The number of Foreign Corrupt Practices Act (“FCPA”) enforcement actions has exploded in the past several years—with the new “record” penalty of $44 million assessed against Baker Hughes this past spring. More and more, however, fallout from FCPA fines has funneled down or percolated up to individual employees and corporate leaders. As noted by example below, the risk of criminal and/or civil liability for violations of the FCPA is not faced by companies alone. Individuals are increasingly being held accountable for their roles in bribing foreign public officials and falsifying company financial records. While in some cases individual enforcement follows a corporate fine, individual enforcement may foretell future corporate liability, or may arise from exigent circumstances. In any event, the agencies responsible for FCPA enforcement have, to some extent, increased their scrutiny of individuals.
Individual Enforcement Following Corporate Liability
In the wake of the January 2005 $500,000 civil penalty assessed against Monsanto by the U.S. Securities and Exchange Commission (“SEC”), Charles Martin, a former government affairs director for Monsanto’s Asian operations, settled FCPA charges with the SEC March 6, 2007. Through the settlement, Martin agreed to pay a $30,000 civil penalty for his role in directing an Indonesian consulting firm to bribe a senior Indonesian Ministry of Environment official in 2002.
Likewise, on June 29, 2007, Si Chan Wooh, a former executive with a subsidiary of Schnitzer Steel Industries, Inc., pleaded guilty to conspiracy charges for his decade-long role in the bribery of managers of government- owned steel mills in China that resulted in more than $15 million in fines being assessed against Schnitzer Steel and its subsidiaries. He separately agreed to a $41,000 settlement with the SEC June 29, 2007. Wooh currently awaits sentencing,
Along the same lines, on Sept. 27, 2007, the founder and former CEO and chairman of Syncor International, Monty Fu, settled with the SEC over his alleged role in payments made by Syncor’s subsidiary, Syncor Taiwan, Inc., to doctors employed by public hospitals in Taiwan over a 17-year period ending in 2002. Fu agreed to pay a $75,000 civil fine to settle charges that he violated, and aided and abetted Syncor’s violations of, the FCPA’s books-and-records and internal controls provisions. Syncor and its Taiwanese subsidiary settled with the SEC and the U.S. Department of Justice (“DOJ”) in December 2002 for $2.5 million.
Individual Enforcement Foreshadowing Possible Corporate Liability
On June 7, 2007, a former Alcatel CIT executive, Christian Sapsizian, pleaded guilty to two counts of conspiracy and violating the FCPA for his involvement in the payment of $2.5 million in bribes to Costa Rican telecommunication officials in order to secure a mobile telephone concession from El Instituto Constarricense de Electricidad (“ICE”), the state-owned telecommunications authority. Sapsizian pleaded guilty to offering a senior ICE official 1.5 to 2 percent of the value of a mobile telephone contract if the official assisted Alcatel in winning the contract. Alcatel was awarded the mobile telephone contract in August 2001 and the payments to the ICE official were funneled through the consulting firm Alcatel in Costa Rica. Sapsizian, a French citizen, was the deputy vice president of Alcatel and responsible for the company’s Costa Rican operations. Until November 2006, Alcatel was a French company, but was an “issuer” subject to the FCPA because it had American Depository Receipts (“ADRs”) traded on the New York Stock Exchange. The only connection Sapsizian had to the United States was through these ADRs. As part of his plea agreement, Sapsizian agreed to cooperate with DOJ and law enforcement officials in their ongoing investigation of the case. Sapsizian reportedly faces a maximum sentence of 10 years in prison, a $250,000 fine, and $330,000 in disgorgement penalties.
On July 23, 2007, a federal grand jury in Houston indicted a former senior executive of Willbros Group, Inc., Jason Edward Steph, on charges of making $6 million in bribe payments to Nigerian officials. The indictment alleges that Steph was involved in a conspiracy to make millions of dollars in corrupt payments to assist in obtaining a major gas pipeline engineering, procurement, and construction project known as the Eastern Gas Gathering System, which Willbros and its German consortium partner bid to perform for approximately $387 million. The payments were allegedly laundered through consultants who typically received 3 percent of Willbros’ contract revenue by wire transfer from Houston to a foreign bank and transferred some or all of the funds to Nigerian officials. Steph faces up to five years in prison and $250,000 in fines for the FCPA conspiracy charges, and up to 20 years in prison and $500,000 in fines (or twice the value of the funds involved in the transfer, whichever is greater) for the money laundering charges.
On July 27, 2007, two former executives of IXTC Corporation, Steven J. Ott and Roger M. Young, pleaded guilty to FCPA conspiracy charges for their role in paying bribes amounting to $266,000 on behalf of the company to public officials at wholly or partially state-owned telecommunications carriers in Nigeria, Rwanda, and Senegal, in exchange for telecommunications contracts. Ott was IXTC’s Executive Vice President of Global Services and Young was the company’s Managing Director for Africa and the Middle East. Sentencing for these pleas is scheduled for Oct. 29, 2007, with the defendants each facing up to five years in prison and $250,000 in fines.
On Feb. 5, 2007, Faheem Mousa Salam of Livonia, Michigan, a U.S. citizen, pleaded guilty and was sentenced to three years in prison for violating the FCPA by attempting to bribe a senior Iraqi police official while working in Baghdad as a civilian translator for a U.S. Army subcontractor. He admitted to offering $60,000 to a senior Iraqi police official to facilitate the sale of 1,000 armored vests and a sophisticated map printer to the International Civilian Police Assistance Training Team (“CPATT”), which trains the Iraqi police and border guard, for approximately $1 million. In his plea agreement, Salam also admitted to later making final arrangements with the Iraqi official and offering an additional $28,000–$35,000 as a “gift” to a CPATT procurement officer. The CPATT procurement officer turned out to be an undercover agent of the Special Inspector General for Iraq Reconstruction.
On June 18, 2007, Leo Winston Smith, a former executive of Pacific Consolidated Industries, LP (“PCI”), a Santa Ana, Calif.-based manufacturer of air separation units (“ASUs”) and nitrogen concentration trolleys (“NCTs”) for defense departments around the world, was arrested for allegedly violating the FCPA. The indictment alleges that Smith took part in a conspiracy between 1993 and 2003 to bribe a UK Ministry of Defense official—a “project manager”— with more than $300,000 to secure equipment contracts with the UK Royal Air Force. PCI was ultimately awarded the ASU and NCT contracts, valued at more than $11 million, and Smith received more than $500,000 in commissions from PCI related to this and other contracts. In late 2003, PCI was acquired by a group of investors and the new entity referred the matter to the DOJ and fully cooperated in the investigation. In addition to the FCPA violations, Smith is charged with money laundering and tax offenses. The conspiracy and FCPA charges each carry a maximum five-year prison sentence; the money laundering charges each carry a maximum 20-year prison sentence; and the tax charge caries a maximum three-year prison sentence.
Incentive for Individual Initiative
While companies have always had an incentive to implement robust FCPA compliance programs, these recent enforcement actions against individuals provide heightened incentives in the form of personal criminal and civil liability. The DOJ and SEC are vigorously pursuing FCPA actions against individuals, particularly employees of companies that are under investigation by, or recently settled with, the U.S. Government. Enforcement risk looms, regardless of whether the individuals and entities are foreignbased with only fleeting contacts with the United States, or the individual and entity are U.S.-based and the acts occur outside the United States. Recent enforcement trends demonstrate that the DOJ and SEC are prosecuting FCPA violations with increasing frequency. Compliance programs should be designed not only with the company’s exposure in mind, but also to highlight the possible personal liability and criminal exposure that employees themselves face.