United States law enforcement has focused considerable attention on international business corruption in recent years. Since 2005, American officials have brought more cases under the Foreign Corrupt Practices Act (FCPA) than in the entire prior history of the statute. The pace of this enforcement appears to be quickening, as five of the ten largest settlements have come in 2010. The enforcement focus increasingly is upon foreign companies, as eight of the top ten record settlements were with foreign-based companies, and on transactions with evermore tenuous connections to U.S. jurisdiction.
At the same time, however, domestic corruption cases in the United States continue to gain significant attention. Whether it be charges against the former governor of Illinois, the arrests of a strange combination of local politicians and religious leaders in New Jersey, or prosecutions of persons who improperly profited from the war efforts in Iraq and Afghanistan, the daily papers in America are chock-full of bribery scandals.
Indeed, the United States recently fell from the “top 20” ranking by Transparency International on the perception of corruption in world markets. As reported by Reuters, a Transparency International spokesperson said the ranking indicated an “integrity deficit” for the United States, arising from a number of recent events including the subprime crisis, the disclosure of Bernard Madoff’s Ponzi scheme and fights over political funding that all rattled public faith about prevailing ethics in America.
Given this setting, do American officials have the authority to continue to lead the global anti-corruption battle? From the blogosphere and from whispers of indignation overheard in European corridors of power come questions about whether the United States’ commitment to enforcement of anti-bribery laws abroad is, more than anything else, just about imposing revenue-raising fines on foreign firms and making sure that U.S. businesses are not the only ones being prosecuted for bribery.
Just last month, the Organisation for Economic Co-operation and Development (OECD)’s Working Group on Bribery in International Business Transactions issued its report on the United States’ strong commitment to enforcement of its anti-bribery laws. The Working Group noted that “[t]he United States has investigated and prosecuted the most foreign bribery cases among the parties to the [OECD] Anti-Bribery Convention” and that the United States currently has more than 150 criminal and 80 civil investigations underway. The Working Group also noted the sharp increase in enforcement actions in recent years, growing from 4.6 per year during 2001-2005 to almost 19 per year during 2006-2009. Finally, the report noted the extraordinary financial penalties faced by violators of the FCPA: since 1998, the United States has imposed more than $2 billion in criminal fines, more than $63 million in civil penalties, and obtained disgorgement of more than $1 billion in ill-gotten corporate gains.
While lauding the United States for its rigorous enforcement efforts, the report implicitly urged the other 37 signatories to the OECD’s Anti-Bribery Convention to pick up the pace of their own enforcement efforts. Pointedly reflecting concern about the United States’ allocation of its enforcement efforts, the report noted that “the evaluators welcome confirmation from the United States that the [U.S.] national economic interest is not a factor to be considered in [U.S.] investigative and prosecutorial decision-making under the FCPA.”
Some recent cases demonstrate grounds for the OECD’s concern. It may be that one of the reasons the United States leads in pursuing international bribery is that a significant number of U.S. cases have only tenuous connections to the United States.
For example, in August 2010, the Securities and Exchange Commission (SEC) brought an enforcement action against ENI, S.p.A. and Snamprogetti Netherlands B.V. The complaint alleged that Snamprogetti, a Netherlands company, bribed Nigerian officials to obtain contracts to build liquefied natural gas facilities in Nigeria. Snamprogetti was alleged to have used a Gibraltar shell corporation and a Japanese trading company as conduits for the bribes. Snamprogetti was a subsidiary of ENI, S.p.A, an Italian company. U.S. jurisdiction over the matter arose because ENI had a registered class of securities with the SEC.
In another case just reported, Netherlands-based Sensata Technologies Holding NV has admitted that one of its subsidiaries may have violated the FCPA in connection with an unspecified business relationship in China. Though there is jurisdiction for these cases in the United States, the extra-territorial nature of the conduct at issue and of the defendants is evident.
As if to prove the point, the U.S. Chamber of Commerce just issued its highly critical and well-founded position paper on needed FCPA improvements: The Chamber’s report called for, among other things, the establishment of an FCPA corporate compliance defense, limitations on corporate criminal liability without proof of willfulness, limitations on corporate successor FCPA liability, and the need to clarify the FCPA’s definition of “foreign official.”
Nowhere, of course, did the Chamber report either mention or address any concern about directing U.S. enforcement efforts at foreign multinational corporations in light of the United States’ own domestic “integrity deficit.” That’s understandable, since any retreat by U.S. prosecutors from aggressive application of the FCPA to foreign issuers of securities in the United States might further impair American business’ pursuit of the level playing field abroad needed for U.S. goods and services to compete in world markets.
Though U.S. prosecutors’ efforts to export and apply the FCPA overseas might be viewed abroad as hypocritical, particularly in light of Transparency International’s indexing of the United States, the OECD’s recent report correctly identifies the solution: more rigorous enforcement by all the other signatories to the OECD Anti-Bribery Convention is needed, which might render overseas FCPA adventuring unnecessary.
In the meantime, while court challenges to U.S. jurisdictional claims continue and multiply, there can be no dispute that the international business community has now had its attention focused squarely on anti-corruption efforts.
Proactively addressing the risk of FCPA non-compliance remains the best defense. For today’s international business, elaborated and implemented anti-bribery compliance polices and procedures, employee training, rigorous auditing, and focused internal investigations are not merely optional, but required. With efforts to establish an FCPA compliance defense now underway, the time has arrived for companies to assess and enhance their existing FCPA compliance efforts. Pepper Hamilton’s White Collar and Corporate Investigations Practice Group attorneys have the skills and on-the-ground experience needed to address FCPA compliance risks.