliance programs are based on thorough and substantive assessments that identify all FCPA risk areas in their particular industries and operations.
The focus on individual prosecutions further suggests that corporations should ensure that they are demonstrating a top-down commitment to compliance, with zero tolerance for unethical business practices. As the last year aptly demonstrated, the consequences of FCPA missteps can be severe, both to companies and their individual officers and directors. Informed and vigorous FCPA management is critical to reducing these risks and allowing companies to thrive in international markets.