Overseas Corrupton Still a Big Problem Among Corporations

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Overseas Corrupton Still a Big Problem Among Corporations
By Erik Sherman

A long-running problem in U.S. business — foreign corruption and bribery — remains a target of "vigorous enforcement," even though "anti-corruption enforcement seemed to be crumbling or at least showing cracks" of late, according to a new report by law firm Hughes Hubbard & Reed.

The Foreign Corrupt Practices Act of 1977 made it illegal to pay officials of foreign governments to "assist in obtaining or retaining business." Because of the way the law is written, a company that does business in the U.S., whether based in this country or not, can become liable if even a branch office, employee or third-party agent used by the company makes a forbidden payment.

Although a number of other countries have anti-bribery laws on the books, the U.S. has remained the "global pace-setter" in enforcement, according to Hughes Hubbard. Between January 2012 and October 2013, total penalties — including profit forfeiture, fines and interest — exceeded $740 million. Here are some of the companies that had to deal with either the Department of Justice or the Securities and Exchange Commission just last year:

Ralph Lauren (RL) had to pay the U.S. government more than $1.5 million because of bribery payments by a subsidiary to Argentinian government officials between 2005 and 2009. According to the DOJ, the subsidiary had allegedly bribed customs officials to obtain import clearance for goods. Ralph Lauren detected the problem in an internal review and reported it to the SEC. Because of the "completeness" of the information and "extensive, thorough, and real-time cooperation" with SEC investigators, the agency did not charge the company with a violation of the FCPA.

French oil giant Total SA (TOT) was charged with paying $60 million in bribes to "intermediaries of an Iranian government official" to get contracts to develop oil and gas fields in that country. The company paid $398 million to settle SEC charges and a parallel criminal investigation by the DOJ.

Voting machine and ATM vendor Diebold (DBD) agreed to pay a $25.2 million criminal penalty to "resolve allegations" that it had bribed officials in China and Indonesia and "falsified records" in Russia to gain contracts for supplying ATMs to state-owned and private banks. Diebold was accused by the SEC of "lavishing international leisure trips, entertainment and other improper gifts on foreign officials to obtain and retain lucrative business, as well as paying bribes. The company dished out a total of $3 million in such payments through a subsidiary from 2005 through 2010.

The SEC in October charged medical technology company Stryker (SYK) with using subsidiaries to make $2.2 million in payments to officials in Mexico, Poland, Romania, Argentina and Greece, earning an alleged $7.5 million in illegal profits. The SEC said the company wrongly booked the payments as "legitimate consulting and service contracts, travel expenses, charitable donations, or commissions."

Anti-bribery statutes also have become a focus of the Organization for Economic Cooperation and Development. That has helped to "harmonize anti-corruption laws and their enforcement on a U.S.-based enforcement model," according to Hughes Hubbard.

Coordination among global regulators makes it harder for companies to grease palms, while the fines can be expected to continue. And since such corruption cases can carry stiff prison sentences, it increases the odds of more executive perp-walks.

Overseas Corrupton Still a Big Problem Among Corporations
By Erik Sherman

A long-running problem in U.S. business — foreign corruption and bribery — remains a target of "vigorous enforcement," even though "anti-corruption enforcement seemed to be crumbling or at least showing cracks" of late, according to a new report by law firm Hughes Hubbard & Reed.

The Foreign Corrupt Practices Act of 1977 made it illegal to pay officials of foreign governments to "assist in obtaining or retaining business." Because of the way the law is written, a company that does business in the U.S., whether based in this country or not, can become liable if even a branch office, employee or third-party agent used by the company makes a forbidden payment.

Although a number of other countries have anti-bribery laws on the books, the U.S. has remained the "global pace-setter" in enforcement, according to Hughes Hubbard. Between January 2012 and October 2013, total penalties — including profit forfeiture, fines and interest — exceeded $740 million. Here are some of the companies that had to deal with either the Department of Justice or the Securities and Exchange Commission just last year:

Ralph Lauren (RL) had to pay the U.S. government more than $1.5 million because of bribery payments by a subsidiary to Argentinian government officials between 2005 and 2009. According to the DOJ, the subsidiary had allegedly bribed customs officials to obtain import clearance for goods. Ralph Lauren detected the problem in an internal review and reported it to the SEC. Because of the "completeness" of the information and "extensive, thorough, and real-time cooperation" with SEC investigators, the agency did not charge the company with a violation of the FCPA.

French oil giant Total SA (TOT) was charged with paying $60 million in bribes to "intermediaries of an Iranian government official" to get contracts to develop oil and gas fields in that country. The company paid $398 million to settle SEC charges and a parallel criminal investigation by the DOJ.

Voting machine and ATM vendor Diebold (DBD) agreed to pay a $25.2 million criminal penalty to "resolve allegations" that it had bribed officials in China and Indonesia and "falsified records" in Russia to gain contracts for supplying ATMs to state-owned and private banks. Diebold was accused by the SEC of "lavishing international leisure trips, entertainment and other improper gifts on foreign officials to obtain and retain lucrative business, as well as paying bribes. The company dished out a total of $3 million in such payments through a subsidiary from 2005 through 2010.

The SEC in October charged medical technology company Stryker (SYK) with using subsidiaries to make $2.2 million in payments to officials in Mexico, Poland, Romania, Argentina and Greece, earning an alleged $7.5 million in illegal profits. The SEC said the company wrongly booked the payments as "legitimate consulting and service contracts, travel expenses, charitable donations, or commissions."

Anti-bribery statutes also have become a focus of the Organization for Economic Cooperation and Development. That has helped to "harmonize anti-corruption laws and their enforcement on a U.S.-based enforcement model," according to Hughes Hubbard.

Coordination among global regulators makes it harder for companies to grease palms, while the fines can be expected to continue. And since such corruption cases can carry stiff prison sentences, it increases the odds of more executive perp-walks.

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January 21, 2014 at 11:32 AM