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Foreign bribery probes spread as firms start ratting on each other

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The color of money.
By Steve LeVine
ChinaPublished Last updated This article is more than 2 years old.

This item has been updated.

If you are a technology executive exploring the world’s frontiers, now is not the time to bribe your way into a deal. The same goes for health-care and energy companies. These three industries are currently the prime targets of US foreign bribery investigators, who ensnare one company and then persuade it to inform on rivals or partners.

More than half of the 90 currently known investigations under the US Foreign Corrupt Practices Act (FCPA) are in the technology, health, energy and metals industries, according to a list compiled by the FCPA Blog. The largest group is basic industries—oil, metals and chemicals—in which there are open investigations of 21 companies, including Italy’s Eni, France’s Total, and US-based Marathon Oil. Probes are open against 16 technology companies, including Hewlett-Packard, Oracle, Qualcomm and Sony; and 15 health-care companies, including pharmaceutical giants Bristol-Myers Squibb, GlaxoSmithKline and Merck.

Companies typically will face joint US bribery investigations by both the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC), since usually they are publicly listed. Richard Cassin, a Singapore-based expert on US foreign bribery law who founded the FCPA Blog, told me that the tendency of the investigation of one company to spread through an industry is a new “contagion effect.”

The DOJ and SEC learn about industry-wide practices from one company—either through subpoenas or self disclosure. Some companies talk about their peers to earn cooperation credit with prosecutors. They may even name competitors whose practices may be questionable and provide evidence against them. The federal investigation then spreads and may cover the entire industry. This tactic, first seen with anti-trust enforcement, is the most important new trend in FCPA enforcement.

The most prominent recent example of the contagion involved Panalpina, a Swiss oil and gas logistics firm that admitted paying at least $27 million in bribes to clear customs in Angola, Azerbaijan, Brazil, Kazakhstan, Nigeria, Russia and Turkmenistan. From there, the case ensnares six more companies including Shell and Transocean. In all, the seven companies paid $236.5 million to settle with US officials.

In an email exchange, Cassin said that energy companies dominate FCPA investigations because of the nature of the business. “In nearly everything they do overseas, energy companies are dealing directly or indirectly with governments,” he said. “Some of those regimes are deeply corrupt, with leaders who expect bribes. So the FCPA risks multiply.”

The next most prominent industry on the FCPA list is entertainment—major film studios including DreamWorks Animation, NBCUniversal Media, Viacom and Walt Disney are under investigation. The cases appear to be related to a US investigation of allegedly improper payments in China by film studios.

The FCPA has enormous potential impact even on companies not based in the US because large firms tend to intersect in one way or another with the United States. For example, South Africa-based Net 1 UEPS Technologies, an electronic-payments technology company, is under investigation for payments to win a contract with the South African government, because it trades on the Nasdaq.

Companies known to be under bribery investigation

Source: FCPA Blog

Update (Jan. 4): An earlier version of the above list included Koch Industries. The FCPA Blog informed us that it has since removed Koch Industries from the list after receiving a letter from the company stating that it has no indication from the Department of Justice that it is under investigation. We have therefore done the same.

Update (Jan. 10): An earlier version of this list also included Turkcell Iletisim Hizmetleri. A representative for the company contacted us to say that its inclusion was based on a misunderstanding of a disclosure in company filings (pdf, p. 19), and that while KCell, a Kazakhstan operator in which Turkcell has a minority share, is under investigation, Turkcell itself is not. We have therefore removed it.

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