The “gospel of anti-corruption”
In the last few years the US government has become both more willing to tackle corruption by American companies abroad, and better at it. At least, so it would seem. IBM is still working out a $10 million settlement on charges that it bribed Chinese and South Korean officials. A few weeks ago, the ATM manufacturer Diebold set aside $18 million to put to rest allegations of bribery by a Russian subsidiary. Walmart’s bribery scandal in Mexico, which prompted probes into its activities in various other countries, has been in and out of the headlines.
The law that enables these cases, the Foreign Corrupt Practices Act, was sporadically enforced for its first 25 years of existence, but in recent years it has been laid down with growing fervor (see the graphs below). Lanny Breuer, the outgoing head of the Department of Justice’s criminal division, intoned last fall that “we in the United States are in a unique position to spread the gospel of anti-corruption, because there is no country that enforces its anti-bribery laws more vigorously than we do.”
Richard Cassin, who edits the FCPA blog, told Quartz that the Justice Department stepped up its anti-bribery efforts after global transparency became a new policy priority in the wake of 9/11 and corporate corruption found its way into the pantheon of new security concerns. Policymakers turned their attention to the law in 2004, around the same time they passed Proclamation 7750, which made it easier to seize American assets from foreign kleptocrats. Since investigations typically take 18 to 24 months to yield prosecutions, FCPA enforcements began to increase after 2006. In March 2011, Breuer trumpeted his record: “In 2004, we [the DOJ] charged two individuals under the FCPA and collected around $11 million in criminal fines. In 2005, we charged five individuals and collected around $16.5 million. By contrast, in 2009 and 2010 combined, we charged over 50 individuals and collected nearly $2 billion.”
But though the FCPA has been amended twice since it was passed in 1977, “what’s really changed,” says Mark Mendelsohn (video, 3:43), who oversaw the DOJ’s FCPA investigations between 2005 and 2010, “is not so much the legislation, but the enforcement and approach to enforcement by U.S. authorities.”
Since FCPA prosecutions began to climb in the mid-2000s, a handful of big cases have accounted for the lion’s share of actions and settlements. For example, the Oil-for-Food scandal (in which numerous companies, including the American company Ingersoll-Rand, received oil contracts from Saddam Hussein’s regime in exchange for humanitarian supplies and kickbacks on the sale of those oil contracts) accounted for 6 of the 15 enforcement actions concluded in 2007. The following year, the Siemens case (in which Siemens executives bribed European officials for government business) made up 90% of the settlements doled out to the American government.
Michael Koehler, a law professor who has published and testified extensively about the statute, points out that just three major cases (Oil for Food in 2007; the Bonny Island scandal, in which four companies, including Halliburton, bribed Nigerian officials for contracts to build liquified gas infrastructure, in 2009; and the Panalpina scandal, in which the energy firm Shell and the Swiss freight forwarder Panalpina bribed officials in seven different countries, in 2010) generated 35% of the legal actions and 55% of the settlements paid between 2007 and 2011.
In other words, while it’s true that legal actions have grown in number, many fan out from a core set of corporate misdeeds (prosecuting not only the corporate parent, but also related subsidiaries and a greater number of individuals), rather than being new core prosecutions. Since about 2006, the range has remained within 10 to 15 core cases each year. And one reason the number of enforcements on those core cases has grown is the “contagion effect:” as investigations deepen, companies or people under investigation rat on others, providing fodder for new investigations.
It’s therefore hard to know whether crooked companies that aren’t connected to these big, core cases run a significantly greater risk of falling prey to FCPA enforcement than they did before. What’s clear is that the small number of companies that do get caught end up paying more dearly for it, with more lawsuits and heftier fines.
Lanny Breuer tacitly admitted that bigger bribes—and bigger cases, spawning a bigger number of prosecutions—are those that matter most to the DOJ. He said: “We are focused on bribes of consequence–ones that have a fundamentally corrosive effect on the way companies do business abroad.” Cassin, the editor of the FCPA blog, thinks that this may be perfectly in keeping with the purpose of the law. He said,
“The government’s objective is not throw as many people in jail as possible. It is to deter companies from bribing. Do you do this by bringing a lot of smaller cases against a lot of companies, or huge cases against fewer companies, or by charging a lot of people? If the government brings too many high profile cases, it’s criticized for not chasing other violations sure to be taking place. If it charges too many people, then it’s criticized for going after people at the expense of companies. It’s not ‘either/or,’ black or white. If the DOJ is criticized, well, that just comes with the job.”
Yet Koehler, the law professor who wrote about putting FPCA enforcement statistics in perspective, told Quartz, “Against the universe of potential FCPA enforcement subjects, is 10-15 core actions per year a lot? I answer that in the negative.” Koehler believes that, “for over 90% of multinationals, you have instances within these organizations that the SEC or DOJ would consider a violation of the FCPA.” Is it then possible that some companies are getting away with FCPA violations because the government, focused on only handful of big cases at a time, overlooked them?
The role of deterrence
Jacob Frenkel, a former federal prosecutor who now chairs the white-collar and government investigations practice at Shulman Rogers, a Washington law firm, said he thinks the American government has turned to expansive legal theories to broaden the scope of its jurisdiction and adopted an “increasingly aggressive enforcement posture.”
While it’s virtually impossible to tell whether the FCPA is actually deterring bribery, the law is certainly being used more broadly. Initially meant to prohibit the bribery of foreign government officials, kings, and queens, the FCPA has recently been used to forbid improper payments to employees of state-owned enterprises. Referring to the Pfizer case, in which doctors at foreign, government-run hospitals were paid bribes, Koehler scoffs, “half of the FCPA actions last year were based on paying people like foreign doctors, lab personnel, midwives and nurses.”
The US government now also pushes cases further, using a wide array of statutes–not just anti-bribery laws–to follow up on FCPA violations. For example, after convicting a Los Angeles couple in 2009 of bribing a Thai official for contracts to operate a Bangkok film festival, the DOJ followed the trail of bribes and charged the Thai official herself with money-laundering. This, wrote two lawyers who represent multinational firms in bribery cases, allowed the DOJ to “circumvent the FCPA’s substantive and legislative limitations,” goes against “a long-standing [American] policy of respecting sovereign nations’ right to deal with its [sic] own public officials,” and was “the latest attempt by DOJ to stretch the bounds of its self-anointed global anti-corruption authority.”
All the same, the purpose of any law is simultaneously to prosecute those who get caught and deter others who might not have been. Given its limited resources, focusing on “big, flashy cases,” as Cassin calls them, may be an effective deterrent—even if, as Koehler suggests, the FCPA is actually still under-enforced.