FCPA Prosecution: Where Enforcement Borders on Extortion
FCPA Prosecution: Where Enforcement Borders on Extortion
Ross Andersen, J.D. Candidate
On September 15th, Tokyo's Bridgestone Corporation pled guilty to conspiracy to bribe government officials, a violation of the Foreign Corrupt Practices Act (FCPA for short). The Department of Justice had charged Bridgestone with authorizing its local sales agents to bribe employees of state-owned entities in Latin America. As a part of its plea bargain, which also covered an antitrust violation under the Sherman Act, Bridgestone agreed to pay a fine of $28 million, a bargain by FCPA standards. Of course that figure doesn't begin to capture the considerable legal costs that attend FCPA cases. That's because FCPA prosecutions typically require companies to perform an extensive internal investigation in addition to the normal fees associated with a large-scale litigation against the Department of Justice. Bridgestone's case is hardly out of the ordinary. A quick web search will turn up scores of similar settlements, on account of a surge in FCPA prosecutions over the past decade. In fact, prosecutions have become so commonplace that several years ago a major Hollywood film followed the cat and mouse game between the Department of Justice and a law firm defending and investigating an FCPA charge. Needless to say, the Foreign Corrupt Practices Act is not the sort of statute that usually makes it to the silver screen. So why is FCPA prosecution suddenly so fashionable? As any skilled investigator knows, it's wise to follow the money.
The Foreign Corrupt Practices Act was first enacted in 1977 as a response to several high profile bribery scandals that marked the late 60's and early 70's, including those involving blue chip corporations like Lockheed Martin and the United Brands Company. In the case of Lockheed Martin, the company was accused of paying large sums to the governments of foreign countries in order to secure defense contracts. For its part, the United Brand Company had paid over $1 million in annual bribes to the President of Honduras for a reduction in a tax levied on banana imports to that country. The FCPA prohibits the "use of the mails or any means … corruptly in furtherance of an offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to ... any foreign official for purposes of … influencing any act or decision of such foreign official in his official capacity." 15 U.S.C.A. § 78dd-1. While the statute itself may seem to cast a wide net capable of capturing a number of high and low level corporate infractions, rabid enforcement is a relatively new development given that the statute was first enacted in 1977.
While some have argued that FCPA enforcement has only bloomed due to the increasingly global nature of business, that doesn't explain why enforcement was "largely nonexistent for most of [the statute's] history," or why the recent enforcement regime rescued the statute from "near legal extinction." Mike Koehler, The Foreign Corrupt Practices Act in the Ultimate Year of Its Decade of Resurgence, 43 Ind. L. Rev. 389 (2010). Globalization has grown at a linear pace for several decades while FCPA enforcement has spiked only recently. As an illustration, Assistant Attorney General Lanny Bruer recently noted that "in 2004, we [the Department of Justice] 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.” Department of Justice, Assistant Attorney General Lanny A. Breuer of the Criminal Division Speaks at the 3rd Russia and Commonwealth of Independent States Summit on Anti-corruption, The United States Department of Justice (March 16, 2011). Clearly Justice's new FCPA enforcement regime has paid off handsomely for the department, and as a consequence it has been quite popular in both the Obama and Bush administrations. Unfortunately, the law itself has not been refined at the level you might expect after such a flurry of activity. Because these cases are so costly for companies to investigate and then litigate, settlements rather than trials have been the norm. As a result, prosecutorial excesses are less likely to be trimmed back from the bench, and so companies find themselves having to dole out large sums of money to avoid even larger payouts down the line.
Critics of FCPA enforcement point out that these extraordinary costs make it more difficult for U.S. businesses to compete abroad. The potential liabilities that could arise from the misconduct of a single regional sales manager aren't worth the risk, and corporations are starting to vote with their feet. Recently, the Siemens corporation delisted its securities from U.S. markets after it paid a record $1.6 billion in fines arising from an FCPA enforcement, half of which went to the U.S. government. When a single fine can approach a figure that is ten percent of the Department of Justice's annual budget, U.S. corporations are perhaps justified in wondering if the outcome of prosecution for bribery is just another, exponentially larger, bribe. Pro-corporate interest groups in the United States have proposed several amendments to the law, including one that would add a compliance defense, along with another that would limit a parent company's liability for the conduct of a subsidiary. Time will tell whether America's increasingly conservative political climate will yield such a bill. In the meantime, American companies are advised to be careful in their dealings overseas, or if not, to have their protection money stashed somewhere safe at home.