by Michael Connor
Transnational bribery and corruption are intensifying ethics and compliance concerns for companies doing business on a global basis as prosecutors pursue a record number of cases and penalties for offenses escalate dramatically.
Daimler AG, maker of Mercedes cars and trucks, is the latest company dealing with fallout from violations of the U.S. Foreign Corrupt Practices Act (FCPA). According to papers filed in federal court last week, Daimler has agreed to pay a total of $185 million to settle criminal and civil charges that between 1998 and 2008 it made at least $56 million in improper payments to officials in at least 22 countries to obtain government contracts for Daimler vehicles.
Daimler’s Russian and Chinese units will plead guilty to violations of U.S. law, according to published reports, while the parent company will enter into a so-called deferred prosecution agreement under which it would continue to cooperate with regulators, appoint a compliance monitor for a three-year period and maintain other internal controls. Louis Freeh, former head of the Federal Bureau of Investigation and a former federal judge, will serve as Daimler’s independent monitor, according to the court papers. A hearing on the proposed Daimler agreement is scheduled for Thursday, April 1, in a federal court in Washington, D.C. (Update: Department of Justice announcement following April 1 hearing.)
On the very day that Daimler’s agreement was revealed in the U.S., police and investigators from the United Kingdom’s Serious Fraud Office were conducting dawn raids in that country to arrest three directors of the U.K. unit of the French engineering firm Alstom – including the unit’s president, finance director and legal director – on suspicion of bribery, corruption, money laundering and false accounting.
Meanwhile, technology company Alcatel-Lucent last month announced in its consolidated financial statements for 2009 that it had reached agreement with the Department of Justice and the SEC to pay a total of $137 million to settle criminal and civil cases stemming from bribery charges involving business in Costa Rica, Taiwan and Kenya.
And in February, British defense contractor BAE agreed to pay fines totaling almost $450 million to settle charges that it had made illegal payments to officials in various countries to obtain contracts. The record for a bribery and corruption settlement belongs to technology giant Siemens, which in 2008 agreed to pay more than $1.6 billion in fines and penalties in connection with FCPA charges.
Prosecutions of Individuals
The Foreign Corrupt Practices Act was enacted in 1977 but not aggressively enforced for decades. Prosecutors and regulators often relied on companies to self-police and self-report violations. In each of the last several years, however, the number of cases brought has set a record, and lawyers familiar with the Justice Department’s current case load say 2010 is almost certain to be another record year.
More aggressive enforcement techniques and prosecutions of individuals, in addition to companies, are on the upswing. In December 2009, federal prosecutors announced the indictment of 22 individuals as the result of an elaborate two-and-a-half year FBI undercover “sting” operation which had led the defendants to believe they were participating in a bribery scheme to acquire a $15 million contract for law enforcement and defense products from the
Lanny A. Breuer, Assistant Attorney General for the Justice Department’s Criminal Division, told an American Bar Association conference last month: “Put simply, the prospect of significant prison sentences for individuals should make clear to every corporate executive, every board member, and every sales agent that we will seek to hold you personally accountable for FCPA violations. As we focus on the prosecution of individuals, we will not shy away from tough prosecutions, and we will not shy away from trials.”
While the U.S. has been the clear leader in prosecuting transnational bribery cases – often relying on a broad interpretation of statutes to bring cases against non-U.S. companies – there are signs of increasing cooperation among international authorities. Last week’s raids involving the U.K. unit of Alstom were reportedly made at the request of Swiss investigators. Richard Alderman, Director of the U.K.’s Serious Fraud Office, director, told the Guardian: “The SFO is committed to tackling corruption. We are working closely with other criminal justice organisations across the world and are taking steps to encourage companies to report any suspicions of corruption, either within their own business or by other companies or individuals.”
In November 2009, 38 member countries of the Organization for Economic Cooperation and Development (OECD) adopted guidelines to promote voluntary private sector compliance with the OECD Anti-Bribery Convention. The OECD earlier this month released further guidance which called on companies to “adopt a clear and visible anti-bribery policy that is strongly supported by senior management; instill a sense of responsibility for compliance with the policy at all levels of the company, as well as independent compliance structures; keep up regular communication and training on foreign bribery for all employees, as well as with business partners; and encourage observance of anti-bribery compliance measures, and disciplinary procedures to address their violations.”